Discussion and analysis by the management of DANA INC of the financial situation and operating results (in millions of dollars) (Form 10-Q)


The MD&A and the analysis of the financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes therein.


Forward-Looking Information



Statements in this report (or otherwise made by us or on our behalf) that are
not entirely historical constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements can often be identified by words such as
"anticipates," "expects," "believes," "intends," "plans," "predicts," "seeks,"
"estimates," "projects," "outlook," "may," "will," "should," "would," "could,"
"potential," "continue," "ongoing" and similar expressions, variations or
negatives of these words. These statements represent the present expectations of
Dana Incorporated and its consolidated subsidiaries (Dana) based on our current
information and assumptions. Forward-looking statements are inherently subject
to risks and uncertainties. Our plans, actions and actual results could differ
materially from our present expectations due to a number of factors, including
those discussed below and elsewhere in this report and in our other filings with
the Securities and Exchange Commission (SEC). All forward-looking statements
speak only as of the date made and we undertake no obligation to publicly update
or revise any forward-looking statement to reflect events or circumstances that
may arise after the date of this report.





Management Overview



Dana is headquartered in Maumee, Ohio, and was incorporated in Delaware in 2007.
We are a global provider of high-technology products to virtually every major
vehicle manufacturer in the world. We also serve the stationary industrial
market. Our technologies include drive systems (axles, driveshafts,
transmissions, and wheel and track drives); motion systems (winches, slew
drives, and hub drives); electrodynamic technologies (motors, inverters,
software and control systems, battery-management systems, and fuel cell
plates); sealing solutions (gaskets, seals, cam covers, and oil pan modules);
thermal-management technologies (transmission and engine oil cooling, battery
and electronics cooling, charge air cooling, and thermal-acoustical protective
shielding); and digital solutions (active and passive system controls
and descriptive and predictive analytics). We serve our global light vehicle,
medium/heavy vehicle and off-highway markets through four business units - Light
Vehicle Drive Systems (Light Vehicle), Commercial Vehicle Drive and Motion
Systems (Commercial Vehicle), Off-Highway Drive and Motion Systems (Off-Highway)
and Power Technologies, which is the center of excellence for sealing and
thermal-management technologies that span all customers in our on-highway and
off-highway markets. We have a diverse customer base and geographic footprint,
which minimizes our exposure to individual market and segment declines. At
September 30, 2021, we employed approximately 39,500 people, operated in
33 countries and had 141 major facilities housing manufacturing and distribution
operations, service and assembly operations, technical and engineering centers
and administrative offices.



External sales by operating segment for the periods ended September 30, 2021
and 2020 are as follows:



                                Three Months Ended September 30,                   Nine Months Ended September 30,
                                  2021                     2020                     2021                     2020
                                          % of                    % of                      % of                    % of
                          Dollars        Total      Dollars      Total       Dollars       Total      Dollars      Total
Light Vehicle            $     918         41.7 %   $    913       45.8 %   $   2,799        42.0 %   $  2,058       41.2 %
Commercial Vehicle             396         18.0 %        317       15.9 %       1,132        17.0 %        852       17.0 %
Off-Highway                    627         28.4 %        504       25.3 %       1,931        28.9 %      1,435       28.7 %
Power Technologies             263         11.9 %        260       13.0 %         810        12.1 %        653       13.1 %
Total                    $   2,204                  $  1,994                $   6,672                 $  4,998



See note 19 to our consolidated financial statements in section 1 of part I for further financial information on our operating segments.



Our internet address is www.dana.com. The inclusion of our website address in
this report is an inactive textual reference only and is not intended to include
or incorporate by reference the information on our website into this report.




Operational and strategic initiatives



Our enterprise strategy builds on our strong technology foundation and leverages
our resources across the organization while driving a customer centric focus,
expanding our global markets, and delivering innovative solutions as we evolve
into the era of vehicle electrification.



Central to our strategy is leveraging our core operations. This foundational
element enables us to infuse strong operational disciplines throughout the
strategy, making it practical, actionable, and effective. It enables us to
capitalize on being a major drive systems supplier across all three end-mobility
markets. We are achieving improved profitability by actively seeking synergies
across our engineering, purchasing, and manufacturing base. We have strengthened
the portfolio by acquiring critical assets; and we are utilizing our physical
and intellectual capital to amplify innovation across the enterprise. Leveraging
these core elements can further expand the cost efficiencies of our common
technologies and deliver a sustainable competitive advantage for Dana.



Driving customer centricity continues to be at the heart of who we are. Putting
our customers at the center of our value system is firmly embedded in our
culture and is driving growth by focusing on customer relationships and
providing value to our customers. These relationships are strengthened as we are
physically where we need to be in order to provide unparalleled service and we
are prioritizing our customers' needs as we engineer solutions that
differentiate their products, while making it easier to do business with Dana by
digitizing their experience. Our customer centric focus has uniquely positioned
us to win more than our fair share of new business and capitalize on future
customer outsourcing initiatives.



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We continue to enhance and expand our global footprint, optimizing it to capture
growth across all of our end markets. Expanding global markets means utilizing
our global capabilities and presence to further penetrate growth markets,
focusing on Asia due to its position as the largest mobility market in the world
with the highest market growth rate and its lead in the adoption of new energy
vehicles. We are investing across various avenues to increase our presence in
Asia Pacific by forging new partnerships, expanding inorganically, and growing
organically. We continue to operate in this region through wholly owned and
joint ventures with local market partners. We have recently made acquisitions
that have augmented our footprint in the region, specifically in India and
China. All the while, we have been making meaningful organic investments to grow
with existing and new customers, primarily in Thailand, India, and China. These
added capabilities have enabled us to target the domestic Asia Pacific markets
and utilize the capacity for export to other global markets.



Delivering innovative solutions enables us to capitalize on market growth trends
as we evolve our core technology capabilities. We are also focused on enhancing
our physical products with digital content to provide smart systems and we
see an opportunity to become a digital systems provider by delivering software
as a service to our traditional end customers. This focus on delivering
solutions based on our core technology is leading to new business wins and
increasing our content per vehicle. We have made significant investments - both
organically and inorganically - allowing us to move to the next phase, which is
to Lead electric propulsion.



We have accelerated hybridization and electrification through both core
Dana technologies and targeted strategic acquisitions and are positioned today
to lead the market. The ten recent investments in electrodynamic expertise and
technologies combined with Dana's longstanding mechatronics capabilities has
allowed us to develop and deliver fully integrated e-Propulsion systems that are
power-dense and achieve optimal efficiency through the integration of the
components that we offer due to our mechatronics capabilities. With recent
electric vehicle program awards, we are well on our way to achieving our growth
objectives in this emerging market.



The development and implementation of our enterprise strategy is positioning
Dana to grow profitably due to increased customer focus as we leverage our core
capabilities, expand into new markets, develop and commercialize new
technologies including for hybrid and electric vehicles.



See the discussion of trends in our markets below for more information on our operational and strategic initiatives.


Capital Structure Initiatives



In addition to investing in our business, we plan to continue prioritizing the
allocation of capital to reduce debt and maintain a strong financial position.
We continue to drive toward investment grade metrics as part of a balanced
approach to our capital allocation priorities and our goal of further
strengthening our balance sheet.



Shareholder return actions - When evaluating capital structure initiatives, we
balance our growth opportunities and shareholder value initiatives with
maintaining a strong balance sheet and access to capital. Our strong financial
position has enabled us to simplify our capital structure while providing
returns to our shareholders in the form of cash dividends and a reduction in the
number of shares outstanding. Our Board of Directors authorized a $200 share
repurchase program effective in 2018 which expires at the end of 2023. Through
September 30, 2021, we have used cash of $73 to repurchase common shares under
the program. Through the first quarter of 2020, we had declared and paid
quarterly common stock dividends for thirty-three consecutive quarters. In
response to the global COVID-19 pandemic, we temporarily suspended the
declaration and payment of dividends to common shareholders and the repurchase
of common stock under our existing common stock share repurchase program. With
the impacts of the global COVID-19 pandemic largely behind us we resumed the
declaration and payment of quarterly common stock dividends during the first
quarter of 2021 and our share repurchase program in the third quarter of 2021.



Financing actions - Over the past few years we have taken advantage of the lower
interest rate environment to complete refinancing transactions that resulted in
lower effective interest rates while extending maturities. During 2019 we
expanded our credit and guaranty agreement, entering into $675 of additional
floating rate term loans to fund the ODS acquisition and increased our revolving
credit facility to $1,000 and extended its maturity to August 2024. We completed
a $300 2027 note offering and used the proceeds to repay $300 of higher cost
2023 notes. During 2019, we terminated one of our U.S. defined benefit pension
plans, settling approximately $165 of previously unfunded pension obligations
and eliminating future funding risk associated with interest rate and other
market developments. In response to the global COVID-19 pandemic, during June
2020, we completed a $400 2028 note offering and a $100 add on to our 2027
notes. With the impact of the global COVID-19 pandemic on our
operations dissipating, we paid down $474 of our floating rate term loans (the
"Term A Facility") in the third and fourth quarters of 2020. During the first
quarter of 2021, we increased our revolving credit facility to $1,150 and
extended its maturity to March 2026. During the second quarter of 2021, we
completed a €325 2029 note offering and used the proceeds to repay $375 of
higher cost 2026 notes. In addition, we completed a $400 2030 note offering and
redeemed $425 of higher cost 2024 notes. See Note 12 to our consolidated
financial statements in Item 1 of Part I for additional information.



Other Initiatives



Aftermarket opportunities - We have a global group dedicated to identifying and
developing aftermarket growth opportunities that leverage the capabilities
within our existing businesses - targeting increased future aftermarket sales.
Powered by recognized brands such as Dana®, Spicer®, Spicer Electrified™, Victor
Reinz®, Glaser®, GWB®, Thompson®, Tru-Cool®, SVL®, and Transejes™, Dana delivers
a broad range of aftermarket solutions - including genuine, all makes, and value
lines - servicing passenger, commercial, and off-highway vehicles across the
globe.



Selective acquisitions - Although transformational opportunities like the GKN
plc driveline business transaction that we pursued in 2018 will be considered
when strategically and economically attractive, our acquisition focus is
principally directed at "bolt-on" or adjacent acquisition opportunities that
have a strategic fit with our existing core businesses, particularly
opportunities that support our enterprise strategy and enhance the value
proposition of our product offerings. Any potential acquisition will be
evaluated in the same manner we currently consider customer program
opportunities and other uses of capital - with a disciplined financial approach
designed to ensure profitable growth and increased shareholder value.



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Acquisitions



Pi Innovo Holding Limited - On March 1, 2021, we acquired the remaining 51%
ownership interest in Pi Innovo Holding Limited (Pi Innovo). Pi Innovo designs,
develops and manufactures electronic control units spanning a range of
applications and industries. The acquisition of the remaining ownership interest
provides us with a 100% ownership interest in Pi Innovo. The total purchase
consideration of $35 is comprised of $18 of cash paid at closing and the $17
fair value of our previously held equity method investment in Pi Innovo. The
results of operations of the business are reported within our Commercial Vehicle
operating segment. Pi Innovo had an insignificant impact on our consolidated
results of operations during 2021.



Ashwoods Innovations Limited - On February 5, 2020, we acquired Curtis
Instruments, Inc.'s (Curtis) 35.4% ownership interest in Ashwoods Innovations
Limited (Ashwoods). Ashwoods designs and manufactures permanent magnet electric
motors for the automotive, material handling and off-highway vehicle markets.
The acquisition of Curtis' interest in Ashwoods, along with our existing
ownership interest in Ashwoods, provided us with a 97.8% ownership interest and
a controlling financial interest in Ashwoods. We recognized a $3 gain to other
income (expense), net on the required remeasurement of our previously held
equity method investment in Ashwoods to fair value. The total purchase
consideration of $22 is comprised of $8 of cash paid to Curtis at closing, the
$10 fair value of our previously held equity method investment in Ashwoods and
$4 related to the effective settlement of a pre-existing loan payable due from
Ashwoods. During March 2020, we acquired the remaining noncontrolling interests
in Ashwoods held by employee shareholders. The results of operations of Ashwoods
are reported within our Off-Highway operating segment. The Ashwoods acquisition
had an insignificant impact on our consolidated results of operations during
2020. See Hydro-Québec relationship discussion below for details of the
subsequent change in our ownership interest in Ashwoods.



Hydro-Québec Relationship



On April 14, 2020, Hydro-Québec acquired an indirect 45% redeemable
noncontrolling interest in Ashwoods. We received $9 in cash at closing,
inclusive of $2 in proceeds on a loan from Hydro-Québec. Dana will continue to
consolidate Ashwoods as the governing documents continue to provide Dana with a
controlling financial interest in this subsidiary. See Acquisitions section
above for a discussion of Dana's acquisition of Ashwoods.





Trends in Our Markets


We serve our customers in three major global end markets: light vehicles, primarily full chassis trucks and SUVs; commercial vehicle, including medium and heavy trucks and buses; and off-road, including construction, mining and agricultural equipment.



In 2020, all of our end-markets were impacted to varying degrees by the global
COVID-19 pandemic, which initially resulted in lower demand driven by production
shutdowns related to virus mitigation efforts in the regions we serve. Each of
our end-markets has unique cyclical dynamics and market drivers. These
cycles are impacted by periods of investment where end-user vehicle fleets are
refreshed or expanded in reaction to demand usage patterns, regulatory changes,
or when the age of vehicles in service reach their useful life. Key market
drivers include regional economic growth rates; industrial output; commodity
production and pricing; and residential and nonresidential construction rates.
Our multi-market coverage and broad customer base help provide stability across
the cycles while mitigating secular variability.



Light vehicle markets - Our driveline business is weighted more heavily to the
truck and SUV segments of the light-vehicle market versus the
passenger-car segment. Our vehicle content is greater on rear-wheel drive,
four-wheel drive, and all-wheel drive vehicles, as well as hybrid and electric
vehicles. Global light-truck volumes have seen steady growth over the last three
years, with the largest gains being in North America. The impact of COVID-19
saw the global market contract by 13% from 2019 levels. Our current outlook for
the full year of 2021 reflects global full-frame light-truck production being up
6% with all regions improving over 2020, but falling short of 2019 levels due to
the continued global semiconductor chip shortage.


Commercial vehicle markets - Our primary business is driveline systems for
medium and heavy-duty trucks and busses, including the emerging market for
hybrid and electric vehicles. Key regional markets are North America, South
America (primarily Brazil) and Asia Pacific. The Class-8 truck market in North
America experienced steady growth from 2017 through 2019, peaking at 345,000
trucks produced in 2019. Production of Class-8 trucks in 2020 was 38% below the
record production in 2019 due to normal cycle dynamics and the impact of
COVID-19. Our current outlook for 2021 is for stronger demand with production up
23% over the prior year driven by improving economic outlook and cyclical
growth.



Medium-duty truck production in North America had grown steadily over the last
several years before experiencing a 20% year-over-year decline from 2019 to
2020, primarily due to COVID-19. Our current outlook for 2021 is for a 3%
increase in production over the prior year. Outside of North America, production
of medium- and heavy-duty trucks in South America had been slowly improving
prior to the COVID-19 pandemic as economic conditions had started to stabilize.
Pandemic and economic conditions drove a 22% decline in production in 2020. Our
current 2021 outlook for South America is for a 64% increase in production as
the region recovers from the impact of the pandemic and the age of existing
vehicles drives a replacement cycle for new trucks. In contrast to the rest of
the world, Asia Pacific, driven by China, did not experience lower truck
production in 2020, but is expected to slow output by 5% in 2021 as production
matches lower demand, primarily driven by India where the recovery from the
pandemic has been slower than in China.



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Off-highway markets - Our off-highway business has a large presence outside of
North America, with 64% of its 2020 sales coming from products manufactured in
Europe; however, a large portion of these products are utilized in vehicle
production outside the region. The construction equipment segment of the
off-highway market is closely related to global economic growth and
infrastructure investment. This segment has experienced a 5% market contraction,
which began in late 2018 and further accelerated due to COVID-19, with 2020
production ending down an additional 10%. Our current 2021 outlook has
production demand in the global construction market rebounding by 12% over the
prior year. End-user investment in the mining equipment segment is driven by
prices for commodity products produced by underground mining. The global mining
equipment market has been mostly stable over the past several years as industry
participants have maintained vehicle inventory levels to match commodity output,
and this trend is expected to continue in 2021. The agriculture equipment market
is the third of our key off-highway segments. Like the underground mining
segment, investment in agriculture equipment is primarily driven by prices for
farm commodities. From 2018 to 2019, global demand for agriculture equipment
fell by 3% due to a slump in commodity prices. As prices have remained low,
production in 2020 fell an additional 7%. Our current outlook for 2021 is for
end-market demand to improve by 10% compared to the prior year, as farm
subsidies in response to the global pandemic have bolstered the commodity market
and are expected to drive the replacement of aging equipment.



Foreign currency - With 55% of our year-to-date 2021 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 and China accounted for
51% and 10% of our year-to-date 2021 non-U.S. sales, respectively, while
India and Brazil each accounted for 9%. Although sales in South Africa are less
than 5% of our non-U.S. sales, the rand has been volatile and significantly
impacted sales from time to time. International currencies strengthened against
the U.S. dollar in the first nine months of 2021, increasing sales by $157. A
stronger euro, Chinese renminbi, South African rand and British pound were
partially offset by a weaker Brazilian real.



Argentina has experienced significant inflationary pressures the past few years,
contributing to significant devaluation of its currency among other economic
challenges. Our Argentine operation supports our Light Vehicle operating
segment. Our sales in Argentina for the first nine months of 2021 of
approximately $85 are 1% of our consolidated sales and our net asset exposure
related to Argentina was approximately $29, including $11 of net fixed assets,
at September 30, 2021. During the second quarter of 2018, we determined that
Argentina's economy met the GAAP definition of a highly inflationary economy. In
assessing Argentina's economy as highly inflationary we considered its
three-year cumulative inflation rate along with other factors. As a result,
effective July 1, 2018, the U.S. dollar is the functional currency for our
Argentine operations, rather than the Argentine peso. Beginning July 1, 2018,
peso-denominated monetary assets and liabilities are remeasured into U.S.
dollars using current Argentine peso exchange rates with resulting translation
gains or losses included in results of operations. Nonmonetary assets and
liabilities are remeasured into U.S. dollar using historic Argentine peso
exchange rates.



Commodity costs - The cost of our products may be significantly impacted by
changes in raw material commodity prices, the most important to us being those
of various grades of steel, aluminum, copper, brass and rare earth materials.
The effects of changes in commodity prices are reflected directly in
our purchases of commodities and indirectly through our purchases of products
such as castings, forgings, bearings, batteries and component parts that
include commodities. Most of our major customer agreements provide for the
sharing of significant commodity price changes with those customers based on
the movement in various published commodity indexes. Where such formal
agreements are not present, we have historically been successful
implementing price adjustments that largely compensate for the inflationary
impact of material costs. Material cost changes will customarily have some
impact on our financial results as customer pricing adjustments typically lag
commodity price changes. Lower commodity prices increased year-over-year
earnings in 2020 by approximately $37, as compared to year-over-year earnings
reductions of $30 from higher commodity prices in 2019. Material recovery and
other pricing actions decreased year-over-year earnings by $80 and $10 in 2020
and 2019, respectively. Higher commodity prices decreased year-over-year
third-quarter and first-nine-months earnings in 2021 by $116 and $221, while
lower commodity prices increased year-over-year earnings by $13 and $35 in the
same periods last year. Material cost recovery and other pricing actions
increased year-over-year third-quarter and first-nine-months earnings in 2021 by
$66 and $100, where as material cost recovery and other pricing actions
decreased year-over-year earnings by $18 and $69 in the same periods last year.




Sales, earnings and cash flow outlook


                                                 2021 Outlook           2020            2019
Sales                                           $8,800 - $9,000      $     7,106     $     8,620
Adjusted EBITDA                                   $815 - $875        $       593     $     1,019
Net cash provided by operating activities (%
of sales)                                            ~9.5%           $       386     $       637
Discretionary pension contributions                   $ -            $         -     $        61
Purchases of property, plant and equipment
(% of sales)                                         ~4.0%           $       326     $       426
Adjusted Free Cash Flow (% of sales)                 ~1.0%           $        60     $       272




Adjusted EBITDA and adjusted free cash flow are non-GAAP financial measures. See
the Non-GAAP Financial Measures discussion below for definitions of our non-GAAP
financial measures and reconciliations to the most directly comparable
U.S. generally accepted accounting principles (GAAP) measures. We have not
provided a reconciliation of our adjusted EBITDA outlook to the most comparable
GAAP measure of net income. Providing net income guidance is potentially
misleading and not practical given the difficulty of projecting event driven
transactional and other non-core operating items that are included in
net income, including restructuring actions, asset impairments and certain
income tax adjustments. The accompanying reconciliations of these non-GAAP
measures with the most comparable GAAP measures for the historical periods
presented are indicative of the reconciliations that will be prepared upon
completion of the periods covered by the non-GAAP guidance.



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Our 2021 sales outlook range has been narrowed to $8,800 to $9,000. We currently
expect sales will be near the mid point of the range reflecting
strong end-market demand, an increased currency tail wind and
additional material cost recovery. We have lowered our full year 2021 adjusted
EBITDA outlook to $815 to $875. Adjusted EBITDA Margin is expected to be 9.5%, a
120 basis-point improvement over 2020, reflecting higher margin net new business
and the benefit of year-over-year operational efficiencies being muted by
continued global-supply-chain disruptions, labor shortages at certain of our
facilities, constrained customer production due to the global semiconductor chip
shortage and increased investment to support our electrification strategy. In
addition, we anticipate higher commodity costs to be largely offset by material
recovery and other pricing actions. We now expect to generate adjusted free cash
flow of approximately $90, or approximately 1.0% of our sales for 2021. The
benefit of higher year-over-year adjusted EBITDA will be partially offset by
higher working capital requirements as we carry elevated levels of inventory,
helping to mitigate continued global-supply-chain disruptions as well as labor
shortages at certain of our facilities, ensuring continuous supply for our
customers. We continue to forecast an elevated level of capital
spending supporting new customer programs, as spending on certain projects was
deferred during 2020 in response the global COVID-19 pandemic.



Among our operational and strategic initiatives are increased focus on and
investment in product technology - delivering products and technology that are
key to bringing solutions to issues of paramount importance to our customers.
Our success on this front is measured, in part, by our sales backlog - net new
business received that will be launching in the future and adding to our base
annual sales. This backlog excludes replacement business and
represents incremental sales associated with new programs for which we have
received formal customer awards. At September 30, 2021, our sales backlog of net
new business for the 2021 through 2022 period was $700. We expect to realize
$500 of our sales backlog in 2021, with incremental sales backlog of $200
being realized in 2022. Our sales backlog is evenly balanced between
electric-vehicle and traditional ICE-vehicle content.
Summary Consolidated Results of Operations (Third Quarter, 2021 versus 2020)



                                                    Three Months Ended September 30,
                                                2021                                 2020
                                                                                                              Increase/
                                   Dollars          % of Net Sales       Dollars        % of Net Sales        (Decrease)
Net sales                         $    2,204                            $    1,994                          $          210
Cost of sales                          1,998                   90.7 %        1,780                 89.3 %              218
Gross margin                             206                    9.3 %          214                 10.7 %               (8 )
Selling, general and
administrative expenses                  103                    4.7 %          111                  5.6 %               (8 )
Amortization of intangibles                4                                     4                                       -
Restructuring charges, net                 1                                     2                                      (1 )
Other income (expense), net               (4 )                                  (8 )                                     4
Earnings before interest and
income taxes                              94                                    89                                       5
Interest income                            2                                     3                                      (1 )
Interest expense                          31                                    38                                      (7 )
Earnings before income taxes              65                                    54                                      11
Income tax expense                        20                                    16                                       4
Equity in earnings of
affiliates                                 5                                     7                                      (2 )
Net income                                50                                    45                                       5
Less: Noncontrolling interests
net income                                 4                                     4                                       -
Less: Redeemable noncontrolling
interests net loss                        (2 )                                  (4 )                                     2
Net income attributable to the
parent company                    $       48                            $       45                          $            3




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



             Three Months Ended
                September 30,                                                   Amount of Change Due To
                                          Increase/                                     Acquisitions
             2021           2020          (Decrease)        Currency
Effects           (Divestitures)         Organic Change
North
America   $    1,050      $   1,069     $          (19 )   $                3       $                  4     $            (26 )
Europe           651            577                 74                      8                                              66
South
America          174             96                 78                      4                                              74
Asia
Pacific          329            252                 77                      7                        (14 )                 84
Total     $    2,204      $   1,994     $          210     $               22       $                (10 )   $            198




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Sales in 2021 were $210 higher than in 2020. Stronger international currencies
increased sales by $22, principally due to a stronger Chinese renminbi,
Brazilian real, South African rand and British pound. The organic sales increase
of $198, or 10%, resulted from improved heavy-vehicle market demand and the
conversion of sales backlog. Pricing actions, including material commodity price
and inflationary costs adjustments, increased sales by $66.



The North America organic sales decrease of 2% was driven principally by
weaker light- and medium-duty truck production volumes and lower light-vehicle
engine production levels, partially offset by higher heavy-duty truck
production and the conversion of sales backlog. Third quarter full-frame
light-truck production was down 16%, Classes 5-7 were down 15% and Class 8 was
up 6% compared with the third quarter of 2020. Light-vehicle engine production
was down 20% compared with the third quarter of 2020. Excluding currency
effects, sales in Europe were up 11% compared with 2020. With our significant
Off-Highway presence in the region, stronger construction/mining and
agricultural markets were a major factor. Organic sales in this operating
segment were up 23% compared with the third quarter of 2020. A 15% decrease in
year-over-year light-duty truck production levels and a 21% decrease in
year-over-year light-vehicle engine production levels tempered our organic
European sales increase. Excluding currency effects, third quarter sales in
South America increased 77% compared to 2020 due primarily to improved light-
and medium/heavy-duty truck production. Third-quarter light-truck production was
up 7% and medium/heavy-truck production was up 78%. Excluding currency effects
and the impact of divestitures, sales in Asia Pacific increased 33% compared to
2020 due to a stronger construction/mining market. The global semiconductor chip
shortage impacted our third-quarter 2021 sales as customers of some of our more
significant programs were forced to take down time during the quarter.



Cost of sales and gross margin - Cost of sales for the third quarter of 2021
increased $218, or 12% when compared to 2020. Cost of sales as a percent of
sales was 140 basis points higher than in the previous year. Incremental margins
provided by increased sales volumes were offset by higher year-over-year
commodity costs of $116, higher standard freight costs of $18 and incremental
investment in electrification initiatives. Commodity cost increases are being
driven by higher prices for certain grades of steel and aluminum. Year-over-year
freight cost increases are primarily due to higher freight rates, driven by
container shortages and port congestions due to pandemic-related operational
disruptions. Continued material cost savings and supplier recoveries provided a
partial offset, reducing costs of sales by approximately $28.



Gross margin of $206 for 2021 decreased $8 from 2020. Gross margin as a percent
of sales was 9.3% in 2021, 140 basis points lower than in 2020. The degradation
of gross margin as a percent of sales was driven principally by the cost of
sales factors referenced above. Gross margin during the third quarter of 2021
was negatively impacted by costs associated with continued global supply chain
disruptions and operational inefficiencies driven by labor shortages at certain
of our facilities and customer down time resulting from the global semiconductor
chip shortage. In addition, gross margin during the third quarter of 2021 was
negatively impacted by material cost recovery mechanisms with our customers
lagging material cost increases charged by our suppliers by approximately 90
days.



Selling, general and administrative expenses (SG&A) - SG&A expenses in 2021 were
$103 (4.7% of sales) as compared to $111 (5.6% of sales) in 2020. SG&A expenses
were $8 lower in 2021 primarily due to lower incentive compensation, partially
offset by higher salaried employee wages and benefits, travel expenses and
professional fees.



Amortization of intangible assets – Amortization expense has been $ 4 in 2021 and 2020.



Restructuring charges, net - Net restructuring charges of $1 and $2 in the third
quarter of 2021 and 2020, respectively, were primarily comprised of exit costs
related to previously announced actions.



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


                                                           Three Months Ended
                                                             September 30,
                                                          2021             2020

Non-service cost components of pension and OPEB costs $ (2) $

   (3 )
Government grants and incentives                                5           

3

Foreign exchange gain (loss)                                    1             (2 )
Strategic transaction expenses                                 (3 )           (4 )
Loss on investment in Hyliion                                  (6 )
Other, net                                                      1             (2 )
Other income (expense), net                             $      (4 )       $   (8 )




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. Strategic transaction
expenses in 2021 were primarily attributable to our pursuit of the acquisition
of a portion of the thermal-management business of Modine Manufacturing Company
and certain other strategic initiatives. Strategic transaction expenses in 2020
were primarily attributable to the acquisitions of the Oerlikon Drive Systems
segment of the Oerlikon Group (ODS) and Nordresa Motors, Inc. and certain other
strategic initiatives.



We held convertible notes receivable from our investment in Hyliion Inc. On
October 1, 2020, Hyliion Inc. completed its merger with Tortoise Acquisition
Corp. The business combination resulted in the combined company being renamed
Hyliion Holdings Corp. (Hyliion), with its common stock being listed on the New
York Stock Exchange under the ticker symbol HYLN. Effective with the completed
merger, our notes receivable were converted into 2,988,229 common shares of
HYLN. Our investment in Hyliion was included in marketable securities and
carried at fair value with changes in fair value included in net income. During
the third quarter of 2021, we sold all of our Hyliion shares.



Interest income and interest expense - Interest income was $2 in 2021 and $3 in
2020. Interest expense decreased from $38 in 2020 to $31 in 2021, primarily due
to lower debt levels and to a lesser extent lower interest rates on outstanding
borrowings. Average effective interest rates, inclusive of amortization of debt
issuance costs, approximated 4.9% in 2021 and 5.1% in 2020.



Income tax expense - We reported income tax expense of $20 and $16 for 2021 and
2020, respectively. Our effective tax rates were 31% and 30% for the
third quarter of 2021 and 2020. 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, nondeductible expenses and deemed
income, local tax incentives 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.



In countries where our history of operating losses does not allow us to satisfy
the "more likely than not" criterion for recognition of deferred tax assets, we
have generally recognized no income tax on the pre-tax income or losses as
valuation allowance adjustments offset the associated tax effects. Consequently,
there is no income tax expense or benefit recognized on the pre-tax income or
losses in these jurisdictions as valuation allowances are adjusted to offset the
associated tax expense or benefit. We believe it is reasonably possible that
valuation allowances of up to approximately $50 related to subsidiaries in
Germany will be released in the next twelve months.



Equity in earnings of affiliates - Net earnings from equity investments was
$5 in 2021 and $7 in 2020. Equity in earnings from DDAC was $3 in 2021 and $6 in
2020. Equity earnings from Bendix Spicer Foundation Brake, LLC (BSFB) was $1 in
2020. On October 1, 2020 we sold our 20% ownership interest in BSFB to Bendix
Commercial Vehicle Systems LLC.



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Summary of consolidated operating results (year-to-date, 2021 vs. 2020)


                                                    Nine Months Ended September 30,
                                                2021                                2020
                                                                                                             Increase/
                                   Dollars         % of Net Sales       Dollars        % of Net Sales        (Decrease)
Net sales                         $    6,672                           $    4,998                          $        1,674
Cost of sales                          5,963                  89.4 %        4,588                 91.8 %            1,375
Gross margin                             709                  10.6 %          410                  8.2 %              299
Selling, general and
administrative expenses                  348                   5.2 %          299                  6.0 %               49
Amortization of intangibles               11                                   10                                       1
Restructuring charges, net                 2                                   21                                     (19 )
Impairment of goodwill                                                        (51 )                                    51
Other income (expense), net              (33 )                                 (5 )                                   (28 )
Earnings before interest and
income taxes                             315                                   24                                     291
Loss on extinguishment of debt           (24 )                                 (5 )                                   (19 )
Interest income                            6                                    7                                      (1 )
Interest expense                          99                                   99                                       -
Earnings (loss) before income
taxes                                    198                                  (73 )                                   271
Income tax expense                        56                                   34                                      22
Equity in earnings of
affiliates                                29                                   17                                      12
Net income (loss)                        171                                  (90 )                                   261
Less: Noncontrolling interests
net income                                 9                                    6                                       3
Less: Redeemable noncontrolling
interests net loss                       (10 )                                (25 )                                    15
Net income (loss) attributable
to the parent company             $      172                           $      (71 )                        $          243



Sales – The following table shows the evolution of our sales by geographic region.



             Nine Months Ended
               September 30,                                             

Amount of change due to

                                        Increase/                           

Organic Acquisitions

             2021          2020         (Decrease)        Currency Effects         (Divestitures)        Change
North
America   $    3,157     $  2,530     $          627     $                9       $              7     $      611
Europe         2,136        1,588                548                    125                      2            421
South
America          434          244                190                    (12 )                                 202
Asia
Pacific          945          636                309                     35                    (26 )          300
Total     $    6,672     $  4,998     $        1,674     $              157       $            (17 )   $    1,534




Sales in 2021 were $1,674 higher than in 2020. Stronger international currencies
increased sales by $157, principally due to a stronger euro, Chinese renminbi,
South African rand and British pound, partially offset by a weaker Brazilian
real. The organic sales increase of $1,534, or 31%, resulted from improved
overall market demand and the conversion of sales backlog. Pricing actions,
including material commodity price and inflationary costs adjustments, increase
sales by $100.



The North America organic sales increase of 24% was driven principally by
stronger light-, medium- and heavy-duty truck production volumes, higher-light
vehicle engine production levels and the conversion of sale backlog.
First-nine-months full-frame light-truck production was up 20%, Classes 5-7 were
up 8% and Class 8 was up 33% compared with the first nine months of 2020.
Light-vehicle engine production was up 10% compared with the first nine
months of 2020. Excluding currency effects and the impact of acquisitions, sales
in Europe were up 27% compared with 2020. With our significant Off-Highway
presence in the region, stronger construction/mining and agricultural markets
were a major factor. Organic sales of this operating segment were up 29%
compared with the first nine months of 2020. A 10% increase in year-over-year
light-vehicle engine production levels also contributed to our organic European
sales increase. Excluding currency effects, first-nine-months sales in South
America increased 83% compared to 2020 due primarily to improved light- and
medium/heavy-duty truck production. First-nine-months 2021 light-truck
production was up 58% and medium/heavy-truck production was up 95%. Excluding
currency effects and the impact of divestitures, sales in Asia Pacific increased
47% compared to 2020 due to improved light-truck production and stronger
construction/mining and agricultural markets. First-nine-months 2021 light-truck
production was up 12%. The global semiconductor chip shortage impacted our
first-nine-months 2021 sales as customers of some of our more significant
programs were forced to take down time during the second and third quarters.



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Cost of sales and gross margin - Cost of sales for the first nine months of 2021
increased $1,375, or 30% when compared to 2020. Cost of sales as a percent of
sales was 240 basis points lower than in the previous year. Incremental margins
provided by increased sales volumes were partially offset by higher
year-over-year commodity costs of $221, higher standard and premium freight
costs of $61 and incremental investment in electrification
initiatives. Commodity cost increases are being driven by higher prices for
certain grades of steel and aluminum. Year-over-year freight cost increases are
primarily due to higher freight rates, driven by container shortages and port
congestions due to pandemic-related operational disruptions, and the incurrence
of premium freight to support customer demand levels. Continued material cost
savings and supplier recoveries provided a partial offset, reducing costs of
sales by approximately $104.



Gross margin of $709 for 2021 increased $299 from 2020. Gross margin as a
percent of sales was 10.6% in 2021, 240 basis points higher than in 2020. The
improvement in gross margin as a percent of sales was driven principally by the
cost of sales factors referenced above. Gross margin during the nine months of
2021 was negatively impacted by costs associated with continued global supply
chains disruptions and operational inefficiencies driven by labor shortages at
certain of our facilities and customer down time resulting from the global
semiconductor chip shortage. In addition, gross margin during the first nine
months of 2021 was negatively impacted by material cost recovery mechanisms with
our customers lagging material cost increases charged by our suppliers by
approximately 90 days.



Selling, general and administrative expenses (SG&A) - SG&A expenses in 2021 were
$348 (5.2% of sales) as compared to $299 (6.0% of sales) in 2020. SG&A expenses
were $49 lower in 2020 primarily due to lower
incentive compensation and lower salaried employee wages and benefits expenses
and professional fees resulting from austerity measures taken in response to the
global COVID-19 pandemic.


Amortization of intangible assets – Amortization expense has been 11 $ in 2021 and
$ 10 in 2020. The increase in amortization expense is mainly due to higher levels of intangible assets due to acquisition activities.



Restructuring charges, net - Net restructuring charges were $2 in 2021 and
$21 in 2020. Restructuring charges in 2020 were comprised of severance and
benefit costs primarily related to headcount reductions across our operations in
response to the global COVID-19 pandemic and exit costs related to previously
announced actions.



Impairment of goodwill  - During the first quarter of 2020, we recorded a $51
goodwill impairment charge. See Note 3 of our consolidated financial statements
in Item 1 of Part I for additional information.

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


                                                                       Nine Months Ended
                                                                         September 30,
                                                                    2021               2020
Non-service cost components of pension and OPEB costs           $         (7 )     $         (8 )
Government grants and incentives                                          13                  9
Foreign exchange gain                                                      2                  5
Strategic transaction expenses                                           (11 )              (15 )
Loss on investment in Hyliion                                            (20 )
Loss on disposal group held for sale                                      (7 )
Loss on de-designation of fixed-to-fixed cross currency swaps             (9 )
Other, net                                                                 6                  4
Other income (expense), net                                     $        (33 )     $         (5 )




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. Strategic transaction
expenses in 2021 were primarily attributable to our pursuit of the acquisition
of a portion of the thermal-management business of Modine Manufacturing Company
and certain other strategic initiatives. Strategic transaction expenses in 2020
were primarily attributable to the acquisitions of the Oerlikon Drive Systems
segment of the Oerlikon Group (ODS) and Nordresa Motors, Inc. and certain other
strategic initiatives.



We held convertible notes receivable from our investment in Hyliion Inc. On
October 1, 2020, Hyliion Inc. completed its merger with Tortoise Acquisition
Corp. The business combination resulted in the combined company being renamed
Hyliion Holdings Corp. (Hyliion), with its common stock being listed on the New
York Stock Exchange under the ticker symbol HYLN. Effective with the completed
merger, our notes receivable were converted into 2,988,229 common shares of
HYLN. Our investment in Hyliion was included in marketable securities and
carried at fair value with changes in fair value included in net income. During
the third quarter of 2021, we sold all of our Hyliion shares.



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We had previously entered into fixed-to-fixed cross currency swaps as a hedge
against our June 2026 Notes. In June 2021, we redeemed all of the June 2026
Notes and de-designated the fixed-to-fixed cross currency swaps. See Note 13 of
the consolidated financial statements in Item I of Part I for additional
information.



In conjunction with our acquisition of ODS, we acquired a controlling financial
interest in a joint venture in China. We were required to divest of our interest
in this joint venture as it violates competitive restrictions of another of our
China joint venture shareholder agreements. During the first quarter of 2021, we
recorded an impairment charge of $7, as we determined the carrying value of the
disposal group exceeded its fair value less costs to sell. We completed the
divestiture of this business in April 2021. See Note 17 of the consolidated
financial statement in Item I of Part I for additional information.



Loss on extinguishment of debt - On May 13, 2021 and May 17, 2021, we redeemed
$254 and $171 of our December 2024 Notes, respectively. The $11 loss on
extinguishment of debt includes the redemption premiums and the write-off of $3
of previously deferred financings costs associated with our December 2024 Notes.
In addition, we recognized a previously deferred $3 gain on a terminated
fixed-to-floating interest rate swap associated with the December 2024 Notes. On
June 10, 2021, we redeemed all of our June 2026 Notes. The $16 loss on
extinguishment of debt includes the $12 redemption premium and the write-off of
$4 of previously deferred financing costs associated with our June 2026 Notes.
On June 19, 2020, in connection with the issuance of our June 2028 Notes, we
terminated our $500 bridge facility and wrote off $5 of deferred fees associated
with the bridge facility. See Note 12 of the consolidated financial statements
in Item 1 of Part I for additional information.



Interest income and interest expense - Interest income was $6 in 2021 and $7 in
2020. Interest expense was $99 in both 2021 and 2020, with lower debt levels in
2021 offset by higher interest rates. Average effective interest rates,
inclusive of amortization of debt issuance costs, approximated 5.3% in 2021 and
4.9% in 2020. The year-over-year increase in our average effective interest rate
is primarily attributable to the issuance of $400 of our 5.625% June 2028 Notes
and an additional $100 of our 5.375% November 2027 Notes during the second
quarter of 2020 and the pay down our Term A Facility, which bore interest at an
average of 2.65% during the first nine months of 2020, in the fourth quarter of
2020.



Income tax expense  - We reported income tax expense of $56 and $34 for the
first nine months of 2021 and 2020, respectively. Our effective tax rates were
28% and (46)% for the first nine months of 2021 and 2020. During the first
quarter of 2020, a pre-tax goodwill impairment charge of $51 with an associated
income tax benefit of $1 was recorded. Also, during the first quarter of 2020,
we recorded tax benefits of $37 related to tax actions that adjusted federal tax
credits, tax expense of $2 to record additional valuation allowance in the U.S.
based on reduced income projections, and tax expense of $4 to record valuation
allowances in foreign jurisdictions due to reduced income projections. In the
second quarter of 2020 we recorded an income tax expense of $56 for valuation
allowances in foreign jurisdictions due to reduced income projections. Excluding
these items, the effective tax rate would have been (45)% for the first nine
months of 2020. 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, nondeductible expenses and deemed income, local
tax incentives 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.

In countries where our history of operating losses does not allow us to satisfy
the "more likely than not" criterion for recognition of deferred tax assets, we
have generally recognized no income tax on the pre-tax income or losses as
valuation allowance adjustments offset the associated tax effects. Consequently,
there is no income tax expense or benefit recognized on the pre-tax income or
losses in these jurisdictions as valuation allowances are adjusted to offset the
associated tax expense or benefit. We believe it is reasonably possible that
valuation allowances of up to approximately $50 related to subsidiaries in
Germany will be released in the next twelve months.



Equity in earnings of affiliates - Net earnings from equity investments was
$29 in 2021 and $17 in 2020. Equity in earnings from DDAC was $24 in 2021 and
$14 in 2020. DDAC's operations located in China's Hubei province, the center of
the initial COVID-19 outbreak, were shut down the entire month of February 2020.
Production was permitted to resume in March 2020. Equity earnings from Bendix
Spicer Foundation Brake, LLC (BSFB) was $4 in 2020. On October 1, 2020 we sold
our 20% ownership interest in BSFB to Bendix Commercial Vehicle Systems LLC.
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Segment operating results (2021 vs. 2020)


Light Vehicle



                                           Three Months                                           Nine Months
                                                            Segment EBITDA                                        Segment EBITDA
                          Sales         Segment EBITDA          Margin           Sales        Segment EBITDA          Margin
2020                    $      913     $             89                9.7 %   $   2,058     $            140                6.8 %
Volume and mix                 (12 )                 (6 )                            691                  151
Divestitures                    (9 )                 (1 )                            (16 )                 (1 )
Performance                     22                  (28 )                             32                  (52 )
Currency effects                 4                                                    34                    3
2021                    $      918     $             54                5.9 %   $   2,799     $            241                8.6 %




Light Vehicle sales in the third quarter and first nine months of 2021,
exclusive of currency effects and the impact of divestitures, were 1% and 35%
higher than the same period of 2020 reflecting weaker global markets in the
third quarter of 2021, improved global markets in the first nine months of 2021,
and the conversion of sales backlog in both periods. First-half 2020 sales were
significantly impacted by the rapid dissipation in customer demand resulting
from the global COVID-19 pandemic. Year-over-year North America full-frame
light-truck production decreased 16% in this year's third quarter while
light-truck production in Europe and Asia Pacific decreased 15% and 14%,
respectively, while light-truck production in South America increased 7%.
Year-over-year North America full-frame light-truck production increased 20% in
this year's first nine months while light-truck production in Europe, South
America and Asia Pacific increased 19%, 58% and 12%, respectively. Net customer
pricing and cost recovery actions further increased year-over-year sales by
$14 and $16 in this year's third quarter and first nine months, respectively.
The global semiconductor chip shortage impacted our third-quarter and first-nine
months 2021 sales as customers of some of our more significant programs were
forced to take down time during the second and third quarters.



Light Vehicle third-quarter 2021 segment EBITDA decreased by $35 from last year,
with first-nine-months earnings higher by $101. Lower sales volumes decreased
year-over-year earnings by $6 (50.0% decremental margin) in the third quarter of
2021. Higher sales volumes provided a year-over-year benefit of $151 (21.9%
incremental margin) in the first nine months of 2021. Year-over-year
performance-related earnings decreases in the third quarter were driven by
commodity cost increases of $53, higher standard freight costs of $5,
operational inefficiencies of $4, higher program launch costs of $3 and benefits
of austerity measures taken in response to the global COVID-19 pandemic during
2020 not repeating in 2021 of $2. Offsetting these performance-related decreases
were net customer pricing and material cost recovery actions of $14, material
cost savings and supplier recoveries of $13, lower incentive compensation of $6,
lower premium freight costs of $4 and lower warranty costs of $2. The
year-over-year performance-related earnings decrease in the first nine months
was driven by commodity cost increases of $101, higher standard freight costs of
$21, higher program launch costs of $6, benefits of the CARES Act and austerity
measures taken in response to the global COVID-19 pandemic during 2020 not
repeating in 2021 of $5 and $8, respectively and higher warranty costs of $3.
Partially offsetting these performance-related decreases were material cost
savings and supplier recoveries of $61, net customer pricing and material cost
recovery actions of $16, operational efficiencies of $14 and lower premium
freight costs of $1.



Commercial Vehicle



                                               Three Months                                           Nine Months
                                                                Segment EBITDA                                        Segment EBITDA
                              Sales         Segment EBITDA          Margin           Sales        Segment EBITDA          Margin
2020                        $      317     $             17                5.4 %   $     852     $             32                3.8 %
Volume and mix                      51                   13                              229                   62
Acquisitions/Divestitures           (1 )                  1                               (2 )                  1
Performance                         23                  (11 )                             44                  (43 )
Currency effects                     6                                                     9                    1
2021                        $      396     $             20                5.1 %   $   1,132     $             53                4.7 %




Commercial Vehicle sales in the third quarter and first nine months of 2021,
exclusive of currency effects and the impact of acquisitions and divestitures,
were 23% and 32% higher than the same period of 2020 reflecting mixed global
markets in the third quarter of 2021, improved global markets in the first nine
months of 2021, and the conversion of sales backlog in both periods. First-half
2020 sales were significantly impacted by the rapid dissipation in customer
demand resulting from the global COVID-19 pandemic. Year-over-year North America
Class 8 production was up 6% and Classes 5-7 were down 15% in this year's
third quarter. Year-over-year North America Class 8 production was up 33% and
Classes 5-7 were up 8% in the first nine months of this year. Year-over-year
medium/heavy-truck production in Europe and South America were up 3% and 78%,
respectively, while production in Asia Pacific was down 39% in this year's
third quarter. Year-over-year medium/heavy-truck production in Europe, South
America and Asia Pacific were up 16%, 95% and 5%, respectively, in the first
nine months of this year. Net customer pricing and cost recovery actions further
increased year-over-year sales by $28 and $52 in this year's third quarter and
first nine months, respectively. The global semiconductor chip shortage impacted
our third-quarter and first-nine months 2021 sales as customers of some of our
more significant programs were forced to take down time during the second and
third quarters.



Commercial Vehicle third-quarter 2021 segment EBITDA increased by $3 from last
year, with first-nine-months earnings higher by $21. Higher sales volumes
provided a year-over-year benefit of $13 (25.5% incremental margin) and
$62 (27.1% incremental margin) in the third quarter and first nine months of
2021. The year-over-year performance-related earnings decrease in the
third quarter was driven by commodity cost increases of $31, operational
inefficiencies of $9, higher standard and premium freight costs of $8 and
benefits of austerity measures taken in response to the global COVID-19 pandemic
during 2020 not repeating in 2021 of $1. Partially offsetting these
performance-related decreases were net customer pricing and material cost
recovery actions of $28, material cost savings of $5, lower incentive
compensation of $4 and lower warranty costs of $1. The year-over-year
performance-related earnings decrease in the first nine months was driven by
commodity cost increases of $60, higher standard and premium freight costs of
$24, operational inefficiencies of $14 and benefits of the CARES Act and
austerity measures taken in response to the global COVID-19 pandemic during 2020
not repeating in 2021 of $2 and $9, respectively. Partially offsetting these
performance-related decreases were net customer pricing and material cost
recovery actions of $52, material cost savings of $13 and lower warranty costs
of $1.



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Off-Highway



                                          Three Months                                          Nine Months
                                                               Segment                                              Segment
                          Sales         Segment EBITDA      EBITDA Margin       Sales        Segment EBITDA      EBITDA Margin
2020                    $      504     $             64              12.7 %   $   1,435     $            172              12.0 %
Volume and mix                  91                   20                             380                   94
Acquisitions                                                                          1                   (1 )
Performance                     24                   15                              29                    2
Currency effects                 8                    1                              86                    9
2021                    $      627     $            100              15.9 %   $   1,931     $            276              14.3 %




Off-Highway sales in the third quarter and first nine months of 2021, exclusive
of currency effects and the impact of acquisitions, were 23% and 29% higher than
the same period of 2020 reflecting improved global markets and the conversion of
sales backlog. Year-over-year global construction/mining and agricultural
equipment markets reflected marked improvement. Net customer pricing and cost
recovery actions further increased year-over-year sales by $21 and $28 in this
year's third quarter and first nine months, respectively.



Off-Highway third-quarter 2021 segment EBITDA increased by $36 from last year,
with first-nine-months earnings higher by $104. Higher sales volumes provided a
year-over-year benefit of $20 (22.0% incremental margin) and $94 (24.7%
incremental margin) in the third quarter and first nine months of 2021. The
year-over-year performance-related earnings increase in the third quarter was
driven by net customer and material cost recovery actions of $21, operational
efficiencies of $17, material cost savings of $8 and lower incentive
compensation of $4. Partially offsetting these performance-related increases
were commodity cost increases of $23, higher standard and premium freight costs
of $6, higher warranty costs of $5 and benefits of austerity measures taken in
response to the global COVID-19 pandemic during 2020 not repeating in 2021 of
$1. The year-over-year performance-related earnings increase in the first nine
months was driven by net customer and material cost recovery actions of $28,
material cost savings of $23 and operational efficiencies of $22. Partially
offsetting these performance-related increases were commodity cost increases of
$44, higher standard and premium freight costs of $9, benefits of the CARES Act
and austerity measures taken in response to the global COVID-19 pandemic during
2020 not repeating in 2021 of $1 and $12, respectively, and higher warranty
costs of $5.



Power Technologies



                                          Three Months                                           Nine Months
                                                               Segment                                               Segment
                          Sales         Segment EBITDA      EBITDA Margin       Sales         Segment EBITDA      EBITDA Margin
2020                    $      260     $             34              13.1 %   $      653     $             63               9.6 %
Volume and mix                 (10 )                 (3 )                            119                   43
Performance                      9                    6                               10                    2
Currency effects                 4                    1                               28                    3
2021                    $      263     $             38              14.4 %   $      810     $            111              13.7 %




Power Technologies primarily serves the light-vehicle market but also sells
product to the medium/heavy-truck and off-highway markets. Power Technologies
sales in the third quarter of 2021, exclusive of currency effects, were flat
compared to the same period last year. Sales in the first nine months of 2021,
exclusive of currency effects, were 20% higher than the same period of 2020
reflecting improved global markets and the conversion of sales backlog.
First-half 2020 sales were significantly impacted by the rapid dissipation in
customer demand resulting from the global COVID-19 pandemic. Year-over-year
North America, Europe, South America and Asia Pacific light-vehicle engine
production was down 20%, 21%, 20% and 15%, respectively, in this year's
third quarter. Year-over-year North America, Europe, South America and Asia
Pacific light-vehicle engine production was up 10%, 10%, 23% and 10%,
respectively, in the first nine months of this year. Net customer pricing and
cost recovery actions further increased year-over-year sales by $3 and $4 in
this year's third quarter and first nine months, respectively. The global
semiconductor chip shortage impacted our third-quarter and first-nine
months 2021 sales as customers were forced to take down time during the second
and third quarters.



Power Technologies third-quarter 2021 segment EBITDA increased by $4 from last
year, with first-nine-months earnings higher by $48. Lower sales volumes
decreased year-over-year earnings by $3 (30.0% decremental margin) in the third
quarter of 2021. Higher sales volumes provided a year-over-year benefit of
$43 (36.1% incremental margin) in the first nine months of 2021. The
year-over-year performance-related earnings increase in the third quarter was
driven by operational efficiencies of $8, net customer pricing and material
recovery actions of $3, lower incentive compensation of $3, material cost
savings of $2 and lower warranty costs of $2. Partially offsetting these
performance-related increases were commodity cost increases of $9 and higher
standard and premium freight costs of $3. The year-over-year performance-related
earnings increase in the first nine months was driven by operational
efficiencies of $21, material cost savings of $7, net customer pricing and
material cost recovery actions of $4 and lower warranty costs of $4. Partially
offsetting these performance-related increases were commodity cost increases of
$16, higher standard and premium freight costs of $8, benefits of the CARES Act
and austerity measures taken in response to the global COVID-19 pandemic during
2020 not repeating in 2021 of $1 and $7, respectively, and higher incentive
compensation of $2.



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Non-GAAP Financial Measures



Adjusted EBITDA



We have defined adjusted EBITDA as net income before interest, income taxes,
depreciation, amortization, equity grant expense, restructuring expense,
non-service cost components of pension and other postretirement benefits (OPEB)
costs and other adjustments not related to our core operations (gain/loss on
debt extinguishment, pension settlements, divestitures, impairment, etc.).
Adjusted EBITDA is a measure of our ability to maintain and continue to invest
in our operations and provide shareholder returns. We use adjusted EBITDA in
assessing the effectiveness of our business strategies, evaluating and pricing
potential acquisitions and as a factor in making incentive compensation
decisions. In addition to its use by management, we also believe adjusted EBITDA
is a measure widely used by securities analysts, investors and others to
evaluate financial performance of our company relative to other Tier 1
automotive suppliers. Adjusted EBITDA should not be considered a substitute for
earnings before income taxes, net income or other results reported in accordance
with GAAP. Adjusted EBITDA may not be comparable to similarly titled measures
reported by other companies.



The following table provides a reconciliation of net income to adjusted EBITDA.



                                               Three Months Ended               Nine Months Ended
                                                  September 30,                   September 30,
                                              2021             2020           2021             2020
Net income (loss)                          $       50       $       45     $      171       $      (90 )
Equity in earnings of affiliates                    5                7             29               17
Income tax expense                                 20               16             56               34
Earnings (loss) before income taxes                65               54            198              (73 )
Depreciation and amortization                      98               94            290              272
Restructuring charges, net                          1                2              2               21
Interest expense, net                              29               35             93               92
Loss on extinguishment of debt                                                     24                5
Impairment of goodwill                                                                              51
Loss on investment in Hyliion                       6                       

20

Loss on disposal group held for sale                                        

7

Loss on de-designation of fixed-to-fixed
cross currency swaps                                                                9
Other*                                             11               16             34               33
Adjusted EBITDA                            $      210       $      201     $      677       $      401

* Other includes stock-based compensation expense, non-service cost items of

pension and OPEB costs, strategic transaction expenses and other items. See

  Note 19 to our consolidated financial statements in Item 1 of Part I for
  additional details.



Free Cash Flow and Adjusted Free Cash Flow



We have defined free cash flow as cash provided by (used in) operating
activities less purchases of property, plant and equipment. We have defined
adjusted free cash flow as cash provided by (used in) operating activities
excluding discretionary pension contributions less purchases of property, plant
and equipment. We believe these measures are useful to investors in evaluating
the operational cash flow of the company inclusive of the spending required to
maintain the operations. Free cash flow and adjusted free cash flow are not
intended to represent nor be an alternative to the measure of net cash provided
by (used in) operating activities reported in accordance with GAAP. Free cash
flow and adjusted free cash flow may not be comparable to similarly titled
measures reported by other companies.



The following table reconciles the net cash flow provided by (used in) operating activities with the adjusted free cash flow.


                                               Three Months Ended              Nine Months Ended
                                                  September 30,                  September 30,
                                              2021             2020           2021            2020
Net cash provided by (used in) operating
activities                                 $      (75 )     $      321     $       19       $     195
Purchases of property, plant and
equipment                                         (95 )            (60 )         (228 )          (181 )
Free cash flow                                   (170 )            261           (209 )            14
Discretionary pension contribution                  -                -              -               -
Adjusted free cash flow                    $     (170 )     $      261     $     (209 )     $      14




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Liquidity


The following table presents a reconciliation of cash and cash equivalents to cash, a non-GAAP measure, as of September 30, 2021:



Cash and cash equivalents                              $   220
Less: Deposits supporting obligations                        -
Available cash                                             220
Additional cash availability from Revolving Facility     1,077
Marketable securities                                       18
Total liquidity                                        $ 1,315




Cash deposits are maintained to provide credit enhancement for certain
agreements and are reported as part of cash and cash equivalents. For most of
these deposits, the cash may be withdrawn if a comparable security is provided
in the form of letters of credit. Accordingly, these deposits are not considered
to be restricted. Marketable securities are included as a component of liquidity
as these investments can be readily liquidated at our discretion. We had
availability of $1,077 at September 30, 2021 under the Revolving Facility after
deducting $52 of outstanding borrowings and $21 of outstanding letters of
credit.



The components of our September 30, 2021 consolidated cash balance were as
follows:



                                                U.S.           Non-U.S.          Total
Cash and cash equivalents                   $         39     $        111     $        150
Cash and cash equivalents held at less
than wholly-owned subsidiaries                         3               67               70
Consolidated cash balance                   $         42     $        178     $        220




A portion of the non-U.S. cash and cash equivalents is utilized for working
capital and other operating purposes. Several countries have local regulatory
requirements that restrict the ability of our operations to repatriate this
cash. Beyond these restrictions, there are practical limitations on repatriation
of cash from certain subsidiaries because of the resulting tax withholdings and
subsidiary by-law restrictions which could limit our ability to access cash and
other assets.


At March 25, 2021, we amended our credit and guarantee agreement, increasing the revolving facility to $ 1,150 and extend its maturity to March 25, 2026.



At September 30, 2021, we were in compliance with the covenants of our financing
agreements. Under the Term B Facility, the Revolving Facility and our senior
notes, we are required to comply with certain incurrence-based covenants
customary for facilities of these types. The incurrence-based covenants in the
Term B  Facility and the Revolving Facility permit us to, among other things,
(i) issue foreign subsidiary indebtedness, (ii) incur general secured
indebtedness subject to a pro forma first lien net leverage ratio not to exceed
1.50:1.00 in the case of first lien debt and a pro forma secured net leverage
ratio of 2.50:1.00 in the case of other secured debt and (iii) incur additional
unsecured debt subject to a pro forma total net leverage ratio not to exceed
3.50:1.00, tested at the time of incurrence. We may also make dividend payments
in respect of our common stock as well as certain investments and acquisitions
subject to a pro forma total net leverage ratio of 2.75:1.00. In addition, the
Revolving Facility is subject to a financial covenant requiring us to maintain a
first lien net leverage ratio not to exceed 2.00:1.00. The indentures governing
the senior notes include other incurrence-based covenants that may subject us to
additional specified limitations.



From time to time, depending upon market, pricing and other conditions, as well
as our cash balances and liquidity, we may seek to acquire our senior notes or
other indebtedness or our common stock through open market purchases, privately
negotiated transactions, tender offers, exchange offers or otherwise, upon
such terms and at such prices as we may determine (or as may be provided for in
the indentures governing the notes), for cash, securities or other
consideration. In addition, we may enter into sale-leaseback transactions
related to certain of our real estate holdings. There can be no assurance that
we will pursue any such transactions in the future, as the pursuit of any
alternative will depend upon numerous factors such as market conditions, our
financial performance and the limitations applicable to such transactions under
our financing and governance documents.



The principal sources of liquidity available for our future cash requirements
are expected to be (i) cash flows from operations, (ii) cash and cash
equivalents on hand and (iii) borrowings from our Revolving Facility. We believe
that our overall liquidity and operating cash flow will be sufficient to meet
our anticipated cash requirements for capital expenditures, working capital,
debt obligations and other commitments during the next twelve months. While
uncertainty surrounding the current economic environment could adversely impact
our business, based on our current financial position, we believe it is unlikely
that any such effects would preclude us from maintaining sufficient liquidity.



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Cash Flow


The following table summarizes our consolidated statement of cash flows:


                                                                 Nine Months Ended
                                                                   September 30,
                                                               2021              2020
Cash used for changes in working capital                   $       (501 )     $       (50 )
Other cash provided by operations                                   520     

245

Net cash provided by operating activities                            19     

195

Net cash used in investing activities                              (260 )            (193 )
Net cash provided by (used in) financing activities                 (71 )   

466

Net increase (decrease) in cash, cash equivalents and
restricted cash                                            $       (312 )     $       468



Operating activities – Excluding working capital, other operating cash flows were $ 520 in 2021 and $ 245 in 2020. The year-over-year increase is primarily due to higher operating income.



Working capital used cash of $501 and $50 in 2021 and 2020. Cash of $253 and
$120 was used to finance receivables in 2021 and 2020, respectively. The higher
level of cash used to finance receivables in 2021 is due to higher
year-over-year third quarter sales driven by strong heavy-vehicles markets. Cash
of $441 was used to fund higher inventory levels during 2021, while cash of $105
was provided by lower inventory levels in 2020. We are carrying higher levels of
inventory in 2021 to mitigate continued global-supply-chain disruptions as well
as labor shortages at certain of our facilities, ensuring continuous supply for
our customers. The cash generated by lower inventory levels in 2020 was due
primarily to actions taken to reduce inventory levels, preserving working
capital, in response to the global COVID-19 pandemic. Increases in accounts
payable and other net liabilities provided cash of $193 in 2021, while decreases
in accounts payable and other net liabilities used cash of $35 in 2020. The
increase in accounts payable and other net liabilities in 2021 was principally
driven by higher raw material purchases in the second and third quarters.



Investing activities - Expenditures for property, plant and equipment were
$228 and $181 during 2021 and 2020. During 2020, capital spending was delayed
where and when appropriate in response to the global COVID-19 pandemic. During
2021, we paid $17, net of cash acquired, to acquire an additional 51% interest
in Pi Innovo. The acquisition of the additional ownership interest provides us
with a 100% ownership interest in Pi Innovo. During the first quarter of 2020,
we paid $8 to acquire Curtis' 35.4% ownership interest in Ashwoods. The
acquisition of Curtis's interest in Ashwoods, along with our existing ownership
interest in Ashwoods, provided us with a controlling financing interest in
Ashwoods. During 2021, we acquired a 1% ownership interest in Switch Mobility
Limited for $18. During 2021, we sold all of our Hyliion shares for $29. During
2020, purchases of marketable securities were largely funded by proceeds from
sales and maturities of marketable securities. In 2021 we de-designated the
fixed-to-fixed cross currency swaps associated with our June 2026 Notes and
settled certain of the fixed-to-fixed cross currency swaps resulting in a net
cash outflow of $22.



Financing activities - During 2021, we had net borrowings of $52 on our
Revolving Facility. During 2021, we completed the issuance of €325 of our July
2029 Notes and $400 of our September 2030 Notes, paying financing costs of $11.
Also during 2021, we redeemed all $375 of our June 2026 Notes and all $425 of
our December 2024 Notes, paying redemption premiums of $21. During 2021, we paid
financing costs of $2 to amend our credit and guaranty agreement, increasing the
Revolving Facility to $1,150 and extending its maturity to March 25, 2026.
During 2020, we completed the issuance of $400 of our June 2028 Notes and the
issuance of an additional $100 of our November 2027 Notes, paying financing
costs of $8. During 2020, we entered a $500 bridge facility, paying financing
costs of $5. We subsequently terminated the bridge facility. We used $44 and $15
for dividend payments to common stockholders during 2021 and 2020. We used cash
of $23 to repurchase common shares under our share repurchase program in 2021.
During the second quarter of 2020, we temporarily suspended the declaration and
payment of dividends to common stockholders and temporarily suspended the
repurchase of common stock under our existing common stock repurchase program in
response to the global COVID-19 pandemic. Distributions to noncontrolling
interests totaled $10 in both 2021 and 2020. During 2020, Hydro-Québec paid us
$7 to acquire an indirect 45% ownership interest in Ashwoods. During 2021, we
sold a portion of our ownership interest in Tai Ya Investment (HK) Co., Limited
(Tai Ya) to China Motor Corporation, reducing our ownership interest in Tai Ya
to 50%. In conjunction with the decrease in our ownership interest, the Tai Ya
shareholders agreement was amended, eliminating our controlling financial
interest in Tai Ya. Upon our loss of control, we deconsolidated Tai Ya,
including $6 of cash and cash equivalents.



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Off-balance sheet provisions



There have been no material changes at September 30, 2021 in our off-balance
sheet arrangements from those reported or estimated in the disclosures in Item 7
of our 2020 Form 10-K.



Contractual Obligations



During the second quarter of 2021, we completed the sale of $400 of our
September 2030 Notes and €325 of our July 2029 Notes and redeemed all $425 of
our December 2024 Notes and all $375 of our June 2026 Notes. See Note 12 to our
consolidated financial statements in Item 1 of Part I for additional
information.



Contingencies



For a summary of litigation and other contingencies, see Note 14 to our
consolidated financial statements in Item 1 of Part I. Based on information
available to us at the present time, we do not believe that any liabilities
beyond the amounts already accrued that may result from these contingencies will
have a material adverse effect on our liquidity, financial condition or results
of operations.


Critical accounting estimates



The preparation of our consolidated financial statements in accordance with GAAP
requires us to use estimates and make judgments and assumptions about future
events that affect the reported amounts of assets, liabilities, revenue and
expenses and the related disclosures. See Item 7 in our 2020 Form 10-K for a
description of our critical accounting estimates and Note 1 to our consolidated
financial statements in Item 8 of our 2020 Form 10-K for our significant
accounting policies. There were no changes to our critical accounting estimates
in the nine months ended September 30, 2021. 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 2021.

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