Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - Allison Transmission Holdings Inc | d618115d8k.htm |
| EX-99.1 - EX-99.1 - Allison Transmission Holdings Inc | d618115dex991.htm |
 Q3
2013 Earnings Release October 28, 2013
1
Lawrence Dewey, Chairman, President & Chief Executive Officer
David Graziosi, Executive Vice President & Chief Financial Officer
Exhibit 99.2 |
 Safe
Harbor Statement 2
The
following
information
contains,
or
may
be
deemed
to
contain,
“forward-looking
statements”
(as
defined
in
the
U.S.
Private
Securities
Litigation
Reform
Act
of
1995).
The
words
“believe,”
“expect,”
“anticipate,”
“intend,”
“estimate”
and
other
expressions
that
are
predictions
of
or
indicate
future
events
and
trends
and
that
do
not
relate
to
historical
matters
identify
forward-looking
statements.
You
should
not
place
undue
reliance
on
these
forward-looking
statements.
Although
forward-looking
statements
reflect
management’s
good
faith
beliefs,
reliance
should
not
be
placed
on
forward-looking
statements
because
they
involve
known
and
unknown
risks,
uncertainties
and
other
factors,
which
may
cause
the
actual
results,
performance
or
achievements
to
differ
materially
from
anticipated
future
results,
performance
or
achievements
expressed
or
implied
by
such
forward-looking
statements.
Forward-looking
statements
speak
only
as
of
the
date
the
statements
are
made.
We
undertake
no
obligation
to
publicly
update
or
revise
any
forward-looking
statement,
whether
as
a
result
of
new
information,
future
events,
changed
circumstances
or
otherwise.
These
forward-looking
statements
are
subject
to
numerous
risks
and
uncertainties,
including,
but
not
limited
to:
risks
related
to
our
substantial
indebtedness;
our
participation
in
markets
that
are
competitive;
the
highly
cyclical
industries
in
which
certain
of
our
end
users
operate;
the
failure
of
markets
outside
North
America
to
increase
adoption
of
fully-automatic
transmissions;
the
concentration
of
our
net
sales
in
our
top
five
customers
and
the
loss
of
any
one
of
these;
future
reductions
or
changes
in
government
subsidies
for
hybrid
vehicles;
U.S.
defense
spending;
general
economic
and
industry
conditions;
the
discovery
of
defects
in
our
products,
resulting
in
delays
in
new
model
launches,
recall
campaigns
and/or
increased
warranty
costs
and
reduction
in
future
sales
or
damage
to
our
brand
and
reputation;
our
ability
to
prepare
for,
respond
to
and
successfully
achieve
our
objectives
relating
to
technological
and
market
developments
and
changing
customer
needs;
risks
associated
with
our
international
operations;
and
labor
strikes,
work
stoppages
or
similar
labor
disputes,
which
could
significantly
disrupt
our
operations
or
those
of
our
principal
customers.
Allison
Transmission
cannot
assure
you
that
the
assumptions
made
in
preparing
any
of
the
forward-
looking
statements
will
prove
accurate
or
that
any
long-term
financial
goals
will
be
realized.
All
forward-looking
statements
included
in
this
presentation
speak
only
as
of
the
date
made,
and
Allison
Transmission
undertakes
no
obligation
to
update
or
revise
publicly
any
such
forward-looking
statements,
whether
as
a
result
of
new
information,
future
events,
or
otherwise.
In
particular,
Allison
Transmission
cautions
you
not
to
place
undue
weight
on
certain
forward-looking
statements
pertaining
to
potential
growth
opportunities,
long-term
financial
goals
or
the
value
we
currently
ascribe
to
certain
tax
attributes
set
forth
herein.
Actual
results
may
vary
significantly
from
these
statements.
Allison
Transmission’s
business
is
subject
to
numerous
risks
and
uncertainties,
which
may
cause
future
results
of
operations
to
vary
significantly
from
those
presented
herein.
Important
factors
that
could
cause
actual
results
to
differ
materially
are
discussed
in
Allison
Transmission’s
Quarterly
Report
on
Form
10-Q
for
the
quarter
ended
March
31,
2013
and
Allison
Transmission’s
Annual
Report
on
Form
10-K
for
the
year
ended
December
31,
2012. |
 Non-GAAP Financial Information
3
We
use
Adjusted
net
income,
Adjusted
EBITDA,
Adjusted
EBITDA
excluding
technology-related
license
expenses,
Adjusted
EBITDA
margin,
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses,
adjusted
free
cash
flow
and
free
cash
flow
to
evaluate
our
performance
relative
to
that
of
our
peers.
In
addition,
the
Senior
Secured
Credit
Facility
has
certain
covenants
that
incorporate
Adjusted
EBITDA.
However,
Adjusted
net
income,
Adjusted
EBITDA,
Adjusted
EBITDA
excluding
technology-related
license
expenses,
Adjusted
EBITDA
margin,
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses,
adjusted
free
cash
flow
and
free
cash
flow
are
not
measurements
of
financial
performance
under
GAAP,
and
these
metrics
may
not
be
comparable
to
similarly
titled
measures
of
other
companies.
Adjusted
net
income
is
calculated
as
the
sum
of
net
income
(loss),
interest
expense,
net,
income
tax
expense
(benefit),
trade
name
impairment
and
amortization
of
intangible
assets,
less
cash
interest,
net
and
cash
income
taxes,
and
adjusted
for
certain
non-recurring
items.
Adjusted
EBITDA
is
calculated
as
the
sum
of
Adjusted
net
income,
cash
interest,
net,
cash
income
taxes,
depreciation
of
property,
plant
and
equipment
and
other
adjustments
as
defined
by
the
Senior
Secured
Credit
Facility
and
as
further
described
below.
Adjusted
EBITDA
excluding
technology-related
license
expenses
is
calculated
as
Adjusted
EBITDA
less
technology-related
license
expenses.
Adjusted
EBITDA
margin
is
calculated
as
Adjusted
EBITDA
divided
by
net
sales.
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses
is
calculated
as
Adjusted
EBITDA
excluding
technology-related
license
expenses
divided
by
net
sales.
Free
cash
flow
is
calculated
as
net
cash
provided
by
operating
activities
less
capital
expenditures.
Adjusted
free
cash
flow
is
free
cash
flow
adjusted
for
non-recurring
items.
We
use
Adjusted
net
income
to
measure
our
overall
profitability
because
it
better
reflects
our
cash
flow
generation
by
capturing
the
actual
cash
interest
paid
and
cash
taxes
paid
rather
than
our
interest
expense
and
tax
expense
as
calculated
under
GAAP
and
excludes
the
impact
of
the
non-cash
annual
amortization
of
certain
intangible
assets
that
were
created
at
the
time
of
the
Acquisition
Transaction.
We
use
Adjusted
EBITDA,
Adjusted
EBITDA
excluding
technology-related
license
expenses,
Adjusted
EBITDA
margin
and
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses
to
evaluate
and
control
our
cash
operating
costs
and
to
measure
our
operating
profitability.
We
use
adjusted
free
cash
flow
and
free
cash
flow
to
evaluate
the
amount
of
cash
generated
by
the
business
that,
after
the
capital
investment
needed
to
maintain
and
grow
our
business,
can
be
used
for
strategic
opportunities,
including
investing
in
our
business
and
strengthening
our
balance
sheet.
We
believe
the
presentation
of
Adjusted
net
income,
Adjuste
d EBITDA,
Adjusted
EBITDA
excluding
technology-related
license
expenses,
Adjusted
EBITDA
margin,
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses
and
adjusted
free
cash
flow
enhances
our
investors'
overall
understanding
of
the
financial
performance
and
cash
flow
of
our
business.
You
should
not
consider
Adjusted
net
income,
Adjusted
EBITDA,
Adjusted
EBITDA
excluding
technology-related
license
expenses,
Adjusted
EBITDA
margin,
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses,
adjusted
free
cash
flow
and
free
cash
flow
as
an
alternative
to
net
income
(loss),
determined
in
accordance
with
GAAP,
as
an
indicator
of
operating
performance,
or
as
an
alternative
to
net
cash
provided
by
operating
activities,
determined
in
accordance
with
GAAP,
as
an
indicator
of
Allison’s
cash
flow. |
 Call
Agenda Q3 2013 Performance
Full Year 2013 Guidance Update
4 |
 Q3
2013 Performance Summary 5
($ in millions)
Q3 2013
Q3 2012
% Variance
Net Sales
$466
$494
(5.5%)
Gross Margin %
44.2%
45.5%
(130 bps)
Adjusted Net Income
(1)
$101
$100
1.8%
Adjusted Free Cash Flow
(1)
$116
$120
(3.3%)
Commentary
Net
Sales:
the
decrease
was
principally
driven
by
previously
contemplated
reductions
in
U.S.
defense
spending,
lower
demand
in
the
North
America
energy
sector’s
hydraulic
fracturing
market,
relative
to
the
same
period
in
2012,
fewer
sales
of
North
America
hybrid-propulsion
systems
for
transit
buses
and
continued
weakness
in
the
Outside
North
America
Off-Highway
mining
sector
end
market.
Partially
offsetting
these
declines
were
strength
in
the
North
America
On-Highway
end
market,
our
largest,
and
the
Service
Parts,
Support
Equipment
&
Other
end
market.
Gross
Margin:
the
decrease
was
principally
driven
by
decreased
net
sales.
Adjusted
Net
Income:
the
increase
was
principally
driven
by
reduced
global
commercial
and
product
initiatives
spending,
and
$12
million
of
technology-related
license
expenses
in
2012
partially
offset
by
decreased
net
sales
and
higher
employee
stock
compensation
expense.
Adjusted
Free
Cash
Flow:
the
decrease
was
principally
driven
by
decreased
net
cash
provided
by
operating
activities
partially
offset
by
reduced
capital
expenditures.
The
decrease
in
capital
expenditures
was
principally
driven
by
lower
2013
product
initiatives
spending.
(1)
See Appendix for a reconciliation of Adjusted Net Income and Adjusted Free Cash
Flow. |
 Q3
2013 Sales Performance End Markets
Q3 2013
Q3 2012
% Variance
Commentary
North America On-Hwy
$212
$189
12%
Increased
demand
for
Rugged
Duty
and
Highway
Series
models
North America Hybrid-
Propulsion Systems for
Transit Bus
$15
$30
(50%)
Decreased
demand
and
intra-year
movement
in
the
timing
of
orders
North America Off-Hwy
$9
$22
(59%)
Defense
$52
$74
(30%)
Continued
reductions
in
U.S.
defense
spending
to
longer
term
averages
experienced
during
periods
without
active
conflicts
Outside North America
On-Hwy
$70
$73
(4%)
Weakness
in
Japan
truck,
and
China
and
Latin
America
bus
tenders
timing,
partially
offset
by
improved
demand
conditions
in
Russia
bus
Outside North America
Off-Hwy
$16
$22
(27%)
Decreased
mining
sector
demand
Service Parts, Support
Equipment & Other
$92
$84
10%
Increased
demand
for
North
America
On-
Highway
and
Off-Highway
service
parts
Total
$466
$494
(6%)
6
($ in millions)
Decreased
demand
driven
by
hydraulic
fracturing
applications, but
essentially
flat
for
the
third
consecutive quarter |
 Q3
2013 Financial Performance 7
($ in millions, except share data)
Q3 2013
Q3 2012
$ Var
% Var
Commentary
Net Sales
$466.3
$493.5
($27.2)
(5.5%)
Decrease
was
principally
driven
by
previously
contemplated
reductions
in
U.S.
defense
spending,
lower
demand
in
the
North
America
energy
sector’s
hydraulic
fracturing
market,
fewer
sales
of
North
America
hybrid-propulsion systems for transit buses and
continued weakness in the
Outside
North
America
Off-Highway
mining sector end market. Partially offsetting these declines were
strength in the
North America
On-Highway end market, our
largest, and the Service Parts, Support Equipment & Other
end
market.
Cost of Sales
$260.2
$269.1
$8.9
3.3%
Gross Profit
$206.1
$224.4
($18.3)
(8.2%)
Principally
driven
by
decreased
net
sales
Operating Expenses
Selling, general and administrative expenses
$74.0
$96.7
$22.7
23.5%
$12
million
of
lower
intangible
asset
amortization,
reduced
global
commercial
spending
activities,
favorable
product
warranty
expense
and
a
warranty
expense
reduction
for
the
dual
power
inverter
module
extended
coverage
program
partially
offset
by
$2
million
of
higher
employee
stock
compensation
Engineering –
research and development
$20.9
$35.9
$15.0
41.8%
A
decrease
of
$3
million,
excluding
the
2012
technology-related
license
expenses
of
$12
million, principally driven by reduced
product initiatives spending
Total operating expenses
$94.9
$132.6
$37.7
28.4%
Operating Income
$111.2
$91.8
$19.4
21.1%
Interest Expense, net
($37.3)
($40.8)
$3.5
8.6%
Deferred amortization and refinancing
Other Expense, net
($1.5)
($1.8)
$0.3
16.7%
Income Before Income Taxes
$72.4
$49.2
$23.2
47.2%
Income Tax Expense
($27.9)
($17.0)
($10.9)
(64.1%)
Increase
in
effective
tax
rate
principally
driven
by
decreased
discrete activity
Net Income
$44.5
$32.2
$12.3
38.2%
Diluted Earnings Per Share
$0.24
$0.17
$0.07
41.2%
Q3
2013:
188.0M
shares;
Q3
2012:
185.5M
shares
Adjusted EBITDA
(1)
$161.6
$159.5
$2.1
1.3%
Adjusted EBITDA excluding technology-
related license expenses
(1)
$161.6
$171.5
($9.9)
(5.8%)
Adjusted Net Income
(1)
$101.3
$99.5
$1.8
1.8%
(1)
See Appendix for a reconciliation from Net Income. |
 Q3
2013 Cash Flow Performance 8
($ in millions)
Q3 2013
Q3 2012
$ Variance
% Variance
Commentary
Net Cash Provided by
Operating Activities
$131
$139
($8)
(5.7%)
Principally driven by decreased
net sales and lower other
liabilities, net
CapEx
$15
$31
($16)
(51.0%)
Principally
driven
by
lower
2013
product
initiatives
spending
Adjusted Free Cash
Flow
(1)
$116
$120
($4)
(3.3%)
Reduced
cash
flow
from
operations
partially
offset
by
reduced
capital
spending
($ in millions)
Q3 2013
Q3 2012
$ Variance
% Variance
Commentary
Operating Working
Capital
(2)
Percentage of
LTM Sales
10.4%
9.9%
N/A
50 bps
Principally driven by decreased
LTM
Sales and 2012 labor
negotiations preparation
Cash Paid for Interest
$33
$32
$1
4.7%
Principally driven by adjusted
margins
due
to
refinancing and
debt repayments
Cash Paid for Income
Taxes
$1
$3
($2)
(80.8%)
Decreased outside North
America
taxable
income
(1)
See Appendix for a reconciliation of Adjusted Free Cash Flow.
(2)
Operating Working Capital = A/R + Inventory –
A/P. |
 Full
Year 2013 Guidance Update 9
Guidance
Commentary
Net Sales
($ in millions)
$1,920 to $1,935
We
expect
net
sales
to
stabilize
on
a
year-over-
year
basis,
an
improvement
relative
to
the
sales
decline
through
the
first
three
quarters
of
the
year.
We
continue
to
anticipate
improving
trends
in
the
fourth
quarter
of
2013
which
we
expect
to
be
driven
by
growth
in
global
On-Highway
and
Service
Parts,
Support
Equipment
&
Other
end
markets,
and
abating
year-over-year
declines
in
the
North
America
Off-Highway
and
North
America
Hybrid-
Propulsion
Systems
for
Transit
Bus
end
markets.
Adjusted EBITDA excluding
technology-related license expenses
($ in millions)
$630 to $640
Adjusted EBITDA Margin excluding
technology-related license expenses
32.75 to 33.25
percent
Adjusted Free Cash Flow
($ in millions)
$340 to $360
CapEx
($ in millions)
Maintenance
New Product Programs
$63 to $66
$12 to $14
Subject
to
timely
completion
of
development
and
sourcing
milestones
Cash Income Taxes
($ in millions)
$8 to $12
U.S.
income
tax
shield
and
net
operating
loss
utilization |
 10
APPENDIX
Non-GAAP Financial Information |
 Non-GAAP Reconciliations
(1 of 2)
Adjusted Net Income and Adjusted EBITDA reconciliation
(1) Includes charges or income related to legacy employee
benefits, shared income with General Motors, benefit plan adjustments, transitional costs to establish Allison as a stand-alone
entity, pension curtailment adjustments, employee stock compensation expense,
service fees paid to Allison’s Sponsors and an adjustment for the settlement of litigation which
originated with the Predecessor but was assumed by the Company as part of the
Acquisition Transaction. 11
$ in millions, Unaudited
Last twelve
months ended
September 30,
2009
2010
2011
2012
2012
2013
2013
Net (loss) income
($323.9)
$29.6
$103.0
$514.2
$32.2
$44.5
$133.7
plus:
Interest expense,
net
234.2
277.5
217.3
151.2
40.8
37.3
140.1
Cash interest expense
(242.5)
(239.1)
(208.6)
(167.3)
(31.8)
(33.3)
(159.6)
Income tax expense (benefit)
41.4
53.7
47.6
(298.0)
17.0
27.9
86.0
Cash income
taxes
(5.5)
(2.2)
(5.8)
(10.7)
(2.6)
(0.5)
(5.2)
Fee to terminate services agreement with Sponsors
—
—
—
16.0
—
—
—
Technology-related investment expenses
—
—
—
14.4
6.4
—
2.5
Public offering expenses
—
—
—
6.1
—
0.3
0.9
Trade name
impairment
190.0
—
—
—
—
—
—
Amortization of intangible
assets
155.9
154.2
151.9
150.0
37.5
25.1
117.6
Adjusted net
income
$49.6
$273.7
$305.4
$375.9
$99.5
$101.3
$316.0
Cash interest expense
242.5
239.1
208.6
167.3
31.8
33.3
159.6
Cash income
taxes
5.5
2.2
5.8
10.7
2.6
0.5
5.2
Depreciation of property, plant and equipment
105.9
99.6
103.8
102.5
26.1
24.4
100.6
(Gain)/loss on repurchases of long-term debt
(8.9)
(3.3)
16.0
22.1
0.5
0.5
1.0
Dual power inverter module extended coverage
11.4
(1.9)
—
9.4
—
(2.4)
(2.4)
UAW Local 933 signing bonus
—
—
—
8.8
—
—
8.8
Benefit plan re-measurement
—
—
—
2.3
—
—
—
Unrealized (gain) loss on commodity hedge contracts
(5.8)
0.3
6.5
(1.0)
(2.1)
(0.8)
1.0
Unrealized (gain) loss on foreign exchange
—
(0.2)
0.3
0.1
0.0
1.8
2.6
Premiums and expenses on tender offer for long-term debt
—
—
56.9
—
—
—
—
Restructuring charges
47.9
—
—
—
—
—
1.0
Reduction of supply contract liability
—
(3.4)
—
—
—
—
—
Other, net
(1)
53.2
10.9
8.6
7.0
1.1
3.0
12.4
Adjusted
EBITDA
$501.3
$617.0
$711.9
$705.1
$159.5
$161.6
$605.8
Adjusted EBITDA excluding technology-related license expenses
$501.3
$617.0
$711.9
$717.1
$171.5
$161.6
$611.8
Net Sales
$1,766.7
$1,926.3
$2,162.8
$2,141.8
$493.5
$466.3
$1,922.8
Adjusted EBITDA
margin
28.4%
32.0%
32.9%
32.9%
32.3%
34.7%
31.5%
Adjusted EBITDA margin excl technology-related license expenses
28.4%
32.0%
32.9%
33.5%
34.8%
34.7%
31.8%
Three months ended
September 30,
For the year ended December 31, |
 $ in millions,
Unaudited Last twelve
months ended
September 30,
2009
2010
2011
2012
2012
2013
2013
Net Cash Provided by Operating Activities
$168.7
$388.9
$469.2
$497.5
$138.9
$131.0
$427.5
(Deductions) or Additions:
Long-lived assets
(88.2)
(73.8)
(96.9)
(123.9)
(31.4)
(15.4)
(71.2)
Fee to terminate services agreement with Sponsors
—
—
—
16.0
—
—
—
Technology-related license expenses
—
—
—
12.0
12.0
—
6.0
2009 Non-Recurring Activity
(1)
61.0
—
—
—
—
—
—
Adjusted Free Cash Flow
$141.5
$315.1
$372.3
$401.6
$119.5
$115.6
$362.3
Net
Sales
$1,766.7
$1,926.3
$2,162.8
$2,141.8
$493.5
$466.3
$1,922.8
Adjusted Free Cash Flow (% to Net Sales)
8.0%
16.4%
17.2%
18.8%
24.2%
24.8%
18.8%
Three months ended
September 30,
For the year ended December 31,
Adjusted Free Cash Flow reconciliation
(1)
2009
adjusted
for
certain
non-recurring
activity:
(a)
capitalized
accrued
interest
on
Senior
Toggle
Notes
($29)
million,
(b)
cash
restructuring
charge
$51
million,
(c)
accounts
payable
early
payments
$3
million,
(d)
delayed
accounts
receivable
receipts
$19
million
and
(e)
Lehman
LIBOR
swap
settlement
$17
million.
12
Non-GAAP Reconciliations
(2 of 2) |