. Good morning, and welcome to Dana Holding Corporation's Fourth Quarter and Year End 2011 Webcast and Conference Call. My name is Ashley, and I will be your conference facilitator. Please be advised that our meeting today, both the speakers' 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 Treasurer, Lillian Etzkorn. Please go ahead, Ms. Etzkorn.

Thank you, Ashley. Good morning, ladies and gentlemen. Welcome to all of you who are joining us either by phone or webcast. On behalf of the entire Dana management team, I'd like to thank you for spending time with us this morning. With me this morning are Roger Wood, President and Chief Executive Officer; and Jim Yost, Executive Vice President and Chief Financial Officer. Also in the room is Mark Wallace, Executive Vice President and President of On-Highway Driveline Technologies. Before we begin, I would like to review a couple of items. Copies of this morning's earnings release and the slides that 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 as many questions as possible within our time frame, 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.

Thanks very much, Lillian, and good morning, everyone. I'm pleased to report today that Dana exceeded all of our 2011 financial targets. We continue to build on the momentum and the potential of the company for the future. Let me cover a few of the headlines for the 2011 financial results. Our sales of $7.6 billion are up more than 24% over last year, and our adjusted EBITDA is up 38% to $765 million. This came out to be a 10.1% margin for the full year, up 100 basis points over 2010. From a bottom line perspective, we doubled diluted adjusted earnings per share in 2011 with $1.66 per share versus 2010. The quality of our earnings is strong. 2011 ended with $174 million of free cash flow, making it the third consecutive year of significantly positive free cash flow. Our balance sheet also remain strong, with total liquidity of $1.4 billion, and that's after making significant investments in our businesses. What I'm most pleased about is that we were able to drive this performance and simultaneously increase our engineering spend to more than 17% from 2010, proving to ourselves and our investors that we can increase our engineering capability and deliver bottom line results. Our sales in 2011 grew 44% faster than the markets we serve. We were able to do this by delivering innovative product technologies, as well as making a few strategic acquisitions to enhance our global footprint. Emerging markets represented more than 36% of this growth for us, further validating our strategy of increasing our engineering resources in these regional areas. Our improved margin performance reflects better operational efficiencies as we begin to see the benefits of our past restructuring efforts. We worked hard this year to offset persistent commodity price increases through pricing recovery and…

Thank you, Roger. Please turn to Slide 14 for a summary of our results. As you can see on this slide, we had a terrific year, just as Roger said, more than doubling our adjusted diluted EPS and increasing our net income by almost 20x. Sales were $7.6 billion, which is up more than 24% from 2010. About $400 million of the increase is attributable to our strategic agreement with SIFCO and the axles India purchased. This, of course, excludes any sales from our unconsolidated joint venture in China, DDAC. The adjusted EBITDA of $765 million was an improvement of 38% or $212 million from 2010, delivering on our commitment of a 10% margin. In addition to strong sales performance, significant material cost recovery and cost reductions more than offset the increased raw material prices we incurred in 2011. As we've mentioned before, our net impact of materials was favorable this year, and we expect it to be also favorable in 2012. Capital spending was $196 million. And our free cash flow was $174 million, delivering consistent positive free cash flow since 2009. So how did we do compared with the plan we laid out in January 2011? As you can see on Slide 15, we met or exceeded all of our goals. This was the third straight year that we accomplished the goals we announced at the beginning of the year. Turning to Slide 16, let's take a look at the results of our business segments. In 2011, all of our business segments generated higher sales and EBITDA compared with 2010 levels. In Light Vehicle Driveline, sales and segment EBITDA were up 13% and 15%, respectively, resulting in a full year margin of 9.7%, which was slightly up from 2010. First quarter 2012 will be a bit softer than…

[Operator Instructions] The first question comes from Patrick Nolan and Deutsche Bank.

Just one question. I'll keep, though, one question and just 2 quick housekeeping items. Just first on the off-highway business. It looked like the margins fell there a good deal sequentially in Q4 despite revenue not really being off that much. And just on the housekeeping side, is there any quantification you put around what the Thailand impact was in Q4?

Pat, this is Jim. On the off-highway business, we had indicated in our third quarter call and in January that we expected to see softness in the construction market. Our margins are considerably higher on the construction side than they are on the Ag side, and that's an issue we're working on right now similar to what we did with the CV business. So we expect to see that improving into 2012. Fundamentally, there were 2 things that drove the margins. One was the mix of business, which was much weaker on the construction side than the Ag side, and other was that we did make some strategic investments in our new distribution center for aftermarket in Gyor. We moved that from Northern Europe into Gyor, Hungary, and that ended up with some higher cost there. We also had a number of launches in China that we pulled ahead from 2012 into 2011 on our transmission side to get into that business. So that was largely what drove the decline in the bottom line.

Is there any way you can put numbers around the Thailand impact on the Light Vehicle Driveline?

We don't have any numbers that we have at this time.

And just lastly, what was DDAC's revenue for 2011?

It was about $900 million from -- I think, I've got that. I'll just look that up here for you, Patrick. About $951 million in sales, which was slightly down from 2010, which was at about $1,040,000,000.

Next question comes from Brian Johnson and Barclays Capital.

Just wanted a couple of things. You talked a bit about first quarter. Can you give us maybe a little sense of how the cadence of the quarter is just likely to shape out, both in some of the production numbers you cite on 19 and just as we kind of think about your annual guidance?

First, as you think about the guidance, as we've said before, first quarter tends to be a little bit weaker for us, both in sales and profitability. Fourth quarter tends to be a bit the same. I think we've seen some unique things in 2012 that are going to hit us a little bit more in the first quarter. As I mentioned, the Thai flooding is a continuing issue, as well as some of the softness in the South American CV market. So first quarter will be a little bit weak. And then traditionally, our second and third quarters are substantially stronger. And we expect to see that same story going forward, I think, overall this year, probably a little bit more in the second and third quarters but largely flat across the whole year in terms of our sales.

Okay. And the investments you talk about from off-highway, those are -- when we get to 1Q, those are now behind you?

Yes.

Okay. And can you give us an update on how much of the $21 million of equity income was DDAC, and then how we should think about the progression of moving that to Dana target margins?

Of the equity earnings, about $8 million was DDAC.

For the full year?

For the full year, correct. That compared with about one in the previous year in 2010. So that obviously is impacted by fresh start accounting there. So if you did the math, it's actually a bigger number on the gross basis. That is some fresh start accounting, but we'd expect that to continue to grow. We finished with about a 5% EBITDA margin in the DDAC full business last year, and we expect that to be up at least a point this year as we continue to work with that team to improve profitability.

Next question comes from Ravi Shanker and Morgan Stanley.

Jim, can you help us with an EBIT walk from 4Q -- '11 4Q there? You've helped us in the past with pricing and materials and that sort of thing.

Speaking just a quarter-over-quarter?

Your 4Q '11 versus 4Q '10, so year-on-year for the quarter.

Yes, sales were up about $350 million or so, largely due to volume and the SIFCO acquisition, which was about $100 million a quarter of the full year impact. If you take a look at EBITDA, we were up about $40 million. Most of that -- in fact, all of that was largely the volume and the SIFCO acquisition. We did have some positive material. But then, we also had some of those investments that we talked about in some of our future business.

And pricing was positive?

Yes, pricing was positive.

Got it. And finally, we have seen some end markets, especially in Latin America, off to a slightly weaker start in January. Plus, you have this Thailand impact that's spilling over into 2012, yet your guidance is unchanged, which is a pretty strong outcome. Can you help us understand that? I mean, were you being conservative before? Do you see offsetting impacts that kind of negates the weaker start?

We had anticipated quite -- in fact, most of the softness in the first quarter. So as we gave guidance, it had already reflected a softness in the first quarter. We had hoped that the Thai situation would have stabilized, so that is a bit of a surprise. But we were also seeing strength in a few unique areas. So I would say, overall, we had anticipated most of the softness. Maybe you call that conservative. We call it good planning, but it's not surprising. And so far through January, we're on track.

Next question comes from Peter Nesvold and Jefferies.

On the construction equipment margins, it seems a step down there. I guess we can follow up maybe on mix in the quarter. But on the strategic investments in Europe and the China launches, how much longer -- is that a sort of one quarter thing or do you anticipate that, that occurs for another several quarters?

We expect that to be a one quarter item. The transfer of our aftermarket business was a fairly big undertaking. We got that completed by the end of December, and we're now up full support on that facility out of Gyor. So that was a good transition for us. That's over and done with. We had some unique cost there. And most of the cost for the launches that we pulled ahead hit the fourth quarter. Obviously, there's always ongoing launch cost, but we don't expect it to be as big an issue going forward as it was in the fourth quarter.

Okay. And then as a follow-up. Power Technologies, the incrementals there still seem to be lagging. Can you just briefly recap what the headwinds have been in that business? What actions are you taking, and how long do you think it will take before they pay off?

As we said before, some of the -- just had some onetime items that have come up, had a little bit of warranty and some other items that have hit us. But we expect that to bounce back in the first quarter. As I said, we should be back up to more normal margins in the -- starting in the first quarter of 2012.

Next question comes from Patrick Archambault and Goldman Sachs.

A couple of quick ones. I mean, just on Brazil, it sounds like based on your commentary and some of the other OEs as well, January was pretty much shut down. And I noticed that you still have it as being up year-on-year in terms of production, or at least South America up year-on-year. Can you tell us just a little bit more about that? Is it -- are the inventory situations very tight? Are there tangible orders beyond that shut down that make you confident that you can have that much of a recovery in the back half? Maybe just a little bit more on that.

Patrick, it's Mark Wallace. I'll take a shot at the question. Number one, we expected inventory build, which was happening in November and December. And pretty much with South America in the past, we did see a fairly significant shutdown in the month of January. However, I think it's too early to tell at this stage if we'll have to adjust any of our volumes out into the back half of the year. Because typically once the market comes back, it comes back very strong, as we saw last year. And in many cases, we were running well above our market demand. So at this stage, we're cautiously optimistic in the back half in Brazil, but we do have a fairly significant downturn in Q1 already planned.

Okay, that's helpful. And one other one, if I can. Just -- there was a question earlier about the walk sequentially from Q4 to Q1. Can you elaborate a little bit on what the trajectory of -- the pricing initiatives and some of the restructuring in the supply chain simplification initiatives, how those are progressing? Did you kind of go into Q1 essentially with those things fully ramped or is there still an ability to see benefits from those on a sequential basis as well?

Patrick, again it's Mark. Speaking commercial vehicle, we still -- we definitely have some continued improvement we can make in the margin line, both with pricing -- as we mentioned before, we dealt with about half of our overall contracts, we still have some, obviously, some room there, as well as we're making improvement in our materials reduction activity in 2012. And lastly, we do have the new products that are launching in 2012 and 2013 as well to keep driving our margin improvement.

Our next question comes from Colin Langan and UBS.

Can you -- you mentioned your plan for a significant Q1 decline. Any quantification of that? It looks like it's down over 60% in January. Is that already starting to improve into February or is that going to pretty much hold for the rest of the quarter?

I'm sorry, Colin. This is Jim. I'm not sure -- when you say 60% decline, I'm not sure what you're talking about, sorry.

About -- I think there's data out there saying that some of the heavy truck market in Brazil year-over-year is down about -- over 60% for heavy and medium in January, given the shut down? I mean, is that already starting to improve or...

Again, to answer the question, clearly, there's a significant amount of inventory in Brazil at this stage. We had planned -- obviously, not 60% for the full quarter, more around the 10% to 15% decline over the quarter period at this stage. And at this stage, we don't see anything that would say we need to make any significant adjustment there relative to our outlook full year.

Is that 10% to 15% was what you were thinking?

Yes.

And then in terms of the commodities, you mentioned that it would be favorable in 2012. I mean, how is that? Is that just because you're still catching up from some commodity -- how do you have favorable commodities?

That's correct. We're seeing commodities on average for 2012 will be modestly higher than 2011 due to the increase at the back half of the year. That's now going to be a full year impact in 2012, particularly as it hits us in SBQ. But we do have some catch-up on pricing. As you know, some of our pricing agreements are lagged. As a result of that, even though we did have positive net performance on material last year, we'll have better performance this year, as long as the commodities continue to hold stable, which they appear to be doing, as we catch up on that pricing.

Okay. And just one last one. I mean, Jim, any color as to why the timing of stepping down now?

Yes, this is Roger, Colin. I can answer that. Let me just start -- because I expected this question actually earlier than this, but let me just start with the statement that there are no concerns absolutely from a financial perspective, not at all. This is something that Jim and I have been talking about for a while. And with the availability of Bill Quigley, who is pretty well known in the industry and knows these industry segments very well, it was a good time for us to be solidifying our team for the long-term stability that we've been trying to put into place for some time now. So again, Jim and I have been in discussions about this, and Jim will be with us through about a 10-week transition period. We expect that to be smooth and seamless. And a number of the finance folks that Jim has been able to bring into the organization and the team that he's been able to build are really experienced and actually have some experience with Bill from their previous lives. So I expect this transition to be very smooth and seamless, and this is a good time for us to do it and a great time for Jim to be focusing on the rest of his activities that he wants to get into for the rest of his career. So for us, we think it's a good time.

Next question comes from Brian Sponheimer with Gabelli.

Just wanted to talk about the commercial vehicle supply chain right now, obviously, a highly publicized issue on some brake valves. What are you seeing as far as your customer build orders or the customer build levels? And have you had to slow your own production accordingly?

Yes, Brian, Mark Wallace. Yes, there's has been no -- from our perspective, no impact to Dana. Our customer -- actually volumes, if you looked in January, were quite strong, probably at a much higher pace than we've got forecasted full year because I think there's a lot of catch-up that's still in the market coming from people like PACCAR, Freightliner, et cetera continue to make up for some lost ground. But at this stage, we've had no impact relative to any supply disruptions in the network.

Next question is from Tim Denoyer and Wolfe Trahan.

I had a couple of follow-up questions on the net new business, I guess, Slide 6. Can you give us a sense of how that breaks down by segment? I mean, it seems like it's pretty broad across the segments. Are there any 1 or 2 segments where from a revenue standpoint -- I mean, we see the products laid out on the slide, that you're seeing significantly more of the net new business than others? And can you give a sense of what margins -- the conquest wins in particular and I guess the new wins as well, how those margins generally compare to existing margins?

I would say overall there's nothing unique about the awards in terms -- as it spreads across our businesses so nothing unique there. In terms of margins, we, as we said before, set a fairly high hurdle for us to win new business in terms of profitability, obviously, beating our cost of capital, in some cases, even better than that. So the business that we've been able to win over the last couple of years, and this year is no exception, are much, much stronger margins than the business that we've had historically. A lot of that's due to the improvements we have in the business, some new technologies that we brought out, but it is substantially better margin business than we've had in some of the business that's running off. And we've purposely targeted businesses where we think we can make higher margins. And the businesses where we don't see an opportunity to maintain good margins, we've let those dry up.

Great. And then, Jim, just one quick one on the fourth quarter margin. It seemed like the gross margin was a little bit below what I expected and SG&A was also a little bit less. I guess my question is sort of what's driving SG&A down? Is that sustainable? And can you give us any sense of what R&D was in 2011 and how that -- do you expect that going forward?

The R&D was about 2% overall for the year. We expect that to grow modestly in the upcoming years, nothing dramatic, with a 24% growth in sales. That represented a fairly significant increase in the absolute engineering expense. Now that's 2 years in a row where we've significantly increased our engineering expense. Expect that to grow again in 2012, probably faster than our sales as we continue to invest in new technologies and expanding our business. So I'd expect our R&D expenses to continue to grow and actually continue to grow as a percentage of revenue. In terms of the margins, I think fourth quarter traditionally is a little bit lower for us in gross margins. There are some year-end costs that we end up accruing for vacation and things like that. So I think that's almost always the case. I would say that our SG&A cost, on an absolute basis, have continued to be managed extremely well. We look at opportunities to cut those costs as much as we can without hurting our business and hurting our operations. I'd expect the SG&A cost to continue to decline over the next few years as a percentage of revenue as we continue to manage that very aggressively and more efficiently manage our business.

Tim, this is Roger. Jim did a great job in explaining that. I just wanted to mention that he is absolutely correct in terms of our focus on the engineering investment that we're making into the company. At about the 2% level now, we know there's a need for us, as we move forward, to increase that. And we're doing that simultaneously with looking at our business processes around the world to become more efficient at what we do in order to free up money to make that investment in engineering. So the SA&O [ph] reduction that you're seeing is a result of some of the work that we did last year in the business unit structures and opportunities that we found to reduce those SG&A expenses. And our focus is to make sure we continue doing that so that we can increase our investment in the engineering side of the business.

And it seems like the SG&A reduction is more than offsetting any increase in R&D at this point. Is that fair to say?

Yes, it is at this point. And -- but we are not cutting anything critical to the business for sure. We're bolstering the areas that need to be bolstered, and we're really focusing on engineering. It's also an important point that as we spend and increase this spending on engineering, we're doing it in a very focused way to make sure it's accomplishing the strategies that we've got laid out there and focused on products that meet the financial hurdles that we have in the organization.

If I could just throw one more in, just a question on your outlook on the China truck market. If you can give us any color on inventory levels and order trends in China truck at this point. I was interested to see that you're expecting some pretty good growth there.

Overall, we expect the market to be up on a year-on-year basis. It's a bit hard to call this early in the year, but we don't see anything unique that would stand in the way. We don't see any significant inventory issues that would be a problem for us.

Next question comes from Joseph Spak and RBC Capital Markets.

Just -- if we could focus on the free cash flow. And I realize you put this out in Detroit, but are there any other -- besides the pension contribution, any other unique items we should thinking about for 2012? Because I realize CapEx is a little higher and -- but earnings should be meaningfully higher as well. And I think you said the working capital, you should be a little bit below 2011. So I'm just wondering, is there anything else we should be thinking about?

Yes, the only other thing -- 2 other items that I'll just point out. One, is interest -- cash interest will be up a little bit year-on-year because we only had one payment last year on the bonds. That will be up modestly. Taxes are going to be up significantly on a year-over-year basis because of significantly better performance globally. We've eliminated a couple of our NOLs, our valuation allowances in a few countries, recognizing the fact that we're now back into a positive balance. So we will be increasing our tax payments globally except the United States, where we still have a significant NOL. So taxes are up. As you mentioned, we expect working capital to be -- the use of working capital will be less than 2011, but there still will be some incremental use of working capital.

Okay. And then on the equity income line, if I recall correctly, DDAC was upsized basically in the back half of the year. So if I just look at first half versus second half, they're roughly equal. So I guess what -- is there any seasonality in that or what happened, I guess, with sort of some of the other investments in the back half of the year?

As you may recall, there was also a sale of our Getrag interest, the interest in the JV that we had with Getrag. So offsetting the impact of adding DDAC was the impact of deleting the Getrag equity income.

Okay, great. And then you just -- I know you -- real quick, you mentioned watching currency. Are you using -- are you assuming a 130 rate in your forecast?

Around that, yes.

Next question comes from John Lovallo with Merrill Lynch.

A couple of quick questions. In terms of your European commercial vehicle forecast, it appears to me that they're perhaps just a little bit more optimistic than some of the OEMs. And I was just wondering if that's driven by the fact that -- I think around 20% of your volumes for export markets?

Overall, obviously, we have commercial vehicle down this year over last year. We do have export business that does supplement us in the European region. And thus far, in Q1, we are seeing a bit of favorability so far in the volumes. We're still obviously a bit cautious on Q2 with CV build in Europe. And so far, things seem to be holding up okay.

Okay, great. if I could sneak in one more here. Understanding that the DDAC, the increased investment there is going to offset -- be offset in part by Getrag. I mean, is there any difference or any shift in the amount of cash that will be coming out of these JVs? I mean, is DDAC basically going to be -- I guess, my question is, is there going to be a cash dividend or is it really just an income statement item?

We were not seeing any cash dividends out of the Getrag JV, so no significant decline there. We expect in the future, although it hasn't happened yet, that there will be a flow of dividends out of DDAC. We are planning to run that as a standalone business, along with our partner DFL, to generate good profits and to return money back to shareholders. Nothing yet, but it will happen in the future.

Next question comes from Peter Nesvold and Jefferies.

Just a quick follow-up, a housekeeping one. So you talk about taxes going up in '12. What should we anticipate in terms of a GAAP tax rate?

We expect it to be about 29%.

29%. Okay, and that's obviously reflected in the guide that you have out there right now?

That's correct.

Okay. With that, I'd like to conclude today's call. Thank you, everyone, for joining us.

Ladies and gentlemen, this does conclude today's Dana Holding Corporation's Fourth Quarter and Year End 2011 Webcast and Conference Call. You may now disconnect.