<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: November 9, 1998
--------------------------------
(Date of earliest event reported)
Dana Corporation
----------------
(Exact name of registrant as specified in its charter)
Virginia
--------
(State or other jurisdiction of incorporation)
1-1063 34-4361040
- ------------------------ ------------------------------------
(Commission File Number) (IRS Employer Identification Number)
4500 Dorr Street, Toledo, Ohio 43615
----------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 535-4500
--------------
<PAGE> 2
Item 5. Other Events
------------
On July 9, 1998, Dana Corporation (Dana) merged with Echlin Inc.
(Echlin) in a stock-for-stock transaction accounted for as a pooling of
interests. All required financial statements and pro forma financial information
relating to the merger have already been filed. This Report on Form 8-K is made
voluntarily to file audited financial statements for Dana which are updated to
reflect the merger, so that such information may be incorporated by reference
into other reports or registration statements filed with the Securities and
Exchange Commission.
Item 7. Financial Statements and Exhibits
---------------------------------
Financial Statements:
Report of Independent Accountants
Consolidated Statement of Income for the three years ended
December 31, 1997
Consolidated Balance Sheet at December 31, 1996 and 1997
Consolidated Statement of Cash Flows for the three years ended
December 31, 1997
Consolidated Statement of Shareholders' Equity for the three
years ended December 31, 1997
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Report of Independent Accountants on
Financial Statement Schedule
For the three years ended December 31, 1997:
Schedule II - Valuation and Qualifying Accounts and
Reserves
Exhibits
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule - December 31, 1995
27.2 Financial Data Schedule - December 31, 1996
27.3 Financial Data Schedule - December 31, 1997
2
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Dana Corporation
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of Dana
Corporation and its subsidiaries at December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Toledo, Ohio
January 21, 1998,
except for the business combination
with Echlin Inc. which is as of November 6, 1998
3
<PAGE> 4
STATEMENT OF INCOME
IN MILLIONS EXCEPT PER SHARE AMOUNTS DANA CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 10,471.7 $ 10,978.8 $ 11,911.0
Revenue from lease financing and other income 193.6 202.7 490.9
Foreign currency adjustments 6.8 .9 .5
---------- ---------- ----------
10,672.1 11,182.4 12,402.4
---------- ---------- ----------
Costs and expenses
Cost of sales 8,682.5 9,158.1 10,067.0
Selling, general and administrative expenses 1,053.0 1,112.0 1,152.2
Restructuring and rationalization charges 327.6
Interest expense 190.8 203.5 251.4
---------- ---------- ----------
9,926.3 10,473.6 11,798.2
---------- ---------- ----------
Income before income taxes 745.8 708.8 604.2
Estimated taxes on income (259.1) (238.5) (293.8)
---------- ---------- ----------
Income before minority interest and equity
in earnings (losses) of affiliates 486.7 470.3 310.4
Minority interest (40.4) (32.8) (22.4)
Equity in earnings (losses) of affiliates (3.5) 13.4 32.1
---------- ---------- ----------
NET INCOME $ 442.8 $ 450.9 $ 320.1
========== ========== ==========
NET INCOME PER COMMON SHARE
Basic income per share $ 2.81 $ 2.83 $ 1.97
========== ========== ==========
Diluted income per share $ 2.80 $ 2.81 $ 1.94
========== ========== ==========
Cash dividends declared and paid per
common share $ .90 $ .98 $ 1.04
========== ========== ==========
Average shares outstanding 157.3 159.5 162.7
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
BALANCE SHEET
IN MILLIONS EXCEPT PAR VALUE DANA CORPORATION
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 271.5 $ 422.7
Accounts receivable
Trade, less allowance for doubtful accounts
of $32.0 - 1996 and $33.9 - 1997 1,420.6 1,439.4
Other 44.0 132.2
Inventories 1,642.0 1,575.3
Lease financing 1,167.3 1,330.1
Investments and other assets 1,404.0 1,672.4
Deferred income tax benefits 57.0 139.5
Property, plant and equipment, net 2,516.0 2,776.7
---------- ----------
Total assets $ 8,522.4 $ 9,488.3
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $ 1,301.1 $ 1,255.6
Accounts payable 657.2 759.7
Other liabilities 1,023.7 1,407.1
Deferred employee benefits 1,048.1 1,082.7
Long-term debt 1,886.7 2,227.2
---------- ----------
Total liabilities 5,916.8 6,732.3
---------- ----------
Minority interest in consolidated subsidiaries 170.9 153.6
---------- ----------
Shareholders' equity
Common stock, $1 par value, shares authorized, 240.0;
shares issued, 161.0 - 1996 and 163.8 - 1997 161.0 163.8
Additional paid-in capital 460.1 539.8
Retained earnings 1,949.8 2,104.4
Deferred equity adjustments (136.2) (205.6)
---------- ----------
Total shareholders' equity 2,434.7 2,602.4
---------- ----------
Total liabilities and shareholders' equity $ 8,522.4 $ 9,488.3
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
STATEMENT OF CASH FLOWS
IN MILLIONS DANA CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net cash flows from operating activities $ 510.0 $ 902.5 $ 929.1
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (513.7) (469.0) (579.1)
Purchases of assets to be leased (400.3) (426.3) (452.3)
Purchase of minority interest of Hayes-Dana Inc. (92.4)
Acquisitions (234.3) (301.9) (601.0)
Divestitures 21.7 490.5
Changes in investments and other assets 1.5 (35.8) (79.3)
Loans made to customers and partnerships (25.4) (98.5) (115.3)
Payments received on leases 201.0 209.7 250.4
Proceeds from sales of certain assets 93.4 73.1 33.6
Proceeds from sales of leased assets 48.8 20.3 26.0
Payments received on loans 16.6 20.8 155.0
Other 61.5 32.6 (5.3)
-------- -------- --------
Net cash flows - investing activities (843.3) (953.3) (876.8)
-------- -------- --------
Cash flows from financing activities:
Net change in short-term debt 203.4 (139.3) (184.9)
Issuance of long-term debt 1,105.8 1,389.2 1,483.3
Payments on long-term debt (907.4) (982.7) (1,067.9)
Sale of accounts receivable 75.0
Dividends paid (139.1) (152.9) (164.8)
Other 9.1 12.9 33.2
-------- -------- --------
Net cash flows - financing activities 271.8 202.2 98.9
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (61.5) 151.4 151.2
Cash and cash equivalents - beginning of year 181.6 120.1 271.5
-------- -------- --------
Cash and cash equivalents - end of year $ 120.1 $ 271.5 $ 422.7
======== ======== ========
Reconciliation of net income to net
cash flows from operating activities:
Net income $ 442.8 $ 450.9 $ 320.1
Depreciation and amortization 327.4 376.6 450.3
Unremitted earnings of affiliates 4.3 (13.3) (19.0)
Deferred income taxes 34.5 106.8 2.5
Minority interest 7.0 26.5 14.7
Change in accounts receivable (110.9) 1.9 (64.7)
Change in inventories (143.4) (24.9) 74.6
Change in other operating assets 3.9 39.4 9.1
Change in operating liabilities (41.8) (56.7) 274.9
Additions to lease and loan loss reserves 17.2 11.0 12.3
Gains on divestitures (7.4) (162.4)
Other (31.0) (8.3) 16.7
-------- -------- --------
Net cash flows from operating activities $ 510.0 $ 902.5 $ 929.1
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
STATEMENT OF SHAREHOLDERS' EQUITY
IN MILLIONS DANA CORPORATION
<TABLE>
<CAPTION>
ADDITIONAL DEFERRED
COMMON PAID-IN RETAINED EQUITY SHAREHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENTS EQUITY
------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 154.0 $ 393.7 $ 1,330.2 $(148.3) $ 1,729.6
Net income for the year
ended December 31, 1995 442.8 442.8
Cash dividends declared (140.1) (140.1)
Issuance of shares in connection
with acquisitions 4.5 15.7 16.5 36.7
Deferred translation adjustments (26.5) (26.5)
Deferred pension expense
adjustments 9.3 9.3
Cost of shares reacquired (1.0) (1.0)
Issuance of shares for employee
stock plans .5 11.7 12.2
------- ------- --------- ----------- ---------
Balance, December 31, 1995 159.0 420.1 1,649.4 (165.5) 2,063.0
Net income for the year
ended December 31, 1996 450.9 450.9
Cash dividends declared (154.4) (154.4)
Issuance of shares for defined
benefit pension plans 1.0 30.1 31.1
Deferred translation adjustments 13.4 13.4
Deferred pension expense
adjustments 13.5 13.5
Net unrealized investment gains 2.4 2.4
Cost of shares reacquired (.2) (5.1) (5.3)
Issuance of shares for director and
employee stock plans .7 14.0 14.7
Issuance of shares in connection
with acquisitions .5 1.0 3.9 5.4
------- ------- --------- ----------- ---------
Balance, December 31, 1996 161.0 460.1 1,949.8 (136.2) 2,434.7
Net income for the year
ended December 31, 1997 320.1 320.1
Cash dividends declared (165.2) (165.2)
Issuance of shares for defined
benefit pension plans 1.0 30.8 31.8
Deferred translation adjustments (71.4) (71.4)
Deferred pension expense
adjustments (2.3) (2.3)
Net unrealized investment gains 4.3 4.3
Cost of shares reacquired (.4) (13.1) (13.5)
Issuance of shares for
employee stock plans 1.7 44.5 46.2
Issuance of shares in connection
with acquisitions .5 17.5 (.3) 17.7
------- ------- --------- ----------- ---------
Balance, December 31, 1997 $ 163.8 $ 539.8 $ 2,104.4 $ (205.6) $ 2,602.4
======= ======= ========= =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS
IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS DANA CORPORATION
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Dana Corporation is a global leader in the engineering, manufacturing
and distribution of components and systems for worldwide vehicular and
industrial manufacturers. Dana also owns Dana Credit Corporation (DCC), a
leading provider of lease financing services in certain markets.
The preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Some of the more significant estimates include
depreciation and amortization of long lived assets, deferred tax asset and
inventory valuations, environmental and warranty reserves, postemployment and
postretirement benefits, residual values of leased assets and allowances for
doubtful accounts. Actual results could differ from those estimates.
The following summary of significant accounting policies of Dana
Corporation is presented to assist the reader in evaluating the financial
statements. Where appropriate, certain amounts in 1995 and 1996 have been
reclassified to conform with the 1997 presentation.
PRINCIPLES OF CONSOLIDATION
Dana's financial statements include all significant subsidiaries in
which Dana has the ability to exercise significant influence over operating and
financial policies. The accounts of certain international subsidiaries are
included for fiscal years ended November 30. Affiliated companies (20% to 50%
ownership) are generally recorded in the statements using the equity method of
accounting. Operations of affiliates outside North America accounted for on the
equity method of accounting are generally included for periods ended within two
months of Dana's year end. Less than 20%-owned companies are included in the
financial statements at the cost of Dana's investment. Dividends, royalties and
fees from these cost basis affiliates are recorded in Dana's financial
statements when received.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's subsidiaries and equity
affiliates outside the United States (U.S.), located in non-highly inflationary
economies, are measured using the local currency as the functional currency.
Income and expense items are translated at average monthly rates of exchange.
Gains and losses from currency transactions of these affiliates are included in
net earnings. Assets and liabilities of these affiliates are translated at the
rates of exchange at the balance sheet date. The resultant translation
adjustments are deferred as a separate component of shareholders' equity. For
affiliates operating in highly inflationary economies, non-monetary assets are
translated at historical exchange rates and monetary assets are translated at
current exchange rates. Translation adjustments are included in the
determination of income.
8
<PAGE> 9
INVENTORIES
Inventories are valued at the lower of cost or market. Except for
inventories held by the former Echlin facilities, cost is generally determined
on the last-in, first-out basis for U.S. inventories. The cost of other
inventories, including those held by international entities, is determined on
the first-in, first-out or average cost basis.
LEASE FINANCING
Lease financing consists of direct financing leases, leveraged leases
and equipment on operating leases. Income on direct financing leases is
recognized by a method which produces a constant periodic rate of return on the
outstanding investment in the lease. Income on leveraged leases is recognized by
a method which produces a constant rate of return on the outstanding net
investment in the lease, net of the related deferred tax liability, in the years
in which the net investment is positive. Initial direct costs are deferred and
amortized using the interest method over the lease period. Equipment under
operating leases is recorded at cost, net of accumulated depreciation. Income
from operating leases is recognized ratably over the term of the leases.
ALLOWANCE FOR LOSSES ON LEASE FINANCING
Provisions for losses on lease financing receivables are determined on
the basis of loss experience and assessment of prospective risk. Resulting
adjustments to the allowance for losses are made to adjust net investment in
lease financing to an estimated collectible amount. Income recognition is
generally discontinued on accounts which are contractually past due and where no
payment activity has occurred within 120 days. Accounts are charged against the
allowance for losses when determined to be uncollectible. Accounts for which
equipment repossession has commenced as the primary means of recovery are
classified within other assets at their estimated realizable value.
GOODWILL
Cost in excess of net assets of companies acquired is generally
amortized over the estimated period of expected benefit, ranging from 10 to 40
years.
9
<PAGE> 10
LOANS RECEIVABLE
Loans receivable consist primarily of loans to partnerships in which
DCC has an interest and loans secured by equipment and first mortgages on real
property. The loans to partnerships are secured by the partnerships' assets.
Income on all loans is recognized using the interest method. Interest income on
impaired loans is recognized either as cash is collected or on a cost recovery
basis as conditions warrant.
ALLOWANCE FOR LOSSES ON LOANS RECEIVABLE
Provisions for losses on loans receivable are determined on the basis
of loss experience and assessment of prospective risk. Resulting adjustments to
the allowance for losses are made to adjust loans receivable to an estimated
collectible amount. Income recognition is generally discontinued on accounts
which are contractually past due and where no payment activity has occurred
within 120 days. Accounts are charged against the allowance for losses when
determined to be uncollectible.
REVENUE RECOGNITION
The Company recognizes sales when products are shipped. Accruals for
warranty costs, sales returns and other allowances are provided at the time of
shipment based upon experience. Adjustments are made as facts and circumstances
dictate.
INCOME TAXES
Current tax liabilities and assets are recognized for the estimated
taxes payable or refundable on the tax returns for the current year. Deferred
tax liabilities or assets are recognized for the estimated future tax effects
attributable to temporary differences and carryforwards that result from events
that have been recognized differently between the financial statements and the
tax returns. The measurement of current and deferred tax liabilities and assets
is based on provisions of enacted tax laws. Deferred tax assets are reduced, if
necessary, by the amount of any tax benefits that are not expected to be
realized. Dana uses the "flow-through" method of accounting for investment tax
credits, except for investment tax credits arising from leveraged leases and
certain direct financing leases for which the deferred method is used for
financial statement purposes.
PROPERTIES AND DEPRECIATION
Property, plant and equipment are valued at historical costs.
Depreciation is recognized over the estimated useful lives of property, plant
and equipment using primarily the straight-line method for financial reporting
purposes and primarily accelerated depreciation methods for federal income tax
purposes.
10
<PAGE> 11
FINANCIAL INSTRUMENTS
The reported fair values of financial instruments are based on a
variety of factors. Where available, fair values represent quoted market prices
for identical or comparable instruments. Where quoted market prices are not
available, fair values have been estimated based on assumptions concerning the
amount and timing of estimated future cash flows and assumed discount rates
reflecting varying degrees of credit risk. Accordingly, the fair values may not
represent actual values of the financial instruments that could have been
realized as of December 31, 1996 and 1997, or that will be realized in the
future.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into various types of interest rate and foreign
currency agreements but does not trade in derivative financial instruments.
Gains and losses relating to qualifying hedges of firm commitments or
anticipated transactions are deferred and recognized as adjustments of carrying
amounts when the hedged transaction occurs. Interest rate swaps and caps are
primarily used to manage exposure to fluctuations in interest rates.
Differentials paid or received on interest rate agreements are accrued and
recognized as adjustments to interest expense. Premiums paid on interest rate
caps are amortized to interest expense over the terms of the agreements and
unamortized premiums are included in other assets.
DCC has one interest rate-based option which is marked to market and
included in other liabilities. Changes in the fair value of this instrument are
reported in other income.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to existing
conditions caused by past operations which do not contribute to current or
future revenue generation are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable and the costs can
be reasonably estimated. Estimated costs are based upon enacted laws and
regulations, existing technology and the most probable method of remediation.
The costs determined are not discounted and exclude the effects of inflation and
other societal and economic factors. Where the cost estimates result in a range
of equally probable amounts, the lower end of the range is accrued.
PENSION PLANS
Annual net periodic pension costs under the Company's defined benefit
pension plans are determined on an actuarial basis. Dana's policy is to fund
these costs as accrued, including amortization of the initial unrecognized net
obligation over 15 years and obligations arising due to plan amendments over the
period benefited, through deposits with trustees. Benefits are determined based
upon employees' length of service, wages and a combination of length of service
and wages.
11
<PAGE> 12
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Annual net postretirement benefits liability and expense under the
Company's benefit plans are determined on an actuarial basis. Dana's current
policy is to pay these benefits as they become due. Benefits are determined
primarily based upon employees' length of service and include applicable
employee cost sharing.
POSTEMPLOYMENT BENEFITS
Annual net postemployment benefits liability and expense under the
Company's benefit plans are accrued as service is rendered for those obligations
that accumulate or vest and can be reasonably estimated. Obligations that do not
accumulate or vest are recorded when payment of the benefits is probable and the
amounts can be reasonably estimated.
NET INCOME PER COMMON SHARE
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share," is effective for periods ending after December 15, 1997.
Accordingly, basic and diluted income per share have been computed in accordance
with this statement. Prior periods have been adjusted to conform with the
provisions of this statement.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, the Company considers highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents.
MARKETABLE SECURITIES
The majority of the Company's marketable securities satisfy the
criteria for cash equivalents and are classified accordingly. The Company
classifies the remainder of its marketable securities as available for sale.
Available for sale securities, which are included in Investments and other
assets, are carried at fair value and any unrealized gains or losses, net of
income taxes, are reported as a component of deferred equity adjustments in
shareholders' equity.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages,
but does not require, companies to record compensation for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of grant over the amount an employee must pay to
acquire the stock.
12
<PAGE> 13
ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," was issued in June
1997. This statement requires the reporting of total comprehensive income, which
includes net income and components of other comprehensive income such as foreign
currency translation adjustments, unrealized investment gains and losses and
minimum pension liability adjustments, in the financial statements. SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information," also
issued in June 1997, requires expanded disclosure of segment information. Both
statements are effective for fiscal years beginning after December 15, 1997 and
will be adopted in 1998.
NOTE 2. BUSINESS COMBINATION
On July 9, 1998, Dana Corporation completed a merger with Echlin Inc.
(Echlin), collectively referred to herein as Dana or the Company, by
exchanging 59.6 million shares of its common stock for all of the common stock
of Echlin. Each share of Echlin was exchanged for .9293 of one share of Dana
common stock. In addition, outstanding Echlin stock options were converted at
the same exchange ratio into options to purchase approximately 1.8 million
shares of Dana common stock.
The merger has been accounted for as a pooling of interests and
accordingly all prior period consolidated financial statements have been
restated to include the combined results of operations, financial position and
cash flows of Echlin.
Prior to the merger Echlin's fiscal year ended on August 31. In
recording the business combination, Echlin's prior period financial statements
have been restated to a year ended December 31 to conform with Dana's year end.
The following information presents certain income statement data of the
separate companies for the three years preceding the merger:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales
Dana $ 7,597.7 $ 7,686.3 $ 8,290.8
Echlin 2,874.0 3,292.5 3,620.2
------------ ------------ ------------
$ 10,471.7 $ 10,978.8 $ 11,911.0
============ ============ ============
Net income (loss)
Dana $ 288.1 $ 306.0 $ 369.1
Echlin 154.7 144.9 (49.0)
------------ ------------ ------------
$ 442.8 $ 450.9 $ 320.1
============ ============ ============
</TABLE>
There were no material transactions between Dana and Echlin prior to
the merger. The effects of conforming Echlin's accounting policies to those of
Dana were not material.
The Company recorded merger expense of $46 in the third quarter of 1998
related to the Echlin transaction. The majority of this expense is considered a
capital expense for tax purposes, resulting in a $38 after-tax charge.
13
<PAGE> 14
NOTE 3. COMMON SHARES
In connection with employee stock plans, Dana reacquired 36,372 shares
in 1995, 171,770 in 1996 and 406,616 in 1997.
In 1996 and in 1997, Dana contributed 1,000,000 shares of common stock
to the Dana Corporation Pension Plans Trust.
The following summarizes the common stock transactions for 1995, 1996
and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year 154,048,482 159,046,494 161,010,241
Issued for acquisitions 4,501,103 475,126 493,559
Issued for director and employee
stock plans 533,281 660,391 1,713,122
Issued for defined benefit pension plans 1,000,000 1,000,000
Reacquired and retired (36,372) (171,770) (406,616)
------- -------- --------
Outstanding at end of year 159,046,494 161,010,241 163,810,306
=========== =========== ===========
Average outstanding for the year (basic) 157,298,720 159,487,978 162,743,602
----------- ----------- -----------
Plus: Incremental shares from assumed
conversion of -
Deferred compensation units 39,007 19,971 424,615
Deferred restricted stock units 6,357
Stock options 519,822 753,955 1,402,763
------- ------- ---------
Potentially dilutive shares 558,829 773,926 1,833,735
------- ------- ---------
Adjusted average shares outstanding
for the year (diluted) 157,857,549 160,261,904 164,577,337
=========== =========== ===========
</TABLE>
There are 5,000,000 common shares reserved for issuance in the event
that the Company issues debt securities with exchange, conversion or redemption
rights under its 1997 universal shelf registration.
NOTE 4. PREFERRED SHARE PURCHASE RIGHTS
Under Dana's Preferred Share Purchase Rights Plan (Rights Plan), which
is designed to deter coercive or unfair takeover tactics, one Preferred Share
Purchase Right (Right) has been issued on each share of Dana common stock
outstanding on and after July 25, 1996. Each Right entitles the holder to
purchase 1/1000th of a share of Dana Series A Junior Participating Preferred
Stock, no par value, under certain circumstances. The Rights have no voting
rights and will expire on July 15, 2006, unless exercised, redeemed or exchanged
sooner.
14
<PAGE> 15
Generally, the Rights will not be exercisable (or transferable apart
from the Dana common shares to which they are attached) unless a person or group
(Acquiring Person) becomes the beneficial owner of 15% or more of Dana's
outstanding common shares or commences a tender offer that would result in its
acquisition of a 15% position. In that event, the Rights will become exercisable
(except those owned by the Acquiring Person, which will become void), entitling
the holder of each Right to purchase, for $110 per share (subject to adjustment,
the Purchase Price), a number of Dana common shares having a market value equal
to two times the Purchase Price.
In addition, if Dana engages in certain mergers with or sells 50% or
more of its assets or earning power to an Acquiring Person (or persons acting
for or with an Acquiring Person), or engages in similar transactions, the Rights
will become exercisable (except those owned by the Acquiring Person, which will
become void), entitling the holder of each Right to purchase a number of common
shares of the acquiring or surviving company having a market value (as
determined under the Rights Plan) equal to two times the Purchase Price.
Dana's Board may redeem the Rights at a price of $.01 each at any time
before any person or group acquires 15% or more of Dana's common shares. If any
person or group becomes an Acquiring Person, but acquires less than 50% of
Dana's common shares, the Board may exchange each Right for one share of Dana
common stock.
NOTE 5. PREFERRED SHARES
Dana has authorized 5,000,000 shares of preferred stock, without par
value, including 1,000,000 shares which have been reserved for issuance under
the Rights Plan. At December 31, 1997, no shares of preferred stock had been
issued.
NOTE 6. INVENTORIES
The components of inventory are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
---- ----
<S> <C> <C>
Raw materials $ 386.2 $ 420.1
Work in process and finished goods 1,255.8 1,155.2
---------- -------
$ 1,642.0 $1,575.3
========== ========
</TABLE>
Inventories amounting to $437.2 and $467.7 at December 31, 1996 and
1997, respectively, were valued using the LIFO method. If all inventories were
valued at replacement cost, inventories would be increased by $121.4 and $125.4
at December 31, 1996 and 1997, respectively.
15
<PAGE> 16
NOTE 7. INTERNATIONAL OPERATIONS
The following is a summary of the significant financial information of
Dana's consolidated international subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Assets $ 2,665.0 $ 3,306.2 $ 3,533.6
Liabilities 1,462.5 1,888.8 1,905.0
Net sales 3,095.4 3,270.5 3,621.2
Net income 182.1 171.4 159.3
Dana's equity in:
Net assets 1,046.9 1,245.8 1,394.5
Net income 141.9 140.2 140.4
</TABLE>
Cumulative undistributed earnings of international subsidiaries for
which U.S. income taxes, exclusive of foreign tax credits, have not been
provided approximated $805.3 at December 31, 1997. Management intends to
permanently reinvest undistributed earnings of Dana's international
subsidiaries; accordingly, no U.S. income taxes have been provided on these
undistributed earnings. If the total undistributed earnings of international
subsidiaries had been remitted in 1997, a significant amount of the additional
tax provision would have been offset by foreign tax credits.
Dana's consolidated international subsidiaries are located throughout
the world with no individual subsidiary or the aggregate of all subsidiaries
within a given country accounting for more than 10% of consolidated sales or
assets. With the exception of certain subsidiaries located in Brazil, the
functional currency of the Company's international subsidiaries is the local
currency. Beginning in 1998, Brazil will report using the local currency as the
functional currency. Certain subsidiaries have transactions in currencies other
than their functional currencies and from time to time enter into forward and
option contracts to hedge the purchase of inventory and fixed assets or to sell
nonfunctional currency receipts. Currency forward and option contracts in the
aggregate are not material.
16
<PAGE> 17
Dana has equity interests in a number of affiliated companies in
Mexico, South America, Asia and other areas of the world. The following is a
summary of the significant financial information of affiliated companies
accounted for on the equity method:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current assets $343.3 $ 371.4 $355.8
Other assets 244.2 272.6 276.4
Current liabilities 463.4 349.3 243.2
Other liabilities 54.8 180.3 132.4
Shareholders' equity 69.3 114.4 256.6
Net sales 682.5 743.1 803.9
Gross profit 140.8 125.2 159.2
Net income (loss) (22.1) 21.1 56.2
Dana's equity in:
Net assets 44.8 61.1 114.4
Net income (loss) (8.4) 10.7 26.8
</TABLE>
NOTE 8. INVESTMENTS IN PARTNERSHIPS
DCC has ownership interests in several partnerships which are accounted
for under the equity method. In certain of these partnerships, DCC has ownership
interests exceeding 50%; however, they are not consolidated because DCC has no
general partner interest and only limited ability to control the partnerships'
activities. The partnerships are involved primarily in the leasing or financing
of equipment or real estate to commercial entities. DCC's share of earnings of
partnerships is included in income as earned. The investment in partnerships is
reduced as distributions are received.
Summarized financial information of the partnerships on a combined
basis is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Assets $ 932.4 $ 900.3 $1,076.0
Liabilities 757.7 797.1 964.7
Partners' capital 174.7 103.2 111.3
Revenue 116.2 78.0 106.8
Net income 9.0 7.0 8.8
DCC's investments in partnerships 44.5 25.8 75.1
DCC's earnings from investments in partnerships 4.9 2.7 3.2
</TABLE>
The investments in partnerships include $19.2 representing amounts
invested in excess of DCC's share of the partnerships' book basis in net assets.
These amounts are amortized against earnings from partnerships over the expected
investment lives of the partnerships.
17
<PAGE> 18
NOTE 9. SHORT-TERM DEBT
Short-term funds for certain U.S. and international operations are
obtained through the issuance of commercial paper, short-term notes payable to
banks and bank overdrafts.
At December 31, 1997, Dana, excluding DCC, had $315.3 of commercial
paper outstanding, $108.8 borrowed against uncommitted bank lines, $366.0 of
domestic notes and $140.6 of notes payable at its international subsidiaries.
DCC had $178.6 of commercial paper issued, $120.9 of notes payable and $25.4
borrowed against committed borrowing lines.
Dana, excluding DCC, and DCC had committed borrowing lines of $1,175.0
and $442.1, respectively, and uncommitted borrowing lines of $1,047.4 and
$479.2. The banks providing committed lines are compensated with facility or
commitment fees. Amounts paid are not considered to be material and no fees are
required for the uncommitted bank lines.
Selected details of short-term borrowings are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST
AMOUNT RATE
------ ----
<S> <C> <C>
Balance at December 31, 1996 $ 1,301.1 5.8%
Average during 1996 1,330.9 5.8
Maximum during 1996 (month end) 1,535.2 5.7
Balance at December 31, 1997 $ 1,255.6 5.5%
Average during 1997 1,236.9 5.6
Maximum during 1997 (month end) 1,501.1 5.8
</TABLE>
The Company has an agreement with a financial institution under which
it may sell, without recourse, up to $200 in undivided fractional interests in
designated pools of trade receivables. Accounts receivable at December 31, 1996
and 1997 are presented net of the $200 of trade receivables sold under this
agreement.
18
<PAGE> 19
NOTE 10. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
---- ----
<S> <C> <C>
Dana, excluding consolidated subsidiaries, indebtedness --
Unsecured notes payable, fixed rates, 5.44% - 7.39%,
due 1998 to 2002 $ 875.0 $1,120.0
Unsecured notes payable, variable rates, 6.45% - 6.54%,
due 1998 60.0 60.0
Various industrial revenue bonds and other 9.0 7.8
DCC indebtedness --
Various notes payable, unsecured, variable rates,
4.03% - 8.05%, due 1998 to 2002 381.5 525.1
Various notes payable, unsecured, fixed rates, 5.98% - 9.68%,
due 1998 to 2006 303.1 378.6
Various notes payable, non-recourse to issuer, fixed rates
averaging 6.80% - 12.05%, due 1998 to 2010 23.7 58.2
Indebtedness of other consolidated subsidiaries 234.4 77.5
----- ----
$ 1,886.7 $2,227.2
========= ========
</TABLE>
Interest paid on short-term and long-term debt was $186.8, $193.6 and
$236.2 during 1995, 1996 and 1997, respectively.
The aggregate amounts of maturities of all long-term debt for each of
the five years succeeding December 31, 1997 are as follows: 1998, $437.4; 1999,
$396.4; 2000, $472.8; 2001, $417.7 and 2002, $299.5.
Under a universal shelf registration filed in December 1997, the
Company was authorized to issue debt or equity securities, or a combination
thereof, in an aggregate amount not to exceed $600. In March 1998, the Company
issued $200 of 7.0% unsecured notes due March 15, 2028 and $150 of 6.5%
unsecured notes due March 15, 2008.
19
<PAGE> 20
NOTE 11. INTEREST RATE AGREEMENTS
Dana and DCC enter into interest rate agreements to manage interest
rate risk, thereby reducing exposure to future interest rate movements. Under
interest rate swap agreements, Dana agrees with other parties to exchange, at
specific intervals, the difference between fixed rate and floating rate interest
amounts calculated by reference to an agreed notional amount. At December 31,
1997, Dana was committed to pay an average fixed rate of 6.6% and receive a
variable rate of 6.4% on notional amounts of $60. These interest rate swaps
expire in 1998.
At December 31, 1997, DCC was committed to pay an average variable rate
of 5.83% and receive a fixed rate of 5.14% on notional amounts of $15 and to
receive an average variable rate of 6.2% and pay an average fixed rate of 7.1%
on notional amounts of $420. DCC's notional amounts of interest rate swaps
expire as follows: 1998, $81.5; 1999, $98.7; 2000, $156.8; 2001, $46.5 and 2002,
$51.5.
To reduce its interest rate obligations under an existing swap
agreement having a notional amount of $70.0, DCC granted the counterparty an
option, expiring in 2000, to extend the original maturity to 2007 at a fixed
rate to DCC of 9%. This option, which had been marked to market, was terminated
on June 30, 1998 by payment of the recorded liability of $11.0 to the
counterparty.
NOTE 12. STOCK OPTION PLANS
The Company's 1992 and 1997 Stock Option Plans provide for the granting
of options to designated employees at prices no less than 100% of the market
value at the date of grant. The options are exercisable for a period not to
exceed ten years from date of grant. The plans provide for the granting of stock
appreciation rights separately or in conjunction with all or any part of an
option, either at the time of grant or at any subsequent time during the term of
the option.
20
<PAGE> 21
The following summarizes the stock option transactions for the years
ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at
December 31, 1994 5,970,561 $23.00
Granted - 1995 1,205,784 32.67
Exercised - 1995 (445,807) 19.11
Cancelled - 1995 (34,994) 22.11
---------
Outstanding at
December 31, 1995 6,695,544 $25.01
Granted - 1996 1,621,079 28.82
Exercised - 1996 (559,211) 19.87
Cancelled - 1996 (33,266) 29.68
----------
Outstanding at
December 31, 1996 7,724,146 $26.15
Granted - 1997 2,258,199 37.96
Exercised - 1997 (1,627,188) 22.78
Cancelled - 1997 (127,549) 29.76
----------
Outstanding at
December 31, 1997 8,227,608 $30.01
==========
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
-------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$11.03 - $19.64 750,891 2.6 $15.34 750,891 $15.34
20.16 - 29.06 3,465,210 6.6 26.47 2,269,716 25.50
31.06 - 40.08 4,011,507 8.6 35.81 1,331,404 33.73
----------- -----------
8,227,608 4,352,011
=========== ===========
</TABLE>
At December 31, 1997, 3,891,287 shares were available for future
grants. The total shares available for future grants include 350,000 shares
which may, at the discretion of a committee of the Board, be issued for stock
distributions under the Company's Additional Compensation Plan (ACP).
21
<PAGE> 22
No expense has been charged to income relating to stock options. If the
fair value method of accounting for stock options prescribed by SFAS No. 123 had
been used, the expense relating to the stock options would have been $1.6 in
1995, $3.3 in 1996 and $5.6 in 1997. Pro forma net income and earnings per share
would have been as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net Income $441.2 $447.6 $314.5
Basic EPS 2.80 2.81 1.93
Diluted EPS 2.79 2.79 1.91
</TABLE>
The above pro forma effect on net income is not representative of the
pro forma effect on net income that will be disclosed in future years because it
does not take into consideration pro forma compensation expense relating to
grants made prior to 1995.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes model with the following assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 5.73 - 6% 6.13 - 6.5% 6.1 - 6.2%
Dividend yield 2.8 - 3% 2.5 - 3.0% 2.6%
Expected life 5.4 - 6.2 years 5.4 - 5.5 years 5.3 years
Stock price volatility 24.3 - 29.3% 20.5 - 27.3% 19.6 - 21.3%
</TABLE>
The Company also has a Directors' Stock Option Plan (Plan) for
non-employee directors. The Plan provides for the automatic granting of options
at prices equal to the market value at the date of grant. The options are
exercisable after one year for a period not to exceed ten years from date of
grant. In 1995, options were granted to purchase 24,000 shares at $24.81 per
share. No options were exercised under this plan during 1995. During 1996,
options were granted to purchase 21,000 shares at $32.25 per share, options to
purchase 6,000 shares were exercised at $26.56 per share and 3,000 options were
forfeited. During 1997, options were granted to purchase 24,000 shares at $31.81
per share. No options were exercised under this Plan during 1997. At December
31, 1997, there were 99,000 options outstanding at exercise prices ranging from
$24.25 to $32.25 per share, options for 75,000 shares were exercisable and there
were 22,000 shares available for future grants.
The directors of Echlin participated in the 1996 Non-Executive Director
Stock Option Plan under which options for 232,325 shares were authorized for
issuance to non-employee directors. Options were granted at market value at the
date of grant, were exercisable after one year and expire ten years from date of
grant, except in the event of the retirement or death of the director. During
1996, options to purchase 73,554 shares were granted at a weighted-average price
of $33.49 per share. Options for 2,974 shares were cancelled in 1996. During
1997, options were granted to purchase 25,091 shares at $37.93 per share; no
options were exercised or cancelled. At December 31, 1997, there were 95,671
options outstanding at exercise prices ranging from $33.49 to $37.93 per share;
70,580 of these options were exercisable.
22
<PAGE> 23
NOTE 13. STOCK PURCHASE PLAN
The majority of full-time U.S. and certain non-U.S. employees are
eligible to participate in Dana's Amended Employees' Stock Purchase Plan (SPP).
The SPP provides that participants may authorize Dana to withhold up to 15% of
their earnings and deposit such amounts with an independent custodian. The
custodian, as nominee for the participants, causes Dana common stock to be
purchased at prevailing market prices. The shares purchased are allocated to the
participants' accounts and upon request are distributed to the participants.
Under the SPP, Dana contributes on behalf of each participant up to 50%
of the participant's contributions. The Company's contributions will accumulate
over a five-year period, provided that the shares are left in the SPP. If any
shares are withdrawn by a participant before the end of five years, the amount
of the Company match toward those shares will depend on the period of time that
the shares have been in the SPP. The custodian has caused to be purchased
1,025,354 shares in 1995, 1,069,720 shares in 1996 and 947,950 shares in 1997 of
Dana's common stock on behalf of the employees and the Company's charge to
expense amounted to $5.2 in 1995, $6.3 in 1996 and $7.4 in 1997.
NOTE 14. ADDITIONAL COMPENSATION PLANS
Dana has numerous additional compensation plans, including gain sharing
and group incentive plans, which provide for payments computed under formulas
which recognize increased productivity and improved performance. The total
amount earned by Dana employees from all such plans amounted to $127.6, $110.6
and $138.7 in 1995, 1996 and 1997, respectively.
Under the ACP, in which certain officers and other key employees
participate, a percentage of participants' compensation is accrued for
additional compensation if certain profit levels are attained. Awards under the
ACP are paid in cash immediately or, at the discretion of the Board's
Compensation Committee, are deferred. Deferred awards may be paid in cash, stock
or a combination of both. Dana awarded (based on prior period performance) $10.6
in 1995, $14.2 in 1996 and $11.3 in 1997; in addition, 16,891, 16,438 and 7,074
shares of Dana's common stock were issued and amounts equivalent to dividends
and interest of $.6, $.7 and $.9 were credited to deferred awards in 1995, 1996
and 1997, respectively. Total charges to expense relating to the ACP amounted to
$16.1 in 1995, $13.2 in 1996 and $20.4 in 1997.
The Company also has the 1989 Restricted Stock Plan (RSP) whereby
certain key employees are granted restricted shares of common stock subject to
forfeiture until the restrictions lapse or terminate. With certain exceptions,
the employee must remain with the Company for a period of years after the date
of grant to receive the full number of shares granted. Shares granted in 1995,
1996 and 1997 were 24,000, 25,000 and 47,245, respectively. In 1997, the RSP
plan was amended to allow the participants to convert restricted stock into
restricted stock units under certain conditions. During 1997, 27,491 restricted
shares were converted to restricted units. The restricted units are payable in
unrestricted stock upon retirement or termination of employment. Total charges
to expense for the RSP amounted to $.6, $.8 and $.9 in 1995, 1996 and 1997,
respectively. At December 31, 1997, 564,948 shares were authorized for future
issuance under the RSP.
23
<PAGE> 24
NOTE 15. PENSIONS
Dana provides retirement benefits for substantially all of its
employees under several defined benefit and defined contribution pension plans.
Pension expense approximated $72.5 in 1995, $84.8 in 1996 and $81.1 in 1997.
In 1996 and in 1997, in addition to cash contributions, 1,000,000
shares of Dana common stock, with a market value of $31.1 in 1996 and $31.8 in
1997, were contributed to the Dana Corporation Pension Plans Trust.
Net periodic pension cost for defined benefit plans is computed as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost $ 47.1 $ 60.7 $ 62.5
Interest cost 139.4 144.4 149.6
Actual return on plan assets (426.1) (212.6) (422.5)
Amortization of unrecognized prior service cost 9.9 17.1 15.9
Amortization of initial unrecognized net obligation 3.4 2.6 2.6
Unrecognized gain 287.1 60.3 254.8
----- ---- -----
Net periodic pension cost $ 60.8 $ 72.5 $ 62.9
====== ======= ======
</TABLE>
The funded status of defined benefit plans at December 31, 1996 was as follows:
<TABLE>
<CAPTION>
ACCUMULATED ASSETS
BENEFITS EXCEED
EXCEED ACCUMULATED
ASSETS BENEFITS TOTAL
----------- ----------- --------
<S> <C> <C> <C>
Actuarial present value of:
Vested benefits $ 578.0 $1,203.4 $ 1,781.4
Non-vested benefits 50.4 98.2 148.6
----------- ----------- ---------
Accumulated benefit obligation $ 628.4 $ 1,301.6 $ 1,930.0
=========== =========== =========
Actuarial present value of projected benefit
obligation $(664.9) $(1,411.7) $ (2,076.6)
Plan assets at fair value 545.3 1,622.0 2,167.3
----------- ----------- ---------
Funded status $(119.6) $ 210.3 $ 90.7
=========== =========== =========
Unrecognized prior service cost $ (18.2) $ (60.7) $ (78.9)
Unrecognized net gain (loss) (2.8) 222.9 220.1
Accrued pension cost (88.8) 48.0 (40.8)
Unrecognized initial obligation (9.8) .1 (9.7)
----------- ----------- ---------
$(119.6) $ 210.3 $ 90.7
=========== =========== =========
</TABLE>
24
<PAGE> 25
The funded status of defined benefit plans at December 31, 1997 was as
follows:
<TABLE>
<CAPTION>
ACCUMULATED ASSETS
BENEFITS EXCEED
EXCEED ACCUMULATED
ASSETS BENEFITS TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
Actuarial present value of:
Vested benefits $ 168.3 $ 1,729.1 $ 1,897.4
Non-vested benefits 11.6 98.5 110.1
---------- ----------- ---------
Accumulated benefit obligation $ 179.9 $ 1,827.6 $ 2,007.5
========== =========== =========
Actuarial present value of projected benefit
obligation $ (210.4) $(1,943.5) $(2,153.9)
Plan assets at fair value 126.3 2,311.0 2,437.3
---------- ----------- ---------
Funded status $ (84.1) $ 367.5 $283.4
========== =========== =========
Unrecognized prior service cost $ (6.7) $ (67.2) $ (73.9)
Unrecognized net gain (loss) (7.6) 380.5 372.9
Accrued pension cost (73.7) 65.0 (8.7)
Unrecognized initial obligation 3.9 (10.8) (6.9)
---------- ----------- ---------
$ (84.1) $ 367.5 $ 283.4
========== =========== =========
</TABLE>
The assumptions used to determine pension costs and projected benefit
obligations are as follows:
<TABLE>
<CAPTION>
U.S. PLANS
------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Expected long-term rates
of return on plan assets 8.5 - 10% 8.5 - 10% 8.75 - 10%
Discount rates 6.75 - 8% 7.5 - 8.25% 7 - 8%
Rates of increase in future
compensation levels 4.63 - 5% 4.31 - 5% 4.31 - 5%
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL PLANS
------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Expected long-term rates
of return on plan assets 8 - 9.5% 8 - 9.5% 7.5 - 9%
Discount rates 7 - 9% 7 - 8.75% 5 - 8.5%
Rates of increase in future
compensation levels 3 - 7.5% 3 - 7.5% 2.5 - 7.5%
</TABLE>
Plan assets are invested in a diversified portfolio that consists
primarily of equity and debt securities.
25
<PAGE> 26
NOTE 16. MEDICAL CARE AND OTHER BENEFITS
Dana and certain of its subsidiaries provide medical and life insurance
benefits for certain active and retired employees. These benefits are provided
through various insurance carriers whose charges to Dana are based on the
benefits paid during the year. Substantially all of the retiree medical cost
relates to North American retirees since most international retirees are covered
by government-sponsored programs.
Net annual postretirement benefit cost is computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1995 1996 1997
------ ------- ------
<S> <C> <C> <C>
Service cost $ 9.2 $ 11.2 $ 12.6
Interest cost 58.4 58.7 67.0
Net amortization and deferral (17.2) (13.8) (8.1)
------ ------- ------
Net annual postretirement benefit cost $ 50.4 $ 56.1 $ 71.5
====== ======= ======
</TABLE>
Postretirement benefit obligations, none of which are funded, are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees and dependents $ 590.5 $670.4
Active participants eligible to retire and receive benefits 117.5 143.7
Active participants not yet fully eligible 143.5 177.5
------- ------
Total accumulated postretirement benefit obligation 851.5 991.6
Unamortized plan amendments 59.7 50.9
Unamortized net loss (67.1) (153.0)
------- ------
Accrued postretirement benefits other than pensions $ 844.1 $889.5
======= ======
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.75% in 1996 and 7% in 1997. The assumed medical costs
trend rates result in per capita net incurred medical claims increasing 7.8% in
1998. The rate decreases to 5% over an 11-year period. If the assumed medical
costs trend rates were increased by 1%, the accumulated postretirement benefit
obligation as of December 31, 1997 would increase by $78.9 and the aggregate of
the service and interest cost components of the net annual postretirement
benefit cost would be increased by $6.9.
26
<PAGE> 27
NOTE 17. BUSINESS SEGMENTS
Dana operates principally in three business segments: Vehicular,
Industrial and Lease Financing. The Vehicular segment consists primarily of
operations which manufacture and market drivetrain components (axles, driveshaft
and structural components), engine parts (gaskets and sealing systems, piston
rings, condensers, distributors, ignition coils and filtration products),
structural components (vehicle frames, engine cradles and rails), chassis
products (steering and suspension components), brake parts (hydraulic brake
master cylinders, new and remanufactured brake shoes, drums and disc pads) and
other parts primarily manufactured for original equipment manufacturers (power
steering pumps, coupled hose systems and heavy duty windshield wiper systems).
The Industrial segment operations manufacture and market various products,
including components for industrial power transmission products (electrical and
mechanical brakes and clutches, drives and motion control devices) and
components for fluid power systems (pumps, cylinders and control valves). The
Lease Financing segment consists of DCC, whose primary operating subsidiaries
are engaged in leasing and finance operations.
Lease financing revenue includes lease financing income, fees and
interest. Other income includes dividends, interest and the gains recorded on
divestitures. Other expense includes interest and corporate expenses. Corporate
assets include cash, marketable securities, accounts receivable and investments
(excluding assets which can be identified to lease financing).
The "Other International" geographic area is comprised primarily of
Brazil and Canada, neither of which exceeds 10% of the consolidated amounts.
Interarea transfers between countries are transferred at the prevailing market
price. Export sales from the U.S. to customers outside the U.S. amounted to
$626.3 in 1995, $737.1 in 1996 and $781.6 in 1997. Total export sales (including
sales to Dana's international subsidiaries which are eliminated for financial
statement presentation) were $855.7, $961.8 and $1,077.8 in 1995, 1996 and 1997,
respectively.
Worldwide sales to Ford Motor Company and subsidiaries amounted to
$1,464.5, $1,528.2 and $1,757.1 in 1995, 1996 and 1997, respectively, which
represented 14%, 14% and 15% of Dana's consolidated sales. Sales to Chrysler
Corporation and subsidiaries in 1996 and 1997 amounted to $1,161.4 and $1,269.4,
respectively, representing 11% and 11% of Dana's consolidated sales. Sales to
Ford and Chrysler were primarily from the Company's Vehicular segment. No other
customer accounted for more than 10% of Dana's consolidated sales.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
IN MILLIONS DANA CORPORATION
<TABLE>
<CAPTION>
LEASE
VEHICULAR INDUSTRIAL FINANCING CONSOLIDATED
---------- --------- --------- ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Sales to customers $ 8,806.1 $ 1,664.2 $ 1.4 $ 10,471.7
Lease financing revenue 155.3 155.3
---------- --------- --------- ----------
Total revenue $ 8,806.1 $ 1,664.2 $ 156.7 $ 10,627.0
========== ========= ========= ==========
Operating income $ 839.5 $ 123.5 $ 22.8 $ 985.8
========== ========= =========
Other income 33.7
Other expense (273.7)
----------
Income before income taxes $ 745.8
==========
Assets identified to segments $ 4,106.8 $ 694.2 $ 1,468.4 $ 6,269.4
========== ========= =========
Corporate assets 1,544.3
----------
Total assets $ 7,813.7
==========
Depreciation $ 249.8 $ 47.8 $ 2.0
========== ========= =========
Capital expenditures $ 432.7 $ 65.6 $ 10.7
========== ========= =========
Year Ended December 31, 1996
Sales to customers $ 9,251.3 $ 1,727.5 $ 10,978.8
Lease financing revenue $ 176.5 176.5
---------- --------- --------- ----------
Total revenue $ 9,251.3 $ 1,727.5 $ 176.5 $ 11,155.3
========== ========= ========= ==========
Operating income $ 817.6 $ 129.5 $ 39.6 $ 986.7
========== ========= =========
Other income 34.0
Other expense (311.9)
----------
Income before income taxes $ 708.8
==========
Assets identified to segments $ 4,556.6 $ 735.5 $ 1,669.1 $ 6,961.2
========== ========= =========
Corporate assets 1,561.2
----------
Total assets $ 8,522.4
==========
Depreciation $ 276.8 $ 60.0 $ 5.8
========== ========= =========
Capital expenditures $ 363.7 $ 76.6 $ 12.7
========== ========= =========
Year Ended December 31, 1997
Sales to customers $ 9,792.5 $ 2,118.5 $ 11,911.0
Lease financing revenue $ 193.6 193.6
---------- --------- --------- ----------
Total revenue $ 9,792.5 $ 2,118.5 $ 193.6 $ 12,104.6
========== ========= ========= ==========
Operating income $ 765.4 $ 181.4 $ 35.7 $ 982.5
========== ========= =========
Restructuring and rationalization (307.1) (20.5) (327.6)
Other income 306.3
Other expense (357.0)
----------
Income before income taxes $ 604.2
==========
Assets identified to segments $ 4,956.8 $ 914.6 $ 1,860.9 $ 7,732.3
========== ========= =========
Corporate assets 1,756.0
----------
Total assets $ 9,488.3
==========
Depreciation $ 324.3 $ 68.3 $ 4.5
========== ========= =========
Capital expenditures $ 483.9 $ 83.1 $ 12.1
========== ========= =========
</TABLE>
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
IN MILLIONS DANA CORPORATION
<TABLE>
<CAPTION>
ADJUSTMENTS
UNITED OTHER AND
STATES EUROPE INTERNATIONAL ELIMINATIONS TOTAL
------ ------ ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Sales to customers $ 7,466.9 $1,583.1 $ 1,421.7 $ 10,471.7
Lease financing revenue 104.0 37.3 14.0 155.3
Interarea transfers 224.9 21.2 203.8 $(449.9)
--------- -------- --------- ------- ----------
$ 7,795.8 $1,641.6 $ 1,639.5 $(449.9) $ 10,627.0
========= ======== ========= ======= ==========
Operating income $ 750.9 $ 102.7 $ 132.2 $ 985.8
Other income 10.3 23.4 33.7
Other expense (263.4) (11.1) .8 (273.7)
--------- -------- --------- ----------
Income before income taxes $ 497.8 $ 91.6 $ 156.4 $ 745.8
========= ======== ========= ==========
Assets identified $ 3,952.5 $1,368.7 $ 948.2 $ 6,269.4
Corporate assets 1,236.2 135.4 172.7 1,544.3
--------- -------- --------- ----------
Total assets $ 5,188.7 $1,504.1 $ 1,120.9 $ 7,813.7
========= ======== ========= ==========
Year Ended December 31, 1996
Sales to customers $ 7,807.4 $1,744.4 $ 1,427.0 $ 10,978.8
Lease financing revenue 122.4 45.2 8.9 176.5
Interarea transfers 217.0 28.6 212.0 $(457.6)
--------- -------- --------- ------- ----------
$ 8,146.8 $1,818.2 $ 1,647.9 $(457.6) $ 11,155.3
========= ======== ========= ======= ==========
Operating income $ 747.6 $ 120.8 $ 118.3 $ 986.7
Other income 34.0 34.0
Other expense (286.6) (26.7) 1.4 (311.9)
--------- -------- --------- ----------
Income before income taxes $ 495.0 $ 94.1 $ 119.7 $ 708.8
========= ======== ========= ==========
Assets identified $ 4,278.6 $1,604.1 $ 1,078.5 $ 6,961.2
Corporate assets 1,274.6 120.8 165.8 1,561.2
--------- -------- --------- ----------
Total assets $ 5,553.2 $1,724.9 $ 1,244.3 $ 8,522.4
========= ======== ========= ==========
Year Ended December 31, 1997
Sales to customers $ 8,395.7 $1,832.1 $ 1,683.2 $ 11,911.0
Lease financing revenue 134.5 50.9 8.2 193.6
Interarea transfers 455.6 91.6 310.2 $(857.4)
--------- -------- --------- ------- ----------
$ 8,985.8 $1,974.6 $ 2,001.6 $(857.4) $ 12,104.6
========= ======== ========= ======= ==========
Operating income $ 723.8 $ 114.2 $ 144.5 $ 982.5
Restructuring and rationalization (215.9) (63.3) (48.4) (327.6)
Other income 226.5 76.4 3.4 306.3
Other expense (423.9) 48.3 18.6 (357.0)
--------- -------- --------- ----------
Income before income taxes $ 310.5 $ 175.6 $ 118.1 $ 604.2
========= ======== ========= ==========
Assets identified $ 4,738.4 $1,788.2 $ 1,205.7 $ 7,732.3
Corporate assets 1,659.2 (18.6) 115.4 1,756.0
--------- -------- --------- ----------
Total assets $ 6,397.6 $1,769.6 $ 1,321.1 $ 9,488.3
========= ======== ========= ==========
</TABLE>
29
<PAGE> 30
NOTE 18. ESTIMATED INCOME TAXES
Income tax expense (benefit) consisted of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current
U.S. Federal $ 81.0 $ 62.0 $ 167.1
U.S. State and Local 42.0 30.9 48.0
International 78.5 25.7 107.6
------- ------- -------
201.5 118.6 322.7
------- ------- -------
Deferred
U.S. Federal 65.9 99.4 16.9
International (8.3) 20.5 (45.8)
------- ------- -------
57.6 119.9 (28.9)
------- ------- -------
Total expense $ 259.1 $ 238.5 $ 293.8
======= ======= =======
</TABLE>
Deferred tax benefits (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Postretirement benefits other than pensions $ 373.1 $ 362.4 $ 351.4
Postemployment benefits 44.9 47.3 55.2
Expense accruals 131.4 116.1 198.9
Inventory reserves 23.4 24.7 42.0
Pension accruals 4.9 1.9
Net operating loss carryforwards 24.3 39.0 46.3
Other 20.0 39.0 58.7
Other employee benefits 9.2 5.3 6.3
------- -------- -------
Deferred tax benefits 631.2 635.7 758.8
------- -------- -------
Depreciation - non-leasing (176.6) (233.2) (195.1)
Leasing activities (243.6) (299.0) (357.6)
Valuation allowances (4.8) (30.4)
Pension accruals (11.9) (13.7) (27.5)
Other (18.4) (28.0) (8.7)
------- -------- -------
Deferred tax liabilities (450.5) (578.7) (619.3)
------- -------- -------
Net deferred tax benefits $ 180.7 $ 57.0 $ 139.5
======= ======= =======
</TABLE>
30
<PAGE> 31
The Company has traditionally been a taxpayer in the U.S. and
accordingly expects to realize substantially all of the deferred tax benefits
attributable to the Company's U.S. operations in the future. Valuation
allowances are provided for deferred benefits if the likelihood of future
earnings is not determinable. During 1997, the Company increased the valuation
allowance by $25.6, including $22.6 to reflect uncertainties related to the
rationalization of its operations in France. Income taxes paid during 1995, 1996
and 1997 amounted to $172.3, $142.9 and $264.6, respectively.
The effective tax rates differ from the U.S. Federal income tax rate
for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
U.S. Federal income tax rate 35.0% 35.0% 35.0%
Increase (reductions) in taxes resulting from:
International income (1.5) (2.9) 9.0
Capital loss utilization (.7) (.2) (.9)
Investment tax credits (.2) (.2) (.3)
Amortization of goodwill .4 .4 .4
State and local income taxes, net
of Federal income tax benefit 3.6 2.8 4.5
Earnings in Puerto Rico not subject to
U.S. tax (.9) (1.0) (.9)
Asset write-offs 3.2
Miscellaneous items (1.0) (.3) (1.4)
---- ---- ----
Estimated taxes on income 34.7% 33.6% 48.6%
==== ==== ====
</TABLE>
NOTE 19. COMPOSITION OF CERTAIN BALANCE SHEET AMOUNTS
The following items comprise the net amounts indicated in the
respective balance sheet captions:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
--------- --------
<S> <C> <C>
INVESTMENTS AND OTHER ASSETS
Goodwill $ 639.9 $ 863.0
Investments at equity 108.0 199.8
Marketable securities 84.1 80.9
Loans receivable 208.2 168.8
Intangible pension asset 35.0 20.4
Other 328.8 339.5
--------- --------
$ 1,404.0 $1,672.4
========= ========
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
---- ----
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT, NET
Land and improvements to land $ 129.6 $ 128.3
Buildings and building fixtures 919.4 1,006.5
Machinery and equipment 3,851.9 4,166.2
------- -------
4,900.9 5,301.0
Less: Accumulated depreciation (2,384.9) (2,524.3)
------- -------
$ 2,516.0 $2,776.7
========= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
---- ----
<S> <C> <C>
DEFERRED EMPLOYEE BENEFITS
Postretirement other than pension $ 844.1 $ 889.7
Postemployment 81.9 81.9
Pension 101.9 77.5
Compensation 20.2 33.6
--------- --------
$ 1,048.1 $1,082.7
========= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
---- ----
<S> <C> <C>
LEASE FINANCING
Direct financing leases $ 583.4 $ 665.8
Leveraged leases 594.6 655.3
Property on operating leases, net of accumulated depreciation 40.1 61.6
Allowance for credit losses (50.8) (52.6)
--------- --------
$ 1,167.3 $1,330.1
========= ========
</TABLE>
The components of the net investment in direct financing leases are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Total minimum lease payments $ 638.1 $743.7
Residual values 66.0 89.5
Deferred initial direct costs 14.2 15.5
-------- ------
718.3 848.7
Less: Unearned income 134.9 182.9
-------- ------
$ 583.4 $665.8
======== ======
</TABLE>
32
<PAGE> 33
The components of the net investment in leveraged leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
---- ----
<S> <C> <C>
Rentals receivable $ 4,883.8 $5,280.4
Residual values 698.5 865.2
Nonrecourse debt service (4,197.4) (4,629.1)
Unearned income (777.9) (849.0)
Deferred investment tax credit (12.4) (12.2)
--------- --------
594.6 655.3
Less: Deferred taxes arising from leveraged leases 252.1 303.7
--------- --------
$ 342.5 $ 351.6
========= ========
</TABLE>
The following is a schedule, by year, of total minimum lease payments
receivable on direct financing leases as of December 31, 1997:
<TABLE>
<CAPTION>
Year Ending December 31:
<S> <C>
1998 $ 290.3
1999 192.2
2000 114.2
2001 59.6
2002 25.7
Later years 61.7
-------
Total minimum lease payments receivable $ 743.7
=======
</TABLE>
33
<PAGE> 34
NOTE 20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of Dana's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
---- ----
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and marketable securities $ 271.5 $ 271.5 $ 422.7 $ 422.7
Loans receivable (net) 208.2 207.2 168.8 168.9
FINANCIAL LIABILITIES
Short-term debt 1,301.1 1,301.1 1,255.6 1,255.6
Long-term debt 1,886.7 1,943.6 2,227.2 2,352.8
Security deposits - leases 16.8 14.8 16.1 14.7
Deferred funding commitments under
leveraged leases 5.9 5.9 4.9 5.0
Interest rate-based option 7.2 7.2 9.9 9.9
UNRECOGNIZED FINANCIAL INSTRUMENTS
Interest rate derivatives:
Assets .7 1.0
Liabilities (12.9) (10.6)
</TABLE>
NOTE 21. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company had purchase commitments for
property, plant and equipment aggregating approximately $151.7. Future minimum
rental commitments under operating leases aggregated $351.4, with rental
payments during the five succeeding years of $83.3, $64.7, $48.7, $36.0 and
$30.6, respectively. Net rental expense amounted to $105.7, $115.2 and $115.8
for 1995, 1996 and 1997, respectively.
In July of 1997, Dana signed an agreement to purchase the global axle
and brake business of Eaton Corporation for $287. The regulatory approval was
granted in December 1997 and the acquisition was completed in January 1998.
The Company and its consolidated subsidiaries are parties to various
pending judicial and administrative proceedings arising in the ordinary course
of business. These include, among others, proceedings based on product liability
claims and alleged violations of various environmental laws.
34
<PAGE> 35
Management and its legal counsel periodically review the probable
outcome of pending 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 accruals for uninsured liabilities. While the outcome
of pending proceedings cannot be predicted with certainty, management believes,
based on these reviews and the information currently available, that any
liabilities that may result from these proceedings are not reasonably likely to
have a material effect on the Company's liquidity, financial condition or
results of operations.
NOTE 22. ACQUISITIONS
In 1995, Dana acquired the European axle group of GKN plc., a
manufacturer of axles for cars, light trucks and heavy-duty trucks, along with
axles for agricultural, industrial and construction equipment. Dana also
acquired M. Friesen GmbH in Germany, a supplier of remanufactured rotating
electrics; a 70% share of Industrias Serva S.A. in Spain, a manufacturer and
distributor of vehicular gaskets; Mohawk Plastics, Inc., a manufacturer of
custom molded plastics for the OE market in the United States and Handy &
Harman's Automotive Segment, based in Michigan, which manufactures fuel-delivery
system components for motor vehicles.
During 1996, Dana acquired Thompson Ramco Argentina S.A. (Thompson),
J.B. Morgan and Co. Pty., Ltd. (Morgan), James N. Kirby Pty., Ltd., (Kirby),
Thermoplast+Apparatebau GmbH (Thermoplast), Nobel Plastiques SA (Nobel), Long
Manufacturing Ltd. (Long) and Industrias Orlando Stevaux Ltda. (Stevaux) and a
majority interest in Centrust S.A. (Centrust). Centrust is an Argentine company
whose subsidiaries manufacture modular systems, brakes and structural
components. Thompson, also an Argentine company, manufactures and distributes
chassis parts and piston rings. Morgan and Kirby are both Australian
manufacturers of filters. Morgan produces oil, air, and fuel filters for
automobiles while Kirby produces radial and panel air filters for automobiles
and medium-duty trucks. Thermoplast is a German manufacturer of high-precision
injection-molded plastic components and systems for automotive applications.
Nobel, located in France and Spain, manufactures fluid, hydraulic and pneumatic
servo control lines. Long, headquartered in Canada, manufactures and distributes
motor vehicle heat exchange products and air-conditioning evaporators. Stevaux,
a Brazilian company, manufactures gaskets and oil seals. Dana acquired a 70%
interest in Centrust while 100% of all other companies was purchased. Also
during 1996, Dana completed the acquisition of the light axle manufacturing
business of Rockwell do Brasil, an indirect subsidiary of Rockwell
International.
These acquisitions were accounted for as purchases and the results of
their operations have been included in the consolidated financial statements
since the dates of acquisition. The price and the results of operations of these
companies prior to acquisition were not material to the consolidated financial
statements.
In 1997, Dana acquired the piston ring and cylinder liner operations of
SPX Corporation (SPD), the assets of Clark-Hurth Components (CH) from
Ingersoll-Rand, the North American Aftermarket division of ITT Automotive (ITT),
the Brazilian engine components business of Industria e Commercio Brosol
Ltda. (Brosol), a 75% share of Wix Filtron Sp.zo.o and 50% of the shares of
Estampados Argentina S.A. (EASA), bringing Dana's effective ownership in this
affiliate to 85%.
35
<PAGE> 36
SPD manufactures and sells piston rings and cylinder liners primarily for
internal combustion engines. CH manufactures and sells transmissions and axles
for use in off-highway vehicles and equipment. ITT manufactures and distributes
motor vehicle brake system parts. Brosol produces motor-vehicle fuel system
parts. Wix Filtron is a Polish manufacturer of filtration products and EASA is
an Argentine manufacturer of heavy-duty structural components.
These acquisitions were accounted for as purchases and the results of
their operations have been included in the consolidated financial statements
since the dates of acquisition. Sales in 1997 were $704 higher than 1996 as a
result of acquisitions and total assets of companies acquired in 1997 amounted
to $819.
In addition to the above acquisitions, in 1995 Dana purchased the
remaining shares of Hayes-Dana Inc., a Canadian subsidiary that manufactures new
and replacement parts for trucks, automobiles, off-highway vehicles and
industrial equipment, and increased its equity ownership in R.O.C. Spicer from
49% to 51%. R.O.C. Spicer manufactures axles and driveshafts in Taiwan.
In 1995, Dana acquired Plumley Companies, a U.S. manufacturer and
distributor of extruded and molded rubber and silicone sealing products,
primarily for automotive applications, and American Electronic Components Inc.,
an Indiana-based designer, manufacturer and marketer of motor vehicle
electronics components. In 1996, Dana acquired Flexon, Inc., a U.S. manufacturer
of fuel filters; Plains Plastics Inc., a custom plastic extruder located in
Kansas; Moto Mirror Inc., a manufacturer of remote-control mirrors for medium
and heavy duty trucks located in Texas; and Iroquois Tool Systems Inc., a brake
manufacturer located in Pennsylvania. All six transactions were
accounted for as poolings of interests. Prior years' financial statements have
not been restated since the amounts are not material to the consolidated
financial statements.
NOTE 23. DIVESTITURES
In October 1996, Dana sold certain assets of Sensor Engineering, a
division that manufactured cards and readers for access control systems,
resulting in a gain of $5.
In March 1997, Dana completed the sale of its automotive warehouse
distribution business in the United Kingdom, the Netherlands and Portugal. In
August 1997, the sales of Dana's worldwide vehicular clutch operations and its
Preferred Plastic Sheet Division were completed. In September 1997, the
automotive transmission operations were sold to a subsidiary of Dana's 49%-owned
Mexican affiliate, Spicer S.A. de C.V, and the sale of Ace Electric, a producer
of starting and charging parts for engine systems, was completed. In October
1997, the Company sold its flat rubber products operations. In November 1997,
Dana completed the sales of its 49% interest in Korea Spicer Corporation and the
assets of automotive parts distributors Echlin Australia Pty. Ltd. and WAWD-EAP.
In December 1997, as part of the rationalization plan announced in the first
quarter, Dana completed the sale of its automotive warehouse distribution
operation in France. Net gains recorded on these sales totaled $147. These
operations contributed sales of $763 in 1996; through the dates of divestiture,
1997 sales for these operations totaled $385.
36
<PAGE> 37
NOTE 24. RESTRUCTURING OF OPERATIONS
During 1997, Dana initiated various restructuring plans. The cost of
these plans included a charge of $254 at former Echlin facilities related to
facility realignments and rationalizations and the write-down to net realizable
value of businesses to be disposed, resulting in a workforce reduction of 1,214
people; a charge of $36 to initiate a rationalization plan at Dana's Perfect
Circle Europe operations, resulting in a workforce reduction of 368 people; a
charge of $39 relating to rationalizing Dana's Reading, Pennsylvania structural
components plant, with an expected workforce reduction of 1,140 people; a charge
of $20 to reduce deferred income tax benefits that were anticipated to be
realized from operating losses in France; a charge of $14 relating to the
closure of Dana's Vimercate, Italy plant, with an anticipated workforce
reduction of 120 people; and $54 relating to downsizing or closing various
facilities and exiting several unprofitable lines of business, with an estimated
workforce reduction of 440 people. Of the $417 of charges outlined above, $59
was charged to cost of sales and $358 to restructuring. The following summarizes
the restructuring charges recorded in 1997:
<TABLE>
<CAPTION>
<S> <C>
Employee termination benefits $ 96
Impairment of long-lived assets of facilities to close 41
Impairment of net investment in operations to be sold 102
Valuation reserves for deferred tax benefits 30
Write-down goodwill 27
Other investments and deferred customer
acquisition costs 62
------
Total 1997 Restructuring Charge $ 358
======
</TABLE>
At December 31, 1997, $180 of restructuring charges remained in
accrued liabilities. This balance was comprised of $87 for the reduction of
approximately 2,570 employees to be completed in 1998, $62 for closing excess
facilities and $31 for other non-cash write-downs of recorded assets. The
estimated annual cash expenditures will be approximately $108 in 1998, $25 in
1999 and $16 thereafter. 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. Following is a
schedule of the restructuring activity for 1997:
<TABLE>
<CAPTION>
<S> <C>
1997 Restructuring charges:
Restructuring and rationalization charges $ 358
Employee separation payments 5
Facility realignments 28
Non-cash write-downs 145
-------
Balance at December 31, 1997 $ 180
=======
Employee reductions in 1997 711
</TABLE>
37
<PAGE> 38
NOTE 25. NONCASH INVESTING AND FINANCING ACTIVITIES
In leveraged leases, the issuance of nonrecourse debt financing, and
subsequent repayments thereof, is transacted between the lessees and lending
parties to the transactions. During 1995, 1996 and 1997, $339.1, $452.9 and
$388.5 of nonrecourse debt was issued to finance leveraged leases and $164.3,
$80.9 and $158.4 of nonrecourse debt obligations were repaid, respectively.
In 1996 and in 1997, in addition to cash contributions, 1,000,000
shares of Dana common stock, with a market value of $31.1 in 1996 and
$31.8 in 1997, were contributed to the Dana Corporation Pension Plans Trust.
NOTE 26. SIGNIFICANT SUBSIDIARY
DCC is a wholly-owned subsidiary of Dana whose primary operating
subsidiaries are engaged in leasing and finance operations. The following is a
summary of DCC's results of operations and financial position:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenue from products and services $ 180.4 $ 229.6 $ 254.4
------- ------- -------
Interest expense 62.8 74.4 80.9
General and administrative expenses 103.1 115.6 137.8
------- ------- -------
165.9 190.0 218.7
------- ------- -------
Income before income taxes 14.5 39.6 35.7
Estimated income tax provision (benefit) (8.0) 11.8 7.7
------- ------- -------
Income before equity in earnings of affiliates 22.5 27.8 28.0
Equity in earnings of affiliates 4.9 2.7 3.2
------- ------- -------
Net income $ 27.4 $ 30.5 $ 31.2
======= ======= =======
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash $ 3.5 $ 12.3
Loans receivable 208.1 168.8
Lease financing 1,327.9 1,498.4
Other assets 129.7 181.4
--------- ---------
Total assets $ 1,669.2 $ 1,860.9
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Notes payable $ 1,164.7 $ 1,286.9
Other liabilities 380.6 435.4
Shareholder's equity 123.9 138.6
--------- ---------
Total liabilities and shareholder's equity $ 1,669.2 $ 1,860.9
========= =========
</TABLE>
39
<PAGE> 40
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of Dana Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 21, 1998, except for the business combination with Echlin Inc.,
which is as of November 6, 1998, appearing on page 3 of this Form 8-K also
included an audit of Financial Statement Schedule II appearing on pages 41
through 45 of this Form 8-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
Toledo, Ohio
January 21, 1998,
except for the business combination
with Echlin Inc. which is as of November 6, 1998
40
<PAGE> 41
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
----------------------------------------------
SCHEDULE II(a) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
---------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
------------------------------------------
<TABLE>
<CAPTION>
Adjustment
Trade accounts arising
receivable from change
Balance at Additions "written off" in currency Balance at
beginning charged net of exchange rates end of
of period to income recoveries and other items period
--------- --------- ---------- --------------- ------
<S> <C> <C> <C> <C> <C>
Year ended-
December 31, 1995 $26,401,000 $12,026,000 $ (10,927,000) $ 2,518,000 $30,018,000
December 31, 1996 $30,018,000 $15,866,000 $ (13,930,000) $ 33,000 $31,987,000
December 31, 1997 $31,987,000 $13,880,000 $ (12,479,000) $ 554,000 $33,942,000
</TABLE>
41
<PAGE> 42
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
----------------------------------------------
SCHEDULE II(b) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
---------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES - LEASE FINANCING
---------------------------------------------
<TABLE>
<CAPTION>
Adjustment
arising
Amounts from change
Balance at Additions "written off" in currency Balance at
beginning charged net of exchange rates end of
of period to income recoveries and other items period
--------- --------- ---------- --------------- ------
<S> <C> <C> <C> <C> <C>
Year ended-
December 31, 1995 $40,789,000 $15,578,000 $(9,000,000) $ 58,000 $47,425,000
December 31, 1996 $47,425,000 $12,349,000 $(9,299,000) $ 350,000 $50,825,000
December 31, 1997 $50,825,000 $12,141,000 $(9,851,000) $(462,000) $52,653,000
</TABLE>
42
<PAGE> 43
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
----------------------------------------------
SCHEDULE II(c) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
---------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
-------------------------
<TABLE>
<CAPTION>
Adjustment
arising
Amounts from change
Balance at Additions "written off" in currency Balance at
beginning charged net of exchange rates end of
of period to income recoveries and other items period
--------- --------- ---------- --------------- ------
<S> <C> <C> <C> <C> <C>
Year ended-
December 31, 1995 $5,639,000 $1,551,000 $(3,265,000) $(548,000) $3,377,000
December 31, 1996 $3,377,000 $ 994,000 $(3,161,000) $ ---- $1,210,000
December 31, 1997 $1,210,000 $1,843,000 $ (70,000) $ ---- $2,983,000
</TABLE>
43
<PAGE> 44
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
----------------------------------------------
SCHEDULE II(d) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
---------------------------------------------------------------
VALUATION ALLOWANCE - REAL ESTATE
---------------------------------
<TABLE>
<CAPTION>
Amounts
Balance at Additions "written off" Acquisitions Balance at
beginning charged net of and other end of
of period to income recoveries items period
--------- --------- ---------- --------------- ------
<S> <C> <C> <C> <C> <C>
Year ended-
December 31, 1995 $38,918,000 $ 292,000 $ (9,291,000) $(507,000) $29,412,000
December 31, 1996 $29,412,000 $ 63,000 $ (24,984,000) $ (71,000) $ 4,420,000
December 31, 1997 $ 4,420,000 $(642,000) $ (526,000) $ ---- $ 3,252,000
</TABLE>
44
<PAGE> 45
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
----------------------------------------------
SCHEDULE II(e) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
---------------------------------------------------------------
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
-------------------------------------------
<TABLE>
<CAPTION>
Amounts
Balance at Additions "written off" Balance at
beginning charged net of Adjustments end of
of period to income recoveries and other items period
--------- --------- ---------- --------------- ------
<S> <C> <C> <C> <C> <C>
Year ended-
December 31, 1995 $ ---- $ ---- $ ---- $ ---- $ ----
December 31, 1996 $ ---- $ 4,800,000 $ ---- $ ---- $ 4,800,000
December 31, 1997 $ 4,800,000 $ 30,400,000 $ (4,800,000) $ ---- $ 30,400,000
</TABLE>
45
<PAGE> 46
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, thereunto duly authorized.
Dana Corporation
Registrant
Date: November 9, 1998 /s/ John S. Simpson
- ----------------------- ---------------------
John S. Simpson
Chief Financial Officer
46
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectuses
constituting parts of the Registration Statements on Form S-3 (Nos. 033-58121,
333-00539, 333-18043, 333-22935, 333-23733 and 333-42239) and Form S-4 (No.
333-52773) and in the Registration Statements on Form S-8 (Nos. 333-37435,
33-64198, 333-5273-1 and 333-50919) of Dana Corporation of our report dated
January 21, 1998, except for the business combination with Echlin Inc. which is
as of November 6, 1998, relating to the consolidated financial statements of
Dana Corporation which appears in this Current Report on Form 8-K of Dana
Corporation. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule, which appears on page 40 of this Form 8-K.
PRICEWATERHOUSECOOPERS LLP
Toledo, Ohio
November 6, 1998
47
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 120,120
<SECURITIES> 0
<RECEIVABLES> 1,486,404
<ALLOWANCES> 29,977
<INVENTORY> 1,565,892
<CURRENT-ASSETS> 0
<PP&E> 4,416,400
<DEPRECIATION> 2,175,200
<TOTAL-ASSETS> 2,813,735
<CURRENT-LIABILITIES> 0
<BONDS> 2,012,001
0
0
<COMMON> 159,046
<OTHER-SE> 1,903,912
<TOTAL-LIABILITY-AND-EQUITY> 7,813,735
<SALES> 10,471,700
<TOTAL-REVENUES> 10,672,100
<CGS> 8,682,500
<TOTAL-COSTS> 8,682,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 190,800
<INCOME-PRETAX> 745,800
<INCOME-TAX> 259,100
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 442,800
<EPS-PRIMARY> 2.81
<EPS-DILUTED> 2.80
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 271,500
<SECURITIES> 0
<RECEIVABLES> 1,420,600
<ALLOWANCES> 32,000
<INVENTORY> 1,642,000
<CURRENT-ASSETS> 0
<PP&E> 4,900,900
<DEPRECIATION> 2,384,900
<TOTAL-ASSETS> 8,522,400
<CURRENT-LIABILITIES> 0
<BONDS> 1,886,200
0
0
<COMMON> 161,010
<OTHER-SE> 2,273,690
<TOTAL-LIABILITY-AND-EQUITY> 8,522,400
<SALES> 10,978,800
<TOTAL-REVENUES> 11,182,400
<CGS> 9,158,100
<TOTAL-COSTS> 9,158,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,500
<INCOME-PRETAX> 708,800
<INCOME-TAX> 238,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 450,900
<EPS-PRIMARY> 2.83
<EPS-DILUTED> 2.81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 422,700
<SECURITIES> 0
<RECEIVABLES> 1,439,400
<ALLOWANCES> 33,900
<INVENTORY> 1,575,300
<CURRENT-ASSETS> 0
<PP&E> 5,301,000
<DEPRECIATION> 2,524,300
<TOTAL-ASSETS> 9,488,300
<CURRENT-LIABILITIES> 0
<BONDS> 2,227,200
0
0
<COMMON> 163,810
<OTHER-SE> 2,438,590
<TOTAL-LIABILITY-AND-EQUITY> 9,488,300
<SALES> 11,911,000
<TOTAL-REVENUES> 12,402,400
<CGS> 10,067,000
<TOTAL-COSTS> 10,067,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 251,400
<INCOME-PRETAX> 604,200
<INCOME-TAX> 293,800
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 320,100
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.94
</TABLE>
