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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No.: 001-38471

Veoneer, Inc.

(Exact name of registrant as specified in its charter)


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

Klarabergsviadukten 70, Section C6
Box 13089

Stockholm Sweden

(Address of principal executive offices)

SE- 103 02

(Zip Code)

+46 8 527 762 00

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $1.00 par value	VNE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes: ☒ No: ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes: ☒ No: ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging Growth Company

☐

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

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

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of October 21, 2021, there were 112,018,001 shares of common stock of Veoneer, Inc., par value $1.00 per share, outstanding.

Exhibit index located on page 41

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including without limitation, statements regarding management’s examination of historical operating trends and data, estimates of future sales (including estimates related to order intake), operating margin, cash flow, RD&E spend, taxes or other future operating performance or financial results, are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “may,” “likely,” “might,” “would,” “should,” “could,” or the negative of these terms and other comparable terminology, although not all forward-looking statements contain such words. We have based these forward-looking statements on our current expectations and assumptions and/or data available from third parties about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs.

New risks and uncertainties arise from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Factors that could cause actual results to differ materially from these forward-looking statements include, without limitation, the following: general economic conditions; the cyclical nature of automotive sales and production; changes in general industry and market conditions or regional growth or decline; further decreases in light vehicle production; the impact of the coronavirus pandemic (COVID-19) on (i) the Company’s financial condition, business operations and liquidity, (ii) our customers and their production and product launch schedules, (iii) our suppliers and availability of components for our products, and (iv) the global economy; the development and commercial success of the software and integrated platform contemplated by our collaboration agreement with Qualcomm Technologies; 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; supply chain disruptions and component shortages impacting the Company or the automotive industry; changes in customer and consumer preferences for end products; market acceptance of our new products; dependence on and relationships with customers and suppliers; our ability to share RD&E costs with our customers; unfavorable fluctuations in currencies or interest rates among the various jurisdictions in which we operate; costs or difficulties related to the integration of any new or acquired businesses and technologies; successful integration of acquisitions and operations of joint ventures; successful implementation of strategic partnerships and collaborations; product liability, warranty and recall claims and investigations and other litigation and customer reactions thereto; higher expenses for our pension and other post-retirement benefits, including higher funding needs for our pension plans; work stoppages or other labor issues; possible adverse results of future litigation, regulatory actions or investigations or infringement claims; our ability to protect our intellectual property rights; tax assessments by governmental authorities and changes in our tax rate; dependence on key personnel; legislative or regulatory changes impacting or limiting our business; political conditions; and other risks and uncertainties identified in Part I Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A -“Risk Factors” and in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission ("SEC") on February 19, 2021.

For any forward-looking statements contained in this Quarterly Report on Form 10-Q or any other document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we assume no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Veoneer, Inc.

Table of Contents


						Page
Part I – Financial Information						4

Item 1 – Condensed Consolidated Financial Statements						4

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations						24

Item 3 - Quantitative and Qualitative Disclosures about Market Risk						37

Item 4 - Controls and Procedures						37

Part II – Other Information						38

Item 1 - Legal Proceedings						38

Item 1A - Risk Factors						38

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds						40

Item 3 – Defaults Upon Senior Securities						40

Item 4 – Mine Safety Disclosures						40

Item 5 – Other Information						40

Item 6 - Exhibits						41

Signature						42

Part I – Financial Information

Item 1 – Condensed Consolidated Financial Statements

Veoneer, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

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


		Three Months Ended September 30				Nine Months Ended September 30
		2021		2020		2021		2020
Net sales	Note 3	$	391	$	371	$	1,208	$	918
Cost of sales		(326)		(317)		(1,025)		(808)
Gross profit		65		54		183		110
Selling, general and administrative expenses		(38)		(43)		(118)		(124)
Research, development and engineering expenses, net		(102)		(124)		(326)		(299)
Amortization of intangibles		(2)		(1)		(6)		(4)
Other (expense)/ income, net		(12)		11		(18)		27
Operating loss		(89)		(103)		(285)		(290)
Loss on divestiture and assets impairment charge, net	Note 5	—		(24)		—		(91)
Gain (loss) from equity method investment	Note 11	3		(1)		12		(39)
Interest income		1		1		2		8
Interest expense		(5)		(5)		(16)		(15)
Other non-operating items, net		(1)		—		1		—
Loss before income taxes	Note 17	(91)		(132)		(286)		(427)
Income tax expense	Note 9	(3)		—		(12)		(26)
Net loss		(94)		(132)		(298)		(453)
Less: Net income attributable to non-controlling interest		—		—		—		1
Net loss attributable to controlling interest		$	(94)	$	(132)	$	(298)	$	(454)

Net loss per share - basic and diluted	Note 16	$	(0.84)	$	(1.18)	$	(2.66)	$	(4.07)


Weighted average number of shares outstanding (in millions)		111.96		111.59		111.83		111.55
Weighted average number of shares outstanding, assuming dilution (in millions)		111.96		111.59		111.83		111.55

See notes to the unaudited condensed consolidated financial statements.

Veoneer, Inc.

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(U.S. DOLLARS IN MILLIONS)


	Three Months Ended September 30				Nine Months Ended September 30
	2021		2020		2021		2020
Net loss	$	(94)	$	(132)	$	(298)	$	(453)
Other comprehensive loss, before tax:
Change in cumulative translation adjustment	(5)		15		(15)		15


Other comprehensive (loss)/ income, before tax	(5)		15		(15)		15

Other comprehensive (loss)/ income, net of tax	(5)		15		(15)		15
Comprehensive loss	(99)		(117)		(313)		(438)
Less: Comprehensive income attributable to non-controlling interest	—		—		—		2
Comprehensive loss attributable to controlling interest	$	(99)	$	(117)	$	(313)	$	(440)

See notes to the unaudited condensed consolidated financial statements.

Veoneer, Inc.

Condensed Consolidated Balance Sheets

(U.S. DOLLARS IN MILLIONS)


		(unaudited)
		September 30, 2021		December 31, 2020
Assets
Cash and cash equivalents		$	419	$	758

Restricted cash		1		—
Receivables, net		271		292
Inventories, net	Note 10	187		134
Related party receivables	Note 18	5		9
Prepaid expenses and other contract assets		44		36
Other current assets		16		15

Total current assets		943		1,244
Property, plant and equipment, net		390		431
Operating lease right-of-use assets		83		89
Equity method investment	Note 11	22		153
Goodwill		317		317
Intangible assets, net		17		21
Deferred tax assets		5		6


Other non-current assets		19		27
Total assets		$	1,796	$	2,288
Liabilities and equity
Accounts payable		$	257	$	257

Related party payables	Note 18	1		2
Accrued expenses	Note 12	201		232
Income tax payable		5		25
Related party short-term debt	Note 18	—		16
Other current liabilities		58		55

Total current liabilities		522		587
4.00% Convertible Senior Notes due 2024	Note 6	177		170
Related party long-term debt	Note 18	—		115
Pension liability	Note 13	20		20
Deferred tax liabilities		13		12
Operating lease non-current liabilities		66		71
Finance lease non-current liabilities		45		46
Other non-current liabilities		19		28
Total non-current liabilities		340		462
Equity
Common stock (par value $1.00, 325 million shares authorized, 112 million shares and 111 million shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively)		112		111
Additional paid-in capital		2,356		2,349
Accumulated deficit		(1,524)		(1,226)

Accumulated other comprehensive (loss)/ income		(10)		5
Total equity		934		1,239


Total liabilities and equity		$	1,796	$	2,288

See notes to the unaudited condensed consolidated financial statements.

Veoneer, Inc.

Condensed Consolidated Statements of Changes in Equity (Unaudited)

(U.S. DOLLARS IN MILLIONS)


	Nine months ended September 30, 2021
	Equity attributable to
	Common Stock		Additional Paid In Capital		Accumulated Deficit		Accumulated Other Comprehensive (loss)/ income		Total
Balance at beginning of period	$	111	$	2,349	$	(1,226)	$	5	$	1,239

Net loss	—		—		(298)		—		(298)
Foreign currency translation	—		—		—		(15)		(15)





Stock based compensation expense	—		7		—		—		7
Issuance of common stock	1		—		—		—		1





Balance at end of period	$	112	$	2,356	$	(1,524)	$	(10)	$	934


	Nine months ended September 30, 2020
	Equity attributable to
	Common Stock		Additional Paid In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Non-controlling Interest		Total
Balance at beginning of period	$	111	$	2,343	$	(681)	$	(44)	$	89	$	1,818

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

Stock based compensation expense	—		6		—		—		—		6



Business divestiture	—		—		—		3		(91)		(88)
Balance at end of period	$	111	$	2,349	$	(1,135)	$	(27)	$	—	$	1,298

Veoneer, Inc.

Condensed Consolidated Statements of Cash Flow (Unaudited)

(U.S. DOLLARS IN MILLIONS)


	Nine Months Ended September 30
	2021		2020
Operating activities
Net loss	$	(298)	$	(453)
Depreciation and amortization	86		73
Gain on divestitures	—		(77)
Assets impairment charge	—		168
Undistributed (gain) loss from equity method investments	(12)		39
Stock-based compensation	7		6
Deferred income taxes	1		(3)

Other, net	7		3
Change in operating assets and liabilities:
Receivables, gross	15		36
Accrued expenses	(19)		45
Related party receivables and payables, net	3		4
Accounts payable	8		(8)
Prepaid expenses and other contract assets	(8)		14
Inventories, gross	(73)		15
Income taxes	(17)		20
Other current assets and liabilities, net	1		3
Net cash used in operating activities	(299)		(115)

Investing activities
Proceeds from divestitures	—		198
Capital expenditures	(46)		(70)
Equity method investment	11		9



Proceeds from sale of property, plant and equipment	—		10
Acquisition of intangible assets	—		(10)
Acquisition of business net of cash acquired	—		(33)
Net cash (used in)/ provided by investing activities	(35)		104

Financing activities

Dividend paid to non-controlling interest	—		(5)
Payments for long-term debt	(1)		(1)
Payments for short-term debt	(2)		(2)

Proceeds from exercise of stock options	1		—


Net cash used in financing activities	(2)		(8)
Effect of exchange rate changes on cash and cash equivalents	(2)		6
Decrease in cash and cash equivalents and restricted cash	(338)		(13)
Cash and cash equivalents and restricted cash at beginning of period	758		859
Cash and cash equivalents and restricted cash at end of period	$	420	$	846

See notes to the unaudited condensed consolidated financial statements.

Veoneer, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(U.S. DOLLARS IN MILLIONS)

Note 1. Basis of Presentation

The condensed consolidated financial statements of Veoneer, Inc. (the "Company" or "Veoneer") have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The accompanying unaudited condensed consolidated financial statements for Veoneer do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to Veoneer’s Audited Consolidated Financial Statements for the year ended December 31, 2020 and corresponding notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 19, 2021.

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

The Company has one operating segment, the Electronics segment. The Company previously had two operating segments, Electronics and Brake Systems. Electronics includes all electronics resources and expertise, Restraint Control Systems and Active Safety products, and Brake Systems provided brake control and actuation systems. The Asian business of the Brake Systems segment was sold on February 3, 2020 and the majority of the Brake Systems business in North America was sold on August 10, 2020. The remaining Brake Systems business is no longer a reportable segment due to immateriality.

Divestiture of Veoneer Nissin Brake System ("VNBS")

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

Divestiture of Veoneer Brake Systems ("VBS")

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

Pending Merger Agreement

On October 4, 2021 Veoneer entered into a definitive agreement with SSW HoldCo LP ("SSW"), a Delaware limited partnership, SSW Merger Sub Corp, a Delaware corporation and a direct, wholly owned subsidiary of SSW ("Merger Sub"), and QUALCOMM Incorporated ("Qualcomm") providing for the acquisition of Veoneer, Inc. for $37.00 per share in an all-cash transaction, representing a total equity value for Veoneer of $4.5 billion. On October 5, 2021, Veoneer terminated the Agreement and Plan of Merger, dated July 23, 2021, by and among Veoneer, Magna International Inc., an Ontario corporation (“Magna”), and 2486345 Delaware Corporation, a Delaware corporation, providing for the acquisition of Veoneer by Magna.

At closing, SSW will acquire Veoneer by merger, shortly after which it is contemplated that SSW will sell Veoneer's dedicated software unit, referred to as the Arriver business.to Qualcomm and retain Veoneer’s Tier-1 supplier businesses. SSW Partners will lead the process of finding strong, long-term strategic partners.

The transaction has been approved by the board of directors of Veoneer and is subject to regulatory approvals including under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in the United States, certain European foreign direct investment approvals, approval by Veoneer stockholders and other customary conditions. The transaction is expected to close during 2022.

Due to the termination of Veoneer's acquisition agreement with Magna, Veoneer was obligated to pay Magna a termination fee of $110 million. In conjunction with the execution of the definitive agreement with SSW and Qualcomm providing for the acquisition of Veoneer, Qualcomm paid the termination fee directly to Magna on behalf of Veoneer on October 4, 2021.

The Company recorded approximately $11 million of merger related expenses in Other (expense)/ income, net in the unaudited Condensed Consolidated Statements of Operations, for the three and nine months ended September 30, 2021.

During the third quarter, the Company implemented an employee retention bonus program to retain certain employees. The current amount of the program is approximately $16 million which will be accrued ratably over the period the bonuses are earned. During the quarter approximately $1 million was accrued and included in the merger related expenses in Other (expense)/ income, net in the unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021.

Note 2. Summary of Significant Accounting Policies

A summary of significant accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 19, 2021.

Restricted Cash

Restricted cash represents amounts designated for uses other than current operations. As of September 30, 2021 the Company has $1 million of Restricted cash related to cash collateral for other corporate purposes.

Concentration of Credit Risk

A substantial majority of the Company’s trade receivables are derived from sales to Original Equipment Manufacturers ("OEMs"). For the three and nine months ended September 30, 2021, the Company’s four largest customers accounted for 41% and 44% of net sales, respectively, and for the three and nine months ended September 30, 2020, the Company’s four largest customers accounted for 55% and 59% of net sales, respectively. Additionally, as of September 30, 2021 and December 31, 2020, these four largest customers accounted for 31% and 40% of the Company’s accounts receivables, respectively. The Company believes that the receivable balances from these largest customers do not represent a significant credit risk based on past collection experience. The Company has adopted credit policies and standards intended to accommodate industry growth and inherent risk. The Company believes that credit risks are moderated by the financial stability of the Company’s major customers.

New Accounting Standards

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

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

Adoption of New Accounting Standards

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

In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. ASU 2018-14 removes the requirements to disclose: amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year; the amount and timing of plan assets expected to be returned to the employer; and the effects of a one-percentage point change in assumed health care cost trend rates. ASU 2018-14 requires disclosure of an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted for all entities and the amendments in this update are required to be applied on a retrospective basis to all periods presented. The Company adopted ASU 2018-14 in the first quarter of 2021. The

adoption of ASU 2018-14 did not have a material impact on the Company's unaudited condensed consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The guidance provides optional expedients and exceptions related to certain contract modifications and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another rate that is expected to be discontinued. The guidance was effective upon issuance and generally can be applied to applicable contract modifications and hedge relationships prospectively through December 31, 2022. 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 2020, the FASB issued ASU 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)." The guidance provides simplifications of the accounting for convertible instruments and reduces the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current U.S. GAAP. In addition to further improve the decision usefulness and relevance of the information being provided to users of financial statements, information transparency has been increased by amending certain disclosure requirements. The guidance is effective for public business entities for fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. In addition, an entity should adopt the guidance as of the beginning of its annual fiscal year. The amendments in this update are required to be applied through either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. The Company is currently evaluating this guidance to determine the impact on its disclosures.

Note 3. Revenue

Disaggregation of revenue

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

Net Sales by Region


	Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Asia	$	111	$	—	$	111	$	85	$	—	$	85
Americas	116		11		127		123		13		136
Europe	153		—		153		150		—		150


Total net sales	$	380	$	11	$	391	$	358	$	13	$	371

Net Sales by Region


	Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Asia	$	310	$	—	$	310	$	202	$	24	$	226
Americas	362		35		$	397	283		33		$	316
Europe	501		—		501		376		—		376


Total net sales	$	1,173	$	35	$	1,208	$	861	$	57	$	918

Net Sales by Products


	Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Restraint Control Systems	$	153	$	—	$	153	$	188	$	—	$	188
Active Safety products	215		—		215		170		—		170
Brake Systems	—		11		11		—		13		13


Other	12		—		12		—		—		—
Total net sales	$	380	$	11	$	391	$	358	$	13	$	371

Net Sales by Products


	Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
(Dollars in millions)	Electronics		Brake Systems		Total		Electronics		Brake Systems		Total
Restraint Control Systems	$	517	$	—	$	517	$	450	$	—	$	450
Active Safety products	618		—		618		411		—		411
Brake Systems	—		35		35		—		57		57
Other	38		—		38		—		—		—
Total net sales	$	1,173	$	35	$	1,208	$	861	$	57	$	918

Note 4. Business Combinations

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

Zenuity, Inc and Zenuity GmbH

Zenuity AB, a 50% ownership joint venture with Volvo Cars Corporation (VCC), was separated pursuant to definitive agreements between the Company and VCC, in order for each company to more effectively drive their respective strategies. As part of the transaction the Company paid approximately $37 million to Zenuity for 200 software engineers and two business units located in Germany and the US.

The Company applied the acquisition method of accounting to the Zenuity, Inc and Zenuity GmbH entities, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the workforce. The recognized goodwill of $25 million recorded as part of this acquisition is not deductible for tax purposes. The opening balance sheet is based on final assessment of the fair values of certain acquired assets, principally intangibles, and certain assumed liabilities. The Company used discounted cash flow ("DCF") analyses, which represent Level 3 fair value measurements, to assess the purchase price allocation.

Total Zenuity, Inc and Zenuity GmbH acquisition related costs were approximately $1 million for the period ended December 31, 2020.

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


Assets	As of July 1, 2020
Cash and cash equivalents	$	4
Receivable, net	12
Property, plant and equipment, net	3
Operating lease right-of-use assets	8
Goodwill	25
Total assets	$	52
Tax payable	2
Accrued liabilities	3
Operating lease non-current liabilities	10
Total liabilities	$	15
Net assets acquired	$	37

Note 5. Divestiture and held for sale

VBS

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

On August 10, 2020 Veoneer signed a definitive agreement to sell the majority of the Brake Systems business in North America to ZF. The aggregate purchase price was $1. In connection with the transaction, the Company received approximately $22 million from ZF for VBS operational cost reimbursement. The transaction closed during the third quarter of 2020 and no additional gain or loss was recognized.

VNBS

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

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

Note 6. Debt

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


	As of
(Dollars in millions)	September 30, 2021		December 31, 2020
Short-Term Debt:
Short-term borrowings	$	4	$	4
Long-Term Debt:
4.00% Convertible Senior Notes due 2024 (Carrying value)	177		170
Other long-term borrowings	8		7
Total Debt	$	189	$	181

Short-Term Debt:

Short-term debt is included in Other current liabilities in the Condensed Consolidated Balance Sheets.

Long-Term Debt:

Other long-term borrowings

Other long-term borrowings are included in Other non-current liabilities in the Condensed Consolidated Balance Sheets.

4.00% Convertible Senior Notes

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

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

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

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

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

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

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

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

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

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


4.00% Convertible Senior Notes due 2024	As of
(Dollars in millions)	September 30, 2021		December 31, 2020
Principal amount (face value)	$	207	$	207
Unamortized issuance cost	(3)		(4)
Unamortized debt discount	(27)		(33)
Net Carrying value	$	177	$	170

The Company recognized total interest expense related to the Notes of $5 million and $4 million for the three months ended September 30, 2021 and 2020, respectively, and $14 million and $13 million for the nine months ended September 30, 2021 and 2020, respectively, in the unaudited Condensed Consolidated Statements of Operations.

The estimated fair value of the Notes was $334 million as of September 30, 2021. The estimated fair value of the Notes was determined through consideration of quoted market prices. The fair value is classified as Level 2, as defined in Note 8 "Fair Value Measurements".

Note 7. Restructuring Activities

The Company is undertaking various restructuring activities related to its Market Adjustment Initiatives program to achieve its strategic and financial targets and plans. These restructuring activities include, but are not limited to, consolidation of available capacity and resources along with production, engineering and administrative cost structure realignments. The Company expects to finance restructuring activities through its cash on hand and cash generated from operations.

Restructuring costs are recorded as elements of a plan as they become finalized and approved where the timing of the activities and the amount of related costs are not expected to change materially. Such costs are estimated based on information available at the time such charges are recorded. In general, management anticipates that restructuring activities will be completed within a relatively short time frame such that changes to the plan are expected to be immaterial. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated.

During the first quarter of 2021, the Company announced certain restructuring activities impacting certain engineering and administrative functions to further align the Company's resources with its core product technologies and customers. During the three and nine month periods ended September 30, 2021, the Company recorded restructuring expenses of less than $1 million and $5 million, respectively. The Company recorded zero in restructuring expenses for the three and nine month periods ended September 30, 2020. The payback on such restructuring expenses is expected to be less than one year.

Note 8. Fair Value Measurements

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

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

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

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

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

Items Measured at Fair Value on a Recurring Basis

Derivative instruments - The Company uses derivative financial instruments, “derivatives”, to mitigate the market risk that occurs from its exposure to changes in interest and foreign exchange rates. The Company does not enter into derivatives for trading or other speculative purposes. The Company’s use of derivatives is in accordance with the strategies contained in the Company’s overall financial risk policy. The derivatives outstanding as of September 30, 2021 were foreign exchange swaps. All swaps principally match the terms and maturity of the underlying obligation and no swaps have a maturity beyond six months. All derivatives are recognized in the unaudited condensed consolidated financial statements at fair value. Certain derivatives are from time to time designated either as fair value hedges or cash flow hedges in line with the hedge accounting criteria. For certain other derivatives hedge accounting is not applied either because non-hedge accounting treatment creates the same accounting result or the hedge does not meet the hedge accounting requirements, although entered into applying the same rationale concerning mitigating market risk that occurs from changes in interest and foreign exchange rates. The Company’s derivatives are classified as Level 2 of the fair value hierarchy and there were no transfers between the levels during this or comparable periods.

Financial Statement Presentation

The Company enters into master netting agreements, International Swaps and Derivatives Association (ISDA) agreements with all derivative counterparties. The netting agreements allow for netting of exposures in the event of default or breach of the counterparty agreement. The fair values in the Condensed Consolidated Balance Sheets have been presented on a gross basis. Derivative financial instruments designated and non-designated as hedging instruments are included in the Company’s Condensed Consolidated Balance Sheets. The notional value of the derivatives not designated as hedging instruments was $314 million as of September 30, 2021 and $179 million as of December 31, 2020. As of September 30, 2021, derivatives not

designated as hedging instruments was an asset of $6 million, and as of December 31, 2020, the derivatives not designated as hedging instruments was a liability of $1 million. There were no derivatives designated as hedging instruments.

Gains and losses on derivative financial instruments reported in Other non-operating items, net in the unaudited Condensed Consolidated Statements of Operations, for the three months ended September 30, 2021 and 2020, were a gain of $3 million and a gain of $2 million, respectively, and for the nine months ended September 30, 2021 and 2020, were a gain of $7 million and a gain of $4 million, respectively.

Items Measured at Fair Value on a Non-Recurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis. The fair value measurements are generally determined using unobservable inputs and are classified within Level 3 of the fair value hierarchy. These assets include long-lived assets, intangible assets and investments in affiliates, which may be written down to fair value as a result of impairment. The Company has determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets and settlements of liabilities, as observable inputs are not available. The Company has determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy. To determine the fair value of long-lived assets, the Company utilizes the projected cash flows expected to be generated by the long-lived assets, then discounts the future cash flows over the expected life of the long-lived assets. VBS assets and liabilities classified as held for sale and the related impairment as of June 30, 2020 were measured using third party sales pricing to determine fair values of the assets. See Note 5 "Divestiture and held for sale" for additional information.

Note 9. Income Taxes

The income tax expense for the three and nine month periods ended September 30, 2021 was $3 million and $12 million, respectively. The income tax expense for three and nine month periods ended September 30, 2020 was less than $1 million and $26 million, respectively. There were no discrete items in the three and nine month periods ended September 30, 2021. Discrete items, net were a benefit of $2 million and expense of $17 million for the three and nine month periods ended September 30, 2020, respectively. The discrete item in the nine month period ended September 30, 2020 was primarily related to the tax impact of the divestiture of VNBS. Veoneer's effective tax rate differs from an expected statutory rate primarily due to the discrete item and losses in certain jurisdictions that are not benefited.

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

Note 10. Inventories

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


	As of
(Dollars in millions)	September 30, 2021		December 31, 2020
Raw materials	$	158	$	105
Work in progress	23		14
Finished products	52		51
Inventories	233		170
Inventory valuation reserve	(46)		(36)
Total inventories, net of reserve	$	187	$	134

Note 11. Equity Method Investment

As of September 30, 2021, the Company has two equity method investments.

Zenuity

On April 2, 2020, the Company entered into a non-binding agreement with VCC to separate Zenuity, a 50% ownership joint venture with VCC in order for each company to drive their respective strategies more effectively.

On July 1, 2020, the Company finalized the split of Zenuity. As part of the transaction the Company paid approximately $37 million to Zenuity for 200 software engineers and two business units located in Germany and the US. Veoneer acquired the right to use Zenuity's intellectual property for a total consideration of SEK 1,067 million (approximately $114 million) which was settled against dividend receivable of SEK 1,067 million (approximately $114 million). The remaining value of that equity investment is zero.

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

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

During the first quarter of 2021, the Company received a dividend of SEK 108 million (approximately $13 million) in cash (representing 50%, with the remainder received by VCC) from Zenuity. In addition, the Company received a dividend of SEK 1,067 million (approximately $127 million) which was settled net against Related party short-term and long-term debt related to Zenuity's intellectual property that Veoneer acquired the right to use as part of the separation of Zenuity.

During the first quarter of 2020, Veoneer contributed SEK 150 million (approximately $16 million) in cash (representing 50% of the total contribution, with the remainder made by VCC) into Zenuity to support its future operating cash flow needs.

AutotechFund I, L.P.

The Company has an investment interest with Autotech Fund I, L.P of less than 20% which is accounted for under the equity method as the Company’s beneficial ownership interest in Autotech is similar to partnership interest.

On June 30, 2017, Veoneer committed to make a $15 million investment in Autotech pursuant to a limited partnership agreement, and as a limited partner, will periodically make capital contributions toward this total commitment amount. As of September 30, 2021 and December 31, 2020, Veoneer has contributed a total of $14 million and $12 million, respectively, to the fund. As of September 30, 2021 the Company has received a distribution of $3 million from the fund.

The carrying amounts reflected in the Condensed Consolidated Balance Sheet as of September 30, 2021 in equity method for the AutoTech approximates its fair value as of June 30, 2021, as this is the most recent information available to the Company at this time.

The profit and loss attributed to the investments is shown in the line item Gain (loss) from equity method investment in the unaudited Condensed Consolidated Statements of Operations. Veoneer’s share of Zenuity and AutoTech for the three and nine month periods ended September 30, 2021 was a gain of $3 million and of $12 million, respectively. Veoneer’s share of Zenuity and AutoTech for the three and nine month periods ended September 30, 2020 was a loss of $1 million and $39 million, respectively.

As of September 30, 2021 and December 31, 2020, the Company’s equity investment in Zenuity and Autotech amounted to $22 million and $153 million, respectively, after consideration of foreign exchange rate movements. The value of the Zenuity investment as of September 30, 2021 is zero.

Note 12. Accrued Expense


	As of
(Dollars in millions)	September 30, 2021		December 31, 2020
Operating related accruals	$	57	$	70
Employee related accruals	76		102
Customer pricing accruals	15		20
Product related liabilities1	18		19
Other accruals	35		21
Total Accrued Expenses	$	201	$	232

1 As of September 30, 2021 and December 31, 2020, $8 million and $9 million, respectively, of product related liabilities were indemnifiable losses subject to indemnification by Autoliv and an indemnification asset is included in Other current assets.

Note 13. Retirement Plans

Defined Benefit Pension Plans

The Company’s net periodic benefit costs for plans for the three and nine months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions)	2021		2020		2021		2020
Service cost	$	1	$	1	$	3	$	3
Interest cost	1		1		2		2
Expected return on plan assets	(1)		(1)		(2)		(2)
Net periodic benefit cost	$	1	$	1	$	3	$	3

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

Note 14. Stock Incentive Plan

The Veoneer, Inc. 2018 and 2021 Stock Incentive Plan was established and effective on June 29, 2018 and May 10, 2021, respectively, to govern the Company’s stock-based awards that will be granted in the future. The Veoneer, Inc. 2018 and 2021 Stock Incentive Plan authorizes the grant of 3 million and 13 million shares, respectively, of Veoneer common stock for future equity awards to Veoneer employees and non-employee directors and authorizes up to 1.5 million additional shares to be used for the conversion of outstanding Autoliv stock awards in connection with the spin-off of the Company by Autoliv, Inc. on June 29, 2018 (the “Spin-Off”). Approximately 1 million shares were used for the conversion of the outstanding grants. As of May 10, 2021, all future awards will be granted under the 2021 Stock Incentive Awards and no further awards may be granted under the 2018 Stock Incentive Plan.

During the nine months ended September 30, 2021 under the Company’s 2018 long-term incentive (LTI) program, certain employees received restricted stock units (RSUs) without dividend equivalent rights and performance shares (PSs) without dividend equivalent rights. The allocation between RSUs and PSs was 203,439 RSUs and 182,272 PSs at 100% target.

During the nine months ended September 30, 2021 under the Company’s 2021 LTI program, certain non-employee directors received restricted stock units (RSUs) with dividend equivalent rights of 36,841.

The majority of the RSUs granted will vest on the third anniversary of the grant date, subject to the grantee’s continued employment with the Company on the vesting date and acceleration of vesting in certain circumstances. The fair value of RSUs and PSs granted in 2021 were calculated by using the closing stock price on the grant dates. The grant date fair value for the RSUs and PSs, granted in 2021 was $14 million.

PSs granted in 2021 may be earned during the first quarter of 2024, upon the Compensation Committee’s certification of achievement of the applicable performance goals. The grantee may earn 0%-200% of the target number of PSs based on the Company’s achievement of specified targets related to the Company’s gross margin for the applicable performance period. Each PS represents a promise to transfer a share of the Company’s common stock to the employee following completion of the performance period, provided that the performance goals mentioned above are met and provided, further, that the grantee remains employed through the performance period, subject to certain limited exceptions.

Veoneer recognized total stock (RSUs, PS and Stock Options) compensation cost of $2 million and $7 million for the three and nine month periods ended September 30, 2021, respectively. During the three and nine month periods ended September 30, 2020, the Company recorded $1 million and $6 million, respectively.

Note 15. Contingent Liabilities

Legal Proceedings

Various claims, lawsuits and proceedings are pending or threatened against the Company, covering a range of matters that arise in the ordinary course of its business activities with respect to commercial, product liability and other matters. Litigation is subject to many uncertainties, and the outcome of any litigation cannot be assured. After discussions with counsel, it is the

opinion of management that the various legal proceedings and investigations to which the Company currently is a party will not have a material adverse impact on the condensed consolidated financial position of Veoneer, but the Company cannot provide assurance that Veoneer will not experience material litigation, product liability or other losses in the future.

Product Warranty, Recalls, and Intellectual Property

Veoneer is exposed to various claims for damages and compensation if its products fail to perform as expected. Such claims can be made, and result in costs and other losses to the Company, even where the product is eventually found to have functioned properly. Where a product (actually or allegedly) fails to perform as expected or is defective, the Company may face warranty and recall claims. Where such (actual or alleged) failure or defect results, or is alleged to result, in bodily injury and/or property damage, the Company may also face product liability and other claims. There can be no assurance that the Company will not experience material warranty, recall or product (or other) liability claims or losses in the future, or that the Company will not incur significant costs to defend against such claims. The Company may be required to participate in a recall involving its products. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product liability claims. Government safety regulators may also play a role in warranty and recall practices. A warranty, recall or product-liability claim brought against the Company in excess of its insurance may have a material adverse effect on the Company’s business. Vehicle manufacturers are also increasingly requiring their outside suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. A vehicle manufacturer may attempt to hold the Company responsible for some, or all, of the repair or replacement costs of products when the product supplied did not perform as represented by the Company or expected by the customer. Accordingly, the future costs of warranty claims by customers may be material. However, the Company believes its established reserves are adequate. Veoneer’s warranty reserves are based upon the Company’s best estimates of amounts necessary to settle future and existing claims. The Company regularly evaluates the adequacy of these reserves, and adjusts them when appropriate. However, the final amounts actually due related to these matters could differ materially from the Company’s recorded estimates.

In addition, as vehicle manufacturers increasingly use global platforms and procedures, quality performance evaluations are also conducted on a global basis. Any one or more quality, warranty or other recall issue(s) (including those affecting few units and/or having a small financial impact) may cause a vehicle manufacturer to implement measures such as a temporary or prolonged suspension of new orders, which may have a material impact on the Company’s results of operations.

The Company carries insurance for potential recall and product liability claims at coverage levels based on the Company’s prior claims experience. Veoneer cannot assure that the level of coverage will be sufficient to cover every possible claim that can arise in the Company’s businesses, now or in the future, or that such coverage always will be available should the Company, now or in the future, wish to extend, increase or otherwise adjust the Company’s insurance.

In its products, the Company utilizes technologies which may be subject to intellectual property rights of third parties. While the Company does seek to procure the necessary rights to utilize intellectual property rights associated with its products, it may fail to do so. Where the Company so fails, the Company may be exposed to material claims from the owners of such rights. Where the Company has sold products which infringe upon such rights, its customers may be entitled to be indemnified by the Company for the claims they suffer as a result thereof. Such claims could be material.

Product Related Liabilities

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

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


	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions)	2021		2020		2021		2020
Reserve at beginning of the period	$	18	$	18	$	19	$	15
Change in reserve	2		2		4		8
Cash payments	(2)		(1)		(5)		(4)


Reserve at end of the period	$	18	$	19	$	18	$	19

For the three and nine month periods ended September 30, 2021 and 2020, cash paid primarily relates to warranty related issues. Agreements entered into between Autoliv and Veoneer in connection with the Spin-Off provide for Autoliv to indemnify Veoneer for certain liabilities related to electronics products manufactured before April 1, 2018. As of September 30, 2021 and December 31, 2020, $8 million and $9 million, respectively, of product related liabilities were indemnifiable losses subject to indemnification by Autoliv and an indemnification asset is included in Other current assets.

Note 16. Loss per share

Basic loss per share is computed by dividing net loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and equity incentive awards is reflected in diluted loss per share by application of the treasury stock method. The following table sets forth the computation of basic and diluted loss per share for the three and nine month periods ended September 30, 2021 and 2020.


	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions, except per share amounts)	2021		2020		2021		2020
Numerator:
Basic and diluted:
Net loss attributable to Veoneer	$	(94)	$	(132)	$	(298)	$	(454)

Denominator:
Basic: Weighted average number of shares outstanding (in millions)	111.96		111.59		111.83		111.55
Diluted: Weighted-average number of shares outstanding, assuming dilution (in millions)1	111.96		111.59		111.83		111.55

Basic loss per share	$	(0.84)	$	(1.18)	$	(2.66)	$	(4.07)
Diluted loss per share	$	(0.84)	$	(1.18)	$	(2.66)	$	(4.07)

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

In periods when the Company has a net loss, equity incentive awards are excluded from the Company's calculation of earnings per share as their inclusion would have an anti-dilutive effect. The Company excluded equity incentive awards of 665,130 and 758,551 shares for the three and nine month periods ended September 30, 2021, respectively, and 963,171 and 741,120 for the three and nine month periods ended September 30, 2020, respectively, from the diluted loss per share calculations.

The Company would elect to settle the conversion of the Notes in shares of the Company's common stock. For the Notes, the number of shares of the Company's common stock issuable at the conversion price of $22.3125 per share would be 9,277,305 shares if the Company elected to settle the conversion wholly in shares. See Note 6 "Debt" for more information. Due to anti-dilutive effects, the Company excluded potential convertible shares due under the Notes of 9,277,305 for the three and nine month periods ended September 30, 2021 and 2020 from the diluted loss per share calculations.

Note 17. Segment Information

Financial results for the Company's reportable segment 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 one reportable segment, which includes the Company’s electronics resources and expertise in passive safety electronics and active safety.

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

The accounting policies for the reportable segment are the same as those described in Note 2 "Summary of Significant Accounting Policies" included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 19, 2021.


Loss Before Income Taxes	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions)	2021		2020		2021		2020
Electronics	$	(69)	$	(80)	$	(230)	$	(202)
Brake Systems	—		(3)		—		(37)
Segment operating loss	(69)		(83)		(230)		(239)
Corporate and other	(20)		(20)		(55)		(51)
Loss on divestiture and assets impairment charge, net	—		(24)		—		(91)
Interest and other non-operating items, net	(5)		(4)		(13)		(7)
Gain (loss) from equity method investment	3		(1)		12		(39)
Loss before income taxes	$	(91)	$	(132)	$	(286)	$	(427)

Note 18. Relationship with Former Parent and Related Entities

Transactions with Related Parties

Veoneer and Autoliv entered into transition service agreements in connection with the Spin-Off under which certain services are provided by Autoliv to Veoneer and certain services are provided by Veoneer to Autoliv. For the three and nine month periods ended September 30, 2021, the Company recognized zero of expense under the agreements and less than $1 million for the three and nine month periods ended September 30, 2020. For the three and nine month periods ended September 30, 2021, the Company recognized zero of income under the TSA and less than $1 million of income for the three and nine month periods ended September 30, 2020.

Throughout the periods covered by the unaudited condensed consolidated financial statements, Veoneer sold finished goods to Autoliv and related party sales amounted to $16 million and $57 million for the three and nine month periods ended September 30, 2021, respectively, and $18 million and $48 million for the three and nine month periods ended September 30, 2020, respectively.

Related Party Balances

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


Related Party	As of
(Dollars in millions)	September 30, 2021		December 31, 2020
Related party receivables	$	5	$	9

Related party payables	1		2
Related party short-term debt	—		16
Related party long-term debt	—		115

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 collects the customer payments and remits the payments to Veoneer.

Note 19. Factoring

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

For the nine months ended September 30, 2021 and 2020, the Company entered into arrangements with financial institutions and sold $190 million and $38 million, respectively, of trade receivables without recourse and $47 million and $10 million, respectively, of bank notes without recourse, which qualify as sales as all rights to the trade and notes receivable have passed to the financial institution.

As of September 30, 2021, the Company had $1 million of trade notes receivables that remain outstanding and will mature within the fourth quarter of 2021. The collections of such bank notes are included in operating cash flows based on the substance of the underlying transactions, which are operating in nature.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations, financial condition and cash flows of Veoneer, Inc. (“Veoneer,” the “Company,” “we,” or “our”). This MD&A should be read in conjunction with the financial statements and accompanying notes to the financial statements included elsewhere herein, as well as the risk factors and other disclosures made in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 19, 2021.

Introduction

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

•Executive Overview

•COVID-19 and Semiconductor Supply Commentary

•2021 Outlook

•Trends, Uncertainties and Opportunities

•Market Overview

•Results of Operations

•Non-U.S. GAAP Financial Measures

•Liquidity and Capital Resources

•Off-Balance Sheet Arrangements and Other Matters

•Contractual Obligations and Commitments

•Significant Accounting Policies and Critical Accounting Estimates

Veoneer is a global leader in the design, development, manufacture, and sale of automotive safety electronics with a focus on innovation, quality and manufacturing excellence. The Company’s current product offerings include automotive radars, mono and stereo vision cameras, night vision systems, positioning systems, advanced driver assist systems ("ADAS") electronic control units, passive safety electronics (airbag control units and crash sensors), brake control systems and a complete ADAS software offering towards highly automated driving ("HAD") and eventually autonomous driving, through its recently formed software unit and brand Arriver. In addition, we offer driver monitoring systems, LiDAR sensors, RoadScape positioning and other technologies critical for HAD and automated driving ("AD") solutions by leveraging our partnership network and internally developed intellectual property.

Executive Overview

Veoneer showed strong operational performance during the third quarter. Despite a sequential drop in the light vehicle production of 12%, our net sales were essentially flat, sequentially. Through our Market Adjustment Initiatives, we also managed to improve our gross profit and reduce our operating loss sequentially and year-over-year.

The global underlying demand for all of our products remains very strong, but as is true for many industries and companies today, semiconductor shortages and supply chain constraints continue to hamper our growth. We are managing this situation daily, and are doing our utmost to support our customers through this difficult situation.

The gradual weakening of the LVP during the quarter was especially challenging where we saw a temporary buildup of inventory which is reflected in our working capital and cash flow. We have taken initiatives to rectify the situation and view this as another sign of our discipline and executional strength as the full year 2021 LVP expectation eroded from a 14% growth in the beginning of the year, to virtually flat growth from the depressed COVID-19 pandemic levels in 2020.

We continue to see strong momentum for our technologies and products. During the quarter the high-volume Subaru Forrester was launched with our stereo vision camera. We also launched our 9th customer for Monovision, we announced that we are delivering key technologies for Mercedes S-Class upgrade to level 3 capabilities, and we had the first public demonstration of the Arriver-Snapdragon Ride solution to great feedback at the IAA Show in Munich.

Following the end of the quarter, we announced that we signed a merger agreement with SSW and Qualcomm for the acquisition of Veoneer by SSW and subsequent transfer of Arriver to Qualcomm. The Board of Directors determined that the $37 per share, all cash transaction offered by SSW and Qualcomm was superior to the previous transaction agreement with

Magna International. The proposed transaction with SSW and subsequent SSW-Qualcomm transaction are pending and subject to various conditions and we will provide updates as appropriate.

Our focus continues to be on the day-to-day execution, delivering to our customers, overcoming shortages and logistics issues, and continuing to develop our products and technologies.

COVID-19 and Supply Constraint Commentary

Veoneer is executing to minimize the impact from the supply chain constraints in semiconductors. These effects are likely to remain at least until the end of 2021 although we do expect a gradual recovery to take place. Currently it is hard to predict the pace of the recovery, but as underlying consumer demand continues to look strong, we anticipate a gradual recovery in 2022.

For 2021 and the upcoming years, the most important driver for Veoneer’s business is new customer and technology launches, which we continue to expect to drive out-performance as compared to the global LVP.

As noted in prior results announcements, in response to the pandemic, the Company continues to expand its Market Adjustment Initiatives ("MAIs") to further mitigate the impact of the pandemic on its cash flow and operating results.

The COVID-19 pandemic continues to cause significant uncertainty in the global economy. This includes the automotive industry and the global LVP for 2021 and the upcoming years ahead, which are dependent on underlying consumer demand. Simultaneously and triggered by the COVID-19 pandemic, the automotive industry, like other industries dependent on semiconductors, is experiencing challenges in the supply of Semiconductors. This supply constraint and other uncertainties may continue to have an adverse effect on industry performance and our business. The health and safety of our associates continues to be our first priority, and we are taking the necessary actions to continue to protect our associates, safeguard our operations and meet our customers' needs while managing through these unprecedented circumstances.

Trends, Uncertainties and Opportunities

Trend toward Collaborative Driving

The environment around us continues to change rapidly and we currently see a shift across the automotive and autotech industries. The industry developments during 2021 have further strengthened the trend toward advanced driver support - Collaborative Driving - and away from fully autonomous cars for the consumer based vehicle mass market.

New technologies, creating new levels of interaction and driver support are starting to revolutionize driving, but we also see the driver being actively involved for many years to come. While the industry refers to “Level 2+” or even "Level 2++" Veoneer calls this Collaborative Driving, and includes any SAE level of automation up to Level 4. Currently there are renewed initiatives in the industry for Level 3 conditional automation where the driver for certain periods of time can be out of loop, but has to be ready to take control of the vehicle at any time. At the same time there is a growing realization that the introduction of truly self-driving cars will likely take longer and be more expensive than previously anticipated. This fundamental insight opens up new opportunities for companies, including Veoneer, but it also requires adjusting the priorities of resources. As such, we believe that the market will stay mainly focused on Level 1-Level 2+ and Level 3 autonomous driving solutions for the next decade however, while we see a continued strong drive toward more automation and driver support, the ongoing impacts from the COVID-19 pandemic, and perhaps ongoing impact, could affect the evolution of ADAS, Collaborative Driving and AD for consumer purchased light vehicles.

Global Regulatory and Test Rating Developments

Europe continues to take a proactive role in promoting or requiring Active Safety technologies. The European New Car Assessment Program (“NCAP”) continuously updates its test rating program to include more active safety technologies to help the European Union reach its target of cutting road fatalities by 50% by 2030, as compared to 2020. In order to help our industry to overcome the situation with respect to the COVID-19 pandemic, Euro NCAP postponed the rollout of upcoming road map updates by one year (from 2022 to 2023 and from 2024 to 2025). However, this should not change the overall trend towards introduction of new roadmap requirements, which are just delayed by one year.

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

We anticipate strong global sensor adoption rate increases (forward, side and rear) due to the Euro NCAP's push for crash avoidance, increased adoption rates due to growing demand around ADAS software features, volume growth due to redundant sensing concepts needed for higher levels of autonomy, potential opportunities in relation to compliance with cybersecurity and software updates and step-by-step increased demand for connectivity components. The ongoing 2020x-decade will be characterized by stepwise introduction of regulations which boost the market of Active Safety and Automation, but also set obligatory thresholds for safety.

a.At first minimal requirements for safety critical features (e.g. AEB) will become mandatory.

b.Continued with a framework for advanced L1-L3 features in highway applications, extending conventional certification towards new assessment methods (including Physical Tests + Real World Test Drive + Simulation, etc.).

c.Followed by regulations enabling use of higher level automation (e.g. L4 shuttles) and more complex environment (e.g. urban)

d.In parallel, we will face increasing regulatory requirements for cybersecurity and software updates in order to reflect advancing digitalization and connectivity.

An example of a recent development that further strengthens the trend toward collaborative driving, is Intelligent Speed Assist (ISA) an item of updated EU General Safety Regulation roadmap, which was finalized on June 23, 2021. The ISA is a system that prompts and encourages drivers to slow down when they are over the speed limit. New regulation mandates motor vehicles to be equipped with ISA systems beginning July 6, 2022 for new vehicle types and beginning July 7, 2024 for all new vehicles.

In several regions legal approval of the introduction of new technologies happens as exceptional procedure on national level. However, we have recently observed an increasing willingness of legislators in the US and Asia to contribute to the global regulatory framework for AV-technologies. This means that, while the agreement on minimal common base requirements for the industry will take longer and therefore may postpone the introduction of new regulations, the harmonization with base requirements could help the industry and a more active position from China may help to pull forward some safety critical ADAS technologies that are not yet considered as relevant for passenger car regulation in EU and Japan (e.g. Blind Spot or Night Vision).

Market Overview


Millions (except where specified) IHS Markit as of October 15, 2021	Light Vehicle Production by Region - 2021
	China		Japan		Rest of Asia		Americas		Europe		Other		Total
Third Quarter 2021	5		2		2		3		3		0		16
Change vs. 2020	(16)	%	(24)	%	(5)	%	(23)	%	(30)	%	1	%	(19)	%

For the third quarter of 2021, the global light vehicle production (according to IHS Markit) decreased by approximately (20)% mainly due to the global outbreak of the COVID-19 pandemic in 2020. Every major vehicle producing geography was still impacted by the pandemic including: China (16)%, Europe (30)%, South Korea (17)%, North America (26)% and Japan (24)%.


Millions (except where specified) IHS as of October 15, 2021	Light Vehicle Production by Region - 2021
	China		Japan		Rest of Asia		Americas		Europe		Other		Total
Full Year 2021	22		7		11		14		16		2		72
Change vs. 2020	(1)	%	(5)	%	10	%	1	%	(4)	%	12	%	0	%

For the full year of 2021, global light vehicle production (according to IHS Markit) is expected to be flat, due the anticipated full year effects of the COVID-19 pandemic. All major vehicle producing geographies are expected to be impacted by the pandemic including: China (1)%, Europe (4)%, South Korea (2)%, North America (1)% and Japan (5)%. The global LVP of approximately 72 million is at the same level as 2020.

Results of Operations

Three Months Ended September 30, 2021 as compared to Three Months Ended September 30, 2020

The following analysis illustrates Veoneer’s overall and by segment performance for the three months ended September 30, 2021 and 2020 along with components of change as compared to the prior year.

Net Sales by Product

The following tables illustrate Veoneer’s consolidated net sales by product for the three months ended September 30, 2021 and 2020 along with components of change as compared to the prior year.


Net Sales	Three Months Ended September 30								Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2021		2020		US GAAP Reported Change				Currency				Organic1
	$		$		$		%		$		%		$	%
Restraint Control Systems	153		188		(35)		(19)	%	5		2	%		(40)		(21)	%
Active Safety	215		170		45		27	%	4		3	%		41		24	%
Brake Systems	11		13		(2)		(18)		—		—	%		(2)		(18)	%
Other	$	12	$	—	$	12	—		$	—	—			$	12	—
Total	$	391	$	371	$	20	5	%	$	9	2	%		$	11	3	%

1 Non-U.S. GAAP measure reconciliation for organic sales

Net Sales - Veoneer’s net sales for the quarter of $391 million increased by 5% as compared to 2020. The organic sales1 increased by 3% and the net currency translation effects were positive by 2%. Given that the LVP growth expectations declined by around 17pp from the beginning of the quarter to (20%) (according to IHS Markit), our net sales were also lower than our expectations from the beginning of the quarter. Veoneer outperformed the LVP in all regions, except rest of Asia which accounts for only around 4% of net sales.

According to IHS Markit, the main reason for the downward revisions of the LVP (from the beginning of the quarter) is the semiconductor shortages, which reduced the LVP during the quarter by close to 3.5 million vehicles.

Restraint Control Systems - Net sales for the quarter of $153 million decreased by 19% as compared to 2020. Our organic sales decline of 21%, was essentially in line with the underlying LVP changes, primarily driven by the semiconductor shortages.

Active Safety - Net sales for the quarter of $215 million increased by 27% as compared to 2020. The organic sales increase was 24%, primarily driven by an intense launch period that started in Q1 2020 and will continue throughout the remainder of 2021 and into 2022 and 2023. Asia saw the strongest growth during the quarter, driven by the continued industry wide ramp up phase for Active Safety in China and the continued ramp up of our Subaru customer programs in Japan.

Strong volume demand for mono, stereo and thermal camera systems, ADAS ECUs and driver monitoring systems on several models, and across multiple customers drove the increase in organic sales. Radar systems also continued to grow, although at a slower rate, reflecting a continued successful transition to 77GHz radars.

Brake Systems and Other - The combined net sales for the quarter was $23 million. The Brake Systems sales of $11 million are related to the Honda legacy business and $12 million of Other sales are Brake ECUs to ZF.


Electronics Segment	Three Months Ended September 30											Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2021				2020				US GAAP Reported Change			Currency				Organic1
	$		%		$		%		$		%	$		%			$		%
Net Sales	380				358				22		—	$	10	2	%		$	12	4	%
Operating Loss / Margin	$	(69)	(18)	%	$	(80)	(22.2)	%	11
Segment EBITDA1 / Margin	$	(40)	(11)	%	$	(53)	(14.9)	%	$	13
Associates	7,117				7,329				$	(212)

1 Non-U.S. GAAP measure reconciliation for organic sales and Segment EBITDA

Net Sales - Net sales for the Electronics segment increased by $22 million to $380 million for the quarter as compared to 2020. This sales increase was mainly due to the organic sales1 increase in Active Safety of $45 million and positive net currency translation effects of $10 million, which was partially offset by decline in Restraint Control Systems of $35 million.

Operating Loss - Operating loss for the Electronics segment of $69 million for the quarter decreased by $11 million as compared to 2020. This decrease is mainly due to the RD&E, net of $22 million, which was partially offset by one time expenses of $11 million related to pending merger with SSW and Qualcomm.

EBITDA1 - EBITDA loss for the Electronics segment decreased by $13 million to negative $40 million for the quarter as compared to 2020. This change is mainly due to the operating loss improvement for the segment.

Associates - Associates, net in the Electronics segment decreased by 212, net to 7,117 as compared to 2020, mainly due to a net decrease in RD&E associates of more than 258.

Deliveries - Deliveries during the quarter were 2.9 million units for Restraint Controls Systems and 2.6 million units for Active Safety.


Corporate and Other	Three Months Ended September 30
(Dollars in millions, except where specified)	2021				2020				US GAAP Reported Change
	$		%		$		%		$		%
Net Sales	$	11			$	4			$	7	197	%
Operating Loss / Margin	$	(20)	(173)	%	$	(20)	—	%	$	—
EBITDA1 / Margin	$	(20)	(168)	%	$	(20)	—	%	$	—
Associates	126				104				22

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

Net Sales - Net Sales of $11 million for the third quarter reflects the legacy Honda Brake Systems business after the VBS-US divestiture.

Associates - Associates, net increased by 22 to 126 for the quarter as compared to 2020 due to the associates now included in Corporate and Other related to supporting the legacy Honda Brake Systems business.

Operating Loss and EBITDA1 - Operating and EBITDA loss of negative $20 million was unchanged as compared to 2020.

Veoneer Performance


Income Statement	Three Months Ended September 30
(Dollars in millions, except per share data)	2021				2020
	$		%		$		%		Change
Net sales	$	391			$	371			$	20
Cost of sales	(326)		(83.4)	%	(317)		(85.4)	%	(9)
Gross profit	$	65	16.6	%	$	54	14.6	%	$	11
Selling, general & administrative expenses	(38)		(9.7)	%	(43)		(11.5)	%	5
Research, development & engineering expenses, net	(102)		(26.1)	%	(124)		(33.4)	%	22

Amortization of intangibles	(2)		(0.5)	%	(1)		(0.4)	%	(1)
Other (expense)/ income, net	(12)		(3.0)	%	11		2.9	%	(23)
Operating loss	$	(89)	(22.7)	%	$	(103)	(27.8)	%	$	14
Loss on divestiture and assets impairment charge, net	—		0.0	%	(24)		(6.4)	%	24
Gain (loss) from equity method investments	3		0.8	%	(1)		(0.3)	%	4
Interest income	1		0.1	%	1		0.4	%	—
Interest expense	(5)		(1.3)	%	(5)		(1.4)	%	—
Other non-operating items, net	(1)		(0.1)	%	—		0.0	%	(1)
Loss before income taxes	$	(91)	(23.1)	%	$	(132)	(35.6)	%	$	41
Income tax expense	(3)		(0.8)	%	—		0.1	%	(3)
Net loss1	$	(94)	(24.0)	%	$	(132)	(35.5)	%	$	38
Less: Net gain (loss) attributable to non-controlling interest	—		0.0	%	—		0.0	%	—
Net loss attributable to controlling interest	$	(94)	(24.0)	%	$	(132)	(35.5)	%	$	38
Net loss per share – basic2	$(0.84)				$(1.18)				$0.34
Weighted average number of shares outstanding 2	111.96				111.59				0.37

1 Including Corporate and other sales.

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

Gross Profit - Gross profit for the quarter of $65 million was $11 million higher as compared to 2020. The YoY improvement was mainly driven by the organic sales1 growth resulting from the continued ramp up of recent vehicle launches, along with the continued benefits from the MAIs. These positive effects were partly mitigated by higher costs related to supply chain constraints of approximately $2 million. The currency impact was $3 million

Operating Loss - Operating loss for the quarter of $89 million decreased by $14 million as compared to 2020, mainly due to the higher sales and the continued effects from the MAIs, while net currency effects were $3 million.

RD&E, net of $102 million decreased by $22 million for the quarter as compared to 2020, mainly as a result of lower personnel costs and higher customer reimbursements.

SG&A expense of $38 million for the quarter decreased by around $5 million as compared to 2020 reflecting the continued effects from our efficiency focus under the MAI program.

Other expense net of $12 million was mainly due to extra costs relating to the on-going merger transaction.

Net Loss - Net loss for the quarter of $94 million decreased by $38 million as compared to 2020, when the net loss was negatively affected by a non-cash impairment charge of $24 million related to the dissolution of the Zenuity joint venture in 2020.

Interest, net and other non-operating items, net combined for the quarter of $5 million, increased by $1 million as compared to 2020.

Income tax expense of $3 million for the quarter increased by $3 million as compared to 2020. There were no discrete tax items during the quarter.

Loss per Share - The loss per share of $0.84 for the quarter decreased by $0.34 per share as compared to a loss of $1.18 per share for the same period in 2020.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

The following analysis illustrates Veoneer’s overall and by segment performance for the nine months ended September 30, 2021 and 2020 along with components of change compared to the prior year.

Net Sales by Product

The following tables illustrate Veoneer’s consolidated net sales by product for the nine months ended September 30, 2021 and 2020 along with components of change compared to the prior year.


Net Sales	Nine Months Ended September 30								Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2021		2020		US GAAP Reported Change				Currency				Divestiture				Organic1
	$		$		$		%		$		%		$		%		$		%
Restraint Control Systems	517		450		67		15	%	20		5	%	—		—	%	47		10	%
Active Safety	618		411		207		50	%	26		6	%	—		—	%	181		44	%
Brake Systems	35		57		(22)		(37)	%	—		—	%	(24)		(43)	%	2		11	%
Other	38		—		38		—	%	—		—	%	—		—	%	38		—	%
Total	$	1,208	$	918	$	290	32	%	$	46	5	%	$	(24)	(3)	%	$	268	30	%

1 Non-U.S. GAAP measure reconciliation for organic sales

Net Sales - Veoneer’s net sales for the first nine months increased by 32% to $1208 million as compared to 2020. Our organic sales1 grew 30%, as compared to the 10% increase in LVP for the same period (according to IHS Markit). The remainder of the increase was from net currency translation effects of 5%, and the impact from the brake system divestiture of $(24) million.

During the first nine months, the organic sales increased in North America, Europe and Asia by 26%, 24% and 42%, respectively. The strong organic sales growth reflects the rebound from the negative COVID-19 effects in 2020 which started to affect China in the first quarter and the rest of the world in the second quarter. This strong organic growth was further driven by Veoneer's intense launch period which started in the first quarter 2020 and will continue throughout the remainder of 2021 and into 2022 and 2023.

Restraint Control Systems - Net sales for the first nine months of $517 million increased by 15% as compared to 2020. The organic sales increase of 10% was primarily due to the LVP increase driving higher volumes in all regions.

Active Safety - Net sales for the first nine months increased by 50% to $618 million as compared to 2020. This increase was primarily driven by the organic sales growth of 44%. The strong outperformance compared to the LVP was driven by all regions.

As part of Veoneer's on-going strong launch phase as well as the rebound from the negative COVID-19 effects in 2020 all product areas within Active Safety showed strong growth. Radar systems and vision contributed in particular, but also night vision, Driver Monitoring Systems and ADAS ECU's experienced strong growth based on new launches.

Brake Systems and other - Organic sales for the first nine months increased by 126% to $73 million as compared to 2020, mainly driven by sales of brake ECU's to ZF.


Electronics Segment	Nine Months Ended September 30								Components of Change vs. Prior Year
(Dollars in millions, except where specified)	2021			2020			US GAAP Reported Change		Currency			Organic1
	$	%		$	%		$	%	$	%			$	%
Net Sales	1,173			861			312	36	46	5	%		266	31	%
Operating Loss / Margin	(230)	(19.6)	%	(202)	(23.5)	%	(28)
Segment EBITDA1 / Margin	(146)	(12.4)	%	(132)	(15.3)	%	(14)
Associates	7,117			7,329			(212)

1 Non-U.S. GAAP measure reconciliation for organic sales and Segment EBITDA

Net Sales - The net sales for the Electronics segment increased by $312 million to $1,173 million for the first nine months as compared to 2020. This sales increase was mainly due to the organic sales1 increase in Active Safety and Restraint Control Systems of $181 million and $47 million, respectively, along with the currency translation effects of $46 million.

Operating Loss - The operating loss for the Electronics segment of $230 million for the first nine months increased by $28 million as compared to 2020, primarily due to the higher than normal engineering reimbursements and one-time expenses of $11 million related to pending merger with SSW and Qualcomm.

EBITDA1 - The EBITDA loss for Electronics segment increased by $14 million to negative $146 million for the first nine months as compared to 2020. This change is mainly due to the increase in depreciation and amortization and increase in gain from equity method investment.

Associates - Associates in the Electronics segment decreased by 212 net to 7,117 as compared to the prior year, mainly due to a decrease in RD&E associates.

Deliveries - The deliveries during the first nine months were 10.1 million units for Restraint Controls Systems and 7.2 million units for Active.


Corporate and Other	Nine Months Ended September 30
(Dollars in millions, except where specified)	2021				2020				US GAAP Reported Change
	$		%		$		%		$		%
Net Sales	$	35			$	4			$	31	843%
Operating Loss / Margin	$	(55)	(154)	%	$	(51)	—	%	$	(4)
EBITDA1 / Margin	$	(53)	(149)	%	$	(50)	—	%	$	(3)
Associates	126				104				22

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

Operating Loss and EBITDA1 - The operating and EBITDA loss for Corporate and other for the first nine month increased by $4 million to an operating loss of $55 million and EBITDA of $(53) million as compared to 2020. This increase was primarily due to increase associate related costs.

Associates - The number of associates increased by 22 to 126 from the prior year due to the associates now included in Corporate and Other related to supporting the legacy Honda Brake Systems business.

Veoneer Performance


Income Statement	Nine Months Ended September 30
(Dollars in millions, except per share data)	2021				2020
	$		%		$		%		Change
Net sales	$	1,208			$	918			$	290
Cost of sales	(1,025)		(84.9)	%	(808)		(88.0)	%	(217)
Gross profit	$	183	15.1	%	$	110	12.0	%	$	73
Selling, general & administrative expenses	(118)		(9.8)	%	(124)		(13.5)	%	6
Research, development & engineering expenses, net	(326)		(27.0)	%	(299)		(32.6)	%	(27)

Amortization of intangibles	(6)		(0.5)	%	(4)		(0.5)	%	(2)
Other (expense)/ income, net	(18)		(1.4)	%	27		3.1	%	(45)
Operating loss	$	(285)	(23.6)	%	$	(290)	(31.6)	%	$	5
Loss on divestiture and assets held for sales, net	—		0.0	%	(91)		(9.9)	%	91
Gain (loss) from equity method investments	12		1.0	%	(39)		(4.2)	%	51
Interest income	2		0.2	%	8		0.9	%	(6)
Interest expense	(16)		(1.3)	%	(15)		(1.6)	%	(1)

Other non-operating items, net	1		0.0	%	—		(0.1)	%	1
Loss before income taxes	$	(286)	(23.7)	%	$	(427)	(46.6)	%	$	141
Income tax expense	(12)		(1.0)	%	(26)		(2.8)	%	14
Net loss1	$	(298)	(24.7)	%	$	(453)	(49.4)	%	$	155
Less: Net Income attributable to non-controlling interest	—		0.0	%	1		(0.2)	%	(1)
Net loss attributable to controlling interest	$	(298)	(24.7)	%	$	(454)	(49.5)	%	$	156
Net loss per share – basic2	$	(2.66)			$	(4.07)			$	1.41
Weighted average number of shares outstanding 2	111.83				111.55				0.29

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

Gross Profit - The gross profit for the first nine months of $183 million was $73 million higher as compared to 2020. The strong organic sales1 growth as well as continued benefit from the MAIs were the key contributors, which more than offset the extra costs related to supply chain constraints. Net currency effects were $13 million. The brake systems divestiture impact was $(4) million

Operating Loss - The operating loss for the first nine months of $285 million was $5 million lower as compared to 2020. The underlying operating performance improved more YoY, however this effect was partly offset by above normal engineering reimbursements in the second quarter of 2020. Net currency effects were $1 million and the brake systems divestiture impact was $(1) million.

RD&E, net of $326 million increased by $27 million as compared to 2020, due to $81 million higher than normal engineering reimbursements in the second quarter of 2020, which was partly offset by a lower underlying RD&E run rate and the brake system divestiture impact of $28 million.

SG&A expense of $118 million for the first nine months decreased by $6 million as compared to 2020 including a $1 million positive impact from the brake system divestiture.

Other income and amortization of intangibles combined were $47 million lower for the first nine months as compared to 2020 mainly due to the temporary positive effects from the divestiture of the brake systems joint venture in the first half of 2020, merger related costs of approximately $11 million and restructuring related costs year to date of approximately $5 million.

Net Loss - The net loss for the first nine months of $298 million decreased by $155 million as compared to 2020, primarily due to the strong organic sales growth and lower net costs related to the divestiture of the Zenuity joint venture and non-cash net loss on the divestiture of the brake systems business in 2020.

Interest expense, net for the first nine months was $7 million higher as compared to 2020 due to lower interest income. Other non-operating items, net of $1 million improved by $1 million.

Income tax expense of $12 million for the first nine months was $14 million lower as compared to 2020. This was primarily due to a discrete tax expense of $22 million on the VNBS sale in 2020.

The non-controlling interest expense was $1 million favorable as compared to 2020, when it was $(1) million, due to the brake systems divestiture.

Loss per Share - The loss per share of $2.66 for the first nine months decreased by $1.41 as compared to 2020, mainly due to the net loss effect mentioned above.

Non-U.S. GAAP Financial Measures

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

In this report we refer to organic sales or changes in organic sales growth, a non-U.S. GAAP financial measure that we, investors and analysts use to analyze the Company's sales trends and performance. We believe that this measure assists investors and management in analyzing trends in the Company's business because the Company generates approximately 68% of its sales in currencies other than in U.S. dollars (its reporting currency) and currency rates have been and can be rather volatile. Organic sales and organic sales growth represent the increase or decrease in the overall U.S. dollar net sales and percentage change on a comparable basis thereby excluding any structural impacts. This facilitates separate discussions of the impact of acquisitions and divestitures and exchange rates on the Company’s performance. The tables in this report present the $ reconciliation of the changes in the total U.S. GAAP net sales to changes in organic sales growth.

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

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

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

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

Reconciliations of U.S. GAAP to Non-U.S. GAAP Financial Measures


Net Loss to EBITDA	Three Months Ended September 30				Nine Months Ended September 30				Last 12 Months		Full Year 2020
Dollars in millions	2021		2020		2021		2020
Net Loss	$	(94)	$	(132)	$	(298)	$	(454)	$	(390)	$	(544)
Loss on divestiture and assets impairment charge, net	—		24		—		91		—		91
Depreciation and amortization	29		26		86		73		116		103
(Gain)/ loss from equity method investment	(3)		1		(12)		39		(11)		39
Interest and other non-operating items, net	5		4		13		8		21		16
Income tax expense	3		—		12		26		18		32
EBITDA	$	(60)	$	(77)	$	(199)	$	(217)	$	(246)	$	(263)


Segment EBITDA to EBITDA	Three Months Ended September 30				Nine Months Ended September 30				Last 12 Months		Full Year 2020
Dollars in millions	2021		2020		2021		2020
Electronics	$	(40)	$	(53)	$	(146)	$	(132)	$	(182)	$	(167)
Brake Systems	—		(4)		—		(35)		—		(35)
Segment EBITDA	$	(40)	$	(57)	$	(146)	$	(167)	$	(182)	$	(202)
Corporate and other	(20)		(20)		(53)		(50)		(64)		(61)
EBITDA	$	(60)	$	(77)	$	(199)	$	(217)	$	(246)	$	(263)


Working Capital to Net Working Capital	September 30, 2021		September 30, 2020		December 31, 2020		December 31, 2019
Dollars in millions
Total current assets	$	943	$	1,273	$	1,244	$	1,649
less Total current liabilities	522		547		587		591
Working Capital	$	421	$	726	$	657	$	1,058
less Cash and cash equivalents	(420)		(846)		(758)		(859)
less Short-term debt	4		3		4		3
less Net of Assets and Liabilities held for sale	—		—		—		(199)
Net Working Capital	$	5	$	(117)	$	(97)	$	3


Cash Flow before Financing Activities	Three Months Ended September 30				Nine Months Ended September 30				Last 12 Months		Full Year 2020
Dollars in millions	2021		2020		2021		2020
Net cash provided by (used in) Operating Activities	$	(120)	$	1	$	(299)	$	(115)	$	(376)	$	(192)
Plus Net cash provided by (used in) Investing Activities	(17)		5		(35)		104		(54)		85
Cash flow before Financing Activities	$	(137)	$	6	$	(334)	$	(11)	$	(430)	$	(107)

Liquidity and Capital Resources

Liquidity

As of September 30, 2021, the Company had cash and cash equivalents and restricted cash of $419 million and $1 million, respectively.

The Company's primary source of liquidity is its existing cash balance of $420 million, which will primarily be used for ongoing working capital requirements and capital expenditures. The Company believes that its existing cash resources will be sufficient to support its current operations for at least the next twelve months.

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

Autotech - On June 30, 2017, Veoneer committed to make a $15 million investment in Autotech Fund I, L.P. pursuant to a limited partnership agreement, and, as a limited partner, will periodically make capital contributions toward this total commitment amount. As of September 30, 2021, Veoneer contributed a total of $14 million to the fund. The initial term of the fund is set to expire on December 31, 2025. This fund focuses broadly on the automotive industry and complements the Company’s innovation strategy, particularly in the areas of active safety and autonomous driving. Under the limited partnership agreement, the general partner has the sole and exclusive right to manage, control, and conduct the affairs of the partnership.

Zenuity - During the first nine months of 2021, the Company received a dividend of SEK 108 million (approximately $13 million) in cash (representing 50%, with the remainder received by VCC) from Zenuity. In addition, the Company received a dividend of SEK 1,067 million (approximately $127 million) which was settled net against Related party short-term and long-term debt related to Zenuity's intellectual property that Veoneer acquired the right to use during the Zenuity split.

Cash Flows


Selected Cash flow items	Nine Months Ended September 30
(Dollars in millions, except where specified)	2021		2020
Net working capital1	$	5	$	(117)
Net cash used in operating activities	$	(299)	$	(115)
Capital expenditures	$	(46)	$	(70)
Equity method investments	$	11	$	9
Net cash (used in) provided by investing activities	$	(35)	$	104
Cash flow before financing activities1	$	(334)	$	(11)
Net cash used in financing activities	$	(2)	$	(8)

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

Days receivables outstanding, outstanding receivables relative to average daily sales was 56 days for September 30, 2021, as compared to 51 days at September 30, 2020. This decrease is mainly due to sharp increase in organic sales in the second quarter of 2021. Days inventory outstanding, outstanding inventory relative to average daily sales was 44 days for September 30, 2021, as compared to 31 days at September 30, 2020. This ratio decreased due to the year-over-year sales sharp increase of customer demand during the second quarter due to the rebound from the negative COVID-19 effects in 2020.

Net cash used in operating activities - Net cash used in operating activities of $299 million during the first nine months was $184 million higher as compared to 2020. The change was primarily driven by the net working capital change, which was partly offset by the lower net loss.

Net cash (used in)/provided by investing activities - Net cash used in investing activities of $35 million during the first nine months was $139 million lower as compared to 2020. This was mainly due to the proceeds from the VNBS divestiture of $176 million in 2020.

Cash flow before financing activities1 - The cash flow before financing activities of $(334) million for the first nine months was $323 million lower compared to 2020 mainly due to the VNBS divestiture in 2020 and timing effects in working capital.

Net Working Capital1 - The net working capital increase by $122 million for the first nine months as compared to 2020 was mainly due to timing effect related to a build up of inventory and the COVID-19 impact in 2020.

Capital Expenditures - Capital expenditures of $46 million for the first nine months decreased by $24 million as compared to 2020 mainly due to lower investments in facility expansions. The benefit of the VNBS-Asia divestiture was $1 million.

Cash and cash equivalents - At the end of the quarter the company had cash and cash equivalents of $420 million, compared to $758 million at the end of the fourth quarter 2020.

Number of Associates


		September 30, 2021	June 30, 2021	March 31, 2021	December 31, 2020	September 30, 2020
TOTAL		7,242	7,303	7,512	7,543	7,433
Whereof:	Direct Manufacturing	1,431	1,452	1,489	1,452	1,370
	RD&E	4,196	4,221	4,408	4,476	4,454
	Temporary	1,196	1,257	1,372	1,359	1,258

Associates, net decreased by 61 to 7,242 during the quarter as compared to 7,303 in the previous quarter.

The decrease was mainly attributable to a decrease in RD&E associates and to a lesser extent in direct labor. The decreases were a result of the on-going MAIs.

Compared to September 30, 2020 the total number of associates decreased by 191. In support of increased production volumes direct manufacturing associates increased by 61, while RD&E staff decreased by 258 as a part of our on-going MAIs.

Significant Legal Matters

For discussion of legal matters we are involved in, see Note 15 "Contingent Liabilities" to the condensed consolidated financial statements included herein.

Off-Balance Sheet Arrangements and Other Matters

The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on its financial position, results of operations or cash flows.

Contractual Obligations and Commitments

There have been no significant changes to the contractual obligations and commitments disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 19, 2021.

Significant Accounting Policies and Critical Accounting Estimates

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2021, there have been no material changes to the information related to quantitative and qualitative disclosures about market risk that was provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 19, 2021.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2021, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was (a) reported within the time periods specified by SEC rules and regulations, and (b) communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding any required disclosure.

Changes in Internal Control over Financial Reporting

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Various claims, litigation and proceedings are pending or threatened against the Company or its subsidiaries, covering a range of matters that arise in the ordinary course of its business activities with respect to commercial, product liability and other matters.

For a description of our material legal proceedings, see Note 15 Contingent Liabilities – Legal Proceedings to our unaudited condensed consolidated financial statements included herein, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Other than as set forth below, there have been no material changes in the risk factors described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors below and also those discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, which could materially affect our business, financial condition or future results. The risks described below and in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

Risks Related to the Merger

The announcement and pendency of our agreement to be acquired by Qualcomm Incorporated and SSW HoldCo LP may have an adverse effect on our business, financial condition, operating results and cash flows.

On October 4, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SSW HoldCo LP ("SSW"), a Delaware limited partnership, SSW Merger Sub Corp, a Delaware corporation and a direct, wholly owned subsidiary of SSW (“Merger Sub”) and QUALCOMM Incorporated ("Qualcomm" and, together with SSW, the "Acquiring Parties"), pursuant to which Merger Sub will, upon the terms and subject to the conditions set forth in the Merger Agreement, merge with and into us, and we will survive such merger as a wholly-owned subsidiary of SSW (the “Merger”). Shortly after the consummation of the Merger it is contemplated that certain Investment and Separation Matters Agreement, dated October 4, 2021, by and among Qualcomm, SSW and, solely for the purposes of Article V and Sections 2.3 and 2.4 thereof, Merger Sub, our non-Arriver businesses (which are Tier-1 supplier businesses) will be extracted from us and thereafter the Arriver business will be sold to Qualcomm by way of a merger of us with and into a designated subsidiary of Qualcomm (or its designated affiliate), and we will survive such merger as a wholly owned subsidiary of Qualcomm (or its designated affiliate).

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each share of our common stock issued and outstanding immediately prior to the effective time of the Merger (subject to limited exceptions) will be cancelled and automatically converted into the right to receive $37.00 in cash, without interest and subject to any applicable withholding taxes.

Uncertainty about the effect of the proposed Merger on our employees, vendors, suppliers, partners, customers and other third parties may disrupt our sales and marketing, collaborative technology development relationships and/or other key business activities and may have a material adverse effect on our business, financial condition, operating results and cash flows. The proposed Merger may have a material adverse effect on our ability to attract, retain and motivate employees as current and prospective employees may experience uncertainty about their roles following the Merger. There can be no assurance we will be able to attract and retain key talent, including senior leaders, to the same extent that we have previously been able to attract and retain employees. Any loss or distraction of such employees could have a material adverse effect on our business, financial condition and operating results. In addition, we have diverted, and will continue to divert, significant management resources towards the completion of the Merger, which could materially adversely affect our business, financial condition, operating results and cash flows. The proposed Merger may have a material adverse effect on our ability to maintain current relationships or establish relationships with vendors, suppliers, partners, customers and other third parties, as such parties may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their current relationships with us. Parties with whom we otherwise may have sought to establish relationships may seek alternative relationships with third parties.

The pursuit of the Merger and planning for the integration may place a significant burden on management and other internal resources. The diversion of management’s attention away from day-to-day business concerns could adversely affect our business, financial condition and operating results.

The Merger Agreement generally requires us to operate our business in the ordinary course pending consummation of the proposed Merger and restricts us, without the Acquiring Parties’ consent, from taking certain specified actions until the Merger is completed. These restrictions may affect our ability to execute our business strategies, to respond effectively to competitive pressures and industry developments, and to attain our financial and other goals and may otherwise harm our business, financial condition, operating results and cash flows.

The failure to complete the Merger in a timely manner or at all could negatively impact the market price of our common stock as well as adversely affect our business, financial condition, operating results and cash flows.

Completion of the Merger is subject to several conditions beyond our control that may prevent, delay or otherwise adversely affect its completion in a material way, including the approval of our stockholders, the expiration or termination of applicable waiting periods and the receipt of applicable approvals or consents under antitrust and competition laws and foreign investment laws in certain jurisdictions. The Merger cannot be completed until the conditions to closing are satisfied or (if permissible under applicable law) waived. We cannot guarantee that the closing conditions set forth in the Merger Agreement will be satisfied or, even if satisfied, that no event of termination will take place. In addition, developments beyond our control, including but not limited to changes in domestic or global economic conditions, may affect the timing or success of the Merger. In the event that the Merger is not completed for any reason, the holders of our common stock will not receive any payment for their shares of common stock in connection with the proposed Merger. Instead, we will remain an independent public company and the holders of our common stock will continue to own their shares of common stock.

If the Merger or a similar transaction is not completed, the share price of our common stock may drop to the extent that the current market price of our common stock reflects an assumption that a transaction will be completed. In addition, in the event the Merger is not consummated, under circumstances specified in the Merger Agreement, we may be required to pay a termination fee of $110.0 million and reimburse the $110.0 million termination fee paid by Qualcomm to Magna International Inc. (“Magna”) in satisfaction of our obligations in connection with the termination of our Agreement and Plan of Merger with Magna. Further, a failure to complete the Merger may result in negative publicity, negative impressions of us in the financial markets and investment community and negative responses from employees, vendors, suppliers, partners, customers and other third parties. Any disruption to our business resulting from the announcement and pendency of the Merger and from intensifying competition from our competitors, including any adverse changes in our relationships with our employees, vendors, suppliers, partners, customers and other third parties, could continue or accelerate in the event of a failure to complete the Merger. There can be no assurance that our business, financial condition, operating results and cash flows will not be adversely affected, as compared to the condition prior to the announcement of the Merger, if the Merger is not consummated.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that cannot be met.

Before the Merger may be completed, various approvals, authorizations and declarations of non-objection must be obtained from certain regulatory and governmental authorities. Subject to the terms and conditions of the Merger Agreement, each party has agreed to use their reasonable best efforts to take all actions and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws to consummate the Merger and the other transactions contemplated by the Merger Agreement as soon as practicable and no later than the termination date of the Merger Agreement, including obtaining any requisite approvals, subject to certain specified limitations under the Merger Agreement.

These regulatory and governmental entities may impose conditions on the granting of such approvals and if such regulatory and governmental entities seek to impose such conditions, lengthy negotiations may ensue among such regulatory or governmental entities, the Acquiring Parties and us. Such conditions and the process of obtaining regulatory approvals could have the effect of delaying completion of the Merger and such conditions may not be satisfied for an extended period of time.

We cannot assure you that these regulatory clearances and approvals will be obtained in a timely manner or obtained at all, or that the granting of these regulatory clearances and approvals will not involve the imposition of regulatory remedies on the completion of the Merger, including requiring changes to the terms of the Merger Agreement. These conditions or changes could result in the conditions to the closing of the Merger not being satisfied. The special meeting of our stockholders at which the adoption and approval of the Merger Agreement will be considered may take place before all of the required regulatory approvals have been obtained and before regulatory remedies, if any, are known. In this event, if the stockholder approval is obtained, we and the Acquiring Parties may subsequently agree to regulatory remedies without further seeking stockholder approval, except as required by applicable law, even if such regulatory remedies could have an adverse effect on us, the Acquiring Parties or the surviving corporation.

The Merger Agreement contains provisions that could discourage or deter a potential competing acquirer that might be willing to pay more to effect an alternative transaction with us.

Under the Merger Agreement, we are generally not permitted to solicit or discuss takeover proposals with third parties, subject to certain exceptions. Further, subject to limited exceptions, the Merger Agreement contains restrictions on our ability to pursue other alternatives to the Merger and, in specified circumstances, could require us to pay the Acquiring Parties a termination fee of $110.0 million and reimburse the $110.0 million termination fee paid by Qualcomm to Magna in satisfaction of our obligations in connection with the termination of our Agreement and Plan of Merger with Magna. Such restrictions may discourage or deter a third party that may be willing to pay more than the Acquiring Parties for our common stock from considering or proposing an alternative transaction with us. Notwithstanding the foregoing, in no event will the termination fee or the reimbursed termination fee be paid to the Acquiring Parties more than once. For additional information regarding these restrictions, refer to Veoneer's proxy statement on Schedule 14A filed with the Securities and Exchange Commission on Octobr 25, 2021.

We may be subject to litigation challenging the Merger.

Any litigation challenging the Merger may require significant management time and attention and significant legal expenses and may result in unfavorable outcomes, which could delay or prevent the Merger from being completed or have a material adverse effect on our business, financial condition, results of operations and cash flows.

The completion of the transaction contemplated by the Merger Agreement may trigger change in control or other similar provisions in certain agreements to which we are a party.

If we are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if we are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to us.

We will incur substantial transaction fees and costs in connection with the Merger.

We expect to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the Merger. A material portion of these expenses are payable by us whether or not the Merger is completed. Further, while we have assumed that a certain amount of transaction expenses will be incurred, factors beyond our control could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. These expenses may exceed the costs historically borne by us. These costs could adversely affect our business, financial condition, operating results and cash flows.

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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS


Exhibit No.						Description

2.1						Agreement and Plan of Merger, dated as of July 22, 2021, among Veoneer, Inc., Magna International Inc. and 2486345 Delaware Corporation (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (filing date July 23, 2021).**

2.2						Agreement and Plan of Merger, dated as of October 4, 2021, among Veoneer, Inc., Qualcomm Incorporated, SSW HoldCo LP and SSW Merger Sub Corp (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (filing date October 4, 2021).**

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

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

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

4.2						Indenture, dated May 28, 2019, between Veoneer, Inc. and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K (filing date May 29, 2019).

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

10.1						Veoneer, Inc. 2021 Stock Incentive Plan, incorporated by reference to Annex B to the Company’s Definitive Proxy Statement on Schedule 14A filed on March 29, 2021.

31.1*						Certification of the Chief Executive Officer of Veoneer, Inc. pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*						Certification of the Chief Financial Officer of Veoneer, Inc. pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

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

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

101*						The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2021, formatted Inline XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Statements of Operations (Unaudited); (ii) the Condensed Consolidated Statements of Comprehensive Loss (Unaudited); (iii) the Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Changes in Equity (Unaudited); (v) the Condensed Consolidated Statements of Cash Flows; and (vi) Notes to unaudited condensed consolidated financial statements.

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


*			Filed herewith.
+			Management contract or compensatory plan.
**			The schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of such schedules and exhibits, or any section thereof, to the SEC upon request.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 26, 2021

VEONEER, INC.

(Registrant)


By:			/s/ Ray Pekar
			Ray Pekar
			Chief Financial Officer
			(Duly Authorized Officer and Principal Financial Officer)

Veoneer, Inc. 10-Q