What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-10-29 compared with 2020-08-05 · 139 added, 117 removed, 496 unchanged (34% of the section changed)

3 unchanged sentences

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

September 30,

Current Assets

Cash and cash equivalents

Accounts receivable – net of allowances for doubtful accounts of $ 2 and $ 1 , respectively

Accounts receivable – net of allowances for doubtful accounts of $ 1

Other current assets

30 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of sales

13 unchanged sentences

(unaudited, dollars in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

13 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES:

Business acquisitions

Additions of long-lived assets

Business acquisitions

Net cash used for investing activities

10 unchanged sentences

Debt financing fees

Net cash provided by (used for) financing activities

Net cash used for financing activities

Effect of exchange rate changes on cash

16 unchanged sentences

Stockholders' Equity

Balance at March 31, 2019

Balance at June 30, 2019

Stock-based compensation

Pension and OPEB liability adjustment

Available-for-sale securities and interest rate swaps

Foreign currency translation adjustment

Interest rate swaps

Issuance of common stock

1 unchanged sentence

Dividends on common stock

Balance at September 30, 2019

Balance at June 30, 2020

Balance at March 31, 2020

Stock-based compensation

Pension and OPEB liability adjustment

Available-for-sale securities and interest rate swaps

Foreign currency translation adjustment

Interest rate swaps

Repurchase of common stock

Dividends on common stock

Balance at June 30, 2020

Balance at September 30, 2020

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

2 unchanged sentences

(unaudited, dollars in millions)

Six months ended

Nine months ended

Non-voting Common Stock

9 unchanged sentences

Available-for-sale securities and interest rate swaps

Issuance of common stock

Repurchase of common stock

1 unchanged sentence

Impact of adopting accounting standards

Balance at June 30, 2019

Balance at September 30, 2019

Balance at December 31, 2019

1 unchanged sentence

Pension and OPEB liability adjustment

Foreign currency translation adjustment

Available-for-sale securities and interest rate swaps

2 unchanged sentences

Dividends on common stock

Balance at June 30, 2020

Balance at September 30, 2020

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

9 unchanged sentences

In March 2020, the World Health Organization categorized the novel coronavirus ("COVID-19") as a pandemic, and it continues to impact the United States and other major markets in which the Company operates across the world, resulting in severe disruptions to global markets and supply chains, significant uncertainty and a weaker global outlook.

The effects of the pandemic on the global economy had a material impact on demand for the Company’s products and to the Company’s results of operations during the second quarter 2020 as our suppliers and customers reduced or halted production.

The effects of the pandemic on the global economy began having a material impact on demand for the Company’s products and on the Company’s results of operations during the second quarter 2020 as our suppliers and customers reduced or halted production.

Although the Company’s suppliers and customers have restarted production, production disruptions due to more localized COVID-19 outbreaks as well as the continued uncertainty and weaker global outlook continued to have a material impact on demand for the Company’s products and on the Company’s results of operations during the third quarter 2020.

To limit the spread of COVID-19, governments have taken various actions including travel bans and restrictions, quarantines, curfews, stay-at-home orders, social distancing guidelines and business shutdowns and closures.

Despite these ongoing disruptions, the Company has continued its manufacturing operations throughout 2020 allowing the Company to deliver its products to customers without interruption.

However, the Company’s manufacturing facilities in Hungary, India, and Tennessee suspended operations, for varying lengths of time, and the Company’s global manufacturing facilities have cut back on operating levels and shifts as a result of government orders, the Company’s inability to obtain component parts from suppliers and/or decreased customer demand.

We are taking a variety of measures to promote the safety and security of our employees and to maintain operations with as minimal impact as possible to our stakeholders, including increased frequency of cleaning and disinfecting of facilities, social distancing, remote working when possible, travel restrictions and limitations on visitor access to facilities.

We are also working to align operations, programs and spending across our entire business with current conditions, including reduced compensation expense through restructuring initiatives of both hourly and salary employees related to voluntary and involuntary separation programs, furloughs of a portion of our workforce, reducing overtime, and assessing the timing and cadence of various capital investments and product development initiatives.

Despite these disruptions, the Company has continued its manufacturing operations throughout 2020 allowing the Company to deliver its products to customers without interruption.

However, the Company’s global manufacturing facilities have cut back on operating levels and shifts as a result of government orders, the Company’s inability to obtain component parts from suppliers and/or decreased customer demand and in certain locations temporarily suspended operations in the second quarter.

The Company is taking a variety of measures to promote the safety and security of our employees and to maintain operations with as minimal impact as possible to our stakeholders, including increased frequency of cleaning and disinfecting of facilities, social distancing, occupancy limits, mask wearing requirements, remote working when possible, travel restrictions and limitations on visitor access to facilities.

The Company is also working to align operations, programs and spending across our entire business with current conditions, including reduced compensation expense through restructuring initiatives of both hourly and salary employees related to voluntary and involuntary separation programs implemented during the second quarter of 2020, furloughs of a portion of our workforce, reducing overtime, and assessing the timing and cadence of various capital investments and product development initiatives.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

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, 2019 as filed with the Securities and Exchange Commission on February 27, 2020.

The interim period financial results for the three- and six-month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year.

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 impact on previously reported net income, total stockholders’ equity or cash flows.

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

41 unchanged sentences

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 adjustments based on variable consideration during the three and six months ended June 30, 2020 and 2019.

The Company recorded no adjustments based on variable consideration during the three and nine months ended September 30, 2020 and 2019.

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 June 30, 2020 and December 31, 2019.

See Note J, “Deferred Revenue” for more information including the amount of revenue earned during the three and six months ended June 30, 2020 and 2019 that had been previously deferred.

The Company had no contract assets as of June 30, 2020 and December 31, 2019.

Such consideration is recorded as a contract liability in current and non-current Deferred revenue as of September 30, 2020 and December 31, 2019.

See Note J, “Deferred Revenue” for more information including the amount of revenue earned during the three and nine months ended September 30, 2020 and 2019 that had been previously deferred.

The Company had no contract assets as of September 30, 2020 and December 31, 2019.

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

North America On-Highway

5 unchanged sentences

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

September 30,

Purchased parts and raw materials

6 unchanged sentences

GOODWILL AND OTHER INTANGIBLE ASSETS

As of June 30, 2020 and December 31, 2019, the carrying amount of the Company’s Goodwill was $ 2,062 million and $ 2,041 million, respectively.

As of September 30, 2020 and December 31, 2019, the carrying amount of the Company’s Goodwill was $ 2,063 million and $ 2,041 million, respectively.

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

June 30, 2020

September 30, 2020

December 31, 2019

6 unchanged sentences

Customer relationships — defense

As of June 30, 2020 and December 31, 2019, the net carrying value of the Company’s Goodwill and other intangible assets, net was $ 3,048 million and $ 3,083 million, respectively.

As of September 30, 2020 and December 31, 2019, the carrying value of the Company’s Goodwill and Intangible assets, net was $ 3,038 million and $ 3,083 million, respectively.

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

Amortization expense

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

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

Balance at December 31, 2018

Net current period impact to goodwill

Balance at June 30, 2019

Balance at September 30, 2019

Balance at December 31, 2019

Measurement period adjustment

Measurement period adjustments

Walker Die Casting net working capital settlement

Net current period impact to goodwill

Balance at June 30, 2020

Balance at September 30, 2020

See NOTE T, "Acquisitions" for more information on certain changes in the Company's goodwill and other intangible assets.

18 unchanged sentences

At each balance sheet date, the Company performs an analysis of all instruments subject to authoritative accounting guidance and includes, in Level 3, all of those whose fair value is based on significant unobservable inputs.

As of June 30, 2020 and December 31, 2019, the Company did no t have any Level 3 financial assets or liabilities.

As of September 30, 2020 and December 31, 2019, the Company did no t have any Level 3 financial assets or liabilities.

The Company’s assets and liabilities that are measured at fair value include cash equivalents, derivative instruments, assets held in a rabbi trust and a deferred compensation obligation.

9 unchanged sentences

The fair values are included in other current and non-current assets and liabilities in the Condensed Consolidated Balance Sheets.

The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of June 30, 2020 and December 31, 2019 (dollars in millions):

The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of September 30, 2020 and December 31, 2019 (dollars in millions):

Fair Value Measurements Using

4 unchanged sentences

Observable Inputs

September 30,

Cash equivalents

3 unchanged sentences

Long-term debt and maturities are as follows (dollars in millions):

September 30,

Long-term debt:

Senior Notes, fixed 5.0 %, due 2024

Revolving Credit Facility, variable, due 2024

Senior Secured Credit Facility Term Loan, variable, due 2026

5 unchanged sentences

Total long-term debt, net

As of June 30, 2020, the Company had $ 2,816 million of indebtedness associated with Allison Transmission, Inc.’s (“ATI”), the Company’s wholly-owned subsidiary, 5.0 % Senior Notes due September 2024 (“5.0% Senior Notes”), ATI’s 4.75 % Senior Notes due October 2027 (“4.75% Senior Notes”), ATI’s 5.875 % Senior Notes due June 2029 (“5.875% Senior Notes,” and, together with the 5.0% Senior Notes and 4.75% Senior Notes, the “Senior Notes”) and the Second Amended and Restated Credit Agreement dated as of March 29, 2019 (the “Credit Agreement”), governing ATI’s new term loan facility in the amount of $ 641 million due March 2026 (“New Term Loan”) and ATI’s new revolving credit facility with commitments in the amount of $ 600 million due September 2024 (“New Revolving Credit Facility” and, together with the New Term Loan, the “New Senior Secured Credit Facility”).

The fair value of the Company’s long-term debt obligations as of June 30, 2020 was $ 2,811 million.

The fair value is based on quoted Level 2 market prices of the Company’s debt as of June 30, 2020.

As of September 30, 2020, the Company had $ 2,540 million of indebtedness associated with Allison Transmission, Inc.’s (“ATI”), the Company’s wholly-owned subsidiary, 5.0 % Senior Notes due September 2024 (“5.0% Senior Notes”), ATI’s 4.75 % Senior Notes due October 2027 (“4.75% Senior Notes”), ATI’s 5.875 % Senior Notes due June 2029 (“5.875% Senior Notes,” and, together with the 5.0% Senior Notes and 4.75% Senior Notes, the “Senior Notes”) and the Second Amended and Restated Credit Agreement dated as of March 29, 2019 (the “Credit Agreement”), governing ATI’s new term loan facility in the amount of $ 640 million due March 2026 (“New Term Loan”) and ATI’s new revolving credit facility with commitments in the amount of $ 600 million due September 2024 (“New Revolving Credit Facility” and, together with the New Term Loan, the “New Senior Secured Credit Facility”).

The fair value of the Company’s long-term debt obligations as of September 30, 2020 was $ 2,599 million.

The fair value is based on quoted Level 2 market prices of the Company’s debt as of September 30, 2020.

It is not expected that the Company would be able to repurchase a significant amount of its debt at these levels.

4 unchanged sentences

The New Senior Secured Credit Facility replaced the Prior Senior Secured Credit Facility, including the Prior Term Loan and Prior Revolving Credit Facility, on March 29, 2019.

The Credit Agreement was treated as a modification to the Prior Senior Secured Credit Facility under GAAP, and thus the Company expensed $ 5 million of prior deferred financing fees and $ 1 million of related third party fees in the Condensed Consolidated Statement of Comprehensive Income for the six-months ended June 30, 2019 and recorded $ 5 million as new deferred financing fees in the Condensed Consolidated Balance Sheet in the first quarter of 2019.

The Credit Agreement was treated as a modification to the Prior Senior Secured Credit Facility under GAAP, and thus the Company expensed $ 5 million of prior deferred financing fees and $ 1 million of related third party fees in the Condensed Consolidated Statement of Comprehensive Income for the nine months ended September 30, 2019 and recorded $ 5 million as new deferred financing fees in the Condensed Consolidated Balance Sheet in the first quarter of 2019.

In October 2019, ATI entered into an amendment to the Credit Agreement with the lenders under its New Senior Secured Credit Facility to lower the applicable margins on the New Term Loan by 0.25 %.

3 unchanged sentences

subsidiary guarantors (subject to certain limitations for equity interest of foreign subsidiaries and other exceptions set forth in the Credit Agreement).

Interest on the New Term Loan, as of June 30, 2020, is either (a) 1.75 % over a LIBOR rate on deposits in U.S.

Interest on the New Term Loan, as of September 30, 2020, is either (a) 1.75 % over a LIBOR rate on deposits in U.S.

dollars for one-, two-, three- or six-month periods (or twelve-month or shorter periods if, at the time of the borrowing, available from all relevant lenders) (the "LIBOR Rate"), or (b) 0.75 % over the greater of the prime lending rate as quoted by the administrative agent, the LIBOR Rate for an interest period of one month plus 1.00 % and the federal funds effective rate published by the Federal Reserve Bank of New York plus 0.50 %, subject to a 1.00 % floor (the "Base Rate").

As of June 30, 2020, the Company elected to pay the lowest all-in rate of LIBOR plus the applicable margin, or 1.94 %, on the New Term Loan.

As of September 30, 2020, the Company elected to pay the lowest all-in rate of LIBOR plus the applicable margin, or 1.90 %, on the New Term Loan.

The Credit Agreement requires minimum quarterly principal payments on the New Term Loan, as well as prepayments from certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events, the incurrence of certain debt and from a percentage of excess cash flow, if applicable.

The minimum required quarterly principal payment on the New Term Loan through its maturity date of March 2026 is $ 2 million.

As of June 30, 2020, there had been no payments required for certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events.

As of September 30, 2020, there had been no payments required for certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events.

The remaining principal balance is due upon maturity.

The New Senior Secured Credit Facility also provides a New Revolving Credit Facility, net of an allowance for up to $ 75 million in outstanding letters of credit commitments.

Throughout the six months ended June 30, 2020, the Company made periodic withdrawals and payments on the New Revolving Credit Facility as part of the Company's debt management plans.

The maximum amount outstanding at any time during the six months ended June 30, 2020 was $ 500 million.

As of June 30, 2020, the Company had $ 319 million available under the New Revolving Credit Facility, net of $ 275 million of revolving loans outstanding and $ 6 million in letters of credit.

Throughout the nine months ended September 30, 2020, the Company made periodic withdrawals and payments on the New Revolving Credit Facility as part of the Company's debt and cash management plans.

The maximum amount outstanding under the New Revolving Credit Facility at any time during the nine months ended September 30, 2020 was $ 500 million.

As of September 30, 2020, the Company had $ 595 million available under the New Revolving Credit Facility, net of $ 5 million in letters of credit.

Borrowings under the New Revolving Credit Facility bear interest at a variable base rate plus an applicable margin based on the Company’s first lien net leverage ratio.

2 unchanged sentences

and when the Company’s first lien net leverage ratio is equal to or below 3.50 x, interest on the New Revolving Credit Facility is (y) 0.25 % over the Base Rate or (z) 1.25 % over the LIBOR Rate.

As of June 30, 2020, the Company elected to pay the lowest all-in rate of LIBOR plus the applicable margin, or 1.44 %, on the New Revolving Credit Facility.

As of September 30, 2020, the applicable margin for the New Revolving Credit Facility was 1.25 % on the New Revolving Credit Facility.

In addition, there is an annual commitment fee, based on the Company’s first lien net leverage ratio, on the average unused revolving credit borrowings available under the New Revolving Credit Facility.

As of June 30, 2020, the commitment fee is 0.25 %.

As of September 30, 2020, the commitment fee is 0.25 %.

Borrowings under the New Revolving Credit Facility are payable at the option of the Company throughout the term of the New Senior Secured Credit Facility with the balance due in September 2024.

The New Senior Secured Credit Facility requires the Company to maintain a specified maximum first lien net leverage ratio of 5.50 x when revolving loan commitments remain outstanding on the New Revolving Credit Facility at the end of a fiscal quarter.

As of June 30, 2020, the Company had $ 275 million outstanding under the New Revolving Credit Facility and was in compliance with the maximum first lien net leverage ratio, achieving a 0.56 x ratio.

As of September 30, 2020, the Company had no amounts outstanding under the New Revolving Credit Facility;

however, the Company would have been in compliance with the maximum first lien net leverage ratio, achieving a 0.51 x ratio.

Additionally, within the terms of the New Senior Secured Credit Facility, a first lien net leverage ratio at or below 4.00 x results in the elimination of excess cash flow payments on the New Senior Secured Credit Facility for the applicable year.

In addition, the Credit Agreement, among other things, includes customary restrictions (subject to certain exceptions) on the Company’s ability to incur certain indebtedness, grant certain liens, make certain investments, engage in acquisitions, consolidations and mergers, declare or pay certain dividends or repurchase shares of the Company’s common stock.

As of June 30, 2020, the Company was in compliance with all covenants under the Credit Agreement.

As of September 30, 2020, the Company was in compliance with all covenants under the Credit Agreement.

5.0% Senior Notes

3 unchanged sentences

incur or guarantee additional indebtedness, incur liens, pay dividends on, redeem or repurchase the Company’s capital stock, make certain investments, permit payment or dividend restrictions on certain of the Company’s subsidiaries, sell assets, engage in certain transactions with affiliates, and consolidate or merge or sell all or substantially all of the Company’s assets.

As of June 30, 2020, the Company was in compliance with all covenants under the indenture governing the 5.0% Senior Notes.

As of September 30, 2020, the Company was in compliance with all covenants under the indenture governing the 5.0% Senior Notes.

4.75% Senior Notes

3 unchanged sentences

As of June 30, 2020, the Company was in compliance with all covenants under the indenture governing the 4.75% Senior Notes.

As of September 30, 2020, the Company was in compliance with all covenants under the indenture governing the 4.75% Senior Notes.

5.875% Senior Notes

7 unchanged sentences

As of June 30, 2020 , the Company was in compliance with all covenants under the indenture governing the 5.875% Senior Notes.

As of September 30, 2020 , the Company was in compliance with all covenants under the indenture governing the 5.875% Senior Notes.

The Company is subject to interest rate risk related to the New Senior Secured Credit Facility and enters into interest rate swaps that are based on LIBOR to manage a portion of this exposure.

3 unchanged sentences

During the first quarter of 2019, the Company entered into $ 250 million of interest rate swaps and designated them as cash flow hedges under the hypothetical derivative method.

As of June 30, 2020, the Company held interest rate swaps effective from September 2019 to September 2025 with notional values totaling $ 250 million and a weighted average LIBOR fixed rate of 3.04 %, interest rate swaps effective from September 2019 to September 2022 with notional values totaling $ 250 million and a weighted average LIBOR fixed rate of 3.01 % and interest rate swaps effective from September 2022 to September 2025 with notional values totaling $ 250 million and a weighted average LIBOR fixed rate of 2.82 %.

As of September 30, 2020, the Company held interest rate swaps effective from September 2019 to September 2025 with notional values totaling $ 250 million and a weighted average LIBOR fixed rate of 3.04 %, interest rate swaps effective from September 2019 to September 2022 with notional values totaling $ 250 million and a weighted average LIBOR fixed rate of 3.01 % and interest rate swaps effective from September 2022 to September 2025 with notional values totaling $ 250 million and a weighted average LIBOR fixed rate of 2.82 %.

See NOTE F “Fair Value of Financial Instruments” for information regarding the fair value of the Company’s interest rate swaps.

1 unchanged sentence

Balance Sheet Location

September 30,

Derivatives designated as hedging instruments:

3 unchanged sentences

Total derivatives designated as hedging instruments

The balance of derivative losses recorded in AOCL as of June 30, 2020 was $ 66 million.

See NOTE O “Accumulated Other Comprehensive Loss” for information regarding activity recorded as a component of AOCL during the three and six months ended June 30, 2020.

As June 30, 2020, the Company had $ 14 million of derivative losses recorded in AOCL expected to be reclassified to earnings within the next twelve months.

The balance of derivative losses recorded in AOCL as of September 30, 2020 was $ 64 million.

See NOTE O “Accumulated Other Comprehensive Loss” for information regarding activity recorded as a component of AOCL during the three and nine months ended September 30, 2020.

As of September 30, 2020, the Company had $ 14 million of derivative losses recorded in AOCL expected to be reclassified to earnings within the next twelve months.

PRODUCT WARRANTY LIABILITIES

As of June 30, 2020, current and non-current product warranty liabilities were $ 29 million and $ 19 million, respectively.

As of June 30, 2019, current and non-current product warranty liabilities were $ 27 million and $ 32 million, respectively.

As of September 30, 2020, current and non-current product warranty liabilities were $ 34 million and $ 31 million, respectively.

As of September 30, 2019, current and non-current product warranty liabilities were $ 25 million and $ 29 million, respectively.

Product warranty liability activities consist of the following (dollars in millions):

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Beginning balance

2 unchanged sentences

Ending balance

During the third quarter of 2020, the Company recorded a $ 23 million product warranty adjustment to address a transmission performance issue associated with shift quality in a defined population of products.

As a result of this performance issue, the Company created a field action program in 2019 dedicated to the defined population of products and reviewed, assessed and made adjustments to the liability on a quarterly basis.

The product warranty adjustment during the third quarter 2020 was the result of additional claims data and field information becoming available.

DEFERRED REVENUE

As of June 30, 2020, current and non-current deferred revenue was $ 34 million and $ 111 million, respectively.

As of June 30, 2019, current and non-current deferred revenue was $ 34 million and $ 99 million, respectively.

As of September 30, 2020, current and non-current deferred revenue was $ 33 million and $ 107 million, respectively.

As of September 30, 2019, current and non-current deferred revenue was $ 35 million and $ 103 million, respectively.

Deferred revenue activity consists of the following (dollars in millions):

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Beginning balance

1 unchanged sentence

Ending balance

Deferred revenue recorded in current and non-current liabilities related to ETC as of June 30, 2020 was $ 27 million and $ 93 million, respectively.

Deferred revenue recorded in current and non-current liabilities related to ETC as of June 30, 2019 was $ 29 million and $ 77 million, respectively.

Deferred revenue recorded in current and non-current liabilities related to ETC as of September 30, 2020 was $ 28 million and $ 89 million, respectively.

Deferred revenue recorded in current and non-current liabilities related to ETC as of September 30, 2019 was $ 28 million and $ 82 million, respectively.

Contracts are assessed by the Company to determine if the contract conveys the right to control an identified asset in exchange for consideration during a period of time.

The Company classifies all identified leases as operating or finance leases.

As of June 30, 2020, the Company was not a party to any finance leases.

As of September 30, 2020, the Company was not a party to any finance leases.

Contracts that contain leases are assessed to determine if the consideration in the contract is related to a lease component, non-lease component or other components not related to the lease.

8 unchanged sentences

The lease liability is classified between current and non-current liabilities based on the terms of the underlying leases.

The weighted average discount rate on operating leases as of both June 30, 2020 and December 31, 2019 was 4.36 %.

As of June 30, 2020, the Company recorded current and non-current operating lease liabilities of $ 5 million and $ 17 million, respectively.

The weighted average discount rate on operating leases as of September 30, 2020 and December 31, 2019 was 4.37 % and 4.36 %, respectively.

As of September 30, 2020, the Company recorded current and non-current operating lease liabilities of $ 4 million and $ 17 million, respectively.

As of December 31, 2019, the Company recorded current and non-current operating lease liabilities of $ 5 million and $ 18 million, respectively.

The following table reconciles total operating lease liabilities as of June 30, 2020 to future undiscounted cash flows for operating leases:

The following table reconciles total operating lease liabilities as of September 30, 2020 to future undiscounted cash flows for operating leases:

September 30,

Total lease payments

2 unchanged sentences

The below table depicts the ROU assets held by the Company based on the underlying asset:

September 30,

Total right-of-use assets

The weighted average remaining lease term as of June 30, 2020 and June 30, 2019 was 7.54 years and 7.08 years, respectively.

Operating lease expense was $ 2 million and $ 3 million for the three and six months ended, respectively, for each of June 30, 2020 and 2019, recorded within Selling, general and administrative expense and Engineering - research and development on the Company's Condensed Consolidated Statements of Comprehensive Income.

There was no short-term operating lease expense for the three and six months ended June 30, 2020 and 2019.

The calculation of the Company's ROU assets and lease liabilities did not include cash consideration as of June 30, 2020 and December 31, 2019.

During the six months ended June 30, 2020 and 2019, the Company recorded $ 1 million and $ 8 million, respectively, of new ROU assets obtained in exchange for lease obligations.

The weighted average remaining lease term as of September 30, 2020 and September 30, 2019 was 7.59 years and 6.89 years, respectively.

Operating lease expense was $ 1 million in each of the three months ended September 30, 2020 and 2019 and $ 4 million in each of the nine months ended September 30, 2020 and 2019, recorded within Selling, general and administrative expense and Engineering - research and development on the Company's Condensed Consolidated Statements of Comprehensive Income.

There was no short-term operating lease expense for the three and nine months ended September 30, 2020 and 2019.

The calculation of the Company's ROU assets and lease liabilities did not include cash consideration as of September 30, 2020 and December 31, 2019.

During the nine months ended September 30, 2020 and 2019, the Company recorded $ 2 million and $ 10 million, respectively, of new ROU assets obtained in exchange for lease obligations.

OTHER CURRENT LIABILITIES

Other current liabilities consist of the following (dollars in millions):

September 30,

Accrued interest payable

Payroll and related costs

Taxes payable

Sales allowances

Accrued interest payable

Vendor buyback obligation

Derivative liabilities

Taxes payable

Lease liability

8 unchanged sentences

For the Three Months

Ended June 30,

Ended September 30,

For the Three Months

Ended June 30,

Net periodic benefit cost:

Ended September 30,

Net periodic benefit cost (credit):

Interest cost

4 unchanged sentences

Post-retirement Benefits

For the Six Months

Ended June 30,

For the Six Months

Ended June 30,

Net periodic benefit cost:

For the Nine Months

Ended September 30,

For the Nine Months

Ended September 30,

Net periodic benefit cost (credit):

Interest cost

3 unchanged sentences

The components of net periodic benefit cost (credit) other than the service cost component are included in Other income, net in the Condensed Consolidated Statements of Comprehensive Income.

For the three and six months ended June 30, 2020, the Company recorded total tax expense of $ 7 million and $ 49 million, respectively.

The effective tax rate for both the three and six months ended June 30, 2020 was 23 %.

For the three and six months ended June 30, 2019, the Company recorded total tax expense of $ 48 million and $ 92 million, respectively.

The effective tax rate for both the three and six months ended June 30, 2019 was 21 %.

For the three and nine months ended September 30, 2020, the Company recorded total tax expense of $ 21 million and $ 70 million, respectively.

The effective tax rate for the three and nine months ended September 30, 2020 was 21 % and 23 %, respectively.

For the three and nine months ended September 30, 2019, the Company recorded total tax expense of $ 45 million and $ 137 million, respectively.

The effective tax rate for the three and nine months ended September 30, 2019 was 23 % and 22 %, respectively.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law making several changes to the U.S.

1 unchanged sentence

Some of the tax law changes included in the CARES Act are retroactive.

While the Company has reviewed the elections set forth in the CARES Act, its provision for income taxes for the three and six months ended June 30, 2020 does not reflect the effect of any of these elections.

While the Company has reviewed the elections set forth in the CARES Act, its provision for income taxes for the three and nine months ended September 30, 2020 does not reflect the effect of any of these elections.

The effects, both individually and in the aggregate, are not expected to be material at this time.

5 unchanged sentences

The Company has determined, based on the evaluation of both objective and subjective evidence available, that this valuation allowance is necessary and that it is more likely than not that the deferred tax assets are not fully realizable.

In accordance with the FASB’s authoritative guidance on accounting for income taxes, the Company has recorded a liability for unrecognized tax benefits related to a 2010 Research and Development Credit as of June 30, 2020 and December 31, 2019.

The accounting guidance prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

3 unchanged sentences

Three months ended

AOCL as of March 31, 2019

Other comprehensive (loss) income before reclassifications

Amounts reclassified from AOCL

Net current period other comprehensive (loss) income

AOCL as of June 30, 2019

AOCL as of March 31, 2020

Other comprehensive loss before reclassifications

1 unchanged sentence

Net current period other comprehensive loss

AOCL as of September 30, 2019

AOCL as of June 30, 2020

Six months ended

Other comprehensive income before reclassifications

Amounts reclassified from AOCL

Net current period other comprehensive (loss) income

AOCL as of September 30, 2020

Nine months ended

AOCL as of December 31, 2018

Other comprehensive (loss) income before reclassifications

Other comprehensive loss before reclassifications

Amounts reclassified from AOCL

1 unchanged sentence

Net current period other comprehensive income (loss)

AOCL as of June 30, 2019

AOCL as of September 30, 2019

AOCL as of December 31, 2019

2 unchanged sentences

Net current period other comprehensive loss

AOCL as of June 30, 2020

The Company reclassified approximately $ 7 million, as of January 1, 2019, from AOCL to retained earnings for the stranded tax effects resulting from the U.S.

AOCL as of September 30, 2020

The Company reclassified $ 7 million, as of January 1, 2019, from AOCL to retained earnings for the stranded tax effects resulting from the U.S.

Tax Cuts and Jobs Act.

4 unchanged sentences

Three months ended

June 30, 2020

September 30, 2020

Three months ended

June 30, 2019

September 30, 2019

Affected line item in the Condensed

11 unchanged sentences

AOCL Components

Six months ended

June 30, 2020

Six months ended

June 30, 2019

Nine months ended

September 30, 2020

Nine months ended

September 30, 2019

Affected line item in the Condensed

9 unchanged sentences

Total reclassifications

Prior service cost and actuarial loss are included in the computation of the Company’s net periodic benefit cost.

Prior service cost and actuarial loss are included in the computation of the Company’s net periodic benefit cost (credit).

See NOTE M, “Employee Benefit Plans” for additional details.

13 unchanged sentences

The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future and compensation cost for future service that the Company has not yet recognized.

For each of the three and six months ended June 30, 2020, there were 1 million outstanding stock options excluded from the diluted EPS calculation because they were anti-dilutive.

For each of the three and six months ended June 30, 2019, there were no outstanding stock options excluded from the diluted EPS calculation because they were anti-dilutive.

For each of the three and nine months ended September 30, 2020, there were 1 million outstanding stock options excluded from the diluted EPS calculation because they were anti-dilutive.

For each of the three and nine months ended September 30, 2019, there were no outstanding stock options excluded from the diluted EPS calculation because they were anti-dilutive.

The following table reconciles the numerators and denominators used to calculate basic EPS and diluted EPS (in millions, except per share data):

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Weighted average shares of common stock outstanding

8 unchanged sentences

The Repurchase Program may be modified, suspended or discontinued at any time at the Company’s discretion.

During the three and six months ended June 30, 2020, the Company repurchased zero and approximately $ 180 million, respectively, of its common stock under the Repurchase Program, leaving $ 872 million of authorized repurchases remaining under the Repurchase Program as of June 30, 2020.

During the three and nine months ended September 30, 2020, the Company repurchased $ 16 million and $ 196 million, respectively, of its common stock under the Repurchase Program, leaving $ 856 million of authorized repurchases remaining under the Repurchase Program as of September 30, 2020.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

7 unchanged sentences

The measurement period adjustment reflects facts and circumstances that existed as of the date of acquisition.

The measurement period has ended for this acquisition.

The measurement period has ended for this acquisition, and the purchase price allocation is complete.

Walker Die Casting Acquisition

On September 9, 2019, the Company acquired the assets of Walker Die Casting, Inc.

(“Walker Die Casting”), an aluminum castings company, and C&R Tool and Engineering, Inc.

(“C&R Tool and Engineering”), a supplier of metal-working tools, for approximately $ 103 million in cash.

(“Walker Die Casting”), an aluminum castings company, and C&R Tool and Engineering, Inc., a supplier of metal-working tools, for $ 103 million in cash, resulting in a net purchase price of $ 99 million after the effective settlement of $ 4 million of pre-existing accounts payable.

In the second quarter of 2020, the Company received a $ 4 million net working capital settlement from Walker Die Casting, reducing the purchase price to $ 95 million.

The initial accounting is complete for the fair value of the acquired assets and liabilities.

Any further adjustments identified in the measurement period, not to exceed one year from the acquisition date, will be accounted for in accordance with the applicable authoritative guidance.

The measurement period has ended for this acquisition, and the purchase price allocation is complete.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements