Allison Transmission Announces Fourth Quarter and Full Year 2017 Results
INDIANAPOLIS, Feb. 14, 2018 /PRNewswire/ -- Allison Transmission Holdings Inc. (NYSE: ALSN), the largest global provider of commercial duty fully-automatic transmissions, today reported net sales for the fourth quarter of $588 million, a 25 percent increase from the same period in 2016. The increase in net sales was principally driven by higher demand in the North America On-Highway, Service Parts, Support Equipment & Other, North America Off-Highway and Outside North America On-Highway end markets.
Net Income for the quarter was $215 million compared to $61 million for the same period in 2016. Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $210 million, or 35.7 percent of net sales, compared to $158 million, or 33.8 percent of net sales, for the same period in 2016. Net Cash Provided by Operating Activities for the quarter was $166 million compared to $175 million for the same period in 2016. Adjusted Free Cash Flow, a non-GAAP financial measure, for the quarter was $115 million compared to $145 million for the same period in 2016.
Lawrence E. Dewey, Chairman and Chief Executive Officer of Allison Transmission commented, "2017 was a noteworthy year at Allison. Full year results exceeded our initial Net Sales guidance ranges across all of our end markets. Furthermore, Allison achieved record levels of Net Sales, Gross Margin and Net Cash Provided by Operating Activities, and realized its second consecutive year of double digit growth in the Outside North America On-Highway end market. Dewey continued, "Throughout the year, we continued our well-defined approach to capital structure and allocation. During the fourth quarter, we paid a dividend of $0.15 per share and settled $106 million of share repurchases, resulting in $885 million of total share repurchases in 2017."
Fourth Quarter Net Sales by End Market
Q4 2017 Q4 2016
Net Sales Net Sales
End Market ($M) ($M) % Variance
---------- --- --- ----------
North America On-
Highway 270 217 24%
----------------- --- --- ---
North America
Electric Hybrid-
Propulsion Systems
for Transit Bus 17 20 (15%)
------------------- --- --- ----
North America Off-
Highway 28 0 NA
------------------ --- --- ---
Defense 25 37 (32%)
------- --- --- ----
Outside North America
On-Highway 98 83 18%
--------------------- --- --- ---
Outside North America
Off-Highway 11 4 175%
--------------------- --- --- ---
Service Parts,
Support Equipment &
Other 139 108 29%
-------------------- --- --- ---
Total Net Sales 588 469 25%
--------------- --- --- ---
Fourth Quarter Highlights
North America On-Highway end market net sales were up 24 percent from the same period in 2016 principally driven by higher demand for Rugged Duty Series models and down 4 percent on a sequential basis principally driven by lower demand for Pupil Transport/Shuttle Series, Transit/Other Bus and Highway Series models.
North America Electric Hybrid-Propulsion Systems for Transit Bus end market net sales were down $3 million from the same period in 2016 and down $2 million sequentially, in both cases principally driven by intra-year movement in the timing of orders.
North America Off-Highway end market net sales were up $28 million from the same period in 2016 and up $11 million on a sequential basis, in both cases principally driven by higher demand from hydraulic fracturing applications.
Defense end market net sales were down $12 million from the same period in 2016 and down $10 million sequentially, in both cases principally driven by the timing of Tracked Defense shipments.
Outside North America On-Highway end market net sales were up 18 percent from the same period in 2016 principally driven by higher demand in Asia, Europe and South America, and up 10 percent on a sequential basis principally driven by higher demand in Asia and Europe.
Outside North America Off-Highway end market net sales were up $7 million from the same period in 2016 principally driven by higher demand in the mining sector and down $3 million sequentially principally driven by lower demand in the energy sector.
Service Parts, Support Equipment & Other end market net sales were up 29 percent from the same period in 2016 principally driven by higher demand for North America Off-Highway service parts and global support equipment, and flat on a sequential basis.
Gross profit for the quarter was $288 million, an increase of 32 percent from $218 million for the same period in 2016. Gross margin for the quarter was 49.0 percent, an increase of 260 basis points from a gross margin of 46.4 percent for the same period in 2016. The increase in gross profit from the same period in 2016 was principally driven by favorable net sales and price increases on certain products partially offset by $9 million of cost in connection with the ratification of a six-year collective bargaining agreement with UAW Local 933, higher manufacturing expense commensurate with increased net sales and unfavorable material cost.
Selling, general and administrative expenses for the quarter were $97 million, an increase of $13 million from $84 million for the same period in 2016. The increase was principally driven by unfavorable product warranty adjustments and increased commercial activities spending partially offset by lower incentive compensation expense.
Engineering - research and development expenses for the quarter were $31 million, an increase of $7 million from $24 million for the same period in 2016. The increase was principally driven by increased product initiatives spending partially offset by lower incentive compensation expense.
As a result of events and circumstances in the fourth quarter 2017, we reviewed certain of the long-lived assets related to the production of the TC10 transmission, and recorded an impairment charge of $32 million. Continued weak demand conditions for this product contributed to the future cash flows of the related long-lived assets being less than the carrying value of those assets.
Income tax for the quarter was a $131 million benefit compared to a $33 million expense for the same period in 2016. The change was principally driven by a one-time income tax benefit of $155 million resulting from a decrease in deferred tax liabilities partially offset by an increase in tax liabilities related to our accumulated foreign earnings and profits, both as a result of the U.S. Tax Cuts and Jobs Act enacted into law in December 2017.
Net income for the quarter was $215 million compared to $61 million for the same period in 2016. The increase was principally driven by the enactment of the U.S. Tax Cuts and Jobs Act, increased gross profit and lower incentive compensation expense partially offset by a loss associated with the impairment of long-lived assets, increased technology-related investment expense, unfavorable product warranty adjustments, increased product initiatives spending, increased interest expense and increased commercial activities spending.
Fourth Quarter Non-GAAP Financial Measures
Adjusted EBITDA for the quarter was $210 million, or 35.7 percent of net sales, compared to $158 million, or 33.8 percent of net sales, for the same period in 2016. The increase was principally driven by increased net sales, price increases on certain products and lower incentive compensation expense partially offset by unfavorable product warranty adjustments, increased product initiatives spending, higher manufacturing expense commensurate with increased net sales, increased commercial activities spending and unfavorable material cost.
Adjusted Free Cash Flow for the quarter was $115 million compared to $145 million for the same period in 2016, a decrease of $30 million. The decrease was principally driven by increased cash interest expense, increased cash income taxes, increased pension funding, increased capital expenditures, unfavorable warranty adjustments, increased product initiatives spending and increased commercial activities spending partially offset by increased gross profit and lower incentive compensation expense.
2018 Guidance
Allison expects 2018 net sales to be in the range of up 3 to 7 percent compared to 2017, an Adjusted EBITDA margin in the range of 37.5 to 39.5 percent and an Adjusted Free Cash Flow in the range of $550 to $600 million. Capital expenditures are expected to be in the range of $85 to $95 million and cash income taxes are expected to be in the range of $70 to $80 million.
Our 2018 net sales guidance anticipates continued strength in the North American On-Highway end market. Allison's 2018 net sales outlook also assumes increased demand in the Outside North America On-Highway, Defense and North America Off-Highway end markets and price increases on certain products partially offset by decreased demand in the Service Parts, Support Equipment & Other end market.
Although we are not providing specific first quarter 2018 guidance, Allison does expect first quarter net sales to be up from the same period in 2017 principally driven by increased demand expected in the North America On-Highway and North America Off-Highway end markets.
Conference Call and Webcast
The company will host a conference call at 8:00 a.m. ET on Thursday, February 15 to discuss its fourth quarter 2017 results. Dial-in number is 1-201-689-8470 and the U.S. toll-free dial-in number is 1-877-407-9039. A live webcast of the conference call will also be available online at http://ir.allisontransmission.com.
For those unable to participate in the conference call, a replay will be available from 11:00 a.m. ET on February 15 until 11:59 p.m. ET on February 22. The replay dial-in number is 1-844-512-2921 and the international replay dial-in number is 1-412-317-6671. The replay passcode is 13674799.
About Allison Transmission
Allison Transmission (NYSE: ALSN) is the world's largest manufacturer of fully automatic transmissions for medium- and heavy-duty commercial vehicles, and is a leader in electric hybrid-propulsion systems for city buses. Allison transmissions are used in a variety of applications including refuse, construction, fire, distribution, bus, motorhomes, defense and energy. Founded in 1915, the company is headquartered in Indianapolis, Indiana, USA and employs approximately 2,600 people worldwide. With a market presence in more than 80 countries, Allison has regional headquarters in the Netherlands, China and Brazil with manufacturing facilities in the U.S., Hungary and India. Allison also has approximately 1,400 independent distributor and dealer locations worldwide. For more information, visit allisontransmission.com.
Forward-Looking Statements
This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release are forward-looking statements, including all statements regarding future financial results. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plans," "project," "anticipate," "believe," "estimate," "predict," "intend," "forecast," "could," "potential," "continue" or the negative of these terms or other similar terms or phrases. Forward-looking statements are not guarantees of future performance and involve known and unknown risks. 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; uncertainty in the global regulatory and business environments in which we operate; 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 and other external factors impacting demand; 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, competitive threats and changing customer needs; risks associated with our international operations; labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal customers; and other risks and uncertainties associated with our business described in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviation will not be material. All information is as of the date of this press release, and we undertake no obligation to update any forward-looking statement to conform the statement to actual results or changes in expectations.
Use of Non-GAAP Financial Measures
This press release contains information about Allison's financial results which are not presented in accordance with accounting principles generally accepted in the United States ("GAAP"). Such non-GAAP financial measures are reconciled to their closest GAAP financial measures at the end of this press release. Non-GAAP financial measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures of other companies.
This press release also contains forward-looking estimates of non-GAAP Adjusted EBITDA Margin and Adjusted Free Cash Flow for fiscal year 2018. We are unable to provide a reconciliation of our forward-looking estimate of non-GAAP Adjusted EBITDA Margin to a forward-looking estimate of GAAP Net Income because certain information needed to make a reasonable forward-looking estimate of GAAP Net Income is difficult to predict and estimate and is often dependent on future events which may be uncertain or outside of our control. These may include unanticipated charges related to asset impairments (fixed assets, investments, intangibles or goodwill) and unanticipated non-recurring items not reflective of ongoing operations. We are unable to provide a reconciliation of our forward-looking estimate of non-GAAP Adjusted Free Cash Flow to a forward-looking estimate of GAAP Net Cash Provided by Operating Activities because certain information needed to make a reasonable forward-looking estimate of GAAP Net Cash Provided by Operating Activities is difficult to predict and estimate and is often dependent on future events which may be uncertain or outside of our control. These may include the level of excess income tax benefit from share-based compensation and unanticipated non-recurring items.
Attachment
-- Condensed Consolidated Statements of Operations
-- Condensed Consolidated Balance Sheets
-- Condensed Consolidated Statements of Cash Flows
-- Reconciliation of GAAP to Non-GAAP Financial Measures
Allison Transmission Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited, dollars in millions, except per share data)
Three months ended December 31, Twelve months ended December 31,
2017 2016 2017 2016
---- ---- ---- ----
Net sales $588 $469 $2,262 $1,840
Cost of sales 300 251 1,131 976
--- --- ----- ---
Gross profit 288 218 1,131 864
Selling, general and
administrative 97 84 342 324
Engineering -research and
development 31 24 105 88
Loss associated with
impairment of long-lived
assets 32 - 32 -
--- --- --- ---
Operating income 128 110 652 452
Interest expense, net (25) (17) (103) (101)
Expenses related to long-
term debt refinancing - - - (12)
Other (expense) income, net (19) 1 (22) 2
--- --- --- ---
Income before income taxes 84 94 527 341
Income tax benefit (expense) 131 (33) (23) (126)
--- --- --- ----
Net income $215 $61 $504 $215
==== === ==== ====
Basic earnings per share
attributable to common
stockholders $1.52 $0.37 $3.38 $1.28
===== ===== ===== =====
Diluted earnings per share
attributable to common
stockholders $1.51 $0.36 $3.36 $1.27
===== ===== ===== =====
Allison Transmission Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, dollars in millions)
December 31, December 31,
2017 2016
---- ----
ASSETS
Current Assets
Cash and cash equivalents $199 $205
Accounts receivable 221 197
Inventories 154 126
Income taxes receivable 33 3
Other current assets 25 17
--- ---
Total Current Assets 632 548
Property, plant and equipment, net 448 464
Intangible assets, net 1,153 1,242
Goodwill 1,941 1,941
Other non-current assets 31 24
--- ---
TOTAL ASSETS $4,205 $4,219
====== ======
LIABILITIES
Current Liabilities
Accounts payable $159 $128
Product warranty liability 22 25
Current portion of long-term debt 12 12
Deferred revenue 41 27
Other current liabilities 183 150
--- ---
Total Current Liabilities 417 342
Product warranty liability 33 38
Deferred revenue 75 66
Long-term debt 2,534 2,147
Deferred income taxes 276 312
Other non-current liabilities 181 233
--- ---
TOTAL LIABILITIES 3,516 3,138
TOTAL STOCKHOLDERS' EQUITY 689 1,081
--- -----
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $4,205 $4,219
====== ======
Allison Transmission Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in millions)
Three Months Ended December 31, Twelve Months Ended December 31,
2017 2016 2017 2016
---- ---- ---- ----
Net cash provided by operating activities $166 $175 $658 $591
Net cash used for investing activities (a) (51) (35) (94) (72)
Net cash used for financing activities (127) (98) (574) (564)
Effect of exchange rate changes in cash 1 (2) 4 (2)
--- --- --- ---
Net (decrease) increase in cash and cash equivalents (11) 40 (6) (47)
Cash and cash equivalents at beginning of period 210 165 205 252
--- --- --- ---
Cash and cash equivalents at end of period $199 $205 $199 $205
==== ==== ==== ====
Supplemental disclosures:
Interest paid $53 $14 $124 $78
Income taxes paid $31 $3 $96 $13
(a) Additions of long-lived
assets $(51) $(35) $(91) $(71)
Allison Transmission Holdings, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited, dollars in millions)
Three months ended Twelve months ended
December 31, December 31,
2017 2016 2017 2016
---- ---- ---- ----
Net income (GAAP) $215 $61 $504 $215
plus:
Income tax (benefit) expense (131) 33 23 126
Interest expense, net 25 17 103 101
Amortization of intangible assets 23 23 90 97
Depreciation of property, plant and equipment 20 21 80 79
Loss associated with impairment of long-lived
assets (a) 32 - 32 -
Technology-related investment expense (b) 13 - 16 1
Stock-based compensation expense (c) 4 - 12 -
UAW Local 933 contract signing bonus (d) 10 - 10 -
Dual power inverter module units extended coverage
(e) - - (2) 1
Unrealized (gain) loss on foreign exchange (f) (1) - - 1
Expenses related to long-term debt refinancing (g) - - - 12
Unrealized gain on commodity hedge contracts (h) - - - (2)
Stockholder activism expenses (i) - - - 4
Other, net - 3 - 9
--- --- --- ---
Adjusted EBITDA (Non-GAAP) $210 $158 $868 $644
==== ==== ==== ====
Net sales (GAAP) $588 $469 $2,262 $1,840
Adjusted EBITDA margin (Non-GAAP) 35.7% 33.8% 38.4% 35.0%
Net Cash Provided by Operating Activities (GAAP) $166 $175 $658 $591
(Deductions) or Additions to Reconcile to Adjusted
Free Cash Flow:
Additions of long-lived assets (51) (35) (91) (71)
Stockholder activism expenses (i) - - - 4
Excess tax benefit from stock-based compensation
(j) - 5 - 6
--- --- --- ---
Adjusted Free Cash Flow (Non-GAAP) $115 $145 $567 $530
==== ==== ==== ====
(a) Represents a
charge
associated
with the
impairment of
long-lived
assets
related to
the
production of
the TC10
transmission.
(b) Represents a
charge
(recorded in
Other
(expense)
income, net)
for
investments
in co-
development
agreements to
expand our
position in
transmission
technologies.
(c) Represents
stock-based
compensation
expense
(recorded in
Cost of
sales,
Selling,
general and
administrative,
and
Engineering -
research and
development).
(d) Represents a
bonus
(recorded in
Cost of
sales,
Selling,
general and
administrative,
and
Engineering -
research and
development)
to eligible
employees
recorded in
the fourth
quarter of
2017 as a
result of UAW
Local 933
represented
employees
ratifying a
six-year
collective
bargaining
agreement
effective
through
November
2023.
(e) Represents an
adjustment
(recorded in
Selling,
general and
administrative)
associated
with the Dual
Power
Inverter
Module
("DPIM")
extended
coverage
program
liability.
The DPIM
liability
will continue
to be
reviewed for
any changes
in estimates
as additional
claims data
and field
information
become
available.
(f) Represents
(gains)
losses
(recorded in
Other
(expense)
income, net)
on
intercompany
financing
transactions
related to
investments
in plant
assets for
our India
facility.
(g) Represents
expenses
related to
the
refinancing
of Allison
Transmission,
Inc.'s, our
wholly owned
subsidiary,
Senior
Secured
Credit
Facility in
the third
quarter of
2016.
(h) Represents
unrealized
gains
(recorded in
Other
(expense)
income, net)
on the mark-
to-market of
our commodity
hedge
contracts.
(i) Represents
expenses
(recorded in
Selling,
general and
administrative)
directly
associated
with
stockholder
activism
activity
including the
notice, and
subsequent
withdrawal,
of director
nomination
and
governance
proposals by
Ashe Capital
Management,
LP.
(j) Represents the
amount of tax
benefit
(recorded in
Income tax
benefit
(expense))
related to
stock-based
compensation
expense
adjusted from
cash flows
from
operating
activities to
cash flows
from
financing
activities.
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SOURCE Allison Transmission Holdings Inc.
