UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form
| | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended:
OR
| | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period From to
Commission File Number:
Dana Incorporated
(Exact name of registrant as specified in its charter)
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
There were
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
TABLE OF CONTENTS
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10-Q Pages |
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| Item 1 |
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| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3 |
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| Item 4 |
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| Item 1 |
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| Item 1A |
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| Item 2 |
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| Item 6 |
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dana Incorporated
Consolidated Statement of Operations (Unaudited)
(In millions, except per share amounts)
| Three Months Ended |
Nine Months Ended |
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| September 30, |
September 30, |
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| 2020 |
2019 |
2020 |
2019 |
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| Net sales |
$ | $ | $ | $ | ||||||||||||
| Costs and expenses |
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| Cost of sales |
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| Selling, general and administrative expenses |
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| Amortization of intangibles |
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| Restructuring charges, net |
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| Impairment of goodwill |
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| Pension settlement charge |
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| Other income (expense), net | ( |
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| Earnings before interest and income taxes |
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| Write-off deferred financing costs | ( |
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| Interest income |
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| Interest expense |
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| Earnings (loss) before income taxes |
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| Income tax expense (benefit) |
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| Equity in earnings of affiliates |
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| Net income (loss) |
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| Less: Noncontrolling interests net income | ||||||||||||||||
| Less: Redeemable noncontrolling interests net loss | ( |
) | ( |
) | ( |
) | ( |
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| Net income (loss) attributable to the parent company |
$ | $ | $ | ( |
) | $ | ||||||||||
| Net income (loss) per share available to common stockholders |
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| Basic | $ | $ | $ | ( |
) | $ | ||||||||||
| Diluted | $ | $ | $ | ( |
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| Weighted-average common shares outstanding |
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| Basic |
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| Diluted |
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The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statement of Comprehensive Income (Unaudited)
(In millions)
| Three Months Ended |
Nine Months Ended |
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| September 30, |
September 30, |
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| 2020 |
2019 |
2020 |
2019 |
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| Net income (loss) |
$ | $ | $ | ( |
) | $ | ||||||||||
| Other comprehensive income (loss), net of tax: |
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| Currency translation adjustments |
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| Hedging gains and losses |
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| Defined benefit plans |
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| Other comprehensive income (loss) |
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| Total comprehensive income (loss) |
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| Less: Comprehensive (income) loss attributable to noncontrolling interests |
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| Less: Comprehensive (income) loss attributable to redeemable noncontrolling interests |
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| Comprehensive income (loss) attributable to the parent company |
$ | $ | $ | ( |
) | $ | ||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Balance Sheet (Unaudited)
(In millions, except share and per share amounts)
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Accounts receivable | ||||||||
| Trade, less allowance for doubtful accounts of $ in 2020 and $ in 2019 | ||||||||
| Other | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Goodwill | ||||||||
| Intangibles | ||||||||
| Deferred tax assets | ||||||||
| Other noncurrent assets | ||||||||
| Investments in affiliates | ||||||||
| Operating lease assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and equity | ||||||||
| Current liabilities | ||||||||
| Short-term debt | $ | $ | ||||||
| Current portion of long-term debt | ||||||||
| Accounts payable | ||||||||
| Accrued payroll and employee benefits | ||||||||
| Taxes on income | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Other accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, less debt issuance costs of $ in 2020 and $ in 2019 | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Pension and postretirement obligations | ||||||||
| Other noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Redeemable noncontrolling interests | ||||||||
| Parent company stockholders' equity | ||||||||
| Preferred stock, shares authorized, $ par value, shares outstanding | ||||||||
| Common stock, shares authorized, $ par value, and shares outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost ( and shares) | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total parent company stockholders' equity | ||||||||
| Noncontrolling interests | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statement of Cash Flows (Unaudited)
(In millions)
| Nine Months Ended |
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| September 30, |
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| 2020 |
2019 |
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| Operating activities |
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| Net income (loss) |
$ | ( |
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| Depreciation | ||||||||
| Amortization | ||||||||
| Amortization of deferred financing charges | ||||||||
| Write-off of deferred financing costs | ||||||||
| Earnings of affiliates, net of dividends received | ( |
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| Stock compensation expense | ||||||||
| Deferred income taxes | ( |
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| Pension expense, net | ||||||||
| Impairment of goodwill | ||||||||
| Change in working capital | ( |
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| Other, net | ( |
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| Net cash provided by operating activities |
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| Investing activities |
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| Purchases of property, plant and equipment | ( |
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| Acquisition of businesses, net of cash acquired | ( |
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| Purchases of marketable securities | ( |
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| Proceeds from sales and maturities of marketable securities | ||||||||
| Settlements of undesignated derivatives | ( |
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| Other, net | ( |
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| Net cash used in investing activities |
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| Financing activities |
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| Net change in short-term debt | ( |
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| Proceeds from long-term debt | ||||||||
| Repayment of long-term debt | ( |
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| Deferred financing payments | ( |
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| Dividends paid to common stockholders | ( |
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| Distributions to noncontrolling interests | ( |
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| Sale of interest to noncontrolling shareholder | ||||||||
| Contributions from noncontrolling interests | ||||||||
| Payments to acquire noncontrolling interests | ( |
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| Repurchases of common stock | ( |
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| Other, net | ( |
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| Net cash provided by financing activities |
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| Net increase (decrease) in cash, cash equivalents and restricted cash |
( |
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| Cash, cash equivalents and restricted cash – beginning of period | ||||||||
| Effect of exchange rate changes on cash balances | ( |
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| Cash, cash equivalents and restricted cash – end of period (Note 5) |
$ | $ | ||||||
| Non-cash investing activity |
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| Purchases of property, plant and equipment held in accounts payable | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
Index to Notes to Consolidated Financial Statements
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Notes to Consolidated Financial Statements (Unaudited)
(In millions, except share and per share amounts)
Note 1. Organization and Summary of Significant Accounting Policies
General
Dana Incorporated (Dana) is headquartered in Maumee, Ohio and was incorporated in Delaware in 2007. As a global provider of high technology driveline (axles, driveshafts and transmissions); sealing and thermal-management products; and motors, power inverters, and control systems for electric vehicles our customer base includes virtually every major vehicle manufacturer in the global light vehicle, medium/heavy vehicle and off-highway markets.
The terms "Dana," "we," "our" and "us," when used in this report, are references to Dana. These references include the subsidiaries of Dana unless otherwise indicated or the context requires otherwise.
Summary of significant accounting policies
Basis of presentation — Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. These statements are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods. The results reported in these consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Form 10-K).
During the second quarter of 2020, we identified an error in the loss attributable to redeemable noncontrolling interests due to incorrectly excluding the share of the goodwill impairment charge related to the redeemable noncontrolling interests. Of the $
We concluded that the error was not material to the financial statements for the quarter ended March 31, 2020 and therefore, amendment of the previously filed Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 is not required. In accordance with ASC Topic 250, "Accounting Changes and Error Corrections," we have corrected the error in the prior period by revising the year-to-date consolidated financial statements appearing herein. The first quarter of 2020 not presented herein will be revised, as applicable, in future filings. The following historical consolidated financial information includes both the consolidated financial information “as previously reported” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as well as the consolidated financial information “as revised” to reflect the correction of the error.
| Three Months Ended March 31, | ||||||||||||
| 2020 | ||||||||||||
| As Previously Reported | Adjustment | As Revised | ||||||||||
| (unaudited) | ||||||||||||
| Consolidated Statement of Operations | ||||||||||||
| Net income | $ | $ | $ | |||||||||
| Less: Noncontrolling interests net income | ||||||||||||
| Less: Redeemable noncontrolling interests net loss | ( | ) | ( | ) | ( | ) | ||||||
| Net income attributable to the parent company | $ | $ | $ | |||||||||
| Net income per share available to common stockholders | ||||||||||||
| Basic | $ | $ | $ | |||||||||
| Diluted | $ | $ | $ | |||||||||
| Consolidated Statement of Comprehensive Income | ||||||||||||
| Total comprehensive loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Less: Comprehensive loss attributable to noncontrolling interests | ||||||||||||
| Less: Comprehensive (income) loss attributable to redeemable noncontrolling interests | ( | ) | ||||||||||
| Comprehensive income (loss) attributable to the parent company | $ | ( | ) | $ | $ | ( | ) | |||||
| Period Ended March 31, | ||||||||||||
| 2020 | ||||||||||||
| As Previously Reported | Adjustment | As Revised | ||||||||||
| (unaudited) | ||||||||||||
| Consolidated Balance Sheet | ||||||||||||
| Redeemable noncontrolling interests | $ | $ | ( | ) | $ | |||||||
| Retained earnings | $ | $ | $ | |||||||||
Recently adopted accounting pronouncements
On January 1, 2020, we adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, using the modified retrospective approach and an application date of January 1, 2020. This guidance introduces a new approach to estimating credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The adoption resulted in a noncash cumulative effect adjustment to retained earnings on our opening consolidated balance sheet as of January 1, 2020.
We also adopted the following standard during the first nine months of 2020, which did not have a material impact on our financial statements or financial statement disclosures:
| Standard |
| Effective Date | ||
| 2018-15 |
| Intangibles – Goodwill and Other – Internal-Use Software, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract |
| January 1, 2020 |
| 2018-14 | Compensation – Retirement Benefits – Defined Benefit Plans – General, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans | January 1, 2020 | ||
| 2018-13 | Fair Value Measurement, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement | January 1, 2020 | ||
Recently issued accounting pronouncements
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance is intended to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The amendments in this ASU are elective and are effective upon issuance for all entities through December 31, 2022. We are currently assessing the impact of this guidance on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. This guidance is intended to simplify various aspects of income tax accounting including the elimination of certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This guidance becomes effective January 1, 2021 and early adoption is permitted. Adoption of this guidance requires certain changes to primarily be made prospectively, with some changes to be made retrospectively. We are currently assessing the impact of this guidance on our consolidated financial statements.
Ashwoods Innovations Limited — On February 5, 2020, we acquired Curtis Instruments, Inc.'s (Curtis)
Nordresa — On August 26, 2019, we acquired a
Hydro-Québec Relationship — On July 29, 2019, we broadened our relationship with Hydro-Québec, with Hydro-Québec acquiring an indirect
Prestolite E-Propulsion Systems (Beijing) Limited — On June 6, 2019, we acquired Prestolite Electric Beijing Limited's (PEBL)
We paid $
| Purchase consideration paid at closing | $ | |||
| Fair value of previously held equity method investment | ||||
| Total purchase consideration | $ | |||
| Cash and cash equivalents | $ | |||
| Accounts receivable - Trade | ||||
| Inventories | ||||
| Goodwill | ||||
| Intangibles | ||||
| Property, plant and equipment | ||||
| Accounts payable | ( | ) | ||
| Other accrued liabilities | ( | ) | ||
| Other noncurrent liabilities | ( | ) | ||
| Total purchase consideration allocation | $ |
Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the assembled workforce and is not deductible for tax purposes. We used a combination of the discounted cash flow method, an income approach, and the guideline public company method, a market approach, to value our previously held equity method investment in PEPS. The fair value assigned to intangibles includes $
The results of operations of the business are reported in our Commercial Vehicle operating segment from the date of acquisition. 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. PEPS had an insignificant impact on our consolidated results of operations during 2019.
Oerlikon Drive Systems — On February 28, 2019, we acquired a
We paid $
| Purchase consideration paid at closing | $ | |||
| Less purchase consideration to be recovered for indemnified matters | ( | ) | ||
| Total purchase consideration | $ | |||
| Cash and cash equivalents | $ | |||
| Accounts receivable - Trade | ||||
| Accounts receivable - Other | ||||
| Inventories | ||||
| Other current assets | ||||
| Goodwill | ||||
| Intangibles | ||||
| Deferred tax assets | ||||
| Other noncurrent assets | ||||
| Investments in affiliates | ||||
| Operating lease assets | ||||
| Property, plant and equipment | ||||
| Current portion of long-term debt | ( | ) | ||
| Accounts payable | ( | ) | ||
| Accrued payroll and employee benefits | ( | ) | ||
| Current portion of operating lease liabilities | ( | ) | ||
| Taxes on income | ( | ) | ||
| Other accrued liabilities | ( | ) | ||
| Long-term debt | ( | ) | ||
| Pension and postretirement obligations | ( | ) | ||
| Noncurrent operating lease liabilities | ( | ) | ||
| Other noncurrent liabilities | ( | ) | ||
| Noncontrolling interests | ( | ) | ||
| Total purchase consideration allocation | $ |
Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the assembled workforce and is not deductible for tax purposes. The fair values assigned to intangibles includes $
The results of operations of the business are primarily reported in our Off-Highway and Commercial Vehicle operating segments. Transaction related expenses associated with completion of the acquisition totaling $
The following unaudited pro forma information has been prepared as if the ODS acquisition and the related debt financing had occurred on January 1, 2018.
| Three Months Ended | Nine Months Ended | |||||||
| September 30, 2019 | September 30, 2019 | |||||||
| Net sales | $ | $ | ||||||
| Net income | $ | $ | ||||||
The unaudited pro forma results include adjustments primarily related to purchase accounting, interest expense related to the debt proceeds used in connection with the acquisition of ODS, and non-recurring strategic transaction expenses. The unaudited pro forma financial information is not indicative of the operational results that would have been obtained had the transactions actually occurred as of that date, nor is it necessarily indicative of Dana’s future operational results.
SME — On January 11, 2019, we acquired a
We paid $
| Total purchase consideration | $ | |||
| Accounts receivable - Trade | $ | |||
| Accounts receivable - Other | ||||
| Inventories | ||||
| Goodwill | ||||
| Intangibles | ||||
| Property, plant and equipment | ||||
| Short-term debt | ( | ) | ||
| Accounts payable | ( | ) | ||
| Accrued payroll and employee benefits | ( | ) | ||
| Other accrued liabilities | ( | ) | ||
| Other noncurrent liabilities | ( | ) | ||
| Total purchase consideration allocation | $ |
Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the assembled workforce and is not deductible for tax purposes. The fair values assigned to intangibles include $
The results of operations of the business are reported in our Off-Highway operating segment from the date of acquisition. 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. During 2019, the business contributed sales of $
Note 3. Goodwill and Other Intangible Assets
Goodwill — Our goodwill is tested for impairment annually as of October 31 for all of our reporting units, and more frequent if events or circumstances warrant such a review. We completed numerous acquisitions in 2018 and 2019 that are included in our Commercial Vehicle and Off-Highway reporting units. These acquisitions were recorded on the balance sheet at their estimated acquisition date fair values and therefore had no cushion of fair value over their carrying value. As a result of the effect of the COVID-19 pandemic on our expected future operating cash flows, a decrease in our share price which reduced our market capitalization below the book value of net assets and lower cushion in our expected reporting unit fair values as a result of the recent acquisitions, we determined certain impairment triggers had occurred in the first quarter of 2020. Accordingly, we performed interim impairment analyses at each of our reporting units as of March 31, 2020.
As discussed in our 2019 Form 10-K, we estimate the fair value of the reporting units using 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 gross margins, discount rates, terminal growth rates, and exit earnings multiples. 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, with the impairment loss limited to the total amount of goodwill allocated to that reporting unit.
Based on the results of our interim impairment tests, we concluded that carrying value exceeded fair value in our Commercial Vehicle and Light Vehicle reporting units and we recorded a goodwill impairment charge of $
The remaining change in the carrying amount of goodwill in 2020 is primarily due to the acquisition of Ashwoods, measurement period adjustments for the Nordresa acquisition and currency fluctuation. See Note 2 for additional information on recent acquisitions.
Changes in the carrying amount of goodwill by segment —
| Light Vehicle |
Commercial Vehicle |
Off-Highway |
Power Technologies |
Total |
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| Balance, December 31, 2019 |
$ | $ | $ | $ | $ | |||||||||||||||
| Acquisitions | ( |
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| Impairment | ( |
) | ( |
) | ( |
) | ||||||||||||||
| Currency impact | ( |
) | ( |
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| Balance, September 30, 2020 |
$ | $ | $ | $ | $ | |||||||||||||||
Components of other intangible assets —
| September 30, 2020 |
December 31, 2019 |
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| Weighted Average Useful Life (years) |
Gross Carrying Amount |
Accumulated Impairment and Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Impairment and Amortization |
Net Carrying Amount |
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| Amortizable intangible assets |
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| Core technology |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Trademarks and trade names |
( |
) | ( |
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| Customer relationships |
( |
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| Non-amortizable intangible assets |
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| Trademarks and trade names |
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| $ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
The net carrying amounts of intangible assets, other than goodwill, attributable to each of our operating segments at September 30, 2020 were as follows: Light Vehicle — $
Amortization expense related to amortizable intangible assets —
| Three Months Ended |
Nine Months Ended |
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| September 30, |
September 30, |
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| 2020 |
2019 |
2020 |
2019 |
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| Charged to cost of sales |
$ | $ | $ | $ | ||||||||||||
| Charged to amortization of intangibles |
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| Total amortization |
$ | $ | $ | $ | ||||||||||||
The following table provides the estimated aggregate pre-tax amortization expense related to intangible assets for each of the next five years based on September 30, 2020 exchange rates. Actual amounts may differ from these estimates due to such factors as currency translation, customer turnover, impairments, additional intangible asset acquisitions and other events.
| Remainder of 2020 |
2021 |
2022 |
2023 |
2024 |
||||||||||||||||
| Amortization expense |
$ | $ | $ | $ | $ | |||||||||||||||
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.
Net restructuring charges of $
Accrued restructuring costs and activity —
| Employee Termination Benefits |
Exit Costs |
Total |
||||||||||
| Balance, June 30, 2020 |
$ | $ | $ | |||||||||
| Charges to restructuring |
||||||||||||
| Adjustments of accruals | ||||||||||||
| Cash payments |
( |
) | ( |
) | ( |
) | ||||||
| Balance, September 30, 2020 |
$ | $ | $ | |||||||||
| Balance, December 31, 2019 |
$ | $ | $ | |||||||||
| Charges to restructuring |
||||||||||||
| Adjustments of accruals |
( |
) | ( |
) | ||||||||
| Cash payments |
( |
) | ( |
) | ( |
) | ||||||
| Balance, September 30, 2020 |
$ | $ | $ | |||||||||
At September 30, 2020, the accrued employee termination benefits include costs to reduce approximately
Cost to complete — The following table provides project-to-date and estimated future restructuring expenses for completion of our approved restructuring initiatives for our business segments at September 30, 2020.
| Expense Recognized |
||||||||||||||||
| Prior to 2020 |
2020 |
Total to Date |
Future Cost to Complete |
|||||||||||||
| Commercial Vehicle |
$ | $ | $ | $ | ||||||||||||
| Power Technologies | $ | $ | $ | $ | ||||||||||||
The future cost to complete includes estimated separation costs, primarily those associated with one-time benefit programs, and exit costs through 2021, equipment transfers and other costs which are required to be recognized as closures are finalized or as incurred during the closure.
Note 5. Supplemental Balance Sheet and Cash Flow Information
Inventory components at —
| September 30, 2020 |
December 31, 2019 |
|||||||
| Raw materials | $ | $ | ||||||
| Work in process and finished goods | ||||||||
| Inventory reserves | ( |
) | ( |
) | ||||
| Total |
$ | $ | ||||||
Cash, cash equivalents and restricted cash at —
| September 30, 2020 |
December 31, 2019 |
September 30, 2019 |
December 31, 2018 |
|||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Restricted cash included in other current assets | ||||||||||||||||
| Restricted cash included in other noncurrent assets | ||||||||||||||||
| Total cash, cash equivalents and restricted cash |
$ | $ | $ | $ | ||||||||||||
Common stock — Our Board of Directors declared a cash dividend of cents per share of common stock in the first quarter of 2020. Dividends accrue on restricted stock units (RSUs) granted under our stock compensation program and will be paid in cash or additional units when the underlying units vest.
Share repurchase program — On December 11, 2019 our Board of Directors approved an extension of our existing common stock share repurchase program through December 31, 2021. Approximately $
Changes in equity —
| Three Months Ended September 30, |
||||||||||||||||||||||||||||
| 2020 |
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Non-controlling Interests |
Total Equity |
|||||||||||||||||||||
| Balance, June 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| Net income |
||||||||||||||||||||||||||||
| Other comprehensive income |
||||||||||||||||||||||||||||
| Distributions to noncontrolling interests |
( |
) | ( |
) | ||||||||||||||||||||||||
| Purchase of noncontrolling interests | ||||||||||||||||||||||||||||
| Stock compensation |
||||||||||||||||||||||||||||
| Balance, September 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| 2019 |
||||||||||||||||||||||||||||
| Balance, June 30, 2019 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| Net income |
||||||||||||||||||||||||||||
| Other comprehensive loss |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Common stock dividends |
( |
) | ( |
) | ||||||||||||||||||||||||
| Distributions to noncontrolling interests |
( |
) | ( |
) | ||||||||||||||||||||||||
| Stock compensation |
||||||||||||||||||||||||||||
| Balance, September 30, 2019 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| Nine Months Ended September 30, |
||||||||||||||||||||||||||||
| 2020 |
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Non-controlling Interests |
Total Equity |
|||||||||||||||||||||
| Balance, December 31, 2019 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| Adoption of ASU 2016-13 credit losses, January 1, 2020 | ( |
) | ( |
) | ||||||||||||||||||||||||
| Net income (loss) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Other comprehensive income (loss) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Common stock dividends | ( |
) | ( |
) | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( |
) | ( |
) | ||||||||||||||||||||||||
| Purchase of noncontrolling interests | ( |
) | ( |
) | ||||||||||||||||||||||||
| Stock compensation | ||||||||||||||||||||||||||||
| Stock withheld for employee taxes | ( |
) | ( |
) | ||||||||||||||||||||||||
| Balance, September 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| 2019 |
||||||||||||||||||||||||||||
| Balance, December 31, 2018 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
| Adoption of ASU 2016-02 leases, January 1, 2019 | ( |
) | ( |
) | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( |
) | ||||||||||||||||||||||||||
| Common stock dividends | ( |
) | ( |
) | ||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( |
) | ( |
) | ||||||||||||||||||||||||
| Increase from business combination | ||||||||||||||||||||||||||||
| Common stock share repurchases | ( |
) | ( |
) | ||||||||||||||||||||||||
| Stock compensation | ||||||||||||||||||||||||||||
| Stock withheld for employee taxes | ( |
) | ( |
) | ||||||||||||||||||||||||
| Balance, September 30, 2019 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||
Changes in each component of accumulated other comprehensive income (AOCI) of the parent —
| Parent Company Stockholders |
||||||||||||||||
| Foreign Currency Translation |
Hedging |
Defined Benefit Plans |
Accumulated Other Comprehensive Loss |
|||||||||||||
| Balance, June 30, 2020 |
$ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||
| Other comprehensive income (loss): |
||||||||||||||||
| Currency translation adjustments |
||||||||||||||||
| Holding gains and losses |
( |
) | ( |
) | ||||||||||||
| Reclassification of amount to net income (a) |
||||||||||||||||
| Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) |
||||||||||||||||
| Tax expense |
( |
) | ( |
) | ||||||||||||
| Other comprehensive income |
||||||||||||||||
| Balance, September 30, 2020 |
$ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||
| Balance, June 30, 2019 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income (loss): |
||||||||||||||||
| Currency translation adjustments |
( |
) | ( |
) | ||||||||||||
| Holding gains and losses |
||||||||||||||||
| Reclassification of amount to net income (a) |
( |
) | ( |
) | ||||||||||||
| Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) |
||||||||||||||||
| Tax expense |
( |
) | ( |
) | ||||||||||||
| Other comprehensive income (loss) |
( |
) | ( |
) | ||||||||||||
| Balance, September 30, 2019 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Parent Company Stockholders |
||||||||||||||||
| Foreign Currency Translation |
Hedging |
Defined Benefit Plans |
Accumulated Other Comprehensive Loss |
|||||||||||||
| Balance, December 31, 2019 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income (loss): |
||||||||||||||||
| Currency translation adjustments |
( |
) | ( |
) | ||||||||||||
| Holding gains and losses |
( |
) | ( |
) | ||||||||||||
| Reclassification of amount to net income (a) |
||||||||||||||||
| Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) |
||||||||||||||||
| Tax (expense) benefit |
( |
) | ( |
) | ||||||||||||
| Other comprehensive income (loss) |
( |
) | ( |
) | ||||||||||||
| Balance, September 30, 2020 |
$ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||
| Balance, December 31, 2018 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income (loss): |
||||||||||||||||
| Currency translation adjustments |
( |
) | ( |
) | ||||||||||||
| Holding gains and losses |
||||||||||||||||
| Reclassification of amount to net income (a) |
( |
) | ( |
) | ||||||||||||
| Net actuarial gains |
||||||||||||||||
| Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) |
||||||||||||||||
| Tax expense |
( |
) | ( |
) | ||||||||||||
| Other comprehensive income (loss) |
( |
) | ||||||||||||||
| Balance, September 30, 2019 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
(a) Realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments treated as cash flow hedges are reclassified from AOCI into the same line item in the consolidated statement of operations in which the underlying forecasted transaction or other hedged item is recorded. See Note 12 for additional details.
(b) See Note 10 for additional details.
Note 7. Redeemable Noncontrolling Interests
In connection with the acquisition of a controlling financial interest in TM4 from Hydro-Québec on June 22, 2018, we recognized $
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. See Note 1 for additional information on the correction of the error in net loss attributable to redeemable noncontrolling interests.
Reconciliation of changes in redeemable noncontrolling interests —
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Balance, beginning of period |
$ | $ | $ | $ | ||||||||||||
| Capital contribution from redeemable noncontrolling interest |
||||||||||||||||
| Sale of redeemable noncontrolling interest | ||||||||||||||||
| Comprehensive income (loss) adjustments: |
||||||||||||||||
| Net loss attributable to redeemable noncontrolling interests | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other comprehensive income (loss) attributable to redeemable noncontrolling interests | ( |
) | ||||||||||||||
| Balance, end of period |
$ | $ | $ | $ | ||||||||||||
Reconciliation of the numerators and denominators of the earnings per share calculations —
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Net income (loss) available to common stockholders - Numerator basic and diluted |
$ | $ | $ | ( |
) | $ | ||||||||||
| Denominator: |
||||||||||||||||
| Weighted-average common shares outstanding - Basic | ||||||||||||||||
| Employee compensation-related shares, including stock options | ||||||||||||||||
| Weighted-average common shares outstanding - Diluted |
||||||||||||||||
The share count for diluted earnings per share is computed on the basis of the weighted-average number of common shares outstanding plus the effects of dilutive common stock equivalents (CSEs) outstanding during the period. We excluded
The Compensation Committee of our Board of Directors approved the grant of RSUs and performance share units (PSUs) shown in the table below during 2020.
| Granted |
Grant Date |
|||||||
| (In millions) |
Fair Value* |
|||||||
| RSUs |
$ | |||||||
| PSUs |
$ | |||||||
* Weighted-average per share
We calculated the fair value of the RSUs at grant date based on the closing market price of our common stock at the date of grant. The number of PSUs that ultimately vest is contingent on achieving specified margin targets and specified free cash flow targets, with an even distribution between the two targets. We estimated the fair value of the PSUs at grant date based on the closing market price of our common stock at the date of grant adjusted for the value of assumed dividends over the period because the awards are not dividend protected.
We paid $
Note 10. Pension and Postretirement Benefit Plans
We have a number of defined contribution and defined benefit, qualified and nonqualified, pension plans covering eligible employees. Other postretirement benefits (OPEB), including medical and life insurance, are provided for certain employees upon retirement.
Components of net periodic benefit cost —
| Pension |
OPEB |
|||||||||||||||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||||||||||||||
| Three Months Ended September 30, |
U.S. |
Non-U.S. |
U.S. |
Non-U.S. |
U.S. |
Non-U.S. |
Non-U.S. |
|||||||||||||||||||||
| Interest cost |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Expected return on plan assets |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Service cost |
||||||||||||||||||||||||||||
| Settlement charge | ||||||||||||||||||||||||||||
| Amortization of net actuarial loss |
||||||||||||||||||||||||||||
| Net periodic benefit cost |
$ | ( |
) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Nine Months Ended September 30, |
||||||||||||||||||||||||||||
| Interest cost |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Expected return on plan assets | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| Service cost | ||||||||||||||||||||||||||||
| Settlement charge | ||||||||||||||||||||||||||||
| Amortization of net actuarial loss | ||||||||||||||||||||||||||||
| Net periodic benefit cost (credit) |
$ | ( |
) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
The service cost components of net periodic pension and OPEB costs are included in cost of sales and selling, general and administrative expenses as part of compensation cost and are eligible for capitalization in inventory and other assets. The non-service components are reported in other income (expense), net and are not eligible for capitalization.
Plan termination — In October 2017, upon authorization by the Dana Board of Directors, we commenced the process of terminating of our U.S. defined benefit pension plans. During the second quarter of 2019, payments were made from plan assets to those plan participants that elected to take the lump-sum payout option. In June 2019, we entered into (a) a definitive commitment agreement by and among Dana, Athene Annuity and Life Company (Athene) and State Street Global Advisors, as independent fiduciary to the plan, and (b) a definitive commitment agreement by and among Dana, Companion Life Insurance Company (Companion) and State Street Global Advisors, as independent fiduciary to the plan. Pursuant to the definitive commitment agreements, the plan purchased group annuity contracts that irrevocably transferred to the insurance companies the remaining future pension benefit obligations of the plan. Plan participant’s benefits are unchanged as a result of the termination. We contributed $
Long-term debt at —
| Interest Rate | September 30, 2020 | December 31, 2019 | ||||||||
| Senior Notes due December 15, 2024 | | $ | $ | |||||||
| Senior Notes due April 15, 2025 | | * | ||||||||
| Senior Notes due June 1, 2026 | | * | ||||||||
| Senior Notes due November 15, 2027 | | |||||||||
| Senior Notes due June 15, 2028 | ||||||||||
| Term Facility A | ||||||||||
| Term Facility B | ||||||||||
| Other indebtedness | ||||||||||
| Debt issuance costs | ( | ) | ( | ) | ||||||
| Less: Current portion of long-term debt | ||||||||||
| Long-term debt, less debt issuance costs | $ | $ | ||||||||
| * | In conjunction with the issuance of the April 2025 Notes we entered into -year fixed-to-fixed cross-currency swaps which have the effect of economically converting the April 2025 Notes to euro-denominated debt at a fixed rate of |
Interest on the senior notes is payable semi-annually and interest on the Term Facilities is payable quarterly. Other indebtedness includes the note payable to SME, borrowings from various financial institutions, finance lease obligations and the unamortized fair value adjustment related to a terminated interest rate swap. See Note 2 for additional information on the note payable to SME and Note 12 for additional information on the terminated interest rate swap.
Senior notes activity — In June 2020, we completed the sale of $
We may redeem some or all of the senior notes at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period commencing on the anniversary date of the senior notes in the year set forth below:
| Redemption Price | ||||||||||||||||||||
| December | April | June | November | June | ||||||||||||||||
| Year | 2024 Notes | 2025 Notes | 2026 Notes | 2027 Notes | 2028 Notes | |||||||||||||||
| 2020 | % | % | ||||||||||||||||||
| 2021 | % | % | % | |||||||||||||||||
| 2022 | % | % | % | % | ||||||||||||||||
| 2023 | % | % | % | % | % | |||||||||||||||
| 2024 | % | % | % | % | ||||||||||||||||
| 2025 | % | % | % | |||||||||||||||||
| 2026 | % | % | ||||||||||||||||||
| 2027 | % | |||||||||||||||||||
At any time prior to November 15, 2022, we may redeem up to 35% of the aggregate principal amount of the November 2027 Notes in an amount not to exceed the amount of proceeds of one or more equity offerings, at a price equal to
At any time prior to June 15, 2023, we may redeem up to 35% of the aggregate principal amount of the June 2028 Notes in an amount not to exceed the amount of proceeds of one or more equity offerings, at a price equal to
Credit agreement — On February 28, 2019, we entered into an amended credit and guaranty agreement comprised of a $
On April 16, 2020, we amended certain provisions of our credit and guaranty agreement including gradually increasing the first lien net leverage ratio from a maximum of
The Term Facilities and the Revolving Facility are guaranteed by all of our wholly-owned domestic subsidiaries subject to certain exceptions (the guarantors) and are secured by a first-priority lien on substantially all of the assets of Dana and the guarantors, subject to certain exceptions.
Advances under the Term A Facility and the Revolving Facility bear interest at a floating rate based on, at our option, the base rate or Eurodollar rate (each as described in the credit agreement) plus a margin as set forth below:
| Margin | ||||||||
| Total Net Leverage Ratio | Base Rate | Eurodollar Rate | ||||||
| Less than or equal to 1.00:1.00 | % | % | ||||||
| Greater than 1.00:1.00 but less than or equal to 2.00:1.00 | % | % | ||||||
| Greater than 2.00:1.00 | % | % | ||||||
The Term B Facility bears interest based on, at our option, the Base Rate plus
Commitment fees are applied based on the average daily unused portion of the available amounts under the Revolving Facility as set forth below:
| Total Net Leverage Ratio | Commitment Fee | |||
| Less than or equal to 1.00:1.00 | % | |||
| Greater than 1.00:1.00 but less than or equal to 2.00:1.00 | % | |||
| Greater than 2.00:1.00 | % | |||
Up to $
At September 30, 2020, we had
Bridge facility — On April 16, 2020, we entered into a $
Debt covenants — At September 30, 2020, we were in compliance with the covenants of our financing agreements. Under the Term Facilities, Revolving Facility and the senior notes, we are required to comply with certain incurrence-based covenants customary for facilities of these types and, in the case of the Term A Facility and Revolving Facility, a maintenance covenant tested on the last day of each fiscal quarter requiring us to maintain a first lien net leverage ratio not to exceed
Note 12. Fair Value Measurements and Derivatives
In measuring the fair value of our assets and liabilities, we use market data or assumptions that we believe market participants would use in pricing an asset or liability including assumptions about risk when appropriate. Our valuation techniques include a combination of observable and unobservable inputs.
Fair value measurements on a recurring basis — Assets and liabilities that are carried in our balance sheet at fair value are as follows:
| Fair Value |
|||||||||||||
| Category |
Balance Sheet Location |
Fair Value Level |
September 30, 2020 | December 31, 2019 | |||||||||
| Certificates of deposit | Marketable securities | 2 | $ | $ | |||||||||
| Currency forward contracts |
|||||||||||||
| Cash flow hedges | Accounts receivable - Other | 2 | |||||||||||
| Cash flow hedges | Other accrued liabilities | 2 | |||||||||||
| Undesignated | Accounts receivable - Other | 2 | |||||||||||
| Undesignated | Other accrued liabilities | 2 | |||||||||||
| Interest rate collars | Other accrued liabilities | 2 | |||||||||||
| Currency swaps |
|||||||||||||
| Cash flow hedges | Other noncurrent liabilities | 2 | |||||||||||
Fair Value Level 1 assets and liabilities reflect quoted prices in active markets. Fair Value Level 2 assets and liabilities reflect the use of significant other observable inputs.
Fair value of financial instruments — The financial instruments that are not carried in our balance sheet at fair value are as follows:
| September 30, 2020 |
December 31, 2019 |
|||||||||||||||||||
| Fair Value Level |
Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
||||||||||||||||
| Long term debt |
2 | $ | $ | $ | $ | |||||||||||||||
Interest rate derivatives — Our portfolio of derivative financial instruments periodically includes interest rate swaps and interest rate collars designed to mitigate our interest rate risk. As of September 30, 2020, fixed-to-floating interest rate swaps remain outstanding. However, a $
Foreign currency derivatives — Our foreign currency derivatives include forward contracts associated with forecasted transactions, primarily involving the purchases and sales of inventory through the next months, as well as currency swaps associated with certain recorded external notes payable and intercompany loans receivable and payable. Periodically, our foreign currency derivatives also include net investment hedges of certain of our investments in foreign operations.
We have executed fixed-to-fixed cross-currency swaps in conjunction with the issuance of certain notes to eliminate the variability in the functional-currency-equivalent cash flows due to changes in exchange rates associated with the forecasted principal and interest payments. All of the underlying designated financial instruments, and any subsequent replacement debt, have been designated as the hedged items in each respective cash flow hedge relationship, as shown in the table below. Designated as cash flow hedges of the forecasted principal and interest payments of the underlying designated financial instruments, or subsequent replacement debt, all of the swaps economically convert the underlying designated financial instruments into the functional currency of each respective holder. The impact of the interest rate differential between the inflow and outflow rates on all fixed-to-fixed cross-currency swaps is recognized during each period as a component of interest expense.
The following fixed-to-fixed cross-currency swaps were outstanding at September 30, 2020:
| Underlying Financial Instrument |
Derivative Financial Instrument |
|||||||||||||||||||||||||
| Description |
Type |
Face Amount |
Rate |
Designated Notional Amount | Traded Amount |
Inflow Rate |
Outflow Rate |
|||||||||||||||||||
| June 2026 Notes |
Payable |
$ | % | $ | € | % | % | |||||||||||||||||||
| April 2025 Notes |
Payable |
$ | % | $ | € | % | % | |||||||||||||||||||
| Luxembourg Intercompany Notes |
Receivable |
€ | % | € | $ | % | % | |||||||||||||||||||
All of the swaps are expected to be highly effective in offsetting the corresponding currency-based changes in cash outflows related to the underlying designated financial instruments. Based on our qualitative assessment that the critical terms of all of the underlying designated financial instruments and all of the associated swaps match and that all other required criteria have been met, we do not expect to incur any ineffectiveness. As effective cash flow hedges, changes in the fair value of the swaps will be recorded in OCI during each period. Additionally, to the extent the swaps remain effective, the appropriate portion of AOCI will be reclassified to earnings each period as an offset to the foreign exchange gain or loss resulting from the remeasurement of the underlying designated financial instruments. See Note 11 for additional information about the June 2026 Notes and the April 2025 Notes. To the extent the swaps are no longer effective, changes in their fair values will be recorded in earnings.
The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $
The following currency derivatives were outstanding at September 30, 2020:
| Notional Amount (U.S. Dollar Equivalent) |
||||||||||||||||
| Functional Currency |
Traded Currency |
Designated |
Undesignated |
Total |
Maturity |
|||||||||||
| U.S. dollar |
Mexican peso, euro |
$ | $ | $ | Jun-2021 |
|||||||||||
| Euro |
U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee, Russian ruble, Mexican peso, Australian dollar, Singapore dollar, Japanese yen, Chinese renminbi |
Jan-2024 |
||||||||||||||
| British pound | U.S. dollar, euro | Nov-2020 | ||||||||||||||
| South African rand |
U.S. dollar, Thai baht |
Dec-2020 |
||||||||||||||
| Canadian dollar |
U.S. dollar |
Feb-2021 |
||||||||||||||
| Brazilian real |
U.S. dollar, euro |
Jun-2021 |
||||||||||||||
| Indian rupee |
U.S. dollar, British pound, euro |
Jun-2021 |
||||||||||||||
| Chinese renminbi |
Canadian dollar, euro |
Oct-2020 |
||||||||||||||
| Total forward contracts |
||||||||||||||||
| U.S. dollar |
euro |
Nov-2027 |
||||||||||||||
| Euro |
U.S. dollar |
Jun-2026 |
||||||||||||||
| Total currency swaps |
— | |||||||||||||||
| Total currency derivatives |
$ | $ | $ | |||||||||||||
Designated cash flow hedges — With respect to contracts designated as cash flow hedges, changes in fair value during the period in which the contracts remain outstanding are reported in OCI to the extent such contracts remain effective. Effectiveness is measured by using regression analysis to determine the degree of correlation between the change in the fair value of the derivative instrument and the change in the associated foreign currency exchange rates. Changes in fair value of contracts not designated as cash flow hedges or as net investment hedges are recognized in other income (expense), net in the period in which the changes occur. Realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments, including those that have been designated as cash flow hedges and those that have not been designated, are recognized in the same line item in the consolidated statement of operations in which the underlying forecasted transaction or other hedged item is recorded. Accordingly, amounts are potentially recorded in sales, cost of sales or, in certain circumstances, other income (expense), net.
The following table provides a summary of deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less:
| Deferred Gain (Loss) in AOCI |
||||||||||||
| September 30, 2020 |
December 31, 2019 |
Gain (loss) expected to be reclassified into income in one year or less | ||||||||||
| Forward Contracts |
$ | ( |
) | $ | $ | ( |
) | |||||
| Collar | ( |
) | ( |
) | ||||||||
| Cross-Currency Swaps | ( |
) | ||||||||||
| Total |
$ | $ | ( |
) | $ | ( |
) | |||||
The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with cash flow hedging relationships:
| Three Months Ended September 30, 2020 |
||||||||||||
| Derivatives Designated as Cash Flow Hedges |
Net sales |
Cost of sales |
Other income (expense), net |
|||||||||
| Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded |
$ | $ | $ | ( |
) | |||||||
| (Gain) or loss on cash flow hedging relationships |
||||||||||||
| Foreign currency forwards |
||||||||||||
| Amount of (gain) loss reclassified from AOCI into income | ||||||||||||
| Cross-currency swaps |
||||||||||||
| Amount of (gain) loss reclassified from AOCI into income | ||||||||||||
| Nine Months Ended September 30, 2020 |
||||||||||||
| Derivatives Designated as Cash Flow Hedges | Net sales | Cost of sales | Other income (expense), net | |||||||||
| Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded |
$ | $ | $ | ( |
) | |||||||
| (Gain) or loss on cash flow hedging relationships |
||||||||||||
| Foreign currency forwards |
||||||||||||
| Amount of (gain) loss reclassified from AOCI into income |
||||||||||||
| Cross-currency swaps |
||||||||||||
| Amount of (gain) loss reclassified from AOCI into income |
||||||||||||
| Three Months Ended September 30, 2019 |
||||||||||||
| Derivatives Designated as Cash Flow Hedges |
Net sales |
Cost of sales |
Other income (expense), net |
|||||||||
| Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded |
$ | $ | $ | ( |
) | |||||||
| (Gain) or loss on cash flow hedging relationships |
||||||||||||
| Foreign currency forwards | ||||||||||||
| Amount of (gain) loss reclassified from AOCI into income | ( |
) | ||||||||||
| Cross-currency swaps |
||||||||||||
| Amount of (gain) loss reclassified from AOCI into income |
( |
) | ||||||||||
| Nine Months Ended September 30, 2019 |
||||||||||||
| Derivatives Designated as Cash Flow Hedges | Net sales | Cost of sales | Other income (expense), net | |||||||||
| Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded |
$ | $ | $ | ( |
) | |||||||
| (Gain) or loss on cash flow hedging relationships |
||||||||||||
| Foreign currency forwards |
||||||||||||
| Amount of (gain) loss reclassified from AOCI into income |
( |
) | ||||||||||
| Cross-currency swaps |
||||||||||||
| Amount of (gain) loss reclassified from AOCI into income |
( |
) | ||||||||||
The amounts reclassified from AOCI into income for the cross-currency swaps represent an offset to a foreign exchange loss on our foreign currency-denominated intercompany and external debt instruments.
Certain of our hedges of forecasted transactions have not formally been designated as cash flow hedges. As undesignated forward contracts, the changes in the fair value of such contracts are included in earnings for the duration of the outstanding forward contract. Any realized gain or loss on the settlement of such contracts is recognized in the same period and in the same line item in the consolidated statement of operations as the underlying transaction. The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with undesignated hedging relationships.
| Amount of Gain (Loss) Recognized in Income |
||||||||||
| Derivatives Not Designated as Hedging Instruments |
Three Months Ended September 30, 2020 |
Three Months Ended September 30, 2019 |
Location of Gain or (Loss) Recognized in Income |
|||||||
| Foreign currency forward contracts |
$ | $ | Other income (expense), net |
|||||||
| Amount of Gain (Loss) Recognized in Income |
||||||||||
| Derivatives Not Designated as Hedging Instruments |
Nine Months Ended September 30, 2020 |
Nine Months Ended September 30, 2019 |
Location of Gain or (Loss) Recognized in Income |
|||||||
| Foreign currency forward contracts |
$ | ( |
) | $ | ( |
) | Other income (expense), net |
|||
During the first quarter of 2019 we settled the outstanding undesignated Swiss franc notional deal contingent forward related to the ODS acquisition for $
Net investment hedges — We periodically designate derivative contracts or underlying non-derivative financial instruments as net investment hedges. With respect to contracts designated as net investment hedges, we apply the forward method, but for non-derivative financial instruments designated as net investment hedges, we apply the spot method. Under both methods, we report changes in fair value in the cumulative translation adjustment (CTA) component of OCI during the period in which the contracts remain outstanding to the extent such contracts and non-derivative financial instruments remain effective.
Note 13. Commitments and Contingencies
Product liabilities — Accrued product liability costs were $
Environmental liabilities — Accrued environmental liabilities were $
Guarantee of lease obligations — In connection with the divestiture of our Structural Products business in 2010, leases covering U.S. facilities were assigned to a U.S. affiliate of Metalsa. Under the terms of the sale agreement, we will guarantee the affiliate’s performance under the leases, which run through June 2025, including approximately $
Other legal matters — We are subject to various pending or threatened legal proceedings arising out of the normal course of business or operations. In view of the inherent difficulty of predicting the outcome of such matters, we cannot state what the eventual outcome of these matters will be. However, based on current knowledge and after consultation with legal counsel, we believe that any liabilities that may result from these proceedings will not have a material adverse effect on our liquidity, financial condition or results of operations.
We record a liability for estimated warranty obligations at the dates our products are sold. We record the liability based on our estimate of costs to settle future claims. Adjustments to our estimated costs at time of sale are made as claim experience and other new information becomes available. Obligations for service campaigns and other occurrences are recognized as adjustments to prior estimates when the obligation is probable and can be reasonably estimated.
Changes in warranty liabilities —
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Balance, beginning of period |
$ | $ | $ | $ | ||||||||||||
| Acquisitions |
||||||||||||||||
| Amounts accrued for current period sales |
||||||||||||||||
| Adjustments of prior estimates | ( |
) | ( |
) | ||||||||||||
| Settlements of warranty claims |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Currency impact |
( |
) | ( |
) | ||||||||||||
| Balance, end of period |
$ | $ | $ | $ | ||||||||||||
We estimate the effective tax rate expected to be applicable for the full fiscal year and use that rate to provide for income taxes in interim reporting periods. We also recognize the tax impact of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.
We have generally not recognized tax benefits on losses generated in several entities where the recent history of operating losses does not allow us to satisfy the “more likely than not” criterion for the recognition of deferred tax assets. Consequently, there is no income tax expense or benefit recognized on the pre-tax income or losses in these jurisdictions as valuation allowances are adjusted to offset the associated tax expense or benefit. We believe it is reasonably possible that valuation allowances up to $
We record interest and penalties related to uncertain tax positions as a component of income tax expense. Net interest expense for the periods presented herein is not significant.
We reported an income tax expense of $
Dividends of earnings from non-U.S. operations are generally no longer subjected to U.S. income tax. We continue to analyze and adjust the estimated tax impact of the income and non-U.S. withholding tax liabilities based on the amounts and sources of these earnings.
Note 16. Other Income (Expense), Net
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Non-service cost components of pension and OPEB costs |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Government grants and incentives |
||||||||||||||||
| Foreign exchange gain (loss) |
( |
) | ( |
) | ( |
) | ||||||||||
| Strategic transaction expenses |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Non-income tax legal judgment | ||||||||||||||||
| Other, net |
( |
) | ||||||||||||||
| Other income (expense), net |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Foreign exchange gains and losses on cross-currency intercompany loan balances that are not of a long-term investment nature are included above. Foreign exchange gains and losses on intercompany loans that are permanently invested are reported in OCI. Foreign exchange loss in 2019 included a loss on the undesignated Swiss franc notional deal contingent forward related to the ODS acquisition. See Note 12 for additional information.
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 2020 were primarily attributable to the acquisitions of ODS and Nordresa and certain other strategic initiatives. Strategic transaction expenses in 2019 were primarily attributable to the acquisition of ODS. See Note 2 for additional information.
During the first quarter of 2019, we won a legal judgment regarding the methodology used to calculate PIS/COFINS tax in Brazil.
Included in other noncurrent assets in our September 30, 2020 balance sheet are $
Note 17. Revenue from Contracts with Customers
We generate revenue from selling production parts to original equipment manufacturers (OEMs) and service parts to OEMs and aftermarket customers. While we provide production and service parts to certain OEMs under awarded multi-year programs, these multi-year programs do not contain any commitment to volume by the customer. As such, individual customer releases or purchase orders represent the contract with the customer. Our customer contracts do not provide us with an enforceable right to payment for performance completed to date throughout the contract term. As such, we recognize part sales revenue at the point in time when the parts are shipped, and risk of loss has transferred to the customer. We have elected to continue to include shipping and handling fees billed to customers in revenue, while including costs of shipping and handling in costs of sales. Taxes collected from customers are excluded from revenues and credited directly to obligations to the appropriate government agencies. Payment terms with our customers are established based on industry and regional practices and generally do not exceed
Certain of our customer contracts include rebate incentives. We estimate expected rebates and accrue the corresponding refund liability, as a reduction of revenue, at the time covered product is sold to the customer based on anticipated customer purchases during the rebate period and contractual rebate percentages. Refund liabilities are included in other accrued liabilities on our consolidated balance sheet. We provide standard fitness for use warranties on the products we sell, accruing for estimated costs related to product warranty obligations at time of sale. See Note 14 for additional information.
Contract liabilities are primarily comprised of cash deposits made by customers with cash in advance payment terms. Generally, our contract liabilities turn over frequently given our relatively short production cycles. Contract liabilities were $
Disaggregation of revenue —
The following table disaggregates revenue for each of our operating segments by geographical market:
| Three Months Ended September 30, 2020 |
Light Vehicle |
Commercial Vehicle |
Off-Highway |
Power Technologies |
Total |
|||||||||||||||
| North America |
$ | $ | $ | $ | $ | |||||||||||||||
| Europe |
||||||||||||||||||||
| South America |
||||||||||||||||||||
| Asia Pacific |
||||||||||||||||||||
| Total |
$ | $ | $ | $ | $ | |||||||||||||||
| Nine Months Ended September 30, 2020 |
||||||||||||||||||||
| North America |
$ | $ | $ | $ | $ | |||||||||||||||
| Europe |
||||||||||||||||||||
| South America |
||||||||||||||||||||
| Asia Pacific |
||||||||||||||||||||
| Total |
$ | $ | $ | $ | $ | |||||||||||||||
| Three Months Ended September 30, 2019 |
||||||||||||||||||||
| North America |
$ | $ | $ | $ | $ | |||||||||||||||
| Europe |
||||||||||||||||||||
| South America |
||||||||||||||||||||
| Asia Pacific |
||||||||||||||||||||
| Total |
$ | $ | $ | $ | $ | |||||||||||||||
| Nine Months Ended September 30, 2019 |
||||||||||||||||||||
| North America |
$ | $ | $ | $ | $ | |||||||||||||||
| Europe |
||||||||||||||||||||
| South America |
||||||||||||||||||||
| Asia Pacific |
||||||||||||||||||||
| Total |
$ | $ | $ | $ | $ |
We are a global provider of high-technology products to virtually every major vehicle manufacturer in the world. We also serve the stationary industrial market. Our technologies include drive systems (axles, driveshafts, transmissions, and wheel and track drives); motion systems (winches, slew drives, and hub drives); electrodynamic technologies (motors, inverters, software and control systems, battery-management systems, and fuel cell plates); sealing solutions (gaskets, seals, cam covers, and oil pan modules); thermal-management technologies (transmission and engine oil cooling, battery and electronics cooling, charge air cooling, and thermal-acoustical protective shielding); and digital solutions (active and passive system controls and descriptive and predictive analytics). We serve our global light vehicle, medium/heavy vehicle and off-highway markets through operating segments – 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. These operating segments have global responsibility and accountability for business commercial activities and financial performance.
Dana evaluates the performance of its operating segments based on external sales and segment EBITDA. Segment EBITDA is a primary driver of cash flows from operations and a measure of our ability to maintain and continue to invest in our operations and provide shareholder returns. Our segments are charged for corporate and other shared administrative costs. Segment EBITDA may not be comparable to similarly titled measures reported by other companies.
Segment information —
| 2020 |
2019 |
|||||||||||||||||||||||
| Three Months Ended September 30, |
External Sales |
Inter-Segment Sales |
Segment EBITDA |
External Sales |
Inter-Segment Sales |
Segment EBITDA |
||||||||||||||||||
| Light Vehicle |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial Vehicle |
||||||||||||||||||||||||
| Off-Highway |
||||||||||||||||||||||||
| Power Technologies |
||||||||||||||||||||||||
| Eliminations and other |
( |
) | ( |
) | ||||||||||||||||||||
| Total |
$ | $ | — | $ | $ | $ | — | $ | ||||||||||||||||
| Nine Months Ended September 30, |
||||||||||||||||||||||||
| Light Vehicle |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial Vehicle |
||||||||||||||||||||||||
| Off-Highway |
||||||||||||||||||||||||
| Power Technologies |
||||||||||||||||||||||||
| Eliminations and other | ( |
) | ( |
) | ||||||||||||||||||||
| Total |
$ | $ | — | $ | $ | $ | — | $ | ||||||||||||||||
Reconciliation of segment EBITDA to consolidated net income —
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Segment EBITDA | $ | $ | $ | $ | ||||||||||||
| Corporate expense and other items, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Depreciation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-service cost components of pension and OPEB costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Restructuring charges, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Stock compensation expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Strategic transaction expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Impairment of goodwill | ( | ) | ||||||||||||||
| Acquisition related inventory adjustments | ( | ) | ( | ) | ||||||||||||
| Non-income tax legal judgment | ||||||||||||||||
| Other items | ( | ) | ( | ) | ( | ) | ||||||||||
| Pension settlement charges, net | ( | ) | ( | ) | ||||||||||||
| Earnings before interest and income taxes | ||||||||||||||||
| Write-off deferred financing costs | ( | ) | ||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Earnings (loss) before income taxes | ( | ) | ||||||||||||||
| Income tax expense (benefit) | ( | ) | ||||||||||||||
| Equity in earnings of affiliates | ||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | $ | ||||||||||
We have a number of investments in entities that engage in the manufacture and supply of vehicular parts (primarily axles, axle housings, driveshafts and wheel-end braking systems) and motors for electric vehicles and industrial applications.
Equity method investments exceeding $5 at September 30, 2020 —
| Ownership Percentage |
Investment |
|||||
| Dongfeng Dana Axle Co., Ltd. (DDAC) |
$ | |||||
| Bendix Spicer Foundation Brake, LLC |
||||||
| Axles India Limited |
||||||
| All others as a group |
||||||
| Investments in equity affiliates |
||||||
| Investments in affiliates carried at cost |
||||||
| Investments in affiliates |
$ | |||||
Summarized financial information for DDAC —
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Sales |
$ | $ | $ | $ | ||||||||||||
| Gross profit |
$ | $ | $ | $ | ||||||||||||
| Earnings before income taxes |
$ | $ | $ | $ | ||||||||||||
| Net income |
$ | $ | $ | $ | ||||||||||||
| Dana's equity in earnings of affiliate |
$ | $ | $ | $ | ||||||||||||
On October 1, 2020, we received a $
On October 20, 2020, we acquired a
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions)
Management's discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes in this report.
Forward-Looking Information
Statements in this report (or otherwise made by us or on our behalf) that are not entirely historical constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can often be identified by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “predicts,” “seeks,” “estimates,” “projects,” “outlook,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing” and similar expressions, variations or negatives of these words. These statements represent the present expectations of Dana Incorporated and its consolidated subsidiaries (Dana) based on our current information and assumptions. Forward-looking statements are inherently subject to risks and uncertainties. Our plans, actions and actual results could differ materially from our present expectations due to a number of factors, including those discussed below and elsewhere in this report and in our other filings with the Securities and Exchange Commission (SEC). All forward-looking statements speak only as of the date made and we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances that may arise after the date of this report.
Management Overview
Dana is headquartered in Maumee, Ohio, and was incorporated in Delaware in 2007. 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. At September 30, 2020, we employed approximately 36,300 people, operated in 34 countries and had 145 major facilities housing manufacturing and distribution operations, service and assembly operations, technical and engineering centers and administrative offices.
External sales by operating segment for the periods ended September 30, 2020 and 2019 are as follows:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||||||||||||||||||
| % of |
% of |
% of |
% of |
|||||||||||||||||||||||||||||
| Dollars |
Total |
Dollars |
Total |
Dollars |
Total |
Dollars |
Total |
|||||||||||||||||||||||||
| Light Vehicle |
$ | 913 | 45.8 | % | $ | 930 | 43.0 | % | $ | 2,058 | 41.2 | % | $ | 2,763 | 41.6 | % | ||||||||||||||||
| Commercial Vehicle |
314 | 15.8 | % | 398 | 18.4 | % | 847 | 16.9 | % | 1,266 | 19.1 | % | ||||||||||||||||||||
| Off-Highway |
507 | 25.4 | % | 582 | 26.9 | % | 1,440 | 28.8 | % | 1,808 | 27.3 | % | ||||||||||||||||||||
| Power Technologies |
260 | 13.0 | % | 254 | 11.7 | % | 653 | 13.1 | % | 796 | 12.0 | % | ||||||||||||||||||||
| Total |
$ | 1,994 | $ | 2,164 | $ | 4,998 | $ | 6,633 | ||||||||||||||||||||||||
See Note 18 to our consolidated financial statements in Item 1 of Part I for further financial information about our operating segments.
Our internet address is www.dana.com. The inclusion of our website address in this report is an inactive textual reference only and is not intended to include or incorporate by reference the information on our website into this report.
Operational and Strategic Initiatives
Our enterprise strategy builds on our strong technology foundation and leverages our resources across the organization while driving a customer centric focus, expanding our global markets, and delivering innovative solutions as we evolve into the era of vehicle electrification.
Central to our strategy is leveraging our core operations. This foundational element enables us to infuse strong operational disciplines throughout the strategy, making it practical, actionable, and effective. It enables us to capitalize on being a major drive systems supplier across all three end-mobility markets. We are achieving improved profitability by actively seeking synergies across our engineering, purchasing, and manufacturing base. We have strengthened the portfolio by acquiring critical assets; and we are utilizing our physical and intellectual capital to amplify innovation across the enterprise. Leveraging these core elements can further expand the cost efficiencies of our common technologies and deliver a sustainable competitive advantage for Dana.
Driving customer centricity continues to be at the heart of who we are. Putting our customers at the center of our value system is firmly embedded in our culture and is driving growth by focusing on customer relationships and providing value to our customers. These relationships are strengthened as we are physically 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.
We continue to enhance and expand our global footprint, optimizing it to capture growth across all of our end markets. 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 and 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 subsidiaries 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.
Delivering innovative solutions enables us to capitalize on market growth trends as we evolve our core technology capabilities. We are also focused on enhancing our physical products with digital content to provide smart systems and we see an opportunity to become a digital systems provider by delivering software as a service to our traditional end customers. This focus on delivering solutions based on our core technology is leading to new business wins and increasing our content per vehicle. We have made significant investments - both organically and inorganically - allowing us to move to the next phase, which is to Lead electric propulsion.
Over the past year we have achieved our goal to accelerate hybridization and electrification through both core Dana technologies and targeted strategic acquisitions and are positioned today to lead the market. The four recent acquisitions of 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 hybrid and electric vehicles.
See Trends in Our Markets discussion below for additional information on our operational and strategic initiatives.
Capital Structure Initiatives
In addition to investing in our business, we plan to continue prioritizing the allocation of capital to reduce debt and maintain a strong financial position. In January 2018, we announced our intention to drive toward investment grade metrics as part of a balanced approach to our capital allocation priorities and our goal of further strengthening our balance sheet.
Shareholder return actions — When evaluating capital structure initiatives, we balance our growth opportunities and shareholder value initiatives with maintaining a strong balance sheet and access to capital. Our strong financial position has enabled us to simplify our capital structure while providing returns to our shareholders in the form of cash dividends and a reduction in the number of shares outstanding. Our Board of Directors authorized a $200 share repurchase program effective in 2018 which expires at the end of 2021. Through September 30, 2020, we have used cash of $50 to repurchase common shares under the program. Through the first quarter of 2020, we had declared and paid quarterly common stock dividends for thirty-three consecutive quarters. In response to the global COVID-19 pandemic, we have temporarily suspended the declaration and payment of dividends to common shareholders and the repurchase of common stock under our existing common stock share repurchase program.
Financing actions — During 2019 we expanded our credit and guaranty agreement, entering into $675 of additional floating rate term loans to fund the ODS acquisition (see Acquisitions section below) and increasing our revolving credit facility to $1,000 and extending its maturity by two years. We completed a $300 2027 note offering and used the proceeds to repay $300 of higher cost 2023 notes. During 2019, we terminated one of our U.S. defined benefit pension plans, settling approximately $165 of previously unfunded pension obligations and eliminating future funding risk associated with interest rate and other market developments. In response to the global COVID-19 pandemic, during June 2020, we completed a $400 2028 note offering and a $100 add on to our 2027 notes. See Note 11 to our consolidated financial statements in Item 1 of Part I for additional information.
Other Initiatives
Aftermarket opportunities — We have a global group dedicated to identifying and developing aftermarket growth opportunities that leverage the capabilities within our existing businesses – targeting increased future aftermarket sales. Powered by recognized brands such as Dana®, Spicer®, Victor Reinz®, Albarus™, Brevini™, PIV™, Fairfield®, Glaser®, Graziano™, GWB®, Spicer Select™, Thompson™, Tru-Cool®, and Transejes™, Dana delivers a broad range of aftermarket solutions – including genuine, all-makes, and value lines – servicing passenger car, commercial vehicle, off-highway equipment and industrial applications across the globe.
Selective acquisitions — Although transformational opportunities like the GKN plc driveline business transaction that we pursued in 2018 will be considered when strategically and economically attractive, our acquisition focus is principally directed at “bolt-on” or adjacent acquisition opportunities that have a strategic fit with our existing core businesses, particularly opportunities that support our enterprise strategy and enhance the value proposition of our product offerings. Any potential acquisition will be evaluated in the same manner we currently consider customer program opportunities and other uses of capital – with a disciplined financial approach designed to ensure profitable growth and increased shareholder value.
Acquisitions
Ashwoods Innovations Limited — On February 5, 2020, we acquired Curtis Instruments, Inc.'s (Curtis) 35.4% 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. 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. See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in Ashwoods. The results of operations of Ashwoods are reported within our Off-Highway operating segment. Ashwoods had an insignificant impact on our consolidated results of operations during 2020.
Nordresa — On August 26, 2019, we acquired a 100% ownership interest in Nordresa Motors, Inc. (Nordresa) for consideration of $12, using cash on hand. Nordresa is a prominent integration and application engineering expert for the development and commercialization of electric powertrains for commercial vehicles. The investment further enhances Dana's electrification capabilities by combining its complete portfolio of motors, inverters, chargers, gearboxes, and thermal-management products with Nordresa's proprietary battery-management system, electric powertrain controls and integration expertise to deliver complete electric powertrain systems. The results of operations of Nordresa are reported within our Commercial Vehicle operating segment. Nordresa had an insignificant impact on our consolidated results of operations during 2019.
Prestolite E-Propulsion Systems (Beijing) Limited — On June 6, 2019, we acquired Prestolite Electric Beijing Limited's (PEBL) 50% ownership interest in Prestolite E-Propulsion Systems (Beijing) Limited (PEPS). PEPS manufactures and distributes electric mobility solutions, including electric motors, inverters, and generators for commercial vehicles and heavy machinery. PEPS has a state-of-the-art facility in China, enabling us to expand motor and inverter manufacturing capabilities in the world's largest electric-mobility market. The acquisition of PEBL's interest in PEPS, along with our existing ownership interest in PEPS through our TM4 subsidiary, provides us with a 100% ownership interest and a controlling financial interest in PEPS. We recognized a $2 gain to other income (expense), net on the required remeasurement of our previously held equity method investment in PEPS to fair value. We paid $50 at closing using cash on hand. Reference is made to Note 2 of our consolidated financial statements in Item 1 of Part I for the allocation of purchase consideration to assets acquired and liabilities assumed. The results of operations of PEPS are reported within our Commercial Vehicle operating segment. The PEPS acquisition contributed $8 of sales and de minimis adjusted EBITDA in 2019. See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in PEPS.
Oerlikon Drive Systems — On February 28, 2019, we acquired a 100% ownership interest in the Oerlikon Drive Systems (ODS) segment of the Oerlikon Group. ODS is a global manufacturer of high-precision gears, planetary hub drives for wheeled and tracked vehicles, and products, controls, and software that support vehicle electrification across the mobility industry. We paid $626 at closing, which was primarily funded through debt proceeds. Reference is made to Note 2 of our consolidated financial statements in Item 1 of Part I for the allocation of purchase consideration to assets acquired and liabilities assumed. The results of operations of ODS are reported primarily within our Off-Highway and Commercial Vehicle operating segments. The ODS acquisition added $630 of sales and $87 of adjusted EBITDA during 2019.
SME — On January 11, 2019, we acquired a 100% ownership interest in S.M.E. S.p.A. (SME). SME designs, engineers, and manufactures low-voltage AC induction and synchronous reluctance motors, inverters, and controls for a wide range of off-highway electric vehicle applications, including material handling, agriculture, construction, and automated-guided vehicles. The addition of SME's low-voltage motors and inverters, which are primarily designed to meet the evolution of electrification in off-highway equipment, significantly expands Dana's electrified product portfolio. We paid $88 at closing, consisting of $62 in cash on hand and a note payable of $26 which allows for net settlement of potential contingencies as defined in the purchase agreement. The note is payable in five years and bears annual interest of 5%. Reference is made to Note 2 of our consolidated financial statements in Item 1 of Part I for the allocation of purchase consideration to assets acquired and liabilities assumed. The SME acquisition added $21 of sales and de minimis adjusted EBITDA during 2019. See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in SME.
Hydro-Québec Relationship
On June 22, 2018, we acquired a 55% ownership interest in TM4 from Hydro-Québec. On July 29, 2019, we broadened our relationship with Hydro-Québec, with Hydro-Québec acquiring an indirect 45% redeemable noncontrolling interest in SME and increasing its existing indirect 22.5% noncontrolling interest in PEPS to 45%. We received $65 at closing, consisting of $53 of cash and a note receivable of $12. The note is payable in five years and bears annual interest of 5%. Dana will continue to consolidate SME and PEPS as the governing documents continue to provide Dana with a controlling financial interest in these subsidiaries. See Acquisitions section above for a discussion of Dana's acquisitions of PEPS and SME. On April 14, 2020, Hydro-Québec acquired an indirect 45% redeemable noncontrolling interest in Ashwoods. We received $9 in cash at closing, inclusive of $2 in proceeds on a loan from Hydro-Québec. Dana will continue to consolidate Ashwoods as the governing documents continue to provide Dana with a controlling financial interest in this subsidiary. See Acquisitions section above for a discussion of Dana's acquisition of Ashwoods.
Trends in Our Markets
The global novel coronavirus disease (COVID-19) pandemic has had and may continue to have an adverse effect on our business, results of operations, cash flows and financial condition. The global COVID-19 pandemic has negatively impacted the global economy, disrupted our operations as well as those of our customers, suppliers and the global supply chains in which we participate, and created significant volatility and disruption of financial markets. The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term operational, strategic and capital structure initiatives, will depend on future developments, including the duration and severity of the pandemic, which are uncertain and cannot be predicted.
The company's response to the global COVID-19 pandemic has been measured, swift and decisive with an emphasis on health and safety, cash conservation and enhancing liquidity. Our top priority is the health and safety of our employees, their families, our customers, and our communities. We have implemented protocols throughout our global footprint to ensure their health and safety including, but not limited to: temporarily closing a significant number of our facilities; restricting access to and enhancing cleaning and disinfecting protocols of those facilities that continue to operate; use of personal protection equipment; adhering to social distancing guidelines; instituting remote work; and restricting travel.
In response to the rapid dissipation of customer demand, the company has taken actions to conserve cash by flexing its conversion costs across its global manufacturing, assembly and distribution facilities and aggressively reducing its cost base and eliminating discretionary spending at its technical centers and administrative offices. Cost flex activities at our operating facilities has included reduction of material orders, flexing labor costs, halting non-production spending and delaying capital spending where and when appropriate. Cost reduction activities at our technical centers and administrative offices has included a temporary 20% reduction in salaried employee wages, a temporary 20% reduction in board of director remuneration, a temporary 50% reduction in the Chief Executive Officer's compensation, reduction of cash incentive compensation, a moratorium on travel and entertainment expenditures and delaying capital spending and investment in research and development activities where and when appropriate. The company is also temporarily suspending the declaration and payment of dividends to common shareholders and temporarily suspending the repurchase of common stock under its existing common stock share repurchase program. In addition, the company is taking advantage of various government programs and subsidies in the countries in which it operates, including certain provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act.
As of September 30, 2020, we had total liquidity of $1,955 including cash and cash equivalents (less deposits), marketable securities and availability from our Revolving Facility. Also, the company has no meaningful debt maturities before 2024.
While we have seen a marked improvement in our end markets during the third quarter of 2020, that improvement has varied significantly by market and by region. As we continue to manage through the unprecedented disruption in our markets and associated economic uncertainty resulting from the global COVID-19 pandemic, we will continue to respond in a measured, swift and decisive manner with continued emphasis on health and safety, cash conservation and maintenance of our liquidity position.
Foreign Currency
With 52% of our year-to-date 2020 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 52% and 7% of our year-to-date 2020 non-U.S. sales, respectively, while China, India and Thailand accounted for 10%, 7% and 5%, respectively. Although sales in Argentina and South Africa were each less than 5% of our non-U.S. sales, exchange rate movements of those countries have been volatile and significantly impacted sales from time to time. International currencies strengthened against the U.S. dollar in 2018, with sales increasing by $16 principally due to a stronger euro, Thai baht and Chinese renminbi, partially offset by a weaker Brazilian real, Argentine peso and Indian rupee. Weaker international currencies during 2019 decreased sales by $177, with the euro, Brazilian real and South African rand accounting for $103, $30 and $15 of the decrease, respectively. Weaker international currencies decreased sales by $63 during the first nine months of 2020 compared to the same period last year, with the Brazilian real, South African rand, Indian rupee and Chinese renminbi accounting for $47, $9, $8 and $5 of the decrease, respectively, while a stronger euro increased sales by $9.
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.
International Markets
Trade actions initiated by the U.S. imposing tariffs on imports have been met with retaliatory tariffs by other countries, adding a level of tension and uncertainty to the global economic environment. In November 2018, the U.S., Mexico and Canada executed the U.S.-Mexico-Canada Agreement (USMCA), the successor agreement to the North American Free Trade Agreement (NAFTA). The agreement includes the imposition of tariffs on vehicles that do not meet regional raw material (steel and aluminum), part and labor content requirements. The agreement was ratified by the U.S. in January 2020. These and other actions are likely to impact trade policies with other countries and the overall global economy. The United Kingdom's decision to exit the European Union ("Brexit") continues to provide some uncertainty and potential volatility around European currencies, along with uncertain effects of future trade and other cross-border activities of the United Kingdom with the European Union and other countries.
The Brazil market is an important market for our Commercial Vehicle segment, representing about 16% of this segment's year-to-date 2020 sales. Our medium/heavy truck sales in Brazil account for approximately 76% of our year-to-date 2020 sales in the country. Reduced market demand resulting from the weak economic environment in Brazil during 2015 and 2016 lead to significant production level declines in the light truck and medium/heavy markets. In response to the challenging economic conditions in this country, we implemented restructuring and other cost reduction actions and reduced costs to the extent practicable. The Brazilian economy rebounded in 2017 and 2018, leading to increased medium/heavy and light truck production of more than 40% in each of those segments over the two-year period. Sales by our operations in Brazil were $393 in 2019, up 1% from 2018, reflective of modestly higher medium/heavy and light truck production levels in 2019. Sales by our operations in Brazil were $182 in the nine months of 2020, down 41% from the same period of 2019, reflective of lower medium/heavy truck production levels.
As indicated above, Argentina has experienced significant inflationary pressures the past few years, contributing to significant devaluation of its currency among other economic challenges. Our Argentine operation supports our Light Vehicle operating segment. Our sales in Argentina for the first nine months of 2020 of approximately $51 are approximately 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $20, including $5 of net fixed assets, at September 30, 2020.
Commodity Costs
The cost of our products may be significantly impacted by changes in raw material commodity prices, the most important to us being those of various grades of steel, aluminum, copper and brass. The effects of changes in commodity prices are reflected directly in our purchases of commodities and indirectly through our purchases of products such as castings, forgings, bearings and component parts that include commodities. Beginning in 2018, commodity prices have been impacted by imposed tariffs. Suppliers directly impacted by the tariffs are attempting to pass through the cost of the tariffs while suppliers not subject to the tariffs are advantaging themselves by raising prices. Most of our major customer agreements provide for the sharing of significant commodity price changes with those customers based on the movement in various published commodity indexes. Where such formal agreements are not present, we have historically been successful implementing price adjustments that largely compensate for the inflationary impact of material costs. Material cost changes will customarily have some impact on our financial results as customer pricing adjustments typically lag commodity price changes.
Prices for commodities such as steel and aluminum rose during 2019, due to strong global demand. Higher commodity prices reduced year-over-year earnings in 2019 by approximately $30, as compared to year-over-year earnings reductions of $115 in 2018. Material recovery and other pricing actions decreased earnings in 2019 by $10, whereas pricing and recovery actions increased year-over-year earnings in 2018 by $80. Lower commodity prices increased year-over-year third-quarter and nine-month earnings in 2020 by $13 and $35, as compared to year-over-year earnings reductions of $2 and $46 in the same periods last year. Material cost recovery and other pricing actions decreased year-over-year earnings in the third quarter and first nine months of 2020 by $18 and $69, whereas pricing and recovery actions decreased year-over-year third quarter earnings in 2019 by $14 while they increased year-over-year nine-months earnings by $8.
Sales, Earnings and Cash Flow Outlook
| 2020 Outlook |
2019 |
2018 |
||||||||||
| Sales |
$6,650 - $6,950 |
$ | 8,620 | $ | 8,143 | |||||||
| Adjusted EBITDA |
$530 - $590 |
$ | 1,019 | $ | 957 | |||||||
| Net cash provided by operating activities |
~5.1% of Sales |
$ | 637 | $ | 568 | |||||||
| Discretionary pension contributions |
$ — | $ | 61 | $ | — | |||||||
| Purchases of property, plant and equipment |
~4.4% of Sales |
$ | 426 | $ | 325 | |||||||
| Adjusted Free Cash Flow |
~0.7% of Sales |
$ | 272 | $ | 243 | |||||||
Adjusted EBITDA and adjusted free cash flow are non-GAAP financial measures. See the Non-GAAP Financial Measures discussion below for definitions of our non-GAAP financial measures and reconciliations to the most directly comparable U.S. generally accepted accounting principles (GAAP) measures. We have not provided a reconciliation of our adjusted EBITDA outlook to the most comparable GAAP measure of net income. Providing net income guidance is potentially misleading and not practical given the difficulty of projecting event driven transactional and other non-core operating items that are included in net income, including restructuring actions, asset impairments and certain income tax adjustments. The accompanying reconciliations of these non-GAAP measures with the most comparable GAAP measures for the historical periods presented are indicative of the reconciliations that will be prepared upon completion of the periods covered by the non-GAAP guidance.
Our updated 2020 sales, adjusted EBITDA and adjusted free cash flow outlook assumes a continued dissipation of the impact of the global COVID-19 pandemic on our end markets, our customers and our operations. Our updated 2020 outlook does not anticipate significant market disruption or any of our major customers having to temporarily close plants or otherwise curtail production in response to a resurgence of the global COVID-19 pandemic.
Summary Consolidated Results of Operations (Third Quarter, 2020 versus 2019)
| Three Months Ended September 30, |
||||||||||||||||||||
| 2020 |
2019 |
|||||||||||||||||||
| Dollars |
% of Net Sales |
Dollars |
% of Net Sales |
Increase/ (Decrease) |
||||||||||||||||
| Net sales |
$ | 1,994 | $ | 2,164 | $ | (170 | ) | |||||||||||||
| Cost of sales |
1,780 | 89.3 | % | 1,882 | 87.0 | % | (102 | ) | ||||||||||||
| Gross margin |
214 | 10.7 | % | 282 | 13.0 | % | (68 | ) | ||||||||||||
| Selling, general and administrative expenses |
111 | 5.6 | % | 128 | 5.9 | % | (17 | ) | ||||||||||||
| Amortization of intangibles |
4 | 2 | 2 | |||||||||||||||||
| Restructuring charges, net |
2 | 5 | (3 | ) | ||||||||||||||||
| Pension settlement charge | (2 | ) | 2 | |||||||||||||||||
| Other income (expense), net |
(8 | ) | (8 | ) | — | |||||||||||||||
| Earnings before interest and income taxes |
89 | 137 | (48 | ) | ||||||||||||||||
| Interest income |
3 | 3 | — | |||||||||||||||||
| Interest expense |
38 | 31 | 7 | |||||||||||||||||
| Earnings before income taxes |
54 | 109 | (55 | ) | ||||||||||||||||
| Income tax expense |
16 | 5 | 11 | |||||||||||||||||
| Equity in earnings of affiliates |
7 | 8 | (1 | ) | ||||||||||||||||
| Net income |
45 | 112 | (67 | ) | ||||||||||||||||
| Less: Noncontrolling interests net income | 4 | 3 | 1 | |||||||||||||||||
| Less: Redeemable noncontrolling interests net loss | (4 | ) | (2 | ) | (2 | ) | ||||||||||||||
| Net income attributable to the parent company |
$ | 45 | $ | 111 | $ | (66 | ) | |||||||||||||
Sales — The following table shows changes in our sales by geographic region.
| Three Months Ended |
||||||||||||||||||||||||
| September 30, |
Amount of Change Due To |
|||||||||||||||||||||||
| 2020 |
2019 |
Increase/ (Decrease) | Currency Effects |
Acquisitions (Divestitures) | Organic Change |
|||||||||||||||||||
| North America | $ | 1,069 | $ | 1,158 | $ | (89 | ) | $ | — | $ | — | $ | (89 | ) | ||||||||||
| Europe | 577 | 614 | (37 | ) | 24 | 4 | (65 | ) | ||||||||||||||||
| South America | 96 | 134 | (38 | ) | (23 | ) | (15 | ) | ||||||||||||||||
| Asia Pacific | 252 | 258 | (6 | ) | (3 | ) | (3 | ) | ||||||||||||||||
| Total |
$ | 1,994 | $ | 2,164 | $ | (170 | ) | $ | (2 | ) | $ | 4 | $ | (172 | ) | |||||||||
Sales in 2020 were $170 lower than in 2019. Weaker international currencies decreased sales by $2, principally due to a weaker Brazilian real and Indian rupee, partially offset by a stronger euro. The acquisition of PEPS in last year's second quarter and Ashwoods in this year's first quarter, generated a year-over-year increase in sales of $4. The organic sales decrease of $172, or 8%, resulted from the continued, but dissipating, effects of the global COVID-19 pandemic, partially offset by the conversion of sales backlog. The impact of the global COVID-19 pandemic on our operations as well as those of our customers, suppliers and the global supply chains in which we participate, was most notable during April 2020, with a measured ramp up in production beginning in May with continued sequential month-over-month improvement through September 2020. Pricing actions, including material commodity price and inflationary cost adjustments, reduced sales by $18.
The North America organic sales decrease of 8% was driven principally by weaker light and medium/heavy duty truck production volumes resulting from the global COVID-19 pandemic, partially offset by the conversion of sales backlog. Third-quarter 2020 full frame light truck production was down 2% while production of Class 8 and Classes 5-7 trucks were down 38% and 25%, respectively.
Excluding currency and acquisition effects, sales in Europe were down 11% compared with 2019. With our significant Off-Highway presence in the region, weaker construction/mining and agricultural markets due to the continued, but dissipating, effects of the global COVID-19 pandemic were a major factor. Organic sales in this operating segment were down 15% compared with the third quarter of 2019.
Excluding currency effects, third quarter sales in South America decreased 11% compared to 2019 due primarily to the continued, but dissipating, effects of the global COVID-19 pandemic. Third-quarter 2020 medium/heavy truck production was down 27% and light truck production was down 6%.
Excluding currency and acquisition effects, sales in Asia Pacific decreased slightly compared to 2019. Asia Pacific is the first region to have largely recovered from the effects of the global COVID-19 pandemic. Medium/heavy truck production was up 33%, while Light truck productions was flat and light vehicle engine production was down 6% compared with the third quarter of 2019.
Cost of sales and gross margin — Cost of sales for the third quarter of 2020 decreased $102, or 5% when compared to 2019. Cost of sales as a percent of sales in 2020 was 230 basis points higher than in the previous year. Cost of sales attributed to acquisitions was approximately $8. Excluding the effects of acquisitions, cost of sales as a percent of sales was 89.0%, 200 basis points higher than in the previous year. The increase in cost of sales as a percent of sales was largely attributable to actions to flex down our cost structure lagging the rapid dissipation of customer demand across all of our end markets as a result of the global COVID-19 pandemic, our inability to effectively reduce labor costs in certain countries due to government requirements, as well as our inability to reduce fixed costs including depreciation and rent expense. Partially offsetting the impact of the rapid dissipation of customer demand were lower commodity prices which lowered material costs by $13 and continued material cost savings of approximately $19.
Gross margin of $214 for 2020 decreased $68 from 2019. Gross margin as a percent of sales was 10.7% in 2020, 230 basis points lower than in 2019. The decline in margin as a percent of sales was driven principally by the cost of sales factors referenced above.
Selling, general and administrative expenses (SG&A) — SG&A expenses in 2020 were $111 (5.6% of sales) as compared to $128 (5.9% of sales) in 2019. SG&A attributed to acquisitions was $2. Excluding the increase associated with acquisitions, SG&A expenses were 40 basis points lower than the same period of 2019. The year-over-year decrease of $19 exclusive of acquisitions was primarily due to lower year-over-year salaried employee wages, benefits, travel expenses, marketing expenses and professional fees resulting from the execution of cost reduction initiatives in response to the global COVID-19 pandemic, partially offset by higher incentive compensation.
Amortization of intangibles — Amortization expense was $4 in 2020 and $2 in 2019. The increase in amortization expense is primarily due to higher levels of intangible assets as the result of acquisition activity.
Restructuring charges, net — Restructuring charges of $2 in 2020 were primarily comprised of exit costs related to previously announced actions. Restructuring charges of $5 in 2019 were comprised of severance and benefit costs primarily related to integration of recent acquisitions, headcount reductions across our operations and exit costs related to previously announced actions.
Other income (expense), net — The following table shows the major components of other income (expense), net.
| Three Months Ended |
||||||||
| September 30, |
||||||||
| 2020 |
2019 |
|||||||
| Non-service cost components of pension and OPEB costs |
$ | (3 | ) | $ | (4 | ) | ||
| Government grants and incentives |
3 | 3 | ||||||
| Foreign exchange gain (loss) |
(2 | ) | (1 | ) | ||||
| Strategic transaction expenses |
(4 | ) | (8 | ) | ||||
| Other, net |
(2 | ) | 2 | |||||
| Other income (expense), net |
$ | (8 | ) | $ | (8 | ) | ||
Strategic transaction expenses in 2020 were primarily attributable to non-acquisition related strategic initiatives. Strategic transaction expenses in 2019 were primarily attributable to the acquisition of ODS. See Note 2 of our consolidated financial statements in Item 1 of Part I for additional information.
Interest income and interest expense — Interest income was $3 in both 2020 and 2019. Interest expense increased from $31 in 2019 to $38 in 2020, primarily due to by higher average debt levels. The increase in average debt levels is primarily attributable to the issuances of $400 of our June 2028 Notes and an additional $100 of our November 2027 Notes in June 2020. Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.1% in 2020 and 5.0% in 2019.
Income tax expense — We reported an income tax expense of $16 and $5 for the third quarter, 2020 and 2019, respectively. During the third quarter of 2019, we recognized a benefit of $22 for the release of a valuation allowance in a subsidiary in Brazil based on the recent history of profitability and increased income projections. Excluding this item, the effective tax rate would be 30% and 25% for the 2020 and 2019 three-month period. Our effective income tax rates vary from the U.S. federal statutory rate of 21% due to establishment, release and adjustment of valuation allowances in several countries, nondeductible expenses and deemed income, local tax incentives in several countries outside the U.S., different statutory tax rates outside the U.S. and withholding taxes related to repatriations of international earnings. The effective income tax rate may vary significantly due to fluctuations in the amounts and sources, both foreign and domestic, of pretax income and changes in the amounts of nondeductible expenses.
In countries where our history of operating losses does not allow us to satisfy the “more likely than not” criterion for recognition of deferred tax assets, we have generally recognized no income tax on the pre-tax income or losses as valuation allowance adjustments offset the associated tax effects. Consequently, there is no income tax expense or benefit recognized on the pre-tax income or losses in these jurisdictions as valuation allowances are adjusted to offset the associated tax expense or benefit. We believe it is reasonably possible that valuation allowances up to $25 related to a subsidiary in Australia will be release in the next twelve months.
Equity in earnings of affiliates — Net earnings from equity investments was $7 in 2020 and $8 in 2019. Equity in earnings from DDAC was $6 in 2020 and $4 in 2019. After experiencing significant impacts resulting from the global COVID-19 pandemic during the first quarter of 2020, DDAC experienced higher demand levels during the third quarter of 2020 primarily driven by increased demand for certain medium/heavy vehicles by the Chinese government. Equity in earnings from BSFB was $1 in 2020 and $4 in 2019. The quarter-over-quarter decrease in BSFB's earnings is primarily attributable to the global COVID-19 pandemic.
| Nine Months Ended September 30, |
||||||||||||||||||||
| 2020 |
2019 |
|||||||||||||||||||
| Dollars |
% of Net Sales |
Dollars |
% of Net Sales |
Increase/ (Decrease) |
||||||||||||||||
| Net sales |
$ | 4,998 | $ | 6,633 | $ | (1,635 | ) | |||||||||||||
| Cost of sales |
4,588 | 91.8 | % | 5,725 | 86.3 | % | (1,137 | ) | ||||||||||||
| Gross margin |
410 | 8.2 | % | 908 | 13.7 | % | (498 | ) | ||||||||||||
| Selling, general and administrative expenses |
299 | 6.0 | % | 404 | 6.1 | % | (105 | ) | ||||||||||||
| Amortization of intangibles |
10 | 8 | 2 | |||||||||||||||||
| Restructuring charges, net |
21 | 23 | (2 | ) | ||||||||||||||||
| Impairment of goodwill | (51 | ) | (51 | ) | ||||||||||||||||
| Pension settlement charge |
(260 | ) | 260 | |||||||||||||||||
| Other income (expense), net |
(5 | ) | (31 | ) | 26 | |||||||||||||||
| Earnings before interest and income taxes |
24 | 182 | (158 | ) | ||||||||||||||||
| Write-off deferred financing costs | (5 | ) | (5 | ) | ||||||||||||||||
| Interest income |
7 | 8 | (1 | ) | ||||||||||||||||
| Interest expense |
99 | 92 | 7 | |||||||||||||||||
| Earnings (loss) before income taxes |
(73 | ) | 98 | (171 | ) | |||||||||||||||
| Income tax expense (benefit) |
34 | (27 | ) | 61 | ||||||||||||||||
| Equity in earnings of affiliates |
17 | 22 | (5 | ) | ||||||||||||||||
| Net income (loss) |
(90 | ) | 147 | (237 | ) | |||||||||||||||
| Less: Noncontrolling interests net income |
6 | 9 | (3 | ) | ||||||||||||||||
| Less: Redeemable noncontrolling interests net loss |
(25 | ) | (3 | ) | (22 | ) | ||||||||||||||
| Net income (loss) attributable to the parent company |
$ | (71 | ) | $ | 141 | $ | (212 | ) | ||||||||||||
Sales — The following table shows changes in our sales by geographic region.
| Nine Months Ended |
||||||||||||||||||||||||
| September 30, |
Amount of Change Due To |
|||||||||||||||||||||||
| 2020 |
2019 |
Increase/ (Decrease) |
Currency Effects |
Acquisitions (Divestitures) |
Organic Change |
|||||||||||||||||||
| North America | $ | 2,530 | $ | 3,444 | $ | (914 | ) | $ | (1 | ) | $ | 30 | $ | (943 | ) | |||||||||
| Europe | 1,588 | 2,005 | (417 | ) | 64 | (481 | ) | |||||||||||||||||
| South America | 244 | 396 | (152 | ) | (48 | ) | (104 | ) | ||||||||||||||||
| Asia Pacific | 636 | 788 | (152 | ) | (14 | ) | 29 | (167 | ) | |||||||||||||||
| Total |
$ | 4,998 | $ | 6,633 | $ | (1,635 | ) | $ | (63 | ) | $ | 123 | $ | (1,695 | ) | |||||||||
Pension settlement charge — See Note 10 of the consolidated financial statements in Item 1 of Part I for a discussion of the termination of one of our U.S. defined benefit pension plans.
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2020 |
2019 |
|||||||
| Non-service cost components of pension and OPEB costs |
$ | (8 | ) | $ | (19 | ) | ||
| Government grants and incentives |
9 | 11 | ||||||
| Foreign exchange gain (loss) |
5 | (11 | ) | |||||
| Strategic transaction expenses |
(15 | ) | (32 | ) | ||||
| Non-income tax legal judgment |
6 | |||||||
| Other, net |
4 | 14 | ||||||
| Other income (expense), net |
$ | (5 | ) | $ | (31 | ) | ||
Write-off deferred financing costs — On June 19, 2020, in connection with the issuance of our June 2028 Notes, we terminated our $500 bridge facility and wrote off $5 of deferred fees associated with the bridge facility. See Note 11 of the consolidated financial statements in Item 1 of Part I for additional information.
Income tax expense (benefit) —We reported an income tax expense of $34 and an income tax benefit of $27 for the nine months ended September 30, 2020 and 2019, respectively. Our effective tax rates were (46)% and (28)% for the first nine months of 2020 and 2019. In the second quarter of 2020 we recorded an income tax expense of $56 for valuation allowances in foreign jurisdictions due to reduced income projections. During the first quarter of 2020, a pre-tax goodwill impairment charge of $51 with an associated income tax benefit of $1 was recorded. Also, during the first quarter of 2020, we recorded tax benefit of $37 related to tax actions that adjusted federal tax credits, tax expense of $2 to record additional valuation allowance in the U.S. based on reduced income projections, and tax expense of $4 to record valuation allowances in foreign jurisdictions due to reduced income projections. During the third quarter of 2019, we recognized a benefit of $22 for the release of a valuation allowance in a subsidiary in Brazil based on the recent history of profitability and increased income projections. In the second quarter of 2019, a pre-tax pension settlement charge of $258 with an associated income tax benefit of $9 was recorded. Also, during the second quarter of 2019, we recorded tax benefits of $48 related to tax actions that adjusted federal tax credits and $30 related to the development of a tax planning strategy which reduced valuation allowances on existing federal tax credits. During the first quarter of 2019, we recognized a benefit of $22 related to release of valuation allowances in the U.S. based on improved income projections. Partially offsetting this benefit was $6 of expenses related to a U.S. state law change. Excluding these items, the effective tax rate would be (45)% and 28% for the 2020 and 2019 nine-month periods, respectively. Our effective income tax rates vary from the U.S. federal statutory rate of 21% due to establishment, release and adjustment of valuation allowances in several countries, nondeductible expenses and deemed income, local tax incentives in several countries outside the U.S., different statutory tax rates outside the U.S. and withholding taxes related to repatriations of international earnings. The effective income tax rate may vary significantly due to fluctuations in the amounts and sources, both foreign and domestic, of pretax income and changes in the amounts of nondeductible expenses.
Equity in earnings of affiliates — Net earnings from equity investments was $17 in 2020 and $22 in 2019. Equity in earnings from DDAC was $14 in both 2020 and 2019. After experiencing significant impacts resulting from the global COVID-19 pandemic during the first quarter of 2020, DDAC experienced higher demand levels during the second and third quarters of 2020 primarily driven by increased demand for certain medium/heavy vehicles by the Chinese government. Equity in earnings form BSFB was $4 in 2020 and $8 in 2019. The year-over-year decrease in BSFB's earnings is primarily attributable to the global COVID-19 pandemic.
Segment Results of Operations (2020 versus 2019)
Light Vehicle
| Three Months |
Nine Months |
|||||||||||||||||||||||
| Sales |
Segment EBITDA |
Segment EBITDA Margin |
Sales |
Segment EBITDA |
Segment EBITDA Margin |
|||||||||||||||||||
| 2019 |
$ | 930 | $ | 113 | 12.2 | % | $ | 2,763 | $ | 333 | 12.1 | % | ||||||||||||
| Volume and mix | 3 | (2 | ) | (639 | ) | (167 | ) | |||||||||||||||||
| Performance | (17 | ) | (22 | ) | (52 | ) | (26 | ) | ||||||||||||||||
| Currency effects | (3 | ) | (14 | ) | ||||||||||||||||||||
| 2020 |
$ | 913 | $ | 89 | 9.7 | % | $ | 2,058 | $ | 140 | 6.8 | % | ||||||||||||
Light Vehicle sales in the third quarter and the first nine months of 2020, exclusive of currency effects, were 2% and 25% lower than the same periods of 2019. Full frame light truck production rapidly dissipated across all regions beginning in March 2020 as a result of the global COVID-19 pandemic. The impact of the global COVID-19 pandemic on our Light Vehicle operations was most notable during April 2020, with a measured ramp up in production beginning in May and continued sequential month-over-month increases in production continuing through September 2020. Year-over-year full frame light truck production declined in this year's third quarter in North America, Europe and South America by 2%, 8% and 6%, respectively, while production in Asia Pacific was flat with the same period of 2019. Year-over-year full frame light truck production for the first nine months of 2019 declined in North America, Europe, South America and Asia Pacific by 26%, 28%, 30% and 15%, respectively. Net customer pricing and cost recovery actions further decreased year-over-year sales by $11 and $43 in this year's third quarter and first nine months, respectively.
Light Vehicle third-quarter segment EBITDA decreased by $24 from last year, with the first nine months earnings lower by $193. Lower sales volumes provided a year-over-year headwind of $167 (26.1% decremental margin) in the first nine months as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. The year-over-year performance-related earnings decrease in the third quarter was driven by operational inefficiencies of $26, lower net pricing and material cost recovery of $11, higher warranty expense of $3 and higher incentive compensation of $1. Partially offsetting these performance-related earnings decreases were the benefit of commodity cost decreases of $9, material cost savings of $8 and lower salaried employee wages of $2. The year-over-year performance related-earnings decrease in the first nine months was driven by lower net pricing and material cost recovery of $43, operational inefficiencies of $40 and incremental safety costs of $2 directly related to the global COVID-19 pandemic. Partially offsetting these performance-related earnings decreases were commodity cost decreases of $23, material cost savings of $18, lower salaried employee wages of $8, certain benefits of the CARES Act of $5, lower incentive compensation of $4 and lower warranty expense of $1.
Commercial Vehicle
| Three Months |
Nine Months |
|||||||||||||||||||||||
| Sales |
Segment EBITDA |
Segment EBITDA Margin |
Sales |
Segment EBITDA |
Segment EBITDA Margin |
|||||||||||||||||||
| 2019 |
$ | 398 | $ | 33 | 8.3 | % | $ | 1,266 | $ | 115 | 9.1 | % | ||||||||||||
| Volume and mix | (70 | ) | (20 | ) | (380 | ) | (99 | ) | ||||||||||||||||
| Acquisitions | 1 | (1 | ) | 7 | (8 | ) | ||||||||||||||||||
| Performance | (1 | ) | 5 | (10 | ) | 23 | ||||||||||||||||||
| Currency effects | (14 | ) | (1 | ) | (36 | ) | (2 | ) | ||||||||||||||||
| 2020 |
$ | 314 | $ | 16 | 5.1 | % | $ | 847 | $ | 29 | 3.4 | % | ||||||||||||
Commercial Vehicle sales in the third quarter and first nine months of 2020, exclusive of currency effects and the impact of acquisitions, were 18% and 31% lower than the same period of 2019. Declining market conditions coming out of 2019 deteriorated further with the rapid dissipation in customer demand resulting from the global COVID-19 pandemic. Year-over-year North America Class 8 production was down 38% and Classes 5-7 production was down 25% in this year's third quarter. Year-over-year medium/heavy truck production in Europe and South America were down 28% and 27%, respectively, in this year's third quarter. Year-over-year North America Class 8 production was down 47% and Classes 5-7 production was down 31% in this year's first nine months. Year-over-year medium/heavy truck production in Europe and South America were down 33% and 35%, respectively. Asia Pacific was impacted by the global COVID-19 pandemic earlier than the other regions, with its most significant year-over-year production decline occurring during the first quarter of 2020. Year-over-year Asia Pacific medium/heavy truck production was up 33% and 3% for third quarter and first nine months, respectively. Net customer pricing and cost recovery actions further decreased year-over-year sales by $2 and $11 in this year's third quarter and first nine months, respectively.
Commercial Vehicle third-quarter segment EBITDA decreased by $17 from last year, with the first nine months earnings lower by $86. Lower sales volumes provided a year-over-year headwind of $20 (28.6% decremental margin) and $99 (26.1% decremental margin) in the third quarter and first nine months, respectively, as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. The year-over-year performance-related earnings increase in the third quarter was driven by improved operational efficiencies of $4, material cost savings of $3, commodity cost decreases of $1, lower warranty expense of $1 and lower salaried employee wages of $1. Partially offsetting these performance-related earnings increases were lower net pricing and material recovery of $2, higher incentive compensation of $2 and incremental safety costs of $1 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment. The year-over-year performance-related earnings increase in the first nine month was driven by material cost savings of $10, lower salaried employee wages of $6, commodity cost decreases of $5, improved operational efficiencies of $4, lower premium freight of $4, lower incentive compensation of $3, certain benefits of the CARES Act of $2 and lower warranty expense of $2. Partially offsetting these performance-related earnings increases were lower net pricing and material recovery actions of $11 and incremental safety costs of $2 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment.
Off-Highway
| Three Months |
Nine Months |
|||||||||||||||||||||||
| Sales |
Segment EBITDA |
Segment EBITDA Margin |
Sales |
Segment EBITDA |
Segment EBITDA Margin |
|||||||||||||||||||
| 2019 |
$ | 582 | $ | 79 | 13.6 | % | $ | 1,808 | $ | 264 | 14.6 | % | ||||||||||||
| Volume and mix | (86 | ) | (19 | ) | (461 | ) | (111 | ) | ||||||||||||||||
| Acquisitions | 3 | 1 | 116 | 20 | ||||||||||||||||||||
| Performance | (3 | ) | 3 | (12 | ) | 4 | ||||||||||||||||||
| Currency effects | 11 | 1 | (11 | ) | (2 | ) | ||||||||||||||||||
| 2020 |
$ | 507 | $ | 65 | 12.8 | % | $ | 1,440 | $ | 175 | 12.2 | % | ||||||||||||
Excluding currency effects and the impact of the ODS and Ashwoods acquisitions, third-quarter and first nine months 2020 sales in our Off-Highway segment decreased 15% and 26% compared to last year. Already declining global construction/mining and agricultural equipment markets coming out of 2019 deteriorated further with the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. Net customer pricing and cost reduction actions further decreased year-over-year sales by $3 and $12 in this year's third quarter and first nine months, respectively.
Off-Highway third-quarter segment EBITDA decreased by $14 from last year, with the first nine months earnings lower by $89. Lower sales volumes provided a year-over-year headwind of $19 (22.1% decremental margin) and $111 (24.1% decremental margin) in the third quarter and first nine months, respectively, as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. The year-over-year performance-related earnings increase in the third quarter was driven by material cost savings of $6, lower warranty expense of $5, commodity cost decreases of $3 and lower salaried employee wages of $2. Partially offsetting these performance-related earnings increases were operational inefficiencies of $7, lower net pricing and material recovery of $3, higher incentive compensation of $2 and incremental safety costs of $1 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment. The year-over-year performance-related earnings increase in the first nine months was driven by material cost savings of $16, lower salaried employee wages of $9, commodity cost decreases of $7, lower warranty expense of $3 and certain benefits of the CARES Act of $1. Partially offsetting these performance-related earnings increases were operational inefficiencies of $17, lower net pricing and material recovery of $12 and incremental safety costs of $3 directly related to the global COVID-19 pandemic.
Power Technologies
| Three Months |
Nine Months |
|||||||||||||||||||||||
| Sales |
Segment EBITDA |
Segment EBITDA Margin |
Sales |
Segment EBITDA |
Segment EBITDA Margin |
|||||||||||||||||||
| 2019 |
$ | 254 | $ | 28 | 11.0 | % | $ | 796 | $ | 90 | 11.3 | % | ||||||||||||
| Volume and mix | 4 | 2 | (138 | ) | (43 | ) | ||||||||||||||||||
| Performance | (2 | ) | 4 | (3 | ) | 16 | ||||||||||||||||||
| Currency effects | 4 | (2 | ) | |||||||||||||||||||||
| 2020 |
$ | 260 | $ | 34 | 13.1 | % | $ | 653 | $ | 63 | 9.6 | % | ||||||||||||
Power Technologies primarily serves the light vehicle market but also sells product to the medium/heavy truck and off-highway markets. Net of currency effects, sales for the third quarter 2020 were comparable with the third quarter of 2019 while first nine months 2020 sales were 18% lower than the same periods of 2019, primarily due to lower market demand resulting from the global COVID-19 pandemic. Light vehicle engine production declined in North America, Europe and Asia Pacific compared to last year's third quarter and first nine months.
Power Technologies third-quarter segment EBITDA increased $6 from last year, with the first nine months earnings lower by $27. Lower sales volumes provided a year-over-year headwind of $43 (31.2% decremental margin) in the first nine months as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. The year-over-year performance-related earnings increase in the third quarter was driven by operational efficiencies of $9, material cost savings of $2 and lower salaried employee wages of $1. Partially offsetting these performance-related earnings increases was higher incentive compensation of $3, lower net pricing and material recovery of $2, higher warranty expense of $2 and incremental safety costs of $1 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment. The year-over-year performance-related earnings increase in the first nine months was driven by operational efficiencies of $11, lower salaried employee wages of $6, material savings cost of $5 and certain benefits of the CARES Act of $1. Partially offsetting these performance-related earnings increases were lower net pricing and material recovery of $3, higher warranty expense of $2 and incremental safety costs of $2 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment.
Non-GAAP Financial Measures
Adjusted EBITDA
We have defined adjusted EBITDA as net income (loss) before interest, income taxes, depreciation, amortization, equity grant expense, restructuring expense, non-service cost components of pension and other postretirement benefits (OPEB) costs and other adjustments not related to our core operations (gain/loss on debt extinguishment, pension settlements, divestitures, impairment, etc.). Adjusted EBITDA is a measure of our ability to maintain and continue to invest in our operations and provide shareholder returns. We use adjusted EBITDA in assessing the effectiveness of our business strategies, evaluating and pricing potential acquisitions and as a factor in making incentive compensation decisions. In addition to its use by management, we also believe adjusted EBITDA is a measure widely used by securities analysts, investors and others to evaluate financial performance of our company relative to other Tier 1 automotive suppliers. Adjusted EBITDA should not be considered a substitute for earnings (loss) before income taxes, net income (loss) or other results reported in accordance with GAAP. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
The following table provides a reconciliation of net income (loss) to adjusted EBITDA.
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Net income (loss) |
$ | 45 | $ | 112 | $ | (90 | ) | $ | 147 | |||||||
| Equity in earnings of affiliates |
7 | 8 | 17 | 22 | ||||||||||||
| Income tax expense (benefit) |
16 | 5 | 34 | (27 | ) | |||||||||||
| Earnings (loss) before income taxes |
54 | 109 | (73 | ) | 98 | |||||||||||
| Depreciation and amortization | 94 | 86 | 272 | 247 | ||||||||||||
| Restructuring charges, net | 2 | 5 | 21 | 23 | ||||||||||||
| Interest expense, net | 35 | 28 | 92 | 84 | ||||||||||||
| Write-off deferred financing costs | 5 | |||||||||||||||
| Impairment of goodwill | 51 | |||||||||||||||
| Pension settlement charges | 2 | 260 | ||||||||||||||
| Other* | 16 | 20 | 33 | 81 | ||||||||||||
| Adjusted EBITDA |
$ | 201 | $ | 250 | $ | 401 | $ | 793 | ||||||||
| * | Other includes non-service cost components of pension and OPEB costs, stock compensation expense, strategic transaction expenses and other items. See Note 18 to our consolidated financial statements in Item 1 of Part I for additional details. |
Free Cash Flow and Adjusted Free Cash Flow
We have defined free cash flow as cash provided by (used in) operating activities less purchases of property, plant and equipment. We have defined adjusted free cash flow as cash provided by (used in) operating activities excluding discretionary pension contributions less purchases of property, plant and equipment. We believe these measures are useful to investors in evaluating the operational cash flow of the company inclusive of the spending required to maintain the operations. Free cash flow and adjusted free cash flow are not intended to represent nor be an alternative to the measure of net cash provided by (used in) operating activities reported in accordance with GAAP. Free cash flow and adjusted free cash flow may not be comparable to similarly titled measures reported by other companies.
The following table reconciles net cash flows provided by (used in) operating activities to adjusted free cash flow.
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Net cash provided by operating activities | $ | 321 | $ | 231 | $ | 195 | $ | 288 | ||||||||
| Purchases of property, plant and equipment | (60 | ) | (108 | ) | (181 | ) | (298 | ) | ||||||||
| Free cash flow |
261 | 123 | 14 | (10 | ) | |||||||||||
| Discretionary pension contribution |
— | 2 | — | 64 | ||||||||||||
| Adjusted free cash flow |
$ | 261 | $ | 125 | $ | 14 | $ | 54 | ||||||||
Liquidity
The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at September 30, 2020:
| Cash and cash equivalents |
$ | 956 | ||
| Less: Deposits supporting obligations | (2 | ) | ||
| Available cash |
954 | |||
| Additional cash availability from Revolving Facility | 979 | |||
| Marketable securities |
22 | |||
| Total liquidity |
$ | 1,955 |
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. Marketable securities are included as a component of liquidity as these investments can be readily liquidated at our discretion. We had availability of $979 at September 30, 2020 under the Revolving Facility after deducting $21 of outstanding letters of credit.
The components of our September 30, 2020 consolidated cash balance were as follows:
| U.S. |
Non-U.S. |
Total |
||||||||||
| Cash and cash equivalents | $ | 532 | $ | 320 | $ | 852 | ||||||
| Cash and cash equivalents held as deposits | 2 | 2 | ||||||||||
| Cash and cash equivalents held at less than wholly-owned subsidiaries | 2 | 100 | 102 | |||||||||
| Consolidated cash balance |
$ | 534 | $ | 422 | $ | 956 | ||||||
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 September 30, 2020, we were in compliance with the covenants of our financing agreements. Under the Term Facilities, 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 Term Facilities and 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 Term A Facility and the Revolving Facility are subject to a financial covenant requiring us to maintain a first lien net leverage ratio not to exceed 3.00:1.00. The indentures governing the senior notes include other incurrence-based covenants that may subject us to additional specified limitations.
In response to the COVID-19 pandemic we have taken controlled and measured actions to preserve liquidity including but not limited to flexing our cost structure, reducing capital spending and investments in research and development activities where and when appropriate, taking advantage of various government programs and subsidies including certain provisions of the CARES Act, temporarily suspending the declaration and payment of dividends to common shareholders and temporarily suspending the repurchase of common stock under our existing common stock share repurchase program. During June 2020, we completed the sale of $400 in senior unsecured notes due June 15, 2028 (June 2028 Notes) as well as a $100 add on to our senior unsecured notes due November 15, 2027 (November 2027 Notes).
On April 16, 2020, we amended certain provisions of our credit and guaranty agreement including gradually increasing the first lien net leverage ratio from a maximum of 2.00 to 1.00 to a maximum of 4.00 to 1.00 for the quarter ending December 31, 2020 and then, starting with the quarter ending December 31, 2021, decrease the ratio quarterly until it returns to its prior level of 2.00 to 1.00 for and after the quarter ending September 30, 2022, unless Dana, in its sole discretion, elects to return the first lien net leverage ratio to its prior level of 2.00 to 1.00 earlier than such date. We also amended certain restrictive covenants to provide additional limitations on incurring additional liens, taking on additional debt, paying dividends, entering into certain transactions with affiliates, making certain investments and disposing of certain assets until December 31, 2021, unless Dana, in its sole discretion, elects to return the first lien net leverage ratio to its prior level prior to December 31, 2021. At September 30, 2020, we were in compliance with the covenants of our financing agreements.
The principal sources of liquidity available for our future cash requirements are expected to be (i) cash flows from operations, (ii) cash and cash equivalents on hand and (iii) borrowings from our Revolving Facility. We believe that our overall liquidity and operating cash flow will be sufficient to meet our anticipated cash requirements for capital expenditures, working capital, debt obligations and other commitments during the next twelve months. While uncertainty surrounding the current economic environment could adversely impact our business, based on our current financial position, we believe it is unlikely that any such effects would preclude us from maintaining sufficient liquidity.
Cash Flow
The following table summarizes our consolidated statement of cash flows:
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2020 |
2019 |
|||||||
| Cash used for changes in working capital |
$ | (50 | ) | $ | (197 | ) | ||
| Other cash provided by operations |
245 | 485 | ||||||
| Net cash provided by operating activities |
195 | 288 | ||||||
| Net cash used in investing activities |
(193 | ) | (995 | ) | ||||
| Net cash provided by financing activities |
466 | 605 | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash |
$ | 468 | $ | (102 | ) | |||
Operating activities — Exclusive of working capital, other cash provided by operations was $245 and $485 in 2020 and 2019. The year-over-year decrease is primarily attributable to lower operating earnings as a result of the global COVID-19 pandemic, partially offset by a $62 discretionary pension contribution made to one of our U.S. defined benefit pension plans in the second quarter of 2019. Reference is made to Note 10 of the consolidated financial statements in Item 1 of Part I for a discussion of the settlement of this U.S. defined benefit pension plan.
Working capital used cash of $50 and $197 in 2020 and 2019. Cash of $120 and $81 was used to finance increased receivables in 2020 and 2019. The higher level of cash required for receivables in 2020 was primarily due to the ramp up in customer demand that occurred during the third quarter of 2020 as the impact of the global COVID-19 pandemic began to dissipate. Cash of $105 was provided by lower inventory levels in 2020, while cash of $26 was used to fund higher inventory levels in 2019. The lower levels of inventory in 2020 were largely due to management's controlled and measured actions to preserve liquidity in response to the global COVID-19 pandemic. Cash of $35 and $90 was used to reduce accounts payable and other net liabilities in 2020 and 2019.
Investing activities — Expenditures for property, plant and equipment were $181 and $298 during 2020 and 2019. The elevated level of capital spend during 2019 was primarily in support of new customer programs and information systems upgrades. During 2020, capital spending has been delayed where and when appropriate in response to the global COVID-19 pandemic. During the first quarter of 2020, we paid $8 to acquire Curtis' 35.4% ownership interest in Ashwoods. The acquisition of Curtis's interest in Ashwoods, along with our existing ownership interest in Ashwoods, provided us with a controlling financing interest in Ashwoods. During 2019, we paid $545, net of cash and restricted cash acquired, to purchase ODS, we paid $61 to acquire SME, we paid $48, net of cash acquired, to purchase PEPS and we paid $10 to acquire Nordresa. During 2019, we paid $21 to settle the undesignated Swiss franc notional deal contingent forward related to the ODS acquisition. During 2020 and 2019, purchases of marketable securities were largely funded by proceeds from sales and maturities of marketable securities.
Financing activities — During 2020, we completed the issuance of $400 of our June 2028 Notes and the issuance of an additional $100 of our November 2027 Notes, paying financing cost of $8. During 2020, we entered into a $500 bridge facility, paying financing cost of $5. We subsequently terminated the bridge facility. During 2020, we made principle payments of $8 on the Term A Facility. During 2019, we entered into an amended credit and guaranty agreement comprised of a $500 Term A Facility, a $450 Term B Facility and a $1,000 Revolving Facility. The Term A Facility was an expansion of our existing $275 term facility. We drew the $225 available under the Term A Facility and the $450 available under the Term B Facility. We paid financing costs of $16 to amend the credit and guaranty agreement. During 2019, we drew $100 on our Revolving Facility and made combined principle payments of $117 on the Term Facilities. During the third quarter of 2019, we broadened our relationship with Hydro-Québec, with Hydro-Québec acquiring an indirect 45% redeemable noncontrolling interest in SME and increasing its existing indirect 22.5% noncontrolling interest in PEPS to an indirect 45% redeemable noncontrolling interest. We received $53 of cash at closing. We used $15 and $43 for dividend payments to common stockholders during 2020 and 2019, respectively. We used $25 to repurchase 1,432,275 shares of our common stock during 2019. During the second quarter of 2020, we temporarily suspended the declaration and payment of dividends to common stockholders and temporarily suspended the repurchase of common stock under our existing common stock repurchase program in response to the global COVID-19 pandemic.
Off-Balance Sheet Arrangements
There have been no material changes at September 30, 2020 in our off-balance sheet arrangements from those reported or estimated in the disclosures in Item 7 of our 2019 Form 10-K.
Contractual Obligations
There have been no material changes in our contractual obligations from those disclosed in Item 7 of our 2019 Form 10-K.
Contingencies
For a summary of litigation and other contingencies, see Note 13 to our consolidated financial statements in Item 1 of Part I. Based on information available to us at the present time, we do not believe that any liabilities beyond the amounts already accrued that may result from these contingencies will have a material adverse effect on our liquidity, financial condition or results of operations.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with GAAP requires us to use estimates and make judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. See Item 7 in our 2019 Form 10-K for a description of our critical accounting estimates and Note 1 to our consolidated financial statements in Item 8 of our 2019 Form 10-K for our significant accounting policies. There were no changes to our critical accounting estimates in the nine months ended September 30, 2020. See Note 1 to our consolidated financial statements in this Form 10-Q for a discussion of new accounting guidance adopted during the first nine months of 2020.
Long-term interest rates on high quality corporate debt instruments, which are used to determine the discount rates used in the valuation of our other U.S. defined benefit pension obligations, have decreased during 2020. The lower interest rates, if unchanged during the fourth quarter, would result in a year-end discount rate of 2.59% for our U.S. plans versus the 3.21% discount rate used at the end of 2019. Our return on pension assets through the first nine months of 2020 has been higher than our 5.0% annual expected return on the related plan assets. Notwithstanding other changes in assumptions, we would expect the use of a discount rate of 2.59% and earning a 5.0% annualized return on plan assets during the fourth quarter to result in an immaterial actuarial loss for these U.S. defined benefit plans at December 31, 2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to market risk exposures related to changes in currency exchange rates, interest rates or commodity costs from those discussed in Item 7A of our 2019 Form 10-K.
Item 4. Controls and Procedures
Disclosure controls and procedures — We maintain disclosure controls and procedures that are designed to ensure that the information disclosed in the reports we file with the SEC under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Our CEO and CFO have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Changes in internal control over financial reporting — There was no change in our internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
CEO and CFO certifications — The certifications of our CEO and CFO that are attached to this report as Exhibits 31.1 and 31.2 include information about our disclosure controls and procedures and internal control over financial reporting. These certifications should be read in conjunction with the information contained in this Item 4 and in Item 9A of Part II of our 2019 Form 10-K for a more complete understanding of the matters covered by the certifications.
We are a party to various pending judicial and administrative proceedings that arose in the ordinary course of business. After reviewing the currently pending lawsuits and proceedings (including the probable outcomes, reasonably anticipated costs and expenses and our established reserves for uninsured liabilities), we do not believe that any liabilities that may result from these proceedings are reasonably likely to have a material adverse effect on our liquidity, financial condition or results of operations. Legal proceedings are also discussed in Note 13 to our consolidated financial statements in Item 1 of Part I of this Form 10-Q.
The risk factor “A downturn in the global economy could have a substantial adverse effect on our business.” disclosed in Item 1A of our 2019 Form 10-K has been updated to read as follows:
A downturn in the global economy could have a substantial adverse effect on our business.
Our business is tied to general economic and industry conditions as demand for vehicles depends largely on the strength of the economy, employment levels, consumer confidence levels, the availability and cost of credit and the cost of fuel. These factors have had and could continue to have a substantial impact on our business.
Certain political developments occurring the past several years have provided increased economic uncertainty. The United Kingdom's decision in 2016 to exit the European Union has not had significant economic ramifications to date; however, transition details continue to develop and could have potential economic implications in the United Kingdom and elsewhere. Political climate changes in the U.S., including tax reform legislation, easing of regulatory requirements and potential trade policy actions, are likely to impact economic conditions in the U.S. and various countries, the cost of importing into the U.S. and the competitive landscape of our customers, suppliers and competitors.
Adverse global economic conditions could also cause our customers and suppliers to experience severe economic constraints in the future, including bankruptcy, which could have a material adverse impact on our financial position and results of operations.
The risk factor "Our results of operations could be adversely affected by climate change, natural catastrophes or public health crises, in the locations in which we, our customers or our suppliers operate." disclosed in Item 1A of our 2019 Form 10-K has been updated to read as follows:
Our results of operations could be adversely affected by climate change, natural catastrophes or public health crises, in the locations in which we, our customers or our suppliers operate.
A natural disaster could disrupt our operations, or our customers’ or suppliers’ operations and could adversely affect our results of operations and financial condition. Although we have continuity plans designed to mitigate the impact of natural disasters on our operations, those plans may be insufficient, and any catastrophe may disrupt our ability to manufacture and deliver products to our customers, resulting in an adverse impact on our business and results of operations. Also, climate change poses both regulatory and physical risks that could harm our results of operations or affect the way we conduct our businesses. For example, new or modified regulations could require us to spend substantial funds to enhance our environmental compliance efforts. In addition, our global operations expose us to risks associated with public health crises, such as pandemics and epidemics, which could harm our business and cause our operating results to suffer.
The novel coronavirus disease (COVID-19) pandemic is expected to have an adverse effect on our business, results of operations, cash flows and financial condition. The COVID-19 pandemic has negatively impacted the global economy, disrupted our operations as well as those of our customers, suppliers and the global supply chains in which we participate, and created significant volatility and disruption of financial markets. The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term operational, strategic and capital structure initiatives, will depend on future developments, including the duration and severity of the pandemic, which are uncertain and cannot be predicted.
As a result of the COVID-19 pandemic, and in response to government mandates or recommendations, rapid dissipation of customer demand, as well as decisions we have made to protect the health and safety of our employees and communities, we temporarily closed a significant number of our facilities globally. We may face long term facility closure requirements and other operational restrictions with respect to some or all of our locations for prolonged periods of time due to, among other factors, evolving and increasingly stringent governmental restrictions including public health directives, quarantine policies or social distancing measures. We operate as part of the complex integrated global supply chains of our largest customers. As the COVID-19 pandemic dissipates at varying times and rates in different regions around the world, we anticipate a pro-longed negative impact on these global supply chains. Our ability to continue operations at our previously closed facilities will be impacted by the interdependencies of the various participants of these global supply chains, which are largely beyond our direct control. A pro-longed shut down of these global supply chains will have a material adverse effect on our business, results of operations, cash flows and financial condition.
Consumer spending may also be negatively impacted by general macroeconomic conditions and consumer confidence, including the impacts of any recession, resulting from the COVID-19 pandemic. This may negatively impact the markets we serve and may cause our customers to purchase fewer products from us. Any significant reduction in demand caused by decreased consumer confidence and spending following the pandemic, would result in a loss of sales and profits and other material adverse effects.
The risk factor “Our ability to utilize our net operating loss carryforwards may be limited.” disclosed in Item 1A of our 2019 Form 10-K has been updated to read as follows:
Our ability to utilize our net operating loss carryforwards may be limited.
Net operating loss carryforwards (NOLs) approximating $281 were available at December 31, 2019 to reduce future U.S. income tax liabilities. Our ability to utilize these NOLs may be limited as a result of certain change of control provisions of the U.S. Internal Revenue Code of 1986, as amended (Code). The NOLs are treated as losses incurred before the change of control in January 2008 and are limited to annual utilization of $84. There can be no assurance that trading in our shares will not effect another change in control under the Code, which could further limit our ability to utilize our available NOLs and certain other tax attributes. Such limitations may cause us to pay income taxes earlier and in greater amounts than would be the case if the NOLs and certain other tax attributes were not subject to limitation.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer's purchases of equity securities — On December 11, 2019 our Board of Directors approved an extension of our existing common stock share repurchase program through December 31, 2021. Approximately $150 remained available under the program for future share repurchases as of September 30, 2020. We repurchase shares utilizing available excess cash either in the open market or through privately negotiated transactions. Stock repurchases are subject to prevailing market conditions and other considerations. No shares of our common stock were repurchased under the program during the third quarter of 2020.
| Exhibit No. |
Description |
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| 31.1 |
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. Filed with this Report. |
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| 31.2 |
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. Filed with this Report. |
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| 32 |
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| 101 |
The following materials from Dana Incorporated’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statement of Operations, (ii) the Consolidated Statement of Comprehensive Income, (iii) the Consolidated Balance Sheet, (iv) the Consolidated Statement of Cash Flows and (v) Notes to the Consolidated Financial Statements. Filed with this Report. |
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| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
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DANA INCORPORATED
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| Date: |
October 28, 2020 |
By: |
/s/ Jonathan M. Collins |
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Jonathan M. Collins |
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Executive Vice President and |
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Chief Financial Officer |
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EXHIBIT 31.1
Certification of Chief Executive Officer
I, James K. Kamsickas, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Dana Incorporated; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: October 28, 2020
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/s/ James K. Kamsickas |
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James K. Kamsickas |
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Chairman and Chief Executive Officer |
EXHIBIT 31.2
Certification of Chief Financial Officer
I, Jonathan M. Collins, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Dana Incorporated; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: October 28, 2020
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/s/ Jonathan M. Collins |
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Jonathan M. Collins |
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Executive Vice President and Chief Financial Officer |
EXHIBIT 32
Certifications Pursuant to 18 U.S.C. Section 1350
In connection with the Quarterly Report of Dana Incorporated (Dana) on Form 10-Q for the three months ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of Dana certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to such officer's knowledge:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Dana as of the dates and for the periods expressed in the Report. |
Date: October 28, 2020
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/s/ James K. Kamsickas |
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James K. Kamsickas |
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Chairman and Chief Executive Officer |
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/s/ Jonathan M. Collins |
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Jonathan M. Collins |
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Executive Vice President and Chief Financial Officer |
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