AUTOLIV INC (Form: 10-K, Received: 02/22/2013 12:00:00)

Large accelerated filer:

Accelerated filer:

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

Commission file Number: 001-12933

AUTOLIV, INC.

(Exact name of registrant as specified in its charter)

Delaware

51-0378542

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Vasagatan 11, 7th Floor, SE-111 20

Box 70381, SE-107 24

Stockholm, Sweden

(Address of principal executive offices)

+46 8 587 20 600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:		Name of each exchange on which registered:
Common Stock, par value $1.00 per share		New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes: x No: ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: x No: ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes: ¨ No: x

The aggregate market value of the voting and non-voting common equity of Autoliv, Inc. as of the last business day of the second fiscal quarter of 2012 amounted to $5,215 million.

Number of shares of Common Stock outstanding as of February 15, 2013: 95,514,620

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 2012 (the “Annual Report”) are incorporated by reference into Parts I and II.

2. Portions of the definitive Proxy Statement for the annual stockholders’ meeting to be held May 7, 2013, to be dated on or around March 25, 2013 (the “2013 Proxy Statement”), are incorporated by reference into Part III.

3. Certificate of Incorporation filed as Exhibit 3.2 to Autoliv, Inc.’s Quarterly Report on Form 10-Q, filed on May 14, 1997 is incorporated by reference into Part IV.

AUTOLIV, INC.

Index


PART I
Item 1.	Business	2
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	23
Item 2.	Properties	23
Item 3.	Legal Proceedings	28
Item 4.	Mine Safety Disclosures	30

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6.	Selected Financial Data	32
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 8.	Financial Statements and Supplementary Data	32
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	32
Item 9A.	Controls and Procedures	32
Item 9B.	Other Information	33

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	33
Item 11.	Executive Compensation	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	34
Item 13.	Certain Relationships and Related Transactions, and Director Independence	34
Item 14.	Principal Accounting Fees and Services	35

PART IV
Item 15.	Exhibits and Financial Statement Schedules	35

PART I

Item 1. Business*

General

Autoliv, Inc. (“Autoliv”, the “Company” or “we”) is a Delaware corporation with its principal executive offices in Stockholm, Sweden. It was created from the merger of Autoliv AB (“AAB”) and the automotive safety products business of Morton International, Inc., in 1997. The Company functions as a holding corporation and owns two principal subsidiaries, AAB and Autoliv ASP, Inc. (“ASP”).

AAB and ASP are leading developers, manufacturers and suppliers to the automotive industry of automotive safety systems with a broad range of product offerings, including modules and components for passenger and driver-side airbags, side-impact airbag protection systems, seatbelts, steering wheels, safety electronics, whiplash protection systems and child seats, including components for such systems, as well as vision and night vision systems, radar and other active safety systems.

Autoliv’s filings with the United States Securities and Exchange Commission (the “SEC”), which include this Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, insider transaction reports on Forms 3 and 4 and all related amendments, are made available free of charge on our corporate website at www.autoliv.com and are available as soon as reasonably practicable after they are electronically filed with the SEC.

Shares of Autoliv common stock are traded on the New York Stock Exchange under the symbol “ALV”. Swedish Depository Receipts representing shares of Autoliv common stock (“SDRs”) trade on NASDAQ OMX Stockholm under the symbol “ALIV SDB”, and options in SDRs trade on the same exchange under the name “Autoliv SDB”. Options in Autoliv shares are traded on NASDAQ OMX Philadelphia and NYSE Amex Options under the symbol “ALV”. Our fiscal year ends on December 31.

*	*Safe Harbor Statement*

This Form 10-K contains statements that are not historical facts but rather forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those that address activities, events or developments that Autoliv, Inc. or its management believes or anticipates may occur in the future. For example, forward-looking statements include, without limitation, statements relating to industry trends, business opportunities, sales contracts, sales backlog, and on-going commercial arrangements and discussions, as well as any statements about future operating performance or financial results.

In some cases, you can identify these statements by forward-looking words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “may,” “might,” “will,” “should,” or the negative of these terms and other comparable terminology, although not all forward-looking statements contain such words.

to be correct as forward-looking statements are inherently subject to known and unknown risks, uncertainties and other factors which may cause actual future results, performance or achievements to differ materially from the future results, performance or achievements expressed in or implied by such forward-looking statements.

Because these forward-looking statements involve risks and uncertainties, the outcome could differ materially from those set out in the forward-looking statements for a variety of reasons, including without limitation, changes in and the successful execution of our capacity alignment, restructuring and cost reduction initiatives discussed herein and the market reaction thereto; changes in general industry market conditions or regional growth or declines; loss of business from increased competition; higher raw material, fuel and energy costs; changes in consumer and customer preferences for end products; customer losses; changes in regulatory conditions; customer bankruptcies; consolidations or restructuring; divestiture of customer brands; unfavorable fluctuations in currencies or interest rates among the various jurisdictions in which we operate; fluctuation in vehicle production schedules for which the Company is a supplier; component shortages; market acceptance of our new products; costs or difficulties related to the integration of any new or acquired businesses and technologies; continued uncertainty in program awards and performance; the financial results of companies in which Autoliv has made technology investments or joint-venture arrangements; pricing negotiations with customers; our ability to be awarded new business; product liability, warranty and recall claims and other litigation and customer reactions thereto; higher expenses for our pension and other postretirement benefits including higher funding requirements of our pension plans; work stoppages or other labor issues at our facilities or at the facilities of our customers or suppliers; possible adverse results of pending or future litigation or infringement claims; negative impacts of antitrust investigations or other governmental investigations and associated litigation relating to the conduct of our business; tax assessments by governmental authorities dependence on key personnel; legislative or regulatory changes limiting our business; political conditions; dependence on customers and suppliers; and other risks and uncertainties identified in Item 1A “Risk Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K for the year ended December 31, 2012. The Company undertakes no obligation to update publicly or revise any forward-looking statements in light of new information or future events.

For any forward-looking statements contained in this or any other document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we assume no obligation to update any such statement.

Business

Autoliv is the world’s leading supplier of automotive safety systems, with a broad range of product offerings, including modules and components for passenger and driver-side airbags, side-impact airbag protection systems, seatbelts, steering wheels, safety electronics, whiplash protection systems and child seats, as well as vision and night vision systems, radar and other active safety systems. Autoliv has approximately 80 production facilities in 27 countries and our customers include the world’s largest car manufacturers. Autoliv’s sales in 2012 were $8.3 billion, approximately 65% of which consisted of airbags and associated products, and approximately 32% of which consisted of seatbelts and associated products, and approximately 3% of which consisted of active safety and associated products. Our geographical regions are Europe, the Americas, China, Japan and the Rest of Asia (ROA).

Autoliv’s head office is located in Stockholm, Sweden, where we currently employ 51 people. Autoliv had approximately 41,700 employees worldwide at December 31, 2012, and a total headcount, including temporary personnel, of approximately 51,000.

The information required by Item 1 regarding developments in the Company’s business during 2012 is contained in the Annual Report on pages 26-29 and 39-42 and is incorporated herein by reference. The Annual Report is available on Autoliv’s website, www.autoliv.com and is filed as Exhibit 13 to this Form 10-K.

Financial Information on Segments

Autoliv considers its products to be components of integrated automotive safety systems, which fall within a single industry segment. Autoliv has two main operating segments; Passive safety products (airbags, seatbelts, steering wheels, restraint electronics), and Active safety products (vision, night vision, radar). For financial reporting purposes these two operating segments have been combined into a single reportable segment in accordance with the provisions of Accounting Standards Codification (ASC) 280 Segment Reporting. The financial data relating to Autoliv’s business in this segment over the last three fiscal years is contained in the Consolidated Financial Statements on pages 56 through 59 of the Annual Report and is incorporated herein by reference. A statement of net sales by product group for the last three years is contained in Note 19 of the Notes to the Consolidated Financial Statements on page 80 of the Annual Report and is incorporated herein by reference.

Products, Market and Competition

Information concerning products, markets and competition is included in the sections headed “Active Safety Systems”, “Passive Safety Systems” and “Innovations for the Future” on pages 10-17, “Our Market and Competitors” on pages 26 and 27, and in the Management discussion and analysis sections “Dependence on Customers”, “New Competition” and “Patents and Proprietary Technology” on pages 52 and 53 of the Annual Report and is incorporated herein by reference.

Manufacturing and Production

Including joint venture operations, Autoliv has approximately 80 wholly or partially owned or leased production facilities located in 27 countries, consisting of both component factories and assembly factories. See “Item 2. Properties” for a description of Autoliv’s principal properties. The component factories manufacture inflators, initiators, gas generants, textile cushions, webbing materials, electronics, pressed steel parts, springs and overmoulded steel parts used in seatbelt and airbag assembly, steering wheels and our active safety, vision and night vision systems and our other safety electronic systems. The assembly factories source components from a number of parties, including Autoliv’s own component factories, and assemble complete restraint systems for “Just-in-time” delivery to customers. These factories also assemble our active safety, vision and night vision systems. The products manufactured by Autoliv’s consolidated subsidiaries in 2012 consisted of approximately 139 million complete seatbelt systems (of which approximately 56 million were fitted with pretensioners), approximately 72 million side-impact airbags (including curtain airbags), approximately 35 million frontal airbag modules, approximately 13 million steering wheels, approximately 14 million electronic units (airbag control), approximately 1.6 million active safety systems.

Autoliv’s “Just-in-time” delivery systems have been designed to accommodate the specific requirements of each customer for low levels of inventory and rapid stock delivery service. “Just-in-time” deliveries require final assembly, or at least, distribution centers in geographic areas close to customers to facilitate rapid delivery. The fact that the major automobile manufacturers are continually expanding production activities into more countries and require the same or similar safety systems as those produced in Europe, Japan or the United States increases the importance to suppliers of having assembly capacity in several countries. Consolidation among our customers also supports this trend.

If the supply of raw materials and components is not disrupted, Autoliv’s assembly operations generally are not constrained by capacity considerations. When dramatic shifts in light vehicle production occurs, Autoliv can generally adjust capacity in response to changes in demand within a few weeks by adding or removing work shifts and within a few months by adding or removing standardized production and assembly lines. Most of Autoliv’s assembly factories can make sufficient space available to accommodate additional production lines to satisfy foreseeable increases in capacity. As a result, Autoliv can usually adjust its manufacturing capacity faster than its customers can adjust their capacity to fluctuations in the general demand for vehicles or in the demand for a specific vehicle model, provided that customers notify Autoliv when they become aware of such changes in demand. When dramatic shifts in light vehicle production occur, the adjustments can take more time and be more costly.

See also Risk Factors – We could experience disruption in our supply or delivery chain, which could cause one or more of our customers to halt or delay production.

Quality Management

Autoliv believes that superior quality is a prerequisite for it to be considered a leading global supplier of automotive safety systems and is key to our financial performance, since quality excellence is critical for winning new orders, preventing recalls and maintaining low scrap rates. Autoliv has for many years emphasized a “zero-defect” proactive quality policy and continues to strive to improve its working methods. This means both that Autoliv’s products must always meet performance expectations, and that Autoliv’s products must be delivered to its customers at the right times and in the right amounts. Furthermore, our continued quality improvements further enhance our image among customers, employees and authorities.

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 any deviations. This intensified quality focus is partially due to an increase in the number of vehicle recalls due to a variety of reasons (not just safety) coupled with a few vehicle recalls. This trend is likely to continue as vehicle manufacturers introduce even stricter quality requirements. We have not been immune to the recalls that have been impacting the entire automobile industry.

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, and for all our employees, thereby leading to the best value for our customers. In 2011 and 2012, we expanded this quality initiative with additional training to more employees.

In our pursuit of excellence we have developed a chain of four “defense lines” against quality issues. These defense lines consist of 1) robust product designs, 2) flawless components from suppliers and our own in-house component companies, 3) manufacturing of flawless products and 4) implementing systems for verifying that our products conform with specifications and an advanced traceability system in the event of a recall.

Our pursuit of excellence extends from the earliest phases of product development to the proper disposal of a product following many years of use in a vehicle. Autoliv’s comprehensive Autoliv Product Development System (“APDS”) process includes several key check points during the development of new products that are designed to ensure that new products are well-built and have no hidden defects. In this way, we proactively prevent problems and ensure we deliver only the best designs to the market.

The Autoliv Production System (“APS”) is at the core of Autoliv’s manufacturing philosophy. APS integrates essential quality elements, such as mistake proofing, statistical process control and operator involvement, into the manufacturing processes so all Autoliv associates are aware of and understand the critical connection between themselves and our lifesaving products. This “zero-defect” principle extends beyond Autoliv to the entire supplier base. The global Autoliv Supplier Manual, which is based on strict automotive standards, defines our quality requirements and focuses on preventing bad parts from being produced by our suppliers and helps eliminate bad intermediate products in our assembly lines as early as possible.

Autoliv continues to execute its plan to have all subsidiaries certified to ISO/TS 16949, a global automotive quality management standard.

Additional information on quality management is included in the section “Quality Excellence” on pages 32 and 33 of the Annual Report and is incorporated herein by reference.

Environmental and Safety Regulations

For information on how environmental and safety regulations impact our business, see “Risk Factors – Our business may be adversely affected by environmental and safety regulations or concerns” in Item 1A and “Environmental” and “Regulations” under section “Risks and Risk Management” on page 52 of the Annual Report which is incorporated herein by reference.

Raw materials

For information on the sources and availability of raw materials, see “Risk Factors – Changes in the source, cost, availability of and regulations pertaining to raw materials and components may adversely affect our profit margins” in Item 1A.

Intellectual Property

For information on our use of intellectual property and its importance to us, see “Risk Factors – If our patents are declared invalid or our technology infringes on the proprietary rights of others, our ability to compete may be impaired” in Item 1A.

Seasonality and Backlog

Autoliv’s business is not subject to significant seasonal fluctuations. Autoliv has frame contracts with car manufacturers and such contracts are typically entered into up to three years before the start of production of the relevant car model or platform and provide for a term covering the life of said car model or platform. However, typically these contracts do not provide minimum quantities, firm prices or exclusivity but instead permit the manufacturer to resource the relevant products at given intervals (or at any time) from other suppliers.

Dependence on Customers

For information on our dependence on customers, see “Risk Factors – Our business could be materially and adversely affected if we lost any of our largest customers” in Item 1A and “Dependence on Customers” under section “Risks and Risk Management” on page 52 of the Annual Report which is incorporated herein by reference.

Research, Development and Engineering

Expenses incurred for research, development and engineering activities, net were $455 million, $441 million and $361 million for the years ended December 31, 2012, 2011 and 2010, respectively. Additional information on research, development and engineering is included in the section titled “Innovations for the Future” on page 16, and “Patents and Proprietary Technology” on page 53 of the Annual Report and is incorporated herein by reference.

Regulatory Costs

The fitting of seatbelts in most types of motor vehicles is mandatory in almost all countries and many countries have strict laws regarding the use of seatbelts while in vehicles. In addition, most developed countries also require that seats in intercity buses and commercial vehicles be fitted with seatbelts. In the United States, federal legislation requires frontal airbags, both on driver-side and passenger-side, in all new passenger cars and in all new light vehicles, which are defined as unloaded vehicle weight of 5,500 pounds or less.

For information concerning the material effects on our business relating to our compliance with government safety regulations, see “Risk Factors – Our business may be adversely affected by environmental, occupational health and safety or other governmental regulations” in Item 1A and “Regulations” under section “Risks and Risk Management” on page 52 of the Annual Report which is incorporated herein by reference.

Autoliv Personnel

At December 31, 2012, Autoliv and its subsidiaries had approximately 41,700 employees and approximately 9,200 temporary personnel. Autoliv considers its relationship with its personnel to be good and has not experienced any major strike or other significant labor dispute in recent years.

Important unions to which some of Autoliv’s employees belong in Europe include: IG Metall in Germany, Amicus in the United Kingdom, Confédération Generale des Travaileurs and Confédération Française Démocratique du Travail in France, Federacion Minerometalurgica, Union General de Trabajadores, Union Sindical Obrera and Comisiones Obereras in Spain and Swedish Metal Workers Union and the Swedish Association of Graduated Engineers in Sweden.

In addition, Autoliv’s employees in other regions are represented by the following unions: the National Automotive, Aerospace and General Workers Union of Canada (CAW), and the International Association of Machinists and Aerospace Workers (IAM) in Canada, Sindicato Nacional de Trabajadores de la Industria Metalurgica y Similares, Sindicato de Trabajadores de la Pequena y Mediana Industria and Sindicato de Jornaleros y Obreros Industiales de la Industria Maquiladora in Mexico, and Sindicato dos Trabalhadores nas industrias Metalurgicas, Mecanicas e de Material eletrico e Eletronico, Siderurgicas, Automobilsticas e de Autopecas de Taubate in Brazil, and the Korean Metal Workers Union.

In many European countries in which we operate, wages, salaries and general working conditions are negotiated with local unions and/or are subject to centrally negotiated collective bargaining agreements. The terms of our various agreements with unions typically range between 1-3 years. Most of our subsidiaries in Europe must negotiate with the applicable local unions important changes in operations, working and employment conditions. In the United Kingdom and the United States there is far less union involvement in establishing wages, salaries and working conditions. Twice a year, the Company’s management conducts a meeting with the European Work Council (EWC) to provide employee representatives with important information and a forum for the exchange of ideas and opinions.

Many Asia Pacific countries regulate salary adjustments on an individual basis each year. In South Korea and Thailand, employee organizations are involved in various processes.

For information concerning Autoliv’s personnel and restructuring initiatives, see “Price Erosion Trends”, “Capacity Alignments” and “Personnel” in the Management Discussion and Analysis on pages 40, 40 and 47, respectively of the Annual Report, which is incorporated herein by reference.

Financial Information on Geographic Areas

Financial information concerning Autoliv’s geographic areas is included in the section titled “Superior Global Presence”, “Our Market and Competitors” on pages 24-27, “Focus on Cost Control” on page 30 and in Note 19 of the Notes to Consolidated Financial Statements on page 80 of the Annual Report, which is incorporated herein by reference. See also Item 1A “Risk Factors – Our business is exposed to risks inherent in global operations”.

Joint Ventures

An important element of Autoliv’s strategy has been to establish joint ventures to promote its geographical expansion and technological development and to gain assistance in marketing Autoliv’s full product line to local automobile manufacturers. Autoliv is not currently involved in any joint ventures that have been formed for the purpose of developing technology, but it is possible that strategic alliances combining Autoliv’s technologies and expertise with that of others may expand business opportunities in the future. Autoliv’s current joint ventures are focused on establishing a presence in growth markets.

Autoliv typically contributes design and production knowledge to joint ventures, with the local partner providing sales support and manufacturing facilities. Some of these local partners manufacture and sell standardized seatbelt systems, and will, through the joint venture with Autoliv, be able to upgrade their technology to meet specific customer demands and/or expand their product offerings.

For information on how these joint ventures are accounted for, including name and Autoliv’s percentage of ownership, see Note 7 of the Notes to Consolidated Financial Statements on page 68 of the Annual Report, which is incorporated herein by reference.

Available information

The public may read and copy any materials Autoliv files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. Further information regarding filings with the SEC is included in the sections titled “Readers Guide” and “Financial Information” on page 2 of the Annual Report and is incorporated herein by reference.

Item 1A Risk Factors

Our business, financial condition, operating results and cash flows may be impacted by a number of factors. A discussion of the risks associated with these factors is included below.

RISKS RELATED TO OUR INDUSTRY

The cyclical nature of automotive sales and production can adversely affect our business

Our business is directly related to automotive vehicle production by our customers. Automotive production is highly cyclical and depends on general economic conditions as well as other factors, including consumer spending and preferences and changes in interest

rate levels and credit availability, consumer confidence, fuel costs, fuel availability, environmental impact, governmental incentives, and political volatility, especially in energy producing countries and growth markets. In addition, automotive sales and production can be affected by our customers’ ability to continue operating in response to challenging economic conditions and in response to changing labor relations issues, regulatory requirements, trade agreements and other factors. Any significant (adverse) change in any of these factors, including, but not limited to, general economic conditions and the resulting bankruptcy of a customer or the closure of a customer manufacturing facility, may result in a reduction in automotive sales and production by our customers, and thus have a material adverse effect on our business, results of operations and financial condition.

Our sales are also affected by inventory levels of our customers. We cannot predict when our customers will decide to either increase or reduce inventory levels or whether new inventory levels will approximate historical inventory levels. This may exacerbate variability in our sales and financial condition. Uncertainty regarding inventory levels may be exacerbated by consumer financing programs initiated or terminated by our customers or governments as such changes may affect the timing of their sales.

Again, any significant reduction in automotive sales and/or production by our customers, whether due to general economic conditions or any other fact(s) relevant to automotive production, will likely have a material adverse effect on our business, results of operations and financial condition.

Change in consumer trends and political decisions affecting vehicle sales could adversely affect our results in the future

During 2007-2009, global production of large-sized cars dropped by 43% from the 2007 level compared to an overall decrease of global LVP of 16%. In 2012, global production of large-sized cars was 8% less than in 2007 despite the fact the overall global LVP increased by 16%. This drop was particularly pronounced in Western Europe and North America where many of the cars in the large-size segment have safety content values of more than $500 per vehicle. This “mix shift” had a negative impact on Autoliv’s market as the value of safety systems in large-sized cars is often more than twice as high as in a low-end vehicle for the markets in North America and Western Europe. In vehicles for the growth markets, the difference is even more significant. For example, the strong LVP growth in China and India has currently created a dilutive effect, since the average safety value per vehicle in these markets of approximately $200 and $60, respectively, are below the global average of around $300. Car consumer trends such as this could accelerate in the future, especially as a result of political initiatives aimed at (or having the effect of) directing demand more towards smaller cars. As safety content per vehicle is also an indicator of our sales development, should the current trends continue, the average value of safety systems per vehicle could decline and negatively affect our sales and margins.

We operate in highly competitive markets

The markets in which we operate are highly competitive. The market for occupant restraint systems has undergone a significant consolidation during the past fifteen years. We compete with a number of other manufacturers that produce and sell similar products. Among other factors, our products compete on the basis of price, product quality, manufacturing and distribution capability, product design, product delivery and product service. Some of our competitors are subsidiaries (or divisions, units or similar) of companies that are larger and have greater financial and other resources than us. Some of our competitors may also have a “preferred status” as a result of special relationships with certain customers. Our products may not be able to compete successfully with the products of our competitors. In addition, our competitors may foresee the course of market development more accurately than we do, develop products that are superior to our products, have the ability to produce similar products at a lower cost than we can, or adapt

more quickly than we do to new technologies or evolving regulatory, industry or customer requirements. We may also encounter increased competition in the future from existing or new competitors. As a result, our products may not be able to compete successfully with their products. Should this happen, we will suffer material adverse effects on our business, results of operations and financial condition.

The discontinuation or loss of business with respect to or a lack of commercial success of a particular vehicle model for which we are a significant supplier could reduce our sales and harm our profitability

Although we have frame contracts with many of our customers, these frame contracts generally provide for the supply of a customer’s annual requirements for a particular model and assembly plant, rather than for the purchase of a specific quantity of products. Furthermore, these frame contracts are often subject to renewal/re-quotation at the customer’s option at periodic intervals, sometimes as frequent as on a year-to-year basis. Therefore, the discontinuation of, the loss of business with respect to, or a lack of commercial success of a particular vehicle model or a particular vehicle brand for which we are a significant supplier could reduce our sales and harm our profitability. While we believe this risk is mitigated by the fact that our sales are split over several hundred contracts covering approximately 1,300 vehicle platforms or vehicle models, a significant disruption in the industry, a significant decline in overall demand or a dramatic change in vehicle preferences could have a material adverse effect on our sales, as it did in 2009.

RISKS RELATED TO OUR BUSINESS

Escalating pricing pressures from our customers may adversely affect our business

The automotive industry has been characterized by increasingly aggressive pricing pressure from customers for many years. This trend is partly attributable to the major automobile manufacturers’ strong purchasing power. As with other automotive component manufacturers, we are often expected to quote fixed prices or are forced to accept prices with annual price reduction commitments for long-term sales arrangements or discounted reimbursements for engineering work. Our future profitability will depend upon, among other things, our ability to continuously reduce our cost per unit and maintain our cost structure, enabling us to remain cost-competitive.

Our profitability is also influenced by our success in designing and marketing technological improvements in automotive safety systems which help us offset price reductions by the Original Equipment Manufacturers (OEMs). If we are unable to offset continued price reductions through improved operating efficiencies and reduced expenditures, these price reductions may have a material adverse effect on our business, results of operations and financial condition.

We could experience disruption in our supply or delivery chain, which could cause one or more of our customers to halt or delay production

We, as with other component manufactures in the automotive industry, ship products to the vehicle assembly plants throughout the world so they are delivered on a “Just-in-time” basis in order to maintain low inventory levels. Our suppliers (external suppliers as well as our own production sites) also use a similar method. However, this “Just-in-time” method makes the logistics supply chain in our industry very complex and very vulnerable to disruptions.

The potential loss of one of our suppliers or our own production sites could be caused by a myriad of potential problems, such as closures of one of our own or one of our suppliers’ plants or critical manufacturing lines due to strikes, mechanical breakdowns, electrical outages, fires, explosions, political upheaval, as well as logistical complications due to

weather, volcanic eruptions, earthquakes, flooding or other natural disasters, mechanical failures, delayed customs processing and more. Additionally, as we expand in growth markets, the risk for such disruptions is heightened. The lack of even a small single subcomponent necessary to manufacture one of our products, for whatever reason, could force us to cease production, even for a prolonged period. Similarly, a potential quality issue could force us to halt deliveries while we validate the products. Even where products are ready to be shipped or have been shipped, delays may arise before they reach our customer. Our customers may halt or delay their production for the same reason if one of their other suppliers fails to deliver necessary components. This may cause our customers to suspend their orders or instruct us to suspend delivery of our products, which may adversely affect our financial performance.

When we cease timely deliveries, we have to absorb our own costs for identifying and solving the “root cause” problem as well as expeditiously producing replacement components or products. Generally, we must also carry the costs associated with “catching up,” such as overtime and premium freight.

Additionally, if we are the cause for a customer being forced to halt production the customer may seek to recoup all of its losses and expenses from us. These losses and expenses could be very significant and may include consequential losses such as lost profits. Thus, any supply-chain disruption, however small, could potentially cause the complete shutdown of an assembly line of one of our customers, and any such shutdown could expose us to material claims of compensation. Where a customer halts production because of another supplier failing to deliver on time, we may not be fully compensated, if at all.

For example, in early 2010 volcanic activity in Iceland caused widespread and unprecedented delays in air travel. Additionally, severe flooding during the 2011 monsoon season in Thailand disrupted our supply and distribution chain in the region. The events triggered by the March 11, 2011 earthquake and tsunami in Japan caused extensive and severe damage, impacting not only manufacturing facilities of automotive suppliers (including sub-suppliers) and manufacturers but also of transportation, energy and distribution infrastructure. Such disruptions, whether caused by a volcano, earthquake, flooding or some other natural disaster, could cause significant delays and complications to our ability to ship our products to customers, as well as receive shipments from our suppliers. Also, similar difficulties for other suppliers may force our customers to halt production, which may in turn impact our sales shipments to such customers. It is impossible for us to predict if and when disruptions of air, ground and sea transport will occur again and, if so, what impact such disruptions will have. Any such disruptions could severely impact our operations and/or those of our customers and force us to halt production for prolonged periods of time and/or to absorb very significant costs to avoid disruption of our customers’ operations.

Changes in the source, cost, availability of and regulations pertaining to raw materials and components may adversely affect our profit margins

Our business uses a broad range of raw materials and components in the manufacture of our products, nearly all of which are generally available from a number of qualified suppliers. Strong worldwide demand for certain raw materials has had a significant impact on raw material prices and short-term availability in recent years. Our business has not generally experienced significant or long-term difficulty in obtaining raw materials, but increases in the price of the raw materials and components in our products could materially increase our operating costs and materially and adversely affect our profit margin, as direct materials costs amounted to approximately 54% of our net sales in 2012, of which approximately half is the raw material cost portion.

Commercial negotiations with our customers and suppliers may not always offset all of the adverse impact of higher raw material, energy and commodity costs. In addition, no

assurances can be given that the magnitude and duration of such cost increases or any future cost increases could not have a larger adverse impact on our profitability and consolidated financial position than currently anticipated.

Additionally, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC has promulgated new rules regarding disclosure of the presence in a company’s products of certain metals mined from the Democratic Republic of Congo (DRC) and adjoining countries, known as “conflict minerals,” as well as disclosure regarding a manufacturer’s procedures to identify the sourcing of those minerals from this region. There will be costs associated with complying with these disclosure requirements, including for diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering “conflict free” conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.

Adverse developments affecting one or more of our major suppliers could harm our profitability

Any significant disruption in our supplier relationships, particularly relationships with single-source suppliers, could harm our profitability. Furthermore, some of our suppliers may not be able to handle the commodity cost volatility and/or sharply changing volumes while still performing as we expect. Over time, more of our suppliers are located in growth markets. As such, there is a risk for delivery delays, production delays, production issues or delivery of non-conforming products by our suppliers. Even where these risks do not materialize, we may incur costs as we try to make contingency plans for such risks.

Our business could be materially and adversely affected if we lost any of our largest customers

We are dependent on a relatively few number of automobile manufacturers with strong purchasing power, as a result of high market concentration that has developed due to customer consolidation during the last few decades. Our five largest customers represented 54% of our consolidated sales for 2012. Our largest contract accounted for approximately 4.3% of our total fiscal 2012 sales and expires in 2015. Although business with any given customer is typically split into several contracts (either on the basis of one contract per vehicle model or on a broader platform basis), the loss of all of the business from any of our primary customers (whether by cancellation of existing contracts or the failure to award us new business) could have a material adverse effect on our business, results of operations and financial position. Customers may put us on a “new business hold” which would limit our ability to quote or be awarded all or part of their future vehicle contracts if quality or other issues arise in the vehicles for which we were a supplier. Such new business holds range in length and scope and are generally accompanied by a certain set of remedial conditions that are required to be met prior to being eligible to bid for new business. Although such new business holds generally do not have an immediate material impact on our business or results of operations, we are committed to meeting any such conditions as quickly as possible, which may require additional Company resources in the short term. A failure to satisfy such remedial conditions may have a materially adverse impact on our financial results in the long term.

Information concerning our major customers is included in the Annual Report in a graph on page 28 and in the section headed “Our Customers” and in Note 19 of the Consolidated Financial Statements on page 80 of the Annual Report.

We are involved from time to time in legal proceedings and our business may suffer as a result of adverse outcomes of current or future legal proceedings

We are, from time to time, involved in legal proceedings and commercial or contractual disputes that may be significant. These claims may include, without limitation, commercial or contractual disputes, including disputes with our suppliers, intellectual property matters, regulatory matters and governmental investigations, personal injury claims, environmental issues, tax and customs matters and employment matters. Such legal proceedings, including regulatory actions and government investigations, may seek recovery of very large indeterminate amounts or to limit our operations, and the possibility that they may arise and their magnitude may remain unknown for substantial periods of time. 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 our 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 our profitability and consolidated financial position or that reserves or insurance will mitigate such impact.

See Note 16 of the Consolidated Financial Statements on page 74 of the Annual Report.

We are currently undergoing an antitrust investigation by the European Commission and it is probable that the Company’s operating results and cash flows will be materially adversely impacted

The European Commission (“EC”) is engaged in a long-running investigation into possible anti-competitive behavior among certain suppliers to the automotive vehicle industry, including Autoliv. From June 7 to June 9, 2011, representatives of the EC visited two facilities of Autoliv BV & Co KG, a Company subsidiary in Germany, to gather information for such inquiry. The EC’s investigation is still ongoing. It is the Company’s policy to cooperate with governmental investigations. Although the duration or ultimate outcome of the EC investigation cannot be predicted or estimated, it is probable that the Company’s operating results and cash flows will be materially adversely impacted for the reporting periods in which the EC investigation is resolved or becomes estimable. The Company remains unable to estimate the impact the EC investigation will have or predict the reporting periods in which such impact may be recorded. The Company’s recent settlement with the Antitrust Division of the US Department of Justice (“DOJ”) does not impact the EC’s ongoing investigation, as the EC investigation is a separate matter that involves the application of different legal standards.

We are subject to investigations by two other competition authorities and may be subject to investigations by additional competition authorities that could negatively impact our business

Competition authorities in Canada and South Korea have recently initiated investigations of certain suppliers to the automotive vehicle industry, including Autoliv. Competition authorities in additional countries, including Japan, may do the same. These types of investigations require significant management time and attention, as the EC and DOJ investigations already have. These investigations could also result in significant expenses as well as unfavorable outcomes that could have a material adverse impact on our customer relationships, business prospects, reputation, operating results, cash flows or financial results.

We are subject to civil antitrust litigation in the U.S. following the DOJ settlement and may be subject to additional civil antitrust litigation in the U.S. or elsewhere that could negatively impact our business

Following the Company’s guilty plea as part of the DOJ settlement, the Company and its competitors were sued in multiple purported class action lawsuits in the U.S. and Canada alleging violations of antitrust and related laws and seeking to recover treble damages for the alleged classes of direct purchasers, auto dealers and vehicle purchasers/lessees. The Company may be subject to additional civil antitrust lawsuits in the future in the U.S., Canada or in other countries that permit such civil claims. These types of lawsuits require significant management time and attention and could result in significant expenses as well as unfavorable outcomes that could have a material adverse impact on our customer relationships, business prospects, reputation, operating results, cash-flows or financial results.

We may incur material losses and costs as a result of product liability and warranty and recall claims that may be brought against us

We face an inherent business risk of exposure to product liability and warranty claims in the event that our products actually or allegedly fail to perform as expected or the use of our products results, or is alleged to result, in bodily injury and/or property damage. Accordingly, we could experience material warranty or product liability losses in the future and incur significant costs to defend these claims.

In addition, if any of our products are, or are alleged to be, defective, we may be required to participate in a recall involving such products. Every vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers, and the performance and remedial requirements vary between jurisdictions. 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 issues affecting few units and/or having a small financial impact) may cause a vehicle manufacturer to implement measures which may have a severe impact on our operations, such as a global temporary or prolonged suspension of new orders. In addition, as our products more frequently use global designs and are based on or utilize the same or similar parts, components or solutions, there is a risk that the number of vehicles affected globally by a failure or defect will increase significantly and hence also our costs. A warranty, recall or product-liability claim brought against us in excess of our available insurance may have a material adverse effect on our business. Vehicle manufacturers are also increasingly requiring their outside suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. A vehicle manufacturer may attempt to hold us responsible for some or the entire repair or replacement costs of defective products under new vehicle warranties, when the product supplied did not perform as represented. Accordingly, the future costs of warranty claims by our customers may be material. However, we believe our established reserves are adequate to cover potential warranty settlements. Our warranty reserves are based upon our best estimates of amounts necessary to settle future and existing claims. Although we regularly evaluate the appropriateness of these reserves and adjust them when appropriate, the final amounts determined to be due related to these matters could differ materially from our recorded estimates.

Work stoppages or other labor issues at our customers’ facilities or at our facilities could adversely affect our operations

The severe conditions in the automotive industry and actions taken by our customers and other suppliers to address negative industry trends may have the side effect of causing labor relations problems at those companies. If any of our customers experience a material work stoppage, that customer may halt or limit the purchase of our products. Similarly, a work stoppage at another supplier could interrupt production at one of our customers’ plants which would have the same effect. This could cause us to shut down production

facilities supplying these products, which could have a material adverse effect on our business, results of operations and financial condition. While labor contract negotiations at our locations historically have rarely resulted in work stoppages, we cannot assure that we will be able to negotiate acceptable contracts with these unions or that our failure to do so will not result in work stoppages. A work stoppage at one or more of our plants or our customers’ facilities could have a material adverse effect on our business.

Our ability to operate our company effectively could be impaired if we fail to attract and retain key personnel

Our ability to operate our business and implement our strategies effectively depends, in part, on the efforts of our executive officers and other key employees. In addition, our future success will depend on, among other factors, our ability to attract and retain other qualified personnel, particularly engineers and other employees with electronics and software expertise. The loss of the services of any of our key employees or the failure to attract or retain other qualified personnel could have a material adverse effect on our business.

Similarly, we are committed to safeguarding our employees as well as our production facilities by employing several policies, standards and procedures related to site risk management. In view of major external events during recent years, there is no certainty that our efforts to protect against potential natural hazards and political events throughout the areas and countries where Autoliv is active will be successful in protecting our employees. If we fail to adequately protect against these hazards, it could have a material adverse effect on our business.

Restructuring initiatives are complex and difficult and at any time additional restructuring steps may be necessary, possibly on short notice and at significant cost

Our restructuring initiatives include efforts to adjust our manufacturing capacity, including plant closures, transfer of sourcing to low-cost countries, consolidation of our supplier base and standardization of products. And to reduce our overhead costs, our restructuring initiatives include consolidation of tech centers. The successful implementation of our restructuring activities will require us to involve sourcing, logistics, technology and employment arrangements. The complex nature of our various restructuring initiatives could cause difficulties or delays in the implementation of any such initiative or it may not be immediately effective, resulting in an adverse material impact on our performance. In addition, there is a risk that inflation, high-turnover rates and increased competition may reduce the efficiencies now available in low-cost countries to levels that no longer allow for cost-beneficial restructuring opportunities.

A prolonged recession and/or another downturn in our industry could result in our having insufficient funds to continue our operations without additional financing activities

Our ability to generate cash from our operations is highly dependent on sales and therefore on light vehicle production, the global economy and especially the economies of our important markets. If light vehicle production were to remain on low levels for an extended period of time, this would result in a significantly negative cash flow. Similarly, if cash losses for customer defaults rise sharply, this would also result in a negative cash flow. Such negative cash flow could result in our having insufficient funds to continue our operations unless we can procure external financing, which may not be possible.

A prolonged recession and/or another downturn in our industry could result in external financing not being available to us or available only on materially different terms than what has historically been available

Although our credit rating was upgraded in 2010, our current credit rating could be lowered as a result of us experiencing significant negative cash flows or a dire financial outlook. This may affect our ability to procure financing. We may also for the same, or other reasons, find it difficult to secure new long-term credit facilities, at reasonable terms, when our existing credit facility expires in 2017. These risks are exacerbated by the current instability in the global credit markets, including the on-going European economic and financial turmoil related to sovereign debt issues in certain countries and to the overall Eurozone. Further, even our existing unutilized credit facilities may not be available to us as agreed, or only at additional cost, if participating banks are unable to raise the necessary funds, where, for instance, financial markets are not functioning as expected or one or more banks in our Revolving Credit Facility syndicate were to default. If external financing is unavailable to us when necessary, we may have insufficient funds to continue our operations.

Information concerning our credit facilities and other financings are included in the Annual Report on page 48 in the section headed “Treasury Activities” and in Note 12 to the Consolidated Financial Statements on pages 70 and 71 of the Annual Report.

Our level of indebtedness may harm our financial condition and results of operations

As of December 31, 2012, we have outstanding debt of $633 million, including $290 million in privately placed debt issued in 2007. We may incur additional debt for a variety of reasons. Although our revolving credit facilities do not have any financial covenants, our level of indebtedness will have several important effects on our future operations, including, without limitation:

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a portion of our cash flows from operations will be dedicated to the payment of any interest or could be used for amortization required with respect to outstanding indebtedness;

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increases in our outstanding indebtedness and leverage will increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressure;

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depending on the levels of our outstanding debt, our ability to obtain additional financing for working capital, acquisitions, capital expenditures, general corporate and other purposes may be limited; and

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potential future tightening of the availability of capital both from financial institutions and the debt markets may have an adverse effect on our ability to access additional capital.

Our customers may be unable to pay our invoices

There is a risk that one or more of our major customers will be unable to pay our invoices as they become due or that a customer will simply refuse to make such payments given its financial difficulties.

We invoice our major customers through their local subsidiaries in each country even for global contracts. We thus try to avoid having all of our receivables with a single multinational customer group. In each country, we also monitor invoices becoming overdue and take legal action to enforce such obligations where possible and prudent.

If a major customer would enter into bankruptcy proceedings or similar proceedings whereby contractual commitments are subject to stay of execution and the possibility of legal or other modification, or if a major customer otherwise successfully procures protection against us legally enforcing its obligations, it is likely that we will be forced to record a substantial loss.

Governmental restrictions may impact our business adversely

Some of our customers are owned by a governmental entity, receive various forms of governmental aid or support or are subject to governmental influence in other forms. As a result, they may be required to procure components from local suppliers to achieve a specific local content or be subject to other restrictions regarding localized content. The nature and form of any such restrictions or protections, whatever their basis, is very difficult to predict as is their potential impact. However, they are likely to be based on political rather than economical or operational considerations and may severally impact our business.

We periodically review the carrying value of our assets for possible impairment; the value of one or more of our assets may not be realized if one or more of our customers cease production or decrease their production volumes and we could be required to write down amounts of certain assets and record impairment charges

If one or more of our customers’ plants cease production or decrease their production volumes, the assets we carry related to our plants serving such customers may decrease in value because we may no longer be able to utilize or realize them as intended. Where such decreases are significant, whether as to specific customers or geographic areas, such impairments may have a materially adverse impact on our financial results.

We periodically review the carrying value of our goodwill and other intangible assets for possible impairment; if future circumstances indicate that goodwill or other intangible assets are impaired, we could be required to write down amounts of goodwill or other intangible assets and record impairment charges

We monitor the various factors that impact the valuation of our goodwill and other intangible assets, including expected future cash flow levels, global economic conditions, market price for our stock, and trends with our customers. Impairment of goodwill and other identifiable intangible assets may result from, among other things, deterioration in our performance and especially the cash-flow performance of these goodwill assets, adverse market conditions and adverse changes in applicable laws or regulations. If there are changes in these circumstances or the other variables associated with the estimates, judgments and assumptions relating to the valuation of goodwill, when assessing the valuation of our goodwill items, we may determine that it is appropriate to write down a portion of our goodwill or intangible assets and record related non-cash impairment charges. In the event that we determine that we are required to write-down a portion of our goodwill items and other intangible assets and thereby record related non-cash impairment charges, our financial position and results of operations would be adversely affected.

We face risks related to our defined benefit pension plans, including the need for additional funding as well as higher costs and liabilities

Our defined benefit pension plans may require additional funding or give rise to higher related costs and liabilities which, in some circumstances, could reach material amounts and negatively affect our results of operations. We are required to make certain year-end assumptions regarding our pension plans. Our pension obligations are dependent on several factors, including factors outside our control such as changes in interest rates, the market performance of the diversified investments underlying the pension plans, actuarial data and adjustments and an increase in the minimum funding requirements or other regulatory changes governing the plans. Adverse equity market conditions and volatility in the credit market may have an unfavorable impact on the value of our pension assets and our future estimated pension liabilities. Internal factors such as an adjustment to the level of benefits provided under the plans may also lead to an increase in our pension liability. If these or other internal and external risks were to occur, alone or in combination, our required contributions to the plans and the costs and net liabilities associated with the plans could increase substantially and have a material effect on our business.

Information concerning our defined benefit plans is included in Note 18 of the Consolidated Financial Statements on pages 76 through 79 of the Annual Report.

You should not anticipate or expect the payment of cash dividends on our common stock

Our dividend policy is subject to the discretion of our Board of Directors and depends upon a number of factors, including our earnings, financial condition, cash and capital needs and general economic or business conditions. Although we currently use dividends as a way to

return value to our stockholders, during the second quarter of 2009 until the third quarter of 2010, our Board of Directors suspended our quarterly dividend after determining that a suspension was necessary in light of the decline in global light vehicle production, the uncertainty surrounding the recession at the time and the inherent risk of customer defaults. While we have resumed the payment of dividends on our common stock, in the future, there can be no assurance that the Board of Directors will continue to declare dividends.

Increases in IT security threats, the sophistication of computer crime and our reliance on global data centers could expose our systems, networks, solutions and services to risks

As the world’s largest automotive safety system supplier with worldwide facilities, we rely extensively on information technology (IT) systems and the use of our global data centers. These IT systems and data centers are vulnerable to disruptions, including those resulting from natural disasters, cyber-attacks or failures in third-party-provided services. Disruptions and attacks on our IT systems pose a risk to the security of our systems and our ability to protect our networks and the confidentiality, availability and integrity of our and our customers’ data. As a result, such attacks or disruptions could potentially lead to the leakage of confidential information, including our intellectual property, improper use of our systems and networks, manipulation and destruction of data, production downtimes and both internal and external supply shortages, which could have an adverse effect on our results of operations.

RISKS RELATED TO INTERNATIONAL OPERATIONS

Our business is exposed to risks inherent in global operations

Due to our global operations, we are subject to many laws governing international relations (including but not limited to the Foreign Corrupt Practices Act and the U.S. Export Administration Act), which prohibit improper payments to government officials and restrict where and how we can do business, what information or products we can supply to certain countries and what information we can provide to authorities in governmental organizations.

Although we have procedures and policies in place that should mitigate the risk of violations of these laws, there is no guarantee that they will be sufficiently effective. If and when we acquire new businesses, we may not be able to ensure that the pre-existing controls and procedures meant to prevent violations of the rules and laws were effective, and we may not be able to implement effective controls and procedures to prevent violations quickly enough when integrating newly acquired businesses.

We also have manufacturing and distribution facilities in many countries. Some of these countries are growth markets. International operations, especially in growth markets, are subject to certain risks inherent in doing business abroad, including:

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exposure to local economic conditions;

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inability to collect, or delays in collecting, VAT withholding and other customs and taxes on remittances and other payments by subsidiaries;

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exposure to local political turmoil;

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expropriation and nationalization;

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enforcing legal agreements or collecting receivables through foreign legal systems;

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lack of liquidity in foreign currency due to governmental restrictions on transfer or repatriation of funds and trade protection matters;

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currency controls;

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investment restrictions or requirements; and

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export and import restrictions.

Increasing our manufacturing footprint in the growth markets and our business relationships with automotive manufacturers in these markets are particularly important elements of our strategy. As a result, our exposure to the risks described above may be greater in the future. The likelihood of such occurrences and their potential impact on us vary from country to country and are unpredictable.

Global integration may result in additional risks

Because of our efforts to integrate our operations globally to manage cost, we face the additional risk that, should any of the other risks discussed herein materialize, the negative effects could be more pronounced. For example, while supply delays of a component have typically only affected a few customer models, such a delay could now affect several models of several customers in several geographic areas. Additionally, as we move our operations to lower-cost countries, we have witnessed an increase in our exposure to risks associated with developing countries, such as the risk of political upheaval. Similarly, should we face a recall or warranty issue due to a defective product, such a recall or warranty issue is now more likely to involve a larger number of units in several geographic areas.

Exchange rate risks

In addition, as a result of our global presence, a significant portion of our revenues and expenses are denominated in currencies other than the U.S. dollar. We are therefore subject to foreign currency risks and foreign exchange exposure. Such risks and exposures include:

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transaction exposure, which arises because the cost of a product originates in one currency and the product is sold in another currency;

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translation exposure in the income statement, which arises when the income statements of non-U.S. subsidiaries are translated into U.S. dollars; and

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translation exposure in the balance sheet, which arises when the balance sheets of non-U.S. subsidiaries are translated into U.S. dollars.

For example, the financial crisis during 2008-2009 caused extreme and unprecedented volatility in foreign currency exchange rates. Such fluctuations may occur again and may impact our financial results. We cannot predict when, or if, this volatility will cease or the extent of its impact on our future financial results. We typically denominate foreign transactions in foreign currencies and have not engaged in hedging transactions, although we may engage in hedging transactions from time to time in the future relating to foreign currency exchange rates.

In addition, growth markets are more likely to utilize foreign currency restrictions that govern the transfer of funds out of such country. As we continue to increase our presence in such countries, there is an increased risk that such foreign currency controls may create difficulty in repatriating profits from lower-cost countries in the form of taxes or other restrictions.

RISKS RELATED TO ACQUISITIONS

We face risks in connection with completed or potential acquisitions

Our growth has been enhanced through acquisitions of businesses, products and technologies that we believe will complement our business. We regularly evaluate acquisition opportunities, frequently engage in acquisition discussions, conduct due diligence activities in connection with possible acquisitions, and, where appropriate, engage in acquisition negotiations. We may not be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired operations into our existing operations or expand into new markets.

In addition, we compete for acquisitions and expansion opportunities with companies that have substantially greater resources, and competition with these companies for acquisition targets could result in increased prices for possible targets. Acquisitions also involve numerous additional risks to us and our investors, including:

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risk in retaining acquired management and employees;

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difficulties in the assimilation of the operations, services and personnel of the acquired company;

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diversion of our management’s attention from other business concerns;

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assumption of known and unknown or contingent liabilities;

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adverse financial impact from the amortization of expenses related to intangible assets;

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incurrence of indebtedness;

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potential adverse financial impact from failure of acquisitions to meet internal revenue and earnings expectations;

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integration of internal controls;

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entry into markets in which we have little or no direct prior experience; and

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potentially dilutive issuances of equity securities.

In the future, the best growth opportunities may be in passive safety electronics and active safety systems markets, which include and are likely to include other and often larger companies than our traditional competitors. If we fail to adequately manage these acquisition risks, the acquisitions may not result in revenue growth, operational synergies or service or technology enhancements, which could adversely affect our financial results.

RISKS RELATED TO INTELLECTUAL PROPERTY

If our patents are declared invalid or our technology infringes on the proprietary rights of others, our ability to compete may be impaired

We have developed a considerable amount of proprietary technology related to automotive safety systems and rely on a number of patents to protect such technology. At present, we hold more than 6,500 patents covering a large number of innovations and product ideas, mainly in the fields of seatbelt and airbag technologies. We utilize, and have often access to, the patents of our joint ventures. Our patents expire on various dates during the period 2013 to 2032. We do not expect the expiration of any single patent to have a material adverse effect on our business, results of operations and financial condition. Although we believe that our products and technology do not infringe the proprietary rights of others, third

parties may assert infringement claims against us in the future. Also, any patents now owned by us may not afford protection against competitors that develop similar technology.

We primarily protect our innovations with patents and vigorously protect and defend our patents, trademarks and know-how against infringement and unauthorized use. If we are not able to protect our intellectual property and our proprietary rights and technology, we could lose those rights and incur substantial costs policing and defending those rights. Our means of protecting our intellectual property, proprietary rights and technology may not be adequate, and our competitors may independently develop similar or competitive technologies. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the U.S. We may not be able to protect our proprietary technology and intellectual property rights, which could result in the loss of our rights or increased costs. If claims alleging patent, copyright or trademark infringement are brought against us and successfully prosecuted against us, they could result in substantial costs. If a successful claim is made against us and we fail to develop non-infringing technology, our business, financial condition and results of operation could be materially adversely affected.

We may not be able to respond quickly enough to changes in technology and technological risks and to develop our intellectual property into commercially viable products

Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products obsolete or less attractive. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in our ability to remain competitive. We cannot provide assurance that we will be able to achieve the technological advances that may be necessary for us to remain competitive or that certain of our products will not become obsolete. We are also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development and failure of products to operate properly.

To compete effectively in the automotive supply industry, we must be able to launch new products to meet our customers’ demand in a timely manner. We cannot provide assurance, however, that we will be able to install and certify the equipment needed to produce products for new product programs in time for the start of production, or that the transitioning of our manufacturing facilities and resources to full production under new product programs will not impact production rates or other operational efficiency measures at our facilities. In addition, we cannot provide assurance that our customers will execute on schedule the launch of their new product programs, for which we might supply products. Our failure to successfully launch new products, a delay by our customers in introducing our new products, or a failure by our customers to successfully launch new programs, could adversely affect our results.

RISKS RELATED TO GOVERNMENT REGULATIONS

Our business may be adversely affected by environmental, occupational health and safety or other governmental regulations

We are subject to the requirements of environmental, occupational health and safety and other governmental regulations in the United States and other countries.

Although we have no known pending material environmental related issues, we have made and will continue to make capital and other expenditures to comply with environmental requirements. To reduce our exposure to environmental risk, we implemented an environmental plan in 1996 based on our environmental policy. According to the plan, we

sought to certify according to ISO 14001, an international standard for environmental management systems, all of our plants and units. As of December 31, 2012, 89% of our facilities representing 97% of our consolidated sales have been certified according to ISO 14001 (most of our remaining plants are new facilities which have not been certified yet). However, we cannot assure you that we have been or will be at all times in complete compliance with all of these requirements or that we will not incur material costs or liabilities in connection with these requirements in excess of amounts that we, at each time, may have reserved.

In addition, environmental and occupational health and safety and other requirements are complex, subject to change and have tended to become more and more stringent. Accordingly, such requirements may change or become more stringent in the future. Any material environmental issues or changes in environmental or other governmental regulations may have an adverse impact on our operating results and financial condition.

Our business may be adversely affected by environmental and safety regulations or concerns

Government safety regulations are a key driver in our business. Historically, these regulations have imposed ever more stringent safety regulations for vehicles and have thus been a driver of growth in our business.

However, these regulations are subject to change based on a number of factors that are not within our control, including new scientific or medical data, adverse publicity regarding the safety risks of airbags or seatbelts (for instance, to children and small adults), domestic and foreign political developments or considerations, and litigation relating to our products and our competitors’ products and more. Changes in government regulations in response to these and other considerations could have a severe impact our business.

Additionally, governments have different regulatory agendas at different times. An increased focus on environmental regulations relating to automobiles such as green-house gas emissions or gas mileage instead of safety regulations may impact the safety content of vehicles. Although we believe that over time safety will continue to be a regulatory priority, if government priorities shift and we are unable to adapt to changing regulations our business may suffer material adverse effects.

Additional information relating to our environmental management is included in the Annual Report in the section “Contribution to Protecting the Environment” on page 20 and in the “Management’s Discussion and Analysis” section “Environmental” on page 52 of the Annual Report.

Negative or unexpected tax consequences could adversely affect our operating results and financial condition

We are subject to tax audits by governmental authorities in the U.S. and numerous non-U.S. jurisdictions, which are inherently uncertain. Negative or unexpected results from one or more such tax audits in jurisdictions in which we operate could adversely affect our operating results and financial condition.

In addition, changes in tax laws, regulations or accounting principles or in their application with respect to matters such as tax rates, transfer pricing, dividends, restrictions on certain forms of tax relief or limitations on favorable tax treatment could affect our effective tax rate in the United States or in other countries and, as a result, have a negative effect on our operating results and financial condition. For example, our ability to take advantage of expected favorable tax treatment (including those associated with R&D credits and loss carry forwards) may be significantly impaired as a result of changes to the conditions associated with such favorable treatments. Such changes may be the result of general attempts to remedy fiscal deficits or implement shifts in social policies, such as discouraging headcount reductions or similar actions.

The Public Company Accounting Oversight Board, or PCAOB, is currently unable to inspect the audit work of auditors working in Sweden, including our auditor

Because we are a public company in the U.S., our auditor is required to undergo regular PCAOB inspections to assess compliance with U.S. law and professional standards in connection with its audit of our financial statements filed with the SEC. The PCAOB, however, is currently unable to inspect the audit work and practices of auditors in Sweden, where our head office is located, even if they are, as our auditors, part of a major U.S. based international accounting firm. As a result, if the PCAOB and Sweden are unable to reach an agreement allowing access, investors who rely on our auditor’s audit reports are deprived of the benefits of PCAOB inspections of our auditor. Management of the Company expects our auditor to adhere to the highest applicable standards and to take measures to ensure that these standards are consistent with the requirements of the PCAOB. However, we cannot exclude the possibility that PCAOB inspections could strengthen the adherence to such standards and/or detect failures to do so.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties

Autoliv’s principal executive offices are located at Vasagatan 11, 7 ^th floor, SE-111 20, Stockholm, Sweden. Autoliv’s various businesses operate in a number of production facilities and offices. Autoliv believes that its properties are adequately maintained and suitable for their intended use and that the Company’s production facilities have adequate capacity for the Company’s current and foreseeable needs. All of Autoliv’s production facilities and offices are owned or leased by operating (either subsidiary or joint venture) companies.

AUTOLIV MANUFACTURING FACILITIES


Country/ Company	Location of Facility	Items Produced at Facility	Owned/ Leased
Brazil
Autoliv do Brasil Ltda.	Taubaté	Seatbelts, airbags, airbag inflators, steering wheels and seatbelt webbing	Owned
Canada
Autoliv Canada, Inc.	Tilbury	Airbag cushions	Owned

Autoliv Electronics Canada, Inc.	Markham, Ontario	Airbag electronics, radar sensors	Leased

VOA Canada, Inc.	Collingwood	Seatbelt webbing	Owned

China
Autoliv (Beijing) Vehicle Safety Systems Co., Ltd.	Beijing	Seatbelts	Owned

Autoliv (Changchun) Vehicle Safety Systems Co. Ltd.	Changchun	Airbags and seatbelts	Owned

Autoliv (China) Electronics Co., Ltd.	Shanghai	Airbag electronics	Owned

Autoliv (China) Inflator Co., Ltd.	Shanghai	Airbag inflators	Owned



Autoliv (China) Steering Wheel Co., Ltd.	Shanghai	Steering wheels	Owned

Autoliv (Guangzhou) Vehicle Safety Systems Co., Ltd.	Guangzhou	Airbags and seatbelts	Owned

Autoliv (Nanjing) Vehicle Safety Systems Co., Ltd.	Nanjing	Seatbelts	Owned

Autoliv (Shanghai) Vehicle Safety Systems Co., Ltd.	Shanghai	Airbags, and airbag cushions	Owned

Changchun Hongguang-Autoliv Vehicle Safety System Co., Ltd.	Changchun	Seatbelts	Leased

Autoliv Shenda (Tai Cang) Automotive Safety Systems Co., Ltd.	Shanghai	Seatbelt webbing	Owned

Estonia
AS Norma	Tallinn	Seatbelts and belt components	Owned

France
Autoliv Electronic SAS	Saint-Etienne du Rouvray	Airbag Electronics	Leased

Autoliv France SNC	Gournay-en-Bray	Seatbelts and airbags	Owned

Autoliv Isodelta SAS	Chiré-en-Montreuil	Steering wheels and covers	Owned

Livbag SAS	Pont-de-Buis	Airbag inflators	Owned

N.C.S. Pyrotechnie et Technologies SAS	Survilliers	Airbag initiators and seatbelt micro gas generators	Owned

Germany
Autoliv B.V. & Co. KG	Braunschweig	Airbags	Owned
	Dachau	Airbags	Leased
	Elmshorn	Seatbelts	Owned

Autoliv Sicherheitstechnik GmbH	Döbeln	Seatbelts	Owned

Autoliv Protektor Gmbh (Closed 2012)	Lübeck	Seatbelts	Leased

Norma Gmbh (Closed 2012)	Norderstedt	Seatbelt components	Leased

Hungary
Autoliv Kft.	Sopronkovesd	Seatbelts	Owned

India
Autoliv India Private Ltd.	Bangalore	Seatbelts, Airbags and Steering wheel	Leased
	Mysore	Seatbelt webbing	Owned
	Delhi	Seatbelts, Airbags and Steering wheel	Leased
	Chennai	Seatbelts	Leased
	Uttarakhand	Seatbelts	Leased


Indonesia
P.T. Autoliv Indonesia	Jakarta	Seatbelts	Owned

Japan
Autoliv Japan Ltd.	Atsugi	Steering wheels	Owned
	Hiroshima	Airbags and steering wheels	Owned
	Taketoyo	Airbag inflators	Owned
	Tsukuba	Airbags and seatbelts	Owned

Malaysia
Autoliv-Hirotako Sdn Bhd	Kuala Lumpur	Seatbelts, airbags and steering wheels	Owned

Mexico
Autoliv Mexico East S.A. de C.V.	Matamoros	Steering wheels	Owned

Autoliv Mexico S.A. de C.V.	Lerma	Seatbelts	Owned

Autoliv Safety Technology de Mexico S.A. de C.V.	Tijuana	Seatbelts	Leased

Autoliv Steering Wheels Mexico S. de R.L. de C.V.	Querétaro Querétaro	Airbag cushions Airbags	Leased Leased

Netherlands
Van Oerle Alberton B.V.	Boxtel	Seatbelt webbing	Owned

Philippines
Autoliv Cebu Safety Manufacturing, Inc.	Cebu	Steering wheels	Owned

Poland
Autoliv Poland Sp. zo.o.	Olawa	Airbag cushions	Owned
	Jelcz-Laskowice	Airbags and seatbelts	Owned

Romania
Autoliv Romania S.R.L.	Brasov	Seatbelts, seatbelt webbing, airbags, airbag inflators	Owned
	Lugoj	Airbag cushions	Owned
	Prejmer Covasna	Springs for retractors and height adjusters Steering wheel	Leased Owned

Russia
OOO Autoliv	St. Petersburg (Closed 2012)	Seatbelts	Leased
	Togliatti	Seatbelts	Leased
South Africa
Autoliv Southern Africa (Pty) Ltd.	Gauteng	Seatbelts, airbags and steering wheels	Owned


South Korea
Autoliv Corporation	Seoul	Airbags and seatbelts	Owned
	Wonju	Airbags and seatbelts	Owned
Spain
Autoliv BKI S.A.U.	Valencia	Airbags	Owned

Autoliv KLE S.A.U.	Barcelona	Seatbelts	Owned

Sweden
Autoliv Electronics AB	Motala	Safety electronics	Leased

Autoliv Sverige AB	Vårgårda	Airbags, seatbelts and airbag inflators	Owned
Taiwan
Mei-An Autoliv Co., Ltd.	Taipei	Seatbelts and airbags	Leased

Thailand
Autoliv Thailand Ltd.	Chonburi	Seatbelts	Owned
	Chonburi	Airbags and Airbag cushions	Leased
Tunisia
SWT1 SARL	El Fahs	Leather wrapping of steering wheels	Owned

SWT2 SARL and ASW3 SARL	Nadhour	Leather wrapping of steering wheels	Owned

SWTF SARL	El Fahs	Leather wrapping of steering wheels	Owned
Turkey
Autoliv Cankor Otomotiv Emniyet Sistemleri Sanayi Ve Ticaret A.S.	Gebze-Kocaeli	Seatbelts and airbags	Owned

Autoliv Teknoloji Urunleri Sanyai Ve Ticaret A.S.	Gebze-Kocaeli	Leather wrapping of steering wheels	Leased

Autoliv Metal Pres Sanayi Yi Ve Ticaret A.S.	Gebze-Kocaeli	Seatbelt components	Owned

United Kingdom
Airbags International Ltd	Congleton	Airbag cushions	Owned

USA
Autoliv ASP, Inc.	Brigham City, Utah	Airbag inflators	Owned
	Goleta, California	Night vision	Leased
	Lowell, Massachusetts	Radar sensors	Leased
	Ogden, Utah	Airbags	Owned
	Promontory, Utah	Gas generant	Owned
	Tremonton, Utah	Airbag initiators and seatbelt micro gas generators	Owned

TECHNICAL CENTERS AND CRASH TEST LABORATORIES


Location		Function

China
Autoliv (Shanghai) Vehicle Safety System		Technical center for airbags and
Technical Center Co., Ltd., Shanghai		seatbelts with full-scale test laboratory

France
Autoliv France SNC., Gournay-en-Bray		Technical center for airbags and seatbelts with full-scale test laboratory

Autoliv Electronics SAS, Cergy-Pontoise		Technical center for electronics

Livbag SAS, Pont-de-Buis		Technical center for inflator and pyrotechnic development

Germany
Autoliv B.V. & Co. KG, Dachau		Technical center for airbags with full-scale test laboratory
Elmshorn		Technical center for seatbelts with full-scale test laboratory

India
Autoliv India Private Ltd., Bangalore		Technical center for airbags and seatbelts with sled testing

Japan
Autoliv Japan Ltd., Tsukuba		Technical center for airbags with sled test laboratory
Hiroshima		Technical center for electronics

Romania
Autoliv Romania S.R.L., Brasov		Technical center for seatbelts with sled test laboratory
Timisoara		Technical center for electronics

South Korea
Autoliv Corporation, Seoul		Technical center with sled test laboratory

Sweden
Autoliv Development AB, Vårgårda		Research center

Autoliv Sverige AB, Vårgårda		Technical center for airbags with full-scale test laboratory

Autoliv Electronics AB, Motala/Linköping		Technical center for electronics and active safety

USA
Autoliv ASP Inc., Auburn Hills, Michigan		Technical center for airbags, seatbelts with full-scale test laboratory
Ogden, Utah		Technical center for airbags, inflators and pyrotechnics
Southfield, Michigan		Technical center for electronics and active safety
Lowell, Massachusetts		Technical center for active safety

Additional information relating to the Company’s properties is included in the section titled “Superior Global Presence” on pages 24 and 25 of the Annual Report and is incorporated herein by reference.

Item 3. Legal Proceedings

Various claims, lawsuits and proceedings are pending or threatened against the Company or its subsidiaries, covering a range of matters that arise in the ordinary course of its business activities with respect to commercial, product liability and other matters. Litigation is subject to many uncertainties, and the outcome of any litigation cannot be assured. After discussions with counsel, and with the exception of losses resulting from the antitrust matters described below, it is the opinion of management that the various legal proceedings and investigations to which the Company currently is a party will not have a material adverse impact on the consolidated financial position of Autoliv, but the Company cannot provide assurance that Autoliv will not experience material litigation, product liability or other losses in the future.

General Litigation

In 2009, Autoliv initiated a closure of its Normandy Precision Components (“NPC”) plant located in France. Most of the former NPC-employees that were not “protected” (i.e. not union representatives) filed claims in a French court claiming damages in an aggregate amount of €12 million (approximately $16 million) and/or other remedies. In February 2012, the French court ruled in favor of plaintiffs in an aggregate amount of €5.6 million (approximately $7 million), while rejecting certain other claims. Both sides have appealed the decision as far as not in their favor. As required under French law, Autoliv has paid the €5.6 million award pending the appeal.

In May 2008, a French court placed Eric Molleux Technologies Composants (“EMT”) into receivership, and liquidation proceedings were initiated in July 2009. As a result of Autoliv’s previous relationship with EMT, in March 2012 the liquidator initiated proceedings against Autoliv France and requested payment of €16.3 million (approximately $22 million), which represents the total amount of debt owed by EMT to its creditors (including Autoliv). The liquidator also requested an additional €4 million (approximately $5 million) corresponding to the debts of Autoliv Turkey towards EMT. Autoliv disputes the claims.

Antitrust Matters

Authorities in several jurisdictions are currently conducting broad, and in some cases, long-running investigations of suspected anti-competitive behavior among parts suppliers in the global automotive vehicle industry. These investigations include, but are not limited to, segments in which the Company operates. In addition to pending matters, authorities of other countries with significant light vehicle manufacturing or sales may initiate similar investigations. It is the Company’s policy to cooperate with governmental investigations.

On February 8, 2011, a Company subsidiary received a grand jury subpoena from the Antitrust Division of the U.S. Department of Justice (“DOJ”) related to its investigation of anti-competitive behavior among suppliers of occupant safety systems. On June 6, 2012, the Company entered into a plea agreement with the DOJ and subsequently pled guilty to two counts of antitrust law violations involving a Japanese subsidiary and paid a fine of $14.5 million. Under the terms of the agreement the Company will continue to cooperate with the DOJ in its investigation of other suppliers, but the DOJ will not otherwise prosecute Autoliv or any of its subsidiaries, present or former directors, officers or employees for the matters investigated (the DOJ did reserve the option to prosecute three specific employees, none of whom is a member of the senior management of the Company).

On June 7-9, 2011, representatives of the European Commission (“EC”), the European antitrust authority, visited two facilities of a Company subsidiary in Germany to gather information for a similar investigation. The investigation is still pending and the Company remains unable to estimate the financial impact such investigation will have or predict the reporting periods in which such financial impact may be recorded and has consequently not recorded a provision for loss as of December 31, 2012. However, management has concluded that it is probable that the Company’s operating results and cash flows will be materially adversely impacted for the reporting periods in which the EC investigation is resolved or becomes estimable.

On October 3, 2012, the Company received a letter from the Competition Bureau of Canada related to the subjects investigated by the DOJ and EC, seeking the voluntary production of certain corporate records and information related to sales subject to Canadian jurisdiction. On November 6, 2012, the Korean Fair Trade Commission visited one of the Company’s South Korean subsidiaries to gather information for a similar investigation. The Company cannot predict the duration, scope or ultimate outcome of either of these investigations and is unable to estimate the financial impact they may have, or predict the reporting periods in which any such financial impacts may be recorded. Consequently, the Company has not recorded a provision for loss as of December 31, 2012 with respect to either of these investigations. Also, since the Company’s plea agreement with the DOJ, involved the actions of employees of a Japanese subsidiary, the Japan Fair Trade Commission is evaluating whether to initiate an investigation.

The Company is also subject to civil litigation alleging anti-competitive conduct. Notably, the Company, several of its subsidiaries and its competitors are defendants in a total of twelve purported antitrust class action lawsuits, eleven of which are pending in the United States District Court for the Eastern District of Michigan (Brad Zirulnik v. Autoliv, Inc. et al. filed on June 6, 2012; A1A Airport & Limousine Service, Inc. v. Autoliv, Inc. et al. and Frank Cosenza v. Autoliv, Inc. et al. each filed on June 8, 2012; Meetesh Shah v. Autoliv, Inc., et al. filed on June 12, 2012; Martens Cars of Washington, Inc., et al. v. Autoliv, Inc., et al. and Richard W. Keifer, Jr. v. Autoliv, Inc. et al. each filed on June 26, 2012; Findlay Industries, Inc. v. Autoliv, Inc. filed on July 12, 2012; Beam’s Industries, Inc. v. Autoliv, Inc., et al. filed on July 21, 2012; Melissa Barron et al. v. Autoliv, Inc. et al. filed on July 24, 2012; Stephanie Kaleuha Petras v. Autoliv, Inc. et al. filed on August 14, 2012; and Superstore Automotive, Inc. et al. v. Autoliv, Inc. et al. filed on November 1, 2012) the twelfth lawsuit, is pending under Canadian law in the Ontario Superior Court of Justice in Canada (Sheridan Chevrolet Cadillac Ltd. et al. v. Autoliv Inc. et al., filed on January 18, 2013).

themselves and various purported classes of direct and indirect purchasers of occupant safety systems and purchasers or lessees of vehicles in which such systems have been installed, injunctive relief, treble damages and attorneys’ fees. The plaintiffs in these cases make allegations that extend significantly beyond the specific admissions of the plea discussed above. The Company denies these overly broad allegations and intends to actively defend itself against the same. While it is probable that the Company will incur losses as a result of these cases, the duration or ultimate outcome of these cases currently cannot be predicted or estimated and no provision for a loss has been recorded as of December 31, 2012.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Information concerning the market for Autoliv’s common stock including the relevant trading market, and approximate number of shareholders is included in the section titled “Share Performance and Shareholder Information” on pages 36 and 37 of the Annual Report and is incorporated herein by reference.

Share price and dividends

Information on the Company’s quarterly share prices and dividends declared and paid for the two most recent years, 2012 and 2011, is included in the “Share Price and Dividends” table on page 37 of the Annual Report and is incorporated herein by reference.

Equity and Equity Units Offering

On March 30, 2009, the Company sold, in an underwritten registered public offering, approximately 14.7 million common shares from treasury stock and 6.6 million equity units (the Equity Units) listed on the NYSE as Corporate Units, for an aggregate stated amount and public offering price of $235 million and $165 million respectively. “Equity Units” is a term that describes a security that is either a Corporate Unit or a Treasury Unit depending upon what type of note is used by the holder to secure the forward purchase contract (either a Note or a Treasury Security, as described below). The Equity Units initially consisted of a Corporate Unit which is (i) a forward purchase contract obligating the holder to purchase from the Company for a price in cash of $25, on the purchase contract settlement date of April 30, 2012, subject to early settlement in accordance with the terms of the Purchase Contract and Pledge Agreement, a certain number (at the Settlement Rate outlined in the Purchase Contract and Pledge Agreement) of shares of Common Stock; and (ii) a 1/40, or 2.5%, undivided beneficial ownership interest in a $1,000 principal amount of the Company’s 8% senior notes due 2014 (the “Senior Notes”).

The Company allocated proceeds received upon issuance of the Equity Units based on relative fair values at the time of issuance. The fair value of the purchase contract at issuance was $3.75 and the fair value of the note was $21.25. The discount on the notes was amortized using the effective interest rate method. Accordingly, the difference between the stated rate (i.e. cash payments of interest) and the effective interest rate was credited to the value of the notes. Thus, at the end of the three years, the notes were stated on the balance sheet at their face amount. The Company allocated 1% of the 6% of underwriting commissions paid to the debt as deferred charges based on commissions paid for similar debt issuances, but including factors for market conditions at the time of the offering and the Company’s credit rating. The deferred charges were being amortized over the life of the note (until the remarketing settlement date on March 15, 2012) using the effective interest rate method. The remaining underwriting commissions of 5% were allocated to the equity forward and recorded as a reduction to paid-in capital. The fees associated with the remarketing (described below) were allocated the same way and the deferred charges will be similarly amortized over the life of the notes until April 30, 2014.

In the second quarter of 2010, pursuant to separately negotiated exchange agreements with holders representing an aggregate of approximately 2.3 million Equity Units, the Company issued an aggregate of approximately 3.1 million shares of Autoliv’s common stock from its treasury and paid an aggregate of approximately $7.4 million in cash to these holders in exchange for their Equity Units. Following these accelerated exchanges, 4,250,920 Equity Units remained outstanding prior to settlement on April 30, 2012.

The Company successfully completed the remarketing of the Senior Notes in March 2012, pursuant to which the interest rate on the Senior Notes was reset and certain other terms of the Senior Notes were modified. On March 15, 2012, the coupon was reset to 3.854% with a yield of 2.875% per annum which will be applicable until final maturity on April 30, 2014. Autoliv did not receive any proceeds from the remarketing until the settlement of the forward stock purchase contracts on April 30, 2012. On April 30, 2012, Autoliv settled the purchase contracts by issuing approximately 5.8 million shares of common stock in exchange for $106,273,000 in proceeds generated by the maturity of the U.S. Treasury securities purchased following the remarketing. The settlement of the purchase contracts concluded Autoliv’s equity obligations under the Equity Units.

Stock repurchase program

Since September 15, 2008, Autoliv has made no share repurchases. Since the repurchase program was adopted in 2000, Autoliv has repurchased 34.3 million Autoliv, Inc. shares at an average cost of US $42.93 per share.

Under the existing authorizations, approximately another 3.2 million shares may be repurchased. Although we suspended our share repurchases to preserve cash in order to maintain a strong cash position in the current uncertain business environment as well as to possibly take advantage of potential market opportunities, we may from time to time repurchase our shares in the open market under the existing share repurchase program.

Additional information concerning the repurchase of Autoliv stock is included on pages 34 and 35 in the section “Value-Creating Cash Flow” of the Annual Report, and is incorporated herein by reference.

Item 6. Selected Financial Data

Selected financial data for the five years ended December 31, 2012 is included on page 89 of the Annual Report and is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three years ended December 31, 2012 is included on pages 39 through 54 of the Annual Report and is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Quantitative and Qualitative Disclosures about market risk are included in the Management’s Discussion and Analysis section “Risks and Risk Management” on pages 51 through 54 of the Annual Report and are incorporated herein by reference. See also Note 1 of the Notes to Consolidated Financial Statements on pages 60 to 63 of the Annual Report.

Item 8. Financial Statements and Supplementary Data

The Consolidated Balance Sheets of Autoliv as of December 31, 2012 and 2011 and the Consolidated Statements of Net Income, Comprehensive Income, Cash Flows and Total Equity for each of the three years in the period ended December 31, 2012, the Notes to the Consolidated Financial Statements, and the Reports of the Independent Registered Public Accounting Firm are included on pages 56 through 82 of the Annual Report and are incorporated herein by reference.

All of the schedules specified under Regulation S-X to be provided by Autoliv have been omitted either because they are not applicable, are not required or the information required is included in the financial statements or notes thereto.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There have been no changes and have been no disagreements in our two most recent fiscal years with our independent auditors regarding accounting or financial disclosure matters.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

An evaluation has been carried out by the Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial

Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

(b) Management’s Report on Internal Control Over Financial Reporting

The Management Report on Internal Control over Financial Reporting (as defined in Section 240.13a-15(f) or 240.15d-15(f) of the Exchange Act) is included on page 55 of the Annual Report in the section “Management’s Report” immediately preceding the audited financial statements and is incorporated herein by reference.

The Company’s internal control over financial reporting as of December 31, 2012 has been audited by our independent registered public accounting firm, as stated in their report that is included on page 82 of the Annual Report and is incorporated herein by reference.

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. Other Information

All events required to be disclosed on form 8-K during the fourth quarter have been reported.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by Item 10 regarding executive officers, directors and nominees for re-election as directors of Autoliv, Autoliv’s Audit Committee, Autoliv’s code of ethics, and compliance with Section 16(A) of the Securities Exchange Act is incorporated by reference from the information under the captions “Executive Officers of the Company” and “Item 1: Election of Directors”, “Committees of the Board” and “Audit Committee Report”, “Corporate Governance Guidelines and Codes of Conduct and Ethics”, and “Section 16(a) Beneficial Ownership Reporting Compliance”, respectively, in the Company’s 2013 Proxy Statement, which will be filed within 120 days after December 31, 2012. A matrix summarizing Board meeting attendance is published on page 86 in the Annual Report and incorporated herein by reference.

Item 11. Executive Compensation

The information required by Item 11 regarding executive compensation for the year ended December 31, 2012 is included under the captions “Compensation Discussion and Analysis” and “Executive Compensation” in the 2013 Proxy Statement and is incorporated herein by reference. The information required by the same item regarding Compensation Committee is included in the sections “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the 2013 Proxy Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 regarding beneficial ownership of Autoliv’s common stock is included under the caption “Security Ownership of Certain Beneficial Owners and Management” in the 2013 Proxy Statement and is incorporated herein by reference.

Shares Previously Authorized for Issuance Under the Amended and Restated 1997 Stock Incentive Plan

The following table provides information as of December 31, 2012, about the common stock that may be issued under the Autoliv, Inc. Amended and Restated 1997 Stock Incentive Plan, as amended. The Company does not have any equity compensation plans that have not been approved by its stockholders.


Plan Category	(a) Number of Securities to be issued upon exercise of outstanding options, warrants and rights		(b) Weighted- average exercise price of outstanding options, warrants and rights(2)		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(3)

Equity compensation plans approved by security holders (1)		1,223,848	$	53.91		4,210,232	(3)

Equity compensation plans not approved by security holders		—		—		—


Total		1,223,848	$	53.91		4,210,232

(1)	Autoliv, Inc. Amended and Restated 1997 Stock Incentive Plan, as amended and restated on May 6, 2009, as amended by Amendment No. 1 dated December 17, 2010 and Amendment No. 2 dated May 8, 2012.

(2)	Excludes RSUs, which convert to shares of common stock for no consideration.

(3)	All such shares are available for issuance pursuant to grants of full-value stock awards.

Item 13. Certain Relationships and Related Transactions, and Director Independence

In 2012, no transactions took place that the Company deemed to require disclosure under Item 13. Further information regarding the Company’s policy and procedures concerning related party transactions is included under caption “Related Person Transactions” in the 2013 Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information required by Item 9 (e) of Schedule 14A regarding principal accounting fees and the information required by Item 14 regarding the pre-approval process of services provided to Autoliv is included under the caption “Ratification of Appointment of Independent Auditors” in the 2013 Proxy Statement and is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents Filed as Part of this Report

(1)	Financial Statements

The following consolidated financial statements are included on pages 56 through 59 of the Annual Report and Selected Financial Data is included on page 89 of the Annual Report and are incorporated herein by reference:

(i) Consolidated Statements of Net Income – Years ended December 31, 2012, 2011 and 2010 (page 56); (ii) Consolidated Statements of Comprehensive Income – Years ended December 31, 2012, 2011 and 2010 (page 56); (iii) Consolidated Balance Sheets – as of December 31, 2012 and 2011 (page 57); (iv) Consolidated Statements of Cash Flows – Years ended December 31, 2012, 2011 and 2010 (page 58); (v) Consolidated Statements of Total Equity – as of December 31, 2012, 2011 and 2010 (page 59); (vi) Notes to Consolidated Financial Statements (pages 60-81); (vii) Reports of Independent Registered Public Accounting Firm (page 82).

(2)	Financial Statement Schedules

All of the schedules specified under Regulation S-X to be provided by Autoliv have been omitted either because they are not applicable, they are not required, or the information required is included in the financial statements or notes thereto.

(b)

Exhibits

Exhibits marked with an asterisk (*) are filed or furnished herewith. All other exhibits are incorporated by reference to exhibits previously filed with the SEC, as indicated.

Index to Exhibits


Exhibit No.		Description

3.1		Autoliv’s Restated Certificate of Incorporation incorporated herein by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q, filed on May 14, 1997.

3.2		Autoliv’s Restated By-Laws incorporated herein by reference to Exhibit 3.2 on Form 10-K (File No. 001-12933, filing date February 23, 2012).

4.1		Senior Indenture, dated March 30, 2009, between Autoliv, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to Autoliv’s Registration Statement on Form 8-A (File No. 001-12933, filing date March 30, 2009).



4.2		First Supplemental Indenture, dated March 30, 2009, between Autoliv, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.2 to Autoliv’s Registration Statement on Form 8-A (File No. 001-12933, filing date March 30, 2009).

4.3		Purchase Contract and Pledge Agreement, dated March 30, 2009, among Autoliv, Inc. and U.S. Bank National Association, as Stock Purchase Contract Agent, and U.S. Bank National Association, as Collateral Agent, Custodial Agent and Securities Intermediary, incorporated herein by reference to Exhibit 4.3 to Autoliv’s Registration Statement on Form 8-A (File No. 001-12933, filing date March 30, 2009).

4.4		General Terms and Conditions for Swedish Depository Receipts in Autoliv, Inc. representing common shares in Autoliv, Inc., effective as of August 1, 2011, with Skandinaviska Enskilda Banken AB (publ) serving as custodian, incorporated herein by reference to Exhibit 4.11 to Autoliv’s Registration Statement on Form S-3 (File No. 333-179948, filing date March 7, 2012).

4.5		Second Supplemental Indenture (including Form of Global Note), dated March 15, 2012, between Autoliv, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-12933, filing date March 15, 2012).

10.1		Autoliv, Inc. 1997 Stock Incentive Plan, incorporated herein by reference to Autoliv’s Registration Statement on Form S-8 (File No. 333-26299, filing date May 1, 1997).

10.2		Amendment No. 1 to Autoliv, Inc. Stock Incentive Plan, is incorporated herein by reference to Exhibit 10.3 on Form 10-K/A (File No. 001-12933, filing date July 2, 2002).

10.3		Form of Employment Agreement between Autoliv, Inc. and certain of its executive officers, is incorporated herein by reference to Exhibit 10.4 on Form 10-K/A (File No. 001-12933, filing date July 2, 2002).

10.4		Form of Supplementary Agreement to the Employment Agreement between Autoliv, Inc. and certain of its executive officers, is incorporated herein by reference to Exhibit 10.5 on Form 10-K/A (File No. 001-12933, filing date July 2, 2002).

10.5		Employment Agreement, dated November 11, 1998, between Autoliv, Inc. and Mr. Lars Westerberg, is incorporated herein by reference to Exhibit 10.6 on Form 10-K/A (File No. 001-12933, filing date July 2, 2002).

10.6		Form of Severance Agreement between Autoliv, Inc. and certain of its executive officers, is incorporated herein by reference to Exhibit 10.7 on Form 10-K/A (File No. 001-12933, filing date July 2, 2002).



10.7		Pension Agreement, dated November 26, 1999, between Autoliv AB and Mr. Lars Westerberg, is incorporated herein by reference to Exhibit 10.8 on Form 10-K/A (File No. 001-12933, filing date July 2, 2002).

10.8		Form of Amendment to Employment Agreement between Autoliv, Inc. and certain of its executive officers – notice, is incorporated herein by reference to Exhibit 10.9 on Form 10-K (File No. 001-12933, filing date March 14, 2003).

10.9		Form of Amendment to Employment Agreement between Autoliv, Inc. and certain of its executive officers – pension, is incorporated herein by reference to Exhibit 10.10 on Form 10-K (File No. 001-12933, filing date March 14, 2003).

10.10		Form of Agreement between Autoliv, Inc. and certain of its executive officers – additional pension, is incorporated herein by reference to Exhibit 10.11 on Form 10-K (File No. 001-12933, filing date March 14, 2003).

10.11		Amendment No.2 to the Autoliv, Inc. 1997 Stock Incentive Plan, is incorporated herein by reference to Exhibit 10.12 on Form 10-K (File No. 001-12933, filing date March 11, 2004).

10.12		Employment Agreement, dated March 31, 2007, between Autoliv, Inc. and Mr. Jan Carlson, is incorporated herein by reference to Exhibit 10.13 on Form 10-Q (File No. 001-12933, filing date October 25, 2007).

10.13		Retirement Benefits Agreement, dated August 14, 2007, between Autoliv AB and Mr. Jan Carlson, is incorporated herein by reference to Exhibit 10.14 on Form 10-Q (File No. 001-12933, filing date October 25, 2007).

10.14		Settlement Agreement, dated August 26, 2008, between Autoliv France, SNC and Autoliv, Inc. and Mr. Benoît Marsaud, is incorporated herein by reference to Exhibit 10.15 on Form 10-Q (File No. 001-12933, filing date October 22, 2008).

10.15		Terms and conditions for Autoliv, Inc.’s issue of SEK 150 million Floating Rate Bonds due 2010, dated October 17, 2008, is incorporated herein by reference to Exhibit 10.16 on Form 10-Q (File No. 001-12933, filing date October 22, 2008).

10.16		Terms and conditions for Autoliv, Inc.’s issue of SEK 300 million Floating Rate Bonds due 2011, dated October 17, 2008, is incorporated herein by reference to Exhibit 10.17 on Form 10-Q (File No. 001-12933, filing date October 22, 2008).

10.17		Facility Agreement, dated October 16, 2008, between Autoliv, Inc. and Skandinaviska Enskilda Banken for SEK 1 billion facility, is incorporated herein by reference to Exhibit 10.18 on Form 10-Q (File No. 001-12933, filing date October 22, 2008).



10.18		Amended and Restated Autoliv, Inc. 1997 Stock Incentive Plan, filed as Appendix A of the Definitive Proxy Statement of the Company on Schedule 14A filed on March 23, 2009 and is incorporated herein by reference.

10.19		Financing commitment agreement, dated December 18, 2009, between Autoliv AB and the European Investment Bank (EIB) giving Autoliv access to a loan of €225 million, as amended by amendment dated July 18, 2011, is incorporated herein by reference to Exhibit 10.20 on Form 10-K (File No. 001-12933, filing date February 19, 2010).

10.20		Facility Agreement, dated June 22, 2010, between Autoliv AB, a wholly owned Swedish subsidiary of Autoliv, Inc., and Nordea, is incorporated herein by reference to Exhibit 10.21 on Form 10-Q (File No. 001-12933, filing date July 23, 2010).

10.21		Facility Agreement, dated June 22, 2010, between Autoliv AB, a wholly owned Swedish subsidiary of Autoliv, Inc., and Swedish Export Credit Corporation and SEB, is incorporated herein by reference to Exhibit 10.22 on Form 10-Q (File No. 001-12933, filing date July 23, 2010).

10.22		Amendment No.1 to the Autoliv, Inc. 1997 Stock Incentive Plan as Amended and Restated on May 6, 2009, dated December 17, 2010, is incorporated herein by reference to Exhibit 10.24 on Form 10-K (File No. 001-12933, filing date February 23, 2011).

10.23		Amendment, dated July 15, 2011, to Financing commitment agreement, dated December 18, 2009, between Autoliv AB and the European Investment Bank (EIB), is incorporated herein by reference to Exhibit 99.l on Form 10-Q (File No. 001-12933, filing date July 21, 2011).

10.24		Facilities Agreement of $1,100,000,000, dated April 16, 2011, among Autoliv Inc. and the lenders named therein, is incorporated herein by reference to Exhibit 99.j on Form 10-Q (File No. 001-12933, filing date April 20, 2011).

10.25		Form of Amendment to Employment Agreement between Autoliv, Inc. and certain of its executive officers – pension, is incorporated herein by reference to Exhibit 10.26 on Form 10-K (File No. 001-12933, filing date February 23, 2012).

10.26		Form of Amendment to Employment Agreement between Autoliv, Inc. and certain of its executive officers – non-equity incentive award, is incorporated herein by reference to Exhibit 10.27 on Form 10-K (File No. 001-12933, filing date February 23, 2012).

10.27		Amendment to Employment Agreement, dated March 31, 2007, between Autoliv, Inc. and Mr. Jan Carlson (pension) , is incorporated herein by reference to Exhibit 10.28 on Form 10-K (File No. 001-12933, filing date February 23, 2012).



10.28		General Terms and Conditions for Swedish Depository Receipts in Autoliv, Inc. representing common shares in Autoliv, Inc., effective as of August 1, 2011, with Skandinaviska Enskilda Banken AB (publ) serving as custodian, is incorporated by reference to Exhibit 4.11 to Autoliv’s Registration Statement on Form S-3 (File No. 333-179948, filing date March 7, 2012).

10.29		Second Supplemental Indenture (including Form of Global Note), dated March 15, 2012, between Autoliv, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-12933, filing date March 15, 2012).

10.30		Remarketing Agreement, dated as of February 9, 2012 incorporated herein by reference to Exhibit 1.1 to the Current Report on Form 8-K (File No. 001-12933, filing date March 15, 2012).

10.31		Plea Agreement, dated June 6, 2012, is incorporated herein by reference to Exhibit 10.30 on Form 10-Q (File No. 001-12933, filing date July 20, 2012).

10.32		Amendment No. 2 to the Autoliv, Inc. 1997 Stock Incentive Plan as Amended and Restated on May 6, 2009, dated May 8, 2012, is incorporated herein by reference to Exhibit 10.29 on Form 10-Q (File No. 001-12933, filing date July 20, 2012).

10.33*		Amendment, dated January 18, 2013 to Employment Agreement, dated March 31, 2007, between Autoliv, Inc. and Mr. Jan Carlson – additional pension.

10.34*		Form of Employment Agreement between Autoliv, Inc. and certain of its executive officers (with Change-in-Control Severance Agreement).

10.35*		Form of Employment Agreement between Autoliv, Inc. and certain of its executive officers (without Change-in-Control Severance Agreement).

10.36*		Form of Change-in-Control Severance Agreement between Autoliv, Inc. and certain of its executive officers.

10.37		Form of Indemnification Agreement between Autoliv, Inc. and its Directors and certain of its executive officers is incorporated herein by reference to Exhibit 99.i on Form 10-K (File No. 001-12933, filing date February 23, 2009).

10.38*		Autoliv, Inc. Non-employee Director Compensation Policy.

11		Information concerning the calculation of Autoliv’s earnings per share is included in Note 1 of the Consolidated Notes to Financial Statements contained in the Annual Report and is incorporated herein by reference.

12.1*		Ratio of Earnings to Fixed Charges.

13*		Autoliv’s Annual Report to Shareholders for the fiscal year ended December 31, 2012.



21*		Autoliv’s List of Subsidiaries.

23*		Consent of Independent Registered Public Accounting Firm.

31.1*		Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

31.2*		Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

32.1*		Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

101*		The following financial information from the Annual Report on Form 10-K for the fiscal year ended December 31, 2012, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Statements of Net Income; (ii) the Consolidated Statements of Comprehensive Income: (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Total Equity; and (vi) the Notes to the Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of February 21, 2013.

AUTOLIV, INC.

(Registrant)

By /s/ Mats Wallin

Mats Wallin

Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, as of February 21, 2013.


Title				Name

Chairman of the Board of Directors				/s/ Lars Nyberg
				Lars Nyberg

Chief Executive Officer and Director (Principal Executive Officer)				/s/ Jan Carlson
				Jan Carlson

Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer)				/s/ Mats Wallin
				Mats Wallin

Director				/s/ Robert W. Alspaugh
				Robert W. Alspaugh

Director				/s/ Bo I. Andersson
				Bo I. Andersson

Director				/s/ Xiaozhi Liu
				Xiaozhi Liu

Director				/s/ George A. Lorch
				George A. Lorch

Director				/s/ James M. Ringler
				James M. Ringler

Director				/s/ Kazuhiko Sakamoto
				Kazuhiko Sakamoto

Director				/s/ Wolfgang Ziebart
				Wolfgang Ziebart

Exhibit 10.33

AMENDMENT TO EMPLOYMENT AGREEMENT

THIS AMENDMENT (this “Amendment”) to the Employment Agreement between Autoliv, Inc. and Jan Carlson (“Appointee”), dated as of 31 ^st of March 2007 (the “Agreement”) was made and entered into on the 18th day of January 2013.

1.	The Agreement is hereby amended by deleting Clause 7 of the Agreement regarding pension contribution in its entirety and replacing it with the following:

“The Appointee has the right, and if not otherwise agreed upon, the obligation to retire on the last day of the month preceding his 60 ^th birthday. Pension- and complementary sickness insurance is described in the enclosed “Pensionsförmåner” originally dated 31 March, 2007 and as updated from time to time. In addition the Appointee is entitled to TGL (group life insurance). The Company shall pay pension- and sick insurance fees corresponding to 48% of the base salary plus additional tax payments on premiums. Pension contribution can be increased via a cost neutral gross deduction from the salary. This is a defined contribution solution hence no levels of benefits are guaranteed.”

2.	Except as expressly amended hereby, the Agreement shall be and remain unchanged and the Agreement as amended hereby shall remain in full force and effect.

IN WITNESS WHEREOF, Autoliv, Inc. has caused this Amendment to be executed by its duly authorized representative as of the day and year first above written.


The Company:				The Appointee:
Autoliv Inc.

/s/ Mats Adamson				/s/ Jan Carlson
Mats Adamson				Jan Carlson
Group Vice President
Human Resources

Exhibit 10.34

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this [—] day of [—] by and between Autoliv, Inc., a Delaware corporation (the “Company”), and [—] (the “Executive”), to be effective as of the Effective Date, as defined in Section 1.

BACKGROUND

The Company desires to engage the Executive as [—] of the Company from and after the Effective Date, in accordance with the terms of this Agreement. The Executive is willing to serve as such in accordance with the terms and conditions of this Agreement. As of the date of execution of this Agreement, the parties have not yet determined where the Executive’s principal place of employment with the Company will be. Executive’s principal place of employment from and after the Effective Date shall be as specified on Exhibit A to this Agreement, to be attached and executed by the parties prior to the Effective Date.

NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.	Effective Date . The effective date of this Agreement (the “Effective Date”) shall be during the period [—] and [—] depending on the outcome of the recruitment of successor for the present position as [—].

2.	Employment . The Executive is hereby employed on the Effective Date as [—] of the Company. In his capacity as [—] of the Company, the Executive shall have the duties, responsibilities and authority commensurate with such position as shall be assigned to him by the Chief Executive Officer.

Employment Period . The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company from the Effective Date and thereafter unless and until terminated by the Company or the Executive (the “Employment Period”); provided, however, that (i) the Company must give the Executive written notice of termination of the Executive’s employment not less than [—] calendar months prior to such date of termination, and (ii) the Executive must give the Company written notice of termination of his employment not less than [—] calendar months prior to such date of termination; provided, further, however, that in the event of a termination by the Company for Cause pursuant to Section 10(b) hereof, the [—] notice requirement provided in clause (i) of the foregoing provision shall not apply and the Executive’s termination of employment shall be effective immediately. Notwithstanding the foregoing, the Executive’s employment shall automatically terminate on the earlier occurrence of the last day of the month preceding the Executive’s 65 ^th birthday (“Retirement”).

Extent of Service . During the Employment Period, the Executive shall use his best efforts to promote the interests of the Company and those of its subsidiary and associated companies and shall devote his full time and attention during normal business hours to the business and affairs of the Company and its subsidiary and associated companies. In addition, the Executive shall devote as much time outside normal business hours to the performance of his duties as may in the interests of the Company be reasonably necessary; provided, however, that the Executive shall not receive any remuneration in

addition to that set out in Section 5 hereof in respect of his work during such time. During the Employment Period, the Executive shall not, without the consent of the Chief Executive Officer, directly or indirectly, either alone or jointly with or as a director, manager, agent or servant of any other person, firm or company, be engaged, concerned or interested in any business in a manner that would conflict with the Executive’s duties under this Section 4 (including holding any shares, loan, stock or any other ownership interest in any competitor of the Company), provided that nothing in this Section 4 shall preclude the Executive from holding shares, loan, stock or any other ownership interest in an entity other than a competitor of the Company as an investment.

5.	Compensation and Benefits .

(a)

Base Salary . During the Employment Period, the Executive shall receive a gross salary at the rate of [—] per year (“Base Salary”), less normal withholdings, payable in equal monthly installments as are or become customary under the Company’s payroll practices for its employees from time to time. The Compensation Committee of the Board (the “Compensation Committee”) shall review the Executive’s Base Salary annually during the Employment Period. Any adjustments to the Executive’s salary shall become the Executive’s Base Salary for purposes of this Agreement.

(b)

Bonus . During the Employment Period, the Executive shall be eligible to participate in the Company’s bonus plan for executive officers, if any, pursuant to which he will have an opportunity to receive an annual bonus based upon the achievement of performance goals established from year to year by the Compensation Committee (such bonus earned at the stated “target” level of achievement being referred to herein as the “Target Bonus”). Until otherwise changed by the Compensation Committee, the Executive’s Target Bonus shall be [—] of his Base Salary.

(c)

Equity Incentive Compensation . During the Employment Period, the Executive shall be eligible for equity grants under the Autoliv, Inc. Amended and Restated 1997 Stock Incentive Plan, or any successor plan or plans, having such terms and conditions as awards to other peer executives, as determined by the Compensation Committee, unless the Executive consents to a different type of award or different terms of such award than are applicable to other peer executives. Nothing herein requires the Compensation Committee to grant the Executive equity awards or other long-term incentive awards in any year.

(d)

Automobile . During the Employment Period, the Company shall provide the Executive with a company car. The Executive and his immediate family may also use the company car for personal purposes. The Company shall bear all petrol, maintenance and repair costs, as well as insurance costs and vehicle tax related to the Company car. The Executive shall, however, be liable for the payment of tax on the taxable benefit resulting from the right to use the company car for personal purposes.

(e)

Allowances . During the Employment Period, Executive shall be provided with allowances for housing, schooling and club dues as specified on Exhibit A to this Agreement, to be attached and executed by the parties prior to the Effective Date. Such allowances shall be subject to normal payroll deductions to the extent required by law. Such allowances shall be paid in accordance with the policies, practices and procedures of the Company as in effect from time to time.

(f)

Medical Benefits . During the Employment Period, the Executive, his spouse and significant others is entitled to the [—] Medical Care Insurance, or any successor arrangement or plan having similar terms and conditions.

(g)

Expenses . During the Employment Period, the Executive shall be entitled to receive payment or reimbursement for all reasonable traveling, hotel and other expenses incurred by him in the performance of his duties under this Agreement, in accordance with the policies, practices and procedures of the Company as in effect from time to time. The Executive shall provide the Company with receipts, vouchers or other evidence of actual payment of the expenses to be reimbursed, as requested by the Company.

(h)

Conditions of Employment . Normal conditions of employment as issued by the Company apply to the receipt of benefits under this Section 5.

6.	Holidays . During the Employment Period, the Executive shall be entitled to yearly holidays amounting to the legal minimum holiday days plus additional days.

7.	Pension . The Company shall pay pension premiums for defined contribution pension insurance with an amount equal [—] percent of the Executive’s Base Salary.

Business or Trade Information . The Executive shall not during or after the termination of his employment hereunder disclose to any person, firm of company whatsoever or use for his own purpose or for any purposes other than those of the Company any information relating to the Company or its subsidiary or associated companies or its or their business or trade secrets of which he has or shall hereafter become possessed. These restrictions shall cease to apply to any information which may come into the public domain (other than by breach of the provisions hereof). In the event that the Executive does not comply with this Section 8, the Company shall be entitled to damages equal to six (6) times the average monthly Base Salary that the Executive received during the preceding twelve (12) months, if the Executive continues to be employed, or during the last twelve (12) months prior to his Date of Termination, if the Executive’s employment has terminated; provided, however, that nothing in this Section 8 shall preclude the Company from pursuing arbitration in accordance with Section 17 herein and seeking additional damages from the Executive in the event that the Company is able to demonstrate to the arbitrators that the value of the damages incurred by the Company due to the Executive’s violation of this Section 8 exceed the aggregate value of the damages paid by the Executive to the Company pursuant to the foregoing provision.

Company Property . The Executive shall upon the termination of his employment hereunder for whatever reason immediately deliver to the Company all designs, specifications, correspondence and other documents, papers, the car provided hereunder and all other property belonging to the Company or any of its affiliated companies or which may have been prepared by him or have come into his possession in the course of his employment.

10.	Termination of Employment .

(a)

Death; Retirement . The Executive’s employment shall terminate automatically upon his death or Retirement.

(b)

Termination by the Company . The Company may terminate the Executive’s employment during the Employment Period with or without Cause. “Cause” for termination by the Company of the Executive’s employment shall mean (i) willful and continued failure by the Executive to substantially perform the Executive’s duties with the Company (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Chief Executive Officer of the Company and the Vice President of Human Resources establish to the Board by clear and convincing evidence that Cause exists, subject to Section 10(f) hereof.

(c)

Termination by the Executive . The Executive may terminate his employment during the Employment Period with Good Reason or without Good Reason. “Good Reason” shall mean the occurrence, without the Executive’s express written consent, of any of the following:

(i)

the assignment to the Executive of any duties inconsistent with the Executive’s status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive’s responsibilities from those in effect on the date hereof other than any such alteration primarily attributable to the fact that the Company may no longer be a public company;

(ii)

a reduction by the Company in the Executive’s annual base salary as in effect on the date hereof or as the same may be increased from time to time;

(iii)

the relocation of the Executive’s principal place of employment to a location more than 45 kilometers from the Executive’s principal place of employment on the Effective Date or the Company’s requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with the Executive’s present business travel obligations;

(iv)

the failure by the Company to pay to the Executive any portion of the Executive’s current compensation within seven (7) days of the date such compensation is due;

(v)

the failure by the Company to continue in effect any compensation plan in which the Executive participates on the date hereof which is material to the Executive’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive’s participation relative to other participants, as existed on the date hereof; or

(vi)

the failure by any successor to the business of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

A termination by the Executive shall not constitute termination for Good Reason unless the Executive shall first have delivered to the Company written notice setting forth with specificity the occurrence deemed to give rise to a right to terminate for Good Reason (which notice must be given no later than 90 days after the initial occurrence of such event), and there shall have passed a reasonable time (not less than 30 days) within which the Company may take action to correct, rescind or otherwise substantially reverse the occurrence supporting termination for Good Reason as identified by the Executive. The Executive’s termination for Good Reason must occur within a period of 160 days after the occurrence of an event of Good Reason. The Executive’s right to terminate employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness. The Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. Good Reason shall not include the Executive’s death.

(d)

Notice of Termination . Any termination by the Company or the Executive of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) specifies the termination date. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in

detail. The failure by the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company hereunder or preclude the Company from asserting such fact or circumstance in enforcing the Company’s rights hereunder.

(e)

Date of Termination . “Date of Termination” means (i) if the Executive’s employment is terminated other than by reason of death, the end of the notice period specified in Section 3 hereof, or (ii) if the Executive’s employment is terminated by reason of death, the Date of Termination shall be the date of death of the Executive.

(f)

Dispute Concerning Termination . Any disputes regarding the termination of the Executive’s employment shall be settled in accordance with Section 17 hereof (including, without limitation, the provisions regarding costs and expenses related to arbitration). If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 10(f)), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of the arbitrators (which is not appealable or with respect to which the time for appeal there from has expired and no appeal has been perfected); provided, however, that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.

(g)

Compensation During Dispute . If the Date of Termination is extended in accordance with Section 10(f) hereof, the Company shall continue to provide the Executive with the compensation and benefits specified in Section 5 hereof until the Date of Termination, as determined in accordance with Section 10(f) hereof. Amounts paid under this Section 10(g) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement; provided, however, that in the event that the arbitration results in a determination that the Executive is not entitled to severance payments under the terms of this Agreement, then the Executive shall repay to the Company the compensation received by the Executive during the extended period pursuant to this Section 10(g).

11.	Obligations of the Company Upon Termination of Employment .

(a)

Termination by the Company Other Than for Cause; Termination by the Executive for Good Reason . If, during the Employment Period, the Company shall terminate the Executive’s employment other than for Cause, or the Executive shall terminate employment for Good Reason, then, and only if within forty-five (45) days after the Date of Termination the Executive shall have executed a separation agreement and such separation agreement shall not have been revoked within such time period, within sixty (60) days after the Date of Termination (or such later date as may be required pursuant to Section 21(c) herein), the Company shall pay to the Executive a lump sum severance payment, in cash, equal to the sum of:

(i)

the Executive’s Base Salary as in effect immediately prior to the Date of Termination;

(ii)

the average of the annual non-equity incentive compensation awards earned by the Executive under any Company incentive plan in the prior two fiscal years ending immediately prior to the fiscal year in which the Date of Termination occurs, or if higher, the annual non-equity incentive compensation award earned by the Executive under any Company incentive plan in the fiscal year ending immediately prior to the fiscal year in which the Date of Termination occurs; and

(iii)

an amount equal to the sum of (A) the taxable value of the benefit of the Executive’s Company-provided car, and (B) the value of any pension benefits, in each case, that the Executive would have been entitled to had he remained in service for one (1) year following the Date of Termination. In addition, the Company shall pay all relevant social costs attributable to the lump sum severance payment described in clauses (i), (ii) and (iii) above, in accordance with relevant Swedish law.

(b)

Death . If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive or the Executive’s legal representatives under this Agreement, other than such death benefits he or they would otherwise be entitled to receive under any plan, program, policy or practice or contract or agreement of the Company or its affiliated companies.

(c)

Retirement . If the Executive’s employment is terminated in connection with his Retirement during the Employment Period, this Agreement shall terminate without further obligations to the Executive; provided, however, that the Executive shall nonetheless be subject to the covenants set forth in Section 14 herein.

(d)

Cause; Voluntary Resignation . If the Executive’s employment is terminated by the Company for Cause during the Employment Period, or the Executive voluntarily resigns his employment without Good Reason, this Agreement shall terminate without further obligations to the Executive; provided, however, that the Executive shall nonetheless be subject to the covenants set forth in Section 14 herein.

12.

Non-Duplication of Benefits . Notwithstanding anything to contrary in this Agreement, the aggregate of any amounts payable to the Executive by the Company pursuant to Section 5 (including any compensation and benefits paid pursuant to such section during any applicable termination notice period pursuant to Section 3), Section 10(g) or Section 11 herein shall be offset and reduced to the extent necessary by any other compensation or benefits of the same or similar type payable under local laws of any relevant jurisdiction so that such other compensation or benefits, if any, do not augment the aggregate of any amounts payable to the Executive by the Company pursuant to Section 5 (including any compensation and benefits paid pursuant to such section during any applicable termination notice period pursuant to Section 3) or Section 11 herein. It is intended that this Agreement not duplicate benefits the Executive is

entitled to under country “redundancy” laws or under the Company’s severance policy, if any, any related policies, or any other contracts, agreements or arrangements between the Executive and the Company.

13.	Change in Control . The Company and the Executive have executed a separate Change-in-Control Severance Agreement, dated as of [—] (“Change-in-Control Agreement”).

14.	Non-Competition Covenant; Payment for Non-Competition Covenant .

(a)

Except as provided in Section 14(b), during the twelve (12) months immediately following the termination of his employment with the Company, the Executive shall not (i) accept employment with a competitor of the Company in a capacity in which such competitor can make use of the confidential information relating to the Company that the Executive has obtained in his employment with the Company, (ii) engage as a partner or owner in such competitor of the Company, nor (iii) act as an advisor to such competitor (the “Non-Competition Covenant”).

(b)

The Non-Competition Covenant shall not apply:

(i)

in the event the Executive’s employment is terminated by the Company other than for Cause; or

(ii)

in the event the Executive resigns for Good Reason.

(c)

If the Executive does not comply with the Non-Competition Covenant when applicable, then (i) the Executive shall not be entitled to any benefits pursuant to Section 14(d) below during the period in which the Executive is not in compliance with such Non-Competition Covenant, and (ii) the Company shall be entitled to damages equal to six (6) times the average monthly Base Salary that the Executive received during the last twelve (12) months prior to the Date of Termination.

(d)

If the Non-Competition Covenant becomes operative, then the Company shall pay to the Executive, as compensation for the inconvenience of such Non-Competition Covenant, up to twelve (12) monthly payments equal to the Executive’s monthly Base Salary as in effect on the Date of Termination, less the monthly salary earned during such month by the Executive in a subsequent employment, if any; provided, however, that the aggregate monthly payments from the Company pursuant to this Section 14(d) shall not exceed sixty percent (60%) of the Executive’s annual Base Salary as in effect on the Date of Termination, and once the 60% aggregate amount has been paid, no further payments will be made under this Section 14(d). As a condition to the receipt of such payments, the Executive must inform the Company of his base salary in his new employment on a monthly basis. No payments will be made under this Section 14 after the Executive’s termination of employment by reason of his Retirement.

15.	Inventions .

(a)

The general nature of any discovery, invention, secret process or improvement made or discovered by the Executive during the period of the Executive’s employment by the Company (hereinafter called “the Executive’s Inventions”) shall be notified by the Executive to the Company forthwith upon it being made or discovered.

(b)

The entitlement as between the Company and the Executive to the Executive’s Inventions shall be determined in accordance with the current Act (1949:345) on the Right to Inventions made by Employees and the Executive acknowledges that because of the nature of his duties and the particular responsibilities arising therefrom he has a special obligation to further the interests of the Company’s undertaking.

(c)

Where the Executive’s Inventions are to be assigned to the Company, the Executive shall make a full disclosure of the same to the Company and if and whenever required to do so shall at the expense of the Company apply, singly or jointly with the Company or other persons as required by the Company, for letters patent or other equivalent protection in Sweden and in any other part of the world of the Executive’s Inventions.

16.

Entire Agreement . This Agreement takes effect in substitution of all previous agreements and arrangements whether written, oral or implied between the Company and the Executive relating to the employment of the Executive, without prejudice to any rights accrued to the Company or the Executive prior to the commencement of his employment under this Agreement.

17.

Disputes . Disputes regarding this Agreement (including, without limitation, disputes regarding the existence of Cause or Good Reason) shall be settled by arbitration in accordance with the Swedish Arbitration Act. The arbitration shall take place in Stockholm and, unless otherwise agreed to by both parties, there shall be three (3) arbitrators. The provisions on voting and cumulation of parties and claims in the Swedish Procedural Code shall be applied in the arbitration. All costs and expenses for the arbitration, whether initiated by the Company or by the Executive, including the Executive’s costs for solicitor, shall be borne by the Company, unless the arbitrators determine the Executive’s claim(s) to be frivolous and in bad faith, in which case the arbitrators may allocate costs as they deem fit. Any payments due to the Executive pursuant to the preceding sentence shall be made within fifteen (15) business days after delivery of the Executive’s written request for payment accompanied with such evidence of costs and expenses incurred as the Company reasonably may require.

18.	Governing Law . This Agreement shall be governed by and construed in accordance with Swedish law and, where applicable, the laws of any applicable local jurisdictions.

19.	Amendment . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board.

20.	Notices . All notices and other communications hereunder shall be in writing and shall be given by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:


If to the Executive :

If to the Company :		Autoliv, Inc.
		Vasagatan 11, 7th Floor
		SE-107 24 Stockholm
		Sweden
		Attention: Secretary

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

21.	U.S. Tax Code Section 409A . This Section 21 shall apply only in the event that the Executive is or becomes a taxpayer under the laws of the United States at any time during the Employment Period.

(a)

General . This Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereunder shall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and applicable Internal Revenue Service guidance and Treasury Regulations issued thereunder. Nevertheless, the tax treatment of the benefits provided under the Agreement is not warranted or guaranteed. Neither the Company nor its directors, officers, employees or advisers shall be held liable for any taxes, interest, penalties or other monetary amounts owed by the Executive as a result of the application of Section 409A of the Code.

(b)

Definitional Restrictions . Notwithstanding anything in this Agreement to the contrary, to the extent that any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code (“Non-Exempt Deferred Compensation”) would otherwise be payable or distributable hereunder, or a different form of payment of such Non-Exempt Deferred Compensation would be effected, by reason of by reason of a Change in Control or the Executive’s termination of employment, such Non-Exempt Deferred Compensation will not be payable or distributable to the Executive, and/or such different form of payment will not be effected, by reason of such circumstance unless the circumstances giving rise to such Change in Control or termination of employment, as the case may be, meet any description or definition of “change in control event” or “separation from service,” as the case may be, in Section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such definition). This provision does not prohibit the vesting of any Non-Exempt Deferred Compensation upon a Change in Control or termination of employment, however defined. If this provision prevents the payment or distribution of any Non-Exempt Deferred Compensation, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a Section 409A-compliant “change in control event” or “separation from service,” as the case may be, or such later date as may be required by subsection (c) below. If this provision prevents the application of a different form of payment of any amount or benefit, such payment shall be made in the same form as would have applied absent such designated event or circumstance.

(c)

Six-Month Delay in Certain Circumstances . Notwithstanding anything in this Agreement to the contrary, if any amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be payable or distributable under this Agreement by reason of the Executive’s separation from service during a period in which he is a “specified employee” (as defined in Code Section 409A and the final regulations thereunder), then, subject to any permissible acceleration of payment by the Company under Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes), (i) the amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following the Executive’s separation from service will be accumulated through and paid or provided on the first day of the seventh month following the Executive’s separation from service (or, if the Executive dies during such period, within thirty (30) days after the Executive’s death) (in either case, the “Required Delay Period”); and (ii) the normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period.

(d)

Treatment of Installment Payments . Each payment of termination benefits under this Agreement shall be considered a separate payment, as described in Treas. Reg. Section 1.409A-2(b)(2), for purposes of Section 409A of the Code.

(e)

Timing of Release of Claims . Whenever in this Agreement a payment or benefit is conditioned on the Executive’s execution and non-revocation of a release of claims, such as the separation agreement referenced in Section 11(a) hereof, such release must be executed and all revocation periods shall have expired within 60 days after the Date of Termination; failing which such payment or benefit shall be forfeited. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to subsection (c) above, such payment or benefit (including any installment payments) that would have otherwise been payable during such 60-day period shall be accumulated and paid on the 60th day after the Date of Termination provided such release shall have been executed and such revocation periods shall have expired. If such payment or benefit is exempt from Section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period.

(f)

Timing of Reimbursements and In-kind Benefits . If the Executive is entitled to be paid or reimbursed for any taxable expenses under this Agreement and if such payments or reimbursements are includible in the Executive’s federal gross taxable income, the amount of such expenses payable or reimbursable in any one calendar year shall not affect the amount payable or reimbursable in any other calendar year, and the reimbursement of an eligible expense must be made no later than December 31 of the year after the year in which the expense was incurred. The right to any reimbursement for expenses incurred or provision of in-kind benefits is limited to the lifetime of the Executive, or such shorter period of time as is provided with respect to each particular right to reimbursement in-kind benefits pursuant to the preceding provisions of this Agreement. No right of the Executive to reimbursement of expenses under this Agreement shall be subject to liquidation or exchange for another benefit.

(g)

Timing of Tax Gross-Up Payments . If the Executive is entitled to be reimbursed for any taxes under this Agreement, such tax reimbursement payment shall be paid by the Company to the Executive no later than December 31 of the year after the year in which the related taxes are remitted to the applicable taxing authorities.

22.

Other Local Law Provisions . If the laws of the jurisdiction in which the Executive’s principal place of employment is located require special provisions to be included in an employment agreement of this type, or if the parties determine that any such local law provision would be advisable, this Agreement shall be amended to include such provision.

(signatures on following page)

IN WITNESS whereof this Agreement has been executed the day and year first above written,

AUTOLIV, INC.

Exhibit A

Principal Place of Employment and Allowances

As of the Effective Date, the Executive’s principal place of employment shall be at the location of [—].

Executive shall be provided with an annual housing allowance in the amount of [—].

Executive shall be provided with an annual allowance in the amount of [—] to apply to club dues.

Executive shall be provided with an annual schooling allowance for the children below 18 years, current allowances amount to [—].

All allowances above according to local market practice.

The allowances will be adjusted to local market practice depending on the future location of the Regional Head Office.

Exhibit 10.35

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “ Agreement ”) is made and entered into this [—] day of [—], [—] by and between Autoliv, Inc., a Delaware corporation (the “ Company ”), and [—], (the “ Executive ”), to be effective as of the Effective Date, as defined in Section 1.

BACKGROUND

The Company desires to engage the Executive as the [—] of the Company from and after the Effective Date, in accordance with the terms of this Agreement. The Executive is willing to serve as such in accordance with the terms and conditions of this Agreement.

1. Effective Date . The effective date of this Agreement (the “ Effective Date ”) shall be [—].

2. Employment . The Executive is hereby employed on the Effective Date as the [—] of the Company. In his capacity as [—] of the Company, the Executive shall have the duties, responsibilities and authority commensurate with such position as shall be assigned to him by the Chief Executive Officer.

3. Employment Period . The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company from the Effective Date and thereafter unless and until terminated by the Company or the Executive (the “ Employment Period ”); provided, however , that (i) the Company must give the Executive written notice of termination of the Executive’s employment not less than [—] calendar months prior to such date of termination, and (ii) the Executive must give the Company written notice of termination of his employment not less than [—] calendar months prior to such date of termination; provided, further, however , that in the event of a termination by the Company for Cause pursuant to Section 10(b) hereof, the [—] notice requirement provided in clause (i) of the foregoing provision shall not apply and the Executive’s termination of employment shall be effective immediately. Notwithstanding the foregoing, the Executive’s employment shall automatically terminate on the earlier occurrence of the last day of the month preceding the Executive’s 65th birthday (“ Retirement ”).

4. Extent of Service . During the Employment Period, the Executive shall use his best efforts to promote the interests of the Company and those of its subsidiary and associated companies and shall devote his full time and attention during normal business hours to the business and affairs of the Company and its subsidiary and associated companies. In addition, the Executive shall devote as much time outside normal business hours to the performance of his duties as may in the interests of the Company be reasonably necessary; provided, however, that the Executive shall not receive any remuneration in addition to that set out in Section 5 hereof in respect of his work during such time. During the Employment Period, the Executive shall not, without the consent of Chief Executive Officer, directly or indirectly, either alone or jointly with or as a director, manager, agent or servant of any other person, firm or company, be engaged, concerned or interested in any business in a manner that would conflict with the Executive’s duties under this Section 4 (including holding any shares, loan, stock or any other ownership interest in any competitor of the Company), provided that nothing in this Section 4 shall preclude the Executive from holding shares, loan, stock or any other ownership interest in an entity other than a competitor of the Company as an investment.

5. Compensation and Benefits .

(a) Base Salary . During the Employment Period, the Executive shall receive a gross salary at the rate of [—] per year (“ Base Salary ”), less normal withholdings, payable in equal monthly installments as are or become customary under the Company’s payroll practices for its employees from time to time. The Compensation Committee of the Board (the “ Compensation Committee ”) shall review the Executive’s Base Salary annually during the Employment Period. Any adjustments to the Executive’s salary shall become the Executive’s Base Salary for purposes of this Agreement. In addition to Base Salary, the Executive shall be entitled to the vacation supplement (currently 0.8 percent (0.8%) of 1/12 of Base Salary per vacation day).

(b) Bonus . During the Employment Period, the Executive shall be eligible to participate in the Company’s bonus plan for executive officers, if any, pursuant to which he will have an opportunity to receive an annual bonus based upon the achievement of performance goals established from year to year by the Compensation Committee (such bonus earned at the stated “target” level of achievement being referred to herein as the “ Target Bonus ”). Until otherwise changed by the Compensation Committee, the Executive’s Target Bonus shall be [—] percent of his Base Salary.

(c) Equity Incentive Compensation . During the Employment Period, the Executive shall be eligible for equity grants under the Autoliv, Inc. Amended and Restated 1997 Stock Incentive Plan, or any successor plan or plans, having such terms and conditions as awards to other peer executives, as determined by the Compensation Committee, unless the Executive consents to a different type of award or different terms of such award than are applicable to other peer executives. Nothing herein requires the Compensation Committee to grant the Executive equity awards or other long-term incentive awards in any year.

(d) Automobile . During the Employment Period, the Company shall provide the Executive with a company car. The Executive and his immediate family may also use the company car for personal purposes. The Company shall bear all petrol, maintenance and repair costs, as well as insurance costs and vehicle tax related to the Company car. The Executive shall, however, be liable for the payment of tax on the taxable benefit resulting from the right to use the company car for personal purposes.

(e) Medical Benefits . During the Employment Period, the Executive and his spouse or significant other is entitled to the Skandia Medical Care Insurance, or any successor arrangement or plan having similar terms and conditions.

(f) Expenses . During the Employment Period, the Executive shall be entitled to receive payment or reimbursement for all reasonable traveling, hotel and other expenses incurred by him in the performance of his duties under this Agreement, in accordance with the policies, practices and procedures of the Company as in effect from time to time. The Executive shall provide the Company with receipts, vouchers or other evidence of actual payment of the expenses to be reimbursed, as requested by the Company.

(g) Conditions of Employment . Normal conditions of employment as issued by the Company apply to the receipt of benefits under this Section 5.

6. Holidays . During the Employment Period, the Executive shall be entitled to yearly holidays amounting to the legal minimum holiday days (at present [—] days) plus five days.

7. Pension . The Company shall pay pension premiums for defined contribution pension insurance with an amount equal to [—] of the Executive’s Base Salary. The pension premiums shall

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include premiums under the ITP plan, giving the Executive certain benefits in the event of his temporary or permanent illness. The insurance shall be taken out at a reputable insurance company, to be approved of in advance by the Company.

8. Business or Trade Information . The Executive shall not during or after the termination of his employment hereunder disclose to any person, firm of company whatsoever or use for his own purpose or for any purposes other than those of the Company any information relating to the Company or its subsidiary or associated companies or its or their business or trade secrets of which he has or shall hereafter become possessed. These restrictions shall cease to apply to any information which may come into the public domain (other than by breach of the provisions hereof). In the event that the Executive does not comply with this Section 8, the Company shall be entitled to damages equal to six (6) times the average monthly Base Salary that the Executive received during the preceding twelve (12) months, if the Executive continues to be employed, or during the last twelve (12) months prior to his Date of Termination, if the Executive’s employment has terminated; provided, however , that nothing in this Section 8 shall preclude the Company from pursuing arbitration in accordance with Section 16 herein and seeking additional damages from the Executive in the event that the Company is able to demonstrate to the arbitrators that the value of the damages incurred by the Company due to the Executive’s violation of this Section 8 exceed the aggregate value of the damages paid by the Executive to the Company pursuant to the foregoing provision.

9. Company Property . The Executive shall upon the termination of his employment hereunder for whatever reason immediately deliver to the Company all designs, specifications, correspondence and other documents, papers, the car provided hereunder and all other property belonging to the Company or any of its affiliated companies or which may have been prepared by him or have come into his possession in the course of his employment.

10. Termination of Employment .

(a) Death; Retirement . The Executive’s employment shall terminate automatically upon his death or Retirement.

(b) Termination by the Company . The Company may terminate the Executive’s employment during the Employment Period with or without Cause. “ Cause ” for termination by the Company of the Executive’s employment shall mean (i) willful and continued failure by the Executive to substantially perform the Executive’s duties with the Company (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Chief Executive Officer of the Company and the Vice President of Human Resources establish to the Board by clear and convincing evidence that Cause exists, subject to Section 10(f) hereof.

(c) Termination by the Executive . The Executive may terminate his employment during the Employment Period with Good Reason or without Good Reason. “ Good Reason ” shall mean the occurrence, without the Executive’s express written consent, of any of the following:

(i) the assignment to the Executive of any duties inconsistent with the Executive’s status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive’s responsibilities from those in effect on the date hereof other than any such alteration primarily attributable to the fact that the Company may no longer be a public company;

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(ii) a reduction by the Company in the Executive’s annual base salary as in effect on the date hereof or as the same may be increased from time to time;

(iii) the relocation of the Executive’s principal place of employment to a location more than 45 kilometers from the Executive’s principal place of employment on the date hereof or the Company’s requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with the Executive’s present business travel obligations;

(iv) the failure by the Company to pay to the Executive any portion of the Executive’s current compensation within seven (7) days of the date such compensation is due;

(v) the failure by the Company to continue in effect any compensation plan in which the Executive participates on the date hereof which is material to the Executive’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive’s participation relative to other participants, as existed on the date hereof; or

(vi) the failure by any successor to the business of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

(d) Notice of Termination . Any termination by the Company or the Executive of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto. For purposes of this Agreement, a “ Notice of Termination ” shall mean a written notice which shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) set forth in reasonable detail the facts and circumstances claimed to provide a

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basis for termination of the Executive’s employment under the provision so indicated, and (iii) specifies the termination date. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. The failure by the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company hereunder or preclude the Company from asserting such fact or circumstance in enforcing the Company’s rights hereunder.

(e) Date of Termination . “ Date of Termination ” means (i) if the Executive’s employment is terminated other than by reason of death, the end of the notice period specified in Section 3 hereof, or (ii) if the Executive’s employment is terminated by reason of death, the Date of Termination shall be the date of death of the Executive.

(f) Dispute Concerning Termination . Any disputes regarding the termination of the Executive’s employment shall be settled in accordance with Section 16 hereof (including, without limitation, the provisions regarding costs and expenses related to arbitration). If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 10(f)), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of the arbitrators (which is not appealable or with respect to which the time for appeal there from has expired and no appeal has been perfected); provided, however, that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.

(g) Compensation During Dispute . If the Date of Termination is extended in accordance with Section 10(f) hereof, the Company shall continue to provide the Executive with the compensation and benefits specified in Section 5 hereof until the Date of Termination, as determined in accordance with Section 10(f) hereof. Amounts paid under this Section 10(g) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement; provided, however, that in the event that the arbitration results in a determination that the Executive is not entitled to severance payments under the terms of this Agreement, then the Executive shall repay to the Company the compensation received by the Executive during the extended period pursuant to this Section 10(g).

11. Obligations of the Company Upon Termination of Employment .

(a) Termination by the Company Other Than for Cause; Termination by the Executive for Good Reason . If, during the Employment Period, the Company shall terminate the Executive’s employment other than for Cause, or the Executive shall terminate employment for Good Reason, then, and only if within forty-five (45) days after the Date of Termination the Executive shall have executed a separation agreement hereto and such separation agreement shall not have been revoked within such time period, within sixty (60) days after the Date of Termination (or such later date as may be required pursuant to Section 20(c) herein), the Company shall pay to the Executive a lump sum severance payment, in cash, equal to [—] times the Executive’s Base Salary as in effect immediately prior to the Date of Termination. In addition, the Company shall pay all relevant social costs attributable to such lump sum severance payment, in accordance with relevant Swedish law.

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(b) Death . If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive or the Executive’s legal representatives under this Agreement, other than such death benefits he or they would otherwise be entitled to receive under any plan, program, policy or practice or contract or agreement of the Company or its affiliated companies.

(c) Retirement . If the Executive’s employment is terminated in connection with his Retirement during the Employment Period, this Agreement shall terminate without further obligations to the Executive; provided, however , that the Executive shall nonetheless be subject to the covenants set forth in Section 13 herein.

(d) Cause; Voluntary Resignation . If the Executive’s employment is terminated by the Company for Cause during the Employment Period, or the Executive voluntarily resigns his employment without Good Reason, this Agreement shall terminate without further obligations to the Executive; provided, however , that the Executive shall nonetheless be subject to the covenants set forth in Section 13 herein.

12. Non-Duplication of Benefits . Notwithstanding anything to contrary in this Agreement, the aggregate of any amounts payable to the Executive by the Company pursuant to Section 5 (including any compensation and benefits paid pursuant to such section during any applicable termination notice period pursuant to Section 3), Section 10(g) or Section 11 herein shall be offset and reduced to the extent necessary by any other compensation or benefits of the same or similar type payable under local laws of any relevant jurisdiction so that such other compensation or benefits, if any, do not augment the aggregate of any amounts payable to the Executive by the Company pursuant to Section 5 (including any compensation and benefits paid pursuant to such section during any applicable termination notice period pursuant to Section 3) or Section 11 herein. It is intended that this Agreement not duplicate benefits the Executive is entitled to under country “redundancy” laws or under the Company’s severance policy, if any, any related policies, or any other contracts, agreements or arrangements between the Executive and the Company.

13. Non-Competition Covenant; Payment for Non-Competition Covenant .

(a) Except as provided in Section 13(b), during the twelve (12) months immediately following the termination of his employment with the Company, the Executive shall not (i) accept employment with a competitor of the Company in a capacity in which such competitor can make use of the confidential information relating to the Company that the Executive has obtained in his employment with the Company, (ii) engage as a partner or owner in such competitor of the Company, nor (iii) act as an advisor to such competitor (the “ Non-Competition Covenant ”).

(b) The Non-Competition Covenant shall not apply:

(i) in the event the Executive’s employment is terminated by the Company other than for Cause; or

(ii) in the event the Executive resigns for Good Reason.

(c) If the Executive does not comply with the Non-Competition Covenant when applicable, then (i) the Executive shall not be entitled to any benefits pursuant to Section 13(d) below during the period in which the Executive is not in compliance with such Non-Competition Covenant, and (ii) the Company shall be entitled to damages equal to six (6) times the average monthly Base Salary that the Executive received during the last twelve (12) months prior to the Date of Termination.

(d) If the Non-Competition Covenant becomes operative, then the Company shall pay to the Executive, as compensation for the inconvenience of such Non-Competition Covenant, up to twelve (12) monthly payments equal to the Executive’s monthly Base Salary as in effect on the Date of Termination, less the monthly salary earned during such month by the Executive in a subsequent employment, if any; provided, however , that the aggregate monthly payments from the Company pursuant to this Section 13(d) shall not exceed sixty percent (60%) of the Executive’s annual Base Salary as in effect on the Date of Termination, and once the 60% aggregate amount has been paid, no further payments will be made under this Section 13(d). As a condition to the receipt of such payments, the Executive must inform the Company of his base salary in his new employment on a monthly basis. No payments will be made under this Section 13 after the Executive’s termination of employment by reason of his Retirement.

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14. Inventions .

(a) The general nature of any discovery, invention, secret process or improvement made or discovered by the Executive during the period of the Executive’s employment by the Company (hereinafter called “ the Executive’s Inventions ”) shall be notified by the Executive to the Company forthwith upon it being made or discovered.

(b) The entitlement as between the Company and the Executive to the Executive’s Inventions shall be determined in accordance with the current Act (1949:345) on the Right to Inventions made by Employees and the Executive acknowledges that because of the nature of his duties and the particular responsibilities arising therefrom he has a special obligation to further the interests of the Company’s undertaking.

(c) Where the Executive’s Inventions are to be assigned to the Company, the Executive shall make a full disclosure of the same to the Company and if and whenever required to do so shall at the expense of the Company apply, singly or jointly with the Company or other persons as required by the Company, for letters patent or other equivalent protection in Sweden and in any other part of the world of the Executive’s Inventions.

15. Entire Agreement . This Agreement takes effect in substitution of all previous agreements and arrangements whether written, oral or implied between the Company and the Executive relating to the employment of the Executive, without prejudice to any rights accrued to the Company or the Executive prior to the commencement of his employment under this Agreement.

16. Disputes . Disputes regarding this Agreement (including, without limitation, disputes regarding the existence of Cause or Good Reason) shall be settled by arbitration in accordance with the Swedish Arbitration Act. The arbitration shall take place in Stockholm and, unless otherwise agreed to by both parties, there shall be three (3) arbitrators. The provisions on voting and cumulation of parties and claims in the Swedish Procedural Code shall be applied in the arbitration. All costs and expenses for the arbitration, whether initiated by the Company or by the Executive, including the Executive’s costs for solicitor, shall be borne by the Company, unless the arbitrators determine the Executive’s claim(s) to be frivolous and in bad faith, in which case the arbitrators may allocate costs as they deem fit. Any payments due to the Executive pursuant to the preceding sentence shall be made within fifteen (15) business days after delivery of the Executive’s written request for payment accompanied with such evidence of costs and expenses incurred as the Company reasonably may require.

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17. Governing Law . This Agreement shall be governed by and construed in accordance with Swedish law and, where applicable, the laws of any applicable local jurisdictions.

18. Amendment . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board.

19. Notices . All notices and other communications hereunder shall be in writing and shall be given by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:


If to the Executive :		[—]

If to the Company :		Autoliv, Inc.
		Vasagatan 11, 7th Floor
		SE-107 24 Stockholm
		Sweden
		Attention: Secretary

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

20. U.S. Tax Code Section 409A . This Section 20 shall apply only in the event that the Executive is or becomes a taxpayer under the laws of the United States at any time during the Employment Period.

(a) General . This Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereunder shall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”) and applicable Internal Revenue Service guidance and Treasury Regulations issued thereunder. Nevertheless, the tax treatment of the benefits provided under the Agreement is not warranted or guaranteed. Neither the Company nor its directors, officers, employees or advisers shall be held liable for any taxes, interest, penalties or other monetary amounts owed by the Executive as a result of the application of Section 409A of the Code.

(b) Definitional Restrictions . Notwithstanding anything in this Agreement to the contrary, to the extent that any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code (“ Non-Exempt Deferred Compensation ”) would otherwise be payable or distributable hereunder, or a different form of payment of such Non-Exempt Deferred Compensation would be effected, by reason of by reason of the Executive’s termination of employment, such Non-Exempt Deferred Compensation will not be payable or distributable to the Executive, and/or such different form of payment will not be effected, by reason of such circumstance unless the circumstances giving rise to such termination of employment meet any description or definition of “separation from service” in Section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such definition). This provision does not prohibit the vesting of any Non-Exempt Deferred Compensation upon a termination of employment, however defined. If this provision prevents the payment or distribution of any Non-Exempt Deferred Compensation, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a Section 409A-compliant “separation from service”, or such later date as may be required by subsection (c) below. If this provision prevents the application of a different form of payment of any amount or benefit, such payment shall be made in the same form as would have applied absent such designated event or circumstance.

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(c) Six-Month Delay in Certain Circumstances . Notwithstanding anything in this Agreement to the contrary, if any amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be payable or distributable under this Agreement by reason of the Executive’s separation from service during a period in which he is a “specified employee” (as defined in Code Section 409A and the final regulations thereunder), then, subject to any permissible acceleration of payment by the Company under Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes), (i) the amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following the Executive’s separation from service will be accumulated through and paid or provided on the first day of the seventh month following the Executive’s separation from service (or, if the Executive dies during such period, within thirty (30) days after the Executive’s death) (in either case, the “ Required Delay Period ”); and (ii) the normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period.

(d) Treatment of Installment Payments . Each payment of termination benefits under this Agreement shall be considered a separate payment, as described in Treas. Reg. Section 1.409A-2(b)(2), for purposes of Section 409A of the Code.

(e) Timing of Release of Claims . Whenever in this Agreement a payment or benefit is conditioned on the Executive’s execution and non-revocation of a release of claims, such as the separation agreement referenced in Section 11(a) hereof, such release must be executed and all revocation periods shall have expired within 60 days after the Date of Termination; failing which such payment or benefit shall be forfeited. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to subsection (c) above, such payment or benefit (including any installment payments) that would have otherwise been payable during such 60-day period shall be accumulated and paid on the 60th day after the Date of Termination provided such release shall have been executed and such revocation periods shall have expired. If such payment or benefit is exempt from Section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period.

(f) Timing of Reimbursements and In-kind Benefits . If the Executive is entitled to be paid or reimbursed for any taxable expenses under this Agreement and if such payments or reimbursements are includible in the Executive’s federal gross taxable income, the amount of such expenses payable or reimbursable in any one calendar year shall not affect the amount payable or reimbursable in any other calendar year, and the reimbursement of an eligible expense must be made no later than December 31 of the year after the year in which the expense was incurred. The right to any reimbursement for expenses incurred or provision of in-kind benefits is limited to the lifetime of the Executive, or such shorter period of time as is provided with respect to each particular right to reimbursement in-kind benefits pursuant to the preceding provisions of this Agreement. No right of the Executive to reimbursement of expenses under this Agreement shall be subject to liquidation or exchange for another benefit.

(g) Timing of Tax Gross-Up Payments . If the Executive is entitled to be reimbursed for any taxes under this Agreement, such tax reimbursement payment shall be paid by the Company to the Executive no later than December 31 of the year after the year in which the related taxes are remitted to the applicable taxing authorities.

(signatures on following page)

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IN WITNESS whereof this Agreement has been executed the day and year first above written.

AUTOLIV, INC.

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Exhibit 10.36

CHANGE-IN-CONTROL SEVERANCE AGREEMENT

THIS CHANGE-IN-CONTROL SEVERANCE AGREEMENT (the “ Agreement ”), dated [—], is made by and between Autoliv, Inc., a Delaware corporation (the “ Company ”), and [—] (the “ Executive ”).

BACKGROUND

The Board of Directors of the Company (the “ Board ”), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control. This Agreement generally defines a “Change in Control” as the occurrence of any of the following: (i) the members of the Company’s incumbent Board cease to constitute a majority of the Board; (ii) except in the case of certain issuances or acquisitions of stock, any person acquires a 20% or more ownership interest in the outstanding combined voting power of the Company’s then outstanding securities; or (iii) the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the Company’s assets, or a complete liquidation or dissolution of the Company, unless (a) the beneficial owners of the Company’s combined voting power immediately prior to the transaction continue to own 60% or more of the combined voting power of the outstanding securities of the surviving corporation, (b) no person acquires a 20% or more ownership interest in the combined voting power of the Company’s then outstanding securities, and (c) at least a majority of the members of the board of directors of the surviving corporation were incumbent directors of the Board at the time of approval of the applicable transaction. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control and to encourage the Executive’s full attention and dedication to the Company in the event of any threatened or pending Change in Control.

1. DEFINED TERMS. The definitions of capitalized terms used in this Agreement are provided in Section 16 hereof.

2. EFFECTIVE DATE; TERM; PROTECTION PERIOD.

2.1 The “ Effective Date ” shall mean the first date during the Term (as defined in Section 2.2) on which a Change in Control (as defined in Section 16) occurs.

2.2 Unless earlier terminated herein in accordance with this Section 2.2 or Section 7 hereof, the “Term” of this Agreement shall begin on the effective date of the Executive’s Employment Agreement with the Company, dated as of [—] (the “ Employment Agreement ”) and shall end on the Executive’s date of termination as defined in the Employment Agreement. This Agreement may be terminated by either party by giving no less 12 months written notice to the other party; provided, however, that no such written notice may be given during the protection period.

2.3 The “Protection Period” means the period commencing on the Effective Date and ending on the second anniversary of such date.

3. COMPANY’S COVENANTS. In order to induce the Executive to remain in the employ of the Company notwithstanding the possibility, threat or occurrence of a Change in Control and, in consideration of the Executive’s covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payment upon a Qualifying Termination during the Protection Period. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.

4. THE EXECUTIVE’S COVENANTS. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) the date that is [—] months after the date of such Potential Change of Control, (ii) the date of a Change in Control, (iii) the date of the Executive’s resignation for Good Reason, (iv) the date of termination of the Executive’s employment by reason of his death or Retirement, or (v) the termination by the Company of the Executive’s employment for any reason.

5. COMPENSATION OTHER THAN SEVERANCE PAYMENT. Except as otherwise provided in this Section 5, during the Term of this Agreement, including during the Protection Period, the Executive’s Employment Agreement shall remain operative in all respects (including, but not limited to, the Executive’s right to continue to enjoy the compensation and benefits set forth in the Employment Agreement); provided, however, that in the case of a Qualifying Termination during the Protection Period, Section 6 of this Agreement shall replace in its entirety (i) Section 11 of the Employment Agreement, and (ii) any compensation and benefits that would otherwise be payable during the notice period set forth in Section 3 of the Employment Agreement.

6. SEVERANCE PAYMENT

6.1 If, during the Protection Period, the Executive incurs a Qualifying Termination, then, and only if within [—] days after the Date of Termination the Executive shall have executed a separation agreement hereto and such separation agreement shall not have been revoked within such time period, the Company shall pay to the Executive a lump sum severance payment (the “ Severance Payment ”), in cash, equal to [—] times the sum of:

(i) the Executive’s annual base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason;

(ii) the average of the annual cash bonuses earned by the Executive under any Company annual bonus or incentive plan in the prior two fiscal years, or if higher, in the fiscal year ending immediately prior to the fiscal year in which the Date of Termination occurs or, if higher, the fiscal year ending immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason; and

(iii) the sum of (A) the taxable value of the benefit of the Executive’s Company-provided car, if any, and (B) the value of any pension benefits, in each case, that the Executive would have been entitled to had he remained in service for one (1) year following the Date of Termination.

In addition, the Company shall pay all relevant social costs attributable to the lump sum severance payment described in clause (i), (ii) and (iii) above, in accordance with relevant Swedish law.

6.2 The Severance Payment, after deduction for preliminary tax according to law, shall be paid to the Executive in cash not later than the sixtieth (60 ^th ) day following the Date of Termination, or such later date as may be required by Section 17.3 hereof.

6.3 For the avoidance of doubt, the Severance Payment shall be in lieu of any further salary payments to the Executive for periods after the Date of Termination and any benefit otherwise payable to the Executive (including, but not limited to, those benefits provided under the notice period set forth in Section 3 of the Employment Agreement and Section 11 of the Employment Agreement).

7. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE.

7.1 NOTICE OF TERMINATION. Any termination by the Company or the Executive of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto. For purposes of this Agreement, a “ Notice of Termination ” shall mean a written notice which shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. The failure by the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company hereunder or preclude the Company from asserting such fact or circumstance in enforcing the Company’s rights hereunder.

7.2 DATE OF TERMINATION. “ Date of Termination ,” with respect to any termination of the Executive’s employment during the Protection Period, shall mean (i) if the Executive’s employment is terminated other than by reason of death, the date specified in the Notice of Termination , or (ii) if the Executive’s employment is terminated by reason of death, the Date of Termination shall be the date of death of the Executive.

7.3 DISPUTE CONCERNING TERMINATION. Any disputes regarding the termination of the Executive’s employment shall be settled in accordance with Section 13 hereof (including, without limitation, the provisions regarding costs and expenses related to arbitration). If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of the arbitrators (which is not appealable or with respect to which the time for appeal there from has

expired and no appeal has been perfected); provided, however, that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.

7.4 COMPENSATION DURING DISPUTE. If the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall continue to provide the Executive with the compensation and benefits specified in Section 5 of his Employment Agreement, until the Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement provided, however, that in the event that the arbitration results in a determination that the Executive is not entitled to severance payments under the terms of this Agreement, then the Executive shall repay to the Company the compensation received by the Executive during the extended period pursuant to this Section 7.4.

8. NO MITIGATION; NON-DUPLICATION OF BENEFITS.

8.1 The Company agrees that, if the Executive’s employment with the Company terminates during the Protection Period, the Executive is not required to seek other employment or, except as otherwise provided in Section 8.2, to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof or Section 7.4 hereof. Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.

8.2 Notwithstanding Section 8.1 above, the aggregate of any amounts payable to the Executive by the Company pursuant to Section 6 or Section 7.4 herein shall be offset and reduced to the extent necessary by any other compensation or benefits of the same or similar type payable under local laws of any relevant jurisdiction so that such other compensation or benefits, if any, do not augment the aggregate of any amounts payable to the Executive by the Company pursuant to Section 6 or Section 7.4 herein. It is intended that this Agreement not duplicate benefits the Executive is entitled to under country “redundancy” laws or under the Company’s severance policy, if any, any related policies, or any other contracts, agreements or arrangements between the Executive and the Company.

9. SUCCESSORS: BINDING AGREEMENT.

9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive’s estate.

10. NOTICES. All notices and all other communications hereunder shall be in writing and shall be given by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:


If to the Executive:

If to the Company:		Autoliv, Inc.
		Vasagatan 11, 7th Floor
		SE-107 24 Stockholm
		Sweden
		Attention: Secretary

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

11. AMENDMENT AND WAIVER. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

12. ENTIRE AGREEMENT. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive’s employment with the Company only in the event that the Executive incurs a Qualifying Termination during the Protection Period on or following a Change in Control.

13. DISPUTES. Disputes regarding this Agreement (including, without limitation, disputes regarding the existence of Cause or Good Reason) shall be settled by arbitration in accordance with the Swedish Arbitration Act. The arbitration shall take place in Stockholm and, unless otherwise agreed to by both parties, there shall be three (3) arbitrators. The provisions on voting and cumulation of parties and claims in the Swedish Procedural Code shall be applied in the arbitration. All costs and expenses for the arbitration, whether initiated by the Company or by the Executive, including the Executive’s costs for solicitor, shall be borne by the Company, unless the arbitrators determine that the Executive’s claim was frivolous and in bad faith, in which case the arbitrators may allocate costs as they deem fit. Any payments due to the Executive pursuant to the preceding sentence shall be made within fifteen (15) business days after delivery of the Executive’s written request for payment accompanied with such evidence of costs and expenses incurred as the Company reasonably may require.

14. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with Swedish law and, where applicable, the laws of any applicable local jurisdictions.

15. TAXES. Any payments provided for hereunder shall be paid net of any applicable withholding taxes required under applicable law and any additional withholding to which the Executive has agreed.

16. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings indicated below:

(A) “ Affiliate ” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.

(B) “ Beneficial Owner ” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.

(D) “ Cause ” for termination by the Company of the Executive’s employment shall mean:

(i) “Willful and continued failure by the Executive to substantially perform the Executive’s duties with the Company (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or

(ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise.

For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Chief Executive Officer of the Company and the Vice President of Human Resources establish to the Committee by clear and convincing evidence that Cause exists, subject to Section 7.3 hereof.

(E) A “Change in Control” shall mean the happening of any of the following events:

(i) any Person becomes the Beneficial Owner of 20% or more of either (1) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); excluding, however, the following: (1) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust)

sponsored or maintained by the Company or any subsidiary of the Company or (4) any acquisition of the Company by any corporation pursuant to a reorganization, merger, consolidation or similar corporate transaction (hereinafter referred to as a “Corporate Transaction”), if, pursuant to such Corporate Transaction, the conditions described in clauses (1), (2) and (3) of subparagraph (iii) below are satisfied; or

(ii) A change in the composition of the Board such that the individuals who, as of the date hereof, constituted the Board (such Board shall be hereinafter referred to as the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; or

(iii) The consummation of a Corporate Transaction; excluding, however, such a Corporate Transaction pursuant to which (1) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 60% of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction and the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors, in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction or any Person beneficially owning, immediately prior to such Corporate Transaction, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (3) individuals who were members of the Incumbent Board constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or

(iv) The consummation of (1) a complete liquidation or dissolution of the Company or (2) the sale or other disposition of all or substantially all of the assets of the Company; excluding, however, such a sale or other disposition to a corporation, with respect to which immediately following such sale or other disposition, (A) more than 60% of, respectively, the outstanding shares of common stock of such corporation and the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors is beneficially owned, directly, or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of such corporation and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (c) individuals who were members of the Incumbent Board constitute at least a majority of the members of the board of directors of such corporation.

(F) “ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time.

(G) “ Committee ” shall mean (i) the individuals (not fewer than three in number) who, on the date six months before a Change in Control, constitute the Compensation Committee of the Board, plus (ii) in the event that fewer than three individuals are available from the group specified in clause (i) above for any reason, such individuals as may be appointed by the individual or individuals so available (including for this purpose any individual or individuals previously so appointed under this clause (ii)).

(H) “ Company ” shall mean Autoliv, Inc. and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.

(I) “ Date of Termination ” shall have the meaning set forth in Section 7.2 hereof.

(J) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

(K) “ Executive ” shall mean the individual named in the first paragraph of this Agreement.

(L) “ Good Reason ” shall mean the occurrence, without the Executive’s express written consent, of any of the following after a Change in Control (or after a Potential Change in Control, in which case all references in clauses (i) through (vii) below to a “Change in Control” shall be read as references to the “Potential Change in Control”):

(i) the assignment to the Executive of any duties inconsistent with the Executive’s status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive’s responsibilities from those in effect immediately prior to the Change in Control other than any such alteration primarily attributable to the fact that the Company may no longer be a public company;

(ii) a reduction by the Company in the Executive’s annual base salary as in effect on the date immediately prior to the Change in Control or as the same may be increased from time to time;

(iii) the relocation of the Executive’s principal place of employment to a location more than 45 miles from the Executive’s principal place of employment immediately prior to the Change in Control or the Company’s requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with the Executive’s present business travel obligations;

(iv) the failure by the Company to pay to the Executive any portion of the Executive’s current compensation within seven (7) days of the date such compensation is due;

(v) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive’s participation relative to other participants, as existed immediately prior to the Change in Control;

(vii) any purported termination of the Executive’s employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof (for purposes of this Agreement, no such purported termination shall be effective); or

(viii) the failure by any successor to the business of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

A termination by the Executive shall not constitute termination for Good Reason unless Executive shall first have delivered to the Company written notice setting forth with specificity the occurrence deemed to give rise to a right to terminate for Good Reason (which notice must be given no later than 90 days after the initial occurrence of such event), and there shall have passed a reasonable time (not less than 30 days) within which the Company may take action to correct, rescind or otherwise substantially reverse the occurrence supporting termination for Good Reason as identified by the Executive. The Executive’s right to terminate employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness. The Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. Good Reason shall not include the Executive’s death.

(M) “ Notice of Termination ” shall have the meaning set forth in Section 7.1 hereof.

(N) “ Person ” shall mean any individual, entity or group within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

(0) “ Potential Change in Control ” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;

(ii) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;

(iii) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company’s then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or

(iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

(P) “Protection Period” shall have the meaning set forth in Section 2.3 hereof.

(Q) “ Qualifying Termination ” shall mean any of the following occurring during the Protection Period:

(i) the Company’s termination of the Executive’s employment other than for Cause or death;

(ii) the Company’s termination of the Executive’s employment by reason of his disability, provided that the Executive was not disabled prior to the Change in Control; or

(iii) the Executive’s termination of employment for Good Reason.

For purposes of this Agreement, the Executive’s employment shall be deemed to have been terminated during the Protection Period, if (A) the Executive’s employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, (B) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, or (C) the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs).

(R) “ Retirement ” means the last day of the month preceding the Executive’s 65th Birthday.

(S) “ Severance Payment ” shall have the meaning set forth in Section 6.1 hereof.

17. U.S. TAX CODE SECTION 409A. This Section 17 shall apply only in the event that the Executive is or becomes a taxpayer under the laws of the United States at any time during the Term.

17.1 This Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereunder shall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A of the Code and applicable Internal Revenue Service guidance and Treasury Regulations issued thereunder. Nevertheless, the tax treatment of the benefits provided under the Agreement is not warranted or guaranteed. Neither the Company nor its directors, officers, employees or advisers shall be held liable for any taxes, interest, penalties or other monetary amounts owed by the Executive as a result of the application of Section 409A of the Code.

17.2 Notwithstanding anything in this Agreement to the contrary, to the extent that any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code (“ Non-Exempt Deferred Compensation ”) would otherwise be payable or distributable hereunder, or a different form of payment of such Non-Exempt Deferred Compensation would be effected, by reason of by reason of a Change in Control or the Executive’s termination of employment, such Non-Exempt Deferred Compensation will not be payable or distributable to the Executive, and/or such different form of payment will not be effected, by reason of such circumstance unless the circumstances giving rise to such Change in Control or termination of employment, as the case may be, meet any description or definition of “change in control event” or “separation from service,” as the case may be, in Section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such definition). This provision does not prohibit the vesting of any Non-Exempt Deferred Compensation upon a Change in Control or termination of employment, however defined. If this provision prevents the payment or distribution of any Non-Exempt Deferred Compensation, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a Section 409A-compliant “change in control event” or “separation from service,” as the case may be, or such later date as may be required by subsection 17.3 below. If this provision prevents the application of a different form of payment of any amount or benefit, such payment shall be made in the same form as would have applied absent such designated event or circumstance.

17.3 Notwithstanding anything in this Agreement to the contrary, if any amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be payable or distributable under this Agreement by reason of the Executive’s separation from service during a period in which he is a “specified employee” (as defined in Code Section 409A and the final regulations thereunder), then, subject to any permissible acceleration of payment by the Company under Treas. Reg, Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes), (i) the amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following the Executive’s separation from service will be accumulated through and paid or provided on the first day of the seventh month following the Executive’s separation from service (or, if the Executive dies during such period, within thirty (30) days after the Executive’s death) (in either case, the “Required Delay Period”); and (ii) the normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay.

17.4 Each payment of termination benefits under this Agreement shall be considered a separate payment, as described in Treas. Reg. Section 1.409A-2(b)(2), for purposes of Section 409A of the Code.

17.5 Whenever in this Agreement a payment or benefit is conditioned on the Executive’s execution and non-revocation of a release of claims, such as the separation agreement referenced in Section 6.1 hereof, such release must be executed and all revocation periods shall have expired within 60 days after the Date of Termination; failing which such payment or benefit shall be forfeited. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to subsection 17.3 above, such payment or benefit (including any installment payments) that would have otherwise been payable during such 60-day period shall be accumulated and paid on the 60th day after the Date of Termination provided such release shall have been executed and such revocation periods shall have expired. If such payment or benefit is exempt from Section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period.

17.6 If the Executive is entitled to be paid or reimbursed for any taxable expenses under this Agreement and if such payments or reimbursements are includible in the Executive’s federal gross taxable income, the amount of such expenses payable or reimbursable in any one calendar year shall not affect the amount payable or reimbursable in any other calendar year, and the reimbursement of an eligible expense must be made no later than December 31 of the year after the year in which the expense was incurred. The right to any reimbursement for expenses incurred or provision of in-kind benefits is limited to the lifetime of the Executive, or such shorter period of time as is provided with respect to each particular right to reimbursement in-kind benefits pursuant to the preceding provisions of this Agreement. No right of the Executive to reimbursement of expenses under this Agreement shall be subject to liquidation or exchange for another benefit.

17.7 If the Executive is entitled to be reimbursed for any taxes under this Agreement, such tax reimbursement payment shall be paid by the Company to the Executive no later than December 31 of the year after the year in which the related taxes are remitted to the applicable taxing authorities.

18. MANDATORY REDUCTION OF PAYMENTS IN CERTAIN EVENTS. This Section 18 shall apply only in the event that the Executive is or becomes a taxpayer under the laws of the United States at any time during the Term.

18.1 Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a “ Payment ”) would be subject to the excise tax imposed by Section 4999 of the Code (the “ Excise Tax”), then, prior to the making of any Payment to the Executive, a calculation shall be made comparing (i) the net benefit to the Executive of the Payment after payment of the Excise Tax, to (ii) the net benefit to the Executive if the Payment had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under (ii) above, then the Payment shall be limited to the extent necessary to avoid being subject to the Excise Tax (the “ Reduced Amount ”). The reduction of the Payments due hereunder, if applicable, shall be made in such a manner as to maximize the economic present value of all Payments actually made to the Executive, determined by the Determination Firm (as defined in Section 18.2 below) as of the date of the Change in Control using the discount rate required by Section 280G(d)(4) of the Code.

18.2 The determination of whether an Excise Tax would be imposed, the amount of such Excise Tax, and the calculation of the amounts referred to Section 18.1(i) and (ii) above shall be made by an independent, nationally recognized accounting firm or compensation consulting firm mutually acceptable to the Company and the Executive (the “ Determination Firm ”) which shall provide detailed supporting calculations. Any determination by the Determination Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Determination Firm hereunder, it is possible that Payments which the Executive was entitled to, but did not receive pursuant to Section 18.1, could have been made without the imposition of the Excise Tax (“ Underpayment ”). In such event, the Determination Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive, but no later than December 31 of the year after the year in which the Underpayment is determined to exist.

18.3 In the event that the provisions of Code Section 280G and 4999 or any successor provisions are repealed without succession, or if the Executive is not a US taxpayer, this Section 18 shall be of no further force or effect.]

IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf.

AUTOLIV, INC.

Exhibit 10.38

AUTOLIV, INC.

NON-EMPLOYEE DIRECTOR COMPENSATION POLICY

Effective January 1, 2012

The following shall remain in effect until changed by the Board:


Annual Base Retainer*
All Non-Employee Directors other than Chairman	$	170,000
Chairman	$	340,000
Lead Director Annual Supplemental Retainer	$	25,000
Committee Chair Annual Supplemental Retainers
Audit Committee	$	20,000
Compensation Committee	$	20,000
Nominating and Corporate Governance Committee	$	10,000
Compliance Committee		As determined by the Board on an annual basis.

*	The Annual Base Retainer will be paid in arrears, as follows:

Two-thirds (2/3) of the applicable Annual Base Retainer will be paid in cash (the “ Cash Payment ”). The Cash Payment will be split and paid in two equal payments in each calendar year (each date a “ Cash Payment Date ”), and will be prorated using the Proration Factor (as defined below).

Subject to share availability under the Autoliv, Inc. 1997 Stock Incentive Plan, as the same may be amended from time to time (the “ Plan ”), one-third (1/3) of the applicable Annual Base Retainer will be paid in the form of fully-vested shares of Common Stock (as defined in the Plan) (the “ Annual Stock Grant ”) on the date in each calendar year when the Company grants its annual incentives for employees for the coming year (the “ Grant Date ”, typically in February). The number of shares in the Annual Stock Grant will be determined by multiplying the Proration Factor (as defined below) by the amount determined by (A) dividing the amount that is one-third (1/3) of the applicable Annual Base Retainer by the Fair Market Value (as defined in the Plan) of the Common Stock on the Grant Date, and (B) rounding to the nearest whole number. The Annual Stock Grants will be granted under, and subject to the terms and conditions of, the Plan.

The “ Proration Factor ” is a fraction, (a) the numerator of which is the number of full months of service as a non-employee director during, as applicable, (i) the calendar year immediately preceding the calendar year of the Grant Date or (ii) the 6 month period immediately preceding the 6 month period of the Cash Payment Date and (b) the denominator of which is, as applicable, (i) 12, as to the Annual Stock Grant or (ii) 6, as to the Cash Payment.

Non-employee directors are required to hold shares of Common Stock granted pursuant to the Annual Stock Grants until he or she has met the ownership requirements set forth in the Autoliv, Inc. Stock Ownership Policy for Non-Employee Directors.

Exhibit 12.1

Autoliv, Inc.

Computation of Ratio of Earnings to Fixed Charges


	Year Ended December 31,
(Dollars in millions)	2008		2009		2010		2011		2012
Fixed charges

Interest expense	$	72.9	$	68.2	$	66.6	$	68.2	$	41.7
Interest portion of rental expense (1)		10.2		9.3		9.7		12.0		11.7

Total	$	83.1	$	77.5	$	76.3	$	80.2	$	53.4

Earnings

Income before income taxes	$	248.7	$	5.5	$	805.5	$	828.3	$	668.6
Earnings in Affiliates		–3.9		–3.8		–5.5		–6.8		–8.1
Fixed charges +		83.1		77.5		76.3		80.2		53.4
Cash from Affiliates +		2.2		9.2		9.2		6.4		4.8

Total	$	330.1	$	88.4	$	885.5	$	908.1	$	718.7


Ratios of Earnings to Fixed Charges		4x		1x		12x		11x		13x

(1)	One-third of all rental expense is deemed to be interest.

For the purpose of computing these ratios, (i) “earnings” consists of the sum of pre-tax income from continuing operations before adjustment for non-controlling interests in our consolidated subsidiaries or income or loss from equity investees; fixed charges; amortization of capitalized interest; and distributed income of equity investees; and (ii) “fixed charges” consists of the sum of interest expense (which includes amortization of premiums, discounts, and capitalized expenses related to debt issue costs, when applicable); capitalized interest; and one-third of rental expense which we believe to be a reasonable estimate of an interest factor in our leases.

Exhibit 13

ANNUAL REPORT 2012

Making Driving Safer

The active safety system continuously checks the environment around the vehicle for potential dangerous objects using radar and/or cameras and the information is shown using a Head-up Display on the inside of the windshield. The system can be used for many different applications, some of them are described below.

AUTONOMOUS EMERGENCY BRAKING

Many accidents are caused by late braking and/or braking with insufficient force. Autoliv’s autonomous braking system uses radar sensors to help the driver avoid these kinds of accidents or, at least, to reduce their severity.

When the radar sensors detect an obstacle ahead of the car, the driver will be warned, typically 2.5 seconds, before a potential impact. If the driver fails to react, the system will autonomously apply the brakes with full power approximately one second later and, as a precaution, tighten the active seatbelts using reversible electrical pretensioners.

ADAPTIVE CRUISE CONTROL

The radar sensors can also be used for Adaptive Cruise Control (ACC). The ACC is similar to traditional cruise control in that it keeps the vehicle’s pre-set speed automatically. The biggest difference between the two, however, is that ACC can also automatically adjust the vehicle’s speed to keep a pre-set distance from vehicles ahead. For example, if the vehicle ahead slows down, or if another vehicle comes into the lane, the ACC sends a signal to the engine or brake system to keep the pre-set distance. When the road is clear again, the ACC will accelerate the vehicle up to the pre-set speed.

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 42 and page 54 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 60 in the Annual Report. For forward-looking information, refer to the “Safe Harbor Statement” on page 55 in the Annual Report.

Data on markets and competitors are Autolivs’ 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 36 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) are available at www.autoliv.com under Investors/Filings.

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 88 in the Annual Report.

CONTENT

President’s Letter

Autoliv’s Targets

Autoliv in Brief

Safety Systems

Innovations

Testing Capabilities

Social Responsibility

Employees

Global Presence

Market

Customers

Manufacturing & Purchasing

Quality

Shareholders

Share Performance

Management’s Discussion and Analysis

Consolidated Statements of Income

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Total Equity

Notes to Consolidated Financial Statements

Auditor’s Reports

Glossary and Definitions

Corporate Governance

Board of Directors

Executive Management

Contact Information & Calendar

Selected Financial Data

2012 in Summary

– Organic sales ¹⁾ up 4% with sales of active safety up nearly 40%

– Action program to align capacity in Europe

– Dividends raised to record levels

– The world’s first pedestrian protection airbag introduced

– New “green” airbag inflator with 20% less weight

Over the past ten years, Autoliv’s sales have become better balanced with Europe, the Americas and Asia accounting for 32%, 35% and 33%, respectively, of sales. Compared to 56%, 31% and 13% in 2003.

1)	Non-U.S. GAAP measure, see page 42 of the Annual Report.

Dear Shareholder,

In 2012, we continued to deliver on our growth strategy. Our organic sales grew by 4% despite the fact that light vehicle production (LVP) in the important Western European market dropped by 8%.

We managed to offset this effect with strong performance in China and in active safety where our sales increased by 36%.

We also benefitted from the continued LVP recovery in North America since the 2008-09 financial crisis and the Japanese LVP rebound after the 2011 tsunami. As a result, we achieved new record sales of $8.3 billion. This was in spite of negative currency effects and a small divestiture.

In addition, 2012 was another year with record order intake which confirms our market leadership position.

In light of these achievements, I would like to thank our employees for their hard work and strong contributions in 2012.

ALIGNING CAPACITY LOCALLY

In response to the sharp drop in Western European LVP, we started to implement a capacity alignment program. We announced it at the beginning of the year, before most companies announced their restructuring programs.

Initially, we estimated the cost for our program as “more than $50 million.” In response to the further deterioration in the outlook for European LVP, we raised in April the expected cost to $60-80 million and, in October, to the higher end of that range. Eventually, the cost for the capacity alignment program ended up at $79 million.

We have also decided to expand the program into 2013 and expect capacity alignments to cost another $25-50 million.

These actions should ensure that we have the right resources in the right place at the right time.

HIGHER DIVIDENDS AND INVESTMENTS

Another important achievement during 2012, was our operating cash flow of $689 million. This allowed us – in combination with a strong balance sheet – to continue to raise the quarterly dividends to shareholders. The dividend per share was first raised from 45 cents to 47 cents for the second and the third quarters and then to 50 cents for the fourth quarter. This came after three dividend increases during 2011. In total, the dividend was raised by 15% between 2011 and 2012, which had the effect of returning 54% of the 2012 “free cash flow” (i.e. net cash provided by operating activities less net cash used in investing activities) to shareholders.

The healthy cash flow has also allowed us to invest for the future and to continue to spend almost 4.5% of sales in capital expenditures. These capital investments will not only provide much-needed additional manufacturing capacity in China and other growth markets but also increase our vertical integration. This will thereby enhance our competitive edge and mitigate the pricing pressure effect in our industry.

In 2012, we announced Autoliv’s largest capital investment ever – a $33 million new gas generant plant in China. This investment, in combination with an expansion of our North American gas generant plant, will provide the potential to grow our global airbag manufacturing capacity by approximately 30%. In addition, we are increasing our North American manufacturing capacity for initiators for airbags and for micro gas generators for pyrotechnic seatbelt pretensioners. These capital expenditures will increase our vertical integration and reduce costs, in addition to providing necessary additional manufacturing capacity.

In 2012, we also began the extensions of our technical center in China and of our seatbelt assembly plant in Hungary. A new assembly facility for airbags and seatbelts was completed in Indonesia and a new steering wheel plant in Romania as well as a new seatbelt assembly plant in Russia.

A PRO-ACTIVE BALANCE SHEET

Despite these higher investments for the future and higher dividends, Autoliv’s net cash increased by almost $270 million to more than $360 million at the end of 2012. At present, we believe it is appropriate to maintain a strong balance sheet for the following reasons. The uncertain macro environment could lead to additional needs for capacity alignments. We cannot yet estimate how much the ongoing antitrust investigations (see page 43 in the Annual Report) will cost us. Last, but not least, we want to make acquisitions to accelerate Autoliv’s growth.

However, when it is possible to assess the financial outcome of these three uncertain variables, it could turn out that our company will have more funds than it will need for its operations. In that case, we could be returning even more funds to shareholders than we currently do.

STRATEGY FOR GROWTH

Looking ahead, our strategy is based on the expected growth of global LVP as seen from the graph below. LVP is expected by IHS to grow by 23% or almost 20 million light vehicles to nearly 100 million by 2017. However, virtually all of this growth will be concentrated in China and other growth markets, while the traditional light vehicle markets (Western Europe, North America and Japan) are expected to merely rebound to their historical LVP levels before the financial crisis in 2008-2009. As a result of this shift in global LVP, we and the entire automotive industry need to invest in increased capacity in growth markets, where there still is a significant untapped market potential for our passive safety systems. Hence, our relatively high current capital expenditure level.

We also want to grow in the traditional markets in order to expand faster than the automotive safety market, in line with our strategy. The only way to do this is to introduce new technologies, thereby increasing the safety content per vehicle. Therefore, we are increasing our R,D&E expenses, net; from 5.0% of sales in 2010 and 5.5% in 2012 to more than 5.5% expected in 2013.

Our R,D&E undertakings are paying off in terms of growing sales. For instance, during the past three years, sales of active safety have grown by 73% in 2010 to $85 million, 89% in 2011 to $160 million and by 36% in 2012 to $218 million and are targeted to reach half a billion dollars by 2015.

Our R,D&E spending is also paying off in terms of new products. For instance, in 2012, we, in collaboration with Volvo, introduced the world’s first pedestrian airbag (see photo), which was introduced on the Volvo V40.

Another result of our investments in R,D&E was a new “green” airbag inflator. It leaves no waste products, except for 100% clean water vapor since it uses hydrogen and oxygen to inflate the airbag instead of a traditional “powder”. Additionally, the new airbag inflator has 20% less weight than the inflator it is replacing, thereby reducing fuel consumption and emissions during the long life of a vehicle.

OUTLOOK 2013

2013 is also likely to be a mixed year with continued challenges in Western Europe, balanced by continued growth in the Americas, China, Rest of Asia and Active Safety. Therefore, we are pleased that we initiated our capacity alignment program early since it will help us meet the challenges in Europe, although most of the cost savings will be realized in 2014 and 2015.

For the full year 2013, our current data indicates an organic sales growth in the range of 1-3%. This is despite an expected organic sales decline of 4% in the first quarter due to a 14% drop in Western European LVP. Based on this assumption, consolidated sales are expected to grow in the range of 2-4% during 2013, provided that the mid-January currency exchange rates prevail.

The indication for the operating margin is around 9% for 2013, excluding costs for capacity alignments and antitrust investigations. The capacity alignment costs are currently assumed to reach at least $25 million but not exceed $50 million.

The effective tax rate is projected to be around 27%, excluding discrete items.

Operations are expected to continue to generate a strong cash flow in the magnitude of $0.7 billion, while capital expenditures are expected to amount to approximately 4.5% of sales.

Yours sincerely,

Jan Carlson

Stockholm, February 22, 2013

Autoliv’s Targets


LONG TERM TARGETS		COMMENTS

Organic Growth Exceed growth of the global light vehicle production (LVP). Definition on page 42 in the Annual Report (Non-U.S. GAAP measure)		Since there is no public data on the global automotive safety market, we use global LVP as a proxy to measure our sales performance and market share development. Both in 2010 and 2011, we outperformed global LVP by 6 percentage points and grew our market share. However, in 2012 when global LVP grew by 7%, our organic sales growth of 4% was 3 percentage points less than the global LVP growth. This underperformance was due to an 8% decline in Western European LVP.

Operating Working Capital Less than 10% of last 12-month sales. Definition on page 42 in the Annual Report (Non-U.S. GAAP measure)		Our operating working capital in relation to sales continues to trend well below our target of less than 10% of sales. This is due to our continued focus on inventory and overall capital management. For 2012, when working capital was 7.0% of sales, we beat our target by 3.0 percentage points (p.p.).

Labor Productivity At least 5% per year.		We managed to reach our productivity improvement target of at least 5% per year in 2010-2012 when productivity in manufacturing improved by 6.1%, 6.0% and 6.1%, respectively. This is thanks to the strong focus on continued improvements and standardization in all of our plants world wide.

Direct Material Cost Reduction At least 3% per year.		In 2012, we reduced our direct material prices (i.e. component costs) by 3.9%, well in line with our target of 3%. In 2011, we reduced direct material prices by 2.1%, thereby missing our target by 0.9 percentage points. This was due to a 1.6 percentage point negative effect from higher commodity prices. Commodities make up 51% of our direct material costs.

60 years of innovation

For 60 years Autoliv has been in the business of saving lives and has accounted for virtually all of the major industry break-throughs. This proud tradition spurs us on to develop new ingenious safety innovations and save even more lives.

1956 - Seatbelt

Lennart Lindblad, the founder of Autoliv, develops the Company’s first seatbelt, a 2-point static belt.

1980 - Airbag

Morton ASP, which became an Autoliv company in 1997, starts airbag production.

1989 - Pretensioner

Mercedes introduces our innovation that tightens the seatbelt mechanically at the onset of a crash.

1994 - Side Airbag

Volvo introduces our new airbag that reduces thorax injuries in side-impact collisions.

1995 - Knee Airbag

KIA introduces our new airbag that reduces knee injuries.

1998 - Side Curtain Airbag

Mercedes and Volvo introduce our curtain airbag that covers an upper side of the vehicle in a side impact to protect the occupants’ heads.

2005 - Pedestrian Protection

Jaguar introduces our hood lifter that creates clearance between the hood and the hard engine block underneath when the pedestrian’s head hits the vehicle hood.

2006 - Active Seatbelt

A reversible seatbelt that tightens, as a precaution, immediately before a very likely crash and then releases again if the driver manages to avoid the crash.

2008 - Pedestrian Warning

BMW introduces our second generation of Night Vision Systems which can warn the driver of pedestrians.

2012 - Pedestrian Protection Airbag

Volvo introduces an outside airbag for pedestrian protection. The product helps car manufacturers meet the stricter 2014 EuroNCAP requirements.

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.

Who We Are, What We Do

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

Innovation and focus on saving lives have been the hallmarks for Autoliv from its inception 60 years ago. Now our products save over 25,000 lives every year and prevent ten times as many severe injuries. The next step is to further reduce road traffic accidents with active safety systems that can assist the driver to avoid an accident or, at least, reduce the speed of impact, thereby substantially mitigating the severity of injuries.

Autoliv, Inc. is incorporated in the state of Delaware, and its global headquarters is located in Stockholm, Sweden.

We are 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, manufacture and market airbags, seatbelts, steering wheels, passive safety electronics and active safety systems such as radar, night vision and camera vision systems. We also produce anti-whiplash systems, pedestrian protection systems and child seats.

Our leading market position in automotive safety includes a global market share of approximately 36% in passive safety and around 20% in active safety. In 2012, we produced around 140 million seatbelts and around 110 million airbags. Statistically, there were almost two seatbelts and 1.5 airbags from Autoliv in every vehicle produced globally, despite many vehicles not having airbags.

ABOUT AUTOLIV


OUR PRODUCTS SAVE	OPERATIONS IN	CRASH TEST TRACKS
>25,000	29	20
Lives annually	Countries	Worldwide

AIRBAGS	FACILITIES	ASSOCIATES
~110	>80	>50,000
Million units in 2012	Globally	worldwide

SEATBELTS	PREVENT/REDUCE SEVERE INJURIES	TECH CENTERS IN
~140	250,000	18
Million units in 2012	Annually	locations

ACTIVE SAFETY SYSTEMS

Our Active Safety systems are designed to intervene before a crash by adjusting engine output, steering and braking. These systems can create a “Virtual Crash Zone” using our radar and vision technologies to monitor the environment around the vehicle, 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 occurring.

With the introduction of active safety systems, many accidents and collisions will become avoidable or at least less severe by reducing the speed of impact. This will also result in significant improvements in the protection provided by the passive safety system.

NIGHT DRIVING ASSIST

The night driving assist displays an image of the road scene ahead to make night-driving easier and safer. The image generated in the heat-sensing device is processed using different filters to obtain a black and white image with sharp light or dark outlines, in which shapes are easily detected. The system also analyzes the scene content with respect to the motion of the vehicle to determine if a pedestrian or an object is at risk of being hit by the vehicle. It can detect pedestrians and animals up to two times further away than the typical headlight range and, if a threat exists, the driver is warned. The latest generation of our night vision, called Dynamic Spot Light , has a revolutionary function that selectively illuminates pedestrians and animals with a separate marking headlight (see page 17).

RADAR SYSTEMS

Short and medium range radar system provides all-weather object detection and can be used effectively in all directions around the vehicle. By scanning up to 30 meters, 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 long range radars are utilized for adaptive cruise control systems.

VISION SYSTEMS

Autoliv’s pioneering work with camera-based vision systems gives the driver, in effect, an additional pair of eyes scanning the road ahead for danger.

Advanced algorithms enable the camera to recognize and track other vehicles, speed signs and lane markings. They can also warn the driver when the car is in danger of colliding with pedestrians, other vehicles or straying out of lane.

To provide a free view, the camera is typically located at the upper edge of the wind shield.

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 also warns the driver by letting the pretensioner vibrate the seatbelt webbing.

This technology also offers improved comfort to the occupants while using the seatbelt.

BRAKE CONTROL/ESC

Autoliv has developed the world’s first Integrated Inertial Measurement Unit that combines the controls of the vehicle’s restraint system with those controls for the vehicle’s brakes that can provide Electronic Stability Control (ESC), Anti-locking Brakes (ABS) and Automatic Traction Control (ATC). This merger of the control systems, which will be launched in 2014, provides significant savings and enhanced performance.

ACTIVE AND PASSIVE SAFETY INTEGRATION

To monitor the environment around the vehicle and control the vehicle motion, Autoliv is developing the next generation of electronic integration.

This Electronic Safety Domain Controller (ESDC) links all safety sensors (including the environmental sensor) and all actuators that control vehicle motion (brakes, steering, and engine/transmission).

ACTIVE SAFETY FUNCTIONS

Autonomous Emergency Braking (Radar or Vision)

Continuously monitors the area in front of the vehicle to detect slow moving vehicles and other objects.

Function : alerts the driver, tightens the active seatbelt, puts the brakes in an alert mode and applies the brakes autonomously.

Cross-Traffic Assist (Radar)

Helps detect cross traffic when reversing out of a parking space.

Function : acoustic alert.

High/Low Beam Assist (Vision)

The system identifies on-coming vehicles and determines when the head lights need to be dipped in order not to blind the on-coming driver.

Function : automatically switches between high and low beams.

Blind Spot Detection (Radar)

Monitors the presence, direction and velocity of vehicles in adjacent lanes.

Function : alerts the driver by lighting a warning indicator on the appropriate side.

Road/Lane Departure Assist (Vision)

Monitors the lane markings on the road and checks that the vehicle stays within its lane to avoid dangerous situations.

Function : alerts the driver with acoustical or haptic warnings and/or a symbol on the head-up display.

Pedestrian Detection/Warning (Vision)

Detects pedestrians who might be about to step into the road.

Function : warns the driver or even autonomously brakes the vehicle.

Queue Assist (Radar or Vision)

In slow-moving traffic and congestion it makes driving easy and comfortable.

Function : maintains a set speed/distance to a vehicle ahead down to a standstill.

Traffic Sign Recognition (Vision)

The system keeps the driver informed of the speed limit and other traffic signs on the road.

Function : a symbol is displayed in the instrument cluster or on the Head-up Display (on the inside of the vehicle’s windshield) showing the current speed limit or other important road signs.

Adaptive Cruise Control (Radar)

Automatically adjusts the vehicle speed to maintain a safe distance from vehicles ahead.

Function : maintains a set speed/distance to a vehicle ahead.

PASSIVE SAFETY SYSTEMS

Autoliv has accounted for virtually all major technological breakthroughs within passive safety over the last 60 years.

SEATBELT SYSTEMS

Modern seatbelts can reduce the overall risk of serious injuries in frontal crashes by as much as 60% thanks to advanced seatbelt technologies such as 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.

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. 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 , have a 75% reduction of the risk of life-threatening head or chest injuries in frontal crashes.

Supplemental belts prevent occupants from sliding out of the “open side” of the regular 3-point belt in roll overs and far-side collisions.

AIRBAGS AND STEERING WHEELS

Driver and the passenger airbags deploy in 50 milliseconds, half the time of the “blink of an eye”, and can be “smart”, i.e. the power of the airbags can be tuned to the severity of the crash and the size of the occupant, using adaptive output airbag inflators. The driver airbag reduces fatalities in frontal crashes by approximately 25% (for belted drivers) and reduces serious head injuries by over 60%. The airbag for the front-seat passenger reduces fatalities in frontal crashes by approximately 20% (for belted occupants).

Side 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.

Single-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 of 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 airbag becomes more efficient.

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.

Far-side airbag s that inflate between the seats can significantly reduce injuries by preventing the occupants to move sideways. Studies have shown that 30% of all serious injuries in side-impact collisions are related to the far-side occupant hitting the other occupant or hard objects.

Bag-in-belt is a combination of a seatbelt and an airbag to further reduce the load on the occupant’s ribcage in a frontal collision.

CRASH ELECTRONICS

The ECU (Electronic Control Unit) 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 (see “Brake Control/ESC” on the previous page).

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

PEDESTRIAN PROTECTION

To protect the head, the hood needs to be able to act as a cushion. This can be achieved using pyrotechnic hood-lifters that raise the rear end of the hood to create clearance above the rigid engine structure 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 windshield pillars. In this case an outside pedestrian protection airbag 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 latter systems have the advantage of being able to brake the car, thereby reducing the speed and the severity of impact.

ANTI WHIPLASH

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

BATTERY DISCONNECT SAFETY SWITCH

The Pyrotechnic Safety Switch utilizes a pyrotechnic initiator to cut the electrical power to a designated portion of the vehicle in a crash. This minimizes the potential for a fire in a crash. It is especially important in electrical vehicles to automatically and safely cut-off the connection to the electrical power.

Innovations for the Future

Autoliv has 4,700 people, or almost 10% of all associates, in research, product development and application engineering.

SAFETY 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 priorities.

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.

We have 4,700 people in Research, Product Development and Application Engineering (R,D&E).

Research (R) is conducted by some 30 dedicated specialists at our Swedish Safety Center. We also provide funding for another 30 scientists at universities and independent research institutes to work on special projects. We use accident databases (such as NASS-CDS in the U.S., as well as GIDAS in Europe and CIDAS in China both of which Autoliv is a member) to identify the types of traffic injuries to which we might apply Autoliv’s safety expertise. We also draw on our crash tests and trials, as well as on the vast expertise our specialists have gathered over many years.

Corporate development projects (D) are assigned to our leading tech centers in China, France, Germany, Japan, South Korea, Sweden and the United States. Our tech center in India has been assigned some corporate projects for the safety of small cars. Application engineering projects are completed in our tech centers in close cooperation with the manufacturing units.

Our R,D&E focuses both on inventing completely new technologies and on implementing further improvements and cost savings to existing products.

In total, Autoliv currently has thousands of R,D&E projects with the vast majority of the projects (and the associated costs) in application engineering to support the development of new vehicle models. No single project accounts for more than 3% of Autoliv’s total R,D&E spending.

INVESTMENTS

During 2012, we increased Research, Development and Application Engineering (R,D&E) expenses, net by $14 million, 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.

Gross expenditures for R,D&E amounted to $598 million compared to $568 million in 2011, which corresponded to 7.2% of sales in 2012 and to 6.9% of sales in 2011 (see graph).

Of these amounts, $143 million in 2012 and $127 million in 2011 related to engineering projects and crash tests were paid by vehicle manufacturers, safety authorities, auto magazines and other external customers.

Net of this income, R,D&E expenditures amounted to $455 million in 2012 and $441 million in 2011 or to 5.5% and 5.4% of sales.

Of the gross R,D&E expense in 2012, 75% was for projects and programs for which we have customer orders, typically related to vehicle models in development. The remaining 25% was not only for completely new innovations but also for improvements of existing products, standardization and cost reduction projects.

PATENTS

Our commitment to technological leadership is evidenced by our strong patent position. In 2010, (the latest year with official statistics), Autoliv accounted for 5% of all new patent filings in passive automotive safety filed in more than one country.

Autoliv holds more than 6,500 patents covering a wide range of innovations and products in automotive safety and key supporting technologies, an increase from 6,300 in 2011.

DYNAMIC SPOT LIGHT

Autoliv’s new Dynamic Spot Light, which was developed in collaboration with BMW, can selectively illuminate pedestrians and animals without blinding on-coming drivers. It uses the heat-emission sensor in Autoliv’s infrared-based Night Vision system to detect a pedestrian or animal and two LED spot lights that act independent of each other.

DRIVER DISTRACTION

Autoliv’s Eyes-On-the-Road (EOR) camera can warn the driver and/or brake the vehicle if the driver is distracted or about to fall asleep. The EOR can also identify the driver to make sure the vehicle is not stolen, as well as adjust the seat automatically to the right position to the driver’s height and weight. The bars on the photos show three degrees of distraction.

Empty bar with driver’s eyes on the road. Driver busy texting. Distracted driver.

ADAPTABLE SEATBELTS

Heavier and taller vehicle occupants need—and can take—higher restraining forces in a crash than, for instance, a child. Therefore, adaptive load-limiters were developed a decade ago. One drawback with these features is their need for sensors, which are expensive. Existing adaptive load limiters could also be difficult to tune in real life to the occupant’s size and the severity of the crash.

Autoliv has now invented a new seatbelt retractor that can tune its restraining force individually to each vehicle occupant – without any sensor. This purely mechanical solution offers adaptability to the occupant size and the severity of a crash at a low cost.

Unique Testing Capabilities

With our technical centers in nine countries, we have one of the best global footprints in the industry to support our customers’ new vehicle development.

CRASH TESTING We are the only safety supplier with dedicated resources for crash testing of complete vehicles rather than just vehicle bodies in sled tests. Autoliv has six crash-test facilities with tracks for full-scale tests (one in China, France, Sweden, the U.S. and two in Germany). At these tracks, vehicles weighing up to five tons can be crash-tested at speeds up to 64 Km/h (40 mph).

The experience our experts gather from these full scale tests gives us a unique capability to work as a “safety consultant” to help support safety systems development with the vehicle manufacturers.

FIELD TESTS Autoliv’s engineers perform hundreds of thousands of kilometers of on-road testing and data gathering all over the world since active safety systems must work in all types of driving conditions and road sign layouts, lane markings etc. vary between countries and regions.

WINTER TESTING The region near the Arctic Circle provides ideal conditions for developing and testing brake control systems such as stability control and traction control.

ROLL-OVERS are dangerous accidents that have a higher fatality rate than other types of crashes.

Our roll-over tests use special rigs, ditches, sand beds and ramps to simulate various roll-over accidents. The in-door roll-over tests require huge open buildings with large high-intensity light ramps.

SIMULATION is a cost-efficient re-creation of a destructive crash test to examine the level of safety. To model real crash tests, today’s crash simulations include virtual models of the anatomy of the human body.

CARSON CITY is a unique outdoor test facility for pre-crash and active safety systems located in Vårgårda, Sweden. The facility can be used for advanced development of pedestrian protection systems, including autonomous braking systems.

SLED TESTING in a High-G Sled is a non-destructive cost-efficient test method. It uses a hydraulically powered piston that “strikes” the sled for repeatable comparisons of occupant motions and loadings in different crash situations.

Investing in Social Responsibility and Integrity

Helping to save more lives and preventing injuries is the most important contribution Autoliv can make to social responsibility. Therefore, corporate social responsibility is not new to us. It has been our core business for 60 years.

MORE THAN 1.2 MILLION PEOPLE perish every year on the world’s roads, and between 20 and 50 million suffer serious injuries, according to the World Health Organization (WHO).

In addition to the human suffering, these tragedies cost societies billions of dollars every year. The situation is aggravated by the fact that traffic accidents affect especially younger generations (they are a top-three cause of death for people aged 5 to 44) and often lead to life-long disabilities.

Consequently, saving more lives and preventing injuries is the most important contribution Autoliv can make to social responsibility. We therefore use our expertise to support and cooperate with government agencies, hospitals, insurance companies, non-governmental organizations and others who share our vision of zero traffic fatalities.

We also assume our social responsibility in several other ways.

INVESTING IN INTEGRITY

Our investment in integrity is demonstrated through our commitment to upholding our values, to adhering to the law, and fostering a culture that all employees act with the highest ethics and integrity.

We live our values every day, because how we do business is very important for a company that is in the business of saving lives. We have in place the elements of an effective compliance program, including executive sponsorship, Board of Directors’ oversight, a system for reporting potential or actual criminal conduct, and the Autoliv Standards of Business Conduct and Ethics.

Autoliv’s Standard of Business Conduct and Ethics draws on universal standards such as the “Global Sullivan Principles of Social Responsibilities”; the “U.N. Global Compact”; ILO’s Declaration on Fundamental Principles and Rights at Work; and OECD’s Guidelines for Multinational Enterprises. These standards apply to all operations and all employees worldwide and are available to view and download from www.autoliv.com.

We invest in our compliance and awareness program “Raise your hand for Integrity” to educate every employee of Autoliv’s expectations for acting with integrity and promoting ethical conduct and communicating that ethical breaches will not be tolerated. Our compliance education and awareness program empowers employees and conveys our expectations that employees are required to report any suspected, potential, or known violations of law, Autoliv policies and procedures, or concerns through one of the available channels. The awareness program educates employees that they can report concerns by speaking confidentially with a representative in Human Resources, the Legal department, a Corporate Compliance Officer, or by using the Autoliv Helpline.

The Autoliv Helpline is a multilingual third-party operated service where reports can be made confidentially, without fear of retaliation, 24 hours a day, 7 days a week, by phone or online at http://helpline.Autoliv.com .

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 CO2 emissions 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 can result in substantial improvements through lower fuel use and emissions throughout the car’s entire life. Helping our customers in their efforts to meet the stringent CO2 and CAFE (Corporate Average Fuel Economy) requirements is important for them, and a competitive tool for us.

Although Autoliv’s CO2 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 715 GWh during 2012, which corresponds to 246,000 metric tons of CO2 (using the Greenhouse Gas Protocol), which was an increase from 2011 of 7% and in line with our unit sales increase.

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 the efficiency of our logistic systems we also benefit financially.

It is our policy that every Autoliv facility 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 work to continuously improve all of their relevant environmental measurables, such as energy and water consumption, emissions to air, transportation and the use of packaging materials.

ASSISTING CUSTOMERS

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.

SUPPORTING SUPPLIERS

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

Our leading suppliers are monitored as part of our regular quality audit process to ensure they are compliant with – or preferably exceed – the minimum basic working conditions as established in universal standards. This includes preventing child labor and forced labor, ensuring safe and healthy work environment for employees and fair work conditions, a commitment to adhere to laws and regulations, specifically those related to bribery and corruption, competition and money-laundering.

Supporting Governments

During 2012, Autoliv has supported the Dutch Ministry of Transportation in its efforts to reduce traffic injuries among bicyclists and other Vulnerable Road Users (VRU). We were a partner in a special government project along with the Dutch Cyclists’ Union, an insurance company and the R&D institute TNO. Our experts have contributed by providing analysis of cyclist accident data, helping draft the specifications of a pre-crash sensor and developing a prototype VRU-airbag that we have tested in our crash labs in vehicle-to-cyclist impacts for the government project.

Other examples of our support of governmental agencies and the public sector is cooperation with universities, authorities, traffic rescue organizations and insurance companies.

CO2-Emission from an airbag

Only 1% of the CO2-emissions from an airbag comes from Autoliv, according to Life Cycle Assessments.

Of the emissions, 73% are generated during the life of the vehicle and 25% are produced in steel mills and other parts of our supply chain.

Therefore, weight and material reductions are the most important contributions we can make to reduce CO2 (and other) emissions.

Investing in People

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.

WE ARE ALWAYS SEARCHING for talented men and women who share our passion for saving lives and wish to build their careers and broaden their capabilities. This is paramount for a sustainable development of our company, particularly in our growth markets. In this pursuit of dedicated and motivated people we are helped by the fact that Autoliv, as the world leading automotive safety company, can offer challenging, rewarding careers in a dynamic, global industry that saves lives and social costs. Another attraction for many job seekers from other industries is our close relationship with all of 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.

TALENT MANAGEMENT

To further strengthen our ability to be an attractive employer and continuously develop our people, we have an advanced talent management program. It is a solid process to identify and develop high potential individuals in order to meet our long-term business targets.

The talent management program is an annual activity among our 13,500 indirect employees in R&D, sales & administration and production overhead. Our talent management program begins with an employee performance and development dialog that supports our succession planning and future need of various competencies.

LEARNING AND DEVELOPMENT

To make sure we have enough skilled and talented people we are also focusing on the development of our employees. This leads, as well, to more engaged and motivated people.

Our global and regional training programs focus on building key leadership and management skills and knowledge where participants have the opportunity to network and collaborate with people from all over the world.

Our local training programs focus on developing functional skills and knowledge as well as basic leadership and management skills. The managers take the responsibility, along with the employee, for growth and development through one-on-one training, mentoring, coaching and support.

Additionally, we have effectiveness workshops to ensure that all leaders are role modeling the expected behaviors to drive a common culture throughout Autoliv.

All of our plants have on-the-job and skills development trainings, starting with job orientation for newly employees. In these trainings, work safety is an important element, in addition to understanding the manufacturing process and the product technologies. We also encourage job rotation and mobility across functions, plants and national boundaries.

We are committed to connecting talent management and succession planning processes to employee development activities to ensure that we focus on the right people in the right places. This connection not only reinforces Autoliv’s competitiveness as an employer but strengthens our ability to maximize customer and shareholder value, helping us grow our business and have continued success.

EMPLOYEE SAFETY

Our first important key performance indicator is employee safety. The target for each plant is of course zero injuries. In 2012, 13 plants managed to meet this target, an improvement from 8 plants five years ago.

From an already low level, our overall injury level globally continues to decline as seen in the graph on the next page. 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 “first alert” system which uses our 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 minimize future risk.

EMPOWERING EMPLOYEES

Autoliv has a long track record of encouraging all employees to be creative and put forward their improvement ideas. This is a key element in our lean manufacturing philosophy and culture of continuous improvement.

We have asked ourselves: Who are 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 operational key performance indicators (KPI) by which our approximately 80 facilities globally are benchmarked every quarter.

During 2012, this KPI continued to improve as seen by the index chart on the next page. Globally, more than half a million employee suggestions were received, helping us reduce waste and continue to improve labor efficiency by 6% and exceed our annual target of at least 5%. This trust in our employees not only improves our business performance, but it is highly motivating.

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 compensation in the various countries in which we operate. We measure labor absenteeism as labor hours lost due to sickness in relation to total possible labor time.

This ratio has been declining for several years thanks to the dedicated efforts we have made. These efforts include various activities such as providing health care and programs to improve workplace ergonomics. As a result, labor absenteeism shows a favorable declining trend, despite a minor increase during 2012.

EMPLOYEE DIVERSITY

Due to Autoliv’s global presence, our 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, and we promote equal opportunities for all employees at all levels irrespective of color, race, gender, age, sexual orientation, ethnicity or religious beliefs.

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 nearly 50% are women. Around 71% of our 51,000 associates are direct workers and 16% other personnel in manufacturing, 9% are involved in R,D&E and 4% in sales and administration.

“At Autoliv we emphasize teamwork”

Good teamwork is essential for Rocio when she describes her role as Production Control Manager in Mexico.

WHAT IS MOST ATTRACTIVE AND/OR DIFFICULT PART OF YOUR JOB?

When you manufacture products designed to save lives, you feel an added weight of responsibility to make sure your products are built right the first time and every time. To ensure the highest quality, we utilize tools that drive our culture of continuous improvement and empower me and my fellow team members to find the right solutions to meet our customers’ needs.

DESCRIBE A NORMAL WORKING DAY.

Arriving at my office at 7 am, I quickly browse my e-mails and grab a quick cup of coffee. Then it’s down to the warehouse floor to “go and see” how teams are doing as they build and prepare orders for shipment. I handle the calls from suppliers or customers before stepping into planning meetings or workshops. I typically keep these activities up until the end of the day.

WHY DO YOU ENJOY WORKING FOR AUTOLIV?

I enjoy working at Autoliv because we truly care about people. I have worked at other companies, but I’ve never come across this same sense of belonging. At Autoliv, you don’t just build a professional career. You build friendships. Autoliv places a priority on building teams that work. Pressure exists, yes, but with our emphasis on teamwork principles such as respect and accountability, pressure really becomes a tool to help us reach our desired results.

Superior 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.


AMERICAS	JAPAN	REST OF ASIA
Sales ¹⁾ +14%	Sales ¹⁾ +10%	Sales ¹⁾ +3%

EUROPE	CHINA
Sales ¹⁾ –7%	Sales ¹⁾ +9%

LOCATIONS AND CAPABILITIES

LOGO

1)	Autoliv’s organic sales change in 2012 i.e. excluding currency effects and acquisitions/divestitures. 2) Defined as Low Cost Country. 3) Includes headcount in joint ventures.

Our Market and Competitors

Autoliv’s market is expected to continue to grow at an average annual rate of approximately 5% over the next three years.

OUR MARKET is driven by two primary factors; light vehicle production (LVP) and content per vehicle (CPV). (CPV includes Seatbelts, Airbags, Steering Wheels, Electronic Control Unit, Crash sensors, Night Vision, Radar and Vision Systems).

The first growth driver, LVP, has risen at an average annual rate of 4% over the past ten years despite the cyclical nature of the automotive industry. Over the next five years, LVP is expected to continue to grow to almost 100 million light vehicles (LV) by 2017 from nearly 80 million in 2012, according to IHS. Virtually all of this expansion will be in the “Growth Markets”, predominately China, India, Thailand, Indonesia as well as Eastern Europe and Brazil.

Unlike LVP, which Autoliv cannot influence, we can affect the other growth driver of our market, CPV, by continuously developing new higher value-added products. This increases the long-term average safety content per vehicle and has caused the automotive safety market to grow faster than LVP. A steady flow of new technologies to the market has also enabled Autoliv to outpace the market and increase its market share. For instance, since the start of Autoliv Inc. in 1997, the Company’s sales have increased at a Compounded Annual Average Growth Rate (CAGR) of 6% compared to 5% for our market and 3% for LVP.

Historically, CPV has been driven by passive safety (mainly seatbelts and airbag products) in the developed markets of Western Europe, North America and Japan (Triad). Looking ahead, the CPV in the Triad will primarily be driven by active safety systems while new passive safety systems such as pedestrian protection, knee airbags and far-side side-impact airbags are expected to have a modest effect. However, in the Growth Markets, passive safety systems will still be the dominant growth driver for CPV for the next several years.

Several mega trends will continue to positively influence the overall safety content per vehicle. These include;

1)	Evolution of collision avoidance to reduce the society cost of accidents and fatalities on the roads,

2)	Traffic fatalities as a cause of death will almost double to 2.4 million people by 2030, according to the World Health Organization (WHO),

3)	Demographic trends of increased safety conscious consumers, aging driver population and higher LVP in the Growth Markets,

4)	Government regulations and test rating systems to improve the safety of vehicles in the various markets, and

5)	Trends toward lighter and alternative fuel vehicles.

MARKET GROWTH BY REGION

In 2012, the global passive and active safety market, including steering wheels, grew by 7% to a new record of $23 billion. This was entirely due to record-high LVP, while the global average CPV stood unchanged at roughly $300. This flattish CPV was due to an 8% LVP decline in Western Europe, where the average CPV is around $400, while more than one third of the increase in global LVP occurred in the Growth Markets, where the average CPV is only around $200.

This CPV trend is likely to continue, at least for the next few years, since virtually all of the LPV growth is expected to be in the Growth Markets and as it takes two vehicles in the Growth Markets to equal the sales resulting from one vehicle in the Triad.

Despite this negative CPV mix effect, our market is expected to grow at a CAGR of approximately 5% during the next three years to about $27 billion, based on the current macro-economic outlook and business awarded Autoliv or other companies in our industry.

Most of the increase from $23 billion to $27 billion will be in the Growth Markets, which are expected to increase at a rate of 12% per year to $11 billion. This strong growth will be mitigated by an expected decline of the Japanese market of 4% per year. This geographical mix will result in a favorable effect for Autoliv since our market share in the Growth Markets is 34% and in the process of increasing, while our market share in Japan is approximately 20%. However, this favorable mix effect will be mitigated by the fact that the important Western European market is expected to expand at a rate that will be 3 percentage points less than the global average growth rate.

MARKET GROWTH BY PRODUCT

Our passive safety market is expected to grow at a CAGR of 4% with the highest growth rate expected for seatbelts.

This product line is expected to grow at a CAGR of 5% or by $1 billion to $7.5 billion. In seatbelts, Autoliv has reached a global market share of approximately 40%, primarily due to being the technology leader with several important innovations such as pretensioners and load limiters. Our strong market position 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 the Growth Markets. This provides an excellent opportunity to benefit from the expected growth of this segment of the market.

The markets for frontal and side-impact airbags are expected to increase at an annual rate of 3% to $5.6 billion and $5.3 billion, respectively. Since Autoliv has relatively high dependence on the side-impact market (where we have a market share exceeding 40%) this relatively low growth rate will result in a relatively unfavorable product mix, while the 3% growth rate for frontal airbags (where we have a 30% market share) should have less of an impact.

The passive safety electronics and the steering wheel markets are both expected to grow by 4% annually, i.e. close to the expected average growth rate of our market. Our market share in passive safety electronics has doubled since 2001 to more than 20% and is expected to continue to increase. Our latest electronic control unit (ECU) for airbags is very competitive as it integrates active and passive safety (see page 12 in the Annual Report).

Our most recent market, active safety market, is expected to grow at a rate of 27% and to double in size to $2.2 billion by 2015. Through acquisitions and technology partnerships with our customers, Autoliv holds a strong number two market position with around 20% market share.

In summary, the winners in the automotive safety market during the next few years are likely to be companies that have built a strong position in active safety and a strong position in the Growth Markets, in line with Autoliv’s strategy.

OUR COMPETITORS

In passive safety, Autoliv’s major competitors are Takata and TRW, where we estimate that they account for roughly one fifth and one sixth of the market, respectively, while Autoliv leads the market with an approximate share of 36%.

TRW is a U.S. listed company on the New York Stock Exchange, with strong market positions in Europe and North America.

Takata is a family-controlled Japanese company with its shares listed on the Tokyo Stock Exchange. Takata has its strongest market position in Japan and North America.

In Japan, South Korea and China there are a number of local manufacturers that have close ties with the domestic vehicle manufacturers. For instance, Toyota has the “keiretsu” (in-house) suppliers Tokai Rika for seatbelts, Denso for electronics and Toyoda Gosei for airbags and steering wheels. These suppliers generally receive the majority of the Toyota business in Japan for these products, as does Mobis, a major supplier to Hyundai-Kia, in South Korea.

Other passive safety system competitors include US Private Equity owned KSS; Nihon Plast and Ashimori of Japan; Jinheng of China and Samsong of South Korea. Collectively, these competitors account for the majority of the remaining 25% global market share in passive safety.

The active safety market is relatively fragmented with more and bigger competitors than in the passive safety market and include Continental, Bosch, Delphi, Valeo, Gentex, Magna, Hella and Denso, of which we believe Continental has the leading market position today.

Continental, Bosch and Denso are also major competitors of Autoliv in passive safety electronics.

Our Customers

Our diversified customer base includes virtually every vehicle manufacturer in the world, due to our technological leadership and superior global footprint.

OUR TOP FIVE CUSTOMERS represented 54% of sales in 2012 and the ten largest customers 83%. This may seem to be a high concentration.

However, it is merely a reflection of the concentration in the vehicle industry. The five largest vehicle manufacturers (“OEMs”) in 2012 accounted for 52% of global light vehicle production (“LVP”) and the ten largest OEMs for 77%.

GM, RENAULT/NISSAN, FORD

General Motors is our largest customer, accounting for 15% of sales in 2012, while Ford and Renault/Nissan each account for 11%.

This is partly due to historical reasons since we have cooperated with these OEMs for many years and have developed a number of new safety innovations together with them. Autoliv’s strong global presence also fits these global OEMs very well, as well as our broad product offering. We have also acquired assets from Delphi and Visteon, which are spin-offs from GM and Ford, respectively.

VOLKSWAGEN, TOYOTA

In relation to their share of the global LVP, Autoliv is “under represented” with Volkswagen and Toyota. In 2012, Volkswagen and Toyota each accounted for roughly 12% of global LVP, while they accounted for slightly more than 8% and around 6% of our sales, respectively.

The larger the OEM, the more suppliers the OEM generally has to leverage prices with volumes. In addition, one of our major competitors, TRW has historically had close relations with Volkswagen and acquired companies that have been close to Volkswagen. Similarly, Toyota has in-house (“keiretsu”) suppliers that are awarded more than half of Toyota’s safety business.

BMW, DAIMLER, VOLVO

BMW and Daimler account for 5% each of our sales, despite the fact that they only account for 2% of global LVP. Volvo, another premium brand OEM, accounts for more than 2% of our sales compared to half a percentage of global LVP.

Our relatively high dependence on premium brand OEMs reflects higher safety content in their vehicles. It is also due to their strong pursuit of new safety innovations to advertise their new vehicle models along with Autoliv’s well-established position of being the technology leader in the automotive safety industry.

HYUNDAI/KIA, HONDA

Hyundai/Kia has been our fastest growing customer. Only five years ago, Hyundai/Kia accounted for 4% of our sales compared to 9% in 2012. Honda has grown during the last ten years and account now for more than 6% of our sales.

The reasons for this growth are both the success of these customers in the global LVP market and our long-term investments in their home markets, South Korea and Japan. These investments include the acquisition in 2009-2010 of Delphi’s assets in passive safety in South Korea.

FIAT/CHRYSLER, PEUGEOT/CITROËN

We have always had a relatively strong position with Chrysler and PSA, which is the owner of Peugeot and Citroën. Chrysler is an important customer for both our active and passive safety systems.

Our dependence on PSA has declined; both as a reflection of our lower market share with them and their lower share of the global LVP market.

For historical reasons, Fiat has not been a strong Autoliv customer within Italy. However, we are making inroads with Fiat, as we already are an important supplier to them in Turkey and have good possibilities to support them in Latin America.

CUSTOMER SALES TRENDS

Asian vehicle producers (including the Japanese)have steadily increased their importance to Autoliv. They now account for 35% of Autoliv’s global sales compared to less than 20% ten years ago. This reflects both their increasing share of the global LVP and our increasing share with them.

General Motors, Ford and Chrysler now account for 32% of our global sales, approximately the same as in 2002, after a decline to 23% in 2008. This swing primarily reflects their “come back” after the crisis in 2008-09 and our acquisition of Delphi’s passive safety assets.

Our high dependence on European and other customers has decreased significantly; from around 45% of sales in 2002 to 33% in 2012.

Therefore, our sales have become much more balanced than ten years ago.

Customer World’s Firsts with Autoliv

By being at the forefront of technology, by crash-testing more vehicles than any other safety company and by working as a development partner for new vehicles, Autoliv assists vehicle manufacturers not only to meet the evolving safety trends but also exploit the trends and become trend leaders. Over the years, we have contributed to:

Volvo becoming the first company in the world to introduce side airbags (1994),

Kia becoming the first company to offer knee airbags (1995),

BMW becoming the first company with side airbags for head protection (1997),

Volvo and Mercedes becoming the first companies, with side curtain airbags (1998),

Ford becoming the first company to integrate the gyro-rollover sensor into the airbag ECU (2002),

Renault becoming the first company to receive the highest safety rating (i.e. five stars) in the EuroNCAP’s crash tests (the Laguna 2002),

BMW becoming the first company with seatbelts with adaptive load limiters (2002),

Jaguar becoming the first company with a pedestrian protection pop-up hood (2005),

Chrysler becoming the first company with a Safety-Vent airbag (2006),

Renault becoming the first company with an Adaptive Multi-Volume Cushion airbag (2007),

Ford becoming the first company to integrate the inertia motion control ECU into the airbag Electronic Control Unit (ECU) (2008),

BMW becoming the first company with pedestrian warning (2009),

Volvo becoming the first company to introduce an external pedestrian protection airbag (2012).

Major Launches 2012

Illustrated below are the most significant model launches for us by our customers in 2012. A delivery contract is typically for the lifetime of a vehicle model, which is normally between 3 and 7 years.

None of our customer contracts account for more than 5% of our global sales.

Focus on Cost Control

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 direct material costs at the same rate as our market prices decline, i.e. by at least 3% annually.

Consolidate the supply base by reducing the number of suppliers to optimize it in size, geography, service and knowledge.

Focus 90% of purchasing value to preferred suppliers.

Improve labor productivity by at least 5% per year.

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 costs currently represents 51% of the direct material cost, while the other 49% represents the value added by our supply base (for more details on dependence on raw materials and component costs, see page 51 in the Annual Report).

The raw material value portion of our sales has increased from 22% in 2008 to 27% in 2012, primarily due to increasing raw material prices. Our strategy to mitigate higher commodity prices is to develop new more cost-efficient designs and components than the existing ones, for instance, by replacing steel with reinforced plastics. This often reduces weight which is an important added advantage in the permanent pursuit for more fuel-efficient vehicles.

REDUCING OTHER COMPONENT COSTS

We also mitigate the effect of higher commodity prices by reducing – in cooperation with our suppliers – the value added portion of our component costs.

During the five-year period 2008-2012, these costs added in our supply chain have been cut from 30% of sales to 26%, thereby offsetting most of the above-mentioned negative effect from higher raw materials. This has been achieved by several actions and programs.

For instance, we have actively increased our level of component sourcing in low-cost countries (LCC) from 39% in 2008 to 48% in 2012 (and from 15% in 2004 when the program was initiated).

We have increased the level of components sourced from our long-term strategic suppliers from 70% in 2008 to 75% in 2012.

We are continuously consolidating purchase volumes to fewer suppliers to help them reduce their prices to us. For instance, in 2012, we managed to reduce the number of suppliers by nearly 7% after a steady increase in prior years. This increase was due to acquisitions and the need to add new suppliers in Asia and other LCC. We are now on track to reach our target of reducing the number of supplier groups to 1,000 by 2016 from a peak of 1,600 in 2011.

We also standardize products and components, and phase out older, more complex products with low volumes to help suppliers reduce their costs and, consequently, our prices.

Through the above-mentioned strategies we have met our direct material cost reduction target of at least 3% every year, except in 2008 and 2011 when, in particular, steel prices sky-rocketed. In 2012, the estimated net savings for direct materials was 3.9% and 2.1% in 2011.

LABOR PRODUCTIVITY IMPROVEMENTS

The second most important type of cost is wages, salaries and other labor costs. In 2012, these costs corresponded to 22.0% of sales, which was a reduction from 26.0% in 2008.

This reduction has been achieved by continuous productivity improvements, restructuring of operations and by expansion as well as movement of production to LCC.

We measure productivity improvements in manufacturing in LMPU (labor minutes per produced unit). This measure is often affected by shifts of production to LCC where typically more labor-intensive manufacturing processes are used and less automation than in HCC (although the productivity in individual LCC may improve rapidly). Despite this, we have achieved LMPU reductions of approximately 6% every year during the last five-year period. Consequently, we managed to reach our productivity improvement target of at least 5% per year, both when LVP dropped sharply during the crisis, and in 2012 when LVP was erratic and depressed in Western Europe.

Manufacturing in LCC could offer significant cost saving opportunities, since our average headcount cost in LCC is only 20% of the same cost in HCC for direct personnel. However, we already have 78% of our direct workers in LCC, and the offsetting costs required for producing in one country and selling in another (such as freight and duty costs) should also be considered in addition to the labor cost difference. Consequently, most of this savings potential has now been achieved. In spite of this, we expect our headcount to continue to increase more in LCC than in HCC as a reflection of the mix in the expected LVP growth. This mix trend should continue to have a favorable impact on our cost structure in the future.

In addition, through automation and introduction of new higher value-added products (for instance in active safety) we should continue to be competitive in HCC and thereby continue to support our customers with manufacturing close to their assembly plants in North America, Western Europe and Japan. Going forward we also foresee a higher degree of automation in LCC to compensate for increasing labor and component costs.

Quality Excellence

We can never lose sight of our primary goal to save lives, and our products never get a second chance. This is why we can never compromise on quality.

IN ADDITION TO OUR PRIMARY GOAL of saving lives, quality is a key to our financial performance, since quality excellence is critical for winning new orders, preventing recalls and maintaining low scrap rates. For all of these reasons, we are fully committed to providing 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.

OUR 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 no tolerance for deviations.

This trend is likely to continue as more and more vehicle manufacturers apply these stricter quality requirements.

In response to this trend and to improve our own quality, we are driving a program called “Q5” for shaping a proactive quality culture of zero defects. It is called “Q5” because it addresses quality in five dimensions: customers, products, 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 well on our way to reaching our goal.

FLAWLESS PRODUCTS AND DELIVERIES

In our pursuit of excellence we have developed a chain of four “defense lines” against quality issues that consist of 1) robust product designs, 2) flawless components from suppliers and our own in-house component companies, 3) manufacturing of flawless products and 4) implementing systems for verifying that our products conform with specifications and an advanced traceability system in the event of a recall. These “defense lines”, in combination with our Q5 behaviors, should ensure deliveries of flawless products on-time to our customers.

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

In our product conformity verifications, we register all deviations and include them in our quality measure, which is “parts per million” (ppm). Our target used to be less than 10 ppm. We have successfully reduced our actual ppm levels over the last several years. In 2011, we therefore tightened our goal to “not more than three products rejected by customers for every million parts delivered” (3 ppm). To illustrate how rigorous this new target is, it could be compared to not having a single rainy day in 912 years, i.e. since the year 1100.

Additionally, as we always challenge ourselves to even better performance, we introduced in 2010 a new quality measure—the number of non-conforming events—since one single quality issue affecting a high-volume vehicle model could result in the same ppm-figure as a much larger number of quality issues, affecting vehicle models that are only produced in low volumes.

This new, tougher, measure of the number of non-conforming events has improved since 2010 despite higher sales. This is an other step in our pursuit for the ultimate goal of zero defects.

SUPPLY BASE QUALITY IMPROVEMENTS

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.

With the Autoliv Sourcing and Purchasing Process (ASPP) we have a common way of working together with our suppliers. This strengthens our performance by working very closely with our suppliers, and set clear demands. An important part of ASPP is the early involvement of suppliers in projects to ensure robust component designs and lowest cost for function.

All requirements, policies and procedures for the collaboration between us and our suppliers are specified in the Autoliv Supplier Manual (ASM). As part of the qualification of suppliers they are required to sign and accept the ASM. 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 cost in our operations.

Our Continuous Proactive Quality Work

1. 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.

2. SUPPLY BASE

By involving our suppliers early in projects and by training them we ensure robust component designs and processes. This prevents non-conforming parts from being produced by our in-house and external suppliers and reaching our manufacturing lines.

3. PRODUCTION SYSTEM

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

4. MISTAKE PROOFING

Through the Autoliv Quality System 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 non-conforming products. We also maintain an advanced product traceability system.

WE ALSO USE OUR Q5 PRINCIPLES AND BEHAVIORS WHICH MEANS THAT:

•

we encourage our employees to take proactive actions to prevent potential problems before they occur,

•

we give our employees at all levels the authority to stop production to signal a quality issue and to find the root cause,

•

we quickly share all issues with all other appropriate and relevant teams and groups in Autoliv (Yokoten).

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 our shareholders.

AUTOLIV HAS ALWAYS had a strong focus on cash flow and cash generation. Operating cash flow has always exceeded capital expenditures.

On average, operations have generated $695 million in cash per year over the last five years, while our capital expenditures, net have averaged $270 million.

CAPITAL EFFICIENCY IMPROVEMENTS

Autoliv’s strong cash flow reflects both the Company’s earnings performance and improvements in capital efficiency. During 2008-2012, when we increased sales by 28%, the average annual capital employed had to be increased by only 1%. Therefore, Autoliv’s capital turnover rate improved by more than 25% to 2.4 times. Whether this trend will continue or not will depend on two conflicting trends.

On one hand, the trend will be driven by continued organic sales growth. Our market is expected to grow at a rate of 5% per year. Consequently, we should be able to grow our sales and revenues without acquisitions that increase goodwill and intangibles (although we want to do acquisitions as a means of accelerating growth). During the last five years, goodwill and other intangibles even declined slightly. This was a major reason for the improving capital turnover rate and strong cash flow from 2008 to 2012.

On the other hand, property, plant and equipment (PPE) is likely to grow faster than sales, despite our utilization improvement strategies. This has been the trend since a trough in 2010 and reflects the fact that capital expenditures are likely to continue to exceed depreciation and amortization due to the need for additional manufacturing capacity in response to the growth of our market and sales. Our strategy for improving Autoliv’s fixed asset utilization rate include plant consolidations, expansion in low-cost countries (where less capital-intensive manufacturing processes can be used) and simplification of manufacturing processes.

We will also need additional cash for working capital to support the expected organic sales growth. However, we should still meet our policy that working capital should remain below 10% of sales. At the end of 2012, this ratio was 7.0%.

In summary, we still expect to generate a strong cash flow, albeit we may not be able to continue to improve Autoliv’s capital turnover rate.

OUR CASH FLOW MODEL

When analyzing how to best use each year’s cash flows from operations, Autoliv’s Board uses the model depicted to the right. To identify shareholder value, the model takes all important variables into account such as the marginal cost of borrowing, the return on marginal investments and the price of Autoliv shares. When evaluating the various uses of cash, the Board weighs these decisions against the need for flexibility due to the cyclical nature of the automotive industry.

INVESTING IN OPERATIONS

To create long-term shareholder value, 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, our historic cost of capital has been approximately 12% before taxes. Autoliv’s return on capital employed has always exceeded this level, except during the financial crisis in 2008-2009. During the last three years, return on capital employed has varied between 21% and 28%, i.e. approximately twice the level of cost of capital.

Consequently, in 2012, $360 million was re-invested in the form of capital expenditures. This was more than 50% of the year’s operating cash flow of $689 million. It was also 32% more than depreciation and amortization due to our strong order intake and need for additional manufacturing capacity, primarily in Asia and other growth markets. Another reason for capital expenditures exceeding depreciation is our strategy to increase vertical integration (i.e. the level of in-house component sourcing) as a means to offset the continuous price erosion in our industry.

ACQUISITIONS

In order to accelerate the Company’s growth, we typically use some of the generated cash flow for acquisitions. However, in 2012, there were no major acquisitions but instead a divestiture of a non-core business. As a result, the net of acquisitions and divestitures was a release of cash of $3 million. This is not indicative of our expected long-term need of cash for acquisitions or our historical acquisition rate. During the prior four years, we made acquisitions totaling $255 million.

These acquisitions were made to consolidate our industry, increase our vertical integration and expand into new markets. For instance, during the crisis, we acquired the passive safety assets of Delphi which added annual sales of more than half a billion dollars (for a purchase price of $115 million). We integrated our steel component company Norma by buying the outstanding shares in the subsidiary, and we expanded into a new market by acquiring Tyco’s radar business, which now is one of our core areas in active safety.

SHAREHOLDER RETURNS

In 2012, $178 million of the year’s cash flow was used to pay dividends to shareholders. This corresponds to 54% of the “free cash flow” of $329 million, i.e. cash flow after capital expenditures.

The total dividend paid in 2012 was an increase of 15% from the 2011 level and reflects the strategy of the Board that Autoliv should have an attractive dividend and dividend yield. Historically, the dividend has represented a yield of 2-3% in relation to the Autoliv share price. During 2012, this yield was 3.1% in relation to the average price of the Autoliv stock. After the latest dividend increase to 50 cents per share, the annualized run rate of $191 million is 54% higher than the highest amount paid before the crisis in 2008-2009.

In 2009, the Company suspended dividend payments until the third quarter of 2010.

We also have the possibility to return funds to shareholders using share repurchases, although we have not used this possibility since September 15, 2008 when the financial crisis began. By using the remainder of our existing mandate, 3.2 million Company shares could be repurchased.

Repurchases of shares could create more value for shareholders than dividends, if the share price appreciates long-term. For Autoliv this has been the case as the Company’s existing 7.3 million treasury shares have been repurchased at an average cost of $42.93 per share, while the closing price in 2012 was $67.39 per share. This represents an appreciation of 57%.

DIVIDEND POLICY

Since Autoliv has historically used both dividend payments and share buybacks to create shareholder value, the Company has no set dividend policy.

Instead, the Board of Directors regularly analyzes which method is most efficient, at each instance, to create shareholder value.

CHANGE IN DEBT

In 2012, we also made some changes in the long-term debt structure of Autoliv. A $110 million note at 5.6% fixed interest rate that became due was repaid. Half of this amount was replaced by a new 5-year SEK denominated note at only 2.5% fixed interest rate. The other half of the repayment was from cash to improve Autoliv’s capital efficiency as we believe it is important for every company to have an efficient capital structure.

Our debt policies are to have a leverage ratio significantly below 3.0 and an interest coverage ratio significantly above 2.75 (for definitions, see page 54 in the Annual Report). Except for 2009 and the first quarter 2010, the Company has been in compliance with its financial policies. We also want Autoliv to have a long-term credit rating that is a “strong investment grade”. During the financial crisis, Standard and Poor’s reduced its credit rating for Autoliv to “BBB- with a negative outlook”. Since July 2010, the rating has been “BBB+ with a stable outlook”, in line with our policy.

Currently, Autoliv’s financial position is stronger than we deem necessary for the long term. This is for three reasons:

First, to have adequate resources for acquisitions. Second, there is still a significant uncertainty associated with the macroeconomic outlook, especially in Europe. Third, the antitrust investigations of the automotive supplier industry are still ongoing (see page 43 in the Annual Report) and the financial impact on Autoliv is not yet possible to estimate.

Given the fact that the Company may need cash for all three of these purposes within a relatively short time span and given that the amounts needed for each one of them are not estimable, we deem it prudent to maintain, for the time being, a high level of financial flexibility until more transparency has been obtained regarding the outcome of these events.

Share Performance and Shareholder Information

The Autoliv stock recorded a 26% increase in 2012 and outperformed both the S&P 500 and the S&P Auto Components indices.

SHARE PERFORMANCE

On the primary market for the Autoliv securities, the NYSE, Autoliv’s stock increased by 26% during 2012 which compares favorably to the S&P 1500 Auto Components Index which decreased by 2% and the S&P 500 index which increased 13%.

From the beginning of 2008 to the end of 2012, Autoliv’s share price increased by 29%. This performance of the Autoliv share compares favorably to the peer group as the S&P 1500 Auto Components index decreased by 12% during the same period and a decrease of 1% for the S&P 500 Index.

The average daily trading volume in Autoliv shares on the NYSE decreased by 39% to 201,323 in 2012 from 330,494 in 2011.

STOCKHOLM

In Stockholm, the price of Autoliv Swedish Depository Receipts (SDR) increased by 16% to 432.50 SEK during 2012 compared to a 12% increase in the OMX All Share Index and a 9% increase in the OMX Automotive Index in Sweden.

In Stockholm, the average daily trading volume in Autoliv shares decreased by 32% to 290,355 in 2012 from 428,054 in 2011. In 2012, the Autoliv SDR was the 28th most traded security in Stockholm. Of the total exchange trading, the Autoliv stock accounted for 1.0% in 2012 as compared to 1.3% during 2011.

In Stockholm, Autoliv’s SDRs are traded on the stock exchange’s list for large market cap companies.

NUMBER OF SHARES

During 2012, the number of shares outstanding increased by 6.2 million to 95.5 million at year end. The number of shares outstanding increased mainly due to the settlement of the remaining equity units on April 30, 2012. This increased the number of shares outstanding by approximately 5.8 million (see Note 13 in the Annual Report).

The weighted average number of shares outstanding for the full year 2012, assuming dilution, increased to 95.1 million from 93.7 million in 2011.

Stock options, if exercised, and granted Restricted Stock Units (RSUs) could increase the number of shares outstanding by 1,012,230 and 211,618, respectively, which would be a 1.3% increase in the current number of shares outstanding.

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, 2012, 3.2 million shares remained of this mandate for repurchase. On December 31, 2012, the Company had 7.3 million treasury shares.

NUMBER OF SHAREHOLDERS

Autoliv estimates that the total number of beneficial Autoliv owners on December 31, 2012 to be close to 70,000 and that one third of the Autoliv securities were held in the U.S. and approximately 58% in Sweden. Most of the remaining Autoliv securities were held in the U.K., Central Europe, Japan and Canada.

On December 31, 2012, Autoliv’s U.S. stock registrar had close to 2,300 holders of Autoliv stock, and according to our transfer agent, there were nearly 44,000 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 close to 19,000 record holders of record of the Autoliv SDRs and according to the Swedish soliciting agent nearly 3,400 “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 and 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 in the Annual Report).

Autoliv has adopted a Stock Ownership Policy for Executives requiring the Company’s CEO to accumulate and hold Autoliv shares having a value of twice his annual base salary. For other executives, the minimum requirement is a holding equal to each executive’s annual base salary.

DIVIDENDS

If declared by the Board, quarterly dividends are usually paid on the first Thursday in the last month of each quarter. The record date is typically two weeks before the payment day and the ex-date (when the stock trades without the right to the dividend) 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.

For the Preliminary Dividend Plan 2013, refer to page 88 in the Annual Report.

ANNUAL GENERAL MEETING

Autoliv’s next Annual General Meeting of Stockholders will be held on, May 7, 2013, at the Ritz-Carlton Hotel 160 East Pearson Street, Chicago, Illinois, 60611-2308, USA. Stockholders are encouraged to vote on the Internet regardless of whether 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 communicated by Investor Relations is authorized by management.


2013 FINANCIAL CALENDAR
DATE		EVENT
April 26, 2013		Q1 Report
May 7, 2013		Shareholder AGM
July 19, 2013		Q2 Report
October 24, 2013		Q3 Report


KEY STOCK PRICE DATA
New York	Price ($)	Date
Opening	55.69	Jan 3, 2012
Year high	69.61	Mar 16, 2012
Year low	51.31	Jun 26, 2012
Closing	67.39	Dec 31, 2012
All-time high	83.86	Jan 12, 2011
All-time low	12.01	Mar 6, 2009

Stockholm	Price (SEK)	Date
Opening	371.10	Jan 2, 2012
Year high	472.30	Mar 15, 2012
Year low	358.50	Jul 26, 2012
Closing	432.50	Dec 28, 2012
All-time high	569.00	Jan 12, 2011
All-time low	113.25	Mar 9, 2009


THE LARGEST SHAREHOLDERS
%	No. of Shares	Holder Name ¹⁾
9.6	9,139,000	Alecta Pension Insurance Mutual
7.1	6,771,695	AMF Pensionforsakring AB
4.2	4,056,076	Nordea Investment Manager
4.0	3,790,119	Swedbank Robur Fonder AB
3.6	3,462,167	Vanguard Group
0.6	618,716	Management/Directors as a group ²⁾
100.0	95,493,456	Total December 31, 2012

1)	Known to the Company, out of approximately 70,000 shareholders. 2) As of February 20, 2013. Includes 354,537 shares issuable upon exercise of options that are exercisable within 60 days.


ANALYSTS (29)

US (11)
BUCKINGHAM RESEARCH		Joseph Amaturo
DEUTSCHE BANK		Rod Lache
GABELLI & CO.		Brian Sponheimer
GUGGENHEIM PARTNERS		Matthew Stover
JP MORGAN		Ryan Brinkman
JEFFERIES		Peter Nesvold
KEY BANC		Brett Hoselton

MORGAN STANLEY		Ravi Shanker
RW BAIRD		David Leiker
SIDOTI & CO, LLC		Adam Brooks

SWEDEN (9)
ABG SUNDAL COLLIER		Erik Pettersson
CARNEGIE		Agnieszka Vilela
DANSKE BANK		Björn Enarson
HANDELSBANKEN		Hampus Engellau
NORDEA EQUITIES		Andreas Koski
PARETO OHMAN		David Jacobson
PENSER		Johan Dahl
SEB ENSKILDA SECURITIES		Anders Trapp
SWEDBANK		Fredrik Nilhov

UK (4)
CITIGROUP		Philip Watkins
CREDIT SUISSE		George Galliers
GOLDMAN SACHS		Stephan Puetter
UBS WARBURG		David Lesne

FRANCE (3)
CHEUVREUX		Thomas Besson
CM-CIC SECURITIES		Florent Couvreur
SOCIETE GENERALE		Philippe Barrier

JAPAN (1)
DAIWA SECURITIES		Takuo Katayawa

NORWAY (1) DNB		Christer Magnergard


SHARE PRICE AND DIVIDENDS
	New York (US$)						Stockholm (SEK)						Dividend		Dividend
PERIOD	High		Low		Close		High		Low		Close		declared		paid
Q1 2012		69.61		54.98		67.05		472.30		371.10		442.50	$	0.47	$	0.45
Q2 2012		69.44		51.31		54.66		458.20		364.00		379.30	$	0.47	$	0.47
Q3 2012		66.62		51.63		61.97		439.00		358.50		404.70	$	0.50	$	0.47
Q4 2012		67.58		54.72		67.39		432.50		371.00		432.50	$	0.50	$	0.50
Q1 2011		83.86		67.32		74.23		569.00		419.00		465.00	$	0.43	$	0.40
Q2 2011		81.08		68.06		78.45		502.50		428.30		499.90	$	0.45	$	0.43
Q3 2011		80.05		46.06		48.50		505.00		303.90		336.80	$	0.45	$	0.45
Q4 2011		60.46		44.38		53.49		393.00		310.00		374.20	$	0.45	$	0.45

Content Financials


PAGE ¹⁾
39	Management’s Discussion and Analysis
55	Management’s Report on Internal Control over Financial Reporting
56	Consolidated Statements of Net Income
56	Consolidated Statements of Comprehensive Income
57	Consolidated Balance Sheets
58	Consolidated Statements of Cash Flows
59	Consolidated Statements of Total Equity

PAGE ¹⁾	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

60	Note 1	Summary of Significant Accounting Policies
63	Note 2	Business Combinations
63	Note 3	Fair Value Measurements
66	Note 4	Income Taxes
67	Note 5	Receivables
68	Note 6	Inventories
68	Note 7	Investments and Other Non-current Assets
68	Note 8	Property, Plant & Equipment
68	Note 9	Goodwill and Intangible Assets
69	Note 10	Restructuring and Other Liabilities
70	Note 11	Product Related Liabilities
70	Note 12	Debt and Credit Agreements
71	Note 13	Shareholders’ Equity
72	Note 14	Supplemental Cash Flow Information
73	Note 15	Stock Incentive Plan
74	Note 16	Contingent Liabilities
75	Note 17	Lease Commitments
76	Note 18	Retirement Plans
80	Note 19	Segment Information
80	Note 20	Earnings Per Share
80	Note 21	Subsequent Events
81	Note 22	Quarterly Financial Data (unaudited)
82		Auditor’s Reports

1)	See Annual Report.

Important Trends

Autoliv, Inc. (the “Company”) provides advanced technology products for the automotive market. In the three-year period from 2010-2012 (the time period required by the SEC to be reviewed in this analysis), a number of factors have influenced the Company’s operations. The most notable factors have been:

•

Significant changes in global light vehicle production (LVP)

•

Capacity alignment requirements

•

Rapid growth of active safety market

•

Continued pricing pressure

•

Acquisitions

•

Building a proactive balance sheet


	2012 ¹⁾					2011					2010
YEARS ENDED DEC. 31 (DOLLARS IN MILLIONS, EXCEPT EPS)	Reported		% change			Reported		% change			Reported		% change
Global light vehicle production (in thousands)		79,722		7			74,813		4			72,275		25
Consolidated net sales	$	8,267		0		$	8,232		15		$	7,171		40
Operating income	$	705		(21	)	$	889		2		$	869		1,159
Operating margin, %		8.5		(2.3	)		10.8		(1.3	)		12.1		10.8
Net income attributable to controlling interest	$	483		(22	)	$	623		5		$	591		5,810
Net margin, %		5.8		(1.8	)		7.6		(0.6	)		8.2		8.0
Earnings per share, EPS	$	5.08		(24	)	$	6.65		4		$	6.39		5,225
Return on capital employed, %		21.3		(6.2	)		27.5		(0.7	)		28.2		26.0

Capacity alignment and antitrust investigations costs were unusually high in 2012, reducing operating income by $98 million and net income by $71 million, which reduced operating margin by 1.2% and net margin by 0.9%. The impact on earnings per share (EPS) was $0.74, while return on equity was reduced by 1.8%. In 2011 and 2010, the restructuring costs were consistent with levels before the 2008 crisis. See also table on page 41 “Items affecting comparability” and Notes 10 and 16 of the Notes to the Consolidated Financial Statements included herein.

LVP AND MARKET SHIFTS

The most important driver for Autoliv’s sales is light vehicle production (LVP).

This growth driver has been very erratic. In 2010, LVP dramatically increased by 25% to a new all-time record of 72 million light vehicles (LVs) from an exceptionally low level of 58 million in 2009 due to the financial crisis. In 2011, LVP growth continued but only at a rate of 4% and then accelerated to a rate of nearly 7% in 2012 when LVP reached almost 80 million.

Virtually all markets contributed to global LVP growth, especially North America, China and the Rest of Asia region (RoA). In North America, LVP rose by 29% or 3.5 million LVs between 2010 and 2012, in China by 12% or 1.8 million LVs and in our Rest of Asia region (i.e. excluding China and Japan) by 19% or 2.0 million LVs. In contrast, in Western Europe, which is a very important market for automotive safety, LVP decreased by 4% or by 0.6 million LVs during the same three-year period due to an 8% drop in 2012 of more than one million LVs (after having increased by 0.4 million during 2011). Therefore, Europe’s share (both Western and Eastern Europe) of global LVP decreased from 26% in 2010 to 24% in 2012, while the other regions increased their respective share of global LVP. The Americas’ share increased from 22% to almost 25%, China’s share rose from 21% to 22% and the RoA region’s share advanced from 15% to nearly 16% in 2012. These market shifts have impacted our market – the global automotive safety market – as the average safety content per vehicles varies between the regions (see Safety Content per Vehicle below).

Within the three-year period, regional LVPs have also been inconsistent. In Japan, LVP dropped in 2011 by 14% due to the tsunami in March of that year, while LVP in Japan rebounded and increased in the subsequent year by 20%. There were also swings in Japanese LVP outside Japan due to component shortages caused by the tsunami. Similarly, the flooding in Thailand in 2011 caused Thai LVP to drop by 11% that year and, subsequently, to increase by 66% in 2012.

AUTOLIV IS BETTER BALANCED

Although Autoliv’s sales were affected by the short-term consequences of the Japanese tsunami and the Thai flooding, we have proactively adapted to the longer-term market changes between 2010 and 2012. This has been achieved through: 1) timely investments in growth markets, 2) early introduction and fast execution of our restructuring and capacity alignment activities (see below), and 3) acquisitions, including acquisitions of minority shares in joint ventures (to secure a higher portion of the growth of the joint ventures which often operate in the growth markets), see page 46 in the Annual Report.

We continue to, as we have for many years, strengthen Autoliv’s position globally with the Asian vehicle manufacturers. We have also made substantial investments in China, South Korea, India, Thailand and Indonesia, both in additional manufacturing capacity and in acquisitions (see below).

As a result, Autoliv now has a more balanced sales mix with 32% of sales in Europe, 35% in the Americas and 33% in Asia in 2012, compared to 38% in Europe and 31% in both the Americas and Asia in 2010. Our Chinese sales have expanded to 13% of total sales in 2012 from 11% in 2010, and sales in the RoA region have grown to 10% of sales in 2012 from less than 9% in 2010. This improved position in Asia is important as it not only provides a more diversified sales mix, but these markets are expected to experience the strongest growth during the next several years.

As a reflection of the recovery in North American LVP, Autoliv’s dependence on General Motors (GM), Ford and Chrysler has increased again after having declined for many years. In 2012, these customers accounted globally for 32% of our overall sales compared to 28% in 2010. In comparison, our dependence on Renault/Nissan and Peugeot/Citroen has declined to 15% combined from 18% in 2010, mainly due to these customers’ reliance on the depressed European market. Despite the weak European LVP, both BMW and Daimler have slightly increased their share of Autoliv’s sales (to 5% each). This is both due to their superior performance and to our successful introductions of active safety systems in BMW and Daimler vehicles (see below). However, the swings in our European customer sales mix have affected our capacity utilization and the profitability, of many of our European plants (see more below).

Asian vehicle manufacturers continued to account for 35% of our sales as in 2010, despite the fact that Hyundai/Kia grew to account for nearly 9% of our sales in 2012 from 7% in 2010. However, this was offset by lower dependence on Japanese vehicle manufacturers. For additional information on Autoliv’s dependence on certain customers and vehicle models, see page 52 in the Annual Report.

SAFETY CONTENT PER VEHICLE

The other growth driver of Autoliv’s market is the trend of vehicle manufacturers installing more airbags and other safety systems in their vehicles, generally when new models are introduced. Despite this positive worldwide trend, the average global content per LV of safety systems (airbags, seatbelts, steering wheels and related electronics, radar, night vision systems and cameras) remained relatively flat at around $300 during the period 2010-12. This is due to the fact that growth in global LVP is highly concentrated in markets such as China and India where the average safety content per vehicle is only approximately $200 and $60, respectively, which reduces the global average of safety content per vehicle. In addition, there is a negative effect from pricing pressure from vehicle manufacturers (see below).

However, the safety standards of vehicles are increasing in China, India and other growth markets, partially due to new regulations and crash test rating programs. For instance, Latin America introduced a rating program for crash performance of new vehicles in 2010. Brazil mandated frontal airbags in all new vehicles sold by 2014, while India is considering introducing a crash test rating program for new vehicles and has decided to up-grade its seatbelt regulations. Additionally, NHTSA upgraded the U.S. crash-test rating programs in 2010 and, in Europe, the Euro NCAP program will be upgraded between 2014 and 2017. All of these trends, in combination with the introduction of various active safety systems, should enable our market, i.e. the global automotive safety market, to grow at least in line with the global LVP during the next three years and, possibly, to grow faster than LVP when the safety content per vehicle in growth markets has improved.

TAKE-OFF OF NEW MARKET

In addition to our commitment to enhance passive safety, we are driving – mainly for the medium and upper-end vehicle models – the rapid expansion of the market for active safety systems. The market segments of active safety that we address grew by more than 30% during 2012 to more than one billion dollars and are expected to continue to grow rapidly.

To capitalize on this strong growth, we have increased our research, development and engineering (R,D&E) activities related to active safety. From the 2010-level, our overall R,D&E expense, net has been increased by 26% to $455 million, a significant portion of which is for active safety projects. As a result of these undertakings in R,D&E and as a result of our investments in additional manufacturing capacity, sales in active safety grew by 73% in 2010 to $85 million, by 89% in 2011 to $160 million and by 36% to $218 million in 2012 and are targeted to reach half a billion dollars by 2015.

In addition, Autoliv will enter another market within active safety, the $6 billion market for brake control systems. In 2011, we received our first order for this market. The order is for a new cost-efficient technology that could offer better performance in electronic stability control (ESC) for vehicles compared to many existing ESC-systems on the market. This order is expected to result in sales beginning in 2014.

CAPACITY ALIGNMENTS

In 2010, our operating margin reached an all-time record of 12.1% following our comprehensive restructuring programs in 2008 and 2009, while also expanding in growth markets such as China. Our restructuring actions generated estimated cost savings of $70 million in 2010 and $21 million in 2011.

In the latter year, operating margin fell to 10.8%, primarily due to a 1.2 percentage point negative effect from higher raw materials prices and a 0.4 negative effect from higher R,D&E expense, net. In 2012, operating margin declined to 8.5% due to a 1.0 percentage point (p.p.) negative effect from capacity alignment programs, a 1.1 p.p. negative effect mainly due to the depressed Western European market and a 0.2 p.p. negative effect from higher R,D&E expense, net. The capacity alignment programs are our response to the uneven capacity utilization in many of our European plants resulting from rapidly deteriorating and patchy Western European vehicle demand in 2012, especially for vehicle models in the volume market segments. As a reflection of this deteriorating trend during the year, the expected cost of capacity alignment programs was raised from initially “more than $50 million” at the beginning of 2012 to “in the range of $60-80 million” in April and to “the higher end of the range” by October. The capacity alignment cost ended up at $79 million. See also Note 10 to Consolidated Financial Statements included herein for further information on our restructuring activities.

Our capacity alignment program will be expanded into 2013, and we expect these costs to reach at least $25 million but not exceed $50 million for 2013. The current capacity alignment programs are expected to have a payback period of 2-3 years.

PRICE EROSION TRENDS

Pricing pressure is an inherent part of the automotive supplier business. The reductions in our market prices are generally higher on newer products with strong volume growth than on older products, where both the possibilities to re-design the product to reduce costs and market growth are less. The price reductions also depend on the business cycle. For the 2010-2012 period, we estimate the average reduction in our market prices to have been in the range of 2-4%. To meet these price reductions we have several programs and actions addressing every item in our cost structure.

For instance, to reduce costs for components from external suppliers, we are continuously increasing the level of components sourced in Low-Cost Countries (LCC), consolidating purchase volumes to fewer suppliers, improving productivity in our supply chain, standardizing components and redesigning our products (which also reduces weight and raw material content of our products in addition to reducing costs). However, in 2011, raw material prices rose so sharply that Autoliv’s commodity costs increased by nearly $100 million. In 2012, raw material inflation moderated, but commodity costs were still more than $100 million higher than in 2010. This was the main reason for our component costs to increase to 53.8% of sales in 2012, an increase of 1.9 p.p. from the 2010-level.

To reduce labor costs while offsetting the price erosion on our products, we continuously implement productivity improvement programs, expand in LCC and institute restructuring and capacity alignment activities. The productivity improvements in Autoliv’s manufacturing were approximately 6% for every year during the last three-year period. This is well in line with our productivity improvement target of at least 5% per year, which should be enough to both offset the price erosion from customers and provide for normal salary increases for Autoliv’s employees. The level of employees in the LCC has increased to 69% in 2012 from 63% in 2010. These changes in combination with our restructuring activities and several other actions were almost enough to offset the market price erosion during the three-year period. As a result, total labor costs in relation to sales were virtually unchanged at 22.0% in 2012 compared to 21.8% in 2010. This modest increase was due to the higher R,D&E expenses, net that rose to 5.5% of sales from 5.0% in 2010 as labor costs are by far the largest cost of our R,D&E expense.

ACQUISITIONS AND DIVESTITURES

During the three-year period, we have continued Autoliv’s strategy to grow through strategic acquisitions and to divest non-core operations. We focus on two primary growth areas with the greatest potential: active safety systems and growth markets.

In the wake of the global financial crisis of 2008-2009, we made several acquisitions to participate in a consolidation of the automotive safety industry. For instance, during 2009-2010, we acquired virtually all of Delphi’s assets for airbags, seatbelts and steering wheels. In 2010, we also acquired the outstanding 49% of the shares in our Estonian subsidiary Norma, which is the leading supplier in the Russian market. We also acquired the automotive radar business of Visteon.

In 2011, Autoliv acquired two technologies related to active safety: 1) Software from Hella for camera-based forward-looking systems such as Traffic Sign Recognition (TSR), Lane Detection (LD) and Light Source Recognition (LSR), and 2) a license from Astyx for its long-range radar that will supplement Autoliv’s existing short and medium range radar in Adaptive Cruise Control (ACC), Emergency Braking (EB) and Forward Collision-Warning (FCW). These acquisitions are expected to start to generate sales in 2014 and 2015, respectively.

BUILDING A PRO-ACTIVE BALANCE SHEET

Autoliv entered the three-year period 2010-2012 with a net debt on January 1, 2010 of $662 million. At the end of the period, on December 31, 2012, the Company had a net cash position of $361 million. This transformation reflects the Company’s strong cash flow.

Operations generated $924 million in cash in 2010, $758 million in 2011 and $689 million in 2012, while capital expenditures amounted to $224 million, $357 million and $360 million, respectively.

Due to this strong cash flow, dividend payments, which were suspended in the second quarter of 2009 due to the financial crisis, were resumed in the third quarter of 2010. The dividend was subsequently raised six times, so that the current annualized total dividend of $191 million is 54% higher than the highest dividend amount paid before the dividend suspension in 2009.

Furthermore, due to Autoliv’s strong balance sheet, the Company has been able to complete a number of strategic acquisitions. This has accelerated sales growth and increased the Company’s vertical integration and thereby saved costs. It also allowed Autoliv to pioneer the new market of active safety sensing technologies. These acquisitions totaled $166 million during the three year period 2010-2012.

The Company began to strengthen its financial position in order to have adequate resources for additional acquisitions. Subsequently, two additional reasons have emerged for maintaining a strong balance sheet. First, uncertainties surrounding the global macroeconomic outlook. Second, in 2011, the Company became subject to two antitrust investigations involving the automotive supplier industry (see page 43 in the Annual Report). Although the U.S. antitrust investigation with respect to Autoliv was resolved during 2012, the investigation in Europe is still ongoing. In addition, the Company has become subject to a number of antitrust class-action suits in the U.S. and Canada, and antitrust investigations in Canada and South Korea. It is currently not possible to estimate the costs for these investigations and legal disputes.

Given the fact that the Company may need funds for each of these reasons within a relatively short time span and given that the amount needed for each one of them could become substantial, we believe it is prudent to maintain, for the time being, a high level of financial flexibility until more transparency has been obtained regarding the outcome of these events.


ITEMS AFFECTING COMPARABILITY (Dollars in millions, except EPS)	Reported						Effect of capacity alignment and antitrust investigations
	2012		2011		2010		2012			2011			2010
Operating income	$	705	$	889	$	869	$	(98	)	$	(19	)	$	(21	)
Operating margin, %		8.5		10.8		12.1		(1.2	)		(0.2	)		(0.3	)
Income before income taxes	$	669	$	828	$	806	$	(98	)	$	(19	)	$	(21	)
Net income	$	486	$	627	$	595	$	(71	)	$	(14	)	$	(16	)
Earnings per share	$	5.08	$	6.65	$	6.39	$	(0.74	)	$	(0.15	)	$	(0.17	)
Net cash provided by operating activities	$	689	$	758	$	924	$	(50	)	$	(36	)	$	(66	)

Outlook for 2013

During the first quarter of 2013, LVP in the important Western European market is expected to decline sharply year-over-year to levels not seen since the financial crisis in 2008-2009. As a result, Autoliv’s organic sales are expected to decline by 4% in the first quarter of 2013 compared to the same quarter of 2012. This forecast is based on our call-offs from customers. Provided that mid-January exchange rates prevail, a small positive currency effect will offset a negative effect from a minor divestiture in 2012. Consequently, consolidated sales are expected to decline in line with organic sales of 4% compared to the first quarter of 2012.

An operating margin of around 8% is expected for the first quarter, excluding costs for capacity alignments and the antitrust investigations.

For the full year 2013, our indication for organic sales growth is in the range of 1% to 3% and an operating margin of around 9%, excluding costs for capacity alignments and antitrust investigations. Currencies will have a positive effect of 1% on consolidated sales provided mid-January exchange rates prevail. Consequently, consolidated sales growth is expected to be in the range of 2-4%.

As earlier indicated, our capacity alignment program will be expanded into 2013, and we now expect these costs to reach at least $25 million but not to exceed $50 million for 2013.

The projected effective tax rate for the full year 2013, excluding discrete items, is expected to be around 27%.

Operations are expected to continue to generate a strong cash flow in the magnitude of $0.7 billion during 2013, while capital expenditures are expected to amount to approximately 4.5% of sales.

Non-U.S. GAAP Performance Measures

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

We believe that these measures assist investors 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, 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 on this page and page 54 in the Annual Report, reconciling them to U.S. GAAP.

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

ORGANIC SALES

We analyze the Company’s sales trends and performance as changes in “organic sales growth”, because the Company currently generates approximately 75% of net sales in currencies other than the reporting currency (i.e. U.S. dollars) and currency rates have proven to be very volatile. We also use organic sales to reflect the fact that the Company has made several acquisitions and divestitures.

Organic sales present the increase or decrease in the overall U.S. dollar net sales on a comparable basis, allowing separate discussions of the impact of acquisitions/divestitures and exchange rates.

The tabular reconciliation below presents changes in “organic sales growth” as reconciled to the change in total U.S. GAAP net sales.


COMPONENTS IN SALES INCREASE/DECREASE (DOLLARS IN MILLIONS)
	Europe						Americas						Japan						China				RoA ¹⁾						Total
2012 VS. 2011	%			$			%			$			%			$			%		$		%			$			%			$
Organic change		(6.9	)	$	(214.6	)		14.0		$	357.7			9.7		$	73.8			9.4	$	92.8		2.6		$	22.0			4.0		$	331.7
Currency effects		(7.1	)		(221.3	)		(1.8	)		(46.7	)		(0.2	)		(1.9	)		2.4		22.9		(3.1	)		(25.9	)		(3.3	)		(272.9	)
Acquisitions/divestitures		(0.7	)		(21.5	)		—			—			—			—			—		—		(0.3	)		(3.0	)		(0.3	)		(24.5	)

Reported change		(14.7	)	$	(457.4	)		12.2		$	311.0			9.5		$	71.9			11.8	$	115.7		(0.8	)	$	(6.9	)		0.4		$	34.3

	Europe						Americas						Japan						China				RoA ¹⁾						Total
2011 VS. 2010	%			$			%			$			%			$			%		$		%			$			%			$
Organic change		6.3		$	173.8			16.0		$	351.3			(14.2	)	$	(112.7	)		13.4	$	108.8		17.9		$	109.7			8.8		$	630.9
Currency effects		5.8			161.1			0.6			13.7			10.2			80.3			4.8		39.4		4.2			26.0			4.5			320.5
Acquisitions/divestitures		0.3			8.4			—			—			—			—			2.5		20.5		13.3			81.5			1.5			110.4

Reported change		12.4		$	343.3			16.6		$	365.0			(4.0	)	$	(32.4	)		20.7	$	168.7		35.4		$	217.2			14.8		$	1,061.8

1)	Rest of Asia

RECONCILIATION OF “OPERATING WORKING CAPITAL” TO U.S. GAAP MEASURE

(DOLLARS IN MILLIONS)


DECEMBER 31	2012			2011			2010
Total current assets	$	3,289.2		$	3,000.3		$	2,688.6
Total current liabilities		(1,849.8	)		(2,085.9	)		(1,834.5	)
Working capital	$	1,439.4		$	914.4		$	854.1
Cash and cash equivalents		(977.7	)		(739.2	)		(587.7	)
Short-term debt		69.8			302.8			87.1
Derivative (asset) and liability, current		0.0			(4.0	)		(0.7	)
Dividends payable		47.7			40.2			35.6

Operating working capital	$	579.2		$	514.2		$	388.4

RECONCILIATION OF “NET DEBT” TO U.S. GAAP MEASURE

(DOLLARS IN MILLIONS)


DECEMBER 31	2012			2011			2010
Short-term debt	$	69.8		$	302.8		$	87.1
Long-term debt		562.9			363.5			637.7
Total debt	$	632.7		$	666.3		$	724.8
Cash and cash equivalents		(977.7	)		(739.2	)		(587.7	)
Debt-related derivatives		(15.8	)		(19.1	)		(10.0	)

Net (cash) debt	$	(360.8	)	$	(92.0	)	$	127.1

OPERATING WORKING CAPITAL

Due to the need to optimize cash generation to create value for shareholders, management focuses on operating working capital as defined in the table above.

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

NET DEBT

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

Creditors and credit rating agencies use net debt (or cash) adjusted for DRD in their analyses of the Company’s debt (or cash) and therefore we provide this non-U.S. GAAP measure.

By adjusting for DRD, the total financial liability of net debt is disclosed without grossing it up with currency or interest fair values that are offset by DRD reported in other balance sheet captions.

Significant Litigation

GENERAL LITIGATION

ANTITRUST MATTERS

The Company is also subject to civil litigation alleging anti-competitive conduct. Notably, the Company, several of its subsidiaries and its competitors are defendants in a total of twelve purported antitrust class action lawsuits, eleven of which are pending in the United States District Court for the Eastern District of Michigan (Brad Zirulnik v. Autoliv, Inc. et al. filed on June 6, 2012; A1A Airport & Limousine Service, Inc. v. Autoliv, Inc. et al. and Frank Cosenza v. Autoliv, Inc. et al. each filed on June 8, 2012; Meetesh Shah v. Autoliv, Inc., et al. filed on June 12, 2012; Martens Cars of Washington, Inc., et al. v. Autoliv, Inc., et al. and Richard W. Keifer, Jr. v. Autoliv, Inc. et al. each filed on June 26, 2012; Findlay Industries, Inc. v. Autoliv, Inc. filed on July 12, 2012; Beam’s Industries, Inc. v. Autoliv, Inc., et al. filed on July 21, 2012; Melissa Barron et al. v. Autoliv, Inc. et al. filed on July 24, 2012; Stephanie Kaleuha Petras v. Autoliv, Inc. et al. filed on August 14, 2012; and Superstore Automotive, Inc. et al. v. Autoliv, Inc. et al. filed on November 1, 2012). The twelfth lawsuit is pending under Canadian law in the Ontario Superior Court of Justice in Canada (Sheridan Chevrolet Cadillac Ltd. et al. v. Autoliv Inc. et al., filed on January 18, 2013).

Plaintiffs in these cases generally allege that the defendants have engaged in long-running global conspiracies to fix the prices of occupant safety systems or components thereof in violation of various antitrust laws and unfair or deceptive trade practice statutes. Plaintiffs seek to recover, on behalf of themselves and various purported classes of direct and indirect purchasers of occupant safety systems and purchasers or lessees of vehicles in which such systems have been installed, injunctive relief, treble damages and attorneys’ fees. The plaintiffs in these cases make allegations that extend significantly beyond the specific admissions of the plea discussed above. The Company denies these overly broad allegations and intends to actively defend itself against the same. While it is probable that the Company will incur losses as a result of these cases, the duration or ultimate outcome of these cases currently cannot be predicted or estimated and no provision for a loss has been recorded as of December 31, 2012.

Year Ended December 31, 2012 Versus 2011


COMPONENT OF CHANGE IN NET SALES	Airbag Products ¹⁾			Seatbelt Products ²⁾			Active Safety			Total
Organic change		2.9	%		4.3	%		38.3	%		4.0	%
Currency effects		(2.9	)%		(4.3	)%		(2.1	)%		(3.3	)%
Acquisitions/divestitures		—			(0.9	)%		—			(0.3	)%

Reported change		0.0	%		(0.9	)%		36.2	%		0.4	%

1)	Includes passive safety electronics, steering wheels, inflators and initiators; 2) Includes seat components until June 2012.

NET SALES

Net sales for 2012 of $8,267 million were virtually flat compared to 2011 despite organic sales (non-U.S. GAAP measure, see page 42 in the Annual Report) growing by 4% or $332 million. Currency effects reduced sales by more than 3% or $273 million and divestitures by $24 million (see page 46 in the Annual Report).

The organic sales increase was 3 percentage points (p.p.) less than the 7% increase in global LVP primarily due to Autoliv’s (and the automotive safety market’s) higher dependence on the European market (in particular Western Europe where LVP declined by 8%) and the fact that the strongest increase in global LVP was in Japan where Autoliv’s market share is lower than in Europe. This negative effect was partially offset by a positive vehicle model mix primarily with Ford, General Motors and Chrysler in North America and strong performance in active safety and China.

Organic sales of airbag products rose by 3% to $5,392 million, mainly driven by strong LVP in North America along with Autoliv’s strong performance in side-impact airbags, higher market share for steering wheels and new business for knee airbags.

Organic sales of seatbelt products increased by 4% to $2,657 million despite the 5% LVP decline in the important European market. Seatbelt sales were driven by strong sales in Asia and North America and by the global trend towards more advanced and higher value-added seatbelt systems.

Sales of active safety systems rose by 38% organically to $218 million, mainly due to new radar business with Mercedes and General Motors along with new camera business with BMW.

In Europe, sales dropped by 15% to $2,645 million including negative currency effects of 7% and a small divestiture effect. Organic sales declined by 7%, which was 2 p.p. more than the decrease in European LVP due to a 8% decline in the important Western European LVP.

In the Americas, consolidated sales rose by 12% to $2,870 million, despite negative currency effects of 2%. The organic sales growth of 14% was slightly higher than the 13% increase in the region’s LVP driven by Autoliv’s strong performance with Honda, Ford and Chrysler.

In China, sales increased by 12% to $1,098 million including positive currency effects of 2%. The organic sales growth of 9% was 2 p.p. higher than the increase in China’s LVP, mainly due to vehicle launches such as Great Wall’s Haval H6.

In Japan, sales increased by 10% to $830 million. The organic sales increase was also 10%. This was 10 p.p. less than the increase in Japanese LVP, which reflects the fact that Autoliv had relatively little sales to the vehicle models whose production rebounded the most. It also reflects delays in model shifts of a few important vehicles.

In the Rest of Asia (RoA) sales decreased by 1% to $824 million due to currency effects and a small divestiture in 2011. The organic sales increase of 3% was 10 p.p. less than the growth in the region’s LVP. This was mainly due to a 2% LVP decline in the important South Korean market coupled with an unfavorable vehicle model mix.

GROSS PROFIT

Gross profit declined by 5%, or $82 million, to $1,646 million, primarily due to negative currency effects of $47 million. Gross margin declined to 19.9% from 21.0% in 2011 mainly due to the depressed Western European LVP.

OPERATING INCOME

Operating income declined by $184 million to $705 million and operating margin by 2.3 p.p. to 8.5% compared to 2011, primarily due to $79 million higher costs for capacity alignments and the antitrust investigations, which had a negative margin effect of 1.0 p.p. (see page 43 in the Annual Report).

Operating margin was also negatively affected by $14 million higher Research, Development and Engineering (R,D&E) expense, net, which reduced the margin by 0.2 percentage points. Higher R,D&E expense, net was primarily used for more active safety projects in response to strong order intake.

INTEREST EXPENSE, NET

Interest expense, net decreased by 33%, or $19 million, to $38 million compared to 2011. This reflects the remarketing in March of our senior notes due in 2014. This remarketing reduced Autoliv’s cost of borrowing by $11 million in 2012 (see page 48 in the Annual Report).

In addition, during 2012, Autoliv had a net cash position of $214 million on average, while the Company had a net debt during 2011 of $67 million on average (see Treasury Activities on page 48 in the Annual Report).

INCOME TAXES

Income before taxes decreased by $160 million to $669 million. This was $24 million less than the decline in operating income, primarily due to $19 million lower interest expense, net and by a debt extinguishment cost of $6 million in 2011.

Income tax expense was $183 million, including discrete tax items, net of $4 million that reduced the tax rate by 0.6 p.p. The effective tax rate was 27.4% compared to 24.3% for 2011, when discrete tax items reduced the rate by 3.0 p.p. See Note 4 to Consolidated Financial Statements included herein.

NET INCOME AND EARNINGS PER SHARE

Net income attributable to controlling interest declined by $140 million to $483 million, resulting in a net income margin of 5.8% compared to 7.6% in 2011.

Earnings per share assuming dilution declined by $1.57 to $5.08. In addition to the lower underlying operating profit, earnings per share was reduced by 60 cents due to higher costs for capacity alignments and the antitrust investigations, the higher effective tax rate had a negative effect of 22 cents, unfavorable currency translation effects had a negative impact of 13 cents and more shares outstanding had a negative impact of 8 cents. This was partially offset by 18 cents from lower interest expense, net.

The weighted average number of shares outstanding assuming dilution increased by 1% to 95.1 million.

Year Ended December 31, 2011 Versus 2010


COMPONENT OF CHANGE IN NET SALES	Airbag Products ¹⁾			Seatbelt Products ²⁾			Active Safety			Total
Organic change		8.3	%		7.0	%		86.9	%		8.8	%
Currency effects		4.4	%		4.7	%		2.1	%		4.5	%
Acquisitions/divestitures		1.5	%		1.6	%		—			1.5	%

Reported change		14.2	%		13.3	%		89.0	%		14.8	%

1)	Includes passive safety electronics, steering wheels, inflators and initiators; 2) Includes seat components

NET SALES

Net sales for 2011 increased by 15%, or $1,061 million, to $8,232 million, primarily due to a 9%, or $631 million, increase in organic sales (non-U.S. GAAP measure, see page 42 in the Annual Report). Currency effects increased sales by $321 million, or more than 4%, and acquisitions by nearly 2%, or $110 million (see page 46 in the Annual Report).

The organic sales increase of 9% was 6 percentage points (p.p.) more than the increase in global LVP. This was mainly due to Autoliv’s strong performance in South Korea, China and North America, where organic sales grew 21 p.p., 10 p.p. and 8 p.p. more than LVP in each respective market.

Organic sales of airbag products rose by 8% compared to the 3% increase in global LVP. Autoliv’s outperformance primarily reflects the Company’s strong position in side-impact airbags, a market that is growing faster than the market for frontal airbags.

Organic sales of seatbelt products increased by 7% which was more than twice as much as the increase in global LVP partly due to market share gains in the expanding Chinese market.

Sales of active safety systems almost doubled from $85 million to $160 million, mainly due to new radar business with Chrysler and higher optional take-rates at Mercedes.

In Europe, sales rose by 12% to $3,102 million including positive currency effects of 6%. Organic sales increased by 6%, which was 1 p.p. more than the increase in European LVP of 5%.

In the Americas, consolidated sales rose by slightly less than 17% to $2,559 million, while organic sales rose by 16% and currency effects added slightly less than 1%. The growth in organic sales was twice as much as the 8% increase in LVP in the Americas, mainly due to new business with Ford, Chrysler and GM.

In China, sales increased by 21% to $982 million. Excluding currency effects and acquisitions, which added 5% and 3%, organic sales grew by 13% which was 10 p.p. more than China’s LVP.

In Japan, sales declined by 4% to $758 million despite favorable currency effects of 10%. The decline in organic sales of 14% was in line with the 14% decline in Japan’s LVP. Both declines were mainly due to the earthquake in the first quarter of 2011.

In the Rest of Asia (RoA) sales increased by 35% to $831 million. Excluding acquisitions and currency effects that added 13% and 4%, respectively, sales grew organically by 18%, which was 13 p.p. more than the growth in the region’s LVP. This was mainly due to Autoliv’s strong performance in the important South Korean market and to new business from Hyundai/KIA and GM. Both LVP and sales were affected by the flooding in Thailand and by component shortage due to the Japanese earthquake.

GROSS PROFIT

Gross profit increased by 9%, or $136 million, to $1,728 million, primarily due to higher sales. However, gross margin declined to 21.0% from 22.2% in 2010. This was mainly due to a 1.2 p.p. negative effect from higher raw material prices and to costs for step-up of the manufacturing capacity in our growth markets.

OPERATING INCOME

Operating income improved by 2%, or $20 million, to $889 million while operating margin declined by 1.3 p.p. to 10.8%, almost in line with the 1.2 p.p. decline in gross margin, despite the fact that $80 million higher Research, Development and Engineering (R,D&E) expense, net, had a 1.0 p.p. negative effect. Legal fees of $14 million for the on-going antitrust investigations (see page 43 in the Annual Report) had a 0.2 p.p. negative effect.

R,D&E expense, net rose by 22% to $441 million and, in relation to sales, to 5.4% from 5.0% in 2010, primarily due to our increased undertakings in active safety. Selling, General & Administrative (S,G&A) expense rose by 13% to $369 million, but continued to decline in relation to sales to 4.5% from 4.6%.

INTEREST EXPENSE, NET

Interest expense, net increased by 12%, or $6 million, to $57 million compared to 2010 as a reflection of higher Swedish Krona floating interest rates. This more than offset a favorable effect from a lower average net debt (non-U.S. GAAP measure, see page 42 in the Annual Report). Average net debt during the year was reduced to $67 million during 2011 from $433 million during 2010. Pre-tax income also included a charge of $6 million for debt extinguishment costs.

The higher interest expense, net and the lower average net debt reflects the fact that strong cash flow from operations reduced primarily short-term debt which has lower interest rates compared to primarily fixed rate long-term debt. It also reflects the fact that the return on the cash on deposit is significantly lower than the average borrowing cost with the highest interest rate for some of the remaining debt at 15%. This loan was remarketed in March 2012, see page 48 in the Annual Report.

INCOME TAXES

Income before taxes increased by 3% or $23 million to $828 million primarily due to higher operating income. Income tax expense was $201 million, net of discrete tax items of $25 million, resulting in an effective tax rate of 24.3%, compared to 26.1% for 2010.

During 2011, the Company completed the formalities to close the tax audits on the Company’s U.S. tax returns for 2003-2008. As a result of the conclusion of the U.S. tax audits and other proceedings, the Company released $24 million of its tax reserves in the second quarter in 2011.

NET INCOME AND EARNINGS PER SHARE

Net income attributable to controlling interest improved by 6% or $33 million to $623 million, resulting in a net income margin of 7.6% compared to 8.2% in 2010.

Earnings per share assuming dilution improved by $0.26 to $6.65 due to higher net income, partially offset by more shares outstanding.

The weighted average number of shares outstanding assuming dilution increased by 1% to 93.7 million primarily as a result of the exchange of 2.3 million equity units in 2010 and a dilutive effect from the remaining equity units. The higher number of shares outstanding had a 10 cent negative effect on earnings per share.

Liquidity, Resources and Financial Position

CASH FROM OPERATIONS

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

Cash provided by operating activities was $689 million in 2012, $758 million in 2011 and $924 million in 2010.

While management of cash and debt is important to the overall business, it is not part of the operational management’s day-to-day responsibilities. We therefore focus on operationally derived working capital and have set a policy that the operating working capital should not exceed 10% of the last 12-month net sales.

At December 31, 2012, operating working capital (non-U.S. GAAP measure see page 42 in the Annual Report) stood at $579 million corresponding to 7.0% of net sales compared to $514 million and 6.2%, respectively, at December 31, 2011. These ratios were reduced by 0.9 percentage points (p.p.) in 2012 and by 0.4 p.p. in 2011 from provisions for capacity alignment and other restructuring charges, and favorably impacted by 1.2 and 1.0 p.p., respectively, from the sale of receivables and discounting of notes totaling $95 million in 2012 and $83 million in 2011 (see “Treasury Activities” on page 48 in the Annual Report).

Days receivables outstanding (see page 83 in the Annual Report for definition) decreased to 66 at December 31, 2012 from 67 days on December 31, 2011. Factoring agreements did not have any material effect on days receivables outstanding for 2012, 2011 or 2010.

Days inventory outstanding (definition on page 83 in the Annual Report) decreased to 30 at December 31, 2012 from 32 one year earlier.

CAPITAL EXPENDITURES

Cash generated by operating activities continued to sufficiently cover capital expenditures for property, plant and equipment.

Capital expenditures, gross were $365 million in 2012, $367 million in 2011 and $236 million in 2010, corresponding to 4.4%, 4.5% and 3.3% of net sales, respectively.

Capital expenditures, net of $360 million were $87 million higher than depreciation and amortization of $273 million in 2012 and $89 million higher than depreciation and amortization of $268 million in 2011.

Capital expenditures for 2013 are expected to be around 4.5% of sales to support the increasing need for manufacturing capacity in China and other growth markets.

During 2012, construction was commenced on a new gas generant facility in China and on an expansion of the existing generant and initiator facilities in North America. These investments will allow us to increase long term our airbag production capacity by up to 30%. In 2012, we also began the extension of our seatbelt assembly plant in Hungary and Autoliv’s technical center in China; a new assembly facility for seatbelts was completed in Indonesia; a new steering wheel plant was brought into operation in Romania; and a new seatbelt assembly plant was brought into operation in Russia.

During 2011, two plants were expanded in China and two other Chinese plants were transferred to new buildings. Additionally, to meet the growing unit sales and the need for additional manufacturing capacity, a seatbelt webbing facility was opened in India, a steering wheel plant was expanded in Brazil, an airbag cushion plant was opened in Thailand and an airbag cushion plant moved to a larger building in Brazil.

BUSINESS COMBINATIONS, ACQUISITIONS AND DIVESTMENTS

Historically, the Company has made many acquisitions. Generally, we focus on two principal growth areas around our core business with the greatest potential: active safety systems and growth markets. In the wake of the financial crisis in 2008 and 2009, we also made several acquisitions to participate in a consolidation of the automotive safety industry.

The total acquisitions of businesses, net of cash acquired, amounted to $2 million in 2012 (prior year acquisitions), to $23 million in 2011 and to $141 million in 2010. No business combinations or acquisitions were made in 2012 although Autoliv did divest Autoliv Mekan AB in Sweden, which manufactures seat components, primarily for seats in Volvo vehicles. This non-core subsidiary had sales of SEK 260 million (approximately $37 million) and slightly less than 200 employees.

In 2011, Autoliv acquired two technologies related to active safety: 1) software from Hella for camera-based forward-looking systems such as Traffic Sign Recognition (TSR), Lane Detection (LD) and Light Source Recognition (LSR) and 2) a license from Astyx for long-range radar that will supplement Autoliv’s existing short and medium range radar in Adaptive Cruise Control (ACC), Emergency Braking (EB) and Forward Collision-Warning (FCW). These acquisitions are expected to generate sales in 2014 and 2015, respectively.

In 2010, we acquired the automotive radar business of Visteon. This acquisition generated sales of $2 million during 2010.

Also in 2010, Autoliv acquired the remaining 49% of the shares in AS Norma in Estonia for $50 million. Norma is the leading automotive safety company in the Russian market, and had annual sales of $56 million in 2010. However, since Norma was already a consolidated entity, the acquisition did not impact Autoliv’s consolidated sales.

Furthermore, in 2010, Autoliv acquired the remaining 40% of the shares in its Japanese inflator subsidiary Autoliv Nichiyu Co. Ltd (ANC) for $7 million and Delphi’s Pyrotechnic Safety Switch (PSS) business. Since ANC was already consolidated, this acquisition did not affect Autoliv’s consolidated sales, while PSS added annualized sales of $8 million.

In 2009 and the beginning of 2010, Autoliv acquired virtually all of Delphi’s assets for airbags, steering wheels and seatbelts following Delphi’s announcement in the spring of 2009 that they intended to exit these markets. These acquired Delphi assets were located in North America, South Korea and Europe. Finally, in August 2010, Autoliv acquired Delphi’s remaining assets in passive safety, which was a 51% interest in the Chinese seatbelt joint venture Beijing Delphi Safety Product Co. Ltd (BDS). The purchase price of all of the Delphi assets that Autoliv acquired during 2009 and 2010 was approximately $107 million, while the acquisitions added annual sales of approximately $570 million.

FINANCING ACTIVITIES

Cash used in financing activities amounted to $91 million in 2012 and to $223 million in 2011. Cash and cash equivalents increased by $239 million to $978 million in 2012 and by $151 million to $739 million in 2011. Gross debt decreased by $33 million to $633 million at December 31, 2012 and by $59 million to $666 million at December 31, 2011.

Net cash (non-U.S. GAAP measure see page 42 in the Annual Report) increased during 2012 by $269 million to $361 million at December 31, 2012. During 2011, net debt decreased by $219 million to a positive net cash position of $92 million at December 31, 2011.

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 in several tax jurisdictions and covering multiple years. 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 “Accounting Policies” on page 60 and also Note 4 to Consolidated Financial Statements included herein.

PENSION ARRANGEMENTS

The Company has defined benefit pension plans covering most U.S. employees, although the Company froze participation in the U.S. plans to exclude employees hired after December 31, 2003. Many of the Company’s non-U.S. employees are also covered by pension arrangements.

At December 31, 2012, the Company’s pension liability (i.e. the actual funded status) for its U.S. and non-U.S. plans was $255 million and $193 million one year earlier. The plans had a net unamortized actuarial loss of $171 million recorded in Accumulated other comprehensive income (loss) in the Consolidated Statement of Equity at December 31, 2012, compared to $133 million at December 31, 2011. The amortization of this loss is expected to be $12 million in 2013.

The liability increase in 2012 of $62 million was mainly due to a decrease in the discount rate for all significant plans, except for the plan in Japan. The liability increase in 2011 of $57 million was primarily due to a $63 million increase in the U.S. plans mainly caused by a decrease in the discount rate and changes in other actuarial assumptions offset by a decrease in the Japanese defined benefit plans, which were partially converted into a new defined contribution plan in October 2011.

Pension expense associated with the defined benefit plans was $36 million in 2012, $33 million in 2011 and $22 million in 2010 and is expected to be $39 million in 2013. The increase in pension expense associated with the defined benefit plans in 2012 of $3 million is mainly due to a $7 million increase in the U.S. plans as a result of the decrease in discount rate, offset by a decrease in Japan due to the Japanese plan conversion in 2011. The increase in pension expense associated with the defined benefit plans in 2011 of $11 million was mainly due to a $3 million increase in the U.S. plans and a $4 million increase in the Japanese plans as part of the plan conversion.

The Company contributed $19 million to its defined benefit plans in 2012 which was $7 million more than expected mainly caused by an increased contribution in South Korea due to a change in governmental regulation. In 2011, the contribution amounted to $30 million and to $16 million in 2010. The increase in defined benefit plan contributions in 2011 was mainly due to the Japanese plan conversion, resulting in an increase in contributions of $13 million compared to 2010. The Company expects to contribute $13 million to these plans in 2013 and is currently projecting a yearly funding at approximately the same level in the subsequent years.

For further information about retirement plans see Note 18 to the Consolidated Financial Statements.

DIVIDENDS

Total cash dividends paid were $178 million in 2012, $154 million in 2011 and $58 million in 2010. The annualized dividend amount of $191 million (based on 50 cents per share and the number of shares outstanding at December 31, 2012) is 54% higher than the highest amount paid before the crises in 2008 and 2009.

Before the global financial crisis, the Company paid quarterly dividends of 39 cents per share. However, as of the second quarter of 2009, dividend payments were suspended to preserve cash.

Dividend payments were resumed in the third quarter 2010 as a result of the Company’s fast recovery and efficient cash management. Subsequently, the dividend per share was raised from 30 cents to 35 cents for the fourth quarter of 2010, to 40 cents for the first quarter of 2011, to 43 cents for the second quarter and to 45 cents for the third and the fourth quarter of 2011 and the first quarter of 2012. During 2012, the dividend per share was raised to 47 cents for the second and the third quarter and to 50 cents for the fourth quarter.

The board has declared a dividend of 50 cents per share for the first quarter of 2013.

EQUITY

During 2012, total equity increased by 13% or $427 million to $3,776 million. This was due to net income of $486 million, a $105 million net effect from the settlement of the purchase contracts related to the Equity Units, a $28 million positive currency effect and nearly a $21 million effect related to stock incentives. Equity was reduced by $186 million due to dividends and by $26 million due to changes in pension liabilities.

During 2011, total equity increased by 14% or $410 million to $3,349 million. This was due to net income of $627 million and a $20 million effect from the issuance of shares and other effects related to stock compensation. Equity was reduced by $159 million due to dividends, by $42 million due to negative currency effects and by $36 million due to changes in pension liabilities.

IMPACT OF INFLATION

Except for raw materials, inflation has generally not had a significant impact on the Company’s financial position or results of operations. However, increases in raw material prices had a negative impact of $6 million in 2012, of almost $100 million in 2011 and of almost $20 million in 2010. For 2013, we currently expect a favorable impact of around $3 million from declining raw material prices.

Changes in most raw material prices affect the Company with a time lag, which is usually three to six months for most materials (see Component Costs on page 51 in the Annual Report).

In many growth markets, inflation is relatively high, especially labor inflation. We have managed to offset this negative effect mainly by labor productivity improvements. However, no assurance can be given that this will continue to be possible going forward.

PERSONNEL

During the past three years, total headcount (permanent employees and temporary personnel) has risen by 35% to 51,000 from the beginning of 2010. This reflects the rebound in the cyclical automotive business as well as the combined effect of long-term growth of global LVP, strong demand for safer vehicles and Autoliv’s market share gains, which all drive the need for additional manufacturing personnel.

During 2012, headcount increased by 3,000 despite a decrease of 200 due to divestitures and no impact from acquisitions. During 2011, when headcount increased by 4,600 there were no impacts from acquisitions or divestitures. Acquisitions added 800 during 2010 when headcount increased by 5,400. Excluding acquisitions and divestitures, headcount increased by 7% during 2012, 11% during 2011 and 12% during 2010, which should be compared to increases in organic sales of 4%, 9% and 31% for the same years. During 2012 and 2011, Autoliv’s vertical integration and manufacturing in low-cost-countries (LCC) increased as a means to offset price erosion in the automotive industry, which caused headcount to increase faster than sales.

At the end of 2012, 69% of total headcount was in LCC compared to 60% at the beginning of 2010. Furthermore, 71% of total headcount at December 31, 2012 was direct workers in manufacturing compared to 68% at the beginning of 2010, while 18% of total headcount at December 31, 2012 was temporaries, compared to 20% at the beginning of 2010.

Compensation to directors and executive officers is reported, as is customary for U.S. public companies, in Autoliv’s proxy statement, which will be available to shareholders in March 2013.

Treasury Activities

CREDIT FACILITIES

During the last three years, credit markets have eased significantly after the peak of the financial crisis in 2008 and 2009. Although the Company did not have to issue any significant long-term debt during the crisis, Autoliv has taken advantage of the improved credit margins in recent years.

In 2010, the terms of the back-up commitment from the European Investment Bank (EIB) were favorably amended and renegotiated again in 2011 on more favorable terms (see below). Also in 2010, Autoliv signed a new revolving credit facility (RCF) of SEK 2 billion ($306 million equivalent) with a term of seven years and another RCF of €155 million ($205 million equivalent) with a term of five years. Both facilities had a margin of 1.4% on the applicable LIBOR or IBOR when utilized. In addition, in 2010, Autoliv conducted, at favorable terms, a number of accelerated equity units exchange transactions (see below).

In 2011, credit margins continued to improve during the beginning of the year. However, mid-year, the margins started to widen again as a result of the Euro and sovereign debt worries. Before this change in market sentiment, Autoliv refinanced its $1.1 billion RCF, which was scheduled to mature in November 2012. The new facility, syndicated among 14 banks, has a margin of 0.55% on the applicable LIBOR or IBOR when utilized. After the RCF-refinancing in 2011, Autoliv cancelled the two above-mentioned facilities from 2010 which were no longer cost efficient. Additionally before the change in market sentiment, a SEK 600 million ($92 million equivalent) bond was repurchased at a discount. The Company recorded, in 2011, a debt extinguishment cost of $6 million related to this transaction, but the transaction will reduce interest expense by $8 million through 2014 (i.e. $2 million more than the cost). In connection with the bond buy-back, the Company issued a SEK 300 million ($46 million equivalent) 6-year bond with an interest rate of 3-month STIBOR + 0.95%. Furthermore, the EIB loan commitment was renegotiated again in 2011 and the terms were further improved.

In 2012, as a result of the Euro and sovereign debt concerns, credit margins have increased slightly while interest rates have been at historically low levels. In April 2012, Autoliv extended essentially all of its $1.1 billion RCF from April 2016 to April 2017 with unchanged terms and conditions. In November 2012, a U.S. private placement note of $110 million matured, which had a fixed interest rate of 5.6%. Although Autoliv does not have immediate funding needs, a new fixed-rate note was issued in December 2012 of 350 million SEK ($54 million equivalent) at historically low interest levels. The 5-year note matures in December 2017 and carries interest rates of EIB’s cost of funds plus 0.3% which represents a fixed interest rate of 2.49%. The remainder of EIB’s commitment was cancelled in December 2012. At December 31, 2012, Autoliv’s unutilized long-term credit facilities were $1.1 billion, represented by the RCF. The facility is not subject to any financial covenants nor is any other substantial financing of Autoliv. The Company had a net cash position at year end 2012 and 2011 of $361 million and $92 million, respectively. See Note 12 to Consolidated Financial Statements included herein for additional information.

During 2012 and 2011, 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, 2012, the Company had received $95 million for sold receivables without recourse and discounted notes with a discount of $2 million during the year, compared to $83 million at year end 2011 with a discount of $2 million recorded in Other financial items, net.

Autoliv’s long-term credit rating from Standard and Poor’s has been BBB+ with stable outlook since July 2010, when the rating was upgraded from BBB. Consequently, Autoliv’s credit rating remains in line with its objective of maintaining a strong investment grade rating.

EQUITY AND EQUITY UNITS

In March 2009, we decided to strengthen Autoliv’s equity base, primarily to (i) be in a position to participate in a very likely consolidation of our industry resulting from the financial crisis, (ii) stabilize the Company’s credit rating because GM and Chrysler were at risk of going into bankruptcy and S&P’s down-grading of Autoliv between November 2008 and February 2009 from A- to BBB-, and (iii) have a strong negotiating position with the European Investment Bank (EIB). Autoliv therefore sold 14,687,500 treasury shares at $16.00 and 6,600,000 equity units at $25.00, which generated net proceeds of $377 million. Each equity unit consisted of one mandatory purchase contract and one 8% senior note due on April 30, 2014.

Originally, the face value of the debt related to these notes amounted to $165 million, and the number of shares that would have been issued as a result of the equity units was 8.6 million to 10.3 million. However, some holders of the equity units contacted us in the spring of 2010 and proposed to exchange their units for cash and common stock at a discount compared to the original terms of the agreement. We therefore conducted various accelerated exchange transactions totaling 36% of the then outstanding equity units. The price represented a 22% discount compared to the agreed cash coupon. This reduced our debt by $54 million and increased equity by $57 million due to the issuance of 3,058,735 Autoliv treasury shares. As a result, the face value of the debt related to the equity units was reduced to $106 million. In 2010, the Company also recorded a debt extinguishment cost of $12 million related to the transaction, but the transaction saved $16 million in interest expense through April 2012.

In March 2012, Autoliv completed the remarketing of the senior notes and the coupon of the notes was reset to 3.854% with a yield of 2.875%. This reduced interest expense by around $11 million in 2012 compared to 2011. At the time of the remarketing, 4,250,920 equity units were outstanding.

On April 30, 2012, Autoliv settled the purchase contracts underlying the equity units. Under the terms of the purchase contracts, Autoliv delivered 5.8 million of its treasury shares to the holders of the 4,250,920 outstanding equity units and, in return, received $106 million in cash. As a result, the Company’s net cash position and equity were increased by $106 million, and the total number of shares outstanding increased from 89.5 million to 95.3 million. Following the settlement of the purchase contracts no equity units were outstanding.

For dilution effects from these transactions, see “Number of Shares” below. For an additional description of our equity units, see Note 13 to Consolidated Financial Statements included herein.

NUMBER OF SHARES

At December 31, 2012, there were 95.5 million shares outstanding (net of 7.3 million treasury shares), a 7% increase from 89.3 million one year earlier.

Due to the settlement of the remaining equity units, the number of shares outstanding increased on April 30, 2012 by 5.8 million. The number of shares outstanding is expected to further increase by 1.2 million when all Restricted Stock Units (RSU) vest and if all stock options to key employees are exercised, see Note 15 to Consolidated Financial Statements included herein.

For calculating earnings per share assuming dilution, Autoliv follows the Treasury Stock Method. As a result, the dilutive effect from the equity units has varied with the price of the Autoliv share. For 2012 and 2011, 1.3 million and 4.0 million shares, respectively, were included in the dilutive weighted average share amount related to the equity units, see Note 20 to Consolidated Financial Statements included herein.

In 2007, the Board authorized a share repurchase program of which 3.2 million shares remained on December 31, 2012 for repurchases. Purchases can be made from time to time as market and business conditions warrant in open market, negotiated or block transactions. There is no expiration date for the repurchase program to provide management flexibility in the Company’s share repurchases. The Company started to buy back shares in 2000 but has not repurchased any shares since the Lehman Brothers collapse on September 15, 2008. The average cost for all repurchased shares to date is $42.93.

Contractual Obligations and Commitments


AGGREGATE CONTRACTUAL OBLIGATIONS ¹⁾ (DOLLARS IN MILLIONS)	Payments due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt obligations including DRD ²⁾	$	617	$	70	$	282	$	205	$	60
Fixed-interest obligations including DRD ²⁾		61		19		27		15		—
Operating lease obligations		111		33		44		22		12
Unconditional purchase obligations		—		—		—		—		—
Pension contribution requirements ³⁾		13		13		—		—		—
Other non-current liabilities reflected on the balance sheet		21		—		12		5		4

Total	$	823	$	135	$	365	$	247	$	76

Excludes contingent liabilities arising from litigation, arbitration, income taxes or regulatory actions. 2) Debt-Related Derivatives (DRD), see Note 12 to the Consolidated Financial Statements included herein. 3) Expected contributions for funded and unfunded defined benefit plans excludes payments beyond 2013

Contractual obligations include debt, lease and purchase obligations that are enforceable and legally binding on the Company. Non-controlling interests and restructuring obligations are not included in this table. The major employee obligations as a result of restructuring are disclosed in Note 10 to Consolidated Financial Statements included herein.

Debt obligations including Debt-Related Derivatives (DRD): For material contractual provisions, see Note 12 to Consolidated Financial Statements included herein. The debt obligations include capital lease obligations, which mainly relate to property and plants in Europe, as well as the impact of revaluation to fair value of Debt-Related Derivatives (DRD).

Fixed-interest obligations including DRD: These obligations include interest on debt and credit agreements relating to periods after December 31, 2012, as adjusted by DRD, excluding fees on the revolving credit facility and interest on debts with no defined amortization plan.

Operating lease obligations: The Company leases certain offices, manufacturing and research buildings, machinery, automobiles and data processing and other equipment. Such operating leases, some of which are non-cancelable and include renewals, expire on various dates. See Note 17 to Consolidated Financial Statements included herein.

Unconditional purchase obligations: There are no unconditional purchase obligations other than short-term obligations related to inventory, services, tooling, and property, plant and equipment purchased in the ordinary course of business.

Purchase agreements with suppliers entered into in the ordinary course of business do not generally include fixed quantities. Quantities and delivery dates are established in “call off plans” accessible electronically for all customers and suppliers involved. Communicated “call off plans” for production material from suppliers are normally reflected in equivalent commitments from Autoliv customers.

Pension contribution requirements: The Company sponsors defined benefit plans that cover a significant portion of our U.S. employees and certain non-U.S. employees. The pension plans in the U.S. are funded in conformity with the minimum funding requirements of the Pension Protection Act of 2006. Funding for our pension plans in other countries is based upon plan provisions, actuarial recommendations and/or statutory requirements.

In 2013, the expected contribution to all plans, including direct payments to retirees, is $13 million, of which the major contribution is $7 million for our U.S. pension plans. Due to volatility associated with future changes in interest rates and plan asset returns, the Company cannot predict with reasonable reliability the timing and amounts of future funding requirements, and therefore the above excludes payments beyond 2013. We may elect to make contributions in excess of the minimum funding requirements for the U.S. plans in response to investment performance and changes in interest rates, or when we believe that it is financially advantageous to do so and based on other capital requirements.

Excluded from the above are expected contributions of $1 million due in 2013 with respect to our other post-employment benefit (OPEB) plans, which represents the expected benefit payments to participants as costs are incurred. See Note 18 to Consolidated Financial Statements included herein.

Other non-current liabilities reflected on the balance sheet: These consist mainly of local governmental liabilities.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on its financial position, results of operations or cash flows.

Accounting Policies

NEW ACCOUNTING PRONOUNCEMENTS

The Company has evaluated all applicable recently issued accounting guidance. None of these recently issued pronouncements have had, or are expected to have, a significant impact on the Company’s future Consolidated Financial Statements.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The Company’s significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements included herein.

Senior management has discussed the development and selection of critical accounting estimates and disclosures with the Audit Committee of the Board of Directors. The application of accounting policies necessarily requires judgments and the use of estimates by a company’s management. Actual results could differ from these estimates.

Management considers it important to assure that all appropriate costs are recognized on a timely basis. In cases where capitalization of costs is required (e.g., certain pre-production costs), stringent realization criteria are applied before capitalization is permitted. The depreciable lives of fixed assets are intended to reflect their true economic life, taking into account such factors as product life cycles and expected changes in technology. Assets are periodically reviewed for realizability and appropriate valuation allowances are established when evidence of impairment exists. Impairment of long-lived assets has generally not been significant.

REVENUE RECOGNITION

Accruals are made for retroactive price adjustments if probable and can be reasonably estimated. Net sales exclude taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers.

BAD DEBT AND INVENTORY RESERVES

The Company has reserves for bad debts as well as for excess and obsolete inventories.

The Company has guidelines for calculating provisions for bad debts based on the age of receivables. In addition, the accounts receivable are evaluated on a specific identification basis. In determining the amount of a bad debt reserve, management uses its judgment to consider factors such as the prior experience with the customer, the experience with other enterprises in the same industry, the customer’s ability to pay and/or an appraisal of current economic conditions.

Inventories are evaluated based on individual or, in some cases, groups of inventory items. Reserves are established to reduce the value of inventories to the lower of cost or market, with market generally defined as net realizable value for finished goods and replacement cost for raw materials and work-in-process. Excess inventories are quantities of items that exceed anticipated sales or usage for a reasonable period. The Company has guidelines for calculating provisions for excess inventories based on the number of months of inventories on hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period.

There can be no assurance that the amount ultimately realized for receivables and inventories will not be materially different than that assumed in the calculation of the reserves.

GOODWILL IMPAIRMENT

The Company performs an annual impairment review of goodwill in the fourth quarter of each year following the Company’s annual forecasting process. The estimated fair market value of goodwill is determined by the discounted cash flow method. The Company discounts projected operating cash flows using its weighted average cost of capital.

To supplement this analysis, the Company compares the market value of its equity, calculated by reference to the quoted market prices of its shares, with the book value of its equity. There were no goodwill impairments in 2010-2012. See “Goodwill and Intangible Assets” in Note 1 to Consolidated Financial Statements included herein.

RESTRUCTURING PROVISIONS

The Company defines restructuring expense to include costs directly associated with rightsizing, exit or disposal activities. Estimates of restructuring charges are based on information available at the time such charges are recorded. In general, management anticipates that restructuring activities will be completed within a time frame such that significant changes to the exit plan are not likely.

Due to inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated. See Note 10 to the Consolidated Financial Statements included herein.

DEFINED BENEFIT PENSION PLANS

The Company has defined benefit pension plans in thirteen countries. The most significant plans exist in the U.S. and cover most U.S. employees. These plans represent 62% of the Company’s total pension benefit obligation. See Note 18 to 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 2012 pension expense were a discount rate of 4.60%, expected rate of increase in compensation levels of 3.50%, and an expected long-term rate of return on plan assets of 7.50%.

The assumptions used in calculating the U.S. benefit obligations disclosed as of December 31, 2012 were a discount rate of 4.05% and an expected age-based rate of increase in compensation levels of 3.50%. The discount rate for the U.S. plans has been set based on the rates of return of high-quality fixed-income investments currently available at the measurement date and are expected to be available during the period the benefits will be paid. The expected rate of increase in compensation levels and long-term return on plan assets are determined based on a number of factors and must take into account long-term expectations and reflect the financial environment in the respective local markets. The Company assumes a long-term rate of return on U.S. plan assets of 7.50% for calculating the 2012 expense as in 2011. At December 31, 2012, 65% of the U.S. plan assets were invested in equities, which is in line with the target of 65%.

A one percentage point (p.p.) decrease in the long-term rate of return on plan assets would result in an increase in the 2012 U.S. benefit cost of $1 million. A one p.p. decrease in the discount rate would have increased the 2012 U.S. benefit cost by $7 million and would have increased the December 31, 2012 U.S. benefit obligation by $77 million. A one p.p. increase in the expected rate of increase in compensation levels would have increased 2012 U.S. benefit cost by $4 million and would have increased the December 31, 2012 U.S. benefit obligation by $31 million.

INCOME TAXES

Significant judgment is required in determining the worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. Many of these uncertainties arise as a consequence of inter-company transactions and arrangements.

Although the Company believes that its tax return positions are supportable, no assurance can be given that the final outcome of these matters will not be materially different than that which is reflected in the historical income tax provisions and accruals. Such differences could have a material effect on the income tax provisions or benefits in the periods in which such determinations are made. See Note 4 to Consolidated Financial Statements included herein.

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. Because we are unable to estimate the financial impact of ongoing and potential antitrust investigations and related civil litigation or the periods during which such impact would be recorded, the Company has not recorded a provision for those matters as of December 31, 2012. See Note 16 to the Consolidated Financial Statements included herein and Item 3 – “Legal Proceedings” in our 10-K for the year ended December 31, 2012.

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 identified 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.

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 in our 10-K filed with the SEC, which contains a description of our material risks.

As described below, the Company has taken several mitigating actions, applied many 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 risk and related risk management are updated in this fast moving environment.

Operational Risks

LIGHT VEHICLE PRODUCTION

Since nearly 30% of Autoliv’s costs are relatively fixed, short-term earnings are highly dependent on capacity utilization in the Company’s plants and are, therefore, sales dependent.

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 approximately 1,300 vehicle models which generally moderates the effect of changes in vehicle demand of individual countries and regions or stops in production, due to for instance natural disasters. The risk in fluctuating sales has also been mitigated by Autoliv’s rapid expansion in Asia and other rapidly growing markets, which has reduced the Company’s former high dependence on Europe from more than 50% of sales to a diversified mix with Europe, the Americas and Asia each accounting for about one third of 2012 sales.

It is also the Company’s strategy to reduce this risk in fluctuating sales by using a high number of temporary employees instead of permanent employees. During 2010-2012, the level of temporary personnel in relation to total headcount varied between 18.1% at December 31, 2012 and 22.4% at September 30, 2010.

However, when there is a dramatic reduction in the production of vehicle models supplied by the Company as occurred during the financial crisis in 2008 and 2009 and during 2012 when Western European LVP declined by 8%, it takes time to reduce the level of permanent employees and even longer to reduce fixed production capacity. As a result, our sales and margin could drop significantly and materially impact earnings and cash flow. Therefore, it is our strategy to have a strong financial position and high level of manufacturing in low-cost countries where more flexible labor-intensive production lines can be used than highly automated lines with fixed costs in high-cost countries.

PRICING PRESSURE

Pricing pressure from customers is an inherent part of the automotive components business. The extent of pricing reductions varies from year to year, and takes the form of reductions in direct sales prices as well as 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 any single program on costs. Therefore, we monitor key measures such as costs in relation to sales and geographical employee mix.

COMPONENT COSTS

Changes in these component costs and raw material prices could have a major impact on margins, since the cost of direct materials is approximately 54% of sales. Autoliv does not generally buy raw materials, but rather purchases manufactured components (such as stamped steel parts and sewn airbag cushions). In spite of this, raw material price changes in Autoliv’s supply chain could have a major impact on our profitability since approximately 51% of the Company’s component costs (corresponding to 27% of net sales) are comprised of raw materials. (The remaining 49% are value added by the supply chain.)

Currently, 36% of the raw material cost (or 10% of net sales) is based on steel prices; 32% on oil prices (i.e. nylon, polyester and engineering plastics) (9% of net sales); 15% on electronic components, such as circuit boards (4% of net sales); and 7% on zinc, aluminum and other non-ferrous metals (2% of net sales).

Changes in most raw material prices affect the Company with a time lag. This lag used to be six to twelve months but now more often is three to six months. For non-ferrous industrial metals like aluminum and zinc, we have quarterly and sometimes monthly price adjustments.

The Company’s strategy is to offset price increases on cost of materials by taking several actions such as the re-design of products to reduce material content (as well as weight), material standardization to globally available raw materials, consolidating volumes to fewer suppliers and moving components sourcing to low-cost countries. However, should these actions not be sufficient to offset component price increases, our earnings could be materially impacted.

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, intellectual property matters, regulatory matters and governmental investigations, personal injury claims, environmental issues, tax and customs matters, and employment matters.

The Company is currently subject to ongoing antitrust investigations by the European Commission and Canadian and South Korean authorities, as well as civil litigation in the United States and Canada alleging anti-competitive conduct. In addition, management believes that additional antitrust authorities are evaluating whether to commence investigations. Such legal proceedings, including regulatory actions and government investigations, may seek recovery of very large indeterminate amounts or limit the Company’s operations, and the possibility that such proceedings may arise and their magnitude may remain unknown for substantial periods of time.

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 16 Contingent Liabilities to the Consolidated Financial Statements and Item 3 – “Legal Proceedings” in our 10-K for the year ended December 31, 2012.

PRODUCT WARRANTY AND RECALLS

The Company is exposed to various claims for damages and compensation, if our products fail to perform as expected. Such claims can be made, and 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, we may face warranty and recall claims. If such actual or alleged failure results in bodily injury and/or property damage, we may in addition face product-liability and other claims. The Company may experience material warranty, recall or product-liability claims or losses in the future, and the Company may incur significant cost to defend against such claims. The Company may also be required to participate in a recall involving its products. Each vehicle manufacturer has its own practices regarding product recalls and other product-liability actions relating to its suppliers. As suppliers become more integrally involved in the vehicle design process and assume more 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) (also 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.

In addition, 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 more frequently use global designs and are increasingly based on or utilize the same or similar parts, components or solutions.

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. We believe our established reserves are adequate to cover potential warranty settlements typically seen in our business.

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.

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 page 32 in the Annual Report). In addition, the Company carries product-liability and product-recall insurance at levels that management believes are generally sufficient to cover the risks. However, such insurance may not always be available in appropriate amounts or in all markets. 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 and has adopted an environmental policy (see corporate website www.autoliv.com) that requires, for instance, that all plants should be ISO-14001 certified.

However, environmental requirements are complex, change and are generally becoming more stringent over time. Accordingly, there can be no assurance that these requirements will not change in the future, or that we will at all times be in compliance with all such requirements and regulations, despite our intention to be. The Company may also find itself subject, possibly due to changes in legislation, 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 at all related to the Company’s current activities.

SOVEREIGN DEBT CRISIS

Of Autoliv’s global sales, 3% are connected with customer plants in Portugal, Italy, Ireland, Greece or Spain. In addition, there are many vehicles imported to these countries from other plants to which Autoliv is a supplier. Consequently, a significant further drop in vehicle demand in these countries could have a significant impact on Autoliv’s revenues, even if such an effect may be partially offset by export to other markets from the so-called PIIGS countries.

None of the banks in Autoliv’s syndicated revolving credit facility (RCF) and none of the primary relationship banks are domiciled in PIIGS countries.

However, a default of one of these countries or a default of a systemically important bank could have a substantial negative effect on Autoliv’s sales, our customers’ ability to pay their bills to us and Autoliv’s possibility to utilize its financial back-up facilities.

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 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. Seatbelt installation laws exist in all vehicle-producing countries. Many countries also have strict enforcement laws on the wearing of seatbelts. The U.S. adopted, in 2007, new regulations for side-impact protection to be phased-in by 2015. China introduced a vehicle rating program in 2006, and Latin America introduced a similar program in 2010. The United States upgraded its vehicle rating program in 2010 and Europe completed an upgrade of its Euro NCAP rating system in 2012 and has initiated a further upgrade, which will be fully implemented by 2017. There are also other plans for improved automotive safety, both in these countries and many other countries 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

The five largest vehicle manufacturers account for 52% of global light vehicle production and the ten largest manufacturers for 77%.

As a result of this highly consolidated market, the Company is dependent on a relatively small number of customers with strong purchasing power.

In 2012, the Company’s five largest customers accounted for 54% of revenues and the ten largest customers for 83% of revenues. For a list of the largest customers, see Note 19 to the Consolidated Financial Statements on page 80.

Our largest customer contract accounted for 4% of sales in 2012.

Although business with every major customer is split into several contracts (usually one contract per vehicle platform) and although the customer base has become more balanced and diversified as a result of Autoliv’s significant expansion in China and other rapidly-growing markets, the loss of all business from a major customer (whether by a cancellation of existing contracts or not awarding us new business), the consolidation of one or more major customers or a bankruptcy of a major customer could have a material adverse effect on the Company. In addition, a quality issue, shortcomings in our service to a customer or uncompetitive prices or products could result in the customer not awarding us new business, which will gradually have a negative impact on our sales when current contracts start to expire.

CUSTOMER PAYMENT RISK

Another risk related to our customers is the risk that one or more customers will be unable to pay invoices that become due. We seek to limit this customer payment risk by invoicing major customers through their local subsidiaries in each country, even for global contracts. We thus try to avoid having the receivables with a multinational customer group exposed to the risk that a bankruptcy or similar event in one country puts all receivables with the customer group at risk. In each country, we also monitor invoices becoming overdue.

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

DEPENDENCE ON SUPPLIERS

Autoliv, at each stage of production, relies on internal or external suppliers in order to meet its delivery commitments. In some cases, customers require that the suppliers are qualified and approved by them. Autoliv’s supplier consolidation program seeks to reduce costs but increases our dependence on the remaining suppliers. As a result, the Company is dependent, in several instances, on a single supplier for a specific component. However, this dependence is mitigated by the fact that we seldom are dependent on a specific manufacturing technology. Consequently, we can often change suppliers, albeit with some costs and time for validation and customer approval.

Consequently, there is a risk that disruptions in the supply chain could lead to the Company not being able to meet its delivery commitments and, as a consequence, to extra costs. This risk increases as suppliers are being squeezed between higher raw material prices and the continuous pricing pressure in the automotive industry. This risk also increases when our internal and external suppliers are to a higher degree located in countries which have a higher political risk.

The Company’s strategy is to reduce these supplier risks by seeking to maintain an optimal number of suppliers in all significant component technologies, by standardization and by developing alternative suppliers around the world.

However, for various reasons including costs involved in maintaining alternative suppliers, this is not always possible. As a result, difficulties with a single supplier could impact more than one customer and product, and thus materially impact our earnings.

NEW COMPETITION

The market for occupant restraint systems has undergone a significant consolidation during the past ten years and Autoliv has strengthened its position in this passive safety market.

However, in the future, the most attractive growth opportunities may be in the active safety systems markets, which include and are likely to include other and often larger companies than Autoliv’s traditional competitors. Additionally, there is no guarantee our customers will adopt our new products or technologies.

Autoliv is reducing the risk of this trend by utilizing its leadership in passive safety to develop a strong position in active and especially integrated safety (see page 12 in the Annual Report).

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 2012, the Company held more than 6,500 patents. These patents expire on various dates during the period from 2013 to 2032. 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.

Financial Risks

The Company is exposed to financial risks through its international operations and normally debt-financed activities. Most of the financial risks are caused by variations in the Company’s cash flow generation resulting from, among other things, changes in exchange rates and interest rate levels, as well as from refinancing risk and credit risk.

In order 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 policy on an on-going basis.

CURRENCY RISKS

1. Transaction Exposure

Transaction exposure arises because the cost of a product originates in one currency and the product is sold in another currency.

The Company’s gross transaction exposure forecasted for 2013 is approximately $2.4 billion. A part of the flows have counter-flows in the same currency pair, which reduces the net exposure to approximately $1.7 billion per year. In the three largest net exposures, Autoliv expects to sell U.S dollars against Mexican Peso for the equivalent of $291 million, Euros against the Swedish Krona for the equivalent of $225 million and sell South Korean Won against U.S. dollars for the equivalent of $183 million. Together these currencies will account for almost 40 percent of the Company’s net currency transaction exposure.

Since the Company can only effectively hedge these flows in the short term, periodic hedging would only reduce the impact of fluctuations temporarily. Over time, periodic hedging would postpone but not reduce the impact of fluctuations. In addition, the net exposure is limited to less than one quarter of net sales and is made up of more than 40 different currency pairs with exposures in excess of $1 million each. Consequently, the income statement effects related to transaction exposures are generally modest.

As a result, Autoliv does not hedge these flows.

2. Translation Exposure in the Income Statement

Another effect of exchange rate fluctuations arises when the income statements of non-U.S. subsidiaries are translated into U.S. dollars. Outside the U.S., the Company’s most significant currency is the Euro. We estimate that slightly more than 30% of the Company’s net sales will be denominated in Euro or other European currencies during 2013, while approximately a quarter of net sales is estimated to be denominated in U.S. dollars.

The Company estimates that a one-percent increase in the value of the U.S. dollar versus the European currencies will decrease reported U.S. dollar annual net sales in 2013 by $27 million or by 0.3% while operating income for 2013 will also decline by approximately 0.3% or by about $2 million.

The Company’s policy is not to hedge this type of translation exposure since there is no cash flow effect to hedge.

3. Translation Exposure in the Balance Sheet

A translation exposure also arises when the balance sheets of non-U.S. subsidiaries are translated into U.S. dollars. The policy of the Company is to finance major subsidiaries in the country’s local currency and to minimize the amounts held by subsidiaries in foreign currency accounts.

Consequently, changes in currency rates relating to funding and foreign currency accounts normally have a small impact on the Company’s income.

INTEREST RATE RISK

Interest rate risk refers to the risk that interest rate changes will affect the Company’s borrowing costs.

Autoliv’s interest rate risk policy states that an increase in floating interest rates of one percentage point should not increase the annual net interest expense by more than $10 million in the following year and not by more than $15 million in the second year.

Given the Company’s current capital structure, we estimate that a one-percentage point interest rate increase would reduce net interest expense by approximately $6 million, both in 2013 and 2014. This is based on the capital structure at the end of 2012 when the gross fixed-rate debt was $449 million while the Company had a net cash position of $361 million (non-U.S. GAAP measure, see page 42 in the Annual Report).

Fixed interest rate debt is achieved both by issuing fixed rate notes and through interest rate swaps. The most notable debt carrying fixed interest rates is the $230 million U.S. private placement notes issued in 2007, the note related to the equity units of $108 million repriced in April 2012 and the EIB note issued in 2012 of SEK 350 million ($54 million equivalent), see Note 12 to Consolidated Financial Statements included herein.

The entire 2007 U.S. private placement was issued carrying fixed interest rates. Initially, $200 million of this placement was swapped into floating interest rates, $140 million of these swaps were subsequently cancelled resulting in a cash-flow gain and therefore lower fixed rate debt was achieved when considering the amortization of this gain, see Note 12 to Consolidated Financial Statements included herein.

REFINANCING RISK

Refinancing risk or borrowing risk refers to the risk that it could become difficult to refinance outstanding debt.

While this risk continuously decreased from the spring of 2009 after the elevated credit margins during the financial crisis in 2008, these levels started to increase again in the second half of 2011 and during 2012.

In 2010, we amended Autoliv’s refinancing risk policy. The policy now requires the Company to maintain long-term facilities with an average maturity of at least three years (drawn or undrawn) corresponding to 150% (previously 100%) of total net debt (non-U.S. GAAP measure, see page 42 in the Annual Report). Meeting this policy can be achieved by raising long-term debt or debt commitments or by using cash flow to repay debt.

During the past four years, Autoliv has reduced its net debt by $1,556 million and was, at December 31, 2012, in a net cash position, and has been in a net cash position since December 31, 2011, which reduces the Company’s refinancing risk significantly. In addition to this net cash position of $361 million, the Company had undrawn long-term debt facilities of $1.1 billion at the end of 2012 with an average remaining life of 4.2 years. Furthermore, the Company has no significant financing with financial covenants (i.e. performance-related restrictions).

DEBT LIMITATION POLICY

To manage the inherent risks and cyclicality in Autoliv’s business, the Company maintains a relatively conservative financial leverage.

Our policy is to always maintain a leverage ratio significantly below three and an interest coverage ratio significantly above 2.75. At December 31, 2012, the leverage ratio was not applicable, since the Company was in a net cash position. At the same date, the interest coverage ratio stood at 19.0 times. Following the Lehman Brothers collapse, the Company was incompliant with these policies but regained compliance with its leverage policy at the end of 2009 and with its interest rate coverage policy at March 31, 2010.

For details on leverage ratio and interest-coverage, refer to the tables below which reconcile these two non-U.S. GAAP measures to U.S. GAAP measures. In addition to these ratios, it is the objective of Autoliv to have a strong investment grade rating. We have met this objective during all periods since the Company was initially rated in 2000 except for between February 2009 and July 2010 when the Company’s long-term credit rating was reduced by Standard and Poor’s to BBB- following the drop in LVP and the Company’s rapid increase of its restructuring reserves as a result of the financial crisis. Since July 2010, the rating has been restored to investment grade, BBB+ with stable outlook.

CREDIT RISK IN FINANCIAL MARKETS

Credit risk refers to the risk of a financial counterparty being unable to fulfill an agreed-upon obligation. This risk was increased for almost all companies as a result of the deterioration of the credit quality of many banks during 2008 and 2009 and again starting in the second half of 2011 and continuing into 2012.

In the Company’s financial operations, this risk arises when cash is deposited with banks and when entering into forward exchange agreements, swap contracts or other financial instruments.

The policy of the Company is to work with banks that have a high credit rating and that participate in Autoliv’s financing. None of the banks in our syndicated revolving credit facility (RCF) and none of the primary relationship banks are domiciled in the so called PIIGS-countries (Portugal, Ireland, Italy, Greece and Spain).

In order to further reduce credit risk, deposits and financial instruments can only be entered into with core banks up to a calculated risk amount of $150 million per bank for banks rated A- or above and up to $50 million for banks rated BBB+. In addition, deposits can be made in U.S. and Swedish government short-term notes and certain AAA rated money market funds as approved by the Company’s Board. At year-end 2012, the Company was compliant with this policy and held $307 million in AAA rated money market funds and $200 million directly in U.S. Treasury Bills.

IMPAIRMENT RISK

Impairment risk refers to the risk that the Company will be obliged to write down a material amount of its goodwill of approximately $1.6 billion. This risk is assessed, at least, annually in the fourth quarter each year when the Company performs an impairment test. The impairment testing is based on two reporting units: 1) Passive Safety Systems to which virtually all of the goodwill is related; and 2) Active Safety Systems with $8 million in goodwill.

The discounted cash flow method is used for determining the fair value of these reporting units. The Company also compares the market value of its equity to the value derived from the discounted cash flow method. However, due to the combined effects of the cyclicality in the automotive industry and the volatility of stock markets, this method is only used as a supplement. The Company has concluded that presently none of its reporting units are “at risk” of failing the goodwill impairment test. See also discussion under Goodwill and Intangible Assets in Note 1 to Consolidated Financial Statements included herein.

Not even during the unprecedented challenges for the global automotive industry in 2009 and 2008 was the Company required to record a goodwill impairment charge. However, there can be no assurance that goodwill will not be impaired due to future significant drops in light vehicle production, or due to our technologies or products becoming obsolete or for any other reason. We could also acquire companies where goodwill could turn out to be less resilient to deteriorations in external conditions.

RECONCILIATIONS TO U.S. GAAP (DOLLARS IN MILLIONS)


Interest coverage ratio Full year 2012			Leverage ratio December 31, 2012
Operating income	$	705.4	Net debt (cash) ³⁾	$	(360.8	)
Amortization of intangibles ¹⁾		20.2	Pension liabilities		255.4
Operating profit per the Policy	$	725.6	Debt (cash) per the Policy	$	(105.4	)
			Income before income taxes	$	668.6
Interest expense net ²⁾	$	38.2	Plus: Interest expense net ²⁾		38.2
			Depreciation and amortization of intangibles ¹⁾		273.2
Interest coverage ratio		19.0	EBITDA per the Policy	$	980.0
			Leverage ratio ⁴⁾		N/A

Including impairment write-offs, if any. 2) Interest expense, net is interest expense including cost for extinguishment of debt less interest income. 3) Net debt (cash) is short- and long-term debt and debt-related derivatives (see Note 12) less cash and cash equivalents. 4) Leverage ratio is not applicable due to net cash position.

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

•

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of Autoliv’s internal control over financial reporting as of December 31, 2012. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.

Based on our assessment, we believe that, as of December 31, 2012, the Company’s internal control over financial reporting is effective.

The Company’s independent auditors – Ernst & Young AB, an independent registered public accounting firm – have issued an audit report on the effectiveness of the Company’s internal control over financial reporting, which is included herein, see page 82 in the Annual Report.

“Safe Harbor Statement”

This Annual Report contains statements that are not historical facts but rather forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those that address activities, events or developments that Autoliv, Inc. or its management believes or anticipates may occur in the future. For example, forward-looking statements include, without limitation, statements relating to industry trends, business opportunities, sales contracts, sales backlog, and on-going commercial arrangements and discussions, as well as any statements about future operating performance or financial results.

All forward-looking statements, including without limitation, management’s examination of historical operating trends and data, are based upon our current expectations, various assumptions and data available from third parties. Our expectations and assumptions are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that such forward-looking statements will materialize or prove to be correct as forward-looking statements are inherently subject to known and unknown risks, uncertainties and other factors which may cause actual future results, performance or achievements to differ materially from the future results, performance or achievements expressed in or implied by such forward-looking statements.

Because these forward-looking statements involve risks and uncertainties, the outcome could differ materially from those set out in the forward-looking statements for a variety of reasons, including without limitation, changes in and the successful execution of our capacity alignment, restructuring and cost reduction initiatives discussed herein and the market reaction thereto; changes in general industry market conditions or regional growth or declines; loss of business from increased competition; higher raw material, fuel and energy costs; changes in consumer and customer preferences for end products; customer losses; changes in regulatory conditions; customer bankruptcies; consolidations or restructuring; divestiture of customer brands; unfavorable fluctuations in currencies or interest rates among the various jurisdictions in which we operate; fluctuation in vehicle production schedules for which the Company is a supplier; component shortages; market acceptance of our new products; costs or difficulties related to the integration of any new or acquired businesses and technologies; continued uncertainty in program awards and performance; the financial results of companies in which Autoliv has made technology investments or joint-venture arrangements; pricing negotiations with customers; our ability to be awarded new business; product liability, warranty and recall claims and other litigation and customer reactions thereto; higher expenses for our pension and other postretirement benefits including higher funding requirements of our pension plans; work stoppages or other labor issues at our facilities or at the facilities of our customers or suppliers; possible adverse results of pending or future litigation or infringement claims; negative impacts of antitrust investigations or other governmental investigations and associated litigation relating to the conduct of our business; tax assessments by governmental authorities dependence on key personnel; legislative or regulatory changes limiting our business; political conditions; dependence on customers and suppliers; and other risks and uncertainties identified in Item 1A “Risk Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 10-K for the year ended December 31, 2012. The Company undertakes no obligation to update publicly or revise any forward-looking statements in light of new information or future events.

Consolidated Statements of Net Income


		Years ended December 31
(DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA)		2012			2011			2010

Net sales	Note 19	$	8,266.7		$	8,232.4		$	7,170.6
Cost of sales			(6,620.5	)		(6,504.5	)		(5,578.5	)

Gross profit			1,646.2			1,727.9			1,592.1


Selling, general and administrative expenses			(366.7	)		(368.7	)		(327.2	)
Research, development and engineering expenses, net			(455.4	)		(441.5	)		(361.3	)
Amortization of intangibles	Note 9		(20.2	)		(18.6	)		(18.0	)
Other income (expense), net	Notes 10, 16		(98.5	)		(9.9	)		(16.4	)

Operating income			705.4			889.2			869.2


Equity in earnings of affiliates, net of tax			8.1			6.8			5.5
Interest income	Note 12		3.4			4.9			3.4
Interest expense	Note 12		(41.7	)		(62.0	)		(54.3	)
Loss on extinguishment of debt	Notes 12, 13		—			(6.2	)		(12.3	)
Other financial items, net			(6.6	)		(4.4	)		(6.0	)

Income before income taxes			668.6			828.3			805.5


Income tax expense	Note 4		(183.0	)		(201.3	)		(210.0	)

Net income		$	485.6		$	627.0		$	595.5


Less: Net income attributable to non-controlling interests			2.5			3.6			4.9

Net income attributable to controlling interest		$	483.1		$	623.4		$	590.6


Earnings per common share
- basic		$	5.17		$	6.99		$	6.77
- assuming dilution		$	5.08		$	6.65		$	6.39
Weighted average number of shares
- basic			93.5			89.2			87.3
- assuming dilution			95.1			93.7			92.4
Cash dividend per share—declared		$	1.94		$	1.78		$	1.05
Cash dividend per share—paid		$	1.89		$	1.73		$	0.65

Consolidated Statements of Comprehensive Income


	Years ended December 31
(DOLLARS IN MILLIONS)	2012			2011			2010

Net income	$	485.6		$	627.0		$	595.5

Other comprehensive income (loss) before tax:
Net change in cash flow hedges		—			—			0.2
Change in cumulative translation adjustments		28.1			(41.8	)		(30.0	)
Net change in unrealized components of defined benefit plans		(40.6	)		(56.9	)		(12.2	)

Other comprehensive loss, before tax		(12.5	)		(98.7	)		(42.0	)


Benefit for taxes related to defined benefit plans		14.5			20.5			4.4

Other comprehensive income (loss), net of tax		2.0			(78.2	)		(37.6	)


Comprehensive income		487.6			548.8			557.9
Less: Comprehensive income attributable to non-controlling interest		2.7			4.1			5.2

Comprehensive income attributable to controlling interest	$	484.9		$	544.7		$	552.7

See Notes to Consolidated Financial Statements.

Consolidated Balance Sheets


		At December 31
(DOLLARS AND SHARES IN MILLIONS)		2012			2011

Assets
Cash and cash equivalents		$	977.7		$	739.2
Receivables, net	Note 5		1,509.3			1,457.8
Inventories, net	Note 6		611.0			623.3
Income tax receivables	Note 4		27.6			25.5
Prepaid expenses			59.6			56.4
Other current assets			104.0			98.1

Total current assets			3,289.2			3,000.3


Property, plant and equipment, net	Note 8		1,232.8			1,121.2
Investments and other non-current assets	Note 7		341.3			279.6
Goodwill	Note 9		1,610.8			1,607.0
Intangible assets, net	Note 9		96.2			109.2

Total assets		$	6,570.3		$	6,117.3


Liabilities and equity
Short-term debt	Note 12	$	69.8		$	302.8
Accounts payable			1,055.9			1,083.9
Accrued expenses	Notes 10, 11		497.1			465.9
Income tax payable	Note 4		53.9			63.8
Other current liabilities			173.1			169.5

Total current liabilities			1,849.8			2,085.9


Long-term debt	Note 12		562.9			363.5
Pension liability	Note 18		255.4			193.1
Other non-current liabilities			126.1			125.8

Total non-current liabilities			944.4			682.4


Commitments and contingencies	Notes 16, 17

Common stock ¹⁾			102.8			102.8
Additional paid-in capital			1,329.3			1,472.8
Retained earnings			2,672.5			2,374.6
Accumulated other comprehensive loss			(40.5	)		(42.3	)
Treasury stock (7.3 and 13.5 shares)			(305.5	)		(574.5	)

Total parent shareholders’ equity			3,758.6			3,333.4


Non-controlling interests			17.5			15.6

Total equity	Note 13		3,776.1			3,349.0


Total liabilities and equity		$	6,570.3		$	6,117.3

1)	Number of shares: 350 million authorized, 102.8 million issued for both years, and 95.5 and 89.3 million outstanding, net of treasury shares, for 2012 and 2011, respectively.

See Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows


		Years ended December 31
(DOLLARS IN MILLIONS)		2012			2011			2010

Operating activities
Net income		$	485.6		$	627.0		$	595.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			273.2			268.3			281.7
Deferred income taxes			(31.8	)		5.0			17.8
Loss on extinguishment of debt	Notes 12, 13		—			6.2			12.3
Undistributed earnings from affiliated companies, net of dividends			(3.3	)		(0.4	)		5.1
Net change in:
Receivables and other assets, gross			(48.4	)		(114.3	)		(227.8	)
Inventories, gross			6.9			(65.5	)		(50.4	)
Accounts payable and accrued expenses			(28.0	)		35.4			230.4
Income taxes			(10.6	)		(30.8	)		37.3
Other, net			44.9			27.3			22.5

Net cash provided by operating activities			688.5			758.2			924.4


Investing activities
Expenditures for property, plant and equipment			(365.4	)		(367.3	)		(236.4	)
Proceeds from sale of property, plant and equipment			5.0			10.3			12.0
Acquisition of businesses, net of cash acquired	Note 14		(1.8	)		(23.2	)		(77.4	)
Net proceeds from divestitures	Note 14		5.2			5.4			—
Other			(1.2	)		2.1			4.6

Net cash used in investing activities			(358.2	)		(372.7	)		(297.2	)


Financing activities
Net (decrease) increase in short-term debt			(119.8	)		103.1			(278.6	)
Issuance of long-term debt			98.5			47.1			19.8
Repayments and other changes in long-term debt			(9.4	)		(219.7	)		(170.8	)
Cash paid for extinguishment of debt			—			(6.3	)		(8.3	)
Dividends paid to non-controlling interests			(0.8	)		(0.4	)		—
Capital contribution from non-controlling interests			—			—			1.2
Acquisition of subsidiary shares from non-controlling interest			—			—			(63.7	)
Dividends paid			(177.6	)		(154.3	)		(57.7	)
Common stock and purchase contract issue			106.3			—			—
Common stock options exercised	Note 15		12.9			12.9			29.2
Other, net			(1.4	)		(5.3	)		—

Net cash used in financing activities			(91.3	)		(222.9	)		(528.9	)


Effect of exchange rate changes on cash and cash equivalents			(0.5	)		(11.1	)		16.7

Increase in cash and cash equivalents			238.5			151.5			115.0

Cash and cash equivalents at beginning of year			739.2			587.7			472.7

Cash and cash equivalents at end of year		$	977.7		$	739.2		$	587.7

See Notes to Consolidated Financial Statements.

Consolidated Statements of Total Equity


(DOLLARS AND SHARES IN MILLIONS)	Number of shares		Common stock		Additional paid in capital			Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock			Total parent shareholders’ equity			Non- controlling interests			Total equity ¹⁾

Balance at December 31, 2009		102.8	$	102.8	$	1,559.0		$	1,412.8		$	74.3		$	(760.7	)	$	2,388.2		$	47.8		$	2,436.0


Comprehensive Income:
Net income									590.6									590.6			4.9			595.5
Net change in cash flow hedges												0.2						0.2						0.2
Foreign currency translation												(30.3	)					(30.3	)		0.3			(30.0	)
Pension liability												(7.8	)					(7.8	)					(7.8	)
Total Comprehensive Income																		552.7			5.2			557.9
Common stock incentives ²⁾															34.6			34.6						34.6
Cash dividends declared									(93.3	)								(93.3	)					(93.3	)
Common stock issuance, net						(74.2	)								131.3			57.1						57.1
Investment in subsidiary by non-controlling interests																					1.2			1.2
Acquisition of non-controlling interests																					4.2			4.2
Purchase of subsidiary shares from non-controlling interests						(12.0	)											(12.0	)		(46.5	)		(58.5	)

Balance at December 31, 2010		102.8	$	102.8	$	1,472.8		$	1,910.1		$	36.4		$	(594.8	)	$	2,927.3		$	11.9		$	2,939.2


Comprehensive Income:
Net income									623.4									623.4			3.6			627.0
Foreign currency translation												(42.3	)					(42.3	)		0.5			(41.8	)
Pension liability												(36.4	)					(36.4	)					(36.4	)
Total Comprehensive Income																		544.7			4.1			548.8
Common stock incentives ²⁾															20.3			20.3						20.3
Cash dividends declared									(158.9	)								(158.9	)					(158.9	)
Dividends paid to non-controlling interests on subsidiary shares																					(0.4	)		(0.4	)

Balance at December 31, 2011		102.8	$	102.8	$	1,472.8		$	2,374.6		$	(42.3	)	$	(574.5	)	$	3,333.4		$	15.6		$	3,349.0


Comprehensive Income:
Net income									483.1									483.1			2.5			485.6
Foreign currency translation												27.9						27.9			0.2			28.1
Pension liability												(26.1	)					(26.1	)					(26.1	)
Total Comprehensive Income																		484.9			2.7			487.6
Common stock incentives ²⁾															20.7			20.7						20.7
Cash dividends declared									(185.2	)								(185.2	)					(185.2	)
Common stock issuance, net						(143.5	)								248.3			104.8						104.8
Dividends paid to non-controlling interests on subsidiary shares																					(0.8	)		(0.8	)

Balance at December 31, 2012		102.8	$	102.8	$	1,329.3		$	2,672.5		$	(40.5	)	$	(305.5	)	$	3,758.6		$	17.5		$	3,776.1

1)	See Note 13 for further details – includes tax effects where applicable. 2) See Notes 1 and 15 for further details – includes tax effects.

See Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

(Dollars in millions, except per share data)

Nature of Operations

Through its operating subsidiaries, Autoliv is a supplier of automotive safety systems, with a broad range of product offerings, including modules and components for passenger and driver-side airbags, side-impact airbag protection systems, seatbelts, steering wheels, safety electronics, whiplash protection systems and child seats, including components for such systems, as well as night vision systems, radar and other active safety systems. Autoliv has approximately 80 production facilities and operates in 29 countries. Our customers include the world’s largest car manufacturers.

Principles of Consolidation

The consolidated financial statements have been prepared in accordance with United States (U.S.) Generally Accepted Accounting Principles (GAAP) and include Autoliv, Inc. and all companies over which Autoliv, Inc. directly or indirectly exercises control, which as a general rule means that the Company owns more than 50% of the voting rights. Since January 1, 2010, consolidation is also required when the Company has both the power to direct the activities of a variable interest entity (VIE) and the obligation to absorb losses or right to receive benefits from the VIE that could be significant to the VIE.

All intercompany accounts and transactions within the Company have been eliminated from the consolidated financial statements.

Investments in affiliated companies in which the Company exercises significant influence over the operations and financial policies, but does not control, are reported using the equity method of accounting. Generally, the Company owns between 20 and 50 percent of such investments.

Business Combinations

From January 1, 2009 transactions in which the Company obtains control of a business are accounted for according to the acquisition method as described in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations. The assets acquired and liabilities assumed are recognized and measured at their full fair values as of the date control is obtained, regardless of the percentage ownership in the acquired entity or how the acquisition was achieved. Acquisition related costs in connection with a business combination are expensed as incurred. Contingent considerations are recognized and measured at fair value at the acquisition date and classified as either liabilities or equity based on appropriate GAAP.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of net sales and expenses during the reporting period. The accounting estimates that require management’s most significant judgments include the estimation of retroactive price adjustments, valuation of stock based payments, assessment of recoverability of goodwill and intangible assets, estimation of pension benefit obligations based on actuarial assumptions, estimation of accruals for warranty and product liabilities, restructuring charges, uncertain tax positions, valuation allowances and legal proceedings. Actual results could differ from those estimates.

Revenue Recognition

Revenues are recognized when there is evidence of a sales agreement, delivery of goods has occurred, the sales price is fixed and determinable and the collectability of revenue is reasonably assured. The Company records revenue from the sale of manufactured products upon shipment to customers and transfer of title and risk of loss under standard commercial terms (typically F.O.B. shipping point). In those limited instances where other terms are negotiated and agreed, revenue is recorded when title and risk of loss are transferred to the customer.

Accruals are made for retroactive price adjustments when probable and able to be reasonably estimated.

Net sales exclude taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers.

Cost of Sales

Shipping and handling costs are included in Cost of sales in the Consolidated Statements of Net Income. Contracts to supply products which extend for periods in excess of one year are reviewed when conditions indicate that costs may exceed selling prices, resulting in losses. Losses on long-term supply contracts are recognized when probable and estimable.

Research, Development and Engineering (R,D&E)

Research and development and most engineering expenses are expensed as incurred. These expenses are reported net of income from contracts to perform engineering design and product development services. Such income is not significant in any period presented.

Certain engineering expenses related to long-term supply arrangements are capitalized when the defined criteria, such as the existence of a contractual guarantee for reimbursement, are met. The aggregate amount of such assets is not significant in any period presented.

Tooling is generally agreed upon as a separate contract or a separate component of an engineering contract, as a pre-production project. Capitalization of tooling costs is made only when the specific criteria for capitalization of customer-funded tooling are met or the criteria for capitalization as Property, Plant & Equipment (P,P&E) for tools owned by the Company are fulfilled. Depreciation on the Company’s own tooling is recognized in the Consolidated Statements of Net Income as Cost of sales.

Stock Based Compensation

The compensation costs for all of the Company’s stock-based compensation awards are determined based on the fair value method as defined in ASC 718, Compensation—Stock Compensation. The Company records the compensation expense for Restricted Stock Units (RSUs), awards under the Stock Incentive Plan, and stock options over the vesting period.

Income Taxes

Current tax liabilities and assets are recognized for the estimated taxes payable or refundable on the tax returns for the current year. In certain circumstances, payments or refunds may extend beyond twelve months, in such cases amounts would be classified as non-current taxes payable or refundable. Deferred tax liabilities or assets are recognized for the estimated future tax effects attributable to temporary differences and carry-forwards that result from events that have been recognized in either the financial statements or the tax returns, but not both. The measurement of current and deferred tax liabilities and assets is based on provisions of enacted tax laws. Deferred tax assets are reduced by the amount of any tax benefits that are not expected to be realized. Current and non-current components of deferred tax balances are reported separately based on financial statement classification of the related asset or liability giving rise to the temporary difference. If a deferred tax asset or liability is not related to an asset or liability that exists for financial reporting purposes, including deferred tax assets related to carry forwards, the deferred tax asset or liability would be classified based on the expected reversal date of the temporary differences. Tax assets and liabilities are not offset unless attributable to the same tax jurisdiction and netting is possible according to law and expected to take place in the same period.

Tax benefits associated with tax positions taken in the Company’s income tax returns are initially recognized and measured in the financial statements when it is more likely than not that those tax positions will be sustained upon examination by the relevant taxing authorities. The Company’s evaluation of its tax benefits is based on the probability of the tax position being upheld if challenged by the taxing authorities (including through negotiation, appeals, settlement and litigation). Whenever a tax position does not meet the initial recognition criteria, the tax benefit is subsequently recognized and measured if there is a substantive change in the facts and circumstances that cause a change in judgment concerning the sustainability of the tax position upon examination by the relevant taxing authorities. In cases where tax benefits meet the initial recognition criterion, the Company continues, in subsequent periods, to assess its ability to sustain those positions. A previously recognized tax benefit is derecognized when it is no longer more likely than not that the tax position would be sustained upon examination. Liabilities for unrecognized tax benefits are classified as non-current unless the payment of the liability is expected to be made within the next 12 months.

Earnings per Share

The Company calculates basic earnings per share (EPS) by dividing net income attributable to controlling interest by the weighted-average number of common shares outstanding for the period (net of treasury shares). When it would not be antidilutive (such as during periods of net loss), the diluted EPS also reflects the potential dilution that could occur if common stock were issued for awards under the Stock Incentive Plan and for common stock issued upon conversion of the equity units.

Cash Equivalents

The Company considers all highly liquid investment instruments purchased with a maturity of three months or less to be cash equivalents.

Receivables

The Company has guidelines for calculating the allowance for bad debts. In determining the amount of a bad debt allowance, management uses its judgment to consider factors such as the age of the receivables, the Company’s prior experience with the customer, the experience of other enterprises in the same industry, the customer’s ability to pay, and/or an appraisal of current economic conditions. Collateral is typically not required. There can be no assurance that the amount ultimately realized for receivables will not be materially different than that assumed in the calculation of the allowance.

Financial Instruments

The Company uses derivative financial instruments, “derivatives”, as part of its debt management to mitigate the market risk that occurs from its exposure to changes in interest and foreign exchange rates. The Company does not enter into derivatives for trading or other speculative purposes. The use of such derivatives is in accordance with the strategies contained in the Company’s overall financial policy. The derivatives outstanding at year-end are either interest rate swaps or foreign exchange swaps. All swaps principally match the terms and maturity of the underlying debt and no swaps have a maturity beyond 2019.

All derivatives are recognized in the consolidated financial statements at fair value. Certain derivatives are from time to time designated either as fair value hedges or cash flow hedges in line with the hedge accounting criteria. For certain other derivatives hedge accounting is not applied either because non-hedge accounting treatment creates the same accounting result or the hedge does not meet the hedge accounting requirements, although entered into applying the same rationale concerning mitigating market risk that occurs from changes in interest and foreign exchange rates.

When a hedge is classified as a fair value hedge, the change in the fair value of the hedge is recognized in the Consolidated Statements of Net Income along with the offsetting change in the fair value of the hedged item. When a hedge is classified as a cash flow hedge, any change in the fair value of the hedge is initially recorded in equity as a component of Other Comprehensive Income, (OCI), and reclassified into the Consolidated Statements of Net Income when the hedge transaction affects net earnings. There were no material reclassifications from OCI to the Consolidated Statements of Net Income in 2012 and, likewise, no material reclassifications are expected in 2013. Any ineffectiveness has been immaterial.

For further details on the Company’s financial instruments, see Note 3.

Inventories

The cost of inventories is computed according to the first-in, first-out method (FIFO). Cost includes the cost of materials, direct labor and the applicable share of manufacturing overhead. Inventories are evaluated based on individual or, in some cases, groups of inventory items. Reserves are established to reduce the value of inventories to the lower of cost or market, with the market generally defined as net realizable value for finished goods and replacement cost for raw materials and work-in-process. Excess inventories are quantities of items that exceed anticipated sales or usage for a reasonable period. The Company has guidelines for calculating provisions for excess inventories based on the number of months of inventories on hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period. There can be no assurance that the amount ultimately realized for inventories will not be materially different than that assumed in the calculation of the reserves.

Property, Plant and Equipment

Property, Plant and Equipment are recorded at historical cost. Construction in progress generally involves short-term projects for which capitalized interest is not significant. The Company provides for depreciation of property, plant and equipment computed under the straight-line method over the assets’ estimated useful lives. Depreciation on capital leases is recognized in the Consolidated Statements of Net Income over the shorter of the assets’ expected life or the lease contract terms. Repairs and maintenance are expensed as incurred.

The Company evaluates the carrying value of long-lived assets other than goodwill when indications of impairment are evident. Impairment testing is primarily done by using the cash flow method based on undiscounted future cash flows.

Goodwill and Intangible Assets

Goodwill represents the excess of the fair value of consideration transferred over the fair value of net assets of businesses acquired. Goodwill is not amortized, but is subject to at least an annual review for impairment. Other intangible assets, principally related to acquired technology and contractual relationships, are amortized over their useful lives which range from 3 to 25 years.

As of December 31, 2012 and 2011, the Company recorded goodwill of approximately $1.6 billion which nearly all is associated with the reporting unit Airbag & Seatbelt Systems. Approximately $1.2 billion is goodwill associated with the 1997 merger of Autoliv AB and the Automotive Safety Products Division of Morton International, Inc. The Company performs its annual impairment testing in the fourth quarter of each year. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment, or decline in value, may have occurred. The impairment testing of goodwill is based on two different reporting units: 1) Airbag & Seatbelt Systems and 2) Active Safety Systems.

In conducting its impairment testing, the Company compares the estimated fair value of each of its reporting units to the related carrying value of the reporting unit. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value of a reporting unit exceeds its estimated fair value, an impairment loss is measured and recognized by the amount which the carrying amount of the goodwill exceeds the implied fair value of the goodwill determined by assigning the fair value of the reporting unit to all of the assets and liabilities of that unit.

The estimated fair value of the reporting unit is determined by the discounted cash flow method taking into account expected long-term operating cash-flow performance. The Company discounts projected operating cash flows using its weighted average cost of capital, including a risk premium to adjust for market risk. The estimated fair value is based on automotive industry volume projections which are based on third-party and internally developed forecasts and discount rate assumptions. Significant assumptions include terminal growth rates, terminal operating margin rates, future capital expenditures and working capital requirements.

To supplement this analysis, the Company compares the market value of its equity, calculated by reference to the quoted market prices of its shares, to the book value of its equity.

There were no impairments of goodwill from 2010 through 2012.

Insurance Deposits

The Company has entered into liability and recall insurance contracts to mitigate the risk of costs associated with product recalls. These are accounted for under the deposit method of accounting based on the existing contractual terms.

Warranties and Recalls

The Company records liabilities for product recalls when probable claims are identified and when it is possible to reasonably estimate costs. Recall costs are costs incurred when the customer decides to formally recall a product due to a known or suspected safety concern. Product recall costs typically include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the defective part.

Provisions for warranty claims are estimated based on prior experience, likely changes in performance of newer products and the mix and volume of products sold. The provisions are recorded on an accrual basis.

Restructuring Provisions

The Company defines restructuring expense to include costs directly associated with rightsizing, exit or disposal activities.

Estimates of restructuring charges are based on information available at the time such charges are recorded. In general, management anticipates that restructuring activities will be completed within a timeframe such that significant changes to the exit plan are not likely. Due to inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated.

Pension Obligations

The Company provides for both defined contribution plans and defined benefit plans. A defined contribution plan generally specifies the periodic amount that the employer must contribute to the plan and how that amount will be allocated to the eligible employees who perform services during the same period. A defined benefit pension plan is one that contains pension benefit formulas, which generally determine the amount of pension benefit that each employee will receive for services performed during a specified period of employment.

The amount recognized as a defined benefit liability is the net total of projected benefit obligation (PBO) minus the fair value of plan assets (if any) (see Note 18). The plan assets are measured at fair value. The inputs to the fair value measurement of the plan assets are mainly level 2 inputs (see Note 3).

Contingent Liabilities

The Company diligently defends itself in such matters and, in addition, carries insurance coverage to the extent reasonably available against insurable risks.

The Company records liabilities for claims, lawsuits and proceedings when they are probable and it is possible to reasonably estimate the cost of such liabilities. Legal costs expected to be incurred in connection with a loss contingency are expensed as such costs are incurred.

The Company believes, based on currently available information, that the resolution of outstanding matters, other than the antitrust matters, after taking into account recorded liabilities and available insurance coverage, should not have a material effect on the Company’s financial position or results of operations.

However, due to the inherent uncertainty associated with such matters, there can be no assurance that the final outcomes of these matters will not be materially different than currently estimated.

Translation of Non-U.S. Subsidiaries

The balance sheets of subsidiaries with functional currency other than U.S. dollars are translated into U.S. dollars using year-end rates of exchange.

The statement of operations of these subsidiaries is translated into U.S. dollars at the average rates of exchange for the year. Translation differences are reflected in equity as a component of OCI.

Receivables and Liabilities in Non-Functional Currencies

Receivables and liabilities not denominated in functional currencies are converted at year-end rates of exchange. Net transaction gains/(losses), reflected in the Consolidated Statements of Net Income amounted to $(5.6) million in 2012, $(11.1) million in 2011 and (9.1) million in 2010, and are recorded in operating income if they relate to operational receivables and liabilities or are recorded in other financial items, net if they relate to financial receivables and liabilities.

Recently Issued Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05”, which defers the requirement in ASU 2011-05 that companies present reclassification adjustment for each component of accumulated other comprehensive income (AOCI) in both net income and other comprehensive income (OCI) on the face of the financial statements. The effective dates of ASU 2011-12 are consistent with the effective dates of ASU 2011-05, which is effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of ASU No. 2011-12 had no impact on the Company’s consolidated financial statements, other than presentation of comprehensive income.

In December 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities”, which requires disclosure of financial instruments and derivatives that are either offset on the balance sheet in accordance with ASC 210-20-45 or ASC 815-10-45, or subject to a master netting arrangement, irrespective of whether they are offset on the balance sheet. ASU No. 2011-11 is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. Entities should provide the disclosures required by this ASU retrospectively for all comparative periods presented. The adoption of ASU 2011-11 will have an impact on the Company’s disclosures about its financial instruments to the consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income,” which updates Accounting Standards Codification (“ASC”) Topic 220. The adoption of ASU No. 2011-05 eliminates the ability of reporting entities to present changes in other comprehensive income as a component of stockholders’ equity, and requires that changes in other comprehensive income be shown either in a continuous statement of comprehensive income or as a statement immediately following the statement of earnings. ASU No. 2011-05 is effective for interim and annual periods beginning after December 15, 2011. The adoption of ASU No. 2011-05 had no impact on the Company’s consolidated financial statements, other than presentation of comprehensive income.

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which updates ASC Topic 820. ASU No. 2011-04 clarifies the intent of ASC 820 around the highest and best use concept being relevant only to nonfinancial assets, the fair value of instruments in shareholders’ equity should be measured from the perspective of a market participant holding the instrument as an asset, and the appropriate usage of premiums and discounts in a fair value measurement. ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011. The adoption of ASU No. 2011-04 did not have an impact on the Company’s consolidated financial statements, other than disclosures related to fair value measurements.

Reclassifications

Certain prior-year amounts have been reclassified to conform to current year presentation.

2. Business Combinations

Business combinations generally take place to either gain key technology or strengthen Autoliv’s position in a certain geographical area or with a certain customer.

No significant business combinations have taken place during 2012 or 2011.

As of March 31, 2010, Autoliv acquired Delphi’s Occupant Protection Systems (OPS) operations in South Korea and China. The purchase price for this acquisition was $73 million and this acquisition did not result in any goodwill. The assets and liabilities assumed from these businesses were included in the Company’s consolidated financial statements as of March 31, 2010. The results from the operations have been included in the Consolidated Statements of Net Income from April 1, 2010.

3. Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis

The Company records derivatives at fair value. Any gains and losses on derivatives recorded at fair value are reflected in the Consolidated Statement of Net Income with the exception of cash flow hedges where an immaterial portion of the fair value is reflected in Other Comprehensive Income. The degree of judgment utilized in measuring the fair value of the instruments generally correlates to the level of pricing observability. Pricing observability is impacted by a number of factors, including the type of asset or liability, whether the asset or liability has an established market and the characteristics specific to the transaction. Derivatives with readily active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment utilized in measuring fair value.

Under existing GAAP, there is a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows:

Level 1 —Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2 —Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3 —Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following table summarizes the valuation of the Company’s derivatives by the above pricing observability levels:


	Total carrying amount in Consolidated Balance Sheets December 31				Fair value measurement at December 31, using:
					2012						2011
DESCRIPTION	2012		2011		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Derivatives	$	16.5	$	19.7		—	$	16.5		—		—	$	19.7		—

Total Assets	$	16.5	$	19.7		—	$	16.5		—		—	$	19.7		—


Liabilities
Derivatives	$	0.7	$	0.6		—	$	0.7		—		—	$	0.6		—

Total Liabilities	$	0.7	$	0.6		—	$	0.7		—		—	$	0.6		—

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, other current liabilities and short-term debt approximate their fair value because of the short-term maturity of these instruments. The fair value of long-term debt is determined either from quoted market prices as provided by participants in the secondary market or for long-term debt without quoted market prices estimated using a discounted cash flow method based on the Company’s current borrowing rates for similar types of financing. The fair value of derivatives is estimated using a discounted cash flow method based on quoted market prices. The Company has determined that each of these fair value measurements of debt reside within level 2 of the fair value hierarchy. The discount rates for all derivative contracts are based on bank deposit or swap interest rates. Credit risk has been considered when determining the discount rates used for the derivative contracts which, when aggregated by counterparty, are in a liability position.

The fair value and carrying value of debt is summarized in the table below. For further details on the Company’s debt, see Note 12.

FAIR VALUE OF DEBT, DECEMBER 31


	Carrying value ¹⁾		Fair value		Carrying value ¹⁾		Fair value
DESCRIPTION	2012		2012		2011		2011
Long-term debt
U.S. private placement	$	305.8	$	329.5	$	305.1	$	331.9
Medium-term notes		99.8		99.4		43.3		40.6
Notes ²⁾		107.6		108.9		—		—
Other long-term debt		49.7		49.7		15.1		15.1

Total	$	562.9	$	587.5	$	363.5	$	387.6


Short-term debt
Overdrafts and other short-term debt	$	60.3	$	60.3	$	63.2	$	63.2
Short-term portion of long-term debt ³⁾		9.5		9.5		132.4		136.5
Notes ²⁾		—		—		107.2		109.9

Total	$	69.8	$	69.8	$	302.8	$	309.6

1)	Debt as reported in balance sheet.

2)	Notes issued as part of the equity units offering were remarketed in April 2012, final maturity in April 2014 (for further information see Note 12 and 13).

3)	$110 million carrying value of U.S. private placement note matured in 2012.

The tables below present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011 and amount of gain (loss) recognized in the Consolidated Statement of Net Income for the years ending December 31, 2012, 2011 and 2010. Although the Company is party to close-out netting agreements with most derivative counterparties, the fair values in the tables below and in the Consolidated Balance Sheets at December 31, 2012 and 2011, have been presented on a gross basis.

FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2012


DESCRIPTION	Nominal volume		Derivative asset		Derivative liability		Balance Sheet location
Derivatives designated as hedging instruments
Interest rate swaps, less than 7 years (fair value hedge)	$	60.0	$	15.8	$	—	Other non-current asset

Total derivatives designated as hedging instruments	$	60.0	$	15.8	$	—


Derivatives not designated as hedging instruments
Foreign exchange swaps, less than 6 months	$	700.8	$	0.7	$	0.7	Other current assets/liabilities
Total derivatives not designated as hedging instruments	$	700.8	$	0.7	$	0.7

Total derivatives	$	760.8	$	16.5	$	0.7

FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2011


DESCRIPTION	Nominal volume			Derivative asset		Derivative liability		Balance Sheet location
Derivatives designated as hedging instruments
Interest rate swaps, less than 8 years (fair value hedge)	$	60.0		$	15.1	$	—	Other non-current asset

Total derivatives designated as hedging instruments	$	60.0		$	15.1	$	—


Derivatives not designated as hedging instruments
Foreign exchange swaps, less than 6 months	$	845.2	¹⁾	$	4.6	$	0.6	Other current assets/liabilities
Total derivatives not designated as hedging instruments	$	845.2		$	4.6	$	0.6

Total derivatives	$	905.2		$	19.7	$	0.6

1)	The nominal value is netted for offsetting swaps with a counterpart with which Autoliv has a master netting agreement. The gross nominal value is $1,241.9 million.

AMOUNT OF GAIN (LOSS) RECOGNIZED IN THE CONSOLIDATED STATEMENTS OF NET INCOME JANUARY-DECEMBER 2012


	Nominal volume		Other financial items, net		Interest expense			Interest income		Amount of gain (loss) recognized in OCI on derivative effective portion		Amount of gain (loss) reclassified from accumulated OCI into interest expense
Derivatives designated as hedging instruments
Interest rate swaps, less than 7 years (fair value hedge)	$	60.0		—	$	0.7			—		—		—
Total derivatives designated as hedging instruments	$	60.0
Hedged item (fair value hedge)
Fixed rate private placement debt due 2019	$	60.0		—	$	(0.7	)		—		—		—
Total gain (loss) in Consolidated Statement of Net Income					$	0.0

AMOUNT OF GAIN (LOSS) RECOGNIZED IN THE CONSOLIDATED STATEMENTS OF NET INCOME JANUARY-DECEMBER 2011


	Nominal volume		Other financial items, net		Interest expense			Interest income		Amount of gain (loss) recognized in OCI on derivative effective portion		Amount of gain (loss) reclassified from accumulated OCI into interest expense
Derivatives designated as hedging instruments
Interest rate swaps, less than 8 years (fair value hedge)	$	60.0		—	$	5.9			—		—		—
Total derivatives designated as hedging instruments	$	60.0
Hedged item (fair value hedge)
Fixed rate private placement debt due 2019	$	60.0		—	$	(5.9	)		—		—		—
Total gain (loss) in Consolidated Statement of Net Income					$	0.0

AMOUNT OF GAIN (LOSS) RECOGNIZED IN THE CONSOLIDATED STATEMENTS OF NET INCOME JANUARY-DECEMBER 2010


	Nominal volume			Other financial items, net		Interest expense			Interest income		Amount of gain (loss) recognized in OCI on derivative effective portion		Amount of gain (loss) reclassified from accumulated OCI into interest expense
Derivatives designated as hedging instruments
Cross currency interest rate swaps, less than 1 year (cash flow hedge)	$	54.0	¹⁾	$	1.9	$	—		$	—	$	—	$	0.2
Interest rate swaps, less than 10 years (fair value hedge)		60.0			—		2.8			—		—		—
Total derivatives designated as hedging instruments	$	114.0
Hedged item (fair value hedge)
Fixed rate private placement debt due 2019	$	60.0			—	$	(2.8	)		—		—		—
Total gain (loss) in Consolidated Statement of Net Income						$	0.0

1)	Cross currency interest rate swaps with a nominal value of $54 million have matured in 2010.

AMOUNT OF GAIN (LOSS) RECOGNIZED IN THE CONSOLIDATED STATEMENTS OF NET INCOME JANUARY-DECEMBER


	Nominal volume							Other financial items, net									Interest expense								Interest income
	2012		2011			2010		2012			2011			2010			2012			2011		2010			2012		2011		2010
Derivatives not designated as hedging instruments
Cross currency interest rate swaps, less than 1 year	$	—	$	—		$	40.3	$	—		$	(3.8	)	$	2.0		$	—		$	0.1	$	0.2		$	—	$	—	$	—
Foreign exchange swaps		700.8		845.2	¹⁾		1,486.2		(4.0	)		6.8			(1.0	)		(0.1	)		0.2		(0.3	)		—		—		—

Total derivatives not designated as hedging instruments	$	700.8	$	845.2		$	1,526.5

1)	The nominal value is netted for offsetting swaps with a counterpart with which Autoliv has a master netting agreement. The gross nominal value is $1,241.9 million.

All amounts recognized in the Consolidated Statements of Net Income related to derivatives, not designated as hedging instruments, relate to economic hedges and thus have been materially offset by an opposite statements of income effect of the related financial liabilities or financial assets.

Assets and liabilities measured at fair value on a non-recurring basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company also has assets and liabilities in its balance sheet that are measured at fair value on a non-recurring basis. Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets, including investments in affiliates, and restructuring liabilities (see Note 10).

The Company has determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets and settlements of liabilities, as observable inputs are not available. The Company has determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy. To determine the fair value of long-lived assets, the Company utilizes the projected cash flows expected to be generated by the long-lived assets, then discounts the future cash flows over the expected life of the long-lived assets. For restructuring obligations, the amount recorded represents the fair value of the payments expected to be made, and such provisions are discounted if the payments are expected to extend beyond one year.

As of December 31, 2012 and 2011, the Company had $75.8 million and $32.3 million, respectively, of restructuring reserves, which were measured at fair value upon initial recognition of the associated liability (see Note 10). The Company has not recorded any impairment charges on its long-lived assets during 2012 and 2011. In 2010, machinery and equipment with a carrying amount of $1.0 million was written down to its fair value of $0.0 million resulting in an impairment charge of $1.0 million, which was included in the Consolidated Statements of Net Income. There will be no future identifiable cash flows related to this group of impaired assets.

4. Income Taxes


INCOME BEFORE INCOME TAXES	2012			2011			2010
U.S.	$	171.2		$	165.1		$	132.8
Non-U.S.		497.4			663.2			672.7

Total	$	668.6		$	828.3		$	805.5


PROVISION FOR INCOME TAXES	2012			2011			2010
Current
U.S. federal	$	62.8		$	32.3		$	60.9
Non-U.S.		146.2			157.6			120.0
U.S. state and local		5.8			6.5			11.3
Deferred
U.S. federal		0.2			1.8			(8.9	)
Non-U.S.		(29.6	)		3.0			28.2
U.S. state and local		(2.4	)		0.1			(1.5	)

Total income tax expense (benefit)	$	183.0		$	201.3		$	210.0


EFFECTIVE INCOME TAX RATE	2012			2011			2010
U.S. federal income tax rate		35.0	%		35.0	%		35.0	%
Net operating loss carry-forwards		(0.2	)		(1.3	)		(0.9	)
Non-utilized operating losses		3.2			1.4			0.1
Foreign tax rate variances		(7.3	)		(7.5	)		(8.6	)
State taxes, net of federal benefit		0.3			0.5			0.8
Earnings of equity investments		(0.4	)		(0.3	)		(0.2	)
Tax credits		(3.2	)		(3.0	)		(3.3	)
Changes in tax reserves		(0.0	)		(2.4	)		(0.4	)
Cost of double taxation		0.9			0.7			1.9
Withholding taxes		1.3			1.9			2.7
Statutory Investment Allowances		(2.3	)		(1.4	)		0.0
Antitrust Settlement		0.9			—			—
Other, net		(0.8	)		0.7			(1.0	)

Effective income tax rate		27.4	%		24.3	%		26.1	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. On December 31, 2012, the Company had net operating loss carry-forwards (NOL’s) of approximately $302 million, of which approximately $218 million have no expiration date. The remaining losses expire on various dates through 2030. The Company also has $3.9 million of U.S. Foreign Tax Credit carry forwards, which expire in 2022. The Company also has Investment Tax Credit carry forwards of $8.3 million, which expire on various dates through 2021.

Valuation allowances have been established which partially offset the related deferred assets. The Company provides valuation allowances against potential future tax benefits when, in the opinion of management, based on the weight of available evidence, it is more likely than not that some portion of the deferred tax assets will not be realized. Such allowances are primarily provided against NOL’s of companies that have perennially incurred losses, as well as the NOL’s of companies that are start-up operations and have not established a pattern of profitability.

The Company has benefited from “tax holidays” in certain of its subsidiaries, principally in China. The foreign tax rate variance includes the effect of these tax holidays. These tax holidays typically take the form of reduced rates of tax on income for a period of several years following the establishment of an eligible company. These tax holidays have resulted in income tax savings of approximately $12 million

($0.13 per share) in 2012, $10 million ($0.11 per share) in 2011 and $18 million ($0.20 per share) in 2010. These special holiday rates expired at the end of 2012.

The Company has reserves for income taxes that may become payable in future periods as a result of tax audits. These reserves represent the Company’s best estimate of the potential liability for tax exposures. Inherent uncertainties exist in estimates of tax exposures due to changes in tax law, both legislated and concluded through the various jurisdictions’ court systems. The Company files income tax returns in the United States federal jurisdiction, and various states and foreign jurisdictions.

At any given time, the Company is undergoing tax audits in several tax jurisdictions, covering multiple years. The Company is no longer subject to income tax examination by the U.S. Federal tax authorities for years prior to 2009. With few exceptions, the Company is no longer subject to income tax examination by U.S. state or local tax authorities or by non-U.S. tax authorities for years before 2003. The Company concluded U.S. Federal tax audits covering years 2003-2008 in June 2011, and as a result of the conclusion of the U.S. tax audits and other proceedings, the Company released approximately $24 million of its tax reserves in the second quarter of 2011. The Company is undergoing tax audits in several non-U.S. jurisdictions covering multiple years. As of December 31, 2012, as a result of those tax examinations, the Company is not aware of any proposed income tax adjustments that would have a material impact on the Company’s financial statements, however, other audits could result in additional increases or decreases to the unrecognized tax benefits in some future period or periods.

The Company recognizes interest and potential penalties accrued related to unrecognized tax benefits in tax expense. As of January 1, 2012, the Company had recorded $15.6 million for unrecognized tax benefits related to prior years, including $2.5 million of accrued interest and penalties. During 2012, the Company recorded a net increase of $0.3 million to income tax reserves for unrecognized tax benefits based on tax positions related to the current and prior years and recorded a decrease of $0.3 million for interest and penalties related to unrecognized tax benefits of prior years. The Company had $2.2 million accrued for the payment of interest and penalties as of December 31, 2012. Of the total unrecognized tax benefits of $15.6 million recorded at December 31, 2012, $2.4 million is classified as current income tax payable, and $13.2 million is classified as non-current tax payable included in Other Non-Current Liabilities on the Consolidated Balance Sheet. Substantially all of these reserves would impact the effective tax rate if released into income.


TABULAR PRESENTATION OF TAX BENEFITS UNRECOGNIZED	2012			2011			2010
Unrecognized tax benefits at beginning of year	$	14.0		$	33.2		$	37.1
Gross amounts of increases and decreases:
Increases as a result of tax positions taken during a prior period		1.3			5.1			0.0
Decreases as a result of tax positions taken during a prior period		(0.3	)		(4.0	)		(0.0	)
Increases as a result of tax positions taken during the current period		0.6			1.9			1.2
Decreases as a result of tax positions taken during the current period		0.0			0.0			0.0
Decreases relating to settlements with taxing authorities		(0.3	)		(5.1	)		(1.0	)
Decreases resulting from the lapse of the applicable statute of limitations		(1.3	)		(15.9	)		(4.2	)
Translation Difference		0.7			(1.2	)		0.1

Total unrecognized tax benefits at end of year	$	14.7		$	14.0		$	33.2


DEFERRED TAXES DECEMBER 31	2012			2011
Assets
Provisions	$	105.9		$	96.1
Costs capitalized for tax		11.5			5.9
Property, plant and equipment		26.1			27.2
Retirement Plans		99.7			79.8
Tax receivables, principally NOL’s		104.9			80.8
Deferred tax assets before allowances	$	348.1		$	289.8
Valuation allowances		(44.8	)		(41.7	)

Total	$	303.3		$	248.1


Liabilities
Acquired intangibles	$	(29.2	)	$	(31.9	)
Statutory tax allowances		(1.5	)		(2.1	)
Insurance deposit		(7.5	)		(7.6	)
Distribution taxes		(43.0	)		(32.0	)
Other		(2.5	)		(1.4	)

Total	$	(83.7	)	$	(75.0	)

Net deferred tax asset	$	219.6		$	173.1


VALUATION ALLOWANCES AGAINST DEFERRED TAX ASSETS DECEMBER 31	2012			2011			2010
Allowances at beginning of year	$	41.7		$	30.1		$	54.2
Benefits reserved current year		15.7			31.2			2.9
Benefits recognized current year		(11.7	)		(15.1	)		(33.5	)
Write-offs and other changes		(0.0	)		(1.5	)		5.9
Translation difference		(0.9	)		(3.0	)		0.6
Allowances at end of year	$	44.8		$	41.7		$	30.1

U.S. federal income taxes have not been provided on $4.0 billion of undistributed earnings of non-U.S. operations, which are considered to be permanently reinvested. Most of these undistributed earnings are not subject to withholding taxes upon distribution to intermediate holding companies. However, when appropriate, the Company provides for the cost of such distribution taxes. The Company has determined that it is not practicable to calculate the deferred tax liability if the entire $4.0 billion of earnings were to be distributed to the United States.

5. Receivables


DECEMBER 31	2012			2011			2010
Receivables	$	1,516.6		$	1,466.1		$	1,375.1
Allowance at beginning of year	$	(8.3	)	$	(7.5	)	$	(8.7	)
Reversal of allowance		2.1			1.7			2.2
Addition to allowance		(2.1	)		(4.7	)		(2.1	)
Write-off against allowance		1.2			2.0			0.9
Translation difference		(0.2	)		0.2			0.2
Allowance at end of year	$	(7.3	)	$	(8.3	)	$	(7.5	)

Total receivables, net of allowance	$	1,509.3		$	1,457.8		$	1,367.6

6. Inventories


DECEMBER 31	2012			2011			2010
Raw material	$	287.7		$	295.5		$	271.8
Work in progress		225.9			219.9			216.7
Finished products		180.9			184.0			154.8
Inventories	$	694.5		$	699.4		$	643.3

Inventory reserve at beginning of year	$	(76.1	)	$	(81.6	)	$	(84.8	)
Reversal of reserve		5.3			5.1			8.1
Addition to reserve		(22.9	)		(17.2	)		(16.1	)
Write-off against reserve		10.4			16.9			10.2
Translation difference		(0.2	)		0.7			1.0
Inventory reserve at end of year	$	(83.5	)	$	(76.1	)	$	(81.6	)

Total inventories, net of reserve	$	611.0		$	623.3		$	561.7

7. Investments and Other Non-current Assets

As of December 31, 2012 the Company had invested in four affiliated companies, which it currently does not control, but in which it exercises significant influence over operations and financial position. These investments are accounted for under the equity method, which means that a proportional share of the affiliated company’s net income increases the investment, and a proportional share of losses and payment of dividends decreases it. In the Consolidated Statements of Net Income, the proportional share of the affiliated company’s net

income (loss) is reported as “Equity in earnings of affiliates”. The Company is applying deposit accounting for an insurance arrangement. For additional information on derivatives see Note 3.


DECEMBER 31	2012		2011
Investments in affiliated companies	$	25.4	$	21.0
Deferred tax assets		200.6		162.1
Income tax receivables		50.8		33.2
Derivative assets		15.8		15.1
Long-term interest bearing deposit (insurance arrangement)		23.2		22.6
Other non-current assets		25.5		25.6

Investments and other non-current assets	$	341.3	$	279.6

The most significant investments in affiliated companies and the respective percentage of ownership are:


COUNTRY	Ownership %			Company name
France		49	%	EAK SA Composants pour L’Industrie Automobile
France		49	%	EAK SNC Composants pour L’Industrie Automobile
Malaysia		49	%	Autoliv-Hirotako Safety Sdn Bhd (parent and subsidiaries)
China		30	%	Changchun Hongguang-Autoliv Vehicle Safety Systems Co. Ltd.

8. Property, Plant and Equipment


DECEMBER 31	2012			2011			Estimated life
Land and land improvements	$	119.3		$	118.5			n/a to 15
Machinery and equipment		3,030.1			2,819.2			3-8
Buildings		764.3			739.0			20-40
Construction in progress		213.7			177.8			n/a

Property, plant and equipment	$	4,127.4		$	3,854.5

Less accumulated depreciation		(2,894.6	)		(2,733.3	)

Net of depreciation	$	1,232.8		$	1,121.2


DEPRECIATION INCLUDED IN	2012			2011			2010
Cost of sales	$	225.4		$	221.0		$	233.6
Selling, general and administrative expenses		8.2			8.7			8.7
Research, development and engineering expenses		19.4			20.0			21.4

Total	$	253.0		$	249.7		$	263.7

No fixed asset impairments were recognized during 2012 and 2011. Total fixed asset impairments in 2010 were $1.0 million, of which all were associated with restructuring activities.

The net book value of machinery and equipment under capital lease contracts recorded as of December 31, 2012 and 2011, amounted to $0.7 million and $0.9 million, respectively. The net book value of buildings and land under capital lease contracts recorded as of December 31, 2012 and 2011, amounted to $1.7 and $2.1 million, respectively.

9. Goodwill and Intangible Assets


UNAMORTIZED INTANGIBLES	2012			2011
Goodwill
Carrying amount at beginning of year	$	1,607.0		$	1,612.3
Acquisitions and purchase price adjustments		—			—
Translation differences		3.8			(5.3	)

Carrying amount at end of year	$	1,610.8		$	1,607.0


AMORTIZED INTANGIBLES	2012			2011
Gross carrying amount	$	403.4		$	393.6
Accumulated amortization		(307.2	)		(284.4	)

Carrying value	$	96.2		$	109.2

No significant impairments were recognized during 2012, 2011 or 2010.

At December 31, 2012, goodwill assets include $1.2 billion associated with the 1997 merger of Autoliv AB and the Automotive Safety Products Division of Morton International, Inc.

At December 31, 2012, intangible assets subject to amortization mainly relate to acquired technology and contractual relationships. The aggregate amortization expense on intangible assets was $20.2 million in 2012, $18.6 million in 2011 and $18.0 million in 2010. The estimated amortization expense is as follows (in millions): 2013: $20.2; 2014: $16.2; 2015: $12.6; 2016: $11.6 and 2017: $10.7.

10. Restructuring and Other Liabilities

Restructuring

Restructuring provisions are made on a case-by-case basis and primarily include severance costs incurred in connection with headcount reductions and plant consolidations. The Company expects to finance restructuring programs over the next several years through cash generated from its ongoing operations or through cash available under existing credit facilities. The Company does not expect that the execution of these programs will have an adverse impact on its liquidity position. The tables below summarize the change in the balance sheet position of the restructuring reserves from December 31, 2009 to December 31, 2012.

2012

In 2012, the employee-related restructuring provisions, made on a case-by-case basis, relate mainly to headcount reductions in Europe. The cash payments mainly relate to high-cost countries in Europe. The changes in the employee-related reserves have been charged against Other income (expense), net in the Consolidated Statements of Net Income. The table below summarizes the change in the balance sheet position of the restructuring reserves from December 31, 2011 to December 31, 2012.


	December 31 2011		Provision/ Charge		Provision/ Reversal			Cash payments			Translation difference		December 31 2012
Restructuring employee-related	$	31.4	$	76.6	$	(1.8	)	$	(33.3	)	$	2.0	$	74.9
Other		0.9		0.3		(0.3	)		(0.0	)		—		0.9

Total reserve	$	32.3	$	76.9	$	(2.1	)	$	(33.3	)	$	2.0	$	75.8

2011

In 2011, the employee-related restructuring provisions, made on a case-by-case basis, relate mainly to headcount reductions throughout Europe and North America. Reversals in 2011 mainly relate to restructuring reserves in Europe and were due to capacity reduction that was not as severe as originally estimated. The cash payments mainly relate to high-cost countries in Europe and in Australia. The changes in the employee-related reserves have been charged against Other income (expense), net in the Consolidated Statements of Net Income. The table below summarizes the change in the balance sheet position of the restructuring reserves from December 31, 2010 to December 31, 2011.


	December 31 2010		Provision/ Charge		Provision/ Reversal			Cash payments			Translation difference			December 31 2011
Restructuring employee-related	$	48.4	$	10.1	$	(4.9	)	$	(22.2	)	$	(0.0	)	$	31.4
Other		0.2		0.8		—			(0.1	)		—			0.9

Total reserve	$	48.6	$	10.9	$	(4.9	)	$	(22.3	)	$	(0.0	)	$	32.3

2010

In 2010, the employee-related restructuring provisions, made on a case-by-case basis, relate mainly to headcount reductions throughout Europe. Reversals in 2010 mainly relate to restructuring reserves in North America and Europe and were due to capacity reduction that was not as severe as originally estimated. The cash payments mainly relate to high-cost countries in Europe and in Australia. The

changes in the employee-related reserves have been charged against Other income (expense), net in the Consolidated Statements of Net Income. Impairment charges mainly relate to machinery and equipment impaired in connection with restructuring activities in Australia and Japan. The fixed asset impairments have been charged against Cost of sales in the Consolidated Statements of Net Income. The table below summarizes the change in the balance sheet position of the restructuring reserves from December 31, 2009 to December 31, 2010.


	December 31 2009		Provision/ Charge		Provision/ Reversal			Cash payments			Non-cash			Translation difference			December 31 2010
Restructuring employee-related	$	100.1	$	30.3	$	(10.2	)	$	(66.1	)	$	—		$	(5.7	)	$	48.4
Fixed asset impairment		—		1.0		—			—			(1.0	)		—			—
Other		0.2		0.2		—			(0.2	)		—			—			0.2

Total reserve	$	100.3	$	31.5	$	(10.2	)	$	(66.3	)	$	(1.0	)	$	(5.7	)	$	48.6

11. Product Related Liabilities

Autoliv is exposed to product liability and warranty claims in the event that the Company’s products fail to perform as expected and such failure results, or is alleged to result, in bodily injury, and/or property damage or other loss. The Company has reserves for product risks. Such reserves are related to product performance issues including recall, product liability and warranty issues.

The Company records liabilities for product-related risks when probable claims are identified and when it is possible to reasonably estimate costs. Provisions for warranty claims are estimated based on prior experience, likely changes in performance of newer products, and the mix and volume of the products sold. The provisions are recorded on an accrual basis.

The increase in reserve in 2012 and 2011 mainly relates to warranty related issues. The increase in the reserve in 2010 mainly relates to recall related issues.

Cash payments in 2012 mainly relate to warranty related issues, and cash payments in 2011 mainly relate to recall related issues. Cash payments were made mainly for warranty related issues in 2010.

The table below summarizes the change in the balance sheet position of the product-related liabilities.


DECEMBER 31	2012			2011			2010
Reserve at beginning of the year	$	33.0		$	39.2		$	30.6
Change in reserve		19.3			14.8			25.4
Cash payments		(22.7	)		(21.2	)		(17.0	)
Translation difference		0.3			0.2			0.2

Reserve at end of the year	$	29.9		$	33.0		$	39.2

12. Debt and Credit Agreements

As part of its debt management, the Company enters into derivatives to achieve economically effective hedges and to minimize the cost of its funding. In this note, short-term debt and long-term debt are discussed including Debt-Related Derivatives (DRD), i.e. debt including fair value adjustments from hedges. The Debt Profile table also shows debt excluding DRD, i.e. reconciled to debt as reported in the balance sheet.

SHORT-TERM DEBT

As of December 31, 2012, total short-term debt was $70 million including $9 million of short-term portion of long-term loans. On April 30, 2012, Autoliv settled the purchase contracts underlying the equity units by issuing approximately 5.8 million shares of common stock in exchange for $106 million in proceeds generated by the maturity of the U.S. Treasury securities purchased following the remarketing (see below). In November 2012, $110 million of the short-term portion of U.S. private placement notes, which carried fixed interest rates of 5.6%, matured. The short-term portion of long-term loans consists of loans and financing at the subsidiary level, primarily $6 million of loans in Brazil carrying interest rates of 4.5% and $3 million of loans in Japan carrying interest rates of 1.6%.

The Company’s subsidiaries also have credit agreements, principally in the form of overdraft facilities, with a number of local banks. Total available short-term facilities, as of December 31, 2012, excluding commercial paper facilities as described below, amounted to $344 million, of which $60 million was utilized. The aggregate amount of unused short-term lines of credit at December 31, 2012 was $284 million. The weighted average interest rate on total short-term debt outstanding at December 31, 2012 and 2011 excluding the short-term portion of long-term debt was 3.7% and 8.8%, respectively. The lower average interest rate in 2012 compared to 2011 is due to lower short-term borrowing in Brazil, where interest rates are relatively higher.

LONG-TERM DEBT – OUTSTANDING LOANS

Long-term debt of $547 million consists of $290 million of senior notes issued in 2007 as private placements by Autoliv ASP Inc., a wholly owned subsidiary of the Company. The notes were guaranteed by the Company and consist of 4 tranches of varying sizes maturing in 2012 (see above), 2014, 2017 and 2019 respectively, which all carried fixed interest rates between 5.6% and 6.2%. The Company entered into

swap arrangements with respect to part of the proceeds of the notes offering, most of which were cancelled in 2008 resulting in a mark-to-market gain. This gain is amortized through interest expense over the life of the respective notes.

As of December 31, 2012, only one interest rate swap with nominal value of $60 million remains outstanding. Consequently, $230 million of the long-term notes carry fixed interest rates varying between 4.6% and 5.8%, when including the amortization of the cancelled swaps, while $60 million carry floating interest rates at three-month LIBOR + 1.0%.

In March 2012, Autoliv completed the remarketing of the senior notes related to the equity units and the coupon of the notes was reset to 3.854% with a yield of 2.875%. The notes will have a carrying amount of $106 million at maturity, April 30, 2014. The remaining unamortized premium was $2 million at December 31, 2012.

In 2011, the Company repurchased a SEK 600 million note ($92 million equivalent) maturing in 2014 which carried a floating interest of STIBOR +3.9% at a discount and as a result reported $6.2 million as debt extinguishment cost. The Company also, to the same investor, issued a SEK 300 million note ($46 million equivalent) maturing in 2017 carrying a floating interest rate of STIBOR + 0.95%.

A new fixed-rate note was issued in December 2012 of 350 million SEK ($54 million equivalent). The 5-year note will mature in December 2017 and carries a fixed interest rate of 2.49%, which represents the European Investment Bank’s (EIB) cost of funds plus 0.3%. The remaining other long-term debt of $50 million, consisted primarily of $41 million equivalent loans borrowed by Autoliv do Brazil Ltda (a wholly-owned subsidiary), carrying an interest rate of 9.6%, of $4 million equivalent loans borrowed locally in Russia by Autoliv OOO (wholly-owned subsidiary) which carry an interest rate of 8.8% and of $4 million equivalent of loans borrowed from Japanese banks by Autoliv KK (a wholly-owned subsidiary), which carry an interest rate of 1.6%.

LONG-TERM DEBT – LOAN FACILITIES

In April 2011, the Company refinanced its revolving credit facility (RCF) of $1,100 million. The facility is syndicated among 14 banks and has two extension options where Autoliv can request the banks to extend the maturity to 2017 and 2018, respectively, on the first and second anniversary of the April 2011 loan facility, a so called 5+1+1 structure. In April 2012, Autoliv extended by one year essentially all of its $1,100 million RCF from April 2016 to April 2017 with unchanged terms and conditions. The Company pays a commitment fee of 0.19% (given the rating of BBB+ from Standard & Poor’s at December 31, 2012). Financing costs of $5 million were incurred in April 2011 and are amortized over the expected life of the facility. Borrowings under this facility are unsecured and bear interest based on the relevant LIBOR or IBOR rate. The commitment is available for general corporate purposes. Borrowings are prepayable at any time and are due at the respective expiration date. The extension fee of $0.5 million, incurred in April 2012, is amortized over the remaining expected life of the facility.

In June 2009, Autoliv AB, (a wholly-owned subsidiary) received an 18-month irrevocable loan commitment from the EIB of €225 million ($297 million equivalent). In July 2011, this commitment was amended and extended. In December 2012, a portion of this loan commitment was utilized (a SEK denominated note was issued, see above) and the remainder of the total €225 million EIB commitment expired.

In 2011, Autoliv also cancelled two other revolving credit facilities totaling $511 million as the Company’s refinanced credit facility and other commitments are more cost efficient.

As a result Autoliv has a $1.1 billion unutilized long-term debt facility available. The Company is not subject to any financial covenants, i.e. performance related restrictions, in any of its significant long-term borrowings or commitments.

The Company has two commercial paper programs: one SEK 7 billion (approx. $1,071 million) Swedish program and one $1,000 million U.S. program. Due to the cash position and the strong cash flow generation in 2012, both programs were unutilized at year-end. When notes have been outstanding under these programs, all of the notes have been classified as long-term debt because the Company has had the ability and intent to refinance these borrowings on a long-term basis either through continued commercial paper borrowings or utilization of the long-term credit facilities described above.

CREDIT RISK

In the Company’s financial operations, credit risk arises in connection with cash deposits with banks and when entering into forward exchange agreements, swap contracts or other financial instruments. In order to reduce this risk, deposits and financial instruments are only entered with a limited number of banks up to a calculated risk amount of $150 million per bank for banks rated A- or above and up to $50 million for banks rated BBB+. The policy of the Company is to work with banks that have a high credit rating and that participate in the Company’s financing. In addition to this, deposits can be placed in U.S. and Swedish government paper as well as up to $1,000 million in certain AAA rated money market funds. At year end 2012, the Company had $307 million in money market funds and $200 million in U.S. government paper.

The table below shows debt maturity as cash flow in the upper part which is reconciled with reported debt in the last row. For a description of hedging instruments used as part of debt management, see the Financial Instruments section of Note 1 and Note 3.

DEBT PROFILE


PRINCIPAL AMOUNT BY EXPECTED MATURITY	2013		2014		2015		2016		2017		Thereafter		Total long-term		Total
U.S. private placement notes (incl. DRD ¹⁾ ) (Weighted average interest rate 4.6%) ²⁾	$	—	$	125.0	$	—	$	—	$	105.0	$	60.0	$	290.0	$	290.0
Overdraft/Other short-term debt (incl. DRD ¹⁾ ) (Weighted average interest rate 3.7%)		60.3		—		—		—		—		—		—		60.3
Notes issued as a part of Equity units ³⁾ (Interest rate 3.9%)		—		107.6		—		—		—		—		107.6		107.6
Medium-term notes (Weighted average interest rate 2.4%)		—		—		—		—		99.8		—		99.8		99.8
Other long-term loans, incl. current portion ⁴⁾ (Weighted average interest rate 8.0%)		9.5		47.6		2.1		—		—		—		49.7		59.2

Total debt as cash flow, (incl. DRD ¹⁾ )	$	69.8	$	280.2	$	2.1	$	—	$	204.8	$	60.0	$	547.1	$	616.9

DRD adjustment		—		—		—		—		—		15.8		15.8		15.8

Total debt as reported	$	69.8	$	280.2	$	2.1	$	—	$	204.8	$	75.8	$	562.9	$	632.7

Debt Related Derivatives (DRD), i.e. the fair value adjustments associated with hedging instruments as adjustments to the carrying value of the underlying debt. 2) Interest rates will change as roll-overs occur prior to final maturity. 3) Repriced in 2012, final maturity in 2014. 4) Primarily external BRL and JPY loans drawn locally.

13. Shareholders’ Equity

The number of shares outstanding as of December 31, 2012 was 95,493,456.


DIVIDENDS	2012			2011			2010
Cash dividend paid per share	$	1.89		$	1.73		$	0.65
Cash dividend declared per share	$	1.94		$	1.78		$	1.05

OTHER COMPREHENSIVE (LOSS) INCOME / ENDING BALANCE ¹⁾	2012			2011			2010
Cumulative translation adjustments	$	67.2		$	38.4		$	81.0
Net gain/(loss) of cash flow hedge derivatives		—			—			0.0
Net pension liability		(107.7	)		(80.7	)		(44.6	)

Total (ending balance)	$	(40.5	)	$	(42.3	)	$	36.4

Deferred taxes on cash flow hedge derivatives	$	—		$	—		$	0.0
Deferred taxes on the pension liability	$	59.7		$	45.5		$	25.0

1)	The components of Other Comprehensive (Loss) Income are net of any related income tax effects.

Equity and Equity Units Offering

On March 30, 2009, the Company sold, in an underwritten registered public offering, approximately 14.7 million common shares from treasury stock and 6.6 million equity units (the Equity Units), listed on the NYSE as Corporate Units, for an aggregate stated amount and public offering price of $235 million and $165 million, respectively. “Equity Units” is a term that describes a security that is either a Corporate Unit or a Treasury Unit, depending upon what type of note is used by the holder to secure the forward purchase contract (either a Note or a Treasury Security, as described below). The Equity Units initially consisted of a Corporate Unit which is (i) a forward purchase contract obligating the holder to purchase from the Company for a price in cash of $25, on the purchase contract settlement date of April 30, 2012, subject to early settlement in accordance with the terms of the Purchase Contract and Pledge Agreement, a certain number (at the Settlement Rate outlined in the Purchase Contract and Pledge Agreement) of shares of Common Stock; and (ii) a 1/40, or 2.5%, undivided beneficial ownership interest in a $1,000 principal amount of the Company’s 8% senior notes due 2014 (the “Senior Notes”).

The Settlement Rate was based on the applicable market value of the Company’s common stock on the purchase contract settlement date. Because the applicable market value of the Company’s common stock was higher than $19.20, the final settlement rate on April 30, 2012 was 1.3607 shares of common stock per Equity Unit, giving effect to the dividends paid in 2010, 2011 and first quarter of 2012. On April 30, 2012, the Company issued approximately 5.8 million shares of common stock to settle the outstanding purchase contracts.The Company allocated proceeds received upon issuance of the Equity Units based on relative fair values at the time of issuance. The fair value of the purchase contract at issuance was $3.75 and the fair value of the note was $21.25. The discount on the notes is amortized using the effective interest rate method. Accordingly, the difference between the stated rate (i.e. cash payments of interest) and the effective interest rate is credited to the value of the notes. Thus, at the end of the three years, the notes were stated on the balance sheet at their face amount. The Company allocated 1% of the 6% of underwriting commissions paid to the debt as deferred charges based on commissions paid for similar debt issuances, but including factors for market conditions at the time of the offering and the Company’s credit rating. The deferred charges were being amortized over the life of the note (until the remarketing settlement date on March 15, 2012) using the effective interest rate method. The remaining underwriting commissions of 5% were allocated to the equity forward and recorded as a reduction to paid-in capital. The fees associated with the remarketing (described below) were allocated the same way and the deferred charges will be similarly amortized over the life of the notes until April 30, 2014.

the maturity of the U.S. Treasury securities purchased following the remarketing. The settlement of the purchase contracts concluded Autoliv’s equity obligations under the Equity Units.

Share Repurchase Program

In total, Autoliv has repurchased 34.3 million shares between May 2000 and September 2008 for cash of $1,473.2 million, including commissions. Of the total amount of repurchased shares, 14.7 million shares were utilized for the equity offering in 2009, 3.1 million and 5.8 million shares were utilized for the repurchase of equity units in second quarter of 2010 and second quarter of 2012, respectively. In addition 3.5 million shares have been utilized by the Stock Incentive Plan whereof 0.4 million, 0.3 million and 0.8 million were utilized during 2012, 2011 and 2010, respectively. At December 31, 2012, 7.3 million of the repurchased shares remain in treasury stock.

In 2007, the Board of Directors approved an expansion of the Company’s existing Stock Repurchase Program. Under this mandate, another 3,188,045 Autoliv shares may still be repurchased.

14. Supplemental Cash Flow Information

The Company’s acquisitions and divestitures of businesses, net of cash acquired were as follows:


	2012			2011			2010
Acquisitions:
Fair value of assets acquired excluding cash	$	—		$	(32.4	)	$	(133.9	)
Fair value of non-controlling interests		—			—			4.2
Liabilities assumed		—			9.2			52.3
Cash paid for prior year acquisitions		(1.8	)		—			—

Acquisition of businesses, net of cash acquired	$	(1.8	)	$	(23.2	)	$	(77.4	)


	2012		2011		2010
Divestitures of business, net of cash disposed	$	5.2	$	5.4	$	—

Payments for interest and income taxes were as follows:


	2012		2011		2010
Interest	$	40	$	68	$	63
Income taxes	$	237	$	257	$	149

15. Stock Incentive Plan

Under the amended and restated Autoliv, Inc. 1997 Stock Incentive Plan (the Plan) adopted by the Shareholders, awards have been made to selected executive officers of the Company and other key employees in the form of stock options and Restricted Stock Units (RSUs). All stock options are granted for 10-year terms, have an exercise price equal to the fair value of the share at the date of 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, whichever is earlier. The source of the shares issued upon share option exercise or lapse of RSU service period is generally from treasury shares. The Plan provides for the issuance of up to 9,585,055 common shares for awards. At December 31, 2012, 5,374,823 of these shares have been issued for awards. For stock options and RSUs outstanding and options exercisable at year end, see below.

The fair value of the RSUs is calculated as the fair value of the shares at the RSU grant date. The grant date fair value for RSUs granted in 2009, 2008 and 2007 (vested in 2012, 2011 and 2010) was $3.3 million, $4.5 million and $5.8 million, respectively. The aggregate intrinsic value for RSU’s outstanding at December 31, 2012 was $14.3 million. The weighted average fair value of RSU’s granted in 2012, 2011 and 2010, are $61.58, $68.33 and $41.99, respectively.

The weighted average grant date fair value of stock options granted during 2012, 2011 and 2010 was estimated at $18.01, $23.27 and $13.67 per share, respectively, using the Black-Scholes option-pricing model based on the following assumptions:


	2012			2011			2010
Risk-free interest rate		0.9	%		2.2	%		2.5	%
Dividend yield		2.8	%		2.2	%		2.2	%
Expected life in years		4.1			4.1			4.1
Expected volatility		42.0	%		45.0	%		42.0	%

The Company uses historical exercise data for determining the expected life assumption. Expected volatility is based on historical volatility.

The total stock (RSUs and stock options) compensation cost recognized in the Consolidated Statements of Net Income for 2012, 2011 and 2010 was $7.7 million, $7.4 million and $6.9 million, respectively.

The total compensation cost related to non-vested awards not yet recognized is $4.7 million for RSUs and the weighted average period over which this cost is expected to be recognized is approximately two years. There is no significant compensation cost not yet recognized for stock options.

Information on the number of RSUs and stock options related to the Plan during the period 2010 to 2012 is as follows:


RSUs	2012			2011			2010
Outstanding at beginning of year		320,122			360,928			351,659
Granted		72,900			64,599			102,120
Shares issued		(172,212	)		(84,294	)		(83,243	)
Cancelled/Forfeited/Expired		(9,192	)		(21,111	)		(9,608	)

Outstanding at end of year		211,618			320,122			360,928


STOCK OPTIONS	Number of options			Weighted average exercise price
Outstanding at Dec 31, 2009		1,586,618		$	35.41
Granted		303,960			44.80
Exercised		(717,837	)		30.90
Cancelled/Forfeited/Expired		(16,775	)		53.96

Outstanding at Dec 31, 2010		1,155,966		$	40.31

Granted		193,833			72.95
Exercised		(244,218	)		40.32
Cancelled/Forfeited/Expired		(32,579	)		38.38

Outstanding at Dec 31, 2011		1,073,002		$	46.26

Granted		218,695			67.00
Exercised		(254,440	)		33.26
Cancelled/Forfeited/Expired		(25,027	)		50.59

Outstanding at Dec 31, 2012		1,012,230		$	53.91


OPTIONS EXERCISABLE
At December 31, 2010		854,056		$	38.73
At December 31, 2011		886,605		$	40.65
At December 31, 2012		796,720		$	50.37

The following summarizes information about stock options outstanding and exercisable on December 31, 2012:


RANGE OF EXERCISE PRICES	Number outstanding		Remaining contract life (in years)		Weighted average exercise price
$16.31 – $19.96		104,700		6.14	$	16.31
$21.36 – $29.37		2,150		0.01		21.36
$40.26 – $49.60		299,590		4.86		45.63
$51.67 – $72.95		605,790		7.32		64.61

		1,012,230		6.46	$	53.91


RANGE OF EXERCISE PRICES	Number exercisable		Remaining contract life (in years)		Weighted average exercise price
$16.31 – $19.96		104,700		6.14	$	16.31
$21.36 – $29.37		2,150		0.01		21.36
$40.26 – $49.60		299,590		4.86		45.63
$51.67 – $72.95		390,280		6.32		63.30

		796,720		5.73	$	50.37

The total aggregate intrinsic value, which is the difference between the exercise price and $67.39 (closing price per share at December 31, 2012), for all “in the money” stock options outstanding and exercisable was $14.9 million and $14.8 million, respectively.

16. Contingent Liabilities

Legal Proceedings

Antitrust Matters

District of Michigan (Brad Zirulnik v. Autoliv, Inc. et al. filed on June 6, 2012; A1A Airport & Limousine Service, Inc. v. Autoliv, Inc. et al. and Frank Cosenza v. Autoliv, Inc. et al. each filed on June 8, 2012; Meetesh Shah v. Autoliv, Inc., et al. filed on June 12, 2012; Martens Cars of Washington, Inc., et al. v. Autoliv, Inc., et al. and Richard W. Keifer, Jr. v. Autoliv, Inc. et al. each filed on June 26, 2012; Findlay Industries, Inc. v. Autoliv, Inc. filed on July 12, 2012; Beam’s Industries, Inc. v. Autoliv, Inc., et al. filed on July 21, 2012; Melissa Barron et al. v. Autoliv, Inc. et al. filed on July 24, 2012; Stephanie Kaleuha Petras v. Autoliv, Inc. et al. filed on August 14, 2012; and Superstore Automotive, Inc. et al. v. Autoliv, Inc. et al. filed on November 1, 2012). The twelfth lawsuit is pending under Canadian law in the Ontario Superior Court of Justice in Canada (Sheridan Chevrolet Cadillac Ltd. et al. v. Autoliv Inc. et al., filed on January 18, 2013).

Product Warranty, Recalls and Intellectual Property

Autoliv is exposed to various claims for damages and compensation if products fail to perform as expected. Such claims can be made, and result in costs and other losses to the Company, even where the product is eventually found to have functioned properly. If a product (actually or allegedly) fails to perform as expected the Company faces warranty and recall claims. If such (actual or alleged) failure results in bodily injury and/or property damage, the Company may also face product-liability claims. There can be no assurance that the Company will not experience material warranty, recall or product (or other) liability claims or losses in the future, or that the Company will not incur significant costs to defend against such claims. The Company may be required to participate in a recall involving its products. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product liability claims. A warranty, recall or product-liability claim brought against the Company in excess of its insurance may have a material adverse effect on the Company’s business. Vehicle manufacturers are also increasingly requiring their outside suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. A vehicle manufacturer may attempt to hold the Company responsible for some, or all, of the repair or replacement costs of defective products under new vehicle warranties, when the product supplied did not perform as represented. Accordingly, the future costs of warranty claims by customers may be material. However, the Company believes its established reserves are adequate to cover potential warranty settlements. Autoliv’s warranty reserves are based upon the Company’s best estimates of amounts necessary to settle future and existing claims. The Company regularly evaluates the appropriateness of these reserves, and adjusts them when appropriate. However, the final amounts determined to be due related to these matters could differ materially from the Company’s recorded estimates.

In addition, the global platforms and procedures used by vehicle manufacturers have led to quality performance evaluations being conducted on an increasingly global basis. Any one or more quality, warranty or other recall issue(s) (including those affecting few units and/or having a small financial impact) may cause a vehicle manufacturer to implement measures such as a temporary or prolonged suspension of new orders, which may have a material impact on the Company’s results of operations.

The Company believes that it is currently reasonably insured against significant warranty, recall and product liability risks, at levels sufficient to cover potential claims that are reasonably likely to arise in our businesses. Autoliv cannot be assured that the level of coverage will be sufficient to cover every possible claim that can arise in our businesses, now or in the future, or that such coverage always will be available on our current market terms should we, now or in the future, wish to extend or increase insurance.

In its products, the Company utilizes technologies which may be subject to intellectual property rights of third parties. While the Company seeks to identify the intellectual property rights of relevance to its products, and, where relevant, tries to procure the necessary rights to utilize such intellectual property rights, we may fail to do so. When this happens, the Company may be exposed to material claims from the owners of such rights. If the Company has sold products which infringe upon such rights, our customers may be entitled to be indemnified by us for the claims they suffer as a result thereof. Such claims could be material.

17. Lease Commitments

Operating Lease

The Company leases certain offices, manufacturing and research buildings, machinery, automobiles, data processing and other equipment under operating lease contracts. The operating leases, some of which are non-cancellable and include renewals, expire at various dates through 2045. The Company pays most maintenance, insurance and tax expenses relating to leased assets. Rental expense for operating leases was $35.5 million for 2012, $36.4 million for 2011 and $29.4 million for 2010.

At December 31, 2012, future minimum lease payments for non-cancellable operating leases total $110.8 million and are payable as follows (in millions): 2013: $33.3; 2014: $26.1; 2015: $18.3; 2016: $13.5; 2017: $8.2; 2018 and thereafter: $11.4.

Capital Lease

The Company leases certain property, plant and equipment under capital lease contracts. The capital leases expire at various dates through 2015. At December 31, 2012, future minimum lease payments for non-cancellable capital leases total $1.3 million and are payable as follows (in millions): 2013: $0.6; 2014: $0.4; 2015: $0.3; 2016: $0.0; 2017: $0.0; 2018 and thereafter: $0.0.

18. Retirement Plans

Defined Contribution Plans

Many of the Company’s employees are covered by government sponsored pension and welfare programs. Under the terms of these programs, the Company makes periodic payments to various government agencies. In addition, in some countries the Company sponsors or participates in certain non-governmental defined contribution plans. Contributions to defined contribution plans for the years ended December 31, 2012, 2011 and 2010 were $16.4 million, $13.2 million and $13.2 million, respectively.

Multiemployer Plans

The Company participates in multiemployer plans in Sweden, Canada, Spain and the Netherlands, which are all deemed insignificant. The largest of these plans is in Sweden, the ITP-2 pension plan, which is funded through Alecta. For employees born before 1979, the plan provides a final pay pension benefit based on all service with participating employers. The Company must pay for pay increases in excess of inflation on service earned with previous employers. The plan also provides disability and family benefits. The plan is more than 100% funded. The Company contributions to the multiemployer plan in Sweden for the year ended December 31, 2012, 2011 and 2010 were $2.3 million, $1.8 million and $2.1 million respectively.

Defined Benefit Plans

The Company has a number of defined benefit pension plans, both contributory and non-contributory, in the U.S., Canada, Germany, France, Japan, Mexico, Sweden, South Korea, India, Turkey, Thailand, Philippines and the United Kingdom. There are funded as well as unfunded plan arrangements which provide retirement benefits to both U.S. and non-U.S. participants. The main plan is the U.S. plan for which the benefits are based on an average of the employee’s earnings in the years preceding retirement and on credited service. The Company has closed participation in the Autoliv ASP, Inc. Pension Plan to exclude those employees hired after December 31, 2003. Within the U.S. there is also a non-qualified restoration plan that provides benefits to employees whose benefits in the primary U.S. plan are restricted by limitations on the compensation that can be considered in calculating their benefits. For the Company’s non-U.S. defined benefit plans the most significant individual plan resides in the U.K. The Company has closed participation in the U.K. defined benefit plan to exclude all employees hired after April 30, 2003 with few members accruing benefits. In October 2011 approximately half of the benefit obligation and all plan assets in Japan were settled, requiring additional contributions, and converted into a new defined contribution plan.

CHANGES IN BENEFIT OBLIGATIONS AND PLAN ASSETS FOR THE PERIODS ENDED DECEMBER 31


	U.S.						Non-U.S.
	2012			2011			2012			2011
Benefit obligation at beginning of year	$	257.0		$	190.4		$	160.5		$	170.2
Service cost		8.3			6.3			12.0			12.3
Interest cost		12.3			10.0			7.1			7.6
Actuarial (gain) loss due to:
Change in discount rate		34.1			31.0			16.3			9.5
Experience		13.7			5.9			(0.0	)		(0.1	)
Other assumption changes		(5.9	)		19.4			1.3			(4.9	)
Plan participants’ contributions		—			—			0.2			0.2
Plan amendments		—			—			0.1			0.8
Benefits paid		(5.3	)		(5.7	)		(5.6	)		(8.5	)
Settlements		—			(0.3	)		(7.0	)		(25.3	)
Curtailments		—			—			0.0			0.3
Special termination benefits		—			—			0.1			0.1
Acquisitions		—			—			—			—
Other		—			—			6.2			(0.1	)
Translation difference		—			—			4.2			(1.6	)

Benefit obligation at end of year	$	314.2		$	257.0		$	195.4		$	160.5


Fair value of plan assets at beginning of year	$	140.5		$	136.9		$	83.9		$	87.7

Actual return on plan assets		17.5			2.0			8.0			7.7
Company contributions		6.7			7.3			11.9			22.8
Plan participants’ contributions		—			—			0.2			0.2
Benefits paid		(5.3	)		(5.7	)		(5.6	)		(8.5	)
Settlements		—			—			(7.0	)		(25.3	)
Acquisitions		—			—			—			—
Other		—			—			(0.2	)		(0.1	)
Translation difference		—			—			3.6			(0.6	)

Fair value of plan assets at year end	$	159.4		$	140.5		$	94.8		$	83.9

Funded status recognized in the balance sheet	$	(154.8	)	$	(116.5	)	$	(100.6	)	$	(76.6	)

The U.S. plan provides that benefits may be paid in the form of a lump sum if so elected by the participant. In order to more accurately reflect a market-derived pension obligation, Autoliv adjusts the assumed lump sum interest rate to reflect market conditions as of each December 31. This methodology is consistent with the approach required under the Pension Protection Act of 2006, which provides the rules for determining minimum funding requirements in the U.S.

The short-term portion of the pension liability is not significant.

COMPONENTS OF NET PERIODIC BENEFIT COST ASSOCIATED WITH THE DEFINED BENEFIT RETIREMENT PLANS


	U.S.
	2012			2011			2010
Service cost	$	8.3		$	6.3		$	5.1
Interest cost		12.3			10.0			9.1
Expected return on plan assets		(10.2	)		(9.9	)		(8.5	)
Amortization of prior service credit		(1.0	)		(1.0	)		(1.0	)
Amortization of actuarial loss		8.5			5.4			3.4
Settlement		—			0.4			—

Net periodic benefit cost	$	17.9		$	11.2		$	8.1


	Non-U.S.
	2012			2011			2010
Service cost	$	12.0		$	12.3		$	10.0
Interest cost		7.1			7.6			6.5
Expected return on plan assets		(3.9	)		(4.4	)		(4.2	)
Amortization of prior service costs		0.1			0.1			0.2
Amortization of actuarial loss		1.4			1.0			0.5
Settlement loss (gain)		1.0			4.5			0.5
Curtailment loss (gain)		—			0.2			0.3
Special termination benefits		0.1			0.1			0.2

Net periodic benefit cost	$	17.8		$	21.4		$	14.0

The estimated prior service credit for the U.S. defined benefit pension plans that will be amortized from other comprehensive income into net benefit cost over the next fiscal year is $(1.0) million. Amortization of net actuarial losses is expected to be $9.7 million in 2013. Net periodic benefit cost associated with these U.S. plans was $17.9 million in 2012 and is expected to be around $18.9 million in 2013. The estimated prior service cost and net actuarial loss for the non-U.S. defined benefit pension plans that will be amortized from other

comprehensive income into net benefit cost over the next fiscal year are $0.2 and $2.5 million respectively. Net periodic benefit cost associated with these non-U.S. plans was $17.8 million in 2012 and is expected to be around $19.6 million in 2013. The amortization of the net actuarial loss is made over the estimated remaining service lives of the plan participants, 11 years for U.S. and 3-22 years for non-U.S. participants, varying between the different countries depending on the age of the work force.

COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME BEFORE TAX AS OF DECEMBER 31


	U.S.						Non-U.S.
	2012			2011			2012		2011
Net actuarial loss (gain)	$	136.7		$	110.6		$	34.0	$	21.9
Prior service (credit) cost		(4.0	)		(5.0	)		1.6		1.6

Total accumulated other comprehensive income recognized in the balance sheet	$	132.7		$	105.6		$	35.6	$	23.5

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME BEFORE TAX FOR THE PERIODS ENDED DECEMBER 31


	U.S.						Non-U.S.
	2012			2011			2012			2011
Total retirement benefit recognized in accumulated other comprehensive income at beginning of year	$	105.6		$	46.5		$	23.5		$	27.3
Net actuarial loss (gain)		34.6			64.1			13.5			1.2
Prior service cost (credit)		—			—			0.1			0.8
Amortization of prior service costs		1.0			1.0			(0.1	)		(0.1	)
Amortization of actuarial loss		(8.5	)		(6.0	)		(2.3	)		(5.4	)
Translation difference		—			—			0.9			(0.3	)

Total retirement benefit recognized in accumulated other comprehensive income at end of year	$	132.7		$	105.6		$	35.6		$	23.5

The accumulated benefit obligation for the U.S. non-contributory defined benefit pension plans was $262.1 and $198.5 million at December 31, 2012 and 2011, respectively. The accumulated benefit obligation for the non-U.S. defined benefit pension plans was $164.4 and $140.3 million at December 31, 2012 and 2011, respectively.

Pension plans for which the accumulated benefit obligation (ABO) is notably in excess of the plan assets reside in the following countries: the U.S., France, Germany, Japan, South Korea and Sweden.

PENSION PLANS FOR WHICH ABO EXCEEDS THE FAIR VALUE OF PLAN ASSETS AS OF DECEMBER 31


	U.S.				Non-U.S.
	2012		2011		2012		2011
Projected Benefit Obligation (PBO)	$	314.2	$	257.0	$	125.0	$	87.6
Accumulated Benefit Obligation (ABO)	$	262.1	$	198.5	$	101.8	$	69.2
Fair value of plan assets	$	159.4	$	140.5	$	24.7	$	5.9

The Company, in consultation with its actuarial advisors, determines certain key assumptions to be used in calculating the projected benefit obligation and annual net periodic benefit cost.

ASSUMPTIONS USED TO DETERMINE THE BENEFIT OBLIGATIONS AS OF DECEMBER 31


	U.S.				Non-U.S. ¹⁾
% WEIGHTED AVERAGE	2012		2011		2012		2011
Discount rate		4.05		4.60		1.50-4.50		1.50-5.50
Rate of increases in compensation level		3.50		3.50		2.25-5.00		2.25-5.00

ASSUMPTIONS USED TO DETERMINE THE NET PERIODIC BENEFIT COST FOR YEARS ENDED DECEMBER 31


	U.S.
% WEIGHTED AVERAGE	2012		2011		2010
Discount rate		4.60		5.05		5.80
Rate of increases in compensation level		3.50		3.80		4.00
Expected long-term rate of return on assets		7.50		7.50		7.50


	Non-U.S. ¹⁾
% WEIGHTED AVERAGE	2012		2011		2010
Discount rate		1.50-5.50		1.25–6.00		1.75-7.00
Rate of increases in compensation level		2.25-5.00		2.25-6.50		2.25-5.00
Expected long-term rate of return on assets		3.75-5.75		1.50-6.25		2.00-6.25

1)	The Non-U.S. weighted average plan ranges in the tables above have been prepared using significant plans only, which in total represent more than 90% of the total Non-U.S. projected benefit obligation.

The discount rate for the U.S. plans has been set based on the rates of return on high-quality fixed-income investments currently available at the measurement date and expected to be available during the period the benefits will be paid. The expected timing of cash flows from the plan has also been considered in selecting the discount rate. In particular, the yields on bonds rated AA or better on the measurement date have been used to set the discount rate. The discount rate for the U.K. plan has been set based on the weighted average yields on long-term high-grade corporate bonds and is determined by reference to financial markets on the measurement date.

The expected rate of increase in compensation levels and long-term rate of return on plan assets are determined based on a number of factors and must take into account long-term expectations and reflect the financial environment in the respective local market.

The level of equity exposure is currently targeted at approximately 65% for the primary U.S. plan and approximately 50% for all plans combined. The investment objective is to provide an attractive risk-adjusted return that will ensure the payment of benefits while protecting against the risk of substantial investment losses. Correlations among the asset classes are used to identify an asset mix that Autoliv believes will provide the most attractive returns. Long-term return forecasts for each asset class using historical data and other qualitative considerations to adjust for projected economic forecasts are used to set the expected rate of return for the entire portfolio. The Company assumes a long-term rate of return on the U.S. plan assets of 7.5% for calculating the 2012 expense.

The Company has assumed a long-term rate of return on the non-U.S. plan assets in a range of 3.75-5.75% for 2012. The closed U.K. plan which has a targeted and actual allocation of almost 100% debt instruments accounts for approximately 53% of the total non-U.S. plan assets.

Autoliv made contributions to the U.S. plan during 2012 and 2011 amounting to $6.7 million and $7.3 million, respectively. Contributions to the U.K. plan during 2012 and 2011 amounted to $0.3 million and $0.3 million, respectively. The Company expects to contribute $7.0 million to its U.S. pension plan in 2013 and is currently projecting a yearly funding at approximately the same level in the years thereafter. For the UK plan, which is the most significant non-U.S. pension plan, the Company expects to contribute $0.3 million in 2013 and in the years thereafter.

FAIR VALUE OF TOTAL PLAN ASSETS FOR YEARS ENDED DECEMBER 31


ASSETS CATEGORY IN % WEIGHTED AVERAGE	U.S.		U.S.				Non-U.S.
ASSETS CATEGORY IN % WEIGHTED AVERAGE	Target allocation		2012		2011		2012		2011
Equity securities		65		65		66		14		12
Debt instruments		35		35		34		60		59
Other assets		—		—		—		26		29

Total		100		100		100		100		100

The following table summarizes the valuation of the Company’s plan assets by the pricing observability levels:


	Total carrying amount in statement of financial position December 31, 2012		Fair value measurement at December 31, 2012 using:
			Level 1		Level 2		Level 3
Assets
US Equity
Large Cap	$	66.9	$	—	$	66.9	$	—
Mid Cap		8.1		—		8.1		—
Small Cap		8.1		—		8.1		—
Non-US Equity		33.7		—		33.7		—
US Bonds
Government		—		—		—		—
Corporate		—		—		—		—
Aggregate		55.5		—		55.5		—
Non-US Bonds
Government		—		—		—		—
Corporate		50.7		—		50.7		—
Aggregate		5.7		—		5.7		—
Insurance Contracts		19.5		—		19.5		—
Other Investments		6.0		—		6.0		—

Total	$	254.2	$	—	$	254.2	$	—


	Total carrying amount in statement of financial position December 31, 2011		Fair value measurement at December 31, 2011 using:
			Level 1		Level 2		Level 3
Assets
US Equity
Large Cap	$	60.5	$	—	$	60.5	$	—
Mid Cap		7.2		—		7.2		—
Small Cap		7.3		—		7.3		—
Non-US Equity		27.8		—		27.8		—
US Bonds
Government		20.2		—		20.2		—
Corporate		9.7		—		9.7		—
Aggregate		16.3		—		16.3		—
Non-US Bonds
Government		4.5		—		4.5		—
Corporate		46.4		—		46.4		—
Insurance Contracts		18.0		—		18.0		—
Other Investments		6.5		—		6.5		—

Total	$	224.4	$	—	$	224.4	$	—

The fair value measurement level within the fair value hierarchy (see note 3) is based on the lowest level of any input that is significant to the fair value measurement. After further analysis of the characteristics of certain investments (e.g. fair values based on net asset values held by common collective trusts) we have evaluated the fair value of plan assets should be reported as Level 2. Prior year amounts have been reclassified to conform to current year presentation. These revisions in the disclosed classification had no effect on the reported fair values of these instruments.

The estimated future benefit payments for the pension benefits reflect expected future service, as appropriate. The amount of benefit payments in a given year may vary from the projected amount, especially for the U.S. plan since this plan pays the majority of benefits as a lump sum, where the lump sum amounts vary with market interest rates.


PENSION BENEFITS EXPECTED PAYMENTS	U.S.		Non-U.S.
2013	$	9.9	$	5.7
2014	$	11.0	$	6.2
2015	$	12.4	$	6.8
2016	$	14.4	$	7.6
2017	$	15.9	$	8.9
Years 2018-2022	$	105.2	$	53.0

Postretirement Benefits Other than Pensions

The Company currently provides postretirement health care and life insurance benefits to most of its U.S. retirees. Such benefits in other countries are included in the tables below, but are not significant.

In general, the terms of the plans provide that U.S. employees who retire after attaining age 55, with five years of service (15 years after December 31, 2006), are eligible for continued health care and life insurance coverage. Dependent health care and life insurance coverage is also available. Most retirees contribute toward the cost of health care coverage with the contributions generally varying based on service. The plan was amended in 2003 to restrict participation to existing retirees who were eligible retirees as of December 31, 2003 and active employees who were eligible to participate in the Autoliv ASP, Inc. Pension Plan as of December 31, 2003. The plan provides a company paid subsidy based on service for all current and future retirees that qualify for retirement based on the restrictions stated above. Employees hired on or after January 1, 2004 are not eligible to participate in the plan. The amount of the company paid subsidy is frozen and will not change in the future. Generally, employees will need 15 years of service to qualify for a benefit from the plan in the future.

At present, there is no pre-funding of the postretirement benefits recognized. The Company has reviewed the impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Part D) on its financial statements. Although the Plan may currently qualify for a subsidy from Medicare, the amount of the subsidy is so small that the expenses incurred to file for the subsidy may exceed the subsidy itself. Therefore the impact of any subsidy is ignored in the calculations as Autoliv will not be filing for any reimbursement from Medicare.

CHANGES IN BENEFIT OBLIGATIONS AND PLAN ASSETS FOR POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS AS OF DECEMBER 31


	2012			2011			2010
Benefit obligation at beginning of year	$	30.8		$	27.9		$	28.1
Service cost		1.1			1.3			1.2
Interest cost		1.3			1.5			1.4
Actuarial (gain) loss due to:
Change in discount rate		1.9			3.1			1.7
Experience		(3.1	)		0.5			(3.7	)
Other assumption changes		3.2			(2.7	)		—
Benefits paid		(0.5	)		(0.8	)		(0.8	)
Other		(0.1	)		—			—

Benefit obligation at end of year	$	34.6		$	30.8		$	27.9


Fair value of plan assets at beginning of year	$	—		$	—		$	—

Company contributions		0.5			0.8			0.8
Benefits paid		(0.5	)		(0.8	)		(0.8	)

Fair value of plan assets at end of year	$	—		$	—		$	—

Accrued postretirement benefit cost recognized in the balance sheet	$	(34.6	)	$	(30.8	)	$	(27.9	)

The liability for postretirement benefits other than pensions is classified as other non-current liabilities in the balance sheet. The short-term portion of the liability for postretirement benefits other than pensions is not significant.

COMPONENTS OF NET PERIODIC BENEFIT COST ASSOCIATED WITH THE POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS


PERIOD ENDED DECEMBER 31	2012			2011			2010
Service cost	$	1.1		$	1.3		$	1.2
Interest cost		1.3			1.5			1.4
Amortization of prior service cost		(0.1	)		(0.1	)		(0.1	)
Amortization of actuarial loss		(0.2	)		(0.1	)		(0.3	)

Net periodic benefit cost	$	2.1		$	2.6		$	2.2

COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME BEFORE TAX ASSOCIATED WITH POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS AS OF DECEMBER 31


	U.S.						Non-U.S.
	2012			2011			2012			2011
Net actuarial loss (gain)	$	0.1		$	(1.6	)	$	(0.7	)	$	(1.0	)
Prior service cost (credit)		(0.3	)		(0.3	)		(0.0	)		—

Total accumulated other comprehensive income recognized in the balance sheet	$	(0.2	)	$	(1.9	)	$	(0.7	)	$	(1.0	)

For measuring end-of-year obligations at December 31, 2012, health care trends are not needed due to the fixed-cost nature of the benefits provided in 2012 and beyond. After 2006, all retirees receive a fixed dollar subsidy toward the cost of their health benefits. The subsidy will not increase in future years.

The weighted average discount rate used to determine the U.S. postretirement benefit obligation was 4.25% in 2012 and 4.60% in 2011. The average discount rate used in determining the postretirement benefit cost was 4.60% in 2012, 5.40% in 2011 and 5.80% in 2010.

A one percentage point increase or decrease in the annual health care cost trend rates would have had no significant impact on the Company’s net benefit cost for the current period or on the accumulated postretirement benefit obligation at December 31, 2012. This is due to the fixed-dollar nature of the benefits provided under the plan.

The estimated net gain and prior service credit for the postretirement benefit plans that will be amortized from other comprehensive income into net benefit cost over the next fiscal year are approximately $0.1 million combined.

The estimated future benefit payments for the postretirement benefits reflect expected future service as appropriate.


POSTRETIREMENT BENEFITS PAYMENTS	EXPECTED
2013	$	1.0
2014	$	1.0
2015	$	1.2
2016	$	1.3
2017	$	1.5
Years 2018–2022	$	10.5

19. Segment Information

The Company’s primary safety products (mainly various airbag and seatbelt products and components) are integrated complete systems that function together with common electronic and sensing systems. The Company has concluded that its operating segments meet the criteria for combination for reporting purposes into a single reportable segment.

The Company’s customers consist of all major European, U.S. and Asian automobile manufacturers. Sales to individual customers representing 10% or more of net sales were:

In 2012: GM 15% (incl. Opel, etc.), Ford 11% and Renault 11% (incl. Nissan).

In 2011: GM 15% (incl. Opel, etc.), Renault 12% (incl. Nissan) and Ford 10%.

In 2010: GM 14% (incl. Opel, etc.) and Renault 13% (incl. Nissan).


NET SALES	2012		2011		2010
Europe	$	2,645	$	3,102	$	2,759
Americas		2,870		2,559		2,194
China		1,098		982		813
Japan		830		758		791
Rest of Asia		824		831		614

Total	$	8,267	$	8,232	$	7,171

The Company has attributed net sales to the geographic area based on the location of the entity selling the final product.

External sales in the U.S. amounted to $2,104 million, $1,920 million and $1,651 million in 2012, 2011 and 2010, respectively. Of the external sales, exports from the U.S. to other regions amounted to approximately $574 million, $535 million and $431 million in 2012, 2011 and 2010, respectively.


SALES BY PRODUCT	2012		2011		2010
Airbags and associated products ¹⁾	$	5,392	$	5,393	$	4,722
Seatbelts and associated products		2,657		2,679		2,364
Active safety products		218		160		85

Total	$	8,267	$	8,232	$	7,171

1)	Includes sales of steering wheels, passive safety electronics, inflators and initiators.


LONG-LIVED ASSETS	2012		2011
Europe	$	731	$	641
Americas		1,977		1,946
China		243		198
Japan		130		152
Rest of Asia		200		180

Total	$	3,281	$	3,117

Long-lived assets in the U.S. amounted to $1,812 million and $1,774 million for 2012 and 2011, respectively. For 2012, $1,497 million (2011, $1,518 million) of the long-lived assets in the U.S. refers to intangible assets, principally from acquisition goodwill.

20. Earnings Per Share

The weighted average shares used in calculating earnings per share were:

2012

2011

2010

Weighted average shares basic

93.5

89.2

87.3

Effect of dilutive securities:

stock options/share awards

0.3

0.5

0.6

equity units

1.3

4.0

4.5

Weighted average shares diluted

95.1

93.7

92.4

For 2012 and 2011, 1.3 million and 4.0 million shares, respectively, were included in the dilutive weighted average share amount related to the equity units. The number of shares outstanding increased on April 30, 2012 by 5.8 million due to the settlement of the remaining equity units. For further information see Note 13.

Approximately 0.4 million, 0.2 million and 0.1 million common shares related to the Company’s Stock Incentive Plan, which were antidilutive during the respective year, but that could potentially dilute basic EPS in the future, are not included in the computation of the diluted EPS for 2012, 2011 and 2010, respectively.

21. Subsequent Events

There were no reportable events subsequent to December 31, 2012.

22. Quarterly Financial Data (unaudited)


2012	Q1		Q2		Q3		Q4
Net sales	$	2,178.9	$	2,088.8	$	1,947.1	$	2,051.9
Gross profit		441.1		422.1		387.6		395.4
Income before taxes		141.1		182.4		175.1		170.0
Net income attributable to controlling interests		100.5		126.4		117.5		138.7
Earnings per share
– basic	$	1.12	$	1.35	$	1.23	$	1.45
– diluted	$	1.07	$	1.33	$	1.23	$	1.45
Dividends paid	$	0.45	$	0.47	$	0.47	$	0.50

2011	Q1		Q2		Q3		Q4
Net sales	$	2,108.6	$	2,061.5	$	2,017.6	$	2,044.7
Gross profit		466.0		421.6		411.2		429.1
Income before taxes		239.8		185.0		192.6		210.9
Net income attributable to controlling interests		181.5		145.0		138.4		158.5
Earnings per share
– basic	$	2.04	$	1.62	$	1.55	$	1.78
– diluted	$	1.93	$	1.54	$	1.48	$	1.70
Dividends paid	$	0.40	$	0.43	$	0.45	$	0.45

EXCHANGE RATES FOR KEY CURRENCIES VS. U.S. DOLLAR


	2012		2012		2011		2011		2010		2010		2009		2009		2008		2008
	Average		Year end		Average		Year end		Average		Year end		Average		Year end		Average		Year end
EUR		1.285		1.322		1.390		1.292		1.321		1.323		1.387		1.435		1.459		1.411
CNY		0.159		0.160		0.155		0.159		0.148		0.151		0.146		0.147		0.144		0.146
JPY/1000		12.538		11.607		12.570		12.881		11.411		12.268		10.692		10.877		9.738		11.093
KRW/1000		0.888		0.937		0.904		0.863		0.864		0.883		0.783		0.859		0.911		0.795
MXN		0.076		0.077		0.080		0.071		0.079		0.081		0.074		0.076		0.090		0.074
SEK		0.148		0.153		0.154		0.144		0.139		0.147		0.131		0.139		0.152		0.129

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Autoliv, Inc.

We have audited the accompanying consolidated balance sheets of Autoliv, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of net income and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Autoliv, Inc. at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Autoliv, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2013 expressed an unqualified opinion thereon.

Stockholm, Sweden

February 22, 2013 /s/ Ernst & Young AB

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Board of Directors and Shareholders of Autoliv, Inc.

We have audited Autoliv, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Autoliv, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Autoliv, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Autoliv, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of net income and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012 of Autoliv, Inc. and our report dated February 22, 2013 expressed an unqualified opinion thereon.

Stockholm, Sweden

February 22, 2013 /s/ Ernst & Young AB

Glossary and Definitions

CAPITAL EMPLOYED

Total equity and net debt (net cash).

CAPITAL EXPENDITURES

Investments in property, plant and equipment.

CAPITAL TURN-OVER RATE

Annual sales in relation to average capital employed.

CPV

Content Per Vehicle, i.e. value of the safety products in a vehicle.

DAYS INVENTORY OUTSTANDING

Outstanding inventory relative to average daily sales.

DAYS RECEIVABLES OUTSTANDING

Outstanding receivables relative to average daily sales.

EARNINGS PER SHARE

Net income attributable to controlling interest relative to weighted average number of shares (net of treasury shares) assuming dilution and basic, respectively.

EBIT

Earnings before interest and taxes.

FREE CASH FLOW, NET

Cash flows from operating activities less capital expenditures, net.

TOTAL EQUITY RATIO

Total equity relative to total assets.

GROSS MARGIN

Gross profit relative to sales.

HCC

High-cost country (see pages 24-25 in the Annual Report for specification of our high-cost countries).

HEADCOUNT

Employees plus temporary, hourly personnel.

INTEREST-COVERAGE RATIO

Operating income relative to interest expense, see page 54 in the Annual Report for reconciliation of this non-U.S. GAAP measure.

LCC

Low-cost country (see pages 24-25 in the Annual Report for specification of our low-cost countries).

LEVERAGE RATIO

Net interest bearing debt in relation to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), see page 54 in the Annual Report for reconciliation of this non-U.S. GAAP measure.

LVP

Light vehicle production of light motor vehicles with a gross weight of up to 3.5 metric tons.

LMPU

Labor minutes per produced unit.

NET DEBT (NET CASH)

Short and long-term debt including debt-related derivatives less cash and cash equivalents, see page 42 in the Annual Report for reconciliation of this non-U.S. GAAP measure.

NET DEBT TO CAPITALIZATION

Net debt in relation to total equity (including non-controlling interest) and net debt.

NUMBER OF EMPLOYEES

Employees with a continuous employment agreement, recalculated to full time equivalent heads.

OPERATING MARGIN

Operating income relative to sales.

OPERATING WORKING CAPITAL

Current assets excluding cash and cash equivalents less current liabilities excluding short-term debt. Any current derivatives reported in current assets and current liabilities related to net debt are excluded from operating working capital. See page 42 in the Annual Report for reconciliation of this non-U.S. GAAP measure.

OUR MARKET

Passive Safety (occupant restraints) and Active Safety (collision avoidance). Passive safety products include seatbelts, airbags, steering wheels, electronic control units and crash sensors. Active safety products include radar and sensing technologies such as infrared night vision systems and camera systems.

PIIGS COUNTRIES

Portugal, Ireland, Italy, Greece and Spain combined.

PRETAX MARGIN

Income before taxes relative to sales.

PPM

Rejected parts per million parts supplied.

ROA

Rest of Asia includes all Asian countries except China and Japan.

RETURN ON CAPITAL EMPLOYED

Operating income and equity in earnings of affiliates, relative to average capital employed.

RETURN ON TOTAL EQUITY

Net income relative to average total equity.

TRIAD

Western Europe, North America and Japan combined.

Corporate Governance

This section should be read in conjunction with the proxy statement, which will be available at www.autoliv.com during the last week of March 2013. Please also refer to page 51-54 about Risk Management and page 55 about Internal Control in this Annual Report.

AUTOLIV IS A DELAWARE CORPORATION with its headquarters in Stockholm, Sweden. As a publicly traded U.S. corporation, the Company is subject primarily to U.S. state and federal corporate governance requirements as well as those of the New York Stock Exchange. Autoliv also has Swedish Depository Receipts traded on the NASDAQ OMX. In addition to, and consistent with, these statutory laws and regulations, Autoliv is governed by its own charter documents and internal standards and policies through its Restated Certificate of Incorporation, Restated By-laws, Corporate Governance Guidelines and Standards of Business Conduct and Ethics.

These documents guide and assist the Board in the exercise of its responsibilities and reflect the Board’s commitment to foster a culture of integrity and monitor the effectiveness of policy and decision-making, both at the Board and management level. The Board views corporate governance as an integral part of the basic operations of the Company and a necessary element for long-term sustainable growth in shareholder value.

SHAREHOLDERS’ MEETING

At the Annual Meeting of Shareholders each shareholder is entitled to one vote for each share of common stock owned. Shareholders can vote via the Internet, telephone or by proxy cards.

Business to be conducted at a Meeting shall only be that which has been properly brought before the Meeting and in compliance with our By-laws and Rule 14a-8 of the Exchange Act. For a shareholder proposal under Rule 14a-8 to be considered for inclusion in the proxy statement for our 2014 Shareholders’ Meeting, it must be received by us on or before November 25, 2013. If shareholders wish to present a proposal at our 2014 Shareholders’ Meeting but do not intend for the proposal to be included in our proxy statement, our By-laws provide that we must receive the written notice at our principal executive offices no earlier than the close of business on February 6, 2014 and no later than the close of business on March 8, 2014.

THE BOARD

The Board is entrusted with, and responsible for, overseeing the business and affairs of the Company.

The Board monitors the performance of the Company in relation to its goals, strategy, competitors, and the performance of the Chief Executive Officer (CEO) and provides constructive advice and feedback. While the Company currently has, and strongly prefers, an independent chairman, the Board is free under our Corporate Governance Guidelines to choose its chairman in a way that it deems best for the Company.

The Board has full access to management and to Autoliv’s outside advisors. The work of the Board is reported annually in the proxy statement (see www.autoliv.com/investors).

The Board has adopted Corporate Governance Guidelines that reflect its commitment to monitor the effectiveness of policy and decision-making both at the Board and management level. In order to ensure that the Company’s governing principles remain up-to-date and consistent with high levels of corporate governance, the Board periodically reviews the Company’s Corporate Governance Guidelines and amends them as appropriate.

According to the Restated Certificate of Incorporation, the number of directors may be fixed from time to time exclusively by the Board. Pursuant to our By-laws the directors are divided into three classes, each class serving for terms of three years. The Board believes that it should generally have no fewer than nine and no more than twelve directors.

Members of the Board of Directors are normally elected at the Annual Meeting of Shareholders. According to the By-laws, directors are elected by a plurality of the votes of the shares present at a shareholders’ meeting in person or by proxy and entitled to vote thereon. However, pursuant to the Company’s Corporate Governance Guidelines, if a director nominee in an uncontested election fails to receive the approval of a majority of the votes cast on his or her election by the Company shareholders, the nominee shall promptly offer his or her resignation to the Board. A committee consisting of the Board’s independent directors (which will specifically exclude any director who is required to offer his or her own resignation) shall consider all relevant factors and decide on behalf of the Board whether to accept the resignation or take other action.

DIRECTORS

Directors are expected to spend the time and effort necessary to properly discharge their responsibilities, and, accordingly, regular attendance of meetings of the Board and committees on which directors sit is expected. Directors are also expected to attend the Annual Meeting of Shareholders.

The Board is responsible for nominating members for election to the Board and for filling vacancies on the Board that may occur between annual meetings of shareholders.

The Nominating and Corporate Governance Committee is responsible for identifying, screening and recommending candidates to the Board. The Committee will consider director candidates nominated by shareholders.

Nominees for director are selected on the basis of many factors, including positions of leadership attained in the candidate’s area of expertise, business and financial experience relevant to the Company, possession of demonstrated sound business judgment, expertise relevant to the Company’s lines of business, independence from management, the ability to serve on standing committees and the ability to serve the interests of all shareholders. The Nominating and Corporate Governance Committee routinely considers board candidates with a broad range of educational and professional experience from a variety of countries. The Board must be comprised of a majority of directors who qualify as independent under the listing standards of the New York Stock Exchange. Currently, all board members are independent, with the exception of the CEO.

On an annual basis, the Board reviews the relations that each director has with the Company to assess independence. A director who is also an employee of the Company is generally expected to resign from the Board when his employment with the Company ends. New directors are provided information about Autoliv’s business and operations, strategic plans, significant financial, accounting and risk management issues, compliance programs and various codes and guidelines.

BOARD COMPENSATION

A director who is also an officer of the Company does not receive additional compensation for service as a director.

Board compensation is disclosed in Autoliv’s Proxy Statement together with the compensation of the five most highly-compensated senior executives. Directors’ fees are the only compensation that the directors, including all of the members of the Audit Committee, can receive from Autoliv. In February 2012, the Board adopted a policy that non-employee directors be expected to hold one year’s annual fees worth of Autoliv’s common stock, with a three year period to acquire such holdings.

Effective January 1, 2013, the Company adopted new stock ownership guidelines for its executive officers. Pursuant to these guidelines, and subject to other conditions, each executive officer is expected to accumulate and hold shares of Company common stock having a value at least equal to (i) 2x his annual base salary, in the case of the CEO, and (ii) 1x annual base salary, in the case of each executive other than the CEO.

BOARD MEETINGS

It is Autoliv policy that there be five regularly scheduled meetings of the Board each year, and at least one regularly scheduled meeting of the Board must be held in each quarter.

The meetings of the Board generally follow a master agenda which is discussed and agreed early each year, but any director is free to raise any other issues or subjects. The Nominating and Corporate Governance Committee initiates an annual self-assessment of the Board’s performance as well as the performance of each committee of the Board. The results of such assessments are discussed with the full Board and each committee.

The independent directors normally meet in executive sessions in conjunction with each meeting of the Board and shall meet at least four times a year. The Chairman of the Board, who is independent, normally leads the executive sessions of the independent directors.

COMMITTEE MATTERS

All directors serving on board committees have been determined by the Board to be independent directors. The committees operate under written charters and the standing committees issue yearly reports that are disclosed in the proxy statement.

There are three standing committees of the Board: Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. In June 2011 the Board also formed a special Compliance Committee.

Audit Committee

The Audit Committee appoints, at its sole discretion (subject to shareholder ratification), the Company’s independent auditors that audit the annual financial statements. The Audit Committee is also responsible for the compensation, retention and oversight of the work of the external auditors as well as for any special assignments given to the auditors.

The committee also reviews;

•

the annual audit and its scope, including the independent auditors’ letter of comments and management’s responses thereto;

•

the policy with regard to risk oversight and risk management as part of its obligations under the NYSE’s listing standards;

•

possible violations of Autoliv’s business ethics and conflicts of interest policies;

•

any major accounting changes made or contemplated;

•

approves any Related Person Transaction; and

•

reviews the effectiveness and efficiency of Autoliv’s internal audit function. In addition, the committee confirms that no restrictions have been imposed by Company personnel in terms of the scope of the independent auditors’ examinations.

Each member of the Audit Committee possesses financial literacy and accounting or related financial management expertise.

Currently, one member, Robert W. Alspaugh, the Chairman of the Audit Committee, has been determined to qualify as an audit committee financial expert.

Compensation Committee

The Compensation Committee advises the Board with respect to the compensation to be paid to the directors and senior executives and approves and advises the Board with respect to the terms of contracts to be entered into with the senior executives.

The committee also administers Autoliv’s incentive plans as well as perquisites and other benefits to the executive officers.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee assists the Board in identifying potential candidates to the Board, reviewing the composition of the Board and its committees, monitoring a process to assess Board effectiveness and developing and implementing Autoliv’s Corporate Governance Guidelines.

The committee will consider shareholder nominees for election to the Board if timely advance written notice of such nominees is received by the Secretary of the Company, as detailed in the Company’s 2013 proxy statement.

Compliance Committee

The Compliance Committee was formed to assist the Board in overseeing the Company’s compliance program with respect to: (i) compliance with the laws and regulations applicable to the Company’s business and (ii) compliance with the Company’s Standards of Business Conduct and Ethics and related policies designed to support lawful and ethical business conduct by the Company and its employees and promote a culture of compliance. The Compliance Committee also oversees the investigation of any alleged non-compliance with applicable laws or the Company’s compliance policies (except those relating to financial compliance which are overseen by the Audit Committee).

LEADERSHIP DEVELOPMENT

The Board is responsible for identifying potential candidates for, as well as selecting, the CEO. The Board is also responsible for an annual performance review of the CEO, and a summary report is discussed among independent directors in executive sessions and thereafter with the CEO.

The Board is required to form succession plans for the CEO’s position, with the assistance of the CEO, who shall prepare and distribute to the Board an annual report on succession planning for senior officers.

The Board is also required to review and determine that satisfactory systems are in place for the education, development and succession of senior and mid-level management.

ETHICAL CODES

To maintain the highest legal and ethical standards, the Board has adopted a set of Standards of Business Conduct and Ethics, which applies to all directors, officers and employees. Additionally, the Board has adopted Corporate Governance Guidelines and a Code of Conduct and Ethics for Directors and Senior Officers. The Company also has a separate stand-alone related-person-transaction policy that applies to all directors, officers and employees of the Company.

Employees are encouraged to report any violations of law or of the Company’s ethical codes and policies, and policies are in place to prevent retaliation against any individual for reporting in good faith violations of law or the Company’s ethical codes and policies.

Reports can be made to Autoliv’s Compliance Officer or legal department (for contact information see page 88 in the Annual Report), or by using the Autoliv Helpline—a multilingual service where reports can be made anonymously, without fear of retaliation, 24 hours a day, 7 days a week, by phone or online at http://helpline.autoliv.com .

Board of Directors

Lars Nyberg

Chairman (since December 2011). Born 1951. Director since 2004. Elected until 2014. Former President and CEO of TeliaSonera AB. Former Chairman and CEO of NCR Corp. Chairman of DataCard Corp. BBA.

Jan Carlson

Born 1960. President and CEO. Director since 2007. Elected until 2014. Former Vice President Engineering. Former President of Autoliv Europe, Autoliv Electronics, and of SAAB Combitech. Director of BorgWarner Inc. M.Sc.

Robert W. Alspaugh

Born 1947. Director since 2006. Elected until 2013. Former CEO of KPMG International. Former Deputy Chairman and COO of KPMG’s U.S. practice. Director of Ball Inc. and Verifone Holding. BBA.

Bo Andersson

Born 1955. Director since 2012. Elected until 2013. President and CEO of GAZ Group. Former group vice president of the GM Corporation in charge of global purchasing and supply chain. Director of GAZ OJSC. BBA.

George A. Lorch

Born 1941. Director since 2003. Elected until 2015. Former Chairman, President and CEO of Armstrong World Industries. Lead Director of Pfizer, Inc. Director of WPX Energy, Inc., HSBC North America Holdings Company and HSBC Finance Co. B.Sc.

Xiaozhi Liu

Born 1956. Director since 2011. Elected until 2015. CEO of ASL Automobile Science & Technology (Shanghai) Co., Ltd. Former Chairman of the Board of NeoTek China. Former Director of Viryd Technologies. Former CEO and Vice Chairman of Fuyao Glass Industry Group Co Ltd. Former Chairman & CEO of General Motors Taiwan. Former CTO and Chief Engineer of GM China. B.Sc., M.Sc., Ph.D.

James M. Ringler

Born 1945. Director since 2002. Elected until 2014. Former Vice Chairman of Illinois Tool Works Inc. Former Chairman, President and CEO of Premark International, Inc. Chairman of Teradata Corp. Director of Dow Chemical Company, FMC Technologies Inc., JBT Corporation, and Corn Products Corporation. B.Sc. and MBA.

Kazuhiko Sakamoto

Born 1945. Director since 2007. Elected until 2015. Former President of Marubeni Construction Material Lease Co. Ltd, an affiliate of Marubeni Corporation, for which he served as Counselor and senior corporate advisor. Currently an advisor at Pasona, Inc. Graduate of Keio University and participant of the Harvard University Research Institute for International Affairs.

Wolfgang Ziebart

Born 1950. Director since 2008. Elected until 2013. Former President & CEO of Infineon Technologies AG. Former member of the executive boards of BMW AG and of Continental AG. Member of the Board of Directors of ASML and Head of the Supervisory Board of Nordex and Novaled AG. Dr. Sc.

MEETINGS AND COMMITTEES 2012 ¹⁾

Independent ²⁾

Board

Audit

Compensation

Nominating &
Corp. Gov.

Compliance

Nationality

Lars Nyberg

Yes

5/5

8/9

⁴⁾

5/5

2/4

⁴⁾

3/10

⁴⁾

SWE

Robert W. Alspaugh ³⁾

Yes

5/5

9/9

1/5

⁴⁾

—

10/10

Bo I. Andersson

Yes

5/5

—

1/5

⁴⁾

2/4

⁴⁾

—

SWE

Jan Carlson

5/5

9/9

⁴⁾

5/5

⁴⁾

4/4

⁴⁾

2/10

⁴⁾

SWE

Walter Kunerth ⁵⁾

Yes

5/5

9/9

—

GER

George A. Lorch

Yes

5/5

—

5/5

4/4

—

Xiaozhi Liu

Yes

5/5

—

1/5

⁴⁾

—

GER

James M. Ringler

Yes

5/5

—

5/5

—

Kazuhiko Sakamoto

Yes

5/5

—

4/4

9/10

JPN

Wolfgang Ziebart

Yes

5/5

9/9

—

4/4

10/10

GER

Attended meetings in relation to total possible meetings for each member. 2) Under the rules of the New York Stock Exchange, the Sarbanes-Oxley Act and the SEC. 3) Qualifies/qualified as audit committee financial expert. 4) Not a member of this committee, attended at the invitation of the committee’s chair. 5) Retired from the Board on December 18, 2012.

Executive Management Team

Jan Carlson

President & CEO.

Born 1960. Employed 1999

Mats Adamson

Vice President Human Resources.

Born 1959. Employed 2010

Henrik Arrland

Vice President Purchasing.

Born 1967. Employed 2011

Günter Brenner ¹⁾

President Autoliv Europe.

Born 1963. Employed 2009

George Chang

President Autoliv Asia.

Born 1964. Employed 1997

Steven Fredin

President Autoliv Americas.

Born 1962. Employed 1988

Johan Löfvenholm

Vice President Engineering.

Born 1969. Employed 1995

Svante Mogefors

Vice President Quality and Manufacturing.

Born 1955. Employed 1996

Mats Ödman ²⁾

Vice President Corporate Communications.

Born 1950. Employed 1994

Jan Olsson

Vice President Research.

Born 1954. Employed 1987

Steven Rodé

President Electronics.

Born 1961. Employed 1984

Lars Sjöbring

Vice President Legal Affairs, General Counsel and Secretary.

Born 1967. Employed 2007

Mats Wallin

Vice President Finance, Chief Financial Officer.

Born 1964. Employed 2002


NAME	SHARES ³⁾		RSU’S ³⁾		OPTIONS ³⁾		TOTAL ³⁾			SHARES ³⁾		RSU’S ³⁾		OPTIONS ³⁾		TOTAL ³⁾
Board of Directors									Executive Management Team
Lars Nyberg		6,638		—		—		6,638	Jan Carlson		51,101		16,058		112,175		179,334
Robert W. Alspaugh		3,919		—		—		3,919	Mats Adamson		—		5,940		17,822		23,762
Bo I. Andersson		751		—		—		751	Henrik Arrland		—		3,238		9,716		12,954
Jan Carlson		51,101		16,058		112,175		179,334	Günter Brenner		—		—		8,955		8,955
Xiaozhi Liu		819		—		—		819	George Chang		2,666		4,120		14,862		21,648
George A. Lorch		1,122		—		—		1,122	Steven Fredin		2,333		4,993		24,980		32,306
James M. Ringler		1,783		—		—		1,783	Johan Löfvenholm		—		3,716		11,150		14,866
Kazuhiko Sakamoto		819		—		—		819	Svante Mogefors		5,500		4,607		53,222		63,329
Wolfgang Ziebart		819		—		—		819	Mats Ödman		17,636		4,607		65,222		87,465
									Jan Olsson		17,133		4,607		44,222		65,962
									Steve Rodé		2,329		2,155		6,466		10,950
									Lars Sjöbring		—		4,607		29,722		34,329
									Mats Wallin		4,508		6,213		35,465		46,186

SUBTOTAL		67,771		16,058		112,175		196,004	SUBTOTAL		103,206		64,861		433,979		602,046

									GROSS TOTAL ⁴⁾		119,876		64,861		433,979		618,716

As previously announced, Mr. Brenner has notified the Company that he will be resigning effective later in the spring of 2013. Mr. Franck Roussel will be serving as interim President Autoliv Europe following the effectiveness of Mr. Brenner’s resignation. Mr. Roussel is currently Vice President Operations of Autoliv Asia. 2) As previously announced, Mr. Ödman will be stepping down from his position on May 1, 2013 and will officially retire in the fall. Mr. Thomas Jönsson (former Vice President of Brand and External Communications for TeliaSonera) will replace Mr. Ödman. 3) Number of shares, RSUs and stock options as of February 20, 2013. For any changes thereafter please refer to Autoliv’s corporate website or each director’s or manager’s filings with the SEC. Insider filings are also made with Finansinspektionen in Sweden. 4) Gross total for all listed directors and executives.

For presentations of the Executive Management Team, please refer to our filings, including in our proxy statement, on file with the U.S. Securities and Exchange Commission (SEC) and available at www.sec.gov, or www.autoliv.com

Contact Information & Calendar

AUTOLIV INC.

Visiting address:

Vasagatan 11, 7th Floor, Stockholm, Sweden

Mail: P.O. Box 70381, SE-107 24 Stockholm, Sweden

Tel: +46 (0)8 587 20 600

E-mail: info@autoliv.com

Internet: www.autoliv.com

CONTACT INFORMATION BOARD AND CORPORATE COMPLIANCE COUNSEL

c/o Vice President Legal Affairs Autoliv, Inc. / Box 70381,

SE-107 24 Stockholm, Sweden

Tel: +46 (0)8 58 72 06 00

Fax: +46 (0)8 58 72 06 33

E-mail: legalaffairs@autoliv.com

The Board, the independent directors, as well as the committees of the Board can be contacted using the address above. Contact can be made anonymously and communication with the independent directors is not screened. The relevant chairman receives all such communication after it has been determined that the content represents a message to such chairman.

STOCK TRANSFER AGENT & REGISTRAR

Internet: www.computershare.com

INVESTOR REQUESTS AMERICAS

Autoliv, Inc., c/o Autoliv Electronics America,

26545 American Drive, Southfield, MI 48034

Tel: +1 (248) 223 8107

E-mail: ray.pekar@autoliv.com

INVESTOR REQUESTS REST OF THE WORLD

Autoliv, Inc., Box 70381, SE-107 24, Stockholm, Sweden

Tel: +46 (0)8 58 72 06 27

E-mail: thomas.jonsson@autoliv.com

MEDIA CONTACT

Autoliv, Inc., Box 70381, SE-107 24, Stockholm, Sweden

Tel: +46 (0)8 58 72 06 27

E-mail: mediacontact@autoliv.com

ACKNOWLEDGEMENTS

Concept and Design: PCG Stockholm, Sweden

Illustrations: Borgs Ingenjörsbyrå, Sweden

The raw material of this report supports responsibly managed forests. Paper Gallerie Art Matt, Colorit.


2013 FINANCIAL CALENDAR

DATE		EVENT
April 26, 2013		Q1 Report
May 7, 2013		Shareholder AGM
July 19, 2013		Q2 Report
October 24, 2013		Q3 Report


PRELIMINARY DIVIDEND PLAN 2013

PERIOD	EX-DATE	RECORD DATE		PLANNED PAYMENT DATE
1st quarter	February 19		February 21		March 7
2nd quarter ¹⁾	May 20		May 22		June 7
3rd quarter ¹⁾	August 19		August 21		September 5
4th quarter ¹⁾	November 18		November 20		December 5

1)	If declared by the Board.

Selected Financial Data


(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)	2012 ¹⁾			2011 ¹⁾			2010 ¹⁾			2009 ¹⁾			2008 ¹⁾
Sales and Income
Net sales	$	8,267		$	8,232		$	7,171		$	5,121		$	6,473
Operating income		705			889			869			69			306
Income before income taxes		669			828			806			6			249
Net income attributable to controlling interest		483			623			591			10			165

Financial Position
Current assets excluding cash		2,312			2,261			2,101			1,707			1,598
Property, plant and equipment		1,233			1,121			1,026			1,042			1,158
Intangible assets (primarily goodwill)		1,707			1,716			1,722			1,729			1,745
Non-interest bearing liabilities		2,162			2,102			2,001			1,610			1,361
Capital employed ²⁾		3,415			3,257			3,066			3,098			3,369
Net (cash) debt		(361	)		(92	)		127			662			1,195
Total equity ²⁾		3,776			3,349			2,939			2,436			2,174
Total assets		6,570			6,117			5,665			5,186			5,206
Long-term debt		563			364			638			821			1,401

Share data
Earnings per share (US$) – basic		5.17			6.99			6.77			0.12			2.29
Earnings per share (US$) – assuming dilution		5.08			6.65			6.39			0.12			2.28
Total parent shareholders’ equity per share (US$) ²⁾		39.36			37.33			32.89			28.06			30.11
Cash dividends paid per share (US$)		1.89			1.73			0.65			0.21			1.60
Cash dividends declared per share (US$)		1.94			1.78			1.05			—			1.42
Share repurchases		—			—			—			—			174
Number of shares outstanding (million) ³⁾		95.5			89.3			89.0			85.1			70.3

Ratios
Gross margin (%)		19.9			21.0			22.2			16.6			17.4
Operating margin (%)		8.5			10.8			12.1			1.3			4.7
Pretax margin (%)		8.1			10.1			11.2			0.1			3.8
Return on capital employed (%) ²⁾		21			28			28			2			9
Return on total equity (%) ²⁾		14			20			22			1			7
Total equity ratio (%) ²⁾		57			55			52			47			42
Net debt to capitalization (%)		n/a			n/a			4			21			36
Days receivables outstanding		66			67			69			75			49
Days inventory outstanding		30			32			32			40			39

Other data
Airbag sales ^4,6)		5,392			5,393			4,723			3,250			4,130
Seatbelt sales ⁵⁾		2,657			2,679			2,363			1,822			2,343
Active Safety sales ⁶⁾		218			160			85			49			n/a
Net cash provided by operating activities		689			758			924			493			614
Capital expenditures, net		360			357			224			130			279
Net cash used in investing activities		(358	)		(373	)		(297	)		(157	)		(321	)
Net cash provided by (used in) financing activities		(91	)		(223	)		(529	)		(376	)		98
Number of employees, December 31		41,700			38,500			34,600			30,200			34,000

Costs in 2012, 2011, 2010, 2009 and 2008 for capacity aligments and antitrust investigations reduced operating income by (millions) $98, $19, $21, $133 and $80 and net income by (millions) $71, $14, $16, $96 and $55. This corresponds to 1.2%, 0.2%, 0.3%, 2.6% and 1.3% on operating margins and 0.9%, 0.2%, 0.2%, 1.9% and 0.8% on net margins. The impact on EPS was $0.74, $0.15, $0.17, $1.14 and $0.76 while return on total equity was reduced by 1.8%, 0.4%, 0.6%, 4.1% and 2.3% for the same five year period. 2) Adjusted in accordance with FASB ASC 810, adopted on January 1, 2009. 3) At year end, net of treasury shares. 4) Incl. passive electronics, steering wheels, inflators and initiators. 5) Includes seat components until a June 2012 divestiture. 6) In 2008 sales for active safety products were in Airbag sales.

EXHIBIT 21

LIST OF SUBSIDIARIES OF THE COMPANY

Australia

Autoliv Australia Proprietary Ltd

Brazil

Autoliv do Brasil Ltda.

Canada

Autoliv Canada, Inc.

Autoliv Electronics Canada, Inc.

VOA Canada, Inc.

China

Autoliv (Beijing) Vehicle Safety Systems Co., Ltd. (51%)

Autoliv (Changchun) Vehicle Safety Systems Co., Ltd.

Autoliv (China) Electronics Co., Ltd.

Autoliv (China) Inflator Co., Ltd.

Autoliv (China) Steering Wheel Co., Ltd.

Autoliv (Guangzhou) Vehicle Safety Systems Co., Ltd.

Autoliv (Nanjing) Vehicle Safety Systems Co., Ltd.

Autoliv (Shanghai) Vehicle Safety Systems Co., Ltd.

Autoliv (Shanghai) Management Co., Ltd.

Autoliv (Shanghai) Vehicle Safety System Technical Center Co., Ltd.

Autoliv Shenda (Tai Cang) Automotive Safety Systems Co., Ltd. (60%)

Autoliv (Jiangsu) Automotive Safety Components Co., Ltd.

Autoliv Asia Management (Shanghai) Co., Ltd.

Estonia

AS Norma

France

Autoliv Electronics SAS

Autoliv France SNC

Autoliv Isodelta SAS

Livbag SAS

N.C.S. Pyrotechnie et Technologies SAS

OEA Europe SARL

Sociéte Franco Suédoise d’Investissement SAS

Germany

Autoliv Beteiligungsgesellschaft mbH

Autoliv BV & Co. KG

Autoliv Sicherheitstechnik GmbH

Hungary

Autoliv Kft.

India

Autoliv India Private Ltd.

Indonesia

P.T. Autoliv Indonesia

Italy

Autoliv Italia S.p.A.

Japan

Autoliv Japan Ltd.

Mexico

Autoliv Mexican Holdings S. de R.L. de C.V.

Autoliv Mexico East S.A. de C.V.

Autoliv Mexico S.A. de C.V.

Autoliv Safety Technology de Mexico S.A. de C.V.

Autoliv Steering Wheels Mexico S. de R.L. de C.V.

The Netherlands

Autoliv ASP B.V.

Autoliv Autosicherheitstechnik B.V.

Van Oerle Alberton B.V.

Philippines

Autoliv Cebu Safety Manufacturing, Inc.

Poland

Autoliv Poland Sp. z o.o.

Romania

Autoliv Romania S.R.L.

Russia

OOO Autoliv

ZAO Norma-Osvar

South Africa

Autoliv Southern Africa (Pty) Ltd

South Korea

Autoliv Corporation

Spain

Autoliv BKI S.A.U.

Autoliv KLE S.A.U.

Autosafety S.L.

Sweden

Autoliv AB

Autoliv Development AB

Autoliv East Europe AB

Autoliv Electronics AB

Autoliv Holding AB

Autoliv Sverige AB

Taiwan

Mei-An Autoliv Co., Ltd. (59%)

Thailand

Autoliv Asia ROH Co., Ltd.

Autoliv Thailand Ltd.

Tunisia

SWT1 SARL

SWT2 SARL

ASW3 SARL

SWTF SARL

Turkey

Autoliv Cankor Otomotiv Emniyet Sistemleri Sanayi Ve Ticaret A.S.

Autoliv Gebze Muhendislik Merkezi Ltd

Autoliv Metal Pres Sanayi Yi Ve Ticaret A.S.

Autoliv Teknoloji Ürünleri Sanayi Ve Ticaret A.S.

United Kingdom

Airbags International Ltd

Autoliv Spring Dynamics Ltd

Autoliv U.K. Holding Ltd

USA

Aerotest Operations, Inc (California)

Autoliv ASP, Inc. (Indiana)

Autoliv Holding, Inc. (Delaware)

Autoliv Safety Technology, Inc (Delaware)

OEA, Inc. (Delaware)

All subsidiaries are wholly owned unless otherwise indicated.

The names of certain subsidiaries, which considered in the aggregate would not constitute a “significant subsidiary” as such term is defined in the regulations under the federal securities laws, have been omitted from the foregoing list.

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Autoliv, Inc. of our reports dated February 22, 2013, with respect to the consolidated financial statements of Autoliv, Inc., and the effectiveness of internal control over financial reporting of Autoliv, Inc., included in the 2012 Annual Report to Shareholders of Autoliv, Inc.

We consent to the incorporation by reference in the following Registration Statements:

(1)	Registration Statements (Form S-3 No. 333-179948 and No. 333-158139) of Autoliv, Inc., and

(2)	Registration Statements (Form S-8 No. 333-160771, No. 333-117505, No. 333-91768, and No. 333-26299) pertaining to the Autoliv, Inc. amended and restated 1997 Stock Incentive Plan;

of our reports dated February 22, 2013, with respect to the consolidated financial statements of Autoliv, Inc., and the effectiveness of internal control over financial reporting of Autoliv, Inc., incorporated herein by reference.

Ernst & Young AB

Stockholm, Sweden

February 22, 2013

Exhibit 31.1

CERTIFICATIONS of

Chief Executive Officer and Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jan Carlson, certify that:

I have reviewed this annual report on Form 10-K of AUTOLIV, INC.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a -15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 22, 2013

/s/ Jan Carlson

Jan Carlson

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS of

Chief Executive Officer and Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mats Wallin, certify that:

I have reviewed this annual report on Form 10-K of AUTOLIV, INC.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 22, 2013

/s/ Mats Wallin

Mats Wallin

Vice President and Chief Financial Officer

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report on Form 10-K of Autoliv, Inc. (the “Company”) for the period ended December 31, 2012, filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jan Carlson, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Jan Carlson
Name:		Jan Carlson
Title:		President and Chief Executive Officer
Date:		February 22, 2013

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report on Form 10-K of Autoliv, Inc. (the “Company”) for the period ended December 31, 2012, filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mats Wallin, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Mats Wallin
Name:		Mats Wallin
Title:		Vice President and Chief Financial Officer

Date:		February 22, 2013