What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-28 compared with 2020-10-28 · 256 added, 398 removed, 251 unchanged (72% of the section changed)

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motion systems (winches, slew drives, and hub drives);

electrodynamic technologies (motors, inverters, software and control systems, battery-management systems, and fuel cell plates);

sealing solutions (gaskets, seals, cam covers, and oil pan modules);

electrodynamic technologies (motors, inverters, software and control systems, battery-management systems, and fuel cell plates); sealing solutions (gaskets, seals, cam covers, and oil pan modules);

thermal-management technologies (transmission and engine oil cooling, battery and electronics cooling, charge air cooling, and thermal-acoustical protective shielding);

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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 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,

At March 31, 2021, we employed approximately 39,100 people, operated in 33 countries and had 141 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 March 31, 2021 and 2020 are as follows:

Three Months Ended March 31,

Light Vehicle

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Our customer centric focus has uniquely positioned us to win more than our fair share of new business and capitalize on future customer outsourcing initiatives.

We continue to enhance and expand our global footprint, optimizing it to capture growth across all of our end markets.

Expanding global markets means utilizing our global capabilities and presence to further penetrate growth markets, focusing on Asia due to its position as the largest mobility market in the world with the highest market growth rate and its lead in the adoption of new energy vehicles.

We are investing across various avenues to increase our presence in Asia Pacific by forging new partnerships, expanding inorganically, and growing organically.

We continue to operate in this region through wholly owned subsidiaries and joint ventures with local market partners.

We continue to operate in this region through wholly owned and joint ventures with local market partners.

We have recently made acquisitions that have augmented our footprint in the region, specifically in India and China.

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Over the past year we have achieved our goal to accelerate hybridization and electrification through both core Dana technologies and targeted strategic acquisitions and are positioned today to lead the market.

The four recent acquisitions of electrodynamic expertise and technologies combined with Dana’s longstanding mechatronics capabilities has allowed us to develop and deliver fully integrated e-Propulsion systems that are power-dense and achieve optimal efficiency through the integration of the components that we offer due to our mechatronics capabilities.

The nine recent investments in electrodynamic expertise and technologies combined with Dana’s longstanding mechatronics capabilities has allowed us to develop and deliver fully integrated e-Propulsion systems that are power-dense and achieve optimal efficiency through the integration of the components that we offer due to our mechatronics capabilities.

With recent electric vehicle program awards, we are well on our way to achieving our growth objectives in this emerging market.

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In addition to investing in our business, we plan to continue prioritizing the allocation of capital to reduce debt and maintain a strong financial position.

In January 2018, we announced our intention to drive toward investment grade metrics as part of a balanced approach to our capital allocation priorities and our goal of further strengthening our balance sheet.

We continue to drive toward investment grade metrics as part of a balanced approach to our capital allocation priorities and our goal of further strengthening our balance sheet.

Shareholder return actions —

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Our Board of Directors authorized a $200 share repurchase program effective in 2018 which expires at the end of 2023.

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

Through March 31, 2021 ,  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.

In response to the global COVID-19 pandemic, we have temporarily suspended the declaration and payment of dividends to common shareholders and the repurchase of common stock under our existing common stock share repurchase progra m.

In response to the global COVID-19 pandemic, we temporarily suspended the declaration and payment of dividends to common shareholders and the repurchase of common stock under our existing common stock share repurchase progra m.

With the impacts of the global COVID-19 pandemic largely behind us we resumed the declaration and payment of quarterly common stock dividends during the first quarter of 2021.

Financing actions 

— During 2019 we expanded our credit and guaranty agreement, entering into $675 of additional floating rate term loans to fund the ODS acquisition (see Acquisitions section below) and increasing our revolving credit facility to $1,000 and extending its maturity by two years.

— Over the past few years we have taken advantage of the lower interest rate environment to complete refinancing transactions that resulted in lower effective interest rates while extending maturities. During 2019 we expanded our credit and guaranty agreement, entering into $675 of additional floating rate term loans to fund the ODS acquisition and increased our revolving credit facility to $1,000 and extended its maturity to August 2024.

We completed a $300 2027 note offering and used the proceeds to repay $300 of higher cost 2023 notes.

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defined benefit pension plans, settling approximately $165 of previously unfunded pension obligations and eliminating future funding risk associated with interest rate and other market developments.

In response to the global COVID-19 pandemic, during June 2020, we completed a $400 2028 note offering and a $100 add on to our 2027 notes.

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

In response to the global COVID-19 pandemic, during June 2020, we completed a $400 2028 note offering and a $100 add on to our 2027 notes. With the impact of the global COVID-19 pandemic on our operations dissipating, we paid down $474 of our floating rate term loans (the "Term A Facility") in the third and fourth quarters of 2020.

During the first quarter of 2021, we increased our revolving credit facility to $1,150 and extended its maturity to March 2026.

See Note 12 to our consolidated financial statements in Item 1 of Part I for additional information.

Other Initiatives

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targeting increased future aftermarket sales.

Powered by recognized brands such as Dana®, Spicer®, Victor Reinz®, Albarus™, Brevini™, PIV™, Fairfield®, Glaser®, Graziano™, GWB®, Spicer Select™, Thompson™, Tru-Cool®, and Transejes™, Dana delivers a broad range of aftermarket solutions –

Powered by recognized brands such as Dana®, Spicer®, Spicer Electrified™, Victor Reinz®, Glaser®, GWB®, Thompson®, Tru-Cool®, SVL®, and Transejes™, Dana delivers a broad range of aftermarket solutions –

including genuine, all makes, and value lines –

servicing passenger car, commercial vehicle, off-highway equipment and industrial applications across the globe.

servicing passenger, commercial, and off-highway vehicles across the globe.

Selective acquisitions —

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with a disciplined financial approach designed to ensure profitable growth and increased shareholder value.

Pi Innovo Holding Limited  —

On March 1, 2021, we acquired the remaining 51% ownership interest in Pi Innovo Holding Limited (Pi Innovo). Pi Innovo designs, develops and manufactures electronic control units spanning a range of applications and industries. The acquisition of the remaining ownership interest provides us with a 100% ownership interest in Pi Innovo.

The total purchase consideration of $35 is comprised of $18 of cash paid at closing and the $17 fair value of our previously held equity method investment in Pi Innovo.

The results of operations of the business are reported within our Commercial Vehicle operating segment.

Pi Innovo had an insignificant impact on our consolidated results of operations during the first quarter of 2021. 

Ashwoods Innovations Limited  —

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During March 2020, we acquired the remaining noncontrolling interests in Ashwoods held by employee shareholders.

See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in Ashwoods.

The results of operations of Ashwoods are reported within our Off-Highway operating segment.

Ashwoods had an insignificant impact on our consolidated results of operations during 2020.

Nordresa —

On August 26, 2019, we acquired a 100% ownership interest in Nordresa Motors, Inc.

(Nordresa) for consideration of $12, using cash on hand.

Nordresa is a prominent integration and application engineering expert for the development and commercialization of electric powertrains for commercial vehicles.

The investment further enhances Dana's electrification capabilities by combining its complete portfolio of motors, inverters, chargers, gearboxes, and thermal-management products with Nordresa's proprietary battery-management system, electric powertrain controls and integration expertise to deliver complete electric powertrain systems.

The results of operations of Nordresa are reported within our Commercial Vehicle operating segment.

Nordresa had an insignificant impact on our consolidated results of operations during 2019.

Prestolite E-Propulsion Systems (Beijing) Limited —

On June 6, 2019, we acquired Prestolite Electric Beijing Limited's (PEBL) 50% ownership interest in Prestolite E-Propulsion Systems (Beijing) Limited (PEPS).

PEPS manufactures and distributes electric mobility solutions, including electric motors, inverters, and generators for commercial vehicles and heavy machinery.

PEPS has a state-of-the-art facility in China, enabling us to expand motor and inverter manufacturing capabilities in the world's largest electric-mobility market.

The acquisition of PEBL's interest in PEPS, along with our existing ownership interest in PEPS through our TM4 subsidiary, provides us with a 100% ownership interest and a controlling financial interest in PEPS.

We recognized a $2 gain to other income (expense), net on the required remeasurement of our previously held equity method investment in PEPS to fair value.

We paid $50 at closing using cash on hand.

Reference is made to Note 2 of our consolidated financial statements in Item 1 of Part I for the allocation of purchase consideration to assets acquired and liabilities assumed.

The results of operations of PEPS are reported within our Commercial Vehicle operating segment.

The PEPS acquisition contributed $8 of sales and de minimis adjusted EBITDA in 2019. See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in PEPS.

Oerlikon Drive Systems —

On February 28, 2019, we acquired a 100% ownership interest in the Oerlikon Drive Systems (ODS) segment of the Oerlikon Group.

ODS is a global manufacturer of high-precision gears, planetary hub drives for wheeled and tracked vehicles, and products, controls, and software that support vehicle electrification across the mobility industry.

We paid $626 at closing, which was primarily funded through debt proceeds.

Reference is made to Note 2 of our consolidated financial statements in Item 1 of Part I for the allocation of purchase consideration to assets acquired and liabilities assumed.

The results of operations of ODS are reported primarily within our Off-Highway and Commercial Vehicle operating segments.

The ODS acquisition added $630 of sales and $87 of adjusted EBITDA during 2019.

On January 11, 2019, we acquired a 100% ownership interest in S.M.E.

SME designs, engineers, and manufactures low-voltage AC induction and synchronous reluctance motors, inverters, and controls for a wide range of off-highway electric vehicle applications, including material handling, agriculture, construction, and automated-guided vehicles.

The addition of SME's low-voltage motors and inverters, which are primarily designed to meet the evolution of electrification in off-highway equipment, significantly expands Dana's electrified product portfolio.

We paid $88 at closing, consisting of $62 in cash on hand and a note payable of $26 which allows for net settlement of potential contingencies as defined in the purchase agreement.

The note is payable in five years and bears annual interest of 5%.

Reference is made to Note 2 of our consolidated financial statements in Item 1 of Part I for the allocation of purchase consideration to assets acquired and liabilities assumed. The SME acquisition added $21 of sales and de minimis adjusted EBITDA during 2019. See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in SME.

The Ashwoods acquisition had an insignificant impact on our consolidated results of operations during 2020. See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in Ashwoods.

Hydro-Québec Relationship

On June 22, 2018, we acquired a 55% ownership interest in TM4 from Hydro-Québec.

On July 29, 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 45%.

We received $65 at closing, consisting of $53 of cash and a note receivable of $12.

The note is payable in five years and bears annual interest of 5%.

Dana will continue to consolidate SME and PEPS as the governing documents continue to provide Dana with a controlling financial interest in these subsidiaries.

See Acquisitions section above for a discussion of Dana's acquisitions of PEPS and SME. On April 14, 2020 , Hydro-Québec acquired an indirect 45% redeemable noncontrolling interest in Ashwoods.

On April 14, 2020 , Hydro-Québec acquired an indirect 45% redeemable noncontrolling interest in Ashwoods.

We received $9 in cash at closing, inclusive of $2 in proceeds on a loan from Hydro-Québec.

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Trends in Our Markets

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.

The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term operational, strategic and capital structure initiatives, will depend on future developments, including the duration and severity of the pandemic, which are uncertain and cannot be predicted.

The company's response to the global COVID-19 pandemic has been measured, swift and decisive with an emphasis on health and safety, cash conservation and enhancing liquidity.

Our top priority is the health and safety of our employees, their families, our customers, and our communities.

We have implemented protocols throughout our global footprint to ensure their health and safety including, but not limited to:

temporarily closing a significant number of our facilities;

restricting access to and enhancing cleaning and disinfecting protocols of those facilities that continue to operate;

use of personal protection equipment;

adhering to social distancing guidelines;

instituting remote work;

and restricting travel.

In response to the rapid dissipation of customer demand, the company has taken actions to conserve cash by flexing its conversion costs across its global manufacturing, assembly and distribution facilities and aggressively reducing its cost base and eliminating discretionary spending at its technical centers and administrative offices.

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, 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 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.

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 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.

Although sales in Argentina and South Africa were each less than 5% of our non-U.S.

sales, exchange rate movements of those countries have been volatile and significantly impacted sales from time to time.

We serve our customers in three core global end markets:

light vehicle, primarily full frame trucks and SUVs;

commercial vehicle, including medium- and heavy-duty trucks and busses;

and off-highway, including construction, mining, and agriculture equipment.

In 2020, all of our end-markets were impacted to varying degrees by the global COVID-19 pandemic, which initially resulted in lower demand driven by production shutdowns related to virus mitigation efforts in the regions we serve.

Each of our end-markets has unique cyclical dynamics and market drivers.

These cycles 

are impacted by periods of investment where end-user vehicle fleets are refreshed or expanded in reaction to demand usage patterns, regulatory changes, or when the age of vehicles in service reach their useful life.

Key market drivers include regional economic growth rates;

industrial output;

commodity production and pricing; and residential and nonresidential construction rates.

Our multi-market coverage and broad customer base help provide stability across the cycles while mitigating secular variability.

Light vehicle markets —

Our driveline business is weighted more heavily to the truck and SUV segments of the light-vehicle market versus the passenger-car segment.

Our vehicle content is greater on rear-wheel drive, four-wheel drive, and all-wheel drive vehicles, as well as hybrid and electric vehicles. Global light-truck 

volumes have seen steady growth over the last three years, with the largest gains being in North America.

The impact of COVID-19 saw the global market contract by 13% from 2019 levels.

Our current outlook for the full year of 2021 reflects full-frame light-truck production to be up by a similar percentage, with all regions exhibiting a strong rebound and returning to 2019 levels as production constraints have eased, inventory returns to more normal levels, and constrained customer demand is fulfilled.

Commercial vehicle markets —

Our primary business is driveline systems for medium and heavy-duty trucks and busses, including the emerging market for hybrid and electric vehicles.

Key regional markets are North America, South America (primarily Brazil) and Asia Pacific.

The Class-8 truck market in North America experienced steady growth from 2017 through 2019, peaking at 345,000 trucks produced in 2019.

Production of Class-8 trucks in 2020 was 38% below the record production in 2019 due to normal cycle dynamics and the impact of COVID-19.

Our current outlook for 2021 is for stronger demand with production up 42% over the prior 

year driven by improving economic outlook and cyclical growth.

Medium-duty truck production in North America had grown steadily over the last several years before experiencing a 20% year- over-year decline from 2019 to 2020, primarily due to COVID-19.

Our current outlook for 2021 is for a 11% increase in production over the prior year.

Outside of North America, production of medium- and heavy-duty trucks in South America had been slowly improving prior to the COVID-19 pandemic as economic conditions had started to stabilize.

Pandemic and economic conditions drove a 22% decline in production in 2020.

Our current 2021 outlook for South America is for a 37% increase in production as the region recovers from the impact of the pandemic and the age of existing vehicles drives a replacement cycle for new trucks. In contrast to the rest of the world, Asia Pacific, driven by China, did not experience lower truck production in 2020, but is expected to slow output by 9% in 2021 as production matches lower demand, primarily driven by India where the recovery from the pandemic has been slower than in China.

Off-highway markets —

Our off-highway business has a large presence outside of North America, with 64% of its 2020 sales coming from products manufactured in Europe;

however, a large portion of these products are utilized in vehicle production outside the region.

The construction equipment segment of the off-highway 

market is closely related to global economic growth and infrastructure investment.

This segment has experienced a 5% market contraction, which began in late 2018 and further accelerated due to COVID-19, with 2020 production ending down an additional 10%.

Our current 2021 outlook has production demand in the global construction market rebounding by 11% over the prior year.

End-user investment in the mining equipment segment is driven by prices for commodity products produced by underground mining.

The global mining equipment market has been mostly stable over the past several years as industry participants have maintained vehicle 

inventory levels to match commodity output, and this trend is expected to continue in 2021. The agriculture equipment market is the third of our key off-highway segments.

Like the underground mining segment, investment in agriculture equipment is primarily driven by prices for farm commodities.

From 2018 to 2019, global 

demand for agriculture equipment fell by 3% due to a slump in commodity prices.

As prices have remained low, production in 2020 fell an additional 7%.

Our current outlook for 2021 is for end-market demand to improve by 7% compared to the prior year, as farm subsidies in response to the global pandemic have bolstered the 

commodity market and is expected to drive the replacement of aging equipment.

Foreign currency —

With 54% of our first quarter 2021 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 India accounted for 51% and 10% of our first quarter 2021 non-U.S.

sales, respectively, while China and Brazil accounted for 9% and 7%, respectively.

Although sales in South Africa are less than 5% of our non-U.S.

sales, the rand has been volatile and significantly impacted sales from time to time.

International currencies strengthened against the U.S.

dollar in 2018, with sales increasing by $16 principally due to a stronger euro, Thai baht and Chinese renminbi, partially offset by a weaker Brazilian real, Argentine peso and Indian rupee.

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 $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.

In assessing Argentina's economy as highly inflationary we considered its three-year cumulative inflation rate along with other factors.

As a result, effective July 1, 2018, the U.S.

dollar in the first quarter of 2021, increasing sales by $48.

A stronger euro and Chinese renminbi were partially offset by a weaker Brazilian real.

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 quarter of 2021 of approximately $25 are 1% of our consolidated 

sales and our net asset exposure related to Argentina was approximately $23, including $5 of net fixed assets, at March 31, 2021. During the second quarter of 2018, we determined that Argentina's economy met the GAAP definition of a highly inflationary economy.

In assessing Argentina's economy as highly inflationary we considered its three-year cumulative inflation rate along with other factors.

As a result, effective July 1, 2018, the U.S.

dollar is the functional currency for our Argentine operations, rather than the Argentine peso.

Beginning July 1, 2018, peso-denominated monetary assets and liabilities are remeasured into U.S.

dollars using current Argentine peso exchange rates with resulting translation gains or losses included in results of operations.

Beginning July 1, 2018, peso-denominated monetary assets and liabilities are remeasured into U.S.

dollars using 

current Argentine peso exchange rates with resulting translation gains or losses included in results of operations.

Nonmonetary assets and liabilities are remeasured into U.S.

dollar using historic Argentine peso exchange rates.

International Markets

Trade actions initiated by the U.S.

imposing tariffs on imports have been met with retaliatory tariffs by other countries, adding a level of tension and uncertainty to the global economic environment.

In November 2018, the U.S., Mexico and Canada executed the U.S.-Mexico-Canada Agreement (USMCA), the successor agreement to the North American Free Trade Agreement (NAFTA).

The agreement includes the imposition of tariffs on vehicles that do not meet regional raw material (steel and aluminum), part and labor content requirements.

The agreement was ratified by the U.S.

in January 2020.

These and other actions are likely to impact trade policies with other countries and the overall global economy.

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 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.

The Brazilian economy rebounded in 2017 and 2018, leading to increased medium/heavy and light truck production of more than 40% in each of those segments over the two-year period.

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 $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 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

The cost of our products may be significantly impacted by changes in raw material commodity prices, the most important to us being those of various grades of steel, aluminum, copper and brass.

The effects of changes in commodity prices are reflected directly in our purchases of commodities and indirectly through our purchases of products such as castings, forgings, bearings and component parts that include commodities.

Beginning in 2018, commodity prices have been impacted by imposed tariffs. Suppliers directly impacted by the tariffs are attempting to pass through the cost of the tariffs while suppliers not subject to the tariffs are advantaging themselves by raising prices.

Most of our major customer agreements provide for the sharing of significant commodity price changes with those customers based on the movement in various published commodity indexes.

Where such formal agreements are not present, we have historically been successful implementing price adjustments that largely compensate for the inflationary impact of material costs.

Material cost changes will customarily have some impact on our financial results as customer pricing adjustments typically lag commodity price changes.

Prices for commodities such as steel and aluminum rose during 2019, due to strong global demand.

Higher commodity prices reduced year-over-year earnings in 2019 by approximately $30, as compared to year-over-year earnings reductions of $115 in 2018.

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 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.

dollar using historic Argentine peso exchange rates. 

Commodity costs —

The cost of our products may be significantly impacted by changes in raw material commodity prices, the most important to us being those of various grades of steel, aluminum, copper, brass and rare earth materials.

The effects of changes in commodity prices are reflected directly in our purchases of 

commodities and indirectly through our purchases of products such as castings, forgings, bearings, batteries and component parts that include commodities.

Most of our major customer agreements provide for the sharing of significant commodity price changes with those customers based on the movement in various published 

commodity indexes.

Where such formal agreements are not present, we have historically been successful implementing price adjustments that largely compensate for the inflationary impact of material costs.

Material cost changes will customarily have some impact on our financial results as customer pricing adjustments 

typically lag commodity price changes.

Lower commodity prices increased year-over-year earnings in 2020 by approximately $37, as compared to year-over-year earnings reductions of $30 from higher commodity prices in 2019.

Material recovery and other pricing actions decreased year-over-year earnings by $80 and $10 in 

2020 and 2019, respectively.

Higher commodity prices decreased earnings in the first quarter of 2021 by $35, as compared to an earnings increase of $18 from lower commodity prices in the first quarter of 2020.

Material cost recovery and other pricing actions increased earnings in the first quarter of 2021 by $4, whereas pricing and recovery actions decreased earnings by $27 in the first quarter of 2020.

Sales, Earnings and Cash Flow Outlook

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Adjusted EBITDA

Net cash provided by operating activities

~5.1% of Sales

$920 - $1,000

Net cash provided by operating activities (of sales)

Discretionary pension contributions

Purchases of property, plant and equipment

~4.4% of Sales

Adjusted Free Cash Flow

~0.7% of Sales

Purchases of property, plant and equipment (of sales)

Adjusted Free Cash Flow (of sales)

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

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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,

We have increased our 2021 sales outlook to $8,500 to $9,000, approximately $450 higher than our February 2021 outlook.

The increase is primarily attributable to stronger end-market demand, an increased currency tail wind and additional material cost recovery.

At our current sales outlook for 2021, we now anticipate our full year 2021 adjusted EBITDA to be $920 to $1,000, approximately $50 higher than our February 2021 outlook.

Adjusted EBITDA Margin is still expected to be 11.0%, a 270 basis-point improvement over 2020, reflecting higher margin net new business and the benefit of operational inefficiencies associated with the global COVID-19 pandemic not repeating in 2021, being partially offset by 

increased investment to support our electrification strategy. In addition, we anticipate higher commodity costs to be largely offset by material recovery and other pricing actions. We now expect to generate adjusted free cash flow of approximately $280, or approximately 3.2% of our sales for 2021. The benefit of higher year-over-year adjusted EBITDA will be partially offset by an elevated level of capital spending supporting new customer programs, as spending on certain projects was deferred during 2020 in response the global COVID-19 pandemic. 

Among our operational and strategic initiatives are increased focus on and investment in product technology –

delivering products 

and technology that are key to bringing solutions to issues of paramount importance to our customers.

Our success on this front is measured, in part, by our sales backlog –

net new business received that will be launching in the future and adding to our base annual sales.

This backlog excludes replacement business and represents incremental sales associated with new programs for which we have received formal customer awards.

At March 31, 2021, our sales backlog of net new business for the 2021 through 2022 

period was $700.

We expect to realize $500 of our sales backlog in 2021, with incremental sales backlog of $200 being realized in 2022.

sales backlog is evenly balanced between electric-vehicle and traditional ICE-vehicle content. 

Summary Consolidated Results of Operations (First Quarter, 2021 versus 2020)

Three Months Ended March 31,

% of Net Sales

5 unchanged sentences

Restructuring charges, net

Pension settlement charge

Impairment of goodwill

Other income (expense), net

3 unchanged sentences

Earnings before income taxes

Income tax expense

Income tax expense (benefit)

Equity in earnings of affiliates

5 unchanged sentences

Three Months Ended

September 30,

Amount of Change Due To

5 unchanged sentences

South America

Sales in 2020 were $170 lower than in 2019.

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 $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.

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.

Sales in 2021 were $337 higher than in 2020.

Stronger international currencies increased sales by $48, principally due to a stronger euro and Chinese renminbi, partially offset by a weaker Brazilian real.

The organic sales increase of $286, or 15%, resulted from improved overall market demand and the conversion of sales backlog.

Pricing actions, including material commodity price and inflationary costs adjustments, increased sales by $4. 

The North America organic sales increase of 11% was driven principally by stronger light and heavy duty truck production volumes and the conversion of sales backlog.

First quarter 2021 full frame light truck production was up 8% and Class 8 truck production was up 10%, while Classes 5-7 were down 2% compared with the first quarter of 2020. Excluding currency and acquisition effects, sales in Europe were up 10% compared with 2020.

With our significant Off-Highway presence in the region, stronger construction/mining and agricultural markets were a major factor.

Organic sales in this operating segment were up 12% compared with the first quarter of 2020. Excluding currency effects, first quarter sales in South America increased 31% compared to 2020 due primarily to improved light and medium/heavy duty truck production.

First-quarter 2021 light truck production was up 25% and medium/heavy truck production was up 35%. Excluding currency effects, sales in Asia Pacific increased 36% compared to 2020 due to improved light and medium/heavy duty truck production and a stronger construction/mining market.

First-quarter 2021 light truck production was up 27% and medium/heavy truck production was up 46%.

The global semiconductor chip shortage had a negligible impact on our first quarter 2021 sales.

Cost of sales and gross margin —

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.

Cost of sales attributed to acquisitions was approximately $8.

Excluding the effects of acquisitions, cost of sales as a percent of sales was 89.0%, 200 basis points higher than in the previous year.

The increase in cost of sales as a percent of sales was largely attributable to actions to flex down our cost structure lagging the rapid dissipation of customer demand across all of our end markets as a result of the global COVID-19 pandemic, our inability to effectively reduce labor costs in certain countries due to government requirements, as well as our inability to reduce fixed costs including depreciation and rent expense.

Partially offsetting the impact of the rapid dissipation of customer demand were lower commodity prices which lowered material costs by $13 and continued material cost savings of approximately $19.

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

Cost of sales for the first quarter of 2021 increased $292, or 17% when compared to 2020.

Cost of sales as a percent of sales was 40 basis points lower than in the previous year.

Incremental margins provided by increased sales volumes were partially offset by higher year-over-year commodity costs of $35, higher standard and premium freight costs of $23 and incremental investment in electrification initiatives.

Commodity cost increases are being driven by higher prices for certain grades of steel and aluminum.

Year-over-year freight cost increases are primarily due to higher freight rates, driven by container shortages and port congestions due to pandemic-related operational disruptions, and the incurrence of premium freight to support customer demand levels. Continued material cost savings provided a partial offset, reducing costs of sales by approximately $27.

Gross margin of $251 for 2021 increased $45 from 2020.

Gross margin as a percent of sales was 11.1% in 2021, 40 basis points higher than in 2020.

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

Gross margin during the first quarter of 2021 was negatively impacted by material cost recovery mechanisms with our customers lagging material cost increases charged by our suppliers by approximately 90 days.

Selling, general and administrative expenses (SG&A) —

SG&A expenses in 2020 were $111 (5.6% of sales) as compared to $128 (5.9% of sales) in 2019.

SG&A attributed to acquisitions was $2.

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.

SG&A expenses in 2021 were $119 (5.3% of sales) as compared to $106 (5.5% of sales) in 2020.

The year-over-year increase of $13 was primarily due to higher year-over-year incentive compensation, benefits and salaried employee wages, partially offset by lower travel costs and marketing expenses.

Amortization of intangibles —

Amortization expense was $4 in 2021 and $3 in 2020. 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 $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 (loss)

Strategic transaction expenses

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.

Interest income and interest expense —

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.

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 nondeductible expenses.

In countries where our history of operating losses does not allow us to satisfy the “more likely than not”

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.

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)

Nine Months Ended September 30,

% of Net Sales

Increase/ (Decrease)

Cost of sales

Selling, general and administrative expenses

Amortization of intangibles

Restructuring charges, net

Impairment of goodwill

Pension settlement charge

Other income (expense), net

Earnings before interest and income taxes

Write-off deferred financing costs

Interest income

Interest expense

Earnings (loss) before income taxes

Income tax expense (benefit)

Equity in earnings of affiliates

Net income (loss)

Noncontrolling interests net income

Redeemable noncontrolling interests net loss

Net income (loss) attributable to the parent company

Sales —

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

Nine Months Ended

September 30,

Amount of Change Due To

Increase/ (Decrease)

Currency Effects

Acquisitions (Divestitures)

Organic Change

North America

South America

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

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 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.

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 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 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.

Cost of sales attributed to acquisitions was approximately $133.

Excluding the effects of acquisitions, cost of sales as a percent of sales was 91.4%, 510 basis points higher than in the previous year.

The increase in cost of sales as a percent of sales was largely attributable to actions to flex down our cost structure lagging the rapid dissipation of customer demand across all of our end markets as a result of the global COVID-19 pandemic, our inability to effectively reduce labor costs in certain countries due to government requirements, as well as our inability to reduce fixed costs including depreciation and rent expense.

Partially offsetting the impact of the rapid dissipation of customer demand were lower commodity prices which lowered material costs by $35 and continued material cost savings of approximately $49.

Gross margin of $410 for 2020 decreased $498 from 2019.

Gross margin as a percent of sales was 8.2% in 2020, 550 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.

Selling, general and administrative expenses (SG&A) —

SG&A expenses in 2020 were $299 (6.0% of sales) as compared to $404 (6.1% of sales) in 2019.

SG&A attributed to acquisitions was $10.

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 $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.

Restructuring charges of $23 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.

Restructuring charges, net  — Net restructuring charges of $1 and $3 in the first quarters of 2021 and 2020 were comprised of severance and benefit costs related to integration of recent acquisitions, headcount reductions across our operations and exit costs related to previously announced actions.

Impairment of goodwill  —

During the first quarter of 2020, we recorded a $51 goodwill impairment charge.

See Note 3 of our consolidated financial statements in Item 1 of Part I for additional information. 

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.

See Note 3 of our consolidated financial statement in Item 1 of Part I for additional information.

Other income (expense), net —

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

Nine Months Ended

September 30,

Three Months Ended

Non-service cost components of pension and OPEB costs

Government grants and incentives

Foreign exchange gain (loss)

Foreign exchange gain

Strategic transaction expenses

Non-income tax legal judgment

Loss on investment in Hyliion

Loss on disposal group held for sale

Other income (expense), net

Foreign exchange loss in 2019 included a loss on the undesignated Swiss franc notional deal contingent forward related to the ODS acquisition.

See Note 12 of our consolidated financial statements in Item 1 of Part I for additional information. Strategic transaction expenses in 2020 were primarily attributable to the acquisitions of Nordresa and ODS and certain other 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.

During the first quarter of 2019, we won a legal judgment regarding the methodology used to calculate PIS/COFINS tax in Brazil.

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 $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.

Strategic transaction expenses in 2021 were primarily attributable to our pending acquisition of a portion of the thermal-management business of Modine Manufacturing Company and certain other strategic initiatives.

Strategic transaction expenses in 2020 were primarily attributable to the acquisitions of the Oerlikon Drive Systems segment of the Oerlikon Group (ODS) and Nordresa Motors, Inc.

and certain other strategic initiatives. 

We held convertible notes receivable from our investment in Hyliion Inc.

On October 1, 2020, Hyliion Inc.

completed its merger with Tortoise Acquisition Corp. The business combination resulted in the combined company being renamed Hyliion Holdings Corp.

(Hyliion), with its common stock being listed on the New York Stock Exchange under the ticker symbol HYLN.

Effective with the completed merger, our notes receivable were converted into 2,988,229 common shares of HYLN.

Our investment in Hyliion is included in noncurrent marketable securities and carried at fair value with changes in fair value included in net income.

The strategic partnership with Hyliion establishes Dana as the preferred supplier for e-propulsion systems to Hyliion as long as Dana maintains a minimum equity investment in Hyliion.

In conjunction with our acquisition of ODS, we acquired a controlling financial interest in a joint venture in China. We are required to divest of our interest in this joint venture as it violates competitive restrictions of another of our China joint venture shareholder agreements. During the first quarter of 2021, we recorded an impairment charge of $7, as we determined the carrying value of the disposal group exceeded its fair value less costs to sell. The disposal group has net assets of $2 as of March 31, 2021. Individual asset and liability balances are not material and therefore the amounts have not been segregated as held for sale on our consolidated balance sheet. We completed the disposal of this business in April 2021.

Interest income and interest expense 

Interest income was $2 in both 2021 and 2020.

Interest expense increased from $29 in 2020 to $34 in 2021, primarily due to higher interest rates on outstanding borrowings.

Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.5% in 2021 and 4.8% in 2020.

The year-over-year increase in our average effective interest rate is primarily attributable to the issuance of $400 of our 5.625% June 2028 Notes and an additional $100 of our 5.375% November 2027 Notes during the second quarter of 2020 and the pay down our Term A Facility, which bore interest at an average of 3.19% during the first quarter of 2020, in the fourth quarter of 2020.

Income tax expense (benefit)  — We reported income tax expense of $22 and an income tax benefit of $16 for the three months ended March 31, 2021 and 2020, respectively. Our effective tax rates were 29% and (80)% for the first three months of 2021 and 2020.

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 benefits 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.

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 expenses related to a U.S.

state law change.

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.

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.

Equity in earnings of affiliates —

Net earnings from equity investments was $14 in 2021 and $2 in 2020.

Equity in earnings from DDAC was $13 in 2021 and a loss of $1 in 2020.

DDAC's operations located in China's Hubei province, the center of the initial COVID-19 outbreak, were shut down the entire month of February 2020.

Production was permitted to resume in March 2020.

Equity earnings from Bendix Spicer Foundation Brake, LLC (BSFB) was $3 in 2020.

On October 1, 2020 we sold our 20% ownership interest in BSFB to Bendix Commercial Vehicle Systems LLC. 

Segment Results of Operations (2021 versus 2020)

2 unchanged sentences

Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Currency effects

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.

Light Vehicle sales in the first quarter of 2021, exclusive of currency effects, were 21% higher than the same period of 2020 reflecting improved global markets and the conversion of sales backlog.

First quarter 2020 sales were significantly impacted by the rapid dissipation in customer demand resulting from the global COVID-19 pandemic.

Year-over-year North America full frame light truck production increased 8% while light truck production in Europe, South America and Asia Pacific increased 3%, 25% and 27%, respectively.

Net customer pricing and cost recovery actions decreased year-over-year first quarter sales by $5.

Light Vehicle first-quarter 2021 segment EBITDA increased by $17 when compared to the same period of 2020.

Higher sales volumes provided a year-over-year increase of $40 (22.5% incremental margin).

The year-over-year performance-related earnings decrease was driven by commodity cost increases of $16, higher standard and premium freight costs of $9, lower net pricing and material cost recovery actions of $4, higher incentive compensation of $3, operational inefficiencies of $3 and higher net foreign currency transaction losses of $2.

Partially offsetting these performance-related earnings decreases were material cost savings of $13.

Commercial Vehicle

1 unchanged sentence

Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Currency effects

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 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

Segment EBITDA Margin

Commercial Vehicle sales in the first quarter of 2021, exclusive of currency effects and the impact of acquisitions, were 7% higher than the same period of 2020 reflecting mixed markets and the conversion of sales backlog.

First quarter 2020 sales were significantly impacted by the rapid dissipation in customer demand resulting from the global COVID-19 pandemic.

Market recoveries by region have been mixed.

Year-over-year North America Class 8 production was up 10% while Classes 5-7 production was down 2%.

Medium/heavy truck production in Europe was down 11% while production in South America and Asia Pacific were up 35% and 46%, respectively.

Net customer pricing and cost recovery actions increased sales year-over-year first quarter sales by $3.

Commercial Vehicle first-quarter 2021 segment EBITDA decreased by $7 when compared to the same period of 2020.

Higher sales volumes provided a year-over-year increase of $5 (23.8% incremental margin).

The year-over-year performance-related earnings decrease was driven by higher standard and premium freight costs of $10, commodity cost increases of $9, operational inefficiencies of $3, higher incentive compensation of $2 and higher net foreign currency transaction losses of $1.

Partially offsetting these performance-related earnings decreases were higher net pricing and material cost recovery actions of $8, material cost savings of $4 and lower warranty costs of $1.

Segment EBITDA

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Currency effects

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.

Off-Highway sales in the first quarter of 2021, exclusive of currency effects and the impact of acquisitions, were 12% higher than the same period of 2020 reflecting improved markets and the conversion of sales backlog.

Year-over-year construction/mining and agricultural equipment markets in Europe and Asia Pacific reflected marked improvement while North American markets continued to be weak.

Off-Highway first-quarter 2021 segment EBITDA increased by $8 when compared to the same period of 2020.

Higher sales volumes provided a year-over-year increase of $15 (23.1% incremental margin).

The year-over-year performance-related earnings decrease was driven by higher commodity costs of $7, operational inefficiencies of $4, higher incentive compensation of $2, higher net foreign currency transaction losses of $2, higher premium freight of $1 and higher warranty costs of $1.

Partially offsetting these performance-related earnings decreases were material cost savings of $7 and higher net pricing and material cost recovery actions of $1.

Power Technologies

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Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

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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 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.

Power Technologies sales in the first quarter of 2021, exclusive of currency effects, were 9% higher than the same period of 2020 reflecting the conversion of sales backlog and mixed markets.

Year-over-year light vehicle engine production was up 24% in Asia Pacific and down 1%, 2% and 10% in North America, Europe and South America, respectively. Net customer pricing and cost recovery actions decreased sales year-over-year first quarter sales by $1.

Power Technologies first-quarter 2021 segment EBITDA increased by $11 when compared to the same period of 2020.

Higher sales volumes provided a year-over-year increase of $8 (32.0% incremental margin).

The year-over-year performance-related earning increase was driven by operational efficiencies of $8, material cost savings of $3 and lower warranty costs of $1.

Partially offsetting these performance-related earning increases were commodity cost increases of $3, higher standard and premium freight costs of $3, higher incentive compensation of $2, higher net foreign currency transaction losses of $1 and lower net pricing and material recovery actions of $1.

Non-GAAP Financial Measures

Adjusted EBITDA

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.).

We have defined adjusted EBITDA as net income 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 (loss) before income taxes, net income (loss) or other results reported in accordance with GAAP.

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

The following table provides a reconciliation of net income (loss) to adjusted EBITDA.

The following table provides a reconciliation of net income to adjusted EBITDA.

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Equity in earnings of affiliates

Income tax expense (benefit)

Earnings (loss) before income taxes

Earnings before income taxes

Depreciation and amortization

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Interest expense, net

Write-off deferred financing costs

Impairment of goodwill

Pension settlement charges

Loss on investment in Hyliion

Loss on disposal group held for sale

Adjusted EBITDA

Other includes non-service cost components of pension and OPEB costs, stock compensation expense, strategic transaction expenses and other items.

See Note 18 to our consolidated financial statements in Item 1 of Part I for additional details.

Other includes stock compensation expense, non-service cost components of pension and OPEB costs, strategic transaction expenses and other items.

See Note 19 to our consolidated financial statements in Item 1 of Part I for additional details.

Free Cash Flow and Adjusted Free Cash Flow

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Three Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities

Net cash provided by (used in) 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 September 30, 2020:

The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at March 31, 2021:

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 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:

We h ad avail ability of $1,129 at March 31, 2021 under the Revolving Facility after deducting $21 of outstanding letters of credit.

The components of our March 31, 2021 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 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.

The incurrence-based covenants in the Term Facilities and the Revolving Facility permit us to, among other things, (i) issue foreign subsidiary indebtedness, (ii) incur general secured indebtedness subject to a pro forma first lien net leverage ratio not to exceed 1.50:1.00 in the case of first lien debt and a pro forma secured net leverage ratio of 2.50:1.00 in the case of other secured debt and (iii) incur additional unsecured debt subject to a pro forma total net leverage ratio not to exceed 3.50:1.00, tested at the time of incurrence.

On March 25, 2021, we amended our credit and guaranty agreement, increasing the Revolving Facility to $1,150 and extending its maturity to March 25, 2026.

At March 31, 2021, we were in compliance with the covenants of our financing agreements.

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

The incurrence-based covenants in the Term B 

Facility and the Revolving Facility permit us to, among other things, (i) issue foreign subsidiary indebtedness, (ii) incur general secured indebtedness subject to a pro forma first lien net leverage ratio not to exceed 1.50:1.00 in the case of first lien debt and a pro forma secured net leverage ratio of 2.50:1.00 in the case of other secured debt and (iii) incur additional unsecured debt subject to a pro forma total net leverage ratio not to exceed 3.50:1.00, tested at the time of incurrence.

We may also make dividend payments in respect of our common stock as well as certain investments and acquisitions subject to a pro forma total net leverage ratio of 2.75:1.00.

In addition, the Term A Facility and the Revolving Facility are subject to a financial covenant requiring us to maintain a first lien net leverage ratio not to exceed 3.00:1.00.

In addition, the Revolving Facility is subject to a financial covenant requiring us to maintain a first lien net leverage ratio not to exceed 2.00:1.00.

The indentures governing the senior notes include other incurrence-based covenants that may subject us to additional specified limitations.

In response to the COVID-19 pandemic we have taken controlled and measured actions to preserve liquidity including but not limited to flexing our cost structure, reducing capital spending and investments in research and development activities where and when appropriate, taking advantage of various government programs and subsidies including certain provisions of the CARES Act, temporarily suspending the declaration and payment of dividends to common shareholders and temporarily suspending the repurchase of common stock under our existing common stock share repurchase program.

During June 2020, we completed the sale of $400 in senior unsecured notes due June 15, 2028 (June 2028 Notes) as well as a $100 add on to our senior unsecured notes due November 15, 2027 (November 2027 Notes).

On April 16, 2020, we amended certain provisions of our credit and guaranty agreement including gradually increasing the first lien net leverage ratio from a maximum of 2.00 to 1.00 to a maximum of 4.00 to 1.00 for the quarter ending December 31, 2020 and then, starting with the quarter ending December 31, 2021, decrease the ratio quarterly until it returns to its prior level of 2.00 to 1.00 for and after the quarter ending September 30, 2022, unless Dana, in its sole discretion, elects to return the first lien net leverage ratio to its prior level of 2.00 to 1.00 earlier than such date.

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

From time to time, depending upon market, pricing and other conditions, as well as our cash balances and liquidity, we may seek to acquire our senior notes or other indebtedness or our common stock through open market purchases, privately negotiated transactions, tender offers, exchange offers or otherwise, upon such 

terms and at such prices as we may determine (or as may be provided for in the indentures governing the notes), for cash, securities or other consideration.

There can be no assurance that we will pursue any such transactions in the future, as the pursuit of any alternative will depend upon numerous factors such as market 

conditions, our financial performance and the limitations applicable to such transactions under our financing and governance documents.

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:

Nine Months Ended

September 30,

Three Months Ended

Cash used for changes in working capital

Other cash provided by operations

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Operating activities —

Exclusive of working capital, other cash provided by operations was $245 and $485 in 2020 and 2019.

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 plan.

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

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.

Exclusive of working capital, other cash provided by operations was $160 in 2021 and $132 in 2020.

The year-over-year increase is primarily attributable to higher operating earnings.

Working capital used cash of $133 and $183 in 2021 and 2020.

Cash of $257 and $43 was used to finance receivables in 2021 and 2020.

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

Cash of $137 and $56 was used to fund higher inventory levels during 2021 and 2020.

The lower level of cash required for inventory in 2020 was due primarily to actions taken to reduce inventory levels, preserving working capital, in response to the global COVID-19 pandemic.

Increases in accounts payable and other net liabilities provided cash of $261 in 2021, while decreases in accounts payable and other net liabilities used cash of $84 in 2020.

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

Investing activities —

Expenditures for property, plant and equipment were $181 and $298 during 2020 and 2019.

The elevated level of capital spend during 2019 was primarily in support of new customer programs and information systems upgrades.

During 2020, capital spending has been delayed where and when appropriate in response to the global COVID-19 pandemic.

Expenditures for property, plant and equipment were $53 and $63 during the first quarter of 2021 and 2020.

During the first quarter of 2021, we paid $17, net of cash acquired, to acquire an additional 51% interest in Pi Innovo.

The acquisition of the additional ownership interest provides us with a 100% ownership interest in Pi Innovo.

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, 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.

Financing activities —

During 2020, we completed the issuance of $400 of our June 2028 Notes and the issuance of an additional $100 of our November 2027 Notes, paying financing cost of $8.

During 2020, we entered into a $500 bridge facility, paying financing cost of $5.

We subsequently terminated the bridge 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 $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.

During the second quarter of 2020, we temporarily suspended the declaration and payment of dividends to common stockholders and temporarily suspended the repurchase of common stock under our existing common stock repurchase program in response to the global COVID-19 pandemic.

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 2021 and 2020, purchases of marketable securities were largely funded by proceeds from sales and maturities of marketable securities.

Financing activities 

During the first quarter of 2020, we drew $300 on our revolving credit facility as part of our contingency planning activities related to the global COVID-19 pandemic.

During the first quarter of 2021, we paid financing costs of $2 to amend our credit and guaranty agreement, increasing the Revolving Facility to $1,150 and extending its maturity to March 25, 2026.

We used 

and $15 for dividend payments to common stockholders during the first quarter of 2021 and 2020.

Off-Balance Sheet Arrangements

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.

There have been no material changes at March 31, 2021 in our off-balance sheet arrangements from those reported or estimated in the disclosures in Item 7 of our 2020 Form 10-K.

Contractual Obligations

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See Item 7 in our 2020 Form 10-K for a description of our critical accounting estimates and Note 1 to our consolidated financial statements in Item 8 of our 2020 Form 10-K for our significant accounting policies.

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.

There were no changes to our critical accounting estimates in the three months ended March 31, 2021.

See Note 1 to our consolidated financial statements in this Form 10-Q for a discussion of new accounting guidance adopted during the first three months of 2021. 

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis