Item 1. Business
ITEM 1. Business
Overview
Allison Transmission Holdings, Inc. and its subsidiaries (“Allison,” the “Company,” “we,” “us” or “our”) design and manufacture vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense fully automatic transmissions and electric hybrid and fully electric systems. The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception. Allison was an operating unit of General Motors Corporation from 1929 until 2007, when Allison once again became a stand-alone company. In March 2012, Allison began trading on the New York Stock Exchange under the symbol “ALSN”.
We have approximately 3,300 employees. Although approximately 79% of revenues were generated in North America in 2020, we have a global presence by serving customers in Europe, Asia, South America and Africa. We serve customers through an independent network of approximately 1,400 independent distributor and dealer locations worldwide.
In March 2020, the World Health Organization categorized the novel coronavirus ("COVID-19") as a pandemic, and it continues to impact the United States and other major markets in which we operate across the world, resulting in severe disruptions to global markets and supply chains, significant uncertainty and a weaker global outlook. The effects of the pandemic on the global economy began having a material impact on demand for our products and on our results of operations during the second quarter of 2020 as our suppliers and customers reduced or halted production. Our suppliers and customers resumed production during the third quarter of 2020, resulting in increased demand for our products during the third and fourth quarters of 2020.
To limit the spread of COVID-19, governments continue to take various actions including travel bans and restrictions, quarantines, curfews, stay-at-home orders, social distancing guidelines and business shutdowns and closures. Despite these disruptions, we continued manufacturing operations throughout 2020 allowing us to deliver our products to customers without interruption. However, our global manufacturing facilities cut back on operating levels and shifts during 2020 as a result of government orders, our inability to obtain component parts from suppliers and decreased customer demand and, in certain locations, temporarily suspended operations in the second quarter of 2020.
We continue to take a variety of measures to promote the safety and security of our employees and to maintain operations with as minimal impact as possible to our stakeholders, including increased frequency of cleaning and disinfecting of facilities, social distancing, occupancy limits, mask wearing requirements, remote working when possible, travel restrictions, limitations on visitor access to facilities and on-site COVID-19 testing in our Indianapolis, Indiana headquarters. During the second and third quarter of 2020, we also aligned operations, programs and spending across our entire business with current conditions, including reduced compensation expense through restructuring initiatives of both hourly and salary employees related to voluntary and involuntary separation programs implemented during the second quarter of 2020, furloughed a portion of our workforce, reduced overtime, and assessed the timing and cadence of various capital investments.
Our Business
We are the world’s largest manufacturer of fully automatic transmissions for medium- and heavy-duty commercial vehicles and medium- and heavy-tactical U.S. defense vehicles and a supplier of commercial vehicle electric hybrid and fully electric propulsion systems. Allison solutions are used in a wide variety of applications, including on-highway trucks (distribution, refuse, construction, fire and emergency), buses (primarily school and transit), motorhomes, off-highway vehicles and equipment (primarily energy, mining and construction) and defense vehicles (wheeled and tracked). We believe the Allison brand is one of the most recognized in our industry as a result of the performance, reliability and fuel efficiency of our transmissions and propulsion solutions and is associated with high quality, durability, vocational value, technological leadership and superior customer service.
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We int roduced the world’s first fully automatic transmission for commercial vehicles over 7 0 years ago. Since that time, we have driven the trend in North America and Western Europe towards increasing automaticity by targeting a diverse range of commercial vehicle vocations. Allison products are optimized for the unique performance requirements of end users, which typically vary by vocation. Our products are highly engineered, requiring advanced manufacturing processes, and employ complex software algorithms for our transmission controls to maximize end user performance. We have developed over 100 different models that are used in more than 2,500 different vehicle configurations and are compatible with more than 500 combinations of engine brands, models and ratings (including diesel, gasoline, natural gas and other alternative fuels). Additionally, we have created thousands of unique Allison-developed calibrations available to be used with our transmission control modules.
Our Industry
Commercial vehicles typically employ one of three transmission types: manual, automated manual or fully automatic. Manual and automated manual transmissions ("AMT") are the most prevalent transmission type used in Class 8 tractors in North America. Manual transmissions are the most prevalent in medium- and heavy-duty commercial vehicles, generally, outside North America. Manual transmissions utilize a disconnect clutch causing power to be interrupted during each gear shift resulting in energy loss-related inefficiencies and less work being accomplished for a given amount of fuel consumed. In long-distance trucking, this power interruption is not a significant factor, as the manual transmission provides its highest degree of fuel economy during steady-state cruising. However, steady-state cruising is only one part of the duty cycle. When the duty cycle requires a high degree of “start and stop” activity or speed transients, as is common in many vocations as well as in urban environments, we believe manual transmissions result in reduced performance, lower fuel efficiency, lower average speed for a given amount of fuel consumed and inferior ride quality. Moreover, the clutches must be replaced regularly, resulting in increased maintenance expense and vehicle downtime. Manual transmissions also require a skilled driver to operate the disconnect clutch when launching the vehicle and shifting gears. AMTs are manual transmissions that feature automated operation of the disconnect clutch. Fully automatic transmissions utilize technology that smoothly shifts gears instead of a disconnect clutch, thereby delivering uninterrupted power to the wheels during gear shifts and requiring minimal driver input. These transmissions deliver superior acceleration, higher productivity, increased fuel efficiency, reduced operating costs, less driveline shock and smoother shifting relative to both manual transmissions and AMTs in vocations with a high degree of “start and stop” activity, as well as in urban environments.
Emerging technologies in commercial-duty propulsion solutions include electric hybrid and fully electric propulsion solutions in certain end markets, such as transit buses, and are in part driven by efforts to reduce fuel consumption and greenhouse gas emissions. Fully electric powertrains differ from electric hybrid powertrains because they only propel the vehicle with an electric motor; while electric hybrids generally utilize both a conventional internal combustion power source and powertrain as well as the means to propel the vehicle electrically. While both emerging technologies are gaining use in niche automotive markets, they are just beginning to evolve and become proven in commercial vehicle markets.
Fuel efficiency, reduction in fuel consumption and reduced emissions are important considerations for commercial vehicles everywhere and they tend to go together. We believe fuel efficiency, the measure of work performed for a given amount of fuel consumed, is the best method to assess fuel consumption of commercial vehicles as compared to the more commonly-used fuel economy metric of miles-per-gallon (“MPG”). MPG is inadequate for commercial vehicles because it does not encompass two key elements of efficiency that we believe are important to vehicle owners and operators: payload and transport time. For example, if more work can be completed or more payload hauled using the same amount of fuel and/or over a shorter period of time, then we believe the vehicle is more fuel efficient. Since fuel economy only accounts for distance traveled and fuel consumed, ignoring time and work performed, we believe it is therefore an inferior metric to fuel efficiency when it comes to assessing commercial vehicles. Markets, regulations, policies and technology continue to evolve with respect to these topics.
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Our Served Markets
We sell our propulsion solutions globally for use in medium- and heavy-duty on-highway commercial vehicles, off-highway vehicles and equipment and defense vehicles. In addition to the sale of propulsion solutions, we also sell branded replacement parts, support equipment, aluminum die cast components and other products necessary to service the installed base of vehicles utilizing our solutions. The following table provides a summary of our business by end market, for the fiscal year ended December 31, 2020.
NORTH AMERICA
OUTSIDE NORTH AMERICA
END MARKET
ON-
HIGHWAY
OFF-
HIGHWAY
ON-
HIGHWAY
OFF-
HIGHWAY
DEFENSE
SERVICE
PARTS,
SUPPORT
EQUIPMENT
& OTHER
2020 NET SALES
(IN MILLIONS)
$
1,081
$
13
$
280
$
61
$
182
$
464
% OF TOTAL
52%
1%
13%
3%
9%
22%
VOCATIONS OR END USE
• Construction
• Distribution
• Emergency
• Metro Tractors
• Motorhome
• Refuse
• School, transit, shuttle and coach buses
• Utility
• Construction
• Energy
• Mining
• Specialty vehicle
• Construction
• Distribution
• Emergency
• Refuse
• Transit, shuttle and coach buses
• Utility
• Construction
• Energy
• Mining
• Specialty vehicle
• Medium- and heavy-tactical wheeled platforms
• Tracked combat platforms
• Aluminum die cast components
• Extended transmission coverage
• Remanufactured transmissions
• Royalties
• Saleable engineering
• Service parts
• Support equipment
• Transmission fluids
Refer to NOTE 19, “Concentration of Risk” in Part II, Item 8, of this Annual Report on Form 10-K for additional information on our significant original equipment manufacturer (“OEM”) customers.
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North America
On-Highway. We are the largest manufacturer of fully automatic transmissions for the on-highway medium- and heavy-duty commercial vehicle market in North America. The following is a summary of our on-highway net sales by vehicle class in North America.
Our core North American on-highway market includes Class 4-5, Class 6-7 and Class 8 straight trucks, conventional transit, shuttle and coach buses, school buses and motorhomes. Class 8 trucks are subdivided into two markets: straight and tractor. Class 8 straight trucks are those with a unified body (e.g., refuse, construction, and dump trucks), while tractors have a vehicle chassis that is separable from the trailer they pull. We have been supplying transmissions for Class 8 straight trucks for decades, and it is a core end market for us. Today, we have very limited exposure to the Class 8 line-haul tractor market because lower priced manual transmissions and AMTs generally meet the needs of these vehicles which are primarily used in long distance hauling.
We also provide electric hybrid and fully electric propulsion solutions within the North American on-highway market. The interest in conserving fuel and reducing greenhouse gas emissions is driving demand for more fuel efficient commercial vehicles. Our customers for transit bus applications are typically city, state and federal governmental entities. We compete primarily with BAE Systems plc and manufacturers of fully electric propulsion solutions in this market.
We sell substantially all of our transmissions and propulsion solutions in the North American on-highway market to OEMs. These OEMs, in turn, install our transmissions and propulsion solutions in vehicles in which our product is either the exclusive transmission or propulsion solution available or is specifically requested by end users. In 2020, OEM customers representing over 95% of our North American on-highway unit volume participated in long-term agreements (“LTA”) with us. Generally, these LTAs offer the OEM customer defined levels of mutual commitment with respect to growing Allison’s presence in the OEMs’ products and promotional efforts, pricing and sharing of commodity cost risk. The length of our LTAs is typically between three and five years. We often compete in this market against independent manufacturers of manual transmissions, AMTs, electric hybrid and fully electric propulsion solutions, fully automatic transmissions manufactured by Ford Motor Company (“Ford”), ZF Friedrichshafen AG (“ZF”) and Voith GmbH (“Voith”), and against vertically integrated OEMs in certain weight classes that use their own internally manufactured transmissions in certain vehicles.
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The following table presents a summary of our competitive position by vehicle class in the North America On-Highway end market.
CLASS 4-5
TRUCKS
CLASS 6-7
TRUCKS
CLASS 8 STRAIGHT
TRUCKS
SCHOOL BUSES
MOTORHOMES
2020 SHARE
14%
75%
80%
84%
47%
PRIMARY COMPETITION
• Ford
• Manual
Transmissions
• Ford
• Manual
Transmissions
• AMTs
• Ford
• Ford
Off-Highway. We have provided products used in vehicles and equipment that serve energy, mining and construction applications in North America for over 70 years. Off-highway energy applications include hydraulic fracturing equipment, well-stimulation equipment, pumping equipment, and well-servicing rigs, which often use a fully automatic transmission to propel the vehicle and drive auxiliary equipment. We supply our heavy duty off-highway transmissions to producers of well-stimulation and well-servicing equipment. Competition includes Caterpillar Inc. (“Caterpillar”) and Twin Disc, Inc. (“Twin Disc”).
We also provide heavy-duty transmissions used in mining trucks, specialty vehicles and construction vehicles. Mining applications include trucks used to haul various commodities and other products, including rigid dump trucks, underground trucks and long-haul tractor trailer trucks with load capacities between 40 to 110 tons. Our major competitors in this end market are Caterpillar and Komatsu Ltd. (“Komatsu”), both of which are vertically integrated and manufacture fully automatic transmissions for their own vehicles. Specialty vehicles using our heavy-duty transmissions include airport rescue and firefighting vehicles and heavy-equipment transporters. Our major competitor in this end market is Twin Disc. Construction applications include articulated dump trucks, with Caterpillar, Volvo Group (“Volvo”) and ZF as competitors.
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Outside North America
Outside North America we serve several different markets, including: Europe, Middle East, Africa (collectively, “EMEA”), Asia-Pacific and South America.
On-Highway. We are the largest manufacturer of fully automatic transmissions for the commercial vehicle market outside of North America. While the use of fully automatic transmissions in the medium- and heavy-duty commercial vehicle market has been widely accepted in North America, markets outside North America continue to be dominated by manual transmissions. Where adopted, fully automatic transmission-equipped medium- and heavy-duty commercial vehicles are concentrated in certain vocational end markets. We often compete in this market against independent manufacturers of manual transmissions, AMTs, electric hybrid and fully electric propulsion solutions, fully automatic transmissions manufactured by ZF, Voith, and Shaanxi Fast Gear Co., Ltd. and against vertically integrated OEMs. The following is a summary of our on-highway net sales by region outside of North America.
Europe, Middle East, Africa . EMEA is composed of several different markets, each of which differs from our core North American market by the degree of market maturity, sophistication and acceptance of fully automatic transmission and electric propulsion solution technology. Within Europe, we serve Western European developed markets, as well as Russian and Eastern European emerging markets, principally in the refuse, emergency, bus, coach, distribution and utility markets. Competition in Western Europe is most notably characterized by a high level of vertical powertrain integration with OEMs often utilizing their own manual transmissions and AMTs in their vehicles. The Middle East and Africa regions are generally characterized by very limited local vehicle production, with imports from the U.S., South America, Turkey, China, India and Europe accounting for the majority of vehicles.
Asia-Pacific. Our key Asia-Pacific markets include China, Japan, India, and South Korea; however, we actively participate in several other important Asia-Pacific countries including Australia, Taiwan, Indonesia, Malaysia and Thailand, which are primarily importers of commercial vehicles. Within Asia-Pacific, our sales efforts are principally focused on the transit bus and vocational truck markets. Currently, manual transmissions are the predominant transmissions used in commercial vehicles in the Asia-Pacific region. In China, subsidies offered by governmental entities continue to drive the development and adoption of fully electric propulsion solutions for use in the transit bus market.
South America . The South American region is characterized by a high level of OEM integration, with captive manual transmission and AMT manufacturing. Currently, manual transmissions are the predominant transmissions used in commercial vehicles in South America.
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Off-Highway. The following is a summary of our off-highway net sales by region outside of North America.
Europe, Middle East, Africa. Our off-highway markets in EMEA are mining and construction. Our major off-highway competitors are Caterpillar and Komatsu, both of which are vertically integrated manufacturers of off-highway mining vehicles, including the specific fully automatic transmission used in their mining trucks. A typical construction application is a rigid or articulated dump truck, with competition from Caterpillar, Dana Inc., Volvo and ZF transmissions.
Asia-Pacific . Off-highway markets in Asia are shared by energy, mining and construction applications. Our primary competitors are Caterpillar, Danyang Winstar Auto Parts Co., Ltd., Twin Disc and Xi’an FC Intelligence Transmission Co. Ltd., in energy applications; Caterpillar, Danyang Winstar Auto Parts Co., Ltd. and Komatsu in mining applications; and Caterpillar, Volvo and ZF in construction applications.
Defense
We have a long-standing relationship with the U.S. Department of Defense (“DOD”) dating back to 1946, when we began developing our first-generation tank transmission. Today, we sell substantially all of the transmissions for medium- and heavy-tactical wheeled vehicle platforms including the Joint Light Tactical Vehicle, Light Armored Vehicle, Stryker Armored Vehicle, Mine Resistant Ambush Protected Vehicle, the Family of Medium Tactical Vehicles, Heavy Expanded Mobility Tactical Trucks, Heavy Dump Truck and Heavy Equipment Transporters. Transmissions for our wheeled vehicle platforms are typically sold to OEMs.
We are also the supplier on two of the three key tracked vehicle platforms, the Abrams tank and the M113 family of vehicles, which are sold directly to the DOD. Additionally, we sell parts kits to licensees for the production of transmissions for tracked vehicles manufactured outside North America, and our defense products are in approximately 110 countries around the world. See Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for a discussion of risks associated with our contracts with the DOD.
Globally, we face competition primarily from L3 Technologies, Inc., Renk AG and SAPA S.p.A for supply of tracked vehicle transmissions. Additionally, we face limited competition from ZF in certain defense wheeled vehicles.
Service Parts, Support Equipment and Other
Our service parts, support equipment and other end market is comprised of: Allison-branded service parts and transmission fluids, aluminum die cast components, extended transmission coverage, remanufactured transmissions, royalties, saleable engineering and support equipment. The aftermarket provides us with a relatively stable source of revenues as the installed base of vehicles and equipment utilizing our solutions continues to grow. The need for replacement parts is driven by normal vehicle and equipment maintenance requirements.
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Uninterrupted operation is generally critical for end users’ profitability. In addition, beginning in 2019 we began selling aluminum die casting components following our acquisition of Walker Die Casting.
The sale of Allison-branded parts and fluids, remanufactured transmissions and support equipment is fundamental to our brand promise. We have assembled a worldwide network of approximately 1,400 independent distributor and dealer locations to sell, service and support our solutions. As part of our brand strategy, our distributors and dealers are required to sell genuine Allison-branded parts. Within the aftermarket, we offer remanufactured transmissions under our ReTran brand, which provides a cost-effective alternative for transmission repairs and replacements. We also provide support equipment to our OEMs to assist in installing new Allison solutions into vehicles, and, therefore, sales of support equipment are dependent upon sales of new solutions. The competition for service parts and ReTran transmissions comes from a variety of smaller-scale companies sourcing non-genuine “will-fit” parts from unauthorized manufacturers. These “will-fit” parts often do not meet our product specifications, and therefore may be of lesser quality than genuine Allison parts.
Our Product Offerings
Allison transmissions and electric propulsion solutions are sold under the Allison Transmission brand name and remanufactured transmissions are sold under the ReTran brand name. The following is a summary of our product lines.
On-Highway Products
Product
Applications
1000 Series
Distribution
Motorhome
Refuse
School/Shuttle Bus
Services
Specialty
Wheeled Defense
2000 Series
Distribution
Motorhome
Refuse
School/Shuttle Bus
Services
Specialty
Wheeled Defense
3000 Series
Coach and Transit Bus
Construction
Distribution
Fire and Emergency
Metro Tractors
Motorhome
Refuse
Services
Specialty
Wheeled Defense
4000 Series
Articulated Dump Truck
Coach and Transit Bus
Construction
Distribution
Fire and Emergency
Metro Tractors
Motorhome
Refuse
Specialty
Wheeled Defense
Electric Hybrid Propulsion Solution
Transit and Shuttle Bus
Fully Electric Propulsion Solutions
Transit and Shuttle Bus
Trucks
Off-Highway Products
Product
Applications
5000 Series
Rigid and Articulated Dump Truck
Underground Mine Truck
Well Service Rigs
6000 Series
Rigid and Articulated Dump Truck
Underground Mine Truck
Well Service Rigs
8000 Series
Hydraulic Fracturing Equipment
Rigid Dump Trucks
9000 Series
Hydraulic Fracturing Equipment
Rigid Dump Trucks
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Defense Products
Product
Applications
X200
Tracked Vehicles
3040MX
Tracked Vehicles
X1100
Tracked Vehicles
Product Development and Engineering
We maintain product development and engineering capability dedicated to the design, development, refinement and support of our fully automatic transmissions and electric hybrid and fully electric propulsion systems. We believe our customers expect our products to provide unparalleled performance and value defined in various ways, including delivering maximum cargo in minimum time, using the least amount of fuel possible while employing the fewest vehicles possible and experiencing maximum vehicle uptime. In response to those needs and the evolving customer focus on fuel efficiency, we provide vehicle specification guidelines, propulsion control software and mechanical components to optimize fuel economy while delivering desired vehicle performance.
Further, we are developing new technology to improve fuel efficiency and fuel economy by allowing engines to operate more efficiently and at lower speeds to avoid consuming fuel without compromising performance. Some examples of these development efforts include the announcements of our first 9-speed transmission and the uprated variant of our existing 3000 Series transmission for the on-highway regional haul end-market. We also pioneered electric hybrid-propulsion in commercial vehicles and beginning in 2019, we announced our fully electric propulsion solutions. Building on our existing engineering capabilities and technology acquired in 2019 we continue to enhance our existing electric hybrid-propulsion system with additional electrification features, including our eGen Flex product which has the ability to operate in electric only mode for up to 10 miles. We also continue to develop and enhance new alternative technologies for use in our global commercial vehicle markets, including fully electric centrally-located drive and electrified-axle solutions such as our eGen Power product. Finally, our product development and engineering efforts also extend into our Off-Highway and Defense end-markets through initiatives to develop more efficient and higher-horsepower hydraulic fracturing and mining transmissions, as well as new cross-drive transmissions for tracked applications. From time to time, we also acquire certain licenses to provide us with technology to complement our portfolio of products and product initiatives.
Sales and Marketing Organization
Our sales and marketing effort is organized along geographic and customer lines and is comprised of marketing, sales and service professionals, supported by application engineers worldwide. In North America, selling efforts in the on-highway end market are organized by distributor area responsibility, OEM sales and, for our large end users, national accounts. Outside North America, we manage our sales, marketing, service and application engineering professionals through regional areas of responsibility. These regional management teams distribute OEM service and application engineering resources globally. We manage our defense products sales, marketing, service and application engineering through professionals based in Indianapolis, Indiana and Detroit, Michigan.
We have developed a marketing strategy to reach OEM customers as well as end users. We target our end users primarily through marketing activities by our sales staff, who directly call on end users and attend local trade shows, targeting specific vocations globally and through our plant tour programs, where end users may test our products on our Indianapolis test track and our enhanced customer experience demonstration track at our Hungary facility.
While our marketing management uses the term “customer” interchangeably for OEMs and end users, the primary objective of our marketing strategy is to create demand for fully automatic transmissions and electric propulsion solutions through:
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•
OEM promotion of our prod ucts and incorporation of fully automatic transmissions and electric propulsion solutions in their commercial vehicle product offerings;
•
Allison representative and/or Allison distributor contact with identified, major end users; and
•
Our network of independent dealers who contact other end users.
The process is interactive, as Allison representatives, Allison distributors, OEMs and dealers educate customers and respond to the specific applications, requirements and needs of numerous specialty markets.
Similarly, we work with customers, dealers and OEMs to educate, improve and simplify how they specify vehicles and vehicle systems in order to optimize vehicle performance and fuel consumption. Our field organization also works closely with distributors who, in turn, work with dealers to provide end users with education, parts, service and warranty support. The defense marketing group follows a defined plan that identifies country, vehicle and specific OEMs and then approaches the ultimate end user through a variety of channels.
Manufacturing
Our manufacturing strategy provides for distributed capability in manufacturing and assembly of our products for the global commercial vehicle market. Our primary manufacturing facilities, located in Indianapolis, Indiana, consist of approximately 2.3 million square feet of usable manufacturing space in six plants. We also have established customization and parts distribution in the United States, The Netherlands, Brazil, China, Hungary, India and Japan. Our high volume on-highway products are produced in multiple global locations (United States, Chennai, India and Szentgotthard, Hungary), while off-highway, electric hybrid propulsion and defense tracked products are produced in Indianapolis and fully electric propulsion solutions are produced in Auburn Hills, Michigan. In addition, our aluminum die cast components are produced in Lewisburg, Tennessee.
Suppliers and Raw Materials
A significant amount of the part numbers that make up our transmissions and electric propulsion solutions are purchased from outside suppliers, and during 2020, we purchased approximately $687 million of direct materials and components from outside suppliers. The largest elements of our direct spending are aluminum and steel castings and forgings that are formed by our suppliers into our larger components and assemblies for use in our transmissions and electric propulsion solutions. Our spending on aluminum and steel raw materials directly and indirectly through our purchase of these components constituted approximately 13% of our direct material and component costs in 2020. The balance of our direct and indirect materials and components costs are primarily composed of value-added services and conversion costs. Our supply contracts, along with an intensive supplier selection and performance monitoring process, have enabled us to establish and maintain close relationships with suppliers and have contributed to our overall operating efficiency and quality.
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Intellectual Property
Patents, trademarks, and other proprietary rights are important to the continued success of our business. We also rely upon trade secrets, know-how, continuing technological innovation and licensing opportunities to develop and maintain our competitive position. We protect our proprietary rights through a variety of methods, including confidentiality agreements and proprietary information agreements with suppliers, employees, consultants and others who may have access to our proprietary information. We own and have licensing arrangements for a number of U.S. and foreign patents related to our products and business. We do not consider our business to be dependent on any single patent, nor will the expiration of any single patent materially affect our business. Our current patents will expire over various periods and we continue to file new patent applications on newly-developed technology.
Seasonality
Overall, the demand for our products is relatively consistent over the year. However, in typical market conditions, the North American truck market experiences a higher level of production in the first half of the year due to fewer holidays and the practice of plant shutdowns in July and December. As a result of the COVID-19 pandemic, demand for our products did not align with demand experienced during typical market conditions, as we experienced a severe decrease in demand in the second quarter of 2020 with demand recovering throughout the second half of 2020. Due to the ongoing uncertainties related to the COVID-19 pandemic, we may experience non-typical market conditions and demand expectation in 2021.
Human Capital
At Allison, we believe in the power of our people, our processes and our products. For more than 100 years, we have built our business on these values: Quality, Customer Focus, Integrity, Innovation, and Teamwork. We use a variety of human capital measures in managing our business, including: workforce demographics; inclusion and diversity; and employee health and safety.
Workforce Demographics . Our people continue to be a critical component in our continued success, the delivery of our values and the execution of our growth initiatives. As of December 31, 2020, we had a highly skilled workforce of approximately 3,300 employees, with approximately 89% of those employees in the U.S. Approximately 47% of our U.S. employees are represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) and are subject to a collective bargaining agreement. In December 2017, we entered into a six year collective bargaining agreement with UAW Local 933 that expires in November 2023. There have been no strikes or work stoppages due to Allison-specific issues in over 30 years.
Inclusion and Diversity . Allison recognizes the power of different thought, accepts and respects each individual and strives to create an inclusive workplace where everyone can reach their full potential, driving innovation and business results. Our inclusion and diversity efforts in 2020 include establishing an employee-led multicultural resource group, implementing continuous Unconscious Bias Corporate training, participating in career fairs at historically Black colleges and universities, and launching a speaker series to create an open forum on complex and difficult conversations about diversity and inclusion.
Employee Health & Safety . Allison’s overriding priority is to protect the health and safety of each employee. As part of our health and safety programs , employees participate in training focused on this topic and metrics are reviewed regularly , including the number of injury incidents that occur and those incidents that result in lost work days. For 2020, we achieved an overall recordable rate of 1.53, meaning that for every 100 employees, 1.53 employees incurred an injury that resulted in recordable medical treatment and the number of lost work days was 0.28, meaning that for every 100 employees, 0.28 individuals experienced an incident that resulted in days away from work.
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Government Regulations
We are subject to a variety of federal, state, local and foreign laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances or wastes, and the cleanup of contaminated sites. Some of our operations require environmental permits and controls to prevent and reduce air and water pollution. These permits are subject to modification, renewal and revocation by issuing authorities. In addition, certain of our products and our customer’s products are subject to certification requirements by a variety of regulatory bodies. We believe we are in substantial compliance with all material environmental laws and regulations applicable to our plants and operations. Historically, our annual costs of achieving and maintaining compliance with environmental, health and safety requirements have not been material to our financial results.
Increasing global efforts to control emissions of carbon dioxide, methane, ozone, nitrogen oxide and other greenhouse gases and pollutants, as well as the shifting focus of regulatory efforts towards total emissions output, have the potential to impact our facilities, costs, products and customers. The U.S. Environmental Protection Agency (“EPA”) has taken action to control greenhouse gases from certain stationary and mobile sources. In addition, several states have taken steps, such as adoption of cap and trade programs or other regulatory systems, to address greenhouse gases. There have also been international efforts seeking legally binding reductions in emissions of greenhouse gases. These developments and further actions that may be taken in the U.S. and in other countries, states or provinces could affect our operations both positively and negatively (e.g., by affecting the demand for or suitability of some of our products).
We also may be subject to liability as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act and similar state or foreign laws for contaminated properties that we currently own, lease or operate or that we or our predecessors have previously owned, leased or operated, and sites to which we or our predecessors sent hazardous substances. Such liability may be joint and several so that we may be liable for more than our share of any contamination, and any such liability may be determined without regard to causation or knowledge of contamination. We or our predecessors have been named potentially responsible parties at contaminated sites from time to time. We do not anticipate our liabilities relating to contaminated sites will be material to our financial results.
Competition
We compete on the basis of product performance, quality, price, distribution capability and service in addition to other factors. We face competition from numerous manufacturers of various types of transmissions and propulsion solutions for commercial vehicles. Furthermore, we face an increasing amount of competition from vertical integration, as some of our customers are OEMs that manufacture transmissions and propulsion solutions for their own products. Despite their transmission and propulsion solutions manufacturing capabilities, we believe that our existing OEM customers have chosen to purchase certain transmissions and propulsion solutions from us due to the quality, reliability and strong brand of our transmissions and propulsion solutions and in order to limit fixed costs, minimize production risks and maintain company focus on commercial vehicle design, production and marketing.
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Corporate Information
Allison Transmission Holdings, Inc. was incorporated in Delaware on June 22, 2007. Our principal executive offices are located at One Allison Way, Indianapolis, IN 46222 and our telephone number is (317) 242-5000. Our internet address is www.allisontransmission.com. We file annual, quarterly and current reports, proxy statements and other documents with the United States Securities and Exchange Commission (“SEC”), under the Securities Exchange Act of 1934, as amended (“Exchange Act”). These periodic and current reports and all amendments to those reports are available free of charge on the investor relations page of our website at http://ir.allisontransmission.com as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. We have included our website address throughout this filing as textual references only. The information contained on, or accessible through, our website is not incorporated into this Annual Report on Form 10-K. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
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