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, 2019
OR
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period From to
Commission File Number: 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:
Common stock $0.01 par value | DAN | New York Stock Exchange | ||||
(Title of each class) | (Trading Symbol) | (Name of exchange on which registered) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
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"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer | ☑ | Accelerated filer | ☐ | ||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||
Emerging growth company | ☐ | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
There were 143,912,782144,481,879 shares of the registrant’s common stock outstanding at April 19, 2019.17, 2020.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
TABLE OF CONTENTS
10-Q Pages | |||
Item 1 | 3 | ||
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | |
Item 3 | 35 | ||
Item 4 | 35 | ||
Item 1 | 36 | ||
Item 1A | 36 | ||
Item 2 | 37 | ||
Item 6 | 37 | ||
38 | |||
Consolidated Statement of Operations (Unaudited) (In millions, except per share amounts) Three Months Ended March 31, 2020 2019 Costs and expenses Earnings before interest and income taxes Earnings before income taxes Net income Net income attributable to the parent company Net income per share available to common stockholders Weighted-average common shares outstanding The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statement of Comprehensive Income (Unaudited) (In millions) Three Months Ended March 31, 2020 2019 Net income Other comprehensive income (loss), net of tax: Other comprehensive income (loss) Total comprehensive income (loss) Comprehensive income (loss) attributable to the parent company The accompanying notes are an integral part of the consolidated financial statements. Consolidated Balance Sheet (Unaudited) (In millions, except share and per share amounts) March 31, December 31, 2020 2019 Assets Current assets Accounts receivable Total current assets Total assets Liabilities and equity Current liabilities Total current liabilities Total liabilities Commitments and contingencies (Note 13) Parent company stockholders' equity Total parent company stockholders' equity Total equity Total liabilities and equity The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statement of Cash Flows (Unaudited) (In millions) Three Months Ended March 31, 2020 2019 Operating activities Net income Net cash used in operating activities Investing activities Net cash used in investing activities Financing activities Net cash provided by financing activities Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash – end of period (Note 5) Non-cash investing activity The accompanying notes are an integral part of the consolidated financial statements. Index to Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies 2. Acquisitions 3. Goodwill and Other Intangible Assets 4. Restructuring of Operations 5. Supplemental Balance Sheet and Cash Flow Information 6. Stockholders' Equity 7. Redeemable Noncontrolling Interests 8. Earnings per Share 9. Stock Compensation 10. Pension and Postretirement Benefit Plans 11. Financing Agreements 12. Fair Value Measurements and Derivatives 13. Commitments and Contingencies 14. Warranty Obligations 15. Income Taxes 16. Other 17. Revenue from Contracts with Customers 18. Segments 19. 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 products; and motors, power inverters, and control systems for electric vehicles our customer base includes virtually every major vehicle manufacturer in the global light vehicle, medium/heavy vehicle and off-highway markets. The terms "Dana," "we," "our" and "us," when used in this report, are references to Dana. These references include the subsidiaries of Dana unless otherwise indicated or the context requires otherwise. Summary of significant accounting policies Basis of presentation Recently adopted accounting pronouncements On January 1, We also adopted the following standard during the first three months of 2020 Standard Effective Date 2018-15 January 1, 2020 Recently issued accounting pronouncements In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. This guidance is intended to simplify various aspects of income tax accounting including the elimination of certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This guidance becomes effective January 1, 2021 and early adoption is permitted. Adoption of this guidance requires certain changes to primarily be made prospectively, with some changes to be made retrospectively. We are currently assessing the impact of this guidance on our consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance is intended to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The amendments in this ASU are elective and are effective upon issuance for all entities through December 31, 2022. We are currently assessing the impact of this guidance on our consolidated financial statements. Note 2. Acquisitions Ashwoods Innovations Limited — On February 5, 2020, we acquired Curtis Instruments, Inc.'s (Curtis) 35.4% ownership interest in Ashwoods Innovations Limited (Ashwoods). Ashwoods designs and manufactures permanent magnet electric motors for the automotive, material handling and off-highway vehicle markets. The acquisition of Curtis' interest in Ashwoods, along with our existing ownership interest in Ashwoods, provided us with a 97.8% ownership interest and a controlling financial interest in Ashwoods. We recognized a $3 gain to other income (expense), net on the required remeasurement of our previously held equity method investment in Ashwoods to fair value. The total purchase consideration of $22 is comprised of $8 of cash paid to Curtis at closing, the $10 fair value of our previously held equity method investment in Ashwoods and $4 related to the effective settlement of a pre-existing loan payable due from Ashwoods. During March 2020, we acquired the remaining noncontrolling interests in Ashwoods held by employee shareholders. Nordresa —On August 26, 2019, we acquired a 100% ownership interest in Nordresa Motors, Inc. (Nordresa) for consideration of $12, using cash on hand. Nordresa is a prominent integration and application engineering expert for the development and commercialization of electric powertrains for commercial vehicles. The investment further enhances Dana's electrification capabilities by combining its complete portfolio of motors, inverters, chargers, gearboxes, and thermal-management products with Nordresa's proprietary battery-management system, electric powertrain controls and integration expertise to deliver complete electric powertrain systems. The results of operations of the business are reported within our Commercial Vehicle operating segment. The pro forma effects of this acquisition would not materially impact our reported results for any period presented, and as a result no pro forma financial information is presented. Hydro-Québec Relationship —On July 29, 2019, we broadened our relationship with Hydro-Québec, with Hydro-Québec acquiring an indirect 45% redeemable noncontrolling interest in S.M.E. S.p.A. (SME) and increasing its existing indirect 22.5% noncontrolling interest in Prestolite E-Propulsion Systems (Beijing) Limited (PEPS) to 45%. We received $65 at closing, consisting of $53 of cash and a note receivable of $12. The note is payable in five years and bears annual interest of 5%. Dana will continue to consolidate SME and PEPS as the governing documents continue to provide Dana with a controlling financial interest in these subsidiaries. See Note Prestolite E-Propulsion Systems (Beijing) Limited — On June 6, 2019, we acquired Prestolite Electric Beijing Limited's (PEBL) 50% ownership interest in PEPS. PEPS manufactures and distributes electric mobility solutions, including electric motors, inverters, and generators for commercial vehicles and heavy machinery. PEPS has a state-of-the-art facility in China, enabling us to expand motor and inverter manufacturing capabilities in the world's largest electric-mobility market. The acquisition of PEBL's interest in PEPS, along with our existing ownership interest in PEPS through our TM4 subsidiary, provides us with a 100% ownership interest and a controlling financial interest in PEPS. We recognized a $2 gain to other income (expense), net on the required remeasurement of our previously held equity method investment in PEPS to fair value. See Hydro-Québec relationship discussion above for details of subsequent changes in our ownership interest in PEPS. We paid $50 at closing using cash on hand. The purchase consideration and 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 Fair value of previously held equity method investment Total purchase consideration Cash and cash equivalents Accounts receivable - Trade Inventories Goodwill Property, plant and equipment Accounts payable Other accrued liabilities Total purchase consideration allocation The fair value of the assets acquired and liabilities assumed, as well as the fair value of our previously held equity method investment, 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 inventories, intangibles and property, plant and equipment. Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the assembled workforce and is not deductible for tax purposes. We used a combination of the discounted cash flow, an income approach, and the guideline public company method, a market approach, to value our previously held equity method investment in PEPS. The fair value assigned to intangibles includes $10 allocated to customer relationships. We used the multi-period excess earnings method, an income approach, to value customer relationships. The customer relationships intangible asset is being amortized on a straight-line basis over sevenyears. The results of operations of the business are reported in our Commercial Vehicle operating segment from the date of acquisition. The pro forma effects of this acquisition would not materially impact our reported results for any period presented, and as a result no pro forma financial information is presented. PEPS had an insignificant impact on our consolidated results of operations during 2019. Oerlikon Drive Systems We paid $626 at closing which was funded primarily through debt proceeds. See Note Purchase consideration paid at closing Less purchase consideration to be recovered for indemnified matters Total purchase consideration Cash and cash equivalents Accounts receivable - Trade Accounts receivable - Other Inventories Other current assets Goodwill Intangibles Deferred tax assets Other noncurrent assets Investments in affiliates Property, plant and equipment Current portion of long-term debt Accounts payable Accrued payroll and employee benefits Other accrued liabilities Long-term debt Pension and postretirement obligations Other noncurrent liabilities Noncontrolling interests Total purchase consideration allocation Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the assembled workforce and is not deductible for tax purposes. The fair values assigned to intangibles includes $11 allocated to developed technology, $13 allocated to trademarks and trade names and $34 allocated to customer relationships. Various valuation techniques were used to determine the fair value of the intangible assets, with the primary techniques being forms of the income approach, specifically, the relief from-royalty and excess earnings valuation methods, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Under these valuation approaches, we are required to make estimates and assumptions about sales, operating margins, growth rates, customer attrition rates, royalty rates and discount rates based on anticipated future cash flows and marketplace data. We used a replacement cost method to value fixed assets. The developed technology, trademarks and trade names and customer relationship intangible assets are being amortized on a straight-line basis over seven, ten and twelve years, respectively. 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 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 Net sales Net income The unaudited pro forma results include adjustments primarily related to purchase accounting, interest expense related to the debt proceeds SME 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 Total purchase consideration Accounts receivable - Trade Accounts receivable - Other Inventories Goodwill Intangibles Property, plant and equipment Short-term debt Accounts payable Accrued payroll and employee benefits Other accrued liabilities Other noncurrent liabilities Total purchase consideration allocation Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the assembled workforce and is not deductible for tax purposes. The The results of operations of the business are reported in our Off-Highway operating segment from the date of acquisition. The pro forma effects of this acquisition would not materially impact our reported results for any period presented, and as a result no pro forma financial Note 3. Goodwill and Other Intangible Assets Goodwill— As discussed in our 2019 Form 10-K, we estimate the fair value Based on the results of our interim impairment tests, we concluded that carrying value exceeded fair value in our Commercial Vehicle and Light Vehicle reporting units and we recorded a goodwill impairment charge of $51. Our testing for the Off-Highway reporting unit indicated that fair value slightly exceeded carrying value and, accordingly, no impairment charge was required. The reduction in fair values, and the corresponding impairment charges, were primarily driven by the negative effect of the COVID-19 pandemic on each reporting unit’s near-term cash flows. The remaining balance of goodwill for the Commercial Vehicle and Off-Highway reporting units continues to be at risk for impairment. A prolonged shutdown due to COVID-19 or a significant reduction in demand caused by decreased consumer confidence and spending following the pandemic may result in the need to recognize an additional impairment charge in the The Changes in the carrying amount of goodwill by segment — Light Vehicle Commercial Vehicle Off-Highway Power Technologies Total Balance, December 31, 2019 Balance, March 31, 2020 Components of other intangible assets March 31, 2020 December 31, 2019 Weighted Average Useful Life (years) Gross Carrying Amount Accumulated Impairment and Amortization Net Carrying Amount Gross Carrying Amount Accumulated Impairment and Amortization Net Carrying Amount Amortizable intangible assets Core technology Trademarks and trade names Customer relationships Non-amortizable intangible assets Trademarks and trade names The net carrying amounts of intangible assets, other than goodwill, attributable to each of our operating segments at March 31, Amortization expense related to amortizable intangible assets Three Months Ended March 31, 2020 2019 Total amortization The following table provides the estimated aggregate pre-tax amortization expense related to intangible assets for each of the next five years based on March 31, Remainder of 2020 2021 2022 2023 2024 Amortization expense Note 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 Restructuring charges of $3 in the first quarter of 2020 and $9 in the first quarter of 2019 were comprised of severance and benefit costs related to integration of Accrued restructuring costs and activity Exit Costs Total Balance, December 31, 2019 Balance, March 31, 2020 At Cost to complete Expense Recognized Prior to 2020 2020 Total to Date Future Cost to Complete Commercial Vehicle The future cost to complete includes estimated separation costs, primarily those associated with Note Inventory components at March 31, 2020 December 31, 2019 Total Cash, cash equivalents and restricted cash at — March 31, 2020 December 31, 2019 March 31, 2019 December 31, 2018 Total cash, cash equivalents and restricted cash Note Common stock Share repurchase program Changes in equity Three Months Ended March 31, 2020 Common Stock Retained Earnings Treasury Stock Total Equity Balance, December 31, 2019 Net income Other comprehensive loss Balance, March 31, 2020 2019 Balance, December 31, 2018 Adoption of ASU 2016-02 leases, January 1, 2019 Net income Other comprehensive income (loss) Common stock dividends Distributions to noncontrolling interests Increase from business combination Stock compensation Stock withheld for employee taxes Balance, March 31, 2019 Changes in each component of accumulated other comprehensive income (AOCI) of the parent Parent Company Stockholders Hedging Defined Benefit Plans Accumulated Other Comprehensive Loss Balance, December 31, 2019 Other comprehensive income (loss): Other comprehensive income (loss) Balance, March 31, 2020 Balance, December 31, 2018 Other comprehensive income (loss): Currency translation adjustments Holding gains and losses Reclassification of amount to net income (a) Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) Tax expense Other comprehensive income Balance, March 31, 2019 (a) Realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments treated as cash flow hedges are reclassified from AOCI into the same line item in the consolidated statement of operations in which the underlying forecasted transaction or other hedged item is recorded. See Note (b) See Note Note In connection with the acquisition of a controlling financial interest in TM4 from Hydro-Québec on June 22, 2018, we recognized $102 for Hydro-Québec's 45% redeemable noncontrolling Redeemable noncontrolling interests reflected as of the balance sheet date are the greater of the redeemable noncontrolling interest balances adjusted for comprehensive income items and distributions or the redemption values. Redeemable noncontrolling interest adjustments of redemption value are recorded in retained earnings. Reconciliation of changes in redeemable noncontrolling interests Three Months Ended March 31, 2020 2019 Balance, beginning of period Comprehensive income (loss) adjustments: Balance, end of period Note Reconciliation of the numerators and denominators of the earnings per share calculations Three Months Ended March 31, 2020 2019 Net income available to common stockholders - Numerator basic and diluted Denominator: Weighted-average common shares outstanding - Diluted The share count for diluted earnings per share is computed on the basis of the weighted-average number of common shares outstanding plus the effects of dilutive common stock equivalents (CSEs) outstanding during the period. We excluded Note The Compensation Committee of our Board of Directors approved the grant of RSUs and performance share units (PSUs) shown in the table below during Granted Grant Date (In millions) Fair Value* RSUs PSUs * Weighted-average per share We calculated the fair value of the RSUs at grant date based on the closing market price of our common stock at the date of grant. The number of PSUs that ultimately vest is contingent on achieving specified We paid Note We have a number of defined contribution and defined benefit, qualified and nonqualified, pension plans covering eligible employees. Other postretirement benefits (OPEB), including medical and life insurance, are provided for certain employees upon retirement. Components of net periodic benefit cost Pension OPEB 2020 2019 2020 2019 Three Months Ended March 31, U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. Non-U.S. Net periodic benefit cost 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 Pension expense for Plan termination Note Long-term debt at Interest Rate March 31, 2020 December 31, 2019 Senior Notes due December 15, 2024 5.500% Senior Notes due April 15, 2025 5.750% Senior Notes due June 1, 2026 6.500% Senior Notes due November 15, 2027 5.375% Term Facility A Term Facility B Other indebtedness Debt issuance costs Less: Current portion of long-term debt Long-term debt, less debt issuance costs * In conjunction with the issuance of the April 2025 Notes we entered into 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 Interest on the senior notes is payable semi-annually and interest on the Term Credit agreement The Term Facilities and the Revolving Facility are guaranteed by all of our wholly-owned domestic subsidiaries subject to certain exceptions (the guarantors) and are secured by a Advances under the Term A Facility and the Revolving Facility bear interest at a floating rate based on, at our option, the base rate or Eurodollar rate (each as described in the credit agreement) plus a margin as set forth below: Margin Total Net Leverage Ratio Base Rate Eurodollar Rate Less than or equal to 1.00:1.00 Greater than 1.00:1.00 but less than or equal to 2.00:1.00 Greater than 2.00:1.00 The Term B Facility bears interest based on, at our option, the Base Rate plus 1.25% or the Eurodollar rate plus 2.25%. We have elected to pay interest on our advances under the Term Facilities at the Eurodollar Rate. The interest rate on the Term A Facility was Commitment fees are applied based on the average daily unused portion of the available amounts under the Revolving Facility as set forth below: Total Net Leverage Ratio Commitment Fee Less than or equal to 1.00:1.00 Greater than 1.00:1.00 but less than or equal to 2.00:1.00 Greater than 2.00:1.00 Up to At March 31, Debt covenants Subsequent event — On April 16, 2020, we entered into a $500 bridge facility (the Bridge Facility). We recorded deferred fees of $5 related to the Bridge Facility. The deferred fees are included in other current assets and are being amortized over the life of the Bridge Facility. The Bridge Facility matures on April 15, 2021. The Bridge Facility is guaranteed by all of our wholly-owned domestic subsidiaries subject to certain exceptions (the guarantors) and is secured by a first-priority lien on substantially all of the assets of Dana and the guarantors, subject to certain exceptions. Advances under the Bridge Facility incur a one-time funding fee when drawn and bear interest at a floating rate based on, at our option, the Eurodollar rate plus an initial margin equal to 4.50% or a base rate plus an initial margin equal to 3.50% (each as described in the credit agreement). The initial margin increases by 0.50% every 90 days. A duration fee of 0.50% is paid every 90 days on the full $500 commitment. A commitment fee of 0.50% is applied based on the average daily unused portion of the available amount under the Bridge Facility. Under the Bridge Facility we are required to comply with certain incurrence-based covenants customary for facilities of this type and a maintenance covenant requiring us to maintain a first lien net leverage ratio not to exceed 2.50 to 1.00 for the quarter ending June 30, 2020, 3.00 to 1.00 for the quarter ending September 30, 2020 and 4.00 to 1.00 thereafter. In addition, on April 16, 2020, we amended certain provisions of our credit and guaranty agreement including increasing the first lien net leverage ratio to a maximum of 4.00 to 1.00 for the quarter ending December 31, 2020 and then, starting with the quarter ending December 31, 2021, decrease the ratio quarterly until it returns to its prior level of 2.00 to 1.00 for and after the quarter ending September 30, 2022, unless Dana in its sole discretion elects to return the first lien net leverage ratio to its prior level earlier than such date. We also amended certain restrictive covenants to provide additional limitations that are consistent with the Bridge Facility until such time as the earlier of (x) December 31, 2021 and (y) any date that we elect after the expiration of the Bridge Facility. Additionally, the amendment provides that certain mandatory prepayments required under the credit and guaranty agreement for the incurrence of debt and asset sale proceeds will not be paid to the Term Facilities' lenders while the Bridge Facility is outstanding. Note 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 Fair Value Category Balance Sheet Location Fair Value Level Currency forward contracts Currency swaps Cash flow hedges Other noncurrent liabilities 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 March 31, 2020 December 31, 2019 Fair Value Level Carrying Value Fair Value Carrying Value Fair Value Senior notes Term Facility Other indebtedness* Total * The carrying value includes the unamortized portion of a fair value adjustment related to a terminated interest rate swap at both dates. Interest rate derivatives Foreign currency derivatives We have executed fixed-to-fixed cross-currency swaps in conjunction with the issuance of certain notes to eliminate the variability in the functional-currency-equivalent cash flows due to changes in exchange rates associated with the forecasted principal and interest payments. All of the underlying designated financial instruments, and any subsequent replacement debt, have been designated as the hedged items in each respective cash flow hedge relationship, as shown in the table below. Designated as cash flow hedges of the forecasted principal and interest payments of the underlying designated financial instruments, or subsequent replacement debt, all of the swaps economically convert the underlying designated financial instruments into the functional currency of each respective holder. The impact of the interest rate differential between the inflow and outflow rates on all fixed-to-fixed cross-currency swaps is recognized during each period as a component of interest expense. The following fixed-to-fixed cross-currency swaps were outstanding at March 31, Underlying Financial Instrument Derivative Financial Instrument Description Type Face Amount Rate Traded Amount Inflow Rate Outflow Rate June 2026 Notes Payable April 2025 Notes Payable Luxembourg Intercompany Notes Receivable All of the swaps are expected to be highly effective in offsetting the corresponding currency-based changes in cash outflows related to the underlying designated financial instruments. Based on our qualitative assessment that the critical terms of all of the underlying designated financial instruments and all of the associated swaps match and that all other required criteria have been met, we do not expect to incur any ineffectiveness. As effective cash flow hedges, changes in the fair value of the swaps will be recorded in OCI during each period. Additionally, to the extent the swaps remain effective, the appropriate portion of AOCI will be reclassified to earnings each period as an offset to the foreign exchange gain or loss resulting from the remeasurement of the underlying designated financial instruments. See Note The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was The following currency derivatives were outstanding at Notional Amount (U.S. Dollar Equivalent) Functional Currency Traded Currency Designated Undesignated Total Maturity U.S. dollar Mexican peso, euro Mar-2021 Euro U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee, Russian ruble, Chinese renminbi, Mexican peso, Australian dollar, Japanese yen, Singapore dollar Jan-2024 British pound U.S. dollar, euro Nov-2020 South African rand Thai baht Dec-2020 Thai baht U.S. dollar, euro Sep-2020 Canadian dollar U.S. dollar Feb-2021 Brazilian real U.S. dollar, euro Dec-2020 Indian rupee U.S. dollar, British pound, euro Mar-2021 Chinese renminbi Canadian dollar, euro Apr-2020 Total forward contracts U.S. dollar euro Nov-2027 Euro U.S. dollar Jun-2026 Total currency swaps Total currency derivatives Designated cash flow hedges 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, 2020 December 31, 2019 Forward Contracts Total The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with cash flow hedging relationships: Three Months Ended March 31, 2020 Derivatives Designated as Cash Flow Hedges Net sales Cost of sales Other income (expense), net Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded (Gain) or loss on cash flow hedging relationships Foreign currency forwards Cross-currency swaps Three Months Ended March 31, 2019 Derivatives Designated as Cash Flow Hedges Net sales Cost of sales Other income (expense), net Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded (Gain) or loss on cash flow hedging relationships Cross-currency swaps Amount of (gain) loss reclassified from AOCI into income The amounts reclassified from AOCI into income for the cross-currency swaps represent an offset to a foreign exchange loss on our foreign currency-denominated intercompany and external debt instruments. Certain of our hedges of forecasted transactions have not formally been designated as cash flow hedges. As undesignated forward contracts, the changes in the fair value of such contracts are included in earnings for the duration of the outstanding forward contract. Any realized gain or loss on the settlement of such contracts is recognized in the same period and in the same line item in the consolidated statement of operations as the underlying transaction. The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with undesignated hedging relationships. Amount of Gain (Loss) Recognized in Income Derivatives Not Designated as Hedging Instruments Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 Location of Gain or (Loss) Recognized in Income During the first quarter of 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 Net investment hedges Note Product liabilities Environmental liabilities Guarantee of lease obligations Other legal matters Note 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, 2020 2019 Balance, beginning of period Balance, end of period Note 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 We record interest and penalties related to uncertain tax positions as a component of income tax expense. Net interest expense for the periods presented herein is not significant. We reported an income tax benefit of $16 and income tax expense of $20 Dividends of earnings from non-U.S. operations are generally no longer subjected to U.S. income tax. We continue to analyze and adjust the estimated tax impact of the income and non-U.S. withholding tax liabilities based on the amounts and sources of these earnings. Note 16. Other Income (Expense), Net Three Months Ended March 31, 2020 2019 Other income (expense), net Foreign exchange gains and losses on cross-currency intercompany loan balances that are not of a long-term investment nature are included above. Foreign exchange gains and losses on intercompany loans that are permanently invested are reported in OCI. Foreign exchange loss in 2019 included a loss on the undesignated Swiss franc notional deal contingent forward related to the ODS acquisition. See Note Strategic transaction expenses relate primarily to costs incurred in connection with acquisition and divestiture related activities, including costs to complete the transaction and post-closing integration costs. Strategic transaction expenses in 2020 were primarily attributable to the acquisitions of ODS and Nordresa. Strategic transaction expenses in 2019 were primarily attributable to the acquisition of ODS. During the first quarter of 2019, we won a legal judgment regarding the methodology used to calculate PIS/COFINS tax in Brazil. Note 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. Refund liabilities are included in other accrued liabilities Contract liabilities are primarily comprised of cash deposits made by customers with cash in advance payment terms. Generally, our contract liabilities turn over frequently given our relatively short production cycles. Contract liabilities were Disaggregation of revenue The following table disaggregates revenue for each of our operating segments by geographical market: Light Vehicle Commercial Vehicle Off-Highway Power Technologies Total Total North America Europe South America Asia Pacific Total Note We are a global provider of high-technology products to virtually every major vehicle Dana evaluates the performance of its operating segments based on external sales and segment EBITDA. Segment EBITDA is a primary driver of cash flows from operations and a measure of our ability to maintain and continue to invest in our operations and provide shareholder returns. Our segments are charged for corporate and other shared administrative costs. Segment EBITDA may not be comparable to similarly titled measures reported by other companies. Segment information 2020 2019 Three Months Ended March 31, External Sales Inter-Segment Sales Segment EBITDA External Sales Inter-Segment Sales Segment EBITDA Total Reconciliation of segment EBITDA to consolidated net income — Three Months Ended March 31, 2020 2019 Earnings before interest and income taxes Interest income Interest expense Earnings before income taxes Income tax expense (benefit) Equity in earnings of affiliates Net income Note We have a number of investments in entities that engage in the manufacture and supply of vehicular parts The decrease in equity method investments from the prior period is due in large part to Equity method investments exceeding Ownership Percentage Investment Dongfeng Dana Axle Co., Ltd. (DDAC) Bendix Spicer Foundation Brake, LLC Axles India Limited Taiway Ltd. All others as a group Investments in equity affiliates Investments in affiliates carried at cost Investments in affiliates Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions) Management's discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes in this report. Forward-Looking Information Statements in this report (or otherwise made by us or on our behalf) that are not entirely historical constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can often be identified by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “predicts,” “seeks,” “estimates,” “projects,” “outlook,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing” and similar expressions, variations or negatives of these words. These statements represent the present expectations of Dana Incorporated and its consolidated subsidiaries (Dana) based on our current information and assumptions. Forward-looking statements are inherently subject to risks and uncertainties. Our plans, actions and actual results could differ materially from our present expectations due to a number of factors, including those discussed below and elsewhere in this report and in our other filings with the Securities and Exchange Commission (SEC). All forward-looking statements speak only as of the date made and we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances that may arise after the date of this report. Management Overview Dana 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 External sales by operating segment for the periods ended March 31, Three Months Ended March 31, 2020 2019 % of % of Dollars Total Dollars Total Light Vehicle Commercial Vehicle Off-Highway Power Technologies Total See Note Our internet address is www.dana.com. The inclusion of our website address in this report is an inactive textual reference only and is not intended to include or incorporate by reference the information on our website into this report. Operational and Strategic Initiatives Our enterprise strategy Central to our strategy is Driving customer centricity continues to We continue to enhance and expand our global footprint, optimizing it to capture growth across all Delivering Over the past year we have achieved our goal to accelerate hybridization and electrification The development and implementation of our enterprise strategy is positioning Dana to grow profitably due to See Trends in 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 Financing actions Other Initiatives Aftermarket opportunities Selective acquisitions Acquisitions Ashwoods Innovations Limited — Nordresa —On August 26, 2019, we acquired a 100% ownership interest in Nordresa Motors, Inc. (Nordresa) for consideration of $12, using cash on hand. Nordresa is a prominent integration and application engineering expert for the development and commercialization of electric powertrains for commercial vehicles. The investment further enhances Dana's electrification capabilities by combining its complete portfolio of motors, inverters, chargers, gearboxes, and thermal-management products with Prestolite E-Propulsion Systems (Beijing) Limited — On June 6, 2019, we acquired Prestolite Electric Beijing Limited's (PEBL) 50% ownership interest in Prestolite E-Propulsion Systems (Beijing) Limited (PEPS). PEPS manufactures and distributes electric mobility solutions, including electric motors, inverters, and generators for Oerlikon Drive Systems SME Hydro-Québec Relationship On June 22, 2018, we acquired a 55% ownership interest in TM4 Trends in Our Markets The The company's response to the In response to the As of March 31, 2020, we had total liquidity of $1,325 including cash and cash equivalents (less deposits), marketable securities and availability from our Revolving Facility. Also, the company has no meaningful debt maturities before 2024. On April 16, 2020, we further enhanced our liquidity position by entering into a $500 bridge facility (the Bridge Facility). The Bridge Facility has a 364-day term and is intended to As Foreign Currency With 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. 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 The Brazil market is an important market for our Commercial Vehicle segment, representing about 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 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. Prices for commodities such as steel and aluminum Sales, Earnings and Cash Flow Outlook Due to the unprecedented disruption in our markets and Summary Consolidated Results of Operations Three Months Ended March 31, 2020 2019 Dollars % of Net Sales Dollars % of Net Sales Increase/ (Decrease) Net sales Cost of sales Gross margin Selling, general and administrative expenses Amortization of intangibles Restructuring charges, net Other income (expense), net Earnings before interest and income taxes Interest income Interest expense Earnings before income taxes Income tax expense (benefit) Equity in earnings of affiliates Net income Less: Noncontrolling interests net income Less: Redeemable noncontrolling interests net loss Net income attributable to the parent company Sales Three Months Ended March 31, Amount of Change Due To 2020 2019 Currency Effects Organic Change Total Sales in The North America organic sales Excluding currency and acquisition effects, sales in Europe were Excluding currency effects, first quarter sales in South America Excluding currency and acquisition effects, sales in Asia Pacific decreased about Cost of sales and gross margin Gross margin of Selling, general and administrative expenses (SG&A) Amortization of intangibles — Amortization expense was $3 in 2020 and Restructuring charges Impairment of Other Three Months Ended March 31, 2020 2019 Non-service cost components of pension and OPEB costs Government grants and incentives Foreign exchange gain (loss) Strategic transaction expenses Non-income tax legal judgment Other, net Other income (expense), net Foreign exchange loss in 2019 included a loss on the undesignated Swiss franc notional deal contingent forward related to the ODS acquisition. See Note Interest income and interest expense — Interest income was $2 in Income tax expense 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 Equity in earnings of affiliates Segment Results of Operations Light Vehicle Three Months Sales Segment EBITDA Segment EBITDA Margin 2019 2020 Light Vehicle sales in the first quarter of Light Vehicle segment EBITDA in this year's first quarter Commercial Vehicle Three Months Sales Segment EBITDA Segment EBITDA Margin 2019 2020 Excluding currency effects and the impact of acquisitions, Commercial Vehicle sales in the first quarter of 2020 decreased 20% compared to last year. Declining market conditions coming out of 2019 deteriorated further with the rapid dissipation in customer demand resulting from the global COVID-19 pandemic. Year-over-year North America Class 8 production was down 36% and Classes 5-7 production was down 30%. Similarly, medium/heavy truck production in Europe, South America and Asia Pacific were down 30%, 3% and 30%, respectively. Net customer pricing and cost recovery actions further decreased year-over-year first-quarter sales by $5. Commercial Vehicle segment EBITDA in this year's first quarter decreased by $20 when compared to same period of 2019. Lower sales volumes provided a year-over-year headwind of $21 and accounted for a 380 basis point deterioration in segment EBITDA margin, as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. The year-over-year performance-related earnings increase in the first quarter was driven by material cost savings of $5, lower premium freight of $3, lower incentive compensation of $3 and commodity Off-Highway Three Months Sales Segment EBITDA Segment EBITDA Margin 2019 2020 Excluding currency effects, primarily due to a weaker euro, and the impact of the ODS Off-Highway segment EBITDA Power Technologies Three Months Sales Segment EBITDA Segment EBITDA Margin 2019 2020 Power Technologies primarily serves the light vehicle market but also sells product to the medium/heavy truck and off-highway markets. Net of currency effects, sales for the first quarter of Power Technologies segment EBITDA in this year's first quarter 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, 2020 2019 Net income Equity in earnings of affiliates Income tax expense (benefit) Earnings before income taxes Adjusted EBITDA Other includes non-service cost components of pension and OPEB costs, stock compensation expense, strategic transaction expenses Free Cash Flow and Adjusted Free Cash Flow We have defined free cash flow as cash provided by (used in) operating activities less purchases of property, plant and equipment. We have defined adjusted free cash flow as cash provided by (used in) operating activities excluding discretionary pension contributions less purchases of property, plant and equipment. We believe these measures are useful to investors in The following table reconciles net cash flows provided by (used in) operating activities to adjusted free cash flow. Three Months Ended March 31, 2020 2019 Net cash used in operating activities Purchases of property, plant and equipment Free cash flow Discretionary pension contribution Adjusted free cash flow Liquidity The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at Cash and cash equivalents Available cash Marketable securities Total liquidity 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. The components of our March 31, U.S. Non-U.S. Total Consolidated cash balance A portion of the non-U.S. cash and cash equivalents is utilized for working capital and other operating purposes. Several countries have local regulatory requirements that restrict the ability of our operations to repatriate this cash. Beyond these restrictions, there are practical limitations on repatriation of cash from certain subsidiaries because of the resulting tax withholdings and subsidiary by-law restrictions which could limit our ability to access cash and other assets. At March 31, In response to the COVID-19 pandemic we have taken controlled and measured actions to preserve liquidity including but not limited to flexing our cost structure, reducing capital spending and investments in research and development activities where and when appropriate, taking advantage of The principal sources of liquidity available Cash Flow Three Months Ended March 31, 2020 2019 Cash used for changes in working capital Other cash provided by operations Net cash used in operating activities Net cash used in investing activities Net cash provided by financing activities Net decrease in cash, cash equivalents and restricted cash The table above Operating activities Working capital used cash of $183 and $175 in 2020 and Investing activities Financing activities — During the first quarter of 2020, we drew $300 on our revolving credit facility as part of our contingency planning activities related to the COVID-19 pandemic. During the first quarter of 2019, we entered into an amended credit and guaranty agreement comprised of a $500 Off-Balance Sheet Arrangements There have been no material changes at March 31, Contractual Obligations There have been no material changes in Contingencies For a summary of litigation and other contingencies, see Note Critical Accounting Estimates The preparation of our consolidated financial statements in accordance with GAAP requires us to use estimates and make judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. See Item 7 in our 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 Disclosure controls and procedures 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 CEO and CFO certifications We are a party to various pending judicial and administrative proceedings that arose in the ordinary course of business. After reviewing the currently pending lawsuits and proceedings (including the probable outcomes, reasonably anticipated costs and expenses and our established reserves for uninsured liabilities), we do not believe that any liabilities that may result from these proceedings are reasonably likely to have a material adverse effect on our liquidity, financial condition or results of operations. Legal proceedings are also discussed in Note The risk factor “A downturn in the global economy could have A downturn in the global economy could have a substantial adverse effect on our business. Our business is tied to general economic and industry conditions as demand for vehicles depends largely on the strength of the economy, employment levels, consumer confidence levels, the availability and cost of credit and the cost of fuel. These factors have had and could continue to have a substantial impact on our business. Certain political developments occurring the past several years have provided increased economic uncertainty. The United Kingdom's decision in 2016 to exit the European Union has not had significant economic ramifications to date; however, transition details continue to develop and could have potential economic implications in the United Kingdom and elsewhere. Political climate changes in the U.S., including tax reform legislation, easing of regulatory requirements and potential trade policy actions, are likely to impact economic conditions in the U.S. and various countries, the cost of importing into the U.S. and the competitive landscape of our customers, suppliers and competitors. Adverse global economic conditions could also cause our customers and suppliers to experience severe economic constraints in the future, including bankruptcy, which could have a material adverse impact on our financial position and results of operations. The risk factor "Our results of operations could be adversely affected by climate change, natural catastrophes or public health crises, in the locations in which we, our customers or our suppliers operate." disclosed in Item 1A of our 2019 Form 10-K has been updated to read as follows: Our results of operations could be adversely affected by climate change, natural catastrophes or public health crises, in the locations in which we, our customers or our suppliers operate. A natural disaster could disrupt our operations, or our customers’ or suppliers’ operations and could adversely affect our results of operations and financial condition. Although we have continuity plans designed to mitigate the impact of natural disasters on our operations, those plans may be insufficient, and any catastrophe may disrupt our ability to manufacture and deliver products to our customers, resulting in an adverse impact on our business and results of operations. Also, climate change poses both regulatory and physical risks that could harm our results of operations or affect the way we conduct our businesses. For example, new or modified regulations could require us to spend substantial funds to enhance our environmental compliance efforts. In addition, our global operations expose us to risks associated with public health crises, such as pandemics and epidemics, which could harm our business and cause our operating results to suffer. The novel coronavirus disease (COVID-19) pandemic is expected to have an adverse effect on our business, results of operations, cash flows and financial condition. The COVID-19 pandemic has negatively impacted the global economy, disrupted our operations as well as those of our customers, suppliers and the global supply chains in which we participate, and created significant volatility and disruption of financial markets. The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term operational, strategic and capital structure initiatives, will depend on future developments, including the duration and severity of the pandemic, which are uncertain and cannot be predicted. As a result of the COVID-19 pandemic, and in response to government mandates or recommendations, rapid dissipation of customer demand, as well as decisions we have made to protect the health and safety of our employees and communities, we have temporarily closed a significant number of our facilities globally. We may face longer term facility closure requirements and other operational restrictions with respect to some or all of our locations for prolonged periods of time due to, among other factors, evolving and increasingly stringent governmental restrictions including public health directives, quarantine policies or social distancing measures. We operate as part of the complex integrated global supply chains of our largest customers. As the COVID-19 pandemic dissipates at varying times and rates in different regions around the world, we anticipate a pro-longed negative impact on these global supply chains. Our ability to resume operations at our temporarily closed facilities will be impacted by the interdependencies of the various participants of these global supply chains, which are largely beyond our direct control. A pro-longed shut down of these global supply chains will have a material adverse effect on our business, results of operations, cash flows and financial condition. Consumer spending may also be negatively impacted by general macroeconomic conditions and consumer confidence, including the impacts of any recession, resulting from the COVID-19 pandemic. This may negatively impact the markets we serve and may cause our customers to purchase fewer products from us. Any significant reduction in demand caused by decreased consumer confidence and spending following the pandemic, would result in a loss of sales and profits and other material adverse effects. The risk factor “Our ability to utilize our net operating loss carryforwards may be limited.” disclosed in Item 1A of our 2019 Form 10-K has been updated to read as follows: Our ability to utilize our net operating loss carryforwards may be limited. Net operating loss carryforwards (NOLs) approximating $281 were available at December 31, 2019 to reduce future U.S. income tax liabilities. Our ability to utilize these NOLs may be limited as a result of certain change of control provisions of the U.S. Internal Revenue Code of 1986, as amended (Code). The NOLs are treated as losses incurred before the change of control in January 2008 and are limited to annual utilization of $84. There can be no assurance that trading in our shares will not effect another change in control under the Code, which could further limit our ability to utilize our available NOLs and certain other tax attributes. Such limitations may cause us to pay income taxes earlier and in greater amounts than would be the case if the NOLs and certain other tax attributes were not subject to limitation. Issuer's purchases of equity securities — 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, 2020 By: /s/ Jonathan M. Collins Jonathan M. Collins Executive Vice President and Chief Financial Officer Net sales $ 1,926 $ 2,163 Cost of sales 1,720 1,863 Selling, general and administrative expenses 106 136 Amortization of intangibles 3 2 Restructuring charges, net 3 9 Impairment of goodwill (51 ) Other income (expense), net 4 (13 ) 47 140 Interest income 2 2 Interest expense 29 27 20 115 Income tax expense (benefit) (16 ) 20 Equity in earnings of affiliates 2 6 38 101 Less: Noncontrolling interests net income 2 4 Less: Redeemable noncontrolling interests net loss (2 ) (1 ) $ 38 $ 98 Basic $ 0.26 $ 0.68 Diluted $ 0.26 $ 0.68 Basic 144.2 143.9 Diluted 144.8 144.8 Three Months Ended
March 31, 2019 2018 Net sales $ 2,163 $ 2,138 Costs and expenses Cost of sales 1,863 1,831 Selling, general and administrative expenses 136 130 Amortization of intangibles 2 2 Restructuring charges, net 9 1 Other expense, net (13 ) Earnings before interest and income taxes 140 174 Interest income 2 3 Interest expense 27 24 Earnings before income taxes 115 153 Income tax expense 20 48 Equity in earnings of affiliates 6 6 Net income 101 111 Less: Noncontrolling interests net income 4 2 Less: Redeemable noncontrolling interests net income (loss) (1 ) 1 Net income attributable to the parent company $ 98 $ 108 Net income per share available to common stockholders Basic $ 0.68 $ 0.74 Diluted $ 0.68 $ 0.73 Weighted-average common shares outstanding Basic 143.9 145.6 Diluted 144.8 147.5 $ 38 $ 101 Currency translation adjustments (154 ) 27 Hedging gains and losses 29 5 Defined benefit plans 3 5 (122 ) 37 (84 ) 138 Less: Comprehensive (income) loss attributable to noncontrolling interests 17 (2 ) Less: Comprehensive income attributable to redeemable noncontrolling interests (6 ) (4 ) $ (73 ) $ 132 Three Months Ended
March 31, 2019 2018 Net income $ 101 $ 111 Other comprehensive income (loss), net of tax: Currency translation adjustments 27 10 Hedging gains and losses 5 (8 ) Defined benefit plans 5 7 Other comprehensive income 37 9 Total comprehensive income 138 120 Less: Comprehensive income attributable to noncontrolling interests (2 ) (2 ) Less: Comprehensive income attributable to redeemable noncontrolling interests (4 ) (2 ) Comprehensive income attributable to the parent company $ 132 $ 116 Cash and cash equivalents $ 628 $ 508 Marketable securities 23 19 Trade, less allowance for doubtful accounts of $7 in 2020 and $9 in 2019 1,109 1,103 Other 192 202 Inventories 1,213 1,193 Other current assets 142 137 3,307 3,162 Goodwill 441 493 Intangibles 230 240 Deferred tax assets 603 580 Other noncurrent assets 133 120 Investments in affiliates 178 182 Operating lease assets 171 178 Property, plant and equipment, net 2,172 2,265 $ 7,235 $ 7,220 Short-term debt $ 312 $ 14 Current portion of long-term debt 28 20 Accounts payable 1,181 1,255 Accrued payroll and employee benefits 166 206 Taxes on income 44 46 Current portion of operating lease liabilities 42 42 Other accrued liabilities 294 262 2,067 1,845 Long-term debt, less debt issuance costs of $26 in 2020 and $28 in 2019 2,335 2,336 Noncurrent operating lease liabilities 134 140 Pension and postretirement obligations 440 459 Other noncurrent liabilities 224 305 5,200 5,085 Redeemable noncontrolling interests 175 167 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, 144,480,975 and 143,942,539 shares outstanding 2 2 Additional paid-in capital 2,391 2,386 Retained earnings 644 622 Treasury stock, at cost (10,432,777 and 10,111,191 shares) (156 ) (150 ) Accumulated other comprehensive loss (1,098 ) (987 ) 1,783 1,873 Noncontrolling interests 77 95 1,860 1,968 $ 7,235 $ 7,220 March 31,
2019 December 31,
2018Assets Current assets Cash and cash equivalents $ 383 $ 510 Marketable securities 20 21 Accounts receivable Trade, less allowance for doubtful accounts of $8 in 2019 and $9 in 2018 1,416 1,065 Other 202 178 Inventories 1,282 1,031 Other current assets 140 102 Total current assets 3,443 2,907 Goodwill 456 264 Intangibles 185 164 Deferred tax assets 464 445 Other noncurrent assets 87 80 Investments in affiliates 226 208 Operating lease assets 181 Property, plant and equipment, net 2,242 1,850 Total assets $ 7,284 $ 5,918 Liabilities and equity Current liabilities Short-term debt $ 14 $ 8 Current portion of long-term debt 41 20 Accounts payable 1,448 1,217 Accrued payroll and employee benefits 207 186 Taxes on income 62 47 Current portion of operating lease liabilities 39 Other accrued liabilities 302 269 Total current liabilities 2,113 1,747 Long-term debt, less debt issuance costs of $29 in 2019 and $18 in 2018 2,425 1,755 Noncurrent operating lease liabilities 147 Pension and postretirement obligations 602 561 Other noncurrent liabilities 353 313 Total liabilities 5,640 4,376 Commitments and contingencies (Note 16) Redeemable noncontrolling interests 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, 143,901,808 and 144,663,403 shares outstanding 2 2 Additional paid-in capital 2,372 2,368 Retained earnings 538 456 Treasury stock, at cost (10,095,558 and 8,342,185 shares) (150 ) (119 ) Accumulated other comprehensive loss (1,328 ) (1,362 ) Total parent company stockholders' equity 1,434 1,345 Noncontrolling interests 105 97 Total equity 1,539 1,442 Total liabilities and equity $ 7,284 $ 5,918 $ 38 $ 101 Depreciation 85 74 Amortization 4 3 Amortization of deferred financing charges 2 1 Earnings of affiliates, net of dividends received (2 ) (5 ) Stock compensation expense 4 5 Deferred income taxes (35 ) (14 ) Pension expense, net 1 4 Impairment of goodwill 51 Change in working capital (183 ) (175 ) Other, net (16 ) (10 ) (51 ) (16 ) Purchases of property, plant and equipment (63 ) (98 ) Acquisition of businesses, net of cash acquired (8 ) (606 ) Purchases of marketable securities (12 ) (5 ) Proceeds from sales and maturities of marketable securities 6 6 Settlements of undesignated derivatives (3 ) (20 ) Other, net (5 ) (1 ) (85 ) (724 ) Net change in short-term debt 298 (2 ) Proceeds from long-term debt 4 675 Repayment of long-term debt (1 ) (9 ) Deferred financing payments (12 ) Dividends paid to common stockholders (15 ) (14 ) Distributions to noncontrolling interests (1 ) (1 ) Contributions from noncontrolling interests 2 1 Repurchases of common stock (25 ) Other, net (4 ) (3 ) 283 610 147 (130 ) Cash, cash equivalents and restricted cash – beginning of period 518 520 Effect of exchange rate changes on cash balances (29 ) 5 $ 636 $ 395 Purchases of property, plant and equipment held in accounts payable $ 73 $ 84 Three Months Ended
March 31, 2019 2018 Operating activities Net income $ 101 $ 111 Depreciation 73 64 Amortization 4 3 Amortization of deferred financing charges 1 1 Earnings of affiliates, net of dividends received (5 ) (5 ) Stock compensation expense 5 4 Deferred income taxes (14 ) 12 Pension contributions, net 4 Change in working capital (175 ) (216 ) Other, net (10 ) (2 ) Net cash used in operating activities (16 ) (28 ) Investing activities Purchases of property, plant and equipment (98 ) (65 ) Acquisition of businesses, net of cash acquired (606 ) Purchases of marketable securities (5 ) (17 ) Proceeds from sales of marketable securities 4 Proceeds from maturities of marketable securities 6 11 Settlements of undesignated derivatives (20 ) Other, net (1 ) Net cash used in investing activities (724 ) (67 ) Financing activities Net change in short-term debt (2 ) (7 ) Proceeds from long-term debt 675 Repayment of long-term debt (9 ) (1 ) Deferred financing payments (12 ) Dividends paid to common stockholders (14 ) (15 ) Distributions to noncontrolling interests (1 ) (1 ) Contributions from noncontrolling interests 1 Repurchases of common stock (25 ) Other, net (3 ) (4 ) Net cash provided by (used in) financing activities 610 (28 ) Net decrease in cash, cash equivalents and restricted cash (130 ) (123 ) Cash, cash equivalents and restricted cash – beginning of period 520 610 Effect of exchange rate changes on cash balances 5 14 Less: Cash contributed to disposal group (10 ) Cash, cash equivalents and restricted cash – end of period (Note 6) $ 395 $ 491 Non-cash investing activity Purchases of property, plant and equipment held in accounts payable $ 84 $ 81 1.Disposal Groups and Divestitures4.5.6.7.Leases8.Stockholders' Equity9.10.11.12.13.Marketable Securities14.Financing Agreements15.16.17.18.19.Expense,Income (Expense), Net20.21.22.Form-KForm 10-K for the year ended December 31, 20182019 (the "20182019 Form 10-K")10-K).2019, 2020, we adopted 2016-02, Leases2016-13, Financial Instruments – Credit Losses (Topic 842)326): Measurement of Credit Losses on Financial Instruments, using the modified retrospective approach and an application date of January 1, 2019. Prior period amounts have not been 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 elected the package of practical 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 lease term of existing leases. We separated the lease components from the non-lease components of each lease arrangement and, therefore, did not elect the practical expedient that would enable us to not separate them.We also adopted the following standards during the first quarter of 2019, none of which had a material impact on our financial statements or financial statement disclosures:StandardEffective Date2017-11Earnings 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 ExceptionJanuary 1, 2019Recently issued accounting pronouncementsIn August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This guidance allows for capitalization of implementation costs associated with certain cloud computing arrangements. This guidance becomes effective January 1, 2020 and early adoption is permitted. The guidance is to be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We do not expect the adoption of this guidance to impact our consolidated financial statements.In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The guidance eliminated certaindisclosures 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 annual financial statement disclosures.In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The guidance removed or modified some disclosures while others were added. The removal and amendment of certain disclosures can be adopted immediately with retrospective application. The additional disclosure guidance becomes effective January 1, 2020. Adoption of this guidance will not have a material effect on our financial 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 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 The adoption resulted in a noncash cumulative effect adjustment to retained earnings on our opening consolidated balance sheet as of January 1, 2020. is , which did not expected to have a material impact on our financial statements or financial statement disclosures:Intangibles – Goodwill and Other – Internal-Use Software, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract 2018-14 Compensation – Retirement Benefits – Defined Benefit Plans – General, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans January 1, 2020 2018-13 Fair Value Measurement, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement January 1, 2020 2. Acquisitions $ 50 45 $ 95 $ 2 17 9 63 Intangibles 10 2 (4 ) (3 ) Other noncurrent liabilities (1 ) $ 95 (“ODS”)(ODS) segment of the Oerlikon Group. ODS is a global manufacturer of high-precision gears, planetary hub drives for wheeled and tracked vehicles, and products, controls, and software that support vehicle electrification across the mobility industry. The acquisition of ODS is expected to deliver significant long-term value by accelerating our commitment to vehicle electrification and strengthening the technology portfolio for each of our end markets while further expanding and balancing the manufacturing presence of our 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 two additional facilities under construction in China.1411 for additional information. The purchase consideration and 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 $ 622 Cash and cash equivalents $ 76 Accounts receivable - Trade 150 Accounts receivable - Other 15 Inventories 202 Other current assets 16 Goodwill 126 Deferred tax assets 37 Other noncurrent assets 28 Investments in affiliates 7 Property, plant and equipment 345 Current portion of long-term debt (2 ) Accounts payable (151 ) Accrued payroll and employee benefits (33 ) Other accrued liabilities (48 ) Long-term debt (8 ) Pension and postretirement obligations (47 ) Other noncurrent liabilities (83 ) Noncontrolling interests (8 ) Total purchase consideration allocation $ 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. $ 626 (11 ) $ 615 $ 76 150 15 190 16 94 58 24 2 7 Operating lease assets 4 333 (2 ) (151 ) (37 ) Current portion of operating lease liabilities (1 ) Taxes on income (5 ) (61 ) (8 ) (49 ) Noncurrent operating lease liabilities (2 ) (30 ) (8 ) $ 615 ODSthe business are primarily reported in our Off-Highway and Commercial Vehicle operating segments. Transaction related expenses associated with completion of the acquisition totaling $12$13 in 2019 were charged to other expense,income (expense), net. During the first quarter of 2019, the business contributed sales of $75. Three Months Ended March 31, 2019 2018 Net sales $ 2,308 $ 2,360 Net income $ 126 $ 89 $ 2,308 $ 126 of debt used in connection with the acquisition of ODS, and non-recurring strategic transaction expense.expenses. The unaudited pro forma financial information is not indicative of the operational results that would have been obtained had the transactions actually occurred as of that date, nor is it necessarily indicative of Dana’s future operational results.the S.M.E. S.p.A. (SME).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. See Hydro-Québec relationship discussion above for details of subsequent changes in our ownership interest in SME. 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. $ 88 $ 4 1 8 68 24 5 (8 ) (6 ) (1 ) (1 ) (6 ) $ 88 provisional fair values assigned to intangibles include $15 allocated to developed technology and $9 allocated to customer 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 twelve and ten years, respectively, and property, plant and equipment is being depreciated on a straight-line basis over useful lives ranging from one to twenty years.statements wereinformation is presented. the first quarter of 2019, the business contributed sales of $6.$21.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 systemsOur goodwill is tested for electric vehicles, offering a complementary portfolio to Dana's electric gearboxes and thermal-management technologies for batteries, motors, and inverters. The transaction establishes Danaimpairment annually 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 October 31 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 sharesour reporting units, and more frequent if events or circumstances warrant such a review. We completed numerous acquisitions in TM4 to Dana2018 and 2019 that are included in our Commercial Vehicle and Off-Highway reporting units. These acquisitions were recorded on the balance sheet 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 thetheir estimated acquisition date fair values and therefore had no cushion of fair value over their carrying value. As a result of the effect of COVID-19 on our expected future operating cash flows, a decrease in our share price which reduced our market capitalization below the book value of net assets acquired and liabilities assumed are presentedlower cushion 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 synergiesour expected to arise after the acquisition and the assembled workforce and is not deductible for tax purposes. The provisionalreporting unit fair values assigned to intangibles include $14 allocated to developed technology and $10 allocated to trademarks and trade names. We usedas a result of the relief from royalty method, an income approach, torecent acquisitions, we determined certain impairment triggers had occurred. Accordingly, we performed interim impairment analyses at each of our reporting units as of March 31, 2020.developed technology andof the trademarks and trade names. We used a replacement cost method to value fixed assets. We used a combination of thereporting units using various valuation methodologies, including discounted cash flow an income approach,projections and multiples of current earnings. In determining fair value using discounted cash flow projections, we make significant assumptions and estimates about the guideline public company method, a market approach, toextent and timing of future cash flows, including revenue growth rates, projected gross margins, discount rates, terminal growth rates, and exit earnings multiples. If the estimated fair value of the reporting unit exceeds its carrying value, the 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 equipmentgoodwill 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. Transaction related expenses associated with completion of the acquisition totaling $5 were charged to other expense, 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. In connection with the acquisition of BFP and BPT, Dana agreed to purchase certain real estate being leased by BPT from a Brevini affiliate for €25. Completion of the real estate purchase and receipt of the purchase price adjustment occurred in the second quarter of 2018 with a net cash payment of $20.On 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 BFP and BPT and to settle all claims between the parties. We paid $43 to acquire Interfind S.p.A.'s remaining ownership interests and received $10 in settlement of all pending and future claims. See Note 9 for additional information.Note 3. Disposal Groups and DivestituresDisposal 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 were reported within our Commercial Vehicle operating segment. To effectuate the sale, Dana wasobligated 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 impaired. If the carrying value of the net assets toreporting unit exceeds its estimated fair value, a goodwill impairment charge is recorded for the difference, with the impairment loss limited to the total amount of goodwill allocated to that reporting unit.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. After being unable to complete the transaction with the counterparty to the December 2017 agreement, we entered into an agreement with another third party in June 2018. Commercial Vehicle or Off-Highway reporting units.transaction with the new counterparty closed in July 2018 and we received cash proceeds of $2. We reversed $3 of the previously recognized $27 pre-tax loss, inclusive of the proceeds received in July 2018, during the second quarter of 2018.Note 4. Goodwill and Other Intangible AssetsGoodwill — Theremaining change in the carrying amount of goodwill in 20192020 is primarily due to the acquisition of Ashwoods and currency fluctuation and the acquisitions of SME and ODS.fluctuation. See Note 2 for additional information on recent acquisitions. 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 $ 3 $ 228 $ 262 $ — $ 493 Acquisitions 23 23 Impairment (3 ) (48 ) (51 ) Currency impact (15 ) (9 ) (24 ) $ — $ 165 $ 276 $ — $ 441 March 31, 2019 December 31, 2018 Amortizable intangible assets Core technology 9 $ 121 $ (89 ) $ 32 $ 107 $ (89 ) $ 18 Trademarks and trade names 16 16 (4 ) 12 16 (4 ) 12 Customer relationships 8 465 (399 ) 66 460 (400 ) 60 Non-amortizable intangible assets Trademarks and trade names 75 75 74 74 Used in research and development activities 20 (20 ) — 20 (20 ) — $ 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. 8 $ 130 $ (93 ) $ 37 $ 133 $ (94 ) $ 39 13 29 (7 ) 22 30 (6 ) 24 8 502 (405 ) 97 509 (407 ) 102 74 74 75 75 $ 735 $ (505 ) $ 230 $ 747 $ (507 ) $ 240 20192020 were as follows: Light Vehicle — $27,$26, Commercial Vehicle — $54,$59, Off-Highway — $95$138 and Power Technologies — $9. Three Months Ended
March 31, 2019 2018 Charged to cost of sales $ 1 $ 1 Charged to amortization of intangibles 2 2 Total amortization $ 3 $ 3 Charged to cost of sales $ 1 $ 1 Charged to amortization of intangibles 3 2 $ 4 $ 3 20192020 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. $ 13 $ 17 $ 17 $ 17 $ 16 5.4. Restructuring of Operationshowever, in response to lower demand and other market conditions in certain businesses, our focus has been primarily been headcount reduction initiatives to reduce operating costs.costs, including actions taken at acquired businesses to rationalize cost structures and achieve operating synergies. Restructuring expense includes costs associated with current and previously announced actions and is comprised of contractual and noncontractual separation costs and exit costs, including certain operating costs of facilities that we are in the process of closing.the ODS acquisition,recent acquisitions, 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, 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. Total Balance, December 31, 2018 $ 25 $ 4 $ 29 Charges to restructuring 7 2 9 Cash payments (6 ) (2 ) (8 ) Lease cease-use reclassification (4 ) (4 ) Balance, March 31, 2019 $ 26 $ — $ 26 Employee Termination Benefits $ 13 $ 1 $ 14 Charges to restructuring 2 1 3 Cash payments (3 ) (1 ) (4 ) Currency impact (1 ) (1 ) $ 11 $ 1 $ 12 20192020, the accrued employee termination benefits include costs to reduce approximately 300200 employees to be completed over the next year.2019. Expense Recognized 2019 Commercial Vehicle $ 35 $ 1 $ 36 $ 7 $ 39 $ - $ 39 $ 3 one-timeone-time benefit programs, and exit costs through 2021, equipment transfers and other costs which are required to be recognized as closures are finalized or as incurred during the closure.6.5. Supplemental Balance Sheet and Cash Flow Information March 31,
2019 December 31,
2018Raw materials $ 515 $ 433 Work in process and finished goods 822 649 Inventory reserves (55 ) (51 ) Total $ 1,282 $ 1,031 Raw materials $ 493 $ 470 Work in process and finished goods 783 787 Inventory reserves (63 ) (64 ) $ 1,213 $ 1,193 Cash and cash equivalents $ 628 $ 508 $ 383 $ 510 Restricted cash included in other current assets 5 6 9 7 Restricted cash included in other noncurrent assets 3 4 3 3 $ 636 $ 518 $ 395 $ 520 March 31,
2019 December 31,
2018 March 31,
2018 December 31,
2017Cash and cash equivalents $ 383 $ 510 $ 479 $ 603 Restricted cash included in other current assets 9 7 8 3 Restricted cash included in other noncurrent assets 3 3 4 4 Total cash, cash equivalents and restricted cash $ 395 $ 520 $ 491 $ 610 Note 7. LeasesOur 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, 2019Operating 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, 2019Cash 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, 2019Weighted-average remaining lease term (years):Operating leases10Finance leases6Weighted-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 8.6. Stockholders’ Equityquarterly a cash dividend of ten cents per share of common stock in the first quarter of 2019.2020. Dividends accrue on restricted stock units (RSUs) granted under our stock compensation program and will be paid in cash or additional units when the underlying units vest.March 24, 2018 December 11, 2019 our Board of Directors approved an expansionextension of our existing common stock share repurchase program to $200. The program expires on through December 31, 2019. Under the program, we spent $25 to repurchase 1,432,275 shares of our common stock during the first quarter of 2019 through open market transactions. 2021. Approximately $150 remained available for future share repurchases as of March 31, 2019. 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. Additional Paid-In Capital Accumulated Other Comprehensive Loss Non-controlling Interests $ 2 $ 2,386 $ 622 $ (150 ) $ (987 ) $ 95 $ 1,968 Adoption of ASU 2016-13, credit losses, January 1, 2020 (1 ) (1 ) 38 2 40 (111 ) (19 ) (130 ) Common stock dividends (15 ) (15 ) Distributions to noncontrolling interests (1 ) (1 ) Stock compensation 5 5 Stock withheld for employee taxes (6 ) (6 ) $ 2 $ 2,391 $ 644 $ (156 ) $ (1,098 ) $ 77 $ 1,860 $ 2 $ 2,368 $ 456 $ (119 ) $ (1,362 ) $ 97 $ 1,442 (1 ) (1 ) 98 4 102 34 (2 ) 32 (15 ) (15 ) (1 ) (1 ) 7 7 Common stock share repurchases (25 ) (25 ) 4 4 (6 ) (6 ) $ 2 $ 2,372 $ 538 $ (150 ) $ (1,328 ) $ 105 $ 1,539 Parent 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 adjustments 24 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 income 24 5 — 5 34 Balance, March 31, 2019 $ (697 ) $ (49 ) $ — $ (582 ) $ (1,328 ) Balance, December 31, 2017 $ (670 ) $ (64 ) $ 2 $ (610 ) $ (1,342 ) Other comprehensive income (loss): Currency translation adjustments 14 14 Holding loss on net investment hedge (5 ) (5 ) Holding gains and losses (38 ) (38 ) Reclassification of amount to net income (a) 29 29 Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) 9 9 Tax (expense) benefit 1 (2 ) (1 ) Other comprehensive income (loss) 9 (8 ) — 7 8 Adoption of ASU 2016-01 financial instruments adjustment, January 1, 2018 (2 ) (2 ) Balance, March 31, 2018 $ (661 ) $ (72 ) $ — $ (603 ) $ (1,336 ) Foreign Currency Translation $ (714 ) $ (30 ) $ (243 ) $ (987 ) Currency translation adjustments (143 ) (143 ) Holding gains and losses 39 39 Reclassification of amount to net income (a) (11 ) (11 ) Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b) 5 5 Tax (expense) benefit 1 (2 ) (1 ) (143 ) 29 3 (111 ) $ (857 ) $ (1 ) $ (240 ) $ (1,098 ) $ (721 ) $ (54 ) $ (587 ) $ (1,362 ) 24 24 29 29 (24 ) (24 ) 7 7 (2 ) (2 ) 24 5 5 34 $ (697 ) $ (49 ) $ (582 ) $ (1,328 ) 1512 for additional details.1210 for additional details.9.7. Redeemable Noncontrolling Interestsinterest.interest in TM4. On July 29, 2019, we broadened our relationship with Hydro-Québec, with Hydro-Québec acquiring an indirect 45% redeemable noncontrolling interest in SME and an additional indirect 22.5% redeemable noncontrolling interest in PEPS which resulted in recognition of additional redeemable noncontrolling interest of $64. The terms of the agreement provide Hydro-Québec with the right to put all, and not less than all, of its sharesownership interests in TM4, SME and PEPS 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 remaining 20% ownership interests in BFP and BPT and to settle all claims between the parties. We paid $43 to acquire Brevini's remaining ownership interests and received $10 in settlement of all pending and future claims. AOCI attributable to Brevini's redeemable noncontrolling interests was reclassified to AOCI of the parent company. The difference between the carrying value of Brevini's redeemable noncontrolling interests and the cash paid was recorded to additional paid-in capital of the parent company. $ 167 $ 100 Capital contribution from redeemable noncontrolling interest 2 1 Net income (loss) attributable to redeemable noncontrolling interests (2 ) (1 ) Other comprehensive income (loss) attributable to redeemable noncontrolling interests 8 5 $ 175 $ 105 Three Months Ended
March 31, 2019 2018 Balance, beginning of period $ 100 $ 47 Cash contributions from redeemable noncontrolling interests 1 Comprehensive income (loss) adjustments: (1 ) 1 Other comprehensive income (loss) attributable to redeemable noncontrolling interests 5 1 Balance, end of period $ 105 $ 49 10.8. Earnings per ShareThree Months Ended
March 31, 2019 2018 Net income attributable to the parent company $ 98 $ 108 Less: Redeemable noncontrolling interests adjustment to redemption value — — Net income available to common stockholders - Numerator basic and diluted $ 98 $ 108 Denominator: Weighted-average common shares outstanding - Basic 143.9 145.6 Employee compensation-related shares, including stock options 0.9 1.9 Weighted-average common shares outstanding - Diluted 144.8 147.5 $ 38 $ 98 Weighted-average common shares outstanding - Basic 144.2 143.9 Employee compensation-related shares, including stock options 0.6 0.9 144.8 144.8 0.40.6 million and 0.20.4 million CSEs from the calculationscalculation of diluted earnings per share for 2019the first quarters of 2020 and 20182019 as the effect of including them would have been anti-dilutive.11.9. Stock Compensation2019. RSUs 1.0 $ 17.12 PSUs 0.4 $ 16.17 1.2 $ 15.51 0.5 $ 14.42 return on invested capitalmargin targets and specified marginfree cash flow targets, with an even distribution between the two targets. We estimated the fair value of the PSUs at grant date based on the closing market price of our common stock at the date of grant adjusted for the value of assumed dividends over the period because the awards are not dividend protected.$2$1 of cash to settle RSUs. We issued 0.70.5 million and 0.20.3 million shares of common stock based on the vesting of RSUs and PSUs during 2019.2020. We recognized stock compensation expense of $5$4 and $4$5 during the first quarters of 20192020 and 2018.2019. At March 31, 2019,2020, the total unrecognized compensation cost related to the nonvested awards granted and expected to vest was $37.$39. This cost is expected to be recognized over a weighted-average period of 2.3 years.12.10. Pension and Postretirement Benefit Plans Pension 2019 2018 OPEB - Non-U.S. Three Months Ended March 31, U.S. Non-U.S. U.S. Non-U.S. 2019 2018 Interest cost $ 9 $ 2 $ 11 $ 1 $ 1 $ 1 Expected return on plan assets (12 ) (1 ) (18 ) (1 ) Service cost 2 2 Amortization of net actuarial loss 5 2 7 2 Net periodic benefit cost $ 2 $ 5 $ — $ 4 $ 1 $ 1 Interest cost $ 5 $ 1 $ 9 $ 2 $ — $ 1 $ 1 Expected return on plan assets (9 ) (1 ) (12 ) (1 ) Service cost 2 2 Amortization of net actuarial loss 3 2 5 2 $ (1 ) $ 4 $ 2 $ 5 $ — $ 1 $ 1 expense,income (expense), net and are not eligible for capitalization.2019 increased2020 decreased versus the same period in 20182019 as a result of a lower assumed return on plan assets, partially offset by lower interest expense and amortization of the net actuarial loss in the U.S.UltimateDuring the second quarter of 2019, payments were made from plan termination is subjectassets to prevailing market conditionsthose plan participants that elected to take the lump-sum payout option. In June 2019, we entered into (a) a definitive commitment agreement by and other considerations, including interest ratesamong Dana, Athene Annuity and annuity pricing. Settlement ofLife Company (Athene) and State Street Global Advisors, as independent fiduciary to the plan, obligations is expectedand (b) a definitive commitment agreement by and among Dana, Companion Life Insurance Company (Companion) and State Street Global Advisors, as independent fiduciary to occur in the first half of 2019. At December 31, 2018, thisplan. Pursuant to the definitive commitment agreements, the plan hadpurchased group annuity contracts that irrevocably transferred to the insurance companies the remaining future pension benefit obligations of $938 andthe plan. Plan participant’s benefits are unchanged as a result of the termination. We contributed $59 to the plan prior to the purchase of the group annuity contracts. The purchase of group annuity contracts was then funded directly by the assets of $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 $370 atJune 2019. By irrevocably transferring the endobligations to Athene and Companion, we reduced our unfunded pension obligation by approximately $165 and recognized a pre-tax pension settlement charge of 2018. If the settlement is effected as expected$256 in 2019, the plan's deferred actuarial losses remaining in AOCI at that time will be recognized as expense.Note 13. Marketable Securities March 31, 2019 December 31, 2018 Cost Unrealized
Gain (Loss) Fair
Value Cost Unrealized
Gain (Loss) Fair
ValueU.S. government securities $ 2 $ — $ 2 $ 2 $ — $ 2 Corporate securities 4 4 4 4 Certificates of deposit 14 14 15 15 Total marketable securities $ 20 $ — $ 20 $ 21 $ — $ 21 U.S. government securities include bonds issued by government-sponsored agencies and Treasury notes. Corporate securities are primarily debt securities. 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 $15, $2 and $3 at March 31, 2019.14.11. Financing Agreements Interest
Rate March 31,
2019 December 31, 2018 Senior Notes due September 15, 2023 6.000% $ 300 $ 300 Senior Notes due December 15, 2024 5.500% 425 425 Senior Notes due April 15, 2025 5.750% * 400 400 Senior Notes due June 1, 2026 6.500% * 375 375 Term Facility 932 265 Other indebtedness 63 28 Debt issuance costs (29 ) (18 ) 2,466 1,775 Less: Current portion of long-term debt 41 20 Long-term debt, less debt issuance costs $ 2,425 $ 1,755 $ 425 $ 425 * 400 400 * 375 375 300 300 474 474 349 349 66 61 (26 ) (28 ) 2,363 2,356 28 20 $ 2,335 $ 2,336 *1512 for additional information.FacilityFacilities is payable quarterly. Other indebtedness includes the note payable to SME, borrowings from various financial institutions, financingfinance lease obligations and the unamortized fair value adjustment related to a terminated interest rate swap. See Note 152 for additional information on the note payable to SME and Note 12 for additional information on the terminated interest rate swap.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.were expansions of our existing facilities. On February 28, 2019, we drew the $225 available under the Term A Facility and the $450 available under the Term B Facility. Financing costs of $12The proceeds from the Term Facilities were recorded as deferred cost and are being amortizedused to interest expense overacquire the lifeOerlikon Drive Systems segment of the applicable term facilities.Oerlikon Group and pay for related integration activities. We arewere required to make equal quarterly installments on the Term A Facility on the last day of each fiscal quarter of $8 beginning March 31, 2019 and 0.25% of the aggregate principal advances of the Term B Facility quarterly commencing on June 30, 2019. On August 30, 2019, we amended our credit and guaranty agreement, increasing the Revolving Facility to $1,000 and extending the maturities and reducing the interest rates of both the Revolving Facility and the Term A Facility. On August 30, 2019, we borrowed $100 on the Revolving Facility and paid down a similar amount of the Term B Facility. We are now required to make quarterly installments on the Term A Facility on the last day of each fiscal quarter of $7 beginning on September 30, 2020 and are no longer required to make quarterly installments on the Term B Facility. We may prepay some or all of the amounts under the term facilitiesTerm Facilities without penalty. The proceeds fromWe recorded deferred fees of $13 and $4 related to the term facilities were usedamendments to acquire the Oerlikon Drive Systems segment ofTerm Facilities and the Oerlikon Group and pay for related integration activities. The Revolving Facility, amended our previous revolving credit facility. In connection with this amendment, we paid $1 inrespectively. The deferred financing costs to befees are being amortized to interest expense over the life of the facility.applicable facilities. Deferred financing costs on our Revolving Facility are included in other noncurrent assets.first-priorityfirst-priority lien on substantially all of the assets of Dana and the guarantors, subject to certain exceptions. 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 % 0.25 % 1.25 % 0.50 % 1.50 % 0.75 % 1.75 % 4.249%2.490% and the Term B Facility was 4.749%was 3.240%, inclusiveinclusive of the applicable margins, as of March 31, 2019. 0.250 % 0.375 % 0.500%0.500% $275$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 2019,2020, we had no outstanding borrowings of $300 under the Revolving Facility but weand had utilized $21 for letters of credit. Outstanding borrowings on the Revolving Facility are included in short-term debt. We had availability at March 31, 20192020 under the Revolving Facility of $729$679 after deducting the outstanding borrowings and letters of credit.20192020, we were in compliance with the covenants of our financing agreements. Under the Term Facilities, Revolving Facility and the senior notes, we are required to comply with certain incurrence-based covenants customary for facilities of these types and, in the case of the Term A Facility and Revolving Facility, a maintenance covenant tested on the last day of each fiscal quarter requiring us to maintain a first lien net leverage ratio not to exceed 2.00 to 1.00.15.12. Fair Value Measurements and Derivatives Fair Value Category Balance Sheet Location Fair Value Level March 31,
2019 December 31,
2018Available-for-sale securities Marketable securities 2 $ 20 $ 21 Currency forward contracts Cash flow hedges Accounts receivable - Other 2 8 6 Cash flow hedges Other accrued liabilities 2 5 5 Undesignated Accounts receivable - Other 2 2 2 Undesignated Other accrued liabilities 2 1 Currency swaps Cash flow hedges Other noncurrent liabilities 2 92 118 March 31, 2020 December 31, 2019 Certificates of deposit Marketable securities 2 $ 23 $ 19 Cash flow hedges Accounts receivable - Other 2 3 14 Cash flow hedges Other accrued liabilities 2 28 2 Undesignated Accounts receivable - Other 2 1 1 Undesignated Other accrued liabilities 2 5 1 Interest rate collars Other accrued liabilities 2 11 3 Cash flow hedges Other noncurrent assets 2 17 2 71 March 31, 2019 December 31, 2018 Fair Value Level Carrying Value Carrying Value Senior notes 2 $ 1,500 $ 1,515 $ 1,500 $ 1,442 Term Facility 2 932 928 265 265 Other indebtedness* 2 63 58 28 23 Total $ 2,495 $ 2,501 $ 1,793 $ 1,730 �� 2 $ 1,500 $ 1,291 $ 1,500 $ 1,570 2 823 792 823 823 2 13 9 61 57 $ 2,336 $ 2,092 $ 2,384 $ 2,450 *2019, no2020, 0 fixed-to-floating interest rate swaps remain outstanding. However, a $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, 2019.2020. 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, 2019.eighteenfifteen 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.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 % Designated Notional Amount $ 375 6.50 % $ 375 € 338 6.50 % 5.14 % $ 400 5.75 % $ 400 € 371 5.75 % 3.85 % € 278 3.70 % € 278 $ 300 5.38 % 3.70 % 1411 for additional information about the June 2026 Notes and the April 2025 Notes. To the extent the swaps are no longer effective, changes in their fair values will be recorded in earnings.$516$355 at March 31, 20192020 and $1,007$508 at December 31, 2018.2019. The total notional amount of outstanding foreign currency swaps, including the fixed-to-fixed cross-currency swaps, was $1,085 at March 31, 2020 and $1,090 at March 31, 2019 and $1,097 at December 31, 2018.20192020: Notional Amount (U.S. Dollar Equivalent) Functional Currency Traded Currency Designated as
Cash Flow Hedges Undesignated Total Maturity U.S. dollar 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, Mexican peso 123 3 126 Jan-24 British pound U.S. dollar, euro 2 2 Nov-19 Swedish krona euro 11 11 Dec-19 South African rand U.S. dollar, euro, Thai baht 7 4 11 Mar-20 Thai baht U.S. dollar 21 21 Mar-20 Canadian dollar U.S. dollar 18 18 Jun-20 Brazilian real U.S. dollar, euro 44 45 89 Mar-20 Indian rupee 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 375 141 516 U.S. dollar euro 315 315 Sep-23 Euro U.S. dollar 775 775 Jun-26 Total currency swaps 1,090 — 1,090 Total currency derivatives $ 1,465 $ 141 $ 1,606 Cash $ 91 $ 6 $ 97 73 10 83 1 6 7 5 2 7 7 31 38 5 5 43 14 57 55 55 6 6 225 130 355 310 310 775 775 1,085 — 1,085 $ 1,310 $ 130 $ 1,440 expense,income (expense), net in the period in which the changes occur. Realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments, including those that have been designated as cash flow hedges and those that have not been designated, are recognized in the same line item in the consolidated statement of operations in which the underlying forecasted transaction or other hedged item is recorded. Accordingly, amounts are potentially recorded in sales, cost of sales or, in certain circumstances, other expense,income (expense), net. 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 Gain (loss) expected to be reclassified into income in one year or less $ (24 ) $ 6 $ (24 ) Collar (11 ) (3 ) Cross-Currency Swaps 30 (36 ) $ (5 ) $ (33 ) $ (24 ) 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 $ 1,926 $ 1,720 $ 4 Amount of (gain) loss reclassified from AOCI into income 7 Amount of (gain) loss reclassified from AOCI into income (18 ) $ 2,163 $ 1,863 $ (13 ) Foreign currency forwards Amount of (gain) loss reclassified from AOCI into income (1 ) (23 ) 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 Foreign currency forward contracts $5 $2 Cost of sales Foreign currency forward contracts (9 ) (13 ) Other income (expense), net $13$13 included in other expense,income (expense), net forin the three months ended March 31, first quarter of 2019.16.13. Commitments and ContingenciesWe had accrued $19 forAccrued product liability costs were $6 at March 31, 20192020 and $10 at December 31, 2018.2019. We had also recognized $24 as expected amounts recoverable from third parties of $14 at both dates.March 31, 2020 and $13 at December 31,2019. Payments made to claimants have preceded theprecede recovery of amounts from third parties, resultingand may result in a recoverable amountamounts in excess of the total liability at both dates.liability. We estimate these liabilities based on current information and assumptions about the value and likelihood of the claims against us.$10$12 at March 31, 20192020 and $13 at December 31, 20182019. We consider the most probable method of remediation, current laws and regulations and existing technology in estimating our environmental liabilities.three3 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$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.17.14. Warranty Obligations $ 101 $ 75 Acquisitions 15 Amounts accrued for current period sales 8 8 Adjustments of prior estimates 1 5 Settlements of warranty claims (11 ) (7 ) Currency impact (2 ) (1 ) $ 97 $ 95 Three Months Ended
March 31, 2019 2018 Balance, beginning of period $ 75 $ 76 Acquisitions 15 Amounts accrued for current period sales 8 10 Adjustments of prior estimates 5 Settlements of warranty claims (7 ) (11 ) Currency impact (1 ) 1 Balance, end of period $ 95 $ 76 18.15. Income Taxesthat it is reasonably possible that additional valuation allowances of up to $86 related to the U.S. and a subsidiary in Brazil willcould be releasedrecorded in the next twelve months.and $48 for the firstthree months ended March 31, 20192020 and 2018.2019, respectively. Our effective tax rates were 17%(80)% and 31%17% for the firstthree months of 20192020 and 2018. The lower 2019. During the first quarter of 2020, a pre-tax goodwill impairment charge of $51 with an associated income tax benefit of $1 was recorded. Also, during the first quarter of 2020, we recorded tax benefits of $37 related to tax actions that adjusted federal tax credits, tax expense was attributableof $2 to a couple discrete itemsrecord additional valuation allowance in the quarter. WeU.S. based on reduced income projections, and tax expense of $4 to record valuation allowances in foreign jurisdictions due to reduced income projections. During the first quarter of 2019, we recognized a benefit of $22 related to the 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 23% and 31% for the 2020 and 2019 three-month period.three-month periods, respectively. Our effective income tax rates vary from the U.S. federal statutory rate of 21% due to establishment, release and adjustment of valuation allowances in several countries, nondeductible expenses and deemed income, local tax incentives in several countries outside the U.S., different statutory tax rates outside the U.S. and withholding taxes related to repatriations of international earnings. The effective income tax rate may vary significantly due to fluctuations in the amounts and sources, both foreign and domestic, of pretax income and changes in the amounts of non-deductible expenses.Note 19. Other Expense, Net Three Months Ended
March 31, 2019 2018 Non-service cost components of pension and OPEB costs $ (6 ) $ (3 ) Government grants and incentives 3 2 Foreign exchange loss (11 ) (2 ) Strategic transaction expenses, net of transaction breakup fee income (13 ) 1 Non-income tax legal judgment 6 Other, net 8 2 Other expense, net $ (13 ) $ — Non-service cost components of pension and OPEB costs $ (2 ) $ (6 ) Government grants and incentives 4 3 Foreign exchange gain (loss) 5 (11 ) Strategic transaction expenses (6 ) (13 ) Non-income tax legal judgment 6 Other, net 3 8 $ 4 $ (13 ) 1512 for additional information.Strategic transaction expenses in 2018 were more than offset by a $40 transaction breakup fee associated with the GKN plc. transaction. See Note 2 for additional information.20.17. Revenue from Contracts with Customers1714 for additional information.$17$21 and $12$23 at March 31, 20192020 and December 31, 2018.2019. Contract liabilities are included in other accrued liabilities on our consolidated balance sheet.Three Months Ended March 31, 2020 North America $ 586 $ 199 $ 74 $ 123 $ 982 Europe 102 49 349 114 614 South America 30 63 7 5 105 Asia Pacific 90 22 102 11 225 $ 808 $ 333 $ 532 $ 253 $ 1,926 Three Months Ended March 31, 2019 $ 660 $ 253 $ 58 $ 141 $ 1,112 91 67 407 113 678 33 75 9 5 122 122 36 78 15 251 $ 906 $ 431 $ 552 $ 274 $ 2,163 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 21.18. Segments and engine manufacturer in the world. We also serve the stationary industrial market. Our technologies include drive and motion productssystems (axles, driveshafts, planetary hub drives, power-transmission products, tire-management products, transmissions, and motors, powerwheel and track drives); motion systems (winches, slew drives, and hub drives); electrodynamic technologies (motors, inverters, software and controlscontrol systems, for electric vehicles)battery-management systems, and fuel cell plates); sealing solutions (gaskets, seals, heat shields,cam covers, and fuel-cell plates)oil pan modules); thermal-management technologies (transmission and engine oil cooling, battery and electronics cooling, charge air cooling, and exhaust-gas heat recovery)thermal-acoustical protective shielding); and fluid-power products (pumps, valves, motors,digital solutions (active and controls)passive system controls and descriptive and predictive analytics). We serve our global light vehicle, medium/heavy vehicle and off-highway markets through four operating segments – Light Vehicle Driveline TechnologiesDrive Systems (Light Vehicle), Commercial Vehicle Driveline TechnologiesDrive and Motion Systems (Commercial Vehicle), Off-Highway Drive and Motion TechnologiesSystems (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. Light Vehicle $ 808 $ 30 $ 83 $ 906 $ 36 $ 102 Commercial Vehicle 333 20 21 431 27 41 Off-Highway 532 9 72 552 5 82 Power Technologies 253 6 30 274 6 34 Eliminations and other (65 ) (74 ) $ 1,926 $ — $ 206 $ 2,163 $ — $ 259 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 Segment EBITDA $ 206 $ 259 Corporate expense and other items, net (1 ) (2 ) Depreciation (85 ) (74 ) Amortization (4 ) (3 ) Non-service cost components of pension and OPEB costs (2 ) (6 ) Restructuring charges, net (3 ) (9 ) Stock compensation expense (4 ) (5 ) Strategic transaction expenses (6 ) (13 ) Impairment of goodwill (51 ) Acquisition related inventory adjustments (4 ) Non-income tax legal judgment 6 Other items (3 ) (9 ) 47 140 2 2 29 27 20 115 (16 ) 20 2 6 $ 38 $ 101 Three Months Ended
March 31, 2019 2018 Segment EBITDA $ 259 $ 254 Corporate expense and other items, net (2 ) (6 ) Depreciation (73 ) (64 ) Amortization (4 ) (3 ) Non-service cost components of pension and OPEB costs (6 ) (3 ) Restructuring charges, net (9 ) (1 ) Stock compensation expense (5 ) (4 ) Strategic transaction expenses, net of transaction breakup fee income (13 ) 1 Acquisition related inventory adjustments (4 ) Non-income tax legal judgment 6 Other items (9 ) Earnings before interest and income taxes 140 174 Interest expense 27 24 Interest income 2 3 Earnings before income taxes 115 153 Income tax expense 20 48 Equity in earnings of affiliates 6 6 Net income $ 101 $ 111 22.19. Equity Affiliates– primarily(primarily axles, driveshafts, wheel-end braking systemssystems) and motors power inverters and controls systems for electric vehicles – suppliedand industrial applications.OEMs.Asour acquisition of a controlling financial interest in Ashwoods Innovations Ltd. (Ashwoods) on February 5, 2020. Originally acquired as part of the ODS acquisition, we acquired an ownership interest in Ashwoods Innovations Ltd. Thethe minority shareholders in this entity havehad substantive participating rights that allowallowed them to effectively participate in the decisions made in the ordinary course of business that arewere 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 investmentUpon acquiring Curtis Instruments, Inc.'s (Curtis) 35.4% ownership interest in Ashwoods, Innovations Ltd. is includedwe had a 97.8% ownership interest in Ashwoods. During March 2020, we acquired the net assets of our Off-Highway operating segment.20192020 — 50% $ 95 20% 56 48% 10 28% 5 10 176 2 $ 178 Investment Dongfeng Dana Axle Co., Ltd. (DDAC) 50% $ 99 Prestolite E-Propulsion Systems Limited (PEPS) 50% 48 Bendix Spicer Foundation Brake, LLC 20% 47 Axles India Limited 48% 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 and engine manufacturer in the world. We also serve the stationary industrial market. Our technologies include drive and motion productssystems (axles, driveshafts, planetarytransmissions, and wheel and track drives); motion systems (winches, slew drives, and hub drives, power-transmission products, transmissions, electric motors,drives); electrodynamic technologies (motors, inverters, controlssoftware and tire-management products)control systems, battery-management systems, and fuel cell plates); sealing solutions (gaskets, seals, heat shields,cam covers, and fuel-cell plates)oil pan modules); thermal-management technologies (transmission and engine oil cooling, battery and electronics cooling, charge air cooling, and exhaust-gas heat recovery)thermal-acoustical protective shielding); and fluid-power products (pumps, valves, motors,digital solutions (active and controls)passive system controls and descriptive and predictive analytics). We serve our global light vehicle, medium/heavy vehicle and off-highway markets through four business units – Light Vehicle Driveline TechnologiesDrive Systems (Light Vehicle), Commercial Vehicle Driveline TechnologiesDrive and Motion Systems (Commercial Vehicle), Off-Highway Drive and Motion TechnologiesSystems (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, 2019,2020, we employed approximately 37,10031,700 people, operated in 3334 countries and had 145149 major facilities housing manufacturing and distribution operations, service and assembly operations, technical and engineering centers and administrative offices.20192020 and 20182019 are as follows: Three Months Ended March 31, 2019 2018 % of % of Dollars Total Dollars Total Light Vehicle $ 906 41.9 % $ 950 44.4 % Commercial Vehicle 431 19.9 % 400 18.7 % Off-Highway 552 25.5 % 492 23.0 % Power Technologies 274 12.7 % 296 13.9 % Total $ 2,163 $ 2,138 $ 808 42.0 % $ 906 41.9 % 333 17.3 % 431 19.9 % 532 27.6 % 552 25.5 % 253 13.1 % 274 12.7 % $ 1,926 $ 2,163 2118 to our consolidated financial statements in Item 1 of Part I for further financial information about our operating segments.Dana has refined the company’sto buildbuilds on our strong technology foundation and leverageleverages our resources across the organization to position us forwhile driving a profitable growth trajectory. The strategy is composedcustomer centric focus, expanding our global markets, and delivering innovative solutions as we evolve into the era of five core pillars.Leveraging Our Core,which focuses on utilizingleveraging our core capabilities in power conveyance, thermal management,operations. This foundational element enables us to infuse strong operational disciplines throughout the strategy, making it practical, actionable, and mechatronicseffective. It enables us to capitalize on being a major drive systems supplier across all three mobility marketsend-mobility markets. We are achieving improved profitability by actively seeking synergies across our engineering, purchasing, and manufacturing base. We have strengthened the portfolio by acquiring critical assets; and we are utilizing our physical and intellectual capital to amplify innovation across the enterprise. Leveraging these core elements can further expand the cost efficiencies of our common technologies and deliver a sustainable competitive advantage. This enables usadvantage for Dana.acceleratebe at the heart of who we are. Putting our speedcustomers at the center of innovation through knowledge sharing across the enterprise,our value system is firmly embedded in our culture and is driving growth by focusing on customer relationships and providing value to realize cost efficiencies delivered through shared core technologies. It also magnifies our investmentscustomers. These relationships are strengthened as we are physically where we need to be in order to provide unparalleled service and we are prioritizing our customers’ needs as we engineer solutions that differentiate their products, while making it easier to do business with Dana by utilizing shared research and development.The strategy also emphasizes Driving Customer Centricity, whichdigitizing their experience. Our customer centric focus has uniquely positioned us to win more than our fair share of drive systemsnew business and capitalize on future customer outsourcing initiatives.threeof our end markets. Expanding global markets means utilizing our global capabilities and presence to further penetrate growth markets, focusing on Asia due to its position as the largest mobility markets. As our OEM customers are facedmarket in the world with redeploying capital toward the emerging megatrendshighest market growth rate and its lead in the adoption of mobility, autonomous driving, and digitization to remain competitive, our focus on driving customer centricity yields more OEM outsourcing opportunities.also investing across various avenues to increase our presence in capabilitiesAsia Pacific by forging new partnerships, expanding inorganically, and growing organically. We continue to drive growthoperate in Asia-Pacific to Expand Global Marketsthis region through wholly owned subsidiaries and joint ventures with local market partners. We have recently made acquisitions that have augmented our footprint in the region, specifically in India and China. All the while, we have been making meaningful organic investments to grow with existing and new customers, primarily in Thailand, India, and China. These added capabilities have enabled us to target the highest growth rates and earliest electrification adoption. Focusing ondomestic Asia Pacific represents a significant opportunitymarkets and utilize the capacity for export to gain a fair share in the world’s largest mobility market.We continue to focus on other global markets.Innovative Solutions that allowinnovative solutions enables us to capitalize on secularmarket growth trends such as engine downsizing, while driveline enhancements offer significant opportunities to expandwe evolve our addressable market ascore technology capabilities. We are also focused on enhancing our physical products evolve towardwith digital solutions. Delivering innovativecontent to provide smart systems and we see an opportunity to become a digital systems provider by delivering software as a service to our traditional end customers. This focus on delivering solutions yields market expansionbased on our core technology is leading to new business wins and higherincreasing our content per vehicle.Initiatives We have made significant investments - both organically and inorganically - allowing us to capitalize on evolvingmove to the next phase, which is to Lead electric propulsion.vehicle trendsthrough both core Dana technologies and targeted strategic acquisitions and are a core ingredientpositioned today to lead the market. The four recent acquisitions of our final enterprise strategy element, Lead Electric Propulsion. Our efforts are focused on developingelectrodynamic expertise and deliveringtechnologies combined with Dana’s longstanding mechatronics capabilities has allowed us to develop and deliver 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 additionthat are power-dense and achieve optimal efficiency through the integration of the components that we offer due to our current technologies in battery cooling and fuel cells, this element of our strategy is leveraging our deep expertise in driveline technology to enable the hybridization and electrification 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 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 Spicer® Electrified™ portfolio of products. Working with our joint venture partner, our latest integrated e-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 andmechatronics capabilities. With recent electric vehicle solutions for customers across all three ofprogram awards, we are well on our end markets. Electrification creates significant opportunityway to achieving our growth objectives in driveline applications. our increased customer focus as we leverage our core capabilities, expand into new markets, develop and commercialize new technologies including for hybrid and continue to leadelectric vehicles.vehicle electrification.Our Markets discussion below for additional information on our operational and strategic initiatives.reductionreduction in the number of shares outstanding. Our Board of Directors authorized a new $200 share repurchase program effective in 2018 which expires at the end of 2019.2021. Through the first quarter of 2019,March 31, 2020, we have used cash of $50 to repurchase common shares under the current program. We declared and paid quarterly common stock dividends overfor thirty-three consecutive quarters. In response to the past fiveglobal COVID-19 pandemic, we have temporarily suspended the declaration and a half years. In recognitionpayment of dividends to common shareholders and the repurchase of common stock under our strong financial performance and confidence in our financial outlook, our Board approved an additional four cents perexisting common stock share increase in the quarterly dividend to ten cents per share in 2018.the first quarter of 2019 we expanded our credit and guaranty agreement. We enteredagreement, entering into $675 of additional floating rate term loans to fund the ODS acquisition (see Acquisitions section below) and up sizedincreasing our revolving credit facility to $750. Additionally, in 2017$1,000 and extending its maturity by two years. We completed a $300 2027 note offering and used the proceeds to repay $300 of higher cost 2023 notes. During 2019, we commenced the process of terminatingterminated one of our U.S. defined benefit pension plans. This action allows us to effectively eliminateplans, settling approximately $165 of previously unfunded pension obligations for the terminated plan and the associatedeliminating future funding risk associated with interest rate and other market developments. We expectIn response to the termination actionglobal COVID-19 pandemic, on April 16, 2020, we entered into a $500 bridge facility (the Bridge Facility). The Bridge Facility matures on April 15, 2021. See Note 11 to be completedour consolidated financial statements in 2019.Item 1 of Part I for additional information on the Bridge Facility.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®, Albarus™, Brevini™, PIV™, Fairfield®, Glaser®, Graziano™, GWB®, Thompson®Spicer Select™, Thompson™, Tru-Cool®, SVL®, and Transejes™, Dana delivers a broad range of aftermarket solutions – including genuine, all makes,all-makes, and value lines – servicing passenger car, commercial vehicle, off-highway equipment and off-highway vehiclesindustrial applications across the globe.Re-focusing advanced technology resourcesWhenOn February 5, 2020, we obtained Variglide® planetary variator technology throughacquired Curtis Instruments, Inc.'s (Curtis) 35.4% ownership interest in Ashwoods Innovations Limited (Ashwoods). Ashwoods designs and manufactures permanent magnet electric motors for the automotive, material handling and off-highway vehicle markets. The acquisition of Curtis' interest in Ashwoods, along with our existing ownership interest in Ashwoods, provided us with a 97.8% ownership interest and a controlling financial interest in Ashwoods. We recognized a $3 gain to other income (expense), net on the required remeasurement of our previously held equity method investment in Ashwoods to fair value. The total purchase consideration of $22 is comprised of $8 of cash paid to Curtis at closing, the $10 fair value of our previously held equity method investment in Ashwoods and $4 related to the effective settlement of a pre-existing loan payable due from Ashwoods. During March 2020, we acquired the remaining noncontrolling interests in Ashwoods held by employee shareholders. See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in Ashwoods. The results of operations of Ashwoods are reported within our Off-Highway operating segment. Ashwoods had an acquisition in 2012,insignificant impact on our consolidated results of operations during the intended market focus was continuously variable transmissions for combustion engine vehicle applications. During the secondfirst quarter of 2018,2020.potential key customersNordresa's proprietary battery-management system, electric powertrain controls and integration expertise to deliver complete electric powertrain systems. The results of operations of Nordresa are reported within our Commercial Vehicle operating segment. Nordresa had an insignificant impact on our consolidated results of operations during 2019.this technology shifting their focuscommercial vehicles and heavy machinery. PEPS has a state-of-the-art facility in China, enabling us to electrificationexpand motor and inverter manufacturing capabilities in the world's largest electric-mobility market. The acquisition of PEBL's interest in PEPS, along with our existing ownership interest in PEPS through our TM4 subsidiary, provides us with a 100% ownership interest and a controlling financial interest in PEPS. We recognized a $2 gain to other areas, we determined that it was appropriateincome (expense), net on the required remeasurement of our previously held equity method investment in PEPS to fully impairfair value. We paid $50 at closing using cash on hand. Reference is made to Note 2 of our consolidated financial statements in Item 1 of Part I for the related $20 in-process researchallocation of purchase consideration to assets acquired and development intangible asset that was recorded as partliabilities assumed. The results of operations of PEPS are reported within our Commercial Vehicle operating segment. The PEPS acquisition contributed $8 of sales and de minimis adjusted EBITDA in 2019. See Hydro-Québec relationship discussion below for details of the 2012 acquisition.Acquisitions(“ODS”)(ODS) segment of the Oerlikon Group. Oerlikon Drive SystemsODS is a global manufacturer of high-precision gears, planetary hub drives for wheeled and tracked vehicles, and products, controls, and software that support vehicle electrification across the mobility industry. 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 two additional facilities under construction in China. The results of operations ofOerlikon Drive Systems will be reported in our Off-Highway operating segment from the date of acquisition. The ODS acquisition added $75 of sales and $11 of adjusted EBITDA during the first quarter of 2019.theour consolidated financial statements in Item 1 of Part I for the allocation of purchase consideration to assets acquired and liabilities assumed. 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. The SME acquisition added $6 of sales and de minimis adjusted EBITDA during the first quarter of 2019.theour consolidated financial statements in Item 1 of Part I for the allocation of purchase consideration to assets acquired and liabilities assumed.TM4 — The SME acquisition added $21 of sales and de minimis adjusted EBITDA during 2019. See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in SME. 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 supplierOn July 29, 2019, we broadened our relationship with full e-Drive design, engineering and manufacturing capabilities – offering electro mechanical propulsion solutions to each of our end markets. TM4's technology and advanced manufacturing facility in Boucherville, Quebec will add to our global technical centers, and their 50%Hydro-Québec, with Hydro-Québec acquiring an indirect 45% redeemable noncontrolling interest in SME and increasing its existing indirect 22.5% noncontrolling interest in PEPS to 45%. We received $65 at closing, consisting of $53 of cash and a China joint venture provides an opportunitynote receivable of $12. The note is payable in five years and bears annual interest of 5%. Dana will continue to enhance our position in the fastest growing market for electric vehicles. Inclusive of the joint venture, TM4 has approximately 140 employees. Dana is consolidating TM4consolidate SME and PEPS as the governing documents continue to provide Dana with a controlling financial interest. interest in these subsidiaries. See Acquisitions section above for a discussion of Dana's acquisitions of PEPS and SME. On April 14, 2020, Hydro-Québec acquired an indirect 45% redeemable noncontrolling interest Ashwoods. We received $9 in cash at closing, inclusive of $2 in proceeds on a loan from Hydro-Québec. Dana will continue to consolidate Ashwoods as the governing documents continue to provide Dana with a controlling financial interest in this subsidiary. See Acquisitions section above for a discussion of Dana's acquisition of Ashwoods.TM4 acquisition added $11 of sales and de minimis adjusted EBITDA in 2018. Theglobal novel coronavirus disease (COVID-19) pandemic is expected to have an adverse effect on our business, results of operations, cash flows and financial condition. The global COVID-19 pandemic has negatively impacted the global economy, disrupted our operations as well as those of our customers, suppliers and the global supply chains in which we participate, and created significant volatility and disruption of financial markets. The extent of the TM4 business are reported in our Commercial Vehicle operating segment from the date of acquisition.Cash on hand of $125 was used to acquire the interest in TM4. Reference is made to Note 2impact of the consolidatedCOVID-19 pandemic on our business and financial statements in Item 1performance, including our ability to execute our near-term and long-term operational, strategic and capital structure initiatives, will depend on future developments, including the duration and severity of Part I for the allocation of purchase consideration to assets acquiredpandemic, which are uncertain and liabilities assumed.DivestituresBrazil Suspension Components Operations — In December 2017, we entered into an agreement to divest our Brazil suspension components business (the disposal group). This business was non-core to our enterprise strategy and under-performing financially. As such, we agreed to divest the business for no consideration and contribute $10 of additional cashcannot be predicted.business priorglobal COVID-19 pandemic has been measured, swift and decisive with an emphasis on health and safety, cash conservation and enhancing liquidity. Our top priority is the health and safety of our employees, their families, our customers, and our communities. We have implemented protocols throughout our global footprint to closing. We classifiedensure their health and safety including, but not limited to: temporarily closing a significant number of our facilities; restricting access to and enhancing cleaning and disinfecting protocols of those facilities that continue to operate; use of personal protection equipment; adhering to social distancing guidelines; instituting remote work; and restricting travel.disposal group as held for salerapid dissipation of customer demand, the company has taken actions to conserve cash by flexing its conversion costs across its global manufacturing, assembly and distribution facilities and aggressively reducing its cost base and eliminating discretionary spending at December 31, 2017, recognizingits technical centers and administrative offices. Cost flex activities at our operating facilities has included reduction of material orders, flexing labor costs, halting non-production spending and delaying capital spending where and when appropriate. Cost reduction activities at our technical centers and administrative offices has included 20% reduction in salaried employee wages, 20% reduction in board of director remuneration, 50% reduction in the Chief Executive Officer's compensation, elimination of cash incentive compensation, a $27 lossmoratorium on travel and entertainment expenditures and delaying capital spending and investment in research and development activities where and when appropriate. The company is also temporarily suspending the declaration and payment of dividends to adjustcommon shareholders and temporarily suspending the carrying valuerepurchase of common stock under its existing common stock share repurchase program. In addition, the company is taking advantage of various government programs and subsidies in the countries in which it operates, including certain provisions of the net assetsCoronavirus Aid, Relief and Economic Security (CARES) Act.fair valueprovide access to additional liquidity should the company need it and to recognizecan be terminated at the liability for the additional cash requiredcompany's option at any time. See Note 11 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. After being unable to complete the transaction with the counterparty to the December 2017 agreement, we entered 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 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. Sales of on the divested business approximated $23 in 2017 and $12 in 2018 through the date of sale.Trends in Our MarketsGlobal Vehicle Production (Full Year) Actual (Units in thousands) Dana 2019 Outlook 2018 2017 North America Light Truck (Full Frame) 4,275 to 4,575 4,474 4,331 Light Vehicle Engines 14,700 to 15,000 15,332 14,828 Medium Truck (Classes 5-7) 265 to 275 270 246 Heavy Truck (Class 8) 325 to 345 320 255 Agricultural Equipment 50 to 60 56 54 Construction/Mining Equipment 175 to 185 176 157 Europe (including Eastern Europe) Light Truck 10,500 to 11,500 10,720 10,276 Light Vehicle Engines 23,000 to 23,500 23,098 24,096 Medium/Heavy Truck 505 to 520 506 486 Agricultural Equipment 200 to 215 204 202 Construction/Mining Equipment 350 to 370 351 309 South America Light Truck 1,300 to 1,500 1,296 1,235 Light Vehicle Engines 2,800 to 2,900 2,797 2,412 Medium/Heavy Truck 115 to 125 113 89 Agricultural Equipment 30 to 35 34 33 Construction/Mining Equipment 8 to 12 9 9 Asia-Pacific Light Truck 29,800 to 31,000 29,527 29,495 Light Vehicle Engines 51,700 to 52,700 52,293 52,543 Medium/Heavy Truck 1,900 to 2,100 2,004 2,039 Agricultural Equipment 640 to 670 653 653 Construction/Mining Equipment 480 to 500 495 441 North AmericaLight 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. Bridge Facility. such, the overall North America light vehicle market began to show signs of weakening demand levels in 2017. To date, these effects have been most notable in passenger car sales which declined about 9% in 2017 and another 11% in 2018. Light vehicle sales for the first quarter 2019 declined 5% compared to the first quarter of 2018, with passenger car sales down 10% and light truck sales down 2%. In the full frame light truck segment where many of our programs are focused, sales increased 3% in 2017 and another 3% in 2018. Full frame truck sales for the first three months of 2019 were down 2% compared to the first three months of 2018. Production levels have generally been reflective of light vehicle sales. Light vehicle production of 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. After being down 7% in 2017, light vehicle engine production increased 3% in 2018. Light vehicle engine production in this year's first quarter was down slightly compared with the first quarter of 2018. In the key full frame light truck segment, production levels in 2018 increased about 4% compared to 2017 following an increase of 3% in 2017 from the preceding year. First-quarter 2019 full frame light truck production was down slightly from the same period of 2018. Days' supply of total light vehicles in the U.S. at the end of March 31, 2019 was around 68 days, up from 61 days at the end of December 2018 and comparable with the end of March 2018. In the full frame light truck segment, inventory levels were 93 days at the end of March 2019, up from 72 days at the end of December 2018 and 85 days at the end of March 2018.The North America light truck markets are expected to decline in 2019, with the effect of stable manufacturing and construction environments being offset by the impact of rising interest rates, less pent-up demand, increasing demand for used vehicles and higher levels of consumer debt. We expect Dana sales to continue to benefit from our net new business backlog asadditional key customer programs commence production in 2019, more than offsetting lower overall light truck demand. Our full year outlook for full frame light truck and light vehicle engine production is unchanged from February 2019. Our outlook for 2019 has full frame light truck production at 4.3 to 4.6 million vehicles, up 2% to down 5% compared with 2018 production of about 4.5 million vehicles. We expect light vehicle engine production in 2019 to be 14.7 to 15.0 million units, down 2 to 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 economic 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 2019, with first-quarter 2019 Class 8 production being up 20% and medium-duty truck production being up 6% compared to the same period of 2018.With continued strengthening of the North American economy, freight demand and truck orders, we have increased our full year 2019 production outlook for medium-duty trucks to 265,000 to 275,000 units, up from our February 2019 outlook of 255,000 to 265,000 trucks. At the current outlook, medium-duty production in 2019 is expected to be down 2% to up 2% compared with 2018. In the heavy-duty segment, our production outlook is unchanged at 325,000 to 345,000 vehicles, up 2 to 8% from 2018.Markets Outside of North AmericaLight 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 2016 and 2017. Overall market stability continued in 2018 as light vehicle engine production was down 4% and light truck production was up 4%. The United Kingdom's decision to withdraw from the European Union, along with political developments in other European countries, continues 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 improvingmanage through the unprecedented disruption in our markets and associated economic conditions across the entire region in 2019, we have lowered our 2019 outlook. Our current full year 2019 outlook expects light truck production to be down 2% to up 7% and light vehicle engine production to be flat to up 2% 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 2018 were reflective of an improving market, with light vehicle engine production up 14% and 16% and light truck production up 26% and 7%, respectively. This year's first quarter light vehicle engine and light truck production were flat with last year. At present, while we expect further economic recovery in the region in 2019 we have lowered our light vehicle engine production outlook from that provided in February 2019. Our current full year 2019 outlook has light truck production flat to up 16% from 2018, with light vehicle engine production flat to up 4% compared to 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. Production leveled off in 2018, with both light truck and light vehicle engine production being flat compared to 2017 levels. First-quarter 2019 light vehicle engine and light truck production were both down 7%, reflecting a potential weakening of China's economy. We have reduced our full year 2019 outlook for the Asia Pacific light vehicle markets, with light truck production now being up 1 to 5% and light engine production being down 1% to up 1% from 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. A strengthening European market the past three years contributed to medium/heavy truck production increasing 7% in 2016, 5% in 2017 and another 4% in 2018. First-quarter 2019 production increased 5% over the same period of 2018. Our 2019 full year outlook anticipates continued strong production at levels relatively comparable with 2018 and is unchanged from February 2019. A weakening South America economic climate beginning in 2014 led to a significant decline in medium/heavy truck production in 2015 and 2016. As with the light vehicle markets, improving economic conditions in the region led to medium/heavy truck production increasing 27% in 2017 and an additional 27% in 2018. First-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 being up 2 to 11% compared to 2018. A stronger than expected China market and an improving India market contributed to increases 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 regulatory changes in China limiting axle load and weight. With some pre-buyhaving occurred during the second half of 2017 as a result of the China regulatory actions, 2018 medium/heavy truck production was down 2% from 2017. Production in this year's first quarter was up 2%uncertainty resulting from the first three monthsglobal COVID-19 pandemic, we will continue to respond in a measured, swift and decisive manner with continued emphasis on health and safety, cash conservation and maintenance of 2018, indicating the 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 revised full-year 2019 outlook now reflects a more stable market with medium/heavy truck production being down 5% to 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 theconstruction/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. These 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 continued in 2018 with global production levels in the construction/mining and agriculture segments increasing an additional 13% and 1%, respectively. With generally stable to improving economic conditions in all regions, continued strong demand is expected in 2019. 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 segment down 2% to up 3% and the agriculture segment being down 3% to up 3% from 2018.56%53% of our 2019 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%49% and 9% of our 20182019 non-U.S. sales, respectively, while Thailand, MexicoChina and ChinaIndia each accounted for 7%. Although sales in Argentina and South Africa arewere each less than 5% of our non-U.S. sales in 2019, exchange rate movements of those countries have been volatile and significantly impacted sales from time to time. International currencies strengthened against the U.S. dollar in 2017, increasing 2017 sales by $54. A stronger euro, Brazilian real, Thai baht and South African rand more than offset a weaker Argentine peso. Overall international currencies continued to strengthen against the U.S. dollar in 2018, with sales increasing by $16 principally due to a stronger euro, Thai baht and Chinese renminbi, partially offset by a weaker Brazilian real, Argentine peso and Indian rupee. Weaker international currencies during 2019 decreased sales by $177, with the euro, Brazilian real and South African rand accounting for this year's first quarter as compared to exchange rates in$103, $30 and $15 of the decrease, respectively. Weaker international currencies decreased sales by $34 during the first quarter of 2018 decreased sales by $78,2020 compared to the same period last year, with the euro and the Brazilian real and euro accounting for $39$13 and $14$13 of the decrease, respectively. Based on our current sales and exchange rate outlook for 2019, we expect overall stability in international currencies with a modest reduction to sales. At sales levels in our current outlook for 2019, a 5% movement on the euro would impact our annual sales by approximately $125. A 5% change on the Brazilian real, Thai baht, Mexican peso, Chinese renminbi, British pound and Indian rupee rates would impact our annual sales in each of those countries by approximately $10 to $20.Agreement.Agreement (NAFTA). 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. The agreement was ratified by the U.S. in January 2020. These and other actions are likely to impact trade policies with other countries and the overall global economy. The United Kingdom's decision to exit the European Union ("Brexit") continues to provide some uncertainty and potential volatility around European currencies, along with uncertain effects of future trade and other cross-border activities of the United Kingdom with the European Union and other countries.18%19% of this segment's first quarter 20192020 sales. Our medium/heavy truck sales in Brazil account for approximately 80% of our first-quarter 20192020 sales in the country. Reduced market demand resulting from the weak economic environment in Brazil induring 2015 ledand 2016 lead to significant production levelslevel declines in the light vehicletruck 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.markets. In response to the challenging economic conditions in this country, we implemented restructuring and other cost reduction actions and reduced costs to the extent practicable. The Brazilian economy rebounded in 2017 and 2018, leading to increased medium/heavy truck and light truck production of more than 25% from 201640% in each of those segments. Economic improvementsegments over the two-year period. Sales by our operations in Brazil were $393 in 2019, up 1% from 2018, reflective of modestly higher medium/heavy and increasedlight truck production continuedlevels in 2018.2019. Sales by our operations in 2018Brazil were up 15%$80 in the first quarter of 2020, down 16% from 2017 asthe same period of 2019, reflective of lower 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 2019. In this year's first quarter, medium/heavy truck production was 2% higher than the same period of 2018 and light truck production was up about 1% from last year.three monthsquarter of 20192020 of approximately $20 are less thanapproximately 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $25,$16, including $7$6 of net fixed assets, at March 31, 2019.2020.DuringBeginning in 2018, and the first quarter of 2019, commodity prices have been impacted by recently imposed tariffs. As suppliers payingSuppliers directly impacted by the tariffs attemptare attempting to pass through the cost of the tariffs we are likewise in discussions with our customers to absorb that cost. Aswhile suppliers not subject to the tariffs advantageare advantaging themselves by raising prices, these price increases are generally reflected in the published commodity indexes.prices. Most of our major customer agreements provide for the sharing of significant commodity price changes with those customers based on the movement in various published commodity indexes. Where such formal agreements are not present, we have historically been successful implementing price adjustments that largely compensate for the inflationary impact of material costs. Material cost changes will customarily have some impact on our financial results as customer pricing adjustments typically lag commodity price changes.have risen over the past year, in partrose during 2019, due to strong global demand and more recently due to imposition of tariffs on these products.demand. Higher commodity prices reduced year-over-year earnings in 2019 by approximately $30, as compared to year-over-year earnings reductions of $115 in 2018. Material recovery and other pricing actions decreased earnings in 2019 by $10, whereas pricing and recovery actions increased year-over-year earnings in 2018 by $80. Lower commodity prices increased earnings in the first quarter of 20192020 by approximately $25,$18, as compared to an earnings reduction of $18$25 from higher commodity prices in the first quarter of last year.2019. Material cost recovery and other pricing actions increaseddecreased earnings in the first quarter of 20192020 by $8,$27, whereas pricing and recovery actions increased earnings in the first quarter of 20182019 by $4.$8. 2019
Outlook 2018 2017 Sales $8,950 - $9,350 $ 8,143 $ 7,209 Adjusted EBITDA $1,085 - $1,165 $ 957 $ 835 Net cash provided by operating activities ~5.5% of Sales $ 568 $ 554 Discretionary pension contribution ~1.5% of Sales $ — $ — Purchases of property, plant and equipment ~4% of Sales $ 325 $ 393 Adjusted Free Cash Flow ~3% of Sales $ 243 $ 161 Adjusted EBITDAadjusted free cash flow are non-GAAPassociated economic uncertainty resulting from the global COVID-19 pandemic, the company has withdrawn its most recent full-year financial measures. See the Non-GAAP Financial Measures discussion below for definitionsguidance disclosed in Item 7 of our non-GAAP financial measures and reconciliations to2019 Form 10-K which did not factor in 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 accompanyingreconciliations of these non-GAAP measures with the most comparable GAAP measures for the historical periods presented are indicativeeffects of the reconciliations that will be prepared upon completion of the periods covered by the non-GAAP guidance.We experienced declines in total sales in 2016pandemic. In addition, due to weaker international currencies relative tocontinuing disruption and economic uncertainty, the U.S. dollar. Adjusted for currency, sales in 2016 were relatively comparable to the prior 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. The 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 $829 – an organic increase of 14%. In 2017, international currencies were relatively stable,company will not be providing a $54 benefit to sales. Sales increased an additional $934, or 13%, in 2018, reflecting continued strong market demand and the contribution of net new business backlog. Strong off-highway, commercial vehicle and light truck demand combined with net new business of about $300, drove 2018 organic growth of $861, or 12%. International currencies and acquisition and divestiture activities had a negligible impact on 2018 sales. Our 2019 sales outlook is $8,950 to $9,350, unchanged from our February 2019 outlook, with sales growth coming principally from our anticipated acquisition of Oerlikon Drive Systems and the realization of $350 of net new business backlog. We expect impact of international currencies to be negligible, consistent withfinancial guidance at this past year.Adjusted EBITDA margin as a percent of sales remained relatively constant at around 11% in 2016 despite certain 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 adjusted EBITDA margin growth in 2017 as we benefited from the operating leverage attributable to increased sales volumes, while at the same time 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 margin is expected to exceed 12%, as we benefit from higher margin net new business and synergies related to our acquisition of Oerlikon Drive Systems more than offsetting higher commodity costs and increased investment we expect to make in 2019 to support our electrification strategy. Both our 2019 adjusted EBITDA and adjusted EBITDA margin outlook are unchanged from our February 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. Reduced 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, certain of these programs required capital investment beginning in 2016. As such, cash used for capital investments in 2016 was $62 higher than in 2015. As planned, an elevated level of capital spending at around 5.5% of sales continued into 2017 to support new customer programs. Despite an increase in capital spending of $71 in 2017, free cash increased by $99, primarily from a stronger earnings performance which contributed to increased operating cash flows of $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 approximately $275, or 3% of sales for 2019. The benefit of continued growth in adjusted 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 be around 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 2019 adjusted free cash flow and capital spending outlook are unchanged from our February 2019 outlook.Among our operational and strategic initiatives are increased focus on and investment in product technology – delivering products and technology that are key to bringing solutions to issues of paramount importance to our customers. Our success on this front is measured, in part, by our sales backlog – net new business 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, 2018, our sales backlog of net new business for the 2019 through 2021 period was $700. We expect to realize $350 of our sales backlog in 2019, with incremental sales backlog of $200 and $150 being realized in 2020 and 2021, respectively. Our three-year sales backlog at December 31, 2018 reflects continued new business wins, as the expected impact of revised market volumes and currency effects were minimal.(Year-to-Date, 2019(First Quarter, 2020 versus 2018) Three Months Ended March 31, 2019 2018 Dollars % of
Net Sales Dollars % of
Net Sales Increase/
(Decrease)Net sales $ 2,163 $ 2,138 $ 25 Cost of sales 1,863 86.1 % 1,831 85.6 % 32 Gross margin 300 13.9 % 307 14.4 % (7 ) Selling, general and administrative expenses 136 6.3 % 130 6.1 % 6 Amortization of intangibles 2 2 — Restructuring charges, net 9 1 8 Other expense, net (13 ) (13 ) Earnings before interest and income taxes 140 174 (34 ) Interest income 2 3 (1 ) Interest expense 27 24 3 Earnings before income taxes 115 153 (38 ) Income tax expense 20 48 (28 ) Equity in earnings of affiliates 6 6 — Net income 101 111 (10 ) Less: Noncontrolling interests net income 4 2 2 Less: Redeemable noncontrolling interests net income (1 ) 1 (2 ) Net income attributable to the parent company $ 98 $ 108 $ (10 ) $ 1,926 $ 2,163 $ (237 ) 1,720 89.3 % 1,863 86.1 % (143 ) 206 10.7 % 300 13.9 % (94 ) 106 5.5 % 136 6.3 % (30 ) 3 2 1 3 9 (6 ) Impairment of goodwill (51 ) (51 ) 4 (13 ) 17 47 140 (93 ) 2 2 — 29 27 2 20 115 (95 ) (16 ) 20 (36 ) 2 6 (4 ) 38 101 (63 ) 2 4 (2 ) (2 ) (1 ) (1 ) $ 38 $ 98 $ (60 ) Increase/ (Decrease) Acquisitions (Divestitures) North America $ 982 $ 1,112 $ (130 ) $ — $ 30 $ (160 ) Europe 614 678 (64 ) (17 ) 60 (107 ) South America 105 122 (17 ) (13 ) (4 ) Asia Pacific 225 251 (26 ) (4 ) 26 (48 ) $ 1,926 $ 2,163 $ (237 ) $ (34 ) $ 116 $ (319 ) Three Months Ended
March 31, Amount of Change Due To 2019 2018 Increase/
(Decrease) Currency Effects Organic Change North America $ 1,112 $ 1,071 $ 41 $ (2 ) $ 28 $ 15 Europe 678 672 6 (50 ) 36 20 South America 122 138 (16 ) (14 ) (6 ) 4 Asia Pacific 251 257 (6 ) (12 ) 23 (17 ) Total $ 2,163 $ 2,138 $ 25 $ (78 ) $ 81 $ 22 20192020 were $25 higher$237 lower than in 2018.2019. Weaker international currencies decreased sales by $78,$34, principally due to a weaker euro, Brazilian real South African rand, Indian rupee and Chinese renminbi.euro. The acquisitions of ODS in last year's first quarter, PEPS in last year's second quarter and SMEAshwoods in this year's first quarter and the acquisition of TM4 is last year's second quarter, net of the divestiture of the Brazil suspension components business in last year's third quarter, generated a year-over-year increase in sales of $81.$116. The organic sales increasedecrease of $22,$319, or 1%15%, resulted from strongerweaker light and medium/heavy truck markets and marginally higherlower global off-highway demand in January and February 2020 and the rapid dissipation in production volumes across all of our end markets in March 2020 as a result of the global COVID-19 pandemic, partially offset by lower volumes in our Light Vehicle operating segment.the conversion of sales backlog. Pricing actions, including material commodity price and inflationary cost recovery, addedadjustments, reduced sales of $8.increasedecrease of 1%14% was driven principally by strongerweaker light and medium/heavy duty truck production in 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 largelyvolumes, partially offset by a significant year-over-yearthe conversion of sales volume-related decline attributable to 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 lowerbacklog. First-quarter 2020 full frame light truck production levels during the first quarterwas down 11% while production of 2019,Class 8 and Classes 5-7 trucks 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. down 36% and 30%, respectively.3% higher than in 2018.down 16% compared with 2019. With our significant Off-Highway presence in the region, increased market demand in this segment wasweakening construction/mining and agricultural markets were a major contributor.factor. Organic sales in this operating segment were up about 3%down 22% compared with the first quarter of 2018.A weaker Brazilian real reduced2019.sales in this year's first quarter.decreased 3% compared to 2019. The region overall experienced relatively stable markets, with medium/heavy truck production updown about 2%3% and light truck production down about 1%9%.A weaker Indian rupee and Chinese renminbi were the primary drivers of the decreased sales in Asia Pacific due to currency effects. 7%19% as China's economy showed signswas weakening even before the onset of weakening.the COVID-19 pandemic. Light truck, and light vehicle engine and medium/heavy truck production were both down 28%, 32% and 30%, respectively from the first quarter of 2018, while medium/heavy truck production was up 2%.2019 increased $32,2020 decreased $143, or 2%8% when compared to 2018. Similar to the factors affecting sales, the increase was primarily due to the inclusion of acquired businesses.2019. Cost of sales as a percent of sales in 20192020 was 50320 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.$115. Excluding the effects of acquisitions, and divestitures, cost of sales as a percent of sales was 86.4%88.7%, 80260 basis points higher than in the previous year. The increased cost of sales as a percent of sales was largely attributable to higheractions to flex down our cost structure lagging the rapid dissipation of customer demand across all of our end markets as a result of the global COVID-19 pandemic, as well as our inability to reduce fixed costs including depreciation and rent expense. Partially offsetting the impact of the rapid dissipation of customer demand were lower commodity prices which increasedlowered material costs by about $25, an increase in engineering$18 and development cost of $9 and higher depreciation expense of $5. Partially offsetting these higher costs were continued material cost savings of approximately $20 and lower start-up and launch costs.$300$206 for 20192020 decreased $7$94 from 2018.2019. Gross margin as a percent of sales was 13.9%10.7% in 2019, 502020, 320 basis points lower than in 2018.2019. The decline in margin as a percent of sales was driven principally by the cost of sales factors referenced above.20192020 were $136 (6.3%$106 (5.5% of sales) as compared to $130 (6.1%$136 (6.3% of sales) in 2018.2019. SG&A attributed to net acquisitions was $9.$7. Excluding the increase associated with net acquisitions, SG&A expenses were 2080 basis points lower than the same period of 2018.2019. The year-over-year decrease of $3$37 exclusive of net acquisitions was primarily due to lower year-over-year incentive compensation as well as lower salaries, benefits, travel expenses and benefits expensesprofessional fees resulting from the voluntary retirement programexecution of cost reduction initiatives in response to the global COVID-19 pandemic.other headcount reduction actions taken$2 in 2019. The increase in amortization expense of $1 in 2020 was primarily attributable to intangible assets obtained through the fourth quarterODS and PEPS acquisitions. See Note 2 of 2018. The savings associated with the restructuring actions was partially offset by higher equity compensation expense.the ODS acquisition,recent acquisitions, headcount reductions across our operations and exit costs related to previously announced actions. Restructuring charges$1goodwill — During the first quarter of 2020, we recorded a $51 goodwill impairment charge. See Note 3 of our consolidated financial statements in 2018, primarily relate to continuing exit costs associated with previously announced actions.expense,income (expense), netexpense,income (expense), net. Three Months Ended
March 31, 2019 2018 Non-service cost components of pension and OPEB costs $ (6 ) $ (3 ) Government grants and incentives 3 2 Foreign exchange loss (11 ) (2 ) Strategic transaction expenses, net of transaction breakup fee income (13 ) 1 Non-income tax legal judgment 6 Other, net 8 2 Other expense, net $ (13 ) $ — $ (2 ) $ (6 ) 4 3 5 (11 ) (6 ) (13 ) 0 6 3 8 $ 4 $ (13 ) 1512 of theour consolidated financial statements in Item 1 of Part I for additional information. Strategic transaction expenses in 2020 were primarily attributable to the acquisitions of ODS and Nordresa. 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 the GKN plc. transaction. See Note 2 of theour consolidated financial statements in Item 1 of Part I 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.2019both 2020 and $3 in 2018.2019. Interest expense increased from $24 in 2018 to $27 in 2019 to $29 in 2020, as a result of higher average debt levels primarily due to an increase inincreased borrowings to finance the ODS acquisition in the first quarter of 2019. Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 4.8% in 2020 and 5.1% and 5.2% in 2019 and 2018.IncomeWe reported an income tax benefit of $16 and income tax expense of $20 for the three months ended March 31, 2020 and 2019, respectively. Our effective tax rates were (80)% and 17% for the first three months of 2020 and 2019. During the first quarter of 2020, a pre-tax goodwill impairment charge of $51 with an associated income tax benefit of $1 was $20 in 2019 and $48 in 2018. The lower 2019recorded. Also, during the first quarter of 2020, we recorded tax benefit of $37 related to tax actions that adjusted federal tax credits, tax expense was attributableof $2 to the net impact of a couple discrete itemsrecord additional valuation allowance in the quarter. WeU.S. based on reduced income projections, and tax expense of $4 to record valuation allowances in foreign jurisdictions due to reduced income projections. During the first quarter of 2019, we recognized a benefit of $22 related to release of valuation allowances in the U.S. based on improved income projections. Partially offsetting this benefit was $6 of expense related to a U.S. state law change. Excluding these items, the effective tax rate would be 23% and 31% for the 2020 and 2019 three-month period.periods, respectively. Our effective income tax rates vary from the U.S. federal statutory rate of 21% due to establishment, release and adjustment of valuation allowances in several countries, nondeductible expenses and deemed income, local tax incentives in several countries outside the U.S., different statutory tax rates outside the U.S. and withholding taxes related to repatriations of international earnings. The effective income tax rate may vary significantly due to fluctuations in the amounts and sources, both foreign and domestic, of pretax income and changes in the amounts of non-deductible expenses. that it is reasonably possible that additional valuation allowances of up to $86 related to the U.S. and a subsidiary in Brazil willcould be releasedrecorded in the next twelve months.Equitymonths, driven by reductions in certain subsidiaries' profits from the impact of COVID-19.both 20192019. Equity in losses from DDAC was $1 in 2020 and 2018. Equityequity in earnings from DDAC was $4 in 2019 and $22019. DDAC's operations located in 2018.China's Hubei province, the center of the initial COVID-19 outbreak, where shut down the entire month of February 2020. Production was permitted to resume in March 2020. Equity in earnings from BSFB was $3 in 2020 and $2 in 2019 and 2018.(2019(2020 versus 2018) Three Months Sales Segment
EBITDA Segment
EBITDA
Margin2018 $ 950 $ 103 10.8 % Volume and mix (31 ) (8 ) Performance 1 9 Currency effects (14 ) (2 ) 2019 $ 906 $ 102 11.3 % $ 906 $ 102 11.3 % Volume and mix (77 ) (19 ) Performance (16 ) 1 Currency effects (5 ) (1 ) $ 808 $ 83 10.3 % 2019,2020, exclusive of currency effects, were 3%10% lower than the same period of 2018.2019. The rapid dissipation in customer demand resulting from the global COVID-19 pandemic was partially offset by conversion of sales backlog. Year-over-year North America full frame light truck production decreased 1%11% while light truck production in Europe, South America and Asia Pacific declined 1%17%, 1%9% and 7%28%, respectively. During the first quarter of 2019, we experienced a significantNet customer pricing and cost recovery actions further decreased year-over-year first-quarter sales volume-related decline attributable to one of our largest customer 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 overall global light truck production were partially offset by the conversion of sales backlog.Segment$16.was flat withdecreased by $19 when compared to the same period last year.of 2019. Lower sales volumes providedprovide a year-over-year headwind of $8.$19 and accounted for a 130 basis point deterioration in segment EBITDA margin, as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. The year-over-year performance-related earnings improvementincrease in the first quarter was driven by commodity cost decreases of $12, material cost savings of $9$7, lower warranty expense of $3 and lower new program start-up and launch-related costs of $9. Lower premium freight and other costs associated with lower production volumes and 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 Sales Segment
EBITDA Segment
EBITDA
Margin2018 $ 400 $ 34 8.5 % Volume and mix 35 6 Acquisition / Divestiture 5 1 Performance 11 2 Currency effects (20 ) (2 ) 2019 $ 431 $ 41 9.5 % Excluding currency effects, first-quarter 2019 sales in our Commercial Vehicle segment increased 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 20% and Classes 5-7 production was up 6%. Also contributing to higher sales volume was higher first-quarter production in Europe, South America and Asia Pacific. Cost recovery actions provided a benefit of $5.Commercial Vehicle first-quarter segment EBITDA increased by $7 from last year's first quarter. Higher sales volumes increased 2019 first-quarter earnings by $6. The performance-related earnings increase in this year' first quarter resulted from net pricing and material recovery of $5, net foreign currency transaction gains of $4 and material cost savingsincentive compensation of $3. Partially offsetting these performance-related earnings increases were higherlower net pricing and material cost recovery of $16 and operational inefficiencies of $8. $ 431 $ 41 9.5 % Volume and mix (83 ) (21 ) Acquisition / Divestiture 3 (4 ) Performance (5 ) 6 Currency effects (13 ) (1 ) $ 333 $ 21 6.3 % costscost decreases of $9$3. Partially offsetting these performance-related earnings increases were lower net pricing and other items $1.Off-Highway Three Months Sales Segment
EBITDA Segment
EBITDA
Margin2018 $ 492 $ 72 14.6 % Volume and mix 15 1 Acquisitions 76 11 Performance 1 Currency effects (31 ) (3 ) 2019 $ 552 $ 82 14.9 % $ 552 $ 82 14.9 % Volume and mix (116 ) (26 ) Acquisitions 113 14 Performance (5 ) 4 Currency effects (12 ) (2 ) $ 532 $ 72 13.5 % and SME acquisitions, first-quarter 2019 sales in ouracquisition, Off-Highway segment increased 3% compared to last year. Volume relatedfirst-quarter 2020 sales growth, while marginal, was seen across eachdecreased 22%. Already declining global construction/mining and agricultural equipment markets coming out of our key markets. increased by $10 in this year's first quarter decreased by $10 when compared withto the same period of 2018. Marginally higher market2019. Lower sales volumes provided a year-over-year headwind of $26 and accounted for a 210 basis point deterioration in segment EBITDA margin, as actions to flex down our cost structure lagged the rapid dissipation of customer demand wasresulting from the primary drive of the volume and mixglobal COVID-19 pandemic. The year-over-year performance-related earnings improvement. The performance-related improvementincrease in the first quarter year-over-year earnings was due primarily todriven by material cost savings of $6$5, commodity cost decreases of $3, lower incentive compensation of $1 and net pricing and material recoverylower warranty expense of $3.$1. Partially offsetting these performance-related earnings increases were higher engineering expenseslower net pricing and material cost recovery of $2, net foreign currency transaction losses$5 and operational inefficiencies of $2 and other items of $4. Three Months Sales Segment
EBITDA Segment
EBITDA
Margin2018 $ 296 $ 45 15.2 % Volume and mix (8 ) (3 ) Performance (1 ) (7 ) Currency effects (13 ) (1 ) 2019 $ 274 $ 34 12.4 % $ 274 $ 34 12.4 % Volume and mix (16 ) (5 ) Performance (1 ) 1 Currency effects (4 ) $ 253 $ 30 11.9 % 20192020 were 3%6% lower than the same period of 2018,2019, primarily due to program roll offs and lower market demand.demand resulting from the global COVID-19 pandemic. Light vehicle engine production declined in Europe and Chinaeach region compared to last year's first quarter, while North America production was relatively stable.Segmentquarter.was lowerdecreased by $11$4 when compared to the same period of 2018.2019. Lower sales volumes provided a year-over-year headwind of $5 and accounted for a 120 basis point deterioration in segment EBITDA margin, as actions to flex down our cost structure lagged the dissipation of customer demand resulting from the global COVID-19 pandemic. The performance deteriorationyear-over-year performance-related earnings increase in the first quarter was driven by material cost savings of $7 in 2019 resulted from higher commodity costs$2 and lower incentive compensation of $3$1. Partially offsetting these performance-related earnings increases were lower net pricing and material cost recovery of $1 and operational inefficiencies and other items of $4. Operational inefficiencies included higher scrap and repair costs.$1. Three Months Ended
March 31, 2019 2018 Net income $ 101 $ 111 Equity in earnings of affiliates 6 6 Income tax expense 20 48 Earnings before income taxes 115 153 Depreciation and amortization 77 67 Restructuring 9 1 Interest expense, net 25 21 Other* 31 6 Adjusted EBITDA $ 257 $ 248 $ 38 $ 101 2 6 (16 ) 20 20 115 Depreciation and amortization 89 77 Restructuring charges, net 3 9 Impairment of goodwill 51 Interest expense, net 27 25 Other* 15 31 $ 205 $ 257 * net of transaction breakup fees and other items. See Note 2118 to our consolidated financial statements in Item 1 of Part I for additional details.underin accordance with GAAP. Free cash flow and adjusted free cash flow may not be comparable to similarly titled measures reported by other companies. $ (51 ) $ (16 ) (63 ) (98 ) (114 ) (114 ) — — $ (114 ) $ (114 ) Three Months Ended
March 31, 2019 2018 Net cash used in operating activities $ (16 ) $ (28 ) Purchases of property, plant and equipment (98 ) (65 ) Free cash flow (114 ) (93 ) Discretionary pension contribution — — Adjusted free cash flow $ (114 ) $ (93 ) 2019:Cash and cash equivalents $ 383 Less: Deposits supporting obligations (5 ) Available cash 378 Additional cash availability from Revolving Facility 729 Marketable securities 20 Total liquidity $ 1,127 $ 628 Less: Deposits supporting obligations (5 ) 623 Additional cash availability from Revolving Facility 679 23 $ 1,325 20192020 consolidated cash balance were as follows: U.S. Non-U.S. Total Cash and cash equivalents $ 8 $ 223 $ 231 Cash and cash equivalents held as deposits 5 5 Cash and cash equivalents held at less than wholly-owned subsidiaries 3 144 147 Consolidated cash balance $ 11 $ 372 $ 383 Cash and cash equivalents $ 326 $ 190 $ 516 Cash and cash equivalents held as deposits 5 5 Cash and cash equivalents held at less than wholly-owned subsidiaries 4 103 107 $ 330 $ 298 $ 628 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%.2019, we had no outstanding borrowings under the Revolving Facility but we had utilized $21 for letters of credit. We had availability at March 31, 2019 under the Revolving Facility of $729 after deducting the outstanding letters of credit.At March 31, 2019,2020, we were in compliance with the covenants of our financing agreements. Under the Term Facilities, the Revolving Facility and our senior notes, we are required to comply with certain incurrence-based covenants customary for facilities of these types. The incurrence-based covenants in the Term Facilities and the Revolving Facility permit us to, among other things, (i) issue foreign subsidiary indebtedness, (ii) incur general secured indebtedness subject to a pro forma first lien net leverage ratio not to exceed 1.50:1.00 in the case of first lien debt and a pro forma secured net leverage ratio of 2.50:1.00 in the case of other secured debt and (iii) incur additional unsecured debt subject to a pro forma total net leverage ratio not to exceed 3.50:1.00, tested onat the last daytime of each fiscal quarter.incurrence. We may also make dividend payments in respect of our common stock as well as certain investments and acquisitions subject to a pro forma total net leverage ratio of 2.75:1.00. In addition, the Term A Facility and the Revolving Facility are subject to a financial covenant requiring us to maintain a first lien net leverage ratio not to exceed 2.00:1.00. The indentures governing the senior notes include other incurrence-based covenants that may subject us to additional specified limitations.Our BoardDirectors approved an expansionvarious government programs and subsidies including certain provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act, temporarily suspending the declaration and payment of dividends to common shareholders and temporarily suspending the repurchase of common stock under our existing common stock share repurchase program from $100program. In addition, on April 16, 2020, we entered into a $500 bridge facility (the Bridge Facility) and amended our credit and guaranty agreement. The Bridge Facility matures on April 15, 2021. Under the Bridge Facility we are required to $200comply with certain incurrence-based covenants customary for facilities of this type and a maintenance covenant requiring us to maintain a first lien net leverage ratio not to exceed 2.50 to 1.00 for the quarter ending June 30, 2020, 3.00 to 1.00 for the quarter ending September 30, 2020 and 4.00 to 1.00 thereafter. In addition, on March 24, 2018. The share repurchase program expires onApril 16, 2020, we amended certain provisions of our credit and guaranty agreement including increasing the first lien net leverage ratio to a maximum of 4.00 to 1.00 for the quarter ending December 31, 2019.2020 and then, starting with the quarter ending December 31, 2021, decrease the ratio quarterly until it returns to its prior level of 2.00 to 1.00 for and after the quarter ending September 30, 2022, unless Dana in its sole discretion elects to return the first lien net leverage ratio to its prior level earlier than such date. We planalso amended certain restrictive covenants to repurchase shares utilizingprovide additional limitations that are consistent with the Bridge Facility until such time as the earlier of (x) December 31, 2021 and (y) any date that we elect after the expiration of the Bridge Facility. See Note 11 to our consolidated financial statements in Item 1 of Part I for further information on the Bridge Facility and the amendments to our credit and guaranty agreement.excessfor our future cash either in the open market or through privately negotiated transactions. The stock repurchasesrequirements are subjectexpected to prevailing market conditions, available growth opportunitiesbe (i) cash flows from operations, (ii) cash and cash equivalents on hand, (iii) borrowings from our Revolving Facility and (iv) borrowings from our Bridge Facility. We believe that our overall liquidity and operating cash flow will be sufficient to meet our anticipated cash requirements for capital expenditures, working capital, debt obligations and other considerations. Duringcommitments during the first quarter of 2019,next twelve months. While uncertainty surrounding the current economic environment could adversely impact our business, based on our current financial position, 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 assurancebelieve it is unlikely 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.effects would preclude us from maintaining sufficient liquidity. Three Months Ended
March 31, 2019 2018 Cash used for changes in working capital $ (175 ) $ (216 ) Other cash provided by operations 159 188 Net cash used in operating activities (16 ) (28 ) Net cash used in investing activities (724 ) (67 ) Net cash provided by (used in) financing activities 610 (28 ) Net decrease in cash, cash equivalents and restricted cash $ (130 ) $ (123 ) $ (183 ) $ (175 ) 132 159 (51 ) (16 ) (85 ) (724 ) 283 610 $ 147 $ (130 ) summarizessummarizes our consolidated statement of cash flows.$188 in 2019 and 2018.2019. The modest year-over-year improvementdecrease attributable to operating earnings was more thanpartially offset by increasedlower cash payments for strategic transaction expenses and higher net interest payments.$216 in 2019 and 2018.2019. Cash of $203$43 and $264$203 was used to finance increased20192020 and 2018.2019. The lower level of cash required for receivables in 20192020 was due primarily to the rapid dissipation of customer demand during March 2020 as a shift in sales mix to customers with relatively shorter payment terms.result of the COVID-19 pandemic. Cash of $48$56 and $52$48 was used to fund higher inventory levels in 20192020 and 2018. Partially offsetting cash2019. Cash of $84 was used for higher receivablesto reduce accounts payable and inventoryother net liabilities in both 2019 and 2018 was cash provided by2020, while increases in accounts payable and other net liabilities provided cash of $76 and $100.$98$63 and $65$98 during the first quarter of 20192020 and 2018.2019. The elevated level of capital spend during the first quarter of 2019 iswas primarily in support of new customer programs and information systems upgrades. During the first quarter of 2020, we paid $8 to acquire Curtis' 35.4% ownership interest in Ashwoods. The acquisition of Curtis's interest in Ashwoods, along with our existing ownership interest in Ashwoods, provided us with a controlling financing interest in Ashwoods. During the first quarter of 2019, we paid $545, net of cash and restricted cash acquired, to purchase ODS. Also during the first quarter of 2019 we paid $61 to acquire SME. During the first quarter of 2019, we paid $21 to settle the undesignated SwissSwiss franc notional deal contingent forward related to the ODS acquisition. During 2019the first quarter of 2020 and 2018,2019, purchases of marketable securities were largely funded by proceeds from sales and maturities of marketable securities.term facility (the Term A Facility),Facility, a $450 term facility (the Term B facility)Facility and a $750 revolving credit facility.Revolving Facility. The Term A Facility iswas an expansion of our existing $275 term facility. We drew the $225 available under the Term A Facility and the $450 available under the Term B Facility. We paid financing costs of $12 to amend the credit and guaranty agreement. We used $14$15 and $15$14 for dividend payments to common stockholders during the first quarter of 20192020 and 2018.2019. We used cash of $25 to repurchase 1,432,275 shares of our common stock during the first quarter of 2019.20192020 in our off-balance sheet arrangements from those reported or estimated in the disclosures in Item 7 of our 20182019 Form 10-K.The SME acquisition purchase consideration included a note payable of $26 which allows for net settlement of potential contingencies as definedthe purchase agreement. The note is payable in five years and bears annual interest of 5%. See Note 2 to our consolidated financial statementscontractual obligations from those disclosed in Item 17 of Part I for additional information.During the first quarter ofour 2019 we expanded our 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.1613 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.20182019 Form 10-K for a description of our critical accounting estimates and Note 1 to our consolidated financial statements in Item 8 of our 20182019 Form 10-K for our significant accounting policies. There were no changes to our critical accounting estimates in the three months ended March 31, 2019.2020. See Note 1 to our consolidated financial statements in this Form 10-Q for a discussion of new accounting guidance adopted induring the first quarterthree months of 2019.2020.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 approximatethe 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.20182019 Form 10-K.20192020 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, 2019.20182019 Form 10-K for a more complete understanding of the matters covered by the certifications.1613 to our consolidated financial statements in Item 1 of Part I of this Form 10-Q.Therebeen no material changes ina substantial adverse effect on our risk factorsbusiness.” disclosed in Item 1A of our 20182019 Form 10-K.10-K has been updated to read as follows: Our On December 11, 2019 our Board of Directors approved an expansionextension of our existing common stock share repurchase program from $100 to $200 on March 24, 2018. The share repurchase program expires onthrough December 31, 2019.2021. Approximately $150 remained available under the program for future share repurchases as of March 31, 2020. We repurchase shares utilizing available excess cash either in the open market or through privately negotiated transactions. The stockStock repurchases are subject to prevailing market conditions available growth opportunities and other considerations. Under the program, we used cash of $25 to repurchase 1,432,275No shares of our common stock were repurchased under the program during the first quarter of 2019.2020.Calendar Month Class or Series of Securities Number
of Shares Purchased
Price Paid
Shares Purchased as
Part of Publicly
Announced Plans
Shares that May Yet
be Purchased UnderJanuary Common 1,330,000 $ 17.47 1,330,000 $ 152 February Common 102,275 $ 17.60 102,275 $ 150 March Common $ 150 DANA INCORPORATEDDate:May 2, 2019By: /s/ Jonathan M. Collins 49