UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form
| | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended:
OR
| | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period From to
Commission File Number:
Dana Incorporated
(Exact name of registrant as specified in its charter)
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| (State of incorporation) |
| (IRS Employer Identification Number) | ||
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| (Address of principal executive offices) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
| Common stock $0.01 par value |
| DAN |
| New York Stock Exchange |
| (Title of each class) |
| (Trading Symbol) |
| (Name of exchange on which registered) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
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).
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.
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| Accelerated filer | ☐ |
| Non-accelerated filer | ☐ |
| Smaller reporting company | | |
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| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
There were
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
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10-Q Pages |
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| Item 1 |
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| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3 |
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| Item 4 |
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| Item 1 |
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| Item 1A |
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| Item 2 |
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| Item 5 | Other Information | 39 |
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| Item 6 |
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dana Incorporated
Consolidated Statement of Operations (Unaudited)
(In millions, except per share amounts)
| Three Months Ended |
Nine Months Ended |
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| September 30, |
September 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Net sales |
$ | $ | $ | $ | ||||||||||||
| Costs and expenses |
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| Cost of sales |
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| Selling, general and administrative expenses |
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| Amortization of intangibles |
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| Restructuring charges, net |
( |
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| Impairment of goodwill |
( |
) | ( |
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| Other income (expense), net |
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| Earnings (loss) before interest and income taxes |
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| Loss on extinguishment of debt |
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| Interest income |
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| Interest expense |
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| Earnings (loss) before income taxes |
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| Income tax expense |
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| Equity in earnings (loss) of affiliates |
( |
) | (1 | ) | ||||||||||||
| Net income (loss) |
( |
) | ( |
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| Less: Noncontrolling interests net income |
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| Less: Redeemable noncontrolling interests net loss |
( |
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) | ( |
) | ( |
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| Net income (loss) attributable to the parent company |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Net income (loss) per share available to common stockholders |
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| Basic |
$ | $ | ( |
) | $ | $ | ( |
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| Diluted |
$ | $ | ( |
) | $ | $ | ( |
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| Weighted-average common shares outstanding |
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| Basic |
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| Diluted |
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The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statement of Comprehensive Income (Unaudited)
(In millions)
| Three Months Ended |
Nine Months Ended |
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| September 30, |
September 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Net income (loss) |
$ | $ | ( |
) | $ | $ | ( |
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| Other comprehensive income (loss), net of tax: |
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| Currency translation adjustments |
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| Hedging gains and losses |
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| Defined benefit plans |
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| Other comprehensive loss |
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| Total comprehensive income (loss) |
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| Less: Comprehensive income attributable to noncontrolling interests |
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| Less: Comprehensive loss attributable to redeemable noncontrolling interests |
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| Comprehensive income (loss) attributable to the parent company |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
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The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Balance Sheet (Unaudited)
(In millions, except share and per share amounts)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Trade, less allowance for doubtful accounts of $ in 2023 and $ in 2022 | ||||||||
| Other | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Goodwill | ||||||||
| Intangibles | ||||||||
| Deferred tax assets | ||||||||
| Other noncurrent assets | ||||||||
| Investments in affiliates | ||||||||
| Operating lease assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, redeemable noncontrolling interests and equity | ||||||||
| Current liabilities | ||||||||
| Short-term debt | $ | $ | ||||||
| Current portion of long-term debt | ||||||||
| Accounts payable | ||||||||
| Accrued payroll and employee benefits | ||||||||
| Taxes on income | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Other accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, less debt issuance costs of $ in 2023 and $ in 2022 | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Pension and postretirement obligations | ||||||||
| Other noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Redeemable noncontrolling interests | ||||||||
| Parent company stockholders' equity | ||||||||
| Preferred stock, shares authorized, $ par value, shares outstanding | ||||||||
| Common stock, shares authorized, $ par value, and shares outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost ( and shares) | ( | ) | ||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total parent company stockholders' equity | ||||||||
| Noncontrolling interests | ||||||||
| Total equity | ||||||||
| Total liabilities, redeemable noncontrolling interests and equity | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statement of Cash Flows (Unaudited)
(In millions)
| Nine Months Ended |
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| September 30, |
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| 2023 |
2022 |
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| Operating activities |
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| Net income (loss) |
$ | $ | ( |
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| Depreciation |
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| Amortization |
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| Amortization of deferred financing charges |
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| Write-off of deferred financing costs |
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| Earnings of affiliates, net of dividends received |
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| Stock compensation expense |
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| Deferred income taxes |
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| Pension expense, net |
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| Impairment of goodwill |
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| Change in working capital |
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| Other, net |
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| Net cash provided by operating activities |
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| Investing activities |
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| Purchases of property, plant and equipment |
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| Acquisition of business, net of cash acquired |
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| Purchases of marketable securities |
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| Proceeds from sales of marketable securities |
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| Settlements of undesignated derivatives |
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| Other, net |
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| Net cash used in investing activities |
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| Financing activities |
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| Net change in short-term debt |
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| Proceeds from long-term debt |
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| Repayment of long-term debt |
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| Deferred financing payments |
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| Dividends paid to common stockholders |
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| Repurchases of common stock |
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| Distributions to noncontrolling interests |
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| Contributions from redeemable noncontrolling interests |
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| Payments to acquire noncontrolling interests |
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| Other, net |
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| Net cash provided by financing activities |
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| Net increase in cash, cash equivalents and restricted cash |
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| Cash, cash equivalents and restricted cash – beginning of period |
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| Effect of exchange rate changes on cash balances |
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| Cash, cash equivalents and restricted cash – end of period (Note 4) |
$ | $ | ||||||
| Non-cash investing activity |
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| Purchases of property, plant and equipment held in accounts payable |
$ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
Index to Notes to Consolidated Financial Statements
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Notes to Consolidated Financial Statements (Unaudited)
(In millions, except share and per share amounts)
Note 1. Organization and Summary of Significant Accounting Policies
General
Dana Incorporated (Dana) is headquartered in Maumee, Ohio and was incorporated in Delaware in 2007. As a global provider of high technology driveline (axles, driveshafts and transmissions); sealing and thermal-management products; and motors, power inverters, and control systems for electric vehicles our customer base includes virtually every major vehicle manufacturer in the global light vehicle, medium/heavy vehicle and off-highway markets.
The terms "Dana," "we," "our" and "us," when used in this report, are references to Dana. These references include the subsidiaries of Dana unless otherwise indicated or the context requires otherwise.
Summary of significant accounting policies
On January 1, 2023 we adopted Accounting Standards Update (ASU) 2022-04, Supplier Finance Programs which requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. Adoption of this new standard did not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. Certain of our subsidiaries have entered into paying agency agreements with third-party administrators. These voluntary supply chain finance programs generally give participating suppliers the ability to sell, or otherwise pledge as collateral, their receivables from Dana to the participating financial institutions, at the sole discretion of both the suppliers and financial institutions. Dana is not a party to the arrangements between the suppliers and the financial institutions. Dana’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by the suppliers’ decisions to sell, or otherwise pledge as collateral, amounts under these arrangements. Dana's payment terms to the financial institutions, including the timing and amount of payments, are based on the original supplier invoices. As of September 30, 2023 and December 31, 2022, we had $
We also adopted the following standard during the first nine months of 2023, which did not have a material impact on our financial statements or financial statement disclosures:
| Standard | Effective Date | |||
| ASU 2021-08 | Accounting for Contract Assets and Contract Liabilities from Contracts with Customers | January 1, 2023 | ||
Note 2. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill by segment —
| Off-Highway | ||||
| Balance, December 31, 2022 | $ | |||
| Currency impact | ( | ) | ||
| Balance, September 30, 2023 | $ | |||
Components of other intangible assets —
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||
| Weighted Average Useful Life (years) | Gross Carrying Amount | Accumulated Impairment and Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Impairment and Amortization | Net Carrying Amount | |||||||||||||||||||||
| Amortizable intangible assets | |||||||||||||||||||||||||||
| Core technology | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Trademarks and trade names | ( | ) | ( | ) | |||||||||||||||||||||||
| Customer relationships | ( | ) | ( | ) | |||||||||||||||||||||||
| Non-amortizable intangible assets | |||||||||||||||||||||||||||
| Trademarks and trade names | |||||||||||||||||||||||||||
| $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
The net carrying amounts of intangible assets, other than goodwill, attributable to each of our operating segments at September 30, 2023 were as follows: Light Vehicle — $
Amortization expense related to amortizable intangible assets —
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Charged to cost of sales | $ | $ | $ | $ | ||||||||||||
| Charged to amortization of intangibles | ||||||||||||||||
| Total amortization | $ | $ | $ | $ | ||||||||||||
Note 3. Restructuring of Operations
Our restructuring activities have historically included rationalizing our operating footprint by consolidating facilities, positioning operations in lower cost locations and reducing overhead costs. Restructuring expense includes costs associated with current and previously announced actions and is comprised of contractual and noncontractual separation costs and exit costs. During the third quarter of 2023, we recorded restructuring charges of $
Accrued restructuring costs and activity —
| Employee Termination Benefits | Exit Costs | Total | ||||||||||
| Balance, June 30, 2023 | $ | $ | $ | |||||||||
| Charges to restructuring | ||||||||||||
| Cash payments | ( | ) | ( | ) | ||||||||
| Balance, September 30, 2023 | $ | $ | $ | |||||||||
| Balance, December 31, 2022 | $ | $ | $ | |||||||||
| Charges to restructuring | ||||||||||||
| Cash payments | ( | ) | ( | ) | ( | ) | ||||||
| Balance, September 30, 2023 | $ | $ | $ | |||||||||
At September 30, 2023, the accrued employee termination benefits include costs to reduce approximately
Note 4. Supplemental Balance Sheet and Cash Flow Information
Inventory components at —
| September 30, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process and finished goods | ||||||||
| Total | $ | $ | ||||||
Cash, cash equivalents and restricted cash at —
| September 30, 2023 | December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Restricted cash included in other current assets | ||||||||||||||||
| Restricted cash included in other noncurrent assets | ||||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | $ | $ | ||||||||||||
Common stock — Our Board of Directors declared a cash dividend of cents per share of common stock in the first, second and third quarters of 2023. Dividends accrue on restricted stock units (RSUs) granted under our stock compensation program and will be paid in cash or additional units when the underlying units vest.
Share repurchase program — On February 16, 2021 our Board of Directors approved an extension of our existing common stock share repurchase program through December 31, 2023. Under the program, we spent $
Changes in equity —
| 2023 | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Non-controlling Interests | Total Equity | |||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | — | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||
| Common stock dividends and dividend equivalents | ( | ) | ( | ) | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||
| Redeemable noncontrolling interests adjustment to redemption value | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock compensation | ||||||||||||||||||||||||||||
| Stock withheld for employees taxes | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock dividends and dividend equivalents | ( | ) | ( | ) | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock compensation | ||||||||||||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock dividends and dividend equivalents | ( | ) | ( | ) | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock compensation | ||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||
| 2022 | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Non-controlling Interests | Total Equity | |||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||
| Common stock dividends and dividend equivalents | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock repurchases | ( | ) | ( | ) | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||
| Purchases of noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||
| Redeemable noncontrolling interests adjustment to redemption value | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock compensation | ||||||||||||||||||||||||||||
| Stock withheld for employees taxes | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock dividends and dividend equivalents | ( | ) | ( | ) | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||
| Purchases of noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||
| Redeemable noncontrolling interests adjustment to redemption value | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock compensation | ||||||||||||||||||||||||||||
| Balance, June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock dividends and dividend equivalents | ( | ) | ( | ) | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||||||||||||||||||||||
| Redeemable noncontrolling interests adjustment to redemption value | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock compensation | ||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||
Changes in each component of accumulated other comprehensive income (loss) (AOCI) of the parent —
| Parent Company Stockholders | ||||||||||||||||
| 2023 | Foreign Currency Translation | Hedging | Defined Benefit Plans | Accumulated Other Comprehensive Loss | ||||||||||||
| Balance, December 31, 2022 | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Currency translation adjustments | ||||||||||||||||
| Holding gains and losses | ||||||||||||||||
| Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) | ||||||||||||||||
| Tax expense | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income | ||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||
| Currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Holding gains and losses | ||||||||||||||||
| Reclassification of amount to net income (a) | ( | ) | ( | ) | ||||||||||||
| Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) | ||||||||||||||||
| Tax expense | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income (loss) | ( | ) | — | ( | ) | |||||||||||
| Balance, June 30, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||
| Currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Holding gains and losses | ||||||||||||||||
| Reclassification of amount to net income (a) | ( | ) | ( | ) | ||||||||||||
| Tax expense | ( | ) | — | |||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance, September 30, 2023 | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Parent Company Stockholders | ||||||||||||||||
| 2022 | Foreign Currency Translation | Hedging | Defined Benefit Plans | Accumulated Other Comprehensive Loss | ||||||||||||
| Balance, December 31, 2021 | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Currency translation adjustments | ||||||||||||||||
| Holding gains and losses | ||||||||||||||||
| Reclassification of amount to net income (a) | ( | ) | ( | ) | ||||||||||||
| Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) | ||||||||||||||||
| Tax expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive income (loss) | ( | ) | ||||||||||||||
| Balance, March 31, 2022 | ( | ) | — | ( | ) | ( | ) | |||||||||
| Currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Holding gains and losses | ||||||||||||||||
| Reclassification of amount to net income (a) | ( | ) | ( | ) | ||||||||||||
| Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) | ||||||||||||||||
| Tax expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Balance, June 30, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||
| Currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Holding gains and losses | ||||||||||||||||
| Reclassification of amount to net income (a) | ( | ) | ( | ) | ||||||||||||
| Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) | ||||||||||||||||
| Tax expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Balance, September 30, 2022 | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
(a) Realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments treated as cash flow hedges are reclassified from AOCI into the same line item in the consolidated statement of operations in which the underlying forecasted transaction or other hedged item is recorded. See Note 11 for additional details.
(b) See Note 9 for additional details.
Note 6. Redeemable Noncontrolling Interests
Hydro-Québec owns a
Redeemable noncontrolling interests reflected as of the balance sheet date are the greater of the redeemable noncontrolling interest balances adjusted for comprehensive income (loss) items and distributions or the redemption value. Redeemable noncontrolling interest adjustments of redemption value are recorded in retained earnings. We estimate the fair value of the redemption value using an income based approach based on discounted cash flow projections. In determining fair value using discounted cash flow projections, we make significant assumptions and estimates about the extent and timing of future cash flows, including revenue growth rates, projected EBITDA, discount rates and terminal growth rates.
Reconciliation of changes in redeemable noncontrolling interests —
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Capital contribution from redeemable noncontrolling interests | ||||||||||||||||
| Adjustment to redemption value | ||||||||||||||||
| Comprehensive income (loss) adjustments: | ||||||||||||||||
| Net loss attributable to redeemable noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive loss attributable to redeemable noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
Reconciliation of the numerators and denominators of the earnings per share calculations —
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net income available to common stockholders - Numerator basic and diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Denominator: | ||||||||||||||||
| Weighted-average common shares outstanding - Basic | ||||||||||||||||
| Employee compensation-related shares, including stock options | ||||||||||||||||
| Weighted-average common shares outstanding - Diluted | ||||||||||||||||
The share count for diluted earnings per share is computed on the basis of the weighted-average number of common shares outstanding plus the effects of dilutive common stock equivalents (CSEs) outstanding during the period. We excluded .1 million and
The Compensation Committee of our Board of Directors approved the grant of RSUs and performance share units (PSUs) shown in the table below during 2023.
| Granted | Grant Date | |||||||
| (In millions) | Fair Value* | |||||||
| RSUs | $ | |||||||
| PSUs | $ | |||||||
* Weighted-average per share
We calculated the fair value of the RSUs at grant date based on the closing market price of our common stock at the date of grant. The number of PSUs that ultimately vest is contingent on achieving specified financial targets and specified total shareholder return targets relative to peer companies. For the portion of the award based on financial metrics, we estimated the fair value of the PSUs at grant date based on the closing market price of our common stock at the date of grant adjusted for the value of assumed dividends over the period because the awards are not dividend protected. For the portion of the award based on shareholder returns, we estimated the fair value of the PSUs at grant date using various assumptions as part of a Monte Carlo simulation. The expected term represents the period from the grant date to the end of the -year performance period. The risk-free interest rate of
During 2023, we paid $
Note 9. Pension and Postretirement Benefit Plans
We have a number of defined contribution and defined benefit, qualified and nonqualified, pension plans covering eligible employees. Other postretirement benefits (OPEB), including medical and life insurance, are provided for certain employees upon retirement.
Components of net periodic benefit cost (credit) —
| Pension | OPEB | |||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||
| Three Months Ended September 30, | U.S. | Non-U.S. | U.S. | Non-U.S. | Non-U.S. | Non-U.S. | ||||||||||||||||||
| Interest cost | $ | $ | $ | $ | $ | $ | — | |||||||||||||||||
| Expected return on plan assets | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Service cost | ||||||||||||||||||||||||
| Amortization of net actuarial (gain) loss | ( | ) | ( | ) | ||||||||||||||||||||
| Net periodic benefit cost (credit) | $ | — | $ | $ | ( | ) | $ | $ | — | $ | ( | ) | ||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Expected return on plan assets | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Service cost | ||||||||||||||||||||||||
| Amortization of net actuarial (gain) loss | ( | ) | ( | ) | ||||||||||||||||||||
| Net periodic benefit cost (credit) | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The service cost components of net periodic pension and OPEB costs are included in cost of sales and selling, general and administrative expenses as part of compensation cost and are eligible for capitalization in inventory and other assets. The non-service components are reported in other income (expense), net and are not eligible for capitalization.
Long-term debt at —
| Interest Rate | September 30, 2023 | December 31, 2022 | ||||||||
| Senior Notes due April 15, 2025 | | * | $ | $ | ||||||
| Senior Notes due November 15, 2027 | | |||||||||
| Senior Notes due June 15, 2028 | | |||||||||
| Senior Euro Notes due July 15, 2029 | | |||||||||
| Senior Notes due September 1, 2030 | | |||||||||
| Senior Euro Notes due July 15, 2031 | | |||||||||
| Senior Notes due February 15, 2032 | | |||||||||
| Other indebtedness | ||||||||||
| Debt issuance costs | ( | ) | ( | ) | ||||||
| Less: Current portion of long-term debt | ||||||||||
| Long-term debt, less debt issuance costs | $ | $ | ||||||||
| * | In conjunction with the issuance of the April 2025 Notes we entered into -year fixed-to-fixed cross-currency swaps which have the effect of economically converting the April 2025 Notes to euro-denominated debt at a fixed rate of |
Interest on the senior notes is payable semi-annually. Other indebtedness includes a $
Senior notes activity — On May 24, 2023, Dana Financing Luxembourg S.à.r.l. (Dana Financing), a wholly-owned subsidiary of Dana, completed the sale of ($
Senior notes redemption provisions — We may redeem some or all of the senior notes at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period commencing on the anniversary date of the senior notes in the year set forth below:
| Redemption Price | ||||||||||||||||||||||||||||
| April | November | June | July | September | July | February | ||||||||||||||||||||||
| Year | 2025 Notes | 2027 Notes | 2028 Notes | 2029 Notes | 2030 Notes | 2031 Notes | 2032 Notes | |||||||||||||||||||||
| 2022 | % | % | ||||||||||||||||||||||||||
| 2023 | % | % | % | |||||||||||||||||||||||||
| 2024 | % | % | % | % | ||||||||||||||||||||||||
| 2025 | % | % | % | |||||||||||||||||||||||||
| 2026 | % | % | % | % | % | |||||||||||||||||||||||
| 2027 | % | % | % | % | % | |||||||||||||||||||||||
| 2028 | % | % | % | % | ||||||||||||||||||||||||
| 2029 | % | % | % | |||||||||||||||||||||||||
| 2030 | % | % | ||||||||||||||||||||||||||
| 2031 | % | |||||||||||||||||||||||||||
At any time prior to July 15, 2024, we may redeem up to 40% of the aggregate principal amount of the July 2029 Notes in an amount not to exceed the amount of proceeds of one or more equity offerings, at a price equal to
At any time prior to May 1, 2024, we may redeem up to 40% of the aggregate principal amount of the September 2030 Notes in an amount not to exceed the amount of proceeds of one or more equity offerings, at a price equal to
At any time prior to July 15, 2026, we may redeem up to 40% of the aggregate principal amount of the July 2031 Notes in an amount not to exceed the amount of proceeds of one or more equity offerings, at a price equal to
At any time prior to February 15, 2025, we may redeem up to 40% of the aggregate principal amount of the February 2032 Notes in an amount not to exceed the amount of proceeds of one or more equity offerings, at a price equal to
Credit agreement — On March 14, 2023, we amended our credit and guaranty agreement, extending its maturity to March 14, 2028. We recorded deferred fees of $
The Revolving Facility is guaranteed by all of our wholly-owned domestic subsidiaries subject to certain exceptions (the guarantors) and are secured by a first-priority lien on substantially all of the assets of Dana and the guarantors, subject to certain exceptions.
Advances under the Revolving Facility bear interest at a floating rate based on, at our option, the base rate or the Term Secured Overnight Financing Rate ("SOFR") (each as described in the credit agreement) plus a margin as set forth below:
| Margin | ||||||||
| Total Net Leverage Ratio | Base Rate | SOFR Rate | ||||||
| Less than or equal to 1.00:1.00 | % | % | ||||||
| Greater than 1.00:1.00 but less than or equal to 2.00:1.00 | % | % | ||||||
| Greater than 2.00:1.00 | % | % | ||||||
Commitment fees are applied based on the average daily unused portion of the available amounts under the Revolving Facility as set forth below:
| Total Net Leverage Ratio | Commitment Fee | |||
| Less than or equal to 1.00:1.00 | % | |||
| Greater than 1.00:1.00 but less than or equal to 2.00:1.00 | % | |||
| Greater than 2.00:1.00 | % | |||
Up to $
At September 30, 2023, we had
Debt covenants — At September 30, 2023, we were in compliance with the covenants of our financing agreements. Under the Revolving Facility and the senior notes, we are required to comply with certain incurrence-based covenants customary for facilities of these types and, in the case of the Revolving Facility, a maintenance covenant tested on the last day of each fiscal quarter requiring us to maintain a first lien net leverage ratio not to exceed
Note 11. Fair Value Measurements and Derivatives
In measuring the fair value of our assets and liabilities, we use market data or assumptions that we believe market participants would use in pricing an asset or liability including assumptions about risk when appropriate. Our valuation techniques include a combination of observable and unobservable inputs.
Fair value measurements on a recurring basis — Assets and liabilities that are carried in our balance sheet at fair value are as follows:
| Fair Value | |||||||||||||
| Category | Balance Sheet Location | Fair Value Level | September 30, 2023 | December 31, 2022 | |||||||||
| Currency forward contracts | |||||||||||||
| Cash flow hedges | Accounts receivable - Other | 2 | $ | $ | |||||||||
| Cash flow hedges | Other accrued liabilities | 2 | |||||||||||
| Undesignated | Accounts receivable - Other | 2 | |||||||||||
| Undesignated | Other accrued liabilities | 2 | |||||||||||
| Currency swaps | |||||||||||||
| Cash flow hedges | Other noncurrent assets | 2 | |||||||||||
| Undesignated | Other noncurrent liabilities | 2 | |||||||||||
Fair Value Level 2 assets and liabilities reflect the use of significant other observable inputs.
Fair value of financial instruments — The financial instruments that are not carried in our balance sheet at fair value are as follows:
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||
| Fair Value Level | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||
| Long-term debt | 2 | $ | $ | $ | $ | |||||||||||||||
Foreign currency derivatives — Our foreign currency derivatives include forward contracts associated with forecasted transactions, primarily involving the purchases and sales of inventory, as well as currency swaps associated with certain recorded external notes payable and intercompany loans receivable and payable. Periodically, our foreign currency derivatives also include net investment hedges of certain of our investments in foreign operations.
We have executed fixed-to-fixed cross-currency swaps in conjunction with the issuance of certain notes to eliminate the variability in the functional-currency-equivalent cash flows due to changes in exchange rates associated with the forecasted principal and interest payments. All of the underlying designated financial instruments have been designated as the hedged items in each respective cash flow hedge relationship, as shown in the table below. Designated as cash flow hedges of the forecasted principal and interest payments of the underlying designated financial instruments, all of the swaps economically convert the underlying designated financial instruments into the functional currency of each respective holder. The impact of the interest rate differential between the inflow and outflow rates on fixed-to-fixed cross-currency swaps is recognized during each period as a component of interest expense for hedges of external debt and as a component of other income (expense), net for hedges of intercompany debt.
The following fixed-to-fixed cross-currency swaps were outstanding at September 30, 2023:
| Underlying Financial Instrument | Derivative Financial Instrument | |||||||||||||||||||||||||
| Description | Type | Face Amount | Rate | Notional Amount | Traded Amount | Inflow Rate | Outflow Rate | |||||||||||||||||||
| April 2025 Notes | Payable | $ | % | $ | € | % | % | |||||||||||||||||||
| Luxembourg Intercompany Notes | Receivable | € | % | $ | € | % | % | |||||||||||||||||||
| Luxembourg Intercompany Notes | Receivable | € | % | € | $ | % | % | |||||||||||||||||||
| Undesignated 2026 Swap | $ | € | % | % | ||||||||||||||||||||||
| Undesignated Offset 2026 Swap | € | $ | % | % | ||||||||||||||||||||||
The designated swaps are expected to be highly effective in offsetting the corresponding currency-based changes in cash outflows related to the underlying designated financial instruments. Based on our qualitative assessment that the critical terms of the underlying designated financial instruments and the associated swaps match and that all other required criteria have been met, we do not expect to incur any ineffectiveness. As effective cash flow hedges, changes in the fair value of the swaps will be recorded in OCI during each period. Additionally, to the extent the swaps remain effective, the appropriate portion of AOCI will be reclassified to earnings each period as an offset to the foreign exchange gain or loss resulting from the remeasurement of the underlying designated financial instruments. See Note 10 for additional information about the April 2025 Notes. To the extent the swaps are no longer effective, changes in their fair values will be recorded in earnings.
The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $
The following currency derivatives were outstanding at September 30, 2023:
| Notional Amount (U.S. Dollar Equivalent) | ||||||||||||||||
| Functional Currency | Traded Currency | Designated | Undesignated | Total | Maturity | |||||||||||
| U.S. dollar | Mexican peso, Thai baht | $ | $ | $ | Aug-2024 | |||||||||||
| Euro | U.S. dollar, Australian dollar, Canadian dollar, Swiss franc, Chinese renminbi, British pound, Hungarian forint, Indian rupee, Japanese yen, Mexican peso, Norwegian krone, New Zealand dollar, Swedish krona, Singapore dollar, South African rand | Sep-2027 | ||||||||||||||
| British pound | U.S. dollar, euro | Oct-2023 | ||||||||||||||
| South African rand | U.S. dollar, euro, Thai baht | Nov-2023 | ||||||||||||||
| Canadian dollar | U.S. dollar | Oct-2023 | ||||||||||||||
| Brazilian real | U.S. dollar, euro | Jun-2024 | ||||||||||||||
| Indian rupee | U.S. dollar, euro, British pound | Aug-2024 | ||||||||||||||
| Chinese renminbi | U.S. dollar, euro, Canadian dollar | Oct-2023 | ||||||||||||||
| Mexican peso | U.S. dollar | Oct-2023 | ||||||||||||||
| Total forward contracts | ||||||||||||||||
| U.S. dollar | euro | Nov-2027 | ||||||||||||||
| Euro | U.S. dollar | Jun-2026 | ||||||||||||||
| Total currency swaps | ||||||||||||||||
| Total currency derivatives | $ | $ | $ | |||||||||||||
Designated cash flow hedges — With respect to contracts designated as cash flow hedges, changes in fair value during the period in which the contracts remain outstanding are reported in OCI to the extent such contracts remain effective. Effectiveness is measured by using regression analysis to determine the degree of correlation between the change in the fair value of the derivative instrument and the change in the associated foreign currency exchange rates. Changes in the fair value of contracts not designated as cash flow hedges or as net investment hedges are recognized in other income (expense), net in the period in which the changes occur. Realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments, including those that have been designated as cash flow hedges and those that have not been designated, are recognized in the same line item in the consolidated statement of operations in which the underlying forecasted transaction or other hedged item is recorded. Accordingly, amounts are potentially recorded in sales, cost of sales or, in certain circumstances, other income (expense), net.
The following table provides a summary of deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less:
| Deferred Gain (Loss) in AOCI | ||||||||||||
| September 30, 2023 | December 31, 2022 | Gain (loss) expected to be reclassified into income in one year or less | ||||||||||
| Forward Contracts | $ | $ | $ | |||||||||
| Cross-Currency Swaps | ||||||||||||
| Total | $ | $ | $ | |||||||||
The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with cash flow hedging relationships:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Derivatives Designated as Cash Flow Hedges | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded | ||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Other income (expense), net | ||||||||||||||||
| (Gain) or loss on cash flow hedging relationships | ||||||||||||||||
| Foreign currency forwards | ||||||||||||||||
| Amount of (gain) loss reclassified from AOCI into income | ||||||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cross-currency swaps | ||||||||||||||||
| Amount of (gain) loss reclassified from AOCI into income | ||||||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
The amounts reclassified from AOCI into income for the cross-currency swaps represent an offset to a foreign exchange loss on our foreign currency-denominated intercompany and external debt instruments.
Certain of our hedges of forecasted transactions have not formally been designated as cash flow hedges. As undesignated forward contracts, the changes in the fair value of such contracts are included in earnings for the duration of the outstanding forward contract. Any realized gain or loss on the settlement of such contracts is recognized in the same period and in the same line item in the consolidated statement of operations as the underlying transaction. The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with undesignated hedging relationships.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Derivatives Not Designated as Hedging Instruments | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Gain or (loss) recognized in income | ||||||||||||||||
| Foreign currency forward contracts | ||||||||||||||||
| Cost of sales | $ | $ | $ | $ | ||||||||||||
| Other income (expense), net | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net investment hedges — We periodically designate derivative contracts or underlying non-derivative financial instruments as net investment hedges. With respect to contracts designated as net investment hedges, we apply the forward method, but for non-derivative financial instruments designated as net investment hedges, we apply the spot method. Under both methods, we report changes in fair value in the cumulative translation adjustment (CTA) component of OCI during the period in which the contracts remain outstanding to the extent such contracts and non-derivative financial instruments remain effective.
Note 12. Commitments and Contingencies
Product liabilities — Accrued product liability costs were $
Environmental liabilities — Accrued environmental liabilities were $
Guarantee of lease obligations — In connection with the divestiture of our Structural Products business in 2010, leases covering U.S. facilities were assigned to a U.S. affiliate of Metalsa. Under the terms of the sale agreement, we will guarantee the affiliate’s performance under the leases, which run through June 2025, including approximately $
Other legal matters — We are subject to various pending or threatened legal proceedings arising out of the normal course of business or operations. In view of the inherent difficulty of predicting the outcome of such matters, we cannot state what the eventual outcome of these matters will be. However, based on current knowledge and after consultation with legal counsel, we believe that any liabilities that may result from these proceedings will not have a material adverse effect on our liquidity, financial condition or results of operations.
We record a liability for estimated warranty obligations at the dates our products are sold. We record the liability based on our estimate of costs to settle future claims. Adjustments to our estimated costs at time of sale are made as claim experience and other new information becomes available. Obligations for service campaigns and other occurrences are recognized as adjustments to prior estimates when the obligation is probable and can be reasonably estimated.
Changes in warranty liabilities —
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Amounts accrued for current period sales | ||||||||||||||||
| Adjustments of prior estimates | ( | ) | ||||||||||||||
| Settlements of warranty claims | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Currency impact | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
We estimate the effective tax rate expected to be applicable for the full fiscal year and use that rate to provide for income taxes in interim reporting periods. We also recognize the tax impact of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.
We have generally not recognized tax benefits on losses generated in several entities where the recent history of operating losses does not allow us to satisfy the “more likely than not” criterion for the recognition of deferred tax assets. Consequently, there is no income tax expense or benefit recognized on the pre-tax income or losses in these jurisdictions as valuation allowances are adjusted to offset the associated tax expense or benefit.
We record interest and penalties related to uncertain tax positions as a component of income tax expense. Net interest expense for the periods presented herein is not significant.
We reported income tax expense of $
Note 15. Other Income (Expense), Net
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Non-service cost components of pension and OPEB costs | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Government assistance | ||||||||||||||||
| Foreign exchange gain (loss) | ( | ) | ||||||||||||||
| Strategic transaction expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other, net | ||||||||||||||||
| Other income (expense), net | $ | $ | $ | $ | ||||||||||||
Foreign exchange gains and losses on cross-currency intercompany loan balances that are not of a long-term investment nature are included above. Foreign exchange gains and losses on intercompany loans that are permanently invested are reported in OCI.
Strategic transaction expenses relate primarily to costs incurred in connection with acquisition and divestiture related activities, including costs to complete the transaction and post-closing integration costs, and other strategic initiatives. Strategic transaction expenses in 2023 and 2022 were primarily attributable to investigating potential acquisitions and business ventures and other strategic initiatives.
Note 16. Revenue from Contracts with Customers
We generate revenue from selling production parts to original equipment manufacturers (OEMs) and service parts to OEMs and aftermarket customers. While we provide production and service parts to certain OEMs under awarded multi-year programs, these multi-year programs do not contain any commitment to volume by the customer. As such, individual customer releases or purchase orders represent the contract with the customer. Our customer contracts do not provide us with an enforceable right to payment for performance completed to date throughout the contract term. As such, we recognize part sales revenue at the point in time when the parts are shipped, and risk of loss has transferred to the customer. We have elected to continue to include shipping and handling fees billed to customers in revenue, while including costs of shipping and handling in costs of sales. Taxes collected from customers are excluded from revenues and credited directly to obligations to the appropriate government agencies. Payment terms with our customers are established based on industry and regional practices and generally do not exceed
We continually seek new business opportunities and at times provide incentives to our customers for new program awards. We evaluate the underlying economics of each payment made to our customers to determine the proper accounting by understanding the nature of the payment, the rights and obligations in the contract, and other relevant facts and circumstances. Upfront payments to our customers are capitalized if we determine that the payments are incremental and incurred only if the new business is obtained and we expect to recover these amounts from the customer over the term of the new business program. We recognize a reduction to revenue as products that the upfront payments are related to are transferred to the customer, based on the total amount of products expected to be sold over the term of the program. We evaluate the amounts capitalized each period for recoverability and expense any amounts that are no longer expected to be recovered. We had $
Certain of our customer contracts include rebate incentives. We estimate expected rebates and accrue the corresponding refund liability, as a reduction of revenue, at the time covered product is sold to the customer based on anticipated customer purchases during the rebate period and contractual rebate percentages. Refund liabilities are included in other accrued liabilities on our consolidated balance sheet. We provide standard fitness for use warranties on the products we sell, accruing for estimated costs related to product warranty obligations at time of sale. See Note 13 for additional information.
Contract liabilities are primarily comprised of cash deposits made by customers with cash in advance payment terms. Generally, our contract liabilities turn over frequently given our relatively short production cycles. Contract liabilities were $
Disaggregation of revenue —
The following table disaggregates revenue for each of our operating segments by geographical market:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Light Vehicle | ||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| South America | ||||||||||||||||
| Asia Pacific | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Commercial Vehicle | ||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| South America | ||||||||||||||||
| Asia Pacific | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Off-Highway | ||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| South America | ||||||||||||||||
| Asia Pacific | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Power Technologies | ||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| South America | ||||||||||||||||
| Asia Pacific | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Total | ||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| South America | ||||||||||||||||
| Asia Pacific | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
We are a global provider of high-technology products to virtually every major vehicle manufacturer in the world. We also serve the stationary industrial market. Our technologies include drive systems (axles, driveshafts, transmissions, and wheel and track drives); motion systems (winches, slew drives, and hub drives); electrodynamic technologies (motors, inverters, software and control systems, battery-management systems, and fuel cell plates); sealing solutions (gaskets, seals, cam covers, and oil pan modules); thermal-management technologies (transmission and engine oil cooling, battery and electronics cooling, charge air cooling, and thermal-acoustical protective shielding); and digital solutions (active and passive system controls and descriptive and predictive analytics). We serve our global light vehicle, medium/heavy vehicle and off-highway markets through
Dana evaluates the performance of its operating segments based on external sales and segment EBITDA. Segment EBITDA is a primary driver of cash flows from operations and a measure of our ability to maintain and continue to invest in our operations and provide shareholder returns. Our segments are charged for corporate and other shared administrative costs. Segment EBITDA may not be comparable to similarly titled measures reported by other companies.
Segment information —
| 2023 | 2022 | |||||||||||||||||||||||
| Three Months Ended September 30, | External Sales | Inter-Segment Sales | Segment EBITDA | External Sales | Inter-Segment Sales | Segment EBITDA | ||||||||||||||||||
| Light Vehicle | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial Vehicle | ||||||||||||||||||||||||
| Off-Highway | ||||||||||||||||||||||||
| Power Technologies | ||||||||||||||||||||||||
| Eliminations and other | ( | ) | ( | ) | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| Light Vehicle | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial Vehicle | ||||||||||||||||||||||||
| Off-Highway | ||||||||||||||||||||||||
| Power Technologies | ||||||||||||||||||||||||
| Eliminations and other | ( | ) | ( | ) | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Reconciliation of segment EBITDA to consolidated net income —
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Segment EBITDA | $ | $ | $ | $ | ||||||||||||
| Corporate expense and other items, net | ( | ) | ||||||||||||||
| Depreciation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-service cost components of pension and OPEB costs | ( | ) | ( | ) | ( | ) | ||||||||||
| Restructuring charges, net | ( | ) | ( | ) | ||||||||||||
| Stock compensation expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Strategic transaction expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Distressed supplier costs | ( | ) | ( | ) | ||||||||||||
| Impairment of goodwill | ( | ) | ( | ) | ||||||||||||
| Other items | ( | ) | ( | ) | ( | ) | ||||||||||
| Earnings (loss) before interest and income taxes | ( | ) | ||||||||||||||
| Loss on extinguishment of debt | ( | ) | ||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Earnings (loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax expense | ||||||||||||||||
| Equity in earnings (loss) of affiliates | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
We have a number of investments in entities that engage in the manufacture and supply of vehicular parts (primarily axles, axle housings and driveshafts).
Equity method investments at September 30, 2023 —
| Ownership Percentage | Investment | |||||
| Dongfeng Dana Axle Co., Ltd. | $ | |||||
| ROC-Spicer, Ltd. | ||||||
| Axles India Limited | ||||||
| Tai Ya Investment (HK) Co., Limited | ||||||
| All others as a group | ||||||
| Investments in equity affiliates | ||||||
| Investments in affiliates carried at cost | ||||||
| Investments in affiliates | $ | |||||
Item 2. 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 this report.
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.
Management Overview
Dana, with history dating back to 1904, is headquartered in Maumee, Ohio. We are a world leader in providing power-conveyance and energy-management solutions for vehicles and machinery. The company's portfolio improves the efficiency, performance, and sustainability of light vehicles, commercial vehicles, and off-highway equipment. Our technologies include drive systems (axles, driveshafts, transmissions, and wheel and track drives); motion systems (winches, slew drives, and hub drives); electrodynamic technologies (motors, inverters, software and control systems, battery-management systems, and fuel cell plates); sealing solutions (gaskets, seals, cam covers, and oil pan modules); thermal-management technologies (transmission and engine oil cooling, battery and electronics cooling, charge air cooling, and thermal-acoustical protective shielding); and digital solutions (active and passive system controls and descriptive and predictive analytics). We serve our global light vehicle, medium/heavy vehicle and off-highway markets through four business units – Light Vehicle Drive Systems (Light Vehicle), Commercial Vehicle Drive and Motion Systems (Commercial Vehicle), Off-Highway Drive and Motion Systems (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. At September 30, 2023, we employed approximately 42,000 people and operated in 31 countries.
External sales by operating segment for the periods ended September 30, 2023 and 2022 are as follows:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||||||||||||||||||
| % of |
% of |
% of |
% of |
|||||||||||||||||||||||||||||
| Dollars |
Total |
Dollars |
Total |
Dollars |
Total |
Dollars |
Total |
|||||||||||||||||||||||||
| Light Vehicle |
$ | 1,084 | 40.6 | % | $ | 1,047 | 41.3 | % | $ | 3,112 | 38.6 | % | $ | 3,060 | 40.3 | % | ||||||||||||||||
| Commercial Vehicle |
535 | 20.0 | % | 505 | 19.9 | % | 1,583 | 19.6 | % | 1,475 | 19.4 | % | ||||||||||||||||||||
| Off-Highway |
739 | 27.7 | % | 694 | 27.4 | % | 2,423 | 30.1 | % | 2,206 | 29.0 | % | ||||||||||||||||||||
| Power Technologies |
311 | 11.7 | % | 289 | 11.4 | % | 943 | 11.7 | % | 860 | 11.3 | % | ||||||||||||||||||||
| Total |
$ | 2,669 | $ | 2,535 | $ | 8,061 | $ | 7,601 | ||||||||||||||||||||||||
See Note 17 to our consolidated financial statements in Item 1 of Part I for further financial information about our operating segments.
Our internet address is www.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.
Operational and Strategic Initiatives
Our enterprise strategy builds on our strong technology foundation and leverages our resources across the organization while driving a customer-centric focus, expanding our global markets, and delivering innovative solutions as we evolve into the era of vehicle electrification.
Central to our strategy is leveraging our core operations. This foundational element enables us to infuse strong operational disciplines throughout the strategy, making it practical, actionable, and effective. It enables us to capitalize on being a major drive systems supplier across all three end mobility markets. We are achieving improved profitability by actively seeking synergies across our engineering, purchasing, and manufacturing base. We have strengthened the portfolio by acquiring critical assets, and we are utilizing our physical and intellectual capital to amplify innovation across the enterprise. Leveraging these core elements can further expand the cost efficiencies of our common technologies and deliver a sustainable competitive advantage for Dana.
Driving customer centricity continues to be at the heart of who we are. Putting our customers at the center of our value system is firmly embedded in our culture and is driving growth by focusing on customer relationships and providing value to our customers. These relationships are strengthened as we are physically located where we need to be in order to provide unparalleled service, and we are prioritizing our customers’ needs as we engineer solutions that differentiate their products, while making it easier to do business with Dana by digitizing their experience. Our customer-centric focus has uniquely positioned us to win more than our fair share of new business and capitalize on future customer outsourcing initiatives.
Expanding global markets means utilizing our global capabilities and presence to further penetrate growth markets, focusing on Asia due to its position as the largest mobility market in the world with the highest market growth rate as well as its lead in the adoption of new energy vehicles. We are investing across various avenues to increase our presence in Asia Pacific by forging new partnerships, expanding inorganically, and growing organically. We continue to operate in this region through wholly owned and joint ventures with local market partners. We have recently made acquisitions that have augmented our footprint in the region, specifically in India and China. All the while, we have been making meaningful organic investments to grow with existing and new customers, primarily in Thailand, India, and China. These added capabilities have enabled us to target the domestic Asia Pacific markets and utilize the capacity for export to other global markets. We continue to enhance and expand our global footprint, optimizing it to capture growth across all of our end markets.
Delivering innovative solutions enables us to capitalize on market growth trends as we evolve our core technology capabilities. We are also focused on enhancing our physical products with digital content to provide smart systems, and we see an opportunity to become a digital systems provider by delivering software as a service to our traditional end customers. This focus on delivering solutions based on our core technology is leading to new business wins and increasing our content per vehicle. We have made significant investments - both organically and inorganically - allowing us to move to the next phase, which is to Lead electric propulsion.
Over the last several years we continue to deliver on our goal to accelerate vehicle electrification through both core Dana technologies and targeted strategic acquisitions and are positioned today to lead the market. The nine recent investments in electrodynamic expertise and technologies combined with Dana’s longstanding mechatronics capabilities has allowed us to develop and deliver fully integrated e-Propulsion systems that are power-dense and achieve optimal efficiency through the integration of the components that we offer due to our mechatronics capabilities. With recent electric vehicle program awards, we are well on our way to achieving our growth objectives in this emerging market.
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 electric vehicles.
Capital Structure Initiatives
In addition to investing in our business, we plan to prioritize a balanced allocation of capital while maintaining a strong financial position. We continue to drive toward investment grade metrics as part of our balanced allocation approach with a 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. Through the first quarter of 2020, we had declared and paid quarterly common stock dividends for thirty-three consecutive quarters. In response to the COVID pandemic, we temporarily suspended the declaration and payment of dividends to common shareholders and the repurchase of common stock under our $200 common stock share repurchase program. With the impacts of the COVID pandemic largely behind us we resumed the declaration and payment of quarterly common stock dividends during the first quarter of 2021. In addition, we resumed the repurchase of common shares using $25 and $23 of cash to repurchase common shares under the program in 2022 and 2021, respectively. The share repurchase program expires on December 31, 2023, and $102 remains available for future share repurchases as of September 30, 2023.
Financing actions — We have taken advantage of competitive debt markets, eliminating our secured debt and extending and restructuring our senior note maturity schedule. Our current portfolio of unsecured senior notes is structured such that no more than $449 of senior notes comes due in any calendar year, with no maturities until the second quarter of 2025. We have a $1,150 revolving credit facility that matures on March 14, 2028. See Note 10 to our consolidated financial statements in Item 1 of Part I for additional information.
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. Powered by recognized brands such as Dana®, Spicer®, Spicer Electrified™, 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 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.
Acquisitions
Over the past several years we have actively grown our electric vehicle capabilities through multiple acquisitions, positioning us to deliver complete e-Propulsion systems with in-house electrodynamics. Our acquisitions of TM4 Inc. (TM4), S.M.E. S.p.A. (SME), Prestolite E-Propulsion Systems (Beijing) Limited (PEPS), Ashwoods Innovations Limited (Ashwoods), Oerlikon Drive Systems, Nordresa Motors, Inc., Rational Motion GmbH and Pi Innovo Holding Limited have enhanced our portfolio of core technologies including e-motors, power inverters, software and controls, and advance mechatronics. Our strategic partner, Hydro-Québec, owns 45% redeemable noncontrolling interests in the Dana TM4 joint venture entities. See Note 6 to our consolidated financial statements in Item 8 for additional information.
Trends in Our Markets
We serve our customers in three core global end markets: light vehicle, primarily full frame trucks and SUVs; commercial vehicle, including medium-and heavy-duty trucks and busses; and off-highway, including construction, mining, and agriculture equipment.
Each of our end-markets has unique cyclical dynamics and market drivers. These cycles are impacted by periods of investment where end-user vehicle fleets are refreshed or expanded in reaction to demand usage patterns, regulatory changes, or when the age of vehicles in service reach their useful life. Key market drivers include regional economic growth rates; cost and availability of end customer financing; industrial output; commodity production and pricing; and residential and nonresidential construction rates. Our multi-market coverage and broad customer base help provide stability across the cycles while mitigating secular variability. In 2020, all of our end-markets were impacted to varying degrees by the COVID pandemic, which initially resulted in lower demand driven by production shutdowns related to virus mitigation efforts in the regions we serve. During 2021, we generally saw improvement across all of our end markets despite production levels being muted by continued global supply chain disruptions driven in part by transportation inefficiencies and labor, commodity and semiconductor chip shortages. During 2022, we continued to see incremental improvements across our end markets despite continuing, but lessening, global supply chain disruptions.
Light vehicle markets — Our driveline business is weighted more heavily to the truck and SUV segments of the light-vehicle market versus the passenger-car segment. Our vehicle content is greater on rear-wheel drive, four-wheel drive, and all-wheel drive vehicles, as well as hybrid and electric vehicles. During 2022, light-truck markets improved across all regions and were up 6% on a global basis compared to 2021. The outlook for the full year of 2023 reflects light-truck production being relatively stable across Europe, South America and Asia Pacific. The outlook for North America is uncertain as workers represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) have commenced labor strikes against the U.S. operations of Ford Motor Company (Ford), Stellantis N.V. (Stellantis) and General Motors Company (GM).
Commercial vehicle markets — Our primary business is driveline systems for medium and heavy-duty trucks and busses, including the emerging market for hybrid and electric vehicles. Key regional markets are North America, South America (primarily Brazil) and Asia Pacific. During 2022, production of Class-8 trucks in North America increased 24% over 2021 reflecting increased demand driven by strong transport and construction activity resulting from higher freight volumes and rates and increased fleet utilization levels. The strong demand was muted by continued global supply chain disruptions. The outlook for 2023 is for continued strong demand with production moderately above 2022 levels driven by solid order backlogs. Medium-duty truck production in North America experienced a modest 3% year-over-year increase from 2021 to 2022. The outlook for 2023 is for a moderate increase in production over the prior year. Outside of North America, production of medium- and heavy-duty trucks in South America declined 3% in 2022 as demand moderated following a significant ramp up in production in 2021 with the dissipation of the COVID pandemic in the region. The 2023 outlook for South America is for a 32% decrease in production from 2022, reflecting the impact of lower year-over-year demand resulting from higher borrowing rates and 2022 pre-buy activity in advance of transition to the Euro 6 emission standard. Production of medium- and heavy-duty trucks in Asia Pacific, driven by China and India, decreased 27% in 2022 compared to 2021 due to China experiencing COVID outbreaks in certain regions and India’s continued struggles to recover from the pandemic. The 2023 outlook for Asia Pacific is for a moderate increase in production from the prior year driven by the market recovery in India gaining traction.
Off-highway markets — Our off-highway business has a large presence outside of North America, with 66% of its 2022 sales coming from products manufactured in Europe; however, a large portion of these products are utilized in vehicle production outside the region. The construction equipment segment of the off-highway market is closely related to global economic growth and infrastructure investment. The global construction equipment market continued to rebound in 2022 with production up 10% over the prior year. The outlook for 2023 is for continued modest growth. End-user investment in the mining equipment segment is driven by prices for commodity products produced by underground mining. The global mining equipment market has been mostly stable over the past several years as industry participants have maintained vehicle inventory levels to match commodity output, and this trend is expected to continue in 2023. The agriculture equipment market is the third of our key off-highway segments. Like the underground mining segment, investment in agriculture equipment is primarily driven by prices for farm commodities. Farm commodity price increases in 2022 spurred a 6% increase in agriculture equipment production. The outlook for 2023 is for global end-market demand to decrease slightly compared with the prior year.
Foreign currency — With 57% of our year-to-date 2023 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 accounted for 50% of our year-to-date 2023 non-U.S. sales, while India, Brazil and China accounted for 10%, 8% and 8%, respectively. Although sales in South Africa are less than 5% of our non-U.S. sales, the rand has been volatile and significantly impacted sales from time to time. International currencies weakened against the U.S. dollar in the first nine months of 2023, decreasing sales by $54. A weaker Indian rupee, South African rand and Chinese renminbi were partially offset by a stronger euro.
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 the first nine months of 2023 of approximately $141 are 2% of our consolidated sales and our net asset exposure related to Argentina was approximately $56, including $20 of net fixed assets, at September 30, 2023. 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.
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, brass and rare earth materials. 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, batteries and component parts that include commodities. 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. Higher commodity prices decreased year-over-year earnings by $447 in 2022. Material recovery pricing actions increased year-over-year earnings by $446 in 2022. Lower commodity prices increased earnings during the third quarter and first nine months of 2023 by $10 and $45, respectively. Material cost recovery pricing actions decreased earnings in the third quarter of 2023 by $9 and increased earnings in the first nine months of 2023 by $6.
Sales, Earnings and Cash Flow Outlook
| 2023 Outlook |
2022 |
2021 |
||||||||||
| Sales |
$10,200 - $10,700 |
$ | 10,156 | $ | 8,945 | |||||||
| Adjusted EBITDA |
$760 - $850 |
$ | 700 | $ | 795 | |||||||
| Net cash provided by operating activities |
$375 - $490 | $ | 649 | $ | 158 | |||||||
| Purchases of property, plant and equipment |
~5% of sales | $ | 440 | $ | 369 | |||||||
| Free cash flow |
$(135) - $(20) | $ | 209 | $ | (211 | ) | ||||||
Adjusted EBITDA and 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.
Ford, Stellantis and GM's contracts with employees represented by the UAW expired on September 14, 2023. Beginning on September 15, 2023, the UAW commenced labor strikes at certain U.S. operations of Ford, Stellantis and GM. We have experienced a decrease in order volumes from Ford and Stellantis resulting from the impact of the UAW’s labor strike activities which has caused us to curtail operations at certain of our U.S. manufacturing and assembly operations. Our 2023 outlook for sales, adjusted EBITDA and free cash flow have been updated to reflect the impact of the UAW’s labor strike activities. The low ends of our updated outlook ranges reflect UAW labor strike activities continuing through December 31, 2023 and the upper ends reflect UAW labor strike activities continuing through October 31, 2023.
Summary Consolidated Results of Operations (Third Quarter, 2023 versus 2022)
| Three Months Ended September 30, |
||||||||||||||||||||
| 2023 |
2022 |
|||||||||||||||||||
| Dollars |
% of Net Sales |
Dollars |
% of Net Sales |
Increase/ (Decrease) |
||||||||||||||||
| Net sales |
$ | 2,669 | $ | 2,535 | $ | 134 | ||||||||||||||
| Cost of sales |
2,433 | 91.2 | % | 2,332 | 92.0 | % | 101 | |||||||||||||
| Gross margin |
236 | 8.8 | % | 203 | 8.0 | % | 33 | |||||||||||||
| Selling, general and administrative expenses |
126 | 4.7 | % | 114 | 4.5 | % | 12 | |||||||||||||
| Amortization of intangibles |
3 | 3 | — | |||||||||||||||||
| Restructuring charges, net |
17 | (1 | ) | 18 | ||||||||||||||||
| Impairment of goodwill |
(191 | ) | 191 | |||||||||||||||||
| Other income (expense), net |
1 | 3 | (2 | ) | ||||||||||||||||
| Earnings (loss) before interest and income taxes |
91 | (101 | ) | 192 | ||||||||||||||||
| Interest income |
5 | 2 | 3 | |||||||||||||||||
| Interest expense |
41 | 32 | 9 | |||||||||||||||||
| Earnings (loss) before income taxes |
55 | (131 | ) | 186 | ||||||||||||||||
| Income tax expense |
33 | 31 | 2 | |||||||||||||||||
| Equity in earnings (loss) of affiliates |
3 | (1 | ) | 4 | ||||||||||||||||
| Net income (loss) |
25 | (163 | ) | 188 | ||||||||||||||||
| Less: Noncontrolling interests net income |
8 | 4 | 4 | |||||||||||||||||
| Less: Redeemable noncontrolling interests net loss |
(2 | ) | (79 | ) | 77 | |||||||||||||||
| Net income (loss) attributable to the parent company |
$ | 19 | $ | (88 | ) | $ | 107 | |||||||||||||
Sales — The following table shows changes in our sales by geographic region.
| Three Months Ended |
||||||||||||||||||||||||
| September 30, |
Amount of Change Due To |
|||||||||||||||||||||||
| 2023 |
2022 |
Increase/ (Decrease) | Currency Effects |
Acquisitions (Divestitures) | Organic Change |
|||||||||||||||||||
| North America |
$ | 1,240 | $ | 1,250 | $ | (10 | ) | $ | 1 | $ | — | $ | (11 | ) | ||||||||||
| Europe |
829 | 698 | 131 | 40 | 91 | |||||||||||||||||||
| South America |
193 | 219 | (26 | ) | 8 | (34 | ) | |||||||||||||||||
| Asia Pacific |
407 | 368 | 39 | (7 | ) | 46 | ||||||||||||||||||
| Total |
$ | 2,669 | $ | 2,535 | $ | 134 | $ | 42 | $ | — | $ | 92 | ||||||||||||
Sales in the third quarter of 2023 were $134 higher than in 2022. Stronger international currencies increased sales by $42, principally due to a stronger euro and Brazilian real, partially offset by a weaker Chinese renminbi and South African rand. The organic sales increase of $92, or 4%, resulted from improved global construction/mining equipment markets, improved commercial vehicle demand primarily in North America and Europe, higher global light-truck and light-vehicle engine production and the conversion of sales backlog. Pricing actions and recoveries, including material commodity price and inflationary cost adjustments, increased sales by $81.
The North America organic sales decrease of 1% was driven principally by a full-frame light-truck customer program that ended in 2022 and lower light-truck production levels, partially offset by stronger medium/heavy-truck production volumes, higher light-vehicle engine production levels and the conversion of sales backlog. Third quarter 2023 full-frame light-truck production was down 12% while light-vehicle engine production was up 6% compared to the third quarter of 2022. Year-over-year Class 8 truck production was up 3% while Classes 5-7 truck production was up 9%. Excluding currency effects, sales in Europe were up 13% compared with 2022. With our significant Off-Highway presence in the region, a stronger construction/mining equipment market was a major factor. The year-over-year organic sales increase in Europe for this operating segment was 7% compared with the third quarter of 2022. Sales in Europe also benefited from higher year-over-year light-truck and medium/heavy-truck production of 16% and 20%, respectively. Excluding currency effects, third quarter sales in South America were 16% lower than 2022 reflecting lower medium/heavy-truck production. Year-over-year South America medium/heavy-truck production was 38% lower than the third quarter of 2022. Excluding currency effects, sales in Asia Pacific increased 13% compared to 2022 due to higher light-truck and medium/heavy-truck production volumes.
Cost of sales and gross margin — Cost of sales for the third quarter of 2023 increased $101, or 4%, when compared to 2022. Cost of sales as a percent of sales was 80 basis points lower than in the previous year. Incremental margins provided by increased sales volumes, material cost savings of $30, lower commodity costs of $10 and lower premium freight of $18 were partially offset by non-material inflationary cost impacts of $62, higher warranty expense of $7, higher program launch costs of $6 and higher spending on electrification initiatives of $8. Commodity costs are primarily driven by certain grades of steel and aluminum. Non-material inflation includes higher labor, energy and transportation rates.
Gross margin of $236 for the third quarter of 2023 increased $33 from 2022. Gross margin as a percent of sales was 8.8% in the third quarter of 2023, 80 basis points higher than in 2022. The improvement in gross margin as a percent of sales was driven principally by the cost of sales factors referenced above. Material cost recovery mechanisms with our customers lag material cost changes by our suppliers by approximately 90 days. With commodity costs abating slightly during the third quarter of 2023, gross margin was positively impacted by net material cost recoveries on both a dollar and percentage basis. The recovery of non-material inflation is not specifically provided for in our current contracts with customers resulting in prolonged negotiations and indeterminate recoveries.
Selling, general and administrative expenses (SG&A) — SG&A expenses in the third quarter of 2023 were $126 (4.7% of sales) as compared to $114 (4.5% of sales) in the third quarter of 2022. SG&A expenses were $12 higher in the third quarter of 2023 primarily due to higher salaried employee wages and incentive compensation and increased software technology investments.
Amortization of intangibles — Amortization expense was $3 in both the third quarter of 2023 and the third quarter of 2022. See Note 2 of our consolidated financial statements in Item 1 of Part I for additional information.
Restructuring charges, net — Net restructuring charges were $17 in the third quarter of 2023 and ($1) in the third quarter of 2022. See Note 3 of our consolidated financial statements in Item 1 of Part I for additional information.
Impairment of goodwill — During the third quarter of 2022, we evaluated macro-economic conditions, including the impact of the Federal Reserve further increasing the risk-free interest rate, as well as the negative impact of sustained higher commodity costs, non-material cost increases and operational inefficiencies attributable to continued global supply chain disruptions. We believe that these conditions were factors in our market capitalization falling below the book value of net assets as of September 30, 2022. Accordingly, we concluded a triggering event had occurred and performed interim goodwill impairment analyses for our Commercial Vehicle reporting unit. Based on the results of our interim impairment analysis, we concluded that the carrying value exceeded fair value of our Commercial Vehicle reporting unit and we recorded a goodwill impairment charge of $191, representing a full impairment of goodwill assigned to the Commercial Vehicle reporting unit.
Other income (expense), net — The following table shows the major components of other income (expense), net.
| Three Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Non-service cost components of pension and OPEB costs |
$ | (4 | ) | $ | — | |||
| Government assistance |
4 | |||||||
| Foreign exchange loss |
(1 | ) | ||||||
| Strategic transaction expenses |
(2 | ) | (1 | ) | ||||
| Other, net |
4 | 4 | ||||||
| Other income (expense), net |
$ | 1 | $ | 3 | ||||
Strategic transaction expenses relate primarily to costs incurred in connection with acquisition and divestiture related activities, including costs to complete the transaction and post-closing integration costs, and other strategic initiatives. Strategic transaction expenses in the third quarter of 2023 and 2022 were primarily attributable to investigating potential acquisitions and business ventures and other strategic initiatives.
Loss on extinguishment of debt — On June 9, 2023 we redeemed $200 of our April 2025 Notes. The $1 loss on extinguishment of debt is comprised of the write-off of previously deferred financing costs associated with the April 2025 Notes. See Note 10 of our consolidated financial statements in Item 1 of Part I for additional information.
Interest income and interest expense — Interest income increased from $2 in the third quarter of 2022 to $5 in third quarter of 2023, due to higher average cash balances and higher interest rates being paid on cash deposits. Interest expense increased from $32 in the third quarter of 2022 to $41 in the third quarter of 2023, due to higher average debt levels and higher interest rates on outstanding borrowings. Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 6.1% in the third quarter of 2023 and 4.8% in the third quarter of 2022.
Income tax expense — We reported income tax expense of $33 and $31 for the third quarter of 2023 and 2022, respectively. Our effective tax rates were 60% and (24)% for the third quarter of 2023 and 2022. During the third quarter of 2022, we recorded a pre-tax goodwill impairment charge of $191 with an associated income tax benefit of $2. In addition, we recorded tax benefit of $32 for U.S. tax credits generated. Also, during the third quarter of 2022, we recorded tax expense of $31 for valuation allowances related to U.S. states driven by differences between our federal and state tax profile. Our effective income tax rates vary from the U.S. federal statutory rate of 21% due to establishment, release and adjustment of valuation allowances in several countries outside the U.S., different statutory tax rates outside the U.S. and withholding taxes related to repatriations of international earnings. The effective income tax rate may vary significantly due to fluctuations in the amounts and sources, both foreign and domestic, of pretax income and changes in the amounts of nondeductible expenses.
Equity in earnings of affiliates — Net earnings (loss) from equity investments was earnings of $3 in the third quarter of 2023 and a loss of $1 in the third quarter of 2022. Net earnings (loss) from DDAC were earnings of $1 in the third quarter of 2023 and a loss of $3 in the third quarter of 2022.
Summary Consolidated Results of Operations (Year-to-Date, 2023 versus 2022)
| Nine Months Ended September 30, |
||||||||||||||||||||
| 2023 |
2022 |
|||||||||||||||||||
| Dollars |
% of Net Sales |
Dollars |
% of Net Sales |
Increase/ (Decrease) |
||||||||||||||||
| Net sales |
$ | 8,061 | $ | 7,601 | $ | 460 | ||||||||||||||
| Cost of sales |
7,325 | 90.9 | % | 7,018 | 92.3 | % | 307 | |||||||||||||
| Gross margin |
736 | 9.1 | % | 583 | 7.7 | % | 153 | |||||||||||||
| Selling, general and administrative expenses |
410 | 5.1 | % | 374 | 4.9 | % | 36 | |||||||||||||
| Amortization of intangibles |
10 | 10 | — | |||||||||||||||||
| Restructuring charges, net |
21 | (1 | ) | 22 | ||||||||||||||||
| Impairment of goodwill |
(191 | ) | 191 | |||||||||||||||||
| Other income (expense), net |
10 | 15 | (5 | ) | ||||||||||||||||
| Earnings before interest and income taxes |
305 | 24 | 281 | |||||||||||||||||
| Loss on extinguishment of debt |
(1 | ) | (1 | ) | ||||||||||||||||
| Interest income |
14 | 6 | 8 | |||||||||||||||||
| Interest expense |
114 | 95 | 19 | |||||||||||||||||
| Earnings (loss) before income taxes |
204 | (65 | ) | 269 | ||||||||||||||||
| Income tax expense |
118 | 67 | 51 | |||||||||||||||||
| Equity in earnings (loss) of affiliates |
6 | (1 | ) | 7 | ||||||||||||||||
| Net income (loss) |
92 | (133 | ) | 225 | ||||||||||||||||
| Less: Noncontrolling interests net income |
17 | 11 | 6 | |||||||||||||||||
| Less: Redeemable noncontrolling interests net loss |
(2 | ) | (81 | ) | 79 | |||||||||||||||
| Net income (loss) attributable to the parent company |
$ | 77 | $ | (63 | ) | $ | 140 | |||||||||||||
Sales — The following table shows changes in our sales by geographic region.
| Nine Months Ended |
||||||||||||||||||||||||
| September 30, |
Amount of Change Due To |
|||||||||||||||||||||||
| 2023 |
2022 |
Increase/ (Decrease) |
Currency Effects |
Acquisitions (Divestitures) |
Organic Change |
|||||||||||||||||||
| North America |
$ | 3,689 | $ | 3,689 | $ | - | $ | (1 | ) | $ | - | $ | 1 | |||||||||||
| Europe |
2,696 | 2,286 | 410 | (7 | ) | 417 | ||||||||||||||||||
| South America |
532 | 584 | (52 | ) | 4 | (56 | ) | |||||||||||||||||
| Asia Pacific |
1,144 | 1,042 | 102 | (50 | ) | 152 | ||||||||||||||||||
| Total |
$ | 8,061 | $ | 7,601 | $ | 460 | $ | (54 | ) | $ | - | $ | 514 | |||||||||||
Sales in 2023 were $460 higher than in 2022. Weaker international currencies decreased sales by $54, principally due to a weaker Indian rupee, South African rand and Chinese renminbi, partially offset by a stronger euro. The organic sales increase of $514, or 7%, resulted from improved global construction/mining equipment markets, improved commercial vehicle demand primarily in North America and Europe, higher global light-truck and light-vehicle engine production and the conversion of sales backlog. Pricing actions and recoveries, including material commodity price and inflationary cost adjustments, increased sales by $317.
Year-over-year North America sales were flat with stronger medium/heavy-truck production volumes, higher light-vehicle engine production levels and the conversion of sales backlog, offset by a full-frame light-truck customer program that ended in 2022 and lower light-truck production volumes. Year-over-year light-vehicle engine production was up 13% compared to the first nine months of 2022. Year-over-year Class 8 truck production was up 10% while Classes 5-7 truck production was up 13%. Year-over-year full-frame light-truck production volumes were down 1% compared to the first nine months of 2022. Excluding currency effects, sales in Europe were up 18% compared with 2022. With our significant Off-Highway presence in the region, a stronger construction/mining equipment market was a major factor. The year-over-year organic sales increase in Europe for this operating segment was 14% compared with the first nine months of 2022. Sales in Europe also benefited from higher year-over-year light-truck and medium/heavy-truck production of 20% and 23%, respectively. Excluding currency effects, first nine months sales in South America were 10% lower than 2022 reflecting lower medium/heavy-truck production. Year-over-year South America medium/heavy-truck production was 31% lower than the first nine months of 2022. Excluding currency effects, sales in Asia Pacific increased 15% compared to 2022 due to a strong construction/mining equipment market and higher light-truck and medium/heavy-truck production volumes.
Cost of sales and gross margin — Cost of sales for the first nine months of 2023 increased $307, or 4%, when compared to 2022. Cost of sales as a percent of sales was 140 basis points lower than in the previous year. Incremental margins provided by increased sales volumes, material cost savings of $91, lower commodity costs of $45 and lower premium freight of $39 were partially offset by non-material inflationary cost impacts of $220, higher warranty expense of $21, higher program launch costs of $24 and operational inefficiencies primarily attributed to continued global supply chain disruptions and frequent customer order changes made with little to no advance notification. Commodity cost are primarily driven by certain grades of steel and aluminum. Non-material inflation includes higher labor, energy and transportation rates.
Gross margin of $736 for the first nine months of 2023 increased $153 from 2022. Gross margin as a percent of sales was 9.1% in the first nine months of 2023, 140 basis points higher than in 2022. The improvement in gross margin as a percent of sales was driven principally by the cost of sales factors referenced above. Material cost recovery mechanisms with our customers lag material cost changes by our suppliers by approximately 90 days. With commodity costs abating slightly during the first nine of 2023, gross margin was positively impacted by net material cost recoveries on both a dollar and percentage basis. The recovery of non-material inflation is not specifically provided for in our current contracts with customers resulting in prolonged negotiations and indeterminate recoveries.
Selling, general and administrative expenses (SG&A) — SG&A expenses in 2023 were $410 (5.1% of sales) as compared to $374 (4.9% of sales) in 2022. SG&A expenses were $36 higher in 2023 primarily due to higher salaried employee wages and incentive compensation, increased software technology investments and marketing expenses.
Amortization of intangibles — Amortization expense was $10 in both 2023 and 2022. See Note 2 of our consolidated financial statements in Item 1 of Part I for additional information.
Restructuring charges, net — Net restructuring charges were $21 in the first nine months of 2023 and ($1) in the first nine months of 2022. See Note 3 of our consolidated financial statements in Item 1 of Part I for additional information.
Impairment of goodwill — During the third quarter of 2022, we evaluated macro-economic conditions, including the impact of the Federal Reserve further increasing the risk-free interest rate, as well as the negative impact of sustained higher commodity costs, non-material cost increases and operational inefficiencies attributable to continued global supply chain disruptions. We believe that these conditions were factors in our market capitalization falling below the book value of net assets as of September 30, 2022. Accordingly, we concluded a triggering event had occurred and performed interim goodwill impairment analyses for our Commercial Vehicle reporting unit. Based on the results of our interim impairment analysis, we concluded that the carrying value exceeded fair value of our Commercial Vehicle reporting unit and we recorded a goodwill impairment charge of $191, representing a full impairment of goodwill assigned to the Commercial Vehicle reporting unit.
Other income (expense), net — The following table shows the major components of other income (expense), net.
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Non-service cost components of pension and OPEB costs |
$ | (10 | ) | $ | (3 | ) | ||
| Government assistance |
12 | |||||||
| Foreign exchange gain |
4 | |||||||
| Strategic transaction expenses |
(4 | ) | (6 | ) | ||||
| Other, net |
12 | 20 | ||||||
| Other income (expense), net |
$ | 10 | $ | 15 | ||||
Strategic transaction expenses relate primarily to costs incurred in connection with acquisition and divestiture related activities, including costs to complete the transaction and post-closing integration costs, and other strategic initiatives. Strategic transaction expenses in 2023 and 2022 were primarily attributable to investigating potential acquisitions and business ventures and other strategic initiatives.
Loss on extinguishment of debt — On June 9, 2023 we redeemed $200 of our April 2025 Notes. The $1 loss on extinguishment of debt is comprised of the write-off of previously deferred financing costs associated with the April 2025 Notes. See Note 10 of our consolidated financial statements in Item 1 of Part I for additional information.
Interest income and interest expense — Interest income increased from $6 in 2022 to $14 in 2023, due to higher average cash balances and higher interest rates being paid on cash deposits. Interest expense increased from $95 in 2022 to $114 in 2023, due to higher average debt levels and higher interest rates on outstanding borrowings. Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.6% in 2023 and 4.7% in 2022.
Income tax expense — We reported income tax expense of $118 and $67 for 2023 and 2022, respectively. Our effective tax rates were 58% and (103)% for the first nine months of 2023 and 2022. During the second quarter of 2023, we recorded tax expense of $19 for income tax reserves associated with prior tax years in foreign jurisdictions. During the third quarter of 2022, we recorded a pre-tax goodwill impairment charge of $191 with an associated income tax benefit of $2. In addition, we recorded a tax benefit of $32 for U.S. tax credits generated. Also, during the third quarter of 2022, we recorded tax expense of $31 for valuation allowances related to U.S. states driven by differences between our federal and state tax profile. Our effective income tax rates vary from the U.S. federal statutory rate of 21% due to establishment, release and adjustment of valuation allowances in several countries outside the U.S., different statutory tax rates outside the U.S. and withholding taxes related to repatriations of international earnings. The effective income tax rate may vary significantly due to fluctuations in the amounts and sources, both foreign and domestic, of pretax income and changes in the amounts of nondeductible expenses.
Equity in earnings of affiliates — Net earnings (loss) from equity investments was earnings of $6 in 2023 and a loss of $1 in 2022. Net earnings (loss) from DDAC was earnings of $1 in 2023 and a loss of $5 in 2022.
Segment Results of Operations (2023 versus 2022)
Light Vehicle
| Three Months |
Nine Months |
|||||||||||||||||||||||
| Sales |
Segment EBITDA |
Segment EBITDA Margin |
Sales |
Segment EBITDA |
Segment EBITDA Margin |
|||||||||||||||||||
| 2022 |
$ | 1,047 | $ | 60 | 5.7 | % | $ | 3,060 | $ | 124 | 4.1 | % | ||||||||||||
| Volume and mix |
3 | 2 | (23 | ) | (5 | ) | ||||||||||||||||||
| Performance |
34 | 13 | 109 | 76 | ||||||||||||||||||||
| Currency effects |
(34 | ) | (5 | ) | ||||||||||||||||||||
| 2023 |
$ | 1,084 | $ | 75 | 6.9 | % | $ | 3,112 | $ | 190 | 6.1 | % | ||||||||||||
Light Vehicle sales in the third quarter of 2023, exclusive of currency effects, were 4% higher than 2022 reflecting mixed global markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions, partially offset by a customer program ending in 2022. Year-over-year North America full-frame light-truck production decreased 12% in this year’s third quarter while light-truck production in Europe and Asia Pacific increased 16% and 2%, respectively, while light-truck production in South America decreased 4%. Light Vehicle sales in the first nine months of 2023, exclusive of currency effects, were 3% higher than 2022 reflecting generally stronger global markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions, partially offset by a customer program ending in 2022. Year-over-year North America full-frame light-truck production decreased 1% in this year’s first nine months while light-truck production in Europe, South America and Asia Pacific increased 20%, 8% and 10%, respectively. Net customer pricing and cost recovery actions increased year-over-year sales by $34 and $109 in this year’s third quarter and first nine months, respectively.
Light Vehicle segment EBITDA increased $15 and $66 in the third quarter and first nine months of 2023, respectively, from the comparable periods of 2022. Higher sales volumes provided a year-over-year benefit of $2 (67% incremental margin) in the third quarter of 2023. Lower sales volumes decreased year-over-year earnings by $5 (22% decremental margin) in the first nine months of 2023. Year-over-year performance-related earnings increases in the third quarter were driven by net customer pricing and cost recovery actions of $34, material cost savings of $10, lower premium freight costs of $9 and operational efficiencies of $16. Partially offsetting these performance-related increases were inflationary cost increases of $49, higher incentive compensation of $4, higher spending on electrification initiatives of $2 and commodity cost increases of $1. The year-over-year performance-related earnings increases in the first nine months were driven by net customer pricing and cost recovery actions of $109, commodity cost decreases of $43, material costs savings of $30, lower premium freight costs of $15 and operational efficiencies of $29. Partially offsetting these performance-related earnings increases were inflationary cost increases of $123, higher incentive compensation of $10, higher program launch costs of $8, higher warranty expense of $7 and higher spending on electrification initiatives of $2.
Commercial Vehicle
| Three Months |
Nine Months |
|||||||||||||||||||||||
| Sales |
Segment EBITDA |
Segment EBITDA Margin |
Sales |
Segment EBITDA |
Segment EBITDA Margin |
|||||||||||||||||||
| 2022 |
$ | 505 | $ | 18 | 3.6 | % | $ | 1,475 | $ | 38 | 2.6 | % | ||||||||||||
| Volume and mix |
1 | 10 | 41 | 20 | ||||||||||||||||||||
| Performance |
19 | 1 | 70 | 19 | ||||||||||||||||||||
| Currency effects |
10 | (3 | ) | (3 | ) | |||||||||||||||||||
| 2023 |
$ | 535 | $ | 29 | 5.4 | % | $ | 1,583 | $ | 74 | 4.7 | % | ||||||||||||
Commercial Vehicle sales in the third quarter of 2023, exclusive of currency effects, were 4% higher than 2022 reflecting improved North America and Europe markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions, partially offset by a weaker South America market. Year-over-year North America Class 8 production was up 3% while Classes 5-7 was up 9% in this year’s third quarter. Year-over-year medium/heavy-truck production in Europe was up 20% while medium/heavy-truck production in South America was down 38%. Commercial Vehicles sales in the first nine months of 2023, exclusive of currency effects, were 8% higher than 2022 reflecting improved North America and Europe markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions, partially offset by a weaker South America market. Year-over-year North America Class 8 production was up 10% while Classes 5-7 was up 13% in this year’s first nine months. Year-over-year medium/heavy-truck production in Europe was up 23% while medium/heavy-truck production in South America was down 31%. Net customer pricing and cost recovery actions increased year-over-year sales by $19 and $70 in this year’s third quarter and first nine months, respectively.
Commercial Vehicle segment EBITDA increased $11 and $36 in the third quarter and first nine months of 2023, respectively, from the comparable periods of 2022. Year-over-year third-quarter earnings improved by $10 on $1 of higher sales volumes due to improved product mix. Higher sales volumes and improved product mix provided a year-over-year earnings increase of $20 (49% incremental margin) in the first nine months of 2023. Year-over-year performance-related earnings increases in the third quarter were driven by net customer pricing and cost recovery actions of $19, material cost savings of $9, lower premium freight costs of $4, lower spending on electrification initiatives of $3 and commodity cost decreases of $2. Largely offsetting these performance-related earnings increases were operational inefficiencies of $23, inflationary cost increases of $4, higher incentive compensation of $3, higher program launch costs of $3 and higher warranty costs of $3. Year-over-year performance-related earnings increases in the first nine months were driven by net customer pricing and cost recovery actions of $70, material cost savings of $26, lower spending on electrification initiatives of $16 and lower premium freight costs of $10. Partially offsetting these performance-related earnings increases were operational inefficiencies of $60, inflationary cost increases of $19, higher program launch costs of $9, higher incentive compensation of $7, higher warranty costs of $5 and commodity cost increases of $3.
Off-Highway
| Three Months |
Nine Months |
|||||||||||||||||||||||
| Sales |
Segment EBITDA |
Segment EBITDA Margin |
Sales |
Segment EBITDA |
Segment EBITDA Margin |
|||||||||||||||||||
| 2022 |
$ | 694 | $ | 91 | 13.1 | % | $ | 2,206 | $ | 291 | 13.2 | % | ||||||||||||
| Volume and mix |
5 | 5 | 133 | 37 | ||||||||||||||||||||
| Performance |
14 | 11 | 97 | 35 | ||||||||||||||||||||
| Currency effects |
26 | 3 | (13 | ) | (4 | ) | ||||||||||||||||||
| 2023 |
$ | 739 | $ | 110 | 14.9 | % | $ | 2,423 | $ | 359 | 14.8 | % | ||||||||||||
Off-Highway sales in the third quarter and first nine months of 2023, exclusive of currency effects, were 3% and 10% higher than the same period of 2022, respectively, reflecting strong global markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions. Year-over-year global construction/mining equipment markets increased 11% while global agricultural equipment markets were relatively stable with production decreasing 2% in this year’s third quarter. Year-over-year global construction/mining equipment markets increased 11% while global agricultural equipment markets were relatively stable with production decreasing 2% in this year’s first nine months. Net customer pricing and cost recovery actions increased year-over-year sales by $14 and $97 in this year’s third quarter and first nine months, respectively.
Off-Highway segment EBITDA increased $19 and $68 in the third quarter and first nine months of 2023, respectively, from the comparable periods of 2022. Higher sales volumes and improved product mix provided a year-over-year earnings benefit of $5 (100% incremental margin) in the third quarter of 2023. Higher sales volumes provided a year-over-year earnings benefit of $37 (28% incremental margin) in the first nine months of 2023. Year-over-year performance-related earnings increases in the third quarter were driven by net customer pricing and cost recovery actions of $14, material cost savings of $8, commodity cost decreases of $8 and lower premium freight costs of $3. Partially offsetting these performance-related earnings increases were inflationary cost increases of $11, operational inefficiencies of $4, higher warranty expenses of $3, higher incentive compensation of $3 and higher spending on electrification initiatives of $1. Year-over-year performance-related earnings increases in the first nine months of 2023 were driven by net customer pricing and cost recovery actions of $97, material cost savings of $26, lower premium freight costs of $10 and commodity cost decreases of $8. Partially offsetting these performance-related earnings increases were inflationary cost increases of $75, operational inefficiencies of $14, higher warranty expenses of $8, higher incentive compensation of $7 and higher spending on electrification initiatives of $2.
Power Technologies
| Three Months |
Nine Months |
|||||||||||||||||||||||
| Sales |
Segment EBITDA |
Segment EBITDA Margin |
Sales |
Segment EBITDA |
Segment EBITDA Margin |
|||||||||||||||||||
| 2022 |
$ | 289 | $ | 21 | 7.3 | % | $ | 860 | $ | 71 | 8.3 | % | ||||||||||||
| Volume and mix |
2 | (9 | ) | 46 | (4 | ) | ||||||||||||||||||
| Performance |
14 | 15 | 41 | 3 | ||||||||||||||||||||
| Currency effects |
6 | 1 | (4 | ) | ||||||||||||||||||||
| 2023 |
$ | 311 | $ | 28 | 9.0 | % | $ | 943 | $ | 70 | 7.4 | % | ||||||||||||
Power Technologies primarily serves the light-vehicle market but also sells product to the medium/heavy-truck and off-highway markets. Power Technologies sales in the third quarter and first nine months of 2023, exclusive of currency effects, were 6% and 10% higher than the same periods of 2022, respectively, reflecting improved North America and Europe markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions. Year-over-year North America light-vehicle engine production was up 6% and 13% compared to the third quarter and first nine months of 2022, respectively. Year-over-year Europe light-vehicle engine production was up 6% and 12% compared to the third quarter and first nine months of 2022, respectively. Net customer pricing and cost recovery actions increased year-over-year sales by $14 and $41 in this year’s third quarter and first nine months, respectively.
Power Technologies segment EBITDA increased $7 and decreased $1 in the third quarter and first nine months of 2023, respectively, from the comparable periods of 2022. Unfavorable product mix resulted in decremental margins on higher year-over-year sales volumes in both the third quarter and first nine months of 2023. Year-over-year performance-related earnings increases in the third quarter were driven by net customer pricing and cost recovery actions of $14, operational efficiencies of $8, material cost savings of $3, lower premium freight costs of $2 and commodity cost decreases of $1. Partially offsetting these performance-related earnings increases were inflationary cost increases of $4, higher program launch costs of $3, increased spending on electrification initiatives of $3, higher incentive compensation of $2 and higher warranty expenses of $1. Year-over-year performance-related earnings increases in the first nine months were driven by net customer pricing and cost recovery actions of $41, material cost savings of $9 and lower premium freight costs of $4. Partially offsetting these performance-related earnings increases were inflationary cost increases of $25, higher program launch costs of $7, higher incentive compensation of $5, increased spending on electrification initiatives of $5, operational inefficiencies of $5, commodity cost increases of $3 and higher warranty expenses of $1.
Non-GAAP Financial Measures
Adjusted EBITDA
We have defined adjusted EBITDA as net income (loss) before interest, income taxes, depreciation, amortization, equity grant expense, restructuring expense, non-service cost components of pension and other postretirement benefits (OPEB) costs and other adjustments not related to our core operations (gain/loss on debt extinguishment, pension settlements, divestitures, impairment, etc.). Adjusted EBITDA is a measure of our ability to maintain and continue to invest in our operations and provide shareholder returns. We use adjusted EBITDA in assessing the effectiveness of our business strategies, evaluating and pricing potential acquisitions and as a factor in making incentive compensation decisions. In addition to its use by management, we also believe adjusted EBITDA is a measure widely used by securities analysts, investors and others to evaluate financial performance of our company relative to other Tier 1 automotive suppliers. Adjusted EBITDA should not be considered a substitute for earnings (loss) before income taxes, net income (loss) or other results reported in accordance with GAAP. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
The following table provides a reconciliation of net income to adjusted EBITDA.
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
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| Net income (loss) |
$ | 25 | $ | (163 | ) | $ | 92 | $ | (133 | ) | ||||||
| Equity in earnings (loss) of affiliates |
3 | (1 | ) | 6 | (1 | ) | ||||||||||
| Income tax expense |
33 | 31 | 118 | 67 | ||||||||||||
| Earnings (loss) before income taxes |
55 | (131 | ) | 204 | (65 | ) | ||||||||||
| Depreciation and amortization |
107 | 94 | 304 | 287 | ||||||||||||
| Restructuring charges, net |
17 | (1 | ) | 21 | (1 | ) | ||||||||||
| Interest expense, net |
36 | 30 | 100 | 89 | ||||||||||||
| Loss on extinguishment of debt |
1 | |||||||||||||||
| Distressed supplier costs |
14 | 26 | ||||||||||||||
| Impairment of goodwill |
191 | 191 | ||||||||||||||
| Other* |
13 | 9 | 33 | 23 | ||||||||||||
| Adjusted EBITDA |
$ | 242 | $ | 192 | $ | 689 | $ | 524 | ||||||||
| * | Other includes stock compensation expense, non-service cost components of pension and OPEB costs, strategic transaction expenses and other items. See Note 17 to our consolidated financial statements in Item 1 of Part I for additional details. |
Free Cash Flow
We have defined free cash flow as cash provided by operating activities less purchases of property, plant and equipment. We believe free cash flow is useful to investors in evaluating the operational cash flow of the company inclusive of the spending required to maintain the operations. Free cash flow is not intended to represent nor be an alternative to the measure of net cash provided by operating activities reported in accordance with GAAP. Free cash flow may not be comparable to similarly titled measures reported by other companies.
The following table reconciles net cash flows provided by operating activities to free cash flow.
| Three Months Ended |
Nine Months Ended |
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| September 30, |
September 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Net cash provided by operating activities |
$ | 112 | $ | 171 | $ | 198 | $ | 307 | ||||||||
| Purchases of property, plant and equipment |
(117 | ) | (94 | ) | (359 | ) | (300 | ) | ||||||||
| Free cash flow |
(5 | ) | 77 | (161 | ) | 7 | ||||||||||
Liquidity
The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at September 30, 2023:
| Cash and cash equivalents |
$ | 421 | ||
| Less: Deposits supporting obligations |
— | |||
| Available cash |
421 | |||
| Additional cash availability from Revolving Facility |
1,141 | |||
| Total liquidity |
$ | 1,562 |
We had availability of $1,141 at September 30, 2023 under our Revolving Facility after deducting $9 of outstanding letters of credit.
The components of our September 30, 2023 consolidated cash balance were as follows:
| U.S. |
Non-U.S. |
Total |
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| Cash and cash equivalents |
$ | — | $ | 321 | $ | 321 | ||||||
| Cash and cash equivalents held at less than wholly-owned subsidiaries |
1 | 99 | 100 | |||||||||
| Consolidated cash balance |
$ | 1 | $ | 420 | $ | 421 | ||||||
A portion of the non-U.S. cash and cash equivalents is utilized for working capital and other operating purposes. Several countries have local regulatory requirements that restrict the ability of our operations to repatriate this cash. Beyond these restrictions, there are practical limitations on repatriation of cash from certain subsidiaries because of the resulting tax withholdings and subsidiary by-law restrictions which could limit our ability to access cash and other assets.
On March 14, 2023, we amended our credit and guaranty agreement, extending its maturity to March 14, 2028.
At September 30, 2023, we were in compliance with the covenants of our financing agreements. Under the Revolving Facility and our senior notes, we are required to comply with certain incurrence-based covenants customary for facilities of these types. The incurrence-based covenants in the Revolving Facility permit us to, among other things, (i) issue foreign subsidiary indebtedness, (ii) incur general secured indebtedness subject to a pro forma first lien net leverage ratio not to exceed 1.50:1.00 in the case of first lien debt and a pro forma secured net leverage ratio of 2.50:1.00 in the case of other secured debt and (iii) incur additional unsecured debt subject to a pro forma total net leverage ratio not to exceed 3.50:1.00, tested at the time of incurrence. We may also make dividend payments in respect of our common stock as well as certain investments and acquisitions subject to a pro forma total net leverage ratio of 2.75:1.00. In addition, the Revolving Facility is subject to a financial covenant requiring us to maintain a first lien net leverage ratio not to exceed 2.00:1.00. The indentures governing the senior notes include other incurrence-based covenants that may subject us to additional specified limitations.
From time to time, depending upon market, pricing and other conditions, as well as our cash balances and liquidity, we may seek to acquire our senior notes or other indebtedness or our common stock through open market purchases, privately negotiated transactions, tender offers, exchange offers or otherwise, upon such terms and at such prices as we may determine (or as may be provided for in the indentures governing the notes), for cash, securities or other consideration. In addition, we may enter into sale-leaseback transactions related to certain of our real estate holdings and factor receivables. There can be no assurance that we will pursue any such transactions in the future, as the pursuit of any alternative will depend upon numerous factors such as market conditions, our financial performance and the limitations applicable to such transactions under our financing and governance documents.
The principal sources of liquidity available for our future cash requirements are expected to be (i) cash flows from operations, (ii) cash and cash equivalents on hand and (iii) borrowings from our Revolving Facility. We believe that our overall liquidity and operating cash flow will be sufficient to meet our anticipated cash requirements for capital expenditures, working capital, debt obligations and other commitments during the next twelve months. While uncertainty surrounding the current economic environment could adversely impact our business, based on our current financial position, we believe it is unlikely that any such effects would preclude us from maintaining sufficient liquidity.
Cash Flow
The following table summarizes our consolidated statement of cash flows:
| Nine Months Ended |
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| September 30, |
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| 2023 |
2022 |
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| Cash used for changes in working capital |
$ | (169 | ) | $ | (21 | ) | ||
| Other cash provided by operations |
367 | 328 | ||||||
| Net cash provided by operating activities |
198 | 307 | ||||||
| Net cash used in investing activities |
(383 | ) | (297 | ) | ||||
| Net cash provided by financing activities |
189 | 138 | ||||||
| Net increase in cash, cash equivalents and restricted cash |
$ | 4 | $ | 148 | ||||
Operating activities — Exclusive of working capital, other cash provided by operations was $367 in 2023 and $328 in 2022. The year-over-year increase is primarily attributable to higher operating earnings in 2023, partially offset by lower year-over-year dividends received from equity-method investments, higher year-over-year cash paid for interest and higher year-over-year cash payments made to distressed suppliers.
Working capital used cash of $169 and $21 in 2023 and 2022. Cash of $243 and $345 was used to finance receivables in 2023 and 2022, respectively. Cash of $116 and $152 was used to fund higher inventory levels in 2023 and 2022, respectively. Increases in accounts payable and other net liabilities provided cash of $190 and $476 in 2023 and 2022, respectively.
Investing activities — Expenditures for property, plant and equipment were $359 and $300 during 2023 and 2022. The increase in capital spending during 2023 is in support of awarded next generation programs and new business. During 2022, purchases of marketable securities were largely funded by proceeds from sales of marketable securities.
Financing activities — During 2023 and 2022, we had net repayments of $25 and net borrowings of $195 on our Revolving Facility. During 2023, we completed the issuance of €425 of our July 2031 Notes, paying financings costs of $7. Also during 2023, we redeemed $200 of our April 2025 Notes. During 2023, we paid financing costs of $2 to amend our credit and guaranty agreement, extending the Revolving Facility maturity to March 14, 2028. We used cash of $43 in both 2023 and 2022 for dividend payments to common stockholders. We used cash of $25 to repurchase common shares under our share repurchase program during 2022. Distributions to noncontrolling interests totaled $10 in 2023 and $8 in 2022. Hydro-Québec made cash contributions to Dana TM4 of $18 in 2023 and $30 in 2022.
Off-Balance Sheet Arrangements
There have been no material changes at September 30, 2023 in our off-balance sheet arrangements from those reported or estimated in the disclosures in Item 7 of our 2022 Form 10-K.
Contractual Obligations
On May 24, 2023, Dana Financing Luxembourg S.à.r.l. (Dana Financing), a wholly-owned subsidiary of Dana, completed the sale of €425 ($458 as of May 24, 2023) in senior unsecured notes (July 2031 Notes) at 8.500%. Interest on the notes is payable on January 15 and July 15 of each year, beginning on January 15, 2024. The July 2031 Notes will mature on July 15, 2031. On June 9, 2023 we redeemed $200 of our April 2025 Notes at a price equal to 100.00% plus accrued and unpaid interest. See Note 10 to our consolidated financial statements in Item 1 of Part I for additional information.
Contingencies
For a summary of litigation and other contingencies, see Note 12 to our consolidated financial statements in Item 1 of Part I. Based on information available to us at the present time, we do not believe that any liabilities beyond the amounts already accrued that may result from these contingencies will have a material adverse effect on our liquidity, financial condition or results of operations.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with GAAP requires us to use estimates and make judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. See Item 7 in our 2022 Form 10-K for a description of our critical accounting estimates and Note 1 to our consolidated financial statements in Item 8 of our 2022 Form 10-K for our significant accounting policies. There were no changes to our critical accounting estimates in the nine months ended September 30, 2023. See Note 1 to our consolidated financial statements in this Form 10-Q for a discussion of new accounting guidance adopted during the first nine months of 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to market risk exposures related to changes in currency exchange rates, interest rates or commodity costs from those discussed in Item 7A of our 2022 Form 10-K.
Item 4. Controls and Procedures
Disclosure controls and procedures — We maintain disclosure controls and procedures that are designed to ensure that the information disclosed in the reports we file with the SEC under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Our CEO and CFO have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Changes in internal control over financial reporting — There was no change in our internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
CEO and CFO certifications — The certifications of our CEO and CFO that are attached to this report as Exhibits 31.1 and 31.2 include information about our disclosure controls and procedures and internal control over financial reporting. These certifications should be read in conjunction with the information contained in this Item 4 and in Item 9A of Part II of our 2022 Form 10-K for a more complete understanding of the matters covered by the certifications.
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 12 to our consolidated financial statements in Item 1 of Part I of this Form 10-Q.
The risk factors disclosed in Item 1A of our 2022 Form 10-K have been updated to included the following revised risk factor:
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 business.
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.
Ford Motor Company (Ford), Stellantis N.V. (Stellantis) and General Motors Company’s (GM) contracts with employees represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) expired on September 14, 2023. Beginning on September 15, 2023, the UAW commenced labor strikes at certain U.S. operations of Ford, Stellantis and GM. We have experienced a decrease in order volumes from Ford and Stellantis resulting from the impact of the UAW’s labor strike activities which has caused us to curtail operations at certain of our U.S. manufacturing and assembly operations. An increase in the scope of the UAW’s labor strike activities could result in further curtailment of our U.S. operations. Prolonged UAW labor strike activities against Ford and Stellantis could have a material adverse impact on our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer's purchases of equity securities — On February 16, 2021 our Board of Directors approved an extension of our existing common stock share repurchase program through December 31, 2023. Approximately $102 remained available under the program for future share repurchases as of September 30, 2023. We repurchase shares utilizing available excess cash either in the open market or through privately negotiated transactions. Stock repurchases are subject to prevailing market conditions and other considerations. No shares of our common stock were repurchased under the program during the third quarter of 2023.
During the three months ended September 30, 2023,
| Exhibit No. |
Description |
| 31.1 |
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. Filed with this Report. |
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| 31.2 |
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. Filed with this Report. |
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| 32 |
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| 101 |
The following materials from Dana Incorporated’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statement of Operations, (ii) the Consolidated Statement of Comprehensive Income, (iii) the Consolidated Balance Sheet, (iv) the Consolidated Statement of Cash Flows and (v) Notes to the Consolidated Financial Statements. Filed with this Report. |
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| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
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DANA INCORPORATED |
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| Date: |
October 27, 2023 |
By: |
/s/ Timothy R. Kraus |
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Timothy R. Kraus |
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Senior Vice President and |
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Chief Financial Officer |
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