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Allison Transmission Announces Fourth Quarter and Full Year 2012 Results

Fourth Quarter 2012:  – Net Sales $487 million, Adjusted EBITDA $132 million and Adjusted Free Cash Flow $82 million   Full Year 2012:   – Net Sales $2,142 million, Adjusted EBITDA $705 million and Adjusted Free Cash Flow $402 million   Allison Transmission Holdings, Inc. (NYSE: ALSN), the world’s largest manufacturer of fully-automatic transmissions for … Continued

Fourth Quarter 2012:
 – Net Sales $487 million, Adjusted EBITDA $132 million and Adjusted Free Cash Flow $82 million

  Full Year 2012:
  – Net Sales $2,142 million, Adjusted EBITDA $705 million and Adjusted Free Cash Flow $402 million  

Allison Transmission Holdings, Inc. (NYSE: ALSN), the world’s largest manufacturer of fully-automatic transmissions for medium- and heavy-duty commercial vehicles and hybrid-propulsion systems for city buses, today reported net sales for the quarter of $487 million, a 6 percent decrease from the same period in 2011. Net Income for the quarter was $11 million, compared to a net income of $45 million for the same period in 2011, a decrease of $33 million. Adjusted Net Income, a non-GAAP financial measure, for the quarter was $46 million, compared to Adjusted Net Income of $52 million for the same period in 2011, a decrease of $6 million. Diluted earnings per share for the quarter were $0.06.

The decrease in net sales was principally driven by reduced demand for North America Off-Highway transmission products and service parts due to continued weakness in natural gas pricing. Partially offsetting these declines were increased net sales in the Global On-Highway and Outside North America Off-Highway end markets and price increases on certain products. Strength in the Outside North America Off-Highway end market was principally driven by higher demand in the energy and mining sectors.

Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $132 million, or 27.1 percent of net sales, compared to $156 million for the same period in 2011. Adjusted EBITDA for the quarter included $7 million of costs, excluding the contract signing bonus, to conclude a new five-year labor agreement with the United Automotive, Aerospace, and Agricultural Implement Workers of America (UAW) Local 933 and a $9 million product warranty charge for specific product issues. Adjusted EBITDA for the quarter excludes a $9 million charge for the UAW Local 933 contract signing bonus. Adjusted Free Cash Flow, also a non-GAAP financial measure, for the quarter was $82 million compared to $30 million for the same period in 2011.

Lawrence E. Dewey, Chairman, President and Chief Executive Officer of Allison Transmission commented, “Despite significant declines in the North America energy sector’s hydraulic fracturing market, we continued to demonstrate strong operating margins and cash flow while concluding a new five-year labor agreement with the UAW Local 933. The Global On-Highway end markets were stronger than anticipated despite increased seasonal production downtime taken by many of our customers and somewhat elevated commercial vehicle retail inventory levels. Maintaining our prudent approach to capital structure management we refinanced an additional $300 million of our Senior Secured Credit Facility Term B-1 Loan due in 2014, repaid $95 million of debt and paid a quarterly dividend to our shareholders. Given the continued heightened level of uncertainty in our end markets, we are taking a cautious approach to 2013. Consequently we have implemented several initiatives to proactively align costs and programs across our business with the lack of near-term visibility and confidence in certain of our end markets.”

Fourth Quarter Net Sales by End Market

End MarketQ4 2012

Net Sales ($M)

Q4 2011

Net Sales ($M)

% Variance
North America On-Highway$188$1757%
North America Hybrid-Propulsion Systems for Transit Bus$32$2719%
North America Off-Highway$17$70(76%)
Military$74$706%
Outside North America On-Highway$73$704%
Outside North America Off-Highway$30$1958%
Service, Parts, Support Equipment & Other$73$85(14%)
Total$487$516(6%)

F

ourth Quarter Highlights
North America On-Highway end market net sales were up 7 percent from the same period in 2011. The year over year increase was principally driven by higher demand for Pupil Transport/Shuttle Series, Motorhome Series and Highway Series models.

North America Hybrid-Propulsion Systems for Transit Bus end market net sales were up 19 percent from the same period in 2011 principally due to the timing of orders.

North America Off-Highway end market net sales were down 76 percent from the same period in 2011. The year over year decrease was principally driven by lower demand from hydraulic fracturing applications due to weakness in natural gas pricing.

Military end market net sales were up 6 percent from the same period in 2011 principally due to higher wheeled product requirements for several programs partially offset by lower tracked products demand commensurate with reduced U.S. defense spending.

Outside North America On-Highway end market net sales were up 4 percent from the same period in 2011 reflecting strength in China partially offset by weakness in Latin America while European end markets were flat.

Outside North America Off-Highway end market net sales were up 58 percent from the same period in 2011 principally driven by strength in the energy and mining sectors.

Service Parts, Support Equipment & Other end market net sales were down 14 percent from the same period in 2011. The year over year decrease was principally driven by lower demand for North America Off-Highway and On-Highway service parts partially offset by price increases on certain products.

Gross profit for the quarter was $194 million, a decrease of 13 percent over gross profit of $222 million for the same period in 2011. Gross margin for the quarter was 39.9 percent, a decrease of 320 basis points over a gross margin of 43.1 percent for the same period in 2011. Excluding the costs ($7 million) and charges ($8 million) to conclude a new five-year labor agreement with the UAW Local 933 the gross margin decreased 30 basis points from the same period in 2011.

Selling, general and administrative expenses for the quarter were $112 million, an increase of 2 percent over selling, general and administrative expenses of $110 million for the same period in 2011. The increase was principally driven by a $9 million product warranty charge for specific product issues and a $1 million contract signing bonus charge to conclude a new five-year labor agreement with the UAW Local 933 partially offset by reduced global commercial spending activities.

Engineering – research and development expenses for the quarter were $28 million, an increase of 7 percent over engineering – research and development expenses of $26 million for the same period in 2011. The increase was principally driven by higher product initiatives spending.

Fourth Quarter Non-GAAP Financial Measures Adjusted EBITDA for the quarter was $132 million, or 27.1 percent of net sales, compared to $156 million, or 30.3 percent of net sales, for the same period in 2011. The decrease in Adjusted EBITDA was principally driven by decreased net sales, $7 million of costs to conclude a new five-year labor agreement with the UAW Local 933, a $9 million product warranty charge and higher product initiatives spending partially offset by favorable material costs, price increases on certain products and reduced global commercial spending activities.

Adjusted Net Income for the quarter was $46 million compared to $52 million for the same period in 2011. The decrease in Adjusted Net Income was principally driven by decreased Adjusted EBITDA and a $9 million contract signing bonus charge to conclude a new five-year labor agreement with the UAW Local 933 partially offset by decreased cash interest expense as a result of debt refinancing and repayments.

Adjusted Free Cash Flow for the quarter was $82 million compared to $30 million for the same period in 2011. The increase was principally driven by increased net cash provided by operating activities and reduced capital expenditures. The decrease in capital expenditures was principally driven by prior year spending for the India expansion and the timing of investments in productivity and replacement programs partially offset by increased product initiatives spending.

2013 Guidance
Allison expects 2013 net sales to decline in the range of 6 to 8 percent, an Adjusted EBITDA margin in the range of 32 to 34 percent, and an Adjusted Free Cash Flow in the range of $325 to $375 million, or $1.75 to $2.01 per diluted share. Capital expenditures are expected to be in the range of $80 to $90 million, which includes maintenance spending of approximately $60 million. Cash income taxes are expected to be in the range of $15 to $20 million.

Our 2013 net sales guidance reflects a cautious approach given the continued heightened level of uncertainty in our end markets and the lack of near-term visibility and confidence in certain of our end markets. Allison’s 2013 net sales outlook also incorporates an assumed continuation of cyclically low levels of demand in the North America energy sector’s hydraulic fracturing market, the previously considered reductions in U.S. defense spending to longer term averages experienced during periods without active conflicts and lower demand in the North America Hybrid-Propulsion Systems for Transit Bus end market due to municipal spending constraints. Accordingly we assume year over year net sales reductions in the Global Off-Highway, Military and North America Hybrid-Propulsion Systems for Transit Bus end markets partially offset by year over year net sales growth in the Global On-Highway and Service Parts, Support Equipment & Other end markets.

Although we are not providing specific first quarter 2013 guidance, Allison does expect first quarter net sales to be significantly lower than the same period in 2012. The anticipated year over year decline in first quarter net sales is principally driven by considerably lower demand in the North America energy sector’s hydraulic fracturing market, previously considered reductions in Military net sales and weaker Global On-Highway end markets entering 2013. Allison expects that the majority of the full year 2013 net sales reduction implied by the midpoint of our guidance will occur in the first quarter followed by growth in the Global On-Highway end markets for the balance of the year.

Our 2013 Adjusted EBITDA margin guidance incorporates several initiatives to proactively align costs and programs across our business with Allison’s cautious approach to net sales guidance. These cost initiatives also demonstrate our capability and commitment to maintain Adjusted EBITDA margins and Adjusted Free Cash Flow generation while supporting a cyclical recovery in Allison’s core North America On-Highway end market and Outside North America growth plans.

 

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