1 [DANA LOGO] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1998 Commission file number 1-1063 - ------------------------------------------- ------ DANA CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Virginia 34-4361040 - -------------------------------- -------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 4500 Dorr Street, Toledo Ohio 43615 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (419)535-4500 ------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered - -------------------------- ----------------------------------------- Common Stock, $1 par value New York, Pacific, London Stock Exchanges Securities registered pursuant to Section 12(g) of the Act: None -------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- The aggregate market value of the voting stock held by non-affiliates of the registrant at February 19, 1999, was approximately $6,536,842,000. The number of shares of registrant's Common Stock, $1 Par Value, outstanding at February 19, 1999, was 165,809,476 shares. DOCUMENTS INCORPORATED BY REFERENCE <TABLE> <CAPTION> Document Where Incorporated ---------------------- ------------------------------- <S> <C> 1. Proxy Statement for Annual Meeting of Shareholders to be held on April 7, Part III 1999. 2. Annual Report to Shareholders for year ended December 31, 1998. Parts I, II, IV </TABLE> - -------------------------------------------------------------------------------- The Exhibit Index is located at pages 19-21 of the sequential numbering system. 1
2 INDEX DANA CORPORATION - FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 <TABLE> <CAPTION> 10-K Pages ---------- <S> <C> Cover 1 Index 2 Part I - ------ Item 1 - Business 3-9 Item 2 - Properties 10 Item 3 - Legal Proceedings 10 Item 4 - Submission of Matters to a Vote of Security Holders 10 Part II - ------- Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters 11 Item 6 - Selected Financial Data 11 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 7(A) - Quantitative and Qualitative Disclosures About Market Risk 11 Item 8 - Financial Statements and Supplementary Data 11 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 11 Part III - -------- Item 10 - Directors and Executive Officers of the Registrant 12 Item 11 - Executive Compensation 12 Item 12 - Security Ownership of Certain Beneficial Owners and Management 12 Item 13 - Certain Relationships and Related Transactions 12 Part IV - ------- Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 13-21 Signatures 22-23 - ---------- </TABLE> 2
3 PART I ITEM 1 - BUSINESS Dana Corporation was incorporated in 1905. Today, we are one of the world's largest independent suppliers to original equipment (OE) vehicle manufacturers and the related aftermarkets. We produce the types of components and systems used on more than 95% of the world's 700 million motor vehicles. We also own Dana Credit Corporation (DCC), a leading provider of leasing services in selected markets. Our operations are organized into seven market-focused Strategic Business Units (SBUs) as follows: o Automotive Systems Group (ASG) -- This group serves the world's light truck and passenger car markets with light duty axles and driveshafts, structural products (such as engine cradles and frames), transfer cases, original equipment brakes and integrated modules and systems. The group has 82 facilities and 21,100 people in 20 countries. In 1998, its sales were $4.3 billion and its three largest customers were DaimlerChrysler AG, Ford Motor Company and General Motors Corporation. o Automotive Aftermarket Group (AAG) -- Created in 1998 as one of our strategic initiatives to realign our operations following our merger with Echlin, this group sells hydraulic brake components and disc brakes for light vehicle applications, external engine components for the vehicle maintenance and repair markets and a complete line of filtration products for a variety of vehicle and industrial equipment applications worldwide. In addition, it sells electrical, brake, power transmission, steering and suspension system components in the United Kingdom and continental Europe. The group has 175 facilities and 27,000 people in 24 countries. In 1998, its sales were $2.8 billion and its three largest customers were National Automotive Parts Association (NAPA), Carquest Corporation and Pep Boys Manny Moe & Jack. o Engine Systems Group (ESG) -- This group serves the automotive, heavy truck, agricultural, construction, mining, aeronautical, marine, railway, motorcycle and industrial markets (including nearly every major engine manufacturer in the world and related aftermarkets) with sealing products, engine parts, piston rings, cylinder liners and camshafts and fluid system products. The group has 116 facilities and 20,500 people in 19 countries. In 1998, its sales were $2.0 billion and its three largest customers were Ford, GM and DaimlerChrysler. o Heavy Truck Group (HTG) -- This group, a major global supplier to the medium and heavy truck markets, produces heavy axles and brakes, trailer products, medium and heavy duty driveshafts and power take-off units and commercial vehicle systems. It also assembles modules and systems for heavy trucks. The group has 47 facilities and 6,500 people in 9 countries. In 1998, its sales were $1.6 billion and its three largest customers were Mack Trucks, Inc., PACCAR Inc and Navistar International Transportation Corp. o Off-Highway Systems Group (OHSG) -- This group produces axles and brakes, transaxles, power-shift transmissions, torque converters and electronic controls and hydraulic pumps, motors, valves, filters and electronic components for the construction, agriculture, mining, specialty chassis, outdoor power, materials handling, forestry and leisure utility equipment markets. The group has 18 facilities and 4,500 people in 8 countries. In 1998, its sales were nearly $900 million and its three largest customers were Agco Corporation, Caterpillar Inc. and Case Corporation. o Industrial Group (IG) -- Our most diverse core business, this group sells products and systems that drive and control motion, including clutches, brakes, linear actuators, motors and controls, hose products, couplings and a wide range of electric and electronic sensors. The group serves worldwide markets for industrial machinery processing equipment, machine tools and business machines, as well as the communication, information processing, transportation, agriculture, construction, mining, chemical, petroleum and automotive industries. The group has 47 facilities and 6,000 people in 16 countries. In 1998, its sales were over $700 million and its three largest customers were Ford, NAPA and Motion Industries, Inc. 3
4 o Leasing Services -- DCC and its subsidiaries provide leasing services to selected markets in the U.S., Canada, the United Kingdom and continental Europe. DCC's key products are middle ticket and capital markets leasing and finance products and asset and real property management. In July 1998, we merged one of our subsidiaries with Echlin Inc., another worldwide supplier of automotive products. The Echlin merger was one of a series of steps we have taken in the past two years to focus on and strengthen our core products and businesses. During that period, we completed strategic acquisitions of operations with annualized sales of more than $5.3 billion, including Echlin and: o the Clark-Hurth Components assets of Ingersoll-Rand Company in February 1997 o the Sealed Power Division of SPX Corporation in February 1997 o the heavy axle and brake business of Eaton Corporation in January 1998 o the Glacier Vandervell Bearings Group and the AE Clevite North American aftermarket engine hard parts business from Federal-Mogul Corporation in December 1998 We also completed significant restructuring and rationalization programs, including the sale of our European distribution operations, DCC's Technology Leasing Group portfolio and other operations not core to our business. You can find more information in "Note 16. Business Segments" on pages 34 - 36, "Note 21. Acquisitions" on page 38 and "Note 22. Divestitures" on page 39 of our 1998 Annual Report. GEOGRAPHICAL AREAS We maintain administrative organizations in four regions - North America, Europe, South America and Asia/Pacific - to facilitate financial and statutory reporting and tax compliance on a worldwide basis and to support the seven SBUs. Our operations are located in the following countries: <TABLE> <CAPTION> North America Europe South America Asia/Pacific - ------------- ------ ------------- ------------ <S> <C> <C> <C> <C> <C> Canada Austria Netherlands Argentina Australia South Korea Mexico Belgium Russia Brazil China Taiwan United States France Poland Colombia Japan Thailand Germany Spain South Africa Malaysia New Zealand India Sweden Uruguay Singapore Ireland Switzerland Venezuela Italy United Kingdom </TABLE> Our non-U.S. subsidiaries and affiliates manufacture and sell a number of vehicular and industrial products similar to those produced in the U.S. In addition to normal business risks, operations outside the U.S. are subject to others such as changing political, economic and social environments, changing governmental laws and regulations, currency revaluations and market fluctuations. Consolidated non-U.S. sales were $3.7 billion, or 30% of our 1998 sales. Including U.S. exports of $756 million, non-U.S. sales accounted for 36% of 1998 consolidated sales. Non-U.S. net income was $181 million, or 34% of consolidated 1998 net income. In addition, there was $30 million of equity in earnings of non-U.S. affiliates in 1998. You can find more information in "Note 7. Non-U.S. Operations" on page 29 and "Note 16. Business Segments" on pages 34 - 36 of our 1998 Annual Report. 4
5 CUSTOMER DEPENDENCE We have thousands of customers around the world and have developed long-standing business relationships with many of these customers. Our attention to quality, delivery and service has been recognized by numerous customers who have awarded us supplier quality awards. Ford and DaimlerChrysler were the only customers accounting for more than 10% of our consolidated sales in 1998. We have been supplying products to these companies and their subsidiaries for many years. Sales to Ford, as a percentage of sales, were 14%, 15% and 15% in 1996, 1997 and 1998, and sales to DaimlerChrysler were 11%, 11% and 13% in those years. Loss of all or a substantial portion of our sales to Ford, DaimlerChrysler or other large volume customers would have a significant adverse effect on our financial results until this lost sales volume could be replaced. There would be no assurance, in such event, when or if the lost volume would be replaced. PRODUCTS As a result of our internal development and acquisition activities in the past several years, we now have ten core products and services. During the past three years, our sales by core product were as follows: <TABLE> <CAPTION> Percentage of Consolidated Sales -------------------------------- 1996 1997 1998 ---- ---- ---- Type of Products - ---------------- <S> <C> <C> <C> Axle 24% 25% 32% Engine 10 10 10 Brake 9 10 10 Driveshaft 9 9 9 Fluid System 6 7 7 Structural 6 7 6 Industrial 7 6 6 Sealing 5 5 5 Filtration 4 4 4 -- -- -- 80 83 89 Other Products 20 17 11 -- -- -- 100% 100% 100% === === === </TABLE> We do not consider our leasing service revenue to be sales and none of our other products are core or account for 10% of sales. 5
6 MATERIAL SOURCE AND SUPPLY Most raw materials (such as steel) and semi-processed or finished items (such as forgings and castings) are purchased from long-term suppliers located within the geographic regions of our operating units. Generally, these materials are available from numerous sources in quantities that we need. Temporary shortages of a particular material or part occasionally occur, but we do not consider the overall availability of materials to be a significant risk factor. SEASONALITY Our businesses are not seasonal. However, sales to our OE vehicular customers are closely related to the vehicle manufacturers' production schedules. BACKLOG Generally, our products are not on a backlog status. They are produced from readily available materials and have a relatively short manufacturing cycle. Each operating unit maintains its own inventories and production schedules and many of our products are available from more than one facility. We believe that our production capacity is adequate to handle current requirements and we regularly review anticipated growth in our product lines to determine when additional capacity may be needed. COMPETITION We compete worldwide with a number of other manufacturers and distributors which produce and sell similar products. These competitors include vertically-integrated units of our major OE customers and a number of independent U.S. and non-U.S. suppliers. Our traditional U.S. OE customers, facing substantial foreign competition, have expanded their worldwide sourcing of components to better compete with lower cost imports. In addition, these customers have been shifting research and development, design and validation responsibilities to their Tier 1 suppliers, focusing on stronger relationships with fewer suppliers. We have established operations throughout the world to enable us to meet these competitive challenges and be a strong global supplier of our core products. In the area of leasing services, we compete in selected markets with various international, national and regional leasing and finance organizations. STRATEGY We are actively pursuing two broad strategies, focused around our seven customer and market-focused, global SBUs. Both strategies are intended to reduce the effects of economic and market cyclicality. The first strategy is to diversify our products and reduce our dependence on highway vehicle OE production. Our long-term goal is to obtain 50% of sales from the highway vehicle OE customers and 50% from distribution, off-highway, service and industrial markets. In 1998, highway vehicle OE sales were 56% of our total and distribution, off-highway, service and industrial sales were 44%. We continue to expand our off-highway and distribution businesses by increasing market penetration and broadening our product offerings through internal growth and acquisition. The second strategy is to balance our U.S. and non-U.S. sales, including sales of our non-consolidated affiliates. We have well-defined regional organizations in North America, South America, Europe and Asia/Pacific in support of this initiative. In 1998, non-U.S. sales, including exports from the U.S. and sales of our non-consolidated affiliates, were 41% of gross (consolidated and non-consolidated) sales. Our long-term goal is to derive 50% of our sales (including exports) from customers outside the U.S. To accomplish this objective, we are focusing on meeting our OE customers' needs in the local markets in which they operate, through exports and by locating manufacturing or assembly facilities where key customers have assembly plants. 6
7 As part of the continuing efforts to focus on our core businesses, in 1998 we announced or completed four divestitures of businesses with annual sales of nearly $470 million. We also completed the acquisitions of businesses with annual sales of over $4.7 billion, including those described in Item 1. You can find more information in "Note 21. Acquisitions" on page 38 and "Note 22. Divestitures" on page 39 of our 1998 Annual Report. PATENTS AND TRADEMARKS Our proprietary drivetrain, engine parts, chassis, structural components, fluid power systems and industrial power transmission product lines have strong identities in the vehicular and industrial markets which we serve. Throughout these product lines, we manufacture and sell our products under a number of patents and licenses which have been obtained over a period of years and expire at various times. We consider each of them to be of value and aggressively protect our rights throughout the world against infringement. Because we are involved with many product lines, the loss or expiration of any particular patent or license would not materially affect our sales and profits. We own numerous trademarks which are registered in many countries, enabling us to market our products worldwide. Our Spicer(R), Parish(R), Perfect Circle(R), Victor Reinz(R), Wix(R), Weatherhead(R), Warner Electric(R), Boston(R), Raybestos(R), Aimco(R), Clevite(R), Glacier(R) and Vandervell(R) trademarks, among others, are widely recognized in their respective industries. RESEARCH AND DEVELOPMENT Our objective is to be the leader in superior quality, technologically advanced products and systems for our vehicular and industrial customers offered at competitive prices. To enhance quality and reduce costs, we use statistical process control, cellular manufacturing, flexible regional production and assembly, global sourcing and extensive employee training. In addition, we engage in ongoing engineering, research and development activities to improve the reliability, performance and cost-effectiveness of existing products and to design and develop new products for existing and new applications. Our spending on engineering, research and development and quality control programs was $212 million in 1996, $248 million in 1997 and $275 million in 1998. EMPLOYMENT Our worldwide employment (including consolidated subsidiaries) was approximately 86,400 at December 31, 1998. ENVIRONMENTAL COMPLIANCE We make capital expenditures in the normal course of business as necessary to ensure that our facilities are in compliance with applicable environmental laws and regulations. Costs of environmental compliance did not have a materially adverse effect on our capital expenditures, earnings or competitive position in 1998, and we do not anticipate that future environmental compliance costs will be material. You can find more information in "Environmental Compliance and Remediation" under "Note 1. Summary of Significant Accounting Policies" on page 27 of our 1998 Annual Report. 7
8 EXECUTIVE OFFICERS OF THE REGISTRANT This table contains information about our current executive officers. Unless otherwise indicated, all positions are with Dana. The first five officers listed are members of Dana's Policy Committee. <TABLE> <CAPTION> Name and Age Present Position(s) Other Positions During Past 5 Years - ------------ -------------------- ----------------------------------- <S> <C> <C> S. J. Morcott Chairman of the Board of Directors Chief Executive Officer, 1989-99; Chief Operating (60) since 1990 Officer, 1986-97; President, 1986-95; Chairman of the Board of Hayes-Dana Inc., 1987-95 (1) J. M. Magliochetti Chief Executive Officer since President - Dana North American Operations, 1992-95 (56) February 8, 1999; Chief Operating Officer since 1997; Director and President since 1996 J. S. Simpson Executive Vice President since Vice President of Finance, 1996-98; Treasurer, (57) 1998; Chief Financial Officer since 1996-97; President - Dana Asia Pacific Operations, 1997 1992-95 W. J. Carroll President - Automotive Systems President - Diversified Products & Distribution, (54) Group since 1997 1996-97; President - Dana Distribution Service Group, 1995-97; President - DTF Trucking, 1985-97; Chairman of the Board of Dana Canada Inc., 1995-97(1); President of Dana Canada Inc., 1993-97 M. A. Franklin, III President - Dana International President - Dana Europe, 1993-97 (51) since 1997 R. L. Clayton President - Heavy Truck Group since Vice President - Heavy Truck Group, 1997-98; Vice (38) 1998 President and General Manager - Spicer Heavy Axle & Brake Division, 1996-97; General Manager - Spicer Clutch Division, 1995-96; Director of Planning and Development - Reinz-Dichtungs GmbH, 1993-95 (2) B. N. Cole President - Off-Highway Systems President - Structural Components Group, 1995-97; (56) Group since 1997 Vice President - Heavy Vehicle - Dana North American Operations, 1991-95 C. F. Heine President - Engine Systems Group President - Dana Asia Pacific, 1996-98; Vice (46) since 1998 President - Asia Pacific Operations, 1995; General Manager - Spicer Off-Highway Axle Division, 1993-94 C. W. Hinde Vice President and Chief Accounting (60) Officer since 1992; Assistant Treasurer since 1986 L. W. McCurdy President - Automotive Aftermarket Chairman, President and Chief Executive Officer of (63) Group since 1998 Echlin Inc., 1997-98; Executive Vice President - Automotive, Cooper Industries, 1994-97 </TABLE> 8
9 <TABLE> <CAPTION> Name and Age Present Position(s) Other Positions During Past 5 Years - ------------ -------------------- ----------------------------------- <S> <C> <C> W. L. Myers President - Automotive Axle President - Spicer Driveshaft Group, 1995-97; Vice (58) Products since 1997 President and General Manager - Spicer Driveshaft Division, 1986-95 M. A. Plumley President - Industrial Group since Vice President - Industrial Group, 1997-98; Group (48) 1998 Vice President - Dana Industrial, 1996-97; General Manager - Plumley Companies, Inc., 1995-96; Chairman and Chief Executive Officer - Plumley Companies, Inc., 1988-95 (3) R. C. Richter Vice President - Finance and Vice President - Administration, 1997-98; General (47) Administration since 1998 Manager - Perfect Circle Sealed Power Europe, 1997; Vice President and General Manager - Perfect Circle Europe, 1994-97; Dana Corporate Controller, 1989-94; Dana Vice President - Administration, 1987-94 E. J. Shultz Chairman and President - Dana President - Lease Financing, 1994-95; President - (54) Credit Corporation since 1995 Financial Services, 1990-94 M. J. Strobel Vice President since 1976; General (58) Counsel since 1970; Secretary since 1982 J. H. Woodward, Jr. Vice President and Corporate Controller - Dana North American Operations, (46) Controller since 1996 1994-96; Division Controller - Spicer Heavy Axle & Brake Division, 1992-94 </TABLE> Notes: (1) Hayes-Dana Inc., formerly a majority-owned Dana subsidiary located in Canada, is now a wholly-owned subsidiary and has been renamed Dana Canada Inc. (2) Reinz-Dichtungs GmbH is a wholly-owned Dana subsidiary located in Germany. (3) Plumley Companies, Inc., formerly a wholly-owned Dana subsidiary located in the U.S., is now a Dana division. Those officers who are designated in Dana's By-Laws are elected by the Board annually at its first meeting after the Annual Meeting of Shareholders. The others are appointed by the Board from time to time. None of the officers has a family relationship with any other Dana officer or director or an arrangement or understanding with any Dana officer or other person pursuant to which he was elected as an officer. 9
10 ITEM 2 - PROPERTIES As shown in the following table, we have over 500 manufacturing, distribution and service branch or office facilities worldwide. We own the majority of our manufacturing and larger distribution facilities for our vehicular and industrial products. We lease a few manufacturing facilities and most of our smaller distribution outlets and financial services branches and offices. <TABLE> <CAPTION> Dana Facilities by Geographic Region ------------------------------------ Type of North South Asia/ Facility America Europe America Pacific Total - -------- ------- ------ ------- ------- ----- <S> <C> <C> <C> <C> <C> Manufacturing 189 79 37 7 312 Distribution 59 22 13 20 114 Service Branches, Offices 55 10 6 8 79 --- --- -- --- --- Total 303 111 56 35 505 === === == === === </TABLE> ITEM 3 - LEGAL PROCEEDINGS We are a party to various pending judicial and administrative proceedings arising in the ordinary course of business. After reviewing the proceedings that are currently pending (including the probable outcomes, reasonably anticipated costs and expenses, availability and limits of our insurance coverage, and our established reserves for uninsured liabilities), we do not believe that any liabilities that may result from these proceedings are reasonably likely to have a material effect on our liquidity, financial condition or results of operations. The Securities and Exchange Commission requires us to report certain environmental proceedings involving governmental agencies. There is currently one such proceeding. In the Matter of Dana Corporation is an Administrative Complaint brought by the U.S. Environmental Protection Agency, Region V (USEPA) on September 30, 1998, alleging periodic violations of discharge limits of certain metals in the waste water at our plant on Sanford Street in Muskegon, Michigan. The Complaint alleges that such discharges occurred from 1993 to 1995 in violation of the Clean Water Act. USEPA initially proposed a fine of $125,000, but has now agreed to a fine of $92,000, which will be further reduced if we complete an acceptable Supplemental Environmental Project at the plant. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None - 10
11 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is listed on the New York, Pacific, and London Stock Exchanges. On February 19, 1999, there were 34,544 shareholders of record. Dividends have been paid on our common stock every year since 1936. Quarterly dividends have been paid since 1942. You can find more information in "Shareholders' Investment" under "Additional Information" on page 50 of our 1998 Annual Report. ITEM 6 - SELECTED FINANCIAL DATA You can find "Financial Highlights" under "Eleven Year History" on page 51 of our 1998 Annual Report. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You can find "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 40 - 46 of our 1998 Annual Report. ITEM 7(A) - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK You can find information in "Financial Instruments," "Derivative Financial Instruments" and "Marketable Securities" under "Note 1. Summary of Significant Accounting Policies" on pages 27 and 28, in "Note 7. Non-U.S. Operations" on page 29, in "Note 11. Interest Rate Agreements" on page 31 and in "Note 19. Fair Value of Financial Instruments" on page 37 of our 1998 Annual Report. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA You can find the financial statements and the report by PricewaterhouseCoopers LLP dated January 25, 1999, on pages 21 - 39 and "Unaudited Quarterly Financial Information" under "Shareholders' Investment" on page 50 of our 1998 Annual Report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - None - 11
12 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT You can find general information about our directors and executive officers in Part I, Item 1 of this Form 10-K and under "Election of Directors" in our 1999 Proxy Statement. You can find information about the filing of reports by our directors, officers and 10% stockholders under Section 16(a) of the Securities Exchange Act of 1934 under "Section 16(a) Beneficial Ownership Reporting Compliance" in our 1999 Proxy Statement. ITEM 11 - EXECUTIVE COMPENSATION You can find information about executive compensation in the following sections of our 1999 Proxy Statement: "Compensation" under "The Board and its Committees," "Executive Compensation" and "Compensation Committee Report on Executive Compensation." You can find information about our stock performance under "Comparison of Five-Year Cumulative Total Return" in our 1999 Proxy Statement. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT You can find information about the stock ownership of our directors, officers and 5% stockholders under "Stock Ownership" in our Proxy Statement. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS You can find information about transactions between Dana and our directors, officers and 5% stockholders under "Other Transactions" and "Transactions with Management" in our 1999 Proxy Statement. 12
13 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K <TABLE> <CAPTION> Page in Annual Report ------------- <S> <C> <C> (a) The following documents are filed as part of this report: (1) Financial Statements: Report of Independent Accountants 21 Statement of Income for each of the three years in the period ended December 31, 1998 22 Balance Sheet at December 31, 1997 and 1998 23 Statement of Cash Flows for each of the three years in the period ended December 31, 1998 24 Statement of Shareholders' Equity for each of the three years in the period ended December 31, 1998 25 Notes to Financial Statements 26 - 39 Unaudited Quarterly Financial Information 50 Page in Form 10-K (2) Financial Statement Schedules: --------- Report of Independent Accountants on Financial Statement Schedule for the three years ended December 31, 1998 14 Valuation and Qualifying Accounts and Reserves (Schedule II) 15 - 17 Supplementary Information - Commitments and Contingencies 18 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) Exhibits listed in the "Exhibit Index" 19 - 21 (b) Reports on Form 8-K None </TABLE> 13
14 Report of Independent Accountants on Financial Statement Schedule To the Board of Directors of Dana Corporation Our audits of the consolidated financial statements referred to in our report dated January 25, 1999 appearing on page 21 of the 1998 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 Financial Statement Schedule II appearing on pages 15 through 17 of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Toledo, Ohio January 25, 1999 14
15 DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES SCHEDULE II(a) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE <TABLE> <CAPTION> Adjustment Trade accounts arising receivable from change Balance at Additions "written off" in currency Balance at beginning charged net of exchange rates end of of period to income recoveries and other items period --------- --------- ---------- --------------- ------ <S> <C> <C> <C> <C> <C> Year ended- December 31, 1996 $30,018,000 $15,866,000 $(13,930,000) $ 33,000 $31,987,000 December 31, 1997 $31,987,000 $13,880,000 $(12,479,000) $ 554,000 $33,942,000 December 31, 1998 $33,942,000 $20,694,000 $(16,698,000) $ 2,516,000 $40,454,000 </TABLE> 15
16 DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES SCHEDULE II(b) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ALLOWANCE FOR CREDIT LOSSES - LEASE FINANCING <TABLE> <CAPTION> Adjustment Trade accounts arising receivable from change Balance at Additions "written off" in currency Balance at beginning charged net of exchange rates end of of period to income recoveries and other items(1) period --------- --------- ---------- ------------------ ------ <S> <C> <C> <C> <C> <C> Year ended- December 31, 1996 $47,425,000 $12,349,000 $ (9,299,000) $ 350,000 $50,825,000 December 31, 1997 $50,825,000 $12,141,000 $ (9,851,000) $ (462,000) $52,653,000 December 31, 1998 $52,653,000 $20,117,000 $ (10,561,000) $(29,537,000) $32,672,000 </TABLE> (1) Other items in 1998 include $(28,889,000) from the sale of the Technology Leasing Group portfolio. 16
17 DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES SCHEDULE II(c) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS <TABLE> <CAPTION> Adjustment arising Amounts from change Balance at Additions "written off" in currency Balance at beginning charged net of exchange rates end of of period to income recoveries and other items period --------- --------- ---------- --------------- ------ <S> <C> <C> <C> <C> <C> Year ended- December 31, 1996 --------- $ 4,800,000 ----------- ------------ $ 4,800,000 December 31, 1997 $ 4,800,000 $30,400,000 $ (4,800,000) ------------ $30,400,000 December 31, 1998 $30,400,000 $28,800,000 ----------- ------------ $59,200,000 </TABLE> 17
18 DANA CORPORATION AND CONSOLIDATED SUBSIDIARIES SUPPLEMENTARY INFORMATION TO FINANCIAL STATEMENTS COMMITMENTS AND CONTINGENCIES We are a party to various legal proceedings (judicial and administrative) arising in the normal course of business, including proceedings which involve environmental and product liability claims. You can find additional information in "Note 20. Commitments and Contingencies" on page 38 of our 1998 Annual Report. With respect to environmental claims, we are 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 we have been named as a potentially responsible party. You can find more information in "Environmental Compliance and Remediation" under "Note 1. Summary of Significant Accounting Policies" on page 27 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 40 - 46 of our 1998 Annual Report. With respect to product liability claims, from time to time, we are named in proceedings involving alleged defects in our products. Such proceedings currently include a large number of claims (most of which are for relatively small damage amounts) based on alleged asbestos-related personal injuries. At December 31, 1998, approximately 48,000 such claims were outstanding, of which approximately 33,000 were subject to pending settlement agreements. We have agreements with our insurance carriers providing for the payment of substantially all of the indemnity costs and the legal and administrative expenses for these claims. We are also a party to a small number of asbestos-related property damage proceedings. Our insurance carriers are paying the major portion of the defense costs in connection with these cases and we have incurred minimal indemnity costs to date. ---------- 18
19 EXHIBIT INDEX <TABLE> <CAPTION> No. Description Method of Filing - --- ----------- ---------------- <S> <C> <C> 3-A Restated Articles of Incorporation Filed by reference to Exhibit 3-A to Dana's Form 10- Q for the quarter ended June 30, 1998 3-B By-Laws, effective April 7, 1999 Filed with this Report 4-A Specimen Single Denomination Stock Certificate Filed by reference to Exhibit 4-B to Dana's Registration Statement No. 333-18403 filed December 20, 1996 4-B Rights Agreement, dated as of April 25, 1996, between Filed by reference to Exhibit 1 to Dana's Form 8-A filed Dana and ChemicalMellon Shareholder Services, L.L.C., May 1, 1996 Rights Agent 4-C Indenture for Senior Securities between Dana and Filed by reference to Exhibit 4-B of Dana's Registration Citibank, N.A., Trustee, dated as of December 15, 1997 Statement No. 333-42239 filed December 15, 1997 4-D First Supplemental Indenture between Dana, as Issuer, Filed by reference to Exhibit 4-B-1 to Dana's Report on and Citibank,N.A., Trustee, dated as of March 11, 1998 Form 8-K dated March 12, 1998 4-E Form of 6.5% Notes due March 15, 2008 and 7.00% Notes Included in Exhibit 4-D and filed by reference to Exhibit due March 15, 2028 4-C-1 to Dana's Report on Form 8-K dated March 12, 1998 10-A Additional Compensation Plan Filed by reference to Exhibit A to Dana's Proxy Statement for its Annual Meeting on April 5, 1995 10-A(1) First Amendment to Additional Compensation Plan Filed by reference to Exhibit 10-A(1) to Dana's Form 10-Q for the quarter ended June 30, 1995 10-A(2) Second Amendment to Additional Compensation Plan Filed by reference to Exhibit 10-A(2) to Dana's Form 10-K for the year ended December 31, 1995 10-A(3) Third Amendment to Additional Compensation Plan Filed by reference to Exhibit 10-A(3) to Dana's Form 10-K for the year ended December 31, 1996 10-A(4) Fourth Amendment to Additional Compensation Plan Filed by reference to Exhibit 10-A(4) to Dana's Form 10-Q for the quarter ended March 31, 1998 10-E 1997 Stock Option Plan Filed by reference to Exhibit A to Dana's Proxy Statement for its Annual Meeting on April 2, 1997 10-E(1) First Amendment to 1997 Stock Option Plan Filed by reference to Exhibit 10-E(1) to Dana's Form 10-Q for the quarter ended June 30, 1997 10-E(2) Second Amendment to 1997 Stock Option Plan Filed by reference to Exhibit 10-E(2) to Dana's Form 10-K for year ended December 31, 1997 </TABLE> 19
20 <TABLE> <CAPTION> <S> <C> <C> 10-E(3) Third Amendment to 1997 Stock Option Plan Filed by reference to Exhibit 10-E(3) to Dana's Form 10-Q for the quarter ended March 31, 1998 10-E(4) Fourth Amendment to 1997 Stock Option Plan Filed with this Report 10-F Excess Benefits Plan Filed with this Report 10-H Directors Retirement Plan Filed by reference to Exhibit 10-H to Dana's Form 10-Q for the quarter ended June 30, 1998 10-I Director Deferred Fee Plan Filed by reference to Exhibit B to Dana's Proxy Statement for its Annual Meeting on April 2, 1997 10-I(1) First Amendment to Director Deferred Fee Plan Filed by reference to Exhibit 10-I(1) to Dana's Form 10-Q for the quarter ended March 31, 1998 10-I(2) Second Amendment to Director Deferred Fee Plan Filed with this Report 10-J(1) Employment Agreement between Dana and S.J. Morcott Filed by reference to Exhibit 10-J(1) to Dana's Form 10-K for the year ended December 31, 1997 10-J(2) Employment Agreement between Dana and J.M. Magliochetti Filed by reference to Exhibit 10-J(2) to Dana's Form 10-K for the year ended December 31, 1997 10-J(3) Employment Agreement between Dana and M.J. Strobel Filed by reference to Exhibit 10-J(3) to Dana's Form 10-K for the year ended December 31, 1997 10-J(4) Change of Control Agreement between Dana and W. J. Filed by reference to Exhibit 10-J(4) to Dana's Form 10-K Carroll. There are substantially similar agreements for the year ended December 31, 1997 with B.N. Cole, M.A. Franklin, W.L. Myers, R.C. Richter, E.J. Shultz, and J.S. Simpson 10-J(5) Collateral Assignment Split-Dollar Insurance Agreement Filed by reference to Exhibit 10-J(13) to Dana's Form for Universal Life Policies between Dana and S.J. 10-K for the year ended December 31, 1992 Morcott. There are substantially similar agreements with J.M. Magliochetti and M.J. Strobel 10-J(6) Severance and Indemnification Agreement between Dana Filed by reference to Exhibit 13 to Schedule 14D-9 and L.W. McCurdy (Amendment No. 1) filed by Echlin Inc. on May 5, 1998 10-K Supplemental Benefits Plan Filed with this Report 10-L(1) 1989 Restricted Stock Plan Filed by reference to Exhibit A of Dana's Proxy Statement for its Annual Meeting on April 5, 1989 10-L(2) First Amendment to 1989 Restricted Stock Plan Filed by reference to Exhibit 10-L(2) to Dana's Form 10-K for the year ended December 31, 1993 10-L(3) Second Amendment to 1989 Restricted Stock Plan Filed by reference to Exhibit 10-L(3) to Dana's Form 10-K for the year ended December 31, 1993 </TABLE> 20
21 <TABLE> <CAPTION> <S> <C> <C> 10-L(4) Third Amendment to 1989 Restricted Stock Plan Filed by reference to Exhibit 10-L(4) to Dana's Form 10-K for the year ended December 31, 1996 10-L(5) Fourth Amendment to 1989 Restricted Stock Plan Filed by reference to Exhibit 10-L(5) to Dana's Form 10-K for the year ended December 31, 1997 10-M 1998 Directors' Stock Option Plan Filed by reference to Exhibit A to Dana's Proxy Statement for its Annual Meeting on April 1, 1998 10-N Supplementary Bonus Plan Filed by reference to Exhibit 10-N to Dana's Form 10-Q for the quarter ended June 30, 1995 13 The following sections of Dana's 1998 Annual Report to Filed with this Report Shareholders, located on the pages indicated: "Financial Focus," "Financial Statements" and "Management and Independent Accountants' Report" on pages 20 - 39 "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 40 - 46 (excluding the charts on these pages) "Additional Information - Shareholders' Investment" on page 50 "Unaudited Quarterly Financial Information" on page 50 "Eleven Year History - Financial Highlights" on page 51 21 List of Subsidiaries of Dana Filed with this Report 23 Consent of PricewaterhouseCoopers LLP Filed with this Report 24 Power of Attorney Filed with this Report 27 Financial Data Schedules Filed with this Report </TABLE> Note: Exhibit Nos. 10-A through 10-N are exhibits required to be filed pursuant to Item 14(c) of Form 10-K. 21
22 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: February 24, 1999 By: /S/ 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. <TABLE> <CAPTION> <S> <C> Date: February 24, 1999 /S/ Southwood J. Morcott ---------------------- ---------------------------------------------------- Southwood J. Morcott, Chairman of the Board Date: February 24, 1999 /S/ Joseph M. Magliochetti ---------------------- ---------------------------------------------------- Joseph M. Magliochetti, Director and Chief Executive Officer Date: February 24, 1999 * /S/ John S. Simpson ---------------------- ------------------------------------------- John S. Simpson, Chief Financial Officer Date: February 24, 1999 /S/ Charles W. Hinde ---------------------- ------------------------------------------- Charles W. Hinde, Chief Accounting Officer Date: February 24, 1999 * /S/ B.F. Bailar ---------------------- ---------------------------------------------------- B.F. Bailar, Director Date: February 24, 1999 * /S/ A.C. Baillie ---------------------- ---------------------------------------------------- A.C. Baillie, Director Date: February 24, 1999 * /S/ E.M. Carpenter ---------------------- ---------------------------------------------------- E.M. Carpenter, Director Date: February 24, 1999 * /S/ E. Clark ---------------------- ------------------------------------------- E. Clark, Director Date: February 24, 1999 * /S/ G.H. Hiner ---------------------- ---------------------------------------------------- G.H. Hiner, Director Date: February 24, 1999 * /S/ M.R. Marks ---------------------- ---------------------------------------------------- M. R. Marks, Director Date: February 24, 1999 * /S/ R.B. Priory ---------------------- ---------------------------------------------------- R. B. Priory, Director </TABLE> 22
23 SIGNATURES (Continued) Date: February 24, 1999 * /S/ J.D. Stevenson ---------------------- ----------------------------------------- J. D. Stevenson, Director Date: February 24, 1999 * /S/ T.B. Sumner Jr. ---------------------- ----------------------------------------- T.B. Sumner, Jr., Director *By: /S/ Martin J. Strobel ---------------------------------------- Martin J. Strobel, Attorney-in-Fact 23