FORM 10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2008
Commission File Number 1-1063
Dana Holding
Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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26-1531856
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(State or other jurisdiction
of
incorporation or organization)
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(IRS Employer
Identification No.)
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4500 Dorr Street, Toledo, Ohio
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43615
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone number, including area code:
(419)
535-4500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.01 per share
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New York Stock Exchange
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Securities registered pursuant to section 12(g) of the
Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark 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 incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant, computed by reference to the
average high and low trading prices of the common stock as of
the closing of trading on June 30, 2008, was approximately
$568,000,000.
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 Section 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. Yes þ No o
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 100,065,061 shares of the registrants
common stock outstanding at February 27, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to
shareholders in connection with the Annual Meeting of
Shareholders to be held on April 21, 2009 are incorporated
by reference into Part III.
DANA HOLDING
CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
TABLE OF
CONTENTS
1
Forward-Looking
Information
Statements in this report (or otherwise made by us or on our
behalf) that are not entirely historical constitute
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are indicated by words such as
anticipates, expects,
believes, intends, plans,
estimates, projects and similar
expressions. These statements represent the present expectations
of Dana Holding Corporation and its consolidated subsidiaries
based on our current information and assumptions.
Forward-looking statements are inherently subject to risks and
uncertainties. Our plans, actions and actual results could
differ materially from our present expectations due to a number
of factors, including those discussed below and elsewhere in
this report (our 2008
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.
2
PART I
(Dollars in
millions, except per share amounts)
General
Dana Holding Corporation (Dana), incorporated in Delaware in
2007, is headquartered in Toledo, Ohio. We are a leading
supplier of axle, driveshaft, structural, sealing and thermal
management products for global vehicle manufacturers. Our people
design and manufacture products for every major vehicle producer
in the world. At December 31, 2008, we employed
approximately 29,000 people in 26 countries and operated
113 major facilities throughout the world.
As a result of the emergence of Dana Corporation (Prior Dana)
from operating under Chapter 11 of the United States
Bankruptcy Code (the Bankruptcy Code) on January 31, 2008
(the Effective Date), Dana is the successor registrant to Prior
Dana pursuant to
Rule 12g-3
under the Securities Exchange Act of 1934. The terms
Dana, we, our and
us, when used in this report with respect to the
period prior to Dana Corporations emergence from
bankruptcy, 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 Prior Dana or Dana, as the case may be, unless
otherwise indicated or the context requires otherwise.
The eleven months ended December 31, 2008 and the one month
ended January 31, 2008 are distinct reporting periods as a
result of our emergence from bankruptcy on January 31,
2008. References in certain analyses of sales and other results
of operations combine the two periods in order to provide
additional comparability of such information.
Emergence from
Reorganization Proceedings and Related Subsequent
Events
Background Dana and forty of its wholly-owned
subsidiaries (collectively, the Debtors) operated their
businesses as debtors in possession under Chapter 11 of the
Bankruptcy Code from March 3, 2006 (the Filing Date) until
emergence from bankruptcy on January 31, 2008. The
Debtors Chapter 11 cases (collectively, the
Bankruptcy Cases) were consolidated in the United States
Bankruptcy Court for the Southern District of New York (the
Bankruptcy Court) under the caption In re Dana Corporation,
et al., Case
No. 06-10354
(BRL). Neither Dana Credit Corporation (DCC) and its
subsidiaries nor any of our
non-U.S. affiliates
were Debtors.
Claims resolution On December 26, 2007,
the Bankruptcy Court entered an order (the Confirmation Order)
confirming the Third Amended Joint Plan of Reorganization of
Debtors and
Debtors-in-Possession
as modified (the Plan) and, on the Effective Date, the Plan was
consummated and we emerged from bankruptcy. As provided in the
Plan and the Confirmation Order, we issued and distributed
approximately 70 million shares of Dana common stock
(valued in reorganization at $1,628) on the Effective Date to
holders of allowed general unsecured claims in Class 5B
totaling approximately $2,050. Pursuant to the Plan, we also
issued and set aside approximately 28 million additional
shares of Dana common stock (valued in reorganization at $640)
for future distribution to holders of allowed unsecured
nonpriority claims in Class 5B under the Plan. These shares
are being distributed as the disputed and unliquidated claims
are resolved. The claim amount related to the 28 million
shares for disputed and unliquidated claims was estimated not to
exceed $700. Since emergence, we have issued an additional
23 million shares for allowed claims (valued in
reorganization at $520), increasing the total shares issued to
93 million (valued in reorganization at $2,148) for
unsecured claims of approximately $2,238. The corresponding
decrease in the disputed claims reserve leaves 5 million
shares (valued in reorganization at $122). The remaining
disputed and unliquidated claims total approximately $107. To
the extent that these remaining claims are settled for less than
the 5 million remaining shares, additional incremental
distributions will be made to the holders of the previously
allowed general unsecured claims in Class 5B. The terms and
conditions governing these distributions are set forth in the
Plan and the Confirmation Order.
3
Under the provisions of the Plan, approximately two million
shares of common stock (valued in reorganization at $45) have
been issued and distributed since the Effective Date to pay
emergence bonuses to union employees and non-union hourly and
salaried non-management employees. The original accrual of $47
on the Effective Date included approximately 65,000 shares
(valued in reorganization at $2) that were not utilized for
these bonuses. These shares will be distributed instead to the
holders of allowed general unsecured claims in Class 5B as
provided in the Plan.
Settlement obligations relating to non-pension retiree benefits
and long-term disability (LTD) benefits for union claimants and
non-pension retiree benefits for non-union claimants were
satisfied with cash payments of $788 to Voluntary Employee
Benefit Associations (VEBAs) established for the benefit of the
respective claimant groups. Additionally, we paid DCC $49, the
remaining amount due to DCC noteholders, thereby settling
DCCs general unsecured claim of $325 against the Debtors.
DCC, in turn, used these funds to repay the noteholders in full.
Since emergence, payments of $100 have been made for
administrative claims, priority tax claims, settlement pool
claims and other classes of allowed claims. Additional cash
payments of $86, primarily federal, state, and local tax claims,
are expected to be paid in the second half of 2009.
Except as specifically provided in the Plan, the distributions
under the Plan were in exchange for, and in complete
satisfaction, discharge and release of, all claims and
third-party ownership interests in the Debtors arising on or
before the Effective Date, including any interest accrued on
such claims from and after the Filing Date.
Common Stock Pursuant to the Plan, all of the
issued and outstanding shares of Prior Dana common stock, par
value $1.00 per share, and any other outstanding equity
securities of Prior Dana, including all options and warrants,
were cancelled on the Effective Date, and we began the process
of issuing 100 million shares of Dana common stock, par
value $0.01 per share. See Note 12 of the notes to our
consolidated financial statements in Item 8 for additional
information about our common stock.
Preferred Stock Pursuant to the Plan, we
issued 2,500,000 shares of 4.0% Series A Preferred
Stock, par value $0.01 per share (the Series A Preferred)
and 5,400,000 shares of 4.0% Series B Preferred Stock,
par value $0.01 per share (the Series B Preferred) on the
Effective Date. See Note 12 of the notes to our
consolidated financial statements in Item 8 for dividend
and conversion terms, dividend payments and an explanation of
registration rights.
Financing at emergence We entered into an
exit financing facility (the Exit Facility) on the Effective
Date. The Exit Facility consists of a Term Facility Credit and
Guaranty Agreement in the total aggregate amount of $1,430 (the
Term Facility) and a $650 Revolving Credit and Guaranty
Agreement (the Revolving Facility). The Term Facility was fully
drawn with borrowings of $1,350 on the Effective Date and $80 on
February 1, 2008. In November, 2008 we repaid $150 of the
Term Facility in connection with an amendment to the terms of
the Exit Facility. See Note 17 of the notes to our
consolidated financial statements in Item 8 for the details
of this amendment, the terms and conditions of these facilities
and the availability of additional borrowing.
Fresh Start Accounting As required by
accounting principles generally accepted in the United States
(GAAP), we adopted fresh start accounting effective
February 1, 2008 following the guidance of American
Institute of Certified Public Accountants (AICPA)
Statement of Position
90-7,
Financial Reporting by Entities in Reorganization under
the Bankruptcy Code
(SOP 90-7).
The financial statements for the periods ended prior to
January 31, 2008 do not include the effect of any changes
in our capital structure or changes in the fair value of assets
and liabilities as a result of fresh start accounting. See
Note 2 of the notes to our consolidated financial
statements in Item 8 for an explanation of the impact of
emerging from reorganization and applying fresh start accounting
on our financial position.
4
Overview of our
Business
Markets
We serve three primary markets:
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Automotive market In this 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.
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Commercial vehicle market In the commercial
vehicle market, we design, manufacture and sell axles,
driveshafts, chassis and suspension modules, 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.
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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.
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Segments
Senior management and our Board review our operations in seven
operating segments:
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Five product-based operating segments sell primarily into the
automotive market: Light Axle Products (Light Axle), Driveshaft
Products (Driveshaft), Sealing Products (Sealing), Thermal
Products (Thermal) and Structural Products (Structures). Sales
in this market totaled $5,173 in 2008, with Ford Motor Company
(Ford), General Motors Corp. (GM) and Toyota Motor Corporation
(Toyota) among the largest customers. At December 31, 2008,
these segments employed 21,300 people and had 86 major
facilities in 22 countries.
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Two operating segments sell into their respective markets:
Commercial Vehicle and Off-Highway. In 2008, these segments
generated sales of $2,914. In 2008, the largest Commercial
Vehicle customers were PACCAR Inc (PACCAR), Navistar, Daimler,
Ford, MAN Nutzfahrzeuge Group, Oshkosh GM Truck, and Volvo. The
largest Off-Highway customers included Deere &
Company, AGCO Corporation, Fiat and Manitou BF. At
December 31, 2008, these two segments employed
6,200 people and had 21 major facilities in 10 countries.
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Three additional major facilities provide administrative
services and three engineering facilities support multiple
segments.
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Our operating segments manufacture and market classes of similar
products as shown below. See Note 23 of the notes to our
consolidated financial statements in Item 8 for financial
information on all of these operating segments.
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Segment
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Products
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Market
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Light Axle
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Front and rear axles, differentials, torque couplings and
modular assemblies
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Light vehicle
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Driveshaft
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Driveshafts
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Light and commercial vehicle*
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Sealing
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Gaskets, cover modules, heat shields and engine sealing systems
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Light and commercial vehicle and off-highway
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Thermal
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Cooling and heat transfer products
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Light and commercial vehicle and off-highway
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Structures
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Frames, cradles and side rails
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Light and commercial vehicle
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Commercial Vehicle
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Axles, driveshafts*, steering shafts, suspensions and tire
management systems
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Commercial vehicle
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Off-Highway
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Axles, transaxles, driveshafts* and end-fittings, transmissions,
torque converters and electronic controls
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Off-highway
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The Driveshaft segment supplies product directly to the
commercial vehicle market as well as the automotive market. |
Divestitures
In 2005, the Board of Directors of Prior Dana approved the
divestiture of our engine hard parts, fluid products and pump
products operations and we have reported these businesses as
discontinued operations through the dates of divestiture. The
divestiture of these discontinued operations was completed in
the first quarter of 2008. These divestitures and others are
summarized below.
In January 2007, we sold our trailer axle business manufacturing
assets for $28 in cash and recorded an after-tax gain of $14. In
March 2007, we sold our engine hard parts business to MAHLE and
received cash proceeds of $98. We recorded an after-tax loss of
$42 in the first quarter of 2007 in connection with this sale
and an after-tax loss of $3 in the second quarter related to a
South American operation. During the first quarter of 2008, we
recorded an expense of $5 in discontinued operations associated
with a post-closing adjustment to reinstate certain retained
liabilities of this business.
In March 2007, we sold our 30% equity interest in GETRAG
Getriebe-und Zahnradfabrik Hermann Hagenmeyer GmbH &
Cie KG (GETRAG) to our joint venture partner, an affiliate of
GETRAG, for $207 in cash. An impairment charge of $58 had been
recorded in the fourth quarter of 2006 to adjust this equity
investment to fair value and an additional charge of $2 after
tax was recorded in the first quarter of 2007 based on the value
of the investment at closing.
In August 2007, we executed an agreement relating to our two
remaining joint ventures with GETRAG. These agreements provided
for relief from non-compete provisions; the grant of a call
option to GETRAG to acquire our ownership interests in the two
joint ventures for $75; our payment of GETRAG claims of $11
under certain conditions; the withdrawal of bankruptcy claims of
approximately $66 relating to our alleged breach of certain
non-compete provisions; the amendment, assumption, rejection
and/or
termination of certain other agreements between the parties; and
the grant of certain mutual releases by us and various other
parties. We recorded the $11 claim in liabilities subject to
compromise and as an expense in other income, net in the second
quarter of 2007 based on the determination that the liability
was probable. The $11 liability was reclassified to other
current liabilities at December 31, 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.
As a result of these adjustments, we recorded an asset
impairment charge of $15 in the third quarter of 2008 in equity
in earnings of affiliates.
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In July and August 2007, we completed the sale of our fluid
products hose and tubing business to Orhan Holding A.S. and
certain of its affiliates. Aggregate cash proceeds of $84 were
received from these transactions, and an aggregate after-tax
gain of $32 was recorded in the third quarter in connection with
the sale of this business. Additional adjustments to this sale
were made during the first quarter of 2008 when we recorded an
expense of $2 in discontinued operations associated with a
post-closing purchase price adjustment and in the third quarter
of 2008 when we incurred $1 of settlement costs and related
expenses.
In September 2007, we completed the sale of our coupled fluid
products business to Coupled Products Acquisition LLC by having
the buyer assume certain liabilities ($18) of the business at
closing. We recorded an after-tax loss of $23 in the third
quarter in connection with the sale of this business. We
completed the sale of a portion of the pump products business in
October 2007, generating proceeds of $7 and a nominal after-tax
gain which was recorded in the fourth quarter.
In January 2008, we completed the sale of the remaining assets
of the pump products business to Melling Tool Company,
generating proceeds of $5 and an after-tax loss of $1 that was
recorded in the first quarter of 2008. Additional post-closing
purchase price adjustments of $1 were recorded in the second
quarter of 2008.
In the third quarter of 2008, we indicated that we were
evaluating a number of strategic options in our non-driveline
automotive businesses. We incurred costs of $10 in other income,
net during 2008 in connection with the evaluation of these
strategic options, primarily for professional fees. We are
continuing to evaluate strategic options in the Structures
segment.
Dana Credit
Corporation
We historically had been a provider of lease financing services
through our wholly-owned subsidiary, DCC. Over the last seven
years, DCC has sold significant portions of its asset portfolio
and has recorded asset impairments, reducing its portfolio from
$2,200 in December 2001 to less than $1 at the end of 2008. In
December 2006, DCC signed a forbearance agreement with its
noteholders which allowed DCC to sell its remaining asset
portfolio and use the proceeds to pay the forbearing noteholders
a pro rata share of the cash generated. On the Effective Date,
and pursuant to the Plan, we paid DCC $49, the remaining amount
due to DCC noteholders, thereby settling DCCs general
unsecured claim of $325 against the Debtors.
Presentation of
Divested Businesses in the Financial Statements
The engine hard parts, fluid products and pump products
businesses have been presented in the financial statements as
discontinued operations. The trailer axle business and DCC did
not meet the requirements for treatment as discontinued
operations, and their results have been included with continuing
operations. Substantially all of these operations were sold
prior to 2008. See Note 5 of the notes to our consolidated
financial statements in Item 8 for additional information
on discontinued operations.
Geographic
We maintain administrative 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. Our operations are located in the following
countries:
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North America
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Europe
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South America
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Asia Pacific
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Canada
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Austria
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Italy
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Argentina
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Australia
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Mexico
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Belgium
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Spain
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Brazil
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China
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United States
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France
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Sweden
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Colombia
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India
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Germany
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Switzerland
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South Africa
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Japan
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Hungary
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United Kingdom
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Uruguay
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South Korea
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Venezuela
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Taiwan
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Thailand
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7
Our international subsidiaries and affiliates manufacture and
sell products similar to those we produce in the
U.S. Operations outside the U.S. may be subject to a
greater risk of changing political, economic and social
environments, changing governmental laws and regulations,
currency revaluations and market fluctuations than our domestic
operations. See the discussion of additional risk factors in
Item 1A.
Non-U.S. sales
comprised $4,746 ($418 in January and $4,328 for February to
December) of our 2008 consolidated sales of $8,095 ($751 for
January and $7,344 for February to December).
Non-U.S. net
income for 2008 was $292 ($320 for January and a loss of $28 for
February to December) while on a consolidated basis there was
net income of $18 ($709 in January 2008 and a loss of $691 from
February to December). A summary of sales and long-lived assets
by geographic region can be found in Note 23 of the notes
to our consolidated financial statements in Item 8.
Customer
Dependence
We have thousands of customers around the world and have
developed long-standing business relationships with many of
them. Our segments in the automotive markets are largely
dependent on light vehicle Original Equipment Manufacturers
(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 2008. As a percentage of total
sales from continuing operations, our sales to Ford were
approximately 17% in 2008 and 23% in 2007 and 2006, and our
sales to GM, our second largest customer, were approximately 6%
in 2008, 7% in 2007 and 10% in 2006.
In 2007, Toyota became our third largest customer. As a
percentage of total sales from continuing operations, our sales
to Toyota were 5% in 2008, 2007 and 2006. In 2008, PACCAR and
Navistar were our fourth and fifth largest customers. PACCAR,
Navistar, Chrysler LLC (Chrysler), Daimler and Nissan,
collectively accounted for approximately 18% of our revenues in
2008, 19% in 2007 and 23% in 2006.
Loss of all or a substantial portion of our sales to Ford, GM,
Toyota or other large volume customers would have a significant
adverse effect on our financial results until such lost sales
volume could be replaced and there is no assurance that any such
lost volume would be replaced. We continue to work to diversify
our customer base and geographic footprint.
Sources and
Availability of Raw Materials
We use a variety of raw materials in the production of our
products, including steel and products containing steel,
stainless steel, forgings, castings and bearings. Other
commodity purchases include aluminum, brass, copper and
plastics. These materials are usually available from multiple
qualified sources in quantities sufficient for our needs.
However, some of our operations remain dependent on single
sources for certain raw materials.
While our suppliers have generally been able to support our
needs, our operations may experience shortages and delays in the
supply of raw material from time to time, due to strong demand,
capacity limitations and other problems experienced by the
suppliers. A significant or prolonged shortage of critical
components from any of our suppliers could adversely impact our
ability to meet our production schedules and to deliver our
products to our customers in a timely manner.
High steel and other raw material costs have had a major adverse
effect on our results of operations in recent years, as
discussed in Managements Discussion and Analysis of
Financial Condition and Results of Operations in
Item 7.
Seasonality
Our businesses are generally not seasonal. However, in the
automotive market, our sales are closely related to the
production schedules of our OEM customers and, historically,
those schedules have been
8
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 by year end holidays.
Backlog
Our products are generally not sold on a backlog basis since
most orders may be rescheduled or modified by our customers at
any time. Our product sales are dependent upon the number of
vehicles that our customers actually produce as well as the
timing of such production. A substantial amount of the new
business we are awarded by OEMs is granted well in advance of a
program launch. These awards typically extend through the life
of the given program. We estimate future revenues from new
business on the projected volume under these programs.
Competition
Within each of our markets, we compete with a variety of
independent suppliers and distributors, as well as with the
in-house operations of certain OEMs. With a renewed focus on
product innovation, we differentiate ourselves through:
efficiency and performance; materials and processes;
sustainability; and product extension.
In the Light Axle and Driveshaft segments, our principal
competitors include ZF Friedrichshafen AG (ZF Group), GKN
plc, American Axle & Manufacturing (American Axle),
Magna International Inc. (Magna) and the in-house operations of
Chrysler and Ford. The sector is also attracting new competitors
from Asia who are entering both of these product lines through
acquisition of OEM non-core operations. For example, Wanxiang of
China acquired Visteon Corporations (Visteon) driveshaft
manufacturing facilities in the USA.
The Structures segment produces vehicle frames and cradles. Its
primary competitors are Magna; Maxion Sistemas Automotivos
Ltda.; Press Kyogo Co., Ltd.; Metalsa S. de R. L.; Tower
Automotive Inc. and Martinrea International Inc.
In Sealing, we are one of the worlds leading independent
suppliers with a product portfolio that includes gaskets, seals,
cover modules and thermal/acoustic shields. Our primary global
competitors in this segment are ElringKlinger Ag, Federal-Mogul
Corporation and Freudenberg NOK Group.
Our Thermal segment produces heat exchangers, valves and small
radiators for a wide variety of vehicle cooling applications.
Competitors in this segment include Behr GmbH & Co.
KG, Stuttgart, Modine Manufacturing Company, Valeo Group and
Denso Corporation.
We are one of the primary independent suppliers of axles,
driveshafts and other products for the medium- and heavy-truck
markets, as well as various specialty and off-highway segments,
and we specialize in the manufacture of off-highway
transmissions. In these markets, our primary competitors in
North America are ArvinMeritor, Inc. and American Axle in the
medium- and heavy-truck markets. Major competitors in Europe in
both the heavy-truck and off-highway markets include Carraro
S.p.A., ZF Group, Klein Products Inc. and certain OEMs
vertically integrated operations.
Patents and
Trademarks
Our proprietary axle, driveshaft, structural, sealing and
thermal product lines have strong identities in the markets we
serve. Throughout these product lines, we manufacture and sell
our products under a number of patents that have been obtained
over a period of years and expire at various times. We consider
each of these patents to be of value and aggressively protect
our rights throughout the world against infringement. We are
involved with many product lines, and the loss or expiration of
any particular patent would not materially affect our sales and
profits.
We own or have licensed numerous trademarks that are registered
in many countries, enabling us to market our products worldwide.
For example, our
Spicer®,
Victor
Reinz®,
Parish®
and
Long®
trademarks are widely recognized in their market segments.
9
Research and
Development
From our introduction of the automotive universal joint in 1904,
we have been focused on technological innovation. Our objective
is to be an essential partner to our customers and remain highly
focused on offering superior product quality, technologically
advanced products, world-class service and competitive prices.
To enhance quality and reduce costs, we use statistical process
control, cellular manufacturing, flexible regional production
and assembly, global sourcing and extensive employee training.
We engage in ongoing engineering, research and development
activities to improve the reliability, performance and
cost-effectiveness of our existing products and to design and
develop innovative products that meet customer requirements for
new applications. We are integrating related operations to
create a more innovative environment, speed product development,
maximize efficiency and improve communication and information
sharing among our research and development operations. At
December 31, 2008, we had seven major technical centers.
Our engineering and research and development costs were $193 in
2008, $189 in 2007 and $219 in 2006.
We are developing a number of products for vehicular and other
applications that will assist fuel cell, battery and hybrid
vehicle manufacturers to make their technologies commercially
viable in mass production. Specifically, we are applying the
expertise from our Sealing segment to develop metallic and
composite bipolar plates used in the fuel cell stack.
Furthermore, our Thermal segment is applying its heat transfer
technology to provide thermal management
sub-systems
needed for fuel cell and hybrid electric engines as well as
catalytic reactors for conversion of fuels to hydrogen for
stationary fuel cell systems.
Employment
Our worldwide employment was approximately 29,000 at
December 31, 2008.
Environmental
Compliance
We make capital expenditures in the normal course of business as
necessary to ensure that our facilities are in compliance with
applicable environmental laws and regulations. The cost of
environmental compliance has not been a material part of capital
expenditures and did not have a materially adverse effect on our
earnings or competitive position in 2008.
In connection with our bankruptcy reorganization we settled
certain pre-petition claims related to environmental matters.
See Contingencies in Item 7 and the discussion
of contingencies in Note 19 of the notes to our
consolidated financial statements in Item 8.
Available
Information
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (Exchange Act) are available, free of charge, on or through
our Internet website
(http://www.dana.com/investors)
as soon as reasonably practicable after we electronically file
such materials with, or furnish them to, the SEC. We also post
our Corporate Governance Guidelines, Standards of Business
Code 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 Department, P.O. Box 1000, Toledo,
Ohio 43697 or via telephone at
419-535-4635
or e-mail at
InvestorRelations@dana.com. The inclusion of our website address
in this report is an inactive textual reference only and is not
intended to include or incorporate by reference the information
on our website into this report.
10
We are impacted by events and conditions that affect the light
vehicle, commercial vehicle and off-highway markets that we
serve, as well as by factors specific to Dana. Among the risks
that could materially adversely affect our business, financial
condition or results of operations are the following, many of
which are interrelated.
Risk Factors in
the Markets We Serve
Continuing
negative economic conditions in the United States and elsewhere
could have a substantial effect on our business.
Our business is tied to general economic and industry conditions
as demand for vehicles depends largely on the strength of the
economy, employment levels, consumer confidence levels, the
availability and cost of credit and the cost of fuel. Current
economic conditions have reduced demand for most vehicles. This
has had and could continue to have a substantial impact on our
business.
Leading economic indicators such as employment levels and income
growth predict a continuing downward trend in the United States
economy. The overall market for new vehicle sales in the United
States is expected to decline significantly in 2009. Our
customers are likely to continue to reduce their vehicle
production even further in North America and, as a result,
demand for our products has been and is likely to continue to be
adversely affected.
Demand in our
non-U.S. markets
also continues to decline in response to overall economic
conditions, including changes in the global economy, the limited
availability of credit and fuel costs.
Our international as well as our domestic customers and
suppliers could experience severe economic constraints in the
future, including bankruptcy. Continuation of these global
economic conditions and further deterioration could have a
material adverse impact on our financial position and results of
operations.
We could be
adversely impacted by the loss of any of our significant
customers, changes in their requirements for our products or
changes in their financial condition.
We are reliant upon sales to several significant customers.
Sales to our eight largest customers accounted for over 45% of
our overall revenue in 2008. In the United States, the
automobile industry faces an uncertain future. GM and Chrysler
have already required assistance through government loans under
the Troubled Asset Relief Program (TARP) and other companies in
the automobile industry may seek government assistance. Changes
in our business relationships with any of our large customers or
in the timing, size and continuation of their various programs
could have a material adverse impact on us.
The loss of any of these customers, the loss of business with
respect to one or more of their vehicle models on which we have
a high component content, or a further significant decline in
the production levels of such vehicles would continue to
negatively impact our business, results of operations and
financial condition. We are continually bidding on new business
with these customers, as well as seeking to diversify our
customer base, but there is no assurance that our efforts will
be successful. Further, to the extent that the financial
condition of our largest customers deteriorates, including
possible bankruptcies, mergers or liquidations, or their sales
otherwise decline, our financial position and results of
operations could be adversely affected.
We may be
adversely impacted by changes in international legislative and
political conditions.
Legislative and political activities within the countries where
we conduct business, particularly in emerging and less developed
international countries, could adversely impact our ability to
operate in those countries. The political situation in some
countries creates a risk of the seizure of our assets. We
operate in 26 countries around the world and we depend on
significant foreign suppliers and vendors. The political
environment in some of these countries could create instability
in our contractual relationships with no effective legal
safeguards for resolution of these issues.
11
We may be
adversely impacted by the strength of the U.S. dollar
relative to other currencies in the overseas countries in which
we do business.
Approximately 59% of our sales were from operations located in
countries other than the United States. 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 United States and
margins on sales of products that include components obtained
from affiliate or other suppliers located outside of the United
States. The recent strengthening of the U.S. dollar against
the euro and many other currencies of countries in which we have
operations will adversely affect our results reported in
U.S. dollars. We use a combination of natural hedging
techniques and financial derivatives to protect against foreign
currency exchange rate risks. Such hedging activities may be
ineffective or may not offset more than a portion of the adverse
financial impact resulting from currency variations. Gains or
losses associated with hedging activities also may impact
operating results.
We may be
adversely impacted by new laws, regulations or policies of
governmental organizations related to increased fuel economy
standards and reduced greenhouse gas emissions, or changes in
existing ones.
It is anticipated that the number and extent of governmental
regulations related to fuel economy standards and greenhouse gas
emissions, and the costs to comply with them, will increase
significantly in the future. In the United States the Energy
Independence and Security Act of 2007 requires significant
increases in the Corporate Average Fuel Economy requirements
applicable to cars and light trucks beginning with the 2011
model year. In addition, a growing number of states are adopting
regulations that establish carbon dioxide emission standards
that effectively impose similarly increased fuel economy
standards for new vehicles sold in those states. Compliance
costs for our customers could require them to alter their
spending, research and development plans, curtail sales, cease
production or exit certain market segments characterized by
lower fuel efficiency. Any of these actions could adversely
affect our financial position and results of operations.
Company-Specific
Risk Factors
Our amended Exit
Facility terms contain covenants that may constrain our
growth.
The amended financial covenants in our Exit Facility may hinder
our ability to finance future operations, make potential
acquisitions or investments, meet capital needs or engage in
business activities that may be in our best interest such as
future transactions involving our securities. These restrictions
could hinder us from responding to changing business and
economic conditions and from implementing our business plan.
We may be unable
to comply with the financial covenants in our amended Exit
Facility.
The financial covenants in our amended Exit Facility require us
to achieve certain financial ratios based on levels of earnings
before interest, taxes, depreciation, amortization and certain
levels of restructuring and reorganization related costs
(EBITDA), as defined in the amended Exit Facility. In November
2008, certain covenants of the Exit Facility were amended to
allow for future compliance. A failure to comply with these or
other covenants in the amended Exit Facility could, if we were
unable to obtain a waiver or another amendment of the covenant
terms, cause an event of default that could cause our loans
under the amended Exit Facility to become immediately due and
payable. In addition, additional waivers or amendments could
substantially increase the cost of borrowing. In connection with
the November 2008 amendment our interest cost increased by
50 basis points, we repaid $150 of the term loan and we
incurred amendment fees.
We operate as a
holding company and depend on our subsidiaries for cash to
satisfy the obligations of the holding company.
Dana Holding Corporation is a holding company. Our subsidiaries
conduct all of our operations and own substantially all of our
assets. Our cash flow and our ability to meet our obligations
depends on the cash flow of our subsidiaries. In addition, the
payments of funds in the form of dividends, intercompany
payments, tax
12
sharing payments and other forms may be subject to restrictions
under the laws of the countries of incorporation of our
subsidiaries.
Labor stoppages
or work slowdowns at key suppliers of our customers could result
in a disruption in our operations and have a material adverse
effect on our business.
Our customers rely on other suppliers to provide them with the
parts they need to manufacture vehicles. Many of these
suppliers workforces are represented by labor unions.
Workforce disputes that result in work stoppages or slowdowns at
these suppliers could disrupt the operations of our customers
which could have a material adverse effect on demand for the
products we supply our customers.
We could be
adversely affected if we are unable to recover portions of our
commodity costs (including costs of steel, other raw materials
and energy) from our customers.
As part of our reorganization initiatives, we have been working
with our customers to recover a greater portion of our commodity
costs. While we have achieved some success in these efforts to
date, there is no assurance that commodity costs will not
continue to adversely impact our profitability in the future.
We could be
adversely affected if we experience shortages of components from
our suppliers.
We spend over $4,000 annually for purchased goods and services.
To manage and reduce these costs, we have been consolidating our
supply base. As a result, we are dependent on single sources of
supply for some components of our products. We select our
suppliers based on total value (including price, delivery and
quality), taking into consideration their production capacities
and financial condition, and we expect that they will be able to
support our needs. However, there is no assurance that adverse
financial conditions, including bankruptcies of our suppliers,
reduced levels of production or other problems experienced by
our suppliers will not result in shortages or delays in their
supply of components to us or even in the financial collapse of
one or more such suppliers. If we were to experience a
significant or prolonged shortage of critical components from
any of our suppliers, particularly those who are sole sources,
and were unable to procure the components from other sources, we
would be unable to meet our production schedules for some of our
key products and to ship such products to our customers in
timely fashion, which would adversely affect our revenues,
margins and customer relations.
We could be
adversely impacted by the costs of environmental, health, safety
and product liability compliance.
Our operations are subject to environmental laws and regulations
in the U.S. and other countries that govern emissions to
the air; discharges to water; the generation, handling, storage,
transportation, treatment and disposal of waste materials and
the cleanup of contaminated properties. Historically,
environmental costs other than the EPA settlement for Hamilton
(see Note 19 to our consolidated financial statements in
Item 8) 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
various laws and regulations, or those that may be adopted in
the future, that relate to health, safety and product liability
concerns will not adversely impact us.
Our ability to
utilize our net operating loss carryforwards may be limited and
delayed.
We paid approximately $733 following emergence to fund
union-sponsored VEBAs for certain union employee benefit
obligations. We are currently working with the Internal Revenue
Service (IRS), through the pre-filing agreement program, to
evaluate applicable tax laws and regulations and confirm that
the amounts paid to the VEBAs in 2008 were deductible. There is
a risk that, if the payment is determined not to be wholly
deductible in 2008, the deductibility would instead occur over
time which delays recognition of our NOLs.
13
We emerged from bankruptcy with net operating loss carryforwards
(NOLs) of approximately $300 available to Dana. Certain
provisions of the tax code also limit our annual utilization of
the $300 of NOLs available at emergence to approximately $90 per
year. There can be no assurance that we will be able to utilize
all of our pre-emergence and any subsequent NOL benefits in the
future.
Risk Factors
Related to our Securities
We may not be
able to maintain our listing with the New York Stock
Exchange.
On December 19, 2008, we received written notice from the
New York Stock Exchange, Inc. (NYSE) that we had fallen below
the NYSEs continued listing standard because over a 30
trading-day
period our total market capitalization was less than $100 and
the average 30
trading-day
closing price of our common stock had fallen below $1.00. We
notified the NYSE in January 2009 that we intend to resolve
these matters. The NYSE has now temporarily suspended its
requirement of a minimum 30
trading-day
closing price. Once this requirement resumes, we will have
approximately three months to comply.
There can be no assurances that we will be able to maintain our
listing. Continued non-compliance with the NYSEs continued
listing standards or delisting from the NYSE could negatively
impact our access to equity financing, which in turn could
materially and adversely affect our business, financial
condition and results of operations.
Our common stock could trade in the
over-the-counter
market which generally has significantly less liquidity than
securities traded on a national securities exchange, through
factors such as a reduction in the number of investors that will
consider investing in the securities, the number of market
makers in the securities, reduction in securities analyst and
news media coverage and lower market prices than might otherwise
be obtained. As a result, in the event of a delisting, holders
of shares of our common stock may find it difficult to resell
their shares at prices quoted in the market or at all.
Volatility is
possible in the trading of our common stock.
Some of the holders who received common stock upon emergence may
not elect to hold their shares on a long-term basis. Sales by
these stockholders of a substantial number of shares could
significantly reduce the market price of our common stock.
Moreover, the perception that these stockholders might sell
significant amounts of our common stock could depress the
trading price of the stock for a considerable period. Such sales
of common stock, and the possibility thereof, could make it more
difficult for us to sell equity, or equity-related securities,
in the future at a time and price that we consider appropriate.
Our adoption of
fresh start accounting could result in additional asset
impairments and may make comparisons of our financial position
and results of operations to prior periods more
difficult.
As required by GAAP, we adopted fresh start accounting effective
February 1, 2008. This adoption increased the value of our
long-lived assets. Subsequent developments in our markets
resulted in impairments of the fresh start values during 2008
and could result in additional impairments in future periods.
Since fresh start accounting required us to adjust all of our
assets and liabilities to their respective fair values, the
consolidated financial statements for periods after the
emergence will not be comparable to those of the periods prior
to the emergence which are presented on an historical basis.
Fresh start accounting may make it more difficult to compare our
post-emergence financial position and results of operations to
those in the pre-emergence periods which could limit investment
in our stock.
One of our
stockholders has limited approval rights with respect to our
business and may have conflicts of interest with us in the
future.
In accordance with the Plan, Centerbridge owns preferred stock
and is entitled to vote on most matters presented to
stockholders on an as-converted basis. Centerbridge also has
certain approval rights, board representation and other rights
pursuant to our Restated Certificate of Incorporation, and a
shareholders agreement. These rights include the right to
approve a transaction involving a change of control of our
14
company, subject to being overridden by a two-thirds stockholder
vote. (See Note 12 to the financial statements in
Item 8 for additional information regarding
Centerbridges participation in the selection of our Board
of Directors and approval rights with respect to certain
transactions.)
Conflicts of interest may arise in the future between us and
Centerbridge. For example, Centerbridge and its affiliated
investors are in the business of making investments in companies
and may acquire and hold interests in businesses that compete
directly or indirectly with us.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
-None-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
South
|
|
|
Asia/
|
|
|
|
|
Type of Facility
|
|
America
|
|
|
Europe
|
|
|
America
|
|
|
Pacific
|
|
|
Total
|
|
|
Administrative Offices
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Engineering Multiple Groups
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
Axle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing/Distribution
|
|
|
11
|
|
|
|
2
|
|
|
|
7
|
|
|
|
7
|
|
|
|
27
|
|
Driveshaft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing/Distribution
|
|
|
10
|
|
|
|
6
|
|
|
|
1
|
|
|
|
6
|
|
|
|
23
|
|
Sealing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing/Distribution
|
|
|
9
|
|
|
|
3
|
|
|
|
|
|
|
|
1
|
|
|
|
13
|
|
Engineering
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Thermal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing/Distribution
|
|
|
7
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Structures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing/Distribution
|
|
|
5
|
|
|
|
|
|
|
|
4
|
|
|
|
2
|
|
|
|
11
|
|
Engineering
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Commercial Vehicle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing/Distribution
|
|
|
9
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
11
|
|
Engineering
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Off-Highway
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing/Distribution
|
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
|
2
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Dana
|
|
|
62
|
|
|
|
19
|
|
|
|
13
|
|
|
|
19
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, we operated in 26 countries and
had 113 major manufacturing/ distribution, engineering or office
facilities worldwide. While we lease 42 of the manufacturing and
distribution operations, we own the remainder of our facilities.
We believe that all of our property and equipment is properly
maintained. Prior to our emergence from bankruptcy there was
significant excess capacity in our facilities based on our
manufacturing and distribution needs, especially in the United
States. As part of our reorganization initiatives, we took
significant steps to close facilities and we continue to
evaluate capacity requirements in 2009 in light of market
conditions.
Our corporate headquarters facilities are located in Toledo,
Ohio and include three office facilities housing functions that
have global responsibility for finance and accounting, treasury,
risk management, legal, human resources, procurement and supply
chain management, communications and information technology. Our
main headquarters facility in Toledo, Ohio was sold in February
2009 but we expect to occupy the facility until the fourth
quarter of 2009. Our obligations under the amended Exit Facility
are secured by, among other things, mortgages on all the
domestic facilities that we own.
15
|
|
Item 3.
|
Legal
Proceedings
|
As discussed in Notes 2 and 3 of the notes to our
consolidated financial statements in Item 8, we emerged
from bankruptcy on January 31, 2008. Pursuant to the Plan,
the pre-petition ownership interests in Prior Dana were
cancelled and all of the pre-petition claims against the
Debtors, including claims with respect to debt, pension and
postretirement healthcare obligations and other liabilities,
were addressed in connection with our emergence from bankruptcy.
As previously reported and as discussed in Note 19 of the
notes 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
(including both pre-petition and subsequent proceedings) and we
are cooperating with a formal investigation by the SEC with
respect to matters related to the restatement of our financial
statements for the first two quarters of 2005 and fiscal years
2002 through 2004.
After reviewing the currently pending lawsuits and proceedings
(including the probable outcomes, reasonably anticipated costs
and expenses, availability and limits of our insurance coverage
and surety bonds and our established reserves for uninsured
liabilities), we do not believe that any liabilities that may
result from these proceedings are reasonably likely to have a
material adverse effect on our liquidity, financial condition or
results of operations.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
We did not submit any matters for a stockholder vote in the
fourth quarter of 2008.
16
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market Information Our common stock trades on
the New York Stock Exchange under the symbol DAN.
The stock began trading on such exchange on February 1,
2008, in conjunction with our emergence from Chapter 11
proceedings.
Prior to March 3, 2006, Prior Danas common stock
traded on the New York Stock Exchange. From March 3, 2006
through the Effective Date, shares of common stock of Prior Dana
traded on the OTC Bulletin Board under the symbol
DCNAQ. On the Effective Date, all of the outstanding
common stock and all other outstanding equity securities of
Prior Dana, including all options and warrants, were cancelled
pursuant to the terms of the Plan.
Because the value of one share of Prior Dana common stock bears
no relation to the value of one share of Dana common stock, only
the trading prices of Dana common stock following its listing on
the New York Stock Exchange are set forth below. The following
table shows the high and low sales prices per share of Dana
common stock during 2008.
|
|
|
|
|
|
|
|
|
|
|
Quarterly
|
|
High and Low Prices per Share of Dana Common Stock
|
|
High Price
|
|
|
Low Price
|
|
|
As reported by the New York Stock Exchange:
|
|
|
|
|
|
|
|
|
First Quarter 2008 (beginning February 1, 2008)
|
|
$
|
13.30
|
|
|
$
|
8.50
|
|
Second Quarter 2008
|
|
|
12.65
|
|
|
|
5.10
|
|
Third Quarter 2008
|
|
|
7.49
|
|
|
|
4.10
|
|
Fourth Quarter 2008
|
|
|
4.83
|
|
|
|
0.34
|
|
Holders of Common Stock The number of
stockholders of record of our common stock on January 31,
2009 was approximately 6,700.
Shareholder Return The following graph shows
the cumulative total shareholder return for our common stock
during the period from February 1, 2008 to
December 31, 2008. Five year historical data is not
presented since we emerged from bankruptcy on January 31,
2008 and the stock performance of Dana is not comparable to the
stock performance of Prior Dana. The graph also shows the
cumulative returns of the S&P 500 Index and the S&P
Global Auto Parts Index. The comparison assumes $100 was
invested on February 1, 2008 (the date our new common stock
began trading on the NYSE). Each of the indices shown assumes
that all dividends paid were reinvested.
17
Performance
Chart
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/1/2008
|
|
|
3/31/2008
|
|
|
6/30/2008
|
|
|
9/30/2008
|
|
|
12/31/2008
|
Dana Holding Corporation
|
|
|
$
|
100.00
|
|
|
|
$
|
78.74
|
|
|
|
$
|
42.13
|
|
|
|
$
|
38.11
|
|
|
|
$
|
5.83
|
|
S&P 500
|
|
|
$
|
100.00
|
|
|
|
$
|
94.79
|
|
|
|
$
|
91.73
|
|
|
|
$
|
83.47
|
|
|
|
$
|
64.73
|
|
Automotive Index (Dow Jones)
|
|
|
$
|
100.00
|
|
|
|
$
|
95.13
|
|
|
|
$
|
83.58
|
|
|
|
$
|
80.69
|
|
|
|
$
|
50.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends We did not declare or pay any
common stock dividends during 2008. The terms of our amended
Exit Facility restrict the payment of dividends on shares of
common stock, and we do not anticipate paying any such dividends
at this time.
Issuers Purchases of Equity Securities No
purchases of equity securities were made during the quarter
ended December 31, 2008.
Annual Meeting We will hold an annual meeting
of shareholders on April 21, 2009.
18
|
|
Item 6.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana
|
|
|
|
Prior Dana
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
January 31,
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Net sales
|
|
$
|
7,344
|
|
|
|
$
|
751
|
|
|
$
|
8,721
|
|
|
$
|
8,504
|
|
|
$
|
8,611
|
|
|
$
|
7,775
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
(563
|
)
|
|
|
$
|
914
|
|
|
$
|
(387
|
)
|
|
$
|
(571
|
)
|
|
$
|
(285
|
)
|
|
$
|
(165
|
)
|
Income (loss) from continuing operations
|
|
$
|
(687
|
)
|
|
|
$
|
715
|
|
|
$
|
(433
|
)
|
|
$
|
(618
|
)
|
|
$
|
(1,175
|
)
|
|
$
|
72
|
|
Loss from discontinued operations
|
|
|
(4
|
)
|
|
|
|
(6
|
)
|
|
|
(118
|
)
|
|
|
(121
|
)
|
|
|
(434
|
)
|
|
|
(10
|
)
|
Effect of change in accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(691
|
)
|
|
|
$
|
709
|
|
|
$
|
(551
|
)
|
|
$
|
(739
|
)
|
|
$
|
(1,605
|
)
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(7.16
|
)
|
|
|
$
|
4.77
|
|
|
$
|
(2.89
|
)
|
|
$
|
(4.11
|
)
|
|
$
|
(7.86
|
)
|
|
$
|
0.48
|
|
Diluted
|
|
$
|
(7.16
|
)
|
|
|
$
|
4.75
|
|
|
$
|
(2.89
|
)
|
|
$
|
(4.11
|
)
|
|
$
|
(7.86
|
)
|
|
$
|
0.48
|
|
Net loss per share from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(2.90
|
)
|
|
$
|
(0.07
|
)
|
Diluted
|
|
$
|
(0.04
|
)
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(2.90
|
)
|
|
$
|
(0.07
|
)
|
Net income per share from effect of change in accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.03
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.03
|
|
|
|
|
|
Net income (loss) per share available to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(7.20
|
)
|
|
|
$
|
4.73
|
|
|
$
|
(3.68
|
)
|
|
$
|
(4.92
|
)
|
|
$
|
(10.73
|
)
|
|
$
|
0.41
|
|
Diluted
|
|
$
|
(7.20
|
)
|
|
|
$
|
4.71
|
|
|
$
|
(3.68
|
)
|
|
$
|
(4.92
|
)
|
|
$
|
(10.73
|
)
|
|
$
|
0.41
|
|
Cash dividends per common share
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.37
|
|
|
$
|
0.48
|
|
Common Stock Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
100
|
|
|
|
|
150
|
|
|
|
150
|
|
|
|
150
|
|
|
|
150
|
|
|
|
149
|
|
Diluted
|
|
|
100
|
|
|
|
|
150
|
|
|
|
150
|
|
|
|
150
|
|
|
|
151
|
|
|
|
151
|
|
Stock price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
13.30
|
|
|
|
|
|
|
|
$
|
2.51
|
|
|
$
|
8.05
|
|
|
$
|
17.56
|
|
|
$
|
23.20
|
|
Low
|
|
|
0.34
|
|
|
|
|
|
|
|
|
0.02
|
|
|
|
0.65
|
|
|
|
5.50
|
|
|
|
13.86
|
|
Note: Information for Prior Dana is not comparable to the
information shown for Dana due to the effects of our emergence
from bankruptcy on January 31, 2008.
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
Dana
|
|
|
|
Prior Dana
|
|
|
|
2008
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Summary of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,593
|
|
|
|
$
|
6,425
|
|
|
$
|
6,664
|
|
|
$
|
7,358
|
|
|
$
|
9,019
|
|
Short-term debt
|
|
|
70
|
|
|
|
|
1,183
|
|
|
|
293
|
|
|
|
2,578
|
|
|
|
155
|
|
Long-term debt
|
|
|
1,181
|
|
|
|
|
19
|
|
|
|
722
|
|
|
|
67
|
|
|
|
2,054
|
|
Liabilities subject to compromise
|
|
|
|
|
|
|
|
3,511
|
|
|
|
4,175
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
$
|
771
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Common stock, additional
paid-in-capital,
accumulated deficit and accumulated other comprehensive loss
|
|
|
1,243
|
|
|
|
|
(782
|
)
|
|
|
(834
|
)
|
|
|
545
|
|
|
|
2,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
$
|
2,014
|
|
|
|
$
|
(782
|
)
|
|
$
|
(834
|
)
|
|
$
|
545
|
|
|
$
|
2,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share
|
|
$
|
20.14
|
|
|
|
$
|
(5.22
|
)
|
|
$
|
(5.55
|
)
|
|
$
|
3.63
|
|
|
$
|
16.19
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations (Dollars in millions)
|
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.
Management
Overview
Dana Holding Corporation is a world leader in the supply of
axles; driveshafts; and structural, sealing and
thermal-management products; as well as genuine service parts.
Our customer base includes virtually every major vehicle
manufacturer in the global automotive, commercial vehicle, and
off-highway markets. Headquartered in Toledo, Ohio, the company
was incorporated in Delaware in 2007. As of December 31, we
employed approximately 29,000 people with 113 major
facilities in 26 countries.
We are committed to continuing to diversify our product
offerings, customer base, and geographic footprint, minimizing
our exposure to individual market and segment declines. In 2008,
North American operations accounted for 48% of our revenue,
while the rest of the world accounted for 52%. Similarly,
non-light vehicle products accounted for 42% of our global
revenues.
Our Internet address is www.dana.com. The inclusion of our
website address in this report is an inactive textual reference
only, and is not intended to include or incorporate by reference
the information on our website into this report.
Business
Strategy
Dana currently has seven operating segments that supply
driveshafts, axles, transmissions, structures and engine
components to customers in the automotive, commercial vehicle
and off-highway markets. We continue to evaluate the strategy
for each of these operating segments. These evaluations include
a close analysis of both strategic options and growth
opportunities. While the strategy is still evolving, we
currently anticipate a focus primarily on axles and driveshafts
(driveline products) in these markets. Material advancements are
playing a key role in this endeavor, with an emphasis on
research and development of efficient technologies such as
lightweight, high-strength aluminum applications, currently in
demand.
In 2008, we faced challenges related to declining production
levels and increased steel prices. To address these challenges,
we have a comprehensive strategy in place that includes
developing and implementing common metrics and operational
standards that is being rolled out to all Dana operations
globally. Through our Operational Excellence program, we are
evaluating all operations, seeking opportunities to reduce costs
while improving quality and productivity. Driving our cost
structure down and improving our manufacturing efficiency will
be critical to our success in 2009 as lower production levels
will continue to be a
20
major challenge affecting our business. During 2008, we also
worked closely with our major customers to implement pricing
arrangements that provide adjustment mechanisms based on steel
price movements, thereby positioning us to better mitigate the
effects of increased steel prices in the future.
While our North American automotive driveline operations
continue to improve, becoming more competitive through
consolidation or internal restructuring, we see significant
growth opportunities in our non-automotive driveline businesses,
particularly outside North America. In the third quarter of
2008, we indicated that we were evaluating a number of strategic
options for our non-driveline automotive businesses. We are
continuing to evaluate strategic options in the Structures
segment.
Business
Units
We manage our operations globally through seven operating
segments. Our products in the automotive market primarily
support light vehicle original equipment manufacturers with
products for light trucks, sport utility vehicles, crossover
utility vehicles, vans and passenger cars. The operating
segments in the automotive markets are: Light Axle, Driveshaft,
Structures, Sealing and Thermal. While being primarily focused
on the light vehicle automotive market, certain segments also
support the commercial vehicle and off-highway markets.
Two operating segments 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): Commercial Vehicle and Off-Highway.
Trends in Our
Markets
Light Vehicle
Markets
Rest of the World Outside of North America,
light vehicle production was relatively strong through the first
half of 2008. However, during the third quarter of 2008,
softening market conditions began to surface in Europe. Whereas
the mid-year forecast for western European production levels was
comparable to 2007 levels, with the significant weakening in
demand during the second half of the year, full year 2008
production was down about 9%. Production levels in South America
and Asia Pacific during the last six months of 2008 also
declined from earlier forecasts, with full year 2008 production
in South America being about 6% stronger than 2007 and Asia
being comparable to 2007. The 2008 global light vehicle
production, excluding North America, was about
55 million units which is down from a mid-year
forecast that approximated 59 million units and relatively
comparable to 2007. For 2009, light vehicle production outside
of North America is expected to decline to around
50 million units (source: Global Insight).
North America North American light vehicle
production levels were about 26% lower in the fourth quarter of
2008 than in the fourth quarter of 2007 and 16% lower for the
full year 2008 when compared to 2007. In the light truck market,
fourth-quarter 2008 production levels were down about 38% versus
2007 while the full year production was down 25%. Several
vehicles with significant Dana content are full-size pickups,
vans and SUVs. Within these categories of the light truck
segment, production was more than 42% lower when compared to
last years fourth quarter and lower by about 37% for the
full year. The comparatively lower light truck production levels
are consistent with the decline in North American light truck
sales which was about 22% from 2007 sales. As with production,
the sales decline in full size pickups, vans and SUVs during
these periods have been even greater at around 27% (source:
Wards Automotive).
The weakness in light truck sales has been influenced, in part,
by consumer concerns over high fuel prices, declining home
values, increased unemployment and other economic factors
including access to credit. While fuel prices have dropped since
mid-2008, the uncertainty as to where gasoline prices will
stabilize may result in a longer-term shift in consumer interest
away from trucks and SUVs to more fuel-efficient passenger cars
and CUVs. While a number of our newer programs involve CUVs,
pickup and SUV platforms continue to be a key segment for us,
particularly with a number of high sales pickup truck platforms.
Despite lower production of light trucks during the fourth
quarter of 2008, lower sales led to higher inventory levels with
82 days supply at September 30, 2008 increasing to
86 days at December 31, 2008. At this level, the days
supply of light trucks in inventory is considerably higher than
the 65 days at December 31,
21
2007. While inventory levels for full-size pickups and SUVs are
slightly lower, they increased as well during the fourth quarter
of 2008 from 74 days at the end of the third quarter to
76 days at December 31, 2008. With the steeper
cutbacks in production this past year in this particular
segment, days supply in inventory is down from 82 days at
the end of 2007. Given the current level of inventory and the
negative economic environment, we expect the weakness in light
truck sales and production in North America to continue well
into 2009 (source: Wards Automotive).
Adding to the already difficult market conditions that have
existed through most of 2008 is the more recent turmoil in the
financial markets that has further eroded consumer confidence
and tightened availability of credit. Most projections for
overall North American light vehicle production for 2009 are
around 9.5 to 11 million units down from about
12.7 million units in 2008 (source: Global Insight and
Wards).
Automaker
Viability
Globally, OEMs are moving quickly to cut production, reduce
manufacturing costs, lower vehicle prices and clear inventory.
All domestic and even a few of the Asian automakers are offering
generous consumer incentive and rebate programs. These programs
ultimately put pressure on suppliers to identify additional cost
savings in their own manufacturing operations and supply chains.
GM and Chrysler presented their Viability Plans to the
U.S. Government in February 2009. These plans, which
outlined how these companies plan to achieve long-term
sustainability, will require net cost reductions from suppliers.
The impact is already being felt by suppliers. In January 2009,
Chrysler issued a letter to its suppliers, demanding a 3% cost
reduction from all suppliers effective April 1, 2009 and
stated that increased raw material costs must be absorbed by
suppliers. We are continuing to monitor these market conditions.
In January 2009, the Original Equipment Suppliers Association
(OESA) conducted its bi-monthly Supplier Barometer survey. The
outcome revealed several key risks that suppliers will face
throughout 2009. The top three, as identified by OESA members,
include: decreased production volumes (absolute levels and
predictability); customer bankruptcy risk (especially of an
OEM); and cash flow (as a result of the low production levels
and delayed payments). Other significant risks identified
include credit availability and multiple supplier bankruptcies.
OEM mix The declining sales of light vehicles
(especially light trucks, which generally have a higher profit
margin than passenger cars) in North America, as well as losses
of market share to competitors such as Toyota and Nissan,
continue to put pressure on three of our largest light vehicle
customers: Ford, GM and Chrysler. These three customers
accounted for approximately 70% of light truck production in
North America in 2008, as compared to about 73% of light truck
production in 2007 (source: Global Insight). We expect
that any continuing loss of market share by these customers
could result in their applying renewed pricing pressure on us
relative to our existing business and could make our efforts to
generate new business more difficult.
Rapid technology changes Under the new
Democratic administration in the U.S., it is likely that new
CAFE standards will be implemented quickly. The revised standard
may require vehicles for each manufacturer to achieve an average
of 35 miles per gallon by the 2011 model year, up from
27.5 miles per gallon in effect today. This change will
require rapid response by automakers, and represents opportunity
for suppliers that are able to supply highly engineered products
that will help OEMs quickly meet these stricter carbon emissions
and fuel economy requirements. The National Academy of Sciences
estimates that fuel economy could be increased by
50 percent while maintaining vehicle size and performance
without reducing safety and that midsize cars could average
41 miles per gallon and large pickups nearly 30 miles
per gallon, all using existing technology to develop new
components and applications. Suppliers, like Dana, who are able
to provide these new components and applications will fair best
in this new environment.
The proposed new CAFE standards present a significant
opportunity for us, as OEMs will need to improve the fuel
economy and reduce carbon emissions of their vehicles. Our
materials and process competencies, and product enhancements can
provide OEMs with needed vehicle weight reduction, assisting
them in their efforts to meet the more stringent requirements.
22
Commercial
Vehicle Markets
Rest of the World Outside of North America,
commercial vehicle medium- and heavy-duty production grew in
2008, particularly in emerging Eastern European and Asian
markets. Global commercial vehicle production, excluding North
America, approximated 2.3 million units in 2008, an
increase of about 4% over 2007. However, in 2009, our current
expectation is that commercial vehicle production outside North
America will decline to around 2.0 million units
(source: Global Insight and ACT).
North America Developments in this region
have a significant impact on our results as North America
accounts for more than 80% of our sales in the commercial
vehicle market. Production of heavy-duty
(Class 8) vehicles during the fourth quarter of 2008
of 45,000 units was comparable to the same period in 2007.
For the full year 2008, Class 8 production of around
196,000 units was down about 4% from 2007. The Class 8
production comparisons are influenced by the engine emission
regulation change which became effective at the beginning of
2007 in North America. First quarter 2007 sales benefited from
vehicle owners purchasing, from dealer inventory, the lower cost
engines built prior to the new emission standards. Production
levels for the remainder of 2007 were at comparatively lower
levels as many customers with new vehicle needs accelerated
their purchases into 2006 or the first quarter of 2007 in
advance of the higher costing vehicles meeting new emission
requirements. Production levels in the Class 8 market have
not rebounded as quickly in 2008 as previously expected, in part
due to higher fuel costs causing customers to postpone purchases
of the newer vehicles as a means of minimizing increased overall
operating costs. The commercial vehicle market also is being
impacted by the overall financial market turmoil and consequent
economic difficulties, leading customers in these markets to be
cautious about new vehicle purchases. The economic factors
contributing to lower customer demand and production during the
second half of 2008 are expected to continue into
2009 resulting in forecast Class 8 production
of about 160,000 units, a decline of 19% from 2008
(source: Global Insight and ACT).
In the medium-duty
(Class 5-7)
market, fourth quarter 2008 production of 32,000 units was
down 30% from last years fourth quarter. For the year,
medium-duty production in 2008 was 25% lower than in 2007.
Medium-duty production levels have been adversely impacted by
high fuel costs and the same economic factors discussed in the
Light Vehicle Markets North America market trends
section. Production levels in 2009 are expected to be similarly
impacted, with the unit build forecast at around 135,000, 15%
lower than 2008 (source: Global Insight and ACT).
Off-Highway
Markets
Our off-highway business, which has become an increasingly more
significant component of our total operations over the past
three years, accounted for 22% of our 2008 sales. Unlike our
on-highway businesses, our off-highway business is larger
outside of North America, with more than 75% of its sales coming
from outside North America. We serve several segments of the
diverse off-highway market, including construction, agriculture,
mining and material handling. Our largest markets are the
European and North American construction and agriculture
equipment segments. These markets were relatively strong through
the first half of 2008, with demand softening during the last
six months of the year resulting in full year 2008 sales volumes
that were comparable to 2007. As with our other markets, we are
forecasting reductions in 2009 demand in the North American and
European construction markets of about 40% and reductions in
agriculture market demand in 2009 of around 20%.
Steel
Costs
During 2008, we were challenged with unprecedented levels of
steel costs that significantly impacted our 2008 results of
operations. Higher steel cost is reflected directly in our
purchases of various grades of raw steel as well as indirectly
through purchases of products such as castings, forgings and
bearings. At present, we annually purchase over one million tons
of steel and products with significant steel content.
Two commonly used market-based indicators of steel
prices the Tri Cities Scrap Index for #1
bundled scrap steel (which represents the monthly average costs
in the Chicago, Cleveland and Pittsburgh ferrous scrap markets,
as posted by American Metal Market, and is used by our domestic
steel suppliers to
23
determine our monthly surcharge) and the spot market price for
hot-rolled sheet steel illustrate the impact. Scrap
prices were relatively stable in 2006 and 2007, averaging about
$270 per ton in 2006 and $310 per ton in 2007. During 2008,
however, the per ton prices increased significantly, reaching a
high of more than $850 per ton before declining to prices of
around $250 per ton at the end of 2008. The average scrap price
of about $520 per ton for the year was 67% higher than in 2007.
Spot prices per ton for hot-rolled steel followed a similar
pattern, averaging about $655 in 2006 and $595 in 2007,
increasing in 2008 to an average of about $975 per ton, 64%
higher than in 2007.
Although steel prices declined significantly during the fourth
quarter of 2008, our 2008 results did not benefit significantly
from the lower cost. There is a lag time for scrap prices to
impact the cost of other steel-based products, and with the
lower fourth quarter production volumes, we were still working
down inventory acquired at higher prices.
Agreements with certain customers eliminate or mitigate our
exposure to steel cost increases, allowing us to effectively
pass all or a portion of the cost on to our customers. In
certain cases, principally in our Structures business, we have
resale arrangements whereby we purchase the steel at the cost
negotiated by our customers and include that cost in the pricing
of our products. In other arrangements, we have material price
escalation provisions in customer contracts providing for
adjustments to unit prices based on commodity cost increases or
decreases over agreed reference periods. Adjustments under these
arrangements typically occur at quarterly, semi-annual and
annual intervals with the adjustment coming in the form of
prospective price increases or decreases.
Historically, although not always required by existing
agreements, we also have been successful in obtaining price
increases or surcharges from certain customers as a result of
escalating steel costs. We aggressively pursued steel cost
recovery agreements with customers in 2008 where not already in
place, while also pursuing enhanced recovery terms on existing
agreements. We also took actions to mitigate the impact of steel
and other commodity increases by consolidating purchases,
contracting with new global steel sources, identifying
alternative materials and redesigning our products to be less
dependent on higher cost steel grades. As a result of these
efforts, we currently have arrangements in place that we
estimate will provide recovery on approximately 80% of
prospective steel-related cost increases. These agreements are
generally indexed to a base price such that decreased steel
costs result in price reductions.
We estimate that higher steel costs adversely impacted our cost
of sales in 2008 by approximately $167. Our recovery efforts
partially offset the increased cost, thereby resulting in a net
adverse impact on our gross margin for the full year of 2008 of
approximately $53. With the lag effect associated with certain
customer recovery arrangements, a portion of the recovery of
2008 cost will be received in 2009 as higher prices take effect
as part of indexed pricing arrangements with our customers.
Sales and
Earnings Outlook
We expect the economic factors currently having a negative
impact on our markets to persist into 2009 and beyond. By almost
any measure, 2009 will be a challenging year with production
levels in most of our markets forecast to be significantly
lower. To mitigate the effects of lower sales volume, we are
aggressively right sizing our cost structure and continuing to
pursue increased pricing from customers where programs warrant.
On the cost front, we have reduced the work force during 2008 by
about 6,000 people. With reductions in the first two months
of this year, our employment level has been reduced to about
25,000. Additional reductions in March are expected to reduce
the number of people to around 24,000 and we expect to make
further reductions during 2009. See Note 6 of the notes to
our financial statements in Item 8 for additional
discussion relating to our realignment initiatives.
We completed several pricing and material recovery initiatives
during the latter part of 2008 that will benefit 2009, albeit on
lower sales volume. At our current forecast level for sales, we
estimate that material recovery and other pricing actions
already finalized in 2008 will add more than $150 to gross
margin in 2009. The combined gross margin improvement from
pricing and cost reductions is expected to more than offset the
margin impact of lower 2009 sales volume.
24
Growing our sales through new business continues to be an
important focus for us. Our current backlog of awarded new
business which comes on stream over the next two years more than
offsets any programs that are expiring or being co-sourced.
While we continue to pursue vigorously new business
opportunities, we are doing so with measured discipline to
ensure that such opportunities provide acceptable investment
returns.
Results of
Operations Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana
|
|
|
|
Prior Dana
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
January 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net sales
|
|
$
|
7,344
|
|
|
|
$
|
751
|
|
|
$
|
8,721
|
|
|
$
|
8,504
|
|
Cost of sales
|
|
|
7,127
|
|
|
|
|
702
|
|
|
|
8,231
|
|
|
|
8,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
217
|
|
|
|
|
49
|
|
|
|
490
|
|
|
|
338
|
|
Selling, general and administrative expenses
|
|
|
303
|
|
|
|
|
34
|
|
|
|
365
|
|
|
|
419
|
|
Amortization of intangibles
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realignment charges, net
|
|
|
114
|
|
|
|
|
12
|
|
|
|
205
|
|
|
|
92
|
|
Impairment of goodwill
|
|
|
169
|
|
|
|
|
|
|
|
|
89
|
|
|
|
46
|
|
Impairment of intangible assets
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of investments and other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234
|
|
Other income, net
|
|
|
53
|
|
|
|
|
8
|
|
|
|
162
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before interest,
reorganization items and income taxes
|
|
|
(396
|
)
|
|
|
|
11
|
|
|
|
(7
|
)
|
|
|
(313
|
)
|
Fresh start accounting adjustments
|
|
$
|
|
|
|
|
$
|
1,009
|
|
|
$
|
|
|
|
$
|
|
|
Income (loss) from continuing operations
|
|
$
|
(687
|
)
|
|
|
$
|
715
|
|
|
$
|
(433
|
)
|
|
$
|
(618
|
)
|
Loss from discontinued operations
|
|
$
|
(4
|
)
|
|
|
$
|
(6
|
)
|
|
$
|
(118
|
)
|
|
$
|
(121
|
)
|
Net income (loss)
|
|
$
|
(691
|
)
|
|
|
$
|
709
|
|
|
$
|
(551
|
)
|
|
$
|
(739
|
)
|
As a consequence of emergence from bankruptcy on
January 31, 2008, the results of operations for 2008
separately present the month of January pre-emergence results of
Prior Dana and the eleven-month results of Dana. As such, the
application of fresh start accounting as described in
Note 2 of the notes to our consolidated financial
statements in Item 8 is reflected in the Dana eleven-month
results, but not in the pre-emergence January results. Loss from
continuing operations before interest, reorganization items and
income taxes for the eleven months ended December 31, 2008
includes net expenses of approximately $105 resulting from the
application of fresh start accounting, primarily amortization of
intangibles, a one-time amortization of the
stepped-up
value of inventories on hand at emergence and additional
depreciation expense. Additionally, certain agreements such as
the labor agreements negotiated with our major unions became
effective upon emergence from bankruptcy. Consequently, certain
benefits associated with the effectiveness of these agreements,
including the elimination of postretirement medical costs in the
U.S., commenced at emergence, thereby benefiting the
eleven-month results of Dana.
Results of
Operations (2008 versus 2007)
Geographic Sales,
Segment Sales and Margin Analysis
The tables below show our sales by geographic region and by
segment for the eleven months ended December 31, 2008, one
month ended January 31, 2008 and the year ended
December 31, 2007. Certain reclassifications were made to
conform 2007 to the 2008 presentation.
Although the eleven months ended December 31, 2008 and one
month ended January 31, 2008 are distinct reporting periods
as a consequence of our emergence from bankruptcy on
January 31, 2008, the
25
emergence and fresh start accounting effects had negligible
impact on the comparability of sales between the periods.
Accordingly, references in our analysis to annual 2008 sales
information combine the two periods in order to enhance the
comparability of such information for the two annual periods.
Geographical
Sales Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana
|
|
|
|
Prior Dana
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
Year
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
|
January 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
2008
|
|
|
2007
|
|
North America
|
|
$
|
3,523
|
|
|
|
$
|
396
|
|
|
$
|
4,791
|
|
Europe
|
|
|
2,169
|
|
|
|
|
224
|
|
|
|
2,256
|
|
South America
|
|
|
1,030
|
|
|
|
|
73
|
|
|
|
1,007
|
|
Asia Pacific
|
|
|
622
|
|
|
|
|
58
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,344
|
|
|
|
$
|
751
|
|
|
$
|
8,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales for the combined periods of 2008 were $626 lower than
sales in 2007. Currency movements generated $256 of increased
sales as a number of the major currencies in international
markets where we conduct business strengthened against the
U.S. dollar. Exclusive of currency, sales decreased $882,
or 10%, primarily due to lower production levels in each of our
markets. Partially offsetting the effects of lower production
was improved pricing, largely for recovery of higher material
cost.
Sales for 2008 in North America, adjusted for currency, declined
approximately 19% due to the lower production levels in both the
light duty and commercial vehicle markets. Light and medium duty
truck production was down 25% in 2008 compared to 2007 and the
production of Class 8 commercial vehicle trucks was down
4%. The impact of lower vehicle production levels was partially
offset by the impact of higher pricing, principally to recover
higher material costs.
Sales in Europe, South America and Asia Pacific all benefited
from the effects of stronger local currencies against the
U.S. dollar. Stronger currencies increased 2008 sales by
$163 in Europe, $51 in South America and $20 in Asia Pacific.
Exclusive of this currency effect, European sales were down $27
against 2007, principally due to the lower production levels in
the second half of 2008. In South America,
year-over-year
production levels were stronger, leading to increased sales of
$45 after excluding currency effect.
Segment Sales
Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana
|
|
|
|
Prior Dana
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
Year
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
|
January 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
2008
|
|
|
2007
|
|
Light Axle
|
|
$
|
1,944
|
|
|
|
$
|
210
|
|
|
$
|
2,627
|
|
Driveshaft
|
|
|
1,069
|
|
|
|
|
110
|
|
|
|
1,200
|
|
Sealing
|
|
|
641
|
|
|
|
|
64
|
|
|
|
728
|
|
Thermal
|
|
|
231
|
|
|
|
|
28
|
|
|
|
293
|
|
Structures
|
|
|
786
|
|
|
|
|
90
|
|
|
|
1,069
|
|
Commercial Vehicle
|
|
|
1,090
|
|
|
|
|
97
|
|
|
|
1,235
|
|
Off-Highway
|
|
|
1,576
|
|
|
|
|
151
|
|
|
|
1,549
|
|
Other Operations
|
|
|
7
|
|
|
|
|
1
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,344
|
|
|
|
$
|
751
|
|
|
$
|
8,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Axle sales declined 18% due principally to lower light
truck production levels in North America and Europe. Our
Driveshaft segment serves both the light-duty automotive and
commercial vehicle markets. Since commercial vehicle production
levels did not decline as significantly as those on the
light-duty side,
26
sales in this segment were down only 2%. Increased pricing and
favorable currency effects provided a partial offset to the
effect of lower production levels in both the Light Axle and
Driveshaft segments. Sales in the Sealing segment declined 3%.
Like the Driveshaft segment, the Sealing business also supports
the commercial vehicle market and has a proportionately larger
share of business in Europe where the production declines were
lower than in North America and a stronger euro provided
favorable currency effect. Thermal sales declined 12%, primarily
due to lower North American production levels partially offset
by favorable currency effect. Lower North American production
was also the primary factor leading to an 18% reduction in sales
in the Structures business.
Our Commercial Vehicle segment is heavily concentrated in the
North American market and the overall sales decline of 4% in
this segment was primarily due to the drop in North American
production levels discussed in the regional review above.
Stronger markets outside North America and some pricing
improvement partially offset the weaker North American
production. With its significant European presence, our
Off-Highway segment benefited from the stronger euro. Exclusive
of favorable currency effects of $178, Off-Highway sales
increased 5% due to stronger production levels during the first
half of 2008, sales from new programs and increased pricing.
Margin
Analysis
The chart below shows our segment margin analysis for the eleven
months ended December 31, 2008, one month ended
January 31, 2008 and the year ended December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of Sales
|
|
|
|
Dana
|
|
|
|
Prior Dana
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
Year
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
|
January 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
2008
|
|
|
2007
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Axle
|
|
|
0.6
|
%
|
|
|
|
2.7
|
%
|
|
|
1.9
|
%
|
Driveshaft
|
|
|
4.8
|
|
|
|
|
10.2
|
|
|
|
7.1
|
|
Sealing
|
|
|
10.0
|
|
|
|
|
14.1
|
|
|
|
12.7
|
|
Thermal
|
|
|
0.9
|
|
|
|
|
9.7
|
|
|
|
8.0
|
|
Structures
|
|
|
1.6
|
|
|
|
|
1.2
|
|
|
|
5.0
|
|
Commercial Vehicle
|
|
|
3.8
|
|
|
|
|
4.5
|
|
|
|
5.8
|
|
Off-Highway
|
|
|
8.1
|
|
|
|
|
10.5
|
|
|
|
10.9
|
|
Consolidated
|
|
|
3.0
|
%
|
|
|
|
6.5
|
%
|
|
|
5.6
|
%
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Axle
|
|
|
1.9
|
%
|
|
|
|
2.7
|
%
|
|
|
2.2
|
%
|
Driveshaft
|
|
|
2.2
|
|
|
|
|
3.2
|
|
|
|
2.9
|
|
Sealing
|
|
|
7.5
|
|
|
|
|
7.4
|
|
|
|
6.5
|
|
Thermal
|
|
|
5.7
|
|
|
|
|
4.5
|
|
|
|
4.7
|
|
Structures
|
|
|
0.9
|
|
|
|
|
1.5
|
|
|
|
1.7
|
|
Commercial Vehicle
|
|
|
3.4
|
|
|
|
|
3.7
|
|
|
|
3.9
|
|
Off-Highway
|
|
|
2.3
|
|
|
|
|
1.8
|
|
|
|
2.4
|
|
Consolidated
|
|
|
4.1
|
%
|
|
|
|
4.5
|
%
|
|
|
4.2
|
%
|
Consolidated Gross Margin
Margins during the eleven-month period ended December 31,
2008 were adversely impacted by two significant
factors reduced sales levels and higher steel costs.
Adjusted for currency effects, sales in 2008 were down from the
comparable 2007 period, with most of the reduction occurring in
the second half of 2008. As a result, there has been a lower
sales base relative to our fixed costs, negatively affecting
margins in the eleven-month period ended December 31, 2008
as compared to the first month of 2008 and the full previous
year. For the combined periods in 2008, lower sales volumes
reduced
27
margin by approximately $245 (2.8% of sales). Higher steel costs
reduced margin by approximately $170 (2.0% of sales). Gross
margins during the eleven-month period ended December 31,
2008 were also reduced by about $39 resulting from the fresh
start accounting effects discussed below. Partially offsetting
these adverse developments were benefits from the reorganization
actions undertaken in connection with the bankruptcy
process customer pricing improvement, labor cost
savings, overhead cost reduction and manufacturing footprint
optimization. Those customer pricing actions began contributing
to gross margins in the first quarter of 2007, with additional
pricing improvements being achieved over the course of 2007 and
into 2008. The 2008 results reflect a full year of customer
pricing improvements while 2007 includes only a portion thereof.
Pricing improvements unrelated to the reorganization process,
primarily associated with recovery of higher steel cost, were
also achieved, which when combined with the
reorganization-related pricing actions increased margin by
approximately $140 during the eleven months ended
December 31, 2008 and the month of January 2008. We did not
begin benefiting significantly from non-union employee benefit
plan reductions and other labor savings until the first quarter
of 2008 with much of the savings associated with the agreements
negotiated with the unions only becoming effective upon our
emergence on January 31, 2008. Labor cost savings
associated with the reorganization initiatives and other actions
added approximately $100 to margin in the eleven months ended
December 31, 2008, while overhead reduction, manufacturing
footprint and increased pricing actions provided additional
margin improvement.
In connection with the application of fresh start accounting,
margins were negatively impacted by two factors. At emergence,
inventory values were increased in accordance with fresh start
accounting requirements. With respect to our
U.S. inventories which are carried on a LIFO basis, the
stepped-up
value of the inventory became part of the base LIFO layer and
will not be recognized in cost of sales under LIFO costing until
there is a decrement of the base layer. In the case of
inventories outside the U.S. which are carried on a FIFO or
average cost basis, the fresh start adjustment of $15 was
recorded as cost of sales in the first and second quarters of
2008 as the inventory was sold. The other factor negatively
impacting margins as a result of fresh start accounting was
higher depreciation expense on the
stepped-up
value of fixed assets and amortization expense associated with
technology related intangibles recognized at emergence. This
higher depreciation and amortization reduced margin for the
eleven months ended December 31, 2008 by approximately $24.
In the Light Axle segment, reduced sales volume led to margin
reduction of approximately $92 (3.5% of sales), while higher
steel costs resulted in lower margin of about $40 (1.5% of
sales). Partially offsetting these effects were customer pricing
improvement and labor cost reductions which contributed
approximately $83 (3.2% of sales) to 2008 margin and other cost
reductions and operational improvements. Driveshaft, like the
Light Axle segment, experienced margin reduction from lower
sales volume. The reduction attributed to lower sales
approximated $36 (3.0% of sales), and higher steel resulted in
lower margin of $35 (2.9% of sales). Also reducing margin in the
Driveshaft segment was higher depreciation and amortization
expense of $28 (1.1% of sales) attributed primarily to the
application of fresh start accounting. Partially offsetting
these reductions were improvements to Driveshaft margin of
approximately $66 (2.5% of sales) from increased customer
pricing and labor cost savings.
In the Sealing segment, the gross margin decline was primarily
due to lower sales volume and higher depreciation and
amortization resulting from application of fresh start
accounting. These effects were partially offset by lower
material cost, currency effect and cost reductions. Gross margin
in our Thermal segment declined due to lower sales volume,
additional warranty cost and higher depreciation and
amortization. Our Structures business was significantly impacted
by lower sales levels which reduced margin by approximately $72
(6.7% of sales). Mitigating the effects of lower sales were
improved pricing and labor savings which improved margin by
about $20 (1.8% of sales) and lower depreciation and
amortization expense related to fresh start accounting which
increased margin by $17 (1.6% of sales).
Gross margin in the Commercial Vehicle segment in 2008 was
negatively affected by lower sales volume and higher steel costs
which reduced margin by about $16 (1.3% of sales) and $25 (2.0%
of sales). Offsetting some of the reduction due to these factors
was additional pricing of approximately $23 (1.9% of sales) and
28
lower depreciation and amortization expense. In the Off-Highway
segment, the gross margin decline was primarily due to higher
material costs of about $34 (2.2% of sales in 2008), increased
warranty expense of $10 and increased depreciation and
amortization expense of $21 (1.4% of sales). The margin
reduction from these and other factors was partially offset by
improved pricing of $28 (1.8% of sales).
Corporate and Other gross margin
Consolidated gross margin is impacted by cost of sales activity
in Corporate and Other related to applying LIFO costing to
inventory in the U.S. and full absorption costing globally.
Our operating segments report inventory and cost of sales on a
FIFO basis. During the eleven months ended December 31,
2008, increases in steel and other commodity costs resulted in
the FIFO-based value of our U.S. inventory, as reported by
the operating segments, increasing by $48. Accordingly,
adjusting this inventory to a LIFO basis in consolidation
required a $48 charge to cost of sales in Corporate and Other in
2008. A credit to cost of sales of $3 was recognized in the
month of January 2008. During 2007, LIFO-based charges to cost
of sales amounted to $7.
The application of full absorption costing consists principally
of reclassifying certain expenses to cost of sales that are
reported by the operating segments as SG&A. These costs are
reviewed and adjusted annually. Cost of sales increased and
SG&A decreased by $5 for the one month ended
January 31, 2008, $59 for the eleven months ended
December 31, 2008 and by $56 for the year ended
December 31, 2007.
Due to the application of fresh start accounting, Corporate and
Other in the eleven months ended December 31, 2008 also
includes a charge of $49 to amortize, under the FIFO costing
method used by our operations, the fresh start
step-up of
our global inventories. This charge is partially offset by the
$34 adjustment required to retain the fresh start
step-up
under the LIFO costing method used in the U.S. for
financial reporting and tax purposes.
Selling, general and administrative expenses
(SG&A) For the combined periods in 2008,
SG&A of $337 is lower by $28 from the 2007 expense. Both
the combined 2008 periods and 2007 SG&A expense were 4.2%
of sales. The 2008 period expense benefited from certain labor
and overhead cost reduction initiatives implemented in
connection with the bankruptcy reorganization process as well as
additional reductions implemented post-emergence. Additionally,
the 2007 expense included a provision for short-term incentive
compensation, whereas nothing was provided in 2008 based on that
years results. Partially offsetting the factors reducing
year-over-year
SG&A expense was additional costs incurred during 2008 in
connection with personnel changes and restoring long-term
incentive plans. Also adversely impacting the
year-over-year
margin comparison was a reduction in long-term disability
accruals in 2007.
Amortization of intangibles Amortization of
customer relationship intangibles recorded in connection with
applying fresh start accounting at the date of emergence
resulted in expense of $66 for the eleven months ended
December 31, 2008.
Realignment charges and Impairments
Realignment charges are primarily costs associated with the
workforce reduction actions and facility closures, certain of
which were part of the manufacturing footprint optimization
actions that commenced in connection with our bankruptcy plan of
reorganization. These actions are more fully described in
Note 6 of the notes to our consolidated financial
statements in Item 8. Realignment charges in 2007 include
$136 of cost relating to the settlement of our pension
obligations in the United Kingdom, which was completed in April
2007.
We recorded $169 for impairment of goodwill and $14 for
impairment of indefinite-lived intangibles during the eleven
months ended December 31, 2008. We recorded $89 for
impairment of goodwill during 2007 as discussed more fully in
Note 10 of the notes to our consolidated financial
statements in Item 8.
Other income, net Net currency transaction
losses reduced other income by $12 in the eleven months ended
December 31, 2008 while net gains of $3 were recognized in
the month of January 2008. This compares to $35 of net currency
transaction gains in 2007. DCC asset sales and divestitures
provided other income of $49 in 2007, but only minimal income in
2008. Other income in 2008 also benefited from interest income
of $48 in the eleven months ended December 31, 2008 and $4
in the month of January 2008 as compared to $42 in 2007. Other
income in the eleven-month period ended December 31, 2008
includes a charge of $10 to recognize the loss incurred in
connection with repayment $150 of our term debt in
29
November 2008. Costs of approximately $10 have been incurred in
2008 in connection with the evaluation of strategic alternatives
relating to certain businesses. Other income in 2007 also
included a one-time claim settlement charge of $11 representing
the cost to settle a contractual matter with an investor in one
of our equity investments.
Interest expense Interest expense includes
the costs associated with the Exit Financing facility and other
debt agreements which are described in detail in Note 17 of
the notes to our consolidated financial statements in
Item 8. Interest expense in the eleven months ended
December 31, 2008 includes $16 of amortized OID recorded in
connection with the Exit Financing facility and $8 of amortized
debt issuance costs. Also included is $4 associated with the
accretion of certain liabilities that were recorded at
discounted values in connection with the adoption of fresh start
accounting upon emergence from bankruptcy. During 2007 and the
month of January 2008, as a result of the bankruptcy
reorganization process, a substantial portion of our debt
obligations were reported as Liabilities subject to compromise
in our consolidated financial statements with no interest
expense being accrued on these obligations. The interest expense
not recognized on these obligations amounted to $108 in 2007 and
$9 during the month of January 2008.
Reorganization items Reorganization items are
expenses directly attributed to our Chapter 11
reorganization process. See Note 3 of the notes to our
financial statements in Item 8 for a summary of these
costs. During the bankruptcy process, there were ongoing
advisory fees of professionals representing Dana and the other
bankruptcy constituencies. Certain of these costs continued
subsequent to emergence as there are disputed claims which
require resolution, claims which require payment and other
post-emergence activities incident to emergence from bankruptcy.
Among these ongoing costs are expenses associated with
additional facility unionization under the framework of the
global agreements negotiated with the unions as part of our
reorganization activities. Reorganization items in the month of
January 2008 include a gain on the settlement of liabilities
subject to compromise and several one-time emergence costs,
including the cost of employee stock bonuses, transfer taxes,
and success fees and other fees earned by certain professionals
upon emergence.
Income tax expense In the U.S. and
certain other countries, our recent history of operating losses
does not allow us to satisfy the more likely than
not criterion for realization of deferred tax assets.
Consequently, there is no income tax benefit against the pre-tax
losses of these jurisdictions as valuation allowances are
established offsetting the associated tax benefit or expense. In
the U.S., the other comprehensive income (OCI) reported for 2007
caused us to record tax expense in OCI and recognize a
U.S. tax benefit of $120 in continuing operations. For
2008, the valuation allowance impacts in the above-mentioned
countries, the fresh start adjustments and the impairment of
goodwill in 2008 and 2007 are the primary factors which cause
the tax expense of $107 for the eleven months ended
December 31, 2008, $199 for the month of January 2008, and
$62 for 2007 to differ from an expected tax benefit of $197, tax
expense of $320 and tax benefit of $135 for those periods at the
U.S. federal statutory rate of 35%.
Discontinued operations Our engine hard
parts, fluid products and pump products operations had been
reported as discontinued operations. The sales of these
businesses were substantially completed in 2007, except for a
portion of the pump products business that was sold in January
2008. The results for 2007 reflect the operating results of
these businesses as well as adjustments to the net assets of
these businesses necessary to reflect their fair value less cost
to sell based on expected sales proceeds. See Note 5 in the
notes to our consolidated financial statements in Item 8
for additional information relating to the discontinued
operations.
Results of
Operations (2007 versus 2006)
Geographic Sales,
Segment Sales and Margin Analysis (2007 versus 2006)
The tables below show our sales by geographic region and segment
for the years ended December 31, 2007 and 2006. Certain
reclassifications were made to conform 2006 and 2007 to the 2008
presentation.
30
Geographic Sales
Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Change Due To
|
|
|
|
Prior Dana
|
|
|
Increase/
|
|
|
Currency
|
|
|
Acquisitions/
|
|
|
Organic
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Effects
|
|
|
Divestitures
|
|
|
Change
|
|
|
North America
|
|
$
|
4,791
|
|
|
$
|
5,171
|
|
|
$
|
(380
|
)
|
|
$
|
26
|
|
|
$
|
(90
|
)
|
|
$
|
(316
|
)
|
Europe
|
|
|
2,256
|
|
|
|
1,856
|
|
|
|
400
|
|
|
|
192
|
|
|
|
(23
|
)
|
|
|
231
|
|
South America
|
|
|
1,007
|
|
|
|
854
|
|
|
|
153
|
|
|
|
68
|
|
|
|
|
|
|
|
85
|
|
Asia Pacific
|
|
|
667
|
|
|
|
623
|
|
|
|
44
|
|
|
|
62
|
|
|
|
(20
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,721
|
|
|
$
|
8,504
|
|
|
$
|
217
|
|
|
$
|
348
|
|
|
$
|
(133
|
)
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales increased 2.6% from 2006 to 2007. Stronger currencies in
our major foreign markets as compared to an overall weaker
U.S. dollar resulted in positive currency movements on 2007
sales. Sales in 2007 were reduced by net divestiture impacts,
principally due to a $152 reduction resulting from the sale of
our trailer axle business in January 2007. Partially offsetting
this loss of sales was an increase resulting from the July 2006
purchase of the axle and driveshaft businesses previously owned
by Spicer S.A., our equity affiliate in Mexico. Excluding
currency and net divestiture effects, organic sales in 2007 were
relatively flat compared to 2006. Organic change is the
period-on-period
measure of the change in sales that excludes the effects of
currency movements, acquisitions and divestitures.
Regionally, North American sales were down 7.3%. A stronger
Canadian dollar increased sales slightly. The divestiture of the
trailer axle business partially offset by additional axle and
driveshaft business acquired from our previous equity affiliate
in Mexico combined to decrease sales by $90. Excluding these
effects, organic sales were down 6.1%. Lower production levels
in the North American commercial vehicle market were the primary
contributor to lower organic sales. Class 8 vehicle
production was down more than 40% while medium duty production
of
Class 5-7
vehicles was down more than 20%. New engine emission
requirements effective at the beginning of 2007 increased costs
and led many vehicle owners to accelerate their purchases in
2006. Consequently, production levels in 2006 benefited from
this pull forward of customer demand, while 2007 levels were
lower. In North America, our 2007 organic sales to the
commercial vehicle market were down more than $400 compared to
2006. Partially offsetting the impact of lower commercial
vehicle build was higher production levels in the North American
light truck market.
Year-over-year
light truck production increased 2.2%, with the vehicle
platforms on which we have our highest content up even more.
Sales to the off-highway market also increased in 2007,
principally from new customer programs. Additionally, North
American sales in 2007 benefited from pricing improvements of
approximately $165.
Sales in Europe increased 21.6%. Stronger European currencies
relative to the U.S. dollar accounted for approximately
half of the increase. The organic sales increase was due in part
to net new business in 2007 of approximately $150. Additionally,
production levels in two of our key markets the
European light vehicle and the off-highway markets
were somewhat stronger in 2007 than in 2006. In South America,
the sales increase resulted from somewhat stronger
year-over-year
production levels in our major vehicular markets, and also from
stronger currencies in this region. Sales in Asia Pacific
similarly increased due to currencies in that region also
strengthening against the U.S. dollar.
31
Segment Sales
Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Change Due To
|
|
|
|
Prior Dana
|
|
|
Increase/
|
|
|
Currency
|
|
|
Acquisitions/
|
|
|
Organic
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Effects
|
|
|
Divestitures
|
|
|
Change
|
|
|
Light Axle
|
|
$
|
2,627
|
|
|
$
|
2,230
|
|
|
$
|
397
|
|
|
$
|
92
|
|
|
$
|
20
|
|
|
$
|
285
|
|
Driveshaft
|
|
|
1,200
|
|
|
|
1,124
|
|
|
|
76
|
|
|
|
62
|
|
|
|
23
|
|
|
|
(9
|
)
|
Sealing
|
|
|
728
|
|
|
|
684
|
|
|
|
44
|
|
|
|
30
|
|
|
|
|
|
|
|
14
|
|
Thermal
|
|
|
293
|
|
|
|
283
|
|
|
|
10
|
|
|
|
19
|
|
|
|
|
|
|
|
(9
|
)
|
Structures
|
|
|
1,069
|
|
|
|
1,174
|
|
|
|
(105
|
)
|
|
|
26
|
|
|
|
|
|
|
|
(131
|
)
|
Commercial Vehicle
|
|
|
1,235
|
|
|
|
1,683
|
|
|
|
(448
|
)
|
|
|
18
|
|
|
|
(152
|
)
|
|
|
(314
|
)
|
Off-Highway
|
|
|
1,549
|
|
|
|
1,231
|
|
|
|
318
|
|
|
|
101
|
|
|
|
|
|
|
|
217
|
|
Other Operations
|
|
|
20
|
|
|
|
95
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
(24
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,721
|
|
|
$
|
8,504
|
|
|
$
|
217
|
|
|
$
|
348
|
|
|
$
|
(133
|
)
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related pricing improvements contributed approximately
$150 to organic sales growth in our automotive segments in 2007,
while the net effects of significantly lower commercial vehicle
production, somewhat higher light vehicle production and sales
mix reduced organic sales. In our Light Axle segment, pricing
improvements, new customer programs and higher production levels
contributed to the higher sales. Our Driveshaft segment sells to
the commercial vehicle market as well as the light vehicle
market. The significant decline in commercial vehicle production
levels more than offset stronger light duty production levels
and pricing improvements, leading to a slight decline in this
units organic sales. Neither the Thermal nor Sealing
segment benefited significantly from pricing improvement or new
business; consequently, the organic sales change in these
operations was primarily due to production level changes and
business mix. In Structures, higher sales due to stronger
production levels and improved pricing were more than offset by
discontinued programs, including the expiration of a frame
program with Ford in 2006.
Our Commercial Vehicle segment is heavily concentrated in the
North American market and the organic decline in sales of 18.7%
in this segment was primarily due to the drop in North American
production levels discussed in the regional review. Organic
growth in sales of the Off-Highway segment resulted from
stronger production levels and new programs. With its
significant European presence, this segments sales also
benefited from the stronger euro.
32
Margin
Analysis
The chart below shows our segment margin analysis for the years
ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior Dana
|
|
|
|
|
|
|
As a Percentage of Sales
|
|
|
Increase/
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Axle
|
|
|
1.9
|
%
|
|
|
0.3
|
%
|
|
|
1.6
|
%
|
Driveshaft
|
|
|
7.1
|
|
|
|
9.8
|
|
|
|
(2.7
|
)
|
Sealing
|
|
|
12.7
|
|
|
|
13.1
|
|
|
|
(0.4
|
)
|
Thermal
|
|
|
8.0
|
|
|
|
12.5
|
|
|
|
(4.5
|
)
|
Structures
|
|
|
5.0
|
|
|
|
0.3
|
|
|
|
4.7
|
|
Commercial Vehicle
|
|
|
5.8
|
|
|
|
4.4
|
|
|
|
1.4
|
|
Off-Highway
|
|
|
10.9
|
|
|
|
10.9
|
|
|
|
|
|
Consolidated
|
|
|
5.6
|
%
|
|
|
4.0
|
%
|
|
|
1.6
|
%
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Axle
|
|
|
2.2
|
%
|
|
|
2.6
|
%
|
|
|
(0.4
|
)%
|
Driveshaft
|
|
|
2.9
|
|
|
|
3.7
|
|
|
|
(0.8
|
)
|
Sealing
|
|
|
6.5
|
|
|
|
6.4
|
|
|
|
0.1
|
|
Thermal
|
|
|
4.7
|
|
|
|
4.0
|
|
|
|
0.7
|
|
Structures
|
|
|
1.7
|
|
|
|
1.9
|
|
|
|
(0.2
|
)
|
Commercial Vehicle
|
|
|
3.9
|
|
|
|
3.1
|
|
|
|
0.8
|
|
Off-Highway
|
|
|
2.4
|
|
|
|
2.6
|
|
|
|
(0.2
|
)
|
Consolidated
|
|
|
4.2
|
%
|
|
|
4.9
|
%
|
|
|
(0.7
|
)%
|
Consolidated gross margin
Consolidated gross margin benefited from the
reorganization initiatives implemented in connection with the
bankruptcy process improved customer pricing,
restructured wage and benefit programs, reduction and
realignment of overhead costs and optimization of our
manufacturing footprint. The customer pricing actions began
contributing to gross margins in the first quarter of 2007. Also
contributing to this margin improvement were the benefit plan
reductions effectuated in 2007 which discontinued future service
accruals under non-union employee pension plans and eliminated
retiree postretirement benefits other than pension (OPEB) for
non-union active employees and retirees. We did not begin
benefiting from savings associated with the amended union
agreements for similar plans until after emergence.
Additionally, currency effects due to an overall weaker
U.S. dollar as compared to major currencies in other global
markets positively impact margins.
Segments gross margin Customer
pricing improvements of approximately $150 were the principal
factor increasing margins. Reductions to non-union benefit plans
also contributed some additional margin. Partially offsetting
these improvements were negative impacts from sales mix and
expiration of higher margin programs. In the Light Axle segment,
customer pricing actions increased margins by approximately $60,
or 2.2% of sales. Non-union employee benefit plan reductions and
lower material costs also contributed to margin improvement.
Although Light Axle sales were up significantly in 2007, the
sales mix was unfavorable with a significant portion of the
higher sales coming from vehicle platforms with lower margins.
The Driveshaft segment experienced a margin decline despite a
year-over-year
sales increase. Adverse sales mix was a major factor as the
Driveshaft segment sells to customers in both the light-duty
automotive market and the commercial vehicle market.
Lower production levels in the North American commercial vehicle
market reduced Driveshaft sales by about $90. Margins on the
commercial vehicle business are higher than the light-duty
automotive programs, so the sales decline negatively impacted
overall margins. Premium freight cost associated with
operational
33
inefficiencies reduced margins by about $10. Partially
offsetting the negative margin effects of the adverse sales mix
and some operational inefficiencies was margin improvement of
approximately $27 2.2% of sales due to
customer pricing and lower material costs.
Margins in the Sealing segment were down primarily due to higher
material costs of approximately $20, or 2.7% of sales. Stainless
steel is a major material component for this business, and the
average cost of stainless steel in 2007 was about 67% higher
than in 2006. The higher raw material cost was partially offset
by margin improvements from non-union benefit plan reductions
and operational cost reduction actions. Our Thermal segment
experienced a margin decline in 2007. Operational inefficiencies
and warranty cost associated with our European operation reduced
margins by about $5, and higher start up costs associated with
our Hungary and China operations negatively impacted margins by
$3. Additionally, the strengthening of the Canadian dollar
against the U.S. dollar also negatively impacted our margin
in this business as certain product manufactured in Canada is
sold in U.S. dollars. In our Structures segment, margins
increased with customer pricing actions contributing
approximately $65, or 6.1% of sales. This margin improvement was
partially offset by unfavorable margin effects associated with
the lower sales in this unit, principally due to expiration of
two significant customer programs.
Commercial Vehicle segment margins improved despite
significantly lower sales on reduced production levels in the
North American market. More than offsetting the unfavorable
margin impact of the lower production levels was increased
pricing which improved margins by about $23, or 1.9% of sales.
In the Off-Highway segment, margins were flat. Higher sales
relative to fixed costs and reduced material costs benefited
margins. However, margins were negatively impacted by a stronger
euro as we manufacture some product in Europe for sale in
dollars to the U.S. Higher warranty costs of $7 also
reduced our margins in this business.
Corporate and Other gross margin
Certain corporate expenses and other costs are not allocated to
the business units. This activity is largely related to
recognizing full absorption inventory costing adjustments at the
consolidated level. Inventoriable costs are reclassified to cost
of sales from SG&A. Additionally, the operating segments
report inventory and cost of sales on a FIFO basis, with
adjustments made in consolidation to reflect the inventory and
cost of sales of the U.S. operations on a LIFO basis.
Segments selling, general and administrative
expenses The Light Axle, Driveshaft and
Structures improvements reflect the labor and overhead cost
reduction initiatives implemented in connection with the
bankruptcy reorganization process. The Sealing and Thermal
segments were not impacted as significantly by these initiatives.
The Commercial Vehicle and Off-Highway segments also benefited
from the bankruptcy-related cost reduction actions. However,
additional costs in the Commercial Vehicle segment resulted in
an overall deterioration of 0.8% in the SG&A ratio.
Corporate and other selling, general and
administrative expenses Reduced costs reflect
our overall efforts to reduce overhead through headcount
reduction, limited wage increases and cutbacks in discretionary
spending.
Realignment charges and Impairments
Realignment charges during 2007 included $136 of cost relating
to settlement of pension obligations in the United Kingdom (as
described more fully in Note 6 of the notes to our
consolidated financial statements in Item 8). Other
realignment charges in 2007 and the charges in 2006 are
primarily costs associated with our manufacturing footprint
optimization actions.
In connection with our annual assessment of goodwill, we
recorded $89 for impairment of goodwill related to our Thermal
business during 2007. This business experienced significant
margin erosion in recent years resulting from the higher cost of
commodities, especially aluminum. The impairment charges in 2006
include charges of $176 to reduce lease and other assets in DCC
to their fair value less cost to sell, a charge of $58 to adjust
our equity investment in GETRAG to fair value based on the March
2007 sale of this investment and a $46 charge to write off the
goodwill in our Light Axle business. Each of these charges is
described further in Notes 4 and 10 of the notes to our
consolidated financial statements in Item 8.
34
Other income, net Foreign exchange gains
increased other income, net by $31 over 2006. Certain
cross-currency intercompany loan balances that were previously
designated as invested indefinitely were identified for
repayment through near-term repatriation actions. Foreign
exchange gains and losses on loans that are not considered
permanently invested are included in the income statement
whereas movements on loans that are permanently invested are
reported in OCI. As a consequence, exchange rate movements on
these loans and others not permanently invested generated
currency gains of $44 during 2007. Other currency losses netted
to reduce other income in 2007 by $9. DCC income was lower by $7
in 2007 as we continued to sell the remaining portfolio assets
in this operation. The 2007 other income, net, amount also
includes an expense of $11 associated with settling a
contractual matter with an investor in one of our equity
investments. See Note 22 of the notes to our consolidated
financial statements in Item 8 for additional components of
other income, net.
Interest expense As a result of our
Chapter 11 reorganization process, a substantial portion of
our debt obligations were recorded as subject to compromise in
our consolidated financial statements. During the bankruptcy
reorganization process, interest expense was no longer accrued
on these obligations. The post-filing interest expense not
recognized on these obligations amounted to $108 in 2007 and $89
in 2006.
Reorganization items Reorganization items are
expenses directly attributed to our Chapter 11
reorganization process. Higher professional advisory fees in
2007 were due to a full year of reorganization activity,
including the completion of the settlement agreements with the
unions and the confirmation of our Plan. Higher contract
rejection and claim settlement costs in 2007 resulted from
specific actions related to contract settlements made to
facilitate the reorganization process. These higher settlement
costs were partially offset by a $56 credit to reorganization
items to reduce liabilities for long-term disability to amounts
allowed by the Bankruptcy Court for filed claims. Additional
information relating to Reorganization items is provided in
Note 3 of the notes to our consolidated financial
statements in Item 8.
Income tax benefit (expense) Our reported
income tax expense for 2007 was $62 as compared to an expected
benefit of $135 derived by applying the U.S. federal income
tax rate of 35% to the reported loss before tax for continuing
operations. Among the factors contributing to the higher tax
expense are losses generated in countries such as the
U.S. and U.K. where we determined that future taxable
income was not likely to be sufficient to realize existing net
deferred tax assets. As a consequence, until such time that it
is determined that future taxable income will be sufficient to
realize deferred tax assets, the tax benefits from losses in
these countries are generally offset with a valuation allowance.
During 2007, we incurred $136 of charges relating to the
settlement of pension obligations in the U.K., and the tax
benefit associated with these charges was offset with valuation
allowances. Although we have a full valuation allowance against
net deferred tax assets in the U.S., as discussed in
Note 21 of the notes to our consolidated financial
statements in Item 8, the level of other comprehensive
income generated during 2007 in the U.S. enabled us to
recognize $120 of tax benefits on U.S. losses before income
taxes. The net effect on 2007 income tax expense of recording
valuation allowances against deferred tax assets in the U.S.,
U.K. and other countries was $37.
Other factors resulting in the reported income tax expense being
higher than the benefit expected at the U.S. rate of 35%
were non-deductible expenses and recognition of costs associated
with repatriation of undistributed earnings of operations
outside the U.S. Income before taxes included goodwill
impairment charges, certain reorganization costs and other items
which are not deductible for income tax purposes. These items
resulted in approximately $123 of the $197 of higher reported
income tax than the $135 of benefit expected using the
U.S. rate of 35%. The recognition of taxes associated with
the planned repatriation of
non-U.S. earnings
(also described in Note 21 of the notes to our consolidated
financial statements in Item 8) resulted in a charge
of $37.
The primary factor resulting in income tax expense of $66 during
2006, as compared to a tax benefit of $200 that would be
expected based on the 35% U.S. federal income tax rate, was
the inability to recognize tax benefits on U.S. losses
following the determination in 2005 that future taxable income
was not likely to ensure realization of net deferred tax assets.
Also impacting the rate differential was $46 of goodwill
impairment charges which are not deductible for income tax
purposes.
35
Discontinued operations Losses from
discontinued operations were $118 and $121, net of tax, in 2007
and 2006. Discontinued operations in both years included the
engine hard parts, fluid routing and pump products businesses
held for sale at the end of 2006 and 2005. The 2007 results
included net losses of $36 recognized upon completion of the
sale, while the 2006 results included pre-tax impairment charges
of $137 that were required to reduce the net book value of these
businesses to expected fair value less cost to sell. The
discontinued operations results in 2007 also include charges of
$20 in connection with a bankruptcy claim settlement with the
purchaser of a previously sold discontinued business and charges
of $17 for settlement of pension obligations relating to
discontinued businesses. See Note 5 of the notes to our
consolidated financial statements in Item 8 for additional
information relating to the discontinued operations.
Liquidity
As discussed in Part 1, Item 1A Risk
Factors, there are several risks and uncertainties
relating to the global economy and our industry that could
materially affect our future financial performance and
liquidity. Among the potential outcomes, these risks and
uncertainties could result in decreased sales, limited access to
credit, rising costs, increased global competition, customer or
supplier bankruptcies, delays in customer payment terms and
acceleration of supplier payments, growing inventories and
failure to meet debt covenants.
During the second half of 2008, our production volumes decreased
significantly. Whereas
year-over-year
sales for the first half of 2008 were higher,
year-over-year
sales in the third quarter and fourth quarter were down 9% and
30%. Our cash position declined from $1,191 at June 30,
2008 to $777 at the end of 2008. The repayment of principal and
fees in connection with the amendment of the financial covenants
and other provisions of our Exit Facility reduced cash by $174.
The remaining $240 was used primarily for operating needs and
capital expenditures.
Our current revenue forecast for 2009 is determined from
specific platform volume projections consistent with a North
American light vehicle production estimate of 10 million
units, Class 8 commercial vehicle build of
160,000 units and
Class 5-7
truck build of 135,000 units. Changes to the total North
American light vehicle production levels may not materially
affect our revenue assumptions because our primary exposure to
this market is concentrated on specific vehicle platforms which
do not necessarily move in the same manner as other platforms.
Elsewhere in the world, we expect full year light vehicle
production volumes to be down about 9% against 2008. In our
Off-Highway business, our forecast contemplates that customer
demand in our key agriculture and construction markets will be
down 20% and 40% from 2008. In light of these volume estimates,
weve accelerated additional cost reduction and cash
preservation initiatives.
We have taken significant actions in the last quarter of 2008
and early 2009 to reduce our cost base and improve
profitability, including workforce reductions, reduced capital
spending and pricing adjustments with our customers. Based on
our current forecast for 2009, we expect to be able to meet the
financial covenants of our existing debt agreements and have
sufficient liquidity to finance our operations. While we believe
that the above 2009 market demand assumptions underlying our
current forecast are reasonable, weve also considered the
possibility of even weaker demand based generally on
more pessimistic production level forecasts (e.g. North American
light vehicle production of about 9 million units). In
addition to the above external factors potentially impacting our
sales, achieving our current forecast is dependent upon a number
of internal factors such as our ability to execute our remaining
cost reduction plans, to operate effectively within the reduced
cost structure and to realize the projected pricing improvements.
Weve also considered the potential consequences of a
bankruptcy filing by two of our major customers, General Motors
(GM) and Chrysler. Sales to GM in 2008 were 6% of our
consolidated sales, while Chrysler represented approximately 3%.
In the event of a bankruptcy filing on the part of either of
these customers, we believe it is likely that most of our
programs would be continued following a bankruptcy filing. As
such, we expect the adverse effects of these bankruptcies would
be limited principally to recovering less than the full amount
of the outstanding receivable from these customers at the time
of any such filing. We would expect our exposure under this
scenario to be in the range of $5 to $30 depending on a number
of factors, including the age and level of receivables at the
time of a bankruptcy filing and whether we are treated as a
critical supplier.
36
If the more pessimistic sales scenario described above and a GM
and Chrysler bankruptcy filing occur or if our success in
achieving price increases from our customers is less than
anticipated we believe we could still satisfy our debt covenants
and the liquidity needs of the business during 2009 through
incremental cost reductions, including headcount actions,
compensation and employee benefit modifications, and further
reductions in plant and administrative overhead cost.
Notwithstanding this assessment, there is a high degree of
uncertainty in the current environment, and it is possible that
certain scenarios would result in our not being able to comply
with the financial covenants in our debt agreements or maintain
sufficient liquidity.
While we are confident of our ability to achieve the plan, there
can be no assurance we will be successful. There are a number of
factors that could potentially arise that could result in our
not attaining the plan or otherwise creating liquidity issues.
These factors include but are not limited to the following:
|
|
|
|
|
Failure to achieve the price increases and cost reduction goals,
|
|
|
|
Sustained weakness
and/or
combined deterioration in global conditions
|
|
|
|
Failure of GM and Chrysler to meet the terms and conditions of
U.S. government loans
|
|
|
|
Bankruptcy of any significant customer resulting in delayed
payments
and/or
non-payment of trade accounts receivable and customer tooling
receivables.
|
|
|
|
Bankruptcy of any significant supplier resulting in delayed
shipment of production materials or actions to accelerate
payments for goods or services.
|
|
|
|
Loan covenant violations
|
Non-compliance with the covenants would provide our lenders with
the ability to demand immediate repayment of all outstanding
borrowings under the Term Facility and the Revolving Facility.
We would not have sufficient cash on hand to satisfy this
demand. Accordingly, the inability to comply with covenants,
obtain waivers for non-compliance, or obtain alternative
financing would have a material adverse effect on our financial
position, results of operations and cash flows. In the event we
were unable to meet our debt covenant requirements, however, we
believe we would be able to obtain a waiver or amend the
covenants. Obtaining such waivers or amendments would likely
result in a significant incremental cost. Although we cannot
provide assurance that we would be successful in obtaining the
necessary waivers or in amending the covenants, we were able to
do so in 2008 and are confident that we would be able to do so
in 2009, if necessary.
Based on our current forecast and our assessment of reasonably
possible scenarios, including the more pessimistic scenario
described above, we do not believe that there is substantial
doubt about our ability to continue as a going concern in 2009.
Our global liquidity at December 31, 2008 was as follows:
|
|
|
|
|
Cash
|
|
$
|
777
|
|
Less:
|
|
|
|
|
Deposits supporting obligations
|
|
|
(76
|
)
|
Cash in less than wholly-owned subsidiaries
|
|
|
(69
|
)
|
|
|
|
|
|
Available cash
|
|
|
632
|
|
Additional cash availability from:
|
|
|
|
|
Lines of credit in the U.S. and Europe
|
|
|
212
|
|
Additional lines of credit supported by letters of credit from
the Revolving Facility
|
|
|
22
|
|
|
|
|
|
|
Total global liquidity
|
|
$
|
866
|
|
|
|
|
|
|
As of December 31, 2008 consolidated cash balances totaled
$777, approximately 43% of which is located in the United
States. Approximately $76 of our cash balances relate to
deposits that support other obligations, primarily guarantees
for workers compensation. An additional $69 is held by less than
wholly-owned subsidiaries where our access may be restricted.
Our ability to efficiently access cash balances in
37
certain foreign jurisdictions is subject to local regulatory and
statutory requirements. Our current credit ratings (B and Caa1
by Standard and Poors and Moodys, respectively) and
the current state of the global financial markets would make it
very difficult for us to raise capital in the debt markets.
The principal sources of liquidity for our future cash
requirements are expected to be (i) cash flows from
operations, (ii) cash and cash equivalents on hand,
(iii) proceeds related to our trade receivable
securitization and financing programs and (iv) borrowings
from the Revolving Facility. At December 31, 2008, there
were borrowings under our European trade receivable
securitization program equivalent to $30 recorded as notes
payable and $77 of remaining availability based on the borrowing
base. At December 31, 2008, we had no borrowings under the
Revolving Facility but we had utilized $146 for letters of
credit. Based on our borrowing base collateral, we had
availability at that date under the Revolving Facility of $284
after deducting the outstanding letters of credit. During the
fourth quarter of 2008, one of our lenders failed to honor its
10% share of the funding obligation under the terms of our
Revolving Facility and was a defaulting lender. If this lender
does not honor its obligation in the future, our availability
could be reduced by up to 10%. Additionally, our ability to
borrow the full amount of availability under our revolving
credit facility is effectively limited by the financial
covenants. Based on the covenant requirements at
December 31, 2008, our additional borrowings are limited to
$212.
Based on our current forecast 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 throughout 2009.
These projections do not include the additional liquidity that
could be generated by sales of assets and divestitures of
businesses. A bankruptcy filing by GM and Chrysler could impact
our availability under the Revolving Facility. Removal of GM and
Chrysler receivables from the borrowing base at
December 31, 2008 would reduce availability by $48.
However, since our availability is already limited by the debt
covenants, removal of the GM and Chrysler receivables at
December 31, 2008 would not limit our availability further.
At December 31, 2008 we were in compliance with the debt
covenants under the amended Term Facility with a Leverage Ratio
of 3.64 compared to a maximum of 4.25 and an Interest Coverage
Ratio of 3.10 compared to a minimum of 2.50 and, as indicated
above, we expect to be able to maintain compliance during 2009.
Refer to note 17 to our consolidated financial statements
for additional information relating to the covenants and other
relevant provisions in our credit facilities. The amended Exit
Facility and European Receivables Loan Facility include material
adverse change provisions that, if exercised by our lenders,
could adversely affect our financial condition by restricting
future borrowing. We are not aware of any existing conditions
that would limit our ability to obtain funding as a result of
the material adverse change provisions. These credit facilities
also include customary events of default for facilities of this
type which could give our lenders the right, among other things,
to restrict future borrowings, terminate their commitments,
accelerate the repayment of obligations and foreclose on the
collateral granted to them.
Cash
Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana
|
|
|
|
Prior Dana
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
January 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash used in reorganiziation activity
|
|
$
|
(882
|
)
|
|
|
$
|
(101
|
)
|
|
$
|
(148
|
)
|
|
$
|
(91
|
)
|
Cash provided by (used in) changes in working capital
|
|
|
66
|
|
|
|
|
(61
|
)
|
|
|
83
|
|
|
|
199
|
|
Other items and adjustments providing or (using) cash
|
|
|
(81
|
)
|
|
|
|
40
|
|
|
|
13
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash provided by (used in) operating activities
|
|
|
(897
|
)
|
|
|
|
(122
|
)
|
|
|
(52
|
)
|
|
|
52
|
|
Cash provided by (used in) investing activities
|
|
|
(221
|
)
|
|
|
|
77
|
|
|
|
348
|
|
|
|
(86
|
)
|
Cash provided by (used in) financing activities
|
|
|
(207
|
)
|
|
|
|
912
|
|
|
|
166
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(1,325
|
)
|
|
|
$
|
867
|
|
|
$
|
462
|
|
|
$
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Operating Activities During 2008, cash was
used to satisfy various obligations associated with our
emergence from bankruptcy. Cash of $733 was used shortly after
emergence to satisfy our payment obligation to VEBAs established
to fund non-pension benefits of union retirees. We also made a
payment of $53 at emergence to satisfy our obligation to a VEBA
established to fund non-pension benefits relating to non-union
retirees, with a payment of $2 being made under another union
arrangement. Additional bankruptcy emergence-related claim
payments during the eleven months ended December 31, 2008
totaled $100.
Working capital reductions generated $5 of cash ($66 from
February to December offset by January usage of $61) to support
operating activities during 2008, compared to $83 generated in
2007 and $199 in 2006. Collections of receivables and reductions
in inventory levels provided more cash than the declines in
accounts payable and other current liabilities used during 2008.
In 2007 and 2006, cash from working capital was generated by
increases in accounts payable and other liabilities. Operating
cash flow in 2007 was also negatively impacted by payments of
postretirement medical claims in excess of amounts expensed and
by cash paid to settle U.K. pension obligations.
Investing Activities Various asset sales in
2008 generated $14 of cash in 2008. Divestitures of the engine
hard parts, fluid products and trailer axle businesses, the sale
of our investment in GETRAG, proceeds from DCC sales and other
divestment-related actions provided cash of $609 in 2007.
Expenditures for property, plant and equipment in 2008 of $250
are down $4 from last year. DCC cash that was restricted during
bankruptcy by a forbearance agreement with DCC noteholders was
released in January 2008 as payments were made to the
noteholders.
Financing Activities At our emergence from
bankruptcy, we obtained proceeds of $1,430 under a new Term
Facility and obtained a $650 line of credit under a Revolving
Facility. We also received $771 of proceeds through the issuance
of Series A and Series B shares of preferred stock.
All of these proceeds were used in part to repay the $900
outstanding under the DIP Credit Agreement, pay Exit Facility
OID costs and fees of $154, and retire the remaining amount owed
to DCC noteholders through settlement of DCCs bankruptcy
claim against Prior Dana.
In October 2008, we borrowed $180 under the Revolving Facility.
As discussed above, one of our lenders failed to honor its
obligation of $20. The amounts outstanding under the Revolving
Facility were repaid in December.
In November 2008, we amended the Term Facility. We incurred
additional fees to the creditors of $24 which are being
amortized over the remaining life of the debt. In connection
with the amendment, we repaid $150 of the Term Facility. Our
financial covenants were adjusted and the interest rate on this
facility was increased by 50 basis points. During 2007, we
had borrowed an additional $200 under the DIP Credit Agreement.
See Note 17 of the notes to our consolidated financial
statements in Item 8 for additional information relating to
these financing agreements.
Contractual
Obligations
We are obligated to make future cash payments in fixed amounts
under various agreements. These include payments under our
long-term debt agreements, rent payments under operating lease
agreements
39
and payments for equipment, other fixed assets and certain raw
materials under purchase agreements. The following table
summarizes our significant contractual obligations as of
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1 - 3
|
|
|
4 -5
|
|
|
After
|
|
Contractual Cash Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Long-term debt (1)
|
|
$
|
1,287
|
|
|
$
|
19
|
|
|
$
|
36
|
|
|
$
|
29
|
|
|
$
|
1,203
|
|
Interest payments (2)
|
|
|
420
|
|
|
|
93
|
|
|
|
142
|
|
|
|
137
|
|
|
|
48
|
|
Leases (3)
|
|
|
253
|
|
|
|
43
|
|
|
|
67
|
|
|
|
46
|
|
|
|
97
|
|
Unconditional purchase obligations (4)
|
|
|
172
|
|
|
|
126
|
|
|
|
29
|
|
|
|
14
|
|
|
|
3
|
|
Pension benefits (5)
|
|
|
13
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retiree healthcare benefits (6)
|
|
|
70
|
|
|
|
6
|
|
|
|
14
|
|
|
|
14
|
|
|
|
36
|
|
Uncertain income tax positions (7)
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
2,220
|
|
|
$
|
305
|
|
|
$
|
288
|
|
|
$
|
240
|
|
|
$
|
1,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
(1) |
|
Principal payments on long-term debt. Excludes OID and deferred
fees which were prepaid. |
|
(2) |
|
These amounts represent future interest payments based on the
debt balances at December 31. Payments related to variable
rate debt are based on March 6, 2009 interest rates. |
|
(3) |
|
Capital and operating leases related to real estate, vehicles
and other assets. |
|
(4) |
|
The unconditional purchase obligations presented are comprised
principally of commitments for procurement of fixed assets and
the purchase of raw materials. Also included are payments under
our long-term agreement with IBM for the outsourcing of certain
human resource services. |
|
(5) |
|
These amounts represent estimated 2009 contributions to our
global defined benefit pension plans. We have not estimated
pension contributions beyond 2009 due to the significant impact
that return on plan assets and changes in discount rates might
have on such amounts. |
|
(6) |
|
These amounts represent estimated obligations under our
non-U.S.
retiree healthcare programs. Obligations under the retiree
healthcare programs are not fixed commitments and will vary
depending on various factors, including the level of participant
utilization and inflation. Our estimates of the payments to be
made in the future consider recent payment trends and certain of
our actuarial assumptions. |
|
(7) |
|
These amounts represent expected payments, with interest, for
uncertain tax positions as of December 31, 2008. We are not
able to reasonably estimate the timing of the FIN 48
liability in individual years beyond 2009 due to uncertainties
in the timing of the effective settlement of tax positions. |
Pursuant to the Plan, we also issued 2.5 million shares of
4.0% Series A Preferred and 5.4 million shares of 4.0%
Series B Preferred. Dividend obligations of approximately
$8 per quarter will be incurred while all shares of preferred
stock are outstanding. The payment of preferred dividends was
suspended in November under the terms of our amended Term
Facility and may resume when our total leverage ratio as of the
most recently completed fiscal quarter is less than or equal to
3.25:1.00. See Note 17 of the notes to our consolidated
financial statements in Item 8.
At December 31, 2008, we maintained cash balances of $76 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.
Contingencies
For a summary of litigation and other contingencies, see
Note 19 of the notes to our consolidated financial
statements in Item 8. We do not believe that any
liabilities that may result from these contingencies are
reasonably likely to have a material adverse effect on our
liquidity or financial condition.
40
Critical
Accounting Estimates
The preparation of our consolidated financial statements in
conformity with GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period. Considerable judgment is often involved in making these
determinations. Critical estimates are those that require the
most difficult, subjective or complex judgments in the
preparation of the financial statements and the accompanying
notes. We evaluate these estimates and judgments on a regular
basis. We believe our assumptions and estimates are reasonable
and appropriate. However, the use of different assumptions could
result in significantly different results and actual results
could differ from those estimates. The following discussion of
accounting estimates is intended to supplement the Summary of
Significant Accounting Policies presented as Note 1 of the
notes to our consolidated financial statements in Item 8.
Income Taxes Accounting for income taxes is
complex, in part, because we conduct business globally and
therefore file income tax returns in numerous tax jurisdictions.
Significant judgment is required in determining the income tax
provision, uncertain tax positions, deferred tax assets and
liabilities and the valuation allowance recorded against our net
deferred tax assets. In assessing the recoverability of deferred
tax assets, we consider whether it is more likely than not that
some or a portion of the deferred tax assets will not be
realized. A valuation allowance is provided when, in our
judgment, based upon available information, it is more likely
than not that a portion of such deferred tax assets will not be
realized. To make this assessment, we consider the historical
and projected future taxable income or loss in different tax
jurisdictions and we review our tax planning strategies. We have
recorded a valuation allowance against our U.S. deferred
tax assets and U.S. and foreign operating and other loss
carryforwards for which utilization is uncertain. Since future
financial results may differ from previous estimates, periodic
adjustments to our valuation allowance may be necessary.
In the ordinary course of business, there are many transactions
and calculations where the ultimate tax determination is less
than certain. We are regularly under audit by the various
applicable tax authorities. Although the outcome of tax audits
is always uncertain, we believe that we have appropriate support
for the positions taken on our tax returns and that our annual
tax provisions include amounts sufficient to pay assessments, if
any, which may be proposed by the taxing 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 21 of the notes to our consolidated financial
statements in Item 8.
Retiree Benefits Accounting for pensions and
OPEB involves estimating the cost of benefits to be provided
well into the future and attributing that cost over the time
period each employee works. These plan expenses and obligations
are dependent on assumptions developed by us in consultation
with our outside advisors such as actuaries and other
consultants and are generally calculated independently of
funding requirements. The assumptions used, including inflation,
discount rates, investment returns, life expectancies, turnover
rates, retirement rates, future compensation levels and health
care cost trend rates, have a significant impact on plan
expenses and obligations. These assumptions are regularly
reviewed and modified when appropriate based on historical
experience, current trends and the future outlook. Changes in
one or more of the underlying assumptions could result in a
material impact to our consolidated financial statements in any
given period. If actual experience differs from expectations,
our financial position and results of operations in future
periods could be affected.
The inflation assumption is based on an evaluation of external
market indicators. Retirement, turnover and mortality rates are
based primarily on actual plan experience. Health care cost
trend rates are developed based on our actual historical claims
experience, the near-term outlook and an assessment of likely
long-term trends. For our largest plans, discount rates are
based upon the construction of a theoretical bond portfolio,
adjusted according to the timing of expected cash flows for the
future obligations. A yield curve was 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 were matched to this yield curve and a
present value
41
developed which was 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 and amortized into expense over future periods.
A change in the pension discount rate of 25 basis points
would result in a change in our pension obligations of
approximately $43 and a change in pension expense of
approximately $1. A 25 basis point change in the rate of
return would change 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 15 of the notes to our consolidated financial
statements in Item 8.
Long-lived Asset Impairment We perform
periodic impairment analyses on our long-lived amortizable
assets whenever events and circumstances indicate that the
carrying amount of such assets may not be recoverable. When
indications are present, we compare the estimated future
undiscounted net cash flows of the operations to which the
assets relate to their carrying amount. If the operations are
determined to be unable to recover the carrying amount of their
assets, the long-lived assets are written down to their
estimated fair value. Fair value is determined based on
discounted cash flows, third party appraisals or other methods
that provide appropriate estimates of value. A considerable
amount of management judgment and assumptions are required in
performing the impairment tests, principally in determining
whether an adverse event or circumstance has triggered the need
for an impairment review and the fair value of the operations.
In addition, in all of our segments except Structures and
Thermal, a 10% reduction in the projected cash flows or the peer
multiples would not result in impairment of long-lived assets
including the definite lived intangible assets. In Structures
and Thermal, a 5% reduction in the projected cash flows or the
peer multiples would result in impairment. While we believe our
judgments and assumptions were reasonable, changes in
assumptions underlying these estimates could result in a
material impact to our consolidated financial statements in any
given period.
Goodwill and Indefinite Lived Intangible
Assets We test goodwill and other
indefinite-lived intangible assets for impairment as of October
31 of each year for all of our reporting units, or more
frequently if events occur or circumstances change that would
warrant such a review. We make significant assumptions and
estimates about the extent and timing of future cash flows,
growth rates and discount rates. The cash flows are estimated
over a significant future period of time, which makes those
estimates and assumptions subject to a high degree of
uncertainty. We also utilize market valuation models which
require us to make certain assumptions and estimates regarding
the applicability of those models to our assets and businesses.
We believe that the assumptions and estimates used to determine
the estimated fair values of each of our reporting units were
reasonable. In addition, a 30% reduction in the projected cash
flows and the peer multiples in the Off-Highway segment would
not result in additional impairment in this segment. However,
different assumptions could materially affect the results. As
described in Note 10 of the notes to our consolidated
financial statements in Item 8, we recorded goodwill
impairment of $169 in 2008 related to our Driveshaft business
segment.
42
Indefinite life intangible valuations are generally based on
revenue streams. We impaired indefinite life intangibles by $14
in the eleven months ended December 31, 2008. Additional
reductions in forecasted revenue could result in additional
impairment.
Warranty Costs related to product warranty
obligations are estimated and accrued at the time of sale with a
charge against cost of sales. Warranty accruals are evaluated
and adjusted as appropriate based on occurrences giving rise to
potential warranty exposure and associated experience. Warranty
accruals and adjustments require significant judgment, including
a determination of our involvement in the matter giving rise to
the potential warranty issue or claim, our contractual
requirements, estimates of units requiring repair and estimates
of repair costs. If actual experience differs from expectations,
our financial position and results of operations in future
periods could be affected.
Contingency Reserves We have numerous other
loss exposures, such as environmental claims, product liability
and litigation. Establishing loss reserves for these matters
requires the use of estimates and judgment in regards to risk
exposure and ultimate liability. We estimate losses under the
programs using consistent and appropriate methods; however,
changes to our assumptions could materially affect our recorded
liabilities for loss.
Fresh Start Accounting As required by GAAP,
in connection with emergence from Chapter 11, we adopted
the fresh start accounting provisions of
SOP 90-7
effective February 1, 2008. Under
SOP 90-7,
the reorganization value represents the fair value of the entity
before considering liabilities and approximates the amount a
willing buyer would pay for the assets of Dana immediately after
restructuring. The reorganization value is allocated to the
respective fair value of assets. The excess reorganization value
over the fair value of identified tangible and intangible assets
is recorded as goodwill. Liabilities, other than deferred taxes,
are stated at present values of amounts expected to be paid.
Fair values of assets and liabilities represent our best
estimates based on our appraisals and valuations. Where the
foregoing were not available, industry data and trends or
references to relevant market rates and transactions were used.
These estimates and assumptions are inherently subject to
significant uncertainties and contingencies beyond our
reasonable control. Moreover, the market value of our common
stock may differ materially from the fresh start equity
valuation.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We are exposed to various types of market risks including the
effects of fluctuations in foreign currency exchange rates,
adverse movements in commodity prices for products we use in our
manufacturing and adverse changes in interest rates. To reduce
our exposure to these risks, we maintain risk management
controls to monitor these risks and take appropriate actions to
attempt to mitigate such forms of market risks.
Foreign Currency Exchange Rate Risks We have
global operations and thus make investments and enter into
transactions denominated in various foreign currencies. Our
operating results are impacted by buying, selling and financing
in currencies other than the functional currency of our
operating companies. Wherever possible, we mitigate the impact
by focusing on natural hedging techniques which include the
following: (i) structuring foreign subsidiary balance
sheets with appropriate levels of debt to reduce subsidiary net
investments and subsidiary cash flow subject to conversion risk;
(ii) avoidance of risk by denominating contracts in the
appropriate functional currency and (iii) managing cash
flows on a net basis (both in timing and currency) to minimize
the exposure to foreign currency exchange rates.
After considering natural hedging techniques, some portions of
remaining exposure, especially for anticipated inter-company and
third party commercial transaction exposure in the short term,
may be hedged using financial derivatives, such as foreign
currency exchange rate forwards. Some of our foreign entities
were party to foreign currency contracts for anticipated
transactions in U.S. dollars, British pounds, Swedish
krona, euros, South African rand, Indian rupees and Australian
dollars at the end of 2008.
In addition to the transactional exposure discussed above, our
operating results are impacted by the translation of our foreign
operating income into U.S. dollars (translation exposure).
We do not enter into foreign exchange contracts to mitigate
translation exposure.
43
Risk from Adverse Movements in Commodity
Prices We purchase certain raw materials,
including steel and other metals, which are subject to price
volatility caused by fluctuations in supply and demand as well
as other factors. To mitigate the impact of higher commodity
prices we have consolidated our supply base and negotiated fixed
price supply contracts with many of our commodity suppliers. In
addition, we continue to negotiate with our customers to provide
for the sharing of increased raw material costs. No assurances
can be given that the magnitude and duration of increased
commodity costs will not have a material impact on our future
operating results. We had no derivatives in place at
December 31, 2008 to hedge commodity price movements.
Interest Rate Risk Our interest rate risk
relates primarily to our floating rate exposure on borrowing
under the amended Exit Facility. Under the terms of the Exit
Facility we were required to enter into interest rate hedge
agreements and to maintain agreements covering a notional amount
of not less than 50% of the aggregate loans outstanding under
the Term Facility until January 2011. We have hedged interest on
$710 of the $1,266 outstanding at December 31, 2008 with an
interest rate cap on the London Interbank Borrowing Rate (LIBOR)
portion of the interest rate.
44
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of Dana Holding Corporation
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Dana Holding
Corporation (Dana) and its subsidiaries at December 31,
2008, and the results of their operations and their cash flows
for 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 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, 2008, 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 audit. 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 audit 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
audit 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 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 opinions.
As discussed in Note 1 to the consolidated financial
statements, the Company filed a petition on March 3, 2006
with the United States 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
45
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
March 16, 2009
46
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Dana Holding
Corporation
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Dana
Corporation (Prior Dana) and its subsidiaries at
December 31, 2007, and the results of their operations and
their cash flows for the period from January 1, 2008
through January 31, 2008 and for each of the two years in
the period ended December 31, 2007 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(3)
for each of the two years in the period ended December 31,
2007 and the period from January 1, 2008 through
January 31, 2008 presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. The
Companys management is responsible for these financial
statements and financial statement schedule. Our responsibility
is to express opinions on these financial statements and on the
financial statement schedule based on our audits. We conducted
our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 21 to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertain tax positions effective January 1, 2007. As
discussed in Note 14 to the consolidated financial
statements, the Company changed the manner in which it accounts
for defined benefit pension and other postretirement plans
effective December 31, 2006.
As discussed in Note 1 to the consolidated financial
statements, the Company filed a petition on March 3, 2006
with the United States 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
47
Dana Holding Corporation
Consolidated Statement of Operations
(In millions except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana
|
|
|
|
Prior Dana
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
January 31,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net sales
|
|
$
|
7,344
|
|
|
|
$
|
751
|
|
|
$
|
8,721
|
|
|
$
|
8,504
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
7,127
|
|
|
|
|
702
|
|
|
|
8,231
|
|
|
|
8,166
|
|
Selling, general and administrative expenses
|
|
|
303
|
|
|
|
|
34
|
|
|
|
365
|
|
|
|
419
|
|
Amortization of intangibles
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realignment charges, net
|
|
|
114
|
|
|
|
|
12
|
|
|
|
205
|
|
|
|
92
|
|
Impairment of goodwill
|
|
|
169
|
|
|
|
|
|
|
|
|
89
|
|
|
|
46
|
|
Impairment of intangible assets
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of investments and other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234
|
|
Other income, net
|
|
|
53
|
|
|
|
|
8
|
|
|
|
162
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
interest, reorganization items and income taxes
|
|
|
(396
|
)
|
|
|
|
11
|
|
|
|
(7
|
)
|
|
|
(313
|
)
|
Interest expense (contractual interest of $17 for
the one month ended January 31, 2008 and $213
and $204 for the years ended December 31, 2007
and 2006)
|
|
|
142
|
|
|
|
|
8
|
|
|
|
105
|
|
|
|
115
|
|
Reorganization items
|
|
|
25
|
|
|
|
|
98
|
|
|
|
275
|
|
|
|
143
|
|
Fresh start accounting adjustments
|
|
|
|
|
|
|
|
1,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(563
|
)
|
|
|
|
914
|
|
|
|
(387
|
)
|
|
|
(571
|
)
|
Income tax expense
|
|
|
(107
|
)
|
|
|
|
(199
|
)
|
|
|
(62
|
)
|
|
|
(66
|
)
|
Minority interests
|
|
|
(6
|
)
|
|
|
|
(2
|
)
|
|
|
(10
|
)
|
|
|
(7
|
)
|
Equity in earnings of affiliates
|
|
|
(11
|
)
|
|
|
|
2
|
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(687
|
)
|
|
|
|
715
|
|
|
|
(433
|
)
|
|
|
(618
|
)
|
Loss from discontinued operations before income taxes
|
|
|
(4
|
)
|
|
|
|
(8
|
)
|
|
|
(92
|
)
|
|
|
(142
|
)
|
Income tax benefit (expense) of discontinued operations
|
|
|
|
|
|
|
|
2
|
|
|
|
(26
|
)
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(4
|
)
|
|
|
|
(6
|
)
|
|
|
(118
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(691
|
)
|
|
|
|
709
|
|
|
|
(551
|
)
|
|
|
(739
|
)
|
Preferred stock dividend requirements
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(720
|
)
|
|
|
$
|
709
|
|
|
$
|
(551
|
)
|
|
$
|
(739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(7.16
|
)
|
|
|
$
|
4.77
|
|
|
$
|
(2.89
|
)
|
|
$
|
(4.11
|
)
|
Diluted
|
|
$
|
(7.16
|
)
|
|
|
$
|
4.75
|
|
|
$
|
(2.89
|
)
|
|
$
|
(4.11
|
)
|
Net loss per share from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(7.20
|
)
|
|
|
$
|
4.73
|
|
|
$
|
(3.68
|
)
|
|
$
|
(4.92
|
)
|
Diluted
|
|
$
|
(7.20
|
)
|
|
|
$
|
4.71
|
|
|
$
|
(3.68
|
)
|
|
$
|
(4.92
|
)
|
Average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
100
|
|
|
|
|
150
|
|
|
|
150
|
|
|
|
150
|
|
Diluted
|
|
|
100
|
|
|
|
|
150
|
|
|
|
150
|
|
|
|
150
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
48
Dana Holding
Corporation
Consolidated Balance Sheet
December 31, 2008 and 2007
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Dana
|
|
|
|
Prior Dana
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
777
|
|
|
|
$
|
1,271
|
|
Restricted cash
|
|
|
|
|
|
|
|
93
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
Trade, less allowance for doubtful accounts of $23 in 2008 and
$20 in 2007
|
|
|
827
|
|
|
|
|
1,197
|
|
Other
|
|
|
170
|
|
|
|
|
295
|
|
Inventories
|
|
|
901
|
|
|
|
|
812
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
|
24
|
|
Other current assets
|
|
|
58
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,733
|
|
|
|
|
3,792
|
|
Goodwill
|
|
|
108
|
|
|
|
|
349
|
|
Intangibles
|
|
|
569
|
|
|
|
|
1
|
|
Investments and other assets
|
|
|
207
|
|
|
|
|
348
|
|
Investments in affiliates
|
|
|
135
|
|
|
|
|
172
|
|
Property, plant and equipment, net
|
|
|
1,841
|
|
|
|
|
1,763
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,593
|
|
|
|
$
|
6,425
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Notes payable, including current portion of long-term debt
|
|
$
|
70
|
|
|
|
$
|
283
|
|
Debtor-in-possession
financing
|
|
|
|
|
|
|
|
900
|
|
Accounts payable
|
|
|
824
|
|
|
|
|
1,072
|
|
Accrued payroll and employee benefits
|
|
|
185
|
|
|
|
|
258
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
|
9
|
|
Taxes on income
|
|
|
93
|
|
|
|
|
12
|
|
Other accrued liabilities
|
|
|
274
|
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,446
|
|
|
|
|
2,920
|
|
Liabilities subject to compromise
|
|
|
|
|
|
|
|
3,511
|
|
Deferred employee benefits and other non-current liabilities
|
|
|
845
|
|
|
|
|
662
|
|
Long-term debt
|
|
|
1,181
|
|
|
|
|
19
|
|
Minority interest in consolidated subsidiaries
|
|
|
107
|
|
|
|
|
95
|
|
Commitments and contingencies (Note 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,579
|
|
|
|
|
7,207
|
|
Preferred stock, 50,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
Series A, $0.01 par value, 2,500,000 issued and
outstanding
|
|
|
242
|
|
|
|
|
|
|
Series B, $0.01 par value, 5,400,000 issued and
outstanding
|
|
|
529
|
|
|
|
|
|
|
Common stock, $.01 par value, 450,000,000 authorized,
100,065,061 issued and outstanding
|
|
|
1
|
|
|
|
|
|
|
Prior Dana common stock, $1.00 par value, 350,000,000
authorized, 150,245,250 issued and outstanding
|
|
|
|
|
|
|
|
150
|
|
Additional paid-in capital
|
|
|
2,321
|
|
|
|
|
202
|
|
Accumulated deficit
|
|
|
(720
|
)
|
|
|
|
(468
|
)
|
Accumulated other comprehensive loss
|
|
|
(359
|
)
|
|
|
|
(666
|
)
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
2,014
|
|
|
|
|
(782
|
)
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,593
|
|
|
|
$
|
6,425
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
49
Dana Holding Corporation
Consolidated Statement of Cash Flows
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana
|
|
|
|
Prior Dana
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
January 31,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net income (loss)
|
|
$
|
(691
|
)
|
|
|
$
|
709
|
|
|
$
|
(551
|
)
|
|
$
|
(739
|
)
|
Depreciation
|
|
|
269
|
|
|
|
|
23
|
|
|
|
279
|
|
|
|
278
|
|
Amortization of intangibles
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of inventory valuation
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing charges and original issue
discount
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on repayment of debt
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill, intangibles, investments and other assets
|
|
|
183
|
|
|
|
|
|
|
|
|
131
|
|
|
|
405
|
|
Non-cash portion of U.K. pension charge
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
Minority interest
|
|
|
6
|
|
|
|
|
2
|
|
|
|
10
|
|
|
|
7
|
|
Unremitted earnings of affiliates, net of dividends received
|
|
|
21
|
|
|
|
|
(4
|
)
|
|
|
(26
|
)
|
|
|
(26
|
)
|
Deferred income taxes
|
|
|
22
|
|
|
|
|
191
|
|
|
|
(29
|
)
|
|
|
(41
|
)
|
Reorganization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on settlement of liabilities subject to compromise
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
Payment of claims
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization items net of cash payments
|
|
|
(24
|
)
|
|
|
|
79
|
|
|
|
154
|
|
|
|
52
|
|
Fresh start adjustments
|
|
|
|
|
|
|
|
(1,009
|
)
|
|
|
|
|
|
|
|
|
Payments to VEBAs
|
|
|
(733
|
)
|
|
|
|
(55
|
)
|
|
|
(27
|
)
|
|
|
|
|
Pension cash contributions made in excess of expense
|
|
|
(36
|
)
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
OPEB payments made in excess of expense
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(71
|
)
|
|
|
|
|
Loss on sale of businesses and assets
|
|
|
6
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Change in accounts receivable
|
|
|
512
|
|
|
|
|
(78
|
)
|
|
|
(23
|
)
|
|
|
(62
|
)
|
Change in inventories
|
|
|
42
|
|
|
|
|
(28
|
)
|
|
|
(5
|
)
|
|
|
10
|
|
Change in accounts payable
|
|
|
(227
|
)
|
|
|
|
17
|
|
|
|
110
|
|
|
|
150
|
|
Change in accrued payroll and employee benefits
|
|
|
(79
|
)
|
|
|
|
12
|
|
|
|
10
|
|
|
|
66
|
|
Change in accrued income taxes
|
|
|
(40
|
)
|
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
(12
|
)
|
Change in other current assets and liabilities
|
|
|
(142
|
)
|
|
|
|
18
|
|
|
|
(3
|
)
|
|
|
47
|
|
Change in other non-current assets and liabilities, net
|
|
|
(19
|
)
|
|
|
|
27
|
|
|
|
(65
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) operating activities
|
|
|
(897
|
)
|
|
|
|
(122
|
)
|
|
|
(52
|
)
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(234
|
)
|
|
|
|
(16
|
)
|
|
|
(254
|
)
|
|
|
(314
|
)
|
Proceeds from sale of businesses and assets
|
|
|
12
|
|
|
|
|
5
|
|
|
|
421
|
|
|
|
54
|
|
Proceeds from sale of DCC assets and partnership interests
|
|
|
2
|
|
|
|
|
|
|
|
|
188
|
|
|
|
141
|
|
Acquisition of business, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
Payments received on leases and loans
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
16
|
|
Change in investments and other assets
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
17
|
|
Change in restricted cash
|
|
|
|
|
|
|
|
93
|
|
|
|
(78
|
)
|
|
|
(15
|
)
|
Other
|
|
|
(1
|
)
|
|
|
|
(5
|
)
|
|
|
46
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
(221
|
)
|
|
|
|
77
|
|
|
|
348
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from (repayment of)
debtor-in-possession
facility
|
|
|
|
|
|
|
|
(900
|
)
|
|
|
200
|
|
|
|
700
|
|
Net change in short-term debt
|
|
|
(70
|
)
|
|
|
|
(18
|
)
|
|
|
98
|
|
|
|
(551
|
)
|
Payment of DCC Medium Term Notes
|
|
|
|
|
|
|
|
(136
|
)
|
|
|
(132
|
)
|
|
|
|
|
Original issue discount fees
|
|
|
|
|
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
Deferred financing fees
|
|
|
(26
|
)
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
Issuance of long-term debt
|
|
|
80
|
|
|
|
|
1,350
|
|
|
|
|
|
|
|
7
|
|
Repayments of long-term debt
|
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(205
|
)
|
Issuance of Series A and Series B preferred stock
|
|
|
|
|
|
|
|
771
|
|
|
|
|
|
|
|
|
|
Preferred dividends paid
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(9
|
)
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
(207
|
)
|
|
|
|
912
|
|
|
|
166
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,325
|
)
|
|
|
|
867
|
|
|
|
462
|
|
|
|
(83
|
)
|
Cash and cash equivalents beginning of period
|
|
|
2,147
|
|
|
|
|
1,271
|
|
|
|
704
|
|
|
|
762
|
|
Effect of exchange rate changes on cash balances
|
|
|
(45
|
)
|
|
|
|
5
|
|
|
|
104
|
|
|
|
25
|
|
Net change in cash of discontinued operations
|
|
|
|
|
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
777
|
|
|
|
$
|
2,147
|
|
|
$
|
1,271
|
|
|
$
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
50
Dana Holding Corporation
Consolidated Statement of Stockholders Equity
and Comprehensive Income (Loss)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Foreign
|
|
|
Unrealized
|
|
|
|
|
|
Stockholders
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Currency
|
|
|
Gains
|
|
|
Postretirement
|
|
|
Equity
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Translation
|
|
|
(Losses)
|
|
|
Benefits
|
|
|
(Deficit)
|
|
|
Balance, December 31, 2005, Prior Dana
|
|
$
|
|
|
|
$
|
150
|
|
|
$
|
194
|
|
|
$
|
819
|
|
|
$
|
(323
|
)
|
|
$
|
|
|
|
$
|
(295
|
)
|
|
$
|
545
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(739
|
)
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(687
|
)
|
Adjustment to initially apply SFAS No. 158 for pension
and OPEB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(699
|
)
|
|
|
(699
|
)
|
Issuance of shares for equity compensation plans, net
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006, Prior Dana
|
|
|
|
|
|
|
150
|
|
|
|
201
|
|
|
|
80
|
|
|
|
(188
|
)
|
|
|
|
|
|
|
(1,077
|
)
|
|
|
(834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of FIN 48 tax adjustment, January 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(551
|
)
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
568
|
|
|
|
568
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
Issuance of shares for equity compensation plans, net
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007, Prior Dana
|
|
|
|
|
|
|
150
|
|
|
|
202
|
|
|
|
(468
|
)
|
|
|
(155
|
)
|
|
|
(2
|
)
|
|
|
(509
|
)
|
|
|
(782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
709
|
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
|
79
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
785
|
|
Cancellation of Prior Dana common stock
|
|
|
|
|
|
|
(150
|
)
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(352
|
)
|
Elimination of Prior Dana accumulated deficit and accumulated
other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(241
|
)
|
|
|
152
|
|
|
|
8
|
|
|
|
430
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2008, Prior Dana
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of new equity in connection with emergence from
Chapter 11
|
|
|
771
|
|
|
|
1
|
|
|
|
2,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2008, Dana
|
|
|
771
|
|
|
|
1
|
|
|
|
2,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(691
|
)
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224
|
)
|
|
|
|
|
|
|
|
|
|
|
(224
|
)
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
(84
|
)
|
Unrealized investment gains (losses) and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,050
|
)
|
Preferred stock dividends ($3.67 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
Issuance of additional equity in connection with emergence from
Chapter 11
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Employee emergence bonus
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008, Dana
|
|
$
|
771
|
|
|
$
|
1
|
|
|
$
|
2,321
|
|
|
$
|
(720
|
)
|
|
$
|
(224
|
)
|
|
$
|
(51
|
)
|
|
$
|
(84
|
)
|
|
$
|
2,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
51
Dana Holding Corporation
Index to Notes to Consolidated
Financial Statements
1. Organization and Summary of Significant Accounting
Policies
2. Emergence from Chapter 11
3. Reorganization Proceedings
4. Divestitures and Acquisitions
5. Discontinued Operations
6. Realignment of Operations
7. Inventories
8. Supplemental Balance Sheet and Cash Flow
Information
9. Long-Lived Assets
10. Goodwill and Other Intangible Assets
11. Investments in Affiliates
12. Capital Stock
13. Earnings Per Share
14. Incentive and Stock Compensation
15. Pension and Postretirement Benefit Plans
16. Cash Deposits
17. Liquidity and Financing Agreements
18. Fair Value Measurements
19. Commitments and Contingencies
20. Warranty Obligations
21. Income Taxes
22. Other Income, Net
23. Segment, Geographical Area and Major Customer
Information
52
Notes to
Consolidated Financial Statements
(In millions, except share and per share amounts)
|
|
Note 1.
|
Organization and
Summary of Significant Accounting Policies
|
General
Dana Holding Corporation (Dana), incorporated in Delaware in
2007, is headquartered in Toledo, Ohio. We are a leading
supplier of axle, driveshaft, structural, sealing and thermal
management products for global vehicle manufacturers. Our people
design and manufacture products for every major vehicle producer
in the world.
As a result of Dana Corporations emergence from
Chapter 11 of the United States Bankruptcy Code (the
Bankruptcy Code) on January 31, 2008 (the Effective Date),
Dana is the successor registrant to Dana Corporation (Prior
Dana) pursuant to
Rule 12g-3
under the Securities Exchange Act of 1934.
The terms Dana, we, our, and
us, when used in this report with respect to the
period prior to Dana Corporations emergence from
bankruptcy, 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 Prior Dana or Dana, as the case may be, unless
otherwise indicated or the context requires otherwise.
This report, as discussed in Note 2, includes the results
of the implementation of the Third Amended Joint Plan of
Reorganization of Debtors and Debtors in Possession as modified
(the Plan) and the effects of the adoption of fresh start
accounting. In accordance with generally accepted accounting
principles in the United States (GAAP), historical financial
statements of Prior Dana will be presented separately from Dana
results in this filing and future filings. The implementation of
the Plan and the application of fresh start accounting as
discussed in Note 2. result in financial statements that
are not comparable to financial statements in periods prior to
emergence.
Summary of
Significant Accounting Policies
Basis of Presentation As discussed in
Note 2, the Debtors reorganized under Chapter 11 of
the United States Bankruptcy Code. American Institute of
Certified Public Accountants (AICPA) Statement of Position
(SOP) 90-7,
Financial Reporting by Entities in Reorganization under
the Bankruptcy Code
(SOP 90-7),
which is applicable to companies operating under
Chapter 11, generally does not change the manner in which
financial statements are prepared. However,
SOP 90-7
does require that the financial statements for periods
subsequent to the filing of a Chapter 11 petition
distinguish transactions and events that are directly associated
with the reorganization from the ongoing operations of the
business.
We adopted
SOP 90-7
on March 3, 2006 (the Filing Date) and prepared our
financial statements in accordance with its requirements through
January 31, 2008. Revenues, expenses, realized gains and
losses and provisions for losses that can be directly associated
with the reorganization and related restructuring of our
business were reported separately as reorganization items in our
statement of operations. Our balance sheet prior to
February 1, 2008 distinguishes pre-petition liabilities
subject to compromise both from those pre-petition liabilities
that are not subject to compromise and from post-petition
liabilities. Liabilities that were affected by the plan of
reorganization were reported at the amounts expected to be
allowed by the Bankruptcy Court. In addition, cash provided by
or used for reorganization items is disclosed separately in our
statement of cash flows.
Estimates Our consolidated financial
statements are prepared in accordance with GAAP, which requires
the use of estimates, judgments and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying disclosures. Some of the more significant estimates
include: valuation of deferred tax assets and inventories;
restructuring, environmental, product liability, asbestos and
warranty accruals; valuation of post-employment and
postretirement benefits; valuation, depreciation and
amortization of long-lived assets; valuation of non-current
notes receivable; valuation of goodwill; and allowances for
doubtful accounts. We believe our assumptions and estimates are
reasonable and
53
appropriate. However, due to the inherent uncertainties in
making estimates, actual results could differ from those
estimates.
Principles of Consolidation Our consolidated
financial statements include all subsidiaries in which we have
the ability to control operating and financial policies. All
significant intercompany balances and transactions have been
eliminated in consolidation. Affiliated companies (20% to 50%
ownership) are generally recorded in the statements using the
equity method of accounting, as are certain investments in
partnerships and limited liability companies in which we may
have an ownership interest of less than 20%.
Operations of affiliates accounted for under the equity method
of accounting are generally included for periods ended within
one month of our year end. Less than 20%-owned companies are
included in the financial statements at the cost of our
investment. Dividends, royalties and fees from these cost basis
affiliates are recorded in income when received.
Discontinued Operations In accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144), we classify
a business component that either has been disposed of or is
classified as held for sale as a discontinued operation if the
cash flow of the component has been or will be eliminated from
our ongoing operations and we will no longer have any
significant continuing involvement in the component. The results
of operations of our discontinued operations through the date of
sale, including any gains or losses on disposition, are
aggregated and presented on two lines in the income statement.
SFAS 144 requires the reclassification of amounts presented
for prior years to reflect their classification as discontinued
operations.
With respect to the consolidated balance sheets prior to 2008,
the assets and liabilities not subject to compromise relating to
our discontinued operations were aggregated and reported
separately as assets and liabilities of discontinued operations
following the decision to dispose of the components. There were
no assets or liabilities of discontinued operations remaining at
December 31, 2008. The balance sheet at December 31,
2007 included the residual assets and liabilities of certain
pump products operations sold in 2008. In the consolidated
statement of cash flows, the cash flows of discontinued
operations are reported in the applicable line items with
continuing operations. See Note 5 for additional
information regarding discontinued operations.
Cash and Cash Equivalents For purposes of
reporting cash flows, we consider highly liquid investments with
maturities of three months or less when purchased to be cash
equivalents. Marketable securities that satisfy the criteria for
cash equivalents are classified accordingly.
The ability to move cash among operating locations is subject to
the operating needs of those locations in addition to locally
imposed restrictions on the transfer of funds in the form of
dividends, cash advances or loans. In addition, we must meet
distributable reserve requirements. Restricted net assets
related to our consolidated subsidiaries, which totaled $139 as
of December 31, 2008, are attributable to our Venezuelan
and Chinese operations which are subject to governmental
limitations on their ability to transfer funds outside each of
those countries. During 2008, 2007 and 2006, the parent company
received dividends from consolidated subsidiaries of $124, $76
and $81. Dividends from less than 50%-owned affiliates in 2008
were $10 and $1 or less in 2007 and 2006.
Inventories Inventories are valued at the
lower of cost or market. Cost is generally determined on the
last-in,
first-out (LIFO) basis for U.S. inventories, and on the
average or
first-in,
first-out (FIFO) cost basis for most
non-U.S. inventories.
In connection with our adoption of fresh start accounting on
February 1, 2008, inventories were revalued using the
methodology outlined in Note 2 and increased by $169,
including the elimination of the U.S. LIFO reserve of $120.
Of this increase, $15 related to FIFO basis inventory outside of
the U.S. The $15 was recognized in cost of sales as the
inventory was sold, negatively impacting gross margin, primarily
in the first quarter with a nominal amount in the second quarter.
Property, Plant and Equipment As a result of
our adoption of fresh start accounting on February 1, 2008,
property, plant and equipment have been stated at fair value
(see Note 2) with useful lives ranging from two to
thirty years. Useful lives of newly acquired asset lives are
generally twenty to thirty years for buildings and building
improvements, five to ten years for machinery and equipment,
three to five years for tooling and office
54
equipment and three to ten years for furniture and fixtures.
Depreciation is recognized over the estimated useful lives using
primarily the straight-line method for financial reporting
purposes and accelerated depreciation methods for federal income
tax purposes. Prior to the Effective Date, property, plant and
equipment of Prior Dana was recorded at cost. If assets are
impaired their value is reduced by an increase in the
depreciation reserve.
Pre-Production Costs Related to Long-Term Supply
Arrangements The costs of tooling used to make
products sold under long-term supply arrangements are
capitalized as part of property, plant and equipment and
amortized over their useful lives if we own the tooling or if we
fund the purchase but our customer owns the tooling and grants
us the irrevocable right to use the tooling over the contract
period. If we have a contractual right to bill our customers,
costs incurred in connection with the design and development of
tooling are carried as a component of other accounts receivable
until invoiced. Design and development costs related to customer
products are deferred if we have an agreement to collect such
costs from the customer; otherwise, they are expensed when
incurred. At December 31, 2008, the machinery and equipment
component of property, plant and equipment included $8 of our
tooling related to long-term supply arrangements and $1 of our
customers tooling which we have the irrevocable right to
use, while trade and other accounts receivable included $34 of
costs related to tooling that we have a contractual right to
collect from our customers.
Impairment of Long-Lived Assets We review the
carrying value of amortizable long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to the
undiscounted future net cash flows expected to be generated by
the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair values less costs to sell and are no
longer depreciated.
Goodwill Goodwill recorded at emergence
represents the excess of the reorganization value of Dana over
the fair value of specific tangible and intangible assets. In
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142), we test goodwill for
impairment on an annual basis unless conditions arise that
warrant an interim review. The annual impairment tests are
performed as of October 31. In assessing the recoverability
of goodwill, estimates of fair value are based upon
consideration of various valuation methodologies, including
projected future cash flows and multiples of current earnings.
If these estimates or related projections change in the future,
we may be required to record goodwill impairment charges. See
Note 10 for more information regarding goodwill and a
discussion of the impairment of goodwill in the second and third
quarters of 2008.
Intangible Assets SFAS No. 141,
Business Combinations (SFAS 141) requires
intangible assets to be recorded separately from goodwill if
they meet certain criteria. Intangible assets valued in
connection with fresh start accounting include customer
contracts, developed technology and trademarks and trade names.
Customer contracts and developed technology have finite lives
while substantially all of the trademarks and trade names have
indefinite lives. Definite-lived intangible assets are amortized
over their useful life using the straight-line method of
amortization and are periodically reviewed for impairment
indicators. Indefinite-lived intangible assets are reviewed for
impairment annually or more frequently if impairment indicators
exist. Historically we carried nominal values for acquired
patent and trademark intangibles at cost. See Notes 2 and
10 for more information about intangible assets.
Long-Lived Assets and Liabilities As required
by SFAS 141, in connection with the application of fresh
start accounting we discounted our asbestos and workers
compensation liabilities and the related amounts recoverable
from the insurers. We discounted the projected cash flows using
a risk-free rate of 4.0%, which we interpolated for the
applicable period using U.S. Treasury rates. Use of a risk
free rate was considered appropriate given that other risks
affecting the volume and timing of payments had been considered
in developing the probability-weighted projected cash flows.
55
Financial Instruments The reported fair
values of financial instruments are based on a variety of
factors. Where available, fair values represent quoted market
prices for identical or comparable instruments. Where quoted
market prices are not available, fair values are estimated based
on assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates reflecting varying
degrees of credit risk. Fair values may not represent actual
values of the financial instruments that could be realized as of
the balance sheet date or that will be realized in the future.
The carrying values of cash and cash equivalents, trade
receivables and short-term borrowings approximate fair value.
Foreign currency forward contracts, the interest rate swap
contracts and long-term notes receivable are carried at their
fair values. Borrowings under our credit facilities are carried
at historical cost and adjusted for amortization of premiums or
discounts, foreign currency fluctuations and principal payments.
Derivative Financial Instruments We enter
into forward currency contracts to hedge our exposure to the
effects of currency fluctuations on a portion of our projected
sales and purchase commitments. The changes in the fair value of
these contracts are recorded in cost of sales and are generally
offset by exchange gains or losses on the underlying exposures.
We may also use interest rate swaps to manage exposure to
fluctuations in interest rates and to adjust the mix of our
fixed and floating rate debt. We do not use derivatives for
trading or speculative purposes, and we do not hedge all of our
exposures.
We follow SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, and
SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Transactions. These
Statements require, among other things, that all derivative
instruments be recognized on the balance sheet at fair value.
Forward currency contracts have not been designated as hedges,
and the effect of marking these instruments to market has been
recognized in the results of operations.
Environmental Compliance and Remediation
Environmental expenditures that relate to current operations
are expensed or capitalized as appropriate. Expenditures that
relate to existing conditions caused by past operations that do
not contribute to our current or future revenue generation are
expensed. Liabilities are recorded when environmental
assessments
and/or
remedial efforts are probable and the costs can be reasonably
estimated. We consider the most probable method of remediation,
current laws and regulations and existing technology in
determining the fair value of our environmental liabilities.
Pension and Other Postretirement Benefits We
sponsor a number of defined benefit pension plans covering
eligible salaried and hourly employees. Benefits are determined
based upon employees length of service, wages or a
combination of length of service and wages. Our practice is to
fund these costs through deposits with trustees in amounts that,
at a minimum, satisfy the applicable local funding regulations.
We also provide other postretirement benefits including medical
and life insurance for certain eligible employees upon
retirement. Benefits are determined primarily based upon
employees length of service and include applicable
employee cost sharing. Our policy is to fund these benefits as
they become due.
Annual net pension and postretirement benefits expenses and the
related liabilities are determined on an actuarial basis. These
plan expenses and obligations are dependent on managements
assumptions developed in consultation with our actuaries. We
review these actuarial assumptions at least annually and make
modifications when appropriate. With the input of independent
actuaries and other relevant sources, we believe that the
assumptions used are reasonable; however, changes in these
assumptions, or experience different from that assumed, could
impact our financial position, results of operations, or cash
flows. See Note 15 for additional information about these
plans.
Postemployment Benefits Costs to provide
postemployment benefits to employees are accounted for on an
accrual basis. Obligations that do not accumulate or vest are
recorded when payment of the benefits is probable and the
amounts can be reasonably estimated. Our policy is to fund these
benefits equal to our cash basis obligation. Annual net
postemployment benefits expense and the related liabilities are
accrued as service is rendered for those obligations that
accumulate or vest and can be reasonably estimated.
Equity-Based Compensation We measure
compensation cost arising from the grant of share-based awards
to employees at fair value in accordance with
SFAS No. 123(R), Share-Based Payment. We
56
recognize such costs in income over the period during which the
requisite service is provided, usually the vesting period.
Revenue Recognition Sales are recognized when
products are shipped and risk of loss has transferred to the
customer. We accrue for warranty costs, sales returns and other
allowances based on experience and other relevant factors, when
sales are recognized. Adjustments are made as new information
becomes available. Shipping and handling fees billed to
customers are included in sales, while costs of shipping and
handling are included in cost of sales. We record taxes
collected from customers on a net basis (excluded from revenues).
Supplier agreements with our OEM customers generally provide for
fulfillment of the customers purchasing requirements over
vehicle program lives, which generally range from three to ten
years. Prices for product shipped under the programs are
established at inception, with subsequent pricing adjustments
mutually agreed through negotiation. Pricing adjustments are
occasionally determined retroactively based on historical
shipments and either paid or received, as appropriate, in lump
sum to effectuate the price settlement. Retroactive price
increases are deferred upon receipt and amortized over the
remaining life of the appropriate program, unless the
retroactive price increase was determined to have been received
under contract or legal provisions in which case revenue is
recognized upon receipt.
Foreign Currency Translation The financial
statements of subsidiaries and equity affiliates outside the
U.S. located in non-highly inflationary economies are
measured using the currency of the primary economic environment
in which they operate as the functional currency, which
typically is the local currency. Transaction gains and losses
resulting from translating assets and liabilities of these
entities into the functional currency are included in other
income. When translating into U.S. dollars, income and
expense items are translated at average monthly rates of
exchange, while assets and liabilities are translated at the
rates of exchange at the balance sheet date. Translation
adjustments resulting from translating the functional currency
into U.S. dollars are deferred and included as a component
of Comprehensive loss in stockholders equity. For
operations whose functional currency is the U.S. dollar,
non-monetary assets are translated into U.S. dollars at
historical exchange rates and monetary assets are translated at
current exchange rates.
Income Taxes In the ordinary course of
business there is inherent uncertainty in quantifying our income
tax positions. We assess our income tax positions and record tax
liabilities for all years subject to examination based upon
managements evaluation of the facts and circumstances and
information available at the reporting dates. For those tax
positions where it is more likely than not that a tax benefit
will be sustained, we have recorded the largest amount of tax
benefit with a greater-than-50% likelihood of being realized
upon ultimate settlement with a taxing authority that has full
knowledge of all relevant information. For those income tax
positions where it is not more likely than not that a tax
benefit will be sustained, no tax benefit has been recognized in
the financial statements. Where applicable, the related interest
cost has also been recognized.
Deferred income taxes are provided for future tax effects
attributable to temporary differences between the recorded
values of assets and liabilities for financial reporting
purposes and the basis of such assets and liabilities as
measured by tax laws and regulations. Deferred income taxes are
also provided for net operating losses (NOLs), tax credit and
other carryforwards. Amounts are stated at enacted tax rates
expected to be in effect when taxes are actually paid or
recovered. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in the results of operations
in the period that includes the enactment date.
In accordance with SFAS No. 109, Accounting for
Income Taxes, in each reporting period we assess whether
it is more likely than not that we will generate sufficient
future taxable income to realize our deferred tax assets. This
assessment requires significant judgment and, in making this
evaluation, we consider all available positive and negative
evidence. Such evidence includes trends and expectations for
future U.S. and
non-U.S. pre-tax
operating income, our historical earnings and losses, the time
period over which our temporary differences and carryforwards
will reverse and the implementation of feasible and prudent tax
planning strategies. While the assumptions require significant
judgment, they are consistent with the plans and estimates we
are using to manage the underlying business.
57
We provide a valuation allowance against our net deferred tax
assets if, based upon available evidence, we determine that it
is more likely than not that some portion or all of the recorded
net deferred tax assets will not be realized in future periods.
Creating a valuation allowance serves to increase income tax
expense during the reporting period. Once created, a valuation
allowance against net deferred tax assets is maintained until
realization of the deferred tax asset is judged more likely than
not to occur. Reducing a valuation allowance against net
deferred tax assets serves to reduce income tax expense in the
reporting period of change unless the reduction occurs due to
the expiration of the underlying loss or tax credit carryforward
period. See Note 21 for an explanation of the valuation
allowance adjustments made for our net deferred tax assets and
additional information on income taxes.
Earnings Per Share Basic earnings per share
is computed by dividing earnings available to common
stockholders by the weighted-average common shares outstanding
during the period. Prior Dana shares were cancelled at emergence
and shares in Dana were issued. Therefore the earnings per share
information for Dana is not comparable to Prior Dana earnings
per share. See Note 13 for details of the shares
outstanding.
Reclassifications Certain prior period
amounts have been reclassified to conform to the current year
presentation.
Recent Accounting Pronouncements In December
2008, the FASB issued FASB Staff Position No. 132(R)-1,
Employers Disclosures about Postretirement Benefit
Plan Assets (FSP 132(R)-1). FSP 132(R)-1 expands
disclosures about the types of assets and associated risks in an
employers defined benefit pension or other postretirement
plan. An employer is also required to disclose information about
the valuation of plan assets similar to that required under
SFAS No. 157, Fair Value Measurements
(SFAS 157). Those disclosures include the level within the
fair value hierarchy in which fair value measurements of plan
assets fall, information about the inputs and valuation
techniques used to measure the fair value of plan assets, and
the effect of fair value measurements using significant
unobservable inputs on changes in plan assets for the period.
The new disclosures are required to be included in financial
statements for years ending after December 15, 2009.
In December 2008, the FASB issued FASB Staff Position
No. FAS 140-4
and FIN 46(R)-8, Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities
(FAS 140-4
and FIN 46(R)-8).
FAS 140-4
and FIN 46(R)-8 amend both SFAS 140, Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities-a replacement of FASB Statement
No. 125 and FASB Interpretation No. 46(R),
Consolidation of Variable Interest Entities (revised
December 2003) an interpretation of ARB
No. 51 to require public entities to provide
additional disclosures about transfers of financial assets and
about their involvement with variable interest entities. The
adoption of this statement did not have a significant impact on
our consolidated financial statements.
In April 2008, the FASB issued FASB Staff Position
No. 142-3,
Determination of the Useful Life of Intangible
Assets
(FSP 142-3).
FSP 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142. We
adopted
FSP 142-3
effective January 1, 2009 and it did not have a significant
impact on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). SFAS 161 requires
companies with derivative instruments to disclose additional
information that would enable financial statement users to
understand how and why a company uses derivative instruments,
how derivative instruments and related hedged items are
accounted for under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS 133), and how derivative instruments and related
hedged items affect a companys financial position,
financial performance and cash flows. The new requirements apply
to derivative instruments and non-derivative instruments that
are designated and qualify as hedging instruments and related
hedged items accounted for under SFAS 133. SFAS 161 is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. Early
application is encouraged. We will adopt SFAS 161 effective
January 1, 2009 and we do not expect that it will have a
significant impact on the notes to our consolidated financial
statements.
58
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). SFAS 160 changes the accounting for and
reporting of noncontrolling or minority interests (now called
noncontrolling interest) in consolidated financial statements.
SFAS 160 is effective January 1, 2009 and clarifies
that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. The
presentation and disclosure requirements of this standard must
be applied retrospectively for all periods presented. The
adoption of this standard will impact how we present and
disclose non-controlling interests in our financial statements.
In December 2007, the FASB issued SFAS No. 141(R)
(SFAS 141(R)) which replaces SFAS 141.
SFAS 141(R) is effective for us as of January 1, 2009.
It retains the underlying concepts of SFAS 141 in that all
business combinations are still required to be accounted for at
fair value under the acquisition method of accounting but
SFAS 141(R) changed the method of applying the acquisition
method in a number of significant aspects. Early adoption was
not permitted. SFAS 141(R) will not have a significant
impact on our financial position and results of operations;
however, any business combination entered into after the
adoption may significantly impact our financial position and
results of operations when compared to acquisitions accounted
for under existing GAAP and could result in more earnings
volatility and generally lower earnings due to the expensing of
deal costs and restructuring costs of acquired companies. We
will apply the standard prospectively to all business
combinations subsequent to the effective date.
|
|
Note 2.
|
Emergence from
Chapter 11
|
Emergence from
Reorganization Proceedings and Related Subsequent
Events
Background Dana and forty of its wholly-owned
subsidiaries (collectively, the Debtors) operated their
businesses as debtors in possession under Chapter 11 of the
Bankruptcy Code from the Filing Date until emergence from
Chapter 11 on January 31, 2008. The Debtors
Chapter 11 cases (collectively, the Bankruptcy Cases) were
consolidated in the United States Bankruptcy Court for the
Southern District of New York (the Bankruptcy Court) under the
caption In re Dana Corporation, et al., Case
No. 06-10354
(BRL). Neither Dana Credit Corporation (DCC) and its
subsidiaries nor any of our
non-U.S. affiliates
were Debtors.
Claims resolution On December 26, 2007,
the Bankruptcy Court entered an order (the Confirmation Order)
confirming the Plan and, on the Effective Date, the Plan was
consummated and we emerged from bankruptcy. As provided in the
Plan and the Confirmation Order, we issued and distributed
approximately 70 million shares of Dana common stock
(valued in reorganization at $1,628) on the Effective Date to
holders of allowed general unsecured claims in Class 5B
totaling approximately $2,050. Pursuant to the Plan, we also
issued and set aside approximately 28 million additional
shares of Dana common stock (valued in reorganization at $640)
for future distribution to holders of allowed unsecured
nonpriority claims in Class 5B under the Plan. These shares
are being distributed as the disputed and unliquidated claims
are resolved. The claim amount related to the 28 million
shares for disputed and unliquidated claims was estimated not to
exceed $700. Since emergence, we have issued an additional
23 million shares for allowed claims (valued in
reorganization at $520), increasing the total shares issued to
93 million (valued in reorganization at $2,148) for
unsecured claims of approximately $2,238. The corresponding
decrease in the disputed claims reserve leaves 5 million
shares (valued in reorganization at $122). The remaining
disputed and unliquidated claims total approximately $107. To
the extent that these remaining claims are settled for less than
the 5 million remaining shares, additional incremental
distributions will be made to the holders of the previously
allowed general unsecured claims in Class 5B. The terms and
conditions governing these distributions are set forth in the
Plan and the Confirmation Order.
Under the provisions of the Plan, approximately two million
shares of common stock (valued in reorganization at $45) have
been issued and distributed since the Effective Date to pay
emergence bonuses to union employees and non-union hourly and
salaried non-management employees. The original accrual of $47
on the Effective Date included approximately 65,000 shares
(valued in reorganization at $2) that were not utilized for
these bonuses. These shares will be distributed instead to the
holders of allowed general unsecured claims in Class 5B as
provided in the Plan.
59
Settlement obligations relating to non-pension retiree benefits
and long-term disability (LTD) benefits for union claimants and
non-pension retiree benefits for non-union claimants were
satisfied with cash payments of $788 to Voluntary Employee
Benefit Associations (VEBAs) established for the benefit of the
respective claimant groups. Additionally, we paid DCC $49, the
remaining amount due to DCC noteholders, thereby settling
DCCs general unsecured claim of $325 against the Debtors.
DCC, in turn, used these funds to repay the noteholders in full.
Since emergence, payments of $100 have been made for
administrative claims, priority tax claims, settlement pool
claims and other classes of allowed claims. Additional cash
payments of $86, primarily federal, state, and local tax claims
are expected to be paid in the second half of 2009.
Fresh Start Accounting As required by GAAP,
we adopted fresh start accounting effective February 1,
2008 following the guidance of
SOP 90-7.
The financial statements for the periods ended prior to
January 31, 2008 do not include the effect of any changes
in our capital structure or changes in the fair value of assets
and liabilities as a result of fresh start accounting.
The timing of the availability of funds for our
post-reorganization financing resulted in a January 31,
2008 consummation of the Plan. We selected February 1, 2008
for adoption of fresh start accounting. In accordance with
SOP 90-7,
the results of operations of Dana for January 2008 include
charges of $21 incurred during the month of January plus
one-time reorganization costs incurred at emergence of $104
offset by a pre-emergence gain of $27 resulting from the
discharge of liabilities under the Plan. In addition, we
recorded a credit to earnings of $1,009 ($831 after tax)
resulting from the aggregate changes to the net carrying value
of our pre-emergence assets and liabilities to record their fair
values under fresh start accounting.
SOP 90-7
provides, among other things, for a determination of the value
to be assigned to the equity of the emerging company as of a
date selected for financial reporting purposes. Danas
compromise total enterprise value is $3,563. This value
represents the amount of resources available for the
satisfaction of post-petition liabilities and allowed claims, as
negotiated between the Debtors and their creditors. This value,
along with other terms of the Plan, was determined after
extensive arms-length negotiations with the claimholders. Dana
developed its view of what the value should be based upon
expected future cash flows of the business after emergence from
Chapter 11, discounted at rates reflecting perceived
business and financial risks (the discounted cash flows or DCF).
This valuation and a valuation using market value multiples for
peer companies were blended to arrive at the compromise
valuation. This value is the enterprise value of the entity and,
after adjusting for certain liabilities and debt as explained
below and summarized in explanatory note (5) to the
reorganized consolidated balance sheet, is intended to
approximate the amount a willing buyer would pay for the assets
and liabilities of Dana immediately after restructuring.
The basis for the DCF was the projections published in the Plan.
These five-year estimates included projected changes associated
with our reorganization initiatives, anticipated changes in
general market conditions, including variations in market
regions and known new business gains and losses, as well as
other factors considered by Dana management. We completed the
DCF analysis by operating segment in late 2007 using discount
rates ranging from 10.5% to 11.5% based on a capital asset
pricing model which utilized weighted-average cost of capital
relative to certain automotive and heavy vehicle reference group
companies. The estimated enterprise value and the resulting
equity value were highly dependent on the achievement of the
future financial results contemplated in the projections that
were published in the Plan. The estimates and assumptions made
in our valuation were inherently subject to significant
uncertainties, many of which are beyond our control, and there
was no assurance that these results could be achieved. The
primary assumptions for which there is a reasonable possibility
of the occurrence of a variation that would have significantly
affected the measurement value included the revenue assumptions,
anticipated levels of commodity costs, achievement of the cost
reductions outlined in our 2007
Form 10-K,
the discount rate utilized, expected foreign exchange rates, the
demand for pickup trucks and SUVs and the overall strength of
the U.S. automotive markets. The primary assumptions for
conditions expected to be different from conditions in late 2007
were stronger light vehicle and off-highway markets outside
North America and a peak in demand for Class 8 trucks in
North America in 2009 related to stricter U.S. emission
standards that become effective in 2010.
60
Based on conditions in the automotive industry and general
economic conditions, we used the low end of the range of
valuations to determine the enterprise reorganization value.
For the DCF portion of the valuation, we utilized the average of
two DCF methodologies to derive the enterprise value of Dana:
|
|
|
|
|
Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) Multiple Method The sum of
the present values of the unlevered free cash flows was added to
the present value of the terminal value of Dana, computed using
EBITDA exit multiples by segment ranging from 3.8 to 9.0 based
in part on the range of multiples calculated in using a
comparable public company methodology, to arrive at an implied
enterprise value for Danas operating assets (excluding
cash).
|
|
|
|
Perpetuity Growth Method The sum of the
present values of the unlevered free cash flows was added to the
present value of the terminal value of Dana, which was computed
using the perpetuity growth method based in part on industry
growth prospects and our business plans, to arrive at an implied
enterprise value for Danas operating assets (excluding
cash).
|
We also utilized a comparable companies methodology which
identified a group of publicly traded companies whose businesses
and operating characteristics were similar to those of Dana as a
whole, or similar to significant portions of Danas
operations, and evaluated various operating metrics, growth
characteristics and valuation multiples for equity and net debt
for each of the companies in the group. We then developed a
range of valuation multiples to apply to our projections to
derive a range of implied enterprise values for Dana. The
multiples ranged from 3.8 to 9.0 depending on the comparable
company.
The final valuation range was an average of the DCF valuation
ranges and the comparable company multiples range. This amount
was also adjusted for the fair value of unconsolidated
subsidiaries, the residual value of DCCs assets, the fair
value of our net operating losses and a note receivable obtained
in connection with a divestiture in 2004.
Under fresh start accounting, this compromise total enterprise
value was adjusted for Danas available cash and was
allocated to our assets based on their respective fair values in
conformity with the purchase method of accounting for business
combinations in SFAS 141. Available cash was determined by
adjusting actual cash at emergence for emergence-related cash
activity expected to occur after January 31, 2008. The
valuations required to determine the fair value of certain of
Danas assets as presented below represent the results of
valuation procedures we performed. The enterprise reorganization
value, after adjustments for available cash, is reduced by debt,
minority interest and preferred stock with the remainder
representing the value to common shareholders.
The significant assumptions related to the valuations of our
assets in connection with fresh start accounting included the
following:
Inventory The value of inventory for fresh
start accounting was based on the following:
|
|
|
|
|
The fair value of finished goods was calculated as the estimated
selling price of the finished goods on hand, less the costs to
dispose of that inventory (i.e., selling costs) and a reasonable
profit margin for the selling effort.
|
|
|
|
The fair value of work in process was calculated as the selling
price less the sum of costs to complete the manufacturing
process, selling costs and a reasonable profit on the remaining
manufacturing effort and the selling effort based on profits for
similar finished goods.
|
|
|
|
The fair value of raw material inventory was its current
replacement cost.
|
61
Fixed Assets Except for specific fixed assets
identified as held for sale, which were valued at their
estimated net realizable value, fixed assets were valued at fair
value. In establishing fair value, three approaches were
utilized to ensure that all market conditions were considered:
|
|
|
|
|
The market or comparison sales approach uses recent sales or
offerings of similar assets currently on the market to arrive at
a probable selling price. In applying this method, aligning
adjustments were made to reconcile differences between the
comparable sale and the appraised asset.
|
|
|
|
The cost approach considers the amount required to construct or
purchase a new asset of equal utility, then adjusts the value in
consideration of all forms of depreciation as of the appraisal
date as described below:
|
|
|
|
|
|
Physical deterioration the loss in value or
usefulness attributable solely to physical causes such as wear
and tear and exposure to the elements.
|
|
|
|
Functional obsolescence a loss in value due
to factors inherent in the property itself and due to changes in
design or process resulting in inadequacy, overcapacity, excess
construction, lack of functional utility or excess operation
costs.
|
|
|
|
Economic obsolescence loss in value by
unfavorable external conditions such as economics of the
industry, loss of material and labor sources or change in
ordinances.
|
|
|
|
|
|
The income approach considers value in relation to the present
worth of future benefits derived from ownership and is usually
measured through the capitalization of a specific level of
income.
|
Useful lives were assigned to applicable appraised assets based
on estimates of economic future usefulness in consideration of
all forms of depreciation.
Intangible Assets The financial information
used to determine the fair value of intangible assets was
consistent with the information used in estimating the
enterprise value of Dana. Following is a summary of each
category considered in the valuation of intangible assets:
|
|
|
|
|
Core technology An income approach, the
relief from royalty method, was used to value developed
technology at $99 as of January 31, 2008. Significant
assumptions included development of the forecasted revenue
streams for each technology category by geographic region,
estimated royalty rates for each technology category, applicable
tax rates by geographic region and appropriate discount rates
which considered variations among markets and geographic regions.
|
|
|
|
Trademarks and trade names Four trade
names/trademarks were identified as intangible assets:
Dana®,
Spicer®,
Victor-Reinz®
and
Long®.
An income approach, the relief from royalty method, was used to
value trademarks and trade names at $90 as of January 31,
2008. Significant assumptions included the useful life, the
forecasted revenue streams for each trade name/trademark by
geographic region, estimated applicable royalty rate for each
technology category, applicable tax rates by geographic region
and appropriate discount rates. For those indefinite-lived trade
names/trademarks
(Dana®
and
Spicer®),
terminal growth rates were also estimated.
|
|
|
|
Customer contracts and related relationships
Customer contracts and related relationships were valued by
operating segment utilizing an income approach, the multi-period
excess earnings method, which resulted in a valuation of $491.
Significant assumptions included the forecasted revenue streams
by customer by geographic region, the estimated contract renewal
probability for each operating segment, estimated profit margins
by customer by region, estimated charges for contributory assets
for each customer (fixed assets, net working capital, assembled
workforce, trade names/trademarks and developed technology),
estimated tax rates by geographic region and appropriate
discount rates.
|
The adjustments presented below were made to our
January 31, 2008 balance sheet. The balance sheet
reorganization and fresh start adjustments presented below
summarize the impact of the adoption of the Plan and the fresh
start accounting entries as of the Effective Date.
62
DANA HOLDING
CORPORATION
REORGANIZED
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2008
|
|
|
|
Prior
|
|
|
Reorganization
|
|
|
Fresh Start
|
|
|
|
|
|
|
Dana
|
|
|
Adjustments(1)
|
|
|
Adjustments
|
|
|
Dana
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,199
|
|
|
$
|
948
|
(2)
|
|
$
|
|
|
|
$
|
2,147
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade, less allowance for doubtful accounts
|
|
|
1,255
|
|
|
|
|
|
|
|
1
|
(6)
|
|
|
1,256
|
|
Other
|
|
|
316
|
|
|
|
|
|
|
|
(1
|
)(6)
|
|
|
315
|
|
Inventories
|
|
|
843
|
|
|
|
|
|
|
|
169
|
(6)
|
|
|
1,012
|
|
Other current assets
|
|
|
127
|
|
|
|
|
|
|
|
(32
|
)(6)
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,740
|
|
|
|
948
|
|
|
|
137
|
|
|
|
4,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
352
|
|
|
|
|
|
|
|
(50
|
)(6)
|
|
|
302
|
(5)
|
Intangibles
|
|
|
1
|
|
|
|
|
|
|
|
679
|
(6)
|
|
|
680
|
|
Investments and other assets
|
|
|
294
|
|
|
|
40
|
(2)
|
|
|
(35
|
)(6)
|
|
|
299
|
|
|
|
|
|
|
|
|
(18
|
)(3)
|
|
|
(35
|
)(7)
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294
|
|
|
|
22
|
|
|
|
(70
|
)
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliates
|
|
|
172
|
|
|
|
|
|
|
|
9
|
(6)
|
|
|
181
|
|
Property, plant and equipment, net
|
|
|
1,763
|
|
|
|
|
|
|
|
278
|
(6)
|
|
|
2,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,322
|
|
|
$
|
970
|
|
|
$
|
983
|
|
|
$
|
8,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, including current portion of long-term debt
|
|
$
|
177
|
|
|
$
|
(49
|
)(2)
|
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
15
|
(2)
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debtor-in-possession
financing
|
|
|
900
|
|
|
|
(900
|
)(2)
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
1,094
|
|
|
|
|
|
|
|
|
|
|
|
1,094
|
|
Accrued payroll and employee benefits
|
|
|
267
|
|
|
|
|
|
|
|
1
|
(6)
|
|
|
268
|
|
Taxes on income including current deferred
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Other accrued liabilities (including VEBA paid on February 1)
|
|
|
436
|
|
|
|
815
|
(3)
|
|
|
21
|
(6)
|
|
|
1,272
|
|
|
|
|
|
|
|
|
86
|
(3)
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
|
(15
|
)(2)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
436
|
|
|
|
886
|
|
|
|
21
|
|
|
|
1,343
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,006
|
|
|
|
(48
|
)
|
|
|
22
|
|
|
|
2,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities subject to compromise
|
|
|
3,382
|
|
|
|
(3,327
|
)(3)
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
(55
|
)(2)
|
|
|
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,382
|
|
|
|
(3,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2008
|
|
|
|
Prior
|
|
|
Reorganization
|
|
|
Fresh Start
|
|
|
|
|
|
|
Dana
|
|
|
Adjustments(1)
|
|
|
Adjustments
|
|
|
Dana
|
|
|
Deferred employee benefits and other non-current liabilities
|
|
|
650
|
|
|
|
|
|
|
|
(29
|
)(6)
|
|
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
(7)
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
178
|
(6)
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
650
|
|
|
|
|
|
|
|
254
|
|
|
|
904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Term loan facility
|
|
|
|
|
|
|
1,221
|
(2)
|
|
|
|
|
|
|
1,221
|
|
Minority interest in consolidated subsidiaries
|
|
|
96
|
|
|
|
|
|
|
|
16
|
(6)
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,153
|
|
|
|
(2,209
|
)
|
|
|
292
|
|
|
|
5,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock
|
|
|
|
|
|
|
242
|
(2)
|
|
|
|
|
|
|
242
|
|
Series B preferred stock
|
|
|
|
|
|
|
529
|
(2)
|
|
|
|
|
|
|
529
|
|
Common stock successor
|
|
|
|
|
|
|
1
|
(3)(5)
|
|
|
|
|
|
|
1
|
|
Additional paid-in capital successor
|
|
|
|
|
|
|
2,267
|
(3)(5)
|
|
|
|
|
|
|
2,267
|
|
Common stock predecessor
|
|
|
150
|
|
|
|
(150
|
)(4)
|
|
|
|
|
|
|
|
|
Additional paid-in capital predecessor
|
|
|
202
|
|
|
|
(202
|
)(4)
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(515
|
)
|
|
|
27
|
(3)
|
|
|
831
|
(6)
|
|
|
343
|
|
|
|
|
|
|
|
|
(104
|
)(3)
|
|
|
(591
|
)(8)
|
|
|
(695
|
)
|
|
|
|
|
|
|
|
352
|
(4)
|
|
|
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(515
|
)
|
|
|
275
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(668
|
)
|
|
|
278
|
(3)
|
|
|
591
|
(8)
|
|
|
201
|
|
|
|
|
|
|
|
|
(61
|
)(3)
|
|
|
(140
|
)(7)
|
|
|
(201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(668
|
)
|
|
|
217
|
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(831
|
)
|
|
|
3,179
|
|
|
|
691
|
|
|
|
3,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
6,322
|
|
|
$
|
970
|
|
|
$
|
983
|
|
|
$
|
8,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Explanatory Notes
|
|
|
(1) |
|
Represents amounts recorded on the Effective Date for the
implementation of the Plan, including the settlement of
liabilities subject to compromise and related payments, the
issuance of new debt and repayment of old debt, distributions of
cash and new shares of common and preferred stock, and the
cancellation of Prior Dana common stock. |
|
(2) |
|
Cash proceeds at emergence (net of cash payments): |
|
|
|
|
|
Amount borrowed under the Exit Facility
|
|
$
|
1,350
|
|
Original issue discount (OID)
|
|
|
(114
|
)
|
|
|
|
|
|
Exit Facility, net of OID ($15 current, $1,221 to long-term debt)
|
|
|
1,236
|
|
Less: deferred issuance fees
|
|
|
(40
|
)
|
|
|
|
|
|
Exit Facility net proceeds
|
|
|
1,196
|
|
Preferred stock issuance, net of fees and expenses
Series A
|
|
|
242
|
|
Preferred stock issuance, net of fees and expenses
Series B
|
|
|
529
|
|
Repayment of DIP lending facility
|
|
|
(900
|
)
|
Non-union retiree VEBA obligation payment
|
|
|
(55
|
)
|
Fees paid at emergence (including $10 previously accrued)
|
|
|
(15
|
)
|
Payment to DCC bondholders
|
|
|
(49
|
)
|
|
|
|
|
|
Net cash
|
|
$
|
948
|
|
|
|
|
|
|
64
This entry records our exit financing, the issuance of new
Series A and Series B Preferred Stock and the payment
of certain bankruptcy obligations on January 31, 2008. An
additional $80 of the term loan portion of the Exit Facility was
borrowed by Dana on February 1, 2008 and is not included in
the January balance sheet above. Debt issuance costs of $40 are
recorded in Investments and other assets and original issue
discount (OID) of $114 is presented net with the debt balance.
Both of these are deferred and amortized over the term of the
facility. The $790 of preferred stock is recorded at the net
proceeds of $771.
|
|
|
(3) |
|
Retirement of liabilities subject to compromise (LSTC): |
|
|
|
|
|
Liabilities subject to compromise
|
|
$
|
3,382
|
|
APBO reduction charged to LSTC and credited to Accumulated other
comprehensive loss (See Note 15 to the consolidated
financial statements)
|
|
|
(278
|
)
|
Non-union retiree VEBA obligation payment
|
|
|
(55
|
)
|
New common stock and paid-in capital issued to satisfy allowed
and disputed claims
|
|
|
(2,268
|
)
|
Claims to be satisfied in cash transferred to Other accrued
liabilities at January 31, 2008 (includes $733 union VEBA
obligation paid on February 1)
|
|
|
(815
|
)
|
Prior service credits recognized (See Note 15 to the
consolidated financial statements)
|
|
|
61
|
|
|
|
|
|
|
Gain on settlement of Liabilities subject to compromise
|
|
$
|
27
|
|
|
|
|
|
|
Deferred tax assets not realizable due to emergence
|
|
$
|
(18
|
)
|
Reorganization costs accrued at emergence (includes $47 of
emergence bonuses)
|
|
|
(86
|
)
|
|
|
|
|
|
Total reorganization costs incurred at emergence (See
Note 3 to the consolidated financial statements)
|
|
$
|
(104
|
)
|
|
|
|
|
|
This entry records reorganization costs of $104 incurred as a
result of emergence and a gain of $27 on extinguishment of the
obligations pursuant to implementation of the Plan.
Other accrued liabilities include a $733 liability to the union
VEBAs. On February 1, 2008, Dana paid this obligation and
borrowed the remaining $80 of the term loan commitment in
(2) above. Payments after January 31, under the terms
of the Plan, were expected to include approximately $212 of
administrative claims, priority tax claims and other classes of
allowed claims, and were also included in other accrued
liabilities of Dana at January 31, 2008.
|
|
|
(4) |
|
Closes Prior Dana capital stock and paid-in capital to
accumulated deficit. |
|
(5) |
|
Reconciliation of enterprise value to the reorganization value
of Dana assets, determination of goodwill and allocation of
compromise enterprise value to common stockholders: |
|
|
|
|
|
Compromise total enterprise value
|
|
$
|
3,563
|
|
Plus: cash and cash equivalents
|
|
|
2,147
|
|
Less: adjustments to cash assumptions used in valuation and
emergence related
|
|
|
(1,129
|
)
|
Plus: liabilities (excluding debt and liability for emergence
bonuses)
|
|
|
3,694
|
|
|
|
|
|
|
Reorganization value of Dana assets
|
|
|
8,275
|
|
Fair value of Dana assets (excluding goodwill)
|
|
|
7,973
|
|
|
|
|
|
|
Reorganization value of Dana assets in excess of fair value
(goodwill)
|
|
$
|
302
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization value of Dana assets
|
|
$
|
8,275
|
|
Less: liabilities (excluding debt and the liability for
emergence bonuses)
|
|
|
(3,694
|
)
|
Less: debt
|
|
|
(1,383
|
)
|
Less: minority interest
|
|
|
(112
|
)
|
Less: preferred stock (net of issuance costs)
|
|
|
(771
|
)
|
Less: liability for emergence bonus shares not issued at
January 31, 2008
|
|
|
(47
|
)
|
|
|
|
|
|
New common stock ($1) and paid-in capital ($2,267)
|
|
$
|
2,268
|
|
|
|
|
|
|
Shares outstanding at January 31, 2008
|
|
|
97,971,791
|
|
Per share value
|
|
$
|
23.15
|
|
65
The per share value of $23.15 was utilized to record the shares
issued for allowed claims, the shares issued for the disputed
claims reserve and the liability for shares issued to employees
subsequent to January 31, 2008 as emergence bonuses. The
$1,129 in the caption Adjustments to cash assumptions used
in valuation and emergence-related cash payments in the
table above represents adjustments to cash on hand for the then
estimated amounts expected to be paid for bankruptcy claims and
fees after emergence of $962 (VEBA payments of $733, remaining
administrative claims, priority tax claims, settlement pool
claims and other classes of allowed claims of $212 and
settlements (cures) for contract rejections of $17). In
addition, consistent with assumptions made in the valuation of
enterprise value, available cash was reduced by $56 for DCC
settlements and $111 for cash deposits which support letters of
credit, a number of
self-insured
programs and lease obligations, all of which were deemed to be
unavailable to Dana.
The following table summarizes the allocation of fair values of
the assets and liabilities at emergence as shown in the
reorganized consolidated balance sheet as of January 31,
2008:
|
|
|
|
|
Cash
|
|
$
|
2,147
|
|
Current Assets
|
|
|
2,678
|
|
Goodwill
|
|
|
302
|
|
Intangibles
|
|
|
680
|
|
Investments and other assets
|
|
|
246
|
|
Investments in affiliates
|
|
|
181
|
|
Property, plant and equipment, net
|
|
|
2,041
|
|
|
|
|
|
|
Total assets
|
|
|
8,275
|
|
Less current liabilities (including notes payable and current
portion of long-term debt)
|
|
|
(3,016
|
)
|
Less long-term debt
|
|
|
(1,240
|
)
|
Less long-term liabilities and minority interests
|
|
|
(980
|
)
|
|
|
|
|
|
Total liabilities acquired
|
|
|
(5,236
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
3,039
|
|
|
|
|
|
|
|
|
|
(6) |
|
This entry records the adjustments for fresh start
accounting including the
write-up of
inventory and the adjustment of property, plant and equipment to
its appraised value. Fresh start adjustments for intangible
assets are also included and are based on valuations discussed
above. The adjustments required to report assets and liabilities
at fair value under fresh start accounting resulted in a pre-tax
adjustment of $1,009, which was reported as fresh start
accounting adjustments in the consolidated statement of
operations for January 2008. Income tax expense for January
included $178 of tax expense related to these adjustments,
reducing to $831 the impact of fair value adjustments on net
income for the month and on the accumulated deficit at
January 31, 2008. |
|
|
|
The $29 reduction in deferred employee benefits and other
non-current liabilities resulted from adjustments to the
asbestos liability, discounting of workers compensation
liabilities and reductions in certain tax liabilities. |
|
|
|
The fresh start adjustment to other accrued liabilities included
realignment-related exit costs of $32 consisting of $10 of
projected maintenance, security and taxes on assets held for
sale, $9 of costs to be incurred in preparing these assets for
sale and $13 of obligations under lease contracts related to
facilities and equipment that were in use at January 31,
2008 but will cease operations in 2008 as part of restructuring
plans approved prior to Danas emergence from bankruptcy.
Charges to liability accounts, primarily to write off deferred
revenue, reduced the total fresh start adjustment to other
accrued liabilities to $21. |
66
|
|
|
(7) |
|
Charge to accumulated other comprehensive loss for the
remeasurement of retained employee benefit plans. See
Note 15 to the consolidated financial statements. |
|
|
|
|
|
Reduction of pension plan net assets
|
|
$
|
(35
|
)
|
Increase in deferred employee benefits and other non-current
liabilities
|
|
|
(105
|
)
|
|
|
|
|
|
Charge to accumulated other comprehensive loss
|
|
$
|
(140
|
)
|
|
|
|
|
|
|
|
|
(8) |
|
Adjusts accumulated other comprehensive loss to zero. |
|
|
Note 3.
|
Reorganization
Proceedings
|
The Bankruptcy Cases were jointly administered, and the Debtors
managed their businesses as debtors in possession subject to the
supervision of the Bankruptcy Court. We continued normal
business operations during the bankruptcy process and emerged
from bankruptcy on January 31, 2008. See Note 2 for an
explanation of the distributions under the Plan. Except as
specifically provided in the Plan, the distributions under the
Plan were in complete satisfaction, discharge and release of all
claims and third-party ownership interests in the Debtors
arising on or before the Effective Date, including any interest
accrued on such claims from and after the Filing Date.
Liabilities
Subject to Compromise
As required by
SOP 90-7,
liabilities that were being addressed through the bankruptcy
process (i.e., general unsecured nonpriority claims) were
reported as Liabilities subject to compromise and adjusted to
the allowed claim amount as determined through the bankruptcy
process, or to the estimated claim amount if determined to be
probable and estimable in accordance with generally accepted
accounting principles. Certain of these claims were resolved and
satisfied on or before our emergence on January 31, 2008,
while others have been or will be resolved subsequent to
emergence. Although the allowed amount of certain disputed
claims has not yet been determined, our liability associated
with these disputed claims was discharged upon our emergence.
Except for certain specific priority claims (see below), most of
the allowed unsecured nonpriority claims in Class 5B are
being satisfied by distributions from the previously funded
reserve holding shares of Dana common stock. Therefore, the
future resolution of these disputed claims will not have an
impact on our post-emergence results of operations or financial
condition. To the extent that disputed and unliquidated claims
are settled for less than current estimates, additional
distributions will be made to holders of allowed unsecured
nonpriority claims.
Liabilities subject to compromise in the consolidated balance
sheet included those of our discontinued operations and
consisted of the following at December 31, 2007:
|
|
|
|
|
|
|
2007
|
|
|
Accounts payable
|
|
$
|
285
|
|
Pension and other postretirement obligations
|
|
|
1,034
|
|
Debt (including accrued interest of $39)
|
|
|
1,621
|
|
Other
|
|
|
571
|
|
|
|
|
|
|
Consolidated liabilities subject to compromise
|
|
|
3,511
|
|
Payables to non-Debtor subsidiaries
|
|
|
402
|
|
|
|
|
|
|
Debtor liabilities subject to compromise
|
|
$
|
3,913
|
|
|
|
|
|
|
On the Effective Date, the Plan required that certain
liabilities previously reported as liabilities subject to
compromise be retained by Dana. Accordingly, at
December 31, 2007, we reclassified approximately $213 of
liabilities, including $145 of asbestos liabilities, $27 of
pension liabilities and $41 of other liabilities from
liabilities subject to compromise to current or long-term
liabilities of Dana. Liabilities subject to compromise declined
further, by $128, in January 2008 as a result of the retention
of additional liabilities including $111 of priority tax claim
liabilities, $9 of other tax liabilities and $8 of other
liabilities. The remaining liabilities subject to compromise
were discharged at January 31, 2008 under the terms of the
Plan.
67
Reorganization
Items
Professional advisory fees and other costs directly associated
with our reorganization are reported separately as
reorganization items pursuant to
SOP 90-7.
Post-emergence professional fees relate to claim settlements,
plan implementation and other transition costs attributable to
the reorganization. Reorganization items of Prior Dana include
provisions and adjustments to record the carrying value of
certain pre-petition liabilities at their estimated allowable
claim amounts, as well as the costs incurred by non-Debtor
companies as a result of the Debtors bankruptcy
proceedings.
The reorganization items in the consolidated statement of
operations consisted of the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana
|
|
|
|
Prior Dana
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
January 31,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Professional fees
|
|
$
|
19
|
|
|
|
$
|
27
|
|
|
$
|
131
|
|
|
$
|
124
|
|
Contract rejections and claim settlements prior to emergence
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
8
|
|
Employee emergence bonus
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
Foreign tax costs due to reorganization
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
6
|
|
|
|
|
19
|
|
|
|
25
|
|
|
|
17
|
|
Interest income
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(15
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reorganization items
|
|
|
25
|
|
|
|
|
125
|
|
|
|
275
|
|
|
|
143
|
|
Gain on settlement of liabilities subject to compromise
|
|
|
(1
|
)
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization items, net
|
|
$
|
24
|
|
|
|
$
|
98
|
|
|
$
|
275
|
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization items for the one month ended January 31,
2008 include costs incurred during the month and items recorded
at emergence from bankruptcy on January 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2008 Reorganization Items
|
|
|
|
Prior Dana
|
|
|
Reorganization
|
|
|
Total
|
|
|
|
January 1 to
|
|
|
Costs
|
|
|
January 1
|
|
|
|
January 31
|
|
|
Incurred
|
|
|
through
|
|
|
|
Reorganization
|
|
|
Upon
|
|
|
January 31,
|
|
|
|
Costs
|
|
|
Emergence
|
|
|
2008
|
|
|
Professional fees
|
|
$
|
22
|
|
|
$
|
5
|
|
|
$
|
27
|
|
Employee emergence bonus
|
|
|
|
|
|
< |