(Exact name of registrant as specified in its charter)
Delaware | 26-1531856 | |
(State of incorporation) | (IRS Employer Identification Number) |
3939 Technology Drive, Maumee, OH | 43537 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (419) 887-3000
Title of each class | Name of each exchange on which registered | |
Common Stock, par value $0.01 per share | New York Stock Exchange |
(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 x No o
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 x
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 x 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 registrants 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. x
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 x | Accelerated filer o | 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 x
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, 2010, was approximately $1,438,000,000.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
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 x No o
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 144,909,664 shares of the registrants common stock outstanding at February 14, 2011.
Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on May 4, 2011 are incorporated by reference into Part III.
i
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 annual report on 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.
ii
Dana is headquartered in Maumee, Ohio and was incorporated in Delaware in 2007. As a leading supplier of driveline products (axles, driveshafts and transmissions), power technologies (sealing and thermal-management products) and genuine service parts for light and heavy vehicle manufacturers world-wide, our customer base includes virtually every major vehicle manufacturer in the global light vehicle, medium/heavy vehicle and off-highway markets. As of December 31, 2010, we employed approximately 22,500 people, operated in 26 countries and owned or leased 92 major facilities around the world.
As a result of Dana Corporations emergence from Chapter 11 of the U.S. Bankruptcy Code (Chapter 11) on January 31, 2008 (the Effective Date), Dana became 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 Corporations emergence from Chapter 11, are references to Prior Dana and when used with respect to the period commencing after Dana Corporations emergence, are references to Dana. These references include the subsidiaries of Dana, as the case may be, unless otherwise indicated or the context requires otherwise.
Bankruptcy proceedings Prior 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 the Effective Date pursuant to the Third Amended Joint Plan of Reorganization of Debtors and Debtors in Possession (as modified the Plan). In connection with our emergence from Chapter 11, 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 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.
Bankruptcy claims resolution During the course of our Chapter 11 proceedings, we successfully reached settlements with most of our creditors and resolved most pending claims against the Debtors. However, certain significant matters remain to be resolved in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). See Note 23 to our consolidated financial statements in Item 8 for further details. 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 from Chapter 11. Therefore, the future resolution of these disputed claims will not have an impact on our results of operations or financial condition.
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 (CUVs), 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. |
1
| 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. |
Senior management and our Board of Directors currently review our operations in five operating segments:
| Three product-based operating segments sell primarily into the light vehicle market: Light Vehicle Driveline (LVD), Power Technologies and Structural Products (Structures). Most of the operations of Structures were divested in March 2010. Sales in these light vehicle businesses totaled $3,634 in 2010, with Ford Motor Company (Ford), Hyundai Motor Group (Hyundai), Nissan Motor Company (Nissan), General Motors Corp. (GM) and Chrysler Corporation (Chrysler) among the largest customers. At December 31, 2010, these segments employed approximately 14,500 people and had 59 major facilities in 20 countries. |
| Two operating segments serve the medium/heavy vehicle markets: Commercial Vehicle and Off-Highway. In 2010, these segments generated sales of $2,475. In 2010, the largest Commercial Vehicle customers were PACCAR Inc (PACCAR), Daimler AG, Navistar International Corporation and Oshkosh Corporation. The largest Off-Highway customers included Deere & Company, AGCO Corporation, Fiat Group and Sandvik Ab. At December 31, 2010, these two segments employed approximately 7,000 people and had 29 major facilities in 13 countries. |
| In addition to the operating segments, there are two additional major facilities providing administrative services and two engineering facilities supporting multiple segments. At December 31, 2010, corporate and other support staff totaled approximately 1,000. |
Our operating segments manufacture and market classes of similar products as shown below. See Note 20 to our consolidated financial statements in Item 8 for financial information on all of these operating segments.
Percent of Consolidated Sales |
Products | Market | ||||||||
Segment | 2010 | 2009 | 2008 | |||||||
LVD | 41% | 38% | 34% | Front and rear axles, driveshafts, differentials, torque couplings and modular assemblies |
Light vehicle | |||||
Power Technologies | 15 | 14 | 12 | Gaskets, cover modules, heat shields, engine sealing systems, cooling and heat transfer products |
Light vehicle, medium/heavy vehicle and off-highway |
|||||
Commercial Vehicle | 22 | 21 | 21 | Axles, driveshafts, steering shafts, suspensions and tire management systems |
Medium/heavy vehicle | |||||
Off-Highway | 19 | 16 | 22 | Axles, transaxles, driveshafts and end-fittings, transmissions, torque converters and electronic controls |
Off-highway | |||||
Structures | 3 | 11 | 11 | Frames, cradles and side rails |
Light and medium/heavy vehicle |
2
Dongfeng Dana Axle In June 2007, our subsidiary Dana Mauritius Limited (Dana Mauritius) purchased 4% of the registered capital of Dongfeng Dana Axle Co., Ltd. (DDAC), 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. Our subsidiary, Dana Hong Kong agreed, subject to certain conditions, to purchase Dana Mauritius 4% interest and, subject to certain conditions, to purchase an additional 46% equity interest in DDAC. We signed a definitive agreement to increase our investment in DDAC in February 2011. We expect that the increase in our investment will occur in the second quarter of 2011, at which time we expect to make a payment approximating $120.
SIFCO In February 2011, we completed a transaction with SIFCO S.A. (SIFCO), a leading producer of steer axles and forged components in South America. Through this transaction, we acquired the distribution rights to SIFCOs commercial vehicle steer axle systems and we are now responsible for all customer relationships, including marketing, sales, engineering and assembly. The addition of truck and bus steer axles to our product offering in South America effectively positions us as the leading full-line supplier of commercial vehicle drivelines, including front and rear axles, driveshafts and suspension systems. In return for payment of $150 to SIFCO, we obtained an exclusive, long-term supply agreement to ensure supply of key driveline components.
Structural Products business In December 2009, we signed an agreement to sell substantially all of the assets of our Structural Products business to Metalsa S.A. de C.V. (Metalsa), the largest vehicle frame and structures supplier in Mexico. We completed the sale in 2010 for a selling price of $147. We received cash proceeds of $118 during 2010 and expect to receive all but $1 of the remainder in 2011. Following the recognition of $150 of impairment and accrual of $11 of transaction expense in the fourth quarter of 2009, we recorded an additional $3 of loss in 2010 as a result of reducing the selling price and recorded additional tax expense of $3 in 2010.
See Item 7, Managements Discussion and Analysis of the Results of Operations, for additional information on these transactions.
Other 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. 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.
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 $5 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.
Other agreements In August 2007, we executed an agreement relating to two joint ventures with GETRAG Getriebe-und Zahnradfabrik Hermann Hagenmeyer GmbH & Cie KG (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 charge of $15 in the third quarter of 2008 in equity in earnings of affiliates. Following the expiration of the call in September 2009, we began recognizing our interest in the results of GETRAG as equity in earnings of affiliates.
3
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 | South Africa | Colombia | India | ||||
Germany | Sweden | Uruguay | Japan | |||||
Hungary | Switzerland | Venezuela | Korea | |||||
United Kingdom | Taiwan | |||||||
Thailand |
Our non-U.S. subsidiaries and affiliates manufacture and sell products similar to those we produce in the United States. 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.
Sales reported by our non-U.S. subsidiaries comprised $3,434 of our 2010 consolidated sales of $6,109. A summary of sales and long-lived assets by geographic region can be found in Note 20 to our consolidated financial statements in Item 8.
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 2010. As a percentage of total sales from continuing operations, our sales to Ford were approximately 19% in 2010, 20% in 2009 and 17% in 2008 and our sales to PACCAR, our second largest customer, were approximately 5% in 2010, 2009 and 2008.
Hyundai, Nissan and GM were our third, fourth and fifth largest customers in 2010. Our top 10 customers collectively accounted for approximately 53% of our revenues in 2010.
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.
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.
4
High steel and other raw material costs have had a major adverse effect on our results of operations in the past. 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.
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 impacted by the summer holiday schedules and fourth-quarter production is affected globally by year-end holidays.
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.
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 (GKN), American Axle & Manufacturing Holdings, Inc. (American Axle), Magna International Inc. (Magna), Wanxiang Group Corporation, Hitachi Automotive Systems LTD., IFA Group (acquired Rotarian GmbH), GETRAG and the captive and vertically integrated operations of various truck and auto manufacturers (e.g., Chrysler and Ford).
Our principal Power Technologies competitors include ElringKlinger Ag, Federal-Mogul Corporation, Freudenberg NOK Group, Behr GmbH & Co. KG, Mahle GmbH, Modine Manufacturing Company, Valeo Group, YinLun Co., LTD 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. Power Technologies 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. Power Technologies competition in this market is similar to their competition in the other markets above.
Our proprietary axle, driveshaft and power technologies 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® and Long® trademarks are widely recognized in their market segments.
5
Since 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 and 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, 2010, we had five major technical centers with additional research and development activities carried out at ten additional sites. Our research and development costs were $50 in 2010, $44 in 2009 and $60 for the full year of 2008. Total engineering expenses including research and development were $132 in 2010, $119 in 2009 and $193 for the full year of 2008.
Our research and development activities 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 power technologies 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.
Our worldwide employment was approximately 22,500 at December 31, 2010.
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 material adverse effect on our earnings or competitive position in 2010.
In connection with our Chapter 11 reorganization, we settled certain pre-petition claims related to environmental matters. See the discussion of contingencies in Note 15 to our consolidated financial statements in Item 8.
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 we 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 in the U.S. at 800-472-8810 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.
6
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.
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. These factors have had and could continue to have a substantial impact on our business.
While we expect a continuing economic recovery in 2011, negative economic conditions such as rising fuel prices could adversely impact our business. Adverse developments in these conditions could reduce demand for new vehicles, causing our customers to reduce their vehicle production in North America and, as a result, demand for our products would be adversely affected.
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 are reliant upon sales to several significant customers. Sales to our ten largest customers accounted for 53% of our overall revenue in 2010. 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 significant decline in the production levels of such vehicles would negatively impact our business, results of operations and financial condition. Pricing pressure from our customers also poses certain risks. Inability on our part to offset pricing concessions with cost reductions would adversely affect our profitability. 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 operate in 26 countries around the world and we depend on significant foreign suppliers and customers. Further, we have several growth initiatives that are targeting emerging markets like China and India. 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 a number of countries in which we operate could create instability in our contractual relationships with no effective legal safeguards for resolution of these issues, or potentially result in the seizure of our assets.
Approximately 56% of our sales in 2010 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
7
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 mitigate 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.
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.
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.
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 depend on the cash flow of our subsidiaries. In addition, the payment 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.
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 continue to work with our customers to recover a greater portion of our material cost increases. 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.
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
8
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 expect to engage in strategic acquisitions and joint ventures, which are intended to complement or expand our businesses. The success of this strategy will depend on our ability to successfully complete these transactions or arrangements, to integrate the businesses acquired in these transactions and to develop satisfactory working arrangements with our strategic partners in the joint ventures. We could encounter unexpected difficulties in completing these transactions and integrating the acquisitions with our existing operations. We also may not realize the degree or timing of benefits anticipated when we enter into a transaction.
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 an EPA settlement as part of our bankruptcy proceedings, environmental costs related to our former and existing operations have not been 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, off-highway and light vehicle markets, if our products fail to perform to specifications or cause property damage, injury or death. (See Notes 16 and 18 of our consolidated financial statements in Item 8 for additional information on warranties.)
We contribute to certain multiemployer defined benefit pension plans for our union-represented employees in the U.S. in accordance with our collective bargaining agreements. Contributions are based on hours worked except in cases of layoff or leave where we generally contribute based on 40 hours per week for a maximum of one year. The plans are not fully funded as of December 31, 2009, the last date for which data is available. We could be held liable to the plans for our obligation, as well as those of other employers due to our participation in the plans. Contribution rates could increase if the plans are required to adopt a funding improvement plan, if the performance of plan assets does not meet expectations, or as a result of future collectively-bargained wage and benefit agreements.
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 stockholders best interest.
9
-None-
Type of Facility | North America |
Europe | South America |
Asia/ Pacific |
Total | |||||||||||||||
Administrative Offices | 2 | 2 | ||||||||||||||||||
Engineering Multiple Groups | 1 | 1 | 2 | |||||||||||||||||
LVD |
||||||||||||||||||||
Manufacturing/Distribution | 15 | 3 | 7 | 12 | 37 | |||||||||||||||
Power Technologies |
||||||||||||||||||||
Manufacturing/Distribution | 14 | 4 | 1 | 19 | ||||||||||||||||
Engineering | 2 | 2 | ||||||||||||||||||
Structures |
||||||||||||||||||||
Manufacturing/Distribution | 1 | 1 | ||||||||||||||||||
Commercial Vehicle |
||||||||||||||||||||
Manufacturing/Distribution | 9 | 4 | 1 | 2 | 16 | |||||||||||||||
Engineering | 1 | 1 | ||||||||||||||||||
Off-Highway |
||||||||||||||||||||
Manufacturing/Distribution | 3 | 7 | 2 | 12 | ||||||||||||||||
Total Dana | 48 | 18 | 8 | 18 | 92 |
As of December 31, 2010, we operated in 26 countries and had 92 major manufacturing/distribution, engineering and office facilities. We lease 32 of these manufacturing and distribution operations and a portion of 2 others and own the remainder of our facilities. We believe that all of our property and equipment is properly maintained.
Our corporate headquarters facilities are located in Maumee, Ohio. This facility and other facilities in the greater Detroit, Michigan and 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.
As discussed above, 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 were addressed in connection with our emergence from Chapter 11. Certain pre-petition claims still await resolution in the Bankruptcy Court. See Note 23 to our consolidated financial statements in Item 8 for further details. 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 from Chapter 11. Therefore, the future resolution of these disputed claims will not have an impact on our results of operations or financial condition.
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 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.
10
Market information Our common stock trades on the New York Stock Exchange (NYSE) under the symbol DAN. The following table shows the high and low sales prices of our common stock as reported by the NYSE for each of our fiscal quarters during 2010 and 2009.
2010 | 2009 | |||||||||||||||
High | Low | High | Low | |||||||||||||
Fourth quarter | $ | 17.99 | $ | 12.06 | $ | 11.25 | $ | 5.35 | ||||||||
Third quarter | 12.79 | 8.95 | 7.44 | 1.17 | ||||||||||||
Second quarter | 14.10 | 9.27 | 2.75 | 0.44 | ||||||||||||
First quarter | 13.30 | 9.22 | 1.16 | 0.19 |
Holders of common stock Based on reports by our transfer agent, there were approximately 4,528 registered holders of our common stock on February 11, 2011.
Stockholder return The following graph shows the cumulative total stockholder return for our common stock during the period from February 1, 2008 to December 31, 2010. 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 Dow Jones US Auto Parts Index. The comparison assumes $100 was invested at the closing price 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.
2/1/08 | 12/31/08 | 12/31/09 | 12/31/10 | |||||||||||||
Dana Holding Corporation | $ | 100.00 | $ | 5.83 | $ | 85.35 | $ | 135.51 | ||||||||
S&P 500 | 100.00 | 67.02 | 84.76 | 97.52 | ||||||||||||
Dow Jones US Auto Parts | 100.00 | 50.83 | 75.84 | 119.96 |
11
Dividends We did not declare or pay any common stock dividends during 2010 or 2009.
Issuers 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, 2010. These shares were delivered to us by employees as payment for withholding taxes due upon the distribution of stock awards.
Period | Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
||||||||||||
10/1/10 10/31/10 |
1,322 | $ | 12.98 | | | |||||||||||
11/1/10 11/30/10 |
183,702 | 14.57 | | | ||||||||||||
12/1/10 12/31/10 |
5,949 | 15.86 | | |
Annual meeting We will hold an annual meeting of stockholders on May 4, 2011.
12
Dana | Prior Dana | |||||||||||||||||||||||
Years Ended December 31, |
Eleven Months Ended December 31, 2008 |
One Month Ended January 31, 2008 |
Years Ended December 31, |
|||||||||||||||||||||
(In millions except per share amounts) |
2010 | 2009 | 2007 | 2006 | ||||||||||||||||||||
Net sales | $ | 6,109 | $ | 5,228 | $ | 7,344 | $ | 751 | $ | 8,721 | $ | 8,504 | ||||||||||||
Income (loss) from continuing operations before income taxes | $ | 35 | $ | (454 | ) | $ | (549 | ) | $ | 914 | $ | (387 | ) | $ | (571 | ) | ||||||||
Income (loss) from continuing operations | $ | 14 | $ | (436 | ) | $ | (667 | ) | $ | 717 | $ | (423 | ) | $ | (611 | ) | ||||||||
Loss from discontinued operations | (4 | ) | (6 | ) | (118 | ) | (121 | ) | ||||||||||||||||
Net income (loss) | 14 | (436 | ) | (671 | ) | 711 | (541 | ) | (732 | ) | ||||||||||||||
Less: Noncontrolling interests net income (loss) | 4 | (5 | ) | 6 | 2 | 10 | 7 | |||||||||||||||||
Net income (loss) attributable to the parent company | $ | 10 | $ | (431 | ) | $ | (677 | ) | $ | 709 | $ | (551 | ) | $ | (739 | ) | ||||||||
Income (loss) per share from continuing operations available to parent company stockholders |
||||||||||||||||||||||||
Basic | $ | (0.16 | ) | $ | (4.19 | ) | $ | (7.02 | ) | $ | 4.77 | $ | (2.89 | ) | $ | (4.11 | ) | |||||||
Diluted | $ | (0.16 | ) | $ | (4.19 | ) | $ | (7.02 | ) | $ | 4.75 | $ | (2.89 | ) | $ | (4.11 | ) | |||||||
Loss per share from discontinued operations attributable to parent company stockholders |
||||||||||||||||||||||||
Basic | $ | | $ | | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.79 | ) | $ | (0.81 | ) | ||||||||
Diluted | $ | | $ | | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.79 | ) | $ | (0.81 | ) | ||||||||
Net income (loss) per share available to parent company stockholders |
||||||||||||||||||||||||
Basic | $ | (0.16 | ) | $ | (4.19 | ) | $ | (7.06 | ) | $ | 4.73 | $ | (3.68 | ) | $ | (4.92 | ) | |||||||
Diluted | $ | (0.16 | ) | $ | (4.19 | ) | $ | (7.06 | ) | $ | 4.71 | $ | (3.68 | ) | $ | (4.92 | ) | |||||||
Cash dividends per common share | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Common Stock Data |
||||||||||||||||||||||||
Average common shares outstanding |
||||||||||||||||||||||||
Basic | 141 | 110 | 100 | 150 | 150 | 150 | ||||||||||||||||||
Diluted | 141 | 110 | 100 | 150 | 150 | 150 | ||||||||||||||||||
Stock price |
||||||||||||||||||||||||
High | $ | 17.99 | $ | 11.25 | $ | 13.30 | $ | 2.51 | $ | 8.05 | ||||||||||||||
Low | $ | 8.95 | $ | 0.19 | $ | 0.34 | $ | 0.02 | $ | 0.65 |
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.
13
As of December 31, | ||||||||||||||||||||
Dana | Prior Dana | |||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Summary of Financial Position |
||||||||||||||||||||
Total assets | $ | 5,099 | $ | 5,154 | $ | 5,607 | $ | 6,425 | $ | 6,664 | ||||||||||
Short-term debt | $ | 167 | $ | 34 | $ | 70 | $ | 1,183 | $ | 293 | ||||||||||
Long-term debt | $ | 780 | $ | 969 | $ | 1,181 | $ | 19 | $ | 722 | ||||||||||
Liabilities subject to compromise | $ | 3,511 | $ | 4,175 | ||||||||||||||||
Preferred stock | $ | 762 | $ | 771 | $ | 771 | $ | | $ | | ||||||||||
Common stock, additional paid-in-capital, accumulated deficit and accumulated other comprehensive loss | 923 | 908 | 1,257 | (782 | ) | (834 | ) | |||||||||||||
Total parent company stockholders equity (deficit) | $ | 1,685 | $ | 1,679 | $ | 2,028 | $ | (782 | ) | $ | (834 | ) | ||||||||
Book value per share | $ | 11.97 | $ | 15.24 | $ | 20.28 | $ | (5.22 | ) | $ | (5.55 | ) |
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.
Managements 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.
Dana is headquartered in Maumee, Ohio and was incorporated in Delaware in 2007. As a leading supplier of driveline products (axles, driveshafts and transmissions), power technologies (sealing and thermal-management products) and genuine service parts for light and heavy vehicle manufacturers world-wide, our customer base includes virtually every major vehicle manufacturer in the global light vehicle, medium/heavy vehicle and off-highway markets. At December 31, 2010, we employed approximately 22,500 people, operated in 26 countries and had 92 major manufacturing/distribution, engineering and office facilities 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 2010, 48% of our revenue came from North American operations and 52% from operations throughout the rest of the world. Light vehicle products (including Power Technologies and Structures) accounted for 59% of our global revenues, with commercial vehicle and off-highway products representing 41%.
During the past three years, we have significantly improved our financial condition reducing debt, raising additional equity, improving the profitability of customer programs, eliminating structural costs and reducing working capital investment. We have also strengthened our leadership team and streamlined our operating segments to focus on our core light vehicle driveline and power technologies businesses and our heavy vehicle on-highway commercial and off-highway businesses. As a result, we believe that we are well-positioned to put increasing focus on profitable growth.
While we intend to continue aggressively reducing cost and streamlining our business operations, our future strategy includes several growth initiatives directed at strengthening the competitiveness of our products, geographic expansion, aftermarket opportunities and selective acquisitions.
Strengthening the competitiveness of our products Additional engineering and operational investment is being channeled into reinvigorating our product portfolio and capitalizing on technology advancement
14
opportunities. In 2010, we combined our light and heavy vehicle products North American engineering centers allowing us the opportunity to better share technologies among our businesses. We are constructing a new engineering facility in India that more than doubles our engineering presence in that country. This facility will house state-of-the-art design and test capabilities that globally support each of our businesses.
Geographic expansion Although there are growth opportunities in each region, we will be focused on the Asia Pacific region, especially India and China. In addition to the new engineering facility referenced above, India is nearing completion of a new hypoid gear manufacturing facility which is scheduled to begin production in the first half of 2011. The additional investment in our China-based joint venture with Dongfeng significantly increases our commercial vehicle driveline presence in the region. We have experienced considerable success in the China off-highway and industrial markets and believe that there is considerable opportunity for future growth. Similar to India, we are directing additional investment in our engineering capabilities in China.
Aftermarket opportunities We have established a global group dedicated to identifying and developing aftermarket growth opportunities that leverage the capabilities within our existing businesses targeting future aftermarket revenues of 20% of consolidated sales.
Selective acquisitions Our current acquisition focus is to identify bolt-on acquisition opportunities that have strategic fit with our existing businesses, particularly opportunities that would support the other growth initiatives discussed above and enhance the value proposition of our customer product offerings. Any potential acquisition will be evaluated in the same manner we currently consider customer program opportunities with a disciplined financial approach designed to ensure profitable growth.
We closed on the sale of substantially all of our Structural Products business except for the operations in Venezuela in March 2010 and completed the divestiture in Venezuela in December 2010. We received cash proceeds of $118 during the year, excluding amounts related to the working capital adjustment and tooling and reduced outstanding debt under our term facility by $77. Approximately $30 remains receivable at the end of 2010 under the agreement, including $15 related to an earn-out provision, $8 held in escrow and $5 of deferred proceeds. The earn-out payment vested in January 2011 and is to be paid by Metalsa in February 2011. All but $1 of the remaining $15 is expected to be received before the fourth quarter of 2011. In 2010, we recorded an additional pre-tax loss of $3, resulting from a price adjustment negotiated prior to the March close and we recorded additional tax expense of $3.
In connection with the sale, leases covering three U.S. facilities were assigned to a U.S. affiliate of Metalsa. Under the terms of the sale agreement, Dana will guarantee the affiliates performance under the leases which run through June 2025 including approximately $6 of annual payments. In the event of a required payment by Dana as guarantor, Dana is entitled to pursue full recovery from Metalsa of the amounts paid under the guarantee and to take possession of the leased property.
In June 2007, our subsidiary Dana Mauritius purchased 4% of the registered capital of DDAC, a commercial vehicle axle manufacturer in China formerly known as Dongfeng Axle Co., Ltd., from Dongfeng Motor and certain of its affiliates for $5. Dana Hong Kong has agreed, subject to certain conditions, to purchase the original 4% investment and an additional 46% equity interest in DDAC. We signed a definitive agreement to increase our investment in DDAC in February 2011 and will make a payment approximating $120 at closing once the transaction receives the approval of the Chinese government, which is expected in the second quarter of 2011.
In connection with our increase in ownership, DDAC entered into a contingent consideration arrangement with a Dongfeng Motor affiliate that provides for reductions in the selling price of goods sold by DDAC to such affiliate for a period of up to four years if the earnings of DDAC surpass specified targets. Danas share of DDACs earnings could be reduced by an amount not to exceed $20. We have concluded that this reduction comprises contingent consideration, the fair value of which will be determined at closing, recorded as a liability and amortized to equity in earnings of affiliates over the term of the arrangement.
15
In February 2011, we completed a transaction with SIFCO, a leading producer of steer axles and forged components in South America. Through this transaction, we acquired the distribution rights to SIFCOs commercial vehicle steer axle systems and we are now responsible for all customer relationships, including marketing, sales, engineering and assembly. The addition of truck and bus steer axles to our product offering in South America effectively positions us as the leading full-line supplier of commercial vehicle drivelines including front and rear axles, driveshafts and suspension systems. In return for payment of $150 to SIFCO, we obtained an exclusive, long-term supply agreement to ensure supply of key driveline components. Additionally, SIFCO will provide selected assets and assistance to Dana to establish, in the near term, assembly capabilities for these systems. At current production levels, this arrangement is expected to generate annual sales of approximately $350. We expect to account for this transaction as a business combination, with the purchase price expected to be allocable predominately to fixed assets and intangible assets.
We manage our operations globally through five operating segments. Our operations serving the light vehicle market primarily support light vehicle OEMs with products for light trucks, SUVs, CUVs, vans and passenger cars. The operating segments in the light vehicle markets are LVD, Power Technologies and Structures. Substantially all of the Structures business was sold in the first quarter of 2010.
The reporting of our operating segment results was reorganized in the first quarter of 2010 in line with our management structure as the Sealing and Thermal segments were combined into the Power Technologies segment and our Brazilian driveshaft operations were moved from LVD to Commercial Vehicle. The results of these segments have been retroactively adjusted to conform to the current reporting structure.
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).
Actual | ||||||||||||||||
Dana 2011 Outlook | 2010 | 2009 | 2008 | |||||||||||||
North America |
||||||||||||||||
Light Vehicle (Total) | 12,600 to 13,000 | 11,912 | 8,550 | 12,650 | ||||||||||||
Light Truck (excl. CUV/Minivan) | 3,500 to 3,700 | 3,520 | 2,330 | 3,330 | ||||||||||||
Medium Truck (Classes 5 7) | 120 to 150 | 116 | 97 | 157 | ||||||||||||
Heavy Truck (Class 8) | 235 to 245 | 152 | 116 | 196 | ||||||||||||
Europe (including E. Europe) |
||||||||||||||||
Light Vehicle | 18,300 to 18,800 | 18,732 | 16,300 | 21,260 | ||||||||||||
Medium/Heavy Truck | 330 to 350 | 325 | 298 | 749 | ||||||||||||
South America |
||||||||||||||||
Light Vehicle | 4,200 to 4,400 | 4,140 | 3,650 | 3,800 | ||||||||||||
Medium/Heavy Truck | 215 to 230 | 191 | 115 | 173 | ||||||||||||
Asia Pacific |
||||||||||||||||
Light Vehicle | 35,000 to 37,000 | 34,662 | 28,500 | 28,700 | ||||||||||||
Medium/Heavy Truck | 1,400 to 1,550 | 1,437 | 1,089 | 1,355 | ||||||||||||
Off-Highway Global (year-over-year) |
||||||||||||||||
Agricultural Equipment | +8 to +12% | +2 to +5% | -35 to -40% | |||||||||||||
Construction Equipment | +15 to +20% | +20 to +25% | -70 to -75% |
16
Light vehicle markets Production levels in the North American markets were negatively impacted by overall economic conditions which began in the second half of 2008 and continued through much of 2009 resulting in overall light vehicle production in 2009 being down about 32% from 2008. Production levels increased significantly 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. Gradually improving economic conditions continued in 2010, which led to increased light vehicle production of just under 12 million units in 2010. While up 39% from the low levels of the previous year, 2010 production remained well below 2008 levels. However, in the light truck pickup, van and SUV segment where more of our programs are focused, production declined from 2008 to 2009 by about 30% and rebounded strongly in 2010. With an increase in production of about 50% in 2010, production levels in this segment of the market were slightly higher than 2008 levels.
With vehicle sales strengthening since the second half of 2009, total light vehicle inventory levels have improved considerably from 93 days supply at December 31, 2008 to 53 days supply at December 31, 2009 and 55 days supply at December 31, 2010. Inventory levels in the light truck pickup, van and SUV segment experienced similar improvement, declining from 76 days supply at December 31, 2008 to 50 and 49 days supply at December 31,2009 and 2010. Based on current inventory levels, near-term production levels are likely to be driven more directly by vehicle sales.
Despite economic factors like high unemployment levels and increased fuel costs possibly constraining growth in the North American markets, we expect to see continued strengthening of light vehicle production levels in 2011. Our current outlook has 2011 light vehicle production levels increasing 6 to 9% over 2010 levels nearing those experienced three years ago. As we look at our primary light truck pickup, van and SUV segment where the 2010 rebound was larger, we expect 2011 production levels to be relatively comparable with those in 2010 or up modestly.
Medium/heavy vehicle markets Developments in North America have a significant impact on our results as this region accounts for more than 60% of our global sales in the commercial vehicle market. The North American medium/heavy truck market was impacted by many of the same overall economic conditions negatively impacting the light vehicle markets, as customers have been cautious about the economic outlook and, consequently, new vehicle purchases. After declining around 40% from 2008 to 2009, production levels rebounded to some extent in 2010 with heavy-duty (Class 8) truck production increasing about 31% over 2009 and medium-duty (Classes 5 7) production increasing about 20%.
With the continued overall improvement in the economy, new truck orders have strengthened during the last half of 2010. We expect another significant increase in Class 8 production in 2011. Our current outlook has Class 8 production up 55 to 61% over 2010. In the medium-duty segment, we also expect some production strengthening, but we believe it could be a modest increase of around 3% to a stronger increase of about 20%.
Light vehicle markets During 2009, overall economic weakness impacted light vehicle production globally, resulting in a decline in markets outside North America of about 8%. The improving market conditions that were evident in the fourth quarter of 2009 continued into 2010, with full year production outside North America in 2010 being about 18% higher in 2009. Like North America, production levels in Europe dropped significantly in 2009 and rebounded in 2010 up about 13% over 2009. Markets in South America and Asia Pacific did not experience the steep decline in 2009 that occurred in North America and Europe. Instead, production levels for 2009 were relatively flat in Asia Pacific and down modestly in South America. Both these regions saw production levels strengthen in 2010, with South America up about 12% and Asia Pacific up more than 20%. For 2011, we expect the light vehicle markets in South America and Asia Pacific to show continued strength with production levels being 2 to 7% higher than 2010 levels. In Europe, our outlook has production levels remaining relatively comparable with those of 2010.
17
Medium/heavy vehicle markets Outside of North America, medium- and heavy-duty truck production was severely impacted in 2009 by the overall global economic weakness. European medium/heavy production levels in 2009 were down about 60% when compared to 2008, while the markets in South America and Asia Pacific were around 34% and 20% lower. With improving economic conditions in 2010, production levels outside North America improved considerably. While increasing about 9% over 2009, 2010 production in Europe remained well below 2008 levels. The production rebound in South America and Asia Pacific in 2010 was much stronger, with higher production of around 66% in South America and 32% in Asia Pacific bringing production in those regions to levels higher in 2008. In 2011, we expect to see continued strengthening in the Europe markets, with production levels up 2 to 8% and in the South America markets with production levels up 13 to 20%. In Asia Pacific, we expect the relatively strong 2010 markets to continue with 2011 production levels being relatively comparable to those experienced this past year.
Off-Highway markets Our off-highway business has become an increasingly significant component of our total operations. Unlike our on-highway businesses, our off-highway business is largely concentrated outside of North America, with about two-thirds of its sales coming from Europe and 10% from South America and Asia Pacific combined. 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. 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 to 75% from 2008 while demand in the agricultural market was down 35 to 40%. During the later part of 2010, we began to see improving levels of customer demand in these markets which led to 2010 demand levels being up about 2 to 5% in the agriculture segment and 20 to 25% in the construction segment. In 2011, we expect these markets to continue to recover with demand levels increasing 8 to 12% in the agriculture segment and 15 to 20% in the construction segment.
2011 Outlook |
2010 | 2009 | 2008 | |||||||||||||
Sales | $ | 7,100+ | $ | 6,109 | $ | 5,228 | $ | 8,095 | ||||||||
Adjusted EBITDA * | $ | 740 to 760 | $ | 553 | $ | 326 | $ | 349 | ||||||||
Free Cash Flow ** | $ | 150+ | $ | 242 | $ | 109 | $ | (381 | ) |
* | The table above refers to adjusted EBITDA, a non-GAAP financial measure which we have defined to be earnings before interest, taxes, depreciation, amortization, non-cash equity grant expense, restructuring expense and other nonrecurring items (gain/loss on debt extinguishment or divestitures, impairment, etc.). Adjusted EBITDA is currently being used by Dana as the primary measure of its operating segment performance. The most significant impact on Danas ongoing results of operations as a result of applying fresh start accounting following our emergence from bankruptcy was higher depreciation and amortization. By using adjusted EBITDA, which excludes depreciation and amortization, the comparability of results is enhanced. Management also believes that adjusted EBITDA is an important measure since the financial covenants in our debt agreements are based, in part, on adjusted EBITDA. Segment EBITDA and adjusted EBITDA should not be considered a substitute for income (loss) before income taxes, net income (loss) or other results reported in accordance with GAAP. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. (See Segment Results of Operations (2010 versus 2009) below for a reconciliation of adjusted EBITDA to income (loss) before income taxes.) |
** | Free cash flow is a non-GAAP financial measure, which we have defined as cash provided by operations excluding any bankruptcy claim-related payments, less capital spending. We believe this measure is useful to investors in evaluating the operational cash flow of the company inclusive of the spending required to maintain the operations. Free cash flow is neither intended to represent nor be an alternative to the measure of net cash provided by (used in) operating activities reported under GAAP. Free cash flow may not be comparable to similarly titled measures reported by other companies. |
18
Free cash flow is reconciled to cash flow provided by (used in) operations below:
2010 | 2009 | 2008 | ||||||||||
Net cash flows provided by (used in) operating activities | $ | 287 | $ | 208 | $ | (1,019 | ) | |||||
Purchases of property, plant and equipment | (120 | ) | (99 | ) | (250 | ) | ||||||
Reorganization-related claims payments | 75 | 888 | ||||||||||
Free cash flow | $ | 242 | $ | 109 | $ | (381 | ) |
With lower sales in 2009 and gradual improvement in 2010, we focused on aggressively right-sizing our costs and improving the profitability of our customer programs. We also tightened our capital spending and reduced working capital levels. As sales began improving in 2010, we resisted bringing back much of the cost structure that was eliminated in 2008 and 2009. The combination of stronger sales levels, cost reductions and improved pricing led to improved profitability and cash flow in 2010. While we are continuing to make additional cost improvements and restructure the operations in 2011, we will also be pursuing the growth initiatives described in the Business Strategy section. We are currently expecting that additional strengthening in sales levels in 2011 and further benefits from cost reductions and restructuring actions will more than offset the cost associated with our growth initiatives thereby providing improved adjusted EBITDA and adjusted EBITDA as a percent of sales in 2011. Primarily as a result of projecting capital spending of $200 to $250 in 2011 as compared to $120 in 2010, we expect free cash flow to be somewhat lower than in 2010, but still exceeding $150.
Dana | ||||||||||||
Year Ended December 31, |
Increase (Decrease) |
|||||||||||
2010 | 2009 | |||||||||||
Net sales | $ | 6,109 | $ | 5,228 | $ | 881 | ||||||
Cost of sales | 5,450 | 4,985 | 465 | |||||||||
Gross margin | 659 | 243 | 416 | |||||||||
Selling, general and administrative expenses | 402 | 313 | 89 | |||||||||
Amortization of intangibles | 61 | 71 | (10 | ) | ||||||||
Restructuring charges, net | 73 | 118 | (45 | ) | ||||||||
Impairment of long-lived assets | 156 | (156 | ) | |||||||||
Other income, net | 1 | 98 | (97 | ) | ||||||||
Income (loss) before interest, reorganization items and income taxes | $ | 124 | $ | (317 ) | $ | 441 | ||||||
Net income (loss) attributable to the parent company | $ | 10 | $ | (431 | ) | $ | 441 |
Sales The following table shows changes in our sales by geographic region for the years ended December 31, 2010 and 2009. In the third quarter of 2010, based on a realignment of organizational responsibilities, we moved our operations in South Africa from the Asia Pacific region to the Europe region. The geographical results have been retroactively adjusted to conform to the current reporting structure.
Amount of Change Due To | ||||||||||||||||||||||||
Year Ended December 31, | Increase/ (Decrease) |
Currency Effects |
Divestitures | Organic Change |
||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
North America | $ | 2,960 | $ | 2,659 | $ | 301 | $ | 16 | $ | (307 | ) | $ | 592 | |||||||||||
Europe | 1,579 | 1,248 | 331 | (67 | ) | 398 | ||||||||||||||||||
South America | 839 | 798 | 41 | 68 | (123 | ) | 96 | |||||||||||||||||
Asia Pacific | 731 | 523 | 208 | 54 | (30 | ) | 184 | |||||||||||||||||
Total | $ | 6,109 | $ | 5,228 | $ | 881 | $ | 71 | $ | (460 | ) | $ | 1,270 |
19
Sales increased $881 in 2010 as compared to 2009. The overall strengthening of several international currencies against the U.S. dollar accounted for $71 of the increase. The sale of our Structural Products business in early March 2010 resulted in a year-over-year sales reduction of $460. The organic growth in sales of $1,270, attributable primarily to market volume, pricing and mix, is an increase of about 27% over 2009 sales after adjusting for the effects of the Structural Products divestiture.
Increased sales in North America during 2010, adjusted for the effects of currency and divestitures, was $592 a 25% increase on 2009 sales adjusted for divestitures. The increase was largely due to the increased OEM production levels in the light vehicle and medium/heavy truck markets. Light duty production levels were more than 39% higher in 2010 with production in the light pickup, van and SUV segment the sector most important to us being up around 50%. In the medium/heavy truck markets production was up about 26%. In the off-highway sector, improvement in 2010 demand levels contributed to increased sales of around 28%.
Excluding currency effects, our European sales were 32% higher in 2010 than in 2009. Our businesses in Europe benefited from stronger production levels in each of our markets, while also benefiting from demand levels for certain light vehicle programs that were stronger than the overall market.
Stronger international currencies increased 2010 sales by $68 in South America and $54 in Asia Pacific. The organic growth in sales in South America and Asia Pacific represent increases of 14% and 37% over 2009 sales adjusted for divestitures, due principally to the higher 2010 production levels in these regions.
Cost of sales and gross margin Cost of sales decreased to 89.2% of sales in 2010 from 95.4% of sales in 2009. Higher production levels contributed to improved absorption of fixed costs. Additionally, manufacturing costs benefited from our restructuring initiatives, material cost savings associated with engineering design changes and reduced purchase prices and other cost reduction actions. In 2009, our cost of sales was reduced by $12 of insurance recoveries, primarily attributable to the settlement of environmental claims. Higher sales levels, cost reductions and pricing improvement combined to improve gross margin to $659 (10.8% of sales) in 2010 from $243 (4.6% of sales) in 2009.
Selling, general and administrative expenses (SG&A) SG&A expenses in 2010 were $89 higher than in 2009. Additional compensation and benefit costs are a major reason for the increase. The improved operating performance in 2010 resulted in cash incentive costs of $40 associated with the annual incentive compensation programs while the only expense recorded in 2009 for cash incentive compensation was a special discretionary bonus of $13 awarded in the fourth quarter of 2009. Throughout 2009, we also suspended certain benefits and merit increases and we implemented mandatory unpaid furloughs. In 2010, we restored most of the suspended programs, granted merit increases and minimized mandatory furloughs. Primarily as a result of these actions, benefits and other compensation-related costs in 2010 were higher by approximately $46. Additionally reductions to our liability for asbestos claims reduced SG&A by $9 in 2009. Absent these effects, SG&A expenses as a percentage of sales for 2010 would have been 5.7% as compared to 6.0% in 2009.
Restructuring charges and impairments Restructuring expense was $73 in 2010 compared to $118 in 2009 as we continued to right-size the operations through workforce reductions and facility closure or realignment. Expense in both periods is primarily due to employee separation costs. Charges of $156 for impairment of long-lived assets were recorded in 2009, with $150 recognized in the fourth quarter of 2009 in connection with our agreement to sell the Structural Products business and $6 recognized in the second quarter in connection with revised economic outlooks of certain operating segments. The $150 consisted of $121 related to property, plant and equipment and $29 related to amortizable intangible assets, while the $6 related to indefinite lived intangibles.
Other income, net Other income, net was $1 in 2010, whereas we had other income of $98 in 2009. In 2010, interest income of $30 and other sources of income were essentially offset by a charge of $25 for a settlement with Toyota associated with warranty claims related to our Structural Products business, a loss of $7 on extinguishment of debt and a pre-tax loss of $3 in connection with the divestiture of the Structural Products business. In 2009, interest income of $24 and other sources of income were supplemented by a $35 net gain on the repurchase of debt at a discount, contract cancellation income of $17 in connection with the
20
early termination of a customer program and net foreign currency transaction gains of $9. Partially offsetting the income items in 2009 was $11 of transaction expenses accrued for the Structural Products divestiture and $5 of expenses incurred in connection with the strategic assessment of certain businesses. Further details of other income, net are provided in Note 18 to the consolidated financial statements in Item 8.
Interest expense Interest expense in 2010 was $50 less than in 2009, primarily as a result of debt repurchases and repayments over the past year and a reduction in 2010 of the contractual rate paid under our Amended Term Facility.
Income tax expense We recorded income tax expense of $31 in 2010 and a benefit of $27 in 2009. These amounts vary from an expected expense of $12 for 2010 and an expected benefit of $159 for 2009 at the U.S. federal statutory rate of 35%, primarily due to non-deductible expenses, withholding taxes on the expected repatriation of earnings from our non-U.S. subsidiaries, adjustments to reserves for uncertain tax positions and the effects of valuation allowances as discussed in Note 17 to the consolidated financial statements in Item 8.
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 recognized on the pre-tax income or losses in these jurisdictions as valuation allowance adjustments offset the associated tax benefit or expense. As described in Note 17 of the notes to our consolidated financial statements in Item 8, an exception occurs when there is a pre-tax loss from continuing operations and pre-tax income in another category such as other comprehensive income (OCI). The tax benefit allocated to operations is the amount by which the loss from operations reduces the tax expense recorded with respect to the other category of earnings. Due to the application of this exception for the year ended December 31, 2010, we recognized an income tax benefit of $5 on pre-tax losses of operations in the U.S.
In 2010, we reduced previously accrued withholding taxes on expected future repatriations of foreign earnings and decreased tax expense by $3. Based on our debt refinancing and other plans, we determined that certain repatriation actions were no longer likely to occur. In 2010 we incurred $8 of withholding taxes on transfers of funds to the U.S and between foreign subsidiaries. During 2009, tax expense was reduced by $22 as a result of modifications to previously expected repatriation actions and tax expense was increased by $6 as a result of withholding taxes on transfers of funds to the U.S. and between foreign subsidiaries. As a consequence of reorganizing our operations in Brazil in 2010, we determined that valuation allowances against certain deferred tax assets were no longer required. The reversal of these valuation allowances resulted in a tax benefit of $16.
21
Dana | Prior Dana | |||||||||||
Year Ended December 31, 2009 |
Eleven Months Ended December 31, 2008 |
One Month Ended January 31, 2008 |
||||||||||
Net sales | $ | 5,228 | $ | 7,344 | $ | 751 | ||||||
Cost of sales | 4,985 | 7,113 | 702 | |||||||||
Gross margin | 243 | 231 | 49 | |||||||||
Selling, general and administrative expenses | 313 | 303 | 34 | |||||||||
Amortization of intangibles | 71 | 66 | ||||||||||
Restructuring charges, net | 118 | 114 | 12 | |||||||||
Impairment of goodwill | 169 | |||||||||||
Impairment of long-lived assets | 156 | 14 | ||||||||||
Other income, net | 98 | 53 | 8 | |||||||||
Income (loss) from continuing operations before interest, reorganization items and income taxes | $ | (317 | ) | $ | (382 | ) | $ | 11 | ||||
Fresh start accounting adjustments | $ | | $ | | $ | 1,009 | ||||||
Income (loss) from continuing operations | $ | (436 | ) | $ | (667 | ) | $ | 717 | ||||
Loss from discontinued operations | $ | | $ | (4 | ) | $ | (6 | ) | ||||
Net income (loss) attributable to the parent company | $ | (431 | ) | $ | (677 | ) | $ | 709 |
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 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.
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 the emergence and fresh start accounting effects had negligible impacts 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 annual periods.
Sales The following table shows changes in our sales by geographic region for the year ended December 31, 2009, eleven months ended December 31, 2008 and one month ended January 31, 2008.
Dana | Prior Dana | |||||||||||
Year Ended December 31, 2009 |
Eleven Months Ended December 31, 2008 |
One Month Ended January 31, 2008 |
||||||||||
North America | $ | 2,659 | $ | 3,523 | $ | 396 | ||||||
Europe | 1,248 | 2,233 | 230 | |||||||||
South America | 798 | 966 | 67 | |||||||||
Asia Pacific | 523 | 622 | 58 | |||||||||
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 which added approximately $200 in 2009.
22
North American sales for 2009, adjusted for currency, declined approximately 32% due largely to 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 $85 in Europe. Adjusted for currency effects, European sales were 46% 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 $20 in Asia Pacific. Exclusive of currency effects, sales were down 17% and 20% in these regions, due largely to reduced production levels.
Cost of sales and gross margin Cost of sales was 95.4% of sales in 2009 compared to 96.5% for the combined eleven months ended December 31, 2008 and the month of January in 2008. Lower production levels negatively impacted our ability to absorb fixed costs. Conversely, material cost savings, conversion cost improvements and reduced warranty costs contributed to reduced manufacturing costs. In 2009, environmental insurance recoveries reduced cost of sales by $12. In 2008, cost of sales was increased by the step-up in inventory values ($49) related to the application of fresh start accounting at emergence from Chapter 11 and the subsequent sell off of that inventory in the first half of 2008. Year-over-year cost of sales was also negatively impacted by a pension settlement gain of $12 in 2008.
Selling, general and administrative expenses (SG&A) With the significant decline in sales, consolidated SG&A increased as a percentage 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 incentive 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 January 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 2009 was $37 higher than the combined periods of 2008. We recognized a net gain of $35 on extinguishment of debt in 2009 whereas repayment of debt in 2008 resulted in a net loss of $10. Contract cancellation income in connection with the early termination of a customer program added $17 over 2008. Net currency transaction gains in 2009 were $18 favorable to the amounts recorded in 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 original issue discount (OID) recorded in connection with the Exit Facility, $13 of amortized debt issuance costs and $6 of debt issuance costs written off in connection with the 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
23
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 21 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 from our reorganization activities were being ratified. We recorded $3 as a reorganization item benefit consistent with the original expense recognition.
Income tax expense The reported income tax benefit of $27 in 2009 compares to an expense of $107 for the eleven months ended December 31, 2008 and expense of $199 for the month of January 2008. These amounts vary from an expected benefit of $159 for 2009, expense of $192 for the eleven months ended December 31, 2008 and expense of $320 for January 2008 at the U.S. federal statutory rate of 35%, primarily due to non-deductible expenses, withholding taxes on the expected repatriation of earnings from our non-U.S. subsidiaries, adjustments to reserves for uncertain tax positions, the effects of valuation allowances as discussed in Note 17 to the consolidated financial statements in Item 8 and fresh start adjustments associated with our reorganization.
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 and we recorded tax expense of $6 as a result of withholding taxes on transfers of funds to the U.S. and between foreign subsidiaries.
Year Ended December 31, |
2010 | 2009 | Increase/ (Decrease) |
Amount of Change Due To | ||||||||||||||||||||
Currency Effects |
Divestitures | Organic Change |
||||||||||||||||||||||
LVD | $ | 2,516 | $ | 1,973 | $ | 543 | $ | 76 | $ | | $ | 467 | ||||||||||||
Power Technologies | 927 | 714 | 213 | 1 | 212 | |||||||||||||||||||
Commercial Vehicle | 1,344 | 1,099 | 245 | 24 | 221 | |||||||||||||||||||
Off-Highway | 1,131 | 850 | 281 | (37 | ) | 318 | ||||||||||||||||||
Structures | 188 | 592 | (404 | ) | 7 | (462 | ) | 51 | ||||||||||||||||
Other | 3 | 3 | 2 | 1 | ||||||||||||||||||||
Total | $ | 6,109 | $ | 5,228 | $ | 881 | $ | 71 | $ | (460 | ) | $ | 1,270 |
Our LVD and Power Technologies segments principally serve the light vehicle markets. Exclusive of currency effects, 2010 sales increases over 2009 in LVD and Power Technologies were 24% and 30%. The higher sales were due primarily to increased light vehicle unit production levels in 2010 across all regions.
Commercial Vehicle segment 2010 sales, adjusted for currency, were up 20% compared to 2009. This segment is heavily concentrated in the North American market where medium/heavy (Classes 5 8) truck
24
production during these periods was up about 26%. Outside of North America, 2010 medium/heavy truck production was about 30% higher than 2009.
With its significant European presence, our Off-Highway segment was unfavorably impacted by the weaker euro during 2010. Excluding currency effects, sales in 2010 were up about 38% compared to 2009. These increases reflect the stronger 2010 demand levels in the construction, agriculture and other segments of this market.
We completed the sale of a substantial portion of the Structures business in 2010 which accounts for the reduced sales in this segment. Partially offsetting this was the impact of higher production levels in 2010 prior to the divestiture.
Year Ended December 31, | ||||||||||||
2010 | 2009 | Increase (Decrease) |
||||||||||
Segment EBITDA * |
||||||||||||
Light Vehicle Driveline | $ | 235 | $ | 128 | $ | 107 | ||||||
Power Technologies | 125 | 29 | 96 | |||||||||
Commercial Vehicle | 131 | 84 | 47 | |||||||||
Off-Highway | 98 | 38 | 60 | |||||||||
Structures | 6 | 35 | (29 | ) | ||||||||
Total Segment EBITDA | 595 | 314 | 281 | |||||||||
Shared services and administrative | (22 | ) | (22 | ) | ||||||||
Other income (expense) not in segments | (10 | ) | 33 | (43 | ) | |||||||
Foreign exchange not in segments | (10 | ) | 1 | (11 | ) | |||||||
Adjusted EBITDA * | 553 | 326 | 227 | |||||||||
Depreciation and amortization | (314 | ) | (397 | ) | 83 | |||||||
Restructuring | (73 | ) | (118 | ) | 45 | |||||||
Impairment | (156 | ) | 156 | |||||||||
Interest expense, net | (59 | ) | (115 | ) | 56 | |||||||
Other ** | (72 | ) | 6 | (78 | ) | |||||||
Income (loss) before income taxes | $ | 35 | $ | (454 | ) | $ | 489 |
* | See discussion of non-GAAP financial measures below. |
** | Other includes reorganization items, gain (loss) on extinguishment of debt, strategic transaction expenses, stock compensation expense, loss on sales of assets and foreign exchange costs and benefits. See Note 20 to the consolidated financial statements in Item 8 for additional details. |
Non-GAAP financial measures The table above refers to segment EBITDA and adjusted EBITDA, non-GAAP financial measures which we have defined to be earnings before interest, taxes, depreciation, amortization, non-cash equity grant expense, restructuring expense and other nonrecurring items (gain/loss on debt extinguishment or divestitures, impairment, etc.). Segment EBITDA is currently being used by Dana as the primary measure of its operating segment performance. The most significant impact on Danas ongoing results of operations as a result of applying fresh start accounting following our emergence from bankruptcy was higher depreciation and amortization. By using segment EBITDA and adjusted EBITDA, performance measures that exclude depreciation and amortization, the comparability of results is enhanced. Management also believes that adjusted EBITDA is an important measure since the financial covenants in our debt agreements are based, in part, on adjusted EBITDA. Segment EBITDA and adjusted EBITDA should not be considered a substitute for income before income taxes, net income or other results reported in accordance with GAAP. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
LVD segment EBITDA of $235 in 2010 improved $107 from 2009. Higher sales volumes resulting from stronger market production levels increased earnings by about $70. Material cost recovery and other pricing
25
actions contributed about $38 to the improvement. Year-over-year segment EBITDA was negatively impacted by higher pension cost of $11 and increased warranty cost of $5. The remaining increase was driven by cost reductions which more than offset higher material costs and increased costs associated with incentive compensation and restoring benefits programs that were suspended in 2009.
In Power Technologies, segment EBITDA of $125 in 2010 improved $96 from 2009. Higher sales volumes from stronger markets contributed about $65 of the increase. Many of the restructuring initiatives impacting this segment occurred in the second half of 2009 and first half of 2010. Benefits from these actions along with other cost reduction efforts provided most of the remaining improvement, more than offsetting the increase in compensation and benefit costs in 2010 that followed the curtailment of extensive cost-saving actions we had taken in 2009.
The Commercial Vehicle segment EBITDA in 2010 was $131, an increase of $47 over the amount reported for 2009. Stronger production levels in this segments markets added about $50 to segment EBITDA. The segment EBITDA in 2009 benefited from higher material cost recovery of $20, partially offsetting the impact of the year-over-year sales volume improvement. The remaining improvement was due principally to benefits resulting from our restructuring and other cost reduction actions, which more than covered the increases in compensation benefit costs and warranty expense.
Off-Highway segment EBITDA of $98 in 2010 was up $60 from the amount reported for 2009. Improving market conditions in this business drove stronger sales volume which increased segment EBITDA by about $45. Lower material cost contributed another $15 of improvement. Higher warranty costs of $7 and lower material cost recovery in 2010 partially offset the improvement from stronger production levels and material cost savings. This segments EBITDA for 2010 also benefited from restructuring and other cost reduction efforts, which more than offset the increased costs associated with incentive compensation and restoring other benefits programs suspended in 2009.
We completed the sale of substantially all of our Structures business in 2010, which contributed to the reduced segment EBITDA in 2010. Additionally, Structures segment EBITDA in 2009 included a benefit of $17 from contract cancellation income recognized in connection with the early termination of a customer program.
Dana | Prior Dana | |||||||||||
Year Ended December 31, 2009 |
Eleven Months Ended December 31, 2008 |
One Month Ended January 31, 2008 |
||||||||||
LVD | $ | 1,973 | $ | 2,450 | $ | 270 | ||||||
Power Technologies | 714 | 872 | 92 | |||||||||
Commercial Vehicle | 1,099 | 1,596 | 141 | |||||||||
Off-Highway | 850 | 1,637 | 157 | |||||||||
Structures | 592 | 786 | 90 | |||||||||
Other | 3 | 1 | ||||||||||
Total | $ | 5,228 | $ | 7,344 | $ | 751 |
In the first quarter of 2009, we began allocating the majority of our Brazil driveshaft operations results to our Commercial Vehicle segment. In the first quarter of 2010, we again modified our segment reporting to report all of this operation in the Commercial Vehicle segment. The initial change was not appropriately reflected in the 2008 segment reporting in the 2009 financial statements. We have revised the 2008 segment reporting to correct this error. The impact of these changes was to increase Commercial Vehicle net sales by $48, $153 and $11 and segment EBITDA by $3, $26 and $1 for the year ended December 31, 2009, the eleven months ended December 31, 2008 and the one month ended January 31, 2008 with equal offsets to the LVD segment. These adjustments were not considered material to the 2008 periods to which they relate.
26
Our LVD, Power Technologies and Structures segments principally serve the light vehicle markets. Exclusive of currency effects, sales in 2009 declined 25% in LVD, 24% in Power Technologies and 30% in Structures as compared to the combined periods in 2008, all principally due to lower production levels. 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 Classes 5-7 commercial truck production was down approximately 38%. The sales decline in Commercial Vehicle in 2009, exclusive of currency effects, was 34% 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 during this period. Excluding this effect, sales were down 50% compared to 2008 as demand levels were down 70 to 75% in construction markets and 35 to 40% in agriculture markets. Increased pricing provided a partial offset.
Dana | Prior Dana | |||||||||||
Year Ended December 31, 2009 |
Eleven Months Ended December 31, 2008 |
One Month Ended January 31, 2008 |
||||||||||
Segment EBITDA * |
||||||||||||
Light Vehicle Driveline | $ | 128 | $ | 53 | $ | 9 | ||||||
Power Technologies | 29 | 47 | 9 | |||||||||
Commercial Vehicle | 84 | 76 | 7 | |||||||||
Off-Highway | 38 | 102 | 14 | |||||||||
Structures | 35 | 37 | 4 | |||||||||
Total Segment EBITDA | 314 | 315 | 43 | |||||||||
Shared services and administrative | (22 | ) | (23 | ) | (3 | ) | ||||||
Other income (expense) not in segments | 33 | 22 | (2 | ) | ||||||||
Foreign exchange not in segments | 1 | (3 | ) | |||||||||
Adjusted EBITDA * | 326 | 311 | 38 | |||||||||
Depreciation and amortization | (397 | ) | (399 | ) | (23 | ) | ||||||
Restructuring | (118 | ) | (114 | ) | (12 | ) | ||||||
Impairment | (156 | ) | (183 | ) | ||||||||
Reorganization items, net | 2 | (25 | ) | (98 | ) | |||||||
Interest expense, net | (115 | ) | (94 | ) | (4 | ) | ||||||
Fresh start accounting adjustments | 1,009 | |||||||||||
Other ** | 4 | (45 | ) | 4 | ||||||||
Income (loss) before income taxes | $ | (454 | ) | $ | (549 | ) | $ | 914 |
* | See discussion of non-GAAP financial measures above. |
** | Other includes gain (loss) on extinguishment of debt, strategic transaction expenses, non-cash stock compensation expense, loss on sales of assets and certain foreign exchange costs and benefits. See Note 18 to the consolidated financial statements in Item 8 for additional details. |
Segment EBITDA in LVD increased $66 from 2008 as pricing improvement of approximately $100 and improvement from cost reductions and other items (primarily conversion cost, material and warranty) more than offset the decline of about $150 attributed to lower sales volume.
Lower sales volumes drove the EBITDA reduction of $27 in Power Technologies. Restructuring and cost reduction initiatives began contributing to profit improvement during the second half of 2009 and, along with lower warranty expense, helped offset the impact of reduced sales.
27
In our Commercial Vehicle segment, EBITDA was relatively comparable to the prior year, but improved as a percent of sales. The profit reduction of about $75 from lower sales volume was substantially offset by improved pricing and cost reductions.
Our Off-Highway segment experienced a segment EBITDA reduction of $78. Lower sales volume reduced segment EBITDA by about $150 while pricing improvement of $25 and cost reductions provided a partial offset.
Our Structures business segment EBITDA in 2009 was down $6 from the amount reported for 2008. Lower sales volumes reduced segment EBITDA by about $65. Pricing improvements of approximately $38 combined with cost reductions provided some offset to the adverse impact of lower sales volumes. Additionally, this segments 2009 segment EBITDA benefited $17 from contract cancellation income recognized in connection with the early termination of a customer program.
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 was held by a wholly-owned non-U.S. subsidiary of Dana. Accordingly, $11 of the $109 term loan repayment that was 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 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.
Amended Term Facility refinancing and Revolving Facility amendment In January 2011, we completed an offering of senior unsecured notes (Senior Notes) which generated net proceeds of $733. These proceeds were used together with available cash of $127 to repay in full all amounts then outstanding under our Amended Term Facility. The aggregate principal amount of the Senior Notes is $750, with $400 at a fixed interest rate of 6.50% maturing in 2019 and $350 at a fixed rate of 6.75% maturing in 2021. In connection with this refinancing, we amended our Revolving Credit and Guaranty Agreement (the Revolving Facility) allowing for the issuance of the Senior Notes. The Revolving Facility was amended in February extending the maturity to five years and reducing the aggregate principal amount of the facility from $650 to $500. With the issuance of the Senior Notes and the amendment and extension of the revolving facility, we have additional flexibility to make acquisitions and other investments, incur additional indebtedness and pay dividends and distributions as long as certain terms and conditions are met. The maintenance-based financial covenants in our prior agreements were replaced with incurrence-based financial covenants. With these actions, we have reduced our overall debt, secured fixed interest rates over the next eight to ten years and increased our financial flexibility by freeing up debt capacity for growth. See Note 12 of the notes to our consolidated financial statements in Item 8 for additional details.
Covenants At December 31, 2010, we were in compliance with the debt covenants under our agreements.
28
Global liquidity Our global liquidity at December 31, 2010 was as follows:
Cash and cash equivalents | $ | 1,134 | ||
Less: Deposits supporting obligations | (58 | ) | ||
Available cash | 1,076 | |||
Additional cash availability from lines of credit in the U.S. and Europe | 313 | |||
Total global liquidity | $ | 1,389 |
With the completion of the issuance of the Senior Notes in January 2011 and the repayment in full of the Term Facility, we used $127 of available global liquidity. The February 2011 acquisition of the SIFCO axle business used another $150 and the expected increase in our investment in DDAC, our China joint venture with Dongfeng Motors during the second quarter of 2011 will utilize an additional $120.
As of December 31, 2010, the consolidated cash balance includes $473 located in the U.S. In addition, our cash balance at December 31, 2010 includes $92 held by less-than-wholly-owned subsidiaries where our access may be restricted. Our ability to efficiently access cash balances in certain subsidiaries and foreign jurisdictions is subject to local regulatory, statutory or other requirements, as well as the business needs of the operations.
Following our issuance of the Senior Notes in the first quarter of 2011, the principal sources of liquidity available for our future cash requirements are expected to be (i) cash flows from operations, (ii) cash and cash equivalents on hand, (iii) proceeds related to our trade receivable securitization and financing programs and (iv) borrowings from the Revolving Facility. We believe that our overall liquidity and operating cash flow will be sufficient to meet our anticipated cash requirements for capital expenditures, working capital, debt obligations and other commitments during the next twelve months. While uncertainty surrounding the current economic environment could adversely impact our business, based on our current financial position, we believe it is unlikely that any such effects would preclude us from maintaining sufficient liquidity.
At December 31, 2010, there was $103 of availability based on the borrowing base but no borrowings under our European trade receivable securitization program. At December 31, 2010, we had no borrowings under the Revolving Facility but we had utilized $141 for letters of credit. Based on our borrowing base collateral, we had availability at that date under the Revolving Facility of $210 after deducting the outstanding letters of credit. As a result, we had aggregate additional borrowing availability of $313 under these credit facilities.
Dana | Prior Dana | |||||||||||||||
Year Ended December 31, |
Eleven Months Ended December 31, 2008 |
One Month Ended January 31, 2008 |
||||||||||||||
2010 | 2009 | |||||||||||||||
Cash provided by (used for) changes in working capital | $ | 33 | $ | 94 | $ | 18 | $ | (61 | ) | |||||||
Reorganization-related claims payment | (75 | ) | (2 | ) | (882 | ) | (74 | ) | ||||||||
Other cash provided by operations | 329 | 116 | (33 | ) | 13 | |||||||||||
Net cash flows provided by operating activities | 287 | 208 | (897 | ) | (122 | ) | ||||||||||
Net cash provided by (used in) investing activities | 2 | (98 | ) | (221 | ) | 77 | ||||||||||
Net cash flows used in financing activities | (144 | ) | 32 | (207 | ) | 912 | ||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 145 | $ | 142 | $ | (1,325 | ) | $ | 867 |
29
Operating activities The table above summarizes our consolidated statement of cash flows. Exclusive of working capital and reorganization-related activity, other cash provided by operations was $329 during 2010 and $116 during 2009. An increased level of operating earnings and reduced cash used for restructuring were primary factors for the higher level of other cash provided by operations in 2010. This was partially offset by a voluntary contribution of $50 to the U.S. pension plans in December 2010.
Working capital provided cash of $33 in 2010 and $94 in 2009. Higher sales levels in 2010 as compared to 2009 resulted in increased levels of receivables and inventory. Cash of $96 was used in 2010 to finance increased receivables, whereas lower sales in 2009 drove a reduction in receivables which provided cash of $76. Inventory levels at the end of 2008 were relatively high in relation to customer requirements. Consequently, concerted efforts to reduce inventory enabled us to generate cash of $299 in 2009. Excess inventory levels coming into 2010 had largely been worked down, so higher sales in 2010 resulted in a cash use of $108 to fund inventory. The cash use in 2010 for higher receivables and inventory was more than offset by cash provided by increases in accounts payable and other net liabilities of $237 resulting in the net cash provided of $33. In contrast, reduced inventory and other purchases in 2009 led to a decrease in accounts payable and other net liabilities which used cash of $281.
In 2009, exclusive of working capital and reorganization-related activity, other cash provided from operations of $116 compared to a use of $20 for the combined periods of 2008. 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.
Working capital provided cash of $94 in 2009, whereas cash of $43 was used in 2008. The combination of focused operational initiatives and lower sales levels combined to generate cash of $299 in 2009 from reductions in inventory. During 2008, cash of $34 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. Reductions to receivables generated cash of $107 in 2009 and $434 in 2008, again driven primarily by lower sales during the latter part of 2008.
Investing activities Proceeds from the sale of the Structural Products business provided cash of $118 in 2010. Expenditures for property, plant and equipment were $120, as compared to $99 in 2009 and $250 for the combined periods of 2008 as capital expenditures were closely managed and prioritized throughout 2010 and 2009.
Financing activities A cash use of $144 in 2010 for financing activities was principally due to a use of $137 for long-term debt repayment. As described in Note 12 to the consolidated financial statements in Item 8, we were required to use proceeds from the sale of the Structural Products business to repay term loan debt. Dividend payments to preferred shareholders also consumed cash of $66 during 2010 with $34 used for payment of previously deferred dividends. Partially offsetting these outflows were proceeds of $52 from long-term debt issuance.
In 2009, we completed a common stock offering for 39 million shares generating proceeds of $250 net of underwriting fees. Cash of $214 was used in 2009 to reduce long-term debt, with another $36 being used to reduce short-term borrowings.
In 2008, significant 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.
30
We are obligated to make future cash payments in fixed amounts under various agreements. The following table summarizes our significant contractual obligations as of December 31, 2010. The issuance of Senior Notes in January 2011 resulted in a change in these obligations which is discussed in the notes to the table.
Payments Due by Period | ||||||||||||||||||||
Contractual Cash Obligations | Total | Less than 1 Year |
1 3 Years |
4 5 Years |
After 5 Years |
|||||||||||||||
Long-term debt(1) | $ | 956 | $ | 18 | $ | 101 | $ | 837 | $ | | ||||||||||
Interest payments(2) | 172 | 43 | 83 | 46 | ||||||||||||||||
Leases(3) | 281 | 46 | 71 | 68 | 96 | |||||||||||||||
Unconditional purchase obligations(4) | 115 | 107 | 7 | 1 | ||||||||||||||||
Pension contribution(5) | 45 | 45 | ||||||||||||||||||
Retiree health care benefits(6) | 81 | 8 | 16 | 16 | 41 | |||||||||||||||
Uncertain income tax positions(7) |
||||||||||||||||||||
Total contractual cash obligations | $ | 1,650 | $ | 267 | $ | 278 | $ | 968 | $ | 137 |
Notes:
(1) | Principal payments on long-term debt in place at December 31, 2010. After giving effect to the issuance of the Senior Notes in January 2011, payments due by period are: less than 1 year $122, 1 3 years $83, 4 5 years $1, after 5 years $750 for a total of $956. The cash used in the repayment of the Term Facility in January 2011 is included as part of the 2011 obligation. |
(2) | These amounts represent future interest payments based on the debt in place at December 31, 2010 and the interest rates applicable to such debt. After giving effect to the issuance of the Senior Notes in January of 2011, the payments are: less than 1 year $60, 1 3 years $108, 4 5 years $99, after 5 years $50 or a total of $317. |
(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) | This amount represents estimated 2011 contributions to our global defined benefit pension plans. We have not estimated non-U.S. pension contributions beyond 2011 due to the significant impact that return on plan assets and changes in discount rates might have on such amounts. |
(6) | This amount represents estimated payments under our non-U.S. retiree health care programs. Obligations under the non-U.S. retiree health care 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 2011 related to the uncertain tax positions as of December 31, 2010. We are not able to reasonably estimate the timing of this liability in individual years beyond 2011 due to uncertainties in the timing of the effective settlement of tax positions. Unrecognized tax benefits at December 31, 2010 total $53. |
Preferred dividends accrued but not paid were $8 and $42 at December 31, 2010 and 2009. In October 2010, the Board of Directors authorized an aggregate cash payment of $34 in dividends to shareholders of 4.0% Series A Convertible Preferred Stock and 4.0% Series B Convertible Preferred Stock. The $34 was paid in December 2010 to preferred shareholders of record as of the close of business on November 5, 2010. In March and July 2010, our Board authorized two $16 dividend payments which were made in April and August 2010.
At December 31, 2010, we maintained cash balances of $58 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.
31
We signed a definitive agreement to increase our investment in DDAC in February 2011. The transaction is subject to Chinese government approval and is expected to close during the first half of 2011 with a cash payment approximating $120 due at closing. In February 2011, we completed a transaction with SIFCO, a Brazilian forging and machining supplier to the vehicular markets. We paid $150 to SIFCO at closing.
For a summary of litigation and other contingencies, see Note 15 to our consolidated financial statements in Item 8. We believe that any liabilities beyond the amounts already accrued that may result from these contingencies will not have a material adverse effect on our liquidity, financial condition or results of operations.
The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to use estimates and make judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. 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. 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 allowances 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 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 to 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.
32
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 plans 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 (AOCI) and amortized into expense over future periods.
In 2010, the actual returns on plan assets were better than the expected returns. The most significant of our funded plans exist in the U.S. and Canada. In our U.S. plans, we maintained a balanced allocation between growth and immunization assets. Growth assets posted double-digit returns for the full year. Interest rates declined in 2010 which reduced the liability discount rate and increased the present value of our benefit obligations. This increase in liability was offset partially by positive returns from the Treasury strips and long duration fixed income corporate bonds within our portfolio. In the U.S. the funded status of the pension plans improved as asset returns and a voluntary contribution to the plan outweighed the increase in the liability due to interest rate declines. In our Canadian plans we remain heavily invested in government securities as many of the associated plans continue to be in various stages of settlement under Canadian pension regulation.
At the end of 2010, we have significant unrecognized net actuarial losses in AOCI, principally in the U.S. These unrecognized losses are being amortized into domestic net periodic pension cost. This component of pension expense will increase from $19 in 2010 to $22 in 2011. However, net pension expense will decline in 2011 as a result of lower interest costs and a larger asset base. As such, the U.S. net periodic pension cost (before any curtailment impacts) is expected to decrease from $20 in 2010 to $11 in 2011. We estimate that required contributions to our U.S. plans will approximate $32 in 2011.
A change in the pension discount rate of 25 basis points would result in a change in our pension obligations as of December 31, 2010 of approximately $57 and no change in 2011 pension expense. A 25 basis point change in the rate of return would change 2011 pension expense by approximately $4.
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.
Goodwill and other 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 use our internal forecasts, which we update monthly, to make our cash flow projections. These
33
forecasts are based on our knowledge of our customers production forecasts, our assessment of market growth rates, net new business, material and labor cost estimates, cost recovery agreements with customers and our estimate of savings expected from our restructuring activities. Inherent in these forecasts is an assumption of modest economic recovery in 2011 and continuing relatively low interest rates which can impact end-user purchases.
The most likely factors that would significantly impact our forecasts are changes in customer production levels and loss of significant portions of our business. We believe that the assumptions and estimates used to determine the estimated fair value of our Off-Highway reporting unit and our other indefinite-lived intangible assets as of October 31, 2010 were reasonable. There is a significant excess of fair value over the carrying value of these assets at December 31, 2010. As described in Note 6 to our consolidated financial statements in Item 8, we recorded goodwill impairment of $169 in 2008 related to our LVD business segment.
Indefinite-lived intangible asset valuations are generally based on revenue streams. We impaired indefinite-lived intangible assets by $35 in 2009 (including $29 related to the sale of substantially all of our Structural Products business) and $14 in the eleven months ended December 31, 2008.
Long-lived assets with definite lives We perform impairment analyses on our property, plant and equipment and our definite-lived intangible 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 (step one test). We utilize the cash flow projections discussed above for property, plant and equipment and amortizable intangibles. We group the assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the undiscounted future cash flows using the life of the primary assets. 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 and in determining whether an adverse event or circumstance has triggered the need for an impairment review of the carrying value of assets.
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 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.
We are exposed to fluctuations in foreign currency exchange rates, commodity prices for products we use in our manufacturing and 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 risk We use forward exchange contracts to manage foreign currency exchange rate risks associated with certain foreign currency denominated assets and liabilities and with a portion of our forecasted sales and purchase transactions. Foreign currency exposures are reviewed monthly and natural offsets are considered prior to entering into forward contracts. The majority of our exposures are associated with cross-currency intercompany loans, intercompany receivable/payable balances and third party non-U.S.-dollar-denominated debt. A 10% instantaneous increase in foreign currency rates versus the U.S. dollar would result in a loss of $2. A 10% decrease in foreign currency rates versus the U.S. dollar would result in a gain of $2 on existing foreign currency derivatives.
34
Interest rate risk We are subject to interest rate and fair value risk in connection with the issuance of fixed and variable rate debt. Our exposure arises primarily from changes in the London Interbank Offered Rate (LIBOR). A 50 basis points instantaneous increase (decrease) in the interest rate (primarily LIBOR) underlying our total outstanding debt would result in an annualized increase (decrease) of less than $1 in interest expense. The interest on our 2010 debt was primarily at a LIBOR rate plus a fixed margin as defined in our Amended Term Loan Agreement and the margin did not change. The offsetting impact of interest income on our cash balances is not considered in the preceding amounts but represents a significant offset to rate changes. In January 2011, we issued $750 of fixed-rate debt and repaid our term loan. We have included interest rate risk at December 31, 2010 and interest rate risk based on the Senior Notes in the table below.
Forward contracts We began to designate certain of our qualifying currency forward contracts as cash flow hedges in October 2010. Changes in the fair value of contracts treated as cash flow hedges are reported in OCI and are reclassified to earnings in the same period in which the underlying transactions affect earnings. Changes in the fair value of contracts not treated as cash flow hedges are recognized in earnings in the period in which those changes occur. Changes in the fair value of contracts associated with product-related transactions are recorded in cost of sales, while those associated with non-product transactions are recorded in other income, net. See Note 14 to the consolidated financial statements in Item 8.
Sensitivity The following table summarizes the sensitivities of certain instruments and balances to a 10% change in our LIBOR interest rate or foreign exchange rates (versus the U.S. dollar) on the fair value of fixed-rate instruments and cash flow (interest expense) for variable rate instruments. The sensitivities do not include the interaction that would be likely between exchange rates and interest rates.
Assuming a 10% Increase in Rates |
Assuming a 10% Decrease in Rates |
Favorable (Unfavorable) Change in |
||||||||||
Foreign currency rate sensitivity: |
||||||||||||
Forwards(1) |
||||||||||||
Long U.S. dollars | $ | (2 | ) | $ | 2 | Fair value | ||||||
Short U.S. dollars | $ | 4 | $ | (4 | ) | Fair value | ||||||
Debt(2) |
||||||||||||
Foreign currency denominated(3) | $ | | $ | | Fair value |
Assuming a 50 Basis Point Increase in Rates |
Assuming a 50 Basis Point Decrease in Rates |
Favorable (Unfavorable) Change in |
||||||||||
Interest rate sensitivity: |
||||||||||||
Debt as of December 31, 2010 |
||||||||||||
Fixed rate | $ | | $ | | Fair value | |||||||
Variable rate(3) | $ | | $ | | Cash flow | |||||||
Debt after January 2011 bond issue |
||||||||||||
Fixed rate | $ | 26 | $ | (28 | ) | Fair value | ||||||
Variable rate(3) | $ | | $ | | Cash flow | |||||||
Derivatives(4) | $ | | $ | | Cash flow |
Notes:
(1) | Change in fair value of forward contract assuming a 10% change in the value of the U.S. dollar vs. foreign currencies. Amount does not include the impact of the underlying exposure. See Note 14 to the consolidated financial statements in Item 8 for the fair values of our forward contracts. |
(2) | Change in fair value of foreign currency denominated debt assuming a 10% change in the value of the foreign currency. This amount includes the impact of U.S.-dollar-based- cross-currency intercompany loans. |
(3) | Amount is less than $1. |
35
(4) | Under our Amended Term Facility, we were required to carry interest rate hedge agreement covering a notional amount of not less than 50% of the aggregate loans outstanding under the Amended Term Facility until January 2011. These contracts effectively capped our interest rate at 10.25%. An increase in our interest rates as shown above would not have reached the cap. The value of the cap was less than $1 as of December 31, 2010. The interest rate hedge was closed for less than $1 in January 2011. |
Commodity price risk We do not utilize forward contracts to manage commodity price risk. Our overall strategy is to pass through commodity risk to our customers in our pricing agreements. A substantial portion of our customer agreements include contractual provisions for the pass-through of commodity price movements. In instances where the risk is not covered contractually, we have generally been able to adjust customer pricing to recover commodity cost increases.
Long-term debt The two tables below summarize our long-term debt at December 31, 2010 and our long-term debt after giving effect to the January 2011 refinancing of our Term Facility debt with the issuance of $750 of Senior Notes and the payment of the remaining $117 of the Term Facility. The maturities before and after the refinancing are shown for each circumstance in the two tables below using the interest rates on the applicable debt.
The interest rate structure and maturities in the table below are based on the debt in place at December 31, 2010. The interest rates shown represent the weighted average interest rates on the remaining debt as of that period.
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
Debt |
||||||||||||||||||||||||||||
Fixed rate long-term debt | $ | 5 | $ | 23 | $ | 55 | $ | 1 | $ | | $ | | $ | 84 | ||||||||||||||
Average interest rate | 4.22 | % | 4.25 | % | 4.39 | % | 2.17 | % | 4.26 | % | ||||||||||||||||||
Variable rate long-term debt | $ | 13 | $ | 9 | $ | 14 | $ | 669 | $ | 167 | $ | | $ | 872 | ||||||||||||||
Average interest rate | 4.51 | % | 4.51 | % | 4.51 | % | 4.53 | % | 4.53 | % | 4.52 | % |
The amounts shown exclude original issue discount, short-term debt and non-recourse debt.
The following table includes the impact of the refinancing of the Term Facility debt and the issuance of the new fixed-rate Senior Notes in January 2011. The interest rates shown represent the weighted average interest rates on the remaining debt as of that period.
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
Debt |
||||||||||||||||||||||||||||
Fixed rate long-term debt | $ | 5 | $ | 23 | $ | 55 | $ | 1 | $ | | $ | 750 | $ | 834 | ||||||||||||||
Average interest rate | 6.37 | % | 6.39 | % | 6.46 | % | 6.61 | % | 6.61 | % | 6.61 | % | 6.45 | % | ||||||||||||||
Variable rate long-term debt | $ | 117 | $ | | $ | 5 | $ | | $ | | $ | | $ | 122 | ||||||||||||||
Average interest rate | 4.39 | % | 0.43 | % | 0.43 | % | 4.12 | % |
The amounts shown exclude original issue discount, short-term debt and non-recourse debt.
36
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 and its subsidiaries (Dana) at December 31, 2010 and 2009, and the results of their operations and their cash flows for the years ended December 31, 2010 and 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 years ended December 31, 2010 and 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, 2010, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys 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 Managements 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 Companys 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 accounts for noncontrolling interests and 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 Companys 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 companys 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 companys internal 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 companys assets that could have a material effect on the financial statements.
37
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, 2011
38
To the Board of Directors and Stockholders of Dana Holding Corporation
In our opinion, the consolidated statements of operations, stockholders equity and cash flows for the period from January 1, 2008 through January 31, 2008 present fairly, in all material respects, the results of operations and cash flows of Dana Corporation and its subsidiaries (Prior Dana) for the period from January 1, 2008 through January 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 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. These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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 also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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 Companys 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
39
Dana | Prior Dana |
|||||||||||||||
Year Ended December 31, |
Eleven Months Ended December 31, |
One Month Ended January 31, |
||||||||||||||
2010 | 2009 | 2008 | 2008 | |||||||||||||
Net sales | $ | 6,109 | $ | 5,228 | $ | 7,344 | $ | 751 | ||||||||
Costs and expenses |
||||||||||||||||
Cost of sales | 5,450 | 4,985 | 7,113 | 702 | ||||||||||||
Selling, general and administrative expenses | 402 | 313 | 303 | 34 | ||||||||||||
Amortization of intangibles | 61 | 71 | 66 | |||||||||||||
Restructuring charges, net | 73 | 118 | 114 | 12 | ||||||||||||
Impairment of goodwill | 169 | |||||||||||||||
Impairment of long-lived assets | 156 | 14 | ||||||||||||||
Other income (expense), net | 1 | 98 | 53 | 8 | ||||||||||||
Income (loss) before interest, reorganization items and income taxes | 124 | (317 | ) | (382 | ) | 11 | ||||||||||
Interest expense | 89 | 139 | 142 | 8 | ||||||||||||
Reorganization items | (2 | ) | 25 | 98 | ||||||||||||
Fresh start accounting adjustments | 1,009 | |||||||||||||||
Income (loss) before income taxes | 35 | (454 | ) | (549 | ) | 914 | ||||||||||
Income tax benefit (expense) | (31 | ) | 27 | (107 | ) | (199 | ) | |||||||||
Equity in earnings of affiliates | 10 | (9 | ) | (11 | ) | 2 | ||||||||||
Income (loss) from continuing operations | 14 | (436 | ) | (667 | ) | 717 | ||||||||||
Loss from discontinued operations | (4 | ) | (6 | ) | ||||||||||||
Net income (loss) | 14 | (436 | ) | (671 | ) | 711 | ||||||||||
Less: Noncontrolling interests net income (loss) |
4 | (5 | ) | 6 | 2 | |||||||||||
Net income (loss) attributable to the parent company | 10 | (431 | ) | (677 | ) | 709 | ||||||||||
Preferred stock dividend requirements | 32 | 32 | 29 | |||||||||||||
Net income (loss) available to common stockholders | $ | (22 | ) | $ | (463 | ) | $ | (706 | ) | $ | 709 | |||||
Income (loss) per share from continuing operations available to parent company stockholders: |
||||||||||||||||
Basic | $ | (0.16 | ) | $ | (4.19 | ) | $ | (7.02 | ) | $ | 4.77 | |||||
Diluted | $ | (0.16 | ) | $ | (4.19 | ) | $ | (7.02 | ) | $ | 4.75 | |||||
Loss per share from discontinued operations attributable to parent company stockholders: |
||||||||||||||||
Basic | $ | | $ | | $ | (0.04 | ) | $ | (0.04 | ) | ||||||
Diluted | $ | | $ | | $ | (0.04 | ) | $ | (0.04 | ) | ||||||
Net income (loss) per share available to parent company stockholders: |
||||||||||||||||
Basic | $ | (0.16 | ) | $ | (4.19 | ) | $ | (7.06 | ) | $ | 4.73 | |||||
Diluted | $ | (0.16 | ) | $ | (4.19 | ) | $ | (7.06 | ) | $ | 4.71 | |||||
Average common shares outstanding |
||||||||||||||||
Basic | 141 | 110 | 100 | 150 | ||||||||||||
Diluted | 141 | 110 | 100 | 150 |
The accompanying notes are an integral part of the consolidated financial statements.
40
December 31, | ||||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents | $ | 1,134 | $ | 947 | ||||
Accounts receivable |
||||||||
Trade, less allowance for doubtful accounts of $11 in 2010 and $18 in 2009 | 816 | 728 | ||||||
Other | 184 | 172 | ||||||
Inventories | 708 | 608 | ||||||
Other current assets | 91 | 89 | ||||||
Current assets held for sale | 99 | |||||||
Total current assets | 2,933 | 2,643 | ||||||
Goodwill | 104 | 111 | ||||||
Intangibles | 352 | 438 | ||||||
Investments and other assets | 238 | 262 | ||||||
Investments in affiliates | 121 | 112 | ||||||
Property, plant and equipment, net | 1,351 | 1,484 | ||||||
Noncurrent assets held for sale | 104 | |||||||
Total assets | $ | 5,099 | $ | 5,154 | ||||
Liabilities and equity |
||||||||
Current liabilities |
||||||||
Notes payable, including current portion of long-term debt | $ | 167 | $ | 34 | ||||
Accounts payable | 779 | 601 | ||||||
Accrued payroll and employee benefits | 144 | 103 | ||||||
Accrued restructuring costs | 28 | 29 | ||||||
Taxes on income | 38 | 101 | ||||||
Other accrued liabilities | 251 | 270 | ||||||
Current liabilities held for sale | 79 | |||||||
Total current liabilities | 1,407 | 1,217 | ||||||
Long-term debt | 780 | 969 | ||||||
Deferred employee benefits and other noncurrent liabilities | 1,128 | 1,189 | ||||||
Total liabilities | 3,315 | 3,375 | ||||||
Commitments and contingencies (Note 15) |
||||||||
Parent company stockholders equity |
||||||||
Preferred stock, 50,000,000 shares authorized |
||||||||
Series A, $0.01 par value, 2,500,000 shares outstanding | 242 | 242 | ||||||
Series B, $0.01 par value, 5,311,298 and 5,400,000 shares outstanding | 520 | 529 | ||||||
Common stock, $0.01 par value, 450,000,000 shares authorized, 144,126,032 and 139,414,149 outstanding | 1 | 1 | ||||||
Additional paid-in capital | 2,613 | 2,580 | ||||||
Accumulated deficit | (1,191 | ) | (1,169 | ) | ||||
Treasury stock, at cost | (4 | ) | ||||||
Accumulated other comprehensive loss | (496 | ) | (504 | ) | ||||
Total parent company stockholders equity | 1,685 | 1,679 | ||||||
Noncontrolling equity | 99 | 100 | ||||||
Total equity | 1,784 | 1,779 | ||||||
Total liabilities and equity | $ | 5,099 | $ | 5,154 |
The accompanying notes are an integral part of the consolidated financial statements.
41