AUTOLIV INC - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2019


☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No.: 001-12933

AUTOLIV, INC.

(Exact name of registrant as specified in its charter)

Delaware		51-0378542
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Klarabergsviadukten 70, Section B7
Box 70381,
Stockholm, Sweden		SE-107 24
(Address of principal executive offices)		(Zip Code)

+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		Trading Symbol(s)		Name of each exchange on which registered
Common Stock (par value $1.00 per share)		ALV		New York Stock Exchange

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: ☒ No: ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes: ☒ No: ☐

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes: ☐ No: ☒

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of October 22, 2019, there were 87,234,327 shares of common stock of Autoliv, Inc., par value $1.00 per share, outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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. (“Autoliv,” the “Company” or “we”) or its management believes or anticipates may occur in the future. All forward-looking statements are based upon our current expectations, various assumptions and/or 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.

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

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 light vehicle production; fluctuation in vehicle production schedules for which the Company is a supplier; changes in general industry and market conditions or regional growth or decline; changes in and the successful execution of our capacity alignment: restructuring and cost reduction initiatives and the market reaction thereto; 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 or divestiture of customer brands; unfavorable fluctuations in currencies or interest rates among the various jurisdictions in which we operate; 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 pricing negotiations with customers; successful integration of acquisitions and operations of joint ventures; successful implementation of strategic partnerships and collaborations; our ability to be awarded new business; product liability, warranty and recall claims and investigations and other litigation and customer reactions thereto (including the resolution of the Toyota Recall); higher expenses for our pension and other postretirement benefits, including higher funding needs for our pension plans; work stoppages or other labor issues; possible adverse results of pending or future litigation or infringement claims; our ability to protect our intellectual property rights; negative impacts of antitrust investigations or other governmental investigations and associated litigation relating to the conduct of our business; tax assessments by governmental authorities and changes in our effective tax rate; dependence on key personnel; legislative or regulatory changes impacting or limiting our business; political conditions; dependence on and relationships with customers and suppliers; and other risks and uncertainties identified in Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, Item 1A “Risk Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 21, 2019.

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 publicly or revise any forward-looking statements in light of new information or future events, except as required by law.

INDEX

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

1.	Basis of Presentation	10
2.	New Accounting Standards	11
3.	Discontinued Operations	12
4.	Leases	13
5.	Revenue	14
6.	Fair Value Measurements	15
7.	Income Taxes	17
8.	Inventories	17
9.	Restructuring	17
10.	Product-Related Liabilities	18
11.	Retirement Plans	18
12.	Contingent Liabilities	19
13.	Stock Incentive Plan	21
14.	Earnings Per Share	21
15.	Related Party Transactions	22
16.	Subsequent Events	22

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		23

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		35

ITEM 4. CONTROLS AND PROCEDURES		35

PART II - OTHER INFORMATION		36

ITEM 1. LEGAL PROCEEDINGS		36

ITEM 1A. RISK FACTORS		36

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		36

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		36

ITEM 4. MINE SAFETY DISCLOSURES		36

ITEM 5. OTHER INFORMATION		36

ITEM 6. EXHIBITS		37

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in millions, except per share data)

	Three months ended						Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net sales	$	2,027.7		$	2,033.0		$	6,356.4		$	6,485.4
Cost of sales		(1,648.6	)		(1,646.9	)		(5,198.8	)		(5,199.3	)
Gross profit		379.1			386.1			1,157.6			1,286.1
Selling, general and administrative expenses		(97.7	)		(90.0	)		(300.2	)		(290.9	)
Research, development and engineering expenses, net		(99.1	)		(101.9	)		(323.5	)		(327.9	)
Amortization of intangibles		(2.9	)		(2.8	)		(8.6	)		(8.5	)
Other income (expense), net		(25.6	)		1.1			(28.8	)		6.2
Operating income		153.8			192.5			496.5			665.0
Income from equity method investments		0.4			0.2			1.6			2.8
Interest income		0.7			1.3			2.7			4.1
Interest expense		(17.1	)		(18.9	)		(52.6	)		(46.2	)
Other non-operating items, net		(3.4	)		(3.8	)		(9.4	)		(15.4	)
Income from continuing operations before income taxes		134.4			171.3			438.8			610.3
Income tax expense		(48.4	)		(53.3	)		(131.9	)		(140.0	)
Net income from continuing operations		86.0			118.0			306.9			470.3
Loss from discontinued operations, net of income taxes (Note 3)		—			—			—			(195.8	)
Net income		86.0			118.0			306.9			274.5
Less: Net income from continuing operations attributable to non- controlling interest		0.6			0.5			1.0			1.4
Less: Net loss from discontinued operations attributable to non- controlling interest		—			—			—			(8.3	)
Net income attributable to controlling interest	$	85.4		$	117.5		$	305.9		$	281.4

Amounts attributable to controlling interest:
Net Income from continuing operations	$	85.4		$	117.5		$	305.9		$	468.9
Net Loss from discontinued operations (Note 3)		—			—			—			(187.5	)
Net income attributable to controlling interest	$	85.4		$	117.5		$	305.9		$	281.4

Earnings per share continuing operations – basic ¹⁾	$	0.98		$	1.35		$	3.51		$	5.38
Loss per share discontinued operations – basic ¹⁾		—			—			—			(2.15	)
Basic earnings per share	$	0.98		$	1.35		$	3.51		$	3.23

Earnings per share continuing operations – diluted ¹⁾	$	0.98		$	1.34		$	3.50		$	5.37
Loss per share discontinued operations – diluted ¹⁾		—			—			—			(2.15	)
Diluted earnings per share	$	0.98		$	1.34		$	3.50		$	3.22

Weighted average number of shares outstanding, net of treasury shares (in millions)		87.2			87.1			87.2			87.1
Weighted average number of shares outstanding, assuming dilution and net of treasury shares (in millions)		87.3			87.4			87.4			87.3

Cash dividend per share – declared	$	0.62		$	0.62		$	1.86		$	1.86
Cash dividend per share – paid	$	0.62		$	0.62		$	1.86		$	1.84

¹⁾	Participating share awards with the right to receive dividend equivalents are (under the two class method) excluded from the earnings per share calculation (see Note 14 to the unaudited condensed consolidated financial statements).

See Notes to unaudited condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in millions)

	Three months ended						Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net income	$	86.0		$	118.0		$	306.9		$	274.5
Other comprehensive loss before tax:
Change in cumulative translation adjustments		(71.6	)		(30.0	)		(44.7	)		(134.8	)
Net change in cash flow hedges		—			—			—			1.1
Net change in unrealized components of defined benefit plans		0.0			0.5			0.1			8.0
Other comprehensive loss, before tax		(71.6	)		(29.5	)		(44.6	)		(125.7	)
Tax effect allocated to other comprehensive loss		0.0			(0.1	)		0.0			(1.9	)
Other comprehensive loss, net of tax		(71.6	)		(29.6	)		(44.6	)		(127.6	)
Comprehensive income		14.4			88.4			262.3			146.9
Less: Comprehensive income (loss) attributable to non-controlling interest		0.1			(0.6	)		0.6			(7.6	)
Comprehensive income attributable to controlling interest	$	14.3		$	89.0		$	261.7		$	154.5

See Notes to unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in millions)

	As of
	September 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	334.4		$	615.8
Receivables, net		1,653.5			1,652.1
Inventories, net		731.8			757.9
Other current assets		185.4			244.6
Related party receivables (Note 15)		3.7			15.0
Total current assets		2,908.8			3,285.4
Property, plant and equipment, net		1,747.9			1,690.1
Investments and other non-current assets		371.1			323.5
Operating lease right-of-use assets (Note 4)		154.1			—
Goodwill		1,383.3			1,389.9
Intangible assets, net		24.3			32.7
Total assets	$	6,589.5		$	6,721.6

Liabilities and equity
Short-term debt	$	289.9		$	620.7
Accounts payable		890.4			978.3
Accrued expenses		839.6			935.4
Other current liabilities		228.3			267.4
Related party liabilities (Note 15)		18.9			63.7
Operating lease liabilities - current (Note 4)		37.7			—
Total current liabilities		2,304.8			2,865.5
Long-term debt		1,815.1			1,609.0
Pension liability		199.9			198.2
Other non-current liabilities		153.4			152.1
Operating lease liabilities - non-current (Note 4)		117.0			—
Total non-current liabilities		2,285.4			1,959.3
Common stock		102.8			102.8
Additional paid-in capital		1,329.3			1,329.3
Retained earnings		2,182.3			2,041.8
Accumulated other comprehensive loss		(467.4	)		(423.2	)
Treasury stock		(1,160.3	)		(1,167.0	)
Total controlling interest		1,986.7			1,883.7
Non-controlling interest		12.6			13.1
Total equity		1,999.3			1,896.8
Total liabilities and equity	$	6,589.5		$	6,721.6

See Notes to unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in millions)

	Nine months ended
	September 30, 2019			September 30, 2018
Operating activities
Net income from continuing operations	$	306.9		$	470.3
Net loss from discontinued operations		—			(195.8	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		260.1			308.4
Separation costs		—			11.5
Other, net		2.2			19.7
Net change in:
EC antitrust payment		(203.0	)		—
Net change in operating assets and liabilities		(37.8	)		(312.9	)
Net cash provided by operating activities		328.4			301.2

Investing activities
Expenditures for property, plant and equipment		(360.0	)		(425.2	)
Proceeds from sale of property, plant and equipment		1.9			3.8
Acquisitions of businesses and interest in/additional contributions to affiliates, net of cash acquired		—			(72.9	)
Net cash used in investing activities		(358.1	)		(494.3	)

Financing activities
Net (decrease) increase in short-term debt		(309.4	)		374.9
Issuance of long-term debt, net of discount		243.5			582.2
Debt issuance cost		(0.3	)		(2.6	)
Dividends paid		(162.7	)		(160.7	)
Dividends paid to non-controlling interest		(1.1	)		(2.0	)
Common stock options exercised		0.3			8.2
Capital distribution to Veoneer		—			(971.8	)
Net cash used in financing activities		(229.7	)		(171.8	)
Effect of exchange rate changes on cash and cash equivalents		(22.0	)		(60.9	)
Decrease in cash and cash equivalents		(281.4	)		(425.8	)
Cash and cash equivalents at beginning of period		615.8			959.5
Cash and cash equivalents at end of period	$	334.4		$	533.7

See Notes to unaudited condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (UNAUDITED)

(Dollars in millions)

	Shares outstanding		Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive loss			Treasury stock			Total parent shareholders' equity			Non- controlling interest			Total equity
Balances at December 31, 2018	87.1		$	102.8	$	1,329.3	$	2,041.8		$	(423.2	)	$	(1,167.0	)	$	1,883.7		$	13.1		$	1,896.8
Comprehensive Income:
Net income								111.4			—						111.4			0.1			111.5
Foreign currency translation adjustment								—			20.5						20.5			0.3			20.8
Pension liability								—			0.1						0.1			—			0.1
Total Comprehensive Income		—		—		—	111.4			20.6				—			132.0			0.4			132.4
Stock-based compensation		0.1						—			—			1.6			1.6			—			1.6
Cash dividends declared								(54.3	)		—						(54.3	)		—			(54.3	)
Distribution to Veoneer								(2.5	)		—						(2.5	)		—			(2.5	)
Balances at March 31, 2019		87.2		102.8		1,329.3		2,096.4			(402.6	)		(1,165.4	)		1,960.5			13.5			1,974.0
Comprehensive Income:
Net income								109.1			—						109.1			0.3			109.4
Foreign currency translation adjustment								—			6.3						6.3			(0.2	)		6.1
Pension liability								—			0.0						0.0			—			0.0
Total Comprehensive Income		—		—		—		109.1			6.3			—			115.4			0.1			115.5
Stock-based compensation		0.0						—			—			2.6			2.6			—			2.6
Cash dividends declared								(54.2	)		—						(54.2	)		—			(54.2	)
Distribution to Veoneer								(0.2	)		—						(0.2	)		—			(0.2	)
Balances at June 30, 2019		87.2		102.8		1,329.3		2,151.1			(396.3	)		(1,162.8	)		2,024.1			13.6			2,037.7
Comprehensive Income:
Net income								85.4			—						85.4			0.6			86.0
Foreign currency translation adjustment								—			(71.1	)					(71.1	)		(0.5	)		(71.6	)
Pension liability								—			0.0						0.0			—			0.0
Total Comprehensive Income (loss)		—		—		—		85.4			(71.1	)		—			14.3			0.1			14.4
Stock-based compensation		0.0						—			—			2.5			2.5			—			2.5
Cash dividends declared								(54.2	)		—						(54.2	)		—			(54.2	)
Dividends paid to non-controlling interest on subsidiary shares											—						—			(1.1	)		(1.1	)
Distribution to Veoneer								—			—						—			—			—
Balances at September 30, 2019	87.2		$	102.8	$	1,329.3	$	2,182.3		$	(467.4	)	$	(1,160.3	)	$	1,986.7		$	12.6		$	1,999.3

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (UNAUDITED)

(Dollars in millions)

	Shares outstanding		Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive loss			Treasury stock			Total parent shareholders' equity			Non- controlling interest			Total equity
Balances at December 31, 2017		87.0	$	102.8	$	1,329.3	$	4,079.2		$	(287.5	)	$	(1,188.7	)	$	4,035.1		$	134.3		$	4,169.4
Comprehensive Income:
Net income								126.7			—						126.7			(4.3	)		122.4
Foreign currency translation adjustment								—			85.7						85.7			5.8			91.5
Net change in cash flow hedges								—			0.4						0.4			—			0.4
Pension liability								—			0.6						0.6			—			0.6
Total Comprehensive Income		—		—		—	126.7			86.7				—			213.4			1.5			214.9
Stock-based compensation								—			—			8.6			8.6			—			8.6
Cash dividends declared								(54.2	)		—						(54.2	)		—			(54.2	)
Adjustment due to adoption of ASC 606								3.3			—						3.3			—			3.3
Adjustment due to adoption of ASU 2018-02								10.2			(10.2	)					—			—			—
Balances at March 31, 2018		87.0		102.8		1,329.3		4,165.2			(211.0	)		(1,180.1	)		4,206.2			135.8			4,342.0
Comprehensive Income:
Net income								37.2			—						37.2			(3.1	)		34.1
Foreign currency translation adjustment								—			(190.9	)					(190.9	)		(5.4	)		(196.3	)
Net change in cash flow hedges								—			0.7						0.7			—			0.7
Pension liability								—			5.1						5.1			—			5.1
Total Comprehensive Income (loss)		—		—		—		37.2			(185.1	)		—			(147.9	)		(8.5	)		(156.4	)
Stock-based compensation								—			—			7.2			7.2			—			7.2
Cash dividends declared								(54.2	)		—						(54.2	)		—			(54.2	)
Dividends paid to non-controlling interest on subsidiary shares								—			—						—			(2.0	)		(2.0	)
Distribution to Veoneer								(2,029.8	)		13.0						(2,016.8	)		(112.2	)		(2,129.0	)
Balances at June 30, 2018		87.0		102.8		1,329.3		2,118.4			(383.1	)		(1,172.9	)		1,994.5			13.1			2,007.6
Comprehensive Income:
Net income								117.5			—						117.5			0.5			118.0
Foreign currency translation adjustment								—			(28.9	)					(28.9	)		(1.1	)		(30.0	)
Pension liability								—			0.4						0.4			—			0.4
Total Comprehensive Income (loss)		—		—		—		117.5			(28.5	)		—			89.0			(0.6	)		88.4
Stock-based compensation								—			—			3.1			3.1			—			3.1
Cash dividends declared								(54.1	)		—						(54.1	)		—			(54.1	)
Distribution to Veoneer								7.9			—						7.9			0.5			8.4
Balances at September 30, 2018		87.0	$	102.8	$	1,329.3	$	2,189.7		$	(411.6	)	$	(1,169.8	)	$	2,040.4		$	13.0		$	2,053.4

See Notes to unaudited condensed consolidated financial statements.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise noted, all amounts are presented in millions of dollars, except for per share amounts)

September 30, 2019

1. BASIS OF PRESENTATION

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements have been prepared on the same basis as the prior year audited financial statements and all adjustments considered necessary for a fair presentation have been included in the financial statements. All such adjustments are of a normal recurring nature. The results for the interim period are not necessarily indicative of the results to be expected for any future period or for the fiscal year ending December 31, 2019.

The Condensed Consolidated Balance Sheet at December 31, 2018 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by U.S. GAAP for complete financial statements.

On June 29, 2018 (the “Distribution Date”), Autoliv completed the spin-off of its former Electronics segment (the “spin-off”) through the distribution of all of the issued and outstanding stock of Veoneer, Inc. (“Veoneer”). To effect the spin-off, Autoliv distributed to each Autoliv stockholder one share of Veoneer common stock, par value $1.00 per share, for every one share of Autoliv common stock, par value $1.00 per share, held by such person on the common stock record date, and each Autoliv Swedish Depository Receipt (SDR) holder received one Veoneer SDR for each Autoliv SDR held by such person on the applicable SDR record date. On July 2, 2018, Veoneer’s common stock began regular-way trading on the New York Stock Exchange under the symbol “VNE” and its SDRs began trading on Nasdaq Stockholm under the symbol “VNE SDB.” The Company did not retain any equity interest in Veoneer.

In accordance with U.S. GAAP, the financial position and results of operations of the Electronics business are presented as discontinued operations and, as such, have been excluded from continuing operations for all periods presented. The restated historical financial statements reflecting the spin-off are unaudited, but have been derived from Autoliv’s historical audited annual reports. The sum of the individual earnings per share amounts from continuing operations and discontinued operations may not equal the total company earnings per share amounts due to rounding. The cash flows and comprehensive income related to the Electronics business have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows and Comprehensive Income, respectively, for all periods presented. With the exception of Note 3, the Notes to the Unaudited Condensed Consolidated Financial Statements reflect the continuing operations of Autoliv. See Note 3 - Discontinued Operations below for additional information regarding discontinued operations.

On April 1, 2018, in preparation for the spin-off, pursuant to the terms of a master transfer agreement entered into between Autoliv and Veoneer, assets related to the Electronics business were transferred to, and liabilities related to the Electronics business were retained or assumed by, Veoneer. However, responsibility for certain product, warranty and recall liabilities for Electronics products manufactured prior to April 1, 2018 was retained by Autoliv as provided in the distribution agreement between Autoliv and Veoneer, which governs certain relationships between the parties following the spin-off.

Certain amounts in the prior year’s condensed consolidated financial statements and related footnotes thereto have been reclassified to conform with the current year presentation as a result of the spin-off.

Autoliv has concluded that it has one reportable segment, based on the way the Company currently evaluates its financial performance and manages its operations. The Company will re-evaluate the one reportable segment as the operating model evolves, including management structure. The Company’s single reportable segment includes the Company’s airbag and seatbelt products and components.

Statements in this report that are not of historical fact are forward-looking statements that involve risks and uncertainties that could affect the actual results of the Company. A description of the important factors that could cause Autoliv’s actual results to differ materially from the forward-looking statements contained in this report may be found in this report and Autoliv’s other reports filed with the Securities and Exchange Commission (the “SEC”). For further information, refer to the consolidated financial statements, footnotes and definitions thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 21, 2019.

2. NEW ACCOUNTING STANDARDS

Adoption of New Accounting Standards

In August 2017, the FASB issued ASU 2017-12, Derivative and Hedging (Topic 815), Targeted improvements to accounting for hedging activities. The amendments in ASU 2017-12 better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in ASU 2017-12 also include certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The amendments in ASU 2017-12 modify disclosures required in current GAAP. Those modifications include a tabular disclosure related to the effect on the income statement of fair value and cash flow hedges and eliminate the requirement to disclose the ineffective portion of the change in fair value of hedging instruments. The amendments also require new tabular disclosures related to cumulative basis adjustments for fair value hedges. The amendments in ASU 2017-12 are effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the annual period that an entity adopts the amendments in ASU 2017-12. The Company adopted ASU 2017-12 in the annual period beginning January 1, 2019. The adoption of ASU 2017-12 did not have a material impact on the consolidated financial statements since the Company had no cash flow hedges at the date of adoption.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 affects any entity that enters into a lease, with some specified scope exceptions. For public business entities, the amendments in ASU 2016-02 are effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company adopted ASU 2016-02 in the annual period beginning January 1, 2019. The Company applied the modified retrospective transition method and elected the transition option to use the effective date January 1, 2019 as the date of initial application. The Company did not adjust its comparative period financial statements for effects of ASU 2016-02, nor has it made the new required lease disclosures for periods before the effective date. The Company has recognized its cumulative effect transition adjustment as of the effective date. In addition, the Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, will allow the Company to carry forward the historical lease classification. The adoption of the new standard resulted in recording operating lease assets and lease liabilities of $155.4 million as of January 1, 2019, which is shown in the table below. No material finance leases were identified as of January 1, 2019. In addition, there was no material impact on the consolidated financial statements where the Company is deemed to be the lessor in an “embedded lease” arrangement.

Balance Sheet (Dollars in millions)	Balance at December 31, 2018		Adjustments due to ASU 2016-02		Balance at January 1, 2019
Assets
Right-of-use asset, operating leases	$	—	$	155.4	$	155.4
Current liabilities
Operating lease liabilities - current		—		38.7		38.7
Non-current liabilities
Operating lease liabilities - non-current		—		116.7		116.7

Accounting Standards Issued But Not Yet Adopted

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20), Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in ASU 2018-14 remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in ASU 2018-14 are effective for public business entities for annual periods ending after December 15, 2020. Early adoption is permitted. An entity should apply the amendments in ASU 2018-14 on a retrospective basis to all periods presented. The Company believes that the pending adoption of ASU 2018-14 will have a minor impact on the disclosures to the consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU 2018-13 are effective for all entities for annual periods beginning after December 15, 2019, including interim periods within these annual periods. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial annual year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify disclosures upon issuance of ASU 2018-13. The Company believes that the pending adoption of ASU 2018-13 will not have a material impact on the disclosures to the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. ASU 2016-13 is effective for public business entities for annual periods beginning after December 15, 2019, and early adoption is permitted for annual periods beginning after December 15, 2018. The Company has a project team that is currently evaluating the impact of its pending adoption of ASU 2016-13 on the consolidated financial statements. The Company believes that the pending adoption of ASU 2016-13 will not have a material impact on the consolidated financial statements.

3. DISCONTINUED OPERATIONS

As discussed in Note 1. Basis of Presentation above, on June 29, 2018, the Company completed the spin-off of Veoneer and the requirements for the presentation of Veoneer as a discontinued operation were met on that date. Accordingly, Veoneer’s historical financial results are reflected in the Company’s unaudited condensed consolidated financial statements as discontinued operations. The Company did not allocate any general corporate overhead or interest expense to discontinued operations.

The financial results of Veoneer are presented as loss from discontinued operations, net of income taxes in the unaudited Consolidated Statements of Income. The following table presents the financial results of Veoneer (dollars in millions).

	Three months ended				Nine months ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Net sales	$	—	$	—	$	—	$	1,122.9
Cost of sales		—		—		—		(898.4	)
Gross profit		—		—		—		224.5
Selling, general and administrative expenses		—		—		—		(59.7	)
Research, development and engineering expenses, net		—		—		—		(224.0	)
Amortization of intangibles		—		—		—		(10.5	)
Other income (expense), net		—		—		—		(53.4	)
Operating loss		—		—		—		(123.1	)
Loss from equity method investments		—		—		—		(29.9	)
Interest income				—				0.7
Interest expense		—		—		—		(0.4	)
Other non-operating items, net		—		—		—		0.5
Loss before income taxes		—		—		—		(152.2	)
Income tax expense		—		—		—		(43.6	)
Loss from discontinued operations, net of income taxes		—		—		—		(195.8	)
Less: Net loss attributable to non-controlling interest		—		—		—		(8.3	)
Net loss from discontinued operations	$	—	$	—	$	—	$	(187.5	)

The Company incurred $70.9 million in separation costs related to the spin-off of Veoneer for the nine months period ended September 30, 2018 and was reported in Other income (expense), net. These costs were primarily related to professional fees associated with planning the spin-off, as well as spin-off activities within finance, tax, legal and information system functions and certain investment banking fees incurred upon the completion of the spin-off.

In connection with the spin-off, Autoliv entered into definitive agreements with Veoneer that, among other matters, set forth the terms and conditions of the spin-off and provide a framework for Autoliv’s relationship with Veoneer after the spin-off (the “Spin-Off Agreements”). For more detailed information concerning the Spin-off Agreements, see Note 3 to the Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 21, 2019. No changes have been made to any of the agreements as of September 30, 2019.

Veoneer Capital Contribution

In connection with the spin-off, Autoliv capitalized Veoneer with approximately $1 billion of cash. Net assets of $2,129 million, including approximately $1 billion of cash, were transferred to Veoneer on or prior to the Distribution Date, including $13 million of accumulated other comprehensive loss (primarily related to pension and cumulative translation adjustment) and the non-controlling interest of $112 million. This resulted in a $2,030 million reduction to retained earnings. In the second half of 2018, an adjustment to the cash contribution amount of $5 million was made reducing the net assets contributed to Veoneer to $2,123 million. In the second quarter of 2019, an adjustment of $0.2 million was made to true-up the $2.5 million contribution made to Veoneer as an adjustment of deferred tax assets related to Veoneer.

The following table presents depreciation, amortization, capital expenditures, acquisition of businesses and significant non-cash items of the discontinued operations related to Veoneer (dollars in millions).

	Nine months ended
	September 30, 2019		September 30, 2018
Depreciation	$	—	$	44.8
Amortization of intangible assets		—		10.5
Capital expenditures		—		71.1
Acquisition in affiliate, net		—		71.0
M/A-COM earn-out adjustment		—		(14.0	)
Undistributed loss from equity method investment		—		29.9

4. LEASES

The Company has operating leases for offices, manufacturing and research buildings, machinery, automobiles, data processing and other equipment. The Company’s leases have remaining lease terms of 1-47 years, some of which include options to extend the leases for up to 25 years, and some of which include options to terminate the leases within 1 year.

Finance lease right-of-use assets are presented together with other property, plant and equipment assets and finance lease liabilities are presented together with other short-term and long-term liabilities in the Condensed Consolidated Balance Sheets. However, the Company has not identified any material finance leases as of September 30, 2019.

As of September 30, 2019, the Company has no additional material operating leases that have not yet commenced.

The Company has elected the practical expedient of not separating lease components from non-lease components for all its classes of underlying assets. The Company has also elected to recognize the lease payments for short-term leases in its consolidated statement of income on a straight-line basis over the lease term and recognize the variable lease payments in the period in which the obligation for those payments is incurred.

If the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate as the discount rate. The Company uses its best judgement when determining the incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term to the lease payments in a similar currency.

The following tables provide information about the Company’s leases. Since finance leases are not material the finance lease cost components have not been disclosed in the tables below.

Lease cost
(in millions)	Three months ended			Nine months ended
	September 30, 2019			September 30, 2019
Operating lease cost	$	12		$	36
Short-term lease cost		2			5
Variable lease cost		1			3
Sublease income		(1	)		(2	)
Total lease cost	$	14		$	42

Other information
(in millions)	Nine months ended or as of
	September 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	35
Right-of-use assets obtained in exchange for new operating lease liabilities	34
Weighted-average remaining lease term - operating leases	7 years
Weighted-average discount rate - operating leases		2.4	%

Maturities of operating lease liabilities (undiscounted cash flows) are as follows:
(in millions)
	As of September 30, 2019
2019 (excluding the nine months ended September 30, 2019)	$	12
2020	$	38
2021	$	26
2022	$	21
2023	$	18
Thereafter	$	55
Total operating lease payments	$	170
Less imputed interest	$	(15	)
Total operating lease liabilities	$	155

5. REVENUE

Disaggregation of revenue

In the following tables, revenue from the Company’s continuing operations is disaggregated by primary region and products.

Net Sales by Products
(Dollars in millions)	Three months ended				Nine months ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Airbag Products and Other¹⁾	$	1,349.3	$	1,357.4	$	4,232.7	$	4,234.9
Seatbelt Products¹⁾		678.4		675.6		2,123.7		2,250.5
Total net sales	$	2,027.7	$	2,033.0	$	6,356.4	$	6,485.4

¹⁾	Including Corporate and other sales.

Net Sales by Region
(Dollars in millions)	Three months ended				Nine months ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
China	$	381.7	$	351.9	$	1,061.7	$	1,103.5
Japan		202.4		196.3		601.6		606.4
Rest of Asia		193.6		200.9		622.8		623.6
Americas		713.1		684.8		2,214.2		2,034.3
Europe		536.9		599.1		1,856.1		2,117.6
Total net sales	$	2,027.7	$	2,033.0	$	6,356.4	$	6,485.4

Contract balances

The contract assets relate to the Company's rights to consideration for work completed but not billed (generally in conjunction with contracts for which revenue is recognized over time) at the reporting date on production parts and is included in Other current assets on the Condensed Consolidated Balance Sheet. The contract assets are reclassified into the receivables balance when the rights to receive payments become unconditional. The net change in the contract assets balance, reflecting the adjustments needed to align revenue recognition for work completed but not billed, for the three and nine months period ended September 30, 2019 is not material.

Certain contracts have resulted in consideration in advance of fulfilling the performance obligations and the amounts received have been classified as contract liabilities within Other current liabilities and Other non-current liabilities on the Condensed Consolidated Balance Sheet. The portion of the contract liabilities recognized as revenue for the three and nine months period ended September 30, 2019 is not material.

6. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

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 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 rates and foreign exchange rates. The Company does not enter into derivatives for trading or other speculative purposes. The Company’s use of derivatives is in accordance with the strategies contained in the Company’s overall financial policy. 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 rates and foreign exchange rates.

The Company’s derivatives are all classified as Level 2 of the fair value hierarchy and there were no transfers between the levels during this or comparable periods (for further information about the hierarchy levels, see the Company’s Annual Report on Form 10-K).

The tables below present information about the Company’s derivative financial assets and liabilities measured at fair value on a recurring basis for the continuing operations (dollars in millions). The carrying value is the same as the fair value as these instruments are recognized in the consolidated financial statements at fair value. Although the Company is party to close-out netting agreements (ISDA agreements) with all derivative counterparties, the fair values in the tables below and in the Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018 have been presented on a gross basis. According to the close-out netting agreements, transaction amounts payable to a counterparty on the same date and in the same currency can be netted. The amounts subject to netting agreements that the Company chose not to offset are presented below.

	September 30, 2019
				Fair Value Measurements
Description	Nominal volume			Derivative asset			Derivative liability			Balance sheet location
Derivatives not designated as hedging instruments
Foreign exchange swaps, less than 6 months	$	864.2	¹⁾	$	1.4	²⁾	$	7.3	³⁾	Other current assets/ Other current liabilities
Total derivatives not designated as hedging instruments	$	864.2		$	1.4		$	7.3

¹⁾	Net nominal amount after deducting for offsetting swaps under ISDA agreements is $849.6 million.

²⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $1.3 million.

³⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $7.3 million.

	December 31, 2018
				Fair Value Measurements
Description	Nominal volume			Derivative asset			Derivative liability			Balance sheet location
Derivatives not designated as hedging instruments
Foreign exchange swaps, less than 6 months	$	659.1	¹⁾	$	1.9	²⁾	$	1.1	³⁾	Other current assets/ Other current liabilities
Total derivatives not designated as hedging instruments	$	659.1		$	1.9		$	1.1

¹⁾	Net nominal amount after deducting for offsetting swaps under ISDA agreements is $659.1 million.

²⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $1.9 million.

³⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $1.1 million.

Derivatives designated as hedging instruments

There were no derivatives designated as hedging instruments as of September 30, 2019 and December 31, 2018 related to the continuing operations.

Derivatives not designated as hedging instruments

Derivatives not designated as hedging instruments relate to economic hedges and are marked to market with all amounts recognized in the Consolidated Statements of Income. The derivatives not designated as hedging instruments outstanding at September 30, 2019 and December 31, 2018 were foreign exchange swaps.

For the three months ended September 30, 2019 and September 30, 2018, the gains and losses recognized in other non-operating items, net were a loss of $9.5 million and a gain of $1 million, respectively, for derivative instruments not designated as hedging instruments. For the nine months ended September 30, 2019 and September 30, 2018, the gains and losses recognized in other non-operating items, net were a loss of $6.9 million and a loss of $4.3 million, respectively, for derivative instruments not designated as hedging instruments.

For the three and nine month periods ended September 30, 2019 and September 30, 2018, the gains and losses recognized as interest expense were immaterial.

Fair Value of Debt

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 Company has determined that each of these fair value measurements of debt reside within Level 2 of the fair value hierarchy.

In the table below “Bonds” relates to multiple USPP bonds and Euro denominated bonds. “Loans” relates to utilized long-term loan facilities. In June 2019, the Company issued a €100 million bond and utilized a SEK 1,200 million long term loan facility.

The fair value and carrying value of debt for the continuing operations is summarized in the table below (dollars in millions).

	September 30,		September 30,		December 31,		December 31,
	2019		2019		2018		2018
	Carrying value¹⁾		Fair value		Carrying value¹⁾		Fair value
Long-term debt
Bonds	$	1,692.1	$	1,788.1	$	1,609.0	$	1,628.9
Loans		122.5		122.3		—		—
Other long-term debt		0.5		0.5		—		—
Total	$	1,815.1	$	1,910.9	$	1,609.0	$	1,628.9

Short-term debt
Commercial paper	$	172.4	$	172.4	$	342.6	$	342.6
Short-term portion of long-term debt		60.0		61.6		268.1		270.4
Overdrafts and other short-term debt		57.5		57.5		10.0		10.0
Total	$	289.9	$	291.5	$	620.7	$	623.0

¹⁾	Debt as reported in balance sheet.

Assets and liabilities measured at fair value on a nonrecurring 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 nonrecurring basis including certain long-lived assets, including equity method investments, goodwill and other intangible assets, typically as it relates to impairment.

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 the three and nine month periods ended September 30, 2019 and September 30, 2018, the Company did not record any impairment charges on its long-lived assets for its continuing operations.

7. INCOME TAXES

The effective tax rate in the third quarter of 2019 was 36.0% compared to 31.1% in the same quarter of 2018. Discrete tax items, net in the third quarter of 2019 had an unfavorable impact of 0.2%. In the third quarter of 2018, discrete tax items, net had an unfavorable impact of 0.2%. The effective tax rate for the first nine months of 2019 was 30.1% compared to 23.0% in the same period of 2018. Discrete tax items, net for the first nine months of 2019 had a favorable impact of 0.2%. In the same period of 2018, discrete tax items, net had a favorable impact of 5.3%.

The Company files income tax returns in the United States federal jurisdiction, and various states and non-U.S. 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 income tax authorities for years prior to 2015. 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 2010.

As of September 30, 2019, the Company is not aware of any proposed income tax adjustments resulting from tax examinations that would have a material impact on the Company’s condensed consolidated financial statements. The conclusion of such audits could result in additional increases or decreases to unrecognized tax benefits in some future period or periods.

During the first nine months of 2019, the Company recorded a net increase of $0.6 million to income tax reserves for unrecognized tax benefits based on tax positions related to the current year, including accruing additional interest related to unrecognized tax benefits of prior years. Of the total unrecognized tax benefits of $57.3 million recorded at September 30, 2019, $0 million is classified as current tax payable within Other current liabilities and $57.3 million is classified as non-current tax payable within Other non-current liabilities on the Condensed Consolidated Balance Sheet.

8. INVENTORIES

Inventories are stated at the lower of cost (FIFO) and net realizable value. The components of inventories for the continuing operations were as follows (dollars in millions):

	As of
	September 30, 2019			December 31, 2018
Raw materials	$	372.2		$	370.9
Work in progress		259.9			277.4
Finished products		183.3			194.7
Inventories		815.4			843.0
Inventory valuation reserve		(83.6	)		(85.1	)
Total inventories, net of reserve	$	731.8		$	757.9

9. 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 a material adverse impact on its liquidity position. The changes in the employee-related reserves have been charged against Other income (expense), net in the Consolidated Statements of Income.

The provisions in the three and nine month periods ended September 30, 2019 of $27.7 million and $41.4 million, respectively, mainly relate to a global reduction in indirect labor pursuant to the Company’s restructuring program initiated in the second quarter of 2019 and is expected to be concluded in the second quarter of 2020. The majority of reduction and expense to date relates to restructuring activities in Europe and the Americas. For the three and nine month periods ended September 30, 2019, cash payments of $15.2 and $21.7 million, respectively, mainly relate to restructuring activities initiated over the past few years in Western Europe.

As of September 30, 2019, approximately $36 million out of the $50.8 million total reserve balance can be attributed to the indirect labor reduction program. The remaining balance relates to older restructuring programs, primarily in Western Europe, which is expected to be settled in 2021.

The table below summarizes the change in the balance sheet position of the employee related restructuring reserves for the continuing operations (dollars in millions). Restructuring costs other than employee related costs are immaterial for all periods presented.

	Three months ended						Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Reserve at beginning of the period	$	40.3		$	36.0		$	33.4		$	39.6
Provision - charge		27.7			0.5			41.4			4.8
Provision - reversal		(0.2	)		—			(0.3	)		—
Cash payments		(15.2	)		(4.0	)		(21.7	)		(10.8	)
Translation difference		(1.8	)		0.0			(2.0	)		(1.1	)
Reserve at end of the period	$	50.8		$	32.5		$	50.8		$	32.5

10. PRODUCT-RELATED LIABILITIES

The Company has reserves for product risks. Such reserves are related to product performance issues, including recalls, product liability and warranty issues. For further explanation, see Note 12. Contingent Liabilities below.

For the three and nine month periods ended September 30, 2019 and September 30, 2018, provisions and cash paid primarily relate to recall and warranty related issues. The decrease in the reserve balance as of September 30, 2019 compared to the prior year was mainly due to cash payments.

Pursuant to the Spin-Off Agreements, Autoliv is also required to indemnify Veoneer for recalls related to certain qualified Electronics products. At September 30, 2019, the indemnification liabilities are approximately $9 million within Accrued expenses on the Condensed Consolidated Balance Sheets. Insurance receivables are included within Other current assets and Investments and other non-current assets on the Condensed Consolidated Balance Sheets.

The table below summarizes the change in the balance sheet position of the product-related liabilities related to the continuing operations (dollars in millions).

	Three months ended						Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Reserve at beginning of the period	$	55.9		$	93.3		$	62.2		$	95.6
Change in reserve		9.4			1.8			17.5			19.8
Cash payments		(10.5	)		(12.9	)		(24.8	)		(32.6	)
Translation difference		(0.6	)		(0.1	)		(0.7	)		(0.7	)
Reserve at end of the period	$	54.2		$	82.1		$	54.2		$	82.1

11. RETIREMENT PLANS

The Company’s most significant defined benefit plan is the Autoliv ASP, Inc. Pension Plan for which the benefits are based on an average of the employee’s earnings in the years preceding retirement and on credited service. This plan is closed for employees hired after December 31, 2003. In December 2017, the Company decided to amend the U.S. defined pension plan, communicating a benefits freeze that will begin on December 31, 2021.

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.

The Net Periodic Benefit Costs from continuing operations related to Other Post-retirement Benefits were not significant to the Condensed Consolidated Financial Statements of the Company for the three and nine months ended September 30, 2019 and September 30, 2018 and are not included in the table below.

The components of total Net Periodic Benefit Cost from continuing operations associated with the Company’s defined benefit retirement plans are as follows (dollars in millions):

	Three months ended						Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Service cost	$	4.5		$	4.9		$	13.5		$	14.8
Interest cost		5.1			4.6			15.4			13.9
Expected return on plan assets		(3.9	)		(5.6	)		(11.6	)		(16.8	)
Amortization of prior service cost		0.1			0.1			0.3			0.2
Amortization of actuarial loss		0.6			0.8			1.8			2.5
Net Periodic Benefit Cost	$	6.4		$	4.8		$	19.4		$	14.6

The Service cost and Amortization of prior service cost components in the table above are reported among other employee compensation costs in the Consolidated Statements of Income. The remaining components - Interest cost, Expected return on plan assets and Amortization of actuarial loss - are reported as Other non-operating items, net in the Consolidated Statements of Income.

The decrease in expected return on plan assets for the three and nine months ended September 30, 2019 compared to the same periods of the previous year is due to a lower assumed long-term rate of return on mainly the U.S. plan assets.

12. CONTINGENT LIABILITIES

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 proceedings 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.

ANTITRUST MATTERS

Authorities in several jurisdictions have conducted broad, and in some cases, long-running investigations of suspected anti-competitive behavior among parts suppliers in the global automotive vehicle industry. These investigations included, but are not limited to, the products that the Company sells. In addition to concluded and 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.

European Commission (“EC”) Investigations:

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 an investigation of anti-competitive behavior among suppliers of occupant safety systems.

On November 22, 2017, the EC concluded a discrete portion of its investigation and imposed a fine on the Company of €8.1 million (approximately $9.7 million) with respect to this portion of the EC’s overall investigation while it continued the more significant portion of its investigation. The Company paid this amount during the first quarter of 2018, and had previously accrued €8.3 million (approximately $9.9 million) in 2017 with respect to this discrete portion of the investigation.

On March 5, 2019, the EC completed the remaining portion of the investigation and imposed a fine on the Company of €179 million (approximately $203 million). In the fourth quarter of 2018, the Company had previously accrued €184 million (approximately $210 million) with respect to the remaining portion of the investigation. The difference between the actual fine and the accrual is reported in Other income (expense), net in the Consolidated statements of net income. The final payment of the actual fine was made in June 2019.

Civil Litigation: The Company is subject to civil litigation alleging anti-competitive conduct in the U.S. and Canada. As previously reported, the Company, several of its subsidiaries, and its competitors were named as defendants in a total of nineteen purported antitrust class action lawsuits filed between June 2012 and June 2015. Fifteen of these lawsuits were filed in the U.S. and were consolidated in the Automobile Parts Antitrust Litigation, a Multi-District Litigation (MDL) proceeding in the United States District Court for the Eastern District of Michigan. Plaintiffs in the U.S. cases sought to represent four purported classes - direct purchasers, auto dealers, end-payors, and truck and equipment dealers - who purchased occupant safety systems or components directly from a defendant, indirectly through purchases or leases of new vehicles containing such systems, or through purchases of replacement parts.

In May 2014, the Company, without admitting any liability, entered into separate settlement agreements with the direct purchasers, auto dealers, and end-payors, which were granted final approval by the MDL court in 2015 and 2016. In April 2016, the Company entered into a settlement agreement with the truck and equipment dealers’ class, which was granted final approval by the MDL court in 2016. The class settlements do not resolve any claims of settlement class members who opt-out of the settlements or the unasserted claims of any purchasers of occupant safety systems who are not otherwise included in a settlement class, such as states and municipalities. Several individuals and one insurer (and its affiliated entities) opted-out of the end-payor class settlement, including the Company’s settlement.

In September 2016, the insurer (and its affiliated entities) that opted out of the end-payor class settlement filed an antitrust lawsuit in the United States District Court for the Eastern District of Michigan. The Company has accrued an amount that is not material to the Company’s results of operations to resolve this issue.

PRODUCT WARRANTY, RECALLS AND INTELLECTUAL PROPERTY

Autoliv is exposed to various claims for damages and compensation if its 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. Where a product (actually or allegedly) fails to perform as expected or is defective, the Company may face warranty and recall claims. Where such (actual or alleged) failure or defect results, or is alleged to result, in bodily injury and/or property damage, the Company may also face product liability and other 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. Government safety regulators may also play a role in warranty and recall practices. 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 products when the product supplied did not perform as represented by us or expected by the customer. Accordingly, the future costs of warranty claims by the customers may be material. However, the Company believes its established reserves are adequate. 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 adequacy of these reserves, and adjusts them when appropriate. However, the final amounts actually due related to these matters could differ materially from the Company’s recorded estimates.

In addition, as vehicle manufacturers increasingly use global platforms and procedures, quality performance evaluations are also conducted on a 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 carries insurance for potential recall and product liability claims at coverage levels based on our prior claims experience. In addition, a number of the agreements entered into by the Company, including the Spin-off Agreements, require Autoliv to indemnify the other parties for certain claims. Autoliv cannot assure that the level of coverage will be sufficient to cover every possible claim that can arise in our businesses or with respect to other obligations, now or in the future, or that such coverage always will be available should we, now or in the future, wish to extend, increase or otherwise adjust our insurance.

Toyota Recall: On June 29, 2016, the Company announced that it is cooperating with Toyota Motor Corp. in its recall of approximately 1.4 million vehicles equipped with a certain model of the Company’s side curtain airbag (the “Toyota Recall”). Toyota has informed the Company that there have been eight reported incidents where a side curtain airbag has partially inflated without a deployment signal from the airbag control unit. The incidents have all occurred in parked, unoccupied vehicles and no personal injuries have been reported. The root cause analysis of the issue is ongoing. However, at this point in time the Company believes that a compromised manufacturing process at a sub-supplier may be a contributing factor and, as no incidents have been confirmed in vehicles produced by other OEMs with the same inflator produced during the same period as those recalled by Toyota, that vehicle-specific characteristics may also contribute to the issue. The sub-supplier’s manufacturing process was changed in January 2012, and the vehicles now recalled by Toyota represent more than half of all inflators of the relevant type manufactured before the sub-supplier process was changed.

As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, the Company determined pursuant to ASC 450 that a loss with respect to this issue is reasonably possible. If the Company is obligated to indemnify Toyota for the costs associated with the Toyota Recall, the Company expects that its insurance will generally cover such costs and liabilities and estimates that the Company’s loss, net of expected insurance recoveries, would be less than $20 million. However, the ultimate costs of the Toyota Recall could be materially different. The main variables affecting the ultimate cost for the Company are: the determination of proportionate responsibility (if any) among Toyota, the Company, and any relevant sub-suppliers; the ultimate number of vehicles repaired; the cost of repair per vehicle; and the actual recoveries from sub-suppliers and insurers. The Company’s insurance policies generally include coverage of the costs of a recall, although costs related to replacement parts are generally not covered.

In its products, the Company utilizes technologies which may be subject to intellectual property rights of third parties. While the Company does seek to procure the necessary rights to utilize intellectual property rights associated with its products, it may fail to do so. Where the Company so fails, the Company may be exposed to material claims from the owners of such rights. Where the Company has sold products which infringe upon such rights, its customers may be entitled to be indemnified by the Company for the claims they suffer as a result thereof. Such claims could be material.

The table in Note 10. Product-Related Liabilities above summarizes the change in the balance sheet position of the product related liabilities.

13. STOCK INCENTIVE PLAN

Eligible employees and non-employee directors of the Company participate in the Autoliv, Inc.1997 Stock Incentive Plan (the Plan) and received Autoliv stock-based awards which include stock options (SOs), restricted stock units (RSUs) and performance shares (PSs). In connection with the Veoneer spin-off, each outstanding Autoliv stock-based award as of June 29, 2018 (the Distribution Date) was converted to a stock award that has underlying shares of both Autoliv and Veoneer common stock. For further information about the conversion, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

The Company recorded approximately $2 million and $5.6 million of stock-based compensation expense in continuing operations related to RSUs and PSs for the three and nine month periods ended September 30, 2019, respectively. During the three and nine month periods ended September 30, 2018, the Company recorded $2.3 million and $6.9 million, respectively, of stock-based compensation expense in continuing operations related to RSUs and PSs.

14. EARNINGS PER SHARE

For the three month period ended September 30, 2019 and September 30, 2018, approximately 50 thousand and 0 thousand shares, respectively, were excluded from the computation of the diluted EPS, since the inclusion of these awards would be antidilutive. For the nine month period ended September 30, 2019 and September 30, 2018, approximately 54 thousand and 0 thousand shares, respectively, were excluded from the computation of the diluted EPS.

During the three month period ended September 30, 2019 and September 30, 2018 approximately 2 thousand and 9 thousand shares of common stock from the treasury stock, respectively, were utilized by the Plan. During the nine month period ended September 30, 2019 and September 30, 2018 approximately 90 thousand and 175 thousand shares of common stock from the treasury stock, respectively, were utilized by the Plan.

The computation of basic and diluted EPS under the two-class method were as follows:

(In millions, except per share amounts)	Three months ended				Nine months ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Numerator:
Basic and diluted:
Net income from continuing operations	$	85.4	$	117.5	$	305.9	$	468.9
Net loss from discontinued operations		—		—		—		(187.5	)
Net income attributable to controlling interest		85.4		117.5		305.9		281.4
Participating share awards with dividend equivalent rights		0.0		0.0		0.0		0.0
Net income available to common shareholders		85.4		117.5		305.9		281.4
Earnings allocated to participating share awards¹⁾		0.0		0.0		0.0		0.0
Net income attributable to common shareholders	$	85.4	$	117.5	$	305.9	$	281.4
Denominator: ¹⁾
Basic: Weighted average common stock		87.2		87.1		87.2		87.1
Add: Weighted average stock options/share awards		0.1		0.3		0.2		0.2
Diluted:		87.3		87.4		87.4		87.3

Basic EPS:
Continuing operations	$	0.98	$	1.35	$	3.51	$	5.38
Discontinued operations	$	—	$	—	$	—	$	(2.15	)
Basic EPS	$	0.98	$	1.35	$	3.51	$	3.23

Diluted EPS:
Continuing operations	$	0.98	$	1.34	$	3.50	$	5.37
Discontinued operations	$	—	$	—	$	—	$	(2.15	)
Diluted EPS	$	0.98	$	1.34	$	3.50	$	3.22

¹⁾

The Company’s unvested RSUs and PSs, of which some included the right to receive non-forfeitable dividend equivalents, are considered participating securities. Calculations of EPS under the two-class method exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the denominator.

15. RELATED PARTY TRANSACTIONS

Throughout the periods covered by the unaudited condensed consolidated financial statements, Autoliv purchased finished goods from Veoneer. Related party purchases from Veoneer amounted to approximately $17 million and $30 million for the three month periods ended September 30, 2019 and September 30, 2018, respectively, and to approximately $54 million and $73 million for the nine month periods ended September 30, 2019 and September 30, 2018, respectively.

Autoliv also subleases certain office space to Veoneer. However, related party sublease income from Veoneer is not material for the three months ended September 30, 2019.

Related party balances

Amounts due to and due from related parties are summarized in the below table:

	As of
Related party (Dollars in millions)	September 30, 2019		December 31, 2018
Related party receivables	$	3.7	$	15.0
Related party payables		9.9		50.7
Related party accrued expenses		9.0		13.0

Related party receivables primarily relate to an agreement between Autoliv and Veoneer.

The related party payables are mainly driven by Reseller Agreements put in place in connection with the spin-off. The Reseller Agreements are between Autoliv and Veoneer to facilitate the temporary arrangement of the sale of Veoneer products in the interim period post spin-off. For further information, see Note 3. Discontinued Operations above.

16. SUBSEQUENT EVENTS

There were no reportable events subsequent to September 30, 2019.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein and with our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the United States Securities and Exchange Commission (the “SEC”) on February 21, 2019. Unless otherwise noted, all dollar amounts are in millions.

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

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 airbags, side airbags, curtain airbags, seatbelts and steering wheels. Autoliv is also a supplier of anti-whiplash systems, pedestrian protection systems and child seats.

In accordance with U.S. GAAP, the financial position and results of operations of the Electronics business are presented as discontinued operations and, as such, have been excluded from continuing operations for all prior periods presented. The sum of the individual earnings per share amounts from continuing operations and discontinued operations may not equal the total company earnings per share amounts due to rounding. The cash flows and comprehensive income related to the Electronics business have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows and Comprehensive Income, respectively, for all prior periods presented. Upon completion of the spin-off, Autoliv concluded that it has one reportable segment, based on the way the Company currently evaluates its financial performance and manages its operations. The Company will re-evaluate the one reportable segment as the operating model evolves, including the management structure. See Note 3 - Discontinued Operations below for additional information regarding discontinued operations.

On April 1, 2018, in preparation for the spin-off, pursuant to the terms of a master transfer agreement entered into between Autoliv and Veoneer, assets related to the Electronics business were transferred to, and liabilities related to the Electronics business were retained or assumed by Veoneer, however, responsibility for certain product, warranty and recall liabilities for Electronics products manufactured prior to April 1, 2018 was retained by Autoliv as provided in the distribution agreement between Autoliv and Veoneer.

Autoliv’s filings with the SEC, including this Quarterly Report on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K, proxy statements and all of our other reports and statements, and amendments thereto, are available free of charge on our corporate website at www.autoliv.com as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC (generally the same day as the filing).

The primary exchange market for Autoliv’s securities is the New York Stock Exchange (NYSE) where Autoliv’s common stock trades under the symbol “ALV”. Autoliv’s Swedish Depositary Receipts (SDRs) are traded on Nasdaq Stockholm’s list for large market cap companies under the symbol “ALIV SDB”. Options in SDRs trade on Nasdaq Stockholm under the name “Autoliv SDB”. Options in Autoliv shares are traded on Nasdaq OMX PHLX and on NYSE Amex Options under the symbol “ALV”.

Autoliv’s fiscal year ends on December 31.

EXECUTIVE OVERVIEW

Financial highlights in the third quarter of 2019

$2,028 million in net sales

1.2% organic sales growth (non-U.S. GAAP measure, see reconciliation table below)

7.6% operating margin

9.0% adjusted operating margin (non-U.S. GAAP measure, see reconciliation table below)

$0.98 EPS - a decline of 27%

$1.30 adjusted EPS - a decline of 4% (non-U.S. GAAP measure, see reconciliation table below)

Key business developments in the third quarter of 2019

•	Organic growth outperformed global light vehicle production by 4.6pp mainly due to China and Americas.

•	Profitability still impacted by global LVP decline and high raw material costs, although less than previous quarter, partly offset by total workforce decline of 800 compared to a quarter ago, or by 1,600 compared to a year ago.

•	Established new customer collaborations; a North American road safety center with Great Wall Motor and presented next generation passenger airbag in cooperation with Honda.

The Company experienced continued challenging market conditions in the quarter. Although the rate of decline in light vehicle production slowed down slightly, uncertainty remains high, market outlook by IHS continues to be revised down and the Company does not see a turnaround in LVP in the near term.

The Company continued to outperform light vehicle production, growing organically (non-U.S. GAAP measure) about 4.6pp more than LVP in the third quarter, driven mainly by strong development in China and Americas.

The Company’s business cycle management actions are taking effect and the adjusted operating margin (non-U.S. GAAP measure) decline year over year was substantially less than in recent quarters, and it improved sequentially. LVP has continued to slide however, and the Company now assumes 6-7% global LVP decline for 2019, which moderates the Company’s outlook to around 1% for organic sales growth and to around 9% for adjusted operating margin.

Although the Company is not pleased with this profit level, it is achieved in the context of LVP expectations declining by 7-8pp in just 9 months. The cost improvement actions which enabled this performance will continue relentlessly.

The Company reduced its workforce by an additional 800 in the quarter, or by 1,600 compared to a year ago, despite growing its sales organically (non-U.S. GAAP measure) by 1.2%. The Company’s program to reduce indirect labor costs by 5% is developing as planned and the Company expects it to impact its cost base meaningfully as of the fourth quarter 2019.

In addition to LVP and raw material headwinds, the strike at General Motors in North America is also affecting the Company’s sales.

Being close to its customers supports the Company’s short- and long-term business opportunities and this quarter the Company announced two new customer collaborations - the North American road safety research lab together with Great Wall Motor and the next generation passenger airbag in cooperation with Honda. The Company’s order intake share remained on a good level in the quarter, supporting a prolonged sales growth outperformance.

As always, it is of utmost importance to focus on quality and execution to secure a strong long-term performance for the Company.

Non-U.S. GAAP financial measures

Some of the following discussions refer to non-U.S. GAAP financial measures: see reconciliations for "Organic sales", "Operating working capital", "Net debt", “Leverage ratio”, “Adjusted operating income”, “Adjusted operating margin” and “Adjusted EPS” provided below. Management believes that these non-U.S. GAAP financial measures provide supplemental information to investors regarding the performance of the Company’s business and assist investors in analyzing trends in the Company's business. Additional descriptions regarding management’s use of these financial measures are included below. Investors should consider these non-U.S. GAAP financial measures in addition to, rather than as substitutes for, financial reporting measures prepared in accordance with U.S. GAAP. These historical non-U.S. GAAP financial measures have been identified as applicable in each section of this report with a tabular presentation reconciling them to the most directly comparable U.S. GAAP financial measures. It should be noted that these measures, as defined, may not be comparable to similarly titled measures used by other companies.

RESULTS OF OPERATIONS

Overview

The following table shows some of the key ratios management uses internally to analyze the Company's current and future financial performance and core operations as well as to identify trends in the Company’s financial conditions and results of operations. We have provided this information to investors to assist in meaningful comparisons of past and present operating results and to assist in highlighting the results of ongoing core operations. These ratios are more fully explained below and should be read in conjunction with the consolidated financial statements in our Annual Report on Form 10-K and the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

The results herein present the performance of Autoliv giving effect to the spin-off of Veoneer, Autoliv’s former Electronics segment, on June 29, 2018. Historical financial results of Veoneer are reflected as discontinued operations, with the exception of cash flows, which are presented on a consolidated basis of both continuing and discontinued operations and net income attributable to a controlling interest (Consolidated Autoliv). The focus of management’s discussion and analysis below is on continuing operations. Certain key ratios, as indicated, only reflect continuing operations. The restated historical financial information reflecting the spin-off are unaudited, but have been derived from Autoliv’s historical audited annual reports.

KEY RATIOS

(Dollars in millions, except per share data)

	Three months ended				Nine months ended
	or as of September 30				or as of September 30
	2019		2018		2019		2018
Total parent shareholders’ equity per share	$	22.78	$	23.42	$	22.78	$	23.42
Capital employed ¹⁾		3,781		3,778		3,781		3,778
Net debt ²⁾		1,781		1,724		1,781		1,724

Operating working capital²⁾		620		759		620		759
Operating working capital relative to sales, % ¹⁰⁾		7.2		8.8		7.2		8.8

Gross margin, % ³⁾		18.7		19.0		18.2		19.8
Operating margin, % ⁴⁾		7.6		9.5		7.8		10.3

Return on total equity, % ⁵⁾		17.1		23.2		20.7		20.0
Return on capital employed, % ⁶⁾		16.2		20.4		18.0		20.9

Headcount at period-end ⁷⁾		64,868		66,479		64,868		66,479

Days receivables outstanding ⁸⁾		75		80		72		76
Days inventory outstanding ⁹⁾		37		38		35		35

¹⁾	Total equity and net debt.

²⁾	See tabular presentation reconciling this non-U.S. GAAP measure to U.S. GAAP below under the heading “Liquidity and Sources of Capital”.

³⁾	Gross profit relative to sales.

⁴⁾	Operating income relative to sales.

⁵⁾	Net income from continuing operations relative to average total equity.

⁶⁾	Operating income and income from equity method investments, relative to average capital employed.

⁷⁾	Employees plus temporary, hourly personnel.

⁸⁾	Outstanding receivables relative to average daily sales.

⁹⁾	Outstanding inventory relative to average daily sales.

¹⁰⁾	Latest 12 months of net sales.

THREE MONTHS ENDED SEPTEMBER 30, 2019 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2018

Consolidated Sales

	Third quarter							Components of change in net sales
	2019		2018		Reported change			Currency effects ¹⁾			Organic ³⁾
Airbags and other ²⁾	$	1,349.3	$	1,357.4		(0.6	)%		(1.2	)%		0.6	%
Seatbelts ²⁾		678.4		675.6		0.4	%		(1.9	)%		2.3	%
Total	$	2,027.7	$	2,033.0		(0.3	)%		(1.5	)%		1.2	%

Asia	$	777.7	$	749.1		3.8	%		(0.4	)%		4.2	%
Whereof: China		381.7		351.9		8.5	%		(2.7	)%		11.2	%
Japan		202.4		196.3		3.1	%		4.2	%		(1.1	)%
Rest of Asia		193.6		200.9		(3.6	)%		(0.7	)%		(2.9	)%
Americas		713.1		684.8		4.1	%		(0.7	)%		4.8	%
Europe		536.9		599.1		(10.4	)%		(3.7	)%		(6.7	)%
Total	$	2,027.7	$	2,033.0		(0.3	)%		(1.5	)%		1.2	%

¹⁾	Effects from currency translations.

²⁾	Including Corporate and Other sales.

³⁾	Non-U.S. GAAP measure

Sales by Product

Airbag sales organic growth (non-U.S. GAAP measure, see reconciliation table above) was mainly driven by strong performance for driver and knee airbags in North America, steering wheels in Americas and passenger airbags in China. Offsetting declines came mainly from most types of airbags in Europe and from inflators in North America and Japan.

Seatbelt sales organic growth (non-U.S. GAAP measure, see reconciliation table above) was mainly driven by strong performance in China and to a lesser degree in Americas, partly offset by declines in Europe and India. The trend of higher sales of more advanced and higher value-added seatbelt systems continued, especially in China and Rest of Asia.

Sales by Region

We grew globally by 1.2% organically (non-U.S. GAAP measure, see reconciliation table above), which is 4.6pp more than light vehicle production (according to IHS). The largest contributor to overall growth was China, followed by North America and South America. The largest organic sales decline was in Europe, followed by India, South Korea and Japan. Our organic sales growth outperformed LVP by around 17pp in China and by 4.5pp in North America while we underperformed LVP by 7.5pp in Europe and by around 8pp in Japan. In South America we grew organically around 35pp more than LVP, while we outgrew LVP by around 8pp in Rest of Asia.

Organic growth¹⁾

Americas

Europe

China

Japan

Rest of Asia

Global

Autoliv

4.8

(6.7)

11.2

(1.1)

(2.9)

1.2

Main growth drivers

Honda, GM, Nissan, BMW, Tesla

VW, Renault

Honda, VW, GM

Mazda, Honda, Subaru

Mitsubishi, Renault, Nissan

Honda, VW, GM

Main decline drivers

Daimler, Hyundai/Kia

Daimler, JLR, BMW, Toyota

Geely, Ford, PSA

Mitsubishi, Toyota, Inflators

Hyundai/Kia, Isuzu, Tata, Toyota

Daimler, Hyundai/Kia, Toyota

¹⁾	Non-U.S. GAAP measure

Light Vehicle Production Development

Change vs. same quarter last year

	Americas			Europe			China			Japan			Rest of Asia			Global
LVP¹⁾		(1.6	)%		0.8	%		(5.6	)%		6.8	%		(10.5	)%		(3.4	)%

¹⁾ Source: IHS October 2019.

Earnings

	Three months ended
(Dollars in millions, except per share data)	September 30, 2019			September 30, 2018			Change
Net Sales	$	2,027.7		$	2,033.0			(0.3	)%
Gross profit		379.1			386.1			(1.8	)%
% of sales		18.7	%		19.0	%		(0.3	)pp
S, G&A		(97.7	)		(90.0	)		8.6	%
% of sales		(4.8	)%		(4.4	)%		0.4	pp
R, D&E, net		(99.1	)		(101.9	)		(2.7	)%
% of sales		(4.9	)%		(5.0	)%		(0.1	)pp
Other income (expense), net		(25.6	)		1.1		n/a
Operating income		153.8			192.5			(20.1	)%
% of sales		7.6	%		9.5	%		(1.9	)pp
Adjusted operating income¹⁾		182.5			193.6			(5.7	)%
% of sales		9.0	%		9.5	%		(0.5	)pp
Financial and non-operating items, net		(19.4	)		(21.2	)		(8.5	)%
Income before taxes		134.4			171.3			(21.5	)%
Tax rate		36.0	%		31.1	%		4.9	pp
Net income from continuing operations		86.0			118.0			(27.1	)%
Earnings per share from continuing operations, diluted²⁾		0.98			1.34			(26.9	)%
Adjusted earnings per share, diluted^1),2)		1.30			1.35			(3.7	)%

¹⁾	Non-U.S. GAAP measure, excluding costs for capacity alignment, antitrust related matters and separation of our business segments.

²⁾	Assuming dilution and net of treasury shares. Participating share awards with right to receive dividend equivalents are under the two-class method excluded from the EPS calculation.

Gross profit declined by $7 million and the gross margin declined by 0.3pp compared to the same quarter 2018. The gross margin was adversely impacted by the decline in global light vehicle production, resulting in a lower utilization of our production assets, and raw material headwinds. This was offset to some degree by organic growth (non-U.S. GAAP measure) from launches of new products, which have a lower margin contribution in the early phase of the ramp-up.

S,G&A increased by $8 million, mainly driven by bonus accrual reversals prior year and a mix of minor expense items incurred in the current quarter.

R,D&E, net was close to unchanged in USD terms as well as in percent of sales.

Other income (expense), net of negative $26 million was $27 million lower than in the prior year, mainly due to accruals relating to future reductions of our indirect workforce.

Operating income decreased by $39 million, as a consequence of the declines in other income (expense), net and gross profit.

Adjusted operating income (non-U.S. GAAP measure, see reconciliation table below) decreased by $11 million, mainly due to the lower gross profit.

Financial and non-operating items, net was close to unchanged at $19 million compared to the prior year.

Income before taxes decreased by $37 million, mainly as a consequence of the lower operating income.

Effective tax rate of 36.0% was 4.9 pp higher than last year primarily due to costs accrued in the quarter related to the indirect workforce reduction program that are not fully tax deductible.

Earnings per share, diluted decreased by 36 cents where the main drivers were 31 cents from higher costs for capacity alignment and 8 cents from lower adjusted operating income.

NINE MONTHS ENDED SEPTEMBER 30, 2019 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2018

Consolidated Sales

	Nine months							Components of change in net sales
	2019		2018		Reported change			Currency effects ¹⁾			Organic ³⁾
Airbags and other ²⁾	$	4,232.7	$	4,234.9		(0.1	)%		(3.2	)%		3.1	%
Seatbelts ²⁾		2,123.7		2,250.5		(5.6	)%		(4.2	)%		(1.4	)%
Total	$	6,356.4	$	6,485.4		(2.0	)%		(3.5	)%		1.5	%

Asia	$	2,286.1	$	2,333.5		(2.0	)%		(3.2	)%		1.2	%
Whereof: China		1,061.7		1,103.5		(3.8	)%		(5.1	)%		1.3	%
Japan		601.6		606.4		(0.8	)%		0.4	%		(1.2	)%
Rest of Asia		622.8		623.6		(0.1	)%		(3.3	)%		3.2	%
Americas		2,214.2		2,034.3		8.8	%		(0.8	)%		9.6	%
Europe		1,856.1		2,117.6		(12.4	)%		(6.4	)%		(6.0	)%
Total	$	6,356.4	$	6,485.4		(2.0	)%		(3.5	)%		1.5	%

¹⁾	Effects from currency translations. ²⁾ Including Corporate and Other sales. ³⁾ Non-U.S. GAAP measure

Sales by Product

Airbag sales organic growth (non-U.S. GAAP measure, see reconciliation table above) of 3.1% was mainly driven by strong performance for airbags in North America, steering wheels in Americas and Europe, and airbags in Rest of Asia. Of the $129 million in organic growth, around 67% came from the steering wheels category with airbags contributing almost 28% of the organic growth in the first nine months.

Seatbelt sales organic decline (non-U.S. GAAP measure, see reconciliation table above) of 1.4% was mainly driven by weaker sales in Europe, India and South Korea, partly mitigated by organic growth in China, North America, South America and Japan. The trend of higher sales of more advanced and higher value-added seatbelt systems continued, especially in China and Rest of Asia, partly offset by Europe.

Sales by Region

For the first nine months of 2019 Autoliv grew organically (non-U.S. GAAP measure, see reconciliation table above) by 1.5% against the prior corresponding period, outperforming the LVP significantly with 7.5pp during the period. The contributors to the organic growth were the Americas, Rest of Asia, mainly ASEAN, and China, with offsetting effects from Europe and Japan. The organic growth in the Americas was close to 10%, mainly driven by Honda, Nissan, GM, FCA and Tesla.

Growth in Rest of Asia was mainly driven by Suzuki in India, Honda in Thailand and India and Hyundai/Kia in South Korea, Organic growth (non-U.S. GAAP measure, see reconciliation table above) in China of 1.3% is mainly a result of strong sales to the global OEMs in the region, partly offset by domestic OEMs decreasing substantially. The growth with the GOEMs has been mainly through Honda and VW. Sales to domestic OEMs are primarily impacted by a continued headwind from Geely, Baojun and Great Wall.

Sales in Europe declined organically (non-U.S. GAAP measure, see reconciliation table above) by 6%. The decline is from several OEMs such as Daimler, BMW, JLR, Renault and Ford.

Light Vehicle Production Development

Change vs. same period last year

	Americas			Europe			China			Japan			Rest of Asia			Global
LVP¹⁾		(2.8	)%		(3.8	)%		(12.1	)%		4.0	%		(5.3	)%		(6.0	)%

¹⁾ Source: IHS October 2019.

Earnings

	Nine months ended
(Dollars in millions, except per share data)	September 30, 2019			September 30, 2018			Change
Net Sales	$	6,356.4		$	6,485.4			(2.0	)%
Gross profit		1,157.6			1,286.1			(10.0	)%
% of sales		18.2	%		19.8	%		(1.6	)pp
S, G&A		(300.2	)		(290.9	)		3.2	%
% of sales		(4.7	)%		(4.5	)%		0.2	pp
R, D&E, net		(323.5	)		(327.9	)		(1.3	)%
% of sales		(5.1	)%		(5.1	)%		0.0	pp
Other income (expense), net		(28.8	)		6.2			564.5	%
Operating income		496.5			665.0			(25.3	)%
% of sales		7.8	%		10.3	%		(2.5	)pp
Adjusted operating income¹⁾		532.1			668.3			(20.4	)%
% of sales		8.4	%		10.3	%		(1.9	)pp
Financial and non-operating items, net		(57.7	)		(54.7	)		5.5	%
Income before taxes		438.8			610.3			(28.1	)%
Tax rate		30.1	%		23.0	%		7.1	pp
Net income from continuing operations		306.9			470.3			(34.7	)%
Earnings per share from continuing operations, diluted²⁾		3.50			5.37			(34.8	)%
Adjusted earnings per share, diluted^1),2)		3.87			5.40			(28.3	)%

¹⁾	Non-U.S. GAAP measure, excluding costs for capacity alignment, antitrust related matters and separation of our business segments.

²⁾	Assuming dilution and net of treasury shares. Participating share awards with right to receive dividend equivalents are under the two-class method excluded from the EPS calculation.

Gross profit declined by $129 million and the gross margin declined by 1.6pp compared to the same period 2018. The gross margin was adversely impacted by the sharp decline in global light vehicle production resulting in a lower utilization of our production assets, costs due to a labor conflict in Mexico, raw material headwinds and elevated launch related costs. This was offset to some degree by organic growth (non-U.S. GAAP measure) from launches of new products, which have a lower margin contribution in the early phase of the ramp-up.

Other operating income (expense), net, was $35 million lower than the prior year, mainly due to accruals relating to future reductions of our indirect workforce.

Operating income decreased by $169 million, as a consequence of the decline in gross profit and other income (expense), net.

Adjusted operating income (non-U.S. GAAP measure, see reconciliation table below) decreased by around $136 million, mainly due to the lower gross profit.

Income before taxes decreased by $172 million, mainly as a consequence of the lower operating income.

Effective tax rate of 30.1% was 7.1 pp higher than last year primarily because the first nine months of 2018 was positively affected by the reversal of certain valuation allowances.

Earnings per share, diluted decreased by 187 cents primarily due to 113 cents from lower operating income, 44 cents from tax items and 34 cents from costs related to capacity alignment, anti-trust matters and the separation of our business areas.

LIQUIDITY AND SOURCES OF CAPITAL

Cash flow items for the first nine months of 2018 are presented on a consolidated basis including both Continuing and Discontinued Operations for the first six months of 2018 before the spin-off of Veoneer, except when stated otherwise.

Net cash provided by operating activities amounted to $328 million compared to $301 million for the first nine months of 2019 and 2018, respectively. The increase in cash flow from operations can mainly be attributed to that the first six months of 2018 included loss making discontinued operation activities compared to no such operations in 2019. Also, 2019 was significantly impacted by the EC antitrust payment made in the second quarter amounting to$203 million.

Net cash used in investing activities amounted to $358 million compared $494 million for the first nine months of 2019 and 2018, respectively. The first nine months of 2018 included significant activity from discontinued operations. Excluding discontinued operations, investing activities in continuing operations amounted to approximately $352 million in 2018.

Net cash used in financing activities amounted to $(230) million compared $(172) million for the first nine months of 2019 and 2018, respectively. During the first nine months of 2019 financing activities were primarily related to improving the Company’s debt maturity profile, replacing short-term debt with long-term as noted in the Contractual Obligations section below. 2018 financing activities were primarily driven by the spin-off of Veoneer.

Non-U.S. GAAP measures

Reconciliation of U.S. GAAP financial measures to “Adjusted operating income”, “Adjusted operating margin” and “Adjusted EPS”

(Dollars in millions, except per share data)

	Three months ended September 30, 2019						Three months ended September 30, 2018
	Reported U.S. GAAP		Adjustments¹⁾		Non-U.S. GAAP		Reported U.S. GAAP		Adjustments¹⁾		Non-U.S. GAAP
Operating income	$	153.8	$	28.7	$	182.5	$	192.5	$	1.1	$	193.6
Operating margin, %		7.6		1.4		9.0		9.5		0.0		9.5
EPS continuing operations, diluted		0.98		0.32		1.30		1.34		0.01		1.35

¹⁾	Excluding costs for capacity alignment, antitrust related matters and separation of our business segments.

	Nine months ended September 30, 2019						Nine months ended September 30, 2018
	Reported U.S. GAAP		Adjustments¹⁾		Non-U.S. GAAP		Reported U.S. GAAP		Adjustments¹⁾		Non-U.S. GAAP
Operating income	$	496.5	$	35.6	$	532.1	$	665.0	$	3.3	$	668.3
Operating margin, %		7.8		0.6		8.4		10.3		0.0		10.3
EPS continuing operations, diluted		3.50		0.37		3.87		5.37		0.03		5.40

¹⁾	Excluding costs for capacity alignment, antitrust related matters and separation of our business segments.

Items included in Non-U.S. GAAP adjustments

(Dollars in millions, except per share data)

	Third quarter 2019					Third quarter 2018
	Millions			Per share		Millions			Per share
Capacity alignment	$	27.4		$	0.31	$	(0.2	)	$	(0.00	)
Antitrust related matters	0.1				0.00	0.2				0.00
Separation costs	$	1.2		0.01			1.1		0.01
Total adjustments to operating income	$	28.7			0.32	$	1.1			0.01
Tax on non-U.S. GAAP adjustments¹⁾		(0.4	)		0.00		(0.3	)		(0.00	)
Total adjustments to net income	$	28.3		$	0.32	$	0.8		$	0.01

¹⁾	The tax is calculated based on the tax laws in the respective jurisdiction(s) of the adjustment(s).

	First nine months of 2019						First nine months of 2018
	Millions			Per share			Millions			Per share
Capacity alignment	$	40.5		$	0.46		$	1.0		$	0.01
Antitrust related matters		(6.1	)		(0.07	)	1.2			0.01
Separation costs		1.2			0.01		1.1			0.01
Total adjustments to operating income	$	35.6		$	0.40		$	3.3		$	0.03
Tax on non-U.S. GAAP adjustments¹⁾		(3.0	)		(0.03	)		(0.7	)		(0.00	)
Total adjustments to net income	$	32.6		$	0.37		$	2.6		$	0.03

¹⁾	The tax is calculated based on the tax laws in the respective jurisdiction(s) of the adjustment(s).

The non-GAAP adjustment for the three months ended September 30, 2019 primarily consisted of capacity alignment amounting to $27.4 million. The non-GAAP adjustment for the nine months ended September 30, 2019 primarily consisted of capacity alignment amounting to $40.5 million offset by the $6.7 million antitrust accrual adjustment as reported in the Company’s 10-Q for the period ended March 31, 2019.

The Company uses the non-U.S. GAAP measure “Operating working capital,” as defined in the table below, in its communications with investors and for management’s review of the development of the working capital cash generation from operations. The reconciling items used to derive this measure are, by contrast, managed as part of the Company’s overall cash and debt management, but they are not part of the responsibilities of day-to-day operations’ management. The historical periods in the table have been restated to only reflect continuing operations.

Reconciliation of U.S. GAAP financial measure to “Operating working capital”

(Dollars in millions)

	September 30, 2019			September 30, 2018			December 31, 2018
Total current assets continuing operations	$	2,908.8		$	3,348.1		$	3,285.4
Total current liabilities continuing operations ¹⁾		(2,304.8	)		(2,683.8	)		(2,655.5	)
Working capital		604.0			664.3			629.9
Cash and cash equivalents		(334.4	)		(533.7	)		(615.8	)
Short-term debt		289.9			573.0			620.7
Derivative (asset) and liability, current		5.9			1.8			(0.8	)
Dividends payable		54.1			54.0			54.0
Operating working capital	$	619.5		$	759.4		$	688.0

¹⁾	December 31, 2018, excluding the EC antitrust accrual.

Operating working capital (non-U.S. GAAP measure, see reconciliation table above) was 7.2% of sales compared to 8.8% of sales a year earlier, where the change mainly was a consequence of a new accounting standard for operating leases and accruals related to future reductions of our indirect workforce. The Company targets that operating working capital in relation to the last 12-month sales should not exceed 10%.

Creditors and credit rating agencies use net debt adjusted for DRD in their analyses of the Company's debt and therefore we provide this non-U.S. GAAP measure. DRD are fair value adjustments to the carrying value of the underlying debt. Also included in the DRD is the unamortized fair value adjustment related to a discontinued fair value hedges, which will be amortized over the remaining life of the debt. By adjusting for DRD, the total financial liability of net debt is disclosed without grossing debt up with currency or interest fair values.

Reconciliation of U.S. GAAP financial measure to “Net debt”

(Dollars in millions)

	September 30, 2019			September 30, 2018			December 31, 2018
Short-term debt	$	289.9		$	573.0		$	620.7
Long-term debt		1,815.1			1,677.5			1,609.0
Total debt		2,105.0			2,250.5			2,229.7
Cash and cash equivalents		(334.4	)		(533.7	)		(615.8	)
Debt issuance cost/Debt-related derivatives, net		10.7			7.6			4.9
Net debt	$	1,781.3		$	1,724.4		$	1,618.8

Net debt (non-U.S. GAAP measure, see reconciliation table above) amounted to $1,781 million as of September 30, 2019, which was close to unchanged compared to a year earlier.

The non-U.S. GAAP measure net debt is also used in the non-U.S. GAAP measure “Leverage ratio”. Management uses this measure to analyze the amount of debt the Company can incur under its debt policy. Management believes that this policy also provides guidance to credit and equity investors regarding the extent to which the Company would be prepared to leverage its operations. For details on leverage ratio refer to the table.

Calculation of “Leverage ratio”

(Dollars in millions)

	September 30, 2019			September 30, 2018		December 31, 2018
Net debt¹⁾	$	1,781.3		$	1,724.4	$	1,618.8
Pension liabilities		199.9			204.3		198.2
Debt per the Policy		1,981.2			1,928.7		1,817.0

Net income²⁾		216.1			218.9		183.7
Less: Net loss from discontinued operations²⁾		(2.0	)		448.8		193.8
Net income continuing operations²⁾		214.1			667.7		377.5
Income taxes²⁾		226.8			183.4		234.9
Interest expense, net^2,3)		67.0			54.8		59.2
Depreciation and amortization of intangibles²⁾		348.8			332.6		342.0
Antitrust related matters, capacity alignment and separation costs²⁾		254.5			6.7		216.5
EBITDA per the Policy	$	1,111.2		$	1,245.2	$	1,230.1
Leverage ratio		1.8			1.5		1.5

¹⁾	Net debt (non-U.S. GAAP measure) is short- and long-term debt and debt-related derivatives, less cash and cash equivalents.

²⁾	Latest 12-months.

³⁾	Interest expense, net is interest expense including cost for extinguishment of debt, if any, less interest income.

Leverage ratio (non-U.S. GAAP measure, see calculation in table above). Autoliv’s policy is to maintain a leverage ratio commensurate with a strong investment grade credit rating. The Company measures its leverage ratio as net debt (non-U.S. GAAP measure) adjusted for pension liabilities in relation to EBITDA (earnings before interest, taxes, depreciation and amortization), adjusted for antitrust related matters, capacity alignment and separation costs. The long-term target is to maintain a leverage ratio of around 1x within a range of 0.5x to 1.5x. As of September 30, 2019, the Company had a leverage ratio of 1.8x, compared to 1.8x at June 30, 2019 and 1.5x at September 30, 2018.

Total equity decreased in the quarter by $38 million compared to June 30, 2019 mainly due to $54 million from dividends and $71 million in currency translation effects partly offset by $86 million in net income. Total equity increased by $103 million in the nine months period, mainly due to $307 million from net income, partly offset by $45 million from currency translation effects, and $163 million from dividends.

Headcount

	September 30, 2019			June 30, 2019			September 30, 2018
Headcount		64,900			65,700			66,500
Whereof:
Direct workers in manufacturing		71	%		71	%		71	%
Best cost countries		80	%		80	%		80	%
Temporary personnel		9	%		10	%		14	%

Compared to June 30, 2019, total headcount (permanent employees and temporary personnel) decreased by approximately 800. The decrease in the quarter was driven by a reduction of both direct and indirect workforce. Compared to a year ago, headcount decreased by approximately 1,600, with close to 80% of the reduction being in the direct workforce. The headcount reductions reflect the balancing of cost reduction efforts to offset the decline in light vehicle markets and to support the growth in organic sales (non-U.S. GAAP measure) driven by new vehicle program launches.

Outlook 2019

The Company’s sales growth and adjusted operating margin (non-U.S. GAAP measure) outlook indications for 2019 reflects the continuing high level of uncertainty in the automotive markets and are based on the assumption that global light vehicle production declines by 6-7% in full year 2019 compared to full year 2018.

Financial measure		Full year indication
Net sales growth		Around (2)%
Organic sales growth		Around 1%
Adjusted operating margin ¹⁾		Around 9%
R,D&E, net % of sales		Around 2018 level
Tax rate ²⁾		Around 28%
Operating cash flow excl. EC antitrust payment²⁾		$700-800 million
Capital expenditures, net % of sales		Around 2018 level
Leverage ratio at year end		Around 1.7x range

¹⁾	Excluding costs for capacity alignments, anti-trust related matters and separation of our business segments. 2) Excluding unusual items.

The forward-looking non-U.S. GAAP financial measures above are provided on a non-U.S. GAAP basis. The Company has not provided a U.S. GAAP reconciliation of these measures because items that impact these measures, such as costs related to capacity alignments and antitrust matters cannot be reasonably predicted or determined. As a result, such reconciliation is not available without unreasonable efforts and the Company is unable to determine the probable significance of the unavailable information.

New Lease Standard

The Company adopted ASU 2016-02 - Leases, effective January 1, 2019. The adoption of the new lease standard had a material impact on the Company’s balance sheet. For further information see Note 2, New Accounting Standards and Note 4, Leases, to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

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.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Except as set forth below, as of September 30, 2019, the Company’s future contractual obligations have not changed materially from the amounts reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 21, 2019.

On June 24, 2019, Autoliv entered into a SEK 1,200 million bilateral loan agreement with Svensk Exportkredit. The full loan amount was utilized on June 27, 2019 and is due for repayment on June 27, 2022.

On June 27, 2019, Autoliv issued Floating Rate Notes due December 2020 in a principal amount of EUR 100 million under its Euro Medium Term Note Programme, commenced as of April 11, 2019 (the “Notes”). The Notes were issued at an issue price of 100.168% of the aggregate nominal amount of the Notes, and carry a coupon rate of the three-month Euro Interbank Offered Rate (EURIBOR) plus 0.50% per annum.

OTHER RECENT EVENTS

Key launches in the Third Quarter of 2019

Below are some of the key models which were launched in the third quarter of 2019.

Subaru Legacy: Side airbags, Seatbelts.

Land Rover Defender: Driver and/or Passenger airbags, Side airbags, Head/Inflatable Curtain airbags, Seatbelts.

BMW 1-Series: Side airbags, Seatbelts

Peugeot 208: Steering Wheel, Driver and/or Passenger airbags, Side airbags, Head/Inflatable Curtain airbags, Seatbelts.

Chevrolet Trailblazer: Steering Wheel, Driver and/or Passenger airbags, Side airbags, Head/Inflatable Curtain airbags, Seatbelts.

Cadillac CT5: Steering Wheel, Driver and/or Passenger airbags, Side airbags, Head/Inflatable Curtain airbags, Seatbelts.

Ford Puma: Steering Wheel, Driver and/or Passenger airbags, Side airbags.

BYD Song Pro: Steering Wheel, Driver and/or Passenger airbags, Side airbags, Head/Inflatable Curtain airbags, Seatbelts.

Subaru Outback: Side airbags, Seatbelts.

Other Items

•

On September 5, 2019, Autoliv announced the signing of a joint research declaration with Great Wall Motor on the project of North American road safety evaluation in Baoding, China. Autoliv and Great Wall Motor will jointly set up a North America road safety research lab. The lab will combine the global technical and testing resources of both parties and focus on the North American market, at the same time, align with the regulations from road safety authorities, thus to support the implementation of the strategies of Great Wall Motor.

•

On September 16, 2019, Autoliv announced that it strengthened the insights in biomechanics, epidemiology and public health as John Bolte IV and Maria Segui-Gomez joined the Autoliv Research Advisory Board. Maria Segui-Gomez is an acknowledged expert in the field of epidemiology and public health. She is full Professor in Public Health in Spain while holding visitor professorships in the US as Adjunct Associate Professor at Johns Hopkins University, School of Public Health, and as Visiting Professor at University of Virginia School of Medicine. John Bolte IV is Professor at The Ohio State University and Director of the Injury Biomechanics Research Center.

•

On September 23, 2019, Autoliv announced that its interim CFO, Christian Hanke, notified the Company of his intent to resign as the Interim Chief Financial Officer and Vice President Corporate Control to pursue another opportunity outside of Autoliv. Mr. Hanke’s resignation will be effective no later than March 18, 2020. Until the time Mr. Hanke’s resignation becomes effective, he will continue to serve as the Interim Chief Financial Officer and Vice President Corporate Control. The Company expects that Mr. Hanke will remain with the Company through the filing of the Company’s 2019 annual report. The Company is continuing its search for a permanent replacement for the Chief Financial Officer position.

•	On September 27, 2019, S&P Global Ratings announced its downgrade of Autoliv Inc., from A- to BBB+ with outlook negative.

Dividend

On August 19, 2019, the Company declared a quarterly dividend to shareholders of 62 cents per share for the fourth quarter of 2019, with the following payment schedule:

Ex-date (common stock)	November 19, 2019
Ex-date (SDRs)	November 19, 2019
Record Date	November 20, 2019
Payment Date	December 5, 2019

Next Report

Autoliv intends to publish the quarterly earnings report for the fourth quarter of 2019 on Tuesday, January 28, 2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2019, there have been no material changes to the information related to quantitative and qualitative disclosures about market risk that was provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 21, 2019.

ITEM 4. CONTROLS AND PROCEDURES

(a)	Evaluation of Disclosure Controls and Procedures

An evaluation has been carried out, under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Interim 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 Interim Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective.

(b)	Changes in Internal Control over Financial Reporting

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 fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of our business, we are subject to legal proceedings brought by or against us and our subsidiaries.

See Part I, Item 1, "Financial Statements, Note 12 Contingent Liabilities" of this Quarterly Report on Form 10-Q for a summary of certain ongoing legal proceedings. Such information is incorporated into this Part II, Item 1—"Legal Proceedings" by reference.

ITEM 1A. RISK FACTORS

As of September 30, 2019, there have been no material changes to the risk factors that were previously disclosed in Item 1A in the Company’s Form 10-K for the year ended December 31, 2018 filed with the SEC on February 21, 2019.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock repurchase program

During the quarter ended September 30, 2019, the Company made no stock repurchases. The Company is authorized to purchase up to 47.5 million shares of common stock under its stock repurchase program, which was first approved by the board of directors of the Company on May 9, 2000. Under the existing authorization, 2,986,288 shares may be repurchased. The stock repurchase program does not have an expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

Exhibit No.		Description

3.1		Autoliv’s Restated Certificate of Incorporation, as amended, incorporated herein by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 22, 2015).

3.2		Autoliv’s Third Restated By-Laws incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-12933, filing date December 18, 2015).

4.1		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		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).

4.3		Form of Note Purchase and Guaranty Agreement dated April 23, 2014, among Autoliv ASP, Inc., Autoliv, Inc. and the purchasers named therein, incorporated herein by reference to Exhibit 4.6 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 25, 2014).

4.4		Amendment and Waiver 2014 Note Purchase and Guaranty Agreement, dated May 24, 2018, among Autoliv, Inc., Autoliv ASP, Inc. and the noteholders named therein, incorporated herein by reference to Exhibit 4.4 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).

4.5		General Terms and Conditions for Swedish Depository Receipts in Autoliv, Inc. representing common shares in Autoliv, Inc., effective as of May 30, 2018, with Skandinaviska Enskilda Banken AB (publ) serving as a custodian, incorporated herein by reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).

4.6		Agency Agreement dated June 26, 2018 among Autoliv, Inc., Autoliv ASP, Inc. and HSBC Bank PLC, incorporated herein by reference to Exhibit 4.6 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 27, 2018).

4.7		Base listing particulars Agreement, dated April 11, 2019, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein., incorporated herein by reference to Exhibit 4.7 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 26, 2019).

4.8		Programme Agreement, dated April 11, 2019, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein, incorporated herein by reference to Exhibit 4.8 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 26, 2019).

4.9		Agency Agreement, dated April 11, 2019, among Autoliv, Inc., Autoliv ASP, Inc. and the dealers named therein, incorporated herein by reference to Exhibit 4.9 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date April 26, 2019).

10.1+		Mutual Separation Agreement, dated July 1, 2019, between Autoliv, Inc. and Mike Hague, incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No. 001-12933, filing date July 19, 2019).

10.2*+		Employment Agreement, dated July 14, 2016, between Autoliv, Inc. and Christian Hanke.

10.3*+		Employment Agreement, dated April 23, 2019, between Autoliv, Inc. and Frithjof Oldorff.

10.4*+		Employment Agreement, dated March 18, 2019, between Autoliv, Inc. and Christian Swahn.

10.5*+		Employment Agreement, dated February 15, 2019, between Autoliv, Inc. and Magnus Jarlegren.

10.6*		Form of Indemnification Agreement between Autoliv, Inc. and its directors and certain of its executive officers.

31.1*		Certification of the Chief Executive Officer of Autoliv, Inc. pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*		Certification of the Interim Chief Financial Officer of Autoliv, Inc. pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

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

Exhibit No.		Description

101.INS*		Inline XBRL Instance Document – The instance document does not appear in the Interactive Date File because its XBRL tags are embedded within the inline XBRL document.

101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104*		Cover Page Interactive Data File (embedded within the inline XBRL document).

*	Filed herewith.

+	Management contract or compensatory plan.

SIGNATURE

Pursuant to the requirements 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.

Date: October 25, 2019

AUTOLIV, INC.

(Registrant)

By:		/s/ Christian Hanke
		Christian Hanke
		Interim Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)