Dana Holding (DAN) James K. Kamsickas on Q4 2015 Results - Earnings Call Transcript

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Dana Holding Corp. (NYSE:DAN)

Q4 2015 Earnings Call

February 18, 2016 10:00 am ET

Executives

Craig Barber - Director of Investor Relations

James K. Kamsickas - President, Chief Executive Officer & Director

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

Analysts

Ryan J. Brinkman - JPMorgan Securities LLC

Brian Colley - Stephens, Inc.

Patrick E. Nolan - Deutsche Bank Securities, Inc.

Brian C. Sponheimer - Gabelli & Company, Inc.

Brian A. Johnson - Barclays Capital, Inc.

Patrick Archambault - Goldman Sachs & Co.

Irina Hodakovsky - KeyBanc Capital Markets, Inc.

Operator

Good morning and welcome to Dana Holding Corporation's Fourth Quarter and Full-Year 2015 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 speakers' remarks, and we will take questions from the telephone only.

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

Craig Barber - Director of Investor Relations

Thanks, Brent, and thank you to everyone on the call for joining us today. 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 Holding Corporation. They may not be recorded, copied or rebroadcast without our consent. Today's call will include 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 is Jim Kamsickas, President and Chief Executive Officer; Rod Filcek, Senior Vice President and Interim Chief Financial Officer; and joining us for Q&A is George Constand, Vice President and Chief Technical Officer.

Now, I'd like to turn the call over to Jim.

James K. Kamsickas - President, Chief Executive Officer & Director

Thank you, Craig. Good morning, everyone, and thank you for joining the call. The results for 2015 were in line with the preliminary results we presented in January. We recorded sales of $6.06 billion as we battled strong currency headwinds last year.

Adjusting for currency effects, full-year sales would have been approximately $6.7 billion. We did see positive organic growth last year with three of our business units posting a combined 5% organic growth rate compared with 2014.

Net income was $159 million including some onetime items that Rod will discuss and diluted adjusted earnings per share of $1.74. Adjusted EBITDA was $652 million or 10.8% of sales. As you will see, performance in our Commercial Vehicle segment was really our only margin issue last year. We generated positive free cash flow of $146 million including the capital investments we've been making to support our new business backlog.

We concluded the execution of our $1.4 billion share repurchase program by returning $311 million to our shareholders in 2015. As we mentioned in January, the Dana Board of Directors authorized an additional $300 million in share repurchases through 2017.

We had several successful program launches last year and we continue to win new business with our three-year backlog up to 10% to $750 million. We're winning the new business by providing the right products and technology, and satisfying the customers. In fact, importantly, we ended last year with 15 customer awards.

Moving to page five, Dana is not only winning awards from our customers, but our technologies are continuing to help power award-winning vehicles and engines, including this year's Motor Trend Truck of the Year, the hot-selling Chevy Colorado. This pick-up features Dana front axles and rear axles, as well as our gaskets and heat shields.

The 2016 Chevy Camaro, Motor Trend's Car of the Year, includes Dana's oil coolers, as well as cylinder-head gaskets, valve stem seals and heat shields. The next-generation Honda Civic, which is 2016 North American Car of the Year, features Dana cam cover modules and engine coolers.

In addition to this, Dana products were also found on three additional finalists for the North American Car and Truck of the Year. Dana also has extensive expertise in alternative energy market and we're proud to be supplying the battery cooler, secondary gasket, valve stem seals and heat shields for the Green Car of the Year, the 2016 Chevy Volt.

In addition, to be featured on these popular vehicles, Dana's full range of power technologies can be found on five of the 10 Best Engines as recognized by Ward's Magazine. We're very honored that Dana Technologies are helping to support some of the most popular and award-winning vehicles in the marketplace. This success demonstrates our commitment to working with the customers to develop unique solutions that address key market drivers including durability, performance and fuel economy.

And speaking of performance and fuel economy, on slide six, I would like to talk for a moment about the growing All-Wheel Drive segment. In January, we announced our entry into this segment with our new AdvanTEK Disconnecting All-Wheel Drive system. We have received a lot of positive comments about this technology and several questions about what this means for Dana. First, let's start with the technology.

Consumers expect improved safety and traditional all-wheel drive provides that with better traction control, but at the cost of fuel economy. Turning four wheels is less efficient than turning only the front wheels. That is where our disconnecting all-wheel-drive system comes in. By rapidly connecting and disconnecting the rear wheels as required (5:46), fuel efficiency is greatly improved and more in line with front-wheel drive-only drive systems, but with the improved safety and traction of an all-wheel-drive system.

What does this mean for Dana? Currently, there are about 9 million all-wheel drive vehicles globally. This is an untapped market for Dana. All-wheel drive is the fastest-growing segment in Light Vehicle. The market is expected to grow 5% over the next three years, with North America expected to grow 6% and the China market expected to grow 12%. And Dana has been sourced on the largest global disconnecting All-Wheel-Drive program to-date. We still can't say too much about the program, but this will be incremental to our backlog and positions Dana for even further penetration in this growing commercial channel. We will update you as this project progresses as we commit resources and investment into this technology. And the AdvanTEK Disconnecting All-Wheel-Drive is just one of the technologies we have or currently developing to meet market needs and customer value drivers.

On slide seven, we look out over the next decade at the sustainability regulations landscape, not just in the light vehicle market, but for commercial and off-highway vehicles as well. These upcoming regulations align with Dana's core competencies: lightweighting, low friction, electronic controls and thermal management for electronics and battery systems, hydrogen fuel cells, and hydraulic hybrid systems. As we advance towards zero-emission vehicles, the Dana products shown here include Disconnecting All-Wheel-Drive for passenger cars, a similar technology called Dual Range Disconnect for commercial vehicles, our PACE Award-nominated electronic cooling products, hydromechanical transmissions, and several more to meet market needs and exceed the customers' expectations as we transition into a new era of mobility.

Slide eight shows the results of our efforts as our technology and innovative products drive new business growth. Over the next three years, we have incremental sales of $750 million coming online, a 10% increase over the prior period. This represents real new business wins, net of any losses that are added to our base. This chart shows the cadence of $750 million of new business flow by year, with 2016 being another big launch year for us and 2016 and 2017 seeing the higher run rates. Our backlog has a solid regional and customer balance and, while weighted more towards our Light Vehicle business, all business units have new sales in the backlog, including Commercial Vehicle. And we continue to win new business, as I mentioned earlier, that is not included here and while maintaining our financial discipline.

As we continue to win new business, this will require us to maintain or, in some cases, increase our investment. But we see that the organic growth opportunities offer the best returns and the surest path for profitable growth.

Moving to slide nine, we look ahead to 2016 for the end market expectations. We expect light vehicle to remain strong in North America. As you know, our product and customer mix is weighted more towards light trucks, and this segment has been strong for the last few years for our key customers and does not show signs of letting up this year.

Additionally, our Light Vehicle Driveline business should benefit from the launch later this year of the new Ford Super Duty line. We're expecting Class 8 production in North America to be down from the last year, but still a good year at 240,000 to 260,000 units in 2016, while medium truck builds should remain stable with last year as should off-highway equipment demand.

South America will continue to see economic uncertainty and currency headwinds while we expect demand for commercial vehicles in Brazil to remain at a low level. We will see new business coming on in Argentina for the Light Vehicle Driveline, offsetting some of the currency and market headwinds.

In Europe, we expect improved demand for light vehicles which will benefit our Power Technologies business where we're seeing flat demand for commercial vehicles and off-highway. Currency will continue to be a headwind this year with our exposure to the euro, rand and the pound.

In Asia-Pacific, we look for some modest volume growth in India, light commercial vehicles and in Thailand for light vehicles, while in China, we're expecting markets to be stable. Overall, we see market demand mostly flat this year, but some packets of strength making up for some weaker segments. And while currency will remain a headwind, we should see some volume benefit as we continue to roll on new business this year.

Turning to slide 10. This is another year of exciting and very important program launches for us. Some of these are replacement programs, some are new programs, but almost all of them have added content as we put our backlog into production. As you can see on this slide, these key launches represent good regional, customer and market balance.

While there isn't time to go through each of them, I would like to highlight a few. A very significant new program launching for us this year is the next-generation Ford Super Duty pickup truck, which not only includes our Spicer axles and driveshafts, but also incorporates our sealing and thermal management products. This is an example of a replacement program where we also won added content.

We also have a key launch with Nissan for their all-new Titan pickup truck, which features Spicer driveshafts and exhaust manifold shields. Additionally, our axles will be found on the new Nissan Navara pickup and Navara SUV. Jaguar Land Rover are launching several new platforms with our new technologies including a highly anticipated F-PACE, Jaguar's first ever SUV, which will features Spicer axles and driveshaft, and long fuel coolers.

Also for 2016, GM will introduce the new Chevy Colorado ZR2 pickup to its hot-selling Colorado and Canyon line of compact pickups. Outfitted with Dana axles, the ZR2 will fuse Colorado styling with off-road performance for a combination of fuel efficiency, horsepower and capability. Other notable launches for us in the segment include: the Toyota HiLux Pickup featuring Dana's driveshafts and rear differentials. We'll supply this global program in both South America and South Africa. And we have business ramping up in Commercial Vehicle with Daimler in India, and launches in Off-Highway including Terex teleboom handlers in North America, and also have further penetration with key Off-Highway customers in Europe and in Asia including CLAAS, SAME DEUTZ-FAHR and Sany.

One recent transaction I'd like to touch on is our acquisition of Magnum Gaskets brands. This is small, but important piece of our aftermarket strategy. As you know, the aftermarket is incorporated into each of our product groups and is about 12% of the overall sales for Dana. We are continuously pursuing new commercial channels to grow our aftermarket and the Magnum brand aligns especially well with our Power Technologies Group.

What is the Magnum brand? It is the third largest aftermarket sealing brand in the United States and Canada, with a very experienced management team, not only in terms of product, but also in business development of the aftermarket channel. This is a new commercial channel for Dana, and provides Dana access to over 150 new customers for sealing products. And this brand has a wide reach as it's aimed at older vehicles, what is called the Value Line and covers over 90% of the vehicles on the road in North America. Strategically, this acquisition supports our three main areas of focus.

First, it fills the product gap and establishes Dana in the Value Line segment for the broadest market reach. Second, it's geographic. While we have significant gasket aftermarket penetration in Europe, North America was underserved by Dana. This will fill that gap, and finally, is customer reach. Magnum will connect us to a new group of customers. The additional product offering will form the basis for eventually pulling other Dana products besides gaskets through the aftermarket commercial channels. We are pleased with the addition to the Dana family.

So, as we look forward on to page 12, I would like to highlight our three key go-forward priorities. First, we look to improve our competitive position and growth. Of course, two perfect example of Dana taking actions here are the acquisition of Magnum Gaskets and the relentless development of new technology as presented a few moments ago.

Second, we continue to drive waste elimination, therefore, cost out of our business. We have done so in the past, but we believe there is more opportunity. Along this, our Commercial Vehicle business faced several challenges last year, but has now stabilized and is incrementally improving every day. We successfully, though not without pain, completed our supply chain improvement project last year. And this year, we see benefits from them.

Our fourth quarter was undoubtedly a tough one for our CV group. We saw volume drop off rapidly and actually hurt margins as we were unable to take costs out as quickly as we would have liked. Margins were also negatively impacted as we made an adjustment to our warranty accrual to cover any future costs as we obsoleted the legacy product line, which is being replaced by our new AdvanTEK 40 line of commercial vehicle axles.

This warranty charge as well as a premium freight cost, which we saw in the first half last year, will not reoccur this year, and we will continue to focus on driving profitable growth. And finally, we will maintain our strong balance sheet as we continue to invest and grow the business. We will retain the flexibility to take full advantage of opportunities and return excess capital to shareholders as we've done for the past three years.

Now, I'll turn the call over to Rod to walk us through the financial results.

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

Thank you, Jim. Let's start on slide 14 with the review of our fourth quarter. As Jim mentioned, the results for 2015 were in line with the preliminary results we've presented in January. Fourth quarter sales of $1.4 billion were down $207 million from 2014. Weaker international currencies accounted for about half of the difference, with another $38 million resulting from the divestiture of our Venezuela operation.

Adjusted EBITDA for the quarter was $129 million, $49 million lower than 2014. Lower commercial vehicle sales was the primary driver, with some increased warranty costs also contributing. Free cash flow is $72 million and diluted adjusted EPS of $0.34 were down from 2014, principally due to lower adjusted EBITDA.

As was the case in 2014, this past year, we also had a few non-recurring items that are laid out on the right-hand side of the slide, which resulted in this year's net income being lower by $118 million. At the end of 2014, we undertook several actions, including the divestiture of our Venezuela operations, a pension settlement and debt refinancing. These totaled $141 million in pre-tax charges that year.

We also began some internal legal entity restructuring. As a result of this action, we released U.S. income tax valuation allowances which benefited net income by $179 million in 2014. In total, those items increased net income in 2014 by $41 million. In the fourth quarter of 2015, we recognized non-cash tax charges of $64 million to reflect the final valuation and completion of the internal legal entity restructuring action. This past quarter also included a tax charge of $15 million to establish valuation allowance on a portion of our deferred tax assets in Brazil, bringing the fourth quarter impact of tax items to a charge of $79 million.

Lastly, our fourth quarter 2015 results included an impairment charge of $39 million to write down our equity interest in a 50% owned China affiliate, DDAC, reflecting a decline in China's commercial vehicle sector in 2015 and a reduced level of expected growth. Adjusting net income in both years for the non-recurring items noted here would result in adjusted net income of $38 million in 2015 and $68 million in 2014, a comparison more reflective of the operational decrease in sales and adjusted EBITDA.

On slide 15, we focus on the key drivers of the sales and adjusted EBITDA change compared with the fourth quarter of 2014. As has been the case throughout 2015, currency effects have significantly impacted sales, lowering fourth quarter 2015 sales by $103 million.

Excluding currency and divestiture effects, fourth quarter sales were $6 million lower, driven by lower sales volume of about $100 million in our Commercial Vehicle segment, reflecting continued weakness in the Brazil market; lower North America Class 8 production levels; and lower sales with a major customer. Our Light Vehicle Driveline, Off-Highway and Power Technologies Groups, when combined, delivered 3% organic growth in the fourth quarter.

On the earnings front, currency and divestiture effects accounted for $24 million of the lower adjusted EBITDA. The remaining performance-related reduction of $25 million resulted from our Commercial Vehicle segment performance where adjusted EBITDA was down $36 million. In addition to the flow-through effects of currency and lower sales volume, we recognized $16 million of incremental warranty expense in this past year's fourth quarter. The adjustment to warranty accruals related primarily to addressing expected remaining costs attributed to a product that's no longer being sold. As such, as Jim mentioned, we don't expect further cost associated with this in 2016.

The fourth quarter performance of our Light Vehicle, Off-Highway, and Power Technologies businesses were in line with our expectations. Although margins were down slightly from 2014, in the case of Light Vehicle and Power Technologies, when adjusted for currency, 2015 margins are at or better than 2014 levels. The lower margin in Off-Highway is reflective of market weakness in the fourth quarter, but still at a pretty solid level for this business.

Let's move to our full-year 2015 results on slide 16. 2015 sales were about $6.1 billion, $557 million lower than last year. The decrease was entirely attributed to currency and the divestiture of our Venezuela operations. Adjusted EBITDA for 2015 was $652 million, down $94 million from the preceding year. Currency effects were the primary factor, reducing adjusted EBITDA by $93 million. From an operational performance standpoint, when adjusted for currency, our Light-Vehicle, Off-Highway and Power Technologies businesses generated higher segment EBITDA in 2015. The performance of these businesses, however, was largely offset by lower earnings in the Commercial Vehicle Group.

On the right hand side of the slide, we've charted the full-year impact of non-recurring tax items and asset impairments. In the third quarter of 2015, we recognized a $36 million pre-tax, $24 million after-tax impairment charge on certain assets related to a distressed supplier in Brazil. We recognized tax benefit in the first nine months of 2015 in connection with the internal legal entity restructuring action previously mentioned.

When combined with the fourth quarter effect of non-recurring tax items, the full-year impact on this legal entity and tax impact was $5 million. The non-recurring after-tax asset impairment expense of $27 million is comprised of the $39 million fourth quarter equity investment impairment, net of a tax benefit of $12 million relating to the $36 million pre-tax impairment charge.

Excluding these non-recurring items, net income in both years, adjusted 2015 net income of $227 million compares with $278 million in 2014. The reduced net income, as adjusted, of $51 million was driven primarily by lower adjusted EBITDA, with some offset for lower amortization expense and a year-over-year benefit from discontinued operations.

Diluted adjusted EPS in 2015 was $1.74 compared with $1.99 in 2014, reflecting reduced earnings, partially offset by a lower share count. Capital spend of $260 million in 2015 was $26 million higher than a year ago to support the increased level of program launches in 2015. Free cash flow for the year came in at $146 million, down from 2014, primarily due to the lower operating earnings.

Let's go to slide 17 now for a closer look at the sales and adjusted EBITDA comparisons. Focusing first on sales, as I mentioned earlier, currency effects were a significant headwind, reducing 2015 sales by $516 million, with the divestiture of Venezuela in early 2015 lowering sales by $107 million.

In terms of volume and mix, our Light Vehicle, Off-Highway and Power Technologies businesses had a collective increase in sales of $250 million, representing strong organic growth of 5%. Stronger light vehicle demand levels in North America, Europe and Asia-Pacific, along with new customer programs coming on line in 2015, were the primary factors for this increase.

Partially offsetting the higher sales volume and mix in those three businesses was lower sales in our Commercial Vehicle Group, where sales were impacted by significantly weaker truck demand in Brazil. The currency impact on adjusted EBITDA was $93 million, with a portion of this coming from currency transaction losses, as well as from translation impact.

The volume-related adjusted EBITDA reduction in CV more than offset the pickup from our other businesses as lower demand levels in Brazil was a significant factor. While we've taken necessary steps to reduce costs where possible in Brazil, at current demand levels, there's an element of under-absorbed fixed cost that remains.

If we go now to slide 18, we'll look at year-over-year business unit performance. Our Light Vehicle Driveline unit had a strong year. Sales of $2.5 billion in 2015 was about the same as the preceding year despite currency and divestiture effects lowering sales by about $200 million. Volume and mix increased sales in 2015 by $200 million, an increase of 8%, reflecting the benefits of stronger light product market demand in North America, Europe and Asia-Pacific, and the addition of new customer programs in this group.

The benefit from higher sales volumes more than offset the effects of currency, as segment EBITDA of $262 million was up $12 million from 2014. Margins improved for the third consecutive year, coming in at 10.6%, 60 basis points higher than 2014.

As already noted, the convergence of a number of headwinds made 2015 a challenging year for our Commercial Vehicle business. Weaker international currencies reduced 2015 sales by $144 million, with the Brazilian reais accounting for nearly half of the impact. Weaker truck demand in Brazil reduced sales by another $166 million. And while we benefited from stronger medium truck and heavy truck production in North America, this was offset by lower sales with a major customer.

Segment EBITDA for 2015 was $100 million for a margin of 6.5%. The effects of currency and weaker Brazilian market demand had a significant impact on our business, accounting for over 70% of the decrease in segment EBITDA.

On the performance line, as you know, we completed our supplier transition initiative in the first half of 2015, but in the process, we incurred premium costs of about $14 million. And as already mentioned, in this past year's fourth quarter, warranty accrual adjustments resulted in incremental charges of $16 million, primarily to address expected costs associated with the legacy product no longer being sold. Partially offsetting these items were pricing actions of $25 million. As we look ahead to 2016, the supplier transition and warranty costs that drove down performance last year are not expected to recur.

Turning to slide 19, let's look at the Off-Highway and Power Technology segments. Sales in the Off-Highway segment were just over $1 billion, down $191 million from 2014. The weaker euro drove the currency-related reduction in sales of $165 million. Lower end user demand globally in our two largest markets, agriculture and construction equipment, was partially offset by new customer programs.

On the earnings front, this segment continued to perform pretty well in a weak demand environment. The reduced segment EBITDA attributed to currency effects and lower sales volumes was partially offset by improved cost performance, principally from material cost savings. The strong cost performance helped this business achieve year-over-year margin improvement of 40 basis points, coming in at 14.1% for 2015.

Power Technologies' broad customer base and technology-oriented solutions allowed them to benefit from stronger light vehicle market demand in most regions, with sales for 2015 of $1 billion. Stronger market demand wasn't enough to offset the $112 million impact of weaker currencies, primarily the euro and Canadian dollar. As a result, sales were down $47 million compared to 2014.

Segment EBITDA of $149 million in 2015 was lower by $5 million due entirely to currency effects. Good conversion on the higher sales volume and favorable cost performance resulted in margin of 14.8% for the full year 2015, an improvement of 20 basis points despite lower sales.

Now, let's move to slide 20 to look at cash and liquidity. Free cash flow of $146 million in 2015 was lower than the prior year, largely due to lower adjusted EBITDA and higher investment in new programs to support future growth. The comparison to 2014 is also impacted by $40 million of interest received in 2014 in connection with the sale of a note receivable that year, which is masking the lower interest expense achieved through our debt refinancing in 2014.

Capital spending is a little lower than our original estimate for 2015, due mostly to customer program timing, but still up from 2014, reflecting the higher level of program launch activity. Cash used for working capital was a little higher in 2015, in part to support a distressed supplier in Brazil.

The other elements of free cash flow were generally in line with our original expectations for 2015. At the end of 2015, cash and marketable securities were $953 million, while outstanding debt was just under $1.6 billion, resulting in a net debt position of $643 million.

Total liquidity, including the availability under our credit facility, was just over $1.2 billion. We continue to focus on capital structure actions in 2015 and into 2016 as you can see on slide 21. Last year we returned $311 million of cash to shareholders in the form of share repurchases, completing the remaining portion of our $1.4 billion authorization.

From inception of that authorization in 2012, we've repurchased 67 million common shares or common share equivalents, a reduction of about 31% of shares outstanding at program inception. In January of this year, our board authorized a $300 million program expansion executable through 2017. We began executing under the program in January at a cadence contemplating utilization of the expanded program amount evenly through 2017. We expect to continuously evaluate the pace of execution in light of other available capital deployment opportunities. The funding status of our U.S. pension plans at December 31, 2015, remains strong at 88%, relatively comparable with the prior year, reflecting the significant immunizing and fixed income investment component of plan assets. As was the case in 2015, we're not contemplating any cash contributions to the U.S. plans in 2016.

Now let's move to our expectations for 2016, which are summarized on slide 22. Our 2016 sales, adjusted EBITDA, EPS, and cash flow guidance is unchanged from that provided in January during the North American International Auto Show. We expect sales to be slightly lower than 2015 with currency, again, being a significant headwind of $200 million to $300 million.

The exchange rate assumptions for our key currencies are indicated here. We expect volume, mix and performance to be a net addition to sales of about $100 million to $200 million, with our sales backlog providing increased sales of around $150 million and overall market demand being relatively flat with 2015. We're targeting adjusted EBITDA of $640 million to $670 million in 2016 and expect full-year margins to get back to 11% with some help from new business and non-recurrence of some one-time costs in 2015.

Looking at business unit performance, Light Vehicle Driveline sales are expected to be slightly higher than 2015 even with the currency headwind with margins being comparable to up slightly at around 11%. Commercial Vehicle sales are expected to be about $200 million lower this year due to currency effects, lower North America Class 8 market production and a full year of lower sales with a major customer.

As Jim mentioned in the market discussion, we're not expecting any rebound in Brazil in 2016, and that's an important market for our Commercial Vehicle unit. This segment incurred one-time supplier transition and warranty costs in 2015, which are not expected to impact 2016. As such, we expect 2016 margin to hold at around 7%. Our Off-Highway and Power Technologies sales and margins are expected to be relatively comparable, with currency being a bit of a headwind for both and new business or market demand providing a slight uplift in sales.

On the cash front, we're targeting free cash flow in the range of $160 million to $180 million in 2016. That includes higher capital spend of $280 million to $300 million for increased launch activity. We expect working capital to be a small contribution to free cash flow in 2016 as some of the investment in 2015 to support a Brazil supplier should be recovered in 2016.

That concludes our presentation this morning, and we'll now turn the call over to the operator for any questions. Thank you for listening in today.

Question-and-Answer Session

Operator

Thank you. At this time, we would like to begin the Q&A session. Your first question comes from the line of Ryan Brinkman with JPMorgan. Please go ahead.

Ryan J. Brinkman - JPMorgan Securities LLC

Hi. Great. Thanks for taking my question. First is just on cadence of repurchases. Given the decline in the market, auto stocks generally and your stock in particular, would you consider maybe front-end loading the execution of that authorization that extends out through 2017?

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

Ryan, this is Rod. As I mentioned, we're continuously looking at the cadence there. Quite frankly, we have other opportunities that we're looking at, some additional organic growth and some other opportunities. And so we're going to continue to evaluate the cadence as we look at those opportunities. So at this point, we're not prepared to depart from the cadence that I mentioned, which is basically even throughout the next couple of years, but subject to looking at the other opportunities.

Ryan J. Brinkman - JPMorgan Securities LLC

Okay, thanks. That's helpful. And then just lastly, any update on the situation at Paccar? I remember on the 3Q call, you'd mentioned wanting to regain some share there by year-end and Meritor at their Analyst Day in December talked about them gaining some additional production share. Then in Detroit you talked about a backlog that you shared there being updated for share losses. But I'm just curious if you're still seeing sort of opportunity to over time rebuild share at that particular customer.

James K. Kamsickas - President, Chief Executive Officer & Director

Good morning, Ryan. This is Jim. Thanks for the question. It's a little early for that. Fair question, but it's a little bit early to tell. I can only pass along to you that from a quality, delivery, overall execution, customer satisfaction, we're very comfortable with where we're at with all of our Commercial Vehicle customers, but things don't change overnight. So we'll see where that positions us, not just specific to your question about Paccar but across all the CV customers.

Ryan J. Brinkman - JPMorgan Securities LLC

Okay. Great to hear. Thanks a lot.

Operator

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

Brian Colley - Stephens, Inc.

Hi. Good morning, guys. This is actually Brian Colley on for Justin. So my first question was just on the competitive landscape in the Off-Highway business. How has that evolved during the past few years as we've kind of weathered the difficult environment that we're seeing today? And mainly, I'm just curious to know if you think Dana is better positioned competitively once this market starts to come off the bottom?

James K. Kamsickas - President, Chief Executive Officer & Director

Thank you, Brian, for the questions. This is Jim again. I guess I would characterize it like this. I think we are better positioned, but I don't want to come across as an advertisement. I think we're better positioned because frankly you know looking at the numbers that we're financially stable, and when markets get difficult, customers, one of the first things they do is when they're placing their bets and thinking about where they're going to put the next piece of business, they want to make sure they're going to put it – somebody that's going to be here, comment one.

Comment two, they want to make sure they're dealing with a supplier that's still continuing to invest in technology, and I'm not going to go back to January or some other prior presentation talking about all our technology, but we provide real technology in that market as well as our other markets. So l feel very bullish about our opportunity continuing to take share. Unfortunately, with the market continuing to decrease, you just don't see it in the top line today, but I certainly feel good about tomorrow.

Brian Colley - Stephens, Inc.

Thanks. Thanks for the color there. And secondly, I wanted to ask about the cost structure of the business. A lot has changed since the prior cycle. So I was wondering if you could talk about how the cost structure breaks out between fixed and variable cost today and how that split compares to what it was maybe in the prior cycle.

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

Brian, this is Rod. I wouldn't say there's any significant shift in the cost structure. We're continuously looking at opportunities and ways, and I think we still have some opportunities to continue to improve on the cost front. Those are opportunities we're certainly looking at pursuing. But in terms of kind of the mix between variable and fixed, I don't think that's changed significantly.

Brian Colley - Stephens, Inc.

All right. Thanks for your time.

James K. Kamsickas - President, Chief Executive Officer & Director

Thank you.

Operator

Your next question comes from the line of Patrick Nolan with Deutsche Bank. Please go ahead.

Patrick E. Nolan - Deutsche Bank Securities, Inc.

Good morning, everyone.

James K. Kamsickas - President, Chief Executive Officer & Director

Hey, Patrick.

Patrick E. Nolan - Deutsche Bank Securities, Inc.

Two questions. On the cost savings side, the $25 million that you're looking to spend this year, how are you thinking about that in terms of do you see additional opportunities here to take more cost out of this business as some of your business is potentially peaking and going to a volume downturn? Is that something you'd take up those restructuring actions this year?

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

Yeah, Patrick, this is Rod. I was assuming you were talking about the $25 million of cash spend on restructuring. A portion of that, probably a little less than half of it, is for actions that we've already taken, and there's still some additional cash to be incurred. The remaining portion, quite frankly, we're still finalizing exactly what the plans will be for that.

As I just mentioned, we're continuously looking at some opportunities to further improve the cost position and cost structure. And we just haven't finalized all those plans yet to be definitive about how the entire amount of that $25 million is going to be spent at this point.

Patrick E. Nolan - Deutsche Bank Securities, Inc.

Got it. And if I could just turn to the Commercial Vehicle business. Just simplistically, it looks like that you're implying a bit of a pickup in the revenue run rate versus what we saw in Q4. Is that just seasonality or are you assuming any improvement in underlying trends?

And within that, the performance has been pretty positive on the revenue side for that business over the past couple years. Do you expect that to turn negative as the industry goes into a downturn over the next couple years?

James K. Kamsickas - President, Chief Executive Officer & Director

Let me take at least the second of those first. The downturn, to reiterate, the thing about Commercial Vehicle is last year you're talking about record highs and all that type of thing. So to be in the $240 million to the $260 million range in Class 8 this year, we see that as really more of a normal situation. So to answer (41:32) that's where we're at. As it relates to Q4 to Q1, I think, Rod, I think it's safe to say that it's relatively stable.

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

Yes. I think that is certainly seasonality, Patrick. We still see this, I'll call it, seasonally adjusted run rate being in the $240 million to the $260 million range that we're forecasting for 2016.

Brian Colley - Stephens, Inc.

Okay. Thanks very much. I'll just get back in the queue.

James K. Kamsickas - President, Chief Executive Officer & Director

Thank you.

Operator

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

Brian C. Sponheimer - Gabelli & Company, Inc.

Hi. Good morning, guys.

James K. Kamsickas - President, Chief Executive Officer & Director

Good morning, Brian.

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

Good morning, Brian.

Brian C. Sponheimer - Gabelli & Company, Inc.

Jim, this is your second call now. You've been on since August. You made the Magnum acquisition, and I guess just a longer term, as you've had the time to reflect on last six months, what do you think are the best opportunities to really drive value in this business as you kind of look at some choppy markets over the next couple of years?

James K. Kamsickas - President, Chief Executive Officer & Director

Good question. All good questions. Thank you, Brian. First, I'm a believer organic growth is usually the best. I'm almost dating myself three decades in the business and usually that's where it come back to if you execute appropriately. And so that's certainly going to be our focus. I'm very bullish on what we can continue to do. You saw the growth numbers in this presentation as well as in January. So I feel very strongly there.

In terms of allocation other than that, I think it all depends, right? And not to be kind of non-direct on that question. It all depends on the opportunity that's in front of you and from an organic standpoint versus we just touched on potentially some restructuring opportunities to all the other levers that you can pull on the business.

Only thing I can say, and I wish I could be more direct, because it all depends on what's coming at you, we won't do – if it's relative to inorganic, we won't do a deal just for sake of doing a deal. The Magnum situation was absolutely right down the fairway, a no-brainer for where we should be focusing our capital and attention. I think everybody knows enough about the aftermarket business to recognize the importance of that and putting talents to our portfolio because we had an imbalance essentially Europe to North America.

So I don't think I'm answering your question directly. I can only tell you with me after the six months to put in perspective, we'll put a balanced view to all those decisions and make the right ones for our shareholders.

Brian C. Sponheimer - Gabelli & Company, Inc.

Thank you. And you lead to a good follow-up. Were discussions with Magnum in place prior to your arrival? And I guess the second part of that is how many other potential fairways exist right now for you guys to explore?

James K. Kamsickas - President, Chief Executive Officer & Director

Thank you again for the question. I would say Magnum was talked about and there was some discussion around it, but no different than any of us doing our jobs. We went into pretty deep assessment with the team here, looked at the various opportunities, inorganic, organic, and other. And that one, it was just obvious and let's get it done. So it was about execute and execute quickly. I mean, every day is a day lost if it's a real good opportunity. So the team did a fantastic job getting that over the goal line. I challenged them to get it done before January, to close in January and I didn't think they had a chance, but they did it. So congratulations to the Dana team out there.

Further to your question about more opportunities down the fairway, I think most CEOs in this segment, probably all segments, would say they've got 1,500 to 2,000 desk at any given time. I think that's not any different for me. But I can't say just yet if any of them are going to make the fairway or they're off in the rough because everybody comes in with different aspirations of what they may want to sell a company for and they're (45:28) just a waste of time. I'm really much more focused at this time. I'm much more focused on launch execution. All this new business that's coming at us including, I believe anyway it's our largest program on the heavy-duty truck that's where our focus is. But we're not going to just walk past opportunities. So, I can't say that there's something right in my sights right now, but we're always working it.

Brian C. Sponheimer - Gabelli & Company, Inc.

Thank you very much.

Operator

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

Brian A. Johnson - Barclays Capital, Inc.

Yes. Good morning. Two questions. One, drill down on CV kind of walk, and then second is more of a strategic question on Light Vehicle. On the Commercial Vehicle side, we certainly understand those non-repeat of warranty and some of the premium freight. But could you sort of give us as you do in your annual walk the kind of currency volume mix performance walk from 2015 to 2016 in Commercial Vehicle on the EBITDA side?

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

You were a little – I'm not sure I heard the entire question, Brian. But I think your question was about kind of walking the volume from 2015 and 2016.

Brian A. Johnson - Barclays Capital, Inc.

Yeah. The pricing and the currency volume mix and performance of 2016 over 2015.

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

Yeah. And certainly as we walk the volume from 2015 to 2016 in CV, the Class 8 market, North America is going to be down. That's going to take volume down a little bit. Then we're going to have a full year of run rate on the lower sales with our major customer in that group. So, that's really what's driving the lower sales in CV from 2015 to 2016. It's really the two factors, I would say, from a volume perspective.

Brian A. Johnson - Barclays Capital, Inc.

And on the EBITDA walk side?

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

I'm sorry?

Brian A. Johnson - Barclays Capital, Inc.

The EBITDA walk, how much is volume mix, how much is currency?

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

Oh, the EBITDA walk, the EBITDA reduction again, the currency, you can calculate the currency, about $5 million or so and most of the other impact is – aside from the performance pickup of the onetime cost is going to be volume-related.

Brian A. Johnson - Barclays Capital, Inc.

Okay. So performance really comes from the non-repeat. Second, on the Light Vehicle side, both in Power Tech and in Driveline, what benefits are you seeing, if any, yet from the shift from cars to light trucks in the showroom? And then in terms of quoting activity and maybe new business, some of the capacity expansion in light truck, that companies like Fiat, Chrysler, and Ford have been hinting at?

James K. Kamsickas - President, Chief Executive Officer & Director

Yeah. I'll take this one. Thank you, Brian. Just real quick, we're not – on the second question, not really prepared to – and I don't think you're asking me to, to quote on the rumors that we're all hearing out there. I would only tell you that Dana certainly is in play. It's our sweet spot for that for potential incremental volumes; on some of those programs we're in play and potential new programs we're in play. So I feel good about our chances given our product portfolio. Brian, what was the first part of that question, just to make sure I didn't miss it?

Brian A. Johnson - Barclays Capital, Inc.

Are you seeing it in current production volumes in terms of take rates on light trucks boosting either Power Tech or Driveline?

James K. Kamsickas - President, Chief Executive Officer & Director

I think it's in line basically with our guidance and so on and so forth, nothing more of any substance. We're certainly busy, we're certainly running full out, but nothing any more than what we've put into our numbers at this point.

Brian A. Johnson - Barclays Capital, Inc.

Okay. Thank you.

James K. Kamsickas - President, Chief Executive Officer & Director

Thank you.

Operator

Your next question comes from the line of Pat Archambault with Goldman Sachs. Please go ahead.

Patrick Archambault - Goldman Sachs & Co.

Oh, yeah. Thanks very much and good morning. Yeah. I guess just a follow-up, I don't know if I heard this incorrectly on page 18. So, you gave the number for the premium freight and the warranty piece in terms of the Commercial Vehicle walk. But which won't repeat (49:59). Did you say there was a positive of $25 million that was one-time in nature or did I just mishear that, which is probably what happened?

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

There was a $25 million pricing action that benefited the EBITDA that partially offset the transition, the supplier transition warranty cost that I mentioned. I mean, that would not be one-time. That pricing action kind of continues into the future.

Patrick Archambault - Goldman Sachs & Co.

Okay. Yeah. Because that was my question because it seems like net of those things, they kind of washed out in 2015. So, there wouldn't – so, okay, unless that does repeat in the same order of magnitude, right, you won't really get much of a sort of onetime benefit, if you will.

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

Right.

Patrick Archambault - Goldman Sachs & Co.

Okay. But it does, all right. My second question is just on the content of Super Duty. Is it possible just to mention what the CPV is on that program in Brushstrokes and well, let's just go with that.

James K. Kamsickas - President, Chief Executive Officer & Director

We haven't typically provided content per vehicle kind of data and don't really have that at my fingertips to give that to you.

Patrick Archambault - Goldman Sachs & Co.

All right. Well, failing my luck at that, can I ask maybe if – I had to try. Is there a difference between in your content moving from the old model to the new model? Does it step up? Does it step down? Is it more or less the same? I mean clearly from a volume perspective, it's probably an opportunity, but is it from a content as well?

James K. Kamsickas - President, Chief Executive Officer & Director

No. There is incremental content. I can tell you that, Pat.

Patrick Archambault - Goldman Sachs & Co.

Any kind of dimensioning on that?

James K. Kamsickas - President, Chief Executive Officer & Director

Craig is telling me no. So, I guess no. Look, I like your effort.

Patrick Archambault - Goldman Sachs & Co.

All right, guys. That's what I had for you. Thanks a lot.

Craig Barber - Director of Investor Relations

Thank you.

James K. Kamsickas - President, Chief Executive Officer & Director

Okay. Brent, I think we have time for one more call.

Operator

The final question will come from the line of Irina Hodakovsky with KeyBanc. Please go ahead.

Irina Hodakovsky - KeyBanc Capital Markets, Inc.

Thank you. Good morning, everyone.

James K. Kamsickas - President, Chief Executive Officer & Director

Hi, Irina.

Irina Hodakovsky - KeyBanc Capital Markets, Inc.

To follow-up a little bit on that last question for the Commercial Vehicle. Just to be able to gauge maybe some sensitivity in terms of potential downturn. Your estimate right now for the market is $250 million at midpoint. If we were to gauge what that means, if another 5,000 units came down, how can we think about that in terms of modeling decremental margins or revenue impact?

Craig Barber - Director of Investor Relations

Hi, Irina. This is Craig. We haven't given that specific sensitivity. As you know our mix in Commercial Vehicle is maybe a little bit different than some of the peers since we have a higher percentage of medium duty as well. So, it's not a straight line. We can look at maybe providing that in the future, but we don't have anything on that right now that we can share.

Irina Hodakovsky - KeyBanc Capital Markets, Inc.

Got you. And just one last question. Also in terms of volume and expectations, Brazil, a small piece of your mix but a large impact on earnings. And wondering you're looking at a flat market into 2016 in Brazil. The start of the year so far was what one headline described as dismal. Wondering what's driving your confidence that that would improve as we go through the rest of the year.

Rodney R. Filcek - Senior VP, Chief Financial & Accounting Officer

This is Rod speaking. We're not looking for it to improve quite frankly in 2016. We're just kind of hunkered down there doing everything we can to keep the cost base as minimal as possible. So, I think the improvement we expect is going to be post-2016.

Irina Hodakovsky - KeyBanc Capital Markets, Inc.

But you're not expecting the market to decline relative to 2015 and 2016.

James K. Kamsickas - President, Chief Executive Officer & Director

Not significantly.

Irina Hodakovsky - KeyBanc Capital Markets, Inc.

All right. Thank you.

James K. Kamsickas - President, Chief Executive Officer & Director

Okay. Well, thank you again everyone for joining the call. Just quick summary from my standpoint, anyway. There is no question that we had a bit of a difficult year in the Commercial Vehicle Group largely due to currency in the Brazilian market. But the group is certainly stable now and improving every day.

However, I'm sure it's not lost on anyone that three of the four business units performed exceptionally well and continue to perform at a very high level. Even that, with some very challenging end markets which will naturally improve some day. Now after six months at Dana, I'd say I'm very excited about Dana and our prospects and frankly achieving our guidances we presented not only in January, but we reiterate it today.

So, thank you very much for your support and joining the call. Have a great day.

Operator

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

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