Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2017 | Oct. 17, 2017 | |
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2017 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | ALSN | |
Entity Registrant Name | ALLISON TRANSMISSION HOLDINGS INC | |
Entity Central Index Key | 1,411,207 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 141,760,746 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 |
Current Assets | ||
Cash and cash equivalents | $ 210 | $ 205 |
Accounts receivable | 271 | 197 |
Inventories | 156 | 126 |
Other current assets | 28 | 20 |
Total Current Assets | 665 | 548 |
Property, plant and equipment, net | 456 | 464 |
Intangible assets, net | 1,175 | 1,242 |
Goodwill | 1,941 | 1,941 |
Other non-current assets | 24 | 24 |
TOTAL ASSETS | 4,261 | 4,219 |
Current Liabilities | ||
Accounts payable | 184 | 128 |
Product warranty liability | 22 | 25 |
Current portion of long-term debt | 12 | 12 |
Deferred revenue | 33 | 27 |
Other current liabilities | 193 | 150 |
Total Current Liabilities | 444 | 342 |
Product warranty liability | 27 | 38 |
Deferred revenue | 75 | 66 |
Long-term debt | 2,536 | 2,147 |
Deferred income taxes | 393 | 312 |
Other non-current liabilities | 231 | 233 |
TOTAL LIABILITIES | 3,706 | 3,138 |
Commitments and contingencies (see NOTE N) | ||
STOCKHOLDERS' EQUITY | ||
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding | ||
Paid in capital | 1,750 | 1,728 |
Accumulated deficit | (1,144) | (586) |
Accumulated other comprehensive loss, net of tax | (52) | (63) |
TOTAL STOCKHOLDERS' EQUITY | 555 | 1,081 |
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY | 4,261 | 4,219 |
Voting Common Stock | ||
STOCKHOLDERS' EQUITY | ||
Common stock | 1 | 2 |
Non-voting Common Stock | ||
STOCKHOLDERS' EQUITY | ||
Common stock | $ 0 | $ 0 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Sep. 30, 2017 | Dec. 31, 2016 |
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 | 142,735,480 | 163,795,604 |
Common stock, shares outstanding | 142,735,480 | 163,795,604 |
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 Statemen
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Net sales | $ 595 | $ 434 | $ 1,674 | $ 1,371 |
Cost of sales | 293 | 230 | 831 | 725 |
Gross profit | 302 | 204 | 843 | 646 |
Selling, general and administrative | 78 | 79 | 245 | 240 |
Engineering - research and development | 26 | 21 | 74 | 64 |
Operating income | 198 | 104 | 524 | 342 |
Interest expense, net | (26) | (22) | (78) | (84) |
Expenses related to long-term debt refinancing | (12) | (12) | ||
Other (expense) income, net | (2) | 1 | (3) | 1 |
Income before income taxes | 170 | 71 | 443 | 247 |
Income tax expense | (59) | (26) | (154) | (93) |
Net income | $ 111 | $ 45 | $ 289 | $ 154 |
Basic earnings per share attributable to common stockholders | $ 0.75 | $ 0.27 | $ 1.91 | $ 0.91 |
Diluted earnings per share attributable to common stockholders | 0.75 | 0.27 | 1.90 | 0.91 |
Dividends declared per common share | $ 0.15 | $ 0.15 | $ 0.45 | $ 0.45 |
Comprehensive income, net of tax | $ 116 | $ 45 | $ 300 | $ 156 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $ 289 | $ 154 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Deferred income taxes | 72 | 80 |
Amortization of intangible assets | 67 | 69 |
Depreciation of property, plant and equipment | 60 | 63 |
Unrealized (gain) loss on derivatives | (10) | 10 |
Stock-based compensation | 8 | 6 |
Amortization of deferred financing costs | 4 | 6 |
Expenses related to long-term debt refinancing | 11 | |
Excess tax benefit from stock-based compensation | (16) | (2) |
Other | 5 | 2 |
Changes in assets and liabilities: | ||
Accounts receivable | (71) | (5) |
Inventories | (28) | (12) |
Accounts payable | 56 | 8 |
Other assets and liabilities | 40 | 26 |
Net cash provided by operating activities | 492 | 416 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Additions of long-lived assets | (40) | (36) |
Investments in technology-related initiatives | (3) | (1) |
Net cash used for investing activities | (43) | (37) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Repurchases of common stock | (778) | (169) |
Borrowings on revolving credit facility | 415 | |
Repayments on revolving credit facility | (415) | |
Issuance of long-term debt | 400 | 1,000 |
Dividend payments | (68) | (76) |
Proceeds from exercise of stock options | 14 | 9 |
Payments on long-term debt | (9) | (1,212) |
Debt financing fees | (5) | (19) |
Taxes paid related to net share settlement of equity awards | (1) | (1) |
Excess tax benefit from stock-based compensation | 2 | |
Net cash used for financing activities | (447) | (466) |
Effect of exchange rate changes on cash | 3 | |
Net increase (decrease) in cash and cash equivalents | 5 | (87) |
Cash and cash equivalents at beginning of period | 205 | 252 |
Cash and cash equivalents at end of period | 210 | 165 |
Supplemental disclosures: | ||
Interest paid | 71 | 64 |
Income taxes paid | $ 65 | $ 10 |
OVERVIEW
OVERVIEW | 9 Months Ended |
Sep. 30, 2017 | |
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 2,600 employees and 13 different transmission product lines. Although approximately 78% of revenues were generated in North America in 2016, 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 ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2017 | |
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 S-X. 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 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 postretirement 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. Impairment of Assets During the fourth quarter of every year, the Company performs additional reviews of its goodwill, other intangible assets and long-lived assets to determine whether the carrying value of an asset may not be recoverable. The Company has recorded impairments to both its Trade name and long-lived assets in prior periods with the most recent impairments recorded in 2015. The Company performs its annual goodwill and intangible assets impairment analysis on October 31 of every year. Events or circumstances that could unfavorably impact the key assumptions in the impairment test include lower net sales, the Company’s inability to execute on marketing programs and/or delay in the introduction of new products, lower gross margins or failure to obtain forecasted cost reductions, or a higher discount rate as a result of market conditions. The carrying value of long-lived assets is evaluated when events or circumstances indicate that there has been a significant change in the use of an asset, or the planned sale or disposal of an asset. The asset would be considered impaired when there is no future use planned for the asset or the future net undiscounted cash flows generated by the asset or asset group are less than its carrying value. An impairment loss would be recognized based on the amount by which the carrying value exceeds fair value. Assumptions and estimates used to determine cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in an impairment charge. Recently Adopted Accounting Pronouncements In January 2017, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance on evaluation of goodwill for impairment. The guidance modifies the approach to assessing impairment from testing the implied fair value goodwill to testing the fair value of the reporting unit carrying the goodwill, which eliminates Step 2 of the current evaluation guidance. The intent of this amendment is to reduce the cost and complexity of evaluating goodwill. The guidance was early adopted by the Company effective July 1, 2017. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements. In March 2016, the FASB issued authoritative accounting guidance on share-based payment awards to employees. The guidance involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance was adopted by the Company effective January 1, 2017. Management recorded an excess tax benefit of $5 million and $16 million to income tax expense and as a component of operating cash flows for the three months and nine months ended September 30, 2017, respectively, and made the accounting policy election to account for forfeitures as they occur. In July 2015, the FASB issued authoritative accounting guidance to simplify the measurement of inventory. The guidance requires that inventory be measured at the lower of cost and net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs. Inventory measured using last-in, first-out Recently Issued Accounting Pronouncements 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 will be effective for the Company in fiscal year 2018, but early adoption is permitted. Management is currently evaluating the impact of this guidance 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 postretirement 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 Company did not early adopt, therefore the guidance will be effective for the Company in fiscal year 2018. Management is currently evaluating the impact of this guidance on the Company’s consolidated financial statements. In October 2016, the FASB issued authoritative accounting guidance on the income tax consequences of intra-company transfers other than inventory. This guidance addresses the timing of the recognition of current and deferred income taxes. Under this guidance, the recognition of current or deferred income taxes will occur at the time of the transfer of the asset. The Company did not early adopt; therefore, the guidance will be effective for the Company in fiscal year 2018. Management is currently evaluating the impact of this guidance 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 Company did not early adopt; therefore, the guidance will be effective for the Company in fiscal year 2018. Management is currently evaluating the impact of this guidance on the Company’s consolidated financial statements. In February 2016, the FASB issued authoritative accounting guidance on lease accounting. The guidance requires lessees to present right-of-use In January 2016, the FASB issued authoritative accounting guidance on the classification of equity securities with readily determinable fair values into different categories (e.g. trading or available-for-sale) available-for-sale In May 2014, the FASB issued authoritative accounting guidance on a company’s accounting for revenue from contracts with customers, which guidance has subsequently been 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 allows either full or modified retrospective adoption. The Company did not early adopt; therefore, the guidance will be effective for the Company for the annual and interim periods beginning in fiscal year 2018. The Company will implement the guidance using the modified retrospective approach. Management has determined that the revenue streams that will be impacted by the guidance relate to non-standard |
INVENTORIES
INVENTORIES | 9 Months Ended |
Sep. 30, 2017 | |
INVENTORIES | NOTE C. INVENTORIES Inventories consisted of the following components (dollars in millions): September 30, December 31, Purchased parts and raw materials $ 72 $ 57 Work in progress 8 5 Service parts 46 43 Finished goods 30 21 Total inventories $ 156 $ 126 Inventory components shipped to third parties, primarily cores, parts to re-manufacturers, |
GOODWILL AND OTHER INTANGIBLE A
GOODWILL AND OTHER INTANGIBLE ASSETS | 9 Months Ended |
Sep. 30, 2017 | |
GOODWILL AND OTHER INTANGIBLE ASSETS | NOTE D. GOODWILL AND OTHER INTANGIBLE ASSETS As of September 30, 2017 and December 31, 2016, the carrying amount of the Company’s Goodwill was $1,941 million. The following presents a summary of other intangible assets (dollars in millions): September 30, 2017 December 31, 2016 Intangible Accumulated Intangible Intangible Accumulated Intangible Other intangible assets: Trade name $ 790 $ — $ 790 $ 790 $ — $ 790 Customer relationships — defense 62 (37 ) 25 62 (35 ) 27 Customer relationships — commercial 832 (562 ) 270 832 (526 ) 306 Proprietary technology 476 (386 ) 90 476 (358 ) 118 Non-compete 17 (17 ) — 17 (16 ) 1 Patented technology — defense 28 (28 ) — 28 (28 ) — Tooling rights 5 (5 ) — 5 (5 ) — Total $ 2,210 $ (1,035 ) $ 1,175 $ 2,210 $ (968 ) $ 1,242 As of September 30, 2017 and December 31, 2016, the net carrying value of our Goodwill and other intangible assets was $3,116 million and $3,183 million, respectively. Amortization expense related to other intangible assets for the next five fiscal years is expected to be (dollars in millions): 2018 2019 2020 2021 2022 Amortization expense $ 87 $ 86 $ 50 $ 45 $ 43 |
FAIR VALUE OF FINANCIAL INSTRUM
FAIR VALUE OF FINANCIAL INSTRUMENTS | 9 Months Ended |
Sep. 30, 2017 | |
FAIR VALUE OF FINANCIAL INSTRUMENTS | NOTE E. 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 September 30, 2017 and December 31, 2016, 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, available-for-sale available-for-sale The Company’s valuation techniques used to calculate the fair value of cash and cash equivalents, available-for-sale The Company uses valuations from the issuing financial institution for the fair value measurement of interest rate derivatives. The Company corroborates the valuation through the use of third-party valuation services using a standard replacement valuation model. The floating-to-fixed non-current The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of September 30, 2017 and December 31, 2016 (dollars in millions): Fair Value Measurements Using Quoted Prices in Active Significant Other TOTAL September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 Rabbi trust assets $ 8 $ 5 $ — $ — $ 8 $ 5 Deferred compensation obligation (8 ) (5 ) — — (8 ) (5 ) Cash equivalents — 81 — — — 81 Available-for-sale — 2 — — — 2 Derivative liabilities, net — — (19 ) (29 ) (19 ) (29 ) Total $ — $ 83 $ (19 ) $ (29 ) $ (19 ) $ 54 |
DEBT
DEBT | 9 Months Ended |
Sep. 30, 2017 | |
DEBT | NOTE F. DEBT Long-term debt and maturities are as follows (dollars in millions): September 30, December 31, Long-term debt: Senior Secured Credit Facility Term B-3 $ 1,179 $ 1,188 Senior Notes, fixed 5.0%, due 2024 1,000 1,000 Senior Notes, fixed 4.75%, due 2027 400 — Total long-term debt $ 2,579 $ 2,188 Less: current maturities of long-term debt 12 12 deferred financing costs, net 31 29 Total long-term debt, net $ 2,536 $ 2,147 As of September 30, 2017, the Company had $2,579 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 B-3 The fair value of the Company’s long-term debt obligations as of September 30, 2017 was $2,623 million. The fair value is based on quoted Level 2 market prices of the Company’s debt as of September 30, 2017. It is not expected that the Company would be able to repurchase a significant amount of its debt at these levels. The difference between the fair value and carrying value of the long-term debt is driven primarily by trends in the financial markets. 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 B-3 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. 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 all-in B-3 B-3 non-ordinary B-3 non-ordinary 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. Throughout the nine months ended September 30, 2017, the Company made periodic withdrawals and payments on the Revolving Credit Facility as part of its debt management plans. The maximum amount outstanding at any time during the nine months ended September 30, 2017 on the Revolving Credit Facility was $300 million. As of September 30, 2017, the Company had $533 million available under the Revolving Credit Facility, net of $17 million in letters of credit. Revolving credit 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 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 September 30, 2017, the Company had no revolving loans outstanding; however the Company would have been in compliance with the maximum total senior secured leverage ratio, achieving a 1.19x 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 would remain in effect as long as the Company achieves a total leverage ratio at or below the related threshold. As of September 30, 2017, the total leverage ratio was 2.90x. 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 September 30, 2017, the Company is 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 September 30, 2017, the Company is in compliance with all covenants under the indenture governing the 5.0% Senior Notes. 4.75% Senior Notes In September 2017, ATI completed an offering of $400 million of 4.75% Senior Notes. The 4.75% Senior Notes were offered in a private placement exempt from registration under the Securities Act of 1933, as amended. The proceeds from the offering were used for general corporate purposes and to pay related transaction fees and expenses. As a result of the offering, the Company recorded approximately $5 million as deferred financing fees in the Condensed Consolidated Balance Sheets. 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 September 30, 2017, the Company is in compliance with all covenants under the indenture governing the 4.75% Senior Notes. |
DERIVATIVES
DERIVATIVES | 9 Months Ended |
Sep. 30, 2017 | |
DERIVATIVES | NOTE G. DERIVATIVES The Company is exposed to certain financial risk from volatility in interest rates, foreign exchange rates and commodity prices. The risk is managed through the use of financial derivative instruments including interest rate swaps, foreign currency swaps and commodity swaps, when appropriate. The Company’s current derivative instruments are used strictly as an economic hedge and not for speculative purposes. As necessary, the Company adjusts the values of the derivative instruments for counter-party or credit risk. Interest Rate The Company is subject to interest rate risk related to the Senior Secured Credit Facility and enters into interest rate swap contracts that are based on the LIBOR to manage a portion of this exposure. The Company has not elected hedge accounting treatment for these derivatives, and as a result, fair value adjustments are charged directly to Interest expense, net in the Condensed Consolidated Statements of Comprehensive Income. A summary of the Company’s interest rate derivatives as of September 30, 2017 and December 31, 2016 follows (dollars in millions): September 30, 2017 December 31, 2016 Notional Fair Value Notional Fair Value 3.44% Interest Rate Swap L, Aug 2016 – Aug 2019* $ 75 $ (2 ) $ 75 $ (4 ) 3.43% Interest Rate Swap M, Aug 2016 – Aug 2019* 100 (3 ) 100 (5 ) 3.37% Interest Rate Swap N, Aug 2016 – Aug 2019* 75 (2 ) 75 (3 ) 3.19% Interest Rate Swap O, Aug 2016 – Aug 2019* 75 (2 ) 75 (3 ) 3.08% Interest Rate Swap P, Aug 2016 – Aug 2019* 75 (2 ) 75 (3 ) 2.99% Interest Rate Swap Q, Aug 2016 – Aug 2019* 50 (1 ) 50 (2 ) 2.98% Interest Rate Swap R, Aug 2016 – Aug 2019* 50 (1 ) 50 (2 ) 2.73% Interest Rate Swap S, Aug 2016 – Aug 2019* 50 (1 ) 50 (1 ) 2.74% Interest Rate Swap T, Aug 2016 – Aug 2019* 75 (2 ) 75 (2 ) 2.66% Interest Rate Swap U, Aug 2016 – Aug 2019* 50 (1 ) 50 (1 ) 2.60% Interest Rate Swap V, Aug 2016 – Aug 2019* 50 (1 ) 50 (1 ) 2.40% Interest Rate Swap W, Aug 2016 – Aug 2019* 25 — 25 (1 ) 2.25% Interest Rate Swap X, Aug 2016 – Aug 2019* 50 (1 ) 50 (1 ) * includes LIBOR floor of 1.00% $ 800 $ (19 ) $ 800 $ (29 ) The following tabular disclosures further describe the Company’s interest rate derivative instruments and their impact on the financial condition of the Company (dollars in millions): September 30, 2017 December 31, 2016 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Derivatives not designated as hedging instruments: Interest rate swaps Other current $ (10 ) Other current $ (11 ) Other non-current (9 ) Other non-current (18 ) Total derivatives not designated as hedging instruments $ (19 ) $ (29 ) The following tabular disclosure describes the location and impact on the Company’s results of operations related to unrealized gain (loss) on interest rate derivatives (dollars in millions): Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Location of impact on results of operations Interest expense, net $ 4 $ 3 $ 9 $ (12 ) |
PRODUCT WARRANTY LIABILITIES
PRODUCT WARRANTY LIABILITIES | 9 Months Ended |
Sep. 30, 2017 | |
PRODUCT WARRANTY LIABILITIES | NOTE H. PRODUCT WARRANTY LIABILITIES Product warranty liability activities consist of the following (dollars in millions): Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Beginning balance $ 55 $ 70 $ 63 $ 78 Payments (8 ) (7 ) (23 ) (26 ) Increase in liability (warranty issued during period) 4 4 13 12 Net adjustments to liability (2 ) 3 (4 ) 6 Ending balance $ 49 $ 70 $ 49 $ 70 As of September 30, 2017, the current and non-current non-current |
DEFERRED REVENUE
DEFERRED REVENUE | 9 Months Ended |
Sep. 30, 2017 | |
DEFERRED REVENUE | NOTE I. DEFERRED REVENUE As of September 30, 2017, the current and non-current non-current Deferred revenue activity consists of the following (dollars in millions): Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Beginning balance $ 96 $ 84 $ 94 $ 79 Increases 21 7 35 23 Revenue earned (9 ) (6 ) (21 ) (17 ) Ending balance $ 108 $ 85 $ 108 $ 85 Deferred revenue recorded in current and non-current non-current |
OTHER CURRENT LIABILITIES
OTHER CURRENT LIABILITIES | 9 Months Ended |
Sep. 30, 2017 | |
OTHER CURRENT LIABILITIES | NOTE J. OTHER CURRENT LIABILITIES Other current liabilities consist of the following (dollars in millions): As of 2017 As of Payroll and related costs $ 67 $ 52 Sales allowances 32 24 Accrued interest payable 28 17 Taxes payable 19 10 Vendor buyback obligation 13 13 Derivative liabilities 11 11 Defense price reduction reserve 9 9 Other accruals 14 14 Total $ 193 $ 150 |
EMPLOYEE BENEFIT PLANS
EMPLOYEE BENEFIT PLANS | 9 Months Ended |
Sep. 30, 2017 | |
EMPLOYEE BENEFIT PLANS | NOTE K. EMPLOYEE BENEFIT PLANS Components of net periodic benefit cost consist of the following (dollars in millions): Pension Plans Post-retirement Benefits Three months ended September 30, Three months ended September 30, 2017 2016 2017 2016 Net periodic benefit cost: Service cost $ 3 $ 3 $ — $ 1 Interest cost 1 2 2 1 Expected return on assets (1 ) (2 ) — — Prior service cost — — (1 ) (1 ) Net periodic benefit cost $ 3 $ 3 $ 1 $ 1 Pension Plans Post-retirement Benefits Nine months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Net periodic benefit cost: Service cost $ 9 $ 9 $ 1 $ 2 Interest cost 4 5 5 5 Expected return on assets (5 ) (5 ) — — Prior service cost — — (3 ) (3 ) Net periodic benefit cost $ 8 $ 9 $ 3 $ 4 |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Sep. 30, 2017 | |
INCOME TAXES | NOTE L. INCOME TAXES For the three and nine months ended September 30, 2017, the Company recorded total tax expense of $59 million and $154 million, respectively. The effective tax rate for both the three and nine months ended September 30, 2017 was 35%. For the three and nine months ended September 30, 2016, the Company recorded total tax expense of $26 million and $93 million, respectively. The effective tax rate for the three and nine months ended September 30, 2016 was 37% and 38%, respectively. The decrease in effective tax rate for the three and nine months ended September 30, 2017 was principally driven by increased U.S. income tax deductions and discrete activity related to excess tax benefit from stock-based compensation. The need to establish a valuation allowance against the deferred tax assets is assessed periodically based on a more-likely-than-not 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 September 30, 2017 and December 31, 2016. 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
ACCUMULATED OTHER COMPREHENSIVE LOSS | 9 Months Ended |
Sep. 30, 2017 | |
ACCUMULATED OTHER COMPREHENSIVE LOSS | NOTE M. ACCUMULATED OTHER COMPREHENSIVE LOSS The following tables reconcile changes in Accumulated other comprehensive loss (“AOCL”) by component (net of tax, dollars in millions): Three months ended Available-for- sale securities Defined Foreign Total AOCL as of June 30, 2016 $ (6 ) $ (21 ) $ (30 ) $ (57 ) Other comprehensive loss before reclassifications — — 1 1 Amounts reclassified from AOCL — (1 ) — (1 ) Income tax — — — — Net current period other comprehensive (loss) income $ — $ (1 ) $ 1 $ — AOCL as of September 30, 2016 $ (6 ) $ (22 ) $ (29 ) $ (57 ) AOCL as of June 30, 2017 $ (8 ) $ (19 ) $ (30 ) $ (57 ) Other comprehensive (loss) income before reclassifications (1 ) — 6 5 Amounts reclassified from AOCL — (1 ) — (1 ) Income tax 1 — — 1 Net current period other comprehensive (loss) income $ — $ (1 ) $ 6 $ 5 AOCL as of September 30, 2017 $ (8 ) $ (20 ) $ (24 ) $ (52 ) Nine months ended Available-for- sale securities Defined Foreign Total AOCL as of December 31, 2015 $ (6 ) $ (20 ) $ (33 ) $ (59 ) Other comprehensive loss before reclassifications — — 4 4 Amounts reclassified from AOCL — (3 ) — (3 ) Income tax — 1 — 1 Net current period other comprehensive (loss) income $ — $ (2 ) $ 4 $ 2 AOCL as of September 30, 2016 $ (6 ) $ (22 ) $ (29 ) $ (57 ) AOCL as of December 31, 2016 $ (7 ) $ (18 ) $ (38 ) $ (63 ) Other comprehensive (loss) income before reclassifications (2 ) — 14 12 Amounts reclassified from AOCL — (3 ) — (3 ) Income tax 1 1 — 2 Net current period other comprehensive (loss) income $ (1 ) $ (2 ) $ 14 $ 11 AOCL as of September 30, 2017 $ (8 ) $ (20 ) $ (24 ) $ (52 ) Amounts reclassified from AOCL Affected line item in the Condensed Consolidated AOCL Components Three months Three months Amortization of defined benefit pension items: Prior service cost $ 1 $ 1 Cost of sales Total reclassifications, before tax $ 1 $ 1 Income before income taxes Income tax — — Income tax expense Total reclassifications $ 1 $ 1 Net of tax Amounts reclassified from AOCL AOCL Components Nine months Nine months Affected line item in the Condensed Consolidated Amortization of defined benefit pension items: Prior service cost $ 3 $ 3 Cost of sales Total reclassifications, before tax $ 3 $ 3 Income before income taxes Income tax (1 ) (1 ) Income tax expense Total reclassifications $ 2 $ 2 Net of tax Prior service cost is included in the computation of the Company’s net periodic benefit cost. Please see NOTE K “Employee Benefit Plans” for additional details. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2017 | |
COMMITMENTS AND CONTINGENCIES | NOTE N. 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 September 30, 2017, 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
EARNINGS PER SHARE | 9 Months Ended |
Sep. 30, 2017 | |
EARNINGS PER SHARE | NOTE O. 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, compensation cost for future service that the Company has not yet recognized and any tax benefits generated when the award generates a tax deduction. If there would be a shortfall, such an amount would be a reduction of the proceeds to the extent of the gains. The diluted weighted-average common shares outstanding exclude the anti-dilutive effect of certain stock options since such options had an exercise price in excess of the monthly average market value of our common stock. For each of the three months and nine months ended September 30, 2017, 0.2 million outstanding stock options were not included in the diluted EPS calculation because they were anti-dilutive. For each of the three months and nine months ended September 30, 2016, 0.6 million outstanding stock options were not included in 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 September 30, Nine months ended September 30, 2017 2016 2017 2016 Net income $ 111 $ 45 $ 289 $ 154 Weighted average shares of common stock outstanding 146 167 152 169 Dilutive effect stock-based awards 1 1 1 1 Diluted weighted average shares of common stock outstanding 147 168 153 170 Basic earnings per share attributable to common stockholders $ 0.75 $ 0.27 $ 1.91 $ 0.91 Diluted earnings per share attributable to common stockholders $ 0.75 $ 0.27 $ 1.90 $ 0.91 |
COMMON STOCK
COMMON STOCK | 9 Months Ended |
Sep. 30, 2017 | |
COMMON STOCK | NOTE P. COMMON STOCK The Company’s current stock repurchase program was announced on November 14, 2016. 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. 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 nine months ended September 30, 2017, the Company repurchased approximately $239 million and $778 million, respectively, of its common stock under the repurchase program. |
CERTAIN RELATIONSHIPS AND RELAT
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS | 9 Months Ended |
Sep. 30, 2017 | |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS | NOTE Q. 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. |
SUMMARY OF SIGNIFICANT ACCOUN23
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2017 | |
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 S-X. 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 |
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 postretirement 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. |
Impairment of Assets | Impairment of Assets During the fourth quarter of every year, the Company performs additional reviews of its goodwill, other intangible assets and long-lived assets to determine whether the carrying value of an asset may not be recoverable. The Company has recorded impairments to both its Trade name and long-lived assets in prior periods with the most recent impairments recorded in 2015. The Company performs its annual goodwill and intangible assets impairment analysis on October 31 of every year. Events or circumstances that could unfavorably impact the key assumptions in the impairment test include lower net sales, the Company’s inability to execute on marketing programs and/or delay in the introduction of new products, lower gross margins or failure to obtain forecasted cost reductions, or a higher discount rate as a result of market conditions. The carrying value of long-lived assets is evaluated when events or circumstances indicate that there has been a significant change in the use of an asset, or the planned sale or disposal of an asset. The asset would be considered impaired when there is no future use planned for the asset or the future net undiscounted cash flows generated by the asset or asset group are less than its carrying value. An impairment loss would be recognized based on the amount by which the carrying value exceeds fair value. Assumptions and estimates used to determine cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in an impairment charge. |
Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements In January 2017, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance on evaluation of goodwill for impairment. The guidance modifies the approach to assessing impairment from testing the implied fair value goodwill to testing the fair value of the reporting unit carrying the goodwill, which eliminates Step 2 of the current evaluation guidance. The intent of this amendment is to reduce the cost and complexity of evaluating goodwill. The guidance was early adopted by the Company effective July 1, 2017. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements. In March 2016, the FASB issued authoritative accounting guidance on share-based payment awards to employees. The guidance involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance was adopted by the Company effective January 1, 2017. Management recorded an excess tax benefit of $5 million and $16 million to income tax expense and as a component of operating cash flows for the three months and nine months ended September 30, 2017, respectively, and made the accounting policy election to account for forfeitures as they occur. In July 2015, the FASB issued authoritative accounting guidance to simplify the measurement of inventory. The guidance requires that inventory be measured at the lower of cost and net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs. Inventory measured using last-in, first-out |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements 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 will be effective for the Company in fiscal year 2018, but early adoption is permitted. Management is currently evaluating the impact of this guidance 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 postretirement 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 Company did not early adopt, therefore the guidance will be effective for the Company in fiscal year 2018. Management is currently evaluating the impact of this guidance on the Company’s consolidated financial statements. In October 2016, the FASB issued authoritative accounting guidance on the income tax consequences of intra-company transfers other than inventory. This guidance addresses the timing of the recognition of current and deferred income taxes. Under this guidance, the recognition of current or deferred income taxes will occur at the time of the transfer of the asset. The Company did not early adopt; therefore, the guidance will be effective for the Company in fiscal year 2018. Management is currently evaluating the impact of this guidance 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 Company did not early adopt; therefore, the guidance will be effective for the Company in fiscal year 2018. Management is currently evaluating the impact of this guidance on the Company’s consolidated financial statements. In February 2016, the FASB issued authoritative accounting guidance on lease accounting. The guidance requires lessees to present right-of-use In January 2016, the FASB issued authoritative accounting guidance on the classification of equity securities with readily determinable fair values into different categories (e.g. trading or available-for-sale) available-for-sale In May 2014, the FASB issued authoritative accounting guidance on a company’s accounting for revenue from contracts with customers, which guidance has subsequently been 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 allows either full or modified retrospective adoption. The Company did not early adopt; therefore, the guidance will be effective for the Company for the annual and interim periods beginning in fiscal year 2018. The Company will implement the guidance using the modified retrospective approach. Management has determined that the revenue streams that will be impacted by the guidance relate to non-standard |
INVENTORIES (Tables)
INVENTORIES (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Components of Inventories | Inventories consisted of the following components (dollars in millions): September 30, December 31, Purchased parts and raw materials $ 72 $ 57 Work in progress 8 5 Service parts 46 43 Finished goods 30 21 Total inventories $ 156 $ 126 |
GOODWILL AND OTHER INTANGIBLE25
GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Summary of Other Intangible Assets | The following presents a summary of other intangible assets (dollars in millions): September 30, 2017 December 31, 2016 Intangible Accumulated Intangible Intangible Accumulated Intangible Other intangible assets: Trade name $ 790 $ — $ 790 $ 790 $ — $ 790 Customer relationships — defense 62 (37 ) 25 62 (35 ) 27 Customer relationships — commercial 832 (562 ) 270 832 (526 ) 306 Proprietary technology 476 (386 ) 90 476 (358 ) 118 Non-compete 17 (17 ) — 17 (16 ) 1 Patented technology — defense 28 (28 ) — 28 (28 ) — Tooling rights 5 (5 ) — 5 (5 ) — Total $ 2,210 $ (1,035 ) $ 1,175 $ 2,210 $ (968 ) $ 1,242 |
Amortization Expense Related to Other Intangible Assets for Next Five Fiscal Years and Thereafter | Amortization expense related to other intangible assets for the next five fiscal years is expected to be (dollars in millions): 2018 2019 2020 2021 2022 Amortization expense $ 87 $ 86 $ 50 $ 45 $ 43 |
FAIR VALUE OF FINANCIAL INSTR26
FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
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 September 30, 2017 and December 31, 2016 (dollars in millions): Fair Value Measurements Using Quoted Prices in Active Significant Other TOTAL September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 Rabbi trust assets $ 8 $ 5 $ — $ — $ 8 $ 5 Deferred compensation obligation (8 ) (5 ) — — (8 ) (5 ) Cash equivalents — 81 — — — 81 Available-for-sale — 2 — — — 2 Derivative liabilities, net — — (19 ) (29 ) (19 ) (29 ) Total $ — $ 83 $ (19 ) $ (29 ) $ (19 ) $ 54 |
DEBT (Tables)
DEBT (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Summary of Long-Term Debt and Maturities | Long-term debt and maturities are as follows (dollars in millions): September 30, December 31, Long-term debt: Senior Secured Credit Facility Term B-3 $ 1,179 $ 1,188 Senior Notes, fixed 5.0%, due 2024 1,000 1,000 Senior Notes, fixed 4.75%, due 2027 400 — Total long-term debt $ 2,579 $ 2,188 Less: current maturities of long-term debt 12 12 deferred financing costs, net 31 29 Total long-term debt, net $ 2,536 $ 2,147 |
DERIVATIVES (Tables)
DERIVATIVES (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Summary of Company's Interest Rate Derivatives | A summary of the Company’s interest rate derivatives as of September 30, 2017 and December 31, 2016 follows (dollars in millions): September 30, 2017 December 31, 2016 Notional Fair Value Notional Fair Value 3.44% Interest Rate Swap L, Aug 2016 – Aug 2019* $ 75 $ (2 ) $ 75 $ (4 ) 3.43% Interest Rate Swap M, Aug 2016 – Aug 2019* 100 (3 ) 100 (5 ) 3.37% Interest Rate Swap N, Aug 2016 – Aug 2019* 75 (2 ) 75 (3 ) 3.19% Interest Rate Swap O, Aug 2016 – Aug 2019* 75 (2 ) 75 (3 ) 3.08% Interest Rate Swap P, Aug 2016 – Aug 2019* 75 (2 ) 75 (3 ) 2.99% Interest Rate Swap Q, Aug 2016 – Aug 2019* 50 (1 ) 50 (2 ) 2.98% Interest Rate Swap R, Aug 2016 – Aug 2019* 50 (1 ) 50 (2 ) 2.73% Interest Rate Swap S, Aug 2016 – Aug 2019* 50 (1 ) 50 (1 ) 2.74% Interest Rate Swap T, Aug 2016 – Aug 2019* 75 (2 ) 75 (2 ) 2.66% Interest Rate Swap U, Aug 2016 – Aug 2019* 50 (1 ) 50 (1 ) 2.60% Interest Rate Swap V, Aug 2016 – Aug 2019* 50 (1 ) 50 (1 ) 2.40% Interest Rate Swap W, Aug 2016 – Aug 2019* 25 — 25 (1 ) 2.25% Interest Rate Swap X, Aug 2016 – Aug 2019* 50 (1 ) 50 (1 ) * includes LIBOR floor of 1.00% $ 800 $ (19 ) $ 800 $ (29 ) |
Derivative Instruments and their Impact on the Financial Condition | The following tabular disclosures further describe the Company’s interest rate derivative instruments and their impact on the financial condition of the Company (dollars in millions): September 30, 2017 December 31, 2016 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Derivatives not designated as hedging instruments: Interest rate swaps Other current $ (10 ) Other current $ (11 ) Other non-current (9 ) Other non-current (18 ) Total derivatives not designated as hedging instruments $ (19 ) $ (29 ) |
Summary of Unrealized Gain (Loss) on Interest Rate Derivatives | The following tabular disclosure describes the location and impact on the Company’s results of operations related to unrealized gain (loss) on interest rate derivatives (dollars in millions): Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Location of impact on results of operations Interest expense, net $ 4 $ 3 $ 9 $ (12 ) |
PRODUCT WARRANTY LIABILITIES (T
PRODUCT WARRANTY LIABILITIES (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Product Warranty Liability Activities | Product warranty liability activities consist of the following (dollars in millions): Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Beginning balance $ 55 $ 70 $ 63 $ 78 Payments (8 ) (7 ) (23 ) (26 ) Increase in liability (warranty issued during period) 4 4 13 12 Net adjustments to liability (2 ) 3 (4 ) 6 Ending balance $ 49 $ 70 $ 49 $ 70 |
DEFERRED REVENUE (Tables)
DEFERRED REVENUE (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Deferred Revenue Activity | Deferred revenue activity consists of the following (dollars in millions): Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Beginning balance $ 96 $ 84 $ 94 $ 79 Increases 21 7 35 23 Revenue earned (9 ) (6 ) (21 ) (17 ) Ending balance $ 108 $ 85 $ 108 $ 85 |
OTHER CURRENT LIABILITIES (Tabl
OTHER CURRENT LIABILITIES (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Summary of Other Current Liabilities | Other current liabilities consist of the following (dollars in millions): As of 2017 As of Payroll and related costs $ 67 $ 52 Sales allowances 32 24 Accrued interest payable 28 17 Taxes payable 19 10 Vendor buyback obligation 13 13 Derivative liabilities 11 11 Defense price reduction reserve 9 9 Other accruals 14 14 Total $ 193 $ 150 |
EMPLOYEE BENEFIT PLANS (Tables)
EMPLOYEE BENEFIT PLANS (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Components of Net Periodic Benefit Cost | Components of net periodic benefit cost consist of the following (dollars in millions): Pension Plans Post-retirement Benefits Three months ended September 30, Three months ended September 30, 2017 2016 2017 2016 Net periodic benefit cost: Service cost $ 3 $ 3 $ — $ 1 Interest cost 1 2 2 1 Expected return on assets (1 ) (2 ) — — Prior service cost — — (1 ) (1 ) Net periodic benefit cost $ 3 $ 3 $ 1 $ 1 Pension Plans Post-retirement Benefits Nine months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Net periodic benefit cost: Service cost $ 9 $ 9 $ 1 $ 2 Interest cost 4 5 5 5 Expected return on assets (5 ) (5 ) — — Prior service cost — — (3 ) (3 ) Net periodic benefit cost $ 8 $ 9 $ 3 $ 4 |
ACCUMULATED OTHER COMPREHENSI33
ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Changes in Accumulated Other Comprehensive Loss by Component | The following tables reconcile changes in Accumulated other comprehensive loss (“AOCL”) by component (net of tax, dollars in millions): Three months ended Available-for- sale securities Defined Foreign Total AOCL as of June 30, 2016 $ (6 ) $ (21 ) $ (30 ) $ (57 ) Other comprehensive loss before reclassifications — — 1 1 Amounts reclassified from AOCL — (1 ) — (1 ) Income tax — — — — Net current period other comprehensive (loss) income $ — $ (1 ) $ 1 $ — AOCL as of September 30, 2016 $ (6 ) $ (22 ) $ (29 ) $ (57 ) AOCL as of June 30, 2017 $ (8 ) $ (19 ) $ (30 ) $ (57 ) Other comprehensive (loss) income before reclassifications (1 ) — 6 5 Amounts reclassified from AOCL — (1 ) — (1 ) Income tax 1 — — 1 Net current period other comprehensive (loss) income $ — $ (1 ) $ 6 $ 5 AOCL as of September 30, 2017 $ (8 ) $ (20 ) $ (24 ) $ (52 ) Nine months ended Available-for- sale securities Defined Foreign Total AOCL as of December 31, 2015 $ (6 ) $ (20 ) $ (33 ) $ (59 ) Other comprehensive loss before reclassifications — — 4 4 Amounts reclassified from AOCL — (3 ) — (3 ) Income tax — 1 — 1 Net current period other comprehensive (loss) income $ — $ (2 ) $ 4 $ 2 AOCL as of September 30, 2016 $ (6 ) $ (22 ) $ (29 ) $ (57 ) AOCL as of December 31, 2016 $ (7 ) $ (18 ) $ (38 ) $ (63 ) Other comprehensive (loss) income before reclassifications (2 ) — 14 12 Amounts reclassified from AOCL — (3 ) — (3 ) Income tax 1 1 — 2 Net current period other comprehensive (loss) income $ (1 ) $ (2 ) $ 14 $ 11 AOCL as of September 30, 2017 $ (8 ) $ (20 ) $ (24 ) $ (52 ) Amounts reclassified from AOCL Affected line item in the Condensed Consolidated AOCL Components Three months Three months Amortization of defined benefit pension items: Prior service cost $ 1 $ 1 Cost of sales Total reclassifications, before tax $ 1 $ 1 Income before income taxes Income tax — — Income tax expense Total reclassifications $ 1 $ 1 Net of tax Amounts reclassified from AOCL AOCL Components Nine months Nine months Affected line item in the Condensed Consolidated Amortization of defined benefit pension items: Prior service cost $ 3 $ 3 Cost of sales Total reclassifications, before tax $ 3 $ 3 Income before income taxes Income tax (1 ) (1 ) Income tax expense Total reclassifications $ 2 $ 2 Net of tax |
EARNINGS PER SHARE (Tables)
EARNINGS PER SHARE (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
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 September 30, Nine months ended September 30, 2017 2016 2017 2016 Net income $ 111 $ 45 $ 289 $ 154 Weighted average shares of common stock outstanding 146 167 152 169 Dilutive effect stock-based awards 1 1 1 1 Diluted weighted average shares of common stock outstanding 147 168 153 170 Basic earnings per share attributable to common stockholders $ 0.75 $ 0.27 $ 1.91 $ 0.91 Diluted earnings per share attributable to common stockholders $ 0.75 $ 0.27 $ 1.90 $ 0.91 |
Overview - Additional Informati
Overview - Additional Information (Detail) | 9 Months Ended |
Sep. 30, 2017EmployeeCustomerProduct | |
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 | 2,600 |
Sales Revenue, Net | North America | Geographic Concentration Risk | |
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items] | |
Concentration of risk, percentage | 78.00% |
Summary of Significant Accoun36
Summary of Significant Accounting Policies - Additional Information (Detail) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2017 | Sep. 30, 2016 | |
Summary Of Significant Accounting Policies [Line Items] | |||
Excess tax benefit from stock-based compensation | $ 5 | $ 16 | $ 2 |
Components of Inventories (Deta
Components of Inventories (Detail) - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 |
Inventory [Line Items] | ||
Purchased parts and raw materials | $ 72 | $ 57 |
Work in progress | 8 | 5 |
Service parts | 46 | 43 |
Finished goods | 30 | 21 |
Total inventories | $ 156 | $ 126 |
Goodwill and Other Intangible38
Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 |
Goodwill [Line Items] | ||
Goodwill | $ 1,941 | $ 1,941 |
Net carrying value of Goodwill and other intangible assets | $ 3,116 | $ 3,183 |
Summary of Other Intangible Ass
Summary of Other Intangible Assets (Detail) - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 |
Goodwill and Intangible Assets Disclosure [Line Items] | ||
Trade name | $ 790 | $ 790 |
Intangible assets, gross | 2,210 | 2,210 |
Accumulated amortization | (1,035) | (968) |
Intangible assets, net | 1,175 | 1,242 |
Customer relationships - defense | ||
Goodwill and Intangible Assets Disclosure [Line Items] | ||
Intangible assets, gross | 62 | 62 |
Accumulated amortization | (37) | (35) |
Intangible assets, net | 25 | 27 |
Customer relationships - commercial | ||
Goodwill and Intangible Assets Disclosure [Line Items] | ||
Intangible assets, gross | 832 | 832 |
Accumulated amortization | (562) | (526) |
Intangible assets, net | 270 | 306 |
Proprietary technology | ||
Goodwill and Intangible Assets Disclosure [Line Items] | ||
Intangible assets, gross | 476 | 476 |
Accumulated amortization | (386) | (358) |
Intangible assets, net | 90 | 118 |
Non-compete agreement | ||
Goodwill and Intangible Assets Disclosure [Line Items] | ||
Intangible assets, gross | 17 | 17 |
Accumulated amortization | (17) | (16) |
Intangible assets, net | 1 | |
Patented technology - defense | ||
Goodwill and Intangible Assets Disclosure [Line Items] | ||
Intangible assets, gross | 28 | 28 |
Accumulated amortization | (28) | (28) |
Tooling rights | ||
Goodwill and Intangible Assets Disclosure [Line Items] | ||
Intangible assets, gross | 5 | 5 |
Accumulated amortization | $ (5) | $ (5) |
Amortization Expense Related to
Amortization Expense Related to Other Intangible Assets for Next Five Fiscal Years and Thereafter (Detail) $ in Millions | Sep. 30, 2017USD ($) |
Finite-Lived Intangible Assets | |
2,018 | $ 87 |
2,019 | 86 |
2,020 | 50 |
2,021 | 45 |
2,022 | $ 43 |
Fair Value of Financial Instr41
Fair Value of Financial Instruments - Additional Information (Detail) - Fair Value, Inputs, Level 3 [Member] - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
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 Financ
Summary of Fair Value of Financial Assets and (Liabilities) (Detail) - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Rabbi trust assets | $ 8 | $ 5 |
Deferred compensation obligation | (8) | (5) |
Cash equivalents | 81 | |
Available-for-sale securities | 2 | |
Derivative liabilities, net | (19) | (29) |
Total | (19) | 54 |
Quoted Prices in Active Markets for Identical Assets (Level 1) | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Rabbi trust assets | 8 | 5 |
Deferred compensation obligation | (8) | (5) |
Cash equivalents | 81 | |
Available-for-sale securities | 2 | |
Total | 83 | |
Significant Other Observable Inputs (Level 2) | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Derivative liabilities, net | (19) | (29) |
Total | $ (19) | $ (29) |
Summary of Long-Term Debt and M
Summary of Long-Term Debt and Maturities (Detail) - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 |
Debt Instrument [Line Items] | ||
Total long-term debt | $ 2,579 | $ 2,188 |
Less: current maturities of long-term debt | 12 | 12 |
deferred financing costs, net | 31 | 29 |
Total long-term debt, net | 2,536 | 2,147 |
Senior Secured Credit Facility Term B-3 Loan, variable due 2022 | ||
Debt Instrument [Line Items] | ||
Total long-term debt | 1,179 | 1,188 |
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 | |
deferred financing costs, net | $ 5 |
Summary of Long-Term Debt and44
Summary of Long-Term Debt and Maturities (Parenthetical) (Detail) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2017 | Dec. 31, 2016 | |
Senior Secured Credit Facility Term B-3 Loan, variable due 2022 | ||
Debt Instrument [Line Items] | ||
Debt instrument, due date | 2,022 | 2,022 |
5.0% Senior Notes due 2024 | ||
Debt Instrument [Line Items] | ||
Debt instrument, stated interest rate | 5.00% | 5.00% |
Debt instrument, due date | 2,024 | 2,024 |
4.75% Senior Notes due 2027 | ||
Debt Instrument [Line Items] | ||
Debt instrument, stated interest rate | 4.75% | |
Debt instrument, due date | 2,027 |
Debt - Additional Information (
Debt - Additional Information (Detail) - USD ($) | 1 Months Ended | 9 Months Ended | 12 Months Ended | |
Mar. 31, 2017 | Sep. 30, 2017 | Dec. 31, 2016 | Aug. 31, 2017 | |
Debt Instrument [Line Items] | ||||
Total long-term debt | $ 2,579,000,000 | $ 2,188,000,000 | ||
Fair value of long-term debt obligations | $ 2,623,000,000 | |||
Total leverage ratio | 290.00% | |||
deferred financing costs, net | $ 31,000,000 | 29,000,000 | ||
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 | |||
Maximum amount of letters of credit commitments available under the revolving credit facility | 75,000,000 | |||
Revolving credit facility, maximum amount outstanding | 300,000,000 | |||
Letters of Credit | $ 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 Loans Outstanding | $ 0 | |||
Revolving Credit Facility, variable, due 2021 | LIBOR | ||||
Debt Instrument [Line Items] | ||||
Applicable margin over base rate | 1.75% | |||
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% | |||
Senior Secured Credit Facility | ||||
Debt Instrument [Line Items] | ||||
Required senior secured leverage ratio | 550.00% | |||
Achieved senior secured leverage ratio | 119.00% | |||
Senior secured leverage ratio for applicable margin reduction | 400.00% | |||
Total leverage ratio for applicable margin reduction | 400.00% | |||
Total leverage ratio for commitment fee reduction | 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 | $ 1,179,000,000 | $ 1,188,000,000 | ||
Debt financing fees | $ 1,000,000 | |||
Debt instrument effective interest rate | 3.24% | |||
Principal payments on term loans | $ 3,000,000 | |||
Senior Secured Credit Facility Term B-3 Loan, variable due 2022 | Federal Funds Rate | ||||
Debt Instrument [Line Items] | ||||
Applicable margin over base rate | 0.50% | 0.50% | ||
Senior Secured Credit Facility Term B-3 Loan, variable due 2022 | Base Rate | Minimum | ||||
Debt Instrument [Line Items] | ||||
Applicable margin over base rate | 1.00% | 1.75% | ||
Senior Secured Credit Facility Term B-3 Loan, variable due 2022 | LIBOR | ||||
Debt Instrument [Line Items] | ||||
Applicable margin over base rate | 2.00% | |||
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% | |||
Debt instrument, floor rate | 1.00% | |||
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% | ||
Total long-term debt | $ 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% | |||
Total long-term debt | $ 400,000,000 | |||
deferred financing costs, net | $ 5,000,000 |
Summary of Company's Interest R
Summary of Company's Interest Rate Derivatives (Detail) - Derivatives not designated as hedging instruments - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 | |
Derivatives, Fair Value [Line Items] | |||
Fair Value | $ (19,000,000) | $ (29,000,000) | |
Interest Rate Swap L | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 75,000,000 | 75,000,000 |
Fair Value | [1] | (2,000,000) | (4,000,000) |
Interest Rate Swap M | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 100,000,000 | 100,000,000 |
Fair Value | [1] | (3,000,000) | (5,000,000) |
Interest Rate Swap N | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 75,000,000 | 75,000,000 |
Fair Value | [1] | (2,000,000) | (3,000,000) |
Interest Rate Swap O | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 75,000,000 | 75,000,000 |
Fair Value | [1] | (2,000,000) | (3,000,000) |
Interest Rate Swap P | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 75,000,000 | 75,000,000 |
Fair Value | [1] | (2,000,000) | (3,000,000) |
Interest Rate Swap Q | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 50,000,000 | 50,000,000 |
Fair Value | [1] | (1,000,000) | (2,000,000) |
Interest Rate Swap R | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 50,000,000 | 50,000,000 |
Fair Value | [1] | (1,000,000) | (2,000,000) |
Interest Rate Swap S | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 50,000,000 | 50,000,000 |
Fair Value | [1] | (1,000,000) | (1,000,000) |
Interest Rate Swap T | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 75,000,000 | 75,000,000 |
Fair Value | [1] | (2,000,000) | (2,000,000) |
Interest Rate Swap U | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 50,000,000 | 50,000,000 |
Fair Value | [1] | (1,000,000) | (1,000,000) |
Interest Rate Swap V | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 50,000,000 | 50,000,000 |
Fair Value | [1] | (1,000,000) | (1,000,000) |
Interest Rate Swap W | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 25,000,000 | 25,000,000 |
Fair Value | [1] | (1,000,000) | |
Interest Rate Swap X | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | [1] | 50,000,000 | 50,000,000 |
Fair Value | [1] | (1,000,000) | (1,000,000) |
Interest Rate Swaps | |||
Derivatives, Fair Value [Line Items] | |||
Notional Amount | $ 800,000,000 | $ 800,000,000 | |
[1] | includes LIBOR floor of 1.00% |
Summary of Company's Interest47
Summary of Company's Interest Rate Derivatives (Parenthetical) (Detail) - Derivatives not designated as hedging instruments | 9 Months Ended | |
Sep. 30, 2017 | Dec. 31, 2016 | |
LIBOR | ||
Derivatives, Fair Value [Line Items] | ||
LIBOR floor | 1.00% | 1.00% |
Interest Rate Swap L | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 3.44% | 3.44% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap M | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 3.43% | 3.43% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap N | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 3.37% | 3.37% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap O | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 3.19% | 3.19% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap P | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 3.08% | 3.08% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap Q | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 2.99% | 2.99% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap R | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 2.98% | 2.98% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap S | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 2.73% | 2.73% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap T | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 2.74% | 2.74% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap U | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 2.66% | 2.66% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap V | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 2.60% | 2.60% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap W | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 2.40% | 2.40% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 | |
Interest Rate Swap X | ||
Derivatives, Fair Value [Line Items] | ||
Derivative, Fixed Interest Rate | 2.25% | 2.25% |
Derivative, Maturity Date, Range Start | 2016-08 | |
Derivative, Maturity Date, Range End | 2019-08 |
Derivative Instruments and thei
Derivative Instruments and their Impact on the Financial Condition (Detail) - Derivatives not designated as hedging instruments - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 |
Derivative [Line Items] | ||
Total derivatives not designated as hedging instruments | $ (19) | $ (29) |
Interest Rate Swaps | Other current liabilities | ||
Derivative [Line Items] | ||
Derivative Liability, Fair Value | (10) | (11) |
Interest Rate Swaps | Other non-current liabilities | ||
Derivative [Line Items] | ||
Derivative Liability, Fair Value | $ (9) | $ (18) |
Summary of Unrealized Gain (Los
Summary of Unrealized Gain (Loss) on Interest Rate Derivatives (Detail) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Derivative [Line Items] | ||||
Unrealized (loss) gain on derivatives | $ 10 | $ (10) | ||
Derivatives not designated as hedging instruments | Interest rate contracts | Interest Expense, Net | ||||
Derivative [Line Items] | ||||
Unrealized (loss) gain on derivatives | $ 4 | $ 3 | $ 9 | $ (12) |
Product Warranty Liability Acti
Product Warranty Liability Activities (Detail) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Guarantor Obligations [Line Items] | ||||
Beginning balance | $ 55 | $ 70 | $ 63 | $ 78 |
Payments | (8) | (7) | (23) | (26) |
Increase in liability (warranty issued during period) | 4 | 4 | 13 | 12 |
Net adjustments to liability | (2) | 3 | (4) | 6 |
Ending balance | $ 49 | $ 70 | $ 49 | $ 70 |
Product Warranty Liabilities -
Product Warranty Liabilities - Additional Information (Detail) - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 | Sep. 30, 2016 |
Guarantor Obligations [Line Items] | |||
Product warranty liability, current | $ 22 | $ 25 | $ 28 |
Product warranty liability, non-current | $ 27 | $ 38 | $ 42 |
Deferred Revenue - Additional I
Deferred Revenue - Additional Information (Detail) - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 | Sep. 30, 2016 |
Deferred Revenue Arrangement [Line Items] | |||
Deferred revenue current liabilities | $ 33 | $ 27 | $ 24 |
Deferred revenue non-current liabilities | 75 | $ 66 | 61 |
ETC | |||
Deferred Revenue Arrangement [Line Items] | |||
Deferred revenue current liabilities | 29 | 24 | |
Deferred revenue non-current liabilities | $ 70 | $ 61 |
Deferred Revenue Activity (Deta
Deferred Revenue Activity (Detail) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Deferred Revenue Arrangement [Line Items] | ||||
Beginning balance | $ 96 | $ 84 | $ 94 | $ 79 |
Increases | 21 | 7 | 35 | 23 |
Revenue earned | (9) | (6) | (21) | (17) |
Ending balance | $ 108 | $ 85 | $ 108 | $ 85 |
Summary of Other Current Liabil
Summary of Other Current Liabilities (Detail) - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 |
Other Current Liabilities [Line Items] | ||
Payroll and related costs | $ 67 | $ 52 |
Sales allowances | 32 | 24 |
Accrued interest payable | 28 | 17 |
Taxes payable | 19 | 10 |
Vendor buyback obligation | 13 | 13 |
Derivative liabilities | 11 | 11 |
Defense price reduction reserve | 9 | 9 |
Other accruals | 14 | 14 |
Total | $ 193 | $ 150 |
Components of Net Periodic Bene
Components of Net Periodic Benefit Cost (Detail) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Pension Plans | ||||
Defined Benefit Plan Disclosure [Line Items] | ||||
Service cost | $ 3 | $ 3 | $ 9 | $ 9 |
Interest cost | 1 | 2 | 4 | 5 |
Expected return on assets | (1) | (2) | (5) | (5) |
Prior service cost | 0 | 0 | 0 | 0 |
Net periodic benefit cost | 3 | 3 | 8 | 9 |
Post-retirement Benefits | ||||
Defined Benefit Plan Disclosure [Line Items] | ||||
Service cost | 1 | 1 | 2 | |
Interest cost | 2 | 1 | 5 | 5 |
Prior service cost | (1) | (1) | (3) | (3) |
Net periodic benefit cost | $ 1 | $ 1 | $ 3 | $ 4 |
Income Taxes - Additional Infor
Income Taxes - Additional Information (Detail) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Income Taxes [Line Items] | ||||
Income tax expense | $ 59 | $ 26 | $ 154 | $ 93 |
Effective tax rate | 35.00% | 37.00% | 35.00% | 38.00% |
Income tax examination statute of limitations description | Generally three years from the later of the date of filing or the due date of the return |
Changes in Accumulated Other Co
Changes in Accumulated Other Comprehensive Loss by Component (Detail) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Beginning balance of AOCL | $ 1,081 | |||
Other comprehensive (loss) income before reclassifications | $ 5 | $ 1 | 12 | $ 4 |
Amounts reclassified from AOCL | (1) | (1) | (3) | (3) |
Income tax | 1 | 0 | 2 | 1 |
Net current period other comprehensive (loss) income | 5 | 0 | 11 | 2 |
Total AOCL | 555 | 555 | ||
Accumulated Net Unrealized Investment Gain (Loss) | ||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Beginning balance of AOCL | (8) | (6) | (7) | (6) |
Other comprehensive (loss) income before reclassifications | (1) | 0 | (2) | 0 |
Income tax | 1 | 0 | 1 | 0 |
Net current period other comprehensive (loss) income | 0 | 0 | (1) | 0 |
Total AOCL | (8) | (6) | (8) | (6) |
Accumulated defined benefit plans adjustment | ||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Beginning balance of AOCL | (19) | (21) | (18) | (20) |
Amounts reclassified from AOCL | (1) | (1) | (3) | (3) |
Income tax | 0 | 0 | 1 | 1 |
Net current period other comprehensive (loss) income | (1) | (1) | (2) | (2) |
Total AOCL | (20) | (22) | (20) | (22) |
Accumulated Translation Adjustment | ||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Beginning balance of AOCL | (30) | (30) | (38) | (33) |
Other comprehensive (loss) income before reclassifications | 6 | 1 | 14 | 4 |
Net current period other comprehensive (loss) income | 6 | 1 | 14 | 4 |
Total AOCL | (24) | (29) | (24) | (29) |
Accumulated Other Comprehensive Income (Loss), net of tax | ||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Beginning balance of AOCL | (57) | (57) | (63) | (59) |
Total AOCL | $ (52) | $ (57) | $ (52) | $ (57) |
Amounts reclassified from AOCL
Amounts reclassified from AOCL (Detail) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Cost of sales | $ 293 | $ 230 | $ 831 | $ 725 |
Total reclassifications, before tax | 170 | 71 | 443 | 247 |
Income tax expense | (59) | (26) | (154) | (93) |
Total reclassifications | 111 | 45 | 289 | 154 |
Reclassified from AOCL | Prior service cost | ||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Cost of sales | 1 | 1 | 3 | 3 |
Reclassified from AOCL | Accumulated defined benefit plans adjustment | ||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Total reclassifications, before tax | 1 | 1 | 3 | 3 |
Income tax expense | 0 | 0 | (1) | (1) |
Total reclassifications | $ 1 | $ 1 | $ 2 | $ 2 |
Commitments and Contingencies -
Commitments and Contingencies - Additional Information (Detail) $ in Millions | Sep. 30, 2017USD ($) |
Commitments and Contingencies Disclosure [Line Items] | |
Environmental liability | $ 13 |
Earnings Per Share - Additional
Earnings Per Share - Additional Information (Detail) - shares shares in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Stock options not included in the diluted EPS computation | 0.2 | 0.6 | 0.2 | 0.6 |
Reconciliation of Numerators an
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 | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Computation of Earnings Per Share [Line Items] | ||||
Net income | $ 111 | $ 45 | $ 289 | $ 154 |
Weighted average shares of common stock outstanding | 146 | 167 | 152 | 169 |
Dilutive effect stock-based awards | 1 | 1 | 1 | 1 |
Diluted weighted average shares of common stock outstanding | 147 | 168 | 153 | 170 |
Basic earnings per share attributable to common stockholders | $ 0.75 | $ 0.27 | $ 1.91 | $ 0.91 |
Diluted earnings per share attributable to common stockholders | $ 0.75 | $ 0.27 | $ 1.90 | $ 0.91 |
Common Stock - Additional Infor
Common Stock - Additional Information (Detail) - USD ($) | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2017 | Nov. 14, 2016 | |
Common Stock Disclosure [Line Items] | |||
Common stock, repurchases authorized | $ 1,000,000,000 | ||
Common stock, repurchased during the period | $ 239,000,000 | $ 778,000,000 |
Certain Relationships and Rel63
Certain Relationships and Related Party Transactions - Additional Information (Detail) - USD ($) $ in Millions | Feb. 03, 2017 | Sep. 30, 2017 | Sep. 30, 2017 |
Related Party Transaction [Line Items] | |||
Common stock repurchased during the period, value | $ 239 | $ 778 | |
ValueAct Capital Master Fund, L.P | |||
Related Party Transaction [Line Items] | |||
Common stock repurchased during the period, shares | 10,525,204 | ||
Common stock repurchased during the period, value | $ 363 | ||
Repurchase agreement closing date | Feb. 8, 2017 |