Veoneer, Inc. (Form: 10-Q, Received: 10/23/2020 12:37:56)

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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, 2020


☐			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.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging Growth Company

☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: ☐ No: ☒

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of October 16, 2020, there were 111,594,984 shares of common stock of Veoneer, Inc., par value $1.00 per share, outstanding.

Exhibit index located on page 43

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, RD&E spend, 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: general economic conditions; the cyclical nature of automotive sales and production; the impact of the coronavirus pandemic (COVID-19) on the Company’s financial condition, business operations and liquidity; the impact of COVID-19 on our customers and their production and product launch schedules; the impact of COVID-19 on our suppliers and availability of components for our products; our ability to complete the transaction contemplated by the non-binding agreement with Qualcomm Technologies, which is subject to the negotiation and documentation of a definitive agreement; changes in general industry and market conditions or regional growth or decline; further decreases in light vehicle production; 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; 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; our ability to share RD&E costs with our customers; 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 identified in Part I Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A -“Risk Factors” and in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission ("SEC") on February 21, 2020.

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						5

Item 1 – Condensed Consolidated Financial Statements						5

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

Item 3 - Quantitative and Qualitative Disclosures about Market Risk						41

Item 4 - Controls and Procedures						41

Part II – Other Information						42

Item 1 - Legal Proceedings						42

Item 1A - Risk Factors						42

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds						43

Item 3 – Defaults Upon Senior Securities						43

Item 4 – Mine Safety Disclosures						43

Item 5 – Other Information						43

Item 6 - Exhibits						44

Signature						45

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
		2020		2019		2020		2019
Net sales	Note 3	$	371	$	462	$	918	$	1,446
Cost of sales		(317)		(389)		(808)		(1,211)
Gross profit		54		73		110		235
Selling, general and administrative expenses		(43)		(45)		(124)		(148)
Research, development and engineering expenses, net		(124)		(144)		(299)		(459)
Amortization of intangibles		(1)		(6)		(4)		(17)
Other income, net		11		—		27		1
Operating loss		(103)		(122)		(290)		(388)
Loss on divestiture and assets impairment charge, net	Note 5, 10	(24)		—		(91)		—
Loss from equity method investment	Note 10	(1)		(16)		(39)		(50)
Interest income		1		7		8		14
Interest expense		(5)		(5)		(15)		(7)
Other non-operating items, net		—		—		—		1
Loss before income taxes	Note 16	(132)		(136)		(427)		(430)
Income tax (expense) benefit	Note 8	—		(3)		(26)		1
Net loss		(132)		(139)		(453)		(429)
Less: Net income (loss) attributable to non-controlling interest		—		(6)		1		(26)
Net loss attributable to controlling interest		$	(132)	$	(133)	$	(454)	$	(403)

Net loss per share - basic and diluted	Note 15	$	(1.18)	$	(1.20)	$	(4.07)	$	(4.10)


Weighted average number of shares outstanding (in millions)		111.59		111.40		111.55		98.32
Weighted average number of shares outstanding, assuming dilution (in millions)		111.59		111.40		111.55		98.32

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
	2020		2019		2020		2019
Net loss	$	(132)	$	(139)	$	(453)	$	(429)
Other comprehensive loss, before tax:
Change in cumulative translation adjustment	15		(27)		15		(40)


Other comprehensive income (loss), before tax	15		(27)		15		(40)

Other comprehensive income (loss), net of tax	15		(27)		15		(40)
Comprehensive loss	(117)		(166)		(438)		(469)
Less: Comprehensive income (loss) attributable to non-controlling interest	—		(7)		2		(26)
Comprehensive loss attributable to controlling interest	$	(117)	$	(159)	$	(440)	$	(443)

See notes to the unaudited condensed consolidated financial statements.

Veoneer, Inc.

Condensed Consolidated Balance Sheets

(U.S. DOLLARS IN MILLIONS)


		(unaudited)
		September 30, 2020		December 31, 2019
Assets
Cash and cash equivalents		$	846	$	859

Receivables, net		245		253
Inventories, net	Note 9	124		144
Related party receivables	Note 17	6		11
Prepaid expenses and other contract assets		32		47
Other current assets		20		18
Assets held for sale	Note 5	—		317
Total current assets		1,273		1,649
Property, plant and equipment, net		413		473
Operating lease right-of-use assets		86		100
Equity method investment	Note 10	129		87
Goodwill		314		290
Intangible assets, net		22		17
Deferred tax assets		6		7

Investments		9		9
Other non-current assets		27		111
Total assets		$	2,279	$	2,743
Liabilities and equity
Accounts payable		$	223	$	233

Related party payables	Note 17	1		3
Accrued expenses	Note 11	230		192
Income tax payable		28		7
Related party short-term debt	Note 17	14		1
Other current liabilities		51		37
Liabilities held for sale	Note 5	—		118
Total current liabilities		547		591
4.00% Convertible Senior Notes due 2024	Note 6	167		160
Related party long-term debt	Note 17	103		—
Pension liability	Note 12	18		17
Deferred tax liabilities		10		13
Operating lease non-current liabilities		68		82
Finance lease non-current liabilities		42		33
Other non-current liabilities		26		29
Total non-current liabilities		434		334
Equity
Common stock (par value $1.00, 325 million shares authorized, 111 million shares issued and outstanding as of September 30, 2020 and December 31, 2019)		111		111
Additional paid-in capital		2,349		2,343
Accumulated deficit		(1135)		(681)

Accumulated other comprehensive loss		(27)		(44)
Total equity		1,298		1,729
Non-controlling interest		—		89
Total equity and non-controlling interest		1,298		1,818
Total liabilities, equity and non-controlling interest		$	2,279	$	2,743

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, 2020
	Equity attributable to
	Common Stock		Additional Paid In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Non-controlling Interest		Total
Balance at beginning of period	$	111	$	2,343	$	(681)	$	(44)	$	89	$	1,818

Net loss	—		—		(454)		—		1		(453)
Foreign currency translation	—		—		—		14		1		15





Stock based compensation expense	—		6		—		—		—		6


Business divestitures	—		—		—		3		(91)		(88)



Balance at end of period	$	111	$	2,349	$	(1,135)	$	(27)	$	—	$	1,298


	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 (Note 6)	—		35		—		—		—		35

Balance at end of period	$	111	$	2,343	$	(584)	$	(59)	$	89	$	1,900

Veoneer, Inc.

Condensed Consolidated Statements of Cash Flow (Unaudited)

(U.S. DOLLARS IN MILLIONS)


	Nine Months Ended September 30
	2020		2019
Operating activities
Net loss	$	(453)	$	(429)
Depreciation and amortization	73		90
Gain on divestitures	(77)		—
Assets impairment charge	168		—
Undistributed loss from equity method investments	39		50
Stock-based compensation	6		5
Deferred income taxes	(3)		(7)

Other, net	3		(7)
Change in operating assets and liabilities:
Receivables, gross	36		48
Accrued expenses	45		42
Related party receivables and payables, net	4		37
Accounts payable	(8)		(18)
Prepaid expenses and other contract assets	14		(10)
Inventories, gross	15		1
Income taxes	20		—
Other current assets and liabilities, net	3		(23)
Net cash used in operating activities	(115)		(221)

Investing activities
Proceeds from divestitures	198		—
Capital expenditures	(70)		(168)
Equity method investment	10		(32)
Short-term investments mature into cash	—		5
Long term investments	(1)		(3)

Proceeds from sale of property, plant and equipment	10		—
Acquisition of intangible assets	(10)		—
Acquisition of business net of cash acquired	(33)		—
Net cash provided by (used in) investing activities	104		(198)

Financing activities
Issuance of common stock	—		405
Dividend paid to non-controlling interest	(5)		—
(Payments for) proceeds from long-term debt	(1)		206
(Payments for) Proceeds from short-term debt	(2)		22
Net increase in related party short-term debt	—		1



Net cash (used in) provided by financing activities	(8)		634
Effect of exchange rate changes on cash and cash equivalents	6		(17)
Increase (decrease) in cash and cash equivalents	(13)		198
Cash and cash equivalents at beginning of period	859		864
Cash and cash equivalents at end of period	$	846	$	1,062

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.

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 Asian business of the Brake Systems segment was sold on February 3, 2020 and the majority of the Brake Systems business in North America was sold on August 10, 2020. The remaining Brake Systems business is no longer a reportable segment due to immateriality.

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, 2019 and corresponding notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020.

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.

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 the Company's common stock offering was $17.50 per share. The Company received net proceeds of approximately $403 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.

Divestiture of Veoneer Nissin Brake System ("VNBS")

On October 30, 2019, Veoneer signed definitive agreements to sell its 51% ownership in Veoneer Nissin Brake Japan ("VNBJ") and Veoneer Nissin Brake China ("VNBZ") entities that comprise VNBS to its joint venture partner Nissin-Kogyo Co., Ltd. (“Nissin Kogyo”), and Honda Motor Co., Ltd. The aggregate purchase price was $176 million. The divestiture of VNBJ and VNBZ was structured as two separate transactions each of which was completed on February 3, 2020, and the VNBS joint venture was terminated. See Note 5 "Divestiture and held for sale" for additional information.

Divestiture of Veoneer Brake Systems ("VBS")

On August 10, 2020 Veoneer signed a definitive agreement to sell the majority of the Brake Systems business in North America to ZF Friedrichshafen AG ("ZF"). The aggregate purchase price was $1. In connection with the transaction, the Company received approximately $22 million from ZF for VBS operational cost reimbursement. See Note 5 "Divestiture and held for sale" for additional information.

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, 2019 filed with the SEC on February 21, 2020.

Other Income, Net

On March 30, 2020, Veoneer commenced arbitration against Nissin Kogyo regarding a dispute arising out of a Share Purchase Agreement (“SPA”) dated September 2015. On June 30, 2020, Veoneer agreed to settle the proceedings, along with any and all legal claims arising out of or relating to the SPA dispute, for $20 million. The cash settlement was received by the Company on June 30, 2020 and is reported among Other income, net in the unaudited Condensed Consolidated Statements of Operations.

Research, development and engineering

In early 2019, as a result of multiple factors, including general market conditions, numerous customer change requests, and challenges involved in developing new technologies for various customer programs, Veoneer launched a broad initiative to have its customers contribute more to the cost of developing these programs. The Company began to approach customers to negotiate or renegotiate new or existing agreements to provide for more favorable cost sharing terms. As part of this initiative, Veoneer approached a certain customer to adjust the terms of existing award agreements. On May 20, 2020, the Company entered into an adjustment agreement with such customer and received a lump sum settlement of $65 million for past research, development and engineering costs and implementation of change requests, and $11 million for software specific future development.

During the second quarter of 2020, the Company received a total of $76 million from the adjustment agreement. According to the Company’s accounting policies, research, development and most engineering expenses are expensed as incurred. These expenses are reported net of expense reimbursements from contracts to further customize existing products for specific customers.

For the nine months ended September 30, 2020, the Company recognized a total reimbursement from customers of $82 million for past completed engineering services as a reduction of research, development and engineering costs on the unaudited Condensed Consolidated Statement of Operations.

In addition, as of September 30, 2020, the Company recognized $15 million from the adjustment agreement as deferred income reported among Other current liabilities in the unaudited Condensed Consolidated Balance Sheet. The deferred amount will be recognized in a systematic way and in proportion to the completion of the future engineering services related to the adjustment agreement as reimbursement from customers.

Accounting for credit losses

The Company has evaluated the available adoption options of common credit loss methods that are acceptable as per FASB Accounting Standards Codification Topic 326, Credit Losses. The Company adopted the available Loss-rate method where the impairment is calculated using an estimated loss rate and multiplying it by the asset’s amortized cost at the balance sheet date. This method appropriately reflects the Company´s risk pattern in relation to its accounts receivables.

The key components of the Company’s Loss-rate model are as follows:

•A list of the Company's customers credit rating and credit default risk rate from Bloomberg.

•Actual write-offs or reversals of previous write-offs of accounts receivables.

•Evaluation of other unusual facts and circumstances which could impact the credit loss rate, such as risk of bankruptcy or potential collectability issues.

The Company’s credit loss model includes the Company’s customer list. The customer list captures the existing customers. The list is put into a Bloomberg data query to generate customers short-term credit rating. The credit default risk rate is used to calculate the credit loss rate or estimated loss rate.

For customers that do not have credit default risk rate, management uses the six-month LIBOR rate as a credit rating and a credit default risk rate. Management believes that the six-month LIBOR rate adequately reflects the short-term nature of the Company’s trade receivables and is also in line with the Company’s invoice payment terms.

Concentration of Credit Risk

A substantial majority of the Company’s trade receivables are derived from sales to OEMs. For the three and nine months ended September 30, 2020 the Company’s four largest customers accounted for 55% and 57% of net sales, respectively and for the three and nine months ended September 30, 2019, the Company’s four largest customers accounted for 61% and 59% of net sales, respectively. Additionally, as of September 30, 2020 and December 31, 2019, these four largest customers accounted for 41% and 39%, respectively, of the Company’s accounts receivables. The Company believes that the receivable balances from these largest customers do not represent a significant credit risk based on past collection experience. The Company has adopted credit policies and standards intended to accommodate industry growth and inherent risk. The Company believes that credit risks are moderated by the financial stability of the Company’s major customers.

New Accounting Standards

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification.

The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s condensed consolidated financial statements.

Adoption of New Accounting Standards

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 earlier adoption is permitted for annual periods beginning after December 15, 2018. The Company adopted ASU 2016-13 effective January 1, 2020 and applied a loss rate model to compute the expected credit loss allowance. The adoption of ASU 2016-13 did not have a material impact on the Company's condensed consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18 Collaborative Arrangements (Topic 808), Clarifying the Interaction between Topic 808 and Topic 606, which (1) clarifies that certain transactions between collaborative arrangement participants should be accounted for under ASC Topic 606, Revenue from Contracts with Customers (Topic 606), when the collaborative arrangement participant is a customer in the context of a unit of account, (2) adds unit-of-account guidance in Topic 808 to align with Topic 606 when an entity is assessing whether the collaborative arrangement, or a part of the arrangement, is within the scope of Topic 606, (3) precludes presenting transactions together with revenue when those transactions involve collaborative arrangement participants that are not directly related to third parties and are not customers. The Company adopted ASU 2018-18 in the first quarter of 2020. The adoption of ASU 2018-18 did not have a material 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 adopted ASU 2018-18 in the first quarter of 2020. The adoption of ASU 2018-13 did not have a material impact on the Company's condensed consolidated financial statements.

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. The adoption of the new lease standard did not have a material impact on the Company's condensed consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes. ASU 2019-12 is effective for public business entities for annual periods beginning after December 15, 2020, and early adoption is permitted. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company plans to adopt ASU 2019-12 as of January 1, 2021. The Company has concluded that the pending adoption of ASU 2019-12 will not have a material impact on the Company’s condensed consolidated financial statements.

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.

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, 2020										Three Months Ended September 30, 2019
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Asia	$	85	$	—	$	85	$	80	$	77	$	157
Americas	123		13		136		133		14		147
Europe	150		—		150		158		—		158


Total net sales	$	358	$	13	$	371	$	371	$	91	$	462

Net Sales by Region


	Nine Months Ended September 30, 2020										Nine Months Ended September 30, 2019
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Asia	$	202	$	24	$	226	$	259	$	229	$	488
Americas	283		33		316		432		46		478
Europe	376		—		376		480		—		480


Total net sales	$	861	$	57	$	918	$	1,171	$	275	$	1,446

Net Sales by Products


	Three Months Ended September 30, 2020										Three Months Ended September 30, 2019
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Restraint Control Systems	$	188	$	—	$	188	$	193	$	—	$	193
Active Safety products	170		—		170		178		—		178
Brake Systems	—		13		13		—		91		91


Total net sales	$	358	$	13	$	371	$	371	$	91	$	462

Net Sales by Products


	Nine Months Ended September 30, 2020										Nine Months Ended September 30, 2019
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Restraint Control Systems	$	450	$	—	$	450	$	617	$	—	$	617
Active Safety products	411		—		411		554		—		554
Brake Systems	—		57		57		—		275		275


Total net sales	$	861	$	57	$	918	$	1,171	$	275	$	1,446

Note 4. Business Combinations

Business combinations generally take place to either gain key technology or strengthen Veoneer’s position in a certain geographical area or with a certain customer. The results of operations and cash flows from the Company’s acquisitions have been included in the Company’s unaudited condensed consolidated financial statements prospectively from their date of acquisition.

Zenuity, Inc and Zenuity GmbH

On April 2, 2020, the Company entered into a non-binding agreement with Volvo Cars Corporation (VCC) to separate Zenuity, a 50% ownership joint venture with VCC in order for each company to more effectively drive their respective strategies. The parties entered into definitive agreements and effected the separation on July 1, 2020. As part of the transaction the Company paid approximately $37 million to Zenuity for 200 software engineers and two business units located in Germany and the US.

The Company applied the acquisition method of accounting to the Zenuity, Inc and Zenuity GmbH entities, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the workforce. The recognized goodwill of $23 million recorded as part of this acquisition is included in the Electronics reportable segment and is not deductible for tax purposes. The preliminary opening balance sheet is subject to adjustment based on final assessment of the fair values of certain acquired assets, principally intangibles, and certain assumed liabilities. The Company used discounted cash flow ("DCF") analyses, which represent Level 3 fair value measurements, to assess the purchase price allocation. As the Company finalizes the fair value of the acquired assets and assumed liabilities, additional purchase price adjustments may be recorded during the measurement period. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments occur.

Total Zenuity, Inc and Zenuity GmbH acquisition related costs were approximately $1 million for the period ended September 30, 2020. These costs were reflected in Selling, general and administrative expenses in the unaudited Condensed Consolidated Statements of Operations for the period ended September 30, 2020.

The following table summarizes the estimated fair values of identifiable acquired assets and assumed liabilities:


Assets	As of July 1, 2020
Cash and cash equivalents	$	4
Receivable, net	12
Property, plant and equipment, net	3
Operating lease right-of-use assets	10
Goodwill	23
Total assets	$	52
Tax payable	2
Accrued liabilities	3
Operating lease non-current liabilities	10
Total liabilities	$	15
Net assets acquired	$	37

Intellectual property

In addition, the Company acquired the right to use VCC intellectual property of $10 million in a transaction outside of the business combination. The acquired intangible asset will be assigned a useful life of 8 years and amortized over the useful life on a straight-line basis.

Separately, the Company has licensed intellectual property for $10 million to VCC with zero cost base in a transaction outside of the business combination and recognized this amount as Other Income in the unaudited Condensed Consolidated Statements of Operations for the period ended September 30, 2020.

Note 5. Divestiture and held for sale

VBS

In 2019, the Company started exploring strategic options for its non-core business in the Brake Systems segment. In the first quarter of 2020, management committed and approved a plan to sell VBS. The business and its associated assets and liabilities met the criteria for presentation as held for sale as of June 30, 2020 and were required to be adjusted to the lower of fair value less cost to sell or carrying value. This resulted in an impairment charge of approximately $144 million which was recorded within Gain/(loss) on divestiture and assets held for sales, net on the unaudited Condensed Consolidated Statements of Operations during the period ended June 30, 2020. The impairment was measured using third party sales pricing to determine fair values of the assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement." The assets and liabilities associated with the transaction are separately classified as held for sale in the unaudited Condensed Consolidated Balance Sheet as of June 30, 2020 and depreciation of long-lived assets ceased on June 30, 2020. The divestiture did not meet the criteria for presentation as a discontinued operation.

On August 10, 2020 Veoneer signed a definitive agreement to sell the majority of the Brake Systems business in North America to ZF. The aggregate purchase price was $1. In connection with the transaction, the Company received approximately $22 million from ZF for VBS operational cost reimbursement. The reimbursement cost was recognized as asset and liability held for sale on the unaudited Condensed Consolidated Balance sheet as of June 30, 2020.

VNBS

In the fourth quarter of 2019, management approved a plan to sell VNBS. The business and its associated assets and liabilities met the criteria for presentation as held for sale as of December 31, 2019, and depreciation of long-lived assets ceased. The divestiture did not meet the criteria for presentation as a discontinued operation.

On October 30, 2019, the Company entered into definitive agreements with Nissin-Kogyo Co., Ltd. and Honda Motor Co., Ltd to divest VNBS. On February 3, 2020, the Company completed the sale of VNBS. The aggregate purchase price of the transaction was $176 million, subject to certain adjustments. The net cash proceeds after adjusting for closing costs was $175 million. The Company recognized a gain on the divestiture of $77 million, net of closing costs.

The major classes of assets and liabilities held for sale were as follows:


(Dollars in millions)	As of
Assets held for sale	December 31, 2019
Cash and cash equivalents	$	35
Receivables, net	58
Inventories, net	17
Property, plant and equipment, net	126
Intangible assets, net	66
Other current assets	15
Total assets held for sale	$	317
Liabilities held for sale
Accounts payable	50
Accrued expenses	20
Related party short-term debt	12
Pension liability	8
Other current liabilities	28
Total liabilities held for sale	$	118

Note 6. Debt

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


	As of
(Dollars in millions)	September 30, 2020		December 31, 2019
Short-Term Debt:
Short-term borrowings	$	3	$	3
Long-Term Debt:
4.00% Convertible Senior Notes due 2024 (Carrying value)	167		160
Other long-term borrowings	6		8
Total Debt	$	176	$	171

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 delivers 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, shares or both 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 are the Company's general unsecured obligations and 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) 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 unaudited Consolidated 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 unaudited 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 unaudited 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, 2020		December 31, 2019
Principal amount (face value)	$	207	$	207
Unamortized issuance cost	(4)		(5)
Unamortized debt discount	(36)		(42)
Net Carrying value	$	167	$	160

The Company recognized total interest expense related to the Notes of $4 million and $4 million for three months ended September 30, 2020 and 2019, respectively, and $13 million and $6 million for the nine months ended September 30, 2020 and 2019, respectively, in the unaudited Condensed Consolidated Statements of Operations.

The estimated fair value of the Notes was $198 million as of September 30, 2020. 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 7 "Fair Value Measurements".

Note 7. 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, 2020 were foreign exchange swaps. All swaps principally match the terms and maturity of the underlying obligation 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.

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 $198 million as of September 30, 2020 and $291 million as of December 31, 2019. As of September 30, 2020, derivatives not designated as hedging instruments was an asset of $3 million, and as of December 31, 2019, the derivatives not designated as hedging instruments was a liability of $1 million. There were no derivatives designated as hedging instruments.

Gains and losses on derivative financial instruments recognized in the unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, 2020 and 2019 were a gain of $2 million and a loss of less than $1 million, respectively, and for the nine months ended September 30, 2020 and 2019 were a gain of $4 million and a gain of $1 million, respectively.

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. VBS assets and liabilities classified as held for sale and the related impairment were measured using third party sales pricing to determine fair values of the assets. See Note 5 "Divestiture and held for sale" for additional information.

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, periodically makes capital contributions toward this total commitment amount. As of September 30, 2020 and December 31, 2019, Veoneer contributed approximately $12 million and $10 million, respectively, to the investment in Autotech Fund I, L.P. As of September 30, 2020 the Company has received distributions of $3 million from the partnership and was recognized as reduction of the investment amount.

The carrying amounts of $9 million reflected in the unaudited Condensed Consolidated Balance Sheet in Investments for AutoTech Fund I, L.P approximates its fair value as of June 30, 2020 as this is the most recent information available to the Company at this time.

Note 8. Income Taxes

The tax expense for the three and nine month periods ended September 30, 2020, was less than $1 million and $26 million, respectively. During the three and nine month periods ended September 30, 2019, the Company recorded a tax expense of $3 million and a tax benefit of $1 million, respectively. Discrete items, net were a benefit of $2 million and expense of $17 million for the three and nine month periods ended September 30, 2020, respectively, and a benefit of less than $1 million and $6 million for the three and nine month periods ended September 30, 2019, respectively. The discrete item in the nine month period ended September 30, 2020 was primarily related to the tax impact of the divestiture of VNBS. Veoneer's effective tax rate differs from an expected statutory rate primarily due to the discrete item and losses in certain jurisdictions that are not benefited.

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 operations in United States, Sweden, France, Japan and China.

Note 9. 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, 2020		December 31, 2019
Raw materials	$	93	$	99
Work in progress	11		8
Finished products	48		62
Inventories	152		169
Inventory valuation reserve	(28)		(25)
Total inventories, net of reserve	$	124	$	144

Note 10. Equity Method Investment

On April 2, 2020, the Company entered into a non-binding agreement with VCC to separate Zenuity, a 50% ownership joint venture with VCC in order for each company to more effectively drive their respective strategies. The parties entered into definitive agreements and effected the separation on July 1, 2020.

On July 1, 2020, the Company finalized the split of Zenuity. As part of the transaction the Company paid approximately $37 million to Zenuity for 200 software engineers and two business units located in Germany and the US. Veoneer acquired the right to use Zenuity's intellectual property for a total consideration of SEK 1,067 million (approximately $114 million) payable in ten annual installment payments, with the first payment due on July 1, 2021.

As the transaction resulted in all of the business of Zenuity being transferred to one of its two owners, the Company determined that the remaining value of that equity investment was equal only to the expected future dividends to be received. This resulted in an impairment charge of approximately $24 million that was recorded in the unaudited Condensed Consolidated Statements of Operations for the period ended September 30, 2020.

As the transaction was between the investor and investee, the Company did not recognize any gain from the transaction.

Following completion of the transaction, Veoneer and VCC continue to own 50% each of Zenuity AB. The joint venture was not dissolved as part of the transaction but continues as a holding company that owns the IP of Zenuity.

During the third quarter of 2020, the Company received dividend of SEK 327 million (approximately $35 million) in cash (representing 50% of the total dividend, with the remainder received by VCC) from Zenuity.

During the second quarter of 2020, Veoneer contributed SEK 90 million (approximately $9 million) in cash (representing 50% of the total contribution, with the remainder made by VCC) into Zenuity to support its current operating cash flow needs.

During the first quarter of 2020, Veoneer contributed SEK 150 million (approximately $16 million) in cash (representing 50% of the total contribution, with the remainder made by VCC) 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 month periods ended September 30, 2020 was $1 million and $39 million, respectively. Veoneer's share of Zenuity's loss for the three and nine month periods ended September 30, 2019, was $16 million and $50 million, respectively. As of September 30, 2020 and December 31, 2019, the Company’s equity investment in Zenuity was $129 million and $87 million, respectively.

Note 11. Accrued Expenses


	As of
(Dollars in millions)	September 30, 2020		December 31, 2019
Operating related accruals	$	79	$	43
Employee related accruals	88		76
Customer pricing accruals	22		39
Product related liabilities¹	19		15
Other accruals	22		19
Total Accrued Expenses	$	230	$	192

¹ As of September 30, 2020 and December 31, 2019, $10 million and $8 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 12. Retirement Plans

Defined Benefit Pension Plans

The Company’s net periodic benefit costs for plans for the three and nine months ended September 30, 2020 and 2019 were as follows:


	Three Months Ended September 30						Nine Months Ended September 30
(Dollars in millions)	2020		2019		2020		2019
Service cost	$	1	$	1	$	3	$	4
Interest cost	1		—		2		1
Expected return on plan assets	(1)		(1)		(2)		(1)
Net periodic benefit cost	$	1	$	—	$	3	$	4

The service cost and amortization of prior service cost components are reported among employee compensation costs in the unaudited Condensed Consolidated Statements of Operations. The remaining components (interest cost, expected return on plan assets and amortization of actuarial loss) are reported in Other non-operating items, net in the unaudited Condensed Consolidated Statements of Operations.

Note 13. 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.

During the nine months ended September 30, 2020 under the Company’s long-term incentive (LTI) program, certain employees and non-employee directors received restricted stock units (RSUs) without dividend equivalent rights and performance shares (PSs) without dividend equivalent rights. The allocation between RSUs and PSs was 777,466 RSUs and 415,381 PSs at 100% target.

The majority of the RSUs granted will vest on the 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 2020 were calculated by using the closing stock price on the grant dates. The grant date fair value for the RSUs and PSs, granted in 2020 was $11 million.

PSs granted in 2020 will earn out during the first quarter of 2023, 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, PS and Stock Options) compensation cost of $1 million and $5 million for the three and nine month periods ended September 30, 2020, respectively. During the three and nine month periods ended September 30, 2019, the Company recorded $2 million and $5 million, respectively.

Note 14. 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.

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 unaudited Condensed Consolidated Balance Sheet.


	Three Months Ended September 30						Nine Months Ended September 30
(Dollars in millions)	2020		2019		2020		2019
Reserve at beginning of the period	$	18	$	14	$	15	$	16
Change in reserve	2		—		8		1
Cash payments	(1)		—		(4)		(3)


Reserve at end of the period	$	19	$	14	$	19	$	14

For the three and nine month periods ended September 30, 2020 and 2019, cash paid primarily relate to warranty related issues. The increase in the reserve balance as of September 30, 2020 compared to the prior year was due to a recall related reserve liability. 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,

2020 and December 31, 2019, $10 million and $8 million, respectively, of product related liabilities were indemnifiable losses subject to indemnification by Autoliv and an indemnification asset is included in Other current assets.

Guarantees

The Company provided lease guarantees to Zenuity of $14 million and $7 million as of September 30, 2020, and December 31, 2019, 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 in the unaudited Condensed Consolidated Balance Sheet as of September 30, 2020 and December 31, 2019 related to these guarantees.

Note 15. 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 month periods ended September 30, 2020 and 2019.


	Three Months Ended September 30						Nine Months Ended September 30
(Dollars in millions, except per share amounts)	2020		2019		2020		2019
Numerator:
Basic and diluted:
Net loss attributable to Veoneer	$	(132)	$	(133)	$	(454)	$	(403)

Denominator:
Basic: Weighted average number of shares outstanding (in millions)	111.59		111.4		111.55		98.32
Diluted: Weighted-average number of shares outstanding, assuming dilution (in millions)¹	111.59		111.4		111.55		98.32

Basic loss per share	$	(1.18)	$	(1.20)	$	(4.07)	$	(4.10)
Diluted loss per share	$	(1.18)	$	(1.20)	$	(4.07)	$	(4.10)

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 anti-dilutive effect. The Company excluded equity incentive awards of 963,171 and 741,120 shares for the three and nine month periods ended September 30, 2020, respectively, and 295,526 and 285,975 for the three and nine month periods ended September 30, 2019, respectively, from the diluted loss per share calculations.

The Company may settle the conversion 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 6 "Debt". Due to anti-dilutive effects, the Company excluded potential convertible shares due under the Notes of 9,277,305 for the three and nine month periods ended September 30, 2020, respectively, and 9,277,305 and 4,247,850 for the three and nine month periods ended September 30, 2019, respectively, from the diluted loss per share calculations.

Note 16. 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 Asian business of the Brake Systems segment was sold on February 3, 2020 and the majority of the Brake Systems business in North America was sold on August 10, 2020. The remaining Brake Systems business is no longer a reportable segment due to immateriality.

The accounting policies for the reportable segments are the same as those described in Note 2 "Summary of Significant Accounting Policies" included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020.


Loss Before Income Taxes	Three Months Ended September 30						Nine Months Ended September 30
(Dollars in millions)	2020		2019		2020		2019
Electronics	$	(80)	$	(90)	$	(202)	$	(281)
Brake Systems	(3)		(17)		(37)		(54)
Segment operating loss	(83)		(107)		(239)		(335)
Corporate and other	(20)		(15)		(51)		(53)
Loss on divestiture and assets impairment charge, net	(24)		—		(91)		—
Interest and other non-operating items, net	(4)		2		(7)		8
Loss from equity method investment	(1)		(16)		(39)		(50)
Loss before income taxes	$	(132)	$	(136)	$	(427)	$	(430)

Note 17. Relationship with Former Parent and Related Entities

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 less than $1 million of expense under the TSA for the three and nine month periods ended September 30, 2020, and $1 million and $4 million of expense under the TSA for the three and nine month periods ended September 30, 2019 respectively. The Company recognized less than $1 million of income under the TSA for the three and nine month periods ended September 30, 2020 and 2019.

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 former 51% owned subsidiary). Related party sales amounted to $18 million and $48 million for the three and nine month periods ended September 30, 2020, respectively and $24 million and $77 million for the three and nine month periods ended September 30, 2019, 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, 2020		December 31, 2019
Related party receivable	$	6	$	11

Related party payables	1		3
Related party short-term debt	14		1
Related party long-term debt	103		—

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.

Related party short-term and long-term debt mainly related to Zenuity's intellectual property that Veoneer acquired the right to use for a total consideration of approximately $114 million payable in ten annual installment payments, with the first payment due on July 1, 2021.

Note 18. 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.

For the nine months ended September 30, 2020 and 2019, the Company has entered into arrangements with financial institutions and sold $38 million and $59 million, respectively, of trade receivables without recourse and $10 million and $37 million, respectively, of bank notes without recourse, which qualify as sales as all rights to the trade and notes receivable have passed to the financial institution.

As of September 30, 2020, the Company had $7 million of trade notes receivables which remain outstanding and will mature within the fourth quarter of 2020. 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.

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 this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020.

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

•COVID-19 Commentary

•2020 Outlook

•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. 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

Health and safety continue to be our first priorities and we are closely monitoring the development of the COVID-19 pandemic, which unfortunately shows signs of becoming more severe again, and we are staying ready to take the necessary safety precautions and business actions.

Vehicle production accelerated through the quarter, leading to a rapid increase in demand in the entire automotive supply chain, in a time when we are still fighting the effects of the global COVID-19 pandemic. In this challenging environment we executed a record number of activities including: successful vehicle launches, continued market adjustment initiatives, signing of a letter of intent with Qualcomm, finalizing the split of Zenuity and the divestment of our brake business. To summarize our underlying performance improved in almost all metrics. We are pleased with Veoneer’s operational performance in the third quarter and would like to thank the entire Veoneer team for their focus, dedication and discipline during this highly unusual year.

Cash flow was particularly strong in the quarter and while it included certain timing effects it allows us to expect a better 2020 full year cash flow before financing than previously expected. Our market adjustment initiatives also continue to deliver the targeted improvements, we are establishing new levels of run- rate for cash flow and capital expenditures and continue to drive improvements in RD&E efficiency.

Our daily execution is the foundation that will allow our plans to materialize, and we are managing key launches well including the flagship Mercedes S-Class, the Subaru Levorg and the Volvo XC40 Electric. We are on track for additional fourth quarter and early 2021 launches. This development is fundamental to achieving our stated target to return to organic growth towards the later part of 2020. The selection by EuroNCAP of the Mercedes GLE as the best vehicle in its 2020 test for assisted driving, where most of the active safety content comes from Veoneer is another recent important technology proof-point.

The Qualcomm collaboration is important to Veoneer for multiple reasons. Technologically, it strengthens our capability to provide a full scalable system for the next generation ADAS and later autonomous driving. The combination of Veoneer's software for perception and drive policy and Qualcomm’s powerful and energy efficient System On a Chip (SoC) will bring a competitive offer to the market for vehicle launches in 2024 and beyond. Commercially, the go-to-market strategy led by Qualcomm will allow for broader access to the market.

Our focus areas first outlined at the beginning of 2020 remain: successful customer launches in 2020 and heading into 2021, market adjustment initiatives to continue to drive efficiencies and improve cash flow, and continuing to win profitable new business.

COVID-19 Commentary

The COVID-19 pandemic continues to cause significant uncertainty in the global economy. This includes the automotive industry and light vehicle production ("LVP") for 2020 and the upcoming years ahead, which are dependent on underlying consumer demand.

During the third quarter, our customers in Europe and North America generally experienced a sharp ramp-up of their production, after most factories had been idled, or running on very reduced schedules during the latter part of the first quarter and the early part of the second quarter. However, during the third quarter, we experienced an even stronger increase in production ramp-ups by our customers in China, while there has been a stabilization of production in other Asian vehicle producing countries from the initial recovery during the second quarter this year. The strong customer call-offs, predominately in China have continued in the fourth quarter and are creating some challenges in the supply chain for certain key components in the restraint control business.

Our updated planning assumptions reflect the stronger than expected recovery of global LVP during the third quarter and our current customer forecasts for the fourth quarter. The latest IHS forecast implies a year-over-year LVP decline of approximately 4% for the second half of 2020 and approximately 19% for the full year 2020, which are both improvements from July 2020. However, we continue to monitor the situation as the number of new COVID-19 cases in Europe and the United States seem to be on the rise, which may impact the LVP and our customer forecasts in the near-term.

As our OEM customers recovered to more normal, or higher than normal in certain countries, we have returned to higher production levels as well. The health and safety of our associates continues to be our first priority, and we are taking the necessary actions to protect our associates, safeguard our operations and meet our customers' needs while managing through these unprecedented circumstances.

As noted in our 2020 Outlook, in response to the pandemic, the Company continues to extend its market adjustment initiatives (MAIs) to further mitigate the impact of the pandemic on its cash flow and operating results. The actions taken by the Company

to mitigate the impact, include reducing its annual RD&E, net by more than $100 million and other expenses with the intention of reducing the Company's operating loss and conserving cash in 2020 so as to enter 2021 in a stable cash position. Veoneer estimates the negative organic sales impact from the lower customer demand to be approximately $30 million for the third quarter and approximately $250 million through the first nine months of 2020.

In 2020, the most important driver for Veoneer’s business is new customer and technology launches. For the top 15 launches we see no cancellations of projects; however, approximately half of such launches have been postponed by up to one quarter while the rest remain on track, or actually even slightly ahead of schedule. The exact volumes and consumer take rates are hard to predict at this point in time.

2020 Outlook

The sharp production rebound in the third quarter of 2020 is expected to sequentially improve further during the fourth quarter. Based on current customer call-offs and forecasts, Veoneer expects to return to organic sales growth during the fourth quarter and to outperform the LVP for the second half of 2020. The Company expects this organic growth to accelerate into 2021.

Veoneer remains on track with its implementation of additional MAIs with the underlying aim to offset the negative effects from lower sales and the impact on cash flow. Veoneer expects RD&E, net in full year 2020 to improve by more than $100 million as compared to 2019, on a comparable basis, and the operating loss to improve in full year 2020 as compared to 2019, on a comparable basis.

Capital expenditures are expected to be less than $125 million for full year 2020. As a result of a better than expected third quarter, the Company's current outlook is for cash flow before financing activities to be better than $(170) million for the second half of 2020, however the COVID-19 pandemic continues to create a challenging and uncertain environment.

Trends, Uncertainties and Opportunities

Trend toward Collaborative Driving

The environment around us continues to be rapidly changing and we currently see a shift across the automotive and autotech industries. The industry developments during 2019 have further strengthened the trend toward advanced driver support - Collaborative Driving - and away from fully autonomous cars for the consumer based vehicle mass market.

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. While the industry refers to “Level 2+” or even "Level 2++" Veoneer calls this Collaborative Driving, and includes any SAE level of automation. At the same time there is 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 adjusting the priorities 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 however the recent developments of the COVID-19 pandemic, during the first half of 2020, and perhaps ongoing impact, could affect the evolution of ADAS, Collaborative Driving and AD for consumer purchased light vehicles.

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.

One June 26, 2020, the UNECE’s World Forum for Harmonization of Vehicle Regulations, announced the first binding international regulation on “level 3” vehicle automation. The new regulation marks an important step towards the wider deployment of automated vehicles to help realize a vision of safer, more sustainable mobility for all. Starting in January 2021 the regulation provides guidelines on the Automated Lane Keep System ("ALKS") feature, requires driver availability recognition systems, and a "black box" data storage system for AD. It also outlines requirements for emergency and minimal risk maneuvers and driver transition demand as well as cyber-security and software update protocols.

In May 2020 Euro NCAP announced that is was postponing the roll-out of upcoming road map updates by one year (from 2022 to 2023 and from 2024 to 2025). This should help our industry to overcome the situation with respect to the COVID-19 pandemic, but it should not change the overall trend towards introduction of new roadmap requirements, which are just delayed by one year. We anticipate strong global sensor adoption rate increases (forward, side and rear) due to the European NCAP'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 part of the European General Safety Regulation ("GSR") 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 ADAS software features, our order intake since the adoption of the mandate seems to reflect the anticipated increase in demand. However, during 2019 we have seen OEM delays in the sourcing of these technologies as customers reconsider how they want to architect and design, in a scalable way to include these new standard technologies. In addition, we believe that the mandate and the European 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 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 HAD on the road towards Autonomous Vehicles ("AV"). On April 2, 2020 the U.S DoT closed the comment period for the “Automated Vehicles 4.0” which seeks to ensure a consistent U.S. Government approach to AV technologies, and to detail the authorities, research, and investments being made across the United States so that the United States can continue to lead AV technology research, development, and integration.

In 2018 the UN Economic Commission for Europe created a new Working Party to deal with regulations for Automated/Autonomous and Connected Vehicles. In addition to the EU and Japan, which have both started to work closely together to develop ADAS regulations, in the last three 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 and 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 Overview


Millions (except where specified) IHS as of October 16, 2020	Light Vehicle Production by Region - 2020
			China			Japan			Rest of Asia			Americas			Europe			Other			Total
Third Quarter 2020	6.0			2.0			2.4			4.3			4.3			0.4			19.5
Change vs. 2019	9	%		(12)	%		(17)	%		(4)	%		(8)	%		(12)	%		(4)	%

For the third quarter of 2020, global light vehicle production (according to IHS) declined by approximately 4% mainly due to lower production output in most vehicle producing countries except China where the LVP increased 9%. At the beginning of the quarter the global global LVP was expected to decline by approximately 12%. Major vehicle producing geographies include Europe (8)% and Japan (12), while South Korea and North America are essentially flat as compared to 2019 for the third quarter.


Millions (except where specified) IHS as of October 16, 2020	Light Vehicle Production by Region - 2020
			China			Japan			Rest of Asia			Americas			Europe			Other			Total
Full Year 2020	21.3			7.6			9.1			14.2			16.3			1.6			70.1
Change vs. 2019	(9)	%		(16)	%		(26)	%		(23)	%		(23)	%		(17)	%		(19)	%

For the full year of 2020, global light vehicle production (according to IHS) is expected to decline by approximately 19%, due the anticipated full year effects of the COVID-19 pandemic. At the beginning of the quarter global LVP was expected to decline by approximately 22%. All major vehicle producing geographies are expected to be impacted by the pandemic including: China (9)%, Europe (23)%, South Korea (13)%, North America (21)% and Japan (16)%. The global LVP of approximately 70 million is the lowest level since 2010 of 72 million.

The expected decline of approximately 16 million light vehicles in 2020 as compared to 2019 is the highest single year light vehicle decline on record, and is the third consecutive annual decline in light vehicle production from 2017 when a record 92 million light vehicles were produced.

Results of Operations

Three Months Ended September 30, 2020 as compared to Three Months Ended September 30, 2019

The following analysis illustrates Veoneer’s overall and by segment performance for the three months ended September 30, 2020 and 2019 along with components of change as compared to the prior year.

Net Sales by Product

The following tables illustrate Veoneer’s consolidated net sales by product for the three months ended September 30, 2020 and 2019 along with components of change as compared to the prior year.


Net Sales	Three Months Ended September 30																Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2020		2019		US GAAP Reported Change						Currency							Divestiture						Organic¹
			$				$		$		%		$					%				$	%		$	%
Restraint Control Systems	188		193		(5)		(3)		4		2		—		—			(9)		(5)
Active Safety	170		178		(8)		(5)		8		4		—		—			(16)		(9)
Brake Systems	13		91		(78)		(85)		1		1		(77)		(85)			(2)		(7)
Total	$	371	$	462	$	(91)	(20)	%	$	13	3	%	$	(77)	(17)	%		$	(27)	(7)	%

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

Net Sales - Net sales for the quarter declined by 20% to $371 million as compared to 2019. Organic sales¹ declined by 7% as compared to the 4% decline in LVP for the quarter. The remainder of the decline was the VNBS-Asia divestiture of 17% while the net currency effect was favorable by 3%. During the quarter, organic sales developed slightly better than our expectations entering the quarter.

Sequentially, from the second quarter in 2020, net sales more than doubled from $184 million primarily due to the sharp recovery in North America and Europe. The negative impact of COVID-19 on organic sales is estimated to be approximately $30 million during the third quarter.

Restraint Control Systems - Net sales for the quarter of $188 million decreased by 3% as compared to 2019. The organic sales decline of 5% was primarily due to lower LVP in Europe and North America.

Active Safety - Net sales for the quarter of $170 million decreased by 5% as compared to 2019. This decline was primarily driven by the organic sales decline of 9%. This slight under-performance versus the LVP was driven by launch delays with certain customer models in North America, Europe, China and Japan, as mentioned in previous quarters.

The COVID-19 impact on lower underlying LVP in our major markets for our Active Safety products more than offset the strong underlying demand for mono, stereo and thermal camera systems and ADAS ECUs on several customer models.

Brake Systems - Net sales for the quarter of $13 million decreased by 85% or $78 million as compared to 2019. The VNBS-Asia divestiture accounted for $77 million of the decline year-over-year.


Electronics Segment	Three Months Ended September 30																							Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2020							2019							US GAAP Reported Change					Currency						Organic¹
			$		%					$	%					$		%		$	%					$	%
Net Sales	$	358				$	371				$	(13)	(4)	%		$	11	3	%			$	(24)	(7)	%
Operating Loss / Margin	$	(80)	(22.2)	%		$	(90)	(24.3)	%		$	10
Segment EBITDA¹/ Margin	$	(53)	(14.9)	%		$	(69)	(18.5)	%		$	16
Associates	7,329					7,616					(287)

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

Net Sales - Net sales for the Electronics segment decreased by $13 million to $358 million for the quarter as compared to 2019. This sales decline was mainly due to the organic sales¹ decline in Restraint Control Systems and Active Safety of $9 million and $16 million, respectively, which was partially offset by the positive net currency translation effects of $11 million.

Operating Loss - Operating loss for the Electronics segment of $80 million for the quarter decreased by $10 million as compared to 2019. This decrease is mainly due to the RD&E, net underlying improvement related to lower gross costs and higher engineering reimbursements, which more than offset the costs related to the Zenuity software team, which was previously reported in the equity method loss.

EBITDA¹ - EBITDA loss for the Electronics segment decreased by $16 million to negative $53 million for the quarter as compared to 2019. This change is mainly due to the operating loss improvement for the segment while depreciation and amortization decreased by $6 million.

Associates - Associates, net in the Electronics segment decreased by 287, net to 7,329 as compared to 2019, mainly due to a net reduction in engineering of more than 200 associates, even after the addition of approximately 220 Zenuity associates. Direct labor and temporary associates declined by approximately 140 and 180, respectively reflecting the volume decline as compared to 2019.

Deliveries - Deliveries during the quarter were 2.7 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)	2020							2019							US GAAP Reported Change					Currency								Divestiture			Organic¹
			$		%					$	%					$		%		$		%						$	%	$	%
Net Sales	$	9				$	91				$	(82)	(89)	%		$	1	1	%	$	(77)	(85)	%	$	(6)	(32)	%
Operating Loss / Margin	$	(3)	(35.2)	%		$	(17)	(18.6)	%		$	14
Segment EBITDA¹/ Margin	$	(4)	(33.5)	%		$	(8)	(9.3)	%		$	4
Associates	—					1,467					(1,467)

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

Net Sales - Net sales for the Brake Systems segment decreased by $82 million to $9 million for the quarter as compared to 2019. The sales decrease was mainly attributable to the VNBS-Asia divestiture of $77 million.

Operating Loss - Operating loss for the Brake Systems segment for the quarter decreased by $14 million to $3 million as compared to 2019. This change was mainly due to the VNBS-Asia divestiture, where the loss in 2019 was $10 million for the quarter and lower volumes in the remaining legacy Honda Brake Systems business.

EBITDA¹ - EBITDA loss for Brake Systems segment decreased by $4 million to negative $4 million for the quarter as compared to 2019. This change was mainly due to the net effect of the divestitures.

Associates - Associates, net in the Brake Systems segment decreased by 1,467 as compared to 2019, due to the divestitures of VNBS-Asia and VBS-US operations.

Deliveries - Deliveries during the quarter were 0.03 million units for the Brake Systems segment.


Corporate and Other	Three Months Ended September 30
(Dollars in millions, except where specified)	2020							2019					US GAAP Reported Change
			$		%					$	%		$	%
Net Sales	$	4				$	—				$	4
Operating Loss / Margin	$	(20)	—	%		$	(15)	—	%		$	(5)
EBITDA¹/ Margin	$	(20)	—	%		$	(15)	—	%		$	(5)
Associates	104					45					59

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

Net Sales - Net Sales of $4 million for the third quarter reflects the legacy Honda Brake Systems business after the VBS-US divestiture.

Associates - Associates, net increased by 59 to 104 for the quarter as compared to 2019 due to the associates now included in Corporate and Other related to supporting the legacy Honda Brake Systems business.

Operating Loss and EBITDA¹ - Operating and EBITDA loss of $20 million increased by $5 million and $5 million, respectively, mainly due to associate related costs in the quarter as compared to 2019. The Brake Systems loss after the VBS-US divestiture was approximately $1 million.

Veoneer Performance


Income Statement	Three Months Ended September 30
(Dollars in millions, except per share data)	2020							2019
			$		%					$	%		Change
Net sales	$	371				$	462				$	(91)
Cost of sales	(317)		(85.4)	%		(389)		(84.2)	%		72
Gross profit	$	54	14.6	%		$	73	15.8	%		$	(19)
Selling, general & administrative expenses	(43)		(11.5)	%		(45)		(9.8)	%		2
Research, development & engineering expenses, net	(124)		(33.4)	%		(144)		(31.3)	%		20

Amortization of intangibles	(1)		(0.4)	%		(6)		(1.2)	%		5
Other income, net	11		2.9	%		—		0.0	%		11
Operating loss	$	(103)	(27.8)	%		$	(122)	(26.5)	%		$	19
Loss on divestiture and assets impairment charge, net	(24)		(6.4)	%		—		0.0	%		(24)
Loss from equity method investments	(1)		(0.3)	%		(16)		(3.4)	%		15
Interest income	1		0.4	%		7		1.4	%		(6)
Interest expense	(5)		(1.4)	%		(5)		(1.0)	%		—

Other non-operating items, net	—		0.0	%		—		0.1	%		—
Loss before income taxes	$	(132)	(35.6)	%		$	(136)	(29.4)	%		$	4
Income tax benefit (expense)	—		0.1	%		(3)		(0.6)	%		3
Net loss¹	$	(132)	(35.5)	%		$	(139)	(30.0)	%		$	7
Less: Net loss attributable to non-controlling interest	—		0.0	%		(6)		1.2	%		6
Net loss attributable to controlling interest	$	(132)	(35.5)	%		$	(133)	(28.8)	%		$	1
Net loss per share – basic²	$(1.18)					$(1.20)					$0.02
Weighted average number of shares outstanding ²	111.59					111.40					0.19

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 - Gross profit for the quarter of $54 million was $19 million lower as compared to 2019, where the lower LVP was the main contributor causing the negative organic sales impact. In addition, the Brake Systems divestitures impact was a decrease $11 million while the net currency effects were $3 million favorable.

Operating Loss - Operating loss for the quarter of $103 million decreased by $19 million as compared to 2019, despite the decline in organic sales. The Brake Systems divestitures benefit was $14 million while net currency effects were $2 million unfavorable for the quarter.

RD&E, net of $124 million for the quarter decreased $20 million as compared to 2019, including a $10 million increase related to Zenuity software associates. The underlying improvement of $30 million was due to lower gross costs and higher engineering reimbursements, including the Brake Systems divestitures benefit of $17 million.

SG&A expense of $43 million for the quarter decreased $2 million as compared to 2019, due to lower consultancy and associate related costs. The Brake Systems divestitures benefit was $6 million.

Other income and amortization of intangibles combined improved $16 million for the quarter as compared to 2019 mainly due to lower amortization of intangibles, including a $5 million and a $10 million recovery related to an IP license sold to Volvo.

Net Loss - Net loss for the quarter of $132 million improved by $7 million as compared to 2019, primarily due to the operating loss improvement and the $15 million decrease in the equity method investment loss related to the Zenuity JV split, which were partially offset by the $24 million non-cash impairment charge related to the Zenuity JV split.

Interest expense and income, net for the quarter was $6 million higher as compared to 2019, due to interest expense related to the convertible debt.

Income tax expense for the third quarter was $3 million lower as compared to 2019, mainly due to lower underlying tax expense on operations.

The non-controlling interest was $6 million higher for the quarter as compared to 2019 due to the VNBS-Asia divestiture in February 2020.

Loss per Share - Loss per share of $1.18 improved by $0.02 for the quarter as compared to 2019. The improvement was mainly due to the combined operating loss and equity method investment effect of $0.30 per share. This improvement was partially offset by a non-cash impairment charge related to the Zenuity JV split of $(0.22) per share.

Nine Months Ended September 30, 2020 as compared to Nine Months Ended September 30, 2019

The following analysis illustrates Veoneer’s overall and by segment performance for the nine months ended September 30, 2020 and 2019 along with components of change as compared to the prior year.

Net Sales by Product

The following tables illustrate Veoneer’s consolidated net sales by product for the nine months ended September 30, 2020 and 2019 along with components of change as compared to the prior year.


Net Sales	Nine Months Ended September 30																Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2020		2019		US GAAP Reported Change						Currency							Divestiture						Organic¹
			$				$		$		%		$					%				$	%		$	%
Restraint Control Systems	450		617		(167)		(27)		(5)		(1)		—		—			(162)		(26)
Active Safety	411		554		(143)		(26)		—		—		—		—			(143)		(26)
Brake Systems	57		275		(218)		(80)		1		—		(205)		(75)			(14)		(30)
Total	$	918	$	1,446	$	(528)	(37)	%	$	(4)	—	%	$	(205)	(14)	%		$	(319)	(26)	%

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

Net Sales - Net sales for the first nine months declined by 37% to $918 million as compared to 2019. The organic sales¹ declined by 26%, as compared to the 24% reduction in LVP for the same period. The remainder of the decline was mainly due to the VNBS-Asia divestiture of 14%. Net currency translation effects are $4 million unfavorable.

During the first nine months, excluding Brake Systems, the organic sales declined in North America 36%, Europe 22% and Asia 20%, primarily due to the negative impact of the COVID-19 pandemic. These negative effects mostly impacted North America and Europe from mid-March through May and Asia from February through mid-April.

Restraint Control Systems - Net sales for the first nine months of $450 million decreased by 27% as compared to 2019. The 26% organic sales decline was mostly in North America and Europe related to the LVP.

Active Safety - Net sales for the first nine months decreased by 26% to $411 million as compared to 2019. This decline was driven by the organic sales decline of 26%. This performance versus the LVP was positively impacted by our strong product content on premium brands in Europe, where we have a relatively higher CPV than in other markets.

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 volume effect from the product mix shift from our 24Ghz to 77Ghz radar technology, the phase-out of mono-vision programs with BMW, and lower underlying LVP.

Brake Systems - Net sales for the first nine months decreased by 80% to $57 million as compared to 2019. The VNBS-Asia divestiture was 75% or $205 million while the organic sales decline was 30% or $14 million.


Electronics Segment	Nine Months Ended September 30																							Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2020							2019							US GAAP Reported Change					Currency						Organic¹
			$		%					$	%					$		%		$	%					$	%
Net Sales	$	861				$	1,171				$	(310)	(26)	%		$	(5)	0	%			$	(305)	(26)	%
Operating Loss / Margin	$	(202)	(23.5)	%		$	(281)	(24.0)	%		$	79
Segment EBITDA¹/ Margin	$	(132)	(15.3)	%		$	(220)	(18.8)	%		$	88
Associates	7,329					7,616					(287)

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

Net Sales - Net sales for the Electronics segment decreased by $310 million to $861 million for the first nine months as compared to 2019. This sales decline was mainly due to the organic sales¹ decline in Active Safety and Restraint Control Systems of $143 million and $162 million, respectively, along with the currency translation effects of $5 million.

Operating Loss - Operating loss for the Electronics segment of $202 million for the first nine months decreased by $79 million as compared to 2019. This improvement was primarily due to the higher than normal engineering reimbursements, lower RD&E gross, including the costs related to the Zenuity software team, which was previously reported in the equity method loss, and the recovery from Nissin Kogyo. All of these helped to mitigate the negative LVP impact from the COVID-19 pandemic, and volume and product mix effects causing the lower organic sales for the segment.

EBITDA¹ - EBITDA loss for Electronics segment decreased by $88 million to negative $132 million for the first nine months as compared to 2019. This change is mainly due to the decrease in operating loss for the segment while depreciation and amortization increased by $9 million mainly due to previous investments for growth.

Associates - Associates, net in the Electronics segment increased by 624 net to 7,329 as compared to the previous quarter, mainly due to the additional Zenuity software associates of approximately 220. Also, the production recovery from COVID-19 in the second quarter caused an increase in direct labor associates of approximately 300 while temporary associates increased by approximately 225.

Deliveries - Deliveries during the first nine months for Restraint Controls Systems and Active Safety were 8.7 and 4.7 million units, respectively.


Brake Systems Segment	Nine Months Ended September 30																									Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2020							2019							US GAAP Reported Change					Currency								Divestiture			Organic¹
			$		%					$	%					$		%		$		%						$	%	$	%
Net Sales	$	53				$	275				$	(222)	(81)	%		$	1	0	%	$	(205)	(75)	%	$	(18)	(38)	%
Operating Loss / Margin	$	(37)	(70.0)	%		$	(54)	(19.6)	%		$	17
Segment EBITDA¹/ Margin	$	(35)	(67.0)	%		$	(26)	(9.3)	%		$	(9)
Associates	—					1,467					(1,467)

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

Net Sales - Net sales for the Brake Systems segment decreased by $222 million to $53 million for the first nine months as compared to 2019. The sales decrease was mainly attributable to the VNBS-Asia divestiture of $205 million.

Operating Loss - Operating loss for the Brake Systems segment for the first nine months decreased by $17 million to $37 million as compared to 2019. This change was mainly due to the divestiture of VNBS-Asia where the loss was $20 million during the first nine months in 2019.

EBITDA¹ - EBITDA loss for the Brake Systems segment increased by $9 million to negative $35 million for the first nine months as compared to 2019. This change was mainly due to the net effect of the VNBS-Asia divestiture.

Associates - Approximately 300 associates were included in the VBS-US divestiture as compared to the previous quarter.

Deliveries - Deliveries during the first nine months were 0.2 million units for the Brake Systems.


Corporate and Other	Nine Months Ended September 30
(Dollars in millions, except where specified)	2020							2019					US GAAP Reported Change
			$		%					$	%		$	%
Net Sales	$	4				$	—				$	4
Operating Loss / Margin	$	(51)	—	%		$	(53)	—	%		$	2
EBITDA¹/ Margin	$	(50)	—	%		$	(52)	—	%		$	2
Associates	104					45					59

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

Sales - Net Sales for the first nine months of $4 million reflects the legacy Honda Brake Systems business after the VBS-US divestiture.

Associates - Associates, net increased by 64 to 104 from the previous quarter due to the associates now included in Corporate and Other related to supporting the legacy Honda Brake Systems business.

Operating Loss and EBITDA1 - Operating and EBITDA loss for Corporate and other for the first nine months each decreased by $2 million as compared to 2019. The improvement is mainly due to lower consultancy costs. The Brake Systems loss after the VBS-US divestiture was approximately $1 million.

Veoneer Performance


Income Statement	Nine Months Ended September 30
(Dollars in millions, except per share data)	2020							2019
			$		%					$	%		Change
Net sales	$	918				$	1,446				$	(528)
Cost of sales	(808)		(88.0)	%		$	(1,211)	(83.7)	%		403
Gross profit	$	110	12.0	%		$235		16.3	%		$	(125)
Selling, general & administrative expenses	(124)		(13.5)	%		(148)		(10.2)	%		24
Research, development & engineering expenses, net	(299)		(32.6)	%		(459)		(31.8)	%		160

Amortization of intangibles	(4)		(0.5)	%		(17)		(1.2)	%		13
Other income, net	27		3.1	%		1		0.1	%		26
Operating loss	$	(290)	(31.6)	%		$	(388)	(26.8)	%		$	98
Loss on divestiture and assets impairment charge, net	(91)		(9.9)	%		—		0.0	%		(91)
Loss from equity method investments	(39)		(4.2)	%		(50)		(3.5)	%		11
Interest income	8		0.9	%		14		1.0	%		(6)
Interest expense	(15)		(1.6)	%		(7)		(0.5)	%		(8)

Other non-operating items, net	—		(0.1)	%		1		0.1	%		(1)
Loss before income taxes	$	(427)	(46.6)	%		$	(430)	(29.7)	%		$	3
Income tax benefit (expense)	(26)		(2.8)	%		1		0.1	%		(27)
Net loss¹	$	(453)	(49.4)	%		$	(429)	(29.7)	%		$	(24)
Less: Net Income (loss) attributable to non-controlling interest	1		(0.2)	%		(26)		1.8	%		27
Net loss attributable to controlling interest	$	(454)	(49.5)	%		$	(403)	(27.9)	%		$	(51)
Net loss per share – basic²	$	(4.07)				$	(4.10)				$	0.03
Weighted average number of shares outstanding ²	111.55					98.32					13.23

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 - Gross profit for the first nine months of $110 million was $125 million lower as compared to 2019, where the main contributors were the negative LVP, and volume and product mix effects, that caused the lower organic sales. The Brake Systems divestitures impact was $(30) million and net currency effects were $1 million favorable.

RD&E, net for the first nine months of $299 million decreased by $160 million as compared to 2019, due to $80 million higher than normal engineering reimbursements and lower gross costs. The Brake Systems divestitures benefit was $29 million while additional Zenuity associates partially offset these benefits by $10 million.

SG&A expense for the first nine months of $124 million decreased $24 million as compared to 2019, due to lower consultancy, IT and associate related costs. The Brake Systems divestitures benefit was $12 million.

Other income and amortization of intangibles combined improved $39 million for the first nine months as compared to 2019 mainly due to lower amortization of intangibles, including $10 million related to the VNBS-Asia divestiture, $20 million recovery from Nissin Kogyo and a $10 million recovery related to an IP license sold to Volvo.

Operating Loss - Operating loss for the first nine months of $290 million improved by $98 million as compared to 2019, despite the drop in organic sales. The Brake Systems divestitures benefit was $16 million while the positive net currency effects was $3 million.

Interest expense and income, net for the first nine months was $14 million higher as compared to 2019, due to interest expense related to the convertible debt of $12 million. Other non-operating items, net increased $1 million due to an investment loss in 2020.

Income tax expense of $26 million for the first nine months was $27 million higher as compared to 2019. This change is mainly due to $21 million tax expense on the VNBS-Asia divestiture, and the $7 million benefit on the convertible debt in 2019, which was partially offset by a $3 million lower underlying tax expense.

Non-controlling interest for the first nine months was $27 million unfavorable as compared to 2019 due to the divestiture of the Brake Systems business.

Net Loss - Net loss for the first nine months of $453 million increased $24 million as compared to 2019. The $(91) million net effect of the divestiture gain on VNBS-Asia and impairments of VBS-US and the Zenuity JV split were more than offset by the combined operating loss and equity method investment improvement of $109 million.

Loss per Share - Loss per share of $4.07 for the first nine months improved by $0.03 as compared to 2019. The lower operating loss and equity method investments $0.98 per share was partially offset by the combined effects of non-cash items from the VNBS-Asia divestiture gain, VBS-US impairment and Zenuity impairment of $(0.82) per share. The share count increase in 2019 reduced the loss by $0.70 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 68% of its sales in currencies other than in U.S. dollars (its reporting currency) and currency rates have been and can be rather volatile. Organic sales and organic sales growth represent the increase or decrease in the overall U.S. dollar net sales and percentage change on a comparable basis thereby excluding any structural impacts. This facilitates separate discussions of the impact of acquisitions and divestitures and exchange rates on the Company’s performance. The tables in this report present the $ reconciliation of the 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 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 and net assets and liabilities held for sale. 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 provide 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 2019
Dollars in millions			2020			2019			2020		2019
Net Loss	$	(132)		$	(139)		$	(453)	$	(429)	$	(546)	$	(522)
Loss on divestiture and assets impairment charge, net	24			—			91		—		91		—
Depreciation and amortization	26			30			72		90		97		115
Loss from equity method investment	1			16			39		50		59		70
Interest and other non-operating items, net	4			(2)			8		(8)		7		(9)
Income tax expense (benefit)	—			3			26		(1)		28		1
EBITDA	$	(77)		$	(92)		$	(217)	$	(298)	$	(264)	$	(345)


Segment EBITDA to EBITDA	Three Months Ended September 30								Nine Months Ended September 30						Last 12 Months	Full Year 2019
Dollars in millions			2020			2019			2020		2019
Electronics	$	(53)		$	(69)		$	(132)	$	(220)	$	(154)	$	(242)
Brake Systems	(4)			(8)			(35)		(26)		(41)		(32)
Segment EBITDA	$	(57)		$	(77)		$	(167)	$	(246)	$	(195)	$	(274)
Corporate and other	(20)			(15)			(50)		(52)		(69)		(71)
EBITDA	$	(77)		$	(92)		$	(217)	$	(298)	$	(264)	$	(345)


Working Capital to Net Working Capital	September 30, 2020		September 30, 2019		June 30, 2020		June 30, 2019		December 31, 2019		December 31, 2018
Dollars in millions
Total current assets	$	1,273	$	1,602	$	1,260	$	1,758	$	1,649	$	1,543
less Total current liabilities	547		613		429		572		591		636
Working Capital	$	726	$	989	$	831	$	1,185	$	1,058	$	907
less Cash and cash equivalents	(846)		(1,062)		(851)		(1,204)		(859)		(864)
less Short-term debt	3		21		20		20		3		—
less Net of Assets and Liabilities held for sale	—		—		(11)		—		(199)		—
Net Working Capital	$	(117)	$	(52)	$	(11)	$	1	$	3	$	42


Cash Flow before Financing Activities	Three Months Ended September 30								Nine Months Ended September 30						Last 12 Months	Full Year 2019
Dollars in millions			2020			2019			2020		2019
Net cash provided by (used in) Operating Activities	$	1		$	(61)		$	(115)	$	(221)	$	(219)	$	(325)
Plus Net cash provided by (used in) Investing Activities	5			(79)			104		(198)		37		(265)
Cash flow before Financing Activities	$	6		$	(140)		$	(11)	$	(419)	$	(182)	$	(590)

Liquidity and Capital Resources

Liquidity

As of September 30, 2020, the Company had cash and cash equivalents of $846 million.

The Company's primary source of liquidity is its existing cash balance of $846 million, which will primarily be used for ongoing working capital requirements and capital expenditures. 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 June 30, 2020, Veoneer contributed a total of $12 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 partnership.

Zenuity - On April 2, 2020, Veoneer and Volvo Cars announced a preliminary agreement to separate the Zenuity JV, allowing each company to focus on their strategic priorities. On July 1, 2020, the Company finalized the split of Zenuity. As part of the transaction the Company paid approximately $37 million to Zenuity for 200 software engineers and two business units located in Germany and the US. Veoneer acquired the right to use Zenuity's intellectual property for a total consideration approximately $114 million payable in ten annual installment payments, with the first payment due on July 1, 2021. In addition, during the third quarter of 2020, the Company received dividend of $35 million in cash from Zenuity.

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 October 30, 2019, Veoneer signed definitive agreements to sell its 51% ownership in Veoneer Nissin Brake Japan ("VNBJ") and Veoneer Nissin Brake China ("VNBZ"), the entities that comprised VNBS at the time of such agreements, referred to herein as “VNBS-Asia”, to its joint venture partner Nissin-Kogyo Co., Ltd., and Honda Motor Co., Ltd. The aggregate purchase price was $176 million. The divestiture was completed on February 3, 2020 under the definitive agreements, and the VNBS joint venture was terminated.

VBS - On August 10, 2020, Veoneer signed a definitive agreement to sell the majority of the Brake Systems business in North America to ZF. The aggregate purchase price was $1. In connection with the transaction, the Company received approximately $22 million from ZF for VBS operational cost reimbursement.

Cash Flows


Selected Cash flow items	Nine Months Ended September 30
(Dollars in millions, except where specified)	2020		2019
Net working capital¹	$	(117)	$	(52)
Net cash used in operating activities	$	(115)	$	(221)
Capital expenditures	$	(70)	$	(168)
Equity method investments	$	10	$	(32)
Net cash provided by (used in) investing activities	$	104	$	(198)
Cash flow before financing activities ¹	$	(11)	$	(419)
Net cash provided by (used in) financing activities	$	(8)	$	634

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

Net Working Capital¹ - The $120 million positive change in net working capital for the first nine months was due to $30 million in timing effects from year-end, underlying receivable improvements during 2020 and $50 million in timing effects that are expected to reverse next quarter.

Days receivables outstanding, outstanding receivables relative to average daily sales was 51 days for September 30, 2020, as compared to 56 days at September 30, 2019. This decrease is mainly due a reduction of past dues with customer aged receivables. Days inventory outstanding, outstanding inventory relative to average daily sales, remained flat at 31 days as compared to September 30, 2019. Both of these results reflect the Company's continued strong working capital management.

Net cash used in operating activities - Net cash used in operating activities of $115 million during the first nine months was $106 million favorable as compared to 2019. The improvement was primarily driven by the working capital improvement and the lower operating loss.

Capital Expenditures - Capital expenditures of $70 million for the first nine months decreased by $98 million as compared to 2019 mainly due to lower investments in VBS-US, facility expansions, and engineering related IT. The Brake System divestitures benefit was $48 million.

Net cash proceeds from investing activities - Net cash proceeds from investing activities of $104 million for the first nine months was $302 million higher as compared to 2019. This was due to lower capital expenditures and investments in Zenuity and divestiture proceeds.

Cash flow before financing activities1 - Cash flow before financing activities of $(11) million for the first nine months was $408 million better as compared to 2019 mainly due to improved net working capital, lower capital expenditures and divestiture proceeds.

Number of Associates


		September 30, 2020	June 30, 2020	March 31, 2020		December 31, 2019		September 30, 2019
TOTAL		7,433	7,095		7,571		8,874		9,127
Whereof:	Direct Manufacturing	1,370	1,130		1,326		2,002		2,116
	RD&E	4,454	4,404		4,590		4,907		5,086
	Temporary	1,258	1,031		1,166		1,396		1,630

Associates, net increased by 338 to 7,433 during the quarter as compared to 7,095 in the previous quarter. Approximately 220 of the increase was related to the Zenuity JV split.

The RD&E increase of 50 associates included approximately 210 software engineers which more than offset an underlying decline of approximately 160 engineers. Direct manufacturing associates increased by 240 from the previous quarter, as did temporary associates by 227, reflecting the sharp increase in production volumes in the third quarter from the previous quarter.

Associates, net decreased by 1,694 to 7,433 during the quarter from 9,127 as compared to the third quarter in 2019. The Brake Systems divestitures effect on the decline was approximately 1,400 associates.

The underlying Veoneer decrease of 519 associates (excluding the effect of divestitures), as compared to the same quarter in 2019, was mainly due to reductions in direct manufacturing and RD&E of 106 and 208, respectively, while temporary associates declined by 155. The year-over-year reductions are primarily a result of our MAIs program, engineering efficiency improvements and slightly lower organic sales.

Significant Legal Matters

For discussion of legal matters we are involved in, see Note 14 "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

There have been no significant changes to the contractual obligations and commitments disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020.

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, 2020, 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, 2019 filed with the SEC on February 21, 2020.

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, 2020, 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 14 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

Other than as set forth below, there have been no material changes in the risk factors described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors below and also those discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect our business, financial condition or future results. The risks described below and in our Annual Report on Form 10-K 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.

Our business and financial condition may be materially and adversely affected by the ongoing novel coronavirus (COVID-19) pandemic.

The impact of the COVID-19 pandemic, including widespread illness, market downturns, restrictions on business and individual activities, changes in consumer behavior, and uncertainty regarding the future course of the pandemic, has created significant volatility in the global economy and led to a steep drop in economic activity. While we have taken numerous steps to mitigate the impact of the pandemic on our results of operations, there can be no assurance that these efforts will be successful. The COVID-19 pandemic has significantly disrupted, and may continue to disrupt, the automotive industry, light vehicle production (“LVP”) and automotive sales in markets around the world. Such disruptions include the manufacturing, delivery and overall supply chain of automobile manufacturers and suppliers. Global LVP has decreased significantly since early 2020 and during the second quarter some vehicle manufacturers temporarily ceased manufacturing operations in some countries and regions, including the United States and Europe. As a result, we have experienced, and may continue to experience, declines in the production and distribution of our products and the loss of sales to our customers. As production resumes, production volumes have been and may continue to be volatile and our suppliers may not be able to ramp up sufficiently to deliver components to meet our customer requests.

If the global economic effects caused by the pandemic continue or increase, overall customer demand may continue to decline which would have a material and adverse effect on our business, results of operations and financial condition.

Given the high level of research and development ("R&D") spend that is required to develop and launch our products, a sustained decline in LVP or vehicle sales may delay the return on our investment in R&D and a return on the resources expended to ensure timely and quality launches, which could have a material adverse effect on our financial condition and results of operations. A prolonged downturn in regional and global economic conditions or LVP would likely result in us experiencing a significantly negative cash flow.

In addition, if the COVID-19 pandemic continues or worsens and a significant portion of our workforce, our suppliers’ workforce, or our customers’ workforce are affected, either directly or due to new or extended government closures or otherwise, associated work stoppages or facility closures would halt or further delay production.

The full impact of the COVID-19 pandemic on our financial condition and results of operations will depend on future developments, such as the ultimate duration and scope of the outbreak, its impact on our customers and suppliers, how quickly, and to what extent normal economic and operating conditions, and the demand for our products can resume and whether the pandemic leads to recessionary conditions in any of our key markets that may continue to impact customer demand and the financial instability or operating viability of our suppliers and customers. Accordingly, the ultimate impact of the COVID-19 pandemic on our financial condition and results of operations cannot be determined at this time. Despite the uncertainty of the COVID-19 situation, we expect our full year 2020 results of operations to be adversely affected.

In addition to the risks specifically described above, the impact of COVID-19 is likely to implicate and exacerbate other risks disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, including, but

not limited to, our program launches, demand or market acceptance for our products, disruptions in our supply or delivery chain, shifting customer preferences, our employees and cyber-security threats.

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						Transaction Framework Agreement between Veoneer Sweden AB, Veoneer AB, Veoneer US, Inc., Volvo Car Corporation AB ZTWO Company AB and Zenuity AB, dated July 1, 2020.

10.2						Joint Venture Agreement between ZTWO Company AB and Veoneer Sweden AB regarding Zenuity AB, dated July 1, 2020.

10.3*+						Employment Agreement, dated August 1, 2020, by and between Veoneer, Inc. and Robert Bisciotti.

10.4*+						Employment Agreement, dated August 1, 2020, by and between Veoneer, Inc. and Seven (Xi) Zhang.

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, 2020, 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, 2020

VEONEER, INC.

(Registrant)


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


Schedule 1.12			Carve-Out Assets
Schedule 1.17			Cooperation and Cost Sharing Agreement
Schedule 1.23			Employee Allocation
Schedule 1.27			New JVA
Schedule 1.31			Residual Assets
Schedule 1.33			Share Contribution Documentation
Schedule 1.42			Transaction Documents
Schedule 1.53			VCC Background IP License Agreement
Schedule 1.57			VCC Data License Agreement
Schedule 1.58			VCC Engineering Services Agreement
Schedule 1.61			VCC Share Purchase Agreement
Schedule 1.62			VCC Zenuity Foreground IP License Agreement
Schedule 1.66			VNE Background IP License Agreement
Schedule 1.70			VNE Data License Agreement
Schedule 1.71			VNE Engineering Services Agreement
Schedule 1.73			VNE Share Purchase Agreement DE
Schedule 1.74			VNE Share Purchase Agreement US
Schedule 1.75			VNE Transitional Services Agreement
Schedule 1.76			VNE Zenuity Foreground IP License Agreement
Schedule 1.83			Z1 Asset Transfer Agreement
Schedule 1.88			Z2 Asset Transfer Agreement
Schedule 1.95			Zenuity Transitional Services Agreement
Schedule 1.97			ZeVu Acknowledgement Agreement
Schedule 1.98			ZeVu License Agreement
Schedule 3.10(a)			Valuation


1.1	AD	shall mean automated driving systems.
1.2	ADAS	shall mean advanced driver assistance systems.
1.3	Agreement	shall mean this transaction framework agreement and all schedules attached hereto.
1.4	Alleged Unidentified Asset	shall have the meaning set out in Section 3.4(a).
1.5	Alleged Wrong Pocket Asset	shall have the meaning set out in Section 3.5(a).
1.6	Amsterdam Data Cluster	shall mean the data storage and computing services provided under the master services agreements entered into between Zenuity and Dell Products on 18 July 2017.
1.7	Applicable Law	shall mean any law, regulation, judgment or other legally binding requirement or rule of any governmental authority in any jurisdiction applicable from time to time to any Person.
1.8	Asset Transfer	shall mean the asset transfer contemplated under any Asset Transfer Agreement.
1.9	Asset Transfer Agreement	shall mean any of the Z1 Asset Transfer Agreement and/or the Z2 Asset Transfer Agreement.
1.10	Business	shall mean the business carried out by the Zenuity Group as at the Closing Date.
1.11	Business Day	shall mean a day (other than a Saturday, Sunday or public holiday) on which banks are generally open for business in Sweden and the United States, other than for internet banking and/or telephone services only.
1.12	Carve-Out Assets	shall mean an asset, liability or contract listed in Schedule 1.12, which has been transferred from a Subsidiary to Zenuity or another Subsidiary between 31 May 2020 and the Closing Date in preparation of the Transaction.
1.13	Closing	shall mean the completion of the Transaction by the Parties performing their obligations in accordance with Section 4.2.
1.14	Closing Balance Sheet	shall have the meaning set out in Section 3.10(c).
1.15	Closing Date	shall mean the date of this Agreement.


1.16	Confidential Information	shall for the purpose of this Agreement mean all information of any kind or nature (whether written, oral, electronic or in any other form), including, without limitation, the existence and terms of this Agreement, which a Party from time to time may receive or obtain as a result of entering into this Agreement only, or information or circumstances not covered by confidentiality or non-confidentiality pursuant to any Transaction Document, relating to any other Party (acknowledging that as several separate transactions are contemplated by this Agreement, each with different requirements with respect to confidentiality, that the respective confidentiality obligations shall be regulated separately and specifically in the respective Transaction Documents with respect to such Transaction Document).
1.17	Cooperation and Cost Sharing Agreement	shall mean the cooperation and cost sharing agreement related to the Amsterdam Data Cluster, to be entered into between VNE, Z2Co, Zenuity and VCC on the Closing Date, in the agreed form set out in Schedule 1.17.
1.18	Correct Unidentified Asset Owner	shall have the meaning set out in Section 3.4(c).
1.19	Correct Wrong Pocket Asset Owner	shall have the meaning set out in Section 3.5(c).
1.20	De Minimis	shall have the meaning set out in Section 3.4(e)(ii).
1.21	Disagreement Notice	shall have the meaning set out in Section 3.10(e).
1.22	Disputed Matters	shall have the meaning set out in Section 3.10(f).
1.23	Employee Allocation	shall mean the allocation of employees between VNE and Z2Co, as set out in Schedule 1.23.
1.24	Existing JVA	shall mean the joint venture agreement regarding Zenuity entered into on 18 April 2017 between VCC and Autoliv Development AB (substituted by VNE on 29 June 2018).
1.25	Incorrect Unidentified Asset Owner	shall have the meaning set out in Section 3.4(g)(ii).
1.26	Incorrect Wrong Pocket Asset Owner	shall have the meaning set out in Section 3.5(c).
1.27	New JVA	shall mean the new joint venture agreement, including all schedules attached thereto, regarding Zenuity to be entered into between VNE and Z2Co on the Closing Date, in the agreed form set out in Schedule 1.27.
1.28	Parent Guarantees	shall have the meaning set out in Section 3.3.
1.29	Party	shall have the meaning set out in the introductory paragraph.
1.30	Preserved Information	shall have the meaning set out in Section 5.2(a)(i).


1.31	Residual Assets	shall mean an asset, liability or contract listed in Schedule 1.31, which has been identified as remaining with Zenuity following Closing.
1.32	Review Period	shall have the meaning set out in Section 3.10(e).
1.33	Share Contribution Documentation	shall mean an unconditional contribution of all VCC's shares in Zenuity to Z2Co on the Closing Date, in the agreed form set out in Schedule 1.33.
1.34	Share Purchase Agreement	shall mean any of the VCC Share Purchase Agreement, VNE Share Purchase Agreement DE and/or the VNE Share Purchase Agreement US.
1.35	Share Transfer	shall mean the share transfer contemplated under any Share Purchase Agreement.
1.36	Signing Date	shall mean the date on which this Agreement is signed by both Parties.
1.37	Subsidiaries	shall mean all subsidiaries of Zenuity, being (i) Zenuity DE, (ii) Zenuity US, and (iii) Zenuity CN.
1.38	Surviving Sections	shall mean Sections 2.1.2(b) and 6.2 to 6.12.
1.39	Tax	shall mean all direct and indirect taxes, charges, fees, duties and other assessments imposed by any authority, whether determined by reference to income, profits and gains, social security fees and other assessments, including but not limited to any income tax, sales tax, property tax, value added tax, transfer tax and stamp duty, together with any costs, interest, penalties, surcharges or other additional amounts to such taxes.
1.40	Terminated Agreements	shall have the meaning set out in Section 4.3.
1.41	Transaction	shall have the meaning set out in Section 2.
1.42	Transaction Documents	shall mean the agreements listed in Schedule 1.42.
1.43	TSAs	shall have the meaning set out in Section 2.1.6.
1.44	Unidentified Asset	shall mean an asset, liability or contract of Zenuity Group, which has not been identified and listed in any of the schedules to the Asset Transfer Agreements or the Share Purchase Agreements (including any Unidentified Tax Liability), it being specified, for the avoidance of doubt, that any liability resulting from a contract or an employee shall not be considered an Unidentified Asset to the extent such contract or employee is listed in any of the schedules to the Asset Transfer Agreements or the Share Purchase Agreements.
1.45	Unidentified Asset Notification	shall have the meaning set out in Section 3.4(a).
1.46	Unidentified Asset Payment	shall have the meaning set out in Section 3.4(b)(ii).
1.47	Unidentified Tax Liability	shall mean any Tax liability of Zenuity Group, which has not been identified and listed in any of the schedules to the Asset Transfer Agreements or the Share Purchase Agreements.
1.48	VAB	shall have the meaning set out in the introductory paragraph.
1.49	Valuation	shall have the meaning set out in Section 3.10(a).
1.50	Valuation Items	shall have the meaning set out in Section 3.10(b).
1.51	VCC	shall have the meaning set out in the introductory paragraph.
1.52	VCC Background IP	shall mean the intellectual property licensed pursuant to the (i) VCC BILA, and (ii) VCC BPLA.
1.53	VCC Background IP License Agreement	shall mean the intellectual property license agreement, including all schedules attached hereto, regarding the licensing of VCC Background IP to VNE, to be entered into between VCC and VNE on the Closing Date, in the agreed form set out in Schedule 1.53.
1.54	VCC BIAA	shall mean the existing background intellectual property assignment agreement between VCC and Zenuity.
1.55	VCC BILA	shall mean the existing background intellectual property license agreement between VCC and Zenuity.
1.56	VCC BPLA	shall mean the existing background patent license agreement between VCC and Zenuity.
1.57	VCC Data License Agreement	shall mean the data license agreement, including all schedules attached thereto, regarding VCC's provision of certain proprietary data to VNE, to be entered into between VCC and VNE on the Closing Date, in the agreed form set out in Schedule 1.57.


Table of Contents
1. Definitions			2
2. The Transaction			10
2.1 Transactional steps			10
2.1.2 Structuring			10
2.1.3 Asset transfers			10
2.1.4 Share transfers			10
2.1.5 Intellectual property licenses			11
2.1.6 ZeVu agreements			11
2.1.7 Transitional services			11
2.1.8 Amsterdam Data Cluster			12
2.1.9 Post-Closing relationship between the Owners			12
3. Transaction principles			12
3.1 General principles			12
3.2 Assets, liabilities and contracts			13
3.3 Parent Guarantees			13
3.4 Unidentified Assets			14
3.5 Wrong Pocket Assets			17
3.6 Residual Assets			18
3.7 Intellectual Property			18
3.8 Premises			19
3.9 Liability			20
3.10 Valuation; Post-Closing Adjustments			20
4. Closing			21
4.1 Closing Date			20
4.2 Closing obligations			20
4.3 Terminated Agreements			23
5. Post-Closing obligations			23
5.1 Non-Solicitation			23
5.2 Preserved Information			24
5.3 Beyonav earn-out			25
6. Miscellaneous			25
6.1 Further assurance			25
6.2 Notices			26
6.3 Fees and expenses			28
6.4 Assignment			28
6.5 No waiver			28
6.6 Entire agreement			28
6.7 Schedules incorporated			28
6.8 Amendments			28
6.9 Survival of rights, duties and obligations			28
6.10 Provisions severable			28


6.11 Confidentiality and publicity			29
6.12 Governing law and arbitration			29


1.58	VCC Engineering Services Agreement	shall mean the engineering services agreement, including all schedules attached thereto, regarding Z2Co's provision of engineering services to VNE, to be entered into between Z2Co and VNE on the Closing Date, in the agreed form set out in Schedule 1.58.
1.59	VCC Entities	shall mean together Z2Co and VCC, and a "VCC Entity" shall mean any of them.
1.60	VCC MCLA	shall mean the existing master commercialization license agreement between VCC and Zenuity.
1.61	VCC Share Purchase Agreement	shall mean the share purchase agreement, including all schedules attached thereto, regarding Z2Co's purchase of all shares in Zenuity CN, to be entered into between Z2Co and Zenuity on the Closing Date, in the agreed form set out in Schedule 1.61.
1.62	VCC Zenuity Foreground IP License Agreement	shall mean the intellectual property license agreement, including all schedules attached hereto, regarding the licensing of Zenuity Owned IP to Z2Co, to be entered into between Zenuity and Z2Co on the Closing Date, in the agreed form set out in Schedule 1.62.
1.63	VNE	shall have the meaning set out in the introductory paragraph.
1.64	VNE Entities	shall mean together VNE, VAB and VUS, and a "VNE Entity" shall mean any of them.
1.65	VNE Background IP	shall mean the intellectual property licensed pursuant to the (i) VNE BILA, and (ii) VNE BPLA.
1.66	VNE Background IP License Agreement	shall mean the intellectual property license agreement, including all schedules attached hereto, regarding the licensing of VNE Background IP to VCC, to be entered into between VNE and VCC on the Closing Date, in the agreed form set out in Schedule 1.66.
1.67	VNE BIAA	shall mean the existing background intellectual property assignment agreement between VNE and Zenuity.
1.68	VNE BILA	shall mean the existing background intellectual property license agreement between VNE and Zenuity.
1.69	VNE BPLA	shall mean the existing background patent license agreement between VNE and Zenuity.
1.70	VNE Data License Agreement	shall mean the data license agreement, including all schedules attached thereto, regarding VNE's provision of certain proprietary data to Z2Co, to be entered into between VNE and Z2Co on the Closing Date, in the agreed form set out in Schedule 1.70.
1.71	VNE Engineering Services Agreement	shall mean the engineering services agreement, including all schedules attached thereto, regarding VNE's provision of engineering services to Z2Co, to be entered into between VNE and Z2Co on the Closing Date, in the agreed form set out in Schedule 1.71.


1.72	VNE MCLA	shall mean the existing Master Commercialization License Agreement between VNE and Zenuity.
1.73	VNE Share Purchase Agreement DE	shall mean the share purchase agreement, including all schedules attached thereto, regarding VAB's purchase of all shares in Zenuity DE, to be entered into between VAB and Zenuity on the Closing Date, in the agreed form set out in Schedule 1.73.
1.74	VNE Share Purchase Agreement US	shall mean the share purchase agreement, including all schedules attached thereto, regarding VUS's purchase of all shares in Zenuity US, to be entered into between VUS and Zenuity on the Closing Date, in the agreed form set out in Schedule 1.74.
1.75	VNE Transitional Services Agreement	shall mean the transitional services agreement, including all schedules attached thereto, to be entered into between Z2Co and VNE on the Closing Date, in the agreed form set out in Schedule 1.75.
1.76	VNE Zenuity Foreground IP License Agreement	shall mean the intellectual property license agreement, including all schedules attached hereto, regarding the licensing of Zenuity Owned IP to VNE, to be entered into between Zenuity and VNE on the Closing Date, in the agreed form set out in Schedule 1.76.
1.77	VUS	shall have the meaning set out in the introductory paragraph.
1.78	Wrong Pocket Asset	shall mean an asset, liability or contract of the Zenuity Group, which has been listed as an asset, liability or contract, as applicable, in the schedules to the Asset Transfer Agreements or the Share Purchase Agreements but erroneously not been transferred to (i) VNE or Z2Co (as applicable) with respect to the Asset Transfer Agreements, or (ii) alongside the relevant Subsidiary with respect to the Share Purchase Agreements, and instead has either (a) remained with Zenuity, or (b) been transferred to another party, directly or indirectly, pursuant to the Asset Transfer Agreements or the Share Purchase Agreements (including any Wrong Pocket Tax Liability).
1.79	Wrong Pocket Asset Notification	shall have the meaning set out in Section 3.5(a).
1.80	Wrong Pocket Tax Liability	shall mean any Tax liability of the Zenuity Group, which has been listed as a liability in the schedules to the Asset Transfer Agreements or the Share Purchase Agreements but erroneously not been transferred to (i) VNE or Z2Co (as applicable) with respect to the Asset Transfer Agreements, or (ii) alongside the relevant Subsidiary with respect to the Share Purchase Agreements, and instead has either (a) remained with Zenuity, or (b) been transferred to another party, directly or indirectly, pursuant to the Asset Transfer Agreements or the Share Purchase Agreements.


1.81	Zenuity	shall have the meaning set out in the introductory paragraph.
1.82	Zenuity Owned IP	shall mean all (i) intellectual property assigned to Zenuity upon its incorporation under the Existing JVA (via the VNE BIAA and the VCC BIAA), and (ii) intellectual property created, invented, authored, developed, collected, acquired, or otherwise owned or controlled by Zenuity during, and in accordance with the terms of, the Existing JVA and up until the Effective Date.
1.83	Z1 Asset Transfer Agreement	shall mean the asset transfer agreement, including all schedules attached thereto, regarding the transfer of the Z1 Business to VNE, to be entered into between VNE and Zenuity on the Closing Date, in the agreed form set out in Schedule 1.83.
1.84	Z1 Business	shall mean the (i) assets, (ii) contracts and (iii) liabilities specifically listed in the Z1 Asset Transfer Agreement or the schedules thereto.
1.85	Z1 Employees	shall mean the individuals allocated to VNE pursuant to the Employee Allocation.
1.86	Z1 Supply Agreement	shall mean the supply agreement, including all schedules attached thereto, regarding deliveries of Z1 systems (hardware and software) from VNE to VCC, to be entered into between VNE and VCC on the Closing Date.
1.87	Z2Co	shall have the meaning set out in the introductory paragraph.
1.88	Z2 Asset Transfer Agreement	shall mean the asset transfer agreement regarding the Z2 Business, including all schedules attached thereto, to be entered into between Z2Co and Zenuity on the Closing Date, in the agreed form set out in Schedule 1.88.
1.89	Z2 Business	shall mean the (i) assets, (ii) contracts, (iii) liabilities and (iv) employees specifically listed in the Z2 Asset Transfer Agreement or the schedules thereto.
1.90	Z2 Employees	shall mean the individuals allocated to Z2Co pursuant to the Employee Allocation.
1.91	Zenuity CN	shall mean Zenuity Software Technology (Shanghai) Ltd., with a registered office at Room K1, 5 floor, No. 277 Huqingping road, Minhang District, Shanghai, China, a limited liability company incorporated under the laws of People's Republic of China.
1.92	Zenuity DE	shall mean Zenuity GmbH, with registered office at Theresienhöhe 30, c/o Blitzstart Holding AG, 80339 München, a limited liability company incorporated under the laws of Germany.
1.93	Zenuity US	shall mean Zenuity, Inc., with a registered office at 1209 Orange St., Wilmington, New Castle County, 19801 Delaware, a limited liability company incorporated under the laws of the State of Delaware, United States.


1.94	Zenuity Group	shall mean Zenuity and its Subsidiaries.
1.95	Zenuity Transitional Services Agreement	shall mean the transitional services agreement, including all schedules attached thereto, to be entered into between Z2Co and Zenuity on the Closing Date, in the agreed form set out in Schedule 1.95.
1.96	ZeVu	shall mean the ZeVu software tool.
1.97	ZeVu Acknowledgement Agreement	shall mean the acknowledgment agreement to be entered into between VCC and Zenuity in relation to ZeVu in the agreed form set out in Schedule 1.97.
1.98	ZeVu License Agreement	shall mean the license agreement, including all schedules attached hereto, regarding the licensing of ZeVu to VNE, to be entered into between VCC and VNE on the Closing Date, in the agreed form set out in Schedule 1.98.


1. DEFINITIONS AND CONSTRUCTION			2
2. PURPOSE OF THE JV COMPANY			7
3. THE BUSINESS OF THE JV COMPANY			8
4. FINANCING OF THE JV COMPANY			10
5. MANAGEMENT OF THE JV COMPANY			10
6. ALLOCATION OF FUNDS AVAILABLE FOR DISTRIBUTION			16
7. DISPOSAL OF SHARES; ASSIGNMENT			17
8. REDEMPTION			18
9. VALUATION			19
10. CONFIDENTIALITY			20
11. TERM AND TERMINATION			21
12. DISSOLUTION OF THE SHAREHOLDERS' CO-OPERATION			22
13. NOTICES			22
14. RELATION TO THE ARTICLES OF ASSOCIATION AND THE COMPANIES ACT			23
15. GENERAL PROVISIONS			24
16. GOVERNING LAW AND DISPUTE RESOLUTION			25


Exhibit A:			Articles of Association on the Effective Date
Exhibit B:			List of certain Intellectual Property Rights created, invented, authored, developed, collected, acquired, or otherwise owned or controlled by the JV Company during, and in accordance with the terms of, the Former JVA and up until the Effective Date
Exhibit C:			VNE Zenuity Foreground IP License Agreement
Exhibit D:			Z2Co Zenuity Foreground IP License Agreement
Exhibit 5.3.3:			Instructions and Rules of procedure for the Board as at the Effective Date


Shareholder	No. of shares	Shareholding and votes (%)
VNE	250,000	50
Z2Co	250,000	50


October 23, 2020

/s/ Jan Carlson
Jan Carlson
President and Chief Executive Officer