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 that our meeting today, both the speakers' remarks and Q&A session will be recorded for replay purposes. There will be a question-and-answer period after the speaker's remarks and we will take questions from telephone only. At this time, I would like to begin the presentation by turning the call over to Dana's Senior 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 website. Today's call is being recorded, and the supporting materials are the property of Dana, Inc. They may not be recorded, copied or rebroadcast without our written consent. We will end our call with a Q&A session. 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'd like to turn the call over to Jim.

Thank you, Craig, and good morning, everyone. To start things off, I'd like to briefly reflect on last year. Dana had a very strong 2016 largely as a 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 on 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 respectfully (sic) [respectively]. And 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…

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 improvement 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 U.S. deferred tax assets. This valuation allowance was put in place a number of years ago as at the time our U.S. 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 U.S. 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 non-recurring items such as the valuation allowance release was $0.59 per share for the fourth quarter, an…

Thank you. At this time, we'd like to begin the Q&A session. Your first question comes from the line of Joe Spak with RBC Capital Markets. Please go ahead.

Good morning, everyone.

Good morning, Joe.

I know you've provided a little bit of color here and there through your prepared 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've had really good decremental margin performance and same in Commercial Vehicle. And now it seems like some of those markets might be at least 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 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's 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 bit dilutive this year?

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, because it would seem like some of that would be timing related to the launches?

Yeah. And, Joe, while we haven't given a specific guide for working capital for 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 in receivables than 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 the year, but broadly, we would expect that use to continue over the next couple years.

Okay. And then one quick housekeeping, I noticed equity income was up in the fourth quarter versus rest of the year, it was in 2015 as well. Does that have 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 DDAC 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.

Okay. Thanks a lot. Congrats.

Your next question comes from the line of Justin Long with Stephens. Please go ahead.

Thanks, and good morning.

Good morning.

Good morning.

I just wanted to start by asking about the Off-Highway segment incremental margins. You've always talked about this segment having strong incrementals, but you referenced it earlier, the guidance assumes 10% incremental margins for Brevini. So 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've historically discussed?

Yeah. 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'll be recognizing. So we laid out in that acquisition that we'll 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've not given a specific number, but just due to all of the work that we've done on both the variable and the fixed cost structure, we're really excited about what will happen when that market starts to recover.

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

Yeah. Thanks for the question. This is Jim. We don't have any better crystal ball than anybody else. I think you summarized the situation extremely well. The only thing we can say is those of us that have experience down in South America and particularly in Brazil is it's not very much a rail system type of geography. It's largely truck. Our business is largely commercial vehicle in Brazil. Sooner or later the wheels figuratively are going to fall off. So there's a lot of basically carnage in reuse of parts et cetera, et cetera. So, inevitably it's got to come back, that's what it is saying (30:15), with probably at least -maybe not anybody on the call, but certainly in my experience over the course of my career I've not seen as long as extended kind of economic downturn as it's been down there. So I'm optimistic from that standpoint. As we said, we're not projecting that into our numbers so much, but we are saying ultimately it's got to come back. The population is too high and there's too much need for new trucks down there.

Okay, great. I'll leave it at that. I appreciate the time today.

Thanks, Justin.

Your next question comes from the line of Brian Johnson with Barclays. Please go ahead.

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

Sure. Yeah, these are positions put in place, Brian, intended to protect essentially investments we've made in foreign subs in the form of intercompany loans. So 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 the election here in the U.S., we saw some larger settlements that had to be posted when (31:42) expected. So, 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 towards the end of the year.

Okay. Is that $5 million predictable or is that if the peso gyrates around, it could be a higher or lower number?

Both are accurate. So we've projected the $5 million based on what we see rates, what we believe they'll be through the remainder of this year. But your point is valid to the extent that if 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 go into 2018, 2019, how that ramps down, are these multiyear restructuring programs or just 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 a plant closure here in the U.S. 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 towards the end of this year, the cash investment will come in 2017. And then also, we will have some Brevini restructuring that's included in that number as well too. As we look forward, the only thing that we're 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'll be discretionary.

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

Hey. Brian. Good morning, it's 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're in a very good situation. Perhaps it's unaware, but approximately 30% of our major facilities, our facilities are actually located in the United States. And we're actually adding quite a few jobs, you're aware of, for example, the plant that we'll be adding here in Toledo at about 300 to 350 jobs. We've made significant or in the process of making significant investment in Auburn Hills, Michigan; Louisville, Columbia, Missouri; Fort Wayne, you name it. And because we have essentially a capability, if it's in Mexico or America, to do the same thing, in the event that the border tax legislation moves in a direction that – making the right business case, we very much have the ability from an operating standpoint to do so.

And in terms of just 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 customers 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 implying into that, how much excess capacity do you have in America to start with? What's the timeframe to do it? Is it to do on an existing program? Is it to do it to roll it into the next program that you're going to be deploying capital for anyway, so it's easier to drop it on the concrete in the states at that time. I could go on and on, everybody on this call could go on and on on that, so it's really too premature to answer that question.

Okay. Thank you.

Thanks, Brian.

Your next question comes from the line of Ryan Brinkman with JPMorgan. Please go ahead.

[technical difficulty] (35:48-36:07).

Ryan, we can't hear you. Ryan?

Hi, good morning, this is Samik on behalf of Ryan. Sorry about that. I was on mute. So I wanted to firstly ask on the Brevini business and 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 is the sort of revenue visibility you have on that business?

Yeah. 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 we 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've not called that out discretely. We certainly have opportunities that we 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 markets. So, while we're looking at both of those, we've not called that out discretely in the backlog. But it certainly does create some opportunity for us to grow the backlog in the next couple of years.

Got it. And secondly, relative to the four segments, are you able to share what your capacity utilization looks like across these four business units in the sense to give us sort of a view or a guide point about what the incremental margins might look like as the markets sort of recover, the end markets there recover?

Yeah. So broadly speaking, the Light Vehicle Driveline and the Power Technologies are operating closer to a high level of capacity just based on market demand for light vehicle, just given where pickups and SUVs and then larger vehicles within that segment are running. So those are both at a higher capacity. It's no secret that both our Off-Highway and our Commercial Vehicle Driveline business are essentially a trough, Off-Highway globally it's very low. Commercial Vehicle for us is largely in North America 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've not quantified either of those, but we really are excited about what happens when North American Class A 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 might be some definitional difference et cetera here, but 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 there due to certain factors?

Yeah, 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 that the rapid devaluation of the peso at the end of the fourth quarter drove the vast majority of those losses. And then as well I mentioned in the script that in the remarks in our presentation that essentially the working capital requirements were higher towards the end 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.

Got it, great. Thank you. Thanks for taking our questions.

Your next question comes from the line of Brian Sponheimer with Gabelli. Please go ahead.

Hi, good morning, gentlemen.

Hey, good morning, Brian.

I want to dig in a little bit into North American on-highway and just maybe what you're hearing from customers about expectations towards the back half of the year and on their own situation of 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 would just dimension in, I'd 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 can't 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 guess I would call it as, we met as well as many of the people on the call early on when I first came to Dana just over 18 months ago or whatever, and 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, but we wouldn't have some deal fever and do something silly. We would do it at the right price. We have 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 move forward with that. But again, this is a very comfortable area for me and we will not have deal fever for purposes of having deal fever.

Understood. And Jonathan, if I can sneak one in here. The $1.70 in earnings obviously inclusive of the valuation 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 reversal last year?

Sure. It would be about $1.90 or pretty close to it, if we still had the valuation allowance moving into 2017. So it's almost $0.20.

All right. Terrific. Thank you very much.

Yep.

Okay. Well, 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. And I hope it shows in our performance of certainly achieving full year guidance from where we started last year. But not only that, I mean, to me from the CEO's chair, it's important that you look at it 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 of years ago. It's night and day different, it has transformed into incredibly customer centric organization and it's really headed to really 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 one into perspective for just a half second here, when you think about it from a decremental standpoint and how that group has performed over the last year, and by the way, let's do a built-on, 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're going to 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.