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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, 2018

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, SE-103 02

 

Stockholm, Sweden

N/A

(Address of principal executive offices)

(Zip Code)

 

+46 8 527 762 00

(Registrant’s telephone number, including area code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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

 

(do not check if 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 20, 2018, there were 87,132,780 shares of common stock of Veoneer, Inc., par value $1.00 per share, outstanding.

Exhibit index located on page number 41

 

 

 

1


 

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; the ability of the Company to achieve the intended benefits from its separation from its former parent; our ability to be awarded new business or loss of business from increased competition; 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 postretirement 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, as well as the disclosures made in the Company’s Information Statement included in the current report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on July 2, 2018.

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 Statement

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

 

 

 

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net sales

 

Note 3

 

 

 

$

572

 

 

$

579

 

 

$

1,166

 

 

$

1,162

 

Cost of sales

 

 

 

 

 

 

(460

)

 

 

(459

)

 

 

(943

)

 

 

(929

)

Gross profit

 

 

 

 

 

 

112

 

 

 

120

 

 

 

223

 

 

 

233

 

Selling, general and administrative expenses

 

 

 

 

 

 

(37

)

 

 

(26

)

 

 

(68

)

 

 

(55

)

Research, development and engineering expenses, net

 

 

 

 

 

 

(119

)

 

 

(102

)

 

 

(225

)

 

 

(189

)

Amortization of intangibles

 

 

 

 

 

 

(6

)

 

 

(5

)

 

 

(11

)

 

 

(24

)

Other income (expense), net

 

 

 

 

 

 

2

 

 

 

1

 

 

 

17

 

 

 

13

 

Operating loss

 

 

 

 

 

 

(48

)

 

 

(12

)

 

 

(64

)

 

 

(22

)

Loss from equity method investment

 

Note 8

 

 

 

 

(16

)

 

 

(8

)

 

 

(30

)

 

 

(8

)

Interest income

 

 

 

 

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

Interest expense

 

 

 

 

 

 

(1

)

 

 

-

 

 

 

(1

)

 

 

-

 

Other non-operating items, net

 

 

 

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

-

 

Loss before income taxes

 

Note 14

 

 

 

 

(63

)

 

 

(19

)

 

 

(93

)

 

 

(30

)

Income tax expense

 

Note 6

 

 

 

 

(3

)

 

 

(11

)

 

 

(10

)

 

 

(22

)

Net loss

 

 

 

 

 

$

(66

)

 

$

(30

)

 

$

(103

)

 

$

(52

)

Less: Net loss attributable to non-controlling interest

 

 

 

 

 

 

(3

)

 

 

(2

)

 

 

(8

)

 

 

(4

)

Net loss attributable to controlling interest

 

 

 

 

 

$

(63

)

 

$

(28

)

 

$

(95

)

 

$

(48

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic

 

Note 13

 

 

 

$

(0.72

)

 

$

(0.32

)

 

$

(1.09

)

 

$

(0.55

)

Net loss per share - diluted

 

 

 

 

 

$

(0.72

)

 

$

(0.32

)

 

$

(1.09

)

 

$

(0.55

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding,

   (in millions)

 

 

 

 

 

 

87.13

 

 

 

87.13

 

 

 

87.13

 

 

 

87.13

 

Weighted average number of shares outstanding,

   assuming dilution (in millions)

 

 

 

 

 

 

87.13

 

 

 

87.13

 

 

 

87.13

 

 

 

87.13

 

 

See Notes to 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

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(66

)

 

$

(30

)

 

$

(103

)

 

$

(52

)

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in cumulative translation adjustment

 

 

(15

)

 

 

5

 

 

 

(4

)

 

 

15

 

Net change in cash flow hedges

 

 

1

 

 

 

(4

)

 

 

1

 

 

 

(6

)

Pension liability

 

 

(1

)

 

 

-

 

 

 

(1

)

 

 

-

 

Other comprehensive income (loss), before tax

 

 

(15

)

 

 

1

 

 

 

(4

)

 

 

9

 

Expense for taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other comprehensive income (loss), net of tax

 

 

(15

)

 

 

1

 

 

 

(4

)

 

 

9

 

Comprehensive loss

 

$

(81

)

 

$

(29

)

 

$

(107

)

 

$

(43

)

Less: Comprehensive loss attributable to non-controlling

   interest

 

 

(5

)

 

 

(1

)

 

 

(7

)

 

 

(2

)

Comprehensive loss attributable to controlling interest

 

$

(76

)

 

$

(28

)

 

$

(100

)

 

$

(41

)

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

5


 

Veoneer, Inc.

Condensed Consolidated Balance Sheets

(U.S. DOLLARS IN MILLIONS)

 

 

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

980

 

 

$

-

 

Receivables, net

 

 

 

 

439

 

 

 

460

 

Inventories, net

 

Note 7

 

 

157

 

 

 

154

 

Related party receivables

 

Note 15

 

 

71

 

 

 

-

 

Prepaid expenses and contract assets

 

 

 

 

29

 

 

 

34

 

Other current assets

 

 

 

 

23

 

 

 

-

 

Total current assets

 

 

 

 

1,699

 

 

 

648

 

Property, plant and equipment, net

 

 

 

 

415

 

 

 

362

 

Equity method investment

 

 

 

 

134

 

 

 

98

 

Goodwill

 

Note 5

 

 

291

 

 

 

292

 

Intangible assets, net

 

Note 5

 

 

109

 

 

 

122

 

Deferred tax assets

 

 

 

 

30

 

 

 

30

 

Related party notes receivables

 

Note 15

 

 

-

 

 

 

76

 

Other non-current assets

 

 

 

 

71

 

 

 

34

 

Total assets

 

 

 

$

2,749

 

 

$

1,662

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

$

279

 

 

$

323

 

Related party payables

 

Note 15

 

 

47

 

 

 

5

 

Accrued expenses

 

Note 9

 

 

216

 

 

 

195

 

Income tax payable

 

 

 

 

12

 

 

 

41

 

Other current liabilities

 

 

 

 

30

 

 

 

26

 

Total current liabilities

 

 

 

 

584

 

 

 

590

 

Related party long-term debt

 

Note 15

 

 

13

 

 

 

62

 

Pension liability

 

 

 

 

19

 

 

 

14

 

Deferred tax liabilities

 

 

 

 

20

 

 

 

17

 

Other non-current liabilities

 

 

 

 

11

 

 

 

22

 

Total non-current liabilities

 

 

 

 

63

 

 

 

115

 

Commitments and contingencies

 

Note 12

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

87

 

 

 

-

 

Additional paid-in capital

 

 

 

 

1,915

 

 

 

-

 

Net Former Parent investment

 

 

 

 

-

 

 

 

844

 

Accumulated other comprehensive income (loss)

 

 

 

 

(13

)

 

 

(8

)

Total equity

 

 

 

 

1,989

 

 

 

836

 

Non-controlling interest

 

 

 

 

113

 

 

 

121

 

Total equity and non-controlling interest

 

 

 

 

2,102

 

 

 

957

 

Total liabilities, equity and non-controlling interest

 

 

 

$

2,749

 

 

$

1,662

 

 

See Notes to 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, 2018

 

 

Equity attributable to

 

 

Common Stock

 

 

Additional Paid In Capital

 

 

Net Former Parent

Investment

 

 

Accumulated Other

Comprehensive Income

 

 

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 Former Parent's net 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

 

 

 

Six Months ended

 

 

June 30, 2017

 

 

Equity attributable to

 

 

Net Former Parent

Investment

 

 

Accumulated Other

Comprehensive Loss

 

 

Non-controlling

Interest

 

 

Total

 

Balance at beginning of period

$

877

 

 

$

(29

)

 

$

242

 

 

$

1,090

 

Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

(48

)

 

 

-

 

 

 

(4

)

 

 

(52

)

Foreign currency translation

 

-

 

 

 

13

 

 

 

2

 

 

 

15

 

Net change in cash flow hedges

 

-

 

 

 

(6

)

 

 

-

 

 

 

(6

)

Total Comprehensive Income (Loss)

 

(48

)

 

 

7

 

 

 

(2

)

 

 

(43

)

Net transfers from Former Parent

 

179

 

 

 

-

 

 

 

-

 

 

 

179

 

Balance at end of period

$

1,008

 

 

$

(22

)

 

$

240

 

 

$

1,226

 

 

 

7


 

Veoneer, Inc.

Condensed Consolidated Statements of Cash Flow (Unaudited)

(U.S. DOLLARS IN MILLIONS)

 

 

 

Six Months Ended June 30

 

 

 

2018

 

 

2017

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(103

)

 

$

(52

)

Depreciation and amortization

 

 

55

 

 

 

64

 

Contingent consideration write-down

 

 

(14

)

 

 

(13

)

Other, net

 

 

3

 

 

 

(20

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

(62

)

 

 

(3

)

Related party receivables and payables, net

 

 

(31

)

 

 

3

 

Income taxes

 

 

(29

)

 

 

3

 

Accrued expenses

 

 

25

 

 

 

(11

)

Other current assets and liabilities, net

 

 

(20

)

 

 

6

 

Receivables, gross

 

 

14

 

 

 

(15

)

Inventories, gross

 

 

(6

)

 

 

7

 

Prepaid expenses and contract assets

 

 

4

 

 

 

(4

)

Net cash used in operating activities

 

 

(164

)

 

 

(35

)

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Net decrease (increase) in related party notes receivable

 

 

76

 

 

 

(7

)

Capital expenditures

 

 

(71

)

 

 

(50

)

Equity method investment

 

 

(71

)

 

 

(112

)

Proceeds from sale of property, plant and equipment

 

 

4

 

 

 

5

 

Net cash used in investing activities

 

 

(62

)

 

 

(164

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Cash provided at separation by Former Parent

 

 

980

 

 

 

-

 

Net transfers from Former Parent

 

 

275

 

 

 

179

 

(Decrease) / increase in related party long-term debt

 

 

(49

)

 

 

20

 

Net cash provided by financing activities

 

 

1,206

 

 

 

199

 

Effect of exchange rate changes on cash and cash equivalents

 

 

-

 

 

 

-

 

Increase in cash and cash equivalents

 

 

980

 

 

 

-

 

Cash and cash equivalents at beginning of year

 

 

-

 

 

 

-

 

Cash and cash equivalents at end of year

 

$

980

 

 

$

-

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

8


 

Veoneer, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(U.S. DOLLARS IN MILLIONS)

1. Basis of Presentation

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

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

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

Veoneer has three product areas: Active Safety Products (that includes active safety sensors for advanced driver assistance systems, highly automated driving solutions and autonomous driving solutions), Restraint Control Systems, and Brake Systems.

The accompanying Unaudited Condensed Consolidated Financial Statements for all periods presented 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 (Former Parent equity) 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) will be reflected in Retained earnings (Accumulated deficit). Accordingly, for periods prior to June 29, 2018, the Company’s financial statements are presented on a combined basis and for the periods subsequent to June 29, 2018, they are presented on a consolidated basis (all periods hereinafter are referred to as "Consolidated Financial Statements").

The Unaudited Condensed Consolidated Financial Statements include the historical operations, assets, and liabilities that are considered to comprise the Veoneer business. All of the allocations and estimates in the Unaudited Condensed Consolidated Financial Statements 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 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 Combined Financial Statements for the year ended December 31, 2017 and corresponding notes in the Company’s Information Statemnt included in the current report on Form 8-K filed with the SEC on July 2, 2018. Certain amounts in the prior year’s Condensed Combined Financial Statements and related footnotes thereto have been reclassified to conform to the current year presentation.

 

9


 

2. Summary of Significant Accounting Policies

A summary of significant policies is included in the current report on Form 8-K filed with the SEC on July 2, 2018. Discussion on cash and cash equivalents is included here as an additional significant policy which has become relevant beginning quarter ended June 30, 2018.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. On the Distribution Date, Veoneer held approximately $1 billion of cash and cash equivalents.

New Accounting Standards

Adoption of New Accounting Standards

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI), which allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments in ASU 2018-02 eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments in ASU 2018-02 are effective for all entities for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The amendments in ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company early adopted ASU 2018-02 as of January 1, 2018 and the adoption did not have a material impact on the Unaudited Condensed Consolidated Financial Statements for any periods presented.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Cuts and Jobs Act (the “Act”). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. In the first quarter of 2018, the Company elected to treat any potential GILTI inclusions as a period cost.

In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-07, Compensation-Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires the service cost component to be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the Unaudited Condensed Consolidated Statements of Operations separately from the service cost component and outside operating income. The amendments in ASU 2017-07 are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The amendments in ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the Unaudited Condensed Consolidated Statements of Operations. The Company adopted ASU 2017-07 in the first quarter of 2018 and the adoption did not have a material impact on the Unaudited Condensed Consolidated Financial Statements for any periods presented (see Note 10 Retirement Plans).

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Historical GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Consequently, the amendments in this ASU 2016-16 eliminate the exception for an intra-entity transfer of an asset other than inventory. Two common examples of assets included in the scope of ASU 2016-16 are intellectual property and property, plant, and equipment. The amendments in ASU 2016-16 are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. The amendments in ASU 2016-16 should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to equity as of the beginning of the period of adoption. The adoption of ASU 2016-16 effective January 1, 2018 did not have a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements.

 

10


 

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 net sales, net income, or balance sheet. The table below shows the adjustments made due to ASU 2014-09. 

 

Balance Sheet

(Dollars in millions)

 

Balance at

December 31,

2017

 

 

Adjustments due

to ASU 2014-09

 

 

Balance at

January 1,

2018

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Inventories, net

 

$

154

 

 

$

(5

)

 

$

149

 

Prepaid expenses and contract assets

 

 

34

 

 

 

7

 

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Net Former Parent investment

 

 

844

 

 

 

1

 

 

 

845

 

 

 

 

Three Months Ended June 30, 2018

 

 

Six Months Ended June 30, 2018

 

Income Statement

(Dollars in millions)

 

As Reported

 

 

Balances without

adoption of

ASC 606

 

 

Effect of Changes

 

 

As Reported

 

 

Balances without

adoption of

ASC 606

 

 

Effect of Changes

 

Net sales

 

$

572

 

 

$

573

 

 

$

(1

)

 

$

1,166

 

 

$

1,166

 

 

$

-

 

Cost of sales

 

 

(460

)

 

 

(461

)

 

 

1

 

 

 

(943

)

 

 

(943

)

 

 

-

 

Operating loss

 

 

(48

)

 

 

(48

)

 

 

-

 

 

 

(64

)

 

 

(64

)

 

 

-

 

 

 

 

As of June 30, 2018

 

Balance Sheet

(Dollars in millions)

 

As Reported

 

 

Balances without

adoption of

ASC 606

 

 

Effect of Changes

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Inventories, net

 

$

157

 

 

$

162

 

 

$

(5

)

Prepaid expenses and other current assets

 

 

29

 

 

 

22

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

1,915

 

 

 

1,914

 

 

 

1

 

 

Accounting Standards Issued But Not Yet Adopted

In August 2017, the FASB issued ASU 2017-12, Derivative and Hedging (Topic 815), Targeted improvements to accounting for hedging activities. The amendments in ASU 2017-12 better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in ASU 2017-12 also include certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The amendments in ASU 2017-12 modify disclosures required in current GAAP. Those modifications include a tabular disclosure related to the effect on the income statement of fair value and cash flow hedges and eliminate the requirement to disclose the ineffective portion of the change in fair value of hedging instruments. The amendments also require new tabular disclosures related to cumulative basis adjustments for fair value hedges. The amendments in ASU 2017-12 are effective for public business entities for annual period beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the annual period that an entity adopts the amendments in ASU 2017-12. The Company believes that the pending adoption of

 

11


 

ASU 2017-12 will not have a material impact on the Unaudited Condensed Consolidated Financial Statements since the Company closed its cash flow hedges in the first quarter of 2018.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. ASU 2016-13 is effective for public business entities for annual periods beginning after December 15, 2019, and early adoption is permitted for annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of the Company’s pending adoption of ASU 2016-13 on its Condensed Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 affects any entity that enters into a lease, with some specified scope exceptions. For public business entities, the amendments in ASU 2016-02 are effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company intends to adopt ASU 2016- 02 in the annual period beginning January 1, 2019. The Company intends to apply the modified retrospective transition method and elect the transition option to use the effective date January 1, 2019, as the date of initial application. The Company will not adjust its comparative period Financial Statements for effects of the ASU 2016-02, or make the new required lease disclosures for periods before the effective date. The Company will recognize its cumulative effect transition adjustment as of the effective date. The Company’s implementation of this standard includes use of a project management framework that includes a dedicated lead project manager and a cross-functional project steering committee responsible for assessing the impact that the new standard will have on the Company’s accounting, financial statement presentation and disclosure. This team has begun its process to identify leasing arrangements and to compare its accounting policies and practices to the requirements of the new standard. In addition, the Company has selected a new system to assist with lease accounting and has started the implementation. The Company regularly enters into operating leases, for which current GAAP does not require recognition on the balance sheet. The Company anticipates that the adoption of ASU 2016-02 will primarily result in the recognition of most operating leases on its balance sheet resulting in an increase in reported right-of-use assets and leasing liabilities. The Company will continue to assess the impact from the new standard. The Company is continuing to consider control and process changes to capture lease data necessary to apply ASU 2016-02.

3. Revenue

In accordance with ASC 606, Revenue from Contracts with Customers, revenue is measured based on consideration specified in a contract with a customer, adjusted for any variable consideration (i.e. price concessions or annual price adjustments) and estimated at contract inception. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer.

In addition, from time to time, Veoneer may make payments to customers in connection with ongoing and future business. These payments to customers are generally recognized as a reduction to revenue at the time of the commitment to make these payments unless certain criteria are met warranting capitalization. If the payments are capitalized, the amounts are amortized as the related goods are transferred. As of June 30, 2018, and December 31, 2017, the Company capitalized $43 million and $23 million, respectively, in Other non-current assets related to capitalized payments. The Company assesses these amounts for impairment. There was no impairment.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales.

Nature of goods and services

The following is a description of principal activities from which the Company generates its revenue. The Company has two operating segments, Electronics and Brake Systems. Electronics includes all of electronics resources and expertise, restraint control systems and active safety products and Brake Systems provides brake control and actuation systems. The principal activities are essentially the same for each of the segments. Both of the segments generate revenue from the sale of production parts to original equipment manufacturers (“OEMs”). 

 

12


 

The Company accounts for individual products separately if they are distinct (i.e., if a product is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration, including any price concession or annual price adjustments, is based on their stand-alone selling prices for each of the products. The stand-alone selling prices are determined based on the cost-plus margin approach.

The Company recognizes revenue for production parts primarily at a point in time.

For production parts with revenue recognized at a point in time, the Company recognizes revenue upon shipment to the customers and transfer of title and risk of loss under standard commercial terms (typically F.O.B. shipping point). There are certain contracts where the criteria to recognize revenue over time have been met (e.g., there is no alternative use to the Company and the Company has an enforceable right to payment). In such cases, at period end, the Company recognizes revenue and a related asset and associated cost of goods sold and inventory. However, the financial impact of these contracts is immaterial considering the very short production cycles and limited inventory days on hand, which is typical for the automotive industry.

The amount of revenue recognized is based on the purchase order price and adjusted for variable consideration (i.e. price concessions or annual price adjustments). Customers typically pay for the production parts based on customary business practices with payment terms averaging 30 days.

Disaggregation of revenue

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

Net Sales by Region

 

(Dollars in millions)

Three Months Ended June 30, 2018

 

 

Three Months Ended June 30, 2017

 

 

Electronics

 

 

Brake Systems

 

 

Total

 

 

Electronics

 

 

Brake Systems

 

 

Total

 

Asia

$

104

 

 

$

96

 

 

$

200

 

 

$

117

 

 

$

89

 

 

$

206

 

Americas

 

173

 

 

 

15

 

 

 

188

 

 

 

180

 

 

 

34

 

 

 

214

 

Europe

 

184

 

 

 

-

 

 

 

184

 

 

 

160

 

 

 

-

 

 

 

160

 

Total region sales

 

461

 

 

 

111

 

 

 

572