Dana Holding Corporation — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Unless noted, amounts are in millions of dollars. Dana supplies driveline, sealing and thermal-management products to vehicle and off-highway equipment manufacturers.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Net sales | $1,949 | $1,933 | $3,926 | $3,733 |
| Gross margin | $275; 14.1% | $233; 12.1% | $543; 13.8% | $448; 12.0% |
| Net income attributable to parent | $86 | $68 | $156 | $38 |
| Net income available to common stockholders | $79 | $61 | $141 | $23 |
| Adjusted EBITDA | $225 | $201 | $437 | $382 |
| Operating cash flow | Not separately reported for the quarter | $(9) | $80 |
- Q2 sales increased less than 1%; organic growth of $130, or 7%, was largely offset by $122 of adverse currency effects. First-half sales increased 5%; organic growth of $325, or 9%, was partly offset by $161 of currency effects.
- Q2 income before interest and taxes was $134 versus $114; first-half income before interest and taxes was $261 versus $135. Interest expense was $20 in Q2 and $41 for the half-year, versus $20 and $39, respectively.
- Q2 diluted earnings per share available to common stockholders were $0.40 versus $0.32; first-half diluted EPS was $0.73 versus $0.15. The filing reports basic EPS of $0.53 and $0.96 for those 2012 periods, respectively.
- Cash and equivalents were $881 at June 30, down from $931 at year-end 2011. Total current assets were $3,236 and current liabilities $1,619. Total debt, using balance-sheet current and long-term debt, was $954; long-term debt was $851. The company reported $1,404 of global liquidity, including $856 available cash, $488 of additional borrowing availability and $60 of marketable securities.
- First-half cash used in operations was driven in part by a $150 voluntary U.S. pension contribution and $139 of working-capital use. Capital expenditures were $71. Dana reported a $41 decrease in cash for the half-year.
Material changes and operating results
- Gross margin improved year over year, reflecting higher production and fixed-cost absorption, restructuring benefits, customer material-cost recoveries, pricing and cost savings. SG&A rose to $110 in Q2 and $223 for the half-year, partly due to compensation and growth-initiative costs.
- Segment EBITDA for the first half rose to $444 from $394. LVD, Commercial Vehicle and Off-Highway EBITDA increased; Power Technologies was unchanged at $77. Commercial Vehicle and Off-Highway benefited from pricing and stronger activity in certain markets.
- Geographic trends were mixed. First-half North American sales rose organically by $303; Europe by $114; Asia Pacific by $59. South American sales declined organically by $151, notably reflecting weak truck production and Brazil’s emissions-regulation changeover.
- Restructuring charges were $20 in Q2 and $26 for the half-year. Dana cited workforce reductions, facility closures and an $11 charge for the remaining lease obligation at its Kalamazoo facility. The company estimated $32 of future costs to complete pending restructuring initiatives.
Guidance, risks and unusual items
- Dana reduced its 2012 sales outlook to $7.475–$7.575 billion from its April outlook of more than $7.8 billion, citing currency weakness, lower expected truck production and an anticipated third-quarter divestiture of a leisure-vehicle business. Adjusted EBITDA guidance was $820–$840, with margins expected around 11%.
- Full-year free cash flow guidance remained above $200, excluding the one-time $150 pension contribution. Capital spending was expected to be $210–$230. Management noted higher expected cash needs for interest, taxes and pension contributions.
- Market outlook was revised down for North American Class 8 trucks (270,000–280,000 units), South American medium/heavy trucks (down 18%–27% from 2011) and Asia-Pacific medium/heavy trucks (down 2%–8%). Dana expected European vehicle production weakness to continue; its North American light-vehicle outlook was unchanged.
- At June 30, Dana reported approximately 25,000 active pending asbestos claims, an $83 accrued liability and a $52 insurance-recovery asset. The company said other pending legal matters were not expected to have a material adverse effect, while acknowledging outcomes are uncertain.
- Dana said it was in compliance with debt covenants and believed liquidity would be sufficient for anticipated needs over the next 12 months. Some non-U.S. cash is subject to repatriation restrictions or potential withholding taxes. It also identified uncertain global economic conditions, foreign exchange exposure and commodity costs as relevant operating considerations.
Important facts for investors to verify
- Whether the reduced sales and regional production outlooks are reflected in subsequent results, particularly for South America and commercial vehicles.
- Cash conversion and working-capital trends, alongside the timing and scale of pension contributions and capital spending.
- Progress on the planned divestiture and the related impact on revenue, EBITDA and cash flow.
- Developments in asbestos claims, insurance recoverability and the escrow dispute related to the Structural Products sale.
- Debt, borrowing availability and covenant headroom; the filing reports covenant compliance at June 30, 2012.