What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-10-28 compared with 2020-07-30 · 179 added, 161 removed, 470 unchanged (42% of the section changed)

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Light Vehicle Drive Systems (Light Vehicle), Commercial Vehicle Drive and Motion Systems (Commercial Vehicle), Off-Highway Drive and Motion Systems (Off-Highway) and Power Technologies, which is the center of excellence for sealing and thermal-management technologies that span all customers in our on-highway and off-highway markets. We have a diverse customer base and geographic footprint, which minimizes our exposure to individual market and segment declines.

At June 30, 2020, we employed approximately 33,300 people, operated in 34 countries and had 146 major facilities housing manufacturing and distribution operations, service and assembly operations, technical and engineering centers and administrative offices.

External sales by operating segment for the periods ended June 30, 2020 and 2019 are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

At September 30, 2020, we employed approximately 36,300 people, operated in 34 countries and had 145 major facilities housing manufacturing and distribution operations, service and assembly operations, technical and engineering centers and administrative offices.

External sales by operating segment for the periods ended September 30, 2020 and 2019 are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Light Vehicle

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Our Board of Directors authorized a $200 share repurchase program effective in 2018 which expires at the end of 2021.

Through June 30, 2020 ,  we have used cash of $50 to repurchase common shares under the program.

Through September 30, 2020 ,  we have used cash of $50 to repurchase common shares under the program.

Through the first quarter of 2020, we had declared and paid quarterly common stock dividends for thirty-three consecutive quarters.

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Trends in Our Markets

The global novel coronavirus disease (COVID-19) pandemic has had and is expected to continue to have an adverse effect on our business, results of operations, cash flows and financial condition.

The global novel coronavirus disease (COVID-19) pandemic has had and may continue to have an adverse effect on our business, results of operations, cash flows and financial condition.

The global COVID-19 pandemic has negatively impacted the global economy, disrupted our operations as well as those of our customers, suppliers and the global supply chains in which we participate, and created significant volatility and disruption of financial markets.

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Cost flex activities at our operating facilities has included reduction of material orders, flexing labor costs, halting non-production spending and delaying capital spending where and when appropriate.

Cost reduction activities at our technical centers and administrative offices has included a temporary 20% reduction in salaried employee wages, a temporary 20% reduction in board of director remuneration, a temporary 50% reduction in the Chief Executive Officer's compensation, elimination of cash incentive compensation, a moratorium on travel and entertainment expenditures and delaying capital spending and investment in research and development activities where and when appropriate.

Cost reduction activities at our technical centers and administrative offices has included a temporary 20% reduction in salaried employee wages, a temporary 20% reduction in board of director remuneration, a temporary 50% reduction in the Chief Executive Officer's compensation, reduction of cash incentive compensation, a moratorium on travel and entertainment expenditures and delaying capital spending and investment in research and development activities where and when appropriate.

The company is also temporarily suspending the declaration and payment of dividends to common shareholders and temporarily suspending the repurchase of common stock under its existing common stock share repurchase program.

In addition, the company is taking advantage of various government programs and subsidies in the countries in which it operates, including certain provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act.

As of June 30, 2020, we had total liquidity of $1,687 including cash and cash equivalents (less deposits), marketable securities and availability from our Revolving Facility.

As of September 30, 2020, we had total liquidity of $1,955 including cash and cash equivalents (less deposits), marketable securities and availability from our Revolving Facility.

Also, the company has no meaningful debt maturities before 2024.

As we continue to manage through the unprecedented disruption in our markets and associated economic uncertainty resulting from the global COVID-19 pandemic, we will continue to respond in a measured, swift and decisive manner with continued emphasis on health and safety, cash conservation and maintenance of our liquidity position.

While we have seen a marked improvement in our end markets during the third quarter of 2020, that improvement has varied significantly by market and by region. As we continue to manage through the unprecedented disruption in our markets and associated economic uncertainty resulting from the global COVID-19 pandemic, we will continue to respond in a measured, swift and decisive manner with continued emphasis on health and safety, cash conservation and maintenance of our liquidity position.

Foreign Currency

With 55% of our first-half 2020 sales coming from outside the U.S., international currency movements can have a significant effect on our sales and results of operations.

The euro zone countries and Brazil accounted for 53% and 7% of our first-half 2020 non-U.S.

With 52% of our year-to-date 2020 sales coming from outside the U.S., international currency movements can have a significant effect on our sales and results of operations.

The euro zone countries and Brazil accounted for 52% and 7% of our year-to-date 2020 non-U.S.

sales, respectively, while China, India and Thailand accounted for 10%, 7% and 5%, respectively.

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Weaker international currencies during 2019 decreased sales by $177, with the euro, Brazilian real and South African rand accounting for $103, $30 and $15 of the decrease, respectively.

Weaker international currencies decreased sales by $61 during the first six months of 2020 compared to the same period last year, with the Brazilian real, euro, Chinese renminbi and South African rand accounting for $25, $17, $6 and $5 of the decrease, respectively.

Weaker international currencies decreased sales by $63 during the first nine months of 2020 compared to the same period last year, with the Brazilian real, South African rand, Indian rupee and Chinese renminbi accounting for $47, $9, $8 and $5 of the decrease, respectively, while a stronger euro increased sales by $9.

During the second quarter of 2018, we determined that Argentina's economy met the GAAP definition of a highly inflationary economy.

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The United Kingdom's decision to exit the European Union ("Brexit") continues to provide some uncertainty and potential volatility around European currencies, along with uncertain effects of future trade and other cross-border activities of the United Kingdom with the European Union and other countries.

The Brazil market is an important market for our Commercial Vehicle segment, representing about 16% of this segment's first-half 2020 sales.

Our medium/heavy truck sales in Brazil account for approximately 77% of our first-half 2020 sales in the country.

The Brazil market is an important market for our Commercial Vehicle segment, representing about 16% of this segment's year-to-date 2020 sales.

Our medium/heavy truck sales in Brazil account for approximately 76% of our year-to-date 2020 sales in the country.

Reduced market demand resulting from the weak economic environment in Brazil during 2015 and 2016 lead to significant production level declines in the light truck and medium/heavy markets. In response to the challenging economic conditions in this country, we implemented restructuring and other cost reduction actions and reduced costs to the extent practicable.

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Sales by our operations in Brazil were $393 in 2019, up 1% from 2018, reflective of modestly higher medium/heavy and light truck production levels in 2019.

Sales by our operations in Brazil were $114 in the first half of 2020, down 44% from the same period of 2019, reflective of lower medium/heavy truck production levels.

Sales by our operations in Brazil were $182 in the nine months of 2020, down 41% from the same period of 2019, reflective of lower medium/heavy truck production levels.

As indicated above, Argentina has experienced significant inflationary pressures the past few years, contributing to significant devaluation of its currency among other economic challenges.

Our Argentine operation supports our Light Vehicle operating segment.

Our sales in Argentina for the first half of 2020 of approximately $27 are approximately 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $15, including $6 of net fixed assets, at June 30, 2020.

Our sales in Argentina for the first nine months of 2020 of approximately $51 are approximately 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $20, including $5 of net fixed assets, at September 30, 2020.

Commodity Costs

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Material recovery and other pricing actions decreased earnings in 2019 by $10, whereas pricing and recovery actions increased year-over-year earnings in 2018 by $80.

Lower commodity prices increased year-over-year second-quarter and six-month earnings in 2020 by $4 and $22, as compared to year-over-year earnings reductions of $19 and $44 in the same periods last year.

Material cost recovery and other pricing actions decreased year-over-year earnings in the second quarter and first six months of 2020 by $24 and $51, whereas pricing and recovery actions increased year-over-year earnings by $14 and $22 in the same periods last year.

Lower commodity prices increased year-over-year third-quarter and nine-month earnings in 2020 by $13 and $35, as compared to year-over-year earnings reductions of $2 and $46 in the same periods last year.

Material cost recovery and other pricing actions decreased year-over-year earnings in the third quarter and first nine months of 2020 by $18 and $69, whereas pricing and recovery actions decreased year-over-year third quarter earnings in 2019 by $14 while they increased year-over-year nine-months earnings by $8.

Sales, Earnings and Cash Flow Outlook

Due to the unprecedented disruption in our markets and associated economic uncertainty resulting from the global COVID-19 pandemic, the company has withdrawn its most recent full-year financial guidance disclosed in Item 7 of our 2019 Form 10-K which did not factor in the effects of the pandemic.

In addition, due to continuing disruption and economic uncertainty, the company will not be providing financial guidance at this time.

Summary Consolidated Results of Operations (Second Quarter, 2020 versus 2019)

Three Months Ended June 30,

$6,650 - $6,950

Adjusted EBITDA

Net cash provided by operating activities

~5.1% of Sales

Discretionary pension contributions

Purchases of property, plant and equipment

~4.4% of Sales

Adjusted Free Cash Flow

~0.7% of Sales

Adjusted EBITDA and adjusted free cash flow are non-GAAP financial measures.

See the Non-GAAP Financial Measures discussion below for definitions of our non-GAAP financial measures and reconciliations to the most directly comparable U.S. generally accepted accounting principles (GAAP) measures.

We have not provided a reconciliation of our adjusted EBITDA outlook to the most comparable GAAP measure of net income.

Providing net income guidance is potentially misleading and not practical given the difficulty of projecting event driven transactional and other non-core operating items that are included in net income, including restructuring actions, asset impairments and certain income tax adjustments.

The accompanying reconciliations of these non-GAAP measures with the most comparable GAAP measures for the historical periods presented are indicative of the reconciliations that will be prepared upon completion of the periods covered by the non-GAAP guidance.

Our updated 2020 sales, adjusted EBITDA and adjusted free cash flow outlook assumes a continued dissipation of the impact of the global COVID-19 pandemic on our end markets, our customers and our operations. Our updated 2020 outlook does not anticipate significant market disruption or any of our major customers having to temporarily close plants or otherwise curtail production in response to a resurgence of the global COVID-19 pandemic.

Summary Consolidated Results of Operations (Third Quarter, 2020 versus 2019)

Three Months Ended September 30,

% of Net Sales

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Pension settlement charge

Other expense, net

Loss before interest and income taxes

Write-off deferred financing costs

Other income (expense), net

Earnings before interest and income taxes

Interest income

Interest expense

Loss before income taxes

Income tax expense (benefit)

Earnings before income taxes

Income tax expense

Equity in earnings of affiliates

Noncontrolling interests net income

Redeemable noncontrolling interests net income

Net loss attributable to the parent company

Redeemable noncontrolling interests net loss

Net income attributable to the parent company

Sales —

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Three Months Ended

September 30,

Amount of Change Due To

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Sales in 2020 were $170 lower than in 2019.

Weaker international currencies decreased sales by $27, principally due to a weaker Brazilian real, euro and Chinese renminbi.

Weaker international currencies decreased sales by $2, principally due to a weaker Brazilian real and Indian rupee, partially offset by a stronger euro.

The acquisition of PEPS in last year's second quarter and Ashwoods in this year's first quarter, generated a year-over-year increase in sales of $4.

The organic sales decrease of $1,204, or 52%, resulted from the rapid dissipation in production volumes across all of our end markets as a result of the global COVID-19 pandemic, partially offset by the conversion of sales backlog.

The impact of the global COVID-19 pandemic on our operations as well as those of our customers, suppliers and the global supply chains in which we participate, was most notable during April 2020, with a measured ramp up in production beginning in May and continuing into June 2020.

Pricing actions, including material commodity price and inflationary cost adjustments, reduced sales by $24.

The organic sales decrease of $172, or 8%, resulted from the continued, but dissipating, effects of the global COVID-19 pandemic, partially offset by the conversion of sales backlog. The impact of the global COVID-19 pandemic on our operations as well as those of our customers, suppliers and the global supply chains in which we participate, was most notable during April 2020, with a measured ramp up in production beginning in May with continued sequential month-over-month improvement through September 2020. Pricing actions, including material commodity price and inflationary cost adjustments, reduced sales by $18.

The North America organic sales decrease of 8% was driven principally by weaker light and medium/heavy duty truck production volumes resulting from the global COVID-19 pandemic, partially offset by the conversion of sales backlog.

Second-quarter 2020 full frame light truck production was down 71% while production of Class 8 and Classes 5-7 trucks were down 81% and 67%, respectively.

Excluding currency and acquisition effects, sales in Europe were down 43% compared with 2019. With our significant Off-Highway presence in the region, weakening construction/mining and agricultural markets due to the global COVID-19 pandemic were a major factor.

Organic sales in this operating segment were down 39% compared with the second quarter of 2019.

Excluding currency effects, second quarter sales in South America decreased 61% compared to 2019 due primarily to the global COVID-19 pandemic.

Second-quarter 2020 medium/heavy truck production was down 62% and light truck production was down 77%.

Excluding currency and acquisition effects, sales in Asia Pacific decreased about 42% primarily due to the global COVID-19 pandemic. Light truck, light vehicle engine and medium/heavy truck production were down 22%, 28% and 10%, respectively from the second quarter of 2019.

Third-quarter 2020 full frame light truck production was down 2% while production of Class 8 and Classes 5-7 trucks were down 38% and 25%, respectively.

Excluding currency and acquisition effects, sales in Europe were down 11% compared with 2019. With our significant Off-Highway presence in the region, weaker construction/mining and agricultural markets due to the continued, but dissipating, effects of the global COVID-19 pandemic were a major factor.

Organic sales in this operating segment were down 15% compared with the third quarter of 2019.

Excluding currency effects, third quarter sales in South America decreased 11% compared to 2019 due primarily to the continued, but dissipating, effects of the global COVID-19 pandemic.

Third-quarter 2020 medium/heavy truck production was down 27% and light truck production was down 6%.

Excluding currency and acquisition effects, sales in Asia Pacific decreased slightly compared to 2019.

Asia Pacific is the first region to have largely recovered from the effects of the global COVID-19 pandemic.

Medium/heavy truck production was up 33%, while Light truck productions was flat and light vehicle engine production was down 6% compared with the third quarter of 2019.

Cost of sales and gross margin —

Cost of sales for the second quarter of 2020 decreased $892, or 45% when compared to 2019.

Cost of sales for the third quarter of 2020 decreased $102, or 5% when compared to 2019.

Cost of sales as a percent of sales in 2020 was 230 basis points higher than in the previous year.

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Gross margin of $214 for 2020 decreased $68 from 2019.

Gross margin as a percent of sales was (0.9%) in 2020, 1,500 basis points lower than in 2019.

Gross margin as a percent of sales was 10.7% in 2020, 230 basis points lower than in 2019.

The decline in margin as a percent of sales was driven principally by the cost of sales factors referenced above.

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SG&A attributed to acquisitions was $2.

Excluding the increase associated with acquisitions, SG&A expenses were 140 basis points higher than the same period of 2019.

The year-over-year decrease of $59 exclusive of acquisitions was primarily due to lower year-over-year incentive compensation as well as lower salaried employee wages, benefits, travel expenses and professional fees resulting from the execution of cost reduction initiatives in response to the global COVID-19 pandemic.

Excluding the increase associated with acquisitions, SG&A expenses were 40 basis points lower than the same period of 2019.

The year-over-year decrease of $19 exclusive of acquisitions was primarily due to lower year-over-year salaried employee wages, benefits, travel expenses, marketing expenses and professional fees resulting from the execution of cost reduction initiatives in response to the global COVID-19 pandemic, partially offset by higher incentive compensation.

Amortization of intangibles —

Amortization expense was $3 in 2020 and $4 in 2019.

The decrease in amortization expense of $1 in 2020 was attributable to the impact of weaker international currencies, primarily the euro.

Amortization expense was $4 in 2020 and $2 in 2019. The increase in amortization expense is primarily due to higher levels of intangible assets as the result of acquisition activity.

Restructuring charges, net  —

Restructuring charges of $16 in 2020 were comprised of severance and benefit costs primarily related to headcount reductions across our operations in response to the global COVID-19 pandemic and exit costs related to previously announced actions.

Restructuring charges of $9 in 2019 were comprised of severance and benefit costs primarily related to integration of recent acquisitions, headcount reductions across our operations and exit costs related to previously announced actions.

Pension settlement charge  — See Note 10 of the consolidated financial statements in Item 1 of Part I for a discussion of the termination of one of our U.S.

defined benefit pension plans. 

Other expense, net —

The following table shows the major components of other expense, net.

Restructuring charges of $2 in 2020 were primarily comprised of exit costs related to previously announced actions.

Restructuring charges of $5 in 2019 were comprised of severance and benefit costs primarily related to integration of recent acquisitions, headcount reductions across our operations and exit costs related to previously announced actions.

Other income (expense), net —

The following table shows the major components of other income (expense), net.

Three Months Ended

September 30,

Non-service cost components of pension and OPEB costs

Government grants and incentives

Foreign exchange gain

Foreign exchange gain (loss)

Strategic transaction expenses

Other expense, net

Strategic transaction expenses in 2020 were primarily attributable to the acquisitions of Nordresa and ODS and certain other strategic initiatives.

Other income (expense), net

Strategic transaction expenses in 2020 were primarily attributable to non-acquisition related strategic initiatives.

Strategic transaction expenses in 2019 were primarily attributable to the acquisition of ODS.

See Note 2 of our consolidated financial statements in Item 1 of Part I for additional information.

Write-off deferred financing costs  — On June 19, 2020, in connection with the issuance of our June 2028 Notes, we terminated our $500 bridge facility and wrote off $5 of deferred fees associated with the bridge facility.

See Note 11 of the consolidated financial statements in Item 1 of Part I for additional information.

Interest income and interest expense —

Interest income was $2 in 2020 and $3 in 2019.

Interest expense decreased from $34 in 2019 to $32 in 2020, as the benefit of lower average effective interest rates was partially offset by higher average debt levels.

The increase in average debt levels is primarily attributable to outstanding borrowings under the Revolving Facility during the second quarter of 2020. Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 4.7% in 2020 and 5.4% in 2019.

Income tax expense (benefit)  — We reported an income tax expense of $34 and income tax benefit of $52 for the second quarter, 2020 and 2019, respectively.

In the second quarter of 2020 we recorded an income tax expense of $56 for valuation allowances in foreign jurisdictions due to reduced income projections. During the second quarter of 2019, a pre-tax pension settlement charge of $258 with an associated income tax benefit of $9 was recorded. Also, during the second quarter of 2019, we recorded tax benefits of $48 related to tax actions that adjusted federal tax credits and $30 related to the development of a tax planning strategy which reduced valuation allowances on existing federal tax credits. Excluding these items, the effective tax rate would be 15% and 27% for the 2020 and 2019 three-month period.

Interest income was $3 in both 2020 and 2019.

Interest expense increased from $31 in 2019 to $38 in 2020, primarily due to by higher average debt levels. The increase in average debt levels is primarily attributable to the issuances of $400 of our June 2028 Notes and an additional $100 of our November 2027 Notes in June 2020. Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.1% in 2020 and 5.0% in 2019.

Income tax expense  — We reported an income tax expense of $16 and $5 for the third quarter, 2020 and 2019, respectively.

During the third quarter of 2019, we recognized a benefit of $22 for the release of a valuation allowance in a subsidiary in Brazil based on the recent history of profitability and increased income projections.

Excluding this item, the effective tax rate would be 30% and 25% for the 2020 and 2019 three-month period.

Our effective income tax rates vary from the U.S.

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criterion for recognition of deferred tax assets, we have generally recognized no income tax on the pre-tax income or losses as valuation allowance adjustments offset the associated tax effects.

Equ ity in earnings of affiliates —

Net earnings from equity investments was $8 in both 2020 and 2019.

Equity in earnings from DDAC was $9 in 2020 and $6 in 2019.

After experiencing significant impacts resulting from the global COVID-19 pandemic during the first quarter of 2020, DDAC experienced higher demand levels during the second quarter of 2020 primarily driven by increased demand for certain medium/heavy vehicles by the Chinese government. Equity in earnings from BSFB was de minimis in 2020 and $2 in 2019.

We believe it is reasonably possible that valuation allowances up to $25 related to a subsidiary in Australia will be release in the next twelve months.

Equity in earnings of affiliates —

Net earnings from equity investments was $7 in 2020 and $8 in 2019.

Equity in earnings from DDAC was $6 in 2020 and $4 in 2019.

After experiencing significant impacts resulting from the global COVID-19 pandemic during the first quarter of 2020, DDAC experienced higher demand levels during the third quarter of 2020 primarily driven by increased demand for certain medium/heavy vehicles by the Chinese government. Equity in earnings from BSFB was $1 in 2020 and $4 in 2019. The quarter-over-quarter decrease in BSFB's earnings is primarily attributable to the global COVID-19 pandemic.

Summary Consolidated Results of Operations (Year-to-Date, 2020 versus 2019)

Six Months Ended June 30,

Nine Months Ended September 30,

% of Net Sales

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Other income (expense), net

Earnings (loss) before interest and income taxes

Earnings before interest and income taxes

Write-off deferred financing costs

1 unchanged sentence

Interest expense

Loss before income taxes

Earnings (loss) before income taxes

Income tax expense (benefit)

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The following table shows changes in our sales by geographic region.

Six Months Ended

Nine Months Ended

September 30,

Amount of Change Due To

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Sales in 2020 were $1,635 lower than in 2019.

Weaker international currencies decreased sales by $61, principally due to a weaker Brazilian real, euro, Chinese renminbi and South African rand.

Weaker international currencies decreased sales by $63, principally due to a weaker Brazilian real, euro, South African rand, Indian rupee and Chinese renminbi.

The acquisitions of ODS in last year's first quarter, PEPS in last year's second quarter and Ashwoods in this year's first quarter, generated a year-over-year increase in sales of $123.

The organic sales decrease of $1,695, or 26%, resulted from weaker light and medium/heavy truck markets and lower global off-highway demand in January and February 2020 and the rapid dissipation in production volumes across all of our end markets beginning in March 2020 as a result of the global COVID-19 pandemic, partially offset by the conversion of sales backlog.

The impact of the global COVID-19 pandemic on our operations as well as those of our customers, suppliers and the global supply chains in which we participate, was most notable during April 2020, with a measured ramp up in production beginning in May and continuing into June 2020.

The impact of the global COVID-19 pandemic on our operations as well as those of our customers, suppliers and the global supply chains in which we participate, was most notable during April 2020, with a measured ramp up in production beginning in May with continued sequential month-over-month improvement through September 2020.

Pricing actions, including material commodity price and inflationary cost adjustments, reduced sales by $69.

The North America organic sales decrease of 27% was driven principally by weaker light and medium/heavy duty truck production volumes resulting from the global COVID-19 pandemic, partially offset by the conversion of sales backlog.

First-half 2020 full frame light truck production was down 40% while production of Class 8 and Classes 5-7 trucks were down 57% and 42%, respectively.

Full frame light truck production was down 26% during the first nine months of 2020 while production of Class 8 and Classes 5-7 trucks were down 47% and 31%, respectively.

Excluding currency and acquisition effects, sales in Europe were down 24% compared with 2019. With our significant Off-Highway presence in the region, weakening construction/mining and agricultural markets due to the global COVID-19 pandemic were a major factor.

Organic sales in this operating segment were down 31% compared with the first half of 2019.

Excluding currency effects, first six months sales in South America decreased 34% compared to 2019 primarily due to the global COVID-19 pandemic.

First-half 2020 medium/heavy truck production was down 34% and light truck production was down 44%.

Excluding currency and acquisition effects, sales in Asia Pacific decreased about 31% as China's economy was weakening even before the onset of the COVID-19 pandemic. Light truck, light vehicle engine and medium/heavy truck production were down 24%, 29% and 18%, respectively from the first half of 2019.

Organic sales in this operating segment were down 26% compared with the first nine months of 2019.

Excluding currency effects, sales in South America decreased 26% compared to the first nine months of 2019 primarily due to the global COVID-19 pandemic.

Medium/heavy truck production was down 35% and light truck production was down 30% compared to the first nine months of 2019.

Excluding currency and acquisition effects, sales in Asia Pacific decreased about 21% as China's economy showed signs of weakening even before the onset of the COVID-19 pandemic. Light truck and light vehicle engine production were down 15% and 20%, respectively, while medium/heavy truck production was up 3% compared to the first nine months of 2019.

Cost of sales and gross margin —

Cost of sales for the first half of 2020 decreased $1,035, or 27% when compared to 2019.

Cost of sales for the first nine months of 2020 decreased $1,137, or 20% when compared to 2019.

Cost of sales as a percent of sales in 2020 was 550 basis points higher than in the previous year.

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SG&A attributed to acquisitions was $10.

Excluding the increase associated with acquisitions, SG&A expenses as a percent of sales were comparable with the same period of 2019.

The year-over-year decrease of $96 exclusive of acquisitions was primarily due to lower year-over-year incentive compensation as well as lower salaried employee wages, benefits, travel expenses and professional fees resulting from the execution of cost reduction initiatives in response to the global COVID-19 pandemic.

Excluding the increase associated with acquisitions, SG&A expenses as a percent of sales were 20 basis points lower than the same period of 2019.

The year-over-year decrease of $115 exclusive of acquisitions was primarily due to lower year-over-year incentive compensation as well as lower salaried employee wages, benefits, travel expenses, marketing expenses and professional fees resulting from the execution of cost reduction initiatives in response to the global COVID-19 pandemic.

Amortization of intangibles —

Amortization expense was $6 in both 2020 and 2019.

Amortization expense was $10 in 2020 and $8 in 2019.

The increase in amortization expense is primarily due to higher levels of intangible assets as the result of acquisition activity.

Restructuring charges — Restructuring charges of $21 in 2020 were comprised of severance and benefit costs primarily related to headcount reductions across our operations in response to the global COVID-19 pandemic and exit costs related to previously announced actions.

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The following table shows the major components of other income (expense), net.

Six Months Ended

Nine Months Ended

September 30,

Non-service cost components of pension and OPEB costs

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Interest income and interest expense —

Interest income was $4 in 2020 and $5 in 2019.

Interest expense was $61 in both 2020 and 2019, as the benefit of lower average effective interest rates was offset by higher average debt levels.

The increase in average debt levels is primarily attributable to outstanding borrowings under the Revolving Facility during the first half of 2020.

Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 4.7% in 2020 and 5.2% in 2019.

Income tax expense (benefit)  —We reported an income tax expense of $18 and income tax benefit of $32 for the six months ended June 30, 2020 and 2019, respectively.

Our effective tax rates were (14)% and 291% for the first six months of 2020 and 2019. In the second quarter of 2020 we recorded an income tax expense of $56 for valuation allowances in foreign jurisdictions due to reduced income projections.

During the first quarter of 2020, a pre-tax goodwill impairment charge of $51 with an associated income tax benefit of $1 was recorded. Also, during the first quarter of 2020, we recorded tax benefit of $37 related to tax actions that adjusted federal tax credits, tax expense of $2 to record additional valuation allowance in the U.S.

Interest income was $7 in 2020 and $8 in 2019.

Interest expense was $99 in 2020 and $92 in 2019, as the benefit of lower average effective interest rates was offset by higher average debt levels.

The increase in average debt levels is primarily attributable to outstanding borrowings under the Revolving Facility during the first half of 2020 and the issuances of $400 of our June 2028 Notes and an additional $100 of our November 2027 Notes in June 2020. Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 4.9% in 2020 and 5.1% in 2019.

Income tax expense (benefit)  —We reported an income tax expense of $34 and an income tax benefit of $27 for the nine months ended September 30, 2020 and 2019, respectively.

Our effective tax rates were (46)% and (28)% for the first nine months of 2020 and 2019. In the second quarter of 2020 we recorded an income tax expense of $56 for valuation allowances in foreign jurisdictions due to reduced income projections.

During the first quarter of 2020, a pre-tax goodwill impairment charge of $51 with an associated income tax benefit of $1 was recorded. Also, during the first quarter of 2020, we recorded tax benefit of $37 related to tax actions that adjusted federal tax credits, tax expense of $2 to record additional valuation allowance in the U.S.

based on reduced income projections, and tax expense of $4 to record valuation allowances in foreign jurisdictions due to reduced income projections.

During the second quarter of 2019, a pre-tax pension settlement charge of $258 with an associated income tax benefit of $9 was recorded. Also, during the second quarter of 2019, we recorded tax benefits of $48 related to tax actions that adjusted federal tax credits and $30 related to the development of a tax planning strategy which reduced valuation allowances on existing federal tax credits. During the first quarter of 2019, we recognized a benefit of $22 related to release of valuation allowances in the U.S.

In the second quarter of 2019, a pre-tax pension settlement charge of $258 with an associated income tax benefit of $9 was recorded. Also, during the second quarter of 2019, we recorded tax benefits of $48 related to tax actions that adjusted federal tax credits and $30 related to the development of a tax planning strategy which reduced valuation allowances on existing federal tax credits.

During the first quarter of 2019, we recognized a benefit of $22 related to release of valuation allowances in the U.S.

based on improved income projections.

Partially offsetting this benefit was $6 of expense related to a U.S.

Partially offsetting this benefit was $6 of expenses related to a U.S.

state law change.

Excluding these items, the effective tax rate would be 8% and 29% for the 2020 and 2019 six-month periods, respectively.

Excluding these items, the effective tax rate would be (45)% and 28% for the 2020 and 2019 nine-month periods, respectively.

Our effective income tax rates vary from the U.S.

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criterion for recognition of deferred tax assets, we have generally recognized no income tax on the pre-tax income or losses as valuation allowance adjustments offset the associated tax effects.

Equ ity in earnings of affiliates —

Net earnings from equity investments was $10 in 2020 and $14 in 2019.

Equity in earnings from DDAC was $8 in 2020 and $10 in 2019. 

Equity in earnings from BSFB was $3 in 2020 and $4 in 2019.

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 it is reasonably possible that valuation allowances up to $25 related to a subsidiary in Australia will be release in the next twelve months.

Equity in earnings of affiliates  —

Net earnings from equity investments was $17 in 2020 and $22 in 2019.

Equity in earnings from DDAC was $14 in both 2020 and 2019.

After experiencing significant impacts resulting from the global COVID-19 pandemic during the first quarter of 2020, DDAC experienced higher demand levels during the second and third quarters of 2020 primarily driven by increased demand for certain medium/heavy vehicles by the Chinese government.

Equity in earnings form BSFB was $4 in 2020 and $8 in 2019.

The year-over-year decrease in BSFB's earnings is primarily attributable to the global COVID-19 pandemic.

Segment Results of Operations (2020 versus 2019)

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Currency effects

Light Vehicle sales in the second quarter and first half of 2020, exclusive of currency effects, were 63% and 37% lower than the same period of 2019.

The rapid dissipation in customer demand resulting from the global COVID-19 pandemic was partially offset by conversion of sales backlog.

Year-over-year North America full frame light truck production decreased 71% in this year's second quarter while light truck production in Europe, South America and Asia Pacific declined by 64%, 77% and 22%, respectively.

Year-over-year North America full frame light truck production decreased 40% in this year's first six months while light truck production in Europe, South America and Asia Pacific declined by 39%, 44% and 24%, respectively.

Net customer pricing and cost recovery actions further decreased year-over-year sales by $16 and $32 in this year's second quarter and first six months, respectively.

Light Vehicle second-quarter segment EBITDA decreased by $150 from last year, with first-half earnings lower by $169.

Lower sales volumes provided a year-over-year headwind of $146 (25.8% decremental margin) and $165 (25.7% decremental margin) in the second quarter and first six months, respectively, as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic.

The year-over-year performance-related earnings decrease in the second quarter was driven by lower net pricing and material cost recovery of $16, operational inefficiencies of $6 and incremental safety costs of $2 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment.

Partially offsetting these performance-related earnings decreases were the benefit of the temporary reduction in salaried employee wages of $6, certain benefits of the CARES Act of $5, material cost savings of $3, lower incentive compensation of $2, commodity cost decreases of $2 and lower warranty expense of $1.

The year-over-year performance related-earnings decrease in the first six months was driven by lower net pricing and material cost recovery of $32, operational inefficiencies of $14 and incremental safety costs of $2 directly related to the global COVID-19 pandemic.

Partially offsetting these performance-related earnings decreases were commodity cost decreases of $14, material cost savings of $10, the benefit of the temporary reduction in salaried employee wages of $6, certain benefits of the CARES Act of $5, lower incentive compensation of $5 and lower warranty expense of $4.

Light Vehicle sales in the third quarter and the first nine months of 2020, exclusive of currency effects, were 2% and 25% lower than the same periods of 2019.

Full frame light truck production rapidly dissipated across all regions beginning in March 2020 as a result of the global COVID-19 pandemic.

The impact of the global COVID-19 pandemic on our Light Vehicle operations was most notable during April 2020, with a measured ramp up in production beginning in May and continued sequential month-over-month increases in production continuing through September 2020.

Year-over-year full frame light truck production declined in this year's third quarter in North America, Europe and South America by 2%, 8% and 6%, respectively, while production in Asia Pacific was flat with the same period of 2019.

Year-over-year full frame light truck production for the first nine months of 2019 declined in North America, Europe, South America and Asia Pacific by 26%, 28%, 30% and 15%, respectively.

Net customer pricing and cost recovery actions further decreased year-over-year sales by $11 and $43 in this year's third quarter and first nine months, respectively.

Light Vehicle third-quarter segment EBITDA decreased by $24 from last year, with the first nine months earnings lower by $193. Lower sales volumes provided a year-over-year headwind of $167 (26.1% decremental margin) in the first nine months as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic.

The year-over-year performance-related earnings decrease in the third quarter was driven by operational inefficiencies of $26, lower net pricing and material cost recovery of $11, higher warranty expense of $3 and higher incentive compensation of $1. Partially offsetting these performance-related earnings decreases were the benefit of commodity cost decreases of $9, material cost savings of $8 and lower salaried employee wages of $2. The year-over-year performance related-earnings decrease in the first nine months was driven by lower net pricing and material cost recovery of $43, operational inefficiencies of $40 and incremental safety costs of $2 directly related to the global COVID-19 pandemic.

Partially offsetting these performance-related earnings decreases were commodity cost decreases of $23, material cost savings of $18, lower salaried employee wages of $8, certain benefits of the CARES Act of $5, lower incentive compensation of $4 and lower warranty expense of $1.

Commercial Vehicle

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Currency effects

Commercial Vehicle sales in the second quarter and first half of 2020, exclusive of currency effects and the impact of acquisitions, were 53% and 37% lower than the same period of 2019.

Commercial Vehicle sales in the third quarter and first nine months of 2020, exclusive of currency effects and the impact of acquisitions, were 18% and 31% lower than the same period of 2019.

Declining market conditions coming out of 2019 deteriorated further with the rapid dissipation in customer demand resulting from the global COVID-19 pandemic.

Year-over-year North America Class 8 production was down 81% and Classes 5-7 production was down 67% in this year's second quarter.

Year-over-year medium/heavy truck production in Europe, South America and Asia Pacific were down 63%, 62% and 10%, respectively, in this year's second quarter.

Year-over-year North America Class 8 production was down 57% and Classes 5-7 production was down 42% in this year's first six months.

Year-over-year medium/heavy truck production in Europe, South America and Asia Pacific were down 46%, 34% and 18%, respectively, in this year's first six months.

Net customer pricing and cost recovery actions further decreased year-over-year sales by $4 and $9 in this year's second quarter and first six months, respectively.

Commercial Vehicle second-quarter segment EBITDA decreased by $49 from last year, with first-half earnings lower by $69.

Lower sales volumes provided a year-over-year headwind of $58 (25.6% decremental margin) and $79 (25.5% decremental margin) in the second quarter and first six months, respectively, as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic.

The year-over-year performance-related earnings increase in the second quarter was driven by the benefit of the temporary reduction in salaried employee wages of $5, improved operational efficiencies of $3, certain benefits of the CARES Act of $2, material cost savings of $2, lower incentive compensation of $2, commodity cost decreases of $1, lower warranty expense of $1 and lower premium freight of $1.

Partially offsetting these performance-related earnings increases were lower net pricing and material recovery of $4 and incremental safety costs of $1 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment. The year-over-year performance-related earnings increase in the first six month was driven by material cost savings of $7, the benefit of the temporary reduction in salaried employee wages of $5, lower incentive compensation of $5, commodity cost decreases of $4, lower premium freight of $4, certain benefits of the CARES Act of $2 and lower warranty expense of $1. Partially offsetting these performance-related earnings increases were lower net pricing and material recovery actions of $9 and incremental safety costs of $1 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment.

Year-over-year North America Class 8 production was down 38% and Classes 5-7 production was down 25% in this year's third quarter.

Year-over-year medium/heavy truck production in Europe and South America were down 28% and 27%, respectively, in this year's third quarter.

Year-over-year North America Class 8 production was down 47% and Classes 5-7 production was down 31% in this year's first nine months.

Year-over-year medium/heavy truck production in Europe and South America were down 33% and 35%, respectively. Asia Pacific was impacted by the global COVID-19 pandemic earlier than the other regions, with its most significant year-over-year production decline occurring during the first quarter of 2020.

Year-over-year Asia Pacific medium/heavy truck production was up 33% and 3% for third quarter and first nine months, respectively. Net customer pricing and cost recovery actions further decreased year-over-year sales by $2 and $11 in this year's third quarter and first nine months, respectively.

Commercial Vehicle third-quarter segment EBITDA decreased by $17 from last year, with the first nine months earnings lower by $86.

Lower sales volumes provided a year-over-year headwind of $20 (28.6% decremental margin) and $99 (26.1% decremental margin) in the third quarter and first nine months, respectively, as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. The year-over-year performance-related earnings increase in the third quarter was driven by improved operational efficiencies of $4, material cost savings of $3, commodity cost decreases of $1, lower warranty expense of $1 and lower salaried employee wages of $1. Partially offsetting these performance-related earnings increases were lower net pricing and material recovery of $2, higher incentive compensation of $2 and incremental safety costs of $1 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment. The year-over-year performance-related earnings increase in the first nine month was driven by material cost savings of $10, lower salaried employee wages of $6, commodity cost decreases of $5, improved operational efficiencies of $4, lower premium freight of $4, lower incentive compensation of $3, certain benefits of the CARES Act of $2 and lower warranty expense of $2. Partially offsetting these performance-related earnings increases were lower net pricing and material recovery actions of $11 and incremental safety costs of $2 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment.

Segment EBITDA

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Currency effects

Excluding currency effects and the impact of the ODS and Ashwoods acquisitions, second-quarter and first-half 2020 sales in our Off-Highway segment decreased 39% and 31% compared to last year.

Already declining global construction/mining and agricultural equipment markets coming out of 2019 deteriorated further with the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. Net customer pricing and cost reduction actions further decreased year-over-year sales by $4 and $9 in this year's second quarter and first six months, respectively.

Off-Highway second-quarter segment EBITDA decreased by $65 from last year, with first-half earnings lower by $75. Lower sales volumes provided a year-over-year headwind of $66 (25.5% decremental margin) and $92 (24.5% decremental margin) in the second quarter and first six months, respectively, as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic.

The year-over-year performance-related earnings increase in the second quarter was driven by the benefit of the temporary reduction in salaried employee wages of $9, material cost savings of $5, commodity cost decreases of $1, lower incentive compensation of $1 and certain benefits of the CARES Act of $1.

Partially offsetting these performance-related earnings increases were lower net pricing and material recovery of $4, higher warranty expense of $3, operational inefficiencies of $6 and incremental safety costs of $2 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment.

The year-over-year performance-related earnings increase in the first six months was driven by material cost savings of $10, the benefit of the temporary reduction in salaried employee wages of $9, commodity cost decreases of $4, lower incentive compensation of $2 and certain benefits of the CARES Act of $1.

Partially offsetting these performance-related earnings increases were lower net pricing and material recovery of $9, higher warranty expense of $2, operational inefficiencies of $7 and incremental safety costs of $2 directly related to the global COVID-19 pandemic.

Excluding currency effects and the impact of the ODS and Ashwoods acquisitions, third-quarter and first nine months 2020 sales in our Off-Highway segment decreased 15% and 26% compared to last year.

Already declining global construction/mining and agricultural equipment markets coming out of 2019 deteriorated further with the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. Net customer pricing and cost reduction actions further decreased year-over-year sales by $3 and $12 in this year's third quarter and first nine months, respectively.

Off-Highway third-quarter segment EBITDA decreased by $14 from last year, with the first nine months earnings lower by $89. Lower sales volumes provided a year-over-year headwind of $19 (22.1% decremental margin) and $111 (24.1% decremental margin) in the third quarter and first nine months, respectively, as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. The year-over-year performance-related earnings increase in the third quarter was driven by material cost savings of $6, lower warranty expense of $5, commodity cost decreases of $3 and lower salaried employee wages of $2.

Partially offsetting these performance-related earnings increases were operational inefficiencies of $7, lower net pricing and material recovery of $3, higher incentive compensation of $2 and incremental safety costs of $1 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment. The year-over-year performance-related earnings increase in the first nine months was driven by material cost savings of $16, lower salaried employee wages of $9, commodity cost decreases of $7, lower warranty expense of $3 and certain benefits of the CARES Act of $1.

Partially offsetting these performance-related earnings increases were operational inefficiencies of $17, lower net pricing and material recovery of $12 and incremental safety costs of $3 directly related to the global COVID-19 pandemic.

Power Technologies

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Power Technologies primarily serves the light vehicle market but also sells product to the medium/heavy truck and off-highway markets.

Net of currency effects, sales for the second quarter and first half of 2020 were 47% and 26% lower than the same periods of 2019, primarily due to lower market demand resulting from the global COVID-19 pandemic.

Light vehicle engine production declined in North America, Europe and Asia Pacific compared to last year's second quarter and first six months.

Power Technologies second-quarter segment EBITDA decreased $29 from last year, with first-half earnings lower by $33.

Lower sales volumes provided a year-over-year headwind of $40 (31.7% decremental margin) and $45 (31.7% decremental margin) in the second quarter and first six months, respectively, as actions to flex down our cost structure lagged the dissipation of customer demand resulting from the global COVID-19 pandemic.

The year-over-year performance-related earnings increase in the second quarter was driven by the benefit of the temporary reduction in salaried employee wages of $5, operational efficiencies of $3, lower incentive compensation of $2, material cost savings of $1 and certain benefits of the CARES Act of $1.

Partially offsetting these performance-related earnings increases was incremental safety costs of $1 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment.

The year-over-year performance-related earnings increase in the first six months was driven by the benefit of the temporary reduction in salaried employee wages of $5, material savings of $3, lower incentive compensation of $3, operational efficiencies of $2 and certain benefits of the CARES Act of $1.

Partially offsetting these performance-related earnings increases were lower net pricing and material recovery of $1 and incremental safety costs of $1 directly related to the global COVID-19 pandemic.

Net of currency effects, sales for the third quarter 2020 were comparable with the third quarter of 2019 while first nine months 2020 sales were 18% lower than the same periods of 2019, primarily due to lower market demand resulting from the global COVID-19 pandemic.

Light vehicle engine production declined in North America, Europe and Asia Pacific compared to last year's third quarter and first nine months.

Power Technologies third-quarter segment EBITDA increased $6 from last year, with the first nine months earnings lower by $27.

Lower sales volumes provided a year-over-year headwind of $43 (31.2% decremental margin) in the first nine months as actions to flex down our cost structure lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. The year-over-year performance-related earnings increase in the third quarter was driven by operational efficiencies of $9, material cost savings of $2 and lower salaried employee wages of $1.

Partially offsetting these performance-related earnings increases was higher incentive compensation of $3, lower net pricing and material recovery of $2, higher warranty expense of $2 and incremental safety costs of $1 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment.

The year-over-year performance-related earnings increase in the first nine months was driven by operational efficiencies of $11, lower salaried employee wages of $6, material savings cost of $5 and certain benefits of the CARES Act of $1.

Partially offsetting these performance-related earnings increases were lower net pricing and material recovery of $3, higher warranty expense of $2 and incremental safety costs of $2 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment.

Non-GAAP Financial Measures

Adjusted EBITDA

We have defined adjusted EBITDA as net income (loss) before interest, taxes, depreciation, amortization, equity grant expense, restructuring expense, non-service cost components of pension and other postretirement benefits (OPEB) costs and other adjustments not related to our core operations (gain/loss on debt extinguishment, pension settlements, divestitures, impairment, etc.).

We have defined adjusted EBITDA as net income (loss) before interest, income taxes, depreciation, amortization, equity grant expense, restructuring expense, non-service cost components of pension and other postretirement benefits (OPEB) costs and other adjustments not related to our core operations (gain/loss on debt extinguishment, pension settlements, divestitures, impairment, etc.).

Adjusted EBITDA is a measure of our ability to maintain and continue to invest in our operations and provide shareholder returns.

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In addition to its use by management, we also believe adjusted EBITDA is a measure widely used by securities analysts, investors and others to evaluate financial performance of our company relative to other Tier 1 automotive suppliers.

Adjusted EBITDA should not be considered a substitute for earnings before income taxes, net income or other results reported in accordance with GAAP.

Adjusted EBITDA should not be considered a substitute for earnings (loss) before income taxes, net income (loss) or other results reported in accordance with GAAP.

Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net income (loss)

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Income tax expense (benefit)

Loss before income taxes

Earnings (loss) before income taxes

Depreciation and amortization

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Three Months Ended

Six Months Ended

Net cash provided by (used in) operating activities

Nine Months Ended

September 30,

Net cash provided by operating activities

Purchases of property, plant and equipment

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Adjusted free cash flow

The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at June 30, 2020:

The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at September 30, 2020:

Cash and cash equivalents

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Accordingly, these deposits are not considered to be restricted. Marketable securities are included as a component of liquidity as these investments can be readily liquidated at our discretion.

We h ad avail ability of $979 at June 30, 2020 under the Revolving Facility after deducting $21 of outstanding letters of credit.

The components of our June 30, 2020 consolidated cash balance were as follows:

We h ad avail ability of $979 at September 30, 2020 under the Revolving Facility after deducting $21 of outstanding letters of credit.

The components of our September 30, 2020 consolidated cash balance were as follows:

Cash and cash equivalents

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Beyond these restrictions, there are practical limitations on repatriation of cash from certain subsidiaries because of the resulting tax withholdings and subsidiary by-law restrictions which could limit our ability to access cash and other assets.

At June 30, 2020, we were in compliance with the covenants of our financing agreements.

At September 30, 2020, we were in compliance with the covenants of our financing agreements.

Under the Term Facilities, the Revolving Facility and our senior notes, we are required to comply with certain incurrence-based covenants customary for facilities of these types.

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We also amended certain restrictive covenants to provide additional limitations on incurring additional liens, taking on additional debt, paying dividends, entering into certain transactions with affiliates, making certain investments and disposing of certain assets until December 31, 2021, unless Dana, in its sole discretion, elects to return the first lien net leverage ratio to its prior level prior to December 31, 2021.

At June 30, 2020, we were in compliance with the covenants of our financing agreements.

At September 30, 2020, we were in compliance with the covenants of our financing agreements.

The principal sources of liquidity available for our future cash requirements are expected to be (i) cash flows from operations, (ii) cash and cash equivalents on hand and (iii) borrowings from our Revolving Facility.

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The following table summarizes our consolidated statement of cash flows:

Six Months Ended

Nine Months Ended

September 30,

Cash used for changes in working capital

Other cash provided by operations

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Net cash used in investing activities

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The year-over-year decrease is primarily attributable to lower operating earnings as a result of the global COVID-19 pandemic, partially offset by a $62 discretionary pension contribution made to one of our U.S.

defined benefit pension plans in the second quarter of 2019.

Reference is made to Note 10 of the consolidated financial statements in Item 1 of Part I for a discussion of the settlement of this U.S.

defined benefit pension plans in the second quarter of 2019. Reference is made to Note 10 of the consolidated financial statements in Item 1 of Part I for a discussion of the settlement of this U.S.

defined benefit pension plan.

Working capital used cash of $50 and $197 in 2020 and 2019.

Cash of $201 was provided by lower levels of receivables in 2020, while cash of $193 was used to finance increased receivables in 2019.

The lower level of cash required for receivables in 2020 was due primarily to the rapid dissipation of customer demand beginning in March 2020 as a result of the global COVID-19 pandemic.

Cash of $53 was provided by lower inventory levels in 2020, while cash of $47 was used to fund higher inventory levels in 2019. Cash of $482 and $7 was used to reduce accounts payable and other net liabilities in 2020 and 2019.

The reduction in accounts payable and other net liabilities in 2020 was principally driven by lower raw material purchases beginning in March 2020 due to the rapid dissipation of customer demand resulting from the COVID-19 pandemic.

Cash of $120 and $81 was used to finance increased receivables in 2020 and 2019.

The higher level of cash required for receivables in 2020 was primarily due to the ramp up in customer demand that occurred during the third quarter of 2020 as the impact of the global COVID-19 pandemic began to dissipate. Cash of $105 was provided by lower inventory levels in 2020, while cash of $26 was used to fund higher inventory levels in 2019.

The lower levels of inventory in 2020 were largely due to management's controlled and measured actions to preserve liquidity in response to the global COVID-19 pandemic. Cash of $35 and $90 was used to reduce accounts payable and other net liabilities in 2020 and 2019.

Investing activities —

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During the first quarter of 2020, we paid $8 to acquire Curtis' 35.4% ownership interest in Ashwoods.

The acquisition of Curtis's interest in Ashwoods, along with our existing ownership interest in Ashwoods, provided us with a controlling financing interest in Ashwoods. During 2019, we paid $545, net of cash and restricted cash acquired, to purchase ODS, we paid $61 to acquire SME and we paid $48, net of cash acquired, to purchase PEPS.

The acquisition of Curtis's interest in Ashwoods, along with our existing ownership interest in Ashwoods, provided us with a controlling financing interest in Ashwoods. During 2019, we paid $545, net of cash and restricted cash acquired, to purchase ODS, we paid $61 to acquire SME, we paid $48, net of cash acquired, to purchase PEPS and we paid $10 to acquire Nordresa.

During 2019, we paid $21 to settle the undesignated Swiss franc notional deal contingent forward related to the ODS acquisition. During 2020 and 2019, purchases of marketable securities were largely funded by proceeds from sales and maturities of marketable securities.

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We subsequently terminated the bridge facility.

During 2019, we entered into an amended credit and guaranty agreement comprised of a $500 Term A Facility, a $450 Term B Facility and a $750 Revolving Facility.

During 2020, we made principle payments of $8 on the Term A Facility. During 2019, we entered into an amended credit and guaranty agreement comprised of a $500 Term A Facility, a $450 Term B Facility and a $1,000 Revolving Facility.

The Term A Facility was an expansion of our existing $275 term facility.

We drew the $225 available under the Term A Facility and the $450 available under the Term B Facility.

We paid financing costs of $12 to amend the credit and guaranty agreement.

During 2019, we made combined principle payments of $17 on the Term A Facility and the Term B Facility.

We used $15 and $29 for dividend payments to common stockholders during 2020 and 2019, respectively.

We paid financing costs of $16 to amend the credit and guaranty agreement.

During 2019, we drew $100 on our Revolving Facility and made combined principle payments of $117 on the Term Facilities. During the third quarter of 2019, we broadened our relationship with Hydro-Québec, with Hydro-Québec acquiring an indirect 45% redeemable noncontrolling interest in SME and increasing its existing indirect 22.5% noncontrolling interest in PEPS to an indirect 45% redeemable noncontrolling interest.

We received $53 of cash at closing. We used $15 and $43 for dividend payments to common stockholders during 2020 and 2019, respectively.

We used $25 to repurchase 1,432,275 shares of our common stock during 2019.

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Off-Balance Sheet Arrangements

There have been no material changes at June 30, 2020 in our off-balance sheet arrangements from those reported or estimated in the disclosures in Item 7 of our 2019 Form 10-K.

There have been no material changes at September 30, 2020 in our off-balance sheet arrangements from those reported or estimated in the disclosures in Item 7 of our 2019 Form 10-K.

Contractual Obligations

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See Item 7 in our 2019 Form 10-K for a description of our critical accounting estimates and Note 1 to our consolidated financial statements in Item 8 of our 2019 Form 10-K for our significant accounting policies.

There were no changes to our critical accounting estimates in the six months ended June 30, 2020.

See Note 1 to our consolidated financial statements in this Form 10-Q for a discussion of new accounting guidance adopted during the first six months of 2020.

There were no changes to our critical accounting estimates in the nine months ended September 30, 2020.

See Note 1 to our consolidated financial statements in this Form 10-Q for a discussion of new accounting guidance adopted during the first nine months of 2020.

Long-term interest rates on high quality corporate debt instruments, which are used to determine the discount rates used in the valuation of our other U.S.

defined benefit pension obligations, have decreased during 2020.

The lower interest rates, if unchanged during the fourth quarter, would result in a year-end discount rate of 2.59% for our U.S.

plans versus the 3.21% discount rate used at the end of 2019.

Our return on pension assets through the first nine months of 2020 has been higher than our 5.0% annual expected return on the related plan assets.

Notwithstanding other changes in assumptions, we would expect the use of a discount rate of 2.59% and earning a 5.0% annualized return on plan assets during the fourth quarter to result in an immaterial actuarial loss for these U.S.

defined benefit plans at December 31, 2020.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis