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Item 2. Management’s Discussion and Analysis

2022-04-28 compared with 2021-10-26 · 236 added, 447 removed, 223 unchanged (75% of the section changed)

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Management Overview

Dana is headquartered in Maumee, Ohio, and was incorporated in Delaware in 2007.

We are a global provider of high-technology products to virtually every major vehicle manufacturer in the world.

We also serve the stationary industrial market.

Our technologies include drive systems (axles, driveshafts, transmissions, and wheel and track drives);

Dana is headquartered in Maumee, Ohio, and was incorporated in Delaware in 2007. We are a world leader in providing power-conveyance and energy-management solutions for vehicles and machinery.

The company's portfolio improves the efficiency, performance, and sustainability of light vehicles, commercial vehicles, and off-highway equipment. Our technologies include drive systems (axles, driveshafts, transmissions, and wheel and track drives);

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);

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

and digital solutions (active and passive system controls and descriptive and predictive analytics).

We serve our global light vehicle, medium/heavy vehicle and off-highway markets through four business units –

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, 2021, we employed approxim ately 39,500 people, operated in 33 countries and had 141 major facilities housing manufac turing 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, 2021 and 2020 are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

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);

and digital solutions (active and passive system controls and descriptive and predictive analytics). We serve our global light vehicle, medium/heavy vehicle and off-highway markets through four business units –

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, 2022, we employed approxim ately 40,600 people, operated in 32 countries and had 139 major facilities housing manufac turing 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, 2022 and 2021 are as follows:

Three Months Ended March 31,

Light Vehicle

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Operational and Strategic Initiatives

Our enterprise strategy builds on our strong technology foundation and leverages our resources across the organization while driving a customer centric focus, expanding our global markets, and delivering innovative solutions as we evolve into the era of vehicle electrification.

Central to our strategy is l everaging our core operations. 

This foundational element enables us to infuse strong operational disciplines throughout the strategy, making it practical, actionable, and effective.

It enables us to capitalize on being a major drive systems supplier across all three end-mobility markets.

We are achieving improved profitability by actively seeking synergies across our engineering, purchasing, and manufacturing base.

We have strengthened the portfolio by acquiring critical assets;

and we are utilizing our physical and intellectual capital to amplify innovation across the enterprise.

Leveraging these core elements can further expand the cost efficiencies of our common technologies and deliver a sustainable competitive advantage for Dana.

Driving customer centricity 

continues to be at the heart of who we are.

Putting our customers at the center of our value system is firmly embedded in our culture and is driving growth by focusing on customer relationships and providing value to our customers.

These relationships are strengthened as we are physically where we need to be in order to provide unparalleled service and we are prioritizing our customers’

needs as we engineer solutions that differentiate their products, while making it easier to do business with Dana by digitizing their experience.

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 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.

All the while, we have been making meaningful organic investments to grow with existing and new customers, primarily in Thailand, India, and China.

These added capabilities have enabled us to target the domestic Asia Pacific markets and utilize the capacity for export to other global markets.

Delivering innovative solutions  enables us to capitalize on market growth trends as we evolve our core technology capabilities.

We are also focused on enhancing our physical products with digital content to provide smart systems and we see an opportunity to become a digital systems provider by delivering software as a service to our traditional end customers.

This focus on delivering solutions based on our core technology is leading to new business wins and increasing our content per vehicle.

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

We have accelerated hybridization and electrification through both core Dana technologies and targeted strategic acquisitions and are positioned today to lead the market.

The ten recent investments in electro dynamic 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.

The development and implementation of our enterprise strategy is positioning Dana to grow profitably due to increased customer focus as we leverage our core capabilities, expand into new markets, develop and commercialize new technologies including for hybrid and electric vehicles.

See Trends in Our Markets discussion below for additional information on our operational and strategic initiatives.

Our enterprise strategy builds on our strong technology foundation and leverages our resources across the organization while driving a customer-centric focus, expanding our global markets, and delivering innovative solutions as we evolve into the era of vehicle electrification.

Central to our strategy is 

leveraging our core operations.

 This foundational element enables us to infuse strong operational disciplines throughout the strategy, making it practical, actionable, and effective.

It enables us to capitalize on being a major drive systems supplier across all three end mobility markets.

We are achieving improved profitability by actively seeking synergies across our engineering, purchasing, and manufacturing base.

We have strengthened the portfolio by acquiring critical assets, and we are utilizing our physical and intellectual capital to amplify innovation across the enterprise.

Leveraging these core elements can further expand the cost efficiencies of our common technologies and deliver a sustainable competitive advantage for Dana.

Driving customer centricity  continues to be at the heart of who we are.

Putting our customers at the center of our value system is firmly embedded in our culture and is driving growth by focusing on customer relationships and providing value to our customers.

These relationships are strengthened as we are physically located where we need to be in order to provide unparalleled service, and we are prioritizing our customers’

needs as we engineer solutions that differentiate their products, while making it easier to do business with Dana by digitizing their experience.

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.

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 as well as 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 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.

All the while, we have been making meaningful organic investments to grow with existing and new customers, primarily in Thailand, India, and China.

These added capabilities have enabled us to target the domestic Asia Pacific markets and utilize the capacity for export to other global markets. We continue to enhance and expand our global footprint, optimizing it to capture growth across all of our end markets.

Delivering innovative solutions  enables us to capitalize on market growth trends as we evolve our core technology capabilities.

We are also focused on enhancing our physical products with digital content to provide smart systems, and we see an opportunity to become a digital systems provider by delivering software as a service to our traditional end customers.

This focus on delivering solutions based on our core technology is leading to new business wins and increasing our content per vehicle.

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 last several years we continue to deliver on our goal to accelerate vehicle 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.

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

Capital Structure Initiatives

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.

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 —

When evaluating capital structure initiatives, we balance our growth opportunities and shareholder value initiatives with maintaining a strong balance sheet and access to capital.

Our strong financial position has enabled us to simplify our capital structure while providing returns to our shareholders in the form of cash dividends and a red uction in the number of shares outstanding.

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

Through September 30, 2021 , we have used cash of $73 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 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 and our share repurchase program in the third quarter of 2021.

Financing actions 

— 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.

During 2019, we terminated one of our U.S.

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. 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.

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.

In addition to investing in our business, we plan to prioritize a balanced allocation of capital while maintaining a strong financial position.

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

Shareholder return actions  — When evaluating capital structure initiatives, we balance our growth opportunities and shareholder value initiatives with maintaining a strong balance sheet and access to capital.

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

In response to the COVID pandemic, we temporarily suspended the declaration and payment of dividends to common shareholders and the repurchase of common stock under our $200 common stock share repurchase program.

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

In addition, we resumed the repurchase of common shares using $23 and $25 of cash to repurchase common shares under the program in 2021 and 2022, respectively.

The share repurchase program expires on December 31, 2023, and $102 remains available for future share repurchases as of March 31, 2022.

Financing actions  — We have taken advantage of competitive debt markets, eliminating our secured debt and extending and restructuring our senior note maturity schedule.

Our current portfolio of unsecured senior notes is structured such that no more than $400 of senior notes comes due in any calendar year, with no maturities until the second quarter of 2025.

In addition, we increased our revolving credit facility in 2021 to $1,150 and extended its maturity to March 25, 2026. See Note 12 to our consolidated financial statements in Item 1 of Part I for additional information.

Other Initiatives

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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 2021. 

Ashwoods Innovations Limited  —

On February 5, 2020, we acquired Curtis Instruments, Inc.'s (Curtis) 35.4% ownership interest in Ashwoods Innovations Limited (Ashwoods).

Ashwoods designs and manufactures permanent magnet electric motors for the automotive, material handling and off-highway vehicle markets.

The acquisition of Curtis' interest in Ashwoods, along with our existing ownership interest in Ashwoods, provided us with a 97.8% ownership interest and a controlling financial interest in Ashwoods.

We recognized a $3 gain to other income (expense), net on the required remeasurement of our previously held equity method investment in Ashwoods to fair value.

The total purchase consideration of $22 is comprised of $8 of cash paid to Curtis at closing, the $10 fair value of our previously held equity method investment in Ashwoods and $4 related to the effective settlement of a pre-existing loan payable due from Ashwoods.

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

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

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 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.

Dana will continue to consolidate Ashwoods as the governing documents continue to provide Dana with a controlling financial interest in this subsidiary.

See Acquisitions section above for a discussion of Dana's acquisition of Ashwoods.

Over the past several years we have actively grown our electric vehicle capabilities through multiple acquisitions, positioning us to deliver complete e-Propulsion systems with in-house electrodynamics.

Our acquisitions of Dana TM4 Inc.

(formerly TM4 Inc.), Dana TM4 Italia S.r.l.

(formerly S.M.E.

S.p.A.), Dana (Beijing) Electric Motor Co., Ltd.

(formerly Prestolite E-Propulsion Systems (Beijing) Limited), Ashwoods Innovations Ltd., Oerlikon Drive Systems, Nordresa Motors, Inc., Rational Motion GmbH and Pi Innovo Holding Limited have enhanced our portfolio of core technologies including e-motors, power inverters, software and controls, and advance mechatronics.

Our strategic partner, Hydro-Québec, owns 45% redeemable noncontrolling interests in Dana TM4 Inc., Dana TM4 Italia S.r.l., Dana (Beijing) Electric Motor Co., Ltd., and Ashwoods Innovations Ltd.

See Note 7 to our consolidated financial statements in Item 1 of Part I for additional information.

Trends in Our Markets

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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.

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

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

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 se gments 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 global full-frame light-truck production being up 6% with all regions improving over 2020, but falling short of 2019 levels due to the continued global semiconductor chip shortage.

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.

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.

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

During 2021, we generally saw improvement across all of our end markets despite production levels being muted by continued global supply chain disruptions driven in part by transportation inefficiencies and labor, commodity and semiconductor chip shortages.

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.

The impact of the COVID pandemic in 2020 saw the global light-truck market contract by 13% from 2019 levels.

During 2021, light-truck markets improved across all regions and were up 5% on a global basis compared to 2020.

The outlook for the full year of 2022 reflects global light-truck production to be up 13%, with growth across all regions, exhibiting a strong rebound returning to at or above 2019 levels as production constraints continue to ease, 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 23% 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 3% 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 64% 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 5% 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 mark ets —

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

The Class-8 truck market in North America peaked 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.

During 2021, production of Class-8 trucks increased 20% over 2020 as the impacts of COVID lessened and the economy exhibited improvement.

The outlook for 2022 is for stronger demand with production up 16% over the prior year driven by continued improving economic outlook and cyclical growth.

Medium-duty truck production in North America experienced a 20% year- over-year decline from 2019 to 2020, primarily due to COVID.

During 2021, production increased a modest 3% over 2020.

The outlook for 2022 is for a 10% increase in production over the prior year. Outside of North America, production of medium-and heavy-duty trucks in South America declined 22% in 2020 due to COVID and deteriorating economic conditions.

During 2021, production increased 76% over 2020 as the region recovered from the impact of the pandemic and the age of existing vehicles drove a replacement cycle for new trucks.

The outlook for South America is for a modest 3% increase in production from the prior year as local economic conditions remain relatively stable. In contrast to the rest of the world, Asia Pacific, driven by China, did not experience lower truck production in 2020, but output slowed by 8% in 2021 as production matched lower demand, primarily driven by India where the recovery from the pandemic has been slower than in China.

The 2022 outlook for Asia Pacific is for a 9% reduction in production from the prior year as the Indian market recovery continues to lag.

Off-highway markets  — Our off-highway business has a large presence outside of North America, with 65% of its 2021 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 12% 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 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.

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, with 2020 production ending down an additional 10%.

The global construction market began to rebound in 2021 with production up 12% over 2020.

The 2022 outlook has production demand in the global construction market showing continued strength with production increasing by 10% 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 2022.

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.

Continued low farm commodity prices drove a 7% reduction in production in 2020.

Farm subsidies in response to the global pandemic drove a 10% increase in production during 2021.

The outlook for 2022 is for end-market demand to improve by 6% compared to the prior year, as farm subsidies are expected to continue to bolster the commodity market and drive the replacement of aging equipment.

Foreign currency —

With 55% of our year-to-date 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 51% and 10% of our year-to-date 2021 non-U.S.

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

With 55% of our first quarter 2022 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 accounted for 51% of our first quarter 2022 non-U.S.

sales, while India, China and Brazil each accounted for 10%.

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 the first nine months of 2021, increasing sales by $157.

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

International currencies weakened against the U.S.

dollar in the first quarter of 2022, decreasing sales by $55.

A weaker euro, Thai baht and Indian rupee were partially offset by a stronger Brazilian real and Chinese renminbi.

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 2021 of approximately $85 are 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $29, including $11 of net fixed assets, at September 30, 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 quarter of 2022 of approximately $31 are 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $36, including $14 of net fixed assets, at March 31, 2022 . During the second quarter of 2018, we determined that Argentina's economy met the GAAP definition of a highly inflationary economy.

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

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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, respective ly.

Higher commodity prices decreased year-over-year third-quarter and first-nine-months earnings in 2021 by $116 and $221, while lower commodity prices increased year-over-year earnings by $13 and $35 in the same periods last year. Material cost recovery and other pricing actions increased year-over-year third-quarter and first-nine-months earnings in 2021 by $66 and $100, where as material cost recovery and other pricing actions decreased year-over-year earnings by $18 and $69 in the same periods last year.

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.

Whe re 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.

Commodity prices increased significantly during 2021, reducing year-over-year earnings by approximately $367.

Material recovery pricing actions increased year-over-year earnings by $271 in 2021.

Higher commodity prices decreased earnings in the first quarter of 2022 and 2021 by $138 and $35, respectively.

Material cost recovery pricing actions increased earnings in the first quarter of 2022 and 2021 by $122 and $18, respe ctively.

Sales, Earnings and Cash Flow Outlook

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Adjusted EBITDA

Net cash provided by operating activities (% of sales)

Net cash provided by operating activities

Discretionary pension contributions

Purchases of property, plant and equipment (% of sales)

Adjusted Free Cash Flow (% of sales)

Purchases of property, plant and equipment

Adjusted Free Cash Flow

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

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

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

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

Our 2021 sales outlook range has been narrowed to $8,800 to $9,000.

We currently expect sales will be near the mid point of the range reflecting strong end-market demand, an increased currency tail wind and additional material cost recovery.

We have lowered our full year 2021 adjusted EBITDA outlook to $815 to $875.

Adjusted EBITDA Margin is expected to be 9.5%, a 120 basis-point improvement over 2020, 

reflecting higher margin net new business and the benefit of year-over-year operational efficiencies being muted by continued global-supply-chain disruptions, labor shortages at certain of our facilities, constrained customer production due to the global semiconductor chip shortage and 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 $90, or approximately 1.0% of our sales for 2021. The benefit of higher year-over-year adjusted EBITDA will be partially offset by higher working capital requirements as we carry elevated levels of inventory, helping to mitigate continued global-supply-chain disruptions as well as labor shortages at certain of our facilities, ensuring continuous supply for our customers.

We continue to forecast 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 September 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.

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

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

Three Months Ended September 30,

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

generally accepted accounting principles (GAAP) measures.

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

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

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

We have decreased our full year 2022 adjusted EBITDA range to $770 - $870.

The $130 reduction reflects our expectation for continued commodity and non-material cost inflation through the balance of the year.

Our February 2022 outlook assumed commodity cost increases would begin to dissipate late in the year.

We have increased our 2022 sales range to $9,850 - $10,350.

The $225 increase reflects slightly improved global market demand and additional commodity recoveries relative to our February 2022 outlook.

Adjusted EBITDA Margin is now expected to be 8.1%, 80 basis-points lower than 2021, reflecting higher margin net new business and a modest benefit from material recovery and other pricing actions being more than offset by continued commodity cost increases and non-material inflation, including higher labor, energy, and transportation rates.

We now expect to generate adjusted free cash flow of approximately $215, or 2% of sales for 2022, reflecting the benefit of year-over-year higher adjusted EBITDA, at the mid point of the range, and lower year-over-year use of cash for working capital.

We continue to expect capital spending will be flat in comparison with 2021.

Summary Consolidated Results of Operations (First Quarter, 2022 versus 2021)

Three Months Ended March 31,

% of Net Sales

18 unchanged sentences

Three Months Ended

September 30,

Amount of Change Due To

5 unchanged sentences

South America

Sales in 2021 were $210 higher than in 2020.

Stronger international currencies increased sales by $22, principally due to a stronger Chinese renminbi, Brazilian real, South African rand and British pound.

Sales in 2022 were $217 higher than in 2021.

Weaker international currencies decreased sales by $55, principally due to a weaker euro, Thai baht and Indian rupee, partially offset by a stronger Brazilian real and Chinese renminbi.

The organic sales increase of $275, or 12%, resulted from improved heavy-vehicle market demand and the conversion of sales backlog.

Pricing actions, including material commodity price and inflationary costs adjustments, increased sales by $66.

The North America organic sales decrease of 2% was driven principally by weaker light- and medium-duty truck production volumes and lower light-vehicle engine production levels, partially offset by higher heavy-duty truck production and the conversion of sales backlog.

Third quarter full-frame light-truck production was down 16%, Classes 5-7 were down 15% and Class 8 was up 6% compared with the third quarter of 2020.

Light-vehicle engine production was down 20% compared with the third quarter of 2020.

Pricing actions and recoveries, including material commodity price and inflationary cost adjustments, increased sales by $160.

The North America organic sales increase of 6% was driven principally by stronger medium- and heavy-duty truck production volumes, higher light-vehicle engine production levels and the conversion of sales backlog, partially offset by lower light-duty truck production volumes.

First quarter 2022 Classes 5-7 and Class 8 truck production were up 4% and 2%, respectively, while light-vehicle engine production was up 2% compared with the first quarter of 2021.

Year-over-year full-frame light-truck production was down 1% in the first quarter of 2022.

Excluding currency effects, sales in Europe were up 17% compared with 2021.

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 23% compared with the third quarter of 2020.

Organic sales in this operating segment were up 23% compared with the first quarter of 2021.

A 1% decrease in year-over-year light-duty truck production levels and a 12% decrease in year-over-year light-vehicle engine production levels tempered our organic European sales increase.

Excluding currency effects, third quarter sales in South America increased 77% compared to 2020 due primarily to improved light- and medium/heavy-duty truck production.

Third-quarter light-truck production was up 7% and medium/heavy-truck production was up 78%.

Excluding currency effects, first quarter 2022 sales in South America increased 39% compared to 2021 due primarily to improved light- and medium/heavy-duty truck production.

First quarter light-duty truck production was up 9% and medium/heavy-duty truck production was up 26%.

Excluding currency effects and the impact of divestitures, sales in Asia Pacific increased 12% compared to 2021 due to a stronger construction/mining market.

The global semiconductor chip shortage impacted our third-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 third quarter of 2021 increased $218, or 12% when compared to 2020.

Cost of sales as a percent of sales was 140 basis points higher than in the previous year.

Incremental margins provided by increased sales volumes were offset by higher year-over-year commodity costs of $116, higher standard freight costs of $18 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. Continued material cost savings and supplier recoveries provided a partial offset, reducing costs of sales by approximately $28.

Gross margin of $206 for 2021 decreased $8 from 2020.

Gross margin as a percent of sales was 9.3% in 2021, 140 basis points lower than in 2020.

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

Gross margin during the third quarter of 2021 was negatively impacted by costs associated with continued 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 third 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.

Cost of sales for the first quarter of 2022 increased $271, or 13%, when compared to 2021.

Cost of sales as a percent of sales was 320 basis points higher than in the previous year.

Incremental margins provided by increased sales volumes were more than offset by higher year-over-year commodity costs of $138, non-material inflationary cost impacts of $70 and operational inefficiencies primarily attributable to continued global supply chain disruptions and frequent customer order changes made with little to no advance notification.

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

Non-material inflation includes higher labor, energy and transportation rates.

Continued material cost savings provided a partial offset, reducing costs of sales by approximately $19.

Gross margin of $197 for the first quarter of 2022 decreased $54 from 2021.

Gross margin as a percent of sales was 7.9% in the first quarter of 2022, 320 basis points lower than in 2021.

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

In addition, gross margin during 2022 was negatively impacted by material cost recovery mechanisms with our customers lagging material costs increases charged by our suppliers by approximately 90 days.

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

SG&A expenses in 2021 were $103 (4.7% of sales) as compared to $111 (5.6% of sales) in 2020. 

SG&A expenses were $8 lower in 2021 primarily due to lower incentive compensation, partially offset by higher salaried employee wages and benefits, travel expenses and professional fees.

SG&A expenses in 2022 were $130 (5.2% of sales) as compared to $119 (5.3% of sales) in 2021. 

SG&A expenses were $11 higher in 2022 primarily due to higher salaried employee wages and benefits, increased trade show and marketing activities, and higher travel expenses and professional fees.

Amortization of intangibles —

Amortization expense was $4 in both 2021 and in 2020.

Amortization expense was $4 in both 2022 and 2021.

Restructuring charges, net  — 

Net restructuring charges of $1 and $2 in the third quarter of 2021 and 2020, respectively, were primarily comprised of exit costs related to previously announced actions.

Net restructuring charges were ($1) in the first quarter of 2022 and $1 in the first quarter of 2021.

Other income (expense), net —

1 unchanged sentence

Three Months Ended

September 30,

Non-service cost components of pension and OPEB costs

Government grants and incentives

Foreign exchange gain (loss)

Foreign exchange gain

Strategic transaction expenses

Loss on investment in Hyliion

Loss on disposal group held for sale

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 integration costs.

Strategic transaction expenses in 2022 were primarily attributable to investigating potential acquisitions and business ventures and other strategic initiatives.

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.

3 unchanged sentences

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

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

During the third quarter of 2021, we sold all of our Hyliion shares.

See Note 11 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 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 disposal of this business in April 2021.

Interest income and interest expense 

Interest income was $2 in 2021 and $3 in 2020.

Interest expense decreased from $38 in 2020 to $31 in 2021, primarily due to lower debt levels and to a lesser extent lower interest rates on outstanding borrowings.

Interest income was $2 in both 2022 and 2021.

Interest expense decreased from $34 in 2021 to $31 in 2022, primarily due to lower interest rates on outstanding borrowings, partially offset by higher debt levels.

Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 4.6% in 2022 and 5.5% in 2021.

Income tax expense  — We reported income tax expense of $20 and $16 for 2021 and 2020, respectively. Our effective tax rates were 31% and 30% for the third quarter of 2021 and 2020.

Income tax expense  — We reported income tax expense of $18 and $22 for the first quarter of 2022 and 2021, respectively. Our effective tax rates were 49% and 29% for the first quarter of 2022 and 2021.

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.

federal statutory rate of 21% due to establishment, release and adjustment of valuation allowances 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 $1 in 2022 and $14 in 2021.

Equity in earnings from DDAC was $3 in 2021 and $6 in 2020.

Equity earnings from Bendix Spicer Foundation Brake, LLC (BSFB) was $1 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)

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

Other income (expense), net

Earnings 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.

Nine Months Ended

September 30,

Amount of Change Due To

Increase/ (Decrease)

Currency Effects

Acquisitions (Divestitures)

Organic Change

North America

South America

Sales in 2021 were $1,674 higher than in 2020.

Stronger international currencies increased sales by $157, 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 $1,534, or 31%, 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 $100.

The North America organic sales increase of 24% 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-nine-months full-frame light-truck production was up 20%, Classes 5-7 were up 8% and Class 8 was up 33% compared with the first nine months of 2020.

Light-vehicle engine production was up 10% compared with the first nine months of 2020.

Excluding currency effects and the impact of acquisitions, sales in Europe were up 27% 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 29% compared with the first nine months of 2020. A 10% increase in year-over-year light-vehicle engine production levels also contributed to our organic European sales increase.

Excluding currency effects, first-nine-months sales in South America increased 83% compared to 2020 due primarily to improved light- and medium/heavy-duty truck production.

First-nine-months 2021 light-truck production was up 58% and medium/heavy-truck production was up 95%.

Excluding currency effects and the impact of divestitures, sales in Asia Pacific increased 47% compared to 2020 due to improved light-truck production and stronger construction/mining and agricultural markets.

First-nine-months 2021 light-truck production was up 12%.

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

Cost of sales and gross margin —

Cost of sales for the first nine months of 2021 increased $1,375, or 30% when compared to 2020.

Cost of sales as a percent of sales was 240 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 $221, higher standard and premium freight costs of $61 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 $104.

Gross margin of $709 for 2021 increased $299 from 2020.

Gross margin as a percent of sales was 10.6% in 2021, 240 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 nine months of 2021 was negatively impacted by costs associated with continued 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 nine months 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 $348 (5.2% of sales) as compared to $299 (6.0% of sales) in 2020.

SG&A expenses were $49 lower in 2020 primarily due to lower 

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

Amortization of intangibles

Amortization expense was $11 in 2021 and $10 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 $2 in 2021 and $21 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 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.

Nine Months Ended

September 30,

Non-service cost components of pension and OPEB costs

Government grants and incentives

Foreign exchange gain

Strategic transaction expenses

Loss on investment in Hyliion

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 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 was included in marketable securities and carried at fair value with changes in fair value included in net income. During the third quarter of 2021, we sold all of our Hyliion shares.

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.

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 $6 in 2021 and $7 in 2020.

Interest expense was $99 in both 2021 and 2020, with lower debt levels in 2021 offset by higher interest rates.

Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.3% in 2021 and 4.9% 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 2.65% during the first nine months of 2020, in the fourth quarter of 2020.

Income tax expense

 — We reported income tax expense of $56 and $34 for the first nine months of 2021 and 2020, respectively. Our effective tax rates were 28% and (46)% for the first nine 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 2020 we recorded an income tax expense of $56 for valuation allowances in foreign jurisdictions due to reduced income projections. Excluding these items, the effective tax rate would have been (45)% for the first nine months of 2020. Our effective income tax rates vary from 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 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 $29 in 2021 and $17 in 2020.

Equity in earnings from DDAC was $24 in 2021 and $14 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 $4 in 2020.

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

Equity in earnings from DDAC was $1 in 2022 and $13 in 2021.

The decrease in DDAC's earnings is due to lower year-over-year sales driven by significant 2021 medium- and heavy-duty vehicle pre-buy activity in advance of new emission standards going into effect in China and Chinese government incentives driving new construction and infrastructure projects in 2021, increasing the demand for medium- and heavy-duty vehicles.

Segment Results of Operations (2022 versus 2021)

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Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Product line transfer

Currency effects

Light Vehicle sales in the third quarter and first nine months of 2021, exclusive of currency effects and the impact of divestitures, were 1% and 35% higher than the same period of 2020 reflecting weaker global markets in the third quarter of 2021, improved global markets in the first nine months of 2021, and the conversion of sales backlog in both periods.

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 decreased 16% in this year’s third quarter while light-truck production in Europe and Asia Pacific decreased 15% and 14%, respectively, while light-truck production in South America increased 7%.

Year-over-year North America full-frame light-truck production increased 20% in this year’s first nine months while light-truck production in Europe, South America and Asia Pacific increased 19%, 58% and 12%, respectively.

Net customer pricing and cost recovery actions further increased year-over-year sales by $14 and $16 in this year’s third quarter and first nine months, respectively.

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

Light Vehicle third-quarter 2021 segment EBITDA decreased by $35 from last year, with first-nine-months earnings higher by $101.

Lower sales volumes decreased year-over-year earnings by $6 (50.0% decremental margin) in the third quarter of 2021.

Higher sales volumes provided a year-over-year benefit of $151 (21.9% incremental margin) in the first nine months of 2021. Year-over-year performance-related earnings decreases in the third quarter were driven by commodity cost increases of $53, higher standard freight costs of $5, operational inefficiencies of $4, higher program launch costs of $3 and benefits of austerity measures taken in response to the global COVID-19 pandemic during 2020 not repeating in 2021 of $2.

Offsetting these performance-related decreases were net customer pricing and material cost recovery actions of $14, material cost savings and supplier recoveries of $13, lower incentive compensation of $6, lower premium freight costs of $4 and lower warranty costs of $2. The year-over-year performance-related earnings decrease in the first nine months was driven by commodity cost increases of $101, higher standard freight costs of $21, higher program launch costs of $6, 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 $8, respectively and higher warranty costs of $3.

Partially offsetting these performance-related decreases were material cost savings and supplier recoveries of $61, net customer pricing and material cost recovery actions of $16, operational efficiencies of $14 and lower premium freight costs of $1.

Light Vehicle sales in the first quarter of 2022, exclusive of currency effects, the impact of divestitures and the product line transfer to Commercial Vehicle, were 3% higher than 2021 reflecting generally weaker global markets being partially offset by the conversion of sales backlog.

Year-over-year North America full-frame light-truck production decreased 1% while light-truck production in Europe and Asia Pacific decreased 1% and 2%, respectively, and light-truck production in South America increased 9%.

Net customer pricing and cost recovery actions increased year-over-year sales by $56.

Light Vehicle first-quarter segment EBITDA decreased by $69 in 2022.

Lower sales volumes decreased year-over-year earnings by $9 (35% decremental margin).

The year-over-year performance-related earnings decrease was driven by commodity cost increases of $61, inflationary cost increases of $20, higher program launch costs of $2, higher premium freight costs of $2 and operational inefficiencies of $37.

Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $56, material cost savings of $7 and lower warranty costs of $1.  

Commercial Vehicle

1 unchanged sentence

Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Acquisitions/Divestitures

Product line transfer

Currency effects

Commercial Vehicle sales in the third quarter and first nine months of 2021, exclusive of currency effects and the impact of acquisitions and divestitures, were 23% and 32% higher than the same period of 2020 reflecting mixed global markets in the third quarter of 2021, improved global markets in the first nine months of 2021, and the conversion of sales backlog in both periods.

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 6% and Classes 5-7 were down 15% in this year’s third quarter.

Year-over-year North America Class 8 production was up 33% and Classes 5-7 were up 8% in the first nine months of this year.

Year-over-year medium/heavy-truck production in Europe and South America were up 3% and 78%, respectively, while production in Asia Pacific was down 39% in this year’s third quarter.

Year-over-year medium/heavy-truck production in Europe, South America and Asia Pacific were up 16%, 95% and 5%, respectively, in the first nine months of this year.

Net customer pricing and cost recovery actions further increased year-over-year sales by $28 and $52 in this year’s third quarter and first nine months, respectively.

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

Commercial Vehicle third-quarter 2021 segment EBITDA increased by $3 from last year, with first-nine-months earnings higher by $21.

Higher sales volumes provided a year-over-year benefit of $13 (25.5% incremental margin) and $62 (27.1% incremental margin) in the third quarter and first nine months of 2021.

The year-over-year performance-related earnings decrease in the third quarter was driven by commodity cost increases of $31, operational inefficiencies of $9, higher standard and premium freight costs of $8 and benefits of austerity measures taken in response to the global COVID-19 pandemic during 2020 not repeating in 2021 of $1.

Partially offsetting these performance-related decreases were net customer pricing and material cost recovery actions of $28, material cost savings of $5, lower incentive compensation of $4 and lower warranty costs of $1.

The year-over-year performance-related earnings decrease in the first nine months was driven by commodity cost increases of $60, higher standard and premium freight costs of $24, operational inefficiencies of $14 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 $9, respectively.

Partially offsetting these performance-related decreases were net customer pricing and material cost recovery actions of $52, material cost savings of $13 and lower warranty costs of $1.

Segment EBITDA

Segment EBITDA Margin

Commercial Vehicle sales in the first quarter of 2022, exclusive of currency effects and the product line transfer from Light Vehicle, were 26% higher than 2021 reflecting mixed global markets.

Year-over-year North America Class 8 production was up 2% and Classes 5-7 production was up 4%.

Year-over-year medium/heavy-truck production in South America was up 26%.

Year-over-year medium/heavy-truck production in Europe and Asia Pacific were down 8% and 40%, respectively.

Net customer pricing and cost recovery actions further increased year-over-year sales by $41.

Commercial Vehicle first-quarter segment EBITDA decreased by $5 in 2022.

Higher sales volumes increased year-over-year earnings by $10 (20% incremental margin).

The year-over-year performance-related earnings decrease was driven by commodity cost increases of $33, inflationary cost increases of $20, higher incentive compensation of $1 and operational inefficiencies of $15.

Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $41, lower premium freight costs of $7 and material cost savings of $4.

Segment EBITDA

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Currency effects

Off-Highway sales in the third quarter and first nine months of 2021, exclusive of currency effects and the impact of acquisitions, were 23% and 29% 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 $21 and $28 in this year’s third quarter and first nine months, respectively.

Off-Highway third-quarter 2021 segment EBITDA increased by $36 from last year, with first-nine-months earnings higher by $104.

Higher sales volumes provided a year-over-year benefit of $20 (22.0% incremental margin) and $94 (24.7% incremental margin) in the third quarter and first nine months of 2021.

The year-over-year performance-related earnings increase in the third quarter was driven by net customer and material cost recovery actions of $21, operational efficiencies of $17, material cost savings of $8 and lower incentive compensation of $4.

Partially offsetting these performance-related increases were commodity cost increases of $23, higher standard and premium freight costs of $6, higher warranty costs of $5 and benefits of austerity measures taken in response to the global COVID-19 pandemic during 2020 not repeating in 2021 of $1.

The year-over-year performance-related earnings increase in the first nine months was driven by net customer and material cost recovery actions of $28, material cost savings of $23 and operational efficiencies of $22.

Partially offsetting these performance-related increases were commodity cost increases of $44, higher standard and premium freight costs of $9, 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 $12, respectively, and higher warranty costs of $5.

Off-Highway sales in the first quarter of 2022, exclusive of currency effects, were 23% higher than 2021 reflecting improved global markets and the conversion of sales backlog.

Year-over-year global construction/mining and agricultural equipment markets reflected marked improvement with global production increasing 10% and 6%, respectively.

Net customer pricing and cost recovery actions further increased year-over-year sales by $53.

Off-Highway first-quarter segment EBITDA increased by $21 in 2022.

Higher sales volumes increased year-over-year earnings by $24 (26% incremental margin).

The year-over-year performance-related earning increase was driven by net customer pricing and cost recovery actions of $53, material cost savings of $7 and lower warranty costs of $2.

Partially offsetting these performance-related increases were commodity cost increases of $30, inflationary cost increases of $25, higher premium freight costs of $4 and operational inefficiencies 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.

Power Technologies sales in the third quarter of 2021, exclusive of currency effects, were flat compared to the same period last year.

Sales in the first nine months of 2021, exclusive of currency effects, were 20% higher than the same period of 2020 reflecting improved global markets and the conversion of sales backlog.

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 down 20%, 21%, 20% and 15%, respectively, in this year’s third quarter.

Year-over-year North America, Europe, South America and Asia Pacific light-vehicle engine production was up 10%, 10%, 23% and 10%, respectively, in the first nine months of this year.

Net customer pricing and cost recovery actions further increased year-over-year sales by $3 and $4 in this year’s third quarter and first nine months, respectively.

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

Power Technologies third-quarter 2021 segment EBITDA increased by $4 from last year, with first-nine-months earnings higher by $48.

Lower sales volumes decreased year-over-year earnings by $3 (30.0% decremental margin) in the third quarter of 2021.

Higher sales volumes provided a year-over-year benefit of $43 (36.1% incremental margin) in the first nine months of 2021. The year-over-year performance-related earnings increase in the third quarter was driven by operational efficiencies of $8, net customer pricing and material recovery actions of $3, lower incentive compensation of $3, material cost savings of $2 and lower warranty costs of $2.

Partially offsetting these performance-related increases were commodity cost increases of $9 and higher standard and premium freight costs of $3.

The year-over-year performance-related earnings increase in the first nine months was driven by operational efficiencies of $21, material cost savings of $7, net customer pricing and material cost recovery actions of $4 and lower warranty costs of $4.

Partially offsetting these performance-related increases were commodity cost increases of $16, higher standard and premium freight costs of $8, 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, and higher incentive compensation of $2.

Power Technologies sales in the first quarter of 2022, exclusive of currency effects, were 3% higher than 2021 reflecting generally weaker global markets partially offset by the conversion of sales backlog.

Year-over-year Europe, South America and Asia Pacific light-vehicle engine production was down 12%, 11% and 3% compared to 2021.

Year-over-year North America light-vehicle engine production was up 2% compared to 2021.

Net customer pricing and cost recovery actions increased year-over-year sales by $10.

Power Technologies first-quarter segment EBITDA decreased by $12 in 2022.

Lower sales volumes had a negligible impact on earnings.

The year-over-year performance-related decrease was driven by commodity cost increases of $14, inflationary cost increases of $5, higher warranty costs of $1, higher program launch costs of $1 and operational inefficiencies of $2.

Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $10, material cost savings of $1 and lower premium freight costs of $1.

Non-GAAP Financial Measures

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Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Equity in earnings of affiliates

Income tax expense

Earnings (loss) before income taxes

Earnings 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

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

Nine Months Ended

September 30,

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 September 30, 2021:

The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at March 31, 2022:

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 had availability of $1,077 at September 30, 2021  under the Revolving Facility after deducting $52 of outstanding borrowings and $21 of outstanding letters of credit.

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

We had availability of $864 at March 31, 2022  under the Revolving Facility after deducting $265 of outstanding borrowings and $21 of outstanding letters of credit.

The components of our March 31, 2022 consolidated cash balance were as follows:

Cash and cash equivalents

Cash and cash equivalents held as deposits

Cash and cash equivalents held at less than wholly-owned subsidiaries

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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.

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 September 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.

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.

At March 31, 2022, we were in compliance with the covenants of our financing agreements.

Under 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 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.

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

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 con sideration.

In addition, we may enter into sale-leaseback transactions related to certain of our real estate holdings.

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.

In addition, we may enter into sale-leaseback transactions related to certain of our real estate holdings and factor receivables.

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 (used in) financing activities

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

Net decrease in cash, cash equivalents and restricted cash

Operating activities —

Exclusive of working capital, other cash provided by operations was $520 in 2021 and $245 in 2020.

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

Working capital used cash of $501 and $50 in 2021 and 2020.

Cash of $253 and $120 was used to finance receivables in 2021 and 2020, respectively.

The higher level of cash used to finance receivables in 2021 is due to higher year-over-year third quarter sales driven by strong heavy-vehicles markets.

Cash of $441 was used to fund higher inventory levels during 2021, while cash of $105 was provided by lower inventory levels in 2020.

We are carrying higher levels of inventory in 2021 to mitigate continued global-supply-chain disruptions as well as labor shortages at certain of our facilities, ensuring continuous supply for our customers.

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 $193 in 2021, while decreases in accounts payable and other net liabilities used cash of $35 in 2020.

The increase in accounts payable and other net liabilities in 2021 was principally driven by higher raw material purchases in the second and third quarters.

Investing activities — 

Expenditures for property, plant and equipment were $228 and $181 during 2021 and 2020.

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

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, we acquired a 1% ownership interest in Switch Mobility Limited for $18.

During 2021, we sold all of our Hyliion shares for $29.

During 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.

Exclusive of working capital, other cash provided by operations was $90 in 2022 and $160 in 2021.

The year-over-year decrease is primarily attributable to lower operating earnings.

Working capital used cash of $211 and $133 in 2022 and 2021.

Cash of $325 and $257 was used to finance receivables in 2022 and 2021, respectively.

The higher level of cash used to finance receivables in 2022 is due to higher year-over-year first quarter sales driven by strong heavy-vehicles markets.

Cash of $63 and $137 was used to fund higher inventory levels in 2022 and 2021, respectively.

We are carrying higher levels of inventory to mitigate continued global-supply-chain disruptions, ensuring continuous supply for our customers.

Increases in accounts payable and other net liabilities provided cash of $177 and $261 in 2022 and 2021, respectively.

The increase in accounts payable and other net liabilities in 2022 was principally driven by higher raw material purchases in the first quarter of 2022.

Investing activities — Expenditures for property, plant and equipment were $116 and $53 during first quarter of 2022 and 2021.

The increase in capital spending during the first quarter of 2022 is in support of awarded next generation programs and new business.

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 provided us with a 100% ownership interest in Pi Innovo. During the first quarter of 2022 and 2021, purchases of marketable securities were largely funded by proceeds from sales and maturities of marketable securities.

Financing activities 

— 

During 2021, we had net borrowings of $52 on our Revolving Facility.

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 $8.

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

We subsequently terminated the bridge facility.

We used $44 and $15 for dividend payments to common stockholders during 2021 and 2020.

We used cash of $23 to repurchase common shares under our share repurchase program in 2021.

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.

Distributions to noncontrolling interests totaled $10 in both 2021 and 2020.

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

During 2021, we sold a portion of our ownership interest in Tai Ya Investment (HK) Co., Limited (Tai Ya) to China Motor Corporation, reducing our ownership interest in Tai Ya to 50%.

In conjunction with the decrease in our ownership interest, the Tai Ya shareholders agreement was amended, eliminating our controlling financial interest in Tai Ya.

Upon our loss of control, we deconsolidated Tai Ya, including $6 of cash and cash equivalents.

— During the first quarter of 2022, we had net borrowings of $265 on our Revolving Facility.

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

We used cash of $14 for dividend payments to common stockholders during both the first quarter of 2022 and 2021.

We used cash of $25 to repurchase common shares under our share repurchase program during the first quarter of 2022.

Off-Balance Sheet Arrangements

There have been no material changes at September 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.

There have been no material changes at March 31, 2022 in our off-balance sheet arrangements from those reported or estimated in the disclosures in Item 7 of our 2021 Form 10-K.

Contractual Obligations

During the second quarter of 2021, we completed the sale of $400 of our September 2030 Notes and €325 of our July 2029 Notes and redeemed all $425 of our December 2024 Notes and all $375 of our June 2026 Notes. See Note 12 to our consolidated financial statements in Item 1 of Part I for additional information.

There have been no material changes in our contractual obligations from those disclosed in Item 7 of our 2021 Form 10-K.

Contingencies

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See Item 7 in our 2021 Form 10-K for a description of our critical accounting estimates and Note 1 to our consolidated financial statements in Item 8 of our 2021 Form 10-K for our significant accounting policies.

There were no changes to our critical accounting estimates in the nine months ended September 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 nine months of 2021. 

There were no changes to our critical accounting estimates in the three months ended March 31, 2022.

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 2022. 

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis