Attached files
| file | filename |
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| 8-K - FORM 8-K - Allison Transmission Holdings Inc | d429320d8k.htm |
| EX-99.1 - EARNINGS RELEASE - Allison Transmission Holdings Inc | d429320dex991.htm |
 Q3
2012 Earnings Release October 29, 2012
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). Most forward-looking statements contain words that identify them as
forward-looking, such as “may”, “plan”, “seek”, “will”,
“expect”, “intend”, “estimate”, “anticipate”, “believe”, “project”,
“opportunity”, “target”, “goal”, “growing” and
“continue” or other words that relate to future events, as opposed to past or current
events. By their nature, forward-looking statements are not statements of historical facts and involve risks and
uncertainties because they relate to events and depend on circumstances that may or may not occur in
the future. These statements give Allison Transmission’s current expectation of
future events or its future performance and do not relate directly to historical or current
events or Allison Transmission’s historical or future performance. As such, Allison
Transmission’s future results may vary from any expectations or goals expressed in, or implied
by, the forward-looking statements included in this presentation, possibly to a material
degree. Factors which may cause the actual results to differ materially from those anticipated
at the time the forward-looking statements are made include, but are not limited to: risks
related to our substantial indebtedness; our participation in markets that are competitive; general economic and
industry conditions; our ability to prepare for, respond to and successfully achieve our objectives
relating to technological and market developments and changing customer needs; the failure of
markets outside North America to increase adoption of fully-automatic transmissions; 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; the concentration of our net sales in our top five customers and the loss of any one of
these; risks associated with our international operations; brand and reputational risks; our
intention to pay dividends; 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 prospectus filed pursuant to Rule 424(b)(1) under the Securities Act of
1933, as amended, dated as of March 15, 2012 and Quarterly Reports on Form 10-Q. |
 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, trade name impairment and
amortization of intangible assets, less cash interest expense, 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 expense, 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 taxes paid rather than our 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, Adjusted EBITDA, Adjusted EBITDA excluding
technology-related license expenses, Adjusted EBITDA margin, Adjusted EBITDA margin excluding technology-related
license expenses, adjusted free cash and 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 2012 Performance
End Markets Commentary
Full Year 2012 Guidance Update
4 |
 Q3
2012 Performance Summary 5
($ in millions)
Q3 2012
Q3 2011
% Variance
Net Sales
$494
$574
(14.0%)
Gross Margin %
45.5%
44.9%
+60 bps
Adjusted Net Income
(1)
$100
$131
(24.2%)
Adjusted Free Cash Flow
(1)
$120
$176
(32.1%)
Commentary
Net
Sales:
decreased
demand
for
North
America
Off-Highway
products
relative
to
the
elevated
demand
experienced
in
the
prior
year period driven by strength in natural gas pricing. North America
On-Highway, Military and Service Parts, Support Equipment &
Other end markets also experienced modest declines which were partially offset by price increases on certain
products.
Our
Outside
North
America
On-Highway
net
sales
were
in
line
with
the
prior
year
due
to
growth
in
China
offsetting
weakness in European end markets.
Gross Margin: improved manufacturing performance, favorable material cost and price
increases on certain products. Adjusted Net Income: decreased gross profit, $12
million of certain technology-related license expenses and increased cash
interest
expense
as
a
result
of
debt
refinancing
and
repayments,
partially
offset
by
lower
global
commercial
and
engineering
–
research and development spending activities.
Adjusted
Free
Cash
Flow:
decreased
net
cash
provided
by
operating
activities
and
increased
capital
expenditures
attributable
to
increased product initiatives spending and investments in productivity and
replacement programs. (1)
See Appendix for a reconciliation of Adjusted Net Income and Adjusted Free Cash
Flow. Full Year 2012 Guidance: Net Sales decline of 2.5 to 3.5 percent, Adjusted EBITDA margin excluding technology-related license
expenses of 33.5 to 34.0 percent and Adjusted Free Cash Flow of $350 million to $380
million. |
 Q3
2012 Sales Performance End Markets
Q3 2012
Q3 2011
% Variance
Commentary
North America On-Hwy
$189
$199
(5%)
Diminished commercial vehicle production
North America Hybrid-
Propulsion Systems for
Transit Bus
$30
$28
+7%
Timing of orders
North America Off-Hwy
$22
$76
(71%)
Decreased demand from natural gas hydraulic
fracturing applications due to weakness in
natural gas pricing
Military
$74
$81
(9%)
Decreased wheeled and tracked military
products requirements consistent with reduced
U.S. defense spending
Outside North America
On-Hwy
$73
$73
0%
Strength in China offset by weaker
environments in Europe and Latin America
Outside North America
Off-Hwy
$22
$24
(8%)
Weaker mining sector demand partially offset by
stronger demand from the energy sector
Service Parts, Support
Equipment & Other
$84
$93
(10%)
Reduced demand for global off-highway service
parts sales
Total
$494
$574
(14%)
6
($ in millions) |
 Q3
2012 Financial Performance 7
($ in millions)
Q3 2012
Q3 2011
$ Var
% Var
Commentary
Net Sales
$493.5
$574.0
($80.5)
(14.0%)
Decreased demand for North America Off-Highway, North
America On-Highway, Military and Service Parts, Support
Equipment & Other products partially offset by price increases on
certain products. Our Outside North America On-Highway net
sales were in line with the prior year due to growth in China
offsetting weakness in European end markets
Cost of Sales
$269.1
$316.4
$47.3
14.9%
Gross Profit
$224.4
$257.6
($33.2)
(12.9%)
Decreased net sales partially offset by improved manufacturing
performance, favorable material cost and price increases
Operating Expenses
Selling, general and administrative expenses
$96.7
$101.6
$4.9
4.8%
Lower global commercial spending activities offset by favorable
2011 product warranty expense adjustments
Engineering –
research and development
$35.9
$31.9
($4.0)
(12.5%)
$12 million of certain technology-related license expense partially
offset by the timing of product initiatives spending
Total operating expenses
$132.6
$133.5
$0.9
0.7%
Operating Income
$91.8
$124.1
($32.3)
(26.0%)
Interest Expense, net
($40.8)
($63.3)
$22.5
(35.5%)
Decreased mark-to-market expense and the favorable impact of
debt repayments and repurchases partially offset by higher
interest rates and deferred financing fees related to the Senior
Secured Credit Facility refinancing
Other Expense, net
($1.8)
($3.7)
$1.9
(51.4)
Favorable foreign currency exchange, higher gains on derivative
contracts partially offset by impairment of technology-related
investments
Income Before Income Taxes
$49.2
57.1
($7.9)
(13.8%)
Income Tax Expense
($17.0)
($18.3)
$1.3
(7.1%)
Net Income
$32.2
$38.8
($6.6)
(17.0%)
Diluted Earnings Per Share
$0.17
$0.21
$0.04
(17.0%)
Q3 2012:185.5M shares; Q3 2011 181.4M shares
(1)
See Appendix for a reconciliation from Net Income (Loss).
Adjusted EBITDA
(1)
$159.5
$193.4
($33.9)
(17.5%)
Adjusted EBITDA excluding technology-
related license expense
(1)
$171.5
$193.4
($21.9)
(11.3%)
Adjusted Net Income
(1)
$99.5
$131.2
($31.7)
(24.2%) |
 Q3
2012 Cash Flow Performance 8
($ in millions)
Q3 2012
Q3 2011
$ Variance
% Variance
Commentary
Cash Provided by
Operating Activities
$139
$204
($65)
(31.8%)
Reduced sales volume,
inconsistent commercial
vehicle production
schedules and labor
negotiations planning
CapEx
$31
$28
$3
13.4%
Increased new product
initiatives and timing of
maintenance spending
partially offset by
completion of India facility
expansion
Adjusted Free Cash
Flow
(1)
$120
$176
($56)
(32.1%)
Decreased net cash
provided by operating
activities and increased
capital expenditures
($ in millions)
Q3 2012
Q3 2011
$ Variance
% Variance
Commentary
Operating Working
Capital
(2)
Percentage of
LTM Sales
9.9%
8.5%
N/A
140 bps
Inconsistent commercial
vehicle production
schedules and labor
negotiations planning
partially offset by LTM net
sales growth
Cash Paid for Interest
$32
$26
($6)
(23.2%)
Sr Secured Credit Facility
refinancing partially offset
by debt repayments and
repurchases
Cash Paid for Income
Taxes
$3
$1
$2
85.7%
Increased taxable income
(1)
See Appendix for a reconciliation of Adjusted Free Cash Flow.
(2)
Operating
Working
Capital
=
A/R
+
Inventory
–
A/P. |
 End
Markets Commentary 9
•
North America On-Highway
•
Market recovery stalled by heightened economic uncertainty
•
Expect full year net sales growth of 8 percent
•
North America Hybrid-Propulsion Systems for Transit Bus
•
Municipal spending constraints and value proposition challenges
•
Expect full year net sales reduction of 16 percent
•
North America Off-Highway
•
Majority of demand is natural gas hydraulic fracturing; weakening rig production
and utilization rates •
Expect full year net sales reduction of 43 percent
•
Military
•
Expect full year net sales reduction of 2 percent
•
Outside North America On-Highway
•
Solid progress on growth initiatives and attainment of vehicle releases
•
Heightened economic uncertainties pressuring commercial vehicle production
forecasts •
Expect full year net sales growth of 1.5% with strength in Asia offsetting weakness
in European end markets •
Outside North America Off-Highway
•
Expect full year net sales growth of 27 percent principally driven by increased
demand in the mining and energy sectors •
Service Parts, Support Equipment & Other
•
Expect full year net sales reduction of 1 percent |
 Full Year 2012 Guidance Update
10
Guidance
Commentary on Full Year
Net Sales Growth from 2011
(2.5) to (3.5) percent
Assumes fourth quarter year over year net sales
reductions in North America Off-Highway, Global
On-Highway, Tracked Military and Service Parts,
Support Equipment & Other end markets partially
offset by year over year net sales growth in
Outside North America Off-Highway and North
America Hybrid-Propulsion Systems for Transit
Bus end markets
Adjusted EBITDA Margin
excluding technology-
related license expense
(1)
33.5 to 34.0 percent
Driven by sales mix and volume timing
Adjusted Free Cash Flow
($ in millions)
(1)
$350 to $380
Driven by EBITDA, Cash Interest, Cash Income
Taxes, CapEx, etc
CapEx
($ in millions)
Maintenance
New Facilities
New Product Programs
$61 to $64
$26 to $27
$33 to $39
New product programs subject to timely
completion of development and sourcing
milestones
Cash Income Taxes
($ in millions)
$12 to $15
U.S. income tax shield and net operating loss
utilization
(1)
See Appendix. |
 11
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. 12
$ in millions
Last twelve months
ended September 30,
2009
2010
2011
2011
2012
2012
Net (loss) income
($323.9)
$29.6
$103.0
$38.8
$32.2
$547.5
plus:
Interest expense,
net
234.2
277.5
217.3
63.3
40.8
149.0
Cash interest
(242.5)
(239.1)
(208.6)
(25.8)
(31.8)
(188.6)
Income tax expense (benefit)
41.4
53.7
47.6
18.3
17.0
(302.6)
Cash income
taxes
(5.5)
(2.2)
(5.8)
(1.4)
(2.6)
(9.7)
Fee to terminate services agreement with Sponsors
—
—
—
—
—
16.0
Technology-related investment expense
—
—
—
—
6.4
14.4
Initial public offering expenses
—
—
—
—
—
6.1
Trade name
impairment
190.0
—
—
—
—
—
Amortization of intangible
assets
155.9
154.2
151.9
38.0
37.5
150.4
Adjusted net
income
$49.6
$273.7
$305.4
$131.2
$99.5
$382.5
Cash interest expense
242.5
239.1
208.6
25.8
31.8
188.6
Cash income
taxes
5.5
2.2
5.8
1.4
2.6
9.7
Depreciation of property, plant and equipment
105.9
99.6
103.8
25.5
26.1
102.7
(Gain)/Loss on repurchases of long-term debt
(8.9)
(3.3)
16.0
3.0
0.5
26.3
Dual power inverter module extended coverage
11.4
(1.9)
—
—
—
9.4
Unrealized (gain) loss on hedge contracts
(5.8)
0.1
6.8
4.1
(2.1)
0.6
Premiums and expenses on tender offer for long-term debt
—
—
56.9
—
—
—
Restructuring charges
47.9
—
—
(0.6)
—
—
Reduction of supply contract liability
—
(3.4)
—
—
—
—
Other, net
(1)
53.2
10.9
8.6
3.0
1.1
9.6
Adjusted
EBITDA
$501.3
$617.0
$711.9
$193.4
$159.5
$729.4
Adjusted EBITDA excluding technology-related license
expense
$501.3
$617.0
$711.9
$193.4
$171.5
$741.4
Net Sales
$1,766.7
$1,926.3
$2,162.8
$574.0
$493.5
$2,170.9
Adjusted EBITDA
margin
28.4%
32.0%
32.9%
33.7%
32.3%
33.6%
Adjusted EBITDA margin excl technology-related
license expense
28.4%
32.0%
32.9%
33.7%
34.8%
34.2%
For the year ended December 31,
Three months ended
September 30, |
 Adjusted Free Cash Flow reconciliation
Non-GAAP Reconciliations
(2 of 2)
13
$ in millions
Last twelve
months ended
September 30,
2009
2010
2011
2011
2012
2012
Net Cash Provided by Operating Activities
$168.7
$388.9
$469.2
$203.6
$138.9
$457.3
(Deductions) or Additions:
Long-lived assets
(88.2)
(73.8)
(96.9)
(27.7)
(31.4)
(135.5)
Fee to terminate services agreement with Sponsors
—
—
—
—
—
16.0
Technology-related license expense
—
—
—
—
12.0
12.0
2009 Non-Recurring Activity
(1)
61.0
—
—
—
—
—
Adjusted Free Cash Flow
$141.5
$315.1
$372.3
$175.9
$119.5
$349.8
Net
Sales
$1,766.7
$1,926.3
$2,162.8
$574.0
$493.5
$2,170.9
Adjusted Free Cash Flow (% to Net Sales)
8.0%
16.4%
17.2%
30.6%
24.2%
16.1%
Three months ended
September 30,
For the year ended December 31,
(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. |