ITEM 1 - BUSINESS - -----------------
Dana Corporation, founded in 1905, is a global leader in engineering, manufacturing and marketing of products and systems for the worldwide vehicular, industrial and mobile off-highway original equipment markets and is a major supplier to the related aftermarkets. Dana is also a leading provider of lease financing services in selected markets. The Company's products include: drivetrain components, such as axles, driveshafts, clutches and transmissions; engine parts, such as gaskets, piston rings, seals, pistons and filters; chassis products, such as vehicular frames and cradles and heavy duty side rails; fluid power components, such as pumps, motors and control valves; and industrial products, such as electrical and mechanical brakes and clutches, drives and motion control devices.
Dana's vehicular components and parts are used on automobiles, pickup trucks, vans, minivans, sport utility vehicles, medium and heavy trucks and off-highway vehicles. In 1993, sales to this segment accounted for 82% of Dana's total sales. The Company's industrial products include mobile off-highway and stationary equipment applications. Sales to this segment amounted to 18% of the Company's 1993 total sales.
"Business Segments" at pages 31 and 32 of Dana's 1993 Report to Shareholders ("1993 Annual Report") is incorporated herein by reference.
GEOGRAPHICAL AREAS - ------------------
To serve its global markets, Dana has established regional operating organizations in North America, Europe, South America and Asia/Pacific, each with management responsibility for its specific geographic markets. The Company's significant international operations are located in the following countries: Argentina, Australia, Brazil, Canada, China, Columbia, France, Germany, India, Italy, Korea, Mexico, Netherlands, Singapore, Switzerland, Taiwan, Thailand, United Kingdom and Venezuela. Most of Dana's international subsidiaries and affiliates manufacture and sell vehicular and industrial products similar to those produced by Dana in the United States.
Consolidated international sales were $1.3 billion, or 24% of the Company's 1993 sales. Including U.S. exports, international sales accounted for 31% of 1993 consolidated sales. International operating income was $97 million, or 21% of consolidated 1993 operating income. In addition, there was $13 million of equity in earnings from international affiliates in 1993.
Dana believes the regional operating organizations have positioned the Company to profitably share in the anticipated long-term growth of the worldwide Vehicular and Industrial markets. The Company intends to increase its involvement and investment in international markets in the coming years.
"Geographic Areas" at page 33 of Dana's 1993 Annual Report is incorporated herein by reference.
Sales in the Financial Holdings segment consisted of real estate sales and did not exceed 1% of consolidated sales for 1991, 1992 or 1993. Financial Holdings revenues (amounting to less than 5% of Dana's consolidated 1993 total revenues) have been excluded from this market analysis.
CUSTOMER DEPENDENCE - -------------------
The Company has thousands of customers and enjoys long-standing business relationships with many of these customers. The Company's attention to price, quality, delivery and service has been recognized by numerous customers who have awarded the Company supplier quality awards. Ford and Chrysler were the only customers accounting for more than 10% of the Company's net sales in 1993. The Company has been supplying product to Ford, Chrysler and their divisions for many years. Sales to Ford, as a percentage of the Company's net sales, were 15%, 17% and 18% in 1991, 1992, 1993, respectively. Sales to Chrysler, as a percentage of net sales, were 8%, 9% and 11% in 1991, 1992, and 1993, respectively. Loss of all or a substantial portion of the Company's sales to Ford, Chrysler or other large vehicle manufacturers, would have a significant adverse effect on the Company's financial results until this lost sales volume could be replaced. This event is considered unlikely in the ordinary course of business and would most likely occur only in the event of a major business interruption such as a prolonged strike at one of the Company's customers.
MATERIALS - ---------
The Company normally does not experience raw material shortages within its operations. Most raw materials and semi-processed or finished items are purchased within the operating regions. Temporary shortages of a particular material or part may occasionally occur, but the various Dana units basically buy from a number of capable, long-term suppliers.
SEASONALITY - -----------
Dana's businesses are not considered to be seasonal.
BACKLOG - -------
The majority of Dana's products are not on a backlog status. They are produced from readily available materials such as steel and have a relatively short manufacturing cycle. Each operating unit of the Company maintains its own inventories and production schedules. Nearly all products are available from more than one facility. Production capacity is either adequate to handle current requirements or will be expanded to handle anticipated growth in certain product lines.
COMPETITION - -----------
In its Vehicular and Industrial products segments, the Company competes worldwide with a number of other manufacturers and distributors which produce and sell similar products. These competitors include vertically-integrated units of the Company's major vehicular OEM customers as well as a large number of independent domestic and international suppliers. The competitive environment in these segments has changed dramatically in the past few years as the Company's traditional United States OEM customers, faced with substantial international competition, have expanded their worldwide sourcing of components. In order for Dana to compete both domestically and internationally with suppliers, the Company has established operations in several regions of the world so that Dana can be a strong global supplier of its core products.
In the Financial Holdings segment, the Company's primary focus is on leasing activities. The Company's competitors include national and regional leasing and finance organizations.
STRATEGY - --------
In the Vehicular and Industrial products segments, the Company is actively pursuing three broad strategies.
The first of these strategies is to increase the Company's involvement and investment in its international markets. The Company has developed a well-defined regional organization in support of this initiative and has competed in world markets for nearly 70 years. The Company has been in Japan for two decades and is well established throughout Europe, South America, and the Asia/Pacific region. In 1993, international sales, including exports from the United States, totaled 31% of net sales. The Company's long-term goal is to derive 50% of its net sales (including exports) from customers outside the United States. Although subject to certain risks, the Company believes broadening its international sales will enable it to offset potential adverse effects of economic downturns in specific countries, source product from the areas of the world which offer the lowest cost, and provide it access to markets which have the greatest growth potential.
STRATEGY (continued) - --------
The Company's second long-term strategic objective is to increase its distribution sales to 50% of net sales. The Company believes that distribution sales are less cyclical than original equipment sales and offer long-term growth potential. To date, the Company has consistently expanded its distribution business by increasing market penetration and broadening its product offerings through internal growth and acquisition. In 1993, the Company's distribution sales were 37% of net sales.
The Company's third objective is to increase its share of its OEM customers' global component purchases. To accomplish this objective, the Company is focusing on meeting OEM customers' needs in each of the local markets in which they operate, both through exports and by locating manufacturing facilities in markets where key OEM customers have assembly plants.
PATENTS AND TRADEMARKS - ----------------------
Dana's proprietary drivetrain, engine parts, chassis, fluid power systems, and industrial power transmission product lines have strong identities worldwide in the Vehicular and Industrial markets which Dana serves. Throughout these product lines, Dana owns or is licensed to manufacture and/or sell its products under a number of patents and trademarks. These patents, trademarks and licenses have been obtained over a period of years and expire at various times. Dana considers each of them to be of value and aggressively protects its rights throughout the world against infringement. Because the Company is involved with many product lines, the loss of any particular patent, trademark, or license would not materially affect the sales and profits of the Company.
RESEARCH AND DEVELOPMENT - ------------------------
Dana's facilities engage in engineering, research and development, and quality control activities to improve the reliability, performance and cost-effectiveness of Dana's existing Vehicular and Industrial products and to design and develop new products for both existing and anticipated applications. To promote efficiency and reduce development costs, Dana's research and engineering people work closely with original equipment manufacturing customers on special product and systems designs. Dana's consolidated worldwide expenditures for engineering, research and development, and quality control programs were $102 million in 1991, $108 million in 1992 and $120 million in 1993.
EMPLOYMENT - ----------
Dana's worldwide employment (including consolidated subsidiaries and affiliates) was 36,000 at December 31, 1993.
CASH FLOWS - ----------
Dana experiences increases or decreases in cash flows as sales volumes fluctuate in the Vehicular or Industrial business segments. Cash balances are utilized from time to time to purchase additional fixed assets, for acquisitions of new businesses or product lines, for investments and to retire debt. The "Statement of Cash Flows" on page 21 of Dana's 1993 Annual Report is incorporated herein by reference.
ENVIRONMENTAL COMPLIANCE - ------------------------
The Company makes capital expenditures in the normal course of business, as necessary, to ensure that its facilities are in compliance with applicable federal, state and local environmental laws and regulations. Costs of environmental compliance did not have a materially adverse effect on the Company's capital expenditures, earnings or competitive position in 1993, and the Company currently does not anticipate future environmental compliance costs to be material.
None of the above officers has a family relationship with any other officer or with any director of Dana. There are no arrangements or understandings between any of the above officers and any other person pursuant to which he was elected an officer of Dana. Officers are elected annually at the first meeting of the Board of Directors after the Annual Meeting of Shareholders. The first five officers and Mr. Strobel have employment agreements with the Company.
ITEM 2
ITEM 2 - PROPERTIES - -------------------
Dana owns the majority of the manufacturing facilities and the larger distribution facilities for its Vehicular and Industrial products. A few manufacturing facilities and most of the Company's smaller distribution outlets, service branches, and offices are leased. The facilities, in general, are well-maintained and adapted to the operations for which they are being used, and their productive capacity is adjusted and expanded as required by market and customer growth.
On a geographic basis, Dana's facilities (including those of consolidated subsidiaries and affiliates) are located as follows:
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS - --------------------------
The Company and its consolidated subsidiaries are parties to various pending judicial and administrative proceedings arising in the ordinary course of business, including those arising out of alleged defects in the Company's products and alleged violations of various environmental laws (including the federal "Superfund" law). Some of the environmental proceedings involve claims for damages and/or potential monetary sanctions. Management and its legal counsel periodically review the probable outcome of pending legal proceedings, the costs and expenses reasonably expected to be incurred, the availability and limits of the Company's insurance coverage, and the Company's established reserves for uninsured liabilities. While the outcome of these proceedings cannot be predicted with certainty, management believes, based on these reviews, that any liabilities that may result from these proceedings are not reasonably likely to have a material effect on the Company's liquidity, financial condition or results of operations.
Included among the foregoing proceedings is the following:
IN THE MATTER OF DANA CORPORATION - VICTOR PRODUCTS DIVISION AND BRC RUBBER GROUP. This administrative proceeding was brought in 1990 by the United States Environmental Protection Agency ("USEPA") in Region V, Chicago. USEPA alleges that the Company's former plant in Churubusco, Indiana (which ceased operations in 1983) violated the federal Resource Conservation and Recovery Act ("RCRA") by failing to submit a closure plan and financial assurances as a RCRA-regulated storage facility and by failing to notify the subsequent plant owner (Bluffton Rubber Company or "BRC") of the storage facility's alleged RCRA status. USEPA seeks to require a RCRA closure of the storage facility and to recover civil penalties of approximately $77,000 from the Company and $55,000 from BRC. The Company has agreed to indemnify BRC for liabilities asserted against BRC arising from alleged RCRA violations during the Company's operation of the storage facility. In June 1992, the Company submitted a settlement proposal to USEPA containing a plan to sample the soil at the storage facility site to establish that no contaminants have been released from materials that the Company stored there. In June 1993, the Indiana Department of Environmental Management ("IDEM"), on behalf of USEPA, notified the Company of its determination that the sampling plan is inadequate. IDEM also issued a Notice of Deficiency with respect to the Company's closure of the storage facility. The Company believes that the Notice of Deficiency imposes obligations which go beyond the appropriate scope of RCRA closure and has initiated discussions with IDEM about the sampling program and the Notice of Deficiency, and with USEPA about the penalty phase of the administrative hearing.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------
No matters were submitted to a vote by Dana's security holders during the fiscal fourth quarter.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------
Dana's common stock is listed on the New York, Pacific, and International (London) Stock Exchanges. On February 17, 1994, there were approximately 25,600 shareholders of record.
Dividends have been paid on the common stock every year since 1936. Quarterly dividends have been paid since 1942. Management currently anticipates that dividends will continue to be paid in the future.
"Additional Comments - Shareholders' Investment" at page 42 of Dana's 1993 Annual Report is incorporated herein by reference.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA - --------------------------------
"Eleven Year History - Financial Highlights" at page 43 of Dana's 1993 Annual Report is incorporated herein by reference.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS - ---------------------
"Management's Discussion and Analysis of Results" at pages 35-36 of Dana's 1993 Annual Report is incorporated herein by reference.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------
The financial statements, together with the report thereon of Price Waterhouse dated February 13, 1994, at pages 18-34 of Dana's 1993 Annual Report and "Unaudited Quarterly Financial Information" at page 42 of Dana's 1993 Annual Report are incorporated herein by reference.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - --------------------
- None -
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------
Information regarding Dana's directors and executive officers is set out in Part I, Item 1 of this Form 10-K and in Dana's Proxy Statement dated March 4, 1994 for the Annual Meeting of Shareholders to be held on April 6, 1994 (the "1994 Proxy Statement"). "Election of Directors" and "Compliance with Section 16(a) of the Exchange Act" from the 1994 Proxy Statement are incorporated by reference.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION - --------------------------------
"The Board and Its Committees" and "Executive Compensation" from Dana's 1994 Proxy Statement are incorporated herein by reference.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------
"Stock Ownership" from Dana's 1994 Proxy Statement is incorporated herein by reference.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - --------------------------------------------------------
"Other Transactions" from Dana's 1994 Proxy Statement is incorporated herein by reference.
Report of Independent Accountants on Financial Statement Schedules
To the Board of Directors of Dana Corporation
Our audits of the consolidated financial statements referred
to in our report dated February 13, 1994, appearing on
page 18 of the 1993 Annual Report to Shareholders of Dana
Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the Financial
Statement Schedules (Schedules V, VI, VIII and X) listed in
Item 14(a) of this Form 10-K. In our opinion, these Financial
Statement Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE
Toledo, Ohio February 13, 1994
DEPRECIATION:
Depreciation for the more important groups of property purchased or constructed by the Company is based on the following service lives:
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES ----------------------------------------------
SUPPLEMENTARY INFORMATION TO FINANCIAL STATEMENTS -------------------------------------------------
EMPLOYEE STOCK OPTION PLANS - ---------------------------
The Company has in effect two stock option plans for employees which were approved by the shareholders in 1977 and 1982. The 1982 Plan was amended with shareholder approval in 1988 and 1993. These plans authorize the grant of options and/or stock appreciation rights ("SARs") to key employees to purchase 3,000,000 and 5,950,000 shares, respectively, of common stock at exercise prices no less than 85% of the market value of such stock at date of grant; the exercise periods may extend for no more than ten years from date of grant. All options and SARs granted to date under these two plans have been granted at 100% of the market value of the Company's common stock at the date of grant.
The number of shares above and all references below to the number of shares and per share prices have been adjusted for all stock dividends and distributions subsequent to the dates the plans were approved by the shareholders, including the October 10, 1983 three-for-two stock split.
At December 31, 1993, there were 3,291,278 shares available for future grants under the 1982 Plan, as amended. No shares have been available for grants under the 1977 Plan since 1987, and there were no SARs outstanding at December 31, 1993.
The following table sets forth (1) the aggregate number of shares of the Company's common stock subject at December 31, 1993, to outstanding options, (2) the average exercise prices per share of such options, (3) the aggregate exercise prices of such options, (4) the ranges of expiration dates of such options, and (5) the aggregate market values of such shares at February 17, 1994, based on $58.38 per share, the closing sales price in the New York Stock Exchange Composite Transactions Index as reported in THE WALL STREET JOURNAL:
At December 31, 1993, 1,093 employees of the Company and its subsidiaries and affiliates held exercisable options under the Company's stock option plans, consisting of 276 employees under the 1977 Plan and 817 employees (some of whom also held options under the 1977 Plan) under the 1982 Amended Plan.
EMPLOYEES' STOCK PURCHASE PLAN - ----------------------------- With respect to the Company's Amended Employees' Stock Purchase Plan, as of December 31, 1993, 27,500 employees of the Company and its subsidiaries were eligible to participate. Of such employees, 6,733 were participating at December 31, 1993.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN - -----------------------------------------
In 1993, the shareholders approved a stock option plan for non-employee Directors of the Company. The plan provides for the granting of options to purchase the Company's common stock at prices equal to the market value of the stock at the date of grant. The options are exercisable after one year for a period not to exceed ten years from the date of grant. In 1993, options were granted for 10,500 shares at an exercise price of $48.50 per share. The expiration date of the options is 4/19/03. At December 31, 1993, no stock options were exercisable and there were 54,500 shares available for future grant. At February 17, 1994, the aggregate exercise price of options outstanding under the Plan was $509,300 and the aggregate market value of those options was $613,000.
DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES ----------------------------------------------
SUPPLEMENTARY INFORMATION TO FINANCIAL STATEMENTS -------------------------------------------------
COMMITMENTS AND CONTINGENCIES - ----------------------------- As discussed on page 27 of the 1993 Annual Report under the comments on "Commitments and Contingencies," the Company and its consolidated subsidiaries are parties to various legal proceedings (judicial and administrative) arising in the normal course of business, including proceedings which involve environmental and products liability claims.
With respect to environmental claims, the Company is involved in investigative and/or remedial efforts at a number of locations, including "on-site" activities at currently or formerly owned facilities and "off-site" activities at Superfund sites where the Company has been named as a potentially responsible party. Based on currently available facts, existing technology, and presently enacted environmental laws and regulations, the Company estimates that it will incur costs of approximately $38 million in connection with these actions, including the costs of investigation and remediation and administrative and legal expenses. This amount has been recorded in the accounts net of probable recoveries of $6 million from insurance and other sources. If circumstances change, these estimates may change.
With respect to product liability claims, from time to time the Company is named in proceedings involving alleged defects in its products. Currently included in such proceedings are a large number of claims (most of which are relatively small) based on alleged asbestos-related personal injuries. At December 31, 1993, 20,000 such claims were outstanding, of which 9,600 were subject to pending settlement agreements. The Company has agreements with its insurance carriers providing for the payment of substantially all of the indemnity costs and the legal and administrative expenses for these claims. The Company is also a party to a small number of asbestos-related property damage proceedings. The Company's insurance carriers are paying the major portion of the defense costs in connection with such cases, and the Company has incurred no indemnity costs to date. The Company estimates that its total liability for product liability claims is approximately $73 million. This amount has been recorded in the accounts net of probable recoveries of $54 million from insurance and other sources. If circumstances change, these estimates may change.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DANA CORPORATION ------------------------------------------ (Registrant)
Date: March 14, 1994 By: Martin J. Strobel ------------------------- --------------------------------------- Martin J. Strobel, Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.