Veoneer, Inc. (Form: 10-Q, Received: 10/23/2019 09:40:49)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging Growth Company

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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.: 001-38471

Veoneer, Inc.

(Exact name of registrant as specified in its charter)



Delaware	82-3720890
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Klarabergsviadukten 70, Section C6
Box 13089

Stockholm Sweden

(Address of principal executive offices)

SE- 103 02

(Zip Code)

+46 8 527 762 00
(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, $1.00 par value	VNE	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.

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 18, 2019, there were 111,399,085 shares of common stock of Veoneer, Inc., par value $1.00 per share, outstanding.

Exhibit index located on page 45

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including without limitation, statements regarding management’s examination of historical operating trends and data, estimates of future sales (including estimates related to order intake), operating margin, cash flow, taxes or other future operating performance or financial results, are 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. We have based these forward-looking statements on our current expectations and assumptions and/or data available from third parties about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs.

New risks and uncertainties arise from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Factors that could cause actual results to differ materially from these forward-looking statements include, without limitation, the following: cyclical nature of automotive sales and production; changes in general industry and market conditions or regional growth or decline; our ability to achieve the intended benefits from our separation from our Former Parent; our ability to be awarded new business or loss of business from increased competition; higher than anticipated costs and use of resources related to developing new technologies; our ability to secure financing to meet future capital needs; higher raw material, energy and commodity costs; component shortages; changes in customer and consumer preferences for end products; market acceptance of our new products; dependence on and relationships with customers and suppliers; unfavorable fluctuations in currencies or interest rates among the various jurisdictions in which we operate; costs or difficulties related to the integration of any new or acquired businesses and technologies; successful integration of acquisitions and operations of joint ventures; successful implementation of strategic partnerships and collaborations; product liability, warranty and recall claims and investigations and other litigation and customer reactions thereto; higher expenses for our pension and other post-retirement benefits, including higher funding needs for our pension plans; work stoppages or other labor issues; possible adverse results of future litigation, regulatory actions or investigations or infringement claims; our ability to protect our intellectual property rights; tax assessments by governmental authorities and changes in our tax rate; dependence on key personnel; legislative or regulatory changes impacting or limiting our business; political conditions; and other risks and uncertainties contained in this Quarterly Report on Form 10-Q, the Prospectus forming part of our Registration Statement on Form S-1 related to our common stock offering (File No. 333-231607), filed with the Securities and Exchange Commission ("SEC") on May 24, 2019, and (ii) the Prospectus forming part of our Registration Statement on Form S-1 related to our convertible notes offering (File No. 333-231609), filed with the SEC on May 24, 2019 and in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission ("SEC") on February 22, 2019.

For any forward-looking statements contained in this Quarterly Report on Form 10-Q 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 revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Veoneer, Inc.

Table of Contents



		Page
Part I – Financial Information		4

Item 1 – Condensed Consolidated Financial Statements		4

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3 - Quantitative and Qualitative Disclosures about Market Risk		40

Item 4 - Controls and Procedures		40

Part II – Other Information		41

Item 1 - Legal Proceedings		41

Item 1A - Risk Factors		41

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		44

Item 3 – Defaults Upon Senior Securities		44

Item 4 – Mine Safety Disclosures		44

Item 5 – Other Information		44

Item 6 - Exhibits		45

Signature		46

Part I – Financial Information

Item 1 – Condensed Consolidated Financial Statements

Veoneer, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(U.S. DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)



		Three Months Ended September 30,						Nine Months Ended September 30,
		2019			2018			2019			2018
Net sales	Note 3	$	462		$	526		$	1,446		$	1,692
Cost of sales		(389		)	(428		)	(1,211		)	(1,371		)
Gross profit		73			99			235			321
Selling, general and administrative expenses		(45		)	(44		)	(148		)	(112		)
Research, development and engineering expenses, net		(144		)	(109		)	(459		)	(334		)
Amortization of intangibles		(6		)	(5		)	(17		)	(16		)
Other income, net		—			1			1			18
Operating loss		(122		)	(58		)	(388		)	(122		)
Loss from equity method investment	Note 9	(16		)	(15		)	(50		)	(45		)
Interest income		7			3			14			4
Interest expense		(5		)	—			(7		)	(1		)
Other non-operating items, net		—			1			1			1
Loss before income taxes	Note 15	(136		)	(70		)	(430		)	(163		)
Income tax benefit / (expense)	Note 7	(3		)	(3		)	1			(12		)
Net loss		(139		)	(72		)	(429		)	(175		)
Less: Net loss attributable to non-controlling interest		(6		)	(5		)	(26		)	(13		)
Net loss attributable to controlling interest		$	(133	)	$	(68	)	$	(403	)	$	(162	)

Net loss per share - basic	Note 14	$	(1.20	)	$	(0.78	)	$	(4.10	)	$	(1.86	)
Net loss per share - diluted		$	(1.20	)	$	(0.78	)	$	(4.10	)	$	(1.86	)

Weighted average number of shares outstanding, (in millions)		111.40			87.15			98.32			87.15
Weighted average number of shares outstanding, assuming dilution (in millions)		111.40			87.15			98.32			87.15

See notes to the unaudited condensed consolidated financial statements.

Veoneer, Inc.

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(U.S. DOLLARS IN MILLIONS)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net loss	$	(139	)	$	(72	)	$	(429	)	$	(175	)
Other comprehensive income (loss), before tax:
Change in cumulative translation adjustment	(27		)	(2		)	(40		)	(6		)
Net change in cash flow hedges	—			—			—			1
Pension liability	—			(1		)	—			(2		)
Other comprehensive income (loss), before tax	(27		)	(3		)	(40		)	(7		)
Expense for taxes	—			—			—			—
Other comprehensive income (loss), net of tax	(27		)	(3		)	(40		)	(7		)
Comprehensive loss	(166		)	(75		)	(469		)	(182		)
Less: Comprehensive loss attributable to non-controlling interest	(7		)	(9		)	(26		)	(16		)
Comprehensive loss attributable to controlling interest	$	(159	)	$	(66	)	$	(443	)	$	(166	)

See notes to the unaudited condensed consolidated financial statements.

Veoneer, Inc.

Condensed Consolidated Balance Sheets

(U.S. DOLLARS IN MILLIONS)



		(unaudited)
		September 30, 2019			December 31, 2018
Assets
Cash and cash equivalents		$	1,062		$	864
Short-term investments		—			5
Receivables, net		309			376
Inventories, net	Note 8	159			172
Related party receivables	Note 16	14			64
Prepaid expenses		46			39
Other current assets		12			22
Total current assets		1,602			1,543
Property, plant and equipment, net		570			499
Operating lease right-of-use assets		99			—
Equity method investment	Note 9	75			101
Goodwill		290			291
Intangible assets, net		87			102
Deferred tax assets		11			11
Related party notes receivables	Note 16	—			1
Investments		10			8
Other non-current assets		111			77
Total assets		$	2,855		$	2,632
Liabilities and equity
Accounts payable		$	317		$	369
Short-term debt	Note 5	21			—
Related party payables	Note 16	4			16
Accrued expenses	Note 10	227			193
Income tax payable		6			9
Related party short-term debt		2			1
Other current liabilities		36			47
Total current liabilities		613			636
4.00% Convertible Senior Notes due 2024	Note 5	158			—
Related party long-term debt	Note 16	12			13
Pension liability	Note 11	21			20
Deferred tax liabilities		12			13
Operating lease non-current liabilities	Note 4	81			—
Finance lease non-current liabilities	Note 4	33			1
Other non-current liabilities		25			24
Total non-current liabilities		342			70
Equity
Common stock (par value $1.00, 325 million shares authorized, 111 million and 87 million shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively)		111			87
Additional paid-in capital		2,343			1,938
Accumulated deficit		(584		)	(181		)
Accumulated other comprehensive loss		(59		)	(19		)
Total equity		1,811			1,826
Non-controlling interest		89			101
Total equity and non-controlling interest		1,900			1,927
Total liabilities, equity and non-controlling interest		$	2,855		$	2,632

See notes to the unaudited condensed consolidated financial statements.

Veoneer, Inc.

Condensed Consolidated Statements of Changes in Equity (Unaudited)

(U.S. DOLLARS IN MILLIONS)



	Nine months ended September 30, 2019
	Equity attributable to
	Common Stock		Additional Paid In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Non-controlling Interest			Total
Balance at beginning of period	$	87	$	1,938		$	(181	)	$	(19	)	$	101		$	1,927
Comprehensive Income (Loss):
Net loss	—		—			(403		)	—			(26		)	(429		)
Foreign currency translation	—		—			—			(40		)	—			(40		)
Stock based compensation expense	—		5			—			—			—			5
Issuance of common stock	24		379			—			—			—			403
Purchase of minority interest	—		(14		)	—			—			14			—
Equity component of issuance of convertible notes, net of taxes (Note 5)	—		35			—			—			—			35
Total Comprehensive Income (Loss)	24		405			(403		)	(40		)	(12		)	(26		)
Balance at end of period	$	111	$	2,343		$	(584	)	$	(59	)	$	89		$	1,900



	Nine months ended September 30, 2018
	Equity attributable to
	Common Stock		Additional Paid In Capital		Net Former Parent Investment			Accumulated Deficit			Accumulated Other Comprehensive Loss			Non-controlling Interest			Total
Balance at beginning of period	$	—	$	—	$	844		$	—		$	(8	)	$	121		$	957
Comprehensive Income (Loss):
Net loss	—		—		(95		)	(68		)	—			(13		)	(175		)
Foreign currency translation	—		—		—			—			(3		)	(3		)	(6		)
Net change in cash flow hedges	—		—		—			—			1			—			1
Pension liability	—		—		—			—			(2		)	—			(2		)
Reclassification of Net Former Parent investment and issuance of ordinary shares in connection with separation	87		1,926		(2,002		)	—			—			—			11
Stock based compensation expense	—		3		—			—			—			—			3
Total Comprehensive Income (Loss)	87		1,929		(2,097		)	(68		)	(4		)	(16		)	(169		)
Net transfers from Former Parent	—		—		1,253			—			—			(1		)	1,252
Balance at end of period	$	87	$	1,929	$	—		$	(68	)	$	(12	)	$	104		$	2,040

Veoneer, Inc.

Condensed Consolidated Statements of Cash Flow (Unaudited)

(U.S. DOLLARS IN MILLIONS)



	Nine Months Ended September 30,
	2019			2018
Operating activities
Net loss	$	(429	)	$	(175	)
Depreciation and amortization	90			82
Undistributed loss from equity method investments	50			45
Stock-based compensation	5			—
Deferred income taxes	(7		)	—
Contingent consideration write-down	—			(14		)
Other, net	(7		)	(49		)
Change in operating assets and liabilities:
Receivables, gross	48			13
Accrued expenses	42			51
Related party receivables and payables, net	37			(58		)
Accounts payable	(18		)	—
Prepaid expenses	(10		)	(7		)
Inventories, gross	1			(16		)
Income taxes	—			(31		)
Other current assets and liabilities, net	(23		)	(22		)
Net cash used in operating activities	(221		)	(181		)

Investing activities
Capital expenditures	(168		)	(123		)
Equity method investment	(32		)	(71		)
Short-term investments mature into cash	5			(5		)
Long term investments	(3		)	—
Net decrease in related party notes receivable	—			76
Proceeds from sale of property, plant and equipment	—			3
Net cash used in investing activities	(198		)	(120		)

Financing activities
Issuance of common stock	405			—
Proceeds from long-term debt	206			—
Proceeds from short-term debt	22			—
Proceeds from related party short-term debt	1			—
Cash provided at separation by Former Parent	—			980
Net transfers from Former Parent	—			275
Decrease in related party long-term debt	—			(49		)
Net cash provided by financing activities	634			1,206
Effect of exchange rate changes on cash and cash equivalents	(17		)	14
Increase in cash and cash equivalents	198			919
Cash and cash equivalents at beginning of period	864			—
Cash and cash equivalents at end of period	$	1,062		$	919

See notes to the unaudited condensed consolidated financial statements.

Veoneer, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(U.S. DOLLARS IN MILLIONS)

Note 1. Basis of Presentation

Spin-Off

On June 29, 2018 (the “Distribution Date”), Veoneer, Inc. (“Veoneer” or “the Company”) became an independent, publicly-traded company as a result of the distribution by Autoliv, Inc. (“Autoliv” or “Former Parent”) of 100 percent of the outstanding common stock of Veoneer to the stockholders of Autoliv (the “Spin-Off”). Each Autoliv stockholder and holder of Autoliv’s Swedish Depository Receipts (SDRs) of record as of certain specified dates received one share of Veoneer common stock or one Veoneer SDR, respectively, for every one share of Autoliv common stock or Autoliv SDR. The Spin-Off was completed on June 29, 2018 in a tax free transaction pursuant to Section 355 of the U.S. Internal Revenue Code.

On July 2, 2018, Veoneer common stock began regular trading on the New York Stock Exchange (“NYSE”) under the ticker symbol “VNE” and Veoneer SDRs began trading on Nasdaq Stockholm under the symbol “VNE-SDB”. Agreements entered into between Veoneer and Autoliv in connection with the Spin-Off govern the relationship between the parties following the Spin-Off and provide for the allocation of various assets, liabilities, rights and obligations. These agreements also include arrangements for transition services to be provided on a temporary basis between the parties.

In advance of the Spin-Off, Autoliv completed a series of internal transactions, in which Autoliv transferred its Electronics business to Veoneer. These transactions are referred to herein as the “internal reorganization”. The internal reorganization was completed on April 1, 2018.

The Company has two operating segments, Electronics and Brake Systems. Electronics includes all electronics resources and expertise, Restraint Control Systems and Active Safety products, and Brake Systems provides brake control and actuation systems.

The accompanying unaudited condensed consolidated financial statements for the period prior to the Spin-Off have been prepared from Autoliv’s historical accounting records and are presented on a stand-alone basis as if the operations had been conducted independently from Autoliv. Prior to the Spin-Off, Autoliv’s net investment in these operations (Net Former Parent Investment) is shown in lieu of a controlling interest’s equity in the unaudited condensed consolidated financial statements. Subsequent to the Spin-Off and the related distribution of shares, Veoneer Common stock, Additional paid-in capital and future income (losses) were reflected in Retained earnings (Accumulated deficit). For periods prior to June 29, 2018, the Company’s financial statements are presented on a combined basis and for the periods subsequent to June 29, 2018, they are presented on a consolidated basis (the financial statements for all periods are referred to herein as "condensed consolidated financial statements").

The unaudited condensed consolidated financial statements include the historical operations, assets, and liabilities that were considered to comprise the Veoneer business. The allocations and estimates in the unaudited condensed consolidated financial statements for the periods prior to the Spin-Off are based on assumptions that management of Autoliv and Veoneer believe are reasonable. However, the historical statements of operations, comprehensive loss, balance sheets, and cash flows of Veoneer included herein may not be indicative of what they would have been had Veoneer actually been a stand-alone entity during such periods, nor are they necessarily indicative of Veoneer's future results.

The accompanying unaudited condensed consolidated financial statements for Veoneer do not include all of the information and notes required by the accounting principles generally accepted in the U.S. (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to Veoneer’s Audited Consolidated Financial Statements for the year ended December 31, 2018 and corresponding notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 22, 2019.

Certain amounts in the unaudited condensed consolidated financial statements and associated notes may not reconcile due to rounding. All percentages have been calculated using unrounded amounts.

Joint Venture with Nissin Kogyo

On June 14, 2019, the Company signed agreements with Nissin Kogyo, its joint venture partner in Veoneer Nissin Brake Systems ("VNBS"), providing for certain structural changes to the joint venture and the funding of VNBS.

Pursuant to the agreements, Veoneer acquired Nissin Kogyo’s interests in the US operations of VNBS, referred to as Veoneer Nissin Brake America ("VNBA"), and VNBS transferred or licensed the VNBS technologies necessary to operate the VNBA

business to VNBA. VNBA, including the transferred or licensed technologies, is a wholly-owned Veoneer business effective on the closing date, June 28, 2019. VNBS will also provide certain transition services to VNBA.

The VNBS operations in Japan and China will remain a part of the joint venture, with Veoneer owning 51% and Nissin Kogyo owning 49% of the joint venture.

Under the agreement, Nissin Kogyo provided guarantees for certain VNBS commercial loans corresponding to 49% of the funding Veoneer had previously unilaterally provided to VNBS. During the nine months ended September 30, 2019, Veoneer received approximately $20 million as debt repayment from VNBS.

The agreement between Veoneer and Nissin Kogyo resolved the funding situation previously described by Veoneer in its public filings and allows Veoneer to continue reviewing and evaluating the development priorities and strategic options with respect to its brake systems business.

Follow-on Offerings

On May 28, 2019, the Company completed follow-on public offerings of 24,000,000 shares of common stock and $207 million aggregate principal amount of 4.00% Convertible Senior Notes due 2024 (the “Notes”) (including $27 million aggregate principal amount pursuant to the underwriters’ over-allotment option to purchase additional notes). The public offering price for our common stock offering was $17.50 per share. The Company received net proceeds of approximately $404 million from the common stock offering and approximately $200 million from the Notes offering, in each case after deducting the underwriting discounts and issuance costs directly attributable to each offering.

Note 2. Summary of Significant Accounting Policies

A summary of significant accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 22, 2019.

New Accounting Standards

Adoption of New Accounting Standards

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. 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, and has not 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, have allowed 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 approximately $75 million as of January 1, 2019, which is shown in the table below. The adoption of the new lease standard did not have a material impact on the Company's Condensed Consolidated Statements of Operations or Statements of Cash Flows.



				(unaudited)		(unaudited)
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 assets, operating leases	$	—		$	75	$	75
Current liabilities
Other current liabilities	—			16		16
Non-current liabilities
Operating lease non-current liabilities	—			57		57
Equity
Accumulated deficit	(181		)	—		(181		)

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance issued by the FASB, including industry specific guidance. In 2016, the FASB issued accounting standard updates to address implementation issues and to clarify guidance in certain areas. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. In addition, ASU 2014-09 requires certain additional disclosure around the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASU 2014-09 effective January 1, 2018 and utilized the modified retrospective (cumulative effect) transition method. The Company applied the modified retrospective transition method through a cumulative adjustment to equity. The adoption of the new revenue standard did not have a material impact on the Company’s condensed consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. ASU 2018-14 removes the requirements to disclose: amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year; the amount and timing of plan assets expected to be returned to the employer; and the effects of a one-percentage point change in assumed health care cost trend rates. ASU 2018-14 requires disclosure of an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted for all entities and the amendments in this update are required to be applied on a retrospective basis to all periods presented. The Company is currently evaluating this guidance to determine the impact on the Company's condensed 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. ASU 2018-13 removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. ASU 2018-13 requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. 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 fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company does not expect ASU 2018-13 to have a material impact on its condensed 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 does not expect ASU 2016-13 to have a material impact on its condensed consolidated financial statements.

Note 3. Revenue

Disaggregation of revenue

In the following tables, revenue is disaggregated by primary region and products.

Net Sales by Region



	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Asia	$	80	$	77	$	157	$	98	$	85	$	183
Americas	133		14		147		166		15		181
Europe	158		—		158		163		—		163
Total net sales	$	371	$	91	$	462	$	426	$	100	$	526

Net Sales by Region



	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Asia	$	259	$	229	$	488	$	314	$	280	$	594
Americas	432		46		478		517		45		562
Europe	480		—		480		537		—		537
Total net sales	$	1,171	$	275	$	1,446	$	1,367	$	325	$	1,692

Net Sales by Products



	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Restraint Control Systems	$	193	$	—	$	193	$	226	$	—	$	226
Active Safety products	178		—		178		201		—		201
Brake Systems	—		91		91		—		100		100
Total net sales	$	371	$	91	$	462	$	426	$	100	$	526

Net Sales by Products



	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Restraint Control Systems	$	617	$	—	$	617	$	739	$	—	$	739
Active Safety products	554		—		554		628		—		628
Brake Systems	—		275		275		—		325		325
Total net sales	$	1,171	$	275	$	1,446	$	1,367	$	325	$	1,692

Note 4. Leases

The Company has operating and finance leases for offices, manufacturing and research buildings, machinery, automobiles, data processing and other equipment. The leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 month to 2 year(s). As of September 30, 2019, assets recorded under finance leases included in Property, plant and equipment, net were $49 million, and accumulated depreciation associated with finance leases was $4 million.

The Company has elected the practical expedient not to separate lease components from non-lease components for all its underlying assets.

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 judgment 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 components of lease expense for the nine months ended September 30, 2019 were as follows:



(Dollars in millions)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Operating lease cost	$	7	$	18
Finance lease cost
Amortization of right-of-use assets	1		2
Interest on lease liabilities	—		1
Total finance lease cost	1		3
Short-term lease cost	—		—
Variable lease cost	—		—
Total lease cost	$	8	$	21

Other information related to leases for the nine months ended September 30, 2019 was as follows:



Supplemental Cash Flows Information	Nine months ended September 30, 2019
(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	16
Operating cash flows used for finance leases	1
Financing cash flows used for finance leases	1
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	46
Finance leases	33



	As of
(Lease term in years and discount rate)	September 30, 2019
Weighted-average remaining lease term
Operating Leases	8
Finance Leases	11
Weighted-average discount rate
Operating leases	3.9	%
Finance leases	4.9	%

Future minimum lease payments under non-cancellable leases as of September 30, 2019 were as follows:



(Dollars in millions)	Operating Leases		Finance Leases
2019 (excluding the nine months ended September 30, 2019)	$	6	$	1
2020	21		4
2021	16		15
2022	14		3
2023	13		3
Thereafter	49		37
Total lease payments	119		63
Less imputed interest	20		17
Total lease liabilities	$	99	$	46

Lease obligations reported as of September 30, 2019 were as follows:



(Dollars in millions)	Operating Leases		Finance Leases
Other current liabilities	$	18	$	1
Lease liabilities - non current	81		33
Related party leases	—		12
Total lease liabilities	$	99	$	46

As of September 30, 2019, the Company has additional obligations relating to operating leases, primarily for offices, manufacturing and research buildings, machinery, automobiles, data processing and other equipment, that have not yet commenced of $1 million. These operating leases will commence in 2019 and 2020 with lease terms of 3 years to 5 years.

Note 5. Debt

The Company’s short and long-term debt consists of the following:



	As of
(Dollars in millions)	September 30, 2019		December 31, 2018
Short-Term Debt:
Short-term borrowings	$	21	$	—
Long-Term Debt:
4.00% Convertible Senior Notes due 2024 (Carrying value)	158		—
Other long-term borrowings	4
Total Debt	$	183	$	—

Short-Term Debt:

Short-term borrowings are primarily related to the Company's non-U.S. joint ventures and are payable in Japanese Yen. The term loan bears interest at a rate of 0.58% per year.

Long-Term Debt:

4.00% Convertible Senior Notes

On May 28, 2019, the Company issued, in a registered public offering in the U.S., Convertible Senior Notes (the “Notes”) with an aggregate principal amount of $207 million. The Notes bear interest at a rate of 4.00% per year payable semi-annually in arrears on June 1 and December 1 of each year, beginning December 1, 2019. The Notes will mature on June 1, 2024, unless repurchased, redeemed or converted in accordance with their terms prior to such date.

The net proceeds from the offering of the Notes were approximately $200 million, after deducting issuance costs of $7 million. The Company accounted for these issuance costs as a direct deduction from the carrying amount of the Notes. These costs are being amortized into interest expense for 5 years or through June 2024.

The conversion rate is 44.8179 shares of common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $22.3125 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if the Company deliver a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or notice of redemption, as the case may be. In no event will the conversion rate per $1,000 principal amount of notes as a result of this adjustment exceed 57.1428 shares of common stock, as stipulated in the indenture.

The Company may not redeem the Notes prior to June 1, 2022. On or after this date, the Company may redeem for cash all or any portion of the Notes, at our option, if the last reported sale price of the Company's common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.

If the Company undergoes a fundamental change (as defined in the indenture), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Notes will be the Company's general unsecured obligations and will rank senior in right of payment to all of the Company's indebtedness that is expressly subordinated in right of payment to the Notes, equal in right of payment with all of the Company's liabilities that are not so subordinated, effectively junior to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.

Holders may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding March 1, 2024 only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2019 (and only during such fiscal quarter), if the last reported sale price of the Company's common stock for at least 20 trading days, whether or not consecutive, during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the "trading price" (as defined in the indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events.

On or after March 1, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at the Company's election, as stipulated in the indenture.

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, representing the conversion option, which does not meet the criteria for separate accounting as a derivative as it is indexed to the Company's own stock, was determined by deducting the fair value of the liability component from the par value of the Notes. The difference between the principal amount of the Notes and the liability component represents the debt discount, which is recorded as a direct deduction from the related debt liability in the Consolidated and Condensed Balance Sheet and amortized to interest expense using the effective interest method over the term of the Notes. The effective interest rate on the Notes is 10%. The equity component of the Notes of approximately $46 million is included in additional paid-in capital in the Condensed Consolidated Balance Sheet and is not remeasured as long as it continues to meet the conditions for equity classification. The Company allocated transaction costs related to the Notes using the same proportions as the proceeds from the Notes. Transaction costs attributable to the liability component were recorded as a direct deduction from the related debt liability in the Condensed Consolidated Balance Sheet and amortized to interest expense over the term of the Notes, and transaction costs attributable to the equity component were netted with the equity component in shareholders’ equity.

The following table presents the outstanding principal amount and carrying value of the Notes:



4.00% Convertible Senior Notes due 2024	As of
(Dollars in millions)	September 30, 2019			December 31, 2018
Principal amount (face value)	$	207		$	—
Unamortized issuance cost	(5		)	—
Unamortized debt discount	(44		)	—
Net Carrying value	$	158		$	—

The Company recognized total interest expense related to the Notes of approximately $4 million and $6 million for the three and nine months ended September 30, 2019, respectively, in the Unaudited Condensed Consolidated Statements of Operations.

The estimated fair value of the Notes was $221 million as of September 30, 2019. The estimated fair value of the Notes was determined through consideration of quoted market prices. The fair value is classified as Level 2, as defined in Note 6, Fair Value Measurements.

Note 6. Fair Value Measurements

The Company uses a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs.

Level 1 - Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

Level 2 - Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.

Level 3 - Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

Assets which are valued at net asset value per share ("NAV"), or its equivalent, as a practical expedient are reported outside the fair value hierarchy, but are included in the total assets for reporting and reconciliation purposes.

Items Measured at Fair Value on a Recurring Basis

Derivative instruments - The Company uses derivative financial instruments, “derivatives”, to mitigate the market risk that occurs from its exposure to changes in interest and foreign exchange rates. The Company does not enter into derivatives for trading or other speculative purposes. The Company’s use of derivatives is in accordance with the strategies contained in the Company’s overall financial risk policy. The derivatives outstanding as of September 30, 2019 were foreign exchange swaps. All swaps principally match the terms and maturity of the underlying debt and no swaps have a maturity beyond six months. All derivatives are recognized in the unaudited condensed consolidated financial statements at fair value. Certain derivatives are from time to time designated either as fair value hedges or cash flow hedges in line with the hedge accounting criteria. For certain other derivatives hedge accounting is not applied either because non-hedge accounting treatment creates the same accounting result or the hedge does not meet the hedge accounting requirements, although entered into applying the same rationale concerning mitigating market risk that occurs from changes in interest and foreign exchange rates. The Company’s derivatives are classified as Level 2 of the fair value hierarchy and there were no transfers between the levels during this or comparable periods.

During the first quarter of 2018, forward contracts designated as cash flow hedges of certain external purchasing were terminated. The loss associated with such termination was not material.

Financial Statement Presentation

The Company enters into master netting agreements, International Swaps and Derivatives Association (ISDA) agreements with all derivative counterparties. The netting agreements allow for netting of exposures in the event of default or breach of the counterparty agreement. The fair values in the Condensed Consolidated Balance Sheets have been presented on a gross basis. Derivative financial instruments designated and non-designated as hedging instruments are included in the Company’s Condensed Consolidated Balance Sheets. The notional value of the derivatives not designated as hedging instruments was $216 million as of September 30, 2019 and $103 million as of December 31, 2018. As of September 30, 2019, the asset of the derivatives not designated

as hedging instruments was $1 million, and as of December 31, 2018, the asset of the derivatives not designated as hedging instruments was less than $1 million.

Gains and losses on derivative financial instruments recognized in the Unaudited Condensed Consolidated Statements of Operations, were a loss of less than $1 million and a gain of $1 million for the three months ended September 30, 2019 and 2018, respectively, and a gain of $1 million and less than $1 million for the nine months ended September 30, 2019 and 2018, respectively.

Contingent consideration - The fair value of the contingent consideration related to the M/A-COM acquisition on August 17, 2015 is re-measured on a recurring basis. The fair value measurements are generally determined using unobservable inputs and are classified within Level 3 of the fair value hierarchy. The Company adjusted the fair value of the earn-out liability to $14 million in the first quarter of 2017 based on actual revenue levels to date as well as changes in the estimated probability of different revenue scenarios for the remaining contractual earn-out period. Income of approximately $13 million was recognized within Other income in the Unaudited Condensed Consolidated Statements of Operations in the first quarter of 2017 due to the decrease in the contingent consideration liability. The remaining fair value of the earn-out liability of $14 million as of December 31, 2017 was fully released and recognized within Other income in the first quarter of 2018, driven by changes in the estimated probability of different revenue scenarios for the remaining contractual earn-out period such that management no longer believes that there are any scenarios under which the earn-out criteria could be met. Management has updated its analysis as of September 30, 2019 and continues to believe that the fair value of the contingent consideration is zero.

Items Measured at Fair Value on a Non-Recurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis. The fair value measurements are generally determined using unobservable inputs and are classified within Level 3 of the fair value hierarchy. These assets include long-lived assets, intangible assets and investments in affiliates, which may be written down to fair value as a result of 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. No such non-recurring measurements were made during the nine months ended September 30, 2019 or 2018.

Investments

The Company may, as a practical expedient, estimate the fair value of certain investments using NAV of the investment as of the reporting date. This practical expedient generally deals with investments that permit an investor to redeem its investment directly with, or receive distributions from, the investee at times specified in the investee’s governing documents. Examples of these investments (often referred to as alternative investments) may include ownership interests in real assets, certain credit strategies, and hedging and diversifying strategies. They are commonly in the form of limited partnership interests. The Company uses NAV as a practical expedient when valuing investments in alternative asset classes and funds which are a limited partnership or similar investment vehicle.

On June 30, 2017, Veoneer committed to make a $15 million investment in Autotech Fund I, L.P. pursuant to a limited partnership agreement, and as a limited partner, will periodically make capital contributions toward this total commitment amount. As of September 30, 2019 and December 31, 2018, Veoneer contributed approximately $10 million and $8 million, respectively, to the investment in Autotech Fund I, L.P.

The carrying amounts reflected in the Condensed Consolidated Balance Sheet in Investments for the Autotech Fund I, L.P approximate their fair values.

Note 7. Income Taxes

During the three and nine month periods ended September 30, 2019, the Company recorded a tax provision of $3 million and a tax benefit of $1 million, respectively. The income tax provision for the three and nine month periods ended September 30, 2018 was $3 million and $12 million, respectively. Discrete items, net were a benefit of less than $1 million and $6 million for the three and nine month periods ended September 30, 2019, respectively, and a provision of less than $1 million and $1 million for the three and nine month periods ended September 30, 2018, respectively. Veoneer's effective tax rate differs from an expected statutory rate primarily due to prior year provision-to-return adjustments, an intraperiod tax allocation related to the Notes issuance, and losses in certain jurisdictions that are not benefited. Under the intraperiod tax allocation rules, the deferred tax liability created upon the issuance of the Notes and recorded through Additional Paid-in Capital is treated as a source of income, which enables the Company to recognize a tax benefit for the U.S. loss before income taxes through continuing operations of $2 million and $7 million for the three and nine month periods ended September 30, 2019, respectively. The tax benefit related to the issuance of the Notes will be recognized ratably throughout the year and will not recur in future years.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company assesses all available evidence, both positive and negative, to determine the amount of any required valuation allowance. Valuation allowances have been established for the Company’s United States, Swedish, French, Japanese operations, certain Chinese operations and the Company’s joint venture in Japan.

Note 8. Inventories

Inventories are stated at the lower of cost (according to first-in-first-out basis, "FIFO") and net realizable value. The components of inventories were as follows:



	As of
(Dollars in millions)	September 30, 2019			December 31, 2018
Raw materials	$	109		$	108
Work in progress	10			15
Finished products	63			71
Inventories	182			194
Inventory valuation reserve	(23		)	(23		)
Total inventories, net of reserve	$	159		$	172

Note 9. Equity Method Investment

As of September 30, 2019, the Company has one equity method investment, which is in Zenuity, a 50% ownership joint venture with Volvo cars.

During the month period ended September 30, 2019 Veoneer contributed SEK 300 million (approximately $32 million) in cash (representing 50% of the total contribution, with the remainder made by Volvo Cars) into Zenuity to support its future operating cash flow needs.

During the first quarter of 2018, Veoneer contributed SEK 600 million (approximately $71 million) in cash (representing 50% of the total contribution, with the remainder made by Volvo Cars) into Zenuity to support its future operating cash flow needs.

The profit and loss attributed to the investment is shown in the line item Loss from equity method investment in the Unaudited Condensed Consolidated Statements of Operations. Veoneer’s share of Zenuity’s loss for the three and nine months ended September 30, 2019 was $16 million and $50 million, respectively. Veoneer’s share of Zenuity’s loss for the three and nine months ended September 30, 2018 was $15 million and $45 million, respectively. As of September 30, 2019 and December 31, 2018, the Company’s equity investment in Zenuity was $75 million and $101 million, respectively.

Certain unaudited summarized income statement information of Zenuity, for the three and nine months ended September 30, 2019 and 2018, is shown below:



	Three Months Ended September 30						Nine Months Ended September 30
(Dollars in millions)	2019			2018			2019			2018
Net sales	$	2		$	1		$	3		$	4
Gross profit	—			—			—			—
Operating loss	(31		)	(31		)	(100		)	(90		)
Loss before income taxes	(31		)	(30		)	(100		)	(90		)
Net loss	(31		)	(30		)	(101		)	(90		)

Note 10. Accrued Expenses



	As of
(Dollars in millions)	September 30, 2019		December 31, 2018
Operating related accruals	$	59	$	55
Employee related accruals	82		66
Customer pricing accruals	41		39
Product related liabilities¹	14		16
Other accruals	31		18
Total Accrued Expenses	$	227	$	193

¹ As of September 30, 2019 and December 31, 2018, $9 million and $14 million, respectively, of product related liabilities were indemnifiable losses subject to indemnification by Autoliv and an indemnification asset is included in Other current assets.

Note 11. Retirement Plans

Defined Benefit Pension Plans

The defined benefit pension plans impacting Veoneer's financial results include the following:

Existing Veoneer Plans comprised of plans in Japan, Canada, and France, Transferred Veoneer Plans comprised of plans in Germany, India, Japan, and South Korea, and Autoliv Sponsored Plans comprised of plans in Sweden and the U.S.

Existing Veoneer Plans

The defined benefit pension plans for eligible participants in Japan, Canada, and France prior to the Spin-Off continue to provide pension retirement benefits to the Company’s employees subsequent to the Spin-Off.

The Company’s net periodic benefit costs for the existing Veoneer plans for the three and nine months ended September 30, 2019 and 2018 were as follows:



	Three Months Ended September 30						Nine Months Ended September 30
(Dollars in millions)	2019			2018			2019			2018
Service cost	$	1		$	2		$	4		$	4
Interest cost	—			—			1			1
Expected return on plan assets	(1		)	(1		)	(1		)	(2		)
Net periodic benefit cost	$	—		$	1		$	4		$	3

All components of pension cost (service cost, amortization cost, interest cost, expected return on plan assets and amortization of actuarial loss) were not material in the Unaudited Condensed Consolidated Statements of Operations.

Transferred Veoneer Plans

Prior to the plan transfers to Veoneer legal entities on April 1, 2018, eligible Veoneer employees participated in the following Autoliv-sponsored plans:



Country	Name of Defined Benefit Plans
Germany	Direct Pension Promises Plan
India	Gratuity Plan
Japan	Retirement Allowances Plan
Japan	Defined Benefit Corporate Plan
South Korea	Severance Pay Plan (statutory plan)

On April 1, 2018, the assets, liabilities, and associated accumulated other comprehensive income (loss) of the pension plans in Germany, India, Japan, and South Korea related to active Veoneer employees were transferred to pension plans sponsored by various Veoneer legal entities. Benefit plan obligations of $6 million were recorded by Veoneer related to these plans in connection with the April 1, 2018 transfer. Plan assets in the transferred plans are immaterial. The amounts recorded for the transfer of the Veoneer plans were based on the assumptions incorporated into the plan measurements as of December 31, 2017; however, management determined that there were no material changes in assumptions from December 31, 2017 to April 1, 2018.

Components of Net Periodic Benefit Cost Associated with the Defined Benefit Retirement Plan

The Company’s allocated net periodic benefit costs for these defined benefit plans were less than $1 million for the three and nine months ended September 30, 2019. The allocated net periodic benefit costs related to transferred plans from Autoliv to Veoneer were less than $1 million for the three months ended March 31, 2018. Subsequent to the plan transfer on April 1, 2018, the components of net periodic benefit costs for these defined benefit plans were less than $1 million for the three and nine months ended September 30, 2018.

Autoliv Sponsored Plans

Prior to certain legal decisions or plan amendments, Veoneer employees in Sweden and in the U.S. participated in the following Autoliv-sponsored multi-employer plans:



Country	Name of Defined Benefit Plans
Sweden	ITP plan
U.S.	Autoliv ASP, Inc. Pension Plan
	Autoliv ASP, Inc. Excess Pension Plan
	Autoliv ASP, Inc. Supplemental Pension Plan

On April 1, 2018, it was determined that the assets, liabilities, and associated accumulated other comprehensive income (loss) of the Sweden plan for all Veoneer employees included in the Sweden plan will remain with Autoliv and benefits will be paid out of that plan in the future upon retirement. The allocation to capture the Company’s specific defined benefit plans expense and contributions prior to the plans amendment for the three and nine months ended September 30, 2018 were less than $1 million.

On June 29, 2018, it was also determined that the assets, liabilities and associated accumulated other comprehensive income (loss) of the U.S. plan for all Veoneer employees included in the U.S. plan will remain with Autoliv and benefits will be paid out of that plan in the future upon retirement. The Veoneer employees were considered to be participating in the Autoliv sponsored plan through June 29, 2018 at which date the plan was amended to freeze the accrual of benefits for any Veoneer employees.

Note 12. Stock Incentive Plan

The Veoneer, Inc. 2018 Stock Incentive Plan was established and effective on June 29, 2018 to govern the Company’s stock-based awards that will be granted in the future. The Veoneer, Inc. 2018 Stock Incentive Plan authorizes the grant of 3 million shares of Veoneer common stock for future equity awards to Veoneer employees and non-employee directors and authorizes up to 1.5 million additional shares to be used for the conversion of outstanding Autoliv stock awards in connection with the Spin-Off. Approximately 1 million shares were used for the conversion of the outstanding grants.

On February 19, March 1 and May 13, 2019, under the Company’s long-term incentive (LTI) program, certain employees received restricted stock units (RSUs) without dividend equivalent rights and performance shares (PSs) without dividend equivalent rights.

The allocation between RSUs and PSs for the grants made in February, March and May was 133,362 RSUs and 126,037 PSs at 100% target.

The RSUs were granted on February 19, 2019, March 1, 2019 and May 13, 2019 and will vest on the second or third anniversary of the grant date, subject to the grantee’s continued employment with the Company on the vesting date and acceleration of vesting in certain circumstances. The fair value of RSUs and PSs granted in 2019 were calculated by using the closing stock price on the grant dates. The grant date fair value for the RSUs and PSs, granted in 2019 was $5 million.

The PSs were granted in 2019 and will earn out during the first quarter of 2022, upon the Compensation Committee’s certification of achievement of the applicable performance goals. The grantee may earn 0%-200% of the target number of PSs based on the Company’s achievement of specified targets. The performance target is the Company’s gross margin for the applicable performance period. Each PS represents a promise to transfer a share of the Company’s common stock to the employee following completion of the performance period, provided that the performance goals mentioned above are met and provided, further, that the grantee remains employed through the performance period, subject to certain limited exceptions.

Veoneer recognized total stock (RSUs PSs and Stock Options) compensation cost of $2 million and $5 million for the three and nine months ended September 30, 2019, respectively. During the three and nine months ended September 30, 2018, the Company recorded $1 million and $4 million, respectively.

Note 13. Contingent Liabilities

Legal Proceedings

Various claims, lawsuits and proceedings are pending or threatened against the Company, 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, 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 condensed consolidated financial position of Veoneer, but the Company cannot provide assurance that Veoneer will not experience material litigation, product liability or other losses in the future.

Product Warranty, Recalls, and Intellectual Property

Veoneer 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 the Company 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. Veoneer’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.

The Company has been informed that one of its customers may initiate a recall of a product manufactured in 2016 - 2017 by its VNBS joint venture. If the customer does decide to initiate a recall the Company believes, pursuant to ASC 450 under U.S. GAAP and as of September 30, 2019, that a loss with respect to this issue is reasonably possible. Currently, only vehicles supplied to the U.S. market are within the scope of the potential recall, and the cost of the potential recall is estimated at $13 million. The Company and the customer have not initiated discussions on any relative responsibility. If VNBS is responsible for some or all of the costs, the Company's portion of such costs may be covered by insurance or indemnification rights.

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 the Company’s prior claims experience. Veoneer cannot assure that the level of coverage will be sufficient to cover every possible claim that can arise in the Company’s businesses, now or in the future, or that such coverage always will be available should the Company, now or in the future, wish to extend, increase or otherwise adjust the Company’s insurance.

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.

Product Related Liabilities

The Company records liabilities for product related risks when probable claims are identified and when it is possible to reasonably estimate costs. Provisions for warranty claims are estimated based on prior experience, likely changes in performance of newer products, and volume of the products sold. The provisions are recorded on an accrual basis.

The table below summarizes the change in product related liabilities in the Condensed Consolidated Balance Sheets.



	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions)	2019		2018		2019			2018
Reserve at beginning of the period	$	14	$	23	$	16		$	22
Change in reserve	—		1		1			10
Cash payments	—		—		(3		)	(8		)
Reserve at end of the period	$	14	$	24	$	14		$	24

For the three and nine months ended September 30, 2019 and 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 a recall related settlement and cash payments for warranties and product liabilities.

Agreements entered into between Autoliv and Veoneer in connection with the Spin-Off provide for Autoliv to indemnify Veoneer for certain liabilities related to electronics products manufactured before April 1, 2018. As of September 30, 2019 the indemnification asset of $9 million included in the Other current assets offsets substantially all of the product related liabilities.

Guarantees

The Company provided lease guarantees to Zenuity of $7 million and $8 million as of September 30, 2019, and December 31, 2018, respectively. These represent the maximum potential amount of future (undiscounted) payments that Veoneer could be required to make under the guarantees in the event of default by the guaranteed parties. These guarantees will generally cease upon expiration of current lease agreements between 2020 and 2022. There are no liabilities recorded on the Condensed Consolidated Balance Sheet as of September 30, 2019 and December 31, 2018 related to these guarantees.

Note 14. Loss per share

Basic loss per share is computed by dividing net loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and equity incentive awards is reflected in diluted loss per share by application of the treasury stock method. The following table sets forth the computation of basic and diluted loss per share for the three and nine months ended September 30, 2019 and 2018.



	Three Months Ended September 30						Nine Months Ended September 30
(Dollars in millions, except per share amounts)	2019			2018			2019			2018
Numerator:
Basic and diluted:
Net loss attributable to Veoneer	$	(133	)	$	(68	)	$	(403	)	$	(162	)

Denominator:
Basic: Weighted average number of shares outstanding (in millions)	111.40			87.15			98.32			87.15
Diluted: Weighted-average number of shares outstanding, assuming dilution (in millions)¹	111.40			87.15			98.32			87.15

Basic loss per share	$	(1.20	)	$	(0.78	)	$	(4.10	)	$	(1.86	)
Diluted loss per share	$	(1.20	)	$	(0.78	)	$	(4.10	)	$	(1.86	)

¹ Shares in the diluted loss per share calculation represent basic shares due to the net loss.

In periods when the Company has a net loss, equity incentive awards are excluded from the Company's calculation of earnings per share as their inclusion would have an antidilutive effect. The Company excluded equity incentive awards of 295,526 and 285,975 shares for the three and nine months ended September 30, 2019, respectively, and 815,627 shares for both the three and nine months ended September 30, 2018.

The Company may settle the conversions of the Notes in cash, shares of the Company's common stock or any combination thereof at its election. For the Notes, the number of shares of the Company's common stock issuable at the conversion price of $22.3125 per share would be 9,277,305 shares if the Company elected to settle the conversion wholly in shares. See Note 5, Debt. Due to anti-dilutive effects, the Company excluded potential convertible shares due to the Notes of 9,277,305 and 4,247,850 shares for the three and nine months ended September 30, 2019, respectively, and zero for the three and nine months ended September 30, 2018 from the diluted loss per share calculations.

Note 15. Segment Information

Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's Chief Operating Decision Maker (CODM) in allocating resources and in assessing performance. The Company has two operating segments, Electronics and Brake Systems. Electronics includes all of electronics resources and expertise, restraint control systems and active safety products and Brake Systems provides brake control and actuation systems. The operating results of the operating segments are regularly reviewed by the Company’s CODM, the Chief Executive Officer, to assess the performance of the individual operating segments and to make decisions about resources to be allocated to the operating segments.

The accounting policies for the reportable segments are the same as those described in the Note 2, Summary of Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 22, 2019.



Loss Before Income Taxes	Three Months Ended September 30						Nine Months Ended September 30
(Dollars in millions)	2019			2018			2019			2018
Electronics	$	(90	)	$	(36	)	$	(281	)	$	(66	)
Brake Systems	(17		)	(9		)	(54		)	(23		)
Segment operating loss	(107		)	(45		)	(335		)	(88		)
Corporate and other	(15		)	(13		)	(53		)	(34		)
Interest and other non-operating items, net	2			4			8			4
Loss from equity method investment	(16		)	(15		)	(50		)	(45		)
Loss before income taxes	$	(136	)	$	(70	)	$	(430	)	$	(163	)

Note 16. Relationship with Former Parent and Related Entities

Prior to the Spin-Off, Veoneer had been managed and operated in the normal course of business with other affiliates of Autoliv. Accordingly, certain shared costs had been allocated to Veoneer and reflected as expenses in the stand-alone unaudited condensed consolidated financial statements. Veoneer management considers the allocation methodologies used to be reasonable and appropriate reflections of historical expenses of Autoliv attributable to Veoneer for purposes of the stand-alone financial statements; however, the expenses reflected in the unaudited condensed consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if Veoneer historically operated as a separate, stand-alone entity. In addition, the expenses reflected in the unaudited condensed consolidated financial statements may not be indicative of expenses that will be incurred in the future by Veoneer.

Prior to the Spin-Off, transactions between Autoliv and Veoneer, with the exception of sales and purchase transactions and reimbursements for payments made to third-party service providers by Autoliv on Veoneer’s behalf, are reflected in the Unaudited Condensed Consolidated Statements of Cash Flows as a financing activity in Net transfers from Former Parent.

Transactions with Related Parties

Veoneer and Autoliv entered into a Transition Services Agreement ("TSA") under which certain services are provided by Autoliv to Veoneer and certain services are provided by Veoneer to Autoliv. The Company recognized $1 million and $4 million of expense under the TSA for the three and nine months ended September 30, 2019, respectively, and $2 million and $5 million of expense under the TSA for the three and nine months ended September 30, 2018, respectively. The Company recognized less than $1 million of income under the TSA for the three and nine months ended September 30, 2019, and less than $1 million of income under the TSA for the three and nine months ended September 30, 2018.

Throughout the periods covered by the unaudited condensed consolidated financial statements, Veoneer sold finished goods to Autoliv and Nissin Kogyo, the 49% owner in VNBS (a 51% owned subsidiary). Related party sales amount to $24 million and $77 million for the three and nine months ended September 30, 2019, respectively and $46 million and $125 million for the three and nine months ended September 30, 2018, respectively.

Related Party Balances

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



Related Party	As of
(Dollars in millions)	September 30, 2019		December 31, 2018
Related party receivable	$	14	$	64
Related party notes receivable	—		1
Related party payables	4		16
Related party short-term debt	2		1
Related party long-term debt	12		13

Related party receivables are mainly driven by reseller agreements put in place in connection with the Spin-Off. The reseller agreements are between Autoliv and Veoneer and facilitate the temporary arrangement of the sale of Veoneer products manufactured for certain customers for a limited period after the Spin-Off. Autoliv will collect the customer payments and will remit the payments to Veoneer.

As of September 30, 2019 and December 31, 2018, all related party long-term debt relates to a capital lease arrangement at VNBS of $12 million and $13 million, respectively. The finance lease is with Nissin Kogyo, the 49% owner of VNBS.

Corporate Costs/Allocations

For the periods prior to April 1, 2018, the unaudited condensed consolidated financial statements include corporate costs incurred by Autoliv for services that are provided to or on behalf of Veoneer. These costs consist of allocated cost pools and direct costs. Corporate costs have been directly charged to, or allocated to, Veoneer using methods management believes are consistent and reasonable. The method for allocating corporate function costs to Veoneer is based on various formulas involving allocation factors. The methods for allocating corporate administration costs to Veoneer are based on revenue, headcount, or other relevant metrics. However, the expenses reflected in the unaudited condensed consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if Veoneer historically operated as a separate, stand-alone entity. All corporate charges and allocations have been deemed paid by Veoneer to Autoliv in the period in which the cost was recorded in the Unaudited Condensed Consolidated Statements of Operations. Effective April 1, 2018, Veoneer began performing certain functions using internal resources or third parties, and certain other services continued to be provided by Autoliv and directly charged to Veoneer. In addition, Veoneer personnel perform certain services for Autoliv, which are directly charged to Autoliv.

Allocated corporate costs included in Costs of sales, Selling, general and administrative expenses and Research, development and engineering expenses were for shared services and infrastructure provided, which includes costs such as information technology, accounting, legal, real estate and facilities, corporate advertising, risk and insurance services, treasury, shareholder services and other corporate and infrastructure services.

Cash Management and Financing

Prior to the Spin-Off, Veoneer participated in Autoliv’s centralized cash management and financing programs. Disbursements were made through centralized accounts payable systems operated by Autoliv. Cash receipts were transferred to centralized accounts, also maintained by Autoliv. As cash was disbursed and received by Autoliv, it was accounted for by Veoneer through the Net Former Parent investment. All short-term and long-term debt was financed by Autoliv or by Nissin Kogyo and financing decisions for wholly and majority owned subsidiaries were determined by Autoliv’s corporate treasury operations. On the Distribution Date, Veoneer held approximately $1 billion of cash and cash equivalents. Upon the Spin-Off, Veoneer created its own corporate treasury operations.

Note 17. Factoring

The Company receives bank notes generally maturing within six months from certain of its customers in China to settle trade accounts receivable. The Company may hold such bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third party financial institutions in exchange for cash.

During the nine months ended September 30, 2019, the Company has entered into arrangements with financial institutions and sold $59 million of trade receivables without recourse and $37 million of bank notes without recourse, which qualify as sales as all rights to the trade and notes receivable have passed to the financial institution. There were no factoring arrangements for the nine months ended September 30, 2018.

As of September 30, 2019, the Company has $8 million of trade notes receivables which remain outstanding and will mature within the fourth quarter of 2019. The collections of such bank notes are included in operating cash flows based on the substance of the underlying transactions, which are operating in nature.

Note 18. Subsequent Events

The Company continues to engage in discussions with Volvo Cars, its Zenuity JV partner, regarding the development priorities of Zenuity in light of the market shift toward autonomous vehicle solutions. The outcome of these discussions may influence the level of funding and participation of Veoneer in the Zenuity JV, as well as future sharing of intellectual property and IP licenses. Subsequent to September 30, 2019, the Company made a capital contribution of SEK 250 million (approximately $25 million) to the Zenuity JV.

Subsequent to September 30, 2019, the Company paid $10 million related to the unconditional purchase obligation that was entered into on December 31, 2017. The amount will be reimbursed by Zenuity.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations, financial condition and cash flows of Veoneer, Inc. (“Veoneer,” the “Company,” “we,” or “our”). This MD&A should be read in conjunction with the financial statements and accompanying notes to the financial statements included elsewhere herein, as well as the risk factors and other disclosures made in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 22, 2019, the Prospectus forming part of our Registration Statement on Form S-1 related to our common stock offering (File No. 333-231607), filed with the SEC on May 24, 2019, and the Prospectus forming part of our Registration Statement on Form S-1 related to our convertible notes offering (File No. 333-231609), filed with the SEC on May 24, 2019.

The historical financial statements included in this Quarterly Report on Form 10-Q may not reflect what our business, financial position or results of operations would have been had we been a publicly traded company during the periods presented or what our results of operations, financial position and cash flow will be in the future now that we are a stand-alone publicly listed company.

Introduction

The following MD&A is intended to help you understand the business operations and financial condition of the Company. This MD&A is presented in the following sections:


•	Executive Overview


•	Trends, Uncertainties and Opportunities


•	Market Overview


•	Results of Operations


•	Non-U.S. GAAP Financial Measures


•	Liquidity and Capital Resources


•	Off-Balance Sheet Arrangements and Other Matters


•	Contractual Obligations and Commitments


•	Significant Accounting Policies and Critical Accounting Estimates

Veoneer is a Delaware corporation with its principal executive offices in Stockholm, Sweden. The Company functions as a holding corporation and owns two principal operating subsidiaries, Veoneer AB and Veoneer US, Inc. On June 29, 2018 the spin-off of Veoneer from Autoliv, Inc. ("Autoliv") was completed through the distribution by Autoliv of all the outstanding shares of common stock of Veoneer to Autoliv’s stockholders as of the close of business on June 12, 2018, the common stock record date for the distribution, in a tax-free, pro rata distribution (the "Spin-Off"). On July 2, 2018, the shares of Veoneer common stock commenced trading on the New York Stock Exchange under the symbol “VNE” and the Veoneer Swedish Depository Receipts representing shares of Veoneer common stock commenced trading on Nasdaq Stockholm under the symbol “VNE SDB.”

Veoneer is a global leader in the design, development, manufacture, and sale of automotive safety electronics with a focus on innovation, quality and manufacturing excellence. Prior to the Spin-Off, Veoneer operated for almost four years as an operating segment within Autoliv. Veoneer's safety systems are designed to make driving safer and easier, more comfortable and convenient for the end consumer and to intervene before a collision to avoid a potentially hazardous situation. Veoneer endeavors to prevent vehicle accidents or reduce the severity of impact in the event a crash is unavoidable. Through our customer focus, and being an expert partner with our customers, we intend to develop human centric systems that benefit vehicle occupants.

Veoneer’s current product offerings include automotive radars, mono and stereo vision cameras, night vision systems, positioning systems, advanced driver assist systems (ADAS) electronic control units, passive safety electronics (airbag control units and crash sensors), brake control systems and a complete ADAS software offering towards highly automated driving (HAD) and eventually autonomous driving (AD). In addition, we offer driver monitoring systems, LiDAR sensors, RoadScape positioning and other technologies critical for HAD and AD solutions by leveraging our partnership network and internally developed intellectual property.

Executive Overview

During the quarter our market adjustment initiatives announced at the beginning of the year started to take effect. Driven by these operational improvements our operating loss was reduced by $15 million sequentially despite lower organic sales. The reduction came primarily through lower RD&E costs achieved through prudent resource management and to a lesser extent by partnering in some engineering related activities in Active Safety. We were also successful in working capital management, particularly in managing accounts receivables and inventories. We will continue to drive our improvement initiatives, including partnering and outsourcing opportunities, as we adapt to the market realities, and drive our own continued development.

In September, we signed our seventh customer for our in-house developed vision technology. This shows that our core development combined with the software developed in Zenuity delivers powerful solutions, creating leading ADAS and collaborative driving functionality for the years to come. In addition, we are currently preparing to introduce our fourth-generation vision technology, as part of a number of our customer launches in 2020 and into 2021.

The automotive industry faced a volatile and challenging quarter, with light vehicle production being weaker than anticipated in July across most of our major markets. Veoneer saw a sharper sales decline than the overall market, as we faced some model phase-outs of certain customer programs and a negative product mix. In addition, positive effects on sales growth from launches of new customer programs are only anticipated to start in 2020.

We see this challenging environment in our industry, to continue for some time. This relates both to an increased volatility in LVP forecasts as well as customer launch schedules and take rates, particularly in China, for products sold as optional features by the OEMs. Specifically, for Veoneer we are proactively managing the inherent risks that come from launching several new customer programs and technologies in a short time span in the quarters to come.

For the next several quarters, our focus is on: successful customer launches heading into 2020 and 2021, market adjustment initiatives to continue to drive efficiencies and improve cash flow, and to continue to win profitable new business.

2019 Outlook

Looking at the fourth quarter of 2019, sequentially from the third quarter of 2019 our sales are now expected to be slightly lower while our operating loss is expected to improve. This sales outlook is based primarily on our customer releases and call-offs, which are significantly lower than our expectations 90 days ago. The main drivers of this lower sales level include some launch delays and plant shut-downs with certain customers and lower underlying vehicle volumes on certain programs in our three major product areas in Europe, Asia and North America. The expected 2nd half recovery in 2019 will likely no longer materialize where, according to IHS, the LVP is now expected to decline 3% sequentially from the 1st half of this year which represents approximately 1.7 million fewer vehicles in the 2nd half of 2019.

Consequently, our full year 2019 organic sales are now expected to decline in the low double digits as compared to 2018 while currency translation effects on sales are now expected to decline by approximately 3%. We continue to expect RD&E, net to be less than $600 million for the full year 2019 and expect further cost structure improvements from our market adjustment initiatives during the fourth quarter and into 2020. Despite a better than expected cash flow before financing activities for the third quarter, the second half of 2019 is expected to remain at similar levels as compared to the first half of 2019, and the fourth quarter operating loss to improve sequentially from the third quarter.

We continue to see the same order intake opportunity as earlier indicated, although certain opportunities may be delayed into 2020.

The general lead time from an “order” to the start of production is 2 to 4 years and it may take several months for production of a certain vehicle models to fully ramp up. For example, Active Safety and Restraint Control Systems order intake from 2013 to 2015 is reflected in sales in 2017-2019. We believe that the strong order intake in 2016-2018 will primarily impact organic sales in 2020 to 2022 with some initial benefits coming in late 2019.

Trends, Uncertainties and Opportunities

Trend toward Collaborative Driving

As noted in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 22, 2019, the environment around us is rapidly changing and we currently see a shift across the automotive and autotech industries. New technologies, creating new levels of interaction and driver support are starting to revolutionize driving, but we also see the driver being actively involved for many years to come. We call this Collaborative Driving; the industry also calls it “Level 2+” driver support. At the same time there is also a growing realization that the introduction of truly self-driving cars will likely take longer and be more expensive than previously anticipated. This fundamental insight opens up new opportunities for companies, including Veoneer, but it also requires a reprioritization of resources. As such, we believe that the market will stay mainly focused on Level 1-Level 2+ autonomous driving solutions for the next decade.

Global Regulatory and Test Rating Developments

Europe continues to take a proactive role in promoting or requiring Active Safety technologies. The European New Car Assessment Program (“NCAP”) continuously updates its test rating program to include more active safety technologies to help the European Union reach its target of cutting road fatalities by 50% by 2030, as compared to 2020. We anticipate strong global sensor adoption rate increases (forward, side and rear) due to the European New Car Assessment Program’s push for crash avoidance, increased adoption rates due to growing demand around ADAS software features, volume growth due to redundant sensing concepts needed for higher levels of autonomy, potential opportunities in relation to compliance with cyber-security and software updates and step-by-step increased demand for connectivity components as a result.

On May 17, 2018, the European Commission proposed a new mandate, as party of the EU General Safety Regulation road-map through 2028, to make certain Active Safety features compulsory in light vehicles by 2022. During March of 2019 the EU mandate was adopted as initially proposed by the European Commission. We believe that adoption of the mandate will significantly expand demand for our Active Safety products. Indeed, with respect to sensors and Advanced Driver Assistance Systems (ADAS) software features, our order intake since the adoption of the mandate appears to reflect the anticipated increase in demand. In addition, we believe that the mandate and the EU General Safety Regulations (GSR) generally will influence other market regulators as they evaluate their respective vehicle test rating programs and safety legislation.

In China, the Ministry of Industry and Information Technology issued the Key Working Points of Intelligent Connected Vehicle Standardization for 2018 to promote and facilitate the development of the intelligent connected vehicles industry, and advance the development of fundamental standards and those that are in urgent demand. The guideline has pointed out that more than 30 key standards will be defined by 2020 to fund the systems for (ADAS) and low-level autonomous driving, and a system of over 100 standards will be set up by 2025 for higher level autonomous driving.During the third quarter of 2018, the Chinese government commenced testing of new vehicles according to the new China New Car Assessment Program (CNCAP) where active safety features like Autonomous Emergency Braking (AEB) are required to achieve the maximum safety rating.

On October 4, 2018, the U.S. Department of Transportation (DoT) issued new voluntary guidelines on automated driving systems (ADS) under its “Preparing for the Future of Transportation: Automated Vehicles 3.0” initiative, building on its “Vision for Safety 2.0” from September 2017, which prioritized aligning federal guidance around twelve safety design elements of interest to the auto industry. This initiative should have a positive impact on the adoption of ADAS and Highly Automated Driving (HAD) on the road towards Autonomous Vehicles (AV).

In 2018 the UN Economic Commission for Europe (ECE) created a new Working Party to deal with regulations for Automated/Autonomous and Connected Vehicles (GRVA). In addition to the EU and Japan, which have both started to work closely together to develop ADAS regulations, in the last 3 years, the U.S. and China have both indicated a willingness to be active in several working groups towards harmonization of future regulations for ADAS and AV. This would create a common umbrella for countries which follow type-approval rules (EU, Japan, Australia) and countries which are outside of type-approval system, e.g., under self-certification regimes (U.S., Korea) or specific national rules (China).

Key future potential regulations are expected for (i) safety critical ADAS-features (e.g. AEB); (ii) Highway AV-features (Physical Tests + Real World Test Drive + Audit); (iii) Cyber-security & Software updates; and (iv) Connected Vehicles. On one hand, the agreement on minimal common base requirements for the industry will take a longer time and therefore may postpone introduction of regulations. On the other hand, the harmonization with base requirements would help the industry while a more active position from China may help to pull forward some safety critical ADAS technologies which are not yet considered as relevant for regulation in EU and Japan (e.g. Blind Spot or Night Vision).

Market and Industry Data

This Quarterly Report on Form 10-Q include estimates regarding market and industry data and forecasts, which are based on publicly available information, industry publications and surveys, reports from government agencies and reports by market research firms, including the IHS Light Vehicle Production Database, and our own estimates based on our management’s knowledge of, and experience in, the industry and market sectors in which we compete. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. While we believe that the publicly available information and third-party publications, surveys and reports used in determining such estimates, are reliable, we have not independently verified the accuracy or completeness of the data contained in such publicly available information and third-party publications, surveys and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in our Annual Report on Form 10-K, the prospectus filed with the Securities and Exchange Commission ("SEC") on May 24, 2019 under Registration Statement on Form S-1 (No. 333-231607), the prospectus filed with the Securities and Exchange Commission ("SEC") on May 24, 2019 under Registration Statement on Form S-1 (No. 333-231609), and Quarterly Reports on Form 10-Q. These and other factors could cause results to differ materially from the estimates expressed in such publicly available information and third-party publications, surveys and reports.

Market Overview



	Light Vehicle Production by Region - 2019
(Millions, except where specified)	China		Japan		Rest of Asia		Americas		Europe		Other		Total
Third Quarter (IHS at 16-October-2019)	5.6		2.3		2.9		4.6		4.7		0.5		20.5
Change vs. Prior Year	(6	)%	7	%	(10	)%	(2	)%	1	%	(24	)%	(3	)%

During the third quarter of 2019, the global light vehicle production decreased by approximately 3% as compared to 2018 mainly due to production declines in Western Europe (1%) likely attributable to weak consumer demand and the uncertainty created around Brexit, China (6%) likely attributable to weaker underlying consumer demand and the continued trade dispute with U.S.. In addition, North America and South Korea declined 1% while India declined 20%. These effects were partially offset by a LVP increase in Japan of 7%.



	Light Vehicle Production by Region - 2019
(Millions, except where specified)	China		Japan		Rest of Asia		Americas		Europe		Other		Total
Full Year (IHS at 16-October-2019)	23.2		9.1		12.2		18.4		21.2		1.9		85.9
Change vs. Prior Year	(9	)%	—	%	(7	)%	(4	)%	(3	)%	(25	)%	(6	)%

For the full year 2019, the global light vehicle production forecast rebound during the second half of 2019 will likely not materialize as expected earlier in 2019, mainly due to China, RoA and Western Europe, resulting in an 6% overall decline for the full year. The 2nd half of 2019 is now expected to decline sequentially 3% from the 1st half of this year. This will be the second consecutive annual decline in light vehicle production. The light vehicle production in Japan is expected to be flat for the full year 2019 while China, South Korea, Western Europe and North America are expected to decline by 9%, 1%, 5% and 4%, respectively. Within Rest of Asia, India is expected to decline by 14%.

Results of Operations

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

The following tables show Veoneer’s overall performance and by segment for the three months ended September 30, 2019 and 2018 along with components of change compared to the prior year.

Net Sales by Product

The following tables show Veoneer’s consolidated net sales by product for the three months ended September 30, 2019 and 2018 along with components of change compared to the prior year.



Net Sales	Three Months Ended September 30									Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2019		2018		US GAAP Reported Change					Currency					Organic¹
(Dollars in millions, except where specified)	$		$		$			%		$			%		$			%
Restraint Control Systems	193		226		(33		)	(15	)	(4		)	(2	)	(29		)	(13	)
Active Safety	178		201		(23		)	(11	)	(7		)	(3	)	(15		)	(8	)
Brake Systems	91		100		(9		)	(9	)	1			1		(10		)	(10	)
Total	$	462	$	526	$	(64	)	(12	)%	$	(10	)	(2	)%	$	(54	)	(10	)%

¹ Non-U.S. GAAP measure reconciliation for Organic Sales

Net Sales - Veoneer’s net sales for the quarter declined by 12% to $462 million as compared to 2018. Organic sales¹ declined by 10% while the combined currency translation effects of 2% accounted for the remainder of the decline. During the quarter, our organic sales developed essentially in-line with our expectations at the beginning of the quarter.

According to IHS, the LVP decline of 3% for the quarter as compared to 2018 was mainly attributable to China and Rest of Asia and to a lesser extent the Americas and Western Europe. This decline was 3% worse than expected at the beginning of the quarter due to lower than expected LVP in virtually all major vehicle producing regions.

Restraint Control Systems - Net sales for the quarter of $193 million decreased by 15% as compared to 2018. The organic sales¹ decline of 13% was mainly due to lower volumes in China and North America where we saw a temporary phase out of our products on certain vehicle models.

Active Safety - Net sales for the quarter of $178 million decreased by 11% as compared to 2018. This decline was mostly driven by the organic sales¹decline of 8%. This decline is partly attributable to the LVP decline of approximately 2% in our major markets for Active Safety, where we have a relatively higher CPV on premium brands (Western Europe, North America, Japan and China).

Strong demand for mono, stereo and thermal camera systems and ADAS ECUs on several models drove an increase in organic sales. This growth was more than offset by the negative radar product mix shift from 24Ghz to 77Ghz technology.

Brake Systems - Net sales of $91 million for the quarter decreased by 9% as compared to 2018. This sales decline is mainly due to an organic sales¹ decline of 10%, driven primarily by temporary lower volumes on certain Honda vehicle models in China and Japan.



Electronics Segment	Three Months Ended September 30												Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2019				2018				US GAAP Reported Change				Currency				Organic¹
	$		%		$		%		$		%		$		%		$		%
Net Sales	371				426				(55	)	(13	)	(11	)	(3	)	(44	)	(10	)
Operating Loss / Margin	(90	)	(24.3	)	(36	)	(8.4	)	(54	)
Segment EBITDA¹/ Margin	(69	)	(18.5	)	(18	)	(4.2	)	(51	)
Associates	7,616				6,804				812

¹ Non-U.S. GAAP measure reconciliation for Organic Sales and Segment EBITDA

Net Sales - The net sales in the Electronics segment decreased by $55 million to $371 million for the quarter as compared to 2018. This sales decline was mainly due to the organic sales¹ decline in Active Safety and Restraint Control Systems of $15 million and $29 million, respectively, along with the currency translation effects of $11 million.

Operating Loss - The operating loss for the Electronics segment of $90 million for the quarter increased by $54 million as compared to 2018 mainly due to the negative volume and product mix effects causing the lower organic sales in Active Safety and Restraint Control Systems and the increase in RD&E cost to support future organic sales growth and current development programs.

EBITDA¹ - The segment EBITDAfor Electronics decreased by $51 million to negative $69 million for the quarter as compared to 2018. This decline is mainly due to the increase in operating loss for the segment while depreciation and amortization increased by $3 million.

Associates - The number of associates in the Electronics segment increased by 812 to 7,616 as compared to 2018. This increase is primarily due to the hiring of engineers to support the strong order intake for future growth.

Deliveries - The quantities delivered in the quarter were 3.9 million units for Restraint Controls Systems and 2.0 million units for Active Safety.



Brake Systems Segment	Three Months Ended September 30												Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2019				2018				US GAAP Reported Change				Currency		Organic¹
(Dollars in millions, except where specified)	$		%		$		%		$		%		$	%	$		%
Net Sales	91				100				(9	)	(9	)	1	1	(10	)	(10	)
Operating Loss / Margin	(17	)	(18.6	)	(9	)	(9.0	)	(8	)
Segment EBITDA¹/ Margin	(8	)	(9.3	)	—		0.1		(8	)
Associates	1,467				1,467				—

¹ Non-U.S. GAAP measure reconciliation for Organic Sales and Segment EBITDA

Net Sales - The net sales in the Brake Systems segment decreased by $9 million to $91 million for the quarter as compared to 2018. This sales decline was mainly attributable to temporary lower volumes on certain Honda vehicle models, particularly in China and Japan.

Operating Loss - The operating loss for the Brake Systems segment increased to $17 million from $9 million for the quarter as compared to 2018. This change was mainly due to the negative volume and product mix effects causing the lower organic sales and slight increase in RD&E net to support future organic sales growth.

EBITDA¹ - The segment EBITDA for Brake Systems decreased by $8 million to negative $8 million for the quarter as compared to 2018. This decline was due to the increase in underlying operating loss for the segment.

Associates - The number of associates in the Brake Systems segment remained unchanged at 1,467 as compared to 2018. Increases in RD&E were offset by reductions in direct and indirect labor associates.

Deliveries - The quantities delivered during the quarter were 0.4 million units for Brake Systems.



Corporate and Other	Three Months Ended September 30
(Dollars in millions, except where specified)	2019			2018			US GAAP Reported Change
(Dollars in millions, except where specified)	$		%	$		%	$		%
Net Sales	—			—			—
Operating Loss / Margin	(15	)	—	(13	)	—	(2	)
EBITDA¹/ Margin	(15	)	—	(13	)	—	(2	)
Associates	45			39			6

¹ Non-U.S. GAAP measure reconciliation for EBITDA

Operating Loss and EBITDA¹ - The operating loss and EBITDA for Corporate and other increased to $15 million from $13 million for the quarter as compared to 2018. This increase was mainly attributable to IT integration costs related to Veoneer being a standalone company.

Associates - The number of associates increased by 6 to 45 as compared to 2018 mainly due to the hiring of personnel to support a standalone listed company and to perform functions previously provided through consultancy and outside services.

The associates and financial figures are comparable to 2018 since the second quarter in 2018 was the last quarter of carve-out reporting.

Veoneer Performance



Income Statement	Three Months Ended September 30
(Dollars in millions, except per share data)	2019					2018
(Dollars in millions, except per share data)	$			%		$			%		Change
Net sales	$	462				$	526				$	(64	)
Cost of sales	(389)			(84.2	)%	(428)			(81.2	)%	39
Gross profit	73			15.8	%	99			18.8	%	(26		)
Selling, general & administrative expenses	(45		)	(9.8	)%	(44		)	(8.3	)%	(1		)
Research, development & engineering expenses, net	(144		)	(31.3	)%	(109		)	(20.7	)%	(35		)
Amortization of intangibles	(6		)	(1.2	)%	(5		)	(1.0	)%	(1		)
Other income	—			—	%	1			0.2	%	(1		)
Operating loss	(122		)	(26.5	)%	(58		)	(11.0	)%	(64		)
Loss from equity method investments	(16		)	(3.4	)%	(15		)	(2.9	)%	(1		)
Interest income	7			1.4	%	3			0.6	%	4
Interest expense	(5		)	(1.0	)%	—			—	%	(5		)
Other non-operating items, net	—			—	%	1			0.2	%	(1		)
Loss before income taxes	(136		)	(29.4	)%	(70		)	(13.2	)%	(67		)
Income tax expense	(3		)	(0.6	)%	(3		)	(0.6	)%	—
Net loss¹	(139		)	(30.0	)%	(72		)	(13.8	)%	(67		)
Less: Net loss attributable to non-controlling interest	(6		)	(1.2	)%	(5		)	(0.9	)%	(1		)
Net loss attributable to controlling interest	$	(133	)	(28.8	)%	$	(68	)	(12.9	)%	$	(66	)
Net loss per share – basic²	$	(1.20	)			$	(0.78	)			$	(0.41	)
Weighted average number of shares outstanding ²	111.40					87.15					24.25

¹Including Corporate and other sales. ²Basic number of shares in millions used to compute net loss per share. Participating share awards without right to receive dividend equivalents are (under the two-class method) excluded from EPS calculation.

Gross Profit - The gross profit for the quarter of $73 million was $26 million lower as compared to 2018. The negative volume and product mix effects that caused the lower organic sales were the main contributors to the gross profit decline. Net currency effects on the gross profit were approximately $4 million unfavorable for the quarter as compared to 2018, primarily due to the stronger US dollar.

Operating Loss - This quarter represents the first quarter with a comparable standalone cost structure. The operating loss for the quarter of $122 million increased by $64 million as compared to 2018.

The RD&E, net increase of $35 million to $144 million, as compared to 2018, was mainly due to the ramp-up of engineering hiring during 2018, and lower engineering reimbursement during the quarter. Sequentially RD&E, net improved due to lower gross engineering costs.

The SG&A expense of $45 million for the third quarter was at similar levels as compared to 2018. This cost decreased sequentially from the previous quarter due to lower consultancy and outside services costs.

Other income and amortization of intangibles combined were $2 million unfavorable for the third quarter as compared to 2018. Net currency effects on the operating loss were negligible for the quarter as compared to 2018.

Net Loss - The net loss for the quarter of $139 million increased by $67 million as compared to 2018.

Veoneer’s net loss from its equity method investment (Zenuity) of $16 million during the quarter was at similar levels as compared to 2018.

The interest income, net and other non-operating items, net combined for the quarter were $2 million lower as compared to 2018, mainly related to interest expense related to the convertible debt of $5 million. Income tax expense of $3 million for the third quarter remained unchanged as compared to 2018.

The non-controlling interest loss of $6 million in the VNBS JV for the third quarter was $1 million higher as compared to 2018. This is the first quarter that Veoneer Brake America is excluded from non-controlling interest.

Loss per Share - The loss per share increased to $1.20 for the quarter as compared to a loss of $0.78 per share in 2018. This decline was mainly due to the increase in operating loss. The share count increase from the common stock issuance in May 2019 reduced the loss by $0.31 per share.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

The following tables show Veoneer’s overall performance and by segment for the nine months ended September 30, 2019 and 2018 along with components of change compared to the prior year.

Net Sales by Product

The following tables show Veoneer’s consolidated net sales by product for the nine months ended September 30, 2019 and 2018 along with components of change compared to the prior year.



Net Sales	Nine Months Ended September 30									Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2019		2018		US GAAP Reported Change					Currency					Organic¹
(Dollars in millions, except where specified)	$		$		$			%		$			%		$			%
Restraint Control Systems	617		739		(122		)	(16	)	(26		)	(4	)	(96		)	(13	)
Active Safety	554		628		(74		)	(12	)	(31		)	(5	)	(43		)	(7	)
Brake Systems	275		325		(50		)	(15	)	(5		)	(2	)	(45		)	(14	)
Total	$	1,446	$	1,692	$	(246	)	(15	)%	$	(62	)	(4	)%	$	(184	)	(11	)%

¹ Non-U.S. GAAP measure reconciliation for Organic Sales

Net Sales - Veoneer’s net sales for the first nine months of 2019 declined by 15% to $1,446 million as compared to 2018. Organic sales¹ declined by 11% while the combined currency translation effects were 4%. Sequentially, our net sales in the third quarter declined by 5.5% as compared to the second quarter in 2019.

Restraint Control Systems - Net sales for the first nine months of 2019 decreased by 16% to $617 million as compared to 2018. The organic sales¹ decline of 13% was mainly due to lower volumes in Europe, China and North America where we saw a temporary phase out of our products on certain vehicle models and lower underlying LVP.

Active Safety - Net sales for the first nine months of 2019 decreased by 12% to $554 million as compared to 2018. This decline was driven by currency translation effects of 5% while organic sales¹declined by 7%. The LVP in our major markets for Active Safety where we have a relatively higher CPV on premium brands (Western Europe, North America, Japan and China) declined by more than 4%.

Strong demand for mono,stereo and night vision systems and ADAS ECUs on several models drove an increase in organic sales. This was more than offset by the negative radar product mix from 24GHz to 77GHz technology and declining mono vision volumes on certain BMW models.

Brake Systems - Net sales of $275 million for the first nine months of 2019 decreased by 15% as compared to 2018. This sales decline is mainly due to an organic sales¹ decline of 14%, primarily driven by temporary lower volumes on certain Honda vehicle models in China and Japan.



Electronics Segment	Nine Months Ended September 30												Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2019				2018				US GAAP Reported Change				Currency				Organic¹
	$		%		$		%		$		%		$		%		$		%
Net Sales	1,171				1,367				(196	)	(14	)	(57	)	(4	)	(139	)	(10	)
Operating Loss / Margin	(281	)	(24.0	)	(66	)	(4.8	)	(215	)
Segment EBITDA¹/ Margin	(220	)	(18.8	)	(12	)	(0.9	)	(208	)
Associates	7,616				6,804				812

¹ Non-U.S. GAAP measure reconciliation for Organic Sales and Segment EBITDA

Net Sales - The net sales in the Electronics segment decreased by $196 million to $1,171 million for the first nine months of 2019 as compared to 2018. This decline was mainly due to the organic sales¹ decline in Active Safety and Restraint Control Systems of $43 million and $96 million, respectively, along with the currency translation effects of $57 million.

Operating Loss - The operating loss for the Electronics segment of $281 million for the first nine months of 2019 increased by $215 million as compared to 2018. This increase was mainly due to the negative volume and product mix effects causing lower organic sales in Active Safety and Restraint Control Systems and an increase in RD&E cost to support future organic sales growth and current development programs.

EBITDA¹ - The segment EBITDA for Electronics decreased by $208 million to negative $220 million for the first nine months of 2019 as compared to 2018. This decline is mainly due to the increase in operating loss for the segment as depreciation and amortization increased by $7 million for the same period as compared to 2018.

Associates - Associates in the Electronics segment increased by 511 to 7,616 as compared to the end of 2018, mainly due to adding 359 engineers to support customer development programs. Temporary associates have increased by 261 reflecting the uncertain macro environment.

Deliveries - The quantities delivered during the first nine months of 2019 were 12.0 and 6.6 million units for Restraint Controls Systems and Active Safety, respectively.



Brake Systems Segment	Nine Months Ended September 30												Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2019				2018				US GAAP Reported Change				Currency				Organic¹
	$		%		$		%		$		%		$		%		$		%
Net Sales	275				325				(50	)	(15	)	(5	)	(2	)	(45	)	(14	)
Operating Loss / Margin	(54	)	(19.6	)	(23	)	(7.0	)	(31	)
Segment EBITDA¹/ Margin	(26	)	(9.3	)	6		1.8		(32	)
Associates	1,467				1,467				—

¹ Non-U.S. GAAP measure reconciliation for Organic Sales and Segment EBITDA

Net Sales - The net sales in the Brake Systems segment decreased by $50 million to $275 million for the first nine months of 2019 as compared to 2018. This sales decline was mainly attributable to temporary lower volumes on certain Honda vehicle models, mainly in China and Japan.

Operating Loss - The operating loss for the Brake Systems segment increased by $31 million to $54 million for the first nine months of 2019 as compared to 2018. This increase was mainly due to the negative volume and product mix effects causing the lower organic sales and slight increase in RD&E net to support future organic sales growth.

EBITDA¹ - The segment EBITDA for Brake Systems decreased to negative $26 million for the first nine months of 2019 as compared to $6 million in 2018. This decline was mainly due to the increase in underlying operating loss for the segment.

Associates - The number of associates in the Brake Systems segment increased by 15 to 1,467 as compared to the end of 2018 primarily due to an increase in engineering resources to support development programs which was partially offset by direct labor and overhead reductions.

Deliveries - The quantities delivered during the first nine months of 2019 was 1.3 million units for Brake Systems.



Corporate and Other	Nine Months Ended September 30
(Dollars in millions, except where specified)	2019			2018			US GAAP Reported Change
(Dollars in millions, except where specified)	$		%	$		%	$		%
Net Sales	—			—			—
Operating Loss / Margin	(53	)	—	(34	)	—	(19	)
EBITDA¹/ Margin	(52	)	—	(34	)	—	(18	)
Associates	45			39			6

¹ Non-U.S. GAAP measure reconciliation for EBITDA

Operating Loss and EBITDA¹ - The operating loss and EBITDA for Corporate and other both increased to $53 and $52 million, respectively, from $34 million for the first nine months of 2019 as compared to 2018. This change was mainly attributable to the additional SG&A costs associated with being a standalone listed company.

Associates - The number of associates increased by 2 to 45 as compared to the end of 2018 mainly due to the hiring of personnel to support a standalone listed company and to perform functions previously provided through consultancy and outside services.

The associates and financial figures are not comparable since the financial results for the first half of 2018 are based on carve-out basis accounting rules.

Veoneer Performance



Income Statement	Nine Months Ended September 30
(Dollars in millions, except per share data)	2019					2018
(Dollars in millions, except per share data)	$			%		$			%		Change
Net sales	$	1,446				$	1,692				$	(246	)
Cost of sales	(1,211		)	(83.7	)%	(1,371		)	(81.0	)%	160
Gross profit	235			16.3	%	321			19.0	%	(86		)
Selling, general & administrative expenses	(148		)	(10.2	)%	(112		)	(6.6	)%	(36		)
Research, development & engineering expenses, net	(459		)	(31.8	)%	(334		)	(19.7	)%	(125		)
Amortization of intangibles	(17		)	(1.2	)%	(16		)	(0.9	)%	(2		)
Other income	1			0.1	%	18			1.1	%	(17		)
Operating loss	(388		)	(26.8	)%	(122		)	(7.2	)%	(266		)
Loss from equity method investments	(50		)	(3.5	)%	(45		)	(2.7	)%	(5		)
Interest income	14			1.0	%	4			0.2	%	10
Interest expense	(7		)	(0.5	)%	(1		)	(0.1	)%	(6		)
Other non-operating items, net	1			0.1	%	1			0.1	%	—
Loss before income taxes	(430		)	(29.7	)%	(163		)	(9.6	)%	(267		)
Income tax benefit / (expense)	1			0.1	%	(12		)	(0.7	)%	13
Net loss ¹	(429		)	(29.7	)%	(175		)	(10.4	)%	(254		)
Less: Net loss attributable to non-controlling interest	(26		)	1.8	%	(13		)	(0.8	)%	(13		)
Net loss attributable to controlling interest	$	(403	)	(27.9	)%	$	(162	)	(9.6	)%	$	(241	)
Net loss per share – basic²	$	(4.10	)			$	(1.86	)			$	(2.24	)
Weighted average number of shares outstanding²	98.32					87.15					11.17

Gross Profit - The gross profit of $235 million for the first nine months of 2019 was $86 million lower as compared to 2018. The negative volume and product mix effects that caused the lower organic sales was the main contributor to the gross profit decline. Net currency effects on our gross profit was approximately $26 million unfavorable for the same period as compared to 2018, primarily due to the stronger US dollar.

Operating Loss - The operating loss of $388 million for the first nine months of 2019 increased by $266 million as compared to 2018.

The RD&E, net increase of $125 million for the first nine months of 2019 as compared to 2018 was mainly due to the ramp-up of engineering hiring during 2018 as well as slightly lower engineering reimbursement.

The SG&A increase of $36 million for the first nine months of 2019 as compared to 2018 was mostly related to the additional costs associated with being a standalone listed company during the first half of 2019.

Other income was $17 million lower for the first nine months of 2019 as compared to 2018 primarily due to the reversal of the $14 million MACOM earn-out provision. Net currency effects on the operating loss were negative $11 million for the same period as compared to 2018.

Net Loss - The net loss for the first nine months of 2019 increased by $254 million to $429 million as compared to 2018.

Veoneer’s net loss from its equity method investment (Zenuity) of $50 million for the first nine months of 2019 increased by $5 million as compared to 2018. This is mainly attributable to the continued hiring and build-up of software engineers through the first half of 2019. The increase in equity method investment loss for the first nine month was mostly offset by interest income, net of $7 million, which was an increase of $4 million as compared to 2018.

The Income tax benefit for the first nine months of 2019 of $1 million as compared to an expense of $12 million in 2018 was mainly due to tax impact of the convertible debt issuance and a discrete tax benefit of $6 million.

The non-controlling interest loss of $26 million in the VNBS JV for the first nine months of 2019 was $13 million higher as compared to 2018. The increase is mainly due to the organic sales impact on earnings.

Loss per Share - The loss per share of $4.10 for the first nine months of 2019 increased by $2.24 per share as compared to 2018 mainly due to the increase in operating loss. The share count increase from the common stock issuance in May 2019 reduced the loss by $0.54 per share.

Non-U.S. GAAP Financial Measures

Non-U.S. GAAP financial measures are reconciled throughout this report.

In this report we refer to organic sales or changes in organic sales growth, a non-U.S. GAAP financial measure that we, investors and analysts use to analyze the Company's sales trends and performance. We believe that this measure assists investors and management in analyzing trends in the Company's business because the Company generates approximately 66% of its sales in currencies other than in U.S. dollars (its reporting currency) and currency rates have been and can be rather volatile. Additionally, the Company has historically made several acquisitions and divestitures, although none that impacted the reporting periods in question. Organic sales and organic sales growth present the increase or decrease in the overall U.S. dollar net sales on a comparable basis, allowing separate discussions of the impact of acquisitions/divestitures and exchange rates on the Company’s performance. The tables in this report present the reconciliation of changes in the total U.S. GAAP net sales to changes in organic sales growth.

The Company uses in this report EBITDA, a non-U.S. GAAP financial measure, which represents the Company’s net income excluding interest expense, income taxes, depreciation and amortization and including loss from equity method investment. The Company also uses Segment EBITDA, a non-U.S. GAAP financial measure, which represents the Company’s EBITDA which has been further adjusted on a segment basis to exclude certain corporate and other items. We believe that EBITDA and Segment EBITDA are useful measures for management, analysts and investors to evaluate operating performance on a consolidated and reportable segment basis, because it assists in comparing our performance on a consistent basis. The tables below provide reconciliations of net income (loss) to EBITDA and Segment EBITDA.

The Company uses in this report net working capital, a non-U.S. GAAP financial measure, which is defined as current assets (excluding cash and cash equivalents) minus current liabilities excluding short-term debt. The Company also uses in this report cash flow before financing activities, a non-U.S. GAAP financial measure, which is defined as net cash used in operating activities plus net cash used in investing activities. Management uses these measures to improve its ability to assess operating performance at a point in time as well as the trends over time. The tables below provides a reconciliation of current assets and liabilities to net working capital and cash flow before financing activities.

Investors should not consider these non-U.S. GAAP measures as substitutes, but rather as additions, to financial reporting measures prepared in accordance with U.S. GAAP. These measures, as defined, may not be comparable to similarly titled measures used by other companies.

Forward-looking non-U.S. GAAP financial measures used in this report are provided on a non-U.S. GAAP basis. Veoneer has not provided a U.S. GAAP reconciliation of these measures because items that impact these measures, such as foreign currency exchange rates and future investing activities, cannot be reasonably predicted or determined. As a result, such reconciliations are not available without unreasonable efforts and Veoneer is unable to determine the probable significance of the unavailable information.



Reconciliations of U.S. GAAP to Non-U.S. GAAP Financial Measures
Net Loss to EBITDA	Three Months Ended September 30						Nine Months Ended September 30						Last 12 Months			Full Year 2018
Dollars in millions	2019			2018			2019			2018			Last 12 Months			Full Year 2018
Net Loss	$	(139	)	$	(72	)	$	(429	)	$	(175	)	$	(548	)	$	(294	)
Depreciation and amortization	30			27			90			82			118			111
Loss from equity method investment	16			15			50			45			68			63
Interest and other non-operating items, net	(2		)	(4		)	(8		)	(4		)	(10		)	(7		)
Income tax expense / (benefit)	3			3			(1		)	12			28			42
EBITDA	$	(92	)	$	(31	)	$	(298	)	$	(40	)	$	(344	)	$	(87	)



Segment EBITDA to EBITDA	Three Months Ended September 30						Nine Months Ended September 30						Last 12 Months			Full Year 2018
Dollars in millions	2019			2018			2019			2018			Last 12 Months			Full Year 2018
Electronics	(69		)	(18		)	(220		)	(12		)	(251		)	(43		)
Brake Systems	(8		)	—			(26		)	6			(24		)	7
Segment EBITDA	$	(77	)	$	(18	)	$	(246	)	$	(6	)	$	(275	)	$	(36	)
Corporate and other	(15		)	(13		)	(52		)	(34		)	(69		)	(51		)
EBITDA	$	(92	)	$	(31	)	$	(298	)	$	(40	)	$	(344	)	$	(87	)



Working Capital to Net Working Capital	September 30, 2019			September 30, 2018			June 30, 2019			June 30, 2018			December 31, 2018			December 31, 2017
Dollars in millions	September 30, 2019			September 30, 2018			June 30, 2019			June 30, 2018			December 31, 2018			December 31, 2017
Total current assets	$	1,602		$	1,648		$	1,758		$	1,699		$	1,543		$	648
less Total current liabilities	613			630			572			584			636			590
Working capital	989			1,018			1,185			1,115			907			58
less Cash and cash equivalents	(1,062		)	(919		)	(1,204		)	(980		)	(864		)	—
less Short-term debt	21			—			20			—			—			—
Net Working Capital	$	(52	)	$	99		$	2		$	135		$	42		$	58



Cash Flow before Financing Activities	Three Months Ended September 30						Nine Months Ended September 30						Last 12 Months			Full Year 2018
Dollars in millions	2019			2018			2019			2018			Last 12 Months			Full Year 2018
Net cash used in operating activities	$	(61	)	$	(17	)	$	(221	)	$	(181	)	$	(219	)	$	(179	)
plus Net cash used in investing activities	(79		)	(58		)	(198		)	(120		)	(263		)	(185		)
Cash Flow before Financing Activities	$	(140	)	$	(75	)	$	(419	)	$	(301	)	$	(482	)	$	(364	)

Liquidity and Capital Resources

Liquidity

As of September 30, 2019, the Company had cash and cash equivalents of $1,062 million.

The Company's primary source of liquidity is the existing cash balance of $1,062 million which will primarily be used for ongoing working capital requirements, capital expenditures, investments in joint ventures, particularly Zenuity and certain anticipated business combinations. The Company believes that its existing cash resources will be sufficient to support its current operations for at least the next twelve months.

The Company has no material obligations other than short-term obligations related to operations, inventory, services, tooling, and property, plant and equipment purchased in the ordinary course of business.

Autotech - On June 30, 2017, Veoneer committed to make a $15 million investment in Autotech Fund I, L.P. pursuant to a limited partnership agreement, and, as a limited partner, will periodically make capital contributions toward this total commitment amount. As of September 30, 2019, Veoneer contributed a total of $10 million to the fund. The initial term of the fund is set to expire on December 31, 2025. This fund focuses broadly on the automotive industry and complements the Company’s innovation strategy, particularly in the areas of active safety and autonomous driving. Under the limited partnership agreement, the general partner has the sole and exclusive right to manage, control, and conduct the affairs of the fund.

Zenuity - Veoneer is currently in discussions with Volvo Cars, its Zenuity JV partner, regarding the development priorities of Zenuity in light of the market shift toward autonomous vehicle solutions. The outcome of these discussions may influence the level of funding and participation of Veoneer in the Zenuity JV, as well as future sharing of intellectual property and IP licenses.

Although no final commitment has been made pertaining to future funding, the Company made a funding contribution of $11 million, $21 million and $25 million during the second, third and fourth quarter of 2019, respectively.

Capital Raise - On May 28, 2019, Veoneer closed its concurrent registered public offerings of common stock and convertible senior notes. The offerings, which were oversubscribed by approximately three times, resulted in gross proceeds of $627 million, consisting of $420 million from the common stock offering and $207 million from the convertible notes offering. 24 million shares of common stock were issued in the common stock offering.

VNBS - On June 17, 2019, Veoneer announced the signing of binding agreements with its VNBS joint venture partner Nissin Kogyo to resolve the previously disclosed funding dispute between the two partners. Key agreement terms include: Veoneer's acquisition of Nissin Kogyo's 49% interest in the US operations of the VNBS JV, and Nissin Kogyo's agreement to provide guarantees for VNBS commercial loans, or contribute capital to VNBS, to fund debt repayment from VNBS to Veoneer of approximately $20 million. The transaction closed on June 28, 2019.

Zenuity - On October 2, 2019, Veoneer and Volvo Cars made certain changes to their Zenuity joint venture agreement. Notably, the parties removed the non-compete provisions which restricted the owners from engaging in business activities in competition with Zenuity. Veoneer remains the exclusive distribution channel for all Zenuity products sold to third parties.

Cash Flows



Selected Cash flow items	Nine Months Ended September 30
(Dollars in millions, except where specified)	2019			2018
Net cash used in Operating Activities	$	(221	)	$	(181	)
Capital expenditures	$	(168	)	$	(123	)
Equity method investment	$	(32	)	$	(71	)
Net Cash Used in Investing Activities	$	(198	)	$	(120	)
Cash flow before Financing Activities¹	$	(419	)	$	(301	)
Net Cash Provided by Financing Activities	$	634		$	1,206

¹ Non-U.S. GAAP measure, see reconciliation above

Net cash used in operating activities - Net cash used in operating activities of $221 million during the first nine months of 2019 was $40 million higher as compared to 2018. The higher net loss was mostly offset by the positive change in net working capital(Non-U.S. GAAP measure, see reconciliation above) and other, net.

Days receivables outstanding, outstanding receivables relative to average daily sales was 56 days for September 30, 2019, as compared to 81 days at September 30, 2018. This improvement is mainly due to lower customer past due receivables. Days inventory outstanding, outstanding inventory relative to average daily sales, increased to 31 days as of September 30, 2019, as compared to 29 days at September 30, 2018. This ratio remained relatively unchanged despite the year-over-year sales decline.

Net Working Capital- Net working capital (Non-U.S. GAAP measure, see reconciliation above) of $52 million negative improved by $94 million during the first nine months of 2019 as compared to 2018 due to a reduction in accounts receivable and inventories, net.

Net cash used in investing activities - Net cash used in investing activities of $198 million during the first nine months of 2019 increased by $78 million as compared to 2018 due to higher capital expenditures and lower related party notes receivable which was partially offset by Zenuity.

Cash flow before financing activities¹- The cash flow before financing activities of negative $419 million for the first nine months of 2019 was better than expected due to a net working capital decrease of $94 million.

Number of Associates



		September 30, 2019	June 30, 2019	March 31, 2018	December 31, 2018	September 30, 2018
TOTAL		9,127	9,235	9,191	8,600	8,310
Whereof:	Direct Manufacturing	2,116	2,153	2,110	2,083	2,186
	RD&E	5,086	5,154	5,192	4,676	4,327
	Temporary	1,630	1,659	1,563	1,329	1,254

The number of associates decreased to 9,127 during the quarter from 9,235 in the previous quarter, mainly due to reductions in direct manufacturing and RD&E of 37 and 68 associates, respectively. Temporary associates also declined during the quarter mainly related to the uncertain and changing LVP environment.

The increase in associates as compared to the same period in 2018 of 9,127 from 8,310 is primarily due to the net hiring of 759 associates to support our investment in engineering resources for future growth opportunities. Temporary associates have increased by 376 as compared to 2018 due to the uncertain macro situation and new program launches.

Significant Legal Matters

For discussion of legal matters we are involved in, see Note 13, Contingent Liabilities, to the condensed consolidated financial statements included herein.

Off-Balance Sheet Arrangements and Other Matters

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, there have been no significant changes to the contractual obligation and commitments disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 22, 2019.

On May 28, 2019, the Company issued, in a registered public offering in the U.S., the Notes with an aggregate principal amount of $207 million. The Notes bear interest at a rate of 4.00% per year payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2019. The Notes will mature on June 1, 2024, unless repurchased, redeemed or converted in accordance with their terms prior to such date.

Significant Accounting Policies and Critical Accounting Estimates

See Note 2, “Summary of Significant Accounting Policies” to the accompanying condensed consolidated financial statements included herein.

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 22, 2019.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2019, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was (a) reported within the time periods specified by SEC rules and regulations, and (b) communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding any required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Various claims, litigation 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.

For a description of our material legal proceedings, see Note 13 Contingent Liabilities – Legal Proceedings to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

The risk factors set forth under the heading “Risk Factors” in (i) the Prospectus forming part of our Registration Statement on Form S-1 related to our common stock offering (File No. 333-231607), filed with the SEC on May 24, 2019, and (ii) the Prospectus forming part of our Registration Statement on Form S-1 related to our convertible notes offering (File No. 333-231609), filed with the SEC on May 24, 2019. Other than as set forth below, there have been no material changes to the risk factors incorporated herein by reference.

In addition to the risk factors and other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors incorporated herein by reference, which could materially affect our business, financial condition or future results. These risks are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

The cyclical nature of automotive sales and production can adversely affect our business. The market is currently experiencing a significant decline in light vehicle production (LVP) and LVP may decline for the next several years. A prolonged recession and/or a downturn in our industry or deteriorating performance of our business, could adversely affect our business and require impairments or restructuring actions.

Our business is related to LVP in the global market and by our customers, and automotive sales and LVP are critical drivers for our sales. A prolonged downturn in or uncertainty relating to global or regional economic conditions, or any significant reduction in automotive sales and/or LVP by our customers, whether due to general economic conditions or any other factors relevant to sales or LVP, will likely have a material adverse effect on our business, results of operations and financial condition. If global economic conditions deteriorate or economic uncertainty increases, our customers and potential customers may experience deterioration of their businesses, which may result in the delay or cancellation of plans to purchase our products.

Furthermore, our ability to generate cash from our operations is highly dependent on regional and global economic conditions, automotive sales and LVP. Additionally, we have a substantial number of important product and program launches in the next 4-18 months. These launches are important from both a sales and cash flow perspective. A continued lower LVP or lower sales volumes on these new vehicles being launched as well as lower sales on other vehicles may delay the return on our investment in R&D and a return on the resources expended to ensure timely and quality launches. Given the high level of R&D that is required in our products, including new product and program launches, a significantly negative cash flow could have a materially negative impact on our business. A prolonged downturn in global economic conditions or LVP would likely result in us experiencing a significantly negative cash flow.

The high development costs of active safety and autonomous driving products increases the risk that we will be unable to effectively compete in the market and our inability to effectively manage the timing, quality and costs of new program launches could adversely affect our financial performance.

Most of our products are technologically complex and innovative and there can be a significant amount of time between design and production. Development delays resulting from the challenges of integrating new functionality into vehicles and the evolution of our customers’ performance requirements during the development cycle subject us to the risk that our customers cancel or postpone a contract in the time period that it takes us to begin production of a particular product. If we are unable to develop and deliver innovative and competitive products, or unable to do so before our competitors, our business, results of operations and financial condition could be materially adversely affected.

To compete effectively in the automotive supply industry, we must be able to launch new products to meet our customers’ timing, performance and quality standards. Our inability to do so may result in the loss of awarded business as well as significant liabilities and/penalties. Certain state of the art products we launch may need to be developed on an especially accelerated time frame for speed-to-market. There is a risk that we will not be able to install and certify the equipment needed to produce products for new programs in time for the start of production, or that the transitioning of our manufacturing facilities and resources to full production for such new programs will not impact production rates or other operational efficiency measures at our facilities. In

addition, there is a risk that our customers will not execute on schedule the launch of their new product programs, for which we might supply products. A declining LVP increases the risk that new programs will be delayed or have a slow launch process.

Additionally, as a Tier 1 automotive supplier, we must effectively coordinate the activities of numerous suppliers in order to launch programs successfully. Given the complexity of new program launches, especially involving new and innovative technologies, we may experience difficulties managing product quality, timeliness and associated costs. These risks with new technologies are increased when the customer relationship is new and the customer is subject to the same pressures on product quality and timeliness. In addition, new program launches require a significant ramp up of costs; however, the sales related to these new programs generally are dependent upon the timing and success of the introduction of new vehicles by our customers. Furthermore, if it becomes necessary to request that our customers cover or share in these costs due to the complexities and changes requested by the customers, this could impact our relationships with our customers and the development of these programs. These negotiations can take considerable time and effort and risk deterioration of our relationships with our customers, and there can be no assurances that any specific negotiations will result in amendments that are beneficial to us on a timely basis. We have a significant number of new program and product launches in the next 4-18 months. As the start of production grows closer for these programs and products, the potential risk related to timeliness and potential costs for failure to deliver timely may increase depending on the program or product as there is less time to implement any necessary changes to these programs even if they are requested by our customers. We may also have contractual liabilities for any such delays. Additionally, any such delays may impact our relationship with our customers and could impact potential future business opportunities. These issues may also be exacerbated due to deteriorating business conditions or declines in LVP. Our inability to effectively manage the timing, quality and costs of these new program launches could have a material adverse effect on our business, results of operations and financial condition.

We are subject to risks associated with the development and implementation of new manufacturing process technology.

We may not be successful or efficient in developing or implementing new production processes. We are continually engaged in the transition from our existing process to the next-generation process technology. This consistent innovation involves significant expense and carries inherent risks, including difficulties in designing and developing next-generation process technologies, development and production timing delays, lower than anticipated manufacturing yields, and product defects and errors. Production issues can lead to increased costs and may affect our ability to meet product demand, which could have a material adverse effect on our business, results of operations and financial condition.

Additionally, scaling our business has become increasingly critical to our success as OEMs have adopted global vehicle platforms and sought to increase standardization, reduce per unit cost and increase capital efficiency. We are investing in technologies that are intended to become the architecture for other products. If we are not able to scale according to our current expected timelines and needs of our current and prospective customers, we will lose the trust of our customers and our customer relationships may suffer.

Risks associated with joint venture partnerships and other collaborations may adversely affect our business and financial results.

Certain of our operations are currently conducted through joint ventures and joint development agreements, and we may enter into additional joint ventures and collaborations in the future. Our joint ventures and collaborations are generally focused on opening or expanding opportunities for our technologies and supporting the design and introduction of new products and services (or enhancing existing products or services). Such activities entail a high degree of risk and often require significant capital investments. We may underestimate the costs and/or overestimate the benefits, including technology, product, revenue, cost and other synergies and growth opportunities, that we expect to realize, and we may not achieve those benefits, or may do so later than expected. The market and customer demand for products and technologies provided by our joint ventures may also shift. For example, we have begun to see a shift in our customer’s focus to products and systems supporting “Level 2 plus driver assistance” technologies over systems supporting fully autonomous driving as it appears that fully autonomous vehicles will come to market in significant numbers later than previously expected. This means that some of the anticipated benefits of our Zenuity joint venture, including sales from technologies developed by the joint venture may not materialize or may come later than previously expected. We are currently in discussions with our Zenuity joint venture partner regarding the development priorities of Zenuity in light of the market shift toward autonomous vehicle solutions and we are presently evaluating our strategic and business plans for, as well as the ongoing funding needs of, Zenuity. The outcome of these discussions may influence the level of funding and participation of Veoneer in Zenuity, as well as future sharing of intellectual property and IP licenses and may result in a different strategy, focus, structure and/or purpose of Zenuity or implementation of other strategic options being reviewed.

Furthermore, our joint venture partners may be unable or unwilling to meet their economic or other contractual obligations, and we may in some cases and/or for some time choose to fulfill those obligations alone to ensure the ongoing success of a joint venture, or we may choose to dissolve and liquidate it. For example, since we acquired a 51% interest in VNBS, we unilaterally provided the funds necessary to meet VNBS’s operational needs as Nissin Kogyo refused to provide funding in proportion to its

ownership. In June 2019, we entered into an agreement with Nissin Kogyo pursuant to which Veoneer will acquire Nissin Kogyo’s interests in the US operations of VNBS, or VNBA, and Veoneer will release Nissin Kogyo from any obligations to fund VNBA in the future and from any claims Veoneer may have had against Nissin Kogyo relating to VNBA.

In addition, our joint venture and collaboration partners may at any time have economic, business or legal interests or goals that are inconsistent with our goals or with the goals of the joint venture. Our products and technologies may from time to time overlap with certain aspects of the technologies developed with one of our joint venture or collaboration partners which may cause the parties to consider the impact on the contractual relationship. Depending on our level of control over the governance and/or operations of a joint venture or collaboration, we may be unable to implement actions with respect to the joint venture’s activities that we believe are favorable if the joint venture partner does not agree. Disagreements with our business partners may impede our ability to maximize the benefits of our partnerships. We may have difficulty resolving disputes with or claims against our joint venture partners, which could lead to us bearing liability for claims that we are not responsible for and may have a material adverse impact on the joint venture. The above risks, if realized, could have a material adverse effect on our business, results of operations and financial condition.

Our ability to raise capital in the future may be limited, which could limit our business plan or adversely affect the rights of our stockholders.

Although we expect that our recently completed concurrent offerings of common stock and convertible notes will address our capital raising needs for the foreseeable future, we cannot be assured that this is the case. Our operating environment is increasingly challenging, and our business and strategic plans may consume resources faster than we presently anticipate. In the future, should this be the case, we may need to raise additional funds through additional financings, including the issuance of new equity securities, debt or a combination of both.

Without adequate access to capital, we may be forced to adjust our strategic and business plans to prioritize more essential funding needs. This could result in delaying certain research or development initiatives, which could impact our ability to develop innovative products and technologies. If capital is not available, or is not available on acceptable terms if and when needed, our ability to fund our operations, take advantage of market opportunities, develop or enhance our products, or otherwise respond to market changes or competitive pressures could be limited.

Although we believe we have sufficient funds to operate our business for the foreseeable future, short term deteriorating business conditions and lower than expected light vehicle production, along with the demand for increased RD&E investment to support our continued strong order intake, the successful execution of challenging customer projects, and the continued development of our product portfolio could potentially result in a future need of the Company to raise additional capital. We may finance future cash needs through public or private equity offerings and may also use debt financings or strategic collaborations and licensing arrangements. We may be unable to secure debt or equity financing on terms acceptable to us, or at all, at the time when we need such funding, and we may be forced to consider alternative transactions (including assets sales on terms our existing security holders perceive as unattractive) in order to do so. Such additional financings may not be available on favorable terms, or at all. If adequate funds are not available through additional financings on acceptable terms, we may be forced to consider alternative transactions (including sales of non-core / non-active safety assets on terms our existing security holders may perceive as unattractive) in order to fund our operations, repay debt or make new investments, or we may be unable to do so.

Even if we are successful in raising any required funds through additional financings, this may adversely impact our existing security holders. For example, if we raise funds by issuing additional securities, the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing stockholders. If we raise additional funds by issuing debt, we may be subject to debt covenants, which could place limitations on our operations. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations. Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a material adverse impact on our business, results of operations and financial condition.

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

As of September 30, 2019, we have outstanding debt of $183 million. We may incur additional debt for a variety of reasons. Although our significant debt agreements do not have any financial covenants, our level of indebtedness will have several important effects on our future operations, including, without limitation (i) a portion of our cash flows from operations will be dedicated to the payment of any interest or could be used for amortization required with respect to outstanding indebtedness; (ii) increases in our outstanding indebtedness and leverage will increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressure; (iii) depending on the levels of our outstanding debt, our ability to obtain additional financing for working capital, acquisitions, capital expenditures, general corporate and other purposes may be limited; and (iv) potential future tightening of the availability of capital both from financial institutions and the debt markets may have an adverse effect on our ability to access additional capital.

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

Not applicable.

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		Amended and Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K (filing date July 2, 2018).

3.2		Amended and Restated Bylaws, incorporated herein by reference to Exhibit 3.2 to the Current Report on Form 8-K (filing date July 2, 2018).

4.1		General Terms and Conditions for Swedish Depository Receipts in Veoneer, Inc., incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 10 (filing date June 4, 2018).

4.2		Indenture, dated May 28, 2019, between Veoneer, 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 (filing date May 29, 2019).

4.3		Form of 4.00% Convertible Senior Note due 2024 (included in Exhibit 4.2), incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K (filing date May 29, 2019).

10.1*		Amendment Agreement by and between Volvo Car Corporation and Veoneer Sweden AB regarding Zenuity, entered into October 1, 2019.

10.2*+		Employment Agreement, dated November 15, 2018, by and between Veoneer, Inc. and Takayoshi Matsunaga.

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

101*		The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2019, formatted Inline XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Statements of Operations (Unaudited); (ii) the Condensed Consolidated Statements of Comprehensive Loss (Unaudited); (iii) the Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Changes in Equity (Unaudited); (v) the Condensed Consolidated Statements of Cash Flows; and (vi) Notes to unaudited condensed consolidated financial statements.

104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).



*	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 23, 2019

VEONEER, INC.

(Registrant)



By:	/s/ Mats Backman
	Mats Backman
	Chief Financial Officer
	(Duly Authorized Officer and Principal Financial Officer)


(a)	Volvo Car Corporation, a Swedish limited liability company, reg. no. 556074-3089, having its registered office at Assar Gabrielssons Väg, 418 78, Gothenburg, Sweden ("Volvo Cars"); and


(b)	Veoneer Sweden AB, a Swedish limited liability company, reg. no. 559131-0841, having its registered office at Wallentinsvägen 22, 447 37 Vårgårda, Sweden ("Veoneer").


A.	Whereas, Volvo Cars and Autoliv Development AB ("Autoliv") entered into: (i) an Investment Agreement dated 20 December 2016 by and between Volvo Cars, Autoliv and Zenuity AB ("Zenuity") (the "IA"); and (ii) a Joint Venture Agreement dated 18 April 2017 by and between Volvo Cars and Autoliv regarding Zenuity (the "JVA");


B.	Whereas, Veoneer has acquired Autoliv's interests in Zenuity and replaced Autoliv in all aspects under the IA and the JVA and with respect to Zenuity and whereas, the Parties have discussed and agreed that Veoneer Inc. in all aspects under the JVA and with respect to Veoneer has replaced Autoliv Inc. as the ultimate parent, including but not limited to Clause 9.2.1 ; and



VEONEER SWEDEN AB		VOLVO CAR CORPORATION
/s/ Mikko Taipale NAME: Mikko Taipale TITLE: Chairman		/s/ Maria Hemberg NAME: Maria Hemberg TITLE: SVP, General Counsel
/s/ Amelie Wendels NAME: Amelie Wendels TITLE: Director		/s/ Carla DeGeyseleer NAME: Carla DeGeyseleer TITLE: CFO


1.	I have reviewed this quarterly report on Form 10-Q of VEONEER, INC.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [Language omitted in accordance with SEC Release No. 34-54942] for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	[Language omitted in accordance with SEC Release No. 34-54942]


c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.