What changed in this filing

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Item 1. Financial Statements

2021-07-29 compared with 2021-04-29 · 181 added, 108 removed, 370 unchanged (44% of the section changed)

5 unchanged sentences

Cash and cash equivalents

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

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

Other current assets

30 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales

3 unchanged sentences

Interest expense, net

Other income (expense), net

Other income, net

Income before income taxes

7 unchanged sentences

(unaudited, dollars in millions)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

12 unchanged sentences

Additions of long-lived assets

Business acquisitions

Net cash used for investing activities

2 unchanged sentences

Dividend payments

Taxes paid related to net share settlement of equity awards

Payments on long-term debt

Payment of acquisition-related contingent liability

Taxes paid related to net share settlement of equity awards

Proceeds from exercise of stock options

1 unchanged sentence

Payments on revolving credit facility

Net cash used for financing activities

Net cash (used for) provided by financing activities

Effect of exchange rate changes on cash

Net decrease in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

7 unchanged sentences

(unaudited, dollars in millions)

Three months ended

Non-voting Common Stock

4 unchanged sentences

Stockholders' Equity

Balance at December 31, 2019

Balance at March 31, 2020

Stock-based compensation

Pension and OPEB liability adjustment

Interest rate swaps

Dividends on common stock

Balance at June 30, 2020

Balance at March 31, 2021

Stock-based compensation

Pension and OPEB liability adjustment

Foreign currency translation adjustment

3 unchanged sentences

Dividends on common stock

Balance at March 31, 2020

Balance at June 30, 2021

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

A llison Transmission Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited, dollars in millions)

Six months ended

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, 2019

6 unchanged sentences

Dividends on common stock

Balance at March 31, 2021

Balance at June 30, 2020

Balance at December 31, 2020

Stock-based compensation

Pension and OPEB liability adjustment

Foreign currency translation adjustment

Interest rate swaps

Repurchase of common stock

Dividends on common stock

Balance at June 30, 2021

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.

In the first quarter of 2021, the COVID-19 pandemic continued to create volatility in the Company’s business performance and impact global markets and supply chains.

In the first half of 2021, the COVID-19 pandemic continued to cause supply chain, labor and raw material constraints that created volatility in the Company’s business performance and impacted global markets and supply chains.

As a result, the Company has experienced raw material and component part price inflation, increased freight costs and increased overtime expense as a result of labor shortages.

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

The Company is also continuing to take a variety of measures to promote the safety and security of its employees and to maintain operations with as minimal impact as possible to its stakeholders, including increased frequency of cleaning and disinfecting of facilities, social distancing, occupancy limits, mask wearing requirements, onsite testing, remote working, travel restrictions, limitations on visitor access to facilities and, most recently, administration of vaccinations at the Company’s corporate headquarters.

As a result, the Company has been able to continue its manufacturing operations and deliver its products to customers with minimal disruptions.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

8 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, 2020 as filed with the Secur ities and Exchange Commission on February 18 , 20 2 1 .

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

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

Use of Estimates

25 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 material adjustments based on variable consideration during the three months ended March 31, 2021 and 2020.

The Company recorded no material adjustments based on variable consideration during each of the three and six months ended June 30, 2021 and 2020.

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, 2021 and December 31, 2020.

See Note J, “Deferred Revenue” for more information, including the amount of revenue earned during the three months ended March 31, 2021 and 2020 that had been previously deferred.

The Company had no material contract assets as of March 31, 2021 and December 31, 2020.

Such consideration is recorded as a contract liability in current and non-current Deferred revenue as of June 30, 2021 and December 31, 2020.

See Note J, “Deferred Revenue” for more information, including the amount of revenue earned during each of the three and six months ended June 30, 2021 and 2020 that had been previously deferred.

The Company had no material contract assets as of June 30, 2021 and December 31, 2020.

The Company has one operating segment and reportable segment.

1 unchanged sentence

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,

Three Months Ended June 30,

Six Months Ended June 30,

North America On-Highway

13 unchanged sentences

GOODWILL AND OTHER INTANGIBLE ASSETS

As of March 31, 2021 and December 31, 2020, the carrying value of the Company’s Goodwill was $ 2,064 million.

As of June 30, 2021 and December 31, 2020, the carrying value of the Company’s Goodwill was $ 2,064 .

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

March 31, 2021

June 30, 2021

December 31, 2020

6 unchanged sentences

Customer relationships — defense

As of March 31, 2021 and December 31, 2020, the carrying value of the Company’s Goodwill and Intangible assets, net was $ 3,015 million and $ 3,027 million, respectively.

As of June 30, 2021 and December 31, 2020, the carrying value of the Company’s Goodwill and Intangible assets, net was $ 3,004 million and $ 3,027 million, respectively.

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

19 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 March 31, 2021 and December 31, 2020, the Company did no t have any Level 3 financial assets or liabilities.

As of June 30, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020 (dollars in millions):

The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of June 30, 2021 and December 31, 2020 (dollars in millions):

Fair Value Measurements Using

7 unchanged sentences

Deferred compensation obligation

Derivative liabilities, net

Derivative liabilities

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

8 unchanged sentences

Total long-term debt, net

As of March 31, 2021, the Company had $ 2,536 million of indebtedness associated with Allison Transmission, Inc.’s (“ATI”), the Company’s wholly-owned subsidiary, 4.75 % Senior Notes due October 2027 (“4.75% Senior Notes”), ATI’s 5.875 % Senior Notes due June 2029 (“5.875% Senior Notes”), 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”) and the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”), governing ATI’s new term loan facility in the amount of $ 636 million due March 2026 (“New Term Loan”) and ATI’s new revolving credit facility with commitments in the amount of $ 650 million due September 2025 (“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 March 31, 2021 was $ 2,580 million.

The fair value is based on quoted Level 2 market prices of the Company’s debt as of March 31, 2021.

As of June 30, 2021, the Company had $ 2,535 million of indebtedness associated with Allison Transmission, Inc.’s (“ATI”), the Company’s wholly-owned subsidiary, 4.75 % Senior Notes due October 2027 (“4.75% Senior Notes”), ATI’s 5.875 % Senior Notes due June 2029 (“5.875% Senior Notes”), 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”) and the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”), governing ATI’s term loan facility in the amount of $ 635 million due March 2026 (“Term Loan”) and ATI’s revolving credit facility with commitments in the amount of $ 650 million due September 2025 (“Revolving Credit Facility” and, together with the Term Loan, the “Senior Secured Credit Facility”).

The fair value of the Company’s long-term debt obligations as of June 30, 2021 was $ 2,592 million.

The fair value is based on quoted Level 2 market prices of the Company’s debt as of June 30, 2021.

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

The difference between the fair value and carrying value of the long-term debt is driven primarily by trends in the financial markets.

New Senior Secured Credit Facility

In November 2020, the Company and ATI entered into an amendment to the Credit Agreement to increase the commitments under the New Revolving Credit Facility by $ 50 million to $ 650 million.

The amendment also extended the New Revolving Credit Facility termination date from September 2024 to September 2025 .

The borrowings under the New Senior Secured Credit Facility are collateralized by a lien on substantially all assets of the Company, ATI and each of the existing and future U.S.

Senior Secured Credit Facility

In November 2020, the Company and ATI entered into an amendment to the Credit Agreement to increase the commitments under the Revolving Credit Facility by $ 50 million to $ 650 million.

The amendment also extended the Revolving Credit Facility termination date from September 2024 to September 2025 .

The borrowings under the Senior Secured Credit Facility are collateralized by a lien on substantially all assets of the Company, ATI and each of the existing and future U.S.

subsidiary guarantors, with certain exceptions set forth in the Credit Agreement, and ATI’s capital stock and all of the capital stock or other equity interests held by the Company, ATI and each of ATI’s existing and future U.S.

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 March 31, 2021 , is either (a) 1.75 % over a LIBOR rate on deposits in U.S.

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

Interest on the Term

Loan, as of June 30, 2021 , 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 R ate 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 March 31, 2021 , the Company elected to pay the lowest all-in rate of LIBOR plus the applicable margin, or 1.86 % , 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 March 31, 2021 , there had been no payments required for certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events.

As of June 30, 2021 , the Company elected to pay the lowest all-in rate of LIBOR plus the applicable margin, or 1.85 %, on the Term Loan.

The Credit Agreement requires minimum quarter ly principal payments on the 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 quarte rly principal payment on the Term Loan through its maturity date of March 2026 is $ 2 million.

As of June 30, 2021 , 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.

As of March 31, 2021, the Company had $ 645 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.

When the Company’s first lien net leverage ratio is above 4.00 x, interest on the New Revolving Credit Facility is (a) 0.75 % over the Base Rate or (b) 1.75 % over the LIBOR Rate;

when the Company’s first lien net leverage ratio is equal to or less than 4.00 x and above 3.50 x, interest on the New Revolving Credit Facility is (i) 0.50 % over the Base Rate or (ii) 1.50 % over the LIBOR Rate;

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 March 31, 2021, the applicable margin for the New Revolving Credit Facility was 1.25 %.

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 March 31, 2021, 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 2025.

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 March 31, 2021, the Company had no amounts outstanding under the New Revolving Credit Facility;

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

As of June 30, 2021, the Company had $ 645 million available under the Revolving Credit Facility, net of $ 5 million in letters of credit.

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

When the Company’s first lien net leverage ratio is above 4.00 x, interest on the Revolving Credit Facility is (a) 0.75 % over the Base Rate or (b) 1.75 % over the LIBOR Rate;

when the Company’s first lien net leverage ratio is equal to or less than 4.00 x and above 3.50 x, interest on the Revolving Credit Facility is (i) 0.50 % over the Base Rate or (ii) 1.50 % over the LIBOR Rate;

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

As of June 30, 2021, the applicable margin for the Revolving Credit Facility was 1.25 %.

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 Revolving Credit Facility.

As of June 30, 2021, the commitment fee is 0.25 %.

Borrowings under the Revolving Credit Facility are payable at the option of the Company throughout the term of the Senior Secured Credit Facility with the balance due in September 2025.

The 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 Revolving Credit Facility at the end of a fiscal quarter.

As of June 30, 2021, the Company had no amounts outstanding under the Revolving Credit Facility;

however, the Company would have been in compliance with the maximum first lien net leverage ratio, achieving a 0.50 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.

Additionally, within the terms of the 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 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 March 31, 2021, the Company was in compliance with all covenants under the Credit Agreement.

As of June 30, 2021, the Company was in compliance with all covenants under the Credit Agreement.

4 .75% Senior Notes

The 4.75 % Senior Notes are unsecured and are guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the New Senior Secured Credit Facility and are unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the New Senior Secured Credit Facility.

None of ATI’s domestic subsidiaries currently guarantee its obligations under the New Senior Secured Credit Facility, and therefore none of ATI’s domestic subsidiaries currently guarantee the 4.75 % Senior Notes.

The 4.75 % Senior Notes are unsecured and are guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the Senior Secured Credit Facility and are unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the Senior Secured Credit Facility.

None of ATI’s domestic subsidiaries currently guarantee its obligations under the Senior Secured Credit Facility, and therefore none of ATI’s domestic subsidiaries currently guarantee the 4.75 % Senior Notes.

The indenture governing the 4.75 % Senior Notes contains negative covenants restricting or limiting the Company’s ability to, among other things:

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 March 31, 2021, the Company was in compliance with all covenants under the indenture governing the 4.75 % Senior Notes.

As of June 30, 2021, the Company was in compliance with all covenants under the indenture governing the 4.75 % Senior Notes.

5.875% Senior Notes

The 5.875 % Senior Notes are unsecured and are guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the New Senior Secured Credit Facility and are unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the New Senior Secured Credit Facility.

The 5.875 % Senior Notes are unsecured and are guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the Senior Secured Credit Facility and are unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the Senior Secured Credit Facility.

The indenture governing the 5.875 % Senior Notes contains negative covenants restricting or limiting the Company’s ability to, among other things:

As of March 31, 2021, the Company was in compliance with all covenants under the indenture governing the 5.875 % Senior Notes.

As of June 30, 2021, the Company was in compliance with all covenants under the indenture governing the 5.875 % Senior Notes.

3.75% Senior Notes

3 unchanged sentences

As a result of the offering, the Company recorded $ 10 million as deferred financing fees in the Consolidated Balance Sheet as of December 31, 2020.

The 3.75% Senior Notes are unsecured and are guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the New Senior Secured Credit Facility and are unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the New Senior Secured Credit Facility.

The 3.75% Senior Notes are unsecured and are guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the Senior Secured Credit Facility and are unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the Senior Secured Credit Facility.

The indenture governing the 3.75% Senior Notes contains negative covenants restricting or limiting the Company’s ability to, among other things:

As of March 31, 2021, the Company was in compliance with all covenants under the indenture governing the 3.75% 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.

As of June 30, 2021, the Company was in compliance with all covenants under the indenture governing the 3.75% Senior Notes.

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

The interest rate swaps are designated as cash flow hedges that qualify for hedge accounting under the hypothetical derivative method.

Fair value adjustments are recorded as a component of accumulated other comprehensive loss (“AOCL”) in the Condensed Consolidated Balance Sheets.

Fair value adjustments are recorded as a component of Accumulated other comprehensive loss, net of tax (“AOCL”) in the Condensed Consolidated Balance Sheets.

Balances in AOCL are reclassified to earnings when transactions related to the underlying risk are settled.

As of March 31, 2021, 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 June 30, 2021, 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.

6 unchanged sentences

Total derivatives designated as hedging instruments

The balance of derivative losses recorded in AOCL as of March 31, 2021 was $ 46 million.

See NOTE O, “Accumulated Other Comprehensive Loss” for information regarding activity recorded as a component of AOCL during the three months ended March 31, 2021 and 2020.

As of March 31, 2021, 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 June 30, 2021 was $ 45 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, 2021 and 2020.

As of June 30, 2021, 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 March 31, 2021, current and non-current product warranty liabilities were $ 32 million and $ 30 million, respectively.

As of March 31, 2020, current and non-current product warranty liabilities were $ 25 million and $ 26 million, respectively.

As of June 30, 2021, current and non-current product warranty liabilities were $ 29 million and $ 31 million, respectively.

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

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

Three Months Ended

Six Months Ended

Beginning balance

3 unchanged sentences

DEFERRED REVENUE

As of March 31, 2021, current and non-current deferred revenue was $ 35 million and $ 107 million, respectively.

As of March 31, 2020, current and non-current deferred revenue was $ 34 million and $ 106 million, respectively.

As of June 30, 2021, current and non-current deferred revenue was $ 39 million and $ 103 million, respectively.

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

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

Three Months Ended

Six Months Ended

Beginning balance

1 unchanged sentence

Ending balance

Deferred revenue recorded in current and non-current liabilities related to ETC as of March 31, 2021 was $ 29 million and $ 88 million, respectively.

Deferred revenue recorded in current and non-current liabilities related to ETC as of March 31, 2020 was $ 27 million and $ 87 million, respectively.

Deferred revenue recorded in current and non-current liabilities related to ETC as of June 30, 2021 was $ 30 million and $ 87 million, respectively.

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

As of March 31, 2021, the Company was not a party to any finance leases.

As of June 30, 2021, 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.

5 unchanged sentences

The Company's lease liability is determined by discounting the future cash flows over the lease period.

The Company determines its discount rates utilizing current secured financing rates based on the length of the lease period plus the Company's margin over LIBOR on the New Term Loan.

The Company determines its discount rates utilizing current secured financing rates based on the length of the lease period plus the Company's margin over LIBOR on the Term Loan.

The Company believes this rate effectively represents a borrowing rate the Company could obtain on a debt instrument possessing similar terms as the lease.

Any 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 March 31, 2021 and December 31, 2020 was 4.37 %.

As of March 31, 2021, the Company recorded current and non-current operating lease liabilities of $ 4 million and $ 16 million, respectively.

The weighted average discount rate on operating leases as of June 30, 2021 and December 31, 2020 was 4.36 % and 4.37 %, respectively.

As of June 30, 2021, the Company recorded current and non-current operating lease liabilities of $ 4 million and $ 15 million, respectively.

As of December 31, 2020, the Company recorded current and non-current operating lease liabilities of $ 4 million and $ 17 million, respectively.

The following table reconciles total operating lease liabilities as of March 31, 2021 to future undiscounted cash flows for operating leases:

The following table reconciles total operating lease liabilities as of June 30, 2021 to future undiscounted cash flows for operating leases:

Total lease payments

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Total right-of-use assets

The weighted average remaining lease term as of March 31, 2021 and March 31, 2020 was 7.4 years and 7.7 years, respectively.

Operating lease expense was $ 1 million in each of the three months ended March 31, 2021 and 2020, 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 months ended March 31, 2021 and 2020.

The calculation of the Company's ROU assets and lease liabilities did not include cash consideration as of March 31, 2021 and December 31, 2020.

During the three months ended March 31, 2021 and 2020, the Company recorded zero and $ 1 million, respectively, of new ROU assets obtained in exchange for lease obligations.

The weighted average remaining lease term as of June 30, 2021 and June 30, 2020 was 7.1 years and 7.5 years, respectively.

Operating lease expense was $ 2 million in each of the three months ended June 30, 2021 and 2020 and $ 3 million in each of the six months ended June 30, 2021 and 2020, and was 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 each of the three and six months ended June 30, 2021 and 2020.

The calculation of the Company's ROU assets and lease liabilities did not include cash consideration as of June 30, 2021 and December 31, 2020.

During each of the six months ended June 30, 2021 and 2020, the Company recorded $ 1 million of new ROU assets obtained in exchange for lease obligations.

OTHER CURRENT LIABILITIES

2 unchanged sentences

Accrued interest payable

Taxes payable

Sales allowances

1 unchanged sentence

Derivative liabilities

Taxes payable

Lease liability

6 unchanged sentences

For the Three Months

Ended March 31,

Ended June 30,

For the Three Months

Ended March 31,

Ended June 30,

Net periodic benefit cost (credit):

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Net periodic benefit cost (credit)

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

For the three months ended March 31, 2021, the Company recorded total income tax expense of $ 34 million.

The effective tax rate for the three months ended March 31, 2021 was 22 %.

For the three months ended March 31, 2020, the Company recorded total income tax expense of $ 42 million.

The effective tax rate for the three months ended March 31, 2020 was 23 %.

Pension Plans

Post-retirement Benefits

For the Six Months

Ended June 30,

For the Six Months

Ended June 30,

Net periodic benefit cost (credit):

Interest cost

Expected return on assets

Prior service credit

Net periodic benefit cost (credit)

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, 2021, the Company recorded total income tax expense of $ 30 million and $ 64 million, respectively.

The effective tax rate for the three and six months ended June 30, 2021 was 21 % and 22 %, respectively.

For the three and six months ended June 30, 2020, the Company recorded total income 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 %.

The need to establish a valuation allowance against the deferred tax assets is assessed periodically based on a more-likely-than-not realization threshold, in accordance with authoritative accounting guidance.

4 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 March 31, 2021 and December 31, 2020.

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.

2 unchanged sentences

The following tables reconcile changes in AOCL by component (net of tax, dollars in millions):

AOCL as of December 31, 2019

Three months ended

AOCL as of March 31, 2020

Other comprehensive loss before reclassifications

2 unchanged sentences

Net current period other comprehensive loss

AOCL as of June 30, 2020

AOCL as of March 31, 2021

Other comprehensive (loss) income before reclassifications

Amounts reclassified from AOCL

Income tax benefit

Net current period other comprehensive (loss) income

AOCL as of June 30, 2021

Six months ended

AOCL as of December 31, 2019

Other comprehensive income before reclassifications

Other comprehensive loss before reclassifications

Amounts reclassified from AOCL

Income tax benefit

Net current period other comprehensive loss

AOCL as of June 30, 2020

AOCL as of December 31, 2020

Other comprehensive income (loss) before reclassifications

Amounts reclassified from AOCL

Income tax benefit (expense)

Net current period other comprehensive (loss) income

AOCL as of March 31, 2021

AOCL as of June 30, 2021

Amounts reclassified from AOCL

1 unchanged sentence

Three months ended

March 31, 2021

June 30, 2021

Three months ended

March 31, 2020

June 30, 2020

Affected line item in the Condensed

1 unchanged sentence

Comprehensive Income

Amortization of benefit items:

Interest rate swaps

Interest expense, net

Prior service cost

Other income (expense), net

Other income, net

Total reclassifications, before tax

3 unchanged sentences

Total reclassifications, net of tax

Amounts reclassified from AOCL

AOCL Components

Six months ended

June 30, 2021

Six months ended

June 30, 2020

Affected line item in the Condensed

Consolidated Statements of

Comprehensive Income

Interest rate swaps

Interest expense, net

Prior service cost

Other income, net

Total reclassifications, before tax

Income before income taxes

Income tax expense

Total reclassifications

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

3 unchanged sentences

The Company has an agreement with the Environmental Protection Agency to perform remedial activities at the Company’s Indianapolis, Indiana manufacturing facilities related to historical soil and groundwater contamination.

As of March 31, 2021, the Company had a liability recorded in the amount of $ 3 million.

As of June 30, 2021, the Company had a liability recorded in the amount of $ 3 million.

Claims, Disputes, and Litigation

8 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 the three months ended March 31, 2021, there were 1 million outstanding stock options excluded from the diluted EPS calculation because they were anti-dilutive.

For the three months ended March 31, 2020, there were no 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, 2021 and 2020, there were 1 million 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

Weighted average shares of common stock outstanding

3 unchanged sentences

Diluted earnings per share attributable to common stockholders

The Company’s current stock repurchase program (the “Repurchase Program”) was announced on November 14, 2016 when the Board of Directors authorized the Company to repurchase up to $ 1,000 million of its common stock on the open market or through privately negotiated transactions.

On November 8, 2017, July 30, 2018 and May 9, 2019, the Board of Directors authorized the Company to repurchase an additional $ 500 million, $ 500 million and $ 1,000 million, respectively, of its common stock, bringing the total amount authorized under the Repurchase Program to $ 3,000 million.

The Repurchase Program has no termination date.

The timing and amount of stock purchases are subject to market conditions and corporate needs.

During the three and six months ended June 30, 2021, the Company repurchased $ 130 million and $ 226 million, respectively, of its common stock under the current stock repurchase program authorized by the Board of Directors (“Repurchase Program”), leaving $ 601 million of authorized repurchases remaining under the Repurchase Program as of June 30, 2021.

The Repurchase Program has no termination date, and the timing and amount of stock purchases are subject to market conditions and corporate needs.

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

During the three months ended March 31, 2021, the Company repurchased $ 96 million of its common stock under the Repurchase Program, leaving $ 731 million of authorized repurchases remaining under the Repurchase Program as of March 31, 2021.

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