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Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	Jun. 30, 2018	Jul. 16, 2018
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Trading Symbol	ALSN
Entity Registrant Name	ALLISON TRANSMISSION HOLDINGS INC
Entity Central Index Key	0001411207
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		130,467,369

Condensed Consolidated Balance Sheets - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2017
Current Assets
Cash and cash equivalents	$ 96	$ 199
Accounts receivable - net of allowance for doubtful accounts of $1 and $0, respectively	328	221
Inventories	170	154
Income taxes receivable	15	33
Other current assets	24	25
Total Current Assets	633	632
Property, plant and equipment, net	442	448
Intangible assets, net	1,109	1,153
Goodwill	1,941	1,941
Other non-current assets	46	31
TOTAL ASSETS	4,171	4,205
Current Liabilities
Accounts payable	210	159
Product warranty liability	28	22
Current portion of long-term debt	0	12
Deferred revenue	38	41
Other current liabilities	166	183
Total Current Liabilities	442	417
Product warranty liability	37	33
Deferred revenue	87	75
Long-term debt	2,520	2,534
Deferred income taxes	301	276
Other non-current liabilities	182	181
TOTAL LIABILITIES	3,569	3,516
Commitments and contingencies (see NOTE O)
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding	0	0
Paid in capital	1,764	1,758
Accumulated deficit	(1,136)	(1,055)
Accumulated other comprehensive loss, net of tax	(27)	(15)
TOTAL STOCKHOLDERS' EQUITY	602	689
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	4,171	4,205
Voting Common Stock
STOCKHOLDERS' EQUITY
Common stock	1	1
Non-voting Common Stock
STOCKHOLDERS' EQUITY
Common stock	$ 0	$ 0

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2017
Allowance for doubtful accounts receivables	$ 1	$ 0
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	100,000,000	100,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Voting Common Stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	1,880,000,000	1,880,000,000
Common stock, shares issued	131,226,301	139,990,865
Common stock, shares outstanding	131,226,301	139,990,865
Non-voting Common Stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	0	0
Common stock, shares outstanding	0	0

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net sales	$ 711	$ 580	$ 1,374	$ 1,079
Cost of sales	337	290	658	538
Gross profit	374	290	716	541
Selling, general and administrative	93	88	185	167
Engineering - research and development	33	25	61	48
Operating income	248	177	470	326
Interest expense, net	(30)	(27)	(60)	(52)
Other income (expense), net	4	(4)	3	(1)
Income before income taxes	222	146	413	273
Income tax expense	(48)	(51)	(88)	(95)
Net income	$ 174	$ 95	$ 325	$ 178
Basic earnings per share attributable to common stockholders	$ 1.30	$ 0.63	$ 2.37	$ 1.16
Diluted earnings per share attributable to common stockholders	1.29	0.63	2.37	1.15
Dividends declared per common share	$ 0.15	$ 0.15	$ 0.30	$ 0.30
Comprehensive income, net of tax	$ 158	$ 98	$ 313	$ 184

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 325	$ 178
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets	44	45
Depreciation of property, plant and equipment	39	39
Deferred income taxes	25	44
Stock-based compensation	6	6
Amortization of deferred financing costs	3	3
Allowance for doubtful accounts	1	0
Unrealized gain on derivatives		(6)
Other	3	3
Changes in assets and liabilities:
Accounts receivable	(110)	(74)
Inventories	(17)	(19)
Accounts payable	46	43
Other assets and liabilities	1	15
Net cash provided by operating activities	366	277
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of long-lived assets	(29)	(20)
Investments in technology-related initiatives		(3)
Net cash used for investing activities	(29)	(23)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock	(370)	(539)
Dividend payments	(41)	(46)
Payments on long-term debt	(28)	(6)
Proceeds from exercise of stock options	5	11
Taxes paid related to net share settlement of equity awards	(4)	(1)
Debt financing fees	(1)	0
Borrowings on revolving credit facility		330
Repayments on revolving credit facility		(125)
Net cash used for financing activities	(439)	(376)
Effect of exchange rate changes on cash	(1)	2
Net decrease in cash and cash equivalents	(103)	(120)
Cash and cash equivalents at beginning of period	199	205
Cash and cash equivalents at end of period	96	85
Supplemental disclosures:
Interest paid	57	55
Income taxes paid	$ 46	$ 34

OVERVIEW

6 Months Ended

Jun. 30, 2018

OVERVIEW

NOTE A.

OVERVIEW

Overview

Allison Transmission Holdings, Inc. and its subsidiaries (“Allison” or the “Company”) design and manufacture commercial and defense fully automatic transmissions. The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception. Allison was an operating unit of General Motors Corporation from 1929 until 2007, when Allison once again became a stand-alone company. In March 2012, Allison began trading on the New York Stock Exchange under the symbol, “ALSN”.

The Company has approximately 2,700 employees and 13 different transmission product lines. Although approximately 79% of revenues were generated in North America in 2017, the Company has a global presence by serving customers in Europe, Asia, South America and Africa. The Company serves customers through an independent network of approximately 1,400 independent distributor and dealer locations worldwide.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2018

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE B.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary for the fair statement of the results for the periods presented. The condensed consolidated financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated.

These condensed consolidated financial statements present the financial position, results of comprehensive income and cash flows of the Company. 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, 2017 as filed with the Securities and Exchange Commission (“SEC”) on February 15, 2018. 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.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Estimates include, but are not limited to, sales allowances, government price adjustments, fair market values and future cash flows associated with goodwill, indefinite life intangibles, long-lived asset impairment tests, useful lives for depreciation and amortization, warranty liabilities, environmental liabilities, determination of discount and other assumptions for pension and other post-retirement benefit expense, income taxes and deferred tax valuation allowances, derivative valuation and contingencies. The Company’s accounting policies involve the application of judgments and assumptions made by management that include inherent risks and uncertainties. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.

Recently Adopted Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance on accounting for derivative and hedge instruments. Among other things, the guidance allows the initial hedge effectiveness assessment to be performed by the end of the quarter in which the hedge is designated, permits a qualitative assessment for certain hedges if an expectation of high effectiveness can be supported throughout the term of the hedge, and removes the requirement to record ineffectiveness on cash flow hedges immediately through earnings when the hedge is highly effective. The guidance was early adopted by the Company effective April 1, 2018 and applied upon entering into interest rate swaps designated as cash flow hedges during the period ended June 30, 2018. When adopted in an interim period, the guidance is required to be reflected as of the beginning of the year of adoption. The Company has not previously designated any derivative instruments as hedging instruments, and thus, the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued authoritative accounting guidance on accounting for modifications to the terms of employee stock compensation. The guidance clarifies which changes to terms or conditions of share-based payment awards require the entity to apply modification accounting. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued authoritative accounting guidance on the presentation of net periodic pension costs and net periodic post-retirement benefit costs. The guidance clarifies the presentation of component costs within an employer’s financial statements and restricts component costs eligible for capitalization to the service cost component. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued authoritative accounting guidance on the presentation and classification of certain cash receipts and cash payments on the statement of cash flows. The guidance specifically addresses cash flow issues with the objective of reducing the diversity in practice. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued authoritative accounting guidance on a company’s accounting for revenue from contracts with customers, which guidance was subsequently amended. The guidance applies to all companies that enter into contracts with customers to transfer goods, services or nonfinancial assets. The guidance requires these companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, timing, amount and uncertainty of revenue that is recognized. The guidance was adopted by the Company effective January 1, 2018 on a modified retrospective basis. See Note C, “Revenue” for information regarding the impact of the adoption of this guidance.

Recently Issued Accounting Pronouncements

In June 2018, the FASB issued authoritative accounting guidance on accounting for nonemployee awards for goods or services received by a company. The guidance will be effective for the Company in fiscal year 2019, but early adoption is permitted. Management is currently evaluating the impact of this guidance on the Company’s consolidated financial statements.

In February 2018, the FASB issued authoritative accounting guidance on transfers of stranded balances in accumulated other comprehensive loss to retained earnings. The passage of the U.S. Tax Cuts and Jobs Act by the U.S. federal government in December 2017 and existing GAAP requirements to adjust deferred tax assets and liabilities for changes in tax laws or rates created stranded balances in accumulated other comprehensive loss on deferred tax assets and liabilities previously recorded as a component to accumulated other comprehensive loss. The guidance applies to companies affected by these stranded balances and allows a reclassification of these balances to retained earnings. The guidance will be effective for the Company in fiscal year 2019, but early adoption is permitted. The guidance can be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act is recognized. Management is currently evaluating affected balances recorded in accumulated other comprehensive loss and expects the impact of this guidance on the Company’s consolidated financial statements to be an immaterial adjustment to retained earnings.

In February 2016, the FASB issued authoritative accounting guidance on lease accounting. The guidance requires lessees to present right-of-use assets and lease liabilities on the balance sheet for all leases not considered short-term leases. Short-term leases are leases with a lease term of 12 months or less as long as the leases do not include options to purchase the underlying assets that the lessee is reasonably certain to exercise. The guidance also introduces new disclosure requirements for leasing arrangements. The guidance will be effective for the Company in fiscal year 2019 using a modified retrospective approach. Management is currently evaluating the Company’s lease contracts and assessing the impact of the adoption of policy elections and practical expedients prescribed by the guidance. Management does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

REVENUE

6 Months Ended

Jun. 30, 2018

REVENUE

NOTE C.

REVENUE

Adoption of New Revenue Guidance

New authoritative accounting guidance for revenue was adopted by the Company effective January 1, 2018 using the modified retrospective approach. Current period results are presented in conformity with the new authoritative accounting guidance, while prior period results are presented in conformity with prior accounting guidance.

In accordance with the modified retrospective approach, the Company recorded a one-time adjustment related to sales of Extended Transmission Coverage (“ETC”) contracts open as of the date of adoption, which increased opening retained earnings by $5 million, net of tax, and decreased current deferred revenue by $2 million and non-current deferred revenue by $4 million as of January 1, 2018.

During the three months ended June 30, 2018, neither net sales nor deferred revenue were impacted by the application of this guidance. During the six months ended June 30, 2018, the Company increased net sales by $1 million, and decreased non-current deferred revenue by $1 million, compared to prior accounting guidance, as a result of how the Company allocates revenue to the ETC performance obligation in certain contracts under the new authoritative accounting guidance for revenue.

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

Many of the Company’s contracts have a single performance obligation, as the promise to transfer the individual good or service is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Some of our contracts have multiple performance obligations, most commonly the sale of both a transmission and ETC. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using a ratable allocation based on the standalone selling price of each distinct good or service in the contract.

The Company may also use volume based discounts and rebates as marketing incentives in the sales of both transmissions and service parts, which are accounted for as variable consideration. The Company records the impact of the incentives as a reduction to revenue when it is determined that the adjustment is not likely to reverse, historically on a quarterly basis. Due to the typically short duration of purchase orders and minimal number of open contracts with variable consideration at any point in time, the impact of variable consideration is immaterial. If it were to become material, the Company would explain the methods, assumptions and estimates used to determine the consideration allocated to each performance obligation. The Company estimates the impact of all other incentives based on the related sales and market conditions in the end market vocation.

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, 2018 and December 31, 2017. See Note J, “Deferred Revenue” for more information including the amount of revenue earned during the three and six months ended June 30, 2018 that had been previously deferred. The Company does not have contract assets.

Disaggregated Revenue

The Company has one operating segment and reportable segment. The Company is in one line of business, which is the manufacture and distribution of fully automatic transmissions. 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, 2018		Six months ended June 30, 2018
North America On-Highway	$	343	$	682
North America Off-Highway		31		64
Defense		43		80
Outside North America On-Highway		101		192
Outside North America Off-Highway		24		36
Service Parts, Support Equipment and Other		169		320

Total Net Sales	$	711	$	1,374

Disaggregated revenue by end market is further described as follows:

North America On-Highway

Revenue from the North America On-Highway end market is driven by the sale of transmissions to original equipment manufacturers (“OEMs”), distributors and dealers that install the transmission into Class 4-5, Class 6-7 and Class 8 straight trucks and metro tractors, conventional transit, shuttle and coach buses, school buses and motorhome applications. Revenue from the North America On-Highway end market also includes the sale of electric hybrid-propulsion systems for transit bus. Revenue is recognized at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.

North America Off-Highway

Revenue from the North America Off-Highway end market is driven by sales of transmissions to OEMs and distributors that serve end users who operate vehicles and auxiliary equipment in energy, mining and construction applications. Revenue is recognized at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.

Defense

Revenue from the Defense end market is driven by sales of transmissions to the U.S. Government or its contractors and sales to certain government contractors outside of North America for use in both wheeled and tracked defense vehicle applications. Revenue is recognized at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.

Periodically, the Company and the U.S. Government will enter into a bill-and-hold arrangement where a completed transmission physically remains at the Company’s facility at the request of the U.S. Government. Revenue is recognized at the point in time when it is determined that the U.S. Government accepts the transmission and is able to direct its use.

Outside North America On-Highway

Revenue from the Outside North America On-Highway end market is driven by the sale of transmissions to OEMs and distributors that produce vehicles for commercial users in medium and heavy duty applications. Revenue is recognized at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.

Outside North America Off-Highway

Revenue from the Outside North America Off-Highway end market is driven by sales of transmissions to OEMs and distributors serving end users who operate vehicles and auxiliary equipment in energy, mining and construction applications. Revenue is recognized at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.

Service Parts, Support Equipment and Other

Revenue from the Service Parts, Support Equipment and Other end market is primarily derived from the sale of transmission parts and fluid purchased for the normal maintenance and repair needs of products in service and the sale of ETC contracts which extend the warranty coverages of transmissions beyond the standard warranty period.

Revenue is recognized on sales of service parts and support equipment at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.

Revenue from the sale of ETC contracts is recognized ratably over the time period that corresponds with the period of coverage, as the Company has determined this method best depicts the progress towards satisfaction of its performance obligation. ETC contracts are sold in one to five year durations within the North America On-Highway, Outside North America On-Highway, North America Off-Highway and Outside North America Off-Highway end markets. The ETC contract period begins when the standard warranty coverage period ends. All consideration allocated to an ETC performance obligation is initially deferred until the coverage period begins.

INVENTORIES

6 Months Ended

Jun. 30, 2018

INVENTORIES

NOTE D.

INVENTORIES

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


	June 30, 2018		December 31, 2017
Purchased parts and raw materials	$	83	$	79
Work in progress		10		6
Service parts		45		46
Finished goods		32		23

Total inventories	$	170	$	154

Inventory components shipped to third parties, primarily cores, parts to re-manufacturers, and parts to contract manufacturers, which the Company has an obligation to buy back, are included in purchased parts and raw materials, with an offsetting liability in Other current liabilities. See NOTE K, “Other Current Liabilities” for more information.

GOODWILL AND OTHER INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2018

GOODWILL AND OTHER INTANGIBLE ASSETS

NOTE E.

GOODWILL AND OTHER INTANGIBLE ASSETS

As of June 30, 2018 and December 31, 2017, the carrying amount of the Company’s Goodwill was $1,941 million.

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


	June 30, 2018							December 31, 2017
	Intangible assets, gross		Accumulated amortization			Intangible assets, net		Intangible assets, gross		Accumulated amortization			Intangible assets, net
Other intangible assets:
Trade name	$	790	$	—		$	790	$	790	$	—		$	790
Customer relationships — commercial		832		(597	)		235		832		(573	)		259
Proprietary technology		476		(415	)		61		476		(396	)		80
Customer relationships — defense		62		(39	)		23		62		(38	)		24
Patented technology — defense		28		(28	)		—		28		(28	)		—
Non-compete agreement		17		(17	)		—		17		(17	)		—
Tooling rights		5		(5	)		—		5		(5	)		—

Total	$	2,210	$	(1,101	)	$	1,109	$	2,210	$	(1,057	)	$	1,153

As of June 30, 2018 and December 31, 2017, the net carrying value of the Company’s Goodwill and Other intangible assets, net was $3,050 million and $3,094 million, respectively.

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


	2019		2020		2021		2022		2023
Amortization expense	$	86	$	50	$	45	$	43	$	42

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

+ References + Details

FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2018

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE F.

FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with the FASB’s authoritative accounting guidance on fair value measurements, fair value is the price (exit price) that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company primarily applies the market approach for recurring fair value measurements and utilizes the best available information that maximizes the use of observable inputs and minimizes the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs. The accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by the relevant guidance are as follows:

Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and publicly traded bonds.

Level 2 — Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes financial instruments that are valued using quoted prices in markets that are not active and those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 — Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. 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, 2018 and December 31, 2017, the Company did not 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. The Company’s cash equivalents consist of short-term U.S. government backed securities. The Company’s derivative instruments consist of interest rate swaps. The Company’s assets held in the rabbi trust consist principally of publicly available mutual funds and target date retirement funds. The Company’s deferred compensation obligation is directly related to the fair value of assets held in the rabbi trust.

The Company’s valuation techniques used to calculate the fair value of cash and cash equivalents, assets held in the rabbi trust and the deferred compensation obligation represent a market approach in active markets for identical assets that qualify as Level 1 in the fair value hierarchy. The Company’s valuation techniques used to calculate the fair value of derivative instruments represent a market approach with observable inputs that qualify as Level 2 in the fair value hierarchy.

The Company uses valuations from the issuing financial institutions for the fair value measurement of interest rate swaps. The floating-to-fixed interest rate swaps are based on the London Interbank Offered Rate (“LIBOR”) which is observable at commonly quoted intervals. 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, 2018 and December 31, 2017 (dollars in millions):


	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)					TOTAL
	June 30, 2018			December 31, 2017			June 30, 2018			December 31, 2017		June 30, 2018			December 31, 2017
Cash equivalents	$	2		$	50		$	—		$	—	$	2		$	50
Rabbi trust assets		10			8			—			—		10			8
Deferred compensation obligation		(10	)		(8	)		—			—		(10	)		(8	)
Derivative liabilities		—			—			(2	)		—		(2	)		—

Total	$	2		$	50		$	(2	)	$	—	$	—		$	50

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

DEBT

6 Months Ended

Jun. 30, 2018

DEBT

NOTE G.

DEBT

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


	June 30, 2018		December 31, 2017
Long-term debt:
Senior Secured Credit Facility Term B-3 Loan, variable, due 2022	$	1,148	$	1,176
Senior Notes, fixed 5.0%, due 2024		1,000		1,000
Senior Notes, fixed 4.75%, due 2027		400		400

Total long-term debt	$	2,548	$	2,576
Less: current maturities of long-term debt		—		12
deferred financing costs, net		28		30

Total long-term debt, net	$	2,520	$	2,534

As of June 30, 2018, the Company had $2,548 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”) and ATI’s Senior Secured Credit Facility (“Senior Secured Credit Facility”), which consists of the Senior Secured Credit Facility Term B-3 Loan due 2022 (“Term B-3 Loan”) and the Senior Secured Credit Facility revolving credit facility due 2021 (“Revolving Credit Facility”).

The fair value of the Company’s long-term debt obligations as of June 30, 2018 was $2,507 million. The fair value is based on quoted Level 2 market prices of the Company’s debt as of June 30, 2018. It is not expected that the Company would be able to repurchase all 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.

Senior Secured Credit Facility

In March 2017, ATI entered into an amendment with the term loan lenders under its Senior Secured Credit Facility to lower the applicable margins on the Term B-3 Loan by 0.5%. The amendment also eliminated the minimum LIBOR floor and reduced the minimum floor applicable to the base rate from 1.75% to 1.00% on the Term B-3 Loan. The March 2017 amendment was treated as a modification to the Senior Secured Credit Facility under GAAP, and thus the Company recorded $1 million as new deferred financing fees.

In September 2017, ATI entered into a joinder agreement with the lenders under its Senior Secured Credit Facility to increase the available commitments under the Revolving Credit Facility from $450 million to $550 million. The joinder agreement was treated as a modification to the Revolving Credit Facility under GAAP.

In March 2018, ATI entered into an amendment with the term loan lenders under its Senior Secured Credit Facility to lower the applicable margins on the Term B-3 Loan by 0.25%. The March 2018 amendment was treated as a modification to the Senior Secured Credit Facility under GAAP, and thus the Company recorded $1 million as new deferred financing fees.

The Senior Secured Credit Facility is collateralized by a lien on substantially all assets of the Company including all of ATI’s capital stock and all of the capital stock or other equity interest held by the Company, ATI and each of the Company’s existing and future U.S. subsidiary guarantors (subject to certain limitations for equity interests of foreign subsidiaries and other exceptions set forth in the terms of the Senior Secured Credit Facility). Interest on the Term B-3 Loan, as of June 30, 2018, is either (a) 1.75% over the LIBOR or (b) 0.75% over the greater of the prime lending rate as quoted by the administrative agent and the federal funds effective rate published by the Federal Reserve Bank of New York plus 0.5%, provided that neither is below 1.00%. As of June 30, 2018, the Company elected to pay the lowest all-in rate of LIBOR plus the applicable margin, or 3.85%, on the Term B-3 Loan. The Senior Secured Credit Facility requires minimum quarterly principal payments on the Term B-3 Loan as well as prepayments from certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events and from a percentage of excess cash flow, if applicable. The minimum required quarterly principal payment on the Term B-3 Loan through its maturity date of September 2022 is $3 million; however, the Company made voluntary prepayments of the required quarterly principal payments of $25 million during the quarter ended June 30, 2018. As of June 30, 2018, there were 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 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, 2018, the Company had $533 million available under the Revolving Credit Facility, net of $17 million in letters of credit. Revolving Credit Facility borrowings bear interest at a variable base rate plus an applicable margin based on the Company’s total leverage ratio. Interest on the Revolving Credit Facility is either (a) 1.75% over the LIBOR or (b) 0.75% over the greater of the prime lending rate in effect on such day and the federal funds effective rate published by the Federal Reserve Bank of New York plus 0.5%, provided that neither is below 1.75%. In addition, there is an annual commitment fee, based on the Company’s total leverage ratio, on the average unused revolving credit borrowings available under the Revolving Credit Facility. Revolving Credit Facility borrowings are payable at the option of the Company throughout the term of the Senior Secured Credit Facility with the balance due in September 2021.

The Senior Secured Credit Facility requires the Company to maintain a specified maximum total senior secured leverage ratio of 5.50x when revolving loan commitments remain outstanding on the Revolving Credit Facility at the end of a fiscal quarter. As of June 30, 2018, the Company had no amounts outstanding under the Revolving Credit Facility; however, the Company would have been in compliance with the maximum total senior secured leverage ratio, achieving a 1.03x ratio. Additionally, within the terms of the Senior Secured Credit Facility, a senior secured 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. The Senior Secured Credit Facility also provides certain financial incentives based on our total leverage ratio. A total leverage ratio at or below 4.00x results in a 25 basis point reduction to the applicable margin on the Revolving Credit Facility, and a total leverage ratio at or below 3.50x results in a 12.5 basis point reduction to the Revolving Credit Facility commitment fee and an additional 25 basis point reduction to the applicable margin on the Revolving Credit Facility. These reductions remain in effect as long as the Company achieves a total leverage ratio at or below the related threshold. As of June 30, 2018, the Company’s total leverage ratio was 2.40x.

In addition, the Senior Secured Credit Facility, 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, declare or pay certain dividends, or repurchase shares of the Company’s common stock. As of June 30, 2018, the Company was in compliance with all covenants under the Senior Secured Credit Facility.

5.0% Senior Notes

The 5.0% 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 5.0% Senior Notes. The indenture governing the 5.0% 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 June 30, 2018, the Company was in compliance with all covenants under the indenture governing the 5.0% Senior Notes.

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 June 30, 2018, the Company was in compliance with all covenants under the indenture governing the 4.75% Senior Notes.

DERIVATIVES

6 Months Ended

Jun. 30, 2018

DERIVATIVES

NOTE H.

DERIVATIVES

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 the LIBOR to manage a portion of this exposure. The derivative instruments are not for speculative purposes and are designated as cash flow hedges.

The Company holds interest rate swaps 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. Balances in AOCL are reclassified to other comprehensive income when transactions related to the underlying risk are settled. As of June 30, 2018, the Company held 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 2019 to September 2025 with notional values totaling $250 million and a weighted average LIBOR fixed rate of 3.04%. See NOTE F “Fair Value of Financial Instruments” for information regarding the fair value of the Company’s interest rate swaps.

The following tabular disclosures further describe the Company’s interest rate derivatives qualifying and designated for hedge accounting and their impact on the financial condition of the Company (dollars in millions):


	June 30, 2018
	Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps	Other non-current liabilities	$	(2	)

Total derivatives designated as hedging instruments		$	(2	)

The balance of losses recorded in AOCL as of June 30, 2018 was $2 million. See NOTE N “Accumulated Other Comprehensive Loss” for information regarding activity recorded as a component of AOCL during the three and six months ended June 30, 2018. The Company had no losses recorded in accumulated other comprehensive loss expected to be reclassified to other comprehensive income within the next twelve months as of June 30, 2018.

PRODUCT WARRANTY LIABILITIES

6 Months Ended

Jun. 30, 2018

PRODUCT WARRANTY LIABILITIES

NOTE I.

PRODUCT WARRANTY LIABILITIES

As of June 30, 2018, the current and non-current product warranty liabilities were $28 million and $37 million, respectively. As of June 30, 2017, the current and non-current product warranty liabilities were $21 million and $34 million, respectively.

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


	Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
Beginning balance	$	62		$	58		$	55		$	63
Payments		(10	)		(8	)		(19	)		(15	)
Increase in liability (warranty issued during period)		12			5			21			9
Net adjustments to liability		1			—			8			(2	)

Ending balance	$	65		$	55		$	65		$	55

DEFERRED REVENUE

6 Months Ended

Jun. 30, 2018

DEFERRED REVENUE

NOTE J.

DEFERRED REVENUE

As of June 30, 2018, current and non-current deferred revenue was $38 million and $87 million, respectively. As of June 30, 2017, the current and non-current deferred revenue was $28 million and $68 million, respectively.

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


	Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
Beginning balance	$	112		$	96		$	110		$	94
Increases		23			6			33			14
Revenue earned		(10	)		(6	)		(18	)		(12	)

Ending balance	$	125		$	96		$	125		$	96

Deferred revenue recorded in current and non-current liabilities related to ETC contracts as of June 30, 2018 was $29 million and $71 million, respectively. Deferred revenue recorded in current and non-current liabilities related to ETC contracts as of June 30, 2017 was $27 million and $68 million, respectively.

OTHER CURRENT LIABILITIES

6 Months Ended

Jun. 30, 2018

OTHER CURRENT LIABILITIES

NOTE K.

OTHER CURRENT LIABILITIES

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


	As of June 30, 2018		As of December 31, 2017
Payroll and related costs	$	52	$	73
Sales allowances		40		34
Accrued interest payable		18		19
Vendor buyback obligation		15		14
Taxes payable		14		10
Defense price reduction reserve		9		9
UAW Local 933 retirement incentive		6		—
Non-trade payables		3		8
Other accruals		9		16

Total	$	166	$	183

EMPLOYEE BENEFIT PLANS

6 Months Ended

Jun. 30, 2018

EMPLOYEE BENEFIT PLANS

NOTE L.

EMPLOYEE BENEFIT PLANS

Components of net periodic benefit cost (credit) consist of the following (dollars in millions):


	Pension Plans						Post-retirement Benefits
	Three months ended June 30,						Three months ended June 30,
	2018			2017			2018			2017
Net periodic benefit cost:
Service cost	$	3		$	3		$	1		$	1
Interest cost		1			1			1			1
Expected return on assets		(2	)		(2	)		—			—
Prior service cost		—			—			(4	)		(1	)

Net periodic benefit cost (credit)	$	2		$	2		$	(2	)	$	1


	Pension Plans						Post-retirement Benefits
	Six months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
Net periodic benefit cost:
Service cost	$	6		$	6		$	1		$	1
Interest cost		3			3			2			3
Expected return on assets		(4	)		(4	)		—			—
Prior service cost		—			—			(7	)		(2	)

Net periodic benefit cost (credit)	$	5		$	5		$	(4	)	$	2

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

INCOME TAXES

6 Months Ended

Jun. 30, 2018

INCOME TAXES

NOTE M.

INCOME TAXES

For the three and six months ended June 30, 2018, the Company recorded total tax expense of $48 million and $88 million, respectively. The effective tax rate for the three and six months ended June 30, 2018 was 22% and 21%, respectively. For the three and six months ended June 30, 2017, the Company recorded total tax expense of $51 million and $95 million, respectively. The effective tax rate for both the three and six months ended June 30, 2017 was 35%. The decrease in the effective tax rate was principally driven by the U.S. Tax Cuts and Jobs Act enacted into law in 2017.

In 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the U.S. Tax Cuts and Jobs Act. The Company recognized the income tax effects of the U.S. Tax Cuts and Jobs Act for the year ended December 31, 2017, the reporting period in which the U.S. Tax Cuts and Jobs Act was signed into law, in accordance with SAB 118. As such, the Company’s financial results reflect the income tax effects of the U.S. Tax Cuts and Jobs Act and provisional amounts for those specific income tax effects of the U.S. Tax Cuts and Jobs Act that could be reasonably estimated. During both the three and six months ended June 30, 2018, there were no changes made to the provisional amounts recognized in 2017. The Company will continue to analyze the effects of the U.S. Tax Cuts and Jobs Act and any impact on its financial statements will be recorded in the period identified.

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. Appropriate consideration is given to all positive and negative evidence related to that realization. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry forward periods, experience with tax attributes expiring unused, and tax planning alternatives. The weight given to these considerations depends upon the degree to which they can be objectively verified.

The Company continues to provide for a valuation allowance on certain of its foreign deferred tax assets. 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 uncertainty in income taxes, the Company has recorded a liability for unrecognized tax benefits related to a 2010 Research & Development Credit as of June 30, 2018 and December 31, 2017. 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. All of the Company’s returns will remain subject to examination by the various taxing authorities for the duration of the applicable statute of limitations (generally three years from the later of the date of filing or the due date of the return).

ACCUMULATED OTHER COMPREHENSIVE LOSS

6 Months Ended

Jun. 30, 2018

ACCUMULATED OTHER COMPREHENSIVE LOSS

NOTE N.

ACCUMULATED OTHER COMPREHENSIVE LOSS

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


	Three months ended
	Available-for- sale securities			Defined benefit pension items			Derivatives designated for hedge accounting			Foreign currency items			Total
AOCL as of March 31, 2017	$	(7	)	$	(19	)	$	—		$	(34	)	$	(60	)

Other comprehensive income before reclassifications		—			—			—			4			4
Amounts reclassified from AOCL		—			(1	)		—			—			(1	)
Income tax		(1	)		1			—			—			—

Net current period other comprehensive (loss) income	$	(1	)	$	—		$	—		$	4		$	3

AOCL as of June 30, 2017	$	(8	)	$	(19	)	$	—		$	(30	)	$	(57	)

AOCL as of March 31, 2018	$	—		$	5		$	—		$	(16	)	$	(11	)

Other comprehensive loss before reclassifications		—			—			(2	)		(12	)		(14	)
Amounts reclassified from AOCL		—			(4	)		—			—			(4	)
Income tax		—			2			—			—			2

Net current period other comprehensive loss	$	—		$	(2	)	$	(2	)	$	(12	)	$	(16	)

AOCL as of June 30, 2018	$	—		$	3		$	(2	)	$	(28	)	$	(27	)


	Six months ended
	Available-for- sale securities			Defined benefit pension items			Derivatives designated for hedge accounting			Foreign currency items			Total
AOCL as of December 31, 2016	$	(7	)	$	(18	)	$	—		$	(38	)	$	(63	)

Other comprehensive (loss) income before reclassifications		(1	)		—			—			8			7
Amounts reclassified from AOCL		—			(2	)		—			—			(2	)
Income tax		—			1			—			—			1

Net current period other comprehensive (loss) income	$	(1	)	$	(1	)	$	—		$	8		$	6

AOCL as of June 30, 2017	$	(8	)	$	(19	)	$	—		$	(30	)	$	(57	)

AOCL as of December 31, 2017	$	—		$	8		$	—		$	(23	)	$	(15	)

Other comprehensive loss before reclassifications		—			—			(2	)		(5	)		(7	)
Amounts reclassified from AOCL		—			(7	)		—			—			(7	)
Income tax		—			2			—			—			2

Net current period other comprehensive loss	$	—		$	(5	)	$	(2	)	$	(5	)	$	(12	)

AOCL as of June 30, 2018	$	—		$	3		$	(2	)	$	(28	)	$	(27	)


	Amounts reclassified from AOCL						Affected line item in the Condensed Consolidated Statements of Comprehensive Income
AOCL Components	Three months ended June 30, 2018			Three months ended June 30, 2017
Amortization of benefit items:
Prior service cost	$	3		$	1		Cost of sales
		1			—		Selling, general and administrative

Total reclassifications, before tax	$	4		$	1		Income before income taxes
Income tax		(2	)		(1	)	Income tax expense

Total reclassifications, net of tax	$	2		$	—


	Amounts reclassified from AOCL						Affected line item in the Condensed Consolidated Statements of Comprehensive Income
AOCL Components	Six months ended June 30, 2018			Six months ended June 30, 2017
Amortization of defined benefit pension items:
Prior service cost	$	6		$	2		Cost of sales
		1			—		Selling, general and administrative

Total reclassifications, before tax	$	7		$	2		Income before income taxes
Income tax		(2	)		(1	)	Income tax expense

Total reclassifications, net of tax	$	5		$	1

Prior service cost is included in the computation of the Company’s net periodic benefit cost. See NOTE L, “Employee Benefit Plans” for additional details.

COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2018

COMMITMENTS AND CONTINGENCIES

NOTE O.

COMMITMENTS AND CONTINGENCIES

Environmental Matters

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 June 30, 2018, the Company had a liability recorded in the amount of $13 million.

Claims, Disputes, and Litigation

The Company is party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims and workers’ compensation claims. The Company believes that the ultimate liability, if any, in excess of amounts already provided for in the condensed consolidated financial statements or covered by insurance on the disposition of these matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2018

EARNINGS PER SHARE

NOTE P.

EARNINGS PER SHARE

The Company presents both basic and diluted earnings per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during the reporting period that are calculated using the treasury stock method for stock-based awards. The treasury stock method assumes that the Company uses the proceeds from the exercise of awards to repurchase common stock at the average market price during the period. 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 and six months ended both June 30, 2018 and June 30, 2017, 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 June 30,				Six months ended June 30,
	2018		2017		2018		2017
Net income	$	174	$	95	$	325	$	178

Weighted average shares of common stock outstanding		134		151		137		154
Dilutive effect of stock-based awards		1		1		—		1

Diluted weighted average shares of common stock outstanding		135		152		137		155

Basic earnings per share attributable to common stockholders	$	1.30	$	0.63	$	2.37	$	1.16

Diluted earnings per share attributable to common stockholders	$	1.29	$	0.63	$	2.37	$	1.15

COMMON STOCK

6 Months Ended

Jun. 30, 2018

COMMON STOCK

NOTE Q.

COMMON STOCK

The Company’s current stock 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 through December 31, 2019. On November 8, 2017, the Board of Directors authorized the Company to repurchase an additional $500 million of its common stock, bringing the total amount authorized under the current stock repurchase program to $1,500 million through December 31, 2019. The timing and amount of stock purchases are subject to market conditions and corporate needs. This stock repurchase program may be extended, modified, suspended or discontinued at any time at the Company’s discretion. During the three and six months ended June 30, 2018, the Company repurchased $244 million and $370 million, respectively, of its common stock under the repurchase program, leaving $184 million of authorized repurchases remaining under the current stock repurchase program as of June 30, 2018.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2018

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

NOTE R.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Repurchase of Common Stock held by ValueAct Capital Master Fund

On February 3, 2017, the Company entered into a stock repurchase agreement with ValueAct Capital Master Fund, L.P., a related party, to repurchase 10,525,204 shares of the Company’s common stock for approximately $363 million. The shares were repurchased under the stock repurchase program approved by the Board of Directors in November 2016. The purchase closed on February 8, 2017 and was funded with cash on hand and borrowings under the Revolving Credit Facility. The shares were subsequently retired.

SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2018

SUBSEQUENT EVENTS

NOTE S.

SUBSEQUENT EVENTS

On July 30, 2018, the Company announced that its Board of Directors had approved a new authorization under the Company’s current stock repurchase program for the repurchase of up to an additional $500 million of the Company’s outstanding common stock and had removed the termination date of the program. The new authorization brings the total amount authorized under the program to $2,000 million.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	6 Months Ended
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	Jun. 30, 2018
Basis of Presentation and Principles of Consolidation	*Basis of Presentation and Principles of Consolidation* The condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary for the fair statement of the results for the periods presented. The condensed consolidated financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated. These condensed consolidated financial statements present the financial position, results of comprehensive income and cash flows of the Company. 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, 2017 as filed with the Securities and Exchange Commission (“SEC”) on February 15, 2018. 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.
Use of Estimates	*Use of Estimates* The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Estimates include, but are not limited to, sales allowances, government price adjustments, fair market values and future cash flows associated with goodwill, indefinite life intangibles, long-lived asset impairment tests, useful lives for depreciation and amortization, warranty liabilities, environmental liabilities, determination of discount and other assumptions for pension and other post-retirement benefit expense, income taxes and deferred tax valuation allowances, derivative valuation and contingencies. The Company’s accounting policies involve the application of judgments and assumptions made by management that include inherent risks and uncertainties. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.
Recently Adopted Accounting Pronouncements	*Recently Adopted Accounting Pronouncements* In August 2017, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance on accounting for derivative and hedge instruments. Among other things, the guidance allows the initial hedge effectiveness assessment to be performed by the end of the quarter in which the hedge is designated, permits a qualitative assessment for certain hedges if an expectation of high effectiveness can be supported throughout the term of the hedge, and removes the requirement to record ineffectiveness on cash flow hedges immediately through earnings when the hedge is highly effective. The guidance was early adopted by the Company effective April 1, 2018 and applied upon entering into interest rate swaps designated as cash flow hedges during the period ended June 30, 2018. When adopted in an interim period, the guidance is required to be reflected as of the beginning of the year of adoption. The Company has not previously designated any derivative instruments as hedging instruments, and thus, the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. In May 2017, the FASB issued authoritative accounting guidance on accounting for modifications to the terms of employee stock compensation. The guidance clarifies which changes to terms or conditions of share-based payment awards require the entity to apply modification accounting. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements. In March 2017, the FASB issued authoritative accounting guidance on the presentation of net periodic pension costs and net periodic post-retirement benefit costs. The guidance clarifies the presentation of component costs within an employer’s financial statements and restricts component costs eligible for capitalization to the service cost component. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements. In August 2016, the FASB issued authoritative accounting guidance on the presentation and classification of certain cash receipts and cash payments on the statement of cash flows. The guidance specifically addresses cash flow issues with the objective of reducing the diversity in practice. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements. In May 2014, the FASB issued authoritative accounting guidance on a company’s accounting for revenue from contracts with customers, which guidance was subsequently amended. The guidance applies to all companies that enter into contracts with customers to transfer goods, services or nonfinancial assets. The guidance requires these companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, timing, amount and uncertainty of revenue that is recognized. The guidance was adopted by the Company effective January 1, 2018 on a modified retrospective basis. See Note C, “Revenue” for information regarding the impact of the adoption of this guidance.
Recently Issued Accounting Pronouncements	*Recently Issued Accounting Pronouncements* In June 2018, the FASB issued authoritative accounting guidance on accounting for nonemployee awards for goods or services received by a company. The guidance will be effective for the Company in fiscal year 2019, but early adoption is permitted. Management is currently evaluating the impact of this guidance on the Company’s consolidated financial statements. In February 2018, the FASB issued authoritative accounting guidance on transfers of stranded balances in accumulated other comprehensive loss to retained earnings. The passage of the U.S. Tax Cuts and Jobs Act by the U.S. federal government in December 2017 and existing GAAP requirements to adjust deferred tax assets and liabilities for changes in tax laws or rates created stranded balances in accumulated other comprehensive loss on deferred tax assets and liabilities previously recorded as a component to accumulated other comprehensive loss. The guidance applies to companies affected by these stranded balances and allows a reclassification of these balances to retained earnings. The guidance will be effective for the Company in fiscal year 2019, but early adoption is permitted. The guidance can be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act is recognized. Management is currently evaluating affected balances recorded in accumulated other comprehensive loss and expects the impact of this guidance on the Company’s consolidated financial statements to be an immaterial adjustment to retained earnings. In February 2016, the FASB issued authoritative accounting guidance on lease accounting. The guidance requires lessees to present right-of-use assets and lease liabilities on the balance sheet for all leases not considered short-term leases. Short-term leases are leases with a lease term of 12 months or less as long as the leases do not include options to purchase the underlying assets that the lessee is reasonably certain to exercise. The guidance also introduces new disclosure requirements for leasing arrangements. The guidance will be effective for the Company in fiscal year 2019 using a modified retrospective approach. Management is currently evaluating the Company’s lease contracts and assessing the impact of the adoption of policy elections and practical expedients prescribed by the guidance. Management does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

REVENUE (Tables)

6 Months Ended

Jun. 30, 2018

Disaggregated Revenue by Categories

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, 2018		Six months ended June 30, 2018
North America On-Highway	$	343	$	682
North America Off-Highway		31		64
Defense		43		80
Outside North America On-Highway		101		192
Outside North America Off-Highway		24		36
Service Parts, Support Equipment and Other		169		320

Total Net Sales	$	711	$	1,374

INVENTORIES (Tables)

6 Months Ended

Jun. 30, 2018

Components of Inventories

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


	June 30, 2018		December 31, 2017
Purchased parts and raw materials	$	83	$	79
Work in progress		10		6
Service parts		45		46
Finished goods		32		23

Total inventories	$	170	$	154

GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2018

Summary of Other Intangible Assets

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


	June 30, 2018							December 31, 2017
	Intangible assets, gross		Accumulated amortization			Intangible assets, net		Intangible assets, gross		Accumulated amortization			Intangible assets, net
Other intangible assets:
Trade name	$	790	$	—		$	790	$	790	$	—		$	790
Customer relationships — commercial		832		(597	)		235		832		(573	)		259
Proprietary technology		476		(415	)		61		476		(396	)		80
Customer relationships — defense		62		(39	)		23		62		(38	)		24
Patented technology — defense		28		(28	)		—		28		(28	)		—
Non-compete agreement		17		(17	)		—		17		(17	)		—
Tooling rights		5		(5	)		—		5		(5	)		—

Total	$	2,210	$	(1,101	)	$	1,109	$	2,210	$	(1,057	)	$	1,153

Amortization Expense Related to Other Intangible Assets for Next Five Fiscal Years

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


	2019		2020		2021		2022		2023
Amortization expense	$	86	$	50	$	45	$	43	$	42

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2018

Summary of Fair Value of Financial Assets and (Liabilities)

The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of June 30, 2018 and December 31, 2017 (dollars in millions):


	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)					TOTAL
	June 30, 2018			December 31, 2017			June 30, 2018			December 31, 2017		June 30, 2018			December 31, 2017
Cash equivalents	$	2		$	50		$	—		$	—	$	2		$	50
Rabbi trust assets		10			8			—			—		10			8
Deferred compensation obligation		(10	)		(8	)		—			—		(10	)		(8	)
Derivative liabilities		—			—			(2	)		—		(2	)		—

Total	$	2		$	50		$	(2	)	$	—	$	—		$	50

DEBT (Tables)

6 Months Ended

Jun. 30, 2018

Summary of Long-Term Debt and Maturities

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


	June 30, 2018		December 31, 2017
Long-term debt:
Senior Secured Credit Facility Term B-3 Loan, variable, due 2022	$	1,148	$	1,176
Senior Notes, fixed 5.0%, due 2024		1,000		1,000
Senior Notes, fixed 4.75%, due 2027		400		400

Total long-term debt	$	2,548	$	2,576
Less: current maturities of long-term debt		—		12
deferred financing costs, net		28		30

Total long-term debt, net	$	2,520	$	2,534

- Definition

Tabular disclosure of long-debt instruments or arrangements, including identification, terms, features, collateral requirements and other information necessary to a fair presentation. These are debt arrangements that originally required repayment more than twelve months after issuance or greater than the normal operating cycle of the entity, if longer.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.22)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=84159872&loc=d3e21475-112644

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 470
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=75038535&loc=d3e64711-112823

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(e),(f))
-URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 835
-SubTopic 30
-Section 55
-Paragraph 8
-URI http://asc.fasb.org/extlink&oid=64930739&loc=d3e28878-108400

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 8
-URI http://asc.fasb.org/extlink&oid=84159872&loc=d3e21538-112644

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 6
-URI http://asc.fasb.org/extlink&oid=84159872&loc=d3e21506-112644

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 835
-SubTopic 30
-Section 45
-Paragraph 1A
-URI http://asc.fasb.org/extlink&oid=64930785&loc=d3e28541-108399

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 835
-SubTopic 30
-Section 45
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=64930785&loc=d3e28551-108399

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 7
-URI http://asc.fasb.org/extlink&oid=84159872&loc=d3e21521-112644

+ Details

DERIVATIVES (Tables)

6 Months Ended

Jun. 30, 2018

Derivative Instruments and their Impact on the Financial Condition


	June 30, 2018
	Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps	Other non-current liabilities	$	(2	)

Total derivatives designated as hedging instruments		$	(2	)

PRODUCT WARRANTY LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2018

Product Warranty Liability Activities

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


	Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
Beginning balance	$	62		$	58		$	55		$	63
Payments		(10	)		(8	)		(19	)		(15	)
Increase in liability (warranty issued during period)		12			5			21			9
Net adjustments to liability		1			—			8			(2	)

Ending balance	$	65		$	55		$	65		$	55

DEFERRED REVENUE (Tables)

6 Months Ended

Jun. 30, 2018

Deferred Revenue for Extended Transmission Coverage Activity

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


	Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
Beginning balance	$	112		$	96		$	110		$	94
Increases		23			6			33			14
Revenue earned		(10	)		(6	)		(18	)		(12	)

Ending balance	$	125		$	96		$	125		$	96

OTHER CURRENT LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2018

Summary of Other Current Liabilities

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


	As of June 30, 2018		As of December 31, 2017
Payroll and related costs	$	52	$	73
Sales allowances		40		34
Accrued interest payable		18		19
Vendor buyback obligation		15		14
Taxes payable		14		10
Defense price reduction reserve		9		9
UAW Local 933 retirement incentive		6		—
Non-trade payables		3		8
Other accruals		9		16

Total	$	166	$	183

EMPLOYEE BENEFIT PLANS (Tables)

6 Months Ended

Jun. 30, 2018

Components of Net Periodic Benefit Cost (credit)

Components of net periodic benefit cost (credit) consist of the following (dollars in millions):


	Pension Plans						Post-retirement Benefits
	Three months ended June 30,						Three months ended June 30,
	2018			2017			2018			2017
Net periodic benefit cost:
Service cost	$	3		$	3		$	1		$	1
Interest cost		1			1			1			1
Expected return on assets		(2	)		(2	)		—			—
Prior service cost		—			—			(4	)		(1	)

Net periodic benefit cost (credit)	$	2		$	2		$	(2	)	$	1


	Pension Plans						Post-retirement Benefits
	Six months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
Net periodic benefit cost:
Service cost	$	6		$	6		$	1		$	1
Interest cost		3			3			2			3
Expected return on assets		(4	)		(4	)		—			—
Prior service cost		—			—			(7	)		(2	)

Net periodic benefit cost (credit)	$	5		$	5		$	(4	)	$	2

ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)

6 Months Ended

Jun. 30, 2018

Changes in Accumulated Other Comprehensive Loss by Component

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


	Three months ended
	Available-for- sale securities			Defined benefit pension items			Derivatives designated for hedge accounting			Foreign currency items			Total
AOCL as of March 31, 2017	$	(7	)	$	(19	)	$	—		$	(34	)	$	(60	)

Other comprehensive income before reclassifications		—			—			—			4			4
Amounts reclassified from AOCL		—			(1	)		—			—			(1	)
Income tax		(1	)		1			—			—			—

Net current period other comprehensive (loss) income	$	(1	)	$	—		$	—		$	4		$	3

AOCL as of June 30, 2017	$	(8	)	$	(19	)	$	—		$	(30	)	$	(57	)

AOCL as of March 31, 2018	$	—		$	5		$	—		$	(16	)	$	(11	)

Other comprehensive loss before reclassifications		—			—			(2	)		(12	)		(14	)
Amounts reclassified from AOCL		—			(4	)		—			—			(4	)
Income tax		—			2			—			—			2

Net current period other comprehensive loss	$	—		$	(2	)	$	(2	)	$	(12	)	$	(16	)

AOCL as of June 30, 2018	$	—		$	3		$	(2	)	$	(28	)	$	(27	)


	Six months ended
	Available-for- sale securities			Defined benefit pension items			Derivatives designated for hedge accounting			Foreign currency items			Total
AOCL as of December 31, 2016	$	(7	)	$	(18	)	$	—		$	(38	)	$	(63	)

Other comprehensive (loss) income before reclassifications		(1	)		—			—			8			7
Amounts reclassified from AOCL		—			(2	)		—			—			(2	)
Income tax		—			1			—			—			1

Net current period other comprehensive (loss) income	$	(1	)	$	(1	)	$	—		$	8		$	6

AOCL as of June 30, 2017	$	(8	)	$	(19	)	$	—		$	(30	)	$	(57	)

AOCL as of December 31, 2017	$	—		$	8		$	—		$	(23	)	$	(15	)

Other comprehensive loss before reclassifications		—			—			(2	)		(5	)		(7	)
Amounts reclassified from AOCL		—			(7	)		—			—			(7	)
Income tax		—			2			—			—			2

Net current period other comprehensive loss	$	—		$	(5	)	$	(2	)	$	(5	)	$	(12	)

AOCL as of June 30, 2018	$	—		$	3		$	(2	)	$	(28	)	$	(27	)


	Amounts reclassified from AOCL						Affected line item in the Condensed Consolidated Statements of Comprehensive Income
AOCL Components	Three months ended June 30, 2018			Three months ended June 30, 2017
Amortization of benefit items:
Prior service cost	$	3		$	1		Cost of sales
		1			—		Selling, general and administrative

Total reclassifications, before tax	$	4		$	1		Income before income taxes
Income tax		(2	)		(1	)	Income tax expense

Total reclassifications, net of tax	$	2		$	—


	Amounts reclassified from AOCL						Affected line item in the Condensed Consolidated Statements of Comprehensive Income
AOCL Components	Six months ended June 30, 2018			Six months ended June 30, 2017
Amortization of defined benefit pension items:
Prior service cost	$	6		$	2		Cost of sales
		1			—		Selling, general and administrative

Total reclassifications, before tax	$	7		$	2		Income before income taxes
Income tax		(2	)		(1	)	Income tax expense

Total reclassifications, net of tax	$	5		$	1

Prior service cost is included in the computation of the Company’s net periodic benefit cost. See NOTE L, “Employee Benefit Plans” for additional details.

EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2018

Reconciliation of Numerators and Denominators Used to Calculate Basic EPS and Diluted EPS

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 June 30,				Six months ended June 30,
	2018		2017		2018		2017
Net income	$	174	$	95	$	325	$	178

Weighted average shares of common stock outstanding		134		151		137		154
Dilutive effect of stock-based awards		1		1		—		1

Diluted weighted average shares of common stock outstanding		135		152		137		155

Basic earnings per share attributable to common stockholders	$	1.30	$	0.63	$	2.37	$	1.16

Diluted earnings per share attributable to common stockholders	$	1.29	$	0.63	$	2.37	$	1.15

Overview - Additional Information (Detail)	6 Months Ended
Overview - Additional Information (Detail)	Jun. 30, 2018 Employee Customer Product
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Transmission product lines \| Product	13
Worldwide independent distributor and dealer locations \| Customer	1,400
Number of employees \| Employee	2,700
Sales Revenue, Net \| North America \| Geographic Concentration Risk
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Concentration of risk, percentage	79.00%

Revenue - Additional Information (Detail) $ in Millions	3 Months Ended		6 Months Ended
Revenue - Additional Information (Detail) $ in Millions	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) Segment	Jun. 30, 2017 USD ($)	Jan. 01, 2018 USD ($)
Deferred Revenue Arrangement [Line Items]
Deferred revenue current liabilities	$ 38	$ 28	$ 38	$ 28
Deferred revenue non-current liabilities	87	68	87	68
Net sales	711	$ 580	1,374	$ 1,079
Contract assets	$ 0		$ 0
Credit term period	30 days
Number of operating segment \| Segment			1
Number of reportable segment \| Segment			1
Minimum
Deferred Revenue Arrangement [Line Items]
Duration of contract sold			1 year
Maximum
Deferred Revenue Arrangement [Line Items]
Duration of contract sold			5 years
Adoption of New Revenue Guidance
Deferred Revenue Arrangement [Line Items]
Increase in retained earnings					$ 5
Deferred revenue current liabilities					(2)
Deferred revenue non-current liabilities					$ (4)
Accounting Standards Update 2014-09
Deferred Revenue Arrangement [Line Items]
Net sales			$ 1
Accounting Standards Update 2014-09 \| Non-current Deferred Revenue
Deferred Revenue Arrangement [Line Items]
Increase (decrease) in deferred revenue non-current liabilities			$ (1)

Revenue - Disaggregated Revenue by Categories (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Disaggregation of Revenue [Line Items]
Total Net Sales	$ 711	$ 580	$ 1,374	$ 1,079
North America On-Highway
Disaggregation of Revenue [Line Items]
Total Net Sales	343		682
North America Electric Hybrid-Propulsion Systems for Transit Bus
Disaggregation of Revenue [Line Items]
Total Net Sales	31		64
North America Off-Highway
Disaggregation of Revenue [Line Items]
Total Net Sales	43		80
Defense
Disaggregation of Revenue [Line Items]
Total Net Sales	101		192
Outside North America On-Highway
Disaggregation of Revenue [Line Items]
Total Net Sales	24		36
Service Parts, Support Equipment and Other
Disaggregation of Revenue [Line Items]
Total Net Sales	$ 169		$ 320

Components of Inventories (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2017
Inventory [Line Items]
Purchased parts and raw materials	$ 83	$ 79
Work in progress	10	6
Service parts	45	46
Finished goods	32	23
Total inventories	$ 170	$ 154

Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2017
Goodwill [Line Items]
Goodwill	$ 1,941	$ 1,941
Net carrying value of Goodwill and other intangible assets	$ 3,050	$ 3,094

Summary of Other Intangible Assets (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	$ 2,210	$ 2,210
Trade name	790	790
Accumulated amortization	(1,101)	(1,057)
Intangible assets, net	1,109	1,153
Customer relationships - commercial
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	832	832
Accumulated amortization	(597)	(573)
Intangible assets, net	235	259
Proprietary technology
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	476	476
Accumulated amortization	(415)	(396)
Intangible assets, net	61	80
Customer relationships - defense
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	62	62
Accumulated amortization	(39)	(38)
Intangible assets, net	23	24
Patented technology - defense
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	28	28
Accumulated amortization	(28)	(28)
Non-compete agreement
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	17	17
Accumulated amortization	(17)	(17)
Tooling rights
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	5	5
Accumulated amortization	$ (5)	$ (5)

Amortization Expense Related to Other Intangible Assets for Next Five Fiscal Years (Detail) $ in Millions	Jun. 30, 2018 USD ($)
Finite-Lived Intangible Assets
2019	$ 86
2020	50
2021	45
2022	43
2023	$ 42

Fair Value of Financial Instruments - Additional Information (Detail) - Fair Value, Inputs, Level 3 [Member] - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets	$ 0	$ 0
Financial liabilities	$ 0	$ 0

Summary of Fair Value of Financial Assets and (Liabilities) (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	$ 2	$ 50
Rabbi trust assets	10	8
Deferred compensation obligation	(10)	(8)
Derivative liabilities	(2)
Total		50
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	2	50
Rabbi trust assets	10	8
Deferred compensation obligation	(10)	(8)
Total	2	$ 50
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liabilities	(2)
Total	$ (2)

Summary of Long-Term Debt and Maturities (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Total long-term debt	$ 2,548	$ 2,576
Less: current maturities of long-term debt	0	12
Less: deferred financing costs, net	28	30
Total long-term debt, net	2,520	2,534
Senior Secured Credit Facility Term B-3 Loan, variable due 2022
Debt Instrument [Line Items]
Total long-term debt	1,148	1,176
5.0% Senior Notes due 2024
Debt Instrument [Line Items]
Total long-term debt	1,000	1,000
4.75% Senior Notes due 2027
Debt Instrument [Line Items]
Total long-term debt	$ 400	$ 400

Summary of Long-Term Debt and Maturities (Parenthetical) (Detail)	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Senior Secured Credit Facility Term B-3 Loan, variable due 2022
Debt Instrument [Line Items]
Debt instrument, due date	2022	2022
5.0% Senior Notes due 2024
Debt Instrument [Line Items]
Debt instrument, stated interest rate	5.00%	5.00%
Debt instrument, due date	2024	2024
4.75% Senior Notes due 2027
Debt Instrument [Line Items]
Debt instrument, stated interest rate	4.75%	4.75%
Debt instrument, due date	2027	2027

Debt - Additional Information (Detail) - USD ($)	1 Months Ended		3 Months Ended		6 Months Ended	12 Months Ended
Debt - Additional Information (Detail) - USD ($)	Mar. 31, 2018	Mar. 31, 2017	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2018	Dec. 31, 2016	Dec. 31, 2017	Sep. 30, 2017	Aug. 31, 2017
Debt Instrument [Line Items]
Total long-term debt			$ 2,548,000,000		$ 2,548,000,000		$ 2,576,000,000
Fair value of long-term debt obligations			$ 2,507,000,000		$ 2,507,000,000
Total leverage ratio			240.00%		240.00%
Revolving Credit Facility, variable, due 2021
Debt Instrument [Line Items]
Maximum revolving credit facility								$ 550,000,000	$ 450,000,000
Available revolving credit facility			$ 533,000,000		$ 533,000,000
Maximum amount of letters of credit commitments available under the revolving credit facility			75,000,000		75,000,000
Letters of Credit			$ 17,000,000		$ 17,000,000
Maturity date of revolving credit borrowings					2021-09
Basis point reduction to applicable margin, resulting from total leverage ratio below minimum					0.25%
Basis point reduction to commitment fee, resulting from total leverage ratio below minimum					0.125%
Additional basis point reduction to applicable margin, resulting from total leverage ratio below minimum					0.25%
Revolving Credit Facility, variable, due 2021 \| greater of the prime lending rate or federal funds
Debt Instrument [Line Items]
Applicable margin over base rate					0.50%
Revolving Credit Facility, variable, due 2021 \| greater of the prime lending rate or federal funds \| Minimum
Debt Instrument [Line Items]
Applicable margin over base rate					0.75%
Debt instrument, floor rate					1.75%
Revolving Credit Facility, variable, due 2021 \| LIBOR
Debt Instrument [Line Items]
Applicable margin over base rate					1.75%
Senior Secured Credit Facility
Debt Instrument [Line Items]
Required senior secured leverage ratio			550.00%		550.00%
Achieved senior secured leverage ratio			103.00%		103.00%
Senior secured leverage ratio for applicable margin reduction			400.00%		400.00%
Total leverage ratio for applicable margin reduction			400.00%		400.00%
Total leverage ratio for commitment fee reduction			350.00%		350.00%
Senior Secured Credit Facility Term B-3 Loan, variable due 2022
Debt Instrument [Line Items]
Debt instrument maturity month and year					2022-09
Total long-term debt			$ 1,148,000,000		$ 1,148,000,000		$ 1,176,000,000
Change in applicable margin over base rate	0.25%	0.50%
Applicable margin over base rate				0.50%
Debt financing fees	$ 1,000,000	$ 1,000,000
Debt instrument effective interest rate			3.85%		3.85%
Principal payments on term loans					$ 3,000,000
Voluntary prepayments of principal amount			$ 25,000,000
Senior Secured Credit Facility Term B-3 Loan, variable due 2022 \| greater of the prime lending rate or federal funds \| Minimum
Debt Instrument [Line Items]
Applicable margin over base rate		1.00%		0.75%		1.75%
Debt instrument, floor rate				1.00%
Senior Secured Credit Facility Term B-3 Loan, variable due 2022 \| LIBOR
Debt Instrument [Line Items]
Applicable margin over base rate				1.75%
5.0% Senior Notes due 2024
Debt Instrument [Line Items]
Debt instrument maturity month and year					2024-09
Debt instrument, interest rate, stated percentage			5.00%		5.00%		5.00%
Total long-term debt			$ 1,000,000,000		$ 1,000,000,000		$ 1,000,000,000
4.75% Senior Notes due 2027
Debt Instrument [Line Items]
Debt instrument maturity month and year					2027-10
Debt instrument, interest rate, stated percentage			4.75%		4.75%		4.75%
Total long-term debt			$ 400,000,000		$ 400,000,000		$ 400,000,000

Derivatives - Additional Information (Detail) - USD ($)	6 Months Ended
Derivatives - Additional Information (Detail) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Accumulated comprehensive loss	$ (27,000,000)	$ (15,000,000)
Accumulated other comprehensive loss, be Reclassified During Next 12 Months	$ 0
Interest Rate Swap A [Member]
Derivative, Maturity Date, Range Start	2019-09
Derivative, Maturity Date, Range End	2022-09
Notional Amount	$ 250,000,000
Interest Rate Swap A [Member] \| LIBOR
Derivative, Fixed Interest Rate	3.01%
Interest Rate Swap B [Member]
Derivative, Maturity Date, Range Start	2019-09
Derivative, Maturity Date, Range End	2025-09
Notional Amount	$ 250,000,000
Interest Rate Swap B [Member] \| LIBOR
Derivative, Fixed Interest Rate	3.04%
Accumulated Derivatives Qualifying As Hedges
Accumulated comprehensive loss	$ (2,000,000)

Derivative Instruments and their Impact on the Financial Condition (Detail) - Derivatives designated as hedging instruments - Interest Rate Swaps $ in Millions	Jun. 30, 2018 USD ($)
Derivative [Line Items]
Total derivatives designated as hedging instruments	$ (2)
Other non-current liabilities
Derivative [Line Items]
Derivative Liability, Fair Value	$ (2)

Product Warranty Liabilities - Additional Information (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Guarantor Obligations [Line Items]
Product warranty liability, current	$ 28	$ 22	$ 21
Product warranty liability, non-current	$ 37	$ 33	$ 34

Product Warranty Liability Activities (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Guarantor Obligations [Line Items]
Beginning balance	$ 62	$ 58	$ 55	$ 63
Payments	(10)	(8)	(19)	(15)
Increase in liability (warranty issued during period)	12	5	21	9
Net adjustments to liability	1		8	(2)
Ending balance	$ 65	$ 55	$ 65	$ 55

Deferred Revenue - Additional Information (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Deferred Revenue Arrangement [Line Items]
Deferred revenue current liabilities	$ 38	$ 28
Deferred revenue non-current liabilities	87	68
Extended Transmission Coverage ("ETC")
Deferred Revenue Arrangement [Line Items]
Deferred revenue current liabilities	29	27
Deferred revenue non-current liabilities	$ 71	$ 68

- Definition

The carrying amount of consideration received or receivable as of the balance sheet date on potential earnings that were not recognized as revenue in conformity with GAAP, and which are expected to be recognized as such within one year or the normal operating cycle, if longer, including sales, license fees, and royalties, but excluding interest income.

+ References + Details

- Definition

The noncurrent portion of deferred revenue amount as of balance sheet date. Deferred revenue is a liability related to a revenue producing activity for which revenue has not yet been recognized, and is not expected to be recognized in the next twelve months. Generally, an entity records deferred revenue when it receives consideration from a customer before achieving certain criteria that must be met for revenue to be recognized in conformity with GAAP.

+ References + Details

Deferred Revenue Activity (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
Deferred Revenue Activity (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Deferred Revenue Arrangement [Line Items]
Beginning balance	$ 112	$ 96	$ 110	$ 94
Increases	23	6	33	14
Revenue earned	(10)	(6)	(18)	(12)
Ending balance	$ 125	$ 96	$ 125	$ 96

Summary of Other Current Liabilities (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2017
Other Current Liabilities [Line Items]
Payroll and related costs	$ 52	$ 73
Sales allowances	40	34
Accrued interest payable	18	19
Vendor buyback obligation	15	14
Taxes payable	14	10
Defense price reduction reserve	9	9
UAW Local 933 retirement incentive	6
Non-trade payables	3	8
Other accruals	9	16
Total	$ 166	$ 183

Components of Net Periodic Benefit Cost (credit) (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Pension Plans
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 3	$ 3	$ 6	$ 6
Interest cost	1	1	3	3
Expected return on assets	(2)	(2)	(4)	(4)
Net periodic benefit cost (credit)	2	2	5	5
Post-retirement Benefits
Defined Benefit Plan Disclosure [Line Items]
Service cost	1	1	1	1
Interest cost	1	1	2	3
Prior service cost	(4)	(1)	(7)	(2)
Net periodic benefit cost (credit)	$ (2)	$ 1	$ (4)	$ 2

Income Taxes - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Income Taxes [Line Items]
Income tax expense	$ 48	$ 51	$ 88	$ 95
Effective tax rate	22.00%	35.00%	21.00%	35.00%

Changes in Accumulated Other Comprehensive Loss by Component (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL			$ 689
Other comprehensive (loss) income before reclassifications	$ (14)	$ 4	(7)	$ 7
Amounts reclassified from AOCL	(4)	(1)	(7)	(2)
Income tax	2		2	1
Net current period other comprehensive (loss) income	(16)	3	(12)	6
Total AOCL	602		602
Accumulated Net Unrealized Investment Gain (Loss)
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL		(7)		(7)
Other comprehensive (loss) income before reclassifications				(1)
Income tax		(1)
Net current period other comprehensive (loss) income		(1)		(1)
Total AOCL		(8)		(8)
Accumulated Defined Benefit Plans Adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL	5	(19)	8	(18)
Amounts reclassified from AOCL	(4)	(1)	(7)	(2)
Income tax	2	1	2	1
Net current period other comprehensive (loss) income	(2)		(5)	(1)
Total AOCL	3	(19)	3	(19)
Accumulated Translation Adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL	(16)	(34)	(23)	(38)
Other comprehensive (loss) income before reclassifications	(12)	4	(5)	8
Net current period other comprehensive (loss) income	(12)	4	(5)	8
Total AOCL	(28)	(30)	(28)	(30)
Accumulated Other Comprehensive Loss, net of tax
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL	(11)	(60)	(15)	(63)
Total AOCL	(27)	$ (57)	(27)	$ (57)
Accumulated Derivatives Qualifying As Hedges
Accumulated Other Comprehensive Income (Loss) [Line Items]
Other comprehensive (loss) income before reclassifications	(2)		(2)
Net current period other comprehensive (loss) income	(2)		(2)
Total AOCL	$ (2)		$ (2)

Amounts reclassified from AOCL (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Accumulated Other Comprehensive Income (Loss) [Line Items]
Cost of sales	$ 337	$ 290	$ 658	$ 538
Selling, general and administrative	(93)	(88)	(185)	(167)
Income before income taxes	222	146	413	273
Income tax	(48)	(51)	(88)	(95)
Total reclassifications, net of tax	174	95	325	178
Reclassified from AOCL \| Prior service cost
Accumulated Other Comprehensive Income (Loss) [Line Items]
Cost of sales	3	1	6	2
Selling, general and administrative	1		1
Reclassified from AOCL \| Accumulated Defined Benefit Plans Adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Income before income taxes	4	1	7	2
Income tax	(2)	$ (1)	(2)	(1)
Total reclassifications, net of tax	$ 2		$ 5	$ 1

Commitments and Contingencies - Additional Information (Detail) $ in Millions	Jun. 30, 2018 USD ($)
Commitments and Contingencies Disclosure [Line Items]
Environmental liability	$ 13

Reconciliation of Numerators and Denominators Used to Calculate Basic EPS and Diluted EPS (Detail) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Computation of Earnings Per Share [Line Items]
Net income	$ 174	$ 95	$ 325	$ 178
Weighted average shares of common stock outstanding	134	151	137	154
Dilutive effect of stock-based awards	1	1		1
Diluted weighted average shares of common stock outstanding	135	152	137	155
Basic earnings per share attributable to common stockholders	$ 1.30	$ 0.63	$ 2.37	$ 1.16
Diluted earnings per share attributable to common stockholders	$ 1.29	$ 0.63	$ 2.37	$ 1.15

Common Stock - Additional Information (Detail) - 2016 Repurchase Program - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018	Nov. 08, 2017	Nov. 14, 2016
Common Stock Disclosure [Line Items]
Common stock, repurchases authorized	$ 184,000,000	$ 184,000,000
Stock repurchase program, authorized amount			$ 1,500,000,000	$ 1,000,000,000
Stock repurchase program, increase in authorized amount			$ 500,000,000
Common stock, repurchased during the period	$ 244,000,000	$ 370,000,000

Certain Relationships and Related Party Transactions - Additional Information (Detail) - ValueAct Capital Master Fund, L.P $ in Millions	Feb. 03, 2017 USD ($) shares
Related Party Transaction [Line Items]
Common stock repurchased during the period, shares \| shares	10,525,204
Common stock repurchased during the period, value \| $	$ 363
Repurchase agreement closing date	Feb. 08, 2017

Subsequent Events - Additional Information (Detail) - 2016 Repurchase Program - USD ($)	Jul. 30, 2018	Nov. 08, 2017	Nov. 14, 2016
Subsequent Event [Line Items]
Common stock repurchased during the period, value		$ 500,000,000
Stock repurchase program, authorized amount		$ 1,500,000,000	$ 1,000,000,000
Subsequent Event
Subsequent Event [Line Items]
Common stock repurchased during the period, value	$ 500,000,000
Stock repurchase program, authorized amount	$ 2,000,000,000