Dana Holding Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. Amounts are in millions of dollars except per-share data. The filing covers Dana Holding Corporation, a global supplier of driveline, sealing and thermal-management products. It reports four operating segments: Light Vehicle Driveline, Power Technologies, Commercial Vehicle and Off-Highway.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net sales | $1,669 | $1,715 | $5,145 | $5,615 |
| Gross margin | $235 (14.1%) | $238 (13.9%) | $708 (13.8%) | $777 (13.8%) |
| Income from continuing operations | $72 | $60 | $217 | $222 |
| Net income | $71 | $60 | $217 | $222 |
| Net income attributable to parent | $68 | $56 | $202 | $212 |
| Net income (loss) available to common stockholders | $(170) | $48 | $(51) | $189 |
| Segment EBITDA | $198 | $190 | $574 | $629 |
Common-stockholder losses reflect a $232 preferred-stock redemption premium charged against earnings available to common holders, not an operating loss. Q3 diluted and basic loss per share were both $1.16; nine-month loss per share was $0.35. The company declared common dividends of $0.05 per share in Q3.
- Cash flow: Nine-month operating cash flow was $293, versus $121 a year earlier. Capital expenditures were $123, implying free cash flow of approximately $170 under the company’s stated definition (operating cash flow less capital expenditures). Cash and cash equivalents ended at $1,121, up from $1,059 at year-end 2012.
- Liquidity: Reported global liquidity was $1,580, including $1,098 available cash, $105 in marketable securities and $377 of additional credit-facility availability. Some non-U.S. cash is subject to restrictions or practical limits on repatriation; $94 held by Dana Companies, LLC requires independent-board approval to transfer.
- Debt: Long-term debt was $1,568, with $64 of notes payable and current debt, compared with $803 of long-term debt and $101 current debt at December 31, 2012. The company issued $750 of senior unsecured notes in July; reported total debt was $1,602. It had no revolving-facility borrowings, but $64 was used for letters of credit. Dana reported compliance with financing covenants.
Changes versus prior period
- Q3 sales declined 3% year over year, primarily because of currency and divestiture effects; organic sales increased $9. For the first nine months, sales fell 8%, including $114 of currency impact, $32 from divestitures and a $324 organic decline.
- Nine-month sales were pressured by scheduled North American light-vehicle program roll-offs ($186) and weaker market volumes, particularly in North American medium/heavy trucks and global off-highway markets. Material cost savings and pricing actions helped keep the nine-month gross margin percentage flat at 13.8%.
- Nine-month segment EBITDA fell $55. Power Technologies improved by $8, while LVD declined $28, Off-Highway declined $26 and Commercial Vehicle declined $9. Q3 segment EBITDA rose $8, led by Power Technologies and Commercial Vehicle.
- Interest expense increased to $69 for the nine months from $63, reflecting higher average debt. The preferred-stock redemption and common-share repurchases also reduced equity and used substantial financing cash.
Outlook, commentary and notable items
- Management cut its 2013 sales outlook from approximately $7,000 to approximately $6,700, and adjusted EBITDA outlook from approximately $800 to approximately $750. The revised sales estimate is about 7% below 2012 sales of $7,224. The company maintained expected free cash flow of $240–$260 for 2013.
- Management cited softer global off-highway demand, a lower North American Class 8 production forecast, and weakness in India, Argentina and Venezuela. The North American Class 8 forecast was reduced to 245,000–250,000 units from 255,000–265,000. Management said cost actions, restructuring and pricing had generally sustained adjusted EBITDA margin through the first nine months.
- Expected 2013 cash requirements included approximately $190 of capital expenditures, $135 of cash taxes, $50 for restructuring, $35 of net interest and $60 of pension contributions. Management believed liquidity and operating cash flow would be sufficient for anticipated needs over the next 12 months.
- The July note issuance funded a $474 redemption of all Series A preferred stock and a $200 accelerated share repurchase (ASR). A $232 redemption premium drove the common-stockholder loss. The ASR’s final share count and price remained subject to settlement terms; $220 remained under the repurchase authorization at quarter-end.
- Other notable items included a $3 Q3 interest-income benefit from a favorable Brazilian tax ruling, $5 of Q3 insurance recoveries, and Venezuelan currency devaluation effects. Dana had $33 of bolivar-denominated cash and $32 of U.S.-dollar exchange requests pending.
- Contingencies included approximately 25,000 active asbestos claims, with a $77 accrued liability and a $45 recorded insurance-recovery asset. Environmental liabilities were $9. The company guaranteed certain divested-business facility leases through June 2025, with approximately $6 in annual payments. Management said it did not expect pending legal matters to materially affect liquidity, financial condition or results.
- Management estimated that approximately $750 of tax valuation allowances could possibly be released in the next 12 months; any release is uncertain. It also estimated U.S. pension funded status could improve from 84% at year-end 2012 to around 90% at year-end 2013, subject to actual year-end valuations.
Important facts for investors to verify
- Whether sales, adjusted EBITDA and free-cash-flow guidance were achieved, and how the non-GAAP measures reconcile to reported results.
- Final ASR settlement, subsequent repurchases and the effect of the share-count changes and preferred-stock conversion/redemption on per-share results.
- Debt maturities, interest costs, covenant headroom and the availability and accessibility of cash, including restricted or overseas balances.
- Whether market weakness, program roll-offs, Venezuela’s currency and operating conditions, or commodity and pricing changes materially affected subsequent results.
- Developments in asbestos claims and insurance recoveries, the potential tax-valuation-allowance release, and pension funding and valuation assumptions.