What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-30 compared with 2023-10-27 · 202 added, 405 removed, 184 unchanged (77% of the section changed)

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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.

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.

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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);

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,

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, 2024, we employed approximately 42,000 people and operated in 31 countries.

External sales by operating segment for the periods ended March 31, 2024 and 2023 are as follows:

Three Months Ended March 31,

Light Vehicle

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Power Technologies

See Note 17 to our consolidated financial statements in Item 1 of Part I for further financial information about our operating segments.

See Note 18 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.

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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.

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.

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

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

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

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.

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.

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.

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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.

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.

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

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.

Our 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.

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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.

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

Except for three quarters in 2020, when we temporarily suspended dividends to common shareholders in response to the global COVID pandemic, we have paid quarterly dividends to our common shareholders since the first quarter of 2012.

Financing actions — Our current portfolio of unsecured senior notes is structured such that no more than $459 of senior notes comes due in any calendar year, with no maturities until the second quarter of 2025.

Our $1,150 revolving credit facility matures on March 14, 2028.

See Note 11 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.

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.

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.

(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.

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.

Trends in Our Markets

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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.

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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.

During 2023, we saw 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.

During 2023, light-truck markets improved across all regions except North America, which was negatively impacted by labor strikes during the fourth quarter of 2023 at the U.S.

operations of several original equipment manufacturers.

The outlook for the full year of 2024 reflects global light-truck production being relatively stable across all regions in comparison with the prior year.

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.

During 2023, production of Class-8 trucks in North America increased 8% over 2022 reflecting increased demand driven by higher freight volumes and rates during the first half of 2023, with demand tapering during the second half of 2023 as freight volumes and rates trended downward.

The outlook for 2024 is for weakening demand with production down moderately from 2023 levels driven by lower year-over-year freight volumes and rates.

Medium-duty truck production in North America experienced a modest 9% year-over-year increase from 2022 to 2023.

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 outlook for 2024 is for a modest decrease in production over the prior year.

Outside of North America, production of medium- and heavy-duty trucks in South America declined 32% in 2023 reflecting weak economic conditions in the region.

The 2024 outlook for South America is for a modest increase in production from 2023 as local economic conditions are expected to somewhat improve.

Production of medium- and heavy-duty trucks in Asia Pacific, driven by China and India, increased 18% in 2023.

The 2024 outlook for Asia Pacific is for a modest increase in production from the prior year.

Off-highway markets — Our off-highway business has a large presence outside of North America, with 68% of its 2023 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 2023 with production up 5% over the prior year.

The outlook for 2023 is for continued modest growth.

The outlook for 2024 is for modest growth in North America, South America and Asia Pacific, partially offset by moderately lower production levels in Europe.

End-user investment in the mining equipment segment is driven by prices for commodity products produced by underground mining.

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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.

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.

Like the underground mining segment, investment in agriculture equipment is primarily driven by prices for commodities.

Farm commodity price decreases in 2023 spurred a 2% decrease in agriculture equipment production.

The outlook for 2024 is for global end-market demand to soften, reflecting a modest decrease from the prior year.

Foreign currency — With 54% of our first quarter 2024 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 first quarter 2024 non-U.S.

sales, while India, Brazil and China accounted for 10%, 9% 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 strengthened against the U.S.

dollar in the first quarter of 2024, increasing sales by $3.

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

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.

Our sales in Argentina for the first three months of 2024 of approximately $45 are 2% of our consolidated sales and our net asset exposure related to Argentina was approximately $56, including $20 of net fixed assets, at March 31, 2024.

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.

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.

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.

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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.

Material cost changes will customarily have some impact on our financial results as customer pricing adjustments typically lag commodity price changes.

Lower year-over-year commodity prices increased earnings during the first quarter of 2024 by $5.

Material cost recovery pricing actions decreased earnings in the first quarter of 2024 by $10.

Sales, Earnings and Cash Flow Outlook

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Free cash flow

$(135) - $(20)

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

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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.

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

Three Months Ended September 30,

Our 2024 sales outlook is $10,650 to $11,150, reflecting a modest improvement in global market demand and $350 of net new business backlog.

Based on our current sales and exchange rate outlook for 2024, we expect overall stability in international currencies with a modest headwind to sales primarily due to a weaker euro, Chinese renminbi and Thai baht.

At sales levels in our current outlook for 2024, a 5% movement on the euro would impact our annual sales by approximately $100.

A 5% change on the Chinese renminbi, Indian rupee or Brazilian real rates would impact our annual sales in each of those countries by approximately $20.

At our current sales outlook for 2024, we expect full year 2024 adjusted EBITDA to approximate $875 to $975.

Adjusted EBITDA Margin is expected to be 8.5% at the midpoint of our guidance range, a 50 basis-point improvement over 2023, reflecting higher margin net new business and improving operational performance being partially offset by the benefit of the material cost recovery tailwind experienced in 2023 dissipating in 2024, as commodity prices stabilize, and increased investment to support our electrification strategy.

We expect to generate free cash flow of approximately $75 at the midpoint of our guidance range reflecting the benefit of higher year-over-year adjusted EBITDA and lower capital spending being largely offset by higher year-over-year cash paid for interest and income taxes and increased working capital to support higher sales levels.

Summary Consolidated Results of Operations (First Quarter, 2024 versus 2023)

Three Months Ended March 31,

% of Net Sales

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Restructuring charges, net

Impairment of goodwill

Loss on disposal group held for sale

Other income (expense), net

Earnings (loss) before interest and income taxes

Earnings before interest and income taxes

Interest income

Interest expense

Earnings (loss) before income taxes

Earnings before income taxes

Income tax expense

Equity in earnings (loss) of affiliates

Net income (loss)

Equity in earnings of affiliates

Noncontrolling interests net income

Redeemable noncontrolling interests net loss

Net income (loss) attributable to the parent company

Sales —

The following table shows changes in our sales by geographic region.

Net income attributable to the parent company

Sales — The following table shows changes in our sales by geographic region.

Three Months Ended

September 30,

Amount of Change Due To

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South America

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.

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.

Sales in the first quarter of 2024 were $91 higher than in 2023.

Stronger international currencies increased sales by $3, principally due to a stronger euro and Brazilian real, partially offset by a weaker Chinese renminbi, Thai baht and South African rand.

The organic sales increase of $88, or 3%, resulted from having a full quarter of production on a full-frame light-truck customer program that launched and was ramping up production in the first quarter of last year, higher light-vehicle engine production volumes in North America and the conversion of sales backlog, partially offset by softening construction/mining and agricultural equipment markets.

Pricing actions and recoveries, including material commodity price and inflationary cost adjustments, increased sales by $35.

The North America organic sales increase of 12% was driven principally by having a full quarter of production on a full-frame light-truck customer program that launched and was ramping up production in the first quarter of last year, higher light-vehicle engine production levels and the conversion of sales backlog, partially offset by lower medium- and heavy-duty truck production volumes.

First quarter 2024 light-vehicle engine production was up 2%, while year-over-year Class 8 production was down 2% and Classes 5-7 was down 3%.

Excluding currency effects, sales in Europe were down 6% compared with 2023.

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

Organic sales in this operating segment were down 7% compared with the first quarter of 2023.

Excluding currency effects, sales in South America were up 7% compared with 2023, reflecting improved medium- and heavy-duty truck production volumes.

Excluding currency effects, sales in Asia Pacific decreased 4% compared to 2023, reflecting lower electric vehicle related product sales.

Cost of sales and gross margin — Cost of sales for the first quarter of 2024 increased $76, or 3%, when compared to 2023.

Cost of sales as a percent of sales was 20 basis points lower than in the previous year.

Incremental margins provided by increased sales volumes, higher material cost savings of $35, lower premium freight costs of $15, lower warranty expense of $6, lower commodity costs of $5 and lower program launch costs of $3 were partially offset by non-material inflationary cost impacts of $45, higher spending on electrification initiatives of $10, operational inefficiencies of $9 and unfavorable product mix.

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.

Gross margin of $244 for the first quarter of 2024 increased $15 from 2023.

Gross margin as a percent of sales was 8.9% in the first quarter of 2024, 20 basis points higher than in 2023.

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. 

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

With commodity costs abating during the first quarter of 2024, gross margin was negatively 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 first quarter of 2024 were $139 (5.1% of sales) as compared to $140 (5.3% of sales) in the first quarter of 2023 .

SG&A expenses were $1 lower in the first quarter of 2024 with higher salaried employee wages and incentive compensation and increased software technology investments being offset by lower provisions for doubtful accounts and lower professional services and consulting costs.

Amortization of intangibles — Amortization expense was $3 in both the first quarter of 2024 and the first quarter of 2023.

See Note 3 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,

Non-service cost components of pension and OPEB costs

Government assistance

Foreign exchange loss

Strategic transaction expenses

Other income (expense), net

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

Strategic transaction expenses in 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.

Restructuring charges, net — Net restructuring charges were $5 in the first quarter of 2024 and $1 in the first quarter of 2023 .

See Note 4 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.

Summary Consolidated Results of Operations (Year-to-Date, 2023 versus 2022)

Nine Months Ended September 30,

% of Net Sales

Increase/ (Decrease)

Cost of sales

Selling, general and administrative expenses

Amortization of intangibles

Restructuring charges, net

Impairment of goodwill

Other income (expense), net

Earnings before interest and income taxes

Loss on extinguishment of debt

Interest income

Interest expense

Earnings (loss) before income taxes

Income tax expense

Equity in earnings (loss) of affiliates

Net income (loss)

Noncontrolling interests net income

Redeemable noncontrolling interests net loss

Net income (loss) attributable to the parent company

Sales —

The following table shows changes in our sales by geographic region.

Nine Months Ended

September 30,

Amount of Change Due To

Increase/ (Decrease)

Currency Effects

Acquisitions (Divestitures)

Organic Change

North America

South America

Sales in 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.

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. 

Loss on disposal group held for sale — In February 2024, we entered into a definitive agreement to sell our European hydraulics business to HPIH S.à r.l.

for approximately $40.

The sale price is subject to adjustment based on net working capital and net financial position balances as of the closing date.

We classified the disposal group as held for sale, recognizing a $29 loss to adjust the carrying value of net assets to fair value less estimated costs to sell.

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.

Other income (expense), net —

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

Nine Months Ended

September 30,

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

Three Months Ended

Non-service cost components of pension and OPEB costs

4 unchanged sentences

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.

Strategic transaction expenses in the first quarter of 2024 and 2023 were primarily attributable to investigating potential acquisitions and business ventures and other strategic initiatives.

Interest income and interest expense — Interest income was $4 in both the first quarter of 2024 and the first quarter of 2023.

Interest expense increased from $34 in the first quarter of 2023 to $39 in the first quarter of 2024, due to higher interest rates on outstanding borrowings.

Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.8% in the first quarter of 2024 and 5.0% in the first quarter of 2023.

Income tax expense — We reported income tax expense of $37 and $30 for the first quarter of 2024 and 2023 , respectively.

Our effective tax rates were 106% and 50% for the first quarter of 2024 and 2023 , respectively.

During the first quarter of 2024, we recorded tax expense of $11 for valuation allowances related to foreign locations.

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.

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 $2 in the first quarter of 2024 and $1 in the first quarter of 2023.

Net earnings from Dongfeng Dana Axle Co., Ltd.

(DDAC) were de minimis in the first quarter of 2024 and the first quarter of 2023.

Segment Results of Operations (2024 versus 2023)

2 unchanged sentences

Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Currency effects

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.

Light Vehicle sales in the first quarter of 2024, exclusive of currency effects, were 15% higher than 2023 reflecting mixed global markets, having a full quarter of production on a full-frame light-truck customer program that launched and was ramping up production in the first quarter of last year, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions.

Year-over-year North America full-frame light-truck production was flat in this year’s first quarter while light-truck production in Asia Pacific increased 2%.

Year-over-year light-truck production in Europe and South America both decreased 3% in this year’s first quarter.

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.

Higher sales volumes increased year-over-year earnings by $28 (25% incremental margin).

The year-over-year performance-related earnings decrease was driven by inflationary cost increases of $44, higher spending on electrification initiatives of $11, operational inefficiencies of $5, commodity cost increases of $4 and higher incentive compensation expense of $1.

Partially offsetting these performance-related earnings decreases were net customer pricing and cost recovery actions of $27, higher material cost savings of $13, lower premium freight costs of $7, lower warranty expense of $5 and lower program launch costs of $4.

Commercial Vehicle

1 unchanged sentence

Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Currency effects

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.

Segment EBITDA

Segment EBITDA Margin

Commercial Vehicle sales in the first quarter of 2024, exclusive of currency effects, were flat with 2023 reflecting mixed global markets, the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions.

Year-over-year Class 8 production in North America was down 2% while Classes 5-7 was down 3% in this year’s first quarter.

Year-over-year medium/heavy-truck production in Europe was down 15% while medium/heavy-truck production in South America was up 17%.

Year-over-year our sales in Asia Pacific decreased due to lower electric-vehicle product orders.

Net customer pricing and cost recovery actions increased year-over-year sales by $7.

Commercial Vehicle first-quarter segment EBITDA was flat compared to the prior year.

Lower sales volumes decreased year-over-year earnings by $16 (178% decremental margin) with product mix significantly impacting margins.

The year-over-year performance-related earnings increase was driven by lower spending on electrification initiatives of $8, net customer pricing and cost recovery actions of $7, higher material cost savings of $7 and lower premium freight costs of $5.

Partially offsetting these performance-related earnings increases were operational inefficiencies of $7, inflationary cost increases of $2, higher warranty expense of $1 and higher program launch costs of $1.

Segment EBITDA

2 unchanged sentences

Currency effects

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.

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.

Off-Highway sales in the first quarter of 2024, exclusive of currency effects, were 7% lower than 2023 reflecting softening global markets and the impact of net customer pricing and cost recovery actions, partially offset by the conversion of sales backlog.

Year-over-year global construction/mining equipment and agricultural equipment markets are showing signs of softening, especially in Europe.

Year-over-year first quarter construction/mining equipment and agricultural equipment production in Europe were down 10% and 15%, respectively.

Net customer pricing and cost recovery actions decreased year-over-year sales by $8.

Off-Highway first-quarter segment EBITDA decreased by $3 comparted to the prior year.

Lower sales volumes decreased year-over-year earnings by $17 (31% decremental margin).

The year-over-year performance-related earnings increase was driven by higher material cost savings of $9, commodity cost decreases of $7, lower warranty expense of $2, lower premium freight costs of $2, operational efficiencies of $2 and non-material cost decreases of $1.

These performance-related earnings increases were partially offset by net customer pricing and cost recovery actions of $8 and higher incentive compensation expense of $1.

Power Technologies

1 unchanged sentence

Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

1 unchanged sentence

Power Technologies primarily serves the light-vehicle market but also sells product to the medium/heavy-truck and off-highway markets.

Power Technologies sales in the third quarter and first nine months of 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.

Power Technologies sales in the first quarter of 2024, exclusive of currency effects, were 4% higher than 2023, reflecting mixed global markets, the conversion of sales backlog and the impact of net customer pricing actions.

Year-over-year light vehicle engine products was up 2% in North America and down 3% in Europe.

In addition, our first quarter sales in Europe were impacted by lower electric-vehicle product orders.

Net customer pricing and cost recovery actions increased year-over-year sales by $9.

Power Technologies first-quarter segment EBITDA increased by $4 compared to the prior year.

The EBITDA benefit of higher sales volumes was offset by unfavorable product mix.

The year-over-year performance-related earnings increase was driven by net customer pricing and cost recovery actions of $9, higher material cost savings of $6, commodity cost decreases of $2 and lower premium freight costs of $1.

These performance-related earnings increases were partially offset by operational inefficiencies of $12 and inflationary cost increases of $2.

Non-GAAP Financial Measures

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Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Equity in earnings (loss) of affiliates

Equity in earnings of affiliates

Income tax expense

Earnings (loss) before income taxes

Earnings before income taxes

Depreciation and amortization

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Interest expense, net

Loss on extinguishment of debt

Distressed supplier costs

Impairment of goodwill

Loss on disposal group held for sale

Adjusted EBITDA

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.

Other includes stock compensation expense, non-service cost components of pension and OPEB costs, strategic transaction expenses and other items.

See Note 18 to our consolidated financial statements in Item 1 of Part I for additional details.

Free Cash Flow

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Three Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities

Net cash used in operating activities

Purchases of property, plant and equipment

Free cash flow

The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at September 30, 2023:

The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at March 31, 2024:

Cash and cash equivalents

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Total liquidity

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:

We had availability of $1,126 at March 31, 2024 under our Revolving Facility after deducting $15 of outstanding borrowings and $9 of outstanding letters of credit.

The components of our March 31, 2024 consolidated cash balance were as follows:

Cash and cash equivalents

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

On March 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.

At March 31, 2024, 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.

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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.

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.

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 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.

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The following table summarizes our consolidated statement of cash flows:

Nine Months Ended

September 30,

Three Months Ended

Cash used for changes in working capital

Other cash provided by operations

Net cash provided by operating activities

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

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.

Net decrease in cash, cash equivalents and restricted cash

Operating activities — Exclusive of working capital, other cash provided by operations was $149 in 2024 and $134 in 2023.

The year-over-year increase is primarily attributable to higher operating earnings in 2024, partially offset by higher year-over-year cash paid for interest.

Working capital used cash of $251 and $304 in 2024 and 2023.

Cash of $169 and $270 was used to finance receivables in 2024 and 2023, respectively.

Cash of $18 and $104 was used to fund higher inventory levels in 2024 and 2023, respectively.

Decreases in accounts payable and other net liabilities used cash of $64 in 2024 while increases in accounts payable and other net liabilities provided cash of $70 in 2023.

Investing activities — Expenditures for property, plant and equipment were $70 and $120 during 2024 and 2023.

The decrease in capital spending during 2024 is primarily due to the year-over-year calendarization of capital spend being lower in this year’s first quarter.

Financing activities — During 2024 and 2023, we had net borrowings of $15 and $270 on our Revolving Facility.

During 2024, we paid the $25 note payable due to the former owners of SME S.p.A.

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 for dividend payments to common stockholders during both 2024 and 2023.

Distributions to noncontrolling interests totaled $3 in 2024 and $1 in 2023.

Hydro-Québec made cash contributions to Dana TM4 of $9 in 2024 and $10 in 2023.

During 2024, we received $11 from Hydro-Québec, which represents deferred purchase consideration associated with their acquisition of a 45% ownership interest in SME S.p.A.

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.

There have been no material changes at March 31, 2024 in our off-balance sheet arrangements from those reported or estimated in the disclosures in Item 7 of our 2023 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.

There have been no material changes in our contractual obligations from those disclosed in Item 7 of our 2023 From 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.

For a summary of litigation and other contingencies, see Note 13 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.

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See Item 7 in our 2023 Form 10-K for a description of our critical accounting estimates and Note 1 to our consolidated financial statements in Item 8 of our 2023 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. 

There were no changes to our critical accounting estimates in the three months ended March 31, 2024.

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 2024.

Quantitative and Qualitative Disclosures About Market Risk

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis