Dana Holding Corporation (Dana): FY2015 Form 10-K
Business and reporting period. Dana is a global supplier of driveline, sealing and thermal-management products, organized into Light Vehicle, Commercial Vehicle, Off-Highway and Power Technologies segments. This filing covers the fiscal year ended December 31, 2015; it is an annual report, not a standalone fourth-quarter filing. Amounts are in millions of dollars except per-share data.
Financial performance and material changes
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $6,060 | $6,617 |
| Gross margin | $849; 14.0% of sales | $945; 14.3% of sales |
| Income from continuing operations | $176 | $343 |
| Net income attributable to Dana | $159 | $319 |
| Basic / diluted EPS | $1.00 / $0.99 | $1.97 / $1.84 |
| Adjusted EBITDA (non-GAAP) | $652; 10.8% of sales | $746; 11.3% of sales |
| Operating cash flow / capital expenditures | $406 / $260 | $510 / $234 |
| Free cash flow (non-GAAP) | $146 | $276 |
| Total debt / cash and marketable securities | $1,575 / $953 | $1,653 / $1,290 |
Sales fell 8%. Currency translation reduced sales by $516 and the Venezuela divestiture by $107; organic sales increased $66. Currency-adjusted regional performance was mixed: North America and Asia Pacific grew, while South America declined sharply. Brazil sales fell to $240 from $505.
Commercial Vehicle EBITDA declined to $100 from $172, primarily reflecting weak Brazilian demand, lost business with a major customer after supply-chain disruption, currency effects and higher warranty and supplier-transition costs. Light Vehicle EBITDA increased to $262 from $250; Off-Highway fell to $147 from $169; Power Technologies was $149 versus $154. Adjusted EBITDA is a company-defined non-GAAP measure.
Liquidity at year-end was reported as $1,205, including $783 available cash, $162 of marketable securities and $260 of revolving-facility availability. Dana had no revolver borrowings and was covenant-compliant. Access to some cash is restricted or uncertain, including $143 held by a subsidiary requiring independent-board approval. The company reported $1,553 of long-term debt, net of issuance costs, and $22 of current debt.
Outlook, commentary, risks and unusual items
- 2016 outlook: Sales of $5,800–$6,000; adjusted EBITDA of $640–$670; and free cash flow of $160–$180. Management expected slight margin improvement, with currency headwinds of approximately $200–$300 in sales. Planned capital spending was $280–$300.
- Market assumptions: Management anticipated weaker North American Class 8 truck production, continued weakness in off-highway markets, modest improvement in Europe and Asia Pacific, and persistent weakness in South America. Forecast vehicle-production figures are estimates, not Dana orders.
- Significant items: Dana recorded a $36 impairment of long-lived assets tied to its SIFCO supplier arrangement and a $39 impairment of its Dongfeng Dana Axle investment. The 2015 income-tax provision included releases and charges related to tax planning and deferred-tax valuation allowances. Fourth-quarter results included a $79 net loss, including the affiliate impairment and tax-related items.
- Supply and customer exposure: Ford represented approximately 20% of 2015 sales; the ten largest customers represented about 58%. The SIFCO supply arrangement remained uncertain despite an interim supply agreement. Earlier supplier-transition issues contributed to lost business and additional costs.
- Other risks and contingencies: Foreign exchange movements, cyclicality in vehicle markets, commodity recovery and supplier availability may affect results. Dana disclosed underfunded multi-employer pension-plan exposure, pension assumptions sensitive to interest rates and asset returns, product warranty and liability risks, asbestos claims, environmental obligations and ongoing legal matters. Management did not expect pending legal proceedings to materially affect financial condition or results, based on information then available.
- Capital returns: Dana repurchased $311 of shares in 2015 and paid $37 in common dividends. The quarterly dividend was raised from $0.05 to $0.06 per share in the second quarter; the repurchase authorization was expanded to $1,700 in January 2016.
Important facts for investors to verify
- Whether 2016 sales, adjusted EBITDA and free-cash-flow guidance was achieved, particularly after currency effects and market changes.
- Whether Commercial Vehicle performance and customer business recovered, and whether the SIFCO supply arrangement became stable and cost-effective.
- The sustainability of reported earnings after the DDAC impairment and tax-related valuation-allowance adjustments; review the company’s non-GAAP reconciliations.
- Actual cash accessibility, capital spending, debt maturities and capacity to fund dividends and repurchases while maintaining liquidity.
- Updates to pension funding, asbestos and environmental exposures, warranties, and material litigation or tax-audit outcomes.