<PAGE> 1
UNITED STATES
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
For the Quarterly Period Ended March 31, 1999 Commission File Number 1-1063
-------------- ------
Dana Corporation
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Virginia 34-4361040
- ------------------------------------------ ------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
4500 Dorr Street, Toledo, Ohio 43615
- ------------------------------------------ ------------------------
(Address of Principal Executive Offices) (Zip Code)
(419)535-4500
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1999
---------------------------- -----------------------------
Common stock of $1 par value 165,976,929
<PAGE> 2
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Cover 1
Index 2
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheet
December 31, 1998 and
March 31, 1999 3
Statement of Income
Three Months Ended
March 31, 1998 and 1999 4
Condensed Statement of Cash Flows
Three Months Ended
March 31, 1998 and 1999 5
Notes to Condensed Financial Statements 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 17-18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
Exhibit Index 20
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. DANA CORPORATION
- ------
CONDENSED BALANCE SHEET (Unaudited)
(in Millions)
<TABLE>
<CAPTION>
Assets December 31, 1998 March 31, 1999
- ------ ----------------- --------------
<S> <C> <C>
Current Assets
Cash and Marketable Securities $ 230.2 $ 207.8
Accounts Receivable
Trade 1,616.9 2,089.0
Other 246.7 267.3
Inventories
Raw Materials 470.6 493.8
Work in Process and Finished Goods 1,208.1 1,135.4
Other Current Assets 564.5 608.7
--------------- ---------------
Total Current Assets 4,337.0 4,802.0
Property, Plant and Equipment 5,765.3 5,736.9
Less: Accumulated Depreciation 2,461.5 2,479.4
Investments in Leases 851.9 830.2
Investments and Other Assets 1,644.8 1,596.4
--------------- ---------------
Total Assets $ 10,137.5 $ 10,486.1
=============== ===============
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities
Notes Payable, Including Current
Portion of Long-Term Debt $ 1,698.1 $ 1,317.7
Accounts Payable 995.6 984.7
Accrued Payroll and Employee Benefits 355.5 366.4
Other Accrued Liabilities 782.8 721.0
Taxes on Income 154.6 230.1
--------------- ---------------
Total Current Liabilities 3,986.6 3,619.9
Long-Term Debt 1,717.9 2,520.1
Deferred Employee Benefits
and Other Noncurrent Liabilities 1,337.5 1,346.9
Minority Interest 156.3 133.1
Shareholders' Equity 2,939.2 2,866.1
--------------- ---------------
Total Liabilities and Shareholders' Equity $ 10,137.5 $ 10,486.1
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
ITEM 1. (Continued)
- -------------------
DANA CORPORATION
STATEMENT OF INCOME (Unaudited)
(in Millions Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31
--------
1998 1999
---- ----
<S> <C> <C>
Net Sales $ 3,232.8 $ 3,380.6
Revenue from Lease Financing
and Other Income 58.0 38.9
------------ ------------
3,290.8 3,419.5
------------ ------------
Costs and Expenses
Cost of Sales 2,699.2 2,814.6
Selling, General and
Administrative Expenses 299.1 296.4
Restructuring and Integration Charges - 6.6
Interest Expense 70.7 70.0
------------ ------------
3,069.0 3,187.6
------------ ------------
Income Before Income Taxes 221.8 231.9
Estimated Taxes on Income (88.1) (83.3)
Minority Interest (2.7) (2.1)
Equity in Earnings of Affiliates 9.6 15.0
------------ ------------
Net Income $ 140.6 $ 161.5
============ ============
Net Income Per Common Share -
Basic $ .86 $ .97
============ ============
Diluted $ .84 $ .97
============ ============
Dividends Declared and Paid per
Common Share $.27 $.31
Average Number of Shares Outstanding -
For Basic 164.3 165.8
For Diluted 166.7 167.0
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
ITEM 1. (Continued)
- -------------------
DANA CORPORATION
CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
(in Millions)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1999
---- ----
<S> <C> <C>
Net Income $ 140.6 $ 161.5
Depreciation and Amortization 115.4 130.6
Working Capital Change and Other (143.8) (439.2)
------------ ------------
Net Cash Flows from Operating Activities 112.2 (147.1)
------------ ------------
Purchases of Property, Plant and Equipment (118.3) (193.1)
Purchases of Assets to be Leased (117.5) (26.0)
Payments Received on Leases and Loans 84.7 50.7
Acquisitions (315.2) -
Divestitures 25.0 -
Other (18.3) (84.1)
------------ ------------
Net Cash Flows-Investing Activities (459.6) (252.5)
------------ ------------
Net Change in Short-Term Debt (57.0) (502.8)
Proceeds from Long-Term Debt 379.3 1,043.3
Payments on Long-Term Debt (124.2) (116.0)
Dividends Paid (42.7) (51.4)
Other 18.2 4.1
------------ ------------
Net Cash Flows-Financing Activities 173.6 377.2
------------ ------------
Net Change in Cash and Cash Equivalents (173.8) (22.4)
Cash and Cash Equivalents-beginning of period 422.7 230.2
------------ ------------
Cash and Cash Equivalents-end of period $ 248.9 $ 207.8
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
ITEM 1. (Continued)
- -------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in Millions Except Per Share Amounts)
1. In our opinion, all normal recurring adjustments necessary to a fair
presentation of results for the unaudited interim periods have been
included. Where appropriate, we have reclassified certain amounts in
1998 to conform with the 1999 presentation.
2. In January 1998, we acquired both the heavy axle and brake business of
Eaton Corporation and General Automotive Specialty Company, Inc., a
manufacturer of motor vehicle switches and locks. 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.
3. In February 1998, we completed the sale of our hydraulic brake hose
facilities in Columbia City, Ind., and Garching, Germany, to CF Gomma,
S.p.A.
4. Following is a reconciliation of average shares for purposes of
calculating basic and diluted net income per share.
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1999
---- ----
<S> <C> <C>
Weighted average common shares outstanding 164.3 165.8
----- -----
Plus: Incremental shares from
assumed conversion of -
Deferred compensation units .5 .5
Stock options 1.9 .7
----- -----
Total potentially dilutive securities 2.4 1.2
----- -----
Adjusted average common shares outstanding 166.7 167.0
===== =====
</TABLE>
5. On an annual basis, disclosure of comprehensive income is incorporated
into the Statement of Shareholders' Equity. This statement is not
presented on a quarterly basis. Comprehensive income includes net
income and components of other comprehensive income, such as foreign
currency translation adjustments, unrealized investment gains or losses
and minimum pension liability adjustments. The $196 deferred
translation loss in the first quarter of 1999 is primarily due to the
devaluation of the Brazilian real and the strengthening of the U.S.
dollar against several European currencies. Our total comprehensive
income/(loss) is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1999
---- ----
<S> <C> <C>
Net income $140.6 $161.5
Other comprehensive loss
Deferred translation loss (23.2) (196.0)
Other .2 .1
------ ------
Total comprehensive income/(loss) $117.6 $(34.4)
====== ======
</TABLE>
6
<PAGE> 7
ITEM 1. (Continued)
- -------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in Millions Except Per Share Amounts)
6. We are organized into seven Strategic Business Units (SBUs)
encompassing our key markets: Automotive Systems Group (ASG),
Automotive Aftermarket Group (AAG), Engine Systems Group (ESG),
Off-Highway Systems Group (OHSG), Industrial Group (IG), Heavy Truck
Group (HTG) and Dana Commercial Credit (DCC). This structure allows our
people in each of these areas to focus their resources to the benefit
of Dana and our global customers. Management evaluates the operating
segments and regions as if DCC were accounted for on the equity method
of accounting rather than on the fully consolidated basis used for
external reporting. With the exception of DCC, operating profit after
tax (PAT) represents earnings before interest and taxes, tax effected
at 41% (Dana's long-term effective rate), plus equity in earnings of
affiliates. Information used to evaluate the SBUs and regions is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
OPERATING NET
SALES PAT PROFIT
1998 1999 1998 1999 1998 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASG $1,100.8 $1,176.1 $ 84.0 $ 93.1 $ 66.6 $ 69.4
AAG 646.3 696.1 24.7 40.6 16.1 28.8
ESG 505.6 642.9 22.9 35.8 15.7 24.5
OHSG 238.6 217.4 13.4 9.2 9.7 5.1
IG 189.8 180.7 12.0 9.5 9.3 6.4
HTG 414.8 446.0 21.4 26.6 15.7 18.9
DCC 8.0 8.9 8.0 8.9
Other 136.9 21.4 (48.2) (56.5) (2.9) 5.2
-------- -------- -------- -------- -------- --------
Total Operations 3,232.8 3,380.6 138.2 167.2 138.2 167.2
Restructuring and
Nonrecurring items 2.4 (5.7) 2.4 (5.7)
-------- -------- -------- -------- -------- --------
Consolidated $3,232.8 $3,380.6 $ 140.6 $ 161.5 $ 140.6 $ 161.5
======== ======== ======== ======== ======== ========
North America $2,519.7 $2,600.9 $ 159.8 $ 191.4 $ 127.6 $ 146.9
South America 177.3 131.4 4.7 1.4 .8 (1.8)
Europe 462.3 582.5 14.5 20.2 7.1 9.1
Asia Pacific 47.1 57.4 1.3 (0.1) (1.9) (3.1)
DCC 8.0 8.9 8.0 8.9
Other 26.4 8.4 (50.1) (54.6) (3.4) 7.2
-------- -------- -------- -------- -------- --------
Total Operations 3,232.8 3,380.6 138.2 167.2 138.2 167.2
Restructuring and
nonrecurring items 2.4 (5.7) 2.4 (5.7)
-------- -------- -------- -------- -------- --------
Consolidated $3,232.8 $3,380.6 $ 140.6 $ 161.5 $ 140.6 $ 161.5
======== ======== ======== ======== ======== ========
</TABLE>
7
<PAGE> 8
ITEM 1. (Continued)
- -------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in Millions Except Per Share Amounts)
7. In the fourth quarter of 1998, we recorded restructuring and
integration charges of $138 related to the integration of the former
Echlin operations into our businesses. Of this amount, $118 was charged
to restructuring and $20, for writing down inventory, was charged to
cost of sales. In the first quarter of 1999, we charged $7 to
restructuring and integration expense.
At March 31, 1999, $98 of restructuring charges remained in accrued
liabilities. This balance was comprised of $88 for the reduction of
approximately 1,800 employees to be completed in 1999 and $10 for lease
terminations and other exit costs. The estimated cash expenditures will
be approximately $76 in 1999, $19 in 2000 and $3 thereafter. Our
liquidity and cash flows will not be materially impacted by these
actions.
8. In the first quarter of 1999, we sold $1,000 of new unsecured senior
notes consisting of $250 of 6.25% notes due March 1, 2004, $350 of 6.5%
notes due March 1, 2009 and $400 of 7.0% notes due March 1, 2029.
Proceeds from the issues were used to refinance the bridge financing
arranged for the Glacier Vandervell bearings and AE Clevite aftermarket
engine hard parts acquisitions, as well as to pay down other short-term
debt.
9. In March 1999, we terminated our agreement with a financial institution
to sell, without recourse, undivided fractional interests in designated
pools of trade accounts receivable, up to a maximum of $200. Accounts
receivable amounting to $200 had been sold under this agreement at
December 31, 1998.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------- ---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Liquidity and Capital Resources
- -------------------------------
(in Millions)
Increases in net income and depreciation and amortization had a
positive impact on cash provided by operating activities in the first quarter of
1999. However, termination of a $200 accounts receivable factoring program,
along with a seasonal increase in accounts receivable, contributed to a nearly
$440 increase in working capital for the quarter, resulting in a $147 outflow of
cash related to operating activities.
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATIONS
- ----------------------------------------------------------
FOR THREE MONTHS ENDED
MARCH 31
- ----------------------------------------------------------
<S> <C>
1997 $ 27
- ----------------------------------------------------------
1998 112
- ----------------------------------------------------------
1999 (147)
- ----------------------------------------------------------
</TABLE>
Net cash of $253 used in investing activities was $207 less than in the
first quarter of 1998. In 1998, the acquisitions of Eaton Corporation's heavy
axle and brake business, General Automotive Specialty, Inc. and the remaining
40% interest in Simesc, our Brazilian structural components manufacturing
company, used cash of $315.
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES
- ----------------------------------------------------------
YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31 MARCH 31
- ----------------------------------------------------------
<S> <C> <C>
1997 $579 $128
- ----------------------------------------------------------
1998 661 118
- ----------------------------------------------------------
1999 720 * 193
- ----------------------------------------------------------
* Projected
- ----------------------------------------------------------
</TABLE>
Capital expenditures were $75 higher than the first quarter of 1998. We
currently anticipate capital spending for the full year of 1999 to be $59 above
the 1998 level.
Net purchases of leased assets (purchases less principal payments on
leases and loans) provided cash of $25 in 1999, an increase of $58 over 1998.
Financing activities provided net cash of $377. In the first quarter of
1999, we sold $1,000 of new unsecured senior notes consisting of $250 of 6.25%
notes due March 1, 2004, $350 of 6.5% notes due March 1, 2009 and $400 of 7.0%
notes due March 1, 2029. Proceeds from the issues were used to refinance the
bridge financing arranged for the Glacier Vandervell bearings and AE Clevite
aftermarket engine hard parts acquisitions, as well as to pay down other
short-term debt.
Cash dividends paid in the first quarter of 1999 were $51 compared to
$43 last year. This change is primarily due to increasing our quarterly dividend
rate by $.04 since the first quarter of 1998.
In April 1999, the Board of Directors authorized a stock buy-back plan
under which we may repurchase up to $350 of our common stock. The purchases may
be made in the open market or in privately negotiated transactions from time to
time during the next 12 to 18 months.
9
<PAGE> 10
ITEM 2. (Continued)
- -------------------
Liquidity and Capital Resources
- -------------------------------
(in Millions)
The purchases will be funded through available cash flow, which could be
supplemented by proceeds from asset sales currently under evaluation.
Committed and uncommitted bank lines enable us to issue commercial
paper and make direct bank borrowings. Excluding DCC, we had committed and
uncommitted borrowing lines of credit totaling approximately $1,782 at the end
of the first quarter of 1999, while DCC's credit lines totaled $743. We expect
that our strong cash flows from operations and from potential asset sales,
together with worldwide credit facilities, will provide adequate liquidity to
meet our debt service obligations, projected capital expenditures, working
capital requirements, and potential acquisition and share repurchase
obligations.
We have reviewed liabilities that may result from the legal proceedings
(including those involving product liability claims and alleged violations of
environmental laws) to which we were parties as of March 31, 1999 and we do not
believe that these liabilities or the related cash flows are reasonably likely
to have a material adverse effect on our liquidity, financial condition or
results of operations. Contingent environmental and product liabilities were
estimated based on the most probable method of remediation or outcome, current
laws and regulations and existing technology. Estimates were made on an
undiscounted basis and exclude the effects of inflation. When there was a range
of equally probable remediation methods or outcomes, we accrued at the lower end
of the range. At March 31, 1999:
- $43 was accrued for contingent product liability costs and $53
for contingent environmental liability costs, compared to $38 and
$57 at December 31, 1998
- $11 was recorded (as assets) for probable recoveries from
insurance or third parties for product liability claims and $1
for environmental liability claims, compared to $17 and $1 at
December 31, 1998
- The difference between the minimum and maximum estimates for
contingent liabilities, while not considered material, was $16
for the product liability claims and $2 for the environmental
liability claims, compared to $15 and $2 at December 31, 1998
Restructuring and Integration Expenses
- --------------------------------------
In the fourth quarter of 1998, we recorded restructuring and
integration charges of $138 related to the integration of the former Echlin
operations into our businesses. Of this amount $118 was charged to restructuring
and $20, for writing down inventory, was charged to cost of sales. At that time
we anticipated that an additional $51 would be charged to restructuring and
integration expense in 1999 for facility closures and rationalization programs
that had not yet been announced, as well as for training, relocation and other
costs relating to the consolidation of operations. In the first quarter of 1999,
we charged $7 to restructuring and integration expense. We expect the remaining
$44 to be expensed evenly over the next three quarters of 1999.
10
<PAGE> 11
ITEM 2. (Continued)
- -------------------
Liquidity and Capital Resources
- -------------------------------
(in Millions)
The following summarizes the restructuring activity recorded in the
first quarter of 1999 and the change in the accrual:
<TABLE>
<CAPTION>
ACCRUED AT ACTIVITY ACCRUED AT
DECEMBER 31, 1998 CHARGES PAYMENTS MARCH 31, 1999
----------------- ------- -------- --------------
<S> <C> <C> <C> <C>
Employee termination
benefits $116 $ - $(28) $88
Other 11 7 (8) 10
---- --- ---- ---
Total $127 $7 $(36) $98
==== === ==== ===
</TABLE>
At March 31, 1999, $98 of restructuring charges remained in accrued
liabilities. This balance was comprised of $88 for the reduction of
approximately 1,800 employees to be completed in 1999 and $10 for lease
terminations and other exit costs. The estimated cash expenditures will be
approximately $76 in 1999, $19 in 2000 and $3 thereafter. Our liquidity and cash
flows will not be materially impacted by these actions.
Impact of the Year 2000
- -----------------------
We have a Year 2000 readiness program, which is under the leadership of
our Global Year 2000 Readiness Team. The Team includes Year 2000 Project
Managers for each Strategic Business Unit and geographic region.
PricewaterhouseCoopers LLP has been assisting the Team with methodology,
training and data collection tools. In large part, we are using assessment tools
developed by the Automotive Industry Action Group, an industry trade
association. The Glacier Vandervell and AE Clevite operations that we acquired
in December 1998 have been incorporated into this program.
To date, we have conducted a global product review and have not found
any significant readiness problems with respect to our products. We have also
assessed our internal information technology (IT) and non-IT systems (business,
operating and factory floor systems) and have upgraded, repaired or replaced
over 90% of the systems for which remediation is appropriate.
We expect to complete all remediation activities and post-remediation
testing for our internal systems during the second quarter of 1999. If
contingency plans are needed for these systems, we will develop them during the
second half of the year. We are also continuing to assess the Year 2000
readiness of our critical production and non-production suppliers and major
customers by means of surveys, visits and audits. We expect to complete these
assessments during the second quarter and will prepare any necessary contingency
plans before the end of the year.
We have spent approximately $53 on Year 2000 activities to date, of
which $37 has been charged to expense and $16 has been capitalized. Based on the
work performed to date and current information and plans, we expect to incur
additional costs of $47, of which $31 will be charged to expense and $16 will be
capitalized. In addition to completion of our internal remediation activities
and the associated equipment purchases, these projected future costs cover
systems testing, completion of our supplier and customer assessments,
contingency planning, and monitoring and
11
<PAGE> 12
ITEM 2. (Continued)
- -------------------
Liquidity and Capital Resources
- -------------------------------
(in Millions)
follow-up activities for crucial dates in 2000, including January 1 and
February 29 (leap year).
The most reasonably likely worst case scenario that we currently
anticipate with respect to Year 2000 is the failure of some of our suppliers,
including utilities and governmental agencies, to be ready. This could cause a
temporary interruption of materials or services that we need to make our
products, which could result in delayed shipments to our customers and lost
sales and profits to us. As our critical supplier assessments are completed, we
will develop contingency plans to address any risks and uncertainties which are
identified. These plans may include resourcing materials or building inventory
banks.
The outcome of our Year 2000 program is subject to a number of risks
and uncertainties, some of which are beyond our control (such as the Year 2000
responses of third parties). Consequently, we cannot be sure that we will not
incur material remediation costs beyond the above anticipated future costs, or
that our business, financial condition or results of operations will not be
significantly impacted if Year 2000 problems with our systems, or with the
products or systems of other parties with whom we do business, are not resolved
in a timely manner.
Impact of Euro Conversion
- -------------------------
We have a Euro currency program for our European facilities, under the
leadership of our Euro Steering Committee, and have established guidelines and
timetables for compliance with the requirements of the Euro conversion. The
Committee is monitoring progress at all locations. While various operations are
at different stages of readiness, we believe that all of our facilities are
capable of complying with the Euro conversion timetable and with customer
requirements for quoting and billing in Euro currency. Preliminary indications
are that the cost to convert to the Euro will not be material.
Results of Operations (Three Months 1999 vs Three Months 1998)
- --------------------------------------------------------------
(in Millions)
Worldwide sales of $3,381 in the first quarter surpassed the record
first quarter of 1998 by $148 or 5%. Sales of companies acquired, net of
divestitures, amounted to $17 of the increase. Excluding such activities, sales
increased $131 or 4% during the quarter with price changes having a minimal
effect. Our U.S. sales increased $41 or 2% over 1998 ($74 or 3% excluding the
effect of acquisitions and divestitures). Sales from our international
operations increased $107 or 12% over 1998, with the impact of acquisitions and
divestitures adding $50 or 6% to the total. The impact of changes in foreign
currency exchange rates since the first quarter of 1998 served to reduce first
quarter 1999 sales by approximately $76 or 2%.
12
<PAGE> 13
ITEM 2. (Continued)
- -------------------
Results of Operations (Three Months 1999 vs Three Months 1998)
- --------------------------------------------------------------
(in Millions)
Sales by segment for the quarter are shown in the following table. The
"Other" category represents closed and sold facilities or locations where the
operating responsibility has not been assigned to a specific SBU.
<TABLE>
<CAPTION>
% CHANGE EXCLUDING
ACQUISITIONS &
1998 1999 % CHANGE DIVESTITURES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Automotive systems group (ASG) $1,101 $1,176 7 6
Automotive aftermarket group (AAG) 646 696 8 5
Engine systems group (ESG) 506 643 27 6
Off-highway systems group (OHSG) 239 217 (9) (1)
Industrial group (IG) 190 181 (5) (5)
Heavy truck group (HTG) 415 446 8 8
Other 137 22 (84) (8)
</TABLE>
- ASG serves the world's passenger car and light-truck markets with
axles, driveshafts, structural components, modules and chassis
systems. Its 7% increase in sales over the 1998 first quarter was
due to a continuing strong demand in North America for light
trucks and sport utility vehicles (SUVs). Worldwide light axle
sales increased 13% over 1998 driven by the demand for pickups
and SUVs in North America which was partially offset by decreases
in South America due to economic difficulties. Driveshaft
shipments displayed strength in North America but not enough to
offset the very weak sales in South America. Total ASG North
American sales, which are 80% of this segment's sales, increased
6% over 1998 with no acquisition/divestiture impact.
- AAG is primarily responsible for the distribution side of the
automotive business. Its sales were 8% higher this quarter than
in 1998. North American aftermarket sales, which are 81% of this
segment's sales, were up 5% over 1998 (4% excluding
acquisitions/divestitures). Excluding acquisitions/divestitures,
European sales were 26% higher than in 1998.
- ESG sells engine parts, fluid systems and sealing products.
Excluding acquisitions/divestitures, its sales were 6% higher
than the comparable period in 1998. Sales of fluid systems
products increased 15%, excluding acquisitions/divestitures, due
to strong passenger car and SUV sales in North America. Sales of
engine and sealing products were both flat compared to this
period last year.
- OHSG sells off-highway axles, powershift transmissions,
transaxles, torque converters and electronic controls. Its
first-quarter sales were 9% below 1998 levels (1% below last year
on a comparable basis) due to softness in the worldwide
agricultural business.
13
<PAGE> 14
ITEM 2. (Continued)
- -------------------
Results of Operations (Three Months 1999 vs Three Months 1998)
- --------------------------------------------------------------
(in Millions)
- IG sells components and systems for industrial machinery, motor
vehicles, business machines and other equipment. Its first-quarter
sales fell 5% from 1998 due to soft North American and European
markets.
- HTG sells heavy axles and brakes, drivetrain components, power
take-offs, trailer products and heavy systems modular assemblies.
Its sales for the period showed an 8% increase over 1998. North
American sales, which are 93% of this segment's sales, were up 11%
over 1998 due to strong heavy truck build levels.
- Other sales were down compared to 1998 primarily due to the sale
of our brake hose business in the first quarter of 1998 and the
Midland-Grau divestiture which occurred in the second quarter of
1998.
Sales by region for the quarter are shown in the following table:
<TABLE>
<CAPTION>
% CHANGE EXCLUDING
ACQUISITIONS &
1998 1999 % CHANGE DIVESTITURES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North America $2,520 $2,601 3 5
South America 177 131 (26) (34)
Europe 462 583 26 19
Asia Pacific 47 57 22 22
Other 27 9 (67) (67)
</TABLE>
- North American sales were up $81 (3% over 1998) despite a $35
decrease from divestitures, net of acquisitions. Continued demand
for light trucks and sport utility vehicles, as well as strength
in the medium and heavy truck markets, helped fuel the increase.
This was partially offset by weakness in agricultural and
industrial sales.
- Sales in Europe increased $121 (26% over 1998). Sales increases
in ASG and AAG complemented sales from newly acquired businesses
in ESG and AAG.
- Economic turmoil in South America continued into 1999
resulting in a 26% decline in sales. The sales increase of 22% in
the Asia Pacific region was primarily due to the new modular
product sales in the ASG.
Revenue from lease financing and other income decreased $19 in the
first quarter of 1999. The sale of DCC's Technology Leasing Group portfolio at
the end of 1998 accounted for $22 of the change.
Gross margin for the first quarter was 16.7%, compared to 16.5% in
1998. ASG margins were higher due to margin increases in driveshaft, structural
and brake products, which were partially offset by decreases in margins for axle
and modular products. The increases were due to margins
14
<PAGE> 15
ITEM 2. (Continued)
- -------------------
Results of Operations (Three Months 1999 vs Three Months 1998)
- --------------------------------------------------------------
(in Millions)
on higher North American truck shipments (driveshaft) and production of new
business that was in the launch stage in 1998 (structural and brake). Axle
margins were down due to depressed markets in both South America and Europe and
continuing startup costs in Thailand. Modular margins were down due to South
American economic conditions and startup costs in Australia.
AAG and, to a lesser extent HTG, reported improvements in gross margin
due to the extensive restructuring/synergy programs now underway. The
acquisition of Glacier Vandervell in 1998 helped to improve ESG's gross margin
in the first quarter of 1999. The IG and OHSG reported depressed margins
corresponding with soft sales when compared to last year.
Selling, general and administrative expenses (SG&A) decreased $3 in
1999. The net impact of acquisitions and divestitures decreased SG&A expenses $4
in the first quarter. The ratio of SG&A expense to sales improved from 9.3% in
1998 to 8.8% in 1999. Savings from our restructuring/synergy programs and
ongoing cost control initiatives are continuing to show positive results.
Operating margin for the first quarter of 1999 was 8.0% compared to
7.3% in 1998 for the above reasons.
Interest expense was $1 lower than last year due to the impact of the
sale of DCC's Technology Leasing Group portfolio, which was offset by higher
average debt levels in 1999 at Dana, excluding DCC.
The effective tax rate in the first quarter of 1999 was 36% compared to
40% in 1998. The effective rate was lower primarily due to state tax credits
related to business development and favorable settlement of state tax issues.
Equity in earnings of affiliates was higher in 1999 by $5, primarily
due to increased earnings at our affiliates in Mexico and Brazil and DCC's
leasing affiliates.
Minority interest in net income of consolidated subsidiaries decreased
$1, primarily due to the lower earnings of Albarus S.A. and its majority-owned
subsidiaries.
We reported record first quarter earnings in 1999 of $162 compared to
$141 in 1998. The comparisons include non-recurring, after-tax charges of $6 in
1999 and a one-time gain of $2 in 1998.
Market Trends
- -------------
Component sales to producers of light truck and SUVs continued strong
in the first quarter of 1999. Our current outlook for 1999 remains positive,
with a small increase in North American light truck production projected, mostly
in SUVs and standard pickups. We expect sales to the passenger car and medium
and heavy truck markets to continue at 1998 levels.
15
<PAGE> 16
ITEM 2. (Continued)
- -------------------
Results of Operations (Three Months 1999 vs Three Months 1998)
- --------------------------------------------------------------
(in Millions)
Forward-Looking Information
- ---------------------------
Forward-looking statements in this report are indicated by words such
as "anticipates," "expects," "believes," "intends," "plans," and similar
expressions. These statements represent our expectations based on current
information and assumptions. Forward-looking statements are inherently subject
to risks and uncertainties. Actual results could differ materially from those
which are anticipated or projected due to a number of factors. These factors
include changes in business relationships with our major customers, work
stoppages at major customers, competitive pressures on sales and pricing,
increases in production or material costs that cannot be recouped in product
pricing, our ability and/or that of third parties with whom we do business to
resolve Year 2000 problems in a timely manner, and international economic
conditions, particularly in South America and Asia Pacific.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------------
There have been no material changes to our exposures to market risk
since December 31, 1998.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- -----------------------------------
We are a party to various pending judicial and administrative
proceedings arising in the ordinary course of business. After reviewing the
proceedings that are currently pending (including the probable outcomes,
reasonably anticipated costs and expenses, availability and limits of our
insurance coverage, and our established reserves for uninsured liabilities), we
do not believe that any liabilities that may result from these proceedings are
reasonably likely to have a material effect on our liquidity, financial
condition or results of operations.
We are not currently a party to any of the environmental proceedings
involving governmental agencies which the Securities and Exchange Commission
requires companies to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------
These are the results of voting by stockholders present or represented
at our annual meeting on April 7, 1999:
1. ELECTION OF DIRECTORS. The following were elected to serve as directors
until the next annual meeting or until their successors are elected:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
--------- --------------
<S> <C> <C>
B. F. Bailar 144,772,212 946,428
A. C. Baillie 144,855,557 863,083
E. M. Carpenter 144,845,934 872,706
E. Clark 144,876,982 841,658
G. H. Hiner 144,873,637 845,003
J. M. Magliochetti 144,777,046 941,594
M. R. Marks 144,885,627 833,013
S. J. Morcott 144,758,347 960,293
R. B. Priory 144,857,135 861,505
</TABLE>
2. PROPOSAL TO AMEND THE DANA CORPORATION 1997 STOCK OPTION PLAN. The
restated and amended 1997 Stock Option Plan and the issuance of
6,000,000 additional shares of common stock under this plan were
approved. There were 130,316,902 votes for approval; 14,579,258 votes
against; 822,480 votes abstaining; and no broker nonvotes.
3. PROPOSAL TO ADOPT THE DANA CORPORATION 1999 RESTRICTED STOCK PLAN. The
1999 Restricted Stock Plan and the issuance of 750,000 shares of common
stock under this plan were approved. There were 132,635,202 votes for
adoption; 12,174,892 votes against; 908,546 votes abstaining; and no
broker nonvotes.
4. RATIFICATION OF PRICEWATERHOUSECOOPERS LLP. The Board's selection of
PricewaterhouseCoopers as Dana's independent accountants for fiscal
year 1999 was ratified. There were 145,065,878 votes for ratification;
192,005 votes against; and 460,757 votes abstaining.
17
<PAGE> 18
Item 4. (Continued)
- -------------------
5. ENDORSEMENT OF THE CERES PRINCIPLES FOR PUBLIC ENVIRONMENTAL
ACCOUNTABILITY. Endorsement of the CERES Principles was rejected. There
were 14,206,189 votes for endorsement; 110,833,998 votes against;
8,194,572 votes abstaining; and no broker nonvotes.
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) We filed a report on Form 8-K on March 2, 1999, containing the
following documents related to our Registration Statement No.
333-67307: (1) Terms Agreement dated February 26, 1999, between Dana
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of
themselves and as representatives of several underwriters; (2) Second
Supplemental Indenture between Dana and Citibank, N.A., Trustee, dated
as of February 26, 1999; and (3) Form of 6.25% Notes due 2004, 6.5%
Notes due 2009, and 7.0% Notes due 2029.
18
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DANA CORPORATION
Date: May 13, 1999 /s/ John S. Simpson
- ------------------ ----------------------------------
John S. Simpson
Chief Financial Officer
19
<PAGE> 20
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
No. Description Method of Filing
- --- ----------- ----------------
<S> <C> <C>
4-F Second Supplemental Indenture between Dana Filed by reference to Exhibit 4.B.1 to our Form 8-K
and Citibank, N.A., Trustee, dated as of February dated March 2, 1999
26, 1999
4-G Form of 6.25% Notes due 2004, 6.5% Notes due Included in Exhibit 4.B.1 and filed by reference to
2009, and 7.0% Notes due 2029 Exhibit 4.C.1 to our Form 8-K dated March 2, 1999
10-E Amended and Restated 1997 Stock Option Plan Filed by reference to Exhibit A to our Proxy Statement
dated March 5, 1999
10-L 1999 Restricted Stock Plan Filed by reference to Exhibit B to our Proxy Statement
dated March 5, 1999
27 Financial Data Schedules Filed with this Report
</TABLE>
Note: Exhibit Nos. 10-E and 10-L are exhibits required to be identified
- ----- pursuant to Item 14(a)(3) of Form 10-K.
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 207,800
<SECURITIES> 0
<RECEIVABLES> 2,089,000
<ALLOWANCES> 0
<INVENTORY> 1,629,200
<CURRENT-ASSETS> 4,802,000
<PP&E> 5,736,900
<DEPRECIATION> 2,479,400
<TOTAL-ASSETS> 10,486,100
<CURRENT-LIABILITIES> 3,619,900
<BONDS> 2,520,100
0
0
<COMMON> 165,800
<OTHER-SE> 2,700,300
<TOTAL-LIABILITY-AND-EQUITY> 10,486,100
<SALES> 3,380,600
<TOTAL-REVENUES> 3,419,500
<CGS> 2,814,600
<TOTAL-COSTS> 2,814,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,000
<INCOME-PRETAX> 231,900
<INCOME-TAX> 83,300
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,500
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 230,200
<SECURITIES> 0
<RECEIVABLES> 1,616,900
<ALLOWANCES> 40,500
<INVENTORY> 1,678,700
<CURRENT-ASSETS> 4,337,000
<PP&E> 5,765,300
<DEPRECIATION> 2,461,500
<TOTAL-ASSETS> 10,137,500
<CURRENT-LIABILITIES> 3,986,600
<BONDS> 1,717,900
0
0
<COMMON> 165,700
<OTHER-SE> 2,773,500
<TOTAL-LIABILITY-AND-EQUITY> 10,137,500
<SALES> 12,463,600
<TOTAL-REVENUES> 12,838,700
<CGS> 10,449,100
<TOTAL-COSTS> 10,449,100
<OTHER-EXPENSES> 1,289,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279,600
<INCOME-PRETAX> 820,200
<INCOME-TAX> 315,600
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 534,100
<EPS-PRIMARY> 3.24
<EPS-DILUTED> 3.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 248,900
<SECURITIES> 0
<RECEIVABLES> 1,804,400
<ALLOWANCES> 0
<INVENTORY> 1,688,300
<CURRENT-ASSETS> 0
<PP&E> 5,584,100
<DEPRECIATION> 2,627,100
<TOTAL-ASSETS> 10,033,100
<CURRENT-LIABILITIES> 0
<BONDS> 3,169,900
0
0
<COMMON> 164,700
<OTHER-SE> 2,530,600
<TOTAL-LIABILITY-AND-EQUITY> 10,033,100
<SALES> 3,232,800
<TOTAL-REVENUES> 3,290,800
<CGS> 2,699,200
<TOTAL-COSTS> 2,699,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,700
<INCOME-PRETAX> 221,800
<INCOME-TAX> 88,100
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,600
<EPS-PRIMARY> .86
<EPS-DILUTED> .84
</TABLE>
