Company Quick10K Filing
Quick10K
Dana
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$20.59 143 $2,950
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-03-11 Regulation FD, Exhibits
8-K 2019-02-28 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2019-02-15 Exhibits
8-K 2019-01-15 Regulation FD, Exhibits
8-K 2018-11-01 Officers
8-K 2018-10-29 Exhibits
8-K 2018-07-29 Enter Agreement, Other Events, Exhibits
8-K 2018-07-29 Regulation FD, Other Events, Exhibits
8-K 2018-07-25 Exhibits
8-K 2018-06-22 Regulation FD, Exhibits
8-K 2018-04-26 Amend Bylaw, Exhibits
8-K 2018-03-26 Enter Agreement, Other Events, Exhibits
8-K 2018-03-19 Earnings, Other Events, Exhibits
8-K 2018-03-09 Enter Agreement, Other Events, Exhibits
8-K 2018-03-02 Regulation FD, Exhibits
8-K 2018-02-16 Officers, Exhibits
8-K 2018-02-13 Exhibits
8-K 2018-01-17 Regulation FD, Exhibits
SABR Sabre 6,090
BILI Bilibili 5,580
CR Crane 5,280
CIGI Colliers 2,610
PINC Premier 2,110
ARDS Aridis Pharmaceuticals 80
AMRK A-Mark Precious Metals 78
HPPI Hedgepath Pharmaceuticals 0
TPIV Tapimmune 0
XDIV Metaurus Equity Component Trust 0
DAN 2018-12-31
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions)
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Note 1. Organization and Summary of Significant Accounting Policies
Note 2. Acquisitions
Note 3. Disposal Groups and Divestitures
Note 4. Goodwill and Other Intangible Assets
Note 5. Restructuring of Operations
Note 6. Inventories
Note 7. Supplemental Balance Sheet and Cash Flow Information
Note 8. Stockholders' Equity
Note 9. Redeemable Noncontrolling Interests
Note 10. Earnings per Share
Note 11. Stock Compensation
Note 12. Pension and Postretirement Benefit Plans
Note 13. Marketable Securities
Note 14. Financing Agreements
Note 15. Fair Value Measurements and Derivatives
Note 16. Commitments and Contingencies
Note 17. Warranty Obligations
Note 18. Income Taxes
Note 19. Other Income (Expense), Net
Note 20. Revenue From Contracts with Customers
Note 21. Segments, Geographical Area and Major Customer Information
Note 22. Equity Affiliates
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
EX-21 dan-20181231xex21.htm
EX-23 dan-20181231xex23.htm
EX-24 dan-20181231xex24.htm
EX-31.1 dan-20181231xex311.htm
EX-31.2 dan-20181231xex312.htm
EX-32 dan-20181231xex32.htm

Dana Earnings 2018-12-31

DAN 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 dan-20181231x10k.htm 10-K Document


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
 
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:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
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  þ  No  o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  o  No  þ
 
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    þ   No   o
 
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 þ No  o
 
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. o
 
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  þ
Non-accelerated filer    o
Smaller reporting company  o
Accelerated filer  o
 
Emerging growth company  o
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.  o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o      No  þ
 
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 
       
 
 
Pages
PART I
 
 
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments
Item 2
Properties
Item 3
Legal Proceedings
 
 
 
PART II
 
 
Item 5
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6
Selected Financial Data
Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
Item 8
Financial Statements and Supplementary Data
Item 9
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A
Controls and Procedures
Item 9B
Other Information
 
 
 
PART III
 
 
Item 10
Directors, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13
Certain Relationships and Related Transactions, and Director Independence
Item 14
Principal Accountant Fees and Services
 
 
 
PART IV
 
 
Item 15
Exhibits and Financial Statement Schedules
 
 
 
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:

 
 
2018
 
2017
 
2016
 
 
Dollars
 
% of Total
 
Dollars
 
% of Total
 
Dollars
 
% of Total
Light Vehicle
 
$
3,575

 
43.9
%
 
$
3,172

 
44.0
%
 
$
2,607

 
44.8
%
Commercial Vehicle
 
1,612

 
19.8
%
 
1,412

 
19.6
%
 
1,254

 
21.5
%
Off-Highway
 
1,844

 
22.6
%
 
1,521

 
21.1
%
 
909

 
15.6
%
Power Technologies
 
1,112

 
13.7
%
 
1,104

 
15.3
%
 
1,056

 
18.1
%
Total
 
$
8,143

 
 
 
$
7,209

 
 
 
$
5,826

 
 

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
Largest
Customers
 
 
 
 
Light Vehicle
Light vehicle market:
Front drive steer rigid axles
Ford Motor Company
 
    Light trucks (full frame)
Rear drive rigid axles
Fiat Chrysler Automobiles*
 
    Sport utility vehicles
Front / rear drive units
Renault-Nissan Alliance
 
    Crossover utility vehicles
Driveshafts / propshafts
Toyota Motor Company
 
    Vans
AWD systems
General Motors Company
 
    Passenger cars
Power transfer units
Tata Motors
 
 
Electromechanical propulsion
 
 
 
    systems
 
 
 
EV gearboxes
 
 
 
Differentials
 
 
 
 
 
 
 
 
 
Commercial Vehicle
Medium/heavy vehicle market:
Steer axles
PACCAR Inc
 
    Medium duty trucks
Drive axles
AB Volvo
 
    Heavy duty trucks
Driveshafts
Volkswagen AG**
 
    Buses
Tire inflation systems
Daimler AG
 
    Specialty vehicles

Ford Motor Company
 
 
 
 
 
 
 
 
Off-Highway
Off-Highway market:
Front axles
Deere & Company
 
    Construction
Rear axles
Manitou Group
 
    Earth moving
Driveshafts
AGCO Corporation
 
    Agricultural
Transmissions
Oshkosh Corporation
 
    Mining
Torque converters
Linamar Corporation
 
    Forestry
Wheel, track and winch planetary
Sandvik AB
 
    Material handling
    drives
 
 
    Industrial stationary
Industrial gear boxes
 
 
 
Tire inflation systems
 
 
 
Electronic controls
 
 
 
Hydraulic valves, pumps and
 
 
 
    motors
 
 
 
 
 
 
 
 
 
Power Technologies
Light vehicle market
Gaskets
Ford Motor Company
 
Medium/heavy vehicle market
Cover modules
General Motors Company
 
Off-Highway market
Heat shields
Cummins Inc.
 
 
Engine sealing systems
Volkswagen AG**
 
 
Cooling
Caterpillar Inc.
 
 
Heat transfer products
Fiat Chrysler Automobiles
 
 
 
 
* Via a directed supply relationship
** Includes MAN AG, a majority-owned subsidiary of Volkswagen AG












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
Belgium
Norway
Argentina
Australia
Mexico
Denmark
Russia
Brazil
China
United States
Finland
South Africa
Colombia
India
 
France
Spain
Ecuador
Japan
 
Germany
Sweden
 
New Zealand
 
Hungary
Switzerland
 
Singapore
 
Ireland
Turkey
 
South Korea
 
Italy
United Kingdom
 
Taiwan
 
Netherlands
 
 
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
Principal Competitors
 
 
 
Light Vehicle
ZF Friedrichshafen AG
Wanxiang Group Corporation
 
GKN plc
IFA ROTORION Holding GmbH
 
American Axle & Manufacturing Holdings, Inc.
Vertically integrated OEM operations
 
Magna International Inc.
 
 
 
 
 
 
 
Commercial Vehicle
Meritor, Inc.
Klein Products Inc.
 
American Axle & Manufacturing Holdings, Inc.
Tirsan Kardan
 
Hendrickson (a Boler Company)
Vertically integrated OEM operations
 
 
 
 
 
 
Off-Highway
Carraro Group
Sew-Eurodrive
 
ZF Friedrichshafen AG
Siemens
 
Kessler + Co.
GKN plc
 
Comer Industries
Bosch Rexroth AG
 
Bonfiglioli
Danfoss
 
Oerlikon Fairfield
Vertically integrated OEM operations
 
Reggiana Riduttori
 
 
 
 
 
 
 
Power Technologies
ElringKlinger AG
Modine Manufacturing Company
 
Tenneco Inc.
Valeo Group
 
Freudenberg NOK Group
YinLun Co., LTD
 
MAHLE GmbH
Denso Corporation
 
 
 

Intellectual Property

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
 
Employees
Light Vehicle
 
12,200

Commercial Vehicle
 
6,300

Off-Highway
 
5,600

Power Technologies
 
5,400

Technical and administrative
 
1,400

Total
 
30,900


Environmental Compliance

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
 
12
 
4
 
4
 
10
 
30
    Service/Assembly
 
2
 
 
 
 
 
1
 
3
    Administrative Offices
 
1
 
 
 
 
 
 
 
1
    Technical and Engineering Centers
 
 
 
 
 
 
 
1
 
1
Commercial Vehicle
 
 
 
 
 
 
 
 
 
 
    Manufacturing/Distribution
 
7
 
5
 
3
 
7
 
22
    Service/Assembly
 
1
 
 
 
 
 
 
 
1
    Technical and Engineering Centers
 
1
 
 
 
 
 
 
 
1
Off-Highway
 
 
 
 
 
 
 
 
 
 
    Manufacturing/Distribution
 
2
 
13
 
 
 
2
 
17
    Service/Assembly
 
3
 
17
 
1
 
7
 
28
    Administrative Offices
 
 
 
1
 
 
 
1
 
2
    Technical and Engineering Centers
 
 
 
1
 
 
 
 
 
1
Power Technologies
 
 
 
 
 
 
 
 
 
 
    Manufacturing/Distribution
 
10
 
4
 
 
 
2
 
16
    Technical and Engineering Centers
 
2
 
 
 
 
 
 
 
2
Corporate and other
 
 
 
 
 
 
 
 
 
 
    Administrative Offices
 
3
 
1
 
1
 
3
 
8
    Technical and Engineering Centers - Multiple Segments
 
 
 
 
 
 
 
2
 
2
 
 
44
 
46
 
9
 
36
 
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
dan-2018123_chartx58599a03.jpg
Index
 
12/31/2013
 
12/31/2014
 
12/31/2015
 
12/31/2016
 
12/31/2017
 
12/31/2018
Dana Incorporated
$
100.00

 
$
111.60

 
$
73.05

 
$
100.15

 
$
166.50

 
$
76.60

S&P 500
100.00

 
113.69

 
115.26

 
129.05

 
157.22

 
150.33

Dow Jones US Auto Parts Index
100.00

 
110.63

 
106.53

 
112.29

 
145.74

 
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
 
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
 
2015
 
2014
Operating Results
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
8,143

 
$
7,209

 
$
5,826

 
$
6,060

 
$
6,617

Earnings from continuing operations before income taxes
 
494

 
380

 
215

 
292

 
260

Income from continuing operations
 
440

 
116

 
653

 
176

 
343

Income (loss) from discontinued operations
 

 

 

 
4

 
(15
)
Net income
 
440

 
116

 
653

 
180

 
328

 
 
 
 
 
 
 
 
 
 
 
Net income attributable to the parent company
 
$
427

 
$
111

 
$
640

 
$
159

 
$
319

Redeemable noncontrolling interests adjustment to
redemption value
 

 
6

 

 

 

Preferred stock dividend requirements
 

 

 

 

 
7

Net income available to common stockholders
 
$
427

 
$
105

 
$
640

 
$
159

 
$
312

 
 
 
 
 
 
 
 
 
 
 
Net income per share available to common stockholders
 
 
 
 
 
 
 
 
 
 
    Basic
 
 
 
 
 
 
 
 
 
 
        Income from continuing operations
 
$
2.94

 
$
0.72

 
$
4.38

 
$
0.98

 
$
2.07

        Income (loss) from discontinued operations
 

 

 

 
0.02

 
(0.10
)
        Net income
 
2.94

 
0.72

 
4.38

 
1.00

 
1.97

    Diluted
 
 
 
 
 
 
 
 
 
 
        Income from continuing operations
 
$
2.91

 
$
0.71

 
$
4.36

 
$
0.97

 
$
1.93

        Income (loss) from discontinued operations
 

 

 

 
0.02

 
(0.09
)
        Net income
 
2.91

 
0.71

 
4.36

 
0.99

 
1.84

 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization of intangibles
 
$
270

 
$
233

 
$
182

 
$
174

 
$
213

Net cash provided by operating activities
 
568

 
554

 
384

 
406

 
510

Purchases of property, plant and equipment
 
325

 
393

 
322

 
260

 
234

 
 
 
 
 
 
 
 
 
 
 
Financial Position
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents and marketable securities
 
$
531

 
$
643

 
$
737

 
$
953

 
$
1,290

Total assets
 
5,918

 
5,644

 
4,860

 
4,301

 
4,893

Long-term debt, less debt issuance costs
 
1,755

 
1,759

 
1,595

 
1,553

 
1,588

Total debt
 
1,783

 
1,799

 
1,664

 
1,575

 
1,653

Common stock and additional paid-in capital
 
2,370

 
2,356

 
2,329

 
2,313

 
2,642

Treasury stock
 
(119
)
 
(87
)
 
(83
)
 
(1
)
 
(33
)
Total parent company stockholders' equity
 
1,345

 
1,013

 
1,157

 
728

 
1,080

Book value per share
 
$
9.27

 
$
6.98

 
$
7.92

 
$
4.58

 
$
6.83

 
 
 
 
 
 
 
 
 
 
 
Common Share Information
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
$
0.40

 
$
0.24

 
$
0.24

 
$
0.23

 
$
0.20

Weighted-average common shares outstanding
 
 
 
 
 
 
 
 
 
 
    Basic
 
145.0

 
145.1

 
146.0

 
159.0

 
158.0

    Diluted
 
146.5

 
146.9

 
146.8

 
160.0

 
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.
  

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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

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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

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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.



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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).


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Trends in Our Markets

Global Vehicle Production
 
 
 
 
 
Actual
(Units in thousands)
Dana 2019 Outlook
 
2018
 
2017
 
2016
North America
 

 
 
 
 

 
 

 
 

Light Truck (Full Frame)
4,275

to
4,575
 
4,493

 
4,331

 
4,220

Light Vehicle Engines
14,700

to
15,000
 
15,332

 
14,828

 
15,913

Medium Truck (Classes 5-7)
255

to
265
 
270

 
246

 
233

Heavy Truck (Class 8)
325

to
345
 
320

 
255

 
228

Agricultural Equipment
50

to
60
 
56

 
54

 
53

Construction/Mining Equipment
175

to
185
 
176

 
157

 
150

Europe (including Eastern Europe)
 

 
 
 
 

 
 

 
 

Light Truck
11,200

to
11,500
 
10,727

 
10,276

 
9,306

Light Vehicle Engines
23,700

to
24,200
 
23,098

 
24,096

 
23,287

Medium/Heavy Truck
505

to
520
 
506

 
486

 
463

Agricultural Equipment
200

to
215
 
204

 
202

 
193

Construction/Mining Equipment
350

to
370
 
351

 
309

 
290

South America
 

 
 
 
 

 
 

 
 

Light Truck
1,300

to
1,500
 
1,320

 
1,235

 
980

Light Vehicle Engines
3,000

to
3,100
 
2,797

 
2,412

 
2,112

Medium/Heavy Truck
105

to
115
 
113

 
89

 
70

Agricultural Equipment
30

to
35
 
34

 
33

 
29

Construction/Mining Equipment
8

to
12
 
9

 
9

 
10

Asia-Pacific
 

 
 
 
 

 
 

 
 

Light Truck
30,800

to
32,000
 
29,783

 
29,495

 
27,465

Light Vehicle Engines
54,700

to
55,700
 
52,293

 
52,543

 
50,533

Medium/Heavy Truck
1,700

to
1,900
 
2,004

 
2,039

 
1,661

Agricultural Equipment
650

to
680
 
653

 
653

 
648

Construction/Mining Equipment
490

to
510
 
495

 
441

 
396


North America

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

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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

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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

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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

 
2019
Outlook*
 
2018
 
2017
 
2016
Sales
$8,950 - $9,350
 
$
8,143

 
$
7,209

 
$
5,826

Adjusted EBITDA
$1,085 - $1,165
 
$
957

 
$
835

 
$
660

Net cash provided by operating activities
~5.5% of Sales
 
$
568

 
$
554

 
$
384

Discretionary pension contribution
~1.5% of Sales
 
$

 
$

 
$

Purchases of property, plant and equipment
~4% of Sales
 
$
325

 
$
393

 
$
322

Adjusted Free Cash Flow
~3% of Sales
 
$
243

 
$
161

 
$
62

*
Assumes Oerlikon Drive Systems acquisition transaction closes during the first quarter of 2019.

23



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.

Consolidated Results of Operations
 
Summary Consolidated Results of Operations (2018 versus 2017) 
 
2018
 
2017
 
 
 
Dollars
 
% of
Net Sales
 
Dollars
 
% of
Net Sales
 
Increase/
(Decrease)
Net sales
$
8,143

 

 
$
7,209

 

 
$
934

Cost of sales
6,986

 
85.8
%
 
6,143

 
85.2
%
 
843

Gross margin
1,157

 
14.2
%
 
1,066

 
14.8
%
 
91

Selling, general and administrative expenses
499

 
6.1
%
 
508

 
7.0
%
 
(9
)
Amortization of intangibles
8

 
 
 
11

 
 
 
(3
)
Restructuring charges, net
25

 
 
 
14

 
 
 
11

Impairment of indefinite-lived intangible asset
(20
)
 
 
 


 
 
 
(20
)
Gain (loss) on disposal group held for sale
3

 
 
 
(27
)
 
 
 
30

Other expense, net
(29
)
 
 
 
(16
)
 
 
 
(13
)
Earnings before interest and income taxes
579

 
 
 
490

 
 
 
89

Loss on extinguishment of debt


 
 
 
(19
)
 
 
 
19

Interest income
11

 
 
 
11

 
 
 

Interest expense
96

 
 
 
102

 
 
 
(6
)
Earnings before income taxes
494

 
 
 
380

 
 
 
114

Income tax expense
78

 
 
 
283

 
 
 
(205
)
Equity in earnings of affiliates
24

 
 
 
19

 
 
 
5

Net income
440

 
 
 
116

 
 
 
324

Less: Noncontrolling interests net income
13

 
 
 
10

 
 
 
3

Less: Redeemable noncontrolling interests net loss

 
 
 
(5
)
 
 
 
5

Net income attributable to the parent company
$
427

 
 
 
$
111

 
 
 
$
316


Sales — The following table shows changes in our sales by geographic region.
 
 
 
 
 
 
 
Amount of Change Due To
 
2018
 
2017
 
Increase/
(Decrease)
 
Currency
Effects
 
Acquisitions
(Divestitures)
 
Organic
Change
North America
$
4,106

 
$
3,688

 
$
418

 
$
(1
)
 
$
32

 
$
387

Europe
2,484

 
2,154

 
330

 
85

 
27

 
218

South America
546

 
500

 
46

 
(74
)
 
(9
)
 
129

Asia Pacific
1,007

 
867

 
140

 
6

 
7

 
127

Total
$
8,143

 
$
7,209

 
$
934

 
$
16

 
$
57

 
$
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.
 
2018
 
2017
Non-service cost components of pension and OPEB costs
$
(15
)
 
$
(7
)
Government grants and incentives
12

 
7

Foreign exchange loss
(12
)
 
(3
)
Strategic transaction expenses, net of transaction breakup fee income
(18
)
 
(25
)
Amounts attributable to previously divested/closed operations


 
3

Other, net
4

 
9

Other expense, net
(29
)
 
(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
 
 
Sales
 
Segment
EBITDA
 
Segment
EBITDA
Margin
2017
 
$
3,172

 
$
359

 
11.3
%
    Volume and mix
 
376

 
83

 
 
    Performance
 
36

 
(43
)
 
 
    Currency effects
 
(9
)
 
(1
)
 
 
2018
 
$
3,575

 
$
398

 
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
 
 
Sales
 
Segment
EBITDA
 
Segment
EBITDA
Margin
2017
 
$
1,412

 
$
116

 
8.2
%
    Volume and mix
 
219

 
35

 
 
    Performance
 
20

 
(1
)
 
 
    Currency effects
 
(39
)
 
(4
)
 
 
2018
 
$
1,612

 
$
146

 
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
 
 
Sales
 
Segment
EBITDA
 
Segment
EBITDA
Margin
2017
 
$
1,521

 
$
212

 
13.9
%
    Volume and mix
 
251

 
57

 
 
    Performance
 
26

 
11

 
 
    Currency effects
 
46

 
5

 
 
2018
 
$
1,844

 
$
285

 
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
 
 
Sales
 
Segment
EBITDA
 
Segment
EBITDA
Margin
2017
 
$
1,104

 
$
168

 
15.2
%
    Volume and mix
 
(8
)
 
(3
)
 
 
    Performance
 
(2
)
 
(18
)
 
 
    Currency effects
 
18

 
2

 
 
2018
 
$
1,112

 
$
149

 
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)
 
2017
 
2016
 
 
 
Dollars
 
% of
Net Sales
 
Dollars
 
% of
Net Sales
 
Increase/
(Decrease)
Net sales
$
7,209

 

 
$
5,826

 

 
$
1,383

Cost of sales
6,143

 
85.2
%
 
4,991

 
85.7
%
 
1,152

Gross margin
1,066

 
14.8
%
 
835

 
14.3
%
 
231

Selling, general and administrative expenses
508

 
7.0
%
 
401

 
6.9
%
 
107

Amortization of intangibles
11

 
 
 
8

 
 
 
3

Restructuring charges, net
14

 
 
 
36

 
 
 
(22
)
Loss on disposal group held for sale
(27
)
 
 
 


 
 
 
(27
)
Loss on sale of subsidiaries


 
 
 
(80
)
 
 
 
80

Other income (expense), net
(16
)
 
 
 
22

 
 
 
(38
)
Earnings before interest and income taxes
490

 
 
 
332

 
 
 
158

Loss on extinguishment of debt
(19
)
 
 
 
(17
)
 
 
 
(2
)
Interest income
11

 
 
 
13

 
 
 
(2
)
Interest expense
102

 
 
 
113

 
 
 
(11
)
Earnings before income taxes
380

 
 
 
215

 
 
 
165

Income tax expense (benefit)
283

 
 
 
(424
)
 
 
 
707

Equity in earnings of affiliates
19

 
 
 
14

 
 
 
5

Net income
116

 
 
 
653

 
 
 
(537
)
Less: Noncontrolling interests net income
10

 
 
 
13

 
 
 
(3
)
Less: Redeemable noncontrolling interests net loss
(5
)
 
 
 


 
 
 
(5
)
Net income attributable to the parent company
$
111

 
 
 
$
640

 
 
 
$
(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.
 
 
 
 
 
 
 
Amount of Change Due To
 
2017
 
2016
 
Increase/
(Decrease)
 
Currency
Effects
 
Acquisitions
(Divestitures)
 
Organic
Change
North America
$
3,688

 
$
3,128

 
$
560

 
$
(1
)
 
$
127

 
$
434

Europe
2,154

 
1,616

 
538

 
35

 
294

 
209

South America
500

 
338

 
162

 
3

 
54

 
105

Asia Pacific
867

 
744

 
123

 
17

 
25

 
81

Total
$
7,209

 
$
5,826

 
$
1,383

 
$
54

 
$
500

 
$
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.


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Other income (expense), net — The following table shows the major components of other income (expense), net.
 
2017
 
2016
Non-service cost components of pension and OPEB costs
$
(7
)

$
4

Government grants and incentives
7

 
8

Foreign exchange loss
(3
)
 
(3
)
Strategic transaction expenses
(25
)
 
(13
)
Insurance and other recoveries


 
10

Gain on sale of marketable securities


 
7

Amounts attributable to previously divested/closed operations
3

 


Other, net
9

 
9

Other income (expense), net
(16
)
 
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.


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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
 
Sales
 
Segment
EBITDA
 
Segment
EBITDA
Margin
2016
$
2,607

 
$
279

 
10.7
%
    Volume and mix
452

 
92

 
 
    Acquisition
96