1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] Quarterly Report Pursuant to Section 13 or 15(d)
Of the Securities Exchange Act of 1934
Commission
For the Quarterly Period Ended September 30, 1997 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
- ---------------------------------- ----------------------
(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
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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
--- ---
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, 1997
- ----------------------------------- -----------------------------------
Common stock, $1 par value 105,022,373
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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
September 30, 1997 3
Statement of Income
Three Months and Nine Months Ended
September 30, 1996 and 1997 4
Condensed Statement of Cash Flows
Nine Months Ended
September 30, 1996 and 1997 5
Notes to Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
Exhibit Index 18
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PART I. FINANCIAL INFORMATION
ITEM 1. DANA CORPORATION
- ------
CONDENSED BALANCE SHEET (Unaudited)
(in Millions)
Assets December 31, 1996 September 30, 1997
------ ----------------- -------------------
Cash and Cash Equivalents $ 227.8 $ 355.5
Accounts Receivable
Trade 1,026.7 1,196.0
Other 42.4 141.1
Inventories
Raw Materials 209.9 248.1
Work in Process and Finished Goods 703.0 674.7
Lease Financing 1,167.3 1,246.0
Investments and Other Assets 958.1 1,226.9
Property, Plant and Equipment 3,642.0 3,843.9
Less: Accumulated Depreciation 1,817.2 1,869.8
-------- --------
Total Assets $6,160.0 $7,062.4
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Accounts Payable and Other Liabilities $1,196.8 $1,574.2
Short-Term Debt 640.3 457.9
Long-Term Debt 1,697.7 2,130.2
Deferred Employee Benefits 1,025.6 1,071.1
Minority Interest 170.9 174.0
Shareholders' Equity 1,428.7 1,655.0
-------- --------
Total Liabilities and
Shareholders' Equity $6,160.0 $7,062.4
======== ========
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ITEM 1. (Continued)
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DANA CORPORATION
STATEMENT OF INCOME (Unaudited)
(in Millions Except Per Share Amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30 September 30
------------ ------------
1996 1997 1996 1997
---- ---- ---- ----
Net Sales $ 1,815.8 $ 1,960.7 $ 5,809.0 $ 6,216.8
Revenue from Lease Financing
and Other Income 48.7 175.3 161.2 386.7
----------- ----------- ---------- -----------
1,864.5 2,136.0 5,970.2 6,603.5
----------- ----------- ---------- -----------
Costs and Expenses
Cost of Sales 1,536.0 1,715.4 4,913.3 5,361.8
Selling, General and
Administrative Expenses 179.5 184.6 551.5 565.2
Interest Expense 40.9 46.3 116.4 144.2
----------- ----------- ---------- -----------
1,756.4 1,946.3 5,581.2 6,071.2
----------- ----------- ---------- -----------
Income Before Income Taxes 108.1 189.7 389.0 532.3
Estimated Taxes on Income (36.4) (94.6) (139.8) (251.9)
Minority Interest (10.1) (8.2) (25.1) (20.0)
Equity in Earnings of Affiliates 3.6 11.4 11.3 24.3
----------- ----------- ---------- -----------
Net Income $ 65.2 $ 98.3 $ 235.4 $ 284.7
=========== =========== ========== ============
Net Income Per Common Share $ .64 $ .93 $ 2.32 $ 2.73
=========== =========== ========== ============
Dividends Declared and Paid per
Common Share $.25 $.27 $.73 $.77
Average Number of Shares Outstanding 101.7 104.1 101.7 104.1
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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
------------------------------
1996 1997
---- ----
Net Income $235.4 $284.7
Depreciation and Amortization 203.8 254.0
Working Capital Change and Other (3.5) (92.1)
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Net Cash Flows from Operating Activities 435.7 446.6
------ ------
Purchases of Property, Plant and Equipment (267.0) (266.6)
Purchases of Assets to be Leased (296.9) (331.3)
Payments Received on Leases and Loans 212.9 308.5
Acquisitions (51.5) (475.8)
Divestitures 10.9 362.0
Other 5.8 (80.2)
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Net Cash Flows-Investing Activities (385.8) (483.4)
------ ------
Net Change in Short-Term Debt 41.8 (216.5)
Proceeds from Long-Term Debt 347.5 798.5
Payments on Long-Term Debt (319.5) (355.7)
Dividends Paid (74.2) (80.2)
Other 4.4 18.4
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Net Cash Flows-Financing Activities -- 164.5
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Net Change in Cash and Cash Equivalents 49.9 127.7
Cash and Cash Equivalents-beginning of year 66.6 227.8
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Cash and Cash Equivalents-end of period $116.5 $355.5
====== ======
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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 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
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Three Months Ended Nine Months Ended
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September 30 September 30
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1996 1997 1996 1997
---- ---- ---- ----
Revenue $ 56.1 $ 58.1 $ 174.3 $ 200.4
Net Income 6.7 6.6 22.6 24.6
December 31, 1996 September 30, 1997
----------------- ------------------
Total Assets $ 1,669.2 $ 1,719.8
Total Liabilities 1,545.3 1,584.4
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Shareholder's Equity $ 123.9 $ 135.4
=========== ==========
3. In February 1997, Dana acquired the assets of Clark-Hurth Components, a
worldwide manufacturer of off-highway vehicle and equipment components,
and the 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 the first quarter of 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). The sale
resulted in an after-tax gain of $45 (44 cents per share). In addition,
the Company initiated a rationalization plan at its Perfect Circle
Europe operations resulting in a charge of $36 (35 cents per share).
The plan includes the sale of its Liancourt piston manufacturing
facility, the reorganization of its Dreux piston ring machining
operation, the sale of its Distribution France operation, and the
downsizing and relocation of its division office.
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5. In July 1997, Dana announced, subject to regulatory approval,
agreements to purchase the global axle and brake business of Eaton
Corporation for $287 and to sell its worldwide vehicular clutch
business to Eaton for $180.
6. Dana announced the closing of its Berwick, Pa. facility and the sale of
its operating assets. The estimated after-tax cost of closing, $5 (five
cents per share), was charged to earnings in the second quarter of
1997.
7. In the third quarter of 1997, Dana recognized an after-tax gain of $70
(67 cents per share) on the sale of its vehicular clutch business to
Eaton; regulatory review of the axle and brake transaction is currently
ongoing. In addition, Dana recorded non-recurring charges totaling $51
(50 cents per share). This amount included $22 (21 cents per share)
resulting from the rationalization of Dana's Parish facilities in
Reading, Pa. and $20 (20 cents per share) related to deferred tax
benefits not expected to be utilized due to the ongoing rationalization
of Dana's Perfect Circle Europe operations in France.
8. In October 1997, the Company completed the sale of its flat rubber
products operations at Paragould, Ark. to a unit of Coltec Industries
Inc. The $9 after-tax gain resulting from the sale will be recorded in
the fourth quarter. In November 1997, the Company completed the sale
of its 49% interest in its Korean joint venture, Korea Spicer
Corporation, to Sung Shin Cement Industrial Co., Ltd., its joint
venture partner. The transaction resulted in an after-tax gain of $18,
which will be recorded in the fourth quarter.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
During 1997, Dana has taken a number of major steps to focus more
sharply on its core businesses. These moves, which include acquisitions,
divestitures and the restructuring of certain operations, are aimed at better
serving Dana's global customers through its six strategic business units -
automotive components, engine components, heavy truck components, off-highway
components, industrial components, and leasing services.
In February, Dana acquired the assets of Clark-Hurth Components (CH), a
worldwide manufacturer of off-highway vehicle and equipment components, and the
worldwide piston ring and cylinder liner operations of SPX Corporation (SPD). In
March, Dana completed the sale of its automotive warehouse distribution business
in the United Kingdom, the Netherlands and Portugal to Partco Group plc. In
July, Dana announced, subject to regulatory approval, agreements to purchase the
global axle and brake business of Eaton Corporation and to sell its worldwide
vehicular clutch business to Eaton. The sale of the clutch business was
completed at the end of August; regulatory review of the axle and brake
transaction is currently ongoing. And finally, in September and October, the
Company completed the sale of its transmission business to a unit of Dana's
Mexican affiliate, Spicer S.A. de C.V., and its flat rubber business to a unit
of Coltec Industries Inc., respectively.
In addition to these acquisition and divestiture activities, Dana has
initiated various restructuring plans. In the first quarter, the Company
implemented a rationalization plan at its Perfect Circle Europe operations. The
plan includes the sale of a piston manufacturing facility, the reorganization of
a separate piston ring machining operation, the sale of its Distribution France
operation, and the downsizing and relocation of its division office. Late in the
second quarter, Dana announced the closing of its Berwick, Pa. spring
manufacturing facility. Plans announced in the third quarter included the
restructuring of the Company's structural components facilities in Reading, Pa.,
its Light Axle Group in England, and a Wix Filtration plant in Canada.
These activities are a part of Dana's ongoing strategy to realign and
strengthen its worldwide business portfolio. Further strategic moves are
anticipated in the coming months, as the Company continues to elevate the
performance of its assets.
Liquidity and Capital Resources
- -------------------------------
(in Millions)
- ------------------------------------------
CASH FLOWS FROM OPERATIONS
FOR NINE MONTHS
ENDED SEPTEMBER 30 Net cash provided by operating
- ------------------------------------------ activities increased $11 for the nine
months ended September 30, 1997 when
1995 $204 compared to the same nine months in 1996.
- -------------------------- --------------- This increase reflects the fact that
1996 436 higher amounts of net income and
- -------------------------- --------------- depreciation and amortization expenses
1997 447 were generally offset by increased
- -------------------------- --------------- working capital requirements.
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ITEM 2. Liquidity and Capital Resources (continued)
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(in Millions)
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CAPITAL EXPENDITURES
- ---------------------------------------------------------
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
- ----------------- ------------------- -------------------
1995 $230 $410
- ----------------- ------------------- -------------------
1996 267 357
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1997 267 385*
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*Projected
Net cash of $483 used in investing activities includes the acquisitions
of CH and SPD as well as the divestitures of the European warehouse distribution
operations, the vehicular clutch operations and the transmission business.
Capital expenditures were level with the 1996 nine-month period with higher
spending projected in the fourth quarter of 1997 versus last year. The Company
currently anticipates an increase of approximately $28 in capital spending for
1997. DCC's net purchases of leased assets (purchases less principal payments on
leases and loans) were $23 in 1997, a decrease of $61 from 1996.
Financing activities provided net cash of $165. Total consolidated debt
increased $250 since December 31, 1996, primarily to support the acquisitions of
CH and SPD. Cash received from third-quarter divestitures has helped reduce
total debt $81 since the end of the second quarter. DCC's debt increased $4 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 third quarter 1997, while DCC's lines were $876.
Dana's strong cash flows from operations, together with worldwide credit
facilities, are expected to provide adequate liquidity to meet the Company's
debt service obligations, projected capital expenditures and working capital
requirements for the balance of 1997.
Dana's management and legal counsel have reviewed the legal proceedings
to which the Company and its subsidiaries were parties as of September 30, 1997
(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 cash flows related to such
liabilities are 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 September 30, 1997, the Company's accruals were $54 for product
liability costs (products) and $54, including $15 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 September 30, 1997,
unchanged since December 31, 1996. Probable recoveries of $31 for products and
$10 for environmental from insurance or third parties have been recorded as
assets at September 30, 1997, compared to $39 for products and $10 for
environmental at December 31, 1996.
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ITEM 2. (Continued)
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Results of Operations (Third Quarter 1997 vs Third Quarter 1996)
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(in Millions)
- ---------------------------------------------------
THIRD QUARTER SALES
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%
1996 1997 CHANGE
- ----------------- ---------- ---------- -----------
U.S. $ 1,283 $1,411 10
- ----------------- ---------- ---------- -----------
International 533 550 3
- ----------------- ---------- ---------- -----------
Total $1,816 $1,961 8
- ----------------- ---------- ---------- -----------
Worldwide sales of $1,961 in the third quarter surpassed the record
third quarter of 1996 by $145 or 8%. Sales of companies acquired, net of
divestitures, accounted for $49 of the increase. On a comparable basis, sales
increased $96 or 5% during the quarter. Dana's U.S. sales increased 10% over
1996. U.S. sales on a comparable basis, excluding acquisitions and divestitures,
exceeded the 1996 third quarter by $72 or 6%. Sales from Dana's international
operations increased 3% over 1996, with the impact of divestitures slightly
exceeding that of acquisitions.
- ---------------------------------------------------------
THIRD QUARTER SALES BY REGION
- ---------------------------------------------------------
%
REGION 1996 1997 CHANGE
- --------------------- ---------- ---------- -------------
North America $1,360 $1,493 10
- --------------------- ---------- ---------- -------------
Europe 255 241 -5
- --------------------- ---------- ---------- -------------
South America 153 180 18
- --------------------- ---------- ---------- -------------
Asia Pacific 48 47 -2
- --------------------- ---------- ---------- -------------
Sales in North America increased 10% in the third quarter, with
off-highway and heavy axle experiencing the largest increases; nearly half of
the incremental sales resulted from acquisitions. The 5% decline in Europe is
primarily the net effect of acquisitions and divestitures. Improvement in
passenger car distribution sales helped the South American operations register
an 18% increase over 1996 sales.
U.S. sales of light truck and sport utility vehicle components
increased 5% over a record 1996 third quarter. U.S. sales of heavy truck OE
components rose 12% over last year. As a result of acquisitions, worldwide sales
to manufacturers of off-highway vehicles increased 61% and passenger car OE
sales grew 14%.
Dana's third-quarter international distribution business declined 19%
due to the sale of the European distribution business in the first quarter,
while U.S. distribution sales increased 2%. Excluding the effect of the
acquisitions and divestitures, international distribution sales increased 14%,
U.S. sales decreased 4% and worldwide sales increased 1%.
Revenue from lease financing and other income increased $127 over the
third quarter of 1996. Contributing to this increase was a $119 gain from the
divestiture of the vehicular clutch operations.
Dana's reported gross margin for the third quarter was 12.5%, compared
to 15.4% in 1996. Charges to cost of sales during the third quarter of 1997
consisted of $39 resulting from restructuring at Dana's Parish facilities in
Reading, Pa.; $8 related to the restructuring of the Light Axle Europe Group in
Birmingham, England; and $2 related to closing the Spicer Transmission Division
office in Toledo, Ohio, and consolidating the Perfect Circle Sealed Power
Division facilities in the United States. Excluding these charges, Dana's gross
margin was 15.0%. If the effect of the acquisitions and divestitures were also
excluded, Dana's gross margin would have been 15.7%.
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ITEM 2. (Continued)
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Results of Operations (Third Quarter 1997 vs Third Quarter 1996)
- ----------------------------------------------------------------
(in Millions)
Selling, general and administrative (SG&A) expenses increased $5 in
1997. The net impact of acquisitions and divestitures and slightly higher
expenses at DCC contributed to the increase. SG&A expenses also include $2 of
restructuring charges related to rationalizing the Wix Filtration Products
Division plant in Pickering, Ontario; closing the Spicer Transmission Division
office in Toledo, Ohio; and consolidating the Perfect Circle Sealed Power
Division facilities in the United States. SG&A expenses as a percentage of sales
improved from 9.9% in 1996 to 9.4% in 1997.
Dana's operating margin for the third quarter of 1997 was 3.1% compared
to 5.5% in 1996. Excluding the non-recurring charges of $51 associated with the
restructuring and rationalization programs, Dana's operating margin was 5.7%.
Operating margin was not affected by the net impact of acquisitions and
divestitures.
Interest expense was $5 higher than last year due to higher average
debt levels related to acquisitions.
Dana's third quarter 1997 effective tax rate was 50% compared to 34%
for 1996's third quarter. A charge of $20 was recorded in the 1997 third quarter
related to deferred tax benefits that are not expected to be utilized due to the
ongoing rationalization of Dana's Perfect Circle Europe operations in France.
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 was higher in 1997 than 1996 by $8,
primarily due to higher earnings of the Company's affiliates in Mexico and South
America.
The Company reported record third quarter profit of $98, which included
a $70 after-tax gain on the sale of the vehicular clutch business, the
restructuring charges of $51 ($31 after tax) and the deferred tax adjustment of
$20 discussed above.
Results of Operations (Nine Months 1997 vs Nine Months 1996)
- -------------------------------------------------------------
- ---------------------------------------------------
SALES FOR NINE MONTHS
ENDED SEPTEMBER 30
- ---------------------------------------------------
%
1996 1997 CHANGE
- ----------------- ---------- ---------- -----------
U.S. $4,173 $4,477 7
- ----------------- ---------- ---------- -----------
International 1,636 1,740 6
- ----------------- ---------- ---------- -----------
Total $5,809 $6,217 7
- ----------------- ---------- ---------- -----------
Dana's worldwide sales of $6,217 for the first nine months of 1997 were
7% higher than the same period last year. Excluding the effect of acquisitions
and divestitures, sales increased $177 or 3%. Global sales of light truck
components (for sport utility vehicles, pick-up trucks and vans) to original
equipment manufacturers were 6% above Dana's strong performance during the same
period in 1996.
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ITEM 2. (Continued)
- -------
Results of Operations (Nine Months 1997 vs Nine Months 1996)
- ------------------------------------------------------------
(in Millions)
U.S. sales increased 7% over 1996 with acquisitions, net of
divestitures, adding $191 or 4%. Excluding the effect of acquisitions and
divestitures, U.S. sales increased $113 or 3%. U.S. sales of heavy truck OE
components, which started to rebound in the second quarter, were up 1%. Dana's
international operations increased sales 6% over 1996, with acquisitions, net of
divestitures, adding $40 or 2%. Excluding these items, sales were $64 or 4%
above last year's levels. Fueled by Dana's first-quarter acquisitions, sales to
global manufacturers of off-highway vehicles were up 44%, with increases coming
from both agricultural and construction machinery customers. Additionally,
worldwide sales to passenger car makers were up 18% over the comparable period
last year. Excluding the effect of acquisitions, worldwide sales to global
manufacturers of off-highway vehicles decreased 3% and worldwide sales to
passenger car makers were even with last year.
Dana's worldwide distribution business decreased 2% over the 1996
period, primarily due to the disposition of the European warehouse distribution
business. Automotive distribution sales were down 14% due to the disposition.
Truck parts distribution was up 9% and off-highway/industrial distribution
increased 10%.
- -----------------------------------------------------
SALES FOR NINE MONTHS
ENDED SEPTEMBER 30 BY REGION
- -----------------------------------------------------
%
REGION 1996 1997 CHANGE
- ------------------- ---------- ----------- ----------
North America $4,443 $4,740 7
- ------------------- ---------- ----------- ----------
Europe 810 851 5
- ------------------- ---------- ----------- ----------
South America 416 483 16
- ------------------- ---------- ----------- ----------
Asia Pacific 140 143 2
- ------------------- ---------- ----------- ----------
All regions reported increased sales over the comparable period in
1996. European and South American sales continued to grow in the nine-month
period as the Company concentrated on international growth of its core
businesses, particularly through acquisitions. North American sales were also
higher, in part from the ongoing demand for light truck and sport utility
vehicles.
Revenue from lease financing and other income increased $226 in 1997.
Contributing to the increase were $76 of other income relating to the
divestiture of the European warehouse distribution operations, a $119 gain from
the sale of the vehicular clutch business, $13 from the sale of an investment in
a leveraged lease by DCC and increased lease-related revenue at DCC.
Dana's reported gross margin for the first nine months of 1997 was
13.8%, compared to 15.4% in 1996. Charges to cost of sales include $26 related
to the rationalization plan at the Company's Perfect Circle Europe operations in
France, $9 related to the estimated cost of closing the Berwick, Pa. plant, and
the $49 of third-quarter restructuring charges previously identified. Excluding
these charges, Dana's gross margin was 15.1%.
SG&A expenses increased $14 or 2% in 1997. This increase resulted from
the additional SG&A expenses related to acquisitions and the $2 of third-quarter
restructuring charges being substantially offset by the effect of the European
divestiture.
Dana's operating margin for the nine-month period was 4.7% in 1997
versus 5.9% in 1996. Excluding the charges of $86 associated with the
restructuring and rationalization programs, Dana's operating margin would have
been 6.0%. Operating margin was not affected by the net impact of acquisitions
and divestitures.
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ITEM 2. (Continued)
- -------
Results of Operations (Nine Months 1997 vs Nine Months 1996)
- ------------------------------------------------------------
(in Millions)
Interest expense increased $28 over the nine-month period in 1996
primarily due to higher average debt levels associated with acquisitions.
Dana's effective tax rate for the nine months of 1997 was 47% compared
to 36% for 1996's first nine months. The effective rate is higher due to the
provision of a valuation reserve for tax benefits previously recorded in France
and the valuation reserve for tax benefits associated with the expenses recorded
for the rationalization plan at its Perfect Circle Europe operations.
Minority interest in net income of subsidiaries decreased $5, primarily
due to the lower earnings recorded by Dana's majority-owned subsidiary in
Brazil.
Equity in earnings of affiliates was higher in 1997 by $13, primarily
due to higher earnings of the Company's affiliates in Mexico, which were
partially offset by lower earnings of affiliates in Korea and South America.
The Company reported record profit of $285, an increase of $49 or 21%
from 1996. The earnings for 1997 included a $45 after-tax gain on the sale of
the European warehouse operations and a $70 after-tax gain on the sale of the
vehicular clutch business. Also included were charges of $36 for the
rationalization plan of the Perfect Circle Europe operations, $5 for the
Berwick, Pa. plant closing, and the third-quarter restructuring charges of $31
and deferred tax adjustment of $20 previously identified.
Dana's sales to producers of light truck and sport utility vehicles
through the first nine months of 1997 are slightly ahead of last year's record
performance. The remainder of 1997 is expected to continue with volumes similar
to the fourth quarter of 1996. Dana's year-to-date sales to the medium and heavy
truck markets are up slightly over 1996. Due to the sale of the vehicular clutch
operations and the transmission business, sales to these markets for all of 1997
are expected to be at or slightly below last year's levels. Off-highway sales
are expected to continue well above last year's levels due to the acquisition of
Clark-Hurth in the first quarter of 1997.
Restructuring and Rationalization Expenses
- ------------------------------------------
The Company's management evaluates its operations on an ongoing basis
to identify non-strategic and under-performing assets. Pursuant to these
evaluations, management may develop restructuring and rationalization plans
which result in abandonment, consolidation or relocation of operations. Upon
implementation of these strategies, the estimated costs of implementation,
including employee benefits, losses on disposal of assets and other expenses
incidental to the restructuring activities, are charged to expense.
Restructuring charges of $86 recorded in 1997 remain an accrued liability at
September 30, 1997. Of this amount, $69 is anticipated to be settled in cash ($1
in 1997, $36 in 1998, and $32 thereafter). These expenditures generally
represent employee separation costs for the approximately 1,600 workers affected
by these activities. The balance of the accrual is non-cash and will be utilized
to write down the affected assets. Dana's liquidity and cash flows will not be
materially impacted by these actions. It is anticipated that Dana's operations
over the long term will benefit from these realignment strategies.
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Subsequent Events
- -----------------
In October 1997, the Company completed the sale of its flat rubber
products operations at Paragould, Ark. to a unit of Coltec Industries Inc. The
$9 after-tax gain resulting from the sale will be recorded in the fourth
quarter. In November 1997, the Company completed the sale of its 49% interest
in its Korean joint venture, Korea Spicer Corporation, to Sung Shin
Cement Industrial Co., Ltd., its joint venture partner. The transaction
resulted in an after-tax gain of $18, which will be recorded in the fourth
quarter.
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PART II. OTHER INFORMATION
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 a company's business and are required to be reported in a
company's annual and/or quarterly reports. The Company is not currently a party
to any such proceedings.
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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, 1997, except as previously reported.
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17
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 14, 1997 /s/ John S. Simpson
----------------- ------------------------------
John S. Simpson
Chief Financial Officer
Duly Authorized Officer and
Principal Financial Officer.
-17-
5
1,000
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
355,500
0
1,337,100
0
922,800
0
3,843,900
1,869,800
7,062,400
0
2,130,200
0
0
105,300
1,549,700
7,062,400
6,216,800
6,603,500
5,361,800
5,361,800
0
0
144,200
532,300
251,900
0
0
0
0
284,700
2.73
0
