Dana Holding Corporation — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; comparisons are with Q1 2010 unless otherwise noted. Amounts are in millions of dollars, except per-share data. Dana supplies driveline, power technology and service-part products to vehicle manufacturers worldwide.
Financial performance
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Net sales | $1,800 | $1,508 |
| Gross profit / margin | $215 / 11.9% | $140 / 9.3% |
| Income (loss) before interest and taxes | $21 | $(9) |
| Net loss attributable to parent | $(30) | $(31) |
| Net loss available to common stockholders | $(38); $(0.26) per share | $(39); $(0.28) per share |
| Adjusted EBITDA | $181 | $108 |
| Operating cash flow | $(2) | $45 |
| Capital expenditures | $33 | $11 |
Sales rose $292, or about 19%. Management attributed the increase to $330 of organic growth and $32 of favorable currency effects, partly offset by $70 net impact from acquisitions and divestitures. Gross margin improved on higher volume, fixed-cost absorption, cost reductions and pricing, despite higher commodity costs. SG&A declined to $99 (5.5% of sales) from $102 (6.8%).
Balance sheet, debt and liquidity
- Cash and cash equivalents were $837 at March 31, 2011, down from $1,134 at December 31, 2010. Total assets were $5,298 and total liabilities $3,486.
- Notes payable, including current debt, were $49; long-term debt was $834. Dana issued $750 of senior notes ($400 at 6.50%, due 2019, and $350 at 6.75%, due 2021) and used proceeds and cash to repay its term facility. The refinancing generated a $53 debt-extinguishment loss; reported interest expense was $19 versus $26.
- The amended revolving facility is $500, with no borrowings and $135 used for letters of credit; reported borrowing availability after letters of credit was $278. European receivables-program availability was $71. Dana reported total global liquidity of $1,146, comprising $797 available cash and $349 additional facility availability.
- Management reported compliance with debt covenants. Some cash is held at less-than-wholly-owned subsidiaries or in jurisdictions where repatriation may be restricted or costly.
Cash flow and material changes
- Working capital used $120 of cash, versus $21 in Q1 2010, principally because of higher receivables and inventory as sales expanded. Net cash used in investing was $177, including the $150 SIFCO transaction; financing used $126, including debt refinancing.
- Cash decreased by $305 during the quarter. Management’s non-GAAP free-cash-flow outlook is above $175 for 2011; the filing defines this as operating cash flow, excluding bankruptcy claim-related payments, less capital expenditures.
- Segment EBITDA increased to $190 from $125. Improvements were reported across Light Vehicle Driveline ($66 vs. $42), Power Technologies ($40 vs. $27), Commercial Vehicle ($43 vs. $24) and Off-Highway ($41 vs. $21). Segment reporting was reorganized, with prior-period segment results recast.
Outlook, risks and unusual items
- 2011 outlook was raised to sales above $7.3 billion (from above $7.1 billion), adjusted EBITDA of $755–$775 (from $740–$760), and free cash flow above $175 (from above $150). Planned capital spending is $200–$250.
- Management expects vehicle markets to strengthen overall. It raised its North American heavy-truck production outlook to 240,000–250,000 units and off-highway demand outlook to growth of 15%–20% in agriculture and 25%–30% in construction.
- Japan earthquake and tsunami disruptions had not significantly affected Q1 results. Management anticipated possible Q2–Q3 supply-chain impacts, with some production recovery later in the year, and did not expect a significant full-year effect. Risks include supplier shortages, economic conditions, fuel prices, vehicle mix, and rising steel and other commodity costs; customer recovery mechanisms may have a time lag.
- The $150 SIFCO agreement added $64 of Q1 revenue and $4 of pretax income; at current production levels it is expected to generate about $350 in annual sales. Dana also planned a roughly $120 investment to raise its Dongfeng Dana Axle ownership to 50%, subject to approval, and a $13 Axles India business acquisition expected to contribute about $50 in annual sales.
- Q1 restructuring expense was $30, including $20 to settle the Yennora, Australia lease. Estimated remaining restructuring costs were $45; the recorded restructuring accrual was $41.
- Income-tax expense was $31 despite pretax income of $2, reflecting valuation allowances, nondeductible items, differing foreign tax rates and withholding taxes. Asbestos liabilities were accrued at $99, with a related insurance recovery asset of $51; environmental liabilities were $13. Management did not believe other pending legal proceedings or a reported engine-cooler quality matter would have a material adverse effect.
Investor facts to verify
- Whether higher sales and adjusted EBITDA convert into operating cash flow, given the $120 working-capital use and quarterly cash decline.
- Progress toward the 2011 sales, adjusted EBITDA, free-cash-flow and capital-spending outlook, including the timing of commodity-cost recovery.
- Completion, funding and performance of the Dongfeng and Axles India transactions, and realized sales from SIFCO.
- Actual impact and recovery from Japan-related supply disruptions and developments in vehicle production markets.
- Availability and accessibility of reported liquidity, alongside restructuring cash requirements and asbestos, environmental and warranty exposures.