What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-28 compared with 2022-10-27 · 153 added, 344 removed, 270 unchanged (65% 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 world leader in providing power-conveyance and energy-management solutions for vehicles and machinery.

Dana, with history dating back to 1904, is headquartered in Maumee, Ohio. 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);

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We have a diverse customer base and geographic footprint which minimizes our exposure to individual market and segment declines.

At September 30, 2022, we employed approxim ately 42,300 people, operated in 32 countries and had 140 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, 2022 and 2021 are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

At March 31, 2023, we employed approximately 42,800 people and operated in 31 countries.

External sales by operating segment for the periods ended March 31, 2023 and 2022 are as follows:

Three Months Ended March 31,

Light Vehicle

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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 September 30, 2022.

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

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

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.

We have a $1,150 revolving credit facility that matures on March 14, 2028. See Note 10 to our consolidated financial statements in Item 1 of Part I for additional information.

Other Initiatives

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Selective acquisitions —

Although transformational opportunities like the GKN plc driveline business transaction that we pursued in 2018 will be considered when strategically and economically attractive, our acquisition focus is principally directed at “bolt-on”

Although transformational opportunities will be considered when strategically and economically attractive, our acquisition focus is principally directed at “bolt-on”

or adjacent acquisition opportunities that have a strategic fit with our existing core businesses, particularly opportunities that support our enterprise strategy and enhance the value proposition of our product offerings.

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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.

Our acquisitions of TM4 Inc.

(TM4), S.M.E.

(SME), Prestolite E-Propulsion Systems (Beijing) Limited (PEPS), Ashwoods Innovations Limited (Ashwoods), 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 the Dana TM4 joint venture entities.

See Note 6 to our consolidated financial statements in Item 8 for additional information.

Trends in Our Markets

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Key market drivers include regional economic growth rates;

cost and availability of end customer financing;

industrial output;

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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.

During 2022, we continued to see incremental improvements across our end markets despite continuing, but lessening, global supply chain disruptions.

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 2022, light-truck markets improved across all regions and were up 6% on a global basis compared to 2021.

The outlook for the full year of 2022 reflects global light-truck production to be up 8%, with growth across all regions, exhibiting a moderate rebound as production constraints continue to ease, inventory begins to return to more normal levels, and constrained customer demand is fulfilled.

The outlook for the full year of 2023 reflects global light-truck production being relatively stable across all regions, as production constraints continue to ease, vehicle inventories return 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 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 21% 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 production to be flat with 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 1% 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 26% reduction in production from the prior year as China experiences COVID lockdowns and the Indian market recovery continues to lag. 

During 2022, production of Class-8 trucks in North America increased 24% over 2021 reflecting increased demand driven by strong transport and construction activity resulting from higher freight volumes and rates and increased fleet utilization levels.

The strong demand was muted by continued global supply chain disruptions.

The outlook for 2023 is for continued strong demand with production slightly above 2022 levels driven by solid order backlogs.

Medium-duty truck production in North America experienced a modest 3% year-over-year increase from 2021 to 2022.

The outlook for 2023 is for a slight increase in production over the prior year.

Outside of North America, production of medium- and heavy-duty trucks in South America declined 3% in 2022 as demand moderated following a significant ramp up in production in 2021 with the dissipation of the COVID pandemic in the region.

The 2023 outlook for South America is for a modest 1% increase in production from 2022 as local economic conditions remain relatively stable.

Production of medium- and heavy-duty trucks in Asia Pacific, driven by China and India, decreased 27% in 2022 compared to 2021 due to China experiencing COVID outbreaks in certain regions and India’s continued struggles to recover from the pandemic.

The 2023 outlook for Asia Pacific is for a modest increase in production from the prior year driven by the market recovery in India gaining traction.

Off-highway markets  — Our off-highway business has a large presence outside of North America, with 66% of its 2022 sales coming from products manufactured in Europe;

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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.

The global construction equipment market continued to rebound in 2022 with production up 10% over the prior year.

The outlook for 2023 is for continued modest growth.

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 2023.

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.

Farm commodity price increases in 2022 spurred a 6% increase in agriculture equipment production.

The outlook for 2023 is for global end-market demand to remain relatively flat with the prior year.

Foreign currency —

With 54% of our year-to-date 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 49% of our year-to-date 2022 non-U.S.

sales, while Brazil, India and China accounted for 11%, 10% and 9%, respectively. Although sales in South Africa are less than 5% of our non-U.S.

With 58% of our first quarter 2023 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 52% of our first quarter 2023 non-U.S.

sales, while India, Brazil and China accounted for 11%, 8% and 7%, respectively. Although sales in South Africa are less than 5% of our non-U.S.

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

International currencies weakened against the U.S.

dollar in the first nine months of 2022, decreasing sales by $292.

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

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

International currencies including the euro, Indian rupee, Chinese renminbi and South African rand, weakened against the U.S.

dollar in the first quarter of 2023, decreasing sales by $75.

Argentina has experienced signific ant 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 2022 of approximately $109 are 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $42, including $18 of net fixed assets, at September 30, 2022 . 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 2023 of approxi mately $39 are 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $48, including $19 of net fixed assets, at March 31, 2023. During the second quarter of 2018, we determined that Argentina's economy met the GAAP definition of a highly inflationary economy.

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

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

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

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

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

Nonmonetary assets and liabilities are remeasured into U.S.

dollar using historic Argentine peso exchange rates. 

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.

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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.

Higher commodity prices decreased year-over-year third-quarter and first-nine-months earnings in 2022 by $113 and $396.

Material recovery pricing actions increased year-over-year third-quarter and first-nine-months earnings in 2022 by $134 and $398.

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. Higher commodity prices decreased year-over-year earnings by $447 in 2022.

Material recovery pricing actions increased year-over-year earnings by $446 in 2022.

Lower commodity prices increased earnings during the first quarter of 2023 by $8.

Material cost recovery pricing actions increased earnings in the first quarter of 2023 by $5.

Sales, Earnings and Cash Flow Outlook

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Purchases of property, plant and equipment

Adjusted Free Cash Flow

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

Free Cash Flow

Adjusted EBITDA and 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.

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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-GA AP guidance. 

Our full year 2022 adjusted EBITDA range of $700 - $740 remains unchanged from our July 2022 outlook and reflects our expectation for continued commodity and non-material cost inflation through the balance of the year.

The midpoint of our sales range remains unchanged from our July 2022 outlook at $10,100. Adjusted EBITDA Margin is expected to be 7.1%, 180 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 expect to generate adjusted free cash flow of approximately $200, or 2% of sales for 2022, reflecting lower year-over-year use of cash for working capital, partially offset by lower year-over-year adjusted EBITDA, at the midpoint of the range.

We expect capital spending will be higher than 2021, as we make investments to support awarded programs and continue to invest in electrification.

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

Three Months Ended September 30,

Our 2023 sales, adjusted EBITDA and free cash flow guidance ranges remain unchanged from those provided in February 2023.

Our 2023 sales outlook is $10,350 to $10,850, reflecting a modest improvement in global market demand, continued material and inflationary cost recoveries and $300 of net new business backlog.

At our current sales outlook for 2023, we expect full year 2023 adjusted EBITDA to approximate $750 to $850.

Adjusted EBITDA Margin is expected to be 7.5% at the midpoint of our guidance range, a 60 basis-point improvement over 2022, reflecting higher margin net new business and the benefit of material cost recoveries as commodity costs begin to abate being partially offset by continued operational inefficiencies, driven by continuing global supply chain disruptions and customer order volatility, and increased investment to support our electrification strategy.

We expect to generate free cash flow of approximately $25 at the midpoint of our guidance range reflecting the benefit of higher year-over-year adjusted EBITDA being largely offset by higher capital spending to support new business and our continued investment in our electrification strategy.

Summary Consolidated Results of Operations (First Quarter, 2023 versus 2022)

Three Months Ended March 31,

% of Net Sales

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Restructuring charges, net

Impairment of goodwill

Other income (expense), net

Earnings (loss) before interest and income taxes

Earnings before interest and income taxes

Interest income

Interest expense

Earnings (loss) before income taxes

Earnings before income taxes

Income tax expense

Equity in earnings (loss) of affiliates

Net income (loss)

Equity in earnings of affiliates

Noncontrolling interests net income

Redeemable noncontrolling interests net loss

Net income (loss) attributable to the parent company

Net income attributable to the parent company

Sales —

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Three Months Ended

September 30,

Amount of Change Due To

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South America

Sales in 2022 were $331 higher than in 2021.

Weaker international currencies decreased sales by $139, principally due to a weaker euro, Indian rupee, Thai baht, Chinese renminbi and South African rand. The organic sales increase of $470, or 21%, resulted from improved global construction/mining and agricultural markets, improved North America full-frame light-truck and commercial-vehicle demand, improved South America commercial-vehicle demand and the conversion of sales backlog.

Pricing actions and recoveries, including material commodity price and inflationary cost adjustments, increased sales by $229.

The North America organic sales increase of 19% was driven principally by stronger light-, medium- and heavy-duty truck production volumes, higher light-vehicle engine production levels and the conversion of sales backlog.

Third quarter 2022 full-frame light-truck production was up 20% while light-vehicle engine production was up 30% compared with the third quarter of 2021.

Year-over-year Class 8 truck production was up 35% while Classes 5-7 truck production was up 6%.

Sales in 2023 were $164 higher than in 2022.

Weaker international currencies decreased sales by $75, principally due to a weaker euro, Indian rupee, South African rand and Chinese renminbi.

The organic sales increase of $239, or 10%, resulted from improved global construction/mining equipment markets, improved commercial vehicle demand primarily in North America and Europe, higher global light-vehicle engine production and the conversion of sales backlog. Pricing actions and recoveries, including material commodity price and inflationary cost adjustments, increased sales by $110.

The North America organic sales increase of 2% was driven principally by stronger light-, medium- and heavy-duty truck production volumes, higher light-vehicle engine production levels and the conversion of sales backlog, partially offset by a full-frame light-truck customer program that ended in 2022. First quarter 2023 full-frame light-truck production was up 4% while light-vehicle engine production was up 13% compared to the first quarter of 2022.

Year-over-year Class 8 truck production was up 17% while Classes 5-7 truck production was up 8%.

Excluding currency effects, sales in Europe were up 21% compared with 2022.

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 2021.

Excluding currency effects, third quarter 2022 sales in South America increased 28% compared to 2021 due primarily to improved light- and medium/heavy-duty truck production.

Third quarter light-duty truck production was up 36% and medium/heavy-duty truck production was up 5% compared with the third quarter of 2021. Excluding currency effects, sales in Asia Pacific increased 20% compared to 2021 due to stronger construction/mining and agricultural markets and higher medium/heavy-duty truck related sales despite overall medium/heavy-duty truck production volumes declining 9% compared to 2021.

With our significant Off-Highway presence in the region, a stronger construction/mining equipment market was a major factor.

Organic sales in this operating segment were up 18% compared with the first quarter of 2022.

Excluding currency effects, first quarter sales in South America were comparable to 2022 reflecting relative stability in the region.

Excluding currency effects, sales in Asia Pacific increased 17% compared to 2022 due to a stronger construction/mining market and higher light-truck sales despite overall light-truck production volumes being flat year-over-year. 

Cost of sales and gross margin —

Cost of sales for the third quarter of 2022 increased $334, or 17%, when compared to 2021.

Cost of sales as a percent of sales was 130 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 $113, non-material inflationary cost impacts of $104 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 and supplier recoveries provided a partial offset, reducing costs of sales by approximately $21.

Gross margin of $203 for the third quarter of 2022 decreased $3 from 2021.

Gross margin as a percent of sales was 8.0% in the third quarter of 2022, 130 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.

Cost of sales for the first quarter of 2023 increased $132, or 6%, when compared to 2022.

Cost of sales as a percent of sales was 80 basis points lower than in the previous year.

Incremental margins provided by increased sales volumes, material cost savings of $29, lower commodity costs of $8, lower premium freight of $7 and lower spending on electrification initiatives of $7 were partially offset by non-material inflationary cost impacts of $96, higher warranty expense of $12, higher program launch costs of $9 and operational inefficiencies primarily attributed to continued global supply chain disruptions and frequent customer order changes made with little to no advance notification.

Commodity cost are primarily driven by certain grades of steel and aluminum.

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

Gross margin of $229 for the first quarter of 2023 increased $32 from 2022.

Gross margin as a percent of sales was 8.7% in the first quarter of 2023, 80 basis points higher than in 2022.

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

Material cost recovery mechanisms with our customers lag material cost changes by our suppliers by approximately 90 days.

With commodity costs abating slightly during the third quarter of 2022, gross margin was positively impacted by net material cost recoveries on both a dollar and percentage basis. The recovery of non-material inflation is not specifically provided for in our current contracts with customers resulting in prolonged negotiations and indeterminate recoveries.

With commodity costs abating slightly during the first quarter of 2023, gross margin was positively impacted by net material cost recoveries on both a dollar and percentage basis. The recovery of non-material inflation is not specifically provided for in our current contracts with customers resulting in prolonged negotiations and indeterminate recoveries.

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

SG&A expenses in 2022 were $114 (4.5% of sales) as compared to $103 (4.7% of sales) in 2021. 

SG&A expenses were $11 higher in 2022 primarily due to higher incentive compensation, travel expenses and professional fees.

SG&A expenses in 2023 were $140 (5.3% of sales) as compared to $130 (5.2% of sales) in 2022. 

SG&A expenses were $10 higher in 2023 primarily due to higher salaried employee wages and incentive compensation, increased software technology investments and travel expenses.

Amortization of intangibles —

Amortization expense was $3 in 2022 and $4 in 2021.

Amortization expense was $3 in 2023 and $4 in 2022. 

See Note 2 for additional information.

Restructuring charges, net  — 

Net restructuring charges were ($1) in the third quarter of 2022 and $1 in the third quarter of 2021. See Note 4 for additional information.

Impairment of g oodwill  —

During the third quarter of 2022, we recorded a $191 goodwill impairment charge.

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

Net restructuring charges were $1 in the first quarter of 2023 and ($1) in the first quarter of 2022. See Note 3 for additional information.

Other income (expense), net —

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Three Months Ended

September 30,

Non-service cost components of pension and OPEB costs

Government assistance

Foreign exchange gain

Strategic transaction expenses

Loss on investment in Hyliion

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, and other strategic initiatives.

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.

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.

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

Strategic transaction expenses in 2023 and 2022 were primarily attributable to investigating potential acquisitions and business ventures and other strategic initiatives.

Interest income and interest expense 

Interest income was $2 in both 2022 and 2021.

Interest expense increased from $31 in 2021 to $32 in 2022, primarily due to higher debt levels, partially offset by lower interest rates on outstanding borrowings.

Interest income was $4 in 2023 and $2 in 2022.

Interest expense increased from $31 in 2022 to $34 in 2023, due to higher average debt levels and higher interest rates on outstanding borrowings.

Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.0% in 2023 and 4.6% in 2022.

Income tax expense  — 

We reported income tax expense of $31 and $20 for 2022 and 2021, respectively.

Our effective tax rates were (24)% and 31% for the third quarter of 2022 and 2021.

During the third quarter of 2022, we recorded a pre-tax goodwill impairment charge of $191 with an associated income tax benefit of $2.

In addition, we recorded a tax benefit of $32 for U.S.

tax credits generated.

Also, during the third quarter of 2022, we recorded tax expense of $31 for valuation allowances related to U.S.

states driven by differences between our federal and state tax profile.

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, different statutory tax rates outside the U.S.

and withholding taxes related to repatriations of international earnings.

The effective income tax rate may vary significantly due to fluctuations in the amounts and sources, both foreign and domestic, of pretax income and changes in the amounts of non-deductible expenses.

Equity in earnings (loss) of affiliates —

Net earnings (loss) from equity investments was a loss of $1 in 2022 and earnings of $5 in 2021.

Net earnings (loss) from DDAC was a loss of $3 in 2022 and earnings of $3 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.

Summary Consolidated Results of Operations (Year-to-Date, 2022 versus 2021)

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 (loss) 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 2022 were $929 higher than in 2021.

Weaker international currencies decreased sales by $292, principally due to a weaker euro, Indian rupee and Thai baht, partially offset by a stronger Brazilian real.

The organic sales increase of $1,229, or 18%, resulted from improved global construction/mining and agricultural markets, improved North America full-frame light-truck and commercial-vehicle demand, improved South America commercial-vehicle demand and the conversion of sales backlog.

Pricing actions and recoveries, including material commodity price and inflationary cost adjustments, increased sales by $569.

The North America organic sale increase of 17% was driven principally by stronger light- and heavy-duty truck production volumes, higher light-vehicle engine production levels and the conversion of sales backlog.

First nine months 2022 full-frame light-truck production was up 9% while light-vehicle engine production was up 13% compared with the first nine months of 2021.

Year-over-year Class 8 truck production was up 19% while Classes 5-7 truck production was up 1% compared with the first nine months of 2021.

Excluding currency effects, sales in Europe were up 19% 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 first nine months of 2021.

Excluding currency effects, first nine months 2022 sales in South America increased 32% compared to 2021 due primarily to improved light-duty truck production and continued strengthening of medium/heavy-duty truck related sales despite overall medium/heavy- duty truck production volumes moderating.

First nine months light-duty truck production was up 15% while medium/heavy-duty truck production was up 1% compared with the first nine months of 2021.

Excluding currency effects and the impact of divestitures, sales in Asia Pacific increased 17% compared to 2021 due to stronger construction/mining and agricultural markets and higher medium/heavy-duty truck related sales despite overall medium/heavy-duty production volumes declining 34% compared to the first nine months of 2021.

Cost of sales and gross margin —

Cost of sales for the first nine months of 2022 increased $1,055, or 18%, when compared to 2021.

Cost of sales as a percent of sales was 290 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 $396, non-material inflationary cost impacts of $250 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 and supplier recoveries provided a partial offset, reducing costs of sales by approximately $37.

Gross margin of $583 for the first nine months of 2022 decreased $126 from 2021.

Gross margin as a percent of sales was 7.7% in the first nine months of 2022, 290 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 along with recovery of non-material inflation typically not being specifically provided for in our current contracts with customers resulting in prolonged negotiations and indeterminate recoveries.

Material cost recovery mechanisms with our customers lag material cost changes by our suppliers by approximately 90 days.

With commodity costs abating slightly during the third quarter of 2022, gross margin experienced a modest benefit from net material recoveries on a dollar basis.

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

SG&A expenses in 2022 were $374 (4.9% of sales) as compared to $348 (5.2% of sales) in 2021. 

SG&A expenses were $26 higher in 2022 primarily due to higher salaried employee wages and incentive compensation, travel expenses and professional fees.

Amortization of intangibles —

Amortization expense was $10 in 2022 and $11 in 2021.

Restructuring charges, net  —

N et restructuring charges were ($1) in the first nine months of 2022 and $2 in the first nine months of 2021.

See Note 4 for additional information.

Impairment of go odwill  —

During the third quarter of 2022, we recorded a $191 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

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 2022 were primarily attributable to investigating potential acquisitions and business ventures and 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.

In conjunction with our acquisition of Oerlikon Drive Systems, 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.

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 for additional information.

Interest income and interest expense 

Interest income was $6 in both 2022 and 2021.

Interest expense decreased from $99 in 2021 to $95 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 4.7% in 2022 and 5.3% in 2021.

Income tax expense  — We reported income tax expense of $67 and $56 for the first nine months of 2022 and 2021, respectively. 

Our effective tax rates were (103)% and 28% for the first nine months of 2022 and 2021.

During the third quarter of 2022, we recorded a pre-tax goodwill impairment charge of $191 with an associated income tax benefit of $2.

In addition, we recorded a tax benefit of $32 for U.S.

tax credits generated.

Also, during the third quarter of 2022, we recorded tax expense of $31 for valuation allowances related to U.S.

states driven by differences between our federal and state tax profile.

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

Income tax expense  — We reported income tax expense of $30 and $18 for 2023 and 2022, respectively.

Our effective tax rates were 50% and 49% for the first quarter of 2023 and 2022. 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 outside the U.S., different statutory tax rates outside the U.S.

and withholding taxes related to repatriations of international earnings.

The effective income tax rate may vary significantly due to fluctuations in the amounts and sources, both foreign and domestic, of pretax income and changes in the amounts of non-deductible expenses.

Equity in earnings (loss) of affiliates —

Net earnings (loss) from equity investments was a loss of $1 in 2022 and earnings of $29 in 2021.

Equity in earnings from DDAC was a loss of $5 in 2022 and earnings of $24 in 2021.

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.

Equity in earnings of affiliates —

Net earnings from equity investments was $1 in both 2023 and 2022.

Net earnings from DDAC were de minimis in 2023 and $1 in 2022.

Segment Results of Operations (2023 versus 2022)

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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 2022, exclusive of currency effects and the product line transfer to Commercial Vehicle, were 19% higher than 2021 reflecting generally stronger global markets, cost recovery actions and the conversion of sales backlog.

Year-over-year North America full-frame light-truck production increased 20% in this year’s third quarter while light-truck production in Europe, South America and Asia Pacific increased 23%, 36% and 24%, respectively. Light Vehicle sales in the first nine months of 2022, exclusive of currency effects, the impact of divestitures and the product line transfer to Commercial Vehicle, were 14% higher than 2021 reflecting stronger markets in all regions, cost recovery actions and the conversion of sales backlog.

Year-over-year North America full-frame light-truck increased 9% while light-truck production in Europe, South America and Asia Pacific increased 2%, 15% and 7%, respectively.

Net customer pricing and cost recovery actions increased year-over-year sales by $88 and $185 in this year’s third quarter and first nine months, respectively.

Light Vehicle third-quarter 2022 segment EBITDA increased by $6 from last year, with first-nine-months earnings lower by $117.

Higher sales volumes provided a year-over-year benefit of $20 (22% incremental margin) and $34 (17% incremental margin) in the third quarter and first nine months of 2022.

Year-over-year performance-related earnings decreases in the third quarter were driven by inflationary cost increases of $41, operational inefficiencies of $27, commodity cost increases of $27, higher program launch costs of $5, higher incentive compensation of $3 and higher warranty costs of $2.

Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $88, higher material cost savings and supplier recoveries of $7 and lower premium freight costs of $1.

The year-over-year performance-related earnings decrease in the first nine months was driven by commodity cost increases of $135, operational inefficiencies of $88, inflationary cost increases of $89, higher program launch costs of $9, higher incentive compensation of $3, lower material cost savings and supplier recoveries of $3 and higher premium freight costs of $1.

Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $185 and lower warranty costs of $2.

Light Vehicle sales in the first quarter of 2023, exclusive of currency effects, were comparable to 2022 with lower volumes due to a customer program ending in 2022 being partially offset by generally stronger global light-truck markets and the benefit of net customer pricing and cost recovery actions. Year-over-year North America full-frame light-truck production increased 4% while light-truck production in Europe and South America increased 16% and 15%, respectively.

Light-truck production in Asia Pacifica was comparable with the same period last year.

Net customer pricing and cost recovery actions increased year-over-year sales by $27.

Light Vehicle first-quarter segment EBITDA increased by $18 compared to the prior year.

Lower sales volumes decreased year-over-year earnings by $9 (30% decremental margin).

The year-over-year performance-related earnings increase was driven by net customer pricing and cost recovery actions of $27, commodity cost decreases of $23, operational efficiencies of $18, material cost savings of $9, lower premium freight costs of $1 and lower spending on electrification initiatives of $1.

Partially offsetting these performance-related earnings increases were inflationary cost increases of $36, higher warranty expense of $7, higher program launch costs of $4 and higher incentive compensation expense of $2. 

Commercial Vehicle

1 unchanged sentence

Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Product line transfer

Currency effects

Commercial Vehicles sales in the third quarter and first nine months of 2022, exclusive of currency effects and the production line transfer from Light Vehicle, were 26% higher than the same periods of 2021 reflecting continued strengthening of medium/heavy-duty truck production volumes, cost recovery actions and the conversion of sales backlog.

Year-over-year North America Class 8 production was up 35% while Classes 5-7 were up 6% in this year’s third quarter.

Year-over-year medium/heavy-truck production in Europe and South America were up 30% and 5%, respectively, while production in Asia Pacific was down 9% in this year’s third quarter.

Year-over-year North America Class 8 production was up 19% while Classes 5-7 were flat in this year’s first nine months.

Year-over-year medium/heavy-truck production in Europe and South America were up 4% and 1%, respectively, while production in Asia Pacific was down 34% in this year's first nine months.

Net customer pricing and cost recovery actions increased year-over-year sales by $46 and $138 in this year’s third quarter and first nine months, respectively.

Commercial Vehicle third-quarter 2022 segment EBITDA decreased by $2 from last year, with first-nine-months earnings lower by $15.

Higher sales volumes provided a year-over-year benefit of $8 (14% incremental margin) and $28 (17% incremental margin) in the third quarter and first nine months of 2022.

Year-over-year performance-related earnings decreases in the third quarter were driven by commodity cost increases of $32, inflationary cost increases of $19, operational inefficiencies of $6, higher premium freight costs of $3, higher incentive compensation of $2 and higher program launch costs of $1.

Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $46 and material cost savings of $6.

The year-over-year performance-related earnings decrease in the first nine months was driven by commodity cost increases of $97, inflationary cost increases of $51, operational inefficiencies of $51, higher incentive compensation of $3 and higher program launch costs of $1. Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $138, material cost savings of $15 and lower premium freight costs of $2.

Segment EBITDA

Segment EBITDA Margin

Commercial Vehicle sales in the first quarter of 2023, exclusive of currency effects, were 14% higher than 2022 reflecting improved North America and Europe markets, conversion of sales backlog and the benefit of net customer pricing and cost recovery actions.

Year-over-year North America Class 8 production was up 17% while Classes 5-7 were up 8% in this year's first quarter.

Year-over-year medium/heavy-truck production in Europe was up 13% while production in South America and Asia Pacific were down 34% and 10%, respectively.

Net customer pricing and cost recovery actions increased year-over-year sales by $23.

Commercial Vehicle first-quarter segment EBITDA increased by $7 compared to the prior year.

Higher sales volumes increased year-over-year earnings by $7 (16% incremental margin).

The year-over-year performance-related earnings increase was driven by net customer pricing and cost recovery actions of $23, material cost savings of $9, lower spending on electrification initiatives of $9 and lower premium freight costs of $3.

Partially offsetting these performance-related earnings increases were operational inefficiencies of $28, inflationary cost increases of $8, commodity cost increases of $2, higher program launch costs of $2, higher warranty expense of $1 and higher incentive compensation expense of $1.

Segment EBITDA

2 unchanged sentences

Currency effects

Off-Highway sales in the third quarter and first nine months of 2022, exclusive of currency effects, were 23% higher than the same periods of 2021 reflecting improved global markets, cost recovery actions 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 $78 and $200 in this year’s third quarter and first nine months, respectively.

Off-Highway third-quarter 2022 segment EBITDA decreased by $9 from last year, with first-nine-months earnings higher by $15.

Higher sales volumes provided a year-over-year benefit of $12 (18% incremental margin) and $59 (23% incremental margin) in the third quarter and first nine months of 2022.

Year-over-year performance-related earnings decreases in the third quarter were driven by commodity cost increases of $37, inflationary cost increases of $36, operational inefficiencies of $18, higher incentive compensation of $3 and higher warranty costs of $1.

Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $78 and material cost savings of $6.

The year-over-year performance-related earnings decrease in the first nine months was driven by commodity cost increases of $109, inflationary cost increases of $90, operational inefficiencies of $33, higher premium freight costs of $6 and higher incentive compensation of $3.

Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $200 and material cost savings of $20.

Off-Highway sales in the first quarter of 2023, exclusive of currency effects, were 18% higher than 2022 reflecting improved global construction/mining equipment markets, conversion of sales backlog and the benefit of net customer pricing and cost recovery actions.

Year-over-year global construction/mining equipment production increased 11% while agricultural equipment markets were relatively stable with production decreasing 2%.

Net customer pricing and cost recovery actions increased year-over-year sales by $47.

Off-Highway first-quarter segment EBITDA increased by $18 compared to the prior year.

Higher sales volumes increased year-over-year earnings by $23 (26% incremental margin).

The year-over-year performance-related earnings increase was driven by net customer pricing and cost recovery actions of $47, material cost savings of $8 and lower premium freight costs of $3.

Partially offsetting these performance-related earnings increases were inflationary cost increases of $40, commodity cost increases of $6, operational inefficiencies of $6, higher warranty expense of $4 and higher incentive compensation expense of $1.

Power Technologies

1 unchanged sentence

Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

1 unchanged sentence

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 and first nine months of 2022, exclusive of currency effects, were 17% and 11% higher than the same period of 2021 reflecting an improved North American market, cost recovery actions and the conversion of sale backlog.

Year-over-year North American light-vehicle engine production was up 30% and 13% compared to the third quarter and first nine months of 2021, respectively.

Year-over-year Europe light-vehicle engine production was up 24% and down 1% compared to the third quarter and first nine months of 2021, respectively.

Net customer pricing and cost recovery actions further increased year-over-year sales by $17 and $46 in this year’s third quarter and first nine months, respectively.

Power Technologies third-quarter 2022 segment EBITDA decreased by $17 from last year, with first-nine-months earnings lower by $40.

Higher sales volumes provided a year-over-year benefit of $5 (18% incremental margin) and $9 (20% incremental margin) in the third quarter and first nine months of 2022.

Year-over-year performance-related earnings decreases in the third quarter were driven by commodity cost increases of $17, operational inefficiencies of $9, inflationary cost increases of $8, higher program launch costs of $2, higher incentive compensation of $2 and higher warranty costs of $1.

Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $17 and material cost savings of $2.

The year-over-year performance-related earnings decrease in the first nine months was driven by commodity cost increases of $55, inflationary cost increases of $20, operational inefficiencies of $12, higher program launch costs of $4, higher warranty costs of $2, higher incentive compensation of $2 and higher premium freight costs of $1.

Partially offsetting these performance-related decreases were net customer pricing and cost recovery actions of $46 and material cost savings of $5.

Power Technologies sales in the first quarter of 2023, exclusive of currency effects, were 14% higher than 2022 reflecting improved global markets, conversion of sales backlog and the benefit of net customer pricing and cost recovery actions.

Year-over-year North America, Europe and South America light-vehicle engine production was up 13%, 9% and 5%, respectively.

Year-over-year Asia Pacific light-vehicle engine production was down 2%.

Net customer pricing and cost recovery actions increased year-over-year sales by $13.

Power Technologies first-quarter segment EBITDA decreased by $6 compared to the prior year.

Higher sales volumes increased year-over-year earnings by $4 (15% incremental margin).

The year-over-year performance-related earnings decrease was driven by inflationary cost increases of $10, commodity cost increases of $7, operational inefficiencies of $4, higher program launch costs of $3 and higher incentive compensation expense of $1.

Partially offsetting these performance-related earnings decreases were net customer pricing and cost recovery actions of $13 and material cost savings of $3.

Non-GAAP Financial Measures

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Equity in earnings (loss) of affiliates

Equity in earnings of affiliates

Income tax expense

Earnings (loss) before income taxes

Earnings before income taxes

Depreciation and amortization

1 unchanged sentence

Interest expense, net

Loss on extinguishment of debt

Loss on investment in Hyliion

Loss on disposal group held for sale

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

Impairment of goodwill

Distress supplier costs

Adjusted EBITDA

1 unchanged sentence

See Note 17 to our consolidated financial statements in Item 1 of Part I for additional details.

Free Cash Flow and Adjusted Free Cash Flow

Free Cash Flow

We have defined free cash flow as cash provided by (used in) operating activities less purchases of property, plant and equipment.

We have defined adjusted free cash flow as cash provided by (used in) operating activities excluding discretionary pension contributions less purchases of property, plant and equipment.

We believe these measures are useful to investors in evaluating the operational cash flow of the company inclusive of the spending required to maintain the operations.

Free cash flow and adjusted free cash flow are not intended to represent nor be an alternative to the measure of net cash provided by (used in) operating activities reported in accordance with GAAP.

Free cash flow and adjusted free cash flow may not be comparable to similarly titled measures reported by other companies.

The following table reconciles net cash flows provided by (used in) operating activities to adjusted free cash flow.

We believe free cash flow is useful to investors in evaluating the operational cash flow of the company inclusive of the spending required to maintain the operations.

Free cash flow is not intended to represent nor be an alternative to the measure of net cash provided by (used in) operating activities reported in accordance with GAAP.

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

The following table reconciles net cash flows provided by (used in) operating activities to free cash flow.

Three Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities

Net cash used in operating activities

Purchases of property, plant and equipment

Free cash flow

Discretionary pension contribution

Adjusted free cash flow

The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at September 30, 2022:

The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at March 31, 2023:

Cash and cash equivalents

2 unchanged sentences

Additional cash availability from Revolving Facility

Marketable securities

Total liquidity

2 unchanged sentences

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 $934 at September 30, 2022  under the Revolving Facility after deducting $195 of outstanding borrowings and $21 of outstanding letters of credit.

The components of our September 30, 2022 consolidated cash balance were as follows:

We had availability of $839 at March 31, 2023 under the Revolving Facility after deducting $295 of outstanding borrowings and $16 of outstan ding letters of credit.

The components of our March 31, 2023 consolidated cash balance were as follows:

Cash and cash equivalents

6 unchanged sentences

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

At September 30, 2022, we were in compliance with the covenants of our financing agreements.

On March 14, 2023, we amended our credit and guaranty agreement, extending its maturity to March 14, 2028.

At March 31, 2023, 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.

10 unchanged sentences

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 used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

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

1 unchanged sentence

Exclusive of working capital, other cash provided by operations was $134 in 2023 and $90 in 2022.

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

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

Working capital used cash of $304 and $211 in 2023 and 2022.

Cash of $270 and $325 was used to finance receivables in 2023 and 2022, respectively.

The higher level of cash used to finance receivables in 2022 is due to higher year-over-year third quarter sales driven by improved global construction/mining and agricultural markets, improved North America full-frame light-truck and commercial-vehicle demand and improved South America commercial-vehicle demand. Cash of $152 and $441 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 $476 and $193 in 2022 and 2021, respectively.

The use of cash to finance receivables in both periods is primarily driven by normal seasonality, with first quarter sales exceeding prior year fourth quarter sales due to the impact of annual fourth quarter holidays.

Cash of $104 and $63 was used to fund higher inventory levels in 2023 and 2022, respectively.

Increases in accounts payable and other net liabilities provided cash of $70 and $177 in 2023 and 2022, respectively.

Investing activities — Expenditures for property, plant and equipment were $120 and $116 during 2023 and 2022.

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

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 provided us with a 100% ownership interest in Pi Innovo.

During 2021, we acquired a 1% ownership interest in Switch Mobility Limited for $18.

The increase in capital spending during 2023 is in support of awarded next generation programs and new business.

During 2022, purchases of marketable securities were largely funded by proceeds from sales and maturities of marketable securities.

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

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

Financing activities 

— During 2022 and 2021, we had net borrowings of $195 and $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. We used cash of $43 and $44 for dividend payments to common stockholders during 2022 and 2021.

We used cash of $25 and $23 to repurchase common shares under our share repurchase program during 2022 and 2021.

Distributions to noncontrolling interests totaled $8 and 2022 and $10 in 2021.

H ydro-Québec 

made cash contributions to Dana TM4 of $30 in 2022 and $6 in 2021.

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 2023 and 2022, we had net borrowings of $270 and $265 on our Revolving Facility. During 2023, we paid financing costs of $2 to amend our credit and guaranty agreement, extending the Revolving Facility maturity to March 14, 2028. We used cash of $15 and $14 for dividend payments to common stockholders during 2023 and 2022.

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

Distributions to noncontrolling interests totaled $1 in both 2023 and 2022.

Hydro-Québec made cash contributions to Dana TM4 of $10 in 2023 and $2 in 2022.

Off-Balance Sheet Arrangements

There have been no material changes at September 30, 2022 in our off-balance sheet arrangements from those reported or estimated in the disclosures in Item 7 of our 2021 Form 10-K.

There have been no material changes at March 31, 2023 in our off-balance sheet arrangements from those reported or estimated in the disclosures in Item 7 of our 2022 Form 10-K.

Contractual Obligations

During the second quarter of 2022, we commenced two operating leases with minimum lease payments totaling $56 over their respective noncancelable lease terms which expire in September 2035 and January 2037. There have been no other material changes in our contractual obligations from those disclosed in Item 7 of our 2021 Form 10-K.

 There have been no other material changes in our contractual obligations from those disclosed in Item 7 of our 2022 Form 10-K.

Contingencies

4 unchanged sentences

See Item 7 in our 2022 Form 10-K for a description of our critical accounting estimates and Note 1 to our consolidated financial statements in Item 8 of our 2022 Form 10-K for our significant accounting policies.

There were no changes to our critical accounting estimates in the nine months ended September 30, 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 nine months of 2022. 

There were no changes to our critical accounting estimates in the three months ended March 31, 2023.

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 2023. 

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis