DANA INC
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Washington, DC 20549
Form 10-K
Annual Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2009
| Commission File Number: | 1-1063 |
Dana Holding
Corporation
(Exact name of registrant as
specified in its charter)
| Delaware | 26-1531856 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) | |
| 3939 Technology Drive, Maumee, OH | 43537 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(419) 887-3000
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of each class
|
Name of each exchange on which registered
|
|
| Common Stock, par value $0.01 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes
o
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporate by reference in Part III
of this
Form 10-K
or any amendment to this
Form 10-K.
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
The aggregate market value of the common stock held by
non-affiliates of the registrant, computed by reference to the
average high and low trading prices of the common stock as of
the closing of trading on June 30, 2009, was approximately
$128,000,000.
APPLICABLE ONLY TO
ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. Yes
þ
No
o
APPLICABLE ONLY TO
CORPORATE ISSUERS:
There were 139,421,053 shares of the registrant’s
common stock outstanding at February 12, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to
stockholders in connection with the Annual Meeting of
Stockholders to be held on April 28, 2010 are incorporated
by reference into Part III.
DANA HOLDING
CORPORATION —
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
TABLE OF CONTENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
TABLE OF CONTENTS
2
Table of Contents
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 are indicated
by words such as “anticipates,” “expects,”
“believes,” “intends,” “plans,”
“estimates,” “projects” and similar
expressions. These statements represent the present
expectations of Dana Holding Corporation 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 (our 2009
Form 10-K)
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.
3
Table of Contents
(Dollars in
millions, except per share amounts)
| Item 1. | Business |
General
Dana Holding Corporation (Dana), incorporated in Delaware in
2007, is headquartered in Maumee, Ohio. We are a
leading supplier of axle, driveshaft, structural, sealing and
thermal management products for global vehicle
manufacturers. Our people design and manufacture
products for every major vehicle producer in the
world. At December 31, 2009, we employed
approximately 24,000 people in 23 countries and operated
106 major facilities throughout the world.
As a result of the emergence of Dana Corporation (Prior Dana)
from operating under Chapter 11 of the United States
Bankruptcy Code (Chapter 11) on January 31, 2008
(the Effective Date), Dana is the successor registrant to Prior
Dana pursuant to
Rule 12g-3
under the Securities Exchange Act of 1934. The terms
“Dana,” “we,” “our” and
“us,” when used in this report with respect to the
period prior to Dana Corporation’s emergence from
Chapter 11, are references to Prior Dana and, when used
with respect to the period commencing after Dana
Corporation’s emergence, are references to
Dana. These references include the subsidiaries of
Prior Dana or Dana, as the case may be, unless otherwise
indicated or the context requires otherwise.
The eleven months ended December 31, 2008 and the one month
ended January 31, 2008 are distinct reporting periods as a
result of our emergence from Chapter 11 on January 31,
2008. References in certain analyses of sales and
other results of operations combine the two periods in order to
provide additional comparability of such information.
Emergence from
Reorganization Proceedings and Related Subsequent
Events
Background
— Dana and forty of its wholly-owned
subsidiaries (collectively, the Debtors) operated their
businesses as debtors in possession under Chapter 11 from
March 3, 2006 (the Filing Date) until emergence from
Chapter 11 on January 31, 2008 pursuant to a plan of
reorganization (the Plan). The Debtors’
Chapter 11 cases (collectively, the Bankruptcy Cases) were
consolidated in the United States Bankruptcy Court for the
Southern District of New York (the Bankruptcy Court) under the
caption
In re Dana Corporation, et al.,
Case
No. 06-10354
(BRL). Neither Dana Credit Corporation (DCC) and
its subsidiaries nor any of our
non-U.S. affiliates
were Debtors.
Claims resolution
— On the Effective Date, the
Plan was consummated and we emerged from
Chapter 11. As provided in the Plan, we issued
and set aside approximately 28 million shares of Dana
common stock (valued in reorganization at $640) for future
distribution to holders of allowed unsecured nonpriority claims
in Class 5B under the Plan. These shares are
being distributed as the disputed and unliquidated claims are
resolved. The claim amount related to the
28 million shares for disputed and unliquidated claims was
estimated not to exceed $700. Since emergence, we
have issued 23 million of the 28 million shares for
allowed claims (valued in reorganization at $540), increasing
the total shares issued to 94 million (valued in
reorganization at $2,168) for unsecured claims of approximately
$2,249. The corresponding decrease in the disputed
claims reserve leaves 5 million shares (valued in
reorganization at $102). The remaining disputed and
unliquidated claims total approximately $96. To the
extent that these remaining claims are settled for less than the
5 million remaining shares, additional incremental
distributions will be made to the holders of the previously
allowed general unsecured claims in Class 5B.
Capitalization at Emergence
— Pursuant to the
Plan, all of the issued and outstanding shares of Prior Dana
common stock, par value $1.00 per share, and any other
outstanding equity securities of Prior Dana, including all
options and warrants, were cancelled on the Effective Date, and
we began the process of issuing 100 million shares of Dana
common stock, par value $0.01 per share.
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Table of Contents
Pursuant to the Plan, we issued 2.5 million shares of 4.0%
Series A Preferred Stock, par value $0.01 per share (the
Series A Preferred) and 5.4 million shares of 4.0%
Series B Preferred Stock, par value $0.01 per share (the
Series B Preferred) on the Effective Date. See
Note 7 to our consolidated financial statements in
Item 8 for dividend and conversion terms, dividend payments
and an explanation of registration rights with respect to our
preferred stock.
We entered into an exit financing facility (the Exit Facility)
on the Effective Date. The Exit Facility consisted of
a Term Facility Credit and Guaranty Agreement in the amount of
$1,430 (the Term Facility) and a $650 Revolving Credit and
Guaranty Agreement (the Revolving Facility). In
November, 2008 we repaid $150 of the Term Facility and amended
the terms of the Exit Facility. See Note 12 for
an explanation of our financing activities.
Fresh start accounting
— As required by
accounting principles generally accepted in the United States
(GAAP), we adopted fresh start accounting effective
February 1, 2008. The financial statements for
the periods ended prior to January 31, 2008 do not include
the effect of any changes in our capital structure or changes in
the fair value of assets and liabilities as a result of fresh
start accounting. See Note 21 to our
consolidated financial statements in Item 8 for an
explanation of the impact of emerging from reorganization and
applying fresh start accounting on our financial position.
Overview of our
Business
Markets
We serve three primary markets:
| • | Light vehicle market — In the light vehicle market, we design, manufacture and sell light axles, driveshafts, structural products, sealing products, thermal products and related service parts for light trucks, sport utility vehicles (SUVs), crossover utility vehicles, vans and passenger cars. | |
| • | Medium/heavy market — In the medium/heavy vehicle market, we design, manufacture and sell axles, driveshafts, chassis and side rails, ride controls and related modules and systems, engine sealing products, thermal products and related service parts for medium- and heavy-duty trucks, buses and other commercial vehicles. | |
| • | Off-Highway market — In the off-highway market, we design, manufacture and sell axles, transaxles, driveshafts, suspension components, transmissions, electronic controls, related modules and systems, sealing products, thermal products and related service parts for construction machinery and leisure/utility vehicles and outdoor power, agricultural, mining, forestry and material handling equipment and a variety of non-vehicular, industrial applications. |
Segments
Senior management and our Board of Directors review our
operations in six operating segments:
| • | Four product-based operating segments sell primarily into the light vehicle market: Light Vehicle Driveline (LVD), Sealing Products (Sealing), Thermal Products (Thermal) and Structural Products (Structures). Sales in this market totaled $3,327 in 2009, with Ford Motor Company (Ford), Toyota Motor Corporation (Toyota), Nissan Motor Company (Nissan), General Motors Corp. (GM) and Hyundai Motor Company (Hyundai) among the largest customers. At December 31, 2009, these segments employed approximately 17,000 people and had 74 major facilities in 21 countries. | |
| • | Two operating segments sell into their respective medium/heavy vehicle markets: Commercial Vehicle and Off-Highway. In 2009, these segments generated sales of $1,901. In 2009, the largest Commercial Vehicle customers were PACCAR Inc (PACCAR), Navistar International Corporation (Navistar), Daimler AG (Daimler) and Oshkosh Corporation. The largest Off-Highway customers included Deere & Company (Deere), AGCO Corporation, Fiat Group and |
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Table of Contents
| Sandvik Ab. At December 31, 2009, these two segments employed approximately 6,000 people and had 28 major facilities in 14 countries. |
| • | In addition to the segments, two additional major facilities provide administrative services and two engineering facilities support multiple segments. At December 31, 2009, corporate and other support staff totaled approximately 1,000. |
Our operating segments manufacture and market classes of similar
products as shown below. See Note 19 to our
consolidated financial statements in Item 8 for financial
information on all of these operating segments.
|
Percent of
|
||||||||
|
Consolidated
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||||||||
|
Segment
|
Sales
|
Products
|
Market
|
|||||
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LVD
|
39 | % | Front and rear axles, driveshafts, differentials, torque couplings and modular assemblies | Light vehicle | ||||
|
Sealing
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10 | Gaskets, cover modules, heat shields and engine sealing systems | Light vehicle, medium/heavy vehicle and off-highway | |||||
|
Thermal
|
4 | Cooling and heat transfer products | Light vehicle, medium/heavy vehicle and off-highway | |||||
|
Structures
|
11 | Frames, cradles and side rails | Light and medium/heavy vehicle | |||||
|
Commercial Vehicle
|
20 | Axles, driveshafts, steering shafts, suspensions and tire management systems | Medium/heavy vehicle | |||||
|
Off-Highway
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16 | Axles, transaxles, driveshafts and end-fittings, transmissions, torque converters and electronic controls | Off-highway | |||||
Divestitures
The Board of Directors of Prior Dana approved the divestiture of
our engine hard parts, fluid products and pump products
operations in 2005 and we reported these businesses as
discontinued operations through their respective dates of
divestiture. The trailer axle business and the assets
of DCC were also approved for divestiture, but did not meet the
requirements for treatment as discontinued operations, and their
results were included in continuing
operations. Substantially all of these operations
were sold prior to 2008. See Note 22 to our
consolidated financial statements in Item 8 for additional
information on discontinued operations.
In January 2007, we sold our trailer axle business manufacturing
assets for $28 in cash and recorded an after-tax gain of
$14. In March 2007, we sold our engine hard parts
business, received cash proceeds of $98 and recorded an
after-tax loss of $45. We incurred a loss of $5 in
January 2008 for a post-closing adjustment to reinstate certain
retained liabilities of this business.
In March 2007, we sold our 30% equity interest in GETRAG
Getriebe-und Zahnradfabrik Hermann Hagenmeyer GmbH &
Cie KG (GETRAG) to our joint venture partner, an affiliate of
GETRAG, for $207 in cash. An impairment charge of $58
after tax was recorded in the fourth quarter of 2006 and an
additional charge of $2 after tax was recorded in the first
quarter of 2007. In August 2007, we executed an
agreement relating to our remaining joint ventures with
GETRAG. This agreement included the grant of a call
option to GETRAG to acquire our interests in these joint
ventures for $75 and our payment of GETRAG claims of $11 under
certain conditions. We recorded the $11 claim in
liabilities subject to compromise and as an expense in other
income, net in the second quarter of 2007. In
September 2008, we amended our agreement with GETRAG and reduced
the call option purchase price to $60, extended the call option
exercise period to September 2009 and eliminated the $11
liability. As a result of the reduced call price, we
recorded an asset impairment
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Table of Contents
charge of $15 in the third quarter of 2008 in equity in earnings
of affiliates. We are now recognizing the equity in
earnings of GETRAG beginning with the expiration of the call in
September 2009.
In July and August 2007, we completed the sale of our fluid
products hose and tubing business for aggregate cash proceeds of
$84 and recorded an aggregate after-tax gain of
$32. We recorded an expense of $3 in 2008 associated
with a post-closing purchase price adjustment and settlement
costs and related expenses. In September 2007, we
completed the sale of our coupled fluid products business with
the buyer assuming $18 of certain liabilities of the business at
closing. We recorded an after-tax loss of $23 in
connection with the sale of this business. We
completed the sale of a portion of the pump products business in
October 2007, generating proceeds of $7 and a nominal after-tax
gain. In January 2008, we completed the sale of the
remaining assets of the pump products business to Melling Tool
Company, generating proceeds of $5 and an after-tax loss of $2.
During the latter part of 2008 and early 2009, we evaluated a
number of strategic options in our non-driveline light vehicle
businesses. We incurred costs of $18 and $10 during
2009 and 2008 in connection with the evaluation of these
strategic options, primarily for professional fees, which we
recorded in other income, net.
Structural Products business
— In December
2009, we entered into an agreement with Metalsa
S.A. de C.V. (Metalsa) to sell
substantially all of the assets of our Structural Products
business to Metalsa. Dana will retain a facility of
this business in Longview, Texas and will continue to produce
products for a large customer at this
facility. Accordingly, we have not reported the
Structures segment as discontinued operations. The
parties expect to complete the sale of all but the Venezuelan
operations in March 2010, with Venezuela being completed as soon
as the necessary governmental approvals are obtained.
As a result of this agreement, we recorded $150 as an impairment
of the intangible and long-lived assets in December 2009 and we
recorded strategic transaction expenses of $11 associated with
the sale in other income, net. The impairment loss
was based on expected proceeds of $150 less projected working
capital adjustments. Under the terms of our amended
Term Facility, we will be required to utilize the proceeds of
the sale to pay down our Term Facility debt. For a
description of the Term Facility, see Note 12 to our
consolidated financial statements in Item 8.
Geographic
We maintain administrative and operational organizations in four
regions — North America, Europe, South America and
Asia Pacific — to facilitate financial and statutory
reporting and tax compliance on a worldwide basis and to support
our business units with regional market, customer and product
strategies, assistance with business plan execution, and
management of affiliate relations. Our operations are
located in the following countries:
|
North America
|
Europe |
South America
|
Asia Pacific | |||||
|
Canada
|
Austria | Italy | Argentina | Australia | ||||
|
Mexico
|
Belgium | Spain | Brazil | China | ||||
|
United States
|
France | Sweden | Colombia | India | ||||
| Germany | United Kingdom | Venezuela | Japan | |||||
| Hungary | South Africa | |||||||
| Taiwan | ||||||||
| Thailand | ||||||||
Our
non-U.S. subsidiaries
and affiliates manufacture and sell products similar to those we
produce in the U.S. Operations outside the U.S. may be
subject to a greater risk of changing political, economic and
social environments, changing governmental laws and regulations,
currency revaluations and market fluctuations than our domestic
operations. See the discussion of risk factors in
Item 1A.
7
Table of Contents
Non-U.S. sales
comprised $2,826 of our 2009 consolidated sales of
$5,228. Our consolidated net loss of $436 included a
non-U.S. net
loss of $119 in 2009. A summary of sales and
long-lived assets by geographic region can be found in
Note 19 to our consolidated financial statements in
Item 8.
Customer
Dependence
We have thousands of customers around the world and have
developed long-standing business relationships with many of
them. Our segments in the automotive markets are
largely dependent on light vehicle Original Equipment
Manufacturer (OEM) customers, while our Commercial Vehicle and
Off-Highway segments have a broader and more geographically
diverse customer base, including machinery and equipment
manufacturers in addition to medium- and heavy-duty vehicle OEM
customers.
Ford was the only individual customer accounting for 10% or more
of our consolidated sales in 2009. As a percentage of
total sales from continuing operations, our sales to Ford were
approximately 20% in 2009, 17% in 2008 and 23% in 2007, and our
sales to Toyota, our second largest customer, were approximately
6% in 2009, 7% in 2008 and 10% in 2007.
PACCAR, GM and Navistar were our third, fourth and fifth largest
customers. PACCAR, GM, Navistar, Chrysler Group LLC
(Chrysler), Daimler, Hyundai, Nissan and Deere, collectively
accounted for approximately 29% of our revenues in 2009.
Loss of all or a substantial portion of our sales to Ford or
other large volume customers would have a significant adverse
effect on our financial results until such lost sales volume
could be replaced and there is no assurance that any such lost
volume would be replaced. We continue to work to
diversify our customer base and geographic footprint.
Sources and
Availability of Raw Materials
We use a variety of raw materials in the production of our
products, including steel and products containing steel,
stainless steel, forgings, castings and
bearings. Other commodity purchases include aluminum,
brass, copper and plastics. These materials are
usually available from multiple qualified sources in quantities
sufficient for our needs. However, some of our
operations remain dependent on single sources for certain raw
materials.
While our suppliers have generally been able to support our
needs, our operations may experience shortages and delays in the
supply of raw material from time to time, due to strong demand,
capacity limitations and other problems experienced by the
suppliers. A significant or prolonged shortage of
critical components from any of our suppliers could adversely
impact our ability to meet our production schedules and to
deliver our products to our customers in a timely manner.
High steel and other raw material costs have had a major adverse
effect on our results of operations in recent
years. However, during the past few years, we
successfully implemented pricing agreements with many of our
customers providing adjustments for significant increases or
decreases in steel and certain other raw materials
costs. Where formal agreements are not in place, we
have generally been successful in the past in implementing price
adjustments to compensate for inflationary material cost
increases. Adjustments may not result in full
recovery of cost increases and there may be time lags in
recovery of these costs.
Seasonality
Our businesses are generally not seasonal. However,
in the light vehicle market, our sales are closely related to
the production schedules of our OEM customers and, historically,
those schedules have been weakest in the third quarter of the
year due to a large number of model year change-overs that occur
during this period. Additionally, third-quarter
production schedules in Europe are typically
8
Table of Contents
impacted by the summer holiday schedules and fourth-quarter
production is affected globally by year end holidays.
Backlog
Our products are generally not sold on a backlog basis since
most orders may be rescheduled or modified by our customers at
any time. Our product sales are dependent upon the
number of vehicles that our customers actually produce as well
as the timing of such production. A substantial
amount of the new business we are awarded by OEMs is granted
well in advance of a program launch. These awards
typically extend through the life of the given
program. We estimate future revenues from new
business on the projected volume under these programs.
Competition
Within each of our markets, we compete with a variety of
independent suppliers and distributors, as well as with the
in-house operations of certain OEMs. With a renewed
focus on product innovation, we differentiate ourselves through:
efficiency and performance; materials and processes;
sustainability; and product extension.
Light vehicle market —
The principal LVD
competitors include ZF Friedrichshafen AG (ZF Group), GKN plc,
American Axle & Manufacturing (American Axle), Toyota,
Magna International Inc. (Magna), Wanxiang Group Corporation
(Wanxiang), Unisia Steering Systems (Unisia), IFA Group
(acquired Rotarian GmbH), GETRAG and the captive operations of
various truck and auto manufacturers (e.g., Chrysler and Ford).
Our principal Structures competitors include Magna, Maxion
Sistemas Automotivos Ltda., Metalsa, Tower Automotive
Inc. and Martinrea International Inc.
Our principal Sealing competitors include ElringKlinger Ag,
Federal-Mogul Corporation and Freudenberg NOK Group.
Thermal competitors include Behr GmbH & Co. KG, Modine
Manufacturing Company, Valeo Group and Denso Corporation.
Medium/heavy vehicle market —
Our principal
Commercial Vehicle competitors include ArvinMeritor, American
Axle, Hendrickson (a subsidiary of the Boler Group), Klein
Products Inc. and OEMs’ vertically integrated
operations. Structures, Sealing and Thermal
competitors in this market are the same as in the light vehicle
market.
Off-highway market —
Our major competitors in
the Off-Highway segment include Carraro Group, ZF Group, GKN,
Kessler + Co. and certain OEMs’ vertically integrated
operations. Sealing and Thermal competition in this
market is similar to their competition in the other markets
above.
Patents and
Trademarks
Our proprietary axle, driveshaft, structural, sealing and
thermal product lines have strong identities in the markets we
serve. Throughout these product lines, we manufacture
and sell our products under a number of patents that have been
obtained over a period of years and expire at various
times. We consider each of these patents to be of
value and aggressively protect our rights throughout the world
against infringement. We are involved with many
product lines, and the loss or expiration of any particular
patent would not materially affect our sales and profits.
We own or have licensed numerous trademarks that are registered
in many countries, enabling us to market our products
worldwide. For example, our Spicer
®
,
Victor Reinz
®
,
Parish
®
and Long
®
trademarks are widely recognized in their market segments.
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Research and
Development
From our introduction of the automotive universal joint in 1904,
we have been focused on technological innovation. Our
objective is to be an essential partner to our customers and we
remain highly focused on offering superior product quality,
technologically advanced products, world-class service and
competitive prices. To enhance quality and reduce
costs, we use statistical process control, cellular
manufacturing, flexible regional production and assembly, global
sourcing and extensive employee training.
We engage in ongoing engineering, research and development
activities to improve the reliability, performance and
cost-effectiveness of our existing products and to design and
develop innovative products that meet customer requirements for
new applications. We are integrating related
operations to create a more innovative environment, speed
product development, maximize efficiency and improve
communication and information sharing among our research and
development operations. At December 31, 2009, we
had five major technical centers. Our engineering and
research and development costs were $119 in 2009, $193 in 2008
and $189 in 2007. A substantial portion of these
costs relates to existing products.
These developments continue to improve customer
value. For all of our markets, this means drivelines
with higher torque capacity, reduced weight and improved
efficiency. End-use customers benefit by having
vehicles with better fuel economy and reduced cost of
ownership. We are also developing a number of sealing
and thermal control products for vehicular and other
applications that will assist fuel cell, battery and hybrid
vehicle manufacturers in making their technologies commercially
viable in mass production.
Employment
Our worldwide employment was approximately 24,000 at
December 31, 2009.
Environmental
Compliance
We make capital expenditures in the normal course of business as
necessary to ensure that our facilities are in compliance with
applicable environmental laws and regulations. The
cost of environmental compliance has not been a material part of
capital expenditures and did not have a materially adverse
effect on our earnings or competitive position in 2009.
In connection with our Chapter 11 reorganization, we
settled certain pre-petition claims related to environmental
matters. See “Contingencies” in Item 7
and the discussion of contingencies in Note 15 to our
consolidated financial statements in Item 8.
Available
Information
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (Exchange Act) are available, free of charge, on or through
our Internet website
(http://www.dana.com/investors)
as soon as reasonably practicable after we electronically file
such materials with, or furnish them to, the SEC. We
also post our
Corporate Governance Guidelines, Standards of
Business Conduct for Members of the Board of Directors
,
Board Committee membership lists and charters,
Standards of
Business Conduct
and other corporate governance materials at
this website address. Copies of these posted
materials are available in print, free of charge, to any
stockholder upon request from: Investor Relations, Dana Holding
Corporation, P.O. Box 1000, Maumee, Ohio 43537, or via
telephone at
(419) 887-5159
or
e-mail
at
InvestorRelations@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.
10
Table of Contents
| Item 1A. | Risk Factors |
We are impacted by events and conditions that affect the light
vehicle, medium/heavy vehicle and off-highway markets that we
serve, as well as by factors specific to Dana. Among
the risks that could materially adversely affect our business,
financial condition or results of operations are the following,
many of which are interrelated.
Risk Factors
Related to the Markets We Serve
Continuing
negative economic conditions in the United States and elsewhere
could have a substantial effect on our business.
Our business is tied to general economic and industry conditions
as demand for vehicles depends largely on the strength of the
economy, employment levels, consumer confidence levels, the
availability and cost of credit and the cost of
fuel. Current economic conditions have reduced demand
for most vehicles. This has had and could continue to
have a substantial impact on our business.
While we expect a modest economic recovery in 2010, negative
economic conditions could continue to impact our
business. The overall market for new vehicle sales in
the United States declined significantly in 2009 and while we
expect partial recovery in 2010, our customers could reduce
their vehicle production in North America and, as a result,
demand for our products would continue to be adversely affected.
Demand in our
non-U.S. markets
could also decline in response to overall economic conditions,
including changes in the global economy, the limited
availability of credit and fuel costs.
Our customers and suppliers could experience severe economic
constraints in the future, including
bankruptcy. Adverse global economic conditions and
further deterioration could have a material adverse impact on
our financial position and results of operations.
We could be
adversely impacted by the loss of any of our significant
customers, changes in their requirements for our products or
changes in their financial condition.
We are reliant upon sales to several significant
customers. Sales to our ten largest customers
accounted for 56% of our overall revenue in 2009. In
the U.S., the light vehicle industry faces an uncertain
future. GM and Chrysler have already required
assistance through government loans and other companies in the
light vehicle industry may seek government
assistance. Changes in our business relationships
with any of our large customers or in the timing, size and
continuation of their various programs could have a material
adverse impact on us.
The loss of any of these customers, the loss of business with
respect to one or more of their vehicle models on which we have
a high component content, or a further significant decline in
the production levels of such vehicles would continue to
negatively impact our business, results of operations and
financial condition. We are continually bidding on
new business with these customers, as well as seeking to
diversify our customer base, but there is no assurance that our
efforts will be successful. Further, to the extent
that the financial condition of our largest customers
deteriorates, including possible bankruptcies, mergers or
liquidations, or their sales otherwise decline, our financial
position and results of operations could be adversely affected.
We may be
adversely impacted by changes in international legislative and
political conditions.
We operate in 23 countries around the world and we depend on
significant foreign suppliers and
vendors. Legislative and political activities within
the countries where we conduct business, particularly in
emerging markets and less developed countries, could adversely
impact our ability to operate in those countries. The
political situation in some countries creates a risk of the
seizure of our assets. The political environment in
some of these countries could create instability in our
contractual relationships with no effective legal safeguards for
resolution of these issues.
11
Table of Contents
We may be
adversely impacted by the strength of the U.S. dollar
relative to other currencies in the other countries in which we
do business.
Approximately 54% of our sales in 2009 were from operations
located in countries other than the U.S. Currency
variations can have an impact on our results (expressed in
U.S. dollars). Currency variations can also
adversely affect margins on sales of our products in countries
outside of the U.S. and margins on sales of products that
include components obtained from affiliates or other suppliers
located outside of the U.S. While the U.S. dollar has
generally weakened over the past year, strengthening of the
U.S. dollar against the euro and many other currencies of
countries in which we have operations could adversely affect our
results reported in U.S. dollars. We use a
combination of natural hedging techniques and financial
derivatives to protect against foreign currency exchange rate
risks. Such hedging activities may be ineffective or
may not offset more than a portion of the adverse financial
impact resulting from currency variations.
We may be
adversely impacted by new laws, regulations or policies of
governmental organizations related to increased fuel economy
standards and reduced greenhouse gas emissions, or changes in
existing ones.
It is anticipated that the number and extent of governmental
regulations related to fuel economy standards and greenhouse gas
emissions, and the costs to comply with them, will increase
significantly in the future. In the U.S., the Energy
Independence and Security Act of 2007 requires significant
increases in the Corporate Average Fuel Economy (CAFE)
requirements applicable to cars and light trucks beginning with
the 2011 model year. In addition, a growing number of
states are adopting regulations that establish carbon dioxide
emission standards that effectively impose similarly increased
fuel economy standards for new vehicles sold in those
states. Compliance costs for our customers could
require them to alter their spending, research and development
plans, curtail sales, cease production or exit certain market
segments characterized by lower fuel efficiency. Any
of these actions could adversely affect our financial position
and results of operations.
Company-Specific
Risk Factors
We have taken,
and continue to take, cost-reduction
actions. Although our process includes planning for
potential negative consequences, the cost-reduction actions may
expose us to additional production risk and could adversely
affect our sales, profitability and ability to attract and
retain employees.
We have been reducing costs in all of our businesses and have
discontinued product lines, exited businesses, consolidated
manufacturing operations and reduced our employee
population. The impact of these cost-reduction
actions on our sales and profitability may be influenced by many
factors including our ability to successfully complete these
ongoing efforts, our ability to generate the level of cost
savings we expect or that are necessary to enable us to
effectively compete, delays in implementation of anticipated
workforce reductions, decline in employee morale and the
potential inability to meet operational targets due to our
inability to retain or recruit key employees.
Our amended Exit
Facility contains covenants that may constrain our
growth.
The amended financial covenants in our Exit Facility may hinder
our ability to finance future operations, make potential
acquisitions or investments, meet capital needs or engage in
business activities that may be in our best interest such as
future issuances of our common stock. These
restrictions could hinder us from responding to changing
business and economic conditions and from implementing our
business plan.
We may be unable
to comply with the financial covenants in our amended Exit
Facility.
The financial covenants in our amended Exit Facility require us
to achieve certain financial ratios based on levels of earnings
before interest, taxes, depreciation, amortization and certain
levels of restructuring and reorganization related costs
(Adjusted EBITDA), as defined in the amended Exit
12
Table of Contents
Facility. In November 2008, certain covenants of the
Exit Facility were amended to allow for future
compliance. A failure to comply with these or other
covenants in the amended Exit Facility could, if we were unable
to obtain a waiver or another amendment of the covenant terms,
cause an event of default that could cause our loans under the
amended Exit Facility to become immediately due and
payable. In addition, additional waivers or
amendments could substantially increase our cost of borrowing.
We operate as a
holding company and depend on our subsidiaries for cash to
satisfy the obligations of the holding company.
Dana Holding Corporation is a holding company. Our
subsidiaries conduct all of our operations and own substantially
all of our assets. Our cash flow and our ability to
meet our obligations depends on the cash flow of our
subsidiaries. In addition, the payments of funds in
the form of dividends, intercompany payments, tax sharing
payments and otherwise may be subject to restrictions under the
laws of the countries of incorporation of our subsidiaries.
Labor stoppages
or work slowdowns at Dana, key suppliers or our customers could
result in a disruption in our operations and have a material
adverse effect on our business.
We and our customers rely on our respective suppliers to provide
parts needed to maintain production levels. We all
rely on workforces represented by labor
unions. Workforce disputes that result in work
stoppages or slowdowns could disrupt operations of all of these
businesses which in turn could have a material adverse effect on
demand for the products we supply our customers.
We could be
adversely affected if we are unable to recover portions of our
commodity costs (including costs of steel, other raw materials
and energy) from our customers.
We continue to work with our customers to recover a greater
portion of our material costs. While we have achieved
some success in these efforts to date, there is no assurance
that commodity costs will not adversely impact our profitability
in the future.
We could be
adversely affected if we experience shortages of components from
our suppliers.
A substantial portion of our annual cost of sales is driven by
the purchase of goods and services. To manage and
reduce these costs, we have been consolidating our supplier
base. As a result, we are dependent on single sources
of supply for some components of our products. We
select our suppliers based on total value (including price,
delivery and quality), taking into consideration their
production capacities and financial condition, and we expect
that they will be able to support our needs. However,
there is no assurance that adverse financial conditions,
including bankruptcies of our suppliers, reduced levels of
production or other problems experienced by our suppliers will
not result in shortages or delays in their supply of components
to us or even in the financial collapse of one or more such
suppliers. If we were to experience a significant or
prolonged shortage of critical components from any of our
suppliers, particularly those who are sole sources, and were
unable to procure the components from other sources, we would be
unable to meet our production schedules for some of our key
products and to ship such products to our customers in a timely
fashion, which would adversely affect our revenues, margins and
customer relations.
We could be
adversely impacted by the costs of environmental, health, safety
and product liability compliance.
Our operations are subject to environmental laws and regulations
in the U.S. and other countries that govern emissions to
the air; discharges to water; the generation, handling, storage,
transportation, treatment and disposal of waste materials and
the cleanup of contaminated properties. Historically,
other than the EPA settlement for Hamilton (see Note 15 to
our consolidated financial statements in Item 8),
environmental costs related to our former and existing
operations have not been
13
Table of Contents
material. However, there is no assurance that the
costs of complying with current environmental laws and
regulations, or those that may be adopted in the future will not
increase and adversely impact us.
There is also no assurance that the costs of complying with
current laws and regulations, or those that may be adopted in
the future, that relate to health, safety and product liability
matters will not adversely impact us. There is also a
risk of warranty and product liability claims, as well as
product recalls, in the commercial and automotive vehicle
industry if our products fail to perform to specifications or
cause property damage, injury or death. (See
Note 16 of our consolidated financial statements in
Item 8 for additional information on warranties.)
Our ability to
utilize our net operating loss carryforwards may be
limited.
Net operating tax loss carryforwards (NOLs) approximating $1,600
were available at December 31, 2009 to reduce future U.S
income tax liabilities. Our ability to utilize these
NOLs may be limited as a result of certain change of control
provisions of the U.S. Internal Revenue Code
(IRC). We emerged from Chapter 11 with NOLs of
approximately $580, which are limited to annual utilization of
$85. The additional NOLs accumulated since emergence
are not subject to limitation as of the end of
2009. However, there can be no assurance that trading
in our shares will not effect another change in control under
the IRC which would further limit our ability to utilize our
available NOLs. Such limitations may cause us to pay
income taxes earlier and in greater amounts than would be the
case if the NOLs were not subject to limitation.
Risk Factors
Related to our Securities
Volatility is
possible in the market price of our common stock.
The market price of our common stock has been and may continue
to be volatile. As the price of our common stock on
the New York Stock Exchange constantly changes, it is impossible
to predict whether the price of our common stock will rise or
fall. Trading prices of our common stock will be
influenced by our financial condition, operating results and
prospects and by economic, financial and other factors, such as
prevailing interest rates, interest rate volatility and changes
in the automotive industry and competitors. In
addition, general market conditions or our issuance of
substantial amounts of common stock could affect the price of
shares of our common stock.
Provisions in our
Restated Certificate of Incorporation, Bylaws and Shareholders
Agreement may discourage a takeover attempt.
Certain provisions of our Restated Certificate of Incorporation
and Bylaws, as well as the General Corporation Law of the State
of Delaware, may have the effect of delaying, deferring or
preventing a change in control of Dana. Such
provisions, including those regulating the nomination of
directors, limiting who may call special stockholders’
meetings and eliminating stockholder action by written consent,
together with the terms of our outstanding preferred stock, may
make it more difficult for other persons, without the approval
of our board of directors, to make a tender offer or otherwise
acquire substantial amounts of common stock or to launch other
takeover attempts that a stockholder might consider to be in
such stockholder’s best interest. In addition,
our Shareholders Agreement with the current holders of our
Series A Preferred Stock provides that such holders will
have approval rights with respect to certain corporate
transactions, including certain transactions involving a change
of control of Dana. The existence of such approval
rights could discourage a takeover attempt.
Holders of our
Series A Preferred Stock have limited approval rights with
respect to our business and may have conflicts of interest with
holders of our common stock in the future.
Under the terms of our Shareholders Agreement, the current
holders of our Series A Preferred Stock have limited
approval rights with respect to certain corporate transactions,
including an issuance of our common stock at a price below the
current market price (as defined in the Shareholders
14
Table of Contents
Agreement). There can be no assurance that they will
waive their rights or grant approvals in respect of future
transactions that may be in the best interests of the holders of
our common stock.
Our adoption of
fresh start accounting could result in additional asset
impairments and may make comparisons of our financial position
and results of operations to prior periods more
difficult.
As required by GAAP, we adopted fresh start accounting effective
February 1, 2008. This adoption increased the
value of our long-lived assets. Subsequent
developments in our markets resulted in impairments of the fresh
start values during 2008 and 2009 and could result in additional
impairments in future periods. Since fresh start
accounting required us to adjust all of our assets and
liabilities to their respective fair values, the consolidated
financial statements for periods after the emergence will not be
comparable to those of the periods prior to the emergence which
are presented on an historical basis. Fresh start
accounting may make it more difficult to compare our
post-emergence financial position and results of operations to
those in the pre-emergence periods which could limit interest
and investment in our stock.
| Item 1B. | Unresolved Staff Comments |
-None-
| Item 2. | Properties |
|
North
|
South
|
Asia/
|
||||||||||||||||||
|
Type of Facility
|
America | Europe | America | Pacific | Total | |||||||||||||||
|
Administrative Offices
|
2 | 2 | ||||||||||||||||||
|
Engineering — Multiple Groups
|
1 | 1 | 2 | |||||||||||||||||
|
LVD
|
||||||||||||||||||||
|
Manufacturing/Distribution
|
17 | 3 | 7 | 12 | 39 | |||||||||||||||
|
Sealing
|
||||||||||||||||||||
|
Manufacturing/Distribution
|
8 | 3 | 1 | 12 | ||||||||||||||||
|
Engineering
|
2 | 2 | ||||||||||||||||||
|
Thermal
|
||||||||||||||||||||
|
Manufacturing/Distribution
|
6 | 2 | 8 | |||||||||||||||||
|
Engineering
|
1 | 1 | ||||||||||||||||||
|
Structures
|
||||||||||||||||||||
|
Manufacturing/Distribution
|
5 | 4 | 2 | 11 | ||||||||||||||||
|
Commercial Vehicle
|
||||||||||||||||||||
|
Manufacturing/Distribution
|
9 | 4 | 1 | 2 | 16 | |||||||||||||||
|
Engineering
|
1 | 1 | ||||||||||||||||||
|
Off-Highway
|
||||||||||||||||||||
|
Manufacturing/Distribution
|
3 | 7 | 2 | 12 | ||||||||||||||||
|
Total Dana
|
55 | 19 | 12 | 20 | 106 | |||||||||||||||
As of December 31, 2009, we operated in 23 countries and
had 106 major manufacturing/ distribution, engineering and
office facilities worldwide. While we lease all of 38
and part of five of these manufacturing and distribution
operations, we own the remainder of our
facilities. We believe that all of our property and
equipment is properly maintained. Prior to our
emergence from Chapter 11, there was significant excess
capacity in our facilities based on our manufacturing and
distribution needs, especially in the U.S. As part of our
reorganization initiatives, we took significant steps to close
facilities and we continued to evaluate capacity requirements in
2009 in light of market conditions.
15
Table of Contents
Our corporate headquarters facilities are located in Maumee,
Ohio. This facility and other facilities in the
Toledo, Ohio area house functions that have global
responsibility for finance and accounting, treasury, risk
management, legal, human resources, procurement and supply chain
management, communications and information
technology. Our obligations under the amended Exit
Facility are secured by, among other things, mortgages on all
the domestic facilities that we own.
| Item 3. | Legal Proceedings |
As discussed in Notes 20 and 21 to our consolidated
financial statements in Item 8, we emerged from
Chapter 11 on January 31, 2008. Pursuant to
the Plan, the pre-petition ownership interests in Prior Dana
were cancelled and all of the pre-petition claims against the
Debtors, including claims with respect to debt, pension and
postretirement healthcare obligations and other liabilities,
were addressed in connection with our emergence from
Chapter 11.
As previously reported and as discussed in Note 15 to our
consolidated financial statements in Item 8, we are a party
to various pending judicial and administrative proceedings that
arose in the ordinary course of business.
After reviewing the currently pending lawsuits and proceedings
(including the probable outcomes, reasonably anticipated costs
and expenses, availability and limits of our insurance coverage
and surety bonds and our established reserves for uninsured
liabilities), we do not believe that any liabilities that may
result from these proceedings are reasonably likely to have a
material adverse effect on our liquidity, financial condition or
results of operations.
| Item 4. | Submission of Matters to a Vote of Security Holders |
We did not submit any matters for a stockholder vote in the
fourth quarter of 2009.
16
Table of Contents
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information —
Our common stock trades on
the New York Stock Exchange under the symbol “DAN.”
The stock began trading on such exchange on February 1,
2008, in conjunction with our emergence from Chapter 11
proceedings.
Because the value of one share of Prior Dana common stock bears
no relation to the value of one share of Dana common stock, only
the trading prices of Dana common stock following its listing on
the New York Stock Exchange are set forth below. The
following table shows the high and low sales prices per share of
Dana common stock during 2008 and 2009.
| Quarterly | ||||||||
|
High and Low Sales Prices per Share of Dana Common Stock
|
High Price | Low Price | ||||||
|
As reported by the New York Stock Exchange:
|
||||||||
|
First Quarter 2008 (beginning February 1, 2008)
|
$ | 13.30 | $ | 8.50 | ||||
|
Second Quarter 2008
|
12.65 | 5.10 | ||||||
|
Third Quarter 2008
|
7.49 | 4.10 | ||||||
|
Fourth Quarter 2008
|
4.83 | 0.34 | ||||||
|
First Quarter 2009
|
1.16 | 0.19 | ||||||
|
Second Quarter 2009
|
2.75 | 0.44 | ||||||
|
Third Quarter 2009
|
7.44 | 1.17 | ||||||
|
Fourth Quarter 2009
|
11.25 | 5.35 | ||||||
Holders of Common Stock —
The number of
stockholders of record of our common stock on February 1,
2010 was approximately 5,600.
Stockholder Return —
The following graph shows
the quarterly cumulative total stockholder return for our common
stock during the period from February 1, 2008 to
December 31, 2009. Five year historical data is
not presented since we emerged from Chapter 11 on
January 31, 2008 and the stock performance of Dana is not
comparable to the stock performance of Prior
Dana. The graph also shows the cumulative returns of
the S&P 500 Index and the S&P Global Auto Parts
Index. The comparison assumes $100 was invested on
February 1, 2008 (the date our new common stock began
trading on the NYSE). Each of the indices shown
assumes that all dividends paid were reinvested.
17
Table of Contents
Performance
Chart
Index
| Date | 2/1/08 | 3/31/08 | 6/30/08 | 9/30/08 | 12/31/08 | 3/31/09 | 6/30/09 | 9/30/09 | 12/31/09 | ||||||||||||||||||||||||||||||||||||
|
Dana Holding Corporation
|
$ | 100.00 | 78.74 | 42.13 | 38.11 | 5.83 | 3.62 | 10.08 | 53.62 | 85.35 | |||||||||||||||||||||||||||||||||||
|
S&P 500
|
$ | 100.00 | 94.79 | 91.73 | 83.58 | 64.73 | 57.18 | 65.88 | 75.75 | 79.91 | |||||||||||||||||||||||||||||||||||
|
Automotive Index (Dow Jones)
|
$ | 100.00 | 95.13 | 83.58 | 80.69 | 50.83 | 40.54 | 61.09 | 69.46 | 75.84 | |||||||||||||||||||||||||||||||||||
Dividends —
We did not declare or pay any
common stock dividends during 2008 or 2009. The terms
of our amended Exit Facility restrict the payment of dividends
on shares of common stock, and we do not anticipate paying any
such dividends at this time.
Issuer’s Purchases of Equity Securities —
The following table presents information with respect to
repurchases of common stock made by us during the quarter ended
December 31, 2009. These shares were delivered
to us by employees as payment for withholding taxes due upon the
distribution or exercise of stock awards.
|
Total Number of
|
||||||||||||||||
|
Shares Purchased as
|
Maximum Number of
|
|||||||||||||||
|
Total Number
|
Average
|
Part of Publicly
|
Shares that May Yet
|
|||||||||||||
|
of Shares
|
Price Paid
|
Announced Plans or
|
be Purchased Under
|
|||||||||||||
|
Period
|
Purchased | per Share | Programs | the Plans or Programs | ||||||||||||
|
10/1/09-10/31/09
|
— | — | — | — | ||||||||||||
|
11/1/09-11/30/09
|
43,168 | $ | 5.67 | — | — | |||||||||||
|
12/1/09-12/31/09
|
50,931 | $ | 9.26 | — | — | |||||||||||
Annual Meeting —
We will hold an annual meeting
of stockholders on April 28, 2010.
18
Table of Contents
| Item 6. | Selected Financial Data |
| Dana | Prior Dana | ||||||||||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
|||||||||||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
Years Ended December 31, | ||||||||||||||||||||||
| 2009 | 2008 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||
|
Net sales
|
$ | 5,228 | $ | 7,344 | $ | 751 | $ | 8,721 | $ | 8,504 | $ | 8,611 | |||||||||||||
|
Income (loss) from continuing operations before income taxes
|
$ | (454 | ) | $ | (549 | ) | $ | 914 | $ | (387 | ) | $ | (571 | ) | $ | (285 | ) | ||||||||
|
Income (loss) from continuing operations
|
$ | (436 | ) | $ | (667 | ) | $ | 717 | $ | (423 | ) | $ | (611 | ) | $ | (1,169 | ) | ||||||||
|
Loss from discontinued operations
|
(4 | ) | (6 | ) | (118 | ) | (121 | ) | (434 | ) | |||||||||||||||
|
Effect of change in accounting
|
4 | ||||||||||||||||||||||||
|
Net income (loss)
|
(436 | ) | (671 | ) | 711 | (541 | ) | (732 | ) | (1,599 | ) | ||||||||||||||
|
Less: Noncontrolling interests net income (loss)
|
(5 | ) | 6 | 2 | 10 | 7 | 6 | ||||||||||||||||||
|
Net income (loss) attributable to the parent company
|
$ | (431 | ) | $ | (677 | ) | $ | 709 | $ | (551 | ) | $ | (739 | ) | $ | (1,605 | ) | ||||||||
|
Income (loss) per share from continuing operations available to
parent company stockholders
|
|||||||||||||||||||||||||
|
Basic
|
$ | (4.19 | ) | $ | (7.02 | ) | $ | 4.77 | $ | (2.89 | ) | $ | (4.11 | ) | $ | (7.86 | ) | ||||||||
|
Diluted
|
$ | (4.19 | ) | $ | (7.02 | ) | $ | 4.75 | $ | (2.89 | ) | $ | (4.11 | ) | $ | (7.86 | ) | ||||||||
|
Loss per share from discontinued operations attributable to
parent company stockholders
|
|||||||||||||||||||||||||
|
Basic
|
$ | — | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.79 | ) | $ | (0.81 | ) | $ | (2.90 | ) | ||||||||
|
Diluted
|
$ | — | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.79 | ) | $ | (0.81 | ) | $ | (2.90 | ) | ||||||||
|
Net income per share from effect of change in accounting
attributable to parent company stockholders
|
|||||||||||||||||||||||||
|
Basic
|
$ | 0.03 | |||||||||||||||||||||||
|
Diluted
|
$ | 0.03 | |||||||||||||||||||||||
|
Net income (loss) per share available to parent company
stockholders
|
|||||||||||||||||||||||||
|
Basic
|
$ | (4.19 | ) | $ | (7.06 | ) | $ | 4.73 | $ | (3.68 | ) | $ | (4.92 | ) | $ | (10.73 | ) | ||||||||
|
Diluted
|
$ | (4.19 | ) | $ | (7.06 | ) | $ | 4.71 | $ | (3.68 | ) | $ | (4.92 | ) | $ | (10.73 | ) | ||||||||
|
Cash dividends per common share
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 0.37 | |||||||||||||
|
Common Stock Data
|
|||||||||||||||||||||||||
|
Average common shares outstanding (number in millions)
|
|||||||||||||||||||||||||
|
Basic
|
110 | 100 | 150 | 150 | 150 | 150 | |||||||||||||||||||
|
Diluted
|
110 | 100 | 150 | 150 | 150 | 151 | |||||||||||||||||||
|
Stock price
|
|||||||||||||||||||||||||
|
High
|
$ | 11.25 | $ | 13.30 | $ | 2.51 | $ | 8.05 | $ | 17.56 | |||||||||||||||
|
Low
|
0.19 | 0.34 | 0.02 | 0.65 | 5.50 | ||||||||||||||||||||
Note: Information for Prior Dana is not comparable to the
information shown for Dana due to our emergence from
Chapter 11 on January 31, 2008.
19
Table of Contents
| As of December 31, | |||||||||||||||||||||
| Dana | Prior Dana | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||
|
Summary of Financial Position
|
|||||||||||||||||||||
|
Total assets
|
$ | 5,064 | $ | 5,607 | $ | 6,425 | $ | 6,664 | $ | 7,358 | |||||||||||
|
Short-term debt
|
34 | 70 | 1,183 | 293 | 2,578 | ||||||||||||||||
|
Long-term debt
|
969 | 1,181 | 19 | 722 | 67 | ||||||||||||||||
|
Liabilities subject to compromise
|
3,511 | 4,175 | |||||||||||||||||||
|
Preferred stock
|
771 | 771 | |||||||||||||||||||
|
Common stock, additional
paid-in-capital,
accumulated deficit and accumulated other comprehensive loss
|
908 | 1,257 | (782 | ) | (834 | ) | 545 | ||||||||||||||
|
Total parent company stockholders’ equity (deficit)
|
$ | 1,679 | $ | 2,028 | $ | (782 | ) | $ | (834 | ) | $ | 545 | |||||||||
|
Book value per share
|
$ | 15.24 | $ | 20.28 | $ | (5.22 | ) | $ | (5.55 | ) | $ | 3.63 | |||||||||
Note: Information for Prior Dana is not comparable to the
information shown for Dana due to our emergence from
Chapter 11 on January 31, 2008.
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions) |
Management’s discussion and analysis of financial condition
and results of operations should be read in conjunction with the
financial statements and accompanying notes in Item 8.
Management
Overview
Dana Holding Corporation (Dana) is a world leader in the supply
of axles; driveshafts; and structural, sealing and
thermal-management products; as well as genuine service
parts. Our customer base includes virtually every
major vehicle manufacturer in the global light vehicle,
commercial vehicle, and off-highway
markets. Headquartered in Maumee, Ohio, Dana was
incorporated in Delaware in 2007. As of
December 31, 2009, we employed approximately
24,000 people and owned or leased 106 major facilities in
23 countries around the world.
We are committed to continuing to diversify our product
offerings, customer base and geographic footprint and minimizing
our exposure to individual market and segment
declines. In 2009, North American operations
accounted for 51% of our revenue, while our operations
throughout the rest of the world accounted for
49%. Light vehicle products accounted for 64% of our
global revenues, with commercial vehicle and off-highway
products representing 36%.
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.
Business
Strategy
We continue to evaluate the strategy for each of our operating
segments and to focus on driving operational improvements and
restructuring our operations to improve
profitability. In 2008, we began implementing the
Dana Operating System — an operational excellence
system patterned after the Toyota production system —
in our manufacturing facilities. The lean operational
standards and global metrics rolled out through this system were
instrumental in helping us achieve the significant cost
reductions in 2009 that enabled us to largely offset the effects
of substantially lower production levels. Driving our
cost structure down and improving our manufacturing efficiency
will be critical to our future success as lower production
levels will continue to be a major challenge affecting our
business.
20
Table of Contents
Our business strategies will increasingly be directed at
opportunities for profitably growing the
business. Over the past two years, we’ve worked
with our customers to address program pricing. The
improvements on this front, combined with reductions to our cost
structure, have improved the underlying profitability of our
major customer programs. These operational
improvements, along with the actions we took in 2009 to reduce
debt and strengthen our cash position through an equity
offering, significantly improved our financial
position. As a result, we are better positioned today
to pursue attractive growth opportunities in a number of our
businesses, particularly outside North America. Our
growth strategies include reinvigorating our product portfolio
and capitalizing on technology advancement
opportunities. Material advancements are playing a
key role in this endeavor, with an emphasis on research and
development of efficient technologies such as lightweight,
high-strength aluminum applications currently in
demand. Further, we recently announced the
consolidation of our Heavy Vehicle products North American
engineering centers in Kalamazoo, MI and Statesville, NC with
our Light Vehicle engineering center in Maumee, OH. A
principal reason for this move was the opportunity to better
share technologies among our businesses.
As we drive additional operational improvements, restructure the
businesses and pursue growth opportunities, we intend to do so
with a discipline that ensures continued improvement in
profitability and maintaining a strong balance sheet.
Sale of the
Structural Products Business
In keeping with the strategy of continually evaluating our
businesses, we announced in December 2009 that we had signed an
agreement to sell substantially all of the assets of our
Structural Products business to Metalsa, S.A. de C.V., the
largest vehicle frame and structures supplier in
Mexico. We will retain and continue to operate our
Longview, TX Structural Products operation. The
parties expect to complete the sale of all but the Venezuelan
operations in March 2010, with Venezuela being completed as soon
as the necessary governmental approvals are
obtained. Our Structural Products business had 2009
external sales of $592 and Segment EBITDA of $35.
Segments
We manage our operations globally through six operating
segments. Our products in the light vehicle market
primarily support light vehicle original equipment manufacturers
(OEMs) with products for light trucks, sport utility vehicles,
crossover utility vehicles, vans and passenger
cars. The operating segments in the light vehicle
markets are: LVD, Structures, Sealing and Thermal. As
of January 1, 2009, the Light Axle and Driveshaft segments
were combined in line with our new management structure into the
LVD segment with certain operations from these former segments
moving to our Commercial Vehicle and Off-Highway segments.
Two operating segments, Commercial Vehicle and Off-Highway,
support the OEMs of medium-duty
(Classes 5-7)
and heavy-duty (Class 8) commercial vehicles
(primarily trucks and buses) and off-highway vehicles (primarily
wheeled vehicles used in construction and agricultural
applications).
We revised our definition of segment earnings before interest,
taxes, depreciation and amortization (Segment EBITDA) in the
first quarter of 2009. See Note 19 to our
consolidated financial statements in Item 8.
Trends in Our
Markets
Light Vehicle
Markets
Rest of the world
— Markets outside of North
America will take on increasing importance for us as they
experience greater growth. During 2009, overall
global economic weakness impacted light vehicle production in
these markets, just as it has in North America. Light
vehicle production outside of North America of around
48 million units in 2009, was about 8% lower than
2008. Outside of North America, the production
decline was most significant in Europe where production levels
were down
21
Table of Contents
about 20% from 2008. In South America production was
down around 2% and Asia Pacific down about 1%. Signs
of improving market conditions were evident in the fourth
quarter of 2009. In each of these three regions,
fourth quarter production levels were the strongest of any
quarter during 2009. For 2010, our current outlook
for light vehicle markets outside North America is unit
production of around
51-54 million. We
expect European production in 2010 to be flat to up around 4% as
compared to 2009, with the other two regions being somewhat
stronger — South America up in the 7-12% range and
Asia Pacific 9-16% higher than 2009. (
Source:
Global Insight and CSM Worldwide).
North America
— Production levels in the North
American markets were negatively impacted by overall economic
conditions beginning in the second half of 2008 and continuing
through 2009. Adding to the market challenges were
bankruptcy reorganizations by two of the major North American
automakers — GM and Chrysler. As a
consequence, North American light vehicle production of about
8.5 million units in 2009 was about 32% lower than
2008. In the light truck segment of the market where
more of our programs are focused, 2009 production was down about
29%. While down significantly
year-over-year,
production levels increased dramatically during the second half
of 2009 as GM and Chrysler both emerged from relatively short
bankruptcy reorganizations and improving market and overall
economic conditions led to increased vehicle
sales. Second half 2009 light vehicle unit production
was around 5 million units, nearly 1.5 times first half
2009 production levels. (
Source: Global Insight
and CSM Worldwide).
North American light vehicle industry inventory levels have
improved from the end of 2008. The days supply of
total light vehicles in North America was 53 at
December 31, 2009, down from 93 at the end of
2008. Light truck inventory was 49 days at
December 31, 2009, down from 86 days at
December 31, 2008. With the reduction that has
occurred, inventory levels at the end of 2009 are more in line
with historical norms. As such, near-term production
levels are likely to be driven more directly by vehicle
sales.
(Source: Ward’s Automotive).
While the overall economic environment continues to be somewhat
fragile, we expect the improving conditions during the second
half of 2009 to carry into 2010. We expect 2010 North
American light vehicle production to be around 10.4 to
10.8 million units, an increase of
22-26%
over
2009. We believe the strongest increases will be in
passenger car production levels. As we look at our
primary
pick-up
and
SUV light truck programs, we are forecasting production level
increases in the
11-22%
range.
Rapid Technology
Changes
On May 19, 2009, the U.S. government announced plans
for a new national fuel economy policy. The program,
which still requires U.S. Congressional approval, covers
model years
2012-2016
and would increase Corporate Average Fuel Economy (CAFE)
standards by five percent each year through 2016. The
proposal requires that passenger vehicles achieve an industry
standard of 35.5 miles per gallon by 2016, an average
increase of eight miles per gallon per vehicle from the 2011
requirements. While providing the regulatory
certainty and predictability of nationwide standards versus
previously proposed
state-by-state
standards, this change will require a rapid response by
automakers. It also represents an opportunity for
suppliers that are able to produce highly engineered products
that will help OEMs quickly meet these stricter carbon-emission
and fuel-economy requirements.
The National Academy of Sciences estimates that fuel economy
could be increased by 50 percent without sacrificing
vehicle size, performance, or safety. Midsize cars
could average 41 miles per gallon and large pickups nearly
30 miles per gallon, all using existing technology to
develop new components and applications. Suppliers
such as Dana that are able to provide these new components and
applications will fare best in this new
environment. Our materials and process competencies,
product enhancements and new product technologies can provide
OEMs with needed vehicle weight reduction, friction management
and improved engine performance, assisting them in their efforts
to meet the new and more stringent CAFE requirements.
22
Table of Contents
Medium/heavy
Vehicle Markets
Rest of the world
— Outside of North America,
medium- and heavy-duty truck production has been severely
impacted by the overall global economic
weakness. After increasing to about 2.3 million
units in 2008, commercial vehicle production levels outside
North America for 2009 declined more than 30% to around
1.5 million units in 2009. Production levels in
Europe, particularly, declined about 60% from the previous
year. With improving economic conditions, we expect
that commercial vehicle production levels outside North America
will begin to rebound in 2010 — mostly during the
second half of the year. We currently expect
production outside North America in 2010 to be around 1.6 to
1.8 million units. (
Source: Global Insight
and ACT).
North America
— Developments in this region
have a significant impact on our results as North America
accounts for approximately 70% of our sales in the commercial
vehicle market. Production of heavy-duty
(Class 8) vehicles during 2009 of approximately
116,000 units compares to 196,000 units produced in
2008, a decline of 41%. In the medium-duty
(Class 5-7)
market, 2009 production of around 97,000 units was down 38%
from the prior year’s production of 157,000 units.
The North American medium/heavy truck market is being impacted
by many of the same overall economic conditions negatively
impacting the light vehicle markets, as customers are being
cautious about the economic outlook and, consequently, new
vehicle purchases. We have begun to see signs of
improving market conditions with new truck orders picking up in
recent months, and we expect the strengthening market conditions
to continue into 2010. We currently expect 2010
Class 8 production in North America to be around 122,000 to
145,000 units — an increase of 5% to as much as
25% from 2009. On the medium duty
Class 5-7
side, we expect 2010 production of about 106,000 to
129,000 units — a slightly higher
year-over-year
increase than for Class 8 (
Source: Global Insight and
ACT).
Off-Highway
Markets
Our off-highway business has become an increasingly more
significant component of our total operations over the past few
years. Unlike our on-highway businesses, our
off-highway business is largely outside of North America, with
more than 70% of its sales coming from outside North
America. We serve several segments of the diverse
off-highway market, including construction, agriculture, mining
and material handling. Our largest markets are the
European and North American construction and agricultural
equipment segments. After being relatively strong
through the first half of 2008, customer demand in these markets
began softening during the latter part of
2008. During 2009, the adverse effects of a weaker
global economy significantly reduced demand levels in these
markets. Demand in the construction market was down
70-75% from 2008 while demand in the agricultural market was
down 35-40%. Unlike the light vehicle and commercial
vehicle markets, we have not seen signs of improvement in this
market, and we do not expect to see improving conditions until
late 2010. We currently expect that this
segment’s primary construction and agriculture markets
could be somewhat weaker in 2010 than 2009, or at the top end of
our estimates, relatively flat
year-on-year.
Sales, Earnings
and Cash Flow Outlook
With the lower level of sales in 2009, we focused on
aggressively right sizing our costs. We reduced the work force
during 2008 by about 6,000 people and in 2009 we reduced
our workforce by another 5,000 people. Additional
reductions are expected in 2010 as we complete remaining
restructuring actions and continue to identify opportunities to
reduce our costs. Further, given the structural cost
improvements that we have made, we are not expecting to bring
back a large share of the salaried and indirect cost that was
eliminated as sales levels improve in 2010. Partially offsetting
these expected operational cost improvements will be some higher
costs associated with pension benefits and restoration of
certain additional compensation programs. We also completed
several pricing and material recovery initiatives during the
latter part of 2008 and into 2009 that benefited
23
Table of Contents
margins in these years. While certain of these actions will
provide additional margin improvement in 2010, on balance we do
not expect that pricing will be a significant factor in our
2010 year-over-year profitability.
During 2009, we generated free cash flow (defined as operating
cash flow less bankruptcy-related claim payments and capital
expenditures) of $109. Improved profitability, reduced working
capital and disciplined capital expenditures all contributed to
the free cash flow generated. Included in this amount is $138
that was used for right sizing and restructuring the business.
Based on the production outlook in our markets and the addition
of some net new business, we currently expect our sales for 2010
to be higher by 5-10%, growing to approximately $5,500 to
$5,750. In addition to the margin contribution from higher
sales, as indicated above, cost reduction actions are expected
to provide incremental profit improvement. Combined, we expect
these factors to improve profitability by approximately $175.
We expect to again generate positive free cash flow in 2010.
These sales, earnings and cash flow projections are before
considering the effects of the sale of substantially all of the
Structural Products business. A number of factors, including
the timing of the sale, the duration of transition services, and
our ability to impact retained costs will have an impact on
these projections.
Results of
Operations — Summary
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
Net sales
|
$ | 5,228 | $ | 7,344 | $ | 751 | $ | 8,721 | |||||||||
|
Cost of sales(1)
|
4,985 | 7,113 | 702 | 8,231 | |||||||||||||
|
Gross margin(1)
|
243 | 231 | 49 | 490 | |||||||||||||
|
Selling, general and administrative expenses
|
313 | 303 | 34 | 365 | |||||||||||||
|
Amortization of intangibles
|
71 | 66 | |||||||||||||||
|
Restructuring charges, net
|
118 | 114 | 12 | 205 | |||||||||||||
|
Impairment of goodwill
|
169 | 89 | |||||||||||||||
|
Impairment of intangible assets
|
156 | 14 | |||||||||||||||
|
Other income, net
|
98 | 53 | 8 | 162 | |||||||||||||
|
Income (loss) from continuing operations before interest,
reorganization items and income taxes(1)
|
$ | (317 | ) | $ | (382 | ) | $ | 11 | $ | (7 | ) | ||||||
|
Fresh start accounting adjustments
|
$ | — | $ | — | $ | 1,009 | $ | — | |||||||||
|
Income (loss) from continuing operations(1)
|
$ | (436 | ) | $ | (667 | ) | $ | 717 | $ | (423 | ) | ||||||
|
Loss from discontinued operations
|
$ | — | $ | (4 | ) | $ | (6 | ) | $ | (118 | ) | ||||||
|
Net income (loss) attributable to the parent company(1)
|
$ | (431 | ) | $ | (677 | ) | $ | 709 | $ | (551 | ) | ||||||
| (1) | In 2009, we changed our method of accounting for U.S. inventories from LIFO to FIFO and retroactively applied this inventory costing from the date of our emergence from Chapter 11. The effect of this change on the 2008 results above was a reduction of $14 in cost of sales and additional earnings of $14 in: gross margin; loss from continuing operations before interest, reorganization items and income taxes; loss from continuing operations and net loss attributable to the parent company. |
As a consequence of our emergence from Chapter 11 on
January 31, 2008, the results of operations for 2008
consist of the month of January pre-emergence results of Prior
Dana and the
24
Table of Contents
eleven-month results of Dana. Fresh start accounting affects
our post-emergence results, but not the pre-emergence January
results. Adjustments to adopt fresh start accounting were
recorded as of January 31, 2008.
Results of
Operations (2009 versus 2008)
Geographic Sales,
Segment Sales and Margin Analysis
The tables below show our sales by geographic region and by
segment for the year ended December 31, 2009, eleven months
ended December 31, 2008 and one month ended
January 31, 2008. Certain reclassifications were made to
conform 2008 to the 2009 presentation.
Although the eleven months ended December 31, 2008 and one
month ended January 31, 2008 are distinct reporting periods
as a consequence of our emergence from Chapter 11 on
January 31, 2008, the emergence and fresh start accounting
effects had negligible impact on the comparability of sales
between the periods. Accordingly, references in our analysis to
2008 sales information combine the two periods in order to
enhance the comparability of such information for the annual
periods.
Geographical
Sales Analysis
| Dana | Prior Dana | ||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||
|
Year Ended
|
Ended
|
Ended
|
|||||||||||
|
December 31,
|
December 31,
|
January 31,
|
|||||||||||
| 2009 | 2008 | 2008 | |||||||||||
|
North America
|
$ | 2,659 | $ | 3,523 | $ | 396 | |||||||
|
Europe
|
1,190 | 2,169 | 224 | ||||||||||
|
South America
|
798 | 966 | 67 | ||||||||||
|
Asia Pacific
|
581 | 686 | 64 | ||||||||||
|
Total
|
$ | 5,228 | $ | 7,344 | $ | 751 | |||||||
Sales in 2009 were $2,867 lower than sales for the combined
periods in 2008, a reduction of 35%. Currency movements reduced
sales by $190 as a number of currencies in international markets
weakened against the U.S. dollar. Exclusive of currency,
sales decreased $2,677 or 33%, primarily due to lower production
levels in each of our markets. Partially offsetting the effects
of lower production was improved pricing.
North American sales for 2009, adjusted for currency, declined
approximately 32% due largely to the lower production levels in
both the light vehicle and commercial vehicle markets. Light
truck production was down about 29% compared to 2008 and
medium/heavy truck production was down about 40%. The impact of
lower vehicle production levels was partially offset by the
impact of higher pricing.
Weaker international currencies decreased 2009 sales by $83 in
Europe. Adjusted for currency effects, European sales were 47%
lower than 2008. Light vehicle production levels were down
about 20% while commercial vehicle sector production was about
60% lower. Our European region has a significant presence in
off-highway vehicle markets which also experienced significant
year-over-year production declines.
Weaker international currencies reduced 2009 sales by $62 in
South America and $22 in Asia Pacific. Exclusive of currency
effects, sales were down 17% and 20% in these regions, due
largely to reduced production levels.
25
Table of Contents
Segment Sales
Analysis
| Dana | Prior Dana | ||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||
|
Year Ended
|
Ended
|
Ended
|
|||||||||||
|
December 31,
|
December 31,
|
January 31,
|
|||||||||||
| 2009 | 2008 | 2008 | |||||||||||
|
LVD
|
$ | 2,021 | $ | 2,603 | $ | 281 | |||||||
|
Sealing
|
535 | 641 | 64 | ||||||||||
|
Thermal
|
179 | 231 | 28 | ||||||||||
|
Structures
|
592 | 786 | 90 | ||||||||||
|
Commercial Vehicle
|
1,051 | 1,442 | 130 | ||||||||||
|
Off-Highway
|
850 | 1,637 | 157 | ||||||||||
|
Other Operations
|
4 | 1 | |||||||||||
|
Total
|
$ | 5,228 | $ | 7,344 | $ | 751 | |||||||
Our LVD, Sealing, Thermal and Structures segments principally
serve the light vehicle markets. Exclusive of currency effects,
sales in 2009 declined 28% in LVD, 27% in Thermal and 30% in
Structures as compared to the combined periods in 2008, all
principally due to lower production levels. The sales decline
in Sealing, exclusive of currency effects, was somewhat lower at
22%, in part due to this business having a larger proportionate
share of sales to the aftermarket. Improved pricing in our LVD
and Structures segments helped offset some of the reduction
attributed to lower production.
Our Commercial Vehicle segment is heavily concentrated in the
North American market where Class 8 commercial truck
production was down about 41% and
Class 5-7
commercial truck production was down about 38%. The sales
decline in Commercial Vehicle, exclusive of currency effects,
was 31% as the volume reduction associated with lower production
levels was partially offset by higher pricing under material
cost recovery arrangements.
With its significant European presence, our Off-Highway segment
was negatively impacted by weaker international currencies.
Excluding this effect, sales were down 50% compared to 2008 as
demand levels in construction markets were down
70-75%
and
in agriculture markets down
35-40%.
Increased pricing provided a partial offset.
26
Table of Contents
Margin
Analysis
The chart below shows our segment margin analysis for the year
ended December 31, 2009, eleven months ended
December 31, 2008 and one month ended January 31, 2008.
| As a Percentage of Sales | |||||||||||||
| Dana | Prior Dana | ||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||
|
Year Ended
|
Ended
|
Ended
|
|||||||||||
|
December 31,
|
December 31,
|
January 31,
|
|||||||||||
| 2009 | 2008 | 2008 | |||||||||||
|
Gross margin:
|
|||||||||||||
|
LVD
|
3.1 | % | 1.0 | % | 4.1 | % | |||||||
|
Sealing
|
7.7 | 10.0 | 14.1 | ||||||||||
|
Thermal
|
3.6 | 0.7 | 9.6 | ||||||||||
|
Structures
|
(2.0 | ) | 1.6 | 1.2 | |||||||||
|
Commercial Vehicle
|
9.1 | 5.7 | 7.3 | ||||||||||
|
Off-Highway
|
6.4 | 7.9 | 10.9 | ||||||||||
|
Consolidated
|
4.7 | % | 3.1 | % | 6.5 | % | |||||||
|
Selling, general and administrative expenses:
|
|||||||||||||
|
LVD
|
4.5 | % | 3.2 | % | 4.1 | % | |||||||
|
Sealing
|
11.2 | 9.2 | 9.1 | ||||||||||
|
Thermal
|
8.9 | 7.4 | 4.7 | ||||||||||
|
Structures
|
3.2 | 2.6 | 2.6 | ||||||||||
|
Commercial Vehicle
|
6.4 | 4.2 | 5.3 | ||||||||||
|
Off-Highway
|
4.9 | 3.4 | 3.1 | ||||||||||
|
Consolidated
|
6.0 | % | 4.1 | % | 4.5 | % | |||||||
Gross margin
— Consolidated gross margin for
the year ended December 31, 2009 was $37 lower than the
gross margin for the combined eleven months ended
December 31, 2008 and the month of January in 2008.
Significantly lower sales levels negatively impacted 2009
margins by more than $500 as compared to 2008, with improved
pricing of approximately $200 along with reductions in material,
conversion and warranty costs offsetting a substantial portion
of the volume related reduction. Year-over-year consolidated
gross margins were favorably impacted by reduced costs from the
2008 application of fresh start accounting at emergence from
bankruptcy which resulted in a
step-up
in
inventory values. This in turn increased cost of sales by $49
as the inventory was sold in the first half of 2008.
Margin in our LVD segment increased $26 from 2008 as pricing
improvement of approximately $100 and margin improvement from
cost reductions and other items (primarily conversion cost,
material and warranty) more than offset the margin decline of
about $150 attributed to lower sales volume. Lower
sales-related margin declines drove the gross margin reduction
of $33 in our Sealing business, however, margin improved as a
percent of sales as cost reduction actions more than offset the
effect of lower sales volume. Gross margin in our Thermal
segment improved over 2008 as cost reduction efforts, lower
warranty expense and other benefits more than offset the reduced
sales impact. Our Structures business margin was down $26 from
2008. Lower sales volume resulted in reduced margin of
approximately $65. Year-over-year margin was also negatively
impacted by a pension settlement gain of $8 in 2008. Pricing
improvements of approximately $38 combined with cost reductions
provided some offset to these other factors.
In our Commercial Vehicle segment, margins improved as a percent
of sales as margin reduction of approximately $75 resulting from
lower sales volume was substantially offset by improved pricing
and cost reductions. Our Off-Highway segment experienced a
gross margin reduction of $93. Lower
27
Table of Contents
sales reduced margins by about $150 while pricing improvement of
$25 and cost reductions provided a partial offset.
Selling, general and administrative expenses
—
With the significant decline in sales, consolidated SG&A
and the SG&A of each operating segment increased as a
percent of sales. However, for 2009, SG&A was $24 lower
than the combined periods in 2008, primarily as a result of the
cost reduction actions taken during the last half of 2008 and
the first part of 2009 in response to reduced sales levels. The
fourth quarter of 2009 includes an expense of $13 for additional
compensation to certain employees. No additional compensation
expense was accrued for 2008.
Amortization of intangibles
— Amortization of
customer relationship intangibles resulted from the application
of fresh start accounting at the date of emergence from
Chapter 11; consequently, there is no expense in the
one-month period ended January 31, 2008.
Restructuring charges and impairments
—
Restructuring charges are primarily costs associated with the
workforce reduction actions and facility closures.
Restructuring expense of $118 for 2009 represents a decrease
from expense of $126 for the combined periods of 2008. Expense
in both periods is primarily due to separation costs incurred in
connection with workforce reductions.
In connection with the planned divestiture of substantially all
of the assets of our Structural Products business, we recorded
an impairment charge of $150 in the fourth quarter of 2009
against the definite-lived intangibles and long-lived assets of
this segment. Charges for impairment of goodwill and
indefinite-lived intangibles of $6 in 2009 and $183 in 2008 were
recorded in connection with the new valuations triggered by
revised economic outlooks. These charges are recorded as
impairment of goodwill and impairment of long-lived assets.
Other income, net
— Other income of $98 for the
year ended December 31, 2009 was $37 higher than the
corresponding periods of 2008. We recognized a net gain on
extinguishment of debt of $35 in 2009 whereas repayment of debt
in 2008 resulted in a net loss on $10. Contract cancellation
income in connection with the early termination of a customer
program added $17 over 2008. Net currency transaction gains
were $18 favorable to 2008 and interest income was lower by $28.
Interest expense
— Interest expense includes
the costs associated with the Exit Facility and other debt
agreements which are described in Note 12 to our
consolidated financial statements in Item 8. Interest
expense in 2009 includes $14 of amortized OID recorded in
connection with the Exit Facility, $13 of amortized debt
issuance costs and $6 for debt issuance costs resulting from
extinguishment of debt. Also included is $8 of other non-cash
interest expense associated primarily with the accretion of
certain liabilities that were recorded at discounted values in
connection with the adoption of fresh start accounting upon
emergence from Chapter 11. For the eleven months ended
December 31, 2008, interest expense includes $16 of
amortized OID and $8 of amortized debt issuance costs. Non-cash
interest expense relating to the accretion of certain
liabilities in the eleven months ended December 31, 2008
was $8. In the month of January 2008, a substantial portion of
our debt obligations was reported as liabilities subject to
compromise. The interest expense not recognized on these
obligations during the month of January 2008 was $9.
Reorganization items
— Reorganization items
were directly attributable to our Chapter 11 reorganization
process. See Note 20 to our consolidated financial
statements in Item 8 for a summary of these costs. During
the Chapter 11 process, there were ongoing advisory fees of
professionals representing Dana and the other Chapter 11
constituents. Certain of these costs continued subsequent to
emergence as there are disputed claims which require resolution,
claims which require payment and other post-emergence activities
related to emergence from Chapter 11. Reorganization items
in 2008 include a gain on the settlement of liabilities subject
to compromise and several one-time emergence costs, including
the cost of employee stock bonuses, transfer taxes and success
fees and other fees earned by certain professionals upon
emergence. During the second quarter of 2009, we reduced our
vacation benefit liability by $5 to correct the amount accrued
in 2008 as union agreements arising
28
Table of Contents
from our reorganization activities were being ratified. We
recorded $3 as a reorganization item benefit consistent with the
original expense recognition.
Income tax expense
— In the U.S. and
certain other countries, our recent history of operating losses
does not allow us to satisfy the “more likely than
not” criterion for recognition of deferred tax assets.
Consequently, there is no income tax benefit recognized on the
pre-tax losses of these jurisdictions as valuation allowance
adjustments offset the associated tax benefit or expense.
During 2009, we recorded a tax benefit of $22 to reduce
liabilities previously accrued for expected repatriation of
earnings from our
non-U.S. subsidiaries.
In the U.S., our projections of other comprehensive income (OCI)
for 2009 caused us to record tax expense in OCI and recognize a
U.S. tax benefit of $18 in continuing operations during the
nine months ended September 30, 2009. Based on our final
OCI at December 31, 2009, this amount was reversed in the
fourth quarter of 2009. For 2009, the reduction in the
liability associated with repatriation of
non-U.S. subsidiary
earnings and valuation allowance impacts are the primary factors
which cause the tax benefit of $27 for the year ended
December 31, 2009 to differ from an expected tax benefit of
$159 at the U.S. federal statutory rate of 35%. For 2008,
the valuation allowances, the fresh start adjustments and the
impairment of goodwill are the primary factors which caused the
tax expense of $107 for the eleven months ended
December 31, 2008 and $199 for the month of January 2008 to
differ from an expected tax benefit of $192 and tax expense of
$320 at the U.S. federal statutory rate of 35%.
Results of
Operations (2008 versus 2007)
Geographic Sales,
Segment Sales and Margin Analysis
The tables below show our sales by geographic region and by
segment for the eleven months ended December 31, 2008, one
month ended January 31, 2008 and the year ended
December 31, 2007. Certain reclassifications were made to
conform 2007 to the 2008 presentation.
Although the eleven months ended December 31, 2008 and one
month ended January 31, 2008 are distinct reporting periods
as a consequence of our emergence from Chapter 11 on
January 31, 2008, the emergence and fresh start accounting
effects had negligible impact on the comparability of sales
between the periods. Accordingly, references in our analysis to
annual 2008 sales information combine the two periods in order
to enhance the comparability of such information for the two
annual periods.
Geographical
Sales Analysis
| Dana | Prior Dana | ||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||
|
Ended
|
Ended
|
Year Ended
|
|||||||||||
|
December 31,
|
January 31,
|
December 31,
|
|||||||||||
| 2008 | 2008 | 2007 | |||||||||||
|
North America
|
$ | 3,523 | $ | 396 | $ | 4,791 | |||||||
|
Europe
|
2,169 | 224 | 2,256 | ||||||||||
|
South America
|
966 | 67 | 914 | ||||||||||
|
Asia Pacific
|
686 | 64 | 760 | ||||||||||
|
Total
|
$ | 7,344 | $ | 751 | $ | 8,721 | |||||||
Sales for the combined periods of 2008 were $626 lower than
sales in 2007. Currency movements generated $256 of increased
sales as a number of the major currencies in international
markets where we conduct business strengthened against the
U.S. dollar. Exclusive of currency, sales decreased $882,
or 10%, primarily due to lower production levels in each of our
markets. Partially offsetting the effects of lower production
was improved pricing, largely for recovery of higher material
cost.
29
Table of Contents
Sales for 2008 in North America, adjusted for currency, declined
approximately 19% due to the lower production levels in both the
light duty and medium/heavy vehicle markets. Light and medium
duty truck production was down 25% in 2008 compared to 2007 and
the production of Class 8 commercial vehicle trucks was
down 4%. The impact of lower vehicle production levels was
partially offset by the impact of higher pricing, principally to
recover higher material costs.
Sales in Europe, South America and Asia Pacific all benefited
from the effects of stronger local currencies against the
U.S. dollar. Stronger currencies increased 2008 sales by
$163 in Europe, $60 in South America and $11 in Asia Pacific.
Exclusive of this currency effect, European sales were down $27
against 2007, principally due to the lower production levels in
the second half of 2008. In South America, year-over-year
production levels were stronger, leading to increased sales of
$59 after excluding currency effects.
Segment Sales
Analysis
| Dana | Prior Dana | ||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||
|
Ended
|
Ended
|
Year Ended
|
|||||||||||
|
December 31,
|
January 31,
|
December 31,
|
|||||||||||
| 2008 | 2008 | 2007 | |||||||||||
|
LVD
|
$ | 2,603 | $ | 281 | $ | 3,476 | |||||||
|
Sealing
|
641 | 64 | 728 | ||||||||||
|
Thermal
|
231 | 28 | 293 | ||||||||||
|
Structures
|
786 | 90 | 1,069 | ||||||||||
|
Commercial Vehicle
|
1,442 | 130 | 1,531 | ||||||||||
|
Off-Highway
|
1,637 | 157 | 1,609 | ||||||||||
|
Other Operations
|
4 | 1 | 15 | ||||||||||
|
Total
|
$ | 7,344 | $ | 751 | $ | 8,721 | |||||||
LVD sales declined 17% due principally to lower light truck
production levels in North America and Europe, with increased
pricing and favorable currency effects providing a partial
offset. Sales in the Sealing segment declined 3%. The Sealing
business also supports the medium/heavy vehicle market and has a
proportionately larger share of business in Europe where the
production declines were lower than in North America and a
stronger euro provided favorable currency effect. Thermal sales
declined 12%, primarily due to lower North American production
levels partially offset by favorable currency effect. Lower
North American production was also the primary factor leading to
an 18% reduction in sales in the Structures business.
Our Commercial Vehicle segment is heavily concentrated in the
North American market. Despite the drop in North American
production levels discussed in the regional review above, sales
in this segment increased 3% as stronger markets outside North
America, pricing improvements and favorable currency effects
more than offset the weaker North American production. With its
significant European presence, our Off-Highway segment benefited
from the stronger euro. Exclusive of favorable currency effects
of $105, Off-Highway sales increased 5% due to stronger
production levels during the first half of 2008, sales from new
programs and increased pricing.
30
Table of Contents
Margin
Analysis
The chart below shows our segment margin analysis for the eleven
months ended December 31, 2008, one month ended
January 31, 2008 and the year ended December 31, 2007.
| As a Percentage of Sales | |||||||||||||
| Dana | Prior Dana | ||||||||||||
|
Eleven Months
|
One Month
|
Year
|
|||||||||||
|
Ended
|
Ended
|
Ended
|
|||||||||||
|
December 31,
|
January 31,
|
December 31,
|
|||||||||||
| 2008 | 2008 | 2007 | |||||||||||
|
Gross margin:
|
|||||||||||||
|
LVD
|
1.0 | % | 4.1 | % | 3.1 | % | |||||||
|
Sealing
|
10.0 | 14.1 | 12.7 | ||||||||||
|
Thermal
|
0.7 | 9.6 | 7.9 | ||||||||||
|
Structures
|
1.6 | 1.2 | 5.0 | ||||||||||
|
Commercial Vehicle
|
5.7 | 7.3 | 7.3 | ||||||||||
|
Off-Highway
|
7.9 | 10.9 | 11.1 | ||||||||||
|
Consolidated
|
3.1 | % | 6.5 | % | 5.6 | % | |||||||
|
Selling, general and administrative expenses:
|
|||||||||||||
|
LVD
|
3.2 | % | 4.1 | % | 2.8 | % | |||||||
|
Sealing
|
9.2 | 9.1 | 8.1 | ||||||||||
|
Thermal
|
7.4 | 4.7 | 6.2 | ||||||||||
|
Structures
|
2.6 | 2.6 | 2.0 | ||||||||||
|
Commercial Vehicle
|
4.2 | 5.3 | 3.0 | ||||||||||
|
Off-Highway
|
3.4 | 3.1 | 3.0 | ||||||||||
|
Consolidated
|
4.1 | % | 4.5 | % | 4.2 | % | |||||||
Consolidated
-
gross margin
— Margins
during the eleven-month period ended December 31, 2008 were
adversely impacted by two significant factors —
reduced sales levels and higher steel costs. Adjusted for
currency effects, sales in 2008 were down from the comparable
2007 period, with most of the reduction occurring in the second
half of 2008. As a result, there was a lower sales base
relative to our fixed costs, negatively affecting margins in the
eleven-month period ended December 31, 2008 as compared to
the first month of 2008 and the full previous year. For the
combined periods in 2008, lower sales volumes reduced margin by
approximately $245. Higher steel costs reduced margin by
approximately $140. Gross margins during the eleven-month
period ended December 31, 2008 were also reduced by about
$73 resulting from the fresh start accounting effects discussed
below. Partially offsetting these adverse developments were
benefits from the reorganization actions undertaken in
connection with the bankruptcy process — customer
pricing improvement, labor cost savings, overhead cost reduction
and manufacturing footprint optimization. Those customer
pricing actions began contributing to gross margins in the first
quarter of 2007, with additional pricing improvements being
achieved over the course of 2007 and into 2008. The 2008
results reflect a full year of customer pricing improvements
while 2007 includes only a portion thereof.
Pricing improvements unrelated to the reorganization process,
primarily associated with recovery of higher steel cost, were
also achieved, which when combined with the
reorganization-related pricing actions increased margin by
approximately $140 during the eleven months ended
December 31, 2008 and the month of January 2008. We did
not begin benefiting significantly from non-union employee
benefit plan reductions and other labor savings until the first
quarter of 2008 with much of the savings associated with the
agreements negotiated with the unions only becoming effective
upon our emergence on January 31, 2008. Labor cost savings
associated with the reorganization initiatives and other actions
added approximately $100 to margin in the eleven months ended
December 31, 2008, while overhead reduction, manufacturing
footprint and increased pricing actions provided additional
margin improvement.
31
Table of Contents
In connection with the application of fresh start accounting,
margins were negatively impacted by two factors. At emergence,
inventory values were increased in accordance with fresh start
accounting requirements. The fresh start
step-up
amortization of $49 was recorded as cost of sales in the first
and second quarters of 2008 as the inventory was sold. The
other factor negatively impacting margins as a result of fresh
start accounting was higher depreciation expense on the
stepped-up
value of fixed assets and amortization expense associated with
technology related intangibles recognized at emergence. The
higher depreciation and amortization reduced margin for the
eleven months ended December 31, 2008 by approximately $24.
In the LVD segment, reduced sales volume led to margin reduction
of approximately $131, while higher steel costs resulted in
lower margin of about $62. Partially offsetting these effects
were customer pricing improvement and labor cost reductions
which contributed approximately $128 to 2008 margin and other
cost reductions and operational improvements.
In the Sealing segment, the gross margin decline was primarily
due to lower sales volume and higher depreciation and
amortization resulting from application of fresh start
accounting. These effects were partially offset by lower
material cost, currency effect and cost reductions. Gross
margin in our Thermal segment declined due to lower sales
volume, additional warranty cost and higher depreciation and
amortization. Our Structures business was significantly
impacted by lower sales levels which reduced margin by
approximately $72. Mitigating the effects of lower sales were
improved pricing and labor savings which improved margin by
about $20 and lower depreciation and amortization expense
related to fresh start accounting which increased margin by $17.
Gross margin in the Commercial Vehicle segment in 2008 was
negatively affected by lower sales volume and higher steel costs
which reduced margin by about $13 and $38. Offsetting some of
the reduction due to these factors was additional pricing of
approximately $34. In the Off-Highway segment, the gross margin
decline was primarily due to higher material costs of about $34,
increased warranty expense of $10 and increased depreciation and
amortization expense of $8. The margin reduction from these and
other factors was partially offset by improved pricing of $28.
Corporate and other - gross margin
—
Consolidated gross margin is impacted by cost of sales activity
in corporate and other related to applying LIFO costing to
inventory in the U.S. prior to February 1, 2008 and
full absorption inventory costing globally. Prior to
February 1, 2008, corporate and other margin includes an
adjustment to record the U.S. inventory on a LIFO basis. A
credit to cost of sales of $3 was recognized in the month of
January 2008. During 2007, LIFO-based charges to cost of sales
amounted to $7.
The application of full absorption costing consists principally
of reclassifying certain expenses to cost of sales that are
reported by the operating segments as SG&A. These costs
are generally reviewed and adjusted annually. Cost of sales
increased and SG&A decreased by $5 for the one month ended
January 31, 2008; $59 for the eleven months ended
December 31, 2008 and by $56 for the year ended
December 31, 2007.
Due to the application of fresh start accounting, corporate and
other in the eleven months ended December 31, 2008 also
includes a charge of $49 to amortize the fresh start
step-up
of
our global inventories.
Selling, general and administrative expenses
—
For the combined periods in 2008, SG&A of $337 is lower by
$28 from the 2007 expense. Both the combined 2008 periods and
2007 SG&A expense were 4.2% of sales. The 2008 period
expense benefited from certain labor and overhead cost reduction
initiatives implemented in connection with the bankruptcy
reorganization process as well as additional reductions
implemented post-emergence. Additionally, the 2007 expense
included a provision for short-term incentive compensation,
whereas nothing was provided in 2008 based on that year’s
results. Partially offsetting the factors reducing
year-over-year SG&A expense was additional costs incurred
during 2008 in connection with personnel changes and restoring
long-term incentive
32
Table of Contents
plans. Also adversely impacting the year-over-year margin
comparison was a reduction in long-term disability accruals in
2007.
Amortization of intangibles
— Amortization of
customer relationship intangibles recorded in connection with
applying fresh start accounting at the date of emergence
resulted in expense of $66 for the eleven months ended
December 31, 2008.
Restructuring charges and impairments
—
Restructuring charges are primarily costs associated with the
workforce reduction actions and facility closures, certain of
which were part of the manufacturing footprint optimization
actions that commenced in connection with our bankruptcy plan of
reorganization. These actions are more fully described in
Note 3 to our consolidated financial statements in
Item 8. Restructuring charges in 2007 include $136 of cost
relating to the settlement of our pension obligations in the
United Kingdom, which was completed in April 2007.
We recorded $169 for impairment of goodwill and $14 for
impairment of indefinite-lived intangibles during the eleven
months ended December 31, 2008. We recorded $89 for
impairment of goodwill during 2007 as discussed more fully in
Note 6 to our consolidated financial statements in
Item 8.
Other income, net
— Net currency transaction
losses reduced other income by $12 in the eleven months ended
December 31, 2008 while net gains of $3 were recognized in
the month of January 2008. This compares to $35 of net currency
transaction gains in 2007. Dana Credit Corporation (a former
financing business of Dana) had asset sales and divestitures
that provided other income of $49 in 2007, but only minimal
income in 2008. Other income in 2008 also benefited from
interest income of $48 in the eleven months ended
December 31, 2008 and $4 in the month of January 2008 as
compared to $42 in 2007. Other income in the eleven-month
period ended December 31, 2008 includes a charge of $10 to
recognize the loss incurred in connection with repayment of $150
of our term debt in November 2008. Costs of approximately $10
have been incurred in 2008 in connection with the evaluation of
strategic alternatives relating to certain businesses. Other
income in 2007 also included a one-time claim settlement charge
of $11 representing the cost to settle a contractual matter with
an investor in one of our equity investments.
Interest expense
— Interest expense includes
the costs associated with the Exit Facility and other debt
agreements which are described in detail in Note 12 to our
consolidated financial statements in Item 8. Interest
expense in the eleven months ended December 31, 2008
includes $16 of amortized OID recorded in connection with the
Exit Facility and $8 of amortized debt issuance costs. Also
included is $4 associated with the accretion of certain
liabilities that were recorded at discounted values in
connection with the adoption of fresh start accounting upon
emergence from Chapter 11. During 2007 and the month of
January 2008, as a result of the bankruptcy reorganization
process, a substantial portion of our debt obligations were
reported as liabilities subject to compromise in our
consolidated financial statements with no interest expense being
accrued on these obligations. The interest expense not
recognized on these obligations amounted to $108 in 2007 and $9
during the month of January 2008.
Reorganization items
— Reorganization items are
expenses directly attributed to our Chapter 11
reorganization process. See Note 20 to our financial
statements in Item 8 for a summary of these costs. During
the bankruptcy process, there were ongoing advisory fees of
professionals representing Dana and the other bankruptcy
constituencies. Certain of these costs continued subsequent to
emergence as there are disputed claims which require resolution,
claims which require payment and other post-emergence activities
incident to emergence from Chapter 11. Among these ongoing
costs are expenses associated with additional facility
unionization under the framework of the global agreements
negotiated with the unions as part of our reorganization
activities. Reorganization items in the month of January 2008
include a gain on the settlement of liabilities subject to
compromise and several one-time emergence costs, including the
cost of employee stock bonuses, transfer taxes, and success fees
and other fees earned by certain professionals upon emergence.
33
Table of Contents
Income tax expense
— In the U.S. and
certain other countries, our recent history of operating losses
does not allow us to satisfy the “more likely than
not” criterion for realization of deferred tax assets.
Consequently, there is no income tax benefit against the pre-tax
losses of these jurisdictions as valuation allowances are
established offsetting the associated tax benefit or expense.
In the U.S., the other comprehensive income (OCI) reported for
2007 caused us to record tax expense in OCI and recognize a
U.S. tax benefit of $120 in continuing operations. For
2008, the valuation allowance impacts in the above-mentioned
countries, the fresh start adjustments and the impairment of
goodwill in 2008 and 2007 are the primary factors which cause
the tax expense of $107 for the eleven months ended
December 31, 2008, $199 for the month of January 2008, and
$62 for 2007 to differ from an expected tax benefit of $192, tax
expense of $320 and tax benefit of $135 for those periods at the
U.S. federal statutory rate of 35%.
Discontinued operations
— Our engine hard
parts, fluid products and pump products operations had been
reported as discontinued operations. The sales of these
businesses were substantially completed in 2007, except for a
portion of the pump products business that was sold in January
2008. The results for 2007 reflect the operating results of
these businesses as well as adjustments to the net assets of
these businesses necessary to reflect their fair value less cost
to sell based on expected sales proceeds. See Note 22 to
our consolidated financial statements in Item 8 for
additional information relating to the discontinued operations.
Liquidity
Common stock offering and debt reduction —
In
September 2009, we completed a common stock offering of
34 million shares at a price per share of $6.75, generating
net proceeds of $217. The provisions of our Term Facility
required that a minimum of 50% of the net proceeds of the equity
offering be used to repay outstanding principal of our term
loan. As a result of previous debt repurchases, approximately
10% of the outstanding principal amount of the term loan is held
by a wholly-owned
non-U.S. subsidiary
of Dana. Accordingly, $11 of the $109 term loan repayment made
to the lenders was received by this wholly-owned
non-U.S. subsidiary
and $98 was used to repay outstanding principal of our term loan
held by third parties.
The September 2009 equity offering provided the underwriters
with an over-allotment option to purchase an additional
5 million shares. The purchase of these additional shares
was completed in October 2009, generating additional net
proceeds of $33. Of these proceeds, $15 was used to repay third
party debt principal.
Additional debt reduction occurred in the second and third
quarters of 2009 when the combination of Dana repayments and
purchases of debt by a wholly-owned
non-U.S. subsidiary
of Dana reduced our outstanding principal under our Term
Facility by $129 (net of OID of $9) with a cash outlay of $86.
Covenants
— At December 31, 2009, we were
in compliance with our debt covenants under the amended Term
Facility with a Leverage Ratio of 3.09 compared to a maximum of
3.80 and an Interest Coverage Ratio of 4.64 compared to a
minimum of 2.80. Based on our current forecast assumptions,
which include cost reduction actions, and other initiatives, we
expect to be able to maintain compliance for the next twelve
months and 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 this period. However,
there is uncertainty in the current environment and it is
possible that the factors affecting our business could result in
our not being able to comply with the financial covenants in our
debt agreements or to maintain sufficient liquidity.
Based on our financial covenants, we had additional borrowing
capacity of $232 at December 31, 2009. The borrowing
available from our credit facilities was $224 based on the
borrowing base collateral of those lines.
34
Table of Contents
Global liquidity —
Our global liquidity at
December 31, 2009 was as follows:
|
Cash and cash equivalents
|
$ | 947 | ||
|
Less: Deposits supporting obligations
|
(43 | ) | ||
|
Available cash
|
904 | |||
|
Additional cash availability from lines of credit in the U.S.
and Europe
|
224 | |||
|
Total global liquidity
|
$ | 1,128 | ||
As of December 31, 2009, the consolidated cash balance
totaled $947, with $524 of this amount located in the
U.S. Approximately $43 of our cash balance is in cash
deposits that support certain of our obligations, primarily
workers compensation. In addition, $91 is held by less than
wholly-owned subsidiaries where our access may be restricted.
Our ability to efficiently access other cash balances in certain
subsidiaries and foreign jurisdictions is subject to local
regulatory, statutory or other requirements. Our current credit
ratings are B and B3 from Standard and Poor’s and
Moody’s.
The principal sources of liquidity for our future cash
requirements are expected to be (i) cash flows from
operations, (ii) cash and cash equivalents on hand,
(iii) proceeds related to our trade receivable
securitization and financing programs and (iv) borrowings
from the Revolving Facility. Our future ability to borrow the
full amount of availability under our revolving credit
facilities could be effectively limited by our financial
covenants.
At December 31, 2009, there were no borrowings under our
European trade receivable securitization program and $63 of
availability based on the borrowing base. At December 31,
2009, we had no borrowings under the Revolving Facility but we
had utilized $183 for letters of credit. Based on our borrowing
base collateral, we had availability at that date under the
Revolving Facility of $161 after deducting the outstanding
letters of credit.
Cash
Flow
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
Cash used in reorganization activity
|
$ | (2 | ) | $ | (882 | ) | $ | (74 | ) | $ | (148 | ) | |||||
|
Cash provided by (used for) changes in working capital
|
94 | 18 | (61 | ) | 83 | ||||||||||||
|
Other cash provided by (used in) operations
|
116 | (33 | ) | 13 | 13 | ||||||||||||
|
Total cash provided by (used in) operating activities
|
208 | (897 | ) | (122 | ) | (52 | ) | ||||||||||
|
Cash provided by (used in) investing activities
|
(98 | ) | (221 | ) | 77 | 348 | |||||||||||
|
Cash provided by (used in) financing activities
|
32 | (207 | ) | 912 | 166 | ||||||||||||
|
Increase (decrease) in cash and cash equivalents
|
$ | 142 | $ | (1,325 | ) | $ | 867 | $ | 462 | ||||||||
Operating activities
— The table above
summarizes our consolidated statement of cash flows. Exclusive
of working capital and reorganization-related activity, other
cash provided from operations was $116 during 2009, as compared
to a use of $20 for the combined periods of 2008 and cash
generation of $13 in 2007. An increased level of operating
earnings was the primary factor for the higher level of cash
provided in 2009 as compared to the prior periods. As our
operational improvements continued, our workforce reduction and
other restructuring activities consumed cash of $138 during
2009, an increase of $5 over the combined periods of 2008 and
$81 more than was used for such activities in 2007.
35
Table of Contents
Working capital provided cash of $94 in 2009, whereas cash of
$43 was used in 2008. In 2007, working capital provided cash of
$83. The combination of focused operational initiatives and
lower sales levels combined to generate cash of $299 in 2009
from reductions in inventory. During 2008 and 2007, cash of $34
and $5 was used to finance increased inventory. Bringing
inventories in line with current requirements caused accounts
payable to decrease, using cash of $184 in 2009. Lower sales
levels during the latter part of 2008 led to a reduction in
accounts payable cash use of $210, while in 2007 cash of $110
was provided from increased accounts payable. Reductions to
receivables generated cash of $107 in 2009, $434 in
2008 — again driven heavily by lower sales during the
latter part of 2008, and $23 in 2007.
During 2008, cash was used to satisfy various obligations
associated with our emergence from Chapter 11. Cash of
$733 was used shortly after emergence to satisfy our payment
obligation to VEBAs established to fund non-pension benefits of
union retirees. We also made a payment of $53 at emergence to
satisfy our obligation to a VEBA established to fund non-pension
benefits relating to non-union retirees, with a payment of $2
being made under another union arrangement. Payments of
reorganization expenses totaled $46 and Chapter 11
emergence-related claim payments totaled $100 during the eleven
months ended December 31, 2008.
Investing activities
— Expenditures for
property, plant and equipment in 2009 of $99 are down from $250
for the combined periods of 2008 and $254 for 2007 as capital
expenditures were closely managed and prioritized throughout the
past year. DCC cash of $93 that was restricted during
Chapter 11 by a forbearance agreement with DCC noteholders
was released in January 2008 as payments were made to the
noteholders. In 2007, divestitures of our engine hard parts,
fluid products and trailer axle businesses, the sale of our
investment in GETRAG, proceeds from DCC asset sales and other
divestment related actions provided cash of $609.
Financing activities
— In September and October
of 2009, we completed a common stock offering for
39 million shares at a price per share of $6.75, generating
net proceeds of $250. Additional borrowing sources outside the
U.S. were accessed to raise $26 of long-term debt, while
cash of $214 was used in 2009 to reduce long-term debt and $36
was used to reduce short term borrowings. In 2008, cash was
provided by financing activities as proceeds from our Exit
Facility and the issuance of preferred stock at emergence
exceeded the cash used for the repayment of other debt. During
2007, we borrowed additional amounts under our bankruptcy
reorganization credit facility of $200 and utilized other
short-term financing sources to raise cash of $98. Our DCC
operation repaid $132 of their outstanding debt in 2007 with
proceeds from their asset sales.
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Contractual
Obligations
We are obligated to make future cash payments in fixed amounts
under various agreements. These include payments under our
long-term debt agreements, rent payments under operating lease
agreements and payments for equipment, other fixed assets and
certain raw materials under purchase agreements. The following
table summarizes our significant contractual obligations as of
December 31, 2009
| Payments Due by Period | ||||||||||||||||||||
|
Less than
|
2 - 3
|
4 - 5
|
After
|
|||||||||||||||||
|
Contractual Cash Obligations
|
Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
|
Long-term debt (1)
|
$ | 1,042 | $ | 17 | $ | 46 | $ | 786 | $ | 193 | ||||||||||
|
Interest payments (2)
|
217 | 49 | 92 | 75 | 1 | |||||||||||||||
|
Leases (3)
|
372 | 50 | 74 | 74 | 174 | |||||||||||||||
|
Unconditional purchase obligations (4)
|
116 | 104 | 5 | 7 | ||||||||||||||||
|
Pension contribution (5)
|
13 | 13 | ||||||||||||||||||
|
Retiree healthcare benefits (6)
|
81 | 7 | 16 | 16 | 42 | |||||||||||||||
|
Uncertain income tax positions (7)
|
||||||||||||||||||||
|
Total contractual cash obligations
|
$ | 1,841 | $ | 240 | $ | 233 | $ | 958 | $ | 410 | ||||||||||
Notes:
| (1) | Principal payments on long-term debt. Excludes OID and deferred fees which were prepaid. |
| (2) | These amounts represent future interest payments based on the debt balances at December 31. Payments related to variable rate debt are based on December 31, 2009 interest rates. |
| (3) | Capital and operating leases related to real estate, vehicles and other assets. |
| (4) | The unconditional purchase obligations presented are comprised principally of commitments for procurement of fixed assets and the purchase of raw materials. |
| (5) | These amounts represent estimated 2010 contributions to our global defined benefit pension plans. We have not estimated pension contributions (other than the U.S.) beyond 2010 due to the significant impact that return on plan assets and changes in discount rates might have on such amounts. Our U.S. estimate for 2011 is a contribution of $75 which is not included in the table above. |
| (6) | This amount represents estimated obligations under our non-U.S. retiree healthcare programs. Obligations under the retiree healthcare programs are not fixed commitments and will vary depending on various factors, including the level of participant utilization and inflation. Our estimates of the payments to be made in the future consider recent payment trends and certain of our actuarial assumptions. |
| (7) | There are no expected payments in 2010 related to the uncertain tax positions as of December 31, 2009. We are not able to reasonably estimate the timing of the FIN 48 liability in individual years beyond 2010 due to uncertainties in the timing of the effective settlement of tax positions. As disclosed in Note 17 of the consolidated financial statements in Item 8, we expect to make a payment of approximately $75 during the first half of 2010 in connection with finalizing the settlement of U.S. income tax audits from 1999 through 2005. |
Dividend obligations of approximately $8 per quarter are accrued
while all shares of our preferred stock are outstanding. The
payment of preferred dividends was suspended in
November 2008 under the terms of our amended Exit
Facility. We are permitted under the terms of our amended Exit
Facility to resume a dividend when our total leverage ratio as
of the most recently completed fiscal quarter is less than or
equal to 3.25:1.00. At December 31, 2009 our ratio was
3.09:1.00. Payment of the
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dividends accrued but not paid at December 31, 2009 of $42
is at the discretion of the Board of Directors.
At December 31, 2009, we maintained cash balances of $43 on
deposit with financial institutions to support surety bonds,
letters of credit and bank guarantees and to provide credit
enhancements for certain lease agreements. These surety bonds
enable us to self-insure our workers compensation obligations.
We accrue the estimated liability for workers compensation
claims, including incurred but not reported claims.
Accordingly, no significant impact on our financial condition
would result if the surety bonds were called.
We have agreed, subject to certain conditions, to increase our
equity interest in Dongfeng Dana Axle Co., Ltd. from 4% to 50%.
Under the agreement, our additional interest is based on a
valuation of the business which would result in an additional
investment of $54 to $77. The actual investment could vary
significantly from this range in the event that the parties
mutually agree that the operating results and prospects of the
venture at the expected closing date of June 30, 2010
support a higher valuation of the business.
Contingencies
For a summary of litigation and other contingencies, see
Note 15 to our consolidated financial statements in
Item 8. We do not believe that any liabilities that may
result from these contingencies are reasonably likely to have a
material adverse effect on our liquidity or financial condition.
Critical
Accounting Estimates
The preparation of our consolidated financial statements in
conformity with GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period. Considerable judgment is often involved in making these
determinations. Critical estimates are those that require the
most difficult, subjective or complex judgments in the
preparation of the financial statements and the accompanying
notes. We evaluate these estimates and judgments on a regular
basis. We believe our assumptions and estimates are reasonable
and appropriate. However, the use of different assumptions
could result in significantly different results and actual
results could differ from those estimates. The following
discussion of accounting estimates is intended to supplement the
Summary of Significant Accounting Policies presented as
Note 1 to our consolidated financial statements in
Item 8.
Income taxes
— Accounting for income taxes is
complex, in part, because we conduct business globally and
therefore file income tax returns in numerous tax
jurisdictions. Significant judgment is required in determining
the income tax provision, uncertain tax positions, deferred tax
assets and liabilities and the valuation allowance recorded
against our net deferred tax assets. In assessing the
recoverability of deferred tax assets, we consider whether it is
more likely than not that some or a portion of the deferred tax
assets will not be realized. A valuation allowance is provided
when, in our judgment, based upon available information; it is
more likely than not that a portion of such deferred tax assets
will not be realized. To make this assessment, we consider the
historical and projected future taxable income or loss in
different tax jurisdictions and we review our tax planning
strategies. We have recorded valuation allowances against
deferred tax assets in the U.S. and other foreign jurisdictions
where realization has been determined to be uncertain. Since
future financial results may differ from previous estimates,
periodic adjustments to our valuation allowance may be necessary.
In the ordinary course of business, there are many transactions
and calculations where the ultimate tax determination is less
than certain. We are regularly under audit by the various
applicable tax authorities. Although the outcome of tax audits
is always uncertain, we believe that we have appropriate support
for the positions taken on our tax returns and that our annual
tax provisions include amounts sufficient to pay assessments, if
any, which may be proposed by the taxing
38
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authorities. Nonetheless, the amounts ultimately paid, if any,
upon resolution of the issues raised by the taxing authorities
may differ materially from the amounts accrued for each year.
See additional discussion of our deferred tax assets and
liabilities in Note 17 to our consolidated financial
statements in Item 8.
Retiree benefits
— Accounting for pensions and
OPEB involves estimating the cost of benefits to be provided
well into the future and attributing that cost over the time
period each employee works. These plan expenses and obligations
are dependent on assumptions developed by us in consultation
with our outside advisors such as actuaries and other
consultants and are generally calculated independently of
funding requirements. The assumptions used, including
inflation, discount rates, investment returns, life
expectancies, turnover rates, retirement rates, future
compensation levels and health care cost trend rates, have a
significant impact on plan expenses and obligations. These
assumptions are regularly reviewed and modified when appropriate
based on historical experience, current trends and the future
outlook. Changes in one or more of the underlying assumptions
could result in a material impact to our consolidated financial
statements in any given period. If actual experience differs
from expectations, our financial position and results of
operations in future periods could be affected.
The inflation assumption is based on an evaluation of external
market indicators. Retirement, turnover and mortality rates are
based primarily on actual plan experience. Health care cost
trend rates are developed based on our actual historical claims
experience, the near-term outlook and an assessment of likely
long-term trends. For our largest plans, discount rates are
based upon the construction of a theoretical bond portfolio,
adjusted according to the timing of expected cash flows for the
future obligations. A yield curve is developed based on a
subset of these high-quality fixed-income investments (those
with yields between the 40th and 90th percentiles). The
projected cash flows are matched to this yield curve and a
present value developed which is then calibrated to develop a
single equivalent discount rate. Pension benefits are funded
through deposits with trustees that satisfy, at a minimum, the
applicable funding regulations. For our largest defined benefit
pension plans, expected investment rates of return are based
upon input from the plan’s investment advisors and actuary
regarding our expected investment portfolio mix, historical
rates of return on those assets, projected future asset class
returns, the impact of active management and long-term market
conditions and inflation expectations. We believe that the
long-term asset allocation on average will approximate the
targeted allocation and we regularly review the actual asset
allocation to periodically rebalance the investments to the
targeted allocation when appropriate. OPEB benefits are funded
as they become due.
Actuarial gains or losses may result from changes in assumptions
or when actual experience is different from that expected.
Under the applicable standards, those gains and losses are not
required to be immediately recognized as expense, but instead
may be deferred as part of accumulated other comprehensive
income and amortized into expense over future periods.
In 2009 we experienced significant differences between the
expected and actual return on plan assets. The most significant
of our funded plans exist in the U.S. and Canada. Our U.S. and
Canadian pension plans were heavily invested in government
securities at the end of 2008. These securities were in great
demand at that time due to the global financial crisis. As the
global crisis began to ease in 2009, investors started to sell
these securities as their appetite for risk and higher yields
began to increase. This shift in demand resulted in a declining
market value for these securities. A decrease in the fair value
of plan assets will increase next year’s pension cost
because of the lower expected return on plan assets. Our
financial position is also sensitive to changes in the high
quality bond yield rates used to determine an appropriate
discount rate. Over the later part of 2009 and into 2010, the
credit markets have stabilized resulting in a general decline in
the yields on high quality corporate bonds of all maturities. A
decrease in the discount rate increases the benefit obligation.
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Table of Contents
As a result, at the end of 2009, we have significant
unrecognized net losses in accumulated other comprehensive
income, principally in the U.S. The amortization of these
unrecognized losses is resulting in increased domestic net
periodic pension cost. Our normal net periodic pension cost
will change from a benefit of $7 in 2009 (before any curtailment
impacts) to a charge of $22 in 2010. No cash contributions are
required in 2010. However, we estimate a contribution
approximating $75 to our U.S. plans will be required in 2011.
A change in the pension discount rate of 25 basis points would
result in a change in our pension obligations of approximately
$45 and a change in pension expense of approximately $2. A 25
basis point change in the rate of return would change pension
expense by approximately $3.
Restructuring actions involving facility closures and employee
downsizing and divestitures frequently give rise to adjustments
to employee benefit plan obligations, including the recognition
of curtailment or settlement gains and losses. Upon the
occurrence of these events, the obligations of the employee
benefit plans affected by the action are also re-measured based
on updated assumptions as of the re-measurement date. See
additional discussion of our pension and OPEB obligations in
Note 10 to our consolidated financial statements in
Item 8.
Long-lived asset impairment
— We perform
periodic impairment analyses on our long-lived amortizable
assets whenever events and circumstances indicate that the
carrying amount of such assets may not be recoverable. When
indications are present, we compare the estimated future
undiscounted net cash flows of the operations to which the
assets relate to their carrying amount. If the operations are
determined to be unable to recover the carrying amount of their
assets, the long-lived assets are written down to their
estimated fair value. Fair value is determined based on
discounted cash flows, third party appraisals or other methods
that provide appropriate estimates of value. A considerable
amount of management judgment and assumptions are required in
performing the impairment tests, principally in determining
whether an adverse event or circumstance has triggered the need
for an impairment review of the fair value of the operations.
In Structures we have impaired the long-lived assets based on
the expected proceeds from the sale of substantially all of the
assets of this segment. In all of our other segments, a 50%
reduction in either the projected cash flows or the peer
multiples would not result in impairment of long-lived assets
including the definite lived intangible assets. While we
believe our judgments and assumptions were reasonable, changes
in assumptions underlying these estimates could result in a
material impact to our consolidated financial statements in any
given period.
Goodwill and indefinite-lived intangible
assets
— We test goodwill and other
indefinite-lived intangible assets for impairment as of
October 31 of each year for all of our reporting units, or
more frequently if events occur or circumstances change that
would warrant such a review. We make significant assumptions
and estimates about the extent and timing of future cash flows,
growth rates and discount rates. The cash flows are estimated
over a significant future period of time, which makes those
estimates and assumptions subject to a high degree of
uncertainty. We also utilize market valuation models which
require us to make certain assumptions and estimates regarding
the applicability of those models to our assets and businesses.
We believe that the assumptions and estimates used to determine
the estimated fair value of our Off-Highway reporting unit and
our intangible assets were reasonable. In addition, a 65%
reduction in either the projected cash flows or the peer
multiples in the Off-Highway segment would not result in
additional impairment in this segment. However, different
assumptions could materially affect the results. As described
in Note 6 to our consolidated financial statements in
Item 8, we recorded goodwill impairment of $169 in 2008
related to our Driveshaft business segment.
Indefinite-lived intangible asset valuations are generally based
on revenue streams. We impaired indefinite-lived intangible
assets by $35 in 2009 and $14 in the eleven months ended
December 31, 2008. Additional reductions in forecasted
revenue could result in additional impairment.
Warranty
— Costs related to product warranty
obligations are estimated and accrued at the time of sale with a
charge against cost of sales. Warranty accruals are evaluated
and adjusted as appropriate
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based on occurrences giving rise to potential warranty exposure
and associated experience. Warranty accruals and adjustments
require significant judgment, including a determination of our
involvement in the matter giving rise to the potential warranty
issue or claim, our contractual requirements, estimates of units
requiring repair and estimates of repair costs. If actual
experience differs from expectations, our financial position and
results of operations in future periods could be affected.
Contingency reserves
— We have numerous other
loss exposures, such as environmental claims, product liability
and litigation. Establishing loss reserves for these matters
requires the use of estimates and judgment in regards to risk
exposure and ultimate liability. We estimate losses under the
programs using consistent and appropriate methods; however,
changes to our assumptions could materially affect our recorded
liabilities for loss.
Fresh start accounting
— As required by GAAP,
in connection with emergence from Chapter 11, we adopted
fresh start accounting effective February 1, 2008.
Accordingly, the reorganization value represents the fair value
of the entity before considering liabilities and approximates
the amount a willing buyer would pay for the assets of Dana
immediately after restructuring. The reorganization value is
allocated to the respective fair value of assets. The excess
reorganization value over the fair value of identified tangible
and intangible assets is recorded as goodwill. Liabilities,
other than deferred taxes, are stated at present values of
amounts expected to be paid.
Fair values of assets and liabilities represent our best
estimates based on our appraisals and valuations. Where the
foregoing were not available, industry data and trends or
references to relevant market rates and transactions were used.
These estimates and assumptions are inherently subject to
significant uncertainties and contingencies beyond our
reasonable control. Moreover, the market value of our common
stock may differ materially from the fresh start equity
valuation.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to various types of market risks including the
effects of fluctuations in foreign currency exchange rates,
adverse movements in commodity prices for products we use in our
manufacturing and adverse changes in interest rates. To reduce
our exposure to these risks, we maintain risk management
controls to monitor these risks and take appropriate actions to
attempt to mitigate such forms of market risks.
Foreign currency exchange rate risks
— We have
global operations and thus make investments and enter into
transactions denominated in various foreign currencies. Our
operating results are impacted by buying, selling and financing
in currencies other than the functional currency of our
operating companies. Wherever possible, we mitigate the impact
by focusing on natural hedging techniques which include the
following: (i) structuring foreign subsidiary balance
sheets with appropriate levels of debt to reduce subsidiary net
investments and subsidiary cash flow subject to conversion risk;
(ii) avoidance of risk by denominating contracts in the
appropriate functional currency and (iii) managing cash
flows on a net basis (both in timing and currency) to minimize
the exposure to foreign currency exchange rates.
After considering natural hedging techniques, some portions of
remaining exposure, especially for anticipated inter-company and
third party commercial transaction exposure in the short term,
may be hedged using financial derivatives, such as foreign
currency exchange rate forwards. Some of our foreign entities
were party to foreign currency contracts for anticipated
transactions in U.S. dollars, British pounds, Swedish krona,
euros, South African rand, Indian rupees and Australian dollars
at the end of 2009.
In addition to the transactional exposure discussed above, our
operating results are impacted by the translation of our foreign
operating income into U.S. dollars (translation exposure). We
do not enter into foreign exchange contracts to mitigate
translation exposure.
Risk from adverse movements in commodity
prices
— We purchase certain raw materials,
including steel and other metals, which are subject to price
volatility caused by fluctuations in supply and
41
Table of Contents
demand as well as other factors. To mitigate the impact of
higher commodity prices we have consolidated our supply base and
negotiated fixed price supply contracts with many of our
commodity suppliers. In addition, we continue to negotiate with
our customers to provide for the sharing of increased raw
material costs. No assurances can be given that the magnitude
and duration of increased commodity costs will not have a
material impact on our future operating results. We had no
derivatives in place at December 31, 2009 to hedge
commodity price movements.
Interest rate risk
— Our interest rate risk
relates primarily to our floating rate exposure on borrowing
under the amended Exit Facility. Under the terms of the Exit
Facility we were required to enter into interest rate hedge
agreements and to maintain agreements covering a notional amount
of not less than 50% of the aggregate loans outstanding under
the Term Facility until January 2011. We have hedged
interest on $702 of the $1,003 outstanding at December 31,
2009 with an interest rate cap on the London Interbank Borrowing
Rate (LIBOR) portion of the interest rate.
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| Item 8. | Financial Statements and Supplementary Data |
Report of
Independent Registered Public Accounting Firm
To the Board of
Directors and Stockholders of Dana Holding Corporation
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Dana Holding
Corporation (Dana) and its subsidiaries at December 31,
2009 and 2008, and the results of their operations and their
cash flows for the year ended December 31, 2009 and the
period from February 1, 2008 through December 31, 2008
in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under
Item 15(a)(3) for the year ended December 31, 2009 and
the period from February 1, 2008 through December 31,
2008 presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009,
based on criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Management’s Report on
Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on
these financial statements, on the financial statement schedule,
and on the Company’s internal control over financial
reporting based on our integrated audits. We conducted our
audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement and whether effective internal control
over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 1 to the consolidated financial
statements, the Company changed the manner in which it reports
noncontrolling interests in consolidated subsidiaries in 2009.
As discussed in Note 4 to the consolidated financial
statements, the Company changed the manner in which it accounts
for inventory in 2009.
As discussed in Note 21 to the consolidated financial
statements, the Company filed a petition on March 3, 2006
with the U.S. Bankruptcy Court for the Southern District of
New York for reorganization under the provisions of
Chapter 11 of the Bankruptcy Code. The Company’s
Third Amended Joint Plan of Reorganization of Debtors and
Debtors in Possession (as modified, the “Plan”) was
confirmed on December 26, 2007. Confirmation of the Plan
resulted in the discharge of certain claims against the Company
that arose before March 3, 2006 and substantially alters
rights and interests of equity security holders as provided for
in the Plan. The Plan was substantially consummated on
January 31, 2008 and the Company emerged from bankruptcy.
In connection with its emergence from bankruptcy, the Company
adopted fresh start accounting on January 31, 2008.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal
43
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control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
February 24, 2010
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Report of
Independent Registered Public Accounting Firm
To the Board of
Directors and Stockholders of Dana Holding Corporation
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Dana
Corporation (Prior Dana) and its subsidiaries at
December 31, 2007, and the results of their operations and
their cash flows for the period from January 1, 2008
through January 31, 2008 and for the year ended
December 31, 2007 in conformity with accounting principles
generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 15(a)(3) for the
year ended December 31, 2007 and the period from
January 1, 2008 through January 31, 2008 presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements. The Company’s management is
responsible for these financial statements and financial
statement schedule. Our responsibility is to express opinions
on these financial statements and on the financial statement
schedule based on our audits. We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects.
Our audits of the financial statements included examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our
audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
As discussed in Note 17 to the consolidated financial
statement, the Company changed the manner in which it accounts
for uncertain tax positions in 2007.
As discussed in Note 21 to the consolidated financial
statements, the Company filed a petition on March 3, 2006
with the U.S. Bankruptcy Court for the Southern District of
New York for reorganization under the provisions of
Chapter 11 of the Bankruptcy Code. The Company’s
Third Amended Joint Plan of Reorganization of Debtors and
Debtors in Possession (as modified, the “Plan”) was
confirmed on December 26, 2007. Confirmation of the Plan
resulted in the discharge of certain claims against the Company
that arose before March 3, 2006 and substantially alters
rights and interests of equity security holders as provided for
in the Plan. The Plan was substantially consummated on
January 31, 2008 and the Company emerged from bankruptcy.
In connection with its emergence from bankruptcy, the Company
adopted fresh start accounting.
/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
March 16, 2009
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Consolidated Statement of Operations
(In millions except per share amounts)
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
Net sales
|
$ | 5,228 | $ | 7,344 | $ | 751 | $ | 8,721 | |||||||||
|
Costs and expenses
|
|||||||||||||||||
|
Cost of sales
|
4,985 | 7,113 | 702 | 8,231 | |||||||||||||
|
Selling, general and administrative expenses
|
313 | 303 | 34 | 365 | |||||||||||||
|
Amortization of intangibles
|
71 | 66 | |||||||||||||||
|
Restructuring charges, net
|
118 | 114 | 12 | 205 | |||||||||||||
|
Impairment of goodwill
|
169 | 89 | |||||||||||||||
|
Impairment of long-lived assets
|
156 | 14 | |||||||||||||||
|
Other income, net
|
98 | 53 | 8 | 162 | |||||||||||||
|
Income (loss) from continuing operations before interest,
reorganization items and income taxes
|
(317 | ) | (382 | ) | 11 | (7 | ) | ||||||||||
|
Interest expense
|
139 | 142 | 8 | 105 | |||||||||||||
|
Reorganization items
|
(2 | ) | 25 | 98 | 275 | ||||||||||||
|
Fresh start accounting adjustments
|
1,009 | ||||||||||||||||
|
Income (loss) from continuing operations before income taxes
|
(454 | ) | (549 | ) | 914 | (387 | ) | ||||||||||
|
Income tax benefit (expense)
|
27 | (107 | ) | (199 | ) | (62 | ) | ||||||||||
|
Equity in earnings of affiliates
|
(9 | ) | (11 | ) | 2 | 26 | |||||||||||
|
Income (loss) from continuing operations
|
(436 | ) | (667 | ) | 717 | (423 | ) | ||||||||||
|
Loss from discontinued operations
|
(4 | ) | (6 | ) | (118 | ) | |||||||||||
|
Net income (loss)
|
(436 | ) | (671 | ) | 711 | (541 | ) | ||||||||||
|
Less: Noncontrolling interests net income (loss)
|
(5 | ) | 6 | 2 | 10 | ||||||||||||
|
Net income (loss) attributable to the parent company
|
(431 | ) | (677 | ) | 709 | (551 | ) | ||||||||||
|
Preferred stock dividend requirements
|
32 | 29 | |||||||||||||||
|
Net income (loss) available to common stockholders
|
$ | (463 | ) | $ | (706 | ) | $ | 709 | $ | (551 | ) | ||||||
|
Income (loss) per share from continuing operations available
to parent company stockholders:
|
|||||||||||||||||
|
Basic
|
$ | (4.19 | ) | $ | (7.02 | ) | $ | 4.77 | $ | (2.89 | ) | ||||||
|
Diluted
|
$ | (4.19 | ) | $ | (7.02 | ) | $ | 4.75 | $ | (2.89 | ) | ||||||
|
Loss per share from discontinued operations attributable to
parent company stockholders:
|
|||||||||||||||||
|
Basic
|
$ | — | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.79 | ) | ||||||
|
Diluted
|
$ | — | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.79 | ) | ||||||
|
Net income (loss) per share available to parent company
stockholders:
|
|||||||||||||||||
|
Basic
|
$ | (4.19 | ) | $ | (7.06 | ) | $ | 4.73 | $ | (3.68 | ) | ||||||
|
Diluted
|
$ | (4.19 | ) | $ | (7.06 | ) | $ | 4.71 | $ | (3.68 | ) | ||||||
|
Average common shares outstanding
|
|||||||||||||||||
|
Basic
|
110 | 100 | 150 | 150 | |||||||||||||
|
Diluted
|
110 | 100 | 150 | 150 | |||||||||||||
The accompanying notes are an integral part of the consolidated
financial statements.
46
Table of Contents
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Assets
|
||||||||
|
Current assets
|
||||||||
|
Cash and cash equivalents
|
$ | 947 | $ | 777 | ||||
|
Accounts receivable
|
||||||||
|
Trade, less allowance for doubtful accounts of $18 in 2009 and
$23 in 2008
|
728 | 764 | ||||||
|
Other
|
141 | 164 | ||||||
|
Inventories
|
608 | 869 | ||||||
|
Other current assets
|
59 | 52 | ||||||
|
Current assets held for sale
|
99 | 121 | ||||||
|
Total current assets
|
2,582 | 2,747 | ||||||
|
Goodwill
|
111 | 108 | ||||||
|
Intangibles
|
438 | 515 | ||||||
|
Investments and other assets
|
233 | 200 | ||||||
|
Investments in affiliates
|
112 | 119 | ||||||
|
Property, plant and equipment, net
|
1,484 | 1,636 | ||||||
|
Non-current assets held for sale
|
104 | 282 | ||||||
|
Total assets
|
$ | 5,064 | $ | 5,607 | ||||
|
Liabilities and equity
|
||||||||
|
Current liabilities
|
||||||||
|
Notes payable, including current portion of long-term debt
|
$ | 34 | $ | 70 | ||||
|
Accounts payable
|
601 | 759 | ||||||
|
Accrued payroll and employee benefits
|
103 | 112 | ||||||
|
Accrued restructuring costs
|
29 | 65 | ||||||
|
Taxes on income
|
40 | 93 | ||||||
|
Other accrued liabilities
|
270 | 258 | ||||||
|
Current liabilities held for sale
|
79 | 89 | ||||||
|
Total current liabilities
|
1,156 | 1,446 | ||||||
|
Long-term debt
|
969 | 1,181 | ||||||
|
Deferred employee benefits and other non-current liabilities
|
1,160 | 845 | ||||||
|
Commitments and contingencies (Note 15)
|
||||||||
|
Total liabilities
|
3,285 | 3,472 | ||||||
|
Parent company stockholders’ equity
|
||||||||
|
Preferred stock, 50,000,000 shares authorized
|
||||||||
|
Series A, $0.01 par value, 2,500,000 issued and outstanding
|
242 | 242 | ||||||
|
Series B, $0.01 par value, 5,400,000 issued and outstanding
|
529 | 529 | ||||||
|
Common stock, $0.01 par value, 450,000,000 authorized,
139,414,149 issued and outstanding
|
1 | 1 | ||||||
|
Additional paid-in capital
|
2,580 | 2,321 | ||||||
|
Accumulated deficit
|
(1,169 | ) | (706 | ) | ||||
|
Accumulated other comprehensive loss
|
(504 | ) | (359 | ) | ||||
|
Total parent company stockholders’ equity
|
1,679 | 2,028 | ||||||
|
Noncontrolling interests
|
100 | 107 | ||||||
|
Total equity
|
1,779 | 2,135 | ||||||
|
Total liabilities and equity
|
$ | 5,064 | $ | 5,607 | ||||
The accompanying notes are an integral part of the consolidated
financial statements.
47
Table of Contents
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
Net income (loss)
|
$ | (436 | ) | $ | (671 | ) | $ | 711 | $ | (541 | ) | ||||||
|
Depreciation
|
311 | 269 | 23 | 279 | |||||||||||||
|
Amortization of intangibles
|
86 | 81 | |||||||||||||||
|
Amortization of inventory valuation
|
49 | ||||||||||||||||
|
Amortization of deferred financing charges and original issue
discount
|
34 | 27 | |||||||||||||||
|
Impairment of goodwill, intangibles, investments and other assets
|
156 | 183 | 131 | ||||||||||||||
|
Deferred income taxes
|
(20 | ) | 22 | 191 | (29 | ) | |||||||||||
|
(Gain) loss on extinguishment of debt
|
(35 | ) | 10 | ||||||||||||||
|
Non-cash portion of U.K. pension charge
|
60 | ||||||||||||||||
|
Unremitted earnings of affiliates, net of dividends received
|
11 | 21 | (4 | ) | (26 | ) | |||||||||||
|
Reorganization:
|
|||||||||||||||||
|
Reorganization items net of cash payments
|
(4 | ) | (24 | ) | 79 | 154 | |||||||||||
|
Payment of claims
|
(100 | ) | |||||||||||||||
|
Payments to VEBAs
|
(733 | ) | (55 | ) | (27 | ) | |||||||||||
|
Gain on settlement of liabilities subject to compromise
|
(27 | ) | |||||||||||||||
|
Fresh start adjustments
|
(1,009 | ) | |||||||||||||||
|
Pension contributions in excess of expense
|
(5 | ) | (36 | ) | (2 | ) | |||||||||||
|
OPEB — payments made in excess of expense
|
(1 | ) | (2 | ) | (71 | ) | |||||||||||
|
Loss on sale of assets
|
9 | 6 | 7 | ||||||||||||||
|
Change in accounts receivable
|
107 | 512 | (78 | ) | (23 | ) | |||||||||||
|
Change in inventories
|
299 | (6 | ) | (28 | ) | (5 | ) | ||||||||||
|
Change in accounts payable
|
(184 | ) | (227 | ) | 17 | 110 | |||||||||||
|
Change in accrued payroll and employee benefits
|
(80 | ) | (79 | ) | 12 | 10 | |||||||||||
|
Change in accrued income taxes
|
(41 | ) | (40 | ) | (2 | ) | (6 | ) | |||||||||
|
Change in other current assets and liabilities
|
(7 | ) | (142 | ) | 18 | (3 | ) | ||||||||||
|
Change in other non-current assets and liabilities, net
|
8 | (19 | ) | 27 | (65 | ) | |||||||||||
|
Net cash flows provided by (used in) operating activities
|
208 | (897 | ) | (122 | ) | (52 | ) | ||||||||||
|
Cash flows — investing activities
|
|||||||||||||||||
|
Purchases of property, plant and equipment
|
(99 | ) | (234 | ) | (16 | ) | (254 | ) | |||||||||
|
Proceeds from sale of businesses and assets
|
3 | 12 | 5 | 421 | |||||||||||||
|
Proceeds from sale of DCC assets and partnership interests
|
2 | 188 | |||||||||||||||
|
Payments received on leases and loans
|
11 | ||||||||||||||||
|
Change in investments and other assets
|
(1 | ) | 14 | ||||||||||||||
|
Change in restricted cash
|
93 | (78 | ) | ||||||||||||||
|
Other
|
(1 | ) | (1 | ) | (5 | ) | 46 | ||||||||||
|
Net cash flows provided by (used in) investing activities
|
(98 | ) | (221 | ) | 77 | 348 | |||||||||||
|
Cash flows — financing activities
|
|||||||||||||||||
|
Net change in short-term debt
|
(36 | ) | (70 | ) | (18 | ) | 98 | ||||||||||
|
Proceeds from Exit Facility debt
|
80 | 1,350 | |||||||||||||||
|
Deferred financing payments
|
(1 | ) | (26 | ) | (40 | ) | |||||||||||
|
Proceeds from long-term debt
|
27 | ||||||||||||||||
|
Repayment of long-term debt
|
(214 | ) | (164 | ) | |||||||||||||
|
Proceeds from issuance of common stock
|
264 | ||||||||||||||||
|
Underwriting fee payment
|
(14 | ) | |||||||||||||||
|
Dividends paid to preferred stockholders
|
(18 | ) | |||||||||||||||
|
Dividends paid to noncontrolling interests
|
(5 | ) | (7 | ) | (1 | ) | (4 | ) | |||||||||
|
Proceeds from (repayment of)
debtor-in-possession
facility
|
(900 | ) | 200 | ||||||||||||||
|
Payment of DCC Medium Term Notes
|
(136 | ) | (132 | ) | |||||||||||||
|
Original issue discount payment
|
(114 | ) | |||||||||||||||
|
Issuance of Series A and Series B preferred stock
|
771 | ||||||||||||||||
|
Other
|
11 | (2 | ) | 4 | |||||||||||||
|
Net cash flows provided by (used in) financing activities
|
32 | (207 | ) | 912 | 166 | ||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
142 | (1,325 | ) | 867 | 462 | ||||||||||||
|
Cash and cash equivalents — beginning of period
|
777 | 2,147 | 1,271 | 704 | |||||||||||||
|
Effect of exchange rate changes on cash balances
|
28 | (45 | ) | 5 | 104 | ||||||||||||
|
Net change in cash of discontinued operations
|
4 | 1 | |||||||||||||||
|
Cash and cash equivalents — end of period
|
$ | 947 | $ | 777 | $ | 2,147 | $ | 1,271 | |||||||||
The accompanying notes are an integral part of the consolidated
financial statements.
48
Table of Contents
Dana Holding
Corporation
Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss)
(In millions)
Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss)
(In millions)
| Parent Company Stockholders | ||||||||||||||||||||||||||||||||||||||||
|
Accumulated Other
|
Parent
|
|||||||||||||||||||||||||||||||||||||||
| Comprehensive Income (Loss) |
Company
|
|||||||||||||||||||||||||||||||||||||||
|
Additional
|
Foreign
|
Unrealized
|
Post-
|
Stockholders’
|
Non-
|
|||||||||||||||||||||||||||||||||||
|
Preferred
|
Common
|
Paid-In
|
Accumulated
|
Currency
|
Gains
|
retirement
|
Equity
|
controlling
|
Total
|
|||||||||||||||||||||||||||||||
| Stock | Stock | Capital | Deficit | Translation | (Losses) | Benefits | (Deficit) | Interests | Equity | |||||||||||||||||||||||||||||||
|
Balance, December 31, 2006, Prior Dana
|
$ | — | $ | 150 | $ | 201 | $ | 80 | $ | (188 | ) | $ | — | $ | (1,077 | ) | $ | (834 | ) | $ | 81 | $ | (753 | ) | ||||||||||||||||
|
Adoption of accounting for uncertainty in income tax,
January 1, 2007
|
3 | 3 | 3 | |||||||||||||||||||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
|
Net income (loss)
|
(551 | ) | (551 | ) | 10 | (541 | ) | |||||||||||||||||||||||||||||||||
|
Currency translation
|
33 | 33 | 18 | 51 | ||||||||||||||||||||||||||||||||||||
|
Defined benefit plans
|
568 | 568 | 568 | |||||||||||||||||||||||||||||||||||||
|
Other
|
(2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||
|
Other comprehensive income
|
599 | 18 | 617 | |||||||||||||||||||||||||||||||||||||
|
Total comprehensive income
|
48 | 28 | 76 | |||||||||||||||||||||||||||||||||||||
|
Issuance of shares for equity compensation plans, net
|
1 | 1 | 1 | |||||||||||||||||||||||||||||||||||||
|
Other
|
(10 | ) | (10 | ) | ||||||||||||||||||||||||||||||||||||
|
Dividends paid
|
(4 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2007, Prior Dana
|
150 | 202 | (468 | ) | (155 | ) | (2 | ) | (509 | ) | (782 | ) | 95 | (687 | ) | |||||||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
|
Net income
|
709 | 709 | 2 | 711 | ||||||||||||||||||||||||||||||||||||
|
Currency translation
|
3 | 3 | (21 | ) | (18 | ) | ||||||||||||||||||||||||||||||||||
|
Defined benefit plans
|
79 | 79 | 3 | 82 | ||||||||||||||||||||||||||||||||||||
|
Other
|
(6 | ) | (6 | ) | (6 | ) | ||||||||||||||||||||||||||||||||||
|
Other comprehensive income (loss)
|
76 | (18 | ) | 58 | ||||||||||||||||||||||||||||||||||||
|
Total comprehensive income (loss)
|
785 | (16 | ) | 769 | ||||||||||||||||||||||||||||||||||||
|
Dividends paid
|
(1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||
|
Cancellation of Prior Dana common stock
|
(150 | ) | (202 | ) | (352 | ) | (352 | ) | ||||||||||||||||||||||||||||||||
|
Elimination of Prior Dana accumulated deficit and accumulated
other comprehensive loss
|
(241 | ) | 152 | 8 | 430 | 349 | 34 | 383 | ||||||||||||||||||||||||||||||||
|
Balance, January 31, 2008, Prior Dana
|
112 | 112 | ||||||||||||||||||||||||||||||||||||||
|
Issuance of new equity in connection with emergence from
Chapter 11
|
771 | 1 | 2,267 | 3,039 | 3,039 | |||||||||||||||||||||||||||||||||||
|
Balance, January 31, 2008, Dana
|
771 | 1 | 2,267 | 3,039 | 112 | 3,151 | ||||||||||||||||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
|
Net income (loss)
|
(677 | ) | (677 | ) | 6 | (671 | ) | |||||||||||||||||||||||||||||||||
|
Currency translation
|
(224 | ) | (224 | ) | (6 | ) | (230 | ) | ||||||||||||||||||||||||||||||||
|
Defined benefit plans
|
(84 | ) | (84 | ) | (84 | ) | ||||||||||||||||||||||||||||||||||
|
Unrealized investment losses and other
|
(51 | ) | (51 | ) | (51 | ) | ||||||||||||||||||||||||||||||||||
|
Other comprehensive loss
|
(359 | ) | (6 | ) | (365 | ) | ||||||||||||||||||||||||||||||||||
|
Total comprehensive loss
|
(1,036 | ) | (1,036 | ) | ||||||||||||||||||||||||||||||||||||
|
Additional investment
|
2 | 2 | ||||||||||||||||||||||||||||||||||||||
|
Dividends paid
|
(7 | ) | (7 | ) | ||||||||||||||||||||||||||||||||||||
|
Preferred stock dividends ($3.67 per share)
|
(29 | ) | (29 | ) | (29 | ) | ||||||||||||||||||||||||||||||||||
|
Issuance of additional equity in connection with emergence from
Chapter 11
|
2 | 2 | 2 | |||||||||||||||||||||||||||||||||||||
|
Employee emergence bonus
|
45 | 45 | 45 | |||||||||||||||||||||||||||||||||||||
|
Stock compensation
|
7 | 7 | 7 | |||||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2008, Dana
|
771 | 1 | 2,321 | (706 | ) | (224 | ) | (51 | ) | (84 | ) | 2,028 | 107 | 2,135 | ||||||||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
(431 | ) | (431 | ) | (5 | ) | (436 | ) | ||||||||||||||||||||||||||||||||
|
Currency translation
|
109 | 109 | 2 | 111 | ||||||||||||||||||||||||||||||||||||
|
Defined benefit plans
|
(317 | ) | (317 | ) | (317 | ) | ||||||||||||||||||||||||||||||||||
|
Unrealized investment gains and other
|
63 | 63 | 1 | 64 | ||||||||||||||||||||||||||||||||||||
|
Other comprehensive income (loss)
|
(145 | ) | 3 | (142 | ) | |||||||||||||||||||||||||||||||||||
|
Total comprehensive loss
|
(576 | ) | (2 | ) | (578 | ) | ||||||||||||||||||||||||||||||||||
|
Dividends paid
|
(5 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||||
|
Preferred stock dividends ($4.00 per share)
|
(32 | ) | (32 | ) | (32 | ) | ||||||||||||||||||||||||||||||||||
|
Share issuance
|
250 | 250 | 250 | |||||||||||||||||||||||||||||||||||||
|
Stock compensation
|
9 | 9 | 9 | |||||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2009, Dana
|
$ | 771 | $ | 1 | $ | 2,580 | $ | (1,169 | ) | $ | (115 | ) | $ | 12 | $ | (401 | ) | $ | 1,679 | $ | 100 | $ | 1,779 | |||||||||||||||||
The accompanying notes are an integral part of the consolidated
financial statements.
49
Table of Contents
Dana Holding Corporation
Index to Notes to Consolidated
Financial Statements
| 1. | Organization and Summary of Significant Accounting Policies |
| 2. | Acquisitions and Divestitures |
| 3. | Restructuring of Operations |
| 4. | Inventories |
| 5. | Supplemental Balance Sheet and Cash Flow Information |
| 6. | Goodwill, Other Intangible Assets and Long-Lived Assets |
| 7. | Capital Stock |
| 8. | Earnings Per Share |
| 9. | Incentive and Stock Compensation |
| 10. | Pension and Postretirement Benefit Plans |
| 11. | Cash Deposits |
| 12. | Financing Agreements |
| 13. | Fair Value Measurements |
| 14. | Risk Management and Derivatives |
| 15. | Commitments and Contingencies |
| 16. | Warranty Obligations |
| 17. | Income Taxes |
| 18. | Other Income, Net |
| 19. | Segment, Geographical Area and Major Customer Information |
| 20. | Reorganization Items |
| 21. | Emergence from Chapter 11 |
| 22. | Discontinued Operations |
50
Table of Contents
Notes to
Consolidated Financial Statements
(In millions, except share and per share amounts)
| Note 1. | Organization and Summary of Significant Accounting Policies |
General
Dana Holding Corporation (Dana), incorporated in Delaware in
2007, is headquartered in Maumee, Ohio. We are a leading
supplier of axle, driveshaft, structural, sealing and thermal
management products for global vehicle manufacturers. Our
people design and manufacture products for every major vehicle
producer in the world.
As a result of Dana Corporation’s emergence from
Chapter 11 of the U.S. Bankruptcy Code
(Chapter 11) on January 31, 2008 (the Effective
Date), Dana is the successor registrant to Dana Corporation
(Prior Dana) pursuant to
Rule 12g-3
under the Securities Exchange Act of 1934.
The terms “Dana,” “we,” “our” and
“us,” when used in this report with respect to the
period prior to Dana Corporation’s emergence from
Chapter 11, are references to Prior Dana and, when used
with respect to the period commencing after Dana
Corporation’s emergence, are references to Dana. These
references include the subsidiaries of Prior Dana or Dana, as
the case may be, unless otherwise indicated or the context
requires otherwise.
This report, as discussed in Note 21, includes the results
of the 2008 implementation of the Third Amended Joint Plan of
Reorganization of Debtors and Debtors in Possession as modified
(the Plan) and the effects of the adoption of fresh start
accounting. In accordance with generally accepted accounting
principles in the United States (GAAP), historical financial
statements of Prior Dana are presented separately from Dana
results. The implementation of the Plan and the application of
fresh start accounting result in financial statements that are
not comparable to financial statements in periods prior to
emergence.
Summary of
Significant Accounting Policies
Basis of presentation
— Our consolidated
financial statements include all subsidiaries in which we have
the ability to control operating and financial policies and are
consolidated in conformity with GAAP. All significant
intercompany balances and transactions have been eliminated in
consolidation. Affiliated companies (20% to 50% ownership) are
recorded in the statements using the equity method of
accounting. Less than 20%-owned companies are included in the
financial statements at the cost of our investment. Dividends,
royalties and fees from these cost basis affiliates are recorded
in income when received. Certain prior period amounts have been
reclassified to conform to the current year presentation.
Dana and forty of its wholly-owned subsidiaries (collectively,
the Debtors) reorganized under Chapter 11 of the
U.S. Bankruptcy Code from March 3, 2006 (the Filing
Date) through the Effective Date. The financial statements for
periods subsequent to the filing of a Chapter 11 petition
distinguish transactions and events that are directly associated
with the reorganization and related restructuring of our
business from the ongoing operations of the business.
Effective February 1, 2008, we adopted fresh start
accounting. Pursuant to the Plan, all outstanding securities of
Prior Dana were cancelled and new securities were issued. In
addition, fresh start accounting required that our assets and
liabilities be stated at fair value upon our emergence from
Chapter 11.
On January 1, 2009, we reorganized our operating segments
into a new management structure and modified the calculation of
segment earnings before interest, taxes, depreciation and
amortization (Segment EBITDA), our segment measure of
profitability (see Note 19). The Light Axle and Driveshaft
segments were combined into the Light Vehicle Driveline
(LVD) segment with certain operations from these former
segments moving to our Commercial Vehicle and Off-Highway
segments. Prior period amounts have been revised to conform to
the current year’s presentation.
51
Table of Contents
Change in accounting principle
— Our
inventories are valued at the lower of cost or market. On
January 1, 2009, we changed the method of determining the
cost basis of inventories for our U.S. operations from the
last-in-first-out
(LIFO) basis to the
first-in-first-out
(FIFO) basis. See Note 4 for additional information
regarding this change. Our
non-U.S. operations
continue to determine cost using an average or a FIFO cost basis.
Estimates
— Our consolidated financial
statements are prepared in accordance with GAAP, which requires
the use of estimates, judgments and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying disclosures. Some of the more significant
estimates include: valuation of deferred tax assets and
inventories; restructuring, environmental, product liability,
asbestos and warranty accruals; valuation of post-employment and
postretirement benefits; valuation, depreciation and
amortization of long-lived assets; valuation of non-current
notes receivable; valuation of goodwill; and allowances for
doubtful accounts. We believe our assumptions and estimates are
reasonable and appropriate. However, due to the inherent
uncertainties in making estimates, actual results could differ
from those estimates.
Noncontrolling interests
— Effective
January 1, 2009, we adopted the provisions of a new
accounting standard which changed the presentation of
noncontrolling interests in subsidiaries. The format of our
consolidated statement of operations, consolidated balance
sheet, consolidated statement of cash flows and consolidated
statement of stockholders equity and comprehensive income (loss)
have been reclassified to conform to the new presentation which
was required to be applied retrospectively.
Discontinued operations
— We classify a
business component that either has been disposed of or is
classified as held for sale as a discontinued operation if the
cash flow of the component has been or will be eliminated from
our ongoing operations and we will no longer have any
significant continuing involvement in the component. The
results of operations of our discontinued operations through the
date of sale, including any gains or losses on disposition, are
aggregated and presented on two lines in the income statement.
Amounts presented for prior years are reclassified to reflect
their classification as discontinued operations. See
Note 22 for additional information regarding discontinued
operations.
Cash and cash equivalents
— For purposes of
reporting cash flows, we consider highly liquid investments with
maturities of three months or less when purchased to be cash
equivalents. Marketable securities that satisfy the criteria
for cash equivalents are classified accordingly.
The ability to move cash among operating locations is subject to
the operating needs of those locations in addition to locally
imposed restrictions on the transfer of funds in the form of
dividends, cash advances or loans. In addition, we must meet
distributable reserve requirements. Restricted net assets
related to our consolidated subsidiaries, which totaled $170 as
of December 31, 2009, are attributable to our operations in
Venezuela and China which are subject to governmental
limitations on their ability to transfer funds outside each of
those countries. During 2009, 2008 and 2007, the parent company
received dividends of $121, $124 and $76 from consolidated
subsidiaries. Dividends of $2, $10 and less than $1 were
received from less-than-50%-owned affiliates in 2009, 2008 and
2007.
Inventories
— Inventories are valued at the
lower of cost or market. Cost is generally determined on the
average or
first-in-first-out
(FIFO) cost basis. In connection with our adoption of fresh
start accounting on February 1, 2008, inventories were
revalued using the methodology outlined in Note 21 and
increased by $169, including the elimination of the
U.S. last-in-first-out
(LIFO) reserve of $120 which restored our inventory to a FIFO
basis. The remaining valuation increase of $49 was recognized
in cost of sales, as the inventory was sold, negatively
impacting gross margin primarily in the first quarter with a
nominal amount in the second quarter of 2008. On
January 1, 2009, we changed our method of accounting for
inventory in the U.S. from LIFO to FIFO. The consolidated
financial statements include the retroactive application of this
change. See Note 4 for additional information regarding
inventories.
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Property, plant and equipment
— As a result of
our adoption of fresh start accounting on February 1, 2008,
property, plant and equipment was stated at fair value (see
Note 21) with useful lives ranging from two to thirty
years. Useful lives of newly acquired assets are generally
twenty to thirty years for buildings and building improvements,
five to ten years for machinery and equipment, three to five
years for tooling and office equipment and three to ten years
for furniture and fixtures. Depreciation is recognized over the
estimated useful lives using primarily the straight-line method
for financial reporting purposes and accelerated depreciation
methods for federal income tax purposes. Prior to the Effective
Date, property, plant and equipment of Prior Dana was recorded
at cost. If assets are impaired, their value is reduced via an
increase in the depreciation reserve.
Pre-production costs related to long-term supply
arrangements
— The costs of tooling used to make
products sold under long-term supply arrangements are
capitalized as part of property, plant and equipment and
amortized over their useful lives if we own the tooling or if we
fund the purchase but our customer owns the tooling and grants
us the irrevocable right to use the tooling over the contract
period. If we have a contractual right to bill our customers,
costs incurred in connection with the design and development of
tooling are carried as a component of other accounts receivable
until invoiced. Design and development costs related to
customer products are deferred if we have an agreement to
collect such costs from the customer; otherwise, they are
expensed when incurred. At December 31, 2009, the
machinery and equipment component of property, plant and
equipment included $12 of our tooling related to long-term
supply arrangements and less than $1 of our customers’
tooling which we have the irrevocable right to use, while trade
and other accounts receivable included $25 of costs related to
tooling that we have a contractual right to collect from our
customers.
Impairment of long-lived assets
— We review the
carrying value of amortizable long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to the
undiscounted future net cash flows expected to be generated by
the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair values less costs to sell and are no
longer depreciated. See Note 6 for a discussion of
long-lived asset impairment.
Goodwill
— Goodwill recorded at emergence
represented the excess of the reorganization value of Dana over
the fair value of specific tangible and intangible assets. We
test goodwill for impairment at least annually as of October 31
and more frequently if conditions arise that warrant an interim
review. In assessing the recoverability of goodwill, estimates
of fair value are based upon consideration of various valuation
methodologies, including projected future cash flows and
multiples of current earnings. If these estimates or related
projections change in the future, we may be required to record
goodwill impairment charges. See Note 6 for more
information regarding goodwill and a discussion of the
impairment of goodwill in the second and third quarters of 2008.
Intangible assets
— Intangible assets were
recorded at their estimated fair value at emergence and include
the value of core technology, trademarks and trade names and
customer relationships. Customer contracts and developed
technology have finite lives while substantially all of the
trademarks and trade names have indefinite lives.
Definite-lived intangible assets are amortized over their useful
life using the straight-line method of amortization and are
periodically reviewed for impairment indicators.
Indefinite-lived intangible assets are reviewed for impairment
annually or more frequently if impairment indicators exist.
Historically, we carried nominal values for acquired patent and
trademark intangibles at cost. See Note 6 for more
information about intangible assets.
Long-lived assets and liabilities
— In
connection with the application of fresh start accounting, we
discounted our asbestos and worker’s compensation
liabilities and the related amounts recoverable from insurers.
We discounted the projected cash flows using a risk-free rate of
4.0%, which we
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interpolated for the applicable period using U.S. Treasury
rates. Use of a risk free rate was considered appropriate given
that other risks affecting the volume and timing of payments had
been considered in developing the probability-weighted projected
cash flows.
Financial instruments
— The reported fair
values of financial instruments are based on a variety of
factors. Where available, fair values represent quoted market
prices for identical or comparable instruments. Where quoted
market prices are not available, fair values are estimated based
on assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates reflecting varying
degrees of credit risk. Fair values may not represent actual
values of the financial instruments that could be realized as of
the balance sheet date or that will be realized in the future.
The carrying values of cash and cash equivalents, trade
receivables and short-term borrowings approximate fair value.
Foreign currency forward contracts, the interest rate swap
contracts and long-term notes receivable are carried at their
fair values. Borrowings under our credit facilities are carried
at historical cost and adjusted for amortization of premiums or
discounts, foreign currency fluctuations and principal payments.
Derivative financial instruments
— We enter
into forward currency contracts to hedge our exposure to the
effects of currency fluctuations on a portion of our projected
sales and purchase commitments. The changes in the fair value
of these contracts are recorded in cost of sales and are
generally offset by exchange gains or losses on the underlying
exposures. We may also use interest rate swaps to manage
exposure to fluctuations in interest rates and to adjust the mix
of our fixed and floating rate debt. We do not use derivatives
for trading or speculative purposes, and we do not hedge all of
our exposures.
All derivative instruments are recognized on the balance sheet
at fair value. Forward currency contracts have not been
designated as hedges, and the effect of marking these
instruments to market has been recognized in the results of
operations.
Environmental compliance and remediation
—
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that
relate to existing conditions caused by past operations that do
not contribute to our current or future revenue generation are
expensed. Liabilities are recorded when environmental
assessments
and/or
remedial efforts are probable and the costs can be reasonably
estimated. We consider the most probable method of remediation,
current laws and regulations and existing technology in
determining our environmental liabilities.
Pension and other postretirement benefits
— We
sponsor a number of defined benefit pension plans covering
eligible salaried and hourly employees. Benefits are determined
based upon employees’ length of service, wages or a
combination of length of service and wages. Our practice is to
fund these costs through deposits with trustees in amounts that,
at a minimum, satisfy the applicable local funding regulations.
We also provide other postretirement benefits, including medical
and life insurance, for certain eligible employees upon
retirement. Benefits are determined primarily based upon
employees’ length of service and include applicable
employee cost sharing. Our policy is to fund these benefits as
they become due.
Annual net pension and postretirement benefits expenses and the
related liabilities are determined on an actuarial basis. These
plan expenses and obligations are dependent on management’s
assumptions developed in consultation with our actuaries. We
review these actuarial assumptions at least annually and make
modifications when appropriate. With the input of independent
actuaries and other relevant sources, we believe that the
assumptions used are reasonable; however, changes in these
assumptions, or experience different from that assumed, could
impact our financial position, results of operations, or cash
flows. See Note 10 for additional information about these
plans.
Postemployment benefits
— Costs to provide
postemployment benefits to employees are accounted for on an
accrual basis. Obligations that do not accumulate or vest are
recorded when payment of
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the benefits is probable and the amounts can be reasonably
estimated. Our policy is to fund these benefits equal to our
cash basis obligation. Annual net postemployment benefits
expense and the related liabilities are accrued as service is
rendered for those obligations that accumulate or vest and can
be reasonably estimated.
Equity-based compensation
— We measure
compensation cost arising from the grant of share-based awards
to employees at fair value. We recognize such costs in income
over the period during which the requisite service is provided,
usually the vesting period.
Revenue recognition
— Sales are recognized when
products are shipped and risk of loss has transferred to the
customer. We accrue for warranty costs, sales returns and other
allowances based on experience and other relevant factors, when
sales are recognized. Adjustments are made as new information
becomes available. Shipping and handling fees billed to
customers are included in sales, while costs of shipping and
handling are included in cost of sales. We record taxes
collected from customers on a net basis (excluded from revenues).
Supplier agreements with our original equipment manufacturers
(OEM) customers generally provide for fulfillment of the
customers’ purchasing requirements over vehicle program
lives, which generally range from three to ten years. Prices for
product shipped under the programs are established at inception,
with subsequent pricing adjustments mutually agreed through
negotiation. Pricing adjustments are occasionally determined
retroactively based on historical shipments and either paid or
received, as appropriate, in lump sum to effectuate the price
settlement. Proceeds from retroactive price increases are
deferred upon receipt and amortized over the remaining life of
the appropriate program, unless the retroactive price increase
was determined to have been received under contract or legal
provisions, in which case revenue is recognized upon receipt.
Foreign currency translation
— The financial
statements of subsidiaries and equity affiliates outside the
U.S. located in non-highly inflationary economies are
measured using the currency of the primary economic environment
in which they operate as the functional currency, which
typically is the local currency. Transaction gains and losses
resulting from translating assets and liabilities of these
entities into the functional currency are included in other
income, net or in equity earnings. When translating into
U.S. dollars, income and expense items are translated at
average monthly rates of exchange, while assets and liabilities
are translated at the rates of exchange at the balance sheet
date. Translation adjustments resulting from translating the
functional currency into U.S. dollars are deferred and
included as a component of comprehensive loss in
stockholders’ equity. For operations whose functional
currency is the U.S. dollar, non-monetary assets are
translated into U.S. dollars at historical exchange rates
and monetary assets are translated at current exchange rates.
Income taxes
— In the ordinary course of
business there is inherent uncertainty in quantifying our income
tax positions. We assess our income tax positions and record
tax liabilities for all years subject to examination based upon
management’s evaluation of the facts and circumstances and
information available at the reporting dates. For those tax
positions where it is more likely than not that a tax benefit
will be sustained, we have recorded the largest amount of tax
benefit with a greater-than-50% likelihood of being realized
upon ultimate settlement with a taxing authority that has full
knowledge of all relevant information. For those income tax
positions where it is not more likely than not that a tax
benefit will be sustained, no tax benefit has been recognized in
the financial statements. Where applicable, the related
interest cost has also been recognized.
Deferred income taxes are provided for future tax effects
attributable to temporary differences between the recorded
values of assets and liabilities for financial reporting
purposes and the basis of such assets and liabilities as
measured by tax laws and regulations. Deferred income taxes are
also provided for net operating losses (NOLs), tax credit and
other carryforwards. Amounts are stated at enacted tax rates
expected to be in effect when taxes are actually paid or
recovered. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in the results of operations
in the period that includes the enactment date.
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In each reporting period, we assess whether it is more likely
than not that we will generate sufficient future taxable income
to realize our deferred tax assets. This assessment requires
significant judgment and, in making this evaluation, we consider
all available positive and negative evidence. Such evidence
includes trends and expectations for future U.S. and
non-U.S. pre-tax
operating income, our historical earnings and losses, the time
period over which our temporary differences and carryforwards
will reverse and the implementation of feasible and prudent tax
planning strategies. While the assumptions require significant
judgment, they are consistent with the plans and estimates we
are using to manage the underlying business.
We provide a valuation allowance against our net deferred tax
assets if, based upon available evidence, we determine that it
is more likely than not that some portion or all of the recorded
net deferred tax assets will not be realized in future periods.
Creating a valuation allowance serves to increase income tax
expense during the reporting period. Once created, a valuation
allowance against net deferred tax assets is maintained until
realization of the deferred tax asset is judged more likely than
not to occur. Reducing a valuation allowance against net
deferred tax assets serves to reduce income tax expense in the
reporting period of change unless the reduction occurs due to
the expiration of the underlying loss or tax credit carryforward
period. See Note 17 for an explanation of the valuation
allowance adjustments made for our net deferred tax assets and
additional information on income taxes.
Earnings per share
— Basic earnings per share
is computed by dividing earnings available to common
stockholders by the weighted-average number of common shares
outstanding during the period. Prior Dana shares were cancelled
at emergence and shares in Dana were issued. Therefore the
earnings per share information for Dana is not comparable to
Prior Dana earnings per share. See Note 8 for details of
the shares outstanding.
Subsequent Events
— Companies are required to
recognize in the financial statements the effects of subsequent
events that provide additional evidence about conditions that
existed at the date of the balance sheet including the estimates
inherent in the process of preparing financial statements.
Subsequent events that provide evidence about conditions that
did not exist at the balance sheet date but arose before the
financial statements are issued are required to be disclosed if
significant. We have properly considered subsequent events
through February 24, 2010, the date of this
Form 10-K
filing and the date of issuance of the financial statements.
Recent Accounting
Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB)
issued guidance regarding accounting for transfers of financial
assets. The guidance seeks to improve the relevance and
comparability of the information that a reporting entity
provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial
position, financial performance and cash flows; and a
transferor’s continuing involvement, if any, in transferred
financial assets. The guidance eliminates the concept of a
qualifying special-purpose entity, creates more stringent
conditions for reporting a transfer of a portion of a financial
asset as a sale, clarifies other sale-accounting criteria and
changes the initial measurement of a transferor’s interest
in transferred financial assets. The guidance is effective
January 1, 2010. The adoption of this guidance is not
expected to have a significant impact on our consolidated
financial statements.
In June 2009, the FASB issued additional guidance related to
Variable Interest Entities (VIEs) and the determination of
whether an entity is a VIE. Companies are required to perform
an analysis to determine whether the enterprise’s variable
interest or interests give it a controlling financial interest
in a VIE. The guidance requires ongoing assessments of whether
an enterprise is the primary beneficiary of a VIE, requires
enhanced disclosures and eliminates the scope exclusion for
qualifying special-purpose entities. The guidance is effective
January 1, 2010. The adoption of this guidance is not
expected to have a significant impact on our consolidated
financial statements.
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| Note 2. | Divestitures and Acquisitions |
Acquisitions
— In June 2007, our subsidiary
Dana Mauritius Limited (Dana Mauritius) purchased 4% of the
registered capital of Dongfeng Dana Axle Co., Ltd. (Dongfeng
Axle, a commercial vehicle axle manufacturer in China formerly
known as Dongfeng Axle Co., Ltd.) from Dongfeng Motor Co., Ltd.
(Dongfeng Motor) and certain of its affiliates for $5. Dana
Mauritius has agreed, subject to certain conditions, to purchase
an additional 46% equity interest in Dongfeng Dana Axle Co.,
Ltd. by June 2010. Under the agreement, our additional interest
is based on a valuation of the business which would result in an
additional investment of $54 to $77. The actual investment
could vary significantly from this range in the event that the
parties mutually agree that the operating results and prospects
of the venture at the expected closing date of June 30,
2010 support a higher or lower valuation of the business.
Structural Products business
— In December
2009, we entered into an agreement with Metalsa S.A. de C.V.
(Metalsa) to sell substantially all of our Structural Products
business to Metalsa. We had previously evaluated a number of
strategic options in our non-driveline light vehicle businesses
and had concluded that this product line was not strategic to
our core driveline business. Dana will retain a facility of
this business in Longview, Texas and will continue to produce
products for a large customer at this facility. Accordingly, we
have not reported the Structures segment as discontinued
operations. The parties expect to complete the sale of all but
the Venezuelan operations in March 2010, with Venezuela being
completed as soon as the necessary governmental approvals are
obtained.
As a result of this agreement we recorded $150 as an impairment
of the intangible and long-lived assets in December 2009 and we
recorded strategic transaction expenses of $11 associated with
the sale in other income, net. The impairment loss was based on
expected proceeds of $150 less projected working capital
adjustments. Under the terms of our amended Term Facility, we
will be required to utilize the proceeds of the sale to pay down
our Term Facility debt.
The assets to be sold in this transaction are reported as assets
held for sale in our consolidated balance sheet and consist of
the following:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Assets
|
||||||||
|
Accounts receivable
|
$ | 62 | $ | 69 | ||||
|
Inventories
|
34 | 46 | ||||||
|
Other current assets
|
3 | 6 | ||||||
|
Current assets held for sale
|
$ | 99 | $ | 121 | ||||
|
Intangibles
|
16 | 54 | ||||||
|
Investments and other assets
|
6 | 7 | ||||||
|
Investments in affiliates
|
17 | 16 | ||||||
|
Property, plant and equipment, net
|
65 | 205 | ||||||
|
Non-current assets held for sale
|
$ | 104 | $ | 282 | ||||
|
Liabilities
|
||||||||
|
Accounts payable
|
$ | 54 | $ | 65 | ||||
|
Accrued payroll
|
7 | 8 | ||||||
|
Other accrued liabilities
|
18 | 16 | ||||||
|
Current liabilities held for sale
|
$ | 79 | $ | 89 | ||||
Assets held for sale are included in their respective
classifications in the detailed explanations of supplemental
balance sheet information in Note 5. In the consolidated
statement of cash flows, the
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cash flows related to assets held for sale have been reported in
the respective categories of cash flows, along with those of our
continuing operations.
Divestitures
— In January 2007, we sold our
trailer axle business manufacturing assets for $28 in cash and
recorded an after-tax gain of $14. This business did
not meet the requirements for treatment as a discontinued
operation and its results prior to divestiture were included in
continuing operations. See Note 22 for a
discussion of the results of discontinued operations.
In March 2007, we sold our 30% equity interest in GETRAG
Getriebe-und Zahnradfabrik Hermann Hagenmeyer GmbH &
Cie KG (GETRAG) to our joint venture partner, an affiliate of
GETRAG, for $207 in cash. An impairment charge of $58
had been recorded in the fourth quarter of 2006 to adjust this
equity investment to fair value and an additional charge of $2
after tax was recorded in the first quarter of 2007 based on the
value of the investment at closing.
In August 2007, we executed an agreement relating to our two
remaining joint ventures with GETRAG. This agreement
included the grant of a call option for GETRAG to acquire our
interests in these joint ventures for $75 and our payment of
GETRAG claims of $11 under certain conditions. We
recorded the $11 claim in liabilities subject to compromise and
as an expense in other income, net in the second quarter of
2007. In September 2008, we amended our agreement
with GETRAG and reduced the call option purchase price to $60,
extended the call option exercise period to September 2009 and
eliminated the $11 liability. As a result of the
reduced call price, we recorded an asset impairment charge of
$15 in the third quarter of 2008 in equity in earnings of
affiliates. We are now recognizing the equity in
earnings of GETRAG beginning with the expiration of the call in
September 2009.
| Note 3. | Restructuring of Operations |
Restructuring of our manufacturing operations was an essential
component of our Chapter 11 reorganization plans and
remains a primary focus of management. We continue to
eliminate excess capacity by closing and consolidating
facilities and repositioning operations in lower cost facilities
or those with excess capacity and focusing on reducing and
realigning overhead costs. Restructuring expense
includes costs associated with current and previously announced
actions including various workforce reduction programs,
manufacturing footprint optimization actions and other
restructuring activities across our global businesses.
During 2007, we completed the closure of fifteen
facilities. Included in 2007 restructuring charges is
$69 relating primarily to the ongoing facility closure
activities associated with previously announced manufacturing
footprint actions and other restructuring or downsizing
actions. The remaining $136 represents pension
curtailment and settlement costs associated with our
restructured U.K. operations (see Note 10).
In response to increased economic and market challenges during
2008, particularly lower production volumes, we initiated
additional cost reduction actions, resulting in a reduction of
our global workforce by approximately 6,000 employees,
including approximately 5,000 in North
America. During 2008, we recorded a total of $73 of
severance and other related benefit costs and $53 of long-lived
asset impairment and exit costs associated with the 2008 actions
described below, as well as with other previously announced
actions.
Significant 2008 actions included the closure of certain
manufacturing facilities, including our Barrie, Ontario facility
in our Commercial Vehicle business as well as our Magog, Quebec
facility and our Venezuelan foundry operation in our LVD
business. Restructuring expense in 2008 included
severance and other costs associated with the termination of
employees at these facilities, costs incurred to transfer
certain manufacturing operations to Mexico, and accelerated
depreciation of certain manufacturing equipment.
In the third quarter of 2008, we entered into an agreement to
sell our corporate headquarters. The book value in
excess of sale proceeds was recognized as accelerated
depreciation and recorded as
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restructuring expense from the date we entered the agreement
through the closing of the agreement in February
2009. Under the terms of the agreement, we received
proceeds of $11. Due to the conditions under which we
continued to occupy the facility, we deferred the recognition of
the sale until June 2009.
During the fourth quarter of 2008, we also offered a voluntary
separation program to our salaried workforce, predominantly in
the U.S. and Canada and incurred costs of $17 associated
with approximately 275 employees who accepted this offer
and terminated employment during the fourth quarter of
2008. Certain other employees in North America
accepted the offer of voluntary separation but the separation
was deferred until a specified date in the first quarter of
2009. An additional charge of $10 for severance and
related benefit costs for approximately 125 additional employees
was incurred during the first quarter of 2009.
The adverse economic conditions first experienced in 2008
continued into 2009, prompting further cost reduction
actions. We reduced our headcount during 2009 from
29,000 at the end of 2008 to 24,000 at the end of
2009. Workforce reductions and other actions in 2009
resulted in a net charge of $83 for severance and other related
benefit costs. Our 2009 cost reduction actions
included the announced closures of the Mississauga, Ontario
facility in our Thermal business; the Brantford, Ontario and
Orangeburg, South Carolina facilities in our LVD business; the
McKenzie, Tennessee and Calatayud, Spain facilities in our
Sealing business and the Beamsville, Ontario and Glasgow,
Kentucky facilities supporting our Commercial Vehicle
business. In January 2010, we announced our plans to
consolidate our Heavy Vehicle operations which will result in
the closing of the Kalamazoo, Michigan and Statesville, North
Carolina facilities. Certain costs associated with
this consolidation were accrued in 2009.
Restructuring charges during 2009 also included $35 of
long-lived asset impairments and exit costs incurred for
transfers of production activities among facilities and
previously announced facility closures.
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The following tables show the restructuring charges and related
payments and adjustments, including the amounts accrued in
January 2008 under fresh start accounting but exclusive of the
U.K. pension charges discussed above, recorded in our
continuing operations during 2009, 2008 and 2007.
|
Employee
|
Long-Lived
|
|||||||||||||||
|
Termination
|
Asset
|
Exit
|
||||||||||||||
| Benefits | Impairment | Costs | Total | |||||||||||||
|
Balance at December 31, 2006
|
$ | 64 | $ | — | $ | 10 | $ | 74 | ||||||||
|
Activity during the year:
|
||||||||||||||||
|
Charged to restructuring
|
33 | 18 | 50 | 101 | ||||||||||||
|
Adjustments of accruals
|
(29 | ) | (3 | ) | (32 | ) | ||||||||||
|
Non-cash write-off
|
(18 | ) | (18 | ) | ||||||||||||
|
Cash payments
|
(15 | ) | (42 | ) | (57 | ) | ||||||||||
|
Balance at December 31, 2007
|
53 | 15 | 68 | |||||||||||||
|
Activity during the period:
|
||||||||||||||||
|
Charged to restructuring
|
7 | 2 | 3 | 12 | ||||||||||||
|
Fresh start adjustment
|
32 | 32 | ||||||||||||||
|
Non-cash write-off
|
(2 | ) | (2 | ) | ||||||||||||
|
Cash payments
|
(2 | ) | (3 | ) | (5 | ) | ||||||||||
|
Balance at January 31, 2008
|
58 | 47 | 105 | |||||||||||||
|
Activity during the period:
|
||||||||||||||||
|
Charged to restructuring
|
77 | 14 | 34 | 125 | ||||||||||||
|
Adjustments of accruals
|
(11 | ) | (11 | ) | ||||||||||||
|
Non-cash write-off
|
(14 | ) | (14 | ) | ||||||||||||
|
Cash payments
|
(62 | ) | (66 | ) | (128 | ) | ||||||||||
|
Currency impact
|
(7 | ) | (5 | ) | (12 | ) | ||||||||||
|
Balance at December 31, 2008
|
55 | 10 | 65 | |||||||||||||
|
Activity during the year:
|
||||||||||||||||
|
Charged to restructuring
|
91 | 18 | 23 | 132 | ||||||||||||
|
Adjustments of accruals
|
(8 | ) | (6 | ) | (14 | ) | ||||||||||
|
Non-cash write-off
|
(18 | ) | (18 | ) | ||||||||||||
|
Cash payments
|
(114 | ) | (24 | ) | (138 | ) | ||||||||||
|
Currency impact
|
2 | 2 | ||||||||||||||
|
Balance at December 31, 2009
|
$ | 26 | $ | — | $ | 3 | $ | 29 | ||||||||
At December 31, 2009, $29 of restructuring accruals
remained in accrued liabilities, including $26 related to
continuing benefits and the reduction of approximately
1,000 employees to be completed over the next two years and
$3 for lease continuation and other exit costs. The
estimated cash expenditures related to these liabilities are
projected to approximate $26 in 2010 and $3
thereafter. In addition to the $29 accrued at
December 31, 2009, we estimate that another $58 will be
expensed in the future to complete previously announced
initiatives.
60
Table of Contents
The following table provides
project-to-date
and estimated future expenses for completion of our pending
restructuring initiatives for our business segments.
| Expense Recognized |
Future
|
|||||||||||||||
|
Prior to
|
Total
|
Cost to
|
||||||||||||||
| 2009 | 2009 | to Date | Complete | |||||||||||||
|
LVD
|
$ | 77 | $ | 36 | $ | 113 | $ | 16 | ||||||||
|
Structures
|
37 | 7 | 44 | 3 | ||||||||||||
|
Sealing
|
3 | 17 | 20 | 2 | ||||||||||||
|
Thermal
|
8 | 8 | 1 | |||||||||||||
|
Off-Highway
|
3 | 4 | 7 | 4 | ||||||||||||
|
Commercial Vehicle
|
42 | 34 | 76 | 32 | ||||||||||||
|
Other
|
17 | 12 | 29 | |||||||||||||
|
Total continuing operations
|
$ | 179 | $ | 118 | $ | 297 | $ | 58 | ||||||||
The remaining cost to complete includes estimated noncontractual
separation payments, lease continuation costs, equipment
transfers and other costs which are required to be recognized as
closures are finalized or as incurred during the closure.
| Note 4. | Inventories |
The components of inventory at December 31 are as follows:
| 2009 | 2008 | |||||||
|
Raw materials
|
$ | 300 | $ | 408 | ||||
|
Work in process and finished goods
|
342 | 507 | ||||||
|
Less: assets held for sale
|
(34 | ) | (46 | ) | ||||
|
Total
|
$ | 608 | $ | 869 | ||||
Our inventory was revalued at emergence from Chapter 11 on
January 31, 2008 as described in Note 21 and that
valuation became the new book basis for accounting
purposes. On January 1, 2009, we changed the
method of determining the cost of inventories for our
U.S. operations from the LIFO basis to the FIFO
basis. Our
non-U.S. operations
continue to determine cost using the average or FIFO cost
method. We believe the change is preferable as the
FIFO method discloses the current value of inventories on the
consolidated balance sheet, provides greater uniformity across
our operations and enhances our comparability with peers.
We applied the change in accounting method by adjusting the 2008
financial statements for the periods subsequent to our emergence
from Chapter 11 on January 31, 2008. As a
result of applying fresh start accounting, inventory values at
January 31, 2008 had been adjusted to their acquired value
which resulted in the LIFO basis equaling the FIFO basis at that
date. At December 31, 2008, our FIFO basis
exceeded our LIFO basis by $14. The change in
accounting from the LIFO to FIFO method for 2008 was recorded as
a reduction to cost of sales, resulting in a $14 benefit to
operating income from continuing operations for the eleven
months ended December 31, 2008. A charge to cost
of sales of $34 to amortize the valuation
step-up
recorded at January 31, 2008 in connection with fresh start
accounting was offset by a $48 reversal of the LIFO provision
that had been recorded in that eleven-month
period. There is no net effect on income tax expense
due to the valuation allowances on U.S. deferred tax assets.
The impacts of this change in costing on the consolidated
statement of operations for the year ended December 31,
2009 and the eleven months ended December 31, 2008 are
shown in the table below. We have estimated the 2009
pro forma impact of LIFO using quarterly standard cost
61
Table of Contents
information and our year-end pro forma index calculation due to
reduced costs in 2009. On a pro forma basis, the LIFO
reserve would have been a debit balance of $1 at the end of 2009.
| 2009 | 2008 | |||||||||||||||||||||||
|
Difference
|
As Reported
|
As Reported
|
Adjustments
|
As Adjusted
|
||||||||||||||||||||
|
Year
|
Between
|
Year
|
Eleven Months
|
to Change
|
Eleven Months
|
|||||||||||||||||||
|
Ended
|
LIFO
|
Ended
|
Ended
|
from
|
Ended
|
|||||||||||||||||||
|
December 31,
|
and
|
December 31,
|
December 31,
|
LIFO
|
December 31,
|
|||||||||||||||||||
| 2009 (LIFO) | FIFO | 2009 (FIFO) | 2008 (LIFO) | to FIFO | 2008 (FIFO) | |||||||||||||||||||
|
Cost of sales
|
$ | 4,970 | $ | 15 | $ | 4,985 | $ | 7,127 | $ | (14 | ) | $ | 7,113 | |||||||||||
|
Income (loss) from continuing operations before interest,
reorganization items
and income taxes |
(302 | ) | (15 | ) | (317 | ) | (396 | ) | 14 | (382 | ) | |||||||||||||
|
Income (loss) from continuing operations before
income taxes |
(439 | ) | (15 | ) | (454 | ) | (563 | ) | 14 | (549 | ) | |||||||||||||
|
Income (loss) from
continuing operations |
(421 | ) | (15 | ) | (436 | ) | (681 | ) | 14 | (667 | ) | |||||||||||||
|
Net income (loss)
|
(421 | ) | (15 | ) | (436 | ) | (685 | ) | 14 | (671 | ) | |||||||||||||
|
Net income (loss) attributable
to the parent company |
(416 | ) | (15 | ) | (431 | ) | (691 | ) | 14 | (677 | ) | |||||||||||||
|
Net income (loss) available to common stockholders
|
(448 | ) | (15 | ) | (463 | ) | (720 | ) | 14 | (706 | ) | |||||||||||||
|
Income (loss) per share from continuing operations
attributable to parent company stockholders: |
||||||||||||||||||||||||
|
Basic
|
$ | (4.05 | ) | $ | (0.14 | ) | $ | (4.19 | ) | $ | (7.16 | ) | $ | 0.14 | $ | (7.02 | ) | |||||||
|
Diluted
|
$ | (4.05 | ) | $ | (0.14 | ) | $ | (4.19 | ) | $ | (7.16 | ) | $ | 0.14 | $ | (7.02 | ) | |||||||
|
Net income (loss) per share attributable to parent
company stockholders: |
||||||||||||||||||||||||
|
Basic
|
$ | (4.05 | ) | $ | (0.14 | ) | $ | (4.19 | ) | $ | (7.20 | ) | $ | 0.14 | $ | (7.06 | ) | |||||||
|
Diluted
|
$ | (4.05 | ) | $ | (0.14 | ) | $ | (4.19 | ) | $ | (7.20 | ) | $ | 0.14 | $ | (7.06 | ) | |||||||
Note: The “as reported” amounts for 2008 are presented
after giving effect to the adjustments made to modify the
reporting of noncontrolling interests.
The impacts of this change on reported balances at
December 31, 2009 and 2008 are as follows:
| 2009 | 2008 | |||||||||||||||||||||||
|
Difference
|
Adjustments
|
|||||||||||||||||||||||
|
Between
|
As Reported
|
As Reported
|
to Change
|
As Adjusted
|
||||||||||||||||||||
|
December 31,
|
LIFO and
|
December 31,
|
December 31,
|
from LIFO
|
December 31,
|
|||||||||||||||||||
| 2009 (LIFO) | FIFO | 2009 (FIFO) | 2008 (LIFO) | to FIFO | 2008 (FIFO) | |||||||||||||||||||
|
Inventories
|
$ | 609 | $ | (1 | ) | $ | 608 | $ | 855 | $ | 14 | $ | 869 | |||||||||||
|
Total current assets
|
2,583 | (1 | ) | 2,582 | 2,733 | 14 | 2,747 | |||||||||||||||||
|
Total assets
|
5,065 | (1 | ) | 5,064 | 5,593 | 14 | 5,607 | |||||||||||||||||
|
Accumulated deficit
|
(1,168 | ) | (1 | ) | (1,169 | ) | (720 | ) | 14 | (706 | ) | |||||||||||||
|
Total Dana stockholders’ equity
|
1,680 | (1 | ) | 1,679 | 2,014 | 14 | 2,028 | |||||||||||||||||
|
Total equity
|
1,780 | (1 | ) | 1,779 | 2,121 | 14 | 2,135 | |||||||||||||||||
|
Total liabilities and equity
|
5,065 | (1 | ) | 5,064 | 5,593 | 14 | 5,607 | |||||||||||||||||
Note: The “as reported” amounts for 2008 are presented
after giving effect to the adjustments made to modify the
reporting of noncontrolling interests.
62
Table of Contents
The impacts of this change on operating cash flow for the year
ended December 31, 2009 and eleven months ended
December 31, 2008 are as follows:
| 2009 | 2008 | |||||||||||||||||||||||
|
Adjustments
|
As Reported
|
As Reported
|
Adjustments
|
As Adjusted
|
||||||||||||||||||||
|
Year
|
to Change
|
Year
|
Eleven Months
|
to Change
|
Eleven Months
|
|||||||||||||||||||
|
Ended
|
from
|
Ended
|
Ended
|
from
|
Ended
|
|||||||||||||||||||
|
December 31,
|
LIFO
|
December 31,
|
December 31,
|
LIFO
|
December 31,
|
|||||||||||||||||||
| 2009 (LIFO) | to FIFO | 2009 (FIFO) | 2008 (LIFO) | to FIFO | 2008 (FIFO) | |||||||||||||||||||
|
Net income (loss)
|
$ | (421 | ) | $ | (15 | ) | $ | (436 | ) | $ | (685 | ) | $ | 14 | $ | (671 | ) | |||||||
|
Amortization of
inventory valuation |
15 | 34 | 49 | |||||||||||||||||||||
|
Change in inventory
|
284 | 15 | 299 | 42 | (48 | ) | (6 | ) | ||||||||||||||||
Note: The “as reported” amounts for 2008 are presented
after giving effect to the adjustments made to modify the
reporting of noncontrolling interests.
During the third quarter of 2009, we reduced inventory and
charged cost of sales for $6 to correct an overstatement of
inventory related to full absorption costing that arose in 2008.
The $6 charge is not included in segment EBITDA, as full
absorption adjustments are recorded at the corporate level. This
adjustment was not considered material to the current period or
the prior periods to which it related.
| Note 5. | Supplemental Balance Sheet and Cash Flow Information |
The following items comprise the amounts indicated in the
respective balance sheet captions at December 31:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Other current assets
|
||||||||
|
Prepaid expense
|
$ | 37 | $ | 53 | ||||
|
Deferred tax benefits, net
|
13 | |||||||
|
Other
|
12 | 5 | ||||||
|
Less: assets held for sale
|
(3 | ) | (6 | ) | ||||
|
Total
|
$ | 59 | $ | 52 | ||||
|
Investments and other assets
|
||||||||
|
Pension assets, net of related obligations
|
$ | 9 | $ | 23 | ||||
|
Amounts recoverable from insurers
|
54 | 57 | ||||||
|
Deferred financing costs
|
37 | 55 | ||||||
|
Notes receivable
|
94 | 21 | ||||||
|
Non-current prepaids
|
9 | 7 | ||||||
|
Investment in leveraged leases
|
4 | 6 | ||||||
|
Other
|
32 | 38 | ||||||
|
Less: assets held for sale
|
(6 | ) | (7 | ) | ||||
|
Total
|
$ | 233 | $ | 200 | ||||
63
Table of Contents
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Property, plant and equipment, net
|
||||||||
|
Land and improvements to land
|
$ | 284 | $ | 263 | ||||
|
Buildings and building fixtures
|
439 | 439 | ||||||
|
Machinery and equipment
|
1,608 | 1,431 | ||||||
|
Total cost
|
2,331 | 2,133 | ||||||
|
Less: accumulated depreciation
|
(661 | ) | (292 | ) | ||||
|
Less: accumulated impairment
|
(121 | ) | ||||||
|
Less: assets held for sale, net
|
(65 | ) | (205 | ) | ||||
|
Net
|
$ | 1,484 | $ | 1,636 | ||||
|
Other accrued liabilities (current)
|
||||||||
|
Warranty reserves, current portion
|
$ | 56 | $ | 65 | ||||
|
Non-income taxes payable
|
46 | 25 | ||||||
|
Dividends payable
|
43 | 11 | ||||||
|
Deferred income
|
25 | 11 | ||||||
|
Environmental
|
8 | 8 | ||||||
|
Workers compensation obligations
|
16 | 23 | ||||||
|
Asbestos personal injury liability
|
13 | 19 | ||||||
|
Accrued interest
|
11 | 14 | ||||||
|
Accrued legal fees
|
10 | 8 | ||||||
|
Payable under forward contracts
|
4 | 6 | ||||||
|
Accrued professional fees
|
4 | 3 | ||||||
|
Other expense accruals
|
52 | 81 | ||||||
|
Less: liabilities held for sale
|
(18 | ) | (16 | ) | ||||
|
Total
|
$ | 270 | $ | 258 | ||||
|
Deferred employee benefits and other non-current
liabilities
|
||||||||
|
Pension obligations, net of related assets
|
$ | 643 | $ | 352 | ||||
|
Postretirement obligations other than pension
|
117 | 94 | ||||||
|
Deferred income tax liability
|
111 | 100 | ||||||
|
Asbestos personal injury liability
|
100 | 105 | ||||||
|
Non-current income tax liability
|
68 | 71 | ||||||
|
Workers compensation obligations
|
39 | 39 | ||||||
|
Warranty reserves
|
27 | 35 | ||||||
|
Other non-current liabilities
|
55 | 49 | ||||||
|
Total
|
$ | 1,160 | $ | 845 | ||||
64
Table of Contents
Supplemental cash
flow information —
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
Cash paid during the period for:
|
|||||||||||||||||
|
Interest
|
$ | 99 | $ | 94 | $ | 11 | $ | 51 | |||||||||
|
Income taxes
|
$ | 27 | $ | 89 | $ | 2 | $ | 106 | |||||||||
|
Non-cash financing activities:
|
|||||||||||||||||
|
Dividends on preferred stock
accrued not paid |
$ | 42 | $ | 11 | $ | — | $ | — | |||||||||
|
Per share
|
$ | 0.38 | $ | 0.11 | $ | — | $ | — | |||||||||
| Note 6. | Goodwill, Other Intangible Assets and Long-lived Assets |
Goodwill —
We test goodwill for impairment on
an annual basis unless conditions arise that warrant an interim
review. The annual impairment tests are performed as
of October 31. In assessing the recoverability
of goodwill, estimates of fair value are based upon
consideration of various valuation methodologies, including
projected future cash flows and multiples of current
earnings. If these estimates or related projections
change in the future, we may be required to record goodwill
impairment charges.
During the second quarter of 2009, our assessment of the effects
of the pace of the market recovery on our forecast for the
remainder of the year and for future periods led us to conclude
that the related reduction in cash flows projected for those
periods comprised a triggering event. As a result, we
evaluated our Off-Highway goodwill and indefinite-lived
intangible assets of all of our segments to test for impairment
using the fair value methodology described in
Note 21. For the Off-Highway goodwill evaluation
we used the average of a discounted cash flow (DCF) valuation
and comparable company multiple valuation. We
utilized a discount rate of 12.9% for the DCF analysis and an
EBITDA multiple of 7.7 based on comparable companies in similar
markets. The updated fair value of the Off-Highway
segment supported the carrying value of the net assets of this
business at June 30, 2009 and, accordingly, no impairment
charge was recorded in the second quarter of 2009.
Our annual assessment of the Off-Highway goodwill was completed
as of October 31, 2009. For this valuation, we
utilized cash projections based on our current three-year
projections. The projections included estimates of
changes in production levels, operational efficiencies resulting
from our reorganization initiatives, assumptions of commodity
costs and assumptions regarding pricing
improvements. We utilized a discount rate of 13.3%
for the DCF analysis and an EBITDA multiple of 10.9 based on
comparable companies in similar markets. This
multiple increased from the second quarter analysis due to the
stock market recovery in our industry sector. The
final valuation was an average of the two
methodologies. Our assessment supported the remaining
amount of goodwill carried by this segment. However,
market conditions or operational execution impacting any of the
key assumptions underlying our estimated cash flows could result
in future goodwill impairment.
During 2008, we determined that the decline in sales volume and
deterioration of margins resulting from higher steel costs in
our driveshaft business, along with the related impact on
projected cash flows, constituted a triggering event in that
reporting unit. As a result, the corresponding
goodwill was tested for impairment in the second quarter of
2008. For the June 30, 2008 valuation, we
utilized cash projections based on our five-year
projections. The projections included estimates of
changes in production levels, operational efficiencies resulting
from our reorganization initiatives, assumptions of commodity
costs and assumptions regarding pricing
improvements. We utilized a discount rate of 10.3%
for the DCF analysis and an EBITDA multiple of 4.8 based on
comparable companies in similar markets. The final
valuation was an average of the two
methodologies. The updated fair value of the
reporting unit did not support the full amount of the recorded
goodwill at June 30 and, accordingly, our
65
Table of Contents
results of operations for the second quarter of 2008 included a
goodwill impairment charge of $75 to reduce the goodwill
recorded in the driveshaft reporting unit.
Fuel and steel costs began to fall in the latter half of the
third quarter of 2008, but declines in consumer confidence and
economic conditions in general triggered a tightening of credit,
causing sales in all of our markets to decline further and the
forecast for our driveshaft reporting unit to be revised
again. As a result of this triggering event, the
goodwill in our driveshaft reporting unit was tested for
impairment at the end of the third quarter. For the
September 30, 2008 valuation, we utilized cash projections
based on updated five-year projections. The
projections included estimates of changes in production levels,
operational efficiencies resulting from our reorganization
initiatives, revised assumptions of commodity costs and updated
assumptions regarding pricing improvements. We
utilized a discount rate of 10.6% for the DCF analysis and an
EBITDA multiple of 3.7 based on comparable companies in similar
markets. The final valuation was an average of the
two methodologies. The updated fair value of the
driveshaft reporting unit did not support any goodwill at
September 30, 2008 and, accordingly, we recorded an
impairment charge of $105 in the third quarter of 2008 to
eliminate the remaining goodwill in the driveshaft reporting
unit.
Under the segment structure in place in 2008, the driveshaft
reporting unit comprised the Driveshaft reporting
segment. As part of the modification of our reporting
segment structure in the first quarter of 2009, we have
allocated the goodwill associated with the former Driveshaft
segment to the LVD (34%) and Commercial Vehicle (66%) segments
based on the relative fair values of the underlying
operations. The impairment charges identified herein
have been allocated to those segments; however, impairment
charges are excluded from segment EBITDA as defined in
Note 19.
We evaluated goodwill as of October 31, 2008 and no
impairment was indicated. Based on market conditions
in the Off-Highway segment that had deteriorated in the fourth
quarter and resulted in a decline in our projections, we updated
the valuation of the goodwill for this segment as of
December 31, 2008. We utilized a discount rate
of 14.6% for the DCF analysis and an EBITDA multiple of 4.4
based on comparable companies in similar markets. The
final valuation was an average of the two
methodologies. Our assessment as of December 31,
2008 continued to support the remaining amount of goodwill
carried by this segment.
Changes in goodwill during 2008 by segment were as follows:
DANA HOLDING
CORPORATION
Goodwill
Walkforward
|
Commercial
|
Off-
|
|||||||||||||||||||||||
|
2008
|
LVD | Sealing | Thermal | Vehicle | Highway | Total | ||||||||||||||||||
|
Beginning balance
|
||||||||||||||||||||||||
|
Goodwill
|
$ | 59 | $ | 26 | $ | 120 | $ | 114 | $ | 119 | $ | 438 | ||||||||||||
|
Impairment
|
(89 | ) | (89 | ) | ||||||||||||||||||||
|
Goodwill, net
|
59 | 26 | 31 | 114 | 119 | 349 | ||||||||||||||||||
|
Adjustments to goodwill
|
||||||||||||||||||||||||
|
Fresh start
|
1 | (26 | ) | (120 | ) | 1 | 5 | (139 | ) | |||||||||||||||
|
Currency and other
|
(3 | ) | (3 | ) | (16 | ) | (22 | ) | ||||||||||||||||
| (2 | ) | (26 | ) | (120 | ) | (2 | ) | (11 | ) | (161 | ) | |||||||||||||
|
Adjustments to impairment
|
||||||||||||||||||||||||
|
Fresh start
|
89 | 89 | ||||||||||||||||||||||
|
Goodwill impairment
|
(57 | ) | (112 | ) | (169 | ) | ||||||||||||||||||
| (57 | ) | 89 | (112 | ) | (80 | ) | ||||||||||||||||||
|
Ending balance
|
||||||||||||||||||||||||
|
Goodwill
|
57 | 112 | 108 | 277 | ||||||||||||||||||||
|
Accumulated impairment
|
(57 | ) | (112 | ) | (169 | ) | ||||||||||||||||||
|
Goodwill, net
|
$ | — | $ | — | $ | — | $ | — | $ | 108 | $ | 108 | ||||||||||||
66
Table of Contents
In 2009, the goodwill balance of $108 in the Off-Highway segment
increased to $111 as a result of foreign exchange translation.
Goodwill of $173 was reported in our former Driveshaft segment
at the end of 2007. The amount was increased to $175
as part of fresh start accounting. In the eleven
months ended December 31, 2008 this goodwill was fully
impaired. The related impairment charge was reduced
by $13 as a result of pre-emergence income tax adjustments that
effectively reduced the amount of goodwill. An
additional $9 of the pre-emergence tax adjustments reduced
Off-Highway goodwill in 2008.
Other intangible assets —
Intangible assets
include core technology, trademarks and trade names and customer
relationships. Core technology includes the
proprietary know-how and expertise that is inherent in our
products and manufacturing processes. Trademarks and
trade names include our trade names related to product lines and
the related trademarks including
Dana
®
,
Spicer
®
,
Victor-Reinz
®
and
Long
®
. Customer
relationships include the established relationships with our
customers and the related ability of these customers to continue
to generate future recurring revenue and income.
Due to the second-quarter 2009 assessment of our forecasted
results noted above, we performed impairment testing on our
indefinite-lived intangible assets as of June 30, 2009 and
determined that the fair value of trademarks and trade names had
declined below the carrying value. These valuations
resulted in impairments of $4 and $2 in our Commercial Vehicle
and Off-Highway segments in the second quarter of 2009 which we
reported as impairment of intangible assets. We
utilized an income approach, the relief from royalty method, to
determine the fair value of our trademarks and trade
names. See Note 13 for the fair value of
trademarks and trade names.
We completed the annual assessment of our indefinite-lived
intangible assets as of October 31, 2009. We
used the fair value methodology as described in
Note 21. Our assessment supported the carrying
amounts of the intangible assets at that time.
In connection with the anticipated divestiture of substantially
all of the assets of our Structural Products business, as
discussed above, we assessed the recoverability of our
definite-lived intangible assets in the Structures
segment. Based on the expected selling price of the
related assets, we recorded an impairment of $29 to impair the
segment’s intangible assets.
During 2008, due to the triggering economic events in our former
Driveshaft segment noted above, we performed impairment testing
on this segment’s
non-amortizable
intangible assets as of June 30, 2008 and, based on market
declines and revised forecasts, we determined the need to assess
the intangible assets in several additional segments at
September 30, 2008. We determined that the fair
value of these intangible assets had declined in the Driveshaft
segment in the second quarter of 2008 resulting in an impairment
charge of $7. In the third quarter of 2008, the fair
value of a trademark in our Commercial Vehicle segment indicated
an impairment of $3. In the fourth quarter, we
reviewed valuations as of October 31 and updated those
valuations as of December 31, 2008. These
valuations resulted in impairments of $1 in the former
Driveshaft segment and $3 in the Off-Highway segment in the
fourth quarter of 2008.
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The following table summarizes the components of other
intangible assets:
|
Weighted
|
December 31, 2009 | December 31, 2008 | ||||||||||||||||||||||||||
|
Average
|
Gross
|
Accumulated
|
Net
|
Gross
|
Accumulated
|
Net
|
||||||||||||||||||||||
|
Useful Life
|
Carrying
|
Impairment and
|
Carrying
|
Carrying
|
Impairment and
|
Carrying
|
||||||||||||||||||||||
| (years) | Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||||
|
Amortizable intangible assets
|
||||||||||||||||||||||||||||
|
Core technology
|
7 | $ | 98 | $ | (31 | ) | $ | 67 | $ | 97 | $ | (14 | ) | $ | 83 | |||||||||||||
|
Trademarks and trade names
|
17 | 4 | 4 | 3 | 3 | |||||||||||||||||||||||
|
Customer relationships
|
8 | 483 | (165 | ) | 318 | 476 | (65 | ) | 411 | |||||||||||||||||||
|
Non-amortizable
intangible assets
|
||||||||||||||||||||||||||||
|
Trademarks and trade names
|
65 | 65 | 72 | 72 | ||||||||||||||||||||||||
|
Less: Assets held for sale
|
(62 | ) | 46 | (16 | ) | (62 | ) | 8 | (54 | ) | ||||||||||||||||||
| $ | 588 | $ | (150 | ) | $ | 438 | $ | 586 | $ | (71 | ) | $ | 515 | |||||||||||||||
The net carrying amounts of intangible assets attributable to
each of our operating segments at December 31, 2009 were as
follows: LVD — $23, Sealing — $38,
Thermal — $18, Commercial Vehicle — $193,
Off-Highway — $166 and Structures —
$16. The Structures intangible assets are reported as
assets held for sale. Intangible assets in the
Structures segment were impaired by $29 in the fourth quarter of
2009 with $1 and $28 included in core technology and customer
relationship accumulated impairment and amortization in the
table above.
Amortization expense related to intangible assets was $86 and
$81 in 2009 and 2008. Amortization of core technology
of $15 and $15 was charged to cost of sales and amortization of
trademarks and trade names and customer relationships of $71 and
$66 was charged to amortization of intangibles.
Estimated aggregate pre-tax amortization expense related to
intangible assets for each of the next five years is as follows:
2010 — $64, 2011 — $63, 2012 —
$63, 2013 — $62, and 2014 —
$60. These amounts exclude the Structures intangibles
which are held for sale. Actual amounts may differ
from these estimates due to such factors as currency
translation, customer turnover, impairments, additional
intangible asset acquisitions and other events.
Long-lived assets —
With our adoption of fresh
start accounting upon emergence, assets were revalued to new
carrying values based on our enterprise reorganization value
and, in some cases, the appraised values of long-lived assets
are higher than their previous net book value. These
increased valuations for fresh start accounting purposes subject
us to greater risks of future impairment.
Long-lived assets are tested for impairment whenever events or
changes in circumstances indicate that their carrying amounts
may not be recoverable. Recoverability of these
assets is determined by comparing the forecasted undiscounted
net cash flows of the operation in which the assets are utilized
to their carrying amount. If those cash flows are
determined to be less than the carrying amount of the assets,
the long-lived assets of the operation (excluding goodwill) are
written down to fair value if the fair value is lower than the
carrying amount. We estimate fair value using a DCF
approach or appraisal as appropriate.
Asset impairments often result from significant actions like the
discontinuance of customer programs, facility closures or other
events which result in the assets being held for
sale. When this occurs, the specific assets are
adjusted to their fair value less cost to sell or
dispose. A number of recent restructuring actions
have been completed and a few remain in
process. Long-lived assets that continue to be used
internally are evaluated for impairment, in the aggregate, by
business
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Table of Contents
segment given the global nature of the business segment
operation, the interdependency of operations within the segment
and the ability to reallocate assets within the segment.
Based on the second-quarter 2009 assessment of our forecasted
results noted above, we evaluated our long-lived assets in each
segment for impairment. We reviewed the
recoverability of these assets by comparing the carrying amount
of the assets to the projected undiscounted future net cash
flows expected to be generated. These assessments
supported the carrying values of the long-lived assets at the
end of the second quarter of 2009; however, market conditions or
operational execution impacting any of the key assumptions
underlying our estimated cash flows could result in future
long-lived asset impairment.
In connection with the planned divestiture of substantially all
of the assets of our Structural Products business, we assessed
the recoverability of our long-lived assets in the Structures
segment in the fourth quarter of 2009. We recorded a
charge of $150 to impair this segment’s long-lived assets,
with $121 related to property, plant and equipment and $29
related to amortizable intangible assets.
We had evaluated the long-lived assets in certain of our light
vehicle market businesses as of June 30, 2008 and
determined that the projected undiscounted future net cash flows
were adequate to recover the carrying value of those
assets. During the second half of 2008, consumer
interest continued to shift from pickups and SUVs —
important vehicle platforms for us — to smaller
vehicles in which we have less content. Production
levels continued to drop causing our earnings outlook for many
of our businesses to decline. As a result of these
declines, we evaluated the long-lived assets of five of our
segments for potential impairment as of September 30, 2008
and again at December 31, 2008. We reviewed the
recoverability of the assets by comparing the carrying amount of
the assets to the projected undiscounted future net cash flows
expected to be generated. These assessments supported
the carrying values of the long-lived assets and no impairment
of those assets was recorded in the third or fourth quarter of
2008.
Equity investments
— Based on a revised outlook
for 2010 and beyond, we reassessed the valuation of our equity
investment in Bendix-Spicer Foundation Brakes LLC. We
utilized a discount rate of 12.6% for the DCF analysis and an
EBITDA multiple of 9.7 based on comparable companies in similar
markets. The final valuation was an average of the
two methodologies. Our analysis indicated an
impairment of $4 which was charged to equity in earnings of
affiliates in the fourth quarter of 2009.
| Note 7. | Capital Stock |
Series A and
Series B Preferred Stock
Issuance —
Pursuant to the Plan, we issued
2.5 million shares of our Series A Preferred and
5.4 million shares of our Series B Preferred on the
Effective Date. The Series A Preferred was sold
to Centerbridge Partners, L.P. and certain of its
affiliates (Centerbridge) for $250, less a commitment fee of $3
and expense reimbursement of $5, resulting in net proceeds of
$242. The Series B Preferred was sold to certain
qualified investors (as described in the Plan) for $540, less a
commitment fee of $11, resulting in net proceeds of $529.
Conversion rights —
In accordance with the
terms of the preferred stock, all of the shares of preferred
stock are, at the holder’s option, convertible into a
number of fully paid and non-assessable shares of common stock
at the initial conversion price of $13.19. This price
is subject to certain adjustments when dilution occurs (based on
a formula set forth in the Restated Certificate of
Incorporation). Following our issuance of an
additional 39 million shares in a common stock offering
completed in September and October 2009 (see Note 12), the
preferred stock conversion price was lowered to
$11.93. At this price, our preferred shares would
convert into approximately 66.2 million shares of common
stock.
Shares of Series A Preferred having an aggregate
liquidation preference of not more than $125 and the
Series B Preferred is convertible at any time at the option
of the applicable holder after
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July 31, 2008. The remaining shares of
Series A Preferred are convertible after January 31,
2011. In addition, we will be able to cause the
conversion of all, but not less than all, of the preferred
stock, if the per share closing price of the common stock
exceeds $22.24 for at least 20 consecutive trading days
beginning on or after January 31, 2013. This
price is subject to adjustment under certain customary
circumstances, including as a result of stock splits and
combinations, dividends and distributions and certain issuances
of common stock or common stock derivatives.
In connection with the issuance of the preferred stock, we
entered into certain Registration Rights Agreements and a
Shareholders Agreement. The Registration Rights
Agreements provide registration rights for the shares of our
preferred stock and certain other of our equity
securities. On the Effective Date, we also entered
into a Shareholders Agreement with Centerbridge containing
certain preemptive rights related to approval of Board members
and approvals of significant transactions as well as
restrictions related to Centerbridge’s ability to acquire
additional shares of our common stock.
Centerbridge is limited for ten years from the Effective Date in
its ability to acquire additional shares of our common stock,
par value $0.01 per share, if it would own more than 30% of the
voting power of our equity securities after such acquisition, or
to take certain other actions to control us after the Effective
Date without the consent of a majority of our Board of Directors
(excluding directors elected by the holders of Series A
Preferred or nominated by the Series A Nominating Committee
for election by the holders of common stock).
Right to select board members —
Pursuant to the
Shareholders Agreement and our Restated Certificate of
Incorporation as long as shares of Series A Preferred
having an aggregate Series A Liquidation Preference (as
defined in the Shareholders Agreement) of at least $125 are
owned by Centerbridge, Centerbridge will be entitled, voting as
a separate class, to elect three directors at each meeting of
stockholders held for the purpose of electing directors, at
least one of whom will be “independent” of both Dana
and Centerbridge, as defined under the rules of the New York
Stock Exchange. A special committee consisting of two
directors designated by Centerbridge and one non-Centerbridge
director selected by the board will nominate a fourth director
who must be unanimously approved by this committee.
Approval rights —
Until January 31, 2011,
so long as Centerbridge owns Series A Preferred having a
liquidation preference of at least $125, Centerbridge’s
approval is required for us to be able to enter into certain
material transactions, issue debt or equity below market price,
repurchase shares, enter into merger transactions or pay
dividends on common stock.
Centerbridge’s approval rights are subject to override by a
vote of two-thirds of our voting securities not owned by
Centerbridge or any of its affiliates, and its approval rights
for dividends and the issuance of senior or pari passu
securities will end no later than January 31, 2011.
Dividends —
Dividends on the preferred stock
have been accrued from the issue date at a rate of 4% per annum
and are payable in cash on a quarterly basis as approved by the
Board of Directors. The payment of preferred
dividends was suspended in November 2008 under the terms of our
amended Term Facility and may resume at the discretion of our
Board of Directors when our total leverage ratio as of the end
of the previous fiscal quarter is less than or equal to
3.25:1.00. See Note 12 for additional
information on the amended Term Facility. Preferred dividends
accrued but not paid at December 31, 2009 were $42.
Common
Stock
On the Effective Date, we began the process of issuing
100 million shares of Dana common stock, par value $0.01
per share, including approximately 70 million shares for
allowed unsecured nonpriority claims, approximately
28 million shares for disputed unsecured nonpriority claims
in Class 5B under the Plan and approximately 2 million
shares to pay bonuses to union employees and non-union hourly
and salaried non-management employees. We relied,
based on the Confirmation
70
Table of Contents
Order, on Section 1145(a)(1) of the Bankruptcy Code to
exempt us from the registration requirements of the Securities
Act for the offer and sale of the common stock to the general
unsecured creditors.
On September 29, 2009, we completed an underwritten
offering of 34 million shares of common stock at $6.75 per
share, generating proceeds of $217, net of underwriting
commissions and related offering expenses (see
Note 12). On October 5, 2009, we completed
the sale of an additional 5 million shares, generating net
proceeds of $33. At December 31, 2009, we had
issued 139,542,825 shares of our common stock, including
treasury shares.
Employees have delivered to us shares of Dana common stock in
settlement of withholding taxes due upon the payment of stock
awards and other taxable distributions of shares. At
December 31, 2009, we held $1 in treasury stock
(128,676 shares at an average cost per share of $7.26).
| Note 8. | Earnings Per Share |
The following table reconciles the weighted-average number of
shares used in the basic earnings per share calculations to the
weighted-average number of shares used to compute diluted
earnings per share (in millions of shares):
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
Weighted-average number of shares outstanding — basic
|
110.2 | 100.1 | 149.9 | 149.9 | |||||||||||||
|
Employee compensation-related shares, including stock options
|
0.5 | ||||||||||||||||
|
Weighted-average number of shares outstanding — diluted
|
110.2 | 100.1 | 150.4 | 149.9 | |||||||||||||
Basic earnings (loss) per share is calculated by dividing the
net income (loss) attributable to parent company stockholders,
less preferred stock dividend requirements, by the
weighted-average number of common shares
outstanding. The outstanding common shares
computation excludes any shares held in treasury.
In September and October 2009, we issued an additional
39 million shares in a common stock offering (see
Note 12). The terms of our Series A and
Series B convertible preferred stock allow for adjustments
to the conversion price when dilution occurs. The
preferred stock conversion price changed from $13.19 to $11.93
and at this price our preferred shares would have converted into
approximately 66.2 million shares of common stock at
December 31, 2009.
The share count for diluted earnings (loss) per share is
computed on the basis of the weighted-average number of common
shares outstanding plus the effects of dilutive common stock
equivalents (CSEs) outstanding during the
period. CSEs, which are securities that may entitle
the holder to obtain common stock, include outstanding stock
options, restricted stock unit awards, performance share awards
and preferred stock. When the average price of the
common stock during the period exceeds the exercise price of a
stock option, the options are considered potentially dilutive
CSEs. To the extent these CSEs are anti-dilutive they
are excluded from the calculation of diluted earnings per share.
Also, when there is a loss from continuing operations,
potentially dilutive shares are excluded from the computation of
earnings per share as their effect would be anti-dilutive.
We excluded 4.8 million, 2.5 million and
11.1 million of CSEs from the table above for the year
2009, the eleven months ended December 31, 2008 and for the
year 2007 as the effect of including them would have been
anti-dilutive. In addition, we excluded CSEs that
satisfied the definition of potentially dilutive shares of
2.2 million, 0.4 million and 0.5 million for
these same periods due to the dilutive effect of the loss from
continuing operations for these periods. Conversion
of the preferred stock was also not included in the share count
for diluted earnings per share due to the loss from continuing
operations.
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Table of Contents
The calculation of earnings per share is based on the following
income (loss) available to the parent company stockholders:
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
Income (loss) from continuing operations
|
$ | (463 | ) | $ | (702 | ) | $ | 715 | $ | (433 | ) | ||||||
|
Loss from discontinued operations
|
(4 | ) | (6 | ) | (118 | ) | |||||||||||
|
Net income (loss) available to the parent company stockholders
|
$ | (463 | ) | $ | (706 | ) | $ | 709 | $ | (551 | ) | ||||||
Income (loss) per share from continuing operations available to
parent company stockholders and net income (loss) available to
parent company stockholders both include a charge for the
preferred stock dividend requirement. Earnings per share
information reported by Prior Dana is not comparable to earnings
per share information reported by Dana because all existing
equity interests of Prior Dana were eliminated upon the
consummation of the Plan.
| Note 9. | Incentive and Stock Compensation |
Upon emergence, all common stock and outstanding common stock
equivalents, including but not limited to stock options and
restricted stock units of Prior Dana, were cancelled in
accordance with the Plan.
2008 Omnibus
Incentive Plan
Our 2008 Omnibus Incentive Plan authorizes grants of stock
options, stock appreciation rights, restricted stock awards,
restricted stock units and performance share awards to be made
pursuant to the plan. The eligibility requirements and terms
governing the allocation of any common stock and the receipt of
other consideration under the 2008 Omnibus Incentive Plan are
determined by the Board of Directors
and/or
its
Compensation Committee. The number of shares of common stock
that may be issued or delivered may not exceed in the aggregate
16.09 million shares. Cash settled awards do not count
against the maximum aggregate number.
At December 31, 2009, there were 5,040,721 shares
available for future grants of options and other types of awards
under the 2008 Omnibus Incentive Plan.
The following table summarizes our award activity during 2009
and the eleven months ended December 31, 2008:
| Options | SARs | Restricted Stock Units | Performance Notional Shares | |||||||||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
Weighted-
|
Weighted-
|
|||||||||||||||||||||||||||||
|
Average
|
Average
|
Average
|
Average
|
|||||||||||||||||||||||||||||
|
Exercise
|
Exercise
|
Grant-Date
|
Grant-Date
|
|||||||||||||||||||||||||||||
|
Outstanding at
|
Shares | Price | Shares | Price | Shares | Fair Value | Shares | Fair Value | ||||||||||||||||||||||||
|
January 31, 2008
|
— | $ | — | — | $ | — | — | $ | — | — | $ | — | ||||||||||||||||||||
|
Granted
|
5,795,432 | 8.09 | 17,626 | 0.69 | 860,046 | 5.10 | 598,110 | 4.16 | ||||||||||||||||||||||||
|
Vested
|
(47,387 | ) | 2.85 | |||||||||||||||||||||||||||||
|
Forfeited or expired
|
(216,404 | ) | 10.00 | (22,005 | ) | 10.00 | (241,860 | ) | 9.21 | |||||||||||||||||||||||
|
December 31, 2008
|
5,579,028 | 8.01 | 17,626 | 0.69 | 790,654 | 5.10 | 356,250 | 0.74 | ||||||||||||||||||||||||
|
Granted
|
4,389,500 | 0.90 | 617,200 | 1.00 | 404,488 | 2.33 | 181,146 | 2.49 | ||||||||||||||||||||||||
|
Exercised or vested
|
(842 | ) | 2.09 | (248,027 | ) | 2.16 | (283,863 | ) | 1.76 | |||||||||||||||||||||||
|
Forfeited or expired
|
(744,004 | ) | 4.98 | (14,900 | ) | 0.51 | (82,539 | ) | 7.25 | (16,032 | ) | 2.49 | ||||||||||||||||||||
|
December 31, 2009
|
9,223,682 | $ | 4.87 | 619,926 | $ | 1.00 | 864,576 | $ | 4.44 | 237,501 | $ | 0.74 | ||||||||||||||||||||
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Table of Contents
Stock options and stock appreciation rights
(SARs)
— The exercise price of each option or SAR
equals the closing market price of our common stock on the date
of grant. Options and SARs generally vest over three years and
their maximum term is ten years. Compensation expense is
measured based on the fair value at the date of grant and is
recognized on a straight-line basis over the vesting period.
Shares issued upon the exercise of options are recorded as
common stock and additional paid-in capital at the option price.
Options to be settled in cash result in the recognition of a
liability representing the vested portion of the obligation.
SARs are settled in cash for the difference between the market
price on the date of exercise and the exercise price. As a
result, SARs are recorded as a liability until the date of
exercise. The fair value of each SAR award is recalculated at
the end of each reporting period and the liability and expense
adjusted based on the new fair value. As of December 31,
2009, a liability of $3 for cash options and SARs is recorded as
deferred employee benefits in other non-current liabilities.
We calculated a fair value for each option and SAR at the date
of the grant using the Black-Scholes valuation model. The
weighted-average key assumptions used in the model for options
and SARs granted during 2009 and 2008 are summarized in the
following table. The dividend yield is assumed to be zero since
there are no current plans to pay common stock dividends. We use
the simplified method to calculate the expected term because we
have insufficient historical exercise data due to the limited
period of time our common stock has been publicly traded.
| Options | SARs | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Expected term (in years)
|
6.00 | 5.48 | 6.00 | 6.00 | ||||||||||||
|
Risk-free interest rate
|
2.21 | % | 2.83 | % | 1.87 | % | 1.72 | % | ||||||||
|
Expected volatility
|
63.08 | % | 42.46 | % | 63.17 | % | 53.40 | % | ||||||||
The following table summarizes information about options and
SARs outstanding and exercisable at December 31, 2009:
| Outstanding Options and SARs | Exercisable Options and SARs | |||||||||||||||||||
| Weighted-Average |
Weighted-
|
|||||||||||||||||||
|
Remaining
|
Average
|
|||||||||||||||||||
|
Range of
|
Contractual
|
Exercise
|
Exercise
|
|||||||||||||||||
|
Exercise Prices
|
Number | Life in Years | Price | Number | Price | |||||||||||||||
|
$0.51 - $3.33
|
6,125,511 | 8.3 | $ | 1.09 | 531,005 | $ | 1.88 | |||||||||||||
|
$5.23 - $7.00
|
285,550 | 9.0 | 6.36 | 54,815 | 6.36 | |||||||||||||||
|
$9.19 - $12.75
|
3,432,547 | 7.4 | 10.80 | 1,584,556 | 11.13 | |||||||||||||||
| 9,843,608 | 8.0 | $ | 4.63 | 2,170,376 | $ | 8.74 | ||||||||||||||
The weighted-average fair value at grant date of options and
SARs granted during 2009 and 2008 was $0.54 and $3.50 per share.
During 2009 and 2008, we recognized $11 and $6 in compensation
expense related to options and SARs. The total fair value of
options and SARs vested during 2009 and 2008 was $5 and $2.
Restricted stock units and performance shares
—
Each restricted stock unit or notional performance share granted
represents the right to receive one share of Dana common stock
or, at the election of Dana (for units awarded to board members)
or for certain
non-U.S. employees
(for employee awarded units), cash equal to the market value per
share. All restricted stock units contain dividend equivalent
rights. Restricted stock units granted to non-employee directors
vest in three equal annual installments beginning on the first
anniversary date of the grant and those granted to employees
generally cliff vest fully after three years. Performance shares
are awarded if specified performance goals are achieved during
the respective performance period. Compensation expense for
stock-settled awards expected to vest is measured based on the
closing market price of our common stock at the date of grant
and is recognized on a straight-line basis over the vesting
period. Compensation expense for cash-settled awards expected to
vest is measured based on the closing market price of our common
stock at the
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end of each reporting period and is recognized on a
straight-line basis over the vesting period. As of
December 31, 2009, the vested portion of cash-settled
restricted stock units and performance shares was $1 and is
recorded in deferred employee benefits and other non-current
liabilities.
During 2009 and 2008, we recognized $1 and $1 of compensation
expense related to restricted stock units. Performance goals
were established in 2009 for a performance share award and we
recognized $1 during 2009 of related compensation expense. No
performance shares were awarded in 2008. Accordingly, no expense
was recorded in 2008.
The following table summarizes information about unrecognized
compensation expense as of December 31, 2009:
|
Restricted
|
Performance
|
|||||||||||||||
|
Stock
|
Notional
|
|||||||||||||||
| Options | SARs | Units | Shares | |||||||||||||
|
Unrecognized compensation expense
|
$ | 4 | $ | 4 | $ | 2 | $ | — | ||||||||
|
Weighted-average amortization period in years
|
0.9 | 1.1 | 0.8 | — | ||||||||||||
Annual
Awards
During the fourth quarter of 2009, we accrued $13 of expense for
two additional compensation programs. Employees working in
countries where pay increases were frozen in 2009 were awarded a
one-time payment of 2% of their eligible base salary. Also
included was a one-time Special Recognition Bonus awarded to the
top 1,000 bonus eligible employees pursuant to the terms and
conditions of the 2008 Omnibus Incentive Plan. This award was
based on each individual’s compensation level and their
individual contributions toward achievement of our 2009
objectives.
Executive
Incentive Compensation Plan
Five employees participated in the Executive Incentive
Compensation (EIC) Plan during 2007, earning $4 which was
recognized as compensation expense in 2007. The EIC Plan
specified that a portion of each participant’s bonus,
depending on the amount earned, could be paid in common stock of
the reorganized Dana. Four of the five employees earned amounts
totaling approximately $1 in 2007 that required payment in the
form of common stock. The number of shares issued in April 2008
as payment was determined based on the average closing price of
the stock for the 20 trading days following the filing of
Dana’s
Form 10-K
for the year ended December 31, 2007, resulting in
73,562 shares of common stock being issued in April 2008 at
a value of $9.86 per share.
| Note 10. | Pension and Postretirement Benefit Plans |
We have a number of defined contribution and defined benefit,
qualified and nonqualified, pension plans for certain employees.
Other postretirement benefit plans (OPEB), including medical and
life insurance, are provided for certain employees upon
retirement.
Under the terms of the qualified defined contribution retirement
plans, employee and employer contributions may be directed into
a number of diverse investments. None of these qualified defined
contribution plans allow direct investment in our stock.
The funded status of each defined benefit pension and OPEB plan
is recognized on the balance sheet. The funded status of a plan
is measured as the difference between the plan assets at fair
value and the benefit obligation. The funded status of all
overfunded plans are aggregated and reported in investments and
other assets. The funded status of all underfunded or unfunded
plans are aggregated and reported in deferred employee benefits
and other non-current liabilities. In addition, the portion of
the benefits payable in the next year which exceeds the fair
value of plan assets is reported in accrued payroll and employee
benefits and is determined on a
plan-by-plan
basis. The measurement date of a plan’s assets and its
obligations coincides with our year end. Changes in the funded
status of a defined benefit plan are recognized in the year in
which the change occurs.
74
Table of Contents
Components of net periodic benefic costs and other amounts
recognized in other comprehensive income (OCI) —
| Pension Benefits | |||||||||||||||||||||||||||||||||
| Dana | Prior Dana | ||||||||||||||||||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||||||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||
|
Service cost
|
$ | — | $ | 6 | $ | — | $ | 8 | $ | 1 | $ | 1 | $ | 15 | $ | 12 | |||||||||||||||||
|
Interest cost
|
109 | 19 | 101 | 21 | 9 | 2 | 114 | 30 | |||||||||||||||||||||||||
|
Expected return on plan assets
|
(116 | ) | (9 | ) | (126 | ) | (14 | ) | (12 | ) | (2 | ) | (142 | ) | (26 | ) | |||||||||||||||||
|
Amortization of prior service cost
|
1 | 1 | |||||||||||||||||||||||||||||||
|
Recognized net actuarial loss
|
2 | 27 | 2 | ||||||||||||||||||||||||||||||
|
Net periodic benefit cost (credit)
|
(7 | ) | 16 | (25 | ) | 15 | 1 | 15 | 19 | ||||||||||||||||||||||||
|
Curtailment (gain) loss
|
1 | (1 | ) | 4 | (8 | ) | 4 | ||||||||||||||||||||||||||
|
Settlement (gain) loss
|
1 | (12 | ) | 19 | 128 | ||||||||||||||||||||||||||||
|
Termination cost
|
2 | 7 | 6 | ||||||||||||||||||||||||||||||
|
Net periodic benefit cost
(credit) after curtailments and settlements |
$ | (4 | ) | $ | 16 | $ | (14 | ) | $ | 3 | $ | — | $ | 1 | $ | 32 | $ | 151 | |||||||||||||||
|
Recognized in OCI:
|
|||||||||||||||||||||||||||||||||
|
Amount due to net
actuarial (gains) losses |
$ | 285 | $ | 27 | $ | 102 | $ | (10 | ) | $ | 105 | $ | 28 | $ | (96 | ) | $ | (14 | ) | ||||||||||||||
|
Prior service cost
from plan amendments |
(1 | ) | 7 | 2 | 1 | ||||||||||||||||||||||||||||
|
Amortization of prior service cost
in net periodic cost |
(1 | ) | (1 | ) | |||||||||||||||||||||||||||||
|
Amortization of net actuarial gains (losses) in net periodic cost
|
(2 | ) | (27 | ) | (3 | ) | |||||||||||||||||||||||||||
|
Immediate recognition of prior
service cost, unrecognized gains (losses) and transition obligation due to divestitures |
(7 | ) | (142 | ) | |||||||||||||||||||||||||||||
|
Fresh start adjustment
|
(407 | ) | (78 | ) | |||||||||||||||||||||||||||||
|
Total recognized in OCI
|
285 | 26 | 102 | (3 | ) | (304 | ) | (50 | ) | (129 | ) | (159 | ) | ||||||||||||||||||||
|
Total recognized in
benefit cost and OCI |
$ | 281 | $ | 42 | $ | 88 | $ | — | $ | (304 | ) | $ | (49 | ) | $ | (97 | ) | $ | (8 | ) | |||||||||||||
75
Table of Contents
| Other Benefits | |||||||||||||||||||||||||
| Dana Non-U.S. | |||||||||||||||||||||||||
|
Eleven
|
|||||||||||||||||||||||||
|
Year
|
Months
|
||||||||||||||||||||||||
| Ended | Ended | Prior Dana | |||||||||||||||||||||||
|
One Month
|
Year Ended
|
||||||||||||||||||||||||
|
Ended
|
December 31,
|
||||||||||||||||||||||||
| December 31, | January 31, 2008 | 2007 | |||||||||||||||||||||||
| 2009 | 2008 | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
|
Service cost
|
$ | 1 | $ | 1 | $ | — | $ | — | $ | 5 | $ | 2 | |||||||||||||
|
Interest cost
|
6 | 6 | 5 | 1 | 70 | 6 | |||||||||||||||||||
|
Amortization of prior service credit
|
(3 | ) | (29 | ) | |||||||||||||||||||||
|
Recognized net actuarial loss
|
3 | 34 | 3 | ||||||||||||||||||||||
|
Net periodic benefit cost
|
7 | 7 | 5 | 1 | 80 | 11 | |||||||||||||||||||
|
Curtailment gain
|
(2 | ) | (2 | ) | (61 | ) | (8 | ) | |||||||||||||||||
|
Settlement gain
|
(13 | ) | |||||||||||||||||||||||
|
Termination cost
|
1 | ||||||||||||||||||||||||
|
Net periodic benefit cost (credit) after curtailments and
settlements
|
$ | 5 | $ | 5 | $ | (56 | ) | $ | 1 | $ | 60 | $ | 11 | ||||||||||||
|
Recognized in OCI:
|
|||||||||||||||||||||||||
|
Prior service credit from plan amendments
|
$ | — | $ | — | $ | (278 | ) | $ | — | $ | (326 | ) | $ | — | |||||||||||
|
Amount due to net actuarial (gains) losses
|
9 | (15 | ) | 13 | (68 | ) | 4 | ||||||||||||||||||
|
Amortization of prior service credit in net periodic cost
|
64 | 29 | |||||||||||||||||||||||
|
Amortization of net actuarial gains (losses) in net periodic cost
|
(3 | ) | (34 | ) | (2 | ) | |||||||||||||||||||
|
Fresh start adjustment
|
89 | (52 | ) | ||||||||||||||||||||||
|
Total recognized in OCI
|
$ | 9 | $ | (15 | ) | $ | (115 | ) | $ | (52 | ) | $ | (399 | ) | $ | 2 | |||||||||
|
Total recognized in benefit cost and OCI
|
$ | 14 | $ | (10 | ) | $ | (171 | ) | $ | (51 | ) | $ | (339 | ) | $ | 13 | |||||||||
There were no net periodic other benefit costs in the
U.S. for the year 2009 or for the eleven months ended
December 31, 2008. Our other postretirement benefit costs
for all U.S. employees and retirees were eliminated at our
emergence from Chapter 11.
The estimated net actuarial loss for the defined benefit pension
plans that will be amortized from accumulated other
comprehensive income (loss) (AOCI) into benefit cost in 2010 is
$20 for our U.S. plans and a nominal amount for our
non-U.S. plans.
There is a nominal amount of net actuarial loss related to other
postretirement benefit plans that will be amortized from AOCI
into benefit cost in 2010 for our
non-U.S. plans.
76
Table of Contents
Funded status —
The following tables provide a
reconciliation of the changes in the plans’ benefit
obligations and plan assets for 2009 and 2008 and the funded
status and amounts recognized in the consolidated balance sheets
at December 31, 2009 and 2008, with continuing and
discontinued operations combined.
| Pension Benefits | |||||||||||||||||||||||||
| Dana | Prior Dana | ||||||||||||||||||||||||
|
Year Ended
|
Eleven Months Ended
|
One Month Ended
|
|||||||||||||||||||||||
| December 31, 2009 | December 31, 2008 | January 31, 2008 | |||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
|
Reconciliation of benefit obligation:
|
|||||||||||||||||||||||||
|
Obligation at beginning of period
|
$ | 1,777 | $ | 364 | $ | 1,870 | $ | 540 | $ | 1,849 | $ | 529 | |||||||||||||
|
Service cost
|
6 | 8 | 1 | 1 | |||||||||||||||||||||
|
Interest cost
|
109 | 19 | 101 | 21 | 9 | 2 | |||||||||||||||||||
|
Plan amendments
|
(1 | ) | 7 | ||||||||||||||||||||||
|
New plans
|
5 | ||||||||||||||||||||||||
|
Actuarial (gain) loss
|
119 | 18 | (50 | ) | (16 | ) | 22 | 11 | |||||||||||||||||
|
Benefit payments
|
(177 | ) | (28 | ) | (157 | ) | (28 | ) | (11 | ) | (4 | ) | |||||||||||||
|
Settlements, curtailments and terminations
|
3 | (50 | ) | 13 | (114 | ) | |||||||||||||||||||
|
Translation adjustments
|
18 | (54 | ) | 1 | |||||||||||||||||||||
|
Obligation at end of period
|
$ | 1,831 | $ | 351 | $ | 1,777 | $ | 364 | $ | 1,870 | $ | 540 | |||||||||||||
| Other Benefits | |||||||||||||||||||||
| Dana | |||||||||||||||||||||
| Year | Eleven Months | Prior Dana | |||||||||||||||||||
| Ended December 31, |
One Month Ended
|
||||||||||||||||||||
| 2009 | 2008 | January 31, 2008 | |||||||||||||||||||
| Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||
|
Reconciliation of benefit obligation:
|
|||||||||||||||||||||
|
Obligation at beginning of period
|
$ | 100 | $ | 752 | $ | 140 | $ | 1,019 | $ | 141 | |||||||||||
|
Service cost
|
1 | 1 | |||||||||||||||||||
|
Interest cost
|
6 | 6 | 5 | 1 | |||||||||||||||||
|
Plan amendments
|
(278 | ) | |||||||||||||||||||
|
Actuarial (gain) loss
|
9 | (17 | ) | 13 | |||||||||||||||||
|
Benefit payments
|
(7 | ) | (752 | ) | (5 | ) | (7 | ) | (1 | ) | |||||||||||
|
Settlements, curtailments and terminations
|
(1 | ) | (2 | ) | |||||||||||||||||
|
Translation adjustments
|
16 | (23 | ) | (1 | ) | ||||||||||||||||
|
Obligation at end of period
|
$ | 124 | $ | — | $ | 100 | $ | 752 | $ | 140 | |||||||||||
77
Table of Contents
| Pension Benefits | |||||||||||||||||||||||||
| Dana | Prior Dana | ||||||||||||||||||||||||
|
Year Ended
|
Eleven Months Ended
|
One Month Ended
|
|||||||||||||||||||||||
| December 31, 2009 | December 31, 2008 | January 31, 2008 | |||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
|
Reconciliation of fair value of plan assets:
|
|||||||||||||||||||||||||
|
Fair value at beginning of period
|
$ | 1,628 | $ | 183 | $ | 1,784 | $ | 338 | $ | 1,865 | $ | 358 | |||||||||||||
|
Actual return on plan assets
|
(50 | ) | (23 | ) | 19 | (71 | ) | (16 | ) | ||||||||||||||||
|
Employer contributions
|
13 | 24 | 13 | 1 | 2 | ||||||||||||||||||||
|
Benefit payments
|
(177 | ) | (28 | ) | (157 | ) | (28 | ) | (11 | ) | (4 | ) | |||||||||||||
|
Settlements
|
(49 | ) | (115 | ) | |||||||||||||||||||||
|
Translation adjustments
|
17 | (44 | ) | (2 | ) | ||||||||||||||||||||
|
Fair value at end of period
|
$ | 1,401 | $ | 136 | $ | 1,628 | $ | 183 | $ | 1,784 | $ | 338 | |||||||||||||
|
Funded status at end of period
|
$ | (430 | ) | $ | (215 | ) | $ | (149 | ) | $ | (181 | ) | $ | (86 | ) | $ | (202 | ) | |||||||
| Other Benefits | |||||||||||||||||||||||||
| Dana | |||||||||||||||||||||||||
| Year | Eleven Months | Prior Dana | |||||||||||||||||||||||
| Ended December 31, |
One Month Ended
|
||||||||||||||||||||||||
| 2009 | 2008 | January 31, 2008 | |||||||||||||||||||||||
| Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||||
|
Reconciliation of fair value of plan assets:
|
|||||||||||||||||||||||||
|
Fair value at beginning of period
|
$ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
|
Employer contributions
|
7 | 752 | 5 | 7 | 1 | ||||||||||||||||||||
|
Benefit payments
|
(7 | ) | (752 | ) | (5 | ) | (7 | ) | (1 | ) | |||||||||||||||
|
Fair value at end of period
|
$ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
|
Funded status at end of period
|
$ | (124 | ) | $ | — | $ | (100 | ) | $ | (752 | ) | $ | (140 | ) | |||||||||||
Amounts
recognized in the balance sheet —
| Pension Benefits | Other Benefits | |||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | Non-U.S. | Non-U.S. | |||||||||||||||||||
|
Amounts recognized in the consolidated balance sheet:
|
||||||||||||||||||||||||
|
Noncurrent assets
|
$ | — | $ | 9 | $ | 2 | $ | 20 | $ | — | $ | — | ||||||||||||
|
Current liabilities
|
(11 | ) | (10 | ) | (7 | ) | (6 | ) | ||||||||||||||||
|
Noncurrent liabilities
|
(430 | ) | (213 | ) | (151 | ) | (191 | ) | (117 | ) | (94 | ) | ||||||||||||
|
AOCI
|
387 | 23 | 102 | (3 | ) | (6 | ) | (15 | ) | |||||||||||||||
|
Net amount recognized
|
$ | (43 | ) | $ | (192 | ) | $ | (47 | ) | $ | (184 | ) | $ | (130 | ) | $ | (115 | ) | ||||||
78
Table of Contents
| Pension Benefits | Other Benefits | |||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | Non-U.S. | Non-U.S. | |||||||||||||||||||
|
Amounts recognized in AOCI
|
||||||||||||||||||||||||
|
Net actuarial loss (gain)
|
$ | 387 | $ | 17 | $ | 102 | $ | (10 | ) | $ | (6 | ) | $ | (15 | ) | |||||||||
|
Prior service cost
|
6 | 7 | ||||||||||||||||||||||
|
Gross amount recognized
|
387 | 23 | 102 | (3 | ) | (6 | ) | (15 | ) | |||||||||||||||
|
Deferred tax benefits
|
(3 | ) | ||||||||||||||||||||||
|
Net amount recognized
|
$ | 387 | $ | 20 | $ | 102 | $ | (3 | ) | $ | (6 | ) | $ | (15 | ) | |||||||||
In 2009, we recorded a net of less than $1 in pension
curtailment costs and $2 in postretirement healthcare
curtailment gains related to our workforce reduction actions.
These costs were included in restructuring charges. We also
announced the anticipated sale of substantially all of the
assets of our Structural Products business, which resulted in a
termination of pension service. The associated cost of $2 was
recorded in other income, net along with other costs associated
with the sale.
During the first quarter of 2009, we settled a portion of the
Canadian retiree pension benefit obligations by purchasing
non-participating annuity contracts to cover vested benefits.
This action necessitated a remeasurement of the assets and
liabilities of the affected plans as of February 28, 2009.
The discount rate used for remeasurement was 6.39%. As a result
of the annuity purchases, we reduced the benefit obligation by
$43 and also reduced the fair value of plan assets by $43. We
recorded the related settlement loss of $1 in cost of sales.
In 2008, employee acceptances of early retirement incentives in
the U.S. generated pension plan special termination costs
of $7 in the second quarter which were included in restructuring
charges as well as curtailment losses of $3 which were charged
against OCI. Similar incentives in the U.S. generated
curtailment losses of $2 in the third quarter which were
included in restructuring charges. The affected pension plans
were remeasured at June 30, 2008 and again at
August 31, 2008. The remeasurement at June 30, 2008
increased net assets by $3 and reduced the net defined benefit
obligations by $32 with a credit to OCI of $35. The
remeasurement at August 31, 2008 increased net assets by $2
and increased the net defined benefit obligations by $72 with a
charge to OCI for $70.
Also during the second quarter of 2008, we settled a substantial
portion of the Canadian retiree pension benefit obligations by
purchasing non-participating annuity contracts to cover vested
benefits. This action necessitated a remeasurement of the
assets and liabilities of the affected plans as of May 31,
2008. The discount rate used for remeasurement was 5.50%. As a
result of the annuity purchases, we reduced the benefit
obligation by $114 and also reduced the fair value of plan
assets by $114. We recorded the related settlement gain of $12
as a reduction to cost of sales.
Under fresh start accounting we were required to remeasure all
defined benefit plan obligations and assets. The discount rates
used to measure the U.S. pension and other postretirement
benefit obligations were 6.13% and 6.10% at January 31,
2008 compared to 6.26% and 6.24% at December 31, 2007. The
weighted-average discount rates used to measure the
non-U.S. pension
and other postretirement benefit obligations were both 5.29% at
January 31, 2008 compared to 5.27% and 5.29% at
December 31, 2007. The generally adverse asset investment
performance during the month of January 2008 negatively impacted
net obligations. As a result of these changes, a net actuarial
loss of $140 adversely affected the funded status of our plans,
reducing net assets by $35 and increasing the net defined
benefit obligations by $105 with offsets to AOCI. The AOCI
balance at January 31, 2008 was eliminated under fresh
start accounting.
Certain changes related to our U.S. pension and
postretirement benefit plans specific to non-union employees
became effective during the bankruptcy process while changes
specific to union-represented employees became effective with
our emergence from Chapter 11. Credited service and
79
Table of Contents
benefit accruals were frozen for all U.S. employees in
defined benefit pension plans. For union-represented employees
we agreed to make future contributions, based on a cents per
hour formula, to a USW multiemployer pension trust which will
provide future pension benefits for covered employees.
Our postretirement healthcare obligations for all
U.S. employees and retirees were eliminated as part of the
Chapter 11 reorganization. With regard to
union-represented employees and retirees, we contributed an
aggregate of approximately $733 in cash on February 1, 2008
(which is net of amounts incurred and paid for non-pension
retiree benefits, long-term disability and related healthcare
claims of retirees between July 1, 2007 and
January 31, 2008) to union-administered Voluntary
Employee Benefit Associations (VEBAs). As a result of the
changes in our U.S. other postretirement benefits that
became effective on January 31, 2008 with our emergence
from Chapter 11, we recognized a portion of the previously
unrecognized prior service credits as a curtailment gain of $61
due to the negative plan amendment and reported it as a
component of the gain on settlement of liabilities subject to
compromise as of January 31, 2008. The gain was calculated
based on the current estimate of the future working lifetime
attributable to those participants who will not receive benefits
following the estimated exhaustion of funds. The calculation
used current plan assumptions and current levels of plan
benefits. In connection with the recognition of our obligations
to the VEBAs at emergence, the accumulated postretirement
benefit obligation (APBO) was reset to an amount equal to the
VEBA payments, resulting in a reduction of $278 with an
offsetting credit to AOCI.
Postretirement healthcare benefits for active non-union
employees in the U.S. were eliminated effective as of
April 1, 2007. This action reduced our APBO by $115 in the
first quarter of 2007. Because the elimination of these benefits
reduced benefits previously earned, it was considered a negative
plan amendment. Accordingly, the reduction in the APBO was
offset by a credit to AOCI which was amortized to income as a
reduction of OPEB expense until the AOCI was eliminated under
fresh start accounting.
With regard to non-union retirees, we contributed an aggregate
of $78 to a VEBA trust for postretirement healthcare and life
insurance benefits in exchange for release from these
obligations. We funded our contribution with payments of $25 in
June 2007 and $53 in January 2008. In May 2007, we also made a
$2 payment to the International Association of Machinists (IAM)
to resolve all claims for postretirement non-pension benefits
after September 30, 2007 for retirees and active employees
represented by the IAM. These actions reduced our APBO by $303
in the second quarter of 2007, with $80 being offset by the
payment obligation to the VEBAs and $223 being credited to AOCI
which was eliminated under fresh start accounting.
Exercise of employee early retirement incentives generated
pension plan curtailment losses of $5 and $2 in the third and
fourth quarters of 2007 which were included in reorganization
charges. Completion of a facility closure in the third quarter
of 2007 resulted in recognition of a postretirement medical plan
curtailment gain of $8 which was included in restructuring
charges.
Lump sum distributions from one of the pension plans in the
U.S. reached a level during the third quarter of 2007
requiring recognition of $12 as pension settlement expense. The
portions attributable to divested operations and manufacturing
footprint actions amounted to $4 and $5 and were included in
discontinued operations and restructuring charges. The lump sum
distributions and the reversal of the decision to close a
facility required a remeasurement of two plans which reduced our
pension obligation by $42 in the third quarter of 2007 and
resulted in a credit to OCI. Continuing high levels of lump sum
pension fund distributions during the fourth quarter of 2007
triggered $7 of additional pension settlement charges. The
portions attributable to divested operations and manufacturing
footprint actions amounted to $1 and $3 and were included in
discontinued operations and restructuring charges. In the
second quarter of 2007, we recorded a pension curtailment gain
of $11 related to the reversal of a decision to close a
U.S. facility.
Pursuant to a restructuring of our pension liabilities in the
U.K. necessitated by the divestiture of several non-core U.K.
businesses, we recorded $8 of pension curtailment cost as a
restructuring charge in the first quarter of 2007 and a
settlement charge of $145 in the second quarter of 2007
80
Table of Contents
($128 as a restructuring charge in continuing operations and $17
in discontinued operations). During the first quarter of 2007,
the sale of our engine hard parts business resulted in a
postretirement medical plan settlement gain of $12.
Aggregate funding levels —
The following table
presents information regarding the aggregate funding levels of
our defined benefit pension plans at December 31:
| 2009 | 2008 | |||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||
|
Plans with fair value of plan assets in excess of obligations:
|
||||||||||||||||
|
Accumulated benefit obligation
|
$ | 14 | $ | 95 | $ | 13 | $ | 134 | ||||||||
|
Projected benefit obligation
|
14 | 95 | 13 | 151 | ||||||||||||
|
Fair value of plan assets
|
14 | 104 | 15 | 158 | ||||||||||||
|
Plans with obligations in excess of fair value of plan assets:
|
||||||||||||||||
|
Accumulated benefit obligation
|
1,817 | 238 | 1,764 | 208 | ||||||||||||
|
Projected benefit obligation
|
1,817 | 256 | 1,764 | 213 | ||||||||||||
|
Fair value of plan assets
|
1,387 | 32 | 1,613 | 25 | ||||||||||||
Benefit obligations of certain
non-U.S. pension
plans, amounting to $200 at December 31, 2009, and other
postretirement benefit plans of $124 are not funded.
Fair values of
plan assets —
| Fair Value Measurements at December 31, 2009 | ||||||||||||||||||||||||||||
| U.S. | Non-U.S. | |||||||||||||||||||||||||||
|
Quoted
|
Significant
|
Quoted
|
Significant
|
|||||||||||||||||||||||||
|
Prices in
|
Other
|
Significant
|
Prices in
|
Other
|
Significant
|
|||||||||||||||||||||||
|
Active
|
Observable
|
Unobservable
|
Active
|
Observable
|
Unobservable
|
|||||||||||||||||||||||
|
Markets
|
Inputs
|
Inputs
|
Markets
|
Inputs
|
Inputs
|
|||||||||||||||||||||||
|
Asset Category
|
Total | (Level 1) | (Level 2) | (Level 3) | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||
|
Equity securities:
|
||||||||||||||||||||||||||||
|
U.S. all cap (a)
|
$ | 86 | $ | 86 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
U.S. large cap
|
129 | 129 | ||||||||||||||||||||||||||
|
U.S. small cap
|
20 | 20 | ||||||||||||||||||||||||||
|
EAFE composite
|
146 | 146 | ||||||||||||||||||||||||||
|
Emerging markets
|
45 | 45 | ||||||||||||||||||||||||||
|
Fixed income securities:
|
||||||||||||||||||||||||||||
|
U.S. core bonds (b)
|
116 | 116 | ||||||||||||||||||||||||||
|
Corporate bonds
|
307 | 299 | 8 | |||||||||||||||||||||||||
|
U.S. treasury strips
|
343 | 343 | ||||||||||||||||||||||||||
|
Non-U.S.
government securities
|
111 | 111 | ||||||||||||||||||||||||||
|
Emerging market debt
|
38 | 36 | 2 | |||||||||||||||||||||||||
|
Alternative investments:
|
||||||||||||||||||||||||||||
|
Hedge fund of funds (c)
|
109 | 109 | ||||||||||||||||||||||||||
|
Insurance contracts (d)
|
9 | 9 | ||||||||||||||||||||||||||
|
Other
|
3 | 2 | 1 | |||||||||||||||||||||||||
|
Cash and cash equivalents
|
75 | 70 | 5 | |||||||||||||||||||||||||
|
Total
|
$ | 1,537 | $ | 426 | $ | 864 | $ | 111 | $ | — | $ | 127 | $ | 9 | ||||||||||||||
81
Table of Contents
Notes:
(a) This category comprises a combination of small-, mid-
and large-cap equity stocks that are allocated at the investment
manager’s discretion.
(b) This category represents a combination of investment
grade corporate bonds, sovereign bonds, Yankee bonds, asset
backed securities and U.S. government bonds.
(c) This category includes fund managers that invest in a
well-diversified group of hedge funds where strategies include,
but are not limited to, event driven, relative value, long/short
market neutral, multistrategy and global macro.
(d) This category comprises contracts placed with insurance
companies where the underlying assets are invested in fixed
interest securities.
| 2009 | ||||||||||||||||
| U.S. | Non-U.S. | |||||||||||||||
|
Hedge
|
||||||||||||||||
|
fund of
|
Insurance
|
|||||||||||||||
|
Reconciliation of Level 3 Assets
|
funds | Other | Total | contract | ||||||||||||
|
Fair value at beginning of period
|
$ | 36 | $ | 2 | $ | 38 | $ | 9 | ||||||||
|
Unrealized gains relating to
Assets still held at the reporting date |
3 | 3 | ||||||||||||||
|
Purchases
|
70 | 70 | ||||||||||||||
|
Fair value at end of period
|
$ | 109 | $ | 2 | $ | 111 | $ | 9 | ||||||||
Plan assets —
Target asset allocations of
U.S. pension plans are established through an investment
policy, which is updated periodically and reviewed by an
Investment Committee, comprised of certain company officers and
directors. The investment policy allows for a flexible asset
allocation mix which is intended to provide appropriate
diversification to lessen market volatility while assuming a
reasonable level of economic risk.
Our policy recognizes that properly managing the relationship
between pension assets and pension liabilities serves to
mitigate the impact of market volatility on our funding levels.
During 2009 the Investment Committee approved a new asset
allocation. Accordingly, the plan’s assets were
transitioned to an appropriately balanced allocation between a
Growth Portfolio, an Immunizing Portfolio and a Liquidity
Portfolio. These three
sub-portfolios
are intended to balance the generation of incremental returns
with the management of overall risk.
The Growth Portfolio is a return-seeking portfolio invested in a
diversified pool of assets in order to generate an incremental
return with an acceptable level of risk. The Immunizing
Portfolio is a hedging portfolio that may be comprised of fixed
income securities and overlay positions. This portfolio is
designed to offset changes in the value of the pension liability
due to changes in interest rates. The Liquidity Portfolio is a
cash portfolio designed to meet short term liquidity needs and
reduce the plan’s overall risk.
The allocations between portfolios may be adjusted to meet
changing objectives and constraints. We expect that as the
funded status of the plan changes, we will increase or decrease
the size of the Growth Portfolio in order to manage the risk of
losses in the plan. As of December 31, 2009, the Growth
Portfolio (U.S and
non-U.S. equities,
core and high yield fixed income, as well as, hedge fund of
funds and emerging market debt) comprises 52% of total assets,
the Immunizing Portfolio (long duration U.S. Treasury
strips and corporate bonds) comprises 43% and the Liquidity
Portfolio (cash and short term securities) comprises 5%. The
Growth Portfolio is currently limited to not less than 35% nor
more than 65% of total assets, the Immunizing Portfolio is
currently limited to not less than 30% nor more than 60% and the
Liquidity Portfolio is currently limited to no more than 10%.
82
Table of Contents
Significant assumptions —
The significant
weighted average assumptions used in the measurement of pension
benefit obligations at December 31 of each year and the net
periodic benefit cost for each year are as follows:
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
|
Benefit obligations:
|
||||||||||||||||||||||||
|
Discount rate
|
5.79 | % | 5.36 | % | 6.44 | % | 5.80 | % | 6.26 | % | 5.27 | % | ||||||||||||
|
Net periodic benefit cost:
|
||||||||||||||||||||||||
|
Discount rate
|
6.44 | % | 5.80 | % | 6.26 | % | 5.27 | % | 5.88 | % | 5.03 | % | ||||||||||||
|
Rate of compensation increase
|
N/A | 3.21 | % | 5.00 | % | 3.11 | % | 5.00 | % | 2.98 | % | |||||||||||||
|
Expected return on plan assets
|
7.50 | % | 6.03 | % | 8.25 | % | 6.66 | % | 8.25 | % | 6.32 | % | ||||||||||||
The pension plan discount rate assumptions are evaluated
annually in consultation with our outside actuarial advisors.
Long-term interest rates on high quality corporate debt
instruments are used to determine the discount rate. For our
largest plans, discount rates are developed using a discounted
bond portfolio analysis, with appropriate consideration given to
defined benefit payment terms and duration of the liabilities.
The expected rate of return on plan assets was selected on the
basis of our long-term view of return and risk assumptions for
major asset classes. We define long-term as forecasts that span
at least the next ten years. Our long-term outlook is
influenced by a combination of return expectations by individual
asset class, actual historical experience and our diversified
investment strategy. We consult with and consider the opinions
of financial professionals in developing appropriate capital
market assumptions. Return projections are also validated using
a simulation model that incorporates yield curves, credit
spreads and risk premiums to project long-term prospective
returns. The appropriateness of the expected rate of return is
assessed on an annual basis and revised if necessary. We
reduced the U.S. rate for 2009 expense purposes based on
the volatility experienced in global equity, debt, currency and
commodity markets. Also, since the benefit accruals are frozen
for all of our U.S. pension plans, we shifted the targeted
asset allocation to a higher percentage of fixed income
securities.
The significant weighted average assumptions used in the
measurement of other postretirement benefit obligations at
December 31 of each year and the net periodic benefit cost for
each year are as follows:
| 2009 | 2008 | 2007 | ||||||||||||||
| Non-U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||
|
Benefit obligations:
|
||||||||||||||||
|
Discount rate
|
5.79 | % | 6.33 | % | 6.24 | % | 5.29 | % | ||||||||
|
Net periodic benefit cost:
|
||||||||||||||||
|
Discount rate
|
6.33 | % | 5.29 | % | 5.86 | % | 5.04 | % | ||||||||
|
Initial healthcare costs trend rate
|
7.98 | % | 8.40 | % | 10.00 | % | 8.38 | % | ||||||||
|
Ultimate healthcare costs trend rate
|
5.03 | % | 4.95 | % | 5.00 | % | 4.94 | % | ||||||||
|
Year ultimate reached
|
2015 | 2015 | 2013 | 2015 | ||||||||||||
The discount rate selection process was similar to the pension
plans. Assumed healthcare cost trend rates have a significant
effect on the healthcare obligation. To determine the trend
rates, consideration is given to the plan design, recent
experience and healthcare economics.
83
Table of Contents
A one-percentage-point change in assumed healthcare costs trend
rates would have the following effects for 2009:
|
1% Point
|
1% Point
|
|||||||
| Increase | Decrease | |||||||
|
Effect on total of service and interest cost components
|
$ | 1 | $ | (1 | ) | |||
|
Effect on postretirement benefit obligations
|
11 | (10 | ) | |||||
Estimated future benefit payments —
Expected
benefit payments by our pension plans and other postretirement
plans for each of the next five years and for the period 2015
through 2019 are as follows:
| Pension Benefits | Other Benefits | |||||||||||
| Year | U.S. | Non-U.S. | Non-U.S. | |||||||||
|
2010
|
$ | 148 | $ | 31 | $ | 7 | ||||||
|
2011
|
145 | 100 | 8 | |||||||||
|
2012
|
143 | 15 | 8 | |||||||||
|
2013
|
139 | 15 | 8 | |||||||||
|
2014
|
135 | 15 | 8 | |||||||||
|
2015 to 2019
|
639 | 85 | 42 | |||||||||
|
Total
|
$ | 1,349 | $ | 261 | $ | 81 | ||||||
Pension benefits are funded through deposits with trustees that
satisfy, at a minimum, the applicable funding regulations. OPEB
benefits are funded as they become due. As a result of the
closure of several facilities in Canada, we are required to
settle the related retiree pension benefit obligations. These
settlements are projected to occur in 2011. Projected
contributions to be made to the defined benefit pension plans in
2010 are $13 for our
non-U.S. plans
and nil for our U.S. plans.
| Note 11. | Cash Deposits |
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 comparable security is provided in the form of
letters of credit. Accordingly, these deposits are not
considered to be restricted.
| December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | |||||||||||||||||||||||
| U.S. | Non-U.S. | Total | U.S. | Non-U.S. | Total | |||||||||||||||||||
|
Cash and cash equivalents
|
$ | 517 | $ | 296 | $ | 813 | $ | 280 | $ | 352 | $ | 632 | ||||||||||||
|
Cash and cash equivalents held as deposits
|
4 | 39 | 43 | 56 | 20 | 76 | ||||||||||||||||||
|
Cash and cash equivalents held at less than wholly owned
subsidiaries
|
3 | 88 | 91 | 69 | 69 | |||||||||||||||||||
|
Balance at December 31
|
$ | 524 | $ | 423 | $ | 947 | $ | 336 | $ | 441 | $ | 777 | ||||||||||||
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 significantly restrict the ability of our
operations to repatriate this cash. Beyond these restrictions,
there are practical limitations on repatriation of cash from
certain countries because of the resulting tax withholdings.
84
Table of Contents
| Note 12. | Financing Agreements |
In September and October of 2009, we completed a common stock
offering for 39 million shares at a price per share of
$6.75, generating net proceeds of $250. The provisions of our
Term Facility required that a minimum of 50% of the net proceeds
of the equity offering be used to repay outstanding principal of
our term loan. As a result of previous debt repurchases,
approximately 10% of the outstanding principal amount of the
term loan is held by a wholly-owned
non-U.S. subsidiary
of Dana. Accordingly, $13 of the $126 term loan repayment made
to the lenders was received by this wholly-owned
non-U.S. subsidiary
and $113 was used to repay outstanding principal of our term
loan held by third parties. We recorded a net loss on
extinguishment of debt of $8, including the premium of $1 on the
prepayment of debt in connection with the equity offering which
is included in other income, net. We also charged $3 of
deferred financing costs to interest expense in connection with
this reduction in debt. This amount is included in the
amortization of deferred financing charges in the statement of
cash flows.
Additional debt reduction occurred in the second and third
quarters of 2009 when the combination of Dana repayments and
purchases of debt by a wholly-owned
non-U.S. subsidiary
of Dana reduced the outstanding principal under our Term
Facility by $138 (offset by original issue discount (OID)
reduction of $9 for a net change of $129) with a cash outlay of
$86. The resulting gain of $43 was recorded as other income,
net. Related debt issuance costs of $3 were charged to interest
expense. This amount is included in the amortization of deferred
financing charges in the statement of cash flows.
In connection with the planned divestiture of substantially all
of the assets of our Structural Products business, we expect to
receive approximately $130 of the proceeds of $150 from this
sale in the first quarter of 2010. Under the terms of our
amended Exit Facility we will be required to apply the proceeds
to pay down our Term Facility.
Financing
Agreements
Exit financing —
On the Effective Date, Dana,
as Borrower, and certain of our domestic subsidiaries, as
guarantors, entered into an Exit Facility with Citicorp USA,
Inc., Lehman Brothers Inc. and Barclays Capital. The Exit
Facility consists of a Term Facility in the total aggregate
amount of $1,430 and a $650 Revolving Facility. The Term
Facility was fully drawn in borrowings of $1,350 on the
Effective Date and $80 on February 1, 2008. Net proceeds
were reduced by payment of $114 of OID and other customary
issuance costs and fees of $40 for net proceeds of $1,276.
There were no initial borrowings under the Revolving Facility.
In November 2008, we entered into an amendment to our Term
Facility (the Amendment) which, among other changes, revised our
quarterly financial covenants. As of December 31, 2009,
the financial covenants are as follows:
| • | a maximum leverage ratio of not greater than 3.80:1.00 at December 31, 2009, decreasing in steps to 2.50:1.00 as of September 30, 2012 and thereafter, based on the ratio of consolidated funded debt to the previous twelve month consolidated earnings before interest, taxes, depreciation and amortization (EBITDA), as defined in the agreement; and | |
| • | a minimum interest coverage ratio of not less than 2.80:1.00 at December 31, 2009, increasing in steps to 4.50:1.00 as of March 31, 2013 and thereafter, based on the ratio of the previous twelve month EBITDA (as defined in the agreement) to consolidated interest expense for that period. |
The Amendment changed the Credit Agreement’s definition of
EBITDA by increasing the amount of restructuring charges that
are excluded from EBITDA in 2009 and 2010 from $50 to $100 per
year.
85
Table of Contents
After 2010, restructuring charges of up to $50 per year are
excluded (up to an aggregate maximum of $100 for periods after
2010). The Amendment also permits us to dispose of certain
lines of business.
Under the Amendment, we may not make preferred or common
dividend payments and certain other payments until the total
leverage ratio as of the end of the preceding fiscal quarter is
less than or equal to 3.25:1.00. The Amendment also reduced the
net amount of foreign subsidiary permitted indebtedness to an
aggregate of $400 outstanding at any time. The Amendment
increased the interest rate payable on outstanding advances by
0.50% per annum. We paid an additional $24 of fees to creditors
including an amendment fee of 1.50% of outstanding advances
under the Term Facility at that time. These fees are amortized
to interest expense on a straight-line basis which approximates
the effective interest method.
We repaid $150 of the term loan in November 2008. OID reduced
the basis of the $150 of debt repaid by $10 resulting in a loss
on the repayment of debt of $10 recorded in other income, net.
Related deferred financing costs of $3 were charged to interest
expense. This amount is included in the amortization of deferred
financing charges in the statement of cash flows.
Amounts outstanding under the Revolving Facility may be
borrowed, repaid and reborrowed with the final payment due and
payable on January 31, 2013. Amounts outstanding under the
Term Facility are payable up to January 31, 2014 in equal
quarterly amounts on the last day of each fiscal quarter at a
rate of 1% per annum of the original principal amount of the
Term Facility, adjusted for any prepayments. The remaining
balance is due in equal quarterly installments in the final year
of the Term Facility with final maturity on January 31,
2015. The amended Exit Facility contains mandatory prepayment
requirements in certain other circumstances and certain term
loan prepayments are subject to a prepayment call premium prior
to the second anniversary of the Term Facility.
The Revolving Facility bears interest at a floating rate based
on, at our option, the base rate or LIBOR rate (each as
described in the Revolving Facility) plus a margin based on the
undrawn amounts available under the Revolving Facility as set
forth below:
|
Remaining Borrowing Availability
|
Base Rate | LIBOR Rate | ||||||
|
Greater than $450
|
1.00 | % | 2.00 | % | ||||
|
Greater than $200 but less than or equal to $450
|
1.25 | % | 2.25 | % | ||||
|
$200 or less
|
1.50 | % | 2.50 | % | ||||
We pay a commitment fee of 0.375% per annum for unused committed
amounts under the Revolving Facility. Up to $400 of the
Revolving Facility may be applied to letters of credit. Issued
letters of credit reduce availability. We pay a fee for issued
and undrawn letters of credit in an amount per annum equal to
the applicable LIBOR margin based on a quarterly average
availability under the Revolving Facility and a per annum
fronting fee of 0.25%, payable quarterly.
As amended, the Term Facility interest rate is a floating rate
based on, at our option, the base rate or LIBOR rate (each as
described in the Term Facility) plus a margin of 3.25% in the
case of base rate loans or 4.25% in the case of LIBOR rate
loans. Through January of 2010, the LIBOR rates payable with
respect to each of the Revolving Facility and the Term Facility
could not be less than 3.00%.
Under the amended Exit Facility, Dana (with certain subsidiaries
excluded) is required to comply with customary covenants for
facilities of this type and we are required to maintain
compliance with the financial covenants. The amended Exit
Facility and the European Receivables Loan Facility (see below)
also include material adverse change provisions. These credit
facilities also include customary events of default for
facilities of this type. The amended Exit Facility is
guaranteed by all of our domestic subsidiaries except for Dana
Credit Corporation (DCC), Dana Companies, LLC and their
respective subsidiaries (the guarantors). The Revolving
Facility Security Agreement grants a first priority lien on
Dana’s and the guarantors’ accounts receivable and
inventory and a second priority lien on substantially all of
Dana’s and the guarantors’ remaining assets, including
a pledge of 65% of the stock of our material foreign
subsidiaries.
86
Table of Contents
The net proceeds from the Exit Facility were used to repay
Dana’s DIP Credit Agreement (which was terminated pursuant
to its terms), make other payments required upon exit from
bankruptcy protection and provide liquidity to fund working
capital and other general corporate purposes.
As of December 31, 2009, we had gross borrowings of $1,003
and unamortized OID of $57 under the amended Term Facility, no
borrowings under the Revolving Facility and we had utilized $183
for letters of credit. Based on our borrowing base collateral
of $344, we had potential availability at that date under the
Revolving Facility of $161 after deducting the outstanding
letters of credit.
As market conditions warrant, we, our affiliates, or major
equity holders may from time to time repurchase debt securities
issued by Dana or its subsidiaries, in privately negotiated or
open market transactions, by tender offer, exchange offer or
otherwise.
Interest rate agreements —
Interest on the
amended Term Facility accrues at variable interest rates. Under
the amended Term Facility we are required to carry interest rate
hedge agreements covering a notional amount of not less than 50%
of the aggregate loans outstanding under the amended Term
Facility until January 2011. The fair value of these contracts,
which effectively cap our interest rate at 10.25% on $702 of
debt, was less than $1 as of December 31, 2009.
European receivables loan facility —
In July
2007, certain of our European subsidiaries entered into
definitive agreements to establish an accounts receivable
securitization program. The agreements include a Receivable
Loan Agreement (the Loan Agreement) with GE Leveraged Loans
Limited (GE) that provides for a five-year accounts receivable
securitization facility under which up to the euro equivalent of
$243 in financing is available to those European subsidiaries
(Sellers) subject to the availability of adequate levels of
accounts receivable.
These obligations are secured by a lien on and security interest
in all of each Seller’s rights to the transferred accounts
receivable, as well as collection accounts and items related to
the accounts receivable. The program is accounted for as a
secured borrowing with a pledge of collateral. Accordingly, the
accounts receivable sold and the loans from GE and the
participating lenders are included in our consolidated financial
statements. At December 31, 2009, there were no
borrowings under this facility although $123 of accounts
receivable available as collateral under the program would have
supported $63 of borrowings at that date.
Advances bear interest based on the LIBOR applicable to the
currency in which each advance is denominated, plus a margin as
specified in the Loan Agreement. Advances are to be
repaid in full by July 2012. We also pay a fee to the
lenders based on any unused amount of the accounts receivable
facility. The Loan Agreement contains representations
and warranties, affirmative and negative covenants and events of
default that are customary for financings of this type.
Other borrowings
— Additional short-term
borrowings of $15 and $51 at December 31, 2009 and 2008
carry average interest rates of 2.10% and 5.61%.
Covenants
— We were in compliance with our debt
covenants at December 31, 2009 and, based on our current
forecast assumptions, we expect to be able to satisfy our debt
covenants during the next twelve months. Based on our
financial covenants, we had additional borrowing capacity of
$232 at December 31, 2009. The borrowing
available from our credit facilities was $224 based on the
borrowing base collateral of those lines.
DCC notes
— DCC was a non-Debtor subsidiary of
Dana. In December 2006, DCC and the holders of most of the DCC
Notes executed a forbearance agreement which provided that DCC
would sell its asset portfolio and use the proceeds to pay down
DCC debt. In January 2008, DCC made a $90 payment to
its noteholders and on the Effective Date Dana paid DCC $49, the
remaining amount due to DCC noteholders in settlement of
DCC’s general unsecured claim of $325 with the
Debtors. DCC used these funds to repay the
noteholders in full.
87
Table of Contents
Details of consolidated long-term debt at December 31 are as
follows:
| 2009 | 2008 | |||||||||||||||
|
Carrying
|
Carrying
|
|||||||||||||||
| Value | Fair Value | Value | Fair Value | |||||||||||||
|
Term Loan Facility, weighted average rate, 7.25%
|
$ | 1,003 | $ | 963 | $ | 1,266 | $ | 608 | ||||||||
|
Less original issue discount
|
(57 | ) | (87 | ) | ||||||||||||
| 946 | 963 | 1,179 | 608 | |||||||||||||
|
Nonrecourse notes, fixed rates, 5.92%,
due 2010 to 2011
|
4 | 4 | 6 | 6 | ||||||||||||
|
Other indebtedness
|
38 | 35 | 15 | 13 | ||||||||||||
|
Total
|
988 | 1,002 | 1,200 | 627 | ||||||||||||
|
Less: current maturities
|
19 | 19 | 19 | 19 | ||||||||||||
|
Total long-term debt
|
$ | 969 | $ | 983 | $ | 1,181 | $ | 608 | ||||||||
The total maturities of all long-term debt (excluding OID) for
the next five years and after are as follows: 2010, $19; 2011,
$16; 2012, $32; 2013, $11; 2014, $774 and beyond 2014, $193.
Fees are paid to the banks for providing committed lines, but
not for uncommitted lines. We paid fees of $8, $71
and $18 in 2009, 2008 and 2007 in connection with our committed
facilities. Bank fees totaling $19, $18 and $13 in
2009, 2008 and 2007 and amortization of OID of $14 and $16 in
2009 and 2008 are included in interest expense.
| Note 13. | Fair Value Measurements |
The fair value framework establishes a three-tier fair value
hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value:
| • | Level 1 inputs (highest priority) include unadjusted quoted prices in active markets for identical assets or liabilities. | |
| • | Level 2 inputs include other than quoted prices for similar assets or liabilities that are observable either directly or indirectly. | |
| • | Level 3 inputs (lowest priority) include unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The FASB has issued several statements which address specific
issues related to the accounting and disclosure of certain
financial instruments. This guidance covers the
determination of fair value of an asset in a market that is not
active, when the volume and level of activity for the asset or
liability have significantly decreased, and provides additional
guidance for estimating fair value for transactions that are not
orderly. Also covered is the recognition and
presentation of
other-than-temporary
impairments. The guidance was amended for debt
securities to make the guidance more
operational. Disclosure was also expanded about the
fair value of financial instruments.
Companies are permitted to choose to measure eligible financial
instruments and certain other items at fair value at specified
election dates. Entities that elect the fair value
option must report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each
subsequent reporting date. We did not elect to
measure any additional financial instruments or other items at
fair value.
In measuring the fair value of our assets and liabilities, we
use market data or assumptions that we believe market
participants would use in pricing an asset or liability
including assumptions about risk when
appropriate. Our valuation techniques include a
combination of observable and unobservable inputs.
88
Table of Contents
As of December 31, 2009 and December 31, 2008, our
assets and liabilities that are carried at fair value on a
recurring and a non-recurring basis include the following:
| Fair Value Measurements Using | ||||||||||||||||
|
Quoted
|
Significant
|
|||||||||||||||
|
Prices in
|
Other
|
Significant
|
||||||||||||||
|
Active
|
Observable
|
Unobservable
|
||||||||||||||
|
Markets
|
Inputs
|
Inputs
|
||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
|
December 31, 2009
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Trademarks and trade names
|
$ | 65 | $ | — | $ | — | $ | 65 | ||||||||
|
Notes receivable
|
94 | 94 | ||||||||||||||
|
Total assets
|
$ | 159 | $ | — | $ | — | $ | 159 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Currency forward contracts
|
$ | 4 | $ | — | $ | 4 | $ | — | ||||||||
|
Total liabilities
|
$ | 4 | $ | — | $ | 4 | $ | — | ||||||||
|
December 31, 2008
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Trademarks and trade names
|
$ | 72 | $ | — | $ | — | $ | 72 | ||||||||
|
Notes receivable
|
20 | 20 | ||||||||||||||
|
Currency forward contracts
|
8 | 8 | ||||||||||||||
|
Total assets
|
$ | 100 | $ | — | $ | 8 | $ | 92 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Currency forward contracts
|
$ | 6 | $ | — | $ | 6 | $ | — | ||||||||
|
Total liabilities
|
$ | 6 | $ | — | $ | 6 | $ | — | ||||||||
The intangible assets and the property plant and equipment of
the Structures segment have been impaired by $150 to a
Level 3 value. Following impairment, the
intangible assets are valued at $16 and the property, plant and
equipment at $65.
The fair value of interest rate caps which are measured using
Level 1 inputs was less than $1 at December 31, 2009
and 2008.
Trademarks and trade names are measured at October 31 each year
but may also be adjusted to fair value on a non-recurring basis
if conditions arise that warrant a review and impairment is
indicated. Following an assessment of our forecasted
results during the second quarter of 2009, we performed
impairment testing on our trademarks and trade names as of
June 30, 2009 and they were written down to their fair
values (see Note 6).
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The change in fair value using Level 3 inputs of the notes
receivable can be summarized as follows:
| Dana | Prior Dana | ||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||
|
Year Ended
|
Ended
|
Ended
|
|||||||||||
|
December 31,
|
December 31,
|
January 31,
|
|||||||||||
| 2009 | 2008 | 2008 | |||||||||||
|
Beginning of period
|
$ | 20 | $ | 62 | $ | 67 | |||||||
|
Accretion of value (interest income)
|
10 | 9 | 1 | ||||||||||
|
Unrealized gain (loss) (OCI)
|
64 | (51 | ) | (6 | ) | ||||||||
|
End of period
|
$ | 94 | $ | 20 | $ | 62 | |||||||
Substantially all of the notes receivable amount consists of one
note, due 2019, obtained in connection with a divestiture in
2004. Its carrying amount is adjusted each quarter
based on the market value of publicly traded debt of the
operating subsidiary of the obligor. At
December 31, 2009, the fair value of the note approximates
the contractual value and we believe that all contractual
payments related to this note will be received. Net
changes in the values of the other notes receivable are less
than $1.
See Interest Rate Agreements in Note 12 for a discussion of
the interest rate caps.
We manufacture and sell our products in a number of countries
and, as a result, are exposed to movements in foreign currency
exchange rates. From time to time, we enter into
forward contracts to manage the exposure on forecasted
transactions denominated in foreign currencies and to manage the
risk of transaction gains and losses associated with assets and
liabilities denominated in currencies other than the functional
currency of certain subsidiaries. The changes in the
fair value of these forward contracts are recorded in cost of
sales for product related hedges and in other income for
repatriation hedges.
| Note 14. | Risk Management and Derivatives |
The total notional amount of outstanding foreign currency
derivatives as of December 31, 2009 was $86, which is
primarily comprised of forward exchange contracts denominated in
euros, British pounds and Australian dollars versus the
U.S. dollar.
The fair values of derivative instruments included within the
consolidated balance sheet as of December 31, 2009 is less
than $1 of receivables under forward contracts reported as part
of other current assets and $4 of payables under forward
contacts reported in other accrued liabilities. These
derivatives are not designated as hedging
instruments. Changes in the fair value of these
instruments and any gain or loss realized are reported in other
income, net or cost of sales for materials purchases (see
Note 13).
Hedges of product costs are recorded in cost of sales when the
underlying transaction affects net income. No amounts
were designated as hedges during 2009. We also carry
an interest rate cap on a notional value of $702 of our
long-term debt. The fair value of this derivative at
December 31, 2009 was less than $1.
| Note 15. | Commitments and Contingencies |
Class action lawsuit and derivative actions
— A
securities class action entitled
Howard
Frank v. Michael J. Burns and Robert
C. Richter
was originally filed in October 2005
in the U.S. District Court for the Northern District of
Ohio, naming our former Chief Executive Officer, Michael
J. Burns, and former Chief Financial Officer, Robert
C. Richter, as defendants. In a
consolidated complaint filed in August 2006, lead plaintiffs
alleged violations of the U.S. securities laws and claimed
that the price at which our stock traded at various times
between April 2004 and October 2005 was artificially inflated as
a result of the defendants’ alleged
wrongdoing. By order dated August 21, 2007, the
District Court
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granted the defendants’ motion to dismiss the consolidated
complaint and entered a judgment closing the case. On
November 19, 2008, following briefing and oral argument on
the lead plaintiffs’ appeal, the Sixth Circuit vacated the
District Court’s judgment of dismissal on the ground that
the decision on which it was based misstated the applicable
pleading standard. On August 29, 2009, the
District Court entered an amended order granting
defendants’ renewed motion to dismiss the consolidated
complaint and entered a judgment closing the case. On
September 23, 2009, lead plaintiffs filed a notice of
appeal of the amended order and the judgment
entry. The appellate briefs have been filed and we
are awaiting the setting of the oral argument
date. We do not believe that any liabilities will
result from these proceedings.
SEC investigation
— We reached a settlement
with the SEC in September 2009, bringing to a close the
investigation initiated by the SEC in November 2005 of certain
matters related to the restatement of the prior Dana financial
statements for fiscal year 2004 and the first two quarters of
2005. No fines or penalties were imposed on
Dana. In consenting to a cease and desist order,
Dana — as successor registrant to Prior
Dana — agreed to comply with various provisions of the
federal securities laws. We cooperated fully with the
SEC throughout its investigation.
Legal proceedings arising in the ordinary course of
business
— We are a party to various pending
judicial and administrative proceedings arising in the ordinary
course of business. These include, among others,
proceedings based on product liability claims and alleged
violations of environmental laws. We have reviewed
these pending legal proceedings, including the probable
outcomes, our reasonably anticipated costs and expenses, the
availability and limits of our insurance coverage and surety
bonds and our established reserves for uninsured liabilities.
Further information about some of these legal proceedings
follows, including information about our accruals for the
liabilities that may arise from such proceedings. We
accrue for contingent liabilities at the time we believe they
are both probable and estimable. We review our
assessments of probability and estimability as new information
becomes available and adjust our accruals quarterly, if
appropriate. Since we do not accrue for contingent
liabilities that we believe are probable unless we can
reasonably estimate the amounts of such liabilities, our actual
liabilities may exceed the amounts we have
recorded. We do not believe that any liabilities that
may result from these proceedings are reasonably likely to have
a material adverse effect on our liquidity or financial
condition.
Asbestos personal injury liabilities
— We had
approximately 31,000 active pending asbestos personal injury
liability claims at December 31, 2009 and at
December 31, 2008. For 2009, approximately
11,000 mostly inactive claims have been settled and are awaiting
final documentation and dismissal, with or without
payment. We have accrued $113 for indemnity and
defense costs for settled, pending and future claims at
December 31, 2009, compared to $124 at December 31,
2008. We use a fifteen year time horizon for our
estimate of this liability.
At December 31, 2009, we had recorded $58 as an asset for
probable recovery from our insurers for the pending and
projected asbestos personal injury liability claims, compared to
$63 recorded at December 31, 2008. The recorded
asset reflects our assessment of the capacity of our current
insurance agreements to provide for the payment of anticipated
defense and indemnity costs for pending claims and projected
future demands. The recorded asset does not represent
the limits of our insurance coverage, but rather the amount we
would expect to recover if we paid the accrued indemnity and
defense costs.
As part of our reorganization, assets and liabilities associated
with asbestos claims were retained in Prior Dana which was then
merged into Dana Companies, LLC, a consolidated wholly-owned
subsidiary of Dana. The assets of Dana Companies, LLC
include insurance rights relating to coverage against these
liabilities and other assets which we believe are sufficient to
satisfy its liabilities. Dana Companies, LLC
continues to process asbestos personal injury claims in the
normal course of business, is separately managed and has an
independent board member. The independent board
member is required to approve certain transactions including
dividends or other transfers of $1 or more of value to Dana.
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Table of Contents
Other product liabilities
— We had accrued $1
for non-asbestos product liability costs at December 31,
2009, compared to $2 at December 31, 2008, with no recovery
expected from third parties at either date. The
decline in 2009 results from a reduction in the volume of active
claims. We estimate these liabilities based on
assumptions about the value of the claims and about the
likelihood of recoveries against us derived from our historical
experience and current information.
Environmental liabilities
— Accrued
environmental liabilities at December 31, 2009 were $17,
compared to $18 at December 31, 2008. We
consider the most probable method of remediation, current laws
and regulations and existing technology in determining the fair
value of our environmental liabilities. As of
December 31, 2009, we have also recorded a receivable of
$2, representing amounts recoverable from certain of our
insurers.
During the second quarter of 2009, we reached agreements with
certain of our insurers related primarily to their coverage of
previously settled environmental claims. We recorded
the aggregate recovery of $12 in other receivables and reduced
cost of sales in the consolidated statement of
operations. As agreed, we have collected $10 of this
receivable as of December 31, 2009.
One of the larger claims at emergence was a claim involving the
Hamilton Avenue Industrial Park (Hamilton) site in New
Jersey. We had been a potentially responsible party
at this site (also known as the Cornell Dubilier Electronics or
CDE site) under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA). This matter
had been the subject of an estimation proceeding as a result of
our objection to a claim filed by the U.S. Environmental
Protection Agency (EPA) and other federal agencies
(collectively, the Government) in connection with this and
several other CERCLA sites. Following several months
of litigation and settlement discussions, we had concluded there
was a probable settlement outcome and adjusted the liability at
December 31, 2007 to the tentative $126 settlement
amount. In April 2008, we reached a tentative
agreement with the Government providing for an allowed general
unsecured claim of $126. Following the
Government’s comment period we received court approval and
satisfied this claim in October 2008 with the distribution of
5.2 million shares of our common stock (valued in
reorganization at $23.15 per share) from the disputed claims
reserve.
Other liabilities related to asbestos claims
—
After the Center for Claims Resolution (CCR) discontinued
negotiating shared settlements for asbestos claims for its
member companies in 2001, some former CCR members defaulted on
the payment of their shares of some settlements and some
settling claimants sought payment of the unpaid shares from
other members of the CCR at the time of the settlements,
including from us. We have been working with the CCR,
other former CCR members, our insurers and the claimants over a
period of several years in an effort to resolve these issues.
Through December 31, 2009, we had collected the entire $47
paid to claimants with respect to these
claims. Efforts to recover additional CCR-related
payments from surety bonds and other claims are
continuing. Additional recoveries are not assured and
accordingly have not been recorded at December 31, 2009.
Lease
Commitments
Cash obligations under future minimum rental commitments under
operating leases and net rental expense are shown in the table
below. Operating lease commitments are primarily
related to facilities.
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
|
Lease Commitments
|
$ | 48 | $ | 39 | $ | 33 | $ | 29 | $ | 45 | $ | 174 | $ | 368 | ||||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Rental Expense
|
$ | 71 | $ | 89 | $ | 105 | ||||||
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| Note 16. | Warranty Obligations |
We record a liability for estimated warranty obligations at the
dates our products are sold. We record the liability
based on our estimate of costs to settle future
claims. Adjustments are made as new information
becomes available.
Changes in our warranty liabilities are summarized below:
| Dana | Prior Dana | ||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||
|
Year Ended
|
Ended
|
Ended
|
|||||||||||
|
December 31,
|
December 31,
|
January 31,
|
|||||||||||
| 2009 | 2008 | 2008 | |||||||||||
|
Balance, beginning of period
|
$ | 100 | $ | 93 | $ | 92 | |||||||
|
Amounts accrued for current period sales
|
34 | 62 | 4 | ||||||||||
|
Adjustments of prior accrual estimates
|
3 | 10 | |||||||||||
|
Settlements of warranty claims
|
(56 | ) | (61 | ) | (3 | ) | |||||||
|
Foreign currency translation and other
|
2 | (4 | ) | ||||||||||
|
Balance, end of period
|
$ | 83 | $ | 100 | $ | 93 | |||||||
We have been notified by two of our larger customers that
quality issues allegedly relating to products supplied by us
could result in warranty claims. We have been engaged
in discussions with both Toyota Motor Corporation and a tier one
supplier to the Volkswagen Group regarding the technical aspects
of the root causes of the vehicle performance
issues. Our technical analysis and discussions with
these customers are ongoing. Based on the information
currently available to us, we do not believe that either of
these matters will result in a material liability to Dana.
| Note 17. | Income Taxes |
Continuing operations
— Income tax expense
(benefit) attributable to continuing operations can be
summarized as follows:
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
|
Expense (benefit)
|
2009 | 2008 | 2008 | 2007 | |||||||||||||
|
Current
|
|||||||||||||||||
|
U.S. federal and state
|
$ | (15 | ) | $ | 19 | $ | 14 | $ | 52 | ||||||||
|
Non-U.S.
|
8 | 66 | (6 | ) | 39 | ||||||||||||
|
Total current
|
(7 | ) | 85 | 8 | 91 | ||||||||||||
|
Deferred
|
|||||||||||||||||
|
U.S. federal and state
|
1 | (8 | ) | 27 | (106 | ) | |||||||||||
|
Non-U.S.
|
(21 | ) | 30 | 164 | 77 | ||||||||||||
|
Total deferred
|
(20 | ) | 22 | 191 | (29 | ) | |||||||||||
|
Total expense (benefit)
|
$ | (27 | ) | $ | 107 | $ | 199 | $ | 62 | ||||||||
Net interest expense (income) of $4, ($10) and $9 was recognized
as part of the provision for income taxes in the year ended
December 31, 2009, the eleven months ended
December 31, 2008 and the year ended December 31, 2007.
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Income tax expense was calculated based upon the following
components of income (loss) from continuing operations before
income tax:
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
U.S. operations
|
$ | (322 | ) | $ | (618 | ) | $ | 429 | $ | (406 | ) | ||||||
|
Non-U.S. operations
|
(132 | ) | 69 | 485 | 19 | ||||||||||||
|
Total income (loss) from continuing
|
|||||||||||||||||
|
operations before income taxes
|
$ | (454 | ) | $ | (549 | ) | $ | 914 | $ | (387 | ) | ||||||
The interplay of OCI recorded for our U.S. operations and
the related taxable loss projected for 2009 resulted in the
recording of tax expense of $25 in OCI and the recognition of a
tax benefit of $18 in continuing operations through the first
three quarters of 2009. The actuarial loss resulting
from the 2009 year-end valuation of our defined benefit
pension plans caused the OCI recorded for our
U.S. operations to be a loss for the full
year. Accordingly, the tax expense of $25 in OCI and
the tax benefit of $18 in continuing operations were both
reversed in the fourth quarter.
Effective tax rate —
The effective income tax
rate for continuing operations differs from the
U.S. federal statutory income tax rate for the following
reasons:
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
U.S. federal income tax rate
|
(35 | )% | (35 | )% | 35 | % | (35 | )% | |||||||||
|
Adjustments resulting from:
|
|||||||||||||||||
|
Non-deductible items, including reorganization expense
|
14 | ||||||||||||||||
|
State and local income taxes, net of federal benefit
|
1 | 2 | (1 | ) | |||||||||||||
|
Non-U.S. income
|
(2 | ) | 14 | (4 | ) | 1 | |||||||||||
|
Non-U.S. withholding
taxes on undistributed earnings of
non-U.S. operations
|
(4 | ) | (1 | ) | 1 | 10 | |||||||||||
|
Goodwill impairment
|
10 | 8 | |||||||||||||||
|
Settlement and return adjustments
|
(2 | ) | 5 | ||||||||||||||
|
Fresh start accounting adjustments
|
1 | ||||||||||||||||
|
Effect of gain on settlement of liabilities subject to compromise
|
66 | ||||||||||||||||
|
Miscellaneous items
|
1 | 4 | 4 | ||||||||||||||
|
Impact on continuing operations before valuation allowance
adjustments on effective tax rate
|
(42 | ) | (7 | ) | 101 | 6 | |||||||||||
|
Valuation allowance adjustments
|
36 | 26 | (79 | ) | 10 | ||||||||||||
|
Effective income tax rate for continuing operations
|
(6 | )% | 19 | % | 22 | % | 16 | % | |||||||||
Generally, the discharge of a debt obligation for an amount less
than the adjusted issue price creates cancellation of
indebtedness income (CODI), which must be included in the
obligor’s taxable income. However, recognition
of CODI is limited for a taxpayer that is a debtor in a
reorganization
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case if the discharge is granted by the court or pursuant to a
plan of reorganization approved by the court. In our
case, the Plan enabled the Debtors to qualify for this
bankruptcy exclusion rule. The CODI triggered by
discharge of debt under the Plan affected the taxable income of
the Debtors for the stub period tax return (January
2008) by reducing certain income tax attributes otherwise
available in the following order: (i) net operating losses
(NOLs) for the year of discharge and net operating loss
carryforwards; (ii) most credit carryforwards, including
the general business credit and the minimum tax credit;
(iii) net capital losses for the year of discharge and
capital loss carryforwards; and (iv) the tax basis of the
Debtors’ assets.
Through further evaluation and audit adjustment, our estimated
pre-emergence U.S. NOLs approximate $580. The
Internal Revenue Code (IRC) annual limitation on our use of
these pre-emergence NOLs is estimated to be $85. The
deferred tax assets related to our pre-emergence U.S. NOLs,
including those remaining post-emergence, have a full valuation
allowance. The additional NOLs accumulated since
emergence are not subject to limitation as of the end of
2009. However, there can be no assurance that trading
in our shares will not effect another change in control under
the IRC which would further limit our ability to utilize our
available NOLs.
We paid approximately $733 following emergence to fund two VEBAs
for certain union employee benefit obligations. In
July 2009, we finalized an agreement with the IRS confirming our
treatment of the amount paid as a deductible cost in the 2008
post-emergence period. This amount did not increase
the $580 of pre-emergence NOLs that are subject to the
limitations imposed by the IRC. Offsetting this
deduction in 2008 was additional CODI generated by the amendment
of our Exit Facility in November 2008. Under IRS
regulations, this amendment is treated as a reissuance of debt
at fair value for tax purposes. The difference
between the fair market value of the debt at that time and the
face value becomes an original issue discount for tax purposes
generating CODI of approximately $550. We believe
that the full amount of this discount will be deductible over
the remaining term of the loan. The net deferred tax
assets related to these issues have a full valuation allowance.
Valuation allowance adjustments
— We
periodically assess the need to establish valuation allowances
against our net deferred tax assets. Based on this
analysis and our history of losses and our near-term profit
outlook, we have established 100% valuation allowances against
our U.S. deferred tax assets. Similar valuation
allowances are recorded in other countries where, based on the
profit outlook, realization of the deferred tax asset does not
satisfy the more likely than not recognition
criterion. Consequently, there is no income tax
benefit recognized on the pre-tax losses of these jurisdictions
as valuation allowances are established, offsetting the
associated tax benefit. During 2009, we determined
that certain deferred tax assets in Spain required a valuation
allowance and we recorded a charge to tax expense of
$8. During 2008, we determined that our deferred tax
assets in Canada required a full valuation allowance and we
recorded a charge to tax expense of $34. We will
maintain full valuation allowances against our net deferred tax
assets in the U.S. and other applicable countries until
sufficient positive evidence exists to reduce or eliminate the
valuation allowance.
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Deferred tax assets and liabilities
— Temporary
differences and carryforwards give rise to the following
deferred tax assets and liabilities:
| Dana | Prior Dana | ||||||||||||
| December 31, |
January 31,
|
||||||||||||
| 2009 | 2008 | 2008 | |||||||||||
|
Net operating loss carryforwards
|
$ | 869 | $ | 624 | $ | 336 | |||||||
|
Expense accruals
|
247 | 335 | 174 | ||||||||||
|
Pension accruals
|
180 | 46 | 35 | ||||||||||
|
Research and development costs
|
124 | 155 | 184 | ||||||||||
|
Foreign tax credits recoverable
|
111 | 111 | 107 | ||||||||||
|
Other tax credits recoverable
|
72 | 69 | 61 | ||||||||||
|
Postretirement benefits other than pensions
|
36 | 32 | 156 | ||||||||||
|
Capital loss carryforward
|
31 | 12 | 82 | ||||||||||
|
Postemployment benefits
|
13 | (3 | ) | 14 | |||||||||
|
Inventory reserves
|
2 | (22 | ) | (51 | ) | ||||||||
|
Other employee benefits
|
2 | 4 | 1 | ||||||||||
|
Other
|
33 | 54 | 30 | ||||||||||
|
Total
|
1,720 | 1,417 | 1,129 | ||||||||||
|
Valuation allowance
|
(1,409 | ) | (1,137 | ) | (710 | ) | |||||||
|
Deferred tax assets
|
311 | 280 | 419 | ||||||||||
|
Unremitted earnings
|
(202 | ) | (81 | ) | (104 | ) | |||||||
|
Intangibles
|
(149 | ) | (199 | ) | (234 | ) | |||||||
|
Depreciation - non-leasing
|
(45 | ) | (124 | ) | (181 | ) | |||||||
|
Leasing activities
|
3 | (6 | ) | ||||||||||
|
Goodwill
|
(4 | ) | 5 | (2 | ) | ||||||||
|
Other
|
(8 | ) | |||||||||||
|
Deferred tax liabilities
|
(408 | ) | (396 | ) | (527 | ) | |||||||
|
Net deferred tax liabilities
|
$ | (97 | ) | $ | (116 | ) | $ | (108 | ) | ||||
Our deferred tax assets include benefits expected from the
utilization of NOLs, capital loss and credit carryforwards in
the future. The following table identifies the
various deferred tax asset components and the related allowances
that existed at December 31, 2009. Due to time
limitations
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on the ability to realize the benefit of the carryforwards,
additional portions of these deferred tax assets may become
unrealizable in the future.
|
Deferred
|
Earliest
|
|||||||||||
|
Tax
|
Valuation
|
Carryforward
|
Year of
|
|||||||||
| Asset | Allowance | Period | Expiration | |||||||||
|
Net operating losses
|
||||||||||||
|
U.S. federal
|
$ | 563 | $ | (563 | ) | 20 | 2023 | |||||
|
U.S. state
|
116 | (116 | ) | Various | 2010 | |||||||
|
Luxembourg
|
59 | (59 | ) | Unlimited | ||||||||
|
Brazil
|
41 | (35 | ) | Unlimited | ||||||||
|
France
|
27 | Unlimited | ||||||||||
|
Australia
|
16 | (16 | ) | Unlimited | ||||||||
|
Venezuela
|
15 | (8 | ) | 3 | 2011 | |||||||
|
U.K.
|
12 | (12 | ) | Unlimited | ||||||||
|
Argentina
|
5 | (5 | ) | 5 | 2011 | |||||||
|
Mexico
|
5 | (5 | ) | 10 | 2017 | |||||||
|
Spain
|
5 | (4 | ) | 15 | 2024 | |||||||
|
Other
non-U.S.
|
5 | (1 | ) | Various | 2014 | |||||||
|
Total
|
869 | (824 | ) | |||||||||
|
Capital losses
|
31 | (31 | ) | |||||||||
|
Other credits
|
183 | (183 | ) | 10 - 20 | 2010 | |||||||
|
Total
|
$ | 1,083 | $ | (1,038 | ) | |||||||
Foreign income repatriation
— We provide for
U.S. federal income and
non-U.S. withholding
taxes on the projected future repatriations of the earnings from
our
non-U.S. operations. During
2009, we continued to modify our forecast for future
repatriations due to the current market
conditions. Accordingly, we adjusted the future
income and
non-U.S. withholding
tax liabilities for these repatriations and recognized a net
benefit of $22 in 2009.
The earnings of our
non-U.S. subsidiaries
will likely be repatriated to the U.S. in the form of
repayments of intercompany borrowings and distributions from
earnings. Certain of our international operations had
intercompany loan obligations to the U.S. totaling $285 at
the end of 2009. Of this amount, intercompany loans
with an equivalent value of $156 are denominated in a foreign
currency and are not considered to be permanently invested as
they are expected to be repaid in the near term.
Income tax audits
— We conduct business
globally and, as a result, file income tax returns in multiple
jurisdictions that are subject to examination by taxing
authorities throughout the world. With few
exceptions, we are no longer subject to U.S. federal, state
and local or foreign income tax examinations for years before
1999. The U.S. federal income tax audits for
1999 through 2005 are settled subject to finalization of the
closing agreements. Upon finalization of the closing
agreements in the first half of 2010, we expect to make a
payment of $75 and adjust our reserves for uncertain tax
benefits as appropriate. We are under audit in the
U.S. for 2006 — 2008, but we do not expect to
incur any additional tax liability for that period.
We are currently under audit by foreign authorities for certain
taxation years. When these issues are settled the
total amounts of unrecognized tax benefits for all open tax
years may be modified. Audit outcomes and the timing
of the audit settlements are subject to uncertainty and we
cannot make an estimate of the impact on our financial position
at this time.
Unrecognized tax benefits
— We adopted the
guidance for accounting for uncertain income tax positions on
January 1, 2007 and credited retained earnings for the
initial impact of $3. As of the
97
Table of Contents
adoption date, we had gross unrecognized tax benefits of $137,
of which $112 could be reduced by NOL carryforwards, and other
timing adjustments. The net amount of $25, if recognized, would
affect our effective tax rate. Unrecognized tax benefits are
the difference between a tax position taken, or expected to be
taken, in a tax return and the benefit recognized for accounting
purposes. Interest income or expense, as well as penalties
relating to income tax audit adjustments and settlements are
recognized as components of income tax expense or benefit.
Interest of $7, $5 and $8 was accrued on the uncertain tax
positions as of December 31, 2009 and 2008 and
January 31, 2008.
A reconciliation of the beginning to ending amount of gross
unrecognized tax benefits is as follows:
| 2009 | 2008 | |||||||
|
Balance at January 1
|
$ | 44 | $ | 57 | ||||
|
Decreases related to prior year tax positions
|
(11 | ) | ||||||
|
Balance at January 31
|
44 | 46 | ||||||
|
Decrease related to expiration of statute of limitations
|
(3 | ) | 8 | |||||
|
Decreases related to prior years tax positions
|
(7 | ) | (27 | ) | ||||
|
Increases related to current year tax positions
|
7 | 17 | ||||||
|
Balance at December 31
|
$ | 41 | $ | 44 | ||||
As at December 31, 2009, the total amount of gross
unrecognized tax benefits was $41, all of which, if recognized,
would impact the effective tax rate. If open matters are
settled with the IRS, the total amounts of unrecognized tax
benefits for open tax years may be modified.
Other income, net included:
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
Interest income
|
$ | 24 | $ | 48 | $ | 4 | $ | 42 | |||||||||
|
Gain (loss) on extinguishment of debt
|
35 | (10 | ) | ||||||||||||||
|
Contract cancellation income
|
17 | ||||||||||||||||
|
Foreign exchange gain (loss)
|
9 | (12 | ) | 3 | 35 | ||||||||||||
|
Exports and other credits
|
19 | 11 | 1 | 17 | |||||||||||||
|
Strategic transaction expenses
|
(16 | ) | (10 | ) | |||||||||||||
|
DCC other income (loss), net
|
2 | (1 | ) | 38 | |||||||||||||
|
Divestiture gains (costs)
|
11 | ||||||||||||||||
|
Claim settlement
|
(11 | ) | |||||||||||||||
|
Other, net
|
10 | 24 | 1 | 30 | |||||||||||||
|
Other income, net
|
$ | 98 | $ | 53 | $ | 8 | $ | 162 | |||||||||
As discussed in Note 12 above, the net gain (loss) on
extinguishment of debt resulted from the repurchase and
repayment of Term Facility debt in 2008 and 2009.
Dana and its subsidiaries enter into foreign exchange forward
contracts to hedge currency exposure on certain intercompany
loans and accrued interest balances as well as to reduce
exposure in cross-currency transactions in the normal course of
business. At December 31, 2009, these foreign exchange
forward contracts had a total notional amount of $86. These
contracts are marked to
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Table of Contents
market, with the gain or loss recorded in cost of sales for
material purchase transactions and in other income, net for
intercompany accounts. Foreign exchange gains and losses on
cross-currency intercompany loan balances that are not
considered permanently invested are included in foreign exchange
gain (loss) above. Foreign exchange gains and losses on loans
that are permanently invested are reported in OCI.
The contract cancellation income of $17 represents recoveries in
connection with early cancellation of certain customer programs
during 2009.
Strategic transaction expenses relate primarily to costs
incurred in connection with evaluating alternative opportunities
for certain of our businesses. Included in this amount is $11
which has been recorded in connection with the pending sale of
substantially all of the assets of our Structural Products
business (Note 2).
Other recoveries
— During 2009, we agreed on
remuneration for early termination of a customer program in
mid-2010. Since this program was not immediately cancelled and
is continuing in full production through mid-2010, the
remuneration received for early cancellation is being reported
in sales over the remainder of the program. Program
cancellation income of $10 was recognized as revenue in 2009 and
$2 remains deferred at December 31, 2009.
The components that management establishes for purposes of
making decisions about an enterprise’s operating matters
are referred to as “operating segments.”
We manage our operations globally through six operating segments
with four operating segments — LVD, Sealing, Thermal
and Structures — focused on specific products for the
light vehicle market and two operating segments —
Commercial Vehicle and Off-Highway — focused on
specific medium-duty and heavy-duty vehicle markets. The former
Light Axle and Driveshaft segments were generally combined in
the first quarter of 2009 in line with our internal management
structure into the LVD segment but certain operations of those
segments were moved into the Commercial Vehicle and Off-Highway
segments. Prior period amounts have been retrospectively
adjusted for these changes.
We report the results of our operating segments and related
disclosures about each of our segments on the basis that is used
internally for evaluating segment performance and deciding how
to allocate resources to those segments.
The primary measure of operating results is Segment EBITDA which
is closely aligned with the definition of EBITDA in our debt
agreements. We use this adjusted EBITDA to enhance the
comparability and usefulness of our operating segment results
after the application of fresh start accounting upon emergence
from bankruptcy. The following items are excluded from our
covenant calculation of EBITDA and are shown separately in the
reconciliation of Segment EBITDA to the consolidated income
(loss) from continuing operations before income taxes: gain or
loss on reductions in debt, strategic transaction expenses, loss
on sale of assets, stock compensation expense, unrealized
foreign exchange gains or losses on intercompany loans and
market value adjustments on currency forward contracts. We
allocate the costs of corporate administrative services other
than executive activities and shared service centers to our
segments based on segment sales, operating assets and
headcount. We do not allocate trailing costs of previously
divested businesses and other non-administrative costs that are
not directly attributable to the operating segments. The
corporate costs allocated to the operating segments are $111,
$110, $10 and $129 for 2009, the eleven months ended
December 31, 2008, the one month ended January 31,
2008 and the full year 2007. Prior period segment results
presented below have been adjusted to conform to the 2009
presentation.
Our adjusted EBITDA, as defined for both internal performance
measurement and debt covenant compliance also excludes equity in
earnings of affiliates, noncontrolling interest net income,
restructuring charges (capped at $100 in 2009 for cash charges),
reorganization items, asset impairment, amortization of the
fresh start inventory
step-up
and
divestiture gains and losses.
99
Table of Contents
Segment
Information
We used the following information to evaluate our operating
segments:
| Dana | ||||||||||||||||||||||||
| Year Ended December 31, 2009 |
December 31,
|
|||||||||||||||||||||||
|
Inter-
|
2009 | |||||||||||||||||||||||
|
External
|
Segment
|
Segment
|
Capital
|
Depreciation/
|
Net
|
|||||||||||||||||||
| 2009 | Sales | Sales | EBITDA | Spend | Amortization | Assets | ||||||||||||||||||
|
LVD
|
$ | 2,021 | $ | 104 | $ | 131 | $ | 32 | $ | 134 | $ | 966 | ||||||||||||
|
Sealing
|
535 | 11 | 21 | 24 | 35 | 458 | ||||||||||||||||||
|
Thermal
|
179 | 5 | 8 | 5 | 16 | 112 | ||||||||||||||||||
|
Structures
|
592 | 9 | 35 | 9 | 44 | 151 | ||||||||||||||||||
|
Commercial Vehicle
|
1,051 | 38 | 81 | 20 | 44 | 721 | ||||||||||||||||||
|
Off-Highway
|
850 | 26 | 38 | 4 | 29 | 572 | ||||||||||||||||||
|
Eliminations and other
|
(193 | ) | 5 | 9 | 12 | |||||||||||||||||||
|
Total
|
$ | 5,228 | $ | — | $ | 314 | $ | 99 | $ | 311 | $ | 2,992 | ||||||||||||
| Dana | ||||||||||||||||||||||||
| Eleven Months Ended December 31, 2008 |
December 31,
|
|||||||||||||||||||||||
|
Inter-
|
2008 | |||||||||||||||||||||||
|
External
|
Segment
|
Segment
|
Capital
|
Depreciation/
|
Net
|
|||||||||||||||||||
| 2008 | Sales | Sales | EBITDA | Spend | Amortization | Assets | ||||||||||||||||||
|
LVD
|
$ | 2,603 | $ | 158 | $ | 79 | $ | 69 | $ | 120 | $ | 1,116 | ||||||||||||
|
Sealing
|
641 | 17 | 44 | 30 | 32 | 372 | ||||||||||||||||||
|
Thermal
|
231 | 6 | 3 | 10 | 15 | 119 | ||||||||||||||||||
|
Structures
|
786 | 10 | 37 | 43 | 36 | 352 | ||||||||||||||||||
|
Commercial Vehicle
|
1,442 | 43 | 50 | 57 | 33 | 754 | ||||||||||||||||||
|
Off-Highway
|
1,637 | 43 | 102 | 25 | 25 | 595 | ||||||||||||||||||
|
Eliminations and other
|
4 | (277 | ) | 8 | 94 | |||||||||||||||||||
|
Total
|
$ | 7,344 | $ | — | $ | 315 | $ | 234 | $ | 269 | $ | 3,402 | ||||||||||||
| Prior Dana | ||||||||||||||||||||||||
| One Month Ended January 31, 2008 |
January 31,
|
|||||||||||||||||||||||
|
Inter-
|
2008 | |||||||||||||||||||||||
|
External
|
Segment
|
Segment
|
Capital
|
Depreciation/
|
Net
|
|||||||||||||||||||
| 2008 | Sales | Sales | EBITDA | Spend | Amortization | Assets | ||||||||||||||||||
|
LVD
|
$ | 281 | $ | 15 | $ | 10 | $ | 8 | $ | 10 | $ | 1,007 | ||||||||||||
|
Sealing
|
64 | 1 | 6 | 2 | 2 | 292 | ||||||||||||||||||
|
Thermal
|
28 | 3 | 1 | 1 | 126 | |||||||||||||||||||
|
Structures
|
90 | 1 | 4 | 2 | 5 | 329 | ||||||||||||||||||
|
Commercial Vehicle
|
130 | 6 | 6 | 3 | 3 | 620 | ||||||||||||||||||
|
Off-Highway
|
157 | 4 | 14 | 2 | 469 | |||||||||||||||||||
|
Eliminations and other
|
1 | (27 | ) | 518 | ||||||||||||||||||||
|
Total
|
$ | 751 | $ | — | $ | 43 | $ | 16 | $ | 23 | $ | 3,361 | ||||||||||||
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Table of Contents
| Prior Dana | ||||||||||||||||||||||||
| Year Ended December 31, 2007 |
December 31,
|
|||||||||||||||||||||||
|
Inter-
|
2007 | |||||||||||||||||||||||
|
External
|
Segment
|
Segment
|
Capital
|
Depreciation/
|
Net
|
|||||||||||||||||||
| 2007 | Sales | Sales | EBITDA | Spend | Amortization | Assets | ||||||||||||||||||
|
LVD
|
$ | 3,476 | $ | 145 | $ | 112 | $ | 87 | $ | 116 | $ | 1,195 | ||||||||||||
|
Sealing
|
728 | 22 | 62 | 27 | 25 | 285 | ||||||||||||||||||
|
Thermal
|
293 | 6 | 17 | 15 | 11 | 117 | ||||||||||||||||||
|
Structures
|
1,069 | 18 | 86 | 38 | 58 | 373 | ||||||||||||||||||
|
Commercial Vehicle
|
1,531 | 67 | 78 | 47 | 40 | 568 | ||||||||||||||||||
|
Off-Highway
|
1,609 | 42 | 142 | 30 | 21 | 434 | ||||||||||||||||||
|
Eliminations and other
|
15 | (300 | ) | 8 | 7 | 531 | ||||||||||||||||||
|
Total
|
$ | 8,721 | $ | — | $ | 497 | $ | 252 | $ | 278 | $ | 3,503 | ||||||||||||
The net assets of the Structures segment include the assets held
for sale related to the planned divestiture of substantially all
of the assets of the segment and are net of the impairment
recorded in the fourth quarter of 2009. See Note 2.
The following table reconciles Segment EBITDA to the
consolidated income (loss) from continuing operations before
income taxes:
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
Segment EBITDA
|
$ | 314 | $ | 315 | $ | 43 | $ | 497 | |||||||||
|
Shared services and administrative
|
(22 | ) | (23 | ) | (3 | ) | (14 | ) | |||||||||
|
Other income (expense) not in segments
|
33 | 22 | (2 | ) | (27 | ) | |||||||||||
|
Foreign exchange not in segments
|
1 | (3 | ) | (6 | ) | ||||||||||||
|
Depreciation
|
(311 | ) | (269 | ) | (23 | ) | (279 | ) | |||||||||
|
Amortization of intangibles
|
(86 | ) | (81 | ) | |||||||||||||
|
Amortization of fresh start inventory
step-up
|
(49 | ) | |||||||||||||||
|
Restructuring
|
(118 | ) | (114 | ) | (12 | ) | (205 | ) | |||||||||
|
DCC EBIT
|
(2 | ) | 39 | ||||||||||||||
|
Impairment of goodwill
|
(169 | ) | (89 | ) | |||||||||||||
|
Impairment of long-lived assets
|
(156 | ) | (14 | ) | |||||||||||||
|
Reorganization items, net
|
2 | (25 | ) | (98 | ) | (275 | ) | ||||||||||
|
Gain (loss) on extinguishment of debt
|
35 | (10 | ) | ||||||||||||||
|
Strategic transaction expenses
|
(16 | ) | (10 | ) | |||||||||||||
|
Loss on sale of assets, net
|
(8 | ) | (10 | ) | (9 | ) | |||||||||||
|
Stock compensation expense
|
(13 | ) | (6 | ) | |||||||||||||
|
Foreign exchange on intercompany loans and market value
adjustments on forwards
|
6 | (7 | ) | 4 | 44 | ||||||||||||
|
Interest expense
|
(139 | ) | (142 | ) | (8 | ) | (105 | ) | |||||||||
|
Interest income
|
24 | 48 | 4 | 42 | |||||||||||||
|
Fresh start accounting adjustments
|
1,009 | ||||||||||||||||
|
Income (loss) from continuing operations before income taxes
|
$ | (454 | ) | $ | (549 | ) | $ | 914 | $ | (387 | ) | ||||||
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Table of Contents
Net assets at the segment level are intended to correlate with
invested capital. The amount includes accounts receivable,
inventories, prepaid expenses (excluding taxes), goodwill,
investments in affiliates, net property, plant and equipment,
accounts payable and certain accrued liabilities.
Net assets differ from consolidated total assets as follows:
| 2009 | 2008 | |||||||
|
Net assets
|
$ | 2,992 | $ | 3,402 | ||||
|
Accounts payable and other current liabilities
|
1,043 | 1,205 | ||||||
|
Other current and long-term assets
|
1,029 | 1,000 | ||||||
|
Consolidated total assets
|
$ | 5,064 | $ | 5,607 | ||||
Although accounting for discontinued operations does not result
in the reclassification of prior balance sheets, our segment
reporting excludes the assets of our discontinued operations for
all periods presented based on the treatment of these items for
internal reporting purposes. The differences between operating
capital spending and depreciation shown by segment and purchases
of property, plant and equipment and depreciation shown on the
cash flow statement result from the exclusion from the segment
table of the amounts related to discontinued operations.
Geographic
Information
Of our consolidated net sales, no country other than the U.S.
accounts for more than 10% and only Brazil, Germany and Italy
are between 5% and 10%. Sales are attributed to the location of
the product entity recording the sale. Long-lived assets
include property, plant and equipment; goodwill and equity
investments in joint ventures. They do not include certain
other non-current assets.
| Net Sales | ||||||||||||||||||||||||||||||
| Dana | Prior Dana | |||||||||||||||||||||||||||||
|
Eleven Months
|
One Month
|
Long-Lived Assets | ||||||||||||||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
December 31, | ||||||||||||||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31, | Dana | Prior Dana | |||||||||||||||||||||||||
| 2009 | 2008 | 2008 | 2007 | 2009 | 2008 | 2007 | ||||||||||||||||||||||||
|
North America
|
||||||||||||||||||||||||||||||
|
United States
|
$ | 2,402 | $ | 3,016 | $ | 333 | $ | 4,000 | $ | 522 | $ | 790 | $ | 1,070 | ||||||||||||||||
|
Canada
|
137 | 319 | 46 | 536 | 71 | 80 | 113 | |||||||||||||||||||||||
|
Mexico
|
120 | 188 | 17 | 255 | 110 | 109 | 41 | |||||||||||||||||||||||
|
Total North America
|
2,659 | 3,523 | 396 | 4,791 | 703 | 979 | 1,224 | |||||||||||||||||||||||
|
Europe
|
||||||||||||||||||||||||||||||
|
Italy
|
378 | 838 | 85 | 821 | 191 | 199 | 86 | |||||||||||||||||||||||
|
Germany
|
333 | 442 | 45 | 459 | 156 | 153 | 196 | |||||||||||||||||||||||
|
Other Europe
|
479 | 889 | 94 | 976 | 187 | 211 | 303 | |||||||||||||||||||||||
|
Total Europe
|
1,190 | 2,169 | 224 | 2,256 | 534 | 563 | 585 | |||||||||||||||||||||||
|
South America
|
||||||||||||||||||||||||||||||
|
Brazil
|
426 | 578 | 47 | 527 | 160 | 125 | 112 | |||||||||||||||||||||||
|
Other South America
|
372 | 388 | 20 | 387 | 129 | 132 | 81 | |||||||||||||||||||||||
|
Total South America
|
798 | 966 | 67 | 914 | 289 | 257 | 193 | |||||||||||||||||||||||
|
Asia Pacific
|
||||||||||||||||||||||||||||||
|
Australia
|
157 | 188 | 14 | 250 | 48 | 49 | 97 | |||||||||||||||||||||||
|
Other Asia Pacific
|
424 | 498 | 50 | 510 | 231 | 236 | 185 | |||||||||||||||||||||||
|
Total Asia Pacific
|
581 | 686 | 64 | 760 | 279 | 285 | 282 | |||||||||||||||||||||||
|
Total
|
$ | 5,228 | $ | 7,344 | $ | 751 | $ | 8,721 | $ | 1,805 | $ | 2,084 | $ | 2,284 | ||||||||||||||||
Long-lived assets include the assets held for sale in the
Structures segment.
102
Table of Contents
Sales to Major
Customers
Ford is the only large customer whose sales have exceeded 10% of
our consolidated sales in the past three years. Sales to Ford
for the three most recent years were $1,058 (20%) in 2009,
$1,399 (17%) in 2008 and $1,991(23%) in 2007.
Export sales from the U.S. to
non-U.S.
locations were $228, $345 and $314 in 2009, 2008 and 2007.
Professional advisory fees and other costs directly associated
with our reorganization are reported separately as
reorganization items. Post-emergence professional fees relate
to claim settlements, plan implementation and other transition
costs attributable to the reorganization. Reorganization items
of Prior Dana include provisions and adjustments to record the
carrying value of certain pre-petition liabilities at their
estimated allowable claim amounts, as well as the costs incurred
by non-Debtor companies as a result of the Debtors’
Chapter 11 proceedings.
The reorganization items in the consolidated statement of
operations consisted of the following items:
| Dana | Prior Dana | ||||||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||||||
|
Year Ended
|
Ended
|
Ended
|
Year Ended
|
||||||||||||||
|
December 31,
|
December 31,
|
January 31,
|
December 31,
|
||||||||||||||
| 2009 | 2008 | 2008 | 2007 | ||||||||||||||
|
Professional fees
|
$ | 1 | $ | 19 | $ | 27 | $ | 131 | |||||||||
|
Contract rejections and claim settlements prior to emergence
|
134 | ||||||||||||||||
|
Employee emergence bonus
|
47 | ||||||||||||||||
|
Foreign tax costs due to reorganization
|
33 | ||||||||||||||||
|
Interest income
|
(1 | ) | (15 | ) | |||||||||||||
|
Other
|
(3 | ) | 6 | 19 | 25 | ||||||||||||
|
Total reorganization items
|
(2 | ) | 25 | 125 | 275 | ||||||||||||
|
Gain on settlement of liabilities subject to compromise
|
(27 | ) | |||||||||||||||
|
Reorganization items, net
|
$ | (2 | ) | $ | 25 | $ | 98 | $ | 275 | ||||||||
During the second quarter of 2009, we reduced our vacation
benefit liabilities by $5 to correct the amount accrued in 2008
as union agreements arising from our reorganization activities
were being ratified. We recorded $3 as a reorganization item
benefit consistent with the original expense recognition. This
adjustment is not material to the current year or to the prior
periods to which it relates.
The gain on settlement of liabilities subject to compromise
resulted from the satisfaction of these liabilities at emergence
through issuance of Dana common stock or cash payments. The
$125 of reorganization items for the one month ended
January 31, 2008 included $104 of costs incurred as a
direct consequence of emergence from Chapter 11. These
costs included an accrual for stock bonuses for certain union
and non-union employees of $47, transfer taxes and other tax
charges to effectuate the emergence and new legal organization,
success fee obligations to certain professional advisors and
other parties contributing to the Chapter 11 reorganization
and other costs relating directly to emergence.
103
Table of Contents
Background
— The Debtors operated their
businesses as debtors in possession under Chapter 11 of the
Bankruptcy Code from the Filing Date until emergence from
Chapter 11 on January 31, 2008. The Debtors’
Chapter 11 cases (collectively, the Bankruptcy Cases) were
consolidated in the U.S. Bankruptcy Court for the Southern
District of New York (the Bankruptcy Court) under the caption
In re Dana Corporation, et al.
, Case
No. 06-10354
(BRL). Neither DCC and its subsidiaries nor any of our
non-U.S.
affiliates were Debtors.
Liabilities subject to compromise —
Liabilities
that were being addressed through the bankruptcy process (i.e.,
general unsecured nonpriority claims) were reported as
liabilities subject to compromise and adjusted to the allowed
claim amount as determined through the bankruptcy process, or to
the estimated claim amount if determined to be probable and
estimable. Certain of these claims were resolved and satisfied
on or before our emergence on January 31, 2008, while
others have been or will be resolved subsequent to emergence.
Although the allowed amount of certain disputed claims has not
yet been determined, our liability associated with these
disputed claims was discharged upon our emergence. Except for
certain specific priority claims (see below), most of the
allowed unsecured nonpriority claims in Class 5B were or
will be satisfied by distributions from the previously funded
reserve holding shares of Dana common stock. Therefore, the
future resolution of these disputed claims will not have an
impact on our post-emergence results of operations or financial
condition. Liabilities subject to compromise in the
consolidated balance sheet shown below include those of our
discontinued operations.
On the Effective Date, the Plan required that certain
liabilities previously reported as liabilities subject to
compromise be retained by Dana. Accordingly, at
December 31, 2007, we reclassified approximately $213 of
liabilities, including $145 of asbestos liabilities, $27 of
pension liabilities and $41 of other liabilities from
liabilities subject to compromise to current or long-term
liabilities of Dana. Liabilities subject to compromise declined
further, by $128, in January 2008 as a result of the
retention of additional liabilities including $111 of priority
tax claim liabilities, $9 of other tax liabilities and $8 of
other liabilities. The remaining liabilities subject to
compromise were discharged at January 31, 2008 under the
terms of the Plan.
Claims resolution
— On the Effective Date, the
Plan was consummated and we emerged from Chapter 11. As
provided in the Plan, we issued and distributed approximately
70 million shares of Dana common stock (valued in
reorganization at $1,628) on the Effective Date to holders of
allowed general unsecured claims in Class 5B totaling
approximately $2,050. Pursuant to the Plan, we also issued and
set aside approximately 28 million shares of Dana common
stock (valued in reorganization at $640) for future distribution
to holders of allowed unsecured nonpriority claims in
Class 5B under the Plan. These shares are being
distributed as the disputed and unliquidated claims are
resolved. The claim amount related to the 28 million
shares for disputed and unliquidated claims was estimated not to
exceed $700. Since emergence, we have issued 23 million of
the 28 million shares for allowed claims (valued in
reorganization at $540), increasing the total shares issued to
94 million (valued in reorganization at $2,168) for
unsecured claims of approximately $2,249. The corresponding
decrease in the disputed claims reserve leaves 5 million
shares (valued in reorganization at $102). The remaining
disputed and unliquidated claims total approximately $96. To
the extent that these remaining claims are settled for less than
the 5 million remaining shares, additional incremental
distributions will be made to the holders of the previously
allowed general unsecured claims in Class 5B.
Under the provisions of the Plan, approximately two million
shares of common stock (valued in reorganization at $45) have
been issued and distributed since the Effective Date to pay
emergence bonuses to union employees and non-union hourly and
salaried non-management employees. The original accrual of $47
on the Effective Date included approximately 65,000 shares
(valued in reorganization at $2) that were not utilized for
these bonuses. These shares will be distributed instead to the
holders of allowed general unsecured claims in Class 5B as
provided in the Plan.
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Settlement obligations relating to non-pension retiree benefits
and long-term disability (LTD) benefits for union claimants and
non-pension retiree benefits for non-union claimants were
satisfied with cash payments of $788 to VEBAs established for
the benefit of the respective claimant groups. Additionally, we
paid DCC $49, the remaining amount due to DCC noteholders,
thereby settling DCC’s general unsecured claim of $325
against the Debtors. DCC, in turn, used these funds to repay
the noteholders in full. Since emergence, payments of $100 have
been made for administrative claims, priority tax claims,
settlement pool claims and other classes of allowed claims.
Additional cash payments of $75, related primarily to federal,
state, and local tax claims, are expected to be paid in the
first half of 2010.
Fresh start accounting
— As required by GAAP,
we adopted fresh start accounting effective February 1,
2008. The financial statements for the periods ended prior to
January 31, 2008 do not include the effect of any changes
in our capital structure or changes in the fair value of assets
and liabilities as a result of fresh start accounting.
The timing of the availability of funds for our
post-reorganization financing resulted in a January 31,
2008 consummation of the Plan. We selected February 1,
2008 for adoption of fresh start accounting. Accordingly, the
results of operations of Dana for January 2008 include
charges of $21 incurred during the month of January plus
one-time reorganization costs incurred at emergence of $104
offset by a pre-emergence gain of $27 resulting from the
discharge of liabilities under the Plan. In addition, we
recorded a credit to earnings of $1,009 ($831 after tax)
resulting from the aggregate changes to the net carrying value
of our pre-emergence assets and liabilities to record their fair
values under fresh start accounting.
GAAP provides, among other things, for a determination of the
value to be assigned to the equity of the emerging company as of
a date selected for financial reporting purposes. Dana’s
compromise total enterprise value was determined to be $3,563.
This value represents the amount of resources available for the
satisfaction of post-petition liabilities and allowed claims, as
negotiated between the Debtors and their creditors. This value,
along with other terms of the Plan, was determined after
extensive arms-length negotiations with the claimholders. Dana
developed its view of what the value should be based upon
expected future cash flows of the business after emergence from
Chapter 11, discounted at rates reflecting perceived
business and financial risks (the discounted cash flows or
DCF). This valuation and a valuation using market value
multiples for peer companies were blended to arrive at the
compromise valuation. This value is the enterprise value of the
entity and, after adjusting for certain liabilities and debt as
explained below and summarized in explanatory note (5) to
the reorganized consolidated balance sheet, is intended to
approximate the amount a willing buyer would pay for the assets
and liabilities of Dana immediately after restructuring.
The basis for the DCF was the projections published in the
Plan. These five-year estimates included projected changes
associated with our reorganization initiatives, anticipated
changes in general market conditions, including variations in
market regions and known new business gains and losses, as well
as other factors considered by Dana management. We completed
the DCF analysis by operating segment in late 2007 using
discount rates ranging from 10.5% to 11.5% based on a capital
asset pricing model which utilized weighted-average cost of
capital relative to certain light vehicle and heavy vehicle
reference group companies. The estimated enterprise value and
the resulting equity value were highly dependent on the
achievement of the future financial results contemplated in the
projections that were published in the Plan.
The estimates and assumptions made in our valuation were
inherently subject to significant uncertainties, many of which
are beyond our control, and there was no assurance that these
results could be achieved. The primary assumptions for which
there is a reasonable possibility of the occurrence of a
variation that would have significantly affected the measurement
value included the revenue assumptions, anticipated levels of
commodity costs, achievement of the cost reductions outlined in
our 2007
Form 10-K,
the discount rate utilized, expected foreign exchange rates, the
demand for pickup trucks and SUVs and the overall strength of
the U.S. light vehicle markets. The
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primary assumptions for conditions expected to be different from
conditions in late 2007 were stronger light vehicle and
off-highway markets outside North America and a peak in demand
for Class 8 trucks in North America in 2009 related to
stricter U.S. emission standards that become effective in 2010.
Based on conditions in the automotive industry and general
economic conditions, we used the low end of the range of
valuations to determine the enterprise reorganization value.
For the DCF portion of the valuation, we utilized the average of
two DCF methodologies to derive the enterprise value of Dana:
| • | Earnings before interest, taxes, depreciation and amortization (EBITDA) multiple method — The sum of the present values of the unlevered free cash flows was added to the present value of the terminal value of Dana, computed using EBITDA exit multiples by segment ranging from 3.8 to 9.0 based in part on the range of multiples calculated in using a comparable public company methodology, to arrive at an implied enterprise value for Dana’s operating assets (excluding cash). | |
| • | Perpetuity growth method — The sum of the present values of the unlevered free cash flows was added to the present value of the terminal value of Dana, which was computed using the perpetuity growth method based in part on industry growth prospects and our business plans, to arrive at an implied enterprise value for Dana’s operating assets (excluding cash). |
We also utilized a comparable companies methodology which
identified a group of publicly traded companies whose businesses
and operating characteristics were similar to those of Dana as a
whole, or similar to significant portions of Dana’s
operations, and evaluated various operating metrics, growth
characteristics and valuation multiples for equity and net debt
for each of the companies in the group. We then developed a
range of valuation multiples to apply to our projections to
derive a range of implied enterprise values for Dana. The
multiples ranged from 3.8 to 9.0 depending on the comparable
company.
The final valuation range was an average of the DCF valuation
ranges and the comparable company multiples range. This amount
was also adjusted for the fair value of unconsolidated
subsidiaries, the residual value of DCC’s assets, the fair
value of our net operating losses and a note receivable obtained
in connection with a divestiture in 2004.
Under fresh start accounting, this compromise total enterprise
value was adjusted for Dana’s available cash and was
allocated to our assets based on their respective fair values in
conformity with the purchase method of accounting for business
combinations. Available cash was determined by adjusting actual
cash at emergence for emergence-related cash activity expected
to occur after January 31, 2008. The valuations required
to determine the fair value of certain of Dana’s assets as
presented below represent the results of valuation procedures we
performed. The enterprise reorganization value, after
adjustments for available cash, is reduced by debt,
noncontrolling interests and preferred stock with the remainder
representing the value to common stockholders.
The significant assumptions related to the valuations of our
assets in connection with fresh start accounting included the
following:
Inventory
— The value of inventory for fresh
start accounting was based on the following:
| • | The fair value of finished goods was calculated as the estimated selling price of the finished goods on hand, less the costs to dispose of that inventory (i.e., selling costs) and a reasonable profit margin for the selling effort. | |
| • | The fair value of work in process was calculated as the selling price less the sum of costs to complete the manufacturing process, selling costs and a reasonable profit on the remaining manufacturing effort and the selling effort based on profits for similar finished goods. | |
| • | The fair value of raw material inventory was its current replacement cost. |
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Fixed assets
— Except for specific fixed assets
identified as held for sale, which were valued at their
estimated net realizable value, fixed assets were valued at fair
value. In establishing fair value, three approaches were
utilized to ensure that all market conditions were considered:
| • | The market or comparison sales approach uses recent sales or offerings of similar assets currently on the market to arrive at a probable selling price. In applying this method, aligning adjustments were made to reconcile differences between the comparable sale and the appraised asset. | |
| • | The cost approach considers the amount required to construct or purchase a new asset of equal utility, then adjusts the value in consideration of all forms of depreciation as of the appraisal date as described below: |
Physical deterioration
— the loss in value or
usefulness attributable solely to physical causes such as wear
and tear and exposure to the elements.
Functional obsolescence
— a loss in value due
to factors inherent in the property itself and due to changes in
design or process resulting in inadequacy, overcapacity, excess
construction, lack of functional utility or excess operation
costs.
Economic obsolescence
— loss in value by
unfavorable external conditions such as economics of the
industry, loss of material and labor sources or change in
ordinances.
| • | The income approach considers value in relation to the present worth of future benefits derived from ownership and is usually measured through the capitalization of a specific level of income. |
Useful lives were assigned to applicable appraised assets based
on estimates of economic future usefulness in consideration of
all forms of depreciation.
Intangible assets
— The financial information
used to determine the fair value of intangible assets was
consistent with the information used in estimating the
enterprise value of Dana. Following is a summary of each
category considered in the valuation of intangible assets:
| • | Core technology — An income approach, the relief from royalty method, was used to value developed technology at $99 as of January 31, 2008. Significant assumptions included development of the forecasted revenue streams for each technology category by geographic region, estimated royalty rates for each technology category, applicable tax rates by geographic region and appropriate discount rates which considered variations among markets and geographic regions. | |
| • | Trademarks and trade names — Four trade names/trademarks were identified as intangible assets: Dana ® , Spicer ® , Victor-Reinz ® and Long ® . An income approach, the relief from royalty method, was used to value trademarks and trade names at $90 as of January 31, 2008. Significant assumptions included the useful life, the forecasted revenue streams for each trade name/trademark by geographic region, estimated applicable royalty rate for each technology category, applicable tax rates by geographic region and appropriate discount rates. For those indefinite-lived trade names/trademarks (Dana ® and Spicer ® ), terminal growth rates were also estimated. | |
| • | Customer contracts and related relationships — Customer contracts and related relationships were valued by operating segment utilizing an income approach, the multi-period excess earnings method, which resulted in a valuation of $491. Significant assumptions included the forecasted revenue streams by customer by geographic region, the estimated contract renewal probability for each operating segment, estimated profit margins by customer by region, estimated charges for contributory assets for each customer (fixed assets, net working capital, assembled workforce, trade names/trademarks and developed technology), estimated tax rates by geographic region and appropriate discount rates. |
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The adjustments presented below were made to our
January 31, 2008 balance sheet. The balance sheet
reorganization and fresh start adjustments presented below
summarize the impact of the adoption of the Plan and the fresh
start accounting entries as of the Effective Date.
DANA HOLDING
CORPORATION
REORGANIZED CONSOLIDATED BALANCE SHEET
REORGANIZED CONSOLIDATED BALANCE SHEET
| January 31, 2008 | ||||||||||||||||
|
Prior
|
Reorganization
|
Fresh Start
|
||||||||||||||
| Assets | Dana | Adjustments(1) | Adjustments | Dana | ||||||||||||
|
Current assets
|
||||||||||||||||
|
Cash and cash equivalents
|
$ | 1,199 | $ | 948 | (2) | $ | — | $ | 2,147 | |||||||
|
Accounts receivable
|
||||||||||||||||
|
Trade, less allowance for doubtful accounts
|
1,255 | 1 | (6) | 1,256 | ||||||||||||
|
Other
|
316 | (1 | )(6) | 315 | ||||||||||||
|
Inventories
|
843 | 169 | (6) | 1,012 | ||||||||||||
|
Other current assets
|
127 | (32 | )(6) | 95 | ||||||||||||
|
Total current assets
|
3,740 | 948 | 137 | 4,825 | ||||||||||||
|
Goodwill
|
352 | (50 | )(6) | 302 | ||||||||||||
|
Intangibles
|
1 | 679 | (6) | 680 | ||||||||||||
|
Investments and other assets
|
294 | 40 | (2) | (35 | )(6) | 299 | ||||||||||
| (18 | )(3) | (35 | )(7) | (53 | ) | |||||||||||
|
As adjusted
|
294 | 22 | (70 | ) | 246 | |||||||||||
|
Investments in affiliates
|
172 | 9 | (6) | 181 | ||||||||||||
|
Property, plant and equipment, net
|
1,763 | 278 | (6) | 2,041 | ||||||||||||
|
Total assets
|
$ | 6,322 | $ | 970 | $ | 983 | $ | 8,275 | ||||||||
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| January 31, 2008 | ||||||||||||||||
|
Prior
|
Reorganization
|
Fresh Start
|
||||||||||||||
| Liabilities and Equity | Dana | Adjustments(1) | Adjustments | Dana | ||||||||||||
|
Current liabilities
|
||||||||||||||||
|
Notes payable, including current portion of long-term debt
|
$ | 177 | $ | (49 | )(2) | $ | 128 | |||||||||
| 15 | (2) | $ | 15 | |||||||||||||
|
As adjusted
|
177 | (34 | ) | 143 | ||||||||||||
|
Debtor-in-possession
financing
|
900 | (900 | )(2) | |||||||||||||
|
Accounts payable
|
1,094 | 1,094 | ||||||||||||||
|
Accrued payroll and employee benefits
|
267 | 1 | (6) | 268 | ||||||||||||
|
Taxes on income including current deferred
|
132 | 132 | ||||||||||||||
|
Other accrued liabilities (including VEBA paid on February 1)
|
436 | 815 | (3) | 21 | (6) | 1,272 | ||||||||||
| 86 | (3) | 86 | ||||||||||||||
| (15 | )(2) | (15 | ) | |||||||||||||
|
As adjusted
|
436 | 886 | 21 | 1,343 | (2) | |||||||||||
|
Total current liabilities
|
3,006 | (48 | ) | 22 | 2,980 | |||||||||||
|
Liabilities subject to compromise
|
3,382 | (3,327 | )(3) | 55 | ||||||||||||
| (55 | )(2) | (55 | ) | |||||||||||||
|
As adjusted
|
3,382 | (3,382 | ) | |||||||||||||
|
Deferred employee benefits and other non-current liabilities
|
650 | (29 | )(6) | 621 | ||||||||||||
| 105 | (7) | 105 | ||||||||||||||
| 178 | (6) | 178 | ||||||||||||||
|
As adjusted
|
650 | 254 | 904 | |||||||||||||
|
Long-term debt
|
19 | 19 | ||||||||||||||
|
Term loan facility
|
1,221 | (2) | 1,221 | |||||||||||||
|
Total liabilities
|
7,057 | (2,209 | ) | 276 | 5,124 | |||||||||||
|
Parent company stockholders’ equity
|
||||||||||||||||
|
Series A preferred stock
|
242 | (2) | 242 | |||||||||||||
|
Series B preferred stock
|
529 | (2) | 529 | |||||||||||||
|
Common stock – successor
|
1 | (3)(5) | 1 | |||||||||||||
|
Additional paid-in capital – successor
|
2,267 | (3)(5) | 2,267 | |||||||||||||
|
Common stock – predecessor
|
150 | (150 | )(4) | |||||||||||||
|
Additional paid-in capital – predecessor
|
202 | (202 | )(4) | |||||||||||||
|
Accumulated deficit
|
(515 | ) | 27 | (3) | 831 | (6) | 343 | |||||||||
| (104 | )(3) | (591 | )(8) | (695 | ) | |||||||||||
| 352 | (4) | 352 | ||||||||||||||
|
As adjusted
|
(515 | ) | 275 | 240 | ||||||||||||
|
Accumulated other comprehensive loss
|
(668 | ) | 278 | (3) | 591 | (8) | 201 | |||||||||
| (61 | )(3) | (140 | )(7) | (201 | ) | |||||||||||
|
As adjusted
|
(668 | ) | 217 | 451 | ||||||||||||
|
Total parent company stockholders’ equity (deficit)
|
(831 | ) | 3,179 | 691 | 3,039 | |||||||||||
|
Noncontrolling interests
|
96 | 16 | (6) | 112 | ||||||||||||
|
Total equity (deficit)
|
(735 | ) | 3,179 | 707 | 3,151 | |||||||||||
|
Total liabilities and equity
|
$ | 6,322 | $ | 970 | $ | 983 | $ | 8,275 | ||||||||
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Table of Contents
Explanatory Notes
| (1) | Represents amounts recorded on the Effective Date for the implementation of the Plan, including the settlement of liabilities subject to compromise and related payments, the issuance of new debt and repayment of old debt, distributions of cash and new shares of common and preferred stock, and the cancellation of Prior Dana common stock. |
| (2) | Cash proceeds at emergence (net of cash payments): |
|
Amount borrowed under the Exit Facility
|
$ | 1,350 | ||
|
Original issue discount (OID)
|
(114 | ) | ||
|
Exit Facility, net of OID ($15 current, $1,221 to long-term debt)
|
1,236 | |||
|
Less: deferred issuance fees
|
(40 | ) | ||
|
Exit Facility net proceeds
|
1,196 | |||
|
Preferred stock issuance, net of fees and expenses —
Series A
|
242 | |||
|
Preferred stock issuance, net of fees and expenses —
Series B
|
529 | |||
|
Repayment of DIP lending facility
|
(900 | ) | ||
|
Non-union retiree VEBA obligation payment
|
(55 | ) | ||
|
Fees paid at emergence (including $10 previously accrued)
|
(15 | ) | ||
|
Payment to DCC bondholders
|
(49 | ) | ||
|
Net cash
|
$ | 948 | ||
This entry records our exit financing, the issuance of new
Series A and Series B Preferred Stock and the payment
of certain bankruptcy obligations on January 31, 2008. An
additional $80 of the term loan portion of the Exit Facility was
borrowed by Dana on February 1, 2008 and is not included in
the January balance sheet above. Debt issuance costs of $40 are
recorded in Investments and other assets and OID of $114 is
presented net with the debt balance. Both of these are being
deferred and amortized over the term of the facility. The $790
of preferred stock is recorded at the net proceeds of $771.
| (3) | Retirement of liabilities subject to compromise (LSTC): |
|
Liabilities subject to compromise
|
$ | 3,382 | ||
|
APBO reduction charged to LSTC and credited to Accumulated other
comprehensive loss (See Note 10)
|
(278 | ) | ||
|
Non-union retiree VEBA obligation payment
|
(55 | ) | ||
|
New common stock and paid-in capital issued to satisfy allowed
and disputed claims
|
(2,268 | ) | ||
|
Claims to be satisfied in cash transferred to Other accrued
liabilities at January 31, 2008 (includes $733 union VEBA
obligation paid on February 1)
|
(815 | ) | ||
|
Prior service credits recognized (See Note 10)
|
61 | |||
|
Gain on settlement of liabilities subject to compromise
|
$ | 27 | ||
|
Deferred tax assets not realizable due to emergence
|
$ | (18 | ) | |
|
Reorganization costs accrued at emergence (includes $47 of
emergence bonuses)
|
(86 | ) | ||
|
Total reorganization costs incurred at emergence (See
Note 3)
|
$ | (104 | ) | |
This entry records reorganization costs of $104 incurred as a
result of emergence and a gain of $27 on extinguishment of the
obligations pursuant to implementation of the Plan.
Other accrued liabilities include a $733 liability to the union
VEBAs. On February 1, 2008, Dana paid this obligation and
borrowed the remaining $80 of the Term loan commitment in
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Table of Contents
(2) above. Payments after January 31, under the terms
of the Plan, were expected to include approximately $212 of
administrative claims, priority tax claims and other classes of
allowed claims, and were also included in other accrued
liabilities of Dana at January 31, 2008.
| (4) | Closes Prior Dana capital stock and paid-in capital to accumulated deficit. |
| (5) | Reconciliation of enterprise value to the reorganization value of Dana assets, determination of goodwill and allocation of compromise enterprise value to common stockholders: |
|
Compromise total enterprise value
|
$ | 3,563 | ||
|
Plus: cash and cash equivalents
|
2,147 | |||
|
Less: adjustments to cash assumptions used in valuation and
emergence related cash payments
|
(1,129 | ) | ||
|
Plus: liabilities (excluding debt and liability for emergence
bonuses)
|
3,694 | |||
|
Reorganization value of Dana assets
|
8,275 | |||
|
Fair value of Dana assets (excluding goodwill)
|
7,973 | |||
|
Reorganization value of Dana assets in excess of fair value
(goodwill)
|
$ | 302 | ||
|
Reorganization value of Dana assets
|
$ | 8,275 | ||
|
Less: liabilities (excluding debt and the liability for
emergence bonuses)
|
(3,694 | ) | ||
|
Less: debt
|
(1,383 | ) | ||
|
Less: noncontrolling interests
|
(112 | ) | ||
|
Less: preferred stock (net of issuance costs)
|
(771 | ) | ||
|
Less: liability for emergence bonus shares not issued at
January 31, 2008
|
(47 | ) | ||
|
New common stock ($1) and paid-in capital ($2,267)
|
$ | 2,268 | ||
|
Shares outstanding at January 31, 2008
|
97,971,791 | |||
|
Per share value
|
$ | 23.15 |
The per share value of $23.15 was utilized to record the shares
issued for allowed claims, the shares issued for the disputed
claims reserve and the liability for shares issued to employees
subsequent to January 31, 2008 as emergence bonuses. The
$1,129 in the caption “Adjustments to cash assumptions used
in valuation and emergence-related cash payments” in the
table above represents adjustments to cash on hand for the then
estimated amounts expected to be paid for bankruptcy claims and
fees after emergence of $962 (VEBA payments of $733, remaining
administrative claims, priority tax claims, settlement pool
claims and other classes of allowed claims of $212 and
settlements (cures) for contract rejections of $17). In
addition, consistent with assumptions made in the determination
of enterprise value, available cash was reduced by $56 for DCC
settlements and $111 for cash deposits which support letters of
credit, a number of self-insured programs and lease obligations,
all of which were deemed to be unavailable to Dana.
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Table of Contents
The following table summarizes the allocation of fair values of
the assets and liabilities at emergence as shown in the
reorganized consolidated balance sheet as of January 31,
2008:
|
Cash
|
$ | 2,147 | ||
|
Current assets
|
2,678 | |||
|
Goodwill
|
302 | |||
|
Intangibles
|
680 | |||
|
Investments and other assets
|
246 | |||
|
Investments in affiliates
|
181 | |||
|
Property, plant and equipment, net
|
2,041 | |||
|
Total assets
|
8,275 | |||
|
Less current liabilities (including notes payable and current
portion of long-term debt)
|
(3,016 | ) | ||
|
Less long-term debt
|
(1,240 | ) | ||
|
Less long-term liabilities and noncontrolling interests
|
(980 | ) | ||
|
Net assets acquired
|
$ | 3,039 | ||
| (6) | This entry records the adjustments for fresh start accounting including the write-up of inventory and the adjustment of property, plant and equipment to its appraised value. Fresh start adjustments for intangible assets are also included and are based on valuations discussed above. The adjustments required to report assets and liabilities at fair value under fresh start accounting resulted in a pre-tax adjustment of $1,009, which was reported as fresh start accounting adjustments in the consolidated statement of operations for January 2008. Income tax expense for January included $178 of tax expense related to these adjustments, reducing to $831 the impact of fair value adjustments on net income for the month and on the accumulated deficit at January 31, 2008. |
The $29 reduction in deferred employee benefits and other
non-current liabilities resulted from adjustments to the
asbestos liability, discounting of workers’ compensation
liabilities and reductions in certain tax liabilities.
The fresh start adjustment to other accrued liabilities included
restructuring-related exit costs of $32 consisting of $10 of
projected maintenance, security and taxes on assets held for
sale, $9 of costs to be incurred in preparing these assets for
sale and $13 of obligations under lease contracts related to
facilities and equipment that were in use at January 31,
2008 but scheduled to cease operations in 2008 as part of
restructuring plans approved prior to Dana’s emergence from
bankruptcy. Charges to liability accounts, primarily to write
off deferred revenue, reduced the total fresh start adjustment
to other accrued liabilities to $21.
| (7) | Charge to accumulated other comprehensive loss for the remeasurement of retained employee benefit plans. See Note 10. |
|
Reduction of pension plan net assets
|
$ | (35 | ) | |
|
Increase in deferred employee benefits and other non-current
liabilities
|
(105 | ) | ||
|
Charge to accumulated other comprehensive loss
|
$ | (140 | ) | |
| (8) | Adjusts accumulated other comprehensive loss to zero. |
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Debtor in
Possession Financial Information
Aggregate financial information of the Debtors is presented
below for the year ended December 31, 2007. Intercompany
balances between Debtors and non-Debtors are not eliminated.
The investment in non-Debtor subsidiaries is accounted for on an
equity basis and, accordingly, the net loss reported in the
debtor-in-possession
statement of operations is equal to the consolidated net loss.
DANA
CORPORATION
DEBTOR IN POSSESSION
STATEMENT OF OPERATIONS
(Non-Debtor entities, principally non-U.S. subsidiaries, reported as equity earnings)
DEBTOR IN POSSESSION
STATEMENT OF OPERATIONS
(Non-Debtor entities, principally non-U.S. subsidiaries, reported as equity earnings)
|
Year Ended
|
||||
|
December 31,
|
||||
| 2007 | ||||
|
Net sales
|
||||
|
Customers
|
$ | 3,975 | ||
|
Non-Debtor subsidiaries
|
254 | |||
|
Total
|
4,229 | |||
|
Costs and expenses
|
||||
|
Cost of sales
|
4,243 | |||
|
Selling, general and administrative expenses
|
226 | |||
|
Realignment and impairment
|
102 | |||
|
Other income, net
|
227 | |||
|
Loss from continuing operations before interest, reorganization
items and income taxes
|
(115 | ) | ||
|
Interest expense (contractual interest of $180 for the year
ended December 31, 2007)
|
72 | |||
|
Reorganization items, net
|
265 | |||
|
Loss from continuing operations before income taxes
|
(452 | ) | ||
|
Income tax benefit
|
55 | |||
|
Equity in earnings of affiliates
|
3 | |||
|
Loss from continuing operations
|
(394 | ) | ||
|
Loss from discontinued operations
|
(186 | ) | ||
|
Equity in earnings of non-Debtor subsidiaries
|
27 | |||
|
Net loss
|
(553 | ) | ||
|
Less: Noncontrolling interests net income
|
2 | |||
|
Net loss available to common stockholders
|
$ | (551 | ) | |
113
Table of Contents
DANA
CORPORATION
DEBTOR IN POSSESSION
CASH FLOW
(Non-Debtor entities, principally non-U.S. subsidiaries, reported as equity investments)
DEBTOR IN POSSESSION
CASH FLOW
(Non-Debtor entities, principally non-U.S. subsidiaries, reported as equity investments)
|
Year Ended
|
||||
| December 31, | ||||
| 2007 | ||||
|
Operating activities
|
||||
|
Net loss
|
$ | (553 | ) | |
|
Depreciation and amortization
|
136 | |||
|
Loss on sale of assets
|
105 | |||
|
Deferred income taxes
|
(106 | ) | ||
|
Impairment and divestiture-related charges
|
94 | |||
|
Reorganization items, net of payments
|
154 | |||
|
Equity in losses of non-Debtor subsidiaries, net of dividends
|
49 | |||
|
Payment to VEBAs for postretirement benefits
|
(27 | ) | ||
|
OPEB payments in excess of expense
|
(76 | ) | ||
|
Intercompany settlements
|
135 | |||
|
Changes in working capital
|
62 | |||
|
Other
|
120 | |||
|
Net cash flows provided by operating activities
|
93 | |||
|
Investing activities
|
||||
|
Purchases of property, plant and equipment
|
(81 | ) | ||
|
Proceeds from sale of businesses
|
42 | |||
|
Other
|
42 | |||
|
Net cash flows provided by investing activities
|
3 | |||
|
Financing activities
|
||||
|
Proceeds from
debtor-in-possession
facility
|
200 | |||
|
Payments on long-term debt
|
(2 | ) | ||
|
Net cash flows provided by financing activities
|
198 | |||
|
Net increase in cash and cash equivalents
|
294 | |||
|
Cash and cash equivalents — beginning of period
|
216 | |||
|
Cash and cash equivalents — end of period
|
$ | 510 | ||
114
Table of Contents
| Note 22. | Discontinued Operations |
In 2005, the Board of Directors of Prior Dana approved the
divestiture of our engine hard parts, fluid products and pump
products operations and we have reported these businesses as
discontinued operations through their respective dates of
divestiture. Substantially all of these operations were sold
prior to 2008.
The results of the discontinued operations were as follows:
| Dana | Prior Dana | ||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||
|
Ended
|
Ended
|
Year Ended
|
|||||||||||
|
December 31,
|
January 31,
|
December 31,
|
|||||||||||
| 2008 | 2008 | 2007 | |||||||||||
|
Sales
|
$ | — | $ | 6 | $ | 495 | |||||||
|
Cost of sales
|
6 | 500 | |||||||||||
|
Selling, general and administrative
|
26 | ||||||||||||
|
Restructuring and other expense, net
|
4 | 8 | 61 | ||||||||||
|
Loss before income taxes
|
(4 | ) | (8 | ) | (92 | ) | |||||||
|
Income tax benefit (expense)
|
2 | (26 | ) | ||||||||||
|
Loss from discontinued operations
|
$ | (4 | ) | $ | (6 | ) | $ | (118 | ) | ||||
During 2007, we recorded pre-tax losses of $16 upon completion
of the sales of businesses, charges of $17 for settlement of
pension obligations in the U.K. (see Note 10) relating
to discontinued operations and $20 for a bankruptcy claim
settlement with the purchaser of a previously sold discontinued
business.
The sales and net loss of our discontinued operations consisted
of the following:
| Dana | Prior Dana | ||||||||||||
|
Eleven Months
|
One Month
|
||||||||||||
|
Ended
|
Ended
|
Year Ended
|
|||||||||||
|
December 31,
|
January 31,
|
December 31,
|
|||||||||||
| 2008 | 2008 | 2007 | |||||||||||
|
Sales
|
|||||||||||||
|
Engine
|
$ | — | $ | — | $ | 131 | |||||||
|
Fluid
|
276 | ||||||||||||
|
Pump
|
6 | 88 | |||||||||||
|
Total discontinued operations
|
$ | — | $ | 6 | $ | 495 | |||||||
|
Net loss
|
|||||||||||||
|
Engine
|
$ | (1 | ) | $ | (4 | ) | $ | (68 | ) | ||||
|
Fluid
|
(2 | ) | (1 | ) | (6 | ) | |||||||
|
Pump
|
(1 | ) | (1 | ) | (23 | ) | |||||||
|
Other
|
(21 | ) | |||||||||||
|
Total discontinued operations
|
$ | (4 | ) | $ | (6 | ) | $ | (118 | ) | ||||
There were no assets or liabilities of discontinued operations
as of December 31, 2008. In the consolidated statement of
cash flows, the cash flows of discontinued operations have been
reported in the respective categories of cash flows, along with
those of our continuing operations.
In March 2007, we sold our engine hard parts business to
MAHLE GmbH (MAHLE) and received cash proceeds of $98. We
recorded an after-tax loss of $45 in connection with this sale.
We incurred a loss of $5 in the month of January 2008
associated with a post-closing adjustment to reinstate certain
retained liabilities of this business.
115
Table of Contents
In July and August 2007, we completed the sale of our fluid
products hose and tubing business to Orhan Holding A.S. and
certain of its affiliates. Aggregate cash proceeds of $84 were
received from these transactions, and an aggregate after-tax
gain of $32 was recorded. Additional adjustments to this sale
were made during 2008, when we recorded an expense of $3
associated with a post-closing purchase price adjustment and
settlement costs and related expenses.
In September 2007, we completed the sale of our coupled
fluid products business to Coupled Products Acquisition LLC by
having the buyer assume $18 of certain liabilities of the
business at closing. We recorded an after-tax loss of $23 in
connection with the sale of this business. We completed the
sale of a portion of the pump products business in
October 2007, generating proceeds of $7 and a nominal
after-tax gain.
In January 2008, we completed the sale of the remaining
assets of the pump products business to Melling Tool Company,
generating proceeds of $5 and an after-tax loss of $2.
Quarterly Results
(Unaudited)
|
Dana
|
||||||||||||||||||||||||
| For the 2009 Quarters Ended | ||||||||||||||||||||||||
|
As Reported
|
As Adjusted
|
As Reported
|
As Adjusted
|
As Reported
|
As Reported
|
|||||||||||||||||||
| March 31 | March 31 (1) | June 30 | June 30 (1) | September 30 | December 31 | |||||||||||||||||||
|
Net sales
|
$ | 1,216 | $ | 1,216 | $ | 1,190 | $ | 1,190 | $ | 1,329 | $ | 1,493 | ||||||||||||
|
Gross margin
|
$ | (17 | ) | $ | (12 | ) | $ | 62 | $ | 67 | $ | 82 | $ | 116 | ||||||||||
|
Net income
|
$ | (160 | ) | $ | (160 | ) | $ | (3 | ) | $ | (3 | ) | $ | (38 | ) | $ | (235 | ) | ||||||
|
Net loss attributable to the parent company
|
$ | (157 | ) | $ | (157 | ) | $ | — | $ | — | $ | (38 | ) | $ | (236 | ) | ||||||||
|
Net loss per share available to parent company stockholders
|
||||||||||||||||||||||||
|
Basic
|
$ | (1.64 | ) | $ | (1.64 | ) | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.45 | ) | $ | (2.02 | ) | ||||||
|
Diluted
|
$ | (1.64 | ) | $ | (1.64 | ) | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.45 | ) | $ | (2.02 | ) | ||||||
Note (1) During the third quarter of 2009, a
year-to-date
adjustment was made related to the classification of full
absorption inventory costing between cost of sales and selling,
general and administrative expenses. The classification was
reported correctly in the third quarter of 2009 and has been
adjusted in the first and second quarters of 2009 above.
| Prior Dana |
Dana
|
||||||||||||||||||||
|
One Month
|
For the 2008 Periods Ended | ||||||||||||||||||||
|
Ended
|
Two Months
|
Quarter
|
Quarter
|
Quarter
|
|||||||||||||||||
|
January 31,
|
Ended
|
Ended
|
Ended
|
Ended
|
|||||||||||||||||
| 2008 | March 31 | June 30 | September 30 | December 31 | |||||||||||||||||
|
Net sales
|
$ | 751 | $ | 1,561 | $ | 2,333 | $ | 1,929 | $ | 1,521 | |||||||||||
|
Gross margin
|
$ | 49 | $ | 58 | $ | 145 | $ | 48 | $ | (20 | ) | ||||||||||
|
Net income
|
$ | 711 | $ | (48 | ) | $ | (119 | ) | $ | (255 | ) | $ | (249 | ) | |||||||
|
Net income (loss) attributable to the parent company
|
$ | 709 | $ | (50 | ) | $ | (122 | ) | $ | (256 | ) | $ | (249 | ) | |||||||
|
Net income (loss) per share available to parent company
stockholders
|
|||||||||||||||||||||
|
Basic
|
$ | 4.73 | $ | (0.55 | ) | $ | (1.28 | ) | $ | (2.66 | ) | $ | (2.57 | ) | |||||||
|
Diluted
|
$ | 4.71 | $ | (0.55 | ) | $ | (1.28 | ) | $ | (2.66 | ) | $ | (2.57 | ) | |||||||
The fourth quarter of 2009 includes pre-tax impairments of $150
related to the planned sale of substantially all of our
Structural Products business.
The second quarter of 2008 included a pre-tax impairment of
goodwill of $75. The third quarter of 2008 included a pre-tax
impairment of goodwill of $105. The fourth quarter of 2008
included an $11 reduction in goodwill impairment as a result of
income tax adjustments being credited to goodwill.
116
Table of Contents
DANA HOLDING
CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II
VALUATION AND
QUALIFYING ACCOUNTS AND RESERVES
|
Adjustments
|
||||||||||||||||||||
|
arising
|
||||||||||||||||||||
|
Amounts
|
from change
|
|||||||||||||||||||
|
Balance at
|
charged
|
in currency
|
Balance at
|
|||||||||||||||||
|
beginning
|
(credited)
|
Allowance
|
exchange rates
|
end of
|
||||||||||||||||
| of period | to income | utilized | and other items | period | ||||||||||||||||
| Dana | ||||||||||||||||||||
|
For the Year Ended December 31, 2009
|
||||||||||||||||||||
|
Amounts deducted from assets
|
||||||||||||||||||||
|
Allowance for doubtful receivables
|
$ | 23 | $ | 2 | $ | (7 | ) | $ | — | $ | 18 | |||||||||
|
Valuation allowance for deferred tax assets
|
1,137 | 268 | (64 | ) | 68 | 1,409 | ||||||||||||||
|
Total allowances deducted from assets
|
$ | 1,160 | $ | 270 | $ | (71 | ) | $ | 68 | $ | 1,427 | |||||||||
|
For the Eleven Months Ended December 31, 2008
|
||||||||||||||||||||
|
Amounts deducted from assets
|
||||||||||||||||||||
|
Allowance for doubtful receivables
|
$ | 23 | $ | 5 | $ | (4 | ) | $ | (1 | ) | $ | 23 | ||||||||
|
Valuation allowance for deferred tax assets
|
710 | 266 | 161 | 1,137 | ||||||||||||||||
|
Total allowances deducted from assets
|
$ | 733 | $ | 271 | $ | (4 | ) | $ | 160 | $ | 1,160 | |||||||||
| Prior Dana | ||||||||||||||||||||
|
For the Month Ended January 31, 2008
|
||||||||||||||||||||
| Amounts deducted from assets | ||||||||||||||||||||
|
Allowance for doubtful receivables
|
$ | 20 | $ | — | $ | (1 | ) | $ | 4 | $ | 23 | |||||||||
|
Valuation allowance for deferred tax assets
|
1,609 | (723 | ) | (176 | ) | 710 | ||||||||||||||
|
Total allowances deducted from assets
|
$ | 1,629 | $ | (723 | ) | $ | (1 | ) | $ | (172 | ) | $ | 733 | |||||||
|
For the Year Ended December 31, 2007
|
||||||||||||||||||||
|
Amounts deducted from assets
|
||||||||||||||||||||
|
Allowance for doubtful receivables
|
$ | 23 | $ | (1 | ) | $ | (2 | ) | $ | — | $ | 20 | ||||||||
|
Valuation allowance for deferred tax assets
|
1,971 | (57 | ) | (3 | ) | (302 | ) | 1,609 | ||||||||||||
|
Total allowances deducted from assets
|
$ | 1,994 | $ | (58 | ) | $ | (5 | ) | $ | (302 | ) | $ | 1,629 | |||||||
117
Table of Contents
| Item 9. | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
Disclosure
Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such
term is defined in
Rules 13a-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of the end of the period covered by this
report. Based on such evaluations, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end
of such period, our disclosure controls and procedures are
effective.
Management’s
Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rule 13a-15(f).
Management, with the participation of the Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management has
concluded that, as of December 31, 2009, our internal
control over financial reporting was effective.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, has audited the effectiveness of our internal
control over financial reporting as of December 31, 2009,
as stated in their report which is included herein.
Changes in
Internal Control Over Financial Reporting
There has not been any change in our internal control over
financial reporting during the quarter ended December 31,
2009, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
| Item 9B. | Other Information |
None.
118
Table of Contents
| Item 10. | Directors, Executive Officers and Corporate Governance |
Dana has adopted Standards of Business Conduct that apply to all
of its officers and employees worldwide. Dana also has adopted
Standards of Business Conduct for the Board of Directors. Both
documents are available on Dana’s website at www.dana.com.
The remainder of the response to this item will be included
under the sections captioned “Corporate Governance,”
“Selection of Chairman and Chief Executive Officer
Succession Planning,” “Information About the Nominees
and Series A Preferred Directors,” “Risk
Oversight,” “Committees and Meetings of
Directors,” “Executive Officers” and
“Section 16(a) Beneficial Ownership Reporting
Compliance” of Dana’s definitive Proxy Statement
relating to the Annual Meeting of Shareholders to be held on
April 28, 2010, which sections are hereby incorporated
herein by reference.
| Item 11. | Executive Compensation |
The response to this item will be included under the sections
captioned “Compensation Committee Interlocks and Insider
Participation,” “Compensation of Executive
Officers,” “Compensation Discussion and
Analysis,” “Compensation of Directors,”
“Officer Stock Ownership Guidelines,”
“Compensation Committee Report,” “Summary
Compensation Table,” “Grants of Plan-Based
Awards,” “Outstanding Equity Awards at Fiscal Year
End,” “Option Exercises and Stock Vested,”
“Pension Benefits,” “Executive Agreements”
and “Potential Payments Upon Termination or Change in
Control” of Dana’s definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held on
April 28, 2010, which sections are hereby incorporated
herein by reference.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The response to the remaining requirements of this item will be
included under the sections captioned “Security Ownership
of Certain Beneficial Owners and Management” of Dana’s
definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on April 28, 2010, which sections
are hereby incorporated herein by reference.
119
Table of Contents
Equity
Compensation Plan Information
The following table contains information as of December 31,
2009 about shares of stock which may be issued under our equity
compensation plans, all of which have been approved by our
shareholders.
|
Number of Securities to
|
||||||||||||
|
be Issued Upon
|
Weighted Average
|
|||||||||||
|
Exercise of
|
Exercise Price of
|
Number of Securities
|
||||||||||
|
Outstanding Options,
|
Outstanding Options,
|
Remaining Available
|
||||||||||
|
Plan
Category
(1)
|
Warrants and Rights (2) | Warrants and Rights (3) | for Future Issuance | |||||||||
|
Equity compensation plans approved by security holders
|
10,132,214 | $ | 4.88 | 5,040,721 | ||||||||
|
Equity compensation plans not approved by security holders
|
||||||||||||
|
Total
|
10,132,214 | $ | 4.88 | 5,040,721 | ||||||||
| (1) | As a result of our emergence from bankruptcy on January 31, 2008, all unexercised Prior Dana stock options, unvested restricted shares and restricted stock units and unvested equity incentive plan awards were cancelled with no consideration. All amounts shown relate to the period following emergence. | |
| (2) | In addition to stock options, restricted stock units and performance shares have been awarded under Dana’s equity compensation plans and were outstanding at December 31, 2009. | |
| (3) | Calculated without taking into account the 955,032 shares of common stock subject to outstanding restricted stock units and performance shares that become issuable as those units vest since they have no exercise price and no cash consideration or other payment is required for such shares. |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The response to this item will be included under the sections
captioned “Director Independence and Transactions of
Directors with Dana,” “Transactions of Executive
Officers with Dana” and “Information about the
Nominees and Series A Preferred Directors” of
Dana’s definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on April 28, 2010, which
sections are hereby incorporated herein by reference.
| Item 14. | Principal Accountant Fees and Services |
The response to this item will be included under the section
captioned “Independent Auditors” of Dana’s
definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on April 28, 2010, which section is
hereby incorporated herein by reference.
120
| Item 15. | Exhibits and Financial Statement Schedules |
| 10-K Pages | ||||||||||
|
(a) List of documents filed as a part of this report:
|
||||||||||
| 1. | Consolidated Financial Statements: | |||||||||
| Reports of Independent Registered Public Accounting Firm | 43 | |||||||||
| Consolidated Statement of Operations | 46 | |||||||||
| Consolidated Balance Sheet | 47 | |||||||||
| Consolidated Statement of Cash Flows | 48 | |||||||||
| Consolidated Statement of Shareholders’ Equity | 49 | |||||||||
| Notes to Consolidated Financial Statements | 51 | |||||||||
| 2. | Unaudited Quarterly Financial Information | 116 | ||||||||
| 3. | Financial Statement Schedule: | |||||||||
| Valuation and Qualifying Accounts and Reserves (Schedule II) | 117 | |||||||||
| All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto | ||||||||||
| 4. | Exhibits listed in the Exhibit Index | 123 | ||||||||
121
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
DANA HOLDING CORPORATION
Date: February 24, 2010
By:
/s/ James
E. Sweetnam
James E. Sweetnam
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on this 24th day of
February 2010 by the following persons on behalf of the
registrant and in the capacities indicated, including a majority
of the directors.
|
Signature
|
Title
|
|||
|
/s/ John
M. Devine
|
Executive Chairman | |||
|
/s/ James
E. Sweetnam
|
President and Chief Executive Officer, Director
(Principal Executive Officer) |
|||
|
/s/ James
A. Yost
|
Executive Vice President and Chief Financial
Officer (Principal Financial Officer) |
|||
|
/s/ Richard
J. Dyer
|
Vice President and Chief Accounting Officer
(Principal Accounting Officer) |
|||
|
/s/ Mark
T. Gallogly
|
Director | |||
|
/s/ Terrence
J. Keating
|
Director | |||
|
/s/ Mark
A. Schulz
|
Director | |||
|
/s/ David
P. Trucano
|
Director | |||
|
/s/ Keith
E. Wandell
|
Director | |||
|
/s/ Jerome
B. York
|
Director | |||
122
Table of Contents
EXHIBIT INDEX
All documents referenced below were filed by Dana Corporation or
Dana Holding Corporation (as successor registrant), file number
001-01063,
unless otherwise indicated.
|
No.
|
Description
|
|||
| 3 | .1 | Restated Certificate of Incorporation of Dana Holding Corporation. Filed as Exhibit 3.1 to Registrant’s Registration Statement on Form 8-A dated January 31, 2008, and incorporated herein by reference. | ||
| 3 | .2 | Bylaws of Dana Holding Corporation. Filed as Exhibit 3.2 to Registrant’s Current Report on Form 8-K/A dated February 4, 2009, and incorporated herein by reference. | ||
| 4 | .1 | Registration Rights Agreement dated as of January 31, 2008, by and among the Company and Centerbridge Capital Partners, L.P., Centerbridge Capital Partners Strategic, L.P. and Centerbridge Capital Partners SBS, L.P. Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated February 6, 2008, and incorporated herein by reference. | ||
| 4 | .2 | Shareholders Agreement dated as of January 31, 2008, by and among the Company and Centerbridge Capital Partners, L.P., Centerbridge Capital Partners Strategic, L.P. and Centerbridge Capital Partners SBS, L.P. Filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K dated February 6, 2008, and incorporated herein by reference. | ||
| 4 | .3 | Specimen Common Stock Certificate. Filed as Exhibit 4.1 to Registrant’s Registration Statement on Form 8-A dated January 31, 2008, and incorporated herein by reference. | ||
| 4 | .4 | Specimen Series A Preferred Stock Certificate. Filed as Exhibit 4.5 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference. | ||
| 4 | .5 | Specimen Series B Preferred Stock Certificate. Filed as Exhibit 4.6 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference. | ||
| 10 | .1** | Executive Employment Agreement dated December 16, 2008 and effective January 1, 2009 by and between John M. Devine and Dana Holding Corporation. Filed as Exhibit 10.6 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and as amended as set forth in Registrant’s Current Report on Form 8-K dated December 18, 2009 and incorporated herein by reference. | ||
| 10 | .2** | Executive Employment Agreement dated December 16, 2008 and effective January 1, 2009 by and between Gary L. Convis and Dana Holding Corporation. Filed as Exhibit 10.4 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference. | ||
| 10 | .3** | Executive Employment Agreement dated December 16, 2008 and effective January 1, 2009 by and between Robert H. Marcin and Dana Holding Corporation. Filed as Exhibit 10.7 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference. | ||
| 10 | .4** | Employment Agreement dated May 13, 2008 by and between Dana Holding Corporation and James A. Yost. Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated May 13, 2008, and incorporated herein by reference. | ||
| 10 | .5** | Supplemental Executive Retirement Plan for James A. Yost dated May 22, 2008. Filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated May 13, 2008, and incorporated herein by reference. | ||
| 10 | .6** | Executive Employment Agreement dated May 22, 2009 by and between Dana Holding Corporation and James E. Sweetnam. Filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009. | ||
| 10 | .7** | Separation Agreement dated August 6, 2009 by and between Nick Stanage and Dana Holding Corporation. Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated August 6, 2009, and incorporated herein by reference. | ||
| 10 | .8** | Dana Holding Corporation 2008 Omnibus Incentive Plan. Filed as Exhibit 10.10 to Registrant’s Current Report on Form 8-K dated February 6, 2008, and incorporated herein by reference. | ||
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| 10 | .9** | Form of Stock Option Nonqualified Stock Option Agreement. Filed as Exhibit 10.14 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference. | ||
| 10 | .10** | Form of Restricted Stock Agreement. Filed as Exhibit 10.15 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference. | ||
| 10 | .11** | Form of Indemnification Agreement. Filed as Exhibit 10.4 to Registrant’s Current Report on Form 8-K dated February 6, 2008, and incorporated herein by reference. | ||
| 10 | .12** | Dana Holding Corporation Summary of Non-Employee Director Compensation Package and Stock Ownership Guidelines. Filed as Exhibit 10.21 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference. | ||
| 10 | .13** | Form of Option Right Agreement For Non-Employee Directors. Filed as Exhibit 10.22 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference. | ||
| 10 | .14** | Form of Restricted Stock Unit Award Agreement for Non-Employee Directors. Filed as Exhibit 10.23 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference. | ||
| 10 | .15** | Form of Option Agreement under the Dana Holding Corporation 2008 Omnibus Incentive Plan, as in use through August 1, 2008. Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated April 18, 2008, and incorporated herein by reference. | ||
| 10 | .16** | Form of Restricted Stock Unit Agreement under the Dana Holding Corporation 2008 Omnibus Incentive Plan, as in use through August 1, 2008. Filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated April 18, 2008, and incorporated herein by reference. | ||
| 10 | .17** | Form of Performance Share Agreement under the Dana Holding Corporation 2008 Omnibus Incentive Plan, as in use through August 1, 2008. Filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K dated April 18, 2008, and incorporated herein by reference. | ||
| 10 | .18** | Form of Option Agreement under the Dana Holding Corporation 2008 Omnibus Incentive Plan. Filed as Exhibit 10.38 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference. | ||
| 10 | .19** | Form of Restricted Stock Unit Agreement under the Dana Holding Corporation 2008 Omnibus Incentive Plan. Filed as Exhibit 10.39 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference. | ||
| 10 | .20** | Form of Performance Share Agreement under the Dana Holding Corporation 2008 Omnibus Incentive Plan. Filed as Exhibit 10.40 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference. | ||
| 10 | .21** | Form of Share Appreciation Rights Agreement under the Dana Holding Corporation 2008 Omnibus Incentive Plan. Filed as Exhibit 10.41 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference. | ||
| 10 | .22** | Dana Holding Corporation Executive Perquisite Plan. Filed as Exhibit 10.4 to Registrant’s Current Report on Form 8-K dated April 18, 2008, and incorporated herein by reference. | ||
| 10 | .23** | Dana Holding Corporation Executive Severance Plan. Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated June 24, 2008, and incorporated herein by reference. | ||
| 10 | .24** | Letter Agreement effective January 1, 2010 between Dana Holding Corporation and Gary L. Convis. Filed with this report. | ||
| 10 | .25 | Receivables Loan Agreement dated 18 July 2007, between Dana Europe Financing (Ireland) Limited, as Borrower; Dana International Luxembourg SARL, as Servicer and as Performance Undertaking Provider; the persons from time to time party thereto as Lenders; and GE Leveraged Loans Limited, as Administrative Agent. Filed as Exhibit 10-Z(1) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, and incorporated herein by reference. | ||
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| 10 | .26 | Master Schedule of Definitions, Interpretation and Construction dated 18 July 2007, between Dana Europe Financing (Ireland) Limited; Dana International Luxembourg SARL; the Originators; GE Leveraged Loans Limited; GE FactorFrance SNC; Dana Europe S.A., the Lenders; and certain other parties. Filed as Exhibit 10-Z(2) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, and incorporated herein by reference. | ||
| 10 | .27 | Performance and Indemnity Deed dated 18 July 2007, between Dana International Luxembourg SARL, as Performance Undertaking Provider; the Intermediate Transferor; Dana Europe Financing (Ireland) Limited, as Borrower; GE Leveraged Loans Limited, as Administrative Agent; and other secured parties. Filed as Exhibit 10-Z(3) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference. | ||
| 10 | .28 | Term Facility Credit and Guaranty Agreement, dated as of January 31, 2008, among Dana Holding Corporation, as Borrower, the guarantors party thereto, Citicorp USA, Inc., as administrative agent and collateral agent, Citigroup Capital Markets, Inc., as joint lead arranger and joint bookrunner, Lehman Brothers Inc., as joint lead arranger, joint bookrunner and syndication agent, Barclays Capital, as joint bookrunner and documentation agent and the lenders and other financial institutions party thereto. Filed as Exhibit 10.5 to Registrant’s Current Report on Form 8-K dated February 6, 2008 and incorporated herein by reference. | ||
| 10 | .29 | Revolving Credit and Guaranty Agreement, dated as of January 31, 2008, among Dana Holding Corporation, as Borrower, the guarantors party thereto, Citicorp USA, Inc., as administrative agent and collateral agent, Citigroup Capital Markets, Inc., as joint lead arranger and joint bookrunner, Lehman Brothers Inc., as joint lead arranger, joint bookrunner and syndication agent, Barclays Capital, as joint bookrunner and documentation agent, and the lenders and other financial institutions party thereto. Filed as Exhibit 10.6 to Registrant’s Current Report on Form 8-K dated February 6, 2008, and incorporated herein by reference. | ||
| 10 | .30 | Term Facility Security Agreement, dated as of January 31, 2008, among Dana Holding Corporation, the guarantors party thereto and Citicorp USA, Inc., as collateral agent. Filed as Exhibit 10.7 to Registrant’s Current Report on Form 8-K dated February 6, 2008, and incorporated herein by reference. | ||
| 10 | .31 | Revolving Facility Security Agreement, dated as of January 31, 2008, among Dana Holding Corporation, the guarantors party thereto and Citicorp USA, Inc., as collateral agent. Filed as Exhibit 10.8 to Registrant’s Current Report on Form 8-K dated February 6, 2008, and incorporated herein by reference. | ||
| 10 | .32 | Intercreditor Agreement, dated as of January 31, 2008, among Dana Holding Corporation, Citicorp USA, Inc., as collateral and administrative agents under the Term Facility Credit and Guaranty Agreement and the Revolving Credit and Guaranty Agreement. Filed as Exhibit 10.9 to Registrant’s Current Report on Form 8-K dated February 6, 2008, and incorporated herein by reference. | ||
| 10 | .33 | Amendment No. 1 to the Term Facility Credit and Guaranty Agreement dated as of November 21, 2008. Filed as Exhibit 10.74 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference. | ||
| 21 | List of Subsidiaries of Dana Holding Corporation. Filed with this Report. | |||
| 23 | Consent of PricewaterhouseCoopers LLP. Filed with this Report. | |||
| 24 | Power of Attorney. Filed with this Report. | |||
| 31 | .1 | Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer. Filed with this Report. | ||
| 31 | .2 | Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer. Filed with this Report. | ||
| 32 | Section 1350 Certification of Periodic Report (pursuant to Section 906 of the Sarbanes Oxley Act of 2002). Filed with this Report. | |||
** Management contract or compensatory plan required to be
filed as part of an exhibit pursuant to Item 15(b) of
Form 10-K.
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TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of Operations (dollars in Millions)Item 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1. Organization and Summary Of Significant Accounting PoliciesNote 2. Divestitures and AcquisitionsNote 3. Restructuring Of OperationsNote 4. InventoriesNote 5. Supplemental Balance Sheet and Cash Flow InformationNote 6. Goodwill, Other Intangible Assets and Long-lived AssetsNote 7. Capital StockNote 8. Earnings Per ShareNote 9. Incentive and Stock CompensationNote 10. Pension and Postretirement Benefit PlansNote 11. Cash DepositsNote 12. Financing AgreementsNote 13. Fair Value MeasurementsNote 14. Risk Management and DerivativesNote 15. Commitments and ContingenciesNote 16. Warranty ObligationsNote 17. Income TaxesNote 18. Other Income, NetNote 19. Segment, Geographical Area and Major Customer InformationNote 20. Reorganization ItemsNote 21. Emergence From Chapter 11Note 22. Discontinued OperationsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules