Edgar Filing: DANA INC

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(In millions)

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Document

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, 2018

Commission File Number: 1-1063

Dana Incorporated

(Exact name of registrant as specified in its charter)



Delaware		26-1531856
(State of incorporation)		(IRS Employer Identification Number)

3939 Technology Drive, Maumee, OH		43537
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (419) 887-3000

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

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



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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

There were 145,475,973 shares of the registrant’s common stock outstanding at April 20, 2018.

DANA INCORPORATED – FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

TABLE OF CONTENTS



		10-Q Pages

PART I – FINANCIAL INFORMATION

Item 1	Financial Statements
	Consolidated Statement of Operations (Unaudited)	3
	Consolidated Statement of Comprehensive Income (Unaudited)	4
	Consolidated Balance Sheet (Unaudited)	5
	Consolidated Statement of Cash Flows (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4	Controls and Procedures	45

PART II – OTHER INFORMATION

Item 1	Legal Proceedings	46

Item 1A	Risk Factors	46

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 6	Exhibits	46

Signatures		47

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Dana Incorporated

Consolidated Statement of Operations (Unaudited)

(In millions, except per share amounts)



	Three Months Ended March 31,
	2018		2017
Net sales	$	2,138	$	1,701
Costs and expenses
Cost of sales	1,831		1,437
Selling, general and administrative expenses	130		120
Amortization of intangibles	2		2
Restructuring charges, net	1		2
Other expense, net			(11		)
Earnings before interest and income taxes	174		129
Interest income	3		3
Interest expense	24		27
Earnings before income taxes	153		105
Income tax expense	48		30
Equity in earnings of affiliates	6		5
Net income	111		80
Less: Noncontrolling interests net income	2		5
Less: Redeemable noncontrolling interests net income	1
Net income attributable to the parent company	$	108	$	75

Net income per share available to common stockholders
Basic	$	0.74	$	0.52
Diluted	$	0.73	$	0.51

Weighted-average common shares outstanding
Basic	145.6		144.6
Diluted	147.5		145.9

Cash dividends declared per share	$	0.10	$	0.06

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

Dana Incorporated

Consolidated Statement of Comprehensive Income (Unaudited)

(In millions)



	Three Months Ended March 31,
	2018			2017
Net income	$	111		$	80
Other comprehensive income (loss), net of tax:
Currency translation adjustments	10			30
Hedging gains and losses	(8		)	(4		)
Defined benefit plans	7			5
Other comprehensive income	9			31
Total comprehensive income	120			111
Less: Comprehensive income attributable to noncontrolling interests	(2		)	(7		)
Less: Comprehensive (income) loss attributable to redeemable noncontrolling interests	(2		)	1
Comprehensive income attributable to the parent company	$	116		$	105

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

Dana Incorporated

Consolidated Balance Sheet (Unaudited)

(In millions, except share and per share amounts)



	March 31, 2018			December 31, 2017
Assets
Current assets
Cash and cash equivalents	$	479		$	603
Marketable securities	41			40
Accounts receivable
Trade, less allowance for doubtful accounts of $7 in 2018 and $8 in 2017	1,266			994
Other	235			172
Inventories	1,032			969
Other current assets	102			97
Current assets of disposal group held for sale	9			7
Total current assets	3,164			2,882
Goodwill	130			127
Intangibles	172			174
Deferred tax assets	407			420
Other noncurrent assets	74			71
Investments in affiliates	171			163
Property, plant and equipment, net	1,827			1,807
Total assets	$	5,945		$	5,644

Liabilities and equity
Current liabilities
Short-term debt	$	10		$	17
Current portion of long-term debt	29			23
Accounts payable	1,301			1,165
Accrued payroll and employee benefits	178			219
Taxes on income	58			53
Other accrued liabilities	278			220
Current liabilities of disposal group held for sale	7			5
Total current liabilities	1,861			1,702
Long-term debt, less debt issuance costs of $21 in 2018 and $22 in 2017	1,755			1,759
Pension and postretirement obligations	604			607
Other noncurrent liabilities	459			413
Noncurrent liabilities of disposal group held for sale	2			2
Total liabilities	4,681			4,483
Commitments and contingencies (Note 15)
Redeemable noncontrolling interests	49			47
Parent company stockholders' equity
Preferred stock, 50,000,000 shares authorized, $0.01 par value, no shares outstanding	—			—
Common stock, 450,000,000 shares authorized, $0.01 par value, 145,465,858 and 144,984,050 shares outstanding	2			2
Additional paid-in capital	2,350			2,354
Retained earnings	181			86
Treasury stock, at cost (7,191,700 and 7,001,017 shares)	(93		)	(87		)
Accumulated other comprehensive loss	(1,336		)	(1,342		)
Total parent company stockholders' equity	1,104			1,013
Noncontrolling interests	111			101
Total equity	1,215			1,114
Total liabilities and equity	$	5,945		$	5,644

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

Dana Incorporated

Consolidated Statement of Cash Flows (Unaudited)

(In millions)



	Three Months Ended March 31,
	2018			2017
Operating activities
Net income	$	111		$	80
Depreciation	64			49
Amortization of intangibles	3			3
Amortization of deferred financing charges	1			1
Earnings of affiliates, net of dividends received	(5		)	(5		)
Stock compensation expense	4			4
Deferred income taxes	12			10
Pension contributions, net				(2		)
Change in working capital	(216		)	(133		)
Other, net	(2		)	4
Net cash provided by (used in) operating activities	(28		)	11

Investing activities
Purchases of property, plant and equipment	(65		)	(96		)
Acquisition of businesses, net of cash acquired				(182		)
Purchases of marketable securities	(17		)	(11		)
Proceeds from sales of marketable securities	4
Proceeds from maturities of marketable securities	11			13
Other				(2		)
Net cash used in investing activities	(67		)	(278		)

Financing activities
Net change in short-term debt	(7		)	(1		)
Repayment of long-term debt	(1		)	(17		)
Dividends paid to common stockholders	(15		)	(9		)
Distributions to noncontrolling interests	(1		)	(1		)
Other	(4		)	2
Net cash used in financing activities	(28		)	(26		)

Net decrease in cash, cash equivalents and restricted cash	(123		)	(293		)
Cash, cash equivalents and restricted cash – beginning of period	610			716
Effect of exchange rate changes on cash balances	14			13
Less: Cash contributed to disposal group	(10		)
Cash, cash equivalents and restricted cash – end of period (Note 6)	$	491		$	436

Non-cash investing activity
Purchases of property, plant and equipment held in accounts payable	$	81		$	106

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

Dana Incorporated

Index to Notes to Consolidated Financial Statements



1.	Organization and Summary of Significant Accounting Policies

2.	Acquisitions

3.	Disposal Groups and Divestitures

4.	Goodwill and Other Intangible Assets

5.	Restructuring of Operations

6.	Supplemental Balance Sheet and Cash Flow Information

7.	Stockholders' Equity

8.	Redeemable Noncontrolling Interests

9.	Earnings per Share

10.	Stock Compensation

11.	Pension and Postretirement Benefit Plans

12.	Marketable Securities

13.	Financing Agreements

14.	Fair Value Measurements and Derivatives

15.	Commitments and Contingencies

16.	Warranty Obligations

17.	Income Taxes

18.	Other Expense, Net

19.	Revenue from Contracts with Customers

20.	Segments

21.	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 our customer base includes virtually every major vehicle manufacturer in the global light vehicle, medium/heavy vehicle and off-highway markets.

The terms "Dana," "we," "our" and "us," when used in this report, are references to Dana. These references include the subsidiaries of Dana unless otherwise indicated or the context requires otherwise.

Summary of significant accounting policies

Basis of presentation — Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. These statements are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods. The results reported in these consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the consolidated financial statements in Item 8 of our 2017 Form 10-K.

Recently adopted accounting pronouncements

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

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

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

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

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

Effective January 1, 2018, we adopted ASU 2014-09, Revenue – Revenue from Contracts with Customers, which requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in amounts that reflect the consideration a company expects to be entitled to in exchange for those goods or services. We have elected to use the modified retrospective approach to transition to the new standard. Comparative prior periods have not been restated. We assessed our products in combination with the provisions of our current customer contracts to determine the cumulative effect of initially applying ASU 2014-09. Based on our assessment, the adoption date financial statement impact was limited to balance sheet reclassifications required to establish the refund asset, refund liability and contract liability concepts provided for in ASU 2014-09. There was no cumulative effect adjustment required to be recorded to retained earnings. The cumulative effects of the changes made to our January 1, 2018 consolidated balance sheet for the adoption of ASU 2014-09 were as follows:



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

Liabilities
Current liabilities
Other accrued liabilities	$	220	$	16	$	236

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



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

Liabilities
Current liabilities
Other accrued liabilities	$	267	$	11	$	278

See Note 19 for additional information.

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



Standard		Effective Date
2017-09	Stock Compensation – Scope of Modification Accounting	January 1, 2018
2017-01	Business Combinations – Clarifying the Definition of a Business	January 1, 2018
2016-15	Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments	January 1, 2018

Recently issued accounting pronouncements

In February 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-02, Income Statement – Reporting Comprehensive Income, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This guidance allows entities to reclass stranded income tax effects resulting from the Tax Cuts and Jobs Act (the “Act”) from AOCI to retained earnings in their consolidated financial statements. As a result of the Act, deferred taxes were adjusted to reflect the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate by means of a credit or charge to income from continuing operations, leaving the tax effects of items within AOCI stranded at historical tax rates. This guidance becomes effective January 1, 2019 and may be early adopted in any interim period. The guidance is to be applied either in the period of adoption or retrospectively to each period that was affected by the change in the corporate tax rate under the Act. Adoption of this guidance will not have a material effect on our consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings 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 Exception. This guidance is intended to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, a down round feature would no longer cause a freestanding equity-linked financial instrument (or an embedded conversion option) to be considered "not indexed to an entity's own stock" and therefore accounted for as a derivative liability at fair value with changes in fair value recognized in current earnings. Down round features are most often found in warrants and conversion options embedded in debt or preferred equity instruments. In addition, the guidance re-characterized the indefinite deferral of certain provisions on distinguishing liabilities from equity to a scope exception with no accounting effect. This guidance becomes effective January 1, 2019 and early adoption is permitted. We do not presently issue any equity-linked financial instruments and therefore this guidance has no impact on our consolidated financial statements.

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

In June 2016, the FASB issued ASU 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments, new guidance for the accounting for credit losses on certain financial instruments. This guidance introduces a new approach to estimating credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. This guidance, which becomes effective January 1, 2020, is not expected to have a material impact on our consolidated financial statements.

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

Note 2. Acquisitions

USM – Warren — On March 1, 2017, we acquired certain assets and liabilities relating to the Warren, Michigan production unit of U.S. Manufacturing Corporation (USM). The production unit acquired is in the business of manufacturing axle housings, extruded tubular products and machined components for the automotive industry. The acquisition increases Dana's revenue from light and commercial vehicle manufacturers and vertically integrates a significant element of Dana's supply chain. It also provides Dana with new lightweight product and process technologies.

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



Total purchase consideration	$	78

Accounts receivable - Trade	$	17
Accounts receivable - Other	3
Inventories	9
Goodwill	3
Intangibles	33
Property, plant and equipment	50
Accounts payable	(34		)
Accrued payroll and employee benefits	(2		)
Other accrued liabilities	(1		)
Total purchase consideration allocation	$	78

Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the assembled workforce and is deductible for tax purposes. Intangibles includes $30 allocated to customer relationships and $3 allocated to developed technology. 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 eighteen and eleven years, respectively, and property, plant and equipment is being depreciated on a straight-line basis over useful lives ranging from one to seventeen years.

The results of operations of the business are reported in our Light Vehicle operating segment from the date of acquisition. We incurred transaction related expenses to complete the acquisition in 2017 totaling $5, which were charged to other expense, net. The pro forma effects of this acquisition would not materially impact our reported results for any period presented, and as a result no pro forma financial statements are presented.

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

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

purchase consideration and the related allocation to the acquisition date fair values of the assets acquired and liabilities assumed are presented in the following table:



Total purchase consideration	$	172

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

Goodwill recognized in this transaction is primarily attributable to synergies expected to arise after the acquisition and the assembled workforce, is not deductible for tax purposes and will be assigned to and evaluated for impairment at the operating segment level. Intangibles includes $29 allocated to customer relationships and $12 allocated to trademarks and trade names. We used the multi-period excess earnings method, an income approach, to value the customer relationships. We used the relief from royalty method, an income approach, to value trademarks and trade names. We used a replacement cost method to value fixed assets. We used a discounted cash flow approach to value the redeemable noncontrolling interests, inclusive of the put and call provisions. We used both discounted cash flow and cost approaches to value the noncontrolling interests. The customer relationships and trademarks and trade names intangible assets are being amortized on a straight-line basis over seventeen years, and property, plant and equipment is being depreciated on a straight-line basis over useful lives ranging from three to thirty years.

The results of operations of the businesses are reported in our Off-Highway operating segment from the date of acquisition. Transaction related expenses in 2017 associated with completion of the acquisition totaling $7 were charged to other expense, net. The pro forma effects of this acquisition would not materially impact our reported results for any period presented, and as a result no pro forma financial statements are presented.

Note 3. Disposal Groups and Divestitures

Disposal group held for sale — In December 2017, we entered into an agreement to divest our Brazil suspension components business (the disposal group) for no consideration to an unaffiliated company. The results of operations of the Brazil suspension components business are reported within our Commercial Vehicle operating segment. To effectuate the sale, Dana was obligated to contribute $10 of additional cash to the business prior to closing. We classified the disposal group as held for sale at December 31, 2017, recognizing a $27 loss to adjust the carrying value of the net assets to fair value and to recognize the liability for the additional cash required to be contributed to the business prior to closing. During the first quarter of 2018, we made the required cash contribution to the disposal group. At present, we have not completed the sale. In the event that we are unable to complete a transaction with the counterparty to the existing sale agreement, we intend to pursue a sale of the business to other interested parties. The carrying amounts of the major classes of assets and liabilities of our Brazil suspension components business are as follows:



	March 31, 2018		December 31, 2017
Accounts receivable - Trade	$	4	$	3
Inventories	5		4
Current assets classified as held for sale	$	9	$	7

Accounts payable	$	4	$	3
Accrued payroll and employee benefits	1		1
Other accrued liabilities	2		1
Current liabilities classified as held for sale	$	7	$	5

Other noncurrent liabilities	$	2	$	2
Noncurrent liabilities classified as held for sale	$	2	$	2

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

Note 4. Goodwill and Other Intangible Assets

Goodwill — The change in the carrying amount of goodwill in 2018 is due to currency fluctuation.

Changes in the carrying amount of goodwill by segment —



	Light Vehicle		Commercial Vehicle		Off-Highway		Power Technologies		Total
Balance, December 31, 2017	$	3	$	8	$	110	$	6	$	127
Currency impact					3				3
Balance, March 31, 2018	$	3	$	8	$	113	$	6	$	130

Components of other intangible assets —



		March 31, 2018							December 31, 2017
	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	7	$	96	$	(90	)	$	6	$	95	$	(88	)	$	7
Trademarks and trade names	16	18		(3		)	15		17		(2		)	15
Customer relationships	8	474		(408		)	66		470		(403		)	67
Non-amortizable intangible assets
Trademarks and trade names		65					65		65					65
Used in research and development activities		20					20		20					20
		$	673	$	(501	)	$	172	$	667	$	(493	)	$	174

The net carrying amounts of intangible assets, other than goodwill, attributable to each of our operating segments at March 31, 2018 were as follows: Light Vehicle — $51, Commercial Vehicle — $34, Off-Highway — $78 and Power Technologies — $9.

Amortization expense related to amortizable intangible assets —



	Three Months Ended March 31,
	2018		2017
Charged to cost of sales	$	1	$	1
Charged to amortization of intangibles	2		2
Total amortization	$	3	$	3

The following table provides the estimated aggregate pre-tax amortization expense related to intangible assets for each of the next five years based on March 31, 2018 exchange rates. Actual amounts may differ from these estimates due to such factors as currency translation, customer turnover, impairments, additional intangible asset acquisitions and other events.



	Remainder of 2018		2019		2020		2021		2022
Amortization expense	$	7	$	8	$	7	$	7	$	7

Note 5. Restructuring of Operations

Our restructuring activities have historically included rationalizing our operating footprint by consolidating facilities, positioning operations in lower cost locations and reducing overhead costs. In recent years, however, in response to lower demand and other market conditions in certain businesses, our focus has primarily been headcount reduction initiatives to reduce operating costs. Restructuring expense includes costs associated with current and previously announced actions and is comprised of contractual and noncontractual separation costs and exit costs, including costs associated with lease continuation obligations and certain operating costs of facilities that we are in the process of closing.

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

Accrued restructuring costs and activity, including noncurrent portion —



	Employee Termination Benefits			Exit Costs			Total
Balance at December 31, 2017	$	21		$	5		$	26
Charges to restructuring				1			1
Cash payments	(4		)	(1		)	(5		)
Balance at March 31, 2018	$	17		$	5		$	22

At March 31, 2018, the accrued employee termination benefits include costs to reduce approximately 200 employees to be completed over the next year. The exit costs relate primarily to lease continuation obligations.

Cost to complete — The following table provides project-to-date and estimated future restructuring expenses for completion of our approved restructuring initiatives for our business segments at March 31, 2018.



	Expense Recognized						Future Cost to Complete
	Prior to 2018		2018		Total to Date		Future Cost to Complete
Light Vehicle	$	4	$	—	$	4	$	—
Commercial Vehicle	35		1		36		11
Off-Highway	21				21
Total	$	60	$	1	$	61	$	11

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

Note 6. Supplemental Balance Sheet and Cash Flow Information

Inventory components at —



	March 31, 2018			December 31, 2017
Raw materials	$	490		$	442
Work in process and finished goods	600			580
Inventory reserves	(58		)	(53		)
Total	$	1,032		$	969

Cash, cash equivalents and restricted cash at —



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

Note 7. Stockholders’ Equity

Common stock — Our Board of Directors declared a quarterly cash dividends of ten cents per share of common stock in the first quarter of 2018. Dividends accrue on restricted stock units (RSUs) granted under our stock compensation program and will be paid in cash or additional units when the underlying units vest.

Share repurchase program — On March 24, 2018 our Board of Directors approved an expansion of our existing common stock share repurchase program to $200. The program expires on December 31, 2019. The authorized amount of $200 remained available for future share repurchases as of March 31, 2018.

Changes in equity —



	2018									2017
Three Months Ended March 31,	Attributable to Parent			Attributable to Non- controlling Interests			Total Equity			Attributable to Parent			Attributable to Non- controlling Interests			Total Equity
Balance, December 31	$	1,013		$	101		$	1,114		$	1,157		$	85		$	1,242
Adoption of ASU 2016-16 tax adjustment, January 1, 2017							—			(179		)				(179		)
Net income	108			2			110			75			5			80
Other comprehensive income	8						8			30			2			32
Common stock dividends	(15		)				(15		)	(9		)				(9		)
Distributions to noncontrolling interests				(1		)	(1		)				(1		)	(1		)
Increase from business combination							—						14			14
Purchase of noncontrolling interests	(9		)	9			—									—
Stock compensation	5						5			7						7
Stock withheld for employee taxes	(6		)				(6		)	(3		)				(3		)
Balance, March 31	$	1,104		$	111		$	1,215		$	1,078		$	105		$	1,183

See Note 1 for additional information about adoption of new accounting guidance on January 1, 2018 and 2017. During the first quarter of 2018, a wholly-owned subsidiary of Dana purchased the ownership interest in Dana Spicer (Thailand) Limited (a non wholly-owned consolidated subsidiary of Dana) held by ROC Spicer, Ltd. (a non wholly-owned consolidated subsidiary of Dana). Dana maintained its controlling financial interest in Dana Spicer (Thailand) Limited and accordingly accounted for the purchase as an equity transaction. The excess of the fair value of the consideration paid over the carrying value of the investment attributable to the noncontrolling interest in ROC Spicer, Ltd. was recognized as additional noncontrolling interest with a corresponding reduction of the additional paid-in capital of Dana.

Changes in each component of accumulated other comprehensive income (AOCI) of the parent —



	Parent Company Stockholders
	Foreign Currency Translation			Hedging			Investments			Defined Benefit Plans			Total
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	)

Balance, December 31, 2016	$	(646	)	$	(34	)	$	—		$	(604	)	$	(1,284	)
Other comprehensive income (loss):
Currency translation adjustments	34												34
Holding loss on net investment hedge	(5		)										(5		)
Holding gains and losses				(12		)							(12		)
Reclassification of amount to net income (a)				6									6
Reclassification adjustment for net actuarial losses included in net periodic benefit cost (b)										8			8
Tax (expense) benefit				2						(3		)	(1		)
Other comprehensive income (loss)	29			(4		)	—			5			30
Balance, March 31, 2017	$	(617	)	$	(38	)	$	—		$	(599	)	$	(1,254	)

(a) For 2018, 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 14 for additional details. For 2017, reclassifications from AOCI were included in other expense, net.

(b) See Note 11 for additional details.

Note 8. Redeemable Noncontrolling Interests

In connection with the acquisition of a controlling interest in BFP and BPT from Brevini on February 1, 2017, we recognized $44 for Brevini's 20% redeemable noncontrolling interests. The terms of the agreement provide Dana the right to call Brevini's noncontrolling interests in BFP and BPT, and Brevini the right to put its noncontrolling interests in BFP and BPT to Dana, assuming Dana does not exercise its call rights, at dates and prices defined in the agreement. The call and put prices are based on the amount Dana paid to acquire its initial ownership interest in BFP and BPT subject to adjustment based on the actual EBITDA and free cash flows, as defined in the agreement, of BFP and BPT. See Note 2 for additional information.

Redeemable noncontrolling interests reflected as of the balance sheet date are the greater of the redeemable noncontrolling interest balances adjusted for comprehensive income items and distributions or the redemption values (i.e., the "floor"). Redeemable noncontrolling interest adjustments of redemption value to the floor are recorded in retained earnings and included as an adjustment to net income available to parent company stockholders in the calculation of earnings per share. See Note 9 for additional information.

Reconciliation of changes in redeemable noncontrolling interests —



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

Note 9. Earnings per Share

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



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

Denominator:
Weighted-average common shares outstanding - Basic	145.6		144.6
Employee compensation-related shares, including stock options	1.9		1.3
Weighted-average common shares outstanding - Diluted	147.5		145.9

The share count for diluted earnings per share is computed on the basis of the weighted-average number of common shares outstanding plus the effects of dilutive common stock equivalents (CSEs) outstanding during the period. We excluded 0.2 million and 0.5 million CSEs in 2018 and 2017 as the effect of including them would have been anti-dilutive.

Note 10. Stock Compensation

The Compensation Committee of our Board of Directors approved the grant of RSUs and performance share units (PSUs) shown in the table below during 2018.

* Weighted-average per share

We calculated the fair value of the RSUs at grant date based on the closing market price of our common stock at the date of grant. The number of PSUs that ultimately vest is contingent on achieving specified return on invested capital targets and specified margin targets, with an even distribution between the two targets. We estimated the fair value of the PSUs at grant date based on the closing market price of our common stock at the date of grant adjusted for the value of assumed dividends over the period because the awards are not dividend protected.

We received $1 of cash from the exercise of stock options related to 0.1 million shares. We paid $2 of cash to settle SARs and RSUs. We issued 0.4 million and 0.2 million shares of common stock based on the vesting of RSUs and PSUs during 2018. We recognized stock compensation expense of $4 during the first quarters of both 2018 and 2017. At March 31, 2018, the total unrecognized compensation cost related to the nonvested awards granted and expected to vest was $39. This cost is expected to be recognized over a weighted-average period of 2.2 years.

Note 11. Pension and Postretirement Benefit Plans

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

Components of net periodic benefit cost (credit) —



	Pension
	2018						2017						OPEB - Non-U.S.
Three Months Ended March 31,	U.S.			Non-U.S.			U.S.			Non-U.S.			2018		2017
Interest cost	$	11		$	1		$	13		$	2		$	1	$	1
Expected return on plan assets	(18		)	(1		)	(21		)	(1		)
Service cost				2						1
Amortization of net actuarial loss	7			2			6			2
Net periodic benefit cost (credit)	$	—		$	4		$	(2	)	$	4		$	1	$	1

Pension expense for 2018 increased versus the same period in 2017 as a result of a lower assumed return on plan assets and an increase in amortization of the net actuarial loss in the U.S. The components of net periodic benefit cost other than the service cost component are included in other expense, net in the consolidated statement of operations.

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

Note 12. Marketable Securities



	March 31, 2018						December 31, 2017
	Cost		Unrealized Gain (Loss)		Fair Value		Cost		Unrealized Gain (Loss)		Fair Value
U.S. government securities	$	3	$	—	$	3	$	3	$	—	$	3
Corporate securities	5				5		5				5
Certificates of deposit	28				28		27				27
Other	5				5		4		1		5
Total marketable securities	$	41	$	—	$	41	$	39	$	1	$	40

U.S. government securities include bonds issued by government-sponsored agencies and Treasury notes. Corporate securities are primarily debt securities. Other consists of investments in mutual and index funds. U.S. government securities, corporate debt and certificates of deposit maturing in one year or less, after one year through five years and after five years through ten years total $29, $4 and $3 at March 31, 2018.

Note 13. Financing Agreements

Long-term debt at —



			March 31, 2018			December 31, 2017
	Interest Rate		Principal			Principal
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			275			275
Other indebtedness			30			29
Debt issuance costs			(21		)	(22		)
			1,784			1,782
Less: Current portion of long-term debt			29			23
Long-term debt, less debt issuance costs			$	1,755		$	1,759

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 14 for additional information.

Interest on the senior notes is payable semi-annually and interest on the Term Facility is payable quarterly. Other indebtedness includes borrowings from various financial institutions, capital lease obligations, the unamortized fair value adjustment related to a terminated interest rate swap and the financial liability related to build-to-suit leases. See Note 14 for additional information on the terminated interest rate swap.

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

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

Credit agreement — On August 17, 2017, we entered into an amended credit and guaranty agreement comprised of a $275 term facility (the Term Facility) and a $600 revolving credit facility (the Revolving Facility) both of which mature on August 17, 2022. On September 14, 2017, we drew the entire amount available under the Term Facility. Net proceeds from the Term Facility draw totaled $274. Financing costs of $1 were recorded as deferred cost and are being amortized to interest expense over the life of the Term Facility. We are required to make equal quarterly installments on the last day of each fiscal quarter of 1.5625% of the initial aggregate principal amount of the Term Facility commencing on September 30, 2018. We may prepay some or all of Term Facility without penalty. Any prepayments made on the Term Facility would be applied against the required quarterly installments. The proceeds from the Term Facility were used to repay our September 2021 Notes and for general corporate purposes. The Revolving Facility amended our previous revolving credit facility. In connection with the Revolving

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

The Term Facility and the Revolving Facility are guaranteed by all of our wholly-owned domestic subsidiaries subject to certain exceptions (the guarantors) and grants a first-priority lien on substantially all of the assets of Dana and the guarantors, subject to certain exceptions.

Advances under the Term Facility and the Revolving Facility bear interest at a floating rate based on, at our option, the base rate or Eurodollar rate (each as described in the revolving credit agreement) plus a margin as set forth below:



	Margin
Total Net Leverage Ratio	Base Rate		Eurodollar Rate
Less than or equal to 1.00:1.00	0.50	%	1.50	%
Greater than 1.00:1.00 but less than or equal to 2.00:1.00	0.75	%	1.75	%
Greater than 2.00:1.00	1.00	%	2.00	%

We have elected to pay interest on our advance under the Term Facility at the Eurodollar Rate. The interest rate on the Term Facility, inclusive of the applicable margin, was 4.052% as of March 31, 2018.

Commitment fees are applied based on the average daily unused portion of the available amounts under the Revolving Facility as set forth below:



Total Net Leverage Ratio	Commitment Fee
Less than or equal to 1.00:1.00	0.250	%
Greater than 1.00:1.00 but less than or equal to 2.00:1.00	0.375	%
Greater than 2.00:1.00	0.500	%

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

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

Debt covenants — At March 31, 2018, we were in compliance with the covenants of our financing agreements. Under the Term Facility, 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 Facility and Revolving Facility, a maintenance covenant requiring us to maintain a first lien net leverage ratio not to exceed 2.00 to 1.00.

Note 14. Fair Value Measurements and Derivatives

In measuring the fair value of our assets and liabilities, we use market data or assumptions that we believe market participants would use in pricing an asset or liability including assumptions about risk when appropriate. Our valuation techniques include a combination of observable and unobservable inputs.

Fair value measurements on a recurring basis — Assets and liabilities that are carried in our balance sheet at fair value are as follows:



			Fair Value
Category	Balance Sheet Location	Fair Value Level	March 31, 2018		December 31, 2017
Available-for-sale securities	Marketable securities	1	$	5	$	5
Available-for-sale securities	Marketable securities	2	36		35
Currency forward contracts
Cash flow hedges	Accounts receivable - Other	2	7		1
Cash flow hedges	Other accrued liabilities	2	1		5
Undesignated	Accounts receivable - Other	2			1
Undesignated	Other accrued liabilities	2	2		3
Currency swaps
Cash flow hedges	Other noncurrent liabilities	2	227		177

Fair Value Level 1 assets and liabilities reflect quoted prices in active markets. Fair Value Level 2 assets and liabilities reflect the use of significant other observable inputs.

Fair value of financial instruments — The financial instruments that are not carried in our balance sheet at fair value are as follows:



	March 31, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
Senior notes	$	1,500	$	1,542	$	1,500	$	1,592
Term Facility	275		275		275		275
Other indebtedness*	30		23		29		22
Total	$	1,805	$	1,840	$	1,804	$	1,889


*	The carrying value includes the unamortized portion of a fair value adjustment related to a terminated interest rate swap at both dates. The carrying value and fair value also include a financial liability associated with certain build-to-suit lease arrangements at both dates.

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

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

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

Foreign currency derivatives — Our foreign currency derivatives include forward contracts associated with forecasted transactions, primarily involving the purchases and sales of inventory through the next eighteen months, as well as currency swaps associated with certain recorded external notes payable and intercompany loans receivable and payable. Periodically, our foreign currency derivatives also include net investment hedges of certain of our investments in foreign operations.

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

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

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

All of the underlying designated financial instruments, and any subsequent replacement debt, have been designated as the hedged items in each respective cash flow hedge relationship, as shown in the table below. Designated as cash flow hedges of the forecasted principal and interest payments of the underlying designated financial instruments, or subsequent replacement debt, all of the swaps economically convert the underlying designated financial instruments into the functional currency of each respective holder. The impact of the interest rate differential between the inflow and outflow rates on all fixed-to-fixed cross-currency swaps is recognized during each period as a component of interest expense.

The following fixed-to-fixed cross-currency swaps were outstanding at March 31, 2018:



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

All of the swaps are expected to be highly effective in offsetting the corresponding currency-based changes in cash outflows related to the underlying designated financial instruments. Based on our qualitative assessment that the critical terms of all of the underlying designated financial instruments and all of the associated swaps match and that all other required criteria have been met, we do not expect to incur any ineffectiveness. As effective cash flow hedges, changes in the fair value of the swaps will be recorded in OCI during each period. Additionally, to the extent the swaps remain effective, the appropriate portion of AOCI will be reclassified to earnings each period as an offset to the foreign exchange gain or loss resulting from the remeasurement of the underlying designated financial instruments. See Note 13 for additional information about the June 2026 Notes and the April 2025 Notes.

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

The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $349 at March 31, 2018 and $306 at December 31, 2017. The total notional amount of outstanding foreign currency swaps, including the fixed-to-fixed cross-currency swaps, was $1,121 at March 31, 2018 and $1,112 at December 31, 2017.

The following currency derivatives were outstanding at March 31, 2018:



		Notional Amount (U.S. Dollar Equivalent)
Functional Currency	Traded Currency	Designated as Cash Flow Hedges		Undesignated		Total		Maturity
U.S. dollar	Mexican peso, Chinese renminbi	$	130	$	13	$	143	Jun-19
Euro	U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee, Russian ruble, Chinese renminbi	50		7		57		Jun-19
British pound	U.S. dollar, Euro	2				2		Apr-19
Swedish krona	U.S. dollar, Euro	20				20		Jun-19
South African rand	U.S. dollar, Euro, Thai baht			14		14		Feb-19
Thai baht	U.S. dollar			22		22		Dec-18
Canadian dollar	U.S. dollar			14		14		Jun-19
Brazilian real	Euro, U.S. dollar			37		37		Mar-19
Indian rupee	U.S. dollar, British pound, Euro			40		40		Sep-19
Total forward contracts		202		147		349

U.S. dollar	Euro	346				346		Sep-23
Euro	U.S. dollar	775				775		Jun-26
Total currency swaps		1,121		—		1,121
Total currency derivatives		$	1,323	$	147	$	1,470

Cash flow hedges — With respect to contracts designated as cash flow hedges, changes in fair value during the period in which the contracts remain outstanding are reported in OCI to the extent such contracts remain effective. Effectiveness is measured by using regression analysis to determine the degree of correlation between the change in the fair value of the derivative instrument and the change in the associated foreign currency exchange rates. Changes in fair value of contracts not designated as cash flow hedges or as net investment hedges are recognized in other expense, net in the period in which the changes occur. Realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments, including those that have been designated as cash flow hedges and those that have not been designated, are recognized in the same line item in the consolidated statement of operations in which the underlying forecasted transaction or other hedged item is recorded. Accordingly, amounts are potentially recorded in sales, cost of sales or, in certain circumstances, other expense, net. Realized gains of $1 were recognized as an increase in sales during the first quarter of 2018.

Net investment hedges — We periodically designate derivative contracts or underlying non-derivative financial instruments as net investment hedges. With respect to contracts designated as net investment hedges, we apply the forward method, but for non-derivative financial instruments designated as net investment hedges, we apply the spot method. Under both methods, we report changes in fair value in the cumulative translation adjustment (CTA) component of OCI during the period in which the contracts remain outstanding to the extent such contracts and non-derivative financial instruments remain effective.

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

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

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

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

Note 15. Commitments and Contingencies

Product liabilities — We had accrued $11 and $7 for product liability costs at March 31, 2018 and December 31, 2017. We had also recognized $15 and $9 as expected amounts recoverable from third parties at the respective dates. The increases in the liability and recoverable amounts at March 31, 2018 reflect the adjustment of the estimated cost, net of payments made, and the expected recovery of an insured matter. Payments made to claimants have preceded the recovery of amounts from third parties, resulting in a recoverable amount in excess of the total liability at both dates. We estimate these liabilities based on current information and assumptions about the value and likelihood of the claims against us.

Environmental liabilities — Accrued environmental liabilities were $9 at March 31, 2018 and $8 at December 31, 2017. We consider the most probable method of remediation, current laws and regulations and existing technology in estimating our environmental liabilities. Other accounts receivable included a related recoverable from insurers or other parties of $1 at March 31, 2018.

Guarantee of lease obligations — In connection with the divestiture of our Structural Products business in 2010, leases covering three U.S. facilities were assigned to a U.S. affiliate of Metalsa. Under the terms of the sale agreement, we will guarantee the affiliate’s performance under the leases, which run through June 2025, including approximately $6 of annual payments. In the event of a required payment by Dana as guarantor, we are entitled to pursue full recovery from Metalsa of the amounts paid under the guarantee and to take possession of the leased property.

Other legal matters — We are subject to various pending or threatened legal proceedings arising out of the normal course of business or operations. In view of the inherent difficulty of predicting the outcome of such matters, we cannot state what the eventual outcome of these matters will be. However, based on current knowledge and after consultation with legal counsel, we believe that any liabilities that may result from these proceedings will not have a material adverse effect on our liquidity, financial condition or results of operations.

Note 16. Warranty Obligations

We record a liability for estimated warranty obligations at the dates our products are sold. We record the liability based on our estimate of costs to settle future claims. Adjustments to our estimated costs at time of sale are made as claim experience and other new information becomes available. Obligations for service campaigns and other occurrences are recognized as adjustments to prior estimates when the obligation is probable and can be reasonably estimated.

Changes in warranty liabilities —



	Three Months Ended March 31,
	2018			2017
Balance, beginning of period	$	76		$	66
Acquisitions				8
Amounts accrued for current period sales	10			7
Adjustments of prior estimates				3
Settlements of warranty claims	(11		)	(12		)
Currency impact	1			1
Balance, end of period	$	76		$	73

The 2017 Acquisitions line includes approximately $4 related to the acquisition of BFP and BPT that is subject to recovery from the seller.

Note 17. Income Taxes

We estimate the effective tax rate expected to be applicable for the full fiscal year and use that rate to provide for income taxes in interim reporting periods. We also recognize the tax impact of certain unusual or infrequently occurring items,

including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.

We have generally not recognized tax benefits on losses generated in several entities where the recent history of operating losses does not allow us to satisfy the “more likely than not” criterion for the recognition of deferred tax assets. Consequently, there is no income tax expense or benefit recognized on the pre-tax income or losses in these jurisdictions as valuation allowances are adjusted to offset the associated tax expense or benefit. We believe that it is reasonably possible that a valuation allowance of up to $8 related to a subsidiary in Argentina will be released in the next twelve months.

We record interest and penalties related to uncertain tax positions as a component of income tax expense. Net interest expense for the periods presented herein is not significant.

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

We reported income tax expense related to operations of $48 and $30 for the quarters ended March 31, 2018 and 2017. Our effective tax rates were 31% and 29% in the first three months of 2018 and 2017. Our effective income tax rates vary from the U.S. federal statutory rates of 21% and 35% due to establishment, release and adjustment of valuation allowances in several countries, nondeductible expenses and deemed income, local tax incentives in several countries outside the U.S., different statutory tax rates outside the U.S. and withholding taxes related to repatriations of international earnings. The effective income tax rate may vary significantly due to fluctuations in the amounts and sources, both foreign and domestic, of pretax income and changes in the amounts of non-deductible expenses. Although the tax reform in the U.S. reduced the statutory tax rate to 21% for 2018, the effects of the lower rate were offset in part by the effects of increased nondeductible expenses and the global intangible low taxes income provisions which result in a certain amount of foreign earnings being subjected to U.S. tax.

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

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

Note 18. Other Expense, Net



	Three Months Ended March 31,
	2018			2017
Non-service cost components of pension and OPEB costs	$	(3	)	$	(2	)
Government grants and incentives	2			2
Foreign exchange loss	(2		)	(2		)
Strategic transaction expenses, net of transaction breakup fee income	1			(11		)
Other, net	2			2
Other expense, net	$	—		$	(11	)

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.

Strategic transaction expenses relate primarily to costs incurred in connection with acquisition and divestiture related activities, including integration costs. Strategic transaction expenses in 2018 were more than offset by a $40 transaction breakup fee associated with our bid to acquire the driveline business of GKN plc. The breakup fee receivable is included in accounts receivable – other. We received the breakup fee in April 2018. Strategic transaction expenses in 2017 were primarily attributable to our acquisitions of BFP and BPT from Brevini and USM – Warren from USM. See Note 2 for additional information.

Note 19. Revenue from Contracts with Customers

We generate revenue from selling production parts to original equipment manufacturers (OEMs) and service parts to OEMs and aftermarket customers. While we provide production and service parts to certain OEMs under awarded multi-year programs, these multi-year programs do not contain any commitment to volume by the customer. As such, individual customer releases or purchase orders represent the contract with the customer. Our customer contracts do not provide us with an enforceable right to payment for performance completed to date throughout the contract term. As such, we recognize part sales revenue at the point in time when the parts are shipped, and risk of loss has transferred to the customer. We have elected to continue to include shipping and handling fees billed to customers in revenue, while including costs of shipping and handling in costs of sales. Taxes collected from customers are excluded from revenues and credited directly to obligations to the appropriate government agencies. Payment terms with our customers are established based on industry and regional practices and generally do not exceed 180 days.

Certain of our customer contracts include rebate incentives. We estimate expected rebates and accrue the corresponding refund liability, as a reduction of revenue, at the time covered product is sold to the customer based on anticipated customer purchases during the rebate period and contractual rebate percentages. Under prior accounting guidance rebate reserves were reflected as a reduction of accounts receivable - trade as rebates are generally net settled through the issuance of a credit to the customer's account. Refund liabilities are included in other accrued liabilities on our consolidated balance sheet. We provide standard fitness for use warranties on the products we sell, accruing for estimated costs related to product warranty obligations at time of sale. See Note 16 for additional information.

Contract liabilities are primarily comprised of cash deposits made by customers with cash in advance payment terms. Generally, our contract liabilities turn over frequently given our relatively short production cycles. Contract liabilities were $11 and $9 at March 31, 2018 and January 1, 2018. Contract liabilities are included in other accrued liabilities on our consolidated balance sheet.

Disaggregation of revenue —

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



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

Note 20. Segments

We are a global provider of high-technology products to virtually every major vehicle and engine manufacturer in the world. We also serve the stationary industrial market. Our technologies include drive and motion products (axles, driveshafts, planetary hub drives, power-transmission products, tire-management products, and transmissions); sealing solutions (gaskets, seals, heat shields, and fuel-cell plates); thermal-management technologies (transmission and engine oil cooling, battery and electronics cooling, and exhaust-gas heat recovery); and fluid-power products (pumps, valves, motors, and controls). We serve our global light vehicle, medium/heavy vehicle and off-highway markets through four operating segments – Light Vehicle Driveline Technologies (Light Vehicle), Commercial Vehicle Driveline Technologies (Commercial Vehicle), Off-Highway Drive and Motion Technologies (Off-Highway) and Power Technologies, which is the center of excellence for sealing and thermal-management technologies that span all customers in our on-highway and off-highway markets. These operating segments have global responsibility and accountability for business commercial activities and financial performance.

Dana evaluates the performance of its operating segments based on external sales and segment EBITDA. Segment EBITDA is a primary driver of cash flows from operations and a measure of our ability to maintain and continue to invest in our operations and provide shareholder returns. Our segments are charged for corporate and other shared administrative costs. Segment EBITDA may not be comparable to similarly titled measures reported by other companies.

Segment information —



	2018					2017
Three Months Ended March 31,	External Sales		Inter-Segment Sales		Segment EBITDA	External Sales	Inter-Segment Sales	Segment EBITDA
Light Vehicle	$	950	$	33