Liquidity, Resources and Financial Position

Cash From Operations

For the foreseeable future, cash flow from operations, together with available financial resources, are expected to be adequate to fund Autoliv's anticipated working capital requirements, capital expenditures, acquisition program, share repurchase program and dividend payments.
  Cash provided by operating activities was $530 million in 2003, $509 million in 2002 and $266 million in 2001.
  Working capital requirements increased during 2003, mainly reflecting higher sales, acquisitions and foreign exchange rate effects. Working capital was $528 million (10.0% of sales) at December 31, 2003 compared to $385 million (8.7% of sales) at December 31, 2002. The Company has set a target that working capital should not exceed 10% of sales.
  Days receivables outstanding were 77 at December 31, 2003 compared to 78 at December 31, 2002. Days inventory outstanding were 31 at both December 31, 2003 and 2002.
  Of the $65 million total of Unusual Items recorded in the third quarter of 2001, approximately $24 million related to non-cash write-offs of assets (including goodwill) and approximately $39 million to provisions that did not have any immediate effect on cash-flow.
  By December 31, 2002, approximately $17 million in cash payments had been made against various accruals, and a further $3 million was paid in 2003, leaving approximately $19 million to be incurred. See Note 10 to the Consolidated Financial Statements included herein.

Capital Expenditures

Cash generated by operating activities continues to be more than adequate to cover capital expenditures. These expenditures, gross, for property, plant and equipment were $258 million in 2003, $228 million in 2002, and $248 million in 2001. Capital expenditures as a percentage of sales were 4.9% in 2003, 5.1% in 2002, and 6.2% in 2001.
  Capital expenditures including currency effects for 2004 are expected to range from $290 million to $320 million.
  Driven by demand for the Inflatable Curtain, major capital expenditures in 2003, 2002 and 2001 were made for additional manufacturing capacity.

Acquisitions

The Company has continued to make strategic acquisitions. Cash (net of cash acquired) paid for acquisitions was $29 million in 2003, $22 million in 2002, and $13 million in 2001. Goodwill of $15 million, $7 million and $9 million, respectively, was associated with these acquisitions. Prior to 2002, such goodwill was being amortized over 5 to 40 years.
  In 2003, the most significant transactions were the purchase of the remaining 17% of the Livbag operations and the acquisition of the remaining 60% interest in NSK's Asian seat belt operations in April. Both operations are now wholly-owned. The Company accounted for its initial 40% investment in the NSK operations under the equity method. Following the acquisition of the remaining 60%, these operations were then consolidated. The NSK operations had annual sales of approximately $150 million.
  In April 2002, the Company acquired the Restraint Electronics business of Visteon Corporation. The acquired operations had $150 million in annual sales.
  Effective January 1, 2001, the Company exercised its option to purchase, for approximately $12 million, an additional 17% of the Livbag inflator operations in France. This purchase increased the Company's ownership interest to 83%.
  In addition, throughout the three years ended December 31, 2003, the Company was involved in several other relatively small acquisition/disposition transactions. See Note 2 to the Consolidated Financial Statements included herein for additional details concerning these transactions.

Financing Activities

Cash generated after operating and investing activities was $253 million in 2003. Cash and cash equivalents decreased by $8 million. Cash used in financing activities was $273 million. The Company's net debt (i.e. short and long-term debt and debt related derivatives less cash and cash equivalents.) decreased by $79 million during 2003 to $785 million.
  The net-debt-to-capitalization ratio was 24% at December 31, 2003, compared to 29% at December 31, 2002.
  The weighted average interest rate on the $878 million of debt outstanding (including debt related derivatives) at December 31, 2003, was approximately 4.5%. See "Treasury Activities" below for details concerning the Company's credit facilities.

Income Taxes

The Company has reserves for taxes that may become payable in future periods as a result of tax audits. See Note 4 to the Consolidated Financial Statements included herein for additional information.
  At any given time, the Company is undergoing tax audits in several tax jurisdictions and covering multiple years. Ultimate outcomes are uncertain, but unfavorable outcomes could, in a future period, have a significant impact on the Company's cash flows.

Pension Arrangements

The Company has large non-contributory defined benefit pension plans covering most U.S. employees, although the Company has frozen participation in the Autoliv ASP, Inc., Pension Plan for all employees hired after December 31, 2003. See Note 17 to the Consolidated Financial Statements included herein for further information about retirement plans.
  The Company's balance sheet liability for its U.S. plans was $29.5 million at December 31, 2003. At December 31, 2003, the U.S. plans had an unrecognized net actuarial loss of $17.2 million. The amortization of this loss is expected to increase pension expense by $0.6 million per year over the ten year service lives of the plan participants estimated to remain.
  Pension expense associated with these plans was $15.0 million in 2003 and is expected to be around $15 million in 2004.
  The Company expects to contribute approximately $14 million to the plans in 2004 and is currently projecting a funding level of around $14 million in the years thereafter.

Dividend Payments

Autoliv pays regular quarterly dividends. The latest dividend declared (payable in the first quarter of 2004) is 15 cents per share. In the past year, the quarterly dividend was raised from 11 to 13 cents and then to 15 cents. The dividend of 13 cents was paid for the first time in March 2003. Total cash dividends of $51 million were paid in 2003 and $43 million were paid in 2002.

Equity

During 2003, equity increased by $342 million, partly due to a $147 million positive effect from translating local currencies into U.S. dollars. Net income contributed $268 million. Equity also increased by $15 million due to the change in the market value of cash flow hedges and by $10 million for the issuance of shares in connection with Autoliv's Stock Incentive Plan. Equity was reduced by repurchases of shares for $43 million and by the payment of dividends of $51 million.

Impact of Inflation

Inflation generally has not had a significant impact upon the Company's financial position or results of operations. Inflation is currently expected to remain low in all of the major countries in which the Company operates.

Personnel

Total headcount (employees plus temporary hourly workers) increased by approximately 2,800 during 2003 to 37,000. This 8% increase in headcount during the year could be compared with the production volume output for the major products that rose by 4% for airbags and 13% for seat belts.
  Of the headcount increase during the year, 1,700 was the result of acquisitions and 1,200 was concentrated in low-labor-cost countries. Headcount in high-labor-cost countries decreased by 100.
  Compensation paid to Directors and executive officers is reported, as for all public U.S. companies, in the Company's proxy statement which is distributed to the Company's shareholders.

Off-balance Sheet Arrangements

The Company does not have guarantees related to unconsolidated entities which have, or are reasonably likely to have, a material current or future effect on its financial position, results of operations or cash flows.

Significant Litigation

In December 2003, a U.S. Federal District Court awarded a supplier of Autoliv ASP, Inc. approximately $27 million plus interest in connection with a commercial dispute. Autoliv intends to appeal the verdict as soon as possible. While legal proceedings are subject to inherent uncertainty, Autoliv believes that it has valid grounds for appeal which would result in a new trial and that it is possible that the judgement could be eliminated or substantially altered. Consequently, in the opinion of the Company's management, it is not possible to determine the final outcome of this litigation at this time. It cannot be assured that the final outcome of this litigation will not result in a loss that will have to be recorded by the Company.

Contractual Obligations and Commitments

The table below is intended to give an overview of known contractual obligations, aggregated and including agreements or other contractual arrangements involving an external party (other than contingent liabilities arising from litigation, arbitration or regulatory actions).
  Contractual obligations include lease and purchase obligations that are enforceable and legally binding on the Company. Pensions and minority interests are not included in this table.

Long-term debt obligations:
For material contractual provisions, see Note 11 to the Consolidated Financial Statements included herein. Interest on debt and credit agreements relating to periods after December 31, 2003, are not included in the table.

Capital lease obligations:
These obligations are included in long-term debt obligations in this table and refer to property, plant and equipment in Europe.

Operating lease obligations:
The Company leases certain offices, manufacturing and research buildings, machinery, automobiles and data processing and other equipment. Such operating leases, some of which are non-cancelable and include renewals, expire at various dates through 2024. Also see Note 16 to the Consolidated Financial Statements included herein.

Unconditional Purchase Obligations:
There are no unconditional purchase obligations other than short-term obligations related to inventory, services, tooling and property, plant and equipment purchased in the ordinary course of business.
  The purchase agreements with suppliers entered into in the ordinary course of business do not generally include fixed quantities. Quantities and delivery dates are established in "call off plans" accessible electronically for all customers and suppliers involved. Communicated "call off plans" for production material from suppliers are normally reflected in equivalent commitments from Autoliv customers.

Current liabilities:
The table excludes total current liabilities of $1,366.9 million, which are reflected in the balance sheet.
  All employee obligations as a result of restructuring are reflected in Current liabilities and the major ones are disclosed in Note 10 to the Consolidated Financial Statements icluded herein.

Other non-current liabilities in the balance sheet:
These consist mainly of deferred tax liabilities, which are not included in this table. The remaining non-current liabilities reflected in this table consist mainly of non-pension post-retirement benefit obligations (see Note 17 to the Consolidated Financial Statements included herein.)
  The impact of revaluation to fair value of debt related derivatives is included in long-term debt-obligations in this table.