Dana Holding Corporation — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Amounts are in U.S. dollars, millions, except per-share data and where noted. Dana supplies driveline, sealing, thermal-management and service-part products to vehicle manufacturers.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net sales | $1,800 | $1,936 | $3,476 | $3,900 |
| Gross margin | $259; 14.4% | $273; 14.1% | $473; 13.6% | $539; 13.8% |
| Income from continuing operations | $97 | $88 | $145 | $162 |
| Net income attributable to parent | $92 | $86 | $134 | $156 |
| Net income available to common stockholders | $85 | $79 | $119 | $141 |
| Segment EBITDA | $217 | $226 | $376 | $439 |
Q2 diluted net income per share was $0.44, versus $0.40 a year earlier. First-half diluted EPS was $0.63, versus $0.73. The company declared common dividends of $0.05 per share in each quarter.
For the six months, operating cash flow was $187, compared with cash used of $9 in 2012. Capital expenditures were $71 in both periods; investing used $75 and financing used $117 in 2013. Cash and cash equivalents declined $5 to $1,030, including a $24 adverse exchange-rate effect. Working capital used $84 of cash. The 2013 operating cash flow included $28 of interest received on a payment-in-kind note, including $26 relating to prior years.
At June 30, cash was $1,030 and marketable securities were $97. Reported global liquidity was $1,498, including $394 of additional borrowing availability. Note 11 reports debt of $857, including $824 long-term debt and $33 current maturities. There were no borrowings under the $500 revolving facility or the European receivables facility; availability was $303 and $91, respectively. Dana reported compliance with debt covenants.
Material changes versus the prior comparable period
- Q2 sales fell 7%; first-half sales fell 11%. Dana attributed the first-half decline mainly to lower market volumes ($202) and scheduled North American light-vehicle program roll-offs ($162), with currency effects and divestitures also reducing sales.
- First-half segment EBITDA declined $63 to $376. Lower sales volumes weighed on LVD, Commercial Vehicle and Off-Highway results; Power Technologies was comparatively resilient. Q2 gross margin rate improved slightly, but the first-half rate declined.
- First-half restructuring charges fell to $6 from $24, partly reflecting reversals of previously accrued severance obligations. Q2 charges were $4 versus $19.
- Other income was $18 in Q2 versus $8, including foreign-exchange gains, a $5 gain recognized on the payment-in-kind note, and a $2 write-off of prior revolving-facility financing costs.
Outlook, management commentary and risks
- Management forecast 2013 sales of approximately $7.0 billion, down from its prior estimate of approximately $7.1 billion and about 3% below 2012. Adjusted EBITDA guidance was approximately $800, at the low end of the prior $800–$820 range. These are non-GAAP measures.
- Free cash flow guidance was raised from $240–$260 to $265–$285, including the Q2 note interest receipt. Management estimated 2013 cash taxes of $125–$135, capital expenditures of $180–$200, pension contributions around $60, net interest cash requirements around $45, and restructuring cash requirements of $45–$55.
- Market conditions were mixed: management expected North American light-vehicle production growth, continued European weakness, and softer off-highway demand. It lowered its North American Class 8 production forecast and reduced its Asia-Pacific medium/heavy truck outlook.
- Risks include exposure to vehicle-production volumes, customer-program roll-offs, foreign exchange, commodities and regional economic weakness. Dana said commodity-price recovery and contractual pricing adjustments may lag cost increases. The Venezuelan bolivar devaluation generated a first-quarter charge; some transactions later qualified for settlement at the former exchange rate.
- Asbestos liabilities were accrued at $79, partly offset by a $47 insurance-recovery asset; approximately 25,000 claims were active and pending. Environmental liabilities were $9. Dana said other pending legal matters were not expected to have a material adverse effect based on current knowledge.
- Management said approximately $800 of valuation allowances could possibly be released within the next twelve months; the timing and outcome are uncertain. Dana also expanded its share-repurchase authorization to $1.0 billion over two years and had $899 remaining under the program at quarter-end.
Most important facts for investors to verify
- Whether lower sales volumes and customer-program roll-offs continue to pressure segment EBITDA and margins.
- Whether the $7.0 billion sales, approximately $800 adjusted EBITDA and $265–$285 free-cash-flow outlooks are achieved, including the effect of the one-time note interest receipt.
- Cash accessibility: some overseas cash is subject to repatriation restrictions, and $91 held by Dana Companies, LLC requires independent-board approval for transfer.
- Progress and potential exposure concerning asbestos claims, insurance recoveries, the Metalsa escrow dispute and other contingencies.
- The scale and timing of repurchases under the expanded authorization, relative to liquidity, debt obligations and operating needs.