FORM 10-Q
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, 2009
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 Number) |
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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) |
(419) 535-4500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark 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
filero
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Accelerated
filerþ
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Non-
accelerated
filero
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Smaller
reporting
companyo |
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(Do not check if a smaller reporting company) |
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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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes þ No o
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class |
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Outstanding at July 31, 2009 |
Common stock, $0.01 par value
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100,106,605 |
DANA HOLDING CORPORATION FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009
TABLE OF CONTENTS
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dana Holding Corporation
Consolidated Statement of Operations (Unaudited)
(In millions except per share amounts)
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Dana |
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Prior Dana |
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Three Months |
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Three Months |
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Six Months |
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Five Months |
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One Month |
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Ended |
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Ended |
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Ended |
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Ended |
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Ended |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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January 31, |
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2009 |
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2008 |
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2009 |
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2008 |
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2008 |
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Net sales |
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$ |
1,190 |
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$ |
2,333 |
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$ |
2,406 |
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$ |
3,894 |
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$ |
751 |
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Costs and expenses |
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Cost of sales |
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1,128 |
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2,188 |
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2,361 |
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3,691 |
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702 |
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Selling, general and administrative expenses |
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59 |
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84 |
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134 |
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149 |
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34 |
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Amortization of intangibles |
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18 |
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19 |
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35 |
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31 |
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Realignment charges, net |
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29 |
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40 |
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79 |
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45 |
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12 |
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Impairment of goodwill |
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75 |
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75 |
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Impairment of intangible assets |
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6 |
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7 |
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6 |
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7 |
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Other income, net |
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61 |
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20 |
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90 |
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52 |
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8 |
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Income (loss) from continuing operations before
interest, reorganization items and income taxes |
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11 |
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(60 |
) |
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(119 |
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(52 |
) |
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11 |
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Interest expense (contractual interest of $17 for
the one month ended January 31, 2008) |
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37 |
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35 |
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72 |
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62 |
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8 |
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Reorganization items |
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(3 |
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12 |
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(2 |
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21 |
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98 |
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Fresh start accounting adjustments |
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1,009 |
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Income (loss) from continuing operations
before income taxes |
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(23 |
) |
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(107 |
) |
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(189 |
) |
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(135 |
) |
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914 |
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Income tax benefit (expense) |
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21 |
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(12 |
) |
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30 |
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(32 |
) |
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(199 |
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Equity in earnings of affiliates |
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(1 |
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2 |
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(4 |
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3 |
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2 |
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Income (loss) from continuing operations |
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(3 |
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(117 |
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(163 |
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(164 |
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717 |
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Loss from discontinued operations |
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(2 |
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(3 |
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(6 |
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Net income (loss) |
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(3 |
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(119 |
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(163 |
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(167 |
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711 |
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Less: Net Income (loss) attributable to
noncontrolling interests |
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(3 |
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3 |
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(6 |
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5 |
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2 |
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Net income (loss) attributable to the parent company |
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- |
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(122 |
) |
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(157 |
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(172 |
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709 |
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Preferred stock dividend requirements |
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8 |
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8 |
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16 |
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13 |
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Net income (loss) available to
common stockholders |
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$ |
(8 |
) |
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$ |
(130 |
) |
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$ |
(173 |
) |
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$ |
(185 |
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$ |
709 |
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Income (loss) per share from continuing
operations attributable to
parent company stockholders: |
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Basic |
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$ |
(0.08 |
) |
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$ |
(1.27 |
) |
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$ |
(1.72 |
) |
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$ |
(1.81 |
) |
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$ |
4.77 |
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Diluted |
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$ |
(0.08 |
) |
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$ |
(1.27 |
) |
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$ |
(1.72 |
) |
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$ |
(1.81 |
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$ |
4.75 |
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Loss per share from discontinued operations
attributable to parent company stockholders: |
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Basic |
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$ |
- |
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$ |
(0.01 |
) |
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$ |
- |
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$ |
(0.02 |
) |
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$ |
(0.04 |
) |
Diluted |
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$ |
- |
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$ |
(0.01 |
) |
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$ |
- |
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$ |
(0.02 |
) |
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$ |
(0.04 |
) |
Net income (loss) per share attributable to
parent company stockholders: |
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Basic |
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$ |
(0.08 |
) |
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$ |
(1.28 |
) |
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$ |
(1.72 |
) |
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$ |
(1.83 |
) |
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$ |
4.73 |
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Diluted |
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$ |
(0.08 |
) |
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$ |
(1.28 |
) |
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$ |
(1.72 |
) |
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$ |
(1.83 |
) |
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$ |
4.71 |
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Average common shares outstanding |
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Basic |
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100 |
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100 |
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100 |
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100 |
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150 |
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Diluted |
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100 |
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100 |
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100 |
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100 |
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150 |
|
The accompanying notes are an integral part of the consolidated financial statements.
2
Dana Holding Corporation
Consolidated Balance Sheet (Unaudited)
(In millions except per share amounts)
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June 30, |
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December 31, |
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2009 |
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2008 |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
553 |
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$ |
777 |
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Accounts receivable |
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Trade, less allowance for doubtful accounts
of $21 in 2009 and $23 in 2008 |
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789 |
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827 |
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Other |
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198 |
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170 |
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Inventories |
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Raw materials |
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318 |
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394 |
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Work in process and
finished goods |
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389 |
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521 |
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Other current assets |
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82 |
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58 |
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Total current assets |
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2,329 |
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2,747 |
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Goodwill |
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109 |
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108 |
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Intangibles |
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521 |
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569 |
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Investments and other assets |
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206 |
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207 |
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Investments in affiliates |
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133 |
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135 |
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Property, plant and equipment, net |
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1,762 |
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1,841 |
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Total assets |
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$ |
5,060 |
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$ |
5,607 |
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Liabilities and equity |
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Current liabilities |
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Notes payable, including current portion of long-term debt |
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$ |
30 |
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$ |
70 |
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Financial obligation related to GM supplier program |
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11 |
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Accounts payable |
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573 |
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|
824 |
|
Accrued payroll and employee benefits |
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121 |
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|
120 |
|
Accrued realignment costs |
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39 |
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|
65 |
|
Taxes on income |
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65 |
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|
93 |
|
Other accrued liabilities |
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|
287 |
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|
274 |
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Total current liabilities |
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1,126 |
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|
1,446 |
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Long-term debt |
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|
1,069 |
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|
1,181 |
|
Deferred employee benefits and other non-current liabilities |
|
|
855 |
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|
845 |
|
Commitments and contingencies (Note 17) |
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Total liabilities |
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3,050 |
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|
3,472 |
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Parent company stockholders equity |
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Preferred stock, 50,000,000 shares authorized |
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Series A, $0.01 par value, 2,500,000 issued and outstanding |
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242 |
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242 |
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Series B, $0.01 par value, 5,400,000 issued and outstanding |
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529 |
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|
529 |
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Common stock, $.01 par value, 450,000,000 authorized,
100,104,605 issued and outstanding |
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1 |
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|
1 |
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Additional paid-in capital |
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2,325 |
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|
2,321 |
|
Accumulated deficit |
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(879 |
) |
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|
(706 |
) |
Accumulated other comprehensive loss |
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|
(308 |
) |
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(359 |
) |
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|
Total parent company stockholders equity |
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|
1,910 |
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|
2,028 |
|
Noncontrolling interests |
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|
100 |
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|
107 |
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|
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Total equity |
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2,010 |
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|
2,135 |
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Total liabilities and equity |
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$ |
5,060 |
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$ |
5,607 |
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The accompanying notes are an integral part of the consolidated financial statements.
3
Dana Holding Corporation
Consolidated Statement of Cash Flows (Unaudited)
(In millions)
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Dana |
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Prior Dana |
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Six Months |
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Five Months |
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One Month |
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Ended |
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Ended |
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Ended |
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|
June 30, |
|
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June 30, |
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January 31, |
|
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|
2009 |
|
|
2008 |
|
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|
2008 |
|
Cash flows - operating activities |
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|
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Net income (loss) |
|
$ |
(163 |
) |
|
$ |
(167 |
) |
|
|
$ |
711 |
|
Depreciation |
|
|
152 |
|
|
|
120 |
|
|
|
|
23 |
|
Amortization of intangibles |
|
|
42 |
|
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|
38 |
|
|
|
|
|
|
Amortization of inventory valuation |
|
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|
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|
49 |
|
|
|
|
|
|
Amortization of deferred financing charges and original issue discount |
|
|
18 |
|
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|
11 |
|
|
|
|
|
|
Impairment of goodwill and other intangible assets |
|
|
6 |
|
|
|
82 |
|
|
|
|
|
|
Deferred income taxes |
|
|
(26 |
) |
|
|
(17 |
) |
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|
|
191 |
|
Gain on extinguishment of debt |
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(40 |
) |
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|
|
|
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Reorganization: |
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|
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|
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Gain on settlement of liabilities subject to compromise |
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|
|
|
|
|
|
|
|
|
|
(27 |
) |
Payment of claims |
|
|
|
|
|
|
(97 |
) |
|
|
|
|
|
Reorganization items net of cash payments |
|
|
(4 |
) |
|
|
(23 |
) |
|
|
|
79 |
|
Fresh start adjustments |
|
|
|
|
|
|
|
|
|
|
|
(1,009 |
) |
Payments to VEBAs |
|
|
|
|
|
|
(733 |
) |
|
|
|
(55 |
) |
Pension - contributions in excess of expense |
|
|
(5 |
) |
|
|
(22 |
) |
|
|
|
|
|
Loss (gain) on sale of businesses and assets |
|
|
(1 |
) |
|
|
1 |
|
|
|
|
7 |
|
Change in working capital |
|
|
(35 |
) |
|
|
(93 |
) |
|
|
|
(61 |
) |
Other, net |
|
|
(21 |
) |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
Net cash flows used in operating activities |
|
|
(77 |
) |
|
|
(851 |
) |
|
|
|
(122 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows - investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(54 |
) |
|
|
(76 |
) |
|
|
|
(16 |
) |
Proceeds from sale of businesses and assets |
|
|
2 |
|
|
|
|
|
|
|
|
5 |
|
Change in restricted cash |
|
|
|
|
|
|
|
|
|
|
|
93 |
|
Other |
|
|
|
|
|
|
(4 |
) |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities |
|
|
(52 |
) |
|
|
(80 |
) |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows - financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term debt |
|
|
(35 |
) |
|
|
(88 |
) |
|
|
|
(18 |
) |
Advance received on corporate facility sale |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Proceeds from Exit Facility debt |
|
|
|
|
|
|
80 |
|
|
|
|
1,350 |
|
Deferred financing payments |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
(40 |
) |
Proceeds from long-term debt |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Reduction of long-term debt |
|
|
(82 |
) |
|
|
(7 |
) |
|
|
|
|
|
Preferred dividends paid |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
Repayment of debtor-in-possession facility |
|
|
|
|
|
|
|
|
|
|
|
(900 |
) |
Payment of DCC Medium Term Notes |
|
|
|
|
|
|
|
|
|
|
|
(136 |
) |
Original issue discount payment |
|
|
|
|
|
|
|
|
|
|
|
(114 |
) |
Issuance of Series A and Series B preferred stock |
|
|
|
|
|
|
|
|
|
|
|
771 |
|
Other |
|
|
(2 |
) |
|
|
(12 |
) |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities |
|
|
(106 |
) |
|
|
(39 |
) |
|
|
|
912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(235 |
) |
|
|
(970 |
) |
|
|
|
867 |
|
Cash and cash equivalents - beginning of period |
|
|
777 |
|
|
|
2,147 |
|
|
|
|
1,271 |
|
Effect of exchange rate changes on cash balances |
|
|
11 |
|
|
|
14 |
|
|
|
|
5 |
|
Net change in cash of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of period |
|
$ |
553 |
|
|
$ |
1,191 |
|
|
|
$ |
2,147 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
4
Dana Holding Corporation
Index to Notes to the Consolidated
Financial Statements
1. |
|
Organization and Summary of Significant Accounting Policies |
|
2. |
|
Emergence from Chapter 11 |
|
3. |
|
Reorganization Items |
|
4. |
|
Discontinued Operations |
|
5. |
|
Realignment of Operations |
|
6. |
|
Inventories |
|
7. |
|
Goodwill, Other Intangible Assets and Long-lived Assets |
|
8. |
|
Capital Stock |
|
9. |
|
Earnings Per Share |
|
10. |
|
Incentive and Stock Compensation |
|
11. |
|
Pension and Postretirement Benefit Plans |
|
12. |
|
Comprehensive Income (Loss) |
|
13. |
|
Cash Deposits |
|
14. |
|
Liquidity and Financing Agreements |
|
15. |
|
Fair Value Measurements |
|
16. |
|
Risk Management and Derivatives |
|
17. |
|
Commitments and Contingencies |
|
18. |
|
Warranty Obligations |
|
19. |
|
Income Taxes |
|
20. |
|
Other Income, Net |
|
21. |
|
Segments |
5
Notes to Consolidated Financial Statements
(In millions, except share and per share amounts)
Note 1. Organization and Summary of Significant Accounting Policies
General
As a result of Dana Corporations emergence from Chapter 11 of the United States Bankruptcy
Code (Chapter 11) on January 31, 2008 (the Effective Date), Dana Holding Corporation (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 Chapter 11, are references to
Prior Dana and, when used with respect to the period commencing after Dana Corporations emergence,
are references to Dana. These references include the subsidiaries of Prior Dana or Dana, as the
case may be, unless otherwise indicated or the context requires otherwise.
In the opinion of management, the accompanying unaudited consolidated financial statements
contain all adjustments (which include normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows for the periods presented. Certain
information and footnote disclosures included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP) have been condensed
or omitted pursuant to the rules and regulations of the United States Securities and Exchange
Commission (SEC). These financial statements should be read in conjunction with our Annual Report
on Form 10-K (Form 10-K) for the year ended December 31, 2008. Financial results for interim
periods are not necessarily indicative of anticipated results for the entire year. The results of
operations for the three- and six-month periods ended June 30, 2009 are not necessarily indicative
of results for our 2009 fiscal year because of seasonal variations and other factors.
This report includes the results of the 2008 implementation of the Third Amended Joint Plan of
Reorganization of Debtors and Debtors in Possession as modified (the Plan) and the effects of the
adoption of fresh start accounting. In accordance with GAAP, historical financial statements of
Prior Dana are presented separately from Dana results. The implementation of the Plan and the
application of fresh start accounting result in financial statements that are not comparable to
financial statements in periods prior to emergence.
Summary of Significant Accounting Policies
Basis of Presentation Our financial statements include all subsidiaries in which we have the
ability to control operating and financial policies and are consolidated in conformity with GAAP. All significant intercompany balances and transactions have been eliminated in consolidation.
Affiliated companies (20% to 50% ownership) are recorded in the statements using the equity method
of accounting.
Dana and forty of its wholly-owned subsidiaries (collectively, the Debtors) reorganized under
Chapter 11 of the United States Bankruptcy Code from March 3, 2006 (the Filing Date) through the
Effective Date. The financial statements for periods subsequent to the filing of a Chapter 11
petition distinguish transactions and events that are directly associated with the reorganization
and related restructuring of our business from the ongoing operations of the business.
Effective February 1, 2008, we adopted fresh start accounting. Pursuant to the Plan, all
outstanding securities of Prior Dana were cancelled and new securities were issued. In addition,
fresh start accounting required that our assets and liabilities be stated at fair value upon our
emergence from Chapter 11.
On January 1, 2009, we reorganized our operating segments into a new management structure and
modified the calculation of segment earnings before interest, taxes, depreciation and amortization
(EBITDA), our segment measure of profitability (see Note 21). The Light Axle and Driveshaft
segments were combined into the Light Vehicle Driveline (LVD) segment with certain operations from
these former segments moving to our Commercial Vehicle and Off-Highway segments. Prior period
amounts have been revised to conform to the current years presentation.
6
Change in Accounting Principle Our inventories are valued at the lower of cost or market. On
January 1, 2009, we changed the method of determining the cost basis of inventories for our U.S. operations
from the last-in, first-out (LIFO) basis to the first-in, first-out (FIFO) basis. See Note 6 for
additional information regarding this change. Our non-U.S. operations continue to determine cost
using the average or FIFO cost basis.
Recently Adopted Accounting Standards
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 interests) in
consolidated financial statements. SFAS 160 was effective January 1, 2009 and clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements. We have adopted this
standard effective January 1, 2009. The presentation and disclosure requirements of this standard
are applied retrospectively for all periods presented. See Note 12 for a reconciliation of the
beginning and ending carrying amount of equity attributable to the parent company and to
noncontrolling interests.
On January 1, 2009, we adopted SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133 (SFAS 161), which provides revised
guidance for enhanced disclosures about how and why an entity uses derivative instruments, how
derivative instruments and the related hedged items are accounted for under SFAS 133, and how
derivative instruments and the related hedged items affect an entitys financial position,
financial performance and cash flows. The adoption of SFAS 161 did not have an impact on our
consolidated financial position or results of operations. For additional information, see Note 16
- Risk Management and Derivatives.
In April 2009, the FASB issued three new FASB Staff Positions all of which impact the
accounting and disclosure related to certain financial instruments. FSP No. FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly, provides additional
guidance for estimating fair value. FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments, amends the guidance for debt securities to make the guidance
more operational. FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of
Financial Instruments, expands disclosures about the fair value of financial instruments. All
three FSPs became effective for the second quarter of 2009. Adoption of these FSPs did not have an
impact on our consolidated financial position or results of operations. Our valuations with
respect to nonfinancial assets and nonfinancial liabilities that are measured at fair value in the
financial statements on a non-recurring basis include market data or assumptions that we believe
market participants would use in pricing an asset or liability. Our valuation techniques include a
combination of observable and unobservable inputs. For additional information, see Note 7,
Goodwill, Other Intangible Assets and Long-lived Assets and Note 15, Fair Value Measurements.
In May 2009, the FASB issued SFAS No.165, Subsequent Events (SFAS 165). SFAS 165 requires
companies to recognize in the financial statements the effects of subsequent events that provide
additional evidence about conditions that existed at the date of the balance sheet including the
estimates inherent in the process of preparing financial statements. Subsequent events that
provide evidence about conditions that did not exist at the balance sheet date but arose before the
financial statements are issued are required to be disclosed if significant. We have properly
considered subsequent events through August 6, 2009, the date of this Form 10-Q filing and the date
of issuance of the financial statements.
In
June 2009, the SEC Staff issued Staff Accounting Bulletin
No. 112 (SAB 112). SAB 112 is effective as of June 10, 2009 and amends or rescinds portions of the
SEC staffs interpretive guidance included in the Staff Accounting Bulletin Series in order to make
the relevant interpretive guidance consistent with SFAS 141-R and SFAS 160. The adoption of SAB 112
did not have a material impact on our consolidated financial statements.
7
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 will also be 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 June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets
an Amendment of FASB Statement No. 140 (SFAS 166). SFAS 166 seeks to improve the relevance and
comparability of the information that a reporting entity provides in its financial statements about
a transfer of financial assets; the effects of a transfer on its financial position, financial
performance and cash flows; and a transferors continuing involvement, if any, in transferred
financial assets. Specifically, SFAS 166 eliminates the concept of a qualifying special-purpose
entity, creates more stringent conditions for reporting a transfer of a portion of a financial
asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a
transferors interest in transferred financial assets. SFAS 166 is effective January 1, 2010. We
are currently evaluating the impact the adoption of SFAS 166 will have on our consolidated
financial statements.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R)
(SFAS 167). SFAS 167 amends FASB Interpretation No. 46(R), Variable Interest Entities, in
determining whether an entity is a variable interest entity (VIE) and requires an enterprise to
perform an analysis to determine whether the enterprises variable interest or interests give it a
controlling financial interest in a VIE. SFAS 167 requires ongoing assessments of whether an
enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the
scope exclusion for qualifying special-purpose entities. SFAS 167 is effective for fiscal years
beginning after November 15, 2009. We are currently evaluating the impact the adoption of SFAS 167
will have on our consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles (SFAS 168). SFAS No. 168 identifies the
FASB Accounting Standards Codification as the authoritative source of GAAP. Rules and interpretive
releases of the SEC under federal securities laws are also
sources of authoritative GAAP for SEC registrants. SFAS No. 168 is effective for financial
statements issued for interim and annual periods ending after September 15, 2009. We do not
anticipate that the adoption of SFAS 168 will have a material impact on our consolidated financial
statements.
Note 2. Emergence from Chapter 11
Claims Resolution On the Effective Date, the Plan was consummated and we emerged from Chapter
11. As provided in the Plan, we issued and set aside approximately 28 million shares of Dana
common stock (valued in reorganization at $640) for future distribution to holders of allowed
unsecured nonpriority claims in Class 5B under the Plan. These shares are being distributed as the
disputed and unliquidated claims are resolved. The claim amount related to the 28 million shares
for disputed and unliquidated claims was estimated not to exceed $700. Since emergence, we have
issued 23 million of the 28 million shares for allowed claims (valued in reorganization at $530),
increasing the total shares issued to 93 million (valued in reorganization at $2,158) for unsecured
claims of approximately $2,240. The corresponding decrease in the disputed claims reserve leaves 5
million shares (valued in reorganization at $111). The remaining disputed and unliquidated claims
total approximately $106. 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.
8
Fresh Start Accounting As required by GAAP, we adopted fresh start accounting effective February
1, 2008. The financial statements for the periods ended prior to January 31, 2008 do not include
the effect of any changes in our capital structure or changes in the fair value of assets and
liabilities as a result of
fresh start accounting. Our reorganized consolidated balance sheet as of January 31, 2008 and the
related disclosures are included in Note 2 of the notes to our consolidated financial statements
included in our Form 10-K for the year ended December 31, 2008.
Note 3. Reorganization Items
Professional advisory fees and other costs directly associated with our reorganization were
reported separately as reorganization items. Post-emergence professional fees relate to claim
settlements, plan implementation and other transition costs attributable to the reorganization.
Reorganization items of Prior Dana include provisions and adjustments to record the carrying value
of certain pre-petition liabilities at their estimated allowable claim amounts, as well as the
costs incurred by non-Debtor companies as a result of the Debtors Chapter 11 proceedings.
The reorganization items in the consolidated statement of operations consisted of the
following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
Prior Dana |
|
|
Three Months |
|
Three Months |
|
Six Months |
|
Five Months |
|
|
One Month |
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|
Ended |
|
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
|
January 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
2008 |
Professional fees |
|
$ |
- |
|
|
$ |
8 |
|
|
$ |
- |
|
|
$ |
14 |
|
|
|
$ |
27 |
|
Employee emergence bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
Foreign tax costs due to reorganization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33 |
|
Other |
|
|
(3 |
) |
|
|
4 |
|
|
|
(2 |
) |
|
|
7 |
|
|
|
|
19 |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total reorganization items |
|
|
(3 |
) |
|
|
12 |
|
|
|
(2 |
) |
|
|
21 |
|
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on settlement of liabilities
subject to compromise |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization items, net |
|
$ |
(3 |
) |
|
$ |
12 |
|
|
$ |
(2 |
) |
|
$ |
21 |
|
|
|
$ |
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of 2009, we reduced our vacation benefit liability by $5 to correct
the amount accrued in 2008 as union agreements arising from our reorganization activities were
being ratified. We recorded $3 as a reorganization item benefit consistent with the original
expense recognition. The adjustments are not material to the current or prior periods to which they
relate.
The gain on settlement of liabilities subject to compromise resulted from the satisfaction of
these liabilities at emergence through issuance of Dana common stock or cash payments. The $125 of
reorganization items for the one month ended January 31, 2008 included $104 of costs incurred as a
direct consequence of emergence from Chapter 11. These costs included an accrual of $47 for stock
bonuses for certain union and non-union employees, transfer taxes and other tax charges to
effectuate the emergence and new legal organization, success fee obligations to certain
professional advisors and other parties contributing to the Chapter 11 reorganization and other
costs relating directly to emergence.
Note 4. Discontinued Operations
In 2005, the Board of Directors of Prior Dana approved the divestiture of our engine hard
parts, fluid products and pump products operations and we reported these businesses as discontinued
operations through the dates of divestiture. The divestiture of these discontinued operations was
substantially completed during 2007 with the remaining pump products business divested in the first
quarter of 2008. Prior Dana incurred a loss from discontinued operations of $6 in the month ended
January 31, 2008 including a post closing adjustment of $5 and Dana incurred a loss of $3 in the
five months ended June 30, 2008.
9
Note 5. Realignment of Operations
Realignment of our manufacturing operations was an essential component of our Chapter 11
reorganization plans and remains a primary focus of management. We continue to eliminate excess
capacity by closing and consolidating facilities and repositioning operations in lower cost
facilities or those with excess capacity and focusing on reducing and realigning overhead costs.
Realignment expense includes costs associated with previously announced actions as well as
programs initiated during the first six months of 2009. These actions include various employee
reduction programs, manufacturing footprint optimization programs and other realignment activities
across our global businesses, including the transfer of certain U.S. LVD and Commercial Vehicle
manufacturing operations to Mexico.
In January 2008, we announced the closure of our Barrie, Ontario Commercial Vehicle facility.
Realignment expense in January 2008 included severance and other costs associated with the
termination of approximately 160 employees and costs incurred to transfer the manufacturing
operations to certain facilities in Mexico.
In the third quarter of 2008, we entered into an agreement to sell our corporate headquarters. The
book value in excess of sale proceeds was recognized as accelerated depreciation and recorded
as realignment expense from the date we entered the agreement through the closing of the agreement
in February 2009. Under the terms of the agreement, we received proceeds of $11 and we are
entitled to occupy the facility rent-free through January 2010 while absorbing the customary
occupancy-related costs. Due to the conditions under which we continue to occupy the facility, the
sale proceeds were deferred and initially classified as a liability. Based on our plan to exit the
facility during the third quarter of 2009, we recognized the sale of the facility in June 2009.
Headquarters personnel will be relocated to other facilities in the Toledo, Ohio area.
In response to increased economic and market challenges during the second half of 2008,
particularly lower production volumes, we initiated cost reduction actions and continued to execute
such plans in the first and second quarters of 2009. In 2008, we reduced our global workforce by
approximately 6,000 employees, including approximately 5,000 in North America.
The adverse economic conditions first experienced in 2008 continued into 2009, prompting
further cost reduction actions. During the first six months of 2009, we reduced our workforce by
another approximately 6,200 people, including 1,400 in the second quarter. These workforce
reductions and other actions resulted in a charge of $20 for severance and other benefit costs for
the three-month period ended June 30, 2009 and $66 for the first six months of 2009. Our 2009 cost
reduction actions included the announced closures of the Mississauga, Ontario facility in our
Thermal business; the McKenzie, Tennessee and Calatayud, Spain facilities in our Sealing business,
and the Beamsville, Ontario facility supporting our Commercial Vehicle business.
Realignment charges during the three months and six months ended June 30, 2009 also included
$12 and $21 of long-lived asset impairments and exit costs incurred for transfers of production
activities among facilities and previously announced facility closures.
10
The following tables show the realignment charges and related payments and adjustments
recorded during the three and six months ended June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee |
|
|
Long-lived |
|
|
|
|
|
|
|
|
|
|
Termination |
|
|
Asset |
|
|
Exit |
|
|
|
|
|
|
|
Benefits |
|
|
Impairment |
|
|
Costs |
|
|
Total |
|
Balance at March 31, 2009 |
|
$ |
41 |
|
|
$ |
- |
|
|
$ |
4 |
|
|
$ |
45 |
|
Activity during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to realignment |
|
|
20 |
|
|
|
6 |
|
|
|
6 |
|
|
|
32 |
|
Adjustments of accruals |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Non-cash write-off |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
(6 |
) |
Cash payments |
|
|
(25 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
(31 |
) |
Currency impact |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
35 |
|
|
$ |
- |
|
|
$ |
4 |
|
|
$ |
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
55 |
|
|
$ |
- |
|
|
$ |
10 |
|
|
$ |
65 |
|
Activity during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to realignment |
|
|
66 |
|
|
|
7 |
|
|
|
14 |
|
|
|
87 |
|
Adjustments of accruals |
|
|
(3 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
(8 |
) |
Non-cash write-off |
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
(7 |
) |
Cash payments |
|
|
(84 |
) |
|
|
|
|
|
|
(15 |
) |
|
|
(99 |
) |
Currency impact |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
35 |
|
|
$ |
- |
|
|
$ |
4 |
|
|
$ |
39 |
|
|
|
|
|
|
|
|
|
|
At June 30, 2009, $39 of realignment accruals remained in accrued liabilities, including $35
for the reduction of approximately 1,400 employees to be completed over the next two years and $4
for lease continuation and other exit costs. The estimated cash expenditures related to these
liabilities are projected to approximate $32 in 2009 and $7 thereafter. In addition to the $39
accrued at June 30, 2009, we estimate that another $22 will be expensed in the future to complete
previously announced initiatives.
The following table provides project-to-date and estimated future expenses for completion of
our pending realignment initiatives for our business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense Recognized |
|
|
Future |
|
|
|
Prior to |
|
|
Year-to-Date |
|
|
Total |
|
|
Cost to |
|
|
|
2009 |
|
|
2009 |
|
|
to Date |
|
|
Complete |
|
Light Vehicle Driveline |
|
$ |
89 |
|
|
$ |
23 |
|
|
$ |
112 |
|
|
$ |
11 |
|
Structures |
|
|
37 |
|
|
|
5 |
|
|
|
42 |
|
|
|
1 |
|
Sealing |
|
|
3 |
|
|
|
13 |
|
|
|
16 |
|
|
|
4 |
|
Thermal |
|
|
|
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
Off-Highway |
|
|
2 |
|
|
|
2 |
|
|
|
4 |
|
|
|
|
|
Commercial Vehicle |
|
|
31 |
|
|
|
22 |
|
|
|
53 |
|
|
|
6 |
|
Other |
|
|
17 |
|
|
|
8 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total continuing operations |
|
$ |
179 |
|
|
$ |
79 |
|
|
$ |
258 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
The remaining cost to complete includes estimated noncontractual separation payments, lease
continuation costs, equipment transfers and other costs which are required to be recognized as
closures are finalized or as incurred during the closure.
11
Note 6. Inventories
On January 1, 2009, we changed the method of determining the cost of inventories for our U.S. operations
from the LIFO basis to the FIFO basis. Our non-U.S. operations continued to determine
cost using the average or FIFO cost method. We believe the change is preferable as the FIFO method
better reflects the current value of inventories on the consolidated balance sheets, provides
greater uniformity across our operations and enhances our comparability with peers.
We applied the change in accounting method by adjusting the 2008 financial statements for the
periods subsequent to our emergence from Chapter 11 on January 31, 2008. As a result of applying
fresh start accounting, inventory values at January 31, 2008 had been adjusted to their acquired
value which resulted in the LIFO basis equaling the FIFO basis at that date. At December 31, 2008,
our FIFO basis exceeded our LIFO basis by $14. The change in accounting from the LIFO to FIFO
method for 2008 was recorded as a reduction to cost of sales, resulting in a $14 benefit to
operating income from continuing operations for the eleven months ended December 31, 2008. The
accounting adjustment to a FIFO basis decreased cost of sales by $18 for the three months ended
June 30, 2008 and increased cost of sales by $8 for the five months ended June 30, 2008. The $8
consists of a charge to cost of sales of $34 to amortize the valuation step-up recorded at January
31, 2008 in connection with fresh start accounting offset by a $26 reversal of the LIFO provision
that had been recorded in that five-month period. The five-month charge of $8 and the reversal of
additional credit LIFO reserves of $22 which were recorded in the last two quarters of 2008 result
in the net benefit of $14 for the eleven months ended December 31, 2008. There is no net effect on
income tax expense due to the valuation allowances on U.S. deferred tax assets.
The impacts of this change in costing on the consolidated statement of operations for the
three months ended June 31, 2009 and 2008 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Difference |
|
|
As Reported |
|
|
As Reported |
|
|
Adjustments |
|
|
As Adjusted |
|
|
|
Three Months |
|
|
Between |
|
|
Three Months |
|
|
Three Months |
|
|
to Change |
|
|
Three Months |
|
|
|
Ended |
|
|
LIFO |
|
|
Ended |
|
|
Ended |
|
|
from |
|
|
Ended |
|
|
|
June 30, |
|
|
and |
|
|
June 30, |
|
|
June 30, |
|
|
LIFO |
|
|
June 30, |
|
|
|
2009 (LIFO) |
|
|
FIFO |
|
|
2009 (FIFO) |
|
|
2008 (LIFO) |
|
|
to FIFO |
|
|
2008 (FIFO) |
|
Cost of sales |
|
$ |
1,124 |
|
|
$ |
4 |
|
|
$ |
1,128 |
|
|
$ |
2,206 |
|
|
$ |
(18 |
) |
|
$ |
2,188 |
|
Income (loss) from
continuing
operations before
interest,
reorganization items
and income taxes |
|
|
15 |
|
|
|
(4 |
) |
|
|
11 |
|
|
|
(78 |
) |
|
|
18 |
|
|
|
(60 |
) |
Income (loss) from
continuing
operations before
income taxes |
|
|
(19 |
) |
|
|
(4 |
) |
|
|
(23 |
) |
|
|
(125 |
) |
|
|
18 |
|
|
|
(107 |
) |
Income (loss) from
continuing operations |
|
|
1 |
|
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(135 |
) |
|
|
18 |
|
|
|
(117 |
) |
Net income (loss) |
|
|
1 |
|
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(137 |
) |
|
|
18 |
|
|
|
(119 |
) |
Net income (loss)
attributable
to the parent company |
|
|
4 |
|
|
|
(4 |
) |
|
|
- |
|
|
|
(140 |
) |
|
|
18 |
|
|
|
(122 |
) |
Net income (loss) available
to common stockholders |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(8 |
) |
|
|
(148 |
) |
|
|
18 |
|
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share
from continuing
operations attributable
to the parent company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.04 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.08 |
) |
|
$ |
(1.46 |
) |
|
$ |
0.19 |
|
|
$ |
(1.27 |
) |
Diluted |
|
$ |
(0.04 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.08 |
) |
|
$ |
(1.46 |
) |
|
$ |
0.19 |
|
|
$ |
(1.27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share
attributable to the
parent
company stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.04 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.08 |
) |
|
$ |
(1.47 |
) |
|
$ |
0.19 |
|
|
$ |
(1.28 |
) |
Diluted |
|
$ |
(0.04 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.08 |
) |
|
$ |
(1.47 |
) |
|
$ |
0.19 |
|
|
$ |
(1.28 |
) |
12
The impacts of this change in costing on the consolidated statement of operations for the six
months ended June 30, 2009 and the five months ended June 30, 2008 are presented in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Difference |
|
|
As Reported |
|
|
As Reported |
|
|
Adjustments |
|
|
As Adjusted |
|
|
|
Six Months |
|
|
Between |
|
|
Six Months |
|
|
Five Months |
|
|
to Change |
|
|
Five Months |
|
|
|
Ended |
|
|
LIFO |
|
|
Ended |
|
|
Ended |
|
|
from |
|
|
Ended |
|
|
|
June 30, |
|
|
and |
|
|
June 30, |
|
|
June 30, |
|
|
LIFO |
|
|
June 30, |
|
|
|
2009 (LIFO) |
|
|
FIFO |
|
|
2009 (FIFO) |
|
|
2008 (LIFO) |
|
|
to FIFO |
|
|
2008 (FIFO) |
|
Cost of sales |
|
$ |
2,349 |
|
|
$ |
12 |
|
|
$ |
2,361 |
|
|
$ |
3,683 |
|
|
$ |
8 |
|
|
$ |
3,691 |
|
Income (loss) from continuing
operations before interest,
reorganization items and
income taxes |
|
|
(107 |
) |
|
|
(12 |
) |
|
|
(119 |
) |
|
|
(44 |
) |
|
|
(8 |
) |
|
|
(52 |
) |
Income (loss) from continuing
operations before
income taxes |
|
|
(177 |
) |
|
|
(12 |
) |
|
|
(189 |
) |
|
|
(127 |
) |
|
|
(8 |
) |
|
|
(135 |
) |
Income (loss) from
continuing operations |
|
|
(151 |
) |
|
|
(12 |
) |
|
|
(163 |
) |
|
|
(156 |
) |
|
|
(8 |
) |
|
|
(164 |
) |
Net income (loss) |
|
|
(151 |
) |
|
|
(12 |
) |
|
|
(163 |
) |
|
|
(159 |
) |
|
|
(8 |
) |
|
|
(167 |
) |
Net income (loss) attributable
to the parent company |
|
|
(145 |
) |
|
|
(12 |
) |
|
|
(157 |
) |
|
|
(164 |
) |
|
|
(8 |
) |
|
|
(172 |
) |
Net income (loss) available
to common stockholders |
|
|
(161 |
) |
|
|
(12 |
) |
|
|
(173 |
) |
|
|
(177 |
) |
|
|
(8 |
) |
|
|
(185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from continuing operations
attributable to the parent
company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.60 |
) |
|
$ |
(0.12 |
) |
|
$ |
(1.72 |
) |
|
$ |
(1.74 |
) |
|
$ |
(0.07 |
) |
|
$ |
(1.81 |
) |
Diluted |
|
$ |
(1.60 |
) |
|
$ |
(0.12 |
) |
|
$ |
(1.72 |
) |
|
$ |
(1.74 |
) |
|
$ |
(0.07 |
) |
|
$ |
(1.81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share
attributable to the parent
company stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.60 |
) |
|
$ |
(0.12 |
) |
|
$ |
(1.72 |
) |
|
$ |
(1.76 |
) |
|
$ |
(0.07 |
) |
|
$ |
(1.83 |
) |
Diluted |
|
$ |
(1.60 |
) |
|
$ |
(0.12 |
) |
|
$ |
(1.72 |
) |
|
$ |
(1.76 |
) |
|
$ |
(0.07 |
) |
|
$ |
(1.83 |
) |
|
|
The impacts of this change on reported balances at December 31, 2008 and June 30, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Difference |
|
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
Between |
|
|
As Reported |
|
|
As Reported |
|
|
to Change |
|
|
As Adjusted |
|
|
|
June 30, |
|
|
LIFO and |
|
|
June 30, |
|
|
December 31, |
|
|
from LIFO |
|
|
December 31, |
|
|
|
2009 (LIFO) |
|
|
FIFO |
|
|
2009 (FIFO) |
|
|
2008 (LIFO) |
|
|
to FIFO |
|
|
2008 (FIFO) |
|
Inventories |
|
$ |
705 |
|
|
$ |
2 |
|
|
$ |
707 |
|
|
$ |
901 |
|
|
$ |
14 |
|
|
$ |
915 |
|
Total current assets |
|
|
2,327 |
|
|
|
2 |
|
|
|
2,329 |
|
|
|
2,733 |
|
|
|
14 |
|
|
|
2,747 |
|
Total assets |
|
|
5,058 |
|
|
|
2 |
|
|
|
5,060 |
|
|
|
5,593 |
|
|
|
14 |
|
|
|
5,607 |
|
Accumulated deficit |
|
|
(881 |
) |
|
|
2 |
|
|
|
(879 |
) |
|
|
(720 |
) |
|
|
14 |
|
|
|
(706 |
) |
Total parent company
stockholders equity |
|
|
1,908 |
|
|
|
2 |
|
|
|
1,910 |
|
|
|
2,014 |
|
|
|
14 |
|
|
|
2,028 |
|
Total equity |
|
|
2,008 |
|
|
|
2 |
|
|
|
2,010 |
|
|
|
2,121 |
|
|
|
14 |
|
|
|
2,135 |
|
Total liabilities
and equity |
|
|
5,058 |
|
|
|
2 |
|
|
|
5,060 |
|
|
|
5,593 |
|
|
|
14 |
|
|
|
5,607 |
|
13
The impacts of this change on operating cash flow for the six months ended June 30, 2009 and
the five months ended June 30, 2008 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Adjustments |
|
|
As Reported |
|
|
As Reported |
|
|
Adjustments |
|
|
As Adjusted |
|
|
|
Six Months |
|
|
to Change |
|
|
Six Months |
|
|
Five Months |
|
|
to Change |
|
|
Five Months |
|
|
|
Ended |
|
|
from |
|
|
Ended |
|
|
Ended |
|
|
from |
|
|
Ended |
|
|
|
June 30, |
|
|
LIFO |
|
|
June 30, |
|
|
June 30, |
|
|
LIFO |
|
|
June 30, |
|
|
|
2009 (LIFO) |
|
|
to FIFO |
|
|
2009 (FIFO) |
|
|
2008 (LIFO) |
|
|
to FIFO |
|
|
2008 (FIFO) |
|
Net income (loss) |
|
$ |
(151 |
) |
|
$ |
(12 |
) |
|
$ |
(163 |
) |
|
$ |
(159 |
) |
|
$ |
(8 |
) |
|
$ |
(167 |
) |
Amortization of
inventory valuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
34 |
|
|
|
49 |
|
Change in working capital |
|
|
(47 |
) |
|
|
12 |
|
|
|
(35 |
) |
|
|
(67 |
) |
|
|
(26 |
) |
|
|
(93 |
) |
Net cash flows used in
operating activities |
|
|
(77 |
) |
|
|
|
|
|
|
(77 |
) |
|
|
(851 |
) |
|
|
|
|
|
|
(851 |
) |
Note 7. Goodwill, Other Intangible Assets and Long-lived Assets
Goodwill
- We test goodwill for impairment on an annual basis unless conditions arise that warrant
an interim review. The annual impairment tests are performed as of October 31. In assessing the
recoverability of goodwill, estimates of fair value are based upon consideration of various
valuation methodologies, including projected future cash flows and multiples of current earnings.
If these estimates or related projections change in the future, we may be required to record
goodwill impairment charges.
Our second quarter assessment of the effects of the pace of the market recovery on our
forecast for the remainder of this year and future periods led us to conclude that the related
reduction in cash flows projected for those periods comprised a triggering event. As a result, we
evaluated our Off-Highway goodwill and other indefinite-lived intangible assets in all segments to
test for impairment using the fair value methodology described in Note 2 of notes to financial
statements in Item 8 of our 2008 Form 10-K as modified by the fair value guidance discussed under
recently adopted accounting standards in Note 1 above. For the Off-Highway goodwill evaluation
we used the average of a discounted cash flow (DCF) valuation and comparable company multiple
valuation.
We utilized a discount rate of 12.9% for the DCF analysis and an EBITDA multiple of 7.7 based
on comparable companies in similar markets. The updated fair value of the Off-Highway segment
supported the carrying value of the net assets of this business at June 30, 2009 and, accordingly,
no impairment charge was recorded in the second quarter of 2009. Market conditions or operational
execution impacting any of the key assumptions underlying our estimated cash flows could result in
future goodwill impairment. Goodwill increased from $108 at December 31, 2008 to $109 at June 30,
2009 due to foreign currency translation.
Other
Intangible Assets - Intangible assets include core technology, trademarks and trade names and
customer relationships. Core technology includes the proprietary know-how and expertise that is
inherent in our products and manufacturing processes. Trademarks and trade names include our trade
names related to product lines and the related trademarks including Dana ®, Spicer
® and others. Customer relationships include the established relationships with our
customers and the related ability of these customers to continue to generate future recurring
revenue and income.
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 lives 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.
Due to the second quarter 2009 assessment of our forecasted results noted above, we performed
impairment testing on our indefinite-lived intangible assets as of June 30, 2009 and determined
that the fair value of trademarks and trade names had declined below the carrying value. These
valuations resulted in impairments of $4 in our Commercial Vehicle segment and $2 in our
Off-Highway segment in the second quarter of 2009 reported as impairment of intangible assets.
14
We utilized an income approach, the relief from royalty method, for the valuation of the fair
value of our trademarks and trade names. This approach is consistent with the fair value guidance
discussed under Recently Adopted Accounting Standards in Note 1 above. Four trade
names/trademarks are identified as intangible assets: Dana®, Spicer®, Victor-Reinz® and Long®.
The fair value of trademarks and trade names is included in the fair value disclosure in Note 15.
The following table summarizes the components of other intangible assets at June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
Gross |
|
|
|
|
|
Net |
|
|
Useful Life |
|
Carrying |
|
Accumulated |
|
Carrying |
|
|
(years) |
|
Amount |
|
Amortization |
|
Amount |
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core technology |
|
|
7 |
|
|
$ |
97 |
|
|
$ |
(22 |
) |
|
$ |
75 |
|
Trademarks and trade names |
|
|
17 |
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Customer relationships |
|
|
8 |
|
|
|
478 |
|
|
|
(100 |
) |
|
|
378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names |
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
643 |
|
|
$ |
(122 |
) |
|
$ |
521 |
|
|
|
|
|
|
|
|
|
|
|
|
The net carrying amounts of intangible assets attributable to each of our operating segments
at June 30, 2009 were as follows: LVD $32; Sealing $40; Thermal $18; Structures $50;
Commercial Vehicle $205; and Off-Highway $176.
Amortization expense related to intangible assets was $21 and $42 and for the three and six
months ended June 30, 2009. Amortization of core technology of $7 was charged to cost of sales and
$35 of amortization of trademarks and trade names and customer relationships was charged to
amortization of intangibles.
Estimated aggregate pre-tax amortization expense related to intangible assets for the
remainder of 2009 and each of the next five years is as follows: remainder of 2009 $36; 2010
$72; 2011 $71; 2012 $71; 2013 $71 and 2014 $67. Actual amounts may differ from these
estimates due to such factors as currency translation, customer turnover, impairments, additional
intangible asset acquisitions and other events.
Long-lived
Assets - Based on the second-quarter assessment of our forecasted results noted above,
we evaluated our long-lived assets in each segment for impairment. We reviewed the recoverability
of these assets by comparing the carrying amount of the assets to the projected undiscounted future
net cash flows expected to be generated. These assessments supported the carrying values of the
long-lived assets at the end of the second quarter of 2009; however, deterioration of market
conditions or operational execution impacting any of the key assumptions underlying our estimated
cash flows could result in future long-lived asset impairment.
Note 8. Capital Stock
Series A and Series B Preferred Stock Dividends on the preferred stock have been accrued from
the issue date at a rate of 4% per annum and are payable in cash on a quarterly basis as approved
by the Board of Directors. The payment of preferred dividends was suspended in November 2008 under
the terms of our amended Term Facility and may resume when our total leverage ratio as of the end
of the previous fiscal quarter is less than or equal to 3.25:1.00. See Note 14 for additional
information on the amended Term Facility. Preferred dividends accrued but not paid at June 30,
2009 were $26.
Common Stock At June 30, 2009, we had issued 100,139,182 shares of our common stock and we
held less than $1 in treasury stock (34,577 shares at an average cost per share of $6.31).
15
Note 9. Earnings Per Share
The following table reconciles the weighted-average number of shares used in the basic
earnings per share calculations to the weighted-average number of shares used to compute diluted
earnings per share (in millions of shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
Prior Dana |
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
Weighted-average number of shares
outstanding - basic |
|
|
100.2 |
|
|
|
100.1 |
|
|
|
100.2 |
|
|
|
100.0 |
|
|
|
|
149.9 |
|
Employee compensation-related shares,
including stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares
outstanding - diluted |
|
|
100.2 |
|
|
|
100.1 |
|
|
|
100.2 |
|
|
|
100.0 |
|
|
|
|
150.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share is calculated by dividing the net income (loss) attributable
to parent company stockholders by the weighted-average number of common shares outstanding. The
outstanding common shares computation excludes any shares held in treasury.
The share count for diluted earnings (loss) per share is computed on the basis of the
weighted-average number of common shares outstanding plus the effects of dilutive common stock
equivalents (CSEs) outstanding during the period. CSEs, which are securities that may entitle the
holder to obtain common stock, include outstanding stock options, restricted stock unit awards,
performance share awards and preferred stock. Dilutive CSEs include stock options when the average
price of the common stock during the period exceeds the exercise price. This makes these CSEs
potentially dilutive. To the extent these CSEs are anti-dilutive they are excluded from the
calculation of diluted earnings per share. If we report income from continuing operations, the
CSEs are dilutive; otherwise they are anti-dilutive due to the loss. Similarly, when there is a
loss from continuing operations, potentially dilutive shares are excluded from the computation of
earnings per share as their effect would also be anti-dilutive.
We excluded 6.0 million and 1.7 million CSEs from the table above as the effect of including
them would have been anti-dilutive for the quarters ended June 30, 2009 and 2008 and we excluded
5.8 million and 0.9 million CSEs for the six months ended June 30, 2009 and five months ended June
30, 2008. In addition, we excluded CSEs of 0.8 million, 0.1 million, 0.5 million and 0.1 million
for these same periods that satisfied the definition of potentially dilutive shares due to the loss
from continuing operations for these periods. Conversion of the preferred stock was also not
included in the share count for diluted earnings per share due to the loss from continuing
operations. The preferred stock would convert into approximately 59.9 million shares of common
stock at the $13.19 conversion price.
The calculation of earnings per share is based on the following income (loss) attributable to
the parent company stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
Prior Dana |
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
Income (loss) from
continuing
operations |
|
$ |
- |
|
|
$ |
(120 |
) |
|
$ |
(157 |
) |
|
$ |
(169 |
) |
|
|
$ |
715 |
|
Loss from
discontinued
operations |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
- |
|
|
$ |
(122 |
) |
|
$ |
(157 |
) |
|
$ |
(172 |
) |
|
|
$ |
709 |
|
|
|
|
|
|
|
|
|
|
|
|
16
Earnings per share for income (loss) per share from continuing operations attributable to
parent company stockholders and net income (loss) per share attributable to parent company
stockholders include the charge for the preferred stock dividend requirement. Earnings per share
information reported by Prior Dana is not comparable to earnings per share information reported by
Dana because all existing equity interests of Prior Dana were eliminated upon the consummation of
the Plan.
Note 10. Incentive and Stock Compensation
Our Board of Directors granted approximately 2.8 million stock options, 0.6 million stock
appreciation rights (SARs) and 0.1 million restricted stock units (RSUs) during the first half of
2009 under the 2008 Omnibus Incentive Plan. The weighted-average exercise price and fair value at
grant date per share of both the options and SARs issued during the period were $0.52 and $0.30.
The weighted-average grant-date fair value per share of the RSUs was $0.62. The expected term was
estimated using the simplified method as historical data was not sufficient to provide a reasonable
estimate. Stock options related to 0.3 million shares were forfeited in the first half of 2009.
We estimated fair values for options and SARs granted during the period using the following
key assumptions as part of the Black-Scholes model:
|
|
|
|
|
|
|
Weighted- |
|
|
Average of |
|
|
Assumptions |
Expected term (in years) |
|
|
6.00 |
|
Risk-free interest rate |
|
|
1.81% |
|
Expected volatility |
|
|
63.06% |
|
We recognized stock compensation expense of $2 and $3 for the three months ended June 30, 2009
and 2008 and recognized $4 and $3 during the six months ended June 30, 2009 and five months ended
June 30, 2008 and no expense in the one month ended January 31, 2008. As of June 30, 2009,
unearned compensation cost related to the unvested portion of all stock based awards granted was
approximately $9 and is expected to be recognized over vesting periods averaging from 0.4 to 1.2
years.
Note 11. Pension and Postretirement Benefit Plans
We have a number of defined contribution and defined benefit, qualified and nonqualified,
pension plans for certain employees. Other postretirement benefit plans (OPEB), including medical
and life insurance, are provided for certain employees upon retirement.
The components of net periodic benefit costs (credits) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Dana |
|
|
Three Months Ended |
|
Three Months Ended |
|
|
June 30, 2009 |
|
June 30, 2008 |
|
|
U.S. |
|
Non-U.S. |
|
U.S. |
|
Non-U.S. |
Service cost |
|
$ |
- |
|
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
2 |
|
Interest cost |
|
|
28 |
|
|
|
4 |
|
|
|
28 |
|
|
|
6 |
|
Expected return on plan assets |
|
|
(29 |
) |
|
|
(2 |
) |
|
|
(35 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
(credit) |
|
|
(1 |
) |
|
|
4 |
|
|
|
(7 |
) |
|
|
4 |
|
Settlement gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
Termination cost |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
(credit) after settlements
and termination costs |
|
$ |
(1 |
) |
|
$ |
4 |
|
|
$ |
- |
|
|
$ |
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Other Benefits |
|
|
Dana |
|
|
Three Months Ended |
|
|
|
June 30 |
|
|
|
2009 |
|
2008 |
|
|
Non-U.S. |
|
Non-U.S. |
Service cost |
|
$ |
- |
|
|
$ |
1 |
|
Interest cost |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
Net periodic benefit cost |
|
|
2 |
|
|
|
3 |
|
Curtailment gain |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1 |
|
|
$ |
3 |
|
|
|
|
|
|
There were no net periodic other benefit costs in the U.S. for the three months ended June 30,
2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Dana |
|
|
Prior Dana |
|
|
Six Months Ended |
|
Five Months Ended |
|
|
One Month Ended |
|
|
June 30, 2009 |
|
June 30, 2008 |
|
|
January 31, 2008 |
|
|
|
U.S. |
|
Non-U.S. |
|
U.S. |
|
Non-U.S. |
|
|
U.S. |
|
Non-U.S. |
Service cost |
|
$ |
- |
|
|
$ |
3 |
|
|
$ |
- |
|
|
$ |
4 |
|
|
|
$ |
1 |
|
|
$ |
1 |
|
Interest cost |
|
|
55 |
|
|
|
9 |
|
|
|
46 |
|
|
|
11 |
|
|
|
|
9 |
|
|
|
2 |
|
Expected return on plan assets |
|
|
(58 |
) |
|
|
(4 |
) |
|
|
(59 |
) |
|
|
(8 |
) |
|
|
|
(12 |
) |
|
|
(2 |
) |
Recognized net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
(credit) |
|
|
(3 |
) |
|
|
8 |
|
|
|
(13 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
1 |
|
Settlement gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
Termination cost |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
(credit) after settlements
and termination costs |
|
$ |
(3 |
) |
|
$ |
8 |
|
|
$ |
(6 |
) |
|
$ |
(5 |
) |
|
|
$ |
- |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits |
|
|
Dana |
|
|
Prior Dana |
|
|
Six |
|
Five |
|
One Month Ended |
|
|
Months Ended June 30, |
|
|
January 31, 2008 |
|
|
2009 |
|
2008 |
|
|
|
|
Non-U.S. |
|
Non-U.S. |
|
|
U.S. |
|
Non-U.S. |
Service cost |
|
$ |
- |
|
|
$ |
1 |
|
|
|
$ |
- |
|
|
$ |
- |
|
Interest cost |
|
|
3 |
|
|
|
3 |
|
|
|
|
5 |
|
|
|
1 |
|
Amortization of prior
service cost |
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
Recognized net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
3 |
|
|
|
4 |
|
|
|
|
5 |
|
|
|
1 |
|
Curtailment gain |
|
|
(1 |
) |
|
|
|
|
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
(credit) after curtailments |
|
$ |
2 |
|
|
$ |
4 |
|
|
|
$ |
(56 |
) |
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
There were no net periodic other benefit costs in the U.S. for the six months ended June 30,
2009 and the five months ended June 30, 2008.
18
In the second quarter of 2009, we recorded less than $1 in pension curtailment gains related
to our workforce reduction actions. The affected pension plans were remeasured at May 31, 2009.
The remeasurement reduced the reported fair value of plan assets by less than $1 and increased the
reported defined benefit obligations by $1 with a net charge to other comprehensive income (OCI) of
$1. As a result of the terminations, settlement actions reduced the benefit obligations by $4 and
also reduced the fair value of plan assets by $4. We also recorded $1 in postretirement healthcare
curtailment gains related to our workforce reduction actions. The affected plans were remeasured
at May 31, 2009. The remeasurement increased the postretirement healthcare obligation by $4 with a
charge to OCI of $4.
During the first quarter of 2009, we settled a portion of the Canadian retiree pension benefit
obligations by purchasing non-participating annuity contracts to cover vested benefits. This
action necessitated a remeasurement of the assets and liabilities of the affected plans as of
February 28, 2009. The discount rate used for remeasurement was 6.39%. As a result of the annuity
purchases, we reduced the benefit obligation by $43 and also reduced the fair value of plan assets
by $43. We recorded the related settlement loss of less than $1 in cost of sales.
In 2008, employee acceptances of early retirement incentives in the U.S. generated pension
plan special termination costs of $7 in the second quarter which were included in realignment
charges, net as well as curtailment charges of $2 which were charged against OCI. The affected
pension plans were remeasured at June 30, 2008. The remeasurement increased net assets by $3 and
reduced the net defined benefit obligations by $32 with a credit to OCI of $35.
Also during the second quarter of 2008, we settled a substantial portion of the Canadian
retiree pension benefit obligations by purchasing non-participating annuity contracts to cover
vested benefits. This action necessitated a remeasurement of the assets and liabilities of the
affected plans as of May 31, 2008. The discount rate used for remeasurement was 5.50%. As a
result of the annuity purchases, we reduced the benefit obligation by $120 and also reduced the
fair value of plan assets by $120. We recorded the related settlement gain of $12 as a reduction
to cost of sales.
Our postretirement healthcare obligations for all U.S. employees and retirees were eliminated
upon emergence. We contributed an aggregate of approximately $733 in cash on February 1, 2008
(which is net of amounts incurred and paid for non-pension retiree benefits, long-term disability
and related healthcare claims of retirees between July 1, 2007 and January 31, 2008) to
union-administered Voluntary Employee Benefit Associations (VEBAs). As a result of the changes in
our U.S. other postretirement benefits that became effective on January 31, 2008 with our emergence
from Chapter 11, we recognized a portion of the previously unrecognized prior service credits as a
curtailment gain of $61 due to the negative plan amendment and reported it as a component of the
gain on settlement of liabilities subject to compromise as of January 31, 2008. The gain was
calculated based on the current estimate of the future working lifetime attributable to those
participants who will not receive benefits following the estimated exhaustion of funds. The
calculation used current plan assumptions and current levels of plan benefits. In connection with
the recognition of our obligations to the VEBAs at emergence, the accumulated postretirement
benefit obligation (APBO) was reset to an amount equal to the VEBA payments, resulting in a
reduction of $278 with an offsetting credit to accumulated other comprehensive loss.
Note 12. Comprehensive Income (Loss)
Comprehensive income (loss) includes our net income (loss) and components of OCI such as
currency translation adjustments that are charged or credited directly to equity.
19
The components of our total comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
Prior Dana |
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
Parent company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the parent company |
|
$ |
- |
|
|
$ |
(122 |
) |
|
$ |
(157 |
) |
|
$ |
(172 |
) |
|
|
$ |
709 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation |
|
|
104 |
|
|
|
33 |
|
|
|
56 |
|
|
|
77 |
|
|
|
|
3 |
|
Postretirement healthcare plan amendments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278 |
|
Immediate recognition of prior service credit
due to curtailment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61 |
) |
Pension plan settlements |
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
Pension plan curtailments |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
Benefit plan actuarial gain (loss), net |
|
|
(5 |
) |
|
|
48 |
|
|
|
(15 |
) |
|
|
48 |
|
|
|
|
(140 |
) |
Reclassification to net income (loss) of
benefit plan amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Income tax provision |
|
|
(9 |
) |
|
|
(26 |
) |
|
|
(9 |
) |
|
|
(26 |
) |
|
|
|
|
|
Unrealized investment gains (losses) and other |
|
|
30 |
|
|
|
(13 |
) |
|
|
19 |
|
|
|
(13 |
) |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
|
120 |
|
|
|
30 |
|
|
|
51 |
|
|
|
75 |
|
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to
the parent company |
|
$ |
120 |
|
|
$ |
(92 |
) |
|
$ |
(106 |
) |
|
$ |
(97 |
) |
|
|
$ |
785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
noncontrolling interests |
|
$ |
(3 |
) |
|
$ |
3 |
|
|
$ |
(6 |
) |
|
$ |
5 |
|
|
|
$ |
2 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation |
|
|
4 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
(21 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
4 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to
noncontrolling interests |
|
|
1 |
|
|
|
3 |
|
|
|
(5 |
) |
|
|
6 |
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
121 |
|
|
$ |
(89 |
) |
|
$ |
(111 |
) |
|
$ |
(91 |
) |
|
|
$ |
769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reported OCI for the six months ended June 30, 2009 included $24 attributable to our U.S.
operations, before considering the effect of income taxes, primarily as a result of currency
translation. As a result of realizing pre-tax losses from continuing operations and OCI, we charged
OCI for $9 during the second quarter to recognize the income tax expense associated with the
components of OCI. An income tax benefit of $4 was recorded in continuing operations to recognize
the portion of the $9 earned through June 30, 2009, even though valuation allowances have been
established against deferred tax assets. See Note 19, Income Taxes, for a more detailed
explanation of the accounting for income taxes.
The reported OCI for the five months ended June 30, 2008 included $73 attributable to our U.S.
operations, before considering the effect of income taxes, primarily as a result of currency
translation and actuarial gains related to benefit plans. The same accounting provision explained
in the preceding paragraph resulted in reducing OCI for the quarter and five months ended June 30,
2008 by $26.
20
The following table reconciles the beginning and ending balances of equity between parent
company stockholders equity and noncontrolling interests for the periods ended June 30, 2009 and
2008, after adjusting the 2008 amounts to record the change from the LIFO to the FIFO method of
accounting for inventories (see Note 6).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
Company |
|
|
|
|
|
|
Total |
|
|
|
Stockholders |
|
|
Noncontrolling |
|
|
Stockholders |
|
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
Balance, December 31, 2007 |
|
$ |
(782 |
) |
|
$ |
95 |
|
|
$ |
(687 |
) |
Comprehensive income (loss) |
|
|
785 |
|
|
|
(16 |
) |
|
|
769 |
|
Dividends paid |
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
Stock issued |
|
|
3,039 |
|
|
|
|
|
|
|
3,039 |
|
Fresh start adjustments |
|
|
(3 |
) |
|
|
34 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2008 |
|
|
3,039 |
|
|
|
112 |
|
|
|
3,151 |
|
Comprehensive income (loss) |
|
|
(97 |
) |
|
|
6 |
|
|
|
(91 |
) |
Preferred stock dividends |
|
|
(13 |
) |
|
|
|
|
|
|
(13 |
) |
Employee emergence bonus |
|
|
40 |
|
|
|
|
|
|
|
40 |
|
Stock compensation |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Additional investment |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Dividends paid |
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008 |
|
$ |
2,972 |
|
|
$ |
115 |
|
|
$ |
3,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
$ |
2,028 |
|
|
$ |
107 |
|
|
$ |
2,135 |
|
Comprehensive loss |
|
|
(106 |
) |
|
|
(5 |
) |
|
|
(111 |
) |
Preferred stock dividends |
|
|
(16 |
) |
|
|
|
|
|
|
(16 |
) |
Stock compensation |
|
|
4 |
|
|
|
|
|
|
|
4 |
|
Dividends paid |
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009 |
|
$ |
1,910 |
|
|
$ |
100 |
|
|
$ |
2,010 |
|
|
|
|
|
|
|
|
|
|
|
Note 13. Cash Deposits
Cash deposits are maintained to provide credit enhancement for certain agreements and are
reported as part of cash and cash equivalents. For most of these deposits, the cash may be
withdrawn if comparable security is provided in the form of letters of credit. Accordingly, these
deposits are not considered to be restricted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
Non-U.S. |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
215 |
|
|
$ |
230 |
|
|
$ |
445 |
|
Cash and cash equivalents held as deposits |
|
|
19 |
|
|
|
22 |
|
|
|
41 |
|
Cash and cash equivalents held at less than
wholly owned subsidiaries |
|
|
2 |
|
|
|
65 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
236 |
|
|
$ |
317 |
|
|
$ |
553 |
|
|
|
|
|
|
|
|
|
|
|
A portion of the non-U.S. cash and cash equivalents is utilized for working capital and other
operating purposes. Several countries have local regulatory requirements that significantly
restrict the ability of our operations to repatriate this cash. Beyond these restrictions, there
are practical limitations on repatriation of cash from certain countries because of the resulting
tax withholdings.
21
Note 14. Liquidity and Financing Agreements
Liquidity There continue to be numerous 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 payments and acceleration of supplier payments, growing
inventories and our failure to meet debt covenants.
Our sales forecast is significantly influenced by various external factors beyond our control,
including customer bankruptcies and overall economic market conditions. We continued to consider
downside sales scenarios for each of our markets (e.g., North American light vehicle production in
2009 of about 8 million units). Achieving our current forecast is also 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 our projected pricing improvements.
Based on our current forecast assumptions, which include cost reduction actions, debt repayment and
other initiatives, we believe that we can satisfy our debt covenants and the liquidity needs of the
business during the next twelve months. However, there is a high degree of uncertainty in the
current environment and it is possible that the factors affecting our business could result in our
not being able to comply with the financial covenants in our debt agreements or to maintain
sufficient liquidity.
The previous uncertainty surrounding the potential effects associated with Chapter 11 filings
by Chrysler and General Motors (GM) has now dissipated. Both companies entered Chapter 11 during
the second quarter of 2009, and have subsequently emerged as new companies. In connection with
their emergence, contracts for substantially all of our significant programs were assumed by the
new companies, and we received full consideration from them for settlement of all amounts due. We
also elected to mitigate our GM accounts receivable exposure by participating in the Automotive
Supplier Support Program. GM Supplier Receivables LLC (GMSR), a newly created subsidiary of GM,
began to purchase GM receivables from approved GM suppliers in May. The obligations of GMSR
related to these purchases are guaranteed by the U.S. Department of the Treasury. As of June 30,
2009, we were owed $11 for the receivables sold to GMSR. Because these sales of receivables did
not satisfy the technical requirements for sales of financial assets, we were required to retain
the GM receivables, record the $11 receivable from GMSR and recognize a liability shown on our June
30, 2009 balance sheet as financial obligation related to GM supplier program. GM is obligated
to pay GMSR within the normal terms of the receivables and GMSR, in turn, will pay the face amount
of the receivables to Dana, less a 2% fee. At that time, we will reduce the related GM trade
receivables, the receivable from GMSR and the corresponding financing obligation. As a consequence
of GMs emergence from Chapter 11, we expect to discontinue future participation in this program.
Non-compliance with the covenants in our debt agreements would provide our lenders with the
ability to demand immediate repayment of all outstanding borrowings under our exit financing
facility, as amended (the Exit Facility), consisting of a Term Facility Credit and Guaranty
Agreement (Term Facility) and a Revolving Credit and Guaranty Agreement (Revolving Facility). We
do 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, 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 we
believe that we would be able to do so again, if necessary.
We were in compliance with our debt covenants at June 30, 2009 and, based on our current
forecast, we expect to remain in compliance for the next twelve months. While our ability to
borrow the full amount of availability under our revolving credit facilities may at times be
limited by the financial covenants, we believe that our overall liquidity and operating cash flow
will be sufficient to meet our anticipated cash requirements for capital expenditures, working
capital, debt obligations and other commitments during this period.
22
Exit Financing As of June 30, 2009, we had gross borrowings of $1,137 and unamortized original
issue discount (OID) of $72 under the amended Term Facility, no borrowings under the Revolving
Facility and we had utilized $189 for 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%. Based on borrowing base collateral of
$315 at June 30, 2009, there was potential availability at that date under the Revolving Facility
of $126 after deducting the outstanding letters of credit and assuming no reduction in availability
for the defaulting lender.
During the second quarter of 2009, we used cash of $77 to reduce the principal amount of our
Term Facility borrowings by $125, primarily through market purchases. The accounting for this
activity included a reduction of $8 in the related OID and resulted in the recording of a $40 net
gain on extinguishment of debt, which is included in other income, net. Debt issuance costs of $3
were written off as a charge to interest expense.
Interest Rate Agreements Interest on the amended Term Facility accrues at variable interest
rates. Under the amended Term Facility we are required to carry interest rate hedge agreements
covering a notional amount of not less than 50% of the aggregate loans outstanding under the
amended Term Facility until January 2011. The fair value of these contracts, which cap our
interest rate at 10.25% on $706 of debt, was $1 as of June 30, 2009.
European Receivables Loan Facility At June 30, 2009, there were no borrowings under this
facility. The $104 of accounts receivable serving as collateral under the program at June 30, 2009
would have supported $65 of borrowings at that date.
Our additional borrowing capacity under the Revolving Facility and our other credit facilities
is effectively limited to $152 at June 30, 2009 based on our financial covenants. Our future
borrowing capacity will continue to be constrained by the covenants in our debt agreement.
Note 15. Fair Value Measurements
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.
As of June 30, 2009 and December 31, 2008, our assets and liabilities that are carried at fair
value on a recurring and a non-recurring basis include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Active |
|
|
Observable |
|
|
Unobservable |
|
June 30, 2009: |
|
|
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
Assets: |
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Trademarks and trade names |
|
$ |
65 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
65 |
|
Notes receivable |
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
45 |
|
Interest
rate caps |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
112 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts |
|
$ |
13 |
|
|
$ |
- |
|
|
$ |
13 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
13 |
|
|
$ |
- |
|
|
$ |
13 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names |
|
$ |
72 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
72 |
|
Notes receivable |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
20 |
|
Currency forward contracts |
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
100 |
|
|
$ |
- |
|
|
$ |
8 |
|
|
$ |
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
6 |
|
|
$ |
- |
|
|
$ |
6 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
6 |
|
|
$ |
- |
|
|
$ |
6 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
The fair value of interest rate caps which are measured using Level 1 was less than $1 at December 31, 2008.
The change in fair value using Level 3 inputs of the notes receivable and trademarks and trade
names can be summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
Prior Dana |
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
Notes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
14 |
|
|
$ |
63 |
|
|
$ |
20 |
|
|
$ |
62 |
|
|
|
$ |
67 |
|
Accretion of value
(interest income) |
|
|
3 |
|
|
|
3 |
|
|
|
5 |
|
|
|
4 |
|
|
|
|
1 |
|
Unrealized gain (loss) (OCI) |
|
|
28 |
|
|
|
(13 |
) |
|
|
20 |
|
|
|
(13 |
) |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
45 |
|
|
$ |
53 |
|
|
$ |
45 |
|
|
$ |
53 |
|
|
|
$ |
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortizable trademarks
and trade names |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
71 |
|
|
$ |
85 |
|
|
$ |
72 |
|
|
$ |
85 |
|
|
|
$ |
- |
|
Fresh start accounting
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85 |
|
Impairment |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
|
|
|
Currency effect |
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
65 |
|
|
$ |
79 |
|
|
$ |
65 |
|
|
$ |
79 |
|
|
|
$ |
85 |
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all of the notes receivable amount consists of one note, due 2019, obtained in
connection with a divestiture in 2004. Its carrying amount is adjusted each quarter based on the
market value of publicly traded debt of the operating subsidiary of the obligor. We intend to hold
this security until it recovers its contractual value, which could be at its scheduled maturity,
and we believe that all contractual payments related to this note will be received. Net changes in
the values of the other notes receivable are de minimis.
Trademarks and trade names are included in the table above since they were measured at fair
value in the second quarter of 2009. These intangibles are measured on a non-recurring basis when
conditions arise that warrant an interim review (see Note 7).
24
Note 16. Risk Management and Derivatives
The total notional amount of outstanding foreign currency derivatives as of June 30, 2009 was
$184, which is primarily comprised of forward exchange contracts denominated in euros, British
pounds and Australian dollars.
The fair values of derivative instruments included within the consolidated balance sheet as of
June 30, 2009 are $1 of receivables under forward contracts reported as part of other current
assets and $13 of payables under forward contacts reported in other accrued liabilities. These
derivatives are not designated as hedging instruments. Changes in the fair value of these
instruments and any gain or loss realized is reported in other income, net or cost of sales for
materials purchases (see Note 15).
Hedges of product costs are recorded in cost of sales when the underlying transaction affects
net income. No amounts were hedged during the six months ended June 30, 2009. We also carry an
interest rate cap on $706 of our long-term debt. The fair value of this derivative at June 30,
2009 was $1.
Note 17. Commitments and Contingencies
Class Action Lawsuit and Derivative Actions A securities class action entitled Howard Frank v.
Michael J. Burns and Robert C. Richter was originally filed in October 2005 in the U.S. District
Court for the Northern District of Ohio, naming our former Chief Executive Officer, Michael J.
Burns, and former Chief Financial Officer, Robert C. Richter, as defendants. In a consolidated
complaint filed in August 2006, lead plaintiffs alleged violations of the U.S. securities laws and
claimed that the price at which our stock traded at various times between April 2004 and October
2005 was artificially inflated as a result of the defendants alleged wrongdoing. By order dated
August 21, 2007, the District Court granted the defendants motion to dismiss the consolidated
complaint and entered a judgment closing the case. On November 19, 2008, following briefing and
oral argument on the lead plaintiffs appeal, the Sixth Circuit vacated the District Courts
judgment of dismissal on the ground that the decision on which it was based misstated the
applicable pleading standard. In doing so, the Sixth Circuit gave no indication of its views as to
whether, under the correct pleading standard, it would have affirmed the District Courts judgment.
The Sixth Circuit remanded the case to the District Court to consider whether it would still
dismiss under the correct articulation of the pleading standard. Defendants renewed motion to
dismiss the consolidated complaint has been fully briefed and oral arguments thereon took place on
May 18, 2009. As of this date, no decision has been rendered by the District Court.
SEC Investigation In September 2005, we reported that management was investigating accounting
matters arising out of incorrect entries related to a customer agreement in our Commercial Vehicle
operations, and that the Prior Dana Audit Committee had engaged outside counsel to conduct an
independent investigation of these matters as well. Outside counsel informed the SEC of the
investigation, which ended in December 2005, the same month that we filed restated financial
statements for the first two quarters of 2005 and the years 2002 through 2004. In January 2006, we
learned that the SEC had issued a formal order of investigation with respect to matters related to
our restatements. The SECs investigation is a non-public, fact-finding inquiry to determine
whether any violations of the law have occurred. We are continuing to cooperate fully with the SEC
in the investigation.
Legal Proceedings Arising in the Ordinary Course of Business We are a party to various pending
judicial and administrative proceedings arising in the ordinary course of business. These include,
among others, proceedings based on product liability claims and alleged violations of environmental
laws. We have reviewed these pending legal proceedings, including the probable outcomes, our
reasonably anticipated costs and expenses, the availability and limits of our insurance coverage
and surety bonds and our established reserves for uninsured liabilities.
25
Further information about some of these legal proceedings follows, including information about
our
accruals for the liabilities that may arise from such proceedings. We accrue for contingent
liabilities at the time when we believe they are both probable and estimable. We review our
assessments of probability and estimability as new information becomes available and adjust our
accruals quarterly, if appropriate. Since we do not accrue for contingent liabilities that we
believe are probable unless we can reasonably estimate the amounts of such liabilities, our actual
liabilities may exceed the amounts we have recorded. We do not believe that any liabilities that
may result from these proceedings are reasonably likely to have a material adverse effect on our
liquidity or financial condition.
Asbestos Personal Injury Liabilities We had approximately 31,000 active pending asbestos
personal injury liability claims at June 30, 2009 and at December 31, 2008. In addition,
approximately 15,000 mostly inactive claims have been settled and are awaiting final documentation
and dismissal, with or without payment. We have accrued $115 for indemnity and defense costs for
settled, pending and future claims at June 30, 2009, compared to $124 at December 31, 2008. We
used a fifteen year time horizon for our estimate of the liability as of June 30, 2009.
Based on the volume of asbestos claims filed subsequent to our emergence from Chapter 11, we
reevaluated our estimated liability as of June 30, 2009. We revised our estimates of claims
expected to be compensated in the future, which reduced our estimated obligation for asbestos
personal injury claims by $12 and the related insurance recoverable by $6. We recorded the net
benefit of $6 in selling, general and administrative expense.
At June 30, 2009, we had recorded $62 as an asset for probable recovery from our insurers for
the pending and projected asbestos personal injury liability claims. The recorded asset reflects
our assessment of the capacity of our current insurance agreements to provide for the payment of
anticipated defense and indemnity costs for pending claims and projected future demands. The
recorded asset does not represent the limits of our insurance coverage, but rather the amount we
would expect to recover if we paid the accrued indemnity and defense costs.
We
accrete the asset and liability for asbestos receivables and claims
obligations to their fair
values each period.
Other Product Liabilities We had accrued $1 for non-asbestos product liability costs at June 30,
2009, compared to $2 at December 31, 2008, with no recovery expected from third parties at either
date. The decline in 2009 results from a reduction in the volume of active claims. We estimate
these liabilities based on assumptions about the value of the claims and about the likelihood of
recoveries against us derived from our historical experience and current information.
Environmental Liabilities Accrued environmental liabilities at June 30, 2009 were $16, compared
to $18 at December 31, 2008. We consider the most probable method of remediation, current laws and
regulations and existing technology in determining the fair value of our environmental liabilities.
During the second quarter of 2009, we reached agreements with certain of our insurers related
primarily to their coverage of previously settled environmental claims. We have recorded the
aggregate recovery of $12 in other receivables and reduced cost of sales in the consolidated
statement of operations.
Other Liabilities Related to Asbestos Claims After the Center for Claims Resolution (CCR)
discontinued negotiating shared settlements for asbestos claims for its member companies in 2001,
some former CCR members defaulted on the payment of their shares of some settlements and some
settling claimants sought payment of the unpaid shares from other members of the CCR at the time of
the settlements, including from us. We have been working with the CCR, other former CCR members,
our insurers and the claimants over a period of several years in an effort to resolve these issues.
Through June 30, 2009, we had collected the entire $47 paid to claimants with respect to these
claims. Efforts to recover additional CCR-related payments from surety bonds and other claims are
continuing. Additional recoveries are not assured and accordingly have not been recorded at June
30, 2009.
26
Note 18. Warranty Obligations
We record a liability for estimated warranty obligations at the dates our products are sold.
We record the liability based on our estimate of costs to settle the claim. Adjustments are made
as new information becomes available.
Changes in our warranty liabilities are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
Prior Dana |
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30 |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
Balance, beginning
of period |
|
$ |
93 |
|
|
$ |
95 |
|
|
$ |
100 |
|
|
$ |
93 |
|
|
|
$ |
92 |
|
Amounts accrued
for current
period |
|
|
5 |
|
|
|
23 |
|
|
|
13 |
|
|
|
33 |
|
|
|
|
4 |
|
Adjustments of
prior accrual |
|
|
(5 |
) |
|
|
3 |
|
|
|
(5 |
) |
|
|
4 |
|
|
|
|
|
|
Settlements of
warranty claims |
|
|
(13 |
) |
|
|
(18 |
) |
|
|
(26 |
) |
|
|
(29 |
) |
|
|
|
(3 |
) |
Foreign currency
translation and
other |
|
|
3 |
|
|
|
|
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end
of period |
|
$ |
83 |
|
|
$ |
103 |
|
|
$ |
83 |
|
|
$ |
103 |
|
|
|
$ |
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of 2009, we reached agreement with a customer allowing for our
recovery of $6 of warranty claims previously paid to the customer. The $6 recovery is reported in
the table as a reduction of both the adjustments of prior accrual and settlements of warranty
claims.
We have been notified by two of our larger customers that quality issues relating to products
supplied by us could result in warranty claims. Our customers have advised us of alleged vehicle
performance issues which may be attributable to our product. At June 30, 2009, no liability had
been recorded for these matters as the information currently available to us is insufficient to
assess our liability, if any.
Note 19. Income Taxes
We estimate the effective tax rate expected to be applicable for the full fiscal year and use
that rate to provide income taxes in interim reporting periods. We also recognize the tax impact
of certain discrete (unusual or infrequently occurring) items, including changes in judgment about
valuation allowances and effects of changes in tax laws or rates, in the interim period in which
they occur.
The tax expense or benefit recorded in continuing operations is generally determined without
regard to other categories of earnings, such as the results of discontinued operations or OCI. An
exception occurs if there is aggregate pre-tax income from other categories and a pre-tax loss from
continuing operations, even if a valuation allowance has been established against deferred tax
assets. The tax benefit allocated to continuing operations is the amount by which the loss from
continuing operations reduces the tax expense recorded with respect to the other categories of
earnings.
27
Prior to considering the effect of income taxes, our operations in the U.S. reported OCI of
$24 for the six months ended June 30, 2009, as a result of currency translation and the recovery in
value of notes receivable. The exception described in the preceding paragraph resulted in a
year-to-date charge to OCI of $9. An offsetting tax benefit was attributed to continuing
operations for the three months and six months ended June 30, 2009. However, the benefit recorded
in continuing operations for the three and six months ended June 30, 2009 was limited to $4 due to
interperiod tax allocation rules, leaving a deferred liability of $5 in other accrued liabilities
at June 30, 2009. The amount to be recognized in the remainder of 2009 will be determined
primarily by the amount of OCI reported by our operations in the U.S.
We provide for U.S. Federal income and non-U.S. withholding taxes on the future repatriations
of the earnings from our non-U.S. operations. During the first six months of 2009 we continued to
modify our forecast for future repatriations due to current market conditions. Accordingly, we
reduced the future income and non-U.S. withholding tax liabilities for these repatriations and
recognized benefits of $12 and $19, net of valuation allowances, for the three and six months ended
June 30, 2009.
We record interest income or expense, as well as penalties, related to uncertain tax positions
as a component of income tax expense or benefit. Net interest expense of $1 and $4 was recognized
in income tax expense for the three and six months ended June 30, 2009.
With the exception of the OCI tax expense credited to the current deferred tax provision in
continuing operations, we have not recognized tax benefits on losses generated in several
countries, including the U.S., where the recent history of operating losses does not allow us to
satisfy the more likely than not criterion for the recognition of deferred tax assets.
Consequently, there is no additional income tax benefit recognized on the pre-tax losses from
continuing operations in these jurisdictions as valuation allowances are established offsetting the
associated tax benefit.
In July 2009, we finalized an agreement with the U.S. Internal Revenue Service confirming our
treatment of $733 paid to fund two VEBAs for certain union employee benefits as a deductible cost
in the 2008 post-emergence period.
Income tax expense (benefit) was $(21) and $12 for the quarters ended June 30, 2009 and 2008,
$(30) for the six months ended June 30, 2009 and $231 ($199 for January and $32 for February
through June) for the six months ended June 30, 2008. The income tax rate varies from the U.S.
Federal statutory rate of 35% primarily due to the non-U.S. withholding taxes discussed above and
valuation allowances relating to those countries where a benefit cannot be recognized. In
addition, the income tax rate for the 2008 periods differs due to the effects of emerging from
Chapter 11, fresh start accounting and impairment of goodwill.
28
Note 20. Other Income, Net
Other income, net included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
Prior Dana |
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
Gain on
extinguishment of
debt |
|
$ |
40 |
|
|
$ |
- |
|
|
$ |
40 |
|
|
$ |
- |
|
|
|
$ |
- |
|
Interest income |
|
|
6 |
|
|
|
14 |
|
|
|
12 |
|
|
|
25 |
|
|
|
|
4 |
|
Foreign exchange
gain (loss) |
|
|
5 |
|
|
|
(4 |
) |
|
|
6 |
|
|
|
11 |
|
|
|
|
3 |
|
Government grants |
|
|
3 |
|
|
|
5 |
|
|
|
8 |
|
|
|
7 |
|
|
|
|
1 |
|
Contract
cancellation
income |
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
Other, net |
|
|
7 |
|
|
|
5 |
|
|
|
7 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
$ |
61 |
|
|
$ |
20 |
|
|
$ |
90 |
|
|
$ |
52 |
|
|
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed in Note 14 above, the net gain on extinguishment of debt resulted from the
repurchase and repayment of $122 of our Term Facility.
Foreign exchange gains and losses on cross-currency intercompany loan balances that are not
considered permanently invested are included in foreign exchange gain (loss) above. Foreign
exchange gains and losses on loans that are permanently invested are reported in OCI.
Dana and its subsidiaries enter into foreign exchange forward contracts to hedge certain
intercompany loans and accrued interest balances as well as to reduce exposure in cross-currency
transactions in the normal course of business. At June 30, 2009, these foreign exchange contracts
had a total notional amount of $184. These contracts are marked to market, with the gain or loss
recorded as a foreign exchange gain (loss) in cost of sales for transactions hedged and in other
income, net for intercompany accounts.
The contract cancellation income of $17 for the six months ended June 30, 2009 represents
recoveries in connection with early cancellation of certain customer programs.
Other Recoveries - During the second quarter of 2009, we agreed on remuneration for early
termination of a customer program in mid-2010. Since this program is continuing in full production
through mid-2010 the remuneration received for early cancellation is being reported in sales.
Program cancellation income of $5 was recognized as revenue in the second quarter of 2009, with $6
being deferred and recognized over the duration of the program.
Note 21. Segments
The components that management establishes for purposes of making decisions about an
enterprises operating matters are referred to as operating segments.
We manage our operations globally through six operating segments: LVD, Sealing, Thermal,
Structures, Commercial Vehicle and Off-Highway. The Light Axle and Driveshaft segments reported in
2008 were generally combined in line with our internal management structure into the LVD segment
and certain operations of those segments were moved into the Commercial Vehicle and Off-Highway
segments in the first quarter of 2009. The amounts reported for the first six months of 2008 have
been retrospectively adjusted for these changes.
We report the results of our operating segments and related disclosures about each of our
segments on the basis shown below and this measurement is used internally for evaluating segment
performance and deciding how to allocate resources to those segments.
29
In the first quarter of 2008, we changed the primary measure of operating results to EBITDA.
In December 2008, we modified our determination of EBITDA to more closely align it with EBITDA as
defined by our debt agreements and adjusted our reconciliation of segment EBITDA to the
consolidated income (loss) from continuing operations before income taxes. The following items,
which are excluded from our covenant calculation of EBITDA, are now shown separately in the
reconciliation: gain or loss on reductions in debt; strategic transaction expenses; loss on sale of
assets; stock compensation expense; unrealized foreign exchange gains or losses on intercompany
loans and market value adjustments on currency forward contracts.
Prior to 2009, the costs of corporate administrative services, shared service centers,
trailing liabilities of closed operations and other non-administrative activities were not
allocated to the operating segments. In the first quarter of 2009, we began to allocate the costs
of corporate administrative services and shared service centers to our segments based on segment
sales, operating assets and headcount. Administrative costs other than executive activities are
now allocated to the operating segments. We also do not allocate trailing costs of previously
divested businesses and other non-administrative costs that are not directly attributable to the
operating segments.
In the first quarter of 2009, we revised the definition of segment EBITDA to include all
components of the consolidated EBITDA calculation. The allocations of corporate costs for the
three months ended June 30, 2009 and 2008 were $28 and $28, and
were $56, $52 and $10 for the six
months ended June 30, 2009, the five months ended June 30, 2008 and the one month ended January 31,
2008. The 2008 segment results presented below have been adjusted to conform to the 2009
presentation.
Segment EBITDA is now more closely aligned with the performance measurements in our debt
covenants. EBITDA, as defined for both internal performance measurement and debt covenant
compliance, excludes equity in earnings of affiliates, net income attributable to noncontrolling
interests, realignment charges (capped at $100 in 2009 for cash charges), reorganization items and
certain nonrecurring and unusual items such as gain on extinguishment of debt, asset impairment,
amortization of the fresh start inventory step-up and divestiture gains and losses.
We used the following information to evaluate our operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
External |
|
|
Segment |
|
|
Segment |
|
|
External |
|
|
Segment |
|
|
Segment |
|
2009 |
|
Sales |
|
|
Sales |
|
|
EBITDA |
|
|
Sales |
|
|
Sales |
|
|
EBITDA |
|
Light Vehicle
Driveline |
|
$ |
455 |
|
|
$ |
24 |
|
|
$ |
40 |
|
|
$ |
844 |
|
|
$ |
48 |
|
|
$ |
49 |
|
Sealing |
|
|
120 |
|
|
|
2 |
|
|
|
2 |
|
|
|
201 |
|
|
|
5 |
|
|
|
23 |
|
Thermal |
|
|
42 |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
77 |
|
|
|
2 |
|
|
|
3 |
|
Structures |
|
|
129 |
|
|
|
2 |
|
|
|
1 |
|
|
|
255 |
|
|
|
4 |
|
|
|
26 |
|
Commercial Vehicle |
|
|
250 |
|
|
|
9 |
|
|
|
21 |
|
|
|
441 |
|
|
|
12 |
|
|
|
24 |
|
Off-Highway |
|
|
194 |
|
|
|
6 |
|
|
|
5 |
|
|
|
513 |
|
|
|
13 |
|
|
|
47 |
|
Eliminations and other |
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
2 |
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,190 |
|
|
$ |
- |
|
|
$ |
68 |
|
|
$ |
2,333 |
|
|
$ |
- |
|
|
$ |
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
External |
|
|
Segment |
|
|
Segment |
|
2009 |
|
Sales |
|
|
Sales |
|
|
EBITDA |
|
Light Vehicle Driveline |
|
$ |
879 |
|
|
$ |
50 |
|
|
$ |
33 |
|
Sealing |
|
|
237 |
|
|
|
4 |
|
|
|
|
|
Thermal |
|
|
81 |
|
|
|
3 |
|
|
|
|
|
Structures |
|
|
246 |
|
|
|
4 |
|
|
|
9 |
|
Commercial Vehicle |
|
|
507 |
|
|
|
17 |
|
|
|
27 |
|
Off-Highway |
|
|
456 |
|
|
|
14 |
|
|
|
16 |
|
Eliminations |
|
|
|
|
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,406 |
|
|
$ |
- |
|
|
$ |
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
|
|
|
|
|
|
|
|
Prior Dana |
|
|
|
|
|
|
|
Five Months Ended |
|
|
|
One Month Ended |
|
|
|
June 30, 2008 |
|
|
|
January 31, 2008 |
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
External |
|
|
Segment |
|
|
Segment |
|
|
|
External |
|
|
Segment |
|
|
Segment |
|
2008 |
|
Sales |
|
|
Sales |
|
|
EBITDA |
|
|
|
Sales |
|
|
Sales |
|
|
EBITDA |
|
Light Vehicle
Driveline |
|
$ |
1,424 |
|
|
$ |
78 |
|
|
$ |
76 |
|
|
|
$ |
281 |
|
|
$ |
15 |
|
|
$ |
10 |
|
Sealing |
|
|
332 |
|
|
|
9 |
|
|
|
36 |
|
|
|
|
64 |
|
|
|
1 |
|
|
|
6 |
|
Thermal |
|
|
129 |
|
|
|
3 |
|
|
|
6 |
|
|
|
|
28 |
|
|
|
|
|
|
|
3 |
|
Structures |
|
|
435 |
|
|
|
6 |
|
|
|
40 |
|
|
|
|
90 |
|
|
|
1 |
|
|
|
4 |
|
Commercial Vehicle |
|
|
716 |
|
|
|
23 |
|
|
|
40 |
|
|
|
|
130 |
|
|
|
6 |
|
|
|
6 |
|
Off-Highway |
|
|
855 |
|
|
|
22 |
|
|
|
75 |
|
|
|
|
157 |
|
|
|
4 |
|
|
|
14 |
|
Eliminations and other |
|
|
3 |
|
|
|
(141 |
) |
|
|
|
|
|
|
|
1 |
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,894 |
|
|
$ |
- |
|
|
$ |
273 |
|
|
|
$ |
751 |
|
|
$ |
- |
|
|
$ |
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles segment EBITDA to the consolidated income (loss) from
continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
Prior Dana |
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
Segment EBITDA |
|
$ |
68 |
|
|
$ |
172 |
|
|
$ |
85 |
|
|
$ |
273 |
|
|
|
$ |
43 |
|
Shared services and administrative |
|
|
(5 |
) |
|
|
(7 |
) |
|
|
(10 |
) |
|
|
(10 |
) |
|
|
|
(3 |
) |
Other income (expense) not in segments |
|
|
33 |
|
|
|
1 |
|
|
|
32 |
|
|
|
(3 |
) |
|
|
|
(2 |
) |
Foreign exchange not in segments |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
(79 |
) |
|
|
(73 |
) |
|
|
(152 |
) |
|
|
(120 |
) |
|
|
|
(23 |
) |
Amortization of intangibles |
|
|
(21 |
) |
|
|
(23 |
) |
|
|
(42 |
) |
|
|
(38 |
) |
|
|
|
|
|
Amortization of fresh start inventory
step-up |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(49 |
) |
|
|
|
|
|
Realignment |
|
|
(29 |
) |
|
|
(40 |
) |
|
|
(79 |
) |
|
|
(45 |
) |
|
|
|
(12 |
) |
DCC EBIT |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
Impairment of goodwill |
|
|
|
|
|
|
(75 |
) |
|
|
|
|
|
|
(75 |
) |
|
|
|
|
|
Impairment of other assets |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
|
|
|
Reorganization items, net |
|
|
3 |
|
|
|
(12 |
) |
|
|
2 |
|
|
|
(21 |
) |
|
|
|
(98 |
) |
Gain on extinguishment of debt |
|
|
40 |
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
Strategic transaction expenses |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(3 |
) |
|
|
|
|
|
Loss on sale of assets, net |
|
|
|
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
|
|
|
Stock compensation expense |
|
|
(2 |
) |
|
|
(3 |
) |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
|
|
|
Foreign exchange on intercompany loans
and market value adjustments on hedges |
|
|
9 |
|
|
|
(6 |
) |
|
|
5 |
|
|
|
7 |
|
|
|
|
4 |
|
Interest expense |
|
|
(37 |
) |
|
|
(35 |
) |
|
|
(72 |
) |
|
|
(62 |
) |
|
|
|
(8 |
) |
Interest income |
|
|
6 |
|
|
|
14 |
|
|
|
12 |
|
|
|
25 |
|
|
|
|
4 |
|
Fresh start accounting adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
$ |
(23 |
) |
|
$ |
(107 |
) |
|
$ |
(189 |
) |
|
$ |
(135 |
) |
|
|
$ |
914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
Item 2. |
|
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 this report.
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 and in our other filings with the Securities and
Exchange Commission (SEC). All forward-looking statements speak only as of the date made, and we
undertake no obligation to publicly update or revise any forward-looking statement to reflect
events or circumstances that may arise after the date of this report.
Management Overview
Dana Holding Corporation (Dana) is a world leader in the supply of axles; driveshafts; and
structural, sealing and thermal-management products; as well as genuine service parts. Our
customer base includes virtually every major vehicle manufacturer in the global automotive,
commercial vehicle, and off-highway markets. Headquartered in Toledo, Ohio, Dana was incorporated in Delaware in 2007. As of
June 30, 2009 we employed approximately 22,500 people with 112 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 six 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. 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. 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 2008 and in the first half of 2009, we have 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 global metrics and operational
standards. 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 future success as lower
production levels will continue to be a 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.
32
Segments
We manage our operations globally through six 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 Vehicle Driveline (LVD), Structures,
Sealing and Thermal. As of January 1,
2009, these segments have been reorganized in line with our management structure. The Light Axle
and Driveshaft segments have been combined into the LVD segment with certain operations from these
former segments moving to our Commercial Vehicle and Off-Highway segments.
Two operating segments, Commercial Vehicle and Off-Highway, support the original equipment
manufacturers (OEMs) of medium-duty (Classes 5-7) and heavy-duty (Class 8) commercial vehicles
(primarily trucks and buses) and off-highway vehicles (primarily wheeled vehicles used in
construction and agricultural applications).
We revised our definition of segment earnings before interest, taxes, depreciation and
amortization (EBITDA) in the first quarter of 2009. See Note 21 of the notes to our consolidated
financial statements in Item 1 of Part I.
Trends in Our Markets
Light Vehicle Markets
Rest of the World Outside of North America, overall global economic weakness is impacting light
vehicle production, just as it has in North America. Light vehicle production outside of North
America during the three months ended June 30, 2009 was about
20% lower than the same period of
2008. The production declines are evident in all regions, as second-quarter production levels were
down more than 25% in Europe, down about 15% in Asia Pacific down more than 10% in South America
versus the volumes in the second quarter of 2008. For the six months ended June 30, 2009,
production levels outside North America were down about 25% from the comparable 2008 period, with
each region showing significant declines. Expected production levels for the remainder of 2009
have been reduced from forecasts earlier this year as the effects of the global economic weakness
are now expected to be more significant and last longer. Whereas 2009 vehicle production outside
of North America was projected at around 50 million units earlier this year, the current
expectation is that unit production will be closer to 45 million units which compares to 2008
global light vehicle production, excluding North America, of about 55 million units. (Source:
Global Insight).
North America North American light vehicle production levels were about 50% lower in both the
three-month and six-month periods ended June 30, 2009 as compared to the same periods of 2008. The
percentage decline in production during these periods was similar in both the light truck and
passenger car segments of the market, with the decline in light trucks being a little higher than
50%. Light vehicle sales during the first half of 2009 were down about 33% from the comparable
period of 2008. The weakness in light vehicle sales reflects, in part, the overall economic
conditions affecting the vehicular industry as well as other segments of the economy lower
levels of consumer confidence, concerns over high fuel prices, declining home values, increased
unemployment, access to credit and other economic factors. (Source: Wards Automotive).
With the significant cutback in production levels during the first half of 2009, North
American light vehicle industry inventory levels improved from the end of 2008. The days supply of
total light vehicles in North America was 63 at June 30, 2009, down from 82 at March 31, 2009 and
93 at the end of 2008. Light truck inventory was 62 days at June 30, 2009, down from 82 days at
March 31, 2009 and 86 days at December 31, 2008. With the reduction in inventory levels that has
occurred, near term production levels are likely to be driven more directly by vehicle sales.
(Source: Wards Automotive).
While light vehicle production forecasts for 2009 have stabilized recently, the overall
negative economic environment continues to pose concern for the remainder of 2009. We are
currently projecting North American light vehicle production for 2009 to be in the range of 8.0 to
8.7 million units down from about 12.7 million units produced in 2008.
33
Rapid Technology Changes
On May 19, 2009, the U.S. government announced plans for a new national fuel economy policy.
The program, which still requires U.S. Congressional approval, covers model years 2012-2016 and
would increase Corporate Average Fuel Economy (CAFE) standards by five percent each year from 2012
through 2016. The proposal requires that passenger vehicles achieve an industry standard of 35.5
miles per gallon, an average increase of eight miles per gallon per vehicle. While providing the
regulatory certainty and predictability of nationwide standards versus previously proposed
state-by-state standards, this change will require a rapid response by automakers. It also
represents an opportunity for suppliers that are able to produce highly engineered products that
will help OEMs quickly meet these stricter carbon-emission and fuel-economy requirements.
Suppliers such as Dana that are able to provide these new components and applications will fare
best in this new environment. Our materials and process competencies and product enhancements can
provide OEMs with needed vehicle weight reduction and efficiency improvements, assisting them in
their efforts to meet the more stringent CAFE requirements.
Commercial Vehicle Markets
Rest of the World Outside of North America, commercial vehicle medium- and heavy-duty production
is similarly succumbing to global economic weakness. After increasing to about 2.3 million units
in 2008, commercial vehicle production levels outside North America for 2009 are expected to
decline to around 1.5 to 1.7 million units. (Source: Global Insight and ACT).
North America Developments in this region have a significant impact on our results as North
America accounts for approximately 70% of our sales in the commercial vehicle market. Production
of heavy-duty (Class 8) vehicles during the second quarter of 2009 of approximately 24,000 units
compares to 55,000 units produced in the second quarter of 2008, a decline of 56%. In the medium-duty (Class 5-7)
market, second quarter 2009 production of 26,000 units was down 46% from last years second quarter
production of 48,000 units. Six-month year to date production of Class 8 vehicles is down 49% from
the comparable period in 2008, with Class 5-7 vehicles being down 46%. The commercial vehicle
market is being impacted by many of the same overall economic conditions negatively impacting the
light vehicle markets, leading customers to be cautious about new vehicle purchases. As a result
of greater, more protracted economic weakness, customer demand and production during the remainder
of 2009 are expected to be lower. Whereas earlier this year we expected North American Class 8
production in 2009 to rebound to about 160,000 units, we now believe the economic conditions could
limit 2009 production to about 104,000 to 121,000 units, which would represent a decrease of 38% to
47% compared to full year 2008 production of 196,000 units. In the Class 5-7 segment, our
production expectations have softened as we currently expect production of around 101,000 to
109,000 units down from full year production of 157,000 units in 2008. (Source: Global Insight
and ACT).
Off-Highway Markets
Our off-highway business has become an increasingly more significant component of our total
operations over the past few years. Unlike our on-highway businesses, our off-highway business is
largely outside of North America, with about 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 agricultural equipment segments. After being relatively strong through the first half of 2008,
customer demand in these markets began softening during the latter part of 2008. During the first
half of 2009, the adverse effects of a weaker global economy began to more significantly impact
demand levels in these markets, and we expect continued weakness in these markets for the remainder
of the year. Earlier this year, we had forecast reductions in 2009 demand in the North American
and European construction markets of about 40% and reductions in agricultural market demand in 2009
of around 20%. We currently expect that construction market demand could be reduced by 70% to 75%,
with agricultural market demand being down 35 to 40%.
34
Sales and Earnings Outlook
Full year 2009 production forecasts in most of our markets have continued to weaken from our
previous expectations. As such, we are aggressively right sizing our cost structure and continuing
to pursue increased pricing from customers where programs warrant. On the cost front, we reduced
the work force during 2008 by about 6,000 people and in the first six months of this year we
reduced our workforce by another 6,200 people. Additional reductions are expected during the
remainder of 2009 as we complete certain restructuring actions and continue to identify
opportunities to reduce our costs. See Note 5 of the notes to our consolidated financial
statements in Item 1 for additional discussion relating to our realignment initiatives.
We also completed several pricing and material recovery initiatives during the latter part of
2008 and the first half of 2009 that will continue to benefit margins, albeit on lower sales
volume. At our current forecast level for sales, we estimate that material recovery and other
pricing actions already finalized will add more than $160 to gross margin in 2009. Our cost
reduction, pricing and other actions have mitigated a significant portion of the margin reduction
attributable to lower production levels. However, in our current outlook, we no longer expect
these actions to completely offset the impact of lower 2009 sales volume.
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 (Second Quarter 2009 versus Second Quarter 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Increase |
|
|
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
Net sales |
|
$ |
1,190 |
|
|
$ |
2,333 |
|
|
$ |
(1,143 |
) |
Cost of sales (1) |
|
|
1,128 |
|
|
|
2,188 |
|
|
|
(1,060 |
) |
|
|
|
|
|
|
|
|
|
|
Gross margin (1) |
|
|
62 |
|
|
|
145 |
|
|
|
(83 |
) |
Selling, general and administrative expenses |
|
|
59 |
|
|
|
84 |
|
|
|
(25 |
) |
Amortization of intangibles |
|
|
18 |
|
|
|
19 |
|
|
|
(1 |
) |
Realignment charges, net |
|
|
29 |
|
|
|
40 |
|
|
|
(11 |
) |
Impairment of goodwill |
|
|
|
|
|
|
75 |
|
|
|
(75 |
) |
Impairment of intangible assets |
|
|
6 |
|
|
|
7 |
|
|
|
(1 |
) |
Other income, net |
|
|
61 |
|
|
|
20 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
interest, reorganization items and income
taxes (1) |
|
|
11 |
|
|
|
(60 |
) |
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations (1) |
|
$ |
(3 |
) |
|
$ |
(117 |
) |
|
$ |
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations (1) |
|
$ |
- |
|
|
$ |
(2 |
) |
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to the parent company (1) |
|
$ |
- |
|
|
$ |
(122 |
) |
|
$ |
122 |
|
|
|
|
(1) |
|
In 2009, we changed our method of accounting for inventories from LIFO to FIFO and
retroactively applied this costing from the date of our emergence from Chapter 11. The effect
of this change on the 2008 results above was a reduction of $18 in cost of sales and
additional earnings of $18 in gross margin; income (loss) from continuing operations before
interest, reorganization items and income taxes; income (loss) from continuing operations and
net income (loss). |
35
Results of Operations (Second Quarter 2009 versus Second Quarter 2008)
Geographic Sales, Segment Sales and Margin Analysis
The tables below show changes in our sales by geographic region and by segment for the three
months ended June 30, 2009 and 2008. Certain reclassifications were made to conform 2008 to the
2009 presentation.
Geographical Sales Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
|
|
|
Amount of Change Due To |
|
|
|
Three Months Ended June 30, |
|
|
Increase/ |
|
|
Currency |
|
|
Organic |
|
|
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
|
Effects |
|
|
Change |
|
North America |
|
$ |
603 |
|
|
$ |
1,134 |
|
|
$ |
(531 |
) |
|
$ |
(8 |
) |
|
$ |
(523 |
) |
Europe |
|
|
276 |
|
|
|
716 |
|
|
|
(440 |
) |
|
|
(44 |
) |
|
|
(396 |
) |
South America |
|
|
172 |
|
|
|
254 |
|
|
|
(82 |
) |
|
|
(27 |
) |
|
|
(55 |
) |
Asia Pacific |
|
|
139 |
|
|
|
229 |
|
|
|
(90 |
) |
|
|
(18 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,190 |
|
|
$ |
2,333 |
|
|
$ |
(1,143 |
) |
|
$ |
(97 |
) |
|
$ |
(1,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales in the second quarter of 2009 were $1,143 lower than in the corresponding period of 2008
a reduction of 49%. Currency movements reduced sales 4% as a number of currencies in our
international markets weakened against the U.S. dollar. Exclusive of currency, sales decreased
45%, primarily due to lower production levels in each of our markets. Partially offsetting the
effects of lower production was improved pricing.
North American sales for the second quarter of 2009, adjusted for currency, declined
approximately 46% due to the lower production levels in both the light duty and commercial vehicle
markets. Light and commercial vehicle truck production was down more than 50% compared to the
second quarter of 2008. The impact of lower vehicle production levels was partially offset by the
impact of higher pricing, including recovery of higher material costs.
Exclusive of currency effects, sales were down in each of the international regions due
largely to reduced production levels.
Segment Sales Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
|
|
|
Amount of Change Due To |
|
|
|
Three Months Ended June 30, |
|
|
Increase/ |
|
|
Currency |
|
|
Organic |
|
|
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
|
Effects |
|
|
Change |
|
Light Vehicle Driveline |
|
$ |
455 |
|
|
$ |
844 |
|
|
$ |
(389 |
) |
|
$ |
(36 |
) |
|
$ |
(353 |
) |
Sealing |
|
|
120 |
|
|
|
201 |
|
|
|
(81 |
) |
|
|
(10 |
) |
|
|
(71 |
) |
Thermal |
|
|
42 |
|
|
|
77 |
|
|
|
(35 |
) |
|
|
(5 |
) |
|
|
(30 |
) |
Structures |
|
|
129 |
|
|
|
255 |
|
|
|
(126 |
) |
|
|
(8 |
) |
|
|
(118 |
) |
Commercial Vehicle |
|
|
250 |
|
|
|
441 |
|
|
|
(191 |
) |
|
|
(17 |
) |
|
|
(174 |
) |
Off-Highway |
|
|
194 |
|
|
|
513 |
|
|
|
(319 |
) |
|
|
(21 |
) |
|
|
(298 |
) |
Other Operations |
|
|
|
|
|
|
2 |
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,190 |
|
|
$ |
2,333 |
|
|
$ |
(1,143 |
) |
|
$ |
(97 |
) |
|
$ |
(1,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our LVD, Sealing, Thermal and Structures segments principally serve the light vehicle markets. Exclusive
of currency effects, sales declined 42% in LVD, 39% in Thermal and 46% in Structures, all
principally due to lower production levels. The sales decline in Sealing, exclusive of currency
effects, was somewhat lower at 35%, in part due to this business having a larger proportionate
share of sales to the aftermarket.
Our Commercial Vehicle segment is heavily concentrated in the North American market where
Class 8 commercial truck production was down 56% and Class 5-7 commercial truck production was down
46%. The sales decline in Commercial Vehicle, exclusive of currency effects, was 39% as the volume
reduction associated with lower production levels was partially offset by higher pricing under
material cost recovery arrangements.
36
With its significant European presence, our Off-Highway segment was negatively impacted by
weaker international currencies. Excluding this effect, sales were down 58% as demand levels in
markets such as construction and agriculture decreased significantly compared to the second quarter
of 2008.
Margin Analysis
The chart below shows our segment margin analysis for the three months ended June 30, 2009 and
2008.
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of Sales |
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
Gross margin: |
|
|
|
|
|
|
|
|
Light Vehicle Driveline |
|
|
4.0 |
% |
|
|
3.8 |
% |
Sealing |
|
|
5.6 |
|
|
|
13.9 |
|
Thermal |
|
|
(2.0 |
) |
|
|
4.6 |
|
Structures |
|
|
(5.6 |
) |
|
|
7.3 |
|
Commercial Vehicle |
|
|
9.8 |
|
|
|
7.3 |
|
Off-Highway |
|
|
6.6 |
|
|
|
9.3 |
|
|
|
Consolidated |
|
|
5.2 |
% |
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses: |
|
|
|
|
|
|
|
|
Light Vehicle Driveline |
|
|
4.4 |
% |
|
|
2.4 |
% |
Sealing |
|
|
12.4 |
|
|
|
8.0 |
|
Thermal |
|
|
9.8 |
|
|
|
6.5 |
|
Structures |
|
|
2.8 |
|
|
|
2.1 |
|
Commercial Vehicle |
|
|
6.3 |
|
|
|
3.7 |
|
Off-Highway |
|
|
4.8 |
|
|
|
2.7 |
|
|
|
Consolidated |
|
|
5.0 |
% |
|
|
3.6 |
% |
Gross Margin Consolidated gross margin for the quarter ended June 30, 2009 was $83 lower than
that for the comparable period in 2008. Significantly lower sales levels negatively impacted
second quarter 2009 margins in each of our segments, reducing margin
by more than $200. This
volume related reduction was partially offset by year-over-year pricing improvements, cost
reductions and other actions.
Our LVD margin was lower by $14 but improved as a percent of sales. Lower sales reduced
margins by about $55. Partially offsetting this margin loss was improved pricing of $27, lower
warranty costs of $12 (including a $6 recovery through settlement
with a customer) and net reductions in other costs of $6. During the second quarter of 2008, we settled certain Canadian
retiree pension obligations which benefited 2008 margin in the LVD business by $4. In our Sealing
segment, margin declined by $21. Lower sales volume reduced margin by $25, with cost reductions
providing a partial offset. Thermal margins were down $5, with the $10 impact from lower sales
being offset principally by lower warranty
and other cost reductions. There was a decline of $26 in the gross margin of our Structures group. Lower
sales volume contributed about $30 of the decline, partially offset by pricing improvement
of $11 and other cost reductions. Structures margin in the second quarter of 2008 also benefited
by $8 from the settlement of certain Canadian retiree pension obligations.
In our Commercial Vehicle segment, gross margin improved as a percent of sales while
decreasing by $7. The margin reduction of approximately $25 attributable to lower sales was
partially offset by pricing improvement of $11, and lower warranty and other net cost
savings of $7. Of our businesses, the Off-Highway segment experienced the largest percentage
decline in sales from 2008, leading to their overall margin decease of $35. Reduced margin of
about $65 from lower sales levels was partially offset by increased
pricing of $9 and margin improvement of $21, principally from conversion cost reduction initiatives and lower
warranty expense.
Consolidated gross margin for the three months ended June 30, 2009 benefited from $12 of
insurance recoveries, primarily attributable to settlements of environmental claims.
37
Selling, General and Administrative expenses (SG&A) Second quarter 2009 SG&A is $25 lower than
the comparable period in 2008, primarily as a result of the cost reduction actions taken during the
second half of 2008 and the first half of 2009 in response to reduced sales levels. As described
in Note 17 of the notes to the consolidated financial statements in Item 1 of Part I, a reduction
to our liability for asbestos claims contributed to $6 of the SG&A reduction.
Amortization of Intangibles Amortization of customer relationship intangibles resulted from the
application of fresh start accounting at the date of emergence from Chapter 11; consequently, $18
and $19 of expense was recognized in the three months ended June 30, 2009 and 2008.
Realignment Charges and Impairments Realignment charges of $29 for the three months ended June
30, 2009 and $40 for the same period of 2008 represent costs associated with the workforce
reduction actions and facility closures undertaken in the respective periods. Impairment charges
of $6 were recognized in the second quarter of 2009, compared to $82 in the comparable 2008 period. These
charges resulted from reassessments of the carrying values of goodwill and indefinite lived
intangibles as discussed in Note 7 of the consolidated financial statements in Item 1 of Part I.
Other Income, Net Other income, net for the three months ended June 30, 2009 was $61 as compared
to $20 for the corresponding period of 2008. We recognized a net gain on extinguishment of debt of
$40 during the second quarter of 2009. Other income also increased by $9 as a result of net
currency transaction gains of $5 in 2009 as compared to losses of $4 in 2008. Partially offsetting
these increases was lower interest income in 2009 of $8.
Interest Expense Interest expense includes the costs associated with the Exit Financing facility
and other debt agreements which are described in Note 14 of the notes to our consolidated financial
statements in Item 1 of Part I. Interest expense in the three months ended June 30, 2009 and 2008
includes $4 and $5 of amortized OID and $4 and $2 of amortized debt issuance costs recorded in
connection with the Exit Financing facility. The second quarter of 2009 also included a charge of
$3 for debt issuance costs recorded as a result of debt extinguishment. Also included is $2 and $3
of other non-cash interest expense associated primarily with the accretion of certain liabilities
that were recorded at discounted values in connection with the adoption of fresh start accounting
upon emergence from Chapter 11.
Reorganization Items Reorganization items are expenses which are directly attributable to our
Chapter 11 reorganization process. Following our emergence from bankruptcy, we continued to incur
reorganization costs that were primarily attributable to continued claim resolution and
reorganization plan implementation costs, such as local union ratifications of the agreements
negotiated during reorganization. These costs amounted to $12 during the second quarter of 2008.
During the second quarter of 2009, we reduced our vacation benefit liability by $5 to correct the
amount accrued in 2008 as union agreements arising from our reorganization activities were being
ratified. We recorded $3 as a reorganization item benefit consistent with the original expense
recognition. See Note 3 of the notes to our consolidated financial statements in Item 1 of Part I
for a summary of these costs.
Income Tax Expense In the U.S. and certain other countries, our recent history of operating
losses does not allow us to satisfy the more likely than not criterion for recognition of
deferred tax assets. Consequently, there is generally no income tax benefit recognized on
continuing operations pre-tax
losses in these jurisdictions as valuation allowance adjustments offset the associated tax benefit
or expense. As described in Note 19 of the notes to the consolidated financial statements in Item
1 of Part I, an exception occurs when there is pre-tax income in categories such as other
comprehensive income. As a result of having other comprehensive income in the second quarter of
2009, we recognized a benefit of $4 on pre-tax losses of continuing operations in the U.S.
Additionally, we recorded a tax benefit of $12 to reduce liabilities previously accrued for
expected repatriation of earnings from our non-U.S. subsidiaries during the second quarter of 2009. This
reduction in the liability for earnings repatriation, along with the valuation allowance
impacts in the above-mentioned countries, were the primary factors causing the tax benefit of $21
for the quarter ended June 30, 2009 to differ from an expected tax benefit of $8 at a U.S. Federal
statutory rate of 35%. For 2008, the valuation allowances, the fresh start adjustments and the
impairment of goodwill were the primary factors which caused the tax expense of $12 for the quarter
ended June 30, 2008 to differ from an expected tax benefit of $37 at the U.S. Federal statutory
rate of 35%.
38
Results of Operations Summary (Year-to-Date 2009 versus Year-to-Date 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
Prior Dana |
|
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
Net sales |
|
$ |
2,406 |
|
|
$ |
3,894 |
|
|
|
$ |
751 |
|
Cost of sales (1) |
|
|
2,361 |
|
|
|
3,691 |
|
|
|
|
702 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin (1) |
|
|
45 |
|
|
|
203 |
|
|
|
|
49 |
|
Selling, general and administrative expenses |
|
|
134 |
|
|
|
149 |
|
|
|
|
34 |
|
Amortization of intangibles |
|
|
35 |
|
|
|
31 |
|
|
|
|
|
|
Realignment charges, net |
|
|
79 |
|
|
|
45 |
|
|
|
|
12 |
|
Impairment of goodwill |
|
|
|
|
|
|
75 |
|
|
|
|
|
|
Impairment of intangible assets |
|
|
6 |
|
|
|
7 |
|
|
|
|
|
|
Other income, net |
|
|
90 |
|
|
|
52 |
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
interest, reorganization items and income
taxes (1) |
|
|
(119 |
) |
|
|
(52 |
) |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh start accounting adjustments |
|
$ |
- |
|
|
$ |
- |
|
|
|
$ |
1,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations (1) |
|
$ |
(163 |
) |
|
$ |
(164 |
) |
|
|
$ |
717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations (1) |
|
$ |
- |
|
|
$ |
(3 |
) |
|
|
$ |
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to the parent company (1) |
|
$ |
(157 |
) |
|
$ |
(172 |
) |
|
|
$ |
709 |
|
|
|
|
(1) |
|
In 2009, we changed our method of accounting for inventories from LIFO to FIFO and
retroactively applied this costing from the date of our emergence from Chapter 11. The effect
of this change on the 2008 results above was an increase of $8 in cost of sales and an
additional loss of $8 in gross margin; income (loss) from continuing operations before
interest, reorganization items and income taxes; income (loss) from continuing operations and
net income (loss). |
As a consequence of our emergence from Chapter 11 on January 31, 2008, the results of
operations
for the first half of 2008 consist of the month of January pre-emergence results of Prior Dana and
the five-month results of Dana. Fresh start accounting affects our post-emergence results, but not
the pre-emergence January results. Adjustments to adopt fresh start accounting were recorded as of
January 31, 2008.
Results of Operations (Year-to-Date 2009 versus Year-to-Date 2008)
Geographic Sales, Segment Sales and Margin Analysis
The tables below show our sales by geographic region and by segment for the six months ended
June 30, 2009, five months ended June 30, 2008 and one month ended January 31, 2008. Certain
reclassifications were made to conform 2008 to the 2009 presentation.
Although the five months ended June 30, 2008 and one month ended January 31, 2008 are distinct
reporting periods as a consequence of our emergence from Chapter 11 on January 31, 2008, the
emergence and fresh start accounting effects had negligible impact on the comparability of sales
between the periods. Accordingly, references in our analysis to six-month sales information
combine the two periods in order to enhance the comparability of such information for the two
six-month periods.
39
Geographical Sales Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
Prior Dana |
|
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
North America |
|
$ |
1,226 |
|
|
$ |
1,913 |
|
|
|
$ |
396 |
|
Europe |
|
|
599 |
|
|
|
1,185 |
|
|
|
|
224 |
|
South America |
|
|
340 |
|
|
|
440 |
|
|
|
|
73 |
|
Asia Pacific |
|
|
241 |
|
|
|
356 |
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,406 |
|
|
$ |
3,894 |
|
|
|
$ |
751 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales in the first half of 2009 were $2,239 lower than sales for the combined periods in 2008
a reduction of 48%. Currency movements reduced sales by $218 as a number of currencies in
international markets weakened against the U.S. dollar. Exclusive of currency, sales decreased
$2,021 or 44%, primarily due to lower production levels in each of our markets. Partially
offsetting the effects of lower production was improved pricing.
North American sales for the first half of 2009, adjusted for currency, declined approximately
46% due largely to the lower production levels in both the light duty and commercial vehicle
markets. Light truck production was down more than 50% compared to the first six months of 2008
and commercial vehicle truck production was down about 48%. The impact of lower vehicle production
levels was partially offset by the impact of higher pricing, including recovery of higher material
costs.
Weaker international currencies decreased first half 2009 sales by $99 in Europe, $62 in South
America and $37 in Asia Pacific. Exclusive of these currency effects, sales were down in each of
these regions, due largely to reduced production levels.
Segment Sales Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
Prior Dana |
|
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
Light Vehicle Driveline |
|
$ |
879 |
|
|
$ |
1,424 |
|
|
|
$ |
281 |
|
Sealing |
|
|
237 |
|
|
|
332 |
|
|
|
|
64 |
|
Thermal |
|
|
81 |
|
|
|
129 |
|
|
|
|
28 |
|
Structures |
|
|
246 |
|
|
|
435 |
|
|
|
|
90 |
|
Commercial Vehicle |
|
|
507 |
|
|
|
716 |
|
|
|
|
130 |
|
Off-Highway |
|
|
456 |
|
|
|
855 |
|
|
|
|
157 |
|
Other Operations |
|
|
|
|
|
|
3 |
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,406 |
|
|
$ |
3,894 |
|
|
|
$ |
751 |
|
|
|
|
|
|
|
|
|
|
|
|
Our LVD, Sealing, Thermal and Structures segments principally serve the light vehicle
markets. Exclusive of currency effects sales in the first half of 2009 declined in LVD 44%, in Thermal 41%
and in Structures 50% when compared to the combined periods in 2008, all principally due to lower
production levels. The sales decline in Sealing, exclusive of currency effects, was somewhat lower
at 35%, in part due to this business having a larger proportionate share of sales to the
aftermarket.
Our Commercial Vehicle segment is heavily concentrated in the North American market where
Class 8 commercial truck production was down 49% and Class 5-7 commercial truck production was down
46%. The sales decline in Commercial Vehicle, exclusive of currency effects, was 36% as the volume
reduction associated with lower production levels was partially offset by higher pricing under
material cost recovery arrangements.
40
With its significant European presence, our Off-Highway segment was negatively impacted by
weaker international currencies. Excluding this effect, sales were down 50% as demand levels in
markets such as construction and agriculture decreased significantly compared to the first half of
2008.
Margin Analysis
The chart below shows our segment margin analysis for the six months ended June 30, 2009, five
months ended June 30, 2008 and one month ended January 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of Sales |
|
|
|
Dana |
|
|
|
Prior Dana |
|
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Vehicle Driveline |
|
|
(0.5) |
% |
|
|
3.5 |
% |
|
|
|
4.1 |
% |
Sealing |
|
|
4.2 |
|
|
|
13.6 |
|
|
|
|
14.1 |
|
Thermal |
|
|
(0.1 |
) |
|
|
5.3 |
|
|
|
|
9.6 |
|
Structures |
|
|
(8.9 |
) |
|
|
6.9 |
|
|
|
|
1.2 |
|
Commercial Vehicle |
|
|
7.4 |
|
|
|
8.0 |
|
|
|
|
7.3 |
|
Off-Highway |
|
|
6.3 |
|
|
|
10.0 |
|
|
|
|
10.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
1.9 |
% |
|
|
5.2 |
% |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Vehicle Driveline |
|
|
5.0 |
% |
|
|
2.4 |
% |
|
|
|
4.1 |
% |
Sealing |
|
|
12.2 |
|
|
|
8.0 |
|
|
|
|
9.1 |
|
Thermal |
|
|
10.0 |
|
|
|
6.7 |
|
|
|
|
4.7 |
|
Structures |
|
|
3.7 |
|
|
|
2.0 |
|
|
|
|
2.6 |
|
Commercial Vehicle |
|
|
7.0 |
|
|
|
4.0 |
|
|
|
|
5.3 |
|
Off-Highway |
|
|
4.3 |
|
|
|
2.9 |
|
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
5.6 |
% |
|
|
3.8 |
% |
|
|
|
4.5 |
% |
Gross Margin Consolidated gross margin for the six months ended June 30, 2009 was $207 lower
than the gross margin for the combined five months ended June 30 and the month of January in 2008.
Significantly lower sales levels negatively impacted first half 2009 margins as compared to 2008 in
each of our segments.
Margin in our LVD segment decreased $66 from the first six months of 2008, with lower sales
volume adversely impacting margin by about $110. Pricing improvement of $47 and lower warranty
costs helped to offset the volume-related decline. Lower sales-related margin declines similarly
drove the gross margin reductions of $44 and $10 in our Sealing and Thermal businesses. Cost
reduction actions in these two segments and lower warranty cost in the Thermal group partially
offset the volume-related drop in margin. Our Structures business margin was down $53 from the
first half of 2008. Lower sales volume resulted in reduced margin of approximately $60.
Year-over-year margin was also negatively impacted by a pension settlement gain of $8 in 2008.
Pricing improvements of approximately $22 provided some offset to these other factors.
Our Commercial Vehicle and Off-Highway segments experienced gross margin reductions of $28 and
$74. Lower sales reduced margin by about $50 in Commercial Vehicle, while pricing improvement,
inclusive of material cost recovery, added about $26. Our Off-Highway margin declined about $105
as a result of lower sales volume. Pricing improvement of $19 provided a partial offset along with
lower warranty expense and other cost reductions.
41
Consolidated gross margin in the five-month period ended June 30, 2008 was significantly
impacted by the application of fresh start accounting. At emergence, inventory values were
increased in accordance with fresh start accounting requirements. The stepped-up value of
inventories was recognized in cost of sales during the five months ended June 30, 2008 as the
inventory was sold, resulting in a one-time charge of approximately $49. In addition to this
year-over-year favorable impact on gross margin, consolidated margins also benefited from
environmental insurance recoveries of $12 and additional cost reduction actions.
Selling, General and Administrative Expenses With the significant decline in sales, consolidated
SG&A and the SG&A of each operating segment increased as a percent of sales. First half 2009 SG&A,
however, is $49 lower than the combined periods in 2008, primarily as a result of the cost
reduction actions taken during the last half of 2008 and the first half of 2009 in response to
reduced sales levels.
Amortization of Intangibles Amortization of customer relationship intangibles resulted from the
application of fresh start accounting at the date of emergence from Chapter 11; consequently, there
is no expense in the one-month period ended January 31, 2008.
Realignment Charges and Impairments Realignment charges are primarily costs associated with the
workforce reduction actions and facility closures. Realignment expense of $79 for the half year
ended June 30, 2009 represents an increase from expense of $57 for the combined periods of 2008
primarily due to separation costs incurred in connection with the workforce reduction of 6,200
people in the first half of 2009. Impairment of goodwill and indefinite-lived intangibles resulted
in charges of $6 in 2009 and $82 in 2008.
Other Income, Net Other income of $90 for the six months ended June 30, 2009 was $30 higher than
the corresponding period of 2008. We recognized a net gain on extinguishment of debt of $40 during
the second quarter of 2009. Contract cancellation income provided an increase of $17 over 2008.
Net currency transaction gains were $8 less in 2009 and interest income was lower by $17.
Interest Expense Interest expense includes the costs associated with the Exit Financing facility
and other debt agreements which are described in Note 14 of the notes to our consolidated financial
statements in Item 1 of Part I. Interest expense in the first half of 2009 includes $8 of
amortized OID recorded in connection with the Exit Financing facility, $7 of amortized debt
issuance costs and $3 for debt issuance costs resulting from extinguished of debt. Also included
is $4 of other non-cash interest expense associated primarily with the accretion of certain
liabilities that were recorded at discounted values in connection with the adoption of fresh start
accounting upon emergence from Chapter 11. For the five months ended June 30, 2008, interest
expense includes $8 of amortized OID and $3 of amortized debt issuance costs. Non-cash interest
expense relating to the accretion of certain liabilities in the five months ended June 30, 2008 was
$1. In the month of January 2008, a substantial portion of our debt obligations were reported as
liabilities subject to compromise. The interest expense not recognized on these obligations during
the month of January 2008 was $9.
Reorganization Items Reorganization items are directly attributable to our Chapter 11
reorganization process. See Note 3 of the notes to our financial statements in Item 1 of Part I
for a summary of these costs. During the Chapter 11 process, there were ongoing advisory fees of
professionals representing Dana and the other Chapter 11 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 related to emergence from Chapter 11.
Among these ongoing costs are expenses associated with additional facility unionization under the
framework of the global agreements negotiated with the unions as part of our reorganization
activities. Reorganization items in 2008 include a gain on the settlement of liabilities subject
to compromise and several one-time emergence costs, including the cost of employee stock bonuses,
transfer taxes and success fees and other fees earned by certain professionals upon emergence.
During the second quarter of 2009, we reduced our vacation benefit liability by $5 to correct
the amount accrued in 2008 as union agreements arising from our reorganization activities were
being ratified. We recorded $3 as a reorganization item benefit consistent with the original
expense recognition.
42
Income Tax Expense In the U.S. and certain other countries, our recent history of operating
losses does not allow us to satisfy the more likely than not criterion for recognition of
deferred tax assets. Consequently, there is no income tax benefit recognized on the pre-tax losses
of these jurisdictions as valuation allowance adjustments offset the associated tax benefit or
expense. In the U.S., as described in Note 19 of the notes to our financial statements in Item 1
of Part I of this report, because of the significant amount of OCI reported for the six months
ended June 30, 2009 and the five months ended June 30, 2008, we recognized a U.S. tax benefit of $4
and $14 in continuing operations. During the first half of 2009, we also recorded a tax benefit of
$19 to reduce liabilities previously accrued for expected repatriation of earnings from our
non-U.S. subsidiaries. For 2009, the reduction in the liability associated with repatriation of
non-U.S. subsidiary earnings and the valuation allowance impacts in the above-mentioned countries
are the primary factors which cause the tax benefit of $30 for the six months ended June 30, 2009
to differ from an expected tax benefit of $66 at the U.S. Federal statutory rate of 35%. For 2008,
the valuation allowances, the fresh start adjustments and the impairment of goodwill are the
primary factors which caused the tax expense of $32 for the five months ended June 30, 2008 and
$199 for the month of January 2008 to differ from an expected tax benefit of $47 and tax expense of
$320 at the U.S. Federal statutory rate of 35%.
Liquidity
As discussed in our Form 10-K for 2008 (see Part I, Item 1A Risk Factors, the Liquidity
section of Part I, Item 7 Managements Discussion and Analysis of Financial Condition and Results
of Operations and Note 16 of the notes to our consolidated financial statements in Item 8 of Item
1 of Part I) there are numerous 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 payments and acceleration of supplier payments, growing inventories and our failure to
meet debt covenants.
Our sales forecast is significantly influenced by various external factors beyond our control,
including customer bankruptcies and overall economic market conditions. We continued to consider
downside sales scenarios for each of our markets (e.g., North American light vehicle production in
2009 of about 8 million units). Achieving our current forecast is also 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 our projected pricing improvements.
Based on our current forecast assumptions, which include incremental headcount actions, other cost
reductions, debt repayment and other initiatives, we believe that we can satisfy our debt covenants
and the liquidity needs of the business during the next twelve months. However, there is a high
degree of uncertainty in the current environment and it is possible that the factors affecting our
business could result in our not being able to comply with the financial covenants in our debt
agreements or to maintain sufficient liquidity.
The previous uncertainty surrounding the potential effects associated with Chapter 11 filings
by Chrysler and General Motors (GM) has now dissipated. Both companies entered Chapter 11 during
the second quarter of 2009, and have subsequently emerged as new companies. In connection with
their emergence, contracts for substantially all of our significant programs were assumed by the
new companies, and we received full consideration from them for settlement of all amounts due. We
also elected to mitigate our GM accounts receivable exposure by participating in the Automotive
Supplier Support Program. GM Supplier Receivables LLC (GMSR), a newly created subsidiary of GM,
began to purchase GM receivables from approved GM suppliers in May. The obligations of GMSR
related to these purchases are guaranteed by the U.S. Department of the Treasury. As of June 30,
2009, we were owed $11 for the receivables sold to GMSR. Because these sales of receivables do not
satisfy the technical requirements for sales of financial assets, we were required to retain the GM
receivables, record the $11 receivable from GMSR and recognize a liability shown on our June 30,
2009 balance sheet as financial obligation related to GM supplier program. GM is obligated to
pay GMSR within the normal terms of the receivables and GMSR, in turn, will pay the face amount of
the receivables to Dana, less a 2% fee. At that time, we will reduce the related GM trade
receivables, the receivable from GMSR and the corresponding financing obligation. As a consequence
of GMs emergence from Chapter 11, we expect to discontinue future participation in this program.
43
Non-compliance with the covenants in our debt agreements would provide our lenders with the
ability to demand immediate repayment of all outstanding borrowings under our exit financing
facility, as amended (the Exit Facility), consisting of a Term Facility Credit and Guaranty
Agreement (Term Facility) and a Revolving Credit and Guaranty Agreement ( Revolving Facility). We
do 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, 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 we
believe that we would be able to do so again, if necessary.
Our global liquidity at June 30, 2009 was as follows:
|
|
|
|
|
Cash and cash equivalents |
|
$ |
553 |
|
Less: Deposits supporting obligations |
|
|
(41 |
) |
|
|
|
Available cash |
|
|
512 |
|
Additional cash availability from lines of credit in the U.S. and Europe |
|
|
152 |
|
|
|
|
Total global liquidity |
|
$ |
664 |
|
|
|
|
As
of June 30, 2009, the consolidated cash balance totaled $553, with 43% of
this amount located in the
United States. Approximately $41 of our cash balance relates to deposits that support other
obligations, primarily guarantees for workers compensation. An additional $67 is held by less than
wholly-owned subsidiaries where our access may be restricted. Our ability to efficiently access
other cash balances in certain subsidiaries and foreign jurisdictions is subject to local
regulatory, statutory or other requirements. Our current credit ratings (B- and Caa1 by Standard
and Poors and Moodys) 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. Our ability to borrow the full amount of availability under our revolving credit
facilities is effectively limited by the financial covenants. At June 30, 2009, there were no
borrowings under our European trade receivable securitization program and $65 of availability based
on the borrowing base. At June 30, 2009, we had no borrowings under the Revolving Facility but we
had utilized $189 for letters of credit. Based on our borrowing base collateral, we had
availability at that date under the Revolving Facility of $126 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. As shown in the
table above, our covenant requirements at June 30, 2009, limit our additional borrowings to $152.
During the second quarter of 2009, we used cash of $77 to reduce the principal amount of our
Term Facility borrowings by $125, primarily through market purchases. The accounting for this
activity included a reduction of $8 in the related OID and resulted in the recording of a $40 net
gain on extinguishment of debt, which is included in other income, net. Debt issuance costs of $3
were written-off as a charge to interest expense.
At June 30, 2009, we were in compliance with the debt covenants under the amended Term
Facility with a Leverage Ratio of 5.36 compared to a maximum of 6.10 and an Interest Coverage Ratio
of 2.16 compared to a minimum of 1.75 and, as indicated above, we expect to be able to maintain
compliance for the next twelve months. While our ability to borrow the full amount of availability
under our revolving credit facilities may at times be limited by the financial covenants, we
believe that our overall liquidity and operating cash flow will be sufficient to meet our
anticipated cash requirements for capital expenditures, working capital, debt obligations and other
commitments during this period.
44
Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana |
|
|
|
Prior Dana |
|
|
|
Six Months |
|
|
Five Months |
|
|
|
One Month |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
January 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
Cash used in reorganization activity |
|
$ |
(2 |
) |
|
$ |
(874 |
) |
|
|
$ |
(74 |
) |
Cash used by changes in working capital |
|
|
(35 |
) |
|
|
(93 |
) |
|
|
|
(61 |
) |
Other items and adjustments providing or (using) cash |
|
|
(40 |
) |
|
|
116 |
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
Total cash used in operating activities |
|
|
(77 |
) |
|
|
(851 |
) |
|
|
|
(122 |
) |
Cash provided by (used in) investing activities |
|
|
(41 |
) |
|
|
(80 |
) |
|
|
|
77 |
|
Cash provided by (used in) financing activities |
|
|
(117 |
) |
|
|
(39 |
) |
|
|
|
912 |
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
$ |
(235 |
) |
|
$ |
(970 |
) |
|
|
$ |
867 |
|
|
|
|
|
|
|
|
|
Operating Activities Exclusive of working capital and reorganization-related activity; cash used
for operations was $40 during the first half of 2009, as compared to cash provided of $129 for the
combined periods of 2008. A reduced level of operating earnings was the primary factor for the use
of cash in 2009. Additionally, our workforce reduction and other realignment activities consumed
cash of $97 during the first half of 2009 an increase of $30 over the first half of 2008.
The increase in working capital required the use of $35 of cash in the first half of 2009, a
$119 reduction from the use of $154 in the first half of 2008. Historically, sales increases in
the first half of the year have increased inventory and receivables, but the typical seasonal
increases did not occur in 2009. Instead, we generated $39 of cash through a reduction in
receivables in the first six month of 2009 as compared to a use of $199 in the first six months of
2008. Inventory levels also declined during the first half of 2009, providing cash of $217 as
compared to a use of $82 in 2008. Bringing inventories in line with current requirements caused
accounts payable to decrease, using cash of $251 in the first half of 2009 after generating cash of
$102 in the first half of 2008.
During 2008, cash was used to satisfy various obligations associated with our emergence from
Chapter 11. Cash of $733 was used shortly after emergence to satisfy our payment obligation to
VEBAs established to fund non-pension benefits of union retirees. We also made a payment of $53 at
emergence to satisfy our obligation to a VEBA established to fund non-pension benefits relating to
non-union retirees, with a payment of $2 being made under another union arrangement. Payments of
reorganization expenses totaled $63 and Chapter 11 emergence-related claim payments totaled $97
during the six months ended June 30, 2008.
Investing Activities Expenditures for property, plant and equipment in 2009 of $54 are down from
$92 in last years first half. DCC cash of $93 that was restricted during Chapter 11 by a
forbearance agreement with DCC noteholders was released in January 2008 as payments were made to
the noteholders.
Financing Activities Cash of $82 was used in 2009 to reduce long-term debt, with another $35
being used to reduce short term borrowings. In 2008, cash was provided by financing activities as
proceeds from our Exit Facility and the issuance of preferred stock at emergence exceeded the cash
used for the repayment of other debt.
Contractual Obligations
There were no material changes at June 30, 2009 in our contractual obligations from those
reported or estimated in the disclosures in Item 7 of our 2008 Form 10-K.
Contingencies
For a summary of litigation and other contingencies, see Note 17 of the notes to our
consolidated financial statements in Item 1 of Part I. 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.
45
Critical Accounting Estimates
Except as discussed below, our critical accounting estimates for purposes of the financial
statements in this report are the same as those discussed in Item 7 of our 2008 Form 10-K.
Retiree Benefits We use several key assumptions to determine our plan expenses and obligations
for our defined benefit retirement programs. These key assumptions include the interest rate used
to discount the obligations, the long-term estimated rate of return on plan assets and the health
care cost trend rates. 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.
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 plan asset
valuations are updated and 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 11 of the notes to our
consolidated financial statements in Item 1 of Part I.
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 Sealing and Thermal, a 15% 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 Sealing 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 segments, 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. For the
remaining goodwill in the Off-Highway segment, a 20% reduction in the projected cash flows and the
peer multiples would not result in additional impairment.
Indefinite-lived intangible valuations are generally based on revenue streams. We recorded
other intangible asset impairment of $6 in the second quarter of 2009. Additional reductions in
forecasted revenue could result in additional impairment.
When required, 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 our estimated fair values are
reasonable.
46
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the market risk exposures discussed in Item 7A of our
2008 Form 10-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures We maintain disclosure controls and procedures that are
designed to ensure that the information disclosed in the reports we file with the SEC under the
Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms and that such information
is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required
disclosure.
Our management, with participation of our CEO and CFO, has evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this Report on Form
10-Q. Our CEO and CFO have concluded that, as of the end of the period covered by this Report on Form
10-Q, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting There was no change in our internal control
over financial reporting that occurred during our fiscal quarter ended June 30, 2009 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
CEO and CFO Certifications The Certifications of our CEO and CFO that are attached to this
report as Exhibits 31.1 and 31.2 include information about our disclosure controls and procedures
and internal control over financial reporting. These Certifications should be read in conjunction
with the information contained in this Item 4 and in Item 9A of our 2008 Form 10-K for a more
complete understanding of the matters covered by the Certifications.
47
PART II OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in Notes 2 and 3 of the notes to our consolidated financial statements in Item 1
of Part I, we emerged from Chapter 11 on January 31, 2008. Pursuant to the Plan, the pre-petition
ownership interests in Prior Dana were cancelled and all of the pre-petition claims against the
Debtors, including claims with respect to debt, pension and postretirement healthcare obligations
and other liabilities, were addressed in connection with our emergence from Chapter 11.
As previously reported and as discussed in Note 17 of the notes to our consolidated financial
statements in Item 1 of Part I, 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 1A. Risk Factors
There have been no material changes in our risk factors disclosed in Part I, Item 1A of our
2008 Form 10-K.
Liquidity is discussed in Note 14 of the notes to our consolidated financial statements in
Item 1 of Part I and under Managements Discussion and Analysis of Financial Condition and Results
of Operations in Item 2 of Part I above. We have updated our forecast for 2009 and, based on this
forecast and our assessment of reasonably possible scenarios, we do not believe that there is
substantial doubt about our ability to continue as a going concern for the next twelve months.
Item 4. Submission of Matters to a Vote of Security Holders
Our Annual Meeting of Shareholders was held on April 21, 2009 (the Annual Meeting). The
following matters were acted upon by our shareholders at the Annual Meeting, at which 110,827,298
shares of issued and outstanding voting stock, on an as-if converted basis, or approximately
69.28% of the 159,958,920 shares of issued and outstanding voting stock, on an as-if converted
basis, entitled to vote at the Annual Meeting, were present in person or by proxies:
1. |
|
Election of Directors. Six persons were nominated for election as directors of Dana, each to
hold office for a one-year term expiring at the 2010 Annual Meeting and until his successor is
duly elected and qualified. Each nominee was an incumbent director, no other person was
nominated, and each nominee was elected. The votes cast for or withheld with respect to
each nominee were as follows: |
|
|
|
|
|
|
|
|
|
Name of Director |
|
For |
|
|
Withheld |
|
Gary L. Convis |
|
|
106,871,556 |
|
|
|
3,955,742 |
|
John M. Devine |
|
|
107,980,501 |
|
|
|
2,846,797 |
|
Richard A. Gephardt |
|
|
107,428,453 |
|
|
|
3,398,845 |
|
Terrence J. Keating |
|
|
108,027,007 |
|
|
|
2,800,291 |
|
Keith E. Wandell |
|
|
108,027,856 |
|
|
|
2,799,442 |
|
Jerome B. York |
|
|
100,180,646 |
|
|
|
10,646,652 |
|
Our Series A Preferred Shareholder has the right to separately elect three
Directors. Prior to the Annual Meeting, our Series A Preferred Shareholder elected Mark T. Gallogly, Mark
A. Schulz and Stephen J. Girsky each to hold office for a one-year term expiring at the 2010
Annual Meeting and until his successor is duly elected and qualified.
48
As previously disclosed, Richard A. Gephardt resigned as a member of our Board and withdrew
as a Director nominee for election at the Annual Meeting. There was not a nominee to replace
him.
2. |
|
Approval of an amendment to our Restated Certificate of Incorporation to effect a reverse
stock split at one of three reverse split ratios, 1-for-10, 1-for-15 or 1-for-20, as will be
selected by our Board of Directors, in its discretion, if at all, prior to the time of filing
such certificate of amendment with the Delaware Secretary of State. |
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAINED |
108,100,473
|
|
2,659,400
|
|
67,425 |
3. |
|
Approval of an amendment to our Restated Certificate of Incorporation, in the discretion of
the Board of Directors, to decrease our total number of authorized shares and shares of common
stock, to 200,000,000 shares and 150,000,000 shares, respectively. |
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAINED |
108,627,034
|
|
2,137,155
|
|
63,109 |
4. |
|
Ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered
public accounting firm. |
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAINED |
110,075,815
|
|
671,248
|
|
80,235 |
Item 6. Exhibits
The Exhibits listed in the Exhibit Index are filed or furnished with this report.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
|
|
|
|
|
|
DANA HOLDING CORPORATION
|
|
Date: August 6, 2009 |
By: |
/s/ James A. Yost
|
|
|
|
James A. Yost |
|
|
|
Chief Financial Officer |
|
50
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
|
Method of Filing or |
No. |
|
Description |
|
Furnishing |
|
|
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer
|
|
Filed with this report |
|
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer
|
|
Filed with this report |
|
|
|
|
|
32
|
|
Section 1350 Certifications
|
|
Furnished with this
report |
51