DANA INC [DAN] Filings

10-Q 1 dan20220630_10q.htm FORM 10-Q dan20220630_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: June 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 143,353,224 shares of the registrant’s common stock outstanding at July15, 2022.

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DANA INCORPORATED – FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

TABLE OF CONTENTS

		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						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Net sales	$	2,586		$	2,205		$	5,066		$	4,468
Costs and expenses
Cost of sales		2,403			1,953			4,686			3,965
Selling, general and administrative expenses		130			126			260			245
Amortization of intangibles		3			3			7			7
Restructuring charges, net		1									1
Other income (expense), net		10			(10	)		12			(29	)
Earnings before interest and income taxes		59			113			125			221
Loss on extinguishment of debt					(24	)					(24	)
Interest income		2			2			4			4
Interest expense		32			34			63			68
Earnings before income taxes		29			57			66			133
Income tax expense		18			14			36			36
Equity in earnings (loss) of affiliates		(1	)		10						24
Net income		10			53			30			121
Less: Noncontrolling interests net income		3			4			7			5
Less: Redeemable noncontrolling interests net loss		(1	)		(4	)		(2	)		(8	)
Net income attributable to the parent company	$	8		$	53		$	25		$	124

Net income per share available to common stockholders
Basic	$	0.06		$	0.37		$	0.17		$	0.85
Diluted	$	0.06		$	0.36		$	0.17		$	0.85

Weighted-average common shares outstanding
Basic		143.4			145.2			143.8			145.1
Diluted		143.7			146.7			144.6			146.5

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						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Net income	$	10		$	53		$	30		$	121
Other comprehensive income (loss), net of tax:
Currency translation adjustments		(91	)		19			(52	)		14
Hedging gains and losses		1			16			(3	)		(1	)
Defined benefit plans		3			4			4			7
Other comprehensive income (loss)		(87	)		39			(51	)		20
Total comprehensive income (loss)		(77	)		92			(21	)		141
Less: Comprehensive (income) loss attributable to noncontrolling interests		(1	)		5			(5	)		6
Less: Comprehensive (income) loss attributable to redeemable noncontrolling interests		7			(7	)		8			(4	)
Comprehensive income (loss) attributable to the parent company	$	(71	)	$	90		$	(18	)	$	143

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)

	June 30,			December 31,
	2022			2021
Assets
Current assets
Cash and cash equivalents	$	321		$	268
Marketable securities		19			17
Accounts receivable
Trade, less allowance for doubtful accounts of $8 in 2022 and $7 in 2021		1,555			1,321
Other		247			220
Inventories		1,594			1,564
Other current assets		217			196
Total current assets		3,953			3,586
Goodwill		458			482
Intangibles		213			233
Deferred tax assets		608			580
Other noncurrent assets		142			131
Investments in affiliates		137			174
Operating lease assets		272			247
Property, plant and equipment, net		2,136			2,199
Total assets	$	7,919		$	7,632

Liabilities and equity
Current liabilities
Short-term debt	$	235		$	23
Current portion of long-term debt		8			8
Accounts payable		1,766			1,571
Accrued payroll and employee benefits		220			184
Taxes on income		64			41
Current portion of operating lease liabilities		43			43
Other accrued liabilities		269			304
Total current liabilities		2,605			2,174
Long-term debt, less debt issuance costs of $24 in 2022 and $26 in 2021		2,352			2,386
Noncurrent operating lease liabilities		236			209
Pension and postretirement obligations		372			398
Other noncurrent liabilities		252			292
Total liabilities		5,817			5,459
Commitments and contingencies (Note 14)
Redeemable noncontrolling interests		199			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, 143,351,443 and 144,238,660 shares outstanding		2			2
Additional paid-in capital		2,435			2,427
Retained earnings		656			662
Treasury stock, at cost (13,469,074 and 11,661,591 shares)		(216	)		(184	)
Accumulated other comprehensive loss		(1,028	)		(985	)
Total parent company stockholders' equity		1,849			1,922
Noncontrolling interests		54			53
Total equity		1,903			1,975
Total liabilities, redeemable noncontrolling interests and equity	$	7,919		$	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)

	Six Months Ended
	June 30,
	2022			2021
Operating activities
Net income	$	30		$	121
Depreciation		182			180
Amortization		11			12
Amortization of deferred financing charges		3			3
Redemption premium on debt					21
Write-off of deferred financing costs					3
Earnings of affiliates, net of dividends received		29			(7	)
Stock compensation expense		8			9
Deferred income taxes		(42	)		(28	)
Change in working capital		(84	)		(239	)
Other, net		(1	)		19
Net cash provided by operating activities		136			94
Investing activities
Purchases of property, plant and equipment		(206	)		(133	)
Acquisition of businesses, net of cash acquired		(1	)		(18	)
Proceeds from sale of subsidiary, net of cash disposed					(4	)
Purchases of marketable securities		(13	)		(16	)
Proceeds from sales and maturities of marketable securities		10			13
Settlement of terminated fixed-to-fixed cross currency swap					(22	)
Settlements of undesignated derivatives		(7	)		(4	)
Other, net		2			4
Net cash used in investing activities		(215	)		(180	)
Financing activities
Net change in short-term debt		214			(6	)
Proceeds from long-term debt		2			800
Repayment of long-term debt		(5	)		(803	)
Redemption premium on debt					(21	)
Deferred financing payments					(13	)
Dividends paid to common stockholders		(29	)		(29	)
Repurchases of common stock		(25	)
Distributions to noncontrolling interests		(2	)		(2	)
Contributions from redeemable noncontrolling interests		7			3
Payments to acquire noncontrolling interests		(4	)
Other, net		(6	)
Net cash provided by (used in) financing activities		152			(71	)
Net increase (decrease) in cash, cash equivalents and restricted cash		73			(157	)
Cash, cash equivalents and restricted cash – beginning of period		287			567
Effect of exchange rate changes on cash balances		(20	)		(7	)
Cash, cash equivalents and restricted cash – end of period (Note 5)	$	340		$	403

Non-cash investing activity
Purchases of property, plant and equipment held in accounts payable	$	69		$	66

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 is 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.

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 frequent if events or circumstances warrant such a review. We did not identify any events or circumstances during the first six months of 2022 that required an interim impairment test. We expect that the fair value of our reporting units will continue to exceed their carrying values in future periods.

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The change in the carrying amount of goodwill in 2022 is 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
Currency impact				(5	)		(19	)				(24	)
Balance, June 30, 2022	$	—	$	196		$	262		$	—	$	458

Components of other intangible assets —

		June 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	$	156	$	(111	)	$	45	$	161	$	(110	)	$	51
Trademarks and trade names	13		30		(12	)		18		31		(12	)		19
Customer relationships	8		502		(424	)		78		519		(431	)		88
Non-amortizable intangible assets
Trademarks and trade names			72					72		75					75
		$	760	$	(547	)	$	213	$	786	$	(553	)	$	233

The net carrying amounts of intangible assets, other than goodwill, attributable to each of our operating segments at June 30, 2022 were as follows: Light Vehicle — $18, Commercial Vehicle — $71, Off-Highway — $119 and Power Technologies — $5.

Amortization expense related to amortizable intangible assets —

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Charged to cost of sales	$	2	$	2	$	4	$	5
Charged to amortization of intangibles		3		3		7		7
Total amortization	$	5	$	5	$	11	$	12

The following table provides the estimated aggregate pre-tax amortization expense related to intangible assets for each of the next five years based on June 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		$	11			$	22			$	21			$	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, March 31, 2022	$	9		$	—	$	9
Charges to restructuring		2					2
Adjustments of accruals		(1	)				(1	)
Cash payments		(3	)				(3	)
Balance, June 30, 2022	$	7		$	—	$	7

Balance, December 31, 2021	$	11		$	—	$	11
Charges to restructuring		2					2
Adjustments of accruals		(2	)				(2	)
Cash payments		(4	)				(4	)
Balance, June 30, 2022	$	7		$	—	$	7

At June 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 —

	June 30, 2022			December 31, 2021
Raw materials	$	679		$	651
Work in process and finished goods		1,014			1,000
Inventory reserves		(99	)		(87	)
Total	$	1,594		$	1,564

Cash, cash equivalents and restricted cash at —

	June 30, 2022		December 31, 2021		June 30, 2021		December 31, 2020
Cash and cash equivalents	$	321	$	268	$	384	$	559
Restricted cash included in other current assets		8		9		8		5
Restricted cash included in other noncurrent assets		11		10		11		3
Total cash, cash equivalents and restricted cash	$	340	$	287	$	403	$	567

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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 and second 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 June 30, 2022.

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

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)												37			(9	)		28
Common stock dividends and dividend equivalents						(15	)											(15	)
Distributions to noncontrolling interests															(2	)		(2	)
Sale of noncontrolling interests															(1	)		(1	)
Redeemable noncontrolling interests adjustment to redemption value						(4	)											(4	)
Other															1			1
Stock compensation				5														5
Balance, June 30, 2021	$	2	$	2,420	$	617		$	(161	)	$	(1,007	)	$	68		$	1,939

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Changes in each component of accumulated other comprehensive income (loss) (AOCI) of the parent —

	Parent Company Stockholders
2022	Foreign Currency Translation			Hedging			Defined Benefit Plans			Accumulated Other Comprehensive Loss
Balance, December 31, 2021	$	(809	)	$	4		$	(180	)	$	(985	)
Currency translation adjustments		39									39
Holding gains and losses					19						19
Reclassification of amount to net income (a)					(22	)					(22	)
Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b)								2			2
Tax expense					(1	)		(1	)		(2	)
Other comprehensive income (loss)		39			(4	)		1			36
Balance, March 31, 2022		(770	)		—			(179	)		(949	)
Currency translation adjustments		(83	)								(83	)
Holding gains and losses					42						42
Reclassification of amount to net income (a)					(39	)					(39	)
Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b)								4			4