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, 2022

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)

 

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 April 14, 2022, there were 97,064,646 shares of Common Stock outstanding.

INDEX

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3 – 6
	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 – 21
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22 – 33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34 – 35
Item 4.	Controls and Procedures	36
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6.	Exhibits	39
	Signatures	40

2

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, 2022			December 31, 2021
ASSETS
Current Assets
Cash	$	145		$	127
Accounts receivable – net of allowances for doubtful accounts of $4 and $3, respectively		343			301
Inventories		210			204
Other current assets		47			39
Total Current Assets		745			671
Property, plant and equipment, net		708			706
Intangible assets, net		913			917
Goodwill		2,077			2,064
Marketable securities		31			46
Other non-current assets		53			53
TOTAL ASSETS	$	4,527		$	4,457
LIABILITIES
Current Liabilities
Accounts payable	$	228		$	179
Product warranty liability		30			33
Current portion of long-term debt		6			6
Deferred revenue		35			37
Other current liabilities		190			204
Total Current Liabilities		489			459
Product warranty liability		23			20
Deferred revenue		97			99
Long-term debt		2,503			2,504
Deferred income taxes		525			514
Other non-current liabilities		211			227
TOTAL LIABILITIES		3,848			3,823
Commitments and contingencies (see Note P)
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, 1,880,000,000 shares authorized, 97,064,390 shares issued and outstanding and 99,262,951 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		1,832			1,832
Accumulated deficit		(1,098	)		(1,126	)
Accumulated other comprehensive loss, net of tax		(56	)		(73	)
TOTAL STOCKHOLDERS’ EQUITY		679			634
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	4,527		$	4,457

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

3

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income

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

	Three Months Ended March 31,
	2022			2021
Net sales	$	677		$	588
Cost of sales		357			297
Gross profit		320			291
Selling, general and administrative		75			73
Engineering — research and development		43			38
Operating income		202			180
Interest expense, net		(29	)		(29	)
Other (expense) income, net		(10	)		3
Income before income taxes		163			154
Income tax expense		(34	)		(34	)
Net income	$	129		$	120
Basic earnings per share attributable to common stockholders	$	1.32		$	1.08
Diluted earnings per share attributable to common stockholders	$	1.30		$	1.07
Comprehensive income, net of tax	$	146		$	123

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

4

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, dollars in millions)

	Three Months Ended March 31,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	129		$	120
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		27			25
Unrealized loss on marketable securities		15			—
Amortization of intangible assets		11			12
Technology-related investments gain		(6	)		—
Deferred income taxes		5			14
Stock-based compensation		3			3
Other		2			—
Changes in assets and liabilities:
Accounts receivable		(44	)		(66	)
Inventories		(6	)		(14	)
Accounts payable		43			3
Other assets and liabilities		(16	)		34
Net cash provided by operating activities		163			131
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions		(23	)		—
Additions of long-lived assets		(20	)		(24	)
Proceeds from technology-related investments		6			—
Investment in equity method investee		(1	)		—
Net cash used for investing activities		(38	)		(24	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility		95			—
Payments on revolving credit facility		(95	)		—
Repurchases of common stock		(81	)		(96	)
Dividend payments		(20	)		(21	)
Taxes paid related to net share settlement of equity awards		(3	)		(3	)
Payments on long-term debt		(2	)		(2	)
Proceeds from exercise of stock options		—			1
Net cash used for financing activities		(106	)		(121	)
Effect of exchange rate changes on cash		(1	)		(1	)
Net increase (decrease) in cash and cash equivalents		18			(15	)
Cash and cash equivalents at beginning of period		127			310
Cash and cash equivalents at end of period	$	145		$	295
Supplemental disclosures:
Interest paid	$	26		$	7
Income taxes paid	$	1		$	1

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

5

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, 2020	$	1	$	—	$	—	$	1,818		$	(974	)	$	(89	)	$	756
Stock-based compensation		—		—		—		3			—			—			3
Pension and OPEB liability adjustment		—		—		—		—			—			(2	)		(2	)
Foreign currency translation adjustment		—		—		—		—			—			(6	)		(6	)
Interest rate swaps		—		—		—		—			—			11			11
Issuance of common stock		—		—		—		(1	)		—			—			(1	)
Repurchase of common stock		—		—		—		—			(96	)		—			(96	)
Dividends on common stock		—		—		—		—			(21	)		—			(21	)
Net income		—		—		—		—			120			—			120
Balance at March 31, 2021	$	1	$	—	$	—	$	1,820		$	(971	)	$	(86	)	$	764
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

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

6

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 76% of revenues were generated in North America in 2021, 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 1,400 independent distributor and dealer locations worldwide.

During the first quarter of 2022, the COVID-19 pandemic continued to cause supply chain, labor and raw material constraints that created volatility in the Company's performance and impacted global markets and supply chains. As a result, the Company experienced, and expects to continue to experience, raw material and component part price inflation, increased freight and logistics costs and increased overtime expense as a result of labor shortages. In addition, despite increased customer demand the Company's net sales for the first quarter of 2022 were negatively impacted as a result of its customers’ inability to secure components from the broader commercial vehicle supply base which resulted in reduced commercial vehicle build schedules. The Company expects that commercial vehicle build schedules will continue to be negatively impacted by the availability of components.

To limit the spread of variants and sub-variants of COVID-19, governments continue to take various actions that may impact the Company's employees, operations and supply base, including the administration or mandate of vaccinations, travel bans and restrictions, quarantines, curfews, stay-at-home orders, social distancing guidelines and business shutdowns and closures. The Company continues to take a variety of measures, when and where appropriate based on transmission rates and the presence of variants and sub-variants of COVID-19 in the locations in which it operates, to promote the safety and security of its employees and to maintain operations with as minimal impact as possible to our stakeholders.

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.

7

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 the Company’s Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission on February 17, 2022. 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 allowances, government price adjustments, fair market values and future cash flows associated with goodwill, indefinite life intangibles, definite life 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 the ongoing COVID-19 pandemic and its impact on our supply chain, demand for our products, and the cost and availability of raw materials, labor, 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 life intangibles, definite life intangibles, long-lived 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.

Recently Issued Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board ("FASB") issued authoritative accounting guidance that requires contract assets and contract liabilities acquired in a business combination to be recognized as if the acquirer originated the contracts. The guidance will be effective for the Company in fiscal year 2023, and the Company does not plan to early adopt. The guidance will be applied prospectively to acquisitions occurring on or after the effective date.

8

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 during either of the three months ended March 31, 2022 or 2021.

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, 2022 and December 31, 2021. See "Note J. Deferred Revenue” for more information, including the amount of revenue earned during each of the three months ended March 31, 2022 and 2021 that had been previously deferred. The Company had no material contract assets as of either March 31, 2022 or December 31, 2021.

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,
	2022		2021
North America On-Highway	$	346	$	319
North America Off-Highway		18		2
Defense		35		45
Outside North America On-Highway		109		84
Outside North America Off-Highway		30		16
Service Parts, Support Equipment and Other		139		122
Total Net Sales	$	677	$	588

9

NOTE D. INVENTORIES

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

	March 31, 2022		December 31, 2021
Purchased parts and raw materials	$	105	$	101
Work in progress		8		8
Service parts		42		44
Finished goods		55		51
Total inventories	$	210	$	204

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 March 31, 2022 and December 31, 2021, the carrying value of the Company’s Goodwill was $2,077 million and $2,064 million, respectively.

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

	March 31, 2022							December 31, 2021
	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
Customer relationships — commercial		839		(761	)		78		839		(751	)		88
Proprietary technology		484		(477	)		7		478		(477	)		1
Customer relationships — defense		62		(51	)		11		62		(50	)		12
Non-compete agreements		1		—			1		—		—			—
Total	$	2,202	$	(1,289	)	$	913	$	2,195	$	(1,278	)	$	917

As of March 31, 2022 and December 31, 2021, the carrying value of the Company’s Goodwill and Intangible assets, net was $2,990 million and $2,981 million, respectively.

Amortization expense related to other intangible assets for the next five fiscal years is expected to be (dollars in millions):

	2023		2024		2025		2026		2027
Amortization expense	$	45	$	9	$	5	$	2	$	1

The following presents a summary of the changes in the goodwill of the Company's single operating and reporting segment (dollars in millions):

	Goodwill
Balance at December 31, 2021	$	2,064
Acquisitions		14