# Allison Transmission Holdings Inc: Form 10-Q for the period ended Mar 31, 2024

- Company: [Allison Transmission Holdings Inc](/companies/alsn.md) (CIK 1411207)
- Form: 10-Q
- Filed: 2024-04-26
- Accepted by EDGAR: Apr 26, 2024, 08:41 ET
- Period: 2024-03-31
- Accession: 0000950170-24-048677
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1411207/000095017024048677/alsn-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1411207/000095017024048677/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $789.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $423.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $366.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $46.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $86.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $234.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $35.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $169.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.90 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.92 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 89,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $173.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $11.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $22.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $52.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $551.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $1.30bn | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $5.06bn | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $518.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $3.71bn | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $2.40bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $5.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | $1.34bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,619 characters.

*The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our condensed consolidated interim financial statements and the related notes contained elsewhere in this Quarterly Report on Form 10-Q.*

*The statements in this discussion regarding industry trends, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A “Risk Factors” below, and in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on February 14, 2024. Our actual results may differ materially from those contained in or implied by any forward-looking statements.*

### 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 is traded on the New York Stock Exchange under the symbol “ALSN”.

We have a global presence by serving customers in North America, Asia, Europe, South America, and Africa, with approximately 75% of our revenues being generated in North America in 2023. We serve customers through an independent network of approximately 1,600 independent distributor and dealer locations worldwide.

### Trends Impacting Our Business

In January 2024, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") Local 933 ratified a new four-year collective bargaining agreement with us that expires in November 2027. We will have a significant increase in labor costs under the terms of this new agreement.

Our net sales are driven by commercial vehicle production, which tends to be highly correlated to macroeconomic conditions and continues to be impacted by global supply chain constraints.

### First Quarter Net Sales by End Market (dollars in millions)

| End Market | Q1 2024 Net Sales | Q1 2023 Net Sales | % Variance |
| --- | ---: | ---: | ---: |
| North America On-Highway | **$420** | $376 | 12% |
| North America Off-Highway | **4** | 24 | (83)% |
| Defense | **48** | 27 | 78% |
| Outside North America On-Highway | **115** | 108 | 6% |
| Outside North America Off-Highway | **42** | 23 | 83% |
| Service Parts, Support Equipment and Other | **160** | 183 | (13)% |
| Total Net Sales | **$789** | $741 | 6% |

North America On-Highway end market net sales were up 12% for the first quarter 2024 compared to the first quarter 2023, principally driven by strength in demand for Class 8 vocational and medium-duty trucks and price increases on certain products.

Global Off-Highway net sales were down 2% for the first quarter 2024 compared to the first quarter 2023, principally driven by lower demand from the energy sector in North America, partially offset by strength in demand from the energy, mining and construction sectors outside of North America.

Defense end market net sales were up 78% for the first quarter 2024 compared to the first quarter 2023, principally driven by increased demand for Tracked vehicle applications.

Outside North America On-Highway end market net sales were up 6% for the first quarter 2024 compared to the first quarter 2023, principally driven by higher demand in Asia and price increases on certain products, partially offset by lower demand in Europe.

Service Parts, Support Equipment and Other end market net sales were down 13% for the first quarter 2024 compared to the first quarter 2023, principally driven by lower demand for North America service parts.

### Key Components of our Results of Operations

### Net sales

We generate our net sales primarily from the sale of vehicle propulsion solutions, service and component parts, support equipment, defense kits, engineering services, royalties and extended transmission coverage to a wide array of original equipment manufacturers, distributors and the U.S. government. Sales are recorded in accordance with the terms of the contract, net of provisions for customer incentives and other rebates. Engineering services are recorded as net sales in accordance with the terms of the contract. The associated costs are recorded in cost of sales. We also have royalty agreements with third parties that provide net sales as a result of joint efforts in developing marketable products.

### Cost of sales

Our primary components of cost of sales are purchased parts, the overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of vehicle propulsion solutions and parts. For the three months ended March 31, 2024, direct material costs were approximately 64%, overhead costs were approximately 28%, and direct labor costs were approximately 8% of cost of sales. The increase in overhead costs as a percentage of cost of sales was a result of non-recurring UAW contract signing incentives. We are subject to changes in our cost of sales caused by movements in underlying commodity prices. We seek to hedge against this risk by using LTAs, as appropriate. See Part I, Item 3, “Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk” included below.

### Selling, general and administrative

The principal components of our selling, general and administrative expenses are salaries and benefits for our office personnel, advertising and promotional expenses, product warranty expense, expenses relating to certain information technology systems and amortization of our intangible assets.

### Engineering — research and development

We incur costs in connection with research and development programs that are expected to contribute to future earnings. Such costs are expensed as incurred.

### Non-GAAP Financial Measures

We use Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) and Adjusted EBITDA as a percent of net sales to measure our operating profitability. We believe that Adjusted EBITDA and Adjusted EBITDA as a percent of net sales provide management, investors and creditors with useful measures of the operational results of our business and increase the period-to-period comparability of our operating profitability and comparability with other companies. Adjusted EBITDA as a percent of net sales is also used in the calculation of management’s incentive compensation program. The most directly comparable U.S. generally accepted accounting principles (“GAAP”) measure to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales is Net income and Net income as a percent of net sales, respectively. Adjusted EBITDA is calculated as earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”), governing Allison Transmission, Inc.’s (“ATI”), our wholly-owned subsidiary, term loan facility in the amount of $518 million due March 2031 (“Term Loan”) and ATI’s revolving credit facility with commitments in the amount of $750 million due March 2029 ("Revolving Credit Facility" and, together with the Term Loan, the "Senior Secured Credit Facility"). Adjusted EBITDA as a percent of net sales is calculated as Adjusted EBITDA divided by net sales.

We use Adjusted free cash flow to evaluate the amount of cash generated by our business that, after the capital investment needed to maintain and grow our business and certain mandatory debt service requirements, can be used for repayment of debt, stockholder distributions and strategic opportunities, including investing in our business. We believe that Adjusted free cash flow enhances the understanding of the cash flows of our business for management, investors and creditors. Adjusted free cash flow is also used in the calculation of management’s incentive compensation program. The most directly comparable GAAP measure to Adjusted free cash flow is Net cash provided by operating activities. Adjusted free cash flow is calculated as Net cash provided by operating activities after additions of long-lived assets.

The following is a reconciliation of Net income and Net income as a percent of net sales to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales and a reconciliation of Net cash provided by operating activities to Adjusted free cash flow:

*(unaudited, dollars in millions)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| **Net income (GAAP)** | **$169** | $170 |
| plus: |  |  |
| Income tax expense | **35** | 42 |
| Depreciation of property, plant and equipment | **27** | 26 |
| Interest expense, net | **25** | 28 |
| UAW Local 933 contract signing incentives (a) | **14** | — |
| Unrealized loss (gain) on marketable securities (b) | **7** | (3) |
| Stock-based compensation expense (c) | **6** | 5 |
| Amortization of intangible assets | **5** | 11 |
| Loss associated with impairment of long-lived assets | **1** | — |
| Technology-related investments gain (d) | **—** | (3) |
| **Adjusted EBITDA (Non-GAAP)** | **$289** | $276 |
| **Net sales (GAAP)** | **$789** | $741 |
| **Net income as a percent of net sales (GAAP)** | **21.4%** | 22.9% |
| **Adjusted EBITDA as a percent of net sales (Non-GAAP)** | **36.6%** | 37.2% |
| **Net cash provided by operating activities (GAAP)** | **$173** | $193 |
| Deductions to reconcile to Adjusted free cash flow: |  |  |
| Additions of long-lived assets | **(11)** | (24) |
| **Adjusted free cash flow (Non-GAAP)** | **$162** | $169 |

24

(a) Represents non-recurring incentives (recorded in Cost of sales, Selling, general and administrative, and Engineering - research and development) to eligible employees as a result of UAW Local 933 represented employees ratifying a four-year collective bargaining agreement effective through November 2027.

(b) Represents a loss (gain) (recorded in Other (expense) income, net) related to an investment in the common stock of Jing-Jin Electric Technologies Co. Ltd.

(c) Represents stock-based compensation expense (recorded in Cost of sales, Selling, general and administrative, and Engineering — research and development).

(d) Represents a gain (recorded in Other (expense) income, net) related to investments in co-development agreements to expand our position in propulsion solution technologies.

### Results of Operations

### Comparison of three months ended March 31, 2024 and 2023

The following table sets forth certain financial information for the three months ended March 31, 2024 and 2023. The following table and discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

*(unaudited, dollars in millions)*

|  | Three Months Ended March 31, 2024 | % of net sales | 2023 | % of net sales |
| --- | ---: | ---: | ---: | ---: |
| Net sales | **$789** | **100%** | $741 | 100% |
| Cost of sales | **423** | **54** | 380 | 51 |
| Gross profit | **366** | **46** | 361 | 49 |
| Operating expenses: |  |  |  |  |
| Selling, general and administrative | **86** | **11** | 87 | 12 |
| Engineering — research and development | **46** | **5** | 44 | 6 |
| Total operating expenses | **132** | **16** | 131 | 18 |
| Operating income | **234** | **30** | 230 | 31 |
| Interest expense, net | **(25)** | **(3)** | (28) | (4) |
| Other (expense) income, net | **(5)** | **(1)** | 10 | 2 |
| Income before income taxes | **204** | **26** | 212 | 29 |
| Income tax expense | **(35)** | **(5)** | (42) | (6) |
| Net income | **$169** | **21%** | $170 | 23% |

### Net sales

Net sales for the quarter ended March 31, 2024 were $789 million compared to $741 million for the quarter ended March 31, 2023, an increase of 6%. The increase was principally driven by a $44 million, or 12%, increase in net sales in the North America On-Highway end market principally driven by strength in demand for Class 8 vocational and medium-duty trucks and price increases on certain products, a $21 million, or 78%, increase in net sales in the Defense end market principally driven by increased demand for Tracked vehicle applications and a $7 million, or 6%, increase in net sales in the Outside North America On-Highway end market principally driven by higher demand in Asia and price increases on certain products, partially offset by lower demand in Europe, partially offset by a $23 million, or 13%, decrease in net sales in the Service Parts, Support Equipment and Other end market principally driven by lower demand for North America service parts and a $1 million, or 2%, decrease in Global Off-Highway net sales principally driven by lower demand from the energy sector in North America, partially offset by strength in demand from the energy, mining and construction sectors outside of North America.

### Cost of sales

Cost of sales for the quarter ended March 31, 2024 was $423 million compared to $380 million for the quarter ended March 31, 2023, an increase of 11%. The increase was principally driven by higher manufacturing expense, including $13 million of non-recurring UAW contract signing incentives, and higher direct material costs.

### Gross profit

Gross profit for the quarter ended March 31, 2024 was $366 million compared to $361 million for the quarter ended March 31, 2023, an increase of 1%. The increase was principally driven by $20 million related to increased net sales and $14 million of price increases on certain products, partially offset by $13 million of higher manufacturing expense, $13 million of non-recurring UAW contract signing incentives and $4 million of higher direct material costs. Gross profit as a percent of net sales for the three months ended March 31, 2024 decreased 230 basis points compared to the same period in 2023 principally driven by increased cost of sales, including $13 million of non-recurring UAW contract signing incentives, partially offset by increased net sales and price increases on certain products.

### Selling, general and administrative

Selling, general and administrative expenses for the quarter ended March 31, 2024 were $86 million compared to $87 million for the quarter ended March 31, 2023, a decrease of 1%. The decrease was principally driven by lower intangible amortization expense and favorable product warranty expense, partially offset by higher commercial activities spending.

### Engineering — research and development

Engineering expenses for the quarter ended March 31, 2024 were $46 million compared to $44 million for the quarter ended March 31, 2023, an increase of 5%. The increase was principally driven by increased product initiatives spending.

### Interest expense, net

Interest expense, net for the quarter ended March 31, 2024 was $25 million compared to $28 million for the quarter ended March 31, 2023, a decrease of 11%. The decrease was principally driven by higher interest income on cash and cash equivalents.

### Other (expense) income, net

Other (expense) income, net for the quarter ended March 31, 2024 was $(5) million compared to $10 million for the quarter ended March 31, 2023. The change was principally driven by $10 million of unrealized mark-to-market adjustments for marketable securities, $3 million of unfavorable foreign exchange and $3 million of technology-related investment gains during 2023 that did not reoccur in 2024.

### Income tax expense

Income tax expense for the three months ended March 31, 2024 was $35 million, resulting in an effective tax rate of 17%, compared to $42 million of income tax expense and an effective tax rate of 20% for the three months ended March 31, 2023. The decrease in the effective tax rate was principally driven by increased estimated U.S. federal income tax deductions.

### Liquidity and Capital Resources

We generate cash primarily from our operations to fund our operating, investing and financing activities. Our principal uses of cash are operating expenses, capital expenditures, working capital needs, debt service, dividends on common stock, stock repurchases and strategic growth initiatives, including investments, acquisitions and collaborations. Our ability to generate cash in the future and our future uses of cash are subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control. We had total available cash and cash equivalents of $551 million and $555 million as of March 31, 2024 and December 31, 2023, respectively. Of the available cash and cash equivalents, $181 million was deposited in operating accounts and $370 million was invested in U.S. government backed securities and time deposits as of March 31, 2024, compared to $134 million deposited in operating accounts and $421 million invested in U.S. government backed securities as of December 31, 2023.

As of March 31, 2024, the total of cash held by foreign subsidiaries was $96 million, the majority of which was at our subsidiaries located in China, the Netherlands, India and Japan. We manage our worldwide cash requirements considering available funds among the subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. As a result, we do not currently anticipate that local liquidity restrictions will preclude us from funding our targeted initiatives or operating needs with local resources.

We have not recognized any deferred tax liabilities associated with earnings in foreign subsidiaries, except for our subsidiary located in China, as they are intended to be permanently reinvested and used to support foreign operations or have no associated tax requirements. We have recorded a deferred tax liability of $3 million for the tax liability associated with the remittance of previously taxed income and unremitted earnings for our subsidiary located in China. The remaining deferred tax liabilities, if recorded, related to unremitted earnings that are indefinitely reinvested are not material.

Our liquidity requirements are significant, primarily due to our debt service requirements. As of March 31, 2024, we had $518 million of indebtedness associated with ATI’s Term Loan, $400 million of indebtedness associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”). Short-term and long-term debt service liquidity requirements consist of $1 million of minimum required quarterly principal payments on ATI’s Term Loan through its maturity date of March 2031 and periodic interest payments on ATI’s Term Loan and the Senior Notes. There are no required quarterly principal payments on the Senior Notes. Long-term debt service liquidity requirements also consist of the payment in full of any remaining principal balance of ATI’s Term Loan and the Senior Notes upon their respective maturity dates.

We made $101 million and $1 million of principal payments on the Term Loan during the three months ended March 31, 2024 and 2023, respectively. Our ability to make payments on and refinance our indebtedness and to fund planned capital expenditures and growth initiatives will depend on our ability to generate cash in the future.

The Senior Secured Credit Facility provides for a $750 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments. As of March 31, 2024, we had $745 million available under the Revolving Credit Facility, net of $5 million in letters of credit. As of March 31, 2024, we had no amounts outstanding under the Revolving Credit Facility. If we have commitments outstanding on the Revolving Credit Facility at the end of a fiscal quarter, the Senior Secured Credit Facility requires us to maintain a specified maximum first lien net leverage ratio of 5.50x. Additionally, within the terms of the Senior Secured Credit Facility, a first lien net leverage ratio at or below 4.00x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. As of March 31, 2024, our first lien net leverage ratio was (0.03x). The Senior Secured Credit Facility also provides certain financial incentives based on our first lien net leverage ratio. A first lien net leverage ratio at or below 4.00x and above 3.50x results in a 25 basis point reduction to the applicable margin on the Revolving Credit Facility. A first lien net leverage ratio at or below 3.50x results in an additional 25 basis point reduction to the applicable margin on the Revolving Credit Facility. These reductions remain in effect as long as we achieve a first lien net leverage ratio at or below the related threshold.

In addition, the Credit Agreement includes, among other things, customary restrictions (subject to certain exceptions) on our ability to incur certain indebtedness, grant certain liens, make certain investments, engage in acquisitions, consolidations and mergers, declare or pay certain dividends, and repurchase shares of our common stock. The indentures governing the Senior Notes contain negative covenants restricting or limiting our ability to, among other things, incur or guarantee additional indebtedness, incur liens, pay dividends on, redeem or repurchase our capital stock, make certain investments, permit payment or dividend restrictions on certain of our subsidiaries, sell assets, engage in certain transactions with affiliates, and consolidate or merge or sell all or substantially all of our assets. As of March 31, 2024, we are in compliance with all covenants under the Senior Secured Credit Facility and indentures governing the Senior Notes.

Our credit ratings and outlook are reviewed periodically by Moody’s Investors Service, Inc. (“Moody’s”) and Fitch Ratings, Inc. (“Fitch”). As of March 31, 2024, our credit ratings from both Moody's and Fitch are shown in the table below:

|  | March 31, 2024 |  |
| --- | --- | --- |
| **Credit Ratings** | **Moody's** | **Fitch** |
| Corporate Credit | Ba1 | BB+ |
| Term Loan | Baa2 | BBB- |
| 4.75% Senior Notes | Ba2 | BB+ |
| 5.875% Senior Notes | Ba2 | BB+ |
| 3.75% Senior Notes | Ba2 | BB+ |

Our Board of Directors has authorized us to repurchase up to $4,000 million of our common stock pursuant to a stock repurchase program (the "Repurchase Program"). During the three months ended March 31, 2024, we repurchased $52 million of our common stock under the Repurchase Program. All of the repurchase transactions during the three months ended March 31, 2024 were settled in cash during the same period. As of March 31, 2024, we had approximately $721 million available under the Repurchase Program.

The following table shows our sources and uses of funds for the three months ended March 31, 2024 and 2023 (dollars in millions):

| Statements of Cash Flows Data | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Cash flows provided by operating activities | **$173** | $193 |
| Cash flows used for investing activities | **$(12)** | $(22) |
| Cash flows used for financing activities | **$(164)** | $(59) |

Generally, cash provided by operating activities has been adequate to fund our operations. We have significant liquidity, including $551 million of cash and cash equivalents and $745 million available under the Revolving Credit Facility, net of $5 million of letters of credit, as of March 31, 2024. At this time, we believe cash provided by operating activities, cash and cash equivalents and borrowing capacity under the Revolving Credit Facility will be sufficient to meet our known and anticipated cash requirements for the next twelve months and thereafter.

### Cash provided by operating activities

Operating activities for the three months ended March 31, 2024 generated $173 million of cash compared to $193 million for the three months ended March 31, 2023. The decrease was principally driven by higher cash incentive compensation payments and non-recurring UAW contract signing incentive payments, partially offset by higher gross profit and lower operating working capital funding requirements.

### Cash used for investing activities

Investing activities for the three months ended March 31, 2024 used $12 million of cash compared to $22 million for the three months ended March 31, 2023. The decrease was principally driven by a $13 million decrease in capital expenditures.

### Cash used for financing activities

Financing activities for the three months ended March 31, 2024 used $164 million of cash compared to $59 million for the three months ended March 31, 2023. The increase was principally driven by $100 million of increased payments on our long-term debt, $12 million of higher stock repurchases under the Repurchase Program and $3 million of debt financing fees associated with the amendment of the Credit Agreement governing our Senior Secured Credit Facility, partially offset by $13 million of higher proceeds from the exercise of stock options.

### Contingencies

We are a party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business, including those relating to commercial transactions, product liability, personal injury and workers’ compensation, safety, health, taxes, environmental and other matters. For more information, see "Note P. Commitments and Contingencies” of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

### Critical Accounting Policies and Significant Accounting Estimates

A discussion of our critical accounting policies and significant accounting estimates is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on February 14, 2024. The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the applicable reporting period. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported for the three months ended March 31, 2024.

### Recently Issued Accounting Pronouncements

See "Note B. Summary of Significant Accounting Policies” in Part I, Item 1, of this Quarterly Report on Form 10-Q.

### Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to: our participation in markets that are competitive; our ability to prepare for, respond to and successfully achieve our objectives relating to technological and market developments, competitive threats and changing customer needs, including with respect to electric hybrid and fully electric commercial vehicles; increases in cost, disruption of supply or shortage of labor, freight, raw materials, energy or components used to manufacture or transport our products or those of our customers or suppliers, including as a result of geopolitical risks, wars and pandemics; global economic volatility; general economic and industry conditions, including the risk of recession; labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal customers or suppliers; the highly cyclical industries in which certain of our end users operate; uncertainty in the global regulatory and business environments in which we operate; the concentration of our net sales in our top five customers and the loss of any one of these; the failure of markets outside North America to increase adoption of fully automatic transmissions; the success of our research and development efforts, the outcome of which is uncertain; U.S. and foreign defense spending; risks associated with our international operations, including acts of war and increased trade protectionism; the discovery of defects in our products, resulting in delays in new model launches, recall campaigns and/or increased warranty costs and reduction in future sales or damage to our brand and reputation; our ability to identify, consummate and effectively integrate acquisitions and collaborations; and risks related to our indebtedness.

Important factors that could cause actual results to differ materially from our expectations are disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on February 14, 2024 and Part II, Item 1A of this Quarterly Report on Form 10-Q. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other Securities and Exchange Commission filings or public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.

## Market risk

As filed, 3,209 characters.

Our exposure to market risk consists of changes in interest rates, foreign currency rate fluctuations and movements in commodity prices.

### Interest Rate Risk

Our principal interest rate exposure relates to outstanding amounts under our Senior Secured Credit Facility. Our Senior Secured Credit Facility provides for variable rate borrowings of up to $1,263 million, including our $518 million Term Loan and $745 million under our Revolving Credit Facility, net of $5 million of letters of credit. As of March 31, 2024, we held interest rate swap contracts that, in the aggregate, effectively hedge $500 million of the variable rate debt associated with the Term Loan at the forward-looking term rate based on the Secured Overnight Financing Rate weighted average fixed rate of 2.81% through September 2025. A one-eighth percent increase or decrease in assumed interest rates for the Senior Secured Credit Facility, if fully drawn as of March 31, 2024, would have an impact of approximately $1 million on interest expense per year. As of March 31, 2024, we had no outstanding borrowings against the Revolving Credit Facility.

### Exchange Rate Risk

While our net sales and costs are denominated primarily in U.S. Dollars, net sales, costs, assets and liabilities are generated in other currencies including Brazilian Real, British Pound, Canadian Dollar, Chinese Yuan Renminbi, Euro, Hungarian Forint, Indian Rupee and Japanese Yen. The expansion of our business outside North America may further increase the risk that cash flows resulting from these activities may be adversely affected by changes in currency exchange rates.

Assuming current levels of foreign currency transactions, a 10% aggregate increase or decrease in the Chinese Yuan Renminbi, Euro, Indian Rupee, and Japanese Yen would correspondingly change our earnings, net of tax, by an estimated $8 million per year. We believe our other direct exposure to foreign currencies is immaterial.

### Commodity Price Risk

We are subject to changes in our cost of sales caused by movements in underlying commodity prices. As of March 31, 2024, approximately 64% of our cost of sales consisted of purchased components. A substantial portion of the purchased parts are made of aluminum and steel. The cost of aluminum parts includes an adjustment factor on future purchases for fluctuations in aluminum prices based on accepted industry indices. In addition, a substantial amount of steel-based contracts also includes an index-based component. As our costs change, we are able to pass through a portion of the changes in commodity prices to certain of our customers according to our LTAs. We historically have not entered into long-term purchase contracts related to the purchase of aluminum and steel.

Assuming current levels of commodity purchases, a 10% variation in the price of aluminum and steel would correspondingly change our earnings by approximately $8 million and $13 million per year, respectively.

Many of our LTAs have incorporated a cost-sharing arrangement related to potential future commodity price fluctuations. For purposes of the sensitivity analysis above, the impact of these cost sharing arrangements has not been included.

## Controls and procedures

As filed, 2,007 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 245 characters.

There have been no material changes from our risk factors as previously reported in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on February 14, 2024.

Filed Apr 26, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-048677. Last ingested by Listed: Oct 24, 2026, 15:09 ET. No prices; not investment advice.