DAN-2013.06.30-10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
 
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
For the quarterly period ended: June 30, 2013
Commission File Number: 1-1063
 
Dana Holding Corporation
(Exact name of registrant as specified in its charter)
  
Delaware
 
26-1531856
(State of incorporation)
 
(IRS Employer Identification Number)
 
 
 
3939 Technology Drive, Maumee, OH
 
43537
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (419) 887-3000
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  þ    No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
  Yes  þ    No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  þ
Accelerated filer  o
Non-accelerated filer   o
Smaller reporting company  o
(Do not check if a smaller reporting company)
 
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  Yes  o    No  þ

APPLICABLE ONLY TO CORPORATE ISSUERS:
 
There were 146,834,644 shares of the registrant’s common stock outstanding at July 12, 2013.
 





DANA HOLDING CORPORATION – FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013
 
TABLE OF CONTENTS
                                      
 
 
10-Q Pages
 
 
 
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1
Financial Statements
 
 
Consolidated Statement of Operations (Unaudited)
 
Consolidated Statement of Comprehensive Income (Unaudited)
 
Consolidated Balance Sheet (Unaudited)
 
Consolidated Statement of Cash Flows (Unaudited)
 
Notes to Consolidated Financial Statements (Unaudited)
 
 
 
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4
Controls and Procedures
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1
Legal Proceedings
 
 
 
Item 1A
Risk Factors
 
 
 
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 6
Exhibits
 
 
 
Signatures
 
Exhibit Index
 
 

2



PART I – FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
Dana Holding Corporation
Consolidated Statement of Operations (Unaudited)
(In millions except per share amounts)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Net sales
$
1,800

 
$
1,936

 
$
3,476

 
$
3,900

Costs and expenses
 
 
 

 
 

 
 

Cost of sales
1,541

 
1,663

 
3,003

 
3,361

Selling, general and administrative expenses
105

 
110

 
208

 
223

Amortization of intangibles
18

 
19

 
37

 
38

Restructuring charges, net
4

 
19

 
6

 
24

Other income, net
18

 
8

 
20

 
7

Income from continuing operations before interest expense and income taxes
150

 
133

 
242

 
261

Interest expense
21

 
20

 
42

 
41

Income from continuing operations before income taxes
129

 
113

 
200

 
220

Income tax expense
35

 
27

 
62

 
64

Equity in earnings of affiliates
3

 
2

 
7

 
6

Income from continuing operations
97

 
88

 
145

 
162

Income (loss) from discontinued operations
(1
)
 
1

 
1

 


Net income
96

 
89

 
146

 
162

Less: Noncontrolling interests net income
4

 
3

 
12

 
6

Net income attributable to the parent company
92

 
86

 
134

 
156

Preferred stock dividend requirements
7

 
7

 
15

 
15

Net income available to common stockholders
$
85

 
$
79

 
$
119

 
$
141

 
 
 
 
 
 
 
 
Net income per share available to parent company common stockholders:
 

 
 

 
 

 
 

Basic:
 

 
 

 
 

 
 

Income from continuing operations
$
0.59

 
$
0.52

 
$
0.80

 
$
0.96

Income (loss) from discontinued operations
$
(0.01
)
 
$
0.01

 
$
0.01

 
$

Net income
$
0.58

 
$
0.53

 
$
0.81

 
$
0.96

 
 
 
 
 
 
 
 
Diluted:
 

 
 

 
 

 
 

Income from continuing operations
$
0.44

 
$
0.40

 
$
0.62

 
$
0.73

Income from discontinued operations
$

 
$

 
$
0.01

 
$

Net income
$
0.44

 
$
0.40

 
$
0.63

 
$
0.73

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding
 

 
 

 
 

 
 

Basic
145.9

 
147.9

 
146.9

 
147.7

Diluted
211.9

 
214.6

 
213.1

 
214.7

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.05

 
$
0.05

 
$
0.10

 
$
0.10

 
The accompanying notes are an integral part of the consolidated financial statements. 

3



Dana Holding Corporation
Consolidated Statement of Comprehensive Income (Unaudited)
(In millions)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
96

 
$
89

 
$
146

 
$
162

Less: Noncontrolling interests net income
4

 
3

 
12

 
6

Net income attributable to the parent company
92

 
86

 
134

 
156

 
 
 
 
 
 
 
 
Other comprehensive income (loss) attributable to the parent company, net of tax:
 

 
 

 
 

 
 

Currency translation adjustments
(47
)
 
(79
)
 
(64
)
 
(35
)
Change in unrealized hedging gains and losses
(6
)
 


 
(3
)
 
8

Change in unrealized investment and other gains and losses
(10
)
 
(1
)
 
(9
)
 
1

Defined benefit plans
6

 
4

 
14

 
6

Other comprehensive loss attributable to the parent company
(57
)
 
(76
)
 
(62
)
 
(20
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) attributable to noncontrolling interests, net of tax:
 

 
 

 
 

 
 

Currency translation adjustments
(3
)
 
(1
)
 
(5
)
 


Other comprehensive loss attributable to noncontrolling interests
(3
)
 
(1
)
 
(5
)
 

 
 
 
 
 
 
 
 
Total comprehensive income attributable to the parent company
35

 
10

 
72

 
136

Total comprehensive income attributable to noncontrolling interests
1

 
2

 
7

 
6

Total comprehensive income
$
36

 
$
12

 
$
79

 
$
142

 
The accompanying notes are an integral part of the consolidated financial statements.
 


4



Dana Holding Corporation
Consolidated Balance Sheet (Unaudited)
(In millions except share and per share amounts)
 
June 30,
2013
 
December 31,
2012
Assets
 

 
 

Current assets
 

 
 

Cash and cash equivalents
$
1,030

 
$
1,059

Marketable securities
97

 
60

Accounts receivable
 

 
 

Trade, less allowance for doubtful accounts of $8 in 2013 and 2012
975

 
818

Other
163

 
170

Inventories
 

 
 

Raw materials
394

 
388

Work in process and finished goods
379

 
354

Other current assets
122

 
104

Total current assets
3,160

 
2,953

Goodwill
100

 
101

Intangibles
273

 
325

Other noncurrent assets
252

 
324

Investments in affiliates
210

 
202

Property, plant and equipment, net
1,179

 
1,239

Total assets
$
5,174

 
$
5,144

 
 
 
 
Liabilities and equity
 

 
 

Current liabilities
 

 
 

Notes payable, including current portion of long-term debt
$
74

 
$
101

Accounts payable
938

 
766

Accrued payroll and employee benefits
150

 
160

Accrued restructuring costs
15

 
23

Taxes on income
69

 
63

Other accrued liabilities
169

 
197

Total current liabilities
1,415

 
1,310

Long-term debt
824

 
803

Pension and postretirement obligations
669

 
715

Other noncurrent liabilities
355

 
368

Total liabilities
3,263

 
3,196

Commitments and contingencies (Note 13)


 


Parent company stockholders' equity
 

 
 

Preferred stock, 50,000,000 shares authorized
 

 
 

Series A, $0.01 par value, 2,500,000 shares outstanding
242

 
242

Series B, $0.01 par value, 5,072,591 and 5,221,199 shares outstanding
497

 
511

Common stock, $0.01 par value, 450,000,000 shares authorized, 145,695,504 and 148,264,067 outstanding
2

 
2

Additional paid-in capital
2,703

 
2,668

Accumulated deficit
(658
)
 
(762
)
Treasury stock, at cost (6,966,217 and 1,797,988 shares)
(115
)
 
(25
)
Accumulated other comprehensive loss
(858
)
 
(793
)
Total parent company stockholders' equity
1,813

 
1,843

Noncontrolling equity
98

 
105

Total equity
1,911

 
1,948

Total liabilities and equity
$
5,174

 
$
5,144

 
The accompanying notes are an integral part of the consolidated financial statements. 

5



Dana Holding Corporation
Consolidated Statement of Cash Flows (Unaudited)
(In millions)
 
 
Six Months Ended
June 30,
 
2013
 
2012
Operating activities
 

 
 

Net income
$
146

 
$
162

Depreciation
82

 
96

Amortization of intangibles
43

 
44

Amortization of deferred financing charges
3

 
3

Unremitted earnings of affiliates
(6
)
 
(4
)
Stock compensation expense
9

 
10

Deferred income taxes


 
(5
)
Pension contributions, net
(20
)
 
(181
)
Interest payment received on payment-in-kind note receivable
26

 
 
Change in working capital
(84
)
 
(139
)
Other, net
(12
)
 
5

Net cash provided by (used in) operating activities
187

 
(9
)
 
 
 
 
Investing activities
 

 
 

Purchases of property, plant and equipment
(71
)
 
(71
)
Acquisition of business
(8
)
 


Principal payment received on payment-in-kind note receivable
33

 
 
Purchases of marketable securities
(66
)
 
(8
)
Proceeds from sales of marketable securities
24

 
4

Proceeds from maturities of marketable securities
5

 
3

Other
8

 
4

Net cash used in investing activities
(75
)
 
(68
)
 
 
 
 
Financing activities
 

 
 

Net change in short-term debt
(1
)
 
43

Proceeds from long-term debt
57

 
29

Repayment of long-term debt
(48
)
 
(5
)
Deferred financing payments
(3
)
 
 
Dividends paid to preferred stockholders
(15
)
 
(15
)
Dividends paid to common stockholders
(15
)
 
(15
)
Distributions to noncontrolling interests
(2
)
 
(2
)
Repurchases of common stock
(86
)
 


Payments to acquire noncontrolling interests
(7
)
 
 
Other
3

 
1

Net cash provided by (used in) financing activities
(117
)
 
36

 
 
 
 
Net decrease in cash and cash equivalents
(5
)
 
(41
)
Cash and cash equivalents – beginning of period
1,059

 
931

Effect of exchange rate changes on cash balances
(24
)
 
(9
)
Cash and cash equivalents – end of period
$
1,030

 
$
881

 
The accompanying notes are an integral part of the consolidated financial statements.

6



Dana Holding Corporation
Index to Notes to Consolidated Financial Statements
 
1.
Organization and Summary of Significant Accounting Policies
 
 
2.
Acquisitions and Divestitures
 
 
3.
Discontinued Operations
 
 
4.
Goodwill and Other Intangible Assets
 
 
5.
Restructuring of Operations
 
 
6.
Stockholders' Equity
 
 
7.
Earnings per Share
 
 
8.
Stock Compensation
 
 
9.
Pension and Postretirement Benefit Plans
 
 
10.
Marketable Securities
 
 
11.
Financing Agreements
 
 
12.
Fair Value Measurements and Derivatives
 
 
13.
Commitments and Contingencies
 
 
14.
Warranty Obligations
 
 
15.
Income Taxes
 
 
16.
Other Income, Net
 
 
17.
Segments
 
 
18.
Equity Affiliates
 


 

7



Notes to Consolidated Financial Statements (Unaudited)
(In millions, except share and per share amounts)

Note 1. Organization and Summary of Significant Accounting Policies
 
General
 
Dana Holding Corporation (Dana) is headquartered in Maumee, Ohio and was incorporated in Delaware in 2007. As a leading supplier of driveline products (axles, driveshafts and transmissions), power technologies (sealing and thermal management products) and genuine service parts for vehicle manufacturers, our customer base includes virtually every major vehicle manufacturer in the global light vehicle, medium/heavy vehicle and off-highway markets.

The terms "Dana," "we," "our" and "us," when used in this report, are references to Dana. These references include the subsidiaries of Dana unless otherwise indicated or the context requires otherwise.
 
Summary of significant accounting policies
 
Basis of presentation — Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. These statements are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. The results reported in these consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the consolidated financial statements in Item 8 of our 2012 Form 10-K.
 
Discontinued operations — We classify a business component that has been disposed of or classified as held for sale as discontinued operations if the cash flows of the component have been or will be eliminated from our ongoing operations and we will no longer have any significant continuing involvement in or with the component. The results of operations of our discontinued operations, including any gains or losses on disposition, are aggregated and presented on one line in the consolidated statement of operations. See Note 3 for additional information regarding our discontinued operations.
 
Recently adopted accounting pronouncements
 
In December 2011, the Financial Accounting Standards Board (FASB) issued guidance to enhance disclosures about offsetting assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The guidance was effective January 1, 2013. The adoption of this guidance did not impact our financial condition or results of operations.
 
Recently issued accounting pronouncements

In March 2013, the FASB issued guidance to clarify existing requirements for the release - the recognition of an amount in the income statement - of the cumulative translation adjustment. The guidance applies to the release of cumulative translation adjustment when an entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. It also applies to the release of the cumulative translation adjustment when there is a loss of a controlling financial interest in a foreign entity or a step acquisition involving an equity method investment that is a foreign entity. The accounting for the financial interest within a foreign entity is the same regardless of the form of the transaction. The guidance will be applied to relevant transactions that occur on or after January 1, 2014. The impact related to this guidance is not presently determinable.

In February 2013, the FASB issued guidance related to obligations resulting from joint and several liability arrangements where the amount of the obligation is fixed at the reporting date. Obligations within scope include certain debt arrangements and settled litigation but not contingencies, guarantees, retirement benefits or income taxes. The guidance, which is effective January 1, 2014, is not expected to impact our financial condition or results of operations.


8



In July 2012, the FASB issued guidance to provide an option in a company's annual indefinite-lived intangible asset impairment test to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that an asset is impaired. If, after assessing all events and circumstances, it is determined that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. The changes are effective for annual and interim impairment tests performed after January 1, 2013. Adoption of this guidance will not impact our financial condition or results of operations.
 
Note 2. Acquisitions and Divestitures
 
Fallbrook — On September 10, 2012, we entered into a strategic alliance with Fallbrook Technologies Inc. (Fallbrook). Among the agreements executed was an exclusive license agreement allowing Dana to engineer, produce and sell transmission components and other advanced powertrain solutions with Fallbrook’s continuously variable planetary (CVP) technology for passenger and certain off-highway vehicles in the end markets Dana serves. The exclusive license agreement, along with an engineering services agreement and key engineers hired from Fallbrook, provide Dana with intellectual property, processes, techniques, technical data, training, designs and drawings related to the development, application, use, manufacture and production of the CVP technology. The transaction with Fallbrook has been accounted for as a business combination.
 
Dana paid Fallbrook $20 under the exclusive license agreement for the markets licensed to Dana; $7 was paid at closing, $5 was paid during the fourth quarter of 2012 and $8 was paid during the first half of 2013. The aggregate fair value of the assets acquired of $20 has been allocated to intangible assets used in research and development activities which are initially classified as indefinite-lived with $12 and $8 assigned to our Off-Highway and Light Vehicle Driveline (LVD) operating segments, respectively. We used the multi-period excess earnings method, an income approach, to value the intangible assets used in research and development activities.
 
Divestiture of Structural Products business — In March 2010, we sold substantially all of the assets of our Structural Products business to Metalsa S.A. de C.V. (Metalsa). Approximately $12 of the proceeds was paid into escrow. The agreement provided for those funds to be released to Dana by June 2012; however, the buyer has presented claims to the escrow agent seeking indemnification from Dana. The escrow agent is precluded from releasing the funds held in escrow until Dana and the buyer resolve the issues underlying the claims. The parties are pursuing an arbitration process to resolve the issues with arbitration currently expected to take place during the fourth quarter. Dana does not presently believe that any obligation to indemnify the buyer will be material.
 
Other — We completed the divestiture of our axle, differential and brake systems business serving the leisure, all-terrain and utility vehicle markets in August 2012. The total proceeds received of $8 approximated the net assets of the business following an asset impairment charge of $2 recorded in the first quarter of 2012. Sales of the divested business approximated $32 in 2012 through the date of the disposition.
 
Note 3. Discontinued Operations
 
The sale of substantially all of the assets of our Structural Products business in 2010 excluded the facility in Longview, Texas and its employees and manufacturing assets related to a significant customer contract. The customer contract was satisfied and operations concluded in August 2012. As a result of the cessation of all operations, the former Structural Products business is now presented as discontinued operations in the accompanying financial statements.
 

9



The results of the discontinued operations were as follows: 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Sales
$

 
$
13

 
$

 
$
26

Cost of sales
1

 
11

 
1

 
22

Restructuring expense


 
1

 
1

 
2

Other income (expense), net


 


 
3

 
(2
)
Pre-tax income (loss)
(1
)
 
1

 
1

 

Income tax expense

 

 

 

Income (loss) from discontinued operations
$
(1
)
 
$
1

 
$
1

 
$

 
The Longview facility was sold in March 2013 for an amount that approximated its carrying value. A previously closed plant in Canada remains on the balance sheet with a book value of $4 at June 30, 2013. Other assets and liabilities related to the discontinued operations at June 30, 2013 were not material.
 
Note 4. Goodwill and Other Intangible Assets
 
Goodwill — Our goodwill is assigned to our Off-Highway operating segment. The changes in the carrying amount of goodwill are due to currency fluctuations.
 
Components of other intangible assets — 
 
 
 
June 30, 2013
 
December 31, 2012
 
Weighted Average
Useful Life
(years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Amortizable intangible assets
 
 
 

 
 

 
 

 
 

 
 

 
 

Core technology
7
 
$
92

 
$
(75
)
 
$
17

 
$
93

 
$
(69
)
 
$
24

Trademarks and trade names
16
 
4

 
(1
)
 
3

 
4

 
(1
)
 
3

Customer relationships
8
 
525

 
(357
)
 
168

 
538

 
(325
)
 
213

Non-amortizable intangible assets
 
 


 


 


 


 


 


Trademarks and trade names
 
 
65

 


 
65

 
65

 


 
65

Used in research and development activities
 
 
20

 


 
20

 
20

 


 
20

 
 
 
$
706

 
$
(433
)
 
$
273

 
$
720

 
$
(395
)
 
$
325

  
The net carrying amounts of intangible assets, other than goodwill, attributable to each of our operating segments at June 30, 2013 were as follows: LVD — $16, Power Technologies — $23, Commercial Vehicle — $149 and Off-Highway — $85.
 
Amortization expense related to amortizable intangible assets — 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Charged to cost of sales
$
3

 
$
3

 
$
6

 
$
6

Charged to amortization of intangibles
18

 
19

 
37

 
38

Total amortization
$
21

 
$
22

 
$
43

 
$
44

 
The following table provides the estimated aggregate pre-tax amortization expense related to intangible assets for each of the next five years based on June 30, 2013 exchange rates. Actual amounts may differ from these estimates due to such factors as currency translation, customer turnover, impairments, additional intangible asset acquisitions and other events. 

10



 
Remainder of 2013
 
2014
 
2015
 
2016
 
2017
Amortization expense
$
43

 
$
49

 
$
22

 
$
20

 
$
17

 
Note 5. Restructuring of Operations
 
Our restructuring activities primarily include rationalizing our operating footprint by consolidating facilities, positioning operations in lower cost locations and reducing overhead costs. Restructuring expense includes costs associated with current and previously announced actions and is comprised of contractual and noncontractual separation costs and exit costs, including costs associated with lease continuation obligations and certain operating costs of facilities that we are in the process of closing.
 
During the second quarter of 2013, we implemented certain headcount reduction initiatives, primarily in our Light Vehicle and Commercial Vehicle businesses in Argentina and Australia. New customer programs and other developments in our North American Light Vehicle business and a decision by our European Off-Highway business to in-source the manufacturing of certain parts resulted in the reversal of previously accrued severance obligations. Restructuring expense of $4, net of the aforementioned reversals, during the second quarter of 2013 is attributable to newly implemented and previously announced initiatives and includes $3 of severance and related benefits costs and $1 of exit costs.

During the first quarter of 2013, restructuring expense of $3, including $1 associated with discontinued operations, was primarily attributable to exit costs associated with previously announced initiatives.
 
During the second quarter of 2012, we implemented and recognized the costs of specific headcount reduction initiatives, primarily associated with certain of our South American operations. Additionally, we exited our Kalamazoo, Michigan facility and recognized the fair value of the associated lease continuation obligation. Total restructuring expense in the second quarter of 2012 to recognize the costs of these actions as well as costs associated with other previously announced initiatives was $20, including $1 associated with discontinued operations, and includes $7 of severance and related benefits costs and $13 of exit costs.

During the first quarter of 2012, restructuring expense of $6, including $1 associated with discontinued operations, was attributable to costs associated with previously announced initiatives and included $4 of severance and related benefits costs and $2 of exit costs.
 
Restructuring charges and related payments and adjustments — 
 
Employee
Termination
Benefits
 
Exit
Costs
 
Total
Balance at March 31, 2013
$
21

 
$
12

 
$
33

Activity during the period:


 


 
 

Charges to restructuring
9

 
1

 
10

Adjustments of accruals
(6
)
 


 
(6
)
Cash payments
(10
)
 
(2
)
 
(12
)
Balance at June 30, 2013, including noncurrent portion
$
14

 
$
11

 
$
25

 
 
 
 
 
 
Balance at December 31, 2012
$
27

 
$
13

 
$
40

Activity during the period:


 


 
 

Charges to restructuring
10

 
3

 
13

Adjustments of accruals
(7
)
 


 
(7
)
Discontinued operations charges


 
1

 
1

Cash payments
(16
)
 
(6
)
 
(22
)
Balance at June 30, 2013, including noncurrent portion
$
14

 
$
11

 
$
25

 
At June 30, 2013, the accrued employee termination benefits relate to the reduction of approximately 400 employees to be completed over the next three years. The exit costs relate primarily to lease continuation obligations. We estimate cash expenditures to approximate $9 in 2013 and $16 thereafter.
 

11



Cost to complete — The following table provides project-to-date and estimated future expenses for completion of our pending restructuring initiatives. 
 
Expense Recognized
 
Future
Cost to
Complete
 
Prior to
2013
 
2013
 
Total
to Date
 
LVD
$
18

 
$
2

 
$
20

 
$
8

Power Technologies
9

 


 
9

 
2

Commercial Vehicle
19

 
6

 
25

 
7

Off-Highway
8

 
(3
)
 
5

 
1

Corporate


 
1

 
1

 


Discontinued operations
4

 
1

 
5

 
4

Total
$
58

 
$
7

 
$
65

 
$
22

 
The future cost to complete includes estimated separation costs, primarily those associated with one-time benefit programs, and exit costs, including lease continuation costs, equipment transfers and other costs which are required to be recognized as closures are finalized or as incurred during the closure.
 
Note 6. Stockholders’ Equity

Series A and Series B preferred stock — Dividends on our 4.0% Series A Convertible Preferred Stock and 4.0% Series B Convertible Preferred Stock (preferred stock) are accrued monthly and are payable in cash as approved by the Board of Directors. Preferred dividends accrued but not paid were $8 at both June 30, 2013 and December 31, 2012.

During the second quarter of 2013, holders of 148,608 shares of Series B Preferred Stock elected to convert those preferred shares into common stock and received 1,252,546 shares. The common stock issued included shares to satisfy the accrued dividends owed to the converting preferred stockholders. Based on the market price of Dana common stock on the date of conversion, the fair value of the conversions totaled $23.

Common stock — Our Board of Directors declared a quarterly cash dividend of five cents per share of common stock in both the first and second quarters of 2013. Dividends accrue on restricted stock units granted under our stock compensation program and will be paid in cash or additional units only when the underlying units vest.

On October 25, 2012, our Board of Directors approved a share repurchase program for up to $250 of our outstanding shares of common stock over a two-year period. On June 28, 2013, our Board of Directors approved an expansion of the share repurchase program to up to $1,000 over the next two years. The stock repurchases are subject to prevailing market conditions and other considerations. Under the program, we repurchased 4,947,677 shares of our common stock during the first half of 2013. At June 30, 2013, $899 remained available for future share repurchases.


12



Changes in equity
 
 
2013
 
2012
Three Months Ended June 30,
 
Attributable to Parent
 
Attributable
to Non-
controlling Interests
 
Total
Equity
 
Attributable to Parent
 
Attributable
to Non-
controlling Interests
 
Total
Equity
Balance, March 31
 
$
1,847

 
$
101

 
$
1,948

 
$
1,853

 
$
105

 
$
1,958

Total comprehensive income
 
35

 
1

 
36

 
10

 
2

 
12

Preferred stock dividends
 
(7
)
 


 
(7
)
 
(7
)
 


 
(7
)
Common stock dividends
 
(7
)
 


 
(7
)
 
(8
)
 


 
(8
)
Distributions to noncontrolling interests
 


 
(4
)
 
(4
)
 


 
(8
)
 
(8
)
Common stock share repurchases
 
(62
)
 


 
(62
)
 


 


 

Stock compensation
 
9

 


 
9

 
4

 


 
4

Stock withheld for employee taxes
 
(2
)
 


 
(2
)
 
(1
)
 


 
(1
)
Balance, June 30
 
$
1,813

 
$
98

 
$
1,911

 
$
1,851

 
$
99

 
$
1,950

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 

 
 

 
 

 
 

 
 

 
 

Balance, December 31
 
$
1,843

 
$
105

 
$
1,948

 
$
1,737

 
$
101

 
$
1,838

Total comprehensive income
 
72

 
7

 
79

 
136

 
6

 
142

Preferred stock dividends
 
(15
)
 


 
(15
)
 
(15
)
 


 
(15
)
Common stock dividends
 
(15
)
 


 
(15
)
 
(15
)
 


 
(15
)
Distributions to noncontrolling interests
 


 
(5
)
 
(5
)
 


 
(8
)
 
(8
)
Common stock share repurchases
 
(86
)
 


 
(86
)
 


 


 

Adjustments to paid-in capital for purchase of noncontrolling interests
 
6

 


 
6

 
 
 
 
 
 
Adjustments to other comprehensive income for purchase of noncontrolling interests
 
(3
)
 


 
(3
)
 
 
 
 
 
 
Purchase of noncontrolling interests
 


 
(9
)
 
(9
)
 
 
 
 
 
 
Stock compensation
 
15

 


 
15

 
9

 


 
9

Stock withheld for employee taxes
 
(4
)
 


 
(4
)
 
(1
)
 


 
(1
)
Balance, June 30
 
$
1,813

 
$
98

 
$
1,911

 
$
1,851

 
$
99

 
$
1,950



13



Changes in components of Accumulated Other Comprehensive Income (Loss) (AOCI) of the parent
 
Parent Company Stockholders
 
Foreign Currency Translation
 
Hedging
 
Investments
 
Defined Benefit Plans
 
Accumulated Other Comprehensive Income (Loss)
Balance, March 31, 2013
$
(219
)
 
$
7

 
$
13

 
$
(602
)
 
$
(801
)
Other comprehensive income (loss):

 

 

 

 
 
Currency translation adjustments
(47
)
 

 

 

 
(47
)
Holding gains (losses)

 
(3
)
 
(2
)
 

 
(5
)
Reclassification of amount to net income (a)

 
(3
)
 
(8
)
 

 
(11
)
Amortization of net actuarial losses included in net periodic benefit cost (b)

 

 

 
6

 
6

Other comprehensive income (loss)
(47
)
 
(6
)
 
(10
)
 
6

 
(57
)
Balance, June 30, 2013
$
(266
)
 
$
1

 
$
3

 
$
(596
)
 
$
(858
)
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2012
$
(148
)
 
$
(2
)
 
$
12

 
$
(456
)
 
$
(594
)
Other comprehensive income (loss):

 

 

 

 
 
Currency translation adjustments
(79
)
 

 

 

 
(79
)
Holding gains (losses)

 
(4
)
 
(1
)
 

 
(5
)
Reclassification of amount to net income (a)

 
4

 

 

 
4

Amortization of net actuarial losses included in net periodic benefit cost (b)

 

 

 
4

 
4

Other comprehensive income (loss)
(79
)
 

 
(1
)
 
4

 
(76
)
Balance, June 30, 2012
$
(227
)
 
$
(2
)
 
$
11

 
$
(452
)
 
$
(670
)


Balance, December 31, 2012
$
(198
)
 
$
3

 
$
12

 
$
(610
)
 
$
(793
)
Other comprehensive income (loss):

 

 

 

 
 
Currency translation adjustments
(64
)
 

 

 

 
(64
)
Holding gains (losses)

 
2

 
(1
)
 

 
1

Reclassification of amount to net income (a)

 
(5
)
 
(8
)
 

 
(13
)
Venezuelan bolivar devaluation

 

 

 
2

 
2

Amortization of net actuarial losses included in net periodic benefit cost (b)

 

 

 
12

 
12

Other comprehensive income (loss)
(64
)
 
(3
)
 
(9
)
 
14

 
(62
)
Adjustment for purchase of noncontrolling interests
(4
)
 
1

 
 
 
 
 
(3
)
Balance, June 30, 2013
$
(266
)
 
$
1

 
$
3

 
$
(596
)
 
$
(858
)
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2011
$
(192
)
 
$
(10
)
 
$
10

 
$
(458
)
 
$
(650
)
Other comprehensive income (loss):

 

 

 

 
 
Currency translation adjustments
(35
)
 

 

 

 
(35
)
Holding gains (losses)

 
4

 
1

 

 
5

Reclassification of amount to net income (a)

 
6

 

 

 
6

Net actuarial loss

 

 

 
(1
)
 
(1
)
Amortization of net actuarial losses included in net periodic benefit cost (b)

 

 

 
7

 
7

Tax expense

 
(2
)
 

 

 
(2
)
Other comprehensive income (loss)
(35
)
 
8

 
1

 
6

 
(20
)
Balance, June 30, 2012
$
(227
)
 
$
(2
)
 
$
11

 
$
(452
)
 
$
(670
)

(a) Foreign currency contract and investment reclassifications are included in other income, net.
(b) See Note 9 for additional details.


14



During the first quarter of 2013, Dana purchased the noncontrolling interests in three of its subsidiaries for $7. Dana maintained its controlling financial interest in each of the subsidiaries and accounted for the purchases as equity transactions. The difference between the fair value of the consideration paid and the carrying value of the noncontrolling interests was recognized as additional paid-in capital of the parent company. At the time of the purchases the subsidiaries had accumulated other comprehensive income. Accumulated other comprehensive income of the parent company has been adjusted to reflect the ownership interest change with a corresponding offset to additional paid-in capital of the parent company.

Note 7. Earnings per Share
 
Reconciliation of the numerators and denominators of the earnings per share calculations — 

Three Months Ended
June 30,

Six Months Ended
June 30,
 
2013

2012

2013

2012
Income from continuing operations
$
97


$
88


$
145


$
162

Less: Noncontrolling interests
4


3


12


6

Less: Preferred stock dividend requirements
7


7


15


15

Income from continuing operations available to common stockholders - Numerator basic
86


78


118


141

Preferred stock dividend requirements
7


7


15


15

Numerator diluted
$
93


$
85


$
133


$
156













Net income available to common stockholders - Numerator basic
$
85


$
79


$
119


$
141

Preferred stock dividend requirements
7


7


15


15

Numerator diluted
$
92


$
86


$
134


$
156

























Weighted-average number of shares outstanding - Denominator basic
145.9


147.9


146.9


147.7

Employee compensation-related shares, including stock options
1.4


2.0


1.6


2.3

Conversion of preferred stock
64.6


64.7


64.6


64.7

Denominator diluted
211.9


214.6


213.1


214.7

 
The share count for diluted earnings per share is computed on the basis of the weighted-average number of common shares outstanding plus the effects of dilutive common stock equivalents (CSEs) outstanding during the period. We excluded 0.3 million and 1.4 million CSEs from the calculations of diluted earnings per share for the respective quarters ended June 30 and 0.6 million and 1.0 million CSEs from the calculations of diluted earnings per share for the respective year-to-date periods ended June 30 as the effect of including them would have been anti-dilutive.
 
Note 8. Stock Compensation
 
The Compensation Committee of our Board of Directors approved the grant of stock options, stock appreciation rights (SARs) and restricted stock units (RSUs) shown in the table below during the first half of 2013. 
 
 
 
Weighted-average Per Share
 
Granted
(In millions)
 
Exercise
Price
 
Grant Date
Fair Value
Stock options
0.9

 
$
16.21

 
$
7.46

SARs
0.2

 
$
16.19

 
$
7.45

RSUs
0.5

 


 
$
16.26

 
Stock options and SARs related to 0.8 million shares were exercised and an insignificant number of shares were forfeited in 2013. We received $7 of cash from the exercise of stock options and we paid $2 of cash to settle SARs and performance share units during 2013. We also issued 0.2 million in RSUs and 0.4 million in performance shares based on vesting.
 

15



We estimated fair values for options and SARs granted during 2013 using the following key assumptions as part of the Black-Scholes option pricing model. The expected term was estimated using the simplified method because the limited period of time our common stock has been publicly traded provides insufficient historical exercise data. The risk-free rate was based on U.S. Treasury security yields at the time of grant. The dividend yield was calculated by dividing the expected annual dividend by the average stock price of our common stock over the prior year. The expected volatility was estimated using a combination of the historical volatility of similar entities and the implied volatility of our exchange-traded options. 
 
Options
 
SARs
Expected term (in years)
6.00

 
6.00

Risk-free interest rate
1.07
%
 
1.07
%
Dividend yield
1.41
%
 
1.41
%
Expected volatility
55.80
%
 
55.80
%
 
We recognized stock compensation expense of $4 and $3 during the second quarter of 2013 and 2012 and $9 and $10 during the first half of 2013 and 2012. At June 30, 2013, the total unrecognized compensation cost related to the nonvested awards granted and expected to vest was $26. This cost is expected to be recognized over a weighted-average period of 2.1 years.
 
Note 9. Pension and Postretirement Benefit Plans
 
We have a number of defined contribution and defined benefit, qualified and nonqualified, pension plans covering eligible employees. Other postretirement benefits (OPEB), including medical and life insurance, are provided for certain employees upon retirement.
 
Components of net periodic benefit costs — 
 
 
Pension
 
 
 
 
2013
 
2012
 
OPEB - Non-U.S.
Three Months Ended June 30,
 
U.S.
 
Non-U.S.
 
U.S.
 
Non-U.S.
 
2013
 
2012
Interest cost
 
$
19

 
$
3

 
$
22

 
$
3

 
$
1

 
$
2

Expected return on plan assets
 
(29
)
 


 
(29
)
 
(1
)
 


 


Service cost
 


 
2

 


 
1

 


 


Amortization of net actuarial loss
 
5

 
1

 
4

 


 


 


Net periodic (benefit) cost
 
$
(5
)
 
$
6

 
$
(3
)
 
$
3

 
$
1

 
$
2

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 

 
 

 
 

 
 

 
 

 
 

Interest cost
 
$
38

 
$
6

 
$
43

 
$
6

 
$
2

 
$
3

Expected return on plan assets
 
(58
)
 


 
(56
)
 
(1
)
 


 


Service cost
 


 
3

 


 
2

 


 


Amortization of net actuarial loss
 
10

 
2

 
7

 


 


 


Net periodic (benefit) cost
 
$
(10
)
 
$
11

 
$
(6
)
 
$
7

 
$
2

 
$
3

 
In the first quarter of 2013 we contributed $10 to the U.S. pension plans.
 
Note 10. Marketable Securities 
 
June 30, 2013
 
December 31, 2012
 
Cost
 
Unrealized
Gain (Loss)
 
Fair
Value
 
Cost
 
Unrealized
Gain (Loss)
 
Fair
Value
U.S. government securities
$
25

 
$

 
$
25

 
$
7

 
$

 
$
7

Corporate securities
28

 
(1
)
 
27

 
11

 


 
11

Certificates of deposit
15

 


 
15

 
16

 


 
16

Other
32

 
(2
)
 
30

 
25

 
1

 
26

Total marketable securities
$
100

 
$
(3
)
 
$
97

 
$
59

 
$
1

 
$
60


16



 
U.S. government securities include bonds issued by government-sponsored agencies and Treasury notes. Corporate securities include both debt and equity securities. Other consists of investments in mutual and index funds. U.S. government securities, corporate debt and certificates of deposit maturing in one year or less, after one year through five years and after five years total $16, $48 and $3 at June 30, 2013.

 
Note 11. Financing Agreements
 
Long-term debt at
 
 
Interest
Rate
 
June 30,
2013
 
December 31,
2012
Senior Notes due 2019
 
6.50%
 
$
400

 
$
400

Senior Notes due 2021
 
6.75%
 
350

 
350

Other indebtedness
 
 
 
107

 
109

Total
 
 
 
857

 
859

Less: current maturities
 
 
 
33

 
56

Total long-term debt
 
 
 
$
824

 
$
803


The weighted-average interest rate on the senior notes was 6.62%. Interest on the senior notes is payable semi-annually on February 15 and August 15.

Revolving facility — On June 20, 2013, we received commitments from existing lenders for a $500 amended and restated revolving credit facility (the Amended Revolving Facility) which expires on June 20, 2018. In connection with Amended Revolving Facility, we paid $3 in deferred financing costs to be amortized to interest expense over the life of the facility. We wrote off $2 of previously deferred financing costs associated with our prior revolving credit facility to other income, net.

The Amended Revolving Facility is guaranteed by all of our domestic subsidiaries except for Dana Credit Corporation and Dana Companies, LLC and their respective subsidiaries (the guarantors) and grants a first priority lien on Dana's and the guarantors' accounts receivable and inventories and, under certain circumstances, to the extent Dana and the guarantors grant a first-priority lien on certain other assets and property, a second-priority lien on such other assets and property.

Advances under the Amended Revolving Facility bear interest at a floating rate based on, at our option, the base rate or London Interbank Offered Rate (LIBOR) (each as described in the revolving credit agreement) plus a margin based on the undrawn amounts available under the agreement as set forth below:
Remaining Borrowing Availability
 
Base Rate
 
LIBOR Rate
Greater than $350
 
0.50
%
 
1.50
%
Greater than $150 but less than or equal to $350
 
0.75
%
 
1.75
%
$150 or less
 
1.00
%
 
2.00
%

Commitment fees are applied based on the average daily unused portion of the available amounts under the Amended Revolving Facility. If the average daily unused portion of the revolving facility is less than 50%, the applicable fee will be 0.25% per annum. If the average daily unused portion of the revolving facility is equal to or greater than 50%, the applicable fee will be 0.375% per annum. Up to $300 of the revolving facility may be applied to letters of credit, which reduces availability. We pay a fee for issued and undrawn letters of credit in an amount per annum equal to the applicable LIBOR margin based on quarterly average availability under the revolving facility and a per annum fronting fee of 0.125%, payable quarterly.

There were no borrowings under the revolving facility at June 30, 2013 but we had utilized $70 for letters of credit. Based on our borrowing base collateral of $373, we had potential availability at June 30, 2013 under the revolving facility of $303 after deducting the outstanding letters of credit.
 
European receivables loan facility — Certain of our European subsidiaries participate in an accounts receivable backed credit facility (the European Facility) which permits borrowings of up to €75 ($98 at the June 30, 2013 exchange rate). Availability

17



through the European Facility is subject to the existence of adequate levels of supporting accounts receivable. Advances from the European Facility bear interest based on the LIBOR applicable to the currency in which each advance is denominated or an Alternate Base Rate (as defined). We pay a fee on the unused amount of the European Facility, in addition to other customary fees. At June 30, 2013, we had no borrowings under the European Facility. As of June 30, 2013, we had potential availability of $91 based on the effective borrowing base. The European Facility expires in March 2016.
 
Debt covenants — At June 30, 2013, we were in compliance with the covenants of our financing agreements. Under the Amended Revolving Facility and the senior notes, we are required to comply with certain incurrence-based covenants customary for facilities of these types.
 
Note 12. Fair Value Measurements and Derivatives
 
In measuring the fair value of our assets and liabilities, we use market data or assumptions that we believe market participants would use in pricing an asset or liability including assumptions about risk when appropriate. Our valuation techniques include a combination of observable and unobservable inputs.
 
Fair value measurements on a recurring basis — Assets and liabilities that are carried in our balance sheet at fair value are as follows:
 
 
 
 
Fair Value Measurements Using
 
 
 
 
Quoted
Prices in
Active
Markets
 
Significant
Inputs
Observable
 
Significant
Inputs
Unobservable
June 30, 2013
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Notes receivable - noncurrent asset
 
$
75

 
$

 
$

 
$
75

Marketable securities - current asset
 
97

 
57

 
40

 


Currency forward contracts - current asset
 
2

 


 
2

 


Currency forward contracts - current liability
 
1

 


 
1

 


 
 
 
 
 
 
 
 
 
December 31, 2012
 
 

 
 

 
 

 
 

Notes receivable - noncurrent asset
 
$
129

 
$

 
$

 
$
129

Marketable securities - current asset
 
60

 
37

 
23

 


Currency forward contracts - current asset
 
4

 


 
4

 


Currency forward contracts - current liability
 
1

 


 
1

 



Changes in Level 3 recurring fair value measurements
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Notes receivable, including current portion
 
2013
 
2012
 
2013
 
2012
Beginning of period
 
$
133

 
$
119

 
$
129

 
$
116

Accretion of value (interest income)
 
3

 
3

 
7

 
7

Payment received
 
(61
)
 
 
 
(61
)
 
 
Other
 


 


 


 
(1
)
End of period
 
$
75

 
$
122

 
$
75

 
$
122


The notes receivable balance represents a payment-in-kind callable note, due 2019, obtained in connection with a divestiture in 2004. The fair value of the note is derived using a discounted cash flow technique and capped at the callable value. The discount rate used in the calculation is the current yield of the publicly traded debt of the operating subsidiary of the obligor, adjusted by a 250 basis point risk premium. The significant unobservable input used to fair value the note is the risk premium. A significant increase in the risk premium may result in a lower fair value measurement. A significant decrease in the risk premium would not result in a higher fair value measurement due to the callable value cap. The fair value of the note at June 30, 2013 equaled the callable value.


18



Fair value of financial instruments – The fair values of financial instruments that do not approximate carrying values in our balance sheet are as follows:
 
June 30, 2013
 
December 31, 2012
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Senior notes
$
750

 
$
794

 
$
750

 
$
805

Other indebtedness
107

 
106

 
109

 
107

Total
$
857

 
$
900

 
$
859

 
$
912


The fair value of our senior notes is estimated based upon a market approach (Level 2) while the fair value of our other indebtedness is based upon an income approach (Level 2).

Fair value measurements on a nonrecurring basis — In addition to items that are measured at fair value on a recurring basis, we also have long-lived assets that may be measured at fair value on a nonrecurring basis. These assets include intangible assets and property, plant and equipment which may be written down to fair value as a result of impairment. 

Foreign currency derivatives — The total notional amounts of outstanding foreign currency forward contracts, comprised of currency forward contracts involving the exchange of various currencies, were $217 as of June 30, 2013 and December 31, 2012.
 
The following currency forward contracts were outstanding at June 30, 2013 and are primarily associated with forecasted transactions involving the purchases and sales of inventory through the next twelve months:
 
 
 
 
Notional Amount (U.S. Dollar Equivalent)
 
 
Functional Currency
 
Traded Currency