What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-28 · 314 added, 157 removed, 350 unchanged (57% of the section changed)

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

At 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,

At June 30, 2021, we employed approximatel y 38,600 people, operated in 33 countries and had 141 major facilities housin g manufacturing and distribution operations, service and assembly operations, technical and engineering centers and administrative offices.

External sales by operating segment for the periods ended June 30, 2021 and 2020 are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Light Vehicle

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We have made significant investments - both organically and inorganically - allowing us to move to the next phase, which is to Lead electric propulsion .

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.

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 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.

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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 March 31, 2021 ,  we have used cash of $50 to repurchase common shares under the program.

Through June 30, 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.

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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.

During the second quarter of 2021, we completed a €325 2029 note offering and used the proceeds to repay $375 of higher cost 2026 notes.

In addition, we completed a $400 2030 note offering and redeemed $425 of higher cost 2024 notes. See Note 12 to our consolidated financial statements in Item 1 of Part I for additional information.

Other Initiatives

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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. 

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

Ashwoods Innovations Limited  —

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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.

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;

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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.

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 .

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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.

Our current outlook for 2021 is for stronger demand with production up 46% 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.

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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.

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%.

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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.

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 o ur 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.

From 2018 to 2019, global demand for agriculture equipment fell by 3% due to a slump in commodity prices.

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

Our current outlook for 2021 is for end-market demand to improve by 10% compared to the prior year, as farm subsidies in response to the global pandemic have bolstered the commodity market and are 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.

With 55% of our first half 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 China accounted for 52% and 9% of our first half 2021 non-U.S.

sales, respectively, while India and Brazil accounted for 9% and 8%, respectively.

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

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International currencies strengthened against 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.

dollar in the first half of 2021, increasing sales by $135.

A stronger euro, Chinese renminbi, South African rand and British pound were partially offset by a weaker Brazilian real.

Argentina has experienced significant inflationary pressures the past few years, contributing to signifi cant 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.

Our sales in Argentina for the first half of 2021 of approximately $51 are 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $26, including $8 of net fixed assets, at June 30, 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.

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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.

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.

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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.

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.

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.

Material recovery and other pricing actions decreased year-over-year earnings by $80 and $10 in 2020 and 2019, respective ly.

Higher commodity prices decreased year-over-year second-quarter and first-half earnings in 2021 by $70 and $105, while lower commodity prices increased year-over-year earnings by $4 and $22 in the same periods last year. Material cost recovery and other pricing actions increased year-over-year second-quarter and first-half earnings in 2021 by $30 and $34, where as material cost recovery and other pricing actions decreased year-over-year earnings by $24 and $51 in the same periods last year.

Sales, Earnings and Cash Flow Outlook

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

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

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

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

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. 

Our 2021 sales outlook of $8,500 to $9,000 is unchanged from our April 2021 outlook.

We currently expect sales will be closer to the high end of the range primarily due to strong end-market demand, an increased currency tail wind and additional material cost recovery.

Our full year 2021 adjusted EBITDA outlook of $920 to $1,000 is unchanged from our April 2021 outlook.

Adjusted EBITDA Margin is expected to be 10.7%, a 240 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 3.0% 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.

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 –

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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.

At June 30, 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,

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

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

Three Months Ended June 30,

% of Net Sales

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Restructuring charges, net

Impairment of goodwill

Other income (expense), net

Earnings before interest and income taxes

Earnings (loss) before interest and income taxes

Loss on extinguishment of debt

Interest income

Interest expense

Earnings before income taxes

Income tax expense (benefit)

Earnings (loss) before income taxes

Income tax expense

Equity in earnings of affiliates

Net income (loss)

Noncontrolling interests net income

Redeemable noncontrolling interests net loss

Net income attributable to the parent company

Redeemable noncontrolling interests net income (loss)

Net income (loss) attributable to the parent company

Sales —

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Sales in 2021 were $1,127 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.

Stronger international currencies increased sales by $87, principally due to a stronger euro, Chinese renminbi, South African rand and British pound.

The organic sales increase of $1,050, or 97%, 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.

Pricing actions, including material commodity price and inflationary costs adjustments, increased sales by $30.

The North America organic sales increase of 110% was driven principally by stronger light-, medium- and heavy-duty truck production volumes, higher light-vehicle engine production levels and the conversion of sales backlog.

Second quarter full-frame light-truck production was up 150%, Classes 5-7 were up 52% and Class 8 was up 161% compared with the second quarter of 2020.

Light-vehicle engine production was up 131% compared with the second quarter of 2020.

Excluding currency effects, sales in Europe were up 74% 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.

Organic sales in this operating segment were up 58% compared with the first quarter of 2020.

A 109% increase in year-over-year light-vehicle engine production levels also contributed to our organic European sales increase.

Excluding currency effects, second quarter sales in South America increased 221% compared to 2020 due primarily to improved light- and medium/heavy-duty truck production.

Second-quarter light-truck production was up 315% and medium/heavy-truck production was up 316%.

Excluding currency effects and the impact of divestitures, sales in Asia Pacific increased 86% compared to 2020 due to improved light-truck production and a stronger construction/mining market.

Second-quarter 2021 light-truck production was up 25%.

The global semiconductor chip shortage impacted our second-quarter 2021 sales as customers of some of our more significant programs were forced to take down time during the quarter. 

Cost of sales and gross margin —

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

Cost of sales for the second quarter of 2021 increased $865, or 80% when compared to 2020.

Cost of sales as a percent of sales was 1,230 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.

Incremental margins provided by increased sales volumes were partially offset by higher year-over-year commodity costs of $70, higher standard and premium freight costs of $20 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 and supplier recoveries provided a partial offset, reducing costs of sales by approximately $49.

Gross margin of $252 for 2021  increased $262 from 2020.

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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.

Gross margin during the second quarter of 2021 was negatively impacted by costs associated with continued, while dissipating, global supply chain disruptions and operational inefficiencies driven by labor shortages at certain of our facilities and customer down time resulting from the global semiconductor chip shortage.

In addition, gross margin during the second 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 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.

SG&A expenses in 2021 were $126 (5.7% of sales) as compared to $82 (7.6% of sales) in 2020. 

SG&A expenses were $44 lower in 2020 primarily due to lower incentive compensation and lower salaried employee wages and benefits, travel expenses and professional fees resulting from austerity measures taken in response to the global COVID-19 pandemic.

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  — 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.

Amortization expense was $3 in both 2021 and in 2020.

Restructuring charges, net  — Net restructuring charges of $16 in the first quarter of 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.

Other income (expense), net —

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

Three Months Ended

Non-service cost components of pension and OPEB costs

Government grants and incentives

Foreign exchange gain

Strategic transaction expenses

Gain on investment in Hyliion

Loss on de-designation of fixed-to-fixed cross currency swaps

Other income (expense), net

Strategic transaction expenses relate primarily to costs incurred in connection with acquisition and divestiture related activities, including costs to complete the transaction and post-closing inte gration costs.

Strategic transaction expenses in 2021 were primarily attributable to our pursuit of the 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 combi ned 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 marketable securities and carried at fair value with changes in fair value included in net income.

We had previously entered into fixed-to-fixed cross currency swaps as a hedge against our June 2026 Notes.

In June 2021, we redeemed all of the June 2026 Notes and de-designated the fixed-to-fixed cross currency swaps.

See Note 13 of the consolidated financial statements in Item I of Part I for additional information.

Loss on extinguishment of debt  —

On May 13, 2021 and May 17, 2021, we redeemed $254 and $171 of our December 2024 Notes, respectively.

The $11 loss on extinguishment of debt includes the redemption premiums and the write-off of $3 of previously deferred financings costs associated with our December 2024 Notes.

In addition, we recognized a previously deferred $3 gain on a terminated fixed-to-floating interest rate swap associated with the December 2024 Notes. On June 10, 2021, we redeemed all of our June 2026 Notes.

The $16 loss on extinguishment of debt includes the $12 redemption premium and the write-off of $4 of previously deferred financing costs associated with our June 2026 Notes.

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 12 of the consolidated financial statements in Item 1 of Part I for additional information.

Interest income and interest expense 

Interest income was $2 in both 2021 and 2020.

Interest expense increased from $32 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 5.2% in 2021 and 4.7%  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 2.03% durin g the second quarter of 2020, in the fourth quarter of 2020.

Income tax expense  — We reported income tax expense of $14 and $34 for 2021 and 2020 , respectively. Our effective tax rates were 25% and (23)% for the second quarter of 2021 and 2020.

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.

Excluding this item, the effective tax rate would have been 15% for the second quarter of 2020. 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.

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 of up to approximately $50 related to subsidiaries in Germany will be released in the next twelve months. 

Equity in earnings of affiliates —

Net earnings from equity investments was $10 in 2021 and $8 in 2020.

Equity in earnings from DDAC was $8 in 2021 and $9 in 2020.

Equity earnings from Bendix Spicer Foundation Brake, LLC (BSFB) were de minimis in 2020.

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

Summary Consolidated Results of Operations (Year-to-Date, 2021 versus 2020)

Six Months Ended June 30,

% of Net Sales

Increase/ (Decrease)

Cost of sales

Selling, general and administrative expenses

Amortization of intangibles

Restructuring charges, net

Impairment of goodwill

Other income (expense), net

Earnings (loss) before interest and income taxes

Loss on extinguishment of debt

Interest income

Interest expense

Earnings (loss) before income taxes

Income tax expense

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.

Six Months Ended

Amount of Change Due To

Increase/ (Decrease)

Currency Effects

Acquisitions (Divestitures)

Organic Change

North America

South America

Sales in 2021 were $1,464 higher than in 2020.

Stronger international currencies increased sales by $135, principally due to a stronger euro, Chinese renminbi, South African rand and British pound, partially offset by a weaker Brazilian real.

The organic sales increase of $1,336, or 44%, resulted from improved overall market demand and the conversion of sales backlog.

Pricing actions, including material commodity price and inflationary costs adjustments, increase sales by $34.

The North America organic sales increase of 44% was driven principally by stronger light-, medium- and heavy-duty truck production volumes, higher-light vehicle engine production levels and the conversion of sale backlog.

First half full-frame light-truck production was up 49%, Classes 5-7 were up 18% and Class 8 was up 58% compared with the first half of 2020.

Light-vehicle engine production was up 35% compared with the first half of 2020.

Excluding currency effects and the impact of acquisitions, sales in Europe were up 35% compared with 2020.

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

Organic sales of this operating segment were up 32% compared with the first half of 2020. A 35% increase in year-over-year light-vehicle engine production levels also contributed to our organic European sales increase.

Excluding currency effects, first-half sales in South America increased 86% compared to 2020 due primarily to improved light- and medium/heavy-duty truck production.

First-half 2021 light-truck production was up 104% and medium/heavy-truck production was up 116%.

Excluding currency effects and the impact of divestitures, sales in Asia Pacific increased 56% compared to 2020 due to improved light-truck production and stronger construction/mining and agricultural markets.

First-half 2021 light-truck production was up 29%.

The global semiconductor chip shortage impacted our first-half 2021 sales as customers of some of our more significant programs were forced to take down time during the second quarter.

Cost of sales and gross margin —

Cost of sales for the first half of 2021 increased $1,157, or 41% when compared to 2020.

Cost of sales as a percent of sales was 480 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 $105, higher standard and premium freight costs of $43 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 and supplier recoveries provided a partial offset, reducing costs of sales by approximately $76.

Gross margin of $503 for 2021 increased $307 from 2020.

Gross margin as a percent of sales was 11.3% in 2021, 480 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 half of 2021 was negatively impacted by costs associated with continued, while dissipating, global supply chains disruptions and operational inefficiencies driven by labor shortages at certain of our facilities and customer down time resulting from the global semiconductor chip shortage.

In addition, gross margin during the first half 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 2021 were $245 (5.5% of sales) as compared to $188 (6.3% of sales) in 2020.

SG&A expenses were $57 lower in 2020 primarily due to lower

 incentive compensation and lower salaried employee wages and benefits, travel expenses and professional fees resulting from austerity measures taken in response to the global COVID-19 pandemic.

Amortization of intangibles —

Amortization expense was $7 in 2021 and $6 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 —

Net restructuring charges were $1 in 2021 and $19 in 2020.

Restructuring charges 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.

Impairment of goodwill  —

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

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

See Note 3 of our consolidated financial statements 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.

Three Months Ended

Six Months Ended

Non-service cost components of pension and OPEB costs

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Loss on disposal group held for sale

Loss on de-designation of fixed-to-fixed cross currency swaps

Other income (expense), net

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. 

Strategic transaction expenses in 2020 were primarily attributable to the acquisitions of the Oerlikon Drive Systems seg ment 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.

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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.

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

We had previously entered into fixed-to-fixed cross currency swaps as a hedge against our June 2026 Notes.

In June 2021, we redeemed all of the June 2026 Notes and de-designated the fixed-to-fixed cross currency swaps.

See Note 13 of the consolidated financial statements in Item I of Part I for additional information.

In conjunction with our acquisition of ODS, we acquired a controlling financial interest in a joint venture in China. We were 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.

We completed the divestiture of this business in April 2021.

See Note 17 of the consolidated financial statement in Item I of Part I for additional information.

Loss on extinguishment of debt  —

On May 13, 2021 and May 17, 2021, we redeemed $254 and $171 of our December 2024 Notes, respectively.

The $11 loss on extinguishment of debt includes the redemption premiums and the write-off of $3 of previously deferred financings costs associated with our December 2024 Notes.

The $16 loss on extinguishment of debt includes the $12 redemption premium and the write-off of $4 of previously deferred financing costs associated with our June 2026 Notes.

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 12 of the consolidated financial statements in Item 1 of Part I for additional information.

Interest income and interest expense — Interest income was $4 in both 2021 and 2020.

Interest expense increased from $61 in 2020 to $68 in 2021, primarily due to higher interest rates on outstanding borrowings.

Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.3% in 2021 and 4.7% 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.

61% du ring the first half of 2020, in the fourth quarter of 2020.

Income tax expense

 — We reported income tax expense of $36 and $18 for the first half of

June 30, 2021 and 2020

, respectively. Our effective tax rates were 27% and (14)% for the first half of 2021 and 2020.

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 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.

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

Excluding these items, the effective tax rate would have been 8% for the first half of 2020. 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.

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.

We believe it is reasonably possible that valuation allowances of up to approximately $50 related to subsidiaries in Germany will be released in the next twelve months. 

Equ ity in earnings of affiliates — Net earnings from equity investments was $24 in 2021 and $10 in 2020.

Equity in earnings from DDAC was $21 in 2021 and $8 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.

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Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Currency effects

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.

Light Vehicle sales in the second quarter and first half of 2021, exclusive of currency effects and the impact of divestitures, were 160% and 62% higher than the same period of 2020 reflecting improved global markets and the conversion of sales backlog.

Second-quarter and first-half 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 150% in this year’s second quarter while light-truck production in Europe, South America and Asia Pacific increased 109%, 315% and 25%, respectively.

Year-over-year North America full-frame light-truck production increased 49% in this year’s first half while light-truck production in Europe, South America and Asia Pacific increased 41%, 104% and 29%, respectively.

Net customer pricing and cost recovery actions further increased year-over-year sales by $6 and $2 in this year’s second quarter and first half, respectively.

The global semiconductor chip shortage impacted our second-quarter and first-half 2021 sales as customers of some of our more significant programs were forced to take down time during the second quarter.

Light Vehicle second-quarter 2021 segment EBITDA increased by $119 from last year, with first-half earnings higher by $136.

Higher sales volumes provided a year-over-year benefit of $117 (22.3% incremental margin) and $157 (22.3% incremental margin) in the second quarter and first half of 2021.

Year-over-year performance-related earnings decreases in the second quarter were driven by commodity cost increases of $32, higher standard and premium freight costs of $10, higher incentive compensation of $3, higher warranty costs of $5, higher program launch costs of $3 and benefits of the CARES Act and austerity measures taken in response to the global COVID-19 pandemic during 2020 not repeating in 2021 of $5 and $6, respectively.

Offsetting these performance-related decreases were material cost savings and supplier recoveries of $35, net customer pricing and material cost recovery actions of $6 and operational efficiencies of $23.

The year-over-year performance-related earnings decrease in the first half was driven by commodity cost increases of $48, higher standard and premium freight costs of $19, higher incentive compensation of $6, higher warranty costs of $5, higher program launch costs of $3 and benefits of the CARES Act and austerity measures taken in response to the global COVID-19 pandemic during 2020 not repeating in 2021 of $5 and $6, respectively.

Partially offsetting these performance-related decreases were material cost savings and supplier recoveries of $48, net customer pricing and material cost recovery actions of $2 and operational efficiencies of $18.

Commercial Vehicle

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Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Acquisitions/Divestitures

Currency effects

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.

Commercial Vehicle sales in the second quarter and first half of 2021, exclusive of currency effects and the impact of acquisitions and divestitures, were 86% and 37% higher than the same period of 2020 reflecting improved global markets and the conversion of sales backlog.

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

Year-over-year North America Class 8 production was up 161% and Classes 5-7 were up 52% in this year’s second quarter.

Year-over-year North America Class 8 production was up 58% and Classes 5-7 were up 18% in the first half of this year.

Year-over-year medium/heavy-truck production in Europe and South America were up 78% and 316%, respectively, while production in Asia Pacific was down 6% in this year’s second quarter.

Year-over-year medium/heavy-truck production in Europe, South America and Asia Pacific were up 20%, 116% and 14%, respectively, in the first half of this year.

Net customer pricing and cost recovery actions further increased year-over-year sales by $16 and $24 in this year’s second quarter and first half, respectively.

Commercial Vehicle second-quarter 2021 segment EBITDA increased by $24 from last year, with first-half earnings higher by $18.

Higher sales volumes provided a year-over-year benefit of $44 (28.0% incremental margin) and $49 (27.5% incremental margin) in the second quarter and first half of 2021.

The year-over-year performance-related earnings decrease in the second quarter was driven by commodity cost increases of $20, higher standard and premium freight costs of $6, higher incentive compensation of $2, higher warranty costs of $1, operational inefficiencies of $2 and benefits of the CARES Act and austerity measures taken in response to the global COVID-19 pandemic during 2020 not repeating in 2021 of $2 and $8, respectively.

Partially offsetting these performance-related decreases were net customer pricing and material cost recovery actions of $16 and material cost savings of $4.

The year-over-year performance-related earnings decrease in the first half was driven by commodity cost increases of $29, higher standard and premium freight costs of $16, higher incentive compensation of $4, operational inefficiencies of $5 and benefits of the CARES Act and austerity measures taken in response to the global COVID-19 pandemic during 2020 not repeating in 2021 of $2 and $8, respectively.

Partially offsetting these performance-related decreases were net customer pricing and material cost recovery actions of $24 and material cost savings of $8.

Segment EBITDA

Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Currency effects

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.

Off-Highway sales in the second quarter and first half of 2021, exclusive of currency effects and the impact of acquisitions, were 58% and 32% higher than the same period of 2020 reflecting improved global markets and the conversion of sales backlog.

Year-over-year global construction/mining and agricultural equipment markets reflected marked improvement.

Net customer pricing and cost recovery actions further increased year-over-year sales by $6 and $7 in this year’s second quarter and first half, respectively.

Off-Highway second-quarter 2021 segment EBITDA increased by $61 from last year, with first-half earnings higher by $68.

Higher sales volumes provided a year-over-year benefit of $59 (26.3% incremental margin) and $74 (25.6% incremental margin) in the second quarter and first half of 2021.

The year-over-year performance-related earnings decrease in the second quarter was driven by commodity cost increases of $14, higher standard and premium freight costs of $2, higher incentive compensation of $2 and benefits of the CARES Act and austerity measures taken in response to the global COVID-19 pandemic during 2020 not repeating in 2021 of $1 and $9, respectively.

Partially offsetting these performance-related decreases were material cost savings of $8, net customer pricing and material cost recovery actions of $6, operational efficiencies of $10 and lower warranty costs of $1.

The year-over-year performance-related earnings decrease in the first half was driven by commodity cost increases of $21, higher standard and premium freight costs of $3, higher incentive compensation of $4 and benefits of the CARES Act and austerity measures taken in response to the global COVID-19 pandemic during 2020 not repeating in 2021 of $1 and $11, respectively.

Partially offsetting these performance-related decreases were material cost savings of $15, net customer pricing and material cost recovery actions of $7 and operational efficiencies of $5.

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.

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.

Power Technologies sales in the second quarter and first half of 2021, exclusive of currency effects, were 76% and 33% higher than the same period of 2020 reflecting improved global markets and the conversion of sales backlog.

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

Year-over-year North America, Europe, South America and Asia Pacific light-vehicle engine production was up 131%, 109%, 291% and 20%, respectively, in this year’s second quarter.

Year-over-year North America, Europe, South America and Asia Pacific light-vehicle engine production was up 35%, 35%, 48% and 26%, respectively, in the first half of this year.

Net customer pricing and cost recovery actions further increased year-over-year sales by $2 and $1 in this year’s second quarter and first half, respectively.

The global semiconductor chip shortage impacted our second-quarter and first-half 2021 sales as customers were forced to take down time during the second quarter.

Power Technologies second-quarter 2021 segment EBITDA increased by $33 from last year, with first-half earnings higher by $44.

Higher sales volumes provided a year-over-year benefit of $38 (36.5% incremental margin) and $46 (35.7% incremental margin) in the second quarter and first half of 2021.

The year-over-year performance-related earnings decrease in the second quarter was driven by commodity cost increases of $4, higher standard and premium freight costs of $2, higher incentive compensation of $3 and benefits of the CARES Act and austerity measures taken in response to the global COVID-19 pandemic during 2020 not repeating in 2021 of $1 and $7, respectively.

Partially offsetting these performance-related decreases were material cost savings of $2, net customer pricing and material cost recovery actions of $2, operational efficiencies of $6 and lower warranty costs of $1.

The year-over-year performance-related earnings decrease in the first half was driven by commodity cost increases of $7, higher standard and premium freight costs of $5, higher incentive compensation of $5 and benefits of the CARES Act and austerity measures taken in response to the global COVID-19 pandemic during 2020 not repeating in 2021 of $1 and $7, respectively.

Partially offsetting these performance-related decreases were material cost savings of $5, net customer pricing and material cost recovery actions of $1, operational efficiencies of $13 and lower warranty costs of $2. 

Non-GAAP Financial Measures

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Three Months Ended

Six Months Ended

Net income (loss)

Equity in earnings of affiliates

Income tax expense (benefit)

Earnings before income taxes

Income tax expense

Earnings (loss) before income taxes

Depreciation and amortization

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Interest expense, net

Loss on extinguishment of debt

Impairment of goodwill

Loss on investment in Hyliion

(Gain) loss on investment in Hyliion

Loss on disposal group held for sale

Loss on de-designation of fixed-to-fixed cross currency swaps

Adjusted EBITDA

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Three Months Ended

Six Months Ended

Net cash provided by (used in) operating activities

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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 March 31, 2021:

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

We h ad avail ability of $1,129 at June 30, 2021 under the Revolving Facility after deducting $21 of outstanding letters of credit.

The components of our June 30, 2021 consolidated cash balance were as follows:

Cash and cash equivalents

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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.

At June 30, 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.

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

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.

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:

Three Months Ended

Six Months Ended

Cash used for changes in working capital

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Operating activities —

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

Exclusive of working capital, other cash provided by operations was $333 in 2021 and $102 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.

Working capital used cash of $239 and $228 in 2021 and 2020.

Cash of $204 was used to finance receivables in 2021, while cash of $201 was provided by lower levels of receivables in 2020.

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

Cash of $305 was used to fund higher inventory levels during 2021, while cash of $53 was provided by lower inventory levels in 2020.

The cash generated by lower inventory levels 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 $270 in 2021, while decreases in accounts payable and other net liabilities used cash of $482 in 2020.

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

Investing activities —

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.

Expenditures for property, plant and equipment were $133 and $121 during 2021 and 2020.

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

In 2021 we de-designated the fixed-to-fixed cross currency swaps associated with our June 2026 Notes and settled certain of the fixed-to-fixed cross currency swaps resulting in a net cash outflow of $22.

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.

During 2021, we completed the issuance of €325 of our July 2029 Notes and $400 of our September 2030 Notes, paying financing costs of $11.

Also during 2021, we redeemed all $375 of our June 2026 Notes and all $425 of our December 2024 Notes, paying redemption premiums of $21.

During 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.

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 costs of $6.

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

We subsequently terminated the bridge facility.

We used $29 and $15 for dividend payments to common stockholders during 2021 and 2020.

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

During 2020, Hydro-Québec paid us $7 to acquire an indirect 45% ownership interest in Ashwoods.

Off-Balance Sheet Arrangements

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.

There have been no material changes at June 30, 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 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. 

There were no changes to our critical accounting estimates in the six months ended June 30, 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 six months of 2021. 

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis