Allison Transmission Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied text does not provide separate fourth-quarter results. Unless otherwise noted, amounts are in U.S. dollars.
Business context
Allison designs and manufactures fully automatic transmissions and electric hybrid and fully electric propulsion systems for commercial, off-highway and defense vehicles. Approximately 76% of 2021 revenue came from North America. The company reported one operating and reportable segment.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $2,402 million | $2,081 million | +15% |
| Gross profit / gross margin | $1,145 million / 47.7% | $998 million / 48.0% | Profit +15%; margin down about 0.3 percentage point |
| Operating income / margin | $669 million / 27.9% | $534 million / 25.7% | +25% |
| Net income / diluted EPS | $442 million / $4.13 | $299 million / $2.62 | Net income +48% |
| Adjusted EBITDA / margin (non-GAAP) | $844 million / 35.1% | $732 million / 35.2% | EBITDA +15%; margin broadly flat |
| Cash from operations | $635 million | $561 million | +$74 million |
| Capital expenditures | $175 million | $115 million | +$60 million |
| Adjusted free cash flow (non-GAAP) | $460 million | $458 million | Broadly flat |
Revenue increased across all reported end markets. The largest dollar gains were Outside North America On-Highway (+$101 million) and North America On-Highway (+$96 million). Service Parts, Support Equipment and Other sales rose 11% to $517 million. Higher demand and price increases contributed to growth, while customer component shortages constrained vehicle production and Allison sales.
At year-end, cash and cash equivalents were $127 million, down from $310 million. Total debt was $2,531 million, compared with $2,538 million; there were no revolver borrowings, and $645 million of revolving capacity was available net of letters of credit. Current assets were $671 million and current liabilities were $459 million. The company reported a 0.60x first-lien net leverage ratio and compliance with debt covenants.
Financing cash outflow was $604 million, including $513 million of common-stock repurchases and $81 million of dividends. Stockholders’ equity declined to $634 million from $756 million.
Material changes and unusual items
- Sales recovery from pandemic-disrupted 2020 conditions lifted revenue and operating income. Gross margin was nearly unchanged, as price increases and higher volume were offset by unfavorable material costs, manufacturing expense and incentive compensation.
- Management attributed $52 million of gross-profit pressure to unfavorable material costs and $43 million to higher manufacturing expense associated with increased sales. Cost inflation, freight and logistics expense, and overtime related to labor shortages remained pressures.
- Interest expense declined 15% to $116 million, principally reflecting lower borrowing costs after the 2020 refinancing. Other income was $19 million, including gains on marketable securities and technology-related investments.
- The product warranty liability was $53 million at year-end, down from $66 million. The filing notes a $23 million warranty adjustment in 2020 related to a defined transmission shift-quality issue; 2021 net adjustments to the warranty liability were $1 million.
Outlook, commentary and risks
Management expected commercial vehicle build schedules to remain constrained in 2022 by component availability. It anticipated 2022 capital expenditures broadly in line with 2021 and higher cash income taxes because deductions related to intangible assets were expected to decline. The filing does not provide clear numerical revenue or earnings guidance.
- COVID-19-related supply-chain, labor, raw-material and freight constraints could continue to restrict production and increase costs; the company said it may not fully recover higher costs through pricing.
- Customer concentration is significant: the top five OEMs represented approximately 52% of 2021 net sales; Daimler, PACCAR and Traton represented approximately 20%, 10% and 10%, respectively.
- Other key risks include cyclical end markets, dependence on validated suppliers and some single-source components, competition and faster-than-expected adoption of electric propulsion, and limited adoption of fully automatic transmissions outside North America.
- Debt service, variable-rate exposure on the term loan, covenant restrictions, and the company’s ability to generate cash are financial risks. The company stated it expected cash, operating cash flow and available revolver capacity to cover anticipated requirements.
- The company manages historical soil and groundwater contamination at its Indianapolis facilities under an EPA agreement; the recorded liability was $3 million. Management believed other ordinary-course legal matters would not materially affect results.
Important facts for investors to verify
- Whether component supply and customer build schedules recover as expected, and whether price increases offset ongoing material, freight and labor inflation.
- Whether margin and cash generation hold up as sales grow, including working-capital needs, capital spending and higher expected cash taxes.
- Debt maturities, variable-rate exposure, covenant headroom and the sustainability of share repurchases and dividends alongside debt service.
- Customer and supplier concentration, especially the exposure to major OEMs and validated or single-source suppliers.
- Warranty claim trends and the adequacy of the $53 million warranty reserve, together with pension and post-retirement obligations.