Dana Incorporated (NYSE: DAN) — 2023 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2023; it does not provide a standalone fourth-quarter financial summary. Dana supplies driveline, electrification, sealing, thermal-management and related products to vehicle, off-highway and industrial markets. It operated in 31 countries and had approximately 41,800 employees. Unless otherwise noted, amounts are in millions of U.S. dollars.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $10,555 | $10,156 |
| Gross margin | $900; 8.5% of sales | $763; 7.5% of sales |
| Earnings before interest and taxes | $316 | $86 |
| Net income (loss) attributable to Dana | $38; $0.26 diluted EPS | $(242); $(1.69) diluted EPS |
| Adjusted EBITDA (non-GAAP) | $845 | $700 |
| Cash from operating activities | $476 | $649 |
| Capital expenditures | $501 | $440 |
| Free cash flow (non-GAAP) | $(25) | $209 |
Sales increased $399, or about 4%, reflecting improved demand, program backlog conversion and customer pricing and cost-recovery actions; foreign exchange reduced sales by $9. Lower material costs and premium freight, along with volume, helped raise gross margin, partly offset by non-material inflation, warranty and launch costs, and operating inefficiencies.
Segment sales and EBITDA were: Light Vehicle $4,035 and $212; Commercial Vehicle $2,092 and $87; Off-Highway $3,185 and $465; Power Technologies $1,243 and $89. Compared with 2022, EBITDA rose in the first three segments and declined in Power Technologies. Off-Highway generated the largest segment EBITDA and margin (14.6%); Light Vehicle, Commercial Vehicle and Power Technologies margins were 5.3%, 4.2% and 7.2%, respectively.
At year-end, cash and cash equivalents were $529 and unused revolving-credit capacity was $1,141, for reported total liquidity of $1,670. Dana reported debt obligations of $2,679 in its risk-factor disclosure; the balance sheet lists $22 of short-term debt, $35 current long-term debt and $2,598 long-term debt, net of issuance costs. Interest expense increased to $154 from $128. Dana said it was in covenant compliance and expected available liquidity and operating cash flow to meet anticipated cash requirements over the next 12 months. Some cash is held outside the U.S. and may be restricted or costly to repatriate.
Changes versus the prior period
- Sales rose 3.9%; gross margin improved by 1.0 percentage point, and adjusted EBITDA increased by $145.
- Dana moved from a $242 attributable loss to $38 of attributable income. The comparison is affected by the $191 goodwill impairment recorded in 2022 and unusually high 2022 tax expense, including a U.S. valuation allowance.
- Operating cash flow fell $173 and free cash flow declined from $209 to $(25), as capital spending increased and operating cash generation decreased.
- Debt and interest costs increased overall. During 2023, Dana issued €425 of 8.5% notes due 2031 and redeemed $200 of its 2025 notes; its $1,150 revolving facility was extended to March 2028.
Outlook, management commentary and risks
For 2024, management forecast sales of $10,650–$11,150, adjusted EBITDA of $875–$975, operating cash flow of $475–$525, capital spending of approximately 4% of sales and free cash flow of $25–$75. Adjusted EBITDA margin was expected to be 8.5% at the midpoint, 50 basis points above 2023. Management cited net new business and operational improvements, partially offset by fading material-cost recovery benefits and increased electrification investment. These are forward-looking estimates, not guarantees.
Net new-business backlog for 2024–2026 was $950, with $350 expected in 2024 and $300 in each of 2025 and 2026; approximately 75% was attributed to EV content. Management highlighted electrification, integrated e-propulsion systems, customer focus and growth in Asia as strategic priorities. Market expectations were mixed: relatively stable light-truck production in 2024; moderately weaker North American commercial-vehicle demand; modest growth in some construction and Asia-Pacific markets; and broadly flat agriculture and mining demand.
- Operating and market risks: dependence on cyclical vehicle production, major OEM customers, supplier availability and cost recovery; Ford represented approximately 20% of 2023 sales, and the ten largest customers approximately 55%.
- Transition and execution risks: EV competition, OEM vertical integration, an extended ICE-to-EV transition, program-launch challenges, restructuring and the need to fund overlapping ICE and EV capacity.
- Financial and geographic risks: interest rates, foreign exchange, commodity and labor costs, tariffs, pension funding, taxes and restrictions on subsidiary cash. Argentina’s fourth-quarter currency devaluation contributed to foreign-exchange losses.
- Other risks and contingencies: cybersecurity, climate and natural disasters, product warranty/liability, environmental compliance, labor disruptions and legal proceedings. Dana said pending proceedings were not expected to have a material adverse effect; product-liability accruals were de minimis and environmental accruals were $6.
Unusual items included $25 of restructuring charges, $44 of distressed-supplier costs included in the adjusted EBITDA reconciliation, a $19 tax expense for prior-year foreign tax reserves and a $55 tax benefit related to an intercompany intangible-asset sale. The warranty liability rose to $116 from $108, including $14 of adjustments to prior estimates. After year-end, Dana agreed to sell its European hydraulics business for approximately $42, expected to record a pretax loss of about $23, and anticipated closing in the second quarter of 2024; the business generated approximately $90 in 2023 revenue.
PwC issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. The auditor identified fair-value measurement of redeemable noncontrolling interests as a critical audit matter. Hydro-Québec holds a 45% redeemable interest in Dana TM4 entities, valued at $191 at year-end, and has a right to put all of its interests to Dana at fair value.
Important facts for investors to verify
- Reconcile the reported $2,679 debt figure with the balance-sheet debt components and assess upcoming maturities, interest expense and refinancing costs.
- Test the assumptions behind 2024 EBITDA and free-cash-flow guidance, particularly working capital, cash interest and taxes, capex, cost recovery and operational performance.
- Assess whether customer concentration, OEM production trends, the UAW-related disruption and supplier costs could affect sales, margins or cash conversion.
- Review EV backlog realization, program launches, competitive bidding, customer vertical integration and the economics of continued electrification investment.
- Monitor the European hydraulics sale, its expected loss and closing adjustments, and the valuation assumptions underlying the $191 redeemable noncontrolling interest.
- Evaluate warranty reserve developments, pension and multi-employer plan exposures, tax audit outcomes, foreign-currency risks and access to cash held outside the U.S.