0001733186-19-000108.txt : 20190726 0001733186-19-000108.hdr.sgml : 20190726 20190726111133 ACCESSION NUMBER: 0001733186-19-000108 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 91 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190726 DATE AS OF CHANGE: 20190726 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Veoneer, Inc. CENTRAL INDEX KEY: 0001733186 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 823720890 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38471 FILM NUMBER: 19976693 BUSINESS ADDRESS: STREET 1: 26545 AMERICAN DRIVE CITY: SOUTHFIELD STATE: MI ZIP: 48034 BUSINESS PHONE: 248-223-0600 MAIL ADDRESS: STREET 1: 26545 AMERICAN DRIVE CITY: SOUTHFIELD STATE: MI ZIP: 48034 10-Q 1 veoneerq2201910q.htm 10-Q Document
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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 June 30, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 001-38471

Veoneer, Inc.
(Exact name of registrant as specified in its charter)
Delaware
82-3720890
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
 
Klarabergsviadukten 70, Section C6
 
Box 13089
 
Stockholm Sweden
(Address of principal executive offices)
 
SE- 103 02
(Zip Code)
46 8 527 762 00
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $1.00 par value
VNE
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes:   No: 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes:      No:  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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 July 22, 2019, there were 111,398,092 shares of common stock of Veoneer, Inc., par value $1.00 per share, outstanding.
Exhibit index located on page 45




FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including without limitation, statements regarding management’s examination of historical operating trends and data, estimates of future sales (including estimates related to order intake), operating margin, cash flow, taxes or other future operating performance or financial results, are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “may,” “likely,” “might,” “would,” “should,” “could,” or the negative of these terms and other comparable terminology, although not all forward-looking statements contain such words. We have based these forward-looking statements on our current expectations and assumptions and/or data available from third parties about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs.
New risks and uncertainties arise from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Factors that could cause actual results to differ materially from these forward-looking statements include, without limitation, the following: cyclical nature of automotive sales and production; changes in general industry and market conditions or regional growth or decline; our ability to achieve the intended benefits from our separation from our Former Parent; our ability to be awarded new business or loss of business from increased competition; higher than anticipated costs and use of resources related to developing new technologies; our ability to secure financing to meet future capital needs; higher raw material, energy and commodity costs; component shortages; changes in customer and consumer preferences for end products; market acceptance of our new products; dependence on and relationships with customers and suppliers; unfavorable fluctuations in currencies or interest rates among the various jurisdictions in which we operate; costs or difficulties related to the integration of any new or acquired businesses and technologies; successful integration of acquisitions and operations of joint ventures; successful implementation of strategic partnerships and collaborations; product liability, warranty and recall claims and investigations and other litigation and customer reactions thereto; higher expenses for our pension and other post-retirement benefits, including higher funding needs for our pension plans; work stoppages or other labor issues; possible adverse results of future litigation, regulatory actions or investigations or infringement claims; our ability to protect our intellectual property rights; tax assessments by governmental authorities and changes in our tax rate; dependence on key personnel; legislative or regulatory changes impacting or limiting our business; political conditions; and other risks and uncertainties contained in this Quarterly Report on Form 10-Q, the Prospectus forming part of our Registration Statement on Form S-1 related to our common stock offering (File No. 333-231607), filed with the Securities and Exchange Commission ("SEC") on May 24, 2019, and (ii) the Prospectus forming part of our Registration Statement on Form S-1 related to our convertible notes offering (File No. 333-231609), filed with the SEC on May 24, 2019 and in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission ("SEC") on February 22, 2019.
For any forward-looking statements contained in this Quarterly Report on Form 10-Q or any other document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we assume no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

2



Veoneer, Inc.
Table of Contents

3



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 June 30,
 
Six Months Ended June 30,
 
 
 
2019
 
2018
 
2019
 
2018
Net sales
Note 3
 
$
489

 
$
572

 
$
984

 
$
1,166

Cost of sales
 
 
(412
)
 
(460
)
 
(822
)
 
(943
)
Gross profit
 
 
77

 
112

 
162

 
223

Selling, general and administrative expenses
 
 
(50
)
 
(37
)
 
(102
)
 
(68
)
Research, development and engineering expenses, net
 
 
(159
)
 
(119
)
 
(315
)
 
(225
)
Amortization of intangibles
 
 
(6
)
 
(6
)
 
(11
)
 
(11
)
Other income, net
 
 
1

 
2

 
1

 
17

Operating loss
 
 
(137
)
 
(48
)
 
(265
)
 
(64
)
Loss from equity method investment
Note 9
 
(18
)
 
(16
)
 
(35
)
 
(30
)
Interest income
 
 
4

 
1

 
8

 
1

Interest expense
 
 
(2
)
 
(1
)
 
(3
)
 
(1
)
Other non-operating items, net
 
 
1

 
1

 
1

 
1

Loss before income taxes
Note 15
 
(152
)
 
(63
)
 
(294
)
 
(93
)
Income tax benefit / (expense)
Note 7
 
10

 
(3
)
 
4

 
(10
)
Net loss
 
 
(142
)
 
(66
)
 
(290
)
 
(103
)
Less: Net loss attributable to non-controlling interest
 
 
(9
)
 
(3
)
 
(20
)
 
(8
)
Net loss attributable to controlling interest
 
 
$
(133
)
 
$
(63
)
 
$
(270
)
 
$
(95
)
 
 
 
 
 
 
 
 
 
 
Net loss per share - basic
Note 14
 
$
(1.39
)
 
$
(0.72
)
 
$
(2.94
)
 
$
(1.09
)
Net loss per share - diluted
 
 
$
(1.39
)
 
$
(0.72
)
 
$
(2.94
)
 
$
(1.09
)
 
 
 
 
 
 
 
 
 
 
Weighted average number of shares outstanding,
   (in millions)
 
 
96.06

 
87.13

 
91.68

 
87.13

Weighted average number of shares outstanding,
   assuming dilution (in millions)
 
 
96.06

 
87.13

 
91.68

 
87.13

See notes to the unaudited condensed consolidated financial statements.


4



Veoneer, Inc.
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(U.S. DOLLARS IN MILLIONS)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(142
)
 
$
(66
)
 
$
(290
)
 
$
(103
)
Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Change in cumulative translation adjustment
(2
)
 
(15
)
 
(13
)
 
(4
)
Net change in cash flow hedges

 
1

 

 
1

Pension liability

 
(1
)
 

 
(1
)
Other comprehensive income (loss), before tax
(2
)
 
(15
)
 
(13
)
 
(4
)
Expense for taxes

 

 

 

Other comprehensive income (loss), net of tax
(2
)
 
(15
)
 
(13
)
 
(4
)
Comprehensive loss
(144
)
 
(81
)
 
(303
)
 
(107
)
Less: Comprehensive loss attributable to non-controlling interest
(7
)
 
(5
)
 
(18
)
 
(7
)
Comprehensive loss attributable to controlling interest
$
(137
)
 
$
(76
)
 
$
(285
)
 
$
(100
)
See notes to the unaudited condensed consolidated financial statements.

5



Veoneer, Inc.
Condensed Consolidated Balance Sheets
(U.S. DOLLARS IN MILLIONS)
 
 
 
(unaudited)
 
 
 
 
 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
 
 
Cash and cash equivalents
 
 
$
1,204

 
$
864

Short-term investments
 
 

 
5

Receivables, net
 
 
319

 
376

Inventories, net
Note 8
 
158

 
172

Related party receivables
Note 16
 
16

 
64

Prepaid expenses
 
 
42

 
39

Other current assets
 
 
19

 
22

Total current assets
 
 
1,758

 
1,543

Property, plant and equipment, net
 
 
548

 
499

Operating lease right-of-use assets
 
 
94

 

Equity method investment
Note 9
 
73

 
101

Goodwill
 
 
290

 
291

Intangible assets, net
 
 
93

 
102

Deferred tax assets
 
 
10

 
11

Related party notes receivables
Note 16
 

 
1

Investments
 
 
10

 
8

Other non-current assets
 
 
91

 
77

Total assets
 
 
$
2,967

 
$
2,632

Liabilities and equity
 
 
 

 
 

Accounts payable
 
 
$
276

 
$
369

Short-term debt
Note 5
 
20

 

Related party payables
Note 16
 
12

 
16

Accrued expenses
Note 10
 
207

 
193

Income tax payable
 
 
6

 
9

Related party short-term debt
 
 
3

 
1

Other current liabilities
 
 
48

 
47

Total current liabilities
 
 
572

 
636

4.00% Convertible Senior Notes due 2024
Note 5
 
156

 

Related party long-term debt
Note 16
 
12

 
13

Pension liability
Note 11
 
21

 
20

Deferred tax liabilities
 
 
12

 
13

Operating lease non-current liabilities
Note 4
 
75

 

Finance lease non-current liabilities
Note 4
 
33

 
1

Other non-current liabilities
 
 
22

 
24

Total non-current liabilities
 
 
331

 
70

Equity
 
 
 

 
 

Common stock  (par value $1.00, 325 million shares authorized, 111 million and 87 million shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively)
 
 
111

 
87

Additional paid-in capital
 
 
2,341

 
1,938

Accumulated deficit
 
 
(451
)
 
(181
)
Accumulated other comprehensive loss
 
 
(34
)
 
(19
)
Total equity
 
 
1,967

 
1,826

Non-controlling interest
 
 
97

 
101

Total equity and non-controlling interest
 
 
2,064

 
1,927

Total liabilities, equity and non-controlling interest
 
 
$
2,967

 
$
2,632

See notes to the unaudited condensed consolidated financial statements.

6



Veoneer, Inc.
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(U.S. DOLLARS IN MILLIONS)
 
Six months ended June 30, 2019
 
Equity attributable to
 
Common Stock
 
Additional Paid In Capital
 
Accumulated deficit
 
Accumulated Other
Comprehensive Loss
 
Non-controlling
Interest
 
Total
Balance at beginning of period
$
87

 
$
1,938

 
$
(181
)
 
$
(19
)
 
$
101

 
$
1,927

Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
 
 
 
Net loss

 

 
(270
)
 

 
(20
)
 
(290
)
Foreign currency translation

 

 

 
(15
)
 
2

 
(13
)
     Stock based compensation expense

 
3

 

 

 

 
3

     Issuance of common stock
24

 
379

 

 

 

 
403

     Purchase of minority interest

 
(14
)
 

 

 
14

 

     Equity component of issuance of
     convertible notes, net of taxes
     (Note 5)

 
35

 

 

 

 
35

Total Comprehensive Income (Loss)
24

 
403

 
(270
)
 
(15
)
 
(4
)
 
138

Balance at end of period
$
111

 
$
2,341

 
$
(451
)
 
$
(34
)
 
$
97

 
$
2,064

 
 
Six months ended June 30, 2018
 
Equity attributable to
 
Common Stock
 
Additional Paid In Capital
 
Net Former Parent Investment

 
Accumulated Other
Comprehensive Loss
 
Non-controlling
Interest
 
Total
Balance at beginning of period
$

 
$

 
$
844

 
$
(8
)
 
$
121

 
$
957

Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
 
 
 
Net loss

 

 
(95
)
 

 
(8
)
 
(103
)
Foreign currency translation

 
 
 
 
 
(5
)
 
1

 
(4
)
Net change in cash flow hedges

 

 

 
1

 

 
1

Pension liability

 

 

 
(1
)
 

 
(1
)
Reclassification of Net Former Parent investment and issuance of ordinary shares in connection with separation
87

 
1,915

 
(2,002
)
 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income (Loss)
87

 
1,915

 
(2,097
)
 
(5
)
 
(7
)
 
(107
)
Net transfers from Former Parent

 

 
1,253

 

 
(1
)
 
1,252

Balance at end of period
$
87

 
$
1,915

 
$

 
$
(13
)
 
$
113

 
$
2,102


7



Veoneer, Inc.
Condensed Consolidated Statements of Cash Flow (Unaudited)
(U.S. DOLLARS IN MILLIONS)
 
Six Months Ended June 30,
 
2019
 
2018
Operating activities
 
 
 
Net loss
$
(290
)
 
$
(103
)
Depreciation and amortization
60

 
55

Undistributed loss from equity method investments
35

 
30

Stock-based compensation
3

 
2

Contingent consideration write-down

 
(14
)
Deferred income taxes
(4
)
 

Other, net
5

 
(29
)
Change in operating assets and liabilities:
 
 
 
Accounts payable
(65
)
 
(62
)
Related party receivables and payables, net
44

 
(31
)
Income taxes

 
(29
)
Accrued expenses
15

 
25

Other current assets and liabilities, net
(15
)
 
(20
)
Receivables, gross
49

 
14

Inventories, gross
9

 
(6
)
Prepaid expenses
(6
)
 
4

Net cash used in operating activities
(160
)
 
(164
)
 
 
 
 
Investing activities
 

 
 

Net decrease in related party notes receivable

 
76

Capital expenditures
(109
)
 
(71
)
Equity method investment
(11
)
 
(71
)
Short-term investments mature into cash
5

 

Long term investments
(4
)
 

Proceeds from sale of property, plant and equipment

 
4

Net cash used in investing activities
(119
)
 
(62
)
 
 
 
 
Financing activities
 

 
 

Cash provided at separation by Former Parent

 
980

Proceeds from short-term debt
20

 

Net transfers from Former Parent

 
275

Proceeds from related party short-term debt
2

 

Issuance of common stock
405

 

Proceeds from long-term debt
202

 

Decrease in related party long-term debt

 
(49
)
Net cash provided by financing activities
629

 
1,206

Effect of exchange rate changes on cash and cash equivalents
(10
)
 

Increase in cash and cash equivalents
340

 
980

Cash and cash equivalents at beginning of period
864

 

Cash and cash equivalents at end of period
$
1,204

 
$
980

See notes to the unaudited condensed consolidated financial statements.

8



Veoneer, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(U.S. DOLLARS IN MILLIONS)
Note 1. Basis of Presentation
Spin-Off
On June 29, 2018 (the “Distribution Date”), Veoneer, Inc. (“Veoneer” or “the Company”) became an independent, publicly-traded company as a result of the distribution by Autoliv, Inc. (“Autoliv” or “Former Parent”) of 100 percent of the outstanding common stock of Veoneer to the stockholders of Autoliv (the “Spin-Off”). Each Autoliv stockholder and holder of Autoliv’s Swedish Depository Receipts (SDRs) of record as of certain specified dates received one share of Veoneer common stock or one Veoneer SDR, respectively, for every one share of Autoliv common stock or Autoliv SDR. The Spin-Off was completed on June 29, 2018 in a tax free transaction pursuant to Section 355 of the U.S. Internal Revenue Code.
On July 2, 2018, Veoneer common stock began regular trading on the New York Stock Exchange (“NYSE”) under the ticker symbol “VNE” and Veoneer SDRs began trading on Nasdaq Stockholm under the symbol “VNE-SDB”. Agreements entered into between Veoneer and Autoliv in connection with the Spin-Off govern the relationship between the parties following the Spin-Off and provide for the allocation of various assets, liabilities, rights and obligations. These agreements also include arrangements for transition services to be provided on a temporary basis between the parties.
In advance of the Spin-Off, Autoliv completed a series of internal transactions, in which Autoliv transferred its Electronics business to Veoneer. These transactions are referred to herein as the “internal reorganization”. The internal reorganization was completed on April 1, 2018.
The Company has two operating segments, Electronics and Brake Systems. Electronics includes all electronics resources and expertise, Restraint Control Systems and Active Safety products, and Brake Systems provides brake control and actuation systems.
The accompanying unaudited condensed consolidated financial statements for the period ended June 30, 2018 have been prepared from Autoliv’s historical accounting records and are presented on a stand-alone basis as if the operations had been conducted independently from Autoliv. Prior to the Spin-Off, Autoliv’s net investment in these operations (Net Former Parent Investment) is shown in lieu of a controlling interest’s equity in the unaudited condensed consolidated financial statements. Subsequent to the Spin-Off and the related distribution of shares, Veoneer Common stock, Additional paid-in capital and future income (losses) were reflected in Retained earnings (Accumulated deficit). For periods prior to June 29, 2018, the Company’s financial statements are presented on a combined basis and for the periods subsequent to June 29, 2018, they are presented on a consolidated basis (all periods hereinafter are referred to as "Condensed Consolidated Financial Statements").
The unaudited condensed consolidated financial statements include the historical operations, assets, and liabilities that were considered to comprise the Veoneer business. The allocations and estimates in the unaudited condensed consolidated financial statements for the period ended June 30, 2018 are based on assumptions that management of Autoliv and Veoneer believe are reasonable. However, the historical statements of operations, comprehensive loss, balance sheets, and cash flows of Veoneer included herein may not be indicative of what they would have been had Veoneer actually been a stand-alone entity during such periods, nor are they necessarily indicative of Veoneer's future results.
The accompanying unaudited condensed consolidated financial statements for Veoneer do not include all of the information and notes required by the accounting principles generally accepted in the U.S. (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to Veoneer’s Audited Consolidated Financial Statements for the year ended December 31, 2018 and corresponding notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 22, 2019.
Certain amounts in the unaudited condensed consolidated financial statements and associated notes may not reconcile due to rounding. All percentages have been calculated using unrounded amounts.
Joint Venture with Nissin Kogyo
On June 14, 2019, the Company signed agreements with Nissin Kogyo, its joint venture partner in Veoneer Nissin Brake Systems ("VNBS"), providing for certain structural changes to the joint venture and the funding of VNBS.
Pursuant to the agreements, Veoneer acquired Nissin Kogyo’s interests in the US operations of VNBS, referred to as Veoneer Nissin Brake America ("VNBA"), and VNBS transferred or licensed the VNBS technologies necessary to operate the VNBA

9



business to VNBA. VNBA, including the transferred or licensed technologies, is a wholly-owned Veoneer business effective on the closing date, June 28, 2019. VNBS will also provide certain transition services to VNBA.
The VNBS operations in Japan and China will remain a part of the joint venture, with Veoneer owning 51% and Nissin Kogyo owning 49% of the joint venture.
Under the agreement, Nissin Kogyo provided guarantees for certain VNBS commercial loans corresponding to 49% of the funding Veoneer had previously unilaterally provided to VNBS. During the six months ended June 30, 2019 Veoneer received approximately $20 million as debt repayment from VNBS.
The agreement between Veoneer and Nissin Kogyo resolves the funding situation previously described by Veoneer in its public filings and allows for Veoneer to continue reviewing and evaluating the development priorities and strategic options with respect to its brake systems business.
Follow-on Offerings
On May 28, 2019, the Company completed follow-on public offerings of 24,000,000 shares of common stock and $207 million aggregate principal amount of 4.00% Convertible Senior Notes due 2024 (the “Notes”) (including $27 million aggregate principal amount pursuant to the underwriters’ over-allotment option to purchase additional notes). The public offering price for our common stock offering was $17.50 per share. The Company received net proceeds of approximately $404 million from the common stock offering and approximately $200 million from the Notes offering, in each case after deducting the underwriting discounts and issuance costs directly attributable to each offering.
Note 2. Summary of Significant Accounting Policies
A summary of significant accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 22, 2019.
New Accounting Standards
Adoption of New Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 affects any entity that enters into a lease, with some specified scope exceptions. For public business entities, the amendments in ASU 2016-02 are effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company adopted ASU 2016-02 in the annual period beginning January 1, 2019. The Company applied the modified retrospective transition method and elected the transition option to use the effective date January 1, 2019, as the date of initial application. The Company did not adjust its comparative period financial statements for effects of ASU 2016-02, and has not made the new required lease disclosures for periods before the effective date. The Company has recognized its cumulative effect transition adjustment as of the effective date. In addition, the Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, have allowed the Company to carry forward the historical lease classification. The adoption of the new standard resulted in recording operating lease assets and lease liabilities of approximately $75 million as of January 1, 2019. The adoption of the new lease standard did not have a material impact on the Company's Condensed Consolidated Statements of Operations or Statements of Cash Flows.





 
 
 
(unaudited)
 
(unaudited)
Balance Sheet
(Dollars in millions)
Balance at
December 31,
2018
 
Adjustments due
to ASU 2016-02
 
Balance at
January 1,
2019
Assets
 
 
 
 
 
Right-of-use assets, operating leases
$

 
$
75

 
$
75

Current liabilities
 
 
 
 


Other current liabilities

 
16

 
16

Non-current liabilities
 
 
 
 


Operating lease liabilities - non-current

 
57

 
57

Equity
 
 
 
 
 
Accumulated deficit
(181
)
 

 
(181
)

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance issued by the FASB, including industry specific guidance. In 2016, the FASB issued accounting standard updates to address implementation issues and to clarify guidance in certain areas. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. In addition, ASU 2014-09 requires certain additional disclosure around the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASU 2014-09 effective January 1, 2018 and utilized the modified retrospective (cumulative effect) transition method. The Company applied the modified retrospective transition method through a cumulative adjustment to equity. The adoption of the new revenue standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
Accounting Standards Issued But Not Yet Adopted
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. ASU 2018-14 removes the requirements to disclose: amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year; the amount and timing of plan assets expected to be returned to the employer; and the effects of a one-percentage point change in assumed health care cost trend rates. ASU 2018-14 requires disclosure of an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted for all entities and the amendments in this update are required to be applied on a retrospective basis to all periods presented. The Company is currently evaluating this guidance to determine the impact on the Company's Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. ASU 2018-13 requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact on the Company's Condensed Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. ASU 2016-13 is

11



effective for public business entities for annual periods beginning after December 15, 2019, and early adoption is permitted for annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of the Company’s pending adoption of ASU 2016-13 on the Company's Condensed Consolidated Financial Statements.
Note 3. Revenue
Disaggregation of revenue
In the following tables, revenue is disaggregated by primary region and products.
Net Sales by Region
 
Three Months Ended June 30, 2019
 
Three Months Ended June 30, 2018
(Dollars in millions)
Electronics
 
Brake Systems
 
Total
 
Electronics
 
Brake Systems
 
Total
Asia
$
89

 
$
81

 
$
170

 
$
104

 
$
96

 
$
200

Americas
145

 
15

 
160

 
173

 
15

 
188

Europe
159

 

 
159

 
184

 

 
184

Total net sales
$
393

 
$
96

 
$
489

 
$
461

 
$
111

 
$
572

Net Sales by Region
 
Six Months Ended June 30, 2019
 
Six Months Ended June 30, 2018
(Dollars in millions)
Electronics
 
Brake Systems
 
Total
 
Electronics
 
Brake Systems
 
Total
Asia
$
179

 
$
153

 
$
332

 
$
216

 
$
195

 
$
411

Americas
299

 
31

 
330

 
351

 
30

 
381

Europe
322

 

 
322

 
374

 

 
374

Total net sales
$
800

 
$
184

 
$
984

 
$
941

 
$
225

 
$
1,166

Net Sales by Products
 
Three Months Ended June 30, 2019
 
Three Months Ended June 30, 2018
(Dollars in millions)
Electronics
 
Brake Systems
 
Total
 
Electronics
 
Brake Systems
 
Total
Restraint Control Systems
$
209

 
$

 
$
209

 
$
246

 
$

 
$
246

Active Safety products
184

 

 
184

 
215

 

 
215

Brake Systems

 
96

 
96

 

 
111

 
111

Total net sales
$
393

 
$
96

 
$
489

 
$
461

 
$
111

 
$
572


Net Sales by Products
 
Six Months Ended June 30, 2019
 
Six Months Ended June 30, 2018
(Dollars in millions)
Electronics
 
Brake Systems
 
Total
 
Electronics
 
Brake Systems
 
Total
Restraint Control Systems
$
425

 
$

 
$
425

 
$
514

 
$

 
$
514

Active Safety products
375

 

 
375

 
427

 

 
427

Brake Systems

 
184

 
184

 

 
225

 
225

Total net sales
$
800

 
$
184

 
$
984

 
$
941

 
$
225

 
$
1,166


Note 4. Leases
The Company has operating and finance leases for offices, manufacturing and research buildings, machinery, automobiles, data processing and other equipment. The leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 12 years, and some of which include options to terminate the leases within 1 month to 2 year(s). As of June 30, 2019, assets recorded under finance leases were $49 million, and accumulated depreciation associated with finance leases was $4 million.
The Company has elected the practical expedient not to separate lease components from non-lease components for all its underlying assets.

12



If the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate as the discount rate. The Company uses its best judgment when determining the incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term to the lease payments in a similar currency.
The components of lease expense for the six months ended June 30, 2019 were as follows:
(Dollars in millions)
Three months ended
June 30, 2019
 
Six months ended
June 30, 2019
Operating lease cost
$
6

 
$
11

Finance lease cost
 
 
 
     Amortization of right-of-use assets

 
1

     Interest on lease liabilities
1

 
1

Total finance lease cost
1

 
2

Short-term lease cost

 

Variable lease cost

 

Total lease cost
$
7

 
$
13


Other information related to leases for the six months ended June 30, 2019 was as follows:
Supplemental Cash Flows Information
Six months ended
June 30, 2019
(Dollars in millions)
 
Cash paid for amounts included in the measurement of lease liabilities
 
     Operating cash flows used for operating leases
$
10

     Operating cash flows used for finance leases
1

     Financing cash flows used for finance leases
1

Right-of-use assets obtained in exchange for new lease obligations:
 
     Operating leases
32

     Finance leases
33

 
As of
(Lease term and discount rate)
June 30, 2019
Weighted-average remaining lease term
 
Operating Leases
8

Finance Leases
11

Weighted-average discount rate
 
Operating leases
3.7
%
Finance leases
4.9
%












13



Future minimum lease payments under non-cancellable leases as of June 30, 2019 were as follows:
(Dollars in millions)
 Operating Leases
 
 Finance Leases
2019 (excluding the six months ended June 30, 2019)
$
11

 
$
2

2020
20

 
4

2021
15

 
15

2022
13

 
3

2023
12

 
3

Thereafter
38

 
37

Total lease payments
109

 
64

Less imputed interest
16

 
18

Total lease liabilities
$
93

 
$
46

Leases obligations reported as of June 30, 2019 were as follows:
(Dollars in millions)
 Operating Leases
 
Finance Leases
Other current liabilities
$
17

 
$
1

Lease liabilities - non current
75

 
33

Related party leases
1

 
12

Total lease liabilities
$
93

 
$
46


As of June 30, 2019, the Company has additional obligations relating to operating leases, primarily for offices, manufacturing and research buildings, machinery, automobiles, data processing and other equipment, that have not yet commenced of $35 million. These operating leases will commence during 2019 with lease terms of 2 years to 15 years.
Note 5. Debt
The Company’s short and long-term debt consists of the following:
 
 
As of
(Dollars in millions)
 
June 30, 2019
 
December 31, 2018
Short-Term Debt:
 
 
 
 
Short-term borrowings
 
$
20

 
$

Long-Term Debt:
 
 
 
 
4.00% Convertible Senior Notes due 2024 (Carrying value)
 
$
156

 
$

Total Debt
 
$
176

 
$


Short-Term Debt:
Short-term borrowings are primarily related to the Company's non-U.S. joint ventures and are payable in Japanese Yen. The term loan bears interest at a rate of 0.58% per year.
Long-Term Debt:
4.00% Convertible Senior Notes
On May 28, 2019, the Company issued, in a registered public offering in the U.S., Convertible Senior Notes (the “Notes”) with an aggregate principal amount of $207 million. The Notes bear interest at a rate of 4.00% per year payable semi-annually in arrears on June 1 and December 1 of each year, beginning December 1, 2019. The Notes will mature on June 1, 2024, unless repurchased, redeemed or converted in accordance with their terms prior to such date.
The net proceeds from the offering of the Notes were approximately $200 million, after deducting issuance costs of $7 million. The Company accounted for these issuance costs as a direct deduction from the carrying amount of the Notes. These costs are being amortized into interest expense for 5 years or through June 2024.
The conversion rate was initially 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

14



prior to the maturity date or if the Company deliver a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or notice of redemption, as the case may be. In no event will the conversion rate per $1,000 principal amount of notes as a result of this adjustment exceed 57.1428 shares of common stock, as stipulated in the indenture.
The Company may not redeem the Notes prior to June 1, 2022. On or after this date, the Company may redeem for cash all or any portion of the Notes, at our option, if the last reported sale price of the Company's common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.
If the Company undergoes a fundamental change (as defined in the indenture), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Notes will be the Company's general unsecured obligations and will rank senior in right of payment to all of the Company's indebtedness that is expressly subordinated in right of payment to the Notes, equal in right of payment with all of the Company's liabilities that are not so subordinated, effectively junior to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.
Holders may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding March 1, 2024 only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on June 30, 2019 (and only during such fiscal quarter), if the last reported sale price of the Company's common stock for at least 20 trading days, whether or not consecutive, during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the "trading price" (as defined in the indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events.
On or after March 1, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at the Company's election, as stipulated in the indenture.
In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, representing the conversion option, which does not meet the criteria for separate accounting as a derivative as it is indexed to the Company's own stock, was determined by deducting the fair value of the liability component from the par value of the Notes. The difference between the principal amount of the Notes and the liability component represents the debt discount, which is recorded as a direct deduction from the related debt liability in the consolidated and condensed balance sheet and amortized to interest expense using the effective interest method over the term of the Notes. The effective interest rate on the Notes is 10%. The equity component of the Notes of approximately $46 million is included in additional paid-in capital in the Condensed Consolidated Balance Sheet and is not remeasured as long as it continues to meet the conditions for equity classification. The Company allocated transaction costs related to the Notes using the same proportions as the proceeds from the Notes. Transaction costs attributable to the liability component were recorded as a direct deduction from the related debt liability in the condensed consolidated balance sheet and amortized to interest expense over the term of the Notes, and transaction costs attributable to the equity component were netted with the equity component in shareholders’ equity.

15



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)
 
June 30, 2019
 
December 31, 2018
Principal amount (face value)
 
$
207

 
$

Unamortized issuance cost
 
(5
)
 

Unamortized debt discount
 
(46
)


Net Carrying value
 
$
156

 
$


The Company recognized total interest expense related to Notes of approximately $1 million for both the three and six months ended June 30, 2019 in the Unaudited Condensed Consolidated Statements of Operations.
The estimated fair value of the Notes was $156 million as of June 30, 2019. The estimated fair value of the Notes was determined through consideration of quoted market prices. The fair value is classified as Level 2, as defined in Note 6, Fair Value Measurements.

Note 6. Fair Value Measurements
The Company uses a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs.
Level 1 - Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
Level 2 - Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.
Level 3 - Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
Assets which are valued at net asset value per share ("NAV"), or its equivalent, as a practical expedient are reported outside the fair value hierarchy, but are included in the total assets for reporting and reconciliation purposes.
Items Measured at Fair Value on a Recurring Basis
Derivative instruments - The Company uses derivative financial instruments, “derivatives”, to mitigate the market risk that occurs from its exposure to changes in interest and foreign exchange rates. The Company does not enter into derivatives for trading or other speculative purposes. The Company’s use of derivatives is in accordance with the strategies contained in the Company’s overall financial risk policy. The derivatives outstanding as of June 30, 2019 were foreign exchange swaps. All swaps principally match the terms and maturity of the underlying debt and no swaps have a maturity beyond six months. All derivatives are recognized in the unaudited condensed consolidated financial statements at fair value. Certain derivatives are from time to time designated either as fair value hedges or cash flow hedges in line with the hedge accounting criteria. For certain other derivatives hedge accounting is not applied either because non-hedge accounting treatment creates the same accounting result or the hedge does not meet the hedge accounting requirements, although entered into applying the same rationale concerning mitigating market risk that occurs from changes in interest and foreign exchange rates. The Company’s derivatives are classified as Level 2 of the fair value hierarchy and there were no transfers between the levels during this or comparable periods.
During the first quarter of 2018, forward contracts designated as cash flow hedges of certain external purchasing were terminated. The loss associated with such termination was not material.
Financial Statement Presentation
The Company enters into master netting agreements, International Swaps and Derivatives Association (ISDA) agreements with all derivative counterparties. The netting agreements allow for netting of exposures in the event of default or breach of the counterparty agreement. The fair values in the Condensed Consolidated Balance Sheets have been presented on a gross basis. Derivative financial instruments designated and non-designated as hedging instruments are included in the Company’s Condensed Consolidated Balance Sheets. The notional value of the derivatives not designated as hedging instruments was $127 million as of June 30, 2019 and $103 million as of December 31, 2018, respectively. As of June 30, 2019, the asset of the derivatives not

16



designated as hedging instruments was $1 million, and as of December 31, 2018, the asset of the derivatives not designated as hedging instruments was less than $1 million.
Gains and losses on derivative financial instruments recognized in the Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2019 and 2018, were a gain of less than $1 million and a loss of less than $1 million for the six months ended June 30, 2019 and 2018, respectively, and a gain of $1 million and a gain of $1 million, respectively.
Contingent consideration - The fair value of the contingent consideration related to the M/A-COM acquisition on August 17, 2015 is re-measured on a recurring basis. The fair value measurements are generally determined using unobservable inputs and are classified within Level 3 of the fair value hierarchy. The Company adjusted the fair value of the earn-out liability to $14 million in the first quarter of 2017 based on actual revenue levels to date as well as changes in the estimated probability of different revenue scenarios for the remaining contractual earn-out period. Income of approximately $13 million was recognized within Other income in the Unaudited Condensed Consolidated Statements of Operations in the first quarter of 2017 due to the decrease in the contingent consideration liability. The remaining fair value of the earn-out liability of $14 million as of December 31, 2017 was fully released and recognized within Other income in the first quarter of 2018, driven by changes in the estimated probability of different revenue scenarios for the remaining contractual earn-out period such that management no longer believes that there are any scenarios under which the earn-out criteria could be met. Management has updated its analysis as of June 30, 2019 and continues to believe that the fair value of the contingent consideration is $0 million.
Items Measured at Fair Value on a Non-Recurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis. The fair value measurements are generally determined using unobservable inputs and are classified within Level 3 of the fair value hierarchy. These assets include long-lived assets, intangible assets and investments in affiliates, which may be written down to fair value as a result of impairment. The Company has determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets and settlements of liabilities, as observable inputs are not available. The Company has determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy. To determine the fair value of long-lived assets, the Company utilizes the projected cash flows expected to be generated by the long-lived assets, then discounts the future cash flows over the expected life of the long-lived assets. No such non-recurring measurements were made during the six months ended June 30, 2019 or 2018.
Investments
The Company may, as a practical expedient, estimate the fair value of certain investments using NAV of the investment as of the reporting date. This practical expedient generally deals with investments that permit an investor to redeem its investment directly with, or receive distributions from, the investee at times specified in the investee’s governing documents. Examples of these investments (often referred to as alternative investments) may include ownership interests in real assets, certain credit strategies, and hedging and diversifying strategies. They are commonly in the form of limited partnership interests. The Company uses NAV as a practical expedient when valuing investments in alternative asset classes and funds which are a limited partnership or similar investment vehicle.
On June 30, 2017, Veoneer committed to make a $15 million investment in Autotech Fund I, L.P. pursuant to a limited partnership agreement, and as a limited partner, will periodically make capital contributions toward this total commitment amount. As of June 30, 2019 and December 31, 2018, Veoneer contributed approximately $10 million and $8 million, respectively, to the investment in Autotech Fund I, L.P.
The carrying amounts reflected in the Condensed Consolidated Balance Sheet in Investments for the Autotech Fund I, L.P approximates its fair values.

17



Note 7. Income Taxes
The income tax benefit for the three and six month periods ended June 30, 2019 was $10 million and $4 million, respectively. The income tax provision for the three and six month periods ended June 30, 2018 was $3 million and $10 million, respectively. Discrete items, net were a benefit of $8 million and $5 million for the three and six month periods ended June 30, 2019 , respectively and a provision of $1 million for both the three and six month periods ended June 30, 2018. Veoneer's effective tax rate differs from an expected statutory rate primarily due to prior year provision-to-return adjustments, an intraperiod tax allocation related to the Notes issuance, and losses in certain jurisdictions that are not benefited. Under the intraperiod tax allocation rules, the deferred tax liability created upon the issuance of the Notes and recorded through Additional Paid-in Capital is treated as a source of income, which enables the Company to recognize a tax benefit of $5 million for the U.S. loss before income taxes through continuing operations for both the three and six month periods ended June 30, 2019. The tax benefit related to the issuance of the Notes will be recognized ratably throughout the year and will not recur in future years.
In December 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has completed its accounting for the effects of the Act on the Company’s deferred tax balances as of the enactment date. Pursuant to the Tax Matters Agreement entered into with Autoliv in connection with the Spin-Off, Autoliv is the primary obligor on all taxes which relate to any period prior to April 1, 2018. Consequently, the Company is not liable for any transition taxes under the Act.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company assesses all available evidence, both positive and negative, to determine the amount of any required valuation allowance. Valuation allowances have been established for the Company’s United States, Swedish, French, Japanese operations, certain Chinese operations and the Company’s joint venture in Japan.
The Company has reserves for income taxes that represent the Company’s best estimate of the potential liability for tax exposures. Inherent uncertainties exist in estimates of tax exposures due to changes in tax law, both legislated and concluded through the various jurisdictions’ court systems. Any income tax liabilities resulting from operations prior to April 1, 2018, are assumed to be settled with Former Parent on the last day Veoneer was part of the Autoliv group and were relieved through the Net Former Parent investment. There were no material changes to the Company’s uncertain tax positions as of June 30, 2019. The Company files income tax returns in the United States federal jurisdiction, and various states and non-U.S. jurisdictions. Under local tax law, a Veoneer entity may have been required to file its income tax returns combined with an Autoliv entity up to and including the date of the Spin-Off. Subsequent to the Spin-Off, Veoneer files its income tax returns on a stand-alone basis.
The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in tax expense.
Note 8. Inventories
Inventories are stated at the lower of cost (according to first-in-first-out basis, "FIFO") and net realizable value. The components of inventories were as follows:
 
As of
(Dollars in millions)
June 30, 2019
 
December 31, 2018
Raw materials
$
114

 
$
108

Work in progress
10

 
15

Finished products
58

 
71

Inventories
182

 
194

Inventory valuation reserve
(24
)