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. Dana is a global provider of high technology driveline (axles, driveshafts and transmissions); sealing and thermal-management products; and motors, power inverters, and control systems for electric vehicles with a customer base that includes virtually every major on-highway vehicle manufacturer in the world.

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 Annual Report on Form 10-K for the year ended December 31, 2025 (the 2025 Form 10-K). Certain prior year amounts have been reclassified to conform to the current presentation.

On January 1, 2026, we completed the previously announced sale of our Off-Highway business to Allison Transmission Holdings, Inc. The sale was consummated pursuant to the terms and conditions of the definitive agreement to sell that we entered in June 2025. A component of an entity is reported in discontinued operations after meeting the criteria for held for sale classification if the disposition represents a strategic shift that has, or will have, a major effect on the entity’s operations and financial results. We analyzed the quantitative and qualitative factors relevant to the divestiture of our Off-Highway business and determined that the conditions for discontinued operations presentation have been met. As such, the financial position, results of operations and cash flows of that business are reported as discontinued operations in the accompanying consolidated financial statements. Prior period amounts have been recast to reflect discontinued operations presentation. See Note 2 for additional information.

Recently adopted accounting pronouncements

In  July 2025, the FASB issued ASU 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which introduces a practical expedient that allows entities to assume conditions existing at the balance-sheet date will remain constant over the remaining life of current accounts receivable and contract assets arising from revenue transactions. We adopted this ASU effective  January 1, 2026 and elected to utilize the practical expedient. The adoption of this amendment did not have a material impact on our consolidated financial statements. 

Recently issued accounting pronouncements

In December 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-10, Government Grants (Topic 832), which addresses the recognition, measurement, presentation and disclosure of government grants, including grants related to income and grants related to assets. The new guidance leverages the principles in the accounting framework for government assistance in IFRS, specifically IAS 20, with certain targeted improvements. This ASU requires entities to recognize government grants only when it is probable that the entity will meet the stipulated grant conditions and ultimately receive the grant funds. This ASU provides two acceptable methods for accounting for grants related to assets: the grant may be initially recognized as deferred income, or it may be recorded as an adjustment to reduce the cost basis of the related asset. For grants related to income, the standard mandates that these shall be consistently recognized as deferred income. Deferred grants should be recognized in earnings on a systematic and rational basis either under a general heading such as other income or deducted from the related expense. The guidance is effective for annual reporting periods beginning after December 15, 2028, and interim reporting periods within those annual reporting periods; early adoption is permitted. We do not expect this guidance to have a material impact on our consolidated financial statements and related disclosures.

In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815), which provides targeted amendments to better align U.S. GAAP with common risk management practices. The guidance simplifies cash flow hedge accounting for forecasted transactions primarily by allowing entities to hedge a broader group of risks using a single derivative. Additionally, the ASU expands the scope of qualifying hedged items to include certain nonfinancial components, creates an optional accounting model for "choose-your-rate" debt instruments, and eliminates the recognition mismatch for dual hedge strategies. The guidance is effective for annual reporting periods beginning after December 15, 2026; early adoption is permitted. We do not expect this guidance to have a material impact on our consolidated financial statements and related disclosures.

In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which eliminates the sequential software development-stage model and requires capitalization when management authorizes and commits to funding a software project and determines it is probable of completion. In evaluating whether it is probable the project will be completed, management is required to consider whether there is significant uncertainty associated with the development activities of the software. The guidance is effective for annual reporting periods beginning after December 15, 2027, and interim periods within those annual reporting periods, with early adoption permitted. We are currently evaluating the impact of the guidance on the consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40), which requires public entities to disclose detailed components of income statement expenses, such as inventory purchases, employee compensation, depreciation and amortization within relevant expense captions. Companies are also required to explain amounts not disaggregated and define and disclose total selling expenses. The guidance is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027. We are currently evaluating the impact of the guidance on our financial statement disclosures.

Note 2. Discontinued Operations

In June 2025, we entered into a definitive agreement to sell our Off-Highway business to Allison Transmission Holdings, Inc. (Allison). The transaction closed on January 1, 2026, with Dana receiving gross cash proceeds of $2,664. The sale price is subject to adjustment based on net working capital and net indebtedness balances as of the closing date. Based on our preliminary assessment of closing date working capital and net indebtedness balances, we have recorded a $30 reduction to the sale price. The $30 reduction to the sale price is included in other accrued liabilities on our consolidated balance sheet.

Included in the gross cash proceeds received was $82 related to the Off-Highway business's Mexican operations which have not yet legally transferred to Allison. As a result, the $82 of proceeds has been deferred and included in other accrued liabilities on our consolidated balance sheet. The assets and liabilities of the Mexican operations will continue to be reported as held for sale on our consolidated balance sheet. The Mexican operations results of operations and cash flows will continue to be reported as discontinued operations on our consolidated statements of operations, comprehensive income and cash flows. We expect to complete the transfer of the Mexican operations to Allison by the end of 2026.

We recognized a pre-tax gain on the sale of $1,191, which is included in net income from discontinued operations during the three months ended March 31, 2026.

At closing of the transaction, we entered into a transition services agreement, engineering services agreement, intellectual property and trademark license agreements, and certain supply agreements with Allison. Services to be provided by Dana under the transition services agreement include finance, information technology, human resources and certain other administrative services for periods up to 24 months.

The major classes of line items included in net income from discontinued operations are as follows:

During the three months ended March 2026, we incurred $48 of Off-Highway business divestiture transaction related costs. These costs were attributed to discontinued operations and included in other income (expense), net in the table above.

The carrying amounts of the major classes of assets and liabilities of disposal group held for sale are as follows:

Net carrying amounts of intangible assets attributable to each of our operating segments—  

Amortization expense related to amortizable intangible assets — 

Note 4. Restructuring of Operations

Our restructuring activities include rationalizing our operating footprint by consolidating facilities, positioning operations in lower cost locations, and headcount reduction initiatives focused on reducing operating and overhead 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 certain costs of facilities that we are in the process of closing.

During 2024, we announced actions to consolidate certain manufacturing facilities along with global headcount reductions focused on reducing engineering and overhead costs in response to market dynamics, including delays in the adoption of electric vehicles. During 2026, we continued to execute on these initiatives.

Accrued restructuring costs and activity —

At March 31, 2026, the accrued employee termination benefits include costs to reduce approximately 300 employees to be completed over the next year.

Note 5. Supplemental Balance Sheet and Cash Flow Information

Supplier finance programs — As of March 31, 2026 and December 31, 2025, we had $44 and $59, respectively, of confirmed obligations subject to supplier finance programs presented as accounts payable within total current liabilities on the consolidated balance sheet.

Inventory components —

Cash, cash equivalents and restricted cash —

Mandatorily redeemable noncontrolling interest — Hydro-Québec owned a 45% redeemable noncontrolling interest in Dana TM4 Inc., Dana TM4 Electric Holdings BV and Dana TM4 USA, LLC. The terms of the joint venture agreement provided Hydro-Québec with the right to put all, and not less than all, of its ownership interests in Dana TM4 Inc., Dana TM4 Electric Holdings BV and Dana TM4 USA, LLC to Dana at fair value. On May 6, 2024, Hydro‑Québec delivered its put notice to Dana. Following this notice, Dana ceased attributing net income (loss) and other comprehensive income (loss) of Dana TM4 Inc., Dana TM4 Electric Holdings BV, and Dana TM4 USA, LLC to Hydro‑Québec’s redeemable noncontrolling interest. During the fourth quarter of 2025, we finalized the purchase price with Hydro‑Québec resulting in the redeemable noncontrolling interest becoming mandatorily redeemable and reclassified the $190 redemption value to other current liabilities. On January 20, 2026, the transaction was completed and we paid Hydro-Québec the full purchase price of $190.

Note 6. Stockholders’ Equity

Common stock — Our Board of Directors declared a cash dividend of twelve cents per share of common stock in the first quarter of 2026. Dividends accrue on restricted stock units (RSUs), performance share units (PSUs) and the Dana Transformation Awards granted under our stock compensation program and will be paid in cash or additional units when the underlying units vest.

Share repurchase program — On June 8, 2025 our Board of Directors approved a stock repurchase program of up to an aggregate of $1,000 less any amount of special dividends distributed in connection with the sale of the Off-Highway business. The program expires on December 31, 2027. On February 11, 2026, our Board of Directors increased and extended the share repurchase program to a total of $2,000 through December 31, 2030. We repurchased 4,424,056 shares of our common stock at an aggregate cost of $125 during the three months ended March 31, 2026 through open market transactions. Approximately $1,225 remained available under the program for future share repurchases as of March 31, 2026.

The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a non-deductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. We reflect the applicable excise tax as part of the cost basis of the stock repurchased and record a corresponding liability for the excise taxes payable in other accrued liabilities on our consolidated balance sheet. Excise taxes when paid will be reflected in financing activities in the consolidated statement of cash flows. All dollar amounts presented in this report related to our share repurchases and our share repurchase authorization exclude such excise taxes, to the extent applicable, unless otherwise indicated.

Changes in equity —

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

(a) Realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments treated as cash flow hedges are reclassified from AOCI into the same line item in the consolidated statement of operations in which the underlying forecasted transaction or other hedged item is recorded. See Note 11 for additional details.

(b) See Note 9 for additional details.

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 0.1 million CSEs from the calculation of diluted earnings per share for the first quarters of 2026 and 2025 as the effect of including them would have been anti-dilutive. We excluded CSEs that satisfied the definition of potentially dilutive shares of 1.1 million and 1.3 million for the first quarters of 2026 and 2025 as a result of the loss from continuing operations.

* Weighted-average per share

Compensation expense is generally measured based on the fair value at the date of grant and is recognized on a straight-line basis over the vesting period. Awards that are settled in cash are subject to liability accounting. Accordingly, the fair value of such awards is remeasured at the end of each reporting period until settled or expired. RSUs, PSUs and the Dana Transformation Awards accrue dividends, which are subject to the same vesting and forfeiture conditions as the original award. The fair value of RSUs is based on the closing market price of our common stock at the date of grant.

The number of PSUs granted in 2026 that ultimately vest is contingent upon achieving predetermined financial performance targets. The payout is further subject to a relative total shareholder return (“TSR”) modifier which is based on specified total shareholder return targets relative to peer companies. We estimated the grant date fair value of the PSUs using various assumptions as part of a Monte Carlo simulation. The risk-free interest rate of 3.56% was based on U.S. Treasury rate as of the grant date. The estimated volatility of 44.0% was based on the historical volatility of daily stock returns for a 2.9-year period preceding the grant date. 

The Company also granted a special award tied to stock price performance (the Dana Transformation Awards). The payout is contingent upon the achievement of specified average stock price performance goals, measured over any 20 consecutive trading-days throughout a 4-year performance period. We estimated the grant date fair value of the Dana Transformation Awards using various assumptions as part of a Monte Carlo simulation. The risk-free interest rates of 3.64% and 3.66% were based on U.S. Treasury rates as of the January and February 2026 grant dates. The estimated volatility of 48.29% and 47.11% were based on the historical volatility of daily stock returns for a 4-year period preceding each respective grant date. 

During the three months ended March 31, 2026, we paid $0.9 and $1.8 of cash to settle RSUs and PSUs and issued 0.7 and 0.8 million shares of common stock based on the vesting of RSUs and PSUs, respectively. We recognized stock compensation expense of $11 and $13 in the first quarters of 2026 and 2025. At March 31, 2026, the total unrecognized compensation cost related to the nonvested awards granted and expected to vest was $71. This cost is expected to be recognized over a weighted-average period of 3.2 years. The breakout of the unrecognized compensation cost for the RSUs, PSUs, and Dana Transformation Awards is $21, $9, and $41, respectively. The weighted-average period in years for the RSUs, PSUs, and Dana Transformation Awards is 1.9, 1.4, and 4.3 years, respectively.

Note 9. 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 — 

The service cost components of net periodic pension and OPEB costs are included in cost of sales and selling, general and administrative expenses as part of compensation cost and are eligible for capitalization in inventory and other assets. The non-service components are reported in other income (expense), net and are not eligible for capitalization.

Interest on the senior notes is payable semi-annually. Other indebtedness includes borrowings from various financial institutions and finance lease obligations.

Senior notes activity — On April 15, 2025, Dana retired its remaining April 2025 Notes. On December 4, 2025, we offered as part of a net proceeds tender offer to purchase at a price equal to 100.00% plus accrued and unpaid interest up to $173 of our  November 2027 Notes, up to $173 of our June 2028 Notes, up to €141 of our July 2029 Notes, up to $173 of our September 2030 Notes, up to €184 of our July 2031 Notes and up to $152 of our February 2032 Notes. The offers were conditioned on Dana receiving proceeds from the sale of its Off-Highway business and other customary conditions. In addition, on December 4, 2025, we issued notices of conditional full redemption with a redemption date of January 8, 2026 for all of our outstanding November 2027 Notes and June 2028 Notes at a redemption price equal to 100.00% plus accrued and unpaid interest. The redemptions were conditioned on Dana receiving proceeds from the sales of its Off-Highway business. On January 1, 2026, Dana completed the sale of its Off-Highway business. See Note 2 for additional information. On January 7, 2026, we purchased $138 of our  November 2027 Notes, $142 of our June 2028 Notes, €141 of our July 2029 Notes ($164 as of January 7, 2026), $173 of our September 2030 Notes, €9 of our 2031 Notes ($10 as of January 7, 2026) and $152 of our February 2032 Notes at prices equal to 100.00% plus accrued and unpaid interest. On January 8, 2026, we redeemed the remaining $262 of our November 2027 Notes and the remaining $258 of our June 2028 Notes at prices equal to 100.00% plus accrued and unpaid interest. During the first quarter of 2026, we recognized a $7 loss on extinguishment of debt comprised of the write-off of previously deferred financing costs associated with the redeemed senior notes.

Senior notes redemption provisions — We may redeem some or all of the senior notes at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period commencing on the anniversary date of the senior notes in the year set forth below:

Prior to May 1, 2026, we may redeem some or all of the September 2030 Notes at a redemption price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. We have not separated the make-whole premium from the underlying debt instrument to account for it as a derivative instrument as the economic characteristics and the risks of this embedded derivative are clearly and closely related to the economic characteristics and risks of the underlying debt.

At any time prior to July 15, 2026, we may redeem up to 40% of the aggregate principal amount of the July 2031 Notes in an amount not to exceed the amount of proceeds of one or more equity offerings, at a price equal to 108.500% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, provided that at least 50% of the aggregate principal amount of the July 2031 Notes remain outstanding after the redemption.  Prior to July 15, 2026, we may also redeem some or all of the July 2031 Notes at a redemption price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. We have not separated the make-whole premium from the underlying debt instrument to account for it as a derivative instrument as the economic characteristics and the risks of this embedded derivative are clearly and closely related to the economic characteristics and risks of the underlying debt.

Prior to February 15, 2027, we may redeem some or all of the February 2032 Notes at a redemption price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. We have not separated the make-whole premium from the underlying debt instrument to account for it as a derivative instrument as the economic characteristics and the risks of this embedded derivative are clearly and closely related to the economic characteristics and risks of the underlying debt.

Credit agreement — On July 31, 2025, we amended our credit and guaranty agreement to include a $250 Term A Facility. Borrowings under the Term A Facility bear interest at a floating rate based on Term Secured Overnight Financing Rate ("SOFR") (as described in the credit agreement) plus a margin. The Term A Facility matured at the earlier of five business days after the consummation of the Off-Highway business sale or July 30, 2026. We were required to make quarterly installments on the Term A Facility on the last day of each quarter commencing on December 31, 2025 in an amount equal to 10% of the original amount borrowed adjusted for any prepayments. On July 31, 2025, we fully drew the Term A Facility and used the proceeds to pay down outstanding borrowings on our Revolving Facility. On December 31, 2025, we made the required $25 payment on the Term A Facility. On January 1, 2026, Dana completed the sale of its Off-Highway business. See Note 2 for additional information. On January 2, 2026, we repaid the $225 outstanding balance on the Term A Facility.

Deferred financing costs on our Revolving Facility are included in other noncurrent assets and are being amortized over the life of the Revolving Facility. Each the Revolving Facility and Term A Facility is guaranteed by all of our wholly-owned domestic subsidiaries subject to certain exceptions (the guarantors) and is secured by a first-priority lien on substantially all of the assets of Dana and the guarantors, subject to certain exceptions.

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

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

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 SOFR 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.

At  March 31, 2026, there were no outstanding borrowings under the Revolving Facility and we had utilized $10 for letters of credit. We had availability at March 31, 2026 under the Revolving Facility of $1,140 after deducting outstanding letters of credit.

Debt covenants — At March 31, 2026, we were in compliance with the covenants of our financing agreements. Under the 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 Revolving Facility, a maintenance covenant tested on the last day of each fiscal quarter requiring us to maintain a first lien net leverage ratio not to exceed 2.00 to 1.00.

Note 11. 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 sheets at fair value are as follows:

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 sheets at fair value are as follows:

Foreign currency derivatives — Our foreign currency derivatives include forward contracts associated with forecasted transactions, primarily involving the purchases and sales of inventory, 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.

We have executed fixed-to-fixed cross-currency swaps in conjunction with the issuance of certain notes to eliminate the variability in the functional-currency-equivalent cash flows due to changes in exchange rates associated with the forecasted principal and interest payments. All of the underlying designated financial instruments 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, 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 fixed-to-fixed cross-currency swaps is recognized during each period as a component of interest expense for hedges of external debt and as a component of other income (expense), net for hedges of intercompany debt.

The following fixed-to-fixed cross-currency swaps were outstanding at March 31, 2026:

The designated 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 the underlying designated financial instruments and 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. To the extent the swaps are no longer effective, changes in their fair values will be recorded in earnings. 

The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $798 at March 31, 2026 and $898 at December 31, 2025. The total notional amount of outstanding foreign currency swaps, including the fixed-to-fixed cross-currency swaps, was $704 at March 31, 2026 and $712 at December 31, 2025.

The following currency derivatives were outstanding at March 31, 2026:

Designated 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 the fair value of contracts not designated as cash flow hedges or as net investment hedges are recognized in other income (expense), net in the period in which the changes occur. Realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments, including those that have been designated as cash flow hedges and those that have not been designated, are recognized in the same line item in the consolidated statement of operations in which the underlying forecasted transaction or other hedged item is recorded. Accordingly, amounts are potentially recorded in sales, cost of sales or, in certain circumstances, other income (expense), net.

The following table provides a summary of deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less:

The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with cash flow hedging relationships:

The amounts reclassified from AOCI into income for the cross-currency swaps represent an offset to a foreign exchange loss on our foreign currency-denominated intercompany and external debt instruments.

Certain of our hedges of forecasted transactions have not formally been designated as cash flow hedges. As undesignated forward contracts, the changes in the fair value of such contracts are included in earnings for the duration of the outstanding forward contract. Any realized gain or loss on the settlement of such contracts is recognized in the same period and in the same line item in the consolidated statement of operations as the underlying transaction. The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with undesignated hedging relationships.

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. During the second quarter of 2024, we entered into foreign currency forwards with a notional value of $100 that we designated as a net investment hedge of the foreign currency exposure related to a China renminbi denominated subsidiary. These forwards matured in September 2025. During the third quarter of 2024, we entered into foreign currency forwards with a notional value of $122 that we designated as a net investment hedge of the foreign currency exposure related to a euro denominated subsidiary. These forwards matured in November 2025.

Note 12. Commitments and Contingencies

Environmental liabilities — Accrued environmental liabilities were $13 at  March 31, 2026 and $14 at  December 31, 2025. We consider the most probable method of remediation, current laws and regulations and existing technology in estimating our environmental liabilities.

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 the eventual outcome of these matters. 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.

Tariffs — In February 2026, the U.S. Supreme Court issued a ruling invalidating certain tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA). The U.S. Court of International Trade (CIT) has ordered the U.S. Customs and Border Protection (CBP) to refund the collected IEEPA tariffs. The administrative process for seeking refunds of IEEPA tariffs previously paid remains under development and CIT's order may be subject to U.S. government challenge. Accordingly, there is uncertainty regarding our ability to obtain refunds for IEEPA tariffs previously paid, and as such we have not recorded an anticipated recovery of IEEPA tariffs paid, or any potential tariff-related refunds to certain of our OEM customers for which a contractual obligations exists, as of March 31, 2026. We will continue to monitor developments, including actions by CIT and CBP to establish and execute on a refund process and take appropriate actions when or if they become available.

Subsequent event — On May 11, 2026, we entered into an agreement to purchase three U.S. manufacturing facilities that we currently lease for $89. The leases are classified as operating leases. The transaction is expected to close in the second quarter of 2026.

Note 13. 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 — 

Note 14. 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 record interest and penalties related to uncertain tax positions as a component of income tax expense. Net interest expense for the periods presented herein is not significant.

We reported income tax expense of $14 and benefit of $(10) for the first quarters of 2026 and 2025, respectively. Our effective tax rates were (350)% and 34% for the first quarters of 2026 and 2025. During the first quarter of 2026, we recorded $12 of tax expense due to revisions in our assertions on unremitted earnings in foreign jurisdictions. During the first quarter of 2025, we recorded a tax benefit of $19 due to a basis difference in a foreign subsidiary as a result of a change in tax status and $9 of tax expense for income tax reserves associated with prior tax years in foreign jurisdictions. Our effective income tax rates vary from the U.S. federal statutory rate of 21% due to establishment, release, and adjustment of valuation allowances in several countries, nondeductible expenses and deemed income, local tax incentives in several countries outside the U.S., different statutory tax rates outside the U.S. and withholding taxes related to repatriations of international earnings. The effective income tax rate may vary significantly due to fluctuations in the amounts and sources, both foreign and domestic, of pretax income and changes in the amounts of non-deductible expenses.

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the 2017 Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company has evaluated the provisions of the Act and reflected the impact during the appropriate period. The Company will continue to evaluate the impact of these legislative changes as more guidance becomes available.

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 costs to complete the transaction and post-closing integration costs, and other strategic initiatives.

During the first quarter of 2026, we recorded $56 of charges, including impairment and loss on disposition of property, plant and equipment, associated with certain electric vehicle programs that were either cancelled by the customer or that have experienced a precipitous decline in program volumes.

On January 1, 2026, we sold our Off-Highway business to Allison Transmission Holdings, Inc. (Allison). At closing, Dana entered into a transition services agreement and an engineering services agreement with Allison. Services to be provided by Dana under the transition services agreement include finance, information technology, human resources and certain other administrative services for periods up to 24 months. See Note 2 for additional information.

On January 30, 2026, we sold our wholly-owned subsidiary Pi Innovo LLC, recognizing a $8 pre-tax loss on the transaction.

Note 16. 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. 

We continually seek new business opportunities and at times provide incentives to our customers for new program awards. We evaluate the underlying economics of each payment made to our customers to determine the proper accounting by understanding the nature of the payment, the rights and obligations in the contract, and other relevant facts and circumstances. Upfront payments to our customers are capitalized if we determine that the payments are incremental and incurred only if the new business is obtained and we expect to recover these amounts from the customer over the term of the new business program. We recognize a reduction to revenue as products that the upfront payments are related to are transferred to the customer, based on the total amount of products expected to be sold over the term of the program. We evaluate the amounts capitalized each period for recoverability and expense any amounts that are no longer expected to be recovered. We had $7 and $6 recorded in other current assets and $11 and $15 recorded in other noncurrent assets at March 31, 2026 and December 31, 2025.

Certain of our customer contracts include rebate incentives. We estimate expected rebates and accrue the corresponding refund liability, as a reduction of revenue, at the time covered product is sold to the customer based on anticipated customer purchases during the rebate period and contractual rebate percentages. Refund liabilities are included in other accrued liabilities on our consolidated balance sheets. 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 13 for additional information.

Contract liabilities are primarily comprised of cash deposits made by customers with cash in advance payment terms, upfront payments from customers related to multi-year programs and unapplied Section 232 tariff credits allocated to Dana by its U.S. OEM customers. We had $104 and $25 recorded in other accrued liabilities and $55 and $59 recorded on other noncurrent liabilities at March 31, 2026 and December 31, 2025. We had $73 recorded in other current assets at March 31, 2026, which represents consideration received from our U.S. OEM customers for the unapplied Section 232 tariff credits.

Disaggregation of revenue —

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