Dana(DAN) - 2022 Q4 - Annual Report

PART I Item 1. Business Dana is a global leader in power-conveyance and energy-management solutions for vehicles, with 2022 sales of $10.16 billion and a focus on electrification Business Overview and Segments Dana operates four global segments, offering traditional and electrified propulsion components across diverse vehicle markets External Sales by Operating Segment (2020-2022) | Operating Segment | 2022 Sales ($M) | % of Total | 2021 Sales ($M) | % of Total | 2020 Sales ($M) | % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Light Vehicle | 4,090 | 40.3% | 3,773 | 42.2% | 3,038 | 42.8% | | Commercial Vehicle | 1,979 | 19.5% | 1,532 | 17.1% | 1,185 | 16.7% | | Off-Highway | 2,946 | 29.0% | 2,593 | 29.0% | 1,966 | 27.6% | | Power Technologies | 1,141 | 11.2% | 1,047 | 11.7% | 917 | 12.9% | | Total | 10,156 | | 8,945 | | 7,106 | | - The company's largest customers include Ford Motor Company, Stellantis N.V., Toyota, PACCAR, Deere & Company, and General Motors, reflecting a diversified but concentrated customer base within the automotive and machinery sectors[19] Geographic Operations and Customer Dependence Dana has global operations, with 54% of 2022 sales from non-U.S. subsidiaries and significant customer concentration in Ford and Stellantis - Sales from non-U.S. subsidiaries constituted $5,488 million, or 54%, of the total $10,156 million in consolidated sales for 2022[21] Sales to Major Customers (% of Total Sales) | Customer | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Ford Motor Company | 19% | 19% | 20% | | Stellantis N.V. | 11% | 12% | 12% | - The loss of a substantial portion of sales to major customers like Ford or Stellantis would significantly and adversely affect financial results[23] Competition and Intellectual Property Dana competes with independent suppliers and OEMs, protecting its market position through patents and trademarks like Spicer® - The company competes with a range of independent suppliers and vertically integrated OEM operations, with key competitors including American Axle, BorgWarner, Magna International, and ZF Friedrichshafen AG[28] - Dana holds numerous patents and trademarks, including Spicer®, Victor Reinz®, and Dana TM4TM®, which are considered valuable assets for maintaining its competitive position[29][30] Engineering and Research and Development Dana focuses on innovation, particularly vehicle electrification, with 2022 R&D costs of $201 million for advanced propulsion systems Engineering and R&D Expenses (2020-2022) | Expense Category | 2022 ($M) | 2021 ($M) | 2020 ($M) | | :--- | :--- | :--- | :--- | | Research & Development Costs | 201 | 178 | 146 | | Total Engineering Expenses | 321 | 297 | 246 | - R&D efforts are targeted at vehicle electrification, including developing complete in-house 4-in-1 electrified propulsion systems (motors, inverters, axles/transmissions, thermal management) and innovative fuel cell products[33] Human Capital Dana employed 41,800 globally in 2022, prioritizing employee well-being, diversity, and development through BRGs Employees by Segment and Region (as of Dec 31, 2022) | Category | Employees | Category | Employees | | :--- | :--- | :--- | :--- | | By Segment | | By Region | | | Light Vehicle | 14,100 | North America | 15,800 | | Commercial Vehicle | 7,800 | Europe | 11,300 | | Off-Highway | 12,100 | South America | 4,800 | | Power Technologies | 5,700 | Asia Pacific | 9,900 | | Technical/Admin | 2,100 | | | | Total | 41,800 | Total | 41,800 | - The company's human capital strategy is guided by five pillars: leadership commitment, diversity representation, awareness and education, employee and community growth, and cross-functional collaboration[36][37] - Dana supports several employee-led Business Resource Groups (BRGs), including networks for women, African Americans, LGBTQ+A individuals, and military veterans, to empower employees and enhance diversity[40][46] Item 1A. Risk Factors Dana faces market, company-specific, and securities risks, including economic downturns, customer reliance, supply chain issues, and EV market competition Market-Related Risks Dana faces market risks from economic downturns, climate change, customer concentration, trade policies, and foreign currency fluctuations - The business is tied to general economic conditions, and a downturn could adversely affect demand for vehicles and the financial health of customers and suppliers[49] - The company is reliant on a few significant customers, with the ten largest accounting for 57% of sales in 2022, and the loss of any of these customers would negatively impact business[56] - Approximately 54% of 2022 sales were from operations outside the U.S., exposing the company to risks from currency fluctuations, particularly the strengthening of the U.S. dollar[61] Company-Specific Risks Company-specific risks include cost volatility, supply chain disruptions, IP protection, acquisition integration, and increased EV market competition - The company faces pressure on profit margins from rising commodity, labor, transportation, and energy costs, and there is no assurance that these increased costs can be fully recovered from customers[69] - The transition to EV-based vehicles presents an opportunity for increased content per vehicle but also brings increased competition from new and existing market entrants and the risk of OEMs vertically integrating component production[87] - The company has unfunded obligations under certain defined benefit pension plans, which could require significant additional contributions if interest rates or asset returns decline[82] Item 1B. Unresolved Staff Comments No unresolved staff comments were reported - None[95] Item 2. Properties Dana operates 88 manufacturing plants and 25 technical centers globally, with its headquarters in Maumee, Ohio Manufacturing and Assembly Plants by Segment | Segment | Number of Plants | | :--- | :--- | | Light Vehicle | 32 | | Commercial Vehicle | 16 | | Off-Highway | 21 | | Power Technologies | 19 | | Total | 88 | Item 3. Legal Proceedings Pending legal proceedings are not expected to materially impact Dana's financial condition or operations - The company does not expect pending legal proceedings to have a material adverse effect on its financial condition or results of operations[98] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Dana's common stock trades on NYSE, underperformed benchmarks, and has an active share repurchase program with $102 million remaining - The company's common stock share repurchase program was extended through December 31, 2023, with approximately $102 million available for future repurchases as of December 31, 2022[104] - A $100 investment in Dana stock on 12/31/2017 would be worth $51.18 on 12/31/2022, compared to $156.89 for the S&P 500 and $92.46 for the Dow Jones US Auto Parts Index[104] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 2022 sales rose to $10.16 billion, but a net loss of $311 million occurred due to impairment and tax; 2023 outlook projects sales up to $10.85 billion Operational and Strategic Initiatives Dana's strategy emphasizes leveraging core operations, global expansion, customer centricity, and leading in electric propulsion through acquisitions - The company's strategy is built on four pillars: leveraging core operations, driving customer centricity, expanding global markets, and delivering innovative solutions[109][111][112][113] - A key strategic goal is to lead in electric propulsion, accelerated through both organic development and targeted acquisitions in e-motors, power inverters, software, and controls[114][121] Market Trends 2022 saw mixed market trends with light-truck growth, North American Class-8 truck increase, and negative impacts from currency and commodity prices - Light-truck markets improved globally by 6% in 2022, North American Class-8 truck production increased 24%, while Asia Pacific medium/heavy truck production decreased 27%[126][127] - Weakening international currencies, particularly the euro, Indian rupee, and Chinese renminbi, decreased 2022 sales by $420 million[129] - Higher commodity prices negatively impacted year-over-year earnings by $447 million in 2022, while material recovery pricing actions provided a $446 million benefit[132] Financial Outlook Dana projects 2023 sales of $10.35-$10.85 billion and adjusted EBITDA of $750-$850 million, with 65% of its backlog in EV content 2023 Financial Outlook | Metric | 2023 Outlook | 2022 Actual | | :--- | :--- | :--- | | Sales | $10,350M - $10,850M | $10,156M | | Adjusted EBITDA | $750M - $850M | $700M | | Free Cash Flow | $0M - $50M | $209M | - The sales backlog of net new business for the 2023-2025 period is $900 million, with $300 million expected to be realized in 2023[135] - Approximately 65% of the sales backlog is attributable to electric-vehicle content, highlighting the company's strategic shift[135] Consolidated Results of Operations (2022 vs 2021) 2022 net sales rose to $10.16 billion, but gross margin declined, resulting in a $311 million net loss due to impairment and tax Consolidated Financial Highlights (2022 vs 2021) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | | :--- | :--- | :--- | :--- | | Net Sales | 10,156 | 8,945 | 1,211 | | Gross Margin | 763 | 837 | (74) | | Earnings before Interest and Taxes | 86 | 395 | (309) | | Net Income (Loss) | (311) | 200 | (511) | | Net Income (Loss) Attributable to Parent | (242) | 197 | (439) | - The organic sales increase of $1,639 million (18%) was driven by improved market demand, conversion of sales backlog, and pricing actions of $772 million[139] - A goodwill impairment charge of $191 million was recorded in the third quarter of 2022[145] - Income tax expense was $284 million in 2022, including a $240 million expense to record a valuation allowance in the U.S[150] Segment Results of Operations (2022 vs 2021) All segments saw sales growth in 2022, but EBITDA was mixed, with Off-Highway strong and Light Vehicle and Power Technologies declining Segment Sales and EBITDA (2022 vs 2021) | Segment | 2022 Sales ($M) | 2022 EBITDA ($M) | 2021 Sales ($M) | 2021 EBITDA ($M) | | :--- | :--- | :--- | :--- | :--- | | Light Vehicle | 4,090 | 158 | 3,773 | 274 | | Commercial Vehicle | 1,979 | 43 | 1,532 | 48 | | Off-Highway | 2,946 | 404 | 2,593 | 353 | | Power Technologies | 1,141 | 94 | 1,047 | 123 | - The Light Vehicle segment's EBITDA margin compressed from 7.3% to 3.9% due to inflationary and commodity cost increases outpacing pricing and cost recovery actions[153][154] - The Off-Highway segment's EBITDA increased by $51 million, with a stable margin of 13.7%, driven by a $76 million benefit from higher sales volumes and effective cost recovery[157][158] Liquidity and Capital Resources Dana's liquidity was $1.53 billion at year-end 2022, with operating cash flow significantly improving to $649 million Liquidity Position (as of Dec 31, 2022) | Component | Amount ($M) | | :--- | :--- | | Cash and cash equivalents | 425 | | Less: Deposits supporting obligations | (1) | | Available cash | 424 | | Additional cash availability from Revolving Facility | 1,109 | | Total liquidity | 1,533 | Cash Flow Summary (2022 vs 2021) | Cash Flow Item | 2022 ($M) | 2021 ($M) | | :--- | :--- | :--- | | Net cash provided by operating activities | 649 | 158 | | Net cash used in investing activities | (426) | (293) | | Net cash used in financing activities | (42) | (127) | - The improvement in operating cash flow was largely driven by working capital, which provided $199 million of cash in 2022 compared to a use of $455 million in 2021[175] Critical Accounting Estimates Critical accounting estimates involve significant judgment for income taxes, retiree benefits, and goodwill impairment, impacting financial reporting - Significant judgment is required for income taxes, particularly in determining the valuation allowance for deferred tax assets, which involves assessing historical and projected future taxable income by jurisdiction[186] - Accounting for pension and other postretirement benefits (OPEB) is dependent on key assumptions such as discount rates, investment returns, and life expectancies, which can materially impact financial statements[188] - Goodwill and other indefinite-lived intangible assets are tested for impairment annually, requiring significant estimates of future cash flows, growth rates, and discount rates, which are subject to a high degree of uncertainty[199] Item 7A. Quantitative and Qualitative Disclosures about Market Risk Dana manages market risks from currency, commodity, and interest rate fluctuations, using derivatives for currency and pricing agreements for commodities - The company uses derivative instruments, including forward contracts and currency swaps, to manage foreign currency exchange rate risk[207] Foreign Currency Rate Sensitivity (Fair Value Gain/Loss) | Instrument | 10% Increase in Rates ($M) | 10% Decrease in Rates ($M) | | :--- | :--- | :--- | | Currency swaps | (63) | 63 | | Forward contracts | (39) | 46 | - Commodity price risk is managed by passing through risk to customers in pricing agreements rather than using derivative contracts[215] Item 8. Financial Statements and Supplementary Data This section presents audited financial statements, an unqualified audit opinion, and highlights goodwill impairment as a critical audit matter - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[217] - A critical audit matter was the interim goodwill impairment assessment of the Commercial Vehicle reporting unit due to the significant management judgment involved in estimating fair value, particularly regarding projected segment EBITDA and the discount rate[224][225] Consolidated Financial Statements 2022 consolidated financial statements show net sales of $10.156 billion, a net loss of $311 million, and $649 million in operating cash Key Financial Statement Data (2022) | Metric | Amount | | :--- | :--- | | Net Sales | $10,156 million | | Net Loss | ($311) million | | Diluted EPS | ($1.69) | | Total Assets (Year-End) | $7,449 million | | Total Liabilities (Year-End) | $5,651 million | | Net Cash from Operating Activities | $649 million | Notes to the Consolidated Financial Statements Notes detail accounting policies, including a $191 million goodwill impairment, $2.35 billion long-term debt, and key customer concentrations - A goodwill impairment charge of $191 million was recorded for the Commercial Vehicle reporting unit in Q3 2022, representing a full impairment of its assigned goodwill (Note 3)[293] - As of Dec 31, 2022, total long-term debt was $2.35 billion, primarily composed of various senior notes with maturities ranging from 2025 to 2032 (Note 13)[367] - Ford (19%) and Stellantis (11%) were the only customers accounting for more than 10% of consolidated sales in 2022 (Note 20)[444] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure No changes or disagreements with accountants on accounting and financial disclosure were reported - None[452] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[453] - Based on an evaluation using the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, 2022[454] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - This section incorporates information by reference from the company's 2023 Proxy Statement[462] Item 11. Executive Compensation Executive compensation information is incorporated by reference from the company's 2023 Proxy Statement - This section incorporates information by reference from the company's 2023 Proxy Statement[463] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated from the 2023 Proxy Statement, detailing equity compensation plan issuances Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be Issued Upon Exercise (millions) | Securities Available for Future Issuance (millions) | | :--- | :--- | :--- | | Approved by security holders | 2.6 | 5.7 | | Not approved by security holders | 0 | 0 | | Total | 2.6 | 5.7 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2023 Proxy Statement - This section incorporates information by reference from the company's 2023 Proxy Statement[467] Item 14. Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2023 Proxy Statement - This section incorporates information by reference from the company's 2023 Proxy Statement[468] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all documents filed with the Form 10-K, including financial statements, schedules, and exhibits - The filing includes consolidated financial statements, a financial statement schedule (Schedule II), and a list of 32 exhibits, including certifications by the CEO and CFO[470][471][473]