DANA Inc 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions)   Management's discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes in this report.   Forward-Looking Information   Statements in this report (or otherwise made by us or on our behalf) that are not entirely historical constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can often be identified by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “predicts,” “seeks,” “estimates,” “projects,” “outlook,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing” and similar expressions, variations or negatives of these words. These statements represent the present expectations of Dana Incorporated and its consolidated subsidiaries (Dana) based on our current information and assumptions. Forward-looking statements are inherently subject to risks and uncertainties. Our plans, actions and actual results could differ materially from our present expectations due to a number of factors, including those discussed below and elsewhere in this report and in our other filings with the Securities and Exchange Commission (SEC). All forward-looking statements speak only as of the date made and we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances that may arise after the date of this report.     Management Overview   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); 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 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,       2023     2022               % of             % of       Dollars     Total     Dollars     Total   Light Vehicle   $ 962       36.4 %   $ 985       39.7 % Commercial Vehicle     522       19.7 %     463       18.7 % Off-Highway     842       31.9 %     744       30.0 % Power Technologies     318       12.0 %     288       11.6 % Total   $ 2,644             $ 2,480             See Note 17 to our consolidated financial statements in Item 1 of Part I for further financial information about our operating segments.   Our internet address is www.dana.com. The inclusion of our website address in this report is an inactive textual reference only and is not intended to include or incorporate by reference the information on our website into this report.     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.   25 Table of Contents   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.   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 electric vehicles.   Capital Structure Initiatives   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. 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 reduction in the number of shares outstanding. 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 $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. 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   Aftermarket opportunities — We have a global group dedicated to identifying and developing aftermarket growth opportunities that leverage the capabilities within our existing businesses – targeting increased future aftermarket sales. Powered by recognized brands such as Dana®, Spicer®, Spicer Electrified™, Victor Reinz®, Glaser®, GWB®, Thompson®, Tru-Cool®, SVL®, and Transejes™, Dana delivers a broad range of aftermarket solutions – including genuine, all makes, and value lines – servicing passenger, commercial, and off-highway vehicles across the globe.   Selective acquisitions — 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. Any potential acquisition will be evaluated in the same manner we currently consider customer program opportunities and other uses of capital – with a disciplined financial approach designed to ensure profitable growth and increased shareholder value.   26 Table of Contents     Acquisitions   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 TM4 Inc. (TM4), S.M.E. S.p.A. (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   We serve our customers in three core global end markets: light vehicle, primarily full frame trucks and SUVs; commercial vehicle, including medium-and heavy-duty trucks and busses; and off-highway, including construction, mining, and agriculture equipment.    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; cost and availability of end customer financing; 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. 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. 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 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. 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; however, a large portion of these products are utilized in vehicle production outside the region. The construction equipment segment of the off-highway market is closely related to global economic growth and infrastructure investment. The 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. 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.   27 Table of Contents   Foreign currency — 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 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 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. As a result, effective July 1, 2018, the U.S. dollar is the functional currency for our Argentine operations, rather than the Argentine peso. Beginning July 1, 2018, peso-denominated monetary assets and liabilities are remeasured 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. 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. 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       2023 Outlook     2022     2021   Sales   $10,350 - $10,850     $ 10,156     $ 8,945   Adjusted EBITDA   $750 - $850     $ 700     $ 795   Net cash provided by operating activities   $510 - $560     $ 649     $ 158   Purchases of property, plant and equipment   ~5% of sales     $ 440     $ 369   Free Cash Flow   $0 - $50     $ 209     $ (211 )   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. generally accepted accounting principles (GAAP) measures. We have not provided a reconciliation of our adjusted EBITDA outlook to the most comparable GAAP measure of net income. Providing net income guidance is potentially misleading and not practical given the difficulty of projecting event driven transactional and other non-core operating items that are included in net income, including restructuring actions, asset impairments and certain income tax adjustments. The accompanying reconciliations of these non-GAAP measures with the most comparable GAAP measures for the historical periods presented are indicative of the reconciliations that will be prepared upon completion of the periods covered by the non-GAAP guidance.   Our 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.   28 Table of Contents     Summary Consolidated Results of Operations (First Quarter, 2023 versus 2022)       Three Months Ended March 31,               2023     2022               Dollars     % of Net Sales     Dollars     % of Net Sales     Increase/ (Decrease)   Net sales   $ 2,644             $ 2,480             $ 164   Cost of sales     2,415       91.3 %     2,283       92.1 %     132   Gross margin     229       8.7 %     197       7.9 %     32   Selling, general and administrative expenses     140       5.3 %     130       5.2 %     10   Amortization of intangibles     3               4               (1 ) Restructuring charges, net     1               (1 )             2   Other income (expense), net     5               2               3   Earnings before interest and income taxes     90               66               24   Interest income     4               2               2   Interest expense     34               31               3   Earnings before income taxes     60               37               23   Income tax expense     30               18               12   Equity in earnings of affiliates     1               1               —   Net income     31               20               11   Less: Noncontrolling interests net income     4               4               —   Less: Redeemable noncontrolling interests net loss     (1 )             (1 )             —   Net income attributable to the parent company   $ 28             $ 17             $ 11     Sales — The following table shows changes in our sales by geographic region.       Three Months Ended                                       March 31,             Amount of Change Due To       2023     2022     Increase/ (Decrease)     Currency Effects     Acquisitions (Divestitures)     Organic Change   North America   $ 1,183     $ 1,165     $ 18     $ (1 )   $ —     $ 19   Europe     920       801       119       (47 )             166   South America     168       172       (4 )     (1 )             (3 ) Asia Pacific     373       342       31       (26 )             57   Total   $ 2,644     $ 2,480     $ 164     $ (75 )   $ —     $ 239     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, 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.    29 Table of Contents   Cost of sales and gross margin — 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 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 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 2023 and $4 in 2022.  See Note 2 for additional information.   Restructuring charges, net  —  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 — The following table shows the major components of other income (expense), net.       Three Months Ended       March 31,       2023     2022   Non-service cost components of pension and OPEB costs   $ (3 )   $ -   Government assistance     1           Foreign exchange gain     4       3   Strategic transaction expenses     (1 )     (4 ) Other, net     4       3   Other income (expense), net   $ 5     $ 2     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 $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 $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 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.   30 Table of Contents   Segment Results of Operations (2023 versus 2022)   Light Vehicle       Three Months       Sales     Segment EBITDA     Segment EBITDA Margin   2022   $ 985     $ 31       3.1 % Volume and mix     (30 )     (9 )         Performance     27       30           Currency effects     (20 )     (3 )         2023   $ 962     $ 49       5.1 %   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       Three Months       Sales     Segment EBITDA     Segment EBITDA Margin   2022   $ 463     $ 10       2.2 % Volume and mix     43       7           Performance     23       2           Currency effects     (7 )     (2 )         2023   $ 522     $ 17       3.3 %   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.   31 Table of Contents   Off-Highway       Three Months       Sales     Segment EBITDA     Segment EBITDA Margin   2022   $ 744     $ 100       13.4 % Volume and mix     90       23           Performance     47       1           Currency effects     (39 )     (6 )         2023   $ 842     $ 118       14.0 %   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       Three Months       Sales     Segment EBITDA     Segment EBITDA Margin   2022   $ 288     $ 29       10.1 % Volume and mix     26       4           Performance     13       (9 )         Currency effects     (9 )     (1 )         2023   $ 318     $ 23       7.2 %   Power Technologies primarily serves the light-vehicle market but also sells product to the medium/heavy-truck and off-highway markets. Power Technologies sales in the first quarter of 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.   32 Table of Contents     Non-GAAP Financial Measures   Adjusted EBITDA   We have defined adjusted EBITDA as net income before interest, income taxes, depreciation, amortization, equity grant expense, restructuring expense, non-service cost components of pension and other postretirement benefits (OPEB) costs and other adjustments not related to our core operations (gain/loss on debt extinguishment, pension settlements, divestitures, impairment, etc.). Adjusted EBITDA is a measure of our ability to maintain and continue to invest in our operations and provide shareholder returns. We use adjusted EBITDA in assessing the effectiveness of our business strategies, evaluating and pricing potential acquisitions and as a factor in making incentive compensation decisions. In addition to its use by management, we also believe adjusted EBITDA is a measure widely used by securities analysts, investors and others to evaluate financial performance of our company relative to other Tier 1 automotive suppliers. Adjusted EBITDA should not be considered a substitute for earnings before income taxes, net income or other results reported in accordance with GAAP. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.   The following table provides a reconciliation of net income to adjusted EBITDA.       Three Months Ended       March 31,       2023     2022   Net income   $ 31     $ 20   Equity in earnings of affiliates     1       1   Income tax expense     30       18   Earnings before income taxes     60       37   Depreciation and amortization     97       97   Restructuring charges, net     1       (1 ) Interest expense, net     30       29   Distress supplier costs     8           Other*     8       8   Adjusted EBITDA   $ 204     $ 170   * Other includes stock compensation expense, non-service cost components of pension and OPEB costs, strategic transaction expenses and other items. See Note 17 to our consolidated financial statements in Item 1 of Part I for additional details.   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 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       March 31,       2023     2022   Net cash used in operating activities   $ (170 )   $ (121 ) Purchases of property, plant and equipment     (120 )     (116 ) Free cash flow     (290 )     (237 )   33 Table of Contents     Liquidity   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   $ 401   Less: Deposits supporting obligations     (1 ) Available cash     400   Additional cash availability from Revolving Facility     839   Total liquidity   $ 1,239     Cash deposits are maintained to provide credit enhancement for certain agreements and are reported as part of cash and cash equiv alents. For most of these deposits, the cash may be withdrawn if a comparable security is provided in the form of letters of credit. 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 $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:       U.S.     Non-U.S.     Total   Cash and cash equivalents   $ 32     $ 255     $ 287   Cash and cash equivalents held as deposits             1       1   Cash and cash equivalents held at less than wholly-owned subsidiaries     9       104       113   Consolidated cash balance   $ 41     $ 360     $ 401     A portion of the non-U.S. cash and cash equivalents is utilized for working capital and other operating purposes. Several countries have local regulatory requirements that restrict the ability of our operations to repatriate this cash. 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 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. 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. In addition, the Revolving Facility is subject to a financial covenant requiring us to maintain a first lien net leverage ratio not to exceed 2.00:1.00. The indentures governing the senior notes include other incurrence-based covenants that may subject us to additional specified limitations.   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. We believe that our overall liquidity and operating cash flow will be sufficient to meet our anticipated cash requirements for capital expenditures, working capital, debt obligations and other commitments during the next twelve months. While uncertainty surrounding the current economic environment could adversely impact our business, based on our current financial position, we believe it is unlikely that any such effects would preclude us from maintaining sufficient liquidity.   34 Table of Contents   Cash Flow   The following table summarizes our consolidated statement of cash flows:       Three Months Ended       March 31,       2023     2022   Cash used for changes in working capital   $ (304 )   $ (211 ) Other cash provided by operations     134       90   Net cash used in operating activities     (170 )     (121 ) Net cash used in investing activities     (118 )     (117 ) Net cash provided by financing activities     255       229   Net increase (decrease) in cash, cash equivalents and restricted cash   $ (33 )   $ (9 )   Operating activities — Exclusive of working capital, other cash provided by operations was $134 in 2023 and $90 in 2022. 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 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 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.   Financing activities  — 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.   35 Table of Contents     Off-Balance Sheet Arrangements   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    There have been no other material changes in our contractual obligations from those disclosed in Item 7 of our 2022 Form 10-K.   Contingencies   For a summary of litigation and other contingencies, see Note 12 to our consolidated financial statements in Item 1 of Part I. Based on information available to us at the present time, we do not believe that any liabilities beyond the amounts already accrued that may result from these contingencies will have a material adverse effect on our liquidity, financial condition or results of operations.   Critical Accounting Estimates   The preparation of our consolidated financial statements in accordance with GAAP requires us to use estimates and make judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. 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 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.      Item 3. Quantitative and Qualitative Disclosures About Market Risk   There have been no material changes to market risk exposures related to changes in currency exchange rates, interest rates or commodity costs from those discussed in Item 7A of our 2022 Form 10-K.