Dana Inc (DAN) 2011 Q1 法說會逐字稿

Good morning. Welcome to Dana Holding Corporation's first quarter 2011 webcast and conference call. My name is Brandy, and I will be your conference facilitator. Please be advised in our meeting today, both the speaker's remarks and the question-and-answer session will be recorded for relay purposes. At this time, all lines have been placed on mute to prevent any background noise. There will be a question-and-answer period after the speaker's remarks. (Operator Instructions)

At this time, I will begin the presentation by turning the call over to Dana's Senior Director of Investor Relations, Lillian Etzkorn. Please go ahead Ms Etzkorn.

Thank you, Brandy. Good morning, ladies and gentlemen. Welcome to all of you who are joining us either by phone or webcast. On behalf of the entire Dana management team, I'd like to thank you for spending time with us this morning. With me this morning are John Devine, Executive Chairman; Roger Wood, Chief Executive Officer and President; and Jim Yost, Executive Vice President and Chief Financial Officer. Also in the room are Jacqui Dedo, Chief Strategy and Procurement Officer; Marty Bryant, President of Light Vehicle Products; and Mark Wallace, President of Heavy Vehicle Products.

Before we begin, I'd like to review a couple of items. Copies of this morning's earnings release and the slides that will be using have been posted on Dana's Investor website for your reference. Today's call is being recorded, and the supporting materials are the property of Dana Holding Corporation. They may not be recorded, copied, or rebroadcast without our written consent. Today's call will also include a Q&A session. In order to allow as many questions as possible within our timeframe, please keep your questions brief.

Finally, today's presentation includes some forward-looking statements about our expectations for Dana's future performance. Actual results could differ materially from those suggested by our comments here. Additional information about the factors that could affect future results are summarized in our Safe Harbor statement. These risk factors are also detailed in our SEC filings, including our annual, quarterly, and current reports with the SEC. With that, I would like to turn the presentation over to John Devine.

Thanks, Lillian. Good morning, everybody. Thanks again for joining us. This was a good quarter for Dana. We are making continuing good momentum and improving our profitability, good expansion in Asia. We'll talk about that in a moment. Good progress in introducing important new products for us. We will talk about that as well.

Most importantly though, we brought a new CEO on board, Roger Wood. Roger has been with us a week and a half now, so be a little easy on him on the question side, but he is a fast learner. He is coming on very strong. Most of you or many of you, I know, know Roger from his prior life. Roger is a very strong leader, deep knowledge of the business. We think he is a terrific fit for Dana. We think-- we are delighted to have him onboard. You'll hear from Roger in a few minutes when we finish the business review. Also, as you probably noticed a couple weeks ago, I intend to retire from Dana at the end of June. It's a good time for me to go with the new management team. I have full confidence in this team, and I think they are going to continue to perform very well. Keith Wandell will be Executive Chairman at that time. Keith, as many of you know, had spent a lot of time at JCI and is CEO at Harley-Davidson now. He knows us well. He will be non-Executive Chairman. He has been our Lead Director for the past year.

With that, let me get into the slides and then we will get into questions. Starting with page 4, our highlights. Good, strong first-quarter results. Net income of $23 million. That's excluding the impact of the extinguishment of debt. EBITDA of $181 million, a margin of 10%. Cash flow is negative, but as a result of special payments during the quarter and Jim will take you through that in a moment. Our expansion in our growth markets, as we have talked about, a very important priority for us, made good progress in the quarter. We added a major business in Brazil with SIFCO, with the strategic agreement there. That is proceeding well. I will talk about that in a moment as well.

On Monday we announced -- you might have missed this, but we announced on Monday we have an agreement to buy the Commercial Vehicle Axle business from our JV partner Axles India. I will talk about that as well. New products and technologies coming down out of the Dana product farm. We're pleased to get that onboard. We will show more about that in a moment. New business coming as well. I will give you a flavor for that in a couple slides. We announced about a month ago our new labor agreements with both the UAW and Steel workers. We think these agreements are fair to both sides, and we are delighted to have been done early. Material commodity costs, no surprise, have been the biggest headwind we have been seeing. We have been able to offset most of that in the second quarter, and we do expect -- we anticipate the second half will offset the rest of it.

The next several slides, I want to give you a little more flavor of our business by business. We have four segments, you know, and I will cover these in sequence; where we are expanding, how much we give you on this. Again, to make sure you understand our business, understand where it is and how it's going. So this is really to make our business less complex going forward.

Our Light Vehicle Drive line business shown on page 5, continues to do very well. We are continuing to improve our profitability. The Japanese earthquake and tsunami has been the biggest impact potentially here, but we got through the quarter with only a modest impact. We'd expect some decline in second quarter revenues with the shutdowns that you are seeing, although we expect to make that up in the second half of the year. So, we don't expect the full year to have any substantial impact. On the segment performance side, nice sales improvement from first quarter of last year. Segment EBITDA has improved to $66 million, margin up to 9.8%. So nice improvement here. You can see our detail on our customer base on our regional side. The sales on the right-hand side there.

Ford continues to be our biggest customer, and North America continues to be our biggest sales region, although we would expect, certainly, Asia-Pacific to grow going forward. To give you a flavor of the new business awards we are getting, this is just a flavor but an important one. We have won some important propshaft business on the global Nissan compact pickup truck. We are going to do that in both Thailand and Mexico. And a good award from Toyota in South Africa for work on the Hilux pickup truck.

On page 7, our Power Technologies business-- you might recall we combined our sealing and thermal businesses sometime ago. Worked to get the cost out and to refocus the business, it's been very successful. This business is now growing very strong in passenger cars, crossover vehicles, Off-Highway. We have some very strong diversity here as well. And the margins have been terrific, and they are getting better. You can see in that segment performance, sales are up to $267 million for the quarter. So we are on track to break a $1 billion here. Margins up to 15%. We like this business. It's doing well and continuing to grow. I won't go through the customer base on the regional sales, but this business, again, is very diversified.

Page 8 gives you a little flavor for some new products here. A new cylinder head module for a major Japanese OEM. It's thermoplastic cover, reduces weight, less expensive than metal. On the Heat Exchanger side, we continue to do well with a number of new customers and new entries. Page 9 gives you some more flavor on our Commercial Vehicle business. We continue to grow this business, very strong. The business that we announced a couple months ago with SIFCO in Brazil is doing very well. We have two months of the first quarter, including the SIFCO results, and right now we are proceeding ahead of plan with that business, so that's been a great acquisition and doing well, well-off to a great start. We also on Monday announced the acquisition of the Commercial Axle business in India. I will give you a slide on that in a moment.

On the segment performance side, sales are up, EBITDA is up. Our margin is up to 9.1% from last year, but it is down a tad from about 10% in the fourth quarter of last year. I think it deserves a little more discussion here while I am on it. Our strategy in this market has been a couple things over the last few years. First of all, we know we have to roll out a number of new products. We think that is the heart and soul of this business here as well as around the world. We are doing that. I will show you a slide on that in a moment as well. We're making good progress growing this business globally. You know about the joint venture we have announced in China, DDAC. That is also on track for government approval in the second quarter, so none of the DDAC results are in here yet.

India, I will show you a slide on that in a moment, and Brazil with SIFCO, we have made important progress just in the last few months on really growing our footprint in this business globally. We are pleased about that. The third part of our strategy though is to improve our margins in North America. We've talked about this in the past. Continues to be -- our margins here are below par. We have made -- we concluded at the end of last year that we had to make this a top priority to improve margins as well as grow this business here, and we think we can do that. So we are proceeding with a plan to do just that. You are not seeing the results on that yet. It will take another couple quarters, but that plan is in place. We are working hard.

The plan itself -- excuse me -- is no super secret. We are working hard on the product side. New products. We are also reducing our complexity. We found we had to much complexity in this market and it was getting in the way of customers really understanding our product line. We are targeting particular products for markets. That will help us on complexity, but also helps on profitability. We are continuing to work on cost, importantly, with our suppliers. And we are looking at doing some pricing to get the full value of our products in the marketplace. So all of those we think will deliver improved margin in this business going forward, but as I mentioned before, it will take a couple quarters before that is delivered.

You can see our footprint is still largely in North America. We like that business. We have to improve the margin, but that business will continue. We are going to grow the Asia-Pacific business, the DDAC business is not in there yet, and the Indian business is not in here yet. That will expand that, and you will see our North American business continue to do well and better. But our expansion in Asia will show up in future quarters in future years. Page 10 gives you a little flavor for some of the new business we are winning. Drive and Steer axles in Australia, importantly Drive and Steer axles for Navistar with an important North American delivery fleet, and we are doing a Rolling Chassis in Colombia.

If you turn to our Off-Highway business on page 11. This business is growing faster than we expected at the beginning of the year. Good progress on both profits and margins. You can see on EBITDA margin there. We improved our margin from 8% last year to 11% here. We are making good progress there; we are pleased about it. And our strategy here is probably important to note on this piece of it. This is a business that has a lot of complexity, global as well as by manufacturer. We have worked hard to make sure our strategies are refined to maximize our growth and maximize our profitability. Going forward, our two main strategies in Off-Highway will be to design and develop fully integrated drive-line system using our skill set in transmissions and axles and drive shafts, hydraulics and controls. That business will be targeted for construction, mining, agriculture, material and handling segments.

Also in the agricultural business, we are looking to optimize our front driven axle lineup to make sure we can design and develop a product there that is modular in nature so we can drive both flexibility and scalability to reduce costs and improve our profitability and offerings in that segment as well. You will hear more about that strategy going forward will but it's an important one. It will be driving our business going forward. Page 12 gives you a little flavor for some of the business we won in the quarter. We won some axle business for a teleboom handler in Europe. Nice business for us. Our front axles for AGCO and the Valtra brand in Europe as well. So nice business. We are pleased to have it. You will see more of that going forward.

I mentioned quickly our product introductions. Three important products we introduced in the first quarter, the first two at the top of this page 13, are highlighted at our Heavy Truck business. Our Pro-40 Tandem Axel System, a major weight save here, better than we have done, better than competition. We think this is going to be a big one in the marketplace. And our LMSi Hub System that is giving our customers longer service intervals and more reliable products, we think that is also very important in the marketplace as well as being 20 pounds lighter.

In the Off-Highway business, an important introduction as well with our Powersplit Transmission. We make transmissions in the Off-Highway business. We don't make them in the other segments, but this is an important product for us. We've developed this in conjunction with Bosch Rexroth. It gives 20% fuel economy just being introduced to the market place a few weeks ago. You will hear more about this going forward.

I mentioned India. We have been talking a lot in our growth strategy in Asia. We talk a lot about China, very important market for us, continues. We are also going to talk a lot about India, and on Monday we announced a signing, an agreement to buy the Commercial Vehicle Axle business from our joint venture partner, Axles India. Axles India was set up to make axles housing. The last few years, we have had a lot of customer requests to do more on complete axles, and we are not going to separate that from our joint venture. So we are going to head that up.

We are buying the business on the axle head business. We will do the final axle assembly operations. We are buying that for $13 million. We will do the marketing, sales and engineering of these products. About $15 million in annual revenue. We think this business can grow substantially going forward. Key customers -- Ashok Leyland; Mahindra & Mahindra; hopefully more going forward. This market is growing at about 8% . So we think this is an important deal. Relatively small to start. But we think we can grow it going forward. This will be the third deal we have done in Asia during this quarter. So I think it gives credence to our strategy of growing in this market.

Page 15, you have seen this slide before, but just to focus on a one again. Our focus on three key goals has been with us the last couple years. We are continuing to work on operational improvements. We have more to do on complexity in both product and supply chain, some more to do on manufacturing. Importantly, we want to grow the business, starts with our product portfolios. We are doing that. You will see more of that coming down the road. And we are looking at attractive business opportunities around the globe, certainly, in the developing markets. We set a goal earlier this year to grow 50% over the next five years, including the market growth. At the same time, we want to continue to improve our margins and maintain a strong balance sheet. You can see in the box at the bottom, and I will let Jim give you more details there. We are raising our full-year guidance as well, and I will let Jim cover that as well as the details of our first quarter. Jim?

Thank you, John. On slide number 17, you can see the summary of our financial results for the quarter. As John indicated, we had another very good quarter. These results are in line with the preliminary results that we announced last week. Sales for the quarter totaled $1.8 billion. That's an increase of almost $300 million versus the comparable quarter last year. Adjusted EBITDA was $181 million, another significant improvement over last year. I will cover both sales and EBITDA in additional detail in subsequent slides.

In the first quarter, we incurred a $53 million loss related to the restructuring of our debt, and excluding that, we achieved a $23 million net income which was a very substantial improvement again, over last year. Diluted EPS of $0.34 is also up versus last year, and for you who want to go through the detail, we have included a reconciliation of that EPS number to GAAP EPS in the Appendix. Capital expenditures totaled $33 million, a significant increase from last year. Again, you will see that ramping up during this year. Free cash flow was a negative $35 million for the quarter, primarily due to two special payments. One, a warranty settlement payment of $25 million which we accrued and discussed in the fourth quarter call and also the annual incentive compensation that was paid in the quarter, a net reduction of about $32 million. So in total, about $57 million of special payments that went out in the first quarter. Other than that, we actually had a fairly good quarter in terms of cash flow.

On slide 18, you can see the reconciliation of our sales versus last year. Total sales were up $292 million, about 19%, with increases in all of our business except the structures business which we sold. Most notably, Off-Highway was up about 45%. Volume and mix contributed $382 million. That's about a 25% increase on an organic basis over 2010. Our pricing was slightly favorable, as was currency, because of the weakness of the dollar. If you take a look at it on a geographic basis, about 45% of our sales in the first quarter were in North America. Our European sales grew very substantially, about 40%, and in South America our sales were up about 30%, half of which was organic, and the other half related primarily to the SIFCO acquisition. So overall, very good growth in our sales on a year-over-year basis.

On slide 19, you can see the reconciliation of our adjusted EBITDA which was $181 million for the quarter, up $73 million. We totaled 10% on our margin. We've set a goal to be at least 10% this year, and we are very happy to be able to achieve that coming right out the box in the first quarter. Volume and mix were favorable by $63 million on the higher sales, and that's about a 16% drop-through. The drop-through was less this quarter primarily a result of the change in the mix of our Commercial Vehicle business. Specifically lower military sales which are very high volumes and higher OE sales in North America which, as John mentioned, our margins are substantially below our goals, our expectations and average. So overall, the mix hit us a little bit there.

Pricing was positive $12 million for the quarter, including $6 million of material price-- or cost recovery. Conversion costs continue to be strong totaling $11 million, and we were adversely hit by about $10 million of net material cost. Within that number, however, we did see an increase of $24 million in commodity costs which were partially offset by the $14 million of underlying cost savings. So as we have said before, we are seeing higher material costs hitting us in the early part of the year, and I will talk a little bit more about that as we go into the conversation here.

We still, however, project that on a full-year basis we will be able to offset all of the commodity cost increases through material cost reductions, and on top of that, we expect to see significant pricing recovery of these commodity prices. Overall, the impact of material and pricing recovery will be positive on a year-over-year basis. And as you can see, finally, the impact of currency was slightly positive to us, and the sale of structures reduce our EBITDA on a comparable basis by about $13 million.

Turning to free cash flow on slide number 20, as we indicated in prior calls, we did expect first quarter free cash flow to be negative, and it turned out to be a negative $35 million. As I mentioned earlier, we did have two special payments. One, the warranty which is a one-off, and then two, we did pay out the annual incentive compensation, which on a year-over-year basis we did not have that of any substantive amount in 2010. So, excluding those items, free cash flow positive was positive on an operating basis for the quarter. And I just will comment that the impact of those payments are showing up in the working capital, so basically, $57 million of that $151 million is due to those payments.

Additionally, we incurred higher working capital associated with the production in the quarter, and we spent the $33 million in capital expenditure. I will note that these -- the presentation we have here of free cash flow excludes any of the changes we've made in our capital structure. That is the use of cash, to pay down debt earlier this year as well as any of the acquisitions and divestitures that we are talking about. That, obviously, is included in total cash flow, but we have reflected here free cash flow, essentially, from the operations. Based on the results in the first quarter, and looking into the rest of the year. We believe, now, that we expect free cash flow to be in excess of $175 million positive for the full year.

On slide 21, we have shown our global liquidity and net cash. As you can see, we finished the quarter, again, in a fairly strong position. Liquidity remained very strong over a $1 billion, $1.1 billion. We ended up with just a small amount of net debt. That was largely due to the fact of the transaction for SIFCO, which cost $150 million in the quarter. None of these numbers, obviously, include the acquisition of DDAC, which will come in the second quarter, $120 million, or the $13 million investment in the India axle venture that John mentioned. As you can see, we finished the quarter with very, very strongly liquidity, plenty of capital to grow and pursue additional acquisitions as necessary. We expect the next three quarters to be positive free cash flow.

On slide number 22, we summarize our view of the vehicle production going forward and we have made some changes in these numbers since the last time we talked in February. We have seen improvements in some of the markets, although we do still have some caution as we continue to assess the impact of the tragedy in Japan. In North America, we believe that there will be reduced production in the second quarter due to the impact of the situation in Japan. And at this time, we expect that it will be essentially offset in the second half of the year. Overall, we have seen about $45 million of known reductions to our production in the second quarter. There could be an additional $45 million or $50 million as we get into the quarter, and we will probably know better as we get into May. We expect in the range of 70% to 75% of that to be recovered in the full year, so at the end of the day, not a very significant impact to us overall in the full year as we look at it.

We continue to believe that we'll see modest improvements in 2011 for both the medium and the heavy truck markets in North America. We have increased our heavy truck market up by about 5,000 units in the range, as you can see on the slide. We have reduced production expectations in Asia-Pacific because of the impacts in Japan, down slightly, but very favorably you can see we have adjusted upward the Off-Highway business globally. We now expect very strong growth in the range of 25% to 30% in the construction market, and about 15% to 20% in the ag business. That's driving a lot of those increases I mentioned on a year-over-year basis in both Europe for us as well as the Off-Highway business. So, overall on our mix of the global business, we expect our revenue to be up about 15% based on these industry impacts.

On slide 23, we detailed our full-year guidance. Given the strong results we've seen in the first quarter and our overview of the markets, we are increasing our guidance on several key financial elements. We now expect sales to be up at least 20% compared with last year, and as you may recall, we were up 17% last year versus 2009, so we are well on our way to hit that 50% growth target that John mentioned. Additionally, our full-year adjusted EBITDA is now estimated to be about $15 million higher than our previous range. Now $755 million to $775 million. We have adjusted the diluted adjusted EPS by $0.05 commensurate with that EBITDA adjustment.

Margins continue to be forecasted at, at least 10%, and we have kept capital expenditures unchanged in the $200 million to $250 million range for the full year. Finally, as I mentioned earlier, we have taken our free cash flow guidance up about $25 million and expect that to exceed $175 million this year, and that was on top of more than $200 million last year. So, our business continues to generate very strong free cash flow that we've been able to use to make opportunistic investments in the business as well as acquisitions where we think it is appropriate. There are, however, a couple of concerns in spite of the optimism we have for the year.

There are two areas that I'll mention. One is material cost, as John mentioned. They are a considerable headwind for us. We had anticipated in our budget when we put our plan together a very significant increase in commodity costs, about $45 million increase. Since developing that plan in the November timeframe, commodity costs have continued to escalate. We are now assuming that there is roughly a $75 million headwind for us, and that represents about $30 million more than we had anticipated when we put the plan together. Thus far, we have had cost savings plans in place to mitigate and offset these increases, most of which are calendarized more in the back half of the year as we put those plans in place.

So we still expect to be able to offset those commodity cost increases, and that is embedded in our guidance. However, if commodity costs due to continue to accelerate, we may not be able to fully offset them with cost savings actions this year. We do, however, expect significant pricing actions to recover those costs. So overall, we continue to believe that the combination of commodity costs, cost reductions for material, as well as price recovery from our customers will be a positive to us on a year-over-year basis.

The other broad area of concern continues to be the impact on the economy and vehicle demand as fuel prices continue to escalate. We've not assumed any dramatic shifts in fuel prices with our present outlook, but if we do see a dramatic spike, it could have some negative impact on overall vehicle demand and consumer spending. As a result, could have an impact on our overall results. That said, we remain still very optimistic on the full year, both for us and the economies in which we participate.

So in summary, we have delivered another strong quarter, building on the growth and operational performance of the last few quarters, and we have increased our full-year guidance. As we execute our plan, we will look forward to additional growth opportunities that drive shareholder value. With that summary, I'd like to turn it over to Roger at this time to share his thoughts and views on the business. Roger?

Thanks very much, Jim. Hello, everyone. This is day 7 at Dana for me, but it has been a full schedule, and I've already been in front of a few of you in New York last week. I look forward to getting together with this group on a regular basis. As I move up the learning curve here at Dana, I continue to be impressed with the talent at this Company and the discipline to drive both quarterly performance and long-term profitable growth. Dana has built a great foundation in the last few years and has begun to focus now on growth.

I spent some time this week at our Technical Center in Ohio and found tremendous enthusiasm for innovation and new technology development. As many of you know from my prior career, I believe that technology is essential to drive solutions for our customers. For example, fuel economy challenges are here to stay. So it is imperative that Dana create real and cost-effective customer solutions for this perennial issue. Also, new markets are creating an abundance of opportunities for us. So we have an uplifting challenge of choosing pursuits that capitalize on our capabilities and optimize value for both our customers and our shareholders. These are simple guideposts for running our business.

I believe that our future holds the promise of both building on our legacy as well as introducing new ideas and change where appropriate to take Dana to new places. As the new Chief Executive, there are many who want to know what changes, if any, I will bring to Dana. It is too early to share much of a point of view about the Company just yet, but I can share with you a few initial thoughts. First, I believe strategically that we have been following a course of profitable, long-term growth. This is a growth Company. No change there. This is a global Company, and this is a technology Company. So the strategic foundation at Dana is a good one. Another real positive is the fact that we are faced with a number of opportunities that we have to evaluate, so if there is any strategic shift, it is likely to be tweaks in one direction or another based on those opportunities.

As for running the business, this morning I addressed our employees and gave them a few thoughts on how I generally approach the business. I believe we work in a large, global and complex business, yet simplicity is essential in what we do and how we do it. An important measure of success is how well we can correlate our short-term performance and our long-term profitable growth. Finally, I believe we must continue to pursue opportunities to grow globally, especially in emerging markets. While still tending to both our long-standing customers and winning new ones here in North America. I'd like to conclude with recognition for the great work the Dana team has done thus far. We had a great quarter, and we are going to remain focused on delivering value to our customers and our shareholders. Now I will turn it back over to Lillian for the Q&A session.

Thank you, Roger. Brandy, at this time we would like to commence our Q&A session.

Thank you. (Operator Instructions) Patrick Nolan, Deutsche Banc.

Good morning everyone. Just a couple questions. First, just going back to the Commercial Vehicle margin in the quarter. How should we perceive this? Was it purely just a mix issue why margins came down? Or should we be thinking about there's some extra costs in the business in the quarter either because you are ramping up capacity in anticipation of what we are going to see in the back half of the year, or the higher R&D spending that's also ramping?

Patrick, the major impact was mix. Material was not a significant headwind net of pricing. There weren't any significant costs for ramping up. It's just a fundamental issue we have, as we've mentioned before. The military business, from which we enjoy very high margins, has dropped. The OE business that we have on axles and drive shafts is not as profitable as we like it in North America, and that's why we are working on that multi-phase plan to improve it. So, it's mostly mix.

And then just to be clear on the raw material headwinds. So, you took up the headwind by $30 million, but you're basically assuming that net-net there's no real increase in the headwind on a net basis, because you may be having to offset that $30 million?

Yes, just be clear, we did have a plan for a very significant cost reduction during the year on material costs independent of the commodity costs. We actually expected to be, essentially now, $30 million better for the year than we were. We will recover a very significant piece of that $30 million back in pricing, so overall it is not a significant change. Overall, if you take the pricing recovery, you take the cost reductions, and you take the commodity headwinds, overall, it is not net significantly different than what we had put in our original plan. But that said, commodity costs are still up, so we have to do some pricing to offset that, and we have to work a little bit extra hard to get some of the costs out.

And last question is for Roger. I realize this is just your seventh day, and we appreciate your at least preliminary view on the Company. Could you maybe just give us a little perspective of how you see Dana's position, more not so much from a potential growth perspective, but from a competitive dynamic versus your competitors?

Thanks very much, Patrick, for recognizing that this is my seventh day. I have had a great opportunity to engage with an awful lot of folks in the organization in the past couple of weeks. And I have to say, I am impressed with the technology basis that the Company has in place and the projects that are being worked on from an engineering standpoint. While I don't fully yet understand the competitive arena, in terms of those technologies, I am impressed with what I am seeing here. I look forward to working with the team here at Dana to put some of these products that are in the pipeline out there into the marketplace.

Brian Johnson, Barclays Capital.

A couple questions, financial and then strategic. On the financial side, and sorry to keep going back to the Commercial Vehicles, can you just recap what the sales and preps that you are going to impact of SIFCO integration was, or was it closed so late in the quarter it didn't really show up there?

Sure, it did show up, Brian. This is Jim. We booked about $64 million in revenue. That's related to the February and March sales, which we did consolidate in, and we'll be continuing to consolidate that for the rest of the year. The margins are around 10% on that business. One of the other reasons why the margins weren't necessarily higher was because, as we bring in all that business in SIFCO, the margins are about 10%.

Okay. And I guess another thing is just strategically as you look across India, China, Brazil, how are you going to be prioritizing the investments? Is it just anything you can see, or is there kind of a common theme we can expect to see across those markets?

I'd say overall what we are trying to look at is being able to be a full-service supplier to our customers. So, as you take a look at the Off-Highway business, we are taking a look, we are putting transmission capability into China. We, obviously, are looking to-- we are also putting some additional axle business in there, drive shafts. So, the strategy that we have developed is to try and be a full-service supplier to our customers so as we look at acquisitions what we want to be able to do is grow that and fill that out. That's why the acquisition we made Brazil with SIFCO, which was to be able to create a total drive-line package for our customers in Brazil who like to demand full capability with sequenced drive-lines being shipped to them.

Same thing in India where we have acquired the axle business. We want to be the front to our customers to provide not only the axles, but we also do through our other joint ventures supply a significant amount of the drive shafts in the Commercial Vehicle market there. So, this gives us the opportunity. So, as we think about prioritization, it is what we can do to fill out our portfolio to provide full-line capability to our customers?

And just final question on the ag construction equipment forecast. That's a global number. Do you see your primary customers in Europe? In your K, you mentioned AGCO, CNH, Deere and Sandvik, the mining company. Growing faster or slower than the mid teens to low 20s -- mid 20s now?

We don't see any significant difference between their growth and the growth of the industries.

Okay, thanks.

Peter Nesvold, Jefferies.

I guess I will be the third guy in a row to ask about the Commercial Vehicle margins. So, apologies for this. But when I look at it, and you're coming off a below corporate average base, your steel costs are going up. Arvin raised revenue guidance, but lowered their EBITDA guidance and they are your main competitor there. I guess I would love a little bit more specific guidance about the timing and the ability to reprice the book of business in the commercial segment, because I would anticipate that, that is going to grow faster than the overall business. So, how do you get to the 13% EBITDA target given that headwind?

I think you've appropriately pointed out that this isn't just an issue for Dana, but I think it is an issue in the way the commercial market and the Commercial Vehicle market has developed in North America. I can't comment on what Meritor is doing, what's happening, but I can reiterate that we recognized this issue over a year ago. As the market started to come back, obviously, our concern was making sure that we got as much profit to the bottom line as possible. So, our strategy to try and fix the issue with the things we can do is really clean up--.

It's four-fold, one is to clean up our product portfolio. We do have a lot of overlapping products. That doesn't allow us to be very efficient either in manufacturing or in our supply chain. We also have been a little bit of a peanut butter, a little bit for everybody. What we are trying to do is target a little bit more of the products in the profitable areas and drop the products which are not profitable to us. We are going to make some hard decisions where we have products that we don't think we can make money on. We will drop from our lineup because we don't intend to continue to subsidize that business.

We have a very firm and strong effort going on the supply side with the engineering side to dramatically reduce complexity, not just of the end SKUs but also of the components. And do that by consolidating our supply base and trying to drive costs out. And then, obviously, we will continue to look at pricing opportunities in the marketplace where we have some of the technologies that John talked about. I think the biggest opportunity we have going forward is that we bring out new fuel efficient products to make sure that they are priced appropriately in the marketplace. Quite honestly, I think in some cases we have mispriced some of our products.

So, it's going to take us a couple of quarters. But stay with us. We do have a plan to significantly improve it. We will talk to you more as we go forward.

And a very brief follow-up on that. Is your 2013 EBITDA target, do you need to-- in order to hit that, do you need to be able to reprice the business that you overlap with Meritor with? Or is your ability to hit that 2013 target-- are you able to hit that target without repricing the competitive products?

I think the answer is that we will use every tool in the toolbox to try and get there, both costs and where appropriate pricing. As I said, were we can't feel that we can earn a good return on the products, we offer we will drop those. So, it's going to be a combination of things. I think we'll have to see how it works in the marketplace.

Brett Hoselton, KeyBanc.

Let's just continue the conversation with Commercial Vehicles. The Commercial Vehicle-- the business, revenue mix, what is very roughly the mix of Commercial Vehicle revenue in the Commercial Vehicle segment versus military. Is the vast majority Commercial Vehicle, 90% plus, or is there a greater mix of military in there?

No, the very strong majority of that business is regular Commercial Vehicle business. It's not military. We do have a good military business, but it is not as dramatic as some other competitors have.

And as we think about the margins on the Commercial Vehicle side relative to the margins that you are performing at in the overall Commercial Vehicle business, are they materially lower? In other words, are they like, 5%, or is it just 100 basis points here or there?

I prefer not to give any specifics out, and it does vary by customer, so I prefer not to give anything specific out. But it's more than 100 basis points, yes.

Okay. And then as we think about the margin expectations there, it appears as though some of the folks have said that the mix of Commercial Vehicle business is going to increase. But it sounds like you think that you're going to be able to improve the margins fairly materially over the next two or three quarters. Your thoughts there. Are we talking a 50 basis points improvement, or is materially more like 100 or 200 basis points improvement in margins?

I would be very disappointed if it weren't substantially above 50 basis points. Yes, it's more in the full 100s of basis points than it is 50 basis points.

Okay, very good. Thank you very much, Jim.

Patrick Archambault, Goldman Sachs.

I guess my first question is just on Japan supply disruptions. Clearly, you make reference to, I think what has been outlined by CSM for the second quarter, but I was wondering about how that is playing out on the Commercial Vehicle side. Because I think most people expect a fairly steady increase in Commercial Vehicle builds. Could that be disrupted as well? Are you seeing the same kind of supply driven electronics issues that could affect Q2 cadence for commercial as well as light?

Patrick, we haven't seen any significant impact at all in the first quarter and are not aware of any significant impact in the second quarter. Obviously, as you get into some of the shared components on electronics and so forth, there could be some impact on engine systems, but, essentially, we have, basically no impact that we have really seen. We are not aware of anything substantive at this point in time.

And just to broaden that question out just a little bit, obviously, orders have come in extremely strong implying a number that would be sort of higher than what you have there for a Class 8 build. Of course, we are part of the way through the year, so you wouldn't get there. But how high do you think the industry's production capability is? Could it get to 260, 270, 280? Or at this point is the supply chain just too tight to really allow you to get there if demand is there, which it seems to be.

I can't speak for everybody in the industry, but I think we are comfortable with getting in the high 200s without any major issues for us. Obviously, we have run into an issue here and there, we have had to work around, but our supply chain management group has done an outstanding job of managing that. We haven't had any issues. We've actually had some opportunities to fill in where supply might be short from other companies. We don't see anything that would stop us from going significantly higher. I think once you get above 300 then maybe we have a different conversation, but I would say in the high 200s we are still fairly comfortable.

Sure. And I guess you are -- clearly, you are re-qualifying suppliers and building out capabilities to comfortably be over the 300 level next year, I presume, right?

We are very actively working on letting our suppliers know what our expectations are and asking them to confirm their ability to produce and actually working with them to make sure that they can produce at the levels we need. Yes.

Okay, great. Last one for me is just on slide 9, you talk about greater than 90% of Q1 business awards as competitive conquest. That's interesting. Can you tell us a little bit about sort of what it is that you feel you've been winning these contracts on? Because, that seems like a pretty impressive metric.

I think overall our technology is starting to shine. I think that we have a number of advantages. One is speed to market. We have been very fast in terms of responding to our customers needs. We have been able to provide technology, and overall we are very global. We are the most global manufacturer across the drive-line business, so we do get an edge when it comes to fulfilling needs across different markets. But we aren't winning on the basis of lower margins or lower pricing. We are doing it on competitive products, competitive technology, speed to market, and support of our customers where they need us, when they need it.

All right. Terrific. Well, congratulations on a good quarter.

Timothy Denoyer, Wolf Trahan.

Good Morning. Question for Roger. I know-- I won't grill you on axles at this point, but I couldn't help but be a little intrigued by the transmission discussion and Off-Highway, given your background. Can you talk about that as a potential growth opportunity? Is that coming from the Off-Highway segment, or is that in the Power Technologies segment?

Yes. Thanks for the question. Again, I have had a limited exposure to it, but that is one particular project that I have been intentionally interested in. I am very impressed with what these guys have been able to do in the market. Actually, that was in response to a customer request in the marketplace, so I think it has good potential. There are other things that we plan on getting out of that project in addition to the initial product that is going into the marketplace that will help us going forward with our technology basis. So for us it is a meaningful and a very real product that we will see some good play in the marketplace.

Great. And then just a couple of little ones for maybe John. In terms of the India axle deal-- or maybe Mark Wallace. What percent of that JV do you already own, and what percent did you purchase?

Timothy, it's Mark Wallace. The current JV agreement was 48% owned by Dana and 48% by our partner TVS. The balance was in public hands. We took over all the axle assuming business away from our partnership, so we still retain the JV that makes axle housings. We took over the full commercial leadership on that to our customers in India.

I've got you, okay. Can you give any comments on sort of the opportunity with some other customers in India there? Is there anything to add there?

Yes. I mean, generically speaking, the Company was making axle housings for most of these OEMs who were pretty much capped it with their axle business. Over the course of the last few years, we have been winning a lion share of the business with Ashok Leyland. And as you look around the market continues to grow. We will definitely see opportunities with all the traditional customers like Tata, but also some of the new customers coming into that customers space. Freightliner, Volvo, et cetera.

Great. And then one more quick one perhaps for Jim in terms of the DDAC. Have you made a decision on that whether or not that it's going to be consolidated?

Yes, we have made a decision. It's a 50/50 joint venture with neither partner having management control. As a result, neither of us will be able to consolidate that. But we will still display the numbers and give you that impact and probably kind of reflect it as if it were 50/50 for us.

Okay. Then, sorry, just following up on the transmission question. Is that in the Off-Highway segment, or is that part of Power Technologies?

Yes. Timothy, it's Mark Wallace again. The transmissions is in Off-Highway business segment but also Power Technologies has transmission coolers that go into that space. So, what we showed-- or announced at the Con Expo in Las Vegas with a new HVT transmission in conjunction with our partner Bosch Rexroth, which really is a major step up as far as fuel economy on the higher speed vehicles for Off-Highway. But if you look at it, it also leads us down the road to be able to do more systems integration around the hydraulic and controls in the vehicle itself.

Himanshu Patel, JPMorgan.

I just have two questions. One is on the acquisition front. How active are the current discussions for additional acquisitions, and should we think of future acquisitions as being similar profile to the recent ones in terms of geographic presence and size? The second question was, on the whole commodity cost issue, can you give a little more color on the discussions on the Light Vehicle side? Historically, I think you and several suppliers have characterized the domestic OEMs as having been a little bit tougher to deal with on this issue than some of the non-US OEMs. Are you seeing that sort of not occur, or is that still the situation?

Himanshu, this is Jim. On the first question, we have a very active group that is looking at all sorts of opportunities globally, and as I mentioned, we are targeting how to expand our portfolio to be able to provide global capabilities. I'm not suggesting it's only outside the US, but also inside the US. So, yes, we are continuing to look at a number of opportunities, and I would say that they probably will be similar to what we have done. This is pretty wide range of what we've done, but, yes, similar to what we've done.

Regarding the second one, I am not sure that I would characterize the Light Vehicle OEs as either any easier or any more difficult than either the Off-Highway or the Commercial Vehicle partners. You know that the contracts and the relationships are different traditionally. In Off-Highway, we don't have a lot of long-term contracts, so it's more on an ongoing-basis discussions. With the CV market, we tend to have long-term contracts, so we tend to get into pricing discussions more on a sequential basis that way. With Light Vehicles, it is usually on a program by program basis. But if you take a look at what we have done, we have had very good recovery of both commodity prices as well as getting back some of the base margins in our business when it is appropriate. With our Light Vehicle OEs and even with the OEs in which we have had some fairly significant conversations, we are still winning very good business.

So I think it's a matter of us presenting value to our customers. Again, we are global. We can present and give that global value. We are very responsive. We continue to work with the OEs on technology. I guess I would say I don't see it any harder with the Light Vehicle OEs, and we have been very successful there.

Brandy, we have time for one more question today.

Brian Sponheimer, Gabelli Company.

Good morning. First, I would like to welcome Roger. We are certainly a fan of your work at Fort Warner. We wish you well in your new endeavor.

Thank you, Brian.

Any commentary on the Light Vehicle side from OEMs regarding fuel prices and potentially flexing production; more cars, less trucks, et cetera, going forward?

Well, we obviously track that pretty closely. We have seen some movement in terms of that. If you take a look at the Ford business, which is our biggest piece of the business, that is, basically, on Super Duty. That is much, much less sensitive to -- much less sensitive to fuel prices than the F-150. I think Ford alluded to that the other day that they saw the F-150 personal use declining significantly, but the professional use and the Super Duty has still been going fairly strong. Overall, we have only seen about 2% shift in the overall market from trucks and SUVs to cars as fuel prices have gone from low $3 up to $4.

I think as we have said before, there is some trends over time. When we saw this spike a couple of years ago, it was a very dramatic spike. I think what happened was people got very scared of potentially higher prices, so they moved very quickly. We saw a fairly significant shift. As prices moderated, not just came down, but stop going up, we saw that shift coming back. Although it never went back to quite the mix of where it was, it still went back to what I would call a more normal mix. I guess I think our view right now is that, obviously, if we got up to $8 or $9, maybe we would have some different views on the world. But as we are bouncing around where we are, we don't see any significantly greater change than what we are seeing right now.

Let's hope we don't get to that $8 or $9 level.

Go visit Europe and you'll be there.

Right. One long-term, please. If we are looking at 50% top line improvement by 2015, is that using current capacity, or is there going to have to be additional footprint to accommodate those sales?

In North America, we have a fairly significant amount of open capacity, so we can, basically, do a fair amount of higher volume there. We will have to break some bottlenecks, and there will be some places where we're going to have to add a little bit of capacity, but as you look at the rest of the world -- Europe is about the same. But if you look at the rest of the world, primarily in the growing markets, India, China, Brazil, and so forth, we are at capacity right now. So, as we add new programs, we will have to add some capacity.

That said, we do have ability to move production across geographic boundaries, either by moving productive equipment or by sourcing it. So, we will be adding capacity. We have added capacity for some of the programs like the T6 program that we are doing, the global program for Ford, we've had to add some capacity there. Obviously, in places like Brazil where we have got -- essentially, we are running at full capacity, we've got to look at some selective capacity increases there, but that's in our plans. And that's in our capital expenditure projections.

All right. Thank you very much. John, good luck in your retirement.

Appreciate it. Thank you very much.

With that, that will conclude our call this morning. Thank you, everyone, for joining us.

Thank you all.

This does conclude today's conference call. You may now disconnect.