Dana Incorporated (NYSE: DAN) — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied text does not provide a standalone fourth-quarter income statement or cash-flow summary. Amounts below are in millions of U.S. dollars unless stated otherwise.
Business context
Dana supplies driveline, motion, electrification, sealing and thermal-management products to light-vehicle, commercial-vehicle and off-highway manufacturers, and serves stationary industrial markets. It operates through four segments and in 31 countries, with approximately 41,800 employees. Ford accounted for 19% of 2022 sales and Stellantis 11%; the ten largest customers represented about 57%.
Key financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $10,156 | $8,945 |
| Gross profit / margin | $763 / 7.5% | $837 / 9.4% |
| Operating earnings (EBIT) | $86 | $395 |
| Net income (loss) attributable to Dana | $(242) | $197 |
| Diluted earnings (loss) per share | $(1.69) | $1.35 |
| Adjusted EBITDA (non-GAAP) | $700 | $795 |
| Cash from operating activities | $649 | $158 |
| Capital expenditures | $440 | $369 |
| Free cash flow (non-GAAP) | $209 | $(211) |
Sales increased 13.5% year over year. Organic sales rose 18%, while unfavorable currency movements reduced sales by $420; pricing actions, including commodity and inflation recoveries, added $772 to sales. Gross margin declined 190 basis points as commodity and other inflation, supply-chain inefficiencies, and delayed customer recoveries outweighed volume benefits. Operating cash flow improved substantially, helped by a $199 working-capital cash inflow versus a $455 outflow in 2021.
Net loss included a $191 goodwill impairment charge and $284 of income-tax expense. Dana recorded $240 of tax expense for U.S. valuation allowances. The impairment fully wrote off Commercial Vehicle segment goodwill; the auditor identified this interim impairment assessment as a critical audit matter. Adjusted EBITDA is a non-GAAP measure and was down from 2021.
Segments
| Segment | 2022 sales | 2022 segment EBITDA | 2021 segment EBITDA |
|---|---|---|---|
| Light Vehicle | $4,090 | $158 | $274 |
| Commercial Vehicle | $1,979 | $43 | $48 |
| Off-Highway | $2,946 | $404 | $353 |
| Power Technologies | $1,141 | $94 | $123 |
Off-Highway EBITDA improved; EBITDA declined in Light Vehicle, Commercial Vehicle and Power Technologies. Segment EBITDA is a non-GAAP measure.
Debt, liquidity and capital allocation
At year-end, Dana reported approximately $2,430 of consolidated debt obligations and $425 of cash and cash equivalents. Reported total liquidity was $1,533, including $1,109 of available revolving-credit capacity. Dana was in compliance with financing covenants. The revolving facility totals $1,150 and matures in March 2026; the senior-note schedule has no stated maturity before the second quarter of 2025. Cash was largely held outside the U.S., and some foreign cash is subject to repatriation restrictions or costs.
Dana paid $58 in common dividends and repurchased $25 of shares in 2022. Approximately $102 remained available under its repurchase program at year-end. Capital expenditures rose to $440, primarily supporting awarded programs and new business.
Material changes, outlook and risks
- 2023 outlook: Sales of $10,350–$10,850; adjusted EBITDA of $750–$850; operating cash flow of $510–$560; capital spending of approximately 5% of sales; and free cash flow of $0–$50. Management expects adjusted EBITDA margin of 7.5% at the guidance midpoint, about 60 basis points above 2022.
- Management expects modest market improvement and continued material-cost recovery, partly offset by operational inefficiencies, customer-order volatility and increased electrification investment. It cited $300 of expected 2023 sales from net new-business awards. The filing’s backlog discussion refers to a $900 backlog for 2023–2025 but labels its measurement date “December 31, 2023”; verify the date and amount.
- Commodity and non-material inflation reduced year-over-year earnings by $447 and $357, respectively; material recovery pricing actions added $446 to earnings. Recovery timing and the ability to pass through costs remain important uncertainties.
- Key risks include customer concentration, cyclical vehicle and equipment demand, supply-chain and labor disruption, foreign-exchange exposure, interest rates, tariffs, pension funding, product liability and warranty claims, and competition or customer vertical integration in electrification. The filing also notes that multi-employer pension plans are not fully funded.
- During 2022, Dana identified intercompany inventory-transfer and liability errors and recorded adjustments that increased cost of sales by $8 and decreased it by $9, respectively. Management concluded the corrections were not material to 2022 or prior periods.
- The auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective. Management also reported effective disclosure controls.
Most important facts for investors to verify
- The Commercial Vehicle goodwill impairment assumptions and the potential for further impairment if forecasts or market conditions weaken.
- The basis for the $240 U.S. tax valuation-allowance charge, deferred-tax-asset realizability, and the unusually high effective tax expense despite a pretax loss.
- Whether cost recoveries can keep pace with inflation, and whether supply-chain inefficiencies and customer order volatility ease as management expects.
- Customer concentration, liquidity available after considering geographic cash restrictions, and upcoming debt maturities and covenant headroom.
- The correct measurement date and composition of the stated $900 2023–2025 sales backlog; backlog awards are estimates, not firm customer orders.
- Execution, profitability and cash requirements of electrification programs and the 2023 guidance assumptions, including foreign-exchange sensitivity.