AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY , 2002
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DANA CORPORATION
(Exact name of Registrant as specified in its charter)
VIRGINIA 3714 34-4361040
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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4500 DORR STREET
TOLEDO, OHIO 43615
(419) 535-4500
(Address and telephone number of registrant's principal executive offices)
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MICHAEL L. DEBACKER, SECRETARY
DANA CORPORATION
4500 DORR STREET
TOLEDO, OHIO 43615
(419) 535-4500
(Name, address and telephone number of agent for service)
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COPY TO:
ROBERT L. KOHL, ESQ.
KATTEN MUCHIN ZAVIS ROSENMAN
575 MADISON AVENUE
NEW YORK, NY 10022
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE PRICE(1) REGISTRATION FEE
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10 1/8% Notes due 2010........................ $250,000,000 100% $250,000,000 $23,000
Principal Amount
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PROSPECTUS
DANA CORPORATION [DANA CORPORATION LOGO]
EXCHANGE OFFER FOR
$250,000,000 PRINCIPAL AMOUNT OF
10 1/8% NOTES DUE 2010
OFFER TO EXCHANGE ALL OUTSTANDING 10 1/8% NOTES DUE 2010 FOR 10 1/8% NOTES
DUE 2010 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THE EXCHANGE OFFER
- We are offering to exchange all of our outstanding 10 1/8% Notes due 2010
(Outstanding Notes) that are validly tendered and not validly withdrawn
for an equal principal amount of exchange notes that are freely tradable
(Exchange Notes).
- You may withdraw tenders of Outstanding Notes at any time prior to the
expiration of the exchange offer.
- The exchange offer expires at 5:00 p.m., New York City time, on
, 2002, unless extended. We do not currently intend to extend
the expiration date.
THE EXCHANGE NOTES
- The terms of the Exchange Notes will be substantially identical to those
of the Outstanding Notes, except that the Exchange Notes will be
registered under the Securities Act of 1933 (Securities Act) and be
freely tradable.
RESALES OF EXCHANGE NOTES
- There is no existing public market for the Outstanding Notes or the
Exchange Notes. We do not intend to list the Exchange Notes on any
securities exchange or seek approval for quotation through any automated
trading system. The Exchange Notes may be sold in the over-the-counter
market, in negotiated transactions or through a combination of such
methods.
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EACH BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT
PURSUANT TO THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A
PROSPECTUS IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE NOTES. THE LETTER OF
TRANSMITTAL STATES THAT BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A
BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT. THIS PROSPECTUS, AS IT MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A BROKER-DEALER IN CONNECTION
WITH RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE FOR OUTSTANDING NOTES WHERE
SUCH NOTES WERE ACQUIRED BY SUCH BROKER-DEALER AS A RESULT OF MARKET-MAKING
ACTIVITIES OR OTHER TRADING ACTIVITIES. WE HAVE AGREED THAT, FOR A PERIOD OF 180
DAYS AFTER THE EXPIRATION DATE OF THE EXCHANGE OFFER, WE WILL MAKE THIS
PROSPECTUS AVAILABLE TO ANY BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH
RESALE. SEE "PLAN OF DISTRIBUTION."
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 15 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (SEC) NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this prospectus is , 2002.
TABLE OF CONTENTS
PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 15
Where You Can Find More Information......................... 20
Disclosure Regarding Forward-Looking Statements............. 21
Use of Proceeds............................................. 21
Capitalization.............................................. 22
Selected Consolidated Financial Data........................ 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Recent Developments......................................... 41
Business.................................................... 42
Management.................................................. 49
Description of Certain Indebtedness......................... 52
Exchange Offer.............................................. 56
Description of the Notes.................................... 65
Book-Entry Settlement and Clearance......................... 103
U.S. Federal Income Tax Considerations...................... 106
Plan of Distribution........................................ 109
Legal Matters............................................... 109
Independent Accountants..................................... 109
Index to Financial Statements............................... F-1
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IMPORTANT TERMS USED IN THIS PROSPECTUS
Unless the context indicates otherwise, in this prospectus, the terms "us,"
"we," "our" and "Dana" refer to Dana Corporation and its subsidiaries.
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INCORPORATION BY REFERENCE AND
DELIVERY OF CERTAIN DOCUMENTS
This prospectus incorporates important business and financial information
about Dana that is not included in or delivered with this document, and
documents that we file later with the SEC will automatically update and replace
this information. We incorporate by reference the documents listed below and,
unless otherwise specified therein, any future filings we make with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act until the
termination of the exchange offer:
- Our Annual Report on Form 10-K for the year ended December 31, 2001;
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002;
- Our Current Reports on Form 8-K, filed with the SEC on January 9, 2002,
February 26, 2002 and July 18, 2002; and
- Our definitive proxy statement on Schedule 14A filed with the SEC on
March 5, 2002.
The Annual Report on Form 10-K for the year ended December 31, 2001
contains, and future Annual Reports will contain, audited consolidated financial
statements. The Quarterly Report on Form 10-Q for the quarter ended March 31,
2002 contains, and future Quarterly Reports will contain, unaudited condensed
consolidated financial statements for interim financial periods.
You may request a copy of any or all of the documents incorporated by
reference herein (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into such
i
documents) and certain other documents referred to herein, at no cost to you, by
writing or telephoning us at our principal executive offices at the following
address:
Michael L. DeBacker
Secretary
Dana Corporation
P.O. Box 1000
Toledo, Ohio 43697
Tel: (419) 535-4500
TO OBTAIN TIMELY DELIVERY OF THESE DOCUMENTS, YOU MUST REQUEST THE
INFORMATION NO LATER THAN , 2002, THE DATE FIVE BUSINESS DAYS BEFORE
THE DATE BY WHICH YOU MUST DECIDE WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER.
You should rely only on the information provided in this prospectus or
incorporated herein by reference. Any statement contained in the documents
incorporated by reference will be deemed to be modified or superseded for
purposes of this prospectus to the extent that it is modified or superseded by a
statement contained herein or in a subsequently dated document incorporated by
reference in this prospectus. Information that we file later with the SEC will
automatically update the information in this prospectus or incorporated herein
by reference. Any statement so modified or superseded will not be deemed to
constitute a part of this prospectus, except as so modified or superseded. We
have not authorized anyone else to provide you with different or additional
information. We are not making an offer of these securities in any state or
country where such offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front cover of this document or the documents incorporated herein by
reference.
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PROSPECTUS SUMMARY
This summary highlights the material information about our company and this
exchange offer. This summary does not contain all of the information that may be
important to you in deciding whether to participate in the exchange offer. We
encourage you to read this prospectus in its entirety, including the information
incorporated by reference.
DANA CORPORATION
We were founded in 1904 as the first supplier of universal joints to the
automotive industry. Today, we are one of the world's largest independent
suppliers of components, modules and systems to global vehicle manufacturers and
related aftermarkets. Our products are sold to the automotive, commercial
vehicle, and off-highway markets, and are used in the manufacturing of passenger
cars and vans, light trucks, sport-utility vehicles (SUVs), and medium and heavy
duty vehicles, as well as in a range of off-highway applications. Each of the
markets we serve consists of original equipment (OE) production, OE service, and
aftermarket segments. At December 31, 2001, we had over 430 facilities in 34
countries and employed approximately 70,000 people. For the year ended December
31, 2001, we generated consolidated sales of $10.3 billion.
Our seven foundation businesses focus on:
- axles
- brake and chassis products
- driveshafts
- fluid systems
- bearings and sealing products
- structures
- filtration products
Each of these businesses has a strong market position and brand equity and
provides our customers with value-added manufacturing. We have long been a
leader in technological innovation in our industry and many of our products
possess features that are unique and patented. As evidenced by our numerous
supplier quality awards, we are highly focused on product quality, as well as
delivery and service. As a result, we have developed long-standing business
relationships with many of the thousands of customers that we serve worldwide.
OUR STRATEGIC BUSINESS UNITS
In order to align our foundation businesses with the markets they support,
our operations are organized into the following strategic business units (SBUs):
- Automotive Systems Group (ASG) -- ASG produces light duty axles,
driveshafts, structural products (such as engine cradles and frames),
transfer cases, original equipment brakes and integrated modules and
systems for the light vehicle market and driveshafts for the heavy truck
market. ASG generated sales of $3.7 billion in 2001.
- Automotive Aftermarket Group (AAG) -- AAG sells hydraulic brake
components and disc brakes for light vehicle applications, internal
engine hard parts, chassis products and a complete line of filtration
products for a variety of applications. AAG generated sales of $2.5
billion in 2001.
- Engine and Fluid Management Group (EFMG) -- EFMG serves the automotive,
light to heavy truck, leisure and outdoor power equipment and industrial
markets with sealing products, internal engine hard parts, electronic
modules, sensors, and an extensive line of products for the pumping,
routing and thermal management of fluid systems. EFMG was formed in
December 2001, by combining the former Engine Systems Group (ESG) and
Fluid Systems Group (FSG). In 2001, EFMG generated sales of $2.1 billion.
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- Heavy Vehicle Technologies and Systems Group (HVTSG) -- HVTSG was formed
in April 2002, by the combination of two SBUs, Commercial Vehicle Systems
(CVS) and the Off-Highway Systems Group (OHSG). CVS is a major supplier
of heavy axles and brakes, drivetrain components and trailer products to
the medium and heavy truck markets. CVS generated sales of $1.1 billion
in 2001. OHSG sells axles and brakes, transaxles, power-shift
transmissions, torque converters and electronic controls to the
construction, agriculture, mining, specialty chassis, outdoor power,
material handling, forestry and leisure/utility equipment markets. OHSG
generated sales of $621 million in 2001. Because management will continue
to review the operating results of CVS and OHSG separately, we will
continue to treat them as separate segments.
For some time, we have been a leading provider of lease financing services
in selected markets through our wholly-owned subsidiary Dana Credit Corporation
(DCC). With an asset base of $2.3 billion at the end of 2001, DCC and its
subsidiaries provide leasing and financing services to selected markets
primarily in the U.S., Canada, the United Kingdom and continental Europe. In
October 2001, we determined that the sale of the businesses of DCC would allow
us to focus on our foundation businesses and create an opportunity for DCC's
businesses to enhance their competitive positions within other corporate
structures. We are presently proceeding with the sale of DCC's businesses.
OUR COMPETITIVE STRENGTHS
Our key competitive strengths include the following:
Strong Market Positions. We are one of the world's largest independent
suppliers of components, modules and systems for light, medium and heavy duty
vehicle manufacturers and the related aftermarkets. Our products, which are
focused on under-the-vehicle and under-the-hood applications, are used in SUVs
and other light vehicles by automotive customers such as Ford, DaimlerChrysler
and General Motors; in medium and heavy commercial vehicles by customers such as
Volvo/Renault/Mack Trucks, PACCAR and Navistar International; and in a variety
of off-highway vehicles and equipment by customers such as Manitou, AGCO and
Sandvik Tamrock. In addition, in 2001 we were awarded new business by such
non-U.S.-based OE manufacturers as BMW, Isuzu, Nissan, Toyota and Volkswagen. We
also supply replacement parts to these markets through OE service organizations
and independent aftermarket channels. Our aftermarket customers include Genuine
Parts/NAPA, CARQUEST and AutoZone.
Global Presence. At December 31, 2001, we had approximately 270
manufacturing facilities, 90 distribution facilities, and 70 research centers,
service branches and offices located in 34 countries around the world. We
maintain regional administrative organizations in North America, Europe, South
America and Asia/Pacific which support the SBUs. In 2001, non-U.S. sales
represented 33% of our total consolidated sales. Our global presence gives us
proximity to our customers and enables us to provide marketing and manufacturing
support, meet just-in-time delivery requirements and provide engineering
solutions around the clock through our Virtual Time Engineering(TM) program.
Recognized Brand Names. We believe that our OE and aftermarket customers
alike recognize our branded products for quality and reliability. Among our
significant trademarked products are:
- Spicer(R) axles, transaxles, driveshafts, steering shafts and universal
joints;
- Victor Reinz(R) gaskets;
- Wix(R) filters;
- Perfect Circle(R) piston rings and cylinder liners;
- FTE(R) clutch and brake actuation systems; and
- Glacier(R) Vandervell(R) bearings.
Innovative, Value-Added Products. Since our founder Clarence Spicer
designed the first automotive universal joint, we have been dedicated to the
rapid development of new, value-added products. By continually broadening and
enhancing our product offerings, we are able to attract new customers and
strengthen and
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expand our existing customer relationships. Recent new products include
temperature-responsive cooling systems with electronic sensors, fluid steering
systems with electronic interfaces, innovative materials that make components
both lighter and stronger, and new traction control products that improve
on-demand, all-wheel drive performance, such as our TXT(TM) torque-management
differential. We are also engaged in fuel cell engineering for alternate-energy
systems.
OUR BUSINESS STRATEGY
Our overall strategic direction is set out in our Transformation 2005
business plan. Our goals under this plan represent an increased emphasis on
anticipating the needs of our markets and serving our customers. The following
are key elements of our plan:
Focus and Expand Foundation Businesses. We believe that our foundation
businesses are the key to the long-term profitable growth of our company. These
businesses have leading market positions and brand equity and provide our
customers with value-added solutions and products. In connection with the
restructuring actions announced last October, we are accelerating the alignment
of these businesses with the markets they serve. As our OE customers target
improved asset utilization, speed to market, lower cost, lower investment risk
and greater flexibility, they increasingly look for outsourcing alternatives. We
expect that our global presence and technological and engineering capabilities,
as well as our experience, scale of operations and long-standing relationships
with major OE customers, will enable us to continue to take advantage of this
opportunity. We have been awarded net new business expected, based on our latest
review of our customers' production projections, to total approximately $7.7
billion for the period from 2002 through 2006. We are encouraged by the new
awards, especially since they include business not only from our traditional
U.S.-based OE customers, but also from non-U.S.-based OE customers.
Focus on Capital and Operating Efficiency. We continue to focus on
optimizing our resources and reducing our manufacturing costs. We expect the
2001 combination of our Engine Systems and Fluid Systems business units and the
2002 combination of our Commercial Vehicle Systems and Off-Highway Systems
business units to improve our capital efficiency and better leverage the
manufacturing, engineering and support capabilities of the combined units. On
the operational side, we are focused on outsourcing non-core manufacturing
activity, reducing working capital and managing for cash.
Evaluate Strategic Alliances, Joint Ventures and Selected Divestiture and
Acquisition Opportunities. Among the keys to our business model is the concept
of capitalizing on strategic alliances and joint ventures. Such relationships
offer opportunities to expand our capabilities with a reduced level of
investment and enhance our ability to provide the full scope of services
required by our customers. We have formed a number of innovative alliances,
starting with our Roadranger(TM) marketing program with Eaton Corporation, which
has been highly successful in leveraging our collective strengths to market Dana
and Eaton products for heavy truck drivetrain systems. We also have strategic
alliances with GETRAG Cie, to strengthen our portfolio of advanced axle
technologies; Motorola Inc., to integrate its electronic expertise into the
development of advanced technology for traditionally mechanical components; and
Buhler Motor Inc., to provide advanced automotive motor-module technologies and
manufacturing expertise to support our product applications. We continue to
evaluate potential strategic alliances and joint ventures in order to gain
access to advanced technology, strengthen our market position and our global
presence and reduce our overall manufacturing costs.
We are also continuing to evaluate non-core or under-performing operations
for possible divestiture. In October 2001, we determined that the sale of DCC's
businesses would allow us to focus on our foundation businesses, while giving
DCC's businesses an opportunity to enhance their competitive positions within
other corporate structures. We are presently pursuing the sale of DCC's
businesses and expect to divest certain other businesses which are regarded as
non-core. Since the beginning of 2000, we have divested a number of businesses
and operations, including those indicated in "Acquisition and Divestiture
Summary" under the caption "Business," and have received proceeds of
approximately $817 million through March 31, 2002.
We also evaluate potential acquisition candidates that have product
platforms complementary to our foundation businesses, strong operating potential
and strong existing management teams. Although our
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current focus is on divestitures, we believe that targeted acquisitions will
help us achieve our long-term objectives. We have substantial experience in
completing and integrating acquisitions that have provided us with opportunities
to reduce costs and improve operational efficiency through synergies in
manufacturing processes, coordination of raw material purchases, rationalization
of administrative staff, and technical capabilities.
RESTRUCTURING
On October 17, 2001, we announced our intention to accelerate the
restructuring of our operations and to reduce our workforce globally by more
than 15% and review more than 30 facilities for consolidation or closure. As of
March 31, 2002, we had announced the closure of 28 facilities, of which 7 had
been closed, and reduced our workforce by 7%. We will continue to implement
these restructuring activities in 2002 and expect to announce more facility
closures and further workforce reductions this year.
Our estimates of the charges relating to these restructuring plans are as
follows:
- We expect the restructuring charges to total approximately $445 million
after tax.
- We had incurred $316 million after tax or 71% of the total expected
after-tax charges as of March 31, 2002, and expect to incur the balance
of the charges in 2002.
- We estimate that 34% of the total pre-tax charges will be non-cash.
- Our cash expenditures for these restructuring activities were $50 million
after tax as of March 31, 2002. We expect total cash payments in 2002
will not exceed $300 million, with remaining payments occurring in later
years. Most of the cash portion of the charges relates to severance costs
resulting from the workforce reduction.
- We expect that 79% of the charges will be related to our North American
operations.
- We expect that 58% of the charges will be incurred by our business units
primarily serving the light vehicle OE marketplace (ASG and EFMG) and
that 25% will be incurred by AAG.
For additional information regarding this restructuring, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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SUMMARY OF THE EXCHANGE OFFER
The Initial Offering of
Outstanding Notes............. We sold the Outstanding Notes on March 11,
2002, to Salomon Smith Barney Inc., Banc of
America Securities LLC, Credit Suisse First
Boston Corporation, Deutsche Banc Alex. Brown
Inc., J.P. Morgan Securities Inc., Banc One
Capital Markets, Inc., BNP Paribas Securities
Corp., BNY Capital Markets, Inc., Comerica
Securities, Inc., HSBC Securities (USA) Inc.,
McDonald Investments Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Sun Trust
Capital Markets, Inc., TD Securities (USA)
Inc., and UBS Warburg LLC. We collectively
refer to those parties in this prospectus as
the "initial purchasers." The initial
purchasers subsequently resold the Outstanding
Notes to qualified institutional buyers
pursuant to Rule 144A under the Securities Act
and to persons outside the United States under
Regulation S.
Registration Rights
Agreement..................... Contemporaneously with the initial sale of the
Outstanding Notes, we entered into a
registration rights agreement with the initial
purchasers in which we agreed, among other
things, to use our reasonable best efforts to
file this registration statement with the SEC
and to complete this exchange offer. This
exchange offer is intended to satisfy your
rights under the registration rights agreement.
After the exchange offer is complete, you will
no longer be entitled to any exchange or
registration rights hereunder with respect to
your Outstanding Notes.
The Exchange Offer............ We are offering to exchange the Exchange Notes,
which have been registered under the Securities
Act, for your Outstanding Notes. In order to be
exchanged, an Outstanding Note must be properly
tendered and accepted. All Outstanding Notes
that are validly tendered and not validly
withdrawn will be exchanged. We will issue
Exchange Notes promptly after the expiration of
the exchange offer.
Resales of the Exchange
Notes......................... Except as provided below, we believe that the
Exchange Notes may be offered for resale,
resold and otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act
provided that:
- the Exchange Notes are being acquired in the
ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the Exchange Notes
issued to you in the exchange offer; and
- you are not an affiliate of ours.
If any of these conditions are not satisfied
and you transfer any Exchange Notes issued to
you in the exchange offer without delivering a
resale prospectus meeting the requirements of
the Securities Act or without an exemption from
registration of your Exchange Notes from these
requirements, you may incur liability
5
under the Securities Act. We will not assume,
nor will we indemnify you against, any such
liability.
Each broker-dealer that is issued Exchange
Notes in the exchange offer for its own account
in exchange for Outstanding Notes must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act
in connection with any resale of the Exchange
Notes. A broker-dealer may use this prospectus
for an offer to resell, resale or other
retransfer of the Exchange Notes issued to it
in the exchange offer in exchange for
Outstanding Notes that were acquired by that
broker-dealer as a result of market-making or
other trading activities.
Record Date................... We mailed this prospectus and the related offer
documents to the registered holders of
Outstanding Notes on , 2002.
Expiration Date............... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2002, unless
we decide to extend the expiration date.
Conditions to the Exchange
Offer......................... The exchange offer is subject to customary
conditions, including that the exchange offer
not violate applicable law or any applicable
interpretation of the staff of the SEC. This
exchange offer is not conditioned upon any
minimum principal amount of the Outstanding
Notes being tendered.
Exchange Agent................ Citibank, N.A., is serving as the exchange
agent in connection with the exchange offer.
The address and telephone number of the
exchange agent are set forth under "Exchange
Offer -- Exchange Agent" at page 62.
Procedures for Tendering
Outstanding Notes............. If you wish to tender your Outstanding Notes
for Exchange Notes in this exchange offer, you
must transmit to the exchange agent on or
before 5:00 p.m., New York City time, on the
expiration date either:
- an original or a facsimile of a properly
completed and duly executed copy of the
letter of transmittal which accompanies this
prospectus, together with your Outstanding
Notes and any other documentation required by
the letter of transmittal, at the address
provided on the cover page of the letter of
transmittal; or
- if the Outstanding Notes you own are held of
record by The Depositary Trust Company (DTC)
in book-entry form and you are making
delivery by book-entry transfer, a
computer-generated message transmitted by
means of DTC's Automated Tender Offer Program
System (ATOP) in which you acknowledge and
agree to be bound by the terms of the letter
of transmittal and which, when received by
the exchange agent, will form a part of a
confirmation of book-entry transfer. As part
of the book-entry transfer, DTC will
facilitate the exchange of your Outstanding
Notes and update your account to reflect the
issuance of the Exchange Notes to you. ATOP
allows you to electronically transmit your
acceptance of the exchange offer to DTC
instead of physically completing and
delivering a letter of transmittal to the
exchange agent.
6
In all other cases, a letter of transmittal
must be manually executed and received by the
exchange agent before 5:00 p.m., New York City
time, on the expiration date.
In addition, you must deliver to the exchange
agent on or before 5:00 p.m., New York City
time, on the expiration date:
- if you are effecting delivery by book-entry
transfer, a timely confirmation of book-entry
transfer of your Outstanding Notes into the
account of the exchange agent at DTC; or
- if necessary, the documents required for
compliance with the guaranteed delivery
procedures.
Special Procedures for
Beneficial Owners............. If you are the beneficial owner of book-entry
interests and your name does not appear on a
security position listing of DTC as the holder
of the book-entry interests or if you are a
beneficial owner of Outstanding Notes that are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender the book-entry interests
or Outstanding Notes in the exchange offer, you
should contact the person in whose name your
book-entry interests or Outstanding Notes are
registered promptly and instruct that person to
tender on your behalf.
Guaranteed Delivery
Procedures.................... If you wish to tender your Outstanding Notes
and:
- time will not permit your Outstanding Notes
or other required documents to reach the
exchange agent by the expiration date; or
- the procedure for book-entry transfer cannot
be completed on time;
you may tender your Outstanding Notes by
completing a notice of guaranteed delivery and
complying with the guaranteed delivery
procedures.
Withdrawal Rights............. You may withdraw the tender of your Outstanding
Notes at any time prior to 5:00 p.m., New York
City time, on , 2002.
Effect on Holders of
Outstanding Notes............. As a result of making the exchange offer, and
upon acceptance for exchange of all validly
tendered Outstanding Notes pursuant to the
terms thereof, we will have fulfilled a
covenant contained in the registration rights
agreement and, accordingly, we will not be
obligated thereunder to pay liquidated damages
for failure to take these actions. If you are a
holder of Outstanding Notes and you do not
tender them in the exchange offer, you will
continue to hold them and you will be entitled
to all the rights and subject to all the
limitations applicable to the Outstanding Notes
in the indenture, except for any rights under
the registration rights agreement that by their
terms terminate upon consummation of the
exchange offer.
7
To the extent that Outstanding Notes are
tendered and accepted in this exchange offer,
the trading market for the Outstanding Notes
could be adversely affected.
Consequences of Failure to
Exchange...................... All untendered Outstanding Notes will continue
to be subject to the restrictions on transfer
provided for therein and in the indenture
governing the Notes. In general, the
Outstanding Notes may not be offered or sold,
unless registered under the Securities Act,
except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act
and applicable state securities laws. Other
than in connection with this exchange offer, we
do not currently anticipate that we will
register the Outstanding Notes under the
Securities Act.
Federal Income Tax
Considerations................ Based upon advice from counsel, we believe that
the exchange of Outstanding Notes for Exchange
Notes will not be a taxable event for United
States federal income tax purposes.
Use of Proceeds............... We will not receive any proceeds from the
issuance of Exchange Notes pursuant to the
exchange offer. We will pay all of our expenses
incident to the exchange offer.
8
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes, except that the Exchange Notes will be registered
under the Securities Act. As a result, the Exchange Notes will not bear legends
restricting their transfer and will not have the benefit of the registration
rights and liquidated damage provisions contained in the Outstanding Notes. The
Exchange Notes represent the same debt as the Outstanding Notes. Both the
Outstanding Notes and the Exchange Notes are governed by the same indenture. We
use the term "Notes" in this prospectus to collectively refer to the Outstanding
Notes and the Exchange Notes.
Issuer........................ Dana Corporation.
Securities Offered
Notes....................... $250 million aggregate principal amount of
10 1/8% Notes due 2010.
Maturity.................... March 15, 2010.
Interest Payment Dates...... March 15 and September 15 of each year,
commencing September 15, 2002.
Optional Redemption........... The Notes will be redeemable, at our option, in
whole or from time to time in part at any time
after March 15, 2006, at a redemption price
equal to 100% of the principal amount plus a
premium declining ratably to par, plus accrued
and unpaid interest, if any. See "Description
of Notes -- Optional Redemption."
Ranking....................... The Notes will be general, unsecured
obligations of Dana Corporation and will rank
equally in right of payment with all of Dana
Corporation's existing and future
unsubordinated debt and senior in right of
payment to all of Dana Corporation's existing
and future subordinated debt. The Notes will be
effectively subordinated to all of Dana
Corporation's secured debt, if any, to the
extent of the value of the assets securing such
debt, and structurally subordinated to all of
the existing and future liabilities of Dana
Corporation's subsidiaries. As of March 31,
2002, Dana Corporation excluding its
subsidiaries had $2,314 million of total
indebtedness outstanding, including the Notes,
all of which ranked equally with the Notes and
none of which were secured, and Dana
Corporation's subsidiaries had $4,111 million
of liabilities outstanding, including, without
limitation, trade payables. See "Description of
the Notes -- Ranking."
Change of Control............. Upon the occurrence of a "Change of Control,"
we will be required, unless at the time of the
Change of Control (and during the 30-day period
following the change of Control), the Notes are
rated investment grade by both Standard &
Poor's Rating Services (S&P) and Moody's
Investors Service, Inc. (Moody's), to make an
offer to repurchase each holder's Notes at a
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if
any, to the date of repurchase. See
"Description of the Notes -- Certain
Covenants -- Change of Control."
Certain Covenants............. The indenture governing the Notes contains
certain covenants that, among other things,
limit our ability and the ability of our
restricted subsidiaries to:
- incur additional indebtedness and issue
preferred stock;
9
- pay dividends or make certain other
restricted payments;
- incur liens;
- sell assets;
- enter into agreements that restrict dividends
from restricted subsidiaries;
- enter into sale and leaseback transactions;
- engage in transactions with affiliates; and
- enter into certain mergers and
consolidations.
These covenants are subject to important
exceptions and qualifications, which are
described in the section "Description of the
Notes" under the heading "Certain Covenants' in
this prospectus.
If the Notes receive investment grade ratings
by both S&P and Moody's, subject to certain
additional conditions, we will no longer be
required to comply with these covenants, and
substituted forms of negative pledge, sale and
leaseback, and merger and consolidation
covenants will apply to us and our restricted
subsidiaries. See "Description of the
Notes -- Certain Covenants -- Application of
Fall Away Covenants and Covenant Substitution."
Absence of a Public Market for
the Exchange Notes............ The Exchange Notes generally will be freely
transferable, but they will also be new
securities for which there will be no
established market. Accordingly, we cannot
assure you as to the development or liquidity
of any market for the Exchange Notes. Salomon
Smith Barney, Banc of America Securities LLC
and certain other initial purchasers have
advised us that they intend to make a market in
the Exchange Notes. However, they are not
obligated to do so, and they may discontinue
any market making in the Notes at any time
without notice.
Use of Proceeds............... We will not receive any cash proceeds from the
exchange offer.
RISK FACTORS
You should carefully consider the information under the caption "Risk
Factors" and all other information in this prospectus before making a decision
on whether to participate in the exchange offer.
10
SUMMARY FINANCIAL DATA
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
The following summary of historical consolidated financial information for
the five-year period ended December 31, 2001 has been derived from our audited
consolidated financial statements and notes thereto. The summary of historical
consolidated financial information for the three months ended March 31, 2001 and
2002 was derived from our unaudited consolidated financial statements, which
financial statements, in management's opinion, reflect all adjustments,
including those necessary to reflect the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142), as of January 1, 2002, and other adjustments, consisting of only normal
and recurring adjustments, necessary for a fair presentation of such
information. Results for the interim periods are not necessarily indicative of
the results that might be expected for any other interim period or for an entire
year. You should read this information in conjunction with "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Recent Developments" and our consolidated
financial statements and notes thereto, included elsewhere in this prospectus.
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ---------------
1997 1998 1999 2000 2001 2001 2002
------- ------- ------- ------- ------- ------ ------
(IN MILLIONS)
STATEMENT OF INCOME DATA:
Net sales................... $11,911 $12,464 $13,159 $12,317 $10,271 $2,731 $2,521
Revenue from lease
financing................. 172 173 111 143 115 22 20
Other income, net........... 319 202 83 231 83 0 33
------- ------- ------- ------- ------- ------ ------
Total revenue.......... 12,402 12,839 13,353 12,691 10,469 2,753 2,574
Cost of sales............... 10,067 10,449 10,964 10,599 9,268 2,443 2,236
Selling, general and
administrative expenses... 1,152 1,122 1,192 1,132 985 261 248
Restructuring and
integration charges....... 328 118 181 173 390 22 39
Merger expenses............. -- 50 -- -- -- -- --
Interest expense............ 251 280 279 323 309 85 68
------- ------- ------- ------- ------- ------ ------
Income (loss) before income
taxes..................... 604 820 737 464 (483) (58) (17)
Estimated taxes on income... 294 315 251 171 (161) (24) 4
------- ------- ------- ------- ------- ------ ------
Income (loss) before
minority interest, equity
in earnings of affiliates
and effect of change in
accounting................ 310 505 486 293 (322) (34) (21)
Minority interest........... (22) (8) (13) (13) (8) (2) (6)
Equity in earnings of
affiliates................ 32 37 40 54 32 9 18
------- ------- ------- ------- ------- ------ ------
Net income (loss) before
effect of change in
accounting................ 320 534 513 334 (298) (27) (9)
------- ------- ------- ------- ------- ------ ------
Effect of change in
accounting................ -- -- -- -- -- -- (220)
------- ------- ------- ------- ------- ------ ------
Net income (loss)(1)........ $ 320 $ 534 $ 513 $ 334 $ (298) $ (27) $ (229)
======= ======= ======= ======= ======= ====== ======
(other financial data follows on next page)
11
DECEMBER 31, MARCH 31,
---------------------------------------------- -----------------
1997 1998 1999 2000 2001 2001 2002
------ ------- ------- ------- ------- ------- -------
(IN MILLIONS)
SELECTED BALANCE SHEET
DATA:
Cash and cash
equivalents.............. $ 423 $ 230 $ 111 $ 179 $ 199 $ 150 $ 275
Total assets............... 9,511 10,138 11,123 11,236 10,207 11,072 10,041
Total debt................. 3,483 3,416 4,150 4,594 4,128 4,533 4,140
Deferred employee
benefits................. 1,020 1,064 1,068 1,076 1,263 1,077 1,269
Shareholders' equity....... 2,602 2,940 2,957 2,628 1,958 2,439 1,625
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------
1997 1998 1999 2000 2001 2001 2002
------ ------ ------ ------ ----- ----- -----
(IN MILLIONS, EXCEPT RATIOS AND PERCENTAGES)
OTHER FINANCIAL DATA:
Cash flows from operating
activities........................ $ 929 $ 795 $ 608 $ 984 $ 639 $ 112 $ 71
Cash flows from financing
activities........................ 99 (254) 374 (122) (698) (92) 47
Cash flows from investing
activities........................ (877) (734) (1,101) (794) 79 (49) (42)
EBITDA(2)........................... 1,305 1,588 1,535 1,310 374 163 172
Depreciation and amortization(1).... 450 488 519 523 548 136 121
Capital expenditures................ 579 661 807 662 425 124 75
Ratio of EBITDA to interest
expense(2)........................ 5.2x 5.7x 5.5x 4.1x 1.2x 1.9x 2.5x
Ratio of total debt to EBITDA(2).... 2.7x 2.2x 2.7x 3.5x 11.0x 5.2x 10.8x
Total debt as % of total
capitalization(3)................. 57% 54% 58% 64% 68% 65% 72%
Ratio of earnings to fixed
charges(4)........................ 3.1x 3.6x 3.4x 2.3x -- -- --
---------------
(1) See pages F-8 and F-9 for a pro forma presentation of net income (loss) for
each of the three years in the period ended December 31, 2001, as if SFAS
No. 142 had been adopted prior to 1999. See also page F-40 for a pro forma
presentation of net loss for the three-month period ended March 31, 2001.
(2) EBITDA represents earnings before interest expense, estimated taxes on
income, minority interest, equity in earnings of affiliates, plus
depreciation and amortization, and is not intended to represent an
alternative to operating income or an alternative to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles or GAAP) as a measure of performance or liquidity. We
believe that EBITDA divided by total interest expense and total debt divided
by EBITDA are meaningful measures of performance because they are commonly
used in our industry to analyze operating performance, leverage and
liquidity. While EBITDA is frequently used to analyze companies, EBITDA as
presented herein is not necessarily comparable to what other companies state
as "EBITDA" because of potential inconsistencies in the method of
calculation. EBITDA includes gains and losses on divestitures, cash and
non-cash restructuring charges, merger expenses and other unusual cash and
non-cash charges (principally consisting of asset impairments charged to
cost of sales or restructuring expense).
(3) Total debt as a percentage of total capitalization represents (i) total
debt, divided by (ii) total debt plus shareholders' equity.
(4) These ratios were computed by dividing earnings by fixed charges. For this
purpose, "earnings" consist of income from continuing operations before
taxes, distributed income of affiliates accounted for on the equity method
of accounting, fixed charges (excluding capitalized interest) and income of
majority-owned subsidiaries with fixed charges, and "fixed charges" consist
of interest on indebtedness and that portion of rental expense (estimated at
one-third) which we believe to be representative of interest. For the year
ended December 31, 2001, earnings were insufficient to cover fixed charges
by $447 million. For the three months ended March 31, 2001 and 2002,
earnings were insufficient to cover fixed charges by $25 million and $17
million, respectively.
12
DANA CORPORATION (WITH DANA CREDIT CORPORATION ON THE EQUITY BASIS)
The following table sets forth certain unaudited supplemental financial
data of Dana with DCC set forth on the equity basis of accounting. This
presentation does not conform with GAAP but has been included to assist
prospective investors in evaluating an investment in the Notes offered hereby.
This information should not be considered in isolation or as a substitute for
our financial data that has been prepared in accordance with GAAP. You should
read this information in conjunction with "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Recent Developments" and our consolidated financial statements
and the notes thereto, included elsewhere in this prospectus.
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ---------------
1997 1998 1999 2000 2001 2001 2002
------- ------- ------- ------- ------- ------ ------
(IN MILLIONS)
STATEMENT OF INCOME DATA:
Net sales................... $11,911 $12,464 $13,159 $12,317 $10,271 $2,731 $2,521
Other income, net........... 298 59 58 190 43 (13) 14
------- ------- ------- ------- ------- ------ ------
Total revenue.......... 12,209 12,523 13,217 12,507 10,314 2,718 2,535
Cost of sales............... 10,099 10,485 11,016 10,662 9,335 2,461 2,251
Selling, general and
administrative expenses... 1,041 984 1,074 1,007 895 237 222
Restructuring and
integration charges....... 328 118 181 173 390 22 39
Merger expenses............. -- 50 -- -- -- -- --
Interest expense............ 172 189 208 218 205 55 46
------- ------- ------- ------- ------- ------ ------
Income (loss) before income
taxes..................... 569 697 738 447 (511) (57) (23)
Estimated taxes on income... 287 277 273 168 (167) (23) --
------- ------- ------- ------- ------- ------ ------
Income (loss) before
minority interest, equity
in earnings of affiliates
and effect of change in
accounting................ 282 420 465 279 (344) (34) (23)
Minority interest........... (22) (8) (13) (13) (8) (2) (6)
Equity in earnings of
affiliates................ 60 122 61 68 54 9 20
------- ------- ------- ------- ------- ------ ------
Net income (loss) before
effect of change in
accounting................ 320 534 513 334 (298) (27) (9)
------- ------- ------- ------- ------- ------ ------
Effect of change in
accounting................ -- -- -- -- -- -- (220)
------- ------- ------- ------- ------- ------ ------
Net income (loss)(1)........ $ 320 $ 534 $ 513 $ 334 $ (298) $ (27) $ (229)
======= ======= ======= ======= ======= ====== ======
DECEMBER 31, MARCH 31,
------------------------------------------ ---------------
1997 1998 1999 2000 2001 2001 2002
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents........ $ 410 $ 277 $ 101 $ 149 $ 182 $ 136 $ 255
Total assets..................... 8,147 9,052 9,502 9,166 8,565 9,058 8,447
Total debt....................... 2,196 2,540 2,759 2,881 2,772 2,903 2,818
Deferred employee benefits....... 1,017 1,061 1,064 1,073 1,260 1,074 1,266
Shareholders' equity............. 2,602 2,940 2,957 2,628 1,958 2,439 1,625
(other financial data follows on next page)
13
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------
1997 1998 1999 2000 2001 2001 2002
------ ------ ------ ------ ----- ----- -----
(IN MILLIONS, EXCEPT RATIOS AND PERCENTAGES)
OTHER FINANCIAL DATA:
Cash flows from operating
activities.......................... $ 775 $ 836 $ 464 $ 850 $ 475 $ 52 $ 53
Cash flows from financing
activities.......................... 11 163 (64) (443) (349) (13) 81
Cash flows from investing
activities.......................... (644) (1,182) (526) (359) (93) (52) (61)
EBITDA(2)............................. 1,122 1,282 1,375 1,092 141 109 121
Depreciation and amortization(1)...... 381 396 429 427 447 111 98
Capital expenditures.................. 518 552 547 434 317 74 64
Ratio of EBITDA to interest
expense(2).......................... 6.5x 6.8x 6.6x 5.0x -- 2.0x 2.6x
Ratio of total debt to EBITDA(2)...... 2.0x 2.0x 2.0x 2.6x 19.7x 4.4x 18.4x
Total debt as % of total
capitalization(3)................... 46% 46% 48% 52% 59% 54% 63%
---------------
(1) See pages F-8 and F-9 for a pro forma presentation of net income (loss) for
each of the three years in the period ended December 31, 2001, as if SFAS
No. 142 had been adopted prior to 1999. See also page F-40 for a pro forma
presentation of net loss for the three-month period ended March 31, 2001.
(2) EBITDA represents earnings before interest expense, estimated taxes on
income, minority interest, equity in earnings of affiliates, plus
depreciation and amortization, and is not intended to represent an
alternative to operating income or an alternative to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles or GAAP) as a measure of performance or liquidity. We
believe that EBITDA divided by total interest expense and total debt divided
by EBITDA are meaningful measures of performance because they are commonly
used in our industry to analyze operating performance, leverage and
liquidity. While EBITDA is frequently used to analyze companies, EBITDA as
presented herein is not necessarily comparable to what other companies state
as "EBITDA" because of potential inconsistencies in the method of
calculation. EBITDA includes gains and losses on divestitures, cash and
non-cash restructuring charges, merger expenses and other unusual cash and
non-cash charges (principally consisting of asset impairments charged to
cost of sales or restructuring expense). For the year ended December 31,
2001, EBITDA as calculated above was insufficient to cover interest expense
by $64 million.
(3) Total debt as a percentage of total capitalization represents (i) total
debt, divided by (ii) total debt plus shareholders' equity.
14
RISK FACTORS
You should read and consider carefully each of the following factors, as
well as the other information contained in or incorporated by reference into
this prospectus, before making a decision on whether to participate in the
exchange offer.
RISKS ASSOCIATED WITH THE EXCHANGE OFFER
YOUR OUTSTANDING NOTES WILL NOT BE ACCEPTED FOR EXCHANGE IF YOU FAIL TO FOLLOW
THE EXCHANGE OFFER PROCEDURES
We will not accept your Outstanding Notes for exchange if you do not follow
the exchange offer procedures. We will issue Exchange Notes as part of this
exchange offer only after a timely receipt of your Outstanding Notes, a properly
completed and duly executed letter of transmittal and all other required
documents. Therefore, if you want to tender your Outstanding Notes, please allow
sufficient time to ensure timely delivery. If we do not receive your Outstanding
Notes, letter of transmittal and other required documents by the expiration date
of the exchange offer or you do not otherwise comply with the guaranteed
delivery procedures for tendering your Outstanding Notes, we will not accept
your Outstanding Notes for exchange. We are under no duty to give notification
of defects or irregularities with respect to the tenders of Outstanding Notes
for exchange. If there are defects or irregularities with respect to your tender
of Outstanding Notes, we will not accept your Outstanding Notes for exchange
unless we decide in our sole discretion to waive such defects or irregularities.
IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES, THEY WILL CONTINUE TO BE SUBJECT
TO THE EXISTING TRANSFER RESTRICTIONS AND YOU MAY NOT BE ABLE TO SELL THEM
We did not register the Outstanding Notes, nor do we intend to do so
following the exchange offer. Outstanding Notes that are not tendered will
therefore continue to be subject to the existing transfer restrictions and may
be transferred only in limited circumstances under the securities laws. As a
result, if you hold Outstanding Notes after the exchange offer, you may not be
able to sell them. To the extent any Outstanding Notes are tendered and accepted
in the exchange offer, the trading market, if any, for the Outstanding Notes
that remain outstanding after the exchange offer may be adversely affected due
to a reduction in market liquidity.
BECAUSE THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES, YOU MAY NOT BE ABLE TO
RESELL THEM
The Exchange Notes will be registered under the Securities Act, but will
constitute a new issue of securities with no established trading market, and
there can be no assurance as to:
- the liquidity of any trading market that may develop;
- the ability of holders to sell their Exchange Notes; or
- the price at which the holders will be able to sell their Exchange Notes.
We do not intend to apply for listing of the Exchange Notes on any U.S.
securities exchange or for quotation through an automated quotation system. If a
trading market were to develop, the Exchange Notes might trade at higher or
lower prices than their principal amount or purchase price, depending on many
factors, including prevailing interest rates, the market for similar debentures,
our financial performance and the interest of securities dealers in making a
market in the Exchange Notes.
We understand that Salomon Smith Barney, Banc of America Securities LLC and
certain other initial purchasers presently intend to make a market in the
Exchange Notes. However, they are not obligated to do so, and any market-making
activity with respect to the Exchange Notes may be discontinued at any time
without notice. In addition, any market-making activity will be subject to the
limits imposed by the Securities Act and the Securities Exchange Act of 1934,
and may be limited during the exchange offer or the pendency of an applicable
shelf registration statement. There can be no assurance that an active market
will exist for the Exchange Notes or that any trading market that does develop
will be liquid.
15
In addition, any Outstanding Note holder who tenders in the exchange offer
for the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities, and if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transactions. For a description of
these requirements, see "Exchange Offer."
RISKS RELATING TO DANA AND OUR MARKETS
OUR BUSINESS IS AFFECTED BY THE CYCLICAL NATURE OF THE ORIGINAL EQUIPMENT
VEHICULAR MARKETS THAT WE SERVE
Our financial performance depends, in large part, on the varying conditions
in the global light, medium and heavy vehicle OE markets that we serve. Demand
in these markets fluctuates in response to overall economic conditions and is
particularly sensitive to changes in interest rate levels and fuel costs. Our
sales of vehicular products are also impacted by OE manufacturer (OEM) inventory
levels and production schedules and stoppages. In North America, our largest
market, OEM light and heavy vehicle build schedules declined significantly in
2001 from the peak in 2000. In 2001, we sought to scale our operations to lower
production levels which we initially expected to be approximately 15.4 million
light vehicle units and approximately 145,000 heavy vehicle units. By the end of
the third quarter of 2001, in the wake of the terrorist attacks on September 11,
we had lowered our light vehicle production estimates to 15.2 million units in
2001 and 14.5 million units in 2002, and our heavy vehicle production estimates
to 140,000 units in 2001 and 130,000 units in 2002. We have seen recovery in
both markets in the first half of 2002, which we attribute in part to continued
OEM dealer incentives for light vehicles and pre-buying in advance of an October
2002 change in emissions requirements for diesel engines for heavy vehicles. As
a result, we have increased our projections for North American vehicle
production for 2002 to approximately 15.8 million light vehicle units and
150,000 to 155,000 heavy vehicle units. In October 2001, we announced our
intention to accelerate the restructuring of our operations, to further reduce
our work force by more than 15% and to review more than 30 facilities for
consolidation or closure. By the end of the first half of 2002, we had announced
the closure of 28 facilities and reduced our permanent work force by 8%. Our
restructuring efforts are ongoing and we expect to fully implement our plan in
2002, although certain cash expenditures in relation to the implementation of
the plan will occur in 2003. We cannot assure you that these efforts to scale
our operations will be fully successful or that actual production will not fall
below estimated levels. In either such event, our results of operations and
financial condition would be adversely impacted.
We have been awarded net new business expected, based on our latest review
of our customers' production projections to total approximately $7.7 billion for
the period from 2002 through 2006. This anticipated new business is subject to
fluctuations in light of economic conditions and market factors, and our sales
could be adversely affected if there are significant changes in the timing, size
and continuation of our customers' programs.
WE MAY NOT BE ABLE TO ACHIEVE THE COST SAVINGS AND OPERATING SYNERGIES THAT WE
EXPECT FROM THE RESTRUCTURING OF OUR OPERATIONS
Although we expect to realize cost savings and operating synergies as a
result of the pending restructuring, you should consider that we may be unable
to achieve the level of benefits that we expect to realize or that these
benefits may not be realized within the timeframes we currently expect.
Realization of these benefits could be affected by a number of factors. Many of
these factors are beyond our control. We could be adversely affected by the
following:
- general economic conditions;
- increased operating costs and unanticipated capital expenditures;
- the responses of our competitors or customers; and
- incomplete or delayed implementation of the restructuring, particularly
in the rationalization of our facilities and the timing of our planned
headcount reductions.
16
In addition, we are currently proceeding with the sale of the businesses of
DCC and are investigating the sale of certain other assets and businesses which
are regarded as non-core. Changes in the amount, timing and character of charges
related to the restructuring, failure to complete or a substantial delay in
completing the restructuring and planned divestitures or the receipt of lower
proceeds from such divestitures than currently is anticipated could have a
material adverse effect on us.
OUR REPLACEMENT PARTS MARKETS ARE DEPRESSED
Approximately 35% of our sales in 2001 were to the global vehicular
replacement parts markets. These markets were depressed in 2001 due to the
general economic slowdown and other factors, including general improvement in
the durability of OE vehicular parts which has reduced the demand for
replacement parts. We were also adversely impacted by higher inventory levels in
our distribution system due to mergers of many of our aftermarket customers and
difficulties in consolidating certain of our own warehouse operations. We have
taken steps to respond to these factors, and have implemented modest price
increases recently which we expect will generate sales growth even on a flat
volume this year, but we cannot assure you whether or when we will be successful
in regaining our historical level of profitability in these markets.
TWO CUSTOMERS ACCOUNT FOR A SIGNIFICANT SHARE OF OUR BUSINESS
Sales to Ford and its subsidiaries accounted for approximately 18% of our
consolidated sales in 2001, 19% in 2000, and 16% in 1999, primarily from our ASG
and EFMG units. Sales to DaimlerChrysler and its subsidiaries accounted for
approximately 11% of our consolidated sales in 2001 and 14% in 2000 and 1999,
primarily from our ASG and CVS units. Sales to these OE customers are made under
various contracts with differing expiration dates, generally relating to
particular vehicle models. The loss of either Ford or DaimlerChrysler as a
customer, the loss of business with respect to one or more of the vehicle models
that use our products or a significant decline in the production levels for such
vehicles would have an adverse effect on our business, results of operations and
financial condition.
Ford, DaimlerChrysler and some of our other customers periodically ask us
to reduce the prices of our products. We discuss appropriate cost savings
measures with these customers on an ongoing basis, but we cannot assure you that
we will be able to improve or maintain our historical level of profitability in
light of such requests.
THE COMPETITIVE ENVIRONMENT IN OUR OE AUTOMOTIVE AND COMMERCIAL VEHICLE SECTORS
IS EVOLVING RAPIDLY
In recent years, the competitive environment among suppliers to the global
OE vehicle manufacturers has changed significantly as these manufacturers have
sought to outsource more vehicular components, modules and systems. In addition,
these sectors have experienced substantial consolidation. We expect to continue
to respond to these changes in our markets through strategic alliances, joint
ventures, acquisitions and divestitures, as well as through other initiatives
intended to maintain our competitiveness. However, we cannot assure you that our
efforts will be successful or that new or larger competitors will not
significantly impact our business, results of operations and financial
condition.
THE AMOUNT OF OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
As of March 31, 2002, we had total consolidated indebtedness outstanding of
$4,140 million and total shareholders' equity of $1,625 million. We may incur
additional indebtedness in the future, subject to the satisfaction of certain
financial tests.
This level of indebtedness could:
- make it more difficult for us to satisfy our obligations with respect to
the Notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to use operating cash flow in other areas of our
business because we must dedicate a portion of these funds to payments on
our indebtedness;
17
- limit our ability to obtain other financing to fund future working
capital, acquisitions, capital expenditures, research and development
costs and other general corporate requirements; and
- limit our ability to take advantage of business opportunities as a result
of various restrictive covenants in our indebtedness.
Since we use a portion of our cash flow from operations to satisfy our debt
obligations, a downturn in our business could limit our ability to service these
obligations. Our future financial performance will be affected by a range of
economic, financial and industry factors, many of which are beyond our control,
and we cannot assure you that our business will generate sufficient cash flow
from operations to enable us to service our indebtedness or fund our other
liquidity needs. Nor can we assure you that, if we needed to do so, we would be
able to effect any refinancing, obtain additional financing or sell assets on
terms acceptable to us or at all.
SOURCES OF SHORT-TERM FINANCING MAY BECOME UNAVAILABLE
Until the end of 2000, we had generally relied on the issuance of
commercial paper to satisfy a significant portion of our short-term financing
requirements. However, the debt rating services lowered our credit ratings in
the first quarter of 2001, primarily due to the significant downturn in our
markets since the fourth quarter of 2000 and the impact of this downturn on our
operations. Following the downgrading, the commercial paper markets ceased to be
available to us and we began borrowing against our committed bank lines (a
364-day facility and a 5-year facility). The accounts receivable securitization
program established in March 2001 and the sale of our 9% Notes due 2011 allowed
us to reduce our borrowings against the bank lines while extending the overall
maturity of our outstanding debt.
On December 19, 2001, we entered into a new 364-day facility and amended
the 5-year facility which matures on November 15, 2005. Under our amended 5-year
facility, we have a $500 million committed line, of which $15 million was
outstanding as of March 31, 2002. Under our new 364-day facility, we had a $250
million committed line, none of which was outstanding as of March 31, 2002. On
July 15, 2002 the 364-day facility was amended, reducing the committed line to
$100 million. Borrowings under our two revolving credit facilities are subject
to satisfaction of certain customary conditions, including repetition of
representations and warranties and compliance with customary affirmative and
negative covenants and financial covenants, and we may be unable to borrow under
such facilities in the event that we are unable to satisfy these conditions. The
cost of borrowing under these facilities will increase in the event that our
credit ratings are lowered. Sales of receivables under the accounts receivables
facility are subject to concentration limitations based upon the credit ratings
of the receivables counterparties, which may limit our ability to access funds
through such facility. The accounts receivables facility itself may be
terminated in the event that our credit ratings decline below certain levels. As
of March 31, 2002, we were rated BB by S&P and Ba3 by Moody's. At these ratings,
a downgrade of two levels by S&P or any downgrade by Moody's would entitle the
lenders to terminate this facility. While we can give no assurances, we expect
to be able to continue to secure short-term financing, but may be forced to
adjust our programs if adequate funds are not available on acceptable terms or
at all. In the event that we are unable to obtain short-term financing or such
financing is not available on acceptable terms, our business, results of
operations and financial condition may be adversely affected.
WE ARE IMPACTED BY ENVIRONMENTAL LAWS AND REGULATIONS
Our operations are subject to U.S. and non-U.S. environmental laws and
regulations governing emissions to air, discharges to water, the generation,
handling, storage, transportation, treatment and disposal of waste materials and
the cleanup of contaminated properties. We believe that our businesses are
operating in compliance in all material respects with such laws and regulations,
many of which provide for substantial penalties for violations, but we cannot
assure you that we will not be adversely impacted by costs, liabilities or
claims with respect to existing or subsequently acquired operations, under
either present laws and regulations or those that may be adopted or imposed in
the future.
18
WE MAY BE ADVERSELY AFFECTED BY PRODUCT LIABILITY CLAIMS, INCLUDING THOSE
RELATED TO ASBESTOS EXPOSURE
Currently, product liability claims are not material to our financial
condition. However, we have exposure to asbestos litigation because, in the
past, some of our automotive products contained asbestos. As a result, there are
a large number of asbestos personal injury claims pending against us.
Historically, a significant majority of the defense and indemnity costs
associated with these claims has been covered by insurance in accordance with
agreements with our carriers. A substantial increase in the number or size of
new claims or changes in the processing of these claims by our carriers could
adversely affect us. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
OUR INTERNATIONAL OPERATIONS EXPOSE US TO RISKS
A substantial portion of our business is conducted outside of the United
States, which exposes us to risks from changes in the political, economic and
financial environments in other countries, including changes in foreign laws and
regulations and in tariffs, taxes and exchange controls, and fluctuations in the
exchange rates between the dollar and the currencies in which our foreign
operations receive revenues and pay expenses. Significant changes in
international conditions could have an adverse effect on our business, results
of operations and financial condition. In addition, our consolidated financial
results are denominated in dollars and require translation adjustments for
purposes of reporting results from, and the financial condition of, our non-U.S.
operations. Such adjustments may be significant from time to time.
RISKS RELATING TO THE NOTES
THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO OUR SECURED INDEBTEDNESS AND ALL
OBLIGATIONS OF OUR SUBSIDIARIES
The Notes will be our general, unsecured obligations and will not be
guaranteed by any of our subsidiaries. Therefore, the Notes will be effectively
subordinated to (1) all of our secured indebtedness, to the extent of the value
of the collateral and (2) all indebtedness and other obligations, including
trade payables, of our subsidiaries. The effect of this subordination is that,
in the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding involving us or a subsidiary, the assets of the affected
entity could not be used to pay you until after:
- all secured claims against the affected entity have been fully paid; and
- if the affected entity is a subsidiary, all other claims against that
subsidiary, including trade payables, have been fully paid.
As of March 31, 2002, our subsidiaries had total liabilities of $4,111 million
outstanding, including, without limitation, trade payables.
OUR DEBT INSTRUMENTS CONTAIN RESTRICTIVE COVENANTS THAT COULD LIMIT OUR
FLEXIBILITY
The indentures governing our 9% Notes due 2011 and the Notes contain
covenants with respect to us and our restricted subsidiaries that restrict,
among other things:
- the incurrence of additional indebtedness and the issuance of preferred
stock;
- the payment of dividends on, and the redemptions of, capital stock and
the redemption of indebtedness that is junior in right of payment to the
Notes;
- other restricted payments including, without limitation, certain
investments;
- the incurrence of liens;
- sales of assets;
- sale and leaseback transactions;
- transactions with affiliates;
19
- consolidations, mergers and transfers of all or substantially all of our
assets; and
- the creation of restrictions on distributions from restricted
subsidiaries.
In addition, our credit facilities require us to maintain certain financial
ratios and satisfy certain financial condition tests. These restrictions could
also limit our ability to obtain future financings, make needed capital
expenditures, withstand a future downturn in our business or the economy in
general, or otherwise conduct necessary corporate activities.
Our ability to comply with our covenants may be affected by events beyond
our control and we cannot assure you that we will be able to meet them. A breach
of any of our covenants would result in a default under the applicable debt
agreement. A default, if not waived, could result in acceleration of the debt
outstanding under that agreement and in a default with respect to, and
acceleration of, the debt outstanding under the other debt agreements. The
accelerated debt would become immediately due and payable. If that should occur,
we might not be able to pay all such debt or to borrow sufficient funds to
refinance it. Even if new financing were then available, it might not be on
terms acceptable to us. See "Description of Certain Indebtedness" and
"Description of the Notes -- Certain Covenants."
IF WE ATTAIN INVESTMENT GRADE STATUS, WE WILL NO LONGER BE SUBJECT TO MOST OF
THE COVENANTS IN THE INDENTURE GOVERNING THE NOTES
If, at any time, the Notes receive an investment grade rating from both S&P
and Moody's, subject to certain additional conditions, we will no longer be
subject to most of the covenants set forth in the indenture. Any covenants that
cease to apply to us as a result of achieving such ratings will not be restored,
even if the Notes are later rated below investment grade by either or both of
those rating agencies.
WE MAY NOT BE ABLE TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in the indenture),
we will be required to make an offer in cash to repurchase all or any part of
each holder's Notes at a repurchase price equal to 101% of their principal
amount, plus accrued and unpaid interest. This covenant will not apply if the
Notes have been rated investment grade by both S&P and Moody's. If a Change of
Control occurs and the covenant is then applicable, we may not have sufficient
funds at that time to make the required repurchases of the Notes, and, in that
event, we would require third-party financing to do so. We cannot assure you
that we would be able to obtain this financing on favorable terms, if at all. In
addition, a Change of Control would likely result in, and any failure to make
the resulting required repurchases of the Notes would result in, an event of
default under our revolving credit facilities that would permit the lenders to
accelerate the debt outstanding under those facilities.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 with respect to the
Exchange Notes. This prospectus is a part of that registration statement, but
does not contain all of the information set forth therein. For further
information about us and the Exchange Notes, you should refer to the
registration statement.
Dana is subject to the informational requirements of the Exchange Act, and,
in accordance therewith, we file reports and other information with the SEC. You
can inspect and copy these reports and other materials at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. You may also access electronically reports, proxy and
information statements and other information that we file electronically with
the SEC by means of the SEC's home page on the Internet at http://www.sec.gov.
20
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are subject to
risks and uncertainties. You should not place undue reliance on those statements
because they only speak as of the date of this prospectus. Forward-looking
statements include information concerning our possible or assumed future results
of operations, including descriptions of our business strategy. These statements
often include words such as "believe," "expect," "anticipate," "intend," "plan,"
"estimate," or similar expressions. These statements are based on assumptions
that we have made in light of our experience in the industry as well as our
perceptions of historical trends, current conditions, expected future
developments and other factors we believe are appropriate under the
circumstances. As you read and consider this prospectus, you should understand
that these statements are not guarantees of performance or results. They invoke
risks, uncertainties and assumptions. Although we believe that these
forward-looking statements are based on reasonable assumptions, you should be
aware that many factors could affect our actual financial condition or results
of operations and could cause actual results to differ materially from those
expressed or implied in the forward-looking statements. These factors include:
- national and international economic and political conditions (including
additional adverse effects from terrorism or hostilities);
- the strength of other currencies relative to the dollar;
- the cyclical nature of the global vehicular industry;
- the performance of the global vehicular aftermarket sector;
- changes in business relationships with our major customers and in the
timing, size and continuation of our customers' programs;
- the ability of our customers and suppliers to achieve their projected
sales and production levels;
- competitive pressures on our sales and pricing;
- increases in production or material costs that cannot be recouped in
product pricing;
- our ability to complete the sale of the businesses of Dana Credit
Corporation and other divestitures as contemplated; and
- the success of our restructuring, cost reduction and cash management
programs and of our long-term transformation strategy.
All future written and oral forward-looking statements by us or persons
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to above. Except for our ongoing obligations to
disclose material information as required by the federal securities laws, we do
not have any obligation or intention to release publicly any revisions to any
forward-looking statements to reflect events or circumstances in the future or
to reflect the occurrence of unanticipated events. YOU SHOULD ALSO READ
CAREFULLY THE FACTORS DESCRIBED IN THE "RISK FACTORS" SECTION OF THIS
PROSPECTUS.
USE OF PROCEEDS
We will receive no proceeds from the exchange of Outstanding Notes pursuant
to this exchange offer. In consideration for issuing the Exchange Notes as
contemplated in this prospectus, we will receive in exchange a like principal
amount of Outstanding Notes, the terms of which are identical in all material
respects to the Exchange Notes. The Outstanding Notes surrendered in exchange
for the Exchange Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in our
capitalization.
21
CAPITALIZATION
The first table below summarizes our capitalization as of March 31, 2002.
The second table presents the same information with DCC included on an equity
basis. The presentation of DCC on an equity basis is not in conformity with
GAAP. You should read this information in conjunction with "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and notes
appearing elsewhere in this prospectus or in the documents that we have
incorporated by reference.
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARCH 31,
2002
--------------
(UNAUDITED)
--------------
(IN MILLIONS)
Cash and cash equivalents................................... $ 275
======
Notes payable, current:
Current portion of long-term debt......................... 275
Other..................................................... 672
------
Total notes payable, current........................... 947
Long-term debt.............................................. 3,193
Shareholders' equity........................................ 1,625
------
Total capitalization................................... $5,765
======
DANA AND CONSOLIDATED SUBSIDIARIES (INCLUDING DCC ON AN EQUITY BASIS)
MARCH 31,
2002
-------------
(UNAUDITED)
-------------
(IN MILLIONS)
Cash and cash equivalents................................... $ 255
======
Notes payable, current:
Current portion of long-term debt......................... 35
Other..................................................... 419
------
Total notes payable, current.............................. 454
Long-term debt.............................................. 2,364
Shareholders' equity........................................ 1,625
------
Total capitalization...................................... $4,443
======
22
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial information for
the five-year period ended December 31, 2001 was derived from our audited
consolidated financial statements and notes thereto. The selected historical
consolidated financial information for the three months ended March 31, 2001 and
2002 was derived from our unaudited consolidated financial statements, which
financial statements, in management's opinion, reflect all adjustments,
including those necessary to reflect the adoption of SFAS No. 142 as of January
1, 2002, and other adjustments, consisting of only normal and recurring
adjustments, necessary for a fair presentation of such information. Results for
the interim periods are not necessarily indicative of the results that might be
expected for any other interim period or for an entire year. You should read
this information in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Recent Developments" and our
consolidated financial statements and notes appearing elsewhere in this
prospectus.
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- ---------------
1997 1998 1999 2000 2001 2001 2002
------- ------- ------- ------- ------- ------ ------
(IN MILLIONS)
STATEMENT OF INCOME DATA:
Net sales......................... $11,911 $12,464 $13,159 $12,317 $10,271 $2,731 $2,521
Revenue from lease financing...... 172 173 111 143 115 22 20
Other income, net................. 319 202 83 231 83 0 33
------- ------- ------- ------- ------- ------ ------
Total revenue................ 12,402 12,839 13,353 12,691 10,469 2,753 2,574
Cost of sales..................... 10,067 10,449 10,964 10,599 9,268 2,443 2,236
Selling, general and
administrative expenses......... 1,152 1,122 1,192 1,132 985 261 248
Restructuring and integration
charges......................... 328 118 181 173 390 22 39
Merger expenses................... -- 50 -- -- -- -- --
Interest expense.................. 251 280 279 323 309 85 68
------- ------- ------- ------- ------- ------ ------
Income (loss) before income
taxes........................... 604 820 737 464 (483) (58) (17)
Estimated taxes on income......... 294 315 251 171 (161) (24) 4
------- ------- ------- ------- ------- ------ ------
Income (loss) before minority
interest, equity in earnings of
affiliates and effect of change
in accounting................... 310 505 486 293 (322) (34) (21)
Minority interest................. (22) (8) (13) (13) (8) (2) (6)
Equity in earnings of
affiliates...................... 32 37 40 54 32 9 18
------- ------- ------- ------- ------- ------ ------
Net income (loss) before effect of
change in accounting............ 320 534 513 334 (298) (27) (9)
------- ------- ------- ------- ------- ------ ------
Effect of change in accounting.... -- -- -- -- -- -- 220
------- ------- ------- ------- ------- ------ ------
Net income (loss)(1).............. $ 320 $ 534 $ 513 $ 334 $ (298) $ (27) $ (229)
======= ======= ======= ======= ======= ====== ======
DECEMBER 31, MARCH 31,
---------------------------------------------- -----------------
1997 1998 1999 2000 2001 2001 2002
------ ------- ------- ------- ------- ------- -------
(IN MILLIONS)
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents........ $ 423 $ 230 $ 111 $ 179 $ 199 $ 150 $ 275
Total assets..................... 9,511 10,138 11,123 11,236 10,207 11,072 10,041
Total debt....................... 3,483 3,416 4,150 4,594 4,128 4,533 4,140
Deferred employee benefits....... 1,020 1,064 1,068 1,076 1,263 1,077 1,269
Shareholders' equity............. 2,602 2,940 2,957 2,628 1,958 2,439 1,625
---------------
(1) See pages F-8 and F-9 for a pro forma presentation of net income (loss) for
each of the three years in the period ended December 31, 2001, as if SFAS
No. 142 had been adopted prior to 1999. See also page F-40 for a pro forma
presentation of net loss for the three-month period ended March 31, 2001.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition and
results of operations for the years ended December 31, 1999, 2000 and 2001, and
for the three-month periods ended March 31, 2001 and 2002. You should read this
discussion and analysis together with our consolidated financial statements and
related notes included elsewhere in this prospectus.
We began the year 2001 experiencing the fluctuations in production runs
that resulted from our original equipment (OE) customers trying to balance
existing inventories and production schedules with the demands of an uncertain
marketplace. Our efforts were focused on trying to scale our businesses to
levels that would get us below conservative estimates for production and avoid
the underabsorption of overhead that adversely affected our operating results in
2000. The second quarter provided the first signs that production schedules,
while well below prior year levels, might be returning to more predictable
patterns and that the efforts to downsize our operations were having a positive
effect. Sales in our Automotive Systems Group rose 5% over the first quarter
after falling 25% during the four previous quarters. Our automotive aftermarket
business also reported measurable sales growth for the first time since the
middle of 1999, and consolidated profit after tax increased substantially from
the first quarter on a modest overall sales gain.
The optimism generated during the second quarter of 2001 faded as we moved
through the third quarter. Dealer inventory of light vehicles, especially models
that are key to Dana, was increasing again despite increased incentives, and
additional days were carved out of OE production schedules already reduced by
seasonal closings. Hopes for a general recovery in the economy, which would have
benefited the vehicular markets, were swept away in the days following September
11. The terrorist attacks resulted in immediate changes in how people and
products were transported, especially movement across international borders. For
a period of time, production schedules based on just-in-time deliveries were
severely impacted by the delays resulting from increased security. The United
States acknowledged that its economy was in a recession and consumer confidence
declined amid uncertainty as to how long the weakness would last.
We faced the extraordinary challenges posed by the situation by making a
number of difficult decisions that were necessary to properly align our
resources with customer demand, ensure an adequate return on committed capital
and preserve cash. In October 2001, we initiated a review of more than 30
facilities for consolidation or closure, committed to reducing our work force by
more than 15%, announced plans to sell the businesses of Dana Credit Corporation
(DCC) and reduced our fourth quarter dividend to one cent per share. By the end
of the first quarter of 2002, we had announced the closure of 28 facilities and
had reduced our work force by 7%. Additional closures are planned for the
remainder of 2002. Executing these restructuring plans continues to be our
primary focus in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows -- Operating activities for all of 2001 generated positive cash
flow of $639 million, declining $345 million from the prior year. The primary
component of the change was earnings, as the $298 million net loss in 2001
represented a $632 million decrease from the net income of $334 million reported
in 2000. Included in the $476 million of expenses related to our 2001
restructuring activities were charges of $206 million related to the impairment
of inventory and long-lived assets which did not require the use of cash. Our
continuing focus on reducing working capital helped generate $350 million during
the year, including $303 million from reductions in accounts receivable and
inventory. This result was achieved despite the repayment of approximately $100
million financed by a sale of accounts receivable at the end of 2000 and payment
of $104 million representing the final installment on our investment in GETRAG
Cie. The latter item affected working capital through its inclusion in other
accrued liabilities at the end of 2000.
Efforts to control capital spending impacted cash flows from investing
activities in 2001. After reducing capital spending by 18% in 2000, we carved
$237 million or 36% from 2000's total to finish 2001 at $425 million.
Divestitures generated proceeds of $236 million in 2001, while the acquisition
of the remaining 51% interest in Danaven, a Venezuelan affiliate in which we
previously held a minority position, required a
24
$21 million outlay. Net loan activity of our DCC businesses in 2001 resulted in
proceeds of $112 million, while loan activity in 2000 required $82 million.
Our 2001 cash flows related to financing activities included an $888
million reduction of net short-term borrowings, reflecting the application of a
large portion of the proceeds from our August note placement and also cash
available from the working capital reduction. Due to the reduced level of
investments in new leases, DCC was able to use lease payments and proceeds from
asset sales to fund $205 million of the reduction in short-term debt. The August
notes placement drove the net cash inflow of $346 million related to long-term
debt; however, a portion of the proceeds from those issues was used to retire
medium-term notes. These debt reductions were partially offset on our balance
sheet by the consolidation of approximately $90 million of debt in the second
quarter of 2001 in connection with our purchase of the interest in Danaven. The
$140 million of dividends paid in 2001 reflected a $47 million reduction over
2000 as a result of reducing our quarterly dividend to one cent per share in the
final quarter of 2001. Financing cash flows in 2000 included $381 million
expended for stock repurchases, which were discontinued in September 2000.
Operating activities generated positive cash flow of $71 million in the
first quarter of 2002. After excluding the effect of the change in accounting,
which did not affect cash flow, the adjusted net loss of $9 million in the first
quarter of 2002 represented an improvement over the $27 million net loss
reported in the first quarter of 2001. Depreciation and amortization expense
totaled $121 million in the first quarter of 2002 and $136 million in the first
quarter of 2001, with $9 million of the difference attributable to goodwill
amortization in 2001. This difference was more than offset by the 2002
impairment charges of $21 million related to restructuring activities. Working
capital increased $29 million as the impact of higher first-quarter sales on
accounts receivable exceeded the benefit of reduced inventories and the receipt
of a tax refund. The largest component of the Other category relates to equity
earnings in both years. A dividend from an affiliate in Mexico resulted in net
remitted equity in the first quarter of 2001. In the first quarter of 2002,
unremitted equity was deducted in arriving at cash flows from operations.
We continued to maintain tight control of capital spending in the first
quarter of 2002; the $75 million expended reflected a decline of $49 million
over the same period in 2001. Further reductions are expected in 2002 in light
of our overall capital budget of approximately $275 million, a substantial
change from the $425 million of expenditures in 2001. Purchases of assets to be
leased under established programs was $4 million lower in the first quarter of
2002, while loan activity resulted in a $3 million net outflow in the first
quarter of 2002 after generating $60 million in the first quarter of 2001.
Proceeds from divestitures in the first quarter of both years were not
significant.
We used the proceeds from the private placement of the Outstanding Notes in
March 2002 primarily to reduce borrowings under one of our revolving credit
facilities. Medium-term notes totaling $135 million matured in January 2002 and
we also repaid $56 million of long-term debt within our leasing operations.
Continuation of the one-cent per share dividend in the first quarter of 2002
improved cash flows by $45 million when compared to the first-quarter dividend
of $.31 per share in 2001.
Managing our cash remains a high priority. Our estimate of maximum cash
outlays related to restructuring activities remains $300 million for 2002 and we
still expect to reduce working capital, exclusive of our restructuring
activities, by $100 based on the assumed levels of production for 2002. Within
our investing activities, we are committed to a 2002 budget of approximately
$275 million for capital spending and expect to realize $300 million or more in
proceeds from divestitures. Annualizing the present quarterly dividend would
result in related outflows of $6 million versus the $140 million paid in 2001.
If we hit these targets, we would expect to attain our goal of significantly
reducing our outstanding debt during the remainder of 2002.
Financing Activities -- Until the end of 2000, we had generally relied on
the issuance of commercial paper to satisfy a significant portion of our
short-term financing requirements. However, the debt rating services lowered our
credit ratings in the first quarter of 2001, primarily due to the significant
downturn in our markets since the fourth quarter of 2000 and the impact of the
downturn on our operations. Following the rating actions, the commercial paper
markets ceased to be available to us and we began borrowing against our
committed bank lines.
25
In March 2001, we established a $400 million accounts receivable
securitization program. The initial proceeds were used to reduce debt, including
amounts outstanding under our revolving credit facilities. The amounts
outstanding under the program are reflected as short-term borrowings in our
consolidated financial statements. The amounts available under the program are
subject to reduction based on significant adverse changes in the credit ratings
of our customers, customer concentration levels or certain characteristics of
the underlying accounts receivable. This program is subject to termination by
the lenders in the event our credit ratings are lowered beyond a level specified
in the agreement.
In August 2001, we completed the private placement of $575 million and E200
million of 10-year unsecured senior notes. We used the proceeds from these
notes, along with a portion of the proceeds from divestitures, to further reduce
borrowings under Dana's revolving credit facilities and satisfy maturities of
existing medium-term debt, thereby extending the overall maturity of our
outstanding debt.
In December 2001, we entered into a new 364-day revolving credit facility
with a group of banks and amended our existing long-term facility, which matures
on November 15, 2005. The 364-day facility provided for a maximum borrowing
capacity of $250 million while the long-term facility has a borrowing capacity
of $500 million. The interest rates under these facilities equal LIBOR or the
prime rate, plus a spread that varies depending on our credit ratings. On July
15, 2002 the 364-day facility was amended, reducing our committed line to $100
million; the maturity date of December 18, 2002 for this facility remains
unchanged. Both facilities require us to maintain specified financial ratios as
of the end of each quarter, including the ratio of net senior debt to tangible
net worth; the ratio of earnings before interest, taxes and depreciation and
amortization (EBITDA) less capital spend to interest expense; and the ratio of
net senior debt to EBITDA. For purposes of these ratios, tangible net worth
excludes deferred currency translation adjustments, the 2001 minimum pension
liability adjustment and intangible assets, and EBITDA excludes cash
restructuring charges incurred from the fourth quarter of 2001 through the first
quarter of 2003, to a maximum of $500 million, equity earnings, minority
interest and certain other non-cash items. The ratio calculations are based on
Dana's consolidated financial statements with DCC accounted for on the equity
basis.
Because our financial performance is impacted by various economic,
financial and industry factors, we cannot say with certainty whether we will
satisfy these covenants in the future. Noncompliance with these covenants would
constitute an event of default, allowing the lenders to accelerate the repayment
of any borrowings outstanding under the related arrangement. While no assurance
can be given, we believe that we would be able to successfully negotiate amended
covenants or obtain waivers if an event of default were imminent; however, we
might be required to provide collateral to the lenders or make other financial
concessions. Default under either of these facilities or any of our significant
note agreements may result in defaults under our other debt instruments. Our
business, results of operations and financial condition may be adversely
affected if we were unable to successfully negotiate amended covenants or obtain
waivers on acceptable terms.
With the completion of the private placement of the Outstanding Notes in
March 2002 and the use of the proceeds of the Notes primarily to reduce
indebtedness under our revolving credit facilities, we effectively extended the
maturity of $250 million of borrowings to March 2010.
Committed and uncommitted bank lines enable us to make direct bank
borrowings. Excluding DCC, we had committed and uncommitted borrowing lines of
$1,062 million at March 31, 2002. This amount included our revolving credit
facilities, of which $250 million matures in December 2002 and $500 million
matures in November 2005. We also had a total capacity of $400 million under the
accounts receivable securitization program. Accordingly, we had a total
short-term borrowing capability of $1,462 million, of which $1,008 million was
available at March 31, 2002. With the issuance of the Outstanding Notes and
other activities, such capacity has been reduced since March 31. In addition,
DCC had credit lines of $541 million at March 31, 2002, including two revolving
credit facilities with an aggregate maximum borrowing capacity of $463 million.
One facility matured in June 2002 and had a maximum borrowing capacity of $213
million. The other facility matures in June 2004 and has a maximum borrowing
capacity of $250 million. The interest rates under the remaining facility equals
LIBOR or the prime rate, plus a spread that varies depending on DCC's credit
26
ratings. At March 31, 2002, approximately $253 million was outstanding under the
DCC lines, including $221 million under the revolving credit facilities.
Based on our rolling forecast, we expect our cash flows from operations,
combined with these credit facilities and the accounts receivable securitization
program, to provide sufficient liquidity to fund our debt service obligations,
projected working capital requirements, restructuring obligations and capital
spending for a period that includes the next twelve months.
Hedging Activities -- We utilize derivative financial instruments, to a
limited extent, to hedge principally against the effects of fluctuations of
foreign currency exchange rates and interest rate movements (see Notes 1, 7 and
16 to the December 31, 2001 financial statements). To accomplish these purposes,
we use forward contracts to hedge against foreign currency movements and
interest rate swaps to hedge against interest rate fluctuations and to balance
the mix of fixed and variable rate debt. We do not use derivative instruments
for trading purposes. Our policy requires that our business units involve our
Treasury staff in the execution of all derivative contracts.
At March 31, 2002, we had a number of open forward contracts to hedge
against certain anticipated net purchase and sale commitments. These contracts
are for a short duration and none extends beyond one year. The aggregate fair
value of these contracts is a favorable amount less than $1 million. These
contracts have been valued by independent financial institutions using the
exchange spot rate on March 31, 2002, plus or minus quoted forward basis points
to determine a settlement value for each contract.
In order to provide a better balance of fixed and variable rate debt, we
have interest rate swap agreements in place to effectively convert the fixed
interest rate on our 9% dollar and euro denominated notes to variable rates.
These swap contracts have been designated as hedges and the impact of the change
in their value is offset by an equal change in the carrying value of the notes.
Under the contracts, we receive an average fixed rate of interest of 9.28% on
notional amounts of $825 million and E200 million and we pay a variable rate
based on either LIBOR, plus a spread, or EURIBOR, plus a spread, respectively.
The swap contracts expire in August 2011 ($575 million and E200 million) and
March 2010 ($250 million), coinciding with the terms of the notes. DCC also has
two interest rate swap contracts that have an aggregate notional amount of $45
million. Unlike the swap agreements hedging the fixed rate notes, the DCC swap
contracts call for DCC to receive a variable amount of interest, based on
prevailing short-term market rates, and pay a fixed amount that averages 7.95%.
DCC's swaps expire in 2003. The fair value of all interest rate swaps at March
31, 2002 is reflected as a $33 million liability in the balance sheet. The fair
values of these swaps, by year of maturity, are net credits of $3 million in
2003 and $30 million beyond 2006. The fair values of all swaps were determined
by obtaining pricing estimates from independent financial institutions.
Subsequent changes in interest rates will cause the settlements to be received
under the swaps to vary, thereby affecting the fair value of the swaps. Under
hedge accounting, changes in the fair value of the swaps bring about changes in
the implied fair value of the hedged notes. Despite the fluctuations in the
carrying value of the hedged notes, our cash obligations related to the notes
remain the same.
Cash Obligations -- Under various agreements, we are obligated to make
future cash payments in fixed amounts. These include payments under our
long-term debt agreements, rent payments required under operating lease
agreements, firm commitments made to acquire equipment and other fixed assets
and purchases of certain raw materials. With the exception of payments required
under our long-term debt and operating lease agreements, we do not have fixed
cash payment obligations beyond 2003.
27
The following table summarizes our fixed cash obligations as of December
31, 2001, over various future periods.
PAYMENTS DUE BY PERIOD
-----------------------------------------------------------------
CONTRACTUAL CASH OBLIGATIONS TOTAL LESS THAN 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
---------------------------- ------ ---------------- --------- --------- -------------
(IN MILLIONS)
Principal payments on long-term
debt................................ $3,454 $446 $634 $192 $2,182
Operating leases...................... 469 76 134 115 144
Unconditional purchase obligations.... 244 236 8 -- --
------ ---- ---- ---- ------
Total contractual cash obligations.... $4,167 $758 $776 $307 $2,326
====== ==== ==== ==== ======
Subsequent to December 31, 2001, the obligations related to long-term debt
were affected by the issuance of the Outstanding Notes, which increased our
obligations due after five years. We believe that the operating leases and
unconditional purchase obligations presented above have not been materially
affected by activity in the first quarter of 2002.
In addition to fixed cash commitments, we may have future cash payment
obligations under arrangements where we are contingently obligated if certain
events occur or conditions are present. We have guaranteed $1 million of
short-term borrowings of a non-U.S. affiliate accounted for under the equity
method of accounting. DCC has guaranteed portions of the borrowings of its
affiliates that are accounted for under the equity method. DCC's aggregate
exposure under several of the guarantees is $24 million. Under another
guarantee, DCC's exposure for changes in interest rates resulting from specific
events described in the financing arrangements would vary but should not exceed
$44 million and its exposure for certain of the other guaranteed obligations is
limited to $60 million. The term of the affiliates' financing agreements is one
year. DCC anticipates that the affiliates will renew these arrangements on
substantially the same terms as the current agreements. If this occurs, it is
likely that DCC would provide similar guarantees. We do not expect to make any
cash payments relating to these potential obligations.
At March 31, 2002, we had contingent liability for stand-by letters of
credit totaling $107 million issued on our behalf by financial institutions.
These letters of credit are used principally for the purpose of meeting various
states' requirements in order to self-insure our workers compensation
obligations. These stand-by letters of credit must be renewed each year. We
accrue the estimated liability for workers compensation claims, including
incurred but not reported claims. In addition, a significant portion of these
letters of credit is supported by cash collateral accounts. Accordingly, no
significant impact on our financial condition would result if the letters of
credit were drawn.
Contingencies -- 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 our pending judicial and
legal proceedings, including the probable outcomes, reasonably anticipated costs
and expenses, availability and limits of our insurance coverage 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.
For some time, the vast majority of our asbestos-related claims were
administered by the Center for Claims Resolution (CCR), which settled claims for
its member companies on a shared settlement cost basis. In February 2001, the
CCR was reorganized and discontinued negotiating shared settlements. The CCR
continued to administer Dana's claims and provide some legal and claims
adjusting support through July 31, 2001. Since February 2001, there has been no
sharing of indemnity costs and we have independently controlled our legal
strategy and settlements. As of August 1, 2001, our claims administration was
moved to a new organization, PACE, which is a subsidiary of Peterson Consulting,
Inc. We do not expect these changes to materially affect our handling of
asbestos claims or the costs thereof. However, there has been a marked increase
in the number of claims filed against Dana since the CCR was reorganized. We
believe that claimants are naming all former members of the CCR in individual
claims, since all members of the CCR had previously participated in claims filed
against any single member. As a result, many of the new claimants are
28
parties that have no direct association with products manufactured by Dana.
Since the reorganization of the CCR, a greater number of claims against Dana has
been dismissed and the average cost of settlement has declined.
With respect to contingent asbestos-related product liability, we had
approximately 106,000 asbestos-related claims outstanding at March 31, 2002,
including approximately 25,000 claims that were settled pending payment. We have
agreements with our insurance carriers providing for the payment of a
significant majority of the defense and indemnity costs for pending claims as
well as claims which may be filed against us in the future. At March 31, 2002,
we had accrued $107 million for contingent asbestos-related product liability
costs and recorded $93 million as an asset for probable recoveries from insurers
for asbestos-related product liability claims, compared to $102 million accrued
for such liabilities and $89 million recorded as an asset at December 31, 2001.
At March 31, 2002, $11 million was accrued for contingent non-asbestos
product liability costs with no recovery anticipated from third parties,
unchanged since December 31, 2001.
We estimate contingent environmental liabilities based on the most probable
method of remediation, current laws and regulations and existing technology.
Estimates are made on an undiscounted basis and exclude the effects of
inflation. If there is a range of equally probable remediation methods or
outcomes, the lower end of the range is accrued. At March 31, 2002, the amount
accrued for contingent environmental liabilities with no recovery expected from
other parties was $55 million, compared to $52 million at December 31, 2001.
At March 31, 2002, the difference between our minimum and maximum estimates
for contingent liabilities, while not considered material, was $13 million for
the non-asbestos product liability claims and $3 million for the environmental
liability claims, compared to $13 million and $2 million, respectively, at the
end of 2001.
As noted above, the majority of our asbestos-related claims were
administered by the CCR through February 2001, at which time the CCR was
reorganized and discontinued negotiating shared settlements. Certain former CCR
members have defaulted on the payment of their shares of certain of the CCR-
negotiated settlements. As a result, some of the settling parties are seeking
payment of the unpaid shares from Dana and the other companies that were members
of the CCR at the time of the settlements. We have been working with the CCR,
other former CCR member companies, our insurers and the claimants to resolve
these issues. At March 31, 2002, we estimated our contingent liability with
respect to these matters to be approximately $44 million, of which we expect $39
million to be recoverable from our insurers and under surety bonds provided by
the defaulting CCR members. These amounts are unchanged since December 31, 2001.
Our financial statements include our obligation relative to these contingencies,
which are separate from the asbestos-related product liabilities discussed
above.
RESTRUCTURING
During 1999, we continued executing the restructuring and integration plans
announced in 1998 following our acquisition of Echlin Inc., including the
closing and downsizing of facilities begun in 1998. We incurred integration
charges of $51 million for relocating assets, training and relocating employees
and other integration activities at the acquired operations. These costs were
charged to expense as incurred.
During the fourth quarter of 1999, we announced plans to downsize and close
additional operations in the U.S., South America and Europe and recorded
restructuring and integration charges totaling $170 million. The charges
included the costs of exiting businesses, asset impairments and termination
benefits. The announced restructuring and integration plans included closing
five facilities, downsizing three facilities and terminating 1,280 people. The
largest component of these plans was the downsizing of our Reading, Pa.,
structures facility. In total, $229 million was charged to income during 1999.
This amount consisted of $181 million charged to restructuring and integration,
$57 million charged to cost of sales and a $9 million gain recorded in other
income on the sale of our marine and outdoor power equipment business, Sierra
International Inc. (Sierra).
29
During the third quarter of 2000, we announced plans to close our Reading
structures facility and terminate approximately 690 people and recorded
restructuring charges of $53 million. In the fourth quarter of 2000, we approved
plans to close facilities in France, the United Kingdom and Argentina, resulting
in $34 million of charges and a workforce reduction of approximately 230 people.
We also incurred integration expenses in 2000 related to consolidating our
Engine Management warehouse operations and moving operations from closed
facilities.
In the first quarter of 2001, we recorded $22 million of restructuring
expense in connection with the announced closing of six facilities in the ASG
and EFMG and workforce reductions at other facilities. These charges included
$10 million for employee termination benefits, $7 million for asset impairment
and $5 million for other exit costs and impacted net earnings by $14 million. We
announced additional facility closings in the third quarter and accrued
additional restructuring charges of $12 million, affecting earnings by $7
million.
In October 2001, we announced plans to reduce our global workforce by more
than 15% and initiated a review of more than 30 facilities for possible
consolidation or closure. These actions were undertaken to reduce capacity and
outsource the manufacturing of non-core content and other non-core processes. As
of December 31, 2001, we had announced the closing of 21 facilities and reduced
our work force by 7% in connection with these plans. Charges related to our
actions announced in October were $431 million and affected net earnings for the
fourth quarter of 2001 by $279 million. Charges for all restructuring activities
during the fourth quarter of 2001 totaled $440 million, including $155 million
for employee terminations, $196 million for asset impairments and $89 million
for exit and other costs. We charged cost of sales for $85 million of these
expenses, including $38 million for inventory impairment. Net earnings in the
fourth quarter of 2001 were impacted by $284 million.
For the year ended December 31, 2001, we recorded total expenses of $476
million, including $390 million charged to restructuring expense and $86 million
charged to cost of sales, in connection with our restructuring actions. At
December 31, 2001, there was $259 remaining in accrued liabilities relating to
restructuring plans announced in 1999, 2000 and 2001.
During the first quarter of 2002, we continued to execute our October 2001
restructuring plans, including the announced closing of 7 facilities and
permanent workforce reductions at other locations. In connection with these
efforts, we accrued an additional $18 million for employee termination benefits,
$21 million for asset impairments and $7 million for other exit costs. This $46
million of restructuring expense, which included $7 million of asset impairment
charged to cost of sales, had a $37 million impact on net income. During the
remainder of 2002, we expect to reduce our workforce further and announce
additional facility closures related to our October 2001 initiatives. We expect
the cost of these actions, along with related activities that must be expensed
as incurred, to reduce our 2002 net income by $166 million. Including these
projected expenses, the total after-tax cost of our October 2001 initiatives is
estimated at $445 million. We expect our actions to reduce our break-even point
by eliminating excess capacity. The related savings for the year ending December
31, 2002 are projected to be at least $80 million after tax.
30
The following table summarizes the restructuring charges and activity
recorded in the last three years and in the three months ended March 31, 2002:
EMPLOYEE LONG-LIVED
TERMINATION ASSET EXIT INTEGRATION
BENEFITS IMPAIRMENT COSTS EXPENSES TOTAL
----------- ---------- ----- ----------- -----
(IN MILLIONS)
BALANCE AT DECEMBER 31, 1998................. $116 $ $ 11 $ $ 127
Activity during the year
Charges to expense......................... 60 59 11 51 181
Cash payments.............................. (85) (9) (51) (145)
Write-off of assets........................ (59) (59)
---- ----- ---- ---- -----
BALANCE AT DECEMBER 31, 1999................. 91 -- 13 -- 104
Activity during the year
Charges to expense......................... 62 8 27 76 173
Cash payments.............................. (60) (20) (76) (156)
Write-off of assets........................ (8) (8)
---- ----- ---- ---- -----
BALANCE AT DECEMBER 31, 2000................. 93 -- 20 -- 113
Activity during the year
Charges to expense......................... 171 166 53 390
Cash payments.............................. (58) (20) (78)
Write-off of assets........................ (166) (166)
---- ----- ---- ---- -----
BALANCE AT DECEMBER 31, 2001................. 206 -- 53 -- 259
Activity during the quarter
Charges to expense......................... 18 14 7 39
Cash payments.............................. (35) (9) (44)
Write-off of assets........................ (14) (14)
---- ----- ---- ---- -----
BALANCE AT MARCH 31, 2002.................... $189 $ -- $ 51 $ -- $ 240
==== ===== ==== ==== =====
At March 31, 2002, $240 million of restructuring charges remained in
accrued liabilities. This balance was comprised of $189 million for the
termination of employees, including the announced termination of approximately
3,725 employees scheduled for the remainder of 2002, and $51 million for lease
terminations and other exit costs. We estimate the related cash expenditures
will be approximately $128 million in 2002, $40 million in 2003 and $72 million
thereafter. Our 2002 liquidity and cash flows, while projected to be more than
adequate to satisfy our obligations related to our restructuring plans, will be
impacted by these expenditures.
Employee terminations relating to the plans were as follows:
THREE MONTHS
ENDED
MARCH 31,
1999 2000 2001 2002
----- ----- ------ -------------
Total estimated......................................... 1,280 1,020 7,690 713
Less terminated: .......................................
1999.................................................. (595)
2000.................................................. (615) (765)
2001.................................................. (30) (254) (3,571)
2002.................................................. (2) (1) (1,027) (204)
----- ----- ------ ----
BALANCE AT MARCH 31, 2002............................... 38 -- 3,092 509
===== ===== ====== ====
31
CRITICAL ACCOUNTING POLICIES
The following discussion of accounting policies is intended to supplement
the Summary of Significant Accounting Policies presented as Note 1 to our 2001
financial statements. These policies were selected because they are broadly
applicable within our operating units. The expenses and accrued liabilities or
allowances related to certain of these policies are initially based on our best
estimates at the time of original entry in our accounting records. Adjustments
are recorded when our actual experience differs from the expected experience
underlying the estimates. These adjustments could be material if our experience
were to change significantly in a short period of time. We make frequent
comparisons of actual experience and expected experience in order to mitigate
the likelihood of material adjustments.
Goodwill and Impairment of Long-Lived Assets -- We perform impairment
analyses of our recorded goodwill and long-lived assets whenever events and
circumstances indicate that they may be impaired. When the undiscounted cash
flows, without interest or tax charges, are less than the carrying value of the
assets being reviewed for impairment, the assets are written down to fair market
value. During 2001, we recorded goodwill and long-lived asset impairment
provisions of $166 million, which largely resulted from the downturn in our
markets and the resulting restructuring of our operations.
The adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS
No. 142) on January 1, 2002, changed our methodology for assessing goodwill
impairments and resulted in a write-down of $289 in the first quarter of 2002,
as further described in Note 2 to our unaudited financial statements for the
quarter ended March 31, 2002. A reconciliation of the reported net income (loss)
for each of the three years in the period ended December 31, 2001 to the pro
forma net earnings assuming adoption of SFAS No. 142 prior to 1999 has been
added to the notes to our consolidated financial statements beginning at page
F-8.
Inventory -- Inventories are valued at the lower of cost or market. Cost is
generally determined on the last-in, first-out basis for U.S. inventories and on
the first-in, first-out or average cost basis for non U.S. inventories. Where
appropriate, standard cost systems are utilized for purposes of determining
cost; the standards are adjusted as necessary to ensure they approximate actual
costs. Estimates of lower of cost or market value of inventory are determined at
the reporting unit level and are based upon the inventory at that location taken
as a whole. These estimates are based upon current economic conditions,
historical sales quantities and patterns and, in some cases, the specific risk
of loss on specifically identified inventories.
Sales Returns and Allowances -- Accruals for sales returns and allowances
are provided at the time of shipment based upon past experience and are recorded
as a reduction of sales. The estimated value of product that will be returned to
inventory as a result of returns is recorded as a reduction of cost of sales and
the accrued returns allowance. As new information becomes available the accruals
are adjusted accordingly. Accrued liabilities at December 31, 2000 and 2001 were
$67 million and $66 million, respectively.
Warranty -- Estimated costs related to product warranty are accrued at the
time of sale and included in cost of sales. Estimated costs are based upon past
warranty claims and sales history and adjusted as required to reflect actual
costs incurred, as information becomes available. Warranty expense totaled $68
million, $90 million and $92 million in 1999, 2000 and 2001, respectively.
Accrued liabilities for warranty expense at December 31, 2000 and 2001 were $127
million and $138 million, respectively.
Pension and Postretirement Benefits Other Than Pensions -- Annual net
periodic expense and benefit liabilities under our defined plans are determined
on an actuarial basis. Each September, we review the actual experience compared
to the more significant assumptions used and make adjustments to the
assumptions, if warranted. The healthcare trend rates are reviewed with the
actuaries based upon the results of their review of claims experience. Discount
rates are based upon an expected benefit payments duration analysis and the
equivalent average yield rate for high-quality fixed-income investments. Pension
benefits are funded through deposits with trustees and the expected long-term
rate of return on fund assets is based upon actual historical returns modified
for known changes in the market and any expected change in investment policy.
Postretirement benefits are not funded and our policy is to pay these benefits
as they become due.
Certain accounting guidance, including the guidance applicable to pensions,
does not require immediate recognition of the effects of a deviation between
actual and assumed experience or the revision of an estimate. This approach
allows the favorable and unfavorable effects that fall within an acceptable
range to be netted.
32
Although this netting occurs outside the basic financial statements, disclosure
of the net amount is disclosed as an unrecognized gain or loss in the footnotes
to our financial statements. The actuarial loss related to our 2001 return on
pension plan assets was offset, in part, by the unamortized portion of gains
experienced in prior years. A portion of the unrecognized loss of $229 million
will be amortized into earnings in 2002. The effect on years beyond 2002 will
depend in large part on the actual experience of the plans in 2002.
Other Loss Reserves -- We have numerous other loss exposures, such as
environmental claims, product liability, litigation, recoverability of deferred
income tax benefits and accounts receivable and loan and lease loss reserves.
Establishing loss reserves for these matters requires the use of estimates and
judgment in regards to risk exposure and ultimate liability. We estimate losses
under the programs using consistent and appropriate methods; however, changes to
our assumptions could materially affect our recorded liabilities for loss. Where
available we utilize published credit ratings for our debtors to assist us in
determining the amount of required reserves.
RESULTS OF OPERATIONS (THREE MONTHS 2002 VERSUS THREE MONTHS 2001)
Our worldwide sales were $2,521 million in the first quarter of 2002, a
decrease of $210 million or 8% from the $2,731 million recorded in the first
quarter of 2001. The decline included $43 million related to the effect of
divestitures, net of acquisitions, and $55 million of adverse effects of
currency fluctuations. Excluding these effects, worldwide sales decreased $112
million or 4%. Our worldwide experience was largely based on our volume in the
U.S., where 2002 sales of $1,686 million represented a decline of $130 million
or 7% compared to the first quarter of last year. Excluding the $26 million
effect of divestitures, U.S. sales declined $104 million or 6%. No domestic
acquisitions affected the comparison.
Overall sales outside the U.S. declined $80 million or 9% compared to the
first quarter of last year with over two-thirds of the decline resulting from
the strengthening of the U.S. dollar relative to foreign currencies. The
currencies accounting for the largest components of the approximately $55
million adverse impact were the euro ($19 million), the Brazilian real ($13
million), the Argentine peso ($10 million) and the Canadian dollar ($8 million).
Excluding the adverse effect of currency fluctuations and the $17 million impact
of divestitures net of acquisitions, non-U.S. sales were nearly flat with an $8
million or 1% decrease.
Sales by region for the first quarter were as follows:
% CHANGE EXCLUDING
ACQUISITIONS &
2001 2002 % CHANGE DIVESTITURES
------ ------ -------- ------------------
(IN MILLIONS)
North America........................... $2,034 $1,900 (7) (5)
Europe.................................. 489 423 (13) (7)
South America........................... 127 121 (5) (17)
Asia Pacific............................ 81 77 (5) (5)
Sales in North America decreased $134 million or 7% for the period.
Excluding the effect of divestitures, the decline was $108 million or 5%. As
noted above, the relative weakness of the Canadian dollar accounted for $8
million of the reduction in sales. European sales were down $44 million or 9% in
local currency, mostly due to $31 million of divestiture impact. Conversion to
U.S. dollar pared another $22 million for a total decline of $66 million or 13%.
South American sales improved in local currencies by $3 million and acquisitions
net of divestitures added $15 million, but overall sales declined $6 million or
5% after an adverse currency impact of $24 million. Sales in Asia Pacific were
down $4 million or 5% due equally to local declines and an adverse currency
impact.
We currently have four Strategic Business Units (SBUs): Automotive Systems
Group (ASG); Automotive Aftermarket Group (AAG); Engine and Fluid Management
Group (EFMG), which was formed in 2001 by combining most of the Engine Systems
and Fluid Systems Groups; and Heavy Vehicle Technologies and Systems Group
(HVTSG), which was formed in April 2002 by combining Commercial Vehicle Systems
(CVS) and the Off-Highway Systems Group (OHSG).
As financial reporting to the management of HVTSG reflects CVS and OHSG
separately, we currently have the following segments: ASG, AAG, EFMG, CVS, OHSG,
and DCC.
33
Sales by segment for the first quarters of 2001 and 2002 are shown in the
following table. The segment information has been restated to reflect the
formation of EFMG and other realignments of businesses within our SBU structure
in 2001. DCC did not record sales in either period. The Other category
represents facilities that have been closed or sold and operations not assigned
to the SBUs.
% CHANGE EXCLUDING
ACQUISITIONS &
2001 2002 % CHANGE DIVESTITURES
----- ----- -------- ------------------
(IN MILLIONS)
ASG........................................ $971 $936 (4) (5)
AAG........................................ 637 626 (2) (1)
EFMG....................................... 586 528 (10) (5)
CVS........................................ 321 250 (22) (17)
OHSG....................................... 178 158 (11) (11)
Other...................................... 38 23 (39) (42)
ASG, which manufactures axles, driveshafts, structural components, modules
and chassis systems, experienced a sales decline of $35 million or 4% in the
first quarter of 2002. The North American region experienced $27 million of the
decline, as reduced 2001 production levels of our customers continued into the
beginning of the year. The quarter marked an improvement of $49 million over the
final quarter of 2001, continuing the slow recovery from the sharp decrease seen
in the third quarter. We believe that the continued high sales incentives of our
customers have reduced light vehicle inventory levels, leading to improvement in
production rates during the first quarter of 2002. The other regions reported an
aggregate sales decrease of $8 million in the quarter. European sales
experienced local growth of $3 million but declined $4 million due to an adverse
currency impact of $7 million in the region. Sales in South America declined $3
million overall as the acquisition impact of $11 million was offset by $12
million of adverse currency impact and a $2 million decline in local sales.
Sales in Asia Pacific were flat as adverse currency effects negated a slight
local increase.
AAG, which is primarily responsible for the distribution side of our
automotive business, experienced a sales decline of $11 million during the first
quarter of 2002. Sales in North America were down $5 million as a divestiture
impact of $9 million and an adverse currency impact of $1 million more than
offset the $5 million of local growth. However, sales in the region were up 7%
over the fourth quarter of 2001, reversing the decline experienced throughout
the second half of last year. European sales were down $3 million with an
adverse currency effect of $2 million and local market declines causing the
shortfall. South American sales were down $1 million as an adverse currency
effect of $6 million offset $3 million of local growth and $2 million of
acquisition impact. The $2 million decline in Asia Pacific was due to a decline
in local markets.
EFMG, which sells sealing products, electronic modules and sensors, and
fluid management products to a variety of markets, incurred a sales decline of
$58 million when compared to the first quarter of 2001. North American sales
declined $22 million in a year-over-year comparison, mostly due to a local sales
decrease of $19 million in the fluid management side of the business, but
increased $36 million or 11% relative to the fourth quarter of 2001. Sales in
Europe declined $36 million as a divestiture impact of $30 million and currency
declines of $7 million absorbed the $1 million of local growth in the region.
Sales in South America and Asia Pacific were flat for the quarter.
CVS, which sells heavy axles and brakes, drivetrain components, trailer
products and heavy systems modular assemblies, experienced a sales decline of
$71 million in the quarter. North American sales saw a decrease of $64 million
overall as the divestiture impact of $16 million combined with $48 million in
local sales declines when compared to the first quarter of 2001. This quarter's
slight gain over the final quarter of last year marked the first improvement
since the first quarter of 2001 in this region. We attribute most of the
improvement to pre-buying of Class 8 trucks in advance of an October change in
emission requirements for heavy-duty diesel engines. Sales in Europe declined $5
million due to the local decreases of $3 million, with the effects of
divestitures and weaker currencies accounting for the remaining difference.
Sales in South America declined $2 million on local changes, and were flat in
Asia Pacific for the quarter.
OHSG, which sells off-highway axles, powershift transmissions, transaxles,
torque converters and electronic controls, finished the quarter with sales down
$20 million when compared to the first quarter of
34
2001, with no impact from acquisitions or divestitures. North America and Europe
saw local declines of $5 million and $10 million, respectively, with adverse
currency movement in Europe causing a further $5 million decrease. However, both
regions saw gains versus the final quarter of 2001. Sales in South America were
even with the first quarter of 2001.
Revenue from lease financing and other income was $31 million higher in the
first quarter of 2002 as other income in the first quarter of 2001 included a
$22 million loss on the sale of our Mr. Gasket subsidiary.
Gross margin for the first quarter of 2001 was 10.5%, a measure which
improved to 10.8% after excluding goodwill amortization. Gross margin for the
first quarter of 2002 was 11.3%. The improvement is attributed to our
restructuring actions as lower sales volume would generally have an adverse
effect on gross margin. Selling, general and administrative expenses for the
quarter decreased $13 million compared to the same period in 2001. Divestitures
net of acquisitions caused $5 million of the decrease, while the effect of
currency movement accounted for $7 million of the reduction.
Operating margin for the quarter was 1.4% compared to 1% in the first
quarter of 2001 for the above reasons.
Interest expense was $17 million lower than the same quarter of last year,
resulting from the combined effect of decreased debt levels and lower rates.
Neither the effective tax rates nor the comparison of the effective tax
rates for the quarters ended March 31, 2002 and 2001 were meaningful due to the
low level of pre-tax earnings and the impact of permanent differences between
financial accounting rules and tax regulations.
Minority interest in net income of consolidated subsidiaries increased $4
million in the first quarter of 2002, compared to the same period in 2001, due
to the gain realized by a majority-owned subsidiary in Taiwan on the sale of a
portion of an affiliate.
Equity in earnings of affiliates through March 31, 2002 was $9 million
higher than at the end of the first quarter of 2001. This line item was impacted
unfavorable by $5 million in the first quarter of 2001 due to losses incurred by
our Venezuelan affiliate, which was fully consolidated beginning in the third
quarter of 2001. We also experienced increases in 2002 of $2 million and $1
million from our investments in Mexico and Germany, respectively.
Our reported net loss of $229 million for the first quarter of 2002
included a $220 million charge from a change in accounting for goodwill,
resulting from our adoption of SFAS 142 in January of this year. The remaining
$9 million loss included $37 million of charges related to our October 2001
restructuring plan. This compared to a net loss of $27 million in 2001, which
included $28 million of charges related to the sale of a subsidiary and our
restructuring activities.
RESULTS OF OPERATIONS (2001 VERSUS 2000)
Our worldwide sales decreased $2,046 million in 2001 to $10,271 million, a
17% decline from the $12,317 million recorded in 2000. The decline included $113
million related to the effect of divestitures, net of acquisitions, and $232
million of adverse effects of currency fluctuations. Excluding these effects,
worldwide sales decreased $1,701 million or 14%. Our worldwide experience was
largely based on our volume in the U.S., where 2001 sales of $6,863 million
represented a decline of $1,689 million or 20% versus the prior year. Excluding
the net effect of acquisitions and divestitures, U.S. sales declined $1,538
million or 18%.
Overall sales outside the U.S. fared better, slipping $357 million or 9%
compared to 2000. Nearly two-thirds of the decline resulted from the
strengthening of the U.S. dollar relative to foreign currencies since 2000. The
currencies accounting for the largest components of the approximately $232
million adverse impact were the Brazilian real ($87 million), the euro ($44
million), the Canadian dollar ($30 million), the Australian dollar ($24
million), and the British pound ($21 million). Excluding the adverse effects of
currency fluctuations and acquisitions and divestitures, sales decreased $89
million or 2%. The net decline related to acquisitions and divestitures was $36
million.
35
Sales by region for 2000 and 2001 were as follows:
% CHANGE EXCLUDING
ACQUISITIONS &
2000 2001 % CHANGE DIVESTITURES
------ ------ -------- ------------------
(IN MILLIONS)
North America........................... $9,449 $7,684 (19) (17)
Europe.................................. 1,947 1,704 (12) (11)
South America........................... 563 553 (2) (15)
Asia Pacific............................ 358 330 (8) (9)
Sales in North America decreased $1,765 million or 19% for 2001. Excluding
the effect of divestitures, the decline was $1,614 million or 17%. As noted
above, the relative weakness of the Canadian dollar accounted for $30 million of
the reduction in sales. European sales were down 9% in local currency but
conversion to U.S. dollars pared another $69 million for a total decline of $243
million or 12%. Sales lost through divestitures exceeded the amount added
through acquisitions by $39 million. South American sales improved 16% in local
currencies and net acquisitions added $73 million, but sales were down $10
million or 2% after absorbing $100 million of adverse currency effects. Sales in
Asia Pacific were down $28 million as $35 million of adverse currency impact was
partially offset by local growth of $3 million and a $4 million net effect of
acquisitions and divestitures.
Our SBUs at the end of 2001 were ASG, AAG, EFMG, CVS, OHSG, and DCC. We
realigned certain businesses within our SBU structure in 2001. The most
significant change was consolidating our Engine Systems and Fluid Systems Groups
into EFMG. Our segment information has been restated to reflect the changes made
to the SBU alignment in 2001.
Sales by segment for 2000 and 2001 are presented in the following table.
DCC did not record sales in either year.
% CHANGE EXCLUDING
ACQUISITIONS &
2000 2001 % CHANGE DIVESTITURES
------ ------ -------- ------------------
(IN MILLIONS)
ASG..................................... $4,522 $3,717 (18) (20)
AAG..................................... 2,768 2,538 (8) (7)
EFMG.................................... 2,400 2,137 (11) (10)
CVS..................................... 1,598 1,118 (30) (27)
OHSG.................................... 786 621 (21) (20)
Other................................... 243 140 (42) (32)
ASG incurred a sales decline in 2001 of $805 million or 18% when compared
to 2000. The North American region experienced $742 million of this shortfall.
The decline in production volume, which began in the second half of 2000,
continued for North American light vehicle and heavy truck manufacturers in
2001, with light vehicle production dropping to 15.5 million units from 17.2
million units in 2000. Sales in both markets were generally flat in the first
quarter of 2001 when compared to the fourth quarter of 2000, but demand was
sporadic and margins were adversely affected by the high volume of production
shift cancellations by our OE customers. The production schedules improved in
the second quarter of 2001 in terms of volume but still displayed some of the
irregularities of the first quarter. In the third quarter of 2001, the number of
production shifts cancelled by our OE customers was nearly identical to what we
experienced in the first quarter of 2001, as our customers countered excess
dealer inventories with incentives and reduced production. Record incentives
late in the year were effective in reducing the overall dealer inventories of
our customers to a 15-year low, but production levels declined further. In
addition, Ford and Chrysler vehicles in general and certain models with high
Dana content in particular declined more than the light vehicle market overall
in 2001. The decline in heavy truck production which began in the middle of 2000
continued through the end of 2001. The North American heavy truck market saw
more than a 40% reduction in volume when compared to 2000. Outside North
America, the regions reported an aggregate sales decrease of $63 million. Sales
in Europe were down $49 million as an adverse currency impact of $19 million and
$42 million of organic declines (organic decline being the residual change after
excluding the effects of acquisitions, divestitures and currency
36
changes) more than offset acquisition benefits of $12 million. Sales in South
America were $10 million below the same period in the prior year, as the $14
million of organic decline and $45 million of adverse effects of weaker
currencies more than offset the net acquisition impact of $49 million. Sales in
Asia Pacific were flat with currency declines of $29 million offsetting
acquisition impact of $21 million and modest organic growth.
AAG also ended the year 2001 with a decline in sales. Most of the decline
was in North America, which represented more than three-fourths of its global
market, where volumes were down $187 million or 8%. While there was a reported
improvement in domestic aftermarket retail sales in 2001, this did not
significantly improve our sales, as retailers generally met the higher demand
with existing inventory. Divestitures also contributed $44 million to the
decline. Sales in Europe declined $25 million due to $8 million in adverse
currency effects and a $17 million decline in organic sales. Sales in South
America were down $2 million as a $23 million currency decrease was partially
offset by local growth of $15 million and $6 million of acquisition impact.
Divestitures accounted for $13 million of the $16 million sales decline recorded
in Asia Pacific.
EFMG experienced a sales decrease of $263 million or 11% for 2001 versus
2000. Sales for the final quarter of 2001 held even with the third quarter,
which had shown a 14% decline from the second quarter of the year. The Fluid
Systems business in this group benefited from having content on models that
avoided the severe OE production cuts that affected most of the other SBUs.
Sales in North America were down $231 million or 14% as the automotive,
commercial vehicle and aftermarket sectors all trailed prior year volumes. Sales
in Europe were down $31 million or 5% with adverse currency effects of $25
million playing a significant role. Sales were generally flat in South America
as adverse currency effects of $22 million were nearly offset by organic growth
of $15 million and a net acquisition impact of $5 million.
CVS experienced a year-on-year decline in sales in 2001 of $480 million or
30% for the reasons cited relative to the heavy truck market in the discussion
of ASG above. The decline in CVS sales included $60 million of divestiture
impact, $56 million of which was in North America. Excluding this effect, sales
in North America for the period were 26% below those of 2000. Aggregate sales
for the other three regions declined $33 million or 36% in a year-on-year
comparison with $7 million due to divestitures and adverse currency effects.
OHSG finished the year down $165 million or 21% in sales versus 2000, with
$9 million resulting from divestitures, all in North America. Currency impact
accounted for $19 million of the decline, and organic sales fell $92 million in
North America, where overall markets were weak, and $49 million in Europe, where
the construction market softened and the agricultural market remained weak.
Sales in Other decreased $104 million or 43% compared to 2000, reflecting
the sale of most of the Warner Electric businesses at the end of February 2000.
Revenue from lease financing decreased $28 million or 20% in 2001 as DCC
realized a decline of $24 million on reduced leasing activity, including a $10
million decline in income realized on the sale of leased assets, and a $4
million decline in its interest income.
In 2001, other income included a $50 million gain on the divestitures of
our Chelsea power take-off business and of our Glacier industrial bearings
businesses. Also included in 2001 was a $35 million loss on the sales of our Mr.
Gasket subsidiary, our Marion, Ohio forging facility and the assets of our
Dallas, Texas and Washington, Missouri EFMG operations. Included in the total
for 2000 was $179 million of gains on the divestitures of the Gresen hydraulics
business, certain portions of our constant velocity joint business, most of the
global Warner Electric businesses and the Commercial Vehicle Cab Systems Group.
In addition, a $10 million net charge related to final settlement of the Midland
Grau divestiture was recorded in the third quarter of 2000, bringing to $169
million the amount of net non-recurring income included in other income.
Gross margin for 2001 was 9.8% versus 13.9% in 2000. Margins in all our
SBUs were severely affected as the decline in volume reduced our ability to
absorb fixed operating expenses. Cost of sales included charges of $86 million
in 2001 and $17 million in 2000 in connection with our restructuring activities.
Selling, general and administrative (SG&A) expenses decreased $147 million
during 2001 compared to 2000. The net effect of divestitures accounted for $21
million of this change, and currency exchange caused another $20 million of the
decline. The largest changes occurred in Europe, where currency fluctuations
caused $7 million of the $33 million non-divestiture related decrease. Most of
the remaining decrease was
37
from the North American region, where our operating units scaled their capacity
in reaction to severely reduced customer production schedules in the light truck
and commercial vehicle markets.
Operating margin (our gross margin reduced by SG&A expenses) was 0.2% in
2001 compared to 4.8% in 2000 for the above reasons.
Interest expense was $14 million lower as a result of lower debt and
reduced rates.
Both the effective tax rates and the comparison of the effective tax rates
for 2001 and 2000 were impacted by the substantial pre-tax loss reported in
2001. Because of the pre-tax loss in 2001, certain permanent differences between
financial accounting rules and tax regulations that increase the tax rate when
we report pre-tax income served to reduce the effective rate.
Equity in earnings of affiliates in 2001 was $22 million lower than in
2000. The $39 million reduction in equity earnings in Mexico and the $11 million
decrease in earnings from DCC's equity investments adversely affected this line
item. Partially offsetting these items were the earnings related to our
investment in GETRAG and the loss reduction that occurred when we acquired the
remaining interest in Danaven and began consolidating its results.
We reported a $298 million net loss in 2001 versus net income of $334
million reported in 2000. Comparisons are made difficult by the unusual charges
and one-time gains recorded in both years. In 2001, we recorded after-tax
charges of $313 million in connection with our restructuring efforts and $10
million of gains on divestitures. In 2000, we recorded $43 million of
restructuring and other unusual charges net of the gains recorded on several
divestitures. Excluding these items, earnings would have been $5 million in 2001
and $377 million in 2000.
Unusual items in 2001 included net after-tax charges of $41 million in ASG,
$85 million in AAG, $108 million in EFMG, $12 million in CVS and $43 million in
OHSG; a net charge of $14 million was reflected in the Other category. In 2000,
unusual charges were $47 million in ASG, $39 million in AAG and $32 million in
EFMG, while one-time gains were $27 million in CVS, $16 million in OHSG and $32
million in Other.
RESULTS OF OPERATIONS (2000 VERSUS 1999)
Our worldwide sales were $12,317 million in 2000, a 6% or $842 million
decline from the $13,159 million recorded in 1999. The divestitures completed in
the first quarter of 2000 were a significant factor in the decline. Net of the
effect of acquisitions, these divestitures accounted for a $410 million
reduction in sales for the year. Currency fluctuations accounted for an
additional $279 million decline in sales.
U.S. sales were $8,552 million, a 9% or $861 million decline from the 1999
level, with divestitures net of acquisitions accounting for $408 million of the
decrease. Exports from the U.S. declined from $939 million in 1999 to $832
million in 2000.
Sales by region for 1999 and 2000 are presented in the following table.
% CHANGE EXCLUDING
ACQUISITIONS &
1999 2000 % CHANGE DIVESTITURES
------- ------ -------- ------------------
(IN MILLIONS)
North America.......................... $10,308 $9,449 (8) (4)
Europe................................. 2,051 1,947 (5) (8)
South America.......................... 549 563 3 14
Asia Pacific........................... 251 358 43 43
In 2000, overall sales outside the United States increased $20 million
despite the $279 million adverse impact of further strengthening of the U.S.
dollar. Sales for our operations in Canada and Mexico were flat after
considering a $4 million benefit from currency changes; acquisitions and
divestitures were not a factor in those countries. Sales in Europe benefited
from a net $65 million increase related to acquisitions net of divestitures and
organic growth added another $79 million. These positive effects were more than
offset by $247 million of adverse currency impact as the U.S. dollar equivalent
of sales denominated in euros and pounds declined $207 million and $32 million,
respectively, due to weakness in those currencies. In South
38
America, where currency weakness resulted in an $11 million sales decline, the
effect of divestitures net of acquisitions was a $66 million drop in sales.
Continuing recovery in the region was evident however in the $90 million of
organic growth. Organic growth in Asia Pacific sales totaled $133 million, more
than offsetting the $25 million of adverse currency effects. Sales due to
acquisitions equaled those lost by way of divestitures.
Sales by segment for 1999 and 2000 are presented in the following table.
DCC did not record sales in either year.
% CHANGE EXCLUDING
ACQUISITIONS &
1999 2000 % CHANGE DIVESTITURES
------ ------ -------- ------------------
(IN MILLIONS)
ASG..................................... $4,403 $4,522 3 --
AAG..................................... 2,955 2,768 (6) (5)
EFMG.................................... 2,495 2,400 (4) (4)
CVS..................................... 1,904 1,598 (16) (11)
OHSG.................................... 870 786 (10) 1
Other................................... 532 243 (54) (1)
ASG sales in North America decreased $103 million or 3% in 2000 as a result
of light vehicle and heavy truck OEM production cuts intended to reduce dealer
inventory. Light vehicle production in North America started the year near
all-time record levels but declined in the second half of 2000 to end at 17.2
million units. SUVs and light trucks displayed a similar trend line while
maintaining their share of overall production. While sales appeared flat in
South America, internal growth in Brazil across all the ASG product lines was
slightly more than the combined negative effect of currency ($8 million) and net
divestitures ($55 million). Sales in Europe benefited from our acquisition of
the GKN driveshaft business early in the year, which added sales of $142
million, but gave back $75 million to currency effects. ASG's internal growth of
nearly $40 million resulted from improvement in both driveshaft and axle sales.
The acquisition of the automotive axle manufacturing and stamping business of
Invensys plc added $34 million of sales in Asia Pacific, more than offsetting
the $22 million adverse currency effect and complementing the $141 million of
organic growth resulting mainly from new modular systems business.
AAG ended 2000 with a $187 million decrease in sales, of which nearly $44
million related to the late 1999 divestiture of Sierra. Inefficiencies in
consolidating parts of its warehousing operations and softness in the North
American automotive aftermarket were key factors in the $85 million sales
decline at AAG's operating units in this region. Sales in Europe were marginally
higher than they were in 1999 but the region lost $40 million to currency
movements. Modest sales improvement in South America was offset by decreases in
Asia Pacific. There were no acquisitions or divestitures in either region and
currency effects were minimal.
Sales in EFMG declined $95 million in 2000 as North America lost $42
million in its ongoing operations and another $6 million due to a divestiture.
Operations in Europe incurred currency losses of $78 million to account for
their $52 million sales decline after $27 million of organic growth. Sales in
South America were up slightly due to modest internal growth.
CVS continued its success of 1999 during the first half of 2000, growing
sales 4% after excluding the effects of two divestitures in the first quarter of
2000. However, early in the second half of the year, heavy truck manufacturers
sharply reduced production in response to falling demand and excess inventory.
CVS sales fell by one-third in the second half and finished the full year $306
million below 1999 results. The divestiture impact for the full year was $106
million and currency losses pared another $9 million, leaving $190 million of
organic sales reductions.
OHSG sales fell $84 million overall in 2000 as the divestiture of the
Gresen Hydraulics business in January 2000 resulted in a $99 million decline in
sales and adverse currency impacts accounted for another $44 million. Organic
growth was unchanged compared with the prior year. North American sales declined
$96 million with $86 million attributable to the Gresen divestiture. In Europe,
sales were $14 million higher as much of the $58 million added through
acquisitions was offset by a $44 million adverse effect from weakness in the
euro. South American sales were down $3 million as $8 million of organic growth
was negated by $11 million lost through the Gresen divestiture.
39
Revenue from lease financing increased $32 million or 29% in 2000 on a $15
million increase in direct finance lease income and a $17 million increase in
interest income and income from property rentals recognized by DCC.
Other income increased $148 million in 2000, primarily the result of a $156
million increase in gains on divestitures that was partially offset by a $9
million decrease in interest income exclusive of the DCC interest income which
is included in lease financing revenue.
Gross margin in 2000 was 13.9%, well below the 16.7% reported in 1999.
Results in all regions reflected lower gross margins, but the declines were most
severe in North America and Asia Pacific. In North America, ASG and CVS were
both affected by producing above optimum capacity in the first half of the year.
In the second half, these units were impacted by erratic demand from their major
customers and generally fell well below efficient production levels. AAG margins
were impacted by softness in the automotive aftermarket. In Asia Pacific, ASG
margins were affected by startup costs related to our new modular business in
Australia. We incurred $17 million in 2000 in connection with discontinuing
certain lines of business and $57 million in 1999 related to impairment and
other rationalization adjustments and charged these amounts to cost of sales.
Gross margins excluding these items would have been 14.1% in 2000 and 17.1% in
1999.
SG&A decreased $60 million in 2000, slightly exceeding the $56 million
attributed to the net effect of divestitures and acquisitions. DCC increased its
general and administrative expenses by $9 million with higher depreciation on
leased assets and expenses related to a real estate investment being the largest
components. SG&A as a percentage of sales was 9.2% in 2000 and 9.1% in 1999.
Interest expense rose $44 million or nearly 16% in 2000 as overall debt
increased by almost 11%. Average short-term borrowings rose $452 million to
$1,614 million and the average interest rate increased from 5.4% to 6.6%.
Our effective tax rate was 36.8% in 2000. We continued to benefit from tax
credits generated by our leasing operations and from relatively low state and
local tax rates.
Minority interest was unchanged in 2000. The minority interest in the gain
recognized by Albarus S.A. on the sale of its interest in one of its affiliates
was generally offset by the absence of the minority interest's participation in
operating earnings.
We recorded $54 million of equity in the earnings of our affiliates in
2000. Increased earnings at our affiliate in Mexico and expansion of the portion
of leasing revenue earned on DCC's equity investments more than offset the $27
million loss recorded in the fourth quarter at our 49%-owned affiliate in
Venezuela.
Net income was $334 million in 2000 versus $513 million reported in 1999.
Comparisons are made difficult by restructuring and other unusual items recorded
in both years. In 1999 we recorded $165 million of such charges net of the gain
recorded in the AAG on the sale of Sierra. In 2000, we recorded $43 million of
restructuring and other unusual charges net of the gains recorded on several
divestitures. Excluding these items, earnings would have been $377 million in
2000 and $678 million in 1999.
Unusual items in 2000 included net charges of $47 million in ASG, $39
million in AAG, $32 million in EFMG and net credits of $27 million in CVS and
$16 million in OHSG; a net gain of $32 million was reflected in the Other
category. In 1999, unusual charges were $59 million in ASG, $40 million in AAG,
$3 million in CVS, $34 million in EFMG, $1 million in OHSG and $28 million in
Other.
MARKET TRENDS
We now believe that North American light vehicle production in 2002 will be
about 15.8 million units. This increase from our prior projection of 14.5
million units reflects stronger than expected first half production, combined
with a conservative forecast for volumes in the second half. Production is
typically lower in the third and fourth quarters and we remain concerned that
significant sales may have been pulled forward as a result of dealer incentives
offered for light vehicles since last fall.
On the commercial vehicle side, we now expect North American Class 8
vehicle builds of 150,000 to 155,000 units for 2002, an increase from our
earlier projection of 130,000 units. We saw about 80,000 units built during the
first half of the year, largely due to pre-buying of Class 8 trucks in advance
of an October 2002
40
change in emissions requirements for heavy duty diesel engines. We expect the
pre-buying to continue into the third quarter, with fourth-quarter demand being
decidedly weaker.
We expect flat volumes in the automotive aftermarket in North America for
the remainder of the year, with modest sales growth for our aftermarket
operations due to price increases which we implemented in the first quarter of
this year.
We anticipate net new business of nearly $500 million in 2002 and
approximately $7.7 billion in the aggregate through 2006, based on our latest
review of the production projections of our OE customers.
RECENT DEVELOPMENTS
In the second quarter of 2002, we were informed by Mack Trucks, Inc.
(Mack), a part of the Volvo Group, that Mack does not plan to extend its current
agreements with Dana for the supply of chassis assemblies and groomed axles for
Mack's on-highway and vocational trucks. The chassis assembly agreement expires
at the end of 2003 and the axle agreements expire in May 2004. This business
generated revenue of approximately $293 million for Dana in 2001. We have
factored the loss of this business into our latest net new business estimates
for the period from 2002 through 2006.
On July 17, 2002, we issued a press release in which we announced our
results for the quarter ended June 30, 2002. The following summary sets forth
information regarding those results. We filed the press release on a Form 8-K on
July 18, 2002, which Form 8-K is incorporated by reference herein.
- Second-quarter sales were $2.8 billion, comparable to sales for the same
period in 2001. Net income totaled $52 million, or 35 cents per share for
the second quarter of 2002. This compares with net income of $14 million,
or 10 cents per share, during the second quarter of 2001, which included
goodwill amortization of $8 million after tax.
- Net income for the second quarter of 2002 included $42 million of charges
related to our restructuring plan announced in October 2001. These
charges were partially offset by a $27 million gain from the sale of
selected subsidiaries of DCC. Excluding these unusual items, our net
income totaled $67 million, or 45 cents per share, for the second quarter
of 2002. Net income during the second quarter of 2001, excluding unusual
items, was $26 million, or 17 cents per share.
- Excluding unusual items, income for the second quarter of 2002 doubled in
comparison to the comparable 2001 quarter on essentially the same level
of sales. These improved results were primarily attributable to our
restructuring initiatives, particularly in our automotive aftermarket and
engine parts operations.
- Light duty and commercial vehicle production remained strong during the
quarter, exceeding our projections and further supporting our results. We
also benefited from stronger earnings from affiliates and currency
effects.
In connection with our divestiture of DCC's businesses, we have signed an
agreement for the sale of certain DCC subsidiaries engaged in real estate
services businesses and expect this transaction to close in the third quarter of
2002. We expect to receive net proceeds of approximately $150 million from this
sale.
41
BUSINESS
We were founded in 1904 as the first supplier of universal joints to the
automotive industry. Today, we are one of the world's largest independent
suppliers of components, modules and systems to global vehicle manufacturers and
related aftermarkets. Our products are sold to the automotive, commercial
vehicle, and off-highway markets, and are used in the manufacturing of passenger
cars and vans, light trucks, SUVs, and medium and heavy duty vehicles, as well
as in a range of off-highway applications. Each of the markets we serve consists
of OE production, OE service, and aftermarket segments. At December 31, 2001, we
had over 430 facilities in 34 countries and employed approximately 70,000
people. For the year ended December 31, 2001, we generated consolidated sales of
$10.3 billion.
Our foundation businesses focus on:
- axles
- brake and chassis products
- driveshafts
- fluid systems
- bearings and sealing products
- structures
- filtration products
Each of these businesses has a strong market position and brand equity and
provides our customers with value-added manufacturing. We have long been a
leader in technological innovation in our industry and many of our products
possess features that are unique and patented. As evidenced by our numerous
supplier quality awards, we are highly focused on product quality, as well as
delivery and service. As a result, we have developed long-standing business
relationships with many of the thousands of customers that we serve worldwide.
In order to optimally align our foundation businesses with the markets they
support, our operations are organized into the following SBUs:
- Automotive Systems Group -- ASG produces light duty axles, driveshafts,
structural products (such as engine cradles and frames), transfer cases,
original equipment brakes and integrated modules and systems for the
light vehicle market and driveshafts for the heavy truck market. The
group had over 120 facilities and employed over 21,000 people in 23
countries, as of December 31, 2001. Among this group's largest customers
are Ford, DaimlerChrysler and General Motors.
- Automotive Aftermarket Group -- AAG sells hydraulic brake components and
disc brakes for light vehicle applications, internal engine hard parts,
chassis products and a complete line of filtration products for a variety
of applications. In addition, it sells electrical, brake, power
transmission, steering and suspension system components in the United
Kingdom and continental Europe. AAG has over 120 facilities and over
19,000 people in 26 countries. Among this group's largest customers are
Genuine Parts/NAPA, CARQUEST and AutoZone.
- Engine and Fluid Management Group -- EFMG serves the automotive, light to
heavy truck, leisure and outdoor power equipment and industrial markets
with sealing products, internal engine hard parts, electronic modules,
sensors, and an extensive line of products for the pumping, routing and
thermal management of fluid systems. The group has over 120 facilities
and over 20,000 people in 17 countries. Among this group's largest
customers are Ford, DaimlerChrysler and General Motors.
- Heavy Vehicle Technologies and Systems Group (HVTSG) -- HVTSG was formed
in April 2002, by the combination of two SBUs, Commercial Vehicle Systems
(CVS) and the Off-Highway Systems Group (OHSG). CVS is a major supplier
of heavy axles and brakes, drivetrain components and trailer products to
the medium and heavy truck markets. It also assembles modules and systems
for heavy
42
trucks. The group has 20 facilities and over 4,000 people in eight
countries. Among this group's largest customers are Volvo/Renault/Mack
Trucks, PACCAR and Navistar International. OHSG sells axles and brakes,
transaxles, power-shift transmissions, torque converters and electronic
controls. These products serve the construction, agriculture, mining,
specialty chassis, outdoor power, material handling, forestry and
leisure/utility equipment markets. OHSG has 13 facilities and over 3,000
people in seven countries. Among this group's largest customers are
Manitou, AGCO and Sandvik Tamrock. Because management will continue to
review the operating results of CVS and OHSG separately, we will continue
to treat them as separate segments.
For some time, we have been a leading provider of lease financing services
in selected markets through our wholly-owned subsidiary, DCC. With an asset base
of $2.3 billion at March 31, 2002, DCC and its subsidiaries provide leasing and
financing services to selected markets primarily in the U.S., Canada, the United
Kingdom and continental Europe. In October 2001, we determined that the sale of
the businesses of DCC would allow us to focus on our foundation businesses and
create an opportunity for DCC's businesses to enhance their competitive
positions within other corporate structures. We are presently pursuing the sale
of DCC's businesses.
OUR COMPETITIVE STRENGTHS
Our key competitive strengths include the following:
Strong Market Positions. We are one of the world's largest independent
suppliers of components, modules and systems for light, medium and heavy duty
vehicle manufacturers and the related aftermarkets. Our products, which are
focused on under-the-vehicle and under-the-hood applications, are used in SUVs
and other light vehicles by automotive customers such as Ford, DaimlerChrysler
and General Motors; in medium and heavy commercial vehicles by customers such as
Renault/Mack Trucks, PACCAR and Navistar International; and in a variety of
off-highway vehicles and equipment by customers such as Manitou, AGCO and
Sandvik Tamrock. In addition, in 2001 we were awarded new business by such
non-U.S.-based OE manufacturers as BMW, Isuzu, Nissan, Toyota and Volkswagen. We
also supply replacement parts to these markets through OE service organizations
and independent aftermarket channels. Our aftermarket customers include Genuine
Parts/NAPA, CARQUEST and AutoZone.
Global Presence. At December 31, 2001, we had approximately 270
manufacturing facilities, 90 distribution facilities, and 70 research centers,
service branches and offices located in 34 countries around the world. We
maintain regional administrative organizations in North America, Europe, South
America and Asia/Pacific which support the SBUs. In 2001, non-U.S. sales
represented 33% of our total consolidated sales. Our global presence gives us
proximity to our customers and enables us to provide marketing and manufacturing
support, meet just-in-time delivery requirements and provide engineering
solutions around the clock through our Virtual Time Engineering(TM) program.
Recognized Brand Names. We believe that our OE and aftermarket customers
alike recognize our branded products for quality and reliability. Among our
significant trademarked products are:
- Spicer(R) axles, transaxles, driveshafts, steering shafts and universal
joints;
- Victor Reinz(R) gaskets;
- Wix(R) filters;
- Perfect Circle(R) piston rings and cylinder liners;
- FTE(R) clutch and brake actuation systems; and
- Glacier(R) Vandervell(R) bearings.
Innovative, Value-Added Products. Since our founder Clarence Spicer
designed the first automotive universal joint, we have been dedicated to the
rapid development of new, value-added products. By continually broadening and
enhancing our product offerings, we are able to attract new customers and to
strengthen and expand our existing customer relationships. Recent new products
include temperature-responsive cooling
43
systems with electronic sensors, fluid steering systems with electronic
interfaces, innovative materials that make components both lighter and stronger,
and new traction control products that improve on-demand, all-wheel drive
performance, such as our TXT(TM) torque-management differential. We are also
engaged in fuel cell engineering for alternate-energy systems.
OUR BUSINESS STRATEGY
Our overall strategic direction is set out in our Transformation 2005
business plan. Our goals under this plan represent an increased emphasis on
anticipating the needs of our markets and serving our customers. The following
are key elements of our plan:
Focus and Expand Foundation Businesses. We believe that our foundation
businesses are the key to the long-term profitable growth of our company. These
businesses have leading market positions and brand equity and provide our
customers with value-added solutions and products. In connection with the
restructuring actions announced last October, we are accelerating the alignment
of these businesses with the markets they serve. As our OE customers target
improved asset utilization, speed to market, lower cost, lower investment risk
and greater flexibility, they increasingly look for outsourcing alternatives. We
expect that our global presence and technological and engineering capabilities,
as well as our experience, scale of operations and long-standing relationships
with major OE customers, will enable us to continue to take advantage of this
opportunity. We have been awarded net new business expected, based on our latest
review of our customers' production projections, to total approximately $7.7
billion for the period from 2002 through 2006. We are encouraged by the new
awards, especially since they include business not only from our traditional
U.S.-based OE customers, but also from non-U.S.-based OE customers.
Focus on Capital and Operating Efficiency. We continue to focus on
optimizing our resources and reducing our manufacturing costs. We expect the
2001 combination of our Engine Systems and Fluid Systems business units and the
2002 combination of our Commercial Vehicle Systems and Off-Highway Systems
business units to improve our capital efficiency and better leverage the
manufacturing, engineering and support capabilities of the combined units. On
the operational side, we are focused on outsourcing non-core manufacturing
activity, reducing working capital and managing for cash.
Evaluate Strategic Alliances, Joint Ventures and Selected Divestiture and
Acquisition Opportunities. Among the keys to our business model is the concept
of capitalizing on strategic alliances and joint ventures. Such relationships
offer opportunities to expand our capabilities with a reduced level of
investment and enhance our ability to provide the full scope of services
required by our customers. We have formed a number of innovative alliances,
starting with our Roadranger(TM) marketing program with Eaton, which has been
highly successful in leveraging our collective strengths to market Dana and
Eaton products for heavy truck drivetrain systems. We also have strategic
alliances with GETRAG, to strengthen our portfolio of advanced axle
technologies; Motorola, to integrate its electronic expertise into the
development of advanced technology for traditionally mechanical components; and
Buhler, to provide advanced automotive motor-module technologies and
manufacturing expertise to support our product applications. We continue to
evaluate potential strategic alliances and joint ventures in order to gain
access to advanced technology, strengthen our market position and our global
presence and reduce our overall manufacturing costs.
We are also continuing to evaluate non-core or under-performing operations
for possible divestiture. In October 2001, we determined that the sale of DCC's
businesses would allow us to focus on our foundation businesses, while giving
DCC's businesses an opportunity to enhance their competitive positions within
other corporate structures. We are presently pursuing the sale of DCC's
businesses and expect to divest certain other businesses which are regarded as
non-core. Since the beginning of 2000, we have divested a number of businesses
and operations, including those indicated in "Acquisition and Divestiture
Summary," and have received proceeds of approximately $817 million through March
31, 2002.
We also evaluate potential acquisition candidates that have product
platforms complementary to our foundation businesses, strong operating potential
and strong existing management teams. Although our current focus is on
divestitures, we believe that targeted acquisitions will help us achieve our
long-term objectives. We have substantial experience in completing and
integrating acquisitions that have provided us
44
with opportunities to reduce costs and improve operational efficiency through
synergies in manufacturing processes, coordination of raw material purchases,
rationalization of administrative staff, and technical capabilities.
PRODUCTS, PATENTS AND TRADEMARKS
The following table presents our sales in 2001 by foundation business, net
of intercompany sales:
PERCENTAGE
AMOUNT OF
OF CONSOLIDATED
FOUNDATION BUSINESS SALES SALES
------------------- ------------- ------------
(IN MILLIONS)
Axles....................................................... $ 3,188 31%
Brake and chassis products.................................. 1,344 13
Driveshafts................................................. 982 10
Fluid systems............................................... 831 8
Bearings and sealing products............................... 743 7
Structures.................................................. 667 6
Filtration products......................................... 573 6
Other....................................................... 1,943 19
------- ---
$10,271 100%
======= ===
We do not consider our leasing service revenue to be sales.
In each of these product lines, we manufacture and sell our products under
a number of patents which have been obtained over a period of years and expire
at various times. We consider each of these patents to be of value and
aggressively protect our rights throughout the world against infringement.
Because we are involved with many product lines, the loss or expiration of any
particular patent would not materially affect our sales and profits.
We own or have licensed numerous trademarks which are registered in many
countries, enabling us to market our products worldwide. Our Spicer(R) (axles,
transaxles, driveshafts, steering shafts and universal joints), Victor Reinz(R)
(gaskets), Wix(R) (filters), Perfect Circle(R) (piston rings and cylinder
liners), FTE(R) (clutch and brake actuation systems), and Glacier(R)
Vandervell(R) (bearings) trademarks, among others, are widely recognized in
their respective markets.
RESEARCH AND DEVELOPMENT
Our objective is to offer superior quality, technologically advanced
products and systems to our customers at competitive prices. To this end, we
engage in ongoing engineering, research and development activities to improve
the reliability, performance and cost-effectiveness of existing products and to
design and develop new products for existing and new applications. Our spending
on engineering, research and development and quality control programs was $290
million in 1999, $287 million in 2000 and $260 million in 2001. Research and
development activities are concentrated in specialized research and development
centers located around the world. Many of our research and development
activities are performed on a collaborative basis with our OE customers.
CUSTOMERS
We have thousands of customers around the world and have developed
long-standing business relationships with many of them. Our attention to
quality, delivery and service has been recognized by numerous customers who have
presented us with supplier quality awards. Ford and DaimlerChrysler were the
only individual customers accounting for more than 10% of our consolidated sales
in 2001. We have been supplying products to these companies and their
subsidiaries for many years. In 1999, 2000 and 2001, sales to Ford, as a
percentage of total sales, were 16%, 19% and 18%, respectively, and sales to
DaimlerChrysler were 14%, 14% and 11%, respectively.
45
GEOGRAPHICAL AREAS
We maintain administrative organizations in four regions -- North America,
Europe, South America and Asia/Pacific -- to facilitate financial and statutory
reporting and tax compliance on a worldwide basis and to support the SBUs.
Our operations are located in the following countries (shown by the regions
in which we administer them):
NORTH AMERICA EUROPE SOUTH AMERICA ASIA/PACIFIC
------------- --------------------------- ------------- ------------
Canada Austria Poland Argentina Australia
Mexico Belgium Russia Brazil China
United States France Slovakia Colombia Indonesia
Germany Spain South Africa Japan
Hungary Sweden Uruguay Singapore
India Switzerland Venezuela South Korea
Ireland Turkey Taiwan
Italy United Kingdom Thailand
Netherlands
Our non-U.S. subsidiaries and affiliates manufacture and sell a number of
products similar to those produced in the U.S. Consolidated non-U.S. sales were
$3.4 billion, or 33% of our 2001 sales. Including U.S. exports of $649 million,
non-U.S. sales accounted for 39% of 2001 consolidated sales. Non-U.S. net income
was $10 million, as compared to a consolidated net loss of $298 million in 2001.
Included in net income was $24 million of equity in earnings of non-U.S.
affiliates in 2001.
PROPERTIES
As shown in the following table, at December 31, 2001, we had more than 430
manufacturing, distribution and service branch or office facilities worldwide.
We own the majority of our manufacturing and larger distribution facilities. We
lease certain manufacturing facilities and most of our smaller distribution
outlets and financial service branches and offices.
FACILITIES BY GEOGRAPHIC REGION
(AS OF DECEMBER 31, 2001)
NORTH SOUTH ASIA/
TYPE OF FACILITY AMERICA EUROPE AMERICA PACIFIC TOTAL
---------------- ------- ------ ------- ------- -----
Manufacturing........................................ 152 62 44 11 269
Distribution......................................... 37 13 40 3 93
Service branches, offices............................ 49 10 6 4 69
--- -- -- -- ---
Total.............................................. 238 85 90 18 431
--- -- -- -- ---
MATERIAL SOURCE AND SUPPLY
Most of the raw materials (such as steel) and semi-processed or finished
items (such as forgings and castings) used in our products are purchased from
long-term suppliers located within the geographic regions of our operating
units. Generally, these materials are available from numerous qualified sources
in quantities sufficient for our needs. Temporary shortages of a particular
material or part occasionally occur, but we do not consider the overall
availability of materials to be a significant risk factor for our operations.
46
SEASONALITY
Our businesses are not highly seasonal. However, sales to our OEM customers
are closely related to the production schedules of those manufacturers and
historically these schedules have been strongest in the first two quarters of
each year.
BACKLOG
Generally, our products are not on a backlog status, since they are
produced from readily available materials and have relatively short
manufacturing cycles. Each of our operating units maintains its own inventories
and production schedules and many of our products are available from more than
one facility. In connection with our October 2001 restructuring plan, we have
been evaluating the production capacity for many of our products and the
potential for outsourcing non-core content. As of March 31, 2002, we had
announced the closure of 28 facilities, and we expect to announce additional
closures in 2002 as we continue to implement this plan. These actions will
enable us to eliminate excess capacity and lower our break-even point.
COMPETITION
In our foundation businesses, we compete worldwide with a number of other
manufacturers and distributors which produce and sell similar products. These
competitors include Visteon and Delphi, large parts manufacturers that
previously were vertically-integrated units of Ford and General Motors, and a
number of other U.S. and non-U.S. suppliers. Our traditional U.S.-based OE
customers, facing substantial foreign competition, have expanded their worldwide
sourcing of components to better compete with lower cost imports. In addition,
these customers have been shifting research and development, design and
validation responsibilities to their key suppliers, focusing on stronger
relationships with fewer suppliers. We have established operations throughout
the world to enable us to meet these competitive challenges and to be a strong
global supplier of our core products.
In the area of leasing services, we compete in selected markets with
various international, national and regional leasing and finance organizations.
EMPLOYMENT
Our worldwide employment (including consolidated subsidiaries) was
approximately 70,000 at March 31, 2002. We believe that our relations with our
employees are good.
ENVIRONMENTAL COMPLIANCE
We make capital expenditures in the normal course of business as necessary
to ensure that our facilities are in compliance with applicable environmental
laws and regulations. The cost of environmental compliance was not a material
part of our capital expenditures and did not have a material adverse effect on
our earnings or competitive position in 2001. We do not anticipate that future
environmental compliance costs will be material.
ACQUISITION AND DIVESTITURE SUMMARY
In 2000, we completed several divestitures in the first quarter, including
Gresen Hydraulics and portions of our constant velocity joint business, most of
Warner Electric, and Commercial Vehicle Cab Systems. A number of strategic
acquisitions and investments also closed in 2000, including the cardan
driveshaft business of GKN plc in January, the automotive axle manufacturing and
stamping operations of Invensys plc in July and equity interests in GETRAG, a
manufacturer of transmissions, transaxles, axles and other automotive components
operating in Europe and North America in November. We also continued integrating
AAG warehouse operations obtained as part of the Echlin merger.
In 2001, we completed several divestitures, including Mr. Gasket, Inc., a
wholly-owned subsidiary that distributed performance replacement parts, in the
first quarter; our Marion, Ohio forging facility and the assets of our Dallas,
Texas and Washington, Missouri EFMG operations in the second quarter; and our
Chelsea
47
power take-off and Glacier industrial polymer bearings businesses in the third
quarter. In the fourth quarter, we announced our intention to sell the
businesses of DCC. Our acquisition activity was limited in 2001. In the second
quarter, we acquired the remaining 51% equity interest in Danaven, a Venezuelan
operation in which we had previously held a minority position.
In the second quarter of 2002 we sold selected DCC subsidiaries, pursuant
to our previously announced plans to divest DCC's businesses.
LEGAL PROCEEDINGS
We are a party to various pending judicial and administrative proceedings
arising in the ordinary course of business. After reviewing the proceedings that
are currently pending (including the probable outcomes, reasonably anticipated
costs and expenses, availability and limits of our insurance coverage, 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of pending claims, including those
relating to asbestos exposure.
We are not currently a party to any of the environmental proceedings
involving governmental agencies which the SEC requires companies to report.
48
MANAGEMENT
The following table sets forth the name, age and position of our directors
and executive officers. The first four persons listed in the table are the
members of our Policy Committee, which is responsible for our corporate
strategies and partnership relations, as well as the development of our people,
policies and philosophies.
NAME AGE* TITLE
---- ---- -----
Joseph M. Magliochetti............... 60 Chairman of the Board, Chief Executive Officer,
President and Chief Operating Officer
Robert C. Richter.................... 50 Vice President and Chief Financial Officer,
Chairman -- Dana Credit Corporation
William J. Carroll................... 57 President -- Automotive Systems Group
Marvin A. Franklin, III.............. 54 President -- Dana International & Global Initiatives
Bernard N. Cole...................... 59 President -- Heavy Vehicle Technologies and Systems
Group
James M. Laisure..................... 50 President -- Engine and Fluid Management Group
Terry R. McCormack................... 51 President -- Automotive Aftermarket Group
Richard J. Westerheide............... 50 Chief Accounting Officer and Assistant Treasurer
Benjamin F. Bailar................... 68 Director
A. Charles Baillie................... 62 Director
Edmund M. Carpenter.................. 60 Director
Eric Clark........................... 67 Director
Glen H. Hiner........................ 67 Director
James P. Kelly....................... 58 Director
Marilyn R. Marks..................... 49 Director
Richard B. Priory.................... 55 Director
Fernando M. Senderos................. 52 Director
---------------
* At May 1, 2002
Joseph M. Magliochetti has been Chairman of the Board since 2000, Chief
Executive Officer since 1999, President since 1996, Chief Operating Officer
since 1997 and a director since 1996. He is also a director of BellSouth
Corporation and CIGNA Corporation.
Robert C. Richter has been Vice President and Chief Financial Officer since
1999 and Chairman -- Dana Credit Corporation since February 1, 2002. He was
previously Vice President -- Finance and Administration, 1998-99; Vice
President -- Administration, 1997-98; General Manager -- Perfect Circle Sealed
Power Europe, 1997; and Vice President and General Manager -- Perfect Circle
Europe, 1994-97.
William J. Carroll has been President -- Automotive Systems Group and
Chairman of DTF Trucking, Inc. since 1997. He was previously
President -- Diversified Products & Distribution, 1996-97; President -- Dana
Distribution Service Group, 1995-97; President -- DTF Trucking, 1985-97;
Chairman of the Board of Dana Canada Inc. (a Dana subsidiary in Canada),
1995-97, and President, 1993-97.
Marvin A. Franklin, III has been President -- Dana International & Global
Initiatives since 2000. He was previously President -- Dana International,
1997-2000, and President -- Dana Europe, 1993-97.
Bernard N. Cole has been President -- Heavy Vehicle Technologies and
Systems Group since April 2002. He was previously President -- Off-Highway
Systems Group, 1997-2002 and President -- Commercial Vehicle Systems,
February -- April 2002. He has also been Chairman of Dana India Pvt. Ltd. since
2001. He was previously President -- Structural Components Group, 1995-97.
49
James M. Laisure has been President -- Engine and Fluid Management Group
since November 2001. He was previously President -- Fluid Systems Group,
2000-01; Group Vice President -- Fluid Systems Group, 1999-2000; and Vice
President -- Modules and Systems Group, 1996-99.
Terry R. McCormack has been President -- Automotive Aftermarket Group since
2000. He was previously President of Wix Worldwide Filtration, 2000; Vice
President and General Manager -- Wix Division -- North America, 1998-2000; and
Vice President -- Distribution Services Division, 1996-98, and General Manager,
1995-98.
Richard J. Westerheide has been Chief Accounting Officer since June 1,
2002, and Assistant Treasurer since April 16, 2002. He was previously Group
Controller-Engine Management Group, 2000-02; Vice President -- Finance, Dana
Credit Corporation, 2000, and Director of Accounting and Financial Reporting,
1998-2000; and Director of Accounting and Business Advisory Services, Price
Waterhouse LLP, 1991-98.
Benjamin F. Bailar has been a director since 1980. He has been Dean and
Professor of Administration Emeritus, Jesse H. Jones Graduate School of
Administration, Rice University, since 1997, and was Dean and Professor of
Administration from 1987 to 1997. He is also a director of Smith International,
Inc. and Trico Marine Services, Inc.
A. Charles Baillie has been a director since 1998. He has been Chairman and
Chief Executive Officer of The Toronto-Dominion Bank since 1997 and President of
Toronto-Dominion since 1995.
Edmund M. Carpenter has been a director since 1991. He has been President
and Chief Executive Officer of the Barnes Group (a diversified international
company that serves a range of industrial and transportation markets) since
1998. He was previously Senior Managing Director of Clayton, Dubilier & Rice (a
private equity firm specializing in management buyouts) from 1996 to 1998. He is
also a director of Campbell Soup Company.
Eric Clark has been a director since 1994 and was a member of the Dana
Europe Advisory Board from 1991 to 1999. He was a director of BICC plc (a United
Kingdom company serving the international market for infrastructure
development), 1985 to 1996, and Chairman and Managing Director of BICC Cables
Limited, 1986 to 1996.
Glen H. Hiner has been a director since 1993. He was Chairman and Chief
Executive Officer of Owens Corning (a manufacturer of advanced glass and
composite materials) from 1992 through April 18, 2002. In October 2000, Owens
Corning filed a voluntary petition for relief under Chapter 11 of the Bankruptcy
Code. He is also a director of Prudential Financial Inc. and Kohler Company.
James P. Kelly has been a director since April 2002. He was Chairman and
Chief Executive Officer of United Parcel Service, Inc. from 1997 to January
2002. He is also a director of BellSouth Corporation and United Parcel Service,
Inc.
Marilyn R. Marks has been a director since 1994. She was Chairman of the
Board of Dorsey Trailers, Inc. (a manufacturer of truck trailers) from 1987 to
2000 and Chief Executive Officer of Dorsey from 1987 to 1999. She was Chairman
and Chief Executive Officer of TruckBay.com, Inc. (an internet source for goods
and services serving the trucking industry) from December 1999 to December 2000.
In December 2000, Dorsey Trailers, Inc. filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code. She is also a director of the Eastman
Chemical Company.
Richard B. Priory has been a director since 1996. He has been Chairman,
President and Chief Executive Officer of Duke Energy Corporation (a supplier of
energy and related services) since 1997. He was previously President and Chief
Operating Officer of Duke Power Company, from 1994 to 1997. He is also a
director of U.S. Airways, Inc. and Duke Fluor Daniel Company.
Fernando M. Senderos has been a director since 2000. He has been Chairman
of the Board and Chief Executive Officer of DESC, S.A. de C.V. (a Mexican
diversified holding company engaged in the auto parts, chemical, food and real
estate businesses) since 1989. He was Chairman of the Board of the following
wholly-owned subsidiaries of DESC: Unik, S.A. de C.V. (Unik) from 1991 through
2001, Girsa, S.A. de C.V. from
50
1989 through 2001, and Dine, S.A. de C.V. from 1981 through 2001. He is also a
director of Industrias Penoles, S.A. de C.V. (a Mexican natural resources
industrial group), Televisa, S.A. de C.V. (a Spanish language entertainment
business), Telefonos de Mexico, S.A. de C.V. (a business providing telephone and
internet access services throughout Mexico), Kimberly Clark de Mexico, S.A. de
C.V. (a manufacturer and distributor of consumer, industrial, and institutional
hygiene products), and Alfa, S.A. de C.V. (which, through subsidiaries, operates
petrochemical, steel, synthetic fiber, food, auto parts, and telecommunications
businesses). Unik owns a majority interest in Spicer S.A. de C.V., a Dana
affiliate in Mexico.
51
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR NOTES
At December 31, 2001, Dana Corporation had issued and there were
outstanding notes in aggregate principal amount of $2,201 million. The following
series of notes are collectively referred to as the "Prior Notes":
- 9% Notes due 2011, in aggregate principal amount of $575 million;
- 9% Notes due 2011, in aggregate principal amount of E200 million;
- 6.25% Notes due 2004, in aggregate principal amount of $250 million;
- 6.50% Notes due 2009, in aggregate principal amount of $350 million;
- 6.50% Notes due 2008, in aggregate principal amount of $150 million;
- 7.00% Notes due 2028, in aggregate principal amount of $197 million; and
- 7.00% Notes due 2029, in aggregate principal amount of $375 million.
The 9% Notes due 2011 were issued pursuant to an indenture dated as of
August 8, 2001, between Dana, Citibank, N.A., as Trustee and as Registrar and
Paying Agent for the $575 million of Notes denominated in U.S. dollars, and
Citibank, N.A., London Branch, as Registrar and Paying Agent for the E200
million of Notes denominated in euros. This indenture is referred to as the
"2001 Indenture."
The Prior Notes, other than the 9% Notes due 2011, were issued pursuant to
an indenture dated as of December 15, 1997, between Dana and Citibank, N.A. as
Trustee and a First Supplemental Indenture and a Second Supplemental Indenture
dated as of March 11, 1998 and February 26, 1999, respectively. This indenture
and its supplements are referred to as the "1997 Indenture."
On March 11, 2002, we issued the Outstanding Notes. See "Description of the
Notes," below.
All series of the Prior Notes, as well as the Outstanding Notes, are
unsecured and are ranked pari passu with one another and with all of our other
unsecured and unsubordinated indebtedness. Neither the Prior Notes nor the
Outstanding Notes have the benefit of a sinking fund. We may redeem the Prior
Notes pursuant to the 1997 Indenture and the 2001 Indenture, as applicable, in
whole or in part at any time prior to their maturity pursuant to make-whole
provisions.
There are covenants in the 1997 Indenture which prohibit us from engaging
in:
- the incurrence or guarantee of debt secured by real property of value in
excess of 2% of our consolidated net tangible assets; and
- certain sale and leaseback transactions of a term longer than three
years.
There are covenants in the 2001 Indenture which, among other things, limit
our ability and the ability of our restricted subsidiaries to:
- incur additional indebtedness and issue preferred stock;
- pay dividends or make certain other restricted payments, including
investments;
- incur liens;
- sell assets;
- enter into agreements that restrict distributions from restricted
subsidiaries;
- enter into sale and leaseback transactions;
- engage in transactions with affiliates; and
- enter into certain mergers and consolidations.
52
These covenants are substantially the same as the covenants related to the
Notes. If the 9% Notes due 2011 and the Notes receive investment grade ratings
by both S&P and Moody's, subject to certain additional conditions, we will no
longer be required to comply with these covenants, and substituted forms of
negative pledge, sale and leaseback, and merger and consolidation covenants will
apply to us and our restricted subsidiaries. See "Description of the
Notes -- Certain Covenants -- Application of Fall Away Covenants and Covenant
Substitution."
The foregoing summary of the material provisions of the 1997 Indenture and
the 2001 Indenture is qualified in its entirety by reference to the documents
themselves, which have been filed with the SEC. See "Where You Can Find More
Information."
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
In March 2001, we established a $400 million accounts receivable
securitization program which has a term expiring in 2006. Under the program,
certain of our divisions and subsidiaries either sell or contribute accounts
receivable to Dana Asset Funding LLC (DAF), a special purpose entity. DAF funds
its accounts receivable purchases in part by pledging the receivables it
purchases as collateral for short-term loans from participating banks. At March
31, 2002, DAF had borrowed $400 million under the program and used the proceeds
to fund the purchase of accounts receivable. We have used the sale proceeds
received from DAF to reduce other debt.
We own, directly or indirectly, virtually all of the membership interests
in DAF. The securitized accounts receivable are owned in their entirety by DAF
and are not available to satisfy claims of our creditors. However, we are
entitled to any dividends paid by DAF and would be entitled to proceeds from the
liquidation of DAF's assets upon the termination of the securitization program
and the dissolution of DAF. DAF's receivables are included in our consolidated
financial statements solely because DAF does not meet certain technical
accounting requirements for treatment as a "qualifying special purpose entity"
under GAAP. Accordingly, the sales and contributions of the accounts receivable
are eliminated in consolidation and the loans to DAF are reflected as short-term
borrowings in our consolidated financial statements.
Although we are entitled to any dividends paid by DAF, our agreements with
the banks and receivables investors prevent DAF from declaring or making any
distributions of assets or cash. The accounts receivable securitization program
is subject to certain events of termination, including events of termination
based upon tests with respect to our credit rating and the quality of our
receivables. As of March 31, 2002, we were rated BB by S&P and Ba3 by Moody's.
At these ratings, a downgrade of two levels by S&P or any downgrade by Moody's
would entitle the lenders to terminate this program.
MEDIUM-TERM BANK LOANS
As of December 31, 2001, we had an aggregate principal amount of $135
million outstanding under medium-term bank loans (the Medium-Term Loans),
pursuant to loan agreements with three banks dated variously from January 6,
1997 through January 28, 1997. All of the Medium-Term Loans matured and were
repaid in January 2002.
REVOLVING CREDIT FACILITIES
On December 19, 2001, we entered into a new 364-day facility maturing on
December 18, 2002 (the 364-day facility) and amended our 5-year facility
maturing on November 15, 2005 (the 5-year facility, and together with the
364-day facility, the Revolver Facilities). Citibank, N.A. is the administrative
agent, on behalf of itself and the other banks, who are parties to the Revolver
Facilities (the Revolver Lenders). The 364-day facility had a maximum borrowing
capacity of $250 million and the 5-year facility has a maximum borrowing
capacity of $500 million. On July 15, 2002 the 364-day facility was amended,
reducing the maximum borrowing capacity thereunder to $100 million.
53
Advances under the Revolver Facilities may be made as revolving credit
advances. The interest rates payable upon advances are based on floating
reference rates, either Citibank's base rate or LIBOR, plus a margin based upon
our then-current credit ratings.
Our obligations to the lenders under the Revolver Facilities are unsecured.
Both Revolver Facilities require us to maintain financial ratios at fiscal
quarter ends of:
- net senior debt to tangible net worth of not more than: 1.70:1 as of June
30, 2002; 1.40:1 as of September 30, 2002 and December 31, 2002; and
1.10:1 thereafter;
- EBITDA minus capital expenditures to interest expense of not less than:
1.40:1 as of June 30, 2002 and September 30, 2002; and 2.50:1 as of
December 31, 2002 and thereafter; and
- net senior debt to EBITDA of not greater than: 4.70:1 as of June 30,
2002; 3.75:1 as of September 30, 2002; 3:00:1 as of December 31, 2002;
and 2.50:1 as of March 31, 2003 and thereafter.
For purposes of these ratios, EBITDA means net income or net loss, plus the sum
of (a) interest expense, (b) income tax expense, (c) depreciation expense, (d)
amortization expense, (e) non-recurring non-cash charges and (f) pre-tax cash
restructuring expenses in an amount up to $500 million from October 1, 2001 and
before March 31, 2003, minus (x) non-cash non-recurring gains, (y) minority
interest in net income of consolidated subsidiaries and (z) equity in earnings
of affiliates, in each case as determined in accordance with GAAP. For purposes
of these ratios, Dana's investment in DCC is accounted for on the equity method
of accounting.
The Revolver Facilities also subject us and certain of our subsidiaries to
various customary non-financial covenants. In addition, any acquisition of
beneficial ownership (within the meaning of Rule 13d-3 of the SEC under the
Exchange Act) of 20% or more of our common stock by any person(s) may be treated
as an event of default.
As of March 31, 2002, there were no amounts outstanding under the 364-day
facility, and $15 million was outstanding under the 5-year facility. Borrowings
under the 5-year facility had a weighted average interest rate as of March 31,
2002, of approximately 5.75%.
DCC OPERATING AGREEMENT
Dana and DCC are parties to an operating agreement (the Operating
Agreement) pursuant to which Dana has agreed, so long as any debt of DCC is
outstanding, to maintain DCC's fixed charge coverage ratio, debt to capital
ratio, ownership and consolidated net worth at certain levels.
DCC MEDIUM-TERM BANK/INSURANCE COMPANY LOANS
As of December 31, 2001, DCC had an aggregate principal amount of $472
million outstanding under medium-term bank loan agreements with seven banks
dated variously from February 14, 1996 to November 6, 2000, and medium-term loan
agreements with 22 insurance companies dated variously from March 20, 1997, to
June 20, 2000 (the DCC Medium-Term Loans). Of this amount, $50 million matured
and was repaid in the first quarter of 2002, and $8 million matured and was
repaid in April 2002.
The currently outstanding DCC Medium-Term Loans mature as follows:
- $15 million on July 24, 2002; and
- $399 million from 2003 through 2007.
The DCC Medium-Term Loans are unsecured and are ranked pari passu with each
other and with all of DCC's other unsecured and unsubordinated debt. The DCC
Medium-Term Loans had a weighted average interest rate as of March 31, 2002, of
6.77%.
The DCC Medium-Term Loans prohibit any termination or amendment (other than
certain permitted amendments) of the Operating Agreement without the consent of
the lenders under the DCC Medium-Term
54
Loans. In addition, if the covenants set forth in the Operating Agreement are
not satisfied an event of default may occur under the DCC Medium-Term Loans.
DCC MEDIUM-TERM NOTES
During 1999, DCC established a $500 million Medium-Term Note Program. Notes
under this program (DCC Medium-Term Notes) are offered on terms determined at
the time of issuance. As of March 31, 2002, the aggregate principal amount
outstanding was $500 million, consisting of the following:
- 7.25% Notes due December 16, 2002, in aggregate principal amount of $175
million;
- 7.95% Notes due September 15, 2003, in aggregate principal amount of $5
million;
- LIBOR-based floating rate notes due September 15, 2003, in aggregate
principal amount of $20 million;
- LIBOR-based floating rate notes due October 2, 2003, in aggregate
principal amount of $25 million; and
- 8.375% Notes due August 15, 2007, in aggregate principal amount of $275
million.
The DCC Medium-Term Notes are unsecured and are ranked pari passu with each
other and with all of DCC's other unsecured and unsubordinated indebtedness.
The DCC Medium-Term Notes contain certain customary non-financial covenants
and a negative pledge covenant. In addition, if there is a failure to comply
with any material provision of the Operating Agreement or the Operating
Agreement ceases to be in full force and effect, an event of default under the
DCC Medium-Term Notes may occur.
DCC REVOLVING CREDIT FACILITIES
DCC currently has a 5-year revolving credit facility, which has an
aggregate maximum borrowing capacity of $250 million. Bank of America, N.A. is
administrative agent on behalf of itself and 13 other banks (the DCC 5-Year
Revolver Lenders). The DCC 5-year facility matures on June 28, 2004.
Interest rates payable upon advances under the facility are based upon
floating reference rates, plus a margin based in part upon DCC's then-current
credit rating.
Advances under the DCC 5-year facility may be made as revolving credit
advances (either as base rate advances or LIBOR-based advances) or as
competitive bid advances (either as fixed rate advances or LIBOR-based
advances).
Obligations to the DCC 5-Year Revolver Lenders are unsecured and are ranked
pari passu with all of DCC's other unsecured and unsubordinated indebtedness.
As of March 31, 2002, approximately $168 million was outstanding under the
DCC 5-year facility and the weighted average interest rate was 3.29%.
As of March 31, 2002, approximately $53 million was outstanding under a now
matured 364-day revolving credit facility and the weighted average interest rate
was 3.26%; amounts outstanding under this facility were repaid on its maturity
in June 2002.
The DCC 5-year facility contains certain customary non-financial covenants,
requires DCC to maintain the same financial covenants as are set forth in the
Operating Agreement, and prohibits the termination or amendment (other than
certain permitted amendments) of the Operating Agreement without the consent of
the lenders. In addition, any acquisition of beneficial ownership (within the
meaning of Rule 13d-3 of the SEC under the Exchange Act) of 20% or more of
Dana's common stock by any person(s) may be treated as an event of default.
55
EXCHANGE OFFER
REASONS FOR THE EXCHANGE OFFER
Dana and the initial purchasers entered into a registration rights
agreement in connection with the issuance of the Outstanding Notes. The
registration rights agreement provides that we will take the following actions
at our expense, for the benefit of the holders of the Outstanding Notes:
- we will file the exchange offer registration statement, of which this
prospectus is a part. The Exchange Notes will have terms substantially
identical in all material respects to the Outstanding Notes except that
the Exchange Notes will not contain transfer restrictions;
- we will cause the exchange offer registration statement to be declared
effective under the Securities Act by December 11, 2002; and
- we will keep the exchange offer open for at least 20 business days, or
longer if required by applicable law, after the date on which notice of
the exchange offer is mailed to the holders.
The holder of each outstanding note surrendered in the exchange offer will
receive an exchange note having a principal amount equal to that of the
surrendered note. Interest on each exchange note will accrue from the later of
(1) the last interest payment date on which interest was paid on the outstanding
note surrendered or (2) if no interest has been paid on the outstanding note,
from March 11, 2002.
If:
- we determine that because of any change in law or in applicable
interpretations of the law by the staff of the SEC, we are not permitted
to effect an exchange offer;
- the exchange offer is not consummated by December 11, 2002; or
- the exchange offer has been completed and in the reasonable opinion of
counsel for the initial purchasers a resale registration statement must
be filed and a prospectus must be delivered by the initial purchasers in
connection with any offering or sale of registrable securities,
then we will file as promptly as practicable, with the SEC, a shelf registration
statement to cover resales of transfer restricted securities by those holders
who satisfy various conditions relating to the provision of information in
connection with the shelf registration statement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all Outstanding Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer. We will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of Outstanding
Notes accepted in the exchange offer. Any holder may tender some or all of its
Outstanding Notes pursuant to the exchange offer. However, Outstanding Notes may
be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Outstanding Notes except that:
(1) the Exchange Notes will have been registered under the Securities Act
and hence will not bear legends restricting their transfer; and
(2) the holders of the Exchange Notes will not be entitled to certain
rights under the registration rights agreement, including the provisions
providing for an increase in the interest rate on the Outstanding Notes in
certain circumstances relating to the timing of the exchange offer, all of which
rights will terminate when the exchange offer is terminated.
The Exchange Notes will evidence the same debt as the Outstanding Notes and
will be entitled to the benefits of the indenture.
56
The exchange offer is not conditioned on any minimum aggregate principal
amount of Outstanding Notes being tendered for exchange.
As of the date of this prospectus, $250 million aggregate principal amount
of the Outstanding Notes were outstanding. We have fixed the close of business
on , 2002 as the record date for the exchange offer for purposes of
determining the persons to whom this prospectus and the letter of transmittal
will be mailed initially.
Holders of Outstanding Notes do not have any appraisal or dissenters'
rights under the Virginia Stock Corporation Act or the indenture in connection
with the exchange offer. We intend to conduct the exchange offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the SEC.
We will be deemed to have accepted validly tendered Outstanding Notes when,
as and if we have given oral or written notice of our acceptance to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from us.
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of specified other events set forth in this
prospectus or otherwise, the certificates for such unaccepted Outstanding Notes
will be returned, without expense, to the tendering holder as promptly as
practicable after the expiration date of the exchange offer.
Holders who tender Outstanding Notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the exchange offer. We will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection with
the exchange offer. See "-- Fees and Expenses" and "-- Transfer Taxes."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" will mean 5:00 p.m., New York City time, on
, 2002, unless we, in our sole discretion, extend the exchange offer,
in which case the term will mean the latest date and time to which the exchange
offer is extended.
In order to extend the exchange offer, we will notify the exchange agent
orally, confirmed in writing, or in writing, of any extension. We will notify
the registered holders of Outstanding Notes by public announcement of the
extension no later than 9:00 a.m., New York City time, on the business day after
the previously scheduled expiration of the exchange offer.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Outstanding Notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the date of issuance of the
Exchange Notes. Such interest will be paid with the first interest payment on
the Exchange Notes on September 15, 2002. Interest on the Outstanding Notes
accepted for exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes will be payable semi-annually on each March
15 and September 15, commencing on September 15, 2002. For more information
regarding the terms of the Exchange Notes, see "Description of the Notes."
57
PROCEDURES FOR TENDERING
We have forwarded to you, along with this prospectus, a letter of
transmittal relating to the exchange offer. Because all of the Outstanding Notes
are held in book-entry accounts maintained by the exchange agent at DTC, a
holder need not submit a letter of transmittal if the holder tenders Outstanding
Notes in accordance with the procedures mandated by DTC's Automated Tender Offer
Program (ATOP). To tender Outstanding Notes without submitting a letter of
transmittal, the electronic instructions sent to DTC and transmitted to the
exchange agent must contain your acknowledgment of receipt of and your agreement
to be bound by and to make all of the representations contained in the letter of
transmittal. In all other cases, a letter of transmittal must be manually
executed and delivered as described in this prospectus.
Only a holder of record may tender Outstanding Notes in the exchange offer.
To tender in the exchange offer, a holder must comply with the procedures of DTC
and either:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and deliver the
letter of transmittal or facsimile to the exchange agent prior to the
expiration date; or
- in lieu of delivering a letter of transmittal, instruct DTC to transmit
on behalf of the holder a computer-generated message to the exchange
agent in which the holder of the Outstanding Notes acknowledges and
agrees to be bound by the terms of the letter of transmittal, which
computer-generated message must be received by the exchange agent prior
to 5:00 p.m., New York City time, on the expiration date.
In addition, either:
- the exchange agent must receive the Outstanding Notes along with the
letter of transmittal; or
- with respect to the Outstanding Notes, the exchange agent must receive,
before expiration of the exchange offer, timely confirmation of
book-entry transfer of the Outstanding Notes into the exchange agent's
account at DTC according to the procedure for book-entry transfer
described below; or
- the holder of Outstanding Notes must comply with the guaranteed delivery
procedures described below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under the caption "-- Exchange Agent" before expiration
of the exchange offer. To receive confirmation of valid tender of Outstanding
Notes, a holder should contact the exchange agent at the telephone number listed
under the caption "-- Exchange Agent."
The tender by a holder that is not withdrawn before expiration of the
exchange offer will constitute an agreement between that holder and us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal. If a holder completing a letter of
transmittal tenders less than all of its Outstanding Notes, the tendering holder
should fill in the applicable box of the letter of transmittal. The amount of
Outstanding Notes delivered to the exchange agent will be deemed to have been
tendered unless otherwise indicated.
If the Outstanding Notes, the letter of transmittal or any other required
documents are physically delivered to the exchange agent, the method of delivery
is at the holder's election and risk. Rather than mail these items, we recommend
that holders use an overnight or hand delivery service. In all cases, holders
should allow sufficient time to assure delivery to the exchange agent before
expiration of the exchange offer. Holders should not send the letter of
transmittal or Outstanding Notes to us. Holders may request their respective
brokers, dealers, commercial banks, trust companies or other nominees to effect
the above transactions for them.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owner's behalf. If the beneficial owner wishes to tender on its
58
own behalf, it must, prior to completing and executing the letter of transmittal
and delivering its Outstanding Notes, either:
- make appropriate arrangements to register ownership of the Outstanding
Notes in the owner's name; or
- obtain a properly completed bond power from the registered holder of
Outstanding Notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
If the letter of transmittal is signed by the record holder(s) of the
Outstanding Notes tendered, the signature must correspond with the name(s)
written on the face of the Outstanding Notes without alteration, enlargement or
any change whatsoever. If the applicable letter of transmittal is signed by a
participant in DTC, the signature must correspond with the name as it appears on
the security position listing as the holder of the Outstanding Notes.
A signature on a letter of transmittal or a notice of withdrawal must be
guaranteed by an "eligible institution." Eligible institutions include banks,
brokers, dealers, municipal securities dealers, municipal securities brokers,
government securities dealers, government securities brokers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations. The signature need not be guaranteed by an
eligible institution if the Outstanding Notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
- for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any Outstanding Notes, the Outstanding Notes must be
endorsed or accompanied by a properly completed bond power. The bond power must
be signed by the registered holder as the registered holder's name appears on
the Outstanding Notes and an eligible institution must guarantee the signature
on the bond power.
If the letter of transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing. Unless we waive this
requirement, they should also submit evidence satisfactory to us of their
authority to deliver the letter of transmittal.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered Outstanding Notes. Our determination will be final and binding. We
reserve the absolute right to reject any Outstanding Notes not properly tendered
or any Outstanding Notes the acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular Outstanding Notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties.
Unless waived, any defects or irregularities in connection with tenders of
Outstanding Notes must be cured within the time that we determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
Outstanding Notes, neither we, the exchange agent nor any other person will
incur any liability for failure to give notification. Tenders of Outstanding
Notes will not be deemed made until those defects or irregularities have been
cured or waived. Any Outstanding Notes received by the exchange agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned to the exchange agent without cost to the
tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
In all cases, we will issue Exchange Notes for Outstanding Notes that we
have accepted for exchange under the exchange offer only after the exchange
agent timely receives:
- Outstanding Notes or a timely book-entry confirmation that Outstanding
Notes have been transferred in the exchange agent's account at DTC; and
59
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
Holders should receive copies of the applicable letter of transmittal with
the prospectus. A holder may obtain additional copies of the applicable letter
of transmittal for the Outstanding Notes from the exchange agent at its offices
listed under the caption "-- Exchange Agent". By signing the letter of
transmittal, or causing DTC to transmit an agent's message to the exchange
agent, each tendering holder of Outstanding Notes will represent to us that,
among other things:
- any Exchange Notes that the holder receives will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the Exchange Notes;
- if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the Exchange Notes;
- if the holder is a broker-dealer that will receive Exchange Notes for its
own account in exchange for Outstanding Notes that were acquired as a
result of market-making activities or other trading activities, that it
will deliver a prospectus, as required by law, in connection with any
resale of those Exchange Notes (see the caption "Plan of Distribution");
and
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of us or, if the holder is an affiliate, it will comply
with any applicable registration and prospectus delivery requirements of
the Securities Act.
DTC BOOK-ENTRY TRANSFER
The exchange agent has established an account with respect to the
Outstanding Notes at DTC for purposes of the exchange offer.
With respect to the Outstanding Notes, any participant in DTC may make
book-entry delivery of Outstanding Notes by causing DTC to transfer the
Outstanding Notes into the exchange agent's account in accordance with DTC's
ATOP procedures for transfer.
However, the exchange for the Outstanding Notes so tendered will only be
made after a book-entry confirmation of such book-entry transfer of the
Outstanding Notes into the exchange agent's account, and timely receipt by the
exchange agent of an agent's message and any other documents required by the
letter of transmittal. For this purpose, "agent's message" means a message,
transmitted by DTC and received by the exchange agent and forming part of a
book-entry confirmation, which states that DTC has received an express
acknowledgment from a participant tendering Outstanding Notes that are the
subject of the book-entry confirmation that the participant has received and
agrees to be bound by the terms of the letter of transmittal, and that we may
enforce that agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their Outstanding Notes but whose Outstanding
Notes are not immediately available or who cannot deliver their Outstanding
Notes, the letter of transmittal or any other required
60
documents to the exchange agent or cannot comply with the applicable procedures
described above before expiration of the exchange offer may tender if:
- the tender is made through an eligible institution;
- before expiration of the exchange offer, the exchange agent receives from
the eligible institution either a properly completed and duly executed
notice of guaranteed delivery, by facsimile transmission, mail or hand
delivery, or a properly transmitted agent's message and notice of
guaranteed delivery:
- setting forth the name and address of the holder and the registered
number(s) and the principal amount of Outstanding Notes tendered:
- stating that the tender is being made by guaranteed delivery;
- guaranteeing that, within three New York Stock Exchange trading days
after expiration of the exchange offer, the letter of transmittal, or
facsimile thereof, together with the Outstanding Notes or a book-entry
transfer confirmation, and any other documents required by the letter
of transmittal will be deposited by the eligible institution with the
exchange agent; and
- the exchange agent receives the properly completed and executed letter of
transmittal, or facsimile thereof, as well as all tendered Outstanding
Notes in proper form for transfer or a book-entry transfer confirmation,
and all other documents required by the letter of transmittal, within
three New York Stock Exchange trading days after expiration of the
exchange offer.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of Outstanding
Notes may withdraw their tenders at any time before expiration of the exchange
offer.
For a withdrawal to be effective, the exchange agent must receive a
computer-generated notice of withdrawal transmitted by DTC on behalf of the
holder in accordance with the standard operating procedures of DTC or a written
notice of withdrawal, which may be by telegram, telex, facsimile transmission or
letter, at one of the addresses set forth below under the caption "-- Exchange
Agent".
Any notice of withdrawal must:
- specify the name of the person who tendered the Outstanding Notes to be
withdrawn;
- identify the Outstanding Notes to be withdrawn, including the principal
amount of the Outstanding Notes to be withdrawn; and
- where certificates for Outstanding Notes have been transmitted, specify
the name in which the Outstanding Notes were registered, if different
from that of the withdrawing holder.
If certificates for Outstanding Notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of those
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution, unless the withdrawing holder is an eligible institution.
If Outstanding Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at DTC to be credited with the withdrawn Outstanding Notes and
otherwise comply with the procedures of the facility.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of notices of withdrawal, and our determination shall
be final and binding on all parties. We will deem any Outstanding Notes so
withdrawn not to have been validly tendered for exchange for purposes of the
exchange offer. We will
61
return any Outstanding Notes that have been tendered for exchange but that are
not exchanged for any reason to their holder without cost to the holder.
Outstanding Notes tendered by book-entry transfer into the exchange agent's
account at DTC according to the procedures described above, will be credited to
an account maintained with DTC for Outstanding Notes, as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer. You
may retender properly withdrawn Outstanding Notes by following one of the
procedures described under the caption "-Procedures for Tendering" above at any
time on or before expiration of the exchange offer.
A holder may obtain a form of the notice of withdrawal from the exchange
agent at its offices listed under the caption "-- Exchange Agent".
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange the Exchange Notes for, any
Outstanding Notes, and may terminate or amend the exchange offer as provided in
this prospectus before the acceptance of the Outstanding Notes, if:
(1) in our reasonable judgment, the Exchange Notes to be received will
not be tradeable by the holder without restriction under the Securities Act
and the Exchange Act and without material restrictions under the blue sky
or securities laws of substantially all of the states of the United States;
or
(2) any action of proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the exchange offer
which, in our sole judgment, might materially impair our ability to proceed
with the exchange offer or any material adverse development has occurred in
any existing action or proceeding with respect to us or any of our
subsidiaries; or
(3) any law, statute, rule, regulation or interpretation by the staff
of the SEC is proposed, adopted or enacted, which, in our sole judgment,
might materially impair our ability to proceed with the exchange offer or
materially impair the contemplated benefits of the exchange offer to us; or
(4) any governmental approval has not been obtained, which approval
we, in our sole discretion, deem necessary for the consummation of the
exchange offer as contemplated by this prospectus.
If we determine in our sole discretion that any of the conditions are not
satisfied, we may (1) refuse to accept any Outstanding Notes and return all
tendered Outstanding Notes to the tendering holders, (2) extend the exchange
offer and retain all Outstanding Notes tendered prior to the expiration of the
exchange offer, subject, however, to the rights of holders to withdraw the
Outstanding Notes (see "-- Withdrawal of Tenders") or (3) waive the unsatisfied
conditions with respect to the exchange offer and accept all properly tendered
Outstanding Notes which have not been withdrawn.
EXCHANGE AGENT
Citibank, N.A., has been appointed as exchange agent for the exchange
offer. Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal and requests for Notice of
Guaranteed Delivery should be directed to the exchange agent addressed as
follows:
By Registered or Certified Mail or By Hand or Overnight Delivery:
Citibank, N.A.
111 Wall Street
15th Floor
New York, New York 10005
Attention: Agency and Trust Services
Reference: Dana Corporation
By Facsimile Transmission (for eligible institutions only): (212) 825-3483
To Confirm by Telephone or for Information Call: (800) 422-2066
62
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SHOWN
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
Outstanding Notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:
- certificates representing Outstanding Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
Outstanding Notes tendered;
- Exchange Notes are to be delivered to, or issued in the name of, any
person other than the registered holder of the Outstanding Notes;
- tendered Outstanding Notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
Outstanding Notes under the exchange offer;
If satisfactory evidence of payment of transfer taxes is not submitted with
the letter of transmittal, the amount of any transfer taxes will be billed to
the tendering holder.
FEES AND EXPENSES
We will bear the expense of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telecopy, telephone or in person by our and our affiliates' officers
and employees.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses incurred in connection with these services.
We will pay the cash expenses to be incurred in connection with the
exchange offer. Such expenses include fees and expenses of the exchange agent
and trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, which is face value, as reflected in our accounting records
on the date of the exchange. Accordingly, we will not recognize any gain or loss
for accounting purposes as a result of the exchange offer. Expenses incurred in
connection with the exchange offer will be deferred and charged to expense over
the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Outstanding Notes that are not exchanged for Exchange Notes pursuant to
the exchange offer will remain restricted securities. Accordingly, such
Outstanding Notes may be resold only:
(1) to us upon redemption thereof or otherwise;
(2) so long as the Outstanding Notes are eligible for resale pursuant
to Rule 144A under the Securities Act, to a person inside the United States
whom the seller reasonably believes is a qualified institutional buyer
within the meaning of Rule 144A in a transaction meeting the requirements
of Rule 144A, in accordance with Rule 144A, or pursuant to another
exemption from the registration
63
requirements of the Securities Act, which other exemption is based upon an
opinion of counsel reasonably acceptable to us;
(3) outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act; or
(4) pursuant to an effective registration statement under the
Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States.
RESALE OF THE EXCHANGE NOTES
Based on existing interpretations of the Securities Act by the staff of the
SEC contained in several no-action letters to third parties, we believe that the
Exchange Notes will be freely transferable by holders of the Notes, except as
set forth below, without further registration under the Securities Act. See
Shearman & Sterling (available July 2, 1993); Morgan Stanley & Co. Incorporated
(available June 5, 1991); and Exxon Capital Holdings Corporation (available May
13, 1989). Holders of Outstanding Notes, however, who are our affiliates, who
intend to participate in the exchange offer for purposes of distributing the
exchange securities, or who are broker-dealers who purchased the Outstanding
Notes from us for resale, will not be able to freely offer, sell or transfer the
Exchange Notes pursuant to this prospectus, and will need to comply with
separate (resale) registration and prospectus delivery requirements of the
Securities Act in connection with any offer, sale or transfer of Notes.
Each holder who is eligible to and wishes to exchange its Outstanding Notes
for Exchange Notes will be required to make the following representations:
- any Exchange Notes to be received by the holder will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes;
- the holder is not an affiliate as defined in Rule 405 promulgated under
the Securities Act, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act;
- if the holder is not a broker-dealer, it is not engaged in, and does not
intend to engage in, the distribution of Exchange Notes;
- if the holder is a broker-dealer that will receive Exchange Notes for its
own account in exchange for Outstanding Notes that were acquired as a
result of market-making activities or other trading activities (we refer
to these broker-dealers as participating broker-dealers), the holder will
deliver a prospectus in connection with any resale of the Exchange Notes;
and
- the holder is not acting on behalf of any person or entity that could not
truthfully make these representations.
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DESCRIPTION OF THE NOTES
GENERAL
The Outstanding Notes were, and the Exchange Notes will be, issued under an
indenture dated as of March 11, 2002 (the indenture) between Dana and Citibank,
N.A., as trustee (the Trustee). The Outstanding Notes were, and the Exchange
Notes will be, subject to all the terms of the indenture, and holders of Notes
are referred to the indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the indenture does not
purport to be complete and is qualified in its entirety by reference to the
indenture, including the definitions therein of certain capitalized terms used
below. The definitions of certain capitalized terms used in the following
summary are set forth below under "-- Certain Definitions" or are otherwise
defined in the indenture. Unless otherwise specifically indicated, all
references in this section to "Dana" are to Dana Corporation and not to any of
its Subsidiaries.
The Outstanding Notes have been issued in an aggregate principal amount of
$250 million and were issued in denominations of $1,000 and integral multiples
of $1,000. The indenture allows Dana to issue additional Notes, subject to any
such additional issuance complying with the covenant described below under the
heading "-- Certain Covenants -- Limitation on Incurrence of Indebtedness and
Issuance of Preferred Stock." Any such additional Notes will be issued with the
same terms as the Notes so that such additional Notes will form a single series
with the Notes.
The Notes will mature on March 15, 2010 and bear interest at the rate of
10 1/8% per annum. Interest will be payable semiannually (to holders of record
of Notes at the close of business on the March 1 or September 1 immediately
preceding the interest payment date) on March 15 and September 15 of each year,
respectively, commencing September 15, 2002. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
Principal of and premium, if any, and interest on the Notes is payable, and
the Notes may be presented for registration of transfer and exchange, at the
offices of agencies of Dana maintained for that purpose in the Borough of
Manhattan, the City of New York, provided that, at the option of Dana, payment
of interest on the Notes may be made by check mailed to the address of the
Person entitled thereto as it appears in the note registers; and provided
further that all payments of principal (and premium, if any) and interest on
Notes, the holders of which have given wire transfer instructions to Dana or its
agent at least 10 business days prior to the applicable payment date will be
required to be made by wire transfer of immediately available funds to the
accounts specified by such holders in such instructions. Until otherwise
designated by Dana, such office or agency will be as set forth on the inside
back cover of this prospectus.
The Notes may only be issued in fully registered form, without coupons. No
service charge will be made for any registration of transfer or exchange of
Notes, but Dana may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
The Notes do not have the benefit of any sinking fund.
RANKING
The Notes are general unsecured obligations of Dana and rank pari passu in
right of payment with all existing and future unsubordinated Indebtedness of
Dana and senior in right of payment to all existing and future subordinated
Indebtedness of Dana. The Notes are effectively subordinated to all secured
Indebtedness of Dana, if any. In addition, the Notes are structurally
subordinated to all of the liabilities of Dana's subsidiaries. As of March 31,
2002:
- Dana had $2,314 million of total indebtedness outstanding (including the
Notes), all of which ranked equally with the Notes and none of which have
been secured; and
- Dana's subsidiaries had $4,111 million of liabilities, including, without
limitation, trade payables, outstanding.
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OPTIONAL REDEMPTION
The Notes are redeemable, at the option of Dana, in whole or from time to
time in part at any time after March 15, 2006, on at least 30 days but not more
than 60 days' prior notice mailed to the registered address of each holder of
Notes to be so redeemed, at the following redemption prices (expressed as
percentages of the principal amount), plus accrued and unpaid interest, if any,
to but excluding the date of redemption, if redeemed during the 12-month period
commencing on or after March 15 of the years set forth below:
REDEMPTION
YEAR PRICE
---- ----------
2006........................................................ 105.063%
2007........................................................ 102.531%
2008 and thereafter......................................... 100.000%
If the redemption date is on or after an interest record date and on or
before the related interest payment date, the accrued and unpaid interest, if
any, will be paid to the Person in whose name the Note is registered at the
close of business on such record date, and no additional interest will be
payable to holders whose Notes will be subject to redemption by Dana.
In the case of any redemption of less than all of the Notes, selection of
Notes for any redemption shall be made by the Trustee under the indenture in
accordance with the rules of any securities exchange on which the Notes may be
listed or if the Notes are not so listed, pro rata or by lot or in such other
manner as the Trustee shall deem appropriate and fair. Notes in denominations
larger than $1,000 may be redeemed in part but only in integral multiples of
$1,000. Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at his
or her registered address. On and after the redemption date, interest will cease
to accrue on Notes or portions thereof called for redemption.
CERTAIN COVENANTS
Application of Fall Away Covenants and Covenant Substitution. After such
time as:
(1) the Notes have been assigned an Investment Grade rating by both
Rating Agencies;
(2) if the Investment Grade rating is BBB-, in the case of S&P, or
Baa3, in the case of Moody's, it shall not be accompanied by either (i) in
the case of S&P, a negative outlook, creditwatch negative or the equivalent
thereof or (ii) in the case of Moody's, a negative outlook, a review for
possible downgrade or the equivalent thereof; and
(3) no Default under the indenture has occurred and is continuing,
(all such events collectively constituting an "Investment Grade Rating Event")
and notwithstanding that the Notes may later cease to have an Investment Grade
rating by either or both Rating Agencies or that the Investment Grade rating may
later be accompanied by either items (i) or (ii) set forth in paragraph (2)
above, Dana and its Restricted Subsidiaries will not be subject to the following
agreements and covenants contained in the indenture:
- "Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock";
- "Limitation on Certain Asset Dispositions";
- "Limitation on Restricted Payments";
- "Limitation on Transactions with Affiliates";
- "Limitation on Payment Restrictions Affecting Restricted Subsidiaries";
- "Limitation on Guarantees by Restricted Subsidiaries";
- "Change of Control";
- section (a) of "Limitation on Liens";
66
- section (a) of "Limitation on Sale and Leaseback Transactions"; and
- clause (3) of the first paragraph of "Merger, Consolidation, Etc."
and section (b) of "Limitation on Liens" and section (b) of "Limitation on Sale
and Leaseback Transactions" shall become effective and apply to Dana and its
Restricted Subsidiaries.
A change in the rating on the Notes by either Rating Agency shall be deemed
to have occurred on the date that such Rating Agency shall have publicly
announced the change.
Limitation on Liens. (a) The indenture provides that Dana will not, and
will not cause or permit any of its Restricted Subsidiaries to, create, incur,
assume or suffer to exist any Liens upon any of their respective properties or
assets (including, without limitation, any asset in the form of the right to
receive payments, fees or other consideration or benefits) whether owned on the
Issue Date or acquired after the Issue Date, other than:
(1) Liens granted by Dana on property or assets of Dana securing
Indebtedness of Dana that is permitted by the indenture and that is pari
passu with the Notes; provided, that the Notes are secured on an equal and
ratable basis with such Liens;
(2) Liens granted by Dana on property or assets of Dana securing
Indebtedness of Dana that is permitted by the indenture and that is
subordinated to the Notes; provided, that the Notes are secured by Liens
ranking prior to such Liens;
(3) Permitted Liens;
(4) Liens in respect of Acquired Indebtedness permitted by the
indenture; provided, that the Liens in respect of such Acquired
Indebtedness secured such Acquired Indebtedness at the time of the
incurrence of such Acquired Indebtedness and such Liens and the Acquired
Indebtedness were not incurred by Dana or by the Person being acquired or
from whom the assets were acquired in connection with, or in anticipation
of, the incurrence of such Acquired Indebtedness by Dana, and provided,
further that such Liens in respect of such Acquired Indebtedness do not
extend to or cover any property or assets of Dana or of any Restricted
Subsidiary of Dana other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of Dana; and
(5) Liens arising from claims of holders of Indebtedness against funds
held in a defeasance trust for the benefit of such holders.
(b) The indenture provides that, in the event that section (a) of this
covenant no longer applies to Dana and its Restricted Subsidiaries in light of
the circumstances described above under "-- Application of Fall Away Covenants
and Covenant Substitution", except with respect to Indebtedness between Dana and
any Restricted Subsidiaries, Dana will not incur or guarantee (or permit
Restricted Subsidiaries to incur or guarantee) any Secured Debt other than
Permitted Secured Debt without equally and ratably securing the Notes.
Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock. The indenture provides that Dana will not, and will not cause or permit
any of its Restricted Subsidiaries to incur, directly or indirectly, any
Indebtedness, and Dana will not cause or permit any of its Restricted
Subsidiaries to issue any Preferred Stock, except:
(1) Indebtedness of Dana, if immediately after giving effect to the
incurrence of such Indebtedness and the receipt and application of the net
proceeds thereof, the Consolidated Coverage Ratio of Dana for the four full
fiscal quarters for which quarterly or annual financial statements are
available next preceding the incurrence of such Indebtedness would be
greater than 2.25 to 1.00;
(2) Indebtedness outstanding on the Issue Date;
(3) Indebtedness under the Credit Facilities in an amount not to
exceed $1.56 billion;
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(4) Indebtedness owed by Dana to any Restricted Subsidiary of Dana or
Indebtedness owed by a Subsidiary of Dana to Dana or a Restricted
Subsidiary of Dana; provided, that, upon either
(a) the transfer or other disposition by such Restricted Subsidiary
or Dana of any Indebtedness so permitted under this clause (4) to a
Person other than Dana or another Restricted Subsidiary of Dana or
(b) the issuance (other than directors' qualifying shares), sale,
transfer or other disposition of shares of Capital Stock or other
ownership interests (including by consolidation or merger) of such
Restricted Subsidiary to a Person other than Dana or another such
Restricted Subsidiary of Dana as a result of which such Restricted
Subsidiary ceases to be a Restricted Subsidiary of Dana, the provisions
of this clause (4) shall no longer be applicable to such Indebtedness
and such Indebtedness shall be deemed to have been incurred at the time
of any such issuance, sale, transfer or other disposition, as the case
may be;
(5) Indebtedness of Dana or its Restricted Subsidiaries under any
Interest Rate Protection Agreement or Currency Agreement to the extent
entered into to hedge any other Indebtedness permitted under the indenture;
(6) Acquired Indebtedness to the extent Dana could have incurred such
Indebtedness in accordance with clause (1) above on the date such
Indebtedness became Acquired Indebtedness;
(7) Indebtedness incurred by Dana or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in response to worker's compensation claims
or self-insurance;
(8) Indebtedness arising from agreements of Dana or a Restricted
Subsidiary of Dana providing for indemnification, adjustment of purchase
price, earn-out or other similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or a
Subsidiary of Dana;
(9) Obligations in respect of performance and surety bonds and
completion guarantees provided by Dana or any Restricted Subsidiary of Dana
in the ordinary course of business;
(10) Indebtedness consisting of notes issued to employees, officers or
directors in connection with the redemption or repurchase of Capital Stock
held by such Persons in an aggregate amount not in excess of $10.0 million
at any time outstanding;
(11) Guarantees by Dana or any of its Restricted Subsidiaries of
Indebtedness of Dana or any Restricted Subsidiary permitted to be incurred
under another provision of the covenant; provided that any Guarantee by a
Restricted Subsidiary is given in compliance with "-- Limitation on
Guarantees by Restricted Subsidiaries;"
(12) Indebtedness of Dana under the Outstanding Notes and the Exchange
Notes;
(13) Indebtedness incurred to renew, extend or refinance (collectively
for purposes of this clause (13) to "refinance") any Indebtedness incurred
pursuant to clauses (1), (2) or (12) above; provided, that:
(a) such Indebtedness does not exceed the principal amount (or
accreted amount, if less) of Indebtedness so refinanced plus the amount
of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of
any premium reasonably determined by Dana as necessary to accomplish
such refinancing by means of a tender offer, exchange offer, or
privately negotiated repurchase, plus the expenses of Dana or such
Restricted Subsidiary incurred in connection therewith and
(b) (I) in the case of any refinancing of Indebtedness that is pari
passu with the Notes such refinancing Indebtedness is made pari passu
with or subordinate in right of payment to such Notes, and, in the case
of any refinancing of Indebtedness that is subordinate in right of
payment to the
68
Notes, such refinancing Indebtedness is subordinate in right of payment
to such Notes on terms no less favorable to the Holders than those
contained in the Indebtedness being refinanced,
(II) in either case, the refinancing Indebtedness by its terms, or
by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued does not have an Average Life that is less than
the remaining Average Life of the Indebtedness being refinanced and does
not permit redemption or other retirement (including pursuant to any
required offer to purchase to be made by Dana or any of its Restricted
Subsidiaries) of such Indebtedness at the option of the holder thereof
prior to the final Stated Maturity of the Indebtedness being refinanced,
other than a redemption or other retirement at the option of the holder
of such Indebtedness (including pursuant to a required offer to purchase
made by Dana or any of its Restricted Subsidiaries) which is conditioned
upon a change of control of Dana pursuant to provisions substantially
similar to those contained in the indenture described under "-- Change
of Control" below and
(III) Indebtedness of a Restricted Subsidiary may not be incurred
to refinance any Indebtedness of Dana unless otherwise permitted
pursuant to clause (16) below; and
provided, further, that any Indebtedness incurred pursuant to clauses (1)
or (2) above may be refinanced pursuant to this clause (13) provided that
such refinancing occurs not later than three months after the repayment of
the Indebtedness being refinanced, notwithstanding an initial repayment of
the Indebtedness being refinanced using Dana's available cash resources.
(14) Indebtedness consisting of take-or-pay obligations contained in
supply agreements entered into by Dana or its Restricted Subsidiaries in
the ordinary course of business;
(15) Preferred Stock of Restricted Subsidiaries issued to Dana or any
of its Restricted Subsidiaries, provided, that, upon either
(a) the transfer or other disposition by such Restricted Subsidiary
or Dana of any Preferred Stock so permitted under this clause (15) to a
Person other than Dana or another Restricted Subsidiary of Dana or
(b) the issuance (other than directors' qualifying shares), sale,
transfer or other disposition of shares of Capital Stock or other
ownership interests (including by consolidation or merger) of such
Restricted Subsidiary to a Person other than Dana or another such
Restricted Subsidiary of Dana as a result of which such Restricted
Subsidiary ceases to be a Subsidiary of Dana, the provisions of this
clause (15) shall no longer be applicable to such Preferred Stock and
such Preferred Stock shall be deemed to have been issued at the time of
any such issuance, sale, transfer or other disposition, as the case may
be;
(16) Indebtedness incurred by Restricted Subsidiaries to Persons other
than Dana and its Restricted Subsidiaries and Preferred Stock of Restricted
Subsidiaries issued to Persons other than Dana and its Restricted
Subsidiaries, provided that (i) the principal amount of such Indebtedness
plus (ii) the stated liquidation preference of such Preferred Stock shall
not exceed in the aggregate $250.0 million;
(17) the consummation of any Qualified Securitization Transaction; and
(18) Indebtedness of Dana or its Restricted Subsidiaries, not
otherwise permitted to be incurred pursuant to clauses (1) through (17)
above, which, together with any other outstanding Indebtedness incurred
pursuant to this clause (18), has an aggregate principal amount not in
excess of $100.0 million at any time outstanding.
Accrual of interest, accrual of dividends, the accretion of accreted value,
the payment of interest in the form of additional Indebtedness and the payment
of dividends in the form of additional shares of Preferred Stock will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant. The
amount of any Indebtedness outstanding as of any date shall be (i) the accreted
value of the Indebtedness in the case of any Indebtedness issued with original
issue discount and (ii) the principal amount or liquidation preference
69
thereof, together with any interest thereon that is more than 30 days past due,
in the case of any other Indebtedness.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of Indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was incurred, in the case of term Indebtedness, or first
committed, in the case of revolving credit Indebtedness; provided that if such
Indebtedness is incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the applicable U.S.
dollar-denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced. Notwithstanding any
other provision of this covenant, the maximum amount of Indebtedness that Dana
may incur pursuant to this covenant shall not be deemed to be exceeded solely as
a result of fluctuations in the exchange rate of currencies. The principal
amount of any Indebtedness incurred to refinance other Indebtedness, if incurred
in a different currency from the Indebtedness being refinanced, shall be
calculated based on the currency exchange rate applicable to the currencies in
which such refinancing Indebtedness is denominated that is in effect on the date
of such refinancing.
Limitation on Restricted Payments. The indenture provides that Dana will
not, and will not cause or permit any of its Restricted Subsidiaries to directly
or indirectly:
(A) declare or pay any dividend, or make any distribution of any kind
or character (whether in cash, property or securities), in respect of any
class of its Capital Stock or to the holders thereof in their capacity as
stockholders, excluding any (a) dividend or distributions payable solely in
shares of its Qualified Capital Stock or in options, warrants or other
rights to acquire its Qualified Capital Stock or (b) in the case of any
Restricted Subsidiary of Dana, dividends or distributions payable to Dana
or a Restricted Subsidiary of Dana;
(B) purchase, redeem, or otherwise acquire or retire for value shares
of Capital Stock of Dana or a Restricted Subsidiary of Dana, any securities
convertible or exchangeable into shares of Capital Stock of Dana or a
Restricted Subsidiary of Dana or any options, warrants or rights to
purchase or acquire shares of Capital Stock of Dana or a Restricted
Subsidiary of Dana, excluding any such shares of Capital Stock, options,
warrants, rights or securities which are owned by Dana or a Restricted
Subsidiary of Dana;
(C) make any Investment (other than a Permitted Investment) in any
Person; or
(D) redeem, defease, repurchase, retire or otherwise acquire or retire
for value, prior to any scheduled maturity, repayment or sinking fund
payment, Indebtedness which is subordinate in right of payment to the Notes
(each of the transactions described in clauses (A) through (D) (other than
any exception to any such clause) being a "Restricted Payment"),
if at the time thereof:
(1) an Event of Default, or an event that with the passing of time or
giving of notice, or both, would constitute an Event of Default, shall have
occurred and be continuing, or
(2) upon giving effect to such Restricted Payment, Dana could not
incur at least $1.00 of additional Indebtedness pursuant to the terms of
the indenture described in clause (1) of "-- Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock" above, or
(3) upon giving effect to such Restricted Payment, the aggregate of
all Restricted Payments made on or after the Issue Date exceeds the sum
(without duplication) of:
(a) 50% of Consolidated Net Income of Dana (or, in the case
cumulative Consolidated Net Income of Dana shall be negative, less 100%
of such deficit) for the period (treated as an accounting period) from
the Issue Date through the last day of Dana's most recently ended fiscal
quarter for which financial statements are available; plus
70
(b) 100% of the aggregate net cash proceeds received after the
Issue Date, including the fair market value of readily marketable
securities from the issuance of Qualified Capital Stock of Dana and
warrants, rights or options on Qualified Capital Stock of Dana (other
than in respect of any such issuance to a Subsidiary of Dana) and the
principal amount of Indebtedness of Dana or a Subsidiary of Dana that
has been converted into or exchanged for Qualified Capital Stock of Dana
which Indebtedness was incurred after the Issue Date; plus
(c) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the Issue Date, an amount
equal to the lesser of the return of capital with respect to such
Investment and the cost of such Investment, in either case, less the
cost of the disposition of such Investment; plus
(d) an amount equal to the sum of (I) the net reduction in
Investments in Unrestricted Subsidiaries resulting from the receipt of
dividends, repayments of loans or advances or other transfers of assets
or proceeds from the disposition of Capital Stock or other distributions
or payments, in each case to Dana or any Restricted Subsidiary from, or
with respect to, interests in Unrestricted Subsidiaries, and (II) the
portion (proportionate to Dana's equity interest in such Subsidiary) of
the fair market value of the net assets of an Unrestricted Subsidiary at
the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, that the foregoing sum shall not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by Dana or any
Restricted Subsidiary in such Unrestricted Subsidiary subsequent to the
Issue Date; plus
(e) solely in connection with the payment of ordinary quarterly
dividends on Dana's common stock, an aggregate of $270.0 million.
For purposes of determining the amount expended for Restricted
Payments under this clause (3), property other than cash shall be valued at
its fair market value.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) any dividend on any class of Capital Stock of Dana or any of its
Restricted Subsidiaries paid within 70 days after the declaration thereof
if, on the date when the dividend was declared, Dana or any of its
Restricted Subsidiaries, as the case may be, could have paid such dividend
in accordance with the provisions of the indenture;
(2) the renewal, extension or refinancing of any Indebtedness
otherwise permitted pursuant to the terms of the indenture described in
clause (13) of "-- Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock" above;
(3) the exchange or conversion of any Indebtedness of Dana or any of
its Restricted Subsidiaries for or into Qualified Capital Stock of Dana;
(4) any Restricted Payments, including loans or other advances made
pursuant to any employee benefit plans (including plans for the benefit of
directors) or employment agreements or other compensation arrangements or
plans, in each case as such agreement, arrangement or plan is approved by
the Board of Directors of Dana in its good faith judgment;
(5) so long as no Default or Event of Default has occurred and is
continuing, any Investment made with the proceeds of a substantially
concurrent sale of Qualified Capital Stock of Dana; provided, that the
proceeds of such sale of Qualified Capital Stock shall not be (and have not
been) included in clause (3) of the preceding paragraph;
(6) the redemption, repurchase, retirement or other acquisition of any
Capital Stock of Dana in exchange for or out of the net cash proceeds of
the substantially concurrent sale (other than to a Restricted Subsidiary of
Dana) of Qualified Capital Stock of Dana; provided, that the proceeds of
such sale of Capital Stock shall not be (and have not been) included in
clause (3) of the preceding paragraph;
71
(7) so long as no Event of Default has occurred and is continuing, the
redemption, repurchase, retirement or other acquisition of any subordinated
Indebtedness of Dana in exchange for or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of Dana) of
Qualified Capital Stock of Dana; provided, that the proceeds of such sale
of Qualified Capital Stock shall not be (and have not been) included in
clause (3) of the preceding paragraph;
(8) so long as no Event of Default has occurred and is continuing, any
purchase or redemption or other retirement for value of Capital Stock of
Dana required pursuant to any shareholders agreement, management agreement
or employee stock option or restricted stock agreement in accordance with
the provisions of any such arrangement in an amount not to exceed $5.0
million in the aggregate;
(9) repurchases of Capital Stock deemed to occur upon the exercise of
stock options if such Capital Stock represents a portion of the exercise
price thereof;
(10) so long as no Event of Default has occurred and is continuing,
the redemption of any stock purchase rights under a rights plan in an
aggregate amount not to exceed $5.0 million;
(11) so long as no Event of Default has occurred and is continuing,
Investments in Permitted Joint Ventures; provided, that after giving pro
forma effect to such Investment, Dana could incur at least $1.00 of
additional Indebtedness pursuant to the terms of the indenture described in
clause (1) of "-- Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock" above;
(12) Investments by Dana in Dana Credit Corporation made in the
ordinary course of business for periods not exceeding 30 days at any time
and in amounts not exceeding $20.0 million at any time outstanding; and
(13) Restricted Payments by Dana or its Restricted Subsidiaries, not
otherwise permitted to be made pursuant to clauses (1) through (12) above,
in an aggregate amount not to exceed $75.0 million.
Each Restricted Payment described in clauses (1), (4) and (8) of the
previous sentence shall be taken into account (and the Restricted Payments
described in the remaining clauses shall not be taken into account) for purposes
of computing the aggregate amount of all Restricted Payments made pursuant to
clause (3) of the preceding paragraph.
Limitation on Certain Asset Dispositions. The indenture provides that Dana
will not, and will not cause or permit any of its Restricted Subsidiaries to,
directly or indirectly, make one or more Asset Dispositions unless:
(1) Dana or the Restricted Subsidiary, as the case may be, receives
consideration for such Asset Disposition at least equal to the fair market
value of the assets sold or disposed of (as determined in good faith by
Dana);
(2) not less than 75% of the consideration for the disposition
consists of cash or readily marketable Cash Equivalents or the assumption
of Indebtedness (other than non-recourse Indebtedness or any Indebtedness
subordinated to the Notes) of Dana or such Restricted Subsidiary or other
obligations relating to such assets (and release of Dana or such Restricted
Subsidiary from all liability on the Indebtedness or other obligations
assumed); and
(3) all Net Available Proceeds, less any amounts invested or committed
to be invested within 360 days of such Asset Disposition in Related
Business Assets (including capital expenditures or the Capital Stock of
another Person (other than Dana); provided, that immediately after giving
effect to any such investment such Person shall be a Restricted Subsidiary
of Dana), are applied, on or prior to the 360th day after such Asset
Disposition (unless and to the extent that Dana shall determine to make an
Offer to Purchase), either to
(a) the permanent reduction and prepayment of any Indebtedness of
Dana (other than Indebtedness which is expressly subordinate to the
Notes) then outstanding (including a permanent reduction of commitments
in respect thereof) or
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(b) the permanent reduction and repayment of any Indebtedness of
any Restricted Subsidiary of Dana then outstanding (including a
permanent reduction of commitments in respect thereof).
The 361st day after such Asset Disposition shall be deemed to be the "Asset
Sale Offer Trigger Date," and the amount of Net Available Proceeds from Asset
Dispositions otherwise subject to the preceding provisions not so applied or as
to which Dana has determined not to so apply shall be referred to as the
"Unutilized Net Available Proceeds." Within fifteen days after the Asset Sale
Offer Trigger Date, Dana shall make an Offer to Purchase the outstanding Notes
in the aggregate amount of the Unutilized Net Available Proceeds at a purchase
price in cash equal to 100% of their principal amount plus any accrued and
unpaid interest thereon to the Purchase Date. Notwithstanding the foregoing,
Dana may defer making any Offer to Purchase outstanding Notes until there are
aggregate Unutilized Net Available Proceeds equal to or in excess of $25.0
million (at which time, the entire Unutilized Net Available Proceeds, and not
just the amount in excess of $25.0 million, shall be applied as required
pursuant to this paragraph). Pending application of the Unutilized Net Available
Proceeds pursuant to this covenant, such Unutilized Net Available Proceeds shall
be invested in Permitted Investments of the types described in clauses (1), (2)
and (3) of the definition of "Permitted Investments."
If any Indebtedness of Dana or any of its Restricted Subsidiaries ranking
pari passu with the Notes requires that prepayment of, or an offer to prepay,
such Indebtedness be made with any Net Available Proceeds, Dana may apply such
Net Available Proceeds pro rata (based on the aggregate principal amount of the
Notes then outstanding and the aggregate principal amount (or accreted value, if
less) of all such other Indebtedness then outstanding) to the making of an Offer
to Purchase the Notes in accordance with the foregoing provisions and the
prepayment or the offer to prepay such pari passu Indebtedness. Any remaining
Net Available Proceeds following the completion of the required Offer to
Purchase may be used by Dana for any other purpose (subject to the other
provisions of the indenture) and the amount of Net Available Proceeds then
required to be otherwise applied in accordance with this covenant shall be reset
to zero, subject to any subsequent Asset Disposition. These provisions will not
apply to a transaction consummated in compliance with the provisions of the
indenture described under "-- Merger, Consolidation, Etc." below.
Dana will not, and will not permit any Restricted Subsidiary to, engage in
any Asset Swaps, unless:
(1) at the time of entering into such Asset Swap and immediately after
giving effect to such Asset Swap, no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence thereof;
(2) in the event such Asset Swap involves the transfer by Dana or any
Restricted Subsidiary of assets having an aggregate fair market value, as
determined by the Board of Directors of Dana in good faith, in excess of
$20.0 million, the terms of such Asset Swap have been approved by a
majority of the members of the Board of Directors of Dana or such
Restricted Subsidiary, as the case may be, as being fair to Dana or such
Restricted Subsidiary, as the case may be, from a financial point of view;
and
(3) in the event such Asset Swap involves the transfer by Dana or any
Restricted Subsidiary of assets having an aggregate fair market value, as
determined by the Board of Directors of Dana in good faith, in excess of
$500.0 million, Dana has received a written opinion from an independent
investment banking firm of nationally recognized standing that such Asset
Swap is fair to Dana or such Restricted Subsidiary, as the case may be,
from a financial point of view.
In the event that Dana makes an Offer to Purchase the Notes, Dana shall
comply with any applicable securities laws and regulations, including any
applicable requirements of Section 14(e) of, and Rule l4e-l under, the Exchange
Act and any violation of the provisions of the indenture relating to such Offer
to Purchase occurring as a result of such compliance shall not be deemed an
Event of Default or an event that with the passing of time or giving of notice,
or both, would constitute an Event of Default.
Dana's ability to repurchase the Notes may be limited by other
then-existing borrowing agreements of Dana and its Restricted Subsidiaries.
There can be no assurance that Dana will be able to obtain a consent or a waiver
of such limitations. See "-- Limitation on Restricted Payments."
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Limitation on Sale and Leaseback Transactions. (a) The indenture provides
that Dana will not, and will not cause or permit any Restricted Subsidiary to,
enter into any Sale and Leaseback Transaction with respect to any property
unless:
(1) Dana or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Sale/Leaseback Transaction at least equal
to the fair market value (as determined by the Board of Directors of Dana
or such Restricted Subsidiary, as the case may be, if the fair market value
exceeds $20.0 million) of the property subject to such transaction;
(2) Dana or such Restricted Subsidiary could have incurred
Indebtedness in an amount equal to the Attributable Indebtedness in respect
of such Sale and Leaseback Transaction pursuant to the covenant described
under "-- Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
(3) the Sale and Leaseback Transaction is treated as an Asset
Disposition and all of the conditions of the indenture described under
"-- Limitation on Certain Asset Dispositions" (including the provisions
concerning the application of Net Available Proceeds after the Sale and
Leaseback Transaction) are satisfied at the time required to be satisfied
pursuant to that covenant with respect to such Sale and Leaseback
Transaction, treating all of the cash consideration (with the items
constituting cash consideration to be determined in accordance with
"-- Limitation on Certain Asset Dispositions") received in such Sale and
Leaseback Transaction as Net Available Proceeds for purposes of such
covenant.
For the purposes of this section (a), the term "Sale and Leaseback
Transaction" means an arrangement relating to property now owned or hereafter
acquired whereby Dana or a Restricted Subsidiary transfers such property to a
person and Dana or a Restricted Subsidiary leases it from such Person.
(b) The indenture provides that, in the event that section (a) of this
covenant no longer applies to Dana and its Restricted Subsidiaries in light of
the circumstances described above under "-- Application of Fall Away Covenants
and Covenant Substitution", Dana will not engage in any Sale and Leaseback
Transactions (except leases for a temporary period not exceeding 36 months)
involving any Principal Property, or to permit any of its Restricted
Subsidiaries which has been in operation for more than 180 days to do so, unless
(1) Dana or such Restricted Subsidiary would be entitled to incur
Secured Debt on such Principal Property equal to the amount realizable upon
such sale or transfer as if such amount were secured by a mortgage, without
equally and ratably securing the Notes; or
(2) an amount equal to the greater of the net proceeds of the sale or
the fair value of such Principal Property is applied within 180 days either
to (A) the retirement of indebtedness of Dana that was Funded Debt at the
time it was created or (B) the purchase of other Principal Property having
a value at least equal to the greater of such amounts; or
(3) the Sale and Leaseback Transaction involved an industrial revenue
bond, pollution control bond or other similar financing arrangement between
Dana or any Restricted Subsidiary and any federal, state or municipal
government or other governmental body or agency.
For the purposes of this section (b), the term "Sale and Leaseback
Transaction" means any arrangement with any person or entity providing for the
leasing by Dana or any Restricted Subsidiary of any Principal Property whereby
such Principal Property has been or is to be sold or transferred by Dana or a
Restricted Subsidiary to such person or entity; provided, however, that the
foregoing shall not apply to any such arrangement involving a lease for a term,
including renewal rights, of not more than three years.
Limitation on Payment Restrictions Affecting Restricted Subsidiaries. The
indenture provides that Dana will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or suffer to exist or
allow to become effective any consensual encumbrance or restriction of any kind
on the ability of any such Restricted Subsidiary to:
(1) pay dividends, in cash or otherwise, or make other payments or
distributions on its Capital Stock or any other equity interest or
participation in, or measured by, its profits, owned by Dana or by any
74
Restricted Subsidiary of Dana, or make payments on any Indebtedness owed to
Dana or to any Restricted Subsidiary of Dana;
(2) make loans or advances to Dana or to any Restricted Subsidiary of
Dana; or
(3) transfer any of their respective property or assets to Dana or to
any Restricted Subsidiary of Dana.
The preceding restrictions, however, do not apply to encumbrances or
restrictions existing under or by reason of:
(1) applicable law or regulations;
(2) customary provisions restricting subletting or assignment of any
lease governing a leasehold interest of any Restricted Subsidiary of Dana;
(3) any agreement in effect on the Issue Date as any such agreement is
in effect on such date;
(4) any agreement relating to any Indebtedness incurred by such
Restricted Subsidiary prior to the date on which such Restricted Subsidiary
became a Subsidiary of Dana and outstanding on such date and not incurred
in anticipation or contemplation of becoming a Subsidiary of Dana,
provided, such encumbrance or restriction shall not apply to any assets of
Dana or its Restricted Subsidiaries other than such Restricted Subsidiary;
(5) any agreement effecting a refinancing of Indebtedness incurred
pursuant to an agreement referred to in clause (3) or (4) of this paragraph
or this clause (5) or contained in any amendment to an agreement referred
to in clause (3) or (4) of this paragraph or this clause (5); provided,
however, that the encumbrances and restrictions contained in any such
agreement or amendment are no less favorable in any material respect to the
Holders of the Notes than the encumbrances and restrictions contained in
such agreements referred to in clauses (3) and (4) of this paragraph;
(6) Indebtedness or any other contractual requirements (including
pursuant to any corporate governance documents in the nature of a charter
or by-laws) of a Securitization Subsidiary arising in connection with a
Qualified Securitization Transaction, provided, that any such encumbrances
and restrictions apply only to such Securitization Subsidiary; or
(7) the indenture.
Limitation on Transactions with Affiliates. The indenture provides that
Dana will not, and will not cause or permit any of its Restricted Subsidiaries
to:
(1) sell, lease, transfer or otherwise dispose of any of its property
or assets to any Affiliate of Dana or of any Subsidiary,
(2) purchase any property or assets from any Affiliate of Dana or of
any Subsidiary,
(3) make any Investment in any Affiliate of Dana or of any Subsidiary,
or
(4) enter into or amend or extend any contract, agreement or
understanding with or for the benefit of, any Affiliate of Dana or of any
Subsidiary (each of (1) through (4) being an Affiliate Transaction),
other than Affiliate Transactions that are on terms that are no less favorable
to Dana or such Restricted Subsidiary of Dana than those that could be obtained
in a comparable arm's length transaction by Dana or such Restricted Subsidiary
of Dana from an unaffiliated party; provided, that if Dana or any Restricted
Subsidiary of Dana enters into an Affiliate Transaction or series of Affiliate
Transactions involving or having an aggregate value of more than $20.0 million,
a majority of the disinterested members of the Board of Directors of Dana or a
committee thereof shall, prior to the consummation of such Affiliate
Transaction, have determined (as evidenced by a resolution thereof) that such
Affiliate Transaction meets the foregoing standard.
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The foregoing restrictions shall not apply to:
(1) any transaction between Restricted Subsidiaries of Dana, or
between Dana and any Restricted Subsidiary of Dana if such transaction is
not otherwise prohibited by the terms of the indenture;
(2) transactions entered into in the ordinary course of business;
(3) reasonable fees and compensation paid to and advances of expenses
to and indemnity provided on behalf of officers, directors, employees or
consultants of Dana or any Subsidiary as determined in good faith by Dana's
Board of Directors or senior management;
(4) any Qualified Securitization Transactions;
(5) any agreement as in effect as of the Issue Date (including,
without limitation, the Operating Agreement, the agreements relating to the
Receivables Facility and the Tax Sharing Agreement between Dana and Dana
Credit Corporation) or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) or in
any replacement agreement thereto so long as any such replacement agreement
is not more disadvantageous to the holders of the Notes in any material
respect than the original agreement as in effect on the Issue Date;
(6) Restricted Payments permitted by the indenture;
(7) loans or advances to employees or consultants in the ordinary
course of business;
(8) joint venture partners or purchasers or sellers of goods or
services, in each case in the ordinary course of business (including,
without limitation, pursuant to joint venture agreements) and otherwise in
compliance with the terms of the indenture which are fair to Dana or its
Restricted Subsidiaries, in the reasonable determination of the senior
management of Dana, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party; and
(9) any employment or compensation arrangement entered into by Dana or
any of its Restricted Subsidiaries in the ordinary course of business that
is not otherwise prohibited by the indenture.
Limitation on Guarantees by Restricted Subsidiaries. The indenture
provides that Dana will not cause or permit any of its Restricted Subsidiaries,
directly or indirectly, to guarantee the payment of any Indebtedness of Dana
unless such Restricted Subsidiary of Dana simultaneously executes and delivers a
supplemental indenture to the indenture providing for the guarantee of payment
of the Notes (each a Subsidiary Guarantee) by such Restricted Subsidiary of Dana
(a Subsidiary Guarantor); provided, any guarantee by a Subsidiary Guarantor of
such other Indebtedness:
(1) (a) (I) is unsecured or (II) is secured and (A) in the case of any
such guarantee of Indebtedness of Dana ranking pari passu with the Notes,
the relevant Subsidiary Guarantees are secured equally and ratably with any
Liens securing such guarantee and (B) in the case of any such guarantee of
Indebtedness of Dana subordinated to the Notes, the relevant Subsidiary
Guarantees are secured on a basis ranking prior to the Liens securing such
guarantee and
(b) (I) in the case of any such guarantee of Indebtedness of Dana
subordinated or junior to the Notes (whether pursuant to its terms or by
operation of law), such guarantee is subordinated pursuant to a written
agreement to the relevant Subsidiary Guarantees at least to the same extent
and in the same manner as such other Indebtedness is subordinated to the
Notes, or (II) the Subsidiary Guarantees are not subordinated or junior to
any Indebtedness of such Subsidiary Guarantor; and
(2) such Subsidiary Guarantor waives, and agrees it will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against Dana or
any other Subsidiary of Dana as a result of any payment by it under such
Subsidiary Guarantees.
Notwithstanding the foregoing, any Subsidiary Guarantee shall provide by
its terms that it shall be automatically and unconditionally released and
discharged upon either (a) the unconditional release or discharge of such
Subsidiary Guarantor's guarantees of all other Indebtedness of Dana (other than
a release
76
resulting from payment under such Subsidiary Guarantor's guarantees) or (b) any
sale, exchange or transfer, to any Person not an Affiliate of Dana, of all (but
not less than all) of the Capital Stock of such Subsidiary Guarantor, or all or
substantially all of the assets of such Subsidiary Guarantor, pursuant to a
transaction which is in compliance with all of the terms of the indenture.
Notwithstanding the foregoing, the provisions of this "Limitation on
Guarantees by Restricted Subsidiaries" shall not apply with respect to
(1) guarantees by Restricted Subsidiaries outstanding on the Issue
Date;
(2) guarantees of Acquired Indebtedness outstanding at the time that a
Restricted Subsidiary becomes a Subsidiary of Dana; and
(3) guarantees by Restricted Subsidiaries of Indebtedness to the
extent such Indebtedness could have been incurred by such Restricted
Subsidiaries pursuant to clause (16) of "Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock" (without duplication in the
case of the same Indebtedness being guaranteed by one or more Restricted
Subsidiaries).
Change of Control. Upon the occurrence of a Change of Control (the date of
each such occurrence being the "Change of Control Date"), Dana will notify the
Holders in writing of such occurrence and will commence an Offer to Purchase
(the "Change of Control Offer") all Notes then outstanding, in each case, at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the Purchase Date. Notice of a Change of Control
will be mailed by Dana to the Holders not more than 30 days after any Change of
Control Date.
None of the provisions relating to a purchase upon a Change of Control are
waivable by the Board of Directors of Dana. Dana could, in the future, enter
into certain transactions, including certain recapitalizations of Dana, that
would not constitute a Change of Control with respect to the Change of Control
purchase feature of the Notes, but would increase the amount of Indebtedness
outstanding at such time. If a Change of Control were to occur, there can be no
assurance that Dana would have sufficient funds to pay the redemption price for
all Notes that Dana is required to redeem. In the event that Dana were required
to purchase outstanding Notes pursuant to a Change of Control Offer, Dana
expects that it would need to seek third-party financing to the extent it does
not have available funds to meet its purchase obligations. However, there can be
no assurance that Dana would be able to obtain such financing.
With respect to the disposition of property or assets, the phrase "all or
substantially all" as used in the indenture (including as set forth under
"-- Merger, Consolidation, Etc." below) varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under New York law (which governs the indenture and the Notes) and is subject to
judicial interpretation. Accordingly, in certain circumstances there may be a
degree of uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the property or assets of
a Person and therefore it may be unclear as to whether a Change of Control has
occurred and whether the Holders are subject to a Change of Control Offer.
Dana's ability to repurchase Notes may be limited by other then-existing
borrowing agreements of Dana and its Subsidiaries. There can be no assurance
that Dana will be able to obtain such a consent or a waiver of such limitations.
See "-- Limitation on Restricted Payments."
If an offer is made to redeem Notes as a result of a Change of Control,
Dana will comply with all tender offer rules under state and Federal securities
laws, including, but not limited to, Section 14(e) under the Exchange Act and
Rule 14e-1 thereunder, to the extent applicable to such offer.
The Change of Control redemption feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of Dana and, thus,
the removal of incumbent management.
Reports. So long as any Note is outstanding, Dana will file with the SEC
and, within 15 days after it files them with the SEC, file with the Trustee and
mail or cause to be mailed, to the Holders at their addresses as set forth in
the register of the Notes, copies of the annual reports and of the information,
documents and
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other reports which Dana is required to file with the SEC pursuant to Section 13
or 15(d) of the Exchange Act or which Dana would be required to file with the
SEC if Dana then had a class of securities registered under the Exchange Act. In
addition, Dana shall cause its annual report to stockholders and any quarterly
or other financial reports furnished to its stockholders generally to be filed
with the Trustee and mailed, no later than the date such materials are mailed or
made available to Dana's stockholders, to the Holders at their addresses as set
forth in the register of Notes.
Merger, Consolidation, Etc. Dana will not consolidate with or merge with
or into any other Person, or transfer (by lease, assignment, sale, or otherwise)
all or substantially all of its properties and assets to another Person unless
(1) either (A) Dana shall be the continuing or surviving Person in such a
consolidation or merger or (B) the Person (if other than Dana) formed by such
consolidation or into which Dana is merged or to which all or substantially all
of the properties and assets of Dana are transferred (Dana or such other Person
being referred to as the Surviving Person) shall be a corporation organized and
validly existing under the laws of the United States, any state thereof, or the
District of Columbia, and shall expressly assume, by a supplemental indenture,
all the obligations of Dana under the Notes and the indenture, (2) immediately
after the transaction and the incurrence or anticipated incurrence of any
Indebtedness to be incurred in connection therewith, no Event of Default will
exist, (3) immediately after giving effect to such transaction and the
assumption contemplated by clause (1) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Surviving Person could
incur at least $1.00 of additional Indebtedness pursuant to clause (1) of
"-- Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock";
and (4) an officer's certificate has been delivered to the Trustee to the effect
that the conditions set forth in the preceding clauses (1), (2) and, to the
extent then applicable, (3), have been satisfied and an opinion of counsel (from
a counsel who shall not be an employee of Dana) has been delivered to the
Trustee to the effect that the conditions set forth in the preceding clause (1)
and, to the extent then applicable, clause (3), have been satisfied.
Upon any consolidation, merger or transfer in accordance with the
foregoing, the Surviving Person will succeed to and be substituted for Dana with
the same effect as if it had been named herein as a party hereto, and thereafter
the predecessor corporation will be relieved of all obligations and covenants
under the Notes and the indenture.
Payments for Consents. Neither Dana nor any of its Restricted Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fees or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indenture or the Notes unless such consideration is offered to be paid or
is paid to all holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or amendment.
EVENTS OF DEFAULT
The following are Events of Default under the indenture:
(1) default in the payment of principal of, or premium, if any, on any
Note when due at maturity, upon repurchase, upon acceleration or otherwise,
including, without limitation, failure of Dana to repurchase any Note on
the date required following a Change of Control; or
(2) default in the payment of any installment of interest on any Note
(including any additional interest to be paid as required by the
registration rights agreement), when due and continuance of such Default
for 30 days or more; or
(3) failure to observe, perform or comply with any of the applicable
provisions described under "Certain Covenants -- Merger, Consolidation,
Etc." above; or
(4) default (other than a default set forth in clauses (1), (2) and
(3) above) in the performance of, or breach of, any other applicable
covenant or warranty of Dana or of any Restricted Subsidiary in the
indenture and failure to remedy such default or breach within a period of
60 days after written notice
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from the Trustee or the Holders of at least 25% in aggregate principal
amount of the then outstanding Notes; or
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Dana or any Restricted Subsidiary of
Dana (or the payment of which is guaranteed by Dana or any Restricted
Subsidiary of Dana), which default results in the acceleration of such
Indebtedness prior to its express maturity and the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness the maturity of which has been so accelerated, aggregates
$100.0 million or more and such acceleration has not been rescinded or
annulled or such Indebtedness discharged in full within 30 days; or
(6) the entry by a court of competent jurisdiction of one or more
judgments, orders or decrees against Dana or any Restricted Subsidiary of
Dana or any of their respective property or assets in an aggregate amount
in excess of $100.0 million, which judgments, orders or decrees have not
been vacated, discharged, satisfied or stayed pending appeal within 30 days
from the entry thereof and with respect to which legal enforcement
proceedings have been commenced; or
(7) certain events of bankruptcy, insolvency or reorganization
involving Dana or any Material Subsidiary of Dana.
If an Event of Default (other than an Event of Default referred to in
clause (7) above involving Dana) occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in aggregate principal
amount of the then outstanding Notes may, and the Trustee shall upon the request
of Holders of not less than 25% in aggregate principal amount of the Notes then
outstanding, declare the unpaid principal of, premium, if any, and accrued and
unpaid interest on all the Notes then outstanding to be due and payable, by a
notice in writing to Dana (and to the Trustee, if given by Holders) and upon
such declaration such principal amount, premium, if any, and accrued and unpaid
interest will become immediately due and payable, notwithstanding anything
contained in the indenture or the Notes to the contrary. If an Event of Default
referred to in clause (7) above involving Dana occurs, all unpaid principal of,
and premium, if any, and accrued and unpaid interest on the Notes then
outstanding will ipso facto become due and payable without any declaration or
other act on the part of the Trustee or any Holder.
No Holder of any Note may enforce the indenture or the Notes except as
provided in the indenture. Subject to the provisions of the indenture relating
to the duties of the Trustee, the Trustee is under no obligation to exercise any
of its rights or powers under the indenture at the request, order or direction
of any of the Holders, unless such Holders have offered to the Trustee
reasonable indemnity. Subject to all provisions of the indenture and applicable
law, the Holders of a majority in aggregate principal amount of the then
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. The Trustee may withhold from the
Holders notice of any continuing Default or Event of Default (except a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the Notes or that resulted from the failure of Dana to comply with
the provisions of "-- Certain Covenants -- Change of Control" or "-- Merger,
Consolidation, Etc." above) if it determines that withholding notice is in their
interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may rescind an acceleration of such Notes
and its consequences if all existing Events of Default (other than the
nonpayment of principal of and premium, if any, and interest on the Notes which
has become due solely by virtue of such acceleration) have been cured or waived
and if the rescission would not conflict with any judgment or decree. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding may, on behalf of the Holders of all the Notes, waive any past
Default or Event of Default under the indenture as it relates to the Notes and
its consequences, except a Default in the payment of principal of or premium, if
any, or interest on
79
the Notes or in respect of a covenant or provision of the indenture which cannot
be modified or amended without the consent of all Holders.
Under the indenture, an officer of Dana is required to provide a
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default that has occurred and, if applicable, describe
such Default or Event of Default and the status thereof (provided that an
officer shall certify at least annually whether or not any Default or Event of
Default has occurred).
AMENDMENT, SUPPLEMENT AND WAIVER
From time to time, Dana, when authorized by a resolution of its Board of
Directors, and the Trustee, may, without the consent of the Holders, amend,
waive or supplement the indenture and the Notes issued thereunder for certain
specified purposes, including, among other things, curing ambiguities, defects
or inconsistencies, qualifying, or maintaining the qualification of, the
indenture under the Trust Indenture Act, or making any change that does not
adversely affect the rights of any Holder; provided that Dana has delivered to
the Trustee an opinion of counsel stating that such change does not adversely
affect the rights of any Holder. Other amendments and modifications of the
indenture and the Notes issued thereunder may be made by Dana, and the Trustee
with the consent of the Holders of not less than a majority of the aggregate
principal amount of the Notes then outstanding affected thereby.
Notwithstanding the foregoing, no amendment or modification may, without
the consent of the Holder of each outstanding Note affected thereby:
(1) change the maturity of the principal of or any installment of
interest on any such Note or alter the optional redemption or repurchase
provisions of any such Note or the indenture in a manner adverse to the
Holders of such Notes;
(2) reduce the principal amount of (or the premium) of any such Note;
(3) reduce the rate of or extend the time for payment of interest on
any Note;
(4) change the place or currency of payment of principal of (or
premium) or interest on any such Note or the obligation on the part of Dana
to pay Additional Amounts;
(5) modify any provisions of the indenture relating to the waiver of
past defaults (other than to add sections to the indenture or the Notes
subject thereto which do not adversely affect the Holders of Notes) or the
right of the Holders of Notes outstanding thereunder to institute suit for
the enforcement of any payment on or with respect to any Notes or the
modification and amendment of the indenture and any Notes (other than to
add sections to the indenture or the Notes which may not be amended,
supplemented or waived without the consent of each Holder herein affected);
(6) reduce the percentage of the principal amount of outstanding Notes
necessary for amendment to or waiver of compliance with any provision of
the applicable indenture or the Notes outstanding thereunder or for waiver
of any Default in respect thereof;
(7) waive a default in the payment of principal of, interest on, or
redemption payment with respect to, such Note (except a rescission of
acceleration of the Notes by the Holders thereof as provided in the
indenture and a waiver of the payment default that resulted from such
acceleration);
(8) modify the ranking or priority of the Notes; or
(9) modify the provisions relating to any Offer to Purchase required
under the covenants described under "-- Certain Covenants -- Limitation on
Certain Asset Dispositions" or "-- Certain Covenants -- Change of Control"
in a manner materially adverse to the Holders of Notes affected thereby.
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DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
Dana may, at its option and at any time, terminate the obligations of Dana
with respect to the Notes (defeasance). Such defeasance means that Dana shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes so defeased, except for:
(1) the rights of holders of outstanding Notes to receive payment in
respect of the principal of, premium, if any, and interest on such Notes
when such payments are due;
(2) Dana's obligations to issue temporary Notes, register the transfer
or exchange of any Notes, replace mutilated, destroyed, lost or stolen
Notes and maintain an office or agency for payments in respect of the
Notes;
(3) the rights, powers, trusts, duties and immunities of the Trustee;
and
(4) the defeasance provisions of the indenture.
In addition, Dana may, at its option and at any time, elect to terminate
its obligations with respect to certain covenants that are set forth in the
indenture with respect to the Notes, some of which are described under
"-- Certain Covenants" above, and any omission to comply with such obligations
shall not constitute a Default or an Event of Default with respect to the Notes
so defeased (covenant defeasance).
In order to exercise either defeasance or covenant defeasance:
(1) Dana must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Notes to be defeased cash in United States
dollars, U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on the outstanding Notes to be defeased to redemption
or maturity;
(2) Dana shall have delivered to the Trustee an opinion of counsel to
the effect that the holders of the outstanding Notes to be defeased will
not recognize income, gain or loss for Federal income tax purposes as a
result of such defeasance or covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if the act of such defeasance or covenant
defeasance had not occurred (in the case of defeasance, such opinion must
refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable Federal income tax laws);
(3) no Default or Event of Default under the indenture shall have
occurred and be continuing immediately after giving effect to such deposit;
(4) such defeasance or covenant defeasance shall not cause the Trustee
to have a conflicting interest with respect to any securities of Dana;
(5) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument to which Dana is a party or by which it is bound;
(6) Dana shall have delivered to the Trustee an opinion of counsel to
the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and
(7) Dana shall have delivered to the Trustee an officer's certificate
and an opinion of counsel, each stating that all conditions precedent under
the indenture to either defeasance or covenant defeasance, as the case may
be, have been complied with.
Notwithstanding the foregoing, the opinion of counsel required by clause
(2) above need not be delivered if at such time all outstanding Notes have been
irrevocably called for redemption.
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SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes issued thereunder, as expressly provided for in such indenture) as to all
outstanding Notes issued thereunder when:
(1) either
(a) all the Notes issued thereunder theretofore authenticated and
delivered (except lost, stolen or destroyed Notes issued thereunder
which have been replaced or paid and Notes issued thereunder for whose
payment money has theretofore been deposited in trust or segregated and
held in trust by Dana and thereafter repaid to Dana or discharged from
such trust) have been delivered to the Trustee for cancellation or
(b) all Notes issued thereunder not theretofore delivered to the
Trustee for cancellation have become due and payable and Dana has
irrevocably deposited or caused to be deposited with the Trustee funds
in U.S. dollars in an amount sufficient to pay and discharge the entire
Indebtedness on such Notes issued thereunder not theretofore delivered
to the Trustee for cancellation, for principal of, premium, if any, and
interest on such Notes issued thereunder to the date of deposit together
with irrevocable instructions from Dana directing the Trustee to apply
such funds to the payment thereof at maturity;
(2) Dana has paid all other sums payable under such indenture by Dana;
and
(3) Dana has delivered to the Trustee an officer's certificate and an
opinion of counsel stating that all conditions precedent under the
indenture relating to the satisfaction and discharge of the indenture have
been complied with.
NOTICES
All notices shall be deemed to have been given by the mailing by first
class mail, postage prepaid, of such notices to Holders of the Notes at their
registered addresses as recorded in the note register.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Dana or any
of its Subsidiaries, as such, will have any liability for any obligations of
Dana under the Notes or the indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each holder by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
SEC that such a waiver is against public policy.
GOVERNING LAW
The indenture and the Notes are governed by, and construed in accordance
with, the laws of the State of New York.
THE TRUSTEE
The indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the indenture, and use the same
degree of care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.
The indenture and the provisions of the Trust Indenture Act contain certain
limitations on the rights of the Trustee, should it become a creditor of Dana,
to obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
Trust Indenture
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Act, the Trustee will be permitted to engage in other transactions, provided
that if the Trustee acquires any conflicting interest as described in the Trust
Indenture Act, it must eliminate such conflict or resign.
REGISTRATION RIGHTS
Dana entered into a registration rights agreement with the initial
purchasers in which it agreed to use its reasonable best efforts to file with
the SEC and cause to become effective a registration statement relating to an
offer to exchange the Outstanding Notes for an issue of SEC-registered notes
(Exchange Notes) with terms identical to the Outstanding Notes (except that the
Exchange Notes will not be subject to restrictions on transfer or to any
increase in annual interest rates as described below). This prospectus is part
of the registration statement filed in compliance with these provisions.
When the SEC declares the exchange offer registration statement effective,
Dana will offer the Exchange Notes in return for the Outstanding Notes. The
exchange offer will remain open for at least 20 business days after the date
Dana mails notice of the exchange offer to noteholders. For each Outstanding
Note surrendered to Dana under the exchange offer, the noteholder will receive
an Exchange Note of equal principal amount. Interest on each Exchange Note will
accrue from the last interest payment date on which interest was paid on the
Notes or, if no interest has been paid on the Notes, from the date of issuance
of the Outstanding Notes.
If applicable interpretations of the staff of the SEC do not permit Dana to
effect the exchange offer, Dana will use its reasonable best efforts to cause to
become effective a shelf registration statement relating to resales of the
Outstanding Notes and to keep that shelf registration statement effective until
the expiration of the time period referred to in Rule 144(k) under the
Securities Act, or such shorter period that will terminate when all Notes
covered by the shelf registration statement have been sold. Dana will, in the
event of such a shelf registration, provide to each noteholder copies of a
prospectus, notify each noteholder when the shelf registration statement has
become effective and take certain other actions to permit resales of the Notes.
A noteholder that sells Notes under the shelf registration statement generally
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
those sales and will be bound by the provisions of the registration rights
agreement that are applicable to such a noteholder (including certain
indemnification obligations).
If the exchange offer is not completed on or before December 11, 2002, the
respective annual interest rates borne by the Notes will be increased by 1.0%
per annum until the exchange offer is completed. Whenever there is mentioned
herein, in any context, the payment of interest on a note, such mention shall be
deemed to include mention of the payment of any additional interest to the
extent that, in such context, any such additional interest is, was or would be
payable in respect thereof pursuant to the provisions of such note, the
indenture and the registration rights agreement and express mention of the
payment of additional interest (if applicable) in any provisions hereof shall
not be construed as excluding additional interest in those provisions hereof
where such express mention is not made.
Dana will be entitled to close the exchange offer 20 business days after
its commencement, provided that Dana has accepted all Outstanding Notes validly
surrendered in accordance with the terms of the exchange offer. Outstanding
Notes not tendered in the exchange offer shall bear interest at the rates set
forth on the cover page of this prospectus and be subject to all the terms and
conditions specified in the indenture, including transfer restrictions.
This summary of the provisions of the registration rights agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the registration rights agreement, a copy
of which is available from Dana upon request.
CERTAIN DEFINITIONS
"Acquired Indebtedness" of any specified Person means Indebtedness of any
other Person and its Restricted Subsidiaries existing at the time such other
Person merged with or into or became a Restricted Subsidiary of such specified
Person or assumed by the specified Person in connection with the acquisition of
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assets from such other Person and not incurred by the specified Person in
connection with or in anticipation of (a) such other Person and its Restricted
Subsidiaries being merged with or into or becoming a Restricted Subsidiary of
such specified Person or (b) such acquisition by the specified Person.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, the referent Person, as the case may be. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct or cause the direction of management or policies of
the referent Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Asset Disposition" means any sale, transfer or other disposition
(including, without limitation, by merger, consolidation or Sale and Leaseback
Transaction) of:
(1) shares of Capital Stock of a Restricted Subsidiary of Dana (other
than directors' qualifying shares); or
(2) property or assets of Dana or any of its Restricted Subsidiaries.
Notwithstanding the foregoing, an Asset Disposition shall not include:
(1) a disposition by a Restricted Subsidiary to Dana or by Dana or a
Restricted Subsidiary to a Restricted Subsidiary;
(2) the sale of Cash Equivalents in the ordinary course of business;
(3) a disposition of inventory in the ordinary course of business;
(4) a disposition of obsolete or worn out property or property that is
no longer useful in the conduct of the business of Dana and its Restricted
Subsidiaries and that is disposed of in each case in the ordinary course of
business;
(5) transactions permitted under "Certain Covenants -- Merger,
Consolidation, Etc.";
(6) an issuance of Capital Stock by a Restricted Subsidiary of Dana to
Dana or to a Restricted Subsidiary;
(7) for purposes of "Certain Covenants -- Limitation on Certain Asset
Dispositions" only, the making of a Permitted Investment or a disposition
subject to "Certain Covenants -- Limitation on Restricted Payments";
(8) an Asset Swap effected in compliance with "Certain
Covenants -- Limitation on Certain Asset Dispositions";
(9) any sale, transfer or other disposition of defaulted receivables
for collection;
(10) the grant in the ordinary course of business of any license of
patents, trademarks, registrations therefor and other similar intellectual
property;
(11) the granting of any Lien (or foreclosure thereon) securing
Indebtedness to the extent that such Lien is granted in compliance with
"-- Certain Covenants -- Limitation on Liens" above and dispositions in
connection with Permitted Liens;
(12) sales of accounts receivable in connection with the Receivables
Facility;
(13) sales of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of
"Qualified Securitization Transaction" to a Securitization Subsidiary for
the fair market value thereof, including cash in an amount at least equal
to 90% of the fair market value thereof as determined in accordance with
GAAP;
84
(14) transfers of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of
"Qualified Securitization Transaction" (or a fractional undivided interest
therein) by a Securitization Subsidiary in a Qualified Securitization
Transaction; and
(15) any isolated sale, transfer or other disposition that does not
(together with all related sales, transfers or dispositions) involve
consideration in excess of $10.0 million.
"Asset Sale Offer Trigger Date" has the meaning set forth in "-- Certain
Covenants -- Limitation on Certain Asset Dispositions."
"Asset Swap" means concurrent purchase and sale or exchange of Related
Business Assets between Dana or any of its Restricted Subsidiaries and another
Person; provided that any cash received must be applied in accordance with
"Limitation on Certain Asset Dispositions."
"Attributable Indebtedness" in respect of a Sale and Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
lower of the interest rates borne by the Notes, compounded annually) of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale and Leaseback Transaction (including any period
for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (2) the sum of all such payments.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participation or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation will be the capitalized amount of such obligation at the time
any determination thereof is to be made as determined in accordance with GAAP,
and the Stated Maturity thereof will be the date of the last payment of rent or
any other amount due under such lease before the first date such lease may be
terminated without penalty.
"Cash Equivalents" means
(1) securities issued or directly and fully guaranteed or insured by
the United States Government or any agency or instrumentality of the United
States (provided that the full faith and credit of the United States is
pledged in support thereof), having maturities of not more than one year
from the date of acquisition;
(2) marketable general obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having a credit rating
of "A" or better from either S&P or Moody's;
(3) certificates of deposit, time deposits, eurodollar time deposits,
overnight bank deposits or bankers' acceptances having maturities of not
more than one year from the date of acquisition thereof issued by any
commercial bank the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by S&P or "A" or
the equivalent thereof by Moody's, and having combined capital and surplus
in excess of $500.0 million;
85
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (1), (2) and (3)
entered into with any bank meeting the qualifications specified in clause
(3) above;
(5) commercial paper rated at the time of acquisition thereof at least
"A-2" or the equivalent thereof by S&P or "P-2" or the equivalent thereof
by Moody's, or carrying an equivalent rating by a nationally recognized
rating agency, if both of the two named rating agencies cease publishing
ratings of investments, and in any case maturing within one year after the
date of acquisition thereof; and
(6) interests in any investment company or money market fund which
invests solely in instruments of the type specified in clauses (1) through
(5) above.
"Change of Control" means the occurrence of one or more of the following
events:
(1) any "person" or "group" (as such terms are used in Section 13(d)
and 14(d) of the Exchange Act), other than employee or retiree benefit
plans or trusts sponsored or established by Dana, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Dana representing 35% or more of
the combined voting power of Dana's then outstanding Voting Stock;
(2) the following individuals cease for any reason to constitute more
than two-thirds of the number of directors then serving on the Board of
Directors of Dana: individuals who, on the Issue Date, constitute the Board
of Directors and any new director (other than a director whose initial
assumption of the office is in connection with an actual or threatened
election contest, including but not limited to a consent solicitation,
relating to the election of directors of Dana) whose appointment or
election by the Board of Directors or nomination for election by Dana's
stockholders was approved by the vote of at least a majority of the
directors then still in office or whose appointment, election or nomination
was previously so approved or recommended;
(3) the shareholders of Dana shall approve any Plan of Liquidation
(whether or not otherwise in compliance with the provisions of the
indenture); or
(4) Dana or any Restricted Subsidiary of Dana, directly or indirectly,
sells, assigns, conveys, transfers, leases or otherwise disposes of, in one
transaction or a series of related transactions, all or substantially all
of the property or assets of Dana and the Restricted Subsidiaries of Dana
(determined on a consolidated basis) to any Person; provided, that neither
the merger of a Restricted Subsidiary of Dana into Dana or into any
Restricted Subsidiary of Dana nor a sale, assignment, conveyance, transfer,
lease or other disposition of all or substantially all of the property or
assets of a Restricted Subsidiary of Dana into Dana or into any Restricted
Subsidiary of Dana shall be deemed to be a Change of Control.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of Dana, the Capital Stock of which constitutes all or
substantially all of the properties and assets of Dana, shall be deemed to be
the transfer of all or substantially all of the properties and assets of Dana.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means with respect to any Person, any and all shares,
interest or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such Person's common stock whether or not
outstanding on the Issue Date, and includes, without limitation, all series and
classes of such common stock.
"Consolidated Coverage Ratio" means as of any date of determination, with
respect to any Person, the ratio of (x) the aggregate amount of Consolidated
EBITDA of such Person for the period of the most recent
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four consecutive fiscal quarters ending prior to the date of such determination
for which financial statements are in existence to (y) Consolidated Interest
Expense for such four fiscal quarters, provided, however, that:
(1) if Dana or any Restricted Subsidiary:
(a) has incurred any Indebtedness since the beginning of such four
fiscal quarters that remains outstanding on such date of determination
or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an incurrence of Indebtedness,
Consolidated EBITDA and Consolidated Interest Expense for such period
will be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day
of such period (except that in making such computation, the amount of
Indebtedness under any revolving credit facility outstanding on the date
of such calculation will be computed based on (i) the average daily
balance of such Indebtedness during such four fiscal quarters or such
shorter period for which such facility was outstanding or (ii) if such
facility was created after the end of such four fiscal quarters, the
average daily balance of such Indebtedness during the period from the
date of creation of such facility to the date of such calculation) and
to the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if
such discharge had occurred on the first day of such period; or
(b) has repaid, repurchased, defeased or otherwise discharged any
Indebtedness since the beginning of the period that is no longer
outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio involves a
discharge of Indebtedness (in each case other than Indebtedness incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and the related commitment terminated), Consolidated
EBITDA and Consolidated Interest Expense for such period will be
calculated after giving effect on a pro forma basis to such discharge of
such Indebtedness, including with the proceeds of such new Indebtedness,
as if such discharge had occurred on the first day of such period;
(2) if since the beginning of such period Dana or any Restricted
Subsidiary will have made any Asset Disposition or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio is an
Asset Disposition:
(a) the Consolidated EBITDA for such period will be reduced by an
amount equal to the Consolidated EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset
Disposition for such period or increased by an amount equal to the
Consolidated EBITDA (if negative) directly attributable thereto for such
period; and
(b) Consolidated Interest Expense for such period will be reduced
by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of Dana or any Restricted Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to
Dana and its continuing Restricted Subsidiaries in connection with such
Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for
such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent Dana and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale);
(3) if since the beginning of such period Dana or any Restricted
Subsidiary (by merger or otherwise) will have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary
or is merged with or into Dana) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially
all of an operating unit, division or line of business, Consolidated EBITDA
and Consolidated Interest Expense for such period will be calculated after
giving pro forma effect thereto (including the incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first
day of such period; and
(4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into Dana
or any Restricted Subsidiary since the beginning of such period) will have
made any Asset Disposition or any Investment or acquisition of assets that
would have
87
required an adjustment pursuant to clause (2) or (3) above if made by Dana
or a Restricted Subsidiary during such period, Consolidated EBITDA and
Consolidated Interest Expense for such period will be calculated after
giving pro forma effect thereto as if such Asset Disposition or Investment
or acquisition of assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to any
calculation under this definition, the pro forma calculations will be determined
in good faith by a responsible financial or accounting officer of Dana
(including pro forma expense and cost reductions calculated on a basis
consistent with Regulation S-X under the Securities Act). If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest expense on such Indebtedness will be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Protection Agreement applicable to
such Indebtedness if such Interest Rate Protection Agreement has a remaining
term in excess of 12 months).
"Consolidated EBITDA" for any period means, without duplication, the
Consolidated Net Income for such period, plus the following to the extent
deducted in calculating such Consolidated Net Income:
(1) Consolidated Interest Expense;
(2) Consolidated Income Taxes;
(3) consolidated depreciation expense;
(4) consolidated amortization of intangibles; and
(5) other non-cash charges reducing Consolidated Net Income (excluding
any such non-cash charge to the extent it represents an accrual of or
reserve for cash charges in any future period or amortization of a prepaid
cash expense that was paid in a prior period not included in the
calculation).
"Consolidated Income Taxes" means, with respect to any Person for any
period, taxes imposed upon such Person or other payments required to be made by
such Person by any governmental authority which taxes or other payments are
calculated by reference to the income or profits of such Person or such Person
and its Restricted Subsidiaries (to the extent such income or profits were
included in computing Consolidated Net Income for such period), regardless of
whether such taxes or payments are required to be remitted to any governmental
authority.
"Consolidated Interest Expense" means, for any period, the total interest
expense of Dana and its consolidated Restricted Subsidiaries, whether paid or
accrued, plus, to the extent not included in such interest expense:
(1) interest expense attributable to Capitalized Lease Obligations and
the interest portion of rent expense associated with Attributable
Indebtedness in respect of the relevant lease giving rise thereto,
determined as if such lease were a capitalized lease in accordance with
GAAP and the interest component of any deferred payment obligations;
(2) amortization of debt discount;
(3) non-cash interest expense;
(4) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
(5) the interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries;
(6) net costs associated with Hedging Obligations (including
amortization of fees);
(7) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period;
88
(8) the product of (a) all dividends paid or payable in cash, Cash
Equivalents or Indebtedness or accrued during such period on any series of
Disqualified Stock of such Person or on Preferred Stock of its Restricted
Subsidiaries payable to a party other than Dana or a Restricted Subsidiary,
times (b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state, provincial and
local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP; and
(9) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than Dana) in connection
with Indebtedness Incurred by such plan or trust; provided, however, that
there will be excluded therefrom any such interest expense of any
Unrestricted Subsidiary to the extent the related Indebtedness is not
Guaranteed or paid by Dana or any Restricted Subsidiary.
For purposes of the foregoing, total interest expense will be determined after
giving effect to any net payments made or received by Dana and its Subsidiaries
with respect to Interest Rate Protection Agreements.
"Consolidated Net Income" means, for any period, the net income (loss) of
Dana and its consolidated Restricted Subsidiaries determined in accordance with
GAAP; provided, however, that there will not be included in such Consolidated
Net Income:
(1) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that:
(a) subject to the limitations contained in clauses (4), (5) and
(6) below, Dana's equity in the net income of any such Person for such
period will be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such
period to Dana or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
to a Restricted Subsidiary, to the limitations contained in clause (3)
below); and
(b) Dana's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period will be included in determining
such Consolidated Net Income to the extent such loss has been funded
with cash from Dana or a Restricted Subsidiary;
(2) any net income (loss) of any Person acquired by Dana or a
Subsidiary in a pooling of interests transaction for any period before the
date of such acquisition;
(3) any net income (but not loss) of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to Dana, except that:
(a) subject to the limitations contained in clauses (4), (5) and
(6) below, Dana's equity in the net income of any such Restricted
Subsidiary for such period will be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been
distributed by such Restricted Subsidiary during such period to Dana or
another Restricted Subsidiary as a dividend (subject, in the case of a
dividend to another Restricted Subsidiary, to the limitation contained
in this clause); and
(b) Dana's equity in a net loss of any such Restricted Subsidiary
for such period will be included in determining such Consolidated Net
Income;
(4) any gain (loss) realized upon the sale or other disposition of any
property, plant or equipment of Dana or its consolidated Restricted
Subsidiaries (including pursuant to any Sale and Leaseback Transaction)
which is not sold or otherwise disposed of in the ordinary course of
business (provided that sales of equipment and related assets (including
contract rights) or Receivables or interests therein pursuant to Qualified
Securitization Transactions shall be deemed to be in the ordinary course)
and any gain (loss) realized upon the sale or other disposition of any
Capital Stock of any Person;
(5) any extraordinary gain or loss; and
(6) the cumulative effect of a change in accounting principles.
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"Consolidated Net Tangible Assets" means the total assets (less applicable
reserved and other properly deductible items) on the balance sheet of Dana and
its consolidated Subsidiaries for the most recent fiscal quarter, less (i) all
current liabilities and (ii) goodwill, trade names, patents, organization
expenses and other like intangibles of Dana and its consolidated Subsidiaries.
"Consolidated Tangible Assets" means the total assets (less applicable
reserved and other properly deductible items) on the balance sheet of Dana and
its consolidated Subsidiaries for the most recent fiscal quarter, less goodwill,
trade names, patents, organization expenses and other like intangibles of Dana
and its consolidated Subsidiaries.
"Credit Facilities" means (i) the 364-Day Credit Agreement dated as of
December 19, 2001, as amended by Amendment No. 1 dated February 1, 2002, among
Dana, as borrower, the initial lenders named therein, as initial lenders, and
Citibank, N.A., as Administrative Agent, Deutsche Bank, AG, New York Branch and
Bank of America, N.A., as Syndication Agents, JPMorgan Chase Bank, as
Documentation Agent and Salomon Smith Barney Inc., as Lead Arranger and Book
Manager, including any related notes, (ii) the Five-Year Credit Agreement dated
as of November 15, 2000, as amended by Amendment No. 1 dated February 9, 2001,
Amendment No. 2 dated December 19, 2001 and Amendment No. 3 dated February 1,
2002, among Dana, as borrower, the initial lenders named therein, as initial
lenders, and Citibank, N.A., as Administrative Agent, Deutsche Bank, AG, New
York Branch and Bank of America, N.A., as Syndication Agents, JPMorgan Chase
Bank, as Documentation Agent and Salomon Smith Barney Inc., as Lead Arranger and
Book Manager, including any related notes and (iii) the Receivables Facility,
each as amended to the Issue Date and as such Facilities may from time to time
thereafter be amended, restated, supplemented or otherwise modified, including
any refinancing, refunding, replacement or extension thereof and whether by the
same or any other lender or group of lenders; provided that no amendment,
restatement, supplement or other modification to such facilities shall permit a
Restricted Subsidiary to be a borrower thereunder except to the extent permitted
under clause (16) under "Limitations on Incurrence of Indebtedness and Issuance
of Preferred Stock" or provide for the granting of a Lien other than as
permitted by "Limitations on Liens"; and provided, further, that in no event
shall the amount of Indebtedness which Dana may incur under the Credit
Facilities, including any refinancing, refunding, replacement or extension
thereof, exceed $1.56 billion.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect Dana or
any of its Restricted Subsidiaries against fluctuations in currency values to or
under which Dana or any of its Restricted Subsidiaries is a party or a
beneficiary on the date of the indenture or becomes a party or a beneficiary
thereafter.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default (as defined in the indenture).
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock (excluding Capital Stock which is convertible or exchangeable solely
at the option of Dana or a Restricted Subsidiary); or
(3) is redeemable at the option of the holder of the Capital Stock, in
whole or in part,
in each case on or prior to the date that is 91 days after the date (a) on which
the Notes mature or (b) on which there are no Notes outstanding, provided that
only the portion of Capital Stock which so matures or is mandatorily redeemable,
is so convertible or exchangeable or is so redeemable at the option of the
holder thereof before such date will be deemed to be Disqualified Stock;
provided, further that any Capital Stock that would constitute Disqualified
Stock solely because the holders thereof have the right to require Dana to
repurchase such Capital Stock upon the occurrence of a change of control or
asset sale (each defined in a substantially identical manner to the
corresponding definitions in the indenture) shall not constitute Disqualified
Stock if the terms of such Capital Stock (and all such securities into which it
is convertible or for
90
which it is redeemable or exchangeable) provide that Dana may not repurchase or
redeem any such Capital Stock (and all such securities into which it is
convertible or for which it is redeemable or exchangeable) pursuant to such
provision prior to compliance by Dana with the provisions of the indenture
described under the captions "Change of Control" and "Certain
Covenants -- Limitation on Certain Asset Dispositions" and such repurchase or
redemption complies with "Certain Covenants -- Limitation on Restricted
Payments."
"Event of Default" has the meaning set forth under "-- Events of Default"
herein.
"Funded Debt" means indebtedness for borrowed money owed or guaranteed by
Dana or any consolidated Restricted Subsidiary, and any other indebtedness which
under GAAP would appear as debt on Dana's consolidated balance sheet, which
matures by its terms more than twelve months from the date as of which Funded
Debt is to be determined or is extendible or renewable at the option of the
obligor to a date more than twelve months from the date as of which Funded Debt
is to be determined.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreement to keepwell, to
purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise); or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part), provided
that the term "guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business. The term "guarantee" used as a
verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Protection Agreement or Currency Agreement.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurable" and "incurring" shall have meanings
correlative to the foregoing), provided that the accrual of interest (whether
such interest is payable in cash or in kind) and the accretion of original issue
discount shall not be deemed an incurrence of Indebtedness, provided, further,
that:
(1) any Indebtedness or Capital Stock of a Person existing at the time
such Person becomes (after the Issue Date) a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) of Dana shall be deemed
to be incurred or issued, as the case may be, by such Restricted Subsidiary
at the time it becomes a Restricted Subsidiary of Dana; and
(2) any amendment, modification or waiver of any document pursuant to
which Indebtedness was previously incurred shall not be deemed to be an
incurrence of Indebtedness unless and then only to the extent such
amendment, modification or waiver increases the principal or premium
thereof or interest rate thereon (including by way of original issue
discount).
"Indebtedness" means, with respect to any Person, at any date, any of the
following, without duplication:
(1) any liability, contingent or otherwise, of such Person (a) for
borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof),
91
(b) evidenced by a note, bond, debenture or similar instrument or letters
of credit (including a purchase money obligation) or (c) for the payment of
money relating to a Capitalized Lease Obligation or other obligation
(whether issued or assumed) relating to the deferred purchase price of
property, but excluding trade accounts payable of such Person arising in
the ordinary course of business;
(2) all conditional sale obligations and all obligations under any
title retention agreement (even if the rights and remedies of the seller
under such agreement in the event of default are limited to repossession or
sale of such property), but excluding trade accounts payable of such Person
arising in the ordinary course of business;
(3) all obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction entered into
in the ordinary course of business;
(4) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on any asset or property (including, without
limitation, leasehold interests and any other tangible or intangible
property) of such Person, whether or not such Indebtedness is assumed by
such Person or is not otherwise such Person's legal liability; provided,
that if the obligations so secured have not been assumed by such Person or
are otherwise not such Person's legal liability, the amount of such
Indebtedness for the purposes of this definition shall be limited to the
lesser of the amount of such Indebtedness secured by such Lien or the fair
market value of the assets or property securing such Lien;
(5) all Indebtedness of others (including all dividends of other
Persons the payment of which is) guaranteed, directly or indirectly, by
such Person or that is otherwise its legal liability or which such Person
has agreed to purchase or repurchase or in respect of which such Person has
agreed contingently to supply or advance funds;
(6) all Disqualified Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to
the greater of its voluntary or involuntary liquidation preference and its
maximum fixed repurchase price, but excluding accrued dividends if any;
(7) all obligations under Currency Agreements and Interest Rate
Protection Agreements; and
(8) all Attributable Indebtedness in respect of Sale and Leaseback
Transactions entered into by such person.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall he determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital
Stock.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance without duplication at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date, provided that the amount outstanding at any time of any Indebtedness
issued with original issue discount is the full amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in accordance with GAAP.
For the avoidance of doubt, neither the Operating Agreement nor the
obligations thereunder shall constitute "Indebtedness" for the purposes of the
indenture or the Notes.
"Interest Rate Protection Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect a Person or any Restricted Subsidiary against
fluctuations in interest rates to or under which such
92
Person or any Restricted Subsidiary of such Person is a party or a beneficiary
on the Issue Date or becomes a party or a beneficiary thereafter.
"Investment" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of any direct or
indirect advance, loan (other than advances to customers in the ordinary course
of business) or other extension of credit (including by way of guarantee or
similar arrangement, but excluding any debt or extension of credit represented
by a bank deposit other than a time deposit) or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, Indebtedness or other similar instruments issued
by, such Person and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
none of the following will be deemed to be an Investment:
(1) Hedging Obligations entered into in the ordinary course of
business and in compliance with the indenture;
(2) endorsements of negotiable instruments and documents in the
ordinary course of business; and
(3) an acquisition of assets, Capital Stock or other securities by
Dana or a Subsidiary for consideration to the extent such consideration
consists of common equity securities of Dana.
For purposes of "Certain Covenants -- Limitation on Restricted Payments",
(1) "Investment" will include the portion (proportionate to Dana's
equity interest in a Restricted Subsidiary to be designated as an
Unrestricted Subsidiary) of the fair market value of the net assets of such
Restricted Subsidiary of Dana at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, Dana will be
deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (a) Dana's "Investment" in
such Subsidiary at the time of such redesignation less (b) the portion
(proportionate to Dana's equity interest in such Subsidiary) of the fair
market value of the net assets (as conclusively determined by the Board of
Directors of Dana in good faith) of such Subsidiary at the time that such
Subsidiary is so re-designated a Restricted Subsidiary; and
(2) any property transferred to or from an Unrestricted Subsidiary
will be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Board of Directors of Dana. If
Dana or any Restricted Subsidiary of Dana sells or otherwise disposes of
any Voting Stock of any Restricted Subsidiary of Dana such that, after
giving effect to any such sale or disposition, such entity is no longer a
Subsidiary of Dana, Dana shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value (as
conclusively determined by the Board of Directors of Dana in good faith) of
the Capital Stock of such Subsidiary not sold or disposed of.
"Investment Grade" means:
(1) with respect to S&P, any of the rating categories from and
including AAA to and including BBB-; and
(2) with respect to Moody's, any of the rating categories from and
including Aaa to and including Baa3.
"Issue Date" means the date on which the Notes are originally issued under
the indenture.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind, including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statute or statutes) of any jurisdiction but excluding any such filing or
agreement which reflects ownership by a third party of
93
(1) property leased to the referent Person or any of its Restricted
Subsidiaries under a lease that is not in the nature of a conditional sale
or title retention agreement or
(2) accounts, general intangibles or chattel paper sold to the
referent Person.
"Material Subsidiary" means, at any date of determination, any Subsidiary
of Dana that, together with its Subsidiaries,
(1) for the most recent fiscal year of Dana accounted for more than 5%
of the consolidated revenues of Dana or
(2) as of the end of such fiscal year, was the owner of more than 5%
of the consolidated assets of Dana, all as set forth on the most recently
available consolidated financial statements of Dana and its consolidated
Subsidiaries for such fiscal year prepared in conformity with GAAP.
"Maturity Date" means March 15, 2010.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable Cash Equivalents received (including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquirer of Indebtedness or other obligations relating to such properties or
assets or received in any other non-cash form) therefrom by such Person,
including any cash received by way of deferred payment or upon the monetization
or other disposition of any non-cash consideration (including notes or other
securities) received in connection with such Asset Disposition, net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred (including, without limitation, fees and
expenses of accountants, brokers, printers and other similar entities) and
all federal, state, foreign and local taxes required to be accrued as a
liability as a consequence of such Asset Disposition;
(2) all payments made by such Person or its Restricted Subsidiaries on
any Indebtedness which is secured by such assets in accordance with the
terms of any Lien upon or with respect to such assets or which must by the
terms of such Lien, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such
Asset Disposition;
(3) all payments made with respect to liabilities associated with the
assets which are the subject of the Asset Disposition, including, without
limitation, trade payables and other accrued liabilities;
(4) appropriate amounts to be provided by such Person or any
Restricted Subsidiary thereof, as the case may be, as a reserve in
accordance with GAAP against any liabilities associated with such assets
and retained by such Person or any Restricted Subsidiary thereof, as the
case may be, after such Asset Disposition, including, without limitation,
liabilities under any indemnification obligations and severance and other
employee termination costs associated with such Asset Disposition, until
such time as such amounts are no longer reserved or such reserve is no
longer necessary (at which time any remaining amounts will become Net
Available Proceeds to be allocated in accordance with the provisions of
clause (3) of the covenant of the indenture described under "-- Certain
Covenants -- Limitation on Certain Asset Dispositions"); and
(5) all distributions and other payments, made to minority interest
holders, if any, in Restricted Subsidiaries of such Person or joint
ventures as a result of such Asset Disposition.
"Offer to Purchase" means a written offer (the "Offer") sent by Dana by
first class mail, postage prepaid, to each Holder at its address appearing in
the register for the Notes on the date of the Offer, offering to purchase up to
the principal amount of the Notes in such Offer at the purchase price specified
in such Offer (as determined pursuant to the indenture). Unless otherwise
required by applicable law, the Offer shall specify an expiration date (the
"Expiration Date") of the Offer to Purchase which shall be not less than 30 days
nor more than 60 days after the date of such Offer and a settlement date (the
"Purchase Date") for
94
purchase of such Notes within five Business Days after the Expiration Date. Dana
shall notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to such Trustee) prior to the mailing of the Offer of Dana's
obligation to make an Offer to Purchase, and the Offer shall be mailed by Dana
or, at Dana's request, by such Trustee in the name and at the expense of Dana.
The Offer shall contain all the information required by applicable law to be
included therein. The Offer shall contain all instructions and materials
necessary to enable such Holders to tender such Notes pursuant to the Offer to
Purchase. The Offer shall also state:
(1) the Section of the indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to
be purchased by Dana pursuant to the Offer to Purchase (including, if less
than 100%, the manner by which such amount has been determined pursuant to
the section of the indenture requiring the Offer to Purchase) (the
"Purchase Amount");
(4) the purchase price to be paid by Dana for each $1,000 aggregate
principal amount of Notes accepted for payment (as specified pursuant to
the indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount of Notes;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not
purchased by Dana pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each Holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if Dana or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to Dana and the Trustee duly executed by the
Holder thereof or his attorney duly authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion of
Notes tendered if Dana (or its Paying Agent) receives, not later than the
close of business on the fifth Business Day next preceding the Expiration
Date, a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Note the Holder tendered,
the certificate number of the Note the Holder tendered and a statement that
such Holder is withdrawing all or a portion of his tender;
(11) that (I) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, Dana shall purchase all such Notes and (II) if
Notes in an aggregate principal amount in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, Dana shall
purchase Notes having an aggregate principal amount equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only Notes in denominations of $1,000 or integral
multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in
part, Dana shall execute, and the Trustee shall authenticate and deliver to
the Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in all aggregate
principal amount equal to and in exchange for the unpurchased portion of
the Note or Notes so tendered.
95
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.
"Operating Agreement" means the Operating Agreement dated as of May 23,
1995, between Dana and Dana Credit Corporation, as amended.
"Permitted Investments" means:
(1) Investments in marketable, direct obligations issued or guaranteed
by the United States of America, or any governmental entity or agency or
political subdivision thereof (provided, that the good faith and credit of
the United States of America is pledged in support thereof), maturing
within one year of the date of purchase;
(2) Investments in commercial paper issued by corporations or
financial institutions maturing within 180 days from the date of the
original issue thereof, and rated "P-1" or better by Moody's or "A-1" or
better by S&P or an equivalent rating or better by any other nationally
recognized securities rating agency;
(3) Investments in certificates of deposit issued or acceptances
accepted by or guaranteed by any bank or trust company organized under the
laws of the United States of America or any state thereof or the District
of Columbia, in each case having capital, surplus and undivided profits
totaling more than $500,000,000, maturing within one year of the date of
purchase;
(4) deposits, including interest-bearing deposits, maintained in the
ordinary course of business in banks;
(5) any acquisition of the Capital Stock of any Person; provided, that
after giving effect to any such acquisition such Person shall become a
Restricted Subsidiary of Dana;
(6) trade receivables and prepaid expenses, in each case arising in
the ordinary course of business; provided, that such receivables and
prepaid expenses would be recorded as assets of such Person in accordance
with GAAP;
(7) endorsements for collection or deposit in the ordinary course of
business by such Person of bank drafts and similar negotiable instruments
of such other Person received as payment for ordinary course of business
trade receivables;
(8) any interest swap or hedging obligation with an unaffiliated
Person otherwise permitted by the indenture (including, without limitation,
any Currency Agreement and any Interest Rate Protection Agreement otherwise
permitted by the indenture);
(9) Investments received as consideration for an Asset Disposition in
compliance with the provisions of the indenture described under "-- Certain
Covenants -- Limitation on Certain Asset Dispositions" above;
(10) Investments for which the sole consideration provided is
Qualified Capital Stock of Dana; provided, that the issuance of such
Qualified Capital Stock is not included in the calculation set forth in
clause (3) of the first paragraph of "-- Certain Covenants -- Limitation on
Restricted Payments";
(11) loans and advances to employees made in the ordinary course of
business;
(12) Investments outstanding on the Issue Date;
(13) Investments in Dana or a Restricted Subsidiary;
(14) Investments in securities of trade creditors, suppliers or
customers received pursuant to any plan of reorganization or similar
arrangement upon bankruptcy or insolvency of such trade creditor, supplier
or customer;
(15) Investments made by Dana in Dana Credit Corporation required
pursuant to the Operating Agreement;
96
(16) Investments in any Person after the Issue Date in an aggregate
amount not in excess of $150.0 million at any one time outstanding; and
(17) Investments in publicly traded equity or publicly traded
Investment Grade debt obligations issued by a corporation (other than Dana
or an affiliate of Dana) organized under the laws of any State of the
United States of America and subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act in an aggregate amount not in
excess of $10.0 million at any one time outstanding.
"Permitted Joint Venture" means any Person which is not a Restricted
Subsidiary and which is, directly or indirectly, through its subsidiaries or
otherwise, engaged principally in a Related Business, and the Capital Stock of
which is owned by Dana or its Restricted Subsidiaries, on the one hand, and one
or more Persons other than Dana or any Affiliate of Dana, on the other hand.
"Permitted Liens" means:
(1) Liens for taxes, assessments and governmental charges (other than
any Lien imposed by the Employee Retirement Income Security Act of 1974, as
amended) that are not yet delinquent or are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted and
for which adequate reserves have been established or other provisions have
been made in accordance with generally accepted accounting principles;
(2) statutory mechanics', workmen's, materialmen's, operators' or
similar Liens imposed by law and arising in the ordinary course of business
for sums which are not yet due or are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and
for which adequate reserves have been established or other provisions have
been made in accordance with generally accepted accounting principles;
(3) minor imperfections of, or encumbrances on, title that do not
impair the value of property for its intended use;
(4) Liens (other than any Lien under the Employee Retirement Income
Security Act of 1974, as amended) incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security;
(5) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return of money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment
of borrowed money);
(6) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of Dana or
of any of its Restricted Subsidiaries;
(7) Liens (including extensions and renewals thereof) upon real or
tangible personal property acquired after the Issue Date; provided, that
(a) such Lien is created solely for the purpose of securing
Indebtedness that is incurred in accordance with the indenture to
finance the cost (including the cost of improvement or construction) of
the item of property or assets subject thereto and such Lien is created
prior to, at the time of or within 180 days after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property,
(b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and
(c) any such Lien shall not extend to or cover any property or
assets of Dana or of any Restricted Subsidiary of Dana other than such
item of property or assets and any improvements on such item;
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(8) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of Dana or of any Restricted
Subsidiary of Dana;
(9) any interest or title of a lessor in the property subject to any
Capitalized Lease Obligation, provided that any transaction related thereto
otherwise complies with the indenture;
(10) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(11) Liens arising from the rendering of a final judgment or order
against Dana or any Restricted Subsidiary of Dana that does not give rise
to an Event of Default;
(12) Liens securing reimbursement obligations with respect to letters
of credit incurred in accordance with the indenture that encumber documents
and other property relating to such letters of credit and the products and
proceeds thereof;
(13) Liens in favor of the Trustee arising under the indenture;
(14) any lien existing on property, shares of stock or Indebtedness of
a Person at the time such Person becomes a Restricted Subsidiary of Dana or
is merged with or consolidated into Dana or a Restricted Subsidiary of Dana
or at the time of sale, lease or other disposition of the properties of any
Person as an entirety or substantially as an entirety to Dana or any
Restricted Subsidiary of Dana;
(15) Liens on property of any Subsidiary of Dana to secure
Indebtedness for borrowed money owed to Dana or to another Restricted
Subsidiary of Dana;
(16) Liens in favor of Dana or any Restricted Subsidiary;
(17) Liens existing on the Issue Date;
(18) Liens in favor of custom and revenue authorities arising as a
matter of law to secure payment of nondelinquent customs duties in
connection with the importation of goods;
(19) Liens encumbering customary initial deposits and margin deposits,
and other Liens incurred in the ordinary course of business that are within
the general parameters customary in the industry, in each case securing
Indebtedness under an Interest Rate Protection Agreement;
(20) Liens encumbering deposits made in the ordinary course of
business to secure nondelinquent obligations arising from statutory,
regulatory, contractual or warranty requirements of Dana or its Restricted
Subsidiaries for which a reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made;
(21) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by Dana or any Restricted Subsidiary in the
ordinary course of business in accordance with industry practice;
(22) Liens securing Indebtedness which is incurred to refinance
Indebtedness which had been secured by a Lien or Liens permitted under
"Limitation on Liens" and which is incurred in accordance with the
provisions of "Limitations on Incurrence of Indebtedness and Issuance of
Preferred Stock"; provided that such Liens do not extend to or cover any
property or assets of Dana or any of its Restricted Subsidiaries not
securing the Indebtedness so refinanced;
(23) Liens securing the Receivables Facility;
(24) Liens granted in connection with any Qualified Securitization
Transaction;
(25) Liens securing Indebtedness incurred by Restricted Subsidiaries
incurred in accordance with the provisions of "Limitations on Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(26) in addition to the items referred to in clauses (1) through (25)
above, Liens of Dana and its Restricted Subsidiaries in an aggregate amount
which, when taken together with the aggregate amount of all other Liens
incurred pursuant to this clause (26) and then outstanding, will not exceed
5% of Consolidated Tangible Assets.
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"Permitted Secured Debt" means (1) Secured Debt existing at the date of the
indenture; (2) liens on real or personal property acquired, constructed or
improved by Dana or a Restricted Subsidiary after the date of the indenture
which are created contemporaneously with, or within 12 months after, the
acquisition, construction or improvement to secure all or any part of the
purchase price of such property or the cost of such construction or improvement;
(3) mortgages on property of Dana or a Restricted Subsidiary created within 12
months of the completion of construction or improvement of any new plant(s) on
such property to secure the cost of such construction or improvement; (4) liens
on property existing at the time the property was acquired by Dana or any
Restricted Subsidiary; (5) liens on the outstanding shares or indebtedness of a
corporation existing at the time such corporation becomes a Subsidiary; (6)
liens on stock (except stock of Subsidiaries) acquired after the date of the
indenture if the aggregate cost thereof does not exceed 15% of Consolidated Net
Tangible Assets; (7) liens securing indebtedness of a successor corporation to
Dana to the extent permitted by the indenture; (8) liens securing indebtedness
of a Restricted Subsidiary at the time it became such; (9) liens securing
indebtedness of any entity outstanding at the time it merged with, or
substantially all of its properties were acquired by, Dana or any Restricted
Subsidiary; (10) liens created, incurred or assumed in connection with an
industrial revenue bond, pollution control bond or similar financing arrangement
between Dana or any Restricted Subsidiary and any federal, state or municipal
government or other governmental body or quasi-governmental agency; (11) liens
in connection with government or other contracts to secure progress or advance
payments; (12) liens in connection with taxes or legal proceedings to the extent
such taxes or legal proceedings are being contested or appealed in good faith or
are incurred for the purpose of obtaining a stay or discharge in the course of
such proceedings; (13) liens consisting of mechanics' or materialmen's or
similar liens incurred in the ordinary course of business and easements, rights
of way, zoning restrictions, restrictions on the use of real property and
defects and irregularities in title thereto; (14) liens made in connection with
or to secure payment of workers' compensation, unemployment insurance, or social
security obligations; (15) liens in connection with the Sale and Leaseback
Transactions which are not subject to the limitations described below under
"Certain Covenants -- Limitations on Sale and Leaseback Transactions"; (16)
mortgages to secure debt of a Restricted Subsidiary to Dana or to another
Restricted Subsidiary; (17) extensions, renewals or replacements of the
foregoing permitted liens to the extent of the original amounts thereof; and
(18) Secured Debt of Dana and its Restricted Subsidiaries not otherwise
permitted or excepted if the sum of such Secured Debt plus the aggregate value
of Sale and Leaseback Transactions subject to the limitation described "Certain
Covenants -- Limitations on Sale and Leaseback Transactions", does not exceed
15% of the Consolidated Net Tangible Assets.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan (including
by operation of law) that provides for, contemplates or the effectuation of
which is preceded or accompanied by (whether or not substantially
contemporaneously):
(1) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the referent Person; and
(2) the distribution of all or substantially all of the proceeds of
such sale, lease, conveyance or other disposition and all or substantially
all of the remaining assets of the referent Person to holders of Capital
Stock of the referent Person.
"Preferred Stock" means, as applied to the Capital Stock of any Person, the
Capital Stock of such Person (other than the Common Stock of such Person) of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding-up of such Person, to shares of Capital
Stock of any other class of such Person.
"Principal Property" means any real property (including building and other
improvements) of Dana or any Restricted Subsidiary, owned currently or hereafter
acquired (other than any pollution control facility, cogeneration facility or
small power production facility) which has a book value in excess of 2% of
Consolidated Net Tangible Assets.
99
"Qualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that is not Disqualified Capital Stock or convertible into
or exchangeable or exercisable for Disqualified Capital Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions that have been or may be entered into by any of the Restricted
Subsidiaries of Dana in connection with or reasonably related to a transaction
or series of transactions in which any of the Restricted Subsidiaries of Dana
may sell, convey or otherwise transfer to (1) a Securitization Subsidiary or (2)
any other Person, or may grant a security interest in, any equipment and related
assets (including contract rights) or Receivables or interests therein secured
by goods or services financed thereby (whether such Receivables are then
existing or arising in the future) of any of the Restricted Subsidiaries of
Dana, and any assets related thereto including, without limitation, all security
or ownership interests in goods or services financed thereby, the proceeds of
such Receivables, and other assets which are customarily sold or in respect of
which security interests are customarily granted in connection with
securitization transactions involving such assets.
"Rating Agency" means each of (1) S&P and (2) Moody's.
"Receivables" means any right of payment from or on behalf of any obligor,
whether constituting an account, chattel paper, instrument, general intangible
or otherwise, arising from the financing by any Restricted Subsidiary of Dana of
goods or services, and monies due thereunder, security or ownership interests in
the goods and services financed thereby, records related thereto, and the right
to payment of any interest or finance charges and other obligations with respect
thereto, proceeds from claims on insurance policies related thereto, any other
proceeds related thereto, and any other related rights.
"Receivables Facility" means the Receivables Purchase Agreement dated as of
March 29, 2001, among Dana Asset Funding LLC, as the Seller, Corporate
Receivables Corporation, Twin Towers Inc., Falcon Asset Securitization
Corporation and Park Avenue Receivables Corporation, as Investors, Citibank
N.A., Deutsche Bank AG, New York Branch, Bank One, NA (Main Office Chicago) and
The Chase Manhattan Bank, as Banks, Citicorp North America, Inc., as Program
Agent, Deutsche Bank AG, New York Branch, as Administrative Agent, Citicorp
North America, Inc., Deutsche Bank AG, New York Branch, Bank One, NA (Main
Office Chicago) and The Chase Manhattan Bank, as Investor Agents, Dana
Corporation, as Collection Agent and an Originator and certain subsidiaries of
Dana Corporation parties thereto, as Originators; the Purchase and Contribution
Agreement, dated as of March 29, 2001, among Dana Corporation and certain of its
subsidiaries parties thereto, as Sellers, and Dana Asset Funding LLC, as
Purchaser; the Originator Purchase Agreement Performance Guaranty dated as of
March 29, 2001, by Dana Corporation in favor of Dana Asset Funding LLC; the
Seller Purchase Agreement Performance Guaranty dated as of March 29, 2001, made
by Dana Corporation in favor of Citibank North America, Inc., as Program Agent;
and related agreements and instruments, each as amended to the Issue Date and as
such agreements and instruments may from time to time thereafter be amended,
restated, supplemented, or otherwise modified, including any refinancing,
refunding, replacement or extension thereof, whether by the same or any other
group of parties.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of Dana and its Subsidiaries
on the date of the indenture.
"Related Business Assets" means assets used or useful in a Related
Business.
"Restricted Subsidiary" means any Subsidiary of Dana that is not an
Unrestricted Subsidiary.
"Secured Debt" means indebtedness (other than indebtedness among Dana and
Restricted Subsidiaries) for money borrowed, or other indebtedness on which
interest is paid or payable, which is secured by (1) a Lien on any Principal
Property of Dana or a Restricted Subsidiary or on the stock or indebtedness of a
Restricted Subsidiary, or (2) any guarantee of indebtedness of Dana by a
Restricted Subsidiary.
"Securitization Subsidiary" means a Subsidiary of Dana which engages in no
activities other than those reasonably related to or in connection with the
entering into of securitization transactions and which is designated by the
Board of Directors of Dana (as provided below) as a Securitization Subsidiary:
(1) no portion of the Indebtedness or any other obligations (contingent or
otherwise) of which (a) is guaranteed by Dana or any Restricted Subsidiary of
Dana, (b) is recourse to or obligates Dana or any Restricted Subsidiary
100
of Dana in any way other than pursuant to representations, warranties and
covenants (including those related to servicing) entered into in the ordinary
course of business in connection with a Qualified Securitization Transaction or
(c) subjects any property or asset of Dana or any Restricted Subsidiary of Dana
(other than those of a Securitization Subsidiary), directly or indirectly,
contingently or otherwise, to any Lien or to the satisfaction thereof, other
than pursuant to representations, warranties and covenants (including those
related to servicing) entered into in the ordinary course of business in
connection with a Qualified Securitization Transaction; (2) with which neither
Dana nor any Restricted Subsidiary of Dana (a) provides any credit support or
(b) has any contract, agreement, arrangement or understanding other than on
terms that are fair and reasonable and that are no less favorable to Dana or
such Restricted Subsidiary than could be obtained from an unrelated Person
(other than, in the case of subclauses (a) and (b) of this clause (2),
representations, warranties and covenants (including those relating to
servicing) entered into in the ordinary course of business in connection with a
Qualified Securitization Transaction and intercompany notes relating to the sale
of Receivables to such Securitization Subsidiary); and (3) with which neither
Dana nor any Restricted Subsidiary of Dana has any obligation to maintain or
preserve such Subsidiary's financial condition or to cause such Subsidiary to
achieve certain levels of operating results. Any such designation by the Board
of Directors of Dana shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolutions of the Board of Directors of Dana
giving effect to such designation.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Stated Maturity" means, with respect to any security or Indebtedness of a
Person, the date specified therein as the fixed date on which any principal of
such security or Indebtedness is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase thereof at the option of the holder thereof).
"Subsidiary" of any Person means
(1) a corporation a majority of whose Voting Stock is at the time,
directly or indirectly, owned by such Person, by one or more Restricted
Subsidiaries of such Person or by such Person and one or more Restricted
Subsidiaries of such Person or
(2) any other Person in which such Person, a Restricted Subsidiary of
such Person or such Person and one or more Restricted Subsidiaries of such
Person, directly or indirectly, at the date of determination thereof, have
at least a majority ownership interest.
"Subsidiary Guarantee" means each Subsidiary Guarantee of the Notes issued
pursuant to "-- Certain Covenants -- Limitation on Guarantees by Restricted
Subsidiaries" above.
"Subsidiary Guarantor" means each Restricted Subsidiary of Dana that
becomes a guarantor of the Notes pursuant to "-- Certain Covenants -- Limitation
on Guarantees by Restricted Subsidiaries" above.
"Unrestricted Subsidiary" means:
(1) each of Dana Credit Corporation, Diamond Financial Holdings, Inc.,
Dana Commercial Credit (UK) Limited, DCC Leasing GmbH and Shannon
Properties GmbH and their respective Subsidiaries until such time as it is
designated a Restricted Subsidiary pursuant to the second succeeding
sentence;
(2) any Subsidiary of Dana that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below; and
(3) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of Dana (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock of, or
holds any Lien on any property of, Dana or any other Restricted Subsidiary of
Dana; provided, that either
(1) the Subsidiary to be so designated has total assets of $1,000 or
less or
101
(2) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the covenant described under
"-- Certain Covenants -- Limitation on Restricted Payments" to the extent
then applicable.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, that immediately after giving effect to such
designation (a) if such Unrestricted Subsidiary at such time has Indebtedness,
Dana could incur $1.00 of additional Indebtedness under clause (1) of the
covenant described under "-- Certain Covenants -- Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock" to the extent then applicable, and
(b) no Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced by Dana to the Trustee by promptly
filing with the Trustee a copy of the board resolution giving effect to such
designation and an officer's certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
Board of Directors or other governing body of such Person.
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BOOK-ENTRY SETTLEMENT AND CLEARANCE
The Exchange Notes will be represented by one or more global notes in
definitive, fully registered form without interest coupons (collectively, the
Global Notes) and will be deposited with the Trustee as custodian for DTC and
registered in the name of a nominee of DTC.
Except in the limited circumstances described below, owners of beneficial
interests in Global Notes will not be entitled to receive physical delivery of
certificated Notes. Transfers of beneficial interests in the Global Notes will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants which rules and procedures may change from time to time.
DEPOSITARY PROCEDURES
The following description of the operations and procedures of DTC is
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to changes by DTC from time to
time. Neither we nor the initial purchasers take any responsibility for these
operations and procedures and we and they urge investors to contact DTC or its
direct or indirect participants directly to discuss these matters.
Upon the issuance of the Global Notes, DTC will credit on its internal
system the respective principal amounts of the individual beneficial interests
represented by such Global Notes to the accounts of persons who have accounts
with DTC. Ownership of beneficial interests in the Global Notes will be recorded
in denominations of $1,000 and will be limited to DTC's participants or persons
who hold interests through its participants. Ownership of beneficial interests
in the Global Notes will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
Payments of the principal of and interest on Global Notes will be made to
DTC or its nominee as the registered owner thereof. Neither we, the Trustee, nor
any of our or its respective agents will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a Global Note representing any Exchange Notes held by
it or its nominee, will immediately credit the participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Note for such Exchange Notes as shown on the
records of DTC or its nominee. We also expect that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in "street name." Such payments will be the responsibility of such participants.
Because DTC can only act on behalf of its respective participants, who in
turn act on behalf of indirect participants and certain banks, the ability of a
holder of a beneficial interest in Global Notes to pledge such interest to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interest, may be limited by the lack of a definitive
certificate for such interest. The laws of some countries and some U.S. states
require that certain persons take physical delivery of securities in
certificated form. Consequently, the ability to transfer beneficial interests in
a Global Note to such persons may be limited.
DTC has advised us that it will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of the participants to whose accounts interests in
the Global Notes are credited and only in respect of such portion of the
aggregate principal amount of the Notes as to which such participants have given
such direction. However, if there is an event of default under the Notes, DTC
reserves the right to exchange the Global Notes for Notes in certificated form,
and to distribute such Notes to its respective participants.
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DTC has advised us as follows. DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve system, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participating organizations (participants) and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the need
for physical transfer and delivery of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations. Indirect access to the DTC system
is available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly (indirect participants). Persons who
are not participants may beneficially own securities held by or on behalf of DTC
only through the participants or the indirect participants. The ownership
interest and transfer of ownership interest or each actual purchaser of each
security held by or on behalf of DTC are recorded in the records of the
participants and indirect participants.
Although DTC currently follows the foregoing procedures to facilitate
transfers of interests in Global Notes among participants of DTC, it is under no
obligation to do so, and such procedures may be discontinued or modified at any
time. Neither we nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
As long as DTC or its nominee, is the registered holder of a Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner and
holder of the Note represented by such Global Note for all purposes under the
indenture and the Note. Unless (1) DTC notifies us that it is unwilling or
unable to continue as depositary for a Global Note or ceases to be a "Clearing
Agency" registered under the Exchange Act, (2) in the case of transfers to
institutional "accredited investors" or (3) in the case of any Note, an event of
default has occurred and is continuing with respect to such Note, owners of
beneficial interests in a Global Note will not be entitled to have any portions
of such Global Note registered in their names, will not receive or be entitled
to receive physical delivery of Notes in certificated form and will not be
considered the owners or holders of the Global Note (or any Notes represented
thereby) under the indenture or the Notes. In addition, no beneficial owner of
an interest in a Global Note will be able to transfer that interest except in
accordance with DTC's procedures (in addition to those under the indenture).
If any of the events set forth in any of clauses (1) through (3) above
shall occur, we will issue certificates for such Note in definitive, fully
registered, non-global form without interest coupons in exchange for the Global
Note (or the appropriate portion thereof, in the case of the occurrence of the
event set forth in clause (2)). Certificates for Notes delivered in exchange for
any Global Notes or beneficial interests therein will be registered in the
names, and issued in any approved denominations, requested by DTC (in accordance
with its customary procedures).
The holder of a Note in non-global form may transfer such Note by
surrendering it at the offices or agencies maintained by us for such purpose in
the Borough of Manhattan, The City of New York, which will initially be the
office of the Trustee. Before any Note in non-global form may be transferred to
a person who takes delivery in the form of an interest in any Global Note, the
transferor will be required to provide the Trustee with a Global Note
certificate. Upon transfer or partial redemption of any such Note, new
certificates may be obtained from the Trustee.
Notwithstanding any statement herein, we and the Trustee reserve the right
to impose such transfer, certification, exchange or other requirements, and to
require such restrictive legends on certificates evidencing Notes, as either of
us may determine are necessary to ensure compliance with the securities laws of
the United States and the states therein and any other applicable laws or as DTC
may require.
104
SAME-DAY SETTLEMENT AND PAYMENT
Interests representing the Global Notes will trade in DTC's Same-Day Firm
Settlement System, and any permitted secondary market trading activity in such
Notes will be required by DTC to be settled in immediately available funds.
Transfers of interests in Global Notes between participants in DTC will be
effected in accordance with DTC's procedures, and will be settled in same-day
funds.
105
U.S. FEDERAL INCOME TAX CONSIDERATIONS
U.S. TAX CONSIDERATIONS OF THE EXCHANGE OFFER
In the opinion of our counsel, Katten Muchin Zavis Rosenman, the exchange
of Outstanding Notes for Exchange Notes in the exchange offer will generally not
constitute a taxable event for U.S. Holders. As a result, (1) a U.S. Holder will
generally not recognize taxable gain or loss as a result of exchanging
Outstanding Notes for Exchange Notes pursuant to the exchange offer, (2) the
holding period of the Exchange Notes will generally include the holding period
of the Outstanding Notes exchanged therefor, and (3) the adjusted tax basis of
the Exchange Notes will generally be the same as the adjusted tax basis of the
Outstanding Notes exchanged therefor immediately before such exchange.
For U.S. federal income tax purposes, the exchange of Outstanding Notes for
Exchange Notes in the exchange offer will generally not constitute a taxable
event for a Non-U.S. Holder. See "U.S. Federal Income Taxation of Non-U.S.
Holders," below.
NON-U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE APPLICATION OF
THE TREASURY REGULATIONS AND THE PROCEDURES FOR ESTABLISHING AN EXEMPTION FROM
WITHHOLDING TAX.
U.S. TAX CONSIDERATIONS OF THE OWNERSHIP OF NOTES
The following is a general discussion of material United States federal
income tax consequences of the acquisition, ownership and disposition of the
Notes. Unless otherwise stated, this discussion is limited to the tax
consequences to those persons who are original beneficial owners of the Notes
and who hold such Notes as capital assets (Holders, for purposes of this tax
discussion). This discussion does not address specific tax consequences that may
be relevant to particular persons (including, for example, pass-through entities
(e.g., partnerships) or persons who hold the Notes through pass-through
entities, individuals who are U.S. expatriates, financial institutions,
broker-dealers, insurance companies, tax-exempt organizations, dealers in
securities or foreign currency, persons that have a functional currency other
than the U.S. dollar and persons in special situations, such as those who hold
Notes as part of a straddle, hedge, conversion transaction, or other integrated
investment). This discussion also does not address the tax consequences to Non-
U.S. Holders (as defined below) that are subject to U.S. federal income tax on a
net basis on income realized with respect to a note because such income is
effectively connected with the conduct of a U.S. trade or business. In addition,
this discussion does not address U.S. federal alternative minimum tax
consequences, and does not describe any tax consequences arising under U.S.
federal gift and estate or other federal tax laws or under the tax laws of any
state, local or foreign jurisdiction. This discussion is based upon the Internal
Revenue Code of 1986, as amended (the Code), the Treasury Department regulations
promulgated thereunder, and administrative and judicial interpretations thereof,
all as of the date hereof and all of which are subject to change, possibly on a
retroactive basis.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS CONCERNING THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES TO YOU OF EXCHANGING THE OUTSTANDING NOTES FOR
EXCHANGE NOTES, AS WELL AS THE APPLICATION OF STATE, LOCAL AND NON-U.S. INCOME
AND OTHER TAX LAWS.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Holder that is: (i) a citizen or individual resident
of the United States (as defined in Section 7701(b) of the Code); (ii) a
corporation (including an entity treated as a corporation for U.S. federal
income tax purposes) created or organized in or under the laws of the United
States or any political subdivision thereof; (iii) an estate, the income of
which is subject to U.S. federal income tax regardless of the source; or (iv) a
trust, if a court within the United States is able to exercise primary
supervision over the trust's administration and one or more U.S. persons have
the authority to control all its substantial decisions, or if the trust was in
existence on August 20, 1996, and has properly elected to continue to be treated
as a U.S. person (each, a U.S. Holder).
A "Non-U.S. Holder" is a Holder that is not a U.S. Holder.
106
Payments of Interest. Interest on a Note will generally be includible in
the income of a U.S. Holder as ordinary interest income from domestic sources at
the time accrued or received in accordance with the U.S. Holder's regular method
of accounting for U.S. federal income tax purposes.
Original Issue Discount. The Notes will not be issued with a discount that
is subject to the original issue discount rules of the Code.
Sale, Exchange and Retirement of Notes. A U.S. person's tax basis in a
Note will, in general, be the U.S. person's cost. Upon the sale, taxable
exchange, retirement or other disposition of a Note, a U.S. person will
recognize gain or loss equal to the difference between the U.S. dollar value of
the amount realized determined at the time of the sale, exchange, retirement or
other disposition (less any amounts attributable to accrued but unpaid interest
not previously included in such U.S. person's income, which will be taxable as
interest income) and the adjusted tax basis of the note. The gain or loss will
generally be capital gain or loss. Capital gains of individuals derived in
respect of capital assets held for more than one year are eligible for reduced
tax rates. The deductibility of capital losses is subject to limitations. In the
case of a non-corporate Holder, capital losses are deductible only against
capital gains and $3,000 of ordinary income each year; any unused capital losses
may be deducted in future years. A corporate Holder's capital losses may be
offset only against capital gains; however, any unused capital losses generally
may be carried back three years and forward five years.
U.S. FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
Payments of Interest. Payments of principal and interest on the Notes by
us or any of our agents to a Non-U.S. Holder will not be subject to U.S. federal
withholding tax, provided that:
(1) the Non-U.S. Holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of our stock
entitled to vote;
(2) the Non-U.S. Holder is not a controlled foreign corporation that
is related to us through stock ownership;
(3) the Non-U.S. Holder is not a bank whose receipt of interest on the
Notes is described in Section 881(c)(3)(A) of the Code; and
(4) either (A) the beneficial owner of the Notes certifies to us or
our agent on IRS Form W-8BEN (or successor form), under penalties of
perjury, that it is not a "U.S. person" (as defined in the Code) and
provides its name and address and the certificate is renewed periodically
as required by the Treasury Regulations, or (B) the Notes are held through
certain foreign intermediaries and the beneficial owner of the Notes
satisfies certification requirements of applicable Treasury Regulations.
Special certification rules apply to certain Non-U.S. Holders that are
entities rather than individuals.
If a Non-U.S. Holder cannot satisfy the requirements of the portfolio
interest exemption described above (the Portfolio Interest Exemption), payments
of interest made to such Non-U.S. Holder will be subject to a 30% withholding
tax unless the beneficial owner of the Note provides us or our agent, as the
case may be, with a properly executed:
(1) IRS Form W-8BEN (or successor form) claiming an exemption from
withholding or reduced rate of tax under the benefit of an applicable tax
treaty (a Treaty Exemption) or
(2) IRS Form W-8ECI (or successor form) stating that interest paid on
the note is not subject to withholding tax because it is effectively
connected with the conduct of a U.S. trade or business of the beneficial
owner,
each form to be renewed periodically as required by the Treasury Regulations.
If interest on the Note is effectively connected with the conduct of a U.S.
trade or business of the beneficial owner, the Non-U.S. Holder, although exempt
from the withholding tax described above, will be subject to United States
federal income tax on such interest on a net income basis in the same manner as
if it were a U.S. Holder. In addition, if such Holder is a foreign corporation,
it may be subject to a branch profits
107
tax equal to 30% (or lower applicable treaty rate) of its effectively connected
earnings and profits for the taxable year, subject to adjustments. For this
purpose, interest on a Note will be included in such foreign corporation's
earnings and profits.
Disposition of Notes. Generally, no withholding of United States federal
income tax will be required with respect to any gain realized by a Non-U.S.
Holder upon the sale, exchange or other disposition of a Note.
A Non-U.S. Holder will not be subject to U.S. federal income tax on gain
realized on the sale, exchange or other disposition of a Note unless (a) the
Non-U.S. Holder is an individual who is present in the United States for a
period or periods aggregating 183 or more days in the taxable year of the
disposition and certain other conditions are met, (b) the Non-U.S. Holder is
subject to tax pursuant to the provisions of U.S. tax law applicable to certain
U.S. expatriates, or (c) such gain is effectively connected with the Non-U.S.
Holder's U.S. trade or business.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Notes are outstanding, we are required
to provide the IRS with certain information, including the beneficial owner's
name, address and taxpayer identification number, the aggregate amount of
interest paid to that beneficial owner during the calendar year and the amount
of tax withheld, if any. This obligation, however, does not apply with respect
to certain payments to U.S. Holders, including corporations and tax-exempt
organizations, provided that they establish entitlement to an exemption.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, we, our
agents or paying agents or a broker may be required to "backup" withhold on each
payment of interest and principal on the Notes. This backup withholding is not
an additional tax and may be credited against the U.S. Holder's U.S. federal
income tax liability, provided that the required information is furnished to the
IRS.
Information reporting and backup withholding will not be required with
respect to payments that we make to a Non-U.S. Holder if the Non-U.S. Holder has
(i) furnished documentation establishing eligibility for the Portfolio Interest
Exemption or a Treaty Exemption (provided that, in the case of a sale of a note
by an individual, Form W-8BEN (or successor form) includes a certification that
the individual has not been, and does not intend to be, present in the United
States for 183 days or more days for the relevant period) or (ii) otherwise
establishes an exemption, provided that neither we nor our agent has actual
knowledge that the holder is a U.S. person or that the conditions of any
exemption are not in fact satisfied. Certain additional rules may apply where
the Notes are held through a custodian, nominee, broker, foreign partnership or
foreign intermediary.
In addition, information reporting and backup withholding will not apply to
the proceeds of the sale of a Note made within the United States or conducted
through certain United States related financial intermediaries, if the payor
receives the statement described above and does not have actual knowledge that
you are a U.S. person or you otherwise establish an exemption.
NON-U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE APPLICATION OF
THE TREASURY REGULATIONS AND THE PROCEDURES FOR ESTABLISHING AN EXEMPTION FROM
BACKUP WITHHOLDING.
108
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the Exchange Notes. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Outstanding Notes where the Outstanding Notes were acquired as a result of
market-making activities or other trading activities. We have agreed that, for a
period of 180 days after the date on which the exchange offer is consummated, we
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange notes received by broker-dealers for their own accounts
pursuant to this exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of these methods
of resale, at prevailing market prices at the time of resale, at prices related
to prevailing market prices or at negotiated prices. Any resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer or
the purchasers of any Exchange Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own account pursuant to the exchange
offer and any broker or dealer that participates in a distribution of Exchange
Notes may be deemed to be an "underwriter" within the meaning of the Securities
Act, and any profit on any resale of Exchange Notes and any commissions or
compensation received by any persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the date on which the exchange offer is
consummated, we will promptly send additional copies of this prospectus and any
amendments or supplements to this prospectus to any broker-dealer that requests
these documents in the letter of transmittal. We have agreed to indemnify the
holders of Outstanding Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to the Exchange Notes will be passed upon
for us by Katten Muchin Zavis Rosenman, New York, New York and Hunton &
Williams, Richmond, Virginia.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Dana and its consolidated
subsidiaries as of December 31, 2001 and 2000, and for each of the three years
in the period ended December 31, 2001, included in this prospectus were audited
by PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report included herein.
109
INDEX TO FINANCIAL STATEMENTS
PAGE
----
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants........................... F-2
Statement of Income for the Years Ended December 31, 1999,
2000 and 2001............................................. F-3
Balance Sheet at December 31, 2000 and 2001................. F-4
Statement of Cash Flows for the Years Ended December 31,
1999, 2000 and 2001....................................... F-5
Statement of Shareholders' Equity for the Years Ended
December 31, 1999, 2000 and 2001.......................... F-6
Notes to Financial Statements............................... F-7
UNAUDITED ADDITIONAL FINANCIAL INFORMATION:
(Dana Corporation with Dana Credit Corporation on the Equity
Basis):
Statement of Income for the Years Ended December 31, 1999,
2000 and 2001............................................. F-34
Balance Sheet at December 31, 2000 and 2001................. F-35
Statement of Cash Flows for the Years Ended December 31,
1999, 2000 and 2001....................................... F-36
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Statement of Income for the Three Months Ended
March 31, 2001 and 2002................................... F-37
Condensed Balance Sheet at December 31, 2001 and March 31,
2002...................................................... F-38
Condensed Statement of Cash Flows for the Three Months Ended
March 31, 2001 and 2002................................... F-39
Notes to Condensed Financial Statements..................... F-40
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Dana Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholders' equity and of cash flows,
including pages F-3 through F-33, present fairly, in all material respects, the
financial position of Dana Corporation and its subsidiaries at December 31, 2000
and 2001, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
---------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
Toledo, Ohio
February 11, 2002
F-2
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31
---------------------------
1999 2000 2001
------- ------- -------
(IN MILLIONS EXCEPT
PER SHARE AMOUNTS)
NET SALES................................................... $13,159 $12,317 $10,271
Revenue from lease financing................................ 111 143 115
Other income, net........................................... 83 231 83
------- ------- -------
13,353 12,691 10,469
------- ------- -------
Costs and expenses
Cost of sales............................................. 10,964 10,599 9,268
Selling, general and administrative expenses.............. 1,192 1,132 985
Restructuring and integration charges..................... 181 173 390
Interest expense.......................................... 279 323 309
------- ------- -------
12,616 12,227 10,952
------- ------- -------
Income (loss) before income taxes........................... 737 464 (483)
Estimated taxes on income................................... 251 171 (161)
------- ------- -------
Income (loss) before minority interest and equity in
earnings of affiliates.................................... 486 293 (322)
Minority interest........................................... (13) (13) (8)
Equity in earnings of affiliates............................ 40 54 32
------- ------- -------
NET INCOME (LOSS)........................................... $ 513 $ 334 $ (298)
------- ------- -------
NET INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per share............................. $ 3.10 $ 2.20 $ (2.01)
------- ------- -------
Diluted income (loss) per share........................... $ 3.08 $ 2.18 $ (2.01)
------- ------- -------
Cash dividends declared and paid per common share........... $ 1.24 $ 1.24 $ 0.94
------- ------- -------
Average shares outstanding -- Basic......................... 165 152 148
------- ------- -------
Average shares outstanding -- Diluted....................... 166 153 148
------- ------- -------
The accompanying notes are an integral part of the financial statements.
F-3
BALANCE SHEET
(IN MILLIONS EXCEPT PAR VALUE)
DECEMBER 31
---------------------
2000 2001
------- -------
ASSETS
Current assets
Cash and cash equivalents................................... $ 179 $ 199
Accounts receivable
Trade, less allowance for doubtful accounts of $42 -- 2000
and $45 -- 2001........................................ 1,548 1,371
Other..................................................... 318 371
Inventories................................................. 1,564 1,299
Other current assets........................................ 714 557
------- -------
Total current assets.............................. 4,323 3,797
Investments and other assets................................ 2,367 2,209
Investment in leases........................................ 1,037 1,068
Property, plant and equipment, net.......................... 3,509 3,133
------- -------
Total assets...................................... $11,236 $10,207
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable, including current portion of long-term
debt...................................................... $ 1,945 $ 1,120
Accounts payable............................................ 1,015 1,045
Accrued payroll and employee benefits....................... 398 317
Other accrued liabilities................................... 856 873
Taxes on income............................................. 117 134
------- -------
Total current liabilities......................... 4,331 3,489
Deferred employee benefits and other noncurrent
liabilities............................................... 1,507 1,640
Long-term debt.............................................. 2,649 3,008
Minority interest in consolidated subsidiaries.............. 121 112
------- -------
Total liabilities................................. 8,608 8,249
------- -------
Shareholders' equity
Common stock, $1 par value, shares authorized, 350; shares
issued, 148 -- 2000 and 149 -- 2001....................... 148 149
Additional paid-in capital.................................. 159 163
Retained earnings........................................... 2,909 2,471
Accumulated other comprehensive loss........................ (588) (825)
------- -------
Total shareholders' equity........................ 2,628 1,958
------- -------
Total liabilities and shareholders' equity........ $11,236 $10,207
------- -------
The accompanying notes are an integral part of the financial statements.
F-4
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31
-----------------------
1999 2000 2001
------- ----- -----
(IN MILLIONS)
Net cash flows from operating activities.................... $ 608 $ 984 $ 639
------- ----- -----
Cash flows from investing activities:
Purchases of property, plant and equipment................ (807) (662) (425)
Purchases of assets to be leased.......................... (480) (191) (50)
Acquisitions.............................................. (18) (511) (21)
Divestitures.............................................. 36 571 236
Changes in investments and other assets................... (155) (183) 1
Loans made to customers and partnerships.................. (259) (643) (68)
Payments received on leases............................... 200 146 48
Proceeds from sales of certain assets..................... 45 41 132
Proceeds from sales of leased assets...................... 135 82 60
Payments received on loans................................ 206 561 180
Other..................................................... (4) (5) (14)
------- ----- -----
Net cash flows -- investing activities...................... (1,101) (794) 79
------- ----- -----
Cash flows from financing activities:
Net change in short-term debt............................. (341) 577 (888)
Issuance of long-term debt................................ 1,396 368 847
Payments on long-term debt................................ (376) (504) (501)
Dividends paid............................................ (206) (187) (140)
Shares repurchased........................................ (100) (381)
Other..................................................... 1 5 (16)
------- ----- -----
Net cash flows -- financing activities...................... 374 (122) (698)
------- ----- -----
Net increase (decrease) in cash and cash equivalents........ (119) 68 20
Cash and cash equivalents -- beginning of year.............. 230 111 179
------- ----- -----
Cash and cash equivalents -- end of year.................... $ 111 $ 179 $ 199
------- ----- -----
Reconciliation of net income (loss) to net cash flows from
operating activities:
Net income (loss)......................................... $ 513 $ 334 $(298)
Depreciation and amortization............................. 519 523 548
Unremitted earnings of affiliates......................... (37) (54) 4
Deferred income taxes..................................... 74 57 (116)
Minority interest......................................... 6 10 4
Asset impairment.......................................... 62 27 206
Change in accounts receivable............................. (528) 327 137
Change in inventories..................................... (207) 108 166
Change in other operating assets.......................... (11) (58) (31)
Change in operating liabilities........................... 300 (144) 78
Additions to lease and loan loss reserves................. 8 18 (9)
Gains on divestitures..................................... (5) (106) (10)
Other..................................................... (86) (58) (40)
------- ----- -----
Net cash flows from operating activities.................... $ 608 $ 984 $ 639
------- ----- -----
The accompanying notes are an integral part of the financial statements.
F-5
STATEMENT OF SHAREHOLDERS' EQUITY
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
----------------------------------------
ADDITIONAL FOREIGN MINIMUM
COMMON PAID-IN RETAINED CURRENCY PENSION NET UNREALIZED SHAREHOLDERS'
STOCK CAPITAL EARNINGS TRANSLATION LIABILITY GAIN (LOSS) EQUITY
------ ---------- -------- ----------- --------- -------------- -------------
(IN MILLIONS)
BALANCE, DECEMBER 31, 1998......... $166 $ 591 $2,455 $(264) $ (11) $ 3 $2,940
Comprehensive income:
Net income for 1999.............. 513
Foreign currency translation..... (214)
Minimum pension liability........ (2)
Total comprehensive
income.................. 297
Cash dividends declared............ (206) (206)
Cost of shares repurchased......... (3) (105) (108)
Issuance of shares for director and
employee stock plans, net........ 34 34
---- ----- ------ ----- ----- --- ------
BALANCE, DECEMBER 31, 1999......... 163 520 2,762 (478) (13) 3 2,957
Comprehensive income:
Net income for 2000.............. 334
Foreign currency translation..... (90)
Minimum pension liability........ (10)
Total comprehensive
income.................. 234
Cash dividends declared............ (187) (187)
Cost of shares repurchased......... (15) (366) (381)
Issuance of shares for director and
employee stock plans, net........ 5 5
---- ----- ------ ----- ----- --- ------
BALANCE, DECEMBER 31, 2000......... 148 159 2,909 (568) (23) 3 2,628
Comprehensive income:
Net loss for 2001................ (298)
Foreign currency translation..... (152)
Minimum pension liability........ (80)
Unrealized loss.................. (5)
Total comprehensive
loss.................... (535)
Cash dividends declared............ (140) (140)
Issuance of shares for director and
employee stock plans, net........ 1 4 5
---- ----- ------ ----- ----- --- ------
BALANCE, DECEMBER 31, 2001......... $149 $ 163 $2,471 $(720) $(103) $(2) $1,958
---- ----- ------ ----- ----- --- ------
The accompanying notes are an integral part of the financial statements.
F-6
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS
(IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Dana is a global leader in the engineering, manufacturing and distribution
of components and systems for worldwide vehicular and industrial manufacturers
and the related aftermarkets and a leading provider of lease financing services
in selected markets through its wholly-owned subsidiary, Dana Credit Corporation
(DCC).
The preparation of these financial statements requires estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying disclosures. Some of the more significant estimates
include depreciation, amortization and impairment of long-lived assets; deferred
tax assets and inventory valuations; sales returns, restructuring,
environmental, product liability and warranty accruals; postemployment and
postretirement benefits; residual values of leased assets and allowances for
doubtful accounts. Actual results could differ from those estimates.
The following summary of significant accounting policies should help you
evaluate the financial statements. Certain amounts in 1999 and 2000 have been
reclassified to conform with the 2001 presentation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all subsidiaries in which we
have the ability to control operating and financial policies. Affiliated
companies (20% to 50% ownership) are generally recorded in the statements using
the equity method of accounting. Operations of affiliates accounted for on the
equity method of accounting are generally included for periods ended within one
month of our year end. Less-than-20%-owned companies are included in the
financial statements at the cost of our investment. Dividends, royalties and
fees from these cost basis affiliates are recorded in income when received.
FOREIGN CURRENCY TRANSLATION
The financial statements of subsidiaries and equity affiliates outside the
United States (U.S.) located in non-highly inflationary economies are measured
using the currency of the primary economic environment in which they operate as
the functional currency, which for the most part is the local currency.
Transaction gains and losses which result from translating assets and
liabilities of these entities into the functional currency are included in net
earnings. When translating into U.S. dollars, income and expense items are
translated at average monthly rates of exchange and assets and liabilities are
translated at the rates of exchange at the balance sheet date. Translation
adjustments resulting from translating the functional currency into U.S. dollars
are deferred as a component of accumulated other comprehensive income in
shareholders' equity. For affiliates operating in highly inflationary economies,
non-monetary assets are translated into U.S. dollars at historical exchange
rates and monetary assets are translated at current exchange rates. Translation
adjustments for these affiliates are included in net earnings.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is generally
determined on the last-in, first-out (LIFO) basis for U.S. inventories and on
the first-in, first-out (FIFO) or average cost basis for non-U.S. inventories.
PRE-PRODUCTION COSTS RELATED TO LONG-TERM SUPPLY ARRANGEMENTS
The cost of tooling used to make products sold under long-term supply
arrangements is capitalized as part of property, plant and equipment and
amortized over its useful life if we own the tooling. These costs are also
capitalized and amortized if we fund the purchase but our customer owns the
tooling and grants us the noncancelable right to use the tooling over the
contract period. Costs incurred in connection with the design and development of
tooling that will be billed to customers upon completion is carried as a
component of other
F-7
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
accounts receivable. Design and development costs related to customer products
are deferred if we have an agreement to collect such costs from the customer;
otherwise, they are expensed.
LEASE FINANCING
Lease financing consists of direct financing leases, leveraged leases and
equipment on operating leases. Income on direct financing leases is recognized
by a method which produces a constant periodic rate of return on the outstanding
investment in the lease. Income on leveraged leases is recognized by a method
which produces a constant rate of return on the outstanding net investment in
the lease, net of the related deferred tax liability, in the years in which the
net investment is positive. Initial direct costs are deferred and amortized
using the interest method over the lease period. Equipment under operating
leases is recorded at cost, net of accumulated depreciation. Income from
operating leases is recognized ratably over the term of the leases.
ALLOWANCE FOR LOSSES ON LEASE FINANCING
Provisions for losses on lease financing receivables are determined based
on loss experience and assessment of inherent risk. Adjustments are made to the
allowance for losses to adjust the net investment in lease financing to an
estimated collectible amount. Income recognition is generally discontinued on
accounts which are contractually past due and where no payment activity has
occurred within 120 days. Accounts are charged against the allowance for losses
when determined to be uncollectible. Accounts where asset repossession has
started as the primary means of recovery are classified within other assets at
their estimated realizable value.
GOODWILL
Cost in excess of net assets of companies acquired generally has been
amortized on a straight-line basis over the estimated period of expected
benefit, ranging from 10 to 40 years. The issuance of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142), was approved by the Financial Accounting Standards Board in June 2001.
SFAS No. 142 changes the post-acquisition accounting for goodwill and certain
intangible assets by discontinuing the amortization of these assets and
requiring impairment testing at least annually. After recording the impact of
adopting the Statement, any reductions in the carrying value of goodwill or
certain intangible assets will be included in the results of operations.
We adopted SFAS No. 142 and discontinued the amortization of goodwill as of
January 1, 2002. In lieu of amortization, the new standard requires that
goodwill be tested for impairment as of the date of adoption and at least
annually thereafter.
The following table reconciles the reported net results for each of the
three years in the period ended December 31, 2001 to the pro forma results that
would have been reported if the guidance contained in SFAS No. 142 had been
adopted prior to 1999.
F-8
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31,
------------------------
1999 2000 2001
------ ------ ------
Reported net income (loss).................................. $ 513 $ 334 $ (298)
Goodwill amortization..................................... 41 42 38
Income taxes.............................................. (6) (9) (6)
------ ------ ------
Adjusted net income (loss)................................ 548 367 (266)
------ ------ ------
Earnings per share -- Basic
Net income (loss)......................................... 3.10 2.20 (2.01)
Goodwill amortization..................................... 0.24 0.28 0.26
Income taxes.............................................. (0.03) (0.06) (0.05)
------ ------ ------
Adjusted net income (loss)................................ 3.31 2.42 (1.80)
------ ------ ------
Earnings per share -- Diluted
Net income (loss)......................................... 3.08 2.18 (2.01)
Goodwill amortization..................................... 0.24 0.28 0.26
Income taxes.............................................. (0.03) (0.06) (0.05)
------ ------ ------
Adjusted net income (loss)................................ $ 3.29 $ 2.40 $(1.80)
------ ------ ------
LOANS RECEIVABLE
Loans receivable consist primarily of loans to partnerships in which DCC
has an interest and loans secured by equipment and first mortgages on real
property. The loans to partnerships are collateralized by the partnerships'
assets. Income on all loans is recognized using the interest method. Interest
income on impaired loans is recognized as cash is collected or on a cost
recovery basis.
ALLOWANCE FOR LOSSES ON LOANS RECEIVABLE
Provisions for losses on loans receivable are determined on the basis of
loss experience and assessment of inherent risk. Adjustments are made to the
allowance for losses to adjust loans receivable to an estimated collectible
amount. Income recognition is generally discontinued on accounts which are
contractually past due and where no payment activity has occurred within 120
days. Accounts are charged against the allowance for losses when determined to
be uncollectible.
PROPERTIES AND DEPRECIATION
Property, plant and equipment are valued at historical costs. Depreciation
is recognized over the estimated useful lives using primarily the straight-line
method for financial reporting purposes and accelerated depreciation methods for
federal income tax purposes. Long-lived assets are reviewed for impairment and
where appropriate are adjusted to fair market value.
REVENUE RECOGNITION
Sales are recognized when products are shipped and title has transferred to
the customer. Accruals for warranty costs, sales returns and other allowances
are provided at the time of shipment based upon experience. Adjustments are made
as new information becomes available. Shipping and handling fees billed to
customers are included in sales and the costs of shipping and handling are
included in cost of sales.
F-9
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Current tax liabilities and assets are recognized for the estimated taxes
payable or refundable on the tax returns for the current year. Deferred tax
balances reflect the impact of temporary differences between the carrying amount
of assets and liabilities and their tax bases. Amounts are stated at enacted tax
rates expected to be in effect when taxes are actually paid or recovered.
Deferred tax assets are reduced, if necessary, by the amount of any tax benefits
not expected to be realized.
The "flow-through" method of accounting is used for investment tax credits,
except for investment tax credits arising from leveraged leases and certain
direct financing leases for which the deferred method is used for financial
statement purposes.
FINANCIAL INSTRUMENTS
The reported fair values of financial instruments are based on a variety of
factors. Where available, fair values represent quoted market prices for
identical or comparable instruments. Where quoted market prices are not
available, fair values are estimated based on assumptions concerning the amount
and timing of estimated future cash flows and assumed discount rates reflecting
varying degrees of credit risk. Fair values may not represent actual values of
the financial instruments that could be realized as of the balance sheet date or
that will be realized in the future.
DERIVATIVE FINANCIAL INSTRUMENTS
We enter into forward exchange contracts to hedge our exposure to the
effects of currency fluctuations on a portion of our projected sales and
purchase commitments. The changes in the fair value of these contracts are
generally offset by exchange gains or losses on the underlying exposures. We
also use interest rate swaps to manage exposure to fluctuations in interest
rates and to balance the mix of our fixed and floating rate debt. We do not use
derivatives for trading or speculative purposes.
In January 2001, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Transactions." These Statements
require, among other things, that all derivative instruments be recognized on
the balance sheet at fair value. Interest rate swap arrangements have been
formally designated as hedges. The effect of marking these contracts to market
has been recorded as a direct adjustment of the underlying debt for those
contracts designated as fair value hedges and as an adjustment of other
comprehensive income for those contracts designated as cash flow hedges. Foreign
currency forwards and other derivatives have not been designated as hedges and
the effect of marking these instruments to market has been recognized in the
results of operations. We will evaluate these transactions from time to time to
determine whether they should be designated as hedges.
The adoption of SFAS Nos. 133 and 138 did not have a material effect on the
results of operations.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to existing conditions
caused by past operations which do not contribute to current or future revenue
generation are expensed. Liabilities are recorded when environmental assessments
and/or remedial efforts are probable and the costs can be reasonably estimated.
Estimated costs are based upon current laws and regulations, existing technology
and the most probable method of remediation. The costs are not discounted and
exclude the effects of inflation and other societal and economic factors. If the
cost estimates result in a range of equally probable amounts, the lower end of
the range is accrued.
F-10
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PENSION PLANS
Annual net periodic pension costs under defined benefit pension plans are
determined on an actuarial basis. Our policy is to fund these costs as accrued,
including amortization of the initial unrecognized net obligation over 15 years
and obligations arising due to plan amendments over the period benefited,
through deposits with trustees. Benefits are determined based upon employees'
length of service, wages or a combination of length of service and wages.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Annual net postretirement benefits liability and expense under the defined
benefit plans are determined on an actuarial basis. Our policy is to pay these
benefits as they become due. Benefits are determined primarily based upon
employees' length of service and include applicable employee cost sharing.
POSTEMPLOYMENT BENEFITS
Annual net postemployment benefits liability and expense under our benefit
plans are accrued as service is rendered for those obligations that accumulate
or vest and can be reasonably estimated. Obligations that do not accumulate or
vest are recorded when payment of the benefits is probable and the amounts can
be reasonably estimated.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, we consider highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
CASH AND MARKETABLE SECURITIES
The majority of our marketable securities satisfy the criteria for cash
equivalents and are classified accordingly. The remainder of our marketable
securities are classified as available for sale. Available-for-sale securities,
which are included in investments and other assets, are carried at fair value
and any unrealized gains or losses, net of income taxes, are reported as a
component of accumulated other comprehensive income or loss in shareholders'
equity. Cash includes bank deposits of $31 that support letters of credit and
may not be withdrawn under the terms of the arrangements.
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. No compensation expense is
recorded for stock options when granted as the option price is set at the market
value of the underlying stock.
NOTE 2. PREFERRED SHARE PURCHASE RIGHTS
We have a Preferred Share Purchase Rights Plan which is designed to deter
coercive or unfair takeover tactics. One right has been issued on each share of
our common stock outstanding on and after July 25, 1996. Under certain
circumstances, the holder of each right may purchase 1/1000th of a share of our
Series A Junior Participating Preferred Stock, no par value, for the exercise
price of $110 (subject to adjustment as provided in the Plan). The rights have
no voting privileges and will expire on July 15, 2006, unless exercised,
redeemed or exchanged sooner.
Generally, the rights cannot be exercised or transferred apart from the
shares to which they are attached. However, if any person or group acquires (or
commences a tender offer that would result in its acquiring) 15%
F-11
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
or more of our outstanding common stock, the rights not held by the acquirer
will become exercisable. In that event, instead of purchasing 1/1000th of a
share of the Participating Preferred Stock, the holder of each right may elect
to purchase from us the number of shares of our common stock that have a market
value of twice the right's exercise price (in effect, a 50% discount on our
stock). Thereafter, if we merge with or sell 50% or more of our assets or
earnings power to the acquirer or engage in similar transactions, any rights not
previously exercised (except those held by the acquirer) can also be exercised.
In that event, the holder of each right may elect to purchase from the acquiring
company the number of shares of its common stock that have a market value of
twice the right's exercise price (in effect, a 50% discount on the acquirer's
stock).
The Board may authorize the redemption of the rights at a price of $.01
each before anyone acquires 15% or more of our common shares. After that, and
before the acquirer owns 50% of our outstanding shares, the Board may authorize
the exchange of each right for one share of our common stock.
NOTE 3. PREFERRED SHARES
There are 5,000,000 shares of preferred stock authorized, without par
value, including 1,000,000 shares reserved for issuance under the Rights Plan.
No shares of preferred stock have been issued.
NOTE 4. COMMON SHARES
Certain of our employee and director stock plans provide that employees and
directors may tender stock to satisfy the purchase price of the shares, the
income taxes required to be withheld on the transaction, or both. In connection
with these stock plans, we repurchased 304,927 shares in 1999, 91,074 in 2000
and 11,000 in 2001.
During 1999, the Board of Directors (Board) authorized the expenditure of
up to $350 to repurchase shares of our common stock and in 2000 it authorized an
additional expenditure of $250 for a total authorization of $600. The
authorizations expired at the end of 2000. The repurchases were accomplished
through open market transactions. In 1999, we repurchased 2,994,400 shares at an
aggregate cost of $100 and in 2000, 15,455,747 shares were repurchased at a cost
of $381.
All shares repurchased were cancelled and became authorized but unissued
shares.
Common stock transactions in the last three years are as follows:
1999 2000 2001
----------- ----------- -----------
Shares outstanding at beginning of year....... 165,690,844 163,151,142 147,877,034
Issued for director and employee stock
plans....................................... 764,535 272,713 664,430
Repurchased under stock plans................. (309,837) (91,074) (11,000)
Repurchase program............................ (2,994,400) (15,455,747)
----------- ----------- -----------
Shares outstanding at end of year............. 163,151,142 147,877,034 148,530,464
----------- ----------- -----------
Average shares outstanding for the
year -- basic............................... 165,322,644 152,038,862 148,241,265
----------- ----------- -----------
Plus: Incremental shares from assumed
conversion of --
Deferred compensation units................. 461,112 571,029 608,757
Deferred restricted stock units............. 106,044 226,253 232,257
Stock options............................... 608,165 95,182 2,371
----------- ----------- -----------
Potentially dilutive shares................. 1,175,321 892,464 843,385
----------- ----------- -----------
Average shares outstanding for the
year -- diluted............................. 166,497,965 152,931,326 149,084,650
----------- ----------- -----------
F-12
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A net loss causes dilutive shares to have an antidilutive effect, so the
potentially dilutive shares have been disregarded in calculating diluted
earnings per share for the year ended December 31, 2001.
NOTE 5. INVENTORIES
The components of inventory are as follows:
DECEMBER 31
---------------
2000 2001
------ ------
Raw materials............................................... $ 436 $ 377
Work in process and finished goods.......................... 1,128 922
------ ------
$1,564 $1,299
====== ======
Inventories amounting to $1,005 and $841 at December 31, 2000 and 2001,
respectively, were valued using the LIFO method. If all inventories were valued
at replacement cost, inventories would be increased by $119 and $111 at December
31, 2000 and 2001, respectively.
NOTE 6. SHORT-TERM DEBT
Until the end of 2000, we had generally relied on the issuance of
commercial paper to satisfy a significant portion of our short-term financing
requirements. These commercial paper borrowings were supported by committed bank
lines. However, the debt rating services lowered our credit ratings in the first
quarter of 2001, primarily due to the significant downturn in our markets since
the fourth quarter of 2000 and the impact of this downturn on our operations.
Following the downgrade, the commercial paper markets ceased to be available to
us and we began borrowing against the committed bank lines.
In March 2001, we established a $400 accounts receivable securitization
program to supplement our committed bank lines. Under the program, certain of
our divisions and subsidiaries either sell or contribute accounts receivable to
Dana Asset Funding LLC (DAF), a special purpose entity. DAF funds its accounts
receivable purchases in part by pledging a portion of the receivables as
collateral for short-term loans from participating banks. DAF uses the amounts
borrowed under the program to fund the purchase of accounts receivable. We used
the sale proceeds received from DAF to reduce other debt.
The securitized accounts receivable are owned in their entirety by DAF and
are not available to satisfy claims of our creditors. However, we are entitled
to any dividends paid by DAF and would be entitled to all proceeds from the
liquidation of DAF's assets upon the termination of the securitization program
and the dissolution of DAF. DAF's receivables are included in our consolidated
financial statements solely because DAF does not meet certain technical
accounting requirements for treatment as a "qualifying special purpose entity"
under generally accepted accounting principles. Accordingly, the sales and
contributions of the accounts receivable are eliminated in consolidation and the
loans to DAF are reflected as short-term borrowings in our consolidated
financial statements.
Expenses incurred to establish the program are being amortized over five
years, the contractual life of the program.
In December 2001, we entered into a new 364-day revolving credit facility
with a group of banks and amended our existing long-term facility, which matures
on November 15, 2005. The 364-day facility provides for a maximum borrowing
capacity of $250 while the long-term facility has a borrowing capacity of $500.
The 364-day facility provides each participating bank the option to terminate
its commitment on April 30, 2002 unless we receive net cash proceeds of at least
$200 from the issuance of debt in the capital markets or stock or the sale of
assets by April 1, 2002. If the net cash proceeds exceed $200, the maximum
borrowing capacity under the 364-day facility will be reduced by 50% of the
excess. Both facilities require us to maintain specified
F-13
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financial ratios as of the end of each quarter, including the ratio of net
senior debt to tangible net worth; the ratio of earnings before interest, taxes
and depreciation and amortization (EBITDA) less capital spend to interest
expense; and the ratio of net senior debt to EBITDA. For purposes of these
ratios, tangible net worth excludes deferred currency translation adjustments,
the 2001 minimum pension liability adjustment and intangible assets, while
EBITDA is modified to exclude cash restructuring charges incurred from the
fourth quarter of 2001 through the first quarter of 2003, to a maximum of $500,
equity earnings, minority interest and certain other non-cash items. The ratio
calculations are based on the additional financial information which presents
Dana's consolidated financial statements with DCC accounted for on the equity
basis.
Because our financial performance is impacted by various economic,
financial and industry factors, we may not be able to satisfy these covenants in
the future. Noncompliance with these covenants would constitute an event of
default, allowing the lenders to accelerate the repayment of any borrowings
outstanding under the related arrangement. We believe that we would be able to
successfully negotiate amended covenants or obtain waivers if an event of
default were imminent; however, we might be required to provide collateral to
the lenders or make other financial concessions. Default under either of these
facilities or any of our significant note agreements may result in defaults
under other debt instruments. Our business, results of operations and financial
condition might be adversely affected if we were unable to successfully
negotiate amended covenants or obtain waivers on acceptable terms.
Dana, excluding DCC, had total committed borrowing lines of $1,252 and
uncommitted borrowing lines of $296 at December 31, 2001. At December 31, 2001,
Dana, excluding DCC, had $150 borrowed against the long-term facility, $260
borrowed under the accounts receivable securitization program and $33 of notes
payable at its non-U.S. subsidiaries.
DCC had also relied on the issuance of commercial paper for short-term
borrowings prior to 2001. Its borrowings against committed bank lines also
increased after its credit ratings were lowered in the first quarter of 2001.
DCC had committed borrowing lines of $544, including approximately $67
denominated in British pounds and Canadian dollars, and uncommitted borrowing
lines of $15 at December 31, 2001. Various lines totaling $292 mature in 2002;
$250 available under a long-term facility matures in June 2004. DCC had $231
borrowed against committed U.S. bank lines at December 31, 2001.
Fees are paid to the banks for providing committed lines, but not for
uncommitted lines. We paid fees of $9 in 2001 in connection with our committed
bank lines. A portion of these fees is being amortized over the lives of the
related credit facilities.
Selected details of short-term borrowings are as follows:
WEIGHTED AVERAGE
AMOUNT INTEREST RATE
------ ----------------
BALANCE AT DECEMBER 31, 2000................................ $1,526 7.0%
Average during 2000......................................... 1,614 6.6
Maximum during 2000 (month end)............................. 1,872 6.7
BALANCE AT DECEMBER 31, 2001................................ $ 674 3.5%
Average during 2001......................................... 1,450 5.4
Maximum during 2001 (month end)............................. 1,919 6.9
NOTE 7. INTEREST RATE AGREEMENTS
Under our interest rate swap agreements, we agree to exchange with third
parties, at specific intervals, the difference between fixed rate and floating
rate interest amounts calculated by reference to an agreed notional
F-14
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amount. Differentials to be paid or received under these agreements are accrued
and recognized as adjustments to interest expense. At December 31, 2001, Dana,
exclusive of DCC, was committed to receive a rate of 9% on notional amounts of
$575 and E200 and to pay variable rates equal to the six-month London interbank
offered rate (LIBOR) plus an average of 3.09% (the combined rate was 5.07% at
December 31, 2001) on a notional amount of $575 and the six-month Euro interbank
offered rate (EURIBOR) plus an average of 3.79% (the combined rate was 7.04% on
December 31, 2001) on a notional amount of E200. These agreements were entered
in August 2001 in conjunction with the issuance of the 9% notes and expire when
the notes mature in 2011. At December 31, 2001, DCC was committed to receive
interest rates which change periodically in line with prevailing short-term
market rates (the average rate being received at December 31, 2001 was 2.72%)
and to pay an average rate of 7.13% which is fixed over the period of the
agreements on notional amounts of $95. DCC's notional amounts of interest rate
swaps expire as follows: 2002, $50 and 2003, $45.
NOTE 8. LONG-TERM DEBT
DECEMBER 31
---------------
2000 2001
------ ------
Indebtedness of Dana, excluding consolidated subsidiaries --
Unsecured notes payable, fixed rates --
6.25% notes, due March 1, 2004......................... $ 250 $ 250
6.5% notes, due March 15, 2008......................... 150 150
7.0% notes, due March 15, 2028......................... 196 196
6.5% notes, due March 1, 2009.......................... 349 349
7.0% notes, due March 1, 2029.......................... 371 371
9.0% notes, due August 15, 2011........................ 575
9.0% euro notes, due August 15, 2011................... 175
6.92% - 7.04% notes, due 2002.......................... 470 135
Indebtedness of DCC --
Unsecured notes payable, variable rates, 2.18% - 5.77%,
due 2002 to 2006....................................... 220 182
Unsecured notes payable, fixed rates, 2.00% - 8.54%, due
2002 to 2011........................................... 865 844
Nonrecourse notes payable, fixed rates, 6.77% - 12.05%,
due 2002 to 2010....................................... 108 79
Nonrecourse notes payable, variable rate of 5.38%, due
2003................................................... 19
Indebtedness of other consolidated subsidiaries............. 89 129
------ ------
Total long-term debt........................................ 3,068 3,454
Less: Current maturities.................................... 419 446
------ ------
$2,649 $3,008
------ ------
The total maturities of all long-term debt for the five years after 2001
are as follows: 2002, $446; 2003, $152; 2004, $482, 2005, $90 and 2006, $102.
We filed universal shelf registration statements in December 1997 and
December 1998 authorizing us to issue debt or equity securities, or a
combination thereof, in an aggregate amount not to exceed $1,350. In March 1998,
we issued $150 of 6.5% unsecured notes due March 15, 2008 and $200 of 7.0%
unsecured notes due March 15, 2028. In March 1999, we issued $250 of 6.25%
unsecured notes due March 1, 2004, $350 of 6.5% unsecured notes due March 1,
2009 and $400 of 7.0% unsecured notes due March 1, 2029.
F-15
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 2001, Dana issued $575 and E200 of 9% unsecured notes due August 15,
2011. The indenture agreement related to these notes places certain limits on
the borrowings, payments and transactions that we might wish to undertake.
During 1999, DCC established a $500 Medium Term Note Program. Notes under
the program are offered on terms determined at the time of issuance. At December
31, 2001, notes totaling $500 were outstanding under the program. These notes
are general, unsecured obligations of DCC. DCC has agreed that it will not issue
any other notes which are secured or senior to notes issued under the program,
except as permitted by the program.
Nonrecourse obligations represent debt collateralized by the assignment of
contracts and a security interest in the underlying assets. In the event of a
default under the nonrecourse debt obligation, the lender's recourse is limited
to the collateral with no further recourse against DCC.
Interest paid on short-term and long-term debt was $285 in 1999, $314 in
2000 and $304 in 2001.
NOTE 9. STOCK OPTION PLANS
The Compensation Committee of the Board grants stock options to selected
Dana employees under the 1997 Stock Option Plan. The option price is equal to
the market price of our common stock at the date of grant. One-fourth of the
options granted become exercisable at each of the first four anniversary dates
of the grant; options generally expire ten years from the date of grant. Stock
appreciation rights may be granted separately or in conjunction with the
options.
This is a summary of transactions under the plan in the last three years:
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
Outstanding at December 31, 1998......................... 8,510,657 $36.43
Granted -- 1999........................................ 2,333,919 45.50
Exercised -- 1999...................................... (569,933) 30.65
Cancelled -- 1999...................................... (193,138) 43.24
---------- ------
Outstanding at December 31, 1999......................... 10,081,505 $38.78
Granted -- 2000........................................ 3,322,750 23.06
Exercised -- 2000...................................... (120,857) 17.93
Cancelled -- 2000...................................... (420,999) 38.08
---------- ------
Outstanding at December 31, 2000......................... 12,862,399 $34.94
Granted -- 2001........................................ 2,763,200 25.05
Exercised -- 2001...................................... (52,003) 15.97
Cancelled -- 2001...................................... (632,643) 35.85
---------- ------
Outstanding at December 31, 2001......................... 14,940,953 $33.14
---------- ------
F-16
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options under this
plan at December 31, 2001:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
------------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OPTIONS LIFE IN YEARS PRICE OPTIONS PRICE
--------------- ---------- ------------- -------- --------- --------
$19.63-28.13 7,526,087 7.7 $24.60 2,617,753 $25.40
29.06-38.44 3,094,246 4.4 34.49 3,094,246 34.49
40.08-52.56 4,320,620 7.0 47.05 3,085,939 47.22
---------- --- ------ --------- ------
14,940,953 6.8 $33.14 8,797,938 $36.25
---------- --- ------ --------- ------
In April 2001, shareholders authorized an additional 5,000,000 shares under
this plan. At December 31, 2001, 4,196,461 shares were available for future
grants.
In accordance with our accounting policy for stock-based compensation, we
have not recognized any expense relating to these stock options. If we had used
the fair value method of accounting, the alternative policy set out in SFAS No.
123, "Accounting for Stock-Based Compensation," the after-tax expense relating
to the stock options would have been $11 in 1999, $14 in 2000 and $16 in 2001.
If we had charged this expense to income, our net income (loss) and earnings per
share would have been as follows:
1999 2000 2001
---- ---- -----
Net Income (Loss)........................................... $502 $320 $(314)
Basic EPS................................................... 3.03 2.10 (2.12)
Diluted EPS................................................. 3.01 2.09 (2.12)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes model with the following assumptions:
1999 2000 2001
--------- --------- ---------
Risk-free interest rate 5.82% 6.16% 4.63%
Dividend yield 2.73% 5.38% 4.95%
Expected life 5.4 years 5.4 years 5.4 years
Stock price volatility 38.60% 40.72% 44.67%
Based on the above assumptions, the weighted average fair value per share
of options granted under the plans was $15.79 in 1999, $6.51 in 2000 and $7.49
in 2001.
Under our Directors' Stock Option Plan, options for 3,000 common shares are
automatically granted to each non-employee director once a year. The option
price is the market value of the stock at the date of grant. The options can be
exercised after one year and expire ten years from the date of grant, except in
the event of retirement or death of the director.
F-17
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
This is a summary of the stock option activity of the Directors' plan in
the last three years:
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
Outstanding at December 31, 1998............................ 120,000 $35.12
Granted -- 1999........................................... 21,000 50.25
Exercised -- 1999......................................... (3,000) 24.25
------- ------
Outstanding at December 31, 1999............................ 138,000 $37.66
Granted -- 2000........................................... 21,000 28.78
------- ------
Outstanding at December 31, 2000............................ 159,000 $36.49
Granted -- 2001........................................... 24,000 17.64
------- ------
Outstanding at December 31, 2001............................ 183,000 $34.02
------- ------
The following table summarizes information about stock options under this
plan at December 31, 2001:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
------------------------------------ --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OPTIONS LIFE IN YEARS PRICE OPTIONS PRICE
--------------- --------- ------------- -------- --------- --------
$17.64-32.25 138,000 3.7 $27.01 114,000 $28.98
50.25-60.09 45,000 6.8 55.50 45,000 55.50
------- --- ------ ------- ------
183,000 4.4 $34.02 159,000 $36.49
------- --- ------ ------- ------
At December 31, 2001, 82,000 shares were available for future grants under
this plan.
The non-employee directors of Echlin Inc., which we acquired in 1998,
participated in the Echlin Inc. 1996 Non-Executive Director Stock Option Plan
under which options for 232,325 shares were authorized for issuance. Options
were granted at market value at the date of grant, were exercisable after one
year and expire ten years from the date of grant, except in the event of the
retirement or death of the director. During 1999, options to purchase 39,265
shares were exercised at $35.43. No options were exercised in 2000 or 2001. At
December 31, 2001, there were 38,752 options outstanding and exercisable at
exercise prices ranging from $33.49 to $37.93 per share with a weighted average
exercise price of $34.40. The weighted average remaining contractual life of
these options was 5.2 years. No future grants are expected under this plan.
NOTE 10. EMPLOYEES' STOCK PURCHASE PLAN
The majority of our full-time U.S. and some of our non-U.S. employees are
eligible to participate in our stock purchase plan. Plan participants can
authorize us to withhold up to 15% of their earnings and deposit this amount
with an independent custodian. The custodian uses the funds to purchase our
common stock at current market prices. As record keeper for the plan, we
allocate the purchased shares to the participants' accounts. Shares are
distributed to the participants on request.
We match up to 50% of the participants' contributions in cash over a
five-year period beginning with the year the amounts are withheld. If a
participant withdraws any shares before the end of five years, the amount of our
match will depend on how long the shares were in the account. The custodian
purchased 1,177,541 shares in 1999, 2,212,391 shares in 2000 and 2,405,040
shares in 2001. The charge to expense for our match was $9 in 1999, $10 in 2000
and $11 in 2001.
F-18
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11. ADDITIONAL COMPENSATION PLANS
We have numerous additional compensation plans under which we pay our
employees for increased productivity and improved performance. One such plan is
our Additional Compensation Plan for certain officers and other key employees.
Under this plan, a percentage of the participants' compensation is accrued for
additional compensation if we attain certain annual corporate performance goals.
The Compensation Committee selects the participants and determines whether to
pay the awards immediately in cash or to defer them for payment later in cash,
stock or a combination of both. Participants may elect to convert deferred
awards to units which are the economic equivalent of shares of Dana common
stock. Units are credited with the equivalent of dividends on our common stock
and adjusted in value based on the market value of our common stock.
Compensation expense was credited $3 in 1999, $7 in 2000 and $1 in 2001 in
connection with reductions in the value of deferred units. Awards not converted
to units are credited quarterly with interest earned at a rate tied to the prime
rate.
Activity related to the plan for the last three years is as follows:
1999 2000 2001
------ ------ -------
Awarded to participants based on preceding year's
performance............................................. $ 14 $ 15 $ 0
Dividends and interest credited to participants'
accounts................................................ 4 2 2
Charge (credit) to expense................................ 19 (5) 1
Shares issued to participants............................. 3,721 5,240 25,106
We also have two successive Restricted Stock Plans under which the
Compensation Committee grants restricted common shares to certain key employees.
The shares are subject to forfeiture until the restrictions lapse or terminate.
Generally, the employee must remain employed with us for a specified number of
years after the date of grant to receive the shares. Since 1997, participants
have been able to convert their restricted stock into restricted stock units
under certain conditions. The number of restricted shares converted to
restricted units was 200,037 in 1999, 32,736 in 2000 and 27,500 in 2001. The
units are payable in unrestricted stock upon retirement or termination of
employment.
Grants occurred under the 1989 Restricted Stock Plan through February 1999,
at which time the authorization to grant restricted stock under the plan lapsed.
There were 20,500 shares granted in 1999 under the 1989 Plan. At December 31,
2001, there were 474,605 shares available for issuance in connection with
dividends payable on shares granted under this plan.
Shareholders approved the 1999 Restricted Stock Plan in April 1999 and
authorized the issuance of up to 750,000 shares. There were 82,000 shares
granted in 1999, 31,200 shares in 2000 and 529,000 shares in 2001 under the 1999
Plan. At December 31, 2001, there were 74,319 shares available for future grants
and dividends under the 1999 Plan.
Charges to expense for these plans were $2 in 1999, $2 in 2000 and $3 in
2001.
NOTE 12. PENSION AND OTHER POSTRETIREMENT BENEFITS
We provide defined contribution and defined benefit, qualified and
nonqualified, pension plans for certain employees. We also provide other
postretirement benefits including medical and life insurance for certain
employees upon retirement.
Under the terms of the defined contribution retirement plans, employee and
employer contributions may be directed into a number of diverse investments.
None of these plans allows for direct investment of contributions in Dana stock.
F-19
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following tables provide a reconciliation of the changes in the defined
benefit pension plans' and other postretirement plans' benefit obligations and
fair value of assets over the two-year period ended December 31, 2001,
statements of the funded status and schedules of the net amounts recognized in
the balance sheet at December 31, 2000 and 2001:
PENSION BENEFITS OTHER BENEFITS
----------------- -----------------
2000 2001 2000 2001
------- ------- ------- -------
Reconciliation of benefit obligation
Obligation at January 1........................ $2,425 $2,477 $ 1,140 $ 1,198
Service cost................................... 76 66 16 14
Interest cost.................................. 168 172 79 91
Employee contributions......................... 4 4 4 7
Plan amendments................................ 6 1 4
Actuarial loss................................. 28 29 56 206
Benefit payments............................... (224) (196) (84) (99)
Settlement, curtailment and terminations....... 15 7 (12) (4)
Acquisitions and divestitures.................. 11 9
Translation adjustments........................ (32) (20) (1) (2)
------ ------ ------- -------
Obligation at December 31...................... $2,477 $2,549 $ 1,198 $ 1,415
------ ------ ------- -------
Reconciliation of fair value of plan assets
Fair value at January 1........................ $2,931 $2,752
Actual return on plan assets................... 49 (294)
Acquisitions and divestitures.................. (26) 11
Employer contributions......................... 24 18
Employee contributions......................... 4 4
Benefit payments............................... (198) (186)
Settlements.................................... (1) (4)
Translation adjustments........................ (31) (18)
------ ------
Fair value at December 31...................... $2,752 $2,283
------ ------
Funded Status
Balance at December 31......................... $ 275 $ (264) $(1,198) $(1,415)
Unrecognized transition obligation............. (1) (1) (19)
Unrecognized prior service cost................ 57 43 (30)
Unrecognized (gain) loss....................... (351) 229 321 512
------ ------ ------- -------
Accrued cost................................... $ (20) $ 7 $ (907) $ (922)
------ ------ ------- -------
Amounts recognized in the balance sheet consist
of:
Prepaid benefit cost........................... $ 88 $ 108
Accrued benefit liability...................... (168) (299) $ (907) $ (922)
Intangible assets.............................. 23 30
Accumulated other comprehensive loss........... 37 168
------ ------ ------- -------
Net amount recognized.......................... $ (20) $ 7 $ (907) $ (922)
------ ------ ------- -------
F-20
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Benefit obligations of the U.S. non-qualified and certain non-U.S. pension
plans, amounting to $114 at December 31, 2001, and the other postretirement
benefit plans are not funded.
Components of net periodic benefit costs for the last three years are as
follows:
PENSION BENEFITS OTHER BENEFITS
--------------------- ------------------
1999 2000 2001 1999 2000 2001
----- ----- ----- ---- ---- ----
Service cost............................ $ 78 $ 76 $ 66 $ 18 $ 16 $ 14
Interest cost........................... 153 168 172 69 79 91
Expected return on plan assets.......... (219) (232) (241)
Amortization of transition obligation... 3 3 1
Amortization of prior service cost...... 23 23 13 (10) (7) (6)
Recognized net actuarial (gain) loss.... 5 (6) (20) 4 10 13
----- ----- ----- ---- ---- ----
Net periodic benefit cost............... 43 32 (9) 81 98 112
Curtailment (gain) loss................. 18 4 (23) (2)
Settlement (gain) loss.................. (3) 2
Termination expenses.................... 10
----- ----- ----- ---- ---- ----
Net periodic benefit cost after
curtailments and settlements.......... $ 43 $ 47 $ 7 $ 81 $ 75 $110
----- ----- ----- ---- ---- ----
The assumptions used in the measurement of pension benefit obligations are
as follows:
U.S. PLANS
---------------------------
1999 2000 2001
------ -------- -------
Discount rate............................................ 7.25% 7.75% 7.5%
Expected return on plan assets........................... 9.25% 9.25% 9.5%
Rate of compensation increase............................ 4.31-5% 4.31-5% 5%
NON-U.S. PLANS
---------------------------
1999 2000 2001
------ -------- -------
Discount rate............................................ 5.5-7% 5.5-7.75% 6-6.75%
Expected return on plan assets........................... 6.5-9% 6.5-9% 7-7.5%
Rate of compensation increase............................ 3-5% 2.5-5% 3-5%
The assumptions used in the measurement of other postretirement benefit
obligations are as follows:
1999 2000 2001
------ -------- -------
Discount rate............................................ 7.25% 7.75% 7.5%
Initial weighted health care costs trend rate............ 7.2% 6.8% 8.1%
Ultimate health care costs trend rate.................... 5% 5% 5%
Years to ultimate........................................ 9 9 9
Assumed health care costs trend rates have a significant effect on the
health care plan. A one-percentage-point change in assumed health care costs
trend rates would have the following effects for 2001:
1% POINT 1% POINT
INCREASE DECREASE
-------- --------
Effect on total of service and interest cost components..... $ 9 $ (7)
Effect on postretirement benefit obligations................ 115 (99)
F-21
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. BUSINESS SEGMENTS
Our operations are organized into six market-focused Strategic Business
Units (SBUs). This structure allows our people in each of these areas to focus
their resources to benefit Dana and our global customers. In December 2001, we
combined the Fluid Systems Group and most of the operations of the Engine
Systems Group to form the Engine and Fluid Management Group. The segment
information has been restated to reflect all changes made to the SBU alignment
in 2001.
The Automotive Systems Group (ASG) produces light duty axles, driveshafts,
structural products (such as engine cradles and frames), transfer cases,
original equipment brakes and integrated modules and systems for the light
vehicle market and driveshafts for the heavy truck market.
The Automotive Aftermarket Group (AAG) sells primarily hydraulic brake
components and disc brakes for light vehicle applications, internal engine hard
parts, chassis products and a complete line of filtration products for a variety
of applications.
The Engine and Fluid Management Group (EFMG) serves the automotive, light
to heavy truck, leisure and outdoor power equipment and industrial markets with
sealing products, internal engine hard parts, electronic modules, sensors and an
extensive line of products for the pumping, routing and thermal management of
fluid systems.
Commercial Vehicle Systems (CVS) is a major supplier of heavy axles and
brakes, drivetrain components and trailer products to the medium and heavy truck
markets.
The Off-Highway Systems Group (OHSG) produces axles and brakes, transaxles,
power-shift transmissions, torque converters and electronic controls for the
construction, agriculture, mining, specialty chassis, outdoor power, material
handling, forestry and leisure/utility equipment markets.
For some time, we have also been a leading provider of lease financing
services in selected markets through our wholly-owned subsidiary, Dana Credit
Corporation (DCC). DCC and its subsidiaries provide leasing and financing
services to selected markets primarily in the U.S., Canada, the United Kingdom
and continental Europe. We announced our intention to pursue the sale of the
businesses of DCC in October 2001.
F-22
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Management evaluates the operating segments and regions as if DCC were
accounted for on the equity method of accounting. Information used to evaluate
the SBUs and regions is as follows:
OPERATING NET NET CAPITAL DEPRECIATION/
SALES EBIT PAT PROFIT (LOSS) ASSETS SPEND AMORTIZATION
------- ------ --------- ------------- ------ ------- -------------
1999
ASG.............................. $ 4,403 $ 534 $ 341 $ 269 $1,759 $190 $142
AAG.............................. 2,955 294 180 127 1,965 117 76
EFMG............................. 2,495 223 143 104 1,861 135 117
CVS.............................. 1,904 208 127 91 688 48 34
OHSG............................. 870 61 37 24 560 31 37
DCC.............................. 34 34 145
Other............................ 532 (169) (184) 29 262 26 23
------- ------ ----- ----- ------ ---- ----
Total operations................. 13,159 1,151 678 678 7,240 547 429
Restructuring and nonrecurring
items.......................... (229) (165) (165)
------- ------ ----- ----- ------ ---- ----
Consolidated..................... $13,159 $ 922 $ 513 $ 513 $7,240 $547 $429
------- ------ ----- ----- ------ ---- ----
North America.................... $10,308 $1,235 $ 771 $ 612 $5,222 $379 $283
Europe........................... 2,051 99 57 20 1,267 102 96
South America.................... 549 16 13 3 581 48 37
Asia Pacific..................... 251 (1) (10) 143 13 9
DCC.............................. 34 34 145
Other............................ (199) (196) 19 (118) 5 4
------- ------ ----- ----- ------ ---- ----
Total operations................. 13,159 1,151 678 678 7,240 547 429
Restructuring and nonrecurring
items.......................... (229) (165) (165)
------- ------ ----- ----- ------ ---- ----
Consolidated..................... $13,159 $ 922 $ 513 $ 513 $7,240 $547 $429
------- ------ ----- ----- ------ ---- ----
2000
ASG.............................. $ 4,522 $ 415 $ 282 $ 193 $2,036 $180 $149
AAG.............................. 2,768 116 71 6 1,903 74 78
EFMG............................. 2,400 180 121 77 1,735 119 113
CVS.............................. 1,598 126 76 41 555 32 42
OHSG............................. 786 58 35 21 500 19 29
DCC.............................. 35 35 174
Other............................ 243 (219) (243) 4 77 10 16
------- ------ ----- ----- ------ ---- ----
Total operations................. 12,317 676 377 377 6,980 434 427
Restructuring and nonrecurring
items.......................... (25) (43) (43)
------- ------ ----- ----- ------ ---- ----
Consolidated..................... $12,317 $ 651 $ 334 $ 334 $6,980 $434 $427
------- ------ ----- ----- ------ ---- ----
North America.................... $ 9,449 $ 804 $ 525 $ 346 $4,730 $306 $286
Europe........................... 1,947 74 44 4 1,542 78 96
South America.................... 563 24 11 451 32 30
Asia Pacific..................... 358 7 5 (8) 169 11 11
DCC.............................. 35 35 174
Other............................ (233) (243) (86) 7 4
------- ------ ----- ----- ------ ---- ----
Total operations................. 12,317 676 377 377 6,980 434 427
Restructuring and nonrecurring
items.......................... (25) (43) (43)
------- ------ ----- ----- ------ ---- ----
Consolidated..................... $12,317 $ 651 $ 334 $ 334 $6,980 $434 $427
------- ------ ----- ----- ------ ---- ----
F-23
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING NET NET CAPITAL DEPRECIATION/
SALES EBIT PAT PROFIT (LOSS) ASSETS SPEND AMORTIZATION
------- ------ --------- ------------- ------ ------- -------------
2001
ASG.............................. $ 3,717 $ 194 $ 146 $ 68 $1,997 $188 $168
AAG.............................. 2,538 12 7 (54) 1,510 36 80
EFMG............................. 2,137 77 50 8 1,430 56 117
CVS.............................. 1,118 33 20 (10) 407 19 39
OHSG............................. 621 22 13 1 431 13 29
DCC.............................. 31 31 198
Other............................ 140 (191) (262) (39) 161 5 14
------- ------ ----- ----- ------ ---- ----
Total operations................. 10,271 147 5 5 6,134 317 447
Restructuring and nonrecurring
items.......................... (466) (303) (303)
------- ------ ----- ----- ------ ---- ----
Consolidated..................... $10,271 $ (319) $(298) $(298) $6,134 $317 $447
------- ------ ----- ----- ------ ---- ----
North America.................... $ 7,684 $ 280 $ 167 $ 10 $4,027 $212 $299
Europe........................... 1,704 43 45 8 1,314 49 90
South America.................... 553 13 (3) (14) 475 28 38
Asia Pacific..................... 330 5 3 (8) 177 25 14
DCC.............................. 31 31 198
Other............................ (194) (238) (22) (57) 3 6
------- ------ ----- ----- ------ ---- ----
Total operations................. 10,271 147 5 5 6,134 317 447
Restructuring and nonrecurring
items.......................... (466) (303) (303)
------- ------ ----- ----- ------ ---- ----
Consolidated..................... $10,271 $ (319) $(298) $(298) $6,134 $317 $447
------- ------ ----- ----- ------ ---- ----
With the exception of DCC, operating profit after taxes (PAT) represents
earnings before interest and taxes (EBIT), tax effected at 39% (our estimated
long-term effective rate), plus equity in earnings of affiliates. The Other
category includes operations not assigned to the SBUs, discontinued businesses,
trailing liabilities for certain closed plants, interest expense net of interest
income, corporate expenses and adjustments to reflect the actual effective tax
rate. SBU and regional expenses are included in the respective SBU or region;
otherwise they are included in Other. In arriving at net profit from operating
PAT, allocations are based on sales.
Equity earnings included in the operating PAT and net profit reported in
1999, 2000 and 2001 were $15, $29 and $27 for ASG and $7, $11 and $3 for EFMG.
Equity earnings included for the other SBUs were not material.
Net assets at the SBU and regional level is intended to correlate with
invested capital. It includes accounts receivable, inventories (on a first-in,
first-out basis), net property, plant and equipment, investments in affiliates,
goodwill, trade accounts payable and 2% of annualized sales as an assumption for
cash and prepaid expense.
DCC is evaluated based upon numerous criteria of which net profit and net
assets (equity investment) shown above are the major items.
Restructuring and nonrecurring items consist of the gains on sales of
business discussed in Note 19, restructuring and integration charges discussed
in Note 20 and other nonrecurring charges.
Sales by region are based upon location of the entity recording the sale.
Sales from the U.S. amounted to $9,413 in 1999, $8,552 in 2000 and $6,863 in
2001. No other country's sales exceeded 10% of total sales. U.S. long-lived
assets were $1,835 in 1999, $1,865 in 2000 and $1,631 in 2001. No other
country's long-lived assets exceeded 10% of total long-lived assets.
F-24
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net operating assets differ from consolidated assets as follows:
1999 2000 2001
------- ------- -------
Net operating assets........................................ $ 7,240 $ 6,980 $ 6,134
Accounts payable............................................ 1,129 1,014 1,042
DCC's assets in excess of equity............................ 1,902 2,279 2,012
Non-trade receivables and other current assets.............. 655 755 775
Other long-term assets...................................... 197 208 244
------- ------- -------
Consolidated assets......................................... $11,123 $11,236 $10,207
------- ------- -------
The difference between operating capital spend and depreciation shown above
and purchases of property, plant and equipment and depreciation shown on the
cash flow statement represents the method of measuring DCC for operating
purposes. DCC's capital spend and depreciation are not included above. In
addition, DCC purchases equipment and leases the equipment to the other SBUs.
These operating leases are included in the consolidated statements as purchases
of assets and depreciated over their useful life.
Export sales from the U.S. to customers outside the U.S. amounted to $939
in 1999, $832 in 2000 and $649 in 2001. Total export sales (including sales to
our non-U.S. subsidiaries which are eliminated for financial statement
presentation) were $1,229 in 1999, $1,115 in 2000 and $874 in 2001.
Worldwide sales to Ford Motor Company and subsidiaries amounted to $2,130
in 1999, $2,396 in 2000 and $1,888 in 2001, which represented 16%, 19% and 18%
of our consolidated sales. Sales to DaimlerChrysler AG and subsidiaries were
$1,777 in 1999, $1,669 in 2000 and $1,169 in 2001 representing 14%, 14% and 11%
of our consolidated sales. Sales to Ford were primarily from our ASG and EFMG
segments, while sales to DaimlerChrysler were primarily from the ASG and CVS
segments. No other customer accounted for more than 10% of our consolidated
sales.
NOTE 14. ESTIMATED INCOME TAXES
Income tax expense (benefit) consists of the following components:
YEAR ENDED DECEMBER 31
----------------------
1999 2000 2001
----- ----- ------
Current
U.S. federal.............................................. $ 23 $ 22 $ (94)
U.S. state and local...................................... 15 18 (5)
Non-U.S................................................... 139 74 54
---- ---- -----
177 114 (45)
---- ---- -----
Deferred
U.S. federal and state.................................... 120 48 (111)
Non-U.S................................................... (46) 9 (5)
---- ---- -----
74 57 (116)
---- ---- -----
Total expense (benefit)..................................... $251 $171 $(161)
---- ---- -----
F-25
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax benefits (liabilities) consist of the following:
DECEMBER 31
----------------------
1999 2000 2001
----- ----- ------
Postretirement benefits other than pensions................. $ 387 $ 328 $ 339
Expense accruals............................................ 150 210 252
Net operating loss carryforwards............................ 117 128 234
Inventory reserves.......................................... 35 58 77
Foreign tax credits recoverable............................. 23 79
Other tax credits recoverable............................... 7 27
Pension accruals............................................ 33
Postemployment benefits..................................... 38 32 32
Other employee benefits..................................... $ 24 $ 23 $ 20
Other....................................................... 63 58 85
----- ----- ------
814 867 1,178
Valuation allowances........................................ (83) (102) (128)
----- ----- ------
Deferred tax benefits....................................... 731 765 1,050
----- ----- ------
Leasing activities.......................................... (441) (557) (678)
Depreciation -- non-leasing................................. (215) (239) (233)
Pension accruals............................................ (15) (12)
Other....................................................... (17) (17) (24)
----- ----- ------
Deferred tax liabilities.................................... (688) (825) (935)
----- ----- ------
Net deferred tax benefits (liabilities)..................... $ 43 $ (60) $ 115
----- ----- ------
Worldwide, we have operating loss carryforwards of approximately $687 with
remaining lives ranging from one year to an indefinite period. Valuation
allowances are provided for deferred benefits if the realization of the benefits
is uncertain. To reflect uncertainties related to utilization of specific loss
carryforwards, we increased the valuation allowance by $19 in 2000 and $26 in
2001. Net benefits recognized for loss carryforwards generally relate to the
U.S., where we have traditionally been a taxpayer, and Brazil and the United
Kingdom, where operating losses may be carried forward indefinitely. Foreign tax
credits may be used to offset the U.S. income taxes due on income earned from
foreign sources; however, the credit is limited to the total U.S. taxes payable
on income from all sources. Excess foreign tax credits may be carried back two
years and forward five years. As of December 31, 2000 and 2001, we believe it is
more likely than not that we will generate a sufficient level and proper mix of
taxable income within the appropriate period to utilize all the foreign tax
credits. If we are unable to generate a sufficient level and proper mix of
taxable income within the appropriate periods we may be unable to utilize some
or all of these tax benefits. The foreign tax credit carryforwards expire as
follows: 2003, $5; 2004, $20; 2005, $28; 2006, $26.
Cumulative undistributed earnings of non-U.S. subsidiaries for which U.S.
income taxes, exclusive of foreign tax credits, have not been provided
approximated $852 at December 31, 2001. U.S. income taxes have not been provided
on these undistributed earnings since we intend to permanently reinvest them. If
the total undistributed earnings of non-U.S. subsidiaries had been remitted in
2001, a significant amount of the additional tax provision would have been
offset by foreign tax credits.
We paid income taxes of $136 in 1999 and $98 in 2000 and received a net
refund of $38 in 2001.
F-26
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The effective income tax rate differs from the U.S. federal income tax rate
for the following reasons:
YEAR ENDED DECEMBER 31
-----------------------
1999 2000 2001
----- ----- -----
U.S. federal income tax rate................................ 35.0% 35.0% 35.0%
Increases (reductions) resulting from:
State and local income taxes, net of federal income tax
benefit................................................ 2.1 2.3 4.2
Non-U.S. income........................................... (4.0) (5.1) (1.6)
Valuation adjustments..................................... 3.3 4.0 (5.3)
General business tax credits.............................. (1.9) (1.7) 1.9
Amortization of goodwill.................................. 0.6 1.2 (0.8)
Miscellaneous items....................................... (1.0) 1.1 (0.2)
---- ---- ----
Effective income tax rate................................... 34.1% 36.8% 33.2%
---- ---- ----
NOTE 15. COMPOSITION OF CERTAIN BALANCE SHEET AMOUNTS
The following items comprise the net amounts indicated in the respective
balance sheet captions:
DECEMBER 31
-----------------
2000 2001
------- -------
INVESTMENTS AND OTHER ASSETS
Goodwill.................................................... $ 969 $ 841
Investments at equity....................................... 965 877
Marketable securities, cost of $37 -- 2000 and
$32 -- 2001............................................... 41 33
Loans receivable............................................ 109 80
Other....................................................... 283 378
------- -------
$ 2,367 $ 2,209
------- -------
PROPERTY, PLANT AND EQUIPMENT, NET
Land and improvements to land............................... $ 146 $ 133
Buildings and building fixtures............................. 1,167 1,099
Machinery and equipment..................................... 4,859 4,808
------- -------
6,172 6,040
Less: Accumulated depreciation.............................. 2,663 2,907
------- -------
$ 3,509 $ 3,133
------- -------
DEFERRED EMPLOYEE BENEFITS AND OTHER NONCURRENT LIABILITIES
Postretirement other than pension........................... $ 831 $ 834
Deferred income tax......................................... 310 214
Pension..................................................... 109 299
Postemployment.............................................. 82 82
Compensation................................................ 54 48
Other noncurrent liabilities................................ 121 163
------- -------
$ 1,507 $ 1,640
------- -------
F-27
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31
-----------------
2000 2001
------- -------
INVESTMENT IN LEASES
Direct financing leases..................................... $ 141 $ 118
Leveraged leases............................................ 867 920
Property on operating leases, net of accumulated
depreciation.............................................. 93 75
Allowance for credit losses................................. (43) (31)
------- -------
1,058 1,082
Less: Current portion....................................... 21 14
------- -------
$ 1,037 $ 1,068
------- -------
The components of the net investment in direct financing leases are as
follows:
DECEMBER 31
-----------------
2000 2001
------- -------
Total minimum lease payments................................ $ 154 $ 125
Residual values............................................. 42 38
Deferred initial direct costs............................... 2 2
------- -------
198 165
Less: Unearned income....................................... 57 47
------- -------
$ 141 $ 118
------- -------
The components of the net investment in leveraged leases are as follows:
DECEMBER 31
-----------------
2000 2001
------- -------
Rentals receivable.......................................... $ 7,597 $ 7,574
Residual values............................................. 874 944
Nonrecourse debt service.................................... (6,409) (6,445)
Unearned income............................................. (1,185) (1,143)
Deferred investment tax credit.............................. (10) (10)
------- -------
867 920
Less: Deferred taxes arising from leveraged leases.......... 423 513
------- -------
$ 444 $ 407
------- -------
F-28
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Total minimum lease payments receivable on direct financing leases as of
December 31, 2001 are as follows:
Year Ending December 31:
2002...................................................... $ 23
2003...................................................... 21
2004...................................................... 18
2005...................................................... 16
2006...................................................... 12
Later years................................................. 35
----
Total minimum lease payments receivable..................... $125
----
Total minimum lease payments receivable on operating leases as of December
31, 2001 are as follows:
Year Ending December 31:
2002...................................................... $20
2003...................................................... 16
2004...................................................... 12
2005...................................................... 10
2006...................................................... 8
Later years................................................. 15
---
Total minimum lease payments receivable..................... $81
---
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of Dana's financial instruments are as follows:
DECEMBER 31
-------------------------------------
2000 2001
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
FINANCIAL ASSETS
Cash and cash equivalents....................... $ 179 $ 179 $ 199 $ 199
Loans receivable (net).......................... 219 228 108 115
Investment securities........................... 55 55 46 45
Currency forwards............................... 2 1 1
FINANCIAL LIABILITIES
Short-term debt................................. 1,526 1,526 674 674
Long-term debt.................................. 3,068 2,943 3,454 3,298
Security deposits -- leases..................... 1 2 2
Deferred funding commitments under leveraged
leases....................................... 1 1 1 1
Interest rate swaps............................. 3 6 6
NOTE 17. COMMITMENTS AND CONTINGENCIES
At December 31, 2001, we had purchase commitments for property, plant and
equipment of approximately $128. DCC had commitments to provide loan and lease
financing in the aggregate amount of $80.
F-29
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent financing under the DCC commitments is subject to satisfactory
completion of normal conditions precedent to the execution of such lease
financing arrangements.
At December 31, 2001, we had contingent obligations of up to $134 related
to partial guarantees of third-party loans to equity affiliates.
Future minimum rental commitments under operating leases were $469 at
December 31, 2001, with rental payments during the next five years of: 2002,
$76; 2003, $70; 2004, $64; 2005, $55 and 2006, $60. Net rental expense was $117
in 1999, $103 in 2000 and $113 in 2001.
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.
With respect to contingent asbestos-related product liability, we had
approximately 100,000 asbestos-related claims outstanding at December 31, 2001,
including approximately 27,000 claims that were settled pending payment. We have
agreements with our insurance carriers providing for the payment of a
significant majority of the defense and indemnity costs for pending claims as
well as claims which may be filed against us in the future. At December 31,
2001, we had accrued $102 for contingent asbestos-related product liability
costs and recorded $89 as an asset for probable recoveries from insurers for
asbestos-related product liability claims, compared to $78 accrued for
liabilities and $67 recorded as an asset at December 31, 2000.
At December 31, 2001 and 2000, amounts accrued for contingent environmental
liabilities with no recovery expected from other parties were $52 and $40,
respectively. At December 31, 2001, $11 was accrued for contingent non-asbestos
product liability costs, with no recovery anticipated from third parties; $21
was accrued for liabilities and $2 recorded as an asset at the end of 2000.
Until 2001, the majority of our asbestos-related claims were administered
by the Center for Claims Resolution (CCR), which settled claims for its member
companies on a shared settlement cost basis. In February 2001, the CCR was
reorganized and discontinued negotiating shared settlements. Certain former CCR
members have defaulted on the payment of their shares of certain of the
CCR-negotiated settlements. As a result, some of the settling parties are
seeking payment of the unpaid shares from Dana and the other companies that were
members of the CCR at the time of the settlements. We have been working with the
CCR, other former CCR members, our insurers and the claimants plaintiffs to
resolve these issues. At December 31, 2001, we estimated our contingent
liability with respect to these matters to be approximately $44, of which we
expect $39 to be recoverable from our insurers and under surety bonds provided
by the defaulting CCR members. Our financial statements include our obligation
relative to these contingencies, which are separate from the asbestos-related
product liabilities discussed above.
We have reviewed all of our pending judicial and legal proceedings,
including the probable outcomes, reasonably anticipated costs and expenses,
availability and limits of our insurance coverage 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.
NOTE 18. ACQUISITIONS
In 1999, we acquired Innovative Manufacturing, Inc., a machining operation
that supplies machined castings to our Spicer Outdoor Power Equipment Components
Division. We also acquired the remaining interests not previously owned in
Industrias Serva S.A. (30%), Dana Heavy Axle Mexico S.A. de C.V. (9%),
Automotive Motion Technology Limited (49%) and Echlin Charger Mfg. Co. Pty. Ltd.
(8%). These acquisitions were accounted for as purchases and the results of
operations and earnings previously allocated to minority owners have been
included from the dates of acquisition. The sales and total assets were not
material.
F-30
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In January 2000, we acquired the cardan-jointed propeller shaft business of
GKN plc. In March, we acquired a majority interest in Tribometal a.s., a
manufacturer of polymer bearings. The automotive axle manufacturing and stamping
operations of Invensys plc were acquired in July 2000. In November 2000, we
acquired a 30% interest in GETRAG Cie, a manufacturer of transmissions,
transaxles, axles and other automotive components, and a 49% interest in
GETRAG's North American operations. Except for the interests in GETRAG, which
are being accounted for as equity investments, the acquisitions were accounted
for as purchases and the results of their operations have been included in the
consolidated financial statements from the dates of acquisition. The
acquisitions accounted for as purchases had total assets of $373 at acquisition
and recorded sales of $195 in 2000.
In June 2001, we acquired the remaining 51% interest in Danaven, a
Venezuelan operation in which we previously held a minority position. This
acquisition was accounted for as a purchase and the results of operations have
been included in the consolidated financial statements since the date we
attained 100% ownership. We previously accounted for our 49% interest in Danaven
under the equity method of accounting. Total assets and debt of Danaven
approximated $202 and $92 at June 30, 2001. Sales related to Danaven
approximated $64 in 2001.
NOTE 19. DIVESTITURES
In October 1999, we sold the Coldform operations of our Engine and Fluid
Management Group and in November we sold Sierra International Inc. Coldform
manufactured starter components, steering hubs and suspension components and
Sierra manufactured and distributed marine and power equipment engine, drive and
hose products. Annual sales of these operations were approximately $50.
In January 2000, we sold our Gresen Hydraulics business, the Truckline
Parts Centres heavy-duty distribution business and certain portions of our
constant velocity (CV) joint businesses. In February, we sold most of the global
Warner Electric businesses and, in March, we sold Commercial Vehicle Cab
Systems. In September 2000, we sold the remaining 35% interest in our Brazilian
CV joint operation. Net gain recorded on these divestitures totaled $106. These
businesses reported sales of $666 in 1999; through the dates of divestiture,
2000 sales for these operations totaled $103.
In March 2001, we sold Mr. Gasket, Inc., a wholly owned subsidiary. In the
second quarter of 2001, we divested our Marion, Ohio forging facility and the
assets of our Dallas, Texas and Washington, Missouri Engine and Fluid Management
Group operations. In July 2001, we completed the sale of our Chelsea power
take-off business to Parker Hannifin Corporation. In September 2001, we
completed the sale of our Glacier industrial polymer bearings businesses to
Goodrich Corporation. A net after-tax gain of $10 was recorded on these
divestitures. Sales reported by these businesses were $241 in 2000 and $105 in
2001, through the dates of divestiture.
NOTE 20. RESTRUCTURING OF OPERATIONS
During 1999, we continued executing the restructuring and integration plans
announced in 1998 following our acquisition of Echlin Inc., including the
closing and downsizing of facilities begun in 1998. We incurred integration
charges of $51 for relocating assets, training and relocating employees and
other integration activities at the acquired operations. These costs were
charged to expense as incurred.
During the fourth quarter of 1999, we announced plans to downsize and close
additional operations in the U.S., South America and Europe and recorded
restructuring and integration charges totaling $170. The charges included the
costs of exiting businesses, asset impairments and termination benefits. The
announced restructuring and integration plans included closing five facilities,
downsizing three facilities and terminating 1,280 people. The largest component
of these plans was the downsizing of our Reading, Pa., structures facility.
F-31
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In total, $229 was charged to income during 1999. This amount consisted of $181
charged to restructuring and integration, $57 charged to cost of sales and a $9
gain on the sale of Sierra credited to other income.
During the third quarter of 2000, we announced plans to close our Reading
structures facility and terminate approximately 690 people and recorded
restructuring charges of $53. In the fourth quarter of 2000, we approved plans
to close facilities in France, the United Kingdom and Argentina, resulting in
$34 of charges and a workforce reduction of approximately 230 people. We also
incurred integration expenses in 2000 related to consolidating our Engine
Management warehouse operations and moving operations from closed facilities.
In the first quarter of 2001, we recorded $22 of restructuring expense in
connection with the announced closing of six facilities in the ASG and EFMG and
workforce reductions at other facilities. These charges included $10 for
employee termination benefits, $7 for asset impairment and $5 for other exit
costs and impacted net earnings by $14. We announced additional facility
closings in the third quarter and accrued additional restructuring charges of
$12, affecting earnings by $7.
In October 2001, we announced plans to reduce our global workforce by more
than 15 percent and initiated a review of more than 30 facilities for possible
consolidation or closure. These actions were undertaken to reduce capacity and
outsource the manufacturing of non-core content. As of December 31, 2001, we had
announced the closing of 21 facilities and reduced our work force by more than 7
percent in connection with these plans. Charges related to our actions announced
in October were $431 and affected net earnings by $279. Charges for all
restructuring activities totaled $440, including $155 for employee terminations,
$196 for asset impairments and $89 for exit and other costs. We charged cost of
sales for $85 of these expenses, including $38 for inventory impairment. Net
earnings in the fourth quarter were impacted by $284.
For the year ended December 31, 2001, we recorded total expenses of $476,
including $390 charged to restructuring expense and $86 charged to cost of
sales, in connection with our restructuring actions. We expect our actions to
reduce our break-even point by eliminating excess capacity.
F-32
DANA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the restructuring charges and activity recorded in
the last three years:
EMPLOYEE
TERMINATION LONG-LIVED EXIT INTEGRATION
BENEFITS ASSET IMPAIRMENT COSTS EXPENSES TOTAL
----------- ---------------- ----- ----------- -----
BALANCE AT DECEMBER 31, 1998..... $116 $ $ 11 $ $ 127
Activity during the year
Charges to expense............. 60 59 11 51 181
Cash payments.................. (85) (9) (51) (145)
Write-off of assets............ (59) (59)
---- ----- ---- ---- -----
BALANCE AT DECEMBER 31, 1999..... 91 -- 13 -- 104
Activity during the year
Charges to expense............. 62 8 27 76 173
Cash payments.................. (60) (20) (76) (156)
Write-off of assets............ (8) (8)
---- ----- ---- ---- -----
BALANCE AT DECEMBER 31, 2000..... 93 -- 20 -- 113
Activity during the year
Charges to expense............. 171 166 53 390
Cash payments.................. (58) (20) (78)
Write-off of assets............ (166) (166)
---- ----- ---- ---- -----
BALANCE AT DECEMBER 31, 2001..... $206 $ -- $ 53 $ -- $ 259
---- ----- ---- ---- -----
Employee terminations relating to the plans were as follows:
1999 2000 2001
----- ----- ------
Total estimated............................................. 1,280 1,020 7,690
Less terminated:
1999...................................................... (595)
2000...................................................... (615) (765)
2001...................................................... (30) (254) (3,571)
----- ----- ------
BALANCE AT DECEMBER 31, 2001................................ 40 1 4,119
----- ----- ------
At December 31, 2001, $259 of restructuring charges remained in accrued
liabilities. This balance was comprised of $206 for the reduction of
approximately 4,200 employees to be completed in 2002 and $53 for lease
terminations and other exit costs. The estimated annual cash expenditures will
be approximately $120 in 2002, $38 in 2003 and $101 thereafter. Our liquidity
and cash flows will be materially impacted by these actions. It is anticipated
that our operations over the long term will benefit from these realignment
strategies through reduction of overhead and certain material costs.
NOTE 21. NONCASH INVESTING AND FINANCING ACTIVITIES
In leveraged leases, the issuance of nonrecourse debt financing and
subsequent repayments thereof are transacted directly between the lessees and
the lending parties to the transactions. Nonrecourse debt issued to finance
leveraged leases was $878 in 1999, $403 in 2000 and $163 in 2001; nonrecourse
debt obligations repaid were $273 in 1999, $106 in 2000 and $76 in 2001.
F-33
DANA CORPORATION
(INCLUDING DANA CREDIT CORPORATION ON AN EQUITY BASIS)
ADDITIONAL INFORMATION -- STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31
---------------------------
1999 2000 2001
------- ------- -------
(IN MILLIONS)
NET SALES................................................... $13,159 $12,317 $10,271
Other income................................................ 58 190 43
------- ------- -------
13,217 12,507 10,314
------- ------- -------
Costs and expenses
Cost of sales............................................. 11,016 10,662 9,335
Selling, general and administrative expenses.............. 1,074 1,007 895
Restructuring and integration charges..................... 181 173 390
Interest expense.......................................... 208 218 205
------- ------- -------
12,479 12,060 10,825
------- ------- -------
Income (loss) before income taxes........................... 738 447 (511)
Estimated taxes on income................................... 273 168 (167)
------- ------- -------
Income (loss) before minority interest and equity in
earnings of affiliates.................................... 465 279 (344)
Minority interest in net income of consolidated
subsidiaries.............................................. (13) (13) (8)
Equity in earnings of affiliates............................ 61 68 54
------- ------- -------
NET INCOME (LOSS)........................................... $ 513 $ 334 $ (298)
------- ------- -------
F-34
DANA CORPORATION
(INCLUDING DANA CREDIT CORPORATION ON AN EQUITY BASIS)
ADDITIONAL INFORMATION -- BALANCE SHEET (UNAUDITED)
DECEMBER 31
---------------
2000 2001
------ ------
(IN MILLIONS)
ASSETS
Current assets
Cash and marketable securities............................ $ 149 $ 182
Accounts receivable
Trade, less allowance for doubtful accounts of
$42 -- 2000 and $45 -- 2001........................... 1,505 1,371
Other.................................................. 318 253
Inventories............................................... 1,564 1,299
Other current assets...................................... 535 518
------ ------
Total current assets.............................. 4,071 3,623
------ ------
Investments and other assets
Investments at equity..................................... 636 628
Goodwill.................................................. 969 841
Other..................................................... 212 246
------ ------
Total investments and other assets................ 1,817 1,715
------ ------
Deferred income tax benefits................................ 209 449
Property, plant and equipment, net.......................... 3,069 2,778
------ ------
Total assets...................................... $9,166 $8,565
------ ------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable............................................. $1,307 $ 617
Accounts payable.......................................... 1,014 1,042
Accrued payroll and employee benefits..................... 395 315
Other accrued liabilities................................. 809 826
Taxes on income........................................... 165 142
------ ------
Total current liabilities......................... 3,690 2,942
Deferred employee benefits and other noncurrent
liabilities............................................... 1,155 1,400
Long-term debt.............................................. 1,574 2,155
Minority interest in consolidated subsidiaries.............. 119 110
Shareholders' equity........................................ 2,628 1,958
------ ------
Total liabilities and shareholders' equity........ $9,166 $8,565
------ ------
F-35
DANA CORPORATION
(INCLUDING DANA CREDIT CORPORATION ON AN EQUITY BASIS)
ADDITIONAL INFORMATION -- STATEMENT OF CASH FLOWS (UNAUDITED)
YEAR ENDED DECEMBER 31
----------------------
1999 2000 2001
------ ----- -----
(IN MILLIONS)
Net cash flows from operating activities.................... $ 464 $ 850 $ 475
------ ----- -----
Cash flows from investing activities:
Purchases of property, plant and equipment................ (547) (434) (317)
Acquisitions.............................................. (18) (511) (21)
Divestitures.............................................. 36 571 236
Additions to investments and other assets................. (26) (1) (24)
Other..................................................... 29 16 33
------ ----- -----
Net cash flows -- investing activities...................... (526) (359) (93)
------ ----- -----
Cash flows from financing activities:
Net change in short-term debt............................. (555) 424 (599)
Issuance of long-term debt................................ 1,017 9 776
Payments on long-term debt................................ (220) (313) (370)
Dividends paid............................................ (206) (187) (140)
Shares repurchased........................................ (100) (381)
Other..................................................... 5 (16)
------ ----- -----
Net cash flows -- financing activities...................... (64) (443) (349)
------ ----- -----
Net increase (decrease) in cash and cash equivalents........ (126) 48 33
Cash and cash equivalents -- beginning of year.............. 227 101 149
------ ----- -----
Cash and cash equivalents -- end of year.................... $ 101 $ 149 $ 182
------ ----- -----
Reconciliation of net income (loss) to net cash flows from
operating activities:
Net income (loss)......................................... $ 513 $ 334 $(298)
Depreciation and amortization............................. 429 427 447
Deferred income taxes..................................... 9 (60) (244)
Minority interest......................................... 6 8 4
Asset impairment.......................................... 62 27 206
Net change in receivables, inventory and payables......... (568) 357 366
Other assets and accruals................................. 107 (65) 48
Unremitted earnings of affiliates......................... (45) (68) (17)
Gains on divestitures..................................... (5) (106) (10)
Other..................................................... (44) (4) (27)
------ ----- -----
Net cash flows from operating activities.................... $ 464 $ 850 $ 475
------ ----- -----
F-36
DANA CORPORATION
CONDENSED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS
ENDED MARCH 31
-------------------
2001 2002
------- -------
(IN MILLIONS EXCEPT
PER SHARE AMOUNTS)
NET SALES................................................... $2,731 $2,521
Revenue from lease financing and other income............... 22 53
------ ------
2,753 2,574
------ ------
Costs and expenses
Cost of sales............................................. 2,443 2,236
Selling, general and administrative expenses.............. 261 248
Restructuring charges..................................... 22 39
Interest expense.......................................... 85 68
------ ------
2,811 2,591
------ ------
Loss before income taxes.................................... (58) (17)
Estimated taxes on income................................... 24 (4)
Minority interest........................................... (2) (6)
Equity in earnings of affiliates............................ 9 18
------ ------
Net loss before effect of change in accounting.............. (27) (9)
Effect of change in accounting.............................. (220)
------ ------
Net loss.................................................... $ (27) $ (229)
------ ------
BASIC EARNINGS PER COMMON SHARE
Loss before effect of change in accounting................ $(0.18) $(0.06)
Effect of change in accounting............................ (1.48)
------ ------
Net loss.................................................. $(0.18) $(1.54)
------ ------
DILUTED EARNINGS PER COMMON SHARE
Loss before effect of change in accounting................ $(0.18) $(0.06)
Effect of change in accounting............................ (1.48)
------ ------
Net loss.................................................. $(0.18) $(1.54)
------ ------
Cash dividends declared and paid per common share........... $ 0.31 $ 0.01
Average shares outstanding -- Basic......................... 148 149
Average shares outstanding -- Diluted....................... 149 149
The accompanying notes are an integral part of the condensed financial
statements.
F-37
DANA CORPORATION
CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 31, MARCH 31,
2001 2002
------------ ---------
(IN MILLIONS)
ASSETS
Current assets
Cash and cash equivalents................................... $ 199 $ 275
Accounts receivable
Trade..................................................... 1,371 1,611
Other..................................................... 371 236
Inventories
Raw materials............................................. 377 398
Work in process and finished goods........................ 922 857
Other current assets........................................ 557 581
------- -------
Total current assets................................... 3,797 3,958
Property, plant and equipment, net.......................... 3,133 3,058
Investments and other assets................................ 2,209 1,980
Investment in leases........................................ 1,068 1,045
------- -------
Total assets........................................... $10,207 $10,041
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and other current liabilities.............. $ 2,369 $ 2,439
Notes payable, including current portion of long-term
debt...................................................... 1,120 947
------- -------
Total current liabilities.............................. 3,489 3,386
Deferred employee benefits and other noncurrent
liabilities............................................... 1,640 1,736
Long-term debt.............................................. 3,008 3,193
Minority interest in consolidated subsidiaries.............. 112 101
Shareholders' equity........................................ 1,958 1,625
------- -------
Total liabilities and shareholders' equity............. $10,207 $10,041
------- -------
The accompanying notes are an integral part of the condensed financial
statements.
F-38
DANA CORPORATION
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS
ENDED
MARCH 31
-------------
2001 2002
----- -----
(IN MILLIONS)
Net loss.................................................... $ (27) $(229)
Depreciation and amortization............................... 136 121
Change in accounting for goodwill........................... 220
Asset impairment............................................ 21
Loss (gain) on divestitures................................. 12 (5)
Working capital change...................................... (21) (29)
Other....................................................... 12 (28)
----- -----
Net cash flows from operating activities.................. 112 71
----- -----
Purchases of property, plant and equipment.................. (124) (75)
Purchases of assets to be leased............................ (30) (26)
Payments received on leases and loans....................... 10 9
Net payments from (loans to) customers...................... 60 (3)
Divestitures................................................ 15 10
Other....................................................... 20 43
----- -----
Net cash flows -- investing activities.................... (49) (42)
----- -----
Net change in short-term debt............................... 96 (12)
Proceeds from long-term debt................................ 43 250
Payments on long-term debt.................................. (186) (191)
Dividends paid.............................................. (46) (1)
Other....................................................... 1 1
----- -----
Net cash flows -- financing activities.................... (92) 47
----- -----
Net change in cash and cash equivalents..................... (29) 76
Cash and cash equivalents -- beginning of period............ 179 199
----- -----
Cash and cash equivalents -- end of period.................. $ 150 $ 275
----- -----
The accompanying notes are an integral part of the condensed financial
statements.
F-39
NOTES TO CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
1. In our opinion, the accompanying condensed financial statements include
all adjustments, including those necessary to reflect the adoption of Statement
of Financial Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142), as of January 1, 2002, and other adjustments necessary to a fair
presentation of financial condition, results of operations and cash flows for
the interim periods presented. Where appropriate, we have reclassified certain
amounts in 2001 to conform with the 2002 presentation. These condensed financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in our annual report on Form 10-K for the year ended
December 31, 2001.
2. In connection with the adoption of SFAS No. 142 we discontinued the
amortization of goodwill as of January 1, 2002. In lieu of amortization, the new
standard requires that goodwill be tested for impairment as of the date of
adoption and at least annually thereafter. Our initial impairment test indicated
that the carrying values of some of our reporting units exceeded the
corresponding fair values, which were determined based on the discounted
estimated future cash flows of the reporting units. The implied fair value of
goodwill in these reporting units was then determined through the allocation of
the fair values to the underlying assets and liabilities. The January 1, 2002
carrying value of the goodwill in these reporting units exceeded its implied
fair value by $289. The $289 write-down of goodwill to its fair value as of
January 1, 2002, net of $69 of related tax benefits, has been reported as the
effect of a change in accounting in the accompanying condensed financial
statements. The goodwill included in our December 31, 2001 financial statements,
which included the $289 described above, was supported by the undiscounted
estimated future cash flows of the related operations.
The changes in goodwill during the quarter ended March 31, 2002, by
segment, were as follows:
EFFECT OF EFFECT OF
BALANCE AT ADOPTING CURRENCY BALANCE AT
DECEMBER 31, 2001 SFAS 142 AND OTHER MARCH 31, 2002
----------------- --------- --------- --------------
ASG................................ $185 $ (12) $(16) $157
AAG................................ 112 (79) (2) 31
EFMG............................... 423 (189) 234
CVS................................ 8 8
OHSG............................... 113 (9) 2 106
---- ----- ---- ----
$841 $(289) $(16) $536
==== ===== ==== ====
SFAS 142 does not provide for restatement of our results of operations for
periods ending prior to January 1, 2002. Our results of operations for the
quarter ended March 31, 2001 included goodwill amortization expense of $9, which
affected the net loss by $7. Excluding the effect of goodwill amortization, our
reported net loss for the first quarter of 2001 would have been reduced from $27
to $20 and our diluted net loss per common share would have been reduced from
$.18 to $.13 per common share.
3. Following is a reconciliation of average shares for purposes of
calculating basic and diluted net loss per share.
THREE MONTHS
ENDED MARCH 31
---------------
2001 2002
------ ------
Weighted average common shares outstanding.................. 147.9 148.6
----- -----
Plus: Incremental shares from assumed conversion of --
Deferred compensation units............................ .8 .8
----- -----
Total potentially dilutive securities....................... .8 .8
----- -----
Adjusted average common shares outstanding.................. 148.7 149.4
===== =====
F-40
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
A net loss causes dilutive shares to have an antidilutive effect, so the
potentially dilutive shares have been disregarded in calculating diluted
earnings per share for the quarters ended March 31, 2002 and 2001.
4. On an annual basis, disclosure of comprehensive income is incorporated
into the Statement of Shareholders' Equity. This statement is not presented on a
quarterly basis. Comprehensive income includes net income and components of
other comprehensive income, such as foreign currency translation adjustments,
unrealized gains or losses on certain marketable securities and derivative
instruments and minimum pension liability adjustments. The $110 deferred
translation loss in 2002 presented below was primarily due to the strengthening
of the U.S. dollar against the Argentine peso, the British pound, the Thai baht
and the euro. The $124 deferred translation loss in the first quarter of 2001
was primarily the result of a decline in the value of the British pound, the
Brazilian real and the euro relative to the U.S. dollar.
Our total comprehensive loss is as follows:
THREE MONTHS
ENDED MARCH 31
---------------
2001 2002
------ ------
Net loss.................................................... $ (27) $(229)
Other comprehensive loss
Deferred translation loss................................. (124) (110)
Other..................................................... (2) 2
----- -----
Total comprehensive loss.................................... $(153) $(337)
===== =====
5. We completed the private placement of $250 of unsecured notes in March
2002. We used a portion of the proceeds to reduce the amount outstanding under
one of our revolving credit facilities. The notes carry a coupon interest rate
of 10.125% and an effective interest rate of 10.375%. The notes mature in March
2010. The indenture for these notes contains limits on borrowings, payments and
transactions substantially similar to those in the indenture for the notes we
issued in August 2001.
Concurrent with our issuance of these notes, we entered an interest rate
swap to effectively convert the fixed rate of interest on the notes to a
variable rate of the six-month London interbank offered rate (LIBOR) plus
4.245%. The swap agreement has a notional amount of $250 and expires in March
2010. Differentials to be received or paid under this agreement will be accrued
and recognized as adjustments to interest expense.
Converting the interest rate of these notes provides a better balance of
fixed and variable rate debt. The swap agreement has been designated as a hedge
of the notes; accordingly, the impact of changes in the fair value of the
agreement will be offset by an equal and opposite change in the carrying value
of the notes.
6. Our operations are organized into four market-focused Strategic
Business Units (SBUs): Automotive Systems Group (ASG); Automotive Aftermarket
Group (AAG); Engine and Fluid Management Group (EFMG); and Heavy Vehicle
Technologies and Systems Group (HVTSG), our newest SBU which was formed by the
April 2002 combination of Commercial Vehicle Systems (CVS) and Off-Highway
Systems Group (OHSG). Our segment reporting is currently unaffected by the
combination, as financial reporting to management of HVTSG will reflect CVS and
OHSG separately. Accordingly, our segments are ASG, AAG, EFMG, CVS, OHSG and
Dana Credit Corporation (DCC). In October 2001, we announced our intention to
sell the businesses of DCC. We are presently pursuing this course of action.
Management evaluates the operating segments and regions as if DCC were
accounted for on the equity method of accounting rather than on the fully
consolidated basis used for external reporting. With the exception of DCC,
operating profit after tax (PAT) represents earnings before interest and taxes
(EBIT), tax effected at 39% (our estimated long-term effective rate), plus
equity in earnings of affiliates. The Other category includes businesses
unrelated to the segments, discontinued businesses, trailing liabilities for
closed plants, interest expense net of interest income, corporate expenses and
adjustments to reflect the actual effective tax rate.
F-41
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
The 2001 segment information has been restated to reflect all changes made
to the SBU alignment in 2001. As discussed in Note 2, the amortization of
goodwill was discontinued at the beginning of 2002 with the adoption of SFAS
142. Although goodwill amortization expense was included in the results of
operations of the SBUs prior to 2002, we have adjusted the segment information
for 2001 to present it on a consistent basis with the 2002 presentation. The
2001 goodwill amortization expense is now presented on a separate line.
THREE MONTHS ENDED MARCH 31
--------------------------------------------------------------------------
INTER-
SEGMENT OPERATING NET PROFIT
EXTERNAL SALES SALES EBIT PAT (LOSS)
--------------- ----------- ------------ ------------ ------------
2001 2002 2001 2002 2001 2002 2001 2002 2001 2002
------ ------ ---- ---- ---- ----- ---- ----- ---- -----
ASG............................. $ 971 $ 936 $ 34 $21 $ 57 $ 51 $ 40 $ 41 $ 17 $ 20
AAG............................. 637 626 3 4 (12) 23 (7) 14 (25) (3)
EFMG............................ 586 528 37 34 38 29 25 19 12 8
CVS............................. 321 250 23 26 9 7 5 5 (3) (3)
OHSG............................ 178 158 7 7 13 10 8 6 4 2
DCC............................. 7 10 7 10
Other........................... 38 23 7 5 (52) (54) (70) (67) (4) (6)
Goodwill amortization........... (9) (7) (7)
------ ------ ---- --- ---- ----- ---- ----- ---- -----
2,731 2,521 111 97 44 66 1 28 1 28
Restructuring and nonrecurring
items......................... (46) (46) (28) (37) (28) (37)
Effect of change in
accounting.................... (289) (220) (220)
------ ------ ---- --- ---- ----- ---- ----- ---- -----
Consolidated.................... $2,731 $2,521 $111 $97 $ (2) $(269) $(27) $(229) $(27) $(229)
====== ====== ==== === ==== ===== ==== ===== ==== =====
North America................... $2,034 $1,900 $ 27 $26 $ 81 $ 92 $ 46 $ 56 $ 1 $ 12
Europe.......................... 489 423 23 21 23 22 20 20 8 9
South America................... 127 121 19 42 2 9 (4) 5 (7) 3
Asia Pacific.................... 81 77 0 0 1 2 1 1 (2) (1)
DCC............................. 7 10 7 10
Other........................... (54) (59) (62) (64) 1 (5)
Goodwill amortization........... (9) (7) (7)
------ ------ ---- --- ---- ----- ---- ----- ---- -----
2,731 2,521 69 89 44 66 1 28 1 28
Restructuring and nonrecurring
items......................... (46) (46) (28) (37) (28) (37)
Effect of change in
accounting.................... (289) (220) (220)
------ ------ ---- --- ---- ----- ---- ----- ---- -----
Consolidated.................... $2,731 $2,521 $ 69 $89 $ (2) $(269) $(27) $(229) $(27) $(229)
====== ====== ==== === ==== ===== ==== ===== ==== =====
Restructuring and nonrecurring items represent gains and losses on divestitures
and charges related to our restructuring efforts.
7. At December 31, 2001, there was $259 remaining in accrued liabilities
relating to restructuring plans announced in 1999, 2000 and 2001. During the
first quarter of 2002, we continued to execute our October 2001 restructuring
plans, including the announced closing of six facilities and permanent workforce
reductions at other locations. In connection with these efforts, we accrued an
additional $18 for employee termination benefits, $21 for asset impairments and
$7 for other exit costs. This $46 of restructuring expense, which includes $7 of
asset impairment charged to cost of sales, had a $37 impact on net income.
F-42
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the restructuring activity recorded in the first
quarter of 2002 and the change in the accrual:
EMPLOYEE
TERMINATION ASSET
BENEFITS EXIT COSTS IMPAIRMENT TOTAL
----------- ---------- ---------- -----
Balance at December 31, 2001................. $206 $53 $ 0 $259
Activity during the quarter
Charged to expense......................... 18 7 14 39
Cash payments.............................. (35) (9) (44)
Write-off of assets........................ (14) (14)
---- --- ---- ----
Balance at March 31, 2002.................... $189 $51 $ 0 $240
==== === ==== ====
At March 31, 2002, $240 of restructuring charges remained in accrued
liabilities. This balance was comprised of $189 for the termination of
employees, including the announced termination of approximately 3,725 scheduled
for the remainder of 2002, and $51 for lease terminations and other exit costs.
We estimate the related cash expenditures will be approximately $128 in 2002,
$40 in 2003 and $72 thereafter. Our liquidity and cash flows, while projected to
be more than adequate to satisfy our obligations related to our restructuring
plans, will be impacted in 2002 by these expenditures.
F-43
PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER
Dana Corporation
4500 Dorr Street
Toledo, Ohio 43615
TRUSTEE AND EXCHANGE AGENT
Citibank, N.A.
111 Wall Street
15th Floor
New York, New York 10005
LEGAL ADVISORS TO THE ISSUER
Katten Muchin Zavis Rosenman Hunton & Williams
575 Madison Avenue 200 Park Avenue
New York, New York 10022 New York, New York 10166
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One SeaGate, Suite 1800
Toledo, Ohio 43604
REGISTRAR AND
PAYING AGENT
FOR NOTES
Citibank, N.A.
111 Wall Street
15th Floor
New York, New York 10005
$250,000,000
10 1/8% NOTES DUE 2010
DANA CORPORATION
[DANA CORPORATION LOGO]
OFFER TO EXCHANGE ALL OUTSTANDING 10 1/8% NOTES DUE 2010 FOR 10 1/8% NOTES DUE
2010 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Virginia Stock Corporation Act, in certain circumstances, Dana is
authorized to indemnify its directors and officers against liabilities
(including reasonable defense expenses) they may incur in proceedings in which
they are named as parties because of their positions as directors and officers
of Dana.
Pursuant to this authorization, the shareholders have adopted the SIXTH
Article of the Company's Restated Articles of Incorporation. This Article
provides that in any proceeding brought by a shareholder in the right of Dana or
on behalf of the shareholders, no director or officer of Dana shall be liable
for monetary damages exceeding $50,000 with respect to any transaction,
occurrence or course of conduct unless such person engaged in willful misconduct
or a knowing violation of criminal law or of any federal or state securities
law. The Article further provides that Dana shall indemnify any director or
officer who is a party to any proceeding (including a proceeding brought by a
shareholder on behalf of Dana or its shareholders) by reason of the fact that he
or she is or was a director or officer of Dana against any liability incurred in
connection with such proceeding, unless he or she engaged in willful misconduct
or a knowing violation of criminal law. In addition, Dana will pay or reimburse
all reasonable expenses (including attorneys' fees) incurred by the director or
officer in connection with such proceeding in advance of the disposition of the
proceeding if certain conditions are met. In general, indemnification will be
made in accordance with Section 13.1-701 of the Virginia Stock Corporation Act.
As authorized in the Restated Articles of Incorporation, the Board of
Directors has adopted a By-Law provision under which Dana will indemnify its
directors and officers in comparable manner against liabilities they may incur
when serving at Dana's request as directors, officers, employees or agents of
other corporations or certain other enterprises.
Dana carries primary and excess "Executive Liability and Indemnification"
insurance covering certain liabilities incurred by the directors and elected and
appointed officers in the performance of their duties. Coverage is either on a
direct basis or through reimbursement of amounts expended by Dana for
indemnification of these individuals. Subject to certain deductibles, the
insurers will pay or reimburse all covered costs incurred up to an annual
aggregate of $100 million. Coverage is excluded for purchases or sales of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
deliberately fraudulent or willful violations of any statute or regulation
(where there is a final adjudication of fraud or willful misconduct), illegal
personal gain and certain other acts.
ITEM 21. EXHIBITS
The following exhibits are filed with this Registration Statement or
incorporated by reference herein:
EXHIBIT NO. DESCRIPTION
----------- -----------
4-A Purchase Agreement, dated March 6, 2002, between Dana
Corporation and Salomon Smith Barney Inc.
4-B Indenture between Dana, as Issuer, and Citibank, N.A., as
Trustee, Registrar and Paying Agent, dated as of March 11,
2002, relating to $250 million of 10 1/8% Notes due March
15, 2010 (incorporated by reference to Exhibit 4-NN to our
Form 10-Q for the quarterly period ended March 31, 2002).
4-B(1) Form of Rule 144A Global Notes and Regulation S Global Notes
(form of initial securities) (incorporated by reference to
Exhibit 4-NN (1) to our Form 10-Q for the quarterly period
ended March 31, 2002).
4-B(2) Form of Rule 144A Global Notes and Regulation S Global Notes
(form of exchange securities) (incorporated by reference to
Exhibit 4-NN(2) to our Form 10-Q for the quarterly period
ended March 31, 2002).
II-1
EXHIBIT NO. DESCRIPTION
----------- -----------
4-C Registration Rights Agreement dated as of March 6, 2002,
among Dana Corporation and Salomon Smith Barney Inc.
4-D Purchase Agreement, dated August 1, 2001, between Dana
Corporation and Deutsche Banc Alex. Brown Inc. and J.P.
Morgan Securities, Inc. (incorporated by reference to
Exhibit 4-A of our Registration Statement No. 333-76012
filed December 27, 2001).
4-E Indenture between Dana, as Issuer, and Citibank, N.A., as
Trustee, dated as of August 8, 2001, relating to $575
million of 9% Notes due August 15, 2011, and E200 million of
9% Notes due August 15, 2011 (incorporated by reference to
Exhibit 4-I to our Form 10-Q for the quarterly period ended
June 30, 2001).
4-E(1) Form of Rule 144A Dollar Global Notes, Rule 144A Euro Global
Notes, Regulation S Dollar Global Notes and Regulation S
Euro Global Notes (form of initial securities), filed by
reference to Exhibit A to the Indenture filed herewith as
Exhibit 4-A (incorporated by reference to Exhibit 4-I to our
Form 10-Q for the quarterly period ended June 30, 2001).
4-E(2) Form of Rule 144A Dollar Global Notes, Rule 144A Euro Global
Notes, Regulation S Dollar Global Notes and Regulation S
Euro Global Notes (form of exchange securities), filed by
reference to Exhibit B to the Indenture filed herewith as
Exhibit 4-A (incorporated by reference to Exhibit 4-I to our
Form 10-Q for the quarterly period ended June 30, 2001).
4-F Registration Rights Agreement, dated as of August 1, 2001,
among Dana Corporation and Deutsche Banc Alex. Brown Inc.
and J.P. Morgan Securities, Inc. (incorporated by reference
to Exhibit 4-C of our Registration Statement No. 333-76012
filed December 27, 2001).
4-G Indenture for Senior Securities between Dana, as Issuer, and
Citibank, N.A., as Trustee, dated as of December 15, 1997
(incorporated by reference to Exhibit 4-B of our
Registration Statement No. 333-42239 filed December 15,
1997).
4-H First Supplemental Indenture related to Senior Securities
between Dana, as Issuer, and Citibank, N.A., as Trustee,
dated as of March 11, 1998 (incorporated by reference to
Exhibit 4-B-1 to our Report on Form 8-K dated March 12,
1998).
4-I Form of 6.5% Notes due March 15, 2008 and 7% Notes due March
15, 2028 (incorporated by reference to Exhibit 4-C-1 to our
Report on Form 8-K dated March 12, 1998).
4-J Second Supplemental Indenture related to Senior Securities
between Dana, as Issuer, and Citibank, N.A., as Trustee,
dated as of February 26, 1999 (incorporated by reference to
Exhibit 4-B-1 to our Form 8-K dated March 2, 1999).
4-K Form of 6.25% Notes due 2004, 6.5% Notes due 2009 and 7%
Notes due 2029 (incorporated by reference to Exhibit 4-C-1
to our Form 8-K dated March 2, 1999).
4-L Issuing and Paying Agent Agreement between Dana Credit
Corporation (DCC), as Issuer, and Bankers Trust Company,
Issuing and Paying Agent, dated as of December 6, 1999, with
respect to DCC's $500 million medium-term notes program.
This exhibit is not filed. We agree to furnish a copy of
this exhibit to the Commission upon request.
4-M Note Agreement dated April 8, 1997, by and between Dana
Credit Corporation and Metropolitan Life Insurance Company
for 7.18% notes due April 8, 2006, in the principal amount
of $37 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-N Note Agreement dated April 8, 1997, by and between Dana
Credit Corporation and Texas Life Insurance Company for
7.18% notes due April 8, 2006, in the principal amount of $3
million. This exhibit is not filed. We agree to furnish a
copy of this exhibit to the Commission upon request.
4-O Note Agreement dated April 8, 1997, by and between Dana
Credit Corporation and Nationwide Life Insurance Company for
6.93% notes due April 8, 2006, in the principal amount of
$35 million. This exhibit is not filed. We agree to furnish
a copy of this exhibit to the Commission upon request.
II-2
EXHIBIT NO. DESCRIPTION
----------- -----------
4-P Note Agreement dated April 8, 1997, by and between Dana
Credit Corporation and The Great-West Life & Annuity
Insurance Company for 7.03% notes due April 8, 2006, in the
aggregate principal amount of $13 million. This exhibit is
not filed. We agree to furnish a copy of this exhibit to the
Commission upon request.
4-Q Note Agreement dated April 8, 1997, by and between Dana
Credit Corporation and The Great-West Life Assurance Company
for 7.03% notes due April 8, 2006, in the principal amount
of $7 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-R Note Agreements (three) dated August 28, 1997, by and
between Dana Credit Corporation and Connecticut General Life
Insurance Company for 6.79% notes due August 28, 2004, in
the aggregate principal amount of $16 million. This exhibit
is not filed. We agree to furnish a copy of this exhibit to
the Commission upon request.
4-S Note Agreement dated August 28, 1997, by and between Dana
Credit Corporation and Life Insurance Company of North
America for 6.79% notes due August 28, 2004, in the
principal amount of $4 million. This exhibit is not filed.
We agree to furnish a copy of this exhibit to the Commission
upon request.
4-T Note Agreement dated August 28, 1997, by and between Dana
Credit Corporation and The Northwestern Mutual Life
Insurance Company for 6.88% notes due August 28, 2006, in
the principal amount of $20 million. This exhibit is not
filed. We agree to furnish a copy of this exhibit to the
Commission upon request.
4-U Note Agreements (four) dated August 28, 1997, by and between
Dana Credit Corporation and Sun Life Assurance Company of
Canada for 6.88% notes due August 28, 2006, in the aggregate
principal amount of $9 million. This exhibit is not filed.
We agree to furnish a copy of this exhibit to the Commission
upon request.
4-V Note Agreement dated August 28, 1997, by and between Dana
Credit Corporation and Massachusetts Casualty Insurance
Company for 6.88% notes due August 28, 2006, in the
principal amount of $1 million. This exhibit is not filed.
We agree to furnish a copy of this exhibit to the Commission
upon request.
4-W Note Agreements (four) dated December 18, 1998, by and
between Dana Credit Corporation and Sun Life Assurance
Company of Canada for 6.59% notes due December 1, 2007, in
the aggregate principal amount of $12 million. This exhibit
is not filed. We agree to furnish a copy of this exhibit to
the Commission upon request.
4-X Note Agreements (five) dated December 18, 1998, by and
between Dana Credit Corporation and The Lincoln National
Life Insurance Company for 6.59% notes due December 1, 2007,
in the aggregate principal amount of $25 million. This
exhibit is not filed. We agree to furnish a copy of this
exhibit to the Commission upon request.
4-Y Note Agreement dated December 18, 1998, by and between Dana
Credit Corporation and The Northwestern Mutual Life
Insurance Company for 6.48% notes due December 1, 2005, in
the principal amount of $15 million. This exhibit is not
filed. We agree to furnish a copy of this exhibit to the
Commission upon request.
4-Z Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and Connecticut General Life Insurance
Company for 7.91% notes due August 16, 2006 in the principal
amount of $15 million. This exhibit is not filed. We agree
to furnish a copy of this exhibit to the Commission upon
request.
4-AA Note Agreements (two) dated August 16, 1999, by and between
Dana Credit Corporation and The Northwestern Mutual Life
Insurance Company for 7.91% notes due August 16, 2006, in
the aggregate principal amount of $15 million. This exhibit
is not filed. We agree to furnish a copy of this exhibit to
the Commission upon request.
4-BB Note Agreement date August 16, 1999, by and between Dana
Credit Corporation and Allstate Life Insurance Company for
7.58% notes due August 16, 2004, in the principal amount of
$10 million. This exhibit is not filed. We agree to furnish
a copy of this exhibit to the Commission upon request.
II-3
EXHIBIT NO. DESCRIPTION
----------- -----------
4-CC Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and Allstate Insurance Company for 7.58%
notes due August 16, 2004, in the principal amount of $5
million. This exhibit is not filed. We agree to furnish a
copy of this exhibit to the Commission upon request.
4-DD Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and New York Life Insurance and Annuity
Corporation Institutionally Owned Life Insurance Separate
Account for 7.58% notes due August 16, 2004, in the
principal amount of $5 million. This exhibit is not filed.
We agree to furnish a copy of this exhibit to the Commission
upon request.
4-EE Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and New York Life Insurance an Annuity
Corporation for 7.58% notes due August 16, 2004, in the
principal amount of $10 million. This exhibit is not filed.
We agree to furnish a copy of this exhibit to the Commission
upon request.
4-FF Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and Principal Life Insurance Company for
7.58% notes due August 16, 2004, in the principal amount of
$30 million. This exhibit is not filed. We agree to furnish
a copy of this exhibit to the Commission upon request.
4-GG Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and First Trenton Indemnity Company for
7.58% notes due August 16, 2004, in the principal amount of
$2.5 million. This exhibit is not filed. We agree to furnish
a copy of this exhibit to the Commission upon request.
4-HH Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and Travelers Casualty and Surety Company
for 7.58% notes due August 16, 2004, in the principal amount
of $10 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-II Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and The Travelers Insurance Company for
7.58% notes due August 16, 2004, in the principal amount of
$2.5 million. This exhibit is not filed. We agree to furnish
a copy of this exhibit to the Commission upon request.
4-JJ Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and Allstate Life Insurance Company for
7.42% notes due December 15, 2004, in the principal amount
of $14 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-KK Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and Columbia Universal Life Insurance Co.
for 7.42% notes due December 15, 2004, in the principal
amount of $1 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-LL Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and The Northwestern Mutual Life
Insurance Company for 7.42% notes due December 15, 2004, in
the principal amount of $14 million. This exhibit is not
filed. We agree to furnish a copy of this exhibit to the
Commission upon request.
4-MM Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and The Northwestern Mutual Life
Insurance Company for its Group Annuity Separate Account for
7.42% notes due December 15, 2004, in the principal amount
of $1 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-NN Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and Pacific Life and Annuity Company for
7.42% notes due December 15, 2004, in the principal amount
of $5 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
II-4
EXHIBIT NO. DESCRIPTION
----------- -----------
4-OO Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and United Life Insurance Company for
7.42% notes due December 15, 2004, in the principal amount
of $3 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-PP Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and Companion Life Insurance Company for
7.42% notes due December 15, 2004, in the principal amount
of $2 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
5* Opinion of Hunton & Williams.
8* Opinion of Katten Muchin Zavis Rosenman regarding federal
income tax considerations.
12 Computation of Ratio of Earnings to Fixed Charges.
23-A Consent of PricewaterhouseCoopers LLP.
23-B* Consent of Hunton & Williams (included in Exhibit 5).
23-C* Consent of Katten Muchin Zavis Rosenman (included in Exhibit
8).
24 Power of Attorney.
25 Form T-1 Statement of Eligibility Under the Trust Indenture
Act of 1939 of Citibank, N.A. to Act as Trustee.
99-A Form of Letter of Transmittal.
99-B Form of Notice of Guaranteed Delivery.
99-C Form of Institutions Letter.
99-D Form of Client Letter (of Institutions).
---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer of controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed by the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Toledo, state of Ohio, on
July 19, 2002.
DANA CORPORATION (Registrant)
By: /s/ MICHAEL L. DEBACKER
------------------------------------
Michael L. DeBacker
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Principal Executive Officer:
/s/ JOSEPH M. MAGLIOCHETTI Chairman of the Board and Chief July 19, 2002
----------------------------------------- Executive Officer
Joseph M. Magliochetti
Principal Financial Officer:
/s/ ROBERT C. RICHTER Chief Financial Officer July 19, 2002
-----------------------------------------
Robert C. Richter
Principal Accounting Officer:
/s/ RICHARD J. WESTERHEIDE Chief Accounting Officer July 19, 2002
-----------------------------------------
Richard J. Westerheide
Directors:
/s/ *B.F. BAILAR Director July 19, 2002
-----------------------------------------
B.F. Bailar
/s/ *A.C. BAILLIE Director July 19, 2002
-----------------------------------------
A.C. Baillie
/s/ *E.M. CARPENTER Director July 19, 2002
-----------------------------------------
E.M. Carpenter
/s/ *E. CLARK Director July 19, 2002
-----------------------------------------
E. Clark
/s/ *G.H. HINER Director July 19, 2002
-----------------------------------------
G.H. Hiner
/s/ *M.R. MARKS Director July 19, 2002
-----------------------------------------
M.R. Marks
II-6
SIGNATURE TITLE DATE
--------- ----- ----
/s/ *R.B. PRIORY Director July 19, 2002
-----------------------------------------
R.B. Priory
/s/ *F.M. SENDEROS Director July 19, 2002
-----------------------------------------
F.M. Senderos
/s/ *JAMES P. KELLY Director July 19, 2002
-----------------------------------------
James P. Kelly
---------------
* By M.L. DeBacker, Attorney-in-Fact
II-7
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
4-A Purchase Agreement, dated March 6, 2002, between Dana
Corporation and Salomon Smith Barney Inc.
4-B Indenture between Dana, as Issuer, and Citibank, N.A., as
Trustee, Registrar and Paying Agent, dated as of March 11,
2002, relating to $250 million of 10 1/8% Notes due March
15, 2010 (incorporated by reference to Exhibit 4-NN to our
Form 10-Q for the quarterly period ended March 31, 2002).
4-B(1) Form of Rule 144A Global Notes and Regulation S Global Notes
(form of initial securities) (incorporated by reference to
Exhibit 4-NN(1)to our Form 10-Q for the quarterly period
ended March 31, 2002).
4-B(2) Form of Rule 144A Global Notes and Regulation S Global Notes
(form of exchange securities) (incorporated by reference to
Exhibit 4-NN(2) to our Form 10-Q for the quarterly period
ended March 31, 2002).
4-C Registration Rights Agreement dated as of March 6, 2002,
among Dana Corporation and Salomon Smith Barney Inc.
4-D Purchase Agreement, dated August 1, 2001, between Dana
Corporation and Deutsche Banc Alex. Brown Inc. and J.P.
Morgan Securities, Inc. (incorporated by reference to
Exhibit 4-A of our Registration Statement No. 333-76012
filed December 27, 2001).
4-E Indenture between Dana, as Issuer, and Citibank, N.A., as
Trustee, dated as of August 8, 2001, relating to $575
million of 9% Notes due August 15, 2011, and E200 million of
9% Notes due August 15, 2011 (incorporated by reference to
Exhibit 4-I to our Form 10-Q for the quarterly period ended
June 30, 2001).
4-E(1) Form of Rule 144A Dollar Global Notes, Rule 144A Euro Global
Notes, Regulation S Dollar Global Notes and Regulation S
Euro Global Notes (form of initial securities), filed by
reference to Exhibit A to the Indenture filed herewith as
Exhibit 4-A (incorporated by reference to Exhibit 4-I to our
Form 10-Q for the quarterly period ended June 30, 2001).
4-E(2) Form of Rule 144A Dollar Global Notes, Rule 144A Euro Global
Notes, Regulation S Dollar Global Notes and Regulation S
Euro Global Notes (form of exchange securities), filed by
reference to Exhibit B to the Indenture filed herewith as
Exhibit 4-A (incorporated by reference to Exhibit 4-I to our
Form 10-Q for the quarterly period ended June 30, 2001).
4-F Registration Rights Agreement, dated as of August 1, 2001,
among Dana Corporation and Deutsche Banc Alex. Brown Inc.
and J.P. Morgan Securities, Inc. (incorporated by reference
to Exhibit 4-C of our Registration Statement No. 333-76012
filed December 27, 2001).
4-G Indenture for Senior Securities between Dana, as Issuer, and
Citibank, N.A., as Trustee, dated as of December 15, 1997
(incorporated by reference to Exhibit 4-B of our
Registration Statement No. 333-42239 filed December 15,
1997).
4-H First Supplemental Indenture related to Senior Securities
between Dana, as Issuer, and Citibank, N.A., as Trustee,
dated as of March 11, 1998 (incorporated by reference to
Exhibit 4-B-1 to our Report on Form 8-K dated March 12,
1998).
4-I Form of 6.5% Notes due March 15, 2008 and 7% Notes due March
15, 2028 (incorporated by reference to Exhibit 4-C-1 to our
Report on Form 8-K dated March 12, 1998).
4-J Second Supplemental Indenture related to Senior Securities
between Dana, as Issuer, and Citibank, N.A., as Trustee,
dated as of February 26, 1999 (incorporated by reference to
Exhibit 4-B-1 to our Form 8-K dated March 2, 1999).
4-K Form of 6.25% Notes due 2004, 6.5% Notes due 2009 and 7%
Notes due 2029 (incorporated by reference to Exhibit 4-C-1
to our Form 8-K dated March 2, 1999).
EXHIBIT NO. DESCRIPTION
----------- -----------
4-L Issuing and Paying Agent Agreement between Dana Credit
Corporation (DCC), as Issuer, and Bankers Trust Company,
Issuing and Paying Agent, dated as of December 6, 1999, with
respect to DCC's $500 million medium-term notes program.
This exhibit is not filed. We agree to furnish a copy of
this exhibit to the Commission upon request.
4-M Note Agreement dated April 8, 1997, by and between Dana
Credit Corporation and Metropolitan Life Insurance Company
for 7.18% notes due April 8, 2006, in the principal amount
of $37 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-N Note Agreement dated April 8, 1997, by and between Dana
Credit Corporation and Texas Life Insurance Company for
7.18% notes due April 8, 2006, in the principal amount of $3
million. This exhibit is not filed. We agree to furnish a
copy of this exhibit to the Commission upon request.
4-O Note Agreement dated April 8, 1997, by and between Dana
Credit Corporation and Nationwide Life Insurance Company for
6.93% notes due April 8, 2006, in the principal amount of
$35 million. This exhibit is not filed. We agree to furnish
a copy of this exhibit to the Commission upon request.
4-P Note Agreement dated April 8, 1997, by and between Dana
Credit Corporation and The Great-West Life & Annuity
Insurance Company for 7.03% notes due April 8, 2006, in the
aggregate principal amount of $13 million. This exhibit is
not filed. We agree to furnish a copy of this exhibit to the
Commission upon request.
4-Q Note Agreement dated April 8, 1997, by and between Dana
Credit Corporation and The Great-West Life Assurance Company
for 7.03% notes due April 8, 2006, in the principal amount
of $7 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-R Note Agreements (three) dated August 28, 1997, by and
between Dana Credit Corporation and Connecticut General Life
Insurance Company for 6.79% notes due August 28, 2004, in
the aggregate principal amount of $16 million. This exhibit
is not filed. We agree to furnish a copy of this exhibit to
the Commission upon request.
4-S Note Agreement dated August 28, 1997, by and between Dana
Credit Corporation and Life Insurance Company of North
America for 6.79% notes due August 28, 2004, in the
principal amount of $4 million. This exhibit is not filed.
We agree to furnish a copy of this exhibit to the Commission
upon request.
4-T Note Agreement dated August 28, 1997, by and between Dana
Credit Corporation and The Northwestern Mutual Life
Insurance Company for 6.88% notes due August 28, 2006, in
the principal amount of $20 million. This exhibit is not
filed. We agree to furnish a copy of this exhibit to the
Commission upon request.
4-U Note Agreements (four) dated August 28, 1997, by and between
Dana Credit Corporation and Sun Life Assurance Company of
Canada for 6.88% notes due August 28, 2006, in the aggregate
principal amount of $9 million. This exhibit is not filed.
We agree to furnish a copy of this exhibit to the Commission
upon request.
4-V Note Agreement dated August 28, 1997, by and between Dana
Credit Corporation and Massachusetts Casualty Insurance
Company for 6.88% notes due August 28, 2006, in the
principal amount of $1 million. This exhibit is not filed.
We agree to furnish a copy of this exhibit to the Commission
upon request.
4-W Note Agreements (four) dated December 18, 1998, by and
between Dana Credit Corporation and Sun Life Assurance
Company of Canada for 6.59% notes due December 1, 2007, in
the aggregate principal amount of $12 million. This exhibit
is not filed. We agree to furnish a copy of this exhibit to
the Commission upon request.
EXHIBIT NO. DESCRIPTION
----------- -----------
4-X Note Agreements (five) dated December 18, 1998, by and
between Dana Credit Corporation and The Lincoln National
Life Insurance Company for 6.59% notes due December 1, 2007,
in the aggregate principal amount of $25 million. This
exhibit is not filed. We agree to furnish a copy of this
exhibit to the Commission upon request.
4-Y Note Agreement dated December 18, 1998, by and between Dana
Credit Corporation and The Northwestern Mutual Life
Insurance Company for 6.48% notes due December 1, 2005, in
the principal amount of $15 million. This exhibit is not
filed. We agree to furnish a copy of this exhibit to the
Commission upon request.
4-Z Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and Connecticut General Life Insurance
Company for 7.91% notes due August 16, 2006 in the principal
amount of $15 million. This exhibit is not filed. We agree
to furnish a copy of this exhibit to the Commission upon
request.
4-AA Note Agreements (two) dated August 16, 1999, by and between
Dana Credit Corporation and The Northwestern Mutual Life
Insurance Company for 7.91% notes due August 16, 2006, in
the aggregate principal amount of $15 million. This exhibit
is not filed. We agree to furnish a copy of this exhibit to
the Commission upon request.
4-BB Note Agreement date August 16, 1999, by and between Dana
Credit Corporation and Allstate Life Insurance Company for
7.58% notes due August 16, 2004, in the principal amount of
$10 million. This exhibit is not filed. We agree to furnish
a copy of this exhibit to the Commission upon request.
4-CC Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and Allstate Insurance Company for 7.58%
notes due August 16, 2004, in the principal amount of $5
million. This exhibit is not filed. We agree to furnish a
copy of this exhibit to the Commission upon request.
4-DD Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and New York Life Insurance and Annuity
Corporation Institutionally Owned Life Insurance Separate
Account for 7.58% notes due August 16, 2004, in the
principal amount of $5 million. This exhibit is not filed.
We agree to furnish a copy of this exhibit to the Commission
upon request.
4-EE Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and New York Life Insurance an Annuity
Corporation for 7.58% notes due August 16, 2004, in the
principal amount of $10 million. This exhibit is not filed.
We agree to furnish a copy of this exhibit to the Commission
upon request.
4-FF Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and Principal Life Insurance Company for
7.58% notes due August 16, 2004, in the principal amount of
$30 million. This exhibit is not filed. We agree to furnish
a copy of this exhibit to the Commission upon request.
4-HH Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and First Trenton Indemnity Company for
7.58% notes due August 16, 2004, in the principal amount of
$2.5 million. This exhibit is not filed. We agree to furnish
a copy of this exhibit to the Commission upon request.
4-II Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and Travelers Casualty and Surety Company
for 7.58% notes due August 16, 2004, in the principal amount
of $10 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-JJ Note Agreement dated August 16, 1999, by and between Dana
Credit Corporation and The Travelers Insurance Company for
7.58% notes due August 16, 2004, in the principal amount of
$2.5 million. This exhibit is not filed. We agree to furnish
a copy of this exhibit to the Commission upon request.
EXHIBIT NO. DESCRIPTION
----------- -----------
4-KK Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and Allstate Life Insurance Company for
7.42% notes due December 15, 2004, in the principal amount
of $14 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-LL Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and Columbia Universal Life Insurance Co.
for 7.42% notes due December 15, 2004, in the principal
amount of $1 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-MM Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and The Northwestern Mutual Life
Insurance Company for 7.42% notes due December 15, 2004, in
the principal amount of $14 million. This exhibit is not
filed. We agree to furnish a copy of this exhibit to the
Commission upon request.
4-NN Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and The Northwestern Mutual Life
Insurance Company for its Group Annuity Separate Account for
7.42% notes due December 15, 2004, in the principal amount
of $1 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-00 Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and Pacific Life and Annuity Company for
7.42% notes due December 15, 2004, in the principal amount
of $5 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-PP Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and United Life Insurance Company for
7.42% notes due December 15, 2004, in the principal amount
of $3 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
4-QQ Note Agreement dated December 7, 1999, by and between Dana
Credit Corporation and Companion Life Insurance Company for
7.42% notes due December 15, 2004, in the principal amount
of $2 million. This exhibit is not filed. We agree to
furnish a copy of this exhibit to the Commission upon
request.
5* Opinion of Hunton & Williams.
8* Opinion of Katten Muchin Zavis Rosenman regarding federal
income tax considerations.
12 Computation of Ratio of Earnings to Fixed Charges.
23-A Consent of PricewaterhouseCoopers LLP.
23-B* Consent of Hunton & Williams (included in Exhibit 5).
23-C* Consent of Katten Muchin Zavis Rosenman (included in Exhibit
8).
24 Power of Attorney.
25 Form T-1 Statement of Eligibility Under the Trust Indenture
Act of 1939 of Citibank, N.A. to Act as Trustee.
99-A Form of Letter of Transmittal.
99-B Form of Notice of Guaranteed Delivery.
99-C Form of Institutions Letter.
99-D Form of Client Letter (of Institutions).
---------------
* To be filed by amendment.