10-Q
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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 March 31, 2023

OR

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)

 

https://cdn.kscope.io/2fdd169ce34a10654945213d91b7b62f-img105323335_0.jpg 

 

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). YesNo

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). YesNo

As of April 13, 2023, there were 91,055,228 shares of Common Stock outstanding.

 


Table of Contents

 

INDEX

 

 

 

Page

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

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

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

36

 

 

 

Item 1A.

Risk Factors

36

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

Item 6.

Exhibits

38

 

 

 

 

Signatures

39

 

 

 

 

2


Table of Contents

 

 

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)

 

 

 

March 31,
2023

 

 

December 31,
2022

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

344

 

 

$

232

 

Accounts receivable – net of allowance for doubtful accounts of $5

 

 

394

 

 

 

363

 

Inventories

 

 

257

 

 

 

224

 

Other current assets

 

 

48

 

 

 

47

 

Total Current Assets

 

 

1,043

 

 

 

866

 

Property, plant and equipment, net

 

 

757

 

 

 

763

 

Intangible assets, net

 

 

867

 

 

 

878

 

Goodwill

 

 

2,075

 

 

 

2,075

 

Marketable securities

 

 

25

 

 

 

22

 

Other non-current assets

 

 

66

 

 

 

67

 

TOTAL ASSETS

 

$

4,833

 

 

$

4,671

 

LIABILITIES

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$

221

 

 

$

195

 

Product warranty liability

 

 

27

 

 

 

33

 

Current portion of long-term debt

 

 

6

 

 

 

6

 

Deferred revenue

 

 

45

 

 

 

38

 

Other current liabilities

 

 

227

 

 

 

208

 

Total Current Liabilities

 

 

526

 

 

 

480

 

Product warranty liability

 

 

32

 

 

 

24

 

Deferred revenue

 

 

94

 

 

 

93

 

Long-term debt

 

 

2,500

 

 

 

2,501

 

Deferred income taxes

 

 

525

 

 

 

536

 

Other non-current liabilities

 

 

168

 

 

 

163

 

TOTAL LIABILITIES

 

 

3,845

 

 

 

3,797

 

Commitments and contingencies (see Note P)

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Common stock, $0.01 par value, 1,880,000,000 shares authorized, 91,413,567 shares issued and outstanding and 91,788,885 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

 

 

1,857

 

 

 

1,848

 

Accumulated deficit

 

 

(845

)

 

 

(953

)

Accumulated other comprehensive loss, net of tax

 

 

(25

)

 

 

(22

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

988

 

 

 

874

 

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

 

$

4,833

 

 

$

4,671

 

 

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

3


Table of Contents

 

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income

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

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Net sales

 

$

741

 

 

$

677

 

Cost of sales

 

 

380

 

 

 

357

 

Gross profit

 

 

361

 

 

 

320

 

Selling, general and administrative

 

 

87

 

 

 

75

 

Engineering — research and development

 

 

44

 

 

 

43

 

Operating income

 

 

230

 

 

 

202

 

Interest expense, net

 

 

(28

)

 

 

(29

)

Other income (expense), net

 

 

10

 

 

 

(10

)

Income before income taxes

 

 

212

 

 

 

163

 

Income tax expense

 

 

(42

)

 

 

(34

)

Net income

 

$

170

 

 

$

129

 

Basic earnings per share attributable to common stockholders

 

$

1.85

 

 

$

1.32

 

Diluted earnings per share attributable to common stockholders

 

$

1.85

 

 

$

1.30

 

Comprehensive income, net of tax

 

$

167

 

 

$

146

 

 

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

4


Table of Contents

 

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, dollars in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

170

 

 

$

129

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

26

 

 

 

27

 

Amortization of intangible assets

 

 

11

 

 

 

11

 

Deferred income taxes

 

 

(8

)

 

 

5

 

Stock-based compensation

 

 

5

 

 

 

3

 

Unrealized (gain) loss on marketable securities

 

 

(3

)

 

 

15

 

Technology-related investments gain

 

 

(3

)

 

 

(6

)

Other

 

 

1

 

 

 

2

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(30

)

 

 

(44

)

Inventories

 

 

(32

)

 

 

(6

)

Accounts payable

 

 

30

 

 

 

43

 

Other assets and liabilities

 

 

26

 

 

 

(17

)

Net cash provided by operating activities

 

 

193

 

 

 

162

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Additions of long-lived assets

 

 

(24

)

 

 

(20

)

Proceeds from technology-related investments

 

 

2

 

 

 

6

 

Business acquisitions

 

 

 

 

 

(23

)

Investment in equity method investee

 

 

 

 

 

(1

)

Net cash used for investing activities

 

 

(22

)

 

 

(38

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Repurchases of common stock

 

 

(40

)

 

 

(81

)

Dividend payments

 

 

(22

)

 

 

(20

)

Proceeds from exercise of stock options

 

 

9

 

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(5

)

 

 

(3

)

Payments on long-term debt

 

 

(1

)

 

 

(2

)

Borrowings on revolving credit facility

 

 

 

 

 

95

 

Payments on revolving credit facility

 

 

 

 

 

(95

)

Net cash used for financing activities

 

 

(59

)

 

 

(106

)

Effect of exchange rate changes on cash

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

112

 

 

 

18

 

Cash and cash equivalents at beginning of period

 

 

232

 

 

 

127

 

Cash and cash equivalents at end of period

 

$

344

 

 

$

145

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid during period for:

 

 

 

 

 

 

Interest

 

$

29

 

 

 

26

 

Income taxes

 

$

2

 

 

 

1

 

Non-cash investing activities:

 

 

 

 

 

 

Capital expenditures in liabilities

 

$

6

 

 

 

15

 

 

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 December 31, 2021

 

$

1

 

 

$

 

 

$

 

 

$

1,832

 

 

$

(1,126

)

 

$

(73

)

 

$

634

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Pension and OPEB liability adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

19

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

(3

)

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(81

)

 

 

 

 

 

(81

)

Dividends on common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20

)

 

 

 

 

 

(20

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

129

 

 

 

 

 

 

129

 

Balance at March 31, 2022

 

$

1

 

 

$

 

 

$

 

 

$

1,832

 

 

$

(1,098

)

 

$

(56

)

 

$

679

 

Balance at December 31, 2022

 

$

1

 

 

$

 

 

$

 

 

$

1,848

 

 

$

(953

)

 

$

(22

)

 

$

874

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Pension and OPEB liability adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40

)

 

 

 

 

 

(40

)

Dividends on common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22

)

 

 

 

 

 

(22

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

170

 

 

 

 

 

 

170

 

Balance at March 31, 2023

 

$

1

 

 

$

 

 

$

 

 

$

1,857

 

 

$

(845

)

 

$

(25

)

 

$

988

 

 

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

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Table of Contents

 

Allison Transmission Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(UNAUDITED)

NOTE A. OVERVIEW

Overview

Allison Transmission Holdings, Inc. and its subsidiaries (“Allison” or the “Company”) 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 is traded on the New York Stock Exchange under the symbol, “ALSN”.

Although approximately 74% of revenues were generated in North America in 2022, the Company has a global presence by serving customers in Asia, Europe, South America and Africa. The Company serves customers through an independent network of approximately 1,600 independent distributor and dealer locations worldwide.

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary for the fair statement of the results for the periods presented. The condensed consolidated financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated.

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Table of Contents

 

These condensed consolidated financial statements present the financial position, results of comprehensive income, cash flows and statements of stockholders’ equity of the Company. Certain immaterial reclassifications have been made in the condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications had no material impact on previously reported net income, total stockholders’ equity or cash flows. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on February 16, 2023. The interim period financial results for the three-month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Estimates include, but are not limited to, sales incentives, government price adjustments, fair market values and future cash flows associated with goodwill, indefinite-lived intangibles, definite-lived intangibles, long-lived asset impairment tests, useful lives for depreciation and amortization, warranty liabilities, core deposit liabilities, environmental liabilities, determination of discount rate and other assumptions for pension and other post-retirement benefit ("OPEB") expense, determination of discount rate and period for leases, income taxes and deferred tax valuation allowances, derivative valuation, assumptions for business combinations and contingencies. The Company’s accounting policies involve the application of judgments and assumptions made by management that include inherent risks and uncertainties. Due to the uncertainty surrounding global economic conditions, including as a result of government actions to control inflation, the war in Ukraine and the ongoing effects of the COVID-19 pandemic, and the resulting impacts on the Company's supply chain, demand for its products, foreign exchange rates, interest rates and the cost and availability of raw materials, labor, energy and transport, actual results could differ materially from these estimates and assumptions used in preparation of the financial statements including, but not limited to, future cash flows associated with goodwill, indefinite-lived intangibles, definite-lived intangibles, long-lived asset impairment tests, determination of discount rate and other assumptions for pension and OPEB expense and income taxes. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.

 

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Table of Contents

 

NOTE C. REVENUE

Revenue is recognized as each distinct performance obligation within a contract is satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company enters into long-term agreements (“LTAs”) and distributor agreements with certain customers. The LTAs and distributor agreements do not include committed volumes until underlying purchase orders are issued; therefore, the Company determined that purchase orders are the contract with a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied, as there is no right of return.

Some of the Company's contracts include multiple performance obligations, most commonly the sale of both a transmission and extended transmission coverage ("ETC"). The Company allocates the contract’s transaction price to each performance obligation based on the standalone selling price of each distinct good or service in the contract.

The Company may also use volume-based discounts and rebates as marketing incentives in the sales of both vehicle propulsion solutions and service parts, which are accounted for as variable consideration. The Company records the impact of the incentives as a reduction to revenue when it is determined that the adjustment is not likely to reverse, historically on a quarterly basis. The Company estimates the impact of all other incentives based on the related sales and market conditions in the end market vocation. The Company recorded no material adjustments based on variable consideration for either of the three months ended March 31, 2023 or 2022.

Net sales are made on credit terms, generally 30 days, based on an assessment of the customer’s creditworthiness. For certain goods or services, the Company receives consideration prior to satisfying the related performance obligation. Such consideration is recorded as a contract liability in current and non-current deferred revenue as of March 31, 2023 and December 31, 2022. See "Note J. Deferred Revenue” for more information, including the amount of revenue earned during each of the three months ended March 31, 2023 and 2022 that had been previously deferred. The Company had no material contract assets as of either March 31, 2023 or December 31, 2022.

The Company has one operating segment and reportable segment. The Company is in one line of business, which is the manufacture and distribution of vehicle propulsion solutions. The following presents disaggregated revenue by categories that best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors (dollars in millions):

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

North America On-Highway

 

$

376

 

 

$

346

 

North America Off-Highway

 

 

24

 

 

 

18

 

Defense

 

 

27

 

 

 

35

 

Outside North America On-Highway

 

 

108

 

 

 

109

 

Outside North America Off-Highway

 

 

23

 

 

 

30

 

Service Parts, Support Equipment and Other

 

 

183

 

 

 

139

 

Total Net Sales

 

$

741

 

 

$

677

 

 

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NOTE D. INVENTORIES

Inventories consisted of the following components (dollars in millions):

 

 

 

March 31,
2023

 

 

December 31,
2022

 

Purchased parts and raw materials

 

$

128

 

 

$

115

 

Work in progress

 

 

12

 

 

 

7

 

Service parts

 

 

53

 

 

 

53

 

Finished goods

 

 

64

 

 

 

49

 

Total inventories

 

$

257

 

 

$

224

 

 

Inventory components shipped to third parties, primarily cores, parts to re-manufacturers, and parts to contract manufacturers, which the Company has an obligation to buy back, are included in purchased parts and raw materials, with an offsetting liability in Other current liabilities. See "Note L. Other Current Liabilities” for more information.

NOTE E. GOODWILL AND OTHER INTANGIBLE ASSETS

As of both March 31, 2023 and December 31, 2022, the carrying value of the Company’s Goodwill was $2,075 million.

The following presents a summary of other intangible assets (dollars in millions):

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Intangible
assets, gross

 

 

Accumulated
amortization

 

 

Intangible
assets, net

 

 

Intangible
assets, gross

 

 

Accumulated
amortization

 

 

Intangible
assets, net

 

Other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade name

 

$

791

 

 

$

 

 

$

791

 

 

$

791

 

 

$

 

 

$

791

 

In-process research and development

 

 

25

 

 

 

 

 

 

25

 

 

 

25

 

 

 

 

 

 

25