Dana Holding Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are to Q1 2012 unless noted. Dana is a global supplier of driveline, sealing and thermal-management products and service parts, serving light-vehicle, commercial-vehicle and off-highway markets.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net sales | $1.676 billion | $1.964 billion |
| Gross margin | $214 million; 12.8% of sales | $266 million; 13.5% of sales |
| Income from continuing operations before interest and taxes | $92 million | $128 million |
| Net income | $50 million | $73 million |
| Net income attributable to parent | $42 million | $70 million |
| Net income available to common stockholders | $34 million | $62 million |
| Diluted EPS | $0.19 | $0.33 |
| Segment EBITDA | $159 million | $213 million |
| Adjusted EBITDA (non-GAAP) | $158 million | $212 million |
| Operating cash flow | $(15) million | $(153) million |
Interest expense was $21 million in both periods. Cash and cash equivalents were $981 million at quarter-end. Total debt on the balance sheet was $923 million, including $84 million of notes payable and current debt and $839 million of long-term debt. Dana reported global liquidity of $1.412 billion, comprising available cash, marketable securities and $391 million of additional borrowing availability. It had no borrowings under its U.S. revolving facility or European receivables facility and reported compliance with financing covenants.
Material changes and drivers
- Sales fell $288 million, or about 15%. Dana attributed the decline mainly to lower market volumes, especially North American medium/heavy trucks and off-highway construction and mining, and $90 million of scheduled North American light-vehicle program roll-offs. Currency and divestitures also reduced sales.
- Gross margin declined by $52 million, and margin contracted 0.7 percentage point. Lower volumes reduced fixed-cost absorption; cost of sales rose to 87.2% of sales from 86.5%. Material savings and lower warranty costs partly offset the pressure.
- Segment EBITDA decreased $54 million. LVD EBITDA was $41 million (down $22 million), Commercial Vehicle $41 million (down $20 million), Power Technologies $36 million (down $4 million), and Off-Highway $41 million (down $8 million).
- Operating cash use improved by $138 million year over year, primarily because Q1 2012 included a $150 million voluntary U.S. pension contribution. Working capital still used $109 million of cash, mainly from higher receivables and inventory.
- Cash declined $78 million from December 31, 2012. Financing included $53 million of long-term debt proceeds, $30 million of repayments, $24 million of share repurchases and $7 million to acquire noncontrolling interests.
Outlook, commentary and risks
- For full-year 2013, management forecast sales of approximately $7.1 billion, adjusted EBITDA of $800–$820 million and free cash flow of $240–$260 million. These are management estimates; adjusted EBITDA and free cash flow are non-GAAP measures.
- Management expected 2013 sales to decline about 2% from 2012 as program roll-offs and currency were expected to outweigh market and pricing growth. It anticipated improved adjusted EBITDA from restructuring, cost reduction and pricing actions.
- Management forecast 2013 capital expenditures of $180–$200 million, cash taxes of approximately $125–$135 million, pension contributions of about $60 million, and restructuring cash requirements of $45–$55 million.
- Market outlook was mixed: North American light-vehicle production was forecast at 15.9–16.1 million units, while the Class 8 truck forecast was reduced to 260,000–270,000 units. Dana expected European light-vehicle production to remain weak, stronger South American medium/heavy truck production, and flat-to-up 3% global agriculture and construction equipment markets.
- The Venezuelan bolivar devaluation resulted in a net Q1 currency loss of $6 million, with potential recovery dependent on settlement of certain pre-devaluation transactions. Commodity costs rose approximately $5 million year over year, partly offset by cost reductions and customer recovery/pricing actions.
- Contingencies include approximately 25,000 active asbestos claims, with an $80 million accrued liability and a $48 million recorded insurance-recovery asset. Dana also guaranteed certain divested-business facility leases through 2025. Management stated that additional liabilities from legal proceedings were not expected to materially affect results or liquidity.
- Some non-U.S. cash is subject to regulatory, tax or other restrictions on repatriation. Dana said liquidity and operating cash flow should be adequate for anticipated requirements over the next 12 months.
- Dana said there were no material changes to its disclosed risk factors or market-risk exposures, and that disclosure controls were effective at quarter-end.
Investor verification points
- Check the drivers and timing of the scheduled program roll-offs and the assumed recovery in vehicle and off-highway markets.
- Review the definitions and reconciliations of adjusted EBITDA and free cash flow, and compare the full-year guidance with subsequent reported results.
- Assess working-capital needs, capital spending, pension funding and the availability of credit facilities, including restrictions on access to non-U.S. cash.
- Monitor potential recovery of Venezuelan devaluation losses, asbestos claims and insurance recoveries, and the escrow dispute related to the Structural Products divestiture.
- Review the potential effects of preferred-stock dividends and conversion on common-stockholder earnings and diluted share counts.