Dana Inc (DAN) 2012 Q2 法說會逐字稿

Good morning and welcome to Dana Holding Corporation's second-quarter 2012 webcast and conference call. My name is Ashley and I'll be your conference facilitator. Please be advised at our meeting today both the speakers' remarks and Q&A questions session will be recorded for replay purposes. There will be a question-and-answer session after the speakers' remarks and we will take questions from the telephone only. (Operator Instructions). To ensure that everyone has an opportunity to participate in today's Q&A, we ask that callers limit themselves to one question at a time. If you would like to ask an additional question, please return to the queue.

At this time I would like to begin the presentation by turning the call over to Dana's Senior Manager of Investor Relations, Craig Barber. Please go ahead, Mr. Barber.

Thank you, Ashley. And welcome to all of you that are joining us either by phone or by webcast. On behalf of the Dana management team I would like to thank you for joining us this morning.

With me is Roger Wood, President and Chief Executive Officer, and Bill Quigley, Executive Vice President and Chief Financial Officer. Also in the room is Mark Wallace, Executive Vice President and President of On-Highway Technologies.

Before we begin, I would like to review a couple of items. Copies of this morning's earnings release and the slides we 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 us 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 Roger Wood.

Thank you, Craig and good morning, everyone. We are pleased to report our strong financial results for the second quarter. Sales for the period were just shy of $2 billion with currency head winds impacting us again this quarter. Without the impact of currency, sales were up about 7% year over year. On flat sales net income for the period increased 26% year over year to $86 million, which is the fifth consecutive quarter of positive net income. This bottom-line growth reflects our ongoing focus on controlling costs and running our efficient operating model. Our adjusted EBITDA margin was 11.5% for the quarter, 110 basis points higher than the same period in 2011.

All in all, Dana delivered strong income and margin growth in the quarter, despite the impact of currency translation and softer commercial-vehicle volumes in Brazil.

Turning to the next slide, here is the latest breakdown of our sales by region that illustrates the effectiveness of our globally balanced portfolio. These figures shift from quarter to quarter but the important point here is that our regional diversification gives us a unique advantage in being able to create synergies and leverage our products and technologies across our market segments. Sales diversified supplied by region and also by vehicle market and also by customer adds more stability to our business which is important in an environment where volatility seems to be the norm anymore.

This past quarter served as a great example. Although sales adjusted for currency effects in South America were down, they were up in every other region.

That takes me to the second part of this slide, which is our current view of the regional markets. Bill will talk about a revised outlook in his remarks so I won't go into too much detail here.

As you can see, it is a rather mixed story across the regions. Second-half demand in the North American commercial-vehicle market has softened and Europe continues to pose considerable uncertainty. In Brazil, we expect a smaller second-half rebound in commercial vehicle production now. And as such, we have lowered our full year production forecast for South America.

Another factor across the regions is the ongoing impact of currency. Again, Bill will touch on this later but let me add here that volatility in our markets is a fact of life. We are managing the business in a way that recognizes this volatility while also staying focused on the factors that we do control. Our tenacious work on significantly reducing our breakeven point, coupled with our flexible operating structure, provide assurance that Dana will remain strong in the event of a market downturn.

Turning to slide six, I would like to share some highlights in the areas of new business and new product technologies for our light vehicle and commercial-vehicle driveline businesses. Key business wins for light vehicle driveline in the second quarter included driveshafts to be produced in China for two and four wheel drive trucks for a Japanese manufacturer that we are unable to name at this point; front and rare axle modules to be assembled in Brazil for a small sport-utility vehicle for a major global automaker; and steel and aluminum driveshafts to be produced in Mexico and Thailand for yet another Japanese customer.

On this program we took weight out of the driveshaft tubes to help improve fuel economy while redesigning other components in the entire system to improve product durability. In the second quarter, four of our light vehicle driveline plants in India, China, and Taiwan attained more than 1 million consecutive man-hours without a lost time injury. The safety of our employees and the quality of our workplace go hand-in-hand with the quality of our products, which means safety achievements are good news for our customers and our shareholders alike.

Our commercial-vehicle business introduced a new axle design specifically for customers in India during the second quarter. With the new Spicer 91S axle, we developed a lighter more doable and easier to maintain axle with features tailored specifically to heavy truck manufacturers in India. New business awards for partial vehicle in the quarter included rear drive axles in Europe for AB Volvo, tire inflation technology for a US-based manufacturer, and steer axles in South America for a European-based customer.

Steer axles in South America are customized for nearly every vehicle application. This gives us an opportunity to tailor the product to meet the customer's precise needs which can include vehicle handling, safety, efficiency, and maintenance among other attributes. The commercial vehicle business executed a successful North American business improvement plan in 2011 with solid results as shown by its improved year-over-year earnings. Our work is not done here and we remain focused on keeping our cost structure in line with production volumes in each region.

In order to be more efficient in aligning our product solutions with customer needs, the commercial vehicle business has launched a new field sales and service organization. This new up-close interaction with the users of our driveline products is critical to understanding and answering their needs for energy leading technologies such as our Pro-40 tandem axles and our Diamond Series driveshafts that we have talked about before.

So let's turn to our off-highway driveline business now, on slide seven. Production launch activity was strong for this business in the second quarter and included axles for a John Deere tractor in India for both the local market and the export market to other Asian and North American arenas. Axles for a Sany construction vehicle in China, which is an on-highway axle being used in an off-highway application. It is also leveraging our DDAC joint venture which provides the base axle that we tailor to meet Sany's needs.

The off-highway group's other launches were driveshafts for a Caterpillar backhoe loader in Europe and transmissions for two Manitou teleboom handlers also in Europe. As part of that last launch, Dana was one of only four suppliers invited to participate in an event Manitou hosted for its global distributors and fleet customers. At that venue, we were able to showcase our global capabilities and the new Spicer PS09 transmission.

This advanced powershift transmission improves operator comfort, machine productivity and fuel economy which can be up to 12%, translating of course into reduced emissions and operating costs for the owner.

Another product introduction for this group is in the second quarter was the Spicer 318 hypostatic continuously variable transmission. This transmission provides 20% fuel savings for construction vehicles when moving at high speeds. And in our Power Technologies group, their business has also been busy in the quarter, launching new products and winning new programs.

In April, we shared with you the news that our active and passive warm-up technology earned Dana and Ford the Automotive News Pace Partnership award. I am happy to report that this technology which improves fuel economy by up to 4% is gaining broader market acceptance quickly.

In addition to the two Ford platforms previously disclosed, we start producing active warm-up units for a new Chrysler program in the next few weeks. Additionally, we have started production of engine oil coolers for one of the small engines in the new Dodge Dart. We are also producing engine oil coolers for Ford's family of four cylinder gasoline, turbocharged, and hybrid engines, two of which are part of their EcoBoost family. We have had five production launches already with more coming in 2013.

Power Technologies also booked two additional oil cooler programs with a European automaker. One of which puts Dana technology on a global platform involving multiple variants sold in more than 20 countries, as well as several other ceiling and terminal programs in Asia Pacific where we continue to expand our product offering and production capacity.

We also have an exciting win to report that involves a new technology that we first told you about at our Investor Day last March. As I said before, one of our top priorities at Dana is averaging our ideas and our technologies across the markets, regions, and customers where we do business. We have been a leader in multilayer steel cylinder head gaskets for many, many years. By applying the expertise behind these engine gaskets to the transmission market, we are tapping into a new sizable and growing market. You are probably aware the transmissions and light vehicles have undergone a pretty radical transformation over the past few years. Nearly extinct are three and four speed transmissions. In their place are seven speed, eight speed, dual clutch and continuously variable transmissions.

These transmissions have advanced by leaps and bounds, but their seals have not. Conventional paper-based seals can't withstand the higher pressures of these transmissions and that results in a loss of efficiency. Dana's new multilayered steel transmission separator plates technology has quickly moved from an idea on the drawing board in March to a product scheduled to be delivered to its first major global customer next summer. We were awarded this business in the second quarter.

This technology addresses an important growth segment, advanced transmissions that help our light vehicle customers comply with fuel economy and reduced emissions regulations.

Finally, Power Technologies has a lead position in fuel cell metallic bipolar plates and was awarded three fuel cell development contracts in the second quarter. Similar to our position in electric vehicle battery cooling, Dana has established itself as a leader and a development partner of choice in vehicle fuel cells.

Fuel efficiency and emissions will be major global issues beyond any of our lifetimes. To prepare vehicle manufacturers around the world we will continue to work to commercialize electric and fuel cell technologies, and Dana is positioned very well in the event either or both of these technologies take off.

So turning to slide eight, you have seen this slide before. But because it is so central to our strategy, I wanted to provide a progress report.

First, new technology based on market value drivers. There are a lot of examples here. A few discussed today include active warm-up units and the Spicer 318 off-highway transmission. Economic and market conditions may change, but the value drivers of fuel efficiency, emissions and vehicle operating costs are here to stay. So. we are aligning our technology portfolio with them.

Selling across markets, regions and customers is a big advantage for Dana, given our current position. Here too are some great examples like the Active Warm-up products with applications across the three market segments, the Diamond Series driveshaft launching in commercial vehicle but with light vehicle appeal as well and the central tire inflation system crossing over from commercial vehicle into the off-highway segment.

The transmission separator plates that enable the significant forward market for vehicle transmissions that I just spoke about is an excellent example of leveraging the synergies across Dana's various technology applications.

And our second-quarter results. With 26% improvement in net income on flat year-over-year sales is validation that our flexible lean operating model is allowing us to deliver the results that you expect of us and that we expect of ourselves in this volatile market. The fundamentals are in place for Dana to continue to execute our plan, develop new technologies and ultimately deliver more value to our shareholders as we move forward. Now I am going to hand it over to Bill for the financials.

Thanks, Roger, and good morning, ladies and gentlemen. Slide 10 provides a summary of Dana's 2012 second-quarter financial performance with a comparison to the same period a year ago.

As Roger mentioned, Dana posted a strong second quarter, earning $86 million of net income and delivering diluted adjusted earnings-per-share of $0.56, a 24% improvement from the second quarter of last year. Sales were about $2 billion for the quarter and slightly higher than a year ago. Similar to our first-quarter results on a year-over-year basis, sales in the second quarter were impacted by unfavorable currency and lower commercial vehicle production in South America. However, our regional diversity more than offset these headwinds as we experienced higher sales in all other regions in the world.

Adjusted EBITDA for the quarter was $225 million improving $24 million or 12% over the prior year. Adjusted EBITDA margin rose to 11.5% in the quarter representing a 110 basis point improvement over the second quarter of 2011 and an 80 basis point improvement sequentially from the first quarter of this year.

Net income increased $18 million compared to last year and was up sequentially $16 million from our first-quarter 2012 results. This performance represents the fifth consecutive quarter of positive net income.

Capital spending this quarter was $37 million about even with a year ago and free cash flow was positive $107 million, up $63 million or a 60% increase versus last year. We are very pleased with the team's performance as we again delivered strong results in a much more challenging macro environment. Over the next few slides we will highlight certain of these challenges and how we expect they will impact our business over the remainder of the year.

On the next slide we have provided year-to-date summary of our financial performance. 2012 consolidated sales were almost $4 billion, representing an increase of $193 million or nearly 5% compared to 2011. Adjusted EBITDA increased $55 million from the prior year to $437 million year to date. Adjusted EBITDA margin totaled 11.1% and represented a 90 basis point improvement over the same period in 2011. 2012 net income of $156 million is significantly higher than a year ago. And even after adjusting for the $53 million charge we recognized in 2011 related to our debt refinancing, Dana's net income performance is higher by $65 million. Free cash flow of $70 million adjusting for the $[150] million voluntary pension contribution to our US plans which we made in the first quarter of this year was $61 million higher than last year's results. As Roger stated, all in all a very strong performance for the first half of 2012.

Turning back to our second-quarter results, slide 12 provides a comparison of our consolidated sales for the second quarter of 2012 and 2011, as well as a change by business segment and the key year-over-year drivers of the change. From a regional perspective, the North America market remains strong across all of our operations, most notably favoring our light vehicle driveline business. Sales in Europe were within our expectations for the quarter we did experience continued weak demand in South America in particular Brazil principally impacting our Commercial Vehicle Driveline business.

Adjusting for currency, all business segments other than Commercial Vehicle, posted year over year sales growth as highlighted on the lower left of this slide.

On the lower right of this slide we have highlighted the key year over year drivers of the change in our consolidated sales. Volume and mix contributed $88 million, even with the lower production environment in Brazil.

Currency lowered sales by $122 million on a year-over-year basis reflecting a stronger U.S. dollar compared to most other currencies, We expect currency to continue to be a headwind for the remainder of the year. Other includes the impact of material recoveries, pricing and other items, which on a year-over-year basis increased sales by $50 million.

Slide 13 provides a comparison of Adjusted EBITDA for the second quarter of 2012 and 2011.

Adjusted EBITDA of $225 million for the quarter was an improvement of $24 million or 12% compared to the prior year. Adjusted EBITDA margin increased to 11.5%, up from 10.4% in the second quarter of 2011, principally due to volume and mix gains as well as the net impact of our on-going net cost improvement initiatives. On a Business Segment basis, Light Vehicle posted the most significant improvement, up $16 million compared to a year ago. If you recall last quarter, we guided that Light Vehicle would improve margins during the course of 2012. I will review the performance of each of our Business Segments in more detail on the next slide.

At the bottom right of this slide, we have highlighted what drove the change in adjusted EBITDA on a year-over-year basis. The impact of volume and mix was favorable in the quarter by $20 million, reflecting a +20% contribution margin. Currency, including both transaction and translation impacts, lowered adjusted EBITDA by $6 million in the quarter.

Performance includes our material recovery, pricing and cost control initiatives and was net positive $10 million in the second quarter compared to a year ago. Partially offsetting our performance in the quarter were higher raw material costs and certain 2011 non-recurring insurance recoveries that benefited last year's second quarter. We highlight our Business Segment results on Slide 14

In Light Vehicle, sales were up 12% while segment EBITDA increased 27% for the quarter compared to the prior year; Segment EBITDA margin for the quarter of 10.3% was 110 basis points higher than a year ago and 160 basis points higher than the first quarter of this year. Volume in the mix and the net impact of raw material recovery and pricing initiatives offset the impact of currency. This performance is in line with the guidance we provided last quarter and that we expected margins to improve back to more normal levels throughout the remainder of this year.

Commercial vehicle experienced lower sales of $70 million or a decrease of 12%, principally reflecting continued market softness in Brazil and the impact of currency. Even with the sales decline, segment EBITDA increased 4% compared to last year resulting in an 11.1% margin. Production volumes and mix in North America and to a lesser extent Europe as well as pricing and material recovery actions all contributed to this improvement.

Off-highway turned in another strong quarter as sales increased 3% even with the currency headwind of plus $40 million compared to last year, largely reflecting higher demand in Europe. Segment EBITDA increased $5 million for a margin of 13.1%, an 80 basis point improvement over the second quarter of last year. This is also an increase of more than 190 basis points sequentially from our first quarter. Off-highway benefited from higher demand and margin improvement initiatives.

Power technology sales in the quarter were lower than a year ago by about $7 million, of which currency represented a $16 million headwind. Adjusting for currency, sales increased $9 million, principally reflecting the increased volume in both North America and Asia Pacific. Segment EBITDA was even with a year ago although a 30 basis point improvement.

Slide 15 provides our free cash flow performance for the quarter. Free cash flow in the second quarter was positive $107 million compared to $44 million the same quarter a year ago. Working capital was a use of $55 million of cash in the quarter as production volume remained relatively high, although an improvement compared with the prior year. We do continue to expect working capital to be of moderate use for the full year. Capital spending was $37 million and in line with last year. Cash outflows for interest and taxes were $9 million in the quarter, equal to a year ago.

On a sequential basis, the decrease from first quarter of 2012 is attributable to the semiannual interest payments on our unsecured notes which are due on the first and third quarters of each year. For the full year, we expect cash, income taxes to be still around $100 million. Restructuring of $8 million was flat the last year and for the full year we expect the restructuring cash outflows to be about $50 million.

Finally, other includes the impact of changes in all of our assets at accruals and was down slightly on a year-over-year basis. On a year-to-date basis, free cash flow adjusted for the $150 million voluntary pension contribution we made in the first quarter of this year was positive $70 million, an improvement of $61 million compared to the previous year.

Turning to slide 16 our balance sheet remains strong at the end of June. Total cash on hand including marketable securities of $60 million was $941 million and our net debt was $13 million. To the right of the slide, we highlight the changes to our overall liquidity from year-end 2011 to the second quarter of 2012. At the end of June there were no borrowings outstanding under our US and Europe revolving credit facilities and availability under these agreements stood at $488 million.

Our liquidity profile enables us to continue to execute our operating strategy, both near and longer term, as well as provide a return to our shareholders.

Slide 17 provides an update of our global vehicle production estimates for full-year 2012. And I would like to highlight a few items included therein.

In North America, we expect light vehicle production to be unchanged in the range of 14 million to 14.5 million units. We also estimate full-year light-truck production to remain stable compared to our prior outlook. We are adjusting our North America heavy truck production estimate down a bit and we are now expecting Class 8 truck production in the range of 270,000 to 280,000 units for 2012.

While we continue to monitor Europe closely, given the current economic environment and uncertainty, we are maintaining our full-year production outlook for both light vehicle and medium and heavy truck compared to our prior estimates although we believe that final production will be at the lower end of the range on the light vehicle front.

For South America while there was a slight increase in medium/heavy truck production in Brazil from the first and second quarter, this market has not staged the recovery that we previously expected. We now expect full year truck production to be lower than a year ago by almost 30%, which is reflected in our revised production estimates for the region.

We have also lowered Asia Pacific media/heavy truck production due primarily to slower market in China. As you know changes in the China heavy truck market have the largest impact on our DDAC joint venture, which has been significantly impacted through the second quarter. DDAC's year-to-date sales are $378 million, 25% lower than a year ago, reflecting the current market environment.

In the off-highway market, we are maintaining our previous production estimates. We do see some softening in Europe and China, although some positive trends in North America. All in all, we are not expecting significant changes at this time.

I would like to take a moment to talk about our expectations for the second half of 2012 compared to our first-half actual results which is summarized in slide 18. On the slide, we have outlined the three main drivers that take us to our full-year guidance.

First is currency. We expect currency to remain a headwind for the rest of the year and have revised our currency assumptions. As an example, we are now forecasting the USD euro rate at about $1.21 for the rest of the year. The impact of currency on sales is expected to be in the range of $100 million to $130 million, and adjusted EBITDA to be about $5 million to $10 million.

The next driver is volume/mix/other. We expect sales to be low in the second half of 2012 when compared to our first-half results in the range of $130 million to $185 million for a number of reasons. First, we have lowered our production assumptions for Class 8 trucks in North America which impacts our second-half expectations. Off-highway sales will be lower in the second half of the year, reflecting normal seasonal demand for agricultural as well as overall Europe demand, due to summer and holiday shutdowns. As we mentioned last quarter, in light vehicle we have planned legacy programs rolling off in the second half of this year. On an adjusted EBITDA basis, these rolloffs have been much larger -- much lower margin profile than our base business.

As we progress into the second half, we expect our operational improvements to partially offset the pressures of currency and volume. Our operating model drives us to adapt to the other changing market conditions while maintaining our margins.

The final driver is the impact of one prior divestiture and one potential divestiture. Together, these will impact sales in the amount of $45 million to $60 million and $5 million to $10 million of adjusted EBITDA in the second half of 2012.

In 2010 as you will recall, we divested the majority of our structures business while we retained one facility that was in a plan to wind down. That facility will cease production in the third quarter of this year. And last quarter, we disclosed our intent to divest our leisure products operation. This small off-highway operation in North America represents about $50 million in annual sales.

So to summarize, three main drivers -- currency, volume and mix and divestitures -- lead us to a second-half sales forecast that is lower by $275 million to $375 million from our first-half results. We expect adjusted EBITDA to be lower by $35 million to $55 million in the second half of 2012 yet we expect our operational improvements will enable us to continue to maintain our overall margins.

Let's turn to slide 20 which summarizes our updated full-year guidance. For the items we discussed on the previous slide, we are revising our 2012 full-year sales outlook to a range of $7.5 billion to $7.6 billion essentially flat to last year. We are also revising our full-year adjusted EBITDA guidance to $820 million to $840 million which represents a $55 million to $75 million improvement in EBITDA over our actual 2011 performance. We expect adjusted EBITDA margin to be approximately 11% for 2012 which is at the upper end of our previous guidance.

We have slightly lowered our full-year capital spending which we now expect to be in the range of $210 million to $230 million. And we expect full year free cash flow to be greater than $200 million adjusting for the $150 million voluntary US pension cash contribution made earlier in the year.

We appreciate your support and now I would like to turn the call back over to the operator for any questions. Thank you very much.

(Operator Instructions). John Lovallo, Merrill Lynch.

Couple of questions here. First, I guess just the EBITDA margin guidance for 2013, the target of 12%. How are you guys feeling about that at this point?

Yes. Actually, John, great question. From what we see right now we are pretty confident that what we had out there before is still holds to be a good estimate. We are very happy with the progress that we are making on the inside of the Company in terms of the improvements we are making from an operating model standpoint and short of anything disastrous out there in the sellside of things, that remains our objective for 2013. 12% in 2013.

Okay great. And then in terms of Brazil. It seems like you are looking for at least a slight recovery in the back half of the year. Are you seeing any signs of a bottom at this point?

Yes, we are. We are expecting obviously some improvement going into the back half of the year. As mentioned earlier today we were down 33% in the first half year-over-year and we are expecting the back half to be down about 12% year over year.

Great, if I could just sneak one last one in here. And the reduction in CAPEX I mean how would you characterize that? Is that just you guys being more efficient or are you scaling back on investments?

I think it is, to your point, is the former. It is really more efficiency as well as looking at the projects, timing as well as ultimately what we are actually investing vis-a-vis what we are forecasting slightly better so that operating gets you doing a great job with respect to management of capital investment.

Yes, if I could pipe in there just a little bit on that. I think that there is a normal adjustment. We are midway through the year and we are just truing up what we think will happen for the rest of the year. But Bill is exactly right in that our operating guys as they are tuning up their efficiencies and improvements in their operations are finding ways to do things that can require a little less capital than what we had originally anticipated. So they are doing a great job with that.

Very helpful. Thanks a lot.

Brian Johnson, Barclays.

Good morning. Could you get a little more specific on the performance EBITDA expansion and commercial vehicle? How much of that was due to the repricing effort? How much of it was due to something rather strategic initiatives? And then how we should think about that is evening -- even as we continue to have softer especially North American CV builds second half?

Overall, I mean the initiatives we haven't really clarified specifically pricing and I think we showed back a few moments ago in the financial slides how pricing was flowing through and total for Dana. But both the initiatives of pricing and continued cost reductions are what is driving the margins. So, we would expect going into the back half relatively flat sales have to have that we will continue to see margin appreciation into Q4.

Okay. And in the light vehicle, you had a particularly strong growth there, 12%. Yet you are maintaining a view that light truck is going to be flat year over year? Are you just being -- well, first of all what drove it this quarter? What kind of platforms were there? And then is this just being conservative vis-a-vis second half?

Couple of things. One that definitely the light truck business was very positive for us. We talked about the Super Duty series of the F -- the F250 and 350 et cetera, and also the Chrysler JK has been very positive for Dana thus far. We expect it to continue into the back half.

However we do have some headwinds on the revenue side, one from currency and two from legacy programs rolling off in the back half. So we could see anywhere between an 8% to 10% decline, in the overall base revenue due to those legacy programs and the foreign exchange coming through negatively for us in the back half. So we don't see any significant change on the light-truck forecast, only because the two programs we happen to really be focused on or we were expecting to be pretty much flat as we had some seasonality in the back half.

Okay, so you do expect those to maybe moderate this growth back half? Or you just (multiple speakers)?

Yes on a revenue basis on because you do have seasonality that will be impacting us with more shutdown days in the back half than we do in the first half.

Sequentially, but on a year-over-year basis won't they -- those platforms still be growing?

Yes. That's correct.

Okay, so, my -- I guess what I am driving at is the light-truck assumption that apparently underlies your revenue on page 17 is more flattish. Is that just -- you have that forecast but that is not really the platform volume you are using in your guidance? Or are you using -- is your guidance based on that macro forecast of light-truck or is it based more on here at the specific programs that were on, here is their expected production schedules and here is what that means for second half?

Right, it is the latter definitely. We provide obviously the outlook with respect to context on the overall market. As you know obviously we have certain concentrations of certain platforms. That is how we develop obviously our sales forecast and resulting margins with respect to a particular business unit. So it is platform-specific.

Patrick Nolan, Deutsche Bank.

Good morning, everyone. Good quarter. First question, on the commercial vehicle business I expect the margins will be down versus our first-half run rate. Do you still expect to see the margins to improve year over year on the back half or they would be close to flattish?

Yes. As I just mentioned to Brian a few moments ago that we do expect continued margin appreciation into the back half on relatively flat sales.

This next question is for Roger and Bill. Can you discuss what your thoughts are in future cash deployment going forward? I mean, you have a company that is still improving margins, the exposure to the European light vehicle business is significantly lower than most of its peers, and you still have excess cash, but stock is trading at a fairly low multiple. So can you just touch on what your thoughts are going forward as far as either pre-deployment of cash to shareholders or for other changes in the capital structure?

Yes, let me start that answer and then I will have Bill follow up with a few of the specifics. But overall, on a macro level we feel very good about the performance of the Company and what we have been able to achieve and the robustness and quality of the earnings that we have, even as we move into this volatile environment that we have got. So your point is well taken. We feel very good about the position we have in the strength of the ballot sheet.

That said, overall, there are opportunities in the marketplace for us to enhance our technology and product portfolio in a few areas and as you all know, those things you can never put a date on with those things ultimately happen. But there are a number of things out there that would be not large -- as we have said, our strategy is not to make a very, very large acquisition -- but there are acquisitions in the range that we have previously given to you guys before that would fit, very, very nicely and we want to be able to have the flexibility to do that. We do have the flexibility to do that and some other things and we are in constant discussions amongst ourself and with our Board on different capital allocation strategies.

And I guess what I can say is, we continue to review those while we keep some powder dry for the opportunities that are out there for us. Bill, you want to follow up?

Yes, I just would certainly echo what Roger just stated with respect to our capital allocation principles within Dana. From a perspective of obviously it's continue to support the business ongoing currently looking for opportunities with respect to investment moving forward both organically and inorganically; and then obviously just from a shareholder return perspective, we announced today obviously again another common stock dividend of $0.05 per share. So we have started down that path with respect to distributions to shareholders, broadly including obviously the preferreds.

As Roger stated as well, there are other opportunities from a capital perspective that we continue to discuss and explore and we will continue to do that during the near term here. But we are also cognizant of our multiple and we believe the performance to date isn't necessarily being reflected in the current stock price.

And, Bill, what do you think the minimum cash you need on the balance sheet to run the business is?

Oh I'm sorry. We said around $600 million.

Peter Nesvold, Jefferies & Company.

Good morning. Maybe a quick question on Brazil. Can you -- I'm not as close to that market. How much visibility do you get into production schedules in that market? But for instance, North America we sort of know what the ACT backlog is but then there is no penalty to cancel an order. So any time you tend to get a bit of a downturn all the water gets squeezed out of the backlog.

How prevalent is that in Brazil and therefore how confident are you that the second half is down only maybe 12% or so?

On Brazil, a couple of things. One, we have actually been out counting the inventory ourselves just to get a personal feel of what is happening also at the different OEM plants looking at production output. So I think we have a really good handle on what is happening today and I think today, with some of the tax stimulus that is coming as well as the central banks as far as lending rates continue to be more favorable, we think that what we're seeing today is that we would see obviously a positive upturn in the back half versus the front half. Although we are significantly down year over year on what we had originally anticipated we do see good movement from the government there that helps stimulate sales in the back half leading into 2013.

Ryan Brinkman, JPMorgan.

Good morning. Congratulations on the quarter and on the margin rate guidance. Can you maybe just walk us through some of the more or less specific actions that you are taking which allow you to expand your margins despite the tough end market environment and the guide down on the top line and then I guess it is a separate but related question. What kind of end market performance do you think you need to get to? Do you think you need to get to your 12% margin target in 2013 or can you get there by continued performance alone?

Yes, great question. On the first part of that question, there's a number of levers that we are working on right now. Obviously the continuous improvement in our operations, our operating folks are doing a tremendous job at making sure that their continuous improvement on the cost side of the business are in line with where our objectives are for the improvement in our margin expansion.

We also look at different products. We have a number of products in each one of our business segments and not all of them are fantastic products for us in terms of margins and profitability. We are doing a couple of different things. We are working on improving the ones that need to be improved, no different than what we did in the commercial vehicle segment last year with a lot of success. And in those specific applications where the opportunity is not prevalent or not really obvious to make that improvement, we are calling those out -- calling those out, I'm sorry -- of the portfolio. So we did that on a continuous basis.

Mark mentioned we have a couple of rolloff programs at the end of this year. Frankly speaking we are not sad to see those programs leave our portfolio. And it is those kinds of actions that we are taking to increase the margin even in an environment of the volatile sales. Bill, you want to handle the second part?

Yes, I think with respect to the end markets, as we are looking at 2013, I think Roger's opening comments still remain very valid with respect to -- as we move from 2012 to 2013 with respect to a margin objective, volume always is a positive on a year-to-year basis. I think given the run rate of the business and the work performed to date as well as the initiatives that we have underway event in an end market that might be down 2% or 3% we don't -- would not expect to be complicit vis-a-vis our EBITDA objectives for 2013. So again it doesn't necessarily have to be a strong robust market, but certainly any kind of cliff event would pressure any type of performance.

That is extremely helpful. Thank you so much. If I could just squeeze one more, I was wondering if you were seeing anything different on -- in the Light Vehicle Driveline business, seeing anything different in terms of customer price discussions or annual automaker pricedowns, et cetera? Some of your peers have alluded to that.

I guess being in the LV business most of my career, I think there's always a discussion that every meeting we have the purchasing; but I can't say personally I have been involved in a significant pricing discussions where it's abnormal pricing pressures from the customers. But I do expect that will continue. But I think one of the things that we have seen is the supply base continues to be very robust in their positioning as we will remain that way going forward that we will make sure that we are able to maintain our margins in the future as well.

Yes, this is -- Ryan, to follow up on that. Mark did a great job in answering that question and I support what he said with that in terms of -- I think the pricing pressure is going to be there all the time as the volumes return into the marketplace and get up near that $14 million mark and even above. The pressure is because of the competitiveness and the overcapacity in general in the worldwide marketplace pricing pressures are always going to be there. My confidence, though, that the majority of suppliers have put a discipline in place since the financial crisis to make sure that they are making the right decisions for the business are there and probably change the dynamic a little bit in the future as opposed to the past.

I can tell you for sure that Dana has done that and I have confidence that other suppliers have as well.

Thank you.

Emmanuel Rosner, CLSA.

Good morning. My first question is on DDAC. You were mentioning a sales decline of about 25% in the first half. What is your outlook for production and sales for the rest of the year and then going into next year? And then on the margin side of that business obviously you had identified some opportunities to roll out the operating way there and improve margins through operational improvement. Has that been possible despite the pressures from the production environment there?

I will take a shot at both of those questions and then Mark Wallace can chime in as well. I think on the latter question with respect to implementing the Dana model or Dana operating system as well as injecting, if you will, Dana resources into the business, we have continued to do that. We will obviously continue to do that in the future with respect to that being an obvious upside, we believe, in moving that business forward. With respect to the performance to date, obviously, in an environment of a 24%, 25% reduction in sales year-to-date and obviously in the second quarter about 27% from a margin improvement, really, the team has been focused on taking cost actions in light of a much different sales environment.

So while we are still confident that over time we can improve this business, with respect to not only implementing Dana practices, but working with our key partner, I think the near term has been more of responding to and trying to adjust the cost structure in light of a very down draft on the top line.

Also on China, specifically, the medium-duty segment has not been impacted as much. It is definitely related to the heavy vehicle market segment which we participate in with our joint venture with Dongfeng. We really don't expect any significant improvement in the back half year-over-year basis. We are still talking at 25 to 30% decline in the revenue base in China.

However, I think most suppliers in our market are fairly confident that China will continue to work stimulate growth in infrastructure and that eventually this market will begin to pick back up into more normal levels in the future.

Understood. And then my second question was regarding your pricing initiatives from that year in commercial vehicles. Last time you updated us I think you were talking about successfully renegotiating 50% of your contracts. So related to that have you already seen all the benefits from those actions and are we already seeing that in the current margin and then is there room to renegotiate more? So is there more action, say, on pricing that could be at specific and commercial vehicles?

Maybe I'll start that. And I'll turn it over to Mark for the details. As we mentioned in the first-quarter earnings call that most of the pricing discussions and results were in, previous to the first quarter and with some left to straggle in a little bit. But for the most part that is kind of behind us a little bit. And North America was about 50%. But if you recall in past discussions, we were also putting you technology products in the mix and even with contracts that were in place, that other 50%, we were able to affect that by introducing products that provide value to our customer at prices that we would want for those products to replace existing products. So the overall picture is not 50% left on a shelf not able to be touched. The overall picture is that we are able to work on the entire portfolio in several different ways. And in addition if you recall the product proliferation and reducing that as well as internal cost improvements that we have been talking about earlier in the call also affect that.

So Mark had alluded to earlier that we expect continued margin expansion, maybe not at the rate that you have seen in the past for sure. But for sure continued improvement in that area. So, Mark, I don't know if you have anything else to add to that.

Yes. Also, we have been able to negotiate some additional material recovery that will be a tail wind to moving into Q3 and Q4. So with our initiatives of really improving our cost structures here in North America, both from a conversion cost, from a manufacturing as well as material, as well as our new product launches and the fact that we have been able to secure some additional mature recovery will be the tail wind moving us into the back half.

That's great. And then, finally, I know it is a bit too early to speak on 2013, but when you feel comfortable about the margin profile for next year and you look at your four businesses and the returns they have currently, where do you see the biggest upside in terms of additional margin improvement?

We are actually doing the 2013 work as we speak. That work has begun and we are going through our budget review, long-range planning discussions. So we are not at a point yet where we are ready to speak about that because that work is happening as we speak.

Understood. Thank you.

Graham Mattison, Lazard Capital Markets.

Good morning. Question on the power technology group. Obviously strong margins in light of the revenue there. As you look out, is Asia is still the key to the growth in this segment going forward? And given your new wins that you have had, is there room for margin expansion in this segment?

Yes, obviously, PTG is a fantastic business unit of ours. Asia is a big market opportunity for expanding the business in PTG, but it is not the only opportunity.

We are still expanding actually with transplant Asian players in North America, and we have launched some programs or are launching programs with those folks right now and starting up new programs. So, we have opportunities to grow that business in North America.

But you're right, Asia is the main growth driver for that business. And the products they were launching fit the margin profile that we would expect out of that business. It is an engineering-intensive business, a high-technology business and the margins follow with that.

All right, great. Helpful. And just to clarify -- apologize if I missed it -- did you say that you still see room for margin improvement in the light vehicle for the rest of the year or you expected flat?

As I mentioned before, we will have some revenue headwinds into the back half that will moderate, but we would expect actually operate at normal levels as you have seen in the past.

That is very helpful. Thank you very much.

Tim Denoyer, Wolfe Trahan & Co.

Roger, can you talk about the new field sales and service organization you put in the commercial vehicle? And what the costs for that are, relative to what you are probably saving from exiting the Road Ranger agreement and how that balances out?

Yes. That new field service and sales organization that we are putting in is our part of what we were getting with the Road Ranger program that we had canceled. We did put infrastructure in to that and we continue to look at that. There is a bit of a savings but that was the main motivation.

The main motivation of that program was to make sure that we stay really close to our customers. Because as a technology company it is critically important that the users of the products that we put into the marketplace are close enough to us to give us the immediacy of feedback and there was, as you know, with the previous program we were one step removed from that and that was really the main motivation. Although at the end of the day we are saving some money in doing it. We feel that we are going to get much bigger gains by having that close contact with the customer.

Thanks. And then to jump around a little bit, the follow-up on the question I am going to go back to the PTG growing with transplants. If you look at the production numbers it looks like the net imports in North America are just a couple million units below where they have been in prior cycles and seems like the transplants are adding capacity in North America. So in terms of the growth of or the new quoting activity in PTG, is that really accelerating in North America or is that still really mainly being driven by Asia and Legacy Europe?

The quoting activity growth is based on technology plays that we have. So it is not necessarily based on increased vehicle level production, but it is based on a penetration of today's technology into the current vehicle platforms. And that is where the PTG group is realizing the quoting activity that they are seeing.

Okay, thanks. And then just lastly going back to commercial vehicles, can you give any update on the Pro series and the Diamond series driveshaft if those are selling at this point and was there any of that in the second-quarter results? And what are you expecting going forward?

Actually those programs are as we mentioned before launching in this year. So mostly some volume is starting up in the back half. But, really, that will be one of our benefits going into 2013.

Joseph Spak, RBC Capital Markets.

Good morning, everyone. I guess I am a little confused on the guidance and that you essentially took down the EBITDA range by $25 million yet at the low end of the EPS it is only down $0.01 and then $0.04 on the high-end. So is there something else going on below that line, so to speak?

Obviously from a tax provision perspective, we are still using about 29% tax rate. Think about some restructuring that we have got ahead of us with respect to adjusted EBITDA, vis-a-vis that adjusted EPS rate that is going to have some impact as well.

But isn't the restructuring taken out of that EPS?

Out of the adjusted EPS, yes it is. You're right. Yes. You're right.

So --

We can provide that. I don't have a schedule right in front of me. But we can provide that for you. Post the call.

And then I guess just since you brought up tax in the quarter, it did look a little light. Was there something going on there in the quarter?

Yes, it came up about 23%, 24% effective rate. Year to date we are at about 29%. And obviously that change in Brazil which is a higher tax jurisdiction did do a benefit with a replacement if you will in the US where the US was higher in profits and we got the shelter of our existing NOLs. That really was a jurisdictional mix issue.

Okay so 29% for the year we should be using (multiple speakers)

Yes, we are still holding I think the 29% for the full year. There may be some change obviously during the course of the third and fourth quarter, but that is a good planning rate to use.

Okay and then, just on I think it is page 13 where you give the -- or 12 the year-over-year drivers for the revenue. That $50 million is that -- what portion of that is pricing and then maybe as a follow-through can you give us what -- on the EBITDA level -- what pricing net of savings and materials was in the quarter?

Yes if you take a look at the 50 -- let me just flip to that slide here. That $50 million is largely -- by the topline -- largely the result of pricing and material recovery initiatives. So that is what that $50 million is on a year-over-year basis. As we talked during the Q&A session obviously concentrated on that -- commercial vehicle -- but really all of our businesses. Light vehicle off- highway as well. Participated in most notably material recovery initiatives to ensure that we are in a position that we are somewhat neutral to the changes in commodities over time.

If you flip to, I guess, the next page on the performance you'll see that $10 million to the lower right on year-over-year drivers. So $50 million topline and about $10 million flow-through if you will from a performance perspective. So we have got -- and we talked in my opening comments, we did have some nonrecurring insurance recoveries a year ago in the second quarter of about $10 million, as well as certain other items that benefited 2011 that didn't recur in 2012 and of that this is probably another $5 million to $10 million as well.

So that obviously is kind of dragging down, if you will, on a year-over-year basis the benefits of our flow-through. Also in the quarter, we did have some material commodity inflation. I would say not a large significance, probably a little less than $10 million or so. But that is the other change in the topline to what we flow-through to the bottom line.

And just on the flow-through, it looks like on the currency in the quarter is about 5%. It looks like that is what you are assuming for the back half of the year as well. That seems a little bit maybe lower flow-through than prior and certainly I think versus what you did in the first quarter. But that is the right way to think about it, 5% on FX?

Yes, we have got a range right now 5.5% to 7.7% or so. If you take a look at that first and second half walk and obviously it depends on the mix of currencies and how they are moving. We certainly have an assumption with respect to that first- or second-half look. In the first quarter we obviously had a more weight to transaction losses where this probably is more of a translational approach. So it is a little muted, but it is going to be dependent upon the mix of currencies and how they are moving vis-a-vis, obviously, the US dollar.

All right Ashley, I think that is all the time we have today. I would like to thank everyone for joining us this morning and for your interest in Dana Holding Corporation. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.