1
[DANA CORPORATION LOGO]
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20509
[X]
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
Of the Securities Exchange Act of 1934
Commission
For the Quarterly Period Ended March 31, 1997 File Number 1-1063
-------------- -------
Dana Corporation
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Virginia 34-4361040
- ----------------------------- ----------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
4500 Dorr Street, Toledo, Ohio 43615
- -------------------------------------- ----------------------
(Address of Principal Executive Offices) (Zip Code)
(419)535-4500
--------------------------------------------------
(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
--- ---
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 March 31, 1997
- ----------------------------- --------------------------------------
Common stock of $1 par value 104,178,952
PEOPLE FINDING A BETTER WAY
2
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
Page Number
-----------
Cover 1
Index 2
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheet
December 31, 1996 and
March 31, 1997 3
Statement of Income
Three Months Ended
March 31, 1996 and 1997 4
Condensed Statement of Cash Flows
Three Months Ended
March 31, 1996 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-10
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11-12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Exhibit Index 14
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. DANA CORPORATION
- -------
CONDENSED BALANCE SHEET (Unaudited)
(in Millions)
Assets December 31 March 31
- ------ 1996 1997
---- ----
Cash and Cash Equivalents $ 227.8 $ 131.1
Accounts Receivable, Net 1,069.1 1,361.7
Inventories
Raw Materials 209.9 258.6
Work in Process and Finished Goods 703.0 684.6
Lease Financing 1,167.3 1,167.5
Investments and Other Assets 958.1 1,350.0
Property, Plant and Equipment 3,642.0 3,814.7
Less: Accumulated Depreciation 1,817.2 1,881.4
-------- --------
Total Assets $6,160.0 $6,886.8
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Accounts Payable and Other Liabilities $1,196.8 $1,502.6
Short-Term Debt 640.3 621.1
Long-Term Debt 1,697.7 2,040.7
Deferred Employee Benefits 1,025.6 1,035.9
Minority Interest 170.9 156.3
Shareholders' Equity 1,428.7 1,530.2
-------- --------
Total Liabilities and
Shareholders' Equity $6,160.0 $6,886.8
======== ========
3
4
ITEM 1. (Continued)
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DANA CORPORATION
STATEMENT OF INCOME (Unaudited)
(in Millions Except Per Share Amounts)
Three Months Ended
------------------
March 31
--------
1996 1997
---- ----
Net Sales $1,972.7 $2,115.3
Revenue from Lease Financing
and Other Income 63.5 135.9
--------- ---------
2,036.2 2,251.2
--------- ---------
Costs and Expenses
Cost of Sales 1,677.3 1,821.3
Selling, General and
Administrative Expenses 181.8 193.0
Interest Expense 38.5 48.2
--------- ---------
1,897.6 2,062.5
--------- ---------
Income Before Income Taxes 138.6 188.7
Estimated Taxes on Income (54.0) (96.6)
Minority Interest (8.0) (5.6)
Equity in Earnings of Affiliates 2.1 6.1
--------- ---------
Net Income $78.7 $92.6
========= =========
Net Income Per Common Share $.78 $.90
========= =========
Dividends Declared and Paid per
Common Share $.23 $.25
Average Number of Shares Outstanding 101.6 103.4
4
5
ITEM 1. (Continued)
- -------
DANA CORPORATION
CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
(in Millions)
Three Months Ended March 31
---------------------------
1996 1997
---- ----
Net Income $78.7 $92.6
Depreciation and Amortization 64.9 79.5
Working Capital Change and Other (70.7) (140.0)
------ ------
Net Cash Flows from Operating Activities 72.9 32.1
------ ------
Purchases of Property, Plant and Equipment (68.9) (85.0)
Purchases of Assets to be Leased (121.5) (101.7)
Payments Received on Leases and Loans 81.3 89.9
Acquisitions (51.5) (475.8)
Divestitures 10.9 152.0
Other 12.2 15.4
------ ------
Net Cash Flows-Investing Activities (137.5) (405.2)
------ ------
Net Change in Short-Term Debt 93.7 (53.8)
Proceeds from Long-Term Debt 100.5 539.0
Payments on Long-Term Debt (129.3) (186.2)
Dividends Paid (23.4) (25.8)
Other 1.9 3.2
------ ------
Net Cash Flows-Financing Activities 43.4 276.4
------ ------
Net Change in Cash and Cash Equivalents (21.2) (96.7)
Cash and Cash Equivalents-beginning of year 66.6 227.8
------ ------
Cash and Cash Equivalents-end of period $45.4 $131.1
====== ======
5
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ITEM 1 (Continued)
- ------
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 results for the unaudited interim periods have been
included.
2. In accordance with generally accepted accounting principles, Dana's
wholly-owned financial subsidiary, Dana Credit Corporation (DCC), 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):
DANA CREDIT CORPORATION
-----------------------
Three Months Ended March 31
---------------------------
1996 1997
---- ----
Revenue $60.0 $63.5
Net Income 7.5 7.5
December 31, 1996 March 31, 1997
----------------- --------------
Total Assets $1,669.2 $1,691.9
Total Liabilities 1,545.3 1,565.3
-------- --------
Shareholder's Equity $123.9 $126.6
======== ========
3. In February 1997, Dana acquired the assets of Clark-Hurth Components, a
worldwide manufacturer of off-highway vehicle and equipment components, and the
Sealed Power worldwide piston ring and cylinder liner operations and assets of
SPX Corporation. These acquisitions have been accounted for as purchases and
their results of operations have been included since the dates of acquisition.
Goodwill relating to the acquisitions is included in Investments and Other
Assets.
4. In March 1997, Dana completed the sale of its warehouse distribution
operations in the U.K., the Netherlands and Portugal to U.K.-based Partco Group
plc for 103 pounds (U.S. $164) resulting in an after-tax gain of $45 (44 cents
per share).
5. The Company initiated a rationalization plan at its Perfect Circle Europe
operations resulting in a charge of $36 (35 cents per share) in the first
quarter of 1997. The plan includes the sale of its Liancourt piston
manufacturing facility, reorganization of its Dreux piston ring machining
operation, sale of its Distribution France operation, and downsizing and
relocation of its division office.
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7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------- ---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources
- -------------------------------
(in Millions)
- --------------------------------------------------------------
CASH FLOWS FROM OPERATIONS
FOR THREE MONTHS
ENDED MARCH 31
- --------------------------------------------------------------
1995 $23
- --------------------------------------------------------------
1996 73
- --------------------------------------------------------------
1997 32
- --------------------------------------------------------------
Net cash flows from operating activities totaled $32, down $41 from
1996 due to increased working capital requirements.
- --------------------------------------------------------------
CAPITAL EXPENDITURES
- --------------------------------------------------------------
YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31 MARCH 31
- --------------------------------------------------------------
1995 $410 $79
- --------------------------------------------------------------
1996 357 69
- --------------------------------------------------------------
1997 380* 85
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*Projected
Net cash flows used for investing activities were $405, up $268 from 1996 for
the most part related to the acquisitions of the assets of Clark-Hurth
Components (CH) and the piston and cylinder liner operations of SPX Corporation
(SPX). These investing activities were partially offset by the proceeds from the
sale of the European warehouse distribution operations. In support of Dana's
core businesses, capital expenditures for property, plant and equipment in the
first quarter of 1997 were up $16 compared to the same period in 1996.
Management currently anticipates capital spending for 1997 to increase
approximately $23, primarily to support growth initiatives and technological
productivity improvements.
Net cash from financing activities in the first quarter of 1997
increased significantly due to acquisitions. Dana supplements internal cash flow
with the issuance of short and long-term debt. Total consolidated debt increased
$324 over December 31, 1996. Total debt of Dana, excluding Dana Credit
Corporation (DCC), increased $307 to supplement financing the CH and SPX
acquisitions. DCC's debt increased $17 over year end 1996.
Dana utilizes short-term committed and uncommitted bank lines for the
issuance of commercial paper and bank direct borrowings. Dana (excluding DCC)
had committed and uncommitted borrowing lines of credit totaling approximately
$1.4 billion at the end of the first quarter 1997, while DCC's lines were $845.
Dana's strong cash flows from operations, together with sufficient worldwide
credit facilities, is expected to provide adequate liquidity to meet the
Company's funding requirements for 1997.
Dana's management and legal counsel have reviewed the legal
proceedings to which the Company and its subsidiaries were parties as of March
31, 1997 (including, among others, those involving product liability claims and
alleged violations of environmental laws) and concluded that
7
8
ITEM 2. Liquidity and Capital Resources (Continued)
- ----------------------------------------------------
(in Millions)
neither the liabilities that may result from these legal proceedings nor the
timing of the cash flows for these liabilities is reasonably 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 accrues at the lower end of the range. At March 31, 1997,
the Company's accruals were $63 for product liability costs (products) and $61,
including $14 relating to acquisitions, for environmental liability costs
(environmental), compared to $65 for products and $47 for environmental at
December 31, 1996. The difference between the Company's minimum and maximum
estimates for contingent liabilities, while not considered material, was $17 for
products and $1 for environmental at March 31, 1997, unchanged since December
31, 1996. Probable recoveries of $37 for products and $10 for environmental from
insurance or third parties have been recorded as assets at March 31, 1997,
compared to $39 for products and $10 for environmental at December 31, 1996.
8
9
ITEM 2. (Continued)
- -------
Results of Operations (Three Months 1997 vs Three Months 1996)
- --------------------------------------------------------------
(in Millions)
Dana achieved record worldwide sales of $2,115 in the first quarter, a
$143 or 7% increase over 1996. Dana's U.S. sales increased due to growth in the
light truck and sport utility vehicle markets, as well as $45 in sales from
acquisitions. These increases were partially offset by reduced sales to the U.S.
heavy truck market.
- -------------------------------------------------------------
1ST QUARTER SALES
- -------------------------------------------------------------
%
1996 1997 CHANGE
- -------------------------------------------------------------
U.S. $1,435 $1,528 6
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International 538 587 9
- -------------------------------------------------------------
Total $1,973 $2,115 7
- -------------------------------------------------------------
1ST QUARTER SALES BY REGION
- -------------------------------------------------------------
%
REGION 1996 1997 CHANGE
- -------------------------------------------------------------
North America $1,530 $1,617 6
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Europe 285 318 12
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South America 113 135 19
- -------------------------------------------------------------
Asia Pacific 45 45 0
- -------------------------------------------------------------
Sales from Dana's international operations increased 9% over 1996, due
to the contribution of recent acquisitions in Europe and South America, and
partially offset by the European warehouse distribution divestiture. U.S. sales
increased 6%, with light truck and sport utility vehicle component sales rising
14%. U.S. sales of heavy truck OE components declined 12%. As a result of
acquisitions, worldwide sales to manufacturers of off-highway vehicles increased
20% and passenger car OE sales grew 23%.
Dana's sales increased in three of its four regions. The European and
South American sales continued to grow in the first quarter as the Company
concentrated on international growth of its core businesses, particularly
through acquisitions, while Asia Pacific remained even with first quarter of
last year. North American sales were also higher, in part from the ongoing
strong demand for light truck and sport utility vehicles.
Dana's worldwide distribution business grew 8% in the first quarter
1997, with international operations up 9% and the U.S. up 7%. Automotive
distribution sales increased 6% (U.S. 1%, International 11%), truck parts
distribution 4% (U.S. 4%, International 5%) and off-highway/industrial
distribution 12% (U.S. 14%, International 4%).
The Company reported record profit of $93, an 18% increase over 1996.
Profit in 1997 included a $45 million after-tax gain on the sale of the European
warehouse operations and a charge of $36 for the rationalization plan of the
Perfect Circle Europe operations.
Revenue from lease financing and other income increased $72 in the
first quarter 1997. The components of this increase were other income relating
to the divestiture of the European warehouse distribution operations, $76,
offset by a decrease in foreign currency translation of $5.
Dana's gross margin for the first quarter was 13.9%, compared to 15.0%
for 1996. Charges of $26 to cost of sales related to the rationalization plan at
the Company's Perfect Circle Europe operations in France were the primary reason
for the decline in margin. Excluding this charge, Dana's gross margin increased
to 15.1% for the first quarter.
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ITEM 2. (Continued)
- -------
Results of Operations (Three Months 1997 vs Three Months 1996)
- --------------------------------------------------------------
(in Millions)
Selling, general and administrative expenses (SG&A) increased $11 or 6%
in 1997, due in part to acquisitions. The ratio of SG&A expense to sales
improved from 9.2% in 1996 to 9.1% in 1997.
Dana's operating margin for the first quarter of 1997 was 4.8% compared
to 5.8% in 1996. Excluding the charge for the European rationalization plan,
Dana's 1997 operating margin improved to 6.0%.
Interest expense increased $10 due to the higher average debt levels
associated with the acquisitions.
The effective tax rate for the first quarter of 1997 was 52% compared
to 39% in 1996. The effective rate is higher due to the provision of a valuation
reserve for tax benefits previously recorded in France and the tax benefits
associated with the expenses recorded for the rationalization plan. Excluding
this valuation reserve, the effective tax rate was comparable to 1996.
Minority interest in net income of subsidiaries decreased $2, primarily
due to the lower earnings recorded by Dana's majority-owned subsidiary in
Brazil.
Equity in earnings of affiliates increased $4 in 1997, due principally
to higher earnings of the Company's affiliate in Mexico, which were partially
offset by losses of the Korean affiliate.
Production of U.S. light trucks and sport utility vehicles, for the
remainder of 1997 was expected to continue with volumes similar to 1996.
However, there are currently strikes at two of Dana's largest customers that
produce light trucks and sport utility vehicles. These work stoppages will have
a negative impact on second quarter sales to this market and, depending upon the
duration of the strikes, could have a negative impact on sales to this market
for the entire year. Dana's sales to the U.S. medium truck market for the
remainder of 1997 is expected to be approximately the same as in the final three
quarters of 1996. The heavy truck market for Dana, though down in the first
quarter of 1997, could show some improvement over the rest of the year.
Dana continues to grow its core products in the international
marketplace. Global sales are expected to be at higher than 1996 levels for the
remainder of the year, in part from acquisitions and also due to expanded
capacity in South America, India, Thailand and other countries to service new
business opportunities.
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ITEM 1. LEGAL PROCEEDINGS
- --------------------------------
The Company and its consolidated subsidiaries are parties to various
pending judicial and administrative proceedings arising in the ordinary course
of business. The Company's management and legal counsel have reviewed the
probable outcome of these 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 the pending proceedings cannot be predicted with certainty,
based on its review, management believes that any 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 in the
Company's annual and/or quarterly reports. The Company is not currently a party
to any such proceedings.
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
On March 13, 1997, Dana contributed 1,000,000 shares of its common
stock to the Dana Corporation Pension Plans Trust, a tax-qualified trust which
holds the assets for most of the Company's defined benefit pension plans. This
contribution was made in partial fulfillment of Dana's funding obligation to the
Trust. The shares are held by The Northern Trust Company, as trustee, in an
account managed by an independent investment adviser with sole power to vote and
to dispose of them. The shares were exempt from registration under Section 4(2)
of the Securities Act of 1933, as amended. Subsequently, the shares were
registered for resale on Registration Statement No. 333-23733 on Form S-3, which
became effective on April 14, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The following are the results of voting by stockholders present or
represented at the Annual Meeting of Stockholders on April 2, 1997:
1. ELECTION OF DIRECTORS. The following were elected to serve as
directors of the Company until the next annual meeting of stockholders or until
their successors are elected:
Votes For Votes Withheld
--------- --------------
B. F. Bailar 83,064,777 4,377,532
E. M. Carpenter 83,035,457 4,406,852
E. Clark 83,066,962 4,375,347
G. H. Hiner 83,065,857 4,376,452
J. M. Magliochetti 83,065,096 4,377,213
M. R. Marks 83,068,767 4,373,542
S. J. Morcott 83,053,223 4,389,086
R. B. Priory 82,532,188 4,910,121
J. D. Stevenson 81,612,117 5,830,192
T. B. Sumner Jr 83,029,828 4,412,481
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2. APPROVAL OF THE DANA CORPORATION 1997 STOCK OPTION PLAN. The
stockholders approved the amended and restated 1997 Stock Option Plan, in which
(a) the Plan name was changed from the 1982 Amended Stock Option to the 1997
Stock Option Plan; (b) the number of shares of Dana commonstock available for
grant under the Plan was increased by 1,300,000 shares, of which 350,000 shares
will be available for issuance under the Dana Corporation Additional
Compensation Plan in the alternative; (c) the term of the Plan was extended to
February 10, 2007; and (d) a maximum annual award limit was added to the Plan to
ensure that the gain on the exercise of options granted under the Plan will be
exempt from the application of Section 162(m) of the Internal Revenue Code and,
therefore, will be deductible to Dana. There were 74,996,476 votes approving the
Plan; 7,166,088 votes against; 573,579 votes abstaining; and 4,706,166 broker
nonvotes.
3. APPROVAL OF THE DANA CORPORATION DIRECTOR DEFERRED FEE PLAN. The
stockholders approved an amended and restated Director Deferred Fee Plan in
which (a) a stock distribution feature that had existed prior to 1991 was
restored to the Plan, permitting the Company's directors to receive
distributions under the Plan at the time of retirement or termination of service
in the form of cash, shares of stock, or a combination of cash and shares; (b)
55,000 shares of Dana common stock were reserved for issuance for such
distributions; (c) beginning in 1997, annual credits of 300 stock Units were
established for each non-employee director in lieu of future accruals that he or
she would have been entitled to receive under the terminated Dana Corporation
Directors Retirement Plan; and (d) crediting each person who was a non-employee
director on October 1, 1996, with sufficient stock Units under the Plan to
compensate him or her for accrued benefits earned through December 31, 1996,
under the terminated Dana Corporation Directors Retirement Plan. There were
79,284,583 votes approving the Plan; 2,759,340 votes against; 692,220 votes
abstaining; and 4,706,166 broker nonvotes.
4. RATIFICATION OF PRICE WATERHOUSE: The stockholders ratified the
Board's selection of Price Waterhouse LLP as the Company's independent auditors
for fiscal year 1997. Price Waterhouse has been Dana's independent public
accountant since 1916. There were 86,911,509 votes ratifying the selection of
Price Waterhouse; 288,804 votes against; and 241,996 votes abstaining.
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
March 31, 1997.
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13
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: May 1, 1997
- ------------------ ---------------------------------
John S. Simpson
Chief Financial Officer,
Vice President Finance and Treasurer
Duly Authorized Officer and
Principal Financial Officer.
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14
EXHIBIT INDEX
-------------
Exhibit
- -------
10-E Dana Corporation 1997 Stock Option Plan (filed by reference to
Exhibit A to Registrant's Proxy Statement for its Annual
Meeting held on April 2, 1997)
10-I Dana Corporation Director Deferred Fee Plan (filed by
reference to Exhibit B to Registrant's Proxy Statement for its
Annual Meeting held on April 2, 1997)
27 Financial Data Schedule
14
5
1,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
131,100
0
1,361,700
0
943,200
0
3,814,700
1,881,400
6,886,800
0
2,040,700
104,200
0
0
1,426,000
6,886,800
2,115,300
2,251,200
1,821,300
1,821,300
0
0
48,200
188,700
96,600
0
0
0
0
92,600
.90
0
