What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-04-30 · 223 added, 95 removed, 291 unchanged (52% of the section changed)

20 unchanged sentences

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,

At June 30, 2024, we employed approximately 41,800 people and operated in 31 countries.

External sales by operating segment for the periods ended June 30, 2024 and 2023 are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Light Vehicle

82 unchanged sentences

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.

Foreign currency — With 54% of our first half of 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 49% of our first half of 2024 non-U.S.

sales, while India, Brazil and China accounted for 10%, 9% and 7%, respectively.

1 unchanged sentence

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.

International currencies weakened against the U.S.

dollar in the first half of 2024, decreasing sales by $19.

Weakening currencies included the Chinese renminbi, Thai baht, Indian rupee 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 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.

Our sales in Argentina for the first half of 2024 of approximately $105 are 2% of our consolidated sales and our net asset exposure related to Argentina was approximately $62, including $21 of net fixed assets, at June 30, 2024.

During the second quarter of 2018, we determined that Argentina's economy met the GAAP definition of a highly inflationary economy.

11 unchanged sentences

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.

Lower year-over-year commodity prices increased earnings during the first six months of 2024 by $4.

Material cost recovery pricing actions decreased earnings in the first six months of 2024 by $26.

Sales, Earnings and Cash Flow Outlook

10 unchanged sentences

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

Our 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.

Our current 2024 sales outlook is $10,450 to $10,950, a decrease of $200 from our prior guidance, reflecting a reduction in electric-vehicle demand.

At sales levels in our current outlook for 2024, a 5% movement on the euro would impact our annual sales by approximately $60.

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 $15.

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

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

Adjusted EBITDA Margin is expected to be 8.6% at the midpoint of our guidance range, a 60 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,

We expect to generate free cash flow of approximately $100 at the midpoint of our guidance range, an increase of $25 from our prior guidance, reflecting a reduction in anticipated capital spending.

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

Three Months Ended June 30,

% of Net Sales

8 unchanged sentences

Earnings before interest and income taxes

Loss on extinguishment of debt

Interest income

4 unchanged sentences

Noncontrolling interests net income

Redeemable noncontrolling interests net loss

Redeemable noncontrolling interests net income (loss)

Net income attributable to the parent company

8 unchanged sentences

South America

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%.

Sales in the second quarter of 2024 were $10 lower than in 2023.

Weaker international currencies decreased sales by $22, principally due to a weaker euro, Brazilian real, Thai baht, Chinese renminbi and Indian rupee.

The organic sales increase of $14, or 1%, resulted from higher year-over-year full-frame light-truck and light-vehicle engine production in North America and the conversion of sales backlog, partially offset by softening of construction/mining and agricultural equipment markets, particularly in Europe.

Pricing actions and recoveries, including material commodity price and inflationary costs adjustments, increased sales by $17.

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

Second quarter 2024 full-frame light-truck production was up 2% and light-vehicle engine production was up slightly, while year-over-year Class 8 production was down 2% and Classes 5-7 was down 13%.

Excluding currency effects, sales in Europe were down 11% 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.

Organic sales in this operating segment were down 10% compared with 2023.

Excluding currency effects, sales in South America were up 23% compared with 2023, reflecting improved medium- and heavy-duty truck production volumes.

Excluding currency effects, sales in Asia Pacific decreased 1% 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.

Cost of sales and gross margin — Cost of sales for the second quarter of 2024 increased $6 when compared to 2023.

Cost of sales as a percent of sales was 60 basis points higher than in the previous year.

Decremental margins due to lower sales volumes and unfavorable product mix, non-material inflationary cost impacts of $51, higher warranty expense of $8, higher spending on electrification initiatives of $5 and commodity cost increases of $1 were partially offset by higher material cost savings of $33, operational efficiencies of $27, lower premium freight costs of $7, lower program launch costs of $5 and lower incentive compensation expense of $5.

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 $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.

Gross margin of $255 for the second quarter of 2024 decreased $16 from 2023.

Gross margin as a percent of sales was 9.3% in the second quarter of 2024, 60 basis points lower than in 2024.

The deterioration 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 during the first quarter of 2024, gross margin was negatively impacted by net material cost recoveries on both a dollar and percentage basis.

Gross margin was negatively impacted by lower year-over-year 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.

Selling, general and administrative expenses (SG&A) — SG&A expenses in the second quarter of 2024 were $132 (4.8% of sales) as compared to $144 (5.2% of sales) in the second quarter of 2023.

SG&A expenses were $12 lower in the second quarter of 2024 primarily due to lower incentive compensation and lower professional services and consulting costs.

Amortization of intangibles — Amortization expense was $4 in both the second quarters of 2024 and 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 $5 in the first quarter of 2024 and $1 in the first quarter of 2023 .

Restructuring charges, net — Net restructuring charges were $12 in the second quarter of 2024 and $3 in the second quarter of 2023.

See Note 4 of our consolidated financial statements in Item 1 of Part I for additional information.

1 unchanged sentence

for approximately $38.

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.

We classified the disposal group as held for sale during the first quarter of 2024.

See Note 2 of our consolidated financial statements in Item 1 of Part I for additional information.

3 unchanged sentences

Government assistance

Foreign exchange gain

Foreign exchange loss

Strategic transaction expenses

1 unchanged sentence

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 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.

Strategic transaction expenses in the second quarter of 2024 and 2023 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 11 of our consolidated financial statements in Item 1 of Part I for additional information.

Interest income and interest expense — Interest income was $2 in the second quarter of 2024 and $5 in the second quarter of 2023.

Interest expense was $39 in both the second quarter of 2024 and the second quarter of 2023, reflecting lower outstanding borrowings in 2024 being offset by higher average interest rates.

Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.8% in the second quarter of 2024 and 5.5% in the second quarter of 2023.

Income tax expense — We reported income tax expense of $54 and $55 for the second quarter of 2024 and 2023, respectively.

Our effective tax rates were 81 % and 62% for the second quarter of 2024 and 2023, respectively.

During the second quarter of 2024, we recorded tax expense of $11 due to revisions in our assertions on unremitted earnings in foreign jurisdictions.

During the second quarter of 2023, we recorded tax expense of $19 for income tax reserves associated with prior tax years in foreign jurisdictions.

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

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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.

Equity in earnings of affiliates — Net earnings from equity investments was $3 in the second quarter of 2024 and $2 in the second 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.

(DDAC) were $1 in the second quarter of 2024 and de minimis in the second quarter of 2023.

Summary Consolidated Results of Operations (Year-to-Date, 2024 versus 2023)

Six Months Ended June 30,

% of Net Sales

Increase/ (Decrease)

Cost of sales

Selling, general and administrative expenses

Amortization of intangibles

Restructuring charges, net

Loss on disposal group held for sale

Other income (expense), net

Earnings before interest and income taxes

Loss on extinguishment of debt

Interest income

Interest expense

Earnings before income taxes

Income tax expense

Equity in earnings of affiliates

Noncontrolling interests net income

Redeemable noncontrolling interests net loss

Net income attributable to the parent company

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

Six Months Ended

Amount of Change Due To

Increase/ (Decrease)

Currency Effects

Acquisitions (Divestitures)

Organic Change

North America

South America

Sales in the first half of 2024 were $81 higher than in 2024.

Weaker international currencies decreased sales by $19, principally due to a weaker Chinese renminbi, Thai baht, Indian rupee and South African rand.

The organic sales increase of $102, or 2%, resulted from having a full six months 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 $52.

The North America organic sales increase of 9% was driven principally by having a full six months 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 half 2024 light-vehicle engine production was up 1%, while year-over-year Class 8 production was down slightly and Classes 5-7 was down 4%.

Excluding currency effects, sales in Europe were down 8% 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 9% compared with the first half of 2023.

Excluding currency effects, sales in South America were up 15% compared with 2023, reflecting improved medium- and heavy-duty truck production volumes.

Excluding currency effects, sales in Asia Pacific decreased 2% compared to 2023, reflecting lower electric vehicle related product sales.

Cost of sales and gross margin — Cost of sales for the six months of 2024 increased $82, or 2%, when compared to 2023.

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

Decremental margins resulting from unfavorable product mix, non-material inflationary cost impacts of $95, higher spending on electrification initiatives of $15 and higher warranty expense of $2 were partially offset by higher material cost savings of $68, lower premium freight costs of $22, operational efficiencies of $18, lower program launch costs of $8, commodity cost decreases of $4 and lower incentive compensation expense of $3.

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 $499 for the first six months of 2024 decreased $1 from 2023.

Gross margin as a percent of sales was 9.1% in the first six months of 2024, 20 basis points lower than in 2023.

The deterioration 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 during the first six months 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 six months of 2024 were $271 (5.0% of sales) as compared to $284 (5.3% of sales) in the first six months of 2023.

SG&A expenses were $13 lower in the first six months of 2024 due to lower incentive compensation, lower professional services and consulting costs and lower marketing expenditures.

Amortization of intangibles — Amortization expense was $7 in the first six months of both 2024 and 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 first six months of 2024 and $4 in the first six months of 2023.

See Note 4 of our consolidated financial statements in Item 1 of Part I for additional information.

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 $38.

We classified the disposal group as held for sale during the first quarter of 2024.

See Note 2 of our consolidated financial statements in Item 1 of Part I for additional information.

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

Six Months Ended

Non-service cost components of pension and OPEB costs

Government assistance

Foreign exchange gain (loss)

Strategic transaction expenses

Other income (expense), net

Strategic transaction expenses in the first six months of 2024 and 2023 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 11 of our consolidated financial statements in Item 1 of Part I for additional information.

Interest income and interest expense — Interest income was $6 in the first six months of 2024 and $9 in the first six months of 2023.

Interest expense increased from $73 in the first six months of 2023 to $78 in the first six months 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 six months of 2024 and 5.3% in the first six months of 2023.

Income tax expense — We reported income tax expense of $91 and $85 for the first six months of 2024 and 2023, respectively.

Our effective tax rates were 89% and 57% for the first six months of 2024 and 2023, respectively.

During the first six months of 2024, we recorded tax expense of $11 for valuation allowances related to foreign jurisdictions and tax expense of $11 due to revisions in our assertions on unremitted earnings in foreign jurisdictions.

During the second quarter of 2023, we recorded tax expense of $19 for income tax reserves associated with prior tax years in foreign jurisdictions.

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

federal statutory rate of 21% due to establishment, release and adjustment of valuation allowances in several countries outside the U.S., different statutory tax rates outside the U.S.

and withholding taxes related to repatriations of international earnings.

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

Equity in earnings of affiliates — Net earnings from equity investments was $5 in the first six months of 2024 and $3 in the first six months of 2023.

Net earnings from Dongfeng Dana Axle Co., Ltd.

(DDAC) were $1 in the first six month of 2024 and de minimis in the first six months of 2023.

Segment Results of Operations (2024 versus 2023)

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Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Currency effects

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.

Light Vehicle sales in the second quarter of 2024, exclusive of currency effects, were 7% higher than 2023 reflecting mixed global markets, 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 increased 2% and Asia Pacific light-truck production increased 6% in this year’s second quarter while light-truck production in Europe and South America decreased 3% and 5%, respectively.

Light Vehicle sales in the first half of 2024, exclusive of currency effects, were 10% higher than 2023 reflecting mixed global markets, having a full six months 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 sale backlog and the benefit of net customer pricing and cost recovery actions.

Year-over-year North America full-frame light-truck production increased 1% and Asia Pacific light-truck production increased 4% in this year’s first half while light-truck production in Europe and South America decreased 2% and 4%, respectively.

Net customer pricing and cost recovery actions increased year-over-year sales by $27 and $54 in this year’s second quarter and first half, respectively.

Light Vehicle second-quarter and first-half 2024 segment EBITDA increased $18 and $36, respectively, from the comparable periods of 2023.

Higher sales volumes provided a year-over-year earnings benefit of $10 (22% incremental margin) in the second quarter of 2024.

Higher sales volumes provided a year-over-year earnings benefit of $38 (24% incremental margin) in the first half of 2024.

The year-over-year performance-related earnings increase in the second quarter of 2024 was driven by net customer pricing and cost recovery actions of $27, operational efficiencies of $25, higher material cost savings of $12, lower program launch costs of $4, lower premium freight costs of $3 and lower incentive compensation expense of $2.

Partially offsetting these performance-related earnings increases were inflationary cost increases of $45, higher spending on electrification initiatives of $10, commodity cost increases of $5 and higher warranty expense of $4.

Year-over-year performance-related earnings drivers during the first half of 2024 were neutral compared with the first half of 2023.

Year-over-year performance-related earnings increases were driven by net customer pricing and cost recovery actions of $54, higher material cost savings of $25, operational efficiencies of $20, lower premium freight costs of $10, lower program launch costs of $8, lower incentive compensation expense of $1 and lower warranty expense of $1.

Offsetting these performance-related earnings increases were inflationary cost increases of $89, higher spending on electrification initiatives of $21 and commodity cost increases of $9.

Commercial Vehicle

1 unchanged sentence

Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Currency effects

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.

Commercial Vehicle sales in the second quarter of 2024, exclusive of currency effects, were 1% higher than 2023 reflecting mixed global markets and the conversion of sales backlog being partially offset by 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 13% in this year’s second quarter.

Year-over-year medium/heavy-truck production in Europe was down 9% while medium/heavy-truck production in South America and Asia Pacific were up 55% and 7%, respectively.

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

Year-over-year Class 8 production in North America was flat while Classes 5-7 was down 4% in this year’s first half.

Year-over-year medium/heavy-truck production in Europe was down 13% while medium/heavy-truck production in South America and Asia Pacific were up 37% and 3%, respectively.

Net customer pricing and cost recovery actions decreased year-over-year sales by $1 in this year’s second quarter and increased year-over-year sales by $6 in this year’s first half.

Commercial Vehicle second-quarter and first-half 2024 segment EBITDA both decreased $5 from the comparable periods of 2024.

The EBITDA benefit of higher sales volumes was more than offset by unfavorable product mix in the second quarter of 2024, decreasing year-over-year earnings by $9.

Lower sales volumes and unfavorable product mix decreased year-over-year earnings by $25 in the first half of 2024.

The year-over-year performance-related earnings increase in the second quarter of 2024 was driven by higher material cost savings of $8, lower spending on electrification initiatives of $8, lower premium freight costs of $4 and lower incentive compensation expense of $3.

Partially offsetting these performance-related earnings increases were operational inefficiencies of $8, inflationary cost increases of $5, higher warranty expense of $3, net customer pricing and cost recovery actions of $1 and commodity cost increases of $1.

The year-over-year performance-related earnings increase in the first half of 2024 was driven by lower spending on electrification initiatives of $16, higher material cost savings of $15, lower premium freight costs of $9, net customer pricing and cost recovery actions of $6 and lower incentive compensation expense of $3.

Partially offsetting these performance-related earnings increases were operational inefficiencies of $15, inflationary cost increases of $7, higher warranty expense of $4, higher program launch costs of $1 and commodity cost increases of $1.

Segment EBITDA

Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

Currency effects

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.

Off-Highway sales in the second quarter of 2024, exclusive of currency and divestiture effects, were 10% 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.

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

Off-Highway sales in the first half of 2024, exclusive of currency and divestiture effects, were 9% 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 half 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 and $16 in this year’s second quarter and first half, respectively.

Off-Highway second-quarter and first-half 2024 segment EBITDA decreased $15 and $18, respectively, from the comparable periods of 2023.

Lower sales volumes decreased year-over-year earnings by $26 (33% decremental margin) in the second quarter of 2024.

Lower sales volumes decreased year-over-year earnings by $43 (32% decremental margin) in the first half of 2024.

The year-over-year performance-related earnings increase in the second quarter of 2024 was driven by higher material cost savings of $8, operational efficiencies of $8, commodity cost decreases of $3, lower premium freight costs of $2 and lower incentive compensation expense of $1.

Partially offsetting these performance-related earnings increases were net customer pricing and cost recovery actions of $8 and inflationary cost increases of $2.

The year-over-year performance-related earnings increase in the first half of 2024 was driven by higher material costs savings of $17, commodity cost decreases of $10, operational efficiencies of $10, lower premium freight costs of $4 and lower warranty expenses of $2.

Partially offsetting these performance-related earning increases were net customer pricing and cost recovery actions of $16 and inflationary cost increases of $1.

Power Technologies

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Segment EBITDA Margin

Segment EBITDA

Segment EBITDA Margin

Volume and mix

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

Power Technologies sales in the 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.

Power Technologies sales in the second quarter of 2024, exclusive of currency effects, were 7% higher than 2023, reflecting the conversion of sales backlog and mixed global markets, partially offset by the impact of net customer pricing actions.

Year-over-year light vehicle engine production was flat in North America and down 5% in Europe.

In addition, our second quarter 2024 sales in Europe were impacted by lower electric-vehicle product orders.

Power Technologies sales in the first half of 2024, exclusive of currency effects, were 5% higher than 2023, reflecting the conversion of sales backlog, mixed global markets and the benefit of net customer pricing actions.

Year-over-year light vehicle engine production was up 1% in North America and down 3% in Europe.

In addition, our first half 2024 sales in Europe were impacted by lower electric-vehicle product orders.

Net customer pricing and cost recovery actions decreased year-over-year sales by $1 in this year’s second quarter and increased year-over-year sales by $8 in this year’s first half.

Power Technologies second-quarter and first-half 2024 segment EBITDA increased $3 and $7, respectively, from the comparable periods of 2023.

The EBITDA benefit of higher sales volumes was offset by unfavorable product mix in both the second-quarter and first-half of 2024.

The year-over-year performance-related earnings increase in the second quarter of 2024 was driven by higher material cost savings of $5, commodity cost decreases of $2, operational efficiencies of $1, lower program launch costs of $1 and lower incentive compensation expense of $1.

These performance-related earnings increases were partially offset by inflationary cost increases of $3, higher premium freight costs of $2, higher warranty expense of $1 and net customer pricing and cost recovery actions of $1.

The year-over-year performance-related earnings increase in the first half of 2024 was driven by higher material cost savings of $11, net customer pricing and cost recovery actions of $8, commodity cost decreases of $4, lower program launch costs of $1 and lower incentive compensation expense of $1.

These performance-related earnings increases were partially offset by operational inefficiencies of $11, inflationary cost increases of $5, higher premium freight costs of $1 and higher warranty expense of $1.

Non-GAAP Financial Measures

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Three Months Ended

Six Months Ended

Equity in earnings of affiliates

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Interest expense, net

Loss on extinguishment of debt

Distressed supplier costs

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Three Months Ended

Net cash used in operating activities

Six Months Ended

Net cash provided by 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 March 31, 2024:

The following table provides a reconciliation of cash and cash equivalents to liquidity, a non-GAAP measure, at June 30, 2024:

Cash and cash equivalents

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Total liquidity

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:

We had availability of $1,141 at June 30, 2024 under our Revolving Facility after deducting $9 of outstanding letters of credit.

The components of our June 30, 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.

At March 31, 2024, we were in compliance with the covenants of our financing agreements.

At June 30, 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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The following table summarizes our consolidated statement of cash flows:

Three Months Ended

Six Months Ended

Cash used for changes in working capital

Other cash provided by operations

Net cash used in operating activities

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

Net cash (used in) provided by financing activities

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

Operating activities — Exclusive of working capital, other cash provided by operations was $308 in 2024 and $258 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.

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

Working capital used cash of $195 and $172 in 2024 and 2023.

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Investing activities — Expenditures for property, plant and equipment were $181 and $242 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.

Elevated capital spending in 2023 was driven by the high volume of new program launches in that year.

In addition, lower capital spending during the first half of 2024 compared to 2023 is being impacted by the calendarization of capital spend being lower in this year’s first half.

Financing activities — During 2023, we had net repayments of $25 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 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.

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Off-Balance Sheet Arrangements

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.

There have been no material changes at June 30, 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

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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 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.

There were no changes to our critical accounting estimates in the six months ended June 30, 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 six 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