UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
 
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
For the quarterly period ended: March 31, 20182019
Commission File Number: 1-1063
 
Dana Incorporated
(Exact name of registrant as specified in its charter)
  
Delaware 26-1531856
(State of incorporation) (IRS Employer Identification Number)
   
3939 Technology Drive, Maumee, OH 43537
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code: (419) 887-3000

Common stock $0.01 par valueNew York Stock ExchangeDAN
(Title of each class)(Name of exchange on which registered)(Trading Symbol)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  þ    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
  Yes  þ    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  þ
Non-accelerated filer   o
 
Smaller reporting company  o
Accelerated filer  o
(Do not check if a smaller reporting company)
Emerging growth company  o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
   Yes  o    No  þ

APPLICABLE ONLY TO CORPORATE ISSUERS:
 
There were 145,475,973143,912,782 shares of the registrant’s common stock outstanding at April 20, 2018.19, 2019.
 




DANA INCORPORATED – FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 20182019
 
TABLE OF CONTENTS
                                      
  10-Q Pages
PART I – FINANCIAL INFORMATION 
   
Item 1Financial Statements 
 Consolidated Statement of Operations (Unaudited)
3
 Consolidated Statement of Comprehensive Income (Unaudited)
4
 Consolidated Balance Sheet (Unaudited)
5
 Consolidated Statement of Cash Flows (Unaudited)
6
 Notes to Consolidated Financial Statements (Unaudited)
7
   
Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations
2930
   
Item 3Quantitative and Qualitative Disclosures About Market Risk
4547
   
Item 4Controls and Procedures
4547
   
PART II – OTHER INFORMATION 
   
Item 1Legal Proceedings
4647
   
Item 1ARisk Factors
4647
   
Item 2Unregistered Sales of Equity Securities and Use of Proceeds
4647
   
Item 6Exhibits
4648
   
Signatures 
4749
 


PART I – FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
Dana Incorporated
Consolidated Statement of Operations (Unaudited)
(In millions, except per share amounts)

Three Months Ended 
 March 31,		 Three Months Ended 
 March 31,
2018 2017 2019 2018
Net sales$2,138
 $1,701
 $2,163
 $2,138
Costs and expenses 
  
  
  
Cost of sales1,831
 1,437
 1,863
 1,831
Selling, general and administrative expenses130
 120
 136
 130
Amortization of intangibles2
 2
 2
 2
Restructuring charges, net1
 2
 9
 1
Other expense, net

 (11) (13) 

Earnings before interest and income taxes174
 129

140

174
Interest income3
 3
 2
 3
Interest expense24
 27
 27
 24
Earnings before income taxes153

105

115

153
Income tax expense48
 30
 20
 48
Equity in earnings of affiliates6
 5
 6
 6
Net income111
 80
 101
 111
Less: Noncontrolling interests net income2
 5
 4
 2
Less: Redeemable noncontrolling interests net income1
 

Less: Redeemable noncontrolling interests net income (loss) (1) 1
Net income attributable to the parent company$108
 $75
 $98
 $108
       
Net income per share available to common stockholders 
  
  
  
Basic$0.74
 $0.52
 $0.68
 $0.74
Diluted$0.73
 $0.51
 $0.68
 $0.73
       
Weighted-average common shares outstanding       
Basic145.6
 144.6
 143.9
 145.6
Diluted147.5
 145.9
 144.8
 147.5
   
Cash dividends declared per share$0.10
 $0.06

The accompanying notes are an integral part of the consolidated financial statements.


Dana Incorporated
Consolidated Statement of Comprehensive Income (Unaudited)
(In millions)
 
Three Months Ended 
 March 31,		 Three Months Ended 
 March 31,
2018 2017 2019 2018
Net income$111
 $80
 $101
 $111
Other comprehensive income (loss), net of tax:       
Currency translation adjustments10
 30
 27
 10
Hedging gains and losses(8) (4) 5
 (8)
Defined benefit plans7
 5
 5
 7
Other comprehensive income9
 31
 37
 9
Total comprehensive income120
 111
 138
 120
Less: Comprehensive income attributable to noncontrolling interests(2) (7) (2) (2)
Less: Comprehensive (income) loss attributable to redeemable noncontrolling interests(2) 1
Less: Comprehensive income attributable to redeemable noncontrolling interests (4) (2)
Comprehensive income attributable to the parent company$116
 $105
 $132
 $116

The accompanying notes are an integral part of the consolidated financial statements.
 


Dana Incorporated
Consolidated Balance Sheet (Unaudited)
(In millions, except share and per share amounts)
March 31, 
 2018		 December 31, 
 2017		March 31, 
 2019		 December 31, 
 2018
Assets 
  
 
  
Current assets 
  
 
  
Cash and cash equivalents$479
 $603
$383
 $510
Marketable securities41
 40
20
 21
Accounts receivable 
  
 
  
Trade, less allowance for doubtful accounts of $7 in 2018 and $8 in 20171,266
 994
Trade, less allowance for doubtful accounts of $8 in 2019 and $9 in 20181,416
 1,065
Other235
 172
202
 178
Inventories1,032
 969
1,282
 1,031
Other current assets102
 97
140
 102
Current assets of disposal group held for sale9
 7
Total current assets3,164
 2,882
3,443
 2,907
Goodwill130
 127
456
 264
Intangibles172
 174
185
 164
Deferred tax assets407
 420
464
 445
Other noncurrent assets74
 71
87
 80
Investments in affiliates171
 163
226
 208
Operating lease assets181
 

Property, plant and equipment, net1,827
 1,807
2,242
 1,850
Total assets$5,945
 $5,644
$7,284
 $5,918
      
Liabilities and equity 
  
 
  
Current liabilities 
  
 
  
Short-term debt$10
 $17
$14
 $8
Current portion of long-term debt29
 23
41
 20
Accounts payable1,301
 1,165
1,448
 1,217
Accrued payroll and employee benefits178
 219
207
 186
Taxes on income58
 53
62
 47
Current portion of operating lease liabilities39
 

Other accrued liabilities278
 220
302
 269
Current liabilities of disposal group held for sale7
 5
Total current liabilities1,861
 1,702
2,113
 1,747
Long-term debt, less debt issuance costs of $21 in 2018 and $22 in 20171,755
 1,759
Long-term debt, less debt issuance costs of $29 in 2019 and $18 in 20182,425
 1,755
Noncurrent operating lease liabilities147
 

Pension and postretirement obligations604
 607
602
 561
Other noncurrent liabilities459
 413
353
 313
Noncurrent liabilities of disposal group held for sale2
 2
Total liabilities4,681
 4,483
5,640
 4,376
Commitments and contingencies (Note 15)

 

Commitments and contingencies (Note 16)

 

Redeemable noncontrolling interests49
 47
105
 100
Parent company stockholders' equity 
  
 
  
Preferred stock, 50,000,000 shares authorized, $0.01 par value, no shares outstanding—
 —
—
 —
Common stock, 450,000,000 shares authorized, $0.01 par value, 145,465,858 and 144,984,050 shares outstanding2
 2
Common stock, 450,000,000 shares authorized, $0.01 par value, 143,901,808 and 144,663,403 shares outstanding2
 2
Additional paid-in capital2,350
 2,354
2,372
 2,368
Retained earnings181
 86
538
 456
Treasury stock, at cost (7,191,700 and 7,001,017 shares)(93) (87)
Treasury stock, at cost (10,095,558 and 8,342,185 shares)(150) (119)
Accumulated other comprehensive loss(1,336) (1,342)(1,328) (1,362)
Total parent company stockholders' equity1,104
 1,013
1,434
 1,345
Noncontrolling interests111
 101
105
 97
Total equity1,215
 1,114
1,539
 1,442
Total liabilities and equity$5,945
 $5,644
$7,284
 $5,918
The accompanying notes are an integral part of the consolidated financial statements.


Dana Incorporated
Consolidated Statement of Cash Flows (Unaudited)
(In millions)
Three Months Ended 
 March 31,		Three Months Ended 
 March 31,
2018 20172019 2018
Operating activities 
  
 
  
Net income$111
 $80
$101
 $111
Depreciation64
 49
73
 64
Amortization of intangibles3
 3
Amortization4
 3
Amortization of deferred financing charges1
 1
1
 1
Earnings of affiliates, net of dividends received(5) (5)(5) (5)
Stock compensation expense4
 4
5
 4
Deferred income taxes12
 10
(14) 12
Pension contributions, net

 (2)4
 

Change in working capital(216) (133)(175) (216)
Other, net(2) 4
(10) (2)
Net cash provided by (used in) operating activities(28) 11
   
Net cash used in operating activities(16) (28)
Investing activities 
  
 
  
Purchases of property, plant and equipment(65) (96)(98) (65)
Acquisition of businesses, net of cash acquired

 (182)(606) 

Purchases of marketable securities(17) (11)(5) (17)
Proceeds from sales of marketable securities4
 



 4
Proceeds from maturities of marketable securities11
 13
6
 11
Other

 (2)
Settlements of undesignated derivatives(20) 

Other, net(1) 

Net cash used in investing activities(67) (278)(724) (67)
   
Financing activities 
  
 
  
Net change in short-term debt(7) (1)(2) (7)
Proceeds from long-term debt675
 

Repayment of long-term debt(1) (17)(9) (1)
Deferred financing payments(12) 

Dividends paid to common stockholders(15) (9)(14) (15)
Distributions to noncontrolling interests(1) (1)(1) (1)
Other(4) 2
Net cash used in financing activities(28) (26)
   
Contributions from noncontrolling interests1
 

Repurchases of common stock(25) 

Other, net(3) (4)
Net cash provided by (used in) financing activities610
 (28)
Net decrease in cash, cash equivalents and restricted cash(123) (293)(130) (123)
Cash, cash equivalents and restricted cash – beginning of period610
 716
520
 610
Effect of exchange rate changes on cash balances14
 13
5
 14
Less: Cash contributed to disposal group(10)  

 (10)
Cash, cash equivalents and restricted cash – end of period (Note 6)$491
 $436
$395
 $491
      
Non-cash investing activity      
Purchases of property, plant and equipment held in accounts payable$81
 $106
$84
 $81
The accompanying notes are an integral part of the consolidated financial statements.


Dana Incorporated
Index to Notes to Consolidated Financial Statements
 
1.Organization and Summary of Significant Accounting Policies
  
2.Acquisitions
  
3.Disposal Groups and Divestitures
  
4.Goodwill and Other Intangible Assets
  
5.Restructuring of Operations
  
6.Supplemental Balance Sheet and Cash Flow Information
  
7.Leases
8.Stockholders' Equity
  
8.9.Redeemable Noncontrolling Interests
  
9.10.Earnings per Share
  
10.11.Stock Compensation
  
11.12.Pension and Postretirement Benefit Plans
  
12.13.Marketable Securities
  
13.14.Financing Agreements
  
14.15.Fair Value Measurements and Derivatives
  
15.16.Commitments and Contingencies
  
16.17.Warranty Obligations
  
17.18.Income Taxes
  
18.19.Other Expense, Net
  
19.20.Revenue from Contracts with Customers
  
20.21.Segments
  
21.22.Equity Affiliates
 


 


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 productsproducts; 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 2017Annual Report on Form-K for the year ended December 31, 2018 (the "2018 Form 10-K.10-K").

Recently adopted accounting pronouncements

On January 1, 2018,2019, we adopted ASU 2017-12, Derivatives and Hedging – Targeted Improvements to Accounting for Hedging ActivitiesStandards Update (ASU) 2016-02, Leases (Topic 842), guidance that addresses effectiveness testing requirements, income statement presentation and disclosure and hedge accounting qualification criteria. Adoption of this standard results in a prospective change to the presentation of certain hedging-related gains and losses in our consolidated statement of operations. Effective with our permitted early adoption of this standard on January 1, 2018, realized gains and losses on forecasted transactions are recorded in the financial statement line item to which the underlying forecasted transaction relates (e.g., sales or cost of sales). Adoption also simplifies our ongoing effectiveness testing and reduces the complexity of hedge accounting requirements for new hedging contracts. The adoption of this standard, including the change in presentation within the consolidated statement of operations, did not have a material impact.

On January 1, 2018, we adopted ASU 2017-07, Retirement Benefits – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, guidance that changed the reporting of pension and other postretirement benefits (OPEB) costs in the income statement. The service cost components of net periodic pension and OPEB costs continue to be included in cost of sales and selling, general and administrative expenses as part of compensation cost and remain eligible for capitalization in inventory and other assets. The non-service components are now reported in other expense, net and are not eligible for capitalization. The impact of the new guidance on inventory at March 31, 2018 was not material. For the first quarter of 2017, we reclassified pension and OPEB costs of $1 from cost of sales and $1 from selling, general and administrative to other expense, net to conform to the 2018 presentation. We used the practical expedient in the guidance to quantify these impacts, which disregards the potential change in capitalized costs during the period. See Note 20 for information regarding the related impact on our segment reporting.

On January 1, 2018, we adopted ASU 2016-18, Statement of Cash Flows – Restricted Cash, guidance that requires the statement of cash flows to explain the change during the period in the total cash, cash equivalents and amounts generally described as restricted cash. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending total amounts shown on the statement of cash flows. Retrospective presentation is required. For the quarter ended March 31, 2017, this change resulted in a $9 increase in cash, cash equivalents and restricted cash at the beginning and $13 at the end of period on our consolidated statement of cash flow. In addition, removing the change in restricted cash from the consolidated statement of cash flows resulted in a decrease of $4 in our net cash used in investing activities for the quarter ended March 31, 2017. See Note 6 for additional information.

On January 1, 2018, we adopted ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, an amendment that addresses the recognition, measurement, presentation and disclosure of certain financial instruments. Investments in equity securities that were classified as available-for-sale and carried at fair value, with


changes in fair value reported in other comprehensive income (OCI), are now carried at fair value determined on an exit price notion and changes in fair value are now reported in net income. The new guidance also affects the assessment of deferred tax assets related to available-for-sale securities, the accounting for liabilities for which the fair value option is elected and the disclosures of financial assets and financial liabilities in the notes to the financial statements. The adoption resulted in a release of the deferred gain in accumulated other comprehensive income (AOCI) directly to retained earnings of $2.

Effective January 1, 2018, we adopted ASU 2014-09, Revenue – Revenue from Contracts with Customers,which requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in amounts that reflect the consideration a company expects to be entitled to in exchange for those goods or services. We have elected to useusing the modified retrospective approach to transition to the new standard. Comparative prior periodsand an application date of January 1, 2019. Prior period amounts have not been restated. adjusted and continue to be reflected in accordance with our historical accounting.This transition method resulted in the recognition of a right-of-use asset and a lease liability for virtually all leases at the application date with a cumulative-effect adjustment to retained earnings. Short-term leases of less than 12 months have not been recorded on the balance sheet.

We assessed our products in combination withelected the provisionspackage of our current customer contractspractical expedients, which among other things, allowed us to carry forward the historical lease classification. We did not elect the practical expedient that allowed for hindsight to determine the cumulative effectlease term of initially applying ASU 2014-09. Based on our assessment,existing leases. We separated the adoption date financial statement impact was limitedlease components from the non-lease components of each lease arrangement and, therefore, did not elect the practical expedient that would enable us to balance sheet reclassifications required to establish the refund asset, refund liability and contract liability concepts provided for in ASU 2014-09. There was no cumulative effect adjustment required to be recorded to retained earnings. The cumulative effects of the changes made to our January 1, 2018 consolidated balance sheet for the adoption of ASU 2014-09 were as follows:

  
Balance at December 31,
2017
 
Adjustments
Due to
ASU 2014-09
 
Balance at
January 1,
2018
Assets      
Current assets      
Accounts receivable - Trade $994
 $15
 $1,009
Other current assets 97
 1
 98
       
Liabilities      
Current liabilities      
Other accrued liabilities $220
 $16
 $236

The follow table shows the impact adopting ASC 606 had on our consolidated balance sheet as of March 31, 2018:

  March 31, 2018
  
Balances Without
Adoption of
ASU 2014-09
 
Adjustments
Due to
ASU 2014-09
 As Reported
Assets      
Current assets      
Accounts receivable - Trade $1,256
 $10
 $1,266
Other current assets 101
 1
 102
       
Liabilities      
Current liabilities      
Other accrued liabilities $267
 $11
 $278

See Note 19 for additional information.not separate them.

We also adopted the following standards during the first quarter of 2018,2019, none of which had a material impact on our financial statements or financial statement disclosures:

Standard Effective Date
2017-092017-11 Stock CompensationEarnings Per Share, Distinguishing Liabilities from Equity, Derivatives and Hedging – (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope of Modification AccountingException January 1, 2018
2017-01Business Combinations – Clarifying the Definition of a BusinessJanuary 1, 2018
2016-15Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments
January 1, 2018

2019



Recently issued accounting pronouncements

In FebruaryAugust 2018, the Financial Accounting Standards Board (FASB)FASB issued ASU 2018-02, Income Statement2018-15, Intangibles – Reporting Comprehensive Income, Reclassification of Certain Tax Effects from AccumulatedGoodwill and Other Comprehensive Income– Internal-Use Software, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This guidance allows entities to reclass stranded income tax effects resulting from the Tax Cuts and Jobs Act (the “Act”) from AOCI to retained earnings in their consolidated financial statements. As a resultfor capitalization of the Act, deferred taxes were adjusted to reflect the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate by means of a credit or charge to income from continuing operations, leaving the tax effects of items within AOCI stranded at historical tax rates.implementation costs associated with certain cloud computing arrangements. This guidance becomes effective January 1, 20192020 and may be early adopted in any interim period.adoption is permitted. The guidance is to be applied either inretrospectively or prospectively to all implementation costs incurred after the perioddate of adoption. We do not expect the adoption or retrospectivelyof this guidance to each period that was affected byimpact our consolidated financial statements.

In August 2018, the change inFASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General, Disclosure Framework – Changes to the corporate tax rate under the Act.Disclosure Requirements for Defined Benefit Plans. The guidance eliminated certain


disclosures about defined benefit plans, added new disclosures, and clarified other requirements. This guidance becomes effective January 1, 2020 and early adoption is permitted. There were no changes to interim disclosure requirements. Adoption of this guidance will not have a material effect on our consolidatedannual financial statements.statement disclosures.

In July 2017,August 2018, the FASB issued ASU 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity, Derivatives and Hedging2018-13, Fair Value Measurement, Disclosure Framework – (Part I) AccountingChanges to the Disclosure Requirements for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope ExceptionFair Value Measurement. ThisThe guidance is intended to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilitiesremoved or modified some disclosures while others were added. The removal and equity. Specifically, a down round feature would no longer cause a freestanding equity-linked financial instrument (or an embedded conversion option) to be considered "not indexed to an entity's own stock" and therefore accounted for as a derivative liability at fair value with changes in fair value recognized in current earnings. Down round features are most often found in warrants and conversion options embedded in debt or preferred equity instruments. In addition, the guidance re-characterized the indefinite deferralamendment of certain provisions on distinguishing liabilities from equity to a scope exceptiondisclosures can be adopted immediately with no accounting effect. Thisretrospective application. The additional disclosure guidance becomes effective January 1, 2019 and early adoption is permitted. We do not presently issue any equity-linked financial instruments and therefore2020. Adoption of this guidance has no impactwill not have a material effect on our consolidated financial statements.statement disclosures.

In January 2017, the FASB issued ASU 2017-04, Goodwill – Simplifying the Test for Goodwill Impairment, guidance that simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 of the goodwill impairment test. The new guidance quantifies goodwill impairment as the amount by which the carrying amount of a reporting unit, including goodwill, exceeds its fair value, with the impairment loss limited to the total amount of goodwill allocated to that reporting unit. This guidance becomes effective for us January 1, 2020 and will be applied on a prospective basis. Early adoption is permitted for impairment tests performed after January 1, 2017. We do not expect the adoption of this guidance to impact our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments, new guidance for the accounting for credit losses on certain financial instruments. 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. This guidance, which becomes effective January 1, 2020, is not expected to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, its new lease accounting standard. The primary focus of the standard is on the accounting by lessees. This standard requires lessees to recognize a right-of-use asset and a lease liability for virtually all leases (other than leases that meet the definition of a short-term lease) on the balance sheet. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from current GAAP. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern in the income statement. Quantitative and qualitative disclosures are required to provide insight into the extent of revenue and expense recognized and expected to be recognized from leasing arrangements. Approximately three-fourths of our global lease portfolio represents leases of real estate, including manufacturing, assembly and office facilities, while the remainder represents leases of personal property, including manufacturing, material handling and IT equipment. Many factors will impact the ultimate measurement of the lease obligation to be recognized upon adoption, including our assessment of the likelihood of renewal of leases that provide such an option. We continue to evaluate the impact this guidance will have on our consolidated financial statements. This guidance becomes effective January 1, 2019 with early adoption permitted.

Note 2. Acquisitions

USM – WarrenOerlikon Drive Systems — On March 1, 2017,February 28, 2019, we acquired certain assets and liabilities relating to the Warren, Michigan production unit of U.S. Manufacturing Corporation (USM). The production unit acquired isa 100% ownership interest in the businessOerlikon Drive Systems (“ODS”) segment of manufacturing axle housings, extruded tubularthe Oerlikon Group. ODS is a global manufacturer of high-precision gears, planetary hub drives for wheeled and tracked vehicles, and products, controls, and machined components forsoftware that support vehicle electrification across the automotivemobility industry. The acquisition increases Dana's revenue from lightof ODS is expected to deliver significant long-term value by accelerating our commitment to vehicle electrification and commercial vehicle manufacturersstrengthening the technology portfolio for each of our end markets while further expanding and vertically integrates a significant elementbalancing the manufacturing presence of Dana's supply chain. It also provides Danaour off-highway business in key geographical markets. The business employs approximately 5,900 people and operates 10 manufacturing and engineering facilities in China, India, Italy, the United Kingdom, and the United States, with new lightweight product and process technologies.two additional facilities under construction in China.



USM contributed certain assets and liabilities relating to its Warren, Michigan production unit to Warren Manufacturing LLC (USM – Warren), a newly created legal entity, and Dana acquired all of the company units of USM – Warren. The company units were acquired by Dana free and clear of any liens. We paid $104$626 at closing including $25 to effectively settle trade payable obligations originating from product purchases Dana made from USM prior to the acquisition, and received$1 in the third quarter of 2017which was funded primarily through debt proceeds. See Note 14 for purchase price adjustments determined under the terms of the agreement. The acquisition has been accounted for as a business combination.additional information. The purchase consideration and the related provisional allocation to the acquisition date fair values of the assets acquired and liabilities assumed are presented in the following table:


Purchase consideration paid at closing $626
Less purchase consideration to be recovered for indemnified matters (4)
Total purchase consideration $78
 $622
    
Cash and cash equivalents $76
Accounts receivable - Trade $17
 150
Accounts receivable - Other 3
 15
Inventories 9
 202
Other current assets 16
Goodwill 3
 126
Intangibles 33
Deferred tax assets 37
Other noncurrent assets 28
Investments in affiliates 7
Property, plant and equipment 50
 345
Current portion of long-term debt (2)
Accounts payable (34) (151)
Accrued payroll and employee benefits (2) (33)
Other accrued liabilities (1) (48)
Long-term debt (8)
Pension and postretirement obligations (47)
Other noncurrent liabilities (83)
Noncontrolling interests (8)
Total purchase consideration allocation $78
 $622

The purchase consideration and the fair value of the assets acquired and liabilities assumed are provisional and could be revised as a result of additional information obtained regarding indemnified matters and liabilities assumed and revisions of provisional estimates of fair values, including but not limited to, the completion of independent appraisals and valuations related to intangibles and the equity method investment.

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. Intangibles includes $30We used a replacement cost method to value fixed assets. Property, plant and equipment is being depreciated on a straight-line basis over useful lives ranging from three to twenty-five years.

The results of operations of ODS are reported in our Off-Highway and Commercial Vehicle operating segments. Transaction related expenses associated with completion of the acquisition totaling $12 were charged to other expense, net. During the first quarter of 2019, the business contributed sales of $75.

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 March 31,
  2019 2018
Net sales $2,308
 $2,360
Net income $126
 $89

The unaudited pro forma results include adjustments primarily related to purchase accounting, interest expense related to the proceeds of debt used in connection with the acquisition of ODS, and non-recurring strategic transaction expense. 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 100% ownership interest in the S.M.E. S.p.A. (SME). SME designs, engineers, and manufactures low-voltage AC induction and synchronous reluctance motors, inverters, and controls for a wide range of off-highway electric vehicle applications, including material handling, agriculture, construction, and automated-guided vehicles. The addition of SME's low-voltage motors and inverters, which are primarily designed to meet the evolution of electrification in off-highway equipment, significantly expands Dana's electrified product portfolio.



We paid $88 at closing, consisting of $62 in cash on hand and a note payable of $26 which allows for net settlement of potential contingencies as defined in the purchase agreement. The note is payable in five years and bears annual interest of 5%. The purchase consideration and the related provisional allocation to the acquisition date fair values of the assets acquired and liabilities assumed are presented in the following table:
Total purchase consideration $88
   
Accounts receivable - Trade 4
Accounts receivable - Other 1
Inventories 8
Goodwill 68
Intangibles 24
Other noncurrent assets 1
Property, plant and equipment 5
Short-term debt (8)
Accounts payable (6)
Accrued payroll and employee benefits (1)
Other accrued liabilities (1)
Other noncurrent liabilities (7)
Total purchase consideration allocation $88

The fair value of the assets acquired and liabilities assumed are provisional and could be revised as a result of additional information obtained regarding liabilities assumed and revisions of provisional estimates of fair values including but not limited to, the completion of independent appraisals and valuations related to intangibles.

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 provisional fair values assigned to intangibles include $15 allocated to developed technology and $9 allocated to customer relationships and $3 allocated to developed technology.relationships. We used the relief from royalty method, an income approach, to value developed technology. We used the multi-period excess earnings method, an income approach, to value customer relationships. We used a replacement cost method to value fixed assets. The developed technology and customer relationship intangible assets are being amortized on a straight-line basis over eighteentwelve and eleventen years, respectively, and property, plant and equipment is being depreciated on a straight-line basis over useful lives ranging from one to seventeentwenty years.

The results of operations of the business are reported in our LightOff-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 statements were presented. During the first quarter of 2019, the business contributed sales of $6.

TM4 — On June 22, 2018, we acquired a 55% ownership interest in TM4 Inc. (TM4) from Hydro-Québec. TM4 designs and manufactures motors, power inverters, and control systems for electric vehicles, offering a complementary portfolio to Dana's electric gearboxes and thermal-management technologies for batteries, motors, and inverters. The transaction establishes Dana as the only supplier with full e-Drive design, engineering, and manufacturing capabilities – offering electro-mechanical propulsion solutions to each of its end markets. The transaction further strengthens Dana's position in China, the world's fastest-growing market for electric vehicles. TM4 owns a 50% interest in Prestolite E-Propulsion Systems Limited (PEPS), a joint venture in China with Prestolite Electric Beijing Limited, which offers electric mobility solutions throughout China and Asia. The terms of the agreement provide Hydro-Québec with the right to put all, and not less than all, of its shares in TM4 to Dana at fair value any time after June 22, 2021.

We paid $125 at closing, using cash on hand. The purchase consideration and the related allocation to the acquisition date fair values of the assets acquired and liabilities assumed are presented in the following table:



Total purchase consideration $125
   
Cash and cash equivalents $3
Accounts receivable - Trade 3
Accounts receivable - Other 1
Inventories 4
Goodwill 148
Intangibles 24
Investments in affiliates 49
Property, plant and equipment 5
Accounts payable (2)
Accrued payroll and employee benefits (1)
Other accrued liabilities (7)
Redeemable noncontrolling interest (102)
Total purchase consideration allocation $125

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 provisional fair values assigned to intangibles include $14 allocated to developed technology and $10 allocated to trademarks and trade names. We used the relief from royalty method, an income approach, to value developed technology and the trademarks and trade names. We used a replacement cost method to value fixed assets. We used a combination of the discounted cash flow, an income approach, and the guideline public company method, a market approach, to value the equity method investment in PEPS. The developed technology intangible assets are being amortized on a straight-line basis over ten years, and property, plant and equipment is being depreciated on a straight-line basis over useful lives ranging from five to six years. The trademarks and trade names are considered indefinite-lived intangible assets.

Dana is consolidating TM4 as the governing documents provide Dana with a controlling financial interest. The results of operations of the business are reported in our Commercial Vehicle operating segment from the date of acquisition. We incurred transactionTransaction related expenses to completeassociated with completion of the acquisition in 2017 totaling $5 which were charged to other expense, net.net in 2018. 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 statements are presented. During 2018, the business contributed sales of $11.

BFP and BPT — On February 1, 2017, we acquired 80% ownership interests in Brevini Fluid Power S.p.A. (BFP) and Brevini Power Transmission S.p.A. (BPT) from Brevini Group S.p.A. (Brevini). The acquisition expands our Off-Highway operating segment product portfolio to include technologies for tracked vehicles, doubling our addressable market for off-highway driveline systems and establishing Dana as the only off-highway solutions provider that can manage the power to both move the equipment and perform its critical work functions. This acquisition also brings a platform of technologies that can be leveraged in our light and commercial-vehicle end markets, helping to accelerate our hybridization and electrification initiatives.

We paid $181 at closing, using cash on hand, and refinanced a significant portion of the debt assumed in the transaction during the first half of 2017. In December 2017, a purchase price reduction of $9 was agreed under the sale and purchase agreement provisions for determination of the net indebtedness and net working capital levels of BFP and BPT as of the closing date. The terms of the agreement provide Dana the right to call half of Brevini’s noncontrolling interests in BFP and BPT, and Brevini the right to put half of its noncontrolling interests in BFP and BPT to Dana, assuming Dana does not exercise its call right, after the 2017 BFP and BPT financial statements have been approved by the board of directors. Further, Dana has the right to call Brevini’s remaining noncontrolling interests in BFP and BPT, and Brevini the right to put its remaining noncontrolling interests in BFP and BPT to Dana, assuming Dana does not exercise its call right, after the 2019 BFP and BPT financial statements have been approved by the board of directors. The call and put prices are based on the amount Dana paid to acquire its initial 80% interest in BFP and BPT subject to adjustment based on the actual EBITDA and free cash flows, as defined in the agreement, of BFP and BPT. In connection with the acquisition of BFP and BPT, Dana agreed to purchase certain real estate currently being leased by BPT from a Brevini affiliate for €25 by November 1, 2017. The€25. Completion of the real estate purchase did not occur by November 1, 2017 due to document transfer requirements not having been fully satisfied. Receiptand receipt of the purchase price adjustment will occur concurrent with the completion of the real estate purchase duringoccurred in the second quarter of 2018. The


purchase consideration and the related allocation to the acquisition date fair values2018 with a net cash payment of the assets acquired and liabilities assumed are presented in the following table:

$20.
Total purchase consideration $172
   
Cash and cash equivalents $75
Accounts receivable - Trade 78
Accounts receivable - Other 18
Inventories 134
Other current assets 9
Goodwill 20
Intangibles 41
Deferred tax assets 3
Other noncurrent assets 4
Property, plant and equipment 145
Notes payable, including current portion of long-term debt (130)
Accounts payable (51)
Accrued payroll and employee benefits (14)
Taxes on income (1)
Other accrued liabilities (19)
Long-term debt (51)
Pension and postretirement obligations (11)
Other noncurrent liabilities (22)
Redeemable noncontrolling interest (44)
Noncontrolling interests (12)
Total purchase consideration allocation $172

Goodwill recognizedOn August 8, 2018, we entered into an agreement to acquire Interfind S.p.A.'s, formerly Brevini Group S.p.A., remaining 20% ownership interests in this transaction is primarily attributableBFP and BPT and to synergies expectedsettle all claims between the parties. We paid $43 to arise after the acquisitionacquire Interfind S.p.A.'s remaining ownership interests and the assembled workforce, is not deductiblereceived $10 in settlement of all pending and future claims. See Note 9 for tax purposes and will be assigned to and evaluated for impairment at the operating segment level. Intangibles includes $29 allocated to customer relationships and $12 allocated to trademarks and trade names. We used the multi-period excess earnings method, an income approach, to value the customer relationships. We used the relief from royalty method, an income approach, to value trademarks and trade names. We used a replacement cost method to value fixed assets. We used a discounted cash flow approach to value the redeemable noncontrolling interests, inclusive of the put and call provisions. We used both discounted cash flow and cost approaches to value the noncontrolling interests. The customer relationships and trademarks and trade names intangible assets are being amortized on a straight-line basis over seventeen years, and property, plant and equipment is being depreciated on a straight-line basis over useful lives ranging from three to thirty years.

The results of operations of the businesses are reported in our Off-Highway operating segment from the date of acquisition. Transaction related expenses in 2017 associated with completion of the acquisition totaling $7 were charged to other expense, net. 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 statements are presented.additional information.

Note 3. Disposal Groups and Divestitures

Disposal group held for sale — In December 2017, we entered into an agreement to divest our Brazil suspension components business (the disposal group) for no consideration to an unaffiliated company. The results of operations of the Brazil suspension components business arewere reported within our Commercial Vehicle operating segment. To effectuate the sale, Dana was


obligated to contribute $10 of additional cash to the business prior to closing. We classified the disposal group as held for sale at December 31, 2017, recognizing a $27 loss to adjust the carrying value of the net assets to fair value and to recognize the liability for the additional cash required to be contributed to the business prior to closing. During the first quarter of 2018, we made the required cash contribution to the disposal group. At present, we have not completed the sale. In the event that we areAfter being unable to complete athe transaction with the counterparty to the existing saleDecember 2017 agreement, we intend to pursue a sale ofentered into an agreement with another third party in June 2018. The transaction with the business to other interested parties. The carrying amounts of the major classes of assetsnew counterparty closed in July 2018 and liabilities of our Brazil suspension components business are as follows:


 
March 31,
2018
 
December 31,
2017
Accounts receivable - Trade$4
 $3
Inventories5
 4
Current assets classified as held for sale$9
 $7
    
Accounts payable$4
 $3
Accrued payroll and employee benefits1
 1
Other accrued liabilities2
 1
Current liabilities classified as held for sale$7
 $5
    
Other noncurrent liabilities$2
 $2
Noncurrent liabilities classified as held for sale$2
 $2

Divestiture of Dana Companies —On December 30, 2016, we completed the divestiture of Dana Companies, LLC (DCLLC), a consolidated wholly-owned limited liability company that was established as part of our reorganization in 2008 to hold and manage personal injury asbestos claims retained by the reorganized Dana Corporation which was merged into DCLLC. DCLLC had net assets of $165 at the time of sale including cash and cash equivalents, marketable securities and rights to insurance coverage in place to satisfy a significant portion of its liabilities. We received cash proceeds of $88 – $29 net$2. We reversed $3 of cash divested – with $3 retained by the purchaser subject to the satisfaction of certain future conditions. Wepreviously recognized a$27 pre-tax loss, of $77 in 2016 upon completioninclusive of the transaction. Duringproceeds received in July 2018, during the second quarter of 2017 the conditions associated with the retained purchase price were satisfied. Dana received the remaining proceeds and recognized $3 of income in other expense, net. Following completion of the sale, Dana has no obligation with respect to current or future asbestos claims.2018.

Note 4. Goodwill and Other Intangible Assets

Goodwill — The change in the carrying amount of goodwill in 20182019 is due to currency fluctuation.fluctuation and the acquisitions of SME and ODS. 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
Balance, December 31, 2017$3
 $8
 $110
 $6
 $127
Currency impact
 
 3
 
 3
Balance, March 31, 2018$3
 $8
 $113
 $6
 $130
 Light Vehicle Commercial Vehicle Off-Highway Power Technologies Total
Balance, December 31, 2018$3
 $150
 $105
 $6
 $264
Acquisitions
 
 194
 
 194
Currency impact
 3
 (5) 
 (2)
Balance, March 31, 2019$3
 $153
 $294
 $6
 $456

Components of other intangible assets — 
 March 31, 2018 December 31, 2017 March 31, 2019 December 31, 2018
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
Weighted Average
Useful Life
(years)
 
Gross
Carrying
Amount
 
Accumulated Impairment and
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated Impairment and
Amortization
 
Net
Carrying
Amount
Amortizable intangible assets   
  
  
  
  
  
   
  
  
  
  
  
Core technology7 $96
 $(90) $6
 $95
 $(88) $7
9 $121
 $(89) $32
 $107
 $(89) $18
Trademarks and trade names16 18
 (3) 15
 17
 (2) 15
16 16
 (4) 12
 16
 (4) 12
Customer relationships8 474
 (408) 66
 470
 (403) 67
8 465
 (399) 66
 460
 (400) 60
Non-amortizable intangible assets                        
Trademarks and trade names 65
 

 65
 65
 

 65
 75
 

 75
 74
 

 74
Used in research and development activities 20
 

 20
 20
 

 20
 20
 (20) —
 20
 (20) —
  $673
 $(501) $172
 $667
 $(493) $174
  $697
 $(512) $185
 $677
 $(513) $164

During the third quarter of 2012, we entered a strategic alliance with Fallbrook Technologies Inc. (Fallbrook). The transaction with Fallbrook was accounted for as a business combination and the original purchase price allocation included $20 of intangible assets used in research and development activities, which had been classified as indefinite-lived. Since the third quarter of 2012, we have been working with several customers to commercialize the continuously variable planetary (CVP) technology primarily in combustion engine applications. During the second quarter of 2018 key customers notified us of their intention to redirect their development efforts to electrification and cease further development efforts of the CVP technology in combustion engine applications. While we have not abandoned the CVP technology, we determined that it was more likely than not that the fair value of the related intangible assets was less than their carrying amount. We used the multi-period excess earnings method, an income approach, to fair value the assets used in research and development activities. Given the lack of adequate identifiable future revenue streams, it was determined that the $20 of intangible assets used in research and development activities was fully impaired during the second quarter of 2018.

The net carrying amounts of intangible assets, other than goodwill, attributable to each of our operating segments at March 31, 20182019 were as follows: Light Vehicle — $51,$27, Commercial Vehicle — $34,$54, Off-Highway — $78$95 and Power Technologies — $9.



Amortization expense related to amortizable intangible assets — 
Three Months Ended 
 March 31,		 Three Months Ended 
 March 31,
2018 2017 2019 2018
Charged to cost of sales$1
 $1
 $1
 $1
Charged to amortization of intangibles2
 2
 2
 2
Total amortization$3
 $3
 $3
 $3

The following table provides the estimated aggregate pre-tax amortization expense related to intangible assets for each of the next five years based on March 31, 20182019 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 2018 2019 2020 2021 2022
Amortization expense$7
 $8
 $7
 $7
 $7
 Remainder of 2019 2020 2021 2022 2023
Amortization expense$8
 $10
 $10
 $10
 $10

Note 5. 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, however, in response to lower demand and other market conditions in certain businesses, our focus has primarily been headcount reduction initiatives to reduce operating costs. Restructuring expense includes costs associated with current and previously announced actions and is comprised of contractual and noncontractual separation costs and exit costs, including costs associated with lease continuation obligations and certain operating costs of facilities that we are in the process of closing.

Restructuring charges of $9 in the first quarter of 2019 were comprised of severance and benefit costs related to integration of the ODS acquisition, headcount reductions across our operations and exit costs related to previously announced actions.

During the first quarter of 2018, we continued to execute our previously announced actions. Restructuring expense was $1, in 2018 and $2 in 2017, primarily representing continuing exit costs associated with previously announced actions.

In accordance with the transition provisions of the new leasing standard, we reclassified $4 of previously accrued lease cease-use costs as an adjustment to the initial measurement of the related right-of-use operating lease asset.

Accrued restructuring costs and activity including noncurrent portion —
Employee
Termination
Benefits
 
Exit
Costs
 Total
Employee
Termination
Benefits
 
Exit
Costs
 Total
Balance at December 31, 2017$21
 $5
 $26
Balance, December 31, 2018$25
 $4
 $29
Charges to restructuring

 1
 1
7
 2
 9
Cash payments(4) (1) (5)(6) (2) (8)
Balance at March 31, 2018$17
 $5
 $22
Lease cease-use reclassification  (4) (4)
Balance, March 31, 2019$26
 $—
 $26
 
At March 31, 20182019, the accrued employee termination benefits include costs to reduce approximately 200300 employees to be completed over the next year. The exit costs relate primarily to lease continuation obligations.

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 March 31, 2018.2019.
 Expense Recognized 
Future
Cost to
Complete
 
Prior to
2018
 2018 
Total
to Date
 
Light Vehicle$4
 $—
 $4
 $—
Commercial Vehicle35
 1
 36
 11
Off-Highway21
 

 21
 

Total$60
 $1
 $61
 $11
 Expense Recognized 
Future
Cost to
Complete
 
Prior to
2019
 2019 
Total
to Date
 
Commercial Vehicle$35
 $1
 $36
 $7


The future cost to complete includes estimated separation costs, primarily those associated with one-time benefit programs, and exit costs through 2021, including lease continuation costs, equipment transfers and other costs which are required to be recognized as closures are finalized or as incurred during the closure.



Note 6. Supplemental Balance Sheet and Cash Flow Information

Inventory components at —
 
March 31,
2018
 
December 31,
2017
 March 31, 
 2019		 December 31, 
 2018
Raw materials $490
 $442
 $515
 $433
Work in process and finished goods 600
 580
 822
 649
Inventory reserves (58) (53) (55) (51)
Total $1,032
 $969
 $1,282
 $1,031

Cash, cash equivalents and restricted cash at —
 
March 31,
2018
 
December 31,
2017
 
March 31,
2017
 
December 31,
2016
 March 31, 
 2019		 December 31, 
 2018		 March 31, 
 2018		 December 31, 
 2017
Cash and cash equivalents $479
 $603
 $423
 $707
 $383
 $510
 $479
 $603
Restricted cash included in other current assets 8
 3
 9
 5
 9
 7
 8
 3
Restricted cash included in other noncurrent assets 4
 4
 4
 4
 3
 3
 4
 4
Total cash, cash equivalents and restricted cash $491
 $610
 $436
 $716
 $395
 $520
 $491
 $610

Note 7. Leases
Our global lease portfolio represents leases of real estate, including manufacturing, assembly and office facilities, while the remainder represents leases of personal property, including manufacturing, material handling and IT equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Short term lease costs were insignificant in the three months ended March 31, 2019. We account for lease components separately from the non-lease components of each lease arrangement.

Our leases generally have remaining lease terms of 1 year to 11 years, some of which include options to extend the leases for up to 7 years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table provides a summary of the location and amounts related to finance leases recognized in the consolidated balance sheet.
  Classification March 31, 2019
Finance lease right-of-use assets Property, plant and equipment, net $42
Finance lease liabilities Current portion of long-term debt 5
Finance lease liabilities Long-term debt 25

Components of lease expense —
  Three Months Ended 
 March 31, 2019
Operating lease cost $12
Finance lease cost:  
Amortization of right-of-use assets $1
Interest on lease liabilities —
Total finance lease cost $1


Supplemental cash flow information related to leases —
  Three Months Ended 
 March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from operating leases $12
Operating cash flows from finance leases —
Financing cash flows from finance leases 1
Right-of-use assets obtained in exchange for lease obligations:  
Operating leases 6
Finance leases 10

Supplemental balance sheet information related to leases —
March 31, 2019
Weighted-average remaining lease term (years):
Operating leases10
Finance leases6
Weighted-average discount rate:
Operating leases4.0%
Finance leases6.0%

Maturities —
  Operating Leases Finance Leases
Remainder of 2019 $37
 $4
2020 44
 4
2021 37
 4
2022 27
 4
2023 20
 3
Thereafter 57
 15
Total lease payments 222
 34
Less: interest 36
 5
Present value of lease liabilities $186
 $29

As of March 31, 2019 we have operating lease payments that have not yet commenced of approximately $8 . This lease is expected to commence in July 2019.

Disclosures related to periods prior to adoption of ASU 2016-02 —

Cash obligations under future minimum rental commitments under operating leases as of December 31, 2018 are shown in the table below. Operating lease commitments are primarily related to facilities.
 2019 2020 2021 2022 2023 Thereafter Total
Lease commitments$57
 $41
 $35
 $27
 $21
 $64
 $245

Note 7.8. Stockholders’ Equity

Common stock — Our Board of Directors declared quarterly a quarterly cash dividendsdividend of ten cents per share of common stock in the first quarter of 2018.2019. 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 March 24, 2018 our Board of Directors approved an expansion of our existing common stock share repurchase program to $200. The program expires on December 31, 2019. The authorized amountUnder the program, we spent $25 to repurchase 1,432,275 shares of $200our common stock during the first quarter of 2019 through open market transactions. Approximately $150 remained available for future share repurchases as of March 31, 2018.2019.



Changes in equity —
  2018 2017
Three Months Ended March 31, Attributable to Parent Attributable
to Non-
controlling Interests		 
Total
Equity
 Attributable to Parent Attributable
to Non-
controlling Interests		 
Total
Equity
Balance, December 31 $1,013
 $101
 $1,114
 $1,157
 $85
 $1,242
Adoption of ASU 2016-16 tax adjustment,
    January 1, 2017
 

 

 —
 (179) 

 (179)
Net income 108
 2
 110
 75
 5
 80
Other comprehensive income 8
 

 8
 30
 2
 32
Common stock dividends (15) 

 (15) (9) 

 (9)
Distributions to noncontrolling interests 

 (1) (1) 

 (1) (1)
Increase from business combination 

 

 —
 

 14
 14
Purchase of noncontrolling interests (9) 9
 —
 

 

 —
Stock compensation 5
 

 5
 7
 

 7
Stock withheld for employee taxes (6) 

 (6) (3) 

 (3)
Balance, March 31 $1,104
 $111
 $1,215
 $1,078
 $105
 $1,183

See Note 1 for additional information about adoption of new accounting guidance on January 1, 2018 and 2017.
  Three Months Ended March 31,
2019 Common Stock Additional Paid-In Stock Retained Earnings Treasury Stock Accumulated Other Compre-hensive Loss Non-controlling Interests Total Equity
Balance, December 31, 2018 $2
 $2,368
 $456
 $(119) $(1,362) $97
 $1,442
Adoption of ASU 2016-02 leases, January 1, 2019     (1)   
   (1)
Net income     98
     4
 102
Other comprehensive income (loss)         34
 (2) 32
Common stock dividends   
 (15)       (15)
Distributions to noncontrolling interests           (1) (1)
Increase from business combination           7
 7
Common stock share repurchases       (25)     (25)
Stock compensation   4
         4
Stock withheld for employee taxes   
   (6)     (6)
Balance, March 31, 2019 $2
 $2,372
 $538
 $(150) $(1,328) $105
 $1,539
               
2018              
Balance, December 31, 2017 $2
 $2,354
 $86
 $(87) $(1,342) $101
 $1,114
Adoption of ASU 2016-01 financial instruments adjustment,
January 1, 2018		     2
   (2)   —
Net income     108
     2
 110
Other comprehensive income         8
 
 8
Common stock dividends   
 (15)       (15)
Distributions to noncontrolling interests           (1) (1)
Purchase of noncontrolling interests   (9)       9
 —
Stock compensation   5
         5
Stock withheld for employee taxes   
   (6)     (6)
Balance, March 31, 2018 $2
 $2,350
 $181
 $(93) $(1,336) $111
 $1,215

During the first quarter of 2018, a wholly-owned subsidiary of Dana purchased the ownership interest in Dana Spicer (Thailand) Limited (a non wholly-owned consolidated subsidiary of Dana) held by ROC Spicer, Ltd. (a non wholly-owned consolidated subsidiary of Dana). Dana maintained its controlling financial interest in Dana Spicer (Thailand) Limited and accordingly accounted for the purchase as an equity transaction. The excess of the fair value of the consideration paid over the carrying value of the investment attributable to the noncontrolling interest in ROC Spicer, Ltd. was recognized as additional noncontrolling interest with a corresponding reduction of the additional paid-in capital of Dana.



Changes in each component of accumulated other comprehensive income (AOCI) of the parent —
          
Parent Company StockholdersParent Company Stockholders
Foreign Currency Translation Hedging Investments Defined Benefit Plans Total
Balance, December 31, 2018$(721) $(54) $—
 $(587) $(1,362)
Other comprehensive income (loss):         
Currency translation adjustments24
       24
Holding gains and losses  29
 
   29
Reclassification of amount to net income (a)  (24) 
   (24)
Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b)      7
 7
Tax expense
 
 
 (2) (2)
Other comprehensive income24
 5
 —
 5
 34
Balance, March 31, 2019$(697) $(49) $—
 $(582) $(1,328)
Foreign Currency Translation Hedging Investments Defined Benefit Plans Total         
Balance, December 31, 2017$(670) $(64) $2
 $(610) $(1,342)$(670) $(64) $2
 $(610) $(1,342)
Other comprehensive income (loss):                  
Currency translation adjustments14
       14
14
       14
Holding loss on net investment hedge(5)       (5)(5)       (5)
Holding gains and losses  (38) 
   (38)  (38) 
   (38)
Reclassification of amount to net income (a)  29
 
   29
  29
 
   29
Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b)      9
 9
      9
 9
Tax (expense) benefit
 1
 
 (2) (1)
 1
 
 (2) (1)
Other comprehensive income (loss)9
 (8) —
 7
 8
9
 (8) —
 7
 8
Adoption of ASU 2016-01 financial instruments adjustment, January 1, 2018    (2)   (2)    (2)   (2)
Balance, March 31, 2018$(661) $(72) $—
 $(603) $(1,336)$(661) $(72) $—
 $(603) $(1,336)
         
Balance, December 31, 2016$(646) $(34) $—
 $(604) $(1,284)
Other comprehensive income (loss):         
Currency translation adjustments34
       34
Holding loss on net investment hedge(5)       (5)
Holding gains and losses  (12) 
   (12)
Reclassification of amount to net income (a)  6
 
   6
Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b)      8
 8
Tax (expense) benefit
 2
 
 (3) (1)
Other comprehensive income (loss)29
 (4) —
 5
 30
Balance, March 31, 2017$(617) $(38) $—
 $(599) $(1,254)
(a) For 2018, realizedRealized 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 1415 for additional details. For 2017, reclassifications from AOCI were included in other expense, net.
(b) See Note 1112 for additional details.

Note 8.9. Redeemable Noncontrolling Interests

In connection with the acquisition of a controlling interest in BFP and BPTTM4 from BreviniHydro-Québec on February 1, 2017,June 22, 2018, we recognized $44$102 for Brevini's 20%Hydro-Québec's 45% redeemable noncontrolling interests.interest. The terms of the agreement provide DanaHydro-Québec with the right to callput all, and not less than all, of its shares to Dana at fair value any time after June 22, 2021. See Note 2 for additional information.

On August 8, 2018, we entered into an agreement to acquire Brevini's noncontrollingremaining 20% ownership interests in BFP and BPT and Brevinito settle all claims between the rightparties. We paid $43 to put itsacquire Brevini's remaining ownership interests and received $10 in settlement of all pending and future claims. AOCI attributable to Brevini's redeemable noncontrolling interests in BFPwas reclassified to AOCI of the parent company. The difference between the carrying value of Brevini's redeemable noncontrolling interests and BPTthe cash paid was recorded to Dana, assuming Dana does not exercise its call rights, at dates and prices defined inadditional paid-in capital of the agreement. The call and put prices are based on the amount Dana paid to acquire its initial ownership interest in BFP and BPT subject to adjustment based on the actual EBITDA and free cash flows, as defined in the agreement, of BFP and BPT. See Note 2 for additional information.parent company.

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 (i.e., the "floor").values. Redeemable noncontrolling interest adjustments of redemption value to the floor are recorded in retained earnings and included as an adjustment to net income available to parent company stockholders in the calculation of earnings per share. See Note 9 for additional information.








earnings.



Reconciliation of changes in redeemable noncontrolling interests —
 Three Months Ended 
 March 31,		 Three Months Ended 
 March 31,
 2018 2017 2019 2018
Balance, beginning of period $47
 $—
 $100
 $47
Initial fair value of redeemable noncontrolling interests of acquired businesses 
 45
Cash contributions from redeemable noncontrolling interests 1
  
Comprehensive income (loss) adjustments: 
 
 
 
Net income attributable to redeemable noncontrolling interests 1
 
Net income (loss) attributable to redeemable noncontrolling
interests
 (1) 1
Other comprehensive income (loss) attributable to redeemable noncontrolling interests 1
 (1) 5
 1
Retained earnings adjustments: 
 
Adjustment to redemption value 
 
Balance, end of period $49
 $44
 $105
 $49

Note 9.10. Earnings per Share

Reconciliation of the numerators and denominators of the earnings per share calculations — 


Three Months Ended 
 March 31,
Three Months Ended 
 March 31,
 2018 2017 2019 2018
Net income attributable to the parent company $108
 $75
 $98
 $108
Less: Redeemable noncontrolling interests adjustment to redemption value —
 —
 —
 —
Net income available to common stockholders - Numerator basic and diluted $108
 $75
 $98
 $108

Denominator:        
Weighted-average common shares outstanding - Basic
145.6

144.6

143.9

145.6
Employee compensation-related shares, including stock options
1.9

1.3

0.9

1.9
Weighted-average common shares outstanding - Diluted
147.5

145.9

144.8

147.5
 
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 0.4 million and 0.2 million CSEs from the calculations of diluted earnings per share for 2019 and 0.5 million CSEs in 2018 and 2017 as the effect of including them would have been anti-dilutive.

Note 10.11. Stock Compensation
 
The Compensation Committee of our Board of Directors approved the grant of RSUs and performance share units (PSUs) shown in the table below during 2018.2019. 
Granted
(In millions)
 
Grant Date
Fair Value*
Granted
(In millions)
 
Grant Date
Fair Value*
RSUs0.6
 $28.33
1.0
 $17.12
PSUs0.2
 $27.13
0.4
 $16.17
* 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 return on invested capital targets and specified margin 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 received $1 of cash from the exercise of stock options related to 0.1 million shares. We paid $2 of cash to settle SARs and RSUs. We issued 0.40.7 million and 0.2 million shares of common stock based on the vesting of RSUs and PSUs during 2018.2019. We recognized stock compensation expense of $5 and $4 during the first quarters of both 20182019 and 2017.2018. At March 31, 2018,2019, the total unrecognized compensation cost related to the nonvested awards granted and expected to vest was $39.$37. This cost is expected to be recognized over a weighted-average period of 2.22.3 years.



Note 11.12. Pension and Postretirement Benefit Plans

We have a number of defined contribution and defined benefit, qualified and nonqualified, pension plans covering eligible employees. Other postretirement benefits (OPEB), including medical and life insurance, are provided for certain employees upon retirement.

Components of net periodic benefit cost (credit) — 
 Pension   Pension  
 2018 2017 OPEB - Non-U.S. 2019 2018 OPEB - Non-U.S.
Three Months Ended March 31, U.S. Non-U.S. U.S. Non-U.S. 2018 2017 U.S. Non-U.S. U.S. Non-U.S. 2019 2018
Interest cost $11
 $1
 $13
 $2
 $1
 $1
 $9
 $2
 $11
 $1
 $1
 $1
Expected return on plan assets (18) (1) (21) (1) 

 

 (12) (1) (18) (1) 

 

Service cost 

 2
 

 1
 

 

 

 2
 

 2
 

 

Amortization of net actuarial loss 7
 2
 6
 2
 

 

 5
 2
 7
 2
 

 

Net periodic benefit cost (credit) $—
 $4
 $(2) $4
 $1
 $1
Net periodic benefit cost $2
 $5
 $—
 $4
 $1
 $1
 
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 expense, net and are not eligible for capitalization.

Pension expense for 20182019 increased versus the same period in 20172018 as a result of a lower assumed return on plan assets, partially offset by lower interest expense and an increase in amortization of the net actuarial loss in the U.S. The components of net periodic benefit cost other than the service cost component are included in other expense, net in the consolidated statement of operations.

Plan termination — In October 2017, upon authorization by the Dana Board of Directors, we commenced the process of terminating one of our U.S. defined benefit pension plans. Ultimate plan termination is subject to regulatory approval and to prevailing market conditions and other considerations, including interest rates and annuity pricing. In the event that approvals are received and we proceed with effecting termination, settlementSettlement of the plan obligations is expected to occur in the first half of 2019. At December 31, 2017,2018, this plan had benefit obligations of $1,064$938 and assets of $900.$773. The benefit obligations have been valued at the amount expected to be required to settle the obligations, using assumptions regarding the portion of obligations expected to be settled through participant acceptance of lump sum payments or annuities and the cost to purchase those annuities. The unrecognized actuarial losses of the plan in AOCI totaled $369$370 at the end of 2017.2018. If the settlement is effected as expected in 2019, the plan's deferred actuarial losses remaining in AOCI at that time will be recognized as expense.

Note 12.13. Marketable Securities 
March 31, 2018 December 31, 2017March 31, 2019 December 31, 2018
Cost Unrealized
Gain (Loss)		 Fair
Value		 Cost Unrealized
Gain (Loss)		 Fair
Value		Cost Unrealized
Gain (Loss)		 Fair
Value		 Cost Unrealized
Gain (Loss)		 Fair
Value
U.S. government securities$3
 $—
 $3
 $3
 $—
 $3
$2
 $—
 $2
 $2
 $—
 $2
Corporate securities5
 

 5
 5
 

 5
4
 

 4
 4
 

 4
Certificates of deposit28
 

 28
 27
 

 27
14
 

 14
 15
 

 15
Other5
 

 5
 4
 1
 5
Total marketable securities$41
 $—
 $41
 $39
 $1
 $40
$20
 $—
 $20
 $21
 $—
 $21
 
U.S. government securities include bonds issued by government-sponsored agencies and Treasury notes. Corporate securities are primarily debt securities. Other consists of investments in mutual and index funds. U.S. government securities, corporate debt and certificates of deposit maturing in one year or less, after one year through five years and after five years through ten years total $29, $4$15, $2 and $3 at March 31, 2018.2019.
 


Note 13.14. Financing Agreements
 
Long-term debt at —
 March 31, 2018 December 31, 2017
 Interest
Rate		 Principal Principal Interest
Rate		 March 31, 
 2019		 December 31, 2018
Senior Notes due September 15, 2023 6.000% $300
 $300
 6.000% $300
 $300
Senior Notes due December 15, 2024 5.500% 425
 425
 5.500% 425
 425
Senior Notes due April 15, 2025 5.750%*400
 400
 5.750%*400
 400
Senior Notes due June 1, 2026 6.500%*375
 375
 6.500%*375
 375
Term Facility 275
 275
 932
 265
Other indebtedness 30
 29
 63
 28
Debt issuance costs (21) (22) (29) (18)
 1,784
 1,782
 2,466
 1,775
Less: Current portion of long-term debt 29
 23
 41
 20
Long-term debt, less debt issuance costs $1,755
 $1,759
 $2,425
 $1,755
*In conjunction with the issuance of the April 2025 Notes we entered into 8-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 3.850%. In conjunction with the issuance of the June 2026 Notes we entered into 10-year fixed-to-fixed cross-currency swaps which have the effect of economically converting the June 2026 Notes to euro-denominated debt at a fixed rate of 5.140%. See Note 1415 for additional information.

Interest on the senior notes is payable semi-annually and interest on the Term Facility is payable quarterly. Other indebtedness includes borrowings from various financial institutions, capitalfinancing lease obligations and the unamortized fair value adjustment related to a terminated interest rate swap and the financial liability related to build-to-suit leases.swap. See Note 1415 for additional information on the terminated interest rate swap.

Senior notes activity — On September 18, 2017, we redeemed the remaining $350 of our September 2021 Notes at a price equal to 102.688% plus accrued and unpaid interest. The $13 loss on extinguishment of debt includes the $10 redemption premium and the $3 write-off of previously deferred financing costs associated with the September 2021 Notes.

On April 4, 2017, Dana Financing Luxembourg S.à r.l., a wholly-owned subsidiary of Dana, issued $400 in senior notes (April 2025 Notes) at 5.750%, which are guaranteed by Dana. The April 2025 Notes were issued through a private placement and will not be registered under the U.S. Securities Act of 1933, as amended (the Securities Act). The April 2025 Notes were offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act and, outside the United States, only to non-U.S. investors in reliance on Regulation S under the Securities Act. The April 2025 Notes rank equally with Dana's other unsecured senior notes. Interest on the notes is payable on April 15 and October 15 of each year. The April 2025 Notes will mature on April 15, 2025. Net proceeds of the offering totaled $394. Financing costs of $6 were recorded as deferred costs and are being amortized to interest expense over the life of the April 2025 Notes. The proceeds from the offering were used to repay indebtedness of our BPT and BFP subsidiaries, repay indebtedness of a wholly-owned subsidiary in Brazil, redeem $100 of our September 2021 Notes and for general corporate purposes. The September 2021 Notes were redeemed on April 4, 2017 at a price equal to 104.031% plus accrued and unpaid interest. The $6 loss on extinguishment of debt includes the $4 redemption premium and the $1 write-off of previously deferred financing costs associated with the September 2021 Notes and the $1 redemption premium associated with the repayment of indebtedness of a wholly-owned subsidiary in Brazil. In conjunction with the issuance of the April 2025 Notes, we entered into eight-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 3.850%. See Note 14 for additional information.

Credit agreement — On August 17, 2017,February 28, 2019, we entered into an amended credit and guaranty agreement comprised of a $275$500 term facility (the Term A Facility), a $450 term facility (the Term B Facility and, together with the Term A Facility, the Term Facilities) and a $600$750 revolving credit facility (the Revolving Facility) both. The Term A Facility is an expansion of whichour existing $275 term facility. The Term A Facility and the Revolving Facility mature on August 17, 2022. The Term B Facility matures on February 28, 2026. On September 14, 2017,February 28, 2019, we drew the entire amount$225 available under the Term Facility. Net proceeds fromA Facility and the $450 available under the Term Facility draw totaled $274.B Facility. Financing costs of $1$12 were recorded as deferred cost and are being amortized to interest expense over the life of the Term Facility.applicable term facilities. We are required to make equal quarterly installments on the Term A Facility on the last day of each fiscal quarter of 1.5625%$8 beginning March 31, 2019 and 0.25% of the initial aggregate principal amountadvances of the Term B Facility quarterly commencing on SeptemberJune 30 2018.2019. We may prepay some or all of Term Facilitythe amounts under the term facilities without penalty. Any prepayments made on the Term Facility would be applied against the required quarterly installments. The proceeds from the Term Facilityterm facilities were used to repay our September 2021 Notesacquire the Oerlikon Drive Systems segment of the Oerlikon Group and pay for general corporate purposes.related integration activities. The Revolving Facility amended our previous revolving credit facility. In connection with the Revolving


Facility,this amendment, we paid $2$1 in deferred financing costs to be amortized to interest expense over the life of the facility. Deferred financing costs on our Revolving Facility are included in other noncurrent assets.

The Term FacilityFacilities and the Revolving Facility are guaranteed by all of our wholly-owned domestic subsidiaries subject to certain exceptions (the guarantors) and grantsare 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 revolving 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 0.50% 1.50%
Greater than 1.00:1.00 but less than or equal to 2.00:1.00 0.75% 1.75%
Greater than 2.00:1.00 1.00% 2.00%

The Term B Facility bears interest based on, at our option, the Base Rate plus 1.25% or the Eurodollar rate plus 2.25%. We have elected to pay interest on our advanceadvances under the Term FacilityFacilities at the Eurodollar Rate. The interest rate on the Term A Facility was 4.249% and the Term B Facility was 4.749%, inclusive of the applicable margin, was 4.052%margins, as of March 31, 2018.2019.



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 0.250%
Greater than 1.00:1.00 but less than or equal to 2.00:1.00 0.375%
Greater than 2.00:1.00 0.500%

Up to $275 of the Revolving Facility may be applied to letters of credit, which reduces availability. We pay a fee for issued and undrawn letters of credit in an amount per annum equal to the applicable margin for Eurodollar rate advances based on a quarterly average availability under issued and undrawn letters of credit under the Revolving Facility and a per annum fronting fee of 0.125%, payable quarterly.

As of March 31, 2018,2019, we had no outstanding borrowings under the Revolving Facility but we had utilized $22$21 for letters of credit. We had availability at March 31, 20182019 under the Revolving Facility of $578$729 after deducting the outstanding letters of credit.

Debt covenants — At March 31, 20182019, we were in compliance with the covenants of our financing agreements. Under the Term Facility,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 2.00 to 1.00.

Note 14.15. 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 Fair Value
Category Balance Sheet Location Fair Value Level March 31, 
 2018		 December 31, 
 2017		 Balance Sheet Location Fair Value Level March 31, 
 2019		 December 31, 
 2018
Available-for-sale securities Marketable securities 1 $5
 $5
Available-for-sale securities Marketable securities 2 36
 35
 Marketable securities 2 $20
 $21
Currency forward contracts        
Cash flow hedges Accounts receivable - Other 2 7
 1
 Accounts receivable - Other 2 8
 6
Cash flow hedges Other accrued liabilities 2 1
 5
 Other accrued liabilities 2 5
 5
Undesignated Accounts receivable - Other 2 

 1
 Accounts receivable - Other 2 2
 2
Undesignated Other accrued liabilities 2 2
 3
 Other accrued liabilities 2 

 1
Currency swaps        
Cash flow hedges Other noncurrent liabilities 2 227
 177
 Other noncurrent liabilities 2 92
 118

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:
March 31, 2018 December 31, 2017 March 31, 2019 December 31, 2018
Carrying Value 
Fair
Value
 Carrying Value 
Fair
Value
 Fair Value Level Carrying Value 
Fair
Value
 Carrying Value 
Fair
Value
Senior notes$1,500
 $1,542
 $1,500
 $1,592
 2 $1,500
 $1,515
 $1,500
 $1,442
Term Facility275
 275
 275
 275
 2 932
 928
 265
 265
Other indebtedness*30
 23
 29
 22
 2 63
 58
 28
 23
Total$1,805
 $1,840
 $1,804
 $1,889
 $2,495
 $2,501
 $1,793
 $1,730
*The carrying value includes the unamortized portion of a fair value adjustment related to a terminated interest rate swap at both dates. The carrying value and fair value also include a financial liability associated with certain build-to-suit lease arrangements at both dates.

The fair values of our senior notes and Term Facility are estimated based upon a market approach (Level 2) while the fair value of our other indebtedness is based upon an income approach (Level 2). The fair value of the Term Facility approximates its carrying value as it is a floating-rate facility. See Note 13 for additional information about our financing agreements.

Fair value measurements on a nonrecurring basis — Certain assets are measured at fair value on a nonrecurring basis. These are long-lived assets that are subject to fair value adjustments only in certain circumstances. These assets include intangible assets and property, plant and equipment which may be written down to fair value when they are held for sale or as a result of impairment.

Interest rate derivatives — Our portfolio of derivative financial instruments periodically includes interest rate swaps designed to mitigate our interest rate risk. As of March 31, 2018,2019, no fixed-to-floating interest rate swaps remain outstanding. However, a $6$5 fair value adjustment to the carrying amount of our December 2024 Notes, associated with a fixed-to-floating interest rate swap that had been executed but was subsequently terminated during 2015, remains deferred at March 31, 2018.2019. This amount is being amortized as a reduction of interest expense through the period ending December 2024, the scheduled maturity date of the December 2024 Notes. The amount amortized as a reduction of interest expense was not material during the three months ended March 31, 2018.2019.

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 eighteen 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.



In 2017,We have executed fixed-to-fixed cross-currency swaps in conjunction with the issuance of €281 of euro-denominated intercompanycertain notes payable, issued by certain of our Luxembourg subsidiaries (the "Luxembourg Intercompany Notes") and payable to USD-functional Dana, Inc., we executed fixed-to-fixed cross-currency swaps with the same critical terms as the Luxembourg Intercompany Notes. The risk management objective of these swaps is to eliminate the variability in the functional-currency-equivalent cash flows due to changes in the euro / U.S. dollar exchange rates associated with the forecasted principal and interest payments.

In 2017, in conjunction with the planned April 2017 issuance of the $400 of U.S. dollar-denominated April 2025 Notes by euro-functional Dana Financing Luxembourg S.à r.l., we executed fixed-to-fixed cross-currency swaps with the same critical terms as the April 2025 Notes to eliminate the variability in the functional-currency-equivalent cash flows due to changes in the U.S. dollar / euro exchange rates associated with the forecasted principal and interest payments.

In 2016, in conjunction with the issuance of the $375 of U.S. dollar-denominated June 2026 Notes by euro-functional Dana Financing Luxembourg S.à r.l., we executed fixed-to-fixed cross-currency swaps with the same critical terms as the June 2026 Notes to eliminate the variability in the functional-currency-equivalent cash flows due to changes in the U.S. dollar / euro 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 March 31, 2018:

2019:
Underlying Financial Instrument Derivative Financial Instrument
Description Type Face Amount Rate Designated Notional Amount Traded Amount Inflow Rate Outflow Rate
June 2026 Notes Payable $375
 6.50% $375
 €338
 6.50% 5.14%
April 2025 Notes Payable $400
 5.75% $400
 €371
 5.75% 3.85%
Luxembourg Intercompany Notes Receivable €281
 3.91% €281
 $300
 6.00% 3.91%

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 1314 for additional information about the June 2026 Notes and the April 2025 Notes.

In the event our ongoing assessment demonstrates that the critical terms of either the swaps or the underlying designated financial instruments have changed, or that there have been adverse developments regarding counterparty risk, we will use the long haul method to assess ineffectiveness of the hedging relationship. To the extent the swaps are no longer effective, changes in their fair values will be recorded in earnings. During the first three months of 2018, deferred losses of $19 associated with all of the fixed-to-fixed cross-currency swaps were recorded in OCI and reflect the net impact of a $50 unfavorable change in the fair value of the swaps and a $31 reclassification from AOCI to earnings. The reclassification from AOCI to earnings represents an offset to a foreign exchange remeasurement gain on all of the designated debt instruments outstanding during the three months ended March 31, 2018.

The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $349$516 at March 31, 20182019 and $306$1,007 at December 31, 2017.2018. The total notional amount of outstanding foreign currency swaps, including the fixed-to-fixed cross-currency swaps, was $1,121$1,090 at March 31, 20182019 and $1,112$1,097 at December 31, 2017.


2018.



The following currency derivatives were outstanding at March 31, 20182019:

   Notional Amount (U.S. Dollar Equivalent)     Notional Amount (U.S. Dollar Equivalent)  
Functional Currency Traded Currency Designated as
Cash Flow Hedges		 Undesignated Total Maturity Traded Currency Designated as
Cash Flow Hedges		 Undesignated Total Maturity
U.S. dollar Mexican peso, Chinese renminbi $130
 $13
 $143
 Jun-19 Mexican peso, euro $149
 $13
 $162
 Jun-20
Euro U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee, Russian ruble, Chinese renminbi 50
 7
 57
 Jun-19 U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee, Russian ruble, Chinese renminbi, Mexican peso 123
 3
 126
 Jan-24
British pound U.S. dollar, Euro 2
 

 2
 Apr-19 U.S. dollar, euro 2
 

 2
 Nov-19
Swedish krona U.S. dollar, Euro 20
 

 20
 Jun-19 euro 11
 

 11
 Dec-19
South African rand U.S. dollar, Euro, Thai baht 

 14
 14
 Feb-19 U.S. dollar, euro, Thai baht 7
 4
 11
 Mar-20
Thai baht U.S. dollar   22
 22
 Dec-18 U.S. dollar 21
 

 21
 Mar-20
Canadian dollar U.S. dollar   14
 14
 Jun-19 U.S. dollar 18
 

 18
 Jun-20
Brazilian real Euro, U.S. dollar 

 37
 37
 Mar-19 U.S. dollar, euro 44
 45
 89
 Mar-20
Indian rupee U.S. dollar, British pound, Euro 

 40
 40
 Sep-19 U.S. dollar, British pound, euro 

 53
 53
 Mar-20
Chinese renminbi U.S. dollar, Canadian dollar, euro   10
 10
 Jul-19
Taiwan dollar Chinese renminbi   13
 13
 Mar-20
Total forward contracts   202
 147
 349
     375
 141
 516
  
              
U.S. dollar Euro 346
 

 346
 Sep-23 euro 315
 

 315
 Sep-23
Euro U.S. dollar 775
 

 775
 Jun-26 U.S. dollar 775
 

 775
 Jun-26
Total currency swaps 1,121
 —
 1,121
  1,090
 —
 1,090
 
Total currency derivatives $1,323
 $147
 $1,470
  $1,465
 $141
 $1,606
 

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 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 expense, net. Realized

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
  March 31, 2019 December 31, 2018 Gain (loss) expected to be reclassified into income in one year or less
Forward Contracts $3
 $2
 $3
Cross-Currency Swaps (56) (60) —
Total $(53) $(58) $3






The following table provides a summary of $1 werethe location and amount of gains or losses recognized in the consolidated statement of operations associated with cash flow hedging relationships:
  Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationships
  Three Months Ended March 31, 2019
  Net sales Cost of sales Other 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 $2,163
 $1,863
 $13
(Gain) or loss on cash flow hedging relationships      
Foreign currency forwards      
Amount of (gain) loss reclassified from AOCI into income 

 (1) 
Cross-currency swaps      
Amount of (gain) loss reclassified from AOCI into income 
 
 (23)
  Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationships
  Three Months Ended March 31, 2018
  Net sales Cost of sales Other 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 $2,138
 $1,831
  
(Gain) or loss on cash flow hedging relationships      
Foreign currency forwards      
Amount of (gain) loss reclassified from AOCI into income   (2)  
Cross-currency swaps      
Amount of (gain) loss reclassified from AOCI into income     $31

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 an increasecash flow hedges. As undesignated forward contracts, the changes in sales duringthe 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 
 March 31, 2019		 Location of Gain or (Loss) Recognized in Income
Foreign currency forward contracts $2
 Cost of sales
Foreign currency forward contracts $(13) Other expense, net

During the first quarter of 2018.2019 we settled the outstanding undesignated Swiss franc notional deal contingent forward related to the ODS acquisition for $21, resulting in a realized loss of $13 included in other expense, net for the three months ended March 31, 2019.

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.

In 2017, we designated the principal amount of an existing non-derivative Mexican peso-denominated intercompany note payable (the "MXN-denominated intercompany note") by Dana European Holdings Luxembourg S.à r.l. to Dana de Mexico Corporacion S. de R.L. de C.V., one of our Mexican subsidiaries, as a net investment hedge of the equivalent portion of the investment in the associated Mexican operations. At March 31, 2018, the principal amount of the MXN-denominated intercompany note is 1,465 Mexican pesos, or approximately $81.

During the first three months of 2018, we recorded a deferred loss of $6 in the CTA component of OCI associated with the MXN-denominated intercompany note. Amounts recorded in CTA remain deferred in AOCI until such time as the investments in the associated subsidiaries are substantially liquidated. See also Note 7.

Amounts to be reclassified to earnings — Deferred gains or losses associated with effective cash flow hedges of forecasted transactions are reported in AOCI and are reclassified to earnings in the same periods in which the underlying transactions affect earnings. Amounts expected to be reclassified to earnings assume no change in the current hedge relationships or to


March 31, 2018 exchange rates. Deferred gains of $6 at March 31, 2018 are expected to be reclassified to earnings during the next twelve months, compared to deferred losses of $4 at December 31, 2017. Amounts reclassified from AOCI to earnings arising from the discontinuation of cash flow hedge accounting treatment were not material during the first quarter of 2018.

Note 15.16. Commitments and Contingencies
 
Product liabilities — We had accrued $11 and $7$19 for product liability costs at March 31, 20182019 and December 31, 2017.2018. We had also recognized $15 and $9$24 as expected amounts recoverable from third parties at the respectiveboth dates. The increases in the liability and recoverable amounts at March 31, 2018 reflect the adjustment of the estimated cost, net of payments made, and the expected recovery of an insured matter. Payments made to claimants have preceded the recovery of amounts from third parties, resulting in a recoverable amount in excess of the total liability at both dates. We estimate these liabilities based on current information and assumptions about the value and likelihood of the claims against us.

Environmental liabilities — Accrued environmental liabilities were $9$10 at March 31, 20182019 and $8 at December 31, 20172018. We consider the most probable method of remediation, current laws and regulations and existing technology in estimating our environmental liabilities. Other accounts receivable included a related recoverable from insurers or other parties of $1 at March 31, 2018.

Guarantee of lease obligations — In connection with the divestiture of our Structural Products business in 2010, leases covering three U.S. facilities were assigned to a U.S. affiliate of 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 $6 of annual payments. In the event of a required payment by Dana as guarantor, we are entitled to pursue full recovery from Metalsa of the amounts paid under the guarantee and to take possession of the leased property.

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.

Note 16.17. Warranty Obligations

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 
 March 31,		 Three Months Ended 
 March 31,
 2018 2017 2019 2018
Balance, beginning of period $76
 $66
 $75
 $76
Acquisitions 

 8
 15
 

Amounts accrued for current period sales 10
 7
 8
 10
Adjustments of prior estimates 

 3
 5
 

Settlements of warranty claims (11) (12) (7) (11)
Currency impact 1
 1
 (1) 1
Balance, end of period $76
 $73
 $95
 $76
  
The 2017 Acquisitions line includes approximately $4 related to the acquisition of BFP and BPT that is subject to recovery from the seller.

Note 17.18. Income Taxes

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 that it is reasonably possible that a valuation allowanceallowances of up to $8$86 related to the U.S. and a subsidiary in ArgentinaBrazil will be released in the next twelve months.

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.

In December 2017, the U.S. government introduced broad ranging tax reform with the passage of the Tax Cuts and Jobs Act (the "Act"). Among the tax reforms was a reduction of the corporate tax rate from 35% to 21%. Other provisions in the Act include changes in the taxation of dividends of foreign source earnings, including the taxation of potential deemed dividends as described below.

We reported income tax expense related to operations of $48$20 and $30$48 for the quartersthree months ended March 31, 20182019 and 2017.2018. Our effective tax rates were 17% and 31% and 29% infor the first three months of 20182019 and 2017.2018. The lower 2019 tax expense was attributable to a couple discrete items in the quarter. We recognized a benefit of $22 related to release of valuation allowances in the U.S. based on increased income projections. Partially offsetting this benefit was $6 of expense related to a U.S. state law change. Excluding these items, the effective tax rate would be 31% for the 2019 three-month period. Our effective income tax rates vary from the U.S. federal statutory ratesrate of 21% and 35% 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 non-deductible expenses. Although the tax reform in the U.S. reduced the statutory tax rate to 21% for 2018, the effects of the lower rate were offset in part by the effects of increased nondeductible expenses and the global intangible low taxes income provisions which result in a certain amount of foreign earnings being subjected to U.S. tax.

Prior to implementing the tax reform provisions of the Act, we provided for U.S. federal income and non-U.S. withholding taxes on the earnings of our non-U.S. operations that are not considered to be permanently reinvested. Due to passage of the Act, dividendsDividends 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. As part of the annual effective tax rate, we recognized net expense of $2 and $2 in the first three months of 2018 and 2017 related to future income taxes and non-U.S. withholding taxes on repatriations from operations that are not permanently reinvested. We also paid withholding taxes of $3 and $2 during 2018 and 2017 related to the actual transfer of funds to the U.S. and transfers of funds between foreign subsidiaries.

Beginning in 2018, the Act may also trigger a taxable deemed dividend to the extent that the annual earnings of our foreign subsidiaries exceed a specified threshold, based on the value of tangible foreign operating assets. The deemed dividend, if any, from this global intangible low-taxed income (GILTI) may be offset by the use of other tax attributes. Staff Accounting Bulletin 118 (SAB 118), issued by the staff of the U.S. Securities and Exchange Commission in December 2017, provides up to one year for a company to make and disclose a policy election as to whether it is recognizing deferred taxes for basis differences expected to reverse as GILTI or recognizing the effect of GILTI as a period cost when incurred. We intend to finalize our GILTI accounting policy during the prescribed measurement period, but the policy was pending as of March 31, 2018. Accordingly, as permitted by SAB 118, we accounted for the tax effect of GILTI as a period cost and included an estimate for GILTI in our effective tax rate for the first quarter of 2018.

Note 18.19. Other Expense, Net 
 Three Months Ended 
 March 31,		 Three Months Ended 
 March 31,
 2018 2017 2019 2018
Non-service cost components of pension and OPEB costs $(3)
$(2) $(6)
$(3)
Government grants and incentives 2
 2
 3
 2
Foreign exchange loss (2) (2) (11) (2)
Strategic transaction expenses, net of transaction breakup fee income 1
 (11) (13) 1
Non-income tax legal judgment 6
  
Other, net 2
 2
 8
 2
Other expense, net $—
 $(11) $(13) $—
 


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 15 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 2019 were primarily attributable to the acquisition of ODS. Strategic transaction expenses in 2018 were more than offset by a $40 transaction breakup fee associated with our bid to acquire the driveline business of GKN plc. The breakup fee receivable is included in accounts receivable – other. We received the breakup fee in April 2018. Strategic transaction expenses in 2017 were primarily attributable to our acquisitions of BFP and BPT from Brevini and USM – Warren from USM.transaction. 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.

Note 19.20. 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 180 days.

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. Under prior accounting guidance rebate reserves were reflected as a reduction of accounts receivable - trade as rebates are generally net settled through the issuance of a credit to the customer's account. 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 1617 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 $11$17 and $9$12 at March 31, 20182019 and January 1,December 31, 2018. Contract liabilities are included in other accrued liabilities on our consolidated balance sheet.

Disaggregation of revenue —

The following table disaggregates revenue for each of our operating segments by geographical market:

  Three Months Ended March 31, 2018
  Light Vehicle Commercial Vehicle Off-Highway Power Technologies Total
North America $666
 $215
 $37
 $153
 $1,071
Europe 95
 72
 386
 119
 672
South America 43
 82
 7
 6
 138
Asia Pacific 146
 31
 62
 18
 257
Total $950
 $400
 $492
 $296
 $2,138


Three Months Ended 
 March 31, 2019		 Light Vehicle Commercial Vehicle Off-Highway Power Technologies Total
North America $660
 $253
 $58
 $141
 $1,112
Europe 91
 67
 407
 113
 678
South America 33
 75
 9
 5
 122
Asia Pacific 122
 36
 78
 15
 251
Total $906
 $431
 $552
 $274
 $2,163

Three Months Ended 
 March 31, 2018		          
North America $666
 $215
 $37
 $153
 $1,071
Europe 95
 72
 386
 119
 672
South America 43
 82
 7
 6
 138
Asia Pacific 146
 31
 62
 18
 257
Total $950
 $400
 $492
 $296
 $2,138

Note 20.21. Segments

We are a global provider of high-technology products to virtually every major vehicle and engine manufacturer in the world. We also serve the stationary industrial market. Our technologies include drive and motion products (axles, driveshafts, planetary hub drives, power-transmission products, tire-management products, transmissions, and transmissions)motors, power inverters and controls systems for electric vehicles); sealing solutions (gaskets, seals, heat shields, and fuel-cell plates); thermal-management technologies (transmission and engine oil cooling, battery and electronics cooling, and exhaust-gas heat recovery); and fluid-power products (pumps, valves, motors, and controls). We serve our global light vehicle, medium/heavy vehicle and off-highway markets through four operating segments – Light Vehicle Driveline Technologies (Light Vehicle), Commercial Vehicle Driveline Technologies (Commercial Vehicle), Off-Highway Drive and Motion Technologies (Off-Highway) and Power Technologies, 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 —
  2018 2017
Three Months Ended March 31, External Sales Inter-Segment Sales Segment EBITDA External Sales Inter-Segment Sales Segment EBITDA
Light Vehicle $950
 $33
 $103
 $761
 $29
 $89
Commercial Vehicle 400
 26
 34
 329
 23
 28
Off-Highway 492
 2
 72
 328
 

 45
Power Technologies 296
 5
 45
 283
 4
 50
Eliminations and other 

 (66) 

 

 (56) 

Total $2,138
 $—
 $254
 $1,701
 $—
 $212

Upon our adoption of ASU 2017-07 on January 1, 2018, we changed our measurement of segment profit to exclude the non-service cost components of pension and OPEB costs. See Note 1 for additional information on ASU 2017-07. Prior period segment EBITDA amounts have not been recast due to the insignificance of the adjustments. Had the prior period amounts been recast to conform with the current presentation, segment EBITDA for the first quarter of 2017 would have been $89 for Light Vehicle, $29 for Commercial Vehicle, $45 for Off-Highway and $51 for Power Technologies.

Prior to the third quarter of 2017, our Crossville, Tennessee distribution center rolled up within our Commercial Vehicle operating segment for purposes of inter-segment sales reporting. Beginning in the third quarter of 2017, the distribution center has been split between our Commercial Vehicle and Off-Highway operating segments. This change in management reporting has resulted in a decrease in the inter-segment sales reported by our Off-Highway operating segment. Prior period amounts have been recast to conform with the current presentation. This change in management reporting had no impact on segment reporting of external sales or segment EBITDA.


  2019 2018
Three Months Ended March 31, External Sales Inter-Segment Sales Segment EBITDA External Sales Inter-Segment Sales Segment EBITDA
Light Vehicle $906
 $36
 $102
 $950
 $33
 $103
Commercial Vehicle 431
 27
 41
 400
 26
 34
Off-Highway 552
 5
 82
 492
 2
 72
Power Technologies 274
 6
 34
 296
 5
 45
Eliminations and other 

 (74) 

 

 (66) 

Total $2,163
 $—
 $259
 $2,138
 $—
 $254

Reconciliation of segment EBITDA to consolidated net income —


Three Months Ended 
 March 31,
Three Months Ended 
 March 31,
 2018 2017 2019 2018
Segment EBITDA
$254

$212

$259

$254
Corporate expense and other items, net
(6)
(7)
(2)
(6)
Depreciation
(64)
(49)
(73)
(64)
Amortization of intangibles
(3)
(3)
Amortization (4) (3)
Non-service cost components of pension and OPEB costs (3)   (6) (3)
Restructuring
(1)
(2)
Restructuring charges, net
(9)
(1)
Stock compensation expense (4) (4) (5) (4)
Strategic transaction expenses, net of transaction breakup fee income
1

(11)
(13)
1
Acquisition related inventory adjustments 

 (6) (4) 

Non-income tax legal judgment 6
  
Other items 

 (1) (9) 

Earnings before interest and income taxes 174
 129
 140
 174
Interest expense
(24)
(27)
27

24
Interest income
3

3

2

3
Earnings before income taxes
153

105

115

153
Income tax expense
48

30

20

48
Equity in earnings of affiliates
6

5

6

6
Net income
$111

$80

$101

$111

Note 21.22. Equity Affiliates

We have a number of investments in entities that engage in the manufacture of vehicular parts – primarily axles, driveshafts, and wheel-end braking systems and motors, power inverters and controls systems for electric vehicles – supplied to OEMs.

As part of the ODS acquisition, we acquired an ownership interest in Ashwoods Innovations Ltd. The minority shareholders in this entity have substantive participating rights that allow them to effectively participate in the decisions made in the ordinary course of business that are significant to its operations. Due to these factors, we do not have control over this entity and therefore account for this investment under the equity method of accounting. Our equity method investment in Ashwoods Innovations Ltd. is included in the net assets of our Off-Highway operating segment.



Equity method investments exceeding $5 at March 31, 20182019 — 

 
Ownership
Percentage
 Investment
Dongfeng Dana Axle Co., Ltd. (DDAC)50% $104
Bendix Spicer Foundation Brake, LLC20% 45
Axles India Limited48% 9
Taiway Ltd.14% 6
All others as a group  5
Investments in equity affiliates  169
Investments in affiliates carried at cost  2
Investments in affiliates  $171
Summarized financial information for DDAC — 
  Three Months Ended 
 March 31,
  2018 2017
Sales $247
 $190
Gross profit $26
 $24
Earnings before income taxes $6
 $8
Net income $5
 $7
Dana's equity in earnings of affiliate $2
 $3
 
Ownership
Percentage
 Investment
Dongfeng Dana Axle Co., Ltd. (DDAC)50% $99
Prestolite E-Propulsion Systems Limited (PEPS)50% 48
Bendix Spicer Foundation Brake, LLC20% 47
Axles India Limited48% 10
Ashwoods Innovations Ltd.58% 9
Taiway Ltd.28% 5
All others as a group  6
Investments in equity affiliates  224
Investments in affiliates carried at cost  2
Investments in affiliates  $226



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 and engine manufacturer in the world. We also serve the stationary industrial market. Our technologies include drive and motion products (axles, driveshafts, planetary hub drives, power-transmission products, transmissions, electric motors, inverters, controls and tire-management products, and transmissions)products); sealing solutions (gaskets, seals, heat shields, and fuel-cell plates); thermal-management technologies (transmission and engine oil cooling, battery and electronics cooling, and exhaust-gas heat recovery); and fluid-power products (pumps, valves, motors, and controls). We serve our global light vehicle, medium/heavy vehicle and off-highway markets through four business units – Light Vehicle Driveline Technologies (Light Vehicle), Commercial Vehicle Driveline Technologies (Commercial Vehicle), Off-Highway Drive and Motion Technologies (Off-Highway) and Power Technologies, which is the center of excellence for sealing and thermal-management technologies that span all customers in our on-highway and off-highway markets. We have a diverse customer base and geographic footprint, which minimizes our exposure to individual market and segment declines. At March 31, 2018,2019, we employed approximately 31,20037,100 people, operated in 33 countries and had 139145 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 March 31, 20182019 and 20172018 are as follows:

 Three Months Ended March 31, Three Months Ended March 31,
 2018 2017 2019 2018
   % of   % of   % of   % of
 Dollars Total Dollars Total Dollars Total Dollars Total
Light Vehicle $950
 44.4% $761
 44.8% $906
 41.9% $950
 44.4%
Commercial Vehicle 400
 18.7% 329
 19.3% 431
 19.9% 400
 18.7%
Off-Highway 492
 23.0% 328
 19.3% 552
 25.5% 492
 23.0%
Power Technologies 296
 13.9% 283
 16.6% 274
 12.7% 296
 13.9%
Total $2,138
   $1,701
   $2,163
   $2,138
  

See Note 2021 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

OurDana has refined the company’s enterprise strategy buildsto build on our strong technology foundation and leveragesleverage our resources across the organization while maintainingto position us for a customer centric focus, expanding our global markets, and accelerating the commercializationprofitable growth trajectory. The strategy is composed of new technology as we evolve into the era of vehicle electrification.five core pillars.

Central to our strategy is leveragingLeveraging Our Core,which focuses on utilizing our core operations bycapabilities in power conveyance, thermal management, and mechatronics across all three mobility markets to deliver a sustainable competitive advantage. This enables us to accelerate our speed of innovation through knowledge sharing our capabilities, technology, assets and knowledge across the enterprise, leadingand to improved executionrealize cost efficiencies delivered through shared core technologies. It also magnifies our investments by utilizing shared research and increased customer satisfaction. Through streamlining and rationalizing our manufacturing activities we have significantly improved our profitability and margins, and we believe additional opportunities remain to further optimize our manufacturing footprint and improve our cost performance. Leveraging investments across multiple end markets and making disciplined, value enhancing acquisitions will allow us to bring product to market faster, grow our top-line sales and enhance financial returns.development.

Strengthening customer centricity and expanding global markets are key elements of our strategy that focus on market penetration. Foundational to growing the business is directing the entire organization to putting the customer at the center of our value system and shifting from transactional to relationship-based interactions. These relationships are built on a foundation of providing unparalleled technology with exceptional quality, delivery and value. With even stronger relationships we will be better positioned to support our customers’ most important global and flagship programs and capitalize on future growth opportunities.

We continue to enhance and expand our global footprint, optimizing it to capture growth across all of our end markets. Specifically, our manufacturing and technology center footprint positions us to support customers globally – an important factor as many of our customers are increasingly focused on common solutions for global platforms. Our acquisition of the Brevini operations in 2017 (see Acquisitions section below) provided us with operational presence in eight additional countries, while also providing us with additional opportunities to leverage our global footprint to support the needs across all our businesses. Shortly following the acquisition, we were able to consolidate certain Brevini activities in China, allowing us to utilize an acquired facility to support our Power Technologies business in China.

While growth opportunities are present in each region of the world, we have a primary focus on building our presence and local capability in the Asia Pacific region. Over the last few years, we have opened two new engineering facilities in the region, gear manufacturing facilities in India and Thailand, and are currently developing a new light vehicle assembly facility in China that is scheduled to commence operations in 2018.

In addition to Asia, we see further growth opportunity in Eastern Europe. A new gear manufacturing facility in Hungary is under construction and scheduled to commence operations in the first half of 2018. This will be our third facility in the country and will give us the capability to cost effectively manufacture gears, one of our core technologies, and efficiently service our customers within the region.

The final two elementsstrategy also emphasizes Driving Customer Centricity, which has positioned us to win more than our fair share of drive systems business across all three mobility markets. As our enterprise strategy, commercializing new technologyOEM customers are faced with redeploying capital toward the emerging megatrends of mobility, autonomous driving, and accelerating hybridization and electrification,digitization to remain competitive, our focus on opportunities for product expansion. Bringing new innovations to market as industry leading products will drive growth as our new products and technology provide our customers with cutting-edge solutions, address end user needs and capitalize on key market trends. An example is our industry leading electronically disconnecting all-wheel drive technology, which we believe is the most fuel efficient rapidly disconnecting system in the market, will be utilized on a Ford Motor Company global vehicle platform – opening up new commercial channels for us in the passenger car, crossover and sport utility vehicle markets. The above-referenced new assembly facility under construction in China will support this new program.driving customer centricity yields more OEM outsourcing opportunities.

We are also investing in capabilities to drive growth in Asia-Pacific to Expand Global Markets in the region with the highest growth rates and earliest electrification adoption. Focusing on Asia Pacific represents a significant opportunity to gain a fair share in the world’s largest mobility market.

We continue to focus on Delivering Innovative Solutions that allow us to capitalize on secular growth trends, such as engine downsizing, while driveline enhancements offer significant opportunities to expand our addressable market as physical products evolve toward digital solutions. Delivering innovative solutions yields market expansion and higher content per vehicle.

Initiatives to capitalize on evolving hybridization and electrification vehicle trends are a core ingredient of our current strategy.final enterprise strategy element, Lead Electric Propulsion. Our efforts are focused on developing and delivering fully integrated e-Propulsion systems to capture opportunities to double content per vehicle as our core markets shift from internal combustion engines to electric propulsion. In addition to our current technologies in battery cooling and fuel cells, this element of our strategy is leveraging our electronics controlsdeep expertise across all our business units and applications such as advanced vehiclein driveline technology to enable the hybridization and electrification initiatives.of our core markets. We are working with our customers to develop new solutions for those markets where electrification will be adopted first such as hybrids,hybrid applications, buses, and urban delivery vehicles. These new solutions, which include advanced electric propulsion systems with fully integrated motors and controls, are included in our recently launched Spicer® Electrified™ portfolio of products. Working with our joint venture partner, our latest integrated e-axlee-Axle was launched during the first quarter of 2018 in a bus application in China. Our investment in SME in January 2019 and TM4 in June 2018 (see Acquisitions section below) adds electric motors, power inverters, and control systems to our product portfolio, enhancing our range of hybrid and electric vehicle solutions for customers across all three of our end markets. Electrification creates significant opportunityin driveline applications.


The development and implementation of our enterprise strategy is positioning Dana to grow profitably due to our increased customer focus as we leverage our core capabilities, expand into new markets, develop and commercialize new technologies including for hybrid and electric vehicles.continue to lead in vehicle electrification.

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. Over the past five years, we returned $1,481 of cash to shareholders by redeeming all of our preferred stock and repurchasing common shares. From program inception in 2012 through December 31, 2017, we repurchased approximately 74 million shares, inclusive of the common share equivalent reduction resulting from redemption of preferred shares. With the availability under the previous authorization having expired, ourOur Board of Directors authorized a new $100$200 share repurchase program which was effective Januaryin 2018 andwhich expires at the end of 2019. The shareThrough the first quarter of 2019, we have used cash of $50 to repurchase authorization was increased to $200 in March 2018.common shares under the current program. We declared and paid quarterly common stock dividends over the past five years, raising the dividend from five cents to six cents per share in the second quarter of 2015.and a half years. In recognition of our strong financial performance and confidence in our financial outlook, our Board approved an additional four cents per share increase in the quarterly dividend to ten cents per share in 2018.

Financing actions — We have taken advantage of the lower interest rate environment to complete refinancing transactions in each of the past four years that resulted in lower effective interest rates while extending maturities. In 2017, we completed a $400 2025 note offering and entered into a $275 floating rate term loan. The proceeds of these issuances were used to repay higher cost international debt and to repay $450 of 2021 notes. In connection with amendingDuring the first quarter of 2019, we expanded our credit agreementand guaranty agreement. We entered into $675 of additional floating rate term loans to effectuatefund the term loan, we also increasedODS acquisition (see Acquisitions section below) and up sized our revolving credit facility by $100, providing us with $600 of back-up liquidity through 2022.to $750. Additionally, in 2017 we commenced the process of terminating one of our U.S. pension plans. This action allows us to effectively eliminate pension obligations for the terminated plan and the associated future funding risk associated with interest rate and other market developments. We expect the termination action to be completed in 2019.

Other Initiatives

Aftermarket opportunities — We have a global group dedicated to identifying and developing aftermarket growth opportunities that leverage the capabilities within our existing businesses – targeting increased future aftermarket sales. In January 2016, we completed the acquisition of Magnum® Gaskets' (Magnum) aftermarket distribution business, providing us access to new customers for sealing products and an additional aftermarket channel for other products. Powered by recognized brands such as Dana®, Spicer®, Victor Reinz®, Glaser®, GWB®, Thompson®, Tru-Cool®, SVL®, and Transejes™, Dana delivers a broad range of aftermarket solutions – including genuine, all makes, and value lines – servicing passenger, commercial and off-highway vehicles across the globe.

Selective acquisitions — Although transformational opportunities like the GKN plc driveline business transaction that we pursued this past quarterin 2018 will be considered when strategically and economically attractive, our acquisition focus is principally directed at “bolt-on” or adjacent acquisition opportunities that have a strategic fit with our existing core businesses, particularly opportunities that support our enterprise strategy and enhance the value proposition of our product offerings. Any potential acquisition will be evaluated in the same manner we currently consider customer program opportunities and other uses of capital – with a disciplined financial approach designed to ensure profitable growth and increased shareholder value.

Re-focusing advanced technology resources — When we obtained Variglide® planetary variator technology through an acquisition in 2012, the intended market focus was continuously variable transmissions for combustion engine vehicle applications. During the second quarter of 2018, with potential key customers for this technology shifting their focus to electrification and other areas, we determined that it was appropriate to fully impair the related $20 in-process research and development intangible asset that was recorded as part of the 2012 acquisition.

Acquisitions

USM – WarrenOerlikon Drive Systems — On March 1, 2017,February 28, 2019, we completedacquired the purchase of Warren Manufacturing LLC (USM – Warren), which holds certain assets and liabilitiesOerlikon Drive Systems (“ODS”) segment of the former Warren, Michigan production unitOerlikon Group. Oerlikon Drive Systems is a global manufacturer of U.S. Manufacturing Corporation (USM). With this transaction, we acquired proprietary tube-manufacturing processeshigh-precision gears, planetary hub drives for wheeled and light-weighting intellectual property for axle tubestracked vehicles, and shafts. Significant content was previously purchased from USM. Vertically integrating this content strengthensproducts, controls, and software that support vehicle electrification across the supply chain for several of our most strategic customers.mobility industry. The new productbusiness employs approximately 5,900 people and process technologies for light-weighting will assist our customersoperates 10 manufacturing and engineering facilities in achieving their sustainabilityChina, India, Italy, the United Kingdom, and fuel efficiency goals. The USM – Warren acquisition added $96 of sales and $12 of adjusted EBITDAthe United States, with two additional facilities under construction in 2017.China. The results of operations of


Oerlikon Drive Systems will be reported in our Off-Highway operating segment from the USM – Warren business are reported within our Light Vehicle operating segment.date of acquisition. The ODS acquisition added $75 of sales and $11 of adjusted EBITDA during the first quarter of 2019.

We paid $104 for this business$626 at closing, including $25 to effectively settle trade payable obligations originating from product purchases Dana made from USM prior to the acquisition. No debt was assumed with this transaction which was primarily funded


using cash on hand. Post-closing purchase price adjustments for working capital and other items, which totaled less than $1, were received in last year's third quarter. through debt proceeds. Reference is made to Note 2 of the consolidated financial statements in Item 1 of Part I for the allocation of purchase consideration to assets acquired and liabilities assumed.

BFP and BPTSME — On February 1, 2017,January 11, 2019, we acquired 80%a 100% ownership interestsinterest in Brevini Fluid Powerthe S.M.E. S.p.A. (BFP)(SME). SME designs, engineers, and Brevini Power Transmission S.p.A. (BPT) from Brevini Group S.p.A. (Brevini).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. The SME acquisition expands our Off-Highway operating segment product portfolio to include technologies for tracked vehicles, doubling our addressable market for off-highway driveline systems and establishing Dana as the only off-highway solutions provider that can manage the power to both move the equipment and perform its critical work functions. This acquisition also brings a platform of technologies that can be leveraged in our light and commercial vehicle end markets, helping to accelerate our hybridization and electrification initiatives. The BFP and BPT acquisitions added $401$6 of sales and $40 ofde minimis adjusted EBITDA in 2017. The resultsduring the first quarter of operations of these businesses are reported within our Off-Highway operating segment.2019.

We paid $181$88 at closing, usingconsisting of $62 in cash on hand and assumed debta note payable of $181$26 which allows for net settlement of potential contingencies as part of the transaction. In December 2017, a purchase price reduction of $9 was agreed under the sale and purchase agreement provisions for determination of the net indebtedness and net working capital levels of BFP and BPT as of the closing date. In connection with the acquisition of BFP and BPT, Dana agreed to purchase certain real estate currently being leased by BPT from a Brevini affiliate for €25 by November 1, 2017. Purchase at this date did not occur due to document transfer requirements not having been fully satisfied. Receipt ofdefined in the purchase price adjustment will occur concurrent with the completionagreement. The note is payable in five years and bears annual interest of the real estate purchase during the second quarter of 2018.5%. Reference is made to Note 2 of the consolidated financial statements in Item 1 of Part I for the allocation of purchase consideration to assets acquired and liabilities assumed. The terms of the agreement provide Dana the right to call Brevini's noncontrolling interests in BFP and BPT, and Brevini the right to put its noncontrolling interests in BFP and BPT to Dana, assuming Dana does not exercise its call rights, at dates and prices defined in the agreement.

SIFCOTM4 —On December 23, 2016,June 22, 2018, we acquired strategic assetsa 55% ownership in TM4 Inc. (TM4) from Hydro-Québec. TM4 designs and manufactures motors, power inverters and control systems for electric vehicles, offering a complementary portfolio to Dana's electric gearboxes and thermal-management technologies for batteries, motors and inverters. The transaction establishes Dana as the only supplier with full e-Drive design, engineering and manufacturing capabilities – offering electro mechanical propulsion solutions to each of the commercial vehicle steer axle systemsour end markets. TM4's technology and related forged components businesses of SIFCO. The acquisition enables usadvanced manufacturing facility in Boucherville, Quebec will add to our global technical centers, and their 50% interest in a China joint venture provides an opportunity to enhance our vertically integrated supply chain, which will further improve our cost structure and customer satisfaction by leveraging SIFCO's extensive experience and knowledge of sophisticated forged components. In addition to strengthening our position as a central sourcein the fastest growing market for products that use forged and machined parts throughout the region, this acquisition enables us to better accommodate the local content requirements of our customers, which reduces their import and other region-specific costs.

As partelectric vehicles. Inclusive of the joint venture, TM4 has approximately 140 employees. Dana is consolidating TM4 as the governing documents provide Dana with a controlling financial interest. The TM4 acquisition we added two manufacturing facilities$11 of sales and approximately 1,400 employees. The strategic assets were acquired by Dana free and clear of any liens, claims or encumbrances and without assumption of any legacy liabilities of SIFCO. We had sales of $86de minimis adjusted EBITDA in 2016 resulting from business conducted under the previous supply agreement with SIFCO. The additional business relationships obtained as a result of the acquisition generated incremental sales of $44 in 2017.2018. The results of operations of the SIFCO relatedTM4 business are reported withinin our Commercial Vehicle operating segment.segment from the date of acquisition.

The SIFCO purchase priceCash on hand of $125 was $70, withused to acquire the payment of $10interest in TM4. Reference is made to Note 2 of the consolidated financial statements in Item 1 of Part I for the allocation of purchase price deferred until December 2017 pending any claims under indemnification provisions of the purchase agreement. In December 2017, the partiesconsideration to the SIFCO transaction entered into a settlement agreement whereby $3 was paid to the seller with the remaining deferred purchase price of $7 being retained by Dana to settle indemnification claims. After the settlement of all indemnification claims, any remaining deferred purchase price will be paid to the seller.assets acquired and liabilities assumed.

Divestitures

Brazil Suspension Components Operations — In December 2017, we entered into an agreement to divest our Brazil suspension components business (the disposal group). This business iswas non-core to our enterprise strategy and under-performing financially. WeAs such, we agreed to divest the business for no consideration and contribute $10 of additional cash to the business prior to closing. We also agreed to enter into a supply agreement whereby Dana will purchase specified components to satisfy customer requirements fromclassified the purchaser of the divested business at market prices. The disposal group was classified as held for sale at December 31, 2017. We recognized2017, recognizing a pre-tax$27 loss of $27 in the fourth quarter of 2017 to adjust the carrying value of the net assets to fair value and to recognize the liability for the additional cash required to be contributed to the business prior to closing. During the first quarter of 2018, we made the required cash contribution of $10 was made to the disposal group. At present, we have not completed the sale. In the event that we areAfter being unable to complete athe transaction with the counterparty to the existing saleDecember 2017 agreement, we intend to pursue a saleentered into an agreement with another third party in June 2018. The transaction with the new counterparty closed in July 2018 and we received cash proceeds of $2. We reversed $3 of the business to other interested parties. previously recognized $27 pre-tax loss, inclusive of the proceeds received in July 2018, during the second quarter of 2018. Reference is made to Note 3 of our consolidated financial statements in Item 1 of Part I for additional information including the carrying amounts of the major classes of assets and liabilities of the disposal group held for sale at March 31, 2018.. Sales of the divested business being divested approximated $23 in 2017.2017 and $12 in 2018 through the date of sale.



Dana Companies —On December 30, 2016, we completed the divestiture of Dana Companies, LLC (DCLLC), a consolidated wholly-owned limited liability company that was established as part of our reorganization in 2008 to hold and manage personal injury asbestos claims retained by the reorganized Dana Corporation, which was merged into DCLLC. The assets of DCLLC at time of sale included cash and marketable securities along with the rights to insurance coverage in place to satisfy a significant portion of its liabilities. We received net cash proceeds of $29 at closing on December 30, 2016, with $3 retained by the purchaser subject to the satisfaction of certain future conditions. We recognized a pre-tax loss of $77 in 2016 upon completion of the transaction. We received payment of the retained $3 in the second quarter of 2017 and recognized such amount as income. Following completion of the sale, Dana has no obligation with respect to current or future asbestos claims. The sale of this business also enhanced our available liquidity since the net proceeds from the sale were available for use in our core businesses.

Trends in Our Markets

Global Vehicle Production (Full Year) 


 
Actual

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



 

 




 

 
Light Truck (Full Frame)4,100
to4,400
4,331

4,220
4,275
to4,575
4,474

4,331
Light Vehicle Engines14,800
to15,100
14,828

15,913
14,700
to15,000
15,332

14,828
Medium Truck (Classes 5-7)245
to255
246

233
265
to275
270

246
Heavy Truck (Class 8)300
to320
255

228
325
to345
320

255
Agricultural Equipment50
to60
54

53
50
to60
56

54
Construction/Mining Equipment170
to180
157

150
175
to185
176

157
Europe (including Eastern Europe) 
 
 

 
 
 
 

 
Light Truck10,600
to10,900
10,276

9,306
10,500
to11,500
10,720

10,276
Light Vehicle Engines24,700
to25,200 24,096
 23,287
23,000
to23,500 23,098
 24,096
Medium/Heavy Truck480
to495
486

463
505
to520
506

486
Agricultural Equipment200
to215
202

193
200
to215
204

202
Construction/Mining Equipment340
to355
309

290
350
to370
351

309
South America 
 
 

 
 
 
 

 
Light Truck1,300
to1,500
1,235

980
1,300
to1,500
1,296

1,235
Light Vehicle Engines2,900
to3,000 2,412
 2,112
2,800
to2,900 2,797
 2,412
Medium/Heavy Truck95
to105
89

70
115
to125
113

89
Agricultural Equipment30
to35
33

29
30
to35
34

33
Construction/Mining Equipment8
to12
9

10
8
to12
9

9
Asia-Pacific 
 
 

 
 
 
 

 
Light Truck29,800
to31,000
29,495

27,465
29,800
to31,000
29,527

29,495
Light Vehicle Engines52,500
to53,500 52,543
 50,533
51,700
to52,700 52,293
 52,543
Medium/Heavy Truck1,850
to2,050
2,039

1,661
1,900
to2,100
2,004

2,039
Agricultural Equipment640
to670
653

648
640
to670
653

653
Construction/Mining Equipment485
to505
441

396
480
to500
495

441

North America

Light vehicle markets — Improving economic conditions during the past few years have contributed to strong light vehicle sales and production levels in North America. Overall economic conditions in North America have been relatively favorable with improving employment levels, strong consumer confidence levels and comparatively low/stable fuel prices. Strong sales levels the past few years have significantly reduced the built-up demand to replace older vehicles. As such, the overall North America light vehicle market began to show signs of weakening demand levels in 2017, with total light vehicle sales declining about 2% from 2016.2017. To date, these effects have been most notable in passenger car sales which declined about 5%9% in 20162017 and another 9%11% in 2017.2018. Light vehicle sales for the first quarter 2019 declined 5% compared to the first quarter of 2018, were comparable with 2017, with higherpassenger car sales down 10% and light truck sales being offset by lower passenger car sales. Helped by continued low fuel prices, light truck market demand has been relatively strong.down 2%. In the full frame light truck segment where many of our programs are focused, sales increased about 6%3% in 20162017 and another 3% in 2017.2018. Full frame truck sales for the first three months of 20182019 were comparable with 2017.down 2% compared to the first three months of 2018. Production levels have generally been reflective of light vehicle sales. ProductionLight vehicle production of approximately 17.8 million light vehicles in 2016 declined


about 4% to 17.1 million units in 2017 was down 4% from 2016. Light vehicle production of 17.0 million units in 2018 was comparable to 2017. LightAfter being down 7% in 2017, light vehicle engine production was impacted more by the developmentsincreased 3% in the passenger car segment, with production in 2017 declining about 7% versus 2016 after increasing 3% year-over-year in 2016.2018. Light vehicle engine production in this year's first quarter was down about 4%slightly compared with the first quarter of 2017.2018. In the key full frame light truck segment, production levels in 20172018 increased about 3%4% compared to 20162017 following an increase of 7%3% in 20162017 from the preceding year. First quarter 2018First-quarter 2019 full frame light truck production was flat compared todown slightly from the same period of 2017. Days’2018. Days' supply of total light vehicles in the U.S. at the end of March 201831, 2019 was around 68 days, up from 61 days at the end of December 20172018 and lower than the 72 days level atcomparable with the end of March 2017.2018. In the full frame light truck segment, inventory levels were 8093 days at the end of March 2018,2019, up from 6472 days at the end of December 2017 but lower than the 832018 and 85 days of sales at the end of March 2017.2018.

We expect the generally strongThe North America economic climatelight truck markets are expected to continue fordecline in 2019, with the remaindereffect of 2018, albeit there is some current uncertainty surrounding the potential effects of trade policiesstable manufacturing and practicesconstruction environments being implemented or consideredoffset by the existing government leadership in the United States. Increasingimpact of rising interest rates, highless pent-up demand, increasing demand for used vehicles and higher levels of consumer debt and declining used car prices are also developments that could constrict future demand fordebt. We expect Dana sales to continue to benefit from our net new vehicles. On balance, we expect North America light vehiclebusiness backlog as


additional key customer programs commence production in 2018 to be stable and at levels comparable to or modestly higher2019, more than 2017.offsetting lower overall light truck demand. Our full year 2018 outlook for full frame light truck and light vehicle engine production of 14.8 to 15.1 million units, which is flat to up 2% compared with 2017, is unchanged from February 2018. The2019. Our outlook for 2019 has full frame light truck segment continuesproduction at 4.3 to show relative strength. As such, we have increased our4.6 million vehicles, up 2% to down 5% compared with 2018 production outlook slightlyof about 4.5 million vehicles. We expect light vehicle engine production in 2019 to 4.1be 14.7 to 4.415.0 million units, a decline of 5%down 2 to increase of 2% from last year.4% compared to 2018.

Medium/heavy vehicle markets — The commercial vehicle market is similarly impacted by many of the same macroeconomic developments impacting the light vehicle market. Production levels in the heavy truck segment were scaled back in 2016 in response to there being more trucks in service than required for freight demand. Class 8 production in 2016 declined 29% from 2015 while medium duty Classes 5-7 production was relatively stable. With the improving economyeconomic conditions in 2017 and scaled down build in 2016, there was increased freight-hauling demand and a strengthening order book for new trucks. Class 8 unit production was up about 12% from 2016 while medium-duty production was about 6% higher. Strong demand continued into 2018, with Class 8 production up 25% and medium-duty truck production being up 10% compared to 2017. As expected, strong demand has continued into 2018,2019, with first quarter 2018first-quarter 2019 Class 8 production being up 47%20% and medium-duty truck production being up 1%6% compared to the same period of 2017.2018.

With continued strengthening of the North American economy, freight demand and truck orders, we have increased our full year 20182019 production outlook for Class 8medium-duty trucks to 300,000265,000 to 320,000275,000 units, up from our February 2019 outlook of 290,000255,000 to 310,000265,000 trucks. At the current outlook, Class 8medium-duty production in 20182019 is expected to be 18down 2% to 25% higher than 2017.up 2% compared with 2018. In the medium dutyheavy-duty segment, our production outlook is unchanged at 245,000325,000 to 255,000345,000 vehicles, comparableup 2 to up 4%8% from 2017.2018.

Markets Outside of North America

Light vehicle markets — Signs of an improved overall European economy have been evident, albeit mixed at times, during the past few years. Reflective of a modestly improved economy, light vehicle production levels have increased with light vehicle engine production being up about 3% in both 2016 and 2017, and light truck production being higher by 9 to 10% in each of the past two years.2016 and 2017. Overall market stability continued in the first three months of 2018 as light vehicle engine production was comparable with last year's first quarterdown 4% and light truck production was up about 8%4%. The United Kingdom's decision to withdraw from the European Union, along with political developments in other European countries, hascontinues to cast an element of uncertainty around continued economic improvement in the region. Light vehicle engine production was down 4% and light truck production was down 1% from last year's first quarter. At present, while we continue to expect overall stable to improving economic conditions across the entire region in 2018.2019, we have lowered our 2019 outlook. Our current full year 20182019 outlook for light vehicle engines andexpects light truck production is unchanged from February, withto be down 2% to up 7% and light vehicle engine production levels expected to be flat to up 3 to 5% over2% from 2018. The economic climate in many South American markets the past few years has been weak, volatile and challenging. After significant production declines in 2014 and 2015, there were signs that demand levels had bottomed out in 2016. Production levels in 2017 and light truck production for the year expected to be about 3 to 6% higher. After several years of economic weakness in the South America markets, indicators2018 were reflective of an improving economy were evident in 2017market, with light vehicle engine production up about 14% compared to 2016and 16% and light truck production higher by aboutup 26%. Continued overall market improvement is expected in 2018. and 7%, respectively. This year's first quarter light vehicle engine and light truck production levels were up about 15% and 19% fromflat with last year. At present, while we expect further economic recovery in the first quarter of 2017. Weregion in 2019 we have increasedlowered our full year outlook for light vehicle engine builds whileproduction outlook from that provided in February 2019. Our current full year 2019 outlook has light truck production is unchangedflat to up 16% from February 2018. Full-year2018, with light vehicle engine build is expectedproduction flat to be 20up 4% compared to 24% higher than 2017, with light truck production being up 5 to 21%.2018. The Asia Pacific markets have been relatively strong the past few years. Light truck production increased 14% in 2016 and was up another 7% in 2017, while light vehicle engine production increased 7% in 2016 and another 4% in 2017. Overall marketsProduction leveled off in the region are expected to be relatively stable in 2018. First quarter 2018, with both light truck and light vehicle engine build down 1% whileproduction being flat compared to 2017 levels. First-quarter 2019 light vehicle engine and light truck production was about the same when compared with last year's first quarter. Ourwere both down 7%, reflecting a potential weakening of China's economy. We have reduced our full year 20182019 outlook for the Asia Pacific light vehicle markets, remains unchanged, with light truck production expected to benow being up 1 to 5% higher than 2017 and light vehicle engine production expected to be comparablebeing down 1% to up 2%1% from last year.2018.

Medium/heavy vehicle markets — Some of the same factors referenced above that affected light vehicle markets outside of North America similarly affected the medium/heavy markets, albeit with improvements in the medium/heavy truck market


being a little slower to manifest. Signs of amarkets. A strengthening European market emerged in 2016 and 2017 withthe past three years contributed to medium/heavy truck production increasing 7% in 2016, and 5% in 2017. A stable, slightly improving market continued2017 and another 4% in this year's first quarter with2018. First-quarter 2019 production increasing about 1% compared withincreased 5% over the same period last year.of 2018. Our 2019 full year outlook remains unchanged, reflectinganticipates continued strong 2018 medium/heavy truck production at levels that arerelatively comparable with last year.2018 and is unchanged from February 2019. A weakening South America economic climate contributedbeginning in 2014 led to a significant decline in medium/heavy truck production declining 20% in 2015 and 2016. As with the light vehicle markets, improving economic conditions in the region helped drive a rebound in full-year 2017led to medium/heavy truck production toincreasing 27% in 2017 and an increase of 28% compared to 2016. Continued market recovery in the region is expectedadditional 27% in 2018. This year's first quarterFirst-quarter 2019 production was up 2% from 2018. We currently expect economic conditions to be relatively stable to modestly improved in 2019 and have increased our full-year outlook with medium/heavy truck production was 44% higher than the first three months of 2017 as the market was only beginningbeing up 2 to rebound in last year's first quarter. With production over the remainder of the year expected11% compared to remain comparable to levels in the second half of 2017 and first quarter of this year, we increased our full year 2018 medium/heavy truck production outlook for the region slightly, with full year production now expected to be up 7 to 18% from 2017.2018. A stronger than expected China market and an improving India market contributed to an increaseincreases in medium/heavy truck production in the Asia Pacific region of about 20% in 2016 and another 23% in 2017. Production levels in 2017 were driven partly by China regulatory changes in China limiting axle load and weight. With some pre-buy in 2017


having likely occurred during the second half of 2017 as a result of the China regulatory actions, 2018 medium/heavy truck production is expected to be comparable towas down slightly2% from 2017. Production in this year's first quarter was up more than 15%2% from the first three months of 2017, however that level of build is not expected to continue over2018, indicating the remainder of the year.anticipated production decline resulting from modal transportation shifts and technology advances putting downward pressure on medium/heavy truck demand in 2019 may be somewhat more modest than originally anticipated. Our current full year 2018revised full-year 2019 outlook now reflects a more stable market with medium/heavy truck production outlook for the Asia Pacific region is unchanged, with production expectedbeing down 5% to be comparable to down 9% compared with 2017.up 5% from 2018.

Off-Highway Markets — Our off-highway business has a large presence outside of North America, with more than 75% of its sales coming from Europe and more than 10% from South America and Asia Pacific combined. We serve several segments of the diverse off-highway market, including construction, agriculture, mining and material handling. Our largest markets are the
construction/mining and agricultural equipment segments which had been relatively weak for several years until beginning to rebound in 2017. Global demand in the agriculture market was down about 11% in 2014, 7% in 2015 and 5% in 2016. The construction/mining segment weakened about 4% in 2014, 11% in 2015 and 3% in 2016. WithThese markets began to rebound in 2017 along with general economic recovery in several global markets, and in particular the European markets where this segment has a significant presence. During 2017, global production levels in the construction/mining and agriculture segments increased by about 8% and 2%. The uplift in market demand last year,continued in 2018 with global production in 2017 was up about 2% in the agriculture segment and up 8%levels in the construction/mining segment when compared to the previous year.and agriculture segments increasing an additional 13% and 1%, respectively. With generally stable to improving economic conditions in all regions, further strengthening ofcontinued strong demand is expected in 2018, particularly2019. With China's construction/mining and agriculture segments showing signs of flat to declining sales for 2019, we have lowered our outlook for the Asia-Pacific region. Our current 2019 outlook, inclusive of the lower outlook for the Asia-Pacific region, has production in the construction/mining market segment. We have reduced our full year 2018 outlook for the agriculture segment with global demand now expected to be down 2% to up 4%3% and the agriculture segment being down 3% to up 3% from 2017. Our February outlook for the construction/mining market segment had demand increasing 1 to 7% over last year. We have revised that outlook to reflect current expectations that global construction/mining demand will be up about 9 to 15% compared to 2017.2018.

Foreign Currency

With about 55%56% of our sales coming from outside the U.S., international currency movements can have a significant effect on our sales and results of operations. The euro zone countries and Brazil accounted for 46% and 9% of our 2018 non-U.S. sales, respectively, while Thailand, Mexico and China each accounted for approximately 44%, 8%, 8%, 7% and 7% of our non-U.S. sales in 2017.. Although sales in Argentina and South Africa wereare each less than 5% of our non-U.S. sales, exchange rate movements of those countries have been volatile and significantly impacted sales from time to time. Translation of our international activities at average exchange rates in 2016 as compared to average rates in 2015 reduced sales by $173. A weaker Argentine peso, British pound, Mexican peso, South African rand and Brazilian real reduced sales by $70, $23, $19, $18 and $11, while the euro was relatively stable in 2016. International currencies strengthened against the U.S. dollar in 2017, increasing 2017 sales by $54. A stronger euro, Brazilian real, Thai baht and South African rand more than offset a weaker Argentine peso. Further overall strengthening ofOverall international currencies is currently expectedcontinued to increasestrengthen against the U.S. dollar in 2018, with sales in 2018. Strongerincreasing 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 for this year's first quarter as compared to exchange rates in the first quarter of 2017 increased2018 decreased sales by $88,$78, with the euro providing $67and the Brazilian real accounting for $39 and $14 of the increase.decrease, respectively. Based on our current sales and exchange rate outlook for 2018,2019, we expect overall strongerstability in international currencies with a modest reduction to increase sales by about $150.sales. At sales levels in our current outlook for 2018,2019, a 5% movement on the euro would impact our annual sales by approximately $110.$125. A 5% change on the Brazilian real, British pound, Thai baht, Mexican peso, Chinese renminbi, British pound and Indian rupee and Chinese yuan rates would impact our annual sales in each of those countries by approximately $10 to $20.

During the second quarter of 2018, we determined that Argentina's economy met the GAAP definition of a highly inflationary economy. In assessing Argentina's economy as highly inflationary we considered its three-year cumulative inflation rate along with other factors. As a result, effective July 1, 2018, the U.S. dollar is the functional currency for our Argentine operations, rather than the Argentine peso. Beginning July 1, 2018, peso-denominated monetary assets and liabilities are remeasured into U.S. dollars using current Argentine peso exchange rates with resulting translation gains or losses included in results of operations. Nonmonetary assets and liabilities are remeasured into U.S. dollar using historic Argentine peso exchange rates.

International Markets

Trade actions initiated by the U.S. imposing tariffs on imports have been met with retaliatory tariffs by other countries, adding a level of tension and uncertainty to the global economic environment. In November 2018, the U.S., Mexico and Canada executed the U.S.-Mexico-Canada Agreement (USMCA), the successor agreement to the North American Free Trade Agreement. The draft agreement submitted for ratification includes the imposition of tariffs on vehicles that do not meet regional raw material (steel and aluminum), part and labor content requirements. These and other actions are likely to impact trade policies with other countries and the overall global economy. The United Kingdom's decision to exit the European Union ("Brexit") has providedcontinues 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. Similarly, with new government leadership in the U.S. assuming control in early 2017, there is added uncertainly around future economic and trade policy and its potential impact on the U.S. dollar relative to other currencies as well as its direct impact on trade with other countries.



The Brazil market is an important market for our Commercial Vehicle segment, representing about 20%18% of this segment's first-quarter 2018first quarter 2019 sales. Our medium/heavy truck sales in Brazil accountedaccount for more thanapproximately 80% of our first-quarter 20182019 sales in the country. Reduced market demand resulting from the weak economic environment in Brazil in 2015 led to production levels in the light vehicle and medium/heavy duty truck markets that were lower by about 22% and 44% from 2014. Continued weakness in 2016 resulted in further reductions in medium/heavy truck production of about 20% and a light vehicle production decline of around 10%. As a consequence, sales by our operations in Brazil for 2016 approximated $200, down from about $500 in 2014. In response to the challenging economic conditions in this country, we implemented restructuring and other cost reduction actions and reduced costs to the extent practicable. As discussed in Note 2 to our consolidated financial statements in Item 8, we completed a transaction in December 2016 that provided us with the underlying assets and personnel supporting our pre-existing business with a supplier along with some incremental business. With this transaction, we enhanced our competitive position in the market and should benefit significantly in future years as the Brazilian markets rebound. The Brazilian economy rebounded in 2017, leading to increased medium/heavy truck and light truck production of more than 25% from 2016 in each of those segments. Economic improvement and increased production continued in 2018. Sales in 2018 were up 15% from 2017 as medium/heavy truck production was 27% higher than 2017 and light truck production was up about 7% from last year. Further economic improvement and increased production is expected in 2018.2019. In this year's first quarter, medium/heavy truck production was 55%2% higher than the same period of 20172018 and light truck production was up about 22%1% from last year.

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 three months of 2019 of approximately $20 are less than 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $25, including $7 of net fixed assets, at March 31, 2019.

Commodity Costs

The cost of our products may be significantly impacted by changes in raw material commodity prices, the most important to us being those of various grades of steel, aluminum, copper and brass. The effects of changes in commodity prices are reflected directly in our purchases of commodities and indirectly through our purchases of products such as castings, forgings, bearings and component parts that include commodities. During 2018 and the first quarter of 2019, commodity prices have been impacted by recently imposed tariffs. As suppliers paying the tariffs attempt to pass through the cost of the tariffs, we are likewise in discussions with our customers to absorb that cost. As suppliers not subject to the tariffs advantage themselves by raising prices, these price increases are generally reflected in the published commodity indexes. Most of our major customer agreements provide for the sharing of significant commodity price changes with those customers.customers based on the movement in various published commodity indexes. Where such formal agreements are not present, we have historically been successful implementing price adjustments that largely compensate for the inflationary impact of material costs. Material cost changes will customarily have some impact on our financial results as customer pricing adjustments typically lag commodity price changes.

Prices for commodities such as steel and aluminum have risen over the past year, in part due to strong global demand and more recently due to imposition of tariffs on these products. Higher commodity prices reduced earnings in the first quarter of 20182019 by approximately $18,$25, as compared to an earnings reduction of $5$18 from higher commodity prices in the first quarter of last year. Material recovery and other pricing actions increased first-quarter 2018 earnings in the first quarter of 2019 by $4,$8, whereas pricing and recovery actions increased first-quarter 2017 salesearnings in the first quarter of 2018 by $2.$4.

Sales, Earnings and Cash Flow Outlook
2018
Outlook		 2017 20162019
Outlook		 2018 2017
Sales~$7,900 $7,209
 $5,826
$8,950 - $9,350 $8,143
 $7,209
Adjusted EBITDA~$980 $835
 $660
$1,085 - $1,165 $957
 $835
Net cash provided by operating activities~7.5% of Sales $554
 $384
~5.5% of Sales $568
 $554
Discretionary pension contribution~1.5% of Sales $—
 $—
Purchases of property, plant and equipment~4.0% of Sales $393
 $322
~4% of Sales $325
 $393
Free Cash Flow~3.5% of Sales $161
 $62
Adjusted Free Cash Flow~3% of Sales $243
 $161

Adjusted EBITDA and Free Cash Flowadjusted 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.

WeakerWe experienced declines in total sales in 2016 due to weaker international currencies relative to the U.S. dollar reduceddollar. Adjusted for currency, sales in 2016 by $173. Adjusted for currency, 2016 sales were relatively comparable withto the precedingprior year, with new customer programs largely offsetting the impacts of overall weaker end user demand across our global businesses. We experienced uneven end user markets, with some being relatively strong and others somewhat weak, and the conditions across the regions of the world differing quite dramatically. InThe 24% increase in sales during 2017 was driven primarily by acquisitions and stronger market demand. Acquisitions, net of divestitures, added $500 of sales, while stronger market demand and contributions from new customer programs increased sales by $500. Currencies in several international regions where we do business strengthened against the U.S dollar in 2017, providing a sales tailwind of $54. Adjusted for net acquisition and currency effects,


sales last year increased $829 – an organic increase of 14%. In 2017, international currencies were relatively stable, providing a $54 benefit to sales. Sales increased an additional $934, or 13%, primarily from strengtheningin 2018, reflecting continued strong market demand in our global off-highway business, improving vehicle markets outsideand the U.S. and continued strong demand on key North America light truck programs. Ourcontribution of net new business backlog contributed about $225. Further increases in sales are expected in 2018,backlog. Strong off-highway, commercial vehicle and light truck demand combined with net new business contributingof about $300, and strengthening in overall market demand and full year impacts from our 2017 acquisitions providing further growth. Based on this year's first quarter performance and our current outlook for the remainderdrove 2018 organic growth of the year, we are expecting a larger increase in sales from the effects of stronger international$861, or 12%. International currencies and market demand. As such, we increased ouracquisition and divestiture activities had a negligible impact on 2018 full yearsales. Our 2019 sales outlook is $8,950 to about $7,900 – in the range of $7,750 to $8,050, up$9,350, unchanged from our February 20182019 outlook, with sales growth coming principally from our anticipated acquisition of $7,500Oerlikon Drive Systems and the realization of $350 of net new business backlog. We expect impact of international currencies to $7,700.be negligible, consistent with this past year.

Adjusted EBITDA margin as a percent of sales remained relatively constant at around 11% in 2016 as we aligned our cost with weaker demand levels indespite certain markets.markets being weak and volatile. We continue to focus on margin improvement through right sizing and rationalizing our manufacturing operations, leveraging resources across the global organization, implementing other cost reduction initiatives and ensuring that customer programs are competitively priced. We achieved Adjustedadjusted EBITDA margin growth in 2017 to 11.6% as we benefited from the operating leverage attributable to increased sales volumes, while at the same time digesting and integrating several acquisitions. Increased commodity prices adversely impacted 2018 earnings and adjusted EBITDA margin. Although we recovered a substantial share of the increased cost, with the customary lag from incurrence of the higher cost to recovery, approximately $35 was not recovered by the end of 2018. Much of the adverse earnings impact of higher commodity costs and supply chain pressures of operating at strong levels of market demand were offset with material cost savings, acquisition synergies and other cost reductions. As such, our adjusted EBITDA margin for 2018 was 11.8%, a 20 basis point improvement over 2017. At our current sales outlook for 2019, we expect full year 2019 adjusted EBITDA to approximate $1,085 to $1,165. Adjusted EBITDA with margin exceedingis expected to exceed 12% in 2018, is anticipated, as we expect to benefit from higher margins onmargin net new business improve cost performance and realize synergies from the integrationrelated to our acquisition of our recent acquisitions,Oerlikon Drive Systems more than offsetting thehigher commodity costs and increased investment we expect to make in 20182019 to support our electrification strategy initiatives. With the above-mentioned higher sales expectation, we increasedstrategy. Both our full year2019 adjusted EBITDA and adjusted EBITDA margin outlook for Adjusted EBITDA to about $980 – in the range of $950 to $1,010, as compared toare unchanged from our February 2018 outlook of $910 to $960.2019 outlook.

We have generated positive adjusted free cash flow in recent years while increasing capital spending to support organic business growth through launching new business with customers. LowerReduced adjusted free cash flow in 2016 was primarily attributable to our continued success in being awarded significant new customer programs. Although many of the program wins were not scheduled to begin production until 2018, or later, manycertain of these programs required capital investment beginning in 2016. As such, cash used for capital investments in 2016 was $322 or 5.5% of sales and $62 higher than in 2015. TheAs planned, an elevated level of capital spending for new customer programsat around 5.5% of sales continued into 2017 with our capital expenditures of $393 also being 5.5% of sales.to support new customer programs. Despite thean increase in capital spending of $71 in 2017, free cash increased by $99, primarily from a stronger earnings performance which contributed to an increase inincreased operating cash flows of $170 which resulted$170. Adjusted free cash flow increased $82 in 2018, with benefits from increased operating earnings and lower required capital investment being partially offset by higher working capital requirements associated with increased sales and production levels. We expect to generate adjusted free cash flow of $161 – 2.2%approximately $275, or 3% of sales and $99 higher than in 2016. With the required capital to support new programs beginning to dissipate and return to more typical levels, we expect capital expenditures in 2018 to approximate $325, about 4%for 2019. The benefit of sales. A continued growth in earnings is expectedadjusted EBITDA in 2019 will be partially offset by higher integration costs associated with our anticipated acquisition of Oerlikon Drive Systems. We expect capital spending in 2019 to benefit 2018 operating cash flows along with a reduced amount of one-time transaction-related cash expenditures that were incurred in 2017 to facilitate acquisitions. Partially offsetting the benefit from higher earnings and lower transaction expenditures is an expected higher level of cash taxes and working capital investment. Our current outlook for full year 2018 has free cash flow beingbe around 3.5%4% of sales, consistent with 2018. While required capital spending to support new customer programs has begun to dissipate, we are expecting additional capital investment associated with the Oerlikon Drive Systems acquisition. Both our February 2018 outlook. With the above-mentioned increase in sales, we currently expect to generate2019 adjusted free cash flow of about $275.and capital spending outlook are unchanged from our February 2019 outlook.

Among our Operationaloperational and Strategic Initiativesstrategic initiatives are increased focus on and investment in product technology – delivering products and technology that are key to bringing solutions to issues of paramount importance to our customers. Our success on this front is measured, in part, by our sales backlog – net new business received that will be launching in the future and adding to our base annual sales. This backlog excludes replacement business and represents incremental sales associated with new programs for which we have received formal customer awards. At December 31, 2017,2018, our sales backlog of net new business for the 20182019 through 20202021 period was $800, a 7% increase from the $750 three-year$700. We expect to realize $350 of our sales backlog at the endin 2019, with incremental sales backlog of 2016. The increased$200 and $150 being realized in 2020 and 2021, respectively. Our three-year sales backlog at December 31, 20172018 reflects continued new business wins, as the expected impactsimpact of revised market volumes and currency effects were minimal.



          
            
     



Summary Consolidated Results of Operations (Year-to-Date, 20182019 versus 2017)2018)

Three Months Ended March 31,  Three Months Ended March 31,  
2018 2017  2019 2018  
Dollars % of
Net Sales		 Dollars % of
Net Sales		 Increase/
(Decrease)		Dollars % of
Net Sales		 Dollars % of
Net Sales		 Increase/
(Decrease)
Net sales$2,138
   $1,701
   $437
$2,163
   $2,138
   $25
Cost of sales1,831
 85.6% 1,437
 84.5% 394
1,863
 86.1% 1,831
 85.6% 32
Gross margin307
 14.4% 264
 15.5% 43
300
 13.9% 307
 14.4% (7)
Selling, general and administrative expenses130
 6.1% 120
 7.1% 10
136
 6.3% 130
 6.1% 6
Amortization of intangibles2
   2
   —
2
   2
   —
Restructuring charges, net1
   2
   (1)9
   1
   8
Other expense, net

   (11)   11
(13)   

   (13)
Earnings before interest and income taxes174
   129
   45
140
   174
   (34)
Interest income3
   3
   —
2
   3
   (1)
Interest expense24
   27
   (3)27
   24
   3
Earnings before income taxes153
   105
   48
115
   153
   (38)
Income tax expense48
   30
   18
20
   48
   (28)
Equity in earnings of affiliates6
   5
   1
6
   6
   —
Net income111
   80
   31
101
   111
   (10)
Less: Noncontrolling interests net income2
   5
   (3)4
   2
   2
Less: Redeemable noncontrolling interests net income1
   

   1
(1)   1
   (2)
Net income attributable to the parent company$108
   $75
   $33
$98
   $108
   $(10)

Sales — The following table shows changes in our sales by geographic region.
Three Months Ended 
 March 31,		   Amount of Change Due ToThree Months Ended 
 March 31,		   Amount of Change Due To
2018 2017 Increase/
(Decrease)		 Currency Effects 
Acquisitions
(Divestitures)
 Organic Change2019 2018 Increase/
(Decrease)		 Currency Effects 
Acquisitions
(Divestitures)
 Organic Change
North America$1,071
 $902
 $169
 $4
 $21
 $144
$1,112
 $1,071
 $41
 $(2) $28
 $15
Europe672
 489
 183
 76
 27
 80
678
 672
 6
 (50) 36
 20
South America138
 106
 32
 (10) 1
 41
122
 138
 (16) (14) (6) 4
Asia Pacific257
 204
 53
 18
 7
 28
251
 257
 (6) (12) 23
 (17)
Total$2,138
 $1,701
 $437
 $88
 $56
 $293
$2,163
 $2,138
 $25
 $(78) $81
 $22

Sales in the first quarter of 20182019 were $437$25 higher than in 2017. Stronger2018. Weaker international currencies increaseddecreased sales by $88,$78, principally due to a stronger euro.weaker euro, Brazilian real, South African rand, Indian rupee and Chinese renminbi. The acquisitions of ODS and SME in this year's first quarter and the Brevini and USM operations which occurredacquisition of TM4 is last year's second quarter, net of the divestiture of the Brazil suspension components business in last year's firstthird quarter, generated increased first-quartera year-over-year increase in sales of $56.$81. The organic sales increase of $293,$22, or 17%1%, resulted from stronger light truck markets, strengthening global off-highway demand, stronger medium/heavy truck markets and contributions from new business.marginally higher global off-highway demand, partially offset by lower volumes in our Light Vehicle operating segment. Pricing actions, including material commodity price and inflationary cost recovery, added sales of $8.

The North America organic sales increase of 16%1% was driven principally by stronger production levels on certain of our key light truck programs. Stronger medium/heavy truck production also contributedin the the first quarter of this year, with Class 8 trucks up 20% and Classes 5-7 up 6%. The impact of the strong commercial vehicle markets were largely offset by a significant year-over-year sales volume-related decline attributable to higher organic sales.one of our largest light truck programs for which production continued on the outgoing model, concurrent with production of the new model vehicle, during last year's first quarter. This customer specific sales decline along with the impact of lower full frame light truck production levels during the first quarter of 2019, were partially offset by the realization of light truck sales backlog.



A weaker euro was the primary driver of the decreased sales in Europe due to currency effects. Excluding currency effects and the increase from inclusion of a full quarter of sales attributable to the acquired Brevini operations,acquisition effects, sales in Europe were 16%3% higher than in 2017.2018. With our significant Off-Highway presence in the region, increased market demand in this segment was a major contributor to higher organiccontributor. Organic sales although eachin this operating segment were up about 3% compared with the first quarter of our operating segments experienced a year-over-year organic increase in sales.2018.

A weaker Argentine peso and Brazilian real reduced South America sales in this year's first quarter. However, more than offsetting this reduction was an organic increase in sales of nearly 40%. Continued economic recovery in the Brazilian market was a major factor. The region overall experienced stronger production levels,relatively stable markets, with lightmedium/heavy truck production up about 19%2% and medium/heavylight truck production higher by 44%down about 1%.



A weaker Indian rupee and Chinese renminbi were the primary drivers of the decreased sales in Asia Pacific due to currency effects. Excluding currency and acquisition effects, sales indecreased about 7% as China's economy showed signs of weakening. Light truck and light vehicle engine were both down from the first quarter of 2018, were 26% higher than the same period of 2017. Currency translation increased sales by $18 from a stronger Thai baht, Chinese yuan and Indian rupee, with the inclusion of the Brevini operations for the full quarter adding another $7. Excluding these effects, sales increased 14% due primarily to stronger light andwhile medium/heavy truck production levels, off-highway market demand and contributions from new customer programs.was up 2%.

Cost of sales and gross margin — Cost of sales for the first quarter of 20182019 increased $394,$32, or 27%,2% when compared to 2017.2018. Similar to the factors affecting sales, the increase was primarily due to higher overall sales volumes andthe inclusion of a full quarter of the acquired businesses. Cost of sales as a percent of 2018sales in 2019 was 50 basis points higher than in the previous year. Cost of sales attributed to net acquisitions, which included $4 of incremental cost assigned to inventory as part of business combination accounting, was approximately $65. Excluding the effects of acquisitions and divestitures, cost of sales as a percent of sales was 11086.4%, 80 basis points higher than in the previous year. The increased cost of sales as a percent of sales was largely attributable to higher commodity prices which increased material costs by about $18, higher start-up and launch costs of $12 due in part to a major light vehicle program launch continuing this past quarter,$25, an increase in engineering and development cost of $13,$9 and higher depreciation expense of $14 and premium supply chain costs associated with higher demand levels.$5. Partially offsetting these higher costs were continued material cost savings of approximately $17, cost synergies from acquisition integration$20 and overall better cost absorption on higher sales volume.lower start-up and launch costs.

Gross margin of $307$300 for 2018 increased $432019 decreased $7 from 2017.2018. Gross margin as a percent of sales was 14.4%13.9% in 2018, 1102019, 50 basis points lower than in 2017.2018. 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 20182019 were $130 (6.1%$136 (6.3% of sales) as compared to $120 (7.1%$130 (6.1% of sales) in 2017. Inclusion of a full quarter of2018. SG&A attributed to net acquisitions was $9. Excluding the businesses acquired in last year's first quarter contributed $8 of expense. The increase in totalassociated with net acquisitions, SG&A expenses compared to 2017were 20 basis points lower than the same period of 2018. The year-over-year decrease of $3 exclusive of net acquisitions was principallyprimarily due to an increase in salarylower salaries and benefits expenses resulting from the voluntary retirement program and other headcount reduction actions taken in the fourth quarter of $8 and an increase in discretionary spending of $1.2018. The SG&A reduction as a percent of sales reflectssavings associated with the impact of acquisition synergies along with disciplined cost performance despiterestructuring actions was partially offset by higher sales volumes.equity compensation expense.

Restructuring charges — Restructuring charges of $9 in 2019 were comprised of severance and benefit costs related to integration of the ODS acquisition, headcount reductions across our operations and exit costs related to previously announced actions. Restructuring charges of $1 in 2018, represent a slight decrease from $2 in the comparable period of 2017. Restructuring charges during both periods primarily relate to continuing exit costs associated with previously announced actions.

Other expense, net — The following table shows the major components of other expense, net.
Three Months Ended 
 March 31,		Three Months Ended 
 March 31,
2018 20172019 2018
Non-service cost components of pension and OPEB costs

$(3) $(2)$(6) $(3)
Government grants and incentives2
 2
3
 2
Foreign exchange loss(2) (2)(11) (2)
Strategic transaction expenses, net of transaction breakup fee income1
 (11)(13) 1
Non-income tax legal judgment6
  
Other, net2
 2
8
 2
Other expense, net$—
 $(11)$(13) $—

Significant transaction expenses were incurredForeign exchange loss in this year's first quarter in connection with our efforts2019 included a loss on the undesignated Swiss franc notional deal contingent forward related to acquire the driveline business of GKN plc along with transaction costs associated with other strategic opportunities and continued costs associated with integrationODS acquisition. See Note 15 of the Brevini and USM operations acquired in last year's first quarter. With our GKN bid not succeeding, we were entitled to a $40 contractual transaction breakup fee that was recognized in this year's first quarter. The transaction breakup fee was received in April 2018. Strategic transaction expenses in 2017 are primarily attributable to our acquisitions of the Brevini and USM operations in last year's first quarter.

As described in Note 1 to our consolidated financial statements in Item 1 of Part I for additional information. Strategic transaction expenses in connection2019 were primarily attributable to the acquisition of ODS. Strategic transaction expenses in 2018 were more than offset by a $40 transaction breakup fee associated with the adoptionGKN plc. transaction. See Note 2 of new accounting and reporting requirementsthe consolidated financial statements in Item 1 of Part I for defined employee benefit plans, non-service cost components are now classified as other income or expense. Such amounts were previously classified as costadditional information. During the first quarter of sales or SG&A expense. The comparative 2017 statement of operations has been revised2019, we won a legal judgment regarding the methodology used to reflect the new classification of these costs.calculate PIS/COFINS tax in Brazil.



Interest income and interest expense — Interest income was $2 in 2019 and $3 in both 2018 and 2017.2018. Interest expense decreasedincreased from $27 in 2017 to $24 in 2018 to $27 in 2019, primarily due to a lower average interest rate on borrowings. During 2017, through debt refinancing and cross-currency swaps, we achieved lower overall interest rates.an increase in borrowings to finance the ODS acquisition in the first quarter of 2019. Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.1% and 5.2% in 2019 and 5.9% in 2018 and 2017.2018.



Income tax expense — Income tax expense for the first three months ended March 31 was $20 in 2019 and $48 in 2018 and $302018. The lower 2019 tax expense was attributable to the net impact of a couple discrete items in 2017, resultingthe quarter. 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 expense related to a U.S. state law change. Excluding these items, the effective tax rates ofrate would be 31% and 29%. Thefor the 2019 three-month period. Our effective income tax rates vary from the U.S. federal statutory ratesrate of 21% and 35% primarily 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.taxes related to repatriations of international earnings. The increased effective income tax rate in 2018 is primarilymay vary significantly due to jurisdictional mix, with pre-tax earnings increasing proportionately more in countries with higher tax rates. Although the tax reformfluctuations in the U.S. reducedamounts and sources, both foreign and domestic, of pretax income and changes in the statutory tax rate to 21% for 2018, the effectsamounts of the lower rate were offset in part by the effects of increased nondeductible expenses and the global intangible low taxes income provisions which result in a certain amount of foreign earnings being subjected to U.S. tax.non-deductible 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 that it is reasonably possible that a valuation allowanceallowances of up to $8$86 related to the U.S. and a subsidiary in ArgentinaBrazil will be released in the next twelve months.

Equity in earnings of affiliates — Net earnings from equity investments was $6 in 2018 compared with $5both 2019 and 2018. Equity in 2017.earnings from DDAC was $4 in 2019 and $2 in 2018. Equity in earnings from BSFB was $2 in 20182019 and $3 in 2017. Equity in earnings from DDAC was $2 in 2018 and $3 in 2017.

Noncontrolling interests net income — The increased level of earnings attributable to noncontrolling interests is generally attributable to increased earnings of the consolidated operations that are less than wholly-owned. The redeemable noncontrolling interest relates to the Brevini business we acquired in the first quarter of 2017 on which we have a call option as described more fully in Note 2 of the consolidated financial statements in Item 1 of Part I.2018.

Segment Results of Operations (2018(2019 versus 2017)2018)

Light Vehicle
 Three Months Three Months
 Sales Segment
EBITDA		 Segment
EBITDA
Margin		 Sales Segment
EBITDA		 Segment
EBITDA
Margin
2017 $761
 $89
 11.7%
2018 $950
 $103
 10.8%
Volume and mix 176
 29
   (31) (8)  
Performance (2) (18)   1
 9
  
Currency effects 15
 3
   (14) (2)  
2018 $950
 $103
 10.8%
2019 $906
 $102
 11.3%

Light Vehicle sales in the first quarter of 2018,2019, exclusive of currency effects, and increased sales of $18 from the acquisition of USM – Warren on March 1 of last year, were 21% higher3% lower than the same period of 2017. Although overall2018. Year-over-year North America full frame light production decreased 1% while light truck production in this year's first quarter was comparable withEurope, South America and Asia Pacific declined 1%, 1% and 7%, respectively. During the first quarter of 2017,2019, we experienced a significant sales volume-related sales increase fromdecline attributable to one of our largest customer programs for which production continued on the outgoing model, during this year's first three months concurrent with production of the new model vehicle. Strongervehicle, during last year's first quarter. This customer specific sales decline along with the impact of lower overall global light truck production levels in Europe, South America and Asia Pacific also contributed to higherwere partially offset by the conversion of sales volumes. Customer pricing and cost recovery impacts provided a year-over-year reduction in sales of $2.backlog.

Light Vehicle segmentSegment EBITDA increased by $14 in this year's first quarter when compared towas flat with the same period of 2017. Higherlast year. Lower sales volumes provided a benefitheadwind of $29.$8. The year-over-year performance-related earnings reductionimprovement was driven by $12material cost savings of incremental$9 and lower new program start-up and launch-related costs primarily attributable to one of our major North American customer programs, higher engineering and development costs of $5, increased commodity costs of $2 and net customer pricing and recoveries of $2. Material cost savings provided an incremental benefit of $7, with $9. Lower premium freight and other costs associated with highlower production volumes on certain programs and other items reducing segment earnings by $4.improved operational efficiencies contributed $13. Commodity cost increases of $12, increased engineering spend of $7 and higher warranty costs of $3 reduced first quarter 2019 performance.



Commercial Vehicle
 Three Months Three Months
 Sales Segment
EBITDA		 Segment
EBITDA
Margin		 Sales Segment
EBITDA		 Segment
EBITDA
Margin
2017 $329
 $28
 8.5%
2018 $400
 $34
 8.5%
Volume and mix 58
 13
   35
 6
  
Acquisition / Divestiture 5
 1
  
Performance 5
 (9)   11
 2
  
Currency effects 8
 2
   (20) (2)  
2018 $400
 $34
 8.5%
2019 $431
 $41
 9.5%

Excluding currency effects, first-quarter 20172019 sales in our Commercial Vehicle segment increased 19%13% compared to last year. The volume-related increase was primarily attributable to higher production levels in North America where Class 8 production in this year's first three months was up about 47%20% and Classes 5-7 production was up 1%, and in South America where first-quarter production was higher by about 58%6%. Also contributing to the higher sales volume was higher first-quarter production in Europe, South America and Asia Pacific. Customer pricing and costCost recovery actions increased year-over-year first quarter sales byprovided a benefit of $5.

Commercial Vehicle first-quarter segment EBITDA increased by $6$7 from last year's first quarter. Higher sales volumes increased 20172019 first-quarter earnings by $13. Higher commodity costs decreased$6. The performance-related earnings increase in this year' first quarter performance-related earnings by $7, withresulted from net pricing and material recovery actions providing a partial offset of $5. Premium freight$5, net foreign currency transaction gains of $4 and material cost savings of $3. Partially offsetting these performance-related earnings increases were higher commodity costs of $9 and other items net, reduced earnings by $7.$1.

Off-Highway
 Three Months Three Months
 Sales Segment
EBITDA		 Segment
EBITDA
Margin		 Sales Segment
EBITDA		 Segment
EBITDA
Margin
2017 $328
 $45
 13.7%
2018 $492
 $72
 14.6%
Volume and mix 115
 26
   15
 1
  
Acquisitions 76
 11
  
Performance 2
 (1)   
 1
  
Currency effects 47
 2
   (31) (3)  
2018 $492
 $72
 14.6%
2019 $552
 $82
 14.9%

A strongerExcluding currency effects, primarily due to a weaker euro, contributed toand the first quarter sales increase from currency translation, with a full quarterimpact of the sales from the acquisition of the Brevini BPTODS and BFP operations on February 1, 2017 providing additional comparativeSME acquisitions, first-quarter sales of $38. After adjusting for these two items, year-over-year2019 sales in this year's first quarter were higher by 24%, primarily from higher global end-market demand.our Off-Highway segment increased 3% compared to last year. Volume related sales growth, while marginal, was seen across each of our key markets.

Off-Highway segment EBITDA increased by $27$10 in this year's first quarter when compared with the same period of 2017. Increased2018. Marginally higher market demand was the primary driverdrive of the volume and mix earnings improvement. The performance-related earnings reductionimprovement in this year'sthe first quarter resulted from higher commodity and other costs of $8, partially offset by pricing and cost recovery actions of $2 andyear-over-year earnings was due primarily to material cost savings of $5.$6 and net pricing and material recovery of $3. Partially offsetting these performance-related earnings increases were higher engineering expenses of $2, net foreign currency transaction losses of $2 and other items of $4.



Power Technologies
 Three Months Three Months
 Sales Segment
EBITDA		 Segment
EBITDA
Margin		 Sales Segment
EBITDA		 Segment
EBITDA
Margin
2017 $283
 $50
 17.7%
2018 $296
 $45
 15.2%
Volume and mix (4) (2)   (8) (3)  
Performance (1) (5)   (1) (7)  
Currency effects 18
 2
   (13) (1)  
2018 $296
 $45
 15.2%
2019 $274
 $34
 12.4%

Power Technologies primarily serves the light vehicle market but also sells product to the medium/heavy truck and off-highway markets. Net of currency effects, first-quarter 2018 sales for the first quarter of 2019 were 2%3% lower than the same period of last year,2018, primarily due to programs that were scheduledprogram roll offs and lower market demand. Light vehicle engine production declined in Europe and China compared to roll off in thislast year's first quarter.quarter, while North America production was relatively stable.

Segment EBITDA in this year's first quarter was lower by $5$11 when compared to the same period of 2017. A reduction2018. The performance deterioration of $5$7 in first-quarter performance-related earnings was driven by2019 resulted from higher commodity costs of $3 and increased engineering and development cost of $3, with material cost savingsoperational inefficiencies and other items providing a partial offset of $1.$4. Operational inefficiencies included higher scrap and repair costs.

Non-GAAP Financial Measures

Adjusted EBITDA

We have defined adjusted EBITDA as net income before interest, taxes, depreciation, amortization, equity grant expense, restructuring expense, non-service cost components of pension and other postretirement benefits (OPEB) costs and other adjustments not related to our core operations (gain/loss on debt extinguishment, pension settlements, divestitures, impairment, etc.). Adjusted EBITDA is a measure of our ability to maintain and continue to invest in our operations and provide shareholder returns. We use adjusted EBITDA in assessing the effectiveness of our business strategies, evaluating and pricing potential acquisitions and as a factor in making incentive compensation decisions. In addition to its use by management, we also believe adjusted EBITDA is a measure widely used by securities analysts, investors and others to evaluate financial performance of our company relative to other Tier 1 automotive suppliers. Adjusted EBITDA should not be considered a substitute for earnings before income taxes, net income or other results reported in accordance with GAAP. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

The following table provides a reconciliation of net income to adjusted EBITDA.
 Three Months Ended 
 March 31,		 Three Months Ended 
 March 31,
 2018 2017 2019 2018
Net income $111
 $80
 $101
 $111
Equity in earnings of affiliates 6
 5
 6
 6
Income tax expense 48
 30
 20
 48
Earnings before income taxes 153
 105
 115
 153
Depreciation and amortization 67
 52
 77
 67
Restructuring 1
 2
 9
 1
Interest expense, net 21
 24
 25
 21
Other* 6
 22
 31
 6
Adjusted EBITDA $248
 $205
 $257
 $248
*Other includes stock compensation expense, non-service cost components of pension and OPEB costs, stock compensation expense, strategic transaction expenses, net of transaction breakup fees acquisition related inventory adjustments and other items. See Note 2021 to our consolidated financial statements in Item 1 of Part I for additional details. Non-service cost components of pension and OPEB costs were excluded from adjusted EBITDA in 2018 concurrent with adoption of ASU 2017-07 which required such cost to be classified outside of operating income. While prior period amounts have been reclassified on our consolidated statement of operations for U.S. GAAP reporting purposes, we did not adjust prior period adjusted EBITDA on the basis of materiality. Had we conformed adjusted EBITDA for the first quarter of 2017, adjusted EBITDA would have been $207.






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 this measure isthese 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 is neitherand 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 under 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 
 March 31,		 Three Months Ended 
 March 31,
 2018 2017 2019 2018
Net cash provided by (used in) operating activities $(28) $11
Net cash used in operating activities $(16) $(28)
Purchases of property, plant and equipment (65) (96) (98) (65)
Free cash flow $(93) $(85) (114) (93)
Discretionary pension contribution —
 —
Adjusted free cash flow $(114) $(93)

Liquidity

The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at March 31, 20182019:

Cash and cash equivalents$479
$383
Less: Deposits supporting obligations(5)(5)
Available cash474
378
Additional cash availability from Revolving Facility578
729
Marketable securities41
20
Total liquidity$1,093
$1,127

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.

The components of our March 31, 20182019 consolidated cash balance were as follows:
U.S. Non-U.S. TotalU.S. Non-U.S. Total
Cash and cash equivalents$41
 $258
 $299
$8
 $223
 $231
Cash and cash equivalents held as deposits

 5
 5


 5
 5
Cash and cash equivalents held at less than wholly-owned subsidiaries8
 167
 175
3
 144
 147
Consolidated cash balance$49
 $430
 $479
$11
 $372
 $383

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 significantly 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.

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, common stock repurchases 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.

On February 28, 2019, we entered into an amended credit and guaranty agreement comprised of a $500 term facility (the Term A Facility), a $450 term facility (the Term B Facility and, together with the Term A Facility, the Term Facilities) and a


$750 revolving credit facility (the Revolving Facility). The Term A Facility is an expansion of our existing $275 Term Facility. The Term A Facility and the Revolving Facility mature on August 17, 2022. The Term B Facility matures on February 28, 2026. On February 28, 2019, we drew the $225 available under the Term A Facility and the $450 available under the Term B Facility. The proceeds from the draws on the term facilities were used to fund the ODS acquisition.

On February 28, 2019, we acquired the Oerlikon Drive Systems (“ODS”) segment of the Oerlikon Group paying $626 at closing. On January 11, 2019, we acquired a 100% ownership interest in SME. We paid $88 at closing, consisting of $62 in cash on hand and a note payable of $26. The note is payable in five years and bears annual interest at 5%.

At March 31, 2018,2019, we had no outstanding borrowings under the Revolving Facility but we had utilized $22$21 for letters of credit. We had availability at March 31, 20182019 under the Revolving Facility of $578$729 after deducting the outstanding letters of credit.

At March 31, 2018,2019, 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 3.50:1.00.1.00, tested on the last day of each fiscal quarter. 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 isare subject to a financial covenant requiring us to maintain a first lien net leverage ratio not to exceed 2.00:1.00. The indentures governing the senior notes include other incurrence-based covenants that may subject us to additional specified limitations.

Our Board of Directors approved an expansion of our existing common stock share repurchase program from $100 to $200 on March 24, 2018. The share repurchase program expires on December 31, 2019. We did notplan to repurchase any shares duringutilizing available excess cash either in the open market or through privately negotiated transactions. The stock repurchases are subject to prevailing market conditions, available growth opportunities and other considerations. During the first quarter of 2018.2019, we paid $25 to acquire 1,432,275 shares of common stock in the open market.

From time to time, depending upon market, pricing and other conditions, as well as our cash balances and liquidity, we may seek to acquire our senior notes or other indebtedness or our common stock through open market purchases, privately negotiated transactions, tender offers, exchange offers or otherwise, upon such terms and at such prices as we may determine (or as may be provided for in the indentures governing the notes), for cash, securities or other consideration. There can be no assurance that we will pursue any such transactions in the future, as the pursuit of any alternative will depend upon numerous factors such as market conditions, our financial performance and the limitations applicable to such transactions under our financing and governance documents.

Cash Flow
Three Months Ended 
 March 31,		Three Months Ended 
 March 31,
2018 20172019 2018
Cash used for changes in working capital$(216) $(133)$(175) $(216)
Other cash provided by operations188
 144
159
 188
Net cash provided by operating activities(28) 11
Net cash used in operating activities(16) (28)
Net cash used in investing activities(67) (278)(724) (67)
Net cash used in financing activities(28) (26)
Net cash provided by (used in) financing activities610
 (28)
Net decrease in cash, cash equivalents and restricted cash$(123) $(293)$(130) $(123)

The table above summarizes our consolidated statement of cash flows.

Operating activities — Exclusive of working capital, other cash provided by operations was $159 and $188 in 2019 and $144 in 2018 and 2017.2018. The modest year-over-year increase in other cash provided by operations is primarilyimprovement attributable to higher operating earnings in 2018.was more than offset by increased cash payments for strategic transaction expenses and higher net interest payments.

Working capital used cash of $175 and $216 in 2019 and $133 in 2018 and 2017.2018. Cash of $264$203 and $189$264 was used to finance increased


receivables in 20182019 and 2017.2018. The higherlower level of cash required for receivables in 20182019 was due primarily to higher year-over-year first-quarter sales.a shift in sales mix to customers with relatively shorter payment terms. Cash of $52$48 and $20$52 was used to fund higher inventory levels in 20182019 and 2017.2018. Partially offsetting cash used for higher receivables and inventory in both 20182019 and 20172018 was cash provided by increases in accounts payable and other net liabilities of $100$76 and $76. Cash provided by accounts payable and other liabilities in the first quarter of 2018 was reduced by payment of higher incentive compensation accrued in 2017. In last year's first quarter, cash generated from increased accounts payable was reduced by a $25 payment in connection with the USM - Warren acquisition to settle trade payable obligations at the date of closing.$100.

Investing activities — Expenditures for property, plant and equipment were $98 and $65 during the first quarter of 2019 and $962018. The elevated level of capital spend during the first quarter of 2019 is primarily in 2018support of new customer programs and 2017. Although still at elevated levels, capital expenditures have decreased in 2018 with lower requirements to support new business launches with customers.information systems upgrades. During 2017,the first quarter of 2019, we paid $104,$545, net of cash and restricted cash acquired, to purchase 80% ownership interests in BFP and BPT and $78ODS. Also during the first quarter of 2019 we paid $61 to acquire USM – Warren.SME. During 2018the first quarter of 2019, we paid $21 to settle the undesignated Swiss franc notional deal contingent forward related to the ODS acquisition. During 2019 and 2017,2018, purchases of marketable securities were funded by proceeds from sales and maturities of marketable securities.



Financing activities — During 2017,the first quarter of 2019, we made scheduled repaymentsentered into an amended credit and guaranty agreement comprised of $5 at international locationsa $500 term facility (the Term A Facility), a $450 term facility (the Term B facility) and a $750 revolving credit facility. The Term A Facility is 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 downfinancing costs of $12 of BFPto amend the credit and BPT acquired indebtedness.guaranty agreement. We used $15$14 and $9$15 for dividend payments to common stockholders in 2018during the first quarter of 2019 and 2017. Our Board2018. We used cash of Directors increased$25 to repurchase 1,432,275 shares of our common stock during the quarterly dividend from six cents per share to ten cents per share in 2018.first quarter of 2019.

Off-Balance Sheet Arrangements

There have been no material changes at March 31, 20182019 in our off-balance sheet arrangements from those reported or estimated in the disclosures in Item 7 of our 20172018 Form 10-K.

Contractual Obligations

There have been no material changes at March 31, 2018 in our contractual obligations from those reported or estimatedThe SME acquisition purchase consideration included a note payable of $26 which allows for net settlement of potential contingencies as defined in the disclosurespurchase agreement. The note is payable in five years and bears annual interest of 5%. See Note 2 to our consolidated financial statements in Item 71 of Part I for additional information.

During the first quarter of 2019, we expanded our 2017 Form 10-K.credit and guaranty agreement. We entered into $675 of additional floating rate term loans to fund the ODS acquisition and up sized our revolving credit facility to $750. See Note 14 to our consolidated financial statements in Item 1 of Part I for additional information.


Contingencies

For a summary of litigation and other contingencies, see Note 1516 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 that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. See Item 7 in our 20172018 Form 10-K for a description of our critical accounting estimates and Note 1 to our consolidated financial statements in Item 8 of our 20172018 Form 10-K for our significant accounting policies. There were no changes to our critical accounting estimates in the three months ended March 31, 2018.2019. See Note 1 to our consolidated financial statements in this Form 10-Q for a discussion of new accounting guidance adopted in the first quarter of 2018.2019.

Pension Plans – In October 2017, upon authorization by the Dana Board of Directors, we commenced the process of terminating one of our U.S. defined benefit pension plans. Ultimate plan termination is subject to prevailing market conditions and other considerations, including interest rates and annuity pricing. We measured the benefit obligations of this plan at the end of 2018 using assumptions that reflect the manner in which the liabilities are expected to be settled, including assumptions around whether liabilities will be settled through lump sum payments or purchase of annuities and the cost to purchase annuities. At December 31, 2018, this plan had benefit obligations of $938, with plan assets of $773 and a pre-tax deferred actuarial loss of $370. If we proceed with effecting termination of the plan, settlement of the obligations is expected to occur in the first half of 2019. The ultimate cash contribution required to effect settlement of the obligations is expected to approximate


the unfunded plan benefit obligations, however the actual amount will depend on the actual manner of settlement selected by participants, the prevailing cost of annuities at that time and plan asset returns prior to settlement. Interest rate changes and asset returns prior to settlement will similarly impact the actual pre-tax deferred actuarial loss in accumulated other comprehensive income that will be recognized as expense at time of settlement.

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 20172018 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 Report on Form 10-Q. Our CEO and CFO have concluded that, as of the end of the period covered by this 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 March 31, 20182019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. During the quarter ended March 31, 2019, we acquired a 100% interest in Oerlikon Drive Systems segment of the Oerlikon Group and a 100% ownership interest in S.M.E. S.p.A. We are currently integrating these acquisitions into our operations, compliance programs and internal control processes. As permitted by SEC guidance, management intends to exclude them from its assessment of internal controls over financial reporting as of December 31, 2019.

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 20172018 Form 10-K for a more complete understanding of the matters covered by the certifications.






PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings

We are a party to various pending judicial and administrative proceedings that arose in the ordinary course of business. After reviewing the currently pending lawsuits and proceedings (including the probable outcomes, reasonably anticipated costs and expenses and our established reserves for uninsured liabilities), we do not believe that any liabilities that may result from these proceedings are reasonably likely to have a material adverse effect on our liquidity, financial condition or results of operations. Legal proceedings are also discussed in Note 1516 to our consolidated financial statements in Item 1 of Part I of this Form 10-Q.

Item 1A. Risk Factors

There have been no material changes in our risk factors disclosed in Item 1A of our 20172018 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer's purchases of equity securities — Our Board of Directors approved an expansion of our existing common stock share repurchase program from $100 to $200 on March 24, 2018. The share repurchase program expires on December 31, 2019. We repurchase shares utilizing available excess cash either in the open market or through privately negotiated transactions. The stock repurchases are subject to prevailing market conditions, available growth opportunities and other considerations. NoUnder the program, we used cash of $25 to repurchase 1,432,275 shares of our common stock were repurchased under the program during the first quarter of 2018.2019.


Calendar Month Class or Series of Securities Number
of Shares Purchased		 
Average
Price Paid
 per Share
 
Number of
Shares Purchased as
Part of Publicly
Announced Plans
 or Programs
 
Approximate
Dollar Value of
Shares that May Yet
be Purchased Under
the Plans or Programs
January Common 1,330,000
 $17.47
 1,330,000
 $152
February Common 102,275
 $17.60
 102,275
 $150
March Common 

 

 

 $150
           

Item 6. Exhibits

Exhibit No.Description
10.1
Amendment No. 2 to Credit and Guaranty Agreement, dated as of February 28, 2019, among Dana Incorporated, as borrower, the guarantors party thereto, the lenders party thereto and Citibank, N.A, as administrative agent and collateral agent. Filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed March 1, 2019 and incorporated by reference herein.
  
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. Filed with this Report.
  
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. Filed with this Report.
  
32
Section 1350 Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002). Filed with this Report.
  
101The following materials from Dana Incorporated’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018,2019, formatted in XBRL (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.



SIGNATURES

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.

  
DANA INCORPORATED
 
Date:April 30, 2018May 2, 2019By:  /s/ Jonathan M. Collins        
   Jonathan M. Collins
   Executive Vice President and
   Chief Financial Officer 


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