Dana Holding Corporation — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; amounts are in U.S. dollars and millions unless otherwise noted. The filing identifies the registrant as Dana Holding Corporation. Dana supplies driveline, sealing and thermal-management products and service parts to global light-vehicle, commercial-vehicle and off-highway markets.
Financial performance and position
- Revenue: $7,592, up $1,483 (24%) from $6,109 in 2010. The increase comprised $1,035 of organic growth, $256 net from acquisitions and divestitures, and $192 from currency effects. Non-U.S. subsidiaries generated $4,571, about 60% of sales.
- Profit and margins: Gross margin was $895, or 11.8% of sales, versus $659, or 10.8%, in 2010. Pretax income was $296, compared with $35. Net income was $232; $219 was attributable to the parent, and $188 remained available to common stockholders after preferred dividends. Basic EPS was $1.28 and diluted EPS was $1.02.
- Adjusted EBITDA: $765, up from $553. This is a non-GAAP measure as defined by Dana.
- Cash flow: Operating cash flow was $370, versus $287. Capital spending was $196, up from $120. Dana-defined free cash flow was $174, down from $242, reflecting increased capital spending and working-capital use; working capital consumed $121.
- Liquidity: Cash and cash equivalents were $931 and marketable securities were $56. Dana reported total global liquidity of $1,373, including $900 of available cash and $417 of additional credit-facility availability. Some cash was held in subsidiaries or jurisdictions where access may be restricted.
- Debt: The debt note reported $855 of debt, including current maturities, at year-end. Dana issued $750 of senior notes in January 2011 at fixed rates of 6.50% due 2019 and 6.75% due 2021, and used proceeds and cash to repay its term facility. The balance sheet separately reports $71 of notes payable, including the current portion of long-term debt. Dana was in compliance with debt covenants.
- Balance sheet: Total assets were $5,305; total liabilities were $3,467; total equity was $1,838. Pension and postretirement obligations were $762.
- Capital returns: No common dividends were declared or paid in 2011 or 2010. Dana paid $31 in preferred dividends during 2011.
Fourth-quarter results
Q4 2011 sales were $1,907 and gross margin was $214. Net income was $75, with $71 attributable to the parent; basic and diluted EPS were $0.43 and $0.33. In Q4 2010, sales were $1,559, gross margin was $172, and parent-attributable net loss was $13, or $0.14 loss per share.
Material changes versus 2010
- Revenue rose 24%, with stronger vehicle and off-highway demand, acquisitions and favorable currency effects. Organic growth was 17% of 2010 sales.
- Gross margin improved by 1.0 percentage point as higher production improved fixed-cost absorption and restructuring, cost reductions and pricing actions helped offset commodity-cost inflation.
- Adjusted EBITDA increased by $212. Segment EBITDA grew in each major continuing business: Light Vehicle Driveline $262 versus $227; Commercial Vehicle $218 versus $139; Off-Highway $166 versus $98; and Power Technologies $139 versus $125.
- Cash from operations increased, but free cash flow declined as capital spending increased and higher sales required more receivables and inventory funding.
- Year-end cash decreased to $931 from $1,090. Dana completed the term-debt refinancing, extended and reduced its revolving facility to $500, and established a European receivables securitization program.
Outlook, commentary, risks and unusual items
- 2012 outlook: Dana projected sales above $8,000, adjusted EBITDA of $845–$865, and free cash flow above $200, excluding a one-time $150 U.S. pension contribution made in January 2012. Capital spending was forecast at $225–$250. Management expected higher volumes and ongoing restructuring, cost and pricing actions to support margins, partly offset by commodities and growth investments.
- Market assumptions: Dana expected North American light-vehicle production to increase 5–7%; Class 8 truck production to reach 280,000–290,000 units; and Asia-Pacific vehicle production to rebound after 2011 natural-disaster disruptions. It anticipated slight declines in European vehicle production amid sovereign-debt concerns.
- Strategic activity: Dana paid $150 for SIFCO commercial-vehicle axle rights and supply arrangements, adding $390 of 2011 sales; increased its DDAC investment to 50% for $124; acquired the Axles India business for $13; formed a 50/50 Bosch Rexroth joint venture; and sold its GETRAG interests for $136, recording a $60 gain. The retained Structural Products operation, with $48 in 2011 sales, was expected to end in mid-2012.
- Unusual items: Other income included the $60 GETRAG gain, offset in part by a $53 loss on debt extinguishment and refinancing costs. Restructuring charges were $87, including a $20 Yennora lease settlement. A $5 impairment related to assets expected to be sold. Dana also recognized $85 of income tax expense, including benefits from expected Indian tax recovery and valuation-allowance releases.
- Key risks: Ford accounted for 17% of sales and the ten largest customers for 54%; loss of major programs or customer pricing pressure could materially affect results. Other disclosed risks include economic and vehicle-production weakness, commodity costs and incomplete pass-through, foreign-exchange movements, supplier concentration and shortages, labor disruptions, product-liability or warranty claims, and pension funding exposure. Dana reported $89 of asbestos liabilities and $53 of related insurance-recovery assets; management did not expect pending ordinary-course legal matters to have a material adverse effect.
- Pensions and contingencies: U.S. defined-benefit plans were underfunded; Dana disclosed $443 of unrecognized U.S. pension actuarial losses and made a voluntary $150 contribution in January 2012. The Steelworkers multiemployer pension plan was not fully funded, and Dana could face increased contributions or withdrawal liability. Dana stated the final disputed bankruptcy claims were resolved in 2011 without affecting its results or financial condition.
Important facts for investors to verify
- Reconcile the debt note’s $855 debt total with the balance-sheet presentation of $71 in notes payable and $831 in long-term debt, and review maturities and covenant terms.
- Test whether the 2012 sales, EBITDA and free-cash-flow outlook was achieved, including the effect of the excluded $150 pension contribution and planned capital spending.
- Assess the sustainability of 2011 organic growth and margin gains after separating volume, pricing, currency, acquisitions and one-time items.
- Monitor customer concentration, vehicle-production forecasts, commodity recovery and supplier continuity.
- Review pension funding assumptions, multiemployer-plan exposure, asbestos insurance recoveries, and resolution of the Structural Products escrow claims.
- Consider potential dilution from convertible preferred stock: outstanding preferred shares were convertible into approximately 64.7 million common shares at year-end 2011.