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Sales of seat belt products (including. seat sub-systems) increased by 16% to $305 million. The organic increase was 9%, while currency effects added 7% to reported sales. Organic sales growth was twice as fast as the increase in light vehicle production. Sales were driven by new business in Korea and market share gains in Europe, mainly as a result of strong sales of pretensioners.

Earnings for the Third Quarter - On a Comparable Basis

Thanks to the strong sales performance and the restructuring program announced last year, Autoliv’s earnings improved at all levels of the income statement – even after adjusting for the effect of the new accounting principle (SFAS 142)which abolishes the requirement for annual amortization of goodwill. On a quarterly basis, the change means a reduction in Autoliv’s amortization by approximately $13 million. For comparability, the new accounting principle has been applied, in the discussions below, to both the reporting periods this year and the reference periods last year. For the same reason, the effect of the $65 million charge for Unusual Items is also disregarded. See notes to consolidated financial statements for details of unusual items.

During the third quarter 2002, reported gross profit increased by 19% to $193 million. Currency translation effects added 6% to gross profits. Gross margin improved to 18.0% from 17.9% during last year’s third quarter. For the third quarter of 2002, cost of sales includes approximately $14 million of special charges, principally associated with disputes with customers. These costs are substantially offset by insurance recoveries for prior years’ recall expenses. In addition, the positive effect of a minor reclassification of a few cost items compared to last year’s presentation has been offset by a similar dilutive effect from the VRE acquisition.

Operating income rose by 21% to $77 million. Excluding currency translation effects, the increase was 13%. Operating margin improved to 7.2% compared to 7% expected in July for the quarter and achieved during the third quarter last year. Profits improved in Japan as a result of booming sales, and recovered in North America from the 9/11 effect. In Europe, earnings performance varied from country to country.

Net interest expense stood almost unchanged at $13 million.

Income before taxes improved by 28% to $66 million. Better operating income added 17% to the pre-tax income, currency translation effects 9% and lower net financial expenses another 2%.

Net income amounted to $41 million and earnings per share to 42 cents, an increase of 37% and 35%, respectively. The average number of shares outstanding (assuming dilution) increased to 98.2 million for the quarter from 98.0 million in last year’s third quarter. The positive impact of currency exchange effects (including both translation and transaction effects) was approximately one cent.

The effective tax rate has been further reduced to 33% from 33.5% previously estimated for the year. Adjusting the year’s previous quarters to the new estimated tax rate has resulted in a one-time catch-up effect of less than one cent in earnings per share.

Earnings for the Third Quarter – Comparison on the Originally Reported Basis

Including the $13 million in goodwill amortization and the $65 million in Unusual Items reported in the corresponding quarter 2001, operating income increased by $91 million from a loss of $15 million to a profit of $77 million. The operating margin improved from a negative margin of 1.6% to a positive margin of 7.2%. Income before taxes improved by $93 million from a loss of $27 million to a profit of $66 million. Net income rose by $71 million from a loss of $30 million to an income of $41 million and earnings per share from a loss of 30 cents to an income of 42 cents per share.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2001

Market overview

During the nine-month period January-September 2002, light vehicle production increased in the Triad by 2% compared to the same period last year.
 
In Western Europe, vehicle production is estimated to have declined by about 4% due to weaker car sales. This is due principally to an unusually weak first quarter in 2002. However, the customer mix was favorable to Autoliv.
 
In North America, light vehicle production rose by nearly 7%, reflecting the unusually low level in the corresponding period in 2001 due to effects from the September 11 attacks. Light truck production rose by 11%, while production in the passenger car segment, to which Autoliv is more exposed, increased by around 3%. Therefore, the vehicle mix was unfavorable to Autoliv.
 
In Japan, which accounts for a tenth of the Company’s sales, light vehicle production increased by close to 2%.
 
Sales for January – September
 
For the nine-month period January through September, sales rose by 8% to $3,265 million. Acquisitions, net of divestitures, added 3% and currency effects 1%. Organic growth was 4% compared to the 2% increase in the Triad’s light vehicle production.
 
Reported sales of airbags rose by 9% to $2,320 million and of seat belts by 7% to $945 million. The organic growth rates were 4% and 5%, respectively.

Sales in Europe rose by 6%. Currency effects added 3% to sales revenues, organic growth approximately 2% and the April 1^st VRE-acquisition 1%. Autoliv’s organic sales increase outperformed European car production, which is estimated to have declined by 4% during the same period. Autoliv has gained market share in Europe and is a supplier to a number of new vehicle models that are selling well.
 
Sales in North America grew by 8%. The acquisition of VRE added 5%, while the organic sales increase was 3%. Sales of Inflatable Curtain’s have been strong in the North American market.
 
Sales in Japan have risen strongly in a relatively flat market. Sales growth in the first quarter was nearly 10% and in both the second and third quarters exceeded 20%. The strong sales performance is in large part due to sales of the Inflatable Curtain and of chest side airbags.
 
Earnings for the Nine months – On a Comparable Basis
 
During the nine months ended September 30, 2002, reported gross profit increased by 12% to $597 million. Currency translation effects added 1% to gross profit. Gross margin improved to 18.3% from 17.6% during the nine-month period in 2001. The improvement is mainly a result of last year's restructuring program.

Net interest expense was approximately $37 million in 2002 compared to approximately $46 million in 2001, a reduction which is explained by lower average interest rates and lower average net debt.

Operating income improved by 12% to $242 million and the operating margin to 7.4% from 7.2% during the first nine months of 2001. Income before taxes rose by 22% to $210 million. The effective tax rate in 2002 was 33% compared to 34.1% in 2001. Net income and Earnings per share rose by 24% to $133 million and by 24% to $1.35, respectively. The improvement was mainly due to higher sales and the restructuring program. However, the lower net interest expense and the lower effective tax rate also contributed.

Earnings for the Nine months – Comparison on the Originally Reported Basis

On the originally reported basis (i.e. including, for 2001, approximately $39 million in goodwill amortization and Unusual Items of $65 million), operating income improved by $129 million, income before taxes increased by $142 million, net income by $112 million and earnings per share by $1.13.

HEADCOUNT

Total headcount (employees plus temporary hourly workers) increased by nearly 600 during the quarter and was entirely concentrated in low-labor-cost countries. The total increase was close to 1,800 during the nine months and approximately 350 came from the acquisition of VRE. The third quarter 2001 restructuring package noted above, called for a reduction of 519 employees. Of that number, 170 remain as employees at September 30, 2002.

PROSPECTS

The increase in light vehicle production was unusually strong in the third quarter as a result of the recovery from the 9/11 effect last year. As a consequence, the growth in vehicle production is expected to ease and amount to approximately 3% in both North America and Europe. Assuming that the mid-October exchange rates prevail, Autoliv's sales will also be favorably affected by approximately 5% during the fourth quarter. The acquisition of VRE is expected to add 4% to consolidated sales. Including the higher market share trend for Autoliv, these assumptions indicate for the fourth quarter that sales will grow at almost the same rate as in the third quarter and that the operating margin will remain at approximately the same level as in the third quarter.

OTHER RECENT EVENTS

Autoliv has introduced the world’s first anti-sliding bag, which prevents occupants from sliding under the seat belt. The bag also improves protection offered by the frontal airbag by keeping the occupant in a more up-right position, so the entire bag catches the occupant. In addition, the new bag offers better knee protection. The bag has been developed in cooperation with Renault, which is launching the anti-sliding bag in its new 2- and 3-door Mégane.

A plant for airbags and seat belts has been opened near Seoul in South Korea. The facility will provide much-needed capacity for Autoliv’s booming Korean business. Based on awarded contracts, sales are expected to increase from $40 million this year to $150 million in two years’ time. Half of that growth will be organic, and the other half will be existing production that will be moved to the new plant from Autoliv companies in other countries.

Autoliv has started its sixth company in China. The new company is focusing on production for vehicle manufacturers in Manchuria in Northern China. Autoliv owns 59% of the shares in the new company and Maw Hung Industrial Corporation in the city of Changchun the remaining 41%. At the beginning of next year, the new joint venture will acquire the existing assets and the seat belt business of Changchun Engley (formerly Harbin Engley). Later, the new company will also offer airbags and a range of sophisticated safety systems. Initial contracts are for seat belts for the Audi A6, the Volkswagen Jetta A2 and for local Chinese vehicle manufacturers.

Autoliv, Inc. has from October 21, 2002 re-initiated its stock repurchase program under an existing authorization from May 2000, which authorized Management to buy back up to 10 million Autoliv shares. As of November 11, 2002 approximately 1.4 million shares have been repurchased since October 21, 2002 for cash of $27.3 million. In total Autoliv have repurchased approximately 5.9 million shares since May 2000 for cash of $130.3 million.

LIQUIDITIY AND SOURCES OF CAPITAL

Due to higher earnings, cash flow from operations improved to $114 million from $34 million during the third quarter 2001. This was the fourth consecutive quarter with more than $100 million in positive cash flow before investments. During the nine months ended September 30, 2002 cash flow from operations was $359 million compared to $122 million in the 2001 period.

Depreciation of $57 million continued, for the third consecutive quarter, to be higher than net capital expenditures. These expenditures amounted in the third quarter to $49 million, a reduction by $12 million from the same quarter last year. Depreciation for the nine months was $166 million and net capital expenditures were $145 million. The reduction reflects a reduced requirement for geographical expansion and additional crash test facilities following past years’ investments. In addition, as a result of the move of more production to low-labor-cost countries, there is less need for expensive, automated manufacturing machinery.

In the third quarter, due to the lower capital expenditures and the strong operational cash flow, $67 million in cash was generated after investments. This is an improvement of $94 million over the third quarter of 2001. Since December 31, 2001, Autoliv has generated $189 million in cash after investments (including acquisitions).

Net debt and gross interest-bearing debt decreased during the quarter by $57 million to $896 million and by $23 million to $1,045 million, respectively, as of September 30. Since December 31, 2001, net debt has been decreased by $127 million.

The net debt to capitalization ratio declined by one percentage point during the quarter to 31%. It stood at 35 % at December 31, 2001. Working capital has been reduced by 9% since December 31, 2001 despite the acquisition of VRE and the continuing move of production to low-labor-cost countries, and the resulting higher inventories. During the third quarter, working capital was reduced to 9.4% in relation to sales, thereby achieving Autoliv’s target of less than 10% of sales.

Since December 31, 2001, equity has increased by $117 million. The effect of translating local currencies into U.S. dollars has increased equity by $42 million. Equity was reduced by the payment of the quarterly dividends of $32 million and the effect of U.S. accounting principle SFAS 133 relating to cash flow hedges had a negative effect of $26 million. The negative effect is mainly related to interest rate swaps affected by the decrease in medium term US dollar interest rates during 2002.
 
DIVIDEND
 
A dividend of 11 cents per share will be paid on December 5, 2002 to shareholders of record as of November 7. The ex-date, when the shares will trade without the right to the dividend, is November 5.
 
 
 
PART II - OTHER INFORMATION

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
N/A

(b) Reports on Form 8-K
The Company did not file any reports on form 8-K for the nine months ended September 30, 2002.
 
 
 
CERTIFICATIONS of CEO and CFO

I, Magnus Lindquist, certify that:

1. I have reviewed this quarterly report on Form 10-Q of AUTOLIV, INC.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
1. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
2. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
3. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
1. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

1. I have reviewed this quarterly report on Form 10-Q of AUTOLIV, INC.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
1. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
2. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
3. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
1. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.