Form 8-K AUTOLIV INC For: Oct 27

Mainly based on our customer call-offs we expect organic sales for the fourth quarter of 2016 to be flat compared to the fourth quarter of 2015. Sales from recent M&A activities are expected to have a positive effect of around 6%. Currency translations are expected to have a negative effect of less than 1%, resulting in a consolidated sales growth of more than 5%. The fourth quarter of 2016 includes approximately 3 less working days compared to 2015, decreasing the year-over-year organic growth by around 5pp. The adjusted operating margin, excluding costs for capacity alignments and antitrust related matters, is expected to be more than 9%.

The indication for the full year is for an organic sales growth of around 7%. Sales from recent M&A activities are expected to have a positive effect of around 5%. Currency translations are expected to have a negative effect of more than 1%, resulting in a consolidated sales growth of more than 10%. The adjusted operating margin, excluding costs for capacity alignments and antitrust related matters, is expected to be more than 8.5%. This includes expected integration and purchase accounting related costs for the joint venture with Nissin Kogyo (ANBS) of $20-30 million, as well as costs related to stronger than expected mid-term consolidated sales growth.

Since 2015 Autoliv has agreements with several OEMs for new supply capacity for replacement airbag inflators.

Based on customer agreements and its own expectations, the Company currently expects deliveries of up to 30 million units during the period 2015 to 2018. It is still too early in this evolving situation to be able to determine final delivery volumes.

The projected tax rate, excluding any discrete items, for the full year 2016, is now expected to be around 28% and is subject to change due to any discrete or nonrecurring events that may occur.

Operational cash flow for the full year is expected to remain strong and is now expected to be more than $0.8 billion excluding any discrete items.

Capital expenditures in support of our growth strategy are expected to be in a range of 5-6% of sales, including capital expenditures for additional capacity for replacement inflators.

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

Consolidated sales increased by close to 13% to $2,461 million compared to $2,185 million in the same quarter of 2015. Excluding negative currency translation effects of less than $1 million and effects from M&A activities, the

organic sales growth* was 6.1%, compared to the organic sales growth of “around 6%” expected at the beginning of the quarter. The organic sales growth was negatively impacted by a strike at a customer in South Korea.

The organic sales growth* of airbag products (including steering wheels) was mainly driven by steering wheels in Europe and inflatable curtains in Japan and China.

The organic sales growth* in seatbelt products was a result of strong sales growth in China and Europe, partly offset by South Korea. The trend of higher sales for more advanced and higher value-added seatbelt systems continued globally.

Organic sales* for passive safety electronics products (mainly airbag control modules and remote sensing units) grew significantly in China, with both local and global OEMs.

The organic sales growth* for active safety products (automotive radars, night vision systems, cameras with driver assist systems and positioning systems) was driven by sales of radar and camera systems in Europe, particularly to Mercedes and BMW. This was partly offset by lower sales in North America as a result of model transitions and unfavorable mix on slow-selling models.

Sales of Brake control systems were in line with expectations from the beginning of the quarter.

The organic sales growth* of 6.1% in the quarter was mainly a result of strong growth in China and Europe, where organic sales* grew by 21% and close to 9% respectively. This was a result of a combination of high content on well performing models and the ramp up of new launches.

Sales from Autoliv’s companies in China grew organically* by 21% in the quarter. The growth in the quarter was driven by both global and local OEMs, particularly models from VW, Hyundai/Kia and Great Wall’s Haval brand. Sales growth was also supported by strong year-over-year growth in the LVP.

Organic sales* from Autoliv’s companies in Japan increased by more than 1% in the quarter. The sales increase was mainly due to positive model transitions and ramp ups with models from Toyota. Nissan also contributed to the growth. Lower sales of replacement inflators partly offset the organic growth*.

Organic sales* from Autoliv’s companies in the Rest of Asia (RoA) declined by 3% in the quarter. This decline

was driven by lower sales in South Korea, primarily driven by lower than expected LVP due to a strike at Hyundai/Kia. Strong organic sales growth* in India was mainly driven by strong sales for models launched in 2015, particularly from Hyundai and Suzuki.

In the Americas, both North and South America saw organic sales growth* for the quarter. In North America, the organic sales growth of more than 1% was mainly driven by sales increases for models from Honda, FCA and Hyundai/Kia. Replacement inflators also contributed to the growth. Sales in South America (Brazil) increased by close to 8%, particularly driven by models from FCA, PSA and Renault.

The strong organic sales growth* of close to 9% in the quarter from Autoliv’s companies in Europe was driven by increased sales to Mercedes, particularly the new E-Class with high active safety content as well as models from Hyundai/Kia and Renault.

The gross profit for the third quarter of 2016 was $495 million, which was $55 million higher than in the same quarter of 2015, as a result of higher sales. The gross margin was unchanged at 20.1% compared to the same quarter of 2015. Favorable effects from currencies and raw material savings were offset by costs related to investments for capacity and growth.

Selling, General and Administrative (S,G&A) expenses increased by $15 million.

Research, Development & Engineering (R,D&E) expenses, net, in support of future growth, increased by $35 million compared to the same quarter in the prior year.

Operating income increased by $33 million to $191 million, or 7.8% of sales, compared to 7.2% of sales in the same quarter of 2015, when costs related to capacity alignments of $42 million negatively affected the operating margin.

Costs of $3 million related to capacity alignments and $5 million related to antitrust matters reduced operating margin by 0.3pp in the third quarter, compared to 2.2pp in the same quarter of 2015. Adjusted operating margin*,

excluding these costs, was 8.1% of sales compared to 9.4% of sales for the same period in 2015. The decrease was primarily driven by higher investments for growth.

Income before taxes increased by $33 million from the third quarter of 2015. Net income attributable to controlling interest was $138 million, an increase of $39 million from the third quarter of 2015.

The effective tax rate in the third quarter of 2016 was 26.8% compared to 34.7% in the same quarter of 2015. Discrete items, net decreased the tax rate in the quarter by 1.1pp. In the third quarter of 2015, discrete tax items, net had a favorable impact of 0.4pp.

Earnings per share (EPS) assuming dilution was $1.56 compared to $1.12 for the same period one year ago. The EPS was positively affected by 34 cents from lower costs related to capacity alignment and 15 cents from a lower underlying tax rate. The adjusted EPS* assuming dilution was $1.63 compared to $1.53 for the same period one year ago.

The weighted average number of shares outstanding assuming dilution was 88.5 million compared to 88.3 million in the third quarter of 2015.

Cash flow from operations amounted to $271 million compared to $191 million in the same quarter of 2015. The increase was primarily related to higher net income as well as favorable timing effects from working capital.

Cash flow before financing* was $153 million compared to negative $34 million during the same quarter of 2015, a difference of $187 million, mainly due to the acquisition of MACOM in Q3, 2015. Capital expenditures, net, of $118 million were $21 million more than depreciation and amortization expense in the quarter and $22 million more than capital expenditures during the third quarter of 2015.

During the quarter working capital decreased to 17% of sales from 19% of sales on September 30, 2015 and operating working capital* was 6.6% of sales, down 0.3pp compared to September 30, 2015. The Company targets that operating working capital in relation to the last 12-month sales should not exceed 10%.

Accounts receivable decreased in relation to sales to 74 days outstanding from 75 days outstanding on June 30,

2016 but increased from 71 days outstanding on September 30, 2015. Days inventory outstanding was 34 days, up from 30 days on June 30, 2016 and from 33 days on September 30, 2015.

The Company’s gross interest-bearing debt decreased by $11 million during the quarter to $1,545 million at September 30, 2016 and its net debt position* decreased by $78 million during the quarter to $360 million at September 30, 2016.

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* adjusted for pension liabilities in relation to EBITDA (earnings before interest, taxes, depreciation and amortization). 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, 2016 the Company had a leverage ratio of 0.5x.

During the three month period from July to September 2016, global LVP is estimated by IHS to have grown by close to 6% compared to the same quarter in 2015. This was in line with IHS's expectation at the beginning of the quarter.

In China, which accounts for around 16% of Autoliv’s sales, LVP grew by close to 24%, more than 7pp better than the July estimate.

In Japan, which accounts for around 9% of Autoliv’s sales, LVP increased by close to 2%, less than 1pp better than the July estimate.

In the RoA, which represents around 9% of Autoliv’s sales, LVP declined by 2%, close to 2pp worse than the July estimate.

In the Americas, which accounts for more than one third of Autoliv’s sales, LVP was flat, which was close to 3pp worse than in the July estimate. In North America, LVP increased by more than 2%, which was less than 2pp worse than the July estimate. In South America, the decline was close to 11%, close to 8pp worse than the decline expected in IHS’s July estimate.

In Europe, where Autoliv currently generates close to one third of its sales, LVP declined by close to 2%, which was close to 2pp worse than IHS’s July estimate. In Western Europe, LVP declined by close to 2%, more than 2pp worse than the July estimate. In Eastern Europe, LVP declined by close to 2%, which was in line with the July estimate.

Compared to June 30, 2016 total headcount (permanent employees and temporary personnel) increased by more than 1,300 people. This was primarily driven by the

organic sales growth* and the continued hiring of engineers, in both our passive and active safety businesses.

Autoliv reports its results under two operating segments, Passive Safety and Electronics. Passive Safety includes Autoliv's airbag and seatbelt business, while Electronics integrates all of Autoliv's electronics resources and expertise in passive safety electronics, active safety

products and brake control systems into one organization. Corporate sales and income, capital expenditures and depreciation and amortization for the reportable segments can be found in the tables on page 21 of this report.

Consolidated sales increased by close to 6% to $1,899 million compared to $1,797 million in the same quarter of 2015. Excluding negative currency translation effects of $3 million, the organic sales growth* was also close to

6%. All areas except South Korea showed organic growth in the quarter. The higher operating margin was primarily a result of high capacity alignment costs in the third quarter of 2015.

Consolidated sales were significantly higher compared to the same quarter of 2015, primarily due to the inclusion of ANBS. The organic sales growth* in Electronics was 8%. The consolidated sales growth was mainly affected by $140 million from the ANBS joint venture. The lower

operating margin was mainly a result of costs relating to the formation of ANBS.

The total segment headcount increase of more than 1,300 people was primarily driven by the organic sales

growth* and the continued hiring of engineers, in both our passive and active safety businesses.

For the first nine months of 2016 consolidated sales increased to $7,470 million from $6,650 million for the same period in 2015. Excluding negative currency effects of close to 2% and acquisition effects from

ANBS and MACOM of close to 5%, the organic sales growth* was close to 10%. All parts of the Company, except South America and South Korea, showed organic sales growth* for the first nine months.

Sales of airbag products (including steering wheels) were favorably impacted by higher sales of inflatable curtains, steering wheels and replacement inflators.

Sales of seatbelt products were particularly strong in Europe. The global trend towards more advanced and higher value-added seatbelt systems continued globally.

The growth in organic sales* for passive safety electronics products (mainly airbag control modules and remote sensing units) was due to growth across most regions, particularly in China and North America.

The strong increase in sales of active safety products (automotive radars, night vision systems, cameras with driver assist systems and positioning systems) resulted from growth particularly for radar related products primarily as a result of Mercedes’ increased demand for driving assistance. Sales of camera systems to BMW also contributed.

Sales of Brake control systems were in line with our expectations from the start of operations of ANBS in the beginning of the second quarter of 2016.

For the first nine months of 2016, sales in the Americas represent 34% of total sales, Asia (China, Japan, RoA) 35% and Europe 31%. Sales continue to be balanced across the regions. Growth was particularly strong in Europe and China.

Sales from Autoliv’s companies in China increased organically* by close to 15%, particularly driven by Asian and local OEMs.

Organic sales* from Autoliv’s companies in Japan increased by close to 10%. The increase was primarily driven by models from Toyota, partly offset by lower replacement inflator business.

Organic sales* from Autoliv’s companies in the RoA grew by close to 3%. The growth was primarily driven by strong sales growth in India and Thailand, partly offset by lower organic sales* in South Korea.

Organic sales* from Autoliv’s companies in the Americas increased by close to 6% and were positively impacted by sales growth in North America primarily driven by sales to Honda, Mercedes, Ford and Nissan. Sales of replacement inflators also contributed.

Organic sales* from Autoliv’s companies in Europe increased by more than 13%. Models from Hyundai/Kia, Renault, Mercedes, BMW and VW were the largest growth contributors.

Gross profit for the first nine months of 2016 increased by $199 million, primarily as a result of the higher sales. Gross margin increased by 0.5pp compared to the same period in 2015, mainly as a result of higher organic sales*, favorable currency effects and raw material savings, partly offset by costs related to investments for capacity and growth.

Selling, General and Administrative (S,G&A) expenses increased by $47 million.

R,D&E expenses, net increased by $104 million compared to the same period in the prior year.

Operating income increased by $163 million to $609 million. Operating margin was 8.2% for the first nine months of the year, an increase of 1.5pp compared to the same period in the prior year. In 2015 the operating margin was negatively affected by high costs related to the ongoing capacity alignments and for settlements of antitrust related matters.

Excluding costs for capacity alignments and antitrust matters (including antitrust settlements) the operating margin* was 8.6%, down from 9.2% for the same period one year ago. This was primarily due to the higher investments in R,D&E in support of future growth.

Income before taxes increased by $165 million to $576 million, $2 million more than the increase in operating income.

Net income attributable to controlling interest amounted to $419 million compared to $271 million for the first nine months of 2015. Income tax expense was $158 million compared to $139 million in the same period of 2015. The effective tax rate was 27.5% compared to 33.9% for the same nine month period last year. The tax rate was favorably impacted by the geographical mix of earnings compared to the previous year.

EPS assuming dilution amounted to $4.74 compared to $3.07 for the same period of 2015. EPS assuming dilution was positively affected by lower capacity alignment and legal costs by $1.21, higher operating income by 28 cents and 44 cents by lower underlying tax rate. These positive effects were partly offset by negative currency translation effects of 8 cents.

The weighted average number of shares outstanding assuming dilution was unchanged at 88.4 million compared to the full year 2015.

Operations in the first nine months of 2016 generated $574 million in cash, $145 million more than in the same period in 2015. The increase mainly relates to higher net income, slightly offset by unfavorable timing effects of working capital. Cash flow before financing* was $7 million, this compares to negative $43 million for the same period in 2015.

Capital expenditures net, amounted to $340 million and depreciation and amortization totaled $279 million compared to $334 million and $230 million, respectively, for the same period in 2015.

Autoliv’s gross interest bearing debt increased by $6 million to $1,545 million compared to December 31, 2015

and its net debt increased by $158 million to $360 million compared to December 31, 2015.

For the first nine months, total equity increased by $569 million to $4,037 million due to $417 million from net income, $253 million from the recognition of a minority interest in ANBS, $37 million from positive currency translation effects and $12 million from common stock incentives. These effects were partly offset by $155 million for dividends.

Total parent shareholders’ equity was $3,763 million corresponding to $42.66 per share.

For the first nine months of 2016, global LVP is estimated by IHS to have increased by more than 3% compared to the first nine months of 2015. This was essentially flat compared to IHS’s expectation from the beginning of the year.

In China, which accounts for around 16% of Autoliv’s sales, LVP grew by more than 11%, an increase of close to 3pp compared to the January 2016 estimate.

In Japan, which accounts for around 9% of Autoliv’s sales, LVP declined by more than 1%, more than 3pp worse compared to the January 2016 estimate.

In the RoA, which accounts for around 9% of Autoliv’s sales, LVP was essentially flat, close to 2pp worse compared to the expectation from the beginning of 2016.

In the Americas, which makes up more than one third of Autoliv’s sales, LVP decreased by less than 1%, a decrease of 3pp compared to IHS’s growth expectation of more than 2% from the beginning of the year. In North America, the increase was more than 2% compared to the more than 5% expected at the beginning of the year. In South America, the decrease was more than 16%, close to 5pp worse than the January 2016 estimate.

In Europe, where Autoliv currently generates close to one third of its sales, LVP grew by close to 3% which was 1pp better than IHS’s estimate in January 2016. In Western Europe, LVP grew by close to 5%, close to 2pp better than estimated at the beginning of the year. In Eastern Europe, LVP decreased by more than 1%, less than 1pp worse than the January 2016 estimate.

Consolidated sales increased by 6% to $5,884 million compared to $5,553 million in the same period of 2015. Excluding negative currency translation effects of $115 million, the organic sales growth* was 8%. The organic sales growth* was primarily driven by higher sales in Europe, China, North America and Japan. In the first

nine months of 2015 the reported operating margin for the segment was negatively affected by the antitrust related settlement costs and restructuring costs, primarily related to the on-going European capacity alignment program.

Consolidated sales increased by 45% compared to the same period of 2015. Excluding acquisition effects from ANBS and MACOM of $313 million and negative currency translation effects of $3 million, the organic

sales growth* was close to 18%. The lower operating margin was mainly a result of costs relating to the formation of ANBS.

The total segment headcount increase from December 31, 2015 was mainly due to integration of ANBS into the Electronics segment. Hiring of engineers in our active

safety business and in our passive safety business also contributed to the increase.

The planned new company, which is subject to definitive documentation, will have its headquarters in Gothenburg, Sweden and is expected to start operations in early 2017. 

Dividends

On August 15, 2016, the Company declared a quarterly dividend to shareholders of 58 cents per share for the fourth quarter of 2016 with the following payment schedule:  

Next Report

Autoliv intends to publish the quarterly earnings report for the fourth quarter of 2016 on Thursday, February 2, 2017.

Footnotes

*Non-U.S. GAAP measure, see enclosed reconciliation tables.

Inquiries

Thomas Jönsson,

Group Vice President Communications.

Tel +46 (0)8 58 72 06 27

This information is information that Autoliv, Inc. is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 12.00 CET on October 27, 2016.

Definitions and SEC Filings

Please refer to www.autoliv.com or to our Annual Report for definitions of terms used in this report. Autoliv’s annual report to stockholders, annual report on Form 10-K, quarterly reports on Form 10-Q, proxy statements, management certifications, press releases, current reports on Form 8-K and other documents filed with the SEC can be obtained free of charge from Autoliv at the Company’s address. These documents are also available at the SEC’s website www.sec.gov and at Autoliv’s corporate website www.autoliv.com.

This report contains statements that are not historical facts but rather forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those that address activities, events or developments that Autoliv, Inc. or its management believes or anticipates may occur in the future. All forward-looking statements, including without limitation, statements regarding the expected consummation of the joint venture with Volvo Cars, management’s examination of historical operating trends and data, as well as estimates of future sales, operating margin, cash flow, effective tax rate or other future operating performance or financial results, are based upon our current expectations, various assumptions and data available from third parties. Our expectations and assumptions are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that such forward-looking statements will materialize or prove to be correct as forward-looking statements are inherently subject to known and unknown risks, uncertainties and other factors which may cause actual future results, performance or achievements to differ materially from the future results, performance or achievements expressed in or implied by such forward-looking statements. 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 global 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 declines; changes in and the successful execution of our capacity alignment, restructuring and cost reduction initiatives discussed herein 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 reorganizations 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; our ability to be awarded new business; product liability, warranty and recall claims and investigations and other litigation and customer reactions thereto (including the ultimate resolution of the ongoing Toyota recall); higher expenses for our pension and other postretirement benefits, including higher funding requirements 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 limiting our business; political conditions; dependence on and relationships with customers and suppliers; and other risks and uncertainties identified under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Reports and Quarterly Reports on Forms 10-K and 10-Q and any amendments thereto. 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.