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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-35456

ALLISON TRANSMISSION HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		26-0414014
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)
One Allison Way
Indianapolis,	IN	46222
(Address of Principal Executive Offices)		(Zip Code)

(317) 242-5000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange

on which Registered

Common stock, $0.01 par value

ALSN

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 15, 2019, there were 119,231,473 shares of Common Stock outstanding.

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INDEX

		Page
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3 - 7

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Comprehensive Income	4

	Condensed Consolidated Statements of Cash Flows	5

	Condensed Consolidated Statements of Stockholders’ Equity	6 - 7

	Notes to Condensed Consolidated Financial Statements	8 - 25

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26 - 38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	40

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 6.	Exhibits	42

	Signatures	43

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Allison Transmission Holdings, Inc.

Condensed Consolidated Balance Sheets

(unaudited, dollars in millions, except share and per share data)

	September 30, 2019			December 31, 2018
ASSETS
Current Assets
Cash and cash equivalents	$	152		$	231
Accounts receivable – net of allowances for doubtful accounts of $1		329			279
Inventories		209			170
Other current assets		58			45
Total Current Assets		748			725
Property, plant and equipment, net		561			466
Intangible assets, net		1,061			1,066
Goodwill		2,040			1,941
Other non-current assets		61			39
TOTAL ASSETS	$	4,471		$	4,237
LIABILITIES
Current Liabilities
Accounts payable	$	185		$	169
Product warranty liability		25			26
Current portion of long-term debt		6			—
Deferred revenue		35			34
Other current liabilities		226			197
Total Current Liabilities		477			426
Product warranty liability		29			40
Deferred revenue		103			88
Long-term debt		2,513			2,523
Deferred income taxes		380			329
Other non-current liabilities		226			172
TOTAL LIABILITIES		3,728			3,578
Commitments and contingencies (see NOTE P)
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, 1,880,000,000 shares authorized, 119,528,870 shares issued and outstanding and 126,251,266 shares issued and outstanding, respectively		1			1
Non-voting common stock, $0.01 par value, 20,000,000 shares authorized, none issued and outstanding		—			—
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding		—			—
Paid in capital		1,799			1,788
Accumulated deficit		(997	)		(1,100	)
Accumulated other comprehensive loss, net of tax		(60	)		(30	)
TOTAL STOCKHOLDERS’ EQUITY		743			659
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	4,471		$	4,237

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited, dollars in millions, except per share data)

	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Net sales	$	669		$	692		$	2,081		$	2,066
Cost of sales		321			324			985			982
Gross profit		348			368			1,096			1,084
Selling, general and administrative		85			89			262			274
Engineering — research and development		39			33			107			94
Operating income		224			246			727			716
Interest expense, net		(32	)		(30	)		(101	)		(90	)
Other income, net		2			2			8			5
Income before income taxes		194			218			634			631
Income tax expense		(45	)		(51	)		(137	)		(139	)
Net income	$	149		$	167		$	497		$	492
Basic earnings per share attributable to common stockholders	$	1.24		$	1.28		$	4.04		$	3.66
Diluted earnings per share attributable to common stockholders	$	1.23		$	1.27		$	4.01		$	3.64
Comprehensive income, net of tax	$	136		$	168		$	467		$	481

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, dollars in millions)

	Nine months ended September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	497		$	492
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		65			66
Deferred income taxes		61			46
Depreciation of property, plant and equipment		57			58
Stock-based compensation		10			9
Expenses related to long-term debt refinancing		5			—
Amortization of deferred financing costs		4			5
Allowance for doubtful accounts		1			—
Other		(1	)		7
Changes in assets and liabilities:
Accounts receivable		(40	)		(117	)
Inventories		(20	)		(15	)
Accounts payable		2			29
Other assets and liabilities		4			25
Net cash provided by operating activities		645			605
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions		(232	)		—
Additions of long-lived assets		(91	)		(52	)
Net cash used for investing activities		(323	)		(52	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt		(1,149	)		(28	)
Issuance of long-term debt		1,148			—
Repurchases of common stock		(331	)		(456	)
Payments on revolving credit facility		(90	)		—
Borrowings on revolving credit facility		90			—
Dividend payments		(55	)		(61	)
Debt financing fees		(12	)		(1	)
Taxes paid related to net share settlement of equity awards		(4	)		(4	)
Proceeds from exercise of stock options		4			21
Net cash used for financing activities		(399	)		(529	)
Effect of exchange rate changes on cash		(2	)		(2	)
Net (decrease) increase in cash and cash equivalents		(79	)		22
Cash and cash equivalents at beginning of period		231			199
Cash and cash equivalents at end of period	$	152		$	221
Supplemental disclosures:
Interest paid	$	63		$	68
Income taxes paid	$	84		$	80

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited, dollars in millions)

	Three months ended
	Common Stock		Non-voting Common Stock		Preferred Stock		Paid-in Capital		Accumulated (Deficit) Income			Accumulated Other Comprehensive (Loss) Income, net of tax			Stockholders' Equity
Balance at June 30, 2018	$	1	$	—	$	—	$	1,764	$	(1,136	)	$	(27	)	$	602
Stock-based compensation		—		—		—		3		—			—			3
Pension and OPEB liability adjustment		—		—		—		—		—			(3	)		(3	)
Available-for-sale securities and interest rate swaps		—		—		—		—		—			4			4
Issuance of common stock		—		—		—		17		—			—			17
Repurchase of common stock		—		—		—		—		(86	)		—			(86	)
Dividends on common stock		—		—		—		—		(20	)		—			(20	)
Net income		—		—		—		—		167			—			167
Balance at September 30, 2018	$	1	$	—	$	—	$	1,784	$	(1,075	)	$	(26	)	$	684
Balance at June 30, 2019	$	1	$	—	$	—	$	1,796	$	(1,082	)	$	(47	)	$	668
Stock-based compensation		—		—		—		2		—						2
Pension and OPEB liability adjustment		—		—		—		—		—			(2	)		(2	)
Foreign currency translation adjustment		—		—		—		—		—			(6	)		(6	)
Available-for-sale securities and interest rate swaps		—		—		—		—		—			(5	)		(5	)
Issuance of common stock		—		—		—		1		—			—			1
Repurchase of common stock		—		—		—		—		(46	)		—			(46	)
Dividends on common stock		—		—		—		—		(18	)		—			(18	)
Net income		—		—		—		—		149			—			149
Balance at September 30, 2019	$	1	$	—	$	—	$	1,799	$	(997	)	$	(60	)	$	743

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited, dollars in millions)

	Nine months ended
	Common Stock		Non-voting Common Stock		Preferred Stock		Paid-in Capital		Accumulated (Deficit) Income			Accumulated Other Comprehensive (Loss) Income, net of tax			Stockholders' Equity
Balance at December 31, 2017	$	1	$	—	$	—	$	1,758	$	(1,055	)	$	(15	)	$	689
Stock-based compensation		—		—		—		9		—			—			9
Pension and OPEB liability adjustment		—		—		—		—		—			(8	)		(8	)
Foreign currency translation adjustment		—		—		—		—		—			(5	)		(5	)
Available-for-sale securities and interest rate swaps		—		—		—		—		—			2			2
Issuance of common stock		—		—		—		17		—			—			17
Repurchase of common stock		—		—		—		—		(456	)		—			(456	)
Dividends on common stock		—		—		—		—		(61	)		—			(61	)
Impact of adopting accounting standards		—		—		—		—		5			—			5
Net income		—		—		—		—		492			—			492
Balance at September 30, 2018	$	1	$	—	$	—	$	1,784	$	(1,075	)	$	(26	)	$	684
Balance at December 31, 2018	$	1	$	—	$	—	$	1,788	$	(1,100	)	$	(30	)	$	659
Stock-based compensation		—		—		—		10		—			—			10
Pension and OPEB liability adjustment		—		—		—		—		—			1			1
Foreign currency translation adjustment		—