Allison(ALSN) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The financial statements for Q2 and H1 2025 show stable sales, increased net income, and higher operating cash flow, alongside significant stock repurchases Condensed Consolidated Balance Sheets Total assets and stockholders' equity increased slightly as of June 30, 2025, driven by current asset growth and a slight decrease in liabilities Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $1,587 | $1,538 | | Total Assets | $5,411 | $5,336 | | Total Current Liabilities | $472 | $506 | | Total Liabilities | $3,658 | $3,685 | | Total Stockholders' Equity | $1,753 | $1,651 | Condensed Consolidated Statements of Comprehensive Income Q2 2025 net sales remained flat, while net income and diluted EPS increased for both the quarter and the six-month period Q2 and H1 2025 vs 2024 Performance (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $814 | $816 | $1,580 | $1,605 | | Gross profit | $402 | $394 | $780 | $760 | | Operating income | $256 | $263 | $505 | $497 | | Net income | $195 | $187 | $387 | $356 | | Diluted EPS | $2.29 | $2.13 | $4.50 | $4.05 | Condensed Consolidated Statements of Cash Flows Operating cash flow increased in H1 2025, but significant cash was used for investing activities and substantially higher stock repurchases Six Months Ended June 30 Cash Flow Summary (in millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $365 | $344 | | Net cash used for investing activities | $(59) | $(32) | | Net cash used for financing activities | $(316) | $(218) | | Net (decrease) increase in cash | $(3) | $93 | Notes to Condensed Consolidated Financial Statements Notes detail revenue by market, the $2.7 billion Dana off-highway acquisition, and the impact of new U.S. tax legislation Disaggregated Revenue by End Market (in millions) | End Market | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | North America On-Highway | $417 | $456 | $852 | $876 | | Outside North America On-Highway | $142 | $128 | $254 | $243 | | Global Off-Highway | $16 | $23 | $34 | $69 | | Defense | $63 | $43 | $116 | $91 | | Service Parts, Support Equipment and Other | $176 | $166 | $324 | $326 | | Total Net Sales | $814 | $816 | $1,580 | $1,605 | - On June 11, 2025, the company agreed to acquire the off-highway business of Dana Incorporated for approximately $2,732 million, funded by cash and debt. The transaction is expected to close in late Q4 2025[87] - A new U.S. federal income tax law, the One Big Beautiful Bill Act (OBBBA), was enacted on July 4, 2025. It allows for immediate deduction of qualified capital investments and suspends the requirement to capitalize R&D expenditures. The company is currently evaluating its impact[90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses flat Q2 sales, improved gross profit, the pending $2.7 billion Dana acquisition, and strong liquidity supporting operations and capital returns Results of Operations Q2 2025 net sales were flat, with strong Defense growth offsetting declines in North America On-Highway, leading to an improved gross profit margin of 49% Q2 Net Sales by End Market (in millions) | End Market | Q2 2025 | Q2 2024 | % Variance | | :--- | :--- | :--- | :--- | | North America On-Highway | $417 | $456 | (9)% | | Outside North America On-Highway | $142 | $128 | 11% | | Global Off-Highway | $16 | $23 | (30)% | | Defense | $63 | $43 | 47% | | Service Parts, Support Equipment and Other | $176 | $166 | 6% | | Total Net Sales | $814 | $816 | 0% | - Q2 2025 gross profit increased by $8 million YoY, driven by $34 million from price increases, which more than offset the impact of decreased sales volume and unfavorable material costs[117] - Selling, general and administrative expenses increased 24% in Q2 2025, primarily due to costs related to the pending acquisition of Dana's off-highway business and higher product warranty expense[118] Liquidity and Capital Resources The company maintains strong liquidity with $778 million cash and $745 million credit, supporting operations, $256 million in stock repurchases, and a $2 billion acquisition bridge loan - As of June 30, 2025, total liquidity included $778 million in cash and cash equivalents and $745 million available under the Revolving Credit Facility[134][139] - In H1 2025, the company returned significant capital to shareholders, repurchasing $256 million of its common stock, a substantial increase from $83 million in H1 2024[142][147] - In connection with the pending acquisition of Dana's off-highway business, the company has entered into a commitment for a $2 billion bridge loan facility, which it expects to replace with permanent financing[141] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, foreign currency, and commodity prices, with sensitivity analyses showing potential impacts on net earnings - A one-eighth percent change in interest rates on the fully drawn Senior Secured Credit Facility would impact annual interest expense by approximately $1 million[156] - A 10% aggregate change in the Chinese Yuan, Euro, Indian Rupee, and Japanese Yen would change net earnings by an estimated $7 million per year[158] - A 10% price variation in aluminum and steel would change annual earnings by approximately $8 million and $12 million, respectively, assuming current purchase levels[160] Item 4. Controls and Procedures Disclosure controls and procedures were deemed effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[162] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[163] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, but management anticipates no material adverse effect on its financial condition or operations - The company is party to various legal proceedings but does not expect the outcomes to have a material adverse effect on its financial condition[79][165] Item 1A. Risk Factors New risk factors relate to the pending Dana acquisition, including completion, financing, integration challenges, and realizing anticipated synergies - New risks have been added related to the pending acquisition of Dana's off-highway business[166] - Specific risks include: the acquisition may not be completed in a timely manner or at all; failure to obtain intended financing; potential loss of key personnel and disruption of business relationships; and challenges with successfully integrating the acquired business and realizing expected synergies[166][170][171][177] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2025, the company repurchased 1,088,028 shares for $102.5 million, with $1.26 billion remaining authorized for future repurchases Common Stock Repurchases for Q2 2025 | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining for Repurchase | | :--- | :--- | :--- | :--- | | April 2025 | 585,859 | $89.61 | $1,313,156,511 | | May 2025 | 297,720 | $100.76 | $1,283,159,528 | | June 2025 | 204,449 | $97.81 | $1,263,161,863 | | Total Q2 | 1,088,028 | $94.20 | N/A | Item 5. Other Information An officer terminated a Rule 10b5-1 trading arrangement for 6,300 shares on May 7, 2025 - On May 7, 2025, an officer of the company terminated a previously established Rule 10b5-1 trading plan for the sale of 6,300 shares[181] Item 6. Exhibits Key exhibits include the Stock Purchase Agreement for the Dana acquisition and required CEO/CFO certifications - Key exhibits filed with this report include the Stock Purchase Agreement for the Dana acquisition and CEO/CFO certifications (Exhibits 2.1, 31.1, 31.2, 32.1)[182]