10-Q 1 alsn-20220331.htm 10-Q 10-Q
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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 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)

 

img104399814_0.jpg 

 

Delaware

26-0414014

(State or Other Jurisdiction of Incorporation or

Organization)

(I.R.S. Employer

Identification Number)

One Allison Way

 

Indianapolis, IN

46222

(Address of Principal Executive Offices)

(Zip Code)

 

(317) 242-5000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange

on which Registered

Common stock, $0.01 par value

 

ALSN

 

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo

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

 


Table of Contents

 

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


Table of Contents

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Allison Transmission Holdings, Inc.

Condensed Consolidated Balance Sheets

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

 

 

 

March 31,
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


Table of Contents

 

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income

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

 

 

 

Three Months Ended March 31,

 

 

 

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


Table of Contents

 

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.

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Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited, dollars in millions)

 

 

 

Three months ended

 

 

 

Common Stock

 

 

Non-voting Common Stock

 

 

Preferred Stock

 

 

Paid-in Capital

 

 

Accumulated (Deficit) Income

 

 

Accumulated Other Comprehensive (Loss) Income, net of tax

 

 

Stockholders' Equity

 

Balance at December 31, 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.

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Table of Contents

 

Allison Transmission Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(UNAUDITED)

NOTE A. OVERVIEW

Overview

Allison Transmission Holdings, Inc. and its subsidiaries (“Allison” or the “Company”) design and manufacture vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense fully automatic transmissions and electric hybrid and fully electric systems. The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception. Allison is traded on the New York Stock Exchange under the symbol, “ALSN”.

Although approximately 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.

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Table of Contents

 

These condensed consolidated financial statements present the financial position, results of comprehensive income, cash flows and statements of stockholders’ equity of the Company. Certain immaterial reclassifications have been made in the condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications had no material impact on previously reported net income, total stockholders’ equity or cash flows. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in 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.

 

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Table of Contents

 

NOTE C. REVENUE

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

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

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

 

 

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Table of Contents

 

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