DANA INC [DAN] Filings

10-Q 1 dan20220930_10q.htm FORM 10-Q dan20220930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

☑	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2022

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From to

Commission File Number: 1-1063

Dana Incorporated

(Exact name of registrant as specified in its charter)

Delaware				26-1531856
(State of incorporation)				(IRS Employer Identification Number)

3939 Technology Drive, Maumee, OH				43537
(Address of principal executive offices)				(Zip Code)

Registrant’s telephone number, including area code: (419) 887-3000

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

Common stock $0.01 par value		DAN		New York Stock Exchange
(Title of each class)		(Trading Symbol)		(Name of exchange on which registered)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☑

There were 143,353,465 shares of the registrant’s common stock outstanding at October 14, 2022.

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DANA INCORPORATED – FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

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		10-Q Pages
PART I – FINANCIAL INFORMATION

Item 1	Financial Statements	3
	Consolidated Statement of Operations (Unaudited)	3
	Consolidated Statement of Comprehensive Income (Unaudited)	4
	Consolidated Balance Sheet (Unaudited)	5
	Consolidated Statement of Cash Flows (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4	Controls and Procedures	38

PART II – OTHER INFORMATION

Item 1	Legal Proceedings	39

Item 1A	Risk Factors	39

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 6	Exhibits	39

Signatures		40

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Dana Incorporated

Consolidated Statement of Operations (Unaudited)

(In millions, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net sales	$	2,535		$	2,204		$	7,601		$	6,672
Costs and expenses
Cost of sales		2,332			1,998			7,018			5,963
Selling, general and administrative expenses		114			103			374			348
Amortization of intangibles		3			4			10			11
Restructuring charges, net		(1	)		1			(1	)		2
Impairment of goodwill		(191	)					(191	)
Other income (expense), net		3			(4	)		15			(33	)
Earnings (loss) before interest and income taxes		(101	)		94			24			315
Loss on extinguishment of debt											(24	)
Interest income		2			2			6			6
Interest expense		32			31			95			99
Earnings (loss) before income taxes		(131	)		65			(65	)		198
Income tax expense		31			20			67			56
Equity in earnings (loss) of affiliates		(1	)		5			(1	)		29
Net income (loss)		(163	)		50			(133	)		171
Less: Noncontrolling interests net income		4			4			11			9
Less: Redeemable noncontrolling interests net loss		(79	)		(2	)		(81	)		(10	)
Net income (loss) attributable to the parent company	$	(88	)	$	48		$	(63	)	$	172

Net income (loss) per share available to common stockholders
Basic	$	(0.61	)	$	0.33		$	(0.44	)	$	1.19
Diluted	$	(0.61	)	$	0.33		$	(0.44	)	$	1.17

Weighted-average common shares outstanding
Basic		143.4			144.8			143.6			145.0
Diluted		143.4			146.2			143.6			146.4

The accompanying notes are an integral part of the consolidated financial statements.

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Dana Incorporated

Consolidated Statement of Comprehensive Income (Unaudited)

(In millions)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net income (loss)	$	(163	)	$	50		$	(133	)	$	171
Other comprehensive income (loss), net of tax:
Currency translation adjustments		(82	)		(25	)		(134	)		(11	)
Hedging gains and losses		1			(9	)		(2	)		(10	)
Defined benefit plans		1			4			5			11
Other comprehensive loss		(80	)		(30	)		(131	)		(10	)
Total comprehensive income (loss)		(243	)		20			(264	)		161
Less: Comprehensive (income) loss attributable to noncontrolling interests		(1	)		(4	)		(6	)		2
Less: Comprehensive loss attributable to redeemable noncontrolling interests		89			4			97
Comprehensive income (loss) attributable to the parent company	$	(155	)	$	20		$	(173	)	$	163

The accompanying notes are an integral part of the consolidated financial statements.

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Dana Incorporated

Consolidated Balance Sheet (Unaudited)

(In millions, except share and per share amounts)

	September 30,			December 31,
	2022			2021
Assets
Current assets
Cash and cash equivalents	$	371		$	268
Marketable securities		13			17
Accounts receivable
Trade, less allowance for doubtful accounts of $11 in 2022 and $7 in 2021		1,507			1,321
Other		252			220
Inventories		1,603			1,564
Other current assets		208			196
Total current assets		3,954			3,586
Goodwill		246			482
Intangibles		200			233
Deferred tax assets		613			580
Other noncurrent assets		181			131
Investments in affiliates		128			174
Operating lease assets		262			247
Property, plant and equipment, net		2,078			2,199
Total assets	$	7,662		$	7,632

Liabilities and equity
Current liabilities
Short-term debt	$	230		$	23
Current portion of long-term debt		7			8
Accounts payable		1,839			1,571
Accrued payroll and employee benefits		209			184
Taxes on income		67			41
Current portion of operating lease liabilities		37			43
Other accrued liabilities		269			304
Total current liabilities		2,658			2,174
Long-term debt, less debt issuance costs of $22 in 2022 and $26 in 2021		2,314			2,386
Noncurrent operating lease liabilities		229			209
Pension and postretirement obligations		350			398
Other noncurrent liabilities		244			292
Total liabilities		5,795			5,459
Commitments and contingencies (Note 14)
Redeemable noncontrolling interests		196			198
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, 143,353,224 and 144,238,660 shares outstanding		2			2
Additional paid-in capital		2,440			2,427
Retained earnings		491			662
Treasury stock, at cost (13,469,842 and 11,661,591 shares)		(216	)		(184	)
Accumulated other comprehensive loss		(1,095	)		(985	)
Total parent company stockholders' equity		1,622			1,922
Noncontrolling interests		49			53
Total equity		1,671			1,975
Total liabilities, redeemable noncontrolling interests and equity	$	7,662		$	7,632

The accompanying notes are an integral part of the consolidated financial statements.

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Dana Incorporated

Consolidated Statement of Cash Flows (Unaudited)

(In millions)

	Nine Months Ended
	September 30,
	2022			2021
Operating activities
Net income (loss)	$	(133	)	$	171
Depreciation		270			272
Amortization		17			18
Amortization of deferred financing charges		4			5
Redemption premium on debt					21
Write-off of deferred financing costs					3
Earnings of affiliates, net of dividends received		29			(11	)
Stock compensation expense		13			15
Deferred income taxes		(56	)		8
Impairment of goodwill		191
Change in working capital		(21	)		(501	)
Other, net		(7	)		18
Net cash provided by operating activities		307			19
Investing activities
Purchases of property, plant and equipment		(300	)		(228	)
Acquisition of businesses, net of cash acquired		(1	)		(18	)
Investments in affiliates					(23	)
Proceeds from sale of subsidiary, net of cash disposed					(4	)
Purchases of marketable securities		(15	)		(25	)
Proceeds from sales of marketable securities					30
Proceeds from maturities of marketable securities		18			27
Settlement of terminated fixed-to-fixed cross currency swap					(22	)
Settlements of undesignated derivatives		(6	)		(2	)
Other, net		7			5
Net cash used in investing activities		(297	)		(260	)
Financing activities
Net change in short-term debt		212			43
Proceeds from long-term debt		2			802
Repayment of long-term debt		(19	)		(805	)
Redemption premium on debt					(21	)
Deferred financing payments					(13	)
Dividends paid to common stockholders		(43	)		(44	)
Repurchases of common stock		(25	)		(23	)
Distributions to noncontrolling interests		(8	)		(10	)
Contributions from redeemable noncontrolling interests		30			6
Deconsolidation of non-wholly owned subsidiary					(6	)
Payments to acquire noncontrolling interests		(4	)
Other, net		(7	)
Net cash provided by (used in) financing activities		138			(71	)
Net increase (decrease) in cash, cash equivalents and restricted cash		148			(312	)
Cash, cash equivalents and restricted cash – beginning of period		287			567
Effect of exchange rate changes on cash balances		(45	)		(16	)
Cash, cash equivalents and restricted cash – end of period (Note 5)	$	390		$	239

Non-cash investing activity
Purchases of property, plant and equipment held in accounts payable	$	65		$	75

The accompanying notes are an integral part of the consolidated financial statements.

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Dana Incorporated

Index to Notes to Consolidated Financial Statements

1.	Organization and Summary of Significant Accounting Policies

2.	Acquisitions

3.	Goodwill and Other Intangible Assets

4.	Restructuring of Operations

5.	Supplemental Balance Sheet and Cash Flow Information

6.	Stockholders' Equity

7.	Redeemable Noncontrolling Interests

8.	Earnings per Share

9.	Stock Compensation

10.	Pension and Postretirement Benefit Plans

11.	Marketable Securities

12.	Financing Agreements

13.	Fair Value Measurements and Derivatives

14.	Commitments and Contingencies

15.	Warranty Obligations

16.	Income Taxes

17.	Other Income (Expense), Net

18.	Revenue from Contracts with Customers

19.	Segments

20.	Equity Affiliates

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Notes to Consolidated Financial Statements (Unaudited)

(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. As a global provider of high technology driveline (axles, driveshafts and transmissions); sealing and thermal-management products; and motors, power inverters, and control systems for electric vehicles our customer base includes virtually every major vehicle 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 are prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. These statements are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods. The results reported in these consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021 (the 2021 Form 10-K). Certain prior year amounts have been reclassified to conform to the current presentation.

During the first quarter of 2022, we identified an error related to certain intercompany inventory transfers that were not appropriately eliminated and recorded an adjustment of $8 to cost of sales. A portion of this adjustment relates to prior periods. We concluded that the correction of this error was not material to the financial statements for the quarter ended March 31, 2022 or any prior periods.

Recently issued accounting pronouncements

In October 2021, the FASB issued Accounting Standards Update (ASU) 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The guidance is intended to provide clarification on how to account for contract assets acquired via business combination, which will generally be at the same value as recognized by the acquiree assuming the acquiree followed US GAAP. The guidance becomes effective January 1, 2023. We do not expect adoption of this guidance to have a material impact on our consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Disclosures by Business Entities about Government Assistance. This guidance requires annual disclosures about the nature of certain government assistance received, the accounting policy used to account for the transactions, the location in the financial statements where such transactions were recorded and significant terms and conditions associated with such transactions. The guidance is effective for annual periods beginning after December 15, 2021, with early adoption permitted. We do not expect adoption of this guidance to have a material impact on our consolidated financial statements.

In September 2022, the FASB issued ASU 2022-04, Supplier Finance Programs. This guidance enhances the transparency of supplier finance programs which includes disclosing information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. The guidance becomes effective January 1, 2023. We are currently assessing the impact of the guidance on our consolidated financial statements.

Note 2. Acquisitions

Pi Innovo Holding Limited — On March 1, 2021, we acquired the remaining 51% ownership interest in Pi Innovo Holding Limited (Pi Innovo). Pi Innovo designs, develops and manufactures electronic control units spanning a range of applications and industries. The acquisition of the remaining ownership interest provided us with a 100% ownership interest in Pi Innovo. The total purchase consideration of $35 is comprised of $18 of cash paid at closing and the $17 fair value of our previously held equity method investment in Pi Innovo. The results of operations of the business are reported within our Commercial Vehicle operating segment. 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 information is presented.

Note 3. Goodwill and Other Intangible Assets

Goodwill — Our goodwill is 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 estimate the fair value of the reporting units using discounted cash flow projections. In determining the fair value of the reporting units, we make significant assumptions and estimates about the extent and timing of future cash flows, including revenue growth rates, projected segment EBITDA, discount rates, and terminal growth rates. If the estimated fair value of the reporting unit exceeds its carrying value, the goodwill is considered not to be impaired. If the carrying value of the reporting unit exceeds its estimated fair value, a goodwill impairment charge is recorded for the difference, with the impairment loss limited to the total amount of goodwill allocated to that reporting unit.

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We evaluated macro-economic conditions during the third quarter of 2022, including the impact of the Federal Reserve further increasing the risk-free interest rate, as well as the negative impact of sustained higher commodity costs, non-material cost increases and operational inefficiencies attributable to continued global supply chain disruptions. We believe that these conditions were factors in our market capitalization falling below the book value of net assets as of September 30, 2022. Accordingly, we concluded a triggering event had occurred and performed interim goodwill impairment analyses for our Commercial Vehicle and Off-Highway reporting units.

Based on the results of our interim impairment analyses, we concluded that the carrying value exceeded fair value of our Commercial Vehicle reporting unit and we recorded a goodwill impairment charge of $191, representing a full impairment of goodwill assigned to the Commercial Vehicle reporting unit. Our analysis for the Off-Highway reporting unit indicated that the fair value continues to exceed the carrying value by a substantial amount and, accordingly, no impairment charge was required. There was no impairment of indefinite-lived intangible assets in any of the periods presented.

The remaining change in the carrying amount of goodwill in 2022 was due to currency fluctuation.

Changes in the carrying amount of goodwill by segment —

	Light Vehicle		Commercial Vehicle			Off-Highway			Power Technologies		Total
Balance, December 31, 2021	$	—	$	201		$	281		$	—	$	482
Impairment				(191	)							(191	)
Currency impact				(10	)		(35	)				(45	)
Balance, September 30, 2022	$	—	$	—		$	246		$	—	$	246

Components of other intangible assets —

		September 30, 2022							December 31, 2021
	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
Amortizable intangible assets
Core technology	8	$	152	$	(111	)	$	41	$	161	$	(110	)	$	51
Trademarks and trade names	13		28		(12	)		16		31		(12	)		19
Customer relationships	8		489		(415	)		74		519		(431	)		88
Non-amortizable intangible assets
Trademarks and trade names			69					69		75					75
		$	738	$	(538	)	$	200	$	786	$	(553	)	$	233

The net carrying amounts of intangible assets, other than goodwill, attributable to each of our operating segments at September 30, 2022 were as follows: Light Vehicle — $17, Commercial Vehicle — $67, Off-Highway — $111 and Power Technologies — $5.

Amortization expense related to amortizable intangible assets —

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Charged to cost of sales	$	3	$	2	$	7	$	7
Charged to amortization of intangibles		3		4		10		11
Total amortization	$	6	$	6	$	17	$	18

The following table provides the estimated aggregate pre-tax amortization expense related to intangible assets for each of the next five years based on September 30, 2022 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.

		Remainder of 2022				2023				2024				2025				2026
Amortization expense		$	5			$	22			$	20			$	19			$	17

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Note 4. 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 been primarily headcount reduction initiatives to reduce operating costs, including actions taken at acquired businesses to rationalize cost structures and achieve operating synergies. Restructuring expense includes costs associated with current and previously announced actions and is comprised of contractual and noncontractual separation costs and exit costs.

Accrued restructuring costs and activity —

	Employee Termination Benefits			Exit Costs			Total
Balance, June 30, 2022	$	7		$	—		$	7
Charges to restructuring					1			1
Adjustments of accruals		(2	)					(2	)
Cash payments					(1	)		(1	)
Currency impact		(1	)					(1	)
Balance, September 30, 2022	$	4		$	—		$	4

Balance, December 31, 2021	$	11		$	—		$	11
Charges to restructuring		2			1			3
Adjustments of accruals		(4	)					(4	)
Cash payments		(4	)		(1	)		(5	)
Currency impact		(1	)					(1	)
Balance, September 30, 2022	$	4		$	—		$	4

At September 30, 2022, the accrued employee termination benefits include costs to reduce approximately 100 employees to be completed over the next year.

Note 5. Supplemental Balance Sheet and Cash Flow Information

Inventory components at —

	September 30, 2022			December 31, 2021
Raw materials	$	674		$	651
Work in process and finished goods		1,030			1,000
Inventory reserves		(101	)		(87	)
Total	$	1,603		$	1,564

Cash, cash equivalents and restricted cash at —

	September 30, 2022		December 31, 2021		September 30, 2021		December 31, 2020
Cash and cash equivalents	$	371	$	268	$	220	$	559
Restricted cash included in other current assets		9		9		8		5
Restricted cash included in other noncurrent assets		10		10		11		3
Total cash, cash equivalents and restricted cash	$	390	$	287	$	239	$	567

Note 6. Stockholders’ Equity

Common stock — Our Board of Directors declared a cash dividend of ten cents per share of common stock in the first, second and third quarters of 2022. 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 February 16, 2021 our Board of Directors approved an extension of our existing common stock share repurchase program through December 31, 2023. Under the program, we spent $25 to repurchase 1,483,742 shares of our common stock during the first quarter of 2022 through open market transactions. Approximately $102 remained available for future share repurchases as of September 30, 2022.

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Changes in equity —

2022	Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Non-controlling Interests			Total Equity
Balance, December 31, 2021	$	2	$	2,427	$	662		$	(184	)	$	(985	)	$	53		$	1,975
Net income						17									4			21
Other comprehensive income												36						36
Common stock dividends and dividend equivalents						(14	)											(14	)
Common stock share repurchases									(25	)								(25	)
Distributions to noncontrolling interests															(1	)		(1	)
Purchase of noncontrolling interests															(1	)		(1	)
Redeemable noncontrolling interests adjustment to redemption value						(1	)											(1	)
Stock compensation				4														4
Stock withheld for employees taxes									(7	)								(7	)
Balance, March 31, 2022		2		2,431		664			(216	)		(949	)		55			1,987
Net income						8									3			11
Other comprehensive loss												(79	)		(2	)		(81	)
Common stock dividends and dividend equivalents						(15	)											(15	)
Distributions to noncontrolling interests															(1	)		(1	)
Purchase of noncontrolling interests															(1	)		(1	)
Redeemable noncontrolling interests adjustment to redemption value						(1	)											(1	)
Stock compensation				4														4
Balance, June 30, 2022		2		2,435		656			(216	)		(1,028	)		54			1,903
Net income (loss)						(88	)								4			(84	)
Other comprehensive loss												(67	)		(3	)		(70	)
Common stock dividends and dividend equivalents						(14	)											(14	)
Distributions to noncontrolling interests															(6	)		(6	)
Redeemable noncontrolling interests adjustment to redemption value						(63	)											(63	)
Stock compensation				5														5
Balance, September 30, 2022	$	2	$	2,440	$	491		$	(216	)	$	(1,095	)	$	49		$	1,671

2021	Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Non-controlling Interests			Total Equity
Balance, December 31, 2020	$	2	$	2,408	$	530		$	(156	)	$	(1,026	)	$	76		$	1,834
Net income						71									1			72
Other comprehensive loss												(18	)		(2	)		(20	)
Common stock dividends and dividend equivalents						(14	)											(14	)
Redeemable noncontrolling interests adjustment to redemption value						(4	)											(4	)
Stock compensation				7														7
Stock withheld for employees taxes									(5	)								(5	)
Balance, March 31, 2021		2		2,415		583			(161	)		(1,044	)		75			1,870
Net income						53									4			57
Other comprehensive income (loss)