What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-30 compared with 2024-07-31 · 163 added, 160 removed, 354 unchanged (48% 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 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,

At September 30, 2024, we employed approximately 41,100 people and operated in 31 countries.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Light Vehicle

67 unchanged sentences

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

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

The outlook for 2024 is for a moderate 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.

The 2024 outlook for South America is for a moderate 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.

The 2024 outlook for Asia Pacific is for a modest decrease 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.

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The global construction equipment market continued to rebound in 2023 with production up 5% over the prior year.

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.

The outlook for 2024 is for moderately lower production levels in North America, Europe and South America, with relatively stable production levels in Asia Pacific.

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

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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 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.

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

Foreign currency — With 54% of our year-to-date 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 48% of our year-to-date 2024 non-U.S.

sales, while India, Brazil and China accounted for 10%, 9% and 8%, respectively.

2 unchanged sentences

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.

dollar in the first nine months of 2024, decreasing sales by $34, with the effects of a weaker Brazilian real, Chinese renminbi, Thai baht and Indian rupee, being partially offset by a stronger euro.

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

Our Argentine operation supports our Light Vehicle operating segment.

Our sales in Argentina for the first 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.

Our sales in Argentina for the first nine months of 2024 of approximately $165 are 2% of our consolidated sales and our net asset exposure related to Argentina was approximately $67, including $21 of net fixed assets, at September 30, 2024.

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

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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 six months of 2024 by $4.

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

Lower year-over-year commodity prices increased earnings during the first nine months of 2024 by $17.

Material cost recovery pricing actions decreased earnings in the first nine months of 2024 by $45.

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 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.

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, Brazilian real and Thai baht.

Our current 2024 sales outlook is $10,200 to $10,400, a decrease of $400 at the mid-point of the range from our prior guidance, reflecting weaker global commercial vehicle and agricultural and construction/mining equipment markets, a further reduction in electric-vehicle demand and lower customer demand associated with one of our full-frame light-truck programs.

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 Brazilian real, Chinese renminbi, Thai baht and Indian rupee, partially offset by a stronger euro.

At sales levels in our current outlook for 2024, a 5% movement on the euro would impact our annual sales by approximately $30.

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 $5.

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

At our current sales outlook for 2024, we expect full year 2024 adjusted EBITDA to approximate $855 to $895, $50 lower from our prior guidance at the midpoint of the range.

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 $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,

We expect to generate free cash flow of approximately $100 at the midpoint of our guidance range, reflecting a year-over-year reduction in anticipated capital spending.

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

Three Months Ended September 30,

% of Net Sales

5 unchanged sentences

Restructuring charges, net

Loss on disposal group held for sale

Gain on disposal group previously held for sale

Other income (expense), net

Earnings before interest and income taxes

Loss on extinguishment of debt

Interest income

4 unchanged sentences

Noncontrolling interests net income

Redeemable noncontrolling interests net income (loss)

Redeemable noncontrolling interests net loss

Net income attributable to the parent company

1 unchanged sentence

Three Months Ended

September 30,

Amount of Change Due To

5 unchanged sentences

South America

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.

Sales in the third quarter of 2024 were $193 lower than in 2023.

Weaker international currencies decreased sales by $15, principally due to a weaker Brazilian real, partially offset by a stronger euro.

The organic sales decrease of $176, or 7%, primarily resulted from declining global construction/mining and agricultural equipment markets, lower global light-truck production volumes and lower medium/heavy-truck production volumes in North America and Asia Pacific, partially offset by the conversion of sales backlog.

Pricing actions and recoveries, including material commodity price and inflationary costs adjustments, increased sales by $16.

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%.

The North America organic sales decrease of 3% was driven principally lower full-frame light-truck and medium- and heavy-duty truck production volumes, partially offset by the conversion of sales backlog and net customer pricing and cost recovery actions.

Third quarter 2024 full-frame light-truck production was down 3%, Class 8 production was down 12% and Classes 5-7 was down 11% compared to 2023.

Excluding currency effects, sales in Europe were down 15% compared with 2023.

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Excluding currency effects, sales in Asia Pacific decreased 12% compared to 2023, reflecting lower electric vehicle related product sales.

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.

Cost of sales and gross margin — Cost of sales for the third quarter of 2024 decreased $202 when compared to 2023.

Cost of sales as a percent of sales was 110 basis points lower than in the previous year.

Incremental margins from higher material cost savings of $31, operational efficiencies of $21, commodity cost decreases of $13, lower premium freight costs of $7, lower warranty expense of $5, lower incentive compensation expense of $4 and lower program launch costs of $2 were partially offset by unfavorable product mix, non-material inflation of $33 and higher spending on electrification initiatives of $2.

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 $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.

Gross margin of $245 for the third quarter of 2024 increased $9 from 2023.

Gross margin as a percent of sales was 9.9% in the third quarter of 2024, 110 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.

Gross margin was negatively impacted by lower year-over-year net material cost recoveries on both a dollar and percentage basis.

With commodity costs abating during the third 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 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.

Selling, general and administrative expenses (SG&A) — SG&A expenses in the third quarter of 2024 were $130 (5.3% of sales) as compared to $126 (4.7% of sales) in the third quarter of 2023.

SG&A expenses were $4 higher in the third quarter of 2024 primarily due to higher salary and employee benefit costs.

Amortization of intangibles — Amortization expense was $3 in both the third 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 $12 in the second quarter of 2024 and $3 in the second quarter of 2023.

Restructuring charges, net — Net restructuring charges were $24 in the third quarter of 2024 and $17 in the third quarter 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.

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

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

The transaction was not completed by the date set forth in the definitive agreement.

The disposal group is no longer held for sale.

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

1 unchanged sentence

Three Months Ended

September 30,

Non-service cost components of pension and OPEB costs

2 unchanged sentences

Strategic transaction expenses

Loss on sale of property, plant and equipment

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 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.

Strategic transaction expenses in the third 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 the third quarter of 2024 and $5 in the third quarter of 2023.

Interest expense was $40 in the third quarter of 2024 and $41 in the third quarter of 2023, reflecting higher average outstanding borrowings in 2024 being offset by lower average interest rates.

Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.8% in the third quarter of 2024 and 6.1% in the third quarter of 2023.

Income tax expense — We reported income tax expense of $43 and $33 for the third quarter of 2024 and 2023, respectively.

Our effective tax rates were 83% and 60% for the third quarter of 2024 and 2023, respectively.

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 $3 in the second quarter of 2024 and $2 in the second quarter of 2023.

Equity in earnings of affiliates — Net earnings from equity investments was $2 in the third quarter of 2024 and $3 in the third quarter of 2023.

Net earnings from Dongfeng Dana Axle Co., Ltd.

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

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

% of Net Sales

5 unchanged sentences

Restructuring charges, net

Loss on disposal group held for sale

Loss on disposal group previously held for sale

Other income (expense), net

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

Six Months Ended

Nine Months Ended

September 30,

Amount of Change Due To

5 unchanged sentences

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.

Sales in 2024 were $112 lower than in 2024.

Weaker international currencies decreased sales by $34, principally due to a weaker Brazilian real, Chinese renminbi, Thai baht and Indian rupee, partially offset by a stronger euro.

The organic sales decrease of $74, or 1%, resulted from declining global construction/mining and agricultural equipment markets, which were partially offset by having a full nine 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 and the conversion of sales backlog.

Pricing actions and recoveries, including material commodity price and inflationary cost adjustments, increased sales by $68.

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%.

The North America organic sales increase of 5% was driven principally by having a full nine 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 sales backlog and net customer pricing and cost recovery actions.

Excluding currency effects, sales in Europe were down 10% 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.

Organic sales in this operating segment were down 11% compared with the first nine months 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 6% 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.

Cost of sales and gross margin — Cost of sales for the nine months of 2024 decreased $120, or 2%, when compared to 2023.

Cost of sales as a percent of sales was 30 basis points lower than in the previous year.

Incremental margins resulting from higher material cost savings of $99, operational efficiencies of $39, lower premium freight costs of $29, lower commodity costs of $17, lower program launch costs of $10, lower incentive compensation expense of $7 and lower warranty expense of $3 were partially offset by unfavorable product mix, non-material inflation of $129 and higher spending on electrification initiatives of $17.

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.

Gross margin of $744 for the first nine months of 2024 increased $8 from 2023.

Gross margin as a percent of sales was 9.4% in the first nine months of 2024, 30 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 during the first six months of 2024, gross margin was negatively impacted by net material cost recoveries on both a dollar and percentage basis.

With commodity costs abating during the first nine 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.

Selling, general and administrative expenses (SG&A) — SG&A expenses in the first nine months of 2024 were $401 (5.0% of sales) as compared to $410 (5.1% of sales) in the first nine months of 2023.

SG&A expenses were $9 lower in the first nine months of 2024 due to lower incentive compensation, lower professional services and consulting costs and lower marketing expenditures.

Amortization of intangibles — Amortization expense was $10 in the first nine 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.

Restructuring charges, net — Net restructuring charges were $41 in the first nine months of 2024 and $21 in the first nine 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.

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

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

The transaction was not completed by the date set forth in the definitive agreement.

The disposal group is no longer held for sale.

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

Nine Months Ended

September 30,

Non-service cost components of pension and OPEB costs

Government assistance

Foreign exchange gain (loss)

Foreign exchange loss

Strategic transaction expenses

Loss on sale of property, plant and equipment

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.

Strategic transaction expenses in the first nine 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.

1 unchanged sentence

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.

Interest income and interest expense — Interest income was $10 in the first nine months of 2024 and $14 in the first nine months of 2023.

Interest expense increased from $114 in the first nine months of 2023 to $118 in the first nine months of 2024, due to higher average outstanding borrowings and higher average interest rates.

Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.7% in the first nine months of 2024 and 5.6% in the first nine months of 2023.

Income tax expense — We reported income tax expense of $134 and $118 for the first nine months of 2024 and 2023, respectively.

Our effective tax rates were 87% and 58% for the first nine months of 2024 and 2023, respectively.

During the first nine 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 first nine months 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.

2 unchanged sentences

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.

Equity in earnings of affiliates — Net earnings from equity investments was $7 in the first nine months of 2024 and $6 in the first nine 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.

(DDAC) were $1 in both the first nine months of 2024 and 2023.

Segment Results of Operations (2024 versus 2023)

6 unchanged sentences

Currency effects

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.

Light Vehicle sales in the third quarter of 2024, exclusive of currency effects, were 5% lower than 2023 reflecting mixed global markets, partially offset by the conversion of sales backlog and the benefit of net customer pricing and cost recovery actions.

Year-over-year third-quarter North America full-frame light-truck production decreased 3% while light-truck production in Europe and Asia Pacific decreased 3% and 4%, respectively.

Year-over-year light-truck production in South America was up 15%.

Light Vehicle sales in the first nine months of 2024, exclusive of currency effects, were 5% higher than 2023, reflecting a full nine 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, partially offset by mixed global markets.

Year-over-year North America full-frame light-truck production decreased 1% while light-truck production in Europe decreased 1% in this year’s first nine months.

Year-over-year South America and Asia Pacific light-truck production increased 3% and 1%, respectively, in this year’s first nine months.

Net customer pricing and cost recovery actions increased year-over-year sales by $19 and $73 in this year’s third quarter and first nine months, respectively.

Light Vehicle segment EBITDA increased $3 and $39 in the third quarter and first nine months of 2024, respectively, from the comparable periods of 2023.

Lower sales volumes decreased year-over-year earnings by $27 (38% decremental margin) in the third quarter of 2024.

Higher sales volumes provided a year-over-year earnings benefit of $11 (13% incremental margin) in the first nine months of 2024.

The year-over-year performance-related earnings increase in the third quarter of 2024 was driven by net customer pricing and cost recovery actions of $19, operational efficiencies of $14, commodity cost decreases of $12, higher material cost savings of $11, lower premium freight costs of $4, lower incentive compensation expense of $2, lower program launch costs of $1 and lower warranty expense of $1.

Partially offsetting these performance-related earnings increases were inflationary cost increases of $23 and higher spending on electrification initiatives of $11.

The year-over-year performance-related earnings increase during the first nine months of 2024 was driven by net customer pricing and cost recovery actions of $73, higher material cost savings of $36, operational efficiencies of $34, lower premium freight costs of $14, lower program launch costs of $9, lower incentive compensation expense of $3, commodity cost decreases of $3 and lower warranty expense of $2.

Offsetting these performance-related earnings increases were inflationary cost increases of $112 and higher spending on electrification initiatives of $32.

Commercial Vehicle

5 unchanged sentences

Currency effects

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.

Commercial Vehicle sales in the third quarter of 2024, exclusive of currency effects, were 5% lower than 2023 reflecting generally weaker global markets partially offset by the conversion of sales backlog and net customer pricing and cost recovery actions.

Year-over-year Class 8 production in North America was down 12% while Classes 5-7 was down 11% in this year’s third quarter.

Year-over-year medium/heavy-truck production in Europe and Asia pacific were down 15% and 3%, respectively, while medium/heavy-truck production in South America was up 51%.

Commercial Vehicle sales in the first nine months of 2024, exclusive of currency effects, were 1% lower than 2023 reflecting mixed global markets being partially offset by the conversion of sales backlog and net customer pricing and cost recovery actions.

Year-over-year Class 8 production in North America was down 2% while Classes 5-7 was up 1% in this year’s first nine months.

Year-over-year medium/heavy-truck production in Europe and Asia Pacific were down 12% and 1%, respectively, while medium/heavy-truck production in South America was up 41%.

Net customer pricing and cost recovery actions increased year-over-year sales by $6 and $12 in this year’s third quarter and first nine months, respectively.

Commercial Vehicle segment EBITDA decreased $3 and $8 in the third quarter and first nine months of 2024, respectively, from the comparable periods of 2023.

Lower sales volumes and unfavorable product mix decreased earnings by $21 (68% decremental margin) in the third quarter of 2024.

Lower sales volumes and unfavorable product mix decreased earnings by $46 (144% decremental margin) in the first nine months of 2024.

The year-over-year performance-related earnings increase in the third quarter of 2024 was driven by net customer pricing and cost recovery actions of $6, lower spending on electrification initiatives of $8, higher material cost savings of $6, commodity cost decreases of $3, lower incentive compensation expense of $2, lower program launch costs of $1 and lower premium freight costs of $1.

Partially offsetting these performance-related earnings increases were inflationary cost increases of $5 and operational inefficiencies of $3.

The year-over-year performance-related earnings increase in the first nine months of 2024 was driven by lower spending on electrification initiatives of $24, higher material cost savings of $21, net customer pricing and cost recovery actions of $12, lower premium freight costs of $10, lower incentive compensation expense of $5 and commodity cost decreases of $2.

Partially offsetting these performance-related earnings increases were operational inefficiencies of $18, inflationary cost increases of $12 and higher warranty expense of $4.

Segment EBITDA

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Currency effects

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 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.

Off-Highway sales in the third quarter of 2024, exclusive of currency and divestiture effects, were 15% lower than 2023 reflecting softening global markets and the impact of net customer pricing and cost recovery actions.

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

Year-over-year third quarter construction/mining equipment and agricultural equipment production in Europe were down 12% and 24%, respectively.

Off-Highway sales in the first nine months of 2024, exclusive of currency and divestiture effects, were 11% lower than 2023 reflecting softening global markets and the impact of net customer pricing and cost recovery actions.

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

Year-over-year first nine months construction/mining equipment and agricultural equipment production in Europe were down 12% and 24%, respectively.

Net customer pricing and cost recovery actions decreased year-over-year sales by $6 and $22 in this year’s third quarter and first nine months, respectively.

Off-Highway segment EBITDA decreased $7 and $25 in the third quarter and first nine months of 2024, respectively, from the comparable periods of 2023.

Lower sales volumes decreased year-over-year earnings by $25 (24% decremental margin) in the third quarter of 2024.

Lower sales volumes decreased year-over-year earnings by $68 (28% decremental margin) in the first nine months of 2024.

The year-over-year performance-related earnings increase in the third quarter of 2024 was driven by operational efficiencies of $12, higher material cost savings of $7, lower warranty expense of $4, lower premium freight costs of $2, commodity cost decreases 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 $6, inflationary cost increases of $3 and higher program launch costs of $1.

The year-over-year performance-related earnings increase in the first nine months of 2024 was driven by higher material costs savings of $24, operational efficiencies of $22, commodity cost decreases of $12, lower premium freight costs of $6, lower warranty expense of $6 and lower incentive compensation expense of $1.

Partially offsetting these performance-related earning increases were net customer pricing and cost recovery actions of $22, inflationary cost increases of $4 and higher program launch costs of $1.

Power Technologies

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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 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.

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

Year-over-year light vehicle engine production in North America and Europe were down 5% and 7%, respectively.

Power Technologies sales in the first nine months of 2024, exclusive of currency effects, were 5% higher than 2023, reflecting the conversion of sales backlog and the benefit of net customer pricing actions, partially offset by weaker global markets.

Year-over-year light vehicle engine production in North America and Europe were down 1% and 4%, respectively.

Net customer pricing and cost recovery actions decreased year-over-year sales by $3 in this year’s third quarter and increased year-over-year sales by $5 in this year’s first nine months.

Power Technologies third-quarter segment EBITDA decreased $2 and first nine months segment EBITDA increased $5 from the comparable periods of 2023.

The EBITDA benefit of higher sales volumes was offset by unfavorable product mix in both the third quarter and first nine months of 2024.

The year-over-year performance-related earnings decrease in the third quarter of 2024 was driven by commodity cost increases of $4, inflationary cost increases of $4 and net customer pricing and cost recovery actions of $3.

These performance-related earnings decreases were partially offset by higher material costs savings of $7, lower spending on electrification initiatives of $1, lower incentive compensation expense of $1 and lower program launch costs of $1.

The year-over-year performance-related earnings increase in the first nine months of 2024 was driven by higher material cost savings of $18, net customer pricing and cost recovery actions of $5, lower program launch costs of $2, lower incentive compensation expense of $2 and lower spending on electrification initiatives of $1.

These performance-related earnings increases were partially offset by operational inefficiencies of $11, inflationary cost increases of $9, higher premium freight costs of $1 and higher warranty expense of $1.

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Equity in earnings of affiliates

6 unchanged sentences

Distressed supplier costs

Loss on disposal group held for sale

Loss on disposal group previously held for sale

Adjusted EBITDA

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities

1 unchanged sentence

Free cash flow

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

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

Cash and cash equivalents

3 unchanged sentences

Total liquidity

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:

We had availability of $1,130 at September 30, 2024 under our Revolving Facility after deducting $10 of outstanding borrowings and $10 of outstanding letters of credit.

The components of our September 30, 2024 consolidated cash balance were as follows:

Cash and cash equivalents

5 unchanged sentences

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

At June 30, 2024, we were in compliance with the covenants of our financing agreements.

At September 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.

10 unchanged sentences

The following table summarizes our consolidated statement of cash flows:

Six Months Ended

Nine Months Ended

September 30,

Cash used for changes in working capital

5 unchanged sentences

Operating activities — Exclusive of working capital, other cash provided by operations was $409 in 2024 and $367 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 income taxes and interest.

The year-over-year increase is primarily attributable to higher operating earnings in 2024.

Working capital used cash of $261 and $169 in 2024 and 2023.

4 unchanged sentences

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.

Financing activities — During 2024 and 2023, we had net borrowings of $10 and net repayments of $25 on our Revolving Facility, respectively.

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

4 unchanged sentences

Distributions to noncontrolling interests totaled $17 in 2024 and $10 in 2023.

Hydro-Québec made cash contributions to Dana TM4 of $18 in 2024 and $17 in 2023.

Hydro-Québec made cash contributions to Dana TM4 of $18 in both 2024 and 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 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.

There have been no material changes at September 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

6 unchanged sentences

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 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.

There were no changes to our critical accounting estimates in the nine months ended September 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 nine months of 2024.

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis