Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions)
Discussion and analysis of our results of operations pertaining to 2021 compared to 2020 not included in this Form 10-K can be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2021. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes in Item 8.
Management Overview
We are a global provider of high-technology products to virtually every major vehicle 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 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. In 2022, 48% of our sales came from North American operations and 52% from operations throughout the rest of the world. Our sales by operating segment were Light Vehicle – 40%, Commercial Vehicle – 20%, Off-Highway – 29% and Power Technologies – 11%.
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.
14
Table of Contents
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 December 31, 2022.
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 $400 of senior notes comes due in any calendar year, with no maturities until the second quarter of 2025. In addition, during 2021 we increased our revolving credit facility to $1,150 and extended its maturity to March 25, 2026. See Note 13 to our consolidated financial statements in Item 8 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 ElectrifiedTM, Victor Reinz®, Glaser®, GWB®, Thompson®, Tru-Cool®, SVL®, and TransejesTM, 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 9 to our consolidated financial statements in Item 8 for additional information.
Segments
We manage our operations globally through four operating segments. Our Light Vehicle and Power Technologies segments primarily support light vehicle original equipment manufacturers (OEMs) with products for light trucks, SUVs, CUVs, vans and passenger cars. The Commercial Vehicle segment supports the OEMs of on-highway commercial vehicles (primarily trucks and buses), while our Off-Highway segment supports OEMs of off-highway vehicles (primarily wheeled vehicles used in construction, mining and agricultural applications).
15
Table of Contents
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 global light-truck production being relatively stable across all regions, as production constraints continue to ease, vehicle inventories return to more normal levels, and constrained customer demand is fulfilled.
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 slightly 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 slight 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 modest 1% increase in production from 2022 as local economic conditions remain relatively stable. 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 modest 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 remain relatively flat with the prior year.
Foreign currency — With 54% of our 2022 sales coming from outside the U.S., international currency movements can have a significant effect on our sales and results of operations. The euro zone countries and Brazil accounted for 49% and 11% of our 2022 non-U.S. sales, respectively, while India and China accounted for 10% and 9%, 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 2022, decreasing 2022 sales by $420. A weaker euro, Indian rupee, Thai baht, Chinese renminbi and South African rand were partially offset by a stronger Brazilian real.
Argentina has experienced significant inflationary pressures the past several 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 2022 of approximately $151 are 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $44, including $18 of net fixed assets, at December 31, 2022. During the second quarter of 2018, we determined that Argentina's economy met the GAAP definition of a highly inflationary economy. In assessing Argentina's economy as highly inflationary we considered its three-year cumulative inflation rate along with other factors. As a result, effective July 1, 2018, the U.S. dollar is the functional currency for our Argentine operations, rather than the Argentine peso. Beginning July 1, 2018, peso-denominated monetary assets and liabilities are remeasured into U.S. dollars using current Argentine peso exchange rates with resulting translation gains or losses included in results of operations. Nonmonetary assets and liabilities are remeasured into U.S. dollar using historic Argentine peso exchange rates. Reference is made to Note 1 of our consolidated financial statements in Item 8 for additional information.
16
Table of Contents
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.
Sales, Earnings and Cash Flow Outlook
Purchases of property, plant and equipment ~5% of sales $ 440 $ 369 $ 326
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.
Our 2023 sales outlook is $10,350 to $10,850, reflecting a modest improvement in global market demand, continued material and inflationary cost recoveries and $300 of net new business backlog. Based on our current sales and exchange rate outlook for 2023, we expect overall stability in international currencies with a modest headwind to sales. At sales levels in our current outlook for 2023, a 5% movement on the euro would impact our annual sales by approximately $140. A 5% change on the Chinese renminbi, Indian rupee or Brazilian real rates would impact our annual sales in each of those countries by approximately $30. At our current sales outlook for 2023, we expect full year 2023 adjusted EBITDA to approximate $750 to $850. Adjusted EBITDA Margin is expected to be 7.5% at the midpoint of our guidance range, a 60 basis-point improvement over 2022, reflecting higher margin net new business and the benefit of material cost recoveries as commodity costs begin to abate being partially offset by continued operational inefficiencies, driven by continuing global supply chain disruptions and customer order volatility, and increased investment to support our electrification strategy. We expect to generate free cash flow of approximately $25 at the midpoint of our guidance range reflecting the benefit of higher year-over-year adjusted EBITDA being largely offset by higher capital spending to support new business and our continued investment in our electrification strategy.
Among our operational and strategic initiatives are increased focus on and investment in product technology – delivering products and technology that are key to bringing solutions to issues of paramount importance to our customers. Our success on this front is measured, in part, by our sales backlog – net new business awarded that will be launching over the next three years, adding to our base annual sales. This backlog excludes replacement business and represents incremental sales associated with new programs for which we have received formal customer awards. At December 31, 2023, our sales backlog of net new business for the 2023 through 2025 period was $900. We expect to realize $300 of our sales backlog in 2023, with incremental sales backlog of $350 and $250 being realized in 2024 and 2025, respectively. Our sales backlog is approximately 65% attributable to electric-vehicle content with the balance attributable to traditional ICE-vehicle content. Our sales backlog is balanced across all of our end markets.
17
Table of Contents
Consolidated Results of Operations
Summary Consolidated Results of Operations (2022 versus 2021)
% of % of Increase/
Dollars Net Sales Dollars Net Sales (Decrease)
Selling, general and administrative expenses 495 4.9 % 460 5.1 % 35
Amortization of intangibles 14 14 —
Restructuring charges, net (1 ) (1 )
Impairment of goodwill (191 ) (191 )
Other income (expense), net 22 32 (10 )
Earnings before interest and income taxes 86 395 (309 )
Loss on extinguishment of debt (29 ) 29
Interest income 11 9 2
Earnings (loss) before income taxes (31 ) 244 (275 )
Equity in earnings of affiliates 4 28 (24 )
Less: Noncontrolling interests net income 15 14 1
Less: Redeemable noncontrolling interests net loss (84 ) (11 ) (73 )
Net income (loss) attributable to the parent company $ (242 ) $ 197 $ (439 )
Sales — The following table shows changes in our sales by geographic region.
Amount of Change Due To
Increase/ Currency Acquisitions Organic
2022 2021 (Decrease) Effects (Divestitures) Change
Sales in 2022 were $1,211 higher than in 2021. Weaker international currencies reduced sales by $420, principally due to a weaker euro, Indian rupee, Thai baht and Chinese renminbi, partially offset by a stronger Brazilian real. The organic sales increase of $1,639, or 18%, resulted from improved overall market demand and the conversion of sales backlog. Pricing actions, including material commodity price and inflationary cost adjustments, increased sales by $772.
The North America organic sales increase of 16% was driven principally by stronger light-, medium- and heavy-duty truck production volumes, higher light-vehicle engine production levels and the conversion of sales backlog. Full-frame light-truck production was up 7% while light-vehicle engine production was up 13% compared with 2021. Year-over-year Class 8 truck production was up 24% while Classes 5-7 truck production was up 3%. Excluding currency effects, sales in Europe were up 20% compared with 2021. With our significant Off-Highway presence in the region, stronger construction/mining and agricultural markets were a major factor. Organic sales in this operating segment were up 23% compared to 2021. Excluding currency effects, sales in South America increased 31% compared to 2021 due primarily to improved light-duty truck production and continued strengthening of medium/heavy-duty truck related sales despite overall medium/heavy-duty truck production volumes moderating. Light-duty truck production was up 13% while medium/heavy-duty truck production was down 3% compared to 2021. Excluding currency effects and the impact of divestitures, sales in Asia Pacific increased 15% compared to 2021 due to stronger construction/mining and agricultural equipment markets and higher medium/heavy-duty truck related sales despite overall medium/heavy-duty truck production volumes declining 27% compared to 2021.
Cost of sales and gross margin — Cost of sales for 2022 increased $1,285, or 16%, when compared to 2021. Cost of sales as a percent of sales was 190 basis points higher than in the previous year. Incremental margins provided by increased sales volumes were more than offset by higher year-over-year commodity costs of $447, non-material inflationary cost impacts of $357, higher spending on electrification initiatives of $50 and operational inefficiencies primarily attributable to continued global supply chain disruptions and frequent customer order changes made with little to no advance notification. Commodity cost increases are being driven by certain grades of steel and aluminum. Non-material inflation includes higher labor, energy and transportation rates. Continued material cost savings and supplier recoveries provided a partial offset, reducing cost of sales by approximately $66.
Gross margin of $763 for 2022 decreased $74 from 2021. Gross margin as a percent of sales was 7.5% in 2022, 190 basis points lower than in 2021. The degradation in gross margin as a percent of sales was driven principally by the cost of sales factors referenced above along with recovery of non-material inflation typically not being specifically provided for in our current contracts with customers resulting in prolonged negotiations and indeterminate recoveries. In addition, gross margin during 2022 was negatively impacted by material cost recovery mechanisms with our customers lagging material cost increases charged by our suppliers by approximately 90 days.
18
Table of Contents
Selling, general and administrative expenses (SG&A) — SG&A expenses in 2022 were $495 (4.9% of sales) as compared to $460 (5.1% of sales) in 2021. SG&A expenses were $35 higher in 2022 primarily due to higher salaried employee wages and incentive compensation, increased software technology investments, travel expenses and professional fees.
Amortization of intangibles — Amortization expense was $14 in both 2021 and 2021.
Restructuring charges, net — Net restructuring charges were ($1) in 2022. See Note 4 of our consolidated financial statements in Item 8 for additional information.
Impairment of goodwill — During the third quarter of 2022, we recorded a $191 goodwill impairment charge. See Note 3 of our consolidated financial statements in Item 8 for additional information.
Other income (expense), net — The following table shows the major components of other income (expense), net.
Non-service cost components of pension and OPEB costs $ (7 ) $ (10 )
Government assistance 8
Foreign exchange gain 4 2
Strategic transaction expenses (8 ) (13 )
Loss on investment in Hyliion (20 )
Loss on disposal group held for sale (7 )
Loss on de-designation of fixed-to-fixed cross currency swaps (9 )
Gain on sale leaseback 66
Other income (expense), net $ 22 $ 32
Strategic transaction expenses relate primarily to costs incurred in connection with acquisition and divestiture related activities, including costs to complete the transaction and post-closing integration costs. Strategic transaction expenses in 2022 were primarily attributable to investigating potential acquisitions and business ventures and other strategic initiatives. Strategic transaction expenses in 2021 were primarily attributable to our pursuit of the acquisition of a portion of the thermal-management business of Modine Manufacturing Company and certain other strategic initiatives. We held convertible notes receivable from our investment in Hyliion Inc. On October 1, 2020, Hyliion Inc. completed its merger with Tortoise Acquisition Corp. The business combination resulted in the combined company being renamed Hyliion Holdings Corp. (Hyliion), with its common stock being listed on the New York Stock Exchange under the ticker symbol HYLN. Effective with the completed merger, our notes receivable were converted into 2,988,229 common shares of HYLN. Our investment in Hyliion was included in noncurrent marketable securities and carried at fair value with changes in fair value included in net income. During the third quarter of 2021, we sold all of our Hyliion shares. In conjunction with our acquisition of ODS, we acquired a controlling financial interest in a joint venture in China. We were required to divest our interest in this joint venture as it violates competitive restrictions of another of our China joint venture shareholder agreements. During the first quarter of 2021, we recorded an impairment charge of $7, as we determined the carrying value of the disposal group exceeded its fair value less costs to sell. We completed the disposal of this business in April 2021. We had previously entered into fixed-to-fixed cross currency swaps as a hedge against our June 2026 Notes. In June 2021, we redeemed all of the June 2026 Notes and de-designated the fixed-to-fixed cross currency swaps. During December 2021, we completed a sale-leaseback transaction on three of our U.S. manufacturing facilities. We received proceeds of $77 from the sale of the properties, which had carrying values totaling $11, resulting in a $66 gain on the sale transaction. See Note 18 of our consolidated financial statements in Item 8 for additional information.
Loss on extinguishment of debt —During May 2021, we redeemed our December 2024 Notes. We incurred redemption premiums of $8 in connection with these repayments and wrote off $3 of previously deferred financing costs associated with the December 2024 Notes. These charges were partially offset by the recognition of $3 related to an unamortized fair value adjustment associated with a fixed-to-floating interest rate swap that was terminated in 2015. On June 10, 2021, in connection with the issuance of our July 2029 Notes, we redeemed all of our June 2026 Notes. We incurred redemption premiums of $12 in connection with these repayments and wrote off $4 of previously deferred financing costs associated with the June 2026 Notes. On November 30, 2021, in connection with the issuance of our February 2032 Notes, we fully paid down our Term B Facility. We wrote off $5 of previously deferred financing costs associated with the Term B Facility. See Note 13 of our consolidated financial statements in Item 8 for additional information.
Interest income and interest expense — Interest income was $11 in 2022 and $9 in 2021. Interest expense decreased from $131 in 2021 to $128 in 2022, with higher average debt levels being more than offset by lower interest rates on outstanding borrowings. Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 4.7% in 2022 and 5.1% in 2021.
Income tax expense — Income tax expense was $284 in 2022 and $72 in 2021. During 2022, we recognized tax expense of $240 to record valuation allowance in the U.S., which includes $189 on U.S. federal credits and attributes and $51 related to U.S. state attributes. In addition, we recorded a tax benefit of $32 for U.S. tax credits generated. During 2022, we recorded a pre-tax goodwill impairment charge of $191 with an associated income tax benefit of $2. During 2021, we recognized tax expense of $46 to record valuation allowance in the U.S. due to reduced income projections. We also recognized tax benefit of $46 for the release of valuation allowances in several foreign jurisdictions based on recent history of profitability and increased income projections. The contrast of these two positions is representative of the jurisdictional mix of results and relative attributes. We also recognized tax expense of $18 related to the expiration of federal tax credits. See Note 17 to our consolidated financial statements in Item 8 for additional information.
Equity in earnings of affiliates — Net earnings from equity investments was $4 in 2022 and $28 in 2021. Equity in earnings from Dongfeng Dana Axle Co., Ltd. (DDAC) was a loss of $1 in 2022 and earnings of $22 in 2021. The decrease in DDAC's earnings is due to lower year-over-year sales driven by significant 2021 medium- and heavy-duty vehicle pre-buy activity in advance of new emission standards going into effect in China and Chinese government incentives driving new constructions and infrastructure projects in 2021, increasing demand for medium- and heavy-duty vehicles.
19
Table of Contents
Segment Results of Operations (2022 versus 2021)
Light Vehicle
Segment
Segment EBITDA
Sales EBITDA Margin
Divestitures (8 )
Product line transfer (80 ) (10 )
Currency effects (83 ) (6 )
Light Vehicle sales in 2022, exclusive of currency effects, the impact of divestitures and the product line transfer to Commercial Vehicle, were 13% higher than 2021 reflecting stronger markets in all regions, cost recovery actions and the conversion of sales backlog. Year-over-year North America full-frame light-truck production increased 7% while light-truck production in Europe, South America and Asia Pacific increased 5%, 13% and 6%, respectively. Net customer pricing and cost recovery actions increased year-over-year sales by $238.
Light Vehicle segment EBITDA decreased by $116 in 2022. Higher sales volumes provided a year-over-year benefit of $37 (14.8% incremental margin). The year-over-year performance-related earnings decrease was driven by inflationary cost increases of $134, commodity cost increases of $130, operational inefficiencies of $93, higher program launch costs of $18, higher spending on electrification initiatives of $8, higher incentive compensation of $5 and higher warranty costs of $1. Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $238, higher material cost savings and supplier recoveries of $10 and lower premium freight costs of $4.
Commercial Vehicle
Segment
Segment EBITDA
Sales EBITDA Margin
Product line transfer 80 10
Currency effects (26 ) (1 )
Commercial Vehicles sales in 2022, exclusive of currency effects and the product line transfer from Light Vehicle, were 26% higher than 2021 reflecting continued strengthening of medium/heavy-duty truck production volumes in North America and Europe and cost recovery actions. Year-over-year North America Class 8 production was up 24% and Classes 5-7 production was up 3%. Year-over-year medium/heavy-truck production in Europe was up 14% while medium/heavy-truck production in South America and Asia Pacific were down 3% and 27%, respectively. Net customer pricing and cost recovery actions increased year-over-year sales by $178.
Commercial Vehicle segment EBITDA decreased by $5 in 2022. Higher sales volumes provided a year-over-year benefit of $34 (15.8% incremental margin). The year-over-year performance-related decrease was driven by commodity cost increases of $114, inflationary cost increases of $66, operational inefficiencies of $52, higher spending on electrification initiatives of $16, higher incentive compensation of $4 and higher program launch costs of $3. Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $178, higher material cost savings of $23, lower warranty costs of $4 and lower premium freight costs of $2.
20
Table of Contents
Off-Highway
Segment
Segment EBITDA
Sales EBITDA Margin
Currency effects (250 ) (34 )
Off-Highway sales in 2022, exclusive of currency effects, were 23% higher than 2021 reflecting improved global markets, cost recovery actions and the conversion of sales backlog. Year-over-year global construction/mining and agricultural equipment markets reflected marked improvement with global production increasing 10% and 6%, respectively, over 2021. Net customer pricing and cost recovery actions increased year-over-year sales by $277.
Off-Highway segment EBITDA increased by $51 in 2022. Higher sales volumes provided a year-over-year benefit of $76 (23.3% incremental margin). The year-over-year performance-related earnings increase was driven by net customer pricing and cost recovery actions of $277 and higher material cost savings of $26. Partially offsetting these performance-related increases were commodity cost increases of $134, inflationary cost increases of $130, operational inefficiencies of $11, higher spending on electrification initiatives of $9, higher incentive compensation of $4, higher premium freight costs of $4 and higher warranty costs of $2.
Power Technologies
Segment
Segment EBITDA
Sales EBITDA Margin
Currency effects (61 ) (5 )
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 2022, exclusive of currency effects, were $155 higher than in 2022 reflecting improved global markets, cost recovery actions and conversion of sales backlog. Year-over-year light-vehicle engine production in North America, South America and Asia Pacific increased 13%, 13% and 6%, respectively, while year-over-year light-vehicle engine production in Europe decreased 1%. Net customer pricing and cost recovery actions increased year-over-year sales by $79.
Power Technologies segment EBITDA decreased by $29 in 2022. Higher sales volumes provided a year-over-year benefit of $13 (17.1% incremental margin). The year-over-year performance-related earnings decrease was driven by commodity cost increases of $69, inflationary cost increases of $27, operational inefficiencies of $11, higher program launch costs of $6, higher spending on electrification initiatives of $4, higher incentive compensation of $3 and higher warranty costs of $3. Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $79 and higher material cost savings of $7.
21
Table of Contents
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 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 (loss) to adjusted EBITDA.
Net income (loss) $ (311 ) $ 200
Equity in earnings of affiliates 4 28
Income tax expense (benefit) 284 72
Earnings (loss) before income taxes (31 ) 244
Depreciation and amortization 388 389
Restructuring charges, net (1 )
Loss on extinguishment of debt 29
(Gain) loss on investment in Hyliion 20
Loss on disposal group held for sale 7
Loss on de-designation of fixed-to-fixed cross currency swaps 9
Gain on sale leaseback (66 )
Impairment of goodwill 191
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.
Net cash provided by operating activities $ 649 $ 158
Purchases of property, plant and equipment (440 ) (369 )
22
Table of Contents
Liquidity
The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at December 31, 2022:
Cash and cash equivalents $ 425
Less: Deposits supporting obligations (1 )
Available cash 424
Additional cash availability from Revolving Facility 1,109
Total liquidity $ 1,533
Cash deposits are maintained to provide credit enhancement for certain agreements and are reported as part of cash and cash equivalents. For most of these deposits, the cash may be withdrawn if a comparable security is provided in the form of letters of credit. Accordingly, these deposits are not considered to be restricted. We had availability of $1,109 at December 31, 2022 under our Revolving Facility after deducting $25 of outstanding borrowings and $16 of outstanding letters of credit.
The components of our December 31, 2022 consolidated cash balance were as follows:
U.S. Non-U.S. Total
Cash and cash equivalents $ — $ 322 $ 322
Cash and cash equivalents held as deposits 1 1
Cash and cash equivalents held at less than wholly-owned subsidiaries 6 96 102
Consolidated cash balance $ 6 $ 419 $ 425
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.
At December 31, 2022, 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.
23
Table of Contents
Cash Flow
Cash provided by (used for) changes in working capital $ 199 $ (455 )
Other cash provided by operations 450 613
Net cash provided by operating activities 649 158
Net cash used in investing activities (426 ) (293 )
Net cash used in financing activities (42 ) (127 )
The table above summarizes our consolidated statement of cash flows.
Operating activities — Exclusive of working capital, other cash provided by operations was $450 in 2022 and $613 in 2021. The year-over-year decrease is primarily attributable to lower operating earnings and higher cash paid for income taxes.
Working capital provided cash of $199 in 2022 and used cash of $455 in 2021. Cash of $81 and $189 was used to finance receivables in 2022 and 2021, respectively. The lower level of cash used to finance receivables in 2022 is being driven by shorter customer payment terms having been negotiated with certain customers. Cash of $99 and $471 was used to fund higher inventory levels during 2022 and 2021, respectively. While we continue to carry higher levels of inventory to mitigate on-going global-supply-chain disruptions, ensuring continuous supply for our customers, we have actively managed down our inventory days on hand during 2022. Increases in accounts payable and other net liabilities provided cash of $379 and $205 in 2022 and 2021, respectively.
Investing activities — Expenditures for property plant and equipment were $440 and $369 in 2022 and 2021. The increase in capital spend during 2022 is in support of awarded next generation programs and new business. During December 2021, we completed a sale-leaseback transaction on three of our U.S. manufacturing facilities receiving proceeds of $77 from the sale of the properties. During 2021, we paid $17, net of cash acquired, to acquire an additional 51% interest in Pi Innovo. The acquisition of the additional ownership interest provided us with a 100% ownership interest in Pi Innovo. During 2021, we acquired a 1% ownership interest in Switch Mobility Limited for $18. During 2020, we sold our 20% ownership interest in Bendix Spicer Foundation Brake, LLC (BSFB) for $50, consisting of $21 in cash, a note receivable of $25 and deferred proceeds of $4. During 2021, we received $29 in settlement of the note receivable and deferred proceeds from the BSFB transaction. During 2022, purchases of marketable securities were largely funded by proceeds from sales and maturities of marketable securities. During 2021, we sold all of our Hyliion shares for $29. During 2021, we dedesignated the fixed-to-fixed cross currency swaps associated with our June 2026 Notes and settled certain of the fixed-to-fixed cross currency swaps resulting in a net cash outflow of $22.
Financing activities — During 2022, we had net borrowings of $25 on our Revolving Facility. During 2021, we completed the issuance of €325 of our July 2029 Notes, $400 of our September 2030 Notes and $350 of our February 2032 Notes, paying financing costs of $16. Also during 2021, we redeemed all $375 of our June 2026 Notes and all $425 of our December 2024 Notes, paying redemption premiums of $21. During 2021, we fully paid down our Term B Facility, making principal payments of $349. During 2021, we paid financing costs of $2 to amend our credit and guaranty agreement, increasing the Revolving Facility to $1,150 and extending its maturity to March 25, 2026. We used $58 for dividend payments to common stockholders during both 2022 and 2021. We used cash of $25 and $23 to repurchase common shares under our share repurchase program during 2022 and 2021. Distributions to noncontrolling interests totaled $9 and $15 in 2022 and 2021. Hydro-Québec made cash contribution to Dana TM4 of $51 in 2022 and $14 in 2021. During 2021, we sold a portion of our ownership interest in Tai Ya Investment (HK) Co., Limited (Tai Ya) to China Motor Corporation, reducing our ownership interest in Tai Ya to 50%. In conjunction with the decrease in our ownership interest, the Tai Ya shareholders agreement was amended, eliminating our controlling financial interest in Tai Ya. Upon our loss of control, we deconsolidated Tai Ya, including $6 of cash and cash equivalents.
24
Table of Contents
Off-Balance Sheet Arrangements
In connection with the divestiture of our Structural Products business in 2010, leases covering three U.S. facilities were assigned to a U.S. affiliate of the new owner, Metalsa S.A. de C.V. (Metalsa). Under the terms of the sale agreement, we guarantee the affiliate’s performance under the leases, which run through June 2025, including approximately $6 of annual payments. In the event of a required payment by Dana as guarantor, we are entitled to pursue full recovery from Metalsa of the amounts paid under the guarantee and to take possession of the leased property.
Contractual Obligations
We are obligated to make future cash payments in fixed amounts under various agreements. The following table summarizes our significant contractual obligations as of December 31, 2022.
Payments Due by Period
Pension contribution(6) 16 16
Retiree health care benefits(7) 38 4 8 8 18
Uncertain income tax positions(8) —
______________________________________________________
Notes:
(1) Principal payments on long-term debt.
At December 31, 2022, we maintained cash balances of $1 on deposit with financial institutions primarily to support property insurance policy deductibles, certain employee retirement obligations and specific government approved environmental remediation efforts.
Contingencies
For a summary of litigation and other contingencies, see Note 15 of our consolidated financial statements in Item 8. Based on information available to us at the present time, we do not believe that any liabilities beyond the amounts already accrued that may result from these contingencies will have a material adverse effect on our liquidity, financial condition or results of operations.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with GAAP requires us to use estimates and make judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. Considerable judgment is often involved in making these determinations. Critical estimates are those that require the most difficult, subjective or complex judgments in the preparation of the financial statements and the accompanying notes. We evaluate these estimates and judgments on a regular basis. We believe our assumptions and estimates are reasonable and appropriate. However, the use of different assumptions could result in significantly different results and actual results could differ from those estimates. The following discussion of accounting estimates is intended to supplement the Summary of Significant Accounting Policies presented as Note 1 of our consolidated financial statements in Item 8.
25
Table of Contents
Income taxes — Accounting for income taxes is complex, in part because we conduct business globally and therefore file income tax returns in numerous tax jurisdictions. Significant judgment is required in determining the income tax provision, uncertain tax positions, deferred tax assets and liabilities and the valuation allowances recorded against our net deferred tax assets. A valuation allowance is provided when, in our judgment based upon available information, it is more likely than not that a portion of such deferred tax assets will not be realized. To make this assessment, we consider the historical and projected future taxable income or loss by tax jurisdiction. We consider all components of comprehensive income and weigh the positive and negative evidence, putting greater reliance on objectively verifiable historical evidence than on projections of future profitability that are dependent on actions that have not taken place as of the assessment date. We also consider changes to historical profitability of actions that occurred through the date of assessment and objectively verifiable effects of material forecasted events that would have a sustained effect on future profitability, as well as the effect on historical profits of nonrecurring events. We also incorporate the changes to historical and prospective income from tax planning strategies that are prudent and feasible.
In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is less than certain. We are regularly under audit by the various applicable tax authorities. Although the outcome of tax audits is always uncertain, we believe that we have appropriate support for the positions taken on our tax returns and that our annual tax provisions include amounts sufficient to pay assessments, if any, upon final determination by the taxing authorities. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. See additional discussion of our deferred tax assets and liabilities in Note 17 of our consolidated financial statements in Item 8.
Retiree benefits — Accounting for pension benefits and other postretirement benefits (OPEB) involves estimating the cost of benefits to be provided well into the future and attributing that cost to the time period each employee works. These plan expenses and obligations are dependent on assumptions developed by us in consultation with our outside advisers such as actuaries and other consultants and are generally calculated independently of funding requirements. The assumptions used, including inflation, discount rates, investment returns, life expectancies, turnover rates, retirement rates, future compensation levels and health care cost trend rates, have a significant impact on plan expenses and obligations. These assumptions are regularly reviewed and modified when appropriate based on historical experience, current trends and future outlook. Changes in one or more of the underlying assumptions could result in a material impact to our consolidated financial statements in any given period. If actual experience differs from expectations, our financial position and results of operations in future periods could be affected.
Mortality rates are based in part on the company's plan experience and actuarial estimates. The inflation assumption is based on an evaluation of external market indicators, while retirement and turnover rates are based primarily on actual plan experience. Health care cost trend rates are developed based on our actual historical claims experience, the near-term outlook and an assessment of likely long-term trends. For our largest plans, discount rates are based upon the construction of a yield curve which is developed based on a subset of high-quality fixed-income investments (those with yields between the 40th and 90th percentiles). The projected cash flows are matched to this yield curve and a present value developed which is then calibrated to develop a single equivalent discount rate. Pension benefits are funded through deposits with trustees that satisfy, at a minimum, the applicable funding regulations. For our largest defined benefit pension plans, expected investment rates of return are based on input from the plans’ investment advisers regarding our expected investment portfolio mix, historical rates of return on those assets, projected future asset class returns, the impact of active management and long-term market conditions and inflation expectations. We believe that the long-term asset allocation on average will approximate the targeted allocation and we regularly review the actual asset allocation to periodically re-balance the investments to the targeted allocation when appropriate. OPEB and the majority of our non-U.S. pension benefits are funded as they become due.
Actuarial gains or losses may result from changes in assumptions or when actual experience is different from that which was expected. Under the applicable standards, those gains and losses are not required to be immediately recognized in our results of operations as income or expense, but instead are deferred as part of AOCI and amortized into our results of operations over future periods.
U.S. retirement plans — Our U.S. defined benefit pension plans comprise 65% of our consolidated defined benefit pension obligations at December 31, 2022. These plans are frozen and no service-related costs are being incurred. Changes in our net obligations are principally attributable to changing discount rates and the performance of plan assets.
Rising discount rates decrease the present value of future pension obligations – a 25 basis point increase in the discount rate would decrease our U.S. pension liability by about $11. As indicated above, when establishing the expected long-term rate of return on our U.S. pension plan assets, we consider historical performance and forward looking return estimates reflective of our portfolio mix and investment strategy. Based on the most recent analysis of projected portfolio returns, we concluded that the use of a 6.0% expected return in 2023 is appropriate for our U.S. pension plans. See Note 12 to our consolidated financial statements in Item 8 for information about the investing and allocation objectives related to our U.S. pension plan assets.
We use a full yield curve approach to estimate the service (where applicable) and interest components of the annual cost of our pension and other postretirement benefit plans. This method estimates interest and service expense using the specific spot rates, from the yield curve, that relate to projected cash flows. We believe this method is a more precise measurement of interest and service costs by improving the correlation between the projected cash flows and the corresponding interest rates. The determination of the projected benefit obligation at year end is unchanged.
At December 31, 2022, we have $141 of unrecognized losses relating to our U.S. pension plans. Actuarial gains and losses, which are primarily the result of changes in the discount rate and other assumptions and differences between actual and expected asset returns, are deferred in AOCI and amortized to expense following the corridor approach. We use the average remaining service period of active participants unless almost all of the plan’s participants are inactive, in which case we use the average remaining life expectancy of inactive participants.
Based on the current funded status of our U.S. plans, we do not expect to make any contributions during 2023.
See Note 12 of our consolidated financial statements in Item 8 for additional discussion of our pension and OPEB obligations.
26
Table of Contents
Acquisitions —From time to time, we make strategic acquisitions that have a material impact on our consolidated results of operations or financial position. We allocate the purchase price of acquired businesses to the identifiable tangible and intangible assets acquired, liabilities assumed and any redeemable noncontrolling interests or noncontrolling interests based upon their estimated fair values as of the acquisition date. We determine the estimated fair values using information available to us and engage independent third-party valuation specialists when necessary. Estimating fair values can be complex and subject to significant business judgment. We believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based, in part, on historical experience and information obtained from management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to, future expected cash flows from product sales, customer contracts and acquired technologies, and discount rates. The discount rates used to discount expected future cash flows to present value are typically derived from a weighted-average cost of capital analysis and adjusted to reflect inherent risks. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of such assumptions, estimates or actual results. Generally, we have, if necessary, up to one year from the acquisition date to finalize our estimates of acquisition date fair values.
Redeemable noncontrolling interests — Redeemable noncontrolling interests reflected as of the balance sheet date are the greater of the redeemable noncontrolling interest balances adjusted for comprehensive income items and distributions or the redemption values. Redeemable noncontrolling interest adjustments of redemption value are recorded in retained earnings. 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. See additional discussion of redeemable noncontrolling interests in Note 9 of our consolidated financial statements in Item 8.
Goodwill and other indefinite-lived intangible assets — Our goodwill and other indefinite-lived intangible assets are tested for impairment annually as of October 31 for all of our reporting units, and more frequently if events or circumstances warrant such a review. We make significant assumptions and estimates about the extent and timing of future cash flows, including revenue growth rates, projected gross margins, discount rates, and exit earnings multiples. The cash flows are estimated over a significant future period of time, which makes those estimates and assumptions subject to a high degree of uncertainty. Our utilization of market valuation models requires us to make certain assumptions and estimates regarding the applicability of those models to our assets and businesses. We use our internal forecasts, which we update quarterly, to make our cash flow projections. These forecasts are based on our knowledge of our customers’ production forecasts, our assessment of market growth rates, net new business, material and labor cost estimates, cost recovery agreements with customers and our estimate of savings expected from our restructuring activities.
The most likely factors that would significantly impact our forecasts are changes in customer production levels and loss of significant portions of our business. We believe that the assumptions and estimates used in the assessment of the goodwill and other indefinite-lived intangible assets as of October 31, 2021 were reasonable.
Long-lived assets with definite lives — We perform impairment assessments on our property, plant and equipment and our definite-lived intangible assets whenever events and circumstances indicate that the carrying amounts of the assets may not be recoverable. When indications are present, we compare the estimated future undiscounted net cash flows of the operations to which the assets relate to the carrying amounts of such assets. We utilize the cash flow projections discussed above for property, plant and equipment and amortizable intangibles. We group the assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the undiscounted future cash flows using the life of the primary assets. If the carrying amounts of the long-lived assets are not recoverable from future cash flows and exceed their fair value, an impairment loss is recognized to reduce the carrying amounts of the long-lived assets to their fair value. Fair value is determined based on discounted cash flows, third-party appraisals or other methods that provide appropriate estimates of value. Determining whether a triggering event has occurred, performing the impairment analysis and estimating the fair value of the assets require numerous assumptions and a considerable amount of management judgment.
Investments in affiliates — We had aggregate investments in affiliates of $138 at December 31, 2022 and $174 at December 31, 2021. We monitor our investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with GAAP. If we determine that an other-than-temporary decline in value has occurred, we recognize an impairment loss, which is measured as the difference between the recorded carrying value and the fair value of the investment. Fair value is generally determined using the discounted cash flows (an income approach) or guideline public company (a market approach) methods.
Warranty — Costs related to product warranty obligations are estimated and accrued at the time of sale with a charge against cost of sales. Warranty accruals are evaluated and adjusted as appropriate based on occurrences giving rise to potential warranty exposure and associated experience. Warranty accruals and adjustments require significant judgment, including a determination of our involvement in the matter giving rise to the potential warranty issue or claim, our contractual requirements, estimates of units requiring repair and estimates of repair costs. If actual experience differs from expectations, our financial position and results of operations in future periods could be affected.
Contingency reserves — We have numerous other loss exposures, such as product liability and warranty claims and matters involving litigation. Establishing loss reserves for these matters requires the use of estimates and judgment regarding risk of exposure and ultimate liability. Product liability and warranty claims are generally estimated based on historical experience and the estimated costs associated with specific events giving rise to potential field campaigns or recalls. In the case of legal contingencies, estimates are made of the likely outcome of legal proceedings and potential exposure where reasonably determinable based on the information presently known to us. New information and other developments in these matters could materially affect our recorded liabilities.
27
Table of Contents
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to fluctuations in foreign currency exchange rates, commodity prices for products we use in our manufacturing and interest rates. To reduce our exposure to these risks, we maintain risk management controls to monitor these risks and take appropriate actions to attempt to mitigate such forms of market risks.
Foreign currency exchange rate risk — Our foreign currency exposures are primarily associated with intercompany and third party sales and purchase transactions, cross-currency intercompany loans and external debt. We use forward contracts to manage our foreign currency exchange rate risk associated with a portion of our forecasted foreign currency-denominated sales and purchase transactions and with certain foreign currency-denominated assets and liabilities. We also use currency swaps, including fixed-to-fixed cross-currency interest rate swaps, to manage foreign currency exchange rate risk associated with our intercompany loans and external debt. Foreign currency exposures are reviewed quarterly, at a minimum, and natural offsets are considered prior to entering into derivative instruments.
Changes in the fair value of derivative instruments treated as cash flow hedges are reported in other comprehensive income (loss) (OCI). Deferred gains and losses are reclassified to earnings in the same period in which the underlying transactions affect earnings. Specifically, with respect to the cross-currency interest rate swap, to the extent we recognize an exchange gain or loss on the underlying external debt, we reclassify an offsetting portion from OCI to earnings in the same period.
Changes in the fair value of derivative instruments not treated as cash flow hedges are recognized in earnings in the period in which those changes occur. Changes in the fair value of derivative instruments associated with product-related transactions are recorded in cost of sales, while those associated with non-product transactions are recorded in other income (expense), net. See Note 14 of our consolidated financial statements in Item 8.
The following table summarizes the sensitivity of the fair value of our derivative instruments, including forward contracts and currency swaps, at December 31, 2022 to a 10% change in foreign exchange rates.
10% Increase 10% Decrease
in Rates in Rates
Gain (Loss) Gain (Loss)
Foreign currency rate sensitivity:
Currency swaps $ (63 ) $ 63
Forward contracts $ (39 ) $ 46
At December 31, 2022, of the $1,575 total notional amount of foreign currency derivatives, approximately 61% represents the aggregate of fixed-to-fixed cross-currency interest rate swaps while the remaining 39% primarily represents forward contracts associated with our forecasted foreign currency-denominated sales and purchase transactions.
To manage our global liquidity objectives, we periodically execute intercompany loans, some of which are foreign currency-denominated. With respect to such intercompany loans, the total notional amount outstanding at December 31, 2022 is approximately $846. Depending on the specific objective of each intercompany loan arrangement, certain intercompany loans may be hedged while others remain unhedged for strategic reasons. The decision to hedge the loan, to designate the loan itself as a hedge or not to hedge the loan is dependent on management's underlying strategy. Of the approximately $846 of foreign currency-denominated intercompany loans outstanding at December 31, 2022, $298, or 35%, has been hedged by one of our fixed-to-fixed cross-currency swaps whereby we have protected the income statement from exchange rate risk. Of the remaining 65% of such outstanding intercompany loans, $68 million has been hedged by foreign currency forwards and the remaining balances have not been hedged.
To align our cash requirements with availability by currency, we also periodically issue external debt that is denominated in a currency other than the functional currency of the issuing entity. As of December 31, 2022, we had $400 of external U.S. dollar debt, issued by a euro-functional entity, $300 of which has been hedged by our fixed-to-fixed cross-currency interest rate swaps. Such swaps are treated as cash flow hedges whereby the changes in fair value are recorded in OCI to the extent the hedges remain effective. The remaining $100 has been economically hedged by an offsetting intercompany loan.
At December 31, 2021, the total notional amount of our currency derivative portfolio was $1,545 and included fixed-to-fixed cross-currency interest rate swaps associated with $588 of external debt. The remaining $957 represents currency swaps and forward contracts associated with certain foreign currency-denominated intercompany loans and forecasted sales and purchase transactions.
Commodity price risk — We do not utilize derivative contracts to manage commodity price risk. Our overall strategy is to pass through commodity risk to our customers in our pricing agreements. A substantial portion of our customer agreements include contractual provisions for the pass-through of commodity price movements. In instances where the risk is not covered contractually, we have generally been able to adjust customer pricing to recover commodity cost increases.
28
Table of Contents
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Dana Incorporated
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheet of Dana Incorporated and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts and reserves for each of the three years in the period ended December 31, 2022 appearing under Item 8 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
29
Table of Contents
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Interim Goodwill Impairment Assessment – Commercial Vehicle Reporting Unit
As described in Notes 1 and 3 to the consolidated financial statements, goodwill impairment testing is performed at the reporting unit level, which is the operating segment in the case of both Off-Highway and Commercial Vehicle goodwill. The Company’s consolidated goodwill balance was $259 million as of December 31, 2022. During the third quarter of 2022, management concluded a triggering event had occurred and performed interim goodwill impairment analyses for the Commercial Vehicle and Off-Highway reporting units. Based on the results of management’s interim impairment analyses, management concluded that the carrying value exceeded fair value of the Commercial Vehicle reporting unit and the Company recorded a goodwill impairment charge of $191 million, representing a full impairment of goodwill assigned to the Commercial Vehicle reporting unit. Management estimates the fair value of the reporting units using a model that incorporates various valuation methodologies, including discounted cash flow projections and multiples of current earnings. In determining fair value using discounted cash flow projections, management makes significant assumptions and estimates about the extent and timing of future cash flows, including revenue growth rates, projected segment EBITDA, discount rates, and terminal growth rates.
The principal considerations for our determination that performing procedures relating to the interim goodwill impairment assessment of the Commercial Vehicle reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Commercial Vehicle reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to projected segment EBITDA and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s interim goodwill impairment assessment, including controls over the valuation of the Commercial Vehicle reporting unit. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Commercial Vehicle reporting unit; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness and accuracy of the underlying data used in the discounted cash flow model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to projected segment EBITDA and the discount rate. Evaluating management’s significant assumption related to projected segment EBITDA involved evaluating whether the assumption used by management was reasonable considering (i) the current and past performance of the Commercial Vehicle reporting unit; (ii) the consistency with external market and industry data; and (iii) whether this assumption was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow model and (ii) the reasonableness of the discount rate significant assumption.
/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
We have served as the Company’s auditor since 1916.
30
Table of Contents
Dana Incorporated
Consolidated Statement of Operations
(In millions, except per share amounts)
Costs and expenses
Selling, general and administrative expenses 495 460 421
Amortization of intangibles 14 14 13
Restructuring charges, net (1 ) 34
Impairment of goodwill (191 ) (51 )
Other income (expense), net 22 32 22
Earnings before interest and income taxes 86 395 124
Loss on extinguishment of debt (29 ) (8 )
Interest income 11 9 9
Earnings (loss) before income taxes (31 ) 244 (13 )
Equity in earnings of affiliates 4 28 20
Less: Noncontrolling interests net income 15 14 10
Less: Redeemable noncontrolling interests net loss (84 ) (11 ) (30 )
Net income (loss) attributable to the parent company $ (242 ) $ 197 $ (31 )
Net income (loss) per share available to common stockholders
Weighted-average common shares outstanding
The accompanying notes are an integral part of the consolidated financial statements.
31
Table of Contents
Dana Incorporated
Consolidated Statement of Comprehensive Income
(In millions)
Other comprehensive income (loss), net of tax:
Currency translation adjustments (102 ) (9 ) (77 )
Hedging gains and losses 17 (5 ) 39
Defined benefit plans 53 53 9
Other comprehensive income (loss) (32 ) 39 (29 )
Total comprehensive income (loss) (343 ) 239 (80 )
The accompanying notes are an integral part of the consolidated financial statements.
32
Table of Contents
Dana Incorporated
Consolidated Balance Sheet
(In millions, except share and per share amounts)
Assets
Current assets
Cash and cash equivalents $ 425 $ 268
Marketable securities 17
Accounts receivable
Other noncurrent assets 123 131
Investments in affiliates 136 174
Property, plant and equipment, net 2,193 2,199
Liabilities, redeemable noncontrolling interests and equity
Current liabilities
Short-term debt $ 52 $ 23
Current portion of long-term debt 8 8
Accrued payroll and employee benefits 214 184
Taxes on income 54 41
Current portion of operating lease liabilities 36 43
Other accrued liabilities 277 304
Noncurrent operating lease liabilities 277 209
Pension and postretirement obligations 298 398
Other noncurrent liabilities 249 292
Commitments and contingencies (Note 15)
Redeemable noncontrolling interests 195 198
Parent company stockholders' equity
Treasury stock, at cost (zero and 11,661,591 shares) — (184 )
Accumulated other comprehensive loss (1,001 ) (985 )
Total parent company stockholders' equity 1,551 1,922
Noncontrolling interests 52 53
The accompanying notes are an integral part of the consolidated financial statements.
33
Table of Contents
Dana Incorporated
Consolidated Statement of Cash Flows
(In millions)
Operating activities
Amortization of deferred financing charges 5 6 8
Redemption premium on debt 21
Write-off of deferred financing costs 8 8
Earnings of affiliates, net of dividends received 23 (10 ) 7
Stock compensation expense 19 17 14
Deferred income taxes 153 (1 ) (35 )
Pension expense, net (1 ) (1 ) 3
Gain on sale leaseback (66 )
Impairment of goodwill 191 51
Change in other noncurrent assets and liabilities 9 (3 ) (20 )
Net cash provided by operating activities 649 158 386
Investing activities
Purchases of property, plant and equipment (440 ) (369 ) (326 )
Proceeds from sale of property, plant and equipment 3 85 11
Acquisition of businesses, net of cash acquired (1 ) (18 ) (6 )
Investments in affiliates (23 ) (21 )
Purchases of marketable securities (15 ) (32 ) (44 )
Proceeds from sales of marketable securities 30 5
Proceeds from maturities of marketable securities 30 35 36
Proceeds from sale of equity affiliate 29 21
Proceeds from sale of subsidiaries, net of cash disposed (4 )
Settlement of terminated fixed-to-fixed cross currency swap (22 )
Settlements of undesignated derivatives (8 ) (4 ) (5 )
Other, net 5 2
Net cash used in investing activities (426 ) (293 ) (327 )
Financing activities
Net change in short-term debt 33 (3 ) 9
Repayment of long-term debt (24 ) (1,156 ) (480 )
Redemption premium on debt (21 )
Deferred financing payments (18 ) (13 )
Dividends paid to common stockholders (58 ) (58 ) (15 )
Repurchases of common stock (25 ) (23 )
Distributions to noncontrolling interests (9 ) (15 ) (11 )
Contributions from redeemable noncontrolling interests 51 14 4
Sale of interest to noncontrolling shareholder 9
Deconsolidation of non-wholly owned subsidiary (6 ) (14 )
Payments to acquire noncontrolling interests (4 ) (7 )
Other, net (8 ) 2 (2 )
Net cash used in financing activities (42 ) (127 ) (12 )
Cash, cash equivalents and restricted cash - beginning of period 287 567 518
Effect of exchange rate changes on cash balances (26 ) (18 ) 2
Cash, cash equivalents and restricted cash - end of period $ 442 $ 287 $ 567
The accompanying notes are an integral part of the consolidated financial statements.
34
Table of Contents
Dana Incorporated
Consolidated Statement of Stockholders’ Equity
(In millions)
Parent Company Stockholders'
Accumulated Parent
Additional Other Company Non-
Stock Stock Capital Earnings Stock Loss Equity Interests Equity
Other comprehensive income (loss) (40 ) (40 ) 17 (23 )
Distributions to noncontrolling interests — (11 ) (11 )
Purchase of noncontrolling interests 10 10 (23 ) (13 )
Sale of noncontrolling interests — 2 2
Deconsolidation of non-wholly owned subsidiary (7 ) 1 (6 ) (14 ) (20 )
Stock withheld for employees taxes (6 ) (6 ) (6 )
Other comprehensive income (loss) 41 41 (12 ) 29
Common stock share repurchases (23 ) (23 ) (23 )
Distributions to noncontrolling interests — (15 ) (15 )
Purchase of noncontrolling interests — (2 ) (2 )
Sale of noncontrolling interests — (1 ) (1 )
Deconsolidation of non-wholly owned subsidiary — (8 ) (8 )
Other — 1 1
Stock withheld for employees taxes (5 ) (5 ) (5 )
Other comprehensive loss (16 ) (16 ) (5 ) (21 )
Common stock share repurchases (25 ) (25 ) (25 )
Retirement of treasury shares (216 ) 216 — —
Distributions to noncontrolling interests — (9 ) (9 )
Purchase of noncontrolling interests — (2 ) (2 )
Stock withheld for employees taxes (7 ) (7 ) (7 )
The accompanying notes are an integral part of the consolidated financial statements.
35
Table of Contents
Dana Incorporated
Index to Notes to the Consolidated
Financial Statements
Page
1. Organization and Summary of Significant Accounting Policies 37
2. Acquisitions 40
3. Goodwill and Other Intangible Assets 41
4. Restructuring of Operations 42
5. Inventories 43
6. Supplemental Balance Sheet and Cash Flow Information 43
8. Stockholders' Equity 45
9. Redeemable Noncontrolling Interests 46
10. Earnings per Share 47
11. Stock Compensation 47
12. Pension and Postretirement Benefit Plans 49
13. Financing Agreements 55
14. Fair Value Measurements and Derivatives 58
15. Commitments and Contingencies 60
16. Warranty Obligations 61
18. Other Income (Expense), Net 64
19. Revenue from Contracts with Customers 64
20. Segments, Geographical Area and Major Customer Information 66
21. Equity Affiliates 68
36
Table of Contents
Notes to the Consolidated Financial Statements
(In millions, except share and per share amounts)
Note 1. Organization and Summary of Significant Accounting Policies
General
Dana Incorporated (Dana) is headquartered in Maumee, Ohio, and was incorporated in Delaware in 2007. As a global provider of high technology driveline (axles, driveshafts and transmissions); sealing and thermal-management products; and motors, power inverters, and control systems for electric vehicles, our customer base includes virtually every major vehicle manufacturer in the global light vehicle, medium/heavy vehicle, and off-highway markets.
The terms "Dana," "we," "our" and "us," when used in this report are references to Dana. These references include the subsidiaries of Dana unless otherwise indicated or the context requires otherwise.
Summary of significant accounting policies
Basis of presentation — Our consolidated financial statements include the accounts of all subsidiaries where we hold a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in 20 to 50%-owned affiliates, which are not required to be consolidated, are generally accounted for under the equity method. Equity in earnings of these investments is presented separately in the consolidated statement of operations, net of tax. Investments in less-than-20%-owned companies are generally included in the financial statements at the cost of our investment. Dividends, royalties and fees from these cost basis affiliates are recorded in income when received. Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.
During the first quarter of 2022, we identified an error related to certain intercompany inventory transfers that were not appropriately eliminated and recorded an adjustment of $8 that increased cost of sales. During the fourth quarter of 2022, we identified errors in accounts payable and certain other current liabilities that resulted in an overstatement of those liabilities and recorded an adjustment of $9 that decreased cost of sales. A portion of both these adjustments relate to prior periods. We concluded that the corrections of these errors are not material to the financial statements for the year ended December 31, 2022 or any prior periods.
In the fourth quarter of 2022, we determined that our short-term investments in certificates of deposit included in marketable securities qualified as cash equivalents. These investments allow us to withdraw our funds at any time without prior notice or significant penalty, therefore these investments function as demand deposits. This change in classification has been reflected as an investing activity cash inflow of $13 within the proceeds from maturities of marketable securities line item.
Held for sale — We classify long-lived assets or disposal groups as held for sale in the period: management commits to a plan to sell; the long-lived asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such long-lived assets or disposal groups; an active program to locate a buyer and other actions required to complete the plan to sell have been initiated; the sale is probable within one year; the asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Long-lived assets and disposal groups classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell.
Discontinued operations — The results of operations of a component or a group of components that either has been disposed of or is classified as held for sale is reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on operations and financial results.
Estimates — Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP), which require the use of estimates, judgments and assumptions that affect the amounts reported in our consolidated financial statements and accompanying disclosures. We believe our assumptions and estimates are reasonable and appropriate. However, due to the inherent uncertainties in making estimates, actual results could differ from those estimates.
Fair value measurements — A three-tier fair value hierarchy is used to prioritize the inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows: Level 1 inputs (highest priority) include unadjusted quoted prices in active markets for identical instruments. Level 2 inputs include quoted prices for similar instruments that are observable either directly or indirectly. Level 3 inputs (lowest priority) include unobservable inputs in which there is little or no market data, which require management to develop its own assumptions. Classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The inputs we use in our valuation techniques include market data or assumptions that we believe market participants would use in pricing an asset or liability, including assumptions about risk when appropriate. Our valuation techniques include a combination of observable and unobservable inputs. When available, we use quoted market prices to determine the fair value (market approach). In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, we consider the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of credit risk that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date (income approach). Fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future.
Cash and cash equivalents — Cash and cash equivalents includes cash on hand, demand deposits and short-term cash investments that are highly liquid in nature and have maturities of three months or less when purchased.
Inventories — Inventories are valued at the lower of cost or net realizable value. Cost is determined using the average or first-in, first-out (FIFO) cost method.
37
Table of Contents
Property, plant and equipment — Property, plant and equipment are recorded at cost. Depreciation is recognized over the estimated useful lives using primarily the straight-line method for financial reporting purposes and accelerated depreciation methods for federal income tax purposes. Useful lives of newly acquired assets are generally twenty to thirty years for buildings and building improvements, five to ten years for machinery and equipment, three to five years for tooling and office equipment and three to ten years for furniture and fixtures. If assets are impaired, their value is reduced via an increase in accumulated depreciation.
Leases — Our global lease portfolio represents leases of real estate, including manufacturing, assembly and office facilities, while the remainder represents leases of personal property, including manufacturing, material handling and IT equipment. We have lease agreements with lease and non-lease components, which are accounted for separately. Leases with an initial term of twelve months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term. Generally, we use our incremental borrowing rate in determining the present value of lease payments, unless there is a rate stated in the lease agreement.
Pre-production costs related to long-term supply arrangements — The costs of tooling used to make products sold under long-term supply arrangements are capitalized as part of property, plant and equipment and depreciated over their useful lives if we own the tooling or if we fund the purchase but our customer owns the tooling and grants us the irrevocable right to use the tooling over the contract period. If we have a contractual right to bill our customers, costs incurred in connection with the design and development of tooling are carried as a component of other accounts receivable until invoiced. Design and development costs related to customer products are deferred if we have an agreement to collect such costs from the customer; otherwise, they are expensed when incurred. At December 31, 2022, the machinery and equipment component of property, plant and equipment includes $28 of our tooling related to long-term supply arrangements. Also at December 31, 2022, other accounts receivable includes $38 of costs related to tooling that we have a contractual right to collect from our customers.
Goodwill — We test goodwill for impairment annually as of October 31 and more frequently if events occur or circumstances change that would warrant an interim review. Goodwill impairment testing is performed at the reporting unit level, which is the operating segment in the case of our Off-Highway and Commercial Vehicle goodwill. A multi-step impairment test is performed on goodwill. In Step 0, we have the option to evaluate various qualitative factors to determine the likelihood of impairment. This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in the Company’s management, strategy and primary customer base. If we determine that the fair value is more likely than not less than the carrying value, then we are required to perform Step 1. If we do not elect to perform Step 0, we can voluntarily proceed directly to Step 1. In Step 1, we estimate the fair value of the reporting units using a model that incorporates various valuation methodologies, including discounted cash flow projections and multiples of current earnings. 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 segment EBITDA, discount rates, and terminal growth rates. If the estimated fair value of the reporting unit exceeds its carrying value, the goodwill is considered not impaired. If the carrying value of the reporting unit exceeds its estimated fair value, a goodwill impairment charge is recorded for the difference. See Note 3 for more information about goodwill.
Intangible assets — Intangible assets include the value of core technology, trademarks and trade names and customer relationships. Core technology and customer relationships have definite lives while the majority of our trademarks and trade names have indefinite lives. Definite-lived intangible assets are amortized over their useful life using the straight-line method of amortization and are periodically reviewed for impairment indicators. Amortization of core technology is charged to cost of sales. Amortization of trademarks and trade names and customer relationships is charged to amortization of intangibles. Indefinite-lived intangible assets are tested for impairment annually and more frequently if impairment indicators exist. See Note 3 for more information about intangible assets.
Investments in affiliates — Investments in affiliates include investments accounted for under the equity and cost methods. We monitor our investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with GAAP. Indicators include, but are not limited to, current economic and market conditions, operating performance of the affiliate, including current earnings trends and undiscounted cash flows, and other affiliate-specific information. If we determine that an other-than-temporary decline in value has occurred, we recognize an impairment loss, which is measured as the excess of the investment's recorded carrying value over its fair value. The fair value determination, particularly for investments in privately-held companies, requires significant judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investments and determination of whether any identified impairment is other than temporary. See Note 21 for further information about our investment in affiliates.
Tangible asset impairments — We review the carrying value of depreciable long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the undiscounted future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of are reported at the lower of their carrying amount or fair value less costs to sell and are no longer depreciated.
Other long-lived assets and liabilities — We discount our workers’ compensation obligations by applying blended risk-free rates that are appropriate for the duration of the projected cash flows. The use of risk-free rates is considered appropriate given that other risks affecting the volume and timing of payments have been considered in developing the probability-weighted projected cash flows. The blended risk-free rates are revised annually to consider incremental cash flow projections.
Financial instruments — The carrying values of cash and cash equivalents, trade receivables, notes receivable and short-term borrowings approximate fair value. Borrowings under our credit facilities are carried at historical cost and adjusted for principal payments and foreign currency fluctuations.
Derivatives — Foreign currency forward contracts and currency swaps are carried at fair value. We enter into these contracts to manage our exposure to the impact of currency fluctuations on certain foreign currency-denominated assets and liabilities and on a portion of our forecasted purchase and sale transactions. On occasion, we also enter into net investment hedges to protect the translated U.S. dollar value of our investment in certain foreign subsidiaries. We also periodically enter into fixed-to-fixed cross-currency swaps on foreign currency-denominated external or intercompany debt instruments to reduce our exposure to foreign currency exchange rate risk. We do not use derivatives for trading or speculative purposes and we do not hedge all of our exposures.
38
Table of Contents
For derivative instruments designated as cash flow hedges, at the cash flow hedge’s inception and on an ongoing basis, the company formally assesses whether the cash flow hedging instruments have been highly effective in offsetting changes in the cash flows of the hedged transactions and whether those cash flow hedging instruments may be expected to remain highly effective in future periods. Changes in the fair value of currency-related contracts treated as cash flow hedges are deferred and included as a component of other comprehensive income (loss) (OCI). For our fixed-to-fixed cross-currency swaps, a review of critical terms is performed each period to establish that an assumption of effectiveness remains appropriate. Deferred gains and losses are reclassified to earnings in the same periods in which the underlying transactions affect earnings.
Changes in the fair value of contracts treated as net investment hedges are recorded in the cumulative translation adjustment (CTA) component of OCI. Amounts recorded in CTA are deferred until such time as the investment in the associated subsidiary is substantially liquidated. Changes in the fair value of contracts not treated as cash flow hedges or as net investment hedges are recognized in other income (expense), net in the period in which those changes occur.
We may also use fixed-to-floating or floating-to-fixed interest rate swaps or other similar derivatives to manage exposure to fluctuations in interest rates and to adjust the mix of our fixed-rate and variable-rate debt. As a fair value hedge of the underlying debt, changes in the fair values of the swap and the underlying debt are recorded in interest expense. No such fixed-to-floating or floating-to-fixed swaps were outstanding at December 31, 2022. See Note 14 for additional information.
Cash flows associated with designated derivatives are classified within the same category as the item being hedged on the consolidated statement of cash flows. Cash flows associated with undesignated derivatives are included in the investing category on the consolidated statement of cash flows.
Warranty — Costs related to product warranty obligations are estimated and accrued at the time of sale with a charge against cost of sales. Warranty accruals are evaluated and adjusted as appropriate based on occurrences giving rise to potential warranty exposure and associated experience. Warranty accruals and adjustments require significant judgment, including a determination of our involvement in the matter giving rise to the potential warranty issue or claim, our contractual requirements, estimates of units requiring repair and estimates of repair costs.
Environmental compliance and remediation — Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to existing conditions caused by past operations that do not contribute to our current or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. We consider the most probable method of remediation, current laws and regulations and existing technology in determining our environmental liabilities.
Pension and other postretirement defined benefits — Net pension and postretirement benefits expenses and the related liabilities are determined on an actuarial basis. These plan expenses and obligations are dependent on management’s assumptions developed in consultation with our actuaries. We review these actuarial assumptions at least annually and make modifications when appropriate. With the input of independent actuaries and other relevant sources, we believe that the assumptions used are reasonable; however, changes in these assumptions, or experience different from that assumed, could impact our financial position, results of operations or cash flows.
Postemployment benefits — Costs to provide postemployment benefits to employees are accounted for on an accrual basis. Obligations that do not accumulate or vest are recorded when payment is probable and the amount can be reasonably estimated. For those obligations that accumulate or vest and the amount can be reasonably estimated, expense and the related liability are recorded as service is rendered.
Equity-based compensation — We measure compensation cost arising from the grant of share-based awards to employees at fair value. We recognize such costs in income over the period during which the requisite service is provided, usually the vesting period. The grant date fair value is estimated using valuation techniques that require the input of management estimates and assumptions.
Government assistance — We account for separate legally enforceable agreements with governments and government agencies where the agreement provides for the government to determine whether Dana will receive assistance and the amount of assistance by applying a contribution accounting model by analogy. The primary forms of government assistance received includes cash grants based on making qualifying capital investments over a specified period of time; cash grants based on creating new jobs, increasing and maintaining qualifying employee headcount over a specified period of time; and cash grants based on investing in specified research and development activities. The agreements include imposed conditions that must be satisfied for us to retain grant proceeds received. Imposed conditions include providing documentation supporting qualified expenditures have been made and may include providing documentation that specified employment levels have been achieved. Imposed conditions related to employment levels typically range from one to five years. Amounts received or receivable from these cash grants are deferred as a liability until such time as we have satisfied all imposed conditions documented in the agreement with the government. Deferred amounts are recorded in other accrued liabilities and other noncurrent liabilities as appropriate. Government assistance received for making qualifying capital investments is realized by reducing the associated fixed assets so long as we have satisfied all imposed conditions by the time the associated fixed assets are placed into service. All other government assistance is realized in other income (expense), net once all imposed conditions have been satisfied. Notes 6 and 18 for additional information.
Revenue recognition — Sales are recognized when products are shipped and risk of loss has transferred to the customer. We accrue for warranty costs, sales returns and other allowances based on experience and other relevant factors when sales are recognized. Adjustments are made as new information becomes available. Shipping and handling fees billed to customers are included in sales, while costs of shipping and handling are included in cost of sales. Taxes collected from customers are excluded from revenues and credited directly to obligations to the appropriate governmental agencies. See Note 19 for additional information.
39
Table of Contents
Foreign currency translation — The financial statements of subsidiaries and equity affiliates outside the U.S. located in non-highly inflationary economies are measured using the currency of the primary economic environment in which they operate as the functional currency, which typically is the local currency. Transaction gains and losses resulting from translating assets and liabilities of these entities into the functional currency are included in other income (expense), net or in equity in earnings of affiliates. When translating into U.S. dollars, income and expense items are translated at average monthly rates of exchange, while assets and liabilities are translated at the rates of exchange at the balance sheet date. Translation adjustments resulting from translating the functional currency into U.S. dollars are deferred and included as a component of accumulated other comprehensive income (loss) (AOCI) in stockholders’ equity. For operations whose functional currency is the U.S. dollar, nonmonetary assets are translated into U.S. dollars at historical exchange rates and monetary assets are translated at current exchange rates with translation gains and losses included in other income (expense), net.
We continue to account for Argentina as a highly inflationary economy and remeasure the financial statements of our Argentine subsidiaries as if their functional currency was the U.S. dollar.
Income taxes — In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax assets or liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available at the reporting dates. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable, the related interest cost has also been recognized as a component of the income tax provision.
A valuation allowance is provided when, in our judgment based upon available information, it is more likely than not that a portion of such deferred tax assets will not be realized. To make this assessment, we consider the historical and projected future taxable income or loss by tax jurisdiction. We consider all components of comprehensive income and weigh the positive and negative evidence, putting greater reliance on objectively verifiable historical evidence than on projections of future profitability that are dependent on actions that have not taken place as of the assessment date. We also consider changes to historical profitability of actions that occurred through the date of assessment and objectively verifiable effects of material forecasted events that would have a sustained effect on future profitability, as well as the effect on historical profits of nonrecurring events. We also incorporate the changes to historical and prospective income from tax planning strategies that are prudent and feasible.
Research and development — Research and development costs include expenditures for research activities relating to product development and improvement. Salaries, fringes and occupancy costs, including building, utility and overhead costs, comprise the vast majority of these expenses and are expensed as incurred. Research and development expenses were $201, $178 and $146 in 2022, 2021 and 2020. Beginning in 2020, we significantly increased our research and development activities in support of our electrification initiatives.
Recently adopted accounting pronouncements
On January 1, 2022, we adopted Accounting Standards Update (ASU) 2021-10,Disclosures by Business Entities about Government Assistance. This guidance is intended to provide clarity on what information must be disclosed when receiving government assistance. Details include the disclosure of the nature of the transactions, line items affected, and significant terms and conditions. The adoption of this standard did not have a material impact on our consolidated financial statements.
Recently issued accounting pronouncements
In October 2021, the FASB issued ASU 2021-08,Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The guidance is intended to provide clarification on how to account for contract assets acquired via business combination, which will generally be at the same value as recognized by the acquiree assuming the acquiree followed US GAAP. The guidance becomes effective January 1, 2023. We do not expect adoption of this guidance to have a material impact on our consolidated financial statements.
In September 2022, the FASB issued ASU 2022-04,Supplier Finance Programs. This guidance enhances the transparency of supplier finance programs which includes disclosing information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. The guidance becomes effective January 1, 2023. We are currently assessing the impact of the guidance on our consolidated financial statements.
Note 2. Acquisitions
Pi Innovo Holdings Limited — On October 20, 2020, we acquired an initial 49% ownership interest in Pi Innovo Holdings Limited (Pi Innovo). Pi Innovo designs, develops and manufactures electronic control units spanning a range of applications and industries. Our initial investment in Pi Innovo was accounted for following the equity method. On March 1, 2021, we acquired the remaining 51% ownership interest in Pi Innovo. The acquisition of the remaining ownership interest provides us with a 100% ownership interest in Pi Innovo. The total purchase consideration of $35 is comprised of $18 of cash paid at closing and the $17 fair value of our previously held equity method investment in Pi Innovo. The results of operations of the business are reported within our Commercial Vehicle operating segment. The pro forma effects of this acquisition would not materially impact our reported results for any period presented, and as a result no pro forma financial information is presented.
40
Table of Contents
Ashwoods Innovations Limited — On February 28, 2019, through our acquisition of Oerlikon Drive Systems, we acquired an initial 62.4% ownership interest in Ashwoods Innovations Limited (Ashwoods). Ashwoods designs and manufactures permanent magnet electric motors for the automotive, material handling and off-highway vehicle markets. Our initial investment in Ashwoods was accounted for following the equity method. On February 5, 2020, we acquired Curtis Instruments, Inc.'s (Curtis) 35.4% ownership interest in Ashwoods. The acquisition of Curtis' interest in Ashwoods, along with our existing ownership interest in Ashwoods, provided us with a 97.8% ownership interest and a controlling financial interest in Ashwoods. We recognized a $3 gain to other income (expense), net on the required remeasurement of our previously held equity method investment in Ashwoods to fair value. The total purchase consideration of $22 is comprised of $8 of cash paid to Curtis at closing, the $10 fair value of our previously held equity method investment in Ashwoods and $4 related to the effective settlement of a pre-existing loan payable due from Ashwoods. During March 2020, we acquired the remaining noncontrolling interests in Ashwoods held by employee shareholders. The results of operations of the business are reported within our Off-Highway operating segment. The pro forma effects of this acquisition would not materially impact our reported results for any period presented, and as a result no pro forma financial information is presented.
Note 3. Goodwill and Other Intangible Assets
Goodwill — Our goodwill is tested for impairment annually as of October 31 for all of our reporting units, and more frequently if events or circumstances warrant such a review. We evaluated macro-economic conditions during the third quarter of 2022, including the impact of the Federal Reserve further increasing the risk-free interest rate, as well as the negative impact of sustained higher commodity costs, non-material cost increases and operational inefficiencies attributable to continued global supply chain disruptions. We believe that these conditions were factors in our market capitalization falling below the book value of net assets as of September 30, 2022. Accordingly, we concluded a triggering event had occurred and performed interim goodwill impairment analyses for our Commercial Vehicle and Off-Highway reporting units.
Based on the results of our interim impairment analyses, we concluded that the carrying value exceeded fair value of our Commercial Vehicle reporting unit and we recorded a goodwill impairment charge of $191, representing a full impairment of goodwill assigned to the Commercial Vehicle reporting unit. Our analysis for the Off-Highway reporting unit indicated that the fair value exceeded the carrying value by a substantial amount and, accordingly, no impairment charge was required. We completed our annual impairment test for the Off-Highway reporting unit and concluded that fair value continues to exceed the carrying value.
The remaining change in the carrying amount of goodwill in 2022 was due to currency fluctuation.
Changes in the carrying amount of goodwill by segment —
Light Vehicle Commercial Vehicle Off-Highway Power Technologies Total
Currency impact 2 (10 ) (8 )
Currency impact (10 ) (22 ) (32 )
Non-amortizable intangible assets — Our non-amortizable intangible assets include a portion of our trademarks and trade names. Non-amortizable trademarks and trade names consist of the Dana®, Spicer® and TM4® trademarks and trade names utilized in our Commercial Vehicle and Off-Highway segments. We value trademarks and trade names using a relief from royalty method which is based on revenue streams. No impairment was recorded during the two years ended December 31, 2022 in connection with the required annual assessment for trademarks and trade names.
Amortizable intangible assets — Our amortizable intangible assets include core technology, customer relationships and a portion of our trademarks and trade names. Core technology includes the proprietary know-how and expertise that is inherent in our products and manufacturing processes. Customer relationships include the established relationships with our customers and the related ability of these customers to continue to generate future recurring revenue and income. Amortizable trademarks and trade names includes the GrazianoTM, Fairfield® and Brevini® trademarks and trade names utilized in our Off-Highway segment.
These assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We group the assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the undiscounted future cash flows. We use our internal forecasts, which we update quarterly, to develop our cash flow projections. These forecasts are based on our knowledge of our customers’ production forecasts, our assessment of market growth rates, net new business, material and labor cost estimates, cost recovery agreements with customers and our estimate of savings expected from our restructuring activities. The most likely factors that would significantly impact our forecasts are changes in customer production levels and loss of significant portions of our business. Our valuation is applied over the life of the primary assets within the asset groups. If the undiscounted cash flows do not indicate that the carrying amount of the asset group is recoverable, an impairment charge is recorded if the carrying amount of the asset group exceeds its fair value based on discounted cash flow analyses or appraisals. There were no impairments recorded during the two years ended December 31, 2022.
41
Table of Contents
Components of other intangible assets —
Weighted
Average Gross Accumulated Net Gross Accumulated Net
Useful Life Carrying Impairment and Carrying Carrying Impairment and Carrying
(years) Amount Amortization Amount Amount Amortization Amount
Amortizable intangible assets
Non-amortizable intangible assets
The net carrying amounts of intangible assets, other than goodwill, attributable to each of our operating segments at December 31, 2022 were as follows: Light Vehicle – $16, Commercial Vehicle – $66, Off-Highway – $114 and Power Technologies – $5.
Amortization expense related to amortizable intangible assets —
Charged to cost of sales $ 9 $ 10 $ 7
Charged to amortization of intangibles 14 14 13
Total amortization $ 23 $ 24 $ 20
The following table provides the estimated aggregate pre-tax amortization expense related to intangible assets for each of the next five years based on December 31, 2022 exchange rates. Actual amounts may differ from these estimates due to such factors as currency translation, customer turnover, impairments, additional intangible asset acquisitions and other events.
Note 4. Restructuring of Operations
Our restructuring activities have historically included rationalizing our operating footprint by consolidating facilities, positioning operations in lower cost locations and reducing overhead costs. In recent years, our focus has been primarily headcount reduction initiatives to reduce operating costs, including actions taken at acquired businesses to rationalize cost structures and achieve operating synergies. Restructuring expense includes costs associated with current and previously announced actions and is comprised of contractual and noncontractual separation costs and exit costs, including certain operating costs of facilities that we are in the process of closing.
Accrued restructuring costs and activity, including noncurrent portion —
Employee
Termination Exit
Benefits Costs Total
Charges to restructuring 30 6 36
Adjustments of accruals (2 ) (2 )
Cash payments (12 ) (7 ) (19 )
Currency impact 1 1
Charges to restructuring 2 5 7
Adjustments of accruals (7 ) (7 )
Cash payments (13 ) (5 ) (18 )
Currency impact (1 ) (1 )
Charges to restructuring 2 2 4
Adjustments of accruals (5 ) (5 )
Cash payments (6 ) (2 ) (8 )
At December 31, 2022, accrued employee termination benefits include costs to reduce approximately 100 employees to be completed over the next year.
42
Table of Contents
Note 5. Inventories
Inventory components at December 31 —
Work in process and finished goods 1,023 1,000
Inventory reserves (93 ) (87 )
Note 6. Supplemental Balance Sheet and Cash Flow Information
Supplemental balance sheet information at December 31 —
Other current assets:
Other noncurrent assets:
Customer incentive payments $ 28 $ 38
Prepaid expenses 3 2
Deferred financing costs 4 6
Pension assets, net of related obligations 9 15
Property, plant and equipment, net:
Land and improvements to land $ 187 $ 193
Buildings and building fixtures 605 590
Finance lease right-of-use assets 57 64
Less: accumulated depreciation (2,764 ) (2,520 )
Other accrued liabilities (current):
Non-income taxes payable $ 54 $ 54
Accrued interest 29 25
Warranty reserves 35 51
Deferred income 8
Workplace injury costs 5 5
Restructuring costs 2 11
Payable under forward contracts 11 1
Environmental 3 5
Deferred government assistance 3
Other noncurrent liabilities:
Income tax liability $ 58 $ 68
Interest rate swap market valuation 11 51
Deferred income tax liability 30 32
Workplace injury costs 14 15
Warranty reserves 73 56
Deferred government assistance 16
Other noncurrent liabilities 47 70
43
Table of Contents
Cash, cash equivalents and restricted cash at —
Restricted cash included in other current assets 7 9 5 6
Restricted cash included in other noncurrent assets 10 10 3 4
Total cash, cash equivalents and restricted cash $ 442 $ 287 $ 567 $ 518
Supplemental cash flow information —
Change in working capital:
Change in accounts receivable $ (81 ) $ (189 ) $ (66 )
Change in inventories (99 ) (471 ) 69
Change in accrued payroll and employee benefits 36 3 (22 )
Change in accrued income taxes 10 (44 ) (9 )
Change in other current assets and liabilities (10 ) (8 ) (7 )
Cash paid during the period for:
Noncash investing and financing activities:
Stock compensation plans 17 18 12
Noncash dividends declared 1 1 —
Note 7. Leases
Our leases generally have remaining lease terms of one year to twenty years, some of which include options to extend the leases for up to forty years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.