Annual Report
2018
Veoneer is the world’s largest pure-play company
focused on Safety Electronics, Advanced Driving
Assistance Systems (ADAS), Collaborative and Auto-
mated Driving (AD).
We work together as one team. During 2018 we re-
cruited approximately 1,100 of the world’s most talent-
ed and skilled hardware and software engineers around
the world. Our purpose is to create trust in mobility.
We design, develop, manufacture and sell state-
of-the-art software, hardware and systems for active
safety, autonomous driving, occupant protection and
brake control.
In July 2018, we became an independent, publicly
traded company, when we separated from the world-
wide leader in automotive safety Autoliv, Inc. Veoneer
builds on a heritage of close to 70 years of automotive
safety development.
8,600 ASSOCIATES
4,700 ASSOCIATES IN RD&E
of which 70% software
13 COUNTRIES
10 MANUFACTURING SITES 26 TECHNICAL CENTERS
2018 in Summary
Brake
Systems
19%
$2.2 Bn
Consolidated Net Sales
$5.9 Bn
Order intake, lifetime
order value 1)
1)
Order Intake $ value is defined as estimated average annual sales attributable to documented new business awarded
based on estimated average annual product volumes, average annual sales price for such products, and exchange rates.
Lifetime order value is defined as estimated total lifetime sales attributable to documented new business awarded based
on estimated product volumes and pricing, and exchange rates.
$ 2.2 Bn
Net Sales 2018
Restraint
Control
Systems
44%
Active
Safety
37%
2
Order Intake
Record Order Intake in 2018
Estimated lifetime order value ~$5.9B
Order Intake Evolution
($M)
Active Safety
RCS and BCS
~ 300
~ 275
~ 250
>1,200
~ 40%
~ 900
~ 800
~ 95%
2013A
2014A
2015A
2016A
2017A
2018A
Order Intake Highlights
RCS
BCS
Active
Safety
2018
Full year RCS order Intake well above current market share of ~25%
Q3 2018
Third brake system contract awarded with a major US car manufacturer
2018
Full year order intake close to $900M well above current market share and close to 2 times 2017
Q4 2018
Q3 2018
Q3 2018
Significant LiDAR contract with a major global car manufacturer and a standalone feature software order
Second Level 4 electronic control unit (ECU) order from a major global car manufacturer
Fourth customer with ADAS ECU order from a major global car manufacturer, new customer radar order
02/03 2018
Second mono-vision order with the same major global car manufacturer, added our sixth vision customer
Q2 2018
Q1 2018
First driver monitoring system (DMS) order with a major global car manufacturer and now second DMS award
First level 3 system order in China with radar camera, ADAS ECU and software
2018 Sales % by Customer
Other 16%
FCA 5%
BMW 5%
RNM 7%
GM 8%
Sales by
Customer
Honda 21%
Daimler 17%
2
Hyundai/Kia 10%
Ford 11%
3
Dear Shareholder
"Thank you for joining us on
our journey."
Veoneer 2018
April
May
June
July
Veoneer a
stand-alone company,
a subsidiary of Autoliv
Major mono
vision order with
global OEM
Veoneer’s LIV
research platform recognized by
CLEPA, the European Association
of Automotive Suppliers
Listed on
New York Stock
Exchange and on
Nasdaq Stockholm
4
2018 was the first year of operations for Veoneer. We started as a subsidiary of Autoliv, having designed, man-ufactured and delivered electronic safety products to our customers for two decades. Then, on July 2, we became a fully independent company, the world’s largest pure-play company focused on Safety Electronics, Advanced Driving Assistance Systems (ADAS) and Automated Driving (AD). The automotive industry is undergoing its biggest changes in decades, driven by innovation in electrifica-tion, driving assistance and autonomous driving, and en-tirely new ownership models. Almost on a weekly basis, old ideas are being challenged, and new ones are born.Since we started operations, the automotive indus-try has also begun to adapt to the fact that realizing the dream of a truly self-driving car will take longer and be more expensive than anticipated. While automatization and ultimately autonomous driving will save thousands if not millions of lives, nobody can reliably predict when that moment will happen. Veoneer sees automation as a journey, not just a destination, so we are focused on innovating active safety technologies that can reduce fatalities and injuries every day.Building on our core active safety products of radar, vision and ADAS ECUs, Veoneer is already delivering solutions that increase the support available to drivers, such as blind spot and rear cross traffic assist, AEB and forward collision warning, lane keep assist, lane depar-ture warning, traffic jam assist and, soon, highway asist. Such technologies provide unprecedented support to drivers and they promise to revolutionize the driving ex-perience for years to come. We call this phenomenon Collaborative Driving, and we see it as the most important development to create industry growth in the short and mid-term timeframes. Dear Shareholder
Through our joint venture Zenuity, which we created
together with Volvo Cars in 2017, we are developing
the software needed to support these increased levels
of driver support and ultimately autonomous driving.
Further, we are also taking steps in brake control, as our
joint venture Veoneer Nissin Brake Systems (VNBS), is
well positioned for next generation regenerative braking.
The active safety market is estimated to grow rapidly.
In 2018, we believe it was worth around 6.9 billion dollars,
and we expect it to grow to approximately 24 billion dol-
lars by 2025. We see the combined restraint control and
brake system markets staying relatively stable at around
16 billion dollars in 2018, growing to around 19 billion
dollars in 2025.
Shorter term we are seeing fluctuations in global light
vehicle production (LVP). According to third party data,
the LVP in 2018 turned negative, despite earlier predic-
tions for slight growth, most notably, 2018 marked the
first time in 28 years that the LVP did not grow in China,
the world’s number one car producer. This slowdown is
expected to continue at least in the first half of 2019 and
together with the effects from stricter WLTP emissions
tests in Europe, general macro-economic concerns and
uncertainty around trade tariffs, it will impact us along
with the rest of the industry.
The best indicator of Veoneer’s ongoing transfor-
mation and future growth potential is our total lifetime
order intake, which was estimated to be around 3.5 bil-
lion dollars in the three year period from 2013 to 2015. In
the following three-year period, 2016 to 2018, the corre-
sponding number is estimated to be more than 13 billion
dollars, almost four times larger. Given that we start our
deliveries and invoicing around three years from taking
orders, we expect revenue growth from our strong or-
der intake over the last three years to start in the fourth
quarter of 2019, and to continue in the years to come.
We are winning business at good rates across our prod-
uct portfolio and I am particularly pleased to see strong
acceptance for our latest active safety products, includ-
ing vision-based systems, radars, ADAS ECUs, feature
software and, most recently, LiDAR and driver monitor-
ing systems. In fact, in 2018 alone we practically dou-
bled our active safety related lifetime order intake to
around 3.8 billion dollars, which we believe represents
approximately 25% of the total market for orders.
When we started independent operations in July 2018,
Veoneer had around 7,500 associates. By the end of the
year this figure had grown to around 8,600. We are very
proud to be an attractive employer and we believe that
our strong purpose of “Creating Trust in Mobility”, togeth-
er with its growth prospects, is helping build a company
culture that will last. In December, we launched a new
organizational structure that is focused in two dimen-
sions – Customer & Product – with the objective to create
a more effective organization that can capture business
opportunities, develop new products that meet or an-
ticipate market changes, and execute efficiently and ef-
fectively. We are also reviewing our investment priorities
and the focus of our product portfolio to best exploit the
opportunities we see for Collaborative Driving to make a
difference for our customers’ customers.
Since our introduction to the stock market in July
2018 there has been a general revaluation of automotive
related stock. The slowdown in LVP, combined with un-
certainties regarding the impact of potential tariffs, and
the general macro-economic situation, has put pressure
on automotive stock prices. At the time of this writing,
Veoneer’s stock has decreased 31% since its debut on
July 2, largely in-line with the decline in our peer automo-
tive index.
Looking at 2019, we expect our organic sales to be flat
to slightly down, though based on our launch schedules
and further developments of the LVP, we expect the sec-
ond half of the year to be stronger than the first half.
We are driven by creating products and solutions
that prevent injuries, save lives, deliver convenience and
ultimately deliver on our purpose to create trust in mobil-
ity. It’s supported by our commitment to sustainability as
a guiding principle for how we conduct our business. This
past year, Veoneer took our first steps toward formaliz-
ing our own sustainability initiative by adapting Autoliv’s
sustainability framework and initiated a working group
to assess Veoneer’s sustainability-related impacts along
with the targets and metrics we need to adopt in order to
maximize our ability to promote healthier, safer, and more
sustainable lives for our customers, employees, and the
communities in which we operate.
Thank you for joining us on our journey, and I look for-
ward to keeping you updated of our progress, both at
changing our business and changing the world.
Yours sincerely,
Jan Carlson
Chairman, President & CEO
Stockholm February 26, 2018
4
5
September
October
Research advisory
board formed with world
leading researchers
Autonomous
Driving Supercomputer
designed to meet level 4,
High Automation, introduced
November
Included in the
OMX Stockholm
Benchmark index
December
Major LiDAR
order win
Our Technology Showcase
Veoneer is a technology company committed
to creating trust in mobility. We produce
sensors, control units, software and systems
for Advanced Driving Assistance Systems
(ADAS), Autonomous Driving (AD), Brake Sys-
tems as well as Restraint Control Systems.
Over the last decade, we have delivered more than 4 million
cameras and almost 33 million radar sensors along with approxi-
mately 750 million electric control units and crash sensors to car
manufacturers globally (as Veoneer and as part of Autoliv).
Veoneer has developed an ecosystem of strategic partnerships
to complement our internal capabilities. This enables us to be a sys-
tem integrator and to capitalize on cutting edge technologies by
combining resources and capabilities. For example, Veoneer is
currently commercializing an automotive grade surround view
LiDAR system using Velodyne’s scalable LiDAR reference design
and core 3D firmware technology. Veoneer will serve as the pri-
mary commercial and technical interface to a particular global
automaker for this awarded business.
We are also launching our 4th generation vision technologies
which will include state-of-the-art in-house developed software
algorithms and for the first time incorporate artificial intelli-
gence (AI) technologies to improve the learning capabilities of
the technology.
A Technology Company Committed to
Creating Trust in Mobility
66
Our core strategy is to
deliver innovative solutions
that car manufacturers and
drivers can trust.
A Technology Company Committed to
Creating Trust in Mobility
6
6
7
Strategy
The automotive industry is more fast-paced
and complex than ever. Several mega-trends
are impacting the automotive industry: driver
support, automated driving & connectivity, the
new mobility and electrification.
Veoneer’s core strategy is to deliver innovative solutions
that car manufacturers and drivers can trust. As tech-
nology companies step into the automotive industry, Veoneer’s
long industry experience and heritage of creating proven
solutions that save lives in real-life traffic situations is be-
coming increasingly important. People trust their lives with
our solutions – and innovation, reliability and quality will
create trust in mobility.
Our strategic pillars are flawless delivery, customer-centric
collaboration and human-centric innovation. These core pillars
have been part of Veoneer’s DNA from the start, and through re-
lentless execution, will make Veoneer’s strategy a reality.
Flawless Delivery
Veoneer continues to build on its world-leading track record of
delivering high quality products to car manufacturers globally. In
2018, Veoneer made strong improvements expanding zero defect
performance in its operations and made excellent progress in
preventing quality defects from impacting its customers.
“2018 has been a year of great progress in our quality re-
sults. Flawless delivery is a core pillar of the Veoneer culture
and our teams are proud to build on our great quality heritage,”
says Steve Brohm, VP Quality.
8
Customer-Centric
Collaboration
Close cooperation with innovative car manufacturers is key to
staying on top of the market in terms of functionality and perfor-
mance. Veoneer works closely with certain car manufacturers to
codevelop new generations of products that allow these custom-
ers to be first to market and also ensure that Veoneer has a better
view of the application from the car manufacturer’s perspective.
“We find that customers really appreciate being able to have
innovation in a transparent way that is tailored to their specif-
ic needs. We are constantly collaborating with our customers
across our entire product range and working together in an open
way. This is a major contributor to our very strong order intake,”
says Art Blanchford, EVP North America, China & Korea.
Human-Centric Innovation
LIV 3.0 represents the vision of Veoneer.
We believe that a human-centric approach to innovation is key to
innovate systems and tools that will reduce the number of traffic
incidents and accidents. Our research vehicle LIV is a platform in-
tended to enable the study and design of trust and collaboration
between the driver, the vehicle and the surroundings.
As advanced driving assistance technologies and automated
driving technologies are becoming more available, it is becom-
ing increasingly vital that drivers and passengers trust that these
automated systems make the right decision. Lack of trust is al-
ready a major roadblock for adoption of current available vehicle
technology. Many drivers disable vehicle automation, such as lane
keep assistance or adaptive cruise control, citing their belief that
the functions are unreliable, provide feedback at the wrong times,
or are simply annoying.
With the implementation of more advanced systems, cars and
drivers are expected to collaborate when driving. For true collab-
oration, the systems must not only know what is going on outside
the vehicle and in the cabin, they must also have the capacity to
discern and respond to different driver skill levels and emotions -
and the give-and-take must result in collaboration improving over
time.
A human-centric approach to innovation will help us innovate
the trust needed for future mobility solutions.
8
9
these stakeholder groups is core when we conduct our business.
As a company with stock listed on the New York Stock Exchange
and on the Nasdaq Stockholm, Veoneer has a solid governance
structure. When spun-off from Autoliv less than one year ago, we
also brought with us guidelines and policies, processes, measure-
ment tools and sustainability KPIs. During 2019, our ambition is to
develop these further and integrate them in our daily business.
Our work supports the
UN Sustainable Development Goal #3
Sustainability
Creating Trust in Mobility
The introduction of more advanced technolo-
gies assisting the driver, like Advanced Driving
Assistance Systems (ADAS) and Autonomous
Driving (AD), will be a strong contributor to
reaching the UN Sustainable Development Goal
#3 Good health and well-being, reducing global
deaths and injuries from road traffic accidents
by 50%.
Veoneer’s business is focused on supporting the SDG#3 by de-
signing, compiling and selling state-of-the-art software, hard-
ware and systems for active safety, autonomous driving, occu-
pant protection and brake control.
Today, 1.4 million lives are lost globally on the roads each year.
According to the US National Highway Traffic Safety Administra-
tion 94% of serious crashes are the result of human error. For the
next 10 years, the majority of cars sold are expected to include
more and more advanced active safety technologies, where the
car is handling parts of the driving, while the driver is still en-
gaged. This is expected to bring new levels of convenience and
safety, benefiting car occupants and society at large.
At Veoneer, we care about our customers and end-users,
the environment, our employees and the community. Caring for
Our Associates are
the Architects of Our
Success
During 2018, Veoneer hired approximately 1,100 associates in
RD&E to support our future sales growth and current develop-
ment programs.
Associates
Dec 31, 2018
Electronics
Brake systems
Corporate
Total
1010
7,105
1,452
43
8,600
2019 Outlook
A Dynamic Market
The total available market for Automotive Safety electronics is,
according to IHS, estimated to grow from around $20 billion in
2017 to close to $50 billion by 2025, indicating more than 10% an-
nual growth rate (CAGR). In 2025, the average active safety con-
tent in every vehicle produced is expected to be around $225-275,
almost five times more than today.
The Active Safety market is developing rapidly. New partner-
ships and new products are being introduced and for every model
year an increasing number of new cars have Active Safety fea-
tures available. In 2030, it is predicted that a vast majority of all
cars sold will include advanced driving assistance systems, while
a fraction of the market will be fully autonomous cars.
This dynamic and fast-growing market provides long-term
opportunities for Veoneer. However, the volatile nature of the
evolving active safety market and light vehicle production fluc-
tuations make it difficult to predict the precise timing of its de-
velopment.
For 2019, we are planning for a complex business environ-
ment. We are responding to light vehicle production fluctuations
and uncertainties even as we prepare for a heavy new program
launch schedule beginning in late 2019 and extending into 2020.
Our current customer call-offs and deliveries reflect a weak
demand situation in China and Western Europe, which leads us
to anticipate a decline in light vehicle production during the first
six months of 2019. At this time, we expect demand to stabilize
and return to growth during the second half of the year, resulting
in the estimated full year light vehicle production being slightly
down in 2019 as compared to 2018.
Our sales during the first half of 2019 are expected to remain
relatively flat sequentially from the second half of 2018, albeit a
decline year over year, and then improve sequentially in the sec-
ond half of 2019. Consequently, we estimate our organic sales will
be flat to decline slightly for the full year 2019 while we estimate
the currency translation impact to be approximately (2)% as com-
pared to 2018. As a result of our sales and RD&E development, in
combination with the implementation of our market adjustment
initiatives during 2019, we expect a weak operating margin and
cash flow during the first half of the year. The first quarter in 2019
is expected to be weaker than the fourth quarter in 2018, with an
anticipated improvement during the second half of 2019. Based
on the market opportunities ahead of us, we expect our 2019 or-
der intake to be at least as strong as our performance in 2018.
In 2030, it is predicted that a vast
majority of all cars sold will include
advanced driving assistance systems,
while a fraction of the market will be
fully autonomous cars.*
10
10
*Market estimations based on IHS
11
Market and Competitors
TOTAL ADDRESSABLE MARKET (TAM) – Veoneer’s TAM, as a technol-
ogy pure-play in Safety Electronics with a focus on the automotive
secular trends of Advanced Driving Assistance System (ADAS) and
Highly Automated Driving (HAD) on the road towards Autonomous
Vehicles (AV), consists of three main product areas: Active Safety,
Restraint Control Systems and Brake Systems.
As outlined below, we estimate the overall TAM in 2018 to be approx-
imately $23 billion, a 13% increase as compared to ~$20 billion in 2017.
Primarily driven by Radar and Vision Systems, which are the primary
sensors required for Level 1 through Level 2+ (Driver Support) systems,
we estimate the Active Safety Market will grow by a ~22% CAGR from
2018 to ~$15 billion in 2022 and by a ~23% CAGR from 2018 to ~$30 bil-
lion in 2025.
Our main competitors in this market include APTIV, Bosch,
Continental, Denso, Magna, Mobileye/Intel (Vision software), Valeo
and ZF.
Addressable Market including potential opportunity is estimated
to reach $49B in 2025E (underlying LVP CAGR 1 to 2 %)
$Bn
49
15
4
5
1
24
33
14
4
14
29
13
4
11
0.5
23
12
4
7
20
12
4
5
Brake Systems
Restraint Control Systems
Active Safety (additional upside)
Active Safety (base)
2017E
2018E
2020E
2022E
2025E
TAM (Total Addressable Market): Active Safety Market includes Radar (Front/Side/Rear), Forward looking
Cameras (Mono/Stereo/Night Vision). ADAS ECU, LiDAR and Other (Driver Monitoring, Digital Mapping,
Connectivity System - V2V). Source: IHS Automotive Database as of January 2019.
Primarily driven by the Active Safety Market, we estimate our TAM will
grow by a ~10% CAGR from 2018 to ~$33 billion in 2022 and by a ~12%
CAGR from 2018 to approximately $49 billion in 2025
ACTIVE SAFETY MARKET – Veoneer’s Active Safety market is com-
prised of the following products; Radar Systems, Vision Systems in-
cluding Mono and Stereo, Thermal Imaging (Night Driving Assist) and
Driver Monitoring Systems, ADAS Electronic Control Units (ECU’s),
LiDAR systems, and Roadscape positioning, digital mapping including
vehicle to vehicle and vehicle to infrastructure communications.
As outlined below we estimate the overall Active Safety market in
2018 to be approximately $7 billion, an increase of more than 40% com-
pared to ~$5 billion in 2017. We estimate our market share to be approx-
imately 12% in 2018 however, based on our strong order intake over the
last 3 years we expect our market share to increase in the future.
Active Safety Market Growth Driven by Increasing ADAS & AD Penetration
Active Safety TAM 1)
$Bn
~30
~ C AG R : 2 3 %
~15
~12
~7
~5
ADAS ECU
Lidar
Radar Systems
Vision Systems
2017E
2018E
2020E
2022E
2025E
1) TAM (Total Addressable Market): Active Safety Market includes Radar (Front/Side/Rear), Forward loolking
Cameras (Mono/Stereo/Night Vision). ADAS ECU, LiDAS and Other (Driver Monotoring, Digital Mapping,
Connectivity System - V2V).
12
RESTRAINT CONTROL SYSTEMS MARKET – The Restraint Controls
Market consists of Passive Safety ECU’s and remote crash sensors lo-
cated around the vehicle which detect the crash and signal to the ECU
to deploy the airbags and seatbelt pretensioners in a crash. We esti-
mate this market will remain relatively flat through 2025. However, we
see a potential upside to this market as our customers are looking to
increase the amount of interface, that is sharing of data and increasing
redundancy between the Active and Passive Safety Systems.
We estimate our current market share to be around 26% however,
based on our strong order intake over the last 3 years we expect our
market share to increase in the future.
Our main competitors include Bosch, Continental, Denso and ZF.
BRAKE SYSTEMS MARKET – The Brake Systems market consists of
braking systems excluding the foundation brakes. This market is con-
trasted by current braking systems for internal combustion engine
vehicles versus next generation braking systems for electric vehicles
and Hybrid vehicles and vehicle platforms where OEM’s are looking to
improve fuel efficiency. The latter is Veoneer’s primary product focus
through VNBS, our joint venture with Nissin Kogyo.
We estimate this market will grow by a ~3% CAGR from around $12
billion in 2018 to ~$15 billion 2025, where the next generation braking
systems market is estimated to almost triple while the current brak-
ing systems are expected to decline.
Our main competitors include Advics, Bosch, Continental, Mando
and ZF.
ORDER INTAKE – See chart on page 3 - In 2018 Veoneer achieved a
new record order intake of more than $1.2 billion average annual sales,
with an estimated lifetime order value of approximately $5.9 billion.
Within Active Safety the Company also achieved a new record
order intake of close to $900 million average annual sales which we
estimate a lifetime order value of approximately $3.8 billion.
Order intake has been very strong over the last three years to
support Veoneer’s sales target for 2022 and beyond.
Over the last three years combined, the order intake of approx-
imately $2.9 billion average annual sales has more than tripled from
around $825 million average annual sales over the previous three
years combined.
The weaker order intake in 2013 through 2015 is currently reflect-
ed in the organic sales decline in 2017 and 2018.
ASSOCIATES – Our RD&E associates are the cornerstone of our com-
mitment to leading through technology and innovation. Over the last 3
years we have added approximately 1,000 engineers per year to reach
close to 4,700 in 2018 from nearly 1,800 in 2015. As a consequence,
our RD&E net has increased to $466 million from $214 million in 2015.
These increases are necessary to support our exceptional order
intake, measured in terms of average annual sales, which increased
by a 190% CAGR from 2015 to 2018.
Share Information
VEONEER COMMON STOCK is traded on the New York Stock Exchange
(“NYSE”) while Veoneer Swedish Depositary Receipts (SDRs) are trad-
ed on NASDAQ Stockholm’s list for large market cap companies.
During 2018, the number of shares outstanding increased slightly
by 0.04 million to 87.17 million (excluding dilution). The weighted av-
erage number of shares outstanding for the full year 2018, assuming
dilution, increased to 87.16 from 87.13 million on June 30th, 2018, which
was the first day of trading.
Stock Options (if exercised) and granted Restricted Stock Units
(RSUs) could increase the number of shares outstanding by 0.9 million
shares in total. Combined, this would add 1.0% to the Veoneer shares
outstanding.
On December 31, 2018, 3.0 million shares remain available for
Board of Directors authorization.
The Company estimates that there were approximately 54,000
beneficial Veoneer owners as of December 31, 2018. Close to 20%
of Veoneer’s securities were held by U.S.-based shareholders and
around 60% by Sweden-based shareholders. Most of the remaining
Veoneer securities were held in the U.K., other Nordic countries, Cen-
tral Europe, Japan and Canada.
As of December 31, 2018 Veoneer had 87,170,332 shares out-
standing, of which 70.7 million shares were held as SDRs.
The following summarizes the share performance of the NYSE
and NASDAQ traded shares during 2018:
NYSE
2018 %-change
High (2018-08-20)
Low (2018-12-28)
Avg Volume (2018)
Avg Volume (2017)
∆ Volume
NASDAQ
-44.74%
2018 %-change
56.37
High (2018-08-20)
23.57
Low (2018-12-28)
699,742
Avg Volume (2018)
0
Avg Volume (2017)
0.0%
∆ Volume
2018 open (2018-07-02)
42.65
2018 open (2018-07-02)
2018 close (2018-12-28)
23.57
2018 close (2018-12-28)
All time high (2018-08-20)
All time low (2018-12-28)
56.37
23.57
All time high (2018-08-20)
All time low (2018-12-28)
Q3 2018
High
Low
Close
Q4 2018
High
Low
Close
Q3 2018
56.37
42.65
High
Low
55.07
Close
Q4 2018
55.53
23.57
High
Low
23.57
Close
-42.54%
511.00
224.65
370,563
0
0.0%
391.00
224.65
511.00
224.65
511.00
381.10
490.00
495.30
224.65
224.65
Price
SEK
520
488
456
424
392
360
328
296
264
232
VNE
2018.12.31
224.65
OMX Automative
VNE
Price
SEK
2,500
2,400
2,300
2,200
2,100
2,000
1,900
1,800
1,700
1,600
1,500
OMX
Automotive
2018.12.31
1,507.08
2018-07-02
2018-08-01
2018-09-04
2018-10-01
2018-11-01
2018-12-03
2018-12-31
The following compares VNE share performance versus the S&P 500
and the NASDAQ OMX.
Price
USD
57
54
51
48
45
42
39
36
33
30
27
24
VNE
2018.12.31
23.57
SP500
VNE
Price
USD
2,950
2,900
2,850
2,800
2,750
2,700
2,650
2,600
2,550
2,500
2,450
2,400
SP500
2018.12.31
2,506.85
2018-07-02
2018-08-01
2018-09-04
2018-10-01
2018-11-01
2018-12-03
2018-12-31
Price
SEK
520
488
456
424
392
360
328
296
264
232
VNE
2018.12.31
224.65
OMXSPI
VNE
Price
SEK
620
610
600
590
580
570
560
550
540
530
520
OMX
2018.12.31
525.16
2018-07-02
2018-08-01
2018-09-04
2018-10-01
2018-11-01
2018-12-03
2018-12-31
The following summarizes the top 10 shareholders of record as of
December 31, 2018.
The following compares VNE share performance versus the
Dow Jones Auto part index and the OMX Automotive peer groups.
Institution
Cevian Capital AB
Price
USD
57
54
51
48
45
42
39
36
33
30
27
24
VNE
2018.12.31
23.57
Alecta Pensionsförsäkring AB (Asset Management)
DJUSAT
VNE
Price
USD
600
550
500
450
400
350
300
250
200
150
Swedbank Robur Fonder AB
Första AP-fonden (AP1)
Didner & Gerge Fonder AB
AMF Pensionsförsäkringar AB
DJUSAT
2018.12.31
375.80
Nordea Investment Management AB (Sweden)
Fjärde AP-fonden (AP4)
AMF Fonder AB
Fidelity Management & Research Company
Dec 31, 2018
% S/O
8,376,924
8,206,200
5,623,359
4,899,726
3,957,150
3,800,000
3,513,817
2,808,645
2,344,843
1,853,049
9.6%
9.4%
6.5%
5.6%
4.5%
4.4%
4.0%
3.2%
2.7%
2.1%
12
2018-07-02
2018-08-01
2018-09-04
2018-10-01
2018-11-01
2018-12-03
2018-12-31
45,383,713
52.1%
13
Board of Directors
Jan Carlson
Chairman
President and CEO
Born 1960
Fomer President and Chief Executive
Officer of Autoliv, Inc.
Chairman of the Board of Autoliv, Inc.,
Member of the Board of Directors of
BorgWarner Inc. and Telefonaktiebolaget
LM Ericsson.
M.Sc. in Physics and Electrical Engineering
from University of Linköping in Sweden.
Dependent. Term expires 2021.
Robert W. Alspaugh
Director and Chairman of the Audit
Committee
Born 1947
Former CEO of KPMG International. Former
Deputy Chairman and COO of KPMG’s U.S.
practice.
Member of the Board of Directors of Ball
Corporation,Triton International Ltd., and
DSGI Technologies, Inc. a private company.
BBA in accounting from Baylor University,
the U.S.
Independent. Term expires 2021.
Mary Louise Cummings
Director and Member of the
Compensation Committee
Born 1967
Mark Durcan
Director and Member of the
Audit Committee
Born 1961
Former CEO of Micron Technology, Inc.,
a memory and storage solutions company.
Member of the Board of Directors of
Advanced Micro Devices, Inc.,
AmerisourceBergen Corporation and
director of St. Luke’s Health System of
Idaho.
BSc and MSc in Chemical Engineering from
Rice University.
Independent. Term expires 2019.
Professor at Duke University in the
Department of Mechanical Engineering and
Materials Science and the Duke Institute of
Brain Sciences. Director of the Humans and
Autonomy Laboratory at Duke and director
of Duke Robotics.
Former associate professor at the
Massachusetts Institute of Technology
(MIT), with appointments in the Department
of Aeronautics and Astronautics and in the
Engineering Systems Division.
BSc in Mathematics from the U.S. Naval
Academy, MSc in Space Systems Engine-er-
ing from the Naval Postgraduate School,
and PhD in Systems Engineering from the
University of Virginia.
Independent. Term expires 2020.
James M. Ringler
Director, Chair of Veoneer’s Compensation
Committee and Member of the Nominating
and Corporate Governance Committee
Born 1945
Former Vice Chairman of Illinois Tool Works
Inc. Former Chairman, President and CEO of
Premark International, Inc.
Lead Independent Director of Autoliv, Inc.
Serves on the Board of Directors of Teradata
Corporation. TechnipFMC plc and JBT
Corporation.
Kazuhiko Sakamoto
Director and Member of the Compensation
Committee
Born 1945
Jonas Synnergren
Director and Member of the Nominating and
Corporate Governance Committee
Born 1977
Former President of Marubeni Construction
Material Lease Co. Ltd, an affiliate of
Marubeni Corporation.. Outside auditor of
Zenitaka Corporation.
Partner at Cevian Capital AB, investment
advisor to the international investment
firm, Cevian Capital. Head of Cevian’s
Swedish office.
Graduate of Keio University and participant
of the Harvard University Research Institute
for International Affairs.
MSc in Economics and Business from the
Stockholm School of Economics, including
studying at HEC Paris.
Independent. Term expires 2021.
Independent. Term expires 2020.
Independent. Term expires 2019.
Wolfgang Ziebart
Director, Member of the Audit Committee
and Chair of the Nominating and Corporate
Governance Committee
Born 1950
Former Director Group Engineering, Jaguar
Land Rover. Former President & CEO of
Infineon Technologies AG.
Chairman of the Supervisory Board of
Nordex and member of the Supervisory
Board of ASML, Inc.
Independent. Term expires 2020.
14
Executive Management Team
Jan Carlson
Chairman, President and CEO
Born 1960
Nationality: Swedish
Education: MSc in Physics and
Electrical Engineering from the
University of Linköping, Sweden.
Background: 30 years of industry
experience. Previous engagements
include Chairman, President and
CEO of Autoliv, President of Autoliv
Electronics, VP of Engineering at
Autoliv and President Autoliv Europe.
Board service: Chairman of the Bo-
ard of Autoliv Inc., Board member of
BorgWarner Inc. and member of its
compensation committee, Board
member of Telefonaktiebolaget LM
Ericsson and member in its Techno-
logy and Science Committee.
Mathias Hermansson
CFO and EVP of Financial Affairs
Born 1972
Nationality: Swedish
Mikko Taipale
EVP Human Resources
Born 1970
Nationality: Finnish
Education: Master of Laws,
University of Lapland, Finland
Background: VP, Human Resources
of Autoliv Electronics, various HR
leadership positions at Telia AB, in-
cluding Vice President HR, Mobility
Services and Vice President, HR,
Region Europe.
Education: Business Administration
at the University of Gothenburg,
Sweden and at the University of
Edinburgh, UK.
Background: Vice President Finan-
ce of Autoliv Electronics, CEO of NC
Management AB, Executive Chair-
man of MTGx, the digital division of
the Swedish public media company
Modern Times Group AB. CFO of
Modern Times Group AB.
Board service: Board member of
Catena Media plc, chairs its com-
pensation committee and Board
member of Tempest Security AB.
Mathias Hermansson will be
replaced by Mats Backman as of
March 1, 2019.
Thomas Jönsson
EVP Communications & IR
Born 1966
Nationality: Swedish
Education: Business
Administration at the University of
Stockholm, Sweden.
Background: Group Vice President
Communications of Autoliv, and an
international career in communica-
tions working for Intel Corporation,
Nokia and TeliaSonera AB.
Lars Sjöbring
EVP Legal Affairs, General Counsel
and Secretary General Counsel
Born 1967
Nationality: Swedish and U.S.
Education: Master of Law degrees
from the University of Lund,
Sweden, and Amsterdam School
of International Relations (ASIR)
in the Netherlands; and a Master
of Corporate Law degree from
Fordham University School of Law
in New York.
Background: Group VP, Legal Af-
fairs, General Counsel and Secreta-
ry of Autoliv, Senior Vice President
and General Counsel of Transocean
Ltd, Telia AB (the predecessor to
TeliaSonera AB), Skadden Arps,
Slate, Meagher and Flom LLP; and
Nokia Corporation.
Art Blanchford
EVP Business Units NACK
(North America, China & Korea)
Born 1971
Nationality: American
Nishant Batra
CTO and EVP Technology,
Product & Strategy
Born 1978
Nationality: Indian
Education: Executive MBA from
Ross School of Business, University
of Michigan and BSc in Mechanical
Engineering from Tennesee
Technological University
Education: MBA from INSEAD,
France, and M.Sc. degrees in
telecommunications and computer
science from Southern Methodist
University in Dallas.
Background: A long career at
Autoliv, including VP, Sales &
Marketing for Autoliv Electronics,
President of Autoliv Greater China,
Vice President Global Business
Development, Vice President of the
global General Motors business unit
of Autoliv and various engineering,
program management, operations
and sales positions.
Background: Batra has worked
within telecom and software
throughout his career, from smaller
start-ups to heading the Product
Area Networks at Ericsson. He has
lived and worked in four countries,
experiencing both emerging and
developed markets, and has carried
out multi-functional roles in pro-
duct management, sales, technolo-
gy, and general management.
Peter Rogbrant
EVP Technical Competence
Centers (acting)
Born 1975
Nationality: Swedish
Education: Bachelor’s degree
in Computer Sciences from the
School of Economics in Gothenburg
Background: Before joining Autoliv
Electronics in 2016, Peter Rogbrant
served as the Chief Technology
Officer at the video game developer
Ghost Games EA, and head of Tech-
nology & Solution Delivery at Volvo
Group Telematics. He has served in
various positions at AB Volvo.
Steve Rodé
EVP Operations
Born 1961
Nationality: Canadian
Education: B.Sc. Mechanical
Engineering, University of
Waterloo.
Background: More than 30 years
of experience in automotive, with
a background in production,
engineering and quality at Autoliv,
including positions as Senior
Vice President, Operations for
Autoliv Electronics, President of
Passive Safety Electronics, Acting
President of Autoliv Electronics,
and President of the Business Area
Electronics.
14
15
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2018
Commission File No.: 001-38471
Veoneer, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
82-3720890
(I.R.S. Employer
Identification No.)
Klarabergsviadukten 70, Section C6
Box 13089, SE-103 02
Stockholm, Sweden
+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:
Name of each exchange on which registered:
Common Stock, par value $1.00 per share
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes:
No:
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes:
No:
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 (Section 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
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
Non-accelerated filer
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:
Prior to the separation of the registrant from Autoliv, Inc., on June 29, 2018, the registrant was a wholly-owned subsidiary of Autoliv, Inc. Consequently, there
was no market value of the registrant's common stock by non-affiliates of the registrant as of June 29, 2018, the last business of the most recently completed
second fiscal quarter.
As of February 15, 2019, there were 87,178,772 shares of common stock of Veoneer, Inc., par value $1.00 per share, outstanding.
Documents Incorporated by Reference
Document
Proxy Statement*
Where Incorporated
Part III (Items 10, 11, 12, 13 and 14)
*As stated under various Items of this Report, only certain specified portions of the registrant’s definitive Proxy Statement for the annual stockholders’ meeting
to be held on May 8, 2019, to be dated on or around March 28, 2019 (the “2019 Proxy Statement”) are incorporated by reference in this Report.
TABLE OF CONTENTS
Forward Looking Statements
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Item 4. Mine Safety Disclosures
Legal Proceedings
PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
PART IV
3
3
14
32
32
34
34
35
35
37
56
57
101
102
102
103
103
103
103
103
105
107
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including
without limitation, statements regarding management’s examination of historical operating trends and data, estimates of future
sales (including estimates related to order intake), operating margin, cash flow, taxes or other future operating performance or
financial results, are forward-looking statements. In some cases, you can identify these statements by forward-looking words such
as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “may,” “likely,” “might,” “would,” “should,”
“could,” or the negative of these terms and other comparable terminology, although not all forward-looking statements contain
such words. We have based these forward-looking statements on our current expectations and assumptions and/or data available
from third parties about future events and trends that we believe may affect our financial condition, results of operations, business
strategy, short-term and long-term business operations and objectives and financial needs.
New risks and uncertainties arise from time to time, and it is not possible for our management to predict all risks, nor can we
assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking statements we may make. Factors that could cause actual
results to differ materially from these forward-looking statements include, without limitation, the following: the cyclical nature
of automotive sales and production; changes in general industry and market conditions or regional growth or decline; our ability
to achieve the intended benefits from our separation from our former parent; our ability to be awarded new business or loss of
business from increased competition; higher than anticipated costs and use of resources related to developing new technologies;
higher raw material, energy and commodity costs; component shortages; changes in customer and consumer preferences for end
products; market acceptance of our new products; dependence on and relationships with customers and suppliers; unfavorable
fluctuations in currencies or interest rates among the various jurisdictions in which we operate; costs or difficulties related to the
integration of any new or acquired businesses and technologies; successful integration of acquisitions and operations of joint
ventures; successful implementation of strategic partnerships and collaborations; product liability, warranty and recall claims and
investigations and other litigation and customer reactions thereto; higher expenses for our pension and other post-retirement
benefits, including higher funding needs for our pension plans; work stoppages or other labor issues; possible adverse results of
future litigation, regulatory actions or investigations or infringement claims; our ability to protect our intellectual property rights;
tax assessments by governmental authorities and changes in our tax rate; dependence on key personnel; legislative or regulatory
changes impacting or limiting our business; political conditions; and other risks and uncertainties identified in Item 1A -“Risk
Factors” and Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form
10-K.
For any forward-looking statements contained in this Annual Report on Form 10-K 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.
Item 1. Business
General
Part I
Veoneer, Inc. (“Veoneer”, the “Company” or “we”) is a Delaware corporation with its principal executive officers in Stockholm,
Sweden. On June 29, 2018, we became an independent company as a result of the separation of the Electronics segment from
Autoliv, Inc. (“Autoliv”). Veoneer was incorporated under the laws of Delaware in 2017 for the purpose of holding this business.
The separation was completed in the form of a pro rata distribution of 100% of the outstanding shares of Common Stock of Veoneer
to the stockholders of Autoliv (the “Spin-Off”). The Company functions as a holding corporation and owns two principal
subsidiaries, Veoneer AB and Veoneer US, Inc.
Shares of Veoneer common stock are traded on the New York Stock Exchange under the symbol “VNE”. Swedish Depository
Receipts representing shares of Veoneer common stock (“SDRs”) trade on NASDAQ Stockholm under the symbol “VNE SDB”.
Our fiscal year ends on December 31.
3
Business
Veoneer is a global leader in the design, development, manufacture and sale of automotive safety electronics. Our ambition is to
be a leading system supplier for advanced driver assistance systems ("ADAS"), Collaborative Driving, highly automated driving
("HAD") solutions, and autonomous drive ("AD") as well as a market leader in automotive safety electronics products.
Based on our purpose of "Creating Trust in Mobility", our safety systems are designed to make driving safer and easier, more
comfortable and convenient, and to intervene before a collision. Our systems currently include restraint control electronics and
crash sensors for deployment of airbags and seatbelt pretensioners, active safety sensors, controllers and software for both ADAS
and AD solutions and brake control systems.
Including joint venture operations, Veoneer has 10 manufacturing sites and operates in 13 countries and its customers include the
world’s largest car manufacturers. Veoneer’s sales in 2018 were $2.2 billion, approximately 37% of which consisted of active
safety products, approximately 44% of which consisted of restraint control systems and approximately 19% of which consisted
of brake systems products. Our business is conducted primarily in Europe, the Americas and Asia.
Veoneer’s head office is located in Stockholm, Sweden. As of December 31, 2018, Veoneer had approximately 7,300 employees
worldwide and a total headcount of approximately 8,600, including temporary personnel.
Additional information required by this Item 1 regarding developments in the Company’s business during 2018 is contained under
Item 7 in this Annual Report.
Financial Information on Segments
Veoneer reports its financial results in two segments: Electronics and Brake Systems. Our Electronics reporting segment consists
of our active safety and restraint control systems product areas. Our Brake Systems reporting segment consists of our brake systems
product area, which are those products developed by Veoneer-Nissin Brake Systems (VNBS), our joint venture with Nissin Kogyo
the 49% owner in VNBS (a 51% owned subsidiary).
Business Strategy
We believe the Company is well-positioned for growth from increasing long-term global vehicle production volumes, increased
demand for safety and collaborative and autonomous driving products, and new business wins with existing and new customers.
We are focused on accelerating the commercialization of active safety and collaborative and autonomous driving by providing the
software, sensors and computers required to do so.
Products and Technology
Electronics Segment
We provide advanced active safety sensors, used for ADAS, HAD and AD solutions, such as vision and radar systems, ADAS
Electronic Control Units (“ECUs”), night vision and positioning systems. Through Zenuity, our 50% owned joint venture
with Volvo Car Corporation ("Volvo Cars"), we develop an advanced software stack for sensor fusion and decision control
for ADAS, HAD and AD solutions. In addition, we offer driver monitoring systems, LiDAR sensors and other technologies
critical for AD solutions by leveraging our partnership network and internally developed intellectual property.
We also provide restraint control systems such as ECUs and crash sensors for deployment of airbags and seatbelt pretensioners
in the event of a collision.
Active Safety Products
Active safety systems are designed to intervene before a collision to make accidents avoidable or reduce the severity of the
crash in addition to making driving easier as well as more comfortable and convenient.
We develop radar and vision technologies (including Veoneer’s internally developed vision algorithms for both mono-and-
stereo vision) that monitor the environment around the vehicle with features that adjust engine output and steering or braking
to avoid accidents. The goal of active safety technologies is to provide early warnings to alert drivers to take timely and
appropriate action or trigger intelligent systems that affect the vehicle’s motion using braking and steering to avoid accidents,
as well as to increase the comfort and convenience of driving. Active safety systems can also improve the effectiveness of
the restraint control systems which combine hazard information with traditional crash-sensing methods.
4
Active safety functions include: Autonomous Emergency Braking, which brakes a vehicle autonomously; Adaptive Cruise
Control, which keeps and adjusts the vehicle’s pre-set speed to keep a pre-set distance from vehicles ahead; Traffic Jam Assist
and Highway Assist, which takes control of braking and acceleration in slow-moving traffic and highway speed, respectively;
Forward Collision Warning; Blind Spot Detection; Rear Cross-Traffic Assist; Lane Departure Warning; Lane Centering Assist,
Traffic Sign Detection; Light Source Recognition; Driver Monitoring for attention and drowsiness; Vehicle-to-Vehicle and
Vehicle-to-Infrastructure communication; and Night Driving Assist.
Key systems used in the active safety functions and the Company’s capabilities, currently provided to the market or under
active development, include:
Vision Systems: Vision systems are critical to driver assistance and safety functions. They support the driver in collision
avoidance and mitigating severity in the event of an accident. Using our software algorithms, the camera looks at the
road ahead for other vehicles, road signs, lane markings and other key elements and provides information and warnings
if the car is approaching a potentially hazardous traffic situation. Vision systems are used in applications such as road-
sign recognition, lane detection along with forward and pedestrian collision warnings. We offer forward looking mono-
and stereo-vision systems:
• The mono-vision system is a forward-looking camera that is mounted behind the windshield in front of the rear-
view mirror. Images are interpreted by algorithms that help identify objects and assist the driver with warnings or
actuations such as lane keeping and automatic braking of the vehicle. Mono-vision systems provide a significant
level of accident reductions targeting 5-star safety levels as well as driver comfort and convenience features like
Adaptive Cruise Control.
•
Stereo-vision system technology goes a step further and measures the entire driving environment in 3D. The
system is capable of acting on any object without classification. Stereo-vision also provides free-space recognition,
road surface measurement down to millimeter level accuracy, which is important to original equipment manufacturers
("OEMs") to improve safety and comfort and provides depth perception for distance calculations due to the 3D
capability.
Next generation vision systems and algorithms such as our fourth-generation mono- and stereo-cameras, which are
currently under development and planned for production in 2019 will support AD and European New Car Assessment
Program (“NCAP”) 2020. Fifth generation vision systems, which are in the early planning stages, and planned for
production in 2022 will offer more than five times higher image resolution than the current generations as well as offer
multiple camera solutions. Selected customers for our vision systems include Geely, Mercedes-Benz, Volvo Cars and one
additional Asian OEM.
Radar Systems: Radar systems capture and analyze driving conditions and alert the driver to potentially dangerous events,
and can take control of the vehicle if the driver does not take timely appropriate action. Radar systems are used in functions
such as adaptive cruise control and automatic emergency braking. Radar is important because it provides superior
performance in poor weather conditions such as rain and fog and other situations with poor visibility. Fused with vision
systems, higher levels of functional safety are possible allowing a wider range of operating conditions. Our radar sensor
portfolio includes: 25GHz ultra-wide band radar, 24 GHz narrow band radar, and 77GHz front and rear corner, and front
center radars. Selected customers for our radar systems include Fiat Chrysler Automobiles (FCA), Geely, General Motor
(GM), Honda, Mercedes-Benz, Renault Nissan Mitsubishi, and Volvo Cars.
ADAS ECUs: ADAS electronic control units ("ECU") are emerging products within the active safety market and are
precursors to the autonomous vehicles of the future. Today, a limited number of OEMs are using separate ADAS ECUs,
as most of the ADAS functionalities can be done in an integrated sensor-ECU. With future ADAS and AD systems
increasing in complexity, the need for multi-sensor solutions and subsequently higher processing capabilities is expected
to lead to more OEMs installing separate ADAS ECUs in their vehicles.
In the ADAS ECU, large quantities of data from the vehicle’s different sensors is validated and analyzed. Advanced
algorithms can then act in real time to warn the driver and control the vehicle throttle, braking and steering torque to
follow a desired trajectory for fully automated driving. We believe one of the biggest challenges self-driving cars will
have to overcome is being able to react to the randomness of traffic flow, other drivers, and the fact that no two driving
situations are ever the same.
By using deep learning (artificial intelligence) and sensor fusion, algorithms in the ADAS ECU can likely be improved
in such a way that the vehicle will be able to make better decisions than a human driver could. This processing must be
done with multiple levels of redundancy to ensure the highest level of safety. The computing demands of driverless
5
vehicles are 50 to 100 times more intensive than the most advanced vehicle today. Meeting these demands will be the
major challenge in developing the next generation of ADAS ECUs including data processing.
In 2016, we launched the world’s first ADAS ECU for mass production in Mercedes-Benz’s new E-class. We provide a
similar solution to the updated Mercedes-Benz S-class.
Night Vision Systems: Using passive infrared technology, our night vision system identifies if pedestrians, animals or
certain other hazards are present in the danger zone of a vehicle, and alerts the driver, driver, particularly in nighttime,
or other “dark” conditions. Our night vision system is the key component in “dynamic light spot” pedestrian illumination
system which allows more time for drivers to identify potential hazards at distances beyond normal head-lights. Our
fourth-generation night vision system, expected in 2020, will have improved field of view and detection distances,
reduction in size, weight and cost featuring enhanced algorithms for pedestrian, animal and vehicle detection as well as
supporting night time automatic emergency braking solutions. Selected customers of the night vision system include
Audi, BMW, GM, Mercedes-Benz, PSA, Porsche and Volkswagen.
Safety Domain ECUs: As active and passive safety features become more advanced, having dedicated ECUs for the
various features increases the complexity and cost of the vehicle architecture. The Safety Domain ECU replaces multiple
dedicated ECUs across the vehicle by combining all active and passive safety ECUs into one powerful domain controller.
This requires a highly powerful processor which is able to execute simultaneous computing. Techniques such as
virtualization enable the safe and secure separation of computing tasks, as the other controllers are not affected if one
virtual controller fails.
LiDAR: In 2017, we agreed to collaborate with Velodyne to expand and commercialize our LiDAR development. LiDAR
is expected to be an important sensor technology for the future development of AD systems. Under the current agreement
with Velodyne, Veoneer will act as the Tier-1 supplier to the OEMs for the Velodyne LiDAR sensors. We will provide
project management services, product validation and verification capabilities and system/interface packaging in supplying
automotive-grade LiDAR systems to the OEMs. Our LiDAR product roadmap includes first providing it to test fleets of
the OEMs and the robo-taxis market followed by developing a solid-state design for the consumer vehicle market. Building
on this relationship, on January 7, 2019 the Company announced entry into a license and supply agreement with Velodyne
whereby Velodyne will provide Veoneer US, Inc. with materials and rights to certain Velodyne intellectual property which
would enable Veoneer US, Inc to sell, distribute, promote, manufacture and modify, including related research and
development ("R&D") certain LiDAR products based on a Velodyne-authorized reference design.
Driver Monitoring: We have been developing solutions to address driver distraction and fatigue as they relate to traditional
driving situations and driver attention for hands-free driving. In 2017 we entered into an agreement with Seeing Machines
to accelerate this effort. This technology is expected to be necessary to achieve a 5-star NCAP rating in Europe in 2022
as well as Level 3 autonomy solutions worldwide. Our non-exclusive agreement with Seeing Machines to utilize their
reference design and market under a license, allows the Company the ability to build hardware and feature level solutions
on top of Seeing Machines’s world leading head pose, gaze and recognition data outputs.
RoadScape: Our RoadScapeTM product line offers highly accurate satellite positioning along with world leading dead
reckoning capabilities for increased precision in urban areas. Building on this, RoadScapeTM provides a digital
representation of the road ahead that can be further enhanced through probe data in the field and cloud connectivity.
Finally, adding RoadScapeTM communication technology allows for vehicle-to-vehicle, infrastructure and cloud
connectivity for premonition and situational awareness in ADAS and AD.
Human Machine Interaction (“HMI”): Genuine two-way communication between vehicle and driver is critical to building
driver trust and enhancing the driver experience. Veoneer’s Learning Intelligent Vehicle (“LIV”) is an artificial
intelligence-equipped research vehicle that can understand and respond to context. LIV uses external and internal sensing
combined with complex algorithmic artificial intelligence to create a unified contextual picture of what is going on with
the occupants, vehicle, driving situation and then acts and serves as a “co-pilot” to communicate with drivers and
passengers. Veoneer uses LIV to learn more about task delegation, shared control, driver-vehicle collaboration; innovate
ways to increase driver understanding of an autonomous system; and to continually improve the system’s understanding
of its human co-travelers.
Restraint Control Systems
The restraint control system is the brain triggering a vehicle’s passive safety system in a crash situation. Restraint control
systems consist of a restraint ECU and related remote crash sensors, including acceleration and pressure sensors. The ECU’s
algorithms decide when a seatbelt pretensioner should be triggered and an airbag system should be deployed.
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The ECU is mounted centrally in the vehicle, well protected in the event of a crash, and is supported by crash sensors mounted
in the door beam, the pillar between the doors, the rocker panel and/or in various locations at the front and rear of the vehicle.
These “satellite” crash sensors provide acceleration data to enable early and appropriate deployment of the airbags and seatbelt
pretensioners within milliseconds of a vehicle crash.
The ECU also contains certain sensors that are common with the brake system. We were the first to offer this type of solution,
providing savings through the reduction in multiple sensors for measuring yaw rate, and consolidating this information on
the vehicle data bus. Additionally, the restraint control system is capable of recording details of what happened before and
during a crash event using an Event Data Recorder (“EDR”) with the restraint control ECU.
Selected customers include FCA, Ford, Geely, GM, Great Wall, Hyundai/Kia, Jaguar Land Rover, Mazda, PSA, Renault
Nissan Mitsubishi, Suzuki and Volvo Cars.
Overview of Zenuity
In addition to our two segments, we are a 50% owner of Zenuity, our joint venture with Volvo Cars to develop decision making
software for ADAS and AD.
All ADAS and AD features are based on a recommended reference architecture for customers that require a system level
solution. In March 2018 Zenuity was selected by Geely as supplier for Geely’s Level 3 project, which includes ADAS electronic
control units and software, radar systems, as well as mono-vision and stereo-vision camera systems.
As of December 31, 2018, Zenuity had a team of over 600 employees and consultants, of which 88% are software engineers
who we believe have the necessary skills to develop these technologies. We expect to supply customers with Zenuity software
during 2020.
Through the Company's own product capabilities and extensive partnership network, Veoneer has one of the broadest ADAS
and AD product portfolio offerings, which include all major sensing technologies, decision making software, positioning and
mapping technologies and cloud solutions.
Our product portfolio has been significantly expanded over the recent years (as illustrated below) from individual hardware
sensing components to a full range of key functions and capabilities as outlined below. This enables us to address our customer
needs today, and likely in the future, by offering the entire spectrum of ADAS and AD solutions.
Brake Systems Segment
Our Brake Systems reporting segment consists of our brake systems product area, which are those products developed by
VNBS which provides brake control and actuation systems. VNBS provides products for both traditional and new braking
systems which we see as building blocks in the actuator area towards HAD.
VNBS supplies brake systems, including the brake booster, hydraulic proportioning valves and electronic control module
with sensors. The control module can modulate the brake pressure applied on each wheel individually to maintain optimum
braking and offers features like Electronic Stability Control (“ESC”), Anti-locking Brakes (“ABS”) and Traction Control
System.
For traditional brakes, a vacuum produced by Internal Combustion Engines is necessary to amplify the force applied by the
driver’s foot to convert it into hydraulic pressure to decelerate the vehicle. New drivetrains, such as Electric (“EV”) and Hybrid
(“HEV”), do not provide the same source of energy for boosting the brake input from the driver. Therefore, VNBS has
developed new servo-assisted and integrated brake control systems that can work independent of the type of drivetrain used.
To improve the overall efficiency of vehicles, VNBS’ new braking systems also provide the opportunity to recover brake
energy using electric motors as generators to charge batteries. This contrasts with conventional braking systems where the
excess kinetic energy is converted to unwanted and wasted heat by friction in the brakes.
VNBS currently produces brake systems capable of coping with regenerative braking and has developed an upgraded Electronic
Brake Boost system for market introduction expected towards the end of 2019. This system integrates the hydraulic brake
modulator with the electronic brake control unit and the brake fluid reservoir into a single unit (so called “one box” design).
Scalability and cost competitiveness of this technology qualifies VNBS to participate in the growth of brake-by-wire systems
needed for regenerative braking while delivering superior braking performance to support the growing need for external brake
requests such as Automated Emergency Braking and other functionalities.
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In January 2017 the Company announced that VNBS is expanding its customer base beyond its primary customer Honda,
winning lifetime contract order value of more than $1 billion for our new braking system with a Detroit based OEM on a
major vehicle platform. Production for this awarded business is currently scheduled to begin in 2020. There is no minimum
purchase value associated with this awarded business. The agreement will be governed by the OEM’s general terms and
conditions and Veoneer and such OEM will enter into a commercial and program agreement that will set forth the specific
commercial terms and functional requirements with respect to this order. The program life cycle is estimated to be six years.
We received a second major order from the same OEM at the end of 2017. The main opportunities we see in brake systems
stem from its capabilities in regenerative braking technology which works well with combustion engine vehicles but is even
more suitable for HEV and EV. We see significant opportunities to expand outside the current customer base, especially in
combination with our strong customer relationships and global footprint.
Acquisition, Partnership and Collaboration History
Our success and comprehensive product portfolio have partly been driven by acquisitions and partnerships, both critical elements
to succeed within the multifaceted auto safety electronics industry and to remain competitive against existing and new entrants
looking to enter the market. These partnerships and collaborations have a strategic importance in the near and long term to develop
additional autonomous driving building blocks and bring potential products to market in future years.
Acquisitions and Joint Ventures
February 2018: Zenuity announced the acquisition of Beyonav intellectual property and trademarks, a technology services
company delivering innovative location-based solutions that go beyond traditional applications of navigation technology.
November 2017: We acquired Fotonic, a Swedish company with expertise in LiDAR and Time of Flight cameras, building
on our collaboration with Velodyne that was established in June 2017. This acquisition adds to our portfolio the
collaboration capabilities within LiDAR sensors, leveraging on our expertise in manufacturing and validation.
April 2017: We launched Zenuity, a strategic 50/50 joint venture with Volvo Cars. This joint venture is an industry first,
where an OEM and Tier-1 supplier, both recognized as pioneers in automotive safety, formed a company to develop
ADAS software towards AD. See details above.
April 2016: We formed VNBS, a 51/49 joint venture with Nissin Kogyo, a Japanese supplier of both traditional and new
brake systems. The joint venture is fully consolidated by Veoneer. See details above.
Partnerships, Collaborations and Supplier Agreements
January 2019: The Company announced entry into a license and supply agreement with Velodyne whereby Velodyne will
provide Veoneer US, Inc. with materials and rights to certain Velodyne intellectual property which would enable Veoneer
US, Inc. to sell, distribute, promote, manufacture and modify (including related R&D) certain LiDAR products based on
a Velodyne-authorized reference design.
January 2018: Zenuity announced a non-exclusive collaboration with TomTom, to provide reference map architecture
for the “Zenuity Connected Roadview” system for autonomous vehicles. TomTom’s High Definition (“HD”) Maps will
power the localization, perception and path planning in the Zenuity AD software stack in combination with on-vehicle
sensors such as cameras, radar and LiDAR to create continuously updated maps.
October 2017: We announced a non-exclusive collaboration with Massachusetts Institute of Technology AgeLab to
develop deep learning algorithms that enable effective communication and transfer of control between driver and vehicle.
This includes sensing driver gaze, emotion, cognitive load, drowsiness, hand position, posture and fusing this information
with the perception of the driving environment to create safe and reliable vehicles that drivers can learn to trust.
September 2017: Zenuity announced a non-exclusive collaboration with Ericsson. The aim is to develop the Zenuity
connected cloud, where Ericsson will contribute its “Internet of Things” accelerator platform aiming to integrate in-
vehicle software and systems with connected safety data from other vehicles and infrastructure to potentially provide
Over-the-Air real time updates across the vehicle fleet.
August 2017: We announced a non-exclusive collaboration with Seeing Machines, a pioneer in computer vision based
human sensing technologies to develop next generation Driver Monitoring Systems for autonomous vehicles.
July 2017: We announced a non-exclusive collaboration with Velodyne to sell various LiDAR sensors as the Tier-1 supplier
to the OEMs. See details above.
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June 2017: We announced a non-exclusive early stage collaboration with NVIDIA, in combination with Zenuity, providing
Veoneer and Zenuity with pre-commercial access to NVIDIA’s AI computing platform for autonomous driving. Actual
production vehicles utilizing said platform are not planned for sale before 2021.
Market Overview and Competitive Landscape
Automotive Supplier Market Overview
The automotive production value chain is split among OEMs such as General Motors, Toyota and Volkswagen and automotive
suppliers, such as ourselves, Aptiv, Bosch, Continental, Denso, Magna, Valeo and ZF. Veoneer acts mainly as a Tier-1 supplier
to OEMs, meaning that we sell products directly to OEMs.
Our underlying market is primarily driven by two critical factors: Global Light Vehicle Production (“LVP”) and Content Per
Vehicle (“CPV”), whereby CPV is the clear market driver for the growth of our total addressable market.
Light Vehicle Production: Over the last two decades, LVP has increased at an average annual growth rate of around 3%
despite the cyclical nature of the automotive industry. LVP is expected to grow to around 92 million in 2019, and 106 million
in 2025, from approximately 91 million in 2018, according to IHS, The market is undergoing a shift from traditional internal
combustion engine vehicles, to HEVs and EVs, as emission regulation becomes more stringent, and battery technology
continues to evolve.
Content Per Vehicle: Unlike LVP, we can directly influence the CPV by introducing new technologies to the market. Looking
ahead, we expect that safety CPV growth will primarily be driven by active safety content (including software), with total
active safety market growing from approximately $75 per vehicle in 2018 to approximately $250 per vehicle in 2025,
representing a compound annual growth rate ("CAGR") of roughly 19% from 2018 to 2025, as the demand for advanced
active safety features grows.
See Item 7 Management’s Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations-Trends,
Uncertainties and Opportunities” for additional information related to recent trends in LVP and CPV.
Active Safety Competitive Landscape
The active safety market is highly fragmented and highly competitive. Competition is based primarily on technology, innovation,
quality, delivery and price. Our future success will depend on our ability to develop advanced hardware and software technologies
and to maintain or improve on our already strong competitive position over our existing and any new competitors. Main
competitors in active safety include Aptiv, Bosch, Continental, Denso, Magna, Valeo, ZF, and Intel/Mobileye.
On a broader scale, we have seen significant shifts in our competitive landscape over the last several years. Technology
companies have increased their presence and influence in ADAS and AD either through acquisitions or forming “ecosystems”
around certain technologies with OEMs and other suppliers. This has led to new industry entrants like Apple, Google, Intel,
NVIDIA, Qualcomm and Uber, which also provide partnership or customer opportunities for Veoneer hardware and software
solutions.
Through acquisitions, technology partnerships with customers and licensing agreements we have continuously added key
building blocks and we estimate to have obtained a market share of 12% in active safety in 2018. Zenuity has since inception
formed several partnerships to establish a full-suite ecosystem and competes with peer ecosystems such as the BMW/Intel/
Mobileye collaboration.
Restraint Control Systems Competitive Landscape
The market for restraint control systems remains relatively fragmented with both traditional electronics suppliers and some
passive safety suppliers. Over the past few years, we have seen our market share increase mainly due to cost efficient integration
solutions and strong customer relationships built on quality and technology advancements. Currently we are the leading supplier
of restraint control systems with a market share of around 26% in 2018. Our largest competitors include Bosch, Continental,
Denso and ZF.
The total restraint control systems market amounted to approximately $4 billion in 2018 and is expected to remain at the same
level until 2025. We believe that restraint control systems will play an integral role in a larger integration trend towards
centralized Safety Domain Controllers in the future. In addition, our strong market position in restraint control systems will
provide opportunities to become a leading supplier in the ADAS ECU and eventually the Safety Domain Controller market.
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Brake Systems Competitive Landscape
Brake systems consists of brake control ECUs, including ABS and ESC as well as brake apply units. We estimate the total
brake systems market to be approximately $12 billion in 2018, with a projected CAGR of 3% through 2025. The main growth
driver is higher installation rates of ESC systems in China and other emerging countries in Asia. Another major growth driver
is more advanced and complex servo assisted systems and regenerative braking systems for HEVs and EVs. The ability to
regenerate kinetic energy through braking is of growing importance as vehicle powertrains are becoming increasingly electrified.
We estimate that VNBS had a market share of just above 4% in 2018. Main competitors of VNBS include ADVICS, Bosch,
Continental, Mando and ZF.
Research & Development and Intellectual Property
Our ability to maintain our position at the forefront of technological innovations and to serve customers on a local basis will be
differentiating factors to our success. Therefore, we maintain one of the broadest global networks of technical engineering centers
across all major automotive regions to develop and provide advanced products, processes and manufacturing support for our
manufacturing sites and to provide our customers with local engineering capabilities and design development on a global basis.
We currently own or co-own approximately 738 active patents and have approximately 710 pending patent applications in the US
and other jurisdictions. The active patents will expire between 2019 and 2038. We have registered the name Veoneer as a trademark
in Sweden and are pursuing registration in other markets of interest. Depending on the jurisdiction, trademarks are generally valid
as long as they are in use or their registrations are properly maintained, and they have not been found to have become generic.
We are actively pursuing opportunities to commercialize and license our technology to the automotive industries, and we selectively
utilize other companies’ licenses through sublicenses in order to support our business interests. These activities foster optimization
of intellectual property rights.
We believe that our patents, trademarks and licenses, provide meaningful protection for our products and technical innovations
and as a whole, to be material to our business. However, we do not consider our business or any of our business segments to be
materially dependent upon any individual patent, trademark or license.
We seek to effectively manage fixed costs and efficiently rationalize capital spending by evaluating the market and profit potential
of existing and new customer programs, including investments in innovation and technology. We maintain our engineering activities
around our focused product portfolio and allocate our capital and resources to those products and distinctive technologies.
Our total research and development expenses, including engineering, net of customer reimbursements, were $466 million,
$375 million and $300 million for the years ended December 31, 2018, 2017 and 2016, respectively. Zenuity’s total expenses were
$125 million for the year ended December 31, 2018. These expenses were mainly related to research and development.
We believe that our engineering and technical expertise, together with our emphasis on continuing research and development,
allows us to use the latest technologies, materials and processes to solve problems for our customers and to bring new innovative
products to market. We believe that continued engineering activities are critical to maintaining our pipeline of technologically
advanced products.
Dependence on Customers
Veoneer serves most of the world’s major automotive OEMs and is not dependent on one single customer. Our customer base has
consistently increased and diversified over the last five years, mainly driven by our active safety product offerings and VNBS.
In 2018 we served a total of 16 customers and our largest customers were Honda (21% of sales), Daimler (17% of sales), Ford
(11% of sales), Hyundai/Kia (10% of sales), General Motors (8% of sales), Renault Nissan Mitsubishi (7% of sales) FCA (5% of
sales) and BMW (5% of sales). Some of the concentration is driven by the concentration in the automotive industry, with the five
largest OEMs in 2018 accounting for 49% of global LVP and the ten largest for 74%, according to IHS.
We typically supply products to our OEM customers through written contracts or purchase orders which are generally governed
by general terms and conditions established by each OEM. These arrangements include terms regarding price, quality, technology
and delivery. Although it may vary from customer to customer, our customer contracts generally require us to supply a customer’s
annual requirements for a particular vehicle model and assembly facilities, rather than for manufacturing a specific quantity of
products. Such contracts range from one year to the life of the model, which is generally four to seven years. Because we produce
products for a broad cross section of vehicle models, we are not overly reliant on any one vehicle model or one particular product.
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These contracts are often subject to renegotiation, sometimes as frequent as on an annual basis which may affect product pricing.
In general, these arrangements with our customers provide that the customer can terminate them if we do not meet specified quality,
delivery and cost requirements. Although these arrangements may be terminated at any time by our customers (but not typically
by us), such terminations have historically been minimal and have not had a material impact on our results of operations. However,
if terminations do occur in the future or if production under a contract winds down earlier than expected, then such event could
have a material impact on our results of operations. The arrangements typically provide that we are subject to a warranty on the
products supplied; in most cases, the duration of such warranty is coterminous with the warranty offered by the OEM to the end-
user of the vehicle. We may also be obligated to share in all or a part of recall costs if the OEM recalls its vehicles for defects
attributable to our products.
Veoneer Personnel
As of December 31, 2018, we had a total of approximately 8,600 employees and consultants, with 4,676 in engineering, 2,083 in
production and 1,346 in production overhead, and the remainder employed in management, general and administrative functions.
Within engineering, more than two thirds of the employees worked as software engineers.
In addition, Zenuity had approximately 600 employees and consultants at the end of 2018, of which approximately 88% worked
as software developers. In 2018, approximately 1,100 engineers were hired by Veoneer and more than 100 were hired by Zenuity.
We consider our relationship with our personnel to be strong. We have not had any disputes which are significant or had a lasting
impact on our relationship with our employees, customer perception of our employee practices or our business results.
Major unions to which some of our employees belong in Europe include: IG Metall in Germany; Unite in the United Kingdom;
Confédération Générale des Travailleurs, Confédération Française Démocratique du Travail, and Force Ouvrière in France; and
If Metall, Unionen, Sveriges Ingenjörer and Akademikerföreningen in Sweden.
In addition, our employees in other regions are represented by the following unions: Unifor and the International Association of
Machinists and Aerospace Workers (“IAM”) in Canada and VNBS Roudou Kumiai in Japan.
In many European countries and in Canada, wages, salaries and general working conditions are negotiated with local unions and/
or are subject to centrally negotiated collective bargaining agreements. The terms of our various agreements with unions typically
range between one and three years. Some of our subsidiaries in Europe and Canada must negotiate with the applicable local unions
with respect to important changes in operations, working and employment conditions. Twice a year, members of the Company’s
management conduct a meeting with the European Works Council (“EWC”) to provide employee representatives with important
information about the Company and a forum for the exchange of ideas and opinions.
In many Asia Pacific countries, the central or regional governments provide guidance each year for salary adjustments or statutory
minimum wage for workers. Our employees may join associations in accordance with local legislation and rules, although the
level of unionization varies significantly throughout our operations.
Inventory and Working Capital
We, as with other component manufactures in the automotive industry, ship our products to customer vehicle assembly facilities
throughout the world on a “just-in-time” basis for our customers to maintain low inventory levels. Our suppliers (external suppliers
as well as our own production sites) use a similar method in providing raw materials to us.
Sources and Availability of Raw Materials
We procure our raw materials and components from a variety of suppliers around the world. Generally, we seek to obtain materials
in the region in which our products are manufactured to minimize transportation, currency risks and other costs. The most significant
raw materials we use to manufacture our products are various electrical components and ferrous metals for brake systems. As of
December 31, 2018, we have not experienced any significant shortages of raw materials and normally do not carry inventories of
such raw materials more than those reasonably required to meet our production and shipping schedules.
Commodity cost volatility is a challenge for us and our industry. We are continually seeking to manage these costs using a
combination of strategies, including working with our suppliers to mitigate costs, seeking alternative product designs and material
specifications, combining our purchase requirements with our customers and/or suppliers, changing suppliers, hedging certain
commodities and other means. Our overall success in passing commodity cost increases on to our customers has been limited. We
will continue our efforts to pass market-driven commodity cost increases to our customers in an effort to mitigate all or some of
the adverse earnings impacts, including by seeking to renegotiate terms as contracts with our customers expire.
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Seasonality
Our business is moderately seasonal. Our European customers generally reduce production during the months of July and August
and for one week in December. Our North American customers historically reduce production during the month of July and halt
operations for approximately one week in December. Our Chinese customers generally reduce production during the Chinese New
Year period in February. Shut-down periods in the rest of the world generally vary by country. In addition, automotive production
is traditionally reduced in the months of July, August and September due to the launch of parts production for new vehicle models.
Accordingly, our results reflect this seasonality. In addition, engineering income tends to be skewed towards the fourth quarter.
Environmental Compliance
We are subject to various environmental regulations governing, among other things: (i) the generation, storage, handling, use,
transportation, presence of, or exposure to hazardous materials; (ii) the emission and discharge of hazardous materials into the
ground, air or water; (iii) the incorporation of certain chemical substances into our products, including electronic equipment; and
(iv) the health and safety of our employees.
Most of the Company’s manufacturing processes consist of the assembly of components. As a result, the environmental impact
from the Company’s plants is generally modest. While our businesses from time to time are subject to environmental investigations,
there are no material environmental-related cases pending against the Company. Therefore, we do not incur (or expect to incur)
any material costs or capital expenditures associated with maintaining facilities compliant with U.S. or non-U.S. environmental
requirements. To reduce environmental risk, the Company has implemented an environmental management system in all plants
globally and has adopted an environmental policy.
We are subject to various U.S. federal, state and local, and non-U.S., laws and regulations, including those related to environmental,
health and safety, financial and other matters. We cannot predict the substance or impact of pending or future legislation or
regulations, or the application thereof. The introduction of new laws or regulations or changes in existing laws or regulations that
impact our business, or the interpretations thereof, could increase the costs of doing business for us or our customers or suppliers
or restrict our actions and adversely affect our financial condition, operating results and cash flows.
We are also required to obtain permits from governmental authorities for certain of our operations.
Dependency on Government Contracts
We are not dependent on government contracts. Some R&D projects are partly financed by certain government agencies.
Joint Venture Agreements
Zenuity Joint Venture Agreement
Zenuity operates pursuant to the Joint Venture Agreement, dated April 18, 2017 (the “Zenuity JV Agreement”), between Volvo
Cars and a subsidiary of Veoneer. The Zenuity JV Agreement describes the scope of the business activities of Zenuity, which
is to develop automotive driver assistance and highly autonomous driving software solutions that can be supplied to Volvo
Cars and other potential customers. In addition, Zenuity conducts research within the areas of human factors, vehicle
environments and computer techniques to develop algorithms for driving assistance or automated driving. Zenuity owns and
licenses certain intellectual property rights pursuant to commercialization agreements between the parties. Veoneer is the
exclusive supplier and distribution channel for all Zenuity’s products sold to third parties; however, there is no exclusivity
toward any customer or the owners. Volvo Cars can source such products directly from Zenuity. The parties also entered into
a number of related agreements in connection with forming the joint venture, including an investment agreement,
commercialization agreements and intellectual property license and assignment agreements pursuant to which Volvo Cars and
Veoneer transferred certain intellectual property rights to Zenuity. A copy of the Zenuity JV Agreement has been filed with the
U.S. Securities and Exchange Commission (the “SEC”).
VNBS Joint Venture Agreement
Brake Systems was formed by and operates pursuant to a number of agreements entered into between certain affiliates of each
of Veoneer and Nissin Kogyo Ltd., Co. (“Nissin”), including a Share Purchase Agreement, dated September 9, 2015, and a
Joint Venture Agreement, dated March 7, 2016 (the “VNBS JV Agreement”). The VNBS JV Agreement sets forth the agreements
between Veoneer and Nissin with respect to the ownership, capitalization, governance and operations of Brake Systems. It
provides that Veoneer owns 51% of each of the entities that comprise Brake Systems and Nissin owns the remaining 49% of
each entity. A copy of the VNBS JV Agreement has been filed with the SEC.
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Since the Company acquired a 51% interest in VNBS, Veoneer has unilaterally provided the funds necessary to meet VNBS’s
operational needs as Nissin Kogyo has, notwithstanding repeated requests, refused to provide funding in proportion to its
ownership. In 2019, the Company initiated a formal negotiation process under the VNBS JV Agreement to find a resolution
to the current funding situation.
Spin-Off Related Agreements
As part of the Spin-Off, Autoliv underwent an internal reorganization, pursuant to which, among other things and subject to limited
exceptions, all of the assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions)
associated with the electronics business of Autoliv were retained by or transferred to Veoneer or our subsidiaries and all other
assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) of Autoliv were retained
by or transferred to Autoliv or its subsidiaries (other than Veoneer).
Following the Spin-Off, the Company and Autoliv began operating independently and neither has any ownership interest in the
other. To govern certain ongoing relationships between Veoneer and Autoliv after the Spin-Off and to provide mechanisms for an
orderly transition, the Company and Autoliv entered into agreements pursuant to which certain services and rights are provided
for following the Spin-Off, and the Company and Autoliv will indemnify each other against certain liabilities arising from our
respective businesses.
Distribution Agreement
In connection with the internal reorganization, we entered into a Master Transfer Agreement with Autoliv which was amended
and restated effective as of the Spin-Off (the “Distribution Agreement”). The Distribution Agreement governs certain transfers
of assets and assumptions of liabilities by each of Veoneer and Autoliv and the settlement or extinguishment of certain liabilities
and other obligations among the companies and their subsidiaries. In particular, substantially all of the assets and liabilities
associated with the separated Electronics business were retained by or transferred to Veoneer or its subsidiaries and all other
assets and liabilities were retained by or transferred to Autoliv or its subsidiaries. The Distribution Agreement also provided
the principal corporate transactions required to affect the Spin-Off, certain conditions to the Spin-Off and provisions governing
the relationship between Veoneer and Autoliv with respect to and resulting from the completion of the Spin-Off. The Distribution
Agreement also provides for indemnification obligations designed to make the Company financially responsible for substantially
all liabilities that may exist relating to its business activities, whether incurred prior to or after the completion of the internal
reorganization, as well as those obligations of Autoliv assumed by us pursuant to the Master Transfer Agreement; provided,
however, certain warranty, recall and product liabilities for Electronics products manufactured prior to the completion of the
internal reorganization were retained by Autoliv and Autoliv will indemnify us for any losses associated with such warranty,
recall or product liabilities.
Employee Matters Agreement
The Employee Matters Agreement governs Autoliv’s and Veoneer’s compensation and employee benefit obligations with
respect to the current and former employees and non-employee directors of each company. Under the agreement, Autoliv is
responsible for liabilities associated with Autoliv allocated employees and liabilities associated with former employees and
Veoneer is responsible for liabilities associated with Veoneer allocated employees, but Autoliv retains and continues to be
responsible for certain post-retirement liabilities relating to plans sponsored by Autoliv. The Employee Matters Agreement
provided for the conversion of the outstanding awards granted under the Autoliv equity compensation programs into adjusted
awards relating to both shares of Autoliv and Veoneer common stock.
Tax Matters Agreement
The Tax Matters Agreement governs the respective rights, responsibilities and obligations of Autoliv and Veoneer with respect
to tax liabilities and benefits, tax attributes, tax contests and other tax sharing regarding U.S. federal, state, local and foreign
income taxes, other tax matters and related tax returns. The agreement also specifies the portion, if any, of this tax liability for
which Veoneer will bear responsibility and provides for certain indemnification provisions with respect to amounts for which
they are not responsible. In addition, under the agreement, each party is expected to be responsible for any taxes imposed on
Autoliv that arise from the failure of the Spin-Off and certain related transactions to qualify as a tax-free transaction for U.S.
federal income tax purposes.
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Amended and Restated Transition Services Agreement
Under the Amended and Restated Transition Services Agreement (“TSA”), Autoliv and Veoneer agreed to provide to each
other certain services for a limited time to help ensure an orderly transition following the Spin-Off. The services that Autoliv
provides include certain finance, information technology, human resources and compensation, facilities, legal and compliance
and other services. We pay Autoliv for any such services utilized at agreed amounts as set forth in the TSA. In addition, for a
term set forth in the TSA, we and Autoliv may mutually agree on additional services to be provided by Autoliv to us that were
provided to us by Autoliv prior to the distribution but were omitted from the TSA at pricing based on market rates that are
reasonably agreed by the parties.
Available Information
We file or furnish with the SEC periodic reports and amendments thereto, which include annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information. Such reports, amendments, proxy
statements and other information are made available free of charge on our corporate website at www.veoneer.com and are available
as soon as reasonably practicable after they are electronically filed with the SEC. The SEC maintains an internet site that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://
www.sec.gov. Paper copies ocf the above-mentioned documents can be obtained free of charge from the Company by contacting
us at: Veoneer, Inc., Box 13089, SE-103 02, Stockholm, Sweden or Veoneer, Inc., 26545 American Drive, Southfield, MI 48034.
Item 1A. Risk Factors
Owning our common stock involves a high degree of risk. You should consider carefully the following risk factors and all other
information contained in this Annual Report on Form 10-K. If any of the following risks, as well as additional risks and uncertainties
not currently known to us or that we currently deem immaterial but are in fact material, occur, our business, liquidity, results of
operations and financial condition could be materially and adversely affected. If this were to happen, the market price of our
common stock could decline significantly, and you could lose all or a part of the value of your ownership in our common stock.
Some statements in this information statement, including statements in the following risk factors, constitute forward-looking
statements. Please refer to the section in this Annual Report entitled “Forward-Looking Statements.”
Risks Related to Our Industry
The cyclical nature of automotive sales and production can adversely affect our business.
Our business is related to LVP in the global market and by our customers, and automotive sales and LVP are critical drivers for
our sales. Automotive sales and production are highly cyclical and can be affected by general or regional economic or industry
conditions or uncertainty, the level of consumer demand, recalls and other safety issues, labor relations issues, technological
changes, fuel prices and availability, vehicle safety regulations and other regulatory requirements, governmental initiatives, trade
agreements, political volatility, especially in energy producing countries and growth markets, changes in interest rate levels and
credit availability and other factors. At various times some regions around the world may be more particularly impacted by these
factors than other regions. Economic declines that result in a significant reduction in automotive sales and production by our
customers have in the past had, and may in the future have, a material adverse effect on our business, results of operations and
financial condition.
Our sales are also affected by inventory levels of our customers. We cannot predict when our customers will decide to either
increase or reduce inventory levels or whether new inventory levels will approximate historical inventory levels. This may
exacerbate variability in our order intake and, as a result, our revenues and financial condition. Uncertainty regarding inventory
levels may be exacerbated by consumer financing programs initiated or terminated by our customers or governments as such
changes may affect the timing of their sales.
Most of our products are technologically complex and innovative and there can be a significant amount of time between design
and production. Development delays resulting from the challenges of integrating new functionality into vehicles and the evolution
of our customers’ performance requirements during the development cycle subject us to the risk that our customers cancel or
postpone a contract in the time period that it takes us to begin production of a particular product.
Changes in automotive sales and LVP and/or customers’ inventory levels will have an impact on our long-term targets, earnings
guidance and estimates. In addition, we base our growth projections in part on business awards, or order intake, made by our
customers. However, actual production orders from our customers may not approximate the awarded business or our estimated
order intake. Any significant reduction in automotive sales and/or LVP by our customers, whether due to general economic
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conditions or any other factors relevant to sales or LVP, will likely have a material adverse effect on our business, results of
operations and financial condition.
Growth rates in safety content per vehicle, which may be impacted by changes in consumer trends and political decisions, could
affect our results in the future.
Vehicles produced in different markets may have various safety content values. For now, our products are typically found in
vehicles with higher safety content. Because growth in global LVP is highly concentrated in markets such as China and India, our
operating results may suffer if the safety content per vehicle remains low in our growth markets. As safety content per vehicle is
also an indicator of our sales development, should this trends continue, the average safety systems per vehicle could decline.
We operate in highly competitive markets.
The markets in which we operate are highly competitive. We compete with a number of companies that design, produce and sell
similar products. Among other factors, our products compete on the basis of price, quality, manufacturing and distribution capability,
design and performance, technological innovation, delivery and service. Some of our competitors are subsidiaries (or divisions,
units or similar) of companies that are larger than we are and have greater financial and other resources than us. Some of our
competitors as well as some of our customers have strategic relationships with outside partners, enabling them to pool resources.
Additionally, some of our competitors may also have “preferred status” as a result of special relationships or ownership interests
with certain customers. Our ability to compete successfully depends, in large part, on our ability to innovate and manufacture
products that have commercial success with consumers, differentiating our products from those of our competitors, delivering
quality products in the time frames required by our customers, and achieving best-cost production.
Our ability to maintain and improve existing products, while successfully developing and introducing distinctive new and enhanced
products that anticipate changing customer and consumer preferences and capitalize upon emerging technologies will be a
significant factor in our ability to be competitive. If we are unsuccessful or are less successful than our competitors in predicting
the course of market development, developing innovative products, processes, and/or use of materials or adapting to new
technologies or evolving regulatory, industry or customer requirements, we will suffer from a competitive disadvantage. There is
a risk that our investments in research and development initiatives will not lead to successful new products and a corresponding
increase in revenue. We may also encounter increased competition in the future from existing or new competitors. The inability
to compete successfully could have a material adverse effect on our business, results of operations and financial condition.
We operate in a developing market that may be subject to greater uncertainty and fluctuations in levels of competition than a
more mature market.
The field of active safety is a developing segment in the automotive industry and is expected to act as a basis for and enable the
development and introduction of commercially viable autonomous vehicles. The number of competitors may increase as suppliers
from outside the traditional automotive industry, such as Google, Argo, Uber, Lyft, Cruise, Samsung, Panasonic, Here, Tesla, Intel,
NVIDIA and other technology companies, consider the significant business opportunities presented by autonomous driving. Some
of our customers are also partnering together to develop autonomous driving solutions. The evolving nature of the competitive
landscape creates greater uncertainty than the traditional automotive market.
Products and services provided by companies outside the automotive industry may also reduce demand for our products, which
require substantial investment in research and development. For example, there has been an increase in consumer preferences for
mobility on demand services, such as car- and ride-sharing, as opposed to automobile ownership, which may result in a long-term
reduction in the number of vehicles per capita. Today, in most markets, active safety products are considered to be premium
equipment rather than standard automotive safety items, which can create significant volatility in demand for certain of our products.
The high development costs of active safety and autonomous driving products increases the risk that we will be unable to
effectively compete in the market.
Our products may require significant resources to develop both hardware and software solutions, which are of increasing importance
in our market. There is an increasing trend towards partnerships between companies with complementary hardware and software
solutions that are able to pool resources to support development. The high development cost in active safety limits the number of
technical solutions that can be pursued by most “Tier 1” automotive suppliers (meaning companies that supply directly to the
automobile manufacturers), leading to risk of exposure to a disruptive technology different than those being developed by us.
In addition, a significant part of our business is focused on developing autonomous driving technology, which requires significant
amounts of resources devoted to researching and developing innovative products and processes. For example, we have invested
significant resources in developing Zenuity, our joint venture with Volvo Cars, which is aimed at developing software solutions
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for autonomous driving. There is a risk that Zenuity or our other autonomous driving projects will not be able to deliver a competitive
product.
If we are unable to develop and deliver innovative and competitive products, or unable to do so before our competitors, our
business, results of operations and financial condition could be materially adversely affected.
Autonomous driving involves complex technology and requires a number of different hardware and software competencies
and technologies and there is a risk that these competencies or technologies will not develop at a sufficient pace to address
marketplace needs.
Autonomous driving requires various types of sensor technology, including cameras, radar and LiDAR technology as well as
software technology to control such sensors. These technologies are under various stages of development and marketplace
acceptance. There is a risk that these technological solutions will not develop at a sufficient pace to gain acceptance with our
customers. If we are unable to develop our autonomous driving solutions fast enough to keep pace with the market, our future
business prospects, results of operations and financial condition could be materially adversely affected.
There are also challenges to develop autonomous driving solutions that are outside of our control, including regulatory requirements
from state and federal agencies, cybersecurity and privacy concerns, product liability concerns and perceptions of drivers regarding
autonomous driving capabilities and solutions. We may need to adjust our strategy and projected timelines based on how these
challenges, and others, evolve over time. There is a risk that these challenges will not be overcome, which could have a material
adverse effect on our business, results of operations and financial condition.
The inability to effectively manage the timing, quality and costs of new program launches could adversely affect our financial
performance.
To compete effectively in the automotive supply industry, we must be able to launch new products to meet our customers’ timing,
performance and quality standards. Our inability to do so may result in the loss of awarded business as well as significant liabilities
and/penalties. Certain state of the art products we launch may need to be developed on an especially accelerated time frame for
speed-to-market. There is a risk that we will not be able to install and certify the equipment needed to produce products for new
programs in time for the start of production, or that the transitioning of our manufacturing facilities and resources to full production
for such new programs will not impact production rates or other operational efficiency measures at our facilities. In addition, there
is a risk that our customers will not execute on schedule the launch of their new product programs, for which we might supply
products. Additionally, as a Tier 1 automotive supplier, we must effectively coordinate the activities of numerous suppliers in order
to launch programs successfully. Given the complexity of new program launches, especially involving new and innovative
technologies, we may experience difficulties managing product quality, timeliness and associated costs. These risks with new
technologies are increased when the customer relationship is new and the customer is subject to the same pressures on product
quality and timeliness. In addition, new program launches require a significant ramp up of costs; however, the sales related to
these new programs generally are dependent upon the timing and success of the introduction of new vehicles by our customers.
Our inability to effectively manage the timing, quality and costs of these new program launches could have a material adverse
effect on our business, results of operations and financial condition.
Risks Related to Our Business
A prolonged recession and/or a downturn in our industry could adversely affect our business and require us to seek additional
sources of financing to continue our operations, which may not be available to us or be available only on materially different
terms than what has historically been available.
Our ability to generate cash from our operations is highly dependent on regional and global economic conditions, automotive sales
and LVP. A prolonged downturn in or uncertainty relating to global or regional economic conditions, a downturn in the automotive
industry or LVP are conditions that could adversely impact our business. Such adverse impacts could require us to shut down
plants or result in impairment charges, restructuring actions or changes in our valuation allowances against deferred tax assets,
which could be material to our financial condition and results of operations. If global economic conditions deteriorate or economic
uncertainty increases, our customers and potential customers may experience deterioration of their businesses, which may result
in the delay or cancellation of plans to purchase our products.
A prolonged downturn in global economic conditions or LVP would likely result in us experiencing a significantly negative cash
flow. Similarly, if cash losses from customer defaults rise sharply, we would experience a negative cash flow. Such negative cash
flow could result in our having insufficient funds to continue our operations unless we can procure external financing, which may
not be possible. These risks could be exacerbated by instability in the global credit markets and global economic pressure. If
external financing is unavailable to us when necessary, we may have insufficient funds to continue our operations.
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We may not have sufficient resources to fund all future research and development and capital expenditures or possible
acquisitions or joint ventures.
In order to remain competitive, we must make substantial investments in research and development of new or enhanced products.
Our products may require significant resources to develop both hardware and software solutions. Challenges of integrating new
functionality into vehicles and the evolution of our customers’ performance requirements during development may also increase
research and development costs. Customer demands for changes to our products to meet such performance requirements are
difficult to predict both in terms of timing and cost. Since our revenue is largely based on sales over time, new customer demands
can delay payment for our products which can make it difficult for us to fund these critical up-front investments. We may be unable
to fund all of our research and development and capital investment needs or possible acquisitions or joint ventures, and we may
have to pass on valuable long-term opportunities that arise. Our ability to raise additional capital will depend on a variety of
factors, some of which will not be within our control, including the existence of a public offering market, investor perceptions of
us, our businesses and the industries in which we operate, and general economic conditions. Failure to successfully raise needed
capital on a timely or cost-effective basis could have a material adverse effect on our business, results of operations and financial
condition.
We may not be able to protect our proprietary technology and intellectual property rights, which could result in the loss of our
rights or increased costs.
We have developed a considerable amount of proprietary technology related to our products and rely on a number of patents to
protect our intellectual property rights in such technology. Our intellectual property plays an important role in maintaining our
competitive position in a number of the markets we serve. In addition to our in-house research and development efforts, we have
acquired and may continue to seek to acquire rights to new intellectual property through corporate acquisitions, asset acquisitions,
licensing and joint venture arrangements. Developments or assertions by or against us relating to our intellectual property rights
could negatively impact our business. If claims alleging patent, copyright or trademark infringement are brought against us and
are successfully prosecuted against us, they could result in substantial costs.
If we are not able to protect our patents, trademarks, or other intellectual property rights, either owned or licensed by us, against
infringement and unauthorized use, we could lose those rights and/or incur substantial costs policing and defending those rights.
We also generate license revenue from our intellectual property, which we may lose if we do not adequately protect our intellectual
property and proprietary rights. Our means of protecting our intellectual property may not be adequate, and our competitors may
independently develop technologies that are similar or superior to our proprietary technologies, or design around the patents we
own or license. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the
laws of the U.S. If we cannot protect our proprietary technology, we could experience a material adverse effect on our business,
results of operations and financial condition.
In addition, certain of our products utilize components that are developed by third parties and licensed to us or our joint ventures.
If claims alleging patent, copyright or trademark infringement are brought against such licensors and successfully prosecuted,
they could result in substantial costs, and we may not be able to replace the functions provided by these licensors. Alternate sources
for the technology currently licensed to us or our joint ventures may not be available in a timely manner, may not provide the
same functions as currently provided or may be more expensive than products currently used. Additionally, there is a risk that
any patents owned or licensed by us may be challenged, invalidated or circumvented, limiting competitive advantage of affected
products or technologies.
Because we develop proprietary information through our in-house research and development efforts, consulting arrangements and
research collaborations with other entities or organizations, there is also a risk that our attempts to protect this proprietary information
by entering into confidentiality agreements, or consulting, services or employment agreements that contain non-disclosure and
non-use provisions, with our employees, consultants, contractors, scientific advisors and third parties are unsuccessful. Even if
agreements are entered into, these agreements may be breached or may otherwise fail to prevent disclosure, third-party infringement
or misappropriation of our proprietary information, may be limited as to their term and may not provide an adequate remedy in
the event of unauthorized disclosure or use of proprietary information. If we develop an increasing amount of our intellectual
property through collaborations and development agreements, more of the technology we depend on could be subject to risks
related to protecting these rights. Any of the risks related to the protection of our proprietary technology described above could
have a material adverse effect on our business, results of operations and financial condition.
Some of our products and technologies may use “open source” software, which may restrict how we use or distribute our
products or require that we release the source code of certain products subject to those licenses.
Some of our products and technologies may incorporate software licensed under so-called “open source” licenses. In addition to
risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial
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software, as open source licensors generally do not provide warranties or controls on origin of the software. Additionally, open
source licenses typically require that source code subject to the license be made available to the public and that any modifications
or derivative works to open source software continue to be licensed under open source licenses. These open source licenses typically
mandate that proprietary software, when combined in specific ways with open source software, become subject to the open source
license. If we combine our proprietary software in such a way with open source software, we could be required to release the
source code of our proprietary software. Few courts have interpreted open source licenses, and the manner in which these licenses
may be interpreted and enforced is therefore subject to some uncertainty.
If these risks materialize, they could have a material adverse effect on our business, results of operations and financial condition.
The discontinuation, lack of commercial success, or loss of business with respect to a customer or particular vehicle model for
which we are a significant supplier could reduce our sales and harm our profitability.
A number of our customer contracts require us to supply a customer’s annual requirements for a particular vehicle model and
assembly facilities, rather than for manufacturing a specific quantity of products. Such contracts range from one year to the life
of the model, which is generally four to seven years. These contracts are often subject to renegotiation, sometimes as frequent as
on an annual basis, which may affect product pricing, and generally may be terminated by our customers at any time. The
unpredictable nature of such customer contracts has made, and may continue to make, our sales variable. Furthermore, the
discontinuation of, the loss of business with respect to, or a lack of commercial success of a customer or particular vehicle model
or brand for which we are a significant supplier could reduce our sales and harm our profitability.
Scaling our business has become increasingly critical to our success as OEMs have adopted global vehicle platforms and sought
to increase standardization, reduce per unit cost and increase capital efficiency. We are investing in technologies that are intended
to become the architecture for other products. If we are not able to scale according to our current expected timelines and needs
of our current and prospective customers, we will lose the trust of our customers and our customer relationships may suffer.
We may incur material losses and costs as a result of product liability, warranty and recall claims that may be brought against
us or our customers.
We face risks related to product liability claims, warranty claims and recalls in the event that any of our products actually or
allegedly are defective, fail to perform as expected or the use of our products results, or is alleged to result, in bodily injury and/
or property damage. We may not be able to anticipate all of the possible performance or reliability problems that could arise with
our products after they are released to the market. Additionally, increasing regulation and reporting requirements regarding
potentially defective products, particularly in the U.S., may increase the possibility that we become involved in additional product
liability or recall investigations or claims. There is a risk that our product liability and product recall insurance will not provide
adequate coverage against potential claims, such insurance will not be available in the appropriate markets or that we will not be
able to obtain such insurance on acceptable terms in the future. There is also a risk that Autoliv or one of our customers may be
unable or unwilling to indemnify us for product liability, warranty or recall claims although they are contractually obligated to do
so or we may be required to indemnify Autoliv or such customer for such claims, which may significantly increase our exposure
and potential loss with respect to any such claims. There is a risk that our current and future investments in our engineering, design,
and quality infrastructure will be insufficient and that our products could suffer from defects or other deficiencies or that we will
experience material warranty claims or additional product recalls. In the future, we could experience additional material warranty
or product liability losses and incur significant costs to process and defend these claims.
Escalating pricing pressures from our customers may adversely affect our business.
The automotive industry continues to experience increasingly aggressive pricing pressure from customers. This trend is partly
attributable to the major automobile manufacturers’ strong purchasing power. As an automotive component manufacturer, we may
be expected to quote fixed prices or be forced to accept prices with annual price reduction commitments for long-term sales
arrangements or discounted reimbursements for engineering work. Price reductions may impact our sales and profit margins. Our
future profitability will depend upon, among other things, our ability to continuously reduce our cost per unit and maintain our
cost structure. Our profitability is also influenced by our success in designing and marketing technological improvements in
automotive safety systems. If we are unable to offset continued price reductions, these price reductions could have a material
adverse effect on our business, results of operations and financial condition.
We could experience disruption in our supply or delivery chain, which could cause one or more of our customers to halt or
delay production.
We, as with other component manufactures in the automotive industry, ship our products to customer vehicle assembly facilities
throughout the world on a “just-in-time” basis in order for our customers to maintain low inventory levels. Our suppliers (external
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suppliers as well as our own production sites) use a similar method in providing raw materials to us. This “just-in-time” method
makes the logistics supply chain in our industry very complex and vulnerable to disruptions. Disruptions in our supply chain, such
as large recalls or field actions impacting our suppliers, facility closures, strikes, electrical outages, natural disasters or other
logistical or mechanical failures, could inhibit our ability to timely deliver on orders. We may experience disruptions if there are
delays in customs processing, including if we are unable to obtain government authorization to export or import certain materials.
When we fail to timely deliver, we may have to absorb our own costs for identifying and resolving the ultimate problem as well
as expeditiously producing and shipping replacement components or products. Generally, we must also carry the costs associated
with “catching up,” such as overtime and premium freight.
Additionally, if we are the cause of a customer being forced to halt production, the customer may seek to recoup all of its losses
and expenses from us. These losses and expenses could be very significant and may include consequential losses such as lost
profits. Where a customer halts production because of another supplier failing to deliver on time, we may not be fully compensated,
if at all. Thus, any such supply chain disruptions could severely impact our operations and/or those of our customers and force us
to halt production for prolonged periods of time which could expose us to material claims for compensation and have a material
adverse effect on our business, results of operations and financial condition.
We are subject to risks associated with the development and implementation of new manufacturing process technology.
We may not be successful or efficient in developing or implementing new production processes. We are continually engaged in
the transition from our existing process to the next-generation process technology. This consistent innovation involves significant
expense and carries inherent risks, including difficulties in designing and developing next-generation process technologies,
development and production timing delays, lower than anticipated manufacturing yields, and product defects and errors. Production
issues can lead to increased costs and may affect our ability to meet product demand, which could have a material adverse effect
on our business, results of operations and financial condition.
Work stoppages or other labor issues at our customers’ facilities or at our facilities could adversely affect our operations.
Because the automotive industry relies heavily on “just-in-time” delivery of components during the assembly and manufacture
of vehicles, a work stoppage at one or more of our facilities could have material adverse effects on our business. Similarly, if any
of our customers were to experience a work stoppage, that customer may halt or limit the purchase of our products, or a work
stoppage at another supplier could interrupt production at one of our customers’ facilities which would have the same effect. A
work stoppage at one or more of our facilities or our customers’ facilities could cause us to shut down production facilities supplying
these products, which could have a material adverse effect on our business, results of operations and financial condition.
Changes in the source, cost, availability of and regulations pertaining to raw materials and components may adversely affect
our profit margins.
Our business uses a broad range of raw materials and components in the manufacture of our products, many of which are generally
available from a number of qualified suppliers. Our industry may be affected from time to time by limited supplies or price
fluctuations of certain key components and materials. Price fluctuations may intensify or occur with greater frequency as demand
for our principal raw materials and components is significantly impacted by demand in emerging markets. Commercial negotiations
with our customers and suppliers may not offset the adverse impact of higher raw material, energy and commodity costs. Even
where we are able to pass price increases along to our customer, there may be a lapse of time before we are able to do so such that
we must absorb the cost increase. Some of our suppliers may not be able to handle the volatility in commodity costs, which could
cause them to experience supply disruptions resulting in delivery or production delays by our suppliers. Risks associated with the
cost and availability of raw materials and components could have a material adverse effect on our business, results of operations
and financial condition.
The SEC requires companies that manufacture products containing certain minerals and their derivatives that are, known as
“conflict minerals,” originating from the Democratic Republic of Congo or adjoining countries to diligence and report the source
of such materials. There are significant consequences associated with complying with these requirements, including diligence
efforts to determine the sources of conflict minerals used in our products, changes to our processes or supplies as a result of such
diligence and our ability to source “conflict free” materials. Accordingly, these rules could have a material adverse effect on our
business, results of operations and financial condition.
Our business could be materially and adversely affected if we lost our largest customers or if they were unable to pay their
invoices.
We are dependent on a few large customers with strong purchasing power. Business with any given customer is typically split into
several contracts (either on the basis of one contract per vehicle model or on a broader platform basis). The loss of business from
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any of our largest customers (whether by lower overall demand for vehicles, cancellation of existing contracts or the failure to
award us new business) could have a material adverse effect on our business, results of operations and financial condition.
Customers may put us on a “new business hold,” which limits our ability to quote or be awarded all or part of their future vehicle
contracts if quality or other issues arise in the vehicles for which we were a supplier. Such new business holds range in length and
scope and are generally accompanied by a certain set of remedial conditions that must be met before we are eligible to bid for new
business. Meeting any such conditions within the prescribed timeframe may require additional Company resources. A failure to
satisfy any such conditions may have a materially adverse impact on our financial results in the long term. Additionally, we have
no fixed volume commitments from our customers. Thus, even if we have won a bid for business from a customer there are no
guaranteed purchase volumes.
There is a risk that one or more of our largest customers could be unable to pay our invoices as they become due or that a customer
will simply refuse to make such payments, for reasons such as financial difficulties. If one of our largest customers would enter
into bankruptcy proceedings or similar proceedings whereby contractual commitments are subject to stay of execution and the
possibility of legal or other modification, or if one of our largest customers otherwise successfully procures protection against us
legally enforcing its obligations, it is likely that we will be forced to record a substantial loss.
Changes in our product mix may impact our financial performance.
We sell products that have varying profit margins. Our financial performance can be impacted depending on the mix of products
we sell during a given period. Our earnings guidance and estimates assume a certain geographic sales mix as well as a product
sales mix. There is a risk that the mix of offerings by our customers and demand for such offerings could change. If actual results
vary from this projected geographic and product mix of sales, it could have an unfavorable impact on our revenue and our results
of operations and financial condition could be materially adversely affected.
We may be involved from time to time in legal proceedings and our business may suffer as a result of adverse outcomes of
future legal proceedings.
We may be from time to time involved in litigation, regulatory proceedings and commercial or contractual disputes that may be
significant. These matters may include, without limitation, disputes with our suppliers and customers, intellectual property claims,
stockholder litigation, government investigations, class action lawsuits, personal injury claims, environmental issues, customs and
value added tax (VAT) disputes and employment and tax issues. In such matters, government agencies or private parties may seek
to recover from us very large, indeterminate amounts in penalties or monetary damages (including, in some cases, treble or punitive
damages) or seek to limit our operations in some way. There is a risk that claims may be asserted against us and their magnitude
may remain unknown for long periods of time. These types of lawsuits could require significant management time and attention,
and a substantial legal liability or adverse regulatory outcome and the substantial expenses to defend the litigation or regulatory
proceedings may have a material adverse effect on our customer relationships, business prospects, reputation, operating results,
cash flows and financial condition. There is a risk that such proceedings and claims will have a material adverse impact on our
profitability and consolidated financial position or that our established reserves or our available insurance will not be adequate to
mitigate such impact.
We may have exposure to greater than anticipated tax liabilities.
The determination of our worldwide provision for income taxes and other tax liabilities requires estimation and significant judgment,
and there are many transactions and calculations where the ultimate tax determination is uncertain. As a multinational corporation,
we are subject to tax in multiple U.S. and foreign tax jurisdictions. Our determination of our tax liability is always subject to audit
and review by applicable domestic and foreign tax authorities. Although we are currently under audit in a jurisdiction, we are
indemnified by Autoliv, Inc. for any tax settlements for tax periods prior to April 1, 2018. Any adverse outcome of any such audit
or review for tax periods after April 1, 2018 could have a negative effect on our business and the ultimate tax outcome may differ
from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for
which such determination is made. There is a risk that our established reserves, which are based on assumptions and estimates
that we believe are reasonable to cover such eventualities, may prove to be insufficient. In addition, our future income taxes could
be adversely affected by earnings being lower than anticipated (or by the incurrence of losses) in jurisdictions that have lower
statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of
our deferred tax assets and liabilities, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.
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Our ability to operate our company effectively could be impaired if we fail to attract and retain executive officers and other
key personnel.
We compete in a market that involves rapidly changing technological and other developments, which requires us to attract and
employ a workforce with broad expertise and intellectual capital. Our ability to operate our business and implement our strategies
effectively depends, in part, on the efforts of our executive officers and other key employees. In addition, our future success will
depend on, among other factors, our ability to attract, develop and retain other qualified personnel, particularly engineers and other
employees with software and technical expertise. The loss of the services of any of our senior executives or other key employees
or the failure to attract or retain other qualified personnel could have a material adverse effect on our business.
Impairment charges relating to our assets, goodwill and other intangible assets could adversely affect our financial performance.
If one or more of our customers’ facilities cease production or decrease their production volumes, the assets we carry related to
our facilities serving such customers may decrease in value because we may no longer be able to utilize or realize them as intended.
Where such decreases are significant, such impairments may have a materially adverse impact on our financial results. Impairment
of goodwill and other identifiable intangible assets may result from, among other things, deterioration in our performance and
especially the cash flow performance of these goodwill assets, adverse market conditions and adverse changes in applicable laws
or regulations. If there are changes in these circumstances or the other variables associated with the estimates, judgments and
assumptions relating to the valuation of goodwill, when assessing the valuation of our goodwill items, we may determine that it
is appropriate to write down a portion of our goodwill or intangible assets and record related non-cash impairment charges. In the
event that we determine that we are required to write down a portion of our goodwill items and other intangible assets and thereby
record related non-cash impairment charges, our business, results of operations and financial condition could be materially adversely
affected.
For example, in the fourth quarter of 2017, the Company recognized an impairment charge of $234 million, pre-tax, which
represented the full goodwill amount related to VNBS. The impairment loss was due to a lower than originally anticipated sales
development in VNBS. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”
We face risks related to our defined benefit pension plans and employee benefit plans, including the need for additional funding
as well as higher costs and liabilities.
Our defined benefit pension plans or employee benefit plans may require additional funding or give rise to higher related costs
and liabilities which, in some circumstances, could reach material amounts and negatively affect our results of operations. We are
required to make certain year-end assumptions regarding our pension plans. Our pension obligations are dependent on several
factors, including factors outside our control such as changes in interest rates, the market performance of the diversified investments
underlying the pension plans, actuarial data and adjustments and an increase in the minimum funding requirements or other
regulatory changes governing the plans. Adverse equity market conditions and volatility in the credit market may have an
unfavorable impact on the value of our pension assets and our future estimated pension liabilities. Internal factors such as an
adjustment to the level of benefits provided under the plans may also lead to an increase in our pension liability. There are also
uncertainties as the Company settles certain benefit plan relationships with Autoliv. If these or other internal and external risks
were to occur, alone or in combination, our required contributions to the plans and the costs and net liabilities associated with the
plans could increase substantially and have a material effect on our business.
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and
adversely impact our reputation and results of operations.
We rely extensively on information technology (“IT”) networks and systems, our global data centers and services provided over
the internet to process, transmit and store electronic information, and to manage or support a variety of business processes or
activities across our facilities worldwide. The secure operation of our IT networks and systems and the proper processing and
maintenance of this information are critical to our business operations. We have been, and likely will continue to be, subject to
cyber-attacks. To date we have seen no material impact on our business from these attacks or events. Although we seek to deploy
comprehensive security measures to prevent, detect, address and mitigate these threats, there has been an increased level of activity,
and an associated level of sophistication, in cyber-attacks against large multinational companies. The ever-evolving threats mean
we and our third-party service providers and vendors must continually evaluate and adapt our respective systems and processes
and overall security environment, as well as those of any companies we acquire. There is no guarantee that these measures will
be adequate to safeguard against all data security breaches, system compromises or misuses of data.
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Our security measures may be breached due to human error, system malfunctions or attacks from uncoordinated individuals or
sophisticated and targeted measures known as advanced persistent threats, directed at the Company, its products, its customers
and/or its third-party service providers.
Disruptions and attacks on our IT systems or the systems of third parties storing our data could result in the misappropriation, loss
or corruption of our critical data and confidential or proprietary information, personal information of our employees, and the
leakage of our or our customers’ confidential information, improper use of our systems and networks, production downtimes and
both internal and external supply shortages, which could have a material adverse effect on our business, results of operations and
financial condition. The potential consequences of a material cybersecurity incident include reputational damage, litigation with
third parties, diminution in the value of our investment in research, development and engineering, diversion of the attention of
management away from the operation of our business and increased cybersecurity protection and remediation costs, which in turn
could adversely affect our competitiveness and results of operations.
We rely on third parties to provide or maintain some of our IT systems, data centers and related services and do not exercise direct
control over these systems. There is a risk that security measures implemented at our own and at third party locations may not be
sufficient and that our IT systems, data centers and cloud services are vulnerable to disruptions, including those resulting from
natural disasters, cyberattacks or failures in third party-provided services. While we obtain assurances that any third parties we
provide data to will protect this information and, where we believe appropriate, monitor the protections employed by these third
parties, there is a risk the confidentiality of data held by us or by third parties may be compromised and expose us to liability for
such breach.
Cyberattacks have become increasingly frequent, sophisticated and globally widespread and could target software embedded in
our products. Embedded software code could be compromised during software development or manufacturing processes or within
the car itself. Cyberattacks on our products within the car can lead to malfunction or complete damage of the products, which
could result into loss of control of the car and its safety features. To the extent that any disruption or security breach results in a
misappropriation, loss or damage to our data, or an inappropriate disclosure of our confidential information or our customer’s
information, it could cause significant damage to our reputation, affect our relationships with our customers, lead to claims against
us and ultimately harm our business. In addition, we may be required to incur significant costs to protect against damage caused
by these disruptions or security breaches in the future. In addition, as the regulatory environment related to information security,
data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable
to our business, compliance with those requirements could result in additional costs. Any future significant compromise or breach
of our data security, whether external or internal, or misuse of customer, associate, supplier or Company data, could result in
significant costs, lost sales, fines, lawsuits, and damage to our reputation.
Our business is exposed to risks inherent in international operations.
We currently conduct operations in various countries and jurisdictions, including locating certain of our manufacturing and
distribution facilities internationally, which subjects us to the legal, political, regulatory and social requirements and economic
conditions in these jurisdictions. International sales and operations subject us to certain risks inherent in doing business abroad,
including exposure to local economic and political conditions, foreign tax consequences, issues with enforcing legal agreements,
currency controls, imposition of tariffs, and preferences of foreign nations for domestically manufactured products. These risks
could have a material adverse effect on our business, results of operation and financial condition.
The 2017 Tax Cuts and Jobs Act (the “Tax Act”) significantly changed the taxation of U.S. based multinational corporations,
including, inter alia, reducing the U.S. federal corporate income tax rate from 35% to 21%, creating new taxes on certain foreign
sourced earnings and a new minimum tax calculated on certain U.S. outbound payments. We have completed our accounting for
the impact of the Tax Act as of December 22, 2018 based on published guidance. We expect that the U.S. Treasury Department,
the Internal Revenue Service (“IRS”), and state tax authorities will be issuing additional guidance on how the provisions of the
Tax Act will be applied or otherwise administered, and such guidance may be different from our current interpretation. The
legislation could be subject to potential amendments and technical corrections, any of which could materially lessen or increase
certain adverse impacts of the legislation. As regulations and guidance evolve with respect to the Tax Act, and as we gather
information and perform more analysis, our results may differ from previous estimates and may materially affect our financial
position. Changes in tax laws or policies by foreign jurisdictions could result in a higher effective tax rate on our worldwide
earnings and such change could have a material adverse effect on our business, results of operations and financial condition.
In addition, the current U.S. administration has created uncertainty about the future relationship between the U.S. and certain of
its trading partners, including with respect to the trade policies, treaties, government regulations and tariffs that could apply to
trade between the U.S. and other nations, including changes to the North American Free Trade Agreement, including the United
States-Mexico-Canada Agreement (the “USMCA”) or otherwise and other international trade agreements. During 2018, the U.S.
administration announced tariffs on certain products imported into the U.S., which has resulted in reciprocal tariffs from other
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countries, including countries where we operate. The tariffs implemented on our products (or on materials, parts or components
we use to manufacture our products) by the U.S. will increase the cost of our products manufactured and imported into the U.S.
Tariffs and other trade restrictions announced by other countries on products manufactured in the U.S. could likewise increase the
costs of those products when imported into other countries. If additional tariffs are implemented on our products (or on materials,
parts or components we use to manufacture our products) by the U.S. or other countries, the cost of our products could increase
further. Additional tariffs, changes in international trade relations or continued uncertainty could depress economic activity and
restrict our access to suppliers or customers and could have a material adverse effect on our business, results of operations and
financial condition.
Our business in China is subject to aggressive competition and is sensitive to economic and market conditions as well as
restrictions placed on foreign automakers.
We operate in the highly competitive automotive supply market in China and face competition from both international and smaller
domestic manufacturers. Maintaining a strong position in the Chinese market is a key component of our global growth strategy.
Our business is sensitive to economic and market conditions that impact automotive sales volumes and growth in China and may
be affected if the pace of growth slows as the Chinese market matures or if there are reductions in vehicle demand in China. We
anticipate that additional competitors, both international and domestic, may seek to enter the Chinese market resulting in increased
competition. Increased competition may result in price reductions, reduced margins and our inability to gain or hold market share.
There have been periods of increased market volatility and moderation in the levels of economic growth in China, which resulted
in periods of lower automotive production growth rates in China than those previously experienced. Furthermore, the Chinese
government has inflated demand for domestic production of electric cars by offering purchase incentives for electric cars and has
restricted foreign automakers from digital mapping within its borders impacting many of our customers’ ability to manufacture
self-driving vehicles within China. Many of our customers are not domestic Chinese companies. If our non-Chinese customers
are prevented or deterred from doing business in China, it could impair our position in the Chinese market. If we are unable to
maintain our position in the Chinese market, the pace of growth slows or vehicle sales in China decrease, our business, results of
operations and financial condition could be materially adversely affected.
We are exposed to exchange rate risks.
We have currency exposures related to buying, selling and financing in currencies other than the local currencies of the countries
in which we operate. We are particularly vulnerable to a strong U.S. dollar as certain raw materials and components are sourced
in U.S. dollars while sales are also currently in other currencies, like the Euro. Our risks include:
• transaction exposure, which arises because the cost of a product originates in one currency and the product is sold in
another currency;
• revaluation effects, which arise from valuation of assets denominated in other currencies than the reporting currency of
each unit;
• translation exposure in the income statement, which arises when the income statements of non-U.S. subsidiaries are
translated into U.S. dollars;
• translation exposure in the balance sheet, which arises when the balance sheets of non-U.S. subsidiaries are translated
into U.S. dollars; and
• changes in the reported U.S. dollar amounts of cash flows.
For example, in 2018 the Company’s gross transaction exposure was approximately $0.7 billion, with a net exposure of $0.6 billion
due to counter-flows. The five largest net transaction exposures were the sale of Euro against Swedish Krona, the purchase of U.S.
Dollars against Swedish Krona, the purchase of U.S. Dollar against Korean Won, the sale of U.S. Dollars against Chinese Renminbi
and the purchase of U.S. Dollar against Euro. Together these currency pairs accounted for approximately 76% of the Company’s
net currency transaction exposure. These exchange rate risks could have a material adverse effect on our business, results of
operations and financial condition.
We face risks in connection with identifying, completing and integrating acquisitions.
Our business’s growth has been enhanced through strategic opportunities, including acquisitions of businesses, products and
technologies, and joint development agreements. We may continue to identify and engage in strategic opportunities in the future.
However, we may not be able to successfully identify suitable acquisition candidates or complete transactions on acceptable terms,
integrate acquired operations into our existing operations or expand into new markets. Our failure to identify suitable strategic
opportunities may restrict our ability to grow our business. These strategic opportunities also involve numerous additional risks
to us and our investors, including risks related to retaining acquired management and employees, difficulties in integrating the
acquired technology, products, operations and personnel with our existing business, assumption of contingent liabilities, and
potentially adverse financial impact of acquisitions. Consequently, there is a risk that the acquisitions and other transactions may
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not result in revenue growth, operational synergies or service or technology enhancements, which could have a material adverse
effect on our business, results of operations and financial condition.
Risks associated with joint venture partnerships and other collaborations may adversely affect our business and financial
results.
Certain of our operations are currently conducted through joint ventures and joint development agreements, and we may enter
into additional joint ventures and collaborations in the future. Our joint ventures and collaborations are generally focused on
opening or expanding opportunities for our technologies and supporting the design and introduction of new products and services
(or enhancing existing products or services). Such activities entail a high degree of risk and often require significant capital
investments. We may underestimate the costs and/or overestimate the benefits, including technology, product, revenue, cost and
other synergies and growth opportunities, that we expect to realize, and we may not achieve those benefits, or may do so later
than expected. The market and customer demand for products and technologies provided by our joint ventures may also shift. For
example, we have begun to see a shift in our customer’s focus to products and systems supporting “Level 2 plus driver assistance”
technologies over systems supporting fully autonomous driving as it appears that fully autonomous vehicles will come to market
in significant numbers later than previously expected. This means that some of the expected sales from technologies provided by
our Zenuity joint venture may come later than previously expected. As a result, we may have to evaluate our strategic and business
plans for, as well as the ongoing funding needs of, Zenuity to account for such delays.
Furthermore, our joint venture partners may be unable or unwilling to meet their economic or other contractual obligations, and
we may in some cases and/or for some time choose to fulfill those obligations alone to ensure the ongoing success of a joint
venture, or we may choose to dissolve and liquidate it. For example, since we acquired a 51% interest in VNBS, we have unilaterally
provided the funds necessary to meet VNBS’s operational needs as Nissin Kogyo has, notwithstanding repeated requests, refused
to provide funding in proportion to its ownership. In 2019, the Company initiated a formal negotiation process under the VNBS
JV Agreement to find a resolution to this situation.
In addition, our joint venture and collaboration partners may at any time have economic, business or legal interests or goals that
are inconsistent with our goals or with the goals of the joint venture. Our products and technologies may from time to time overlap
with certain aspects of the technologies developed with one of our joint venture or collaboration partners which may cause the
parties to consider the impact on the contractual relationship. Depending on our level of control over the governance and/or
operations of a joint venture or collaboration, we may be unable to implement actions with respect to the joint venture’s activities
that we believe are favorable if the joint venture partner does not agree. Disagreements with our business partners may impede
our ability to maximize the benefits of our partnerships. We may have difficulty resolving disputes with or claims against our joint
venture partners, which could lead to us bearing liability for claims that we are not responsible for and may have a material adverse
impact on the joint venture.
The above risks, if realized, could have a material adverse effect on our business, results of operations and financial condition.
We may not be able to respond quickly enough to changes in technology and technological risks and to develop our intellectual
property into commercially viable products.
Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products
obsolete or less attractive to our customers. We currently license certain proprietary technology to third parties and, if such
technology becomes obsolete or less attractive, those licensees could terminate our license agreements, which could adversely
affect our results of operations. Our ability to anticipate changes in technology and regulatory standards and to successfully develop
and introduce new and enhanced products on a timely basis will be a significant factor in our ability to be competitive. There is
a risk that we will not be able to achieve the technological advances that may be necessary for us to be competitive or that certain
of our products will become obsolete. We are also subject to the risks generally associated with new product introductions and
applications, including lack of market acceptance, delays in product development and failure of products to operate properly. As
part of our business strategy, we may from time to time seek to acquire businesses or assets that provide us with additional
intellectual property. We may experience problems integrating acquired technologies into our existing technologies and products,
and such acquired intellectual property may be subject to known or contingent liabilities such as infringement claims. These risks
could have a material adverse effect on our business, results of operations and financial condition.
Our business may be adversely affected by laws or regulations, including international, environmental, occupational health
and safety or other governmental regulations.
We are subject to various federal, state, local and foreign laws and regulations, including those related to the requirements of
environmental, occupational health and safety, financial and other matters. We cannot predict the substance or impact of pending
or future legislation or regulations, or the application thereof. The introduction of new laws or regulations or changes in existing
24
laws or regulations, or the interpretations thereof, could increase the costs of doing business for us or our customers or suppliers
or restrict our actions and adversely affect our operating results, cash flows and financial condition. Our operations are subject to
environmental and safety laws and regulations governing, among other things, emissions to air, discharges to waters and the
generation, handling, storage, transportation, treatment and disposal of waste and other materials. The operation of automotive
parts manufacturing facilities entails risks in these areas, and there is a risk that we will incur material costs or liabilities as a result.
Additionally, environmental laws, regulations, and permits and the enforcement thereof change frequently and have tended to
become increasingly stringent over time, which may necessitate substantial capital expenditures or operating costs or may require
changes of production processes.
Due to our global operations, we are also subject to many laws governing our activities in other countries (including, but not
limited to, the Foreign Corrupt Practices Act, and other anti-bribery regulations in foreign jurisdictions where we do business, and
the U.S. Export Administration Act), which prohibit improper payments to government officials and restrict where and how we
can do business, what information or products we can supply to certain countries and what information we can provide to authorities
in governmental authorities.
There is a risk that our policies and procedures will not protect us from the reckless acts of our employees or representatives,
particularly in the case of recently acquired operations that may not have significant training in applicable compliance policies
and procedures. Any costs, liabilities, and obligations that we incur relating to such regulations could have a material adverse
effect on our business, results of operations and financial condition.
The United Kingdom’s (“U.K.”) referendum to exit from the European Union (“E.U.”) will continue to have uncertain effects
and could have an adverse effect on our business and financial results.
On June 23, 2016, the UK held a referendum in which voters approved an exit from the EU (commonly referred to as “Brexit”).
Current uncertainty over whether the UK will ultimately leave the EU, as well as the final outcome of the negotiations between
the UK and the EU, could have an adverse effect on our business and financial results. The long-term effects of Brexit may include,
among other things, greater restrictions on imports and exports between the UK and EU countries, a fluctuation in currency
exchange rates and additional regulatory complexity. Such changes could be costly and potentially disruptive to our operations
and business relationships in these markets. If we are unable to manage any of these risks effectively, our business could be
adversely affected. Our operations in the UK represented an immaterial part of our business as of December 31, 2018.
Our business may be adversely affected by changes in automotive safety regulations or concerns that drive further regulation
of the automobile safety and autonomous driving markets.
Government vehicle safety regulations are a key driver in our business. Historically, these regulations have imposed ever more
stringent safety regulations for vehicles. Safety regulations have a positive impact on driver awareness and acceptance of active
safety products and technology. These more stringent safety regulations often require vehicles to have more safety content per
vehicle and more advanced safety products, including active safety technology, which has thus been a driver of growth in our
business.
These regulations are subject to change based on a number of factors that are not within our control, including new scientific or
medical data, adverse publicity regarding autonomous vehicles or technology, domestic and foreign political developments or
considerations, and litigation relating to our products and our competitors’ products. Changes in government regulations in response
to these and other considerations could have a severe impact on our business. If government priorities shift and we are unable to
adapt to changing regulations, our business may suffer material adverse effects.
The regulatory obligation of complying with safety regulations could increase as federal and local regulators impose more stringent
compliance and reporting requirements in response to product recalls, safety issues and product innovations in our industry. In
the U.S., we are subject to the existing Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act,
which requires manufacturers to comply with “Early Warning” requirements by reporting to the National Highway Traffic Safety
Administration (“NHTSA”) information related to defects or reports of injury related to their products. TREAD imposes criminal
liability for violating such requirements if a defect subsequently causes death or bodily injury. In addition, the National Traffic
and Motor Vehicle Safety Act authorizes NHTSA to require a manufacturer to recall and repair vehicles that contain safety defects
or fail to comply with federal motor vehicle safety standards. The U.S. Department of Transportation issued regulations in 2016
that require manufacturers of certain autonomous vehicles to provide documentation covering specific topics to regulators, such
as how automated systems detect objects on the road, how information is displayed to drivers, what cybersecurity measures are
in place and the methods used to test the design and validation of autonomous driving systems.
As our technologies advance and develop beyond traditional automotive products, we may be subject to regulatory regimes beyond
traditional vehicle safety rules and requirements. As a result, we may not identify all regulatory licenses or permits required for
25
our products, or our products may operate beyond the scope of the licenses and permits we have obtained. Failing to obtain the
required licenses, permits or other regulatory authorizations could result in investigations, fines or other penalties or proceedings.
If any of the regulatory risks described above materialize, it could have a material adverse effect on our business, results of
operations and financial condition.
Risks Related to the Spin-Off and Our Operation as a Stand-Alone Company
We have a limited history of operating as an independent, stand-alone company, and our historical financial information does
not predict our future results.
Our historical financial information in this Annual Report on Form 10-K up to Spin-Off refers to our business as operated by and
integrated with Autoliv. Our historical financial information included in this Annual Report on Form 10-Kprior to the completion
of the Spin-Off is derived from the consolidated financial statements and accounting records of Autoliv. Accordingly, the historical
financial information included in this Annual Report on Form 10-K prior to the completion of the Spin-Off does not necessarily
reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded
company during the periods presented or those that we will achieve in the future primarily as a result of the factors described
below.
Prior to the Spin-Off, our business was operated by Autoliv as part of its broader corporate organization, rather than as an independent
company. Autoliv or one of its affiliates performed various corporate functions for us, such as legal, accounting, treasury, internal
auditing, and human resources and also provided our IT and other corporate infrastructure. Our historical financial results reflect
allocations of corporate expenses from Autoliv for such functions and are likely to be less than the expenses we would have
incurred had we operated as a separate publicly traded company. As a result of the Spin-Off, we are responsible for the costs related
to such functions previously performed by Autoliv, and such costs have increased. Autoliv is providing some of these functions
to us pursuant to a transition services agreement. See “Spin-Off Related Agreements-Amended and Restated Transition Services
Agreement.” We will need to make investments to replicate or outsource from other providers certain facilities, systems,
infrastructure, and personnel to which we no longer have access as a result of the Spin-Off. These initiatives to develop our
independent ability to operate without access to Autoliv’s existing operational and administrative infrastructure will have a cost
to implement. We may not be able to operate our business efficiently or at comparable costs, and our profitability may decline.
Additionally, prior to the Spin-Off, we shared economies of scale in costs, employees, vendor relationships and customer
relationships with Autoliv. Although we have entered into a transition services agreement with Autoliv for certain services, these
arrangements may not fully capture the benefits that we have enjoyed as a result of being integrated with Autoliv and may result
in us paying higher amounts than in the past for certain products and services. This could have an adverse effect on our results of
operations and financial condition as separate, publicly traded company.
Other significant changes may occur in our cost structure, management, financing and business operations, as compared to the
past financial performance of our business, as a result of operating as a company separate from Autoliv. These risks could,
individually or in the aggregate, have a material adverse effect on our business, results of operations and financial condition.
Our ability to meet our capital needs have materially changed by the loss of financial support from Autoliv and it may be more
difficult for us to obtain capital to fund our business.
The loss of financial support from Autoliv has changed our previous source of capital Autoliv previously provided certain capital
that was needed in excess of the amounts generated by our operating activities. We currently expect to obtain any funds needed
in excess of the amounts contributed by Autoliv in the Spin-Off and generated by our operating activities through the capital
markets, bank financing, strategic relationships or other arrangements, and not from Autoliv. However, given the smaller relative
size of our company, as compared to Autoliv after the Spin-Off, we may incur higher debt servicing and other costs relating to
new indebtedness than we would have otherwise incurred as a part of Autoliv. As a stand-alone company, the cost of our financing
also will depend on other factors such as our performance and financial market conditions generally. Further, we cannot guarantee
you that we will be able to obtain capital market financing or credit on favorable terms, or at all, in the future. We cannot assure
you that our ability to meet our capital needs will not be harmed by the loss of financial support from Autoliv.
We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.
We and Autoliv believe that the tax-free Spin-Off will enhance our long-term value. However, by separating from Autoliv, we
may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of Autoliv.
In addition, we may not be able to achieve some or all of the benefits that we expect to achieve as an independent company in the
time we expect, if at all.
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We may be responsible for U.S. federal income tax liabilities that relate to the distribution.
Autoliv received an opinion from its outside tax counsel to the effect that the distribution of our common stock, together with
certain related transactions, should qualify as a transaction that is tax-free under Sections 368(a)(1)(D) and 355 of the Code. The
opinion was based on and relied on, among other things, certain facts and assumptions, as well as certain representations, statements
and undertakings of Autoliv and the Company, including those relating to the past and future conduct of Autoliv and the Company.
If any of these representations, statements or undertakings are, or become, inaccurate or incomplete, or if Autoliv or the Company
breach any of their respective covenants in the Spin-Off documents, the opinion of counsel may be invalid and the conclusions
reached therein could be jeopardized. Notwithstanding the opinion of counsel, the IRS could determine that the distribution,
together with certain related transactions, should be treated as a taxable transaction if the IRS determines that any of these
representations, assumptions, or undertakings upon which such opinion was based are incorrect or have been violated or if the
IRS disagrees with the conclusions in the opinion of counsel. An opinion of counsel is not binding on the IRS or any court and
there is a risk that the IRS not challenge the conclusions reached in the opinion. The IRS did not provide any opinion in advance
of the Spin-Off that the Spin-Off will be tax-free.
If the distribution, together with certain related transactions, failed to qualify as a transaction that is generally tax-free under
Sections 368(a)(1)(D) and 355 of the Code, Autoliv would recognize taxable gain as if it had sold our common stock in a taxable
sale for its fair market value, Autoliv stockholders who received our common stock in the distribution would be subject to tax as
if they had received a taxable distribution equal to the fair market value of such shares, and we could incur significant liabilities.
In addition, if the Spin-Off is not tax-free, Veoneer would be responsible for tax liabilities as allocated by the Tax Matters Agreement.
Even if the Spin-Off otherwise qualifies as a tax-free transaction for U.S. federal income tax purposes, the distribution will be
taxable to Autoliv if there are (or have been) one or more acquisitions (including issuances) of our stock or the stock of Autoliv,
representing 50% or more, measured by vote or value, of the stock of any such corporation and the acquisition or acquisitions are
deemed to be part of a plan or series of related transactions that include the distribution. Any acquisition of our common stock
within two years before or after the distribution (with exceptions, including public trading by less-than-5% stockholders and certain
compensatory stock issuances) generally will be presumed to be part of such a plan unless that presumption is rebutted. The
resulting tax liability would be substantial, and under U.S. Treasury regulations, each member of the Autoliv group at the time of
the Spin-Off (including us and our subsidiaries) would be severally liable for the resulting U.S. federal income tax liability.
Pursuant to the Tax Matters Agreement, we agreed not to enter into certain transactions that could cause any portion of the Spin-
Off to be taxable to Autoliv, including under Section 355(e) of the Code. We also agreed to indemnify Autoliv for any tax liabilities
resulting from such transactions or other actions we take, and Autoliv agreed to indemnify us for any tax liabilities resulting from
transactions entered into by Autoliv. These obligations may discourage, delay or prevent a change of control of our company,
which could have a materially adverse effect on our business. For additional details, see “Spin-Off Related Agreements, Tax
Matters Agreement.”
Our internal controls around accounting and financial reporting may not be adequate to ensure complete and accurate reporting
of our financial position, results of operations and cash flows.
The Exchange Act requires that we file annual, quarterly and current reports with respect to its business and financial condition.
Under the Sarbanes Oxley Act, we are required to maintain effective disclosure controls and procedures and internal controls over
financial reporting. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our
business, results of operations and financial condition.
We could incur substantial additional costs and experience temporary business interruptions as we install and implement our
information technology infrastructure and transition our data to our own systems.
We have begun to install and implement information technology infrastructure to support certain of our business functions, including
accounting and reporting, manufacturing process control and distribution. We may incur temporary interruptions in business
operations if we cannot fully transition effectively from Autoliv’s existing transactional and operational systems, data centers and
the transition services that support these functions. We may not be successful in implementing our new systems and transitioning
our data, and we may incur substantially higher costs for implementation than currently anticipated. Our failure to avoid operational
interruptions as we implement the new systems and replaces Autoliv’s information technology services, or our failure to implement
the new systems and replace Autoliv’s services successfully, and any substantially higher costs could disrupt our business and
have a material adverse effect on our business, results of operations and financial condition and. In addition, if we are unable to
replicate or transition certain systems, our ability to comply with regulatory requirements could be impaired.
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Autoliv may fail to perform under various agreements that were executed in connection with the Spin-Off and we may have
greater costs or potential liability pursuant to such agreements.
In connection with the internal reorganization and Spin-Off, we and Autoliv entered into a Master Transfer Agreement, Distribution
Agreement and various other agreements, including the Transition Services Agreement, Tax Matters Agreement and an Employee
Matters Agreement. Certain of these agreements provide for the performance of services by each company for the benefit of the
other following the Spin-Off. We are relying on Autoliv to satisfy its performance and payment obligations under these agreements.
If Autoliv is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur
operational difficulties or losses.
Furthermore, these agreements may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated
third parties. To the extent that certain terms of those agreements provide for rights and obligations that could have been procured
from third parties, we may have received better terms from third parties. There is a risk that we may incur greater costs or be
subject to greater potential liability pursuant to our agreements with Autoliv for certain rights and obligations that could have been
procured from unaffiliated third parties. See “Spin-Off Related Agreements.”
Currently, we rely on Autoliv to provide certain corporate and administrative services such as certain information technology,
financial and human resource services. We are in the process of creating our own, or engaging third parties to provide, systems
and services to replace many of the systems and services Autoliv currently provides to us pursuant to the Transition Services
Agreement. If Autoliv is unable or unwilling to provide such services pursuant to the Transition Services Agreement, or if the
agreement is terminated prior to the end of its term, we may be unable to provide such services ourselves or we may have to incur
additional expenditures to obtain such services from another provider.
Potential indemnification liabilities to Autoliv or a refusal of Autoliv to indemnify us pursuant to the Distribution Agreement
could materially adversely affect us.
The transaction documents we entered into with Autoliv in connection with the internal reorganization and the Spin-Off provide
for cross-indemnities that require Autoliv and Veoneer to bear financial responsibility for each company’s business prior to the
internal reorganization or Spin-Off, as applicable, and to indemnify the other party in connection with a breach of such party of
the transaction agreements; provided, however, certain warranty, recall and product liabilities for electronics products manufactured
prior to the completion of the internal reorganization have been retained by Autoliv and Autoliv will indemnify us for any losses
associated with such warranty, recall or product liabilities pursuant to the distribution agreement entered into as part of the Spin-
Off. If we are required to indemnify Autoliv under the circumstances set forth in the transaction documents, we may be subject
to substantial liabilities. In addition, there can be no assurance that the indemnities from Autoliv will be sufficient to protect us
against the full amount of any potential liabilities. Even if we do succeed in recovering from Autoliv any amounts for which we
are held liable, we may be temporarily required to bear these losses ourselves. In addition, each of these risks could have a material
adverse effect on our business, results of operations and financial condition.
We may be unable to take certain actions because such actions could jeopardize the tax-free status of the Spin-Off, and such
restrictions could be significant.
To preserve the tax-free treatment of the Spin-Off, for the initial two-year period following the Spin-Off, we are prohibited, except
in limited circumstances, from taking or failing to take certain actions that would prevent the Spin-Off and related transactions
from being tax-free, including: (1) entering into any transaction pursuant to which our stock would be acquired, whether by merger
or otherwise; (2) issuing any equity securities or securities that could possibly be converted into our equity securities; (3) selling
or otherwise disposing of substantially all of our assets; or (4) repurchasing our equity securities. These restrictions may limit our
ability to issue equity and to pursue strategic transactions or engage in new business or other transactions that may maximize the
value of our business. In addition, if we take, or fail to take, actions that prevent the Spin-Off and related transactions from being
tax-free, we could be liable for the adverse tax consequences resulting from such actions. See “Spin-Off Related Agreements, Tax
Matters Agreement.”
The Spin-Off and related transactions may expose us to potential liabilities arising out of state and federal fraudulent conveyance
laws and legal distribution requirements.
The Spin-Off could be challenged under various state and federal fraudulent conveyance laws. An unpaid creditor or an entity
vested with the power of such creditor (such as a trustee or debtor-in-possession in a bankruptcy) could claim that Autoliv did not
receive fair consideration or reasonably equivalent value in the Spin-Off, and that the Spin-Off left Autoliv insolvent or with
unreasonably small capital or that Autoliv intended or believed it would incur debts beyond its ability to pay such debts as they
mature. If a court were to agree with such a plaintiff, then such court could void the Spin-Off as a fraudulent transfer and could
impose a number of different remedies, including without limitation, returning our assets or your shares in our company to Autoliv
28
or providing Autoliv with a claim for money damages against us in an amount equal to the difference between the consideration
received by Autoliv and the fair market value of our company at the time of the Spin-Off. No assurance can be given as to what
standard a court would apply to determine insolvency or that a court would determine that Autoliv was solvent at the time of or
after giving effect to the Spin-Off, including the distribution of our common stock.
Certain of our officers and directors may have actual or potential conflicts of interest because of their service as executive
officers or directors of Autoliv.
Certain of our directors and officers own Autoliv common stock and equity awards. Even though our board of directors consists
of a majority of directors who are independent, several of our directors continue to have a financial interest in Autoliv common
stock and equity awards. Continuing ownership of Autoliv common stock and equity awards, or service as a director at both
companies could create, or appear to create, potential conflicts of interest for our directors and officers with prior or continuing
positions with Autoliv if we have disagreements with Autoliv about the agreements between us that continue or face decisions
that could have different implications for us and Autoliv.
Risks Related to Investing in Our Securities
Our board of directors may change significant corporate policies without stockholder approval.
Our financing, borrowing and dividend policies and our policies with respect to all other activities, including growth, debt,
capitalization and operations, are determined by our board of directors. These policies may be amended or revised at any time and
from time to time at the discretion of our board of directors without a vote of our stockholders. In addition, our board of directors
may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal
requirements. A change in these policies could have a material adverse effect on our business, results of operations, financial
condition, the per share trading price of our common stock and our ability to satisfy our debt service obligations and to pay
dividends to our stockholders.
Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition attempts
for us that you might consider favorable.
Our certificate of incorporation and bylaws contain provisions that may make the merger or acquisition of the Company more
difficult without the approval of our board of directors. Among other things:
•
although we do not have a stockholder rights plan, our certificate of incorporation allows us to authorize the issuance of
undesignated preferred stock in connection with a stockholder rights plan or otherwise, the terms of which may be
established and the shares of which may be issued without stockholder approval, and which may include super voting,
special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock;
• we have a classified board of directors, and any director may be removed only for cause and only by the affirmative vote
•
•
•
•
of at least 75% of the voting power of all the then-outstanding shares of voting stock;
our board of directors is expressly authorized to make, alter or repeal our bylaws and our stockholders may only amend
our bylaws by the affirmative vote of at least 80% of the voting power of all the then-outstanding shares of voting stock;
our certificate of incorporation and bylaws permits only our board of directors to call special meetings of stockholders;
our certificate of incorporation and bylaws do not permit stockholder action by written consent; and
our bylaws establish advance notice requirements for nominations for elections to our board of directors or for proposing
matters that can be acted upon by stockholders at stockholder meetings.
Further, as a Delaware corporation, we are subject to provisions of Delaware law, which may impair a takeover attempt that our
stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay
or prevent a transaction involving a change in control of the Company, including actions that our stockholders may deem
advantageous, or negatively affect the trading price of our common stock. These provisions could also discourage proxy contests
and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate
actions you desire.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum
for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our current or former directors, officers or stockholders.
Our certificate of incorporation provides that, unless we consent to the selection of an alternative forum, the Court of Chancery
of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf,
(ii) any action asserting a claim of breach of a fiduciary duty owed by any of our stockholders, directors, officers or other employees
29
to us or to our stockholders, (iii) any action asserting a claim arising out of or pursuant to the Delaware General Corporation Law,
(iv) the certificate of incorporation or amended and bylaws, or (v) any action asserting a claim government by the internal affairs
doctrine. At our 2019 annual meeting of stockholders, we intend to ask our stockholders to vote on whether to keep this provision
in our certificate of incorporation. This choice of forum provision may only be amended by the affirmative vote of at least 80%
of the voting power of all the outstanding shares of common stock entitled to vote, which may have the effect of making this
provision difficult to repeal by our stockholders. Any person or entity purchasing or otherwise holding any interest in shares of
our capital stock will be deemed to have notice of, and consented to, the provision in our restated certificate of incorporation
related to choice of forum. This provision may have the effect of discouraging lawsuits against our directors, officers or employees
by limiting our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes.
The market price and trading volume of our common stock may fluctuate widely.
The market price of our common stock may fluctuate significantly, depending upon many factors, some of which may be beyond
our control, including, but not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
a shift in our investor base;
our quarterly or annual earnings, or those of comparable companies;
actual or anticipated fluctuations in our operating results;
our ability to obtain financing as needed;
changes in laws and regulations affecting our business;
changes in accounting standards, policies, guidance, interpretations or principles;
announcements by us or our competitors of significant investments, acquisitions or dispositions;
the failure of securities analysts to cover our common stock;
changes in earnings estimates by securities analysts or our ability to meet those estimates;
the operating performance and stock price of comparable companies;
overall market fluctuations;
a decline in the automotive market; and
general economic conditions and other external factors.
Future issuances of common stock by us may cause the market price of our common stock to decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales could occur,
could substantially decrease the market price of our common stock.
In connection with the Spin-Off, we adopted an equity incentive plan in which our employees, non-employee directors and other
service providers may participate, under which an aggregate of 3,000,000 shares of our common stock are available for future
issuance, plus a number of shares to satisfy equity-based awards that were issued to holders of certain equity awards outstanding
under Autoliv’s Amended and Restated Stock Incentive Plan at the time of the Spin-Off . We filed a registration statement on Form
S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of
our common stock issued pursuant to our equity incentive plan. Accordingly, shares registered under such registration statement
are available for sale in the open market.
Your ownership in our stock may be diluted by additional equity issuances.
Your percentage ownership in our common stock could be diluted in the future as a result of equity issuances for acquisitions,
capital market transactions or otherwise, including any equity awards that we grant to our directors, officers and employees. Such
awards could have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.
In addition, our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes
or series of preferred shares having such designation, powers, preferences and relative, participating, optional and other special
rights as our board of directors generally may determine. The terms of one or more classes or series of preferred shares could
dilute the voting power or reduce the value of our common stock.
We have no current plans to pay cash dividends on our common stock, and certain factors could limit our ability to pay dividends
in the future.
The declaration, amount and payment of any future dividends on shares of common stock will be at the absolute and sole discretion
of our board of directors. Our board of directors may take into account general and economic conditions, our financial condition
and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax
and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us
30
and such other factors as our board of directors may deem relevant. In addition, our ability to pay dividends may be limited by
covenants of indebtedness we or our subsidiaries incur in the future. We have no current plans to pay any cash dividends.
Risks Related to an Investment in our SDRs
Veoneer SDR holders do not have the same rights as our stockholders.
A Veoneer SDR holder does not have equivalent rights as our holders of common stock, whose rights are governed by U.S. federal
law and the Delaware General Corporation Law. The rights of Veoneer SDR holders are set forth and described in to the General
Terms and Conditions for Swedish Depository Receipts in Veoneer (the “General Terms and Conditions”). Although the General
Terms and Conditions generally allow Veoneer SDR holders to vote in general meetings of stockholders or to be entitled to
dividends as if they held our shares of common stock directly, the rights of Veoneer SDR holders differ in some instances from
the rights of Veoneer stockholders. In particular, Veoneer SDR holders do not have the ability to nominate directors for election
or bring proposals before our annual meeting to the extent provided for in our governing documents or by applicable U.S state or
federal law. Additionally, Veoneer SDR holders may not be able to enforce their rights under the General Terms and Conditions
in relation to their SDRs in the same manner as one of our stockholders could with respect to our shares of common stock under
applicable U.S. law.
The trading market for Veoneer SDRs may be limited in the future.
There is a risk that a trading market for Veoneer SDRs will not develop or be sustained in the future. Veoneer SDRs traded in
Stockholm are not equivalent to a Swedish security being traded on Nasdaq Stockholm. Specifically, Veoneer SDRs represent
shares of a U.S. company and are not themselves shares of stock. The lack of an active trading market may make it more difficult
for you to sell your Veoneer SDRs and could lead to the price of Veoneer SDRs being depressed or more volatile.
31
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Veoneer’s principal executive offices are located at Klarabergsviadukten 70, Section C6, SE-111 64, Stockholm, Sweden. Veoneer’s
various businesses operate in a number of production facilities and offices. Veoneer believes that its properties are adequately
maintained and suitable for their intended use and that the Company’s production facilities have adequate capacity for the
Company’s current and foreseeable needs. All of Veoneer’s production facilities and offices are owned or leased by operating
(either subsidiary or joint venture) companies.
As of December 31, 2018, including joint venture operations, we owned or leased 10 manufacturing facilities and 22 technical
centers and several sales and administrative offices. We have a presence in 13 countries. Our global scale enables us to engineer
globally and manufacture locally to serve our global and local customers.
The following tables shows the regional distribution of our manufacturing facilities and technical sites:
VEONEER MANUFACTURING FACILITIES
Location of
Facility
Reporting
Segment(s)
Items Produced at
Facility
Owned/
Leased
Markham
Electronics
Airbag electronics, radar sensors
Leased
Shanghai
Zhongshan
Saint-Etienne du
Rouvray
Electronics
Airbag electronics, radar sensors
Brake Systems
Brake control systems
Owned
Owned
Electronics
Airbag electronics, ADAS ECUs
Owned
Ueda
Brake Systems
Brake control systems
Shimo-Muroga
Saku City
Brake Systems
Brake Systems
Brake control systems
Brake control systems
Vårgårda
Electronics
Airbag electronics, vision cameras
and radar
Goleta, CA
Findlay, OH
Electronics
Brake Systems
Night vision
Brake control systems
Leased
Leased
Leased
Owned
Leased
Leased
Country/ Company
Canada
Veoneer Canada Inc.
China
Veoneer (China) Co., Ltd.
Veoneer Nissin Brake Systems
(Zhongshan) Co., Ltd
France
Veoneer France SAS
Japan
Veoneer Nissin Brake Systems
Japan Co., Ltd.
Sweden
Veoneer Sweden AB
USA
Veoneer US, Inc.
Veoneer Nissin Brake Systems
America, LLC
32
Country / Company
Australia
Veoneer Australia Pty. Ltd.
China
Veoneer China Co., Ltd.
France
Veoneer France SAS
Germany
Veoneer Germany GmbH
India
Veoneer India Private Limited
Japan
Veoneer Japan Ltd.
Veoneer Nissin Brake
Systems Japan Co., Ltd.
Romania
Veoneer Romania S.R.L.
South Korea
Veoneer Korea Ltd.
Sweden
Veoneer Sweden AB
USA
Veoneer US, Inc.
Veoneer Nissin Brake
Systems America, LLC
TECHNICAL CENTERS
Location
Reporting
Segment(s)
Product(s) Supported
Brooklyn
Shanghai
Brake Systems
Brake control systems
Electronics
Customer applications and platform development
with full-scale test laboratory
Cergy-Pontoise
Electronics
Customer applications and platform development
with full-scale test laboratory
Dachau
Niederwern
Holzgerlingen
Bergkirchen
Kitzingen
Electronics
Electronics
Electronics
Electronics
Electronics
Customer applications and platform development
with full-scale test laboratory
Customer applications and platform development
Customer applications and platform development
Customer applications and platform development
Customer application test facility
Bangalore
Electronics
Customer applications and platform development
Hiroshima
Yokohama (Facility 1)
Yokohama (Facility 2)
Tochigi
Electronics
Electronics
Electronics
Brake Systems
Customer applications and platform development
Customer applications and platform development
Customer applications and platform development
Brake control systems
Timisoara
Iasi
Electronics
Electronics
Customer applications and platform development
Customer applications and platform development
Hwaseong-shi
Electronics
Customer applications
Vårgårda
Linköping
Gothenburg
Stockholm
Skellefteå
Electronics
Electronics
Electronics
Electronics
Electronics
Research center
Electronics platform development
Customer applications and platform development
Customer applications and platform development
Customer applications and platform development
Southfield, MI
Electronics
Lowell, MA
Goleta, CA
Southfield, MI
Electronics
Electronics
Electronics
East Liberty, OH
Brake Systems
Brake control systems, electronics customer
application and platform development
Electronics platform development
Night vision development
Brake control systems customer application and
platform development
Brake control systems customer application and
platform development.
Our joint venture, Zenuity, leases technical centers in Munich, Germany, Göteborg, Sweden and Farmington Hills, Michigan,
USA.
33
Item 3. 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.
Certain legal proceedings in which the Company is involved are discussed in Note 16 - "Commitments and Contingencies" of
Part II, Item 8 "Financial Statements and Supplementary Data" and should be considered an integral part of Part I, Item 3 "Legal
Proceedings."
Item 4. Mine Safety Disclosures
Not applicable.
34
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock is traded on the New York Stock Exchange under the trading symbol "VNE" and our Swedish Depository
Receipt ("SDRs") representing shares of our common stock are traded on Nasdaq Stockholm under the trading symbol "VNE
SDB". As of February 15, 2019, the Company had 87,178,772 shares of its common stock, $1.00 par value per share, outstanding,
which were owned by approximately 54,000 beneficial shareholders of record.
Performance Graph
The following graph compares the cumulative total stockholder return from July 2, 2018, through December 31, 2018, for Veoneer's
existing common stock, the S&P 500 Index and the Dow Jones U.S. Auto Parts Index. The graph below assumes that $100 was
invested on July 2, 2018, in each of the Company's common stock, the stocks comprising the S&P 500 Index and the stocks
comprising the Dow Jones U.S. Auto Parts Index, and that all that dividends have been reinvested.
Veoneer, Inc.
S&P 500
Dow Jones U.S. Auto & Parts Index
2 July 2018
$100.00
$100.00
$100.00
28 September 2018
$129.12
31 December 2018
$55.26
$106.87
$92.24
$91.94
$71.67
The above comparisons are required by the Securities and Exchange Commission and are not intended to forecast or be indicative
of possible future performance of the Company's common stock or the referenced indices.
35
Item 6. Selected Financial Data
(DOLLARS IN MILLIONS)
The following statement of operations, statement of cash flows and balance sheet data were derived from the Company's
consolidated financial statements for the years ended December 31, 2018, 2017, 2016, 2015 and 2014. This information should
be read in conjunction with Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations”
and Item 8, “Financial Statements and Supplementary Data” in this Report.
2018
As of and for the Year Ended December 31,
2016
2015
2017
2014
Operating Results:
Net Sales
Operating Income / (loss)1
Net Income / (loss)
Net Income / (loss) attributable to controlling
interest
Capital Expenditures
Depreciation and Amortization
$
$
$
$
$
$
2,228
$
2,322
$
2,218
$
1,589
$
1,489
(197) $
(294) $
(283) $
(344) $
(25) $
(60) $
(276) $
(188) $
(217) $
(110) $
(53) $
(103) $
(8) $
(30) $
(30) $
(53) $
(111) $
(119) $
(106) $
(53) $
30
21
21
(64)
(45)
Financial Position:
Total Assets
Total Debt 2
1 Includes costs for goodwill impairment of $234 million in 2017.
2 Includes related party short-term debt and related party long-term debt as of December 31, 2018, related party long-term debt as of December 31, 2017.
$
(62) $
$
(14) $
$
(15) $
$
— $
2,632
1,663
1,739
1,059
$
$
758
—
36
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following MD&A is intended to help you understand the business operations and financial condition of the Company. This
MD&A is presented in the following sections:
• Executive Overview
• Trends, Uncertainties and Opportunities
• Market Overview
• Non-U.S. GAAP Financial Measures
• Results of Operations
• Liquidity and Capital Resources
• Off-Balance Sheet Arrangements
• 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. Veoneer endeavors to prevent vehicle accidents or reduce the severity
of impact in the event a crash is unavoidable. Through our customer focus, being an expert partner with our customers, we intend
to develop human centric systems that benefit vehicle occupants.
Veoneer’s current product offering includes automotive radars, mono-and stereo-vision cameras, night driving assist systems,
positioning systems, ADAS (advanced driver assist systems) electronic control units, passive safety electronics (airbag control
units and crash sensors), brake control systems and a complete ADAS software offering towards highly automated driving (HAD)
and eventually autonomous driving (AD). In addition, we offer driver monitoring systems, LiDAR sensors, RoadScape positioning
and other technologies critical for HAD and AD solutions by leveraging our partnership network and internally developed
intellectual property.
37
Executive Overview
The environment around us is rapidly changing and we currently see a shift across the automotive and autotech industries. New
technologies, creating new levels of interaction and driver support are starting to revolutionize driving, but we also see the driver
being actively involved for years to come. We call this Collaborative Driving; the industry also calls it “Level 2+” driver support.
At the same time there is also a growing realization that the introduction of truly self-driving cars will likely take longer and be
more expensive than previously anticipated. This fundamental insight opens up new opportunities for companies, including
Veoneer, but it also requires a reprioritization of resources.
In the near term there is also an increased uncertainty regarding the development of global light vehicle production (LVP). During
the fourth quarter of 2018 we saw a sharp decline in the LVP in China and Western Europe and we anticipate that these markets
will continue to show weakness in the first half of this year. We expect the situation to improve in the second half, but we currently
expect a slight decline in the global LVP for the full year 2019.
In response to the larger role in the market for Collaborative Driving, the expected delay of self-driving, and the weaker LVP trend,
we are actively reviewing our investment priorities and the focus of our product portfolio. Our purpose is to identify the most
effective way to allocate talent and capital to meet these new market realities. In December we refined our organization to create
a more agile and focused company, and during 2019 we expect our renewed organization, combined with other initiatives to
gradually start delivering efficiency gains and stronger customer engagement.
We expect the combined effects of a stronger LVP and new program launches in the second half of the year combined with our
own efficiency and prioritization initiatives to start to lead to improved cash-flow in the latter part of the year. Assuming successful
execution of these initiatives, we expect our net cash to cover our funding requirements until the Company reaches positive cash
flow. However, additional funding may be required if order intake increases beyond our expectations, if the underlying near-term
business conditions deteriorate further, or if we make acquisitions.
We build our 2019 plan on a strong base. In 2018, our order intake grew strongly to a record lifetime order value of close to $6
billion. Active Safety orders almost doubled, and we expanded our Active Safety customer base from 9 to 12 car manufacturers.
From a product perspective, I am particularly pleased with the strong market and customer reception of our vision products based
on Veoneer’s internally developed software algorithms and the fact that we won our first major commercial LiDAR order with a
global OEM.
We move forward in 2019 with a strong focus on capturing the opportunities in a new industry situation. By balancing growth,
cost, and effective capital allocation we are building a focused, industry leading product portfolio, all with the objective to make
Veoneer the leading company in our chosen business segments.
2019 Outlook
Looking ahead into 2019 we are planning for a complex business environment. We are responding to light vehicle production
fluctuations and uncertainties even as we prepare for a heavy new program launch schedule beginning in late 2019 and extending
into 2020.
Our current customer call-offs and deliveries reflect a weak demand situation in China and Western Europe, which leads us to
anticipate a decline in LVP during the first six months of 2019. At this time, we expect this demand to stabilize and return to growth
during the second half of the year, resulting in the estimated full year LVP being slightly down in 2019 as compared to 2018.
Our sales during the first half of 2019 are expected to remain relatively flat sequentially from the second half of 2018, albeit a
decline year over year, and then improve sequentially in the second half of 2019. Consequently, we estimate our organic sales will
be flat to decline slightly for the full year 2019 while we estimate the currency translation impact to be approximately (2)% as
compared to 2018.
As a result of our sales and RD&E development, in combination with the implementation of our market adjustment initiatives
during 2019, we expect a weak operating margin and cash flow during the first half of the year. The first quarter in 2019 is expected
to be weaker than the fourth quarter in 2018, with an anticipated improvement during the second half of 2019.
Based on the market opportunities ahead of us, we expect our 2019 order intake to be at least as strong as our performance in
2018.
38
Financial Results
Significant aspects of the Company's financial results for the year ended December 31, 2018, include the following.
Sales - Net sales for the full year of 2018 decreased by $95 million to $2,228 million as compared to 2017.
Gross Profit - The gross profit of $430 million for the full year of 2018 was $36 million lower as compared to 2017. The
volume and product mix effect causing the lower organic sales was partially offset by a net favorable currency benefit of
around $10 million.
Operating Loss - The operating loss of $197 million for the full year of 2018 decreased by $86 million as compared to 2017,
including a net favorable currency benefit of $4 million. In 2017 the operating loss included a goodwill impairment charge
related to VNBS of $234 million.
Net Loss - The net loss for the full year of 2018 of $294 million decreased by $50 million as compared to 2017. In addition to the
operating loss impact, the Veoneer net loss from Zenuity increased by $32 million. The Zenuity net loss increase is mainly due to
the higher net cost run-rate related to the hiring of software engineers and an additional quarter of cost in 2018, since the JV was
formed in April 2017.
Interest income net increased by $6 million as compared to 2017. Income tax expense for 2018 was $42 million as compared to
$30 million in 2017. The change in tax expense was primarily impacted by the change in mix of pre-tax earnings in our profitable
subsidiaries and a non-cash, one-time discrete tax item of $23 million in 2018.
The non-controlling interest loss in the VNBS JV was $19 million for 2018 as compared to $127 million loss in 2017 which
included the goodwill impairment charge of $113 million.
The pie charts below highlight the sales breakdown for Veoneer for the year ended December 31, 2018.
39
Trends, Uncertainties and Opportunities
Europe continues to take a pro-active 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. On May 17, 2018, the European Commission
proposed a new mandate, as party of the EU general Safety Regulation road-map till 2028 to make certain active safety features
compulsory in light vehicles by 2022. Such a mandate should significantly expand demand for our active safety products. If passed
as proposed, certain safety features could be mandated in 2022 as new vehicle models are introduced to the European market. In
any case, General Safety Regulation (GSR) would have a positive influence on other market regulators as they evaluate their
respective vehicle test rating programs and safety legislations.
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 (CNAP) where active safety features like Autonomous Emergency Braking (AEB) are required to achieve
the maximum safety rating.
In 2017 a consortium of Original Equipment Manufacturers (OEM's) in the United States voluntarily agreed to make AEB standard
equipment on all new vehicles produced no later than 2023.
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 Advanced Driver Assistance Systems (ADAS) and Highly
Automated Driving (HAD) on the road towards Autonomous Vehicles.
The UN ECE created the new Working Party to deal with regulations for Automated Vehicles (GRVA). In addition to the EU and
Japan who started to work closely for ADAS regulations in the last 3 years, the U.S. and China 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 working fields for regulations are expected for (i) safety critical ADAS-features (e.g. AEB); (ii) Highway AV-features
(Physical Tests + Real World Test Drive + Audit); (iii) Cybersecurity & SW-Updates; and (iv) Connected Vehicles. On one hand,
the agreement on minimal common base requirements will take longer time and therefore may postpone introduction of regulations.
On the other hand, the harmonization 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,
as of January 17, 2019)
Full Year 2018
China
25.7
Change vs. 2017
(3.5)%
Light Vehicle Production by Region - 2018
Japan
Rest of Asia
Americas
Europe
9.1
0.3%
13.1
3.4%
19.1
—%
21.9
(1.3)%
Other
2.5
(2.2)%
Total
91.3
(0.9)%
During 2018 the global light vehicle production decreased by around 1% as compared to 2017 mainly due to the production
declines in Western Europe (4%), partially attributable to the introduction of the Worldwide Harmonized Light Vehicle Procedure
("WLTP"), China (4%), likely attributable to weaker consumer demand and record volumes in 2017 when tax incentive on 1.6
liter vehicles were in place, along with South Korea (2%) likely attributable to fewer NAFTA exports due to production localization.
Light vehicle demand in Japan and the Americas remained relatively flat, where South America increased 3% and North America
declined slightly (1)% while India, included in Rest of Asia, increased 7% during the year as compared with 2017.
40
Millions (except where specified,
as of January 17, 2019)
Full Year 2017
Change vs. 2016
Light Vehicle Production by Region - 2017
China
26.6
2.3%
Japan
Rest of Asia
Americas
Europe
9.0
5.6%
12.6
1.1%
19.1
(1.4)%
22.2
3.3%
Other
2.6
13.7%
Total
92.2
2.2%
During 2017 the global light vehicle production increased by around 2% as compared to 2016 mainly due to the production
declines in Western Europe (1%), North America (5%) and South Korea (3%) which was more than offset by increases in China
of 2%, partially attributable to the tax incentive on 1.6 liter vehicles which were still in place in 2017, along with South America,
Japan, Eastern Europe and India all with increases of 20%, 6%, 9% and 7%, respectively.
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 65% of sales, a
significant amount of sales, in currencies other than in U.S. dollars (its reporting currency) and currency rates have been and can
be rather volatile. Additionally, the Company has historically made several acquisitions and divestitures. Organic sales and organic
sales growth presents the increase or decrease in the overall U.S. dollar net sales on a comparable basis, allowing separate discussions
of the impact of acquisitions/divestitures and exchange rates on the Company’s performance. The tables in this report present
reconciliation of changes in the total U.S. GAAP net sales changes in organic sales growth.
For any forward-looking statements contained in this report 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.
The Company also 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. 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 also 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) less current liabilities. Management uses this measure to improve its ability to assess liquidity
at a point in time. The table below provides a reconciliation of current assets and liabilities to net working capital.
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. It should be noted that these measures, as defined, may not be comparable to similarly
titled measures used by other companies.
The forward looking non-U.S. GAAP financial measure used in this report is provided on a non-U.S. GAAP basis. Veoneer has
not provided a U.S. GAAP reconciliation of this measure because items that impact this measure, such as foreign currency exchange
rates, cannot be reasonably predicted or determined. As a result, such reconciliation is not available without unreasonable efforts
and Veoneer is unable to determine the probable significance of the unavailable information.
41
Results of Operations
Fiscal Year 2018 compared to 2017
The following tables show Veoneer’s performance by segment for the year ended December 31, 2018 and 2017 along with
components of change compared to the prior year.
Electronics Segment
Dollars in millions,
(except where specified)
Year Ended December 31
Components of Change vs. Prior Year
2018
2017
U.S. GAAP Reported
Currency
Organic1
$
%
$
%
Chg. $
Chg. %
$
%
$
%
Net Sales
$ 1,799
$ 1,850
$
$ (116)
Operating Loss / Margin
EBITDA1 / %
Associates
1 Non-U.S. GAAP measure reconciliation for Organic Sales and EBITDA
(6.4)% $
(2.4)% $
7,105
5,898
(43)
(14)
67
$
(0.7)% $
3.6 % $
(3)% $
17
1%
(68)
(4)%
(51)
(102)
(110)
1,207
Sales - Net sales in the Electronics segment for the full year of 2018 decreased by $51 million to $1,799 million as compared to
2017. The difference was attributable to organic sales decline in Restraint Control Systems of approximately $120 million which
was partially offset by Active Safety organic sales growth of around $52 million.
The quantities delivered for the full year 2018 were 18.7 million and 10 million units for Restraint Controls Systems and Active
Safety, respectively.
Operating Loss - The operating loss in the Electronics segment increased by $102 million to $116 million for the full year of 2018
as compared to 2017. The increase is mainly due to the volume and product mix effect causing the lower organic sales and a
planned increase in RD&E costs to support future sales growth.
EBITDA - For the full year of 2018 the Electronics segment EBITDA of negative $43 million declined by $110 million as compared
to 2017, which was partially offset by lower amortization of intangibles, mainly related to the effects of the MACOM acquisition.
Associates - The number of associates in the Electronics segment increased by approximately 1,207 since December 31, 2017 to
7,105 mainly due to increases in RD&E to support future organic sales growth and current development programs.
Brake Systems Segment
Year Ended December 31, 2018
Components of Change vs. Prior Year
Dollars in millions,
(except where specified)
2018
2017
U.S. GAAP Reported
Currency
Organic1
$
%
$
%
Chg. $
Chg. %
$
%
$
%
Net Sales
$
428
$
476
$
(48)
(10)% $
7
1% $
(55)
(11)%
$
Operating Loss / Margin
EBITDA1/ %
Associates
1 Non-U.S. GAAP measure reconciliation for Organic Sales and EBITDA
(7.1)% $
1.7 % $
1,452
1,586
(247)
(210)
(30)
$
7
(51.9)% $
(44.2)% $
217
217
(134)
Sales - The net sales of $428 million in the Brake Systems segment for the full year of 2018 decreased by $48 million as compared
to 2017. The decline was mainly attributable to lower volumes on certain Honda models, primarily in North America and lower
LVP in China which was partially offset by higher volumes in Japan.
The quantity delivered for the full year 2018 was 1.9 million units for the Brake Systems segment.
Operating Loss - The operating loss in the Brake Systems segment decreased by $217 million to $30 million for the full year of
2018 as compared to 2017 which included the goodwill impairment charge of $234 million. In addition, the volume and product
mix effect causing the lower organic sales was partially offset by reduced overhead costs.
EBITDA - For the full year of 2018, the Brake Systems segment EBITDA of $7 million increased by $217 million as compared
to 2017. This was mainly due to the goodwill impairment charge in 2017 of $234 million, which was partially offset by an increase
in underlying operating loss.
Associates - The number of associates in the Brake Systems segment declined by 134 since December 31, 2017 to 1,452 mainly
due to the reductions in direct manufacturing as well as production overhead and SG&A due to the decline in organic sales.
42
Corporate and Other
Dollars in millions,
(except where specified)
Net Sales
Operating Loss / Margin
Segment EBITDA1 / Margin
Associates
1 Non-U.S. GAAP measure reconciliation for EBITDA
Year Ended December 31
2018
2017
U.S. GAAP Reported
$
%
$
%
Chg. $
Chg.%
$
$
$
$
—
(51)
(51)
43
$
—% $
—% $
$
—
(22)
(21)
—
$
—% $
—% $
$
—
(29)
(29)
43
—%
Operating Loss and EBITDA - The operating loss and EBITDA for Corporate and other for the full year of 2018 increased to $51
million from $22 million and $21 million, respectively, as compared to 2017 mainly due to the additional costs associated with
being a standalone listed company.
Associates - The number of associates in Corporate and other increased to 43 as compared to December 31, 2017 mainly related
to the hiring of additional personnel for being a standalone listed company.
The associate and financial figures are not comparable since the 2017 financial reports are based on carve-out basis accounting
rules.
Net Sales by Product
The following tables show Veoneer’s consolidated net sales by product for the year ended December 31, 2018 and 2017 along
with components of change compared to the prior year.
Consolidated Net Sales
Year Ended December 31
Components of Change vs. Prior Year
Dollars in millions,
(except where specified)
Restraint Control Systems
Active Safety
Brake Systems
2018
$
$
$
$
974
825
428
$
$
$
Total
1 Non-U.S. GAAP measure reconciliation for Organic Sales
2,228
$
$
2017
U.S. GAAP Reported
Currency
Organic1
$
Chg. $
Chg. %
$
%
$
%
1,073
777
473
2,322
$
$
$
$
(99)
48
(45)
(95)
(9)% $
6 % $
(9)% $
(4)% $
21
(4)
7
24
2 % $
(120)
(1)% $
1 % $
1 % $
52
(51)
(119)
(11)%
7 %
(11)%
(5)%
Sales - Net sales for the full year of 2018 decreased by $95 million to $2,228 million as compared to 2017.
The organic sales decline of 5% was partially offset by positive currency translation effects of 1%. The sales decline in Restraint
Control Systems and Brake Systems, was mitigated by the Active Safety organic sales growth. We expect the sales trend in all
three product areas to rebound starting in the latter part of 2019 and increasing in 2020.
Restraint Control Systems - Net sales of $974 million for the full year of 2018 declined by 9% as compared to 2017. The 11%
organic sales decline was mainly driven by the phase-out of certain models in North America and lower LVP in China and Western
Europe in the second half of 2018.
Active Safety - Net sales of $825 million for the full year of 2018 increased by 6% as compared to 2017 due to an increase in
organic sales of 7%.
Strong demand for vision systems and ADAS ECUs on multiple models accounted for most of the organic sales growth together
with night vision systems to PSA and Audi. This strong growth was partially offset by the continued ramp-down of current GPS
business with Ford and an underlying weaker LVP environment, particularly in Western Europe.
Brake Systems - Net sales of $428 million for the full year of 2018 decreased by 9% as compared to 2017, mainly due to an organic
sales decline of 11%, mostly due to lower volumes on certain Honda vehicle models, primarily in North America, and lower LVP
in China.
43
Veoneer Performance
The following table shows Veoneer’s performance for the year ended December 31, 2018 and 2017 along with components of
change compared to the prior year.
Income Statement
Dollars in millions,
(except per share data)
Net sales
Cost of sales
Gross profit
Selling, general & administrative expenses
Research, development & engineering expenses, net
Goodwill impairment charges
Amortization of intangibles
Other income
Operating loss
Loss from equity method investments
Interest income
Interest (expense)
Other non-operating items, net
Loss before income taxes
Income tax expense
Net loss1
Less: Net loss attributable to non-controlling interest
Year Ended December 31
2018 3
2017 3
$
%
$
%
Change
$
$
$
$
$
2,228
(1,798)
430
(156)
(466)
—
(23)
18
(197)
(63)
7
(1)
—
(253)
(42)
(294)
(19)
$
(80.7 )%
19.3 % $
(7.0 )%
(20.9 )%
—
(1.0 )%
0.8 %
(8.8)% $
(2.8 )%
0.3 %
— %
— %
(11.4)% $
(1.9 )%
(13.2)% $
(0.9 )%
2,322
(1,857)
466
(110)
(375)
(234)
(37)
8
(283)
(31)
1
—
(1)
(314)
(30)
(344)
(127)
$
(79.9 )%
20.1 % $
(4.7 )%
(16.2 )%
(10.1 )%
(1.6 )%
0.3 %
(12.2)% $
(1.3 )%
— %
— %
— %
(13.5)% $
(1.3 )%
(14.8)% $
(5.5 )%
(95)
59
(36)
(46)
(91)
234
14
10
86
(32)
6
(1)
1
61
(12)
50
108
Net loss attributable to controlling interest
Net loss per share – basic2
Weighted average number of shares outstanding in millions2
1 Including Corporate and other sales.
2 Basic number of shares used to compute net loss per share. Participating share awards with right to receive dividend equivalents are (under the two class method)
(12.4)% $
(9.3)% $
(3.17)
(2.49)
(0.68)
87.13
87.16
(276)
(217)
0.03
(59)
$
$
$
$
excluded from EPS calculation.
3 2017 and first half of 2018 are according to Carve-out reporting from Autoliv Spin-Off of Veoneer.
Gross Profit - The gross profit of $430 million for the full year of 2018 was $36 million lower as compared to 2017. The volume
and product mix effect causing the lower organic sales was partially offset by a net favorable currency benefit of around $10
million.
Operating Loss - The operating loss of $197 million for the full year of 2018 decreased by $86 million as compared to 2017,
including a net favorable currency benefit of $4 million. In 2017 the operating loss included a goodwill impairment charge related
to VNBS of $234 million.
The planned increase in RD&E investments of $91 million, mainly related to the increase in engineers for future sales growth and
current development programs, as well as $46 million higher SG&A, mainly resulting from the additional costs associated with
being a standalone listed company, accounted for most of the change as compared to 2017.
These effects were partially offset by a decrease of $14 million in the amortization of intangibles related to historical acquisitions,
and a $10 million increase in other income, both as compared to 2017.
Net Loss - The net loss for the full year of 2018 of $294 million decreased by $50 million as compared to 2017. In addition to the
operating loss impact, the Veoneer net loss from Zenuity increased by $32 million. The Zenuity net loss increase is mainly due to
the higher net cost run-rate related to the hiring of software engineers and an additional quarter of cost in 2018, since the JV was
formed in April 2017. Interest income net increased by $6 million as compared to 2017. Income tax expense for 2018 was $42
million as compared to $30 million in 2017. The change in tax expense was primarily impacted by the change in mix of pre-tax
earnings in our profitable subsidiaries and a non-cash, one-time discrete tax item of $23 million in 2018. The non-controlling
interest loss in the VNBS JV was $19 million for 2018 as compared to $127 million loss in 2017 which included the goodwill
impairment charge of $113 million.
44
Loss per Share - The loss per share for the full year of 2018 increased to $3.17 as compared to a loss of $2.49 per share in 2017
due to the increased net loss. The share count was virtually unchanged.
Reconciliations of U.S. GAAP to non U.S. GAAP
Dollars in millions
Net Loss to EBITDA
Net Loss
Depreciation and amortization
Loss from equity method investment
Interest and other non-operating items, net
Income tax
EBITDA
Dollars in millions
Segment EBITDA to EBITDA
Electronics
Brake Systems
Segment EBITDA
Corporate and other
EBITDA
Dollars in millions
Working Capital to Net Working Capital
Total current assets
Total current liabilities
Working capital
Cash and cash equivalents
Net working capital
Year Ended December 31
2018
2017
(294) $
111
63
(7)
42
(344)
119
31
1
30
(87) $
(164)
Year Ended December 31
2018
2017
(43) $
7
(36)
(51)
(87) $
67
(210)
(143)
(21)
(164)
Year Ended December 31
2018
2017
1,543
636
907
(864)
42
$
$
$
649
590
59
—
59
$
$
$
$
$
$
$
45
Results of Operations
Full Year 2017 compared with 2016
The following tables show Veoneer’s performance by segment for the year ended 2017 and 2016 along with components of change.
Electronics Segment
Year Ended December 31
Components of Change vs. Prior Year
2016
U.S. GAAP
Reported
Currency
Acquisitions /
Divestitures
%
$
%
Chg. $ Chg.%
$
%
$
%
Organic1
%
$
Dollars in millions,
(except where specified)
Net Sales
$ 1,850
$
2017
$1,837
$
$
(14)
Operating Loss / Margin
EBITDA1/%
Associates
5,898
1 Non-U.S. GAAP measure reconciliation for Organic Sales and EBITDA
(0.7)% $
3.6 % $
5,045
81
67
11
$
0.6% $
4.4% $
1% $
4
—% $ — —% $
11
1%
14
(25)
(14)
853
Net Sales - The net sales in the Electronics segment for the full year 2017 increased by $14 million to $1,850 million as compared
to 2016. The difference was attributable to organic sales1 increase in Active Safety of approximately $38 million and favorable
currency translation effects of around $4 million was partially offset by a decline in Restraint Controls Systems organic sales
growth of around $27 million.
The quantities delivered for the full year 2017 were approximately 20 million and 10 million for Restraint Controls Systems and
Active Safety, respectively.
Operating Loss - The operating loss in the Electronics segment increased by $25 million to $14 million for 2017 as compared to
2016. The increase is mainly due to the planned increase in RD&E costs to support future sales growth.
EBITDA1 - The Electronics segment EBITDA of $67 million in 2017 declined by $14 million as compared to 2016. In addition
to the increased operating loss, amortization of intangibles declined mainly related to the effects of the MACOM acquisition.
Associates - The number of associates in the Electronics segment increased by approximately 853 since December 31, 2016 to
5,898 mainly due to increases in RD&E to support future organic sales growth and current development programs.
Brake Systems Segment
Year Ended December 31
Components of Change vs. Prior Year
Dollars in millions,
(except where specified)
Net Sales
$ 476
$
2017
2016
U.S. GAAP
Reported
Currency
Acquisitions
/ Divestitures
%
$
%
Chg. $
Chg.%
$
%
$
%
Organic1
%
$
$ 391
$
85
22% $
(7)
(2)% $ 121
31% $ (29)
(7)%
$ (247)
Operating Loss / Margin
EBITDA1/%
Associates
1 Non-U.S. GAAP measure reconciliation for Organic Sales and EBITDA
(51.9)% $ (12)
(44.2)% $
$ (210)
1,586
1,733
24
(3.1)% $
6.0 % $
(235)
(234)
(147)
Net Sales - The net sales of $476 million in the Brake Systems segment for the full year 2017 increased by $85 million as compared
to 2016. The increase was mainly attributable to the additional quarter of sales in 2017 since the joint venture was formed in April
2016 which was partially offset by lower volumes on certain Honda models, primarily in North America which was partially offset
by higher volumes in Japan.
The quantities delivered for the full year 2017 were 2 million for Brake Systems.
Operating Loss - The operating loss in the Brake Systems segment decreased by $235 million to $247 million in 2017 as compared
to 2016. This is mainly due to the volume and product mix impact due to lower organic sales and slight increase in RD&E costs
to support sales growth which was more than offset by reduced overhead costs and the goodwill impairment charge of $234 million
in 2017.
EBITDA1 - For 2017, the Brake Systems segment EBITDA of $(210) million decreased by $234 million compared to 2016.
Associates - The number of associates in the Brake Systems segment declined by 147 since December 31, 2016 to 1,586 mainly
due to the reductions in direct manufacturing as well as production overhead and SG&A due to the sales decline.
46
Corporate and Other
Dollars in millions,
(except where specified)
Net Sales
Operating Loss / Margin
Segment EBITDA 1/ Margin
Associates
1 Non-U.S. GAAP measure reconciliation for EBITDA
Year Ended December 31
2017
2016
U.S. GAAP Reported
$
%
$
%
Chg. $
Chg.%
$
$
$
—
(22)
(21)
—
$
—% $
—% $
—
(24)
(24)
—
$
—% $
—% $
—
2
2
—
—%
Operating Loss - The operating loss and EBITDA1 for Corporate and other for 2017 decreased to negative $22 million and $21
million, respectively, from negative $24 million as compared to 2016 mainly resulting from lower SG&A which is tied to the
carve-out basis rules of reporting Veoneer related to the Spin-Off from Autoliv.
Associates - There were no associates in Corporate and other during 2017 and 2016. The associate and financial figures are not
comparable since the financial results are based on carve-out basis accounting rules.
Net Sales by Product
The following tables show Veoneer’s consolidated net sales by product for the year ended December 31, 2017 and 2016 along
with components of change compared to the prior year.
Consolidated Net Sales
Year Ended December 31
Components of Change vs. Prior Year
Dollars in millions,
(except where specified)
Restraint Control Systems
Active Safety
Brake Systems
2017
2016
U.S. GAAP
Reported
Currency
Acquisitions/
Divestitures
Organic1
$
$
Chg. $ Chg. %
$
%
$
%
$
%
$ 1,073
$ 1,097
$
$
777
473
$
$
739
383
$
$
$
$
(24)
(2)% $
3
— % $ —
—% $
(27)
38
90
104
5 % $ —
— % $ —
23 % $
5 % $
(7)
(3)
(2)% $
— % $
121
121
—% $
31% $
5% $
38
(24)
(13)
(3)%
5 %
(6)%
(1)%
Total
$ 2,218
1 Non-U.S. GAAP measure reconciliation for Organic Sales
$ 2,322
Sales - Net sales for 2017 increased by 5% to $2,322 million as compared to 2016. The organic sales1 decline of 1% was more
than offset by acquisition effects of the VNBS joint venture of 5% or $121 million as the currency translation effects were negligible.
Restraint Control Systems - Restraint Control Systems sales declined by 2% in 2017 as compared to 2016. The decrease in organic
sales of 3% or $27 million was mainly driven by declines in North America, Japan and South Korea which were partially mitigated
by increase in China and India.
Active Safety - Active Safety sales increased by 5% or $38 million as compared to 2016, driven essentially by an increase in
organic sales. The Active Safety growth was positively impacted by double digit organic sales in core active safety products
(including radars, cameras including night driving assist and ADAS ECU's). However, this growth was negatively impacted by
sales declines for positioning systems in North America as well as the ramp-down in our internally developed brake systems in
China.
Brake Systems - Brake Systems sales increased by 23% in 2017 as compared to 2016. This positive change was mainly driven by
the full year operations impact of $121 million in the VNBS joint venture which was formed on April 1, 2016. The organic sales
decline of 6% or $24 million was mainly attributable to product changes on certain vehicle models where Honda did not retain
VNBS as the incumbent.
47
Veoneer Performance
The following table shows Veoneer’s performance for the year ended December 31, 2017 and 2016 along with components of
change compared to the prior year.
Income Statement
Dollars in thousands,
(except per share data)
Net sales
Cost of sales
Gross profit
Selling, general & administrative expenses
Research, development & engineering expenses, net
Goodwill impairment charges
Amortization of intangibles
Other income
Operating loss
Loss from equity method investments
Interest income
Interest (expense)
Other non-operating items, net
Loss before income taxes
Income tax expense
Net loss1
Less: Net loss attributable to non-controlling interest
Year Ended December 31
2017 3
2016 3
$
%
$
%
Change
$
$
$
$
$
2,322
(1,857)
466
(110)
(375)
(234)
(37)
8
(283)
(31)
1
—
(1)
(314)
(30)
(344)
(127)
$
(80.0 )%
20.0 % $
(4.7 )%
(16.1 )%
(10.1 )%
(1.6 )%
0.3 %
(12.2)% $
(1.3 )%
— %
— %
— %
(13.5)% $
(1.4 )%
(14.8)% $
(5.5 )%
2,218
(1,795)
423
(110)
(300)
—
(35)
(4)
(25)
—
—
—
3
(22)
(38)
(60)
(7)
$
(80.9 )%
19.1 % $
(5.0 )%
(13.5 )%
— %
(1.6 )%
(0.2 )%
(1.1)% $
— %
— %
— %
— %
(1.0)% $
(1.7 )%
(2.7)% $
(0.3 )%
104
(62)
43
—
(75)
(234)
(2)
12
(258)
(31)
1
—
(4)
(292)
8
(284)
(120)
Net loss attributable to controlling interest
Net loss per share – basic2
Weighted average number of shares outstanding in millions2
1 Including Corporate and other sales.
2 Basic number of shares used to compute net loss per share. Participating share awards with right to receive dividend equivalents are (under the two-class method)
(164)
(1.88)
0.00
(2.4)% $
$
(9.0)% $
(0.61)
(2.49)
87.13
87.13
(217)
(53)
$
$
$
excluded from EPS calculation.
3 2016 and 2017 are according to Carve-out reporting from Autoliv Spin-Off of Veoneer.
Gross Profit - The gross profit for the full year 2017 increased by $43 million to $466 million as compared to 2016. This increase
was primarily driven by the sales increase in Active Safety and the VNBS joint venture. In addition, lower material costs were
partly offset by higher costs related to investments for capacity and growth.
Operating Loss - The operating loss of $283 million for 2017 increased by $258 million as compared to 2016, mainly due to the
goodwill impairment charge of $234 million in 2017 due to lower than originally anticipated sales development in the VNBS joint
venture.
In addition, planned higher RD&E investments of $75 million, in engineering resources to support future growth as illustrated by
our strong order intake, more than offset the improvement in gross profit while SG&A remained relatively unchanged as compared
to 2016.
The $12 million decrease in other income (expense), net was primarily impacted by a reduction of the contingent liability
consideration related to the MACOM acquisition.
Net Loss - In addition to the operating loss effect, the Zenuity joint venture cost increased $31 million in 2017 as compared to
2016 since the joint venture was created in April 2017.
The income tax expense decrease of $8 million in 2017 as compared to 2016 was primarily due to a reduction in the earnings of
our profitable non-US subsidiaries and an increase in tax credits. The increase in the non-controlling interest loss in the VNBS
JV of $120 million was mainly due the goodwill impairment charge in 2017.
Loss per Share - The loss per share for 2017 increased to $2.49 as compared to a loss of $0.61 per share in 2016 due to the increased
net loss, mainly related to the goodwill impairment charge in the VNBS joint venture, as the share count was virtually unchanged.
48
Reconciliations of U.S. GAAP to non U.S. GAAP
Dollars in millions
Net Loss to EBITDA
Net Loss
Depreciation and amortization
Loss from equity method investment
Interest and other non-operating items, net
Income tax
EBITDA
Dollars in millions
Segment EBITDA
Electronics
Brake Systems
Segment EBITDA
Corporate and other
EBITDA
Dollars in millions
Working Capital to Net Working Capital
Total current assets
Total current liabilities
Working capital
Cash and cash equivalents
Net working capital
Liquidity and Capital Resources
Liquidity
Year Ended December 31
2017
2016
(344) $
119
31
1
30
(164) $
(60)
105
—
(3)
38
80
Year Ended December 31
2017
2016
67
$
(210)
(143) $
(21)
(164) $
81
24
104
(24)
80
Year Ended December 31
2017
2016
649
590
59
—
59
$
$
$
649
576
73
—
73
$
$
$
$
$
$
$
$
As of December 31, 2018, the Company had cash and cash equivalents of $864 million and short-term investments of $5 million
which will be primarily use for ongoing working capital requirements, capital expenditures and investments in joint ventures
particularly Zenuity.
We expect the combined effects of a stronger LVP and new program launches in the second half of the year combined with our
own efficiency and prioritization initiatives to start to lead to improved cash-flow in the latter part of the year. Assuming successful
execution of these initiatives, we expect our net cash to cover our funding requirements until the Company reaches positive cash
flow. However, additional funding may be required if order intake increases beyond our expectations, if the underlying near-term
business conditions deteriorate further, or if we make acquisitions.
During the year ended December 31, 2017, the Company entered an unconditional purchase obligation whereof the outstanding
balance as of December 31, 2018 is $10 million which will be paid in 2019. The amount will be reimbursed by Zenuity. In addition,
the Company has a holdback of $2 million related to the Fotonic acquisition to be paid in 2019. See Note 4, Business Combinations,
to the consolidated financial statements included herein. The Company has no other 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.
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
December 31, 2018, Veoneer contributed a total of approximately $8 million to the fund. The initial term of the fund is set to
expire on December 31, 2025. This fund focuses broadly on the automotive industry and complements the Company’s innovation
strategy, particularly in the areas of active safety and autonomous driving. Under the limited partnership agreement, the general
partner has the sole and exclusive right to manage, control and conduct the affairs of the fund.
49
Cash Flow
Dollars in millions
Selected cash flow items
Net working capital1
Net cash provided by operating activities
Capital expenditures
Equity method investment
Net Cash Used in investing activities
Net Cash Provided by financing activities
1 Non-U.S. GAAP measure see reconciliation for Net Working Capital
Year Ended December 31
2017
$
2016
$
2018
$
$
$
$
$
$
$
42
$
(179) $
(188) $
(71) $
(185) $
$
1,226
59
$
(1) $
(110) $
— $
(230) $
$
232
73
(7)
(103)
—
(335)
343
Net Working Capital1 - The net working capital of $42 million as of December 31, 2018 was a decrease of $17 million and $31
million as compared with 2017 and 2016, respectively. These decreases were mainly due to favorable timing effects in working
capital.
Net Cash Used in Operating Activities - Net cash used in operating activities of $179 million for the year ended December 31,
2018 increased by $178 million and $172 million as compared with 2017 and 2016, respectively, due to change in net loss and
timing effects in working capital.
Net Cash Used in Investing Activities - Net cash used in investing activities of $185 million for the year ended December 31, 2018
was $45 million lower and $150 million lower as compared with 2017 and 2016, respectively, mainly due to higher capital
expenditures, which was more than offset by lower affiliate investments and acquisitions.
Net Cash Provided by Financing Activities - Net cash provided by financing activities for the year ended December 31, 2018
includes the net capital contribution from Autoliv at the Distribution Date.
Capital Expenditures - Capital expenditures during the year ended December 31, 2018 of $188 million, around 8% of sales, was
$78 million and $85 million higher as compared with 2017 and 2016, respectively. This level as a percentage of sales in 2018 was
in line with the full year expectation.
Associates
Total Associates
Whereof:
Direct Manufacturing
R,D&E
Temporary
Year Ended December 31
2017
2016
2018
8,600
2,083
4,676
1,329
7,484
2,232
3,576
1,151
6,778
2,279
2,775
1,046
Associates - The number of associates increased to 8,600 in 2018 by 1,116 compared to 2017, mainly due to the hiring of
approximately 1,100 engineers to support our future sales growth and current development programs.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
50
Contractual Obligations and Commitments
The table below reflects our contractual obligations as of December 31, 2018. The Company’s future contractual obligations have
not changed materially.
Aggregate Contractual Obligations 1
Payments due by Period
(DOLLARS IN MILLIONS)
Related party long-term debt
Operating lease obligations
Build-to-suit lease obligations
Pension contribution requirements
Capital lease obligations
Other non-current liabilities reflected on the
balance sheet
Unconditional purchase obligations
Less
than 1
year
Total
1-3
years
3-5
years
More
than 5
years
13
88
51
36
15
9
1
17
3
3
1
2
10
222
10
37
12
24
6
5
12
2
—
61
$
—
12
6
6
1
—
—
25
$
—
34
35
22
1
4
—
96
$
Total
1 Excludes contingent liabilities arising from litigation, arbitration, regulatory actions or income taxes
$
$
Contractual obligations include related party long-term debt, lease and purchase obligations that are enforceable and legally binding
on the Company. Non-controlling interest is not included in this table.
Related party long-term debt: The related party debt obligation relates to capital lease obligations. The capital lease obligations
mainly relate to property and plants in Japan and is between Veoneer Nissin Brake Systems (a 51% owned subsidiary) and Nissin
Kogyo. See Note 19, Relationship with Former Parent and Related Entities, to the consolidated financial statements included
herein.
Operating lease obligations: The Company leases certain offices, manufacturing and research buildings, machinery, automobiles
and data processing and other equipment. Such operating leases, some of which are non-cancelable and include renewals, expire
on various dates. See Note 16, Commitments and Contingencies, to the consolidated financial statements included herein.
Build-to-suit lease obligations: The Company has entered into build-to-suit lease arrangements for certain buildings during 2017.
See Note 16, Commitments and Contingencies, to the consolidated financial statements included herein.
Pension contribution requirements: The Company sponsors defined benefit plans that cover eligible employees in Japan, Canada,
and France. In 2019, the expected contribution to all plans, including direct payments to retirees, is $3 million, of which the major
contribution is $1 million for our Canada pension plans. Due to volatility associated with future changes in interest rates and plan
asset returns, the Company cannot predict with reasonable reliability the timing and amounts of future funding requirements, and
therefore the above table shows expected contributions (to funded plans, or direct payments to retirees in the case of unfunded
plans) for 2019, but only shows benefit payments (from funded plans, or direct to retirees in the case of unfunded plans) for 2020
and subsequent years. We may elect to make contributions in excess of the minimum funding requirements for the Japan, Canada,
and France plans in response to investment performance and changes in interest rates, or when we believe that it is financially
advantageous to do so and based on other capital requirements. This contribution amount does not include plans considered to be
multiemployer with Autoliv. See Note 2, Summary of Significant Accounting Policies, and Note 14, Retirement Plans, to the
consolidated financial statements included herein.
Other non-current liabilities reflected on the balance sheet: The Company has $2 million of deferred purchase consideration,
payable at the 18-month anniversary of the closing date.related to the Fotonic acquisition to be paid in 2019. See Note 4, Business
Combinations, to the consolidated financial statements included herein.
Unconditional purchase obligations: During the year ended December 31, 2017, the Company entered into an unconditional
purchase obligation of $30 million of which $10 million was paid in each of the years ended December 31, 2017 and December
31, 2018. The remaining $10 million will be paid in 2019. This amount will be reimbursed by Zenuity. There are no obligations
other than short-term obligations related to inventory, services, tooling, and property, plant and equipment purchased in the ordinary
course of business.
51
Autotech Venture Fund: 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 December 31, 2018, Veoneer has in total contributed $8 million to the fund. The initial term of the
fund is set to expire on December 31, 2025. This fund focuses broadly on the automotive industry and complements the Company’s
innovation strategy, particularly in the areas of active safety and autonomous driving. Under the limited partnership agreement,
the general partner has the sole and exclusive right to manage, control, and conduct the affairs of the fund.
Significant Accounting Policies and Critical Accounting Estimates
New Accounting Pronouncements
The Company has considered all applicable recently issued accounting guidance. The Company has summarized in Note 2,
Summary of Significant Accounting Policies to the consolidated financial statements included herein each of the recently issued
accounting pronouncements and stated the impact or whether management is continuing to assess the impact.
Critical Accounting Estimates
The application of accounting policies necessarily requires judgments and the use of estimates by a Company’s management.
Actual results could differ from these estimates. By their nature, these judgments are subject to an inherent degree of uncertainty.
These judgments are based on our historical experience, terms of existing contracts, and management’s evaluation of trends in the
industry, information provided by our customers and information available from other outside sources, as appropriate. Certain
policies relate to estimates that involve matters that are highly uncertain at the time the accounting estimate is made and different
estimates or changes to an estimate could have a material impact on the reported financial position, changes in financial condition
or results of operations. Such critical estimates are discussed below. For these, materially different amounts could be reported
under varied conditions and assumption. Other items in the Company's consolidated financial statements require estimation,
however, in our judgment, they are not as critical as those discussed below.
Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, revenue is measured based on consideration specified in
a contract with a customer, adjusted for any variable consideration (i.e. price concessions or annual price adjustments) and estimated
at contract inception. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a
product to a customer.
In addition, from time to time, Veoneer may make payments to customers in connection with ongoing and future business. These
payments to customers are generally recognized as a reduction to revenue at the time of the commitment to make these payments,
unless certain criteria are met, warranting capitalization. If the payments are capitalized, the amounts are amortized as the related
goods are transferred. As of December 31, 2018, and 2017, the Company capitalized $54 million and $23 million, respectively,
in Other non-current assets related payments to customers. The Company assesses these amounts for impairment. There was no
impairment.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction,
that are collected by the Company from a customer, are excluded from revenue.
Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted
for as a fulfillment cost and are included in cost of sales.
Nature of goods and services
The following is a description of principal activities from which the Company generates its revenue. 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. Brake Systems provides brake control and actuation systems. The principal activities are
essentially the same for each of the segments. Both of the segments generate revenue from the sale of production parts to original
equipment manufacturers (“OEMs”).
The Company accounts for individual products separately if they are distinct (i.e., if a product is separately identifiable from other
items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The
consideration, including any price concession or annual price adjustments, is based on their stand-alone selling prices for each of
the products. The stand-alone selling prices are determined based on the cost-plus margin approach.
The Company recognizes revenue for production parts primarily at a point in time.
52
For production parts with revenue recognized at a point in time, the Company recognizes revenue upon shipment to the customers
and transfer of title and risk of loss under standard commercial terms (typically F.O.B. shipping point). There are certain contracts
where the criteria to recognize revenue over time have been met (e.g., there is no alternative use to the Company and the Company
has an enforceable right to payment). In such cases, at period end, the Company recognizes revenue and a related asset and
associated cost of goods sold and inventory. However, the financial impact of these contracts is immaterial considering the very
short production cycles and limited inventory days on hand, which is typical for the automotive industry.
The amount of revenue recognized is based on the purchase order price and adjusted for variable consideration (i.e. price concessions
or annual price adjustments). Customers typically pay for the production parts based on customary business practices with payment
terms averaging 30 days.
Contract balances
The contract assets related to the Company’s rights to consideration for work completed but not billed (generally in conjunction
with contracts for which revenue is recognized over time) at the reporting date on production parts. The contract assets are
reclassified into the receivables balance when the rights to receive payments become unconditional. There have been no impairment
losses recognized related to contract assets arising from the Company’s contracts with customers.
Business Combinations
In accordance with accounting guidance for the provisions in FASB ASC 805, Business Combinations, the Company allocates the
purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the
purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. In addition, an acquisition
may include a contingent consideration component. The fair value of the contingent consideration is estimated as of the date of
the acquisition and is recorded as part of the purchase price. Each quarter this contingent consideration is re-measured using the
discounted cash flow method.
The Company uses actual revenue levels as well as changes in the estimated probability of different revenue scenarios to estimate
fair values. The Company has engaged outside appraisal firms to assist in the fair value determination of identifiable intangible
assets and any other significant assets or liabilities. The Company adjusts the preliminary purchase price allocation, as necessary,
up to one year after the acquisition closing date as the Company obtains more information regarding asset valuations and liabilities
assumed.
The Company’s purchase price allocation methodology contains uncertainties because it requires management to make assumptions
and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets
and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques,
including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could
affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies.
Other estimates used in determining fair value include, but are not limited to, future cash flows or income related to intangibles,
market rate assumptions, actuarial assumptions for benefit plans and appropriate discount rates. The Company estimates the fair
value based upon assumptions believed to be reasonable, but these are inherently uncertain, and therefore, may not be realized.
Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and
actual results could vary materially.
Equity Method Investments
The Company initially accounts for an equity method investment at its fair value on the date of acquisition. See Note 2, Summary
of Significant Accounting Policies and Note 9, Investments related to the Company’s investment in Zenuity, to the consolidated
financial statements included.
53
Inventory Reserves
Inventories are evaluated based on individual or, in some cases, groups of inventory items. Reserves are established to reduce the
value of inventories to the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary
course of business, less reasonably predictable costs of completion, disposal and transportation. Excess inventories are quantities
of items that exceed anticipated sales or usage for a reasonable period. The Company has guidelines for calculating provisions for
excess inventories based on the number of months of inventories on hand compared to anticipated sales or usage. Management
uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period.
There can be no assurance that the amount ultimately realized for inventories will not be materially different than that assumed
in the calculation of the reserves.
Goodwill and Intangibles
The Company performs an annual impairment review of goodwill in the fourth quarter of each year following the Company’s
annual forecasting process. Management uses its judgment to determine the Company’s reporting units for goodwill impairment
testing. The estimated fair market value of goodwill is determined by the discounted cash flow method. The Company discounts
projected operating cash flows using its weighted average cost of capital. Estimating the fair value requires the Company to make
judgments about appropriate discount rates, growth rates, relevant comparable company earnings multiples and the amount and
timing of expected future cash flows. If the fair value of the reporting unit is less than its carrying amount, an impairment loss is
recognized for the excess of carrying amount over the fair value of the respective reporting unit.
In the fourth quarter of 2017, in connection with the annual impairment test, the Company recorded a goodwill impairment charge
of $234 million in its Electronics Segment, relating to the VNBS acquisition. For more information, see Note 2, Summary of
Significant Accounting Policies, to the consolidated financial statements included herein) due to lower than originally anticipated
sales development. There is no remaining goodwill related to VNBS after the impairment. There were no goodwill impairments
recognized during 2018 and 2016.
The Company reviews indefinite-lived intangible assets for impairment annually or more frequently if events or changes in
circumstances indicate the assets might be impaired. Similar to the goodwill impairment test described above, the Company
performs a quantitative impairment test by comparing the estimated fair value of the asset, based upon its forecasted cash flows,
to its carrying value. Other intangible assets with definite lives are amortized over their useful lives. The Company evaluates the
carrying value and useful lives of long-lived assets other than goodwill when indications of impairment are evident, or it is likely
that the useful lives have decreased, in which case the Company depreciates the assets over the remaining useful lives. Impairment
testing is primarily done by using the cash flow method based on undiscounted future cash flows. Estimated undiscounted cash
flows for a long-lived asset being evaluated for recoverability are compared with the respective carrying amount of that asset. If
the estimated undiscounted cash flows exceed the carrying amount of the assets, the carrying amounts of the long-lived asset are
considered recoverable and an impairment cannot be recorded. However, if the carrying amount of a group of assets exceeds the
undiscounted cash flows, an entity must then measure the long-lived assets’ fair value to determine whether an impairment loss
should be recognized, generally using a discounted cash flow model.
Recall Provisions and Warranty Obligations
The Company records liabilities for product recalls when probable claims are identified and when it is possible to reasonably
estimate costs. Recall costs are costs incurred when the customer decides to formally recall a product due to a known or suspected
safety concern. Product recall costs typically include the cost of the product being replaced as well as the customer’s cost of the
recall, including labor to remove and replace the defective part. In some cases, portions of the product recall costs are reimbursed
by an insurance company. Actual costs incurred could differ from the amounts estimated, requiring adjustments to these reserves
in future periods. It is possible that changes in our assumptions or future product recall issues could materially affect our financial
position, results of operations or cash flows.
Estimating warranty obligations requires the Company to forecast the resolution of existing claims and expected future claims on
products sold. The Company bases the estimate on historical trends of units sold and payment amounts, combined with our current
understanding of the status of existing claims and discussions with our customers. These estimates are re-evaluated on an ongoing
basis. Actual warranty obligations could differ from the amounts estimated requiring adjustments to existing reserves in future
periods. Due to the uncertainty and potential volatility of the factors contributing to developing these estimates, changes in our
assumptions could materially affect our results of operations.
54
Defined Benefit Pension Plans
Veoneer’s employees participate in defined benefit plans sponsored by Autoliv and certain defined benefit plans sponsored by
Veoneer in Japan (the Japan plans), France (the France plans), and Canada (the Canada plans).
For the Japan, French, and Canada plans, the amount recognized as a defined benefit liability is the net total of projected benefit
obligation (PBO) minus the fair value of plan assets (if any). The plan assets are measured at fair value. Net periodic benefit cost
was reported within Costs of sales, Selling, general and administrative expenses and RD&E expenses in the Consolidated Statement
of Operations.
Veoneer has considered the remaining plans to be part of a multiemployer plan with Autoliv. Pension expense was allocated for
these plans and reported within Costs of sales, Selling, general and administrative expenses and RD&E expenses in the Consolidated
Statement of Operations.
Of the plans sponsored by Veoneer, the most significant plans are the Japan plans. These plans represent approximately 44% of
the Company’s total pension benefit obligation. See Note 14, Retirement Plans, to the consolidated financial statements included
herein.
The Company, in consultation with its actuarial advisors, determines certain key assumptions to be used in calculating the projected
benefit obligation and annual pension expense. For the Japan plans, the assumptions used for calculating the 2018 pension expense
were a discount rate of 0.5%, expected rate of increase in compensation levels of 5.0%, and an expected long-term rate of return
on plan assets of 0.75%.
The discount rate for the Japanese plans has been set based on the rates of return of high-quality fixed-income investments currently
available at the measurement date and are expected to be available during the period the benefits will be paid. The expected rate
of increase in compensation levels and long-term return on plan assets are determined based on a number of factors and must take
into account long-term expectations and reflect the financial environment in the respective local markets. As of December 31,
2018 and 2017, 100% and 97% of the Japanese plan assets were invested in insurance contracts.
Income Taxes
Significant judgment is required in determining the worldwide provision for income taxes. In the ordinary course of a global
business, there are many transactions for which the ultimate tax outcome is uncertain. Many of these uncertainties arise as a
consequence of intercompany transactions. See Note 1, Basis of Presentation, Note 6, Income Taxes and Note 19, Relationship
with Parent and Related Entities, to the Consolidated Financial Statements included herein.
Although the Company believes that its tax return positions are supportable, no assurance can be given that the final outcome of
these matters will not be materially different than that which is reflected in the historical income tax provisions and accruals. Such
differences could have a material effect on the income tax provisions or benefits in the periods in which such determinations are
made. See also the discussion of the determinations of valuation allowances on our deferred tax assets in Note 6, Income Taxes,
to the consolidated financial statements included herein.
Contingent Liabilities
Various claims, lawsuits 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 or other matters.
For a discussion of legal matters we are involved in, see Note 16, Contingent Liabilities, to the condensed consolidated financial
statements included herein.
The Company diligently defends itself in such matters and, in addition, carries insurance coverage to the extent reasonably available
against insurable risks.
The Company records liabilities for claims, lawsuits and proceedings when they are probable, and it is possible to reasonably
estimate the cost of such liabilities. Legal costs expected to be incurred in connection with a loss contingency are expensed as
such costs are incurred.
A loss contingency is accrued by a charge to income if it is probable that an asset has been impaired, or a liability has been incurred
and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued management evaluates,
among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the
amount of loss. Changes in these factors could materially impact our consolidated financial statements.
55
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Currency Risks
Transaction Exposure and Revaluation Effects
Transaction exposure arises because the cost of a product originates in one currency and the product is sold in another currency.
Revaluation effects come from valuation of assets denominated in other currencies than the reporting currency of each unit.
The Company’s gross transaction exposure for 2018 was approximately $0.7 billion. A part of the currency flows had counter-
flows in the same currency pair, which reduced the net exposure to approximately $0.6 billion. The five largest net transaction
exposures were the sale of Euro against Swedish Krona, the purchase of U.S. Dollars against Swedish Krona, the purchase of U.S.
Dollar against Korean Won, the sale of U.S. Dollars against Chinese Renminbi and the purchase of U.S. Dollar against Euro.
Together these currencies accounted for approximately 76% of the Company’s net currency transaction exposure.
Since the Company can only effectively hedge these currency flows in the short term, periodic hedging would only reduce the
impact of fluctuations temporarily. Over time, periodic hedging would postpone but not reduce the impact of fluctuations. In
addition, the net exposure is limited to approximately one quarter of net sales and is made up of close to 20 different currency
pairs with exposures of more than $1 million each. Veoneer generally does not hedge these flows. However, for some purchased
components from external suppliers, the Company may enter into hedging from time to time. There were no foreign exchange
forward contracts outstanding as of December 31, 2018.
Translation Exposure in the Statement of Operations and Balance Sheet
The Company estimates that a 1% increase in the value of the U.S. dollar versus European currencies would decrease reported
U.S. dollar annual net sales in 2018 by $7 million or by 0.3% while it would have a positive impact on the operating loss for 2018
by approximately 0.6% or by about $1 million, assuming reported corporate average margin.
Interest Rate Risk
As of December 31, 2018 we also had approximately $864 million of cash and cash equivalents and $5 million of short-term
investments. As of December 31, 2018, the company estimates that a 1% change of the interest rates would not significantly impact
our interest expense or income.
Component Costs
Veoneer procures raw material and components from a variety of suppliers around the world. Generally, we seek to obtain
mechanical components and material in the region in which our products are manufactured to limit transportation, currency risks
and other costs. The most significant raw materials we use to manufacture our products are various electrical components, non-
ferrous metals and ferrous metals for brake systems. We have not experienced any significant shortages of raw materials and
normally do not carry inventories of such raw materials more than those reasonably required to meet our production and shipping
schedules. Despite this, material price changes in Veoneer’s supply chain could have a significant impact on its profitability.
Changes in most raw material prices affect the Company with a time lag. For non-ferrous metals like aluminum and zinc, we have
quarterly and sometimes monthly price adjustments.
The Company’s strategies to offset price increases on cost of materials include working with suppliers to mitigate costs, seeking
alternative product designs and material specifications, combining purchase requirements with our customers and/or suppliers,
changing suppliers, and other means. However, should these actions not be sufficient to offset component price increases, our
earnings could be materially impacted.
56
Item 8. Financial Statements and Supplementary Data
Veoneer, Inc.
Index to Consolidated Financial Statements
Audited Consolidated Financial Statements of Veoneer, Inc.
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, 2017 and 2016
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Cash Flow for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Audited Consolidated Financial Statements of Zenuity AB
Report of the Independent Auditors
Consolidated Financial Statements
Notes to Consolidated Financial Statements
58
59
60
61
62
63
64
109
110
115
57
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Veoneer, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Veoneer, Inc. (the Company) as of December 31, 2018 and
2017, the related consolidated statements of operations, comprehensive loss, cash flows and changes in equity for each of the three
years in the period ended December 31, 2018 and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly,
we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young AB
We have served as the Company’s auditor since 2017.
Stockholm, Sweden
February 22, 2019
58
Veoneer, Inc.
Consolidated Statements of Operations
(U.S. DOLLARS IN MILLIONS)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Research, development and engineering expenses, net
Note 3
$
Goodwill, impairment charge
Amortization of intangibles
Other income (expense), net
Operating loss
Loss from equity method investment
Interest income
Interest expense
Other non-operating items, net
Loss before income taxes
Income tax expense
Net loss
Less: Net loss attributable to non-controlling interest
Net loss attributable to controlling interest
Net loss per share - basic
Net loss per share - diluted
Weighted average number of shares outstanding,
(in millions)
Weighted average number of shares outstanding,
assuming dilution (in millions)
See Notes to Consolidated Financial Statements.
Note 11
Note 11
Note 9
Note 6
Note 17
Note 17
$
$
$
Year Ended December 31
2017
2016
2018
$
2,228
(1,798)
430
(156)
(466)
—
(23)
18
(197)
(63)
7
(1)
—
(253)
(42)
(294)
(19)
$
2,322
(1,857)
466
(110)
(375)
(234)
(37)
8
(283)
(31)
—
—
(1)
(314)
(30)
(344)
(127)
(276) $
(217) $
2,218
(1,795)
423
(110)
(300)
—
(35)
(4)
(25)
—
—
—
3
(22)
(38)
(60)
(7)
(53)
(3.17) $
(3.17) $
(2.49) $
(2.49) $
(0.61)
(0.61)
87.16
87.16
87.13
87.13
87.13
87.13
59
Veoneer, Inc.
Consolidated Statements of Comprehensive Loss
(U.S. DOLLARS IN MILLIONS)
Year Ended December31
2018
2017
2016
$
(294) $
(344) $
(9)
1
(4)
(12)
1
(10)
(304)
(19)
(285) $
30
(9)
—
21
—
21
(323)
(127)
(196) $
(60)
(17)
8
(4)
(13)
(1)
(14)
(74)
(7)
(67)
Net loss
Other comprehensive (loss) income, before tax:
Change in cumulative translation adjustment
Net change in cash flow hedges
Pension liability
Other comprehensive (loss) income, before tax
Income /(expense) for taxes
Other comprehensive (loss) income, net of tax
Comprehensive loss
Less: Comprehensive loss attributable to non-controlling interest
Comprehensive loss attributable to controlling interest
$
See Notes to Consolidated Financial Statements.
60
Veoneer, Inc.
Consolidated Balance Sheets
(U.S. DOLLARS IN MILLIONS)
As of December 31
2017
2018
Assets
Cash and cash equivalents
Short-term investments
Receivables, net
Inventories, net
Related party receivable
Prepaid expenses and other contract assets
Other current assets
Total current assets
Property, plant and equipment, net
Equity method investment
Goodwill
Intangible assets, net
Deferred tax assets
Related party notes receivable
Investments
Other non-current assets
Total assets
Liabilities and equity
Accounts payable
Related party payables
Accrued expenses
Income tax payable
Other current liabilities
Related party short-term debt
Total current liabilities
Related party long-term debt
Pension liability
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Commitments and contingencies
Equity
Common stock (par value $1.00, 325 million shares authorized, 87 million
shares issued and outstanding at December 31, 2018 and December 31, 2017)
Additional paid-in capital
Accumulated deficit
Net Former Parent investment
Accumulated other comprehensive loss
Total Equity
Non-controlling interest
Total Equity and non-controlling interests
Total liabilities, Equity and non-controlling interests
See Notes to Consolidated Financial Statements.
61
$
864
$
Note 7
Note 8
Note 19
Note 10
Note 9
Note 11
Note 11
Note 6
Note 19
Note 19
Note 12
Note 6
Note 19
Note 19
Note 14
Note 6
Note 16
$
$
$
5
376
172
64
39
22
1,543
499
101
291
102
11
1
8
77
2,632
369
16
193
9
47
1
636
13
20
13
25
70
$
$
87
1,938
(181)
—
(19)
1,826
101
1,927
2,632
$
—
—
448
154
13
34
—
649
362
98
292
122
30
76
—
34
1,663
320
8
195
41
26
0
590
62
14
17
22
115
—
—
—
844
(8)
836
122
957
1,663
Veoneer, Inc.
Consolidated Statements of Cash Flow
(U.S. DOLLARS IN MILLIONS)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash (used in) / provided by operating activities:
Depreciation and amortization
Undistributed loss from equity method investments
Stock-based compensation
Contingent consideration write-down
Deferred income taxes
Goodwill, impairment charge
Other, net
Change in operating assets and liabilities
Receivables, gross
Accounts payable
Related party receivable and payables, net
Income taxes
Inventories, gross
Accrued expenses
Prepaid expenses and contract assets
Other current assets and liabilities, net
Net cash used in operating activities
Investing activities
Net decrease / (increase) in related party notes receivable
Proceeds from sale of property, plant and equipment
Capital expenditures
Equity method investment
Short-term investments
Acquisition of intangible assets
Acquisition of businesses and interest in affiliates, net of cash acquired
Net cash used in investing activities
Financing activities
Cash provided at separation by Former Parent
Net transfers from Former Parent
Net increase / (decrease) in related party short-term debt
(Decrease)/ increase in related party long-term debt
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Disclosures:
Cash paid for income taxes
See Notes to Consolidated Financial Statements.
62
Years Ended December 31
2016
2017
2018
$
(294) $
(344) $
(60)
111
63
5
(14)
15
—
(29)
58
10
(46)
(40)
(22)
4
(6)
6
(179)
76
4
(188)
(71)
(5)
(1)
—
(185)
980
294
1
(49)
1,226
2
864
—
864
39
$
$
$
$
119
31
2
(13)
(11)
234
(29)
12
(11)
—
10
19
(9)
(1)
(9)
(1)
(2)
7
(110)
—
—
—
(125)
(230)
—
184
(4)
51
232
—
—
—
— $
106
—
3
—
(11)
—
(12)
(153)
68
5
20
(8)
64
(19)
(11)
(7)
(8)
2
(103)
—
—
—
(226)
(335)
—
327
4
12
343
—
—
—
—
30
$
19
Veoneer, Inc.
Consolidated Statements of Changes in Equity
(U.S. DOLLARS IN MILLIONS)
Common
Stock
Additional
Paid In
Capital
Net
Former
Parent
Investment
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Non-
controlling
Interests
Total
$
— $
— $
606
$
— $
(15) $
— $
591
—
—
—
—
—
—
—
8
(17)
(5)
(14)
—
$
— $
(29) $
(53)
—
—
—
(53)
—
324
877
(217)
—
—
(217)
184
844
—
—
—
$
$
(95)
(181)
—
—
—
—
—
— $
—
—
—
—
—
(7)
—
(7)
—
(14)
252
4
242
(60)
8
(25)
(5)
(81)
252
327
1,089
$
(127)
(344)
—
(9)
30
—
7
21
—
(8) $
(120)
—
122
$
(9)
37
(316)
184
957
—
1
(9)
(3)
—
—
(19)
—
(1)
1
—
—
(294)
1
(10)
(2)
19
3
—
—
—
—
—
—
—
—
—
—
—
—
$
— $
— $
—
—
—
—
—
—
—
—
— $
—
—
— $
—
—
—
—
1,935
(2,003)
3
—
—
—
—
—
87
—
87
—
87
1,938
—
1,938
$
(2,098)
1,253
$
— $
(181)
—
(181) $
(10)
—
(19) $
(19)
(1)
101
$
(283)
1,252
1,927
— $
— $
1
— $
— $
— $
1
2016
Balance at January 1, 2016
Comprehensive Loss:
Net loss
Net change in cash flow
hedges
Foreign currency translation
Pension liability
Total Comprehensive Loss
Investment in subsidiary by non-
controlling interest
Net transfers from Former Parent
Balance at December 31, 2016
2017
Comprehensive Income (Loss):
Net loss
Net change in cash flow
hedges
Foreign currency translation
Total Comprehensive income
(Loss)
Net transfers from Former Parent
Balance at December 31, 2017
2018
Adoption of ASC 606
$
$
Comprehensive Income (Loss):
Net loss
Net change in cash flow
hedges
Foreign currency translation
Pension liability
Reclassification of Former
Parent's net investment and
issuance of ordinary shares
in connection with
separation
Stock based compensation
expense
Total Comprehensive Income
(Loss)
Net transfers from Former Parent
Balance at December 31, 2018
$
See Notes to Consolidated Financial Statements.
63
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
NOTE 1. Basis of Presentation
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 held as of a certain date. 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 National Association of Securities Dealers (“NASDAQ”) Stockholm under
the symbol “VNE-SDB”. Agreements entered into between Veoneer and Autoliv in connection with the Spin-Off govern the
relationship between the parties following the Spin-Off and provide for the allocation of various assets, liabilities, rights and
obligations. These agreements also include arrangements for transition services to be provided on a temporary basis between the
parties.
In advance of the Spin-Off, Autoliv completed a series of internal transactions, in which Autoliv transferred its Electronics business
to Veoneer. These transactions are referred to herein as the “internal reorganization”. The internal reorganization was completed
on April 1, 2018.
The Company has two operating segments, Electronics and Brake Systems. Electronics includes all electronics resources and
expertise, Restraint Control Systems and Active Safety products, and Brake Systems provides brake control and actuation systems.
The accompanying consolidated financial statements as of and for the years ended December 31, 2017 and 2016 and from January
1, 2018 through the Distribution Date were prepared from Autoliv’s historical accounting records and are presented on a stand-
alone basis as if the operations had been conducted independently from Autoliv. For the period from the Distribution Date through
December 31, 2018, the consolidated financial statements reflect Veoneer’s stand-alone operations. Prior to the Spin-Off, Autoliv’s
net investment in these operations (Former Parent equity) is shown in lieu of a controlling interest’s equity in the Consolidated
Financial Statements. Subsequent to the Spin-Off, Veoneer common stock, Additional paid-in capital and future income (losses)
are reflected in Accumulated deficit. Accordingly, for periods prior to June 29, 2018, the Company’s financial statements are
presented on a combined basis and for the periods subsequent to June 29, 2018, they are presented on a consolidated basis (all
periods hereinafter are referred to as "Consolidated Financial Statements").
Prior to the Spin-Off, the Consolidated Statements of Operations include all sales and costs directly attributable to Veoneer, including
costs for facilities, functions and services used by Veoneer. Certain shared costs have been directly charged to Veoneer based on
usage or other allocation methods. The results of operations also include allocations of (i) costs for administrative functions and
services performed on behalf of Veoneer by centralized staff groups within Autoliv, (ii) Autoliv’s general corporate expenses and
(iii) certain pension and other retirement benefit costs (See Note 14, Retirement Plans for a description of the allocation
methodologies employed). As more fully described in Note 6, Income Taxes, current and deferred income taxes and related tax
expense have been determined based on the stand-alone results of Veoneer by applying Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) No. 740, Income Taxes, to the Veoneer operations in each country as if it were
a separate taxpayer (i.e., following the separate return methodology). Subsequent to the Spin-Off, sales, costs and taxes are reflected
for Veoneer’s operations on a stand-alone company basis.
Prior to the Spin-Off, Veoneer participated in Autoliv's centralized cash management and financing programs. Accordingly, no
cash and cash equivalents of Autoliv was allocated to Veoneer in the consolidated financial statements. Transactions between
Autoliv and Veoneer are accounted for through Net Former Parent Investment. Autoliv’s short-term and long-term debt,
including any related interest expense as well as its derivative activity, was pushed down to Veoneer’s consolidated financial
statements where it is specifically identifiable to Veoneer. See Note 19, Relationship with Former Parent and Related Entities,
for a further description of related party transactions between Autoliv and Veoneer. Subsequent to the Spin-Off, Veoneer has its
own treasury functions.
For periods prior to the Spin-Off, all charges and allocations of cost for facilities, functions and services performed by Autoliv
organizations have been deemed paid by Veoneer to Autoliv, in cash, in the period in which the cost was recorded in the Consolidated
Statements of Operations.
64
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
The consolidated financial statements include the historical operations, assets, and liabilities that are considered to comprise the
Veoneer business. All of the allocations and estimates in the consolidated financial statements are based on assumptions that
Veoneer management believe are reasonable. However, the historical statements of operations, comprehensive loss, balance sheets,
and cash flows of Veoneer included herein may not be indicative of what they would have been had Veoneer actually been a stand-
alone entity during such periods, nor are they necessarily indicative of Veoneer's future results.
Certain amounts in the prior year’s consolidated financial statements and related footnotes thereto have been reclassified to
conform to the current year presentation.
Certain amounts in the consolidated financial statements and associated notes may not reconcile due to rounding. All
percentages have been calculated using unrounded amounts.
NOTE 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with United States (U.S.) Generally Accepted Accounting
Principles (GAAP) and include the consolidated assets, liabilities, sales, and expenses of the Veoneer business as of December
31, 2018 and 2017 and for the years ended December 31, 2018, 2017, and 2016. All intercompany accounts and transactions within
the Company have been eliminated from the consolidated financial statements. See Note 19, Relationship with Parent and Related
Entities, for a further description of related party transactions between Autoliv and Veoneer.
Consolidation is also required when the Company has both the power to direct the activities of a variable interest entity (VIE) and
the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE.
Investments in affiliated companies in which the Company exercises significant influence over the operations and financial policies,
but does not control, are reported using the equity method of accounting.
Business Combinations
Transactions in which the Company obtains control of a business are accounted for according to the acquisition method as described
in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations. The
assets acquired and liabilities assumed are recognized and measured at their fair values as of the date control is obtained. Acquisition
related costs in connection with a business combination are expensed as incurred. Contingent consideration is recognized and
measured at fair value at the acquisition date and until paid is re-measured on a recurring basis. It is classified as a liability based
on appropriate GAAP.
Equity Method Investments
Investments accounted for under the equity method, means that a proportional share of the equity method investment’s net income
increases the investment, and a proportional share of losses and payment of dividends decreases it. In the Consolidated Statements
of Operations, the proportional share of the net loss is reported as Loss from equity method investments.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts of net sales and expenses during the reporting period. The accounting
estimates that require management’s most significant judgments include the estimation of retroactive price adjustments, estimations
associated with purchase price allocations regarding business combinations, valuation of stock based payments, assessment of
recoverability of goodwill and intangible assets, assessment of the useful lives of intangible assets, estimation of pension benefit
expense based on actuarial assumptions, estimation of accruals for warranty and product liabilities, uncertain tax positions, valuation
allowances and contingent liabilities. However, actual results could differ from those estimates.
65
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, revenue is measured based on consideration specified in
a contract with a customer, adjusted for any variable consideration (i.e. price concessions or annual price adjustments) and estimated
at contract inception. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a
product to a customer.
In addition, from time to time, Veoneer may make payments to customers in connection with ongoing and future business. These
payments to customers are generally recognized as a reduction to revenue at the time of the commitment to make these payments,
unless certain criteria are met, warranting capitalization. If the payments are capitalized, the amounts are amortized as the related
goods are transferred. As of December 31, 2018, and 2017, the Company capitalized $54 million and $23 million, respectively,
in Other non-current assets related to payments to customers. The Company assesses these amounts for impairment. There was
no impairment in 2018 or 2017.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction,
that are collected by the Company from a customer, are excluded from revenue.
Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted
for as a fulfillment cost and are included in cost of sales.
Nature of goods and services
The following is a description of principal activities from which the Company generates its revenue. 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. Brake Systems provides brake control and actuation systems. The principal activities are
essentially the same for each of the segments. Both of the segments generate revenue from the sale of production parts to original
equipment manufacturers (“OEMs”).
The Company accounts for individual products separately if they are distinct (i.e., if a product is separately identifiable from other
items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The
consideration, including any price concession or annual price adjustments, is based on their stand-alone selling prices for each of
the products. The stand-alone selling prices are determined based on the cost-plus margin approach.
The Company recognizes revenue for production parts primarily at a point in time.
For production parts with revenue recognized at a point in time, the Company recognizes revenue upon shipment to the customers
and transfer of title and risk of loss under standard commercial terms (typically F.O.B. shipping point). There are certain contracts
where the criteria to recognize revenue over time have been met (e.g., there is no alternative use to the Company and the Company
has an enforceable right to payment). In such cases, at period end, the Company recognizes revenue and a related asset and
associated cost of goods sold and inventory. However, the financial impact of these contracts is immaterial considering the very
short production cycles and limited inventory days on hand, which is typical for the automotive industry.
The amount of revenue recognized is based on the purchase order price and adjusted for variable consideration (i.e. price concessions
or annual price adjustments). Customers typically pay for the production parts based on customary business practices with payment
terms averaging 30 days.
Contract balances
The contract assets related to the Company’s rights to consideration for work completed but not billed (generally in conjunction
with contracts for which revenue is recognized over time) at the reporting date on production parts. The contract assets are
reclassified into the receivables balance when the rights to receive payments become unconditional. There have been no impairment
losses recognized related to contract assets arising from the Company’s contracts with customers.
Research, Development and Engineering (R,D&E)
The Company performs research activities to identify new products, product development activities for further product evolution,
and engineering activities to customize existing products for specific customers. Research and development and most engineering
66
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
expenses are expensed as incurred. These expenses are reported net of expense reimbursements from contracts to further customize
existing products for specific customers.
Certain engineering expenses related to long-term supply arrangements are capitalized when defined criteria, such as the existence
of a contractual guarantee for reimbursement, are met.
Tooling is generally agreed upon as a separate contract or a separate component of an engineering contract, as a pre-production
project. Capitalization of tooling costs is made only when the specific criteria for capitalization of customer funded tooling are
met or the criteria for capitalization as Property, Plant & Equipment for tools owned by the Company are fulfilled. Depreciation
on the Company’s own tooling is recognized in the Consolidated Statements of Operations as Cost of Sales.
Stock Based Compensation
The compensation costs for all of the Company’s stock-based compensation awards are determined based on the fair value method
as defined in ASC 718, Compensation-Stock Compensation. The Company records the compensation expense for its direct and
allocated portion of awards under the Veoneer Stock Incentive Plan, including restricted stock units (RSUs), performance shares
(PSs) and stock options (SOs), over the respective vesting period. For further details, see Note 15, Stock Incentive Plans.
Income Taxes
Prior to the spin-off, Veoneer’s operations were included in the tax returns filed by Autoliv of which the Veoneer business was a
part. Income tax expense and other income tax related information contained in these consolidated financial statements were
presented on a separate return basis as if the Company filed its own tax returns. Income taxes as presented in the consolidated
financial statements for periods prior to the spin-off attribute current and deferred income taxes in a manner that is systematic,
rational and consistent with the asset and liability method prescribed by the accounting guidance for income taxes. The separate
return method applies the accounting guidance for income taxes to the standalone financial statements as if the Company was a
separate taxpayer and a standalone company for the periods presented prior to the spin-off. Any income tax liabilities or related
net deferred tax assets or liabilities resulting from operations prior to the spin-off have been settled with the Former Parent as of
the Distribution Date and are reflected in the Net Former Parent investment.
Subsequent to the Spin-Off, current tax liabilities and assets are recognized for the estimated taxes payable or refundable on the
tax returns for the current year. In certain circumstances, payments or refunds may extend beyond twelve months, in such cases
amounts would be classified as non-current taxes payable or refundable. Deferred tax liabilities or assets are recognized for the
estimated future tax effects attributable to temporary differences and carryforwards that result from events that have been recognized
in either the financial statements or the tax returns, but not both. The measurement of current and deferred tax liabilities and assets
is based on provisions of enacted tax laws in effect for the year the differences are expected to reverse. Deferred tax assets are
reduced by the amount of any tax benefits that are not expected to be realized. A valuation allowance is recognized if, based on
the weight of all available evidence, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.
Evaluation of the realizability of deferred tax assets is subject to significant judgment requiring careful consideration of all facts
and circumstances.
Tax benefits associated with tax positions taken in the Company’s income tax returns are initially recognized and measured in the
financial statements when it is more likely than not that those tax positions will be sustained upon examination by the relevant
taxing authorities. The Company’s evaluation of its tax benefits is based on the probability of the tax position being upheld if
challenged by the taxing authorities (including through negotiation, appeals, settlement and litigation). Whenever a tax position
does not meet the initial recognition criteria, the tax benefit is subsequently recognized and measured if there is a substantive
change in the facts and circumstances that cause a change in judgment concerning the sustainability of the tax position upon
examination by the relevant taxing authorities. In cases where tax benefits meet the initial recognition criterion, the Company
continues, in subsequent periods, to assess its ability to sustain those positions. A previously recognized tax benefit is derecognized
when it is no longer more likely than not that the tax position would be sustained upon examination. Liabilities for unrecognized
tax benefits are classified as non-current unless the payment of the liability is expected to be made within the next 12 months.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash
equivalents. Veoneer held approximately $864 million of cash and cash equivalents and $5 million of short-term investments as
of December 31, 2018.
67
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents and short-term investments
approximate their fair values based on Level 1 of the fair value hierarchy.
Receivables
Accounts receivables are recorded at the invoiced amount and do not bear interest.
The Company has guidelines for calculating the allowance for bad debts. In determining the amount of a bad debt allowance,
management uses its judgment to consider factors such as the age of the receivables, the Company’s prior experience with the
customer, the experience of other enterprises in the same industry, the customer’s ability to pay, and/or an appraisal of current
economic conditions. Collateral is typically not required. There can be no assurance that the amount ultimately realized for
receivables will not be materially different than that assumed in the calculation of the allowance.
A substantial majority of the Company’s trade receivables are derived from sales to OEMs. The Company’s four largest customers
accounted for 58% of sales for 2018, 62% for 2017 and 59% for 2016. Additionally, as of December 31, 2018 and 2017, these
four largest customers accounted for 52% and 55%, respectively, of the Company’s accounts receivable. 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.
Derivative Instruments and Hedging Activities
The Company uses derivative financial instruments, primarily forwards, options and swaps to reduce the effects of fluctuations in
foreign exchange rates and the resulting variability of the Company’s operating results. On the date that a derivative contract is
entered into, the Company designates the derivative as either (1) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or of an unrecognized firm commitment (a fair value hedge) or (2) a hedge of the exposure of a forecasted
transaction or of the variability in the cash flows of a recognized asset or liability (a cash flow hedge).
When a hedge is classified as a fair value hedge, the change in the fair value of the hedge is recognized in the Consolidated
Statements of Operations along with the offsetting change in the fair value of the hedged item. When a hedge is classified as a
cash flow hedge, any change in the fair value of the hedge is initially recorded in equity as a component of Other Comprehensive
Income (OCI) and reclassified into the Consolidated Statements of Operations when the hedge transaction affects net earnings.
The Company uses the forward rate with respect to the measurement of changes in fair value of cash flow hedges when revaluing
foreign exchange forward contracts. All derivatives are recognized in the consolidated financial statements at fair value. For further
details. see Note 5, Fair Value Measurements.
Inventories
The cost of inventories is computed according to the first-in, first-out method (FIFO). Cost includes the cost of materials, direct
labor and the applicable share of manufacturing overhead. Inventories are evaluated based on individual or, in some cases, groups
of inventory items. Reserves are established to reduce the value of inventories to the lower of cost and net realizable value. Net
realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal and transportation. Excess inventories are quantities of items that exceed anticipated sales or usage for a reasonable period.
The Company has guidelines for calculating provisions for excess inventories based on the number of months of inventories on
hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what
constitutes a reasonable period. There can be no assurance that the amount ultimately realized for inventories will not be materially
different than that assumed in the calculation of the reserves.
Property, Plant and Equipment
Property, Plant and Equipment are recorded at historical cost. Construction in progress generally involves short-term projects for
which capitalized interest is not significant. The Company provides for depreciation of property, plant and equipment computed
under the straight-line method over the assets’ estimated useful lives, or in the case of leasehold improvements over the shorter of
the useful life or the lease term. Amortization on capital leases is recognized with depreciation expense in the Consolidated
Statements of Operations over the shorter of the assets’ expected life or the lease contract term. Repairs and maintenance are
expensed as incurred.
68
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
The Company also entered into certain “build-to-suit” lease arrangements in 2017 with continuing impact into 2018 for certain
manufacturing and research buildings. During 2018, one of the “build-to-suit” lease arrangement was completed and accounted
as a lease as of December 31, 2018. For the build-to-suit still under construction, the Company will be deemed the owner of the
buildings for accounting purposes during the construction period due to the terms of the arrangements. As such, those amounts
will be capitalized as an asset and a liability in Consolidated Balance Sheet during the construction period. As of December 31,
2018, capitalized amounts are approximately $48 million, and as of December 31, 2017, capitalized amounts were immaterial.
Long-Lived Assets Impairment
The Company evaluates the carrying value and useful lives of long-lived assets when indications of impairment are evident or it
is likely that the useful lives have decreased, in which case the Company depreciates the assets over the remaining useful lives.
Impairment testing is primarily performed by using the cash flow method based on undiscounted future cash flows. Estimated
undiscounted cash flows for a long-lived asset being evaluated for recoverability are compared with the respective carrying amount
of that asset. If the estimated undiscounted cash flows exceed the carrying amount of the assets, the carrying amounts of the long-
lived asset are considered recoverable and an impairment is not be recorded. However, if the carrying amount of a group of assets
exceeds the undiscounted cash flows, an entity must then measure the long-lived assets’ fair value to determine whether an
impairment loss should be recognized, generally using a discounted cash flow model.
Intangible Assets and Goodwill
Intangible assets, principally related to acquired technology and contractual relationships, are amortized over their useful lives
which range from 5 to 10 years.
Goodwill represents the excess of the fair value of consideration transferred over the fair value of net assets of businesses acquired.
Goodwill is not amortized but is subject to at least an annual review for impairment.
The Company reviews goodwill for impairment annually in the fourth quarter or more frequently if events or changes in
circumstances indicate the assets might be impaired.
In conducting its impairment testing, the Company compares the estimated fair value of each of its reporting units to the related
carrying value of the reporting unit. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered
not to be impaired. If the carrying value of a reporting unit exceeds its estimated fair value, an impairment loss is recognized for
the excess of carrying amount over the fair value of the respective reporting unit.
The estimated fair value of the reporting unit is determined by the discounted cash flow method taking into account expected long-
term operating cash-flow performance. The Company discounts projected operating cash flows using the reporting unit’s weighted
average cost of capital, including a risk premium to adjust for market risk. The estimated fair value is based on automotive industry
volume projections which are based on third-party and internally developed forecasts and discount rate assumptions. Significant
assumptions include terminal growth rates, terminal operating margin rates, future capital expenditures and working capital
requirements. To supplement this analysis, the Company compares the market value of its equity, calculated by reference to the
quoted market prices of its shares, to the book value of its equity.
In the fourth quarter of 2017, in connection with the annual impairment test, the Company recorded a goodwill impairment charge
of $234 million relating to its Brake Systems Segment (see Note 4, Business Combinations). There is no remaining goodwill
related to the Brake Systems Segment after the impairment. There were no impairments of goodwill for 2018 and 2016.
Warranties and Recalls
The Company records liabilities for product recalls when probable claims are identified and when it is possible to reasonably
estimate costs. Recall costs are costs incurred when the customer decides to formally recall a product due to a known or suspected
safety concern. Product recall costs typically include the cost of the product being replaced as well as the customer’s cost of the
recall, including labor to remove and replace the defective part. Insurance receivables, related to recall issues covered by the
insurance, are included within other current assets in the Consolidated Balance Sheets.
Provisions for warranty claims are estimated based on prior experience, likely changes in performance of newer products and the
mix and volume of products sold. The provisions are recorded on an accrual basis.
69
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Pension and Other Post-Employment Benefits
Veoneer’s employees participate in both defined contribution plans and defined benefit plans sponsored by Veoneer in Japan (the
Japan plans), Canada (the Canada plans), and France (the France plans) and certain defined benefit plans sponsored by Autoliv in
Sweden (the Sweden plans) and US (the US plans). A defined contribution plan generally specifies the periodic amount that the
employer must contribute to the plan and how that amount will be allocated to the eligible employees who perform services during
the same period. A defined benefit pension plan is one that contains pension benefit formulas, which generally determine the
amount of pension benefits that each employee will receive for services performed during a specified period of employment.
For the Japan, Canada, and France plans, the amount recognized as a defined benefit liability is the net total of projected benefit
obligation (PBO) minus the fair value of plan assets (if any). The plan assets are measured at fair value. The inputs to the fair value
measurement of the plan assets are mainly level 2 inputs (see Note 5, Fair Value Measurements). Veoneer has considered the
remaining plans to be part of a multiemployer plan with Autoliv and does not record a corresponding asset or liability. Pension
expense was allocated and reported within Costs of sales, Selling, general and administrative expenses and Research, development
and engineering expenses in the Consolidated Statements of Operations. The expense related to Veoneer employees and allocated
expenses are included in these Consolidated Financial Statements.
Contingent Liabilities
Various claims, lawsuits 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 or other matters.
The Company diligently defends itself in such matters and, in addition, carries insurance coverage to the extent reasonably available
against insurable risks.
The Company records liabilities for claims, lawsuits and proceedings when they are probable, and it is possible to reasonably
estimate the cost of such liabilities. Legal costs expected to be incurred in connection with a loss contingency are expensed as
such costs are incurred.
The Company believes, based on currently available information, that the resolution of outstanding matters, described in Note 16,
Commitments and Contingencies, after taking into account recorded liabilities and available insurance coverage, should not have
a material effect on the Company’s financial position or results of operations.
However, due to the inherent uncertainty associated with such matters, there can be no assurance that the final outcomes of these
matters will not be materially different than currently estimated.
Translation of Non-US Subsidiaries
The balance sheets of subsidiaries with functional currency other than U.S. dollars are translated into U.S. dollars using year-end
exchange rates.
The statement of operations of these subsidiaries is translated into U.S. dollars using the average exchange rates for the year.
Translation differences are reflected in equity as a component of OCI.
Receivable and Liabilities in Non-Functional Currencies
Receivables and liabilities not denominated in functional currencies are converted at year-end exchange rates. Net transaction
gains/(losses) that are reflected in the Consolidated Statements of Operations amounted to $(2) million in 2018, $3 million in 2017
and $1 million in 2016. These are recorded in operating income if they relate to operational receivables and liabilities or are
recorded in other non-operating items, net if they relate to financial receivables and liabilities.
Recently Issued Accounting Pronouncements
Adoption of New Accounting Standards
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)
2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income (AOCI), which allows a reclassification from AOCI to retained earnings for stranded
tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Act”). Consequently, the amendments in ASU 2018-02 eliminate
70
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
the stranded tax effects resulting from the Act. The amendments in ASU 2018-02 are effective for all entities for annual periods
beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted as of the
beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for
issuance. The amendments in ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period
(or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company
adopted early ASU 2018-02 as of January 1, 2018 and the adoption did not have a material impact on the consolidated financial
statements for any periods presented.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”)
provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of
foreign corporations. In the first quarter of 2018, the Company elected to treat any potential GILTI inclusions as a period cost.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill
Impairment, which simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill
impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill
with the carrying amount. Instead, entities should perform annual or interim goodwill impairment tests by comparing the fair value
of a reporting unit with its carrying amount and recognize an impairment charge for the excess of carrying amount over the fair
value of the respective reporting unit. The amendments in ASU 2017-04 are effective for public business entities for annual or
interim goodwill impairment tests in annual periods beginning after December 15, 2019. Early adoption is permitted for interim
or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted ASU 2017-04
effective January 1, 2017. As this standard is prospective in nature, the impact to the Company’s financial statements by not
performing step two to measure the amount of any potential goodwill impairment will depend on various factors. However, the
elimination of step two reduces the complexity and cost of the subsequent measurement of goodwill. This new standard was applied
in conjunction with assessing Goodwill impairment as discussed in Note 2, Summary of Significant Accounting Policies.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805)—Clarifying the Definition of a Business,
which provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that
when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or
a group of similar identifiable assets, the set is not a business. The amendments in ASU 2017-01 are effective for public business
entities for annual periods beginning after December 15, 2017, and interim periods within those periods. ASU 2017-01 should be
applied prospectively. Early adoption is permitted. The Company early adopted ASU 2017-01 effective January 1, 2017 for new
transactions that have not been reported in financial statements that have been issued or made available for issuance. As this
standard is prospective in nature, the impact to the Company’s financial statements will depend on the nature of the Company’s
future acquisitions. This new standard was applied in conjunction with the Zenuity joint venture and the Fotonic i Norden dp AB
acquisition as discussed in Note 9, Equity Method Investment and Note 4, Business Combinations, respectively, to the consolidated
financial statements for any periods presented.
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715) - Improving the Presentation of
Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost, which requires the service cost component to be reported
in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the
period. The other components of net benefit cost are required to be presented in the Consolidated Statements of Operations separately
from the service cost component and outside operating income. The amendments in ASU 2017-07 are effective for public business
entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The
amendments in ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other
components of net periodic pension cost and net periodic post-retirement benefit cost in the Consolidated Statements of Operations.
The Company adopted ASU 2017-07 in the first quarter of 2018 and the adoption did not have a material impact on the consolidated
financial statements for any periods presented (see Note 14, Retirement Plans).
In May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-09,
Compensation-Stock Compensation (Topic 718) – Scope of Modification Accounting, which provides guidance about which changes
to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An
entity should account for the effects of a modification unless (a) the fair value of the modified award is the same as the fair value
of the original award, (b) the vesting conditions of the modified award are the same as the vesting conditions of the original award
and (c) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification
of the original award immediately before the original award is modified. The amendments in ASU 2017-09 are effective for public
business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods.
Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which
71
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
financial statements have not been issued. The amendments in ASU 2017-09 should be applied prospectively to an award modified
on or after the adoption date. The Company early adopted ASU 2017-09 in the second quarter beginning April 1, 2017. As this
standard is prospective in nature, the impact to the Company’s financial statements will depend on the nature of the Company’s
future award modifications. There have been no modifications to awards to date in 2017.
In March 2016, the FASB issued ASU 2016-09, Compensation— Stock Compensation (Topic 718), which simplifies the accounting
for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities,
and classification on the statement of cash flows. For public business entities, the amendments in ASU 2016-09 are effective for
annual periods beginning after December 15, 2016, and interim periods within those annual periods. Amendments related to the
timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value
should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the
beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the
statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be
applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and
the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments
related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a
retrospective transition method. The Company adopted ASU 2016-09 effective January 1, 2017 and has elected to recognize
forfeitures as they occur. The adoption of ASU 2016-09 did not have a material impact on the consolidated financial statements
for any periods presented.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts
and Cash Payments, which provides guidance on reducing the diversity in practice on eight cash flow classification issues and
how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU
2016-15 are effective for public business entities for annual periods beginning after December 15, 2017, and interim periods within
those annual periods. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments
in an interim period, any adjustments should be reflected as of the beginning of the annual period that includes that interim period.
The amendments in ASU 2016-15 should be applied using a retrospective transition method to each period presented. The Company
early adopted ASU 2016-15 effective January 1, 2017. The adoption of ASU 2016-15 did not have a material impact on the
consolidated financial statements for any periods presented.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other Than Inventory,
which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when
the transfer occurs. Historical GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer
until the asset has been sold to an outside party. Consequently, the amendments in this ASU 2016-16 eliminate the exception for
an intra-entity transfer of an asset other than inventory. Two common examples of assets included in the scope of ASU 2016-16
are intellectual property and property, plant, and equipment. The amendments in ASU 2016-16 are effective for public business
entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The
amendments in ASU 2016-16 should be applied on a modified retrospective basis through a cumulative-effect adjustment directly
to equity as of the beginning of the period of adoption. The Company's adoption of ASU 2016-16 effective January 1, 2018 did
not have a material impact on consolidated financial statements for any periods presented.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single,
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most
current revenue recognition guidance issued by the FASB, including industry specific guidance. In 2016, the FASB issued
accounting standard updates to address implementation issues and to clarify guidance in certain areas. The core principle of the
guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that
reflects the consideration which the Company expects to receive in exchange for those goods or services. In addition, ASU 2014-09
requires certain additional disclosure around the nature, amount, timing, and uncertainty of revenue and cash flows arising from
contracts with customers. The Company adopted ASU 2014-09 effective January 1, 2018 and utilized the modified retrospective
(cumulative effect) transition method. The Company applied the modified retrospective transition method through a cumulative
adjustment to equity. The adoption of the new revenue standard did not have a material impact on the consolidated financial
statements for any periods presented. The table below shows the adjustments made due to ASU 2014-09.
72
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Balance Sheet
(Dollars in millions)
Assets
Inventories, net
Prepaid expenses and contract assets
Equity
Net Former Parent investment
Income Statement
(Dollars in millions)
Net sales
Cost of sales
Operating loss
Balance Sheet
(Dollars in millions)
Assets
Inventories, net
Prepaid expenses and contract assets
Equity
Additional paid-in capital
Accounting Standards Issued But Not Yet Adopted
Balance at
December 31,
2017
Adjustments due
to ASU 2014-09
Balance at
January 1,
2018
154
$
34
(5) $
7
149
41
844
$
1
$
845
Year Ended December 31, 2018
Balances
without
adoption of
ASC 606
Effect of
Changes
As Reported
$
$
2,228
(1,798)
(197)
$
2,227
(1,797)
(197)
As of December 31, 2018
As Reported
Balances without
adoption of
ASC 606
Effect of
Changes
172
$
39
178
$
31
1,938
$
1,937
$
1
(1)
—
(6)
8
1
$
$
$
$
In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses,
which provides improvements to ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments. Specifically, ASU 2018-19 clarifies that receivables arising from operating leases are not within the
scope of Subtopic 326-20, Measured at Amortized Cost, and states that impairment of receivables arising from operating leases
should be accounted for in accordance with ASC Topic 842, Leases. The Company is required to adopt ASU 2018-19 concurrently
with ASU 2016-13 in the first quarter of 2020 and is currently evaluating the impact of the ASU 2018-19 of its 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 is required to adopt ASU 2018-18 in
the first quarter of 2020 and is currently evaluating the impact of ASU 2018-18 on its consolidated financial statements.
In October 2018, the FASB issued ASU 2018-17 Consolidation (Topic 810), Targeted Improvements to Related Party Guidance
for Variable Interest Entities, which allows a private company (reporting entity) to elect not to apply variable interest entity (VIE)
guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal
entity being evaluated for consolidation are not public business entities. The accounting alternative provides an accounting policy
election that a private company will apply to all current and future legal entities under common control that meet the criteria for
applying this alternative. If the alternative is elected, a private company should continue to apply other consolidation guidance,
73
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
particularly the VIE guidance, unless another scope exception applies. The Company is required to adopt ASU 2018-17 in the first
quarter of 2020 and is currently evaluating the impact of ASU 2018-17 on its consolidated financial statements.
In October 2018, the FASB issued ASU 2018-16 Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing
Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which provides
amendments to ASU 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities.
The amendments in ASU 2018-16 permit use of the Overnight Index Swap (OIS) Rate based on the Secured Overnight Financing
Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the U.S. Government
(UST) Rate, the London Interbank Offered Rate (LIBOR) Swap Rate, the OIS Rate based on the Fed Funds Effective rate, and
the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. The Company is required to adopt ASU
2018-16 concurrently with ASU 2017-12 in the first quarter of 2019. The Company does not expect ASU 2017-12 to have material
impact to the 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 its disclosures.
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 is currently evaluating this guidance to determine the impact on its disclosures.
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 is currently evaluating the impact of the Company’s pending
adoption of ASU 2016-13 on the consolidated financial statements for any periods presented.
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. Early adoption is permitted. The Company intends to adopt ASU 2016-02 in the annual period beginning January
1, 2019. The Company intends to apply the modified retrospective transition method and elect the transition option to use the
effective date January 1, 2019, as the date of initial application. The Company will not adjust its comparative period financial
statements for effects of the ASU 2016-02, or make the new required lease disclosures for periods before the effective date. The
Company will recognize its cumulative effect transition adjustment as of the effective date. In addition, we intend to elect the
package of practical expedients permitted under the transition guidance within the new standard, which among other things, will
allow us to carry forward the historical lease classification. The Company has made an accounting policy election to not recognize
lease assets or liabilities for leases with a term of 12 months or less. In addition, the Company has also made an accounting policy
election to combine all lease and the related non-lease components as a single component.
74
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
During the fourth quarter, the Company continued its process to identify leasing arrangements and to compare its accounting
policies and practices to the requirements of the new standard. Specifically, the Company is continuing to assess whether there
are any “embedded leases” in arrangements with its suppliers and customers. In addition, the Company has identified and is
implementing necessary changes to processes and controls to support recognition and disclosure under the new standard. In the
first quarter of 2019, the Company will continue its testing of the updated process controls including controls specific to the new
third-party software. The Company has substantially completed aggregating and evaluating lease contracts and is in the final stages
of implementing a new lease accounting system to support the accounting and disclosure requirements of this standards update.
Upon adoption, the Company anticipates recording a right-of-use asset and lease liability on its Consolidated Balance Sheet similar
in magnitude to the total present value of outstanding future minimum payments for operating leases and Build-To-Suit lease
obligation s as shown in Note 16, Commitments and Contingencies; therefore, the Company expects this standards update will
have a material impact on our Consolidated Balance Sheets and related disclosures. The adoption of this standards update is not
expected to have a material impact on our Consolidated Statements of Operations or Statements of Cash Flows.
NOTE 3. Revenue
Disaggregation of revenue
The Company has attributed net sales to the geographic area based on the location of the entity selling the final product. Of the
net sales, exports from the U.S. to other regions amounted to approximately $356 million, $159 million and $222 million in 2018,
2017 and 2016, respectively.
In the following tables, revenue is disaggregated by primary region and products of revenue recognition.
Net Sales by Region
Asia
Americas
Europe
Total region sales
Less: intercompany sales
Total
Year Ended December 31
2018
Brake
Systems
Electronics
Total
Electronics
2017
Brake
Systems
Total
Electronics
2016
Brake
Systems
Total
$
424
696
680
1,799
—
$
370
$ 794
$
58
—
428
—
754
680
2,228
—
$
489
698
663
362
114
—
$ 851
$
812
663
521
717
598
$ 276
$ 797
115
—
832
598
1,850
(1)
476
(3)
2,326
(4)
1,837
(1)
391
(8)
2,228
(9)
$
1,800
$
428
$ 2,228
$
1,849
$
473
$ 2,322
$
1,835
$ 383
$2,218
75
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Net Sales by Products
Year Ended December 31
2018
Brake
System
s
Electronics
2017
Brake
Systems
Total
Electronics
2016
Brake
System
s
Total
Total
Electronics
Restraint Control Systems
Active Safety products
Brake Systems
Total product sales
Less: intercompany sales
Total net sales
$
$
974
825
$ — $ 974
$
1,073
$ — $ 1,073
$
1,097
$ — $1,097
—
825
— 428
428
—
$ 428
1,799
—
1,800
428
2,228
—
$ 2,228
$
778
—
1,850
(1)
1,849
—
778
476
476
(3)
$ 473
476
2,326
(4)
$ 2,322
$
740
—
1,837
(1)
1,835
—
740
391
391
(8)
$ 383
391
2,228
(9)
$2,218
The following tables provide information about receivables and contract assets from contracts with customers.
Contract Balances with Customers
Receivables, net
Contract assets1
1 Included in prepaid expenses and other contract assets in the Consolidated Balance Sheets
Changes in the contract asset balances during the period are as follows:
Change in Contract Balances with Customers1
As of December 31
2018
2017
$
376
$
8
448
—
Beginning balance
Increases due to cumulative catch up adjustment
Increases due to revenue recognized
Decreases due to transfer to receivables
Ending balance
1 The contract asset is determined at each period end, this table reflects the rollforward of the period end balance.
Contract Costs
December 31, 2018
Contract assets
$
$
—
8
31
(31)
8
As of December 31, 2018, the Company has capitalized $12 million of direct and incremental contract costs incurred in connection
with obtaining a contract with a customer. These costs will be amortized as the related goods are transferred.
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 consolidated financial statements prospectively from their date of acquisition.
Fotonic i Norden dp AB
On November 1, 2017, Veoneer completed the acquisition of all the shares in Fotonic i Norden dp AB (Fotonic), headquartered
in Stockholm and Skellefteå in Sweden. The acquisition date fair value of the total consideration transferred was $17 million,
consisting of a $15 million cash payment and $2 million of deferred purchase consideration, payable at the 18-month anniversary
of the closing date. The deferred purchase consideration reflects the holdback amount as stipulated in the share purchase agreement.
The transaction has been accounted for as a business combination, with the purchase price allocation reflecting the final valuation
results.
76
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Fotonic provides Lidar and Time of Flight camera expertise and the acquisition included 35 Lidar and Time of Flight engineering
experts, in addition to defined tangible and intangible assets. The strength of the acquired competence is on the Lidar and Time
of Flight camera hardware side which form a complement to Veoneer’s skillset in the Lidar software and algorithms area. Lidar
technology is an enabling technology for Highly Automated Driving and considered the primary sensor by all system developers.
Fotonic is being reported in the Electronics segment.
The net assets acquired as of the acquisition date amounted to $17 million. The fair values of identifiable assets acquired consisted
of Intangible assets of $4 million and Goodwill of $13 million, and the fair value of liabilities assumed consisted of Other current
liabilities was less than a $1 million. Acquired Intangibles consisted of the fair value of background IP (patent & technical know-
how). The useful life of the IP is five years and will be amortized on a straight-line basis. The recognized goodwill which is tax
deductible primary reflects the valuation of the acquired workforce of specialist engineers.
Veoneer-Nissin Brake Systems
On March 31, 2016, the Company acquired a 51% interest in the entities that formed Veoneer-Nissin Brake Systems (Brake
Systems) for approximately $263 million in cash. This entity comprises the Company’s Brake Systems Segment. Brake Systems
designs, manufactures and sells products in the brake control and actuation systems business. Nissin Kogyo retained a 49% interest
in the entities that formed Brake Systems. The Company has management and operational control of Brake Systems and has
consolidated the results of operations and balance sheet from Brake Systems from the date of the acquisition forward. The transaction
was accounted for as a business combination.
The acquisition combined Nissin Kogyo’s expertise and technology in brake control and actuation systems with the Company’s
global reach and customer base to create a global competitive offering in the growing global Brake Systems market. Brake Systems
is expected to further strengthen the Company’s role as a system supplier of products and systems for autonomous driving vehicles.
From the date of the acquisition through December 31, 2016, the Brake Systems business reported net sales of $391 million and
a net loss attributable to controlling interest of $5 million. The net loss attributable to the non-controlling interest was $7 million.
The operating loss from the date of the acquisition through December 31, 2016 included $1 million of purchase accounting inventory
fair value step-up adjustments in cost of sales upon the sale of acquired inventory.
Total Brake Systems acquisition related costs were approximately $2 million for consolidated the year ended December 31, 2016.
These costs were reflected in Selling, general and administrative expenses in the Consolidated Statements of Operations.
The acquisition date fair value of the consideration transferred for the Company’s 51% interest in the entities that formed Brake
Systems was $263 million in a cash transaction.
77
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
The following table summarizes the finalized fair values of identifiable assets acquired and liabilities assumed:
Assets:
Cash and cash equivalents
Receivables
Inventories
Other current assets
Property, plant and equipment
Other non-current assets
Intangibles
Goodwill
Total assets
Liabilities:
Accounts payable
Other current liabilities
Pension liabilities
Other non-current liabilities
Total liabilities
Net assets acquired
Less: Non-controlling interest
Controlling interest
As of March 31, 2016
38
$
2
33
8
139
—
112
235
566
6
23
9
13
51
515
(252)
263
$
$
$
$
$
$
Acquired Intangibles primarily consisted of the fair value of customer contracts of $51 million and certain technology of $61
million. The customer contracts will be amortized straight-line over 7 years and the technology will be amortized straight-line
over 10 years.
The recognized goodwill of $235 million reflects expected synergies from combining the Company's global reach and customer
base with Nissin Kogyo’s expertise (including workforce) and technology in brake control and actuation systems. A portion of the
goodwill is deductible for tax purposes.
Veoneer recognized related party short term debt of $4 million as of December 31, 2016, due to financing at Veoneer Nissin Brake
Systems China Zhongshan (a 51% owned subsidiary). This $4 million debt facility was wholly repaid as of December 31, 2017.
NOTE 5. 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.
78
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
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 December 31, 2018 and 2017 were foreign exchange swaps and
forward contracts. All swaps principally match the terms and maturity of the underlying debt and no swaps have a maturity beyond
six months. All derivatives are recognized in the consolidated financial statements at fair value. Certain derivatives are from time
to time designated either as fair value hedges or cash flow hedges in line with the hedge accounting criteria. For certain other
derivatives hedge accounting is not applied either because non-hedge accounting treatment creates the same accounting result or
the hedge does not meet the hedge accounting requirements, although entered into applying the same rationale concerning mitigating
market risk that occurs from changes in interest and foreign exchange rates. The Company’s derivatives are classified as Level 2
of the fair value hierarchy and there were no transfers between the levels during this or comparable periods.
During the first quarter of 2018, foreign exchange forward contracts designated as cash flow hedges of certain external purchasing
were terminated. The loss associated with such termination was not material.
Financial Statement Presentation
The Company enters into master netting agreements, International Swaps and Derivatives Association (ISDA) agreements with
all derivative counterparties. The netting agreements allow for netting of exposures in the event of default or breach of the
counterparty agreement. The fair values in the Consolidated Balance Sheets have been presented on a gross basis. Derivative
financial instruments designated and non-designated as hedging instruments are included in the Consolidated Balance Sheets .
The nominal value of the derivatives not designated as hedging instruments was $103 million and $67 million as of December
31, 2018 and 2017, respectively. As of December 31, 2018 and 2017 the liability of the derivatives not designated as hedging
instruments was less than $1 million and $1 million, respectively.
Gains and losses on derivative financial instruments for the periods presented are as follows:
Foreign currency risk -Cost of sales:
Recorded into gain (loss)
Recorded gains (loss) into AOCI net of tax
Less: reclassified from AOCI into gain (loss)
Year ended December 31
2017
2016
2018
Foreign exchange
forward contracts
Foreign exchange
forward contracts
Foreign exchange
forward contracts
$
$
— $
—
(1)
1
$
— $
(4)
5
(9) $
—
9
1
8
Contingent consideration - The fair value of the contingent consideration relating to the MACOM acquisition on August 17, 2015
is re-measured on a recurring basis. The fair value measurements are generally determined using unobservable inputs and are
classified within Level 3 of the fair value hierarchy. The Company adjusted the fair value of the earn-out liability to $14 million
during 2017 based on actual revenue levels to date as well as changes in the estimated probability of different revenue scenarios
for the remaining contractual earn-out period. Income of approximately $13 million was recognized within other income in the
Consolidated Statements of Operations during the year ended December 31, 2017 due to the decrease in the contingent consideration
liability. The remaining fair value of the earn-out liability of $14 million as of December 31, 2017 was fully released to and
recognized within Other income during the year ended December 31, 2018, driven by changes in the estimated probability of
different revenue scenarios for the remaining contractual earn-out period such that management no longer believes that there are
any scenarios under which the earn-out criteria could be met. Management has updated its analysis as of December 31, 2018 and
continues to believe that the fair value of the contingent consideration is $0 million.
79
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
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.
In the fourth quarter of 2017, the Company recognized an impairment charge of the full goodwill related to VNBS, resulting in
an impairment loss of $234 million, which was included in earnings for the period. The primary driver of the goodwill impairment
was due to the lower expected long-term operating cash flow performance of the business unit as of the measurement date. The
remaining goodwill balance as of December 31, 2018 and 2017 was not measured at fair value as impairment indicators did not
exist.
In the first quarter of 2017, the Company recognized an impairment charge to amortization of intangibles of $12 million related
to a contract with an OEM customer of MACOM products, which was included in earnings for the period. As of December 31,
2017, the intangible value related to this customer contract was fully amortized. The remaining intangibles balance as of
December 31, 2018 and 2017 was not measured at fair value as impairment indicators did not exist.
Investments
The Company may, as a practical expedient, estimate the fair value of certain investments using NAV of the investment as of the
reporting date. This practical expedient generally deals with investments that permit an investor to redeem its investment directly
with, or receive distributions from, the investee at times specified in the investee’s governing documents. Examples of these
investments (often referred to as alternative investments) may include ownership interests in real assets, certain credit strategies,
and hedging and diversifying strategies. They are commonly in the form of limited partnership interests. The Company uses NAV
as a practical expedient when valuing investments in alternative asset classes and funds which are a limited partnership or similar
investment vehicle.
On June 30, 2017, Veoneer committed to make a $15 million investment in Autotech Fund I, L.P. pursuant to a limited partnership
agreement, and as a limited partner, will periodically make capital contributions toward this total commitment amount. As of
December 31, 2018, Veoneer contributed a total of $8 million to the fund.
The carrying amounts reflected in the Consolidated Balance Sheet in Investments for the AutoTech Fund I, L.P approximates its
fair values.
80
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
NOTE 6. Income Taxes
Loss before taxes
U.S.
Non-U.S.
Total
Provision for income taxes
Current
Non-U.S.
Deferred
U.S. federal
Non-U.S.
Total income tax expense
Effective income tax rate
U.S. federal income tax rate
Foreign tax rate variances
State taxes, net of federal benefit
Tax credits
Change in Valuation Allowances
Non-Controlling Interest
Earnings of equity investments
Withholding taxes
Goodwill impairment
Change in U.S. tax rate
Other, net
Provision for income taxes
Year Ended December 31
2017
2016
2018
(54) $
(199)
(253) $
(200) $
(114)
(314) $
(78)
56
(22)
Year Ended December 31
2017
2016
2018
22
$
40
$
(4)
24
42
$
(1)
(9)
30
$
Year Ended December 31
2017
2016
2018
(53) $
1
—
(9)
79
3
13
5
—
—
3
42
$
(110) $
9
(2)
(10)
62
21
7
4
13
35
2
30
$
41
2
(4)
38
(8)
(2)
(1)
(9)
51
1
—
4
—
—
1
38
$
$
$
$
$
$
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Act makes broad and complex changes to the
U.S. tax code, including reducing the U.S. federal corporate income tax rate from 35% to 21%, requiring companies to pay a one-
time transition tax on earnings of certain foreign subsidiaries that were previously deferred and creates new taxes on certain foreign
sourced earnings. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) on December 22, 2017. SAB 118 allows for a
measurement period in which companies can either use provisional estimates for changes resulting from the Tax Act or apply the
tax laws that were in effect immediately prior to the Tax Act being enacted if estimates cannot be determined at the time of the
preparation of the financial statements until the actual impacts can be determined. The Company has completed the Company’s
accounting for the effects on the Company’s existing deferred tax balances. Due to the full valuation allowance related to the
Company’s U.S. operations, the impact to deferred taxes had a net zero impact to the Company except as it relates to a deferred
tax liability related to tax deductible goodwill which resulted in a benefit of $4 million recorded for the year ended December 31,
2018 which
in valuation allowances. Pursuant to the Tax Matters Agreement entered
into with Autoliv in connection with the Spin-Off, Autoliv is the primarily obligor on all taxes which relate to any period prior to
April 1, 2018. Consequently the Company is not liable for any transition taxes under the Tax Act.
reflected as a change
is
81
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
The Tax Act created a new requirement that certain Global Intangible Low Taxed Income (“GILTI”) earned by foreign subsidiaries
must be included currently in the gross income of the U.S. shareholder. Under U.S. GAAP, the Company is permitted to make an
accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period
expense when incurred or to factor such amounts into the Company’s measurement of deferred taxes. The Company has determined
that it will treat the impact of GILTI as a period cost. The Tax Act also included other provisions effective in 2018, designated as
(1) foreign derived intangible income (“FDII”), (2) interest disallowance and (3) base erosion anti-abuse tax (“BEAT”), that were
considered in the income tax provision for the year ended December 31, 2018.
The tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities
were as follows:
Deferred taxes
Assets
Provisions
Costs capitalized for tax
Acquired intangibles
Tax receivables, principally net operating loss carryforward
Credits
Other
Deferred tax assets before allowances
Valuation allowances
Total
Liabilities
Property, plant and equipment
Distribution taxes
Other
Total
Net deferred tax asset (liability)
As of December 31
2018
2017
$
$
$
$
$
39
1
20
74
2
3
139
(125)
14
$
$
$
(9)
(7)
—
(16) $
(2) $
44
2
12
112
9
—
179
(150)
29
(6)
(8)
(2)
(16)
13
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. On December 31, 2018, the Company had net
operating loss carryforwards (NOL’s) of approximately $289 million, of which approximately $153 million have no expiration
date. The remaining losses expire on various dates through 2027. The Company also has $2 million of U.S. Research and
Development Credit carry forwards, which expire in 2038.
The Company assesses all available evidence, both positive and negative, to determine the amount of any required valuation
allowance. In the fourth quarter of 2018, one of the Company’s Asian subsidiaries entered into a long-term development contract
which will result in projected losses in that jurisdiction. While this entity has historically been profitable, the Company has
determined that, given the projected losses along with indications that there may be a slowdown in this jurisdiction, it is no longer
more likely than not that its deferred tax assets in the jurisdiction will be realizable and therefore has recorded a full valuation
allowance against this entity’s deferred tax assets. Valuation allowances have been established for the Company’s US, Sweden,
China and Japan operations and the Company’s joint venture in Japan. Such allowances are provided against each entity’s net
deferred tax assets, primarily NOL’s, due to a history of cumulative losses or changes to projected future earnings which would
support the recognition of the net deferred tax assets.
The Company has recorded a deferred tax asset of $11 million and $30 million as of December 31, 2018 and 2017, respectively,
and $13 million and $17 million of deferred tax liabilities as of December 31, 2018 and 2017, respectively, in the Consolidated
Balance Sheets.
82
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
The following table summarizes the activity related to the Company’s valuation allowances:
Valuation Allowances Against Deferred Tax Assets
Allowances at beginning of year
Benefits reserved current year
Benefits recognized current year
Settlement of tax matters with Former Parent1
Change in Tax rate /impact of U.S. tax reform
Translation difference
Allowances at end of year
1Impact is reflected in equity in conjunction with the Spin-Off
As of December 31
2018
2017
$
$
150
83
—
(101)
(4)
(3)
125
$
$
90
98
(4)
—
(35)
1
150
The Company has reserves for income taxes that represent the Company’s best estimate of the potential liability for tax exposures.
Inherent uncertainties exist in estimates of tax exposures due to changes in tax law, both legislated and concluded through the
various jurisdictions’ court systems. Any income tax liabilities resulting from operations prior to the legal date of separation, were
settled with Former Parent on the last day Veoneer was part of the Autoliv group and were relieved through the Former Parent
company investment. The Company files income tax returns in the United States federal jurisdiction, and various states and non-
U.S. jurisdictions.
Since the Company’s operations were generally part of an existing Autoliv legal entity through April 1, 2018 or June 30, 2018
(depending on the jurisdiction), the existing Autoliv legal entity was the primary obligor and is responsible for handling any income
tax audit and settling any audits with the taxing authority. To the extent that the Company has accrued a liability for an uncertain
tax position related to a period prior to the separation, such liabilities were settled with Former Parent on the last day the Company
was part of the Former Parent’s group and were relieved through the Parent company investment.
The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in tax expense. As of December 31,
2018, the Company had recorded $2 million for unrecognized tax benefits. Of the total unrecognized tax benefits as of December
31, 2018, $1 million is classified as a current income tax payable and $1 million is classified as non-current tax payable included
in Other Non-Current Liabilities in the Consolidated Balance Sheets. Approximately $2 million of these reserves would impact
income tax expense if released into income. The Company expects a change to its unrecognized tax benefits of approximately $1
million in the next twelve months.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
Unrecognized Tax Benefits
Unrecognized tax benefits at beginning of year
Increases as a result of tax positions taken during the current period
Settlement with net former parent
Total unrecognized tax benefits at end of year
As of December 31
2017
2018
$
$
2
2
(2)
2
$
$
1
1
—
2
The Company deferred tax liability for unremitted foreign earnings was $7 million as of December 31, 2018. The $7 million
deferred tax liability represented our estimate of the foreign tax cost associated with our preliminary estimate of $146 million of
foreign earnings that are not considered to be permanently reinvested. The Company have not provided for foreign withholding
or income taxes on the remaining foreign subsidiaries’ undistributed earnings because such earnings have been retained and
reinvested by the subsidiaries as of December 31, 2018. Accordingly, no provision has been made for foreign withholding or
income taxes, which may become payable if the remaining undistributed earnings of foreign subsidiaries were paid to us as
dividends.
83
NOTE 7. Receivables
Receivables
Allowance at beginning of year
Reversal of allowance
Allowance at end of year
Total receivables, net of allowance
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
As of December 31
2018
2017
$
$
$
$
378
$
(2) $
—
(2) $
$
376
450
(4)
2
(2)
448
The Company receives bank acceptance notes which are registered and endorsed to the Company, and generally matures within
six months from certain of its customers in China to settle trade accounts receivable. These guaranteed notes are available for
discounting with banking institutions in China or transferring to suppliers to settle liabilities. The Company may hold such bank
acceptance notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third party financial institutions
in exchange for cash.
As of December 31, 2018, the Company has $19 million of of bank acceptance notes in China, and $10 million of trade receivables
in France which remain outstanding and will mature within the first half of 2019. The collections of such bank acceptance notes
and trade receivables are included in operating cash flows based on the substance of the underlying transactions, which are operating
in nature. The fair value of the guaranteed notes receivables in China is determined based on Level 2 inputs including credit ratings
and other criteria observable in the market. The fair value of these notes equal their carrying amounts of $9 million as of December
31, 2018.
During the year ended December 31, 2018, the Company entered into arrangements with financial institutions and factored trade
receivables of $10 million in France and bank notes of $9 million in China. They were accounted for as secured borrowings with
pledged collateral and recorded in the Consolidated Balance Sheets within “Receivable, net” and “Other current liabilities.”
NOTE 8. Inventories
Raw material
Work in progress
Finished products
Inventories
Inventory reserve at beginning of year
Reversal of reserve
Addition to reserve
Write-off against reserve
Translation difference
Inventory reserve at end of year
Total inventories, net of reserve
NOTE 9. Equity Method Investment
As of December 31
2018
2017
$
$
$
$
$
108
$
15
71
194
$
(27) $
1
(3)
5
1
(23) $
$
172
90
21
70
181
(25)
5
(6)
1
(2)
(27)
154
As of December 31, 2018, the Company has one equity method investment.
On April 18, 2017, Autoliv and Volvo Cars completed the formation of their joint venture, Zenuity AB. Autoliv’s interest in Zenuity
was transferred to Veoneer in connection with the Spin-Off. Autoliv made an initial cash contribution of SEK 1 billion
(approximately $111 million as of April 18, 2017) and also contributed intellectual property, lab equipment and an assembled
workforce. Veoneer and Volvo Cars each have a 50% ownership of Zenuity and neither entity has the ability to exert control over
the joint venture, in form or in substance. Veoneer accounts for its investment in Zenuity under the equity method and the investment
is shown in Equity method investment in the Consolidated Balance Sheets. The contributed intellectual property, lab equipment,
84
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
and an assembled workforce have been assessed to constitute a business as defined by ASU 2017-1, Business Combinations (Topic
805) – Clarifying the Definition of a Business. FASB ASC Topic 810, Consolidation states that when a group of assets that constitute
a business is derecognized, the carrying amounts of the assets and liabilities are removed from the Consolidated Balance Sheets.
The investor would recognize a gain or loss based on the difference between the sum of the fair value of any consideration received
less the carrying amount of the group of assets and liabilities contributed at the date of the transaction. The equity value of Zenuity
on the date of the closing of the transaction of approximately $250 million was calculated using the discounted cash flow method
of the income approach. Veoneer’s 50% share of the equity value, approximately $125 million, represented its investment in
Zenuity, including its cash contribution at inception.
As of December 31, 2018, Veoneer had contributed SEK 600 million (approximately $71 million) in cash (representing 50% of
the total contribution, with the remainder made by Volvo Cars) into Zenuity to support its future operating cash flow needs.
The profit and loss attributed to the investment is shown in Loss from equity method investment in the Consolidated Statements
of Operations. Veoneer’s share of Zenuity’s loss for the years ended December 31, 2018 and 2017 was $63 million and $31 million,
respectively. As of December 31, 2018 and 2017, the Company’s equity investment in Zenuity amounted to $101 million and $98
million, respectively, after consideration of foreign exchange movements.
Certain audited Summarized Income Statement information of Zenuity is shown below:
Net sales
Gross profit
Operating loss
Loss before income taxes
Net loss
NOTE 10. Property, Plant and Equipment
DECEMBER 31
Land and land improvements
Machinery and equipment
Buildings
Construction in progress
Property, plant and equipment
Less accumulated depreciation
Net of accumulated depreciation
DEPRECIATION INCLUDED IN
Cost of sales
Selling, general and administrative expenses
Research, development and engineering expenses, net
Total
$
$
$
$
$
Year Ended December 31
2018
2017
2016
$
$
$
5
—
(125)
(125)
(125) $
$
5
—
(61)
(61)
(61) $
—
—
—
—
—
As of December 31
2018
2017
21
$
662
111
177
971
(472)
499
$
$
20
610
76
72
778
(416)
362
Year Ended December 31
2017
2016
2018
62
3
22
88
$
$
58
2
22
82
$
$
Estimated
life
n/a to 15
3-8
20
n/a
51
1
19
71
In 2018 the Company recognized an impairment charge of approximately $1 million of fixed assets related to Brake Systems.
No significant fixed asset impairments were recognized during the year ended December 31, 2017 or 2016.
The net book value of machinery, equipment, buildings and land under capital lease contracts was $13 million and $11 million
as of December 31, 2018 and 2017, respectively.
85
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
NOTE 11. Goodwill and Intangible Assets
Intangible assets as of December 31, 2018 and 2017, were as follows:
Goodwill
Carrying amount at January 1, 2017
Acquisition
Goodwill impairment charge
Translation differences
Carrying amount at December 31, 2017
Translation differences
Carrying amount at December 31, 2018
Total
Electronics
Segment
Brake Systems
Segment
$
$
$
490
30
(234)
6
292
(1)
$
278
13
—
—
292
(1)
291
$
291
$
212
17
(234)
5
—
—
—
Of the $30 million of goodwill recognized as of December 31, 2017, $13 million is related to the Fotonic acquisition in the fourth
quarter of 2017 and $17 million is related to the finalization of the purchase price allocation for Brake Systems acquisition in the
first quarter of 2017 (see Note 4, Business Combinations). During the year ended December 31, 2017, the Company recognized
an impairment charge of the full goodwill amount of $234 million, after consideration of foreign exchange movements, related to
Brake Systems. The Company estimated the fair value of Brake Systems using the discounted cash flow method, taking into
account expected long-term operating cash-flow performance. The primary driver of the goodwill impairment was due to the lower
expected long-term operating cash flow performance of the business unit as of the measurement date. For more information
regarding the Company’s impairment testing, see section “Goodwill and Intangible Assets” in Note 2, Summary of Significant
Accounting Policies.
Amortizable Intangible
Gross carrying amount
Acquisition
Translation differences
Accumulated amortization
Carrying value
As of December 31
2018
2017
$
$
260
$
3
1
(161)
102
$
249
4
7
(138)
122
During the year ended December 31, 2017 the Company received information related to a contract with an OEM customer of
MACOM products and as a result the Company recognized an impairment charge to amortization of intangibles in the Consolidated
Statements of Operations for a customer contract of $12 million.
Of the carrying value of $102 million as of December 31, 2018, $71 million was related to the technology asset category and $31
million was related to the contractual relationships' asset category. Of the carrying value of $122 million at December 31, 2017,
$80 million was related to the technology asset category and $38 million was related to the contractual relationships' asset category.
The Company recorded approximately $23 million, $37 million and $35 million of amortization expense related to definite-lived
intangible assets for the years ended December 31, 2018, 2017 and 2016, respectively. The Company currently estimated future
amortization expense be $22 million for 2019, $21 million for 2020, $19 million for 2021, $17 million for 2022 and $8 million
for 2023. Indefinite-lived intangible assets are not amortized but are tested for impairment at least annually, or earlier when events
and circumstances indicate that it is more likely than not that such assets have been impaired.
86
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
$
As of December 31
2018
2017
$
55
66
39
16
55
57
36
22
NOTE 12. Accrued Expenses
Operating related accruals
Employee related accruals
Customer pricing accruals
Product related liabilities1
Other accruals
18
193
25
195
Total Accrued Expenses
1 As of December 31, 2018, $14 million of product related liabilities were indemnifiable losses subject to indemnification by Autoliv and an indemnification
$
$
asset is included in Other current assets, and there were no indemnification assets as of December 31, 2017.
NOTE 13. Other Comprehensive Loss
Other Comprehensive Loss1
Cumulative translation adjustments
Net gain (loss) of cash flow hedge derivatives
Pension liability
Total (ending balance)
Deferred taxes on the pension liability
1 The components of Other Comprehensive Loss are net of any related income tax effects.
NOTE 14. Retirement Plans
Defined Benefit Pension Plans
Year Ended December 31
2017
2016
2018
$
$
(10) $
—
(9)
(19) $
1
(2) $
(1)
(6)
(8) $
—
(31)
8
(6)
(29)
—
The defined benefit pension plans impacting the Veoneer financial results include the following:
Existing Veoneer Plans which are comprised of plans in Japan, Canada, and France, Transferred Veoneer Plans which are comprised
of plans in Germany, India, Japan, and South Korea, and Autoliv Sponsored Plans which are comprised of plans in Sweden and
the U.S.
The combination of the Existing Veoneer Plans and Transferred Veoneer Plans has resulted in a total pension expense of $4 million,
$5 million and $4 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Existing Veoneer Plans
The defined benefit pension plans for eligible participants in Japan, Canada, and France prior to the Spin-Off continue to provide
pension retirement benefits to the Company’s employees subsequent to the Spin-Off.
87
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Transferred Veoneer Plans
Prior to the plan transfers to Veoneer legal entities on April 1, 2018, eligible Veoneer employees participated in the following
Autoliv-sponsored plans:
Country
Germany
India
Japan
South Korea
Name of Defined Benefit Plans
Direct Pension Promises Plan
Gratuity Plan
Retirement Allowances Plan
Defined Benefit Corporate Plan
Severance Pay Plan (statutory plan)
On April 1, 2018, the assets, liabilities, and associated accumulated other comprehensive income (loss) of the pension plans in
Germany, India, Japan, and South Korea related to active Veoneer employees were transferred to pension plans sponsored by
various Veoneer legal entities. Benefit plan obligations of $6 million were recorded by Veoneer related to these plans in connection
with the April 1, 2018 transfer. Plan assets in the transferred plans are immaterial. The amounts recorded for the transfer of the
Veoneer plans were based on the assumptions incorporated into the plan measurements as of December 31, 2017; however,
management determined that there were no material changes in assumptions from December 31, 2017 to April 1, 2018. The plans
were re-measured in connection with the December 31, 2018 actuarial valuation.
Changes in Benefit Obligations and Plan Assets
As of December 31
2017
2018
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Curtailments
Settlement
Acquisition
Other
Translation difference
Benefit obligation at end of year
Fair value of plan assets at beginning of year
Actual return on plan assets
Company contributions
Benefits paid
Settlements
Acquisition
Other
Translation difference
Fair value of plan assets at year end
Funded status recognized in the balance sheet
88
$
$
$
$
$
$
74
5
2
(2)
(2)
—
(3)
—
4
(2)
76
60
(2)
4
(2)
(3)
—
(1)
(2)
$
54
(22) $
$
$
66
5
1
1
(1)
(3)
—
1
—
4
74
51
3
6
(1)
(3)
1
—
3
60
(14)
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Components of Net Periodic Benefit Cost Associated with the Defined Benefit Retirement Plan
Service cost
Interest cost
Expected return on plan assets
Net periodic benefit cost
Year Ended December 31
2017
2016
2018
$
$
5
2
(2)
4
$
$
5
1
(2)
5
$
$
4
1
(2)
4
The service cost and amortization of prior service cost components are reported among employee compensation costs in the
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 Consolidated Statements of Operations.
The estimated prior service cost and net actuarial loss that will be amortized from other comprehensive income into net benefit
cost over the next fiscal year is immaterial. The estimated net periodic benefit cost for 2019 is $6 million.
Components of Accumulated other Comprehensive Income Before Tax
Net actuarial loss (gain)
Prior service cost (credit)
Total accumulated other comprehensive income recognized in the balance sheet
Changes in Accumulated Other Comprehensive Income Before Tax
Total retirement benefit recognized in accumulated other comprehensive income at
beginning of year
Net actuarial loss (gain)
Translation difference
Other
Total retirement benefit recognized in accumulated other comprehensive income at
end of year
As of December 31
2017
2018
9
—
10
$
$
As of December 31
2017
2018
$
7
3
(1)
1
10
$
6
1
7
7
(1)
1
—
7
$
$
$
$
The accumulated benefit obligation for the Veoneer defined benefit pension plans as of December 31, 2018 and 2017 was $67
million and $33 million, respectively.
Pension Plans for Which Accumulated Benefit Obligation (ABO) Exceeds the Fair Value of Plan Assets
Projected Benefit Obligation (PBO)
Accumulated Benefit Obligation
Fair value of plan assets
As of December 31
2017
2018
$
$
$
76
67
54
$
$
$
39
33
26
Veoneer, in consultation with its actuarial advisors, determines certain key assumptions to be used in calculating the projected
benefit obligation and annual net periodic benefit cost.
89
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Assumptions Used to Determine the Benefit Obligation
As of December 31
2017
2018
Weighted
average
Discount rate
Rate of increases in compensation level
2.14%
4.39%
Assumptions Used to Determine the Net Periodic Benefit Cost for Years Ended December 31
Discount rate
Rate of increases in compensation level
Expected long-term rate of return on assets
2.06%
4.30%
3.81%
Year Ended December 31
2017
2018
Weighted
average
Range
0.50-3.90
2.00-5.00
0.75-6.00
Range
0.50-3.60
2.00-3.00
2016
Range
0.50-4.10
2.25-5.00
0.75-6.15
The discount rates for the Veoneer plans have been set based on the rates of return on high-quality fixed-income investments
currently available at the measurement date and expected to be available during the period the benefits will be paid. The expected
timing of cash flows from the plan have also been considered in selecting the discount rate. In particular, the yields on corporate
bonds rated AA or better on the measurement date have been used to set the discount rate. The expected rate of increase in
compensation levels and long-term rate of return on plan assets are determined based on a number of factors and must take into
account long-term expectations and reflect the financial environment in the respective local market. The expected return on assets
for the Veoneer plans are based on the fair value of the assets as of December 31.
The investment objectives for the Veoneer plans is to provide an attractive risk-adjusted return that will ensure the payment of
benefits while protecting against the risk of substantial investment losses. Correlations among the asset classes are used to identify
an asset mix that Veoneer believes will provide the most attractive returns. Long-term return forecasts for each asset class using
historical data and other qualitative considerations to adjust for projected economic forecasts are used to set the expected rate of
return for the entire portfolio. Veoneer has assumed a long-term rate of return on the plan assets of 0.75% for the Japan plans and
6.00% for the Canada plans for calculating the 2018 and 2019 expense.
The Company made contributions of approximately $4 million for the year ended December 31, 2018 and of approximately $6
million for the year ended December 31, 2017. In addition, the Company expects to contribute $3 million to its pension plans in
2019.
Fair Value of Total Plan Assets
ASSETS CATEGORY IN % WEIGHTED AVERAGE
Equity securities
Debt instruments
Other assets
Total
As of December 31
2017
2018
36.0 %
12.0 %
52.0 %
100.0%
40.0 %
13.0 %
47.0 %
100.0%
90
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
The following table summarizes the fair value of the defined benefit pension plan assets:
Assets
Equity
U.S. Large Cap
Non-U.S. Equity
Non-U.S. Bonds
Corporate
Aggregate
Insurance Contracts
Other Investments
Total
As of December 31
2018
2017
$
$
7
13
3
4
24
4
54
$
$
16
8
—
7
25
4
60
The fair value measurement level within the fair value hierarchy (see Note 5, Fair Value Measurements) is based on the lowest
level of any input that is significant to the fair value measurement. Plan assets are classified as Level 1 with exception of the
Insurance Contracts which are classified as Level 2 in the table above.
The estimated future benefit payments for the pension benefits reflect expected future service, as appropriate. The amount of
benefit payments in a given year may vary from the projected amount, especially as certain plans include lump sum benefit
payments, and the lump sum amounts may vary with market interest rates.
Pension Benefits Expected Payments
2019
2020
2021
2022
2023
Years 2024-2028
Autoliv Sponsored Plans
Amount
2
2
3
3
3
22
$
$
$
$
$
$
Prior to certain legal decisions or plan amendments, Veoneer employees in Sweden and in the U.S. participated in the following
Autoliv-sponsored multiemployer plans:
Country
Sweden
U.S.
Name of Defined Benefit Plans
ITP plan
Autoliv ASP, Inc. Pension Plan
Autoliv ASP, Inc. Excess Pension Plan
Autoliv ASP, Inc. Supplemental Pension Plan
On April 1, 2018, it was determined that the assets, liabilities, and associated accumulated other comprehensive income (loss) of
the Sweden plan for all Veoneer employees included in the Sweden plan will remain with Autoliv and benefits will be paid out of
that plan in the future upon retirement. The allocation to capture the Company’s specific defined benefit plans expense and
contributions prior to the plans amendment for the year ended March 31, 2018 were less than $1 million and $1 million for the
year ended December 31, 2017 and 2016, respectively. The remaining components (interest cost, expected return on plan assets
and amortization of actuarial loss) are reported as other non-operating items, net in the Consolidated Statements of Operations.
These costs were funded through intercompany transactions with Autoliv, which are reflected within the Net Former Parent
Investment balance.
On June 29, 2018, it was also determined that the assets, liabilities, and associated accumulated other comprehensive income (loss)
of the U.S. plan for all Veoneer employees included in the U.S. plan will remain with Autoliv and benefits will be paid out of that
91
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
plan in the future upon retirement. The Veoneer employees were considered to be participating in the Autoliv sponsored plan
through June 29, 2018 at which date the plan was amended to freeze the accrual of benefits for any Veoneer employees. The U.S.
plan resulted in less than $1 million of defined benefit plan expense and contributions made allocated to Veoneer for the year ended
December 31, 2018 and less than $1 million of defined benefit plan expense and contributions made allocated to Veoneer for the
year ended December 31, 2017.
Prior to the respective dates above for the Sweden and the U.S. plans, the Veoneer employees were considered to be participating
in the Autoliv sponsored plans. Effective April 1, 2018 for the Sweden plan and June 29, 2018 for the U.S. plan the respective
parties determined that Veoneer would not have additional expense or liability related to each of the existing plans.
Post-Retirement Benefits Other Than Pension
Veoneer currently provides postretirement health care and life insurance benefits to eligible Canadian employees. The plan is an
unfunded plan with a benefit obligation of $4 million as of December 31, 2018 and $3 million as of December 31, 2017 and 2016.
The net periodic benefit cost and impact on accumulated other comprehensive income related to the plan are immaterial.
In addition to the existing benefit obligation from the Canadian medical plan, the Company also assumed less than $1 million in
benefit obligations transferred from Autoliv’s U.S. medical plan as of June 29, 2018 in connection with the Spin-Off.
Defined contribution plans
Veoneer recorded charges for contributions to the defined contribution plans of $2 million for the year ended December 31, 2018
and $1 million for each of the years ended December 31, 2017 and 2016.
NOTE 15. Stock Incentive Plan
The Veoneer, Inc. 2018 Stock Incentive Plan was adopted and effective as of the Distribution Date to govern the Company’s stock-
based awards that will be granted in the future as well as awards granted in connection with the conversion of outstanding awards
granted under the Autoliv equity compensation program. 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, non-employee directors and other service-
providers. In addition, the board authorized 957,388 shares for the conversion of the outstanding Autoliv stock awards in connection
with the Spin-Off.
Prior to the Spin-Off, certain eligible employees and non-employee directors of Veoneer participated in the Autoliv, Inc. 1997
Stock Incentive Plan and received Autoliv stock-based awards, which included stock options, restricted stock units and performance
shares. In connection with the Spin-Off, each outstanding Autoliv stock-based award as of the Distribution Date was converted to
a stock award having underlying shares of both Autoliv and Veoneer common stock.
The conversion that occurred on the Distribution Date was based on the following:
•
Stock Options (SOs) - A number of SOs comprising 50% of the value of the outstanding SOs calculated immediately
prior to the Spin-Off continued to be applicable to Autoliv common stock. A number of SOs comprising the remaining
50% of the pre-spin value were replaced with options to acquire shares of Veoneer common stock.
• Restricted Stock Units (RSUs) - A number of RSUs comprising 50% of the value of the outstanding RSU calculated
immediately prior to the Spin-Off continued to be applicable to Autoliv common stock. A number of RSUs comprising
the remaining 50% of the pre-spin value were replaced with RSUs with underlying Veoneer common stock.
•
Performance Shares (PSs) - Outstanding PSs were converted to time-based RSUs and were treated in the same manner
as other outstanding RSUs (as described above) on the Distribution Date. The number of outstanding PSs were converted
based on:
1) The level of actual achievement of performance goals for each outstanding PS for the period between the first
day of the performance period and December 31, 2017 (the “Performance Measurement Date”), referred to as
“Level of Performance-to-Date”, and
2) The greater of the Level of Performance-to-Date and estimated target performance level (i.e., 100%) for the
period between the Performance Measurement Date and the last day of the performance period.
92
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
In each case above, the conversion was intended to generally preserve the intrinsic value of the original award determined as of
the Distribution Date. The number of converted RSUs and SOs for Autoliv and Veoneer was based on the average of Autoliv
closing stock prices for the last 5 trading days prior to the Spin-Off and the average of closing stock prices of Autoliv and Veoneer,
respectively, for the first 5 trading days after the Spin-Off.
As a result of the Spin-Off and the related conversion, it was determined that the stock-based awards were modified in accordance
with ASC 718, Compensation – Stock Compensation. As a result, the fair value of the RSUs and SOs immediately before and after
the modification was assessed in order to determine if the modification resulted in any incremental compensation cost related to
the awards, including consideration of the impact of conversion using the 5 trading day average. Based on the valuation performed,
it was determined that the conversion did not result in any incremental compensation cost for any of the outstanding awards.
With certain limited exceptions, including the freezing of the Performance Measurement Date to December 31, 2017 as noted
above, the adjusted SOs and RSUs outstanding after the Spin-Off are subject to the same terms and conditions (including with
respect to vesting and expiration) that were applicable to such Autoliv stock-based awards immediately prior to the conversion.
There was no stock-based compensation expense related to SOs for the years ended December 31, 2018 and 2017.
The RSUs granted by the Former Parent on February 15, 2016 and May 9, 2016 vest in three approximately equal annual installments
beginning on the first anniversary of the grant date. The RSUs and PSs granted by the Former Parent on February 19, 2017 and
February 15, 2018 will each vest in one installment on the third anniversary of the grant date. The RSUs and PSs granted in 2017
and the RSUs granted in 2018 entitle the grantee to receive dividend equivalents in the form of additional RSUs and PSs subject
to the same vesting conditions as the underlying RSUs and PSs, respectively.
The fair value of the RSUs and PSs is calculated as the grant date fair value of the shares expected to be issued. For the grants
made during 2017 and 2018, the fair value of a PS and a RSU is calculated by using the closing stock price on the grant date. For
the grants made during 2016, the fair value of a RSU and a PS was estimated using the Black Scholes valuation model. The grant
date fair value for the RSUs at February 13, 2018 was $6 million and the grant date fair value of the RSUs at February 19, 2017
was $3 million. The grant date fair value of the PSs at February 19, 2017 was $3 million. The cost will be amortized straight line
over the vesting period. For PSs, the grant date fair value of the number of awards expected to vest is based on the Former Parent’s
best estimate of ultimate performance against the respective targets and is recognized as compensation cost on a straight-line basis
over would be the requisite vesting period of the awards. The Former Parent assessed the expected achievement levels at the end
of each quarter. As of December 31, 2017, the Former Parent believed it was probable that the performance conditions for the two
grants will be met, although at a different level, and has recorded the compensation expense accordingly. The cumulative effect
of the change in estimate is recognized in the period of change as an adjustment to compensation expense.
All SOs were granted for 10-year terms, had an exercise price equal to the fair market value of the share on the date of grant, and
became exercisable after one year of continued employment following the grant date. The average grant date fair values of SOs
were calculated using the Black-Scholes valuation model. The Former Parent used historical exercise data for determining the
expected life assumption. Expected volatility was based on historical and implied volatility. There were no SOs granted in 2018,
2017 or 2016. The table below includes the assumptions for all awards issued:
PSs and RSUs
Dividend yield 1
1 Dividend equivalent rights applied to grants starting in 2017.
Year Ended December 31
2017
2016
2018
—
—
2.2%
Veoneer recognized total stock (RSUs, PSs and SOs) compensation cost of $5 million, $2 million and $3 million, in the Consolidated
Statements of Operations, for the years ended December 31, 2018, 2017 and 2016, respectively. These costs include amounts for
individuals specifically identifiable to the Veoneer business as well as an allocation of costs attributable to individuals in corporate
functions for the periods prior to the Spin-Off and Veoneer employees subsequent to the Spin-Off. Veoneer has unrecognized
compensation cost for Veoneer employees of $6 million related to non-vested awards for RSUs and the weighted average period
over which this cost is expected to be recognized is approximately 1.8 years. There is no compensation cost not yet recognized
for stock options.
93
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
A summary of RSUs activity is presented below:
RSUs1
Outstanding as of June 30, 2018 (Converted from former Parent in connection with the Spin-Off)
Granted
Shares issued
Cancelled/Forfeited/Expired
Outstanding as of December 31, 2018
1 RSUs presented in this table represent Veoneer awards, including those held by Autoliv employees.
Number of RSUs
601,740
9,380
(7,490)
(9,636)
593,994
The weighted average fair value per share at the grant date for RSUs during the years ended December 31, 2018, 2017 and 2016
was $42.88, $31.98 and $29.81, respectively. The grant date fair value for RSUs vested in 2018 was $2 million.
There were no PSs granted subsequent to the Spin-Off. The weighted average fair value per share at the grant date for PSs during
the years ended December 31, 2017 and 2016 was $31.98 and $29.81, respectively. All outstanding PSs were cancelled and
converted to RSUs in connection with the Spin-Off. There are no PSs outstanding as of December 31, 2018.
The grant date fair value for RSUs and PSs awarded by the Former Parent were converted with a factor of 3.31.
SOs1
Outstanding at June 30, 2018 (Converted from former Parent in connection with the Spin-Off)
Exercised
Cancelled/Forfeited/Expired
Outstanding as of December 31, 2018
1 SOs presented in this table represent Veoneer awards, including those held by Autoliv employees.
The following summarizes information about stock options outstanding and exercisable as of December 31, 2018:
Number of
Options
355,646
(30,062)
—
325,584
EXERCISE PRICES
$4.93
$13.51
$20.25
$20.91
$22.04
$28.67
$34.25
Number
Outstanding1
Remaining
Contract
life (in years)
16,796
21,342
21,266
43,934
15,055
80,627
126,564
325,584
0.14
1.13
3.15
4.14
2.15
5.14
6.13
4.6
1 SOs presented in this table represent Veoneer awards, including those held by Autoliv employees.
The total aggregate intrinsic value, which is the difference between the exercise price and $23.57 (closing price per share as of
December 31, 2018), for all “in the money” stock options, both outstanding and exercisable as of December 31, 2018, was $1
million.
94
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
NOTE 16. Commitments and Contingencies
Legal Proceedings
Veoneer is subject to 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,
with the exception of any potential losses resulting from the issue described below, 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
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 is exposed to product liability and warranty claims in the event that the Company’s products fail to perform as
represented and such failure results, or is alleged to result, in bodily injury, and/or property damage or other loss. The Company
has reserves for product risks. Such reserves are related to product performance issues including recall, product liability and
warranty issues.
95
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
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 Consolidated Balance Sheets.
Reserve at beginning of the year
Change in reserve
Cash settlements
Transfers
Translation difference
Reserve at end of the year
As of December 31
2018
2017
$
$
22
10
(15)
(1)
—
16
$
$
30
8
(16)
—
1
22
As of December 31, 2018 and 2017, provisions and cash paid primarily relate to recall and warranty related issues. The decrease
in the reserve balance as of December 31, 2018 compared to the prior year was mainly due to recall related issues offset by the
cash payments for warranties and product liabilities.
Agreements entered into between Autoliv and Veoneer in connection with the Spin-Off provide for Autoliv to indemnify Veoneer
for certain liabilities related to electronics products manufactured before April 1, 2018. As of December 31, 2018, the
indemnification asset included in the Other current assets in the Consolidated Balance Sheets amounting to $14 million represents
substantially all of the product related liabilities included in the Other current assets in the Consolidated Balance Sheets. A substantial
portion of these costs are subject to indemnification by Autoliv.
A majority of the Company’s recall related issues are covered by insurance. Insurance receivables are included within prepaid
expenses and other contract assets in the Consolidated Balance Sheets.
Guarantees
The Company provide lease guarantees to Zenuity of $8 million as of December 31, 2018 and 2017. 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.
Commitments
Operating Leases
The Company leases certain offices, manufacturing and research buildings, machinery, automobiles, data processing and other
equipment under operating lease contracts. The operating leases, some of which are non-cancellable and include renewals, expire
at various dates through 2034. The Company pays most maintenance, insurance and tax expenses relating to leased assets. Rental
expense for operating leases for the year ended December 31, 2018, 2017 and 2016 was $13 million, $7 million and $6 million,
respectively.
As of December 31, 2018, future minimum lease payments for non-cancellable operating leases totaled $88 million and are payable
as follows: 2019: $17 million; 2020: $14 million; 2021: $10 million; 2022: $7 million; 2023: $5 million; 2024 and thereafter: $34
million.
Build-To-Suit Lease
The Company has entered into “build-to-suit” lease arrangements, in addition to the operating leases above, for certain
manufacturing and research buildings. The Company is deemed the owner of the buildings for accounting purposes during the
construction period due to the terms of the arrangements.
As of December 31, 2018, future minimum lease payments for non-cancellable build-to-suit lease obligations totaled $51 million
and are payable as follows: 2019: $3 million; 2020: $3 million; 2021: $3 million; 2022: $3 million; 2023: $3 million; 2024 and
thereafter: $36 million.
96
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Capital Leases
The Company leases certain property, plant and equipment under capital lease contracts. The capital leases expire at various dates
through 2027.
As of December 31, 2018, future minimum lease payments for non-cancellable capital leases totaled $15 million and are payable
as follows: 2019: $1 million; 2020: $1 million; 2021: $12 million; 2022: $0 million; 2023: $0 million; 2024 and thereafter: $1
million.
Unconditional Purchase Obligation and Other Non-current liabilities
During the year ended December 31, 2017, the Company entered into an unconditional purchase obligation whereof the outstanding
balance as of December 31, 2018 is $10 million which will be paid in 2019. This amount will be reimbursed by Zenuity. There
are no obligations other than short-term obligations related to inventory, services, tooling, and property, plant and equipment
purchased in the ordinary course of business.
NOTE 17. Loss Per Share
Basic loss per share is computed by dividing net loss for the period by the weighted average number 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 calculation of
diluted loss per share excludes all anti-dilutive common stock. The following table sets forth the computation of basic and diluted
loss per share.
(U.S. dollars in millions, except per share amounts)
Numerator:
Basic and diluted:
Year Ended December 31
2018
2017
2016
Net loss attributable to common shareholders
$
(276) $
(217) $
(53)
Denominator:
Basic: Weighted average number of shares outstanding (in millions)
Diluted: Weighted-average number of shares outstanding, assuming
dilution (in millions)1
87.16
87.16
87.13
87.13
87.13
87.13
(0.61)
Basic loss per share
Diluted loss per share1
(0.61)
1 Shares in the diluted loss per share calculation represent basic shares due to the net loss. The shares excluded from the calculation were 446,821 for the year
(3.17) $
(3.17) $
(2.49) $
(2.49) $
$
$
ended December 31, 2018, because they are anti-dilutive and for the years ended December 31, 2017 and 2016, the shares excluded were zero.
NOTE 18. 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 in passive safety electronics and active safety. 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 make decisions about resources to be allocated to the operating segments.
The accounting policies for the reportable segments are the same as those described in the Note 2, Summary of Significant
Accounting Policies to the consolidated financial statements.
97
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Key financial measures reviewed by the Company’s CODM are as follows.
(Loss)/Income Before Income Taxes
Electronics
Brake Systems
Segment operating loss
Corporate and other
Interest and other non-operating items, net
Loss from equity method investment
Loss before income taxes
Capital Expenditures
Electronics
Brake Systems
Total capital expenditures
Depreciation and Amortization
Electronics
Brake Systems
Total depreciation and amortization
Segment Assets
Electronics
Brake Systems
Intersegment assets
Total assets
Year Ended December 31
2017
2016
2018
(116) $
(30)
(146)
(51)
7
(63)
(253) $
(14) $
(247)
(261)
(22)
(1)
(31)
(314) $
Year Ended December 31
2018
2017
2016
132
$
56
188
$
$
79
31
110
$
Year Ended December 31
2018
2017
2016
$
72
38
111
$
$
80
39
119
$
11
(12)
(1)
(24)
3
—
(22)
80
23
103
70
36
106
$
$
$
$
$
$
As of December 31
2018
2017
2,329
$
1,286
507
(204)
377
—
2,632
$
1,663
$
$
The Company’s customers consist of all major European, U.S. and Asian automobile manufacturers. Sales to individual
customers representing 10% or more of net sales were:
In 2018: Customer A 21%, Customer B 17% and Customer C 11%.
In 2017: Customer A 21%, Customer B 17%, Customer C 12% and Customer D 12%.
In 2016: Customer A 17%, Customer B 16%, Customer C 13%, Customer D 13% and Customer E 11%.
Long-lived Assets
Asia
Americas
Europe
Total
As of December 31
2017
2018
$
$
307
368
438
1,113
$
$
302
393
242
938
98
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Long-lived assets in the U.S. amounted to $315 million and $349 million for 2018 and 2017, respectively. For 2018 and 2017 $117
million and $285 million, respectively, of the long-lived assets in the U.S. refers to intangible assets, principally from acquisition
goodwill.
NOTE 19. Relationship with Former Parent and Related Entities
Before the Spin-Off, Veoneer had been managed and operated in the normal course of business with other affiliates of Autoliv.
Accordingly, certain shared costs had been allocated to Veoneer and reflected as expenses in the stand-alone consolidated financial
statements. Veoneer Management consider the allocation methodologies used to be reasonable and appropriate reflections of
historical expenses of Autoliv attributable to Veoneer for purposes of the stand-alone financial statements; however, the expenses
reflected in the consolidated financial statements may not be indicative of the actual expenses that would have been incurred during
the periods presented if Veoneer historically operated as a separate, stand-alone entity. In addition, the expenses reflected in the
consolidated financial statements may not be indicative of expenses that will be incurred in the future by Veoneer.
Prior to the Spin-Off, transactions between Autoliv and Veoneer, with the exception of sales and purchase transactions and
reimbursements for payments made to third-party service providers by Autoliv on Veoneer’s behalf, are reflected in equity in the
Consolidated Balance Sheets as Net Former Parent investment and in the Consolidated Statements of Cash Flows as a financing
activity in Net transfers from Former Parent.
Transactions with Related Parties
Veoneer and Autoliv entered into a Transition Services Agreement (TSA) under which certain services are provided by Autoliv to
Veoneer and certain services are provided by Veoneer to Autoliv. For the year ended December 31, 2018, Veoneer recognized $7
million of expenses under the TSA, and there were no TSA costs for the years ended December 31, 2017 and 2016.
Throughout the periods covered by the consolidated financial statements, Veoneer sold finished goods to Autoliv and Nissin Kogyo,
the 49% owner in VNBS (a 51% owned subsidiary). Related party sales during the years ended December 31, 2018, 2017 and
2016 amounted to $121 million, $148 million and $120 million, respectively. Related party purchases during the years ended
December 31, 2018, 2017 and 2016 amounted to $22 million, $25 million and $29 million, respectively. Furthermore, engineering
services relating to passive safety electronics, have been rendered to Autoliv amounting to $1 million for the year ended December
31, 2018, and engineering services relating to Passive safety electronics, received from Autoliv amounting to $1 million for each
of the years ended December 31, 2017 and 2016.
Related Party Balances
Amounts due to and due from related party components as summarized in the below table:
RELATED PARTY
Related party receivable
Related party notes receivable
Related party payables
Related party short term debt
Related party long-term debt
As of December 31
2017
2018
$
$
$
$
$
64
1
16
1
13
$
$
$
$
$
13
76
8
—
62
Related party receivables are mainly driven by reseller agreements put in place in connection with the Spin-Off. The reseller
agreements are between Autoliv and Veoneer and facilitate the temporary arrangement of the sale of Veoneer products manufactured
for certain customers for a limited period after the Spin-Off. Autoliv will collect the customer payments and will remit the payments
to Veoneer.
As of December 31, 2017, related party notes receivables relate to a long-term loan between Veoneer and Autoliv entities, which
was subsequently settled prior to the Spin-Off.
As of December 31, 2018, the related party payables mainly relate to an agreement between VNBS and various Autoliv entities.
99
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
A portion of the related party long-term debt is subject to a long-term loan agreement that was settled on June 29, 2018. As of
December 31, 2018, all related party debt agreements were settled or terminated, with the exception of a capital lease arrangement
at VNBS of $13 million and $11 million as of December 31, 2018 and 2017, respectively. The capital lease is with Nissin Kogyo.
In the third quarter of 2018, the Company recorded certain true-up adjustments related to amounts due to and from Autoliv with
an offsetting increase to equity of $3 million. In addition, the Company recorded a true-up adjustment during 2018 to its deferred
tax amount of $8 million associated with the tax impacts of the legal organization prior to the Spin-Off, with an offsetting increase
to equity.
Corporate Costs/Allocations
For the periods prior to April 1, 2018, the consolidated financial statements include corporate costs incurred by Autoliv for services
that are provided to or on behalf of Veoneer. These costs consist of allocated cost pools and direct costs. Corporate costs have been
directly charged to, or allocated to Veoneer using methods management believes are consistent and reasonable. The method for
allocating corporate function costs to Veoneer is based on various formulas involving allocation factors. The methods for allocating
corporate administration costs to Veoneer are based on revenue, headcount, or other relevant metrics. However, the expenses
reflected in the consolidated financial statements may not be indicative of the actual expenses that would have been incurred during
the periods presented if Veoneer historically operated as a separate, stand-alone entity. All corporate charges and allocations have
been deemed paid by Veoneer to Autoliv in the period in which the cost was recorded in the Consolidated Statements of Operations.
Effective April 1, 2018, Veoneer began performing certain functions using internal resources or third parties, and certain other
services continued to be provided by Autoliv and directly charged to Veoneer. In addition, Veoneer personnel perform certain
services for Autoliv, which are directly charged to Autoliv.
Allocated corporate costs included in Costs of sales, Selling, general and administrative expenses and Research, development and
engineering expenses were for shared services and infrastructure provided, which includes costs such as information technology,
accounting, legal, real estate and facilities, corporate advertising, risk and insurance services, treasury, shareholder services and
other corporate and infrastructure services.
Cash Management and Financing
Prior to the Spin-Off, Veoneer participated in Autoliv’s centralized cash management and financing programs. Disbursements were
made through centralized accounts payable systems operated by Autoliv. Cash receipts were transferred to centralized accounts,
also maintained by Autoliv. As cash was disbursed and received by Autoliv, it was accounted for by Veoneer through the Net
Former Parent investment. All short-term and long-term debt was financed by Autoliv or by Nissin Kogyo and financing decisions
for wholly and majority owned subsidiaries were determined by Autoliv’s corporate treasury operations. On the Distribution Date,
Veoneer held approximately $1 billion of cash and cash equivalents. Upon the Spin-Off, Veoneer created its own corporate treasury
operations.
100
Veoneer, Inc.
Notes to Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
NOTE 20. Summary Quarterly Financial Data (Unaudited)
The following table presents summary quarterly financial data:
2018
2017
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Sales
Gross profit
Operating loss
Loss before income taxes
Net loss
Net loss attributable to
controlling interest
Per Share Data:
Basic loss per share
Diluted loss per share
$
$
$
$
(Dollars in Millions, Except Per Share Amounts)
$
594
112
(16)
(30)
(37)
572
112
(48)
(63)
(66)
$
526
$
535
$
583
$
579
$
567
$
99
(58)
(70)
(72)
109
(75)
(90)
(119)
113
(10)
(11)
(22)
120
(12)
(19)
(30)
109
(16)
(26)
(36)
593
124
(244)
(258)
(256)
(32) $
(63) $
(68) $
(114) $
(20) $
(28) $
(33) $
(136)
(0.36) $
(0.72) $
(0.36) $
(0.72) $
(0.78) $
(0.78) $
(1.31) $ (0.23) $
(1.31) $ (0.23) $
(0.32) $
(0.32) $
(0.38) $
(0.38) $
(1.56)
(1.56)
During the first quarter of 2017, the Company recognized an impairment charge to amortization of intangibles of $12 million
related to a contract with an OEM customer of MACOM products, which was included in earnings for the period.
The Company adjusted the fair value of the earn-out liability to $14 million during 2017 based on actual revenue levels to date as
well as changes in the estimated probability of different revenue scenarios for the remaining contractual earn-out period. Income
of approximately $13 million was recognized within other income in the Consolidated Statements of Operations during the year
ended December 31, 2017 due to the decrease in the contingent consideration liability.
During the fourth quarter of 2017, the Company recognized an impairment charge of the full goodwill amount of $234 million,
after consideration of foreign exchange movements, related to VNBS.
101
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of 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 Annual Report on Form 10-K. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that as of December 31, 2018 our disclosure controls and procedures
were effective to provide reasonable assurance that the information required to be disclosed by us in this Annual Report on Form
10-K 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.
Management’s Annual Report on Internal Control Over Financial Reporting
This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an
attestation report of the Company's registered public accounting firm due to a transition period established by rules of the SEC
for newly public companies.
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 quarter ended December 31, 2018 that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None
102
Item 10. Directors, Executive Officers and Corporate Governance
Part III
We have adopted a written Code of Conduct and Ethics for Senior Officers that applies to our Executive Management Team,
together with our Senior Treasury Officer and Senior Accounting Officer, including our CEO, CFO and Controller. Our Code of
Conduct and Ethics for Senior Officers serves as our written code of ethics for those officers. The Code of Conduct and Ethics
for Senior Officers is also available at the Corporate Governance section of the Investors page on our website at https://
www.veoneer.com/en/governance. If we make any substantive amendments to the Code of Conduct for Senior Officers or grant
any waiver, including an implicit waiver, from the Code of Conduct to our CEO, CFO or Controller, we will within four business
days of the event disclose the nature of the amendment or waiver on our website or in a report on Form 8-K.
The information relating to our directors, our nominees for directors, and our executive officers pursuant to Items 401; and
Item 407(c)(3), (d)(4) and (d)(5) of Regulation S-K required by Item 10 will be contained under the caption "Proposal 1 - Election
of Directors" in the 2019 Proxy Statement to be filed by us with the SEC pursuant to Regulation 14A of the Exchange Act and is
hereby specifically incorporated herein by reference thereto.
The information required pursuant to Item 405 of Regulation S-K to be included in this Item 10 will be contained under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the 2019 Proxy Statement, to be filed by us with the SEC pursuant
to Regulation 14A of the Exchange Act and is hereby specifically incorporated herein by reference thereto.
Item 11. Executive Compensation
The information required under this Item 11 will appear under the captions "Board Compensation," "Compensation Discussion
and Analysis", "Executive Compensation" and related discussion and disclosure thereto, in the 2019 Proxy Statement, to be filed
by us with the SEC pursuant to Regulation 14A of the Exchange Act, and is hereby specifically incorporated herein by reference
thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information pursuant to Item 403 of Regulation S-K to be included in this Item 12 will appear under the captions "Security
Ownerships of Certain Beneficial Owners and Management" in the 2019 Proxy Statement, to be filed by us with the SEC pursuant
to Regulation 14A of the Exchange Act, and is hereby specifically incorporated herein by reference thereto.´
Shares Previously Authorized for Issuance Under the 2018 Stock Incentive Plan
The following table provides information as of December 31, 2018, about the common stock that may be issued under the Veoneer,
Inc. Stock Incentive Plan. The Company does not have any equity compensation plans that have not been approved by its
stockholders.
Plan Category
(a) Number of
Securities to
be issued upon
exercise of
outstanding options,
warrants and rights
(b) Weighted-
average
exercise price of
outstanding options,
warrants and
rights2
(c) Number of
securities remaining
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a)3
Equity compensation plans approved
by security holders1
Equity compensation plans not
approved by security holders
Total
1 Veoneer, Inc. 2018 Stock Incentive Plan (Stock Options and Restricted Stock Units (RSUs)).
2 Excludes RSUs which convert to shares of common stock for no consideration.
3 All such shares are available for issuance pursuant to grants of full-value stock awards.
919,578
$
— $
919,578 $
17.68
—
17.68
3,000,257
—
3,000,257
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required under this item will appear under the captions "Proposal 1 - Election of Directors", "Relationships and
Related Party Transactions" and related discussion and disclosure thereto, in the 2019 Proxy Statement, to be filed by us with the
SEC pursuant to Regulation 14A of the Exchange Act, and is hereby specifically incorporated herein by reference thereto.
103
Item 14. Principal Accountant Fees and Services
The information required under this item will appear under the captions "Fees of Independent Auditors," and "Audit Committee
Pre-Approval Policies and Procedures" and related discussion and disclosure thereto, in the 2019 Proxy Statement, to be filed by
us with the SEC pursuant to Regulation 14A of the Exchange Act, and is hereby specifically incorporated herein by reference
thereto.
104
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Financial Statements
See “Index to Consolidated Financial Statements” in Part II, Item 8 hereof.
2. Financial Statement Schedules
All other financial statement schedules are omitted because they are not required or applicable under instructions contained in
Regulation S-X or because the information called for is shown in the financial statements and notes thereto.
(b) Exhibits.
These exhibits are available without charge upon written request directed to the Company’s Secretary at Veoneer, Inc. Attn:
Corporate Secretary, Box 13089, SE-10302, Stockholm, Sweden.
Exhibit No.
2.1
Description
Distribution Agreement, dated June 28, 2018, between Veoneer, Inc. and Autoliv, Inc., incorporated herein by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed July 2, 2018.
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6+
10.7+
10.8+
10.9+
10.10*+
10.11*+
10.12*+
Amended and Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed July 2, 2018.
Amended and Restated Bylaws, incorporated herein by reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K filed July 2, 2018.
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 filed June 4, 2018.
Employee Matters Agreement, dated June 28, 2018, between Veoneer, Inc. and Autoliv, Inc., incorporated
herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed July 2, 2018.
Tax Matters Agreement, dated June 28, 2018, between Veoneer, Inc. and Autoliv, Inc., incorporated herein by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed July 2, 2018.
Amended and Restated Master Transition Services Agreement between Veoneer, Inc. and Autoliv, Inc.,
incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed July 2,
2018.
Joint Venture Agreement, dated April 18, 2017, between Volvo Car Corporation and Autoliv Development AB
regarding Zenuity AB, incorporated herein by reference to Exhibit 10.5 to the Company’s Registration
Statement on Form 10 filed June 4, 2018.**
Joint Venture Agreement, dated March 7, 2016, by and among Autoliv ASP, Inc., Autoliv AB, Autoliv
Holding, Inc. and Nissin Kogyo Co., Ltd., Nissin Kogyo Holdings USA, Inc. and Zhongshan Nissin Industry
Co., Ltd., incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form
10 filed May 21, 2018.
Employment Agreement, effective as of June 29, 2018, by and between Veoneer, Inc. and Jan Carlson,
incorporated herein by reference to Exhibit 10.7 to the Company’s Registration Statement on Form 10 filed
May 21, 2018.
Addendum to Employment Agreement, dated August 20, 2018, by and between Veoneer, Inc. and Jan Carlson,
incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed
October 25, 2018).
Severance Agreement, effective as of June 29, 2018, by and between Veoneer, Inc. and Jan Carlson,
incorporated herein by reference to Exhibit 10.8 to the Company’s Registration Statement on Form 10 filed
May 21, 2018).
Employment Agreement, effective as of December 20, 2017, by and between Veoneer, Inc. and Mathias
Hermansson, incorporated herein by reference to Exhibit 10.9 to the Company’s Registration Statement on
Form 10 filed May 21, 2018).
Agreement of Resignations Conditions, effective December 20, 2018, by and between Veoneer, Inc. and
Mathias Hermansson.
Employment Agreement, effective January 8, 2019, by and between Veoneer, Inc. and Mats Backman.
Change-in-Control Severance Agreement, effective January 8, 2019, by and between Veoneer, Inc. and Mats
Backman.
105
10.13+
10.14+
10.15*+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21+
10.22+
10.23+
10.24+
10.25+
10.26+
10.27+
10.28
10.29
21*
23*
31.1*
31.2*
32.1*
32.2*
Employment Agreement, effective as of June 29, 2018, by and between Veoneer, Inc. and Johan Löfvenholm,
incorporated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form 10 filed
May 21, 2018.
Change-in-Control Severance Agreement, effective as of June 29, 2018, by and between Veoneer, Inc. and
Johan Löfvenholm, incorporated herein by reference to Exhibit 10.11 to the Company’s Registration
Statement on Form 10 filed May 21, 2018.
Mutual Separation Agreement, effective October 23, 2018, by and between Veoneer, Inc. and Johan
Löfvenholm.
Employment Agreement, effective as of June 29, 2018, by and between Veoneer, Inc. and Lars Sjöbring,
incorporated herein by reference to Exhibit 10.12 to the Company’s Registration Statement on Form 10 filed
May 21, 2018.
Change-in-Control Severance Agreement, effective as of June 29, 2018, by and between Veoneer, Inc. and
Lars Sjöbring, incorporated herein by reference to Exhibit 10.13 to the Company’s Registration Statement on
Form 10 filed May 21, 2018.
Employment Agreement, effective as of June 29, 2018, by and between Veoneer, Inc. and Thomas Jönsson,
incorporated herein by reference to Exhibit 10.14 to the Company’s Registration Statement on Form 10 filed
May 21, 2018.
Employment Agreement, effective as of June 29, 2018, by and between Veoneer, Inc. and Art Blanchford,
incorporated herein by reference to Exhibit 10.16 to the Company’s Registration Statement on Form 10 filed
May 21, 2018.
Employment Agreement, effective as of June 29, 2018, by and between Veoneer, Inc. and Peter Rogbrant,
incorporated herein by reference to Exhibit 10.17 to the Company’s Registration Statement on Form 10 filed
May 21, 2018.
Employment Agreement, effective as of June 29, 2018, by and between Veoneer, Inc. and Mikko Taipale,
incorporated herein by reference to Exhibit 10.15 to the Company’s Registration Statement on Form 10 filed
May 21, 2018.
Employment Agreement, effective as of June 29, 2018, by and between Veoneer, Inc. and Steven Rodé,
incorporated herein by reference to Exhibit 10.18 to the Company’s Registration Statement on Form 10 filed
May 21, 2018.
Form of Indemnification Agreement between Veoneer, Inc. and its officers and directors, incorporated herein
by reference to Exhibit 10.12 to the Company's Current Report on Form 8-K filed July 2, 2018.
Veoneer, Inc. 2018 Stock Incentive Plan, incorporated by reference to Exhibit 10.17 to the Company's
Quarterly Report on Form 10-Q filed July 27, 2018.
Form of Veoneer, Inc. Non-Employee Director Compensation Policy, incorporated by reference to Exhibit
10.18 to the Company's Quarterly Report on Form 10-Q filed July 27, 2018.
Form of Non-Employee Director restricted stock unit grant agreement to be used under the Veoneer, Inc. 2018
Stock Incentive Plan, incorporated by reference to Exhibit 10.19 to the Quarterly Report on Form 10-Q filed
July 27, 2018.
Veoneer, Inc. Non-Qualified Retirement Plan, incorporated by reference to Exhibit 10.20 to the Company's
Quarterly Report on Form 10-Q filed July 27, 2018.
Cooperation Agreement, dated May 24, 2018, among Autoliv, Inc., Veoneer, Inc. and Cevian Capital II GP
Limited, incorporated herein by reference to Exhibit 10.21 to the Company’s Registration Statement on Form
10 filed June 4, 2018.
Form of Support Agreement among Autoliv, Inc., Veoneer, Inc. and the other parties thereto, incorporated
herein by reference to Exhibit 10.22 to the Company’s Registration Statement on Form 10 filed June 4, 2018.
List of Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) promulgated under the Securities
Exchange Act of 1934, as amended.
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) promulgated under the Securities
Exchange Act of 1934, as amended.
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section
906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section
906 of the Sarbanes-Oxley Act of 2002.
106
101*
The following financial information from the Annual Report on Form 10-K for the fiscal year ended
December 31, 2018, formatted in XBRL (Extensible Business Reporting Language) and furnished
electronically herewith: (i) the Consolidated Statements of Operations; (ii) the Consolidated Statements of
Comprehensive Loss: (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Cash Flow;
(v) the Consolidated Statements of Changes in Equity; and (vi) the Notes to the Consolidated Financial
Statements.
* Filed herewith.
+ Management contract or compensatory plan
**Portions of this exhibit have been redacted pursuant to a confidential treatment request filed with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Exchange Act. The redacted portions of this exhibit have been filed with the
Securities and Exchange Commission.
Item 16. Form 10-K Summary
Not applicable.
107
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.
Signatures
Date: February 22, 2019
VEONEER, INC.
(Registrant)
By: /s/ Mathias Hermansson
Mathias Hermansson
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated, as of February 22, 2019.
Chairman of the Board of Director,
Chief Executive Officer and President (Principal Executive Officer)
/s/ Jan Carlson
Jan Carlson
Title
Name
Executive Vice President and Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
/s/ Mathias Hermansson
Mathias Hermansson
Director
Director
Director
Director
Director
Director
Director
/s/ Robert W. Alspaugh
Robert W. Alspaugh
/s/ Mary Louise Cummings
Mary Louise Cummings
/s/ Mark Durcan
Mark Durcan
/s/ James M. Ringler
James M. Ringler
/s/ Kazuhiko Sakamoto
Kazuhiko Sakamoto
/s/ Jonas Synnergren
Jonas Synnergren
/s/ Wolfgang Ziebart
Wolfgang Ziebart
108
Report of Independent Auditors
To the Board of Directors
Zenuity AB
We have audited the accompanying consolidated financial statements of Zenuity AB, which comprise the consolidated balance
sheets as of December 31, 2018 and 2017, and the related consolidated income statements, statements of changes in equity and
cash flow statements for the year ended 2018 and for the period from April 18, 2017 through December 31, 2017, and the related
notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in conformity with the Annual
Accounts Act and the Swedish Accounting Standards Board’s generally accepted accounting principles BFNAR 2012:1 Annual
Report and consolidated accounts (K3); this includes the design, implementation and maintenance of internal control relevant to
the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We con-ducted our audits in accordance
with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Zenuity AB at December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for the year ended
December 31, 2018 and for the period from April 18, 2017 through December 31, 2017 in conformity with the Annual Accounts
Act and the Swedish Accounting Standards Board’s generally accepted accounting principles BFNAR 2012:1 Annual Report and
consolidated accounts (K3).
Accounting principles generally accepted in Sweden (K3) vary in certain respects from accounting principles generally accepted
in the United States of America (US GAAP). In Note 24 to the consolidated financial statements is a reconciliation from K3 to
US GAAP
/s/ Ernst & Young AB
Gothenburg, Sweden
February 22, 2019
109
Zenuity AB
Corporate identity number 559073-6871
Consolidated financial statements
For the financial year January 1 2018 - December 31 2018
Zenuity AB
Corporate identity number 559073-6871
Income statement
Amounts in TSEK
Net sales
Cost of services sold
Gross profit
Selling and administrative expenses
Research and development expenses
Other operating income
Other operating expenses
Operating loss
Profit/loss from financial items
Interest income and similar profit/loss items
Interest expense and similar profit/loss items
Loss after financial items
Loss before tax
Tax expense for the year
Net loss for the year
1 January
2018-
31 December
2018
18 April
2017-
31 December
2017
39,193
(36,629)
2,564
(57,714)
(1,043,988)
24,426
(7,790)
(1,082,502)
4,326
(3,432)
(1,081,608)
(1,081,608)
(4,417)
(1,086,025)
40,001
(37,384)
2,617
(80,313)
(452,605)
8,290
(2,652)
(524,663)
1,970
(2,597)
(525,290)
(525,290)
(3,294)
(528,584)
Note
3
6
4,5,7
8
9
10
110
Zenuity AB
Corporate identity number 559073-6871
Balance sheet
Amounts in TSEK
ASSETS
Non-current assets
Intangible assets
Capitalized expenditures for software and similar
Concessions, patents, licenses, trademarks and similar rights
Property, plant and equipment
Leasehold improvements
Equipment, plant and machinery
Financial assets
Deferred tax asset
Other long-term receivables
Total non-current assets
Current assets
Current receivables
Receivables from owners
Other receivables
Prepaid expenses and accrued income
Cash and bank balances
Cash and bank
Total current assets
TOTAL ASSETS
Note
31 December
2018
31 December
2017
11
12
13
14
16
17
18
21
18,490
245,976
264,466
3,290
141,550
144,840
49,611
15,379
64,990
474,296
22,520
35,044
104,256
161,820
498,020
498,020
659,840
1,134,136
23,722
256,171
279,893
1,950
105,370
107,320
62,429
8,520
70,949
458,162
20,060
19,801
93,937
133,798
384,136
384,136
517,934
976,096
111
Zenuity AB
Corporate identity number 559073-6871
Balance sheet
Amounts in TSEK
EQUITY AND LIABILITIES
Equity
Share capital
Other capital contributed
Translation reserve
Retained earnings incl. loss for the year
Provisions
Deferred tax liability
Current liabilities
Accounts payable - trade
Liabilities to owners
Current tax liability
Other liabilities
Accrued expenses and deferred income
TOTAL EQUITY AND LIABILITIES
Note
19
16
20
31 December
2018
31 December
2017
500
2,520,297
3,935
(1,614,609)
909,623
910,123
51,134
51,134
35,935
19,717
6,071
21,502
89,654
172,879
1,134,136
500
1,320,297
(3,587)
(528,584)
788,126
788 626
62,429
62,429
23,469
15,718
3,286
12,627
69,941
125,041
976,096
112
Zenuity AB
Corporate identity number 559073-6871
Statement of changes in equity
December 31, 2017
Amounts in TSEK
Opening balance
Net loss for the year
Foreign currency translation differences
Total
Transactions with owners
Issue of ordinary shares
Shareholders’ contribution received
Total
At year end
December 31, 2018
Amounts in TSEK
Opening balance
Net loss for the year
Foreign currency translation differences
Total
Transactions with owners
Shareholders’ contribution received
Total
At year end
Share capital
Other capital
contributed*
Translation
reserve
—
—
—
500
500
500
—
—
—
—
1,320,297
1,320,297
1,320,297
—
(3,587)
(3,587)
—
—
—
(3,587)
Share capital
Other capital
contributed*
Translation
reserve
500
1,320,297
(3,587)
—
—
—
—
500
—
—
1,200,000
1,200,000
2,520,297
7,522
7,522
—
—
3,935
Retained
earnings incl.
loss for the year*
—
(528,584)
—
—
Total equity
—
(528,584)
(3,587)
(3,587)
—
—
—
(528,584)
500
1,320,297
1,320,797
788,626
Retained
earnings incl.
loss for the year*
(528,584)
(1,086,025)
—
—
Total equity
788,626
(1,086,025)
7,522
7,522
—
—
(1,614,609)
1,200,000
1,200,000
910,123
*Definitions of equity has been adjusted in FS 2018 to be in accordance with Swedish GAAP for group accounting.
113
Zenuity AB
Corporate identity number 559073-6871
Cash flow statement
Amounts in TSEK
Operating activities
Loss after financial items
Adjustments for non-cash items, etc.
Income tax paid
Cash flow from operating activities before working capital changes
Increase(-)/Decrease(+) of current receivables
Increase(+)/Decrease(-) of current liabilities
Cash flow from operating activities
Investing activities
Acquisition of property, plant and equipment
Disposal of property, plant and equipment
Acquisition of intangible assets
Contribution in kind, net liquid effect
Acquisition of financial assets
Cash flow from investing activities
Financing activities
Issue of ordinary shares
Received shareholders’ contribution
Cash flow from financing activities
Cash flow for the year
Cash and cash equivalents at the beginning of the year
Exchange rate differences in cash and cash equivalents
Cash and cash equivalents at the end of the year
1 January
2018-
18 April
2017-
31 December
2018
31 December
2017
(1,081,608)
93,061
(346)
(988,893)
(27,713)
49,613
(966,993)
(76,965)
286
(36,376)
—
(6,859)
(119,914)
-
1,200,000
1,200,000
113,093
384,136
791
498,020
(525,290)
45,064
—
(480,226)
(133,798)
111,659
(502,365)
(87,191)
—
(18,535)
239
(8,520)
(114,007)
500
1,000,555
1,001,055
384,683
—
(547)
384,136
22
22
21
114
Zenuity AB
Corporate identity number 559073-6871
Notes
Amounts in TSEK unless otherwise stated
Note 1
Accounting principles
These consolidated financial statements have been prepared in accordance with the Annual Accounts Act and the Swedish
Accounting Standards Board’s generally accepted accounting principles BFNAR 2012:1 Annual Report and consolidated accounts
(K3).
Assets, provisions and liabilities have been valued at cost unless otherwise stated below.
Intangible assets
Research and development
Expenditures for research activities, i.e. the planned and systematic search for new scientific or technical knowledge and insight,
are expensed as incurred.
Internal development costs are expensed when incurred in accordance with the expense model in BFNAR 2012:1.
Other intangible assets - intellectual property rights, licenses and similar rights
Other intangible assets acquired are valued at cost less accumulated amortisation and impairment.
Amortisations
Amortisation is made on a straight-line basis over the asset’s estimated useful life. The amortisation is recognized as an expense
in the income statement.
Acquired intangible assets
Software licenses
Software
Intellectual Property
Property, plant and equipment
Useful life
3 years
7 years
7 years
Property, plant and equipment is valued at cost less accumulated depreciation and impairment.
Depreciation
Depreciation is performed on a straight-line basis over the asset’s estimated useful life, since it reflects the expected usage of the
asset’s future economic benefits. The depreciation is recognized as an expense in the income statement.
Property, plant and equipment
Leasehold improvements
Equipment, tools, fixtures and fittings
Useful life
10 years
3-5 years
Impairment - Property, plant, equipment and intangible assets
At every closing date, an assessment is made concerning whether or not there is an indication that an asset’s value is lower than
its carrying value. If an indication exists, the recoverable amount of the asset is calculated in order to identify a potential
impairment charge.
The recoverable value is the highest of the fair value less cost to sell and the value in use. When calculating the value in use, future
expected cash flows that the asset is expected to generate in the ongoing operations and when disposed of are discounted to a net
present value. The discount rate before tax is used as it reflects current market assessment of the time value of money and the risks
attributable to the asset. An impairment loss is reversed only to the extent that the asset´s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
115
Zenuity AB
Corporate identity number 559073-6871
Leases
Lessee
All lease contracts are defined as operating lease contracts.
Lease payments, including up-front payments but excluding expenditures for services, such as insurance and maintenance, are
expensed on a straight-line basis over the lease term.
Basis of consolidation
Group companies are consolidated as from the date the Group obtains control over a subsidiary. The consolidation is prepared
according to the acquisition method.
Any Intra-Group transactions have been eliminated.
Foreign currencies
Items in foreign currencies
Monetary items denominated in foreign currencies are translated at the exchange rate at the reporting date. Non-monetary items
that are measured at their fair value in a foreign currency are translated at the exchange rate at the time of the fair value measurement.
Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date
of the transaction.
Foreign currency differences are recognized in the income statement.
Foreign operations
The assets and liabilities of foreign operations are translated from the foreign operation’s functional currency to the Group’s
reporting currency, SEK, using the exchange rates prevailing on the balance sheet date.
Revenues and expenses of foreign operations are translated into SEK using the average exchange rates that approximates the
exchange rates prevailing at each transaction date. Translation differences are recognized in a separate equity component.
Financial assets and liabilities
Financial assets and liabilities are accounted for in accordance with BFNAR 2012:1, chapter 11 - Financial instruments measured
at cost.
Accounting in and derecognition from the balance sheet
A financial asset or financial liability is recognized in the balance sheet when the Group becomes a part of the financial instrument’s
contractual agreement. A financial asset is derecognised when the contractual right to the cash flow from the asset has expired or
been settled. The same is applicable when the risks and benefits that are associated with the holdings in all material aspects are
transferred to another party and the Group does not possess any control over the financial asset. A financial liability is derecognised
when the contractual obligation has been fulfilled or expired.
Measurement of financial assets
Financial assets are initially measured at cost, including any transaction costs that are directly attributable to the acquisition.
Subsequent to initial recognition, financial current assets are measured at the lower of cost and net realizable value.
Accounts receivable and other receivables are measured individually at the amount expected to be received.
Subsequent to initial recognition, financial non-current assets are measured at cost adjusted for potential impairment losses.
116
Zenuity AB
Corporate identity number 559073-6871
Employee benefits
Post-employment benefits
Classification
Plans for post-employment benefits are classified according to simplified rules.
For defined contribution plans, determined fees are paid to another Company, normally an insurance Company, and the Group
does not have any other obligation to the employee when the fee is paid. The size of the employee’s post-employment benefits is
dependent on the fees that have been paid and the return on the accumulated fees.
For defined benefit plans, the Group has an obligation to provide the benefits agreed upon to current and earlier employees. The
Group carries, in all material aspects, the risk for the benefits to be higher than expected (actuarial risk) and the risk for the return
on the assets to deviate from the expectations (investment risk). Investment risk also exists if the assets are transferred to another
Company.
Defined contribution plans
Obligations for contributions (fees) to defined contribution plans are expensed as the related service is provided. Prepaid
contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments are available.
Defined benefit plans
The Group has chosen to apply the simplifying rules presented in BFNAR 2012:1.
In Sweden the Group has post-employment defined benefit obligations for personnel which are insured by Alecta. Alecta is the
largest Swedish life insurance Company and safeguards the majority of the private sector’s defined benefit pension plans, i.e., the
ITP-plan. Alecta is not able to provide specific information for each customer’s obligations and fair value of related assets which
is necessary information in order to account for the obligations in accordance with the rules for defined benefit plans. Therefore,
all obligations relating to the Swedish ITP-plan are accounted for as defined contribution plans in accordance with the rules for
multi-employer plans.
Plans for which pension premiums are paid are accounted for as defined contribution plans, which implies that the fees are expensed
in the income statement.
Other long-term employee benefits
Liabilities regarding other long-term employee benefits are recognized at the present value of the obligations at the balance sheet
date.
Termination benefits
Termination benefits, to the extent the employee does not provide the Group with any future services, are only recognised as a
liability and expense when the Group has a legal or informal obligation to either
a) terminate an employee’s or group of employees’ employments before the normal time for the employment’s termination, or
b) give termination benefits through offerings that encourage voluntary termination.
Termination benefits are accounted for as a provision at the earlier of the date
a) when the Group can no longer withdraw the offer of those benefits; and
b) when the entity recognizes costs for a restructuring that involves the payment of termination benefits.
117
Zenuity AB
Corporate identity number 559073-6871
Tax
Tax expense for the year in the income statement consists of current tax and deferred tax. Current tax is the income tax for the
current financial year, which refers to the year’s taxable profit and the part of earlier financial years’ income tax that have not been
recognized. Deferred tax is recognized based on temporary differences between the carrying amounts of assets and liabilities and
their value for tax purposes.
Deferred tax assets for unused tax losses are recognized to the extent it is probable that future taxable profits will be available to
use the tax losses for.
Revenue
The inflow of economic benefits that the Group receives or will receive on its own behalf are recognized as revenue. Revenue is
measured at the fair value of the consideration received or receivable.
Service agreements and construction contract – continuous
Revenue from engagements on continuous contracts are recognized as revenue in line with work performed and services delivered
or consumed.
All revenue refers to services provided to the owners regarding engineering hours on the owners projects.
Shareholders’ contribution
Shareholders’ contribution that has been made without issued shares or other received equity instruments in exchange is recognized
in the balance sheet as an increase of the investments’ carrying amount.
Shareholders’ contribution that has been received without issued shares or any other equity instruments in exchange are recognized
directly in equity.
Note 2
Estimates and judgements
At each reporting date the Group assesses whether there is an indication that intangible assets may be impaired. Management has
performed an impairment test without identifying any fixed assets that may be impaired. As the Group was established during
2017 the risk of impaired intangible assets recognized during the establishment is low.
Note 3
Other operating income
Exchange rate gains on operating receivables/liabilities
Rental income
Other
Note 4
Employees, personnel costs and remunerations to Board of Directors
Average number of employees
1 January 2018-
18 April 2017-
31 December 2018
2,571
6,920
14,935
24,426
31 December 2017
2,303
—
5,987
8,290
Sweden
Germany
US
Total
Disclosure of gender distribution in the management of the Group
Board of Directors
Other senior management
118
1 January 2018-
31 December 2018
349
80
65
494
whereof
men
18 April 2017-
31 December 2017
206
49
41
296
81%
84%
84%
82%
31 December 2018
Proportion of women
31 December 2017
Proportion of women
—%
25%
—%
27%
Zenuity AB
Corporate identity number 559073-6871
Salaries, other remunerations and social security expenses, including pension expenses
Salaries and remunerations
Social security expenses
(of that pension expenses)1
1Of the Company’s pension expenses 589 TSEK (356 TSEK) relate to the Managing Director.
358,952
122,578
(32,371)
146,865
56,794
(13,329)
Note 5
Depreciation, amortisation and impairment of property, plant and equipment and intangible assets
1 January 2018-
18 April 2017-
31 December
2018
31 December
2017
1 January 2018-
31 December 2018
18 April 2017-
31 December 2017
(3,947)
(48,117)
(380)
(39,802)
(92,246)
(3,790)
(26,889)
(160)
(16,092)
(46,931)
1 January 2018-
31 December
2018
18 April 2017-
31 December
2017
(7,627)
(163)
(7,790)
(2,607)
(45)
(2,652)
31 December
2018
31 December
2017
34,616
121,895
135,353
291,864
49,700
156,600
147,972
354,272
1 January 2018-
31 December
2018
18 April 2017-
31 December
2017
33,916
17,118
Depreciation and amortisation divided by asset
Capitalized expenditures for software and similar
Concessions, patents, licenses, trademarks
Leasehold improvements
Equipment, plant and machinery
Note 6
Other operating expenses
Exchange rate losses on operating receivables/liabilities
Capital losses
Note 7
Operating lease
Lease contracts where the Group is the lessee
Future minimum lease payments regarding non-cancellable operating lease contracts
Within one year
Between one and five years
Later than five years
The financial year’s recognized lease expenses
The main part of the lease expense refer to expenses regarding office rent.
119
Note 8
Interest income and similar profit/loss items
Interest income, other
Note 9
Interest expense and similar profit/loss items
Interest expense, other
1 January 2018-
31 December
2018
18 April 2017-
31 December
2017
4,326
4,326
1,970
1,970
1 January 2018-
31 December
2018
18 April 2017-
31 December
2017
(3,432)
(3,432)
(2,597)
(2,597)
120
Zenuity AB
Corporate identity number 559073-6871
Note 10
Tax expense for the year
Current tax expense
Reconciliation of effective tax rate
Loss before tax
Tax according to current tax rate for the parent Company
Non-deductible depreciation
Other non-deductible depreciation
Increase of loss carry-forward without corresponding recognized
deferred tax
Effect due to other tax rates and tax regulations
Reported effective tax
Note 11
Capitalized expenditures for software and similar
Accumulated acquisition costs
At the beginning of the year
Contribution in kind
Additions
Reclassifications
Translation differences during the year
At the end of the year
Accumulated amortization
At the beginning of the year
Reclassifications
Amortization during the year
Translation differences during the year
At the end of the year
Carrying amount at the end of the year
121
1 January
2018-
31 December
2018
18 April 2017-
31 December
2017
(4,417)
(4,417)
(3,294)
(3,294)
1 January 2018-
18 April 2017-
31 December 2018
31 December 2017
Percent
22 %
(0.9)%
— %
Amount
(1,081,608)
237,954
(10,244)
(171)
Percent
Amount
(525,290)
22 % 115,564
(6,865)
—
— %
(1.3)%
(21.4)% (231,484)
(472)
(4,417)
(0.4)%
— %
(21.1)% (110,810)
(1,183)
(0.2)%
(3,294)
(0.6)%
31 December
2018
31 December
2017
27,479
—
850
(4,402)
306
24,233
(3,757)
1,946
(3,947)
15
(5,743)
18,490
—
16,068
11,833
—
(422)
27,479
—
—
(3,790)
33
(3,757)
23,722
Note 12
Concessions, patents, licenses, trademarks and similar rights
Accumulated acquisition costs
At the beginning of the year
Contribution in kind
Additions
Reclassifications
Translation differences during the year
At the end of the year
Accumulated amortization
At the beginning of the year
Reclassifications
Amortization during the year
Translation differences during the year
At the end of the year
Carrying amount at the end of the year
31 December
2018
31 December
2017
283,059
—
35,603
4,519
2
—
276,356
6,702
—
1
323,183
283,059
(26,888)
(2,151)
(48,117)
(51)
(77,207)
245,976
—
—
(26,888)
—
(26,888)
256,171
122
Zenuity AB
Corporate identity number 559073-6871
Note 13
Leasehold improvements
Accumulated acquisition costs
At the beginning of the year
Contribution in kind
Additions
Translation differences during the year
At the end of the year
Accumulated depreciation
At the beginning of the year
Depreciation during the year
Translation differences during the year
At the end of the year
31 December
2018
31 December
2017
2,108
—
1,674
60
3,842
(158)
(380)
(15)
(553)
—
710
1,459
(61)
2,108
—
(160)
2
(158)
Carrying amount at the end of the year
3,290
1,950
Note 14
Equipment, plant and machinery
Accumulated acquisition costs
At the beginning of the year
Contribution in kind
Additions
Disposals
Reclassifications
Translation differences during the year
At the end of the year
Accumulated depreciation
At the beginning of the year
Reversed depreciation on disposals
Reclassifications
Depreciation during the year
Translation differences during the year
At the end of the year
31 December
2018
31 December
2017
121,388
—
75,428
(619)
(117)
1,746
197,826
(16,018)
164
20
(39,802)
(640)
(56,276)
—
36,456
85,930
(211)
—
(787)
121,388
—
13
—
(16,092)
61
(16,018)
Carrying amount at the end of the year
141,550
105,370
123
Note 15
Participation in group companies
Accumulated acquisition costs
At the beginning of the year
Acquisitions
At the end of the year
31 December
2018
31 December
2017
103,888
1,400
105,288
—
103,888
103,888
Specification of the Parent Company’s participation in group companies
Subsidiary / Corp. Id. No. / Registered office
Zenuity GmbH, HRB 228080,
Unterschleissheim
Zenuity Inc, 81-4350409, Delaware
Zenuity Software Technology Co. Ltd,
Shanghai
31 December 2018
Number of
shares
Share
in % i)
Carrying
amount
Equity
Profit/loss
for the year
25,000
100
—
100.0
100.0
100.0
48,068
55,820
61,649
65,449
1,400
1,414
6,305
6,886
29
Acquisitions during 2017 and 2018
Zenuity GmbH and Zenuity Inc. were founded during 2017 and were contributed to Zenuity AB via contribution in kind from the
joint owners. Zenuity AB made during 2017 a capital contribution to Zenuity GmbH of 47,829 TSEK and a capital contribution
to Zenuity Inc. of 55,820 TSEK. Zenuity Software Technology Co. Ltd was founded in 2018 and Zenuity AB made during 2018
a capital contribution to Zenuity Software Technology Co. Ltd of 1,400 TSEK.
124
Zenuity AB
Corporate identity number 559073-6871
Note 16
Deferred taxes
Significant temporary differences
Capitalized expenditures for developments
Concessions, patents, licenses
Equipment
Tax-rebate related to acquisition of assets
Deferred tax asset/liability
Significant temporary differences attributable to deferred tax asset
Tax-rebate related to acquisition of assets
Significant temporary differences attributable to deferred tax liability
Capitalized expenditures for developments
Concessions, patents, licenses
Equipment
Significant temporary differences
Capitalized expenditures for developments
Concessions, patents, licenses
Equipment
Tax-rebate related to acquisition of assets
Deferred tax asset/liability
Significant temporary differences attributable to deferred tax asset
Tax-rebate related to acquisition of assets
Significant temporary differences attributable to deferred tax liability
Capitalized expenditures for developments
Concessions, patents, licenses
Equipment
Taxable loss carry-forward amounts to 1,555,605 TSEK (503,683 TSEK).
125
Deferred
tax asset
2018-12-31
Deferred
tax liability
Change
Net
—
—
—
49,611
49,611
1,743
44,007
5,384
—
51,134
-1,743
-44,007
-5,384
49,611
(1,523)
Carrying
amount
2018-12-31
Tax base
Temporary
difference
49,611
49,611
8,328
210,557
25,568
244,453
—
—
—
—
—
—
Deferred
tax asset
2017-12-31
Deferred
tax liability
—
—
—
62,429
62,429
2,182
55,009
5,238
—
62,429
-49,611
-49,611
8,328
210,557
25,568
244,453
Net
-2,182
-55,009
-5,238
62,429
—
Carrying
amount
2017-12-31
Tax base
Temporary
difference
62,429
62,429
9,919
250,037
23,811
283,767
—
—
—
—
—
—
-62,429
-62,429
9,919
250,037
23,811
283,767
Note 17
Other long-term receivables
Accumulated acquisition costs
At the beginning of the year
Paid rental deposit
Repaid rental deposit
Translation differences during the year
At the end of the year
Carrying amount at the end of the year
Note 18
Prepaid expenses and accrued income
Prepaid services according to supplier agreements
Prepaid rent
Accrued income
Other items
Note 19
Number of shares and quotient value
Ordinary shares:
Number of shares
Quotient value
Note 20
Accrued expenses and deferred income
Accrued personnel expenses
Accrued consultant expenses
Prepaid revenue
Other items
Note 21
Cash equivalents
The following sub-components are included in cash equivalents:
Bank balance
126
31 December
2018
31 December
2017
8,520
7,409
(671)
121
15,379
15,379
—
8,520
—
—
8,520
8,520
31 December
2018
31 December
2017
92,226
5,782
5,156
1,092
104,256
73,243
5,253
4,105
11,336
93,937
31 December
2018
31 December
2017
500,000
500,000
1
1
31 December
2018
31 December
2017
62,410
14,249
5,801
7,194
89,654
32,631
14,447
4,498
18,365
69,941
31 December
2018
31 December
2017
498,020
498,020
384,136
384,136
Zenuity AB
Corporate identity number 559073-6871
Note 22
Other disclosures to the cash flow statement
Adjustments for items not included in the cash flow etc.
Depreciation and amortization
Unrealized exchange rate differences
Capital gain/loss on sale of non-current assets
Contribution in kind of subsidiary/assets, net liquid affect
Intangible assets
Property, plant and equipment
Financial assets
Tax-rebate related to acquisition of assets
Total assets
Deferred tax liability
Operational liabilities
Total provisions and liabilities
Consideration
Deductible: Non-cash issue
Effect on cash and cash balances
1 January 2018-
18 April 2017-
31 December 2018
31 December 2017
92,246
678
137
93,061
46,931
(1,867)
-
45 064
31 December 2018
31 December 2017
—
—
—
—
—
—
—
—
—
—
—
292,425
37,166
239
69,293
399,123
69,293
10,088
79,381
319,742
(319,503)
239
Zenuity AB was formed via contribution in kind at a fair value of 319,742 TSEK and a capital contribution of 1,000,555 TSEK
in cash from the joint owners.
See further Note 23 for details regarding the contributions from the owners.
Note 23
Information about the business, company, group and formation
Zenuity develops software for active automotive safety and self-driving vehicles. Zenuity started during 2017 but the Group
originates from the safety leaders of the automotive industry and builds on robust industrial automotive solutions. Zenuity’s
engineers have extensive experience and are now developing modular platforms for complete ADAS and AD systems and the
combination of scalability and completeness allows for fast application cross vehicle variants and vehicle lines.
Parent Company information
Zenuity AB, Corp ID no 559073-6871, was created and registered on August 24, 2016. The Company changed name to Zenuity
AB on December 7, 2016. The Company’s board of directors is based in Göteborg, Sweden.
Owners
Zenuity AB is a joint venture owned by Veoneer Sweden AB (50 %), Corp ID no 559131-0841, and Volvo Personvagnar AB (50
%), Corp ID no 556074-3089, Göteborg. Due to that no owner holds more than 50 % of the votes, Zenuity AB is not part of any
parent group.
Purchases and sales from and to owners
Of the Group’s total purchases and sales in SEK, 12 % (18 %) of the purchases and 100% (100 %) of the sales refer to owner
companies.
All transactions with the owners are made at arm’s length.
For information regarding the contributions from the owners, see separate section below.
Information regarding the formation of the Group
127
Zenuity AB was created and registered in 2016 but started its business on April 18, 2017 when the joint owners contributed cash
of 1,000,555 TSEK and contributed in kind at a fair value of 319,742 TSEK. The contribution included intellectual property rights,
software, fixed assets, personnel, personnel related debt and shares in Zenuity GmbH and Zenuity Inc. The Company has treated
the contribution as an asset acquisition. Most of the contributed assets have a tax value of zero resulting in temporary differences
between book values and tax values. See further Note 16 for specification of the current temporary differences.
During 2018 the joint owners have each contributed cash of 600,000 TSEK.
128
Zenuity AB
Corporate identity number 559073-6871
Note 24
Reconciliation between Swedish GAAP and US GAAP
Zenuity AB prepared its consolidated financial statements in accordance with the Swedish Annual Accounts Act and the Swedish
Accounting Standards Board´s generally accepted accounting principles BFNAR 2012:1 (“K3”). The accounting policies are
further described in the Note 1 Accounting principles.
Swedish GAAP as applied by Zenuity is based on IFRS for SMEs but with minor differences.
As described in Note 1 Research and development, Zenuity applies a policy where all internal development costs are expensed
when incurred. Therefore, there is no US GAAP adjustment as the costs would also be expensed under US GAAP.
Below we present a reconciliation describing the main differences between Swedish GAAP and US GAAP for Zenuity AB
consolidated financial statements.
SEK million
NET LOSS BASED ON SWEDISH GAAP
Reversal of amortization of Tax Rebate Asset
NET LOSS BASED ON US GAAP
SEK million
SHAREHOLDERS’ EQUITY BASED ON SWEDISH GAAP
Reversal of amortization of Tax Rebate Asset at the beginning of the
year
Reversal of amortization of Tax Rebate Asset during the year
Goodwill
SHAREHOLDERS’ EQUITY BASED ON US GAAP
1 January 2018-
31 December 2018
18 April 2017-
31 December 2017
(1,086.0)
12.8
(1,073.2)
(528.6)
6.9
(521.7)
31 December 2018
31 December 2018
910.1
6.9
12.8
924.6
1,854.4
788.6
-
6.9
924.6
1,713.2
129
Zenuity AB
Corporate identity number 559073-6871
Goodwill and reversal of Tax Rebate Asset
Under Swedish GAAP the accounting treatment for formation of a joint venture is not explicitly regulated, and there is
room for judgment. Zenuity management assessed that the contributions from the owners were contributions of assets that did
not comprise a business under the Swedish GAAP definition of a business.
Certain assets (IP, tools and equipment and software) contributed by Volvo Cars and Autoliv had a tax value of zero. Since there
were differences between carrying amounts and tax values, temporary differences were identified and as a result there was a
deferred tax liability and a tax rebate asset recorded. This asset is being amortized over 5-7 years, corresponding to the dissolvement
of deferred tax liability.
Under US GAAP, management concluded that the assets and employees contributed to the JV constituted a business as defined
in ASC 805. Management assessed two general approaches a joint venture might consider when recognizing those assets: (1) a
fair value approach or (2) a carryover basis approach. Management determined that the fair value approach is the most appropriate
as the contributing companies are not related parties and that the fair value is determinable as a valuation was performed in
connection with the contributions.
There may be different approaches to determine the fair value. Management determined that a “Stand alone entity view” approach
was appropriate when determine fair value. Under this approach the value of the consideration transferred equals the aggregate
fair value of the joint venture immediately after formation. Management used a discounted cash flow analysis to calculate the fair
value of Zenuity.
The differences between Swedish GAAP and US GAAP are: the Tax Rebate Asset is derecognized under US GAAP as an adjustment
to Goodwill and Goodwill is established as the transaction meets the definition of a business under US GAAP. The amortization
of the Tax Asset Rebate of SEK 12.8 (6.9) million recorded under Swedish GAAP during 2018 is reversed. As per December 31
2018 accumulated amortization of Tax Rebate Asset amounts to SEK 19.7 (6.9) million. Further, an additional goodwill of SEK
924.6 million was recognized under US GAAP (not recognized under Swedish GAAP) as the difference between the fair value
of the individual assets and liabilities contributed by the owners and the aggregate fair value of the joint venture at formation
which was estimated to be USD 250 million.
130
Zenuity AB
Corporate identity number 559073-6871
Note 25
Subsequent events
The company has evaluated subsequent events through 22 February 2019, the date on when financial statements were issued.
No subsequent events have occurred.
131
OUR STRATEGY
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