Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - Allison Transmission Holdings Inc | d675357d8k.htm |
| EX-99.1 - EX-99.1 - Allison Transmission Holdings Inc | d675357dex991.htm |
 Q4
2013 Earnings Release February 13, 2014
Lawrence Dewey, Chairman, President & Chief Executive Officer
David Graziosi, Executive Vice President & Chief Financial Officer
Exhibit 99.2 |
 Proprietary + Confidential
2
Safe Harbor Statement
The following information contains “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. |
 Proprietary + Confidential
3
Non-GAAP Financial Information
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, Adjusted 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. |
 Proprietary + Confidential
4
Call Agenda
Q4 2013 Performance
2014 Guidance |
 Proprietary + Confidential
5
Q4 2013 Performance Summary
($ in millions)
Q4 2013
Q4 2012
% Variance
Net Sales
$491
$487
0.8%
Gross Margin %
43.1%
39.9%
+320 bps
Adjusted Net Income
(1)
$78
$46
69.7%
Adjusted Free Cash Flow
(1)
$105
$82
27.8%
Commentary
Net Sales: the increase was principally driven by higher demand in the Service Parts,
Support Equipment & Other end market, continued recovery in the North
America On-Highway end market, our largest, and improved demand conditions in
the Outside North America On-Highway end market largely offset by previously
contemplated reductions in U.S. defense spending, and weakness in the Outside
North America Off-Highway end market. Our North America Off-Highway end
market continues to be weak, but experienced some modest sequential
improvement. Gross Margin: the increase was principally
driven by cost ($7 million) and charges ($8 million) to conclude a new five-year
labor agreement in 2012.
Adjusted
Net
Income:
the
increase
was
principally
driven
by
cost
($7
million)
and
charges
($9
million)
to
conclude
a
new
five-year labor agreement in 2012, a product warranty charge ($9 million) for
specific product issues in 2012 and reduced product initiatives
spending. Adjusted Free Cash Flow: the increase was principally driven
by increased net cash provided by operating activities partially offset by
increased capital expenditures. The increase in capital expenditures was principally driven by increased
investments in productivity and replacement programs partially offset by lower
product initiatives spending. (1)
See Appendix for a reconciliation of Adjusted Net Income and Adjusted Free Cash
Flow. |
 Proprietary + Confidential
6
Q4 2013 Sales Performance
($ in millions)
End Markets
Q4 2013
Q4 2012
% Variance
Commentary
North America On-Hwy
$210
$188
12%
Increased demand for Rugged Duty, Highway and Bus
Series models
North America Hybrid-
Propulsion Systems for
Transit Bus
$32
$32
0%
Flat with the same period in 2012 and up on a sequential
basis driven by intra-year movement in the timing of orders
North America Off-Hwy
$14
$17
(18%)
Decreased demand driven by hydraulic fracturing
applications, up on a sequential basis, the first sequential
increase since the first quarter of 2012
Defense
$35
$74
(53%)
Continued reductions in U.S. defense spending to longer
term averages experienced during periods without active
conflicts
Outside North America
On-Hwy
$86
$73
18%
Strength in China bus and Europe truck, partially offset by
weakness in Japan truck
Outside North America
Off-Hwy
$14
$30
(53%)
Weakness in mining and energy sectors demand
Service Parts, Support
Equipment & Other
$100
$73
37%
Increased demand for North America service parts and
global On-Highway support equipment
Total
$491
$487
1% |
 Proprietary + Confidential
7
Q4 2013 Financial Performance
($ in millions, except share data)
Q4 2013
Q4 2012
$ Var
% Var
Commentary
Net Sales
$491.0
$487.0
$4.0
0.8%
Increase was principally driven by higher demand in the Service Parts,
Support Equipment & Other end market, continued recovery in the North
America On-Highway end market, our largest, and improved demand
conditions in the Outside North America On-Highway end market largely
offset by previously contemplated reductions in U.S. defense spending, and
weakness in the Outside North America Off-Highway end market. Our North
America Off-Highway end market continues to be weak, but experienced
some modest sequential improvement.
Cost of Sales
$279.6
$292.8
$13.2
4.5%
Gross Profit
$211.4
$194.2
$17.2
8.9%
Increase principally driven by costs ($7 million) and charges ($8 million) to
conclude a new five-year labor agreement in 2012
Operating Expenses
Selling, general and administrative expenses
$87.4
$112.0
$24.6
22.0%
Decrease principally driven by $12 million of lower intangible asset
amortization, a product warranty charge ($9 million) for specific product
issues in 2012 and a charge ($1 million) to conclude a new five-year labor
agreement in 2012
Engineering –
research and development
$24.4
$28.1
$3.7
13.2%
Decrease principally driven by reduced product initiatives spending
Total operating expenses
$111.8
$140.1
$28.3
20.2%
Operating Income
$99.6
$54.1
$45.5
84.1%
Interest Expense, net
($28.4)
($35.6)
$7.2
20.2%
Lower interest expense as a result of debt repayments, the maturity of
certain interest rate swaps and lower rates on our Senior Secured Credit
Facility
Other (Expense) Income, net
($3.7)
$2.6
($6.3)
(242.3%)
Income Before Income Taxes
$67.5
$21.1
$46.4
219.9%
Income Tax Expense
($24.6)
($9.9)
($14.7)
(148.5%)
Decrease in effective tax rate principally driven by increased U.S. taxable
income
Net Income
$42.9
$11.2
$31.7
283.0%
Diluted Earnings Per Share
$0.23
$0.06
$0.17
283.3%
2013: 187.9M shares; 2012: 186.2M shares
Adjusted EBITDA
(1)
$152.7
$131.9
$20.8
15.8%
Adjusted EBITDA excluding technology-related
license expenses
(1)
$152.7
$131.9
$20.8
15.8%
Adjusted Net Income
(1)
$77.7
$45.8
$31.9
69.7%
(1)
See Appendix for a reconciliation from Net Income. |
 Proprietary + Confidential
8
Q4 2013 Cash Flow Performance
($ in millions)
Q4 2013
Q4 2012
$ Variance
% Variance
Commentary
Net Cash Provided by
Operating Activities
$138
$112
$26
23.2%
Principally driven by increased
net income and 2012 labor
negotiations
CapEx
$33
$30
$3
10.7%
Principally driven by increased
investment in productivity and
replacement programs partially
offset by lower product
initiatives spending
Adjusted Free Cash
Flow
(1)
$105
$82
$23
27.8%
Increased cash provided by
operating activities partially
offset by increased capital
spending
($ in millions)
Q4 2013
Q4 2012
$ Variance
% Variance
Commentary
Operating Working
Capital
(2)
Percentage
of LTM Sales
9.6%
8.8%
N/A
(80 bps)
Principally driven by lower
LTM Sales and 2012 labor
negotiations
Cash Paid for Interest
$46
$47
($1)
(0.9%)
Principally the result of
repayments and refinancing
Cash Paid for Income
Taxes
$0
$2
($2)
(82.4%)
Decreased foreign taxable
income
(1)
See Appendix for a reconciliation of Adjusted Free Cash Flow.
(2)
Operating
Working
Capital
=
A/R
+
Inventory
–
A/P. |
 Proprietary + Confidential
9
2014 Guidance –
End Markets Commentary
Allison expects first quarter net sales to be higher than the same period in 2013. The
anticipated year-over-year increase in first quarter net sales is
expected to be principally driven by higher demand in the global On-Highway end markets and the Service Parts, Support
Equipment & Other end market partially offset by previously considered reductions
in Defense net sales and lower demand for North America Hybrid-Propulsion
Systems for Transit Bus. •
North America On-Highway
•
2013
net
sales
$825
million;
Expect
2014
net
sales
midpoint
growth
of
11
percent
principally
driven
by
continued
market
recovery
•
North America Hybrid-Propulsion Systems for Transit Bus
•
2013 net sales $105 million; Expect 2014 net sales midpoint reduction of 23 percent
principally driven by engine emissions improvements and non- hybrid
alternative technologies that generally require a fully-automatic transmission (e.g. xNG)
•
North America Off-Highway
•
2013 net sales $39 million; Expect 2014 net sales midpoint growth of 31 percent
principally driven by a slowly emerging improvement in demand from the
hydraulic fracturing market •
Defense
•
2013 net sales $202 million; Expect 2014 net sales midpoint reduction of 33 percent
principally driven by continued reductions in U.S. defense spending to
longer term averages experienced during periods without active conflicts
•
Outside North America On-Highway
•
2013 net sales $293 million; Expect 2014 net sales midpoint growth of 10 percent
principally driven by growth in key developing markets through increased
fully-automatic transmission penetration and implementation of additional vehicle releases and a slight improvement in European end
markets after a weak 2014 first quarter
•
Outside North America Off-Highway
•
2013
net
sales
$88
million;
Expect
2014
net
sales
midpoint
growth
of
30
percent
principally
driven
by
moderately
improved
second
half
demand
conditions in the mining and energy sectors
•
Service Parts, Support Equipment & Other
•
2013 net sales $375 million; Expect 2014 net sales midpoint growth of 5 percent
principally driven by improved global On-Highway and Off- Highway
service parts demand and increased support equipment sales commensurate with higher transmission unit volumes |
 Proprietary + Confidential
10
2014 Guidance -
Summary
Guidance
Commentary
Net Sales Growth from 2013
3 to 6 percent
We expect a continued recovery in the North America On-
Highway end market, lower demand in the North America
Hybrid-Propulsion Systems for Transit Bus end market due
to engine emissions improvements and non-hybrid
alternative technologies that generally require a fully-
automatic transmission (e.g. xNG), a slowly emerging
improvement in demand from the North America energy
sector’s hydraulic fracturing market, previously considered
reductions in U.S. defense spending to longer term
averages experienced during periods without active
conflicts, growth in the Outside North America On-Highway
end market, moderately improved second half demand
conditions in the Outside North America Off-Highway end
market and higher demand in the Service Parts, Support
Equipment & Other end market.
Adjusted EBITDA Margin excluding
technology-related license expenses
32 to 34 percent
Principally driven by sales mix and volume timing
Adjusted Free Cash Flow ($ in millions)
$375 to $425
$2.00 to $2.25 per diluted share
CapEx
($ in millions)
Maintenance
New Product Programs
$55 to $60
$5 to $10
Subject to timely completion of development and sourcing
milestones
Cash Income Taxes ($ in millions)
$10 to $15
U.S. income tax shield and net operating loss utilization
|
 APPENDIX
Non-GAAP Financial Information |
 Proprietary + Confidential
12
(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.
Non-GAAP Reconciliations
(1 of 2)
Adjusted Net Income and Adjusted EBITDA reconciliation
$ in millions, Unaudited
2009
2010
2011
2012
2013
2012
2013
Net (loss) income
($323.9)
$29.6
$103.0
$514.2
$165.4
$11.2
$42.9
plus:
Interest expense,
net
234.2
277.5
217.3
151.2
132.9
35.6
28.4
Cash interest expense
(242.5)
(239.1)
(208.6)
(167.3)
(159.2)
(46.7)
(46.3)
Income tax expense (benefit)
41.4
53.7
47.6
(298.0)
100.7
9.9
24.6
Cash income
taxes
(5.5)
(2.2)
(5.8)
(10.7)
(3.8)
(1.7)
(0.3)
Fee to terminate services agreement with Sponsors
—
—
—
16.0
—
—
—
Technology-related investment expenses
—
—
—
14.4
5.0
—
2.5
Public offering expenses
—
—
—
6.1
1.6
—
0.7
Trade name
impairment
190.0
—
—
—
—
—
—
Amortization of intangible
assets
155.9
154.2
151.9
150.0
105.3
37.5
25.2
Adjusted net
income
$49.6
$273.7
$305.4
$375.9
$347.9
$45.8
$77.7
Cash interest expense
242.5
239.1
208.6
167.3
159.2
46.7
46.3
Cash income
taxes
5.5
2.2
5.8
10.7
3.8
1.7
0.3
Depreciation of property, plant and equipment
105.9
99.6
103.8
102.5
98.7
26.5
24.6
(Gain)/loss on redemptions and repayments of long-term debt
(8.9)
(3.3)
16.0
22.1
0.8
0.5
0.3
Dual power inverter module extended coverage
11.4
(1.9)
—
9.4
(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)
1.5
(0.1)
0.4
Unrealized (gain) loss on foreign exchange
—
(0.2)
0.3
0.1
2.3
0.3
—
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
13.8
1.7
3.1
Adjusted
EBITDA
$501.3
$617.0
$711.9
$705.1
$626.6
$131.9
$152.7
Adjusted EBITDA excluding technology-related license expenses
$501.3
$617.0
$711.9
$717.1
$632.6
$131.9
$152.7
Net Sales
$1,766.7
$1,926.3
$2,162.8
$2,141.8
$1,926.8
$487.0
$491.0
Adjusted EBITDA
margin
28.4%
32.0%
32.9%
32.9%
32.5%
27.1%
31.1%
Adjusted EBITDA margin excl technology-related license expenses
28.4%
32.0%
32.9%
33.5%
32.8%
27.1%
31.1%
Three months ended
December 31,
For the year ended December 31, |
 Proprietary + Confidential
13
(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.
Non-GAAP Reconciliations
(2 of 2)
Adjusted Free Cash Flow reconciliation
$ in millions, Unaudited
2009
2010
2011
2012
2013
2012
2013
Net Cash Provided by Operating Activities
$168.7
$388.9
$469.2
$497.5
$453.5
$112.1
$138.1
(Deductions) or Additions:
Long-lived assets
(88.2)
(73.8)
(96.9)
(123.9)
(74.4)
(30.0)
(33.2)
Fee to terminate services agreement with Sponsors
—
—
—
16.0
—
—
—
Technology-related license expenses
—
—
—
12.0
6.0
—
—
2009 Non-Recurring Activity
(1)
61.0
—
—
—
—
—
—
Adjusted Free Cash Flow
$141.5
$315.1
$372.3
$401.6
$385.1
$82.1
$104.9
Net
Sales
$1,766.7
$1,926.3
$2,162.8
$2,141.8
$1,926.8
$487.0
$491.0
Adjusted Free Cash Flow (% to Net Sales)
8.0%
16.4%
17.2%
18.8%
20.0%
16.9%
21.4%
Three months ended
December 31,
For the year ended December 31, |