Dana Inc (DAN) 2016 Q4 法說會逐字稿

Good morning, and welcome to Dana Incorporated's fourth-quarter and full-year 2016 financial webcast and conference call. My name is Brent and I will be your conference facilitator. Please be advised at our meeting today, both the speaker's remarks and Q&A session will be recorded for replay purposes.

(Operator Instructions)

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

Thanks, Brent. And thank you to everyone on the call for joining us today for Dana's fourth-quarter and full-year 2016 earnings call.

Copies of our press release and presentation have been posted on Dana's Investor website. Today's call is being recorded, and the supporting materials are the property of Dana Incorporated. They may not be recorded, copied, or rebroadcast without our written consent. We will end our call with the Q&A. In order to allow as many questions as possible, please keep your questions brief.

Today's presentation includes forward-looking statements about our expectations for Dana's future performance. Actual results could differ from those suggested by our comments today. 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 public filings, including our reports with the SEC.

Presenting this morning are Jim Kamsickas, President and Chief Executive Officer, and Jonathan Collins, Executive Vice President and Chief Financial Officer. With that, I would like to turn over the call over to Jim.

Thank you, Craig, and good morning, everyone. To start things off, I would like to briefly reflect on last year.

Dana had a very strong 2016, largely as result of our solid customer relationships coupled with execution by our extremely dedicated team as we successfully launched multiple large and complex programs over the course of the year. Despite having to face significant volume headwinds in a few of our end-markets, we improved profitability through cost performance and conversion on new business growth.

We ended the year with sales of $5.8 billion. Our adjusted EBITDA came in right where we expected at $660 million resulting in a very strong 11.3% margin. In fact, all four of our business units improved margin in 2016, leading Dana to an overall 50 basis point year-over-year margin improvement.

And finally, diluted adjusted EPS increased 12% over 2015 in large part due to our share repurchase program.

As you are aware, along with all of the significant action the team executed in 2016, at our Investor Day in November we unveiled the five key elements of our enterprise strategy which we titled Shifting Into Overdrive. We have already made great progress in each area of our strategy.

Please turn to slide 5 for a brief review. The first of our five key elements of our strategy is Leverage the Core. This element is all about leveraging our internal expertise such as purchasing, engineering and so forth but also includes building our expertise through acquisitions and in some cases divestitures. This past year we trimmed two underperforming or non-core operations, Nippon Reinz in Japan and Dana Companies respectively.

In 2016 we worked to add three great businesses which fit perfectly with our existing core including Brevini in our off-highway driveline business, SIFCO which aligns with our commercial vehicle business, and Magnum Gaskets into our power technology business.

It's important to recognize that each of these acquisitions strongly aligned to our strategic plan by bringing new capabilities to Dana that we can drive across the business units.

For example Brevini provides Dana electrified hub drive technology and controls that will go beyond our off-highway segment into our light vehicle and commercial vehicle arenas. SIFCO is opening new light vehicle and off-highway commercial channels in Brazil as customers are looking for stable and sophisticated suppliers with scale such as Dana. And the Magnum group has accelerated Dana's return to the North American gasket aftermarket.

In the same way our other business units operate today. The collective Dana team is truly leveraging the core.

The next element is to strengthen customer centricity. Existing and new customers are recognizing our performance, technology, and overall value by awarding Dana new business, entering into long-term commercial agreements, and often choosing Dana as the supplier-of-choice to receive their most prestigious recognition. Our focus is firmly on the customer and we continue to strengthen those relationships every day.

The third gear in the strategy is to expand global markets. The first up is to win new business, the second is to ensure that we have the appropriate infrastructure to support the growth. Dana is doing both.

We're winning business with key customers, for example SAIC in China, BharatBenz in India, and many others. In addition, we are selectively expanding our manufacturing footprint to support our sales backlog in areas such as the United States, via our new Toledo, Ohio facility and new facility in Gyor, Hungary that will further strengthen our differentiating global reach. Most recently much of our new business growth has been driven by our ability to commercialize new technology.

Today I have chosen to highlight just a few of our innovations that are new to the market. Our SmartConnect disconnecting all-wheel-drive technology, our multi-twister air-oil separation products, as well as our Thermatrek family of electronic cooling products.

To close the page, our current product lineup along with our recent business awards which are included in our new business backlog of $750 million through 2019 strongly position Dana through the next business cycle.

However, we need to keep one foot in today and one into tomorrow. Accordingly, Dana's talented engineers are focused on providing customer solutions for both hybrid and electrified vehicles. This is supported by our new Spicer electrified brand which has us laser-focused on developing and commercializing differentiated products for these vehicles.

This is no different than how Dana established our existing battery cooling and hydrogen fuel-cell lineup of products which are in market today. The Dana Team is making great progress by leveraging expertise across our enterprise.

Please turn to page six for an outlook on global markets. In North America we are still expecting low single-digit economic growth and while light vehicle production is expected to be mostly flat this year we should see growth due to our recent and upcoming program launches on the Ford Super Duty and the Jeep Wrangler.

We are expecting the production of the class 8 trucks to be around 200,000 units this year. While class 8 demand will be lower than last year, we should continue to benefit from a strong medium-duty truck market in 2017.

In the North American construction market, despite the talk of higher infrastructure spending, this year we expect stable markets. If we do see a push for infrastructure from the administration, that could certainly be a positive for all four of our business units.

As you well know, uncertainty persists over the direction of US policy when it comes to tax and trade. I believe Dana remains in a well position from a tax, footprint, and supply chain perspective and will be able to react quickly to any changes.

Moving to Europe, we expect economic growth to slow this year and we expect continued weakness of the euro which will have a translation impact on sales mainly from our off-highway and power technology segments. While the off-highway end-markets are expected to be flat, we expect some growth from our power technologies business due to better light vehicle engine build this year.

Looking at South America, we remain cautious but optimistic that the Brazilian recession has reached a bottom. We are not expecting rapid recovery, but we do expect some improvement in truck demand over the next several months. Argentina is looking a little brighter but there is still currency and regional economic headwinds.

And finally, in Asia-Pacific we are seeing stable to moderately improving conditions in India and Thailand somewhat offset by slower growth in China due to lower stimulus. We believe this year our business in Asia will benefit from higher demand for light vehicles.

As we look forward to this year we are excited to continue our momentum from 2016. Overall our end-markets are mostly stable with some bright spots and our new business backlog will drive our top-line growth.

Please turn to slide 7. As announced, we closed the acquisition of the Brevini fluid power and power transmission businesses just last week. We worked diligently to close the transaction in less than three months since the signing of the definitive agreement. I was able to personally meet with the Brevini Global Leadership Team in Verona, Italy earlier this week. There were associates from across the globe including New Zealand, Finland, Ireland, and numerous other countries where Dana had not previously had people on the ground.

I would like to take just a second to officially welcome the Brevini Team to the Dana family. For this audience this acquisition immediately expands Dana's product portfolio and increases our addressable market with adjacent technologies. This establishes Dana as the only solutions provider that can manage energy and power conveyance that drives a vehicle and controls the motion of the equipment to do the work it was designed for. It strengthens our global footprint including the addition of two facilities here in the United States.

This acquisition also provides proven technologies that can be leveraged not only in the off-highway segment but also across Dana's light and commercial vehicle end-markets as well, including contributing to development of our Spicer electrified portfolio products.

While I have you, please note that we have renamed our off-highway driveline technologies business unit to the Off-Highway Drive and Motion Technologies business unit. In the event that you are unaware, the term motion is often used by other industrial parts companies to describe their work products. Dana's new portfolio of work and or motion products such as industrial gearboxes, planetary hub drives and winches are pictured on the left side of the page. Now I will turn the call over to Jonathan for details on the results and outlook.

Thank you, Jim. Slide 9 provides an overview of the fourth-quarter and full-year 2016 financial results. Fourth-quarter sales of $1.5 billion were up 5% from the same period in 2015 primarily driven by conversion of our sales backlog. This is the first time we've seen quarterly year-over-year growth in the last three years and demonstrates positive momentum as we move into 2017. Full-year sales were $5.8 billion, down $234 million from 2015 driven mostly by foreign exchange headwinds.

Adjusted EBITDA for the quarter was $166 million, up $37 million over last year, yielding an 11.5% margin an increase of 210 basis points. On a full-year basis $660 million in adjusted EBITDA is $8 million better than last year delivering an 11.3% margin, a 50 basis point over 2015.

The fourth quarter contained a couple episodic items. The first, losses on the sale of subsidiaries that we announced in our January meeting adversely impacted EBIT or operating income by $80 million and net income by $52 million.

The second was the release of our valuation allowance against our US deferred tax assets. This valuation allowance was put in place a number of years ago as, at the time, our US operations were not expected to generate the level of profit needed to utilize the deferred tax assets. As we've been highlighting over the past several quarters, we've been monitoring the performance of our US operations and at the end of 2016 we concluded the valuation allowance is no longer necessary, yielding a $501 million tax benefit. Excluding the impact of both of these items, net income was $191 million for the full year in 2016.

Diluted adjusted EPS which excludes the impact of nonrecurring items such as the valuation allowance release was $0.59 per share for the fourth quarter, an improvement of $0.25 per share compared to the fourth quarter of 2015.

Full-year EPS was $1.94 per share, up $0.20 compared to 2015 driven primarily by our share repurchase program. Free cash flow for the year was $62 million, lower than 2015 as a result of higher capital spending this year to support our sales backlog.

Please turn with me to slide 10 for a more detailed look at the changes in sales and adjusted EBITDA for the fourth quarter compared to 2015. Sales grew 5% or $72 million in the fourth quarter of 2016 compared to the same period in 2015, and adjusted EBITDA increased by $37 million, yielding a 210 basis point improvement in margin over 2015.

The adjusted EBITDA growth is attributable to four key factors. First, currency translation was a $28 million headwind to sales due to the continued strength of the US dollar against other currencies. However, the adverse impact of translation on profit was more than offset by transactional currency gains resulting in a $3 million benefit to adjusted EBITDA.

Second, a combination of volume, mix and pricing added $100 million to sales as we ramped up production on key programs in our backlog and contributed $16 million to the adjusted EBITDA growth.

Third, we saw an additional $10 million in improved performance as we stabilized our commercial vehicle business, and we benefited from the non-recurrence of operational costs we incurred in the fourth quarter last year. It's worth noting that the combination of increased volume and performance improvements drove a greater-than-25% conversion on incremental sales.

Finally as we discussed in January, recoveries associated with the recently divested Dana Companies subsidiary added $8 million of adjusted EBITDA.

The fourth-quarter margin expansion was a combination of strong volume conversion and cost management and demonstrates the ability to convert our sales backlog in attractive incremental margins.

Let's now turn to slide 11 for a look at the full year. Sales decreased from the prior year by $234 million while adjusted EBITDA increased by $8 million, yielding a margin of 11.3%, a 50 basis point improvement. Again the same four factors affecting the fourth quarter were the key drivers of the full-year change.

Currency translation reduced sales by $173 million and resulted in a $20 million reduction to profit. A combination of volume, mix, and pricing reduced sales in adjusted EBITDA by $61 million and $19 million respectively as strong demand, pricing and new business volume in light vehicle driveline and power technologies were more than offset by lower market demand in the Americas, commercial vehicle, and global off-highway end-markets. Performance drove a $32 million permit in adjusted EBITDA, more than offsetting the $19 million loss due to the volume, mix, and pricing. Lastly, the full-year impact of the gains related to the recently divested Dana Companies subsidiary added $15 million to adjusted EBITDA.

The delivery of 50 basis points the margin expansion in the midst of challenging market conditions in two of our key end-markets and the largest launch in Dana's recent history, the Ford Super Duty driveline, demonstrates our ability to improve the profitability of operations as we move forward into 2017.

Please turn with me to slide 12 for a closer look at our free cash flow. The business generated $62 million of free cash flow in 2016, just over 1% of sales. This represents a decrease of $84 million and approximately 100 basis points lower than the prior year. This change is largely attributable to the elevated capital spending level required to deliver the sales backlog.

Net interest was $15 million higher in 2016 primarily due to the timing of interest payments related to the bond refinancing we completed in June. You'll note the additional detail provided in our cash flow as we have called out the discrete impacts of transaction costs and the settlement of currency hedges that mitigate the volatility associated within our Company loans. These items were previously included in the working capital and other line items.

The $21 million use of cash required to settle currency hedges on interCompany loans were primarily driven by the rapid devaluation of the Mexican peso in the fourth quarter. These cash settlements, when combined with higher working capital requirements due to production schedules in the fourth quarter, caused our free cash flow to come in below our expectation for the full year.

Slide 13 provides a comparable level of detail for anticipated free cash flow in 2017. Free cash flow is expected to remain at approximately 1% of sales in 2017 and remains in line with the guidance we provided in January, which included the recently closed Brevini acquisition.

Adjusted EBITDA is expected to contribute an incremental $50 million of free cash flow this year. This is the primary driver of the growth in cash flow from operations, as lower taxes and interCompany currency hedge settlements offset the impact of higher cash requirements for previously announced restructuring actions.

The growth in cash from operations will be directly reinvested into the business to support the elevated capital expenditures required to deliver the sales backlog. We do expect this to be a peak year for capital spending and that it will moderate to a replacement level over the next couple of years.

Slide 14 provides more information around our balance sheet and in particular the trends around leverage and liquidity levels. As you can see in the chart at the top of the page, we ended the year at 1.4 turns of leverage and $1.2 billion of liquidity.

Leverage increased modestly this year as we utilized cash on hand to fund the SIFCO acquisition without an immediate benefit to profit and had approximately $100 million of cash leave the balance sheet through the Dana Companies divestiture. This cash was effectively ring-fenced and not available for operating uses, which is why we previously excluded it from our operating liquidity.

The chart on the bottom of the page provides the key contributors to the nearly $150 million increase in our operating liquidity. While there were multiple changes, I'll highlight the two key drivers. First, in the second quarter we refinanced our asset base credit facility into a cash-flow-based revolving credit facility which increased liquidity by over $200 million and provides us more consistent access to the funds.

The second was the Dana Companies subsidiary divestiture. While the primary and secondary benefits of the divestiture were the elimination of future earnings volatility and the avoidance of potential cash flow requirements associated with future asbestos claims, it also had the tertiary benefit of improving our operating liquidity by $43 million from the net sale proceeds.

As we look to 2017, we continue to use our strong balance sheet to deliver value to shareholders through acquisitions that are accretive, enhance our competitive position, and catalyze future growth.

With the recent closure of the Brevini transaction we expect our debt to increase by approximately $200 million as we assume their debt, and our cash position will decrease by approximately $100 million at closing. However, we expect net leverage will remain under two turns and our liquidity will remain over $1 billion by the end of this year.

Please turn with me to slide 15 for an overview of the changes in sales and adjusted EBITDA expected in 2017. We anticipate sales will grow by 8% or $0.5 billion from $5.8 billion to $6.3 billion and profit will increase by $50 million which is attributable to four key factors.

First, we expect currency to be a headwind to sales of about $150 million and about $20 million to profit, mainly due to the strong US dollar compared to the euro. You will find a table of our currency exchange rate expectations in the appendix.

Second, sales growth will add about $250 million this year through a combination of new business and some market improvement, and we expect to convert this growth to profit at approximately 20% or $50 million.

Third, the Brevini acquisition is expected to add about $350 million in sales and about $35 million in adjusted EBITDA. The 10% conversion is indicative of the standalone profitability in a market that's at trough, with a modest amount of cost synergies expected to be recognized in the second half of the year.

Finally, we'll face a $50 million headwind due to the marketable securities gains and recoveries last year in our Dana Companies subsidiary that was divested at the end of the year.

Page 16 outlines our full-year financial guidance for 2017, which includes the impact of the Brevini acquisition and remains unchanged from what we provided in January.

We expect sales to be in the range of $6.2 to $6.4 billion with adjusted EBITDA between $695 million and $725 million, yielding a margin between 11.2% and 11.4% which is in line with last year. However, it's important to note that the midpoint of this range, 11.3%, actually represents a 20 basis point improvement in our operations as we overcome the headwind from the gains in the Dana Companies subsidiary that will not recur this year.

Capital spending is expected to be between $350 million and $370 million as we continue to prioritize organic investments to deliver our sales backlog. Free cash flow is expected to be between $50 million and $90 million or about 1% of sales due to the elevated capital expenditures and working capital to deliver future growth.

While our projections for adjusted EBITDA have increased, diluted adjusted EPS is expected to be lower than 2016 at $1.60 to $1.80 per share. The lower EPS level results primarily from our 2016 release of the US valuation allowance discussed earlier. While there is no impact on cash taxes, income tax expense will increase since the tax on US income will no longer be offset with a valuation allowance credit. The other offset to adjusted EBITDA growth is the higher depreciation expense as a result of recent capital spending to support our growth.

Overall, we anticipate 8% sales growth and $50 million of incremental profit as a result of solid conversion on organic and inorganic growth.

Page 17 highlights that we remain competitively strong with our global presence, diverse customer base, and expansive portfolio of technology assets. Over the course of the coming years we expect to deliver sales growth that exceeds market rates as a result of our $750 million backlog and are well positioned to benefit from the improvements in the Americas commercial vehicle and global off-highway end-markets. Both of these factors will help us meaningfully expand our margin as we deliver these sales.

We remain committed to retaining a strong balance sheet and continue to prioritize our investments in organic growth, inorganic growth, and then cash repatriation to shareholders. Thank you for listening in today. I'll now turn the call back over to Brent to take your questions.

(Operator Instructions)

Joe Spak, RBC Capital Markets.

Good morning everyone.

Good morning Joe.

I know you provided a little bit of color here and there through the commentary, but I was wondering if you could maybe at a high level on an annual basis give some outlook by segment, both in terms of growth but also margin performance. Because specifically if you look at segments like off-highway, you had really good decremental margin performance and the same in commercial vehicle. And now it seems like some of those markets might be bottoming if not turning the other way.

Sure, Joe, this is Jonathan. Just relative to the top line. The light vehicle segment is expected to grow next year as they bring on additional new business backlog. The majority of the backlog comes from that segment.

Commercial vehicle we will see a bit of a headwind due to the Class 8 build in North America being closer to 200,000 units. We essentially expect off-highway, apart from the Brevini acquisition, to be relatively in line with this year sales. And then power technologies, some modest growth due to market and backlog.

From a margin profile perspective you can essentially expect commercial vehicle and off-highway to be relatively flat with this year just in light of the market dynamics. But we do expect some margin expansion within light vehicle, driveline and power tech, albeit modest in both categories, to get us to the 11.3% margin in 2017.

Okay. And off-highway, that's inclusive of Brevini, or when you add in Brevini, it will be a little dilutive this year?

It will be -- Brevini will take the margins down just slightly, so on an organic basis it would be essentially flat. But Brevini coming in at 10% will pull the margins down slightly.

Okay. And then just on the working capital drag, as we think about 2017 free cash flow. As we build our models out, would you expect that to reverse out in 2018? I mean, because, it would seem like some of that would be timing related to the launches.

Yes, Joe, while we have not given a specific guide for working capital 2018 and beyond I would generally say we would expect it to be a use of cash over the next few years as we grow. So as we continue to bring this business online, we would expect to be investing more in inventory and receivables then we'll get back in payables but some of that is going to be dependent on launch timing and customer schedules at the end of year. But broadly we would expect that use to continue over the next couple years.

Okay, and one quick housekeeping. I noticed equity income was up in the fourth quarter versus the rest of the year. It was in 2015 as well. Is that something to do with the timing of some of your ventures? And what should we think about for 2017, or what's embedded within guidance?

We have a little bit better performance out of the [BDAC] joint venture in China. They've had some sales growth and solid cost management, and we would expect that to generally be in line with 2017 as well.

Thanks a lot. Congratulations.

Justin Long, Stephens.

Thanks and good morning.

Good morning.

I just wanted to start by asking about the off-highway segment incremental margins. You have always talked about the segment having strong incrementals, but you referenced it earlier, the guidance assumes 10% incremental margins for Brevini. I'm just wondering, pro forma for Brevini, has the incremental margin profile in off-highway changed? Or do you still think it can be above that 20% consolidated average that you have historically discussed?

Yes, Justin. This is Jonathan. A couple of things when we think about Brevini. Their margin profile will improve pretty dramatically over the course of the next 18 months because of the cost synergies that we will be recognizing. We laid out in that acquisition that we will have $30 million of cost synergies that will be fully implemented by the end of next year, and that will bring those margins more in line with what you would see from off-highway.

We remain convicted that the incrementals in off-highway are going to be very attractive in the market recovery. We have not given a specific number, but just to due all the work we've done on both the variable and the fixed-cost structure, we are really excited about what will happen when that market starts to recover

Okay, great. That is helpful. And secondly, you talked about being more optimistic about South America reaching the bottom, but this is the geography where we hoped for that multiple times over the past two years, and it somehow keeps finding a way to go lower. Could you help provide some more color on why you have confidence that we have hit a bottom and just your general visibility around the positive inflection in that region?

Yes, thanks for the question. This is Jim. We don't have any better crystal ball than anybody else. I think you summarize the situation extremely well.

The only thing we can say is those of us who have experience down in South America and particularly in Brazil, is it is not very much a rail system type of geography. It's largely truck, our business is largely commercial vehicles in Brazil. Sooner or later the wheels figuratively are going to fall off.

There's a lot of basically carnage in reuse of parts, et cetera, et cetera. Inevitably it has to come back, that's what it's saying. Probably at least, maybe not in anyone on the call, but certainly in my experience over the course of my career, I have not seen as long as extended economic downturn as it has been down there. I'm optimistic from that standpoint.

As we said, we are not projecting that into our numbers so much but we are saying ultimately it has to come back. The population is too high and there's too much need for new trucks down there.

Okay. Great. I will leave it at that. I appreciate the time today.

Thanks, Justin.

Brian Johnson, Barclays.

Yes, I want to start with just housekeeping questions around the cash flow. Can you help us understand these interCompany FX hedges? Just kind of what they are and how to we think about -- you say they're coming down, but just want to try to get our heads around it.

Sure these are positions put in place, Brian, intended to protect essentially investments we have made in foreign subs in the form of interCompany loans. You can see they were a modest use of cash last year as some of the currencies deteriorated against the dollar.

Moving late into this year it looked like the position on those was going to be relatively small. But with the devaluation of the peso and the euro post-election here in the US, we saw some larger settlements that had to be posted when expected.

Broadly speaking, based on where the currencies are expected to go next year, we think the impact of those is going to be relatively small but that's what went against us toward the end of the year.

Okay, are those at all -- is that $5 million predictable or is that if the peso gyrates around it could be a higher or lower number?

Both are accurate. We've projected the $5 million based on what we see rates -- what we believe they will be, through the remainder of this year, but your point is valid to the extent that the peso devalued more significantly, we could see additional exposure on those.

Okay and then second question, also kind of just trying to understand this, the restructuring expense of $50 million. Do you have a sense of, as we going into 2018, 2019, how that ramps down? Are these multi-year restructuring programs or is most of the spend around Brevini integration and other things just in this year?

It's really three things that are driving this year's expense. We had announced the plant closure here in the US last year, much of the cash expense associated with that will actually be spent in 2017. We also had some restructuring actions in our off-highway business in Europe that we announced for the end of this year. The cash investment will come in 2017. And then also, we will have some Brevini restructuring included in that number as well.

As we look forward, the only thing that we are really committed to is the continual investment to deliver the synergies for Brevini, but we'll continue to look at opportunities and if the investment is attractive and the timing is right, we could make more investments in 2018 and 2019. But it will be discretionary.

And just a final question to the subject of border adjustment tax. If I missed it, I apologize. Can you at all quantify your growth, the value of the materials you are sending down to Mexico? The cogs that you're bringing back up from Mexico or in from Canada, so we can -- recognizing that you could shift that over time into your US plants, but a sense of what you're starting point is in terms of product flows.

Hi, Brian. This is Jim. We're not going to be able to quantify -- we're not going to quantify specific on the numbers, although we appreciate the question.

What I would say is that we feel like we are in a very good situation, perhaps it's unaware, but approximately 30% of our major facilities are actually located in the United States. And we are actually adding quite a few jobs. As you are aware, the plant we will be adding here in Toledo at about 300 to 350 jobs. We've made significant or are in the process of making significant investment in Auburn Hills, Michigan; Louisville; Columbia, Missouri; Fort Wayne, you name it. And because we have essentially the capability if it's in Mexico or America to do the same thing. In the event that the border tax legislation moves in the direction that makes the right business case we very much have the ability from an operating standpoint to do so.

And in terms of the cost of that relocation are they assume somewhat higher labor costs offset by logistics. Is that something you would bear? Is that something your customer understand might be coming?

I wish I could give you a direct answer on it. I think it's very premature to be able to answer any of those questions right now.

I mean there's so many things that play into that. How much excess capacity do you have in America to start with? What's the timeframe to do it? Is it do it on an existing program? Is it to do it to roll into the next program that you will be deploying capital for anyway, so it's easier to drop it on the concrete in the state at that time?

I could go on and on and everyone on the call could go on and on, so it's really too premature to answer the question.

Okay. Thank you.

Thank you Brian.

Ryan Brinkman, JPMorgan.

(Inaudible)

Ryan, if you are on we cannot hear you. Ryan?

Good morning. This is Samik on behalf of Ryan. I was on mute. I want to firstly ask on the Brevini business. Over the years you've given us quite a lot of details on your backlog. If you could share your thoughts on what the Brevini backlog looks like. And what are the order cycles there? Are they very similar to what your core business is? And what are the sort of revenues visibility you have on that business?

Just to the latter part of the question, the award cycle is similar to what you'd see in our off-highway business. So this is business that will quote and launch a year or two in some cases after award, just to give you some general timeframe.

Relative to quantifying the backlog, we have not called that out discretely. We certainly have opportunities we have highlighted that we're focusing on from a cross-selling perspective, which was a part of the investment thesis in acquiring the Brevini business and then also making the investment to apply the planetary hub drive technology to the track vehicle market.

So while we are looking at both of those, we have not called that out discreetly in the backlog. But it certainly does create some opportunity for us to grow the backlog in the next couple years.

Got it. And secondly, on the (inaudible) four segments. Are you able to share what your capacity (inaudible) looks like across these four business units? In the sense to give us sort of view or a guide on what the incremental margins might look like as the markets (inaudible).

Broadly speaking the light vehicle driveline and the power technologies are operating closer to the higher level of capacity based on market demand for light vehicle, just given where pickups and SUVs and larger vehicles within that segment are running. So those are both at a higher capacity.

It is no secret that both our off-highway and our commercial vehicle driveline business are essentially a trough. Off-highway, globally it is very low. Commercial vehicle for us is largely in North and South America and those markets are at trough. So our capacity utilization is much lower in both of those segments. And it does create the opportunity for a much more significant conversion on incremental sales.

We have not quantified either of those, but we really are excited about what happens when North America Class 8 volumes come back, when Brazil begins to recover, and when the global off-highway demand starts to improve.

Great. And lastly, just a quick housekeeping question. I did see that your free cash flow for the full year tracked at $62 million, and there may be some definition of the forensics, et cetera. Were you guiding to more like $120 million at the time of the Detroit Auto Show? And if I'm reading that correctly, was there a sort of variance on there given certain factors?

I indicated in the script the two drivers of that you can see on page 12 of the presentation were the interCompany FX hedge settlements. I mentioned the rapid evaluation of the peso at the end of the fourth quarter drove the vast majority of those losses.

And as well I mentioned in the script that the remarks on a presentation that essentially the working capital requirements were higher toward of the year as a result of increased production schedule, so we ended up having more working capital investment than anticipated. And those two were the primary drivers of the lower cash flow.

Great. Thank you. Thanks for taking the questions.

Brian Sponheimer, Gabelli.

Good morning, gentlemen.

Good morning, Brian.

I want to dig into a little bit into North America and on-highway, and just maybe what you're hearing from customers about expectations towards the back half of the year in their own situation and inventories.

Good question, Brian. Probably not a lot different than here. I wish I could give you more color. Just in general I would tell you only from a temperature check, if I was just to mention, I feel better and it seems like they feel better than maybe they did in November. I'm not quantifying or projecting anything with that. But I think there's some more encouraging sentiment coming from the general one-off conversations that we're having. Other than that, I cannot give you much.

Okay. And I appreciate that, given where we are.

Regarding M&A it looks like everything you've done so far has really been very wise from a strategic standpoint. Are there other areas or other targets that are potentially within your reach in 2017, and does your balance sheet give you effectively the room to do something of the size of Brevini again?

Thanks for the question. Actually, just for fun I would call it -- we met as well as many other people on the call early on, when I first came to Dana just over 18 months ago or whatever, we used some terminology such as white space and I referred to that as some pockets in the organization that we felt we could fill we. But we would've have some deal fever and do something silly. We would do it at the right price. We had the right balance sheet to do it. All of that still holds true today.

Thank you for your commentary on our success up to this point. I echo those comments. Our team did a great job. Consistent with what I've been saying for the last 18 months, we're not looking or likely to be focused on any type of transformational deal. Our balance sheet is still extremely strong.

If the right tuck-in opportunity is there that fits with our technology strategy and our overall enterprise strategy, I would say we would more forward with that. But again, this is a very comfortable area for me and we will not do deal fever, we will not have deal fever for the purposes of having deal fever.

I understand. Jonathan, if I could sneak one in here, The $170 million in earnings, obviously inclusive of the devaluation allowance. Can you maybe give some perspective as to what that might be without the valuation allowance this year, or maybe what 2016 would have looked like if you were able to do the reverse of last year?

Sure. It would be about $190 million or pretty close to it if we did not change the -- if we still had the valuation allowance moving into 2017. It's almost $0.20.

Terrific. Thank you very much.

Thank you everybody for joining the call. This is Jim. I really appreciate it on behalf of Dana that you did so.

I think the spirit of this call, being a year-end close, falls into the category of do what you say, say what you do. We obviously rolled out the enterprise strategy in November last year. Our activities started much earlier than that. I hope it shows in our performance of certainly achieving full-year guidance from where we started last year.

Not only that, to me from the CEO's chair, it's important that you look at from all four of the business units, executing, making a reasonable commitment, and living to that commitment. Our light vehicle group did that despite very high volumes in the industry and some massive program launches. Our commercial vehicle group, many of us have that history and knowledge of where that business was back a couple years ago.

That is night and day different. It has transformed into an incredibly customer-centric organization and it is really headed to really a high performance business if we can get a little help out of Brazil. The power tech business has done fantastic for years. That team continues to do a tremendous job and leads the way as it relates to profit for the Company.

And off-highway, put that into perspective for just a half a second here. When you think about it from a decremental standpoint and how that group has performed over last year, and by the way, let's do a bolt-on; it's a relatively significant acquisition along the way.

The team continues to execute. We appreciate all of your support for those of you on the call. And we will move forward and we are pretty optimistic about 2017. We will talk to you soon.

Thank you. This concludes today's conference call. You may now disconnect.