2 0 1 8 A N N U A L R E P O R T
Mission
Our talented people power a customer-centric organization that
is continuously improving the performance and efficiency of
vehicles and machines around the globe. We will consistently
deliver superior products and services to our customers and
will generate exceptional value for our shareholders.
This mission is embodied in our company theme:
About the Cover: The cover features five unique ribbons. Four of these represent the business units that serve our customers:
Light Vehicle Driveline Technologies, Commercial Vehicle Driveline Technologies, Off-Highway Drive and Motion Technologies,
and Power Technologies. The blue ribbon, which represents our people and their drive to always find a better way, emerges as
the theme that runs throughout everything that we do. Learn more on page 6.
Financial Highlights
R E C O R D S A LE S
R E C O R D A D J U S T E D E B I T DA1
I
L
L
I
R E C O R D M A RG I N
INCREASE
O
N from $7.2 billion in 2017
13%
$8.1B
11.8 20
%
$243M
A D J U S T E D FR E E CA S H FLOW
51%
I
L
L
I
3% of sales
O
N
INCREASE
from $161 million in 2017
BPS
INCREASE
from 11.6% in 2017
INCREASE
O
N from $835 million in 2017
I
L
L
I
15%
D I LU T E D A D J U S T E D E P S 2
$957M
$2.97 from $2.52 in 2017
18%
$0.40 P
2 018 CA S H D I V I D E N D S
INCREASE
S
H
A
R
E
E
R
67%
INCREASE
from dividends of $0.24
declared in 2017
All figures as of year-end December 31, 2018.
1 See page 35 of Dana’s 2018 Form 10-K, included herein, for explanation and reconciliation of non-GAAP financial measures.
2 Diluted adjusted EPS is a non-GAAP financial measure, which we have defined as adjusted net income divided by adjusted diluted shares. See the “Quarterly
Financial Information and Reconciliations of Non-GAAP Information” on Dana’s Investor Relations website at www.dana.com/investors for explanation and
calculation of diluted adjusted EPS.
2 0 1 8 A N N U A L R E P O R T | 1
AT A GL ANCE
Vision
To be the global technology leader in efficient power conveyance and energy-management
solutions that enable our customers to achieve their sustainability objectives.
Global Presence
Our global presence, combined with our robust delivery capabilities, allows us to meet
our customers’ region-specific production needs, anywhere in the world.
33
Countries
30,900
Employees*
19
Global technology centers
15,000
Ship to 15,000 customers in 141 countries
141
135
Major facilities
* Does not include the addition of 5,000 people from the acquisitions of SME and Oerlikon Drive Systems.
2 | D A N A I N C O R P O R A T E D
Business Units
Light Vehicle
Driveline Technologies
Commercial Vehicle
Driveline Technologies
Off-Highway Drive and
Motion Technologies
Power
Technologies
Dana is a leading supplier
of traditional and electrified
driveline components and
systems for passenger
cars, crossovers, SUVs,
vans, and light trucks.
Working collaboratively
with original-equipment
manufacturers and the
aftermarket, our Light
Vehicle business unit is
focused on delivering
best-in-class efficiency,
maximum durability, and
superior ride and handling.
Dana is a premier provider
of traditional and electrified
driveline components and
systems, as well as tire
pressure management
solutions, for medium- and
heavy-duty commercial
vehicles. Our Commercial
Vehicle business unit
helps original-equipment
manufacturers and
end-market customers
achieve the best weight,
performance, efficiency,
and total cost
of ownership, no matter the
powertrain configuration.
Dana delivers mobile
off-highway drivetrain
and motion solutions for
construction, agriculture,
material handling, and
mining machines with
conventional and electrified
power sources, as well
as motion systems for a
wide variety of stationary
industrial applications.
These customized
solutions are designed
to extend vehicle and
machine life, reduce
maintenance, and convey
maximum power.
Dana provides advanced
sealing and thermal-
management solutions to
all end markets, in support
of both conventional and
electrified platforms.
Leveraging the most
cutting-edge technology
and manufacturing
processes, our Power
Technologies business
unit delivers custom-
engineered solutions
designed to optimize
vehicle efficiency and
performance.
Sales Breakdown
As of December 31, 2018. Consolidated sales only.
Business
Units
Light Vehicle
Off-Highway
Commercial Vehicle
44%
22%
20%
Power Technologies
14%
Regions
North America
Europe
Asia Pacific
South America
50%
31%
12%
7%
End
Markets
Light Vehicle
Off-Highway
56%
23%
Commercial Vehicle
21%
* Includes sales to system integrators for driveline products that support FCA vehicles.
** Includes sales to MAN AG, a majority-owned subsidiary of Volkswagen AG.
Customers
Ford
FCA*
PACCAR
General Motors
Renault/Nissan
Toyota
Tata
Volkswagen**
Deere
Daimler
Others
20%
11%
5%
4%
4%
3%
3%
3%
3%
2%
42%
2 0 1 8 A N N U A L R E P O R T | 3
Dear Fellow Shareholders,
Dana Incorporated has been
transforming the mobility industry
since its founding in 1904. From the
invention of the encased universal
joint, which literally unchained the
industry by eliminating sprockets
and chains, to the development of
fully-integrated propulsion systems
for today’s most complex electrified
powertrains, we remain a leader in
revolutionizing power conveyance.
This was a landmark year of
transformation for Dana. The
company achieved record annual
sales, profit, and margin performance
in 2018, and we increased free
cash flow by more than 50 percent,
while at the same time organically
and inorganically establishing
e-Propulsion capability to support
each of our end markets. Dana again
reached double-digit growth in
sales, up 13 percent to more than
$8.1 billion, and adjusted EBITDA
of $957 million, up 15 percent.
Adjusted EBITDA margin increased
to 11.8 percent, and Dana declared
cash dividends of $0.40 per share
during 2018, a 67 percent increase
over 2017.
This across-the-board improvement
was driven by a number of factors.
First and foremost was our people
– and their relentless passion for
providing exceptional products
and service to our customers.
Second, we converted on our strong
sales backlog, which we secured
through new business awards. And
third, the continued execution and
enhancement of the Dana operating
model served as the catalyst for
shared cross-company teamwork
and goal attainment.
One of Dana’s most notable
achievements during 2018 was
its evolution into a mobility supply
company that is truly energy-source
agnostic by establishing a complete
portfolio of electrodynamic
solutions. The development of new
technologies, along with strategic
acquisitions, enables us to offer
in-house driveline systems to our
customers as they launch internal-
combustion, hybrid-electric,
plug-in hybrid, and full battery-
electric vehicles.
Da na acquires a major it y st ake in TM4 Inc.
Dana positioned itself as a leader in
e-Propulsion through a number of
strategic actions. We completed a
joint-venture partnership with Hydro-
Québec, one of the world's largest
hydroelectric power producers, by
acquiring a majority share in TM4
Inc., a manufacturer of high-voltage,
permanent magnet motors, inverters,
power electronics, and control
systems for multiple vehicle markets.
With this acquisition, Dana is the
only supplier with complete in-house
gearbox, motor, inverter, and thermal-
management capability for fully-
integrated e-Drive systems.
We also laid the groundwork for the
strategic acquisition of the SME
Group, which we finalized in January
2019. The addition of SME’s low-
voltage electrodynamic components
to Dana’s off-highway product
portfolio augments the breadth of
our e-Drive offering, enabling us to
address the full-spectrum of motor
requirements for our customers.
4 | D A N A I N C O R P O R A T E D
Finally, we signed a definitive
agreement to purchase the Drive
Systems segment of the Oerlikon
Group, a leading global supplier of
high-precision gearing and shifting
solutions for traditional and electric
vehicles. This acquisition, finalized
in February 2019, expands our
presence in the off-highway and
light-vehicle markets, enhancing our
electrification technology portfolio
and increasing our footprint in key
growth regions. Together, these three
acquisitions added more than 5,000
talented people who are committed to
excellence in serving our customers.
At the same time, the Dana team
continued to innovate and develop
electrified offerings, revealing a
range of new products suitable for
light, commercial, and off-highway
vehicles, including our award-winning
Long® ThermaTEK™ insulated-gate
bipolar transistor cooling solutions.
Insulate d- Gate Bipola r Tr a nsistor ( IGBT )
Cooling Module
Considering that a majority of our
business supports traditional driveline
applications, we expanded our core
offerings. In 2018, we increased
our investment in engineering by
nearly 15 percent and, as a result,
launched a number of technologies
designed to maximize efficiency and
improve overall vehicle performance.
Examples include our ultra-efficient
AdvanTEK® axle technology for light
vehicles, the Spicer® S172 series
single drive axle for Class 7 and 8
commercial vehicles, and the Spicer®
TE50 powershift transmission for the
off-highway market.
U l t r a - e f f i c i e n t A d v a nT E K ® A x l e
Our customers recognized these
outstanding innovations and our
team's commitment to collaboration,
quality, on-time delivery, and
sustainability with multiple supplier
excellence awards. The trust we
have built with our customers and
our proven powertrain leadership
has allowed us to play a major role
in upcoming program launches for
Daimler, Fiat Chrysler, Ford, General
Motors, Hino, Hyster-Yale, Jaguar
Land Rover, John Deere, Navistar,
and PACCAR, to name a few.
To support our growing customer
base, we have continued to expand
our operations. Our new facility in
Yancheng, China, broadened our
thermal-management presence in the
region to support both conventional
and electrified vehicles. In Europe,
our new Győr, Hungary, facility
gives us the ability to manufacture
advanced gear technologies, as
well as complete axle assemblies.
Meanwhile, various acquisitions help
us expand our presence in key growth
markets such as China and India.
As we realize new business borne
from strong customer relationships,
an enhanced technology portfolio that
addresses trends in electrification,
geographic expansion across all
mobility markets, and accretive
benefits of our strategic acquisitions,
Dana holds significant growth
potential. As we look to 2019, we
plan to build upon our momentum.
With sales projected at more than
$9.1 billion, we will mark the third
consecutive year of gains in revenue
of nearly $1 billion, equating to a
three-year increase of more than
50 percent since 2016.
All of this is only possible through
the teamwork and commitment
of our people. Decades ago, Dana
introduced the tagline “People
Finding a Better Way.” It described
a culture that had been with the
company from the very beginning –
one that envisions partnering with
customers and suppliers to solve
problems and meet new challenges.
It put people at the center of all
we do to ensure that the spark that
was ignited in 1904 continues to
burn for the next 115 years. This
means keeping our people safe
and cultivating a high-performance
culture by increasing our efforts
in critical areas, including diversity
and inclusion, sustainability,
cybersecurity, and so much more.
Together with our Board of Directors
and the global Dana team, I want
to thank you for your continued
support as we focus on executing
on our strategy to deliver maximum
shareholder value.
My personal best,
James K. Kamsickas
President and Chief Executive Officer
2 0 1 8 A N N U A L R E P O R T | 5
PEOPLE
BETTER WAY
FINDING A
Dana is continually cultivating an environment that fosters
improvement – not just of our products, but of the people behind them.
Cynthia Loch, Customer Operations Representative
Maumee, Ohio, U.S.
6 | D A N A I N C O R P O R A T E D
PEOPLE
Dana is composed of nearly 31,000 employees
across 33 countries. Individually, we are
problem solvers, innovators, and achievers,
each bringing our own experiences, expertise,
skills, and personalities to the company.
Amidst this collective individuality, however,
is one common thread. We are all working
together to create a more innovative and
diverse Dana. We embrace continual evolution,
demonstrate leadership in everything we do,
and most importantly, are driven to always
find a better way…
…A better way to move vehicles
forward through engineering excellence
and innovation.
…A better way to grow our business
through strategic partnerships and
market expansion.
…And, ultimately, a better way to drive
success for our customers.
It’s because of our people and our ceaseless
focus on continuous improvement that Dana
can proudly say that today, we are a leading
global provider of efficient power conveyance
and energy management solutions.
2 0 1 8 A N N U A L R E P O R T | 7
A Better Way to Move
Vehicles Forward
Dana is known worldwide for its reputation as a trustworthy partner and leader in efficiently
transferring energy to the wheels, no matter the power source.
Axle system named finalist for
Automotive News PACE Award
Providing complete e-Propulsion
systems from a single source
Dana was named a 2019 Automotive
News PACE Award finalist for its
ultra-efficient AdvanTEK® axle
technology. The PACE awards serve
as a benchmark for innovation and
honors automotive suppliers for
technical advancement, innovation,
and business performance.
The axle system is 30 percent
more efficient than previous
best-in-class technology and
delivers an up to 2 percent fuel
economy improvement, while
maintaining durability and providing
superior noise, vibration, and
harshness performance.
This is the eighth consecutive year
that Dana has been named a finalist
for this prestigious award.
In 2018, Dana revealed its
comprehensive Spicer® Electrified™
portfolio, including fully integrated
electro-mechanical propulsion
systems featuring gearboxes,
electric motors, inverters, and
thermal-management technologies.
Ranging from complete systems
and modular solutions to individual
sub-system components, the
company’s e-Propulsion portfolio
is able to support customers in
developing series and parallel
hybrid configurations up to full
battery-electric vehicles. Dana’s
electrified product offerings meet
the diverse architecture and platform
requirements of its broad customer
base in the light-vehicle, commercial-
vehicle, and off-highway markets.
Dana launches Spicer®
Electrified™ with TM4® e-Hub
Drive for large mining and
construction vehicles
Dana introduced the Spicer®
Electrified™ with TM4® e-Hub Drive,
a fully integrated electro-mechanical
system for heavy-duty mining and
construction applications that
leverages Dana’s leading portfolio
of vehicle electrification technologies.
Designed for underground mining
trucks, large wheel loaders, and
reach stackers, this e-Hub drive
integrates proven heavy-duty Spicer®
axle expertise, Brevini™ planetary
drive designs, TM4® electric motor
technology, and Dana’s advanced
control expertise into a single
package that delivers efficiency,
reliability, and performance.
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8 | D A N A I N C O R P O R A T E D
Dana introduces 60-pound lighter
axle for Class 7 and 8 vehicles
In yet another example of Dana’s
commitment to optimizing fleet
uptime with lightweight but durable,
reliable, and efficient product
offerings, the company launched two
new Spicer® axles — a heavy-duty
tandem axle for construction, heavy-
haul, and severe service applications,
and a single drive axle for Class 7
and 8 vehicles. The new product
retains the robustness and strength
of the existing axles but delivers an
additional 60-pound weight savings.
Both the heavy-duty tandem axle
and the single drive axle offer a
broad range of gear ratios to serve
a variety of needs, while High-
Power Density™ AdvanTEK® gearing
maximizes strength and reduces
weight. In addition, a reliable,
passive lube management system
requires less lube while optimizing
the amount of lube flow to the high-
efficiency bearings.
New Spicer® Select™ drivetrain
products announced for
commercial-vehicle aftermarket
To address the growing demand
for quality parts for aging vehicles,
Dana launched a new line of all-
makes aftermarket coverage for the
North American commercial-vehicle
aftermarket. The Spicer® Select™
drivetrain products are ideally suited
for aging vehicles and features Dana-
engineered and tested drivetrain
products manufactured by a network
of carefully selected partners.
Spicer® Select™
is available through
traditional commercial-
vehicle aftermarket
channels and includes
u-joints and center
bearings.
S p i c e r ® S e l e c t ™
d r i v e t r a i n p r o d u c t s
S p i c e r ® D 172 h e a v y - d u t y
t a n d e m a x l e
Our customers rely on our
axles to be number one in
quality, always moving vehicles
forward without failure.
Nishan K V, Operating Engineer-Production
Chennai, India
2 0 1 8 A N N U A L R E P O R T | 9
A Better Way to
Grow Our Business
Driven by a clear enterprise strategy, and backed by a track record of consistent execution,
we are committed to driving growth for our company, customers, employees, and shareholders.
TM4 acquisition advances
e-Propulsion capabilities
In cooperation with Hydro-
Québec, one of the world's largest
hydroelectric power producers, Dana
secured a majority stake in TM4 Inc.,
a manufacturer of motors, power
inverters, and control systems for
electric vehicles.
TM4 offers a portfolio of motors,
inverters, and controls that perfectly
complements Dana's electric
gearboxes and thermal-management
technologies. The transaction
established Dana as the only supplier
with full e-Drive design, engineering,
and manufacturing capabilities, and
further strengthens Dana’s position
in China, the world’s fastest-growing
market for electric vehicles.
Acquisition of SME Group
expands Dana’s
electrodynamic capabilities
In early 2019, Dana acquired the SME
Group, headquartered in Arzignano,
Italy. The global SME Group designs,
engineers, and manufactures
low-voltage AC induction and
synchronous reluctance motors,
inverters, and controls for a wide
range of off-highway electric-vehicle
applications, including material
handling, agriculture, construction,
and automated-guided vehicles.
The addition of SME’s low-voltage
motors and inverters, which are
primarily designed to meet the
evolution of electrification in off-
highway equipment, significantly
expands Dana’s electrified product
portfolio. Dana's electric motor
and inverter capabilities now
reach up to 250kW.
Dana purchases Drive Systems
segment of the Oerlikon Group
In February 2019, Dana completed
the purchase of the Drive Systems
segment of the Oerlikon Group, a
global manufacturer of high-precision
gears; planetary hub drives for
wheeled and tracked vehicles; and
products, controls, and software that
support vehicle electrification across
the mobility industry.
This transaction delivers numerous
opportunities to drive profitable
growth. It complements and extends
Dana’s current technology portfolio
and supports vehicle electrification
in each of Dana’s end markets. The
combination also optimizes Dana’s
global manufacturing presence to be
closer to customers in key growth
markets such as China and India,
as well as the United States, and
adds four research and development
facilities to Dana’s extensive network
of technology centers.
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1 0 | D A N A I N C O R P O R A T E D
Y
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Yancheng, China, facility supports
thermal-management solutions
Dana adds axle assembly
capabilities in Hungary
Dana’s recently-inaugurated facility
in Yancheng, China, manufactures
thermal-management products
for conventional and new-energy
vehicles.
Dana announced the expansion of its
gear manufacturing facility in Győr,
Hungary, adding laser welding and
axle assembly capabilities to support
new vehicle programs.
The expansion will add 97,000 square
feet and enables the company to
provide complete axle assemblies
from one central location. The new
operations will utilize highly skilled
technicians to manufacture gears and
assemble Dana’s highly efficient and
durable axles.
The facility currently produces
Spicer® AdvanTEK® hypoid and spiral
bevel ring and pinion gear sets for all-
wheel-drive systems.
Dana repurposed an 86,000-square-
foot plant, making it the company’s
16th facility in China and the second
in Yancheng.
Using automated production
processes, advanced manufacturing
data collection and analysis, and
other intelligent manufacturing
practices, Dana’s new facility in
Yancheng manufactures thermal-
acoustical protective shielding,
including direct-insulation heat
shields, as well as battery cold
plates used in plug-in hybrid electric
vehicles. Dana anticipates producing
a total of approximately 8 million
units at this facility once peak
output is achieved.
Dana is a family that is always
looking for new challenges,
evolving, constantly improving, and
achieving both its technological
and financial objectives.
Hernan Cortez, Cost Analyst
Quito, Ecuador
2 0 1 8 A N N U A L R E P O R T | 1 1
A Better Way to Drive
Success for our Customers
Leveraging 115 years of experience, we partner with our customers to support
any and all of their power generation and conveyance needs, anywhere in the world.
Dana supports world’s first
electric compact wheeled
excavator
In collaboration with Mecalac, an
innovative construction equipment
manufacturer, Dana is developing
a customized e-Drivetrain system
for the new Mecalac e12 electric
compact wheeled excavator. This
vehicle earned the Energy Transition
Award as part of the 2018 Intermat
Innovation Awards.
With the proven Mecalac 12MTX as a
base frame, this version is the world’s
first compact wheeled excavator
powered entirely by electricity.
Featuring Spicer® 112 axles and a
Spicer® 367 shift-on-fly transmission,
the Mecalac e12 wheeled excavator
delivers the range, performance, and
compact size required to support
modern urban construction sites.
Ford presents Dana with two
World Excellence Awards
Dana was honored by Ford Motor
Company as a top-performing
supplier, receiving two awards at the
20th annual Ford World Excellence
Awards. Only 52 companies were
selected as winners from thousands
of Ford suppliers around the world.
Dana was one of four companies
globally to receive the Green Pillar
Award, which is awarded to top
supplier parent companies that
demonstrate excellence in the
delivery of fuel-efficient technologies.
Dana also received a Silver Award,
which recognizes the company’s axle
manufacturing facility in Columbia,
Missouri, for exceeding expectations
to achieve the highest levels of
excellence in quality, delivery,
value, and innovation.
Navistar to feature Spicer®
single drive rear axle as
standard equipment
Spicer® single drive axles are now
standard equipment on Navistar
International MV® Series medium-
duty trucks and IC Bus™ CE Series
and RE Series models. The standard-
product position includes Dana
Spicer® S110, S130, S140, S170,
and S190 models, as well as the
060 Series.
Spicer® single drive axles offer
numerous advanced design features
that reduce installation and life-cycle
costs, including a light-weight design,
high-capacity gearing and bearing
system, GenTech™ extra-quiet
gearing, and a wide ratio range
to cover a variety of straight
truck applications.
S p i c e r ® S 14 0 s i n g l e d r i v e r e a r a x l e
1 2 | D A N A I N C O R P O R A T E D
Dana selected as driveline
supplier for all-new
heavy-duty trucks
General Motors selected Dana as
the driveline supplier for the all-
new Chevrolet Silverado 4500HD,
5500HD, and 6500HD chassis cab
trucks. The conventional-cab trucks
feature Spicer® S-Series drive axles,
Spicer® D-Series steer axles, Spicer®
front drive steer axles, and Spicer
Life Series® driveshafts.
Production of the Silverado Class 4,
5, and 6 trucks began in late 2018.
The vehicles support numerous
applications, such as housing and
highway construction, landscaping,
and utilities, as well as electrical,
plumbing, and HVAC services.
GM recognizes Dana as a top
supplier for powertrain cooling
Dana was named a General Motors
Supplier of the Year for Powertrain
Cooling. GM’s Supplier of the Year
awards are reserved for suppliers
who distinguish themselves by
meeting performance metrics for
quality, execution, innovation, and
total enterprise cost.
The award covers many of the power
cooling technologies that Dana
supplies to GM, including auxiliary
transmission oil coolers for Chevrolet
Silverado and GMC Sierra pickups
and diesel fuel coolers for heavy-
duty pickups. Dana also provides
GM with battery coolers, which
enable efficient heat transfer between
battery cells, improving battery life
and performance.
C h e v r o l e t S i l v e r a d o 6 5 0 0 H D
If the customers I support are successful, so am I.
I own our customers’ challenges and work hard to resolve
them by keeping in close contact, clearly understanding
their needs, involving the necessary people internally
at Dana, and respecting the commitments made.
Lorena Sgherza, Global Agreement Coordinator
Arco, Italy
2 0 1 8 A N N U A L R E P O R T | 1 3
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Dana
Leadership
Board of Directors
Diarmuid B. O’Connell 1, 3
James K. Kamsickas
Rachel A. Gonzalez 2, 3
Michael J. Mack 1, 2
Chief Strategy Officer, Global Head
of Business Development and
Partnerships of Fair
DIRECTOR SINCE 2018
R. Bruce McDonald 1, 2*
Retired Chairman and Chief Executive
Officer of Adient plc
DIRECTOR SINCE 2014
President and Chief Executive Officer
of Dana Incorporated
DIRECTOR SINCE 2015
Virginia A. Kamsky 1, 3*
Chairman and Chief Executive Officer
of Kamsky Associates, Inc.
DIRECTOR SINCE 2011
Executive Vice President, General
Counsel, and Secretary of Starbucks
Corporation
DIRECTOR SINCE 2017
Raymond E. Mabus, Jr. 2, 3
Founding Principal and Chief Executive
Officer of The Mabus Group
DIRECTOR SINCE 2017
Retired Senior Executive of Deere & Co.
DIRECTOR SINCE 2018
Keith E. Wandell 1*, 3, 4
Retired President and Chief Executive
Officer of Harley-Davidson, Inc.
DIRECTOR SINCE 2008
1 Member, Compensation Committee | 2 Member, Audit Committee | 3 Member, Nominating and Corporate Governance Committee | 4 Non-Executive Chairman | * Committee Chair
Leadership Team
Aziz S. Aghili
Jonathan M. Collins
Douglas H. Liedberg
Robert D. Pyle
Executive Vice President and President,
Off-Highway Drive and Motion
Executive Vice President and Chief
Financial Officer
Senior Vice President, General Counsel,
and Secretary
Carl F. Beckwith
Christophe J. Dominiak
Dwayne E. Matthews
President, Light Vehicle Driveline
Antonio Valencia
Senior Vice President, China and
Oceania
Senior Vice President, Global Operations
Shelley R.K. Bridarolli
Senior Vice President, Human Resources
Senior Vice President and Chief
Technology Officer
President, Power Technologies
James K. Kamsickas
President and Chief Executive Officer
Senior Vice President, Purchasing and
Supplier Development
Executive Vice President and President,
Commercial Vehicle Driveline
and Aftermarket
M. Craig Price
Mark E. Wallace
For full biographies, please refer to dana.com/investors or the proxy.
1 4 | D A N A I N C O R P O R A T E D
Form 10-K
(This page intentionally left blank.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended: December 31, 2018
Commission File Number: 1-1063
Dana Incorporated
(Exact name of registrant as specified in its charter)
Delaware
(State of incorporation)
3939 Technology Drive, Maumee, OH
(Address of principal executive offices)
26-1531856
(IRS Employer Identification Number)
43537
(Zip Code)
Registrant’s telephone number, including area code: (419) 887-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
No
that the registrant was required to submit such files). Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller
reporting company, or an emerging growth company. See the 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 Act). Yes
No
The aggregate market value of the common stock held by non-affiliates of the registrant computed by reference to the closing
price of the common stock on June 29, 2018 was $2,909,811,086.
There were 143,367,414 shares of the registrant's common stock outstanding at January 31, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of
Shareholders to be held on May 1, 2019 are incorporated by reference into Part III.
DANA INCORPORATED
FORM 10-K
YEAR ENDED DECEMBER 31, 2018
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Pages
1
6
12
12
12
13
14
15
42
44
100
100
100
100
100
101
101
101
102
104
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Signatures
i
Forward-Looking Information
Statements in this report (or otherwise made by us or on our behalf) that are not entirely historical constitute “forward-
looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements can often be identified by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “predicts,” “seeks,”
“estimates,” “projects,” “outlook,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing” and similar
expressions, variations or negatives of these words. These statements represent the present expectations of Dana Incorporated
and its consolidated subsidiaries (Dana) based on our current information and assumptions. Forward-looking statements are
inherently subject to risks and uncertainties. Our plans, actions and actual results could differ materially from our present
expectations due to a number of factors, including those discussed below and elsewhere in this report and in our other filings
with the Securities and Exchange Commission (SEC). All forward-looking statements speak only as of the date made and we
undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances that may
arise after the date of this report.
ii
PART I
(Dollars in millions, except per share amounts)
Item 1. Business
General
Dana Incorporated (Dana) is headquartered in Maumee, Ohio and was incorporated in Delaware in 2007. We are a global
provider of high technology drive and motion products, sealing solutions, thermal-management technologies and fluid-power
products and our customer base includes virtually every major vehicle and engine manufacturer in the global light vehicle,
medium/heavy vehicle and off-highway markets. As of December 31, 2018 we employed approximately 30,900 people,
operated in 33 countries and had 135 major facilities around the world.
The terms “Dana,” “we,” “our” and “us” are references to Dana. These references include the subsidiaries of Dana unless
otherwise indicated or the context requires otherwise.
Overview of our Business
We have aligned our organization around four operating segments: Light Vehicle Driveline Technologies (Light Vehicle),
Commercial Vehicle Driveline Technologies (Commercial Vehicle), Off-Highway Drive and Motion Technologies (Off-
Highway) and Power Technologies. These operating segments have global responsibility and accountability for business
commercial activities and financial performance.
External sales by operating segment for the years ended December 31, 2018, 2017 and 2016 are as follows:
Light Vehicle
Commercial Vehicle
Off-Highway
Power Technologies
Total
2018
2017
2016
Dollars
$ 3,575
1,612
1,844
1,112
$ 8,143
% of
Dollars
Total
43.9% $ 3,172
1,412
19.8%
1,521
22.6%
1,104
13.7%
$ 7,209
% of
Dollars
Total
44.0% $ 2,607
1,254
19.6%
909
21.1%
1,056
15.3%
$ 5,826
% of
Total
44.8%
21.5%
15.6%
18.1%
Refer to Segment Results of Operations in Item 7 and Note 21 to our consolidated financial statements in Item 8 for further
financial information about our operating segments.
1
Our business is diversified across end-markets, products and customers. The following table summarizes the markets,
products and largest customers of each of our operating segments as of December 31, 2018:
Segment
Markets
Products
Light Vehicle
Light vehicle market:
Light trucks (full frame)
Sport utility vehicles
Crossover utility vehicles
Vans
Passenger cars
Front drive steer rigid axles
Rear drive rigid axles
Front / rear drive units
Driveshafts / propshafts
AWD systems
Power transfer units
Electromechanical propulsion
systems
EV gearboxes
Differentials
Largest
Customers
Ford Motor Company
Fiat Chrysler Automobiles*
Renault-Nissan Alliance
Toyota Motor Company
General Motors Company
Tata Motors
Commercial Vehicle
Medium/heavy vehicle market:
Medium duty trucks
Heavy duty trucks
Buses
Specialty vehicles
Steer axles
Drive axles
Driveshafts
Tire inflation systems
PACCAR Inc
AB Volvo
Volkswagen AG**
Daimler AG
Ford Motor Company
Off-Highway
Off-Highway market:
Construction
Earth moving
Agricultural
Mining
Forestry
Material handling
Industrial stationary
Power Technologies
Light vehicle market
Medium/heavy vehicle market
Off-Highway market
* Via a directed supply relationship
** Includes MAN AG, a majority-owned subsidiary of Volkswagen AG
Deere & Company
Manitou Group
AGCO Corporation
Oshkosh Corporation
Linamar Corporation
Front axles
Rear axles
Driveshafts
Transmissions
Torque converters
Wheel, track and winch planetary Sandvik AB
drives
Industrial gear boxes
Tire inflation systems
Electronic controls
Hydraulic valves, pumps and
motors
Gaskets
Cover modules
Heat shields
Engine sealing systems
Cooling
Heat transfer products
Ford Motor Company
General Motors Company
Cummins Inc.
Volkswagen AG**
Caterpillar Inc.
Fiat Chrysler Automobiles
2
Geographic Operations
We maintain administrative and operational organizations in North America, Europe, South America and Asia Pacific to
support our operating segments, assist with the management of affiliate relations and facilitate financial and statutory reporting
and tax compliance on a worldwide basis. Our operations are located in the following countries:
North America
Europe
South America
Asia Pacific
Canada
Mexico
United States
Belgium
Denmark
Finland
France
Germany
Hungary
Ireland
Italy
Netherlands
Argentina
Brazil
Colombia
Ecuador
Norway
Russia
South Africa
Spain
Sweden
Switzerland
Turkey
United Kingdom
Australia
China
India
Japan
New Zealand
Singapore
South Korea
Taiwan
Thailand
Our non-U.S. subsidiaries and affiliates manufacture and sell products similar to those we produce in the United States.
Operations outside the U.S. may be subject to a greater risk of changing political, economic and social environments, changing
governmental laws and regulations, currency revaluations and market fluctuations than our domestic operations. See the
discussion of risk factors in Item 1A.
Sales reported by our non-U.S. subsidiaries comprised $4,530 of our 2018 consolidated sales of $8,143. A summary of
sales and long-lived assets by geographic region can be found in Note 21 to our consolidated financial statements in Item 8.
Customer Dependence
We are largely dependent on light vehicle, medium- and heavy-duty vehicle and off-highway original equipment
manufacturer (OEM) customers. Ford Motor Company (Ford) and Fiat Chrysler Automobiles (FCA) were the only individual
customers accounting for 10% or more of our consolidated sales in 2018. As a percentage of total sales from operations, our
sales to Ford were approximately 20% in 2018, 22% in 2017 and 22% in 2016, and our sales to FCA (via a directed supply
relationship), our second largest customer, were approximately 11% in 2018, 9% in 2017 and 9% in 2016. PACCAR Inc,
General Motors Company and Renault-Nissan Alliance were our third, fourth and fifth largest customers in 2018. Our 10
largest customers collectively accounted for approximately 58% of our sales in 2018.
Loss of all or a substantial portion of our sales to Ford, FCA or other large volume customers would have a significant
adverse effect on our financial results until such lost sales volume could be replaced and there is no assurance that any such lost
volume would be replaced.
Sources and Availability of Raw Materials
We use a variety of raw materials in the production of our products, including steel and products containing steel, stainless
steel, forgings, castings and bearings. Other commodity purchases include aluminum, brass, copper and plastics. These
materials are typically available from multiple qualified sources in quantities sufficient for our needs. However, some of our
operations remain dependent on single sources for certain raw materials.
While our suppliers have generally been able to support our needs, our operations may experience shortages and delays in
the supply of raw material from time to time due to strong demand, capacity limitations, short lead times, production schedule
increases from our customers and other problems experienced by the suppliers. A significant or prolonged shortage of critical
components from any of our suppliers could adversely impact our ability to meet our production schedules and to deliver our
products to our customers in a timely manner.
Seasonality
Our businesses are generally not seasonal. However, in the light vehicle market, our sales are closely related to the
production schedules of our OEM customers and those schedules have historically been weakest in the third quarter of the year
due to a large number of model year change-overs that occur during this period. Additionally, third-quarter production
3
schedules in Europe are typically impacted by the summer vacation schedules and fourth-quarter production is affected globally
by year-end holidays.
Backlog
A substantial amount of the new business we are awarded by OEMs is granted well in advance of a program launch. These
awards typically extend through the life of the given program. This backlog of new business does not represent firm orders. We
estimate future sales from new business using the projected volume under these programs.
Competition
Within each of our markets, we compete with a variety of independent suppliers and distributors, as well as with the in-
house operations of certain OEMs. With a focus on product innovation, we differentiate ourselves through efficiency and
performance, reliability, materials and processes, sustainability and product extension.
The following table summarizes our principal competitors by operating segment as of December 31, 2018:
Segment
Light Vehicle
Commercial Vehicle
Off-Highway
Power Technologies
Intellectual Property
Principal Competitors
ZF Friedrichshafen AG
GKN plc
American Axle & Manufacturing Holdings, Inc. Vertically integrated OEM operations
Magna International Inc.
Wanxiang Group Corporation
IFA ROTORION Holding GmbH
Meritor, Inc.
American Axle & Manufacturing Holdings, Inc. Tirsan Kardan
Hendrickson (a Boler Company)
Klein Products Inc.
Vertically integrated OEM operations
Carraro Group
ZF Friedrichshafen AG
Kessler + Co.
Comer Industries
Bonfiglioli
Oerlikon Fairfield
Reggiana Riduttori
ElringKlinger AG
Tenneco Inc.
Freudenberg NOK Group
MAHLE GmbH
Sew-Eurodrive
Siemens
GKN plc
Bosch Rexroth AG
Danfoss
Vertically integrated OEM operations
Modine Manufacturing Company
Valeo Group
YinLun Co., LTD
Denso Corporation
Our proprietary driveline and power technologies product lines have strong identities in the markets we serve. Throughout
these product lines, we manufacture and sell our products under a number of patents that have been obtained over a period of
years and expire at various times. We consider each of these patents to be of value and aggressively protect our rights
throughout the world against infringement. We are involved with many product lines and the loss or expiration of any particular
patent would not materially affect our sales and profits.
We own or have licensed numerous trademarks that are registered in many countries, enabling us to market our products
worldwide. For example, our Spicer®, Victor Reinz® and Long® trademarks are widely recognized in their market segments.
Engineering and Research and Development
Since our introduction of the automotive universal joint in 1904, we have been focused on technological innovation. Our
objective is to be an essential partner to our customers and we remain highly focused on offering superior product quality,
4
technologically advanced products, world-class service and competitive prices. To enhance quality and reduce costs, we use
statistical process control, cellular manufacturing, flexible regional production and assembly, global sourcing and extensive
employee training.
We engage in ongoing engineering and research and development activities to improve the reliability, performance and
cost-effectiveness of our existing products and to design and develop innovative products that meet customer requirements for
new applications. We are integrating related operations to create a more innovative environment, speed product development,
maximize efficiency and improve communication and information sharing among our research and development operations. At
December 31, 2018, we had seven stand-alone technical and engineering centers and twelve additional sites at which we
conduct research and development activities. Our research and development costs were $103 in 2018, $102 in 2017 and $81 in
2016. Total engineering expenses including research and development were $252 in 2018, $220 in 2017 and $196 in 2016.
Our research and development activities continue to improve customer value. For all of our markets, this means drivelines
with higher torque capacity, reduced weight and improved efficiency. End-use customers benefit by having vehicles with better
fuel economy and reduced cost of ownership. We are also developing a number of power technologies products for vehicular
and other applications that will assist fuel cell, battery and hybrid vehicle manufacturers in making their technologies
commercially viable in mass production.
Employees
The following table summarizes our employees by operating segment as of December 31, 2018:
Segment
Light Vehicle
Commercial Vehicle
Off-Highway
Power Technologies
Technical and administrative
Total
Environmental Compliance
Employees
12,200
6,300
5,600
5,400
1,400
30,900
We make capital expenditures in the normal course of business as necessary to ensure that our facilities are in compliance
with applicable environmental laws and regulations. The cost of environmental compliance has not been a material part of
capital expenditures and did not have a material adverse effect on our earnings or competitive position in 2018.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 as amended (Exchange Act) are available,
free of charge, on or through our Internet website at http://www.dana.com/investors as soon as reasonably practicable after we
electronically file such materials with, or furnish them to, the SEC. Copies of any materials we file with the SEC can also be
obtained free of charge through the SEC’s website at http://www.sec.gov. We also post our Corporate Governance Guidelines,
Standards of Business Conduct for Members of the Board of Directors, Board Committee membership lists and charters,
Standards of Business Conduct and other corporate governance materials on our Internet website. Copies of these posted
materials are also available in print, free of charge, to any stockholder upon request from: Dana Incorporated, Investor
Relations, P.O. Box 1000, Maumee, Ohio 43537, or via telephone in the U.S. at 800-537-8823 or e-mail at
InvestorRelations@dana.com. The inclusion of our website address in this report is an inactive textual reference only and is not
intended to include or incorporate by reference the information on our website into this report.
5
Item 1A. Risk Factors
We are impacted by events and conditions that affect the light vehicle, medium/heavy vehicle and off-highway markets
that we serve, as well as by factors specific to Dana. Among the risks that could materially adversely affect our business,
financial condition or results of operations are the following, many of which are interrelated.
Risk Factors Related to the Markets We Serve
A downturn in the global economy could have a substantial adverse effect on our business.
Our business is tied to general economic and industry conditions as demand for vehicles depends largely on the strength of
the economy, employment levels, consumer confidence levels, the availability and cost of credit and the cost of fuel. These
factors have had and could continue to have a substantial impact on our business.
We expect global market conditions in 2019 to result in overall sales that are comparable to 2018. We expect the North
America economic climate will be down modestly from its 2018 peak. The medium/heavy truck market in North America is
expected to be mixed in 2019 with Class 8 demand stable to modestly up and Classes 5-7 down compared to 2018. In the light
vehicle market, light truck demand is expected to be comparable to slightly weaker than 2018. The economy in Europe is
expected to improve modestly, with both off-highway and on-highway market demand showing modest improvement
compared to this past year. Continued economic improvement in Brazil is expected to provide stable to improving production
levels in our key South America market segments in 2019. We expect the rate of growth in Asia Pacific to be modest in 2019,
with the off-highway and light truck markets being comparable to up slightly compared to 2018, while the 2019 medium/heavy
truck market is expected to be somewhat weaker. Adverse developments in the economic conditions of any of these markets
could reduce demand for new vehicles, causing our customers to reduce their vehicle production and, as a result, demand for
our products would be adversely affected.
Certain political developments occurring the past three years have provided increased economic uncertainty. The United
Kingdom's decision in 2016 to exit the European Union has not had significant economic ramifications to date; however,
transition details continue to develop and could have potential economic implications in the United Kingdom and elsewhere.
Political climate changes in the U.S., including tax reform legislation, easing of regulatory requirements and potential trade
policy actions, are likely to impact economic conditions in the U.S. and various countries, the cost of importing into the U.S.
and the competitive landscape of our customers, suppliers and competitors.
Adverse global economic conditions could also cause our customers and suppliers to experience severe economic
constraints in the future, including bankruptcy, which could have a material adverse impact on our financial position and results
of operations.
Rising interest rates could have a substantial adverse effect on our business
In a number of markets, including the U.S., we have seen interest rates rise after years of historically low rates. Rising
interest rates could have a dampening effect on overall economic activity, the financial condition of our customers and the
financial condition of the end customers who ultimately create demand for the products we supply, all of which could
negatively affect demand for our products. An increase in interest rates could also make it difficult for us to obtain financing at
attractive rates, impacting our ability to execute on our growth strategies or future acquisitions.
The proposed phase out of the London Interbank Offer Rate (LIBOR) could have an adverse effect on our business
Our revolving credit facility, current term loan and committed financing associated with our acquisition of the Drive
Systems segment of the Oerlikon Group utilize LIBOR to set the interest rate on any outstanding borrowings. In July 2017, the
head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of
2021. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement
rate. As such, the potential effect of any such event on our cost of capital cannot yet be determined. In addition, any further
changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in
reported LIBOR, which could have an adverse impact on extensions of credit held by us and could have a material adverse
effect on our business, financial condition and results of operations.
We could be adversely impacted by the loss of any of our significant customers, changes in their requirements for our products
or changes in their financial condition.
6
We are reliant upon sales to several significant customers. Sales to our ten largest customers accounted for 58% of our
overall sales in 2018. Changes in our business relationships with any of our large customers or in the timing, size and
continuation of their various programs could have a material adverse impact on us.
The loss of any of these customers, the loss of business with respect to one or more of their vehicle models on which we
have high component content, or a significant decline in the production levels of such vehicles would negatively impact our
business, results of operations and financial condition. Pricing pressure from our customers also poses certain risks. Inability on
our part to offset pricing concessions with cost reductions would adversely affect our profitability. We are continually bidding
on new business with these customers, as well as seeking to diversify our customer base, but there is no assurance that our
efforts will be successful. Further, to the extent that the financial condition of our largest customers deteriorates, including
possible bankruptcies, mergers or liquidations, or their sales otherwise decline, our financial position and results of operations
could be adversely affected.
We may be adversely impacted by changes in international legislative and political conditions.
We operate in 33 countries around the world and we depend on significant foreign suppliers and customers. Further, we
have several growth initiatives that are targeting emerging markets like China and India. Legislative and political activities
within the countries where we conduct business, particularly in emerging markets and less developed countries, could adversely
impact our ability to operate in those countries. The political situation in a number of countries in which we operate could
create instability in our contractual relationships with no effective legal safeguards for resolution of these issues, or potentially
result in the seizure of our assets. We operate in Argentina, where trade-related initiatives and other government restrictions
limit our ability to optimize operating effectiveness. At December 31, 2018, our net asset exposure related to Argentina was
approximately $20, including $7 of net fixed assets.
We may be adversely impacted by changes in trade policies and proposed or imposed tariffs, including but not limited to, the
imposition of new tariffs by the U.S. government on imports to the U.S. and/or the imposition of retaliatory tariffs by foreign
countries.
Section 232 of the Trade Expansion Act of 1962, as amended (the Trade Act), gives the executive branch of the U.S.
government broad authority to restrict imports in the interest of national security by imposing tariffs. During 2018, the U.S.
government concluded that imported steel and aluminum threaten to impair the national security and imposed tariffs on steel
and aluminum imported from certain countries. Certain foreign countries have responded with retaliatory tariffs. The U.S.
government is currently investigating imported passenger vehicles and automotive parts to determine if they are weakening our
internal economy and may impair national security. Section 301 of the Trade Act gives the executive branch broad authority to
impose tariffs against countries that make unjustified, unreasonable, or discriminatory trade actions. During 2018, the U.S.
government concluded that China’s trade policies harm U.S. business and workers and threaten the long-term competitiveness
of the U.S. and has imposed tariffs on numerous Chinese imports. China has responded with retaliatory tariffs. In November
2018, the U.S., Mexico and Canada executed the U.S.-Mexico-Canada Agreement (USMCA), the successor agreement to the
North American Free Trade Agreement (NAFTA). The agreement submitted for ratification includes the imposition of tariffs on
vehicles that do not meet regional raw material (steel and aluminum), part and labor content requirements.
Tariffs imposed on imported steel and aluminum could raise the costs associated with manufacturing our products. We
continue to work with our customers to recover a portion of our increased costs, and with our suppliers to defray costs,
associated with these tariffs. While we have been successful in the past recovering a significant portion of costs increases, there
is no assurance that cost increases resulting from trade policies and tariffs will not adversely impact our profitability. Our sales
may also be adversely impacted if tariffs are assessed directly on the products we produce or on our customers’ products
containing content sourced from us.
We may be adversely impacted by the strength of the U.S. dollar relative to the currencies in the other countries in which we do
business.
Approximately 56% of our sales in 2018 were from operations located in countries other than the U.S. Currency variations
can have an impact on our results (expressed in U.S. dollars). Currency variations can also adversely affect margins on sales of
our products in countries outside of the U.S. and margins on sales of products that include components obtained from affiliates
or other suppliers located outside of the U.S. Strengthening of the U.S. dollar against the euro and currencies of other countries
in which we have operations has had and could continue to have an adverse effect on our results reported in U.S. dollars. We
use a combination of natural hedging techniques and financial derivatives to mitigate foreign currency exchange rate risks.
Such hedging activities may be ineffective or may not offset more than a portion of the adverse financial impact resulting from
currency variations.
7
We may be adversely impacted by new laws, regulations or policies of governmental organizations related to increased fuel
economy standards and reduced greenhouse gas emissions, or changes in existing ones.
The markets and customers we serve are subject to substantial government regulation, which often differs by state, region
and country. These regulations, and proposals for additional regulation, are advanced primarily out of concern for the
environment (including concerns about global climate change and its impact) and energy independence. We anticipate that the
number and extent of these regulations, and the costs to comply with them, will increase significantly in the future.
In the U.S., vehicle fuel economy and greenhouse gas emissions are regulated under a harmonized national program
administered by the National Highway Traffic Safety Administration and the Environmental Protection Agency (EPA). Other
governments in the markets we serve are also creating new policies to address these same issues, including the European
Union, Brazil, China and India. These government regulatory requirements could significantly affect our customers by altering
their global product development plans and substantially increasing their costs, which could result in limitations on the types of
vehicles they sell and the geographical markets they serve. Any of these outcomes could adversely affect our financial position
and results of operations.
Company-Specific Risk Factors
We have taken, and continue to take, cost-reduction actions. Although our process includes planning for potential negative
consequences, the cost-reduction actions may expose us to additional production risk and could adversely affect our sales,
profitability and ability to retain and attract employees.
We have been reducing costs in all of our businesses and have discontinued product lines, exited businesses, consolidated
manufacturing operations and positioned operations in lower cost locations. The impact of these cost-reduction actions on our
sales and profitability may be influenced by many factors including our ability to successfully complete these ongoing efforts,
our ability to generate the level of cost savings we expect or that are necessary to enable us to effectively compete, delays in
implementation of anticipated workforce reductions, decline in employee morale and the potential inability to meet operational
targets due to our inability to retain or recruit key employees.
We depend on our subsidiaries for cash to satisfy the obligations of the company.
Our subsidiaries conduct all of our operations and own substantially all of our assets. Our cash flow and our ability to meet
our obligations depend on the cash flow of our subsidiaries. In addition, the payment of funds in the form of dividends, intercompany
payments, tax sharing payments and otherwise may be subject to restrictions under the laws of the countries of incorporation of
our subsidiaries or the by-laws of the subsidiary.
Labor stoppages or work slowdowns at Dana, key suppliers or our customers could result in a disruption in our operations and
have a material adverse effect on our businesses.
We and our customers rely on our respective suppliers to provide parts needed to maintain production levels. We all rely on
workforces represented by labor unions. Workforce disputes that result in work stoppages or slowdowns could disrupt
operations of all of these businesses, which in turn could have a material adverse effect on the supply of, or demand for, the
products we supply our customers.
We could be adversely affected if we are unable to recover portions of commodity costs (including costs of steel, other raw
materials and energy) from our customers.
We continue to work with our customers to recover a portion of our material cost increases. While we have been successful
in the past recovering a significant portion of such cost increases, there is no assurance that increases in commodity costs,
which can be impacted by a variety of factors, including changes in trade laws and tariffs, will not adversely impact our
profitability in the future.
We could be adversely affected if we experience shortages of components from our suppliers or if disruptions in the supply
chain lead to parts shortages for our customers.
A substantial portion of our annual cost of sales is driven by the purchase of goods and services. To manage and minimize
these costs, we have been consolidating our supplier base. As a result, we are dependent on single sources of supply for some
components of our products. We select our suppliers based on total value (including price, delivery and quality), taking into
8
consideration their production capacities and financial condition, and we expect that they will be able to support our needs.
However, there is no assurance that adverse financial conditions, including bankruptcies of our suppliers, reduced levels of
production, natural disasters or other problems experienced by our suppliers will not result in shortages or delays in their
supply of components to us or even in the financial collapse of one or more such suppliers. If we were to experience a
significant or prolonged shortage of critical components from any of our suppliers, particularly those who are sole sources, and
were unable to procure the components from other sources, we would be unable to meet our production schedules for some of
our key products and to ship such products to our customers in a timely fashion, which would adversely affect our sales,
profitability and customer relations.
Adverse economic conditions, natural disasters and other factors can similarly lead to financial distress or production
problems for other suppliers to our customers which can create disruptions to our production levels. Any such supply-chain
induced disruptions to our production are likely to create operating inefficiencies that will adversely affect our sales,
profitability and customer relations.
Our profitability and results of operations may be adversely affected by program launch difficulties.
The launch of new business is a complex process, the success of which depends on a wide range of factors, including the
production readiness of our manufacturing facilities and manufacturing processes and those of our suppliers, as well as factors
related to tooling, equipment, employees, initial product quality and other factors. Our failure to successfully launch material
new or takeover business could have an adverse effect on our profitability and results of operations.
We use important intellectual property in our business. If we are unable to protect our intellectual property or if a third party
makes assertions against us or our customers relating to intellectual property rights, our business could be adversely affected.
We own important intellectual property, including patents, trademarks, copyrights and trade secrets, and are involved in
numerous licensing arrangements. Our intellectual property plays an important role in maintaining our competitive position in a
number of the markets that we serve. Our competitors may develop technologies that are similar or superior to our proprietary
technologies or design around the patents we own or license. Further, as we expand our operations in jurisdictions where the
protection of intellectual property rights is less robust, the risk of others duplicating our proprietary technologies increases,
despite efforts we undertake to protect them. Developments or assertions by or against us relating to intellectual property rights,
and any inability to protect these rights, could have a material adverse impact on our business and our competitive position.
We could encounter unexpected difficulties integrating acquisitions and joint ventures.
We acquired businesses in recent years, and we expect to complete additional acquisitions and investments in the future
that complement or expand our businesses. The success of this strategy will depend on our ability to successfully complete
these transactions or arrangements, to integrate the businesses acquired in these transactions and to develop satisfactory
working arrangements with our strategic partners in the joint ventures. We could encounter unexpected difficulties in
completing these transactions and integrating the acquisitions with our existing operations. We also may not realize the degree
or timing of benefits anticipated when we entered into a transaction.
Several of our joint ventures operate pursuant to established agreements and, as such, we do not unilaterally control the
joint venture. There is a risk that the partners’ objectives for the joint venture may not be aligned with ours, leading to potential
differences over management of the joint venture that could adversely impact its financial performance and consequent
contribution to our earnings. Additionally, inability on the part of our partners to satisfy their contractual obligations under the
agreements could adversely impact our results of operations and financial position.
We could be adversely impacted by the costs of environmental, health, safety and product liability compliance.
Our operations are subject to environmental laws and regulations in the U.S. and other countries that govern emissions to
the air; discharges to water; the generation, handling, storage, transportation, treatment and disposal of waste materials; and the
cleanup of contaminated properties. Historically, environmental costs related to our former and existing operations have not
been material. However, there is no assurance that the costs of complying with current environmental laws and regulations, or
those that may be adopted in the future, will not increase and adversely impact us.
There is also no assurance that the costs of complying with current laws and regulations, or those that may be adopted in
the future, that relate to health, safety and product liability matters will not adversely impact us. There is also a risk of warranty
and product liability claims, as well as product recalls, if our products fail to perform to specifications or cause property
9
damage, injury or death. (See Notes 16 and 17 to our consolidated financial statements in Item 8 for additional information on
product liabilities and warranties.)
A failure of our information technology infrastructure could adversely impact our business and operations.
We recognize the increasing volume of cyber attacks and employ commercially practical efforts to provide reasonable
assurance that the risks of such attacks are appropriately mitigated. Each year, we evaluate the threat profile of our industry to
stay abreast of trends and to provide reasonable assurance our existing countermeasures will address any new threats identified.
Despite our implementation of security measures, our IT systems and those of our service providers are vulnerable to
circumstances beyond our reasonable control including acts of terror, acts of government, natural disasters, civil unrest and
denial of service attacks which may lead to the theft of our intellectual property, trade secrets or business disruption. To the
extent that any disruption or security breach results in a loss or damage to our data or an inappropriate disclosure of
confidential information, it could cause significant damage to our reputation, affect our relationships with our customers,
suppliers and employees, lead to claims against the company and ultimately harm our business. Additionally, we may be
required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
We participate in certain multi-employer pension plans which are not fully funded.
We contribute to certain multi-employer defined benefit pension plans for our union-represented employees in the U.S. in
accordance with our collective bargaining agreements. Contributions are based on hours worked except in cases of layoff or
leave where we generally contribute based on 40 hours per week for a maximum of one year. The plans are not fully funded as
of December 31, 2018. We could be held liable to the plans for our obligation, as well as those of other employers, due to our
participation in the plans. Contribution rates could increase if the plans are required to adopt a funding improvement plan, if the
performance of plan assets does not meet expectations or as a result of future collectively bargained wage and benefit
agreements. (See Note 12 to our consolidated financial statements in Item 8 for additional information on multi-employer
pension plans.)
Changes in interest rates and asset returns could increase our pension funding obligations and reduce our profitability.
We have unfunded obligations under certain of our defined benefit pension and other postretirement benefit plans. The
valuation of our future payment obligations under the plans and the related plan assets are subject to significant adverse
changes if the credit and capital markets cause interest rates and projected rates of return to decline. Such declines could also
require us to make significant additional contributions to our pension plans in the future. A material increase in the unfunded
obligations of these plans could also result in a significant increase in our pension expense in the future.
We may incur additional tax expense or become subject to additional tax exposure.
Our provision for income taxes and the cash outlays required to satisfy our income tax obligations in the future could be
adversely affected by numerous factors. These factors include changes in the level of earnings in the tax jurisdictions in which
we operate, changes in the valuation of deferred tax assets and liabilities, changes in our plans to repatriate the earnings of our
non-U.S. operations to the U.S. and changes in tax laws and regulations.
In December 2017, the U.S. introduced broad ranging tax reform with the passage of the Tax Cuts and Jobs Act ("Act")
legislation. Among the tax reforms was a reduction of the corporate tax rate from 35% to 21%. Although the tax reform in the
U.S. reduced the statutory tax rate to 21% for 2018, the effects of the lower rate were offset in part by the effects of increased
nondeductible expenses and the global intangible low taxed income (“GILTI”) provisions which result in a certain amount of
foreign earnings being subjected to U.S. tax. Considering the exclusion of foreign subsidiary dividends from taxation in the
U.S., we believe the Act will provide some greater flexibility to repatriate future earnings of our foreign operations.
Our income tax returns are subject to examination by federal, state and local tax authorities in the U.S. and tax authorities
outside the U.S. The results of these examinations and the ongoing assessments of our tax exposures could also have an adverse
effect on our provision for income taxes and the cash outlays required to satisfy our income tax obligations.
Our ability to utilize our net operating loss carryforwards may be limited.
Net operating loss carryforwards (NOLs) approximating $362 were available at December 31, 2018 to reduce future U.S.
income tax liabilities. Our ability to utilize these NOLs may be limited as a result of certain change of control provisions of the
U.S. Internal Revenue Code of 1986, as amended (Code). The NOLs are treated as losses incurred before the change of control
upon emergence from Chapter 11 and are limited to annual utilization of $84. There can be no assurance that trading in our
10
shares will not effect another change in control under the Code, which could further limit our ability to utilize our available
NOLs. Such limitations may cause us to pay income taxes earlier and in greater amounts than would be the case if the NOLs
were not subject to limitation.
An inability to provide products with the technology required to satisfy customer requirements would adversely impact our
ability to successfully compete in our markets.
The vehicular markets in which we operate are undergoing significant technological change, with increasing focus on
electrified and autonomous vehicles. These and other technological advances could render certain of our products obsolete.
Maintaining our competitive position is dependent on our ability to develop commercially-viable products and services that
support the future technologies embraced by our customers.
Failure to appropriately anticipate and react to the cyclical and volatile nature of production rates and customer demands in
our business can adversely impact our results of operations.
Our financial performance is directly related to production levels of our customers. In several of our markets, customer
production levels are prone to significant cyclicality, influenced by general economic conditions, changing consumer
preferences, regulatory changes, and other factors. Oftentimes the rapidity of the downcycles and upcycles can be severe.
Successfully executing operationally during periods of extreme downward and upward demand pressures can be challenging.
Our inability to recognize and react appropriately to the production cycles inherent in our markets can adversely impact our
operating results.
Our continued success is dependent on being able to retain and attract requisite talent.
Sustaining and growing our business requires that we continue to retain, develop and attract people with the requisite
skills. With the vehicles of the future expected to undergo significant technological change, having qualified people savvy in
the right technologies will be a key factor in our ability to develop the products necessary to successfully compete in the future.
As a global organization, we are also dependent on our ability to attract and maintain a diverse work force that is fully engaged
supporting our company’s objectives and initiatives.
Failure to maintain effective internal controls could adversely impact our business, financial condition and results of
operations.
Regulatory provisions governing the financial reporting of U.S. public companies require that we maintain effective
disclosure controls and internal controls over financial reporting across our operations in 33 countries. Effective internal
controls are designed to provide reasonable assurance of compliance, and, as such, they can be susceptible to human error,
circumvention or override, and fraud. Failure to maintain adequate, effective internal controls could result in potential financial
misstatements or other forms of noncompliance that have an adverse impact on our results of operations, financial condition or
organizational reputation. Our 2018 acquisition was exempt from certain regulatory internal control compliance requirements
this past year, but is required to be compliant in 2019.
Developments in the financial markets or downgrades to Dana's credit rating could restrict our access to capital and increase
financing costs.
At December 31, 2018, Dana had consolidated debt obligations of $1,801, with cash and marketable securities of $531 and
unused revolving credit capacity of $579. Our ability to grow the business and satisfy debt service obligations is dependent, in
part, on our ability to gain access to capital at competitive costs. External factors beyond our control can adversely affect
capital markets – either tightening availability of capital or increasing the cost of available capital. Failure on our part to
maintain adequate financial performance and appropriate credit metrics can also affect our ability to access capital at
competitive prices.
Risk Factors Related to our Securities
Provisions in our Restated Certificate of Incorporation and Bylaws may discourage a takeover attempt.
Certain provisions of our Restated Certificate of Incorporation and Bylaws, as well as the General Corporation Law of the
State of Delaware, may have the effect of delaying, deferring or preventing a change in control of Dana. Such provisions,
including those governing the nomination of directors, limiting who may call special stockholders’ meetings and eliminating
stockholder action by written consent, may make it more difficult for other persons, without the approval of our board of
11
directors, to make a tender offer or otherwise acquire substantial amounts of common stock or to launch other takeover
attempts that a stockholder might consider to be in such stockholder’s best interest.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Type of Facility
North
America
Europe
South
America
Asia
Pacific
Total
Light Vehicle
Manufacturing/Distribution
Service/Assembly
Administrative Offices
Technical and Engineering Centers
Commercial Vehicle
Manufacturing/Distribution
Service/Assembly
Technical and Engineering Centers
Off-Highway
Manufacturing/Distribution
Service/Assembly
Administrative Offices
Technical and Engineering Centers
Power Technologies
Manufacturing/Distribution
Technical and Engineering Centers
Corporate and other
Administrative Offices
Technical and Engineering Centers - Multiple Segments
12
2
1
7
1
1
2
3
10
2
3
44
4
5
13
17
1
1
4
1
46
4
3
1
1
9
10
1
1
7
2
7
1
2
3
2
36
30
3
1
1
22
1
1
17
28
2
1
16
2
8
2
135
As of December 31, 2018, we operated in 33 countries and had 135 major facilities housing manufacturing and distribution
operations, service and assembly operations, technical and engineering centers and administrative offices. In addition to the
seven stand-alone technical and engineering centers in the table above, we have twelve technical and engineering centers
housed within manufacturing sites. We lease 65 of these facilities and own the remainder. We believe that all of our property
and equipment is properly maintained.
Our world headquarters is located in Maumee, Ohio. This facility and other facilities in the greater Detroit, Michigan and
Maumee, Ohio areas house functions that have global or North American regional responsibility for finance and accounting,
treasury, risk management, legal, human resources, procurement and supply chain management, communications and
information technology.
Item 3. Legal Proceedings
We are a party to various pending judicial and administrative proceedings that arose in the ordinary course of business.
After reviewing the currently pending lawsuits and proceedings (including the probable outcomes, reasonably anticipated costs
and expenses and our established reserves for uninsured liabilities), we do not believe that any liabilities that may result from
these proceedings are reasonably likely to have a material adverse effect on our liquidity, financial condition or results of
operations. Legal proceedings are also discussed in Note 16 to our consolidated financial statements in Item 8.
12
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market information — Our common stock trades on the New York Stock Exchange (NYSE) under the symbol "DAN."
Holders of common stock — Based on reports by our transfer agent, there were approximately 2,945 registered holders of our
common stock on January 31, 2019.
Reference is made to the Equity Compensation Plan Information section of Item 12 for certain information regarding our
equity compensation plans.
Stockholder return — The following graph shows the cumulative total shareholder return for our common stock since
December 31, 2013. The graph compares our performance to that of the Standard & Poor’s 500 Stock Index (S&P 500) and the
Dow Jones US Auto Parts Index. The comparison assumes $100 was invested at the closing price on December 31, 2013. Each
of the returns shown assumes that all dividends paid were reinvested.
Performance chart
Index
Dana Incorporated
S&P 500
Dow Jones US Auto Parts Index
12/31/2013
100.00
$
100.00
100.00
12/31/2014
111.60
$
113.69
110.63
12/31/2015
73.05
$
115.26
106.53
12/31/2016
100.15
$
129.05
112.29
12/31/2017
166.50
$
157.22
145.74
12/31/2018
76.60
$
150.33
101.11
Issuer's purchases of equity securities — Our Board of Directors approved an expansion of our existing common stock share
repurchase program from $100 to $200 on March 24, 2018. The program expires on December 31, 2019. We repurchase shares
utilizing available excess cash either in the open market or through privately negotiated transactions. The stock repurchases are
subject to prevailing market conditions and other considerations. No shares of our common stock were repurchased under the
program during the fourth quarter of 2018. Approximately $175 remained available under the program for further share
repurchases as of December 31, 2018.
Annual meeting — We will hold an annual meeting of shareholders on May 1, 2019.
13
Item 6. Selected Financial Data
Operating Results
Net sales
Earnings from continuing operations before income taxes
Income from continuing operations
Income (loss) from discontinued operations
Net income
Net income attributable to the parent company
Redeemable noncontrolling interests adjustment to
redemption value
Preferred stock dividend requirements
Net income available to common stockholders
Net income per share available to common stockholders
Basic
Income from continuing operations
Income (loss) from discontinued operations
Net income
Diluted
Income from continuing operations
Income (loss) from discontinued operations
Net income
Depreciation and amortization of intangibles
Net cash provided by operating activities
Purchases of property, plant and equipment
Financial Position
Cash and cash equivalents and marketable securities
Total assets
Long-term debt, less debt issuance costs
Total debt
Common stock and additional paid-in capital
Treasury stock
Total parent company stockholders' equity
Book value per share
Common Share Information
Dividends declared per common share
Weighted-average common shares outstanding
Basic
Diluted
Year Ended December 31,
2018
2017
2016
2015
2014
$
$
$
8,143
494
440
—
440
7,209
380
116
—
116
$
$
5,826
215
653
—
653
6,060
292
176
4
180
6,617
260
343
(15)
328
$
427
$
111
$
640
$
159
$
319
$
$
$
$
$
$
$
—
—
427
2.94
—
2.94
2.91
—
2.91
270
568
325
531
5,918
1,755
1,783
2,370
(119)
1,345
9.27
$
$
$
$
$
$
6
—
105
0.72
—
0.72
0.71
—
0.71
233
554
393
643
5,644
1,759
1,799
2,356
(87)
1,013
6.98
$
$
$
$
$
$
—
—
640
4.38
—
4.38
4.36
—
4.36
182
384
322
737
4,860
1,595
1,664
2,329
(83)
1,157
7.92
$
$
$
$
$
$
—
—
159
0.98
0.02
1.00
0.97
0.02
0.99
174
406
260
953
4,301
1,553
1,575
2,313
(1)
728
4.58
$
$
$
$
$
$
—
7
312
2.07
(0.10)
1.97
1.93
(0.09)
1.84
213
510
234
1,290
4,893
1,588
1,653
2,642
(33)
1,080
6.83
0.40
$
0.24
$
0.24
$
0.23
$
0.20
145.0
146.5
145.1
146.9
146.0
146.8
159.0
160.0
158.0
173.5
14
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions)
Management's discussion and analysis of financial condition and results of operations should be read in conjunction with
the financial statements and accompanying notes in Item 8.
Management Overview
We are a global provider of high-technology products to virtually every major vehicle and engine manufacturer in the
world. We also serve the stationary industrial market. Our technologies include drive and motion products (axles, driveshafts,
planetary hub drives, power-transmission products, transmissions, electric motors, inverters, controls and tire-management
products); sealing solutions (gaskets, seals, heat shields and fuel-cell plates); thermal-management technologies (transmission
and engine oil cooling, battery and electronics cooling and exhaust-gas heat recovery); and fluid-power products (pumps,
valves, motors and controls). We serve our global light vehicle, medium/heavy vehicle and off-highway markets through four
business units – Light Vehicle Driveline Technologies (Light Vehicle), Commercial Vehicle Driveline Technologies
(Commercial Vehicle), Off-Highway Drive and Motion Technologies (Off-Highway) and Power Technologies, which is the
center of excellence for sealing and thermal-management technologies that span all customers in our on-highway and off-
highway markets. We have a diverse customer base and geographic footprint which minimizes our exposure to individual
market and segment declines. In 2018, 50% of our sales came from North American operations and 50% from operations
throughout the rest of the world. Our sales by operating segment were Light Vehicle – 44%, Commercial Vehicle – 20%, Off-
Highway – 22% and Power Technologies – 14%.
Operational and Strategic Initiatives
Our enterprise strategy builds on our strong technology foundation and leverages our resources across the organization
while maintaining a customer centric focus, expanding our global markets, and accelerating the commercialization of new
technology as we evolve into the era of vehicle electrification.
Central to our strategy is leveraging our core operations by sharing our capabilities, technology, assets and knowledge
across the enterprise, leading to improved execution and increased customer satisfaction. Through streamlining and
rationalizing our manufacturing activities we have significantly improved our profitability and margins, and we believe
additional opportunities remain to further optimize our manufacturing footprint and improve our cost performance. Leveraging
investments across multiple end markets and making disciplined, value enhancing acquisitions will allow us to bring product to
market faster, grow our top-line sales and enhance financial returns.
Strengthening customer centricity and expanding global markets are key elements of our strategy that focus on market
penetration. Foundational to growing the business is directing the entire organization to putting the customer at the center of
our value system and shifting from transactional to relationship-based interactions. These relationships are built on a foundation
of providing unparalleled technology with exceptional quality, delivery and value. With even stronger relationships we will be
better positioned to support our customers’ most important global and flagship programs and capitalize on future growth
opportunities.
We continue to enhance and expand our global footprint, optimizing it to capture growth across all of our end markets.
Specifically, our manufacturing and technology center footprint positions us to support customers globally – an important
factor as many of our customers are increasingly focused on common solutions for global platforms. Our acquisition of the
Brevini operations in 2017 (see Acquisitions section below) provided us with operational presence in eight additional countries,
while also providing us with additional opportunities to leverage our global footprint to support the needs across all our
businesses. Shortly following the acquisition, we were able to consolidate certain Brevini activities in China, allowing us to
utilize an acquired facility to support our Power Technologies business in China.
While growth opportunities are present in each region of the world, we have a primary focus on building our presence and
local capability in the Asia Pacific region. Over the last few years, we have opened two new engineering facilities in the region,
gear manufacturing facilities in India and Thailand, and are currently developing a new light vehicle assembly facility in China
that is scheduled to commence operations in 2019.
In addition to Asia, we see further growth opportunity in Eastern Europe. A new gear manufacturing facility in Hungary
commenced operations in 2018. This is our third facility in the country and will give us the capability to cost effectively
manufacture gears, one of our core technologies, and efficiently service our customers within the region.
15
The final two elements of our enterprise strategy, commercializing new technology and accelerating hybridization and
electrification, focus on opportunities for product expansion. Bringing new innovations to market as industry leading products
will drive growth as our new products and technology provide our customers with cutting-edge solutions, address end user
needs and capitalize on key market trends. An example is our industry leading electronically disconnecting all-wheel drive
technology, which we believe is the most fuel efficient rapidly disconnecting system in the market, which will be utilized on a
Ford Motor Company global vehicle platform – opening up new commercial channels for us in the passenger car, crossover and
sport utility vehicle markets. The above-referenced new assembly facility in China will support this new program. We are
continuing to re-purpose our internal resources to focus additional efforts on advancing technologies that will support our
electrification initiatives, while also advancing additive manufacturing and other disruptive technologies.
Initiatives to capitalize on evolving hybridization and electrification vehicle trends are a core ingredient of our current
strategy. In addition to our current technologies in battery cooling and fuel cells, this element of our strategy is leveraging our
electronics controls expertise across all our business units and applications such as advanced vehicle hybridization and
electrification initiatives. We are working with customers to develop new solutions for those markets where electrification will
be adopted first such as hybrids, buses and urban delivery vehicles. These new solutions, which include advanced electric
propulsion systems with fully integrated motors and controls, are included in our recently launched Spicer® Electrified™
portfolio of products. Working with our joint venture partner, our latest integrated e-axle was launched during the first quarter
of 2018 in a bus application in China. Our investment in TM4 Inc. (TM4) in June 2018 (see Acquisitions section below) adds
electric motors, power inverters and control systems to our product portfolio enhancing our range of hybrid and electric vehicle
solutions for customers across all three of our end markets.
The development and implementation of our enterprise strategy is positioning Dana to grow profitably due to increased
customer focus as we leverage our core capabilities, expand into new markets, develop and commercialize new technologies
including for hybrid and electric vehicles.
Capital Structure Initiatives
In addition to investing in our business, we plan to continue prioritizing the allocation of capital to reduce debt and
maintain a strong financial position. In January 2018, we announced our intention to drive toward investment grade metrics as
part of a balanced approach to our capital allocation priorities and our goal of further strengthening our balance sheet.
Shareholder return actions — When evaluating capital structure initiatives, we balance our growth opportunities and
shareholder value initiatives with maintaining a strong balance sheet and access to capital. Our strong financial position has
enabled us to simplify our capital structure while providing returns to our shareholders in the form of cash dividends and a
reduction in the number of shares outstanding. From program inception in 2012 through December 31, 2017, we returned
$1,481 of cash to shareholders by redeeming all of our preferred stock and repurchasing common shares. We repurchased
approximately 74 million shares, inclusive of the common share equivalent reduction resulting from redemption of preferred
shares. With the availability under the previous authorization having expired, our Board of Directors authorized a new $200
share repurchase program effective in 2018 which expires at the end of 2019. During 2018, we used cash of $25 to repurchase
common shares under the current program. We declared and paid quarterly common stock dividends over the past five and a
half years, raising the dividend from five cents to six cents per share in the second quarter of 2015. In recognition of our strong
financial performance and confidence in our financial outlook, our Board approved an additional four cents per share increase
in the quarterly dividend to ten cents per share in 2018.
Financing actions — We have taken advantage of the lower interest rate environment to complete refinancing transactions that
resulted in lower effective interest rates while extending maturities. In 2017, we completed a $400 2025 note offering and
entered into a $275 floating rate term loan. The proceeds of these issuances were used to repay higher cost international debt
and to repay $450 of 2021 notes. In connection with amending our credit agreement to effectuate the term loan, we also
increased our revolving credit facility by $100, providing us with $600 of back-up liquidity through 2022. Additionally, in 2017
we commenced the process of terminating one of our U.S. pension plans. This action allows us to effectively eliminate pension
obligations for the terminated plan and the associated future funding risk associated with interest rate and other market
developments. We expect the termination action to be completed in 2019.
Other Initiatives
Aftermarket opportunities — We have a global group dedicated to identifying and developing aftermarket growth opportunities
that leverage the capabilities within our existing businesses – targeting increased future aftermarket sales. In January 2016, we
completed the acquisition of Magnum® Gaskets' (Magnum) aftermarket distribution business, providing us access to new
customers for sealing products and an additional aftermarket channel for other products. Powered by recognized brands such as
16
Dana®, Spicer®, Victor Reinz®, Glaser®, GWB®, Thompson®, Tru-Cool®, SVL®, and Transejes™, Dana delivers a broad
range of aftermarket solutions – including genuine, all makes, and value lines – servicing passenger, commercial and off-
highway vehicles across the globe.
Selective acquisitions — Although transformational opportunities like the GKN plc driveline business transaction that we
pursued in 2018 will be considered when strategically and economically attractive, our acquisition focus is principally directed
at “bolt-on” or adjacent acquisition opportunities that have a strategic fit with our existing core businesses, particularly
opportunities that support our enterprise strategy and enhance the value proposition of our product offerings. Any potential
acquisition will be evaluated in the same manner we currently consider customer program opportunities and other uses of
capital – with a disciplined financial approach designed to ensure profitable growth and increased shareholder value.
Re-focusing advanced technology resources — When we obtained Variglide® planetary variator technology through an
acquisition in 2012, the intended market focus was continuously variable transmissions for combustion engine vehicle
applications. With potential key customers for this technology shifting their focus to electrification and other areas, we
determined that it was appropriate to fully impair the related $20 in-process research and development intangible asset that was
recorded as part of the 2012 acquisition.
Acquisitions
SME — On January 11, 2019, we acquired a 100% ownership interest in the S.M.E. S.p.A. (SME). SME designs, engineers,
and manufactures low-voltage AC induction and synchronous reluctance motors, inverters, and controls for a wide range of off-
highway electric vehicle applications, including material handling, agriculture, construction, and automated-guided vehicles.
The addition of SME's low-voltage motors and inverters, which are primarily designed to meet the evolution of electrification
in off-highway equipment, significantly expands Dana's electrified product portfolio.
We paid $88 at closing, consisting of $62 in cash on hand and a note payable of $26 which allows for net settlement of
potential contingencies as defined in the purchase agreement. The note is payable in five years and bears annual interest of 5%.
Oerlikon Drive Systems — On July 30, 2018, we entered into a definitive agreement to purchase the Drive Systems segment of
the Oerlikon Group (Oerlikon Drive Systems). Oerlikon Drive Systems is a global manufacturer of high-precision gears,
planetary hub drives for wheeled and tracked vehicles, and products, controls, and software that support vehicle electrification
across the mobility industry. The business employs approximately 5,900 people and operates 10 manufacturing and engineering
facilities in China, India, Italy, the United Kingdom, and the United States, with two additional facilities under construction in
China. The results of operations of Oerlikon Drive Systems will be reported in our Off-Highway operating segment from the
date of acquisition.
Under the terms of the agreement, we will acquire Oerlikon Drive Systems for approximately 625 Swiss francs, inclusive
of required settlements of outstanding debt obligations Oerlikon Drive Systems has with Oerlikon Group. Committed financing
has been arranged to complete the transaction. We entered into a Swiss franc notional deal contingent forward to economically
hedge the purchase price. Subject to customary regulatory approval, the acquisition is expected to close in the first quarter of
2019.
TM4 — On June 22, 2018, we acquired a 55% ownership interest in TM4 from Hydro-Québec. TM4 designs and manufactures
motors, power inverters and control systems for electric vehicles, offering a complementary portfolio to Dana's electric
gearboxes and thermal-management technologies for batteries, motors and inverters. The transaction establishes Dana as the
only supplier with full e-Drive design, engineering and manufacturing capabilities – offering electro mechanical propulsion
solutions to each of our end markets. TM4's technology and advanced manufacturing facility in Boucherville, Quebec will add
to our global technical centers, and their 50% interest in a China joint venture provides an opportunity to enhance our position
in the fastest growing market for electric vehicles. Inclusive of the joint venture, TM4 has approximately 140 employees. Dana
is consolidating TM4 as the governing documents provide Dana with a controlling financial interest. The TM4 acquisition
added $11 of sales and de minimis adjusted EBITDA in 2018. The results of operations of the TM4 business are reported in our
Commercial Vehicle operating segment from the date of acquisition.
Cash on hand of $125 was used to acquire the interest in TM4. Reference is made to Note 2 of the consolidated financial
statements in Item 8 for the allocation of purchase consideration to assets acquired and liabilities assumed.
USM – Warren — On March 1, 2017, we completed the purchase of Warren Manufacturing LLC (USM – Warren), which holds
certain assets and liabilities of the former Warren, Michigan production unit of U.S. Manufacturing Corporation (USM). With
this transaction, we acquired proprietary tube-manufacturing processes and light-weighting intellectual property for axle tubes
17
and shafts. Significant content was previously purchased from USM. Vertically integrating this content strengthens the supply
chain for several of our most strategic customers. The new product and process technologies for light-weighting will assist our
customers in achieving their sustainability and fuel efficiency goals. The USM – Warren acquisition added $96 of sales and $12
of adjusted EBITDA in 2017. The results of operations of the USM – Warren business are reported within our Light Vehicle
operating segment.
We paid $104 for this business at closing, including $25 to effectively settle trade payable obligations originating from
product purchases Dana made from USM prior to the acquisition. No debt was assumed with this transaction which was funded
using cash on hand. Post-closing purchase price adjustments for working capital and other items, which totaled less than $1,
were received in last year's third quarter. Reference is made to Note 2 of the consolidated financial statements in Item 8 for the
allocation of purchase consideration to assets acquired and liabilities assumed.
BFP and BPT — On February 1, 2017, we acquired 80% ownership interests in Brevini Fluid Power S.p.A. (BFP) and Brevini
Power Transmission S.p.A. (BPT) from Brevini Group S.p.A. (Brevini). The acquisition expands our Off-Highway operating
segment product portfolio to include technologies for tracked vehicles, doubling our addressable market for off-highway
driveline systems and establishing Dana as the only off-highway solutions provider that can manage the power to both move
the equipment and perform its critical work functions. This acquisition also brings a platform of technologies that can be
leveraged in our light and commercial vehicle end markets, helping to accelerate our hybridization and electrification
initiatives. The BFP and BPT acquisitions added $401 of sales and $40 of adjusted EBITDA in 2017. The results of operations
of these businesses are reported within our Off-Highway operating segment.
We paid $181 at closing using cash on hand and assumed debt of $181 as part of the transaction. In December 2017, a
purchase price reduction of $9 was agreed under the sale and purchase agreement provisions for determination of the net
indebtedness and net working capital levels of BFP and BPT as of the closing date. In connection with the acquisition of BFP
and BPT, Dana agreed to purchase certain real estate being leased by BPT from a Brevini affiliate for €25. Completion of the
real estate purchase and receipt of the purchase price adjustment occurred in this year's second quarter with a net cash payment
of $20. Reference is made to Note 2 of the consolidated financial statements in Item 8 for the allocation of purchase
consideration to assets acquired and liabilities assumed.
On August 8, 2018, we entered into an agreement to acquire Interfind S.p.A.'s, formerly Brevini Group S.p.A., remaining
20% ownership interests in BFP and BPT and to settle all claims between the parties. We paid $43 to acquire Interfind S.p.A.'s
remaining ownership interests and received $10 in settlement of all pending and future claims.
SIFCO — On December 23, 2016, we acquired strategic assets of the commercial vehicle steer axle systems and related forged
components businesses of SIFCO. The acquisition enables us to enhance our vertically integrated supply chain, which will
further improve our cost structure and customer satisfaction by leveraging SIFCO's extensive experience and knowledge of
sophisticated forged components. In addition to strengthening our position as a central source for products that use forged and
machined parts throughout the region, this acquisition enables us to better accommodate the local content requirements of our
customers, which reduces their import and other region-specific costs.
As part of the acquisition, we added two manufacturing facilities and approximately 1,400 employees. The strategic assets
were acquired by Dana free and clear of any liens, claims or encumbrances and without assumption of any legacy liabilities of
SIFCO. We had sales of $86 in 2016 resulting from business conducted under the previous supply agreement with SIFCO. The
additional business relationships obtained as a result of the acquisition generated incremental sales of $44 in 2017. The results
of operations of the SIFCO related business are reported within our Commercial Vehicle operating segment.
The SIFCO purchase price was $70, with the payment of $10 of the purchase price deferred until December 2017 pending
any claims under indemnification provisions of the purchase agreement. In December 2017, the parties to the SIFCO
transaction entered into a settlement agreement. Under this agreement, $3 was paid to the seller with the remaining deferred
purchase price of $7 being retained by Dana to settle indemnification claims. During 2018, claim settlements reduced the
retained purchase price by $3. After the settlement of all indemnification claims, any remaining deferred purchase price will be
paid to the seller.
Magnum — On January 29, 2016, we acquired the aftermarket distribution business of Magnum, a U.S.-based supplier of
gaskets and sealing products for automotive and commercial vehicle applications, for a cash payment of $18. Assets acquired
included trademarks and trade names, customer relationships and goodwill. The results of operations of Magnum are reported
within our Power Technologies operating segment.
18
Divestitures
Brazil Suspension Components Operations — In December 2017, we entered into an agreement to divest our Brazil suspension
components business (the disposal group). This business was non-core to our enterprise strategy and under-performing
financially. As such, we agreed to divest the business for no consideration and contribute $10 of additional cash to the business
prior to closing. We classified the disposal group as held for sale at December 31, 2017, recognizing a $27 loss to adjust the
carrying value of the net assets to fair value and to recognize the liability for the additional cash required to be contributed to
the business prior to closing. During the first quarter of 2018, we made the required cash contribution to the disposal group.
After being unable to complete the transaction with the counterparty to the December 2017 agreement, we entered into an
agreement with another third party in June 2018. The transaction with the new counterparty closed in July 2018 and we
received cash proceeds of $2. We reversed $3 of the previously recognized $27 pre-tax loss, inclusive of the proceeds received
in July 2018, during the second quarter of 2018. Reference is made to Note 3 of our consolidated financial statements in Item 8
for additional information. Sales of the divested business approximated $23 in 2017 and $12 in 2018 through the date of sale.
Nippon Reinz — On November 30, 2016, we sold our 53.7% interest in Nippon Reinz Co. Ltd. (Nippon Reinz) to Nichias
Corporation. Dana received net cash proceeds of $5 and recognized a pre-tax loss of $3 on the divestiture of Nippon Reinz,
inclusive of the derecognition of the related noncontrolling interest. Nippon Reinz had sales of $42 in 2016 through the
transaction date.
Dana Companies — On December 30, 2016, we completed the divestiture of Dana Companies, LLC (DCLLC), a consolidated
wholly-owned limited liability company that was established as part of our reorganization in 2008 to hold and manage personal
injury asbestos claims retained by the reorganized Dana Corporation, which was merged into DCLLC. The assets of DCLLC at
time of sale included cash and marketable securities along with the rights to insurance coverage in place to satisfy a significant
portion of its liabilities. We received net cash proceeds of $29 at closing on December 30, 2016, with $3 retained by the
purchaser subject to the satisfaction of certain future conditions. We recognized a pre-tax loss of $77 in 2016 upon completion
of the transaction. We received payment of the retained $3 in the second quarter of 2017 and recognized such amount as
income. Following completion of the sale, Dana has no obligation with respect to current or future asbestos claims. The sale of
this business also enhanced our available liquidity since the net proceeds from the sale are available for use in our core
businesses.
Segments
We manage our operations globally through four operating segments. Our Light Vehicle and Power Technologies segments
primarily support light vehicle original equipment manufacturers (OEMs) with products for light trucks, SUVs, CUVs, vans
and passenger cars. The Commercial Vehicle segment supports the OEMs of on-highway commercial vehicles (primarily trucks
and buses), while our Off-Highway segment supports OEMs of off-highway vehicles (primarily wheeled vehicles used in
construction, mining and agricultural applications).
19
Trends in Our Markets
Global Vehicle Production
(Units in thousands)
North America
Light Truck (Full Frame)
Light Vehicle Engines
Medium Truck (Classes 5-7)
Heavy Truck (Class 8)
Agricultural Equipment
Construction/Mining Equipment
Europe (including Eastern Europe)
Light Truck
Light Vehicle Engines
Medium/Heavy Truck
Agricultural Equipment
Construction/Mining Equipment
South America
Light Truck
Light Vehicle Engines
Medium/Heavy Truck
Agricultural Equipment
Construction/Mining Equipment
Asia-Pacific
Light Truck
Light Vehicle Engines
Medium/Heavy Truck
Agricultural Equipment
Construction/Mining Equipment
North America
Dana 2019 Outlook
2018
4,275 to 4,575
14,700 to 15,000
255 to 265
325 to 345
50 to 60
175 to 185
11,200 to 11,500
23,700 to 24,200
505 to 520
200 to 215
350 to 370
1,300 to 1,500
3,000 to 3,100
105 to 115
30 to 35
8 to 12
30,800 to 32,000
54,700 to 55,700
1,700 to 1,900
650 to 680
490 to 510
4,493
15,332
270
320
56
176
10,727
23,098
506
204
351
1,320
2,797
113
34
9
29,783
52,293
2,004
653
495
Actual
2017
4,331
14,828
246
255
54
157
10,276
24,096
486
202
309
1,235
2,412
89
33
9
29,495
52,543
2,039
653
441
2016
4,220
15,913
233
228
53
150
9,306
23,287
463
193
290
980
2,112
70
29
10
27,465
50,533
1,661
648
396
Light vehicle markets — Improving economic conditions during the past few years have contributed to strong light vehicle
sales and production levels in North America. Overall economic conditions in North America have been relatively favorable
with improving employment levels, strong consumer confidence levels and comparatively low/stable fuel prices. Strong sales
levels the past few years have significantly reduced the built-up demand to replace older vehicles. As such, the overall North
America light vehicle market began to show signs of weakening demand levels in 2017, with total light vehicle sales declining
about 2% from 2016. To date, these effects have been most notable in passenger car sales which declined about 5% in 2016 and
another 9% in 2017. Light vehicle sales in 2018 were down slightly compared with 2017, with higher light truck sales being
offset by lower passenger car sales. Helped by continued low fuel prices, light truck market demand has been relatively strong.
In the full frame light truck segment where many of our programs are focused, sales increased about 6% in 2016 and another
3% in 2017. Full frame light truck sales for 2018 were about 3% higher than 2017. Production levels have generally been
reflective of light vehicle sales. Production of approximately 17.8 million light vehicles in 2016 declined about 4% to 17.1
million units in 2017. Light vehicle production of 17.0 million units in 2018 was comparable with 2017. Light vehicle engine
production was impacted more by the developments in the passenger car segment, with production in 2017 declining about 7%
versus 2016 after increasing 3% year-over-year in 2016. Light vehicle engine production increased about 3% in 2018 compared
to 2017. In the key full frame light truck segment, production levels in 2017 increased about 3% compared to 2016 following
an increase of 7% in 2016 from the preceding year. 2018 full frame truck production was about 4% higher compared to 2017.
Days' supply of total light vehicles in the U.S. at the end of December the past three years has been around 61 to 62 days. In the
full frame light truck segment, days supply in inventory at December 31, 2018 approximated 72 days, up from 64 days at
December 31, 2017 and 65 days at the end of December 2016.
The North America light truck markets are expected to decline in 2019, with the effect of stable manufacturing and
construction environments being offset by the impact of rising interest rates, less pent-up demand, increasing demand for used
vehicles and higher levels of consumer debt. We expect Dana sales to continue to benefit from our net new business backlog as
20
additional key customer programs commence production in 2019, more than offsetting lower overall light truck demand. Our
current outlook for 2019 has full frame light truck production at 4.3 to 4.6 million vehicles, up 2% to down 5% compared with
2018 production of about 4.5 million vehicles. We expect light vehicle engine production in 2019 to be 14.7 to 15.0 million
units, down 2 to 4% compared to 2018.
Medium/heavy vehicle markets — The commercial vehicle market is similarly impacted by many of the same macroeconomic
developments impacting the light vehicle market. Production levels in the heavy truck segment were scaled back in 2016 in
response to there being more trucks in service than required for freight demand. Class 8 production in 2016 declined 29% from
2015 while medium duty Classes 5-7 production was relatively stable. With the improving economic conditions in 2017 and
scaled down build in 2016, there was increased freight-hauling demand and a strengthening order book for new trucks. Class 8
unit production was up about 12% from 2016 while medium-duty production was about 6% higher. As expected, strong
demand has continued into 2018, with Class 8 production up 25% and medium-duty truck production being up 10% compared
to 2017.
Class 8 order levels continue to be solid, positioning 2019 to be a strong production year. With the strong Class 8 order
book and an expectation that the North America economic environment will continue to be strong in 2019, our outlook for 2019
Class 8 production in North America is 325,000 to 345,000 trucks, a level which is up about 2 to 8% compared with the 2018
build level. After two years of consecutive growth in the medium duty segment, we expect full year 2019 production to be in
the range of 255,000 to 265,000 vehicles, down 2 to 6% from 2018.
Markets Outside of North America
Light vehicle markets — Signs of an improved overall European economy have been evident, albeit mixed at times, during the
past few years. Reflective of a modestly improved economy, light vehicle production levels have increased with light vehicle
engine production being up about 3% in both 2016 and 2017, and light truck production being higher by 9 to 10% in 2016 and
2017. Overall market stability continued in 2018 as light vehicle engine production was down 4% and light truck production
was up 4%. The United Kingdom's decision to withdraw from the European Union, along with political developments in other
European countries, continues to cast an element of uncertainty around continued economic improvement in the region. At
present, we expect overall stable to improving economic conditions across the entire region in 2019. Our full year 2019 outlook
expects an increase in light truck and light vehicle engine production of around 3 to 7% from 2018. The economic climate in
many South American markets the past few years has been weak, volatile and challenging. After significant production declines
in 2014 and 2015, there were signs that demand levels had bottomed out in 2016. Production levels in 2017 and 2018 were
reflective of an improving market, with light vehicle engine production up 14% and 16% and light truck production up 26%
and 7%, respectively. At present, we expect further economic recovery in the region in 2019. Our full year 2019 outlook has
light truck production down 2% to up 14% from 2018, with light vehicle engine production up 7 to 11% compared to this past
year. The Asia Pacific markets have been relatively strong the past few years. Light truck production increased 14% in 2016
and was up another 7% in 2017, while light vehicle engine production increased 7% in 2016 and another 4% in 2017.
Production leveled off in 2018, with both light truck and light vehicle engine production being flat compared to 2017 levels.
Our full year 2019 outlook for the Asia Pacific light vehicle markets is for continued strong production levels, with the light
truck segment up 3 to 7% from 2018 and light engine production being up 5 to 7%.
Medium/heavy vehicle markets — Some of the same factors referenced above that affected light vehicle markets outside of
North America similarly affected the medium/heavy markets. A strengthening European market the past three years contributed
to medium/heavy truck production increasing 7% in 2016, 5% in 2017 and another 4% in 2018. Our 2019 full year outlook
anticipates continued strong production at levels relatively comparable with 2018. A weakening South America economic
climate beginning in 2014 led to a significant decline in medium/heavy truck production in 2015 and 2016. As with the light
vehicle markets, improving economic conditions in the region led to medium/heavy truck production increasing 27% in 2017
and an additional 27% in 2018. We expect economic conditions to be relatively stable in 2019, with medium/heavy truck
production being down 7% to up 2% compared to 2018. A stronger than expected China market and an improving India market
contributed to increases in medium/heavy truck production in the Asia Pacific region of about 20% in 2016 and another 23% in
2017. Production levels in 2017 were driven partly by regulatory changes in China limiting axle load and weight. With some
pre-buy in 2017 having likely occurred during the second half of 2017 as a result of the China regulatory actions and some
weakening in this past year's China market, 2018 medium/heavy truck production was down 2% from 2017. Our full year 2019
outlook reflects a continued downward trend with medium/heavy truck production being down 5 to 15% from 2018, reflecting
modal transportation shifts and technology advances putting downward pressure on medium/heavy truck demand.
Off-Highway Markets — Our off-highway business has a large presence outside of North America, with more than 75% of its
sales coming from Europe and more than 10% from South America and Asia Pacific combined. We serve several segments of
the diverse off-highway market, including construction, agriculture, mining and material handling. Our largest markets are the
21
construction/mining and agricultural equipment segments which had been relatively weak for several years until beginning to
rebound in 2017. Global demand in the agriculture market was down about 11% in 2014, 7% in 2015 and 5% in 2016. The
construction/mining segment weakened about 4% in 2014, 11% in 2015 and 3% in 2016. These markets began to rebound in
2017 along with general economic recovery in several global markets, and in particular the European markets where this
segment has a significant presence. During 2017, global production levels in the construction/mining and agriculture segments
increased by about 8% and 2%. The uplift in market demand continued in 2018 with global production levels in the
construction/mining and agriculture segments increasing an additional 13% and 1%, respectively. With generally stable to
improving economic conditions in all regions, further strengthening of demand is expected in 2019. Our 2019 outlook has
production in the construction/mining segment flat to up 4% and the agriculture segment being down 2% to up 5% from 2018.
Foreign Currency
With 56% of our sales coming from outside the U.S., international currency movements can have a significant effect on
our sales and results of operations. The euro zone countries and Brazil accounted for 46% and 9% of our 2018 non-U.S. sales,
respectively, while Thailand, Mexico and China each accounted for 7%. Although sales in Argentina and South Africa are each
less than 5% of our non-U.S. sales, exchange rate movements of those countries have been volatile and significantly impacted
sales from time to time. Translation of our international activities at average exchange rates in 2016 as compared to average
rates in 2015 reduced sales by $173. A weaker Argentine peso, British pound, Mexican peso, South African rand and Brazilian
real reduced sales by $70, $23, $19, $18 and $11, while the euro was relatively stable in 2016. International currencies
strengthened against the U.S. dollar in 2017, increasing 2017 sales by $54. A stronger euro, Brazilian real, Thai baht and South
African rand more than offset a weaker Argentine peso. Overall international currencies continued to strengthen against the
U.S. dollar in 2018, with sales increasing by $16 principally due to a stronger euro, Thai baht and Chinese renminbi, partially
offset by a weaker Brazilian real, Argentine peso and Indian rupee. Based on our current sales and exchange rate outlook for
2019, we expect overall stability in international currencies with a modest reduction to sales. At sales levels in our current
outlook for 2019, a 5% movement on the euro would impact our annual sales by approximately $110. A 5% change on the
Brazilian real, Thai baht, Mexican peso, Chinese yuan, British pound and Indian rupee rates would impact our annual sales in
each of those countries by approximately $10 to $20.
During the second quarter of 2018, we determined that Argentina's economy met the GAAP definition of a highly
inflationary economy. In assessing Argentina's economy as highly inflationary we considered its three-year cumulative inflation
rate along with other factors. As a result, effective July 1, 2018, the U.S. dollar is the functional currency for our Argentine
operations, rather than the Argentine peso. Beginning July 1, 2018, peso-denominated monetary assets and liabilities are
remeasured into U.S. dollars using current Argentine peso exchange rates with resulting translation gains or losses included in
results of operations. Nonmonetary assets and liabilities are remeasured into U.S. dollar using historic Argentine peso exchange
rates. Reference is made to Note 1 of our consolidated financial statements in Item 8 for additional information.
International Markets
Trade actions initiated by the U.S. imposing tariffs on imports have been met with retaliatory tariffs by other countries,
adding a level of tension and uncertainty to the global economic environment. In November 2018, the U.S., Mexico and
Canada executed the U.S.-Mexico-Canada Agreement (USMCA), the successor agreement to the North American Free Trade
Agreement. The draft agreement submitted for ratification includes the imposition of tariffs on vehicles that do not meet
regional raw material (steel and aluminum), part and labor content requirements. These and other actions are likely to impact
trade policies with other countries and the overall global economy. The United Kingdom's decision to exit the European Union
("Brexit") continues to provide some uncertainty and potential volatility around European currencies, along with uncertain
effects of future trade and other cross-border activities of the United Kingdom with the European Union and other countries.
The Brazil market is an important market for our Commercial Vehicle segment, representing about 19% of this segment's
2018 sales. Our medium/heavy truck sales in Brazil account for approximately 79% of our total sales in the country. Reduced
market demand resulting from the weak economic environment in Brazil in 2015 led to production levels in the light vehicle
and medium/heavy duty truck markets that were lower by about 22% and 44% from 2014. Continued weakness in 2016
resulted in further reductions in medium/heavy truck production of about 20% and a light vehicle production decline of around
10%. As a consequence, sales by our operations in Brazil for 2016 approximated $200, down from about $500 in 2014. In
response to the challenging economic conditions in this country, we implemented restructuring and other cost reduction actions
and reduced costs to the extent practicable. As discussed in Note 2 to our consolidated financial statements in Item 8, we
completed a transaction in December 2016 that provided us with the underlying assets and personnel supporting our pre-
existing business with a supplier along with some incremental business. With this transaction, we have enhanced our
competitive position in the market and should benefit as the Brazilian markets continue to recover. The Brazilian economy
rebounded in 2017, leading to increased medium/heavy truck and light truck production of more than 25% from 2016 in each
22
of those segments. Economic improvement and increased production continued in 2018. Sales in 2018 were up 15% from 2017
as medium/heavy truck production was 27% higher than 2017 and light truck production was up about 7% from last year.
Further economic improvement and increased production is expected in 2019.
As indicated above, Argentina has experienced significant inflationary pressures the past few years, contributing to
significant devaluation of its currency among other economic challenges. Our Argentine operation supports our Light Vehicle
operating segment. Our sales in Argentina for 2018 of approximately $125 are less than 2% of our consolidated sales and our
net asset exposure related to Argentina was approximately $20, including $7 of net fixed assets, at December 31, 2018.
Commodity Costs
The cost of our products may be significantly impacted by changes in raw material commodity prices, the most important
to us being those of various grades of steel, aluminum, copper and brass. The effects of changes in commodity prices are
reflected directly in our purchases of commodities and indirectly through our purchases of products such as castings, forgings,
bearings and component parts that include commodities. During 2018, commodity prices have been impacted by recently
imposed tariffs. Suppliers directly impacted by the tariffs are attempting to pass through the cost of the tariffs while suppliers
not subject to the tariffs are advantaging themselves by raising prices. Most of our major customer agreements provide for the
sharing of significant commodity price changes with those customers based on the movement in various published commodity
indexes. Where such formal agreements are not present, we have historically been successful implementing price adjustments
that largely compensate for the inflationary impact of material costs. Material cost changes will customarily have some impact
on our financial results as customer pricing adjustments typically lag commodity price changes.
Prices for commodities such as steel and aluminum have risen over the past year, in part due to strong global demand and
more recently due to imposition of tariffs on these products. Higher commodity prices reduced year-over-year earnings in 2018
by approximately $115, as compared to year-over-year earnings reductions of $70 from higher commodity prices in 2017.
Material recovery and other pricing actions increased earnings $80 compared to last year, whereas pricing and recovery actions
increased year-over-year earnings in 2017 by $11.
U.S. Tax Reform
In December 2017, the U.S. introduced broad ranging tax reform with the passage of the Tax Cuts and Jobs Act ("Act")
legislation. Among the tax reforms was a reduction of the corporate tax rate from 35% to 21%. Historically, we've recognized a
net deferred tax asset in the U.S. for items providing future net reductions of taxable income. These deferred tax assets are
valued based on the corporate tax rate expected to be available when the deductions are taken. With enactment of the lower
corporate tax rate in the U.S. in 2017, we recorded a charge to tax expense in the fourth quarter of 2017 to reduce the value of
these net deferred tax assets. The effect of the rate reduction on net deferred tax assets in combination with other provisions of
the Act resulted in a net non-cash increase in 2017 income tax expense of $186. Among the tax reform provisions was a
transitional U.S. tax assessed on undistributed earnings of foreign operations. Since we were able to utilize existing tax
attributes to offset this transitional tax liability, adoption of the Act's provisions did not give rise to any cash taxes.
Although the tax reform in the U.S. reduced the statutory tax rate to 21% beginning in 2018, the effects of the lower rate
are offset in part by the effects of increased nondeductible expenses and the global intangible low taxed income (“GILTI”)
provisions which result in a certain amount of foreign earnings being subjected to U.S. tax. Considering the exclusion of
foreign subsidiary dividends from taxation in the U.S., we believe the Act will provide some greater flexibility to repatriate
future earnings of our foreign operations.
Sales, Earnings and Cash Flow Outlook
Sales
Adjusted EBITDA
Net cash provided by operating activities
Discretionary pension contribution
Purchases of property, plant and equipment
Adjusted Free Cash Flow
* Assumes Oerlikon Drive Systems acquisition transaction closes during the first quarter of 2019.
2019
Outlook*
$8,950 - $9,350
$1,085 - $1,165
~5.5% of Sales
~1.5% of Sales
~4% of Sales
~3% of Sales
23
2017
$ 7,209
835
$
554
$
2016
2018
$ 5,826
$ 8,143
660
$
957
$
384
$
568
$
$ — $ — $ —
322
$
62
$
393
161
325
243
$
$
$
$
Adjusted EBITDA and adjusted free cash flow are non-GAAP financial measures. See the Non-GAAP Financial Measures
discussion below for definitions of our non-GAAP financial measures and reconciliations to the most directly comparable U.S.
generally accepted accounting principles (GAAP) measures. We have not provided a reconciliation of our adjusted EBITDA
outlook to the most comparable GAAP measure of net income. Providing net income guidance is potentially misleading and
not practical given the difficulty of projecting event driven transactional and other non-core operating items that are included in
net income, including restructuring actions, asset impairments and certain income tax adjustments. The accompanying
reconciliations of these non-GAAP measures with the most comparable GAAP measures for the historical periods presented are
indicative of the reconciliations that will be prepared upon completion of the periods covered by the non-GAAP guidance.
We experienced declines in total sales in 2016 due to weaker international currencies relative to the U.S. dollar. Adjusted
for currency, sales in 2016 were relatively comparable to the prior year, with new customer programs largely offsetting the
impacts of overall weaker end user demand across our global businesses. We experienced uneven end user markets, with some
being relatively strong and others somewhat weak, and the conditions across the regions of the world differing quite
dramatically. The 24% increase in sales during 2017 was driven primarily by acquisitions and stronger market demand.
Acquisitions, net of divestitures, added $500 of sales, while stronger market demand and contributions from new customer
programs increased sales by $829 – an organic increase of 14%. In 2017, international currencies were relatively stable,
providing a $54 benefit to sales. Sales increased an additional $934, or 13%, in 2018, reflecting continued strong market
demand and the contribution of net new business backlog. Strong off-highway, commercial vehicle and light truck demand
combined with net new business of about $300, drove 2018 organic growth of $861, or 12%. International currencies and
acquisition and divestiture activities had a negligible impact on 2018 sales. Our 2019 sales outlook is $8,950 to $9,350, with
sales growth coming principally from our anticipated acquisition of Oerlikon Drive Systems and the realization of $350 of net
new business backlog. We expect impact of international currencies to be negligible, consistent with this past year.
Adjusted EBITDA margin as a percent of sales remained relatively constant at around 11% in 2016 despite certain markets
being weak and volatile. We continue to focus on margin improvement through right sizing and rationalizing our manufacturing
operations, leveraging resources across the global organization, implementing other cost reduction initiatives and ensuring that
customer programs are competitively priced. We achieved adjusted EBITDA margin growth in 2017 as we benefited from the
operating leverage attributable to increased sales volumes, while at the same time integrating several acquisitions. Increased
commodity prices adversely impacted 2018 earnings and adjusted EBITDA margin. Although we recovered a substantial share
of the increased cost, with the customary lag from incurrence of the higher cost to recovery, approximately $35 was not
recovered by the end of 2018. Much of the adverse earnings impact of higher commodity costs and supply chain pressures of
operating at strong levels of market demand were offset with material cost savings, acquisition synergies and other cost
reductions. As such, our adjusted EBITDA margin for 2018 was 11.8%, a 20 basis point improvement over 2017. At our current
sales outlook for 2019, we expect full year 2019 adjusted EBITDA to approximate $1,085 to $1,165. Adjusted EBITDA Margin
is expected to exceed 12%, as we benefit from higher margin net new business and synergies related to our acquisition of
Oerlikon Drive Systems more than offsetting higher commodity costs and increased investment we expect to make in 2019 to
support our electrification strategy.
We have generated positive adjusted free cash flow in recent years while increasing capital spending to support organic
business growth through launching new business with customers. Reduced adjusted free cash flow in 2016 was primarily
attributable to our continued success in being awarded significant new customer programs. Although many of the program wins
were not scheduled to begin production until 2018, certain of these programs required capital investment beginning in 2016. As
such, cash used for capital investments in 2016 was $62 higher than in 2015. As planned, an elevated level of capital spending
at around 5.5% of sales continued into 2017 to support new customer programs. Despite an increase in capital spending of $71
in 2017, free cash increased by $99, primarily from a stronger earnings performance which contributed to increased operating
cash flows of $170. Adjusted free cash flow increased $82 in 2018, with benefits from increased operating earnings and lower
required capital investment being partially offset by higher working capital requirements associated with increased sales and
production levels. We expect to generate adjusted free cash flow of approximately $275, or 3% of sales for 2019. The benefit of
continued growth in adjusted EBITDA in 2019 will be partially offset by higher integration costs associated with our
anticipated acquisition of Oerlikon Drive Systems. We expect capital spending in 2019 to be around 4% of sales, consistent
with 2018. While required capital spending to support new customer programs has begun to dissipate, we are expecting
additional capital investment associated with the Oerlikon Drive Systems acquisition.
Among our operational and strategic initiatives are increased focus on and investment in product technology – delivering
products and technology that are key to bringing solutions to issues of paramount importance to our customers. Our success on
this front is measured, in part, by our sales backlog – net new business received that will be launching in the future and adding
to our base annual sales. This backlog excludes replacement business and represents incremental sales associated with new
programs for which we have received formal customer awards. At December 31, 2018, our sales backlog of net new business
for the 2019 through 2021 period was $700. We expect to realize $350 of our sales backlog in 2019, with incremental sales
24
backlog of $200 and $150 being realized in 2020 and 2021, respectively. Our three-year sales backlog at December 31, 2018
reflects continued new business wins, as the expected impact of revised market volumes and currency effects were minimal.
Summary Consolidated Results of Operations (2018 versus 2017)
Consolidated Results of Operations
2018
2017
Dollars
% of
Net Sales
Dollars
% of
Net Sales
$
85.8%
14.2%
6.1%
Net sales
Cost of sales
Gross margin
Selling, general and administrative expenses
Amortization of intangibles
Restructuring charges, net
Impairment of indefinite-lived intangible asset
Gain (loss) on disposal group held for sale
Other expense, net
Earnings before interest and income taxes
Loss on extinguishment of debt
Interest income
Interest expense
Earnings before income taxes
Income tax expense
Equity in earnings of affiliates
Net income
Less: Noncontrolling interests net income
Less: Redeemable noncontrolling interests net loss
$
8,143
6,986
1,157
499
8
25
(20)
3
(29)
579
11
96
494
78
24
440
13
Net income attributable to the parent company
$
427
$
Sales — The following table shows changes in our sales by geographic region.
85.2%
14.8%
7.0%
7,209
6,143
1,066
508
11
14
(27)
(16)
490
(19)
11
102
380
283
19
116
10
(5)
111
Increase/
(Decrease)
934
$
843
91
(9)
(3)
11
(20)
30
(13)
89
19
—
(6)
114
(205)
5
324
3
5
316
$
North America
Europe
South America
Asia Pacific
Total
2018
2017
Increase/
(Decrease)
$
$
4,106
2,484
546
1,007
8,143
$
$
3,688
2,154
500
867
7,209
$
$
418
330
46
140
934
$
$
Currency
Effects
Organic
Change
Amount of Change Due To
Acquisitions
(Divestitures)
32
27
(9)
7
57
(1) $
85
(74)
6
16
$
$
$
387
218
129
127
861
Sales in 2018 were $934 higher than in 2017. Stronger international currencies increased sales by $16, principally due to a
stronger euro, Thai baht and Chinese renminbi, partially offset by a weaker Brazilian real, Argentine peso and Indian rupee.
The acquisitions of the Brevini and USM operations which occurred in the first quarter of 2017 and TM4 which occurred in the
second quarter of 2018, net of the divestiture of the Brazil suspension components business in the third quarter of 2018,
generated a year-over-year increase in sales of $57. The organic sales increase of $861, or 12%, resulted from stronger light
truck markets, strengthening global off-highway demand, stronger medium/heavy truck markets and contributions from new
business. Pricing actions, including material commodity price and inflationary cost recovery added sales of $80.
The North America organic sales increase of 10% was driven principally by stronger production levels on certain of our
key light truck programs. Overall full-frame light truck production was up 4% compared with last year. In addition, certain of
our key programs had higher production levels, with one of these programs producing outgoing model vehicles along with new
model vehicles during this year's first quarter. Stronger medium/heavy truck production in 2018 of about 18%, with Class 8
trucks up more than 25% and Classes 5-7 up about 10%, also contributed to higher organic sales.
25
A stronger euro increased sales in Europe due to currency effects. Excluding currency and acquisition effects, sales in
Europe were 10% higher than in 2017. With our significant Off-Highway presence in the region, increased market demand in
this segment was a major contributor. Organic sales in this operating segment were up about 16% compared with 2017.
A weaker Brazilian real and Argentina peso reduced South America sales in 2018. However, more than offsetting this
reduction was an organic increase in sales of 26%. Continued economic recovery in the Brazilian market was a major factor.
The region overall experienced stronger production levels, with light truck production up about 7% and medium/heavy truck
production higher by about 27%.
Asia Pacific sales in 2018 were 16% higher than last year. Currency translation increased sales by $6, driven by a stronger
Thai baht and Chinese renminbi, partially offset by a weaker Indian rupee. Excluding currency and acquisition effects, sales
increased 15% due primarily to stronger light truck production levels, off-highway market demand and contributions from new
customer programs.
Cost of sales and gross margin — Cost of sales for 2018 increased $843, or 14%, when compared to 2017. Similar to the
factors affecting sales, the increase was primarily due to higher overall sales volumes and inclusion of a full twelve months of
the businesses acquired in the first quarter of 2017. Cost of sales as a percent of 2018 sales was 60 basis points higher than in
the previous year. The increased cost of sales as a percent of sales was largely attributable to higher commodity prices which
increase material costs by about $115, an increase in engineering and development expense of $32, higher depreciation expense
of $39 attributable to increased capital spending over the past few years in support of significant new customer programs which
launched this year and premium supply chain costs and other manufacturing inefficiencies associated with higher demand
levels. Partially offsetting these higher costs were continued material cost savings of $70, incremental costs of $14 in 2017
resulting from recognizing acquired inventory at fair value as part of business combination accounting, cost attributable to
acquisition cost synergies from acquisition integration, and overall better cost absorption on higher production volumes.
Gross margin of $1,157 for 2018 increased $91 from 2017. Gross margin as a percent of sales was 14.2% in 2018, 60 basis
points lower than in 2017. The decline in margin as a percent of sales was driven principally by the cost of sales factors
referenced above.
Selling, general and administrative expenses (SG&A) — SG&A expenses in 2018 were $499 (6.1% of sales) as compared to
$508 (7.0% of sales) in 2017. Inclusion of a full twelve months of the businesses acquired in the first quarter of 2017 and six
months of TM4 acquired in second quarter of 2018 contributed $9 of expense. Salaries and benefits expense decreased by $32,
with of lower year-over-year incentive compensation partially offset by higher salary expense. Higher discretionary spending
was $14, in part due to increased software technology investments and customer support related costs. Contributing to lower
SG&A as a percent of sales were acquisition synergies along with disciplined cost performance despite higher sales volumes.
Amortization of intangibles — The reduction of $3 in amortization expense was primarily attributable to certain customer
related intangibles becoming fully amortized.
Restructuring charges, net — During 2018, we initiated headcount and cost reduction initiatives across our operating segments
and corporate functions. Restructuring charges of $25 in 2018 include charges of $14 related to a voluntary retirement program
in North America, $5 associated with headcount reduction actions in our operations and corporate functions in Brazil, $9 of
severance and benefits costs related to SG&A cost reduction initiatives primarily in Europe and North America and $4 related
to previously announced actions. In response to continued market recovery in our Off-Highway business in Europe,
management re-evaluated the economic conditions of our global Off-Highway business and determined that $7 of the
previously approved restructuring actions were no longer economically prudent. During 2017, we approved plans to implement
certain headcount reduction initiatives in our Off-Highway business as part of the BPT and BFP acquisition integration,
resulting in the recognition of $14, primarily for severance and benefits costs. Including costs associated with the actions
approved during 2017 and costs associated with previously announced initiatives, net of the reversal described below,
restructuring expense during 2017 was $14. During the fourth quarter of 2017, in response to better-than-expected market
recovery in our Off-Highway business in Europe, management re-evaluated the economic conditions of our global Off-
Highway business and determined that a portion of the previously approved 2016 restructuring program was no longer
economically prudent. This change in facts and circumstances led to the decision to reverse $8 of previously accrued liabilities.
Impairment of indefinite-lived intangible asset — During the second quarter of 2018, we wrote off the in-process research and
development intangible asset recognized as part of a 2012 acquisition. Refer to the Other Initiatives section in Item 7 and Note
4 of the consolidated financial statements in Item 8 for additional information.
26
Gain (loss) on disposal group held for sale — See Note 3 of the consolidated financial statements in Item 8 for a discussion of
the divestiture of our Brazil suspension components business.
Other expense, net — The following table shows the major components of other expense, net.
Non-service cost components of pension and OPEB costs
Government grants and incentives
Foreign exchange loss
Strategic transaction expenses, net of transaction breakup fee income
Amounts attributable to previously divested/closed operations
Other, net
Other expense, net
$
2018
2017
(15) $
12
(12)
(18)
4
(29)
(7)
7
(3)
(25)
3
9
(16)
Strategic transaction expenses in 2018 were primarily attributable to our bid to acquire the driveline business of GKN plc.,
our acquisition of an ownership interest in TM4, our pending acquisition of Oerlikon Drive Systems and integration costs
associated with our acquisitions of BFP and BPT, and were partially offset by a $40 transaction breakup fee associated with the
GKN plc. transaction. Strategic transaction expenses in 2017 are primarily attributable to our acquisitions of USM - Warren,
BFP and BPT.
As described in Note 1 to our consolidated financial statements in Item 8, in connection with the adoption of new
accounting and reporting requirements for defined employee benefit plans, non-service cost components are now classified as
other expense, net. Such amounts were previously classified as cost of sales or SG&A expense. The comparative 2017
statement of operations has been revised to reflect the new classification of these costs.
Loss on extinguishment of debt — As discussed in Note 14 to our consolidated financial statements in Item 8, we redeemed
$100 of our September 2021 Notes, repaid indebtedness of our BPT and BFP subsidiaries and repaid certain bank debt in Brazil
during the second quarter of 2017, and we redeemed the remaining $350 of our September 2021 Notes in the third quarter of
2017. We incurred redemption premiums of $15 in connection with these repayments and wrote off $4 of previously deferred
financing costs associated with the debt that was extinguished.
Interest income and interest expense — Interest income was $11 in 2018 and 2017. Interest expense decreased from $102 in
2017 to $96 in 2018 primarily due to a lower average interest rate on borrowings. During 2017, through debt refinancing and
cross-currency swaps, we achieved lower overall interest rates. Average effective interest rates, inclusive of amortization of
debt issuance costs, approximated 5.2% and 5.5% in 2018 and 2017.
Income tax expense — Income taxes were an expense of $78 in 2018 and $283 in 2017. During 2018, we recognized a benefit
of $44 related to U.S. state law changes and the development and implementation of a tax planning strategy which adjusted
federal tax credits, along with federal and state net operating losses and the associated valuation allowances. We also
recognized benefits of $11 relating to the reversal of a provision for an uncertain tax position, $5 relating to the release of
valuation allowances in the US based on improved income projections and $7 due to permanent reinvestment assertions.
Partially offsetting these benefits was $5 of expense to settle outstanding tax matters in a foreign jurisdiction. With the
enactment of the Tax Cuts and Jobs Act occurring in December 2017 in the U.S., provisions of this tax reform legislation were
required to be recognized in 2017. The most significant 2017 impact of this legislation was the reduction of net deferred tax
assets to reflect expected realization at the lower U.S. corporate tax rate of 21% rather than the previous rate of 35%. The net
impact of recognizing the required elements of the new tax reform legislation was an increase in tax expense of $186 in 2017.
During 2017, continued improvement in our profit outlook enabled us to release $27 of valuation allowances on state deferred
tax assets. See Note 18 to our consolidated financial statements in Item 8 of Part II for further disclosures around these items.
Excluding the effects of the items referenced in the preceding paragraph, our effective tax rates were 28% in 2018 and 33%
in 2017. These rates vary from the applicable U.S. federal statutory rate of 21% and 35% in these periods primarily due to
establishment, release and adjustment of valuation allowances in several countries, nondeductible expenses, deemed income,
local tax incentives in several countries outside the U.S., different statutory tax rates outside the U.S. and withholding taxes
related to repatriations of international earnings.
In countries where our history of operating losses does not allow us to satisfy the “more likely than not” criterion for
recognition of deferred tax assets, we have generally recognized no income tax on the pre-tax income or losses as valuation
27
allowance adjustments offset the associated tax effects. We believe that it is reasonably possible that a valuation allowance of
up to $24 related to a subsidiary in Brazil will be released in the next twelve months.
Equity in earnings of affiliates — Net earnings from equity investments was $24 in 2018 compared with $19 in 2017. Equity in
earnings from Bendix Spicer Foundation Break, LLC (BSFB) was $7 in 2018 and $9 in 2017. Equity in earnings from
Dongfeng Dana Axle Co., Ltd. (DDAC) was $15 in 2018 and $9 in 2017, inclusive of a $4 charge for asset transfer and
conversion of certain assets.
Segment Results of Operations (2018 versus 2017)
Light Vehicle
2017
Volume and mix
Performance
Currency effects
2018
Sales
3,172
376
36
(9)
3,575
$
$
Segment
EBITDA
359
$
83
(43)
(1)
398
$
Segment
EBITDA
Margin
11.3%
11.1%
Light Vehicle sales in 2018, exclusive of currency effects and increased sales of $18 from the acquisition of USM - Warren
on March 1, 2017, were 12% higher than 2017. While North America full frame truck production was up 4% compared with
2017, we experienced a significant volume-related sales increase from one of our largest customer programs for which
production continued on the outgoing model during the first quarter of 2018 concurrent with production of the new model
vehicle. Stronger light truck production levels in Europe, South America and Asia Pacific also contributed to higher sales
volumes. Customer pricing and cost recovery impacts provided year-over-year increase in sales of $36.
Light Vehicle segment EBITDA increased by $39 in 2018. Higher sales volumes provided a year-over-year benefit of $83.
The year-over-year performance-related earnings reduction resulted from increased commodity costs of $40, higher engineering
and development costs of $15, with premium freight, cost performance, operating inefficiencies and other items reducing
segment earnings by $64. Net pricing and material recovery of $36, material cost savings of $31 and lower new program start-
up and launch-related costs of $9 provided a partial offset.
Commercial Vehicle
2017
Volume and mix
Performance
Currency effects
2018
Sales
1,412
219
20
(39)
1,612
$
$
Segment
EBITDA
116
$
35
(1)
(4)
146
$
Segment
EBITDA
Margin
8.2%
9.1%
Excluding currency effects, Commercial Vehicle sales increased 17% compared to 2017. The volume-related increase was
primarily attributable to higher production levels in North America where Class 8 production was up about 26% and Classes
5-7 production was up 10%. With the improving economy in Brazil, our sales volumes in 2018 benefited from higher year-
over-year production levels in that country of around 27%. Also contributing to the higher sales volume was higher production
in Europe during 2018. Customer pricing and cost recovery actions increased year-over-year sales by $20.
Commercial Vehicle segment EBITDA increased by $30 in 2018. Higher sales volumes increased 2018 earnings by $35.
Higher commodity costs decreased performance-related earnings by $35, with net pricing and material recovery actions
providing a partial offset of $20. Higher year-over-year material cost savings of $14 and cost performance and improved
operating efficiency of $11 were partially offset by increased engineering and development costs of $11.
28
Off-Highway
2017
Volume and mix
Performance
Currency effects
2018
Sales
1,521
251
26
46
1,844
$
$
Segment
EBITDA
212
$
57
11
5
285
$
Segment
EBITDA
Margin
13.9%
15.5%
Off-Highway sales in 2018, exclusive of currency effects and increased sales of $38 from the acquisition of the Brevini
BFP and BPT operations on February 1, 2017, were 16% higher than 2017, primarily from higher global end-market demand.
Customer pricing and cost recovery actions increased year-over-year sales by $26.
Off-Highway segment EBITDA increased by $73 in 2017. Increased market demand was the primary driver of the volume
and mix earnings improvement. The performance-related improvement was due primarily to net pricing and material recovery
of $26, material cost savings of $17 and lower warranty costs of $5, partially offset by higher commodity costs of $25,
increased engineering and development costs of $6 and cost performance and operating inefficiencies of $6.
Power Technologies
2017
Volume and mix
Performance
Currency effects
2018
Sales
1,104
(8)
(2)
18
1,112
$
$
Segment
EBITDA
168
$
(3)
(18)
2
149
$
Segment
EBITDA
Margin
15.2%
13.4%
Power Technologies primarily serves the light vehicle market but also sells product to the medium/heavy truck and off-
highway markets. Net of currency effects, 2018 sales were 1% lower than 2017, primarily due to programs that were scheduled
to roll off in this year, along with weaker passenger car demand.
Segment EBITDA decreased by $19 compared to 2017. The performance-related deterioration resulted from higher
commodity costs of $15, increased engineering spend of $3 and cost performance and operating inefficiencies of $8, partially
offset by material cost savings of $8.
29
Summary Consolidated Results of Operations (2017 versus 2016)
$
Net sales
Cost of sales
Gross margin
Selling, general and administrative expenses
Amortization of intangibles
Restructuring charges, net
Loss on disposal group held for sale
Loss on sale of subsidiaries
Other income (expense), net
Earnings before interest and income taxes
Loss on extinguishment of debt
Interest income
Interest expense
Earnings before income taxes
Income tax expense (benefit)
Equity in earnings of affiliates
Net income
Less: Noncontrolling interests net income
Less: Redeemable noncontrolling interests net loss
Net income attributable to the parent company
$
2017
2016
Dollars
% of
Net Sales
Dollars
% of
Net Sales
85.7%
14.3%
6.9%
7,209
6,143
1,066
508
11
14
(27)
(16)
490
(19)
11
102
380
283
19
116
10
(5)
111
$
85.2%
14.8%
7.0%
5,826
4,991
835
401
8
36
(80)
22
332
(17)
13
113
215
(424)
14
653
13
$
640
Increase/
(Decrease)
1,383
$
1,152
231
107
3
(22)
(27)
80
(38)
158
(2)
(2)
(11)
165
707
5
(537)
(3)
(5)
(529)
$
As described in Note 1 to our consolidated financial statements in Item 8, in connection with the adoption of new
accounting and reporting requirements for defined employee benefit plans, non-service cost components are now classified as
other income (expense), net. Such amounts were previously classified as cost of sales or selling, general and administrative
expenses. The comparative 2017 and 2016 statement of operations have been revised to reflect the new classification of these
costs.
Sales — The following table shows changes in our sales by geographic region.
North America
Europe
South America
Asia Pacific
Total
2017
2016
3,688
2,154
500
867
7,209
$
$
3,128
1,616
338
744
5,826
$
$
Increase/
(Decrease)
560
538
162
123
1,383
$
$
$
$
Currency
Effects
Organic
Change
Amount of Change Due To
Acquisitions
(Divestitures)
127
294
54
25
500
(1) $
35
3
17
54
$
$
$
434
209
105
81
829
Sales in 2017 were $1,383 higher than in 2016. Stronger international currencies increased sales by $54. The acquisitions
of BFP, BPT, SIFCO, USM – Warren and Magnum in 2016 and 2017 generated a year-over-year increase in sales of $542, with
the divestiture of Nippon Reinz resulting in a reduction of $42. The organic sales increase of $829 resulted primarily from
stronger light truck markets, strengthening global off-highway demand, stronger medium/heavy truck markets in Europe and
South America, and contributions from new business.
The North America sales increase from acquisitions in 2017 relates primarily to the USM – Warren purchase, with a lesser
amount being added by the BFP, BPT and Magnum transactions. The organic sales increase of 14% was driven principally by
stronger production levels on certain of our key light truck programs, with stronger medium/heavy truck production and off-
highway demand levels also providing some contribution.
Excluding currency effects and the increase in sales of $294 attributable to the BFP and BPT acquisitions, 2017 sales in
Europe were 13% higher than in 2016. Stronger off-highway market demands were a primary driver of the organic sales
30
increase, although each of our operating segments experienced increased organic sales, primarily from higher production/
demand levels.
In South America, 2017 sales benefited from a stronger Brazil real, however, that was largely offset by a weaker Argentina
peso. The acquisition-related sales increase resulted from the SIFCO and BPT acquisitions. Excluding these effects, sales were
up 31% from 2016. The organic sales increase in the region was driven largely by stronger 2017 production levels, with light
truck and medium/heavy truck production each up more than 25% from the preceding year.
Asia Pacific sales in 2017 were 17% higher than 2016. Sales increased by $67 from the BPT and BFP acquisitions, more
than offsetting the $42 reduction attributable to the Nippon-Reinz divestiture. Sales in this region also benefited from a stronger
India rupee and Thailand baht. The organic sales increase of 11% in this region was due primarily to stronger light vehicle
production levels and off-highway market demand, along with contributions from new customer programs.
Cost of sales and gross margin — Cost of sales for 2017 increased $1,152, or 23%, when compared to 2016. Similar to the
factors affecting sales, the increase was primarily due to higher overall sales volumes and the inclusion of acquired businesses.
Cost of sales attributed to net acquisitions, which included $14 of incremental cost assigned to inventory as part of business
combination accounting, amounted to $423, or 84.8% of the sales of those businesses. Excluding the effects of acquisitions and
divestitures, cost of sales as a percent of sales declined from 85.7% of sales in 2016 to 85.2% of sales in 2017 – a reduction of
50 basis points. This reduction in cost of sales as a percent of sales was largely attributable to better fixed cost absorption on the
higher production volume. Cost of sales also benefited from material cost savings of approximately $67 and a reduction in
warranty expense of $8. The benefit from higher production levels and other items was partially offset by increased material
commodity prices of $70, start-up/launch costs of $30 and engineering and development expense of $24.
Gross margin of $1,066 for 2017 increased $231 from 2016. Gross margin as a percent of sales was 14.8% in 2017, 50
basis points higher than in 2016. Acquisitions net of divestitures added $76 of gross margin. The margin improvement as a
percent of sales was driven principally by the cost of sales factors referenced above.
Selling, general and administrative expenses (SG&A) — SG&A expenses in 2017 were $508 (7.0% of sales) as compared to
$401 (6.9% of sales) in 2016. SG&A attributed to net acquisitions was $73. Excluding the increase associated with acquisitions
and divestitures, SG&A expenses as a percent of sales were 6.5% of sales, 40 basis points lower than the same period of 2016.
The $34 year-over-year increase exclusive of net acquisitions was principally due to an increase in salary and benefits expenses
of $43 primarily relating to increased compensation expense resulting from better performance in relation to incentive targets in
2017. Selling costs and other discretionary spending were $9 lower than in 2016.
Amortization of intangibles — The increase of $3 in amortization expense was primarily attributable to amortization of the
intangibles acquired in the acquisitions completed in late 2016 and the first quarter of 2017.
Restructuring charges, net — During 2017, we approved additional plans to implement certain headcount reduction initiatives
in our Off-Highway business as part of the BPT and BFP acquisition integration, resulting in the recognition of $14, primarily
for severance and benefits costs, during 2017. Including costs associated with the newly approved actions during 2017 and
costs associated with previously announced initiatives, net of the reversal described below, restructuring expense during 2017
was $14. During the fourth quarter of 2017, in response to better-than-expected market recovery in our Off-Highway business
in Europe, management re-evaluated the economic conditions of our global Off-Highway business and determined that a
portion of the previously approved 2016 restructuring program is no longer economically prudent. This change in facts and
circumstances led to the decision to reverse $8 of previously accrued liabilities. Restructuring charges of $36 in 2016 included
$14 of costs attributable to headcount reductions in our Off-Highway segment and $10 for headcount reductions in our Brazil
Commercial Vehicle business that were taken in connection with our acquisition of the SIFCO business. The remaining amount
was attributable to the planned closure of our Commercial Vehicle manufacturing facility in Glasgow, Kentucky, headcount
reduction actions at our corporate facilities in the U.S. and employee separation and exit costs associated with previously
announced actions.
Loss on disposal group held for sale — Reference is made to Note 3 of the consolidated financial statements in Item 8 for a
discussion of the pending divestiture of our Brazil suspension components business.
Loss on sale of subsidiaries — Reference is made to Note 3 of the consolidated financial statements in Item 8 for a discussion
of the 2016 divestitures of DCLLC and Nippon Reinz.
31
Other income (expense), net — The following table shows the major components of other income (expense), net.
Non-service cost components of pension and OPEB costs
Government grants and incentives
Foreign exchange loss
Strategic transaction expenses
Insurance and other recoveries
Gain on sale of marketable securities
Amounts attributable to previously divested/closed operations
Other, net
Other income (expense), net
$
2017
2016
(7) $
7
(3)
(25)
3
9
(16)
4
8
(3)
(13)
10
7
9
22
The higher level of strategic transaction expenses in 2017 is primarily attributable to costs incurred in connection with
acquiring and integrating the BFP, BPT and USM businesses beginning in the first quarter of 2017. Amounts attributable to
previously divested/closed operations in 2017 includes the receipt of the remaining proceeds on our December 2016 divestiture
of DCLLC. See Note 19 to our consolidated financial statements in Item 8 for additional information. In 2016, DCLLC
received a recovery of $8 of costs previously incurred on behalf of other participants in a consortium that existed to administer
certain legacy personal injury claims and realized gains of $7 from the sale of portfolio investments.
Loss on extinguishment of debt — As discussed in Note 14 to our consolidated financial statements in Item 8, we redeemed
$100 of our September 2021 Notes, repaid indebtedness of our BPT and BFP subsidiaries and repaid certain bank debt in Brazil
during the second quarter of 2017, and we redeemed the remaining $350 of our September 2021 Notes in the third quarter of
2017. We incurred redemption premiums of $15 in connection with these repayments and wrote off $4 of previously deferred
financing costs associated with the debt that was extinguished. In the second quarter of 2016, we redeemed our February 2021
Notes, incurring a redemption premium of $12, and also restructured our domestic revolving credit facility. In connection with
these transactions, we wrote off $5 of previously deferred financing costs.
Interest income and interest expense — Interest income was $11 in 2017 and $13 in 2016. Interest expense was $102 in 2017
and $113 in 2016. A lower average interest rate on borrowings was partially offset by higher average debt levels in 2017.
Average debt levels were higher in 2017 in part due to debt of $181 assumed in connection with the acquisition of BFP and
BPT. As discussed in Note 14 to our consolidated financial statements in Item 8, we completed several financing transactions
since May 2016 which in combination with cross-currency swaps effectively resulted in euro-denominated obligations at lower
interest rates. Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.5% and 6.5% in
2017 and 2016.
Income tax expense (benefit) — Income taxes were an expense of $283 in 2017 and a benefit of $424 in 2016. With the
enactment of the Tax Cuts and Jobs Act occurring in December 2017 in the U.S., provisions of this tax reform legislation were
required to be recognized in 2017. The most significant 2017 impact of this legislation was the reduction of net deferred tax
assets to reflect expected realization at the lower U.S. corporate tax rate of 21% rather than the previous rate of 35%. The net
impact of recognizing the required elements of the new tax reform legislation was an increase in tax expense of $186 in 2017.
During 2017, continued improvement in our profit outlook enabled us to release $27 of valuation allowances on state deferred
tax assets. In 2016, we determined that most of the valuation allowances against U.S. deferred taxes were no longer required.
Release of these valuation allowances resulted in a $501 income tax benefit. Additionally, developments in Brazil led to our
assessment that an allowance against certain deferred taxes in that country was appropriate, and we recognized tax expense of
$25 to establish this valuation allowance. See Note 18 to our consolidated financial statements in Item 8 of Part II for further
disclosures around these items.
Excluding the effects of the items referenced in the preceding paragraph, our effective tax rates were 33% in 2017 and 24%
in 2016. These rates vary from the applicable U.S. federal statutory rate of 35% in these periods primarily due to valuation
allowances in several countries and lower statutory tax rates outside the U.S. In 2016, a benefit of $58 for a reduction of
accrued taxes on earnings of foreign operations resulting from legal entity restructuring and a revised determination as to
permanent reinvestment contributed to a lower effective tax rate. These benefits were offset by tax expense of $17 on dividends
and other income attributable to foreign operations, $30 of expense recognized to establish provisions associated with uncertain
tax positions and $11 of amortization of a prepaid tax asset that was written off to retained earnings on January 1, 2017 in
connection with the adoption of new guidance relating to intra-entity transfers.
32
In countries where our history of operating losses does not allow us to satisfy the “more likely than not” criterion for
recognition of deferred tax assets, we have generally recognized no income tax on the pre-tax income or losses as valuation
allowance adjustments offset the associated tax effects. Following the release of valuation allowances on our U.S. deferred tax
assets in the fourth quarter of 2016, tax effects relating to U.S. income in 2017 are no longer being offset by adjustments to the
valuation allowance.
Equity in earnings of affiliates — Net earnings from equity investments was $19 in 2017 compared with $14 in 2016. Equity in
earnings from BSFB was $9 in 2017 and $7 in 2016. Equity in earnings from DDAC was $9 in 2017, inclusive of a $4 charge
for asset transfer and conversion of certain assets, and $7 in 2016.
Segment Results of Operations (2017 versus 2016)
Light Vehicle
2016
Volume and mix
Acquisition
Performance
Currency effects
2017
Sales
2,607
452
96
14
3
3,172
$
$
Segment
EBITDA
279
$
92
12
(22)
(2)
359
$
Segment
EBITDA
Margin
10.7%
11.3%
Light Vehicle sales in 2017, exclusive of currency and the increased sales from the acquisition of USM – Warren on
March 1, 2017, were 18% higher than 2016. The volume-related sales increase was driven primarily by stronger production
levels, content increases and favorable model mix on certain of our significant full frame light truck programs in North
America, resulting in sales growth that exceeded overall higher 2017 North America full frame light truck production of 3%.
Sales in this segment also benefited from increased production levels in Europe, South America and Asia Pacific and new
customer programs, including the transfer of a program previously supported by our Commercial Vehicle segment that moved
to Light Vehicle in mid-2016 when the axle used to support the program was replaced with an axle produced by the Light
Vehicle segment. This program increased Light Vehicle 2017 sales by approximately $50. Customer pricing and cost recovery
impacts increased sales by $14.
Light Vehicle segment EBITDA increased by $80 in 2017. Higher sales volumes provided a benefit of $92, while the
acquisition of USM – Warren contributed $12. The year-over-year performance-related earnings reduction in 2017 was driven
by $37 of increased commodity costs and $30 of incremental new program start-up and launch-related costs. Partially offsetting
these higher costs were pricing and material recovery actions that increased segment EBITDA by $14 and material cost
initiatives that provided increased savings of $32. The remaining performance-related reduction of $1 was attributable to higher
engineering investment and increased incentive compensation net of other earnings improvement actions.
Commercial Vehicle
2016
Volume and mix
Acquisition
Performance
Currency effects
2017
Sales
1,254
81
44
12
21
1,412
$
$
Segment
EBITDA
96
$
20
1
6
(7)
116
$
Segment
EBITDA
Margin
7.7%
8.2%
Currency effects which increased sales in 2017 were primarily due to a stronger euro and Brazilian real. The increased
sales from acquisition in 2017 relate to the purchase of SIFCO business late in 2016, as described above. After adjusting for the
effects of currency and acquisitions, sales in our Commercial Vehicle segment increased 7% in 2017. The volume-related
increase was primarily attributable to higher production levels in North America, where Class 8 production was up 12% and
Classes 5-7 production was up 6%. Also contributing to the higher sales volume were production increases of 28% in South
33
America and 5% in Europe. Partially offsetting the increased production levels was the transfer of a program having sales of
about $50 to the Light Vehicle segment which began supplying the axle for the program in mid-2016.
Commercial Vehicle segment EBITDA increased by $20 in 2017. Although sales benefited from currency translation,
segment EBITDA was negatively impacted by currency transaction losses. Higher sales volumes increased 2017 earnings by
$20. The performance-related improvement in segment EBITDA resulted primarily from pricing and material recovery actions
which provided a benefit of $12, a reduction in warranty expense of $8 and material cost savings actions of $12, more than
offsetting increases in material commodity costs of $14 and in incentive compensation and other costs of $12.
Off-Highway
2016
Volume and mix
Acquisition
Performance
Currency effects
2017
Sales
909
202
401
(10)
19
1,521
$
$
Segment
EBITDA
129
$
41
40
(1)
3
212
$
Segment
EBITDA
Margin
14.2%
13.9%
The operations of the BFP and BPT businesses acquired on February 1, 2017 added $401 to this segment's sales in 2017.
Currency effects provided higher sales of $19, principally due to a stronger euro compared to 2016. After adjusting for these
two items, sales in 2017 were higher by 21%, reflecting significantly higher global end-market demand.
Off-Highway 2017 segment EBITDA increased by $83, with the BFP and BPT operations contributing $40 and higher
sales volumes providing an increase of $41. Year-over-year performance-related earnings in 2017 were reduced by increased
engineering and development expenses of $14, lower pricing, net of material recovery, of $10, and higher commodity costs of
$6. Substantially offsetting these reductions to earnings were material cost savings of $13 and improved earnings from
restructuring and other cost savings actions.
Power Technologies
2016
Volume and mix
Divestiture
Performance
Currency effects
2017
Sales
1,056
83
(41)
(5)
11
1,104
$
$
Segment
EBITDA
158
$
26
(5)
(12)
1
168
$
Segment
EBITDA
Margin
15.0%
15.2%
Power Technologies primarily serves the light vehicle market but also sells product to the medium/heavy truck and off-
highway markets. Net of currency effects and the reduction in sales resulting from the Nippon Reinz divestiture in the fourth
quarter of 2016, sales in 2017 increased 7%, primarily due to overall stronger market demand and new customer programs.
Segment EBITDA increased by $10 in 2017, with higher sales volumes providing an earnings benefit of $26 and the
divestiture of Nippon Reinz reducing earnings by $5. A reduction of $12 in year-over-year third performance-related earnings
was driven by higher commodity costs of $13, customer pricing reductions of $5 and other net cost increases of $4. Partially
offsetting these reductions to earnings was savings from material cost reduction initiatives of $10.
34
Non-GAAP Financial Measures
Adjusted EBITDA
We have defined adjusted EBITDA as net income before interest, taxes, depreciation, amortization, equity grant expense,
restructuring expense, non-service cost components of pension and other postretirement benefits (OPEB) costs and other
adjustments not related to our core operations (gain/loss on debt extinguishment, pension settlements, divestitures, impairment,
etc.). Adjusted EBITDA is a measure of our ability to maintain and continue to invest in our operations and provide shareholder
returns. We use adjusted EBITDA in assessing the effectiveness of our business strategies, evaluating and pricing potential
acquisitions and as a factor in making incentive compensation decisions. In addition to its use by management, we also believe
adjusted EBITDA is a measure widely used by securities analysts, investors and others to evaluate financial performance of our
company relative to other Tier 1 automotive suppliers. Adjusted EBITDA should not be considered a substitute for earnings
before income taxes, net income or other results reported in accordance with GAAP. Adjusted EBITDA may not be comparable
to similarly titled measures reported by other companies.
The following table provides a reconciliation of net income to adjusted EBITDA.
2018
2017
2016
Net income
Equity in earnings of affiliates
Income tax expense (benefit)
Earnings before income taxes
Depreciation and amortization
Restructuring charges, net
Interest expense, net
Other*
$
440
24
78
494
270
25
85
83
957
$
$
116
19
283
380
233
14
91
117
835
653
14
(424)
215
182
36
100
127
660
Adjusted EBITDA
* Other includes stock compensation expense, non-service cost components of pension and OPEB costs, strategic transaction expenses, net of transaction
breakup fees, acquisition related inventory adjustments, impairment of indefinite-lived intangible asset, loss on extinguishment of debt, loss on sale of
subsidiaries and other items. See Note 21 to our consolidated financial statements in Item 8 for additional details. Non-service cost components of pension
and OPEB costs were excluded from adjusted EBITDA in 2018 concurrent with adoption of ASU 2017-07 which required such cost to be classified outside
of operating income. While prior period amounts have been reclassified on our consolidated statement of operations for U.S. GAAP reporting purposes, we
did not adjust prior period adjusted EBITDA on the basis of materiality. Had we conformed adjusted EBITDA for 2017 and 2016, adjusted EBITDA would
have been $842 and $656, respectively.
$
$
$
Free Cash Flow and Adjusted Free Cash Flow
We have defined free cash flow as cash provided by operating activities less purchases of property, plant and equipment.
We have defined adjusted free cash flow as cash provided by operating activities excluding discretionary pension contributions
less purchases of property, plant and equipment. We believe these measures are useful to investors in evaluating the operational
cash flow of the company inclusive of the spending required to maintain the operations. Free cash flow and adjusted free cash
flow are not intended to represent nor be an alternative to the measure of net cash provided by operating activities reported
under GAAP. Free cash flow and adjusted free cash flow may not be comparable to similarly titled measures reported by other
companies.
The following table reconciles net cash flows provided by operating activities to adjusted free cash flow.
Net cash provided by operating activities
Purchases of property, plant and equipment
Free cash flow
Discretionary pension contribution
Adjusted free cash flow
2018
2017
2016
$
$
568
(325)
243
—
243
$
$
554
(393)
161
—
161
$
$
384
(322)
62
—
62
35
Liquidity
The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at
December 31, 2018:
Cash and cash equivalents
Less: Deposits supporting obligations
Available cash
Additional cash availability from Revolving Facility
Marketable securities
Total liquidity
$
$
510
(5)
505
579
21
1,105
Cash deposits are maintained to provide credit enhancement for certain agreements and are reported as part of cash and
cash equivalents. For most of these deposits, the cash may be withdrawn if a comparable security is provided in the form of
letters of credit. Accordingly, these deposits are not considered to be restricted.
Marketable securities are included as a component of liquidity as these investments can be readily liquidated at our
discretion.
The components of our December 31, 2018 consolidated cash balance were as follows:
Cash and cash equivalents
Cash and cash equivalents held as deposits
Cash and cash equivalents held at less than wholly-owned subsidiaries
Consolidated cash balance
U.S.
Non-U.S.
Total
$
$
175
$
3
178
$
201
5
126
332
$
$
376
5
129
510
A portion of the non-U.S. cash and cash equivalents is utilized for working capital and other operating purposes. Several
countries have local regulatory requirements that restrict the ability of our operations to repatriate this cash. Beyond these
restrictions, there are practical limitations on repatriation of cash from certain subsidiaries because of the resulting tax
withholdings and subsidiary by-law restrictions which could limit our ability to access cash and other assets.
The principal sources of liquidity available for our future cash requirements are expected to be (i) cash flows from
operations, (ii) cash and cash equivalents on hand and (iii) borrowings from our Revolving Facility. We believe that our overall
liquidity and operating cash flow will be sufficient to meet our anticipated cash requirements for capital expenditures, working
capital, debt obligations, common stock repurchases and other commitments during the next twelve months. While uncertainty
surrounding the current economic environment could adversely impact our business, based on our current financial position, we
believe it is unlikely that any such effects would preclude us from maintaining sufficient liquidity.
At December 31, 2018, we had no outstanding borrowings under the Revolving Facility but we had utilized $21 for letters
of credit. We had availability at December 31, 2018 under the Revolving Facility of $579 after deducting the outstanding letters
of credit.
At December 31, 2018, we were in compliance with the covenants of our financing agreements. Under the Revolving
Facility and our senior notes, we are required to comply with certain incurrence-based covenants customary for facilities of
these types. The incurrence-based covenants in the Revolving Facility permit us to, among other things, (i) issue foreign
subsidiary indebtedness, (ii) incur general secured indebtedness subject to a pro forma first lien net leverage ratio not to exceed
1.50:1.00 in the case of first lien debt and a pro forma secured net leverage ratio of 2.50:1.00 in the case of other secured debt
and (iii) incur additional unsecured debt subject to a pro forma total net leverage ratio not to exceed 3.50:1.00. We may also
make dividend payments in respect of our common stock as well as certain investments and acquisitions subject to a pro forma
total net leverage ratio of 2.75:1.00. In addition, the Revolving Facility is subject to a financial covenant requiring us to
maintain a first lien net leverage ratio not to exceed 2.00:1.00. The indentures governing the senior notes include other
incurrence-based covenants that may subject us to additional specified limitations.
Our Board of Directors approved an expansion of our existing common stock share repurchase program from $100 to $200
on March 24, 2018. The share repurchase program expires on December 31, 2019. We plan to repurchase shares utilizing
available excess cash either in the open market or through privately negotiated transactions. The stock repurchases are subject
36
to prevailing market conditions, available growth opportunities and other considerations. During 2018, we paid $25 to acquire
1,055,000 shares of common stock in the open market.
On July 30, 2018, we entered into a definitive agreement to purchase Oerlikon Drive Systems for approximately 625 Swiss
francs, inclusive of required settlements of outstanding debt obligations Oerlikon Drive Systems has with Oerlikon Group.
Committed financing has been arranged to complete the transaction. Subject to customary regulatory approval, the acquisition
is expected to close in the first quarter of 2019.
On January 11, 2019, we acquired a 100% ownership interest in SME. We paid $88 at closing, consisting of $62 in cash on
hand and a note payable of $26. The note is payable in five years and bears annual interest at 5%.
From time to time, depending upon market, pricing and other conditions, as well as our cash balances and liquidity, we
may seek to acquire our senior notes or other indebtedness or our common stock through open market purchases, privately
negotiated transactions, tender offers, exchange offers or otherwise, upon such terms and at such prices as we may determine
(or as may be provided for in the indentures governing the notes), for cash, securities or other consideration. There can be no
assurance that we will pursue any such transactions in the future, as the pursuit of any alternative will depend upon numerous
factors such as market conditions, our financial performance and the limitations applicable to such transactions under our
financing and governance documents.
Cash Flow
Cash used for changes in working capital
Other cash provided by operations
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net decrease in cash, cash equivalents and restricted cash
2018
2017
2016
(113) $
681
568
(462)
(180)
(74) $
(8) $
562
554
(583)
(120)
(149) $
(51)
435
384
(365)
(88)
(69)
$
$
The table above summarizes our consolidated statement of cash flows.
Operating activities — Exclusive of working capital, other cash provided by operations was $681 during 2018 compared to
$562 during 2017 and $435 during 2016. The increase in 2018 is principally due to an increased level of operating earnings,
lower year-over-year cash paid for interest of $14 and cash paid for strategic transaction expenses of $15, partially offset by
higher year-over-year cash paid for income taxes of $58. The increase in 2017 is principally due to an increased level of
operating earnings in 2017. Partially offsetting the higher operating earnings was an increased cash use of $20 for acquisition-
related costs, including costs incurred to complete the transactions and post-acquisition related integration costs.
Working capital used cash of $113 in 2018, $8 in 2017 and $51 in 2016. Cash of $113 in 2018, $141 in 2017 and $86 in
2016 was used to finance increased receivables. The higher level of cash required for receivables in 2018 and 2017 was
primarily due to higher year-over-year sales. Higher inventories consumed cash of $110 in 2018, $146 in 2017 and $13 in 2016.
The higher use of cash in 2018 is reflective of higher material costs and increased safety stock of certain materials to satisfy
customer requirements. The higher level of cash used to finance increased inventory in 2017 was due primarily to the stronger
year-over-year volume levels. Increases in accounts payable and other net liabilities provided cash of $110 in 2018, $279 in
2017 and $48 in 2016. Cash provided by accounts payable and other liabilities in 2018 was reduced by the payment of higher
incentive compensation accrued in 2017. In addition to higher volume levels, the cash generated in 2017 from increased levels
of accounts payable and other liabilities was also reflective of changes in payment practices and lengthening of payment terms
with suppliers. The use of cash in 2016 for receivables reflected increased sales levels in November and December compared to
2015. Except for this increase in receivables in 2016, there were no significant uses or sources of cash from working capital
components in 2016 and 2015 as organic sales levels were relatively comparable with the preceding years.
Investing activities — Expenditures for property plant and equipment were $325, $393 and $322 in 2018, 2017 and 2016.
Higher levels of capital spending in 2016 and 2017 resulted from our increased new business sales backlog, including the
launch of two of our largest customer programs which both required new investment. Although still at elevated levels, capital
expenditures have decreased from the 2017 peak, with lower requirements to support new business launches with customers. In
2018, we paid $125 to acquire a 55% ownership interest in TM4 and, pursuant to our purchase and sale agreement for the BFP
and BPT acquisitions in 2017, we made a net payment of $20 to complete a required purchase of real estate and settle purchase
price adjustment amounts owed by the seller. During 2018, we completed the sale of our Brazil suspension components
37
business resulting in a net cash outflow of $6, as the cash transferred to the buyer in the transaction exceeded the proceeds
received from the buyer. During 2017, we paid $106, net of cash acquired, to purchase an 80% ownership interest in BFP and
BPT, and we used cash of $78 to acquire the USM – Warren business. During 2016, we paid $18 to acquire the aftermarket
distribution business of Magnum and $60 to acquire the strategic assets of SIFCO's commercial vehicle steer axle systems and
related forged components businesses. In 2016, we received net proceeds of $5 and $29 related to the sale of our Nippon Reinz
and DCLLC subsidiaries. During all three years, purchases of marketable securities were largely funded by proceeds from sales
and maturities of marketable securities.
Financing activities — During 2018, we paid $43 to acquire Brevini's remaining 20% ownership interests in BFP and BPT.
Also during 2018, Yulon Motor Co., Ltd. (Yulon) paid $22 to acquire a direct ownership interest in two of our consolidated
operating subsidiaries. Yulon's ownership interest in the two consolidated operating subsidiaries did not change as a result of
the transactions, as it previously owned the same percentages indirectly through a series of consolidated holding companies.
The $22, less withholding taxes, was returned to Yulon in the form of a dividend in 2018. During 2017, our European
subsidiary, Dana Financing Luxembourg S.à r.l., completed the issuance of $400 of its April 2025 Notes and paid financing
costs of $6 related to the notes. We paid financing costs of $3 related to our Term Facility and Revolving Facility and drew the
entire $275 available under the Term Facility. We redeemed all $450 of our September 2021 Notes at a $14 premium, repaid
indebtedness of a wholly-owned subsidiary in Brazil at a premium of $1 and repaid indebtedness of our BPT and BFP
subsidiaries. In 2016, Dana Financing Luxembourg S.à r.l. completed the issuance of $375 of its June 2026 Notes and paid
financing costs of $7 related to the notes. We paid financing costs of $3 to enter our Revolving Facility and a premium of $12
to redeem all of our February 2021 Notes. Also during 2016, we made scheduled repayments of $32 and took out $66 of
additional long-term debt at international locations. We used cash of $25 and $81 to repurchase common shares under share
repurchase programs in 2018 and 2016. We used $58, $35 and $35 for dividend payments to common stockholders in 2018,
2017 and 2016. The increase in dividends paid to common stockholders in 2018 was due to our Board approving an additional
four cents per share increase in the quarterly dividend. Distributions to noncontrolling interests totaled $42, $12 and $17 in
2018, 2017 and 2016. Distributions to noncontrolling interest in 2018 includes the dividend to Yulon discussed above.
Off-Balance Sheet Arrangements
In connection with the divestiture of our Structural Products business in 2010, leases covering three U.S. facilities were
assigned to a U.S. affiliate of the new owner, Metalsa S.A. de C.V. (Metalsa). Under the terms of the sale agreement, we
guarantee the affiliate’s performance under the leases, which run through June 2025, including approximately $6 of annual
payments. In the event of a required payment by Dana as guarantor, we are entitled to pursue full recovery from Metalsa of the
amounts paid under the guarantee and to take possession of the leased property.
Contractual Obligations
We are obligated to make future cash payments in fixed amounts under various agreements. The following table
summarizes our significant contractual obligations as of December 31, 2018.
$
$
2019
Total
Payments Due by Period
2020 - 2021
38
$
193
76
2
Contractual Cash Obligations
Long-term debt(1)
Interest payments(2)
Leases(3)
Unconditional purchase obligations(4)
Pension contribution(5)
Retiree health care benefits(6)
Uncertain income tax positions(7)
Acquisition pending regulatory approval(8)
$
Total contractual cash obligations
______________________________________________________
Notes:
(1) Principal payments on long-term debt and capital lease obligations in place at December 31, 2018.
(2)
(3) Operating leases related to real estate, manufacturing and material handling equipment, vehicles and other assets.
(4) Unconditional purchase obligations are comprised of commitments for the procurement of fixed assets, the purchase of raw materials and the fulfillment
Interest payments are based on long-term debt and capital leases in place at December 31, 2018 and the interest rates applicable to such obligations.
2022 - 2023
517
$
182
48
1
1,788
591
245
138
16
83
—
635
3,496
After 2023
1,213
$
118
64
20
98
57
135
16
5
635
966
1,453
758
319
10
58
10
$
$
$
$
of other contractual obligations.
38
(5) This amount represents estimated 2019 minimum required contributions to our global defined benefit pension plans. We have not estimated pension
contributions beyond 2019 due to the significant impact that return on plan assets and changes in discount rates might have on such amounts.
(6) This amount represents estimated payments under our non-U.S. retiree health care programs. Obligations under the non-U.S. retiree health care programs
are not fixed commitments and will vary depending on various factors, including the level of participant utilization and inflation. Our estimates of the
payments to be made in the future consider recent payment trends and certain of our actuarial assumptions.
(7) We are not able to reasonably estimate the timing of payments related to uncertain tax positions because the timing of settlement is uncertain. The above
table does not reflect unrecognized tax benefits at December 31, 2018 of $107. See Note 18 to our consolidated financial statements in Item 8 for
additional discussion.
(8) On July 30, 2018, we entered into a definitive agreement to purchase Oerlikon Drive Systems. Subject to customary regulatory approvals, the acquisition
is expected to close in the first quarter of 2019. The amount presented has not been reduced by the amount of cash and cash equivalents expected to be on
Oerlikon Drive Systems' balance sheet on the date of acquisition.
At December 31, 2018, we maintained cash balances of $5 on deposit with financial institutions primarily to support
property insurance policy deductibles, certain employee retirement obligations and specific government approved
environmental remediation efforts.
Contingencies
For a summary of litigation and other contingencies, see Note 16 to our consolidated financial statements in Item 8. Based
on information available to us at the present time, we do not believe that any liabilities beyond the amounts already accrued
that may result from these contingencies will have a material adverse effect on our liquidity, financial condition or results of
operations.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with GAAP requires us to use estimates and make
judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue, expenses and the
related disclosures. Considerable judgment is often involved in making these determinations. Critical estimates are those that
require the most difficult, subjective or complex judgments in the preparation of the financial statements and the accompanying
notes. We evaluate these estimates and judgments on a regular basis. We believe our assumptions and estimates are reasonable
and appropriate. However, the use of different assumptions could result in significantly different results and actual results could
differ from those estimates. The following discussion of accounting estimates is intended to supplement the Summary of
Significant Accounting Policies presented as Note 1 to our consolidated financial statements in Item 8.
Income taxes — Accounting for income taxes is complex, in part because we conduct business globally and therefore file
income tax returns in numerous tax jurisdictions. Significant judgment is required in determining the income tax provision,
uncertain tax positions, deferred tax assets and liabilities and the valuation allowances recorded against our net deferred tax
assets. A valuation allowance is provided when, in our judgment based upon available information, it is more likely than not
that a portion of such deferred tax assets will not be realized. To make this assessment, we consider the historical and projected
future taxable income or loss by tax jurisdiction. We consider all components of comprehensive income and weigh the positive
and negative evidence, putting greater reliance on objectively verifiable historical evidence than on projections of future
profitability that are dependent on actions that have not taken place as of the assessment date. We also consider changes to
historical profitability of actions that occurred through the date of assessment and objectively verifiable effects of material
forecasted events that would have a sustained effect on future profitability, as well as the effect on historical profits of
nonrecurring events. We also incorporate the changes to historical and prospective income from tax planning strategies
expected to be implemented.
Tax reform legislation in the U.S. was signed into law in December 2017 with enactment of the Tax Cuts and Jobs Act
("Act"). This legislation represents a fundamental and dramatic shift in U.S. taxation, with many provisions of the Act differing
significantly from previous U.S. tax law. With enactment occurring late in 2017, companies with calendar reporting years did
not have extensive time to analyze the impacts of the legislation. Applying the effects of a lower corporate tax rate to deferred
tax assets and liabilities, evaluating the one-time transition tax on undistributed earnings of foreign operations, examining the
implications of changes to net operating loss and other credit carryforwards and considering other provisions of the Act in a
relatively compressed time frame necessitated significant estimation and judgment. Following the guidance of the U.S.
Securities and Exchange Commission's Staff Accounting Bulletin No. 118, we made reasonable estimates of the Act's
provisions and recorded a non-cash charge to the fourth quarter 2017 tax expense of $186 to reflect these effects. This
provisional estimate was impacted based on further analysis of the Act's requirements. Given the Act's broad and complex
changes, further clarification, interpretation and regulatory guidance affected the assumptions we used in making our
reasonable estimate.
39
In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is less
than certain. We are regularly under audit by the various applicable tax authorities. Although the outcome of tax audits is
always uncertain, we believe that we have appropriate support for the positions taken on our tax returns and that our annual tax
provisions include amounts sufficient to pay assessments, if any, upon final determination by the taxing authorities.
Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ
materially from the amounts accrued for each year. See additional discussion of our deferred tax assets and liabilities in Note 18
to our consolidated financial statements in Item 8.
Retiree benefits — Accounting for pension benefits and other postretirement benefits (OPEB) involves estimating the cost of
benefits to be provided well into the future and attributing that cost to the time period each employee works. These plan
expenses and obligations are dependent on assumptions developed by us in consultation with our outside advisers such as
actuaries and other consultants and are generally calculated independently of funding requirements. The assumptions used,
including inflation, discount rates, investment returns, life expectancies, turnover rates, retirement rates, future compensation
levels and health care cost trend rates, have a significant impact on plan expenses and obligations. These assumptions are
regularly reviewed and modified when appropriate based on historical experience, current trends and the future outlook.
Changes in one or more of the underlying assumptions could result in a material impact to our consolidated financial statements
in any given period. If actual experience differs from expectations, our financial position and results of operations in future
periods could be affected.
Mortality rates are based in part on the company's plan experience and actuarial estimates. The inflation assumption is
based on an evaluation of external market indicators, while retirement and turnover rates are based primarily on actual plan
experience. Health care cost trend rates are developed based on our actual historical claims experience, the near-term outlook
and an assessment of likely long-term trends. For our largest plans, discount rates are based upon the construction of a yield
curve which is developed based on a subset of high-quality fixed-income investments (those with yields between the 40th and
90th percentiles). The projected cash flows are matched to this yield curve and a present value developed which is then
calibrated to develop a single equivalent discount rate. Pension benefits are funded through deposits with trustees that satisfy, at
a minimum, the applicable funding regulations. For our largest defined benefit pension plans, expected investment rates of
return are based on input from the plans’ investment advisers and actuary regarding our expected investment portfolio mix,
historical rates of return on those assets, projected future asset class returns, the impact of active management and long-term
market conditions and inflation expectations. We believe that the long-term asset allocation on average will approximate the
targeted allocation and we regularly review the actual asset allocation to periodically re-balance the investments to the targeted
allocation when appropriate. OPEB and the majority of our non-U.S. pension benefits are funded as they become due.
Actuarial gains or losses may result from changes in assumptions or when actual experience is different from that which
was expected. Under the applicable standards, those gains and losses are not required to be immediately recognized in our
results of operations as income or expense, but instead are deferred as part of AOCI and amortized into our results of operations
over future periods.
U.S. retirement plans — Our U.S. defined benefit pension plans comprise 80% of our consolidated defined benefit pension
obligations at December 31, 2018. These plans are frozen and no service-related costs are being incurred. Changes in our net
obligations are principally attributable to changing discount rates and the performance of plan assets. In part to reduce our
exposure to fluctuations in unfunded pension obligations, our Board of Directors approved in October 2017 the termination of a
U.S. defined benefit pension plan. At December 31, 2018, this plan had benefit obligations of $938 and assets of $773. The
benefit obligations have been valued at the amount expected to be required to settle the obligations utilizing assumptions
regarding the portion of obligations expected to be settled through participant acceptance of lump sum payments or annuities
and the cost to purchase annuities. Increasing the plan's obligations to reflect the expected settlement value resulted in an
actuarial loss of $69 that was charged to OCI in 2017. Ultimate plan termination is subject to prevailing market conditions and
other considerations, including interest rates and annuity pricing. In the event that approvals are received and we proceed with
effecting termination of the plan, settlement of the obligations is expected to occur in the first half of 2019. For our other
pension plans, benefit obligations are valued using discount rates established annually in consultation with our outside actuarial
advisers using the same yield curve approach described above. Rising discount rates decrease the present value of future
pension obligations – a 25 basis point increase in the discount rate would decrease our U.S. pension liability by about $33. As
indicated above, when establishing the expected long-term rate of return on our U.S. pension plan assets, we consider historical
performance and forward looking return estimates reflective of our portfolio mix and investment strategy. Based on the most
recent analysis of projected portfolio returns, we concluded that the use of a 6.0% expected return in 2018 is appropriate for our
U.S. pension plans where termination is not anticipated. With the asset portfolio of the plan being terminated having a larger
proportion of cash and fixed income investments, a rate of return of 3.8% through the expected settlement date in the first half
of 2019 was considered appropriate. See Note 12 to the consolidated financial statements in Item 8 for information about the
investing and allocation objectives related to our U.S. pension plan assets.
40
During 2018, we adopted a custom mortality table using historical mortality experience for our U.S. pension plans. These
custom mortality tables are projected generationally from 2015 using the Society of Actuaries (SOA) projection scale,
MP-2018, modified to use a 0.75% long-term improvement rate (LTIR) being achieved by 2027. Using the plan-specific
mortality tables did not have a material effect on our pension obligations as we have been modifying the SOA tables for several
years.
In 2016, we began using a full yield curve approach to estimate the service (where applicable) and interest components of
the annual cost of our pension and other postretirement benefit plans. The new method estimates interest and service expense
using the specific spot rates, from the yield curve, that relate to projected cash flows. Prior to 2016, we had estimated interest
and service expense using the discount rate underlying the calculation of the related projected benefit obligation at the end of
the preceding year. That rate was a weighted-average rate derived from the corresponding yield curve. The full yield curve
approach, which we believe is more precise, reduced interest expense for our pension plans in the U.S. by approximately $14 in
2016 and $11 in 2017. The determination of the projected benefit obligation at year end is unchanged, however, so the actuarial
gain or loss is affected by the amount of the change in interest and service expense.
At December 31, 2018, we have $542 of unrecognized losses relating to our U.S. pension plans. Actuarial gains and losses,
which are primarily the result of changes in the discount rate and other assumptions and differences between actual and
expected asset returns, are deferred in AOCI and amortized to expense following the corridor approach. We use the average
remaining service period of active participants unless almost all of the plan’s participants are inactive, in which case we use the
average remaining life expectancy of inactive participants. The plan being terminated has deferred actuarial losses of $370 at
December 31, 2018. The unrecognized actuarial losses of this plan that remain when the obligations are settled in 2019 will be
recognized as expense at that time.
Actuarial gains and losses can also impact required cash contributions. Based on the current funded status of our U.S.
plans, there are no minimum contribution requirements for 2018. For the U.S. plan being terminated, to effectuate the expected
settlement in 2019, Dana will be required to fund any plan obligations in excess of assets. Based on the plan obligation
settlement assumptions and asset values at December 31, 2018, the unfunded plan obligations are $165. The actual cash
requirement at settlement will vary from this amount based on the actual cost of annuities and participant settlement elections
relative to those assumed for year-end 2018 valuation and the actual return on assets compared to the 3.8% expected annual
rate of return.
See Note 12 to our consolidated financial statements in Item 8 for additional discussion of our pension and OPEB
obligations.
Goodwill and other indefinite-lived intangible assets — Our goodwill and other indefinite-lived intangible assets are tested for
impairment annually as of October 31 for all of our reporting units, and more frequently if events or circumstances warrant
such a review. We make significant assumptions and estimates about the extent and timing of future cash flows, growth rates
and discount rates. The cash flows are estimated over a significant future period of time, which makes those estimates and
assumptions subject to a high degree of uncertainty. We also utilize market valuation models which require us to make certain
assumptions and estimates regarding the applicability of those models to our assets and businesses. We use our internal
forecasts, which we update quarterly, to make our cash flow projections. These forecasts are based on our knowledge of our
customers’ production forecasts, our assessment of market growth rates, net new business, material and labor cost estimates,
cost recovery agreements with customers and our estimate of savings expected from our restructuring activities.
The most likely factors that would significantly impact our forecasts are changes in customer production levels and loss of
significant portions of our business. We believe that the assumptions and estimates used in the assessment of the goodwill and
other indefinite-lived intangible assets as of October 31, 2018 were reasonable.
Long-lived assets with definite lives — We perform impairment assessments on our property, plant and equipment and our
definite-lived intangible assets whenever events and circumstances indicate that the carrying amounts of the assets may not be
recoverable. When indications are present, we compare the estimated future undiscounted net cash flows of the operations to
which the assets relate to the carrying amounts of such assets. We utilize the cash flow projections discussed above for
property, plant and equipment and amortizable intangibles. We group the assets and liabilities at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group
against the undiscounted future cash flows using the life of the primary assets. If the carrying amounts of the long-lived assets
are not recoverable from future cash flows and exceed their fair value, an impairment loss is recognized to reduce the carrying
amounts of the long-lived assets to their fair value. Fair value is determined based on discounted cash flows, third party
appraisals or other methods that provide appropriate estimates of value. Determining whether a triggering event has occurred,
41
performing the impairment analysis and estimating the fair value of the assets require numerous assumptions and a
considerable amount of management judgment.
Investments in affiliates — We had aggregate investments in affiliates of $208 at December 31, 2018 and $163 at December
31, 2017. We monitor our investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis
in accordance with GAAP. If we determine that an other-than temporary decline in value has occurred, we recognize an
impairment loss, which is measured as the difference between the recorded carrying value and the fair value of the investment.
Fair value is generally determined using the discounted cash flows (an income approach) or guideline public company (a
market approach) methods.
Warranty — Costs related to product warranty obligations are estimated and accrued at the time of sale with a charge against
cost of sales. Warranty accruals are evaluated and adjusted as appropriate based on occurrences giving rise to potential warranty
exposure and associated experience. Warranty accruals and adjustments require significant judgment, including a determination
of our involvement in the matter giving rise to the potential warranty issue or claim, our contractual requirements, estimates of
units requiring repair and estimates of repair costs. If actual experience differs from expectations, our financial position and
results of operations in future periods could be affected.
Contingency reserves — We have numerous other loss exposures, such as product liability and warranty claims and matters
involving litigation. Establishing loss reserves for these matters requires the use of estimates and judgment regarding risk of
exposure and ultimate liability. Product liability and warranty claims are generally estimated based on historical experience and
the estimated costs associated with specific events giving rise to potential field campaigns or recalls. In the case of legal
contingencies, estimates are made of the likely outcome of legal proceedings and potential exposure where reasonably
determinable based on the information presently known to us. New information and other developments in these matters could
materially affect our recorded liabilities.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to fluctuations in foreign currency exchange rates, commodity prices for products we use in our
manufacturing and interest rates. To reduce our exposure to these risks, we maintain risk management controls to monitor these
risks and take appropriate actions to attempt to mitigate such forms of market risks.
Foreign currency exchange rate risk — Our foreign currency exposures are primarily associated with intercompany and third
party sales and purchase transactions, cross-currency intercompany loans and external debt. We use forward contracts to
manage our foreign currency exchange rate risk associated with a portion of our forecasted foreign currency-denominated sales
and purchase transactions and with certain foreign currency-denominated assets and liabilities. We also use currency swaps,
including fixed-to-fixed cross-currency interest rate swaps, to manage foreign currency exchange rate risk associated with our
intercompany loans and external debt. Foreign currency exposures are reviewed quarterly, at a minimum, and natural offsets
are considered prior to entering into derivative instruments.
Changes in the fair value of derivative instruments treated as cash flow hedges are reported in other comprehensive income
(loss) (OCI). Deferred gains and losses are reclassified to earnings in the same period in which the underlying transactions
affect earnings. Specifically, with respect to the cross-currency interest rate swap, to the extent we recognize an exchange gain
or loss on the underlying external debt, we reclassify an offsetting portion from OCI to earnings in the same period.
Changes in the fair value of derivative instruments not treated as cash flow hedges are recognized in earnings in the period
in which those changes occur. Changes in the fair value of derivative instruments associated with product-related transactions
are recorded in cost of sales, while those associated with non-product transactions are recorded in other income (expense), net.
See Note 15 to our consolidated financial statements in Item 8.
The following table summarizes the sensitivity of the fair value of our derivative instruments, including forward contracts
and currency swaps, at December 31, 2018 to a 10% change in foreign exchange rates.
42
Foreign currency rate sensitivity:
Currency swaps
Forward contracts
10%
Increase
in Rates
Gain (Loss)
10%
Decrease
in Rates
Gain (Loss)
$
$
(127) $
(17) $
113
20
At December 31, 2018, of the $2,104 total notional amount of foreign currency derivatives, approximately 52% represents
the aggregate of three fixed-to-fixed cross-currency interest rate swaps associated with recorded foreign currency-denominated
external debt and certain foreign currency-denominated intercompany loans while the remaining 48% primarily represents
forward contracts associated with our forecasted foreign currency-denominated sales and purchase transactions.
To manage our global liquidity objectives, we periodically execute intercompany loans, some of which are foreign
currency-denominated. With respect to such intercompany loans, the total notional amount outstanding at December 31, 2018 is
approximately $550. Depending on the specific objective of each intercompany loan arrangement, certain intercompany loans
may be hedged while others remain unhedged for strategic reasons. The decision to hedge the loan, to designate the loan itself
as a hedge or not to hedge the loan is dependent on management's underlying strategy. Of the approximately $550 of foreign
currency-denominated intercompany loans outstanding at December 31, 2018, approximately two-thirds, or $322, has been
hedged by one of our fixed-to-fixed cross-currency swaps whereby we have protected the income statement from exchange rate
risk. Of the remaining one-third of such outstanding intercompany loans, none has been hedged. A significant portion of this
remaining one-third is deemed to be permanent in nature while the remainder of this one-third portion has been designated as a
net investment hedge to protect the USD-equivalent value of the corresponding amount of the underlying investment in our
Mexican operations. The remeasurement of foreign currency-denominated intercompany loans that have been designated as
net investment hedges or characterized as permanent in nature is recognized as an adjustment to the cumulative translation
adjustment component of OCI.
To align our cash requirements with availability by currency, we also periodically issue external debt that is denominated
in a currency other than the functional currency of the issuing entity. As of December 31, 2018, we had $775 of external U.S.
dollar debt, issued by a euro-functional entity, all of which has been hedged by our fixed-to-fixed cross-currency interest rate
swaps. Such swaps are treated as cash flow hedges whereby the changes in fair value are recorded in OCI to the extent the
hedges remain effective.
At December 31, 2017, the total notional amount of our currency derivative portfolio was $1,408 and included fixed-to-
fixed cross-currency interest rate swaps associated with $775 of external debt. The remaining $643 represents currency swaps
and forward contracts associated with certain foreign currency-denominated intercompany loans and forecasted sales and
purchase transactions.
Commodity price risk — We do not utilize derivative contracts to manage commodity price risk. Our overall strategy is to pass
through commodity risk to our customers in our pricing agreements. A substantial portion of our customer agreements include
contractual provisions for the pass-through of commodity price movements. In instances where the risk is not covered
contractually, we have generally been able to adjust customer pricing to recover commodity cost increases.
Interest rate risk — Our long-term debt portfolio consists mostly of fixed-rate instruments. On occasion we enter into interest
rate swaps to convert fixed-rate debt to floating-rate debt. As described in Note 15 to our consolidated financial statements in
Item 8, we entered into a fixed-to-floating interest rate swap during 2015 but terminated that swap prior to the end of 2015. At
December 31, 2018, we do not hold any fixed-to-floating interest rate swaps. Our three fixed-to-fixed cross-currency interest
rate swaps remain outstanding at December 31, 2018 and act as hedges of the currency risk of certain external and
intercompany debt instruments. See Note 15 to our consolidated financial statements in Item 8 for additional information.
43
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Dana Incorporated
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Dana Incorporated and its subsidiaries (the “Company”) as
of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes and
schedule of valuation and qualifying accounts and reserves for each of the three years in the period ended December 31, 2018
appearing under Item 15(a)(3) (collectively referred to as the “consolidated financial statements”). We also have audited the
Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded TM4 Inc.
(TM4) from its assessment of internal control over financial reporting as of December 31, 2018 because it was acquired by the
Company in a purchase business combination during 2018. We have also excluded TM4 from our audit of internal control over
financial reporting. TM4 is a subsidiary whose total assets and total revenues excluded from management’s assessment and our
audit of internal control over financial reporting represent approximately 1.2% and approximately 0.1%, respectively, of the
related consolidated financial statement amounts as of and for the year ended December 31, 2018.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
44
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
February 15, 2019
We have served as the Company’s auditor since 1916.
45
Dana Incorporated
Consolidated Statement of Operations
(In millions, except per share amounts)
Net sales
Costs and expenses
Cost of sales
Selling, general and administrative expenses
Amortization of intangibles
Restructuring charges, net
Impairment of indefinite-lived intangible asset
Gain (loss) on disposal group held for sale
Loss on sale of subsidiaries
Other income (expense), net
Earnings before interest and income taxes
Loss on extinguishment of debt
Interest income
Interest expense
Earnings before income taxes
Income tax expense (benefit)
Equity in earnings of affiliates
Net income
Less: Noncontrolling interests net income
Less: Redeemable noncontrolling interests net loss
Net income attributable to the parent company
Net income per share available to common stockholders
Basic
Diluted
Weighted-average common shares outstanding
Basic
Diluted
2018
2017
2016
$
8,143
$
7,209
$
5,826
6,986
499
8
25
(20)
3
(29)
579
11
96
494
78
24
440
13
427
$
6,143
508
11
14
(27)
(16)
490
(19)
11
102
380
283
19
116
10
(5)
111
2.94
2.91
$
$
0.72
0.71
145.0
146.5
145.1
146.9
$
$
$
4,991
401
8
36
(80)
22
332
(17)
13
113
215
(424)
14
653
13
640
4.38
4.36
146.0
146.8
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
46
Dana Incorporated
Consolidated Statement of Comprehensive Income
(In millions)
Net income
Other comprehensive income (loss), net of tax:
Currency translation adjustments
Hedging gains and losses
Investment and other gains and losses
Defined benefit plans
Other comprehensive loss
Total comprehensive income
Less: Comprehensive income attributable to noncontrolling interests
Less: Comprehensive loss attributable to redeemable noncontrolling interests
Comprehensive income attributable to the parent company
$
2018
2017
2016
$
440
$
116
$
653
(63)
10
23
(30)
410
(7)
6
409
$
(14)
(30)
2
(6)
(48)
68
(17)
2
53
(41)
(30)
(2)
(39)
(112)
541
(11)
$
530
The accompanying notes are an integral part of the consolidated financial statements.
47
Dana Incorporated
Consolidated Balance Sheet
(In millions, except share and per share amounts)
2018
2017
Assets
Current assets
Cash and cash equivalents
Marketable securities
Accounts receivable
Trade, less allowance for doubtful accounts of $9 in 2018 and $8 in 2017
Other
Inventories
Other current assets
Current assets of disposal group held for sale
Total current assets
Goodwill
Intangibles
Deferred tax assets
Other noncurrent assets
Investments in affiliates
Property, plant and equipment, net
Total assets
Liabilities and equity
Current liabilities
Short-term debt
Current portion of long-term debt
Accounts payable
Accrued payroll and employee benefits
Taxes on income
Other accrued liabilities
Current liabilities of disposal group held for sale
Total current liabilities
Long-term debt, less debt issuance costs of $18 in 2018 and $22 in 2017
Pension and postretirement obligations
Other noncurrent liabilities
Noncurrent liabilities of disposal group held for sale
Total liabilities
Commitments and contingencies (Note 16)
Redeemable noncontrolling interests
Parent company stockholders' equity
Preferred stock, 50,000,000 shares authorized, $0.01 par value, no shares outstanding
Common stock, 450,000,000 shares authorized, $0.01 par value, 144,663,403 and
144,984,050 shares outstanding
Additional paid-in capital
Retained earnings
Treasury stock, at cost (8,342,185 and 7,001,017 shares)
Accumulated other comprehensive loss
Total parent company stockholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
$
$
510
21
603
40
994
172
969
97
7
2,882
127
174
420
71
163
1,807
5,644
17
23
1,165
219
53
220
5
1,702
1,759
607
413
2
4,483
47
—
$
$
1,065
178
1,031
102
2,907
264
164
445
80
208
1,850
5,918
8
20
1,217
186
47
269
1,747
1,755
561
313
4,376
100
—
2
2,368
456
(119)
(1,362)
1,345
97
1,442
5,918
$
2
2,354
86
(87)
(1,342)
1,013
101
1,114
5,644
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
48
Dana Incorporated
Consolidated Statement of Cash Flows
(In millions)
2018
2017
2016
Operating activities
Net income
Depreciation
Amortization of intangibles
Amortization of deferred financing charges
Call premium on debt
Write-off of deferred financing costs
Earnings of affiliates, net of dividends received
Stock compensation expense
Deferred income taxes
Pension contributions, net
Impairment of indefinite-lived intangible asset
(Gain) loss on sale of subsidiaries
(Gain) loss on disposal group held for sale
Change in working capital
Change in other noncurrent assets and liabilities
Other, net
Net cash provided by operating activities
Investing activities
Purchases of property, plant and equipment
Acquisition of businesses, net of cash acquired
Proceeds from previous acquisition
Purchases of marketable securities
Proceeds from sales of marketable securities
Proceeds from maturities of marketable securities
Proceeds from sale of subsidiaries, net of cash disposed
Other, net
Net cash used in investing activities
Financing activities
Net change in short-term debt
Proceeds from long-term debt
Repayment of long-term debt
Call premium on debt
Deferred financing payments
Dividends paid to common stockholders
Distributions to noncontrolling interests
Contributions from noncontrolling interests
Payments to acquire redeemable noncontrolling interests
Repurchases of common stock
Other, net
Net cash used in financing activities
Net decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash - beginning of period
Effect of exchange rate changes on cash balances
Cash, cash equivalents and restricted cash - end of period
$
$
440
260
10
4
(4)
16
(64)
3
20
(2)
(113)
(12)
10
568
(325)
(153)
9
(37)
15
37
(6)
(2)
(462)
(21)
(13)
(1)
(58)
(42)
25
(43)
(25)
(2)
(180)
(74)
610
(16)
520
$
$
116
220
13
5
15
4
(3)
23
179
(6)
(3)
27
(8)
(9)
(19)
554
(393)
(185)
(35)
1
27
3
(1)
(583)
(90)
676
(640)
(15)
(9)
(35)
(12)
5
(120)
(149)
716
43
610
$
$
653
173
9
5
12
5
(3)
17
(480)
(16)
80
(51)
(1)
(19)
384
(322)
(78)
(93)
47
47
34
(365)
9
441
(382)
(12)
(11)
(35)
(17)
(81)
(88)
(69)
800
(15)
716
The accompanying notes are an integral part of the consolidated financial statements.
49
Dana Incorporated
Consolidated Statement of Stockholders’ Equity
(In millions)
Parent Company Stockholders'
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
(Accumulated
Deficit)
Treasury
Stock
Accumulated
Other
Compre-
hensive
Loss
Parent
Company
Stockholders'
Equity
Non-
controlling
Interests
Total
Equity
Balance, December 31, 2015 $
— $
2
$
2,311
$
(410) $
(1) $
(1,174) $
Net income
Other comprehensive loss
Common stock dividends
($0.24 per share)
Distributions to
noncontrolling interests
Derecognition of
noncontrolling interest
Common stock share
repurchases
Stock compensation
Stock withheld for employees
taxes
16
Balance, December 31, 2016
—
2
2,327
Adoption of ASU 2016-16
tax adjustment, January 1,
2017
Net income
Other comprehensive loss
Common stock dividends
($0.24 per share)
Distributions to
noncontrolling interests
Increase from business
combination
Redeemable noncontrolling
interests adjustment to
redemption value
Purchase of noncontrolling
interests
Stock compensation
Stock withheld for employees
taxes
27
Balance, December 31, 2017
—
2
2,354
Adoption of ASU 2016-01
financial instruments
adjustment, January 1,
2018
Net income
Other comprehensive loss
Common stock dividends
($0.40 per share)
Distributions to
noncontrolling interests
Purchase of noncontrolling
interests
Purchase of redeemable
noncontrolling interests
Contribution from
noncontrolling interest
Common stock share
repurchases
Stock compensation
Stock withheld for employees
taxes
1
(9)
2
20
640
(35)
195
(179)
111
(35)
(6)
86
2
427
(59)
(81)
(1)
(83)
(4)
(87)
(25)
(7)
(110)
$
103
$
13
(2)
(17)
(12)
728
640
(110)
(35)
—
—
(81)
16
(1)
831
653
(112)
(35)
(17)
(12)
(81)
16
(1)
(1,284)
1,157
85
1,242
(58)
(179)
111
(58)
(35)
—
—
(6)
—
27
(4)
10
7
(12)
12
(1)
(179)
121
(51)
(35)
(12)
12
(6)
(1)
27
(4)
(1,342)
1,013
101
1,114
(2)
(18)
—
427
(18)
(58)
—
(9)
2
—
(25)
20
(7)
13
(6)
(42)
9
22
—
440
(24)
(58)
(42)
—
2
22
(25)
20
(7)
Balance, December 31, 2018 $
— $
2
$
2,368
$
456
$
(119) $
(1,362) $
1,345
$
97
$ 1,442
The accompanying notes are an integral part of the consolidated financial statements.
50
Dana Incorporated
Index to Notes to the Consolidated
Financial Statements
1.
2.
3.
4.
5.
6.
7.
8.
9.
Organization and Summary of Significant Accounting Policies
Acquisitions
Disposal Groups and Divestitures
Goodwill and Other Intangible Assets
Restructuring of Operations
Inventories
Supplemental Balance Sheet and Cash Flow Information
Stockholders' Equity
Redeemable Noncontrolling Interests
10.
Earnings per Share
11.
Stock Compensation
12.
Pension and Postretirement Benefit Plans
13. Marketable Securities
14.
Financing Agreements
15.
Fair Value Measurements and Derivatives
16.
Commitments and Contingencies
17. Warranty Obligations
18.
Income Taxes
19. Other Income (Expense), Net
20.
Revenue from Contracts with Customers
21.
Segments, Geographical Area and Major Customer Information
22.
Equity Affiliates
51
Page
52
59
63
63
65
66
67
68
70
71
72
73
81
81
84
87
88
89
93
93
94
97
Notes to the Consolidated Financial Statements
(In millions, except share and per share amounts)
Note 1. Organization and Summary of Significant Accounting Policies
General
Dana Incorporated (Dana) is headquartered in Maumee, Ohio and was incorporated in Delaware in 2007. We are a global
provider of high technology drive and motion products, sealing solutions, thermal-management technologies and fluid-power
products and our customer base includes virtually every major vehicle and engine manufacturer in the global light vehicle,
medium/heavy vehicle and off-highway markets.
The terms "Dana," "we," "our" and "us," when used in this report are references to Dana. These references include the
subsidiaries of Dana unless otherwise indicated or the context requires otherwise.
Summary of significant accounting policies
Basis of presentation — Our consolidated financial statements include the accounts of all subsidiaries where we hold a
controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation.
Investments in 20 to 50%-owned affiliates, which are not required to be consolidated, are generally accounted for under the
equity method. Equity in earnings of these investments is presented separately in the consolidated statement of operations, net
of tax. Investments in less-than-20%-owned companies are generally included in the financial statements at the cost of our
investment. Dividends, royalties and fees from these cost basis affiliates are recorded in income when received.
In the fourth quarter of 2017, we identified an error in the classification of a third-party ownership interest in a subsidiary
of Brevini Power Transmission S.p.A. Based on put and call provisions provided for in the agreement between the parties, the
third-party ownership interest should have been classified as a redeemable noncontrolling interest. This balance sheet error was
corrected in December 2017 by increasing redeemable noncontrolling interests and reducing noncontrolling interests by $3.
The purchase consideration allocation presented in Note 2 and the initial fair value of redeemable noncontrolling interests of
acquired businesses presented in Note 9 include this correction.
Held for sale — We classify long-lived assets or disposal groups as held for sale in the period: management commits to a plan
to sell; the long-lived asset or disposal group is available for immediate sale in its present condition subject only to terms that
are usual and customary for sales of such long-lived assets or disposal groups; an active program to locate a buyer and other
actions required to complete the plan to sell have been initiated; the sale is probable within one year; the asset or disposal group
is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and it is unlikely that
significant changes to the plan will be made or that the plan will be withdrawn. Long-lived assets and disposal groups classified
as held for sale are measured at the lower of their carrying amount or fair value less costs to sell.
Discontinued operations — The results of operations of a component or a group of components that either has been disposed of
or is classified as held for sale is reported in discontinued operations if the disposal represents a strategic shift that has (or will
have) a major effect on operations and financial results.
Estimates — Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States (GAAP), which require the use of estimates, judgments and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying disclosures. We believe our assumptions and estimates are reasonable
and appropriate. However, due to the inherent uncertainties in making estimates, actual results could differ from those
estimates.
Fair value measurements — A three-tier fair value hierarchy is used to prioritize the inputs to valuation techniques used to
measure fair value. The three levels of inputs are as follows: Level 1 inputs (highest priority) include unadjusted quoted prices
in active markets for identical instruments. Level 2 inputs include quoted prices for similar instruments that are observable
either directly or indirectly. Level 3 inputs (lowest priority) include unobservable inputs in which there is little or no market
data, which require management to develop its own assumptions. Classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value measurement.
The inputs we use in our valuation techniques include market data or assumptions that we believe market participants
would use in pricing an asset or liability, including assumptions about risk when appropriate. Our valuation techniques include
a combination of observable and unobservable inputs. When available, we use quoted market prices to determine the fair value
52
(market approach). In the absence of active markets for the identical assets or liabilities, such measurements involve developing
assumptions based on market observable data and, in the absence of such data, we consider the amount and timing of estimated
future cash flows and assumed discount rates reflecting varying degrees of credit risk that is consistent with what market
participants would use in a hypothetical transaction that occurs at the measurement date (income approach). Fair values may
not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized
in the future.
Cash and cash equivalents — Cash and cash equivalents includes cash on hand, demand deposits and short-term cash
investments that are highly liquid in nature and have maturities of three months or less when purchased.
Marketable securities — Our investments in marketable securities reported in the accompanying balance sheet are classified as
available for sale and carried at fair value. We recorded unrealized gains and losses in accumulated other comprehensive
income (loss) (AOCI) through the end of 2017 but recorded them in net income beginning in 2018 to comply with new
accounting guidance. Realized gains and losses are recorded using the specific identification method.
Inventories — Inventories are valued at the lower of cost or net realizable value. Cost is determined using the average or first-
in, first-out (FIFO) cost method.
Property, plant and equipment — Property, plant and equipment are recorded at cost. Depreciation is recognized over the
estimated useful lives using primarily the straight-line method for financial reporting purposes and accelerated depreciation
methods for federal income tax purposes. Useful lives of newly acquired assets are generally twenty to thirty years for
buildings and building improvements, five to ten years for machinery and equipment, three to five years for tooling and office
equipment and three to ten years for furniture and fixtures. If assets are impaired, their value is reduced via an increase in
accumulated depreciation.
Pre-production costs related to long-term supply arrangements — The costs of tooling used to make products sold under long-
term supply arrangements are capitalized as part of property, plant and equipment and amortized over their useful lives if we
own the tooling or if we fund the purchase but our customer owns the tooling and grants us the irrevocable right to use the
tooling over the contract period. If we have a contractual right to bill our customers, costs incurred in connection with the
design and development of tooling are carried as a component of other accounts receivable until invoiced. Design and
development costs related to customer products are deferred if we have an agreement to collect such costs from the customer;
otherwise, they are expensed when incurred. At December 31, 2018, the machinery and equipment component of property,
plant and equipment includes $31 of our tooling related to long-term supply arrangements. The increase during 2018 reflects
the start of production for our recently awarded customer contracts. Also at December 31, 2018, trade and other accounts
receivable includes $53 of costs related to tooling that we have a contractual right to collect from our customers.
Goodwill — We test goodwill for impairment annually as of October 31 and more frequently if events occur or circumstances
change that would warrant an interim review. Goodwill impairment testing is performed at the reporting unit level, which is the
operating segment in the case of our Off-Highway and Commercial Vehicle goodwill. We estimate the fair value of the
reporting unit in the first step using various valuation methodologies, including projected future cash flows and multiples of
current earnings. If the estimated fair value of the reporting unit exceeds its carrying value, the goodwill is considered not
impaired. If the carrying value of the reporting unit exceeds its estimated fair value, then the second step of the test would be
required to determine the implied fair value of the goodwill and any resulting impairment. The estimated fair value of our
reporting units were greater than their carrying values at October 31, 2018. No impairment of goodwill occurred during the
three years ended December 31, 2018.
Intangible assets — Intangible assets include the value of core technology, trademarks and trade names, customer relationships
and intangible assets used in research and development activities. Core technology and customer relationships have definite
lives while intangible assets used in research and development activities and substantially all of our trademarks and trade
names have indefinite lives. Definite-lived intangible assets are amortized over their useful life using the straight-line method
of amortization and are periodically reviewed for impairment indicators. Amortization of core technology is charged to cost of
sales. Amortization of trademarks and trade names and customer relationships is charged to amortization of intangibles.
Intangible assets used in research and development activities have an indefinite life until completion of the associated research
and development efforts. Upon completion of development, the assets are amortized over their useful life; if the project is
abandoned, the assets are written off immediately. Indefinite-lived intangible assets are tested for impairment annually and
more frequently if impairment indicators exist. See Note 4 for more information about intangible assets.
Investments in affiliates — Investments in affiliates include investments accounted for under the equity and cost methods. We
monitor our investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance
53
with GAAP. Indicators include, but are not limited to, current economic and market conditions, operating performance of the
affiliate, including current earnings trends and undiscounted cash flows, and other affiliate-specific information. If we
determine that an other-than-temporary decline in value has occurred, we recognize an impairment loss, which is measured as
the excess of the investment's recorded carrying value over its fair value. The fair value determination, particularly for
investments in privately-held companies, requires significant judgment to determine appropriate estimates and assumptions.
Changes in these estimates and assumptions could affect the calculation of the fair value of the investments and determination
of whether any identified impairment is other than temporary. See Note 22 for further information about our investment in
affiliates.
Tangible asset impairments — We review the carrying value of amortizable long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of the assets to the undiscounted future net cash flows
expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of are
reported at the lower of their carrying amount or fair value less costs to sell and are no longer depreciated.
Other long-lived assets and liabilities — We discount our workers’ compensation obligations by applying blended risk-free
rates that are appropriate for the duration of the projected cash flows. The use of risk-free rates is considered appropriate given
that other risks affecting the volume and timing of payments have been considered in developing the probability-weighted
projected cash flows. The blended risk-free rates are revised annually to consider incremental cash flow projections.
Financial instruments — The carrying values of cash and cash equivalents, trade receivables and short-term borrowings
approximate fair value. Notes receivable are carried at fair value, which considers the contractual call or selling price, if
applicable. Borrowings under our credit facilities are carried at historical cost and adjusted for principal payments and foreign
currency fluctuations.
Derivatives — Foreign currency forward contracts and currency swaps are carried at fair value. We enter into these contracts to
manage our exposure to the impact of currency fluctuations on certain foreign currency-denominated assets and liabilities and
on a portion of our forecasted purchase and sale transactions. On occasion, we also enter into net investment hedges to protect
the translated U.S. dollar value of our investment in certain foreign subsidiaries. We also periodically enter into fixed-to-fixed
cross-currency swaps on foreign currency-denominated external or intercompany debt instruments to reduce our exposure to
foreign currency exchange rate risk. Such fixed-to-fixed cross-currency swaps are designated as cash flow hedges. We do not
use derivatives for trading or speculative purposes and we do not hedge all of our exposures.
For derivative instruments designated as cash flow hedges, at the cash flow hedge’s inception and on an ongoing basis, the
company formally assesses whether the cash flow hedging instruments have been highly effective in offsetting changes in the
cash flows of the hedged transactions and whether those cash flow hedging instruments may be expected to remain highly
effective in future periods. Changes in the fair value of currency-related contracts treated as cash flow hedges are deferred and
included as a component of other comprehensive income (loss) (OCI). For our fixed-to-fixed cross-currency swaps, a review of
critical terms is performed each period to establish that an assumption of effectiveness remains appropriate. Deferred gains and
losses are reclassified to earnings in the same periods in which the underlying transactions affect earnings.
Changes in the fair value of contracts not treated as cash flow hedges or as net investment hedges are recognized in other
income (expense), net in the period in which those changes occur. Changes in the fair value of contracts treated as net
investment hedges are recorded in the cumulative translation adjustment (CTA) component of OCI. Amounts recorded in CTA
are deferred until such time as the investment in the associated subsidiary is substantially liquidated.
We may also use fixed-to-floating or floating-to-fixed interest rate swaps to manage exposure to fluctuations in interest
rates and to adjust the mix of our fixed-rate and variable-rate debt. As a fair value hedge of the underlying debt, changes in the
fair values of the swap and the underlying debt are recorded in interest expense. No such fixed-to-floating or floating-to-fixed
swaps were outstanding at December 31, 2018. See Note 15 for additional information.
Cash flows associated with designated derivatives are classified within the same category as the item being hedged on the
consolidated statement of cash flows. Cash flows associated with undesignated derivatives are included in the investing
category on the consolidated statement of cash flows.
Warranty — Costs related to product warranty obligations are estimated and accrued at the time of sale with a charge against
cost of sales. Warranty accruals are evaluated and adjusted as appropriate based on occurrences giving rise to potential warranty
exposure and associated experience. Warranty accruals and adjustments require significant judgment, including a determination
54
of our involvement in the matter giving rise to the potential warranty issue or claim, our contractual requirements, estimates of
units requiring repair and estimates of repair costs.
Environmental compliance and remediation — Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to existing conditions caused by past operations that do not contribute to our
current or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or remedial
efforts are probable and the costs can be reasonably estimated. We consider the most probable method of remediation, current
laws and regulations and existing technology in determining our environmental liabilities.
Pension and other postretirement defined benefits — Net pension and postretirement benefits expenses and the related
liabilities are determined on an actuarial basis. These plan expenses and obligations are dependent on management’s
assumptions developed in consultation with our actuaries. We review these actuarial assumptions at least annually and make
modifications when appropriate. With the input of independent actuaries and other relevant sources, we believe that the
assumptions used are reasonable; however, changes in these assumptions, or experience different from that assumed, could
impact our financial position, results of operations or cash flows.
Postemployment benefits — Costs to provide postemployment benefits to employees are accounted for on an accrual basis.
Obligations that do not accumulate or vest are recorded when payment is probable and the amount can be reasonably estimated.
For those obligations that accumulate or vest and the amount can be reasonably estimated, expense and the related liability are
recorded as service is rendered.
Equity-based compensation — We measure compensation cost arising from the grant of share-based awards to employees at
fair value. We recognize such costs in income over the period during which the requisite service is provided, usually the vesting
period. The grant date fair value is estimated using valuation techniques that require the input of management estimates and
assumptions.
Revenue recognition — Sales are recognized when products are shipped and risk of loss has transferred to the customer. See
Recently adopted accounting pronouncements in this note for a description of the current practice and Note 20 for additional
information regarding the related impact on our segment reporting. We accrue for warranty costs, sales returns and other
allowances based on experience and other relevant factors when sales are recognized. Adjustments are made as new
information becomes available. Shipping and handling fees billed to customers are included in sales, while costs of shipping
and handling are included in cost of sales. Taxes collected from customers are excluded from revenues and credited directly to
obligations to the appropriate governmental agencies.
Foreign currency translation — The financial statements of subsidiaries and equity affiliates outside the U.S. located in non-
highly inflationary economies are measured using the currency of the primary economic environment in which they operate as
the functional currency, which typically is the local currency. Transaction gains and losses resulting from translating assets and
liabilities of these entities into the functional currency are included in other income (expense), net or in equity in earnings of
affiliates. When translating into U.S. dollars, income and expense items are translated at average monthly rates of exchange,
while assets and liabilities are translated at the rates of exchange at the balance sheet date. Translation adjustments resulting
from translating the functional currency into U.S. dollars are deferred and included as a component of AOCI in stockholders’
equity. For operations whose functional currency is the U.S. dollar, nonmonetary assets are translated into U.S. dollars at
historical exchange rates and monetary assets are translated at current exchange rates.
We believe that Argentina's economy met the GAAP definition of a highly inflationary economy during the second quarter
of 2018. As such, effective July 1, 2018 we began to remeasure the financial statements of our Argentine subsidiaries as if their
functional currency was the U.S. dollar. In assessing Argentina's economy as highly inflationary we considered its three-year
cumulative inflation rate along with other factors. We believe the National Wholesale Price Index (WPI) provides the most
reliable calculation of cumulative inflation for Argentina as the WPI has consistently provided national coverage and
historically has been viewed as the most relevant and reliable measure by practitioners. Argentina's three-year cumulative
inflation rate through May 2018 based on the WPI was 109%. In addition, management considered the Central Bank of
Argentina increasing annual interest rates to 30% in April 2018 and further increasing them to 40% in May 2018, the Argentine
government requesting financial assistance from the International Monetary Fund and the significant depreciation of the
Argentine peso against the U.S. dollar during the second quarter of 2018.
Income taxes — In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We
assess our income tax positions and record tax assets or liabilities for all years subject to examination based upon
management’s evaluation of the facts and circumstances and information available at the reporting dates. For those tax
positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit
55
with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of
all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained,
no tax benefit has been recognized in the financial statements. Where applicable, the related interest cost has also been
recognized as a component of the income tax provision.
Research and development — Research and development costs include expenditures for research activities relating to product
development and improvement. Salaries, fringes and occupancy costs, including building, utility and overhead costs, comprise
the vast majority of these expenses and are expensed as incurred. Research and development expenses were $103, $102 and
$81 in 2018, 2017 and 2016.
Recently adopted accounting pronouncements
On January 1, 2018, we adopted Accounting Standard Update (ASU) 2017-12, Derivatives and Hedging – Targeted
Improvements to Accounting for Hedging Activities, guidance that addresses effectiveness testing requirements, income
statement presentation and disclosure and hedge accounting qualification criteria. Adoption of this standard results in a
prospective change to the presentation of certain hedging-related gains and losses in our consolidated statement of operations.
Effective with our permitted early adoption of this standard on January 1, 2018, realized gains and losses on forecasted
transactions are recorded in the financial statement line item to which the underlying forecasted transaction relates (e.g., sales
or cost of sales). Adoption also simplifies our ongoing effectiveness testing and reduces the complexity of hedge accounting
requirements for new hedging contracts. The adoption of this standard, including the change in presentation within the
consolidated statement of operations, did not have a material impact.
On January 1, 2018, we adopted ASU 2017-07, Retirement Benefits – Improving the Presentation of Net Periodic Pension
Cost and Net Periodic Postretirement Benefit Cost, guidance that changed the reporting of pension and other postretirement
benefits (OPEB) costs in the income statement. The service cost components of net periodic pension and OPEB costs continue
to be included in cost of sales and selling, general and administrative expenses as part of compensation cost and remain eligible
for capitalization in inventory and other assets. The non-service components are now reported in other income (expense), net
and are not eligible for capitalization. The impact of the new guidance on inventory at December 31, 2018 was not material.
For 2017, we reclassified net pension and OPEB costs of $4 from cost of sales and $3 from selling, general and administrative
expenses to other income (expense), net to conform to the 2018 presentation. For 2016, we reclassified net pension and OPEB
income of $9 from cost of sales and net pension and OPEB costs of $5 from selling, general and administrative expenses to
other income (expense), net. We used the practical expedient in the guidance to quantify these impacts, which disregards the
potential change in capitalized costs during the period. See Note 20 for information regarding the related impact on our
segment reporting.
On January 1, 2018, we adopted ASU 2016-18, Statement of Cash Flows – Restricted Cash, guidance that requires the
statement of cash flows to explain the change during the period in the total cash, cash equivalents and amounts generally
described as restricted cash. Amounts generally described as restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the beginning and ending total amounts shown on the statement of cash flows.
Retrospective presentation is required. For 2016 and 2017, this change resulted in a $9 and $9 increase in cash, cash
equivalents and restricted cash at the beginning of the period and a $7 increase at the end of 2017 as presented on our
consolidated statement of cash flow. In addition, removing the change in restricted cash from the consolidated statement of cash
flows resulted in a change of $2 in our net cash used in investing activities for 2017. See Note 7 for additional information.
On January 1, 2018, we adopted ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets
and Financial Liabilities, an amendment that addresses the recognition, measurement, presentation and disclosure of certain
financial instruments. Investments in equity securities that were classified as available-for-sale and carried at fair value, with
changes in fair value reported in OCI, are now carried at fair value determined on an exit price notion and changes in fair value
are now reported in net income. The new guidance also affects the assessment of deferred tax assets related to available-for-sale
securities, the accounting for liabilities for which the fair value option is elected and the disclosures of financial assets and
financial liabilities in the notes to the financial statements. The adoption resulted in a release of the deferred gain in AOCI
directly to retained earnings of $2.
Effective January 1, 2018, we adopted ASU 2014-09, Revenue – Revenue from Contracts with Customers, which requires
companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in amounts
that reflect the consideration a company expects to be entitled to in exchange for those goods or services. We have elected to
use the modified retrospective approach to transition to the new standard. Comparative prior periods have not been restated. We
assessed our products in combination with the provisions of our current customer contracts to determine the cumulative effect
of initially applying ASU 2014-09. Based on our assessment, the adoption date financial statement impact was limited to
56
balance sheet reclassifications required to establish the refund asset, refund liability and contract liability concepts provided for
in ASU 2014-09. There was no cumulative effect adjustment required to be recorded to retained earnings. The cumulative
effects of the changes made to our January 1, 2018 consolidated balance sheet for the adoption of ASU 2014-09 were as
follows:
Assets
Current assets
Accounts receivable - Trade
Other current assets
Liabilities
Current liabilities
Other accrued liabilities
Balance at
December 31,
2017
Adjustments
Due to
ASU 2014-09
Balance at
January 1,
2018
$
$
$
994
97
$
15
1
1,009
98
220
$
16
$
236
The following table shows the impact adopting ASC 606 had on our consolidated balance sheet as of December 31, 2018:
Assets
Current assets
Accounts receivable - Trade
Other current assets
Liabilities
Current liabilities
Other accrued liabilities
See Note 20 for additional information.
Balances Without
Adoption of
ASU 2014-09
December 31, 2018
Adjustments
Due to
ASU 2014-09
As Reported
$
$
$
1,049
100
$
16
2
1,065
102
251
$
18
$
269
During the third quarter of 2018, we early adopted ASU 2018-02, Income Statement - Reporting Comprehensive Income,
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This guidance allows entities the
option of reclassifying stranded income tax effects resulting from the Tax Cuts and Jobs Act (the “Act”) from AOCI to retained
earnings in their consolidated financial statements. As a result of the Act, deferred taxes were adjusted to reflect the reduction
of the historical corporate income tax rate to the newly enacted corporate income tax rate by means of a credit or charge to
income from continuing operations, leaving the tax effects of items within AOCI stranded at historical tax rates. This guidance
would have been effective January 1, 2019 without early adoption. The guidance is to be applied either in the period of
adoption or retrospectively to each period that was affected by the change in the corporate tax rate under the Act. Due to the
immaterial amount of the stranded tax effects, we have elected not to reclassify the income tax effects from AOCI to retained
earnings.
We also adopted the following standards during 2018, none of which had a material impact on our financial statements or
financial statement disclosures:
Stock Compensation – Scope of Modification Accounting
2017-09
2017-01 Business Combinations – Clarifying the Definition of a Business
2016-15
Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments
Standard
Effective Date
January 1, 2018
January 1, 2018
January 1, 2018
57
Recently issued accounting pronouncements
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software, Customer's
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This guidance
allows for capitalization of implementation costs associated with certain cloud computing arrangements. This guidance
becomes effective January 1, 2020 and early adoption is permitted. The guidance is to be applied either retrospectively or
prospectively to all implementation costs incurred after the date of adoption. We do not expect the adoption of this guidance to
impact our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General,
Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The guidance eliminated certain
disclosures about defined benefit plans, added new disclosures, and clarified other requirements. This guidance becomes
effective January 1, 2020 and early adoption is permitted. There were no changes to interim disclosure requirements. Adoption
of this guidance will not have a material effect on our annual financial statement disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, Disclosure Framework – Changes to the
Disclosure Requirements for Fair Value Measurement. The guidance removed or modified some disclosures while others were
added. The removal and amendment of certain disclosures can be adopted immediately with retrospective application. The
additional disclosure guidance becomes effective January 1, 2020. Adoption of this guidance will not have a material effect on
our financial statement disclosures.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity, Derivatives and
Hedging – (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the
Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception. This guidance is intended to reduce the complexity associated
with accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, a down round feature
would no longer cause a freestanding equity-linked financial instrument (or an embedded conversion option) to be considered
"not indexed to an entity's own stock" and therefore accounted for as a derivative liability at fair value with changes in fair
value recognized in current earnings. Down round features are most often found in warrants and conversion options embedded
in debt or preferred equity instruments. In addition, the guidance re-characterized the indefinite deferral of certain provisions on
distinguishing liabilities from equity to a scope exception with no accounting effect. This guidance becomes effective January
1, 2019 and early adoption is permitted. We do not presently issue any equity-linked financial instruments and therefore this
guidance has no impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Goodwill – Simplifying the Test for Goodwill Impairment, guidance that
simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 of the goodwill impairment test. The
new guidance quantifies goodwill impairment as the amount by which the carrying amount of a reporting unit, including
goodwill, exceeds its fair value, with the impairment loss limited to the total amount of goodwill allocated to that reporting
unit. This guidance becomes effective January 1, 2020 and will be applied on a prospective basis. Early adoption is permitted
for impairment tests performed after January 1, 2017. We do not expect the adoption of this guidance to impact our
consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments,
new guidance for the accounting for credit losses on certain financial instruments. This guidance introduces a new approach to
estimating credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt
securities. This guidance, which becomes effective January 1, 2020, is not expected to have a material impact on our
consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, its new lease accounting standard. The primary focus of the
standard is on the accounting by lessees. This standard requires lessees to recognize a right-of-use asset and a lease liability for
virtually all leases (other than leases that meet the definition of a short-term lease) on the balance sheet. The recognition,
measurement and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from
current GAAP. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense
pattern in the income statement. Quantitative and qualitative disclosures are required to provide insight into the extent of
revenue and expense recognized and expected to be recognized from leasing arrangements. Approximately three-fourths of our
global lease portfolio represents leases of real estate, including manufacturing, assembly and office facilities, while the
remainder represents leases of personal property, including manufacturing, material handling and IT equipment.
58
We expect the adoption of this new standard will result in the recording of leased assets and lease liabilities for our
operating leases of approximately $190 as of January 1, 2019. We expect to take advantage of the transition relief provided by
the amendment to ASU 2016-02 which allows us to elect not to restate 2017 and 2018 comparative periods upon adoption and
continue to apply ASC 840 to such periods. With respect to the available practical expedients, we expect to elect the primary
package of expedients whereby we will reassess neither the existence, nor the classification nor the amount and treatment of
initial direct costs of existing leases. We do not expect to apply hindsight to the evaluation of lease options (e.g., renewal) and,
accordingly, do not expect to utilize the practical expedient that would allow such an approach. Finally, we plan to separate the
lease components from the non-lease components of each lease arrangement and, therefore, do not expect to elect the expedient
that would enable us not to separate them. This guidance becomes effective January 1, 2019 with early adoption permitted.
Note 2. Acquisitions
SME — On January 11, 2019, we acquired a 100% ownership interest in the S.M.E. S.p.A. (SME). SME designs, engineers,
and manufactures low-voltage AC induction and synchronous reluctance motors, inverters, and controls for a wide range of off-
highway electric vehicle applications, including material handling, agriculture, construction, and automated-guided vehicles.
The addition of SME's low-voltage motors and inverters, which are primarily designed to meet the evolution of electrification
in off-highway equipment, significantly expands Dana's electrified product portfolio.
We paid $88 at closing, consisting of $62 in cash on hand and a note payable of $26 which allows for net settlement of
potential contingencies as defined in the purchase agreement. The note is payable in five years and bears annual interest of 5%.
Due to the recentness of the transaction, we are currently not able to provide an allocation of the purchase price to the fair value
of the assets acquired and liabilities assumed.
TM4 — On June 22, 2018, we acquired a 55% ownership interest in TM4 Inc. (TM4) from Hydro-Québec. TM4 designs and
manufactures motors, power inverters, and control systems for electric vehicles, offering a complementary portfolio to Dana's
electric gearboxes and thermal-management technologies for batteries, motors, and inverters. The transaction establishes Dana
as the only supplier with full e-Drive design, engineering, and manufacturing capabilities – offering electro-mechanical
propulsion solutions to each of its end markets. The transaction further strengthens Dana's position in China, the world's fastest-
growing market for electric vehicles. TM4 owns a 50% interest in Prestolite E-Propulsion Systems Limited (PEPS), a joint
venture in China with Prestolite Electric Beijing Limited, which offers electric mobility solutions throughout China and Asia.
The terms of the agreement provide Hydro-Québec with the right to put all, and not less than all, of its shares in TM4 to Dana
at fair value any time after June 22, 2021.
We paid $125 at closing, using cash on hand. The purchase consideration and the related allocation to the acquisition date
fair values of the assets acquired and liabilities assumed are presented in the following table:
Total purchase consideration
Cash and cash equivalents
Accounts receivable - Trade
Accounts receivable - Other
Inventories
Goodwill
Intangibles
Investment in affiliates
Property, plant and equipment
Accounts payable
Accrued payroll and employee benefits
Other accrued liabilities
Redeemable noncontrolling interest
Total purchase consideration allocation
$
$
$
125
3
3
1
4
148
24
49
5
(2)
(1)
(7)
(102)
125
Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the
assembled workforce and is not deductible for tax purposes. The provisional fair values assigned to intangibles include $14
allocated to developed technology and $10 allocated to trademarks and trade names. We used the relief from royalty method, an
income approach, to value developed technology and the trademarks and trade names. We used a replacement cost method to
value fixed assets. We used a combination of the discounted cash flow, an income approach, and the guideline public company
59
method, a market approach, to value the equity method investment in PEPS. The developed technology intangible assets are
being amortized on a straight-line basis over ten years, and property, plant and equipment is being depreciated on a straight-line
basis over useful lives ranging from five to six years. The trademarks and trade names are considered indefinite-lived intangible
assets.
Dana is consolidating TM4 as the governing documents provide Dana with a controlling financial interest. The results of
operations of the business are reported in our Commercial Vehicle operating segment from the date of acquisition. Transaction
related expenses associated with completion of the acquisition totaling $5 were charged to other income (expense), net. The pro
forma effects of this acquisition would not materially impact our reported results for any period presented, and as a result no
pro forma financial statements are presented. During 2018, the business contributed sales of $11.
USM – Warren — On March 1, 2017, we acquired certain assets and liabilities relating to the Warren, Michigan production
unit of U.S. Manufacturing Corporation (USM). The production unit acquired is in the business of manufacturing axle
housings, extruded tubular products and machined components for the automotive industry. The acquisition will increase
Dana's revenue from light and commercial vehicle manufacturers and will vertically integrate a significant element of Dana's
supply chain. It also provides Dana with new lightweight product and process technologies.
USM contributed certain assets and liabilities relating to its Warren, Michigan production unit to Warren Manufacturing
LLC (USM – Warren), a newly created legal entity, and Dana acquired all of the company units of USM – Warren. The
company units were acquired by Dana free and clear of any liens. We paid $104 at closing, including $25 to effectively settle
trade payable obligations originating from product purchases Dana made from USM prior to the acquisition, and received $1 in
the third quarter of 2017 for purchase price adjustments determined under the terms of the agreement. The acquisition has been
accounted for as a business combination. The purchase consideration and the related allocation to the acquisition date fair
values of the assets acquired and liabilities assumed are presented in the following table:
Total purchase consideration
Accounts receivable - Trade
Accounts receivable - Other
Inventories
Goodwill
Intangibles
Property, plant and equipment
Accounts payable
Accrued payroll and employee benefits
Other accrued liabilities
Total purchase consideration allocation
$
$
$
78
17
3
9
3
33
50
(34)
(2)
(1)
78
Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the
assembled workforce and is deductible for tax purposes. Intangibles includes $30 allocated to customer relationships and $3
allocated to developed technology. We used the relief from royalty method, an income approach, to value developed
technology. We used the multi-period excess earnings method, an income approach, to value customer relationships. We used a
replacement cost method to value fixed assets. The developed technology and customer relationship intangible assets are being
amortized on a straight-line basis over eighteen and eleven years, respectively, and property, plant and equipment is being
depreciated on a straight-line basis over useful lives ranging from one to seventeen years.
The results of operations of the business are reported in our Light Vehicle operating segment from the date of acquisition.
We incurred transaction related expenses to complete the acquisition in 2017 totaling $5, which were charged to other income
(expense), net. The pro forma effects of this acquisition would not materially impact our reported results for any period
presented, and as a result no pro forma financial statements are presented. During 2017, the business contributed sales of $96.
BFP and BPT — On February 1, 2017, we acquired 80% ownership interests in Brevini Fluid Power S.p.A. (BFP) and Brevini
Power Transmission S.p.A. (BPT) from Brevini Group S.p.A. (Brevini). The acquisition expands our Off-Highway operating
segment product portfolio to include technologies for tracked vehicles, doubling our addressable market for off-highway
driveline systems and establishing Dana as the only off-highway solutions provider that can manage the power to both move
the equipment and perform its critical work functions. This acquisition also brings a platform of technologies that can be
60
leveraged in our light and commercial-vehicle end markets, helping to accelerate our hybridization and electrification
initiatives.
We paid $181 at closing, using cash on hand, and refinanced a significant portion of the debt assumed in the transaction
during the first half of 2017. In December 2017, a purchase price reduction of $9 was agreed under the sale and purchase
agreement provisions for determination of the net indebtedness and net working capital levels of BFP and BPT as of the closing
date. The terms of the agreement provided Dana the right to call half of Brevini’s noncontrolling interests in BFP and BPT, and
Brevini the right to put half of its noncontrolling interests in BFP and BPT to Dana, assuming Dana did not exercise its call
right, after the 2017 BFP and BPT financial statements had been approved by the board of directors. Further, Dana had the right
to call Brevini’s remaining noncontrolling interests in BFP and BPT, and Brevini the right to put its remaining noncontrolling
interests in BFP and BPT to Dana, assuming Dana does not exercise its call right, after the 2019 BFP and BPT financial
statements had been approved by the board of directors. The call and put prices were based on the amount Dana paid to acquire
its initial 80% interest in BFP and BPT subject to adjustment based on the actual EBITDA and free cash flows, as defined in the
agreement, of BFP and BPT. In connection with the acquisition of BFP and BPT, Dana agreed to purchase certain real estate
being leased by BPT from a Brevini affiliate for €25 . Completion of the real estate purchase and receipt of the purchase price
adjustment occurred in the second quarter of 2018 with a net cash payment of $20. The purchase consideration and the related
allocation to the acquisition date fair values of the assets acquired and liabilities assumed are presented in the following table:
Total purchase consideration
Cash and cash equivalents
Accounts receivable - Trade
Accounts receivable - Other
Inventories
Other current assets
Goodwill
Intangibles
Deferred tax assets
Other noncurrent assets
Property, plant and equipment
Notes payable, including current portion of long-term debt
Accounts payable
Accrued payroll and employee benefits
Taxes on income
Other accrued liabilities
Long-term debt
Pension and postretirement obligations
Other noncurrent liabilities
Redeemable noncontrolling interest
Noncontrolling interests
Total purchase consideration allocation
$
$
$
201
75
78
18
134
9
20
41
3
4
174
(130)
(51)
(14)
(1)
(19)
(51)
(11)
(22)
(44)
(12)
201
Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the
assembled workforce and is not deductible for tax purposes. Intangibles includes $29 allocated to customer relationships and
$12 allocated to trademarks and trade names. We used the multi-period excess earnings method, an income approach, to value
the customer relationships. We used the relief from royalty method, an income approach, to value trademarks and trade names.
We used a replacement cost method to value fixed assets. We used a discounted cash flow approach to value the redeemable
noncontrolling interests, inclusive of the put and call provisions. We used both discounted cash flow and cost approaches to
value the noncontrolling interests. The customer relationships and trademarks and trade names intangible assets are being
amortized on a straight-line basis over seventeen years, and property, plant and equipment is being depreciated on a straight-
line basis over useful lives ranging from three to thirty years.
The results of operations of the businesses are reported in our Off-Highway operating segment from the date of acquisition.
Transaction related expenses in 2017 associated with completion of the acquisition totaling $7 were charged to other income
(expense), net. The pro forma effects of this acquisition would not materially impact our reported results for any period
61
presented, and as a result no pro forma financial statements are presented. During 2017, the businesses contributed sales of
$401.
On August 8, 2018, we entered into an agreement to acquire Interfind S.p.A.'s, formerly Brevini Group S.p.A., remaining
20% ownership interests in BFP and BPT and to settle all claims between the parties. We paid $43 to acquire Interfind S.p.A.'s
remaining ownership interests and received $10 in settlement of all pending and future claims. See Note 9 for additional
information.
SIFCO — On December 23, 2016, we acquired strategic assets of SIFCO S.A.'s (SIFCO) commercial vehicle steer axle
systems and related forged components businesses. The acquisition enables us to enhance our vertically integrated supply
chain, which will further improve our cost structure and customer satisfaction by leveraging SIFCO's extensive experience and
knowledge of sophisticated forged components. In addition to strengthening our position as a central source for products that
use forged and machined parts throughout the region, this acquisition enables us to better accommodate the local content
requirements of our customers, which reduces their import and other region-specific costs.
SIFCO contributed the strategic assets to SJT Forjaria Ltda., a newly created legal entity, and Dana acquired all of the
issued and outstanding quotas of SJT Forjaria Ltda. The strategic assets were acquired by Dana free and clear of any liens,
claims or encumbrances. The acquisition was funded using cash on hand and has been accounted for as a business combination.
Dana paid $60 at closing and paid $3 of previously deferred consideration during the fourth quarter of 2017. On December 19,
2017, Dana and SIFCO reached an agreement providing for Dana to retain the remaining $7 of deferred consideration to satisfy
indemnification claims as they arise. During 2018, claim settlements reduced the retained purchase price by $2. Once all
indemnification claims have been satisfied, any remaining deferred consideration will be paid to SIFCO. The purchase
consideration and the related allocation to the acquisition date fair values of the assets acquired are presented in the following
table:
Total purchase consideration
Accounts receivable - Trade
Accounts receivable - Other
Inventories
Goodwill
Intangibles
Property, plant and equipment
Accounts payable
Accrued payroll and employee benefits
Total purchase consideration allocation
$
$
$
70
1
1
10
7
3
59
(2)
(9)
70
Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the
assembled workforce, and is deductible for tax purposes. Intangibles includes $2 allocated to developed technology and $1
allocated to trade names. We used the relief from royalty method, an income approach, to value developed technology and trade
names. We used a replacement cost method to value fixed assets. The developed technology and trade name intangible assets
are being amortized on a straight-line basis over seven and five years, respectively, and property, plant and equipment is being
depreciated on a straight-line basis over useful lives ranging from three to ten years.
The results of operations of the business are reported in our Commercial Vehicle operating segment from the date of
acquisition. As a result of the acquisition, we incurred transaction related expenses totaling $5, which were charged to other
income (expense), net. The pro forma effects of this acquisition would not materially impact our reported results for any period
presented, and as a result no pro forma financial statements were presented.
Magnum — On January 29, 2016, we acquired the aftermarket distribution business of Magnum® Gaskets (Magnum), a U.S.-
based supplier of gaskets and sealing products for automotive and commercial-vehicle applications, for a cash payment of $18.
Assets acquired included trademarks and trade names, customer relationships and goodwill. The results of operations of
Magnum are reported within our Power Technologies operating segment. We acquired Magnum using cash on hand. The pro
forma effects of this acquisition would not materially impact our reported results for any period presented, and as a result no
pro forma financial statements were presented.
62
Note 3. Disposal Groups and Divestitures
Disposal group held for sale — In December 2017, we entered into an agreement to divest our Brazil suspension components
business (the disposal group) for no consideration to an unaffiliated company. The results of operations of the Brazil suspension
components business are reported within our Commercial Vehicle operating segment. To effectuate the sale, Dana was
obligated to contribute $10 of additional cash to the business prior to closing. We classified the disposal group as held for sale
at December 31, 2017, recognizing a $27 loss to adjust the carrying value of the net assets to fair value and to recognize the
liability for the additional cash required to be contributed to the business prior to closing. During the first quarter of 2018, we
made the required cash contribution to the disposal group. After being unable to complete the transaction with the counterparty
to the December 2017 agreement, we entered into an agreement with another third party in June 2018. The transaction with the
new counterparty closed in July 2018 and we received cash proceeds of $2. We reversed $3 of the previously recognized $27
pre-tax loss, inclusive of the proceeds received in July 2018, during the second quarter of 2018. The carrying amounts of the
major classes of assets and liabilities of our Brazil suspension components business were as follows:
Accounts receivable - Trade
Inventories
Current assets classified as held for sale
Accounts payable
Accrued payroll and employee benefits
Other accrued liabilities
Current liabilities classified as held for sale
Other noncurrent liabilities
Noncurrent liabilities classified as held for sale
December 31,
2017
$
$
$
$
$
$
3
4
7
3
1
1
5
2
2
Divestiture of Dana Companies — On December 30, 2016, we completed the divestiture of Dana Companies, LLC (DCLLC),
a consolidated wholly-owned limited liability company that was established as part of our reorganization in 2008 to hold and
manage personal injury asbestos claims retained by the reorganized Dana Corporation which was merged into DCLLC.
DCLLC had net assets of $165 at the time of sale including cash and cash equivalents, marketable securities and rights to
insurance coverage in place to satisfy a significant portion of its liabilities. We received cash proceeds of $88 – $29 net of cash
divested – with $3 retained by the purchaser subject to the satisfaction of certain future conditions. We recognized a pre-tax loss
of $77 in 2016 upon completion of the transaction. During the second quarter of 2017 the conditions associated with the
retained purchase price were satisfied. Dana received the remaining proceeds and recognized $3 of income in other income
(expense), net. Following completion of the sale, Dana has no obligation with respect to current or future asbestos claims.
Divestiture of Nippon Reinz — On November 30, 2016, we sold our 53.7% interest in Nippon Reinz Co. Ltd. (Nippon Reinz) to
Nichias Corporation. Dana received net cash proceeds of $5 and recognized a pre-tax loss of $3 on the divestiture of Nippon
Reinz, inclusive of the $12 gain on derecognition of the noncontrolling interest. Nippon Reinz had sales of $42 in 2016 through
the transaction date.
Note 4. Goodwill and Other Intangible Assets
Goodwill —The change in the carrying amount of goodwill in 2018 was due to the acquisition of a 55% interest in TM4 and
currency fluctuation. The change in the carrying amount of goodwill in 2017 was primarily due to the acquisitions of USM –
Warren and 80% interests in BFP and BPT and currency fluctuation. See Note 2 for additional information on recent
acquisitions. Based on our October 31, 2018 impairment assessment, the fair value of our reporting units are higher than their
carrying values, indicating no impairment.
63
Changes in the carrying amount of goodwill by segment —
Balance, December 31, 2016
Acquisitions
Purchase accounting adjustments
Currency impact
Balance, December 31, 2017
Acquisition
Currency impact
Commercial
Vehicle
Light Vehicle
$
— $
3
3
Power
Technologies
6
$
$
Total
Off-Highway
78
$
20
12
110
(5)
105
$
$
6
6
$
90
23
1
13
127
148
(11)
264
6
1
1
8
148
(6)
150
Balance, December 31, 2018
$
3
$
Non-amortizable intangible assets — Our non-amortizable intangible assets include trademarks and trade names. Trademarks
and trade names consist of the Dana®, Spicer® and TM4® trademarks and trade names utilized in our Commercial Vehicle and
Off-Highway segments. We value trademarks and trade names using a relief from royalty method which is based on revenue
streams. No impairment was recorded during the three years ended December 31, 2018 in connection with the required annual
assessment for trademarks and trade names.
During the third quarter of 2012, we entered a strategic alliance with Fallbrook Technologies Inc. (Fallbrook). The
transaction with Fallbrook was accounted for as a business combination and the original purchase price allocation included $20
of intangible assets used in research and development activities, which had been classified as indefinite-lived. Since the third
quarter of 2012, we have been working with several customers to commercialize the continuously variable planetary (CVP)
technology primarily in combustion engine applications. During the second quarter of 2018 key customers notified us of their
intention to redirect their development efforts to electrification and cease further development efforts of the CVP technology in
combustion engine applications. While we have not abandoned the CVP technology, we determined that it was more likely than
not that the fair value of the related intangible assets was less than their carrying amount. We used the multi-period excess
earnings method, an income approach, to fair value the assets used in research and development activities. Given the lack of
adequate identifiable future revenue streams, it was determined that the $20 of intangible assets used in research and
development activities was fully impaired during the second quarter of 2018.
Amortizable intangible assets — Our amortizable intangible assets include core technology, customer relationships and a
portion of our trademarks and trade names. Trademarks and trade names includes the Brevini® trademark and trade name
utilized in our Off-Highway segment. Core technology includes the proprietary know-how and expertise that is inherent in our
products and manufacturing processes. Customer relationships include the established relationships with our customers and the
related ability of these customers to continue to generate future recurring revenue and income.
These assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts
may not be recoverable. We group the assets and liabilities at the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities and evaluate the asset group against the undiscounted future cash
flows. We use our internal forecasts, which we update quarterly, to develop our cash flow projections. These forecasts are based
on our knowledge of our customers’ production forecasts, our assessment of market growth rates, net new business, material
and labor cost estimates, cost recovery agreements with customers and our estimate of savings expected from our restructuring
activities. The most likely factors that would significantly impact our forecasts are changes in customer production levels and
loss of significant portions of our business. Our valuation is applied over the life of the primary assets within the asset groups.
If the undiscounted cash flows do not indicate that the carrying amount of the asset group is recoverable, an impairment charge
is recorded if the carrying amount of the asset group exceeds its fair value based on discounted cash flow analyses or
appraisals. There were no impairments recorded during the three years ended December 31, 2018.
64
Components of other intangible assets —
December 31, 2018
December 31, 2017
Weighted
Average
Useful Life
(years)
Gross
Carrying
Amount
Accumulated
Impairment
and
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Impairment
and
Amortization
Net
Carrying
Amount
8
$
107
$
(89) $
18
$
95
$
(88) $
16
8
16
460
74
20
(4)
(400)
(20)
12
60
74
—
17
470
65
20
(2)
(403)
$
677
$
(513) $
164
$
667
$
(493) $
7
15
67
65
20
174
Amortizable intangible assets
Core technology
Trademarks and trade
names
Customer relationships
Non-amortizable intangible
assets
Trademarks and trade
names
Used in research and
development activities
The net carrying amounts of intangible assets, other than goodwill, attributable to each of our operating segments at
December 31, 2018 were as follows: Light Vehicle Driveline (Light Vehicle) – $28, Commercial Vehicle – $54, Off-Highway –
$73 and Power Technologies – $9.
Amortization expense related to amortizable intangible assets —
Charged to cost of sales
Charged to amortization of intangibles
Total amortization
2018
2017
2016
$
$
2
8
10
$
$
2
11
13
$
$
1
8
9
The following table provides the estimated aggregate pre-tax amortization expense related to intangible assets for each of
the next five years based on December 31, 2018 exchange rates. Actual amounts may differ from these estimates due to such
factors as currency translation, customer turnover, impairments, additional intangible asset acquisitions and other events.
Amortization expense
$
9
$
8
$
8
$
8
$
8
2019
2020
2021
2022
2023
Note 5. Restructuring of Operations
Our restructuring activities have historically included rationalizing our operating footprint by consolidating facilities,
positioning operations in lower cost locations and reducing overhead costs. In recent years, our focus has primarily been
headcount reduction initiatives to reduce operating costs. Restructuring expense includes costs associated with current and
previously announced actions and is comprised of contractual and noncontractual separation costs and exit costs, including
costs associated with lease continuation obligations and certain operating costs of facilities that we are in the process of closing.
During 2018, we implemented headcount and cost reduction initiatives across our operating segments and corporate
functions. Restructuring charges of $25 in 2018 were primarily comprised of severance and benefit costs related to a voluntary
retirement program in North America, headcount reduction actions in our operations and corporate functions in Brazil and
administrative cost reduction initiatives primarily in Europe and North America. In response to continued market recovery in
our Off-Highway business in Europe, management re-evaluated the economic conditions of our global Off-Highway business
and determined that $7 of the previously approved restructuring actions are no longer economically prudent.
During 2017, we approved plans to implement certain headcount reduction initiatives in our Off-Highway business as part
of the BFP and BPT acquisition integration, resulting in the recognition of $14, primarily for severance and benefits costs,
during 2017. Including costs associated with the newly approved actions during 2017 and costs associated with previously
announced initiatives, net of the reversal described below, restructuring expense during 2017 was $14, including $8 of
severance and benefits costs and $6 of exit costs. During the fourth quarter of 2017, in response to better-than-expected market
recovery in our Off-Highway business in Europe, management re-evaluated the economic conditions of our global Off-
65
Highway business and determined that a portion of the previously approved 2016 restructuring program is no longer
economically prudent. This change in facts and circumstances led to the decision to reverse $8 of previously accrued liabilities.
During 2016, we implemented various headcount reduction initiatives across our businesses, including the first-quarter
2016 announcement of the planned closure of our Commercial Vehicle manufacturing facility in Glasgow, Kentucky. During
the second half of 2016, we also approved and began to implement other headcount reduction initiatives, the most significant of
which were associated with our Off-Highway business in Europe and our Commercial Vehicle and Light Vehicle businesses in
Brazil, in response to continued market weakness in those businesses at that time. Additionally, in conjunction with the SJT
Forjaria Ltda. acquisition in December 2016, we approved plans to eliminate certain redundant positions as one of our initial
steps toward the integration of the SJT Forjaria Ltda. operations into our Commercial Vehicle business in that region. Including
costs associated with these actions and with other previously announced initiatives, total restructuring expense during 2016 was
$36, including $33 of severance and benefits costs and $3 of exit costs.
Accrued restructuring costs and activity, including noncurrent portion —
Balance, December 31, 2015
Charges to restructuring
Adjustments of accruals
Cash payments
Balance, December 31, 2016
Charges to restructuring
Adjustments of accruals
Cash payments
Currency impact
Balance, December 31, 2017
Charges to restructuring
Adjustments of accruals
Cash payments
Currency impact
Balance, December 31, 2018
Employee
Termination
Benefits
$
$
9
35
(2)
(10)
32
16
(8)
(21)
2
21
28
(7)
(16)
(1)
25
Exit
Costs
$
Total
$
8
3
(5)
6
6
(7)
5
4
(5)
$
4
$
17
38
(2)
(15)
38
22
(8)
(28)
2
26
32
(7)
(21)
(1)
29
At December 31, 2018, accrued employee termination benefits include costs to reduce approximately 300 employees over
the next year. The exit costs relate primarily to lease continuation obligations.
Cost to complete — The following table provides project-to-date and estimated future restructuring expenses for completion of
our approved restructuring initiatives for our business segments at December 31, 2018.
Commercial Vehicle
Expense Recognized
Prior to
2018
2018
Total
to Date
Future
Cost to
Complete
35
3
38
8
The future cost to complete primarily includes exit costs through 2021, including lease continuation costs, equipment
transfers and other costs which are required to be recognized as closures are finalized or as incurred during the closure.
Note 6. Inventories
Inventory components at December 31 —
Raw materials
Work in process and finished goods
Inventory reserves
Total
66
2018
2017
$
$
433
649
(51)
1,031
$
$
442
580
(53)
969
Note 7. Supplemental Balance Sheet and Cash Flow Information
Supplemental balance sheet information at December 31 —
Other current assets:
Prepaid expenses
Other
Total
Other noncurrent assets:
Contract asset
Prepaid expenses
Deferred financing costs
Pension assets, net of related obligations
Other
Total
Property, plant and equipment, net:
Land and improvements to land
Buildings and building fixtures
Machinery and equipment
Total cost
Less: accumulated depreciation
Net
Other accrued liabilities (current):
Non-income taxes payable
Accrued interest
Warranty reserves
Deferred income
Work place injury costs
Restructuring costs
Payable under forward contracts
Environmental
Other expense accruals
Total
Other noncurrent liabilities:
Income tax liability
Interest rate swap market valuation
Deferred income tax liability
Work place injury costs
Warranty reserves
Restructuring costs
Other noncurrent liabilities
Total
67
2018
2017
76
26
102
25
3
4
3
45
80
207
552
2,817
3,576
(1,726)
1,850
53
13
34
6
5
26
11
5
116
269
48
118
28
19
41
3
56
313
$
$
$
$
$
$
$
$
$
$
83
14
97
—
17
5
3
46
71
210
518
2,635
3,363
(1,556)
1,807
43
14
29
12
6
22
9
3
82
220
48
177
59
22
47
4
56
413
$
$
$
$
$
$
$
$
$
$
Cash, cash equivalents and restricted cash at —
Cash and cash equivalents
Restricted cash included in other current assets
Restricted cash included in other noncurrent assets
Total cash, cash equivalents and restricted cash
$
$
510
7
3
520
$
$
603
3
4
610
$
$
707
5
4
716
$
$
791
6
3
800
December 31,
2018
December 31,
2017
December 31,
2016
December 31,
2015
Supplemental cash flow information —
Change in working capital:
Change in accounts receivable
Change in inventories
Change in accounts payable
Change in accrued payroll and employee benefits
Change in accrued income taxes
Change in other current assets and liabilities
Net
Cash paid during the period for:
Interest
Income taxes
Noncash investing and financing activities:
Purchases of property, plant and equipment held in accounts payable
Stock compensation plans
Noncash dividends declared
Note 8. Stockholders' Equity
Preferred Stock
2018
2017
2016
$
$
$
$
(113) $
(110)
97
(28)
(3)
44
(113) $
$
$
90
145
91
18
1
(141) $
(146)
234
53
26
(34)
(8) $
$
$
104
87
86
17
(86)
(13)
70
5
(13)
(14)
(51)
111
89
113
14
We are authorized to issue 50,000,000 of Dana preferred stock, par value $0.01 per share. There were no preferred shares
outstanding at December 31, 2018 or 2017.
Common Stock
We are authorized to issue 450,000,000 shares of Dana common stock, par value $0.01 per share. At December 31, 2018,
there were 153,005,588 shares of our common stock issued and 144,663,403 shares outstanding, net of 8,342,185 in treasury
shares. Treasury shares include those shares withheld at cost to satisfy tax obligations from stock awards issued under our stock
compensation plan in addition to share repurchases noted below.
Our Board of Directors declared a quarterly cash dividend of ten cents per share of common stock in each quarter of 2018.
Aggregate 2018 declared dividends total $59 and paid cash dividends total $58. Dividends accrue on restricted stock units
(RSUs) granted under our stock compensation program and will be paid in cash or additional units when the underlying units
vest.
Share repurchase program — On March 24, 2018 our Board of Directors approved an expansion of our existing common stock
share repurchase program to $200. The program expires on December 31, 2019. Under the program, we spent $25 to
repurchase 1,055,000 shares of our common stock during the second quarter of 2018 through open market transactions.
Approximately $175 remained available under the program for future share repurchases as of December 31, 2018. Our
common stock share repurchase program of up to $1,700 approved in 2016 expired on December 31, 2017.
68
Changes in equity —
During the first quarter of 2018, a wholly-owned subsidiary of Dana purchased the ownership interest in Dana Spicer
(Thailand) Limited (a non wholly-owned consolidated subsidiary of Dana) held by ROC Spicer, Ltd. (a non wholly-owned
consolidated subsidiary of Dana). Dana maintained its controlling financial interest in Dana Spicer (Thailand) Limited and
accordingly accounted for the purchase as an equity transaction. The excess of the fair value of the consideration paid over the
carrying value of the investment attributable to the noncontrolling interest in ROC Spicer, Ltd. was recognized as additional
noncontrolling interest with a corresponding reduction of the additional paid-in capital of Dana. During the third quarter of
2018, Yulon Motor Co., Ltd. (Yulon) purchased a direct ownership interest in two of our consolidated operating subsidiaries.
Yulon's ownership interest in the two consolidated operating subsidiaries did not change as a result of the transactions, as it
previously owned the same percentages indirectly through a series of consolidated holding companies. The cash received from
Yulon was recognized as additional noncontrolling interest. The amount received, less withholding taxes, was returned to Yulon
in the form of a dividend in the fourth quarter of 2018.
69
Changes in each component of AOCI of the parent —
Parent Company Stockholders
Balance, December 31, 2015
Other comprehensive income (loss):
Currency translation adjustments
Holding gains and losses
Reclassification of amount to net income (a)
Net actuarial losses
Reclassification adjustment for net actuarial
losses included in net periodic benefit cost (b)
Elimination due to sale of subsidiary
Tax benefit
Other comprehensive loss
Balance, December 31, 2016
Other comprehensive income (loss):
Currency translation adjustments
Holding loss on net investment hedge
Holding gains and losses
Reclassification of amount to net income (a)
Net actuarial losses
Curtailment gain
Reclassification adjustment for net actuarial
losses included in net periodic benefit cost (b)
Tax (expense) benefit
Other comprehensive income (loss)
Balance, December 31, 2017
Other comprehensive income (loss):
Currency translation adjustments
Holding loss on net investment hedge
Holding gains and losses
Reclassification of amount to net income (a)
Net actuarial losses
Reclassification adjustment for net actuarial
losses included in net periodic benefit cost (b)
Other
Tax expense
Other comprehensive income (loss)
Adoption of ASU 2016-01 financial instruments
Foreign
Currency
Translation
$
(608) $
Hedging
Investments
2
(4) $
Defined
Benefit
Plans
Accumulated
Other
Comprehensive
Loss
$
(564) $
(1,174)
3
(7)
2
(2)
—
1
1
2
2
(43)
2
3
(38)
(646)
(22)
(2)
(24)
(670)
(48)
(3)
(16)
(14)
(30)
(34)
(162)
128
4
(30)
(64)
66
(56)
(51)
10
—
(88)
26
1
21
(40)
(604)
(28)
1
30
(9)
(6)
(610)
(8)
34
2
(5)
23
(43)
(13)
(21)
(88)
26
5
24
(110)
(1,284)
(22)
(2)
(161)
128
(28)
1
30
(4)
(58)
(1,342)
(48)
(3)
66
(56)
(8)
34
2
(5)
(18)
adjustment, January 1, 2018
Balance, December 31, 2018
___________________________________________________
Notes:
(a) For 2018, realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments
treated as cash flow hedges are reclassified from AOCI into the same line item in the consolidated statement of operations in which the underlying
forecasted transaction or other hedged item is recorded. See Note 15 for additional details. For 2017 and 2016, reclassifications from AOCI were included
in other income (expense), net.
(b) See Note 12 for additional details.
(721) $
(587) $
(54) $
(2)
(1,362)
(2)
— $
$
Note 9. Redeemable Noncontrolling Interests
In connection with the acquisition of a controlling interest in TM4 from Hydro-Québec on June 22, 2018, we recognized
$102 for Hydro-Québec's 45% redeemable noncontrolling interest. The terms of the agreement provide Hydro-Québec with the
70
right to put all, and not less than all, of its shares to Dana at fair value any time after June 22, 2021. See Note 2 for additional
information.
In connection with the acquisition of a controlling interest in BFP and BPT from Brevini on February 1, 2017, we
recognized $44 for Brevini's 20% redeemable noncontrolling interests. The terms of the agreement provided Dana the right to
call Brevini's noncontrolling interests in BFP and BPT, and Brevini the right to put its noncontrolling interests in BFP and BPT
to Dana, assuming Dana did not exercise its call rights, at dates and prices defined in the agreement. The call and put prices
were based on the amount Dana paid to acquire its initial ownership interest in BFP and BPT subject to adjustment based on the
actual EBITDA and free cash flows, as defined in the agreement, of BFP and BPT.
On August 8, 2018, we entered into an agreement to acquire Brevini's remaining 20% ownership interests in BFP and BPT
and to settle all claims between the parties. We paid $43 to acquire Brevini's remaining ownership interests and received $10 in
settlement of all pending and future claims. AOCI attributable to Brevini's redeemable noncontrolling interests was reclassified
to AOCI of the parent company. The difference between the carrying value of Brevini's redeemable noncontrolling interests and
the cash paid was recorded to additional paid-in capital of the parent company. See Note 2 for additional information.
Redeemable noncontrolling interests reflected as of the balance sheet date are the greater of the redeemable noncontrolling
interest balances adjusted for comprehensive income items and distributions or the redemption values. Redeemable
noncontrolling interest adjustments of redemption value are recorded in retained earnings. During 2017 there was a $6
adjustment to reflect a redemption value in excess of carrying value. See Note 10 for additional information.
Reconciliation of changes in redeemable noncontrolling interests —
Balance, beginning of period
Initial fair value of redeemable noncontrolling interests of acquired businesses
Capital contribution from redeemable noncontrolling interest
Purchase of redeemable noncontrolling interest
Comprehensive income (loss) adjustments:
Net income (loss) attributable to redeemable noncontrolling interests
Other comprehensive income (loss) attributable to redeemable noncontrolling interests
Retained earnings adjustments:
Adjustment to redemption value
Balance, end of period
Note 10. Earnings per Share
2018
2017
$
$
47
102
3
(46)
(6)
$
100
$
—
44
(1)
(5)
3
6
47
Reconciliation of the numerators and denominators of the earnings per share calculations —
2018
2017
2016
Net income attributable to the parent company
Less: Redeemable noncontrolling interests adjustment to redemption value
Net income available to common stockholders - Numerator basic and diluted
$
$
427
427
$
$
111
(6)
105
$
$
Denominator:
Weighted-average common shares outstanding - Basic
Employee compensation-related shares, including stock options
Weighted-average common shares outstanding - Diluted
145.0
1.5
146.5
145.1
1.8
146.9
640
640
146.0
0.8
146.8
The share count for diluted earnings per share is computed on the basis of the weighted-average number of common shares
outstanding plus the effects of dilutive common stock equivalents (CSEs) outstanding during the period. We excluded 0.2
million, 0.1 million and 1.7 million CSEs from the calculations of diluted earnings per share for the years 2018, 2017 and 2016
as the effect of including them would have been anti-dilutive.
71
Note 11. Stock Compensation
2017 Omnibus Incentive Plan
The 2017 Omnibus Incentive Plan (the Plan) authorizes the grant of stock options, stock appreciation rights (SARs), RSUs
and performance share units (PSUs) through April 2027. Cash-settled awards do not count against the maximum aggregate
number. At December 31, 2018, there were 5.6 million shares available for future grants. Shares of common stock to be issued
under the Plan are made available from authorized and unissued Dana common stock.
Award activity — (shares in millions)
Options
SARs
RSUs
PSUs
Shares
0.8
Exercise
Price*
$
14.58
Shares
0.1
Exercise
Price*
$
14.83
(0.1)
10.95
0.7
15.33
0.1
Shares
1.8
0.7
(0.6)
(0.1)
1.8
Grant-Date
Fair Value*
17.38
$
26.93
20.45
20.77
20.06
Shares
0.6
0.2
(0.2)
(0.1)
0.5
Grant-Date
Fair Value*
15.70
$
27.13
12.90
17.55
22.45
December 31, 2017
Granted
Exercised or vested
Forfeited or expired
December 31, 2018
* Weighted-average per share
Total stock compensation expense
Total grant-date fair value of awards vested
Cash received from exercise of stock options
Cash paid to settle SARs and RSUs
Intrinsic value of stock options and SARs exercised
Intrinsic value of RSUs and PSUs vested
$
2018
2017
2016
$
16
16
2
2
3
18
$
23
17
10
4
8
20
17
11
2
1
1
7
Compensation expense is generally measured based on the fair value at the date of grant and is recognized on a straight-
line basis over the vesting period. For options and SARs, we use an option-pricing model to estimate fair value. For RSUs and
PSUs, the fair value is based on the closing market price of our common stock at the date of grant. Awards that are settled in
cash are subject to liability accounting. Accordingly, the fair value of such awards is remeasured at the end of each reporting
period until settled or expired. We had accrued $2 and $7 for cash-settled awards at December 31, 2018 and 2017. We issued
0.7 million and 0.2 million shares of common stock based on vesting of RSUs and PSUs during 2018. At December 31, 2018,
the total unrecognized compensation cost related to the nonvested awards granted and expected to vest was $20. This cost is
expected to be recognized over a weighted-average period of 1.7 years.
Stock options and stock appreciation rights — The exercise price of each option or SAR equals the closing market price of our
common stock on the date of grant. Options and SARs generally vest over three years and their maximum term is ten years.
Shares issued upon the exercise of options are recorded as common stock and additional paid-in capital at the option price.
SARs are settled in cash for the difference between the market price on the date of exercise and the exercise price. We have not
granted stock options or SARs since 2013. All outstanding awards are fully vested and exercisable. At December 31, 2018, the
outstanding awards have an aggregate intrinsic value of $1 and a weighted-average remaining contractual life of 3.1 years.
Restricted stock units and performance shares units — Each RSU or PSU granted represents the right to receive one share of
Dana common stock or, at the election of Dana (for units awarded to board members) or for employees located outside the U.S.
(for employee awarded units), cash equal to the market value per share. All RSUs contain dividend equivalent rights. RSUs
granted to non-employee directors vest on the first anniversary date of the grant and those granted to employees generally cliff
vest fully after three years. PSUs granted to employees vest if specified performance goals are achieved during the respective
performance period, generally three years.
The number of PSUs that ultimately vest is contingent on achieving specified return on invested capital targets, specified
total shareholder return targets relative to peer companies or specified margin targets. For the portion of the PSU award based
on the return on invested capital performance or margin metric, we estimated the fair value at grant date based on the closing
market price of our common stock at the date of grant adjusted for the value of assumed dividends over the period because the
award is not dividend protected. The estimated grant date value is accrued over the performance period and adjusted as
72
appropriate based on performance relative to the target. For the portion of the PSU award based on shareholder returns, we
estimated the fair value at grant date using various assumptions as part of a Monte Carlo simulation. The expected term
represents the period from the grant date to the end of the performance period. The risk-free interest rate was based on U.S.
Treasury constant maturity rates at the grant date. The dividend yield was calculated by dividing the expected annual dividend
by the average stock price over the prior year. The expected volatility was based on historical volatility using daily stock price
observations.
Expected term (in years)
Risk-free interest rate
Dividend yield
Expected volatility
PSUs
2016
3.0
1.00%
1.40%
33.4%
Cash incentive awards — Our 2017 Omnibus Incentive Plan provides for cash incentive awards. We make awards annually to
certain eligible employees designated by Dana, including certain executive officers. Awards under the plan are based on
achieving certain financial performance goals. The performance goals of the plan are established annually by the Board of
Directors.
Under the 2018 and 2017 annual incentive programs, participants were eligible to receive cash awards based on achieving
earnings and cash flow performance goals. The 2016 annual incentive program is based on earnings and working capital
performance goals. Our 2017 and 2016 long-term incentive programs each have a three-year contractual vesting period and
include a performance-based cash component. For the 2017 and 2016 long-term incentive programs the vesting of the
performance-based cash component is based on achieving a return on invested capital target measured on an average basis over
the contractual period. The 2017 award also has a component that is based on achieving a margin target in the third year of the
program that was established at the grant date. We accrued $33, $77 and $41 of expense in 2018, 2017 and 2016 for the
expected cash payments under these programs.
Note 12. Pension and Postretirement Benefit Plans
We sponsor various defined benefit, qualified and nonqualified, pension plans covering eligible employees. Other
postretirement benefits (OPEB), including medical and life insurance, are provided for certain employees upon retirement.
We also sponsor various defined contribution plans that cover the majority of our employees. Under the terms of the
qualified defined contribution retirement plans, employee and employer contributions may be directed into a number of diverse
investments. None of these qualified defined contribution plans allow direct investment in our stock.
73
Components of net periodic benefit cost (credit) and other amounts recognized in OCI —
2018
Pension Benefits
2017
Interest cost
Expected return on plan assets
Service cost
Amortization of net actuarial loss
Termination benefit
Other
Net periodic benefit cost (credit)
Recognized in OCI:
Amount due to net actuarial losses
Reclassification adjustment for net
actuarial losses in net periodic
benefit cost
Curtailment
Other
Total recognized in OCI
Net recognized in benefit cost
(credit) and OCI
Interest cost
Service cost
Amortization of net actuarial gain
Net periodic benefit cost
Recognized in OCI:
U.S.
$
43
(71)
28
—
11
(28)
(17)
U.S.
$
Non-U.S.
7
$
(3)
7
6
51
(82)
23
Non-U.S.
7
$
(3)
7
7
1
U.S.
$
2016
Non-U.S.
7
$
(2)
5
6
53
(92)
21
2
19
4
(6)
(2)
(4)
(8)
19
(18)
22
(23)
(1)
4
(7)
(1)
(4)
68
(21)
47
$
(17) $
15
$
(9) $
15
$
29
$
1
17
16
(6)
(1)
9
26
3
1
(1)
3
4
1
5
8
2018
$
OPEB - Non-U.S.
2017
2016
$
3
1
4
(7)
(7)
(3) $
3
1
4
2
2
6
$
$
Amount due to net actuarial (gains) losses
Reclassification adjustment for net actuarial gain in net periodic benefit cost
Total recognized in OCI
Net recognized in benefit cost and OCI
$
Our U.S. defined benefit pension plans are frozen and no additional service cost is being accrued. The estimated net
actuarial loss for the defined benefit pension plans that will be amortized from AOCI into benefit cost in 2019 is $21 for our
U.S. plans and $6 for our non-U.S. plans. We use the corridor approach for purposes of systematically amortizing deferred
gains or losses as a component of net periodic benefit cost into the income statement in future reporting periods. The
amortization period used is generally the average remaining service period of active participants in the plan unless almost all of
the plan’s participants are inactive, in which case we use the average remaining life expectancy of the inactive participants. No
portion of the estimated net actuarial gain related to OPEB plans will be amortized from AOCI into benefit cost in 2019.
In October 2017, upon authorization by the Dana Board of Directors, we commenced the process of terminating one of our
U.S. defined benefit pension plans. Ultimate plan termination is subject to prevailing market conditions and other
considerations, including interest rates and annuity pricing. Settlement of the plan obligations is expected to occur in the first
half of 2019. At December 31, 2018, this plan had benefit obligations of $938 and assets of $773. The benefit obligations have
been valued at the amount expected to be required to settle the obligations, using assumptions regarding the portion of
obligations expected to be settled through participant acceptance of lump sum payments or annuities and the cost to purchase
those annuities. Increasing this plan's obligations to reflect the expected settlement value resulted in an actuarial loss of $69 that
was charged to OCI in 2017. At December 31, 2018, this plan had unrecognized actuarial losses of $370. If the settlement is
effected as expected in 2019, the plan's deferred actuarial losses remaining in AOCI at that time will be recognized as expense.
74
Funded status — The following tables provide reconciliations of the changes in benefit obligations, plan assets and funded
status.
Pension Benefits
2018
2017
OPEB - Non-U.S.
U.S.
Non-U.S.
U.S.
Non-U.S.
2018
2017
Reconciliation of benefit
obligation:
Obligation at beginning of
period
Interest cost
Service cost
Actuarial (gain) loss
Benefit payments
Acquisitions
Settlements
Termination benefit
Curtailment
Translation adjustments
Obligation at end of period
$
$
1,730
43
(148)
(124)
$
$
1,682
51
115
(118)
377
7
7
7
(14)
(2)
$
1,501
$
(18)
364
$
1,730
$
309
7
7
7
(14)
22
(1)
1
(1)
40
377
$
$
$
99
3
1
(7)
(5)
(8)
83
$
Pension Benefits
2018
2017
OPEB - Non-U.S.
U.S.
Non-U.S.
U.S.
Non-U.S.
2018
2017
Reconciliation of fair value of
plan assets:
Fair value at beginning of
period
Actual return on plan assets
Employer contributions
Benefit payments
Settlements
Acquisition
Translation adjustments
Fair value at end of period
Funded status at end of period
$
$
$
$
1,513
(88)
(124)
1,301
$
$
71
6
16
(14)
(2)
(6)
71
$
$
1,454
175
2
(118)
1,513
$
51
6
15
(14)
(1)
12
2
71
$
— $
5
(5)
$
— $
(200) $
(293) $
(217) $
(306) $
(83) $
Amounts recognized in the balance sheet —
Pension Benefits
2018
2017
OPEB - Non-U.S.
U.S.
Non-U.S.
U.S.
Non-U.S.
2018
2017
Amounts recognized in the
consolidated balance sheet:
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amount recognized
$
$
— $
(200)
(200) $
$
3
(13)
(283)
(293) $
— $
(217)
(217) $
$
3
(13)
(296)
(306) $
— $
(5)
(78)
(83) $
91
3
1
2
(5)
7
99
—
5
(5)
—
(99)
—
(5)
(94)
(99)
75
Amounts recognized in AOCI —
Pension Benefits
2018
2017
OPEB - Non-U.S.
U.S.
Non-U.S.
U.S.
Non-U.S.
2018
2017
Amounts recognized in AOCI:
Net actuarial loss (gain)
AOCI before tax
Deferred taxes
Net
$
$
542
542
(6)
536
$
$
84
84
(22)
62
$
$
559
559
(10)
549
$
$
88
88
(22)
66
$
$
(15) $
(15)
4
(11) $
(8)
(8)
3
(5)
The 2018 actuarial loss of $11 on the U.S plans was largely the result of the expected return on assets exceeding the actual
asset return. Additionally, a custom mortality table was developed during 2018 using our historical mortality experience. These
custom mortality tables are projected generationally from 2015 using the Society of Actuaries projection scale, MP-2018,
modified to use a 0.75% long-term improvement rate, being attained in 2027.
Excluding the actuarial loss of $69 for remeasurement of the benefit obligations of the plan being terminated at expected
settlement value, we recognized an actuarial gain of $47 on the U.S. plans in 2017 as the return on assets exceeding the
expected rate more than offset the effect of the lower discount rates used to value our December 31, 2017 pension obligations
and the impact of using spot rates to determine pension service and interest expense, as discussed previously. In the fourth
quarter of 2017, the Society of Actuaries continued its trend of frequent updates, issuing new U.S. mortality scales (MP-2017)
based on historical data through 2014 and preliminary data for 2015. After studying the new data and consulting with our
actuarial advisers, we concluded that adopting MP-2017, modified to reflect a long-term improvement rate of 0.75% being
attained in 2026, was appropriate. This change in assumption did not have a significant impact on the 2017 valuation.
Aggregate funding levels — The following table presents information regarding the aggregate funding levels of our defined
benefit pension plans at December 31:
Plans with fair value of plan assets in excess of obligations:
Accumulated benefit obligation
Projected benefit obligation
Fair value of plan assets
Plans with obligations in excess of fair value of plan assets:
Accumulated benefit obligation
Projected benefit obligation
Fair value of plan assets
2018
2017
U.S.
Non-U.S.
U.S.
Non-U.S.
$
$
$
$
14
14
15
1,487
1,487
1,286
$
$
15
16
19
322
348
52
$
$
16
16
16
1,714
1,714
1,497
15
15
18
334
362
53
76
Fair value of pension plan assets —
Asset Category
Equity securities:
U.S. all cap (b)
U.S. large cap
U.S. small cap
EAFE composite
Emerging markets
Fixed income securities:
U.S. bonds (c)
Corporate bonds
U.S. Treasury strips
Non-U.S. government securities
Emerging market debt
Alternative investments:
Insurance contracts (d)
Real estate
Other (e)
Cash and cash equivalents
Total
Asset Category
Equity securities:
U.S. all cap (b)
U.S. large cap
U.S. small cap
EAFE composite
Emerging markets
Fixed income securities:
U.S. bonds (c)
Corporate bonds
U.S. Treasury strips
Non-U.S. government securities
Emerging market debt
Alternative investments:
Insurance contracts (d)
Real estate
Other (e)
Cash and cash equivalents
Total
Fair Value Measurements at December 31, 2018
Total
Level 1
Level 2 NAV (a)
Level 1
U.S.
Non-U.S.
Level 2
Level 3
$
35
43
4
41
28
33
814
115
25
48
35
21
10
120
$ 1,372
$
35
$ — $
— $ — $ — $ —
43
4
33
616
115
41
28
198
48
21
$
39
$
119
883
$
379
$ — $
25
10
1
36
35
$
35
Fair Value Measurements at December 31, 2017
Total
Level 1
Level 2 NAV (a)
Level 1
U.S.
Non-U.S.
Level 2
Level 3
$
62
61
7
65
52
61
464
281
26
82
33
35
1
354
$ 1,584
$
62
$ — $
— $ — $ — $ —
61
7
65
52
238
82
35
$
533
$ — $
61
226
281
(10)
353
911
$
69
$
26
11
1
38
33
$
33
________________________________
Notes:
(a) Certain assets are measured at fair value using the net asset value (NAV) per share (or its equivalent) practical expedient and have not been classified in
the fair value hierarchy.
(b) This category comprises a combination of small-, mid- and large-cap equity stocks that are allocated at the investment manager's discretion. Investments
include common and preferred securities as well as equity funds that invest in these instruments.
(c) This category represents a combination of high-yield and investment grade corporate bonds, sovereign bonds, Yankee bonds, asset-backed securities and
U.S. government bonds. Investments include fixed income funds that invest in these instruments.
(d) This category comprises contracts placed with insurance companies where the underlying assets are invested in fixed interest securities.
(e) Other assets in the U.S. represent interest rate derivatives which had a market value of $(10) at December 31, 2017.
77
Reconciliation of Level 3 Assets
Fair value at beginning of period
Actual gains relating to assets still held at the reporting date
Purchases, sales and settlements
Currency impact
Transfers into (out of) Level 3
Fair value at end of period
Valuation Methods
2018
2017
Non-U.S. Non-U.S.
Insurance
Insurance
Contracts
Contracts
16
33
$
$
3
4
(1)
1
(1)
3
10
33
35
$
$
Equity securities — The fair value of equity securities held directly by the trust is based on quoted market prices. When the
equity securities are held in commingled funds that are not publicly traded, the fair value of our interest in the fund is its NAV
as determined by quoted market prices for the underlying holdings.
Fixed income securities — The fair value of fixed income securities held directly by the trust is based on a bid evaluation
process with input from independent pricing sources. When the fixed income securities are held in commingled funds that are
not publicly traded, the fair value of our interest in the fund is its NAV as determined by a similar valuation of the underlying
holdings.
Insurance contracts — The values shown for insurance contracts are the amounts reported by the insurance company and
approximate the fair values of the underlying investments.
Real estate — The investments in real estate represent ownership interests in commingled funds and partnerships that invest in
real estate. The investment managers determine the NAV of these ownership interests using the fair value of the underlying real
estate which is obtained via independent third party appraisals prepared on a periodic basis. Assumptions used to value the
properties are updated quarterly. For the component of the real estate portfolio under development, the investments are carried
at cost until they are completed and valued by a third party appraiser.
Cash and cash equivalents — The fair value of cash and cash equivalents is set equal to its amortized cost.
The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of
future fair values. Furthermore, while we believe the valuation methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could
result in a different fair value measurement at the reporting date.
Investment policy — Target asset allocations of U.S. pension plans are established through an investment policy, which is
updated periodically and reviewed by an Investment Committee, comprised of certain company officers. The investment policy
allows for a flexible asset allocation mix which is intended to provide appropriate diversification to lessen market volatility
while assuming a reasonable level of economic risk.
Our policy recognizes that properly managing the relationship between pension assets and pension liabilities serves to
mitigate the impact of market volatility on our funding levels. The investment policy permits plan assets to be invested in a
number of diverse categories, including a Growth Portfolio, an Immunizing Portfolio and a Liquidity Portfolio. These sub-
portfolios are intended to balance the generation of incremental returns with the management of overall risk.
The Growth Portfolio is invested in a diversified pool of assets in order to generate an incremental return with an
acceptable level of risk. The Immunizing Portfolio is a hedging portfolio that may be comprised of fixed income securities and
overlay positions. This portfolio is designed to offset changes in the value of the pension liability due to changes in interest
rates. The Liquidity Portfolio is a cash portfolio designed to meet short-term liquidity needs and reduce the plans’ overall risk.
As a result of our diversification strategies, there are no significant concentrations of risk within the portfolio of investments.
The allocations among portfolios are adjusted as needed to meet changing objectives and constraints and to manage the
risk of adverse changes in the unfunded positions of our plans. Following approval of the plan of termination by our Board of
Directors in October 2017, the Investment Committee established new targets for the assets of the subject plan. At
December 31, 2018, the plan that we expect to terminate had targets of 0% in the Growth Portfolio (U.S. and non-U.S. equities,
78
high-yield fixed income, real estate, emerging market debt and cash), 98% in the Immunizing Portfolio (long duration U.S.
Treasury strips, corporate bonds and cash) and 2% in the Liquidity Portfolio (cash and short-term securities) while the
remaining U.S. plans had targets of 45% for the Growth Portfolio, 53% for the Immunizing Portfolio and 2% for the Liquidity
Portfolio. The assets held at December 31, 2018 by the plan we expect to terminate were invested 5% in the Growth Portfolio,
94% in the Immunizing Portfolio and 1% in the Liquidity Portfolio while the assets held by the remaining U.S. plans were
invested 42% in the Growth Portfolio, 56% in the Immunizing Portfolio and 2% in the Liquidity Portfolio. The Investment
Committee is in the process of implementing the adjustments to the asset allocation.
Significant assumptions — The significant weighted-average assumptions used in the measurement of pension benefit
obligations at December 31 of each year and the net periodic benefit cost for each year are as follows:
Pension benefit obligations:
Discount rate
Net periodic benefit cost:
Discount rate
Rate of compensation increase
Expected return on plan assets
2018
2017
2016
U.S.
Non-U.S.
U.S.
Non-U.S.
U.S.
Non-U.S.
4.22%
2.42%
3.55%
2.25%
3.92%
2.48%
2.56%
N/A
6.00%
2.54%
3.21%
4.66%
3.24%
N/A
6.00%
2.34%
3.33%
5.92%
3.29%
N/A
6.50%
2.56%
3.12%
5.42%
The pension plan discount rate assumptions are evaluated annually in consultation with our outside actuarial advisers.
Long-term interest rates on high quality corporate debt instruments are used to determine the discount rate. For our largest
plans, discount rates are developed using a discounted bond portfolio analysis, with appropriate consideration given to defined
benefit payment terms and duration of the liabilities. As disclosed previously, the obligations of the U.S. plan being terminated
have been remeasured at expected settlement value. Based on the timing and settlement payments, the U.S. plan being
terminated has an implied discount rate of 3.46%. In the above table, the discount rate used to determine U.S. pension
obligations at the end of 2017 and 2018 does not consider the plan we expect to terminate.
We had historically estimated the interest and service cost components of net periodic benefit cost for pension and other
postretirement benefits using a single weighted-average discount rate derived from the yield curve used to measure the benefit
obligation of the plan at the most recent remeasurement date. At December 31, 2015, we changed the method used to estimate
those interest and service components for pension and other postretirement benefit plans that utilize a yield curve approach.
The new method uses a full yield curve approach to estimate the interest and service components by applying the specific spot
rates along the yield curve used in the most recent remeasurement of the benefit obligation to the relevant projected cash flows.
We believe this method improves the correlation between the projected cash flows and the corresponding interest rates and
provides a more precise measurement of interest and service costs. Since the remeasurement of total benefit obligations is not
affected, the resulting reduction in periodic benefit cost is offset by an increase in the actuarial loss.
The expected rate of return on plan assets was selected on the basis of our long-term view of return and risk assumptions
for major asset classes. We define long-term as forecasts that span at least the next ten years. Our long-term outlook is
influenced by a combination of return expectations by individual asset class, actual historical experience and our diversified
investment strategy. We consult with and consider the opinions of financial professionals in developing appropriate capital
market assumptions. Return projections are also validated using a simulation model that incorporates yield curves, credit
spreads and risk premiums to project long-term prospective returns. The appropriateness of the expected rate of return is
assessed on an annual basis and revised if necessary. We have a high percentage of total assets in fixed income securities since
the benefit accruals are frozen for all of our U.S. pension plans. Based on this assessment, we have selected a 6.00% expected
return on asset assumption for 2019 for our U.S. plans not being terminated. The asset portfolio of the U.S. plan expected to be
terminated has a higher proportion of assets invested in fixed income investments. As such, we selected an expected rate of
3.80% for this plan.
The significant weighted-average assumptions used in the measurement of OPEB obligations at December 31 of each year
and the net periodic benefit cost for each year are as follows:
79
OPEB benefit obligations:
Discount rate
Net periodic benefit cost:
Discount rate
Initial health care cost trend rate
Ultimate health care cost trend rate
Year ultimate reached
2018
OPEB - Non-U.S.
2017
2016
3.71%
3.42%
4.12%
5.10%
2023
3.41%
3.70%
5.07%
5.07%
2018
3.69%
3.45%
5.32%
5.02%
2018
The discount rate selection process was similar to the process used for the pension plans. Assumed health care cost trend
rates have a significant effect on the health care obligation. To determine the trend rates, consideration is given to the plan
design, recent experience and health care economics.
A one-percentage-point change in assumed health care cost trend rates would have the following effects for 2018:
Effect on total of service and interest cost components
Effect on OPEB obligations
1% Point
Increase
1% Point
Decrease
$
$
1
8
(1)
(7)
Estimated future benefit payments and contributions — Expected benefit payments by our pension and OPEB plans for each of
the next five years and for the following five-year period are as follows:
Year
2019
2020
2021
2022
2023
2024 to 2028
Total
Pension Benefits
U.S.
Non-U.S.
OPEB
Non-U.S.
$
$
1,001
43
42
42
41
191
1,360
$
$
25
15
15
17
17
103
192
$
$
5
5
5
5
5
24
49
Pension benefits are funded through deposits with trustees that satisfy, at a minimum, the applicable funding regulations.
OPEB benefits are funded as they become due. Projected contributions to be made during 2019 to the defined benefit pension
plans are $16 for our non-U.S. plans. Based on the current funded status of our U.S. plans, there are no minimum contributions
required for 2019. 2019 benefit payments include the impact of the termination of the U.S. defined benefit pension plan
discussed above.
Multi-employer pension plans — We participate in the Steelworkers Pension Trust (SPT) multi-employer pension plan which
provides pension benefits to all of our U.S. employees represented by the United Steelworkers and United Automobile
Workers unions. Contributions are made in accordance with our collective bargaining agreements and rates are generally based
on hours worked. The collective bargaining agreements expire August 18, 2021. The trustees of the SPT have provided us with
the latest data available for the plan year ended December 31, 2018. As of that date, the plan is not fully funded. We could be
held liable to the plan for our obligations as well as those of other employers as a result of our participation in the plan.
Contribution rates could increase if the plan is required to adopt a funding improvement plan or a rehabilitation plan, if the
performance of plan assets does not meet expectations or as a result of future collectively bargained wage and benefit
agreements. If we choose to stop participating in the plan, we may be required to pay the plan an amount based on the
underfunded status of the plan, referred to as a withdrawal liability.
The Pension Protection Act (PPA) defines a zone status for each plan. Plans in the green zone are at least 80% funded,
plans in the yellow zone are at least 65% funded and plans in the red zone are generally less than 65% funded. The SPT plan
has utilized extended amortization provisions to amortize its losses from 2008. The plan recertified its zone status after using
the extended amortization provisions as allowed by law. The SPT plan has not implemented a funding improvement or
rehabilitation plan, nor are such plans pending. Our contributions to the SPT exceeded 5% of the total contributions to the plan.
80
Pension
Fund
SPT
Employer
Identification
Number/
Plan Number
23-6648508 / 499
PPA
Zone Status
2018
Green
2017
Green
Funding Plan
Pending/
Implemented
No
Contributions by Dana
2018
2017
2016
$
12
$
11
$
10
Surcharge
Imposed
No
Note 13. Marketable Securities
U.S. government securities
Corporate securities
Certificates of deposit
Other
Total marketable securities
2018
Unrealized
Gains
(Losses)
$
— $
Cost
2
4
15
Fair
Value
Cost
$
2
4
15
21
$
— $
21
$
2017
Unrealized
Gains
(Losses)
Fair
Value
3
5
27
4
39
$
$
— $
1
1
$
3
5
27
5
40
$
$
U.S. government securities include bonds issued by government-sponsored agencies and Treasury notes. Corporate
securities include primarily debt securities. Other consists of investments in mutual and index funds. U.S. government
securities, corporate debt and certificates of deposit maturing in one year or less, after one year through five years and after five
years through ten years total $15, $3 and $3 at December 31, 2018.
Note 14. Financing Agreements
Long-term debt at December 31 —
Senior Notes due September 15, 2023
Senior Notes due December 15, 2024
Senior Notes due April 15, 2025
Senior Notes due June 1, 2026
Term Facility
Other indebtedness
Debt issuance costs
Less: Current portion of long-term debt
Long-term debt, less debt issuance costs
*
Interest
Rate
6.000%
5.500%
5.750% *
6.500% *
2018
2017
300
425
400
375
265
28
(18)
1,775
20
1,755
$
$
300
425
400
375
275
29
(22)
1,782
23
1,759
$
$
In conjunction with the issuance of the April 2025 Notes we entered into 8-year fixed-to-fixed cross-currency swaps which have the effect of
economically converting the April 2025 Notes to euro-denominated debt at a fixed rate of 3.850%. In conjunction with the issuance of the June 2026
Notes we entered into 10-year fixed-to-fixed cross-currency swaps which have the effect of economically converting the June 2026 Notes to euro-
denominated debt at a fixed rate of 5.140%. See Note 15 for additional information.
Interest on the senior notes is payable semi-annually and interest on the Term Facility is payable quarterly. Other
indebtedness includes borrowings from various financial institutions, capital lease obligations and the unamortized fair value
adjustment related to a terminated interest rate swap. See Note 15 for additional information on the terminated interest rate
swap.
Scheduled principal payments on long-term debt, including capital leases at December 31, 2018 —
Maturities
2019
2020
2021
2022
2023
$
20
$
19
$
19
$
215
$
302
Senior notes activity — On September 18, 2017, we redeemed the remaining $350 of our September 2021 Notes at a price
equal to 102.688% plus accrued and unpaid interest. The $13 loss on extinguishment of debt includes the $10 redemption
premium and the $3 write-off of previously deferred financing costs associated with the September 2021 Notes.
81
On April 4, 2017, Dana Financing Luxembourg S.à r.l., a wholly-owned subsidiary of Dana, issued $400 in senior notes
(April 2025 Notes) at 5.750%, which are guaranteed by Dana. The April 2025 Notes were issued through a private placement
and will not be registered under the U.S. Securities Act of 1933, as amended (the Securities Act). The April 2025 Notes were
offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act and, outside the United States,
only to non-U.S. investors in reliance on Regulation S under the Securities Act. The April 2025 Notes rank equally with Dana's
other unsecured senior notes. Interest on the notes is payable on April 15 and October 15 of each year. The April 2025 Notes
will mature on April 15, 2025. Net proceeds of the offering totaled $394. Financing costs of $6 were recorded as deferred costs
and are being amortized to interest expense over the life of the April 2025 Notes. The proceeds from the offering were used to
repay indebtedness of our BPT and BFP subsidiaries, repay indebtedness of a wholly-owned subsidiary in Brazil, redeem $100
of our September 2021 Notes and for general corporate purposes. The September 2021 Notes were redeemed on April 4, 2017
at a price equal to 104.031% plus accrued and unpaid interest. The $6 loss on extinguishment of debt includes the $4
redemption premium and the $1 write-off of previously deferred financing costs associated with the September 2021 Notes and
the $1 redemption premium associated with the repayment of indebtedness of a wholly-owned subsidiary in Brazil. In
conjunction with the issuance of the April 2025 Notes, we entered into 8-year fixed-to-fixed cross-currency swaps which have
the effect of economically converting the April 2025 Notes to euro-denominated debt at a fixed rate of 3.850%. See Note 15 for
additional information.
On June 23, 2016, we redeemed all of our February 2021 Notes at a price equal to 103.375% plus accrued and unpaid
interest. The $16 loss on extinguishment of debt includes the $12 redemption premium and the $4 write-off of previously
deferred financing costs associated with the February 2021 Notes.
On May 27, 2016, Dana Financing Luxembourg S.à r.l., a wholly-owned subsidiary of Dana, issued $375 in senior notes
(June 2026 Notes). The June 2026 Notes were issued through a private placement and will not be registered under the U.S.
Securities Act of 1933, as amended (the Securities Act). The June 2026 Notes were offered only to qualified institutional buyers
in reliance on Rule 144A under the Securities Act and, outside the United States, only to non-U.S. investors in reliance on
Regulation S under the Securities Act. The June 2026 Notes rank equally with Dana's other unsecured senior notes. Interest on
the notes is payable on June 15 and December 15 of each year. The June 2026 Notes will mature on June 1, 2026. Net proceeds
of the offering totaled $368. Financing costs of $7 were recorded as deferred costs and are being amortized to interest expense
over the life of the notes. The proceeds from the offering were used to redeem our February 2021 Notes, to pay related fees and
expenses and for general corporate purposes.
Senior notes redemption provisions — We may redeem some or all of the senior notes at the following redemption prices
(expressed as percentages of principal amount), plus accrued and unpaid interest to the redemption date, if redeemed during the
12-month period commencing on the anniversary date of the senior notes in the years set forth below:
Year
2019
2020
2021
2022
2023
2024
2025
Redemption Price
September
2023 Notes
December
2024 Notes
April
2025 Notes
June
2026 Notes
102.000%
101.000%
100.000%
100.000%
102.750%
101.833%
100.917%
100.000%
100.000%
104.313%
102.875%
101.438%
100.000%
100.000%
103.250%
102.167%
101.083%
100.000%
100.000%
Prior to December 15, 2019, we may redeem some or all of the December 2024 Notes at a price equal to the principal
amount thereof, plus accrued and unpaid interest, plus a “make-whole” premium. We have not separated the make-whole
premium from the underlying debt instrument to account for it as a derivative instrument as the economic characteristics and
the risks of this embedded derivative are clearly and closely related to the economic characteristics and risks of the underlying
debt.
At any time prior to April 15, 2020, we may redeem up to 35% of the aggregate principal amount of the April 2025 Notes
in an amount not to exceed the amount of proceeds of one or more equity offerings, at a price equal to 105.750% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, provided that at least 50% of the
original aggregate principal amount of the April 2025 Notes remains outstanding after the redemption.
82
Prior to April 15, 2020, we may redeem some or all of the April 2025 Notes at a redemption price of 100.000% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole”
premium. We have not separated the make-whole premium from the underlying debt instrument to account for it as a derivative
instrument as the economic characteristics and the risks of this embedded derivative are clearly and closely related to the
economic characteristics and risks of the underlying debt.
At any time prior to June 1, 2019, we may redeem up to 35% of the aggregate principal amount of the June 2026 Notes in
an amount not to exceed the amount of proceeds of one or more equity offerings, at a price equal to 106.500% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the redemption date, provided that at least 50% of the original
aggregate principal amount of the June 2026 Notes remains outstanding after the redemption.
Prior to June 1, 2021, we may redeem some or all of the June 2026 Notes at a redemption price of 100.000% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole”
premium. We have not separated the make-whole premium from the underlying debt instrument to account for it as a derivative
instrument as the economic characteristics and the risks of this embedded derivative are clearly and closely related to the
economic characteristics and risks of the underlying debt.
Credit agreement — On August 17, 2017, we entered into an amended credit and guaranty agreement comprised of a $275
term facility (the Term Facility) and a $600 revolving credit facility (the Revolving Facility) both of which mature on August
17, 2022. On September 14, 2017, we drew the entire amount available under the Term Facility. Net proceeds from the Term
Facility draw totaled $274. Financing costs of $1 were recorded as deferred cost and are being amortized to interest expense
over the life of the Term Facility. We are required to make equal quarterly installments on the last day of each fiscal quarter of
1.5625% of the initial aggregate principal amount of the Term Facility commencing on September 30, 2018. We may prepay
some or all of Term Facility without penalty. Any prepayments made on the Term Facility would be applied against the required
quarterly installments. The proceeds from the Term Facility were used to repay our September 2021 Notes and for general
corporate purposes. The Revolving Facility amended our previous revolving credit facility. In connection with the Revolving
Facility, we paid $2 in deferred financing costs to be amortized to interest expense over the life of the facility. Deferred
financing costs on our Revolving Facility are included in other noncurrent assets.
The Term Facility and the Revolving Facility are guaranteed by all of our wholly-owned domestic subsidiaries subject to
certain exceptions (the guarantors) and grants a first-priority lien on substantially all of the assets of Dana and the guarantors,
subject to certain exceptions.
Advances under the Term Facility and Revolving Facility bear interest at a floating rate based on, at our option, the base
rate or Eurodollar rate (each as described in the revolving credit agreement) plus a margin as set forth below:
Total Net Leverage Ratio
Less than or equal to 1.00:1.00
Greater than 1.00:1.00 but less than or equal to 2.00:1.00
Greater than 2.00:1.00
Margin
Base Rate
Eurodollar Rate
0.50%
0.75%
1.00%
1.50%
1.75%
2.00%
We have elected to pay interest on our advance under the Term Facility at the Eurodollar Rate. The interest rates on the
Term Facility, inclusive of the applicable margin, was 4.27238% as of December 31, 2018.
Commitment fees are applied based on the average daily unused portion of the available amounts under the Revolving
Facility as set forth below:
Total Net Leverage Ratio
Less than or equal to 1.00:1.00
Greater than 1.00:1.00 but less than or equal to 2.00:1.00
Greater than 2.00:1.00
Commitment Fee
0.250%
0.375%
0.500%
Up to $275 of the Revolving Facility may be applied to letters of credit, which reduces availability. We pay a fee for issued
and undrawn letters of credit in an amount per annum equal to the applicable margin for Eurodollar rate advances based on a
quarterly average availability under issued and undrawn letters of credit under the Revolving Facility and a per annum fronting
fee of 0.125%, payable quarterly.
83
At December 31, 2018, we had no outstanding borrowings under the Revolving Facility but we had utilized $21 for letters
of credit. We had availability at December 31, 2018 under the Revolving Facility of $579 after deducting the outstanding letters
of credit.
Debt covenants — At December 31, 2018, we were in compliance with the covenants of our financing agreements. Under the
Term Facility, Revolving Facility and the senior notes, we are required to comply with certain incurrence-based covenants
customary for facilities of these types and, in the case of the Term Facility and Revolving Facility, a maintenance covenant
requiring us to maintain a first lien net leverage ratio not to exceed 2.00 to 1.00.
Note 15. Fair Value Measurements and Derivatives
In measuring the fair value of our assets and liabilities, we use market data or assumptions that we believe market
participants would use in pricing an asset or liability including assumptions about risk when appropriate. Our valuation
techniques include a combination of observable and unobservable inputs.
Fair value measurements on a recurring basis — Assets and liabilities that are carried in our balance sheet at fair value are as
follows:
Category
Available-for-sale securities
Available-for-sale securities
Currency forward contracts
Cash flow hedges
Cash flow hedges
Undesignated
Undesignated
Currency swaps
Cash flow hedges
Balance Sheet Location
Marketable securities
Marketable securities
Accounts receivable - Other
Other accrued liabilities
Accounts receivable - Other
Other accrued liabilities
Other noncurrent liabilities
Fair Value
Level
1
2
2
2
2
2
2
Fair Value
December 31,
2018
December 31,
2017
$
— $
21
6
5
2
1
5
35
1
5
1
3
118
177
Fair Value Level 1 assets and liabilities reflect quoted prices in active markets. Fair Value Level 2 assets and liabilities
reflect the use of significant other observable inputs.
Fair value of financial instruments — The financial instruments that are not carried in our balance sheet at fair value are as
follows:
2018
2017
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Senior notes
Term Facility
Other indebtedness*
Total
*
1,592
275
22
1,889
$
The carrying value includes the unamortized portion of a fair value adjustment related to a terminated interest rate swap at both dates. The carrying value
and fair value also include a financial liability associated with certain build-to-suit lease arrangements at December 31, 2017.
1,500
265
28
1,793
1,442
265
23
1,730
1,500
275
29
1,804
$
$
$
$
$
$
$
The fair value of our senior notes and Term Facility are estimated based upon a market approach (Level 2) while the fair
value of our other indebtedness is based upon an income approach (Level 2). The fair value of the Term Facility approximates
its carrying value as it is a floating-rate facility. See Note 14 for additional information about financing arrangements.
Fair value measurements on a nonrecurring basis — Certain assets are measured at fair value on a nonrecurring basis. These
are long-lived assets that are subject to fair value adjustments only in certain circumstances. These assets include intangible
assets and property, plant and equipment which may be written down to fair value when they are held for sale or as a result of
impairment.
84
Interest rate derivatives — Our portfolio of derivative financial instruments periodically includes interest rate swaps designed
to mitigate our interest rate risk. As of December 31, 2018, no fixed-to-floating interest rate swaps remain outstanding.
However, a $6 fair value adjustment to the carrying amount of our December 2024 Notes, associated with a fixed-to-floating
interest rate swap that had been executed but was subsequently terminated during 2015, remains deferred at December 31,
2018. This amount is being amortized as a reduction of interest expense through the period ending December 2024, the
scheduled maturity date of the December 2024 Notes. Approximately $1 was amortized as a reduction of interest expense
during 2018.
Foreign currency derivatives — Our foreign currency derivatives include forward contracts associated with forecasted
transactions, primarily involving the purchases and sales of inventory through the next eighteen months, as well as currency
swaps associated with certain recorded external notes payable and intercompany loans receivable and payable. Periodically, our
foreign currency derivatives also include net investment hedges of certain of our investments in foreign operations.
In 2017, in conjunction with the issuance of €281 of euro-denominated intercompany notes payable, issued by certain of
our Luxembourg subsidiaries (the "Luxembourg Intercompany Notes") and payable to USD-functional Dana, Inc., we executed
fixed-to-fixed cross-currency swaps with the same critical terms as the Luxembourg Intercompany Notes. The risk management
objective of these swaps is to eliminate the variability in the functional-currency-equivalent cash flows due to changes in the
euro / U.S. dollar exchange rates associated with the forecasted principal and interest payments.
In 2017, in conjunction with the issuance of the $400 of U.S. dollar-denominated April 2025 Notes by euro-functional
Dana Financing Luxembourg S.à r.l., we executed fixed-to-fixed cross-currency swaps with the same critical terms as the April
2025 Notes to eliminate the variability in the functional-currency-equivalent cash flows due to changes in the U.S. dollar / euro
exchange rates associated with the forecasted principal and interest payments.
In 2016, in conjunction with the issuance of the $375 of U.S. dollar-denominated June 2026 Notes by euro-functional Dana
Financing Luxembourg S.à r.l., we executed fixed-to-fixed cross-currency swaps with the same critical terms as the June 2026
Notes to eliminate the variability in the functional-currency-equivalent cash flows due to changes in the U.S. dollar / euro
exchange rates associated with the forecasted principal and interest payments.
All of the underlying designated financial instruments, and any subsequent replacement debt, have been designated as the
hedged items in each respective cash flow hedge relationship, as shown in the table below. Designated as cash flow hedges of
the forecasted principal and interest payments of the underlying designated financial instruments, or subsequent replacement
debt, all of the swaps economically convert the underlying designated financial instruments into the functional currency of each
respective holder. The impact of the interest rate differential between the inflow and outflow rates on all fixed-to-fixed cross-
currency swaps is recognized during each period as a component of interest expense.
The following fixed-to-fixed cross-currency swaps were outstanding at December 31, 2018:
Underlying Financial Instrument
Derivative Financial Instrument
Description
June 2026 Notes
April 2025 Notes
Luxembourg Intercompany Notes
Type
Payable
Payable
Receivable
Face
Amount
375
$
400
$
281
Rate
6.50% $
5.75% $
3.91% €
Designated
Notional
Amount
Traded
Amount
375
400
281
$
338
371
300
Inflow
Rate
6.50%
5.75%
6.00%
Outflow
Rate
5.14%
3.85%
3.91%
All of the swaps are expected to be highly effective in offsetting the corresponding currency-based changes in cash
outflows related to the underlying designated financial instruments. Based on our qualitative assessment that the critical terms
of all of the underlying designated financial instruments and all of the associated swaps match and that all other required
criteria have been met, we do not expect to incur any ineffectiveness. As effective cash flow hedges, changes in the fair value of
the swaps will be recorded in OCI during each period. Additionally, to the extent the swaps remain effective, the appropriate
portion of AOCI will be reclassified to earnings each period as an offset to the foreign exchange gain or loss resulting from the
remeasurement of the underlying designated financial instruments. See Note 14 for additional information about the June 2026
Notes and the April 2025 Notes. To the extent the swaps are no longer effective, changes in their fair values will be recorded in
earnings.
85
€
€
€
The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies,
was $1,007 at December 31, 2018 and $306 at December 31, 2017. The total notional amount of outstanding foreign currency
swaps, including the fixed-to-fixed cross-currency swaps, was $1,097 at December 31, 2018 and $1,112 at December 31, 2017.
The following currency derivatives were outstanding at December 31, 2018:
Functional Currency
U.S. dollar
Euro
British pound
Swedish krona
South African rand
Canadian dollar
Thai baht
Brazilian real
Indian rupee
Total forward contracts
Traded Currency
Swiss franc, Mexican peso, euro
U.S. dollar, Canadian dollar,
Hungarian forint, British pound,
Swiss franc, Indian rupee,
Russian ruble, Chinese renminbi
U.S. dollar, euro
Euro, U.S. dollar
U.S. dollar, euro, Thai baht
U.S. dollar
U.S. dollar, Australian dollar
U.S. dollar, euro
U.S. dollar, British pound, euro
U.S. dollar
Euro
Total currency swaps
Total currency derivatives
Euro
U.S. dollar
Notional Amount (U.S. Dollar Equivalent)
Designated as
Cash Flow
Hedges
$
$
142
55
3
17
11
23
31
28
310
322
775
1,097
1,407
Undesignated
607
$
10
$
Total
Maturity
749 Mar-20
65 Mar-20
1
1
42
36
697
$
—
697
$
Nov-19
3
Dec-19
17
Nov-19
12
Feb-20
23
Nov-19
32
Dec-19
70
36 Mar-20
1,007
322
775
1,097
2,104
Sep-23
Jun-26
During the third quarter of 2018, we entered into a Swiss franc notional deal contingent forward to economically hedge the
purchase price relating to the planned acquisition of the Drive Systems segment of the Oerlikon Group.
Cash flow hedges — With respect to contracts designated as cash flow hedges, changes in fair value during the period in which
the contracts remain outstanding are reported in OCI to the extent such contracts remain effective. Effectiveness is measured by
using regression analysis to determine the degree of correlation between the change in the fair value of the derivative
instrument and the change in the associated foreign currency exchange rates. Changes in fair value of contracts not designated
as cash flow hedges or as net investment hedges are recognized in other income (expense), net in the period in which the
changes occur. Realized gains and losses from currency-related forward contracts associated with forecasted transactions or
from other derivative instruments, including those that have been designated as cash flow hedges and those that have not been
designated, are recognized in the same line item in the consolidated statement of operations in which the underlying forecasted
transaction or other hedged item is recorded. Accordingly, amounts are potentially recorded in sales, cost of sales or, in certain
circumstances, other income (expense), net.
The following table provides a summary of the impact on AOCI of derivative instruments that have been designated as
cash flow hedges:
Derivatives in Cash Flow Hedging Relationships
Cross-Currency
Forward
Swaps
Contracts
Total Cash Flow
Hedges
Balance in AOCI at December 31, 2017, before tax
Gain (loss) recorded in OCI
(Gain) loss reclassified from AOCI to the consolidated
statement of operations
Balance in AOCI at December 31, 2018, before tax
$
$
(4) $
7
(1)
2
(64) $
59
(55)
(60) $
(68)
66
(56)
(58)
The following table provides a summary of the location and amount of gains or losses recognized in the consolidated
statement of operations associated with cash flow hedging relationships:
86
Location and Amount of Gain or (Loss) Recognized
in Income on Cash Flow Hedging Relationships
2018
Derivatives Designated as Cash Flow Hedges
Net sales
Cost of sales
Other income
(expense), net
Total amounts of income and expense line items presented in the
consolidated statement of operations in which the effects of cash
flow hedges are recorded
(Gain) or loss on cash flow hedging relationships
Foreign currency forwards
$
8,143
$
6,986
$
(29)
Amount of (gain) loss reclassified from AOCI into income
(1)
Cross-currency swaps
Amount of (gain) loss reclassified from AOCI into income
(55)
The amounts reclassified from AOCI into income for the cross-currency swaps represent an offset to a foreign exchange
loss on our foreign currency-denominated intercompany and external debt instruments.
Certain of our hedges of forecasted transactions have not formally been designated as cash flow hedges. As undesignated
forward contracts, the changes in the fair value of such contracts are included in earnings for the duration of the outstanding
forward contract. Any realized gain or loss on the settlement of such contracts is recognized in the same period and in the same
line item in the consolidated statement of operations as the underlying transaction. The following table provides a summary of
the location and amount of gains or losses recognized in the consolidated statement of operations associated with undesignated
hedging relationships.
2018
Derivatives Not Designated as Hedging Instruments
Foreign currency forward contracts
Foreign currency forward contracts
Amount of Gain (Loss)
Recognized in Income
$
Location of Gain or (Loss)
Recognized in Income
(5) Cost of sales
(5) Other income (expense), net
Net investment hedges — We periodically designate derivative contracts or underlying non-derivative financial instruments as
net investment hedges. With respect to contracts designated as net investment hedges, we apply the forward method, but for
non-derivative financial instruments designated as net investment hedges, we apply the spot method. Under both methods, we
report changes in fair value in the CTA component of OCI during the period in which the contracts remain outstanding to the
extent such contracts and non-derivative financial instruments remain effective.
In 2017, we designated the principal amount of an existing non-derivative Mexican peso-denominated intercompany note
payable (the "MXN-denominated intercompany note") by Dana European Holdings Luxembourg S.à r.l. to Dana de Mexico
Corporacion S. de R.L. de C.V., one of our Mexican subsidiaries, as a net investment hedge of the equivalent portion of the
investment in the associated Mexican operations. During the third quarter of 2018 the intercompany note was repaid
and no additional net investment hedges are outstanding. On a cumulative basis, a deferred loss of $4 has been recorded in the
CTA component of AOCI for this non-derivative instrument. Amounts recorded in CTA remain deferred in AOCI until such
time as the investments in the associated subsidiaries are substantially liquidated.
Amounts to be reclassified to earnings — Deferred gains or losses associated with effective cash flow hedges of forecasted
transactions are reported in AOCI and are reclassified to earnings in the same periods in which the underlying transactions
affect earnings. Amounts expected to be reclassified to earnings assume no change in the current hedge relationships or to
December 31, 2018 exchange rates. Deferred gains of $2 at December 31, 2018 are expected to be reclassified to earnings
during the next twelve months, compared to deferred losses of $4 at December 31, 2017. Amounts reclassified from AOCI to
earnings arising from the discontinuation of cash flow hedge accounting treatment were not material during 2018.
Note 16. Commitments and Contingencies
Product liabilities — We had accrued $19 and $7 for product liability costs at December 31, 2018 and 2017. We had also
recognized $24 and $9 as expected amounts recoverable from third parties at the respective dates. The increases in the liability
and recoverable amounts at December 31, 2018 largely reflect the recognition of the estimated cost, net of payments made, and
87
the expected recovery of an insured matter. Payments made to claimants have preceded the recovery of amounts from third
parties, resulting in a recoverable amount in excess of the total liability at December 31, 2018. We estimate these liabilities
based on current information and assumptions about the value and likelihood of the claims against us.
Environmental liabilities — Accrued environmental liabilities were $10 and $8 at December 31, 2018 and 2017. We consider
the most probable method of remediation, current laws and regulations and existing technology in estimating our environmental
liabilities.
Guarantee of lease obligations — In connection with the divestiture of our Structural Products business in 2010, leases
covering three U.S. facilities were assigned to a U.S. affiliate of Metalsa. Under the terms of the sale agreement, we will
guarantee the affiliate’s performance under the leases, which run through June 2025, including approximately $6 of annual
payments. In the event of a required payment by Dana as guarantor, we are entitled to pursue full recovery from Metalsa of the
amounts paid under the guarantee and to take possession of the leased property.
Other legal matters — We are subject to various pending or threatened legal proceedings arising out of the normal course of
business or operations. In view of the inherent difficulty of predicting the outcome of such matters, we cannot state what the
eventual outcome of these matters will be. However, based on current knowledge and after consultation with legal counsel, we
believe that any liabilities that may result from these proceedings will not have a material adverse effect on our liquidity,
financial condition or results of operations.
Lease commitments — Cash obligations under future minimum rental commitments under operating leases and net rental
expense at December 31, 2018 are shown in the table below. Operating lease commitments are primarily related to facilities.
Lease commitments
$
57
$
41
$
35
$
27
$
21
2019
2020
2021
2022
2023
Thereafter
64
$
Total
$
245
Rent expense
Note 17. Warranty Obligations
2018
$67
2017
$61
2016
$50
We record a liability for estimated warranty obligations at the dates our products are sold. We record the liability based on
our estimate of costs to settle future claims. Adjustments to our estimated costs at time of sale are made as claim experience and
other new information becomes available. Obligations for service campaigns and other occurrences are recognized as
adjustments to prior estimates when the obligation is probable and can be reasonably estimated.
Changes in warranty liabilities —
Balance, beginning of period
Acquisitions
Amounts accrued for current period sales
Adjustments of prior estimates
Settlements of warranty claims
Currency impact
Balance, end of period
2018
2017
2016
$
76
$
37
(1)
(35)
(2)
75
$
$
66
6
32
11
(42)
3
76
$
56
25
26
(41)
$
66
88
Note 18. Income Taxes
Income tax expense (benefit) —
Current
U.S. federal and state
Non-U.S.
Total current
Deferred
U.S. federal and state
Non-U.S.
Total deferred
Total expense (benefit)
2018
2017
2016
$
$
14
128
142
(47)
(17)
(64)
78
$
$
6
98
104
164
15
179
283
$
$
(18)
74
56
(497)
17
(480)
(424)
We record interest and penalties related to uncertain tax positions as a component of income tax expense or benefit. Net
interest expense for the periods presented herein is not significant.
Income before income taxes —
U.S. operations
Non-U.S. operations
Earnings before income taxes
2018
2017
2016
$
$
26
468
494
$
$
60
320
380
$
$
(56)
271
215
Income tax audits — We conduct business globally and, as a result, file income tax returns in multiple jurisdictions that are
subject to examination by taxing authorities throughout the world. With few exceptions, we are no longer subject to U.S.
federal, state and local or foreign income tax examinations for years before 2009.
We are currently under audit by U.S. and foreign authorities for certain taxation years. When the issues related to these
periods are settled, the total amounts of unrecognized tax benefits for all open tax years may be modified. Audit outcomes and
the timing of the audit settlements are subject to uncertainty and we cannot make an estimate of the impact on our financial
position at this time.
U.S. tax reform legislation — On December 22, 2017, the Tax Cuts and Jobs Act ("Act") was signed into law in the U.S. The
Act includes a broad range of tax reforms, certain of which were required by GAAP to be recognized upon enactment. The U.S.
Securities and Exchange Commission has issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on
accounting for the tax effects of the Act. SAB 118 provides a measurement period that should not extend beyond one year from
the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must
reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent
that a company’s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable
estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate
to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws
that were in effect immediately before the enactment of the Act.
Based on our historical financial performance in the U.S., at December 31, 2017, we had a significant net deferred tax asset
position. As such, with the Act's reduction of the corporate tax rate from 35% to 21%, we remeasured our net deferred tax
assets at the lower corporate rate of 21% and recognized tax expense to adjust net deferred tax assets to the reduced value. The
Act introduced provisions that fundamentally change the U.S. approach to taxation of foreign earnings. Under the Act, qualified
dividends of foreign subsidiaries are no longer subject to U.S. tax. Under the previously-existing tax rules, dividends from
foreign operations were subjected to U.S. tax, and if not considered permanently reinvested, we had recognized expense and
recorded a liability for the tax expected to be incurred upon receipt of the dividend of these foreign earnings. Although the Act
excludes dividends of foreign subsidiaries from taxation, it included a provision for a mandatory deemed dividend of
undistributed foreign earnings at tax rates of 15.5% or 8% ("transition tax") depending on the nature of the foreign operations'
assets. Companies may utilize tax attributes (including net operating losses and tax credits) to offset the transition tax. The
estimated net effect of applying the provisions of the Act on our 2017 results of operations was a non-cash charge to tax
expense of $186. Our analysis of this provisional amount continued throughout the year as additional guidance and
89
interpretations of the Act were issued, and we completed our accounting for the provisions of the Act in the fourth quarter of
2018, with no material adjustment required.
Beginning in 2018, the Act may also trigger a taxable deemed dividend to the extent that the annual earnings of our foreign
subsidiaries exceed a specified threshold, based on the value of tangible foreign operating assets. The deemed dividend, if any,
from this global intangible low-taxed income (GILTI) may be offset by the use of other tax attributes in that year, and
specifically, the GILTI rules may impact the amount of cash tax savings that net operating losses provide. The SEC staff has
indicated that a company should make and disclose certain policy elections related to accounting for GILTI. As to whether we
will recognize deferred taxes for basis differences expected to reverse as GILTI or account for the effect of GILTI as a period
cost when incurred, we intend to account for the tax effect of GILTI as a period cost. As to the realizability of the tax benefit
provided by net operating losses, we are electing to utilize the tax law ordering approach.
Effective tax rate reconciliation —
U.S. federal income tax rate
Adjustments resulting from:
State and local income taxes, net of federal benefit
Non-U.S. income (expense)
Credits and tax incentives
U.S. tax on non-U.S. earnings
Intercompany sale of certain operating assets
Settlement and return adjustments
Enacted change in tax laws
Miscellaneous items
Valuation allowance adjustments
Effective income tax rate
2018
2017
2016
21%
1
5
(18)
3
1
6
1
(4)
16%
35%
1
(11)
(16)
12
(6)
(2)
49
1
11
74%
35 %
5
(15)
(5)
(19)
5
14
4
2
(222)
(196)%
During 2018, we recognized a benefit of $44 related to U.S. state law changes and the development and implementation of
a tax planning strategy which adjusted federal tax credits, along with federal and state net operating losses and the associated
valuation allowances. We also recognized benefits of $11 relating to the reversal of a provision for an uncertain tax position, $5
relating to the release of valuation allowances in the US based on improved income projections and $7 due to permanent
reinvestment assertions. Partially offsetting these benefits was $5 of expense to settle outstanding tax matters in a foreign
jurisdiction.
The net effect in 2017 of applying the U.S. tax reform provisions of the Act was tax expense of $186. This impact, which
increased the effective rate for 2017 by 49%, was principally attributable to the reduction of net deferred tax assets to reflect the
reduced corporate tax rate. Foreign tax credits of $49 which were generated in 2017 but not utilized to offset the transition tax
are included as a benefit in the credits and incentives component of the effective rate reconciliation, with an offsetting expense
of $49 in the valuation allowance component to recognize that such credits are not likely to be realized.
In the fourth quarter of 2016, we determined that valuation allowances against certain U.S. deferred taxes were no longer
required. Release of these valuation allowances resulted in $501 of tax benefit. Valuation allowances against U.S. deferred tax
assets primarily related to state operating loss carryforwards and other credits were retained. In the fourth quarter of 2017,
based on our improved financial performance and outlook, we determined that release of an additional $27 was appropriate and
recognized a tax benefit of this amount. Developments in Brazil in 2016 led to our determination that an allowance against
certain deferred taxes in that country was appropriate, and we recognized tax expense of $25 in 2016 to establish this valuation
allowance.
Foreign income repatriation — Prior to the U.S. tax reform provisions enacted with passage of the Act, we provided for U.S.
federal income and non-U.S. withholding taxes on the earnings of our non-U.S. operations that are not considered to be
permanently reinvested. As indicated above, with passage of the Act, dividends of earnings from non-U.S. operations are
generally no longer subjected to U.S. income tax. Accordingly, in the fourth quarter of 2017, we reduced the previously
recorded liability for U.S. income tax on expected repatriations of non-U.S. earnings. We continue to analyze and adjust the
estimated impact of the non-U.S. income and withholding tax liabilities based on the amount and source of these earnings, as
well as the expected means through which those earnings may be taxed. We recognized a net benefit of $7 in 2018, net expense
of $2 in 2017, and a net benefit of $58 in 2016 related to future income taxes and non-U.S. withholding taxes on repatriations
90
from operations that are not permanently reinvested. We also paid withholding taxes of $11, $7 and $6 during 2018, 2017 and
2016 related to the actual transfer of funds to the U.S. The unrecognized tax liability associated with the operations in which we
are permanently reinvested is $11 at December 31, 2018.
The earnings of our certain non-U.S. subsidiaries may be repatriated to the U.S. in the form of repayments of intercompany
borrowings. Certain of our international operations had intercompany loan obligations to the U.S. totaling $1,040 at the end of
2018. Included in this amount are intercompany loans and related interest accruals with an equivalent value of $21 which are
denominated in a foreign currency and considered to be permanently invested.
Valuation allowance adjustments — We have recorded valuation allowances in several entities where the recent history of
operating losses does not allow us to satisfy the “more likely than not” criterion for the recognition of deferred tax assets.
Consequently, there is no income tax expense or benefit recognized on the pre-tax income or losses in these jurisdictions as
valuation allowances are adjusted to offset the associated tax expense or benefit.
When evaluating the need for a valuation allowance we consider all components of comprehensive income, and we weigh
the positive and negative evidence, putting greater reliance on objectively verifiable evidence than on projections of future
profitability that are dependent on actions that have not occurred as of the assessment date. We also consider changes to the
historical financial results due to activities that were either new to the business or not expected to recur in the future, in order to
identify the core earnings of the business. A sustained period of profitability, after considering changes to the historical results
due to implemented actions and nonrecurring events, along with positive expectations for future profitability are necessary to
reach a determination that a valuation allowance should be released. We believe it is reasonably possible that a valuation
allowance of up to $24 related to a subsidiary in Brazil will be released in the next twelve months.
At December 31, 2016, we retained a valuation allowance of $137 against deferred tax assets in the U.S. primarily related
to state operating loss carryforwards and other credits which do not meet the more likely than not criterion for releasing the
valuation allowance. Based on our financial performance and outlook, we determined that $5 and $27 of this allowance met the
more-likely-than not standard for release in 2018 and 2017.
Deferred tax assets and liabilities — Temporary differences and carryforwards give rise to the following deferred tax assets and
liabilities.
Net operating loss carryforwards
Postretirement benefits, including pensions
Research and development costs
Expense accruals
Other tax credits recoverable
Capital loss carryforwards
Inventory reserves
Postemployment and other benefits
Total
Valuation allowances
Deferred tax assets
Unremitted earnings
Intangibles
Depreciation
Other
Deferred tax liabilities
Net deferred tax assets
2018
2017
255
98
94
75
232
40
13
6
813
(281)
532
(1)
(11)
(44)
(59)
(115)
417
$
$
319
119
85
78
122
43
16
5
787
(301)
486
(30)
(22)
(60)
(13)
(125)
361
$
$
Carryforwards — Our deferred tax assets include benefits expected from the utilization of net operating loss (NOL), capital
loss and credit carryforwards in the future. The following table identifies the net operating loss deferred tax asset components
and the related allowances that existed at December 31, 2018. Due to time limitations on the ability to realize the benefit of the
carryforwards, additional portions of these deferred tax assets may become unrealizable in the future.
91
Net operating losses
U.S. federal
U.S. state
Brazil
France
Australia
Italy
Germany
U.K.
Canada
Netherlands
China
Total
Deferred
Tax
Asset
Valuation
Allowance
Carryforward
Period
$
$
76
88
20
8
30
6
5
3
16
1
2
255
$
$
20
Various
Unlimited
Unlimited
Unlimited
Unlimited
Unlimited
Unlimited
20
9
5
—
(41)
(20)
(30)
(6)
(5)
(3)
(15)
(2)
(122)
Earliest
Year of
Expiration
2029
2019
2026
2027
2020
In addition to the NOL carryforwards listed in the table above, we have deferred tax assets related to capital loss
carryforwards of $40 which are fully offset with valuation allowances at December 31, 2018. We also have deferred tax assets
of $232 related to other credit carryforwards which are partially offset with $95 of valuation allowances at December 31, 2018.
The capital losses can be carried forward indefinitely while the other credits are generally available for 10 to 20 years.
The use of our $362 U.S. federal NOL as of December 31, 2018 is subject to limitation due to the change in ownership of
our stock upon emergence from bankruptcy. Generally, the application of the relevant Internal Revenue Code (IRC) provisions
will release the limitation on $84 of pre-change NOLs each year, allowing pre-change losses to offset post-change taxable
income. However, there can be no assurance that trading in our shares will not effect another change in ownership under the
IRC which could further limit our ability to utilize our available NOLs.
Unrecognized tax benefits — Unrecognized tax benefits are the difference between a tax position taken, or expected to be
taken, in a tax return and the benefit recognized for accounting purposes. Interest income or expense, as well as penalties
relating to income tax audit adjustments and settlements, are recognized as components of income tax expense or benefit.
Interest of $11 and $11 was accrued on the uncertain tax positions at December 31, 2018 and 2017.
Reconciliation of gross unrecognized tax benefits —
Balance, beginning of period
Decrease related to expiration of statute of limitations
Decrease related to prior years tax positions
Increase related to prior years tax positions
Increase related to current year tax positions
Decrease related to settlements
Balance, end of period
2018
2017
2016
$
$
119
(4)
(15)
8
10
(11)
107
$
$
$
117
(3)
(25)
15
15
87
(5)
(1)
28
8
119
$
117
The 2017 decrease related to prior years tax positions includes $23 that resulted from the reduction of the U.S. income tax
rate from 35% to 21% since these positions represent a reduction of U.S. net operating losses. We anticipate that our gross
unrecognized tax benefits will decrease by $16 in the next twelve months upon the expected completion of examinations in
various jurisdictions. The settlement of these matters will not impact the effective tax rate. Gross unrecognized tax benefits of
$86 would impact the effective tax rate if recognized. If other open matters are settled with the IRS or other taxing
jurisdictions, the total amounts of unrecognized tax benefits for open tax years may be modified.
92
Note 19. Other Income (Expense), Net
Non-service cost components of pension and OPEB costs
Government grants and incentives
Foreign exchange loss
Strategic transaction expenses, net of transaction breakup fee income
Insurance and other recoveries
Gain on sale of marketable securities
Amounts attributable to previously divested/closed operations
Other, net
Other income (expense), net
2018
2017
2016
$
(15) $
12
(12)
(18)
(7) $
7
(3)
(25)
4
(29)
3
9
(16)
4
8
(3)
(13)
10
7
9
22
Foreign exchange gains and losses on cross-currency intercompany loan balances that are not of a long-term investment
nature are included above. Foreign exchange gains and losses on intercompany loans that are permanently invested are reported
in OCI.
Strategic transaction expenses relate primarily to costs incurred in connection with acquisition and divestiture related
activities, including costs to complete the transaction and post-closing integration costs. Strategic transaction expenses in 2018
were primarily attributable to our bid to acquire the driveline business of GKN plc., our acquisition of an ownership interest in
TM4, our pending acquisition of the Drive Systems segment of the Oerlikon Group and integration costs associated with our
acquisitions of BFP and BPT, and were partially offset by a $40 transaction breakup fee associated with the GKN plc.
transaction. Strategic transaction expenses in 2017 are primarily attributable to our acquisitions of USM - Warren, BFP and
BPT. Strategic transaction expenses in 2016 are primarily attributable to our acquisition of SJT Forjaria Ltda. and our
divestitures of DCLLC and Nippon Reinz. See Notes 2 and 3 for additional information.
Amounts attributable to previously divested/closed operations includes the receipt of the remaining proceeds on our
December 2016 divestiture of DCLLC during the second quarter of 2017. See Note 3 for additional information. During 2016,
DCLLC received $8 as recovery of costs previously incurred on behalf of other participants in a consortium that existed to
administer certain legacy personal injury claims, and they sold investments which generated $7 of gain.
Note 20. Revenue from Contracts with Customers
We generate revenue from selling production parts to original equipment manufacturers (OEMs) and service parts to
OEMs and aftermarket customers. While we provide production and service parts to certain OEMs under awarded multi-year
programs, these multi-year programs do not contain any commitment to volume by the customer. As such, individual customer
releases or purchase orders represent the contract with the customer. Our customer contracts do not provide us with an
enforceable right to payment for performance completed to date throughout the contract term. As such, we recognize part sales
revenue at the point in time when the parts are shipped, and risk of loss has transferred to the customer. We have elected to
continue to include shipping and handling fees billed to customers in revenue, while including costs of shipping and handling
in costs of sales. Taxes collected from customers are excluded from revenues and credited directly to obligations to the
appropriate government agencies. Payment terms with our customers are established based on industry and regional practices
and generally do not exceed 180 days.
Certain of our customer contracts include rebate incentives. We estimate expected rebates and accrue the corresponding
refund liability, as a reduction of revenue, at the time covered product is sold to the customer based on anticipated customer
purchases during the rebate period and contractual rebate percentages. Under prior accounting guidance rebate reserves were
reflected as a reduction of accounts receivable - trade as rebates are generally net settled through the issuance of a credit to the
customer's account. Refund liabilities are included in other accrued liabilities on our consolidated balance sheet. We provide
standard fitness for use warranties on the products we sell, accruing for estimated costs related to product warranty obligations
at time of sale. See Note 17 for additional information.
Contract liabilities are primarily comprised of cash deposits made by customers with cash in advance payment terms.
Generally, our contract liabilities turn over frequently given our relatively short production cycles. Contract liabilities were $12
and $9 at December 31, 2018 and January 1, 2018. Contract liabilities are included in other accrued liabilities on our
consolidated balance sheet.
93
Disaggregation of revenue —
The following table disaggregates revenue for each of our operating segments by geographical market:
2018
North America
Europe
South America
Asia Pacific
Total
Light Vehicle
2,477
$
347
186
565
3,575
$
$
$
Commercial
Vehicle
908
271
308
125
1,612
Off-Highway
141
$
1,423
34
246
1,844
$
Power
Technologies
580
$
443
18
71
1,112
$
$
$
Total
4,106
2,484
546
1,007
8,143
Note 21. Segments, Geographical Area and Major Customer Information
We are a global provider of high-technology products to virtually every major vehicle and engine manufacturer in the
world. We also serve the stationary industrial market. Our technologies include drive and motion products (axles, driveshafts,
planetary hub drives, power-transmission products, tire-management products, transmissions, and motors, power inverters and
controls systems for electric vehicles); sealing solutions (gaskets, seals, heat shields, and fuel-cell plates); thermal-management
technologies (transmission and engine oil cooling, battery and electronics cooling, and exhaust-gas heat recovery); and fluid-
power products (pumps, valves, motors, and controls). We serve our global light vehicle, medium/heavy vehicle and off-
highway markets through four operating segments – Light Vehicle Driveline Technologies (Light Vehicle), Commercial Vehicle
Driveline Technologies (Commercial Vehicle), Off-Highway Drive and Motion Technologies (Off-Highway) and Power
Technologies, which is the center of excellence for sealing and thermal-management technologies that span all customers in our
on-highway and off-highway markets. These operating segments have global responsibility and accountability for business
commercial activities and financial performance.
Dana evaluates the performance of its operating segments based on external sales and segment EBITDA. Segment
EBITDA is a primary driver of cash flows from operations and a measure of our ability to maintain and continue to invest in
our operations and provide shareholder returns. Our segments are charged for corporate and other shared administrative costs.
Segment EBITDA may not be comparable to similarly titled measures reported by other companies.
94
Segment information —
2018
Light Vehicle
Commercial Vehicle
Off-Highway
Power Technologies
Eliminations and other
Total
2017
Light Vehicle
Commercial Vehicle
Off-Highway
Power Technologies
Eliminations and other
Total
2016
Light Vehicle
Commercial Vehicle
Off-Highway
Power Technologies
Eliminations and other
Total
External
Sales
Inter-
Segment
Sales
Segment
EBITDA
Capital
Spend
$
$
$
$
$
$
3,575
1,612
1,844
1,112
$
133
107
12
23
(275)
$
398
146
285
149
8,143
$
— $
978
$
$
3,172
1,412
1,521
1,104
$
130
97
4
17
(248)
$
359
116
212
168
7,209
$
— $
855
$
$
2,607
1,254
909
1,056
$
113
83
3
14
(213)
$
279
96
129
158
$
5,826
$
— $
662
$
195
27
36
36
31
325
279
31
32
32
19
393
208
34
21
32
27
322
Depreciation
124
$
38
43
30
25
260
$
$
$
$
$
88
41
40
29
22
220
71
33
20
29
20
173
Net
Assets
1,264
577
709
376
83
3,009
1,192
575
698
380
124
2,969
887
573
267
330
308
2,365
$
$
$
$
$
$
Upon our adoption of ASU 2017-07 on January 1, 2018, we changed our measurement of segment profit to exclude the
non-service cost components of pension and OPEB costs. See Note 1 for additional information on ASU 2017-07. Prior period
segment EBITDA amounts have not been recast due to the insignificance of the adjustments. Had the prior period amounts
been recast to conform with the current presentation, segment EBITDA for 2017 and 2016 would have been $359 and $275 for
Light Vehicle, $119 and $98 for Commercial Vehicle, $213 and $130 for Off-Highway and $173 and $163 for Power
Technologies.
Net assets include accounts receivable, inventories, other current assets, goodwill, intangibles, investments in affiliates,
other noncurrent assets, net property, plant and equipment, accounts payable and current accrued liabilities.
95
Reconciliation of segment EBITDA to consolidated net income —
Segment EBITDA
Corporate expense and other items, net
Depreciation
Amortization of intangibles
Non-service cost components of pension and OPEB costs
Restructuring charges, net
Stock compensation expense
Strategic transaction expenses, net of transaction breakup fee income
Acquisition related inventory adjustments
Other items
Gain (loss) on disposal group held for sale
Loss on sale of subsidiaries
Impairment of indefinite-lived intangible asset
Distressed supplier costs
Amounts attributable to previously divested/closed operations
Earnings before interest and income taxes
Loss on extinguishment of debt
Interest expense
Interest income
Earnings before income taxes
Income tax expense (benefit)
Equity in earnings of affiliates
Net income
Reconciliation of segment net assets to consolidated total assets —
Segment net assets
Accounts payable and other current liabilities
Other current and long-term assets
Consolidated total assets
2018
2017
2016
$
$
855
(20)
(220)
(13)
$
$
978
(21)
(260)
(10)
(15)
(25)
(16)
(18)
(17)
3
(20)
579
96
11
494
78
24
440
662
(2)
(173)
(9)
(36)
(17)
(13)
(2)
(80)
(1)
3
332
(17)
113
13
215
(424)
14
653
(14)
(23)
(25)
(14)
(11)
(27)
2
490
(19)
102
11
380
283
19
116
$
$
$
$
2018
2017
3,009
1,672
1,237
5,918
$
$
2,969
1,604
1,071
5,644
Geographic information — Of our 2018 consolidated net sales, the U.S., Italy and Germany account for 44%, 12% and 6%,
respectively. No other country accounted for more than 5% of our consolidated net sales during 2018. Sales are attributed to the
location of the product entity recording the sale. Long-lived assets represent property, plant and equipment.
North America
United States
Other North America
Total
Europe
Italy
Germany
Other Europe
Total
South America
Asia Pacific
Total
2018
Net Sales
2017
2016
2018
Long-Lived Assets
2017
2016
3,209
479
3,688
762
473
919
2,154
500
867
7,209
$
$
2,695
433
3,128
499
377
740
1,616
338
744
5,826
$
$
$
860
87
947
$
828
82
910
138
133
241
512
129
262
1,850
$
122
149
211
482
153
262
1,807
$
634
80
714
58
98
157
313
172
214
1,413
$
$
3,613
493
4,106
971
513
1,000
2,484
546
1,007
8,143
$
$
96
Sales to major customers — Ford is the only individual customer to whom sales have exceeded 10% of our consolidated sales
in each of the past three years. Sales to Ford were $1,646 (20%) in 2018, $1,553 (22%) in 2017 and $1,300 (22%) in 2016.
Sales to FCA exceeded the threshold in 2018 at $911 (11%).
Note 22. Equity Affiliates
We have a number of investments in entities that engage in the manufacture of vehicular parts – primarily axles,
driveshafts and wheel-end braking systems – supplied to OEMs.
Dividends received from equity affiliates were $20, $16 and $11 in 2018, 2017 and 2016.
Equity method investments exceeding $5 at December 31, 2018 —
Dongfeng Dana Axle Co., Ltd. (DDAC)
Prestolite E-Propulsion Systems Limited (PEPS)
Bendix Spicer Foundation Brake, LLC
Axles India Limited
Taiway Ltd
All others as a group
Investments in equity affiliates
Investment in affiliates carried at cost
Investment in affiliates
Ownership
Percentage
50%
50%
20%
48%
28%
Investment
94
$
46
46
9
5
6
206
2
208
$
Our equity method investments in DDAC, PEPS, Bendix Spicer Foundation Brake, LLC and Axles India Limited are
included in the net assets of our Commercial Vehicle operating segment. Our equity method investment in Taiway Ltd. is
included in the net assets of our Light Vehicle segment.
The carrying value of our equity method investments at December 31, 2018 was $61 more than our share of the affiliates’
book value, including $53 attributable to goodwill. The difference between the investment carrying value and the amount of
underlying equity in assets, excluding goodwill, is being amortized on a straight-line basis over the underlying assets’ estimated
useful lives of five to forty-five years.
97
Dana Incorporated
Quarterly Results (Unaudited)
(In millions, except per share amounts)
2018
Net sales
Gross margin
Net income
Net income attributable to the parent company
Net income per share available to parent company common
stockholders
Basic
Diluted
2017
Net sales
Gross margin
Net income (loss)
Net income (loss) attributable to the parent company
Net income (loss) per share available to parent company common
stockholders
Basic
Diluted
_________________________________________________________
Note: Gross margin is net sales less cost of sales.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
$
$
$
$
$
$
2,138
307
111
108
0.74
0.73
First
Quarter
1,701
264
80
75
0.52
0.51
$
$
$
$
$
$
$
$
$
$
$
$
2,054
308
127
124
0.85
0.85
Second
Quarter
1,840
277
73
71
0.48
0.47
$
$
$
$
$
$
$
$
$
$
$
$
1,978
286
96
95
0.66
0.65
Third
Quarter
1,831
269
73
69
0.47
0.46
$
$
$
$
$
$
$
$
$
$
$
$
1,973
256
106
100
0.69
0.69
Fourth
Quarter
1,837
256
(110)
(104)
(0.74)
(0.74)
Net income for the second quarter of 2018 includes a $20 pre-tax charge to fully impair intangible assets used in research
and development activities. The net loss for the fourth quarter of 2017 includes a $27 pre-tax charge to adjust carrying value of
our Brazil suspension components business to fair value and to recognize the liability for the additional cash required to be
contributed to the business prior to closing and a tax charge of $186 to recognize the estimated effects of U.S. tax reform
legislation enacted on December 22, 2017. Net income for the third and second quarters of 2017 includes a $13 and $6 pre-tax
loss on extinguishment of debt.
98
Dana Incorporated
Schedule II
Valuation and Qualifying Accounts and Reserves
(In millions)
Amounts deducted from assets in the balance sheets —
Balance at
beginning
of period
Amounts
charged
(credited)
to income
Allowance
utilized
Adjustments
arising
from change
in currency
exchange
rates
and other
items
Balance at
end of
period
$
$
$
$
$
$
$
$
$
8
6
5
53
51
46
301
285
662
$
$
$
$
$
$
$
$
$
3
2
2
15
10
19
$
$
$
$
$
$
(31) $
$
29
(483) $
— $
— $
— $
(11) $
(11) $
(13) $
— $
— $
— $
(2) $
— $
(1) $
(6) $
3
$
(1) $
11
$
(13) $
$
106
9
8
6
51
53
51
281
301
285
Accounts Receivable - Allowance for Doubtful
Accounts
2018
2017
2016
Inventory Reserves
2018
2017
2016
Deferred Tax Assets - Valuation Allowance
2018
2017
2016
99
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure controls and procedures — Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act)) as of the end of the period covered by
this report. Based on such evaluations, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the
end of such period, our disclosure controls and procedures are effective.
Management's report on internal control over financial reporting — Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Considering Securities and Exchange
Commission guidance, management excluded from its assessment of internal control over financial reporting TM4 Inc. (TM4)
acquired on June 22, 2018. TM4's total assets and total revenues excluded from management's assessment represented
approximately 1.2% and 0.1%, respectively, of the related consolidated financial statement amounts as of and for the year
ended December 31, 2018. Based on this evaluation, management has concluded that, as of December 31, 2018, our internal
control over financial reporting was effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of our
internal control over financial reporting as of December 31, 2018, as stated in its report which is included herein.
Changes in internal control over financial reporting — There has been no change in our internal control over financial
reporting during the quarter ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Dana has adopted Standards of Business Conduct that apply to all of its officers and employees worldwide. Dana also has
adopted Standards of Business Conduct for the Board of Directors. Both documents are available on Dana’s Internet website at
http://www.dana.com/investors.
The remainder of the response to this item will be included under the sections captioned “Corporate Governance,” “Board
Leadership Structure," "Succession Planning,” “Information About the Nominees,” “Risk Oversight,” “Committees and
Meetings of Directors,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” of Dana’s
definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 1, 2019, which sections are
hereby incorporated herein by reference.
Item 11. Executive Compensation
The response to this item will be included under the sections captioned “Compensation Committee Interlocks and Insider
Participation,” “Compensation of Executive Officers,” “Compensation Discussion and Analysis,” “Compensation of
Directors,” “Officer Stock Ownership Guidelines,” “Compensation Committee Report,” “Summary Compensation Table,”
“Grants of Plan-Based Awards at Fiscal Year-End,” “Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises and
Stock Vested During Fiscal Year,” “Pension Benefits,” “Nonqualified Deferred Compensation at Fiscal Year-End,” “Executive
100
Agreements” and “Potential Payments and Benefits Upon Termination or Change in Control” of Dana’s definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 1, 2019, which sections are hereby incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The response to this item will be included under the section captioned “Security Ownership of Certain Beneficial Owners
and Management” of Dana’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 1,
2019, which section is hereby incorporated herein by reference.
Equity Compensation Plan Information
The following table contains information at December 31, 2018 about shares of stock which may be issued under our
equity compensation plans, all of which have been approved by our shareholders.
(Shares in millions)
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights(1)
Weighted Average
Exercise Price of
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights(2)
Number of Securities
Remaining Available for
Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))
3.1
$
15.33
3.1
$
15.33
5.6
5.6
________________________________________
Notes:
(1)
In addition to stock options, restricted stock units and performance shares have been awarded under Dana's equity compensation plans and were
outstanding at December 31, 2018.
(2) Calculated without taking into account the 2.5 shares of common stock subject to outstanding restricted stock and performance share units that become
issuable as those units vest since they have no exercise price and no cash consideration or other payment is required for such shares.
Item 13. Certain Relationships and Related Transactions and Director Independence
The response to this item will be included under the sections captioned “Director Independence and Transactions of
Directors with Dana,” “Transactions of Executive Officers with Dana” and “Information about the Nominees” of Dana’s
definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 1, 2019, which sections are
hereby incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The response to this item will be included under the section captioned "Independent Registered Public Accounting Firm"
of Dana's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 1, 2019, which section
is hereby incorporated herein by reference.
101
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a) List of documents filed as a part of this report:
1.
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Operations
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Stockholders' Equity
Notes to the Consolidated Financial Statements
2.
3.
Quarterly Results (Unaudited)
Financial Statement Schedule:
Valuation and Qualifying Accounts and Reserves (Schedule II)
All other schedules are omitted because they are not applicable or the required information is shown
in the financial statements or notes thereto.
10-K
Pages
44
46
47
48
49
50
51
98
99
4.
Exhibits
No.
2.1*
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
10.1**
Description
Share and Loan Purchase Agreement, dated July 29, 2018 among OC Oerlikon Corporation AG,
Pfäffikon and Dana International S.à r.l. Filed as Exhibit 2.1 to the Registrant's Current Report on Form
8-K filed August 2, 2018 and incorporated herein by reference.
Third Amended and Restated Certification of Incorporation of Dana Incorporated. Filed as Exhibit 3.1
to the Registrant’s Current Report on Form 8-K filed May 2, 2018 and incorporated herein by reference.
Amended and Restated Bylaws of Dana Incorporated, effective as of May 2, 2018. Filed as Exhibit 3.2
to the Registrant’s Current Report on Form 8-K filed May 2, 2018 and incorporated herein by reference.
Specimen Common Stock Certificate. Filed as Exhibit 4.1 to Registrant’s Registration Statement on
Form 8-A dated January 31, 2008, and incorporated herein by reference.
Indenture, dated as of January 28, 2011, among Dana and Wells Fargo Bank, National Association, as
trustee. Filed as Exhibit 4.6 to Registrant’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2010, and incorporated herein by reference.
Second Supplemental Indenture, dated August 2, 2013, with respect to the Indenture, dated January 28,
2011, between Dana Holding Corporation and Wells Fargo Bank, National Association, as trustee. Filed
as Exhibit 4.1 to Registrant's Current Report on Form 8-K dated August 5, 2013, and incorporated
herein by reference.
Third Supplemental Indenture, dated December 9, 2014, with respect to the Indenture, dated January 28,
2011, between Dana Holding Corporation and Wells Fargo Bank, National Association, as trustee. Filed
as Exhibit 4.1 to Registrant's Current Report on Form 8-K dated December 9, 2014, and incorporated
herein by reference.
Indenture, dated as of May 27, 2016, among Dana Luxembourg Financing S.à r.l., Dana Holding
Corporation and Wells Fargo Bank, National Association, as trustee. Filed as Exhibit 4.1 to Registrant’s
Current Report on Form 8-K dated May 27, 2016, and incorporated herein by reference.
Indenture, dated April 4, 2017, among Dana Luxembourg Financing S.à r.l., Dana Incorporated and
Wells Fargo Bank, National Association, as trustee. Filed as Exhibit 4.1 to Registrant's Current Report
on Form 8-K dated April 4, 2017, and incorporated herein by reference.
Executive Employment Agreement dated August 11, 2015, by and between James K. Kamsickas and
Dana Incorporated. Filed as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2015, and incorporated herein by reference.
102
10.2**
10.3**
10.4**
10.5**
10.6**
10.7**
10.8**
10.9**
Form of Proprietary Interest Protection and Non-Solicitation Agreement. Filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, and incorporated
herein by reference.
Dana Incorporated Supplemental Executive Retirement Plan. Filed as Exhibit 10.4 to Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and incorporated herein by
reference.
Dana Incorporated 2017 Omnibus Incentive Plan. Filed as Exhibit 10.1 to Registrant's Form S-8
Registration Statement dated August 1, 2017, and incorporated herein by reference.
Form of Indemnification Agreement. Filed as Exhibit 10.4 to Registrant’s Current Report on Form 8-K
dated February 6, 2008, and incorporated herein by reference.
Form of Restricted Stock Unit Award Agreement for Non-Employee Directors. Filed as Exhibit 10.23 to
Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and
incorporated herein by reference.
Form of Option Agreement. Filed as Exhibit 10.15 to Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2012, and incorporated herein by reference.
Form of Restricted Stock Unit Agreement. Filed as Exhibit 10.16 to Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2012, and incorporated herein by reference.
Form of Performance Share Agreement. Filed as Exhibit 10.17 to Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2012, and incorporated herein by reference.
10.10** Dana Incorporated Executive Perquisite Plan. Filed as Exhibit 10.4 to Registrant’s Current Report on
Form 8-K dated April 18, 2008, and incorporated herein by reference.
10.11** Dana Incorporated Executive Severance Plan. Filed as Exhibit 10.1 to Registrant’s Current Report on
Form 8-K dated June 24, 2008, and incorporated herein by reference.
10.12
10.13
10.14
10.15
21
23
24
31.1
31.2
32
101
Amended and Restated Change in Control Severance Plan, effective as of April 30, 2018. Filed as
Exhibit 10.1 to Registrant's Current Report on Form 8-K dated April 30, 2018, and incorporated herein
by reference.
Revolving Credit and Guaranty Agreement, dated as of June 9, 2016, among Dana Incorporated, as
borrower, the guarantors party thereto, Citibank, N.A., as administrative agent and collateral agent, and
the other lenders party thereto. Filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated
June 9, 2016, and incorporated herein by reference.
Revolving Facility Security Agreement, dated as of June 9, 2016, from Dana Incorporated and the other
guarantors referred to therein, as guarantors, to Citibank, N.A., as collateral agent. Filed as Exhibit 10.2
to Registrant's Current Report on Form 8-K dated June 9, 2016, and incorporated herein by reference.
Amendment No. 1 to Revolving Credit and Guaranty Agreement and Amendment No. 1 to the
Revolving Facility Security Agreement, dated as of August 17, 2017, among Dana Incorporated, certain
domestic subsidiaries of Dana Incorporated party thereto, Citibank, N.A., as administrative agent and
collateral agent. Filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated August 18,
2017, and incorporated herein by reference.
List of Consolidated Subsidiaries of Dana Incorporated. Filed with this Report.
Consent of PricewaterhouseCoopers LLP. Filed with this Report.
Power of Attorney. Filed with this Report.
Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer. Filed with this Report.
Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer. Filed with this Report.
Section 1350 Certification of Periodic Report (pursuant to Section 906 of the Sarbanes-Oxley Act of
2002). Filed with this Report.
The following materials from Dana Incorporated’s Annual Report on Form 10-K for the year ended
December 31, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated
Statement of Operations, (ii) the Consolidated Statement of Comprehensive Income, (iii) the Consolidated
Balance Sheet, (iv) the Consolidated Statement of Cash Flows, (v) the Consolidated Statement of
Shareholders’ Equity and (vi) Notes to the Consolidated Financial Statements. Filed with this Report.
* Certain schedules, annexes and exhibits to this agreement have been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of any omitted schedule, annex and/or exhibit will be furnished
supplementally to the SEC upon request.
** Management contract or compensatory plan or arrangement.
103
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, hereunto duly authorized.
SIGNATURES
Date: February 15, 2019
DANA INCORPORATED
By:
/s/ James K. Kamsickas
James K. Kamsickas
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 15th day of
February 2019 by the following persons on behalf of the registrant and in the capacities indicated, including a majority of the
directors.
Signature
/s/ James K. Kamsickas
James K. Kamsickas
/s/ Jonathan M. Collins
Jonathan M. Collins
/s/ James D. Kellett
James D. Kellett
/s/ Rachel A. Gonzalez*
Rachel A. Gonzalez
/s/ Virginia A. Kamsky*
Virginia A. Kamsky
/s/ Michael J. Mack, Jr.*
Michael J. Mack, Jr.
/s/ Raymond E. Mabus, Jr.*
Raymond E. Mabus, Jr.
/s/ R. Bruce McDonald*
R. Bruce McDonald
/s/ Diarmuid B. O'Connell*
Diarmuid B. O'Connell
/s/ Keith E. Wandell*
Keith E. Wandell
*By:
/s/ Douglas H. Liedberg
Douglas H. Liedberg, Attorney-in-Fact
Title
President and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Non-Executive Chairman and Director
104
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, James K. Kamsickas, certify that:
1. I have reviewed this Annual Report on Form 10-K of Dana Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 15, 2019
/s/ James K. Kamsickas
James K. Kamsickas
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Jonathan M. Collins, certify that:
1. I have reviewed this Annual Report on Form 10-K of Dana Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 15, 2019
/s/ Jonathan M. Collins
Jonathan M. Collins
Executive Vice President and Chief Financial Officer
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Annual Report of Dana Incorporated (Dana) on Form 10-K for the year ended December 31, 2018,
as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of Dana
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to
such officer's knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of Dana as of the dates and for the periods expressed in the Report.
Date: February 15, 2019
/s/ James K. Kamsickas
James K. Kamsickas
President and Chief Executive Officer
/s/ Jonathan M. Collins
Jonathan M. Collins
Executive Vice President and Chief Financial Officer
Investor Information
World Headquarters
Form 10-K and Other Reports
Shareholder Services
Investor Services
Dana Incorporated
3939 Technology Drive
Maumee, OH 43537-7000, USA
Telephone: 419-887-3000
Fax: 419-887-5200
Annual Meeting Information
The 2019 Annual Meeting of
Shareholders will be held at the
company’s world headquarters in
Maumee, Ohio, on May 1, 2019.
Dana’s Annual Report on Form 10-K
and its Proxy Statement may be
accessed online at
www.dana.com/investors, or printed
copies may be obtained without
charge by writing:
Investor Relations
Dana Incorporated
P.O. Box 1000
Maumee, OH 43537-7000, USA
Independent Registered Public
Accounting Firm
or by calling Dana’s Investor Relations
Department at 800-537-8823.
PricewaterhouseCooper LLP
406 Washington St., Suite 200
Toledo, OH, 43604, USA
Stock Listing
Inquiries related to shareholder
records, such as change of name,
address, or ownership of stock,
should be directed to the transfer
agent and registrar:
Go to www.dana.com/investors
to find the latest investor relations
information about Dana, including
stock quotes, news releases, and
financial data.
EQ Shareowner Services
Telephone: 800-468-9716 toll free
or direct: 651-450-4064
Written Requests:
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120, USA
EQ Shareowner Services website:
www.shareowneronline.com
Requests for information may be
directed to:
Investor Relations
Dana Incorporated
P.O. Box 1000
Maumee, OH 43537-7000, USA
E-mail: InvestorRelations@dana.com
Dana’s Investor Line: 800-537-8823
Through this 24-hour phone service,
a caller may leave his or her name
with a message, and the call will be
returned by a Dana representative.
The New York Stock Exchange
is the principal market for Dana
common stock.
Ticker Symbol: DAN
D a n a .c o m