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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30,
2022
OR
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Commission File No.
001-35456
ALLISON TRANSMISSION HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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26-0414014
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(State or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S. Employer
Identification Number)
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One Allison Way
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Indianapolis,
IN
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46222
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(Address of Principal Executive Offices)
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(Zip Code)
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(317)
242-5000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Trading Symbol(s)
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Name of Each Exchange
on which Registered
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Common stock, $0.01 par value
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ALSN
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New York Stock Exchange
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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.
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Large accelerated filer
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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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 13, 2022, there were
92,490,446
shares of Common Stock outstanding.
Table of Contents
INDEX
2
Table of Contents
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PART I. FINANCIAL
INFORMATION
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ITEM 1. Financial
Statements
Allison Transmission Holdings, Inc.
Condensed Consolidated
Balance Sheets
(unaudited, dollars in millions, except share and per share
data)
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September 30,
2022
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December 31,
2021
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ASSETS
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Current Assets
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Cash and cash equivalents
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$
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180
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$
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127
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Accounts receivable – net of allowances for doubtful accounts of
$5 and
$3,
respectively
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374
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301
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Inventories
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223
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204
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Other current assets
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61
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39
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Total Current Assets
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838
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671
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Property, plant and equipment, net
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711
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706
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Intangible assets, net
|
|
|
889
|
|
|
|
917
|
|
|
Goodwill
|
|
|
2,074
|
|
|
|
2,064
|
|
|
Marketable securities
|
|
|
22
|
|
|
|
46
|
|
|
Other non-current assets
|
|
|
59
|
|
|
|
53
|
|
|
TOTAL ASSETS
|
|
$
|
4,593
|
|
|
$
|
4,457
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
227
|
|
|
$
|
179
|
|
|
Product warranty liability
|
|
|
26
|
|
|
|
33
|
|
|
Current portion of long-term debt
|
|
|
6
|
|
|
|
6
|
|
|
Deferred revenue
|
|
|
39
|
|
|
|
37
|
|
|
Other current liabilities
|
|
|
189
|
|
|
|
204
|
|
|
Total Current Liabilities
|
|
|
487
|
|
|
|
459
|
|
|
Product warranty liability
|
|
|
20
|
|
|
|
20
|
|
|
Deferred revenue
|
|
|
95
|
|
|
|
99
|
|
|
Long-term debt
|
|
|
2,502
|
|
|
|
2,504
|
|
|
Deferred income taxes
|
|
|
525
|
|
|
|
514
|
|
|
Other non-current liabilities
|
|
|
202
|
|
|
|
227
|
|
|
TOTAL LIABILITIES
|
|
|
3,831
|
|
|
|
3,823
|
|
|
Commitments and
contingencies (see
Note P)
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Common stock, $0.01 par
value,
1,880,000,000 shares
authorized,
93,480,956 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
|
|
|
1,843
|
|
|
|
1,832
|
|
|
Accumulated deficit
|
|
|
(1,021
|
)
|
|
|
(1,126
|
)
|
|
Accumulated other comprehensive loss, net of tax
|
|
|
(61
|
)
|
|
|
(73
|
)
|
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
762
|
|
|
|
634
|
|
|
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY
|
|
$
|
4,593
|
|
|
$
|
4,457
|
|
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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
|
Net sales
|
|
$
|
710
|
|
|
$
|
567
|
|
|
$
|
2,051
|
|
|
$
|
1,758
|
|
|
Cost of sales
|
|
|
382
|
|
|
|
306
|
|
|
|
1,092
|
|
|
|
918
|
|
|
Gross profit
|
|
|
328
|
|
|
|
261
|
|
|
|
959
|
|
|
|
840
|
|
|
Selling, general and administrative
|
|
|
78
|
|
|
|
73
|
|
|
|
231
|
|
|
|
226
|
|
|
Engineering — research and development
|
|
|
47
|
|
|
|
42
|
|
|
|
136
|
|
|
|
121
|
|
|
Operating income
|
|
|
203
|
|
|
|
146
|
|
|
|
592
|
|
|
|
493
|
|
|
Interest expense, net
|
|
|
(29
|
)
|
|
|
(28
|
)
|
|
|
(88
|
)
|
|
|
(87
|
)
|
|
Other (expense) income, net
|
|
|
(15
|
)
|
|
|
6
|
|
|
|
(28
|
)
|
|
|
12
|
|
|
Income before income taxes
|
|
|
159
|
|
|
|
124
|
|
|
|
476
|
|
|
|
418
|
|
|
Income tax expense
|
|
|
(20
|
)
|
|
|
(30
|
)
|
|
|
(86
|
)
|
|
|
(94
|
)
|
|
Net income
|
|
$
|
139
|
|
|
$
|
94
|
|
|
$
|
390
|
|
|
$
|
324
|
|
|
Basic earnings per share attributable to common
stockholders
|
|
$
|
1.46
|
|
|
$
|
0.89
|
|
|
$
|
4.02
|
|
|
$
|
2.97
|
|
|
Diluted earnings per share attributable to common
stockholders
|
|
$
|
1.45
|
|
|
$
|
0.89
|
|
|
$
|
4.02
|
|
|
$
|
2.97
|
|
|
Comprehensive income, net of tax
|
|
$
|
138
|
|
|
$
|
92
|
|
|
$
|
402
|
|
|
$
|
328
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net income
|
|
$
|
390
|
|
|
$
|
324
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
82
|
|
|
|
77
|
|
|
Amortization of intangible assets
|
|
|
35
|
|
|
|
35
|
|
|
Unrealized loss on marketable securities
|
|
|
20
|
|
|
|
—
|
|
|
Stock-based compensation
|
|
|
14
|
|
|
|
11
|
|
|
Technology-related investments gain
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
Loss on intercompany foreign exchange
|
|
|
5
|
|
|
|
—
|
|
|
Deferred income taxes
|
|
|
1
|
|
|
|
61
|
|
|
Other
|
|
|
5
|
|
|
|
2
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(89
|
)
|
|
|
(32
|
)
|
|
Inventories
|
|
|
(28
|
)
|
|
|
(38
|
)
|
|
Accounts payable
|
|
|
36
|
|
|
|
7
|
|
|
Other assets and liabilities
|
|
|
(32
|
)
|
|
|
23
|
|
|
Net cash provided by operating activities
|
|
|
433
|
|
|
|
467
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Additions of long-lived assets
|
|
|
(75
|
)
|
|
|
(112
|
)
|
|
Business acquisitions
|
|
|
(23
|
)
|
|
|
—
|
|
|
Proceeds from technology-related investments
|
|
|
6
|
|
|
|
4
|
|
|
Loans to third parties
|
|
|
—
|
|
|
|
(11
|
)
|
|
Investment in equity method investee
|
|
|
(1
|
)
|
|
|
—
|
|
|
Net cash used for investing activities
|
|
|
(93
|
)
|
|
|
(119
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(216
|
)
|
|
|
(326
|
)
|
|
Borrowings on revolving credit facility
|
|
|
95
|
|
|
|
—
|
|
|
Payments on revolving credit facility
|
|
|
(95
|
)
|
|
|
—
|
|
|
Dividend payments
|
|
|
(61
|
)
|
|
|
(62
|
)
|
|
Payments on long-term debt
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
Taxes paid related to net share settlement of equity
awards
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
Proceeds from exercise of stock options
|
|
|
1
|
|
|
|
3
|
|
|
Payments of acquisition-related contingent liability
|
|
|
—
|
|
|
|
(3
|
)
|
|
Net cash used for financing activities
|
|
|
(285
|
)
|
|
|
(396
|
)
|
|
Effect of exchange rate changes on cash
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
53
|
|
|
|
(49
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
127
|
|
|
|
310
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
180
|
|
|
$
|
261
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
85
|
|
|
$
|
48
|
|
|
Interest
|
|
$
|
84
|
|
|
$
|
72
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
Capital expenditures in liabilities
|
|
$
|
23
|
|
|
$
|
19
|
|
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
Table of Contents
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, 2021
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,826
|
|
|
$
|
(1,012
|
)
|
|
$
|
(83
|
)
|
|
$
|
732
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
Pension and OPEB liability adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
Interest rate swaps
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
|
Repurchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(100
|
)
|
|
|
—
|
|
|
|
(100
|
)
|
|
Dividends on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
(20
|
)
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
94
|
|
|
|
—
|
|
|
|
94
|
|
|
Balance at September 30, 2021
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,829
|
|
|
$
|
(1,038
|
)
|
|
$
|
(85
|
)
|
|
$
|
707
|
|
|
Balance at June 30, 2022
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,839
|
|
|
$
|
(1,031
|
)
|
|
$
|
(60
|
)
|
|
$
|
749
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
Pension and OPEB liability adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
Interest rate swaps
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
|
13
|
|
|
Issuance of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
Repurchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(109
|
)
|
|
|
—
|
|
|
|
(109
|
)
|
|
Dividends on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
(20
|
)
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
139
|
|
|
|
—
|
|
|
|
139
|
|
|
Balance at September 30, 2022
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,843
|
|
|
$
|
(1,021
|
)
|
|
$
|
(61
|
)
|
|
$
|
762
|
|
The accompanying notes are an integral part of the condensed
consolidated financial statements.
6
Table of Contents
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, 2020
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,818
|
|
|
$
|
(974
|
)
|
|
$
|
(89
|
)
|
|
$
|
756
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
Pension and OPEB liability adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
Interest rate swaps
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
14
|
|
|
Repurchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(326
|
)
|
|
|
—
|
|
|
|
(326
|
)
|
|
Dividends on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(62
|
)
|
|
|
—
|
|
|
|
(62
|
)
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
324
|
|
|
|
—
|
|
|
|
324
|
|
|
Balance at September 30, 2021
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,829
|
|
|
$
|
(1,038
|
)
|
|
$
|
(85
|
)
|
|
$
|
707
|
|
|
Balance at December 31, 2021
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,832
|
|
|
$
|
(1,126
|
)
|
|
$
|
(73
|
)
|
|
$
|
634
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
Pension and OPEB liability adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
|
Interest rate swaps
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38
|
|
|
|
38
|
|
|
Issuance of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
Repurchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(224
|
)
|
|
|
—
|
|
|
|
(224
|
)
|
|
Dividends on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(61
|
)
|
|
|
—
|
|
|
|
(61
|
)
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
390
|
|
|
|
—
|
|
|
|
390
|
|
|
Balance at September 30, 2022
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,843
|
|
|
$
|
(1,021
|
)
|
|
$
|
(61
|
)
|
|
$
|
762
|
|
The accompanying notes are an integral part of the condensed
consolidated financial statements.
7
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
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.
Global markets continue to experience supply chain, labor, energy
and raw material constraints as a result of global economic
volatility, the war in Ukraine and the COVID-19 pandemic, that
impact the Company's business. As a result, during the three and
nine months ended September 30, 2022 the Company experienced raw
material and component part price inflation, increased freight and
logistics costs, increased labor costs, production constraints due
to labor shortages and increased foreign exchange volatility. In
addition, despite increased customer demand, the Company's net
sales for the three and nine months ended September 30, 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 throughout the remainder of 2022.
To limit the spread of variants and sub-variants of COVID-19,
governments have taken, and may in the future take, various actions
that have impacted, and may in the future impact, the Company's
employees, operations, customers 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.
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.
8
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 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- and nine-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
as a result of government actions to control inflation, the war in
Ukraine and the ongoing COVID-19 pandemic, and the resulting
impacts on our supply chain, demand for our 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
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.
In June 2022, the FASB issued authoritative accounting guidance
that requires investments in equity securities which are measured
at fair value and are subject to contractual sale restrictions to
not reflect the contractual sale restriction in its fair value
measurement. The guidance will be effective for the Company in
fiscal year 2024, and the Company does not plan to early adopt.
Management does not expect the adoption of this guidance to have an
impact on the Company's consolidated financial
statements.
9
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 any of the
three or nine months ended September 30, 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 September 30, 2022 and December
31, 2021. See "Note J. Deferred Revenue” for more information,
including the amount of revenue earned during each of the three and
nine months ended September 30, 2022 and 2021 that had been
previously deferred. The Company had
no
material contract assets as of either September 30, 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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
|
North America On-Highway
|
|
$
|
340
|
|
|
$
|
275
|
|
|
$
|
1,026
|
|
|
$
|
896
|
|
|
North America Off-Highway
|
|
|
24
|
|
|
|
20
|
|
|
|
62
|
|
|
|
31
|
|
|
Defense
|
|
|
35
|
|
|
|
39
|
|
|
|
99
|
|
|
|
132
|
|
|
Outside North America On-Highway
|
|
|
118
|
|
|
|
93
|
|
|
|
332
|
|
|
|
275
|
|
|
Outside North America Off-Highway
|
|
|
36
|
|
|
|
14
|
|
|
|
98
|
|
|
|
48
|
|
|
Service Parts, Support Equipment and Other
|
|
|
157
|
|
|
|
|