Allison Transmission (ALSN) 10-Q 1 May 18 2018 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2018	Apr. 16, 2018
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2,018
Document Fiscal Period Focus	Q1
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		137,413,790

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017
Current Assets
Cash and cash equivalents	$ 195	$ 199
Accounts receivable - net of allowance for doubtful accounts of $1 and $0, respectively	312	221
Inventories	172	154
Income taxes receivable	10	33
Other current assets	27	25
Total Current Assets	716	632
Property, plant and equipment, net	440	448
Intangible assets, net	1,131	1,153
Goodwill	1,941	1,941
Other non-current assets	32	31
TOTAL ASSETS	4,260	4,205
Current Liabilities
Accounts payable	203	159
Product warranty liability	24	22
Current portion of long-term debt	12	12
Deferred revenue	40	41
Other current liabilities	157	183
Total Current Liabilities	436	417
Product warranty liability	38	33
Deferred revenue	72	75
Long-term debt	2,532	2,534
Deferred income taxes	289	276
Other non-current liabilities	187	181
TOTAL LIABILITIES	3,554	3,516
Commitments and contingencies (see NOTE O)
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding
Paid in capital	1,762	1,758
Accumulated deficit	(1,046)	(1,055)
Accumulated other comprehensive loss, net of tax	(11)	(15)
TOTAL STOCKHOLDERS' EQUITY	706	689
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	4,260	4,205
Voting Common Stock
STOCKHOLDERS' EQUITY
Common stock	1	1
Non-voting Common Stock
STOCKHOLDERS' EQUITY
Common stock	$ 0	$ 0

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017
Allowance for doubtful accounts receivables	$ 1	$ 0
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	100,000,000	100,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Voting Common Stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	1,880,000,000	1,880,000,000
Common stock, shares issued	137,474,990	139,990,865
Common stock, shares outstanding	137,474,990	139,990,865
Non-voting Common Stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	0	0
Common stock, shares outstanding	0	0

Condensed Consolidated Statemen

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Net sales	$ 663	$ 499
Cost of sales	321	248
Gross profit	342	251
Selling, general and administrative	92	79
Engineering - research and development	28	23
Operating income	222	149
Interest expense, net	(30)	(25)
Other (expense) income, net	(1)	3
Income before income taxes	191	127
Income tax expense	(40)	(44)
Net income	$ 151	$ 83
Basic earnings per share attributable to common stockholders	$ 1.09	$ 0.53
Diluted earnings per share attributable to common stockholders	1.08	0.52
Dividends declared per common share	$ 0.15	$ 0.15
Comprehensive income, net of tax	$ 155	$ 86

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 151	$ 83
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets	22	22
Depreciation of property, plant and equipment	20	19
Deferred income taxes	12	25
Stock-based compensation	3	2
Amortization of deferred financing costs	2	1
Unrealized gain on derivatives		(5)
Other	2	(2)
Changes in assets and liabilities:
Accounts receivable	(90)	(52)
Inventories	(16)	(16)
Accounts payable	44	30
Other assets and liabilities	3	4
Net cash provided by operating activities	153	111
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of long-lived assets	(10)	(8)
Net cash used for investing activities	(10)	(8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock	(125)	(415)
Dividend payments	(21)	(23)
Proceeds from exercise of stock options	3	7
Payments on long-term debt	(3)	(3)
Taxes paid related to net share settlement of equity awards	(2)	(1)
Debt financing fees	(1)	1
Borrowings on revolving credit facility		300
Repayments on revolving credit facility		(55)
Net cash used for financing activities	(149)	(189)
Effect of exchange rate changes on cash	2	1
Net decrease in cash and cash equivalents	(4)	(85)
Cash and cash equivalents at beginning of period	199	205
Cash and cash equivalents at end of period	195	120
Supplemental disclosures:
Interest paid	10	14
Income taxes paid	$ 1	$ 3

OVERVIEW

OVERVIEW	3 Months Ended
	Mar. 31, 2018
OVERVIEW	NOTE A. OVERVIEW Overview Allison Transmission Holdings, Inc. and its subsidiaries (“Allison” or the “Company”) design and manufacture commercial and defense fully automatic transmissions. The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception. Allison was an operating unit of General Motors Corporation from 1929 until 2007, when Allison once again became a stand-alone company. In March 2012, Allison began trading on the New York Stock Exchange under the symbol, “ALSN”. The Company has approximately 2,700 employees and 13 different transmission product lines. Although approximately 79% of revenues were generated in North America in 2017, the Company has a global presence by serving customers in Europe, Asia, South America and Africa. The Company serves customers through an independent network of approximately 1,400 independent distributor and dealer locations worldwide.

SUMMARY OF SIGNIFICANT ACCOUNTI

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	3 Months Ended
	Mar. 31, 2018
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q 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 post-retirement benefit expense, income taxes and deferred tax valuation allowances, and contingencies. The Company’s accounting policies involve the application of judgments and assumptions made by management that include inherent risks and uncertainties. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur. Recently Adopted Accounting Pronouncements In May 2017, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance on accounting for modifications to the terms of employee stock compensation. The guidance clarifies which changes to terms or conditions of share-based payment awards require the entity to apply modification accounting. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements. In March 2017, the FASB issued authoritative accounting guidance on the presentation of net periodic pension costs and net periodic post-retirement benefit costs. The guidance clarifies the presentation of component costs within an employer’s financial statements and restricts component costs eligible for capitalization to the service cost component. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements. In August 2016, the FASB issued authoritative accounting guidance on the presentation and classification of certain cash receipts and cash payments on the statement of cash flows. The guidance specifically addresses cash flow issues with the objective of reducing the diversity in practice. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements. In May 2014, the FASB issued authoritative accounting guidance on a company’s accounting for revenue from contracts with customers, which guidance 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 was adopted by the Company effective January 1, 2018 on a modified retrospective basis. See Note C, “Revenue”, for information regarding the impact of the adoption of this guidance. Recently Issued Accounting Pronouncements In February 2018, the FASB issued authoritative accounting guidance on transfers of stranded balances in accumulated other comprehensive loss to retained earnings. The passage of the U.S. Tax Cuts and Jobs Act (“Tax Act”) by the U.S. federal government in December 2017 and existing GAAP requirements to adjust deferred tax assets and liabilities for changes in tax laws or rates created stranded balances in accumulated other comprehensive loss on deferred tax assets and liabilities previously recorded as a component to accumulated other comprehensive loss. The guidance applies to companies affected by these stranded balances and allows a reclassification of these balances to retained earnings. The guidance will be effective for the Company in fiscal year 2019, but early adoption is permitted. The guidance can be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. 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

REVENUE

REVENUE	3 Months Ended
	Mar. 31, 2018
REVENUE	NOTE C. REVENUE Adoption of New Revenue Guidance New authoritative accounting guidance for revenue was adopted by the Company effective January 1, 2018 using the modified retrospective approach. Current period results are presented in conformity with the new authoritative accounting guidance, while prior period results are presented in conformity with prior accounting guidance. In accordance with the modified retrospective approach, the Company recorded a one-time non-current During the first quarter of 2018, the Company increased Net Sales by $1 million and decreased non-current Under the new authoritative accounting guidance for revenue, revenue is recognized as each distinct performance obligation within a contract is satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company enters into long-term supply agreements (“LTSAs”) and distributor agreements with certain customers. The LTSAs and distributor agreements do not include committed volumes until underlying purchase orders are issued; therefore, the Company determined that purchase orders are the contract with a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied, as there is no right of return. Many of the Company’s contracts have a single performance obligation, as the promise to transfer the individual good or service is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Some of our contracts have multiple performance obligations, most commonly the sale of both a transmission and ETC. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using a ratable allocation based on the standalone selling price of each distinct good or service in the contract. The Company also may use volume based discounts and rebates as marketing incentives in the sales of both transmissions and service parts, which are accounted for as variable consideration. The Company records the impact of the incentives as a reduction to revenue when it is determined that the adjustment is not likely to reverse, historically on a quarterly basis. Due to the typically short duration of purchase orders and minimal number of open contracts with variable consideration at any point in time, the impact of variable consideration is immaterial. If it were to become material, the Company would explain the methods, assumptions and estimates used to determine the consideration allocated to each performance obligation. The Company estimates the impact of all other incentives based on the related sales and market conditions in the end market vocation. Net sales are made on credit terms, generally 30 days, based on an assessment of the customer’s creditworthiness. For certain goods or services, the Company receives consideration prior to satisfying the related performance obligation. Such consideration is recorded as a contract liability in current and non-current Disaggregated Revenue The Company has one operating segment and reportable segment. The Company is in one line of business, which is the manufacture and distribution of fully automatic transmissions. The following presents disaggregated revenue by categories that best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors (dollars in millions): Three months North America On-Highway $ 315 North America Electric Hybrid-Propulsion Systems for Transit Bus 24 North America Off-Highway 33 Defense 37 Outside North America On-Highway 91 Outside North America Off-Highway 12 Service Parts, Support Equipment and Other 151 Total Net Sales $ 663 Disaggregated revenue by end market is further described as follows: North America On-Highway Revenue from the North America On-Highway Class 4-5, Class 6-7 North America Electric Hybrid-Propulsion Systems for Transit Bus Revenue from the North America Electric Hybrid-Propulsion System end market is driven by sales to OEMs that integrate the Company’s specialized transmissions, battery packs and dual power inverter modules into an electric hybrid-propulsion system. End users typically include city, state and federal governmental entities. Revenue is recognized at the point time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company. North America Off-Highway Revenue from the North America Off-Highway Defense Revenue from the Defense end market is driven by sales of transmissions to the U.S. Government or its contractors and sales to certain government contractors outside of North America for use in both wheeled and tracked defense vehicle applications. Revenue is recognized at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company. Periodically, the Company and the U.S. Government will enter into a bill-and-hold Outside North America On-Highway Revenue from the Outside North America On-Highway Outside North America Off-Highway Revenue from the Outside North America Off-Highway Service Parts, Support Equipment and Other Revenue from the Service Parts, Support Equipment and Other end market is primarily derived from the sale of Allison branded replacement parts and fluid purchased for the normal maintenance and repair needs of products in service and the sale of ETC contracts which extend the warranty coverages of transmissions beyond the standard warranty period. Revenue is recognized on sales of service parts and support equipment at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company. Revenue from the sale of ETC contracts is recognized ratably over the time period that corresponds with the period of coverage, as the Company has determined this method best depicts the progress towards satisfaction of its performance obligation. ETC contracts are sold in one to five year durations within the North America On-Highway, On-Highway, Off-Highway, Off-Highway

INVENTORIES

INVENTORIES	3 Months Ended
	Mar. 31, 2018
INVENTORIES	NOTE D. INVENTORIES Inventories consisted of the following components (dollars in millions): March 31, 2018 December 31, 2017 Purchased parts and raw materials $ 84 $ 79 Work in progress 8 6 Service parts 48 46 Finished goods 32 23 Total inventories $ 172 $ 154 Inventory components shipped to third parties, primarily cores, parts to re-manufacturers,

GOODWILL AND OTHER INTANGIBLE A

GOODWILL AND OTHER INTANGIBLE ASSETS	3 Months Ended
	Mar. 31, 2018
GOODWILL AND OTHER INTANGIBLE ASSETS	NOTE E. GOODWILL AND OTHER INTANGIBLE ASSETS As of March 31, 2018 and December 31, 2017, the carrying amount of the Company’s Goodwill was $1,941 million. The following presents a summary of other intangible assets (dollars in millions): March 31, 2018 December 31, 2017 Intangible Accumulated Intangible Intangible Accumulated Intangible assets, net Other intangible assets: Trade name $ 790 $ — $ 790 $ 790 $ — $ 790 Customer relationships — commercial 832 (585 ) 247 832 (573 ) 259 Proprietary technology 476 (406 ) 70 476 (396 ) 80 Customer relationships — defense 62 (38 ) 24 62 (38 ) 24 Patented technology — defense 28 (28 ) — 28 (28 ) — Non-compete 17 (17 ) — 17 (17 ) — Tooling rights 5 (5 ) — 5 (5 ) — Total $ 2,210 $ (1,079 ) $ 1,131 $ 2,210 $ (1,057 ) $ 1,153 As of March 31, 2018 and December 31, 2017, the net carrying value of the Company’s Goodwill and Other intangible assets, net was $3,072 million and $3,094 million, respectively. Amortization expense related to other intangible assets for the next five fiscal years is expected to be (dollars in millions): 2019 2020 2021 2022 2023 Amortization expense $ 86 $ 50 $ 45 $ 43 $ 42

FAIR VALUE OF FINANCIAL INSTRUM

FAIR VALUE OF FINANCIAL INSTRUMENTS	3 Months Ended
	Mar. 31, 2018
FAIR VALUE OF FINANCIAL INSTRUMENTS	NOTE F. FAIR VALUE OF FINANCIAL INSTRUMENTS In accordance with the FASB’s authoritative accounting guidance on fair value measurements, fair value is the price (exit price) that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company primarily applies the market approach for recurring fair value measurements and utilizes the best available information that maximizes the use of observable inputs and minimizes the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs. The accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by the relevant guidance are as follows: Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and publicly traded bonds. Level 2 — Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes financial instruments that are valued using quoted prices in markets that are not active and those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. As of March 31, 2018 and December 31, 2017, the Company did not have any Level 2 financial assets or liabilities. 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 March 31, 2018 and December 31, 2017, the Company did not have any Level 3 financial assets or liabilities. The Company’s assets and liabilities that are measured at fair value include cash equivalents, assets held in a rabbi trust and a deferred compensation obligation. The Company’s cash equivalents consist of short-term U.S. government backed securities. The Company’s assets held in the rabbi trust consist principally of publicly available mutual funds and target date retirement funds. The Company’s deferred compensation obligation is directly related to the fair value of assets held in the rabbi trust. The Company’s valuation techniques used to calculate the fair value of cash and cash equivalents, assets held in the rabbi trust and the deferred compensation obligation represent a market approach in active markets for identical assets that qualify as Level 1 in the fair value hierarchy. The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of March 31, 2018 and December 31, 2017 (dollars in millions): Quoted Prices in Active March 31, 2018 December 31, Cash equivalents $ 40 $ 50 Rabbi trust assets 10 8 Deferred compensation obligation (10 ) (8 ) Total $ 40 $ 50

DEBT

DEBT	3 Months Ended
	Mar. 31, 2018
DEBT	NOTE G. DEBT Long-term debt and maturities are as follows (dollars in millions): March 31, December 31, Long-term debt: Senior Secured Credit Facility Term B-3 $ 1,173 $ 1,176 Senior Notes, fixed 5.0%, due 2024 1,000 1,000 Senior Notes, fixed 4.75%, due 2027 400 400 Total long-term debt $ 2,573 $ 2,576 Less: current maturities of long-term debt 12 12 deferred financing costs, net 29 30 Total long-term debt, net $ 2,532 $ 2,534 As of March 31, 2018, the Company had $2,573 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 March 31, 2018 was $2,547 million. The fair value is based on quoted Level 2 market prices of the Company’s debt as of March 31, 2018. 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. In March 2018, ATI entered into an amendment with the term loan lenders under its Senior Secured Credit Facility to lower the applicable margins on the Term B-3 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. As of March 31, 2018, 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 March 31, 2018, 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 1.03x ratio. Additionally, within the terms of the Senior Secured Credit Facility, a senior secured leverage ratio at or below 4.00x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. The Senior Secured Credit Facility also provides certain financial incentives based on our total leverage ratio. A total leverage ratio at or below 4.00x results in a 25 basis point reduction to the applicable margin on the Revolving Credit Facility, and a total leverage ratio at or below 3.50x results in a 12.5 basis point reduction to the Revolving Credit Facility commitment fee and an additional 25 basis point reduction to the applicable margin on the Revolving Credit Facility. These reductions would remain in effect as long as the Company achieves a total leverage ratio at or below the related threshold. As of March 31, 2018, the Company’s total leverage ratio was 2.50x. 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 March 31, 2018, 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 March 31, 2018, the Company is in compliance with all covenants under the indenture governing the 5.0% Senior Notes. 4.75% Senior Notes The 4.75% Senior Notes are unsecured and are guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the Senior Secured Credit Facility and are unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the Senior Secured Credit Facility. None of ATI’s domestic subsidiaries currently guarantee its obligations under the Senior Secured Credit Facility, and therefore none of ATI’s domestic subsidiaries currently guarantee the 4.75% Senior Notes. The indenture governing the 4.75% Senior Notes contains negative covenants restricting or limiting the Company’s ability to, among other things: incur or guarantee additional indebtedness, incur liens, pay dividends on, redeem or repurchase the Company’s capital stock, make certain investments, permit payment or dividend restrictions on certain of the Company’s subsidiaries, sell assets, engage in certain transactions with affiliates, and consolidate or merge or sell all or substantially all of the Company’s assets. As of March 31, 2018, the Company was in compliance with all covenants under the indenture governing the 4.75% Senior Notes.

DERIVATIVES

DERIVATIVES	3 Months Ended
	Mar. 31, 2018
DERIVATIVES	NOTE H. 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. Derivative instruments are used strictly as an economic hedge and not for speculative purposes. In December 2017, the Company terminated its interest rate swap contracts. As of March 31, 2018 and December 31, 2017, the notional amount and fair value of the Company’s interest rate derivatives was zero. 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 March 31, 2018 2017 Location of impact on results of operations Interest income $ — $ 4

PRODUCT WARRANTY LIABILITIES

PRODUCT WARRANTY LIABILITIES	3 Months Ended
	Mar. 31, 2018
PRODUCT WARRANTY LIABILITIES	NOTE I. PRODUCT WARRANTY LIABILITIES Product warranty liability activities consist of the following (dollars in millions): Three months ended March 31, 2018 2017 Beginning balance $ 55 $ 63 Payments (9 ) (7 ) Increase in liability (warranty issued during period) 9 4 Net adjustments to liability 7 (2 ) Ending balance $ 62 $ 58 As of March 31, 2018, the current and non-current non-current

DEFERRED REVENUE

DEFERRED REVENUE	3 Months Ended
	Mar. 31, 2018
DEFERRED REVENUE	NOTE J. DEFERRED REVENUE As of March 31, 2018, current and non-current non-current Deferred revenue activity consists of the following (dollars in millions): Three months ended March 31, 2018 2017 Beginning balance $ 110 $ 94 Increases 10 8 Revenue earned (8 ) (6 ) Ending balance $ 112 $ 96 Deferred revenue recorded in current and non-current non-current

OTHER CURRENT LIABILITIES

OTHER CURRENT LIABILITIES	3 Months Ended
	Mar. 31, 2018
OTHER CURRENT LIABILITIES	NOTE K. OTHER CURRENT LIABILITIES Other current liabilities consist of the following (dollars in millions): As of As of Accrued interest payable $ 36 $ 19 Sales allowances 31 34 Payroll and related costs 29 73 Vendor buyback obligation 14 14 Taxes payable 13 10 Defense price reduction reserve 9 9 UAW Local 933 retirement incentive 6 — Non-trade 4 8 Other accruals 15 16 Total $ 157 $ 183

EMPLOYEE BENEFIT PLANS

EMPLOYEE BENEFIT PLANS	3 Months Ended
	Mar. 31, 2018
EMPLOYEE BENEFIT PLANS	NOTE L. EMPLOYEE BENEFIT PLANS Components of net periodic benefit cost (credit) consist of the following (dollars in millions): Pension Plans Post-retirement Benefits Three months ended March 31, Three months ended March 31, 2018 2017 2018 2017 Net periodic benefit cost: Service cost $ 3 $ 3 $ — $ — Interest cost 2 2 1 2 Expected return on assets (2 ) (2 ) — — Prior service cost — — (3 ) (1 ) Net periodic benefit cost (credit) $ 3 $ 3 $ (2 ) $ 1 The components of net periodic benefit costs other than the service cost component are included in the line item “Other (expense) income, net” in the Condensed Consolidated Statements of Comprehensive Income.

INCOME TAXES

INCOME TAXES	3 Months Ended
	Mar. 31, 2018
INCOME TAXES	NOTE M. INCOME TAXES For the three months ended March 31, 2018 and 2017, the Company recorded total tax expense of $40 million and $44 million, respectively. The effective tax rate for the three months ended March 31, 2018 and 2017 was 21% and 35%, respectively. The decrease in the effective tax rate was principally driven by the U.S. Tax Cuts and Jobs Act enacted into law in 2017. In 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. The Company recognized the income tax effects of the Tax Act for the year ended December 31, 2017, the reporting period in which the Tax Act was signed into law, in accordance with SAB 118. As such, the Company’s financial results reflect the income tax effects of the Tax Act and provisional amounts for those specific income tax effects of the Tax Act that could be reasonably estimated. During the three months ended March 31, 2018, there were no changes made to the provisional amounts recognized in 2017. The Company will continue to analyze the effects of the Tax Act and any impact on its financial statements will be recorded in the period identified. The need to establish a valuation allowance against the deferred tax assets is assessed periodically based on a more-likely-than-not 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 March 31, 2018 and December 31, 2017. The accounting guidance prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. All of the Company’s returns will remain subject to examination by the various taxing authorities for the duration of the applicable statute of limitations (generally three years from the later of the date of filing or the due date of the return).

ACCUMULATED OTHER COMPREHENSIVE

ACCUMULATED OTHER COMPREHENSIVE LOSS	3 Months Ended
	Mar. 31, 2018
ACCUMULATED OTHER COMPREHENSIVE LOSS	NOTE N. 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- Defined Foreign Total AOCL as of December 31, 2016 $ (7 ) $ (18 ) $ (38 ) $ (63 ) Other comprehensive (loss) income before reclassifications (1 ) — 4 3 Amounts reclassified from AOCL — (1 ) — (1 ) Income tax 1 — — 1 Net current period other comprehensive (loss) income $ — $ (1 ) $ 4 $ 3 AOCL as of March 31, 2017 $ (7 ) $ (19 ) $ (34 ) $ (60 ) AOCL as of December 31, 2017 $ — $ 8 $ (23 ) $ (15 ) Other comprehensive (loss) income before reclassifications — — 7 7 Amounts reclassified from AOCL — (3 ) — (3 ) Income tax — — — — Net current period other comprehensive (loss) income $ — $ (3 ) $ 7 $ 4 AOCL as of March 31, 2018 $ — $ 5 $ (16 ) $ (11 ) Amounts reclassified from AOCL Affected line item in the Condensed AOCL Components Three months ended March 31, 2018 Three months March 31, 2017 Amortization of benefit items: Prior service cost $ 3 $ 1 Cost of sales Total reclassifications, before tax $ 3 $ 1 Income before income taxes Total reclassifications, net of tax $ 3 $ 1 Prior service cost is included in the computation of the Company’s net periodic benefit cost. See NOTE L, “Employee Benefit Plans” for additional details.

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES	3 Months Ended
	Mar. 31, 2018
COMMITMENTS AND CONTINGENCIES	NOTE O. COMMITMENTS AND CONTINGENCIES Environmental Matters The Company has an agreement with the Environmental Protection Agency to perform remedial activities at the Company’s Indianapolis, Indiana manufacturing facilities related to historical soil and groundwater contamination. As of March 31, 2018, the Company had a liability recorded in the amount of $13 million. Claims, Disputes, and Litigation The Company is party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims and workers’ compensation claims. The Company believes that the ultimate liability, if any, in excess of amounts already provided for in the condensed consolidated financial statements or covered by insurance on the disposition of these matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

EARNINGS PER SHARE

EARNINGS PER SHARE	3 Months Ended
	Mar. 31, 2018
EARNINGS PER SHARE	NOTE P. EARNINGS PER SHARE The Company presents both basic and diluted earnings per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during the reporting period that are calculated using the treasury stock method for stock-based awards. The treasury stock method assumes that the Company uses the proceeds from the exercise of awards to repurchase common stock at the average market price during the period. The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future and compensation cost for future service that the Company has not yet recognized. For the three months ended March 31, 2018 and 2017, there were no outstanding stock options excluded from the diluted EPS calculation because they were anti-dilutive. The following table reconciles the numerators and denominators used to calculate basic EPS and diluted EPS (in millions, except per share data): Three months ended March 31, 2018 2017 Net income $ 151 $ 83 Weighted average shares of common stock outstanding 139 158 Dilutive effect stock-based awards 1 1 Diluted weighted average shares of common stock outstanding 140 159 Basic earnings per share attributable to common stockholders $ 1.09 $ 0.53 Diluted earnings per share attributable to common stockholders $ 1.08 $ 0.52

COMMON STOCK

COMMON STOCK	3 Months Ended
	Mar. 31, 2018
COMMON STOCK	NOTE Q. COMMON STOCK The Company’s current stock repurchase program was announced on November 14, 2016 when the Board of Directors authorized the Company to repurchase up to $1,000 million of its common stock on the open market or through privately negotiated transactions through December 31, 2019. On November 8, 2017, the Board of Directors authorized the Company to repurchase an additional $500 million of its common stock, bringing the total amount authorized under the current stock repurchase program to $1,500 million. 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 months ended March 31, 2018, the Company repurchased $125 million of its common stock under the repurchase program, leaving $428 million of authorized repurchases remaining under the current stock repurchase program as of March 31, 2018.

CERTAIN RELATIONSHIPS AND RELAT

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	3 Months Ended
	Mar. 31, 2018
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	NOTE R. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Repurchase of Common Stock held by ValueAct Capital Master Fund On February 3, 2017, the Company entered into a stock repurchase agreement with ValueAct Capital Master Fund, L.P., a related party, to repurchase 10,525,204 shares of the Company’s common stock for approximately $363 million. The shares were repurchased under the stock repurchase program approved by the Board of Directors in November 2016. The purchase closed on February 8, 2017 and was funded with cash on hand and borrowings under the Revolving Credit Facility. The shares were subsequently retired.

SUMMARY OF SIGNIFICANT ACCOUN24

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	3 Months Ended
	Mar. 31, 2018
Basis of Presentation and Principles of Consolidation	Basis of Presentation and Principles of Consolidation The condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q 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 post-retirement benefit expense, income taxes and deferred tax valuation allowances, and contingencies. The Company’s accounting policies involve the application of judgments and assumptions made by management that include inherent risks and uncertainties. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.
Recently Adopted Accounting Pronouncements	Recently Adopted Accounting Pronouncements In May 2017, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance on accounting for modifications to the terms of employee stock compensation. The guidance clarifies which changes to terms or conditions of share-based payment awards require the entity to apply modification accounting. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements. In March 2017, the FASB issued authoritative accounting guidance on the presentation of net periodic pension costs and net periodic post-retirement benefit costs. The guidance clarifies the presentation of component costs within an employer’s financial statements and restricts component costs eligible for capitalization to the service cost component. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements. In August 2016, the FASB issued authoritative accounting guidance on the presentation and classification of certain cash receipts and cash payments on the statement of cash flows. The guidance specifically addresses cash flow issues with the objective of reducing the diversity in practice. The guidance was adopted by the Company effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements. In May 2014, the FASB issued authoritative accounting guidance on a company’s accounting for revenue from contracts with customers, which guidance 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 was adopted by the Company effective January 1, 2018 on a modified retrospective basis. See Note C, “Revenue”, for information regarding the impact of the adoption of this guidance.
Recently Issued Accounting Pronouncements	Recently Issued Accounting Pronouncements In February 2018, the FASB issued authoritative accounting guidance on transfers of stranded balances in accumulated other comprehensive loss to retained earnings. The passage of the U.S. Tax Cuts and Jobs Act (“Tax Act”) by the U.S. federal government in December 2017 and existing GAAP requirements to adjust deferred tax assets and liabilities for changes in tax laws or rates created stranded balances in accumulated other comprehensive loss on deferred tax assets and liabilities previously recorded as a component to accumulated other comprehensive loss. The guidance applies to companies affected by these stranded balances and allows a reclassification of these balances to retained earnings. The guidance will be effective for the Company in fiscal year 2019, but early adoption is permitted. The guidance can be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. 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

REVENUE (Tables)

REVENUE (Tables)	3 Months Ended
	Mar. 31, 2018
Disaggregated Revenue by Categories	The following presents disaggregated revenue by categories that best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors (dollars in millions): Three months North America On-Highway $ 315 North America Electric Hybrid-Propulsion Systems for Transit Bus 24 North America Off-Highway 33 Defense 37 Outside North America On-Highway 91 Outside North America Off-Highway 12 Service Parts, Support Equipment and Other 151 Total Net Sales $ 663

INVENTORIES (Tables)

INVENTORIES (Tables)	3 Months Ended
	Mar. 31, 2018
Components of Inventories	Inventories consisted of the following components (dollars in millions): March 31, 2018 December 31, 2017 Purchased parts and raw materials $ 84 $ 79 Work in progress 8 6 Service parts 48 46 Finished goods 32 23 Total inventories $ 172 $ 154

GOODWILL AND OTHER INTANGIBLE27

GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)	3 Months Ended
	Mar. 31, 2018
Summary of Other Intangible Assets	The following presents a summary of other intangible assets (dollars in millions): March 31, 2018 December 31, 2017 Intangible Accumulated Intangible Intangible Accumulated Intangible assets, net Other intangible assets: Trade name $ 790 $ — $ 790 $ 790 $ — $ 790 Customer relationships — commercial 832 (585 ) 247 832 (573 ) 259 Proprietary technology 476 (406 ) 70 476 (396 ) 80 Customer relationships — defense 62 (38 ) 24 62 (38 ) 24 Patented technology — defense 28 (28 ) — 28 (28 ) — Non-compete 17 (17 ) — 17 (17 ) — Tooling rights 5 (5 ) — 5 (5 ) — Total $ 2,210 $ (1,079 ) $ 1,131 $ 2,210 $ (1,057 ) $ 1,153
Amortization Expense Related to Other Intangible Assets for Next Five Fiscal Years	Amortization expense related to other intangible assets for the next five fiscal years is expected to be (dollars in millions): 2019 2020 2021 2022 2023 Amortization expense $ 86 $ 50 $ 45 $ 43 $ 42

FAIR VALUE OF FINANCIAL INSTR28

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)	3 Months Ended
	Mar. 31, 2018
Summary of Fair Value of Financial Assets and (Liabilities)	The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of March 31, 2018 and December 31, 2017 (dollars in millions): Quoted Prices in Active March 31, 2018 December 31, Cash equivalents $ 40 $ 50 Rabbi trust assets 10 8 Deferred compensation obligation (10 ) (8 ) Total $ 40 $ 50

DEBT (Tables)

DEBT (Tables)	3 Months Ended
	Mar. 31, 2018
Summary of Long-Term Debt and Maturities	Long-term debt and maturities are as follows (dollars in millions): March 31, December 31, Long-term debt: Senior Secured Credit Facility Term B-3 $ 1,173 $ 1,176 Senior Notes, fixed 5.0%, due 2024 1,000 1,000 Senior Notes, fixed 4.75%, due 2027 400 400 Total long-term debt $ 2,573 $ 2,576 Less: current maturities of long-term debt 12 12 deferred financing costs, net 29 30 Total long-term debt, net $ 2,532 $ 2,534

DERIVATIVES (Tables)

DERIVATIVES (Tables)	3 Months Ended
	Mar. 31, 2018
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 March 31, 2018 2017 Location of impact on results of operations Interest income $ — $ 4

PRODUCT WARRANTY LIABILITIES (T

PRODUCT WARRANTY LIABILITIES (Tables)	3 Months Ended
	Mar. 31, 2018
Product Warranty Liability Activities	Product warranty liability activities consist of the following (dollars in millions): Three months ended March 31, 2018 2017 Beginning balance $ 55 $ 63 Payments (9 ) (7 ) Increase in liability (warranty issued during period) 9 4 Net adjustments to liability 7 (2 ) Ending balance $ 62 $ 58

DEFERRED REVENUE (Tables)

DEFERRED REVENUE (Tables)	3 Months Ended
	Mar. 31, 2018
Deferred Revenue for Extended Transmission Coverage Activity	Deferred revenue activity consists of the following (dollars in millions): Three months ended March 31, 2018 2017 Beginning balance $ 110 $ 94 Increases 10 8 Revenue earned (8 ) (6 ) Ending balance $ 112 $ 96

OTHER CURRENT LIABILITIES (Tabl

OTHER CURRENT LIABILITIES (Tables)	3 Months Ended
	Mar. 31, 2018
Summary of Other Current Liabilities	Other current liabilities consist of the following (dollars in millions): As of As of Accrued interest payable $ 36 $ 19 Sales allowances 31 34 Payroll and related costs 29 73 Vendor buyback obligation 14 14 Taxes payable 13 10 Defense price reduction reserve 9 9 UAW Local 933 retirement incentive 6 — Non-trade 4 8 Other accruals 15 16 Total $ 157 $ 183

EMPLOYEE BENEFIT PLANS (Tables)

EMPLOYEE BENEFIT PLANS (Tables)	3 Months Ended
	Mar. 31, 2018
Components of Net Periodic Benefit Cost (credit)	Components of net periodic benefit cost (credit) consist of the following (dollars in millions): Pension Plans Post-retirement Benefits Three months ended March 31, Three months ended March 31, 2018 2017 2018 2017 Net periodic benefit cost: Service cost $ 3 $ 3 $ — $ — Interest cost 2 2 1 2 Expected return on assets (2 ) (2 ) — — Prior service cost — — (3 ) (1 ) Net periodic benefit cost (credit) $ 3 $ 3 $ (2 ) $ 1

ACCUMULATED OTHER COMPREHENSI35

ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)	3 Months Ended
	Mar. 31, 2018
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- Defined Foreign Total AOCL as of December 31, 2016 $ (7 ) $ (18 ) $ (38 ) $ (63 ) Other comprehensive (loss) income before reclassifications (1 ) — 4 3 Amounts reclassified from AOCL — (1 ) — (1 ) Income tax 1 — — 1 Net current period other comprehensive (loss) income $ — $ (1 ) $ 4 $ 3 AOCL as of March 31, 2017 $ (7 ) $ (19 ) $ (34 ) $ (60 ) AOCL as of December 31, 2017 $ — $ 8 $ (23 ) $ (15 ) Other comprehensive (loss) income before reclassifications — — 7 7 Amounts reclassified from AOCL — (3 ) — (3 ) Income tax — — — — Net current period other comprehensive (loss) income $ — $ (3 ) $ 7 $ 4 AOCL as of March 31, 2018 $ — $ 5 $ (16 ) $ (11 ) Amounts reclassified from AOCL Affected line item in the Condensed AOCL Components Three months ended March 31, 2018 Three months March 31, 2017 Amortization of benefit items: Prior service cost $ 3 $ 1 Cost of sales Total reclassifications, before tax $ 3 $ 1 Income before income taxes Total reclassifications, net of tax $ 3 $ 1

EARNINGS PER SHARE (Tables)

EARNINGS PER SHARE (Tables)	3 Months Ended
	Mar. 31, 2018
Reconciliation of Numerators and Denominators Used to Calculate Basic EPS and Diluted EPS	The following table reconciles the numerators and denominators used to calculate basic EPS and diluted EPS (in millions, except per share data): Three months ended March 31, 2018 2017 Net income $ 151 $ 83 Weighted average shares of common stock outstanding 139 158 Dilutive effect stock-based awards 1 1 Diluted weighted average shares of common stock outstanding 140 159 Basic earnings per share attributable to common stockholders $ 1.09 $ 0.53 Diluted earnings per share attributable to common stockholders $ 1.08 $ 0.52

Overview - Additional Informati

Overview - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2018EmployeeCustomerProduct
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Transmission product lines | Product	13
Worldwide independent distributor and dealer locations | Customer	1,400
Number of employees | Employee	2,700
Sales Revenue, Net | North America | Geographic Concentration Risk
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Concentration of risk, percentage	79.00%

Revenue - Additional Informatio

Revenue - Additional Information (Detail) $ in Millions	3 Months Ended
	Mar. 31, 2018USD ($)Segment	Mar. 31, 2017USD ($)	Jan. 01, 2018USD ($)	Dec. 31, 2017USD ($)
Deferred Revenue Arrangement [Line Items]
Deferred revenue current liabilities	$ 40	$ 28		$ 41
Deferred revenue non-current liabilities	72	68		$ 75
Net sales	663	$ 499
Contract assets	$ 0
Credit term period	30 days
Number of operating segment | Segment	1
Number of reportable segment | Segment	1
Minimum
Deferred Revenue Arrangement [Line Items]
Duration of contract sold	1 year
Maximum
Deferred Revenue Arrangement [Line Items]
Duration of contract sold	5 years
Adoption of New Revenue Guidance
Deferred Revenue Arrangement [Line Items]
Increase in retained earnings			$ 5
Deferred revenue current liabilities			(2)
Deferred revenue non-current liabilities	$ (1)		$ (4)
Net sales	$ 1

Revenue - Disaggregated Revenue

Revenue - Disaggregated Revenue by Categories (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Disaggregation of Revenue [Line Items]
Total Net Sales	$ 663	$ 499
North America On-Highway
Disaggregation of Revenue [Line Items]
Total Net Sales	315
North America Electric Hybrid-Propulsion Systems for Transit Bus
Disaggregation of Revenue [Line Items]
Total Net Sales	24
North America Off-Highway
Disaggregation of Revenue [Line Items]
Total Net Sales	33
Defense
Disaggregation of Revenue [Line Items]
Total Net Sales	37
Outside North America On-Highway
Disaggregation of Revenue [Line Items]
Total Net Sales	91
Outside North America Off-Highway
Disaggregation of Revenue [Line Items]
Total Net Sales	12
Service Parts, Support Equipment and Other
Disaggregation of Revenue [Line Items]
Total Net Sales	$ 151

Components of Inventories (Deta

Components of Inventories (Detail) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017
Inventory [Line Items]
Purchased parts and raw materials	$ 84	$ 79
Work in progress	8	6
Service parts	48	46
Finished goods	32	23
Total inventories	$ 172	$ 154

Goodwill and Other Intangible41

Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017
Goodwill [Line Items]
Goodwill	$ 1,941	$ 1,941
Net carrying value of Goodwill and other intangible assets	$ 3,072	$ 3,094

Summary of Other Intangible Ass

Summary of Other Intangible Assets (Detail) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Line Items]
Trade name	$ 790	$ 790
Intangible assets, gross	2,210	2,210
Accumulated amortization	(1,079)	(1,057)
Intangible assets, net	1,131	1,153
Customer relationships - commercial
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	832	832
Accumulated amortization	(585)	(573)
Intangible assets, net	247	259
Proprietary technology
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	476	476
Accumulated amortization	(406)	(396)
Intangible assets, net	70	80
Customer relationships - defense
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	62	62
Accumulated amortization	(38)	(38)
Intangible assets, net	24	24
Patented technology - defense
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	28	28
Accumulated amortization	(28)	(28)
Non-compete agreement
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	17	17
Accumulated amortization	(17)	(17)
Tooling rights
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	5	5
Accumulated amortization	$ (5)	$ (5)

Amortization Expense Related to

Amortization Expense Related to Other Intangible Assets for Next Five Fiscal Years (Detail) $ in Millions	Mar. 31, 2018USD ($)
Finite-Lived Intangible Assets
2,019	$ 86
2,020	50
2,021	45
2,022	43
2,023	$ 42

Fair Value of Financial Instr44

Fair Value of Financial Instruments - Additional Information (Detail) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets	$ 0	$ 0
Financial liabilities	0	0
Significant Other Observable Inputs (Level 2)
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) - Quoted Prices in Active Markets for Identical Assets (Level 1) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	$ 40	$ 50
Rabbi trust assets	10	8
Deferred compensation obligation	(10)	(8)
Total	$ 40	$ 50

Summary of Long-Term Debt and M

Summary of Long-Term Debt and Maturities (Detail) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Total long-term debt	$ 2,573	$ 2,576
Less: current maturities of long-term debt	12	12
Less: deferred financing costs, net	29	30
Total long-term debt, net	2,532	2,534
Senior Secured Credit Facility Term B-3 Loan, variable due 2022
Debt Instrument [Line Items]
Total long-term debt	1,173	1,176
5.0% Senior Notes due 2024
Debt Instrument [Line Items]
Total long-term debt	1,000	1,000
4.75% Senior Notes due 2027
Debt Instrument [Line Items]
Total long-term debt	$ 400	$ 400

Summary of Long-Term Debt and47

Summary of Long-Term Debt and Maturities (Parenthetical) (Detail)	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
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%	4.75%
Debt instrument, due date	2,027	2,027

Debt - Additional Information (

Debt - Additional Information (Detail) - USD ($)	1 Months Ended		3 Months Ended	12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Dec. 31, 2016	Dec. 31, 2017	Sep. 30, 2017	Aug. 31, 2017
Debt Instrument [Line Items]
Total long-term debt	$ 2,573,000,000		$ 2,573,000,000		$ 2,576,000,000
Fair value of long-term debt obligations	$ 2,547,000,000		$ 2,547,000,000
Total leverage ratio	250.00%		250.00%
Revolving Credit Facility, variable, due 2021
Debt Instrument [Line Items]
Maximum revolving credit facility						$ 550,000,000	$ 450,000,000
Available revolving credit facility	$ 533,000,000		$ 533,000,000
Maximum amount of letters of credit commitments available under the revolving credit facility	75,000,000		75,000,000
Letters of Credit	$ 17,000,000		$ 17,000,000
Maturity date of revolving credit borrowings			2021-09
Basis point reduction to applicable margin, resulting from total leverage ratio below minimum			0.25%
Basis point reduction to commitment fee, resulting from total leverage ratio below minimum			0.125%
Additional basis point reduction to applicable margin, resulting from total leverage ratio below minimum			0.25%
Revolving Credit Facility, variable, due 2021 | greater of the prime lending rate or federal funds
Debt Instrument [Line Items]
Applicable margin over base rate			0.50%
Revolving Credit Facility, variable, due 2021 | greater of the prime lending rate or federal funds | Minimum
Debt Instrument [Line Items]
Applicable margin over base rate			0.75%
Debt instrument, floor rate			1.75%
Revolving Credit Facility, variable, due 2021 | LIBOR
Debt Instrument [Line Items]
Applicable margin over base rate			1.75%
Senior Secured Credit Facility
Debt Instrument [Line Items]
Required senior secured leverage ratio	550.00%		550.00%
Achieved senior secured leverage ratio	103.00%		103.00%
Senior secured leverage ratio for applicable margin reduction	400.00%		400.00%
Total leverage ratio for applicable margin reduction	400.00%		400.00%
Total leverage ratio for commitment fee reduction	350.00%		350.00%
Senior Secured Credit Facility Term B-3 Loan, variable due 2022
Debt Instrument [Line Items]
Debt instrument maturity month and year			2022-09
Total long-term debt	$ 1,173,000,000		$ 1,173,000,000		$ 1,176,000,000
Change in applicable margin over base rate	0.25%	0.50%
Debt financing fees	$ 1,000,000	$ 1,000,000
Debt instrument effective interest rate	3.60%		3.60%
Principal payments on term loans			$ 3,000,000
Senior Secured Credit Facility Term B-3 Loan, variable due 2022 | greater of the prime lending rate or federal funds
Debt Instrument [Line Items]
Applicable margin over base rate			0.50%
Senior Secured Credit Facility Term B-3 Loan, variable due 2022 | greater of the prime lending rate or federal funds | Minimum
Debt Instrument [Line Items]
Applicable margin over base rate		1.00%	0.75%	1.75%
Debt instrument, floor rate			1.00%
Senior Secured Credit Facility Term B-3 Loan, variable due 2022 | LIBOR
Debt Instrument [Line Items]
Applicable margin over base rate			1.75%
5.0% Senior Notes due 2024
Debt Instrument [Line Items]
Debt instrument maturity month and year			2024-09
Debt instrument, interest rate, stated percentage	5.00%		5.00%		5.00%
Total long-term debt	$ 1,000,000,000		$ 1,000,000,000		$ 1,000,000,000
4.75% Senior Notes due 2027
Debt Instrument [Line Items]
Debt instrument maturity month and year			2027-10
Debt instrument, interest rate, stated percentage	4.75%		4.75%		4.75%
Total long-term debt	$ 400,000,000		$ 400,000,000		$ 400,000,000

Derivatives - Additional Inform

Derivatives - Additional Information (Detail) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017
Derivative fair value	$ 0	$ 0
Derivative notional amount	$ 0	$ 0

Summary of Unrealized Gain (Los

Summary of Unrealized Gain (Loss) on Interest Rate Derivatives (Detail) $ in Millions	3 Months Ended
	Mar. 31, 2017USD ($)
Derivative [Line Items]
Unrealized (loss) gain on derivatives	$ 5
Derivatives not designated as hedging instruments | Interest rate contracts | Interest income
Derivative [Line Items]
Unrealized (loss) gain on derivatives	$ 4

Product Warranty Liability Acti

Product Warranty Liability Activities (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Guarantor Obligations [Line Items]
Beginning balance	$ 55	$ 63
Payments	(9)	(7)
Increase in liability (warranty issued during period)	9	4
Net adjustments to liability	7	(2)
Ending balance	$ 62	$ 58

Product Warranty Liabilities -

Product Warranty Liabilities - Additional Information (Detail) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Guarantor Obligations [Line Items]
Product warranty liability, current	$ 24	$ 22	$ 22
Product warranty liability, non-current	$ 38	$ 33	$ 36

Deferred Revenue - Additional I

Deferred Revenue - Additional Information (Detail) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Deferred Revenue Arrangement [Line Items]
Deferred revenue current liabilities	$ 40	$ 41	$ 28
Deferred revenue non-current liabilities	72	$ 75	68
Extended Transmission Coverage ("ETC")
Deferred Revenue Arrangement [Line Items]
Deferred revenue current liabilities	29		26
Deferred revenue non-current liabilities	$ 69		$ 68

Deferred Revenue Activity (Deta

Deferred Revenue Activity (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Deferred Revenue Arrangement [Line Items]
Beginning balance	$ 110	$ 94
Increases	10	8
Revenue earned	(8)	(6)
Ending balance	$ 112	$ 96

Summary of Other Current Liabil

Summary of Other Current Liabilities (Detail) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017
Other Current Liabilities [Line Items]
Accrued interest payable	$ 36	$ 19
Sales allowances	31	34
Payroll and related costs	29	73
Vendor buyback obligation	14	14
Taxes payable	13	10
Defense price reduction reserve	9	9
UAW Local 933 retirement incentive	6	0
Non-trade payables	4	8
Other accruals	15	16
Total	$ 157	$ 183

Components of Net Periodic Bene

Components of Net Periodic Benefit Cost (credit) (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Pension Plans
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 3	$ 3
Interest cost	2	2
Expected return on assets	(2)	(2)
Net periodic benefit cost (credit)	3	3
Post-retirement Benefits
Defined Benefit Plan Disclosure [Line Items]
Interest cost	1	2
Prior service cost	(3)	(1)
Net periodic benefit cost (credit)	$ (2)	$ 1

Income Taxes - Additional Infor

Income Taxes - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Income Taxes [Line Items]
Income tax expense	$ 40	$ 44
Effective tax rate	21.00%	35.00%

Changes in Accumulated Other Co

Changes in Accumulated Other Comprehensive Loss by Component (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL	$ 689
Other comprehensive (loss) income before reclassifications	7	$ 3
Amounts reclassified from AOCL	(3)	(1)
Income tax		1
Net current period other comprehensive (loss) income	4	3
Total AOCL	706
Accumulated Net Unrealized Investment Gain (Loss)
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL		(7)
Other comprehensive (loss) income before reclassifications		(1)
Income tax		1
Total AOCL		(7)
Accumulated Defined Benefit Plans Adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL	8	(18)
Amounts reclassified from AOCL	(3)	(1)
Net current period other comprehensive (loss) income	(3)	(1)
Total AOCL	5	(19)
Accumulated Translation Adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL	(23)	(38)
Other comprehensive (loss) income before reclassifications	7	4
Net current period other comprehensive (loss) income	7	4
Total AOCL	(16)	(34)
Accumulated Other Comprehensive Loss, net of tax
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL	(15)	(63)
Total AOCL	$ (11)	$ (60)

Amounts reclassified from AOCL

Amounts reclassified from AOCL (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Accumulated Other Comprehensive Income (Loss) [Line Items]
Cost of sales	$ 321	$ 248
Total reclassifications, before tax	191	127
Total reclassifications, net of tax	151	83
Reclassified from AOCL | Prior service cost
Accumulated Other Comprehensive Income (Loss) [Line Items]
Cost of sales	3	1
Reclassified from AOCL | Accumulated Defined Benefit Plans Adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Total reclassifications, before tax	3	1
Total reclassifications, net of tax	$ 3	$ 1

Commitments and Contingencies -

Commitments and Contingencies - Additional Information (Detail) $ in Millions	Mar. 31, 2018USD ($)
Commitments and Contingencies Disclosure [Line Items]
Environmental liability	$ 13

Earnings Per Share - Additional

Earnings Per Share - Additional Information (Detail) - shares	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive stock options excluded from the diluted EPS computation	0	0

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
	Mar. 31, 2018	Mar. 31, 2017
Computation of Earnings Per Share [Line Items]
Net income	$ 151	$ 83
Weighted average shares of common stock outstanding	139	158
Dilutive effect stock-based awards	1	1
Diluted weighted average shares of common stock outstanding	140	159
Basic earnings per share attributable to common stockholders	$ 1.09	$ 0.53
Diluted earnings per share attributable to common stockholders	$ 1.08	$ 0.52

Common Stock - Additional Infor

Common Stock - Additional Information (Detail) - 2016 Repurchase Program - USD ($)	3 Months Ended
	Mar. 31, 2018	Nov. 08, 2017	Nov. 14, 2016
Common Stock Disclosure [Line Items]
Common stock, repurchases authorized		$ 500,000,000	$ 1,000,000,000
Stock repurchase program, authorized amount	$ 428,000,000		$ 1,500,000,000
Common stock, repurchased during the period	$ 125,000,000

Certain Relationships and Rel64

Certain Relationships and Related Party Transactions - Additional Information (Detail) - ValueAct Capital Master Fund, L.P $ in Millions	Feb. 03, 2017USD ($)shares
Related Party Transaction [Line Items]
Common stock repurchased during the period, shares | shares	10,525,204
Common stock repurchased during the period, value | $	$ 363
Repurchase agreement closing date	Feb. 8, 2017