1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
[X] Of the Securities Exchange Act of 1934
Commission
For the Quarterly Period Ended September 30, 1995 File Number 1-1063
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Dana Corporation
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(Exact Name of Registrant as Specified in its Charter)
Virginia 34-4361040
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
4500 Dorr Street, Toledo, Ohio 43615
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(Address of Principal Executive Offices) (Zip Code)
(419) 535-4500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1995
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Common stock of $1 par value 101,386,089
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DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
Page Number
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Cover 1
Index 2
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheet
December 31, 1994 and
September 30, 1995 3
Statement of Income
Three Months and Nine Months Ended
September 30, 1994 and 1995 4
Condensed Statement of Cash Flows
Nine Months Ended
September 30, 1994 and 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7 - 12
Part II. Other Information
Item 1. Legal Proceedings 13 - 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
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PART I. FINANCIAL INFORMATION
ITEM 1. DANA CORPORATION
CONDENSED BALANCE SHEET (Unaudited)
(in Millions)
Assets December 31, 1994 September 30, 1995
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Cash and Cash Equivalents $ 112.2 $ 78.2
Accounts Receivable, Less
Allowance for Doubtful Accounts 960.4 1,108.7
Inventories
Raw Materials 186.4 243.5
Work in Process and Finished Goods 553.8 619.0
Lease Financing 931.0 983.6
Investments and Other Assets 793.2 764.5
Deferred Income Tax Benefits 226.6 233.5
Property, Plant and Equipment 2,797.0 3,113.2
Less - Accumulated Depreciation (1,449.8) (1,601.9)
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Total Assets $ 5,110.8 $ 5,542.3
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Liabilities and Shareholders' Equity
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Short-Term Debt $ 583.1 $ 680.7
Accounts Payable 390.2 398.6
Other Liabilities 749.1 791.2
Deferred Employee Benefits 1,109.9 1,121.3
Long-Term Debt 1,186.5 1,304.4
Minority Interest 152.2 150.5
Shareholders' Equity 939.8 1,095.6
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Total Liabilities and
Shareholders' Equity $ 5,110.8 $ 5,542.3
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ITEM 1. (Continued)
DANA CORPORATION
STATEMENT OF INCOME (Unaudited)
(in Millions Except Per Share Amounts)
Three Months Ended Sept. 30 Nine Months Ended Sept. 30
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1994 1995 1994 1995
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Net Sales $ 1,609.4 $ 1,727.1 $ 4,918.7 $ 5,620.3
Revenue from Lease Financing
and Other Income 38.6 41.4 109.9 132.3
Foreign Currency Adjustments (.8) .6 (24.3) 4.3
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1,647.2 1,769.1 5,004.3 5,756.9
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Cost of Sales 1,370.2 1,458.5 4,170.1 4,746.9
Selling, General and
Administrative Expenses 155.9 169.9 457.6 505.9
Interest Expense 28.3 38.4 83.0 107.5
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1,554.4 1,666.8 4,710.7 5,360.3
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Income Before Income Taxes 92.8 102.3 293.6 396.6
Estimated Taxes on Income 37.7 38.0 124.2 154.5
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Income Before Minority Interest and
Equity in Net Earnings (Loss) of Affiliates 55.1 64.3 169.4 242.1
Minority Interest (8.0) (7.2) (18.5) (27.6)
Equity in Net Earnings (Loss) of Affiliates 5.8 3.8 17.7 (5.3)
----------- ---------- ------------ -----------
Net Income $ 52.9 $ 60.9 $ 168.6 $ 209.2
============ ========== ============ ===========
Net Income Per Common Share $ .54 $ .60 $ 1.71 $ 2.07
========== ======== ========== ==========
Dividends Declared and Paid Per
Common Share $ .21 $ .23 $ .62 $ .67
========== ======== ========== ==========
Average Number of Shares Outstanding 98.7 101.3 98.7 101.3
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ITEM 1. (Continued)
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DANA CORPORATION
CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
(in Millions)
Nine Months Ended September 30
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1994 1995
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Net Income $ 168.6 $ 209.2
Depreciation and Amortization 152.7 174.8
Net Change in Receivables, Inventory and Payables (60.7) (203.0)
Other 33.2 23.2
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Net Cash Flows from Operating Activities 293.8 204.2
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Purchases of Property, Plant and Equipment (216.1) (230.3)
Purchases of Assets to be Leased (300.4) (302.6)
Payments Received on Leases and Loans 201.7 205.2
Purchase of Minority Interest of Subsidiary (92.4)
Proceeds from Sales of Leased Assets 28.5 49.4
Other 2.0 (1.7)
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Net Cash Flows-Investing Activities (284.3) (372.4)
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Net Change in Short-Term Debt 113.6 93.9
Proceeds from Long-Term Debt 222.5 327.4
Payments on Long-Term Debt (301.1) (223.0)
Dividends Paid (61.2) (68.0)
Other 5.8 3.9
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Net Cash Flows-Financing Activities (20.4) 134.2
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Net Change in Cash and Cash Equivalents $ (10.9) $ (34.0)
Cash and Cash Equivalents-beginning of year 77.6 112.2
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Cash and Cash Equivalents-end of period $ 66.7 $ 78.2
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ITEM 1 (Continued)
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NOTES TO CONDENSED FINANCIAL STATEMENTS
(in Millions Except Per Share Amounts)
1. In the opinion of management, all normal recurring adjustments
necessary to a fair presentation of the results for the unaudited interim
periods have been included.
2. In accordance with generally accepted accounting principles, Dana's
wholly-owned financial subsidiary, Diamond Financial Holdings, Inc.
(DFHI), is included in the consolidated financial statements. The
following is a recap of the revenue, net income, total assets, total
liabilities and shareholder's equity of this subsidiary (unaudited):
DIAMOND FINANCIAL HOLDINGS, INC.
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- -------------------------------
1994 1995 1994 1995
Revenue $ 48.0 $ 51.3 $ 134.0 $ 155.0
Net Income 3.0 6.2 11.1 17.5
December 31, 1994 September 30, 1995
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Total Assets $ 1,387.5 $ 1,385.7
Total Liabilities 1,295.5 1,281.2
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Shareholder's Equity $ 92.0 $ 104.5
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3. In the first quarter of 1995, Dana acquired Plumley Companies, Inc.
(Plumley), a manufacturer of rubber and silicone sealing products,
primarily for automotive applications. Plumley is being accounted for as
a pooling of interests. Prior years' financial statements have not been
restated since the amounts are not material to the consolidated financial
statements.
4. In the first quarter of 1995, Dana recorded a non-operating charge of
approximately $18 ($.17 per share) for its proportionate share of
translation losses incurred by its Mexican affiliate, Spicer S.A. de C.V.,
due to the devaluation of the Mexican peso.
5. In the first quarter of 1995, Dana made a tender offer for all of the
outstanding shares of Hayes-Dana Inc. that it did not own. During the
second quarter of 1995, Dana increased its ownership in Hayes-Dana from 57
percent to 100 percent.
6. On October 31, 1995, Dana and two of its majority-owned South
American subsidiaries sold from nine percent (9%) to forty-nine percent
(49%) of their ownership interest in three (3) constant velocity joint
operations, reducing ownership to fifty-one (51%) in the joint ventures.
As a result of these sales, Dana will record a gain of approximately $12
($.11 per share) after tax and minority interests in the fourth quarter of
1995.
7. On November 1, 1995, Dana acquired the European Axle group of GKN plc
for $70 and the assumption of $46 of debt and other long-term
liabilities. The acquisition is being recorded as a purchase and the
results of operations will be included in the accounts from date of
acquisition.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Liquidity and Capital Resources
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(in Millions)
Capital expenditures for property, plant and equipment were $230 for
the first nine months of 1995, compared to $216 for the first nine months of
1994. Capital expenditures for all of 1995 are currently projected to be
approximately the same as 1994's expenditures of $337.
The 1995 debt of Dana Corporation and its consolidated subsidiaries
(Dana) as of September 30, totaled $1,985, an increase of $215 from year end
1994. This increase is primarily due to capital expenditures, the purchase of
the minority shares of Hayes-Dana, and the working capital requirements
resulting from strong sales growth. Dana, excluding Diamond Financial
Holdings, Inc. (DFHI) and Dana Credit Corporation (DCC), finances its
short-term debt through the issuance of commercial paper and bank borrowings.
To fund its working capital requirements, Dana (excluding DFHI and DCC) has
$375 in committed credit facilities available to back up the issuance of
commercial paper obligations and $979 in uncommitted lines with banks for bank
borrowings. At September 30, 1995, Dana (excluding DFHI and DCC) had domestic
and international short-term borrowings of $321, as compared to $261 at
December 31, 1994. DFHI obtains its short-term funds through bank borrowings.
As of September 30, 1995, DFHI's bank lines totaled $125, of which $100 was
outstanding, as compared to $145 at December 31, 1994, all of which was
outstanding. DCC finances its short-term U.S. and international debt
requirements through the issuance of commercial paper and bank direct
borrowings. At September 30, 1995, DCC had committed credit facilities for
commercial paper issuance in the amount of $360, committed bank lines of $19,
and uncommitted bank lines of $417. Against these credit lines, DCC had
borrowed $260 at September 30, 1995, compared to $177 at December 31, 1994.
Consolidated long-term debt increased to $1,304 at September 30, 1995, from
$1,187 at December 31, 1994. This increase includes the effect of ongoing debt
and interest rate management which involves the periodic replacement of
short-term debt with long-term debt. The long-term debt position of Dana
(excluding DFHI and DCC) at September 30, 1995 was $675, up from $542 at year
end 1994. DCC's long-term debt at the end of the first nine months of 1995
was $629 as compared to $640 at December 31, 1994.
In the normal course of business, management identifies operations
which are non-strategic and under-performing. Action plans are then developed
for the downsizing, consolidation or closure of these operations. Upon approval
of these plans, estimated costs of implementation (including employee benefits
and other expenses incidental to the actions) are charged to cost of sales.
The Company had remaining accrued liabilities of $12 at September 30, 1995,
compared to $26 as of December 31, 1994. Of the $12 liability accrued at
September 30, 1995, it is anticipated $9 will be paid in 1995 and $3 in 1996.
Dana expects that operations over the long term will benefit from these
realignment actions.
Dana's management and legal counsel have reviewed the legal proceedings
to which the Company and its subsidiaries were parties as of September 30, 1995
(including, among others, those involving product liability claims and alleged
violations of environmental laws) and concluded that neither the liabilities
that may result from these legal proceedings nor the timing of the cash flows
for these liabilities are likely to have a material adverse effect on the
Company's liquidity, financial condition or results of operations. The Company
estimates its contingent environmental and product liabilities based upon the
most probable method of remediation or outcome considering currently enacted
laws and regulations and existing technology. Measurement of liabilities is
made on an undiscounted basis and excludes the effects of inflation and other
societal and economic factors. In those cases where there is a range of
equally probable remediation methods or outcomes, the Company
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ITEM 2. Liquidity and Capital Resources (continued)
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(in Millions)
accrues at the lower end of the range, which at September 30, 1995, was $53 for
product liability costs (products) and $50 for environmental liability costs
(environmental), compared to $77 for products and $48 for environmental at
December 31, 1994. The difference between minimum and maximum contingent
liabilities, while not considered material, was $11 for products and $4 for
environmental at September 30, 1995 compared to $11 for products and $5 for
environmental at December 31, 1994. Probable recoveries of $37 for products
and $10 for environmental from insurance or third parties have been recorded as
assets at September 30, 1995, compared to $61 for products and $6 for
environmental at December 31, 1994.
The Company is also a defendant in a lawsuit, described in Part II,
Item 1 of this report, brought by the Department of Justice alleging that a
former operation, which was a subsidiary of a company purchased by Dana in
January 1985, had overcharged the U.S. government on contracts or subcontracts
awarded during the late 1970s and the 1980s. The complaint, amended in July
1995, sought common law relief as well as statutory civil penalties and damages
in an unspecified amount. In September 1995, Dana and the Department of Justice
settled all claims relating to 16 government contracts included in the
complaint without any finding of liability or admission of wrongdoing by Dana,
and Dana paid the government $19.5, which included payment for the government's
alleged damages, interest, and costs of investigation and litigation. The
Company was fully reserved for this settlement and the payment had no material
adverse effect on its liquidity, financial condition or results of operations.
For the remaining contracts, the government alleges damages of approximately $7,
which are subject to doubling or trebling or, in the alternative, to the accrual
of interest. The Company is hopeful that the remaining claims can also be
resolved without any material adverse effect.
Dana anticipates that net cash flows from operating activities, along
with currently available financing sources, will be sufficient to meet the
Company's funding requirements for 1995.
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ITEM 2. (Continued)
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Results of Operations (Third Quarter 1995 vs Third Quarter 1994)
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(in Millions)
Dana posted third quarter 1995 sales of $1,727, an increase of 7% over
a strong third quarter 1994 sales level of $1,609. The Company achieved record
third quarter sales, although the percentage increase in the first and second
quarters over the prior year's corresponding quarters in most of Dana's markets
and regions was greater than in the third quarter. Effects of recent
acquisitions, increases in unit volumes of original equipment (OE) vehicular
products sold in the U.S., strength in the U.S. construction equipment market
and overall growth in international sales were major factors in the increase.
Acquisitions and the effect of fully consolidating a Taiwanese
affiliate, which was previously accounted for on an equity basis, contributed
$61 to the sales increase, $29 in the U.S. and $32 internationally. Worldwide
sales of OE highway vehicular products for automobiles, trucks, trailers, vans,
and sport utility vehicles increased 9% over 1994 levels (4% adjusted for
acquisitions). Sales to the light truck portion of that market were up 3% as
demand continued for pickup trucks and sport utility vehicles in North and
South America. 1995 medium and heavy truck OE sales, on a combined basis,
increased 15% over 1994, reflecting higher U.S. and South American production.
The Company's worldwide sales of mobile off-highway OE products increased 25%
in 1995, reflecting strength in the U.S. construction and agricultural markets,
as well as the impact of a European acquisition. The increase was 20% excluding
the effect of the acquisition. Industrial OE sales increased 11% worldwide,
achieved through U.S. growth and an acquisition in the U.S. and Europe. The
Company's service parts sales to the worldwide aftermarket were up 1% in 1995,
comprised of increases in the international markets partially offset by a
decline in the U.S. Worldwide distribution sales performances in 1995 versus
1994 by market were as follows: truck parts declined 3%, automotive increased
1% and mobile off-highway/industrial increased 3%.
Sales from U.S. operations were $1,242 in 1995, an increase of 4% from
the $1,198 recorded in 1994. Highway vehicular OE sales increased 5% in 1995
(2% adjusted for an acquisition) reflecting continued, yet more moderate,
growth in the U.S. truck market. Mobile-off highway OE sales were 21% higher
than in 1994 while industrial OE sales increased 21%, 10% excluding the effect
of a recent acquisition. U.S. distribution sales were below 1994 levels, as
were automotive OE sales (after adjusting for a recent acquisition), reflecting
the slowness of these U.S. markets.
Sales from international operations increased as healthy economic
growth is being experienced in many countries in which Dana's products are
sold. Overall, international sales grew 18% over 1994, comprised of a 29%
increase in OE highway vehicular products, 33% increase in mobile off-highway
OE, an industrial sales increase of 2% and distribution sales growth of 10%.
Excluding the effect of acquisitions and the consolidation of a Taiwanese
affiliate that was accounted for on the equity method in 1994, overall
international sales increased 9% over 1994, OE highway vehicular sales
increased 16%, mobile off-highway OE sales were up 17%, while industrial sales
were down 8%. Regionally, the Company's 1995 sales increased 3% in Canada, 14%
in South America, 15% in Europe and 98% in Asia Pacific. After adjusting for
the effect on sales of recent acquisitions and the effect of consolidating the
Taiwanese affiliate, South American sales increased 11%, European 9% and Asia
Pacific 11%.
Revenue from lease financing and other income increased $3 over 1994,
principally due to higher lease financing revenue.
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ITEM 2. Results of Operations (Third Quarter 1995 vs Third Quarter 1994)
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(continued)
(in Millions)
Adjustments for translation of foreign currency resulted in a gain of
less than $1 in 1995 compared to a loss of $1 in 1994. The adjustments in both
years relate almost exclusively to the translation from local currency to U.S.
dollars of the Company's Brazilian operations.
The Company's consolidated gross margin was 15.6% compared to 14.9% in
1994. Gross margin of the U.S. operations was 14.1%, up from 13.0% in 1994, due
in part to reduced premium freight costs and overtime. International
operations' gross margin was 18.4%, down from 18.8% in 1994.
Selling, general and administrative expenses (SG&A) were $170 compared
to $156 in 1994, an increase of $14 or 9%. After adjusting for a $3 increase
associated with acquisitions made in the latter half of 1994 and early in 1995,
SG&A increased less than 7% principally due to higher business levels.
Interest expense increased to $38 from $28 in 1994 due to an increase
in the average debt level and a slight increase in the overall weighted average
interest rate. The average debt level increased due to capital spending, the
purchase of the minority shares of Hayes-Dana and working capital requirements
resulting from sales growth.
Minority interest in net income of consolidated subsidiaries decreased
to $7 from $8 in 1994 due to lower earnings of Dana's subsidiary in Brazil and
the purchase of the minority shares of Hayes-Dana during the first and second
quarters of 1995, both of which were partially offset by an increase from the
consolidation of the Company's Taiwanese affiliate in 1995.
Equity in net earnings of affiliates decreased to $4 from the $6
reported in 1994 due to lower earnings of the Company's affiliate in Mexico and
the effect of the consolidation in 1995 of theTaiwanese affiliate, which was
previously accounted for on an equity basis.
Taxes on income totaled $38 in both 1995 and 1994, while the effective
rate decreased to 37% from 41% in 1994. The decrease is due in part to a lower
effective state tax rate in 1995. Due to the increased profitability of the
Company, the fixed portion of state taxes was spread over a larger base,
resulting in a lower effective rate. Additionally, a lower effective rate was
experienced by the Company's Brazilian operations.
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ITEM 2. Results of Operations (Nine Months 1995 vs Nine Months 1994)
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(in Millions)
Dana's sales for the first nine months of 1995 were $5,620, an increase
of 14% over a strong 1994 nine month period of $4,919. Effects of recent
acquisitions, unit volume increases of original equipment vehicular product
sales in the U.S., strength in the U.S. construction equipment market and
overall growth in international sales were major factors in the increase.
Acquisitions and the effect of fully consolidating a Taiwanese affiliate, which
was previously accounted for on an equity basis, contributed $208 to the sales
increase, $94 in the U.S. and $114 internationally. Demand has continued for
the Company's OE products in the U.S., especially for products used on pickup
trucks and sport utility vehicles, despite slower sales in other segments of
the domestic automotive market. International sales continued to show
increases due to healthy economic growth experienced in many of the countries
in which Dana products are sold.
Sales to U.S. light truck manufacturers were up 13% over a strong 1994
sales level due to the ongoing popularity of light trucks and sport utility
vehicles. U.S. medium and heavy truck OE sales increased 24% and 16%,
respectively, over 1994. Sales to the worldwide highway vehicle market were up
19% (11% adjusted for acquisitions) over 1994, with the U.S. increasing 16% (2%
adjusted for acquisitions) while internationally, a 32% increase was
experienced (14% adjusted for acquisitions). The Company's sales to the
worldwide mobile off-highway OE market increased 28% in 1995, reflecting
strength in the U.S. construction and agricultural markets, as well as the
impact of a European acquisition. Industrial OE sales increased 13% worldwide,
comprised of 19% U.S. and 6% international. After adjusting for acquisitions,
industrial sales worldwide were level with 1994, with the U.S. up 5% and
international down 9% (almost exclusively in Europe). The Company's 1995
overall distribution sales were up 5% over 1994, due in part to acquisitions
and increases in international aftermarket operations. International
aftermarket sales increased 15% over 1994, while sales in the U.S. were level
with 1994. Worldwide distribution sales performances in 1995 versus 1994 by
market were as follows: truck parts increased 3%, automotive increased 4% and
mobile off-highway/industrial increased 7%.
Sales from U.S. operations were $4,139, an increase of 11% over 1994
(9% adjusted for acquisitions) while international sales were $1,481, an
increase of 24% over 1994 (15% adjusted for acquisitions). On a regional
basis, the Company's 1995 sales increased 11% in North America, 21% in South
America, 24% in Europe and 111% in Asia Pacific. After adjusting for the
effect on sales of recent acquisitions and the consolidation of a Taiwanese
affiliate that was accounted for on the equity method in 1994, North American
sales increased 8%, South American 19%, European 14% and Asia Pacific 14%.
Revenue from lease financing and other income increased $22 compared to
1994. This increase principally resulted from higher lease financing revenue
($8), interest income ($6) and gain on sale of leased assets ($4).
Adjustments for translation of foreign currency resulted in a gain of
$4 in 1995, compared to a loss of $24 in 1994. The adjustments in both years
relate almost exclusively to the translation from local currency to U.S.
dollars of the Company's Brazilian operations. The new Brazilian currency
(real) was introduced at parity with the U.S. dollar late in the third quarter
of 1994. The translation of the real to U.S. dollars resulted in 1995's gain.
1994's loss includes the effect of translating from the old currency
(cruzeiros) to U.S. dollars for the period of January through July, partially
offset by gains in August and September in the translation from the real to
U.S. dollars.
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ITEM 2. Results of Operations (Nine Months 1995 vs Nine Months 1994)(continued)
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(in Millions)
Consolidated gross margin was 15.5% compared to 15.2% in 1994. The
gross margin of Dana's U.S. operations was 14.1% in both periods.
International operations' gross margin was 19.4% in 1995 up from 18.8% in 1994.
The improvement in 1995 would have been even greater but for the negative
impact of the Brazilian currency change.
Selling, general and administrative expenses (SG&A) were $506 compared
to $458 in 1994, an increase of $48 or 11%. After adjusting for a $13 increase
associated with acquisitions made in the latter half of 1994 and early in 1995,
SG&A increased less than 8%, principally due to higher business levels.
Interest expense increased to $108 in 1995 from $83 due to an increase
in the average debt level and a slight increase in the overall weighted average
interest rate. The average debt level increased due to capital spending, the
purchase of the minority shares of Hayes-Dana and working capital requirements
resulting from sales growth.
Minority interest in net income of consolidated subsidiaries increased
in 1995 to $28 from $19 due to higher earnings of Dana's subsidiary in Brazil
and the consolidation of the Company's Taiwanese affiliate in 1995, both of
which were partially offset by a reduction due to the purchase of the minority
shares of Hayes-Dana during 1995.
A loss of $5 was reported for equity in net earnings (loss) of
affiliates in 1995 compared to income of $18 for 1994. The loss resulted as the
Company recorded a non-operating charge of approximately $18 for Dana's
proportionate share of translation losses incurred by its Mexican affiliate,
Spicer S.A. de C.V., due to the devaluation of the Mexican peso. Also
contributing to the $23 difference was an $8 decrease in Spicer S.A.'s
operating income in 1995 (Dana's proportionate share) and the effect of the
consolidation of the Company's Taiwanese affiliate, which was previously
accounted for on an equity basis. These reductions were partially offset by
increased earnings of Dana's affiliate in Korea.
Taxes on income totaled $155 versus $124 in 1994, while the effective
rate decreased to 39% from 42% in 1994. The decrease is due in part to a lower
effective state tax rate in 1995. Due to the increased profitability of the
Company, the fixed portion of state taxes was spread over a larger base
resulting in a lower effective rate than in 1994. Additionally, a lower 1995
effective rate was incurred by the Company's Brazilian operations and Dana
Credit Corporation.
While the economies of certain countries, such as the U.S., are showing
signs of slower growth, Dana expects sales of its vehicular components to
sustain moderate growth for the balance of 1995. This expectation is
principally due to continued popularity of the light truck and sport utility
vehicles, on which many Dana products are featured, and the presence of healthy
economic conditions in many international markets in which Dana products are
sold. The North American OE heavy truck orders continue to soften and the
aftermarket segment is becoming increasingly competitive. These two markets are
not expected to grow appreciably for the balance of 1995. The mobile-off
highway markets in both the U.S. and Europe continue to be relatively strong
and the non-North American vehicular OE, aftermarket and industrial markets
are expected to sustain moderate growth for the balance of 1995.
Subsequent to September 30, 1995, Dana and two of its majority-owned
South American subsidiaries sold from nine percent (9%) to forty-nine percent
(49%) of their ownership interest in three (3) constant velocity joint
operations, reducing ownership to fifty-one (51%) in the joint ventures. As a
result of these sales, Dana will record a gain of approximately $12 ($.11 per
share) after tax and minority interests in the fourth quarter of 1995.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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The Company and its consolidated subsidiaries are parties to various
pending judicial and administrative proceedings arising in the ordinary course
of business, including, among others, those involving product liability claims
and those involving alleged violations of various federal, state and local
environmental laws. Management has reviewed with legal counsel the probable
outcome of these pending legal proceedings, the costs and expenses reasonably
expected to be incurred, the availability and limits of the Company's insurance
coverage, and the Company's established reserves for uninsured liabilities.
While the outcome of these proceedings cannot be predicted with certainty,
management believes that the liabilities that may result are not reasonably
likely to have a material effect on the Company's liquidity, financial
condition or results of operations.
Under the rules of the Securities and Exchange Commission, certain
environmental proceedings are not deemed to be ordinary routine proceedings
incidental to the Company's business and are required to be reported. These
include the following:
1. IN THE MATTER OF DANA CORPORATION-VICTOR PRODUCTS DIVISION AND BRC
RUBBER GROUP. In this administrative proceeding, commenced in 1990, the United
States Environmental Protection Agency, Region 5 ("USEPA 5") alleges that the
Company's former plant in Churubusco, Indiana (which ceased operations in 1983)
violated the federal Resource Conservation and Recovery Act ("RCRA") by failing
to submit a closure plan and financial assurances as a RCRA-regulated storage
facility and by failing to notify the subsequent plant owner (Bluffton Rubber
Company or "BRC") of the storage facility's alleged RCRA status. USEPA 5
sought to require a RCRA closure of the storage facility and to recover civil
penalties of approximately $77,000 from the Company and $55,000 from BRC. The
Company agreed to indemnify BRC for liabilities asserted against BRC arising
from alleged RCRA violations during the Company's operation of the storage
facility. In 1992, the Company submitted a settlement proposal to USEPA 5
containing a soil sampling plan designed to establish whether contaminants had
been released from materials that the Company stored at the storage facility.
In 1993, the Indiana Department of Environmental Management ("IDEM"), on behalf
of USEPA 5, notified the Company that the sampling plan was inadequate and
issued a Notice of Deficiency with respect to the Company's closure of the
storage facility. Thereafter, the Company engaged in discussions with IDEM
about the sampling plan and Notice of Deficiency and with USEPA 5 about the
proposed penalties. In 1994, BRC was, in effect, dismissed from the case and
the Company and USEPA 5 reached agreement on the amount of $80,000 for the
civil penalty. The Company expects that a Consent Decree will be finalized and
site sampling work acceptable to IDEM will commence in the fourth quarter of
1995.
2. COMMISSIONER OF THE DEPARTMENT OF ENVIRONMENTAL MANAGEMENT V. DANA
CORPORATION, SLEEVE PLANT. In September 1994, the Indiana Department of
Environmental Management ("IDEM") proposed a Consent Order to the Company in
connection with alleged violations of the federal Clean Water Act by the
Company's plant in Richmond, Indiana. The alleged violations were discharges
exceeding certain metal concentration limitations in the plant's water
discharge permit with the City of Richmond and discharges into a ditch in
violation of the plant's National Pollutant Discharge Elimination System
permit. The IDEM sought civil penalties in the amount of $227,000. The
Company contested certain of the allegations and negotiated the Consent Order
with IDEM. In the third quarter of 1995, the parties reached a tentative
agreement that the Order will require Dana to pay a civil penalty of $105,000,
which penalty will be reduced by 50% of Dana's cost of certain environmental
projects to be undertaken at the Richmond plant. The Order is expected to be
issued in the fourth quarter of 1995.
13
14
ITEM 1. LEGAL PROCEEDINGS. (Continued)
- -------
3. IN THE MATTER OF DANA CORPORATION, BOSTON WEATHERHEAD DIVISION. In
September 1994, the United States Environmental Protection Agency, Region 6
("USEPA 6") issued an administrative Complaint, Compliance Order and Notice of
Opportunity for Hearing to the Company in connection with various alleged
violations of the federal Resource Conservation and Recovery Act ("RCRA") by
the Company's plant in Vinita, Oklahoma. The alleged violations include, among
others, the plant's failure to manage and maintain hazardous waste containers,
tanks and tank systems in accordance with RCRA requirements and record keeping
violations in connection with the plant's Contingency Plan. In the Compliance
Order, USEPA 6 is seeking civil penalties of $576,640. In the fourth quarter
of 1994, the Company met with USEPA 6 to present evidence to refute the
allegations and settlement negotiations were commenced. Those negotiations
continued in the third quarter of 1995.
The Company has also previously reported that it is a defendant in the
1992 lawsuit, United States v. Dana Corporation. In this suit, the Department
of Justice, on behalf of the United States, sued the Company and two other
parties that have subsequently been dismissed, Warner Electric Brake and Clutch
Company, Inc. ("Warner Electric") and Beaver Precision Products, Inc.
("Beaver"). Suit was brought in the U.S. District Court, Eastern District of
Michigan under the federal False Claims Act and various common law theories.
The complaint, which was amended in July 1995, alleges overcharging on U.S.
government contracts or subcontracts awarded to Beaver during the late 1970s
and the 1980s. Beaver was a subsidiary of Warner Electric when Dana acquired
that company in January 1985. Both companies were later merged into Dana, and
the Beaver operations were sold in 1991. The amended complaint sought common
law relief as well as statutory civil penalties and damages. In September
1995, Dana and the Department of Justice settled all claims relating to 16
government contracts included in the complaint without any finding of
liability or admission of wrongdoing by Dana, and the Company paid the
government $19.5 million, which included payment for the government's alleged
damages, interest, and costs of investigation and litigation. Settlement
negotiations continue with respect to the remaining contracts. For these
contracts, the government alleges damages of approximately $7 million, which
are subject to doubling or trebling or, in the alternative, to the accrual of
interest.
14
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------
a) The Exhibits listed in the "Exhibit Index" are filed
as a part of this report
b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
ended September 30, 1995.
15
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DANA CORPORATION
------------------------
Date: November 8, 1995 /s/ James E. Ayers
---------------- ------------------------
James E. Ayers
Chief Financial Officer
Vice President Finance and Treasurer
Duly Authorized Officer and
Principal Financial Officer.
16
17
EXHIBIT INDEX
-------------
Exhibit
- -------
10-A(1) First Amendment to the Dana Corporation Additional
Compensation Plan, dated July 17, 1995
27 Financial Data Schedule
Note: Exhibit 10-A(1) is a compensatory plan required to be filed
as an exhibit to this Form 10-Q pursuant to Part II, Item 6
of this report.
17
1
Exhibit 10-A(1)
---------------
7/17/95
FIRST AMENDMENT TO THE DANA CORPORATION ADDITIONAL
COMPENSATION PLAN
Pursuant to Resolutions of the Board of Directors of the Corporation
adopted on July 17, 1995, the Dana Corporation Additional Compensation Plan
(the "Plan") is hereby amended, effective July 17, 1995 as follows:
1. Amend the first sentence of Section 5B to read in its entirety as
follows:
"The Committee may, in its discretion, also elect to credit up
to 100% of the amount of a participant's deferred award to an
Interest Equivalent Account established for him by the Corporation,
provided that the participant has met or exceeded his stock
ownership target as established by the Committee on December 12,
1994 (or as such target may be changed from time to time). If the
participant has not met his stock ownership target, the Committee
may, in its discretion, elect to credit up to 50% of the amount of
the participant's deferred award to an Interest Equivalent
Account."
5
1,000
9-MOS
DEC-31-1995
JAN-01-1995
SEP-30-1995
78,200
0
1,108,700
0
862,500
0
3,113,200
1,601,900
5,542,300
0
1,304,400
0
0
101,400
994,200
5,542,300
5,620,300
5,756,900
4,746,900
4,746,900
0
0
107,500
396,600
154,500
0
0
0
0
209,200
2.07
0
