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DANA CORP
10-Q, 2000-11-06
MOTOR VEHICLE PARTS & ACCESSORIES

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
EXHIBIT INDEX
Exhibit 3-B By-laws
Exhibit 10-C-1 Excess Benefits Plan
Exhibit 27 Financial Data Schedule

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

[ ICON ]              Quarterly Report Pursuant to Section 13 or 15(d)                               
Of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2000		Commission File Number 1-1063

Dana Corporation

(Exact name of Registrant as Specified in its Charter)

Virginia		34-4361040
(State or other jurisdiction of incorporation or organization)		(IRS Employer 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 October 31, 2000
Common stock of $1 par value		147,858,930

 

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Table of Contents

DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX

				Page Number
Cover					1
Index					2
Part I. Financial Information
	Item 1. Financial Statements
		Condensed Balance Sheet December 31, 1999 and September 30, 2000			3
		Statement of Income Three Months and Nine Months Ended September 30, 1999 and 2000			4
		Condensed Statement of Cash Flows Nine Months Ended September 30, 1999 and 2000			5
		Notes to Condensed Financial Statements			6-9
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				10-18
	Item 3. Quantitative and Qualitative Disclosures About Market Risk				18
Part II. Other Information
	Item 1. Legal Proceedings				19
	Item 6. Exhibits and Reports on Form 8-K				19
Signature					20
Exhibit Index					21

2

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Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.		DANA CORPORATION

CONDENSED BALANCE SHEET

(in Millions)

										(Unaudited)
Assets						December 31, 1999				September 30, 2000
Current assets
	Cash and marketable securities					$	111			$	144
	Accounts receivable
		Trade					1,935				1,916
		Other					411				424
	Inventories
			Raw materials				534				521
			Work in process and finished goods				1,250				1,175
	Other current assets						560				779
				Total current assets			4,801				4,959
Property, plant and equipment							6,181				5,870
Less: Accumulated depreciation							(2,731	)			(2,498	)
Investments in leases							1,014				1,062
Investments and other assets							1,858				2,009
				Total assets		$	11,123			$	11,402
Liabilities and Shareholders’ Equity
Current liabilities
	Notes payable, including current portion of long-term debt					$	1,418			$	1,965
	Accounts payable						1,129				1,043
	Accrued payroll and employee benefits						462				387
	Other accrued liabilities						755				703
	Taxes on income						124				340
				Total current liabilities			3,888				4,438
Long-term debt							2,732				2,715
Deferred employee benefits and other noncurrent liabilities							1,398				1,400
Minority interest							148				120
Shareholders’ equity							2,957				2,729
				Total liabilities and shareholders’ equity		$	11,123			$	11,402

The accompanying notes are an integral part of the financial statements.

3

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ITEM 1. (Continued)

DANA CORPORATION

STATEMENT OF INCOME (Unaudited)

(in Millions Except Per Share Amounts)

			Three Months Ended								Nine Months Ended
			September 30								September 30
			1999				2000				1999				2000
Net sales			$	3,127			$	2,855			$	9,915			$	9,601
Revenue from lease financing and other income				47				50				119				308
				3,174				2,905				10,034				9,909
Costs and expenses
	Cost of sales			2,564				2,466				8,176				8,117
	Selling, general and administrative expenses			289				281				875				863
	Restructuring and integration charges			17				69				30				103
	Interest expense			69				82				206				238
				2,939				2,898				9,287				9,321
Income before income taxes				235				7				747				588
Estimated taxes on income				(81	)			10				(267	)			(207	)
Minority interest				(3	)			(4	)			(10	)			(12	)
Equity in earnings of affiliates				11				16				43				49
Net income			$	162			$	29			$	513			$	418
Net income per common share -
	Basic		$	.98			$	.19			$	3.10			$	2.73
	Diluted		$	.97			$	.19			$	3.07			$	2.71
Dividends declared and paid per common share			$	.31			$	.31			$	.93			$	.93
Average number of shares outstanding -
	For Basic			166				149				166				153
	For Diluted			167				150				167				154

The accompanying notes are an integral part of the financial statements.

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ITEM 1. (Continued)

DANA CORPORATION

CONDENSED STATEMENT OF CASH FLOWS (Unaudited)

(in Millions)

			Nine Months Ended September 30
			1999				2000
Net income			$	513			$	418
Depreciation and amortization				392				390
Gain on divestitures								(110	)
Working capital change				(522	)			(223	)
Other				(81	)			(50	)
	Net cash flows from operating activities			302				425
Purchases of property, plant and equipment				(562	)			(464	)
Purchases of assets to be leased				(318	)			(242	)
Payments received on leases and loans				152				126
Net loans to customers				(87	)			(147	)
Acquisitions				(12	)			(279	)
Divestitures								562
Other				24				27
	Net cash flows — investing activities			(803	)			(417	)
Net change in short-term debt				(195	)			621
Proceeds from long-term debt				1,151				311
Payments on long-term debt				(302	)			(388	)
Dividends paid				(154	)			(142	)
Shares reacquired				(43	)			(381	)
Other				(1	)			4
	Net cash flows — financing activities			456				25
Net change in cash and cash equivalents				(45	)			33
Cash and cash equivalents — beginning of period				230				111
Cash and cash equivalents — end of period			$	185			$	144

The accompanying notes are an integral part of the financial statements.

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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 1999 to conform to the 2000 presentation.
2.		In January 2000, we acquired the cardan-jointed propeller shaft business of GKN plc (GKN) and in July 2000, we acquired the automotive axle manufacturing and stamping operations of Invensys plc. 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 January 2000, we sold the Gresen Hydraulics businesses in the United States (U.S.) and South America to Parker-Hannifin. We also sold certain portions of our constant velocity (CV) joint businesses to GKN. In February, we sold most of the global Warner Electric businesses to Colfax Corporation; in March, we sold Commercial Vehicle Cab Systems Group to an affiliate of Hidden Creek Industries, Inc. In September 2000, we sold the remaining 35% interest in our Brazilian CV joint operation to GKN. Proceeds from these divestitures totaled $562. Other income for the nine months ended September 30, 2000 includes an aggregate pre-tax gain of $179 and net income includes an after-tax gain of $108 from these transactions.
4.		Following is a reconciliation of average shares for purposes of calculating basic and diluted net income per share.

			Three Months								Nine Months
			Ended September 30								Ended September 30
			1999				2000				1999				2000
Weighted average common shares outstanding				165.8				148.9				165.8				153.3
Plus: Incremental shares from assumed conversion of -
	Deferred compensation units			.5				.8				.5				.8
	Stock options			.9				.1				.9				.1
Total potentially dilutive securities				1.4				.9				1.4				.9
Adjusted average common shares outstanding				167.2				149.8				167.2				154.2

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. Our total comprehensive income is as follows:

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ITEM 1. (Continued)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(in Millions Except Per Share Amounts)

			Three Months Ended								Nine Months Ended
			September 30								September 30
			1999				2000				1999				2000
Net income			$	162			$	29			$	513			$	418
Other comprehensive income (loss)
	Deferred translation gain (loss)			14				(70	)			(184	)			(130	)
	Other							(1	)
	Total comprehensive income (loss)		$	176			$	(42	)		$	329			$	288

		The $130 deferred translation loss for the nine months of 2000 resulted primarily from an increase in the strength of the U.S. dollar relative to the euro, the British pound and the Canadian dollar, net of the impact of the strengthening Brazilian real. The $184 deferred translation loss for the nine months of 1999 was primarily due to the devaluation of the Brazilian real and the strengthening of the U.S. dollar against several European currencies.
6.		We are organized into seven Strategic Business Units (SBUs) encompassing our key markets: Automotive Systems Group (ASG), Automotive Aftermarket Group (AAG), Heavy Truck Group (HTG), Engine Systems Group (ESG), Fluid Systems Group (FSG), Off-Highway Systems Group (OHSG) and Dana Commercial Credit (DCC). 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 (EBIT), tax effected at 39% (Dana’s estimated long-term effective rate), plus equity in earnings of affiliates. The “Other” category includes discontinued businesses, trailing liabilities for closed plants, SBU and regional administrative expenses, interest expense net of interest income, corporate expenses and the adjustment to reflect the actual effective tax rate. In arriving at net profit from operating PAT, expenses relating to a specific SBU or region are applied directly. Other allocations are based on sales. Information used to evaluate the SBUs and regions is as follows:

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6. (Continued)

		Three Months Ended September 30
																		Operating								Net
		Sales								EBIT								PAT								Profit
		1999				2000				1999				2000				1999				2000				1999				2000
ASG		$	1,031			$	1,089			$	116			$	83			$	75			$	58			$	64			$	34
AAG			756				693				85				30				52				18				40				(2	)
HTG			461				345				52				27				32				17				26				8
ESG			314				302				20				13				13				14				10				8
FSG			283				266				26				18				16				11				13				6
OHSG			189				150				14				9				9				6				7				3
DCC																			10				7				10				7
Other			93				10				(21	)			(60	)			(34	)			(70	)			3				(3	)
			3,127				2,855				292				120				173				61				173				61
Restructuring and nonrecurring items											(17	)			(68	)			(11	)			(32	)			(11	)			(32	)
Consolidated		$	3,127			$	2,855			$	275			$	52			$	162			$	29			$	162			$	29
North America		$	2,458			$	2,156			$	295			$	149			$	183			$	97			$	155			$	53
Europe			465				440				19				11				10				6				4				(3	)
South America			141				158				6				10				5				8				3				4
Asia Pacific			63				101				(2	)			3				(1	)			2				(4	)			(1	)
DCC																			10				7				10				7
Other											(26	)			(53	)			(34	)			(59	)			5				1
			3,127				2,855				292				120				173				61				173				61
Restructuring and nonrecurring items											(17	)			(68	)			(11	)			(32	)			(11	)			(32	)
Consolidated		$	3,127			$	2,855			$	275			$	52			$	162			$	29			$	162			$	29

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6. (Continued)

		Nine Months Ended September 30
																		Operating												Net
		Sales								EBIT								PAT												Profit
		1999				2000				1999				2000				1999								2000				1999				2000
ASG		$	3,329			$	3,589			$	408			$	363			$	262							$	240			$	209			$	171
AAG			2,326				2,174				245				133				149								81				105				24
HTG			1,424				1,310				156				131				95								80				69				51
ESG			997				1,007				85				78				57								57				42				40
FSG			925				893				103				89				63								55				49				39
OHSG			619				536				47				44				29								27				20				17
DCC																			28								28				28				28
Other			295				92				(141	)			(181	)			(149	)							(193	)			12				5
			9,915				9,601				903				657				534								375				534				375
Restructuring and nonrecurring items											(31	)			63				(21	)							43				(21	)			43
Consolidated		$	9,915			$	9,601			$	872			$	720			$	513							$	418			$	513			$	418
North America		$	7,760			$	7,410			$	955			$	731			$	602							$	462			$	484			$	330
Europe			1,553				1,501				82				69				47								41				20				12
South America			418				427				11				20				14								16				6				8
Asia Pacific			184				263				(3	)			6				(2	)							4				(9	)			(5	)
DCC																			28								28				28				28
											(142	)			(169	)			(155	)							(176	)			5				2
			9,915				9,601				903				657				534								375				534				375
Restructuring and nonrecurring items											(31	)			63				(21	)							43				(21	)			43
Consolidated		$	9,915			$	9,601			$	872			$	720			$	513							$	418			$	513			$	418

		Restructuring and nonrecurring items represent after-tax gains on divestitures and charges related to our restructuring and integration efforts.
7.		In August 2000, we announced the closing of our facility in Reading, Pa. A nonrecurring charge of $52 was recorded for this closing, including $45 for termination benefits related to a workforce reduction of approximately 690 people. This charge had a $31 impact on third quarter earnings. We also incurred $17 of nonrecurring expenses in connection with our continuing efforts to integrate new warehouses into our Engine Controls Division (part of our AAG), reducing net income for the quarter by $12. Including the effect of our restructuring and integration efforts in the first half of the year, we have incurred $54 of restructuring and $49 of integration expenses in the first nine months of 2000, reducing net income by $65.
		At September 30, 2000, $125 of restructuring charges remained in accrued liabilities. This balance was comprised of $118 for termination benefits and $7 for lease terminations and other exit costs. We estimate that our cash expenditures will be approximately $35 in the fourth quarter of 2000, $27 in 2001 and $63 thereafter. Estimated workforce reductions of 126 remain to be completed, with most planned for the first quarter of 2001.
8.		In April 1999, the Board authorized the expenditure of up to $350 to repurchase shares of our common stock. At the beginning of 2000, there remained $250 from the original authorization. In February 2000, the Board authorized an additional $250 for repurchases through the end of 2000. During the first three quarters of 2000, we repurchased nearly 15,456,000 shares at a cost of $381.

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Table of Contents

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(in millions except per share amounts)

Liquidity and Capital Resources

      Income from operations for the first nine months of 2000 – net income less the $110 of gains from divestitures – decreased by $205 versus the first nine months of 1999. Total depreciation and amortization for the first nine months was nearly unchanged. The increase in working capital in the first nine months was $223 in 2000 versus $522 in 1999, an improvement of $299. The most significant factor underlying the change in 1999 was the February 1999 termination of a $200 accounts receivable financing program that had been maintained by the former Echlin Inc. Excluding the impact of terminating this financing program, the change in working capital was $99 less than in the first nine months of 1999.

Cash Flows From Operations
For The Nine Months Ended
September 30
	1998		$	566
	1999			302
	2000			425

      Net cash used in investing activities during the first three quarters of 2000 of $417 represents a reduction of $386 over the same period in 1999. The proceeds from divestitures, net of acquisitions, accounted for $295 of the reduction, while efforts to curtail capital spending resulted in a $98 reduction in that line item. Changes in leasing and lending activities net to a $10 increase in outflows at DCC.

Capital Expenditures
			Year				Nine Months
			Ended				Ended
			December 31				September 30
	1998		$	661			$	454
	1999			807				562
	2000			605	*			464
							* Projected

      Capital expenditures were $98 lower than in the first nine months of 1999. This decline was due in part to higher spending in 1999 for enterprise computer systems and Y2K issues. Efforts to curtail capital spending for the remainder of 2000 are expected to result in a decrease of approximately $200 for the year.

      Cash flows from financing activities in the first nine months of 2000 were $431 lower than in the same period in 1999. Net debt increased $544 during the first nine months of 2000 with activity at DCC accounting for nearly $290 of the net borrowing. The net increase in the comparable period last year was $654, including $1,000 from the issuance of long-term notes. In conjunction with our share repurchase program, we reacquired nearly 15,456,000 shares during the first nine months of 2000 at a cost of $381.

      Cash dividends paid thus far in 2000 are $12 lower than in 1999 due to the stock repurchase program.

      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 $1,607 at the end of the third quarter of 2000, while DCC’s credit lines totaled $724. Based on our budgeting process, we expect our cash flows from operations and divestitures, combined with these credit facilities, to provide sufficient liquidity to fund our currently anticipated debt service obligations, capital spending, potential acquisitions and, to the extent considered appropriate, the share repurchase program.

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ITEM 2. (Continued)

(in millions)

Liquidity and Capital Resources

      We have reviewed the liabilities that may result from the legal proceedings to which we were a party as of September 30, 2000, including those involving product liability claims and alleged violations of environmental laws. 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. If there was a range of equally probable remediation methods or outcomes, we accrued at the lower end of the range.

      At September 30, 2000:

	•		$91 was accrued for contingent product liability costs and $39 for contingent environmental liability costs, compared to $96 and $45 at December 31, 1999
	•		$61 was recorded (as assets) for probable recoveries from insurance or third parties for product liability claims and zero for environmental liability claims, compared to $65 and $1 at December 31, 1999
	•		The difference between the minimum and maximum estimates for contingent liabilities, while not considered material, was $12 for the product liability claims and $3 for the environmental liability claims, identical to the ranges at December 31, 1999

Restructuring and Integration Expenses

      At December 31, 1999 there was $104 remaining in accrued liabilities relating to restructuring plans announced in 1997, 1998 and 1999. During the first nine months of 2000, we continued our restructuring and integration efforts, including the consolidation of our manufacturing and distribution assets in North America.

      The following summarizes the restructuring and integration activity recorded in the first nine months of 2000 and the change in the accrual:

			Employee
			Termination								Integration
			Benefits				Exit Costs				Expenses				Total
Balance at December 31, 1999			$	91			$	13			$	—			$	104
Activity during the period
	Charged to expense			47				7				49				103
	Cash payments			(20	)			(13	)			(49	)			(82	)
Balance at September 30, 2000			$	118			$	7			$	—			$	125

      At September 30, 2000, $125 of restructuring charges remained in accrued liabilities. This balance was comprised of $118 for termination benefits and $7 for lease terminations and other exit costs. We estimate that our cash expenditures will be approximately $35 in the fourth quarter of 2000, $27 in 2001 and $63 thereafter. Estimated workforce reductions of 126 remain to be completed, with most planned for the first quarter of 2001. We do not expect our liquidity and cash flows to be materially impacted by these actions.

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ITEM 2. (Continued)

(in millions)

Impact of Euro Conversion

      We have positioned our operations to deal with the common currency in Europe. We believe that all of our facilities are capable of complying with our euro conversion timetable and with customer requirements for quoting and billing in euro currency. Many of our European locations have converted and the remaining locations are planning to convert in the fourth quarter. We do not expect the cost to convert the remaining locations to the euro to be material.

Results of Operations (Third Quarter 2000 vs Third Quarter 1999)

      Worldwide sales decreased $272 in the third quarter of 2000 to $2,855, a 9% decline when compared to the third quarter of 1999. Excluding the net effect of acquisitions and divestitures, sales decreased $155 or 5% during the quarter. Further excluding the $71 adverse impact of foreign currency fluctuations, our sales decreased $84 or less than 3%. Our U.S. sales declined $307 or 14% versus 1999. Excluding the net effect of acquisitions and divestitures, U.S. sales were down $184 or 8%.

      Overall sales outside the U.S. rose $35 with $6 attributable to the net effect of acquisitions and divestitures. Changes in foreign currency exchange rates since the third quarter of 1999 prevented further improvement, especially in Europe where strengthening of the dollar adversely affected sales by nearly $62 for the quarter. Hardest hit were Germany ($20), the UK ($10) and Italy ($10). Asia Pacific incurred $8 of its $9 in adverse currency impact in Australia. In our South American region, the sales boost from a stronger Brazilian real was offset by weakness in the Columbian peso and South African rand.

      Sales by region for the third quarter are as follows.

														% Change Excluding
														Acquisitions &
		1999				2000				% Change				Divestitures
North America		$	2,458			$	2,156				(12	)			(7	)
Europe			465				440				(5	)			(8	)
South America			141				158				12				23
Asia Pacific			63				101				59				48

      Sales in North America were down $302 or 12% for the quarter, with divestitures accounting for $123 of the change. The Canadian and Mexican currencies generally stayed even with the U.S. dollar in the third quarter, adding $1 of positive impact. European sales improved in local currency, boosted by $13 of net effect of acquisitions and divestitures, but weakening of the euro and pound caused a $62 adverse impact. The region ended with a $25 net decrease in sales. South American sales were up more than 12% as currency changes had no material effect; however, sales increased 23% after excluding the effect of divestitures. Sales in the Asia Pacific region rose $38 in the quarter. Excluding acquisitions and divestitures, sales in the region increased $31 due mainly to our new modular business in Australia.

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ITEM 2. (Continued)

(in millions)

Results of Operations (Third Quarter 2000 vs Third Quarter 1999)

      We are organized into seven Strategic Business Units (SBUs) encompassing our key markets: Automotive Systems Group (ASG), Automotive Aftermarket Group (AAG), Heavy Truck Group (HTG), Engine Systems Group (ESG), Fluid Systems Group (FSG), Off-Highway Systems Group (OHSG) and Dana Commercial Credit (DCC). “Other” represents closed and sold facilities or locations where the operating responsibility has not been assigned to a specific SBU.

      Our sales by segment for the third quarter are shown in the following table.

														% Change Excluding
														Acquisitions &
		1999				2000				% Change				Divestitures
Automotive Systems Group		$	1,031			$	1,089				6				2
Automotive Aftermarket Group			756				693				(8	)			(7	)
Heavy Truck Group			461				345				(25	)			(18	)
Engine Systems Group			314				302				(4	)			(4	)
Fluid Systems Group			283				266				(6	)			(6	)
Off-Highway Systems Group			189				150				(21	)			(6	)
Other			93				10				(89	)

      ASG, which manufactures axles, driveshafts, structural components, modules and chassis systems, increased its sales by $58 or 6% in the third quarter. Modular and axle sales remained strong in Asia Pacific where sales increased $50 or 124%. The $35 effect of the GKN acquisition helped offset the impact of a weakening euro as Europe showed a $37 or 37% increase. The North American operations showed a $38 or 5% decrease as production was curtailed on a number of vehicles with significant Dana content, including Ford Explorer, Jeep® Grand Cherokee and GM full-size vans. Sales in South America increased $10.

      AAG, which is primarily responsible for the distribution side of the automotive business, had another difficult quarter. North American sales, which comprise more than 80% of total sales for this SBU, were down $52 or 8% with $12 attributable to divestitures. Sales in Europe declined $14 or 15% as currency weakness trimmed nearly $11 from the total and the related markets remained soft. South America registered the only regional gain within AAG as sales increased a modest $4.

      HTG sells heavy axles and brakes, drivetrain components, power take-offs, trailer products and heavy systems modular assemblies. Sales for this SBU are predominantly in the North American market, where sales declined $108 or 25% in the second quarter. Divestitures accounted for $27 of the reduction but steep production cuts were the largest factor as heavy truck manufacturers continued efforts to reduce their finished inventory. An $8 sales decline in Asia Pacific was due mainly to a divestiture earlier this year.

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ITEM 2. (Continued)

(in millions)

Results of Operations (Third Quarter 2000 vs Third Quarter 1999)

      ESG sells gaskets and other sealing products and engine parts, such as piston rings, bearings, liners and camshafts. Overall sales for this segment decreased $12 from the comparable period in 1999. Sales in Europe increased in local currency but declined $10 or 9% after considering the $14 lost to currency effects. Sales were down 2% in North America but improved a modest $2 in South America.

      FSG, which manufactures an extensive line of rubber hose, fluid products and fluid management systems, experienced a sales decrease of $17 or 6% in the third quarter. Downturns in the heavy truck and replacement parts sectors had the largest impact in North America and a divestiture caused a $2 decline. Adverse currency effects accounted for $4 of the $6 decline in Europe. Sales in South America advanced $2 in the quarter.

      OHSG, which sells off-highway axles, powershift transmissions, transaxles, torque converters and electronic controls, registered a quarterly sales decline of $39 or 21% versus 1999. The segment overall was flat, however, after factoring in the $28 decline due to the Gresen divestiture, which affected North America and South America, and $11 of currency devaluation in Europe.

      Sales in the “Other” category were down compared to 1999 due to the sale of most of the Warner Electric businesses at the end of February 2000.

      Revenue from lease financing and other income increased $3 in the third quarter of 2000. Lease financing income in 2000 increased $9 versus 1999, but this improvement was partly offset by lower interest income and a $4 adverse swing in the net foreign currency transaction gains and losses.

      Gross margin for the third quarter was 13.6%, compared to 18.0% in 1999. Several of our SBUs were adversely affected by the severe cutbacks by OEMs in the production of heavy trucks and the unscheduled cutbacks in the production of light trucks, including several models with significant Dana content. Softness in the aftermarket continues to affect our profitability. The greatest deterioration has been in the ASG, where changes in production schedules for both light and heavy trucks has affected sales volume and our ability to absorb overhead costs, and in the AAG, where we continue our efforts to integrate new warehouses and systems and to scale back excess capacity. HTG experienced a dramatic slowdown in its North American market and FSG is incurring startup costs in Mexico.

      Selling, general and administrative expenses (SG&A) declined $8 in the third quarter of 2000. Acquisitions and divestitures represented a net reduction of $18. This reduction was largely offset by the increase at ASG, which totaled $9 after considering increases due to acquisitions; DCC increased $3. AAG was flat after considering divestiture and currency impacts. HTG and OHSG experienced modest declines due to divestitures while FSG and ESG, combined, decreased $8. On a regional basis, all regions experienced decreases in absolute dollars, with currency fluctuations contributing a $3 reduction. The overall ratio of SG&A expense to sales increased six-tenths of a percent.

      Operating margin for the third quarter of 2000 was 3.8% compared to 8.8% for the same period in 1999 for the reasons stated above.

      Interest expense increased $13 over last year, reflecting both higher average debt levels and higher interest rates.

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ITEM 2. (Continued)

(in millions)

Results of Operations (Third Quarter 2000 vs Third Quarter 1999)

      The effective tax rate in the third quarter of 2000 is not meaningful given the limited amount of income before income taxes. The final adjustments related to the divestiture of Midland Grau by the former Echlin Inc. were recorded in August 2000. These adjustments reduced other income by a net $10 but included a $10 tax benefit. The tax-free nature of the divestiture gain in Brazil was another significant component of the favorable tax rate. The effective tax rate approximated 35% in 1999. Dana has benefited from state tax incentives in both years.

      Equity in earnings of affiliates was $5 higher in 2000, reflecting increases in Mexico.

      We reported third quarter earnings in 2000 of $29. This total includes $61 of operating income and $32 of net nonrecurring expenses related to our divestitures and restructuring and integration activities. In 1999 we reported earnings of $162 and operating income of $173 with $11 of nonrecurring expense, also related to our restructuring and integration activities. As discussed above, the major causes of the reduction in operating income were sharp declines in the production of heavy trucks, costs associated with unscheduled production cutbacks in light trucks and softness in the automotive aftermarket in North America coupled with continued systems integration issues encountered in consolidating AAG’s Engine Controls Division warehouse network.

Results of Operations (Nine Months 2000 vs. Nine Months 1999)

      During the last year, we made seven divestitures and four acquisitions. The net effect was to reduce sales for the first nine months of 2000 by $307 and net income by $11, excluding the gains recognized on these divestitures.

      Sales by region for the first nine months were as follows:

														% Change Excluding
														Acquisitions &
		1999				2000				% Change				Divestitures
North America		$	7,760			$	7,410				(5	)			(1	)
Europe			1,553				1,501				(3	)			(7	)
South America			418				427				2				15
Asia Pacific			184				263				43				48

      Sales in North America declined $350 with the net effect of acquisitions and divestitures accounting for $299 of that change. The light truck and SUV markets began the year strong, as did the medium truck market, but production curtailments in the third quarter have had a significant effect on year-to-date sales. The heavy truck market was strong until the latter part of the second quarter when heavy truck manufacturers’ build rates were substantially reduced. Further reductions occurred in the third quarter. Weakness in the aftermarket resulted in a $69 drop in sales on a comparative basis; divestitures accounted for another $37.

      Sales in Europe were down $52 as organic growth and a $53 benefit from acquisitions net of divestitures were more than offset by a $173 adverse currency impact. Hardest hit were Germany and Italy.

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ITEM 2. (Continued)

(in millions)

Results of Operations (Nine Months 2000 vs Nine Months 1999)

      The $9 increase in sales in South America occurred despite the net loss of $53 of sales due to acquisitions and divestitures and $8 resulting from currency impact. Sales increases in our modular business provide further evidence that the economic situation in the region is stabilizing. The sales increase in the Asia Pacific region was primarily due to the new modular product sales in Australia.

      Sales by segment for the first nine months are shown in the following table.

														% Change Excluding
														Acquisitions &
		1999				2000				% Change				Divestitures
Automotive Systems Group		$	3,329			$	3,589				8				5
Automotive Aftermarket Group			2,326				2,174				(7	)			(5	)
Heavy Truck Group			1,424				1,310				(8	)			(3	)
Engine Systems Group			997				1,007				1				1
Fluid Systems Group			925				893				(3	)			(3	)
Off-Highway Systems Group			619				536				(13	)			(2	)
Other			295				92				(69	)

      ASG sales increased 8% in the first nine months of 2000 with the net effect of acquisitions contributing 2% of the improvement. North America benefited from continuing strong demand for light trucks and SUVs in the first half of the year but the third quarter brought about significant reductions in production. The major OEMs reduced production for a variety of reasons, including high inventory levels and curtailed production in relation to a major tire recall. Total ASG North American sales, which are nearly 80% of this segment’s sales, increased 2% over 1999 with no acquisition/divestiture impact. The newly acquired driveshaft operations helped this SBU achieve 28% growth in Europe despite $19 of adverse currency effects. Asia Pacific also demonstrated significant growth as a result of new modular business in Australia, improving $110 or 94% in the period. The effect of divesting the South American driveshaft operations has now been offset by an increase in modular sales, resulting in a modest $3 or 1% increase.

      AAG sales declined 6% and 15% in North America and Europe, respectively, the two regions that comprise 95% of its sales. The divestiture of Sierra International, Inc. near the end of 1999 was responsible for nearly one-third of the decline in North American sales while weakening of the euro and British pound accounted for $28 of the drop in Europe.

      HTG sales for the nine-month period were down $114 or 8% overall. Sales lost due to divestitures of $72 were compounded by the impact of significant cutbacks in production schedules by heavy truck manufacturers. These cutbacks began near the end of the second quarter as higher fuel costs and a large supply of used trucks slowed sales at a time when production was still near record levels.

      ESG increased its sales $10 or 1% for the first three quarters of 2000 versus the 1999 level. North American sales benefited from a strong performance at its bearings operations, which ended the period 12% ahead of last year. In Europe, a $40 adverse currency impact more than offset the improvement in bearings sales. Sealing and engine product sales improvement helped South America register a modest increase of $2.

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ITEM 2. (Continued)

(in millions)

Results of Operations (Nine Months 2000 vs Nine Months 1999)

      FSG sales dropped $32 in the first nine months of 2000 with $6 of the change resulting from a divestiture in North America. In Europe, sales declined $8 after absorbing $11 of adverse currency effects. Sales increased $1 in South America and were flat in Asia Pacific.

      OHSG’s ongoing sales in North America were $7 above last year. The divestiture of the Gresen operations in January 2000 affected the year on year comparison by $66, resulting in a 19% decline for the region. European sales also experienced organic growth; however, negative currency impacts of $36 left the region with an overall 8% decrease.

      The decline in “Other” sales is attributable to the divestiture of most of the Warner Electric businesses in February 2000.

      Other income for the first nine months of 2000 includes $179 of gains recognized on the divestiture of the Gresen Hydraulics businesses, our constant velocity (CV) joint businesses, most of the Warner Electric businesses and our Commercial Vehicle Cab Systems Group. In addition, the $10 net charge related to final settlement of the Midland Grau divestiture was recorded in the third quarter, bringing to $169 the total of net nonrecurring income included in other income. These items affected net income by $108 after income taxes.

      Operating margin for the nine-month period was 6.5% compared to 8.7% in 1999. ASG dropped more than two percentage points and AAG declined by more than five percentage points. HTG and FSG both declined by more than one percentage point, while ESG was down one-third of a percentage point. Only OHSG experienced an improvement in operating margin – nearly one-third of a percentage point – over the prior year. North America turned in the poorest regional performance, declining nearly three percentage points, followed by a decline in Europe of slightly more than one-half of a percentage point. Asia Pacific improved by five percentage points after incurring significant startup costs in 1999 and South America improved nearly one percentage point, further evidence of having adjusted to difficult economic conditions first presented early in 1999.

      Interest expense increased $32 over the first nine months of 1999 due to the combined effect of higher debt levels at both Dana and DCC and an increase in interest rates.

      The effective tax rate in the first nine months of 2000 was 35% compared to 36% in 1999. The effective rate in 2000 was lower due in part to favorable tax treatment of gains realized on the sale of our CV joint operation in Brazil. State tax incentives also reduced the rate in both years.

      Equity in earnings of affiliates was $6 higher in the first nine months of 2000 as the increase in equity earnings of several investments more than offset the impact of lower profits from an affiliate in Venezuela.

      Minority interest in net income of consolidated subsidiaries increased $2 in the first nine months of the year with the largest change occurring in Taiwan. The minority interest in the gain recognized by Albarus S.A. on the sale of its interest in one of its affiliates was generally offset by the absence of the minority interest’s participation in operating earnings.

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ITEM 2. (Continued)

(in millions)

Results of Operations (Nine Months 2000 vs Nine Months 1999)

      We reported profit of $418 in the first nine months of 2000 compared to $513 in 1999. The comparisons include net nonrecurring income of $43 in 2000, consisting of the $108 of items included in other income and the $65 of after-tax charges related to our restructuring and integration efforts. Net income included a net nonrecurring, after-tax charge of $21 in 1999.

Market Trends

      The North American heavy truck build rate declined abruptly near the end of the second quarter, from an estimated 175,000 units in the first half of 2000 to a projected rate of only 85,000 for the second half. The reduced production is helping bring manufacturers’ inventory in line with sales, but the factors that helped cause the excess inventory earlier in the year – higher fuel costs, a shortage of drivers and a large supply of used trucks – are expected to keep production through 2001 near or slightly below present levels. The passenger car and light truck annualized build rate began the year at 18,600,000 units. Production levels have declined to where 2000 production is now projected to finish in the mid-17 million range. While this represents a very strong level of production, we have been affected by recent production cuts on SUVs and light trucks that have high Dana content. Sales incentives offered by OEMs are expected to boost sales volume through the end of the year, but these efforts will primarily affect existing inventory at dealers rather than demand for manufacturer production. We expect 2001 sales of SUVs and light trucks to remain strong; however, we believe the industry consensus passenger car and light truck build rate of 17.2 million to be overly optimistic.

      The automotive aftermarket continues to experience soft demand in North America and Europe, and currency stability remains a concern in the latter region. South American operations continue to show modest improvement. While operations in our Asia Pacific region are growing their sales volume, start-up costs will continue to impact their earnings.

Forward-Looking Information

      Forward-looking statements in this report are indicated by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “estimates” and similar expressions. These statements represent our expectations based on current information and assumptions. Forward-looking statements are inherently subject to risks and uncertainties. Our actual results could differ materially from those which are anticipated or projected due to a number of factors including changes in business relationships with our major customers, competitive pressures on sales and pricing, increases in production or material costs that cannot be recouped in product pricing, performance of the global automotive aftermarket sector, international economic conditions, longer than anticipated delays in consolidating AAG’s Engine Controls warehouse network, softening of demand for SUVs and light and medium trucks, further softening of demand for heavy trucks, off-highway agricultural and structural products, and the relative strength of the euro and other currencies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      There have been no material changes to our exposures to market risk since December 31, 1999.

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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 6. EXHIBITS AND REPORTS ON FORM 8-K

a)		The exhibits listed in the Exhibit Index are filed as a part of this report.
b)		Reports on Form 8-K
		No reports on Form 8-K were filed during the quarter ended September 30, 2000.

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SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		DANA CORPORATION
Date: November 3, 2000		/s/ Robert C. Richter
		Robert C. Richter Chief Financial Officer

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EXHIBIT INDEX

No.		Description		Method of Filing
3-B		By-Laws, effective October 16, 2000		Filed with this Report
10-C(1)		First Amendment to Excess Benefits Plan		Filed with this Report
27		Financial Data Schedules		Filed with this Report

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