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 September 30, 2023, we employed approximately 42,000 people and operated in 31 countries.   External sales by operating segment for the periods ended September 30, 2023 and 2022 are as follows:       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022               % of             % of             % of             % of       Dollars     Total     Dollars     Total     Dollars     Total     Dollars     Total   Light Vehicle   $ 1,084       40.6 %   $ 1,047       41.3 %   $ 3,112       38.6 %   $ 3,060       40.3 % Commercial Vehicle     535       20.0 %     505       19.9 %     1,583       19.6 %     1,475       19.4 % Off-Highway     739       27.7 %     694       27.4 %     2,423       30.1 %     2,206       29.0 % Power Technologies     311       11.7 %     289       11.4 %     943       11.7 %     860       11.3 % Total   $ 2,669             $ 2,535             $ 8,061             $ 7,601             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 September 30, 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 $449 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 light-truck production being relatively stable across Europe, South America and Asia Pacific. The outlook for North America is uncertain as workers represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) have commenced labor strikes against the U.S. operations of Ford Motor Company (Ford), Stellantis N.V. (Stellantis) and General Motors Company (GM).   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 moderately 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 moderate 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 32% decrease in production from 2022, reflecting the impact of lower year-over-year demand resulting from higher borrowing rates and 2022 pre-buy activity in advance of transition to the Euro 6 emission standard. 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 moderate 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 decrease slightly compared with the prior year.   27 Table of Contents   Foreign currency — With 57% of our year-to-date 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 50% of our year-to-date 2023 non-U.S. sales, while India, Brazil and China accounted for 10%, 8% and 8%, 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 2023, decreasing sales by $54. A weaker Indian rupee, South African rand and Chinese renminbi were partially offset by a stronger euro.   Argentina has experienced significant inflationary pressures the past few years, contributing to significant devaluation of its currency among other economic challenges. Our Argentine operation supports our Light Vehicle operating segment. Our sales in Argentina for the first nine months of 2023 of approximately $141 are 2% of our consolidated sales and our net asset exposure related to Argentina was approximately $56, including $20 of net fixed assets, at September 30, 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 into U.S. dollars using current Argentine peso exchange rates with resulting translation gains or losses included in results of operations. Nonmonetary assets and liabilities are remeasured into U.S. dollar using historic Argentine peso exchange rates.   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 third quarter and first nine months of 2023 by $10 and $45, respectively. Material cost recovery pricing actions decreased earnings in the third quarter of 2023 by $9 and increased earnings in the first nine months of 2023 by $6.     Sales, Earnings and Cash Flow Outlook       2023 Outlook     2022     2021   Sales   $10,200 - $10,700     $ 10,156     $ 8,945   Adjusted EBITDA   $760 - $850     $ 700     $ 795   Net cash provided by operating activities   $375 - $490     $ 649     $ 158   Purchases of property, plant and equipment   ~5% of sales     $ 440     $ 369   Free cash flow   $(135) - $(20)     $ 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.   Ford, Stellantis and GM's contracts with employees represented by the UAW expired on September 14, 2023. Beginning on September 15, 2023, the UAW commenced labor strikes at certain U.S. operations of Ford, Stellantis and GM. We have experienced a decrease in order volumes from Ford and Stellantis resulting from the impact of the UAW’s labor strike activities which has caused us to curtail operations at certain of our U.S. manufacturing and assembly operations. Our 2023 outlook for sales, adjusted EBITDA and free cash flow have been updated to reflect the impact of the UAW’s labor strike activities. The low ends of our updated outlook ranges reflect UAW labor strike activities continuing through December 31, 2023 and the upper ends reflect UAW labor strike activities continuing through October 31, 2023.   28 Table of Contents     Summary Consolidated Results of Operations (Third Quarter, 2023 versus 2022)       Three Months Ended September 30,               2023     2022               Dollars     % of Net Sales     Dollars     % of Net Sales     Increase/ (Decrease)   Net sales   $ 2,669             $ 2,535             $ 134   Cost of sales     2,433       91.2 %     2,332       92.0 %     101   Gross margin     236       8.8 %     203       8.0 %     33   Selling, general and administrative expenses     126       4.7 %     114       4.5 %     12   Amortization of intangibles     3               3               —   Restructuring charges, net     17               (1 )             18   Impairment of goodwill                     (191 )             191   Other income (expense), net     1               3               (2 ) Earnings (loss) before interest and income taxes     91               (101 )             192   Interest income     5               2               3   Interest expense     41               32               9   Earnings (loss) before income taxes     55               (131 )             186   Income tax expense     33               31               2   Equity in earnings (loss) of affiliates     3               (1 )             4   Net income (loss)     25               (163 )             188   Less: Noncontrolling interests net income     8               4               4   Less: Redeemable noncontrolling interests net loss     (2 )             (79 )             77   Net income (loss) attributable to the parent company   $ 19             $ (88 )           $ 107     Sales — The following table shows changes in our sales by geographic region.       Three Months Ended                                       September 30,             Amount of Change Due To       2023     2022     Increase/ (Decrease)     Currency Effects     Acquisitions (Divestitures)     Organic Change   North America   $ 1,240     $ 1,250     $ (10 )   $ 1     $ —     $ (11 ) Europe     829       698       131       40               91   South America     193       219       (26 )     8               (34 ) Asia Pacific     407       368       39       (7 )             46   Total   $ 2,669     $ 2,535     $ 134     $ 42     $ —     $ 92     Sales in the third quarter of 2023 were $134 higher than in 2022. Stronger international currencies increased sales by $42, principally due to a stronger euro and Brazilian real, partially offset by a weaker Chinese renminbi and South African rand. The organic sales increase of $92, or 4%, resulted from improved global construction/mining equipment markets, improved commercial vehicle demand primarily in North America and Europe, higher global light-truck and 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 $81.   The North America organic sales decrease of 1% was driven principally by a full-frame light-truck customer program that ended in 2022 and lower light-truck production levels, partially offset by stronger medium/heavy-truck production volumes, higher light-vehicle engine production levels and the conversion of sales backlog. Third quarter 2023 full-frame light-truck production was down 12% while light-vehicle engine production was up 6% compared to the third quarter of 2022. Year-over-year Class 8 truck production was up 3% while Classes 5-7 truck production was up 9%. Excluding currency effects, sales in Europe were up 13% compared with 2022. With our significant Off-Highway presence in the region, a stronger construction/mining equipment market was a major factor. The year-over-year organic sales increase in Europe for this operating segment was 7% compared with the third quarter of 2022. Sales in Europe also benefited from higher year-over-year light-truck and medium/heavy-truck production of 16% and 20%, respectively. Excluding currency effects, third quarter sales in South America were 16% lower than 2022 reflecting lower medium/heavy-truck production. Year-over-year South America medium/heavy-truck production was 38% lower than the third quarter of 2022. Excluding currency effects, sales in Asia Pacific increased 13% compared to 2022 due to higher light-truck and medium/heavy-truck production volumes.   29 Table of Contents   Cost of sales and gross margin — Cost of sales for the third quarter of 2023 increased $101, or 4%, 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 $30, lower commodity costs of $10 and lower premium freight of $18 were partially offset by non-material inflationary cost impacts of $62, higher warranty expense of $7, higher program launch costs of $6 and higher spending on electrification initiatives of $8. Commodity costs are primarily driven by certain grades of steel and aluminum. Non-material inflation includes higher labor, energy and transportation rates.   Gross margin of $236 for the third quarter of 2023 increased $33 from 2022. Gross margin as a percent of sales was 8.8% in the third 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 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 the third quarter of 2023 were $126 (4.7% of sales) as compared to $114 (4.5% of sales) in the third quarter of 2022.  SG&A expenses were $12 higher in the third quarter of 2023 primarily due to higher salaried employee wages and incentive compensation and increased software technology investments.   Amortization of intangibles — Amortization expense was $3 in both the third quarter of 2023 and the third quarter of 2022.  See Note 2 of our consolidated financial statements in Item 1 of Part I for additional information.   Restructuring charges, net  —  Net restructuring charges were $17 in the third quarter of 2023 and ($1) in the third quarter of 2022. See Note 3  of our consolidated financial statements in Item 1 of Part I for additional information.   Impairment of goodwill  — During the third quarter of 2022, we  evaluated macro-economic conditions, including the impact of the Federal Reserve further increasing the risk-free interest rate, as well as the negative impact of sustained higher commodity costs, non-material cost increases and operational inefficiencies attributable to continued global supply chain disruptions. We believe that these conditions were factors in our market capitalization falling below the book value of net assets as of September 30, 2022. Accordingly, we concluded a triggering event had occurred and performed interim goodwill impairment analyses for our Commercial Vehicle reporting unit. Based on the results of our interim impairment analysis, we concluded that the carrying value exceeded fair value of our Commercial Vehicle reporting unit and we recorded a goodwill impairment charge of $191, representing a full impairment of goodwill assigned to the Commercial Vehicle reporting unit.   Other income (expense), net — The following table shows the major components of other income (expense), net.       Three Months Ended       September 30,       2023     2022   Non-service cost components of pension and OPEB costs   $ (4 )   $ —   Government assistance     4           Foreign exchange loss     (1 )         Strategic transaction expenses     (2 )     (1 ) Other, net     4       4   Other income (expense), net   $ 1     $ 3     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 the third quarter of 2023 and 2022 were primarily attributable to investigating potential acquisitions and business ventures and other strategic initiatives.   Loss on extinguishment of debt  — On June 9, 2023 we redeemed $200 of our April 2025 Notes. The $1 loss on extinguishment of debt is comprised of the write-off of previously deferred financing costs associated with the April 2025 Notes. See Note 10 of our consolidated financial statements in Item 1 of Part I for additional information.   Interest income and interest expense  — Interest income increased from $2 in the third quarter of 2022 to $5 in third quarter of 2023, due to higher average cash balances and higher interest rates being paid on cash deposits. Interest expense increased from $32 in the third quarter of 2022 to $41 in the third quarter of 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 6.1% in the third quarter of 2023 and 4.8% in the third quarter of 2022.   Income tax expense  — We reported income tax expense of $33 and $31 for the third quarter of 2023 and 2022, respectively. Our effective tax rates were 60% and (24)% for the third quarter of 2023 and 2022. 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 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 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 (loss) from equity investments was earnings of $3 in  the third quarter of 2023 and a loss of $1 in  the third quarter of 2022. Net earnings (loss) from DDAC were earnings of $1 in  the third quarter of 2023 and a loss of $3 in  the third quarter of 2022.   30 Table of Contents     Summary Consolidated Results of Operations (Year-to-Date, 2023 versus 2022)       Nine Months Ended September 30,               2023     2022               Dollars     % of Net Sales     Dollars     % of Net Sales     Increase/ (Decrease)   Net sales   $ 8,061             $ 7,601             $ 460   Cost of sales     7,325       90.9 %     7,018       92.3 %     307   Gross margin     736       9.1 %     583       7.7 %     153   Selling, general and administrative expenses     410       5.1 %     374       4.9 %     36   Amortization of intangibles     10               10               —   Restructuring charges, net     21               (1 )             22   Impairment of goodwill                     (191 )             191   Other income (expense), net     10               15               (5 ) Earnings before interest and income taxes     305               24               281   Loss on extinguishment of debt     (1 )                             (1 ) Interest income     14               6               8   Interest expense     114               95               19   Earnings (loss) before income taxes     204               (65 )             269   Income tax expense     118               67               51   Equity in earnings (loss) of affiliates     6               (1 )             7   Net income (loss)     92               (133 )             225   Less: Noncontrolling interests net income     17               11               6   Less: Redeemable noncontrolling interests net loss     (2 )             (81 )             79   Net income (loss) attributable to the parent company   $ 77             $ (63 )           $ 140     Sales — The following table shows changes in our sales by geographic region.       Nine Months Ended                                       September 30,             Amount of Change Due To       2023     2022     Increase/ (Decrease)     Currency Effects     Acquisitions (Divestitures)     Organic Change   North America   $ 3,689     $ 3,689     $ -     $ (1 )   $ -     $ 1   Europe     2,696       2,286       410       (7 )             417   South America     532       584       (52 )     4               (56 ) Asia Pacific     1,144       1,042       102       (50 )             152   Total   $ 8,061     $ 7,601     $ 460     $ (54 )   $ -     $ 514     Sales in 2023 were $460 higher than in 2022. Weaker international currencies decreased sales by $54, principally due to a weaker Indian rupee, South African rand and Chinese renminbi, partially offset by a stronger euro. The organic sales increase of $514, or 7%, resulted from improved global construction/mining equipment markets, improved commercial vehicle demand primarily in North America and Europe, higher global light-truck and 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 $317.   Year-over-year North America sales were flat with stronger medium/heavy-truck production volumes, higher light-vehicle engine production levels and the conversion of sales backlog, offset by a full-frame light-truck customer program that ended in 2022 and lower light-truck production volumes. Year-over-year light-vehicle engine production was up 13% compared to the first nine months of 2022. Year-over-year Class 8 truck production was up 10% while Classes 5-7 truck production was up 13%. Year-over-year full-frame light-truck production volumes were down 1% compared to the first nine months of 2022. Excluding currency effects, sales in Europe were up 18% compared with 2022. With our significant Off-Highway presence in the region, a stronger construction/mining equipment market was a major factor. The year-over-year organic sales increase in Europe for this operating segment was 14% compared with the first nine months of 2022. Sales in Europe also benefited from higher year-over-year light-truck and medium/heavy-truck production of 20% and 23%, respectively. Excluding currency effects, first nine months sales in South America were 10% lower than 2022 reflecting lower medium/heavy-truck production. Year-over-year South America medium/heavy-truck production was 31% lower than the first nine months of 2022. Excluding currency effects, sales in Asia Pacific increased 15% compared to 2022 due to a strong construction/mining equipment market and higher light-truck and medium/heavy-truck production volumes.   31 Table of Contents   Cost of sales and gross margin — Cost of sales for the first nine months of 2023 increased $307, or 4%, when compared to 2022. Cost of sales as a percent of sales was 140 basis points lower than in the previous year. Incremental margins provided by increased sales volumes, material cost savings of $91, lower commodity costs of $45 and lower premium freight of $39 were partially offset by non-material inflationary cost impacts of $220, higher warranty expense of $21, higher program launch costs of $24 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 $736 for the first nine months of 2023 increased $153 from 2022. Gross margin as a percent of sales was 9.1% in the first nine months of 2023, 140 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 nine 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 $410 (5.1% of sales) as compared to $374 (4.9% of sales) in 2022.  SG&A expenses were $36 higher in 2023 primarily due to higher salaried employee wages and incentive compensation, increased software technology investments and marketing expenses.   Amortization of intangibles — Amortization expense was $10 in both 2023 and 2022.  See Note 2 of our consolidated financial statements in Item 1 of Part I for additional information.   Restructuring charges, net  —  Net restructuring charges were $21 in the first nine months of 2023 and ($1) in the first nine months of 2022. See Note 3  of our consolidated financial statements in Item 1 of Part I for additional information.   Impairment of goodwill  — During the third quarter of 2022, we evaluated macro-economic conditions, including the impact of the Federal Reserve further increasing the risk-free interest rate, as well as the negative impact of sustained higher commodity costs, non-material cost increases and operational inefficiencies attributable to continued global supply chain disruptions. We believe that these conditions were factors in our market capitalization falling below the book value of net assets as of September 30, 2022. Accordingly, we concluded a triggering event had occurred and performed interim goodwill impairment analyses for our Commercial Vehicle reporting unit. Based on the results of our interim impairment analysis, we concluded that the carrying value exceeded fair value of our Commercial Vehicle reporting unit and we recorded a goodwill impairment charge of $191, representing a full impairment of goodwill assigned to the Commercial Vehicle reporting unit.   Other income (expense), net — The following table shows the major components of other income (expense), net.       Nine Months Ended       September 30,       2023     2022   Non-service cost components of pension and OPEB costs   $ (10 )   $ (3 ) Government assistance     12           Foreign exchange gain             4   Strategic transaction expenses     (4 )     (6 ) Other, net     12       20   Other income (expense), net   $ 10     $ 15     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.   Loss on extinguishment of debt  — On June 9, 2023 we redeemed $200 of our April 2025 Notes. The $1 loss on extinguishment of debt is comprised of the write-off of previously deferred financing costs associated with the April 2025 Notes. See Note 10 of our consolidated financial statements in Item 1 of Part I for additional information.   Interest income and interest expense  — Interest income increased from $6 in 2022 to $14 in 2023, due to higher average cash balances and higher interest rates being paid on cash deposits. Interest expense increased from $95 in 2022 to $114 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 5.6% in 2023 and 4.7% in 2022.   Income tax expense  — We reported income tax expense of $118 and $67 for 2023 and 2022, respectively. Our effective tax rates were 58% and (103)% for the first nine months of 2023 and 2022. During the second quarter of 2023, we recorded tax expense of $19 for income tax reserves associated with prior tax years in foreign jurisdictions. 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 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 (loss) from equity investments was earnings of $6 in 2023 and a loss of $1 in 2022. Net earnings (loss) from DDAC was earnings of $1 in 2023 and a loss of $5 in 2022.       32 Table of Contents   Segment Results of Operations (2023 versus 2022)   Light Vehicle       Three Months     Nine Months       Sales     Segment EBITDA     Segment EBITDA Margin     Sales     Segment EBITDA     Segment EBITDA Margin   2022   $ 1,047     $ 60       5.7 %   $ 3,060     $ 124       4.1 % Volume and mix     3       2               (23 )     (5 )         Performance     34       13               109       76           Currency effects                             (34 )     (5 )         2023   $ 1,084     $ 75       6.9 %   $ 3,112     $ 190       6.1 %   Light Vehicle sales in the third quarter of 2023, exclusive of currency effects, were 4% higher than 2022 reflecting mixed global markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions, partially offset by a customer program ending in 2022. Year-over-year North America full-frame light-truck production decreased 12% in this year’s third quarter while light-truck production in Europe and Asia Pacific increased 16% and 2%, respectively, while light-truck production in South America decreased 4%. Light Vehicle sales in the first nine months of 2023, exclusive of currency effects, were 3% higher than 2022 reflecting generally stronger global markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions, partially offset by a customer program ending in 2022. Year-over-year North America full-frame light-truck production decreased 1% in this year’s first nine months while light-truck production in Europe, South America and Asia Pacific increased 20%, 8% and 10%, respectively. Net customer pricing and cost recovery actions increased year-over-year sales by $34 and $109 in this year’s third quarter and first nine months, respectively.   Light Vehicle segment EBITDA increased $15 and $66 in the third quarter and first nine months of 2023, respectively, from the comparable periods of 2022. Higher sales volumes provided a year-over-year benefit of $2 (67% incremental margin) in the third quarter of 2023. Lower sales volumes decreased year-over-year earnings by $5 (22% decremental margin) in the first nine months of 2023. Year-over-year performance-related earnings increases in the third quarter were driven by net customer pricing and cost recovery actions of $34, material cost savings of $10, lower premium freight costs of $9 and operational efficiencies of $16. Partially offsetting these performance-related increases were inflationary cost increases of $49, higher incentive compensation of $4, higher spending on electrification initiatives of $2 and commodity cost increases of $1. The year-over-year performance-related earnings increases in the first nine months were driven by net customer pricing and cost recovery actions of $109, commodity cost decreases of $43, material costs savings of $30, lower premium freight costs of $15 and operational efficiencies of $29. Partially offsetting these performance-related earnings increases were inflationary cost increases of $123, higher incentive compensation of $10, higher program launch costs of $8, higher warranty expense of $7 and higher spending on electrification initiatives of $2.   Commercial Vehicle       Three Months     Nine Months       Sales     Segment EBITDA     Segment EBITDA Margin     Sales     Segment EBITDA     Segment EBITDA Margin   2022   $ 505     $ 18       3.6 %   $ 1,475     $ 38       2.6 % Volume and mix     1       10               41       20           Performance     19       1               70       19           Currency effects     10                       (3 )     (3 )         2023   $ 535     $ 29       5.4 %   $ 1,583     $ 74       4.7 %   Commercial Vehicle sales in the third quarter of 2023, exclusive of currency effects, were 4% higher than 2022 reflecting improved North America and Europe markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions, partially offset by a weaker South America market. Year-over-year North America Class 8 production was up 3% while Classes 5-7 was up 9% in this year’s third quarter. Year-over-year medium/heavy-truck production in Europe was up 20% while medium/heavy-truck production in South America was down 38%. Commercial Vehicles sales in the first nine months of 2023, exclusive of currency effects, were 8% higher than 2022 reflecting improved North America and Europe markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions, partially offset by a weaker South America market. Year-over-year North America Class 8 production was up 10% while Classes 5-7 was up 13% in this year’s first nine months. Year-over-year medium/heavy-truck production in Europe was up 23% while medium/heavy-truck production in South America was down 31%. Net customer pricing and cost recovery actions increased year-over-year sales by $19 and $70 in this year’s third quarter and first nine months, respectively.   Commercial Vehicle segment EBITDA increased $11 and $36 in the third quarter and first nine months of 2023, respectively, from the comparable periods of 2022. Year-over-year third-quarter earnings improved by $10 on $1 of higher sales volumes due to improved product mix. Higher sales volumes and improved product mix provided a year-over-year earnings increase of $20 (49% incremental margin) in the first nine months of 2023. Year-over-year performance-related earnings increases in the third quarter were driven by net customer pricing and cost recovery actions of $19, material cost savings of $9, lower premium freight costs of $4, lower spending on electrification initiatives of $3 and commodity cost decreases of $2. Largely offsetting these performance-related earnings increases were operational inefficiencies of $23, inflationary cost increases of $4, higher incentive compensation of $3, higher program launch costs of $3 and higher warranty costs of $3. Year-over-year performance-related earnings increases in the first nine months were driven by net customer pricing and cost recovery actions of $70, material cost savings of $26, lower spending on electrification initiatives of $16 and lower premium freight costs of $10. Partially offsetting these performance-related earnings increases were operational inefficiencies of $60, inflationary cost increases of $19, higher program launch costs of $9, higher incentive compensation of $7, higher warranty costs of $5 and commodity cost increases of $3.   33 Table of Contents   Off-Highway       Three Months     Nine Months       Sales     Segment EBITDA     Segment EBITDA Margin     Sales     Segment EBITDA     Segment EBITDA Margin   2022   $ 694     $ 91       13.1 %   $ 2,206     $ 291       13.2 % Volume and mix     5       5               133       37           Performance     14       11               97       35           Currency effects     26       3               (13 )     (4 )         2023   $ 739     $ 110       14.9 %   $ 2,423     $ 359       14.8 %   Off-Highway sales in the third quarter and first nine months of 2023, exclusive of currency effects, were 3% and 10% higher than the same period of 2022, respectively, reflecting strong global markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions. Year-over-year global construction/mining equipment markets increased 11% while global agricultural equipment markets were relatively stable with production decreasing 2% in this year’s third quarter. Year-over-year global construction/mining equipment markets increased 11% while global agricultural equipment markets were relatively stable with production decreasing 2% in this year’s first nine months. Net customer pricing and cost recovery actions increased year-over-year sales by $14 and $97 in this year’s third quarter and first nine months, respectively.   Off-Highway segment EBITDA increased $19 and $68 in the third quarter and first nine months of 2023, respectively, from the comparable periods of 2022. Higher sales volumes and improved product mix provided a year-over-year earnings benefit of $5 (100% incremental margin) in the third quarter of 2023. Higher sales volumes provided a year-over-year earnings benefit of $37 (28% incremental margin) in the first nine months of 2023. Year-over-year performance-related earnings increases in the third quarter were driven by net customer pricing and cost recovery actions of $14, material cost savings of $8, commodity cost decreases of $8 and lower premium freight costs of $3. Partially offsetting these performance-related earnings increases were inflationary cost increases of $11, operational inefficiencies of $4, higher warranty expenses of $3, higher incentive compensation of $3 and higher spending on electrification initiatives of $1. Year-over-year performance-related earnings increases in the first nine months of 2023 were driven by net customer pricing and cost recovery actions of $97, material cost savings of $26, lower premium freight costs of $10 and commodity cost decreases of $8. Partially offsetting these performance-related earnings increases were inflationary cost increases of $75, operational inefficiencies of $14, higher warranty expenses of $8, higher incentive compensation of $7 and higher spending on electrification initiatives of $2.   Power Technologies       Three Months     Nine Months       Sales     Segment EBITDA     Segment EBITDA Margin     Sales     Segment EBITDA     Segment EBITDA Margin   2022   $ 289     $ 21       7.3 %   $ 860     $ 71       8.3 % Volume and mix     2       (9 )             46       (4 )         Performance     14       15               41       3           Currency effects     6       1               (4 )                 2023   $ 311     $ 28       9.0 %   $ 943     $ 70       7.4 %   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 2023, exclusive of currency effects, were 6% and 10% higher than the same periods of 2022, respectively, reflecting improved North America and Europe markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions. Year-over-year North America light-vehicle engine production was up 6% and 13% compared to the third quarter and first nine months of 2022, respectively. Year-over-year Europe light-vehicle engine production was up 6% and 12% compared to the third quarter and first nine months of 2022, respectively. Net customer pricing and cost recovery actions increased year-over-year sales by $14 and $41 in this year’s third quarter and first nine months, respectively.   Power Technologies segment EBITDA increased $7 and decreased $1 in the third quarter and first nine months of 2023, respectively, from the comparable periods of 2022. Unfavorable product mix resulted in decremental margins on higher year-over-year sales volumes in both the third quarter and first nine months of 2023. Year-over-year performance-related earnings increases in the third quarter were driven by net customer pricing and cost recovery actions of $14, operational efficiencies of $8, material cost savings of $3, lower premium freight costs of $2 and commodity cost decreases of $1. Partially offsetting these performance-related earnings increases were inflationary cost increases of $4, higher program launch costs of $3, increased spending on electrification initiatives of $3, higher incentive compensation of $2 and higher warranty expenses of $1. Year-over-year performance-related earnings increases in the first nine months were driven by net customer pricing and cost recovery actions of $41, material cost savings of $9 and lower premium freight costs of $4. Partially offsetting these performance-related earnings increases were inflationary cost increases of $25, higher program launch costs of $7, higher incentive compensation of $5, increased spending on electrification initiatives of $5, operational inefficiencies of $5, commodity cost increases of $3 and higher warranty expenses of $1.   34 Table of Contents     Non-GAAP Financial Measures   Adjusted EBITDA   We have defined adjusted EBITDA as net income (loss) before interest, income taxes, depreciation, amortization, equity grant expense, restructuring expense, non-service cost components of pension and other postretirement benefits (OPEB) costs and other adjustments not related to our core operations (gain/loss on debt extinguishment, pension settlements, divestitures, impairment, etc.). 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 (loss) before income taxes, net income (loss) 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     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   Net income (loss)   $ 25     $ (163 )   $ 92     $ (133 ) Equity in earnings (loss) of affiliates     3       (1 )     6       (1 ) Income tax expense     33       31       118       67   Earnings (loss) before income taxes     55       (131 )     204       (65 ) Depreciation and amortization     107       94       304       287   Restructuring charges, net     17       (1 )     21       (1 ) Interest expense, net     36       30       100       89   Loss on extinguishment of debt                     1           Distressed supplier costs     14               26           Impairment of goodwill             191               191   Other*     13       9       33       23   Adjusted EBITDA   $ 242     $ 192     $ 689     $ 524   * 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 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 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 operating activities to free cash flow.       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   Net cash provided by operating activities   $ 112     $ 171     $ 198     $ 307   Purchases of property, plant and equipment     (117 )     (94 )     (359 )     (300 ) Free cash flow     (5 )     77       (161 )     7     35 Table of Contents     Liquidity   The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at September 30, 2023:   Cash and cash equivalents   $ 421   Less: Deposits supporting obligations     —   Available cash     421   Additional cash availability from Revolving Facility     1,141   Total liquidity   $ 1,562     We had availability of $1,141 at September 30, 2023 under our Revolving Facility after deducting $9 of outstanding letters of credit.   The components of our September 30, 2023 consolidated cash balance were as follows:       U.S.     Non-U.S.     Total   Cash and cash equivalents   $ —     $ 321     $ 321   Cash and cash equivalents held at less than wholly-owned subsidiaries     1       99       100   Consolidated cash balance   $ 1     $ 420     $ 421     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 September 30, 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.   36 Table of Contents   Cash Flow   The following table summarizes our consolidated statement of cash flows:       Nine Months Ended       September 30,       2023     2022   Cash used for changes in working capital   $ (169 )   $ (21 ) Other cash provided by operations     367       328   Net cash provided by operating activities     198       307   Net cash used in investing activities     (383 )     (297 ) Net cash provided by financing activities     189       138   Net increase in cash, cash equivalents and restricted cash   $ 4     $ 148     Operating activities — Exclusive of working capital, other cash provided by operations was $367 in 2023 and $328 in 2022. The year-over-year increase is primarily attributable to higher operating earnings in 2023, partially offset by lower year-over-year dividends received from equity-method investments, higher year-over-year cash paid for interest and higher year-over-year cash payments made to distressed suppliers.   Working capital used cash of $169 and $21 in 2023 and 2022. Cash of $243 and $345 was used to finance receivables in 2023 and 2022, respectively. Cash of $116 and $152 was used to fund higher inventory levels in 2023 and 2022, respectively. Increases in accounts payable and other net liabilities provided cash of $190 and $476 in 2023 and 2022, respectively.   Investing activities — Expenditures for property, plant and equipment were $359 and $300 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 of marketable securities.   Financing activities  — During 2023 and 2022, we had net repayments of $25 and net borrowings of $195 on our Revolving Facility. During 2023, we completed the issuance of €425 of our July 2031 Notes, paying financings costs of $7. Also during 2023, we redeemed $200 of our April 2025 Notes. 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 $43 in both 2023 and 2022 for dividend payments to common stockholders. We used cash of $25 to repurchase common shares under our share repurchase program during 2022. Distributions to noncontrolling interests totaled $10 in 2023 and $8 in 2022. Hydro-Québec made cash contributions to Dana TM4 of $18 in 2023 and $30 in 2022.   37 Table of Contents     Off-Balance Sheet Arrangements   There have been no material changes at September 30, 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   On May 24, 2023, Dana Financing Luxembourg S.à.r.l. (Dana Financing), a wholly-owned subsidiary of Dana, completed the sale of €425 ($458 as of May 24, 2023) in senior unsecured notes (July 2031 Notes) at 8.500%. Interest on the notes is payable on January 15 and July 15 of each year, beginning on January 15, 2024. The July 2031 Notes will mature on July 15, 2031. On June 9, 2023 we redeemed $200 of our April 2025 Notes at a price equal to 100.00% plus accrued and unpaid interest. See Note 10 to our consolidated financial statements in Item 1 of Part I for additional information.   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 nine months ended September 30, 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 nine 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.