What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-29 compared with 2021-04-29 · 122 added, 76 removed, 150 unchanged (57% of the section changed)

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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 our 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 our business performance and impacted global markets and supply chains.

As a result, we have experienced raw material and component price inflation, increased freight cost and increased overtime expense as a result of labor shortages.

Our net sales are driven by commercial vehicle production, which tends to be highly correlated to macroeconomic conditions.

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We continue to monitor and proactively mitigate risks in our supply chain, including the global shortage of semiconductors and its impact on the availability of our transmission control modules.

We, our suppliers and our customers are all taking actions to reduce the impact of the semiconductor shortage;

however, if the shortage persists, the impact on our business could be material.

We, our suppliers and our customers are all taking actions to reduce the impact of the semiconductor shortage and other supply chain, transport and raw material constraints;

however, if these constraints and inflationary costs persist, the impact on our business could be material.

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.

We are also continuing to take 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, onsite testing, remote working, travel restrictions, limitations on visitor access to facilities and, most recently, administration of vaccinations at our corporate headquarters.

As a result, we have been able to continue our manufacturing operations and deliver our products to customers with minimal disruptions.

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

We are continuing to take 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, and as a result, we have been able to continue our manufacturing operations and deliver our products to customers.

Second Quarter Net Sales by End Market (dollars in millions)

North America On-Highway

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Total Net Sales

North America On-Highway end market net sales were down 9% for the first quarter 2021 compared to the first quarter 2020, principally driven by lower demand due to the continued effects of the COVID-19 pandemic.

North America Off-Highway end market net sales were down $6 million for the first quarter 2021 compared to the first quarter 2020, principally driven by lower demand for hydraulic fracturing applications.

Defense end market net sales were up 13% for the first quarter 2021 compared to the first quarter 2020, principally driven by higher demand for Tracked vehicle applications.

Outside North America On-Highway end market net sales were up 17% for the first quarter 2021 compared to the first quarter 2020, principally driven by higher demand in Asia.

Outside North America Off-Highway end market net sales were down $11 million for the first quarter 2021 compared to the first quarter 2020, principally driven by lower demand in the energy sector.

Service Parts, Support Equipment and Other end market net sales were down 12% for the first quarter 2021 compared to the first quarter 2020, principally driven by lower demand for North America service parts.

North America On-Highway end market net sales were up 84% for the second quarter 2021 compared to the second quarter 2020, principally driven by the continuing recovery in customer demand following the pandemic-related disruptions experienced in 2020.

North America Off-Highway end market net sales were up $6 million for the second quarter 2021 compared to the second quarter 2020, principally driven by higher demand for hydraulic fracturing applications.

Defense end market net sales were up 14% for the second quarter 2021 compared to the second quarter 2020, principally driven by higher demand for Tracked vehicle applications.

Outside North America On-Highway end market net sales were up 63% for the second quarter 2021 compared to the second quarter 2020, principally driven by the continuing recovery in customer demand following the pandemic-related disruptions experienced in 2020.

Outside North America Off-Highway end market net sales were down 5% for the second quarter 2021 compared to the second quarter 2020, principally driven by lower demand in the energy sector, partially offset by higher demand in the mining and construction sectors.

Service Parts, Support Equipment and Other end market net sales were up 44% for the second quarter 2021 compared to the second quarter 2020, principally driven by higher demand for North America service parts, aluminum die cast components and support equipment.

Key Components of our Results of Operations

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Our primary components of cost of sales are purchased parts, overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of transmissions and parts.

For the three months ended March 31, 2021, direct material costs were approximately 65%, overhead costs were approximately 26%, and direct labor costs were approximately 9% of total cost of sales.

For the six months ended June 30, 2021, direct material costs were approximately 67%, overhead costs were approximately 25%, and direct labor costs were approximately 8% of total cost of sales.

We are subject to changes in our cost of sales caused by movements in underlying commodity prices.

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generally accepted accounting principles (“GAAP”) measure to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales is Net income and Net income as a percent of net sales, respectively.

Adjusted EBITDA is calculated as earnings before interest expense, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”) governing Allison Transmission, Inc.’s (“ATI”), our wholly-owned subsidiary, term loan facility in the amount of $636 million due March 2026 (“New Term Loan”).

Adjusted EBITDA as a percent of net sales is calculated as Adjusted EBITDA divided by net sales.

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The most directly comparable GAAP measure to Adjusted free cash flow is Net cash provided by operating activities.

Adjusted free cash flow is calculated as Net cash provided by operating activities after additions of long-lived assets.

Adjusted free cash flow is calculated as Net cash provided by operating activities, excluding non-recurring restructuring charges, after additions of long-lived assets.

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

Three Months Ended

Six Months Ended

(unaudited, dollars in millions)

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Stock-based compensation expense (a)

Unrealized (gain) loss on foreign exchange (b)

Unrealized loss on foreign exchange (b)

Restructuring charges (c)

Acquisition-related earnouts (d)

Adjusted EBITDA (Non-GAAP)

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Additions of long-lived assets

Restructuring charges (c)

Adjusted free cash flow (Non-GAAP)

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

Represents (gains) losses (recorded in Other income (expense), net) on intercompany financing transactions related to investments in plant assets for our India facility.

Represents losses ( recorded in Other income , net) on intercompany financing transactions related to investments in plant assets for our India facility.

Represents restructuring charges (recorded in Cost of sales, Selling, general and administrative, and Engineering - research and development) related to voluntary and involuntary separation programs for both hourly and salaried employees in the second quarter of 2020.

Represents expenses (recorded in Selling, general and administrative and Engineering – research and development) for earnouts related to our acquisition of Vantage Power Limited.

Results of Operations

Comparison of three months ended March 31, 2021 and 2020

The following table sets forth certain financial information for the three months ended March 31, 2021 and 2020.

Comparison of three months ended June 30, 2021 and 2020

The following table sets forth certain financial information for the three months ended June 30, 2021 and 2020.

The following table and discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Three Months Ended March 31,

Three Months Ended June 30,

(unaudited, dollars in millions)

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Interest expense, net

Other income (expense), net

Other income, net

Income before income taxes

Income tax expense

Net sales for the quarter ended March 31, 2021 were $588 million compared to $637 million for the quarter ended March 31, 2020, a decrease of 8%.

The decrease was principally driven by a $33 million, or 9%, decrease in net sales in the North America On-Highway end market principally driven by lower demand due to the continued effects of the COVID-19 pandemic, a $16 million, or 12%, decrease in net sales in the Service Parts, Support Equipment and Other end market principally driven by lower demand for North America service parts, an $11 million, or 41%, decrease in net sales in the Outside North America Off-Highway end market principally driven by lower demand in the energy sector and a $6 million, or 75%, decrease in net sales in the North America Off-Highway end market principally driven by lower demand for hydraulic fracturing applications, partially offset by a $12 million, or 17%, increase in net sales in the Outside North America On-Highway end market principally driven by higher demand in Asia and a $5 million, or 13%, increase in net sales in the Defense end market principally driven by higher demand for Tracked vehicle applications.

Net sales for the quarter ended June 30, 2021 were $603 million compared to $377 million for the quarter ended June 30, 2020, an increase of 60%.

The increase was principally driven by a $138 million, or 84%, increase in net sales in the North America On-Highway end market principally driven by the continuing recovery in customer demand following the pandemic-related disruptions experienced in 2020, a $39 million, or 44%, increase in net sales in the Service Parts, Support Equipment and Other end market principally driven by higher demand for North America service parts, aluminum die cast components and support equipment, a $38 million, or 63%, increase in net sales in the Outside North America On-Highway end market principally driven by the continuing recovery in customer demand following the pandemic-related disruptions experienced in 2020, a $6 million, or 200%, increase in net sales in the North America Off-Highway end market principally driven by higher demand for hydraulic fracturing applications and a $6 million, or 14%, increase in net sales in the Defense end market principally driven by higher demand for Tracked vehicle applications, partially offset by a $1 million, or 5%, decrease in net sales in the Outside North America Off-Highway end market principally driven by lower demand in the energy sector, partially offset by higher demand in the mining and construction sectors.

Cost of sales

Cost of sales for the quarter ended March 31, 2021 was $297 million compared to $311 million for the quarter ended March 31, 2020, a decrease of 5%.

The decrease was principally driven by decreased direct material and manufacturing expense commensurate with decreased net sales, partially offset by unfavorable material costs and higher incentive compensation expense.

Gross profit for the quarter ended March 31, 2021 was $291 million compared to $326 million for the quarter ended March 31, 2020, a decrease of 11%.

The decrease was principally driven by $34 million related to decreased net sales, $7 million of unfavorable material costs and $6 million of higher incentive compensation expense, partially offset by $10 million of price increases on certain products.

Gross profit as a percent of net sales for the three months ended March 31, 2021 decreased 170 basis points compared to the same period in 2020 principally driven by decreased net sales, unfavorable material costs and higher incentive compensation expense, partially offset by price increases on certain products.

Cost of sales for the quarter ended June 30, 2021 was $315 million compared to $212 million for the quarter ended June 30, 2020, an increase of 49%.

The increase was principally driven by increased direct material and manufacturing expense commensurate with increased net sales, unfavorable material costs and higher incentive compensation expense, partially offset by restructuring charges in the second quarter of 2020 that did not recur in 2021.

Gross profit for the quarter ended June 30, 2021 was $288 million compared to $165 million for the quarter ended June 30, 2020, an increase of 75%.

The increase was principally driven by $156 million related to increased net sales, $5 million of restructuring charges in the second quarter of 2020 that did not recur in 2021 and price increases on certain products, partially offset by $24 million of higher manufacturing expense commensurate with increased net sales, $11 million of unfavorable material costs and higher incentive compensation expense.

profit as a percent of net sales for the three months ended June 30, 2021 increased 400 basis points compared to the same period in 2020 principally driven by increased net sales , restructuring charges in the second quarter of 2020 that did not recur in 2021 and price increases on certain products , partially offset by unfavorable material costs and higher incentive compensation expense .

Selling, general and administrative

Selling, general and administrative expenses for the quarter ended March 31, 2021 were $73 million compared to $75 million for the quarter ended March 31, 2020, a decrease of 3%.

The decrease was principally driven by $5 million of lower commercial activities spending and $4 million of lower intangible amortization expense, partially offset by higher incentive compensation expense.

Selling, general and administrative expenses for the quarter ended June 30, 2021 were $80 million compared to $69 million for the quarter ended June 30, 2020, an increase of 16%.

The increase was principally driven by higher incentive compensation expense, $3 million of higher commercial activities spending and higher stock compensation expense, partially offset by $3 million of restructuring charges in the second quarter of 2020 that did not recur in 2021 and lower intangible amortization expense.

Engineering — research and development

Engineering expenses for the quarter ended March 31, 2021 were $38 million compared to $36 million for the quarter ended March 31, 2020, an increase of 6%.

The increase was principally driven by higher incentive compensation expense, partially offset by the intra-year timing of product initiatives spending.

Engineering expenses for the quarter ended June 30, 2021 were $41 million compared to $38 million for the quarter ended June 30, 2020, an increase of 8%.

The increase was principally driven by increased product initiatives spending, partially offset by $4 million of restructuring charges in the second quarter of 2020 that did not recur in 2021.

Interest expense, net

Interest expense, net for the quarter ended March 31, 2021 was $29 million compared to $33 million for the quarter ended March 31, 2020, a decrease of 12%.

Interest expense, net for the quarter ended June 30, 2021 was $30 million compared to $33 million for the quarter ended June 30, 2020, a decrease of 9%.

The decrease was principally driven by $3 million of decreased interest expense due to lower interest rates as a result of our long-term debt refinancing in the fourth quarter of 2020 that extended maturities at lower fixed interest rates .

Other income (expense), net

Other income (expense), net for the quarter ended March 31, 2021 was $3 million compared to ($1) million for the quarter ended March 31, 2020.

Other income, net

Other income, net for the quarter ended June 30, 2021 was $3 million compared to $5 million for the quarter ended June 30, 2020.

The change was principally driven by $1 million of unfavorable foreign exchange and $1 million of unfavorable change associated with assets held in a rabbi trust.

Income tax expense

Income tax expense for the three months ended June 30, 2021 was $30 million, resulting in an effective tax rate of 21%, compared to $7 million of income tax expense and an effective tax rate of 23% for the three months ended June 30, 2020.

The increase in income tax expense was principally driven by increased taxable income.

The decrease in the effective tax rate was principally driven by increased estimated U.S.

federal income tax deductions.

Comparison of six months ended June 30, 2021 and 2020

The following table sets forth certain financial information for the six months ended June 30, 2021 and 2020.

Six Months Ended June 30,

(unaudited, dollars in millions)

Cost of sales

Operating expenses:

Selling, general and administrative

Engineering — research and development

Total operating expenses

Operating income

Interest expense, net

Other income, net

Income before income taxes

Income tax expense

Net sales for the six months ended June 30, 2021 were $1,191 million compared to $1,014 million for the six months ended June 30, 2020, an increase of 17%.

The increase was principally driven by a $105 million, or 20%, increase in net sales in the North America On-Highway end market and a $50 million, or 38%, increase in net sales in the Outside North America On-Highway end market both of which were principally driven by the continuing recovery in customer demand following the pandemic-related disruptions experienced in 2020, a $23 million, or 10%, increase in net sales in the Service Parts, Support Equipment and Other end market principally driven by higher demand for aluminum die cast components, support equipment and service parts and an $11 million, or 13%, increase in net sales in the Defense end market principally driven by higher demand for Tracked vehicle applications, partially offset by a $12 million, or 26%, decrease in net sales in the Outside North America Off-Highway end market principally driven by lower demand in the energy sector.

Cost of sales

Cost of sales for the six months ended June 30, 2021 was $612 million compared to $523 million for the six months ended June 30, 2020, an increase of 17%.

Gross profit for the six months ended June 30, 2021 was $579 million compared to $491 million for the six months ended June 30, 2020, an increase of 18%.

The increase was principally driven by $122 million related to increased net sales, $13 million of price increases on certain products and $5 million of restructuring charges in the second quarter of 2020 that did not recur 2021, partially offset by $23 million of higher manufacturing expense commensurate with increased net sales, $18 million of unfavorable material costs, and $11 million of higher incentive compensation expense.

Gross profit as a percent of net sales for the six months ended June 30, 2021 increased 20 basis points compared to the same period in 2020 principally driven by increased net sales, price increases on certain products and restructuring charges in the second quarter of 2020 that did not recur in 2021, partially offset by unfavorable material costs and higher incentive compensation expense.

Selling, general and administrative

Selling, general and administrative expenses for the six months ended June 30, 2021 were $153 million compared to $144 million for six months ended June 30, 2020, an increase of 6%.

The increase was principally driven by higher incentive compensation expense and higher stock compensation expense, partially offset by $6 million of lower intangible amortization expense, $3 million of restructuring charges in the second quarter of 2020 that did not recur in 2021 and lower commercial activities spending.

Engineering — research and development

Engineering expenses for the six months ended June 30, 2021 were $79 million compared to $74 million for the six months ended June 30, 2020, an increase of 7%.

The increase was principally driven by higher incentive compensation expense and increased product initiatives spending, partially offset by $4 million of restructuring charges in the second quarter of 2020 that did not recur 2021.

Interest expense, net

Interest expense, net for the six months ended June 30, 2021 was $59 million compared to $66 million for the six months ended June 30, 2020, a decrease of 11%.

The decrease was principally driven by $6 million of decreased interest expense due to lower interest rates as a result of our long-term debt refinancing in the fourth quarter of 2020 that extended maturities at lower fixed interest rates .

Other income, net

Other income, net for the six months ended June 30, 2021 was $6 million compared to $4 million for the six months ended June 30, 2020.

The change was principally driven by $2 million of favorable foreign exchange on intercompany financing and $1 million of favorable change associated with assets held in a rabbi trust.

Income tax expense

Income tax expense for the three months ended March 31, 2021 was $34 million, resulting in an effective tax rate of 22%, compared to $42 million of income tax expense and an effective tax rate of 23% for the three months ended March 31, 2020.

The decrease in income tax expense was principally driven by decreased taxable income.

Income tax expense for the six months ended June 30, 2021 was $64 million, resulting in an effective tax rate of 22%, compared to $49 million of income tax expense and an effective tax rate of 23% for the six months ended June 30, 2020.

The increase in income tax expense was principally driven by increased taxable income.

The decrease in the effective tax rate was principally driven by increased estimated U.S.

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Our ability to generate cash in the future and our future uses of cash are subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control.

We had total available cash and cash equivalents of $295 million and $310 million as of March 31, 2021 and December 31, 2020, respectively.

Of the available cash and cash equivalents, $110 million and $150 million were deposited in operating accounts as of March 31, 2021 and December 31, 2020, respectively, while $185 million and $160 million were invested in U.S.

government backed securities as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, the total of cash and cash equivalents held by foreign subsidiaries was $79 million, the majority of which was located in China and Europe.

We had total available cash and cash equivalents of $238 million and $310 million as of June 30, 2021 and December 31, 2020, respectively.

Of the available cash and cash equivalents, $128 million and $150 million were deposited in operating accounts as of June 30, 2021 and December 31, 2020, respectively, while $110 million and $160 million were invested in U.S.

government backed securities as of June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021, the total of cash and cash equivalents held by foreign subsidiaries was $95 million, the majority of which was at our subsidiaries located in China and the Netherlands.

We manage our worldwide cash requirements considering available funds among the subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed.

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Our liquidity requirements are significant, primarily due to our debt service requirements.

As of March 31, 2021, we had $636 million of indebtedness associated with ATI’s New Term Loan, $400 million of indebtedness associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”).

Short-term and long-term debt service liquidity requirements consist of $2 million of minimum required quarterly principal payments on ATI’s New Term Loan through its maturity date of March 2026 and periodic interest payments on ATI’s New Term Loan and the Senior Notes.

As of June 30, 2021, we had $635 million of indebtedness associated with ATI’s Term Loan, $400 million of indebtedness associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”).

Short-term and long-term debt service liquidity requirements consist of $2 million of minimum required quarterly principal payments on ATI’s Term Loan through its maturity date of March 2026 and periodic interest payments on ATI’s Term Loan and the Senior Notes.

There are no required quarterly principal payments on ATI’s Senior Notes.

Long-term debt service liquidity requirements also consist of the payment in full of any remaining principal balance of ATI’s New Term Loan and the Senior Notes upon their respective maturity dates.

We made $2 million of principal payments on the New Term Loan during each of the three months ended March 31, 2021 and 2020.

Long-term debt service liquidity requirements also consist of the payment in full of any remaining principal balance of ATI’s Term Loan and the Senior Notes upon their respective maturity dates.

We made $3 million of principal payments on the Term Loan during each of the six months ended June 30, 2021 and 2020.

Our ability to make payments on and refinance our indebtedness and to fund planned capital expenditures and growth initiatives will depend on our ability to generate cash in the future.

The New Senior Secured Cr edit Facility provides for a $65 0 million New Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments.

As of March 31, 2021 , we had $ 64 5 million available under the New Revolving Credit Facility, net of $ 5 million in letters of credit.

If we have commitments outstanding on the New Revolving Credit Facility at the end of a fiscal quarter, the New Senior Secured Credit Facility requires us to maintain a specified maximum first lien net leverage ratio of 5.50x.

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

As of March 31, 2021 , our first lien net leverage ratio was 0.

The New Senior Secured Credit Facility also provides certain financial incentives based on our first lien net leverage ratio.

A first lien net leverage ratio at or below 4.00x and above 3.50x results in a 25 basis point reduction to the applicable margin on the New Revolving Credit Facility.

A first lien net leverage ratio at or below 3.50x results in an additional 25 basis point reduction to the applicable margin on the New Revolving Credit Facility.

The Senior Secured Cr edit Facility provides for a $ 650 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments.

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

If we have commitments outstanding on the Revolving Credit Facility at the end of a fiscal quarter, the Senior Secured Credit Facility requires us to maintain a specified maximum first lien net leverage ratio of 5.50x.

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

As of June 30, 2021 , our first lien net leverage ratio was 0.50x .

The Senior Secured Credit Facility also provides certain financial incentives based on our first lien net leverage ratio.

A first lien net leverage ratio at or below 4.00x and above 3.50x results in a 25 basis point reduction to the applicable margin on the Revolving Credit Facility.

A first lien net leverage ratio at or below 3.50x results in an additional 25 basis point reduction to the applicable margin on the Revolving Credit Facility.

These reductions remain in effect as long as we achieve a first lien net leverage ratio at or below the related threshold.

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The indentures governing the Senior Notes contain negative covenants restricting or limiting our ability to, among other things, incur or guarantee additional indebtedness, incur liens, pay dividends on, redeem or repurchase our capital stock, make certain investments, permit payment or dividend restrictions on certain of our subsidiaries, sell assets, engage in certain transactions with affiliates, and consolidate or merge or sell all or substantially all of our assets.

As of March 31, 2021, we are in compliance with all covenants under the New Senior Secured Credit Facility and indentures governing the Senior Notes.

As of June 30, 2021, we are in compliance with all covenants under the Senior Secured Credit Facility and indentures governing the Senior Notes.

Our credit ratings are reviewed by Moody’s Investors Service (“Moody’s”) and Fitch Ratings (“Fitch”).

Moody’s rates our corporate credit at ‘Ba2’, the New Term Loan at ‘Baa3’, the 4.75% Senior Notes at ‘Ba3’, the 5.875% Senior Notes at 'Ba3' and the 3.75% Senior Notes at ‘Ba3’.

Fitch rates our corporate credit at ‘BB’, the New Term Loan at ‘BB+’, the 4.75% Senior Notes at ‘BB’, the 5.875% Senior Notes at 'BB' and the 3.75% Senior Notes at ‘BB’.

On November 14, 2016, our Board of Directors authorized us to repurchase up to $1,000 million of our common stock pursuant to a stock repurchase program (the "Repurchase Program").

On November 8, 2017, July 30, 2018 and May 9, 2019, our Board of Directors increased the authorization by $500 million, $500 million and $1,000 million, respectively, bringing the total amount authorized under the Repurchase Program to $3,000 million.

During the three months ended March 31, 2021, we repurchased $96 million of our common stock under the Repurchase Program.

All of the repurchase transactions during the three months ended March 31, 2021 were settled in cash during the same period.

As of March 31, 2021, we had $731 million available under the Repurchase Program.

The following table shows our sources and uses of funds for the three months ended March 31, 2021 and 2020 (in millions):

Three Months Ended

Moody’s rates our corporate credit at ‘Ba2’, the Term Loan at ‘Baa3’, the 4.75% Senior Notes at ‘Ba3’, the 5.875% Senior Notes at 'Ba3' and the 3.75% Senior Notes at ‘Ba3’.

Fitch rates our corporate credit at ‘BB’, the Term Loan at ‘BB+’, the 4.75% Senior Notes at ‘BB’, the 5.875% Senior Notes at 'BB' and the 3.75% Senior Notes at ‘BB’.

Our Board of Directors has authorized us to repurchase up to a certain amount of our common stock pursuant to a stock repurchase program (the "Repurchase Program").

During the six months ended June 30, 2021, we repurchased $226 million of our common stock under the Repurchase Program.

All of the repurchase transactions during the six months ended June 30, 2021 were settled in cash during the same period.

As of June 30, 2021, we had $601 million available under the Repurchase Program.

The following table shows our sources and uses of funds for the six months ended June 30, 2021 and 2020 (in millions):

Six Months Ended

Statements of Cash Flows Data

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Cash flows used for investing activities

Cash flows used for financing activities

Cash flows (used for) provided by financing activities

Generally, cash provided by operating activities has been adequate to fund our operations.

We have significant liquidity, including $295 million of cash and cash equivalents and $645 million available under the New Revolving Credit Facility, net of $5 million of letters of credit, as of March 31, 2021.

At this time, we believe cash provided by operating activities, cash and cash equivalents and borrowing capacity under the New Senior Secured Credit Facility will be sufficient to meet our cash requirements for the next twelve months.

We have significant liquidity, including $238 million of cash and cash equivalents and $645 million available under the Revolving Credit Facility, net of $5 million of letters of credit, as of June 30, 2021.

At this time, we believe cash provided by operating activities, cash and cash equivalents and borrowing capacity under the Senior Secured Credit Facility will be sufficient to meet our cash requirements for the next twelve months.

Cash provided by operating activities

Operating activities for the three months ended March 31, 2021 generated $128 million of cash compared to $148 million for the three months ended March 31, 2020.

The decrease was principally driven by higher operating working capital requirements and lower gross profit, partially offset by lower cash incentive compensation expense and lower cash income taxes.

Operating activities for the six months ended June 30, 2021 generated $271 million of cash compared to $240 million for the six months ended June 30, 2020.

The increase was principally driven by higher gross profit, lower cash incentive compensation expense and lower cash interest expense, partially offset by higher operating working capital requirements and higher cash income taxes.

Cash used for investing activities

Investing activities for each of the three months ended March 31, 2021 and 2020 used $21 million of cash.

Cash used for financing activities

Financing activities for the three months ended March 31, 2021 used $121 million of cash compared to $203 million for the three months ended March 31, 2020.

The decrease was principally driven by an $84 million decrease in stock repurchases.

Investing activities for the six months ended June 30, 2021 used $69 million of cash compared to $45 million for the six months ended June 30, 2020.

The increase was principally driven by an $20 million increase in capital expenditures, partially offset by a $4 million net working capital settlement related to the acquisition of Walker Die Casting in 2020 that did not recur in 2021.

Cash (used for) provided by financing activities

Financing activities for the six months ended June 30, 2021 used $274 million of cash compared to providing $49 million for the six months ended June 30, 2020.

The change was principally driven by $275 of net borrowings on the revolving credit facility in 2020 that did not recur in 2021 and $46 million of increased stock repurchases.

Contingencies

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Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.

Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported for the three months ended March 31, 2021.

Off-Balance Sheet Arrangements

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the duration and spread of the COVID-19 pandemic, including new variants of the virus and the pace and availability of vaccines, mitigating efforts deployed by government agencies and the public at large, and the overall impact from such outbreak on economic conditions, financial market volatility and our business, including but not limited to the operations of our manufacturing and other facilities, our supply chain, our distribution processes and demand for our products and the corresponding impacts to our net sales and cash flow;

increases in cost, disruption of supply or shortage of raw materials or components used in our products, including as a result of the COVID-19 pandemic;

increases in cost, disruption of supply or shortage of labor, freight, raw materials or components used to manufacture or transport our products, including as a result of the COVID-19 pandemic;

risks related to our substantial indebtedness;

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our ability to identify, consummate and effectively integrate acquisitions;

labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal customers;

labor stoppages, labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal customers or suppliers;

and our intention to pay dividends and repurchase shares of our common stock.

Important factors that could cause actual results to differ materially from our expectations are disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on February 18, 2021 and Part II, Item 1A of this Quarterly Report on Form 10-Q.

All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings or public communications.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis