Indicate by check mark whether the ~~registrant~~registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” inRule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes ☐ No☒

As of ~~October 17, 2017,~~July 25, 2022, there were ~~141,760,746~~96,244,657 shares of Common Stock outstanding.


	September 30, 2017			December 31, 2016			June 30, 2022			December 31, 2021
ASSETS
Current Assets
Cash and cash equivalents	$	210		$	205		$	122		$	127
Accounts receivable		271			197
Accounts receivable – net of allowances for doubtful accounts of $5 and $3, respectively								363			301
Inventories		156			126			228			204
Other current assets		28			20			52			39

Total Current Assets		665			548			765			671

Property, plant and equipment, net		456			464			705			706
Intangible assets, net		1,175			1,242			901			917
Goodwill		1,941			1,941			2,076			2,064
Marketable securities								33			46
Othernon-current assets		24			24			54			53

TOTAL ASSETS	$	4,261		$	4,219		$	4,534		$	4,457


LIABILITIES
Current Liabilities
Accounts payable	$	184		$	128		$	198		$	179
Product warranty liability		22			25			28			33
Current portion of long-term debt		12			12			6			6
Deferred revenue		33			27			39			37
Other current liabilities		193			150			160			204

Total Current Liabilities		444			342			431			459

Product warranty liability		27			38			25			20
Deferred revenue		75			66			96			99
Long-term debt		2,536			2,147			2,502			2,504
Deferred income taxes		393			312			530			514
Othernon-current liabilities		231			233			201			227

TOTAL LIABILITIES		3,706			3,138			3,785			3,823
Commitments and contingencies (see NOTE N)

Commitments and contingencies (see Note P)
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, 1,880,000,000 shares authorized, 142,735,480 shares issued and outstanding and 163,795,604 shares issued and outstanding, respectively		1			2
Non-voting common stock, $0.01 par value, 20,000,000 shares authorized, none issued and outstanding		—			—
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding		—			—
Common stock, $0.01 par value, 1,880,000,000 shares authorized, 96,325,571 shares issued and outstanding and 99,262,951 shares issued and outstanding, respectively								1			1
Non-voting common stock, $0.01 par value, 20,000,000 shares authorized, 0ne issued and outstanding								0			0
Preferred stock, $0.01 par value, 100,000,000 shares authorized, 0ne issued and outstanding								0			0
Paid in capital		1,750			1,728			1,839			1,832
Accumulated deficit		(1,144	)		(586	)		(1,031	)		(1,126	)
Accumulated other comprehensive loss, net of tax		(52	)		(63	)		(60	)		(73	)

TOTAL STOCKHOLDERS’ EQUITY		555			1,081			749			634

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	4,261		$	4,219		$	4,534		$	4,457

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


	Three months ended September 30,						Nine months ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2022			2021			2022			2021
Net sales	$	595		$	434		$	1,674		$	1,371		$	664		$	603		$	1,341		$	1,191
Cost of sales		293			230			831			725			353			315			710			612

Gross profit		302			204			843			646			311			288			631			579
Selling, general and administrative		78			79			245			240			78			80			153			153
Engineering — research and development		26			21			74			64			46			41			89			79

Operating income		198			104			524			342			187			167			389			347
Interest expense, net		(26	)		(22	)		(78	)		(84	)		(30	)		(30	)		(59	)		(59	)
Expenses related to long-term debt refinancing		—			(12	)		—			(12	)
Other (expense) income, net		(2	)		1			(3	)		1			(3	)		3			(13	)		6

Income before income taxes		170			71			443			247			154			140			317			294
Income tax expense		(59	)		(26	)		(154	)		(93	)		(32	)		(30	)		(66	)		(64	)

Net income	$	111		$	45		$	289		$	154		$	122		$	110		$	251		$	230

Basic earnings per share attributable to common stockholders	$	0.75		$	0.27		$	1.91		$	0.91		$	1.26		$	1.01		$	2.59		$	2.09

Diluted earnings per share attributable to common stockholders	$	0.75		$	0.27		$	1.90		$	0.91		$	1.26		$	1.01		$	2.56		$	2.07

Dividends declared per common share	$	0.15		$	0.15		$	0.45		$	0.45

Comprehensive income, net of tax	$	116		$	45		$	300		$	156		$	118		$	113		$	264		$	236

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


	Nine months ended September 30,						Six Months Ended June 30,
	2017			2016			2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	289		$	154		$	251		$	230
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment								53			51
Amortization of intangible assets								23			23
Unrealized loss on marketable securities								11			—
Stock-based compensation								9			8
Deferred income taxes		72			80			9			29
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		—			(2	)
Technology-related investments gain								(6	)		—
Loss on intercompany foreign exchange								3			1
Other		5			2			5			1
Changes in assets and liabilities:
Accounts receivable		(71	)		(5	)		(70	)		(73	)
Inventories		(28	)		(12	)		(29	)		(26	)
Accounts payable		56			8			17			2
Other assets and liabilities		40			26			(47	)		25

Net cash provided by operating activities		492			416			229			271
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of long-lived assets		(40	)		(36	)		(50	)		(69	)
Investments in technology-related initiatives		(3	)		(1	)

Business acquisitions								(23	)		—
Proceeds from technology-related investments								6			—
Investment in equity method investee								(1	)		—
Net cash used for investing activities		(43	)		(37	)		(68	)		(69	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock		(778	)		(169	)		(115	)		(226	)
Borrowings on revolving credit facility		415			—			95			—
Repayments on revolving credit facility		(415	)		—
Issuance of long-term debt		400			1,000
Payments on revolving credit facility								(95	)		—
Dividend payments		(68	)		(76	)		(41	)		(42	)
Taxes paid related to net share settlement of equity awards								(4	)		(3	)
Payments on long-term debt								(3	)		(3	)
Proceeds from exercise of stock options		14			9			1			3
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

Payments of acquisition-related contingent liability								—			(3	)
Net cash used for financing activities		(447	)		(466	)		(162	)		(274	)
Effect of exchange rate changes on cash		3			—			(4	)		—

Net increase (decrease) in cash and cash equivalents		5			(87	)
Net decrease in cash and cash equivalents								(5	)		(72	)
Cash and cash equivalents at beginning of period		205			252			127			310

Cash and cash equivalents at end of period	$	210		$	165		$	122		$	238

Supplemental disclosures:
Interest paid	$	71		$	64		$	57		$	38
Income taxes paid	$	65		$	10		$	59		$	45

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

NOTE A. OVERVIEW

~~NOTE A.~~

~~OVERVIEW~~

Overview

Allison Transmission Holdings, Inc. and its subsidiaries (“Allison” or the “Company”) design and manufacture ~~commercial~~vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense ~~fully-automatic transmissions.~~fully automatic transmissions and electric hybrid and fully electric systems. 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~~is traded 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%~~76% of revenues were generated in North America in ~~2016,~~2021, the Company has a global presence by serving customers in Asia, Europe, ~~Asia,~~ South America and Africa. The Company serves customers through an independent network of approximately 1,400 independent distributor and dealer locations worldwide.

During the first half of 2022, global markets continued to experience supply chain, labor and raw material constraints, as a result of factors including the COVID-19 pandemic and the war in Ukraine, that created volatility in the Company's performance. As a result, the Company experienced, and expects to continue to experience, raw material and component part price inflation, increased freight and logistics costs, increased labor costs as a result of labor shortages and increased foreign exchange volatility. In addition, despite increased customer demand, the Company's net sales for the first half of 2022 were negatively impacted as a result of its customers’ inability to secure components from the broader commercial vehicle supply base which resulted in reduced commercial vehicle build schedules. The Company expects that commercial vehicle build schedules will continue to be negatively impacted by the availability of components throughout the remainder of 2022.

~~NOTE B.~~

~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

To limit the spread of variants and sub-variants of COVID-19, governments have taken, and may in the future take, various actions that have impacted, and may continue to impact, the Company's employees, operations, customers and supply base, including the administration or mandate of vaccinations, travel bans and restrictions, quarantines, curfews, stay-at-home orders, social distancing guidelines and business shutdowns and closures.

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 Form10-Q and Article 10 of RegulationS-X. Accordingly, the condensed consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary for the fair statement of the results for the periods presented. The condensed consolidated financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated.

Table of Contents

These condensed consolidated financial statements present the financial position, results of comprehensive income, ~~and~~ cash flows and statements of stockholders’ equity of the Company. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Form10-K for the year ended December 31, ~~2016~~2021 as filed with the Securities and Exchange Commission ~~(“SEC”)~~ on February 24, 2017. The presentation of certain prior year disclosures has been modified to conform to the current year presentation, as commencing in the first quarter of 2017, the Company elected to report financial data in whole millions of dollars, except as otherwise noted.17, 2022. The interim period financial results for the ~~three~~three- and ~~nine~~six- month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Estimates include, but are not limited to, sales allowances, government price adjustments, fair market values and future cash flows associated with goodwill, indefinite life intangibles, definite life intangibles, long-lived asset impairment tests, useful lives for depreciation and amortization, warranty liabilities, core deposit liabilities, environmental liabilities, determination of discount rate and other assumptions for pension and other ~~postretirement~~post-retirement benefit ("OPEB") expense, determination of discount rate and period for leases, income taxes and deferred tax valuation allowances, derivative valuation, assumptions for business combinations and contingencies. The Company’s accounting policies involve the application of judgments and assumptions made by management that include inherent risks and uncertainties. ~~Actual~~Due to the uncertainty surrounding global economic conditions, including as a result of the ongoing COVID-19 pandemic and the war in Ukraine, and the related impact on our supply chain, demand for our products, foreign exchange rates and the cost and availability of raw materials, labor, and transport, actual results could differ materially from these ~~estimates.~~estimates and assumptions used in preparation of the financial statements including, but not limited to, future cash flows associated with goodwill, indefinite life intangibles, definite life intangibles, long-lived impairment tests, determination of discount rate and other assumptions for pension and OPEB expense and income taxes. 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~~Issued Accounting Pronouncements

In ~~January 2017,~~October 2021, the Financial Accounting Standards Board ~~(“FASB”~~("FASB") issued authoritative accounting guidance ~~on evaluation of goodwill for impairment. The guidance modifies the approach~~that requires contract assets and contract liabilities acquired in a business combination 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~~if the ~~period in which it occurs. Inventory measured using last-in,first-out~~ ~~and~~acquirer originated the retail inventory method are not impacted by the new guidance. The guidance was adopted by the Company effective January 1, 2017. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

~~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.contracts. The guidance will be effective for the Company in fiscal year ~~2018, but~~2023, and the Company does not plan to early ~~adoption is permitted. Management is currently evaluating~~adopt. The guidance will be applied prospectively to acquisitions occurring on or after the ~~impact of this guidance on the Company’s consolidated financial statements.~~effective date.

In ~~March 2017,~~June 2022, the FASB issued authoritative accounting guidance onrequires that investments in equity securities which are measured at fair value and are subject to contractual sale restrictions should not reflect 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 Companycontractual sale restriction 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 presentright-of-use~~ assets and lease liabilities on the balance sheet for all leases not considered short-term leases. Short-term leases are leases with a lease term of 12 months or less as long as the leases do not include options to purchase the underlying assets that the lessee is reasonably certain to exercise. The new guidance also introduces new disclosure requirements for leasing arrangements.its fair value measurement. The guidance will be effective for the Company in fiscal year ~~2019,~~2024, and the Company does not plan to early adopt. Management does not expect the adoption of this guidance to have an impact on the Company's consolidated financial statements.

NOTE C. REVENUE

Revenue is ~~currently evaluating~~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 agreements (“LTAs”) and distributor agreements with certain customers. The LTAs 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.

Some of the Company's contracts include multiple performance obligations, most commonly the sale of both a transmission and extended transmission coverage ("ETC"). The Company allocates the contract’s transaction price to each performance obligation based on the standalone selling price of each distinct good or service in the contract.

The Company may also use volume-based discounts and rebates as marketing incentives in the sales of both vehicle propulsion solutions and service parts, which are accounted for as variable consideration. The Company records the impact of ~~this guidance~~the incentives as a reduction to revenue when it is determined that the adjustment is not likely to reverse, historically on ~~the Company’s consolidated financial statements.~~

~~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 oravailable-for-sale)~~ ~~and the requirement for equity securities to be measured at fair value with changes in fair value recognized in net income.~~a quarterly basis. The Company did not early adopt; therefore, the guidance will be effective prospectively for the Company in fiscal year 2018. Upon adoption, a cumulative-effect adjustment to retained earnings in the consolidated balance sheets will be reclassified to beginning retained earnings. Management has evaluatedestimates the impact of ~~this guidance~~all other incentives based on the related sales and ~~expects~~market conditions in the ~~unrealized gains and losses~~end market vocation. The Company recorded 0 material adjustments based on variable consideration for ~~fair value measurement~~any of the ~~Company’savailable-for-sale~~ ~~securities to be recognized in net income upon adoption.~~three or six months ended June 30, 2022 or 2021.

~~In May 2014,~~Net sales are made on credit terms, generally 30 days, based on an assessment of 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 promisedcustomer’s creditworthiness. For certain goods or services, the Company receives consideration prior to ~~customers~~satisfying the related performance obligation. Such consideration is recorded as a contract liability in ancurrent and non-current deferred revenue as of June 30, 2022 and December 31, 2021. See "Note J. Deferred Revenue” for more information, including the amount of revenue earned during each of the three and six months ended June 30, 2022 and 2021 that ~~reflects~~had been previously deferred. The Company had 0 material contract assets as of either June 30, 2022 or December 31, 2021.

The Company has 1 operating segment and reportable segment. The Company is in 1 line of business, which is the ~~consideration to which the entity expects to be entitled in exchange for those goods or services.~~ manufacture and distribution of vehicle propulsion solutions. The ~~guidance also requires disclosures regarding~~following presents disaggregated revenue by categories that best depict how the nature, amount, 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~~cash flows are affected by economic factors (dollars 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 tonon-standard~~ transmission coverages. Certain contracts are also being reviewed individually for the potential impact. No significant changes or additions to our internal controls over financial reporting are expected as a resultmillions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
North America On-Highway	$	340	$	302	$	686	$	621
North America Off-Highway		20		9		38		11
Defense		29		48		64		93
Outside North America On-Highway		105		98		214		182
Outside North America Off-Highway		32		18		62		34
Service Parts, Support Equipment and Other		138		128		277		250
Total Net Sales	$	664	$	603	$	1,341	$	1,191

NOTE D. INVENTORIES

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


	September 30, 2017		December 31, 2016		June 30, 2022		December 31, 2021
Purchased parts and raw materials	$	72	$	57	$	108	$	101
Work in progress		8		5		12		8
Service parts		46		43		45		44
Finished goods		30		21		63		51

Total inventories	$	156	$	126	$	228	$	204

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

NOTE E. GOODWILL AND OTHER INTANGIBLE ASSETS

~~NOTE D.~~

~~GOODWILL AND OTHER INTANGIBLE ASSETS~~

As of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the carrying ~~amount~~value of the Company’s Goodwill was ~~$1,941 million.~~ $2,076 million and $2,064 million, respectively.

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


	September 30, 2017							December 31, 2016							June 30, 2022							December 31, 2021
	Intangible assets, gross		Accumulated amortization			Intangible assets, net		Intangible assets, gross		Accumulated amortization			Intangible assets, net		Intangible assets, gross		Accumulated amortization			Intangible assets, net		Intangible assets, gross		Accumulated amortization			Intangible assets, net
Other intangible assets:
Trade name	$	790	$	—		$	790	$	790	$	—		$	790	$	791	$	—		$	791	$	791	$	—		$	791
Customer relationships — defense		62		(37	)		25		62		(35	)		27
In-process research and development																25		—			25		25		—			25
Customer relationships — commercial		832		(562	)		270		832		(526	)		306		839		(772	)		67		839		(751	)		88
Proprietary technology		476		(386	)		90		476		(358	)		118		484		(477	)		7		478		(477	)		1
Non-compete agreement		17		(17	)		—		17		(16	)		1
Patented technology — defense		28		(28	)		—		28		(28	)		—
Tooling rights		5		(5	)		—		5		(5	)		—

Customer relationships — defense																62		(52	)		10		62		(50	)		12
Non-compete agreements																1		—			1		—		—			—
Total	$	2,210	$	(1,035	)	$	1,175	$	2,210	$	(968	)	$	1,242	$	2,202	$	(1,301	)	$	901	$	2,195	$	(1,278	)	$	917

As of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the ~~net~~ carrying value of ~~our~~the Company’s Goodwill and ~~other intangible~~Intangible assets, net was ~~$3,116~~$2,977 million and ~~$3,183~~$2,981 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


	2023		2024		2025		2026		2027
Amortization expense	$	45	$	9	$	5	$	2	$	1

The following presents a summary of the changes in the goodwill of the Company's single operating and reporting segment (dollars in millions):

~~NOTE E.~~

~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~


	Goodwill
Balance at December 31, 2021	$	2,064
Acquisitions		13
Foreign currency translation		(1	)
Net current period impact to goodwill	$	12
Balance at June 30, 2022	$	2,076

NOTE F. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

Level 3 — Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all instruments subject to authoritative accounting guidance and includes, in Level 3, all of those whose fair value is based on significant unobservable inputs. As of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the Company did ~~not~~0t have any Level 3 financial assets or liabilities.

The Company’s assets and liabilities that are measured at fair value include marketable securities, cash equivalents,~~available-for-sale~~ ~~securities,~~ derivative instruments, assets held in a rabbi trust and a deferred compensation obligation. The ~~Company’s~~Company's marketable securities consist of publicly traded stock of Jing-Jin Electric Technologies Co. Ltd., which has a readily determinable fair value. The Company's cash equivalents consist of short-term ~~U.S.~~U.S government backed securities. ~~The Company’savailable-for-sale~~ securities consist of ordinary shares of Torotrak plc (“Torotrak”) associated with a license and exclusivity agreement with Torotrak. Torotrak’s listed shares are traded on the London Stock Exchange under the ticker symbol “TRK.” The Company’s derivative instruments consist of interest rate swaps. The Company’s assets held in the rabbi trust consist principally of publicly available mutual funds and target date retirement funds. The Company’s deferred compensation obligation is directly related to the fair value of assets held in the rabbi trust.

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

The Company uses valuations from the issuing financial ~~institution~~institutions for the fair value measurement of interest rate ~~derivatives.~~swaps. The ~~Company corroborates the valuation through the use of third-party valuation services using a standard replacement valuation model. The~~floating-to-fixed interest rate swaps are based on the London Interbank Offered Rate (“LIBOR”),

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which is observable at commonly quoted intervals. The fair values are included in other current andnon-current assets and liabilities in the Condensed Consolidated Balance Sheets. ~~The Company has not qualified~~See "Note H. Derivatives” for ~~hedge accounting treatment for~~more information regarding the Company's interest rate ~~swaps and, as a result, fair value adjustments are charged directly to Interest expense, net in the Condensed Consolidated Statements of Comprehensive Income.~~swaps.

The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 (dollars in millions):


	Fair Value Measurements Using																		Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						TOTAL						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)					TOTAL
	September 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016			June 30, 2022			December 31, 2021			June 30, 2022		December 31, 2021			June 30, 2022			December 31, 2021
Marketable securities																			$	33		$	46		$	0	$	0		$	33		$	46
Cash equivalents																				20			0			0		0			20			0
Rabbi trust assets	$	8		$	5		$	—		$	—		$	8		$	5			16			19			0		0			16			19
Deferred compensation obligation		(8	)		(5	)		—			—			(8	)		(5	)		(16	)		(19	)		0		0			(16	)		(19	)
Cash equivalents		—			81			—			—			—			81
Available-for-sale securities		—			2			—			—			—			2
Derivative liabilities, net		—			—			(19	)		(29	)		(19	)		(29	)

Derivative assets (liabilities), net																				0			0			2		(31	)		2			(31	)
Total	$	—		$	83		$	(19	)	$	(29	)	$	(19	)	$	54		$	53		$	46		$	2	$	(31	)	$	55		$	15

NOTE G. DEBT

~~NOTE F.~~

~~DEBT~~

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


	September 30, 2017		December 31, 2016		June 30, 2022		December 31, 2021
Long-term debt:
Senior Secured Credit Facility TermB-3 Loan, variable, due 2022	$	1,179	$	1,188
Senior Notes, fixed 5.0%, due 2024		1,000		1,000
Senior Notes, fixed 4.75%, due 2027		400		—

Senior Secured Credit Facility Term Loan, variable, due 2026					$	628	$	631
Senior Notes, fixed 4.75%, due 2027						400		400
Senior Notes, fixed 5.875%, due 2029						500		500
Senior Notes, fixed 3.75%, due 2031						1,000		1,000
Total long-term debt	$	2,579	$	2,188	$	2,528	$	2,531
Less: current maturities of long-term debt		12		12		6		6
deferred financing costs, net		31		29		20		21

Total long-term debt, net	$	2,536	$	2,147	$	2,502	$	2,504

As of ~~September~~June 30, ~~2017,~~2022, the Company had ~~$2,579~~$2,528 million of indebtedness associated with Allison Transmission, Inc.’s (“ATI”), the Company’s wholly-owned subsidiary, ~~5.0%~~4.75% Senior Notes due ~~September 2024~~October 2027 (“~~5.0%~~4.75% Senior Notes”), ATI’s ~~4.75%~~5.875% Senior Notes due ~~October 2027~~June 2029 (“~~4.75%~~5.875% Senior Notes”), ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”) and the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”), governing ATI’s term loan facility in the amount of $628 million due March 2026 (“Term Loan”) and ATI’s ~~Senior Secured~~revolving credit facility with commitments in the amount of $650 million due September 2025 (“Revolving Credit ~~Facility (“Senior~~Facility” and, together with the Term Loan, the “Senior Secured Credit Facility”)~~, which consists of the Senior Secured Credit Facility TermB-3~~ ~~Loan due 2022 (“TermB-3~~ ~~Loan”) and the Senior Secured Credit Facility revolving credit facility due 2021 (“Revolving Credit Facility”)~~.

The fair value of the Company’s long-term debt obligations as of ~~September~~June 30, ~~2017~~2022 was ~~$2,623~~$2,281 million. The fair value is based on quoted Level 2 market prices of the Company’s debt as of ~~September~~June 30, ~~2017. It is not expected that the Company would be able to repurchase a significant amount of its debt at these levels.~~2022. 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~~The borrowings under ~~its Senior Secured Credit Facility to lower the applicable margins on the TermB-3~~ ~~Loan by 0.5%. The amendment also eliminated the minimum LIBOR floor and reduced the minimum floor applicable to the base rate from 1.75% to 1.00% on the TermB-3~~ ~~Loan. The March 2017 amendment was treated as a modification to~~ the Senior Secured Credit Facility ~~under GAAP, and thus the Company recorded $1 million as new deferred financing fees.~~

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

~~The Senior Secured Credit Facility is~~are collateralized by a lien on substantially all assets of the Company, ~~including all~~ATI and each of the existing and future U.S. subsidiary guarantors, with certain exceptions set forth in the Credit Agreement, and ATI’s capital stock and all of the capital stock or other equity ~~interest~~interests held by the

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Company, ATI and each of ~~the Company’s~~ATI’s existing and future U.S. subsidiary guarantors (subject to certain limitations for equity ~~interests~~interest of foreign subsidiaries and other exceptions set forth in the ~~terms of the Senior Secured~~ Credit ~~Facility)~~Agreement). Interest on the Term~~B-3~~ Loan, as of ~~September~~June 30, ~~2017,~~2022, is either (a) ~~2.00%~~1.75% over a LIBOR rate on deposits in U.S. dollars for one-, two-, three- or six-month periods (or twelve-month or shorter periods if, at the ~~LIBOR~~time of the borrowing, available from all relevant lenders) (the "LIBOR Rate"), or (b) ~~1.00%~~0.75% over the greater of the prime lending rate as quoted by the administrative agent, the LIBOR Rate for an interest period of one month plus 1.00% and the federal funds effective rate published by the Federal Reserve Bank of New York plus ~~0.5%~~0.50%, ~~provided that neither is below 1.00%~~subject to a 1.00% floor (the "Base Rate"). As of ~~September~~June 30, ~~2017,~~2022, the Company elected to pay the lowestall-in rate of LIBOR plus the applicable margin, or ~~3.24%~~3.39%, on the Term~~B-3~~ Loan. The ~~Senior Secured~~ Credit ~~Facility~~Agreement requires minimum quarterly principal payments on the Term~~B-3~~ Loan, as well as prepayments from certain net cash proceeds ofnon-ordinary course asset sales and casualty and condemnation events, the incurrence of certain debt and from a percentage of excess cash flow, if applicable. The minimum required quarterly principal payment on the Term~~B-3~~ Loan through its maturity date of ~~September 2022~~March 2026 is $3$2 million. As of ~~September~~June 30, ~~2017,~~2022, there had been no payments required for certain net cash proceeds ofnon-ordinary course asset sales and casualty and condemnation events. The remaining principal balance is due upon maturity.

The Senior Secured Credit Facility also provides a Revolving Credit Facility, net of an allowance for up to ~~$75~~$75 million in outstanding letters of credit commitments. Throughout the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, the Company made periodic withdrawals and payments on the Revolving Credit Facility as part of ~~its debt~~the Company's cash management plans. The maximum amount outstanding at any time during the ~~nine~~six months ended ~~September~~June 30, ~~2017 on the Revolving Credit Facility~~2022 was ~~$300~~$75 million. As of ~~September~~June 30, ~~2017,~~2022, the Company had ~~$533~~$645 million available under the Revolving Credit Facility, net of ~~$17~~$5 million in letters of credit. Borrowings under the Revolving ~~credit borrowings~~Credit Facility bear interest at a variable base rate plus an applicable margin based on the Company’s ~~total~~first lien net leverage ratio. ~~Interest~~When the Company’s first lien net leverage ratio is above 4.00x, interest on the Revolving Credit Facility is ~~either~~ (a) ~~1.75%~~0.75% over the Base Rate or (b) 1.75% over the LIBOR Rate; when the Company’s first lien net leverage ratio is equal to or ~~(b) 0.75%~~less than 4.00x and above 3.50x, interest on the Revolving Credit Facility is (i) 0.50% over the ~~greater~~Base Rate or (ii) 1.50% over the LIBOR Rate; and when the Company’s first lien net leverage ratio is equal to or below 3.50x, interest on the Revolving Credit Facility is (y) 0.25% over the Base Rate or (z) 1.25% over the LIBOR Rate. As of June 30, 2022, the ~~prime lending rate in effect on such day and~~applicable margin for the ~~federal funds effective rate published by the Federal Reserve Bank of New York plus 0.5%, provided that neither~~

~~is below 1.75%~~Revolving Credit Facility was 1.25%. In addition, there is an annual commitment fee, based on the Company’s ~~total~~first lien net leverage ratio, on the average unused revolving credit borrowings available under the Revolving Credit Facility. As of June 30, 2022, the commitment fee is 0.25%. Borrowings under the Revolving ~~credit borrowings~~Credit Facility are payable at the option of the Company throughout the term of the Senior Secured Credit Facility with the balance due in September ~~2021.~~2025.

The Senior Secured Credit Facility requires the Company to maintain a specified maximum ~~total senior secured~~first lien net leverage ratio of ~~5.50x~~5.50x when revolving loan commitments remain outstanding on the Revolving Credit Facility at the end of a fiscal quarter. As of ~~September~~June 30, ~~2017,~~2022, the Company had ~~no revolving loans outstanding;~~0 amounts outstanding under the Revolving Credit Facility; however, the Company would have been in compliance with the maximum ~~total senior secured~~first lien net leverage ratio, achieving a ~~1.19x~~0.58x ratio. Additionally, within the terms of the Senior Secured Credit Facility, a ~~senior secured~~first lien net leverage ratio at or below ~~4.00x~~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,~~Agreement, among other things, includes customary restrictions (subject to certain exceptions) on the Company’s ability to incur certain indebtedness, grant certain liens, make certain investments, engage in acquisitions, consolidations and mergers, declare or pay certain dividends or repurchase shares of the Company’s common stock. As of ~~September~~June 30, ~~2017,~~2022, the Company iswas in compliance with all covenants under the ~~Senior Secured~~ Credit ~~Facility.~~Agreement.

~~5.0%~~ 14

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Senior Notes

~~The 5.0%~~Each series of the 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 any series of the ~~5.0%~~ Senior Notes. The ~~indenture~~indentures governing the ~~5.0%~~ Senior Notes ~~contains~~contain 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~~June 30, ~~2017,~~2022, the Company iswas in compliance with all covenants under the ~~indenture~~indentures governing the ~~5.0%~~ Senior Notes.

NOTE H. DERIVATIVES

~~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.

~~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~~swaps that are based on ~~the~~ LIBOR to manage a portion of this exposure. The ~~Company has not elected~~interest rate swaps are designated as cash flow hedges that qualify for hedge accounting ~~treatment for these derivatives, and as a result, fair~~under the hypothetical derivative method. Fair value adjustments are ~~charged directly to Interest expense,~~recorded as a component of Accumulated other comprehensive loss, net of tax (“AOCL”) in the Condensed Consolidated ~~Statements~~Balance Sheets. Balances in AOCL are reclassified to earnings when transactions related to the underlying risk are settled. As of ~~Comprehensive Income.~~

~~A summary~~June 30, 2022, the Company held interest rate swaps effective from September 2019 to September 2025 with notional values totaling $250 million and a weighted average LIBOR fixed rate of 3.04%, interest rate swaps effective from September 2019 to September 2022 with notional values totaling $250 million and a weighted average LIBOR fixed rate of 3.01% and interest rate swaps effective from September 2022 to September 2025 with notional values totaling $250 million and a weighted average LIBOR fixed rate of 2.82%. See "Note F. Fair Value of Financial Instruments” for information regarding the fair value of the Company’s interest rate ~~derivatives as of September 30, 2017 and December 31, 2016 follows (dollars in millions):~~swaps.

   September 30, 2017    December 31, 2016
   Notional
Amount    Fair Value    Notional
Amount    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~~derivatives qualifying and designated for hedge accounting 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
liabilities
   $ (10 )
Other current
liabilities
   $ (11 )

Other non-current
liabilities
   (9 )
Other non-current
liabilities
   (18 )




Total derivatives not designated as hedging instruments
      $ (19 )    $ (29 )


		Fair Value
	Balance Sheet Location	June 30, 2022		December 31, 2021
Derivative Assets:
Interest rate swaps	Other current assets	$	1	$	0
	Other non-current assets		2		0
Total derivative assets		$	3	$	0

Derivative Liabilities:
Interest rate swaps	Other current liabilities	$	1	$	10
	Other non-current liabilities		0		21
Total derivative liabilities		$	1	$	31

The ~~following tabular disclosure describes~~balance of net derivative gains and (losses) recorded in AOCL as of June 30, 2022 and December 31, 2021 was $2 million and ($31) million, respectively. See "Note O. Accumulated Other Comprehensive Loss” for information regarding activity recorded as a component of AOCL during the ~~location~~three and ~~impact on~~six months ended June 30, 2022 and 2021. As of June 30, 2022, the ~~Company’s results~~Company had $2 million of ~~operations related~~derivative losses recorded in AOCL expected to ~~unrealized gain (loss) on interest rate derivatives (dollars in millions):~~be reclassified to earnings within the next twelve months.

NOTE I. PRODUCT WARRANTY LIABILITIES

As of June 30, 2022, current and non-current product warranty liabilities were $28 million and $25 million, respectively. As of June 30, 2021, current and non-current product warranty liabilities were $29 million and $31 million, respectively.

~~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,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2022			2021			2022			2021
Beginning balance	$	55		$	70		$	63		$	78		$	53		$	62		$	53		$	66
Payments		(8	)		(7	)		(23	)		(26	)		(8	)		(8	)		(15	)		(16	)
Increase in liability (warranty issued during period)		4			4			13			12			5			4			9			8
Net adjustments to liability		(2	)		3			(4	)		6			3			2			6			2

Ending balance	$	49		$	70		$	49		$	70		$	53		$	60		$	53		$	60

NOTE J. DEFERRED REVENUE

As of ~~September~~June 30, ~~2017, the~~2022, current andnon-current ~~product warranty liabilities were $22~~ deferred revenue was $39 million and ~~$27~~$96 million, respectively. As of ~~September~~June 30, ~~2016, the~~2021, current andnon-current ~~product warranty liabilities were $28~~ deferred revenue was $39 million and ~~$42~~$103 million, respectively.

~~NOTE I.~~

~~DEFERRED REVENUE~~

~~As of September 30, 2017, the current andnon-current~~ ~~deferred revenue were $33 million and $75 million, respectively. As of September 30, 2016, the current andnon-current~~ ~~deferred revenue were $24 million and $61 million, respectively.~~

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


	Three months ended September 30,						Nine months ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2022			2021			2022			2021
Beginning balance	$	96		$	84		$	94		$	79		$	132		$	142		$	136		$	143
Increases		21			7			35			23			13			9			20			16
Revenue earned		(9	)		(6	)		(21	)		(17	)		(10	)		(9	)		(21	)		(17	)

Ending balance	$	108		$	85		$	108		$	85		$	135		$	142		$	135		$	142

Deferred revenue recorded in current andnon-current liabilities related to ~~extended transmission coverage (“ETC”)~~ETC as of ~~September~~June 30, ~~2017 were $29~~2022 was $30 million and ~~$70~~$85 million, respectively. Deferred revenue recorded in current andnon-current liabilities related to ETC as of ~~September~~June 30, ~~2016 were $24~~2021 was $30 million and ~~$61~~$87 million, ~~respectively.~~

NOTE K. LEASES

Contracts are assessed by the Company to determine if the contract conveys the right to control an identified asset in exchange for consideration during a period of time. The Company classifies all identified leases as either operating or finance leases. As of June 30, 2022, the Company was not a party to any finance leases. Contracts that contain leases are assessed to determine if the consideration in the contract is related to a lease component, non-lease component or other components not related to the lease. Lease components are recorded as right-of-use (“ROU”) assets and lease liabilities while any non-lease component is expensed as incurred. The consideration in the contract related to other components not related to the lease is allocated among the lease component and the non-lease component, as applicable, based on the stand-alone selling price of the lease and non-lease components.

Certain lease contracts may contain an option to extend or terminate the lease. The Company considers the economic impact of extension and termination options by contract. If the Company concludes it is reasonably certain an option will be exercised, that option is included in the lease term and impacts the amount recorded as an ROU asset and lease liability at inception of the contract.

The Company's lease liability is determined by discounting the future cash flows over the lease period. The Company determines its discount rates utilizing current secured financing rates based on the length of the lease period plus the Company's margin over LIBOR on the Term Loan. The Company believes this rate effectively represents a borrowing rate the Company could obtain on a debt instrument possessing similar terms as the lease. Lease liabilities are classified between current and non-current liabilities based on the terms of the underlying leases. The weighted average discount rate on operating leases as of June 30, 2022 and December 31, 2021 was 4.26% and 4.25%, respectively.

As of June 30, 2022, the Company recorded current and non-current operating lease liabilities of $4 million and $11 million, respectively. As of December 31, 2021, the Company recorded current and non-current operating lease liabilities of $4 million and $13 million, respectively. The following table reconciles future undiscounted cash flows for operating leases as of June 30, 2022 to total operating lease liabilities:


	June 30, 2022
2022	$	2
2023		4
2024		2
2025		2
2026		1
Thereafter		6
Total lease payments	$	17
Less: Interest		2
Present value of lease liabilities	$	15

ROU assets are calculated as the related lease liability adjusted for lease incentives, prepayments and the effect of escalating lease payments on period expense. The below table depicts the ROU assets held by the Company based on the underlying asset:


	June 30, 2022		December 31, 2021
Buildings	$	14	$	16
Land		1		1
Vehicles		1		1
Total ROU assets	$	16	$	18

~~NOTE J.~~

~~OTHER CURRENT LIABILITIES~~

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The weighted average remaining lease term as of June 30, 2022 and June 30, 2021 was 6.8 years and 7.1 years, respectively.

Operating lease expense was $2 million for each of the three months ended June 30, 2022 and 2021 and $3 million for each of the six months ended June 30, 2022 and 2021, and was recorded within Selling, general and administrative expense and Engineering - research and development on the Company's Condensed Consolidated Statements of Comprehensive Income. There was 0 material short-term operating lease expense for any of the three or six months ended June 30, 2022 or 2021.

The calculation of the Company's ROU assets and lease liabilities did not include cash consideration as of either June 30, 2022 or December 31, 2021. During the six months ended June 30, 2022 and 2021, the Company recorded 0 and $1 million, respectively, of new ROU assets obtained in exchange for lease obligations.

NOTE L. OTHER CURRENT LIABILITIES

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


	As of September 30, 2017		As of December 31, 2016		June 30, 2022		December 31, 2021
Payroll and related costs	$	67	$	52	$	48	$	80
Sales allowances		32		24		33		39
Accrued interest payable		28		17		24		24
Taxes payable		19		10		17		14
Vendor buyback obligation		13		13		15		16
OPEB liability						4		4
Lease liability						4		4
Derivative liabilities		11		11		1		10
Defense price reduction reserve		9		9
Other accruals		14		14		14		13

Total	$	193	$	150	$	160	$	204

NOTE M. EMPLOYEE BENEFIT PLANS

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


	Pension Plans						Post-retirement Benefits						Pension Plans						Post-retirement Benefits
	Three months ended September 30,						Three months ended September 30,						For the Three Months Ended June 30,						For the Three Months Ended June 30,
	2017			2016			2017			2016			2022			2021			2022			2021
Net periodic benefit cost:
Net periodic benefit cost (credit):
Service cost	$	3		$	3		$	—		$	1		$	2		$	2		$	1		$	1
Interest cost		1			2			2			1			2			2			0			1
Expected return on assets		(1	)		(2	)		—			—			(2	)		(2	)		0			0
Prior service cost		—			—			(1	)		(1	)

Net periodic benefit cost	$	3		$	3		$	1		$	1

Prior service credit														0			0			(2	)		(3	)
Net periodic benefit cost (credit)													$	2		$	2		$	(1	)	$	(1	)


	Pension Plans						Post-retirement Benefits						Pension Plans						Post-retirement Benefits
	Nine months ended September 30,						Nine months ended September 30,						For the Six Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2022			2021			2022			2021
Net periodic benefit cost:
Net periodic benefit cost (credit):
Service cost	$	9		$	9		$	1		$	2		$	4		$	5		$	1		$	1
Interest cost		4			5			5			5			3			3			1			1
Expected return on assets		(5	)		(5	)		—			—			(4	)		(4	)		0			0
Prior service cost		—			—			(3	)		(3	)

Net periodic benefit cost	$	8		$	9		$	3		$	4

Prior service credit														0			0			(5	)		(5	)
Net periodic benefit cost (credit)													$	3		$	4		$	(3	)	$	(3	)

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~~NOTE L.~~

~~INCOME TAXES~~

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

NOTE N. INCOME TAXES

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, the Company recorded total income tax expense of ~~$59~~$32 million and ~~$154~~$66 million, respectively. The effective tax rate for ~~both~~each of the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~35%~~21%. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, the Company recorded total income tax expense of ~~$26~~$30 million and ~~$93~~$64 million, respectively. The effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021 was ~~37%~~21% and ~~38%~~22%, 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 amore-likely-than-not realization threshold, in accordance with authoritative accounting guidance. Appropriate consideration is given to all positive and negative evidence related to that realization. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory ~~carry forward~~carry-forward periods, experience with tax attributes expiring unused, and tax planning alternatives. The weight given to these considerations depends upon the degree to which they can be objectively verified.

The Company continues to provide for a valuation allowance on certain of its foreign deferred tax ~~assets.~~assets and an anticipated capital loss carryforward. 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 &and Development Credit as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016.~~2021. 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~~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).

NOTE O. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables reconcile changes in ~~Accumulated other comprehensive loss (“AOCL”)~~AOCL by component (net of tax, dollars in millions):


	Three months ended
	Pension and OPEB liability adjustments			Interest rate swaps			Foreign currency items			Total
AOCL as of March 31, 2021	$	(21	)	$	(35	)	$	(30	)	$	(86	)
Other comprehensive (loss) income before reclassifications		0			(2	)		4			2
Amounts reclassified from AOCL		(3	)		3			0			0
Income tax benefit		1			0			0			1
Net current period other comprehensive (loss) income	$	(2	)	$	1		$	4		$	3
AOCL as of June 30, 2021	$	(23	)	$	(34	)	$	(26	)	$	(83	)
AOCL as of March 31, 2022	$	(19	)	$	(5	)	$	(32	)	$	(56	)
Other comprehensive income (loss) before reclassifications		0			5			(8	)		(3	)
Amounts reclassified from AOCL		(2	)		3			0			1
Income tax expense		0			(2	)		0			(2	)
Net current period other comprehensive (loss) income	$	(2	)	$	6		$	(8	)	$	(4	)
AOCL as of June 30, 2022	$	(21	)	$	1		$	(40	)	$	(60	)


	Six months ended
	Pension and OPEB liability adjustments			Interest rate swaps			Foreign currency items			Total
AOCL as of December 31, 2020	$	(19	)	$	(46	)	$	(24	)	$	(89	)
Other comprehensive income (loss) before reclassifications		0			8			(2	)		6
Amounts reclassified from AOCL		(5	)		7			0			2
Income tax benefit (expense)		1			(3	)		0			(2	)
Net current period other comprehensive (loss) income	$	(4	)	$	12		$	(2	)	$	6
AOCL as of June 30, 2021	$	(23	)	$	(34	)	$	(26	)	$	(83	)
AOCL as of December 31, 2021	$	(17	)	$	(24	)	$	(32	)	$	(73	)
Other comprehensive income (loss) before reclassifications		0			27			(8	)		19
Amounts reclassified from AOCL		(5	)		6			0			1
Income tax benefit (expense)		1			(8	)		0			(7	)
Net current period other comprehensive (loss) income	$	(4	)	$	25		$	(8	)	$	13
AOCL as of June 30, 2022	$	(21	)	$	1		$	(40	)	$	(60	)

   Three months ended
   Available-for-
sale
securities    Defined
benefit
pension items    Foreign
currency
items    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 )


	Amounts reclassified from AOCL
AOCL Components	Three months ended June 30, 2022			Three months ended June 30, 2021			Affected line item in the Condensed Consolidated Statements of Comprehensive Income
Interest rate swaps	$	(3	)	$	(3	)	Interest expense, net
Prior service cost		2			3		Other (expense) income, net
Total reclassifications, before tax	$	(1	)	$	0		Income before income taxes
Total reclassifications, net of tax	$	(1	)	$	0

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	Amounts reclassified from AOCL
AOCL Components	Six months ended June 30, 2022			Six months ended June 30, 2021			Affected line item in the Condensed Consolidated Statements of Comprehensive Income
Interest rate swaps	$	(6	)	$	(7	)	Interest expense, net
Prior service cost		5			5		Other (expense) income, net
Total reclassifications, before tax	$	(1	)	$	(2	)	Income before income taxes
Total reclassifications, net of tax	$	(1	)	$	(2	)

   Nine months ended
   Available-for-
sale
securities    Defined
benefit
pension items    Foreign
currency
items    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
Statements of Comprehensive Income
AOCL Components    Three months
ended
September 30,
2017 Three months
ended
September 30,
2016
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
ended
September 30,
2017 Nine months
ended
September 30,
2016
Affected line item in the Condensed Consolidated
Statements of Comprehensive Income
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 isand actuarial loss are included in the computation of the Company’s net periodic benefit ~~cost. Please see NOTE K “Employee~~cost (credit). See "Note M. Employee Benefit Plans” for additional details.

NOTE P. 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~~June 30, ~~2017,~~2022, the Company had a liability recorded in the amount of ~~$13~~$3 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.

NOTE Q. 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 and 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.recognized. For ~~each of~~ the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2017, 0.2~~2022, there were 2 million and 1 million, respectively, outstanding stock options ~~were not included in~~excluded from the diluted EPS calculation because they were anti-dilutive. For each of the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2016, 0.6~~2021, there were 1 million outstanding stock options ~~were not included in~~excluded from the diluted EPS calculation because they were anti-dilutive.

Table of Contents

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,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2022		2021		2022		2021
Net income	$	111	$	45	$	289	$	154	$	122	$	110	$	251	$	230

Weighted average shares of common stock outstanding		146		167		152		169		97		109		97		110
Dilutive effect stock-based awards		1		1		1		1

Dilutive effect of stock-based awards										0		0		1		1
Diluted weighted average shares of common stock outstanding		147		168		153		170		97		109		98		111

Basic earnings per share attributable to common stockholders	$	0.75	$	0.27	$	1.91	$	0.91	$	1.26	$	1.01	$	2.59	$	2.09

Diluted earnings per share attributable to common stockholders	$	0.75	$	0.27	$	1.90	$	0.91	$	1.26	$	1.01	$	2.56	$	2.07

NOTE R. COMMON STOCK

The ~~Company’s~~Company's current stock repurchase program (the "Repurchase Program") was ~~announced on November 14,~~authorized by the Board of Directors in 2016. ~~The~~On February 24, 2022, the Board of Directors authorized the Company to repurchase ~~up to $1,000~~an additional $1,000 million of its common stock, onbringing the ~~open market or through privately negotiated transactions through December 31, 2019.~~total amount authorized under the Repurchase Program to $4,000 million.

During the three and six months ended June 30, 2022, the Company repurchased $34 million and $115 million, respectively, of its common stock under the Repurchase Program, leaving $1,199 million of authorized repurchases remaining under the Repurchase Program as of June 30, 2022. The Repurchase Program has no termination date, and the timing and amount of stock purchases are subject to market conditions and corporate needs. ~~This stock repurchase program~~The 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,~~

NOTE S. ACQUISITIONS

On March 31, 2022, the Company ~~repurchased approximately $239~~acquired transmission portfolio assets of India-based AVTEC Ltd's off-highway business and AVTEC's Madras Export Procession Zone off-highway component machining business ("AVTEC"), for $23 million in cash. The Company accounted for this transaction under the acquisition method in accordance with authoritative guidance on business combinations. Control was obtained as of the purchase date through the purchase agreement. The acquired business was integrated into the Company's single operating segment.

The purchase price allocation for this transaction resulted in the recognition of goodwill, intangible assets and property, plant and equipment of $13 million, $8 million and ~~$778~~$2 million, ~~respectively, of~~respectively. The Company has completed its ~~common stock under~~initial accounting for the ~~repurchase program.~~

~~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~~fair value of the ~~Company’s common stock~~acquired assets and liabilities, and any adjustments identified in the measurement period, which will not exceed one year from the acquisition date, will be accounted for ~~approximately $363 million. The shares were repurchased under the stock repurchase program approved by the Board~~prospectively.

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our condensed consolidated interim financial statements and the related notes contained elsewhere in this Quarterly Report on Form10-Q.

The statements in this discussion regarding industry trends, our expectations regarding our future performance, liquidity and capital resources and othernon-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A “Risk Factors” ~~below.~~in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission (“SEC”) on April 28, 2022, and in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on February 17, 2022. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Allison Transmission Holdings, Inc. and its subsidiaries (“Allison,” the ~~“Company”~~“Company,” “we,” “us” or ~~“we”~~“our”) design and manufacture ~~commercial~~vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense ~~fully-automatic transmissions.~~fully automatic transmissions and electric hybrid and fully electric systems. 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~~is traded on the New York Stock Exchange under the symbol “ALSN”.

~~We have approximately 2,600 employees and 13 different transmission product lines.~~ Although approximately ~~78%~~76% of revenues were generated in North America in ~~2016,~~2021, we have a global presence by serving customers in Asia, Europe, ~~Asia,~~ South America and Africa. We serve customers through aan independent network of approximately 1,400 independent distributor and dealer locations worldwide.

During the first half of 2022, global markets continued to experience supply chain, labor and raw material constraints, as a result of factors including the COVID-19 pandemic and the war in Ukraine, that created volatility in our business performance. As a result, we experienced, and expect to continue to experience, raw material and component part price inflation, increased freight and logistics costs, increased labor costs as a result of labor shortages and increased foreign exchange volatility. In addition, despite increased customer demand, our net sales for the first half of 2022 were negatively impacted as a result of our customers’ inability to secure components from the broader commercial vehicle supply base which resulted in reduced commercial vehicle build schedules. We expect that commercial vehicle build schedules will continue to be negatively impacted by the availability of components throughout the remainder of 2022.

To limit the spread of variants and sub-variants of COVID-19, governments have taken, and may in the future take, various actions that have impacted, and may continue to impact, our employees, operations, customers and supply base, including the administration or mandate of vaccinations, travel bans and restrictions, quarantines, curfews, stay-at-home orders, social distancing guidelines and business shutdowns and closures.

Our net sales are driven by commercial vehicle production, which tends to be highly correlated to macroeconomic conditions. ~~Our 2017 net sales reflect stronger~~In 2022, we expect higher customer demand ~~for North America~~in the Global On-Highway, Global Off-Highway ~~service parts, globalOn-Highway~~ ~~products~~ and ~~globalOff-Highway~~Service Parts, Support Equipment & Other end markets as well as price increases on certain products.

North AmericaOn-Highway end market net sales were up ~~26%~~13% for the ~~third~~second quarter ~~2017~~2022 compared to the ~~third~~second quarter ~~2016,~~2021, principally driven by ~~higher~~continued strength in customer demand for ~~Rugged Duty Series~~last mile delivery, regional haul and ~~Highway Series models.~~vocational trucks.

~~North America Electric Hybrid-Propulsion Systems for Transit Bus~~Global Off-Highway end market net sales were up ~~$11~~$25 million for the ~~third~~second quarter ~~2017~~2022 compared to the ~~third~~second quarter ~~2016,~~2021, principally driven by sustained demand for hydraulic fracturing applications in the ~~timing of certain transit property orders.~~energy sector as well as higher demand in the mining and construction sectors.

Defense end market net sales were down 40% for the second quarter 2022 compared to the second quarter 2021, principally driven by lower demand for Tracked vehicle applications.

Outside North America~~Off-Highway~~ On-Highway end market net sales were up ~~$16 million~~7% for the ~~third~~second quarter ~~2017~~2022 compared to the ~~third~~second quarter ~~2016, principally driven by higher demand from hydraulic fracturing applications.~~

~~Defense end market net sales were up $10 million for the third quarter 2017 compared to the third quarter 2016, principally driven by higher demand.~~

~~Outside North AmericaOn-Highway~~ ~~end market net sales were up 14% for the third quarter 2017 compared to the third quarter 2016,~~2021, principally driven by higher demand in ~~Asia~~Europe and ~~Europe.~~South America.

~~Outside North AmericaOff-Highway~~ ~~end market net sales were up $12 million for the third quarter 2017 compared to the third quarter 2016, principally driven by improved demand in the mining and energy sectors.~~

Service Parts, Support Equipment and Other end market net sales were up ~~45%~~8% for the ~~third~~second quarter ~~2017~~2022 compared to the ~~third~~second quarter ~~2016,~~2021, principally driven by ~~higher demand for~~ North America~~Off-Highway~~ ~~service parts, globalOn-Highway~~ service parts and global support equipment.

We generate our net sales primarily from the sale of ~~transmissions, transmission~~vehicle propulsion solutions, service and component parts, support equipment, defense kits, engineering services, royalties and extended transmission coverage to a wide array of original equipment manufacturers, distributors and the U.S. ~~government.~~and other governments. Sales are recorded net of provisions for customer allowances and other rebates. Engineering services are recorded as net sales in accordance with the terms of the contract. The associated costs are recorded in cost of sales. We also have royalty agreements with third parties that provide net sales as a result of joint efforts in developing marketable products.

Our primary components of cost of sales are purchased parts, ~~the~~ overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of ~~transmissions~~propulsion solutions and parts. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, direct material costs were approximately ~~70%~~67%, overhead costs were approximately ~~24%~~26%, and direct labor costs were approximately 6%7% of total cost of sales. We are subject to changes in our cost of sales caused by movements in underlying commodity prices. We seek to hedge against this risk by using ~~commodity swap contracts and~~ long-term ~~supply~~ agreements, ~~(“LTSAs”).~~as appropriate. See Part I, Item 3, “Quantitative and Qualitative Disclosures about Market ~~Risk—Commodity~~Risk —Commodity Price Risk” included below.

The principal components of our selling, general and administrative expenses are salaries and benefits for our office personnel, advertising and promotional expenses, product warranty expense, expenses relating to certain information technology systems and amortization of our ~~intangible assets.~~intangibles.

We incur costs in connection with research and development programs that are expected to contribute to future earnings. Such costs are expensed as incurred.

We use Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) and Adjusted EBITDA ~~margin~~as a percent of net sales to measure our operating profitability. We believe that Adjusted EBITDA and Adjusted EBITDA ~~margin~~as a percent of net sales provide management, investors and creditors with useful measures of the operational results of our business and increase theperiod-to-period comparability of our operating profitability and comparability with other companies. Adjusted EBITDA ~~margin~~as a percent of net sales is also used in the calculation of management’s incentive compensation program. The most directly comparable U.S. generally accepted accounting principles (“GAAP”) measure to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales is Net ~~income.~~income and Net income as a percent of net sales, respectively. Adjusted EBITDA is calculated as ~~the~~ earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”) governing Allison Transmission, Inc.’s (“ATI”) ~~TermB-3~~ ~~Loan~~, our wholly-owned subsidiary, term loan facility in the amount of $628 million due ~~2022~~March 2026 (“Term~~B-3~~ Loan”~~, and together with the revolving portion of ATI’s senior secured credit facility (“Revolving Credit Facility”), defined as the “Senior Secured Credit Facility”~~). Adjusted EBITDA ~~margin~~as a percent of net sales is calculated as Adjusted EBITDA divided by net sales.

We use Adjusted free cash flow to evaluate the amount of cash generated by our business that, after the capital investment needed to maintain and grow our business and certain mandatory debt service requirements, can be used for repayment of debt, stockholder distributions and strategic opportunities, including investing in our ~~business and strengthening our balance sheet.~~business. We believe that Adjusted free cash flow enhances the understanding of the cash flows of our business for management, investors and creditors. Adjusted free cash flow is also used in the calculation of management’s incentive compensation program. The most directly comparable GAAP measure to Adjusted free cash flow is Net cash provided by operating activities. Adjusted free cash flow is calculated as Net cash provided by operating activities after additions of long-lived assets.

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

Comparison of three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021

The following table sets forth certain financial information for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. The following table and discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form10-Q.


	Three months ended September 30,												Three Months Ended June 30,
*(unaudited, dollars in millions)*	2017			% of net sales			2016			% of net sales			2022			% of net sales			2021			% of net sales
Net sales	$	595			100	%	$	434			100	%	$	664			100	%	$	603			100	%
Cost of sales		293			49			230			53			353			53			315			52

Gross profit		302			51			204			47			311			47			288			48
Operating expenses:
Selling, general and administrative expenses		78			13			79			18
Selling, general and administrative														78			12			80			13
Engineering — research and development		26			5			21			5			46			7			41			7

Total operating expenses		104			18			100			23			124			19			121			20

Operating income		198			33			104			24			187			28			167			28
Interest expense, net		(26	)		(4	)		(22	)		(5	)		(30	)		(5	)		(30	)		(5	)
Expenses related to long-term debt refinancing		—			—			(12	)		(3	)
Other (expense) income, net		(2	)		—			1			—			(3	)		—			3			—

Income before income taxes		170			29			71			16			154			23			140			23
Income tax expense		(59	)		(10	)		(26	)		(6	)		(32	)		(5	)		(30	)		(5	)

Net income	$	111			19	%	$	45			10	%	$	122			18	%	$	110			18	%

Net sales for the quarter ended ~~September~~June 30, ~~2017~~2022 were ~~$595~~$664 million compared to ~~$434~~$603 million for the quarter ended ~~September~~June 30, ~~2016,~~2021, an increase of ~~37%~~10%. The increase was principally driven by a ~~$58~~$38 million, or ~~26%~~13%, increase in net sales in the North AmericaOn-Highway end market principally driven by continued strength in customer demand for last mile delivery, regional haul and vocational trucks, a $25 million, or 93%, increase in net sales in the Global Off-Highway end market principally driven by sustained demand for hydraulic fracturing applications in the energy sector as well as higher demand ~~for Rugged Duty Series~~in the mining and ~~Highway Series models,~~construction sectors, a ~~$43~~$10 million, or ~~45%~~8%, increase in net sales in the Service Parts, Support Equipment and Other end market principally driven by ~~higher demand for~~ North America~~Off-Highway~~ ~~service parts, globalOn-Highway~~ service parts and global support equipment and a ~~$16 million increase in net sales in the North AmericaOff-Highway~~ ~~end market principally driven by higher demand from hydraulic fracturing applications, a $12 million increase in net sales in the Outside North AmericaOff-Highway~~ ~~end market principally driven by improved demand in the mining and energy sectors, an $11~~$7 million, or ~~14%~~7%, increase in net sales in the Outside North AmericaOn-Highway end market principally driven by higher demand in ~~Asia~~Europe and ~~Europe, an $11 million increase in net sales in the North~~South America, ~~Electric Hybrid-Propulsion Systems for Transit Bus end market principally driven~~partially offset by ~~the timing of certain transit property orders, and~~ a ~~$10~~$19 million, or 40%, ~~increase~~decrease in net sales in the Defense end market principally driven by ~~higher demand.~~lower demand for Tracked vehicle applications.

Cost of sales for the quarter ended ~~September~~June 30, ~~2017~~2022 was ~~$293~~$353 million compared to ~~$230~~$315 million for the quarter ended ~~September~~June 30, ~~2016,~~2021, an increase of ~~27%~~12%. The increase was principally driven by ~~increased~~unfavorable material costs and increased direct material and manufacturing ~~expenses~~expense commensurate with increased net ~~sales and $2 million of higher incentive compensation expense.~~sales.

Gross profit for the quarter ended ~~September~~June 30, ~~2017~~2022 was ~~$302~~$311 million compared to ~~$204~~$288 million for the quarter ended ~~September~~June 30, ~~2016,~~2021, an increase of ~~48%~~8%. The increase was principally driven by ~~$101 million related to increased net sales and $7~~$33 million of price increases on certain products and $20 million related to increased net sales, partially offset by $4$25 million of unfavorable material costs $4and $3 million of ~~increased~~higher manufacturing expense commensurate with increased net ~~sales and $2 million of higher incentive compensation expense.~~sales. Gross profit as a percent of net sales for the ~~quarter was higher than for~~three months ended June 30, 2022 decreased 100 basis points compared to the same period in ~~2016~~2021 principally driven by ~~favorable sales volume and~~increased cost of goods sold, partially offset by price increases on certain ~~products, partially offset by unfavorable material costs and higher incentive compensation expense.~~

Selling, general and administrative expenses for the quarter ended ~~September~~June 30, ~~2017~~2022 were $78 million compared to ~~$79~~$80 million for the quarter ended ~~September~~June 30, ~~2016,~~2021, a decrease of 1%3%. The decrease was principally driven by ~~$3 million of favorable product warranty adjustments and $3 million of favorable DPIM adjustments, partially offset by increased~~lower commercial activities ~~spending and $2 million of higher incentive compensation expense.~~spending.

Engineering expenses for the quarter ended ~~September~~June 30, ~~2017~~2022 were ~~$26~~$46 million compared to ~~$21~~$41 million for the quarter ended ~~September~~June 30, ~~2016,~~2021, an increase of ~~24%~~12%. The increase was principally driven by increased product initiatives ~~spending and $2 million of higher incentive compensation expense.~~spending.

Interest expense, net for each of the ~~quarter~~quarters ended ~~September~~June 30, ~~2017~~2022 and 2021 was $26 million compared to $22 million for the quarter ended September 30, 2016, an increase of 18%. The increase was principally driven by $12 million of higher interest expense for ATI’s 5.0% Senior Notes due September 2024 (“5.0% Senior Notes”) that were issued in September 2016, $1 million of interest expense related to revolving loans outstanding on our Revolving Credit Facility and $1 million of higher interest expense for our interest rate derivatives that became effective in August 2016, partially offset by $10 million of lower interest expense as a result of debt repayments related to ATI’s Term~~B-3~~ ~~Loan, $1 million of favorablemark-to-market~~ ~~adjustments for our interest rate derivatives and $1 million of lower amortization of deferred financing fees.~~$30 million.

~~In September 2016, we refinanced our Senior Secured Credit Facility, resulting in aone-time~~ ~~expense of $12 million for the three months ended September 30, 2016.~~

Other (expense) income, net for the quarter ended ~~September~~June 30, ~~2017~~2022 was ($2)3) million compared to $1$3 million for the quarter ended ~~September~~June 30, ~~2016.~~2021. The change ~~in Other (expense) income, net~~ was principally driven by $2$5 million of ~~2017 losses on intercompany financing, $1~~unfavorable foreign exchange and $3 million of ~~2016 gains on intercompany financing and $1 million of higher foreign exchange losses,~~unfavorable change associated with assets held in a rabbi trust, partially offset by $1a $4 million ~~of 2016 technology-related investment expense for investments inco-development~~ ~~agreements to expand our position in transmission technologies.~~unrealized gain on marketable securities.

Income tax expense for the ~~quarter~~three months ended ~~September~~June 30, ~~2017~~2022 was ~~$59~~$32 million, resulting in an effective tax rate of ~~35% versus~~21%, compared to $30 million of income tax expense and an effective tax rate of ~~37%~~21% for the ~~quarter~~three months ended ~~September~~June 30, ~~2016.~~2021. The ~~decrease~~increase in ~~the effective~~income tax ~~rate~~expense was principally driven by increased ~~U.S. income tax deductions and discrete activity related to excess tax benefit from stock-based compensation.~~

Comparison of ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021

The following table sets forth certain financial information for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. The following table and discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form10-Q.


	Nine months ended September 30,												Six Months Ended June 30,
*(unaudited, dollars in millions)*	2017			% of net sales			2016			% of net sales			2022			% of net sales			2021			% of net sales
Net sales	$	1,674			100	%	$	1,371			100	%	$	1,341			100	%	$	1,191			100	%
Cost of sales		831			50			725			53			710			53			612			51

Gross profit		843			50			646			47			631			47			579			49
Operating expenses:
Selling, general and administrative expenses		245			15			240			17
Selling, general and administrative														153			11			153			13
Engineering — research and development		74			4			64			5			89			7			79			7

Total operating expenses		319			19			304			22			242			18			232			20

Operating income		524			31			342			25			389			29			347			29
Interest expense, net		(78	)		(5	)		(84	)		(6	)		(59	)		(4	)		(59	)		(5	)
Expenses related to long-term debt refinancing		—			—			(12	)		(1	)
Other (expense) income, net		(3	)		—			1			—			(13	)		(1	)		6			1

Income before income taxes		443			26			247			18			317			24			294			25
Income tax expense		(154	)		(9	)		(93	)		(7	)		(66	)		(5	)		(64	)		(6	)

Net income	$	289			17	%	$	154			11	%	$	251			19	%	$	230			19	%

Net sales for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 were ~~$1,674~~$1,341 million compared to ~~$1,371~~$1,191 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, an increase of ~~22%~~13%. The increase was principally driven by a ~~$123~~$65 million, or ~~46%~~10%, increase in net sales in the North America On-Highway end market principally driven by continued strength in

customer demand for last mile delivery, regional haul and vocational trucks, a $55 million, or 122%, increase in net sales in the Global Off-Highway end market principally driven by sustained demand for hydraulic fracturing applications in the energy sector as well as higher demand in the mining and construction sectors, a $32 million, or 18%, increase in net sales in the Outside North America On-Highway end market principally driven by higher demand across Europe, Asia and South America and our continued execution of growth initiatives and a $27 million, or 11%, increase in net sales in the Service Parts, Support Equipment and Other end market principally driven by ~~higher demand for~~ North America service parts and global support equipment, partially offset by a ~~$91~~$29 million, or ~~12%~~31%, ~~increase in net sales in the North AmericaOn-Highway~~ ~~end market principally driven by higher demand for Rugged Duty Series and Highway Series models, a $24 million, or 11%, increase in net sales in the Outside North AmericaOn-Highway~~ ~~end market principally driven by higher demand in Asia and Europe, a $22 million increase in net sales in the Outside North AmericaOff-Highway~~ ~~end market principally driven by higher demand in the mining and energy sectors, a $16 million increase in net sales in the North AmericaOff-Highway~~ ~~end market principally driven by higher demand from hydraulic fracturing applications, a $14 million, or 18%, increase~~decrease in net sales in the Defense end market principally driven by ~~higher~~lower demand ~~and a $13 million, or 32%, increase in net sales in the North America Electric Hybrid-Propulsion Systems~~ for ~~Transit Bus end market principally driven by the timing of certain transit property orders.~~Tracked vehicle applications.

Cost of sales for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~$831~~$710 million compared to ~~$725~~$612 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, an increase of ~~15%~~16%. The increase was principally driven by ~~increased~~unfavorable material costs and increased direct material and manufacturing ~~expenses~~expense commensurate with increased net ~~sales and $9 million of higher incentive compensation expense.~~sales.

Gross profit for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~$843~~$631 million compared to ~~$646~~$579 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, an increase of ~~30%~~9%. The increase was principally driven by ~~$184~~$69 million related to increased net sales and ~~$29~~$53 million of price increases on certain products, partially offset by ~~$9 million of higher incentive compensation expense, $5~~$57 million of unfavorable material costs and $2$11 million of higher manufacturing expense commensurate with increased net sales. Gross profit as a percent of net sales for the ~~nine~~six months ended ~~September~~June 30, ~~2017 was higher than for~~2022 decreased 150 basis points compared to the same period in ~~2016~~2021 principally driven by increased ~~sales volume and~~cost of goods sold, partially offset by price increases on certain ~~products, partially offset by higher incentive compensation expense and unfavorable material costs.~~

Selling, general and administrative expenses for each of the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and 2021 were ~~$245~~$153 million. Selling, general and administrative expense for the six months ended June 30, 2022 consisted of lower incentive compensation expense and higher commercial activities spending as compared to the six months ended June 30, 2021.

Engineering expenses for the six months ended June 30, 2022 were $89 million compared to ~~$240~~$79 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, an increase of 2%13%. The increase was principally driven by $13 million of higher incentive compensation expense, $2 million of higher stock-based compensation expense and increased commercial activities spending, partially offset by $7 million of favorable product warranty adjustments, $4 million of stockholder activism expenses in 2016 that did not recur in 2017 and $4 million of favorable DPIM adjustments.

Engineering expenses for the nine months ended September 30, 2017 were $74 million compared to $64 million for the nine months ended September 30, 2016, an increase of 16%. The increase was principally driven by $5 million of higher incentive compensation expense and increased product initiatives spending.

Interest expense, net for each of the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and 2021 was $78 million compared to $84 million for the nine months ended September 30, 2016, a decrease of 7%. The decrease was principally driven by $35 million of lower interest expense as a result of debt repayments related to ATI’s Term~~B-3~~ ~~Loan, $21 million of favorablemark-to-market~~ adjustments for our interest rate derivatives and $2 million of lower deferred financing fees, partially offset by $37 million of interest expense for ATI’s 5.0% Senior Notes that were issued in September 2016, $9 million of higher interest expense for our interest rate derivatives that became effective in August 2016 and $4 million of interest expense related to revolving loans outstanding on our Revolving Credit Facility.$59 million.

~~In September 2016, we refinanced our Senior Secured Credit Facility, resulting in aone-time~~ ~~expense of $12 million for the nine months ended September 30, 2016.~~

Other (expense) income, net for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ($3)13) million compared to $1$6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021. The change ~~in Other (expense) income, net~~ was principally driven by $2an $11 million unrealized loss on marketable securities, $7 million of ~~higher technology-related investment expense for investments inco-development~~ ~~agreements to expand our position in transmission technologies, $1~~unfavorable foreign exchange and $5 million of ~~higher foreign exchange losses and $1~~unfavorable change associated with assets held in a rabbi trust, partially offset by a $6 million ~~of higher losses on intercompany financing.~~gain related to technology-related investments.

Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~$154~~$66 million, resulting in an effective tax rate of ~~35% versus~~21%, compared to $64 million of income tax expense and an effective tax rate of ~~38%~~22% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021. The ~~decrease~~increase in ~~the effective~~income tax ~~rate~~expense was principally driven by increased ~~U.S. income tax deductions and discrete activity related to excess tax benefit from stock-based compensation.~~

We generate cash primarily from our ~~operating activities~~operations to fund our operating, investing and financing activities. Our principal uses of cash are operating expenses, capital expenditures, working capital needs, debt service, ~~stock repurchases,~~ dividends on common stock, stock repurchases and ~~working capital needs.~~strategic growth initiatives, including investments, acquisitions and collaborations. Our ability to generate cash in the future and our future uses of cash are subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control. We had total available cash and cash equivalents of ~~$210~~$122 million and ~~$205~~$127 million as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively. Of the available cash and cash equivalents, ~~approximately $210~~$102 million ~~and $124 million were~~was deposited in operating accounts ~~as of September 30, 2017~~ and ~~December 31, 2016, respectively, while approximately $81~~$20 million ~~were~~was invested in U.S. government backed securities as of June 30, 2022, compared to December 31, ~~2016.~~2021, when all of the $127 million was deposited in operating accounts.

As of ~~September~~June 30, ~~2017,~~2022, the total of cash ~~and cash equivalents~~ held by foreign subsidiaries was ~~$71~~$56 million, the majority of which was at our subsidiaries located in ~~Europe~~China, the Netherlands and ~~China. The geographic location of our cash aligns with our business growth strategy.~~India. We manage our worldwide cash requirements considering available funds among the subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. As a result, we do not currently anticipate any local liquidity restrictions towill preclude us from funding our targeted ~~expectations~~initiatives or operating needs with local resources.

~~If we distribute our foreign cash balance to the U.S. or to other~~We have not recognized any deferred tax liabilities associated with earnings in foreign subsidiaries, ~~we could~~except for our subsidiary located in China, as they are intended to be required to accrue and pay U.S. taxes. For example, we would be required to accrue and pay additional U.S. taxes if we repatriate earnings from certain foreign subsidiaries whose earnings we have asserted are permanently reinvested ~~outside~~and used to support foreign operations or have no associated tax requirements. We have recorded a deferred tax liability of $3 million for the ~~U.S. Foreign~~tax liability associated with the remittance of previously taxed income and unremitted earnings for ~~which we assert permanent reinvestment outside the U.S. consist primarily of~~our subsidiary located in China. The remaining deferred tax liabilities, if recorded, related to unremitted earnings ~~of our Europe and China subsidiaries. We currently do~~that are indefinitely reinvested are not ~~foresee a need to repatriate any earnings from these subsidiaries for which we have asserted permanent reinvestment.~~material.

Our liquidity requirements are significant, primarily due to our debt service requirements. As of ~~September~~June 30, ~~2017,~~2022, we had ~~$1,179~~$628 million of indebtedness associated with ATI’s Term~~B-3~~ Loan, ~~$1,000 million of indebtedness associated with ATI’s 5.0% Senior Notes and~~ $400 million of indebtedness associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”). ~~The~~Short-term and long-term debt service liquidity requirements consist of $2 million of minimum required quarterly principal ~~payment~~payments on ATI’s Term~~B-3~~ Loan through its maturity date of ~~September 2022 is $3 million.~~March 2026 and periodic interest payments on ATI’s Term Loan and the Senior Notes. There are no required quarterly principal payments on ATI’s ~~5.0%~~Senior Notes. Long-term debt service liquidity requirements also consist of the payment in full of any remaining principal balance of ATI’s Term Loan and the Senior Notes upon their respective maturity dates.

We made $3 million of principal payments on the Term Loan during each of the six months ended June 30, 2022 and ~~4.75% Senior Notes.~~

2021. Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and growth initiatives will depend on our ability to generate cash in the future. ~~This is subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control. We made principal payments~~

The Senior Secured Credit Facility provides for a ~~$550~~$650 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding ~~letters~~letter of credit commitments. Throughout the ~~nine~~six months ended ~~September~~June 30, ~~2017, we~~2022, the Company made periodic withdrawals and payments on the Revolving Credit Facility as part of ~~our debt~~the Company's cash management plans. The maximum amount outstanding at any time during the ~~nine~~six months ended ~~September~~June 30, ~~2017 on the Revolving Credit Facility~~2022 was ~~$300~~$75 million. As of ~~September~~June 30, ~~2017,~~2022, we had ~~$533~~$645 million available under the Revolving Credit Facility, net of ~~$17~~$5 million in letters of credit. As of ~~September~~June 30, ~~2017,~~2022, we had no amounts outstanding ~~revolving loans outstanding.~~under the Revolving Credit Facility. If we have ~~revolving loan~~ commitments outstanding on the Revolving Credit Facility at the end of a fiscal quarter, the Senior Secured Credit Facility requires us to maintain a specified maximum ~~total senior secured~~first lien net leverage ratio of 5.50x. Additionally, within the terms of the Senior Secured Credit Facility, a ~~senior secured~~first lien net leverage ratio at or below 4.00x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. As of ~~September~~June 30, ~~2017,~~2022, our ~~senior secured~~first lien net leverage ratio was ~~1.19x.~~0.58x. The Senior Secured Credit Facility also provides certain financial incentives based on our ~~total~~first lien net leverage ratio. A ~~total~~first lien net leverage ratio at or below 4.00x and above 3.50x results in a 25 basis point reduction to the applicable margin on ~~our~~the Revolving Credit ~~Facility, and a total~~Facility. A first lien net 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 ~~our~~the Revolving Credit Facility. These reductions ~~would~~ remain in effect as long as we achieve a ~~total~~first lien net leverage ratio at or below the related threshold. ~~As of September 30, 2017, our total leverage ratio was 2.90x.~~

In addition, the ~~Senior Secured~~ Credit ~~Facility~~Agreement includes, among other things, customary restrictions (subject to certain exceptions) on our ability to incur certain indebtedness, grant certain liens, make certain investments, engage in acquisitions, consolidations and mergers, declare or pay certain dividends, orand repurchase shares of our common stock. The indentures governing the ~~5.0% Senior Notes and 4.75%~~ Senior Notes contain negative covenants restricting or limiting our ability to, among other things, incur or guarantee additional indebtedness, incur liens, pay dividends on, redeem or repurchase our capital stock, make certain investments, permit payment or dividend restrictions on certain of our subsidiaries, sell assets, engage in certain transactions with affiliates, and consolidate or merge or sell all or substantially all of our assets. As of ~~September~~June 30, ~~2017,~~2022, we are in compliance with all covenants under the Senior Secured Credit Facility and indentures governing the ~~5.0% Senior Notes and 4.75%~~ Senior Notes.

Our credit ratings and outlook are reviewed periodically by Moody’s Investors Service, Inc. (“Moody’s”) and Fitch Ratings, Inc. (“Fitch”). ~~In September 2017,~~As of June 30, 2022, our credit ratings ~~were reviewed~~and outlook from both Moody's and Fitch are shown in the table below:

Our current stock repurchase program (the "Repurchase Program") was originally authorized by ~~Moody’s and Fitch. Moody’s held our corporate rating at ‘Ba2’ and our 5.0% Senior Notes rating at ‘Ba3’, upgraded our TermB-3~~ ~~Loan rating to ‘Baa3’, and assigned ‘Ba3’ to~~ the ~~4.75% Senior Notes. Fitch held our corporate rating at ‘BB’, our TermB-3~~ ~~Loan rating at ‘BB+’, and our 5.0% Senior Notes rating at ‘BB’ and assigned ‘BB’ to~~Board of Directors in 2016. On February 24, 2022, the ~~4.75% Senior Notes.~~

~~On November 14, 2016, our~~ Board of Directors authorized us to ~~purchase up to~~repurchase an additional $1,000 million of our common stock, bringing the total amount authorized under ~~a stock repurchase program.~~the Repurchase Program to $4,000 million. During the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2022, we repurchased approximately ~~$239~~$115 million ~~and $778 million, respectively,~~ of our common stock under the Repurchase Program. All of the repurchase ~~program.~~transactions during the six months ended June 30, 2022 were settled in cash during the same period. As of June 30, 2022, we had approximately $1,199 million available under the Repurchase Program.

The following table shows our sources and uses of funds for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 (in millions):

Generally, cash provided by operating activities has been adequate to fund our operations. ~~Due to fluctuations in our~~We have significant liquidity, including $122 million of cash ~~flows~~ and ~~the growth in our operations, it may be necessary from time to time in the future to borrow~~cash equivalents and $645 million available under the ~~Senior Secured~~Revolving Credit Facility, ~~to meet cash demands. We anticipate~~net of $5 million of letters of credit, as of June 30, 2022. At this time, we believe cash provided by operating activities, cash and cash equivalents and borrowing capacity under the Senior Secured Credit Facility will be sufficient to meet our known and anticipated cash requirements for the next twelve ~~months.~~months and thereafter.

Operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 generated ~~$492~~$229 million of cash compared to ~~$416~~$271 million for the ~~nine~~six months ended ~~September~~June 30, 2016. The increase was principally driven by increased gross profit, higher accounts payable and higher deferred revenue, partially offset by higher accounts receivable, increased cash income taxes, higher inventories, increased cash interest expense and increased incentive compensation payments.

Investing activities for the nine months ended September 30, 2017 used $43 million of cash compared to $37 million for the nine months ended September 30, 2016. The increase was principally driven by an increase of $4 million in capital expenditures and an increase of $2 million in technology-related initiatives. The increase in capital expenditures was principally driven by spending related to investments in productivity and replacement programs and higher product initiatives spending.

~~Financing activities for the nine months ended September 30, 2017 used $447 million of cash compared to $466 million for the nine months ended September 30, 2016.~~2021. The decrease was principally driven by ~~$603 million of increased net debt borrowings, $14 million of lower debt financing fees, $8 million of lower dividend~~higher cash incentive compensation payments, higher cash interest payments and ~~$5 million of increased proceeds from common stock issuance,~~higher cash income taxes, partially offset by ~~$609~~higher gross profit and lower operating working capital funding requirements.

Investing activities for the six months ended June 30, 2022 used $68 million of ~~increased~~cash compared to $69 million for the six months ended June 30, 2021. The decrease was principally driven by a $19 million decrease in capital expenditures and $6 million of proceeds from technology-related investments received in 2022, partially offset by $23 million in cash paid for business acquisitions during 2022.

Financing activities for the six months ended June 30, 2022 used $162 million of cash compared to $274 million for the six months ended June 30, 2021. The decrease was principally driven by $111 million of decreased stock repurchases ~~of common stock.~~

We are a party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business, including those relating to commercial transactions, product liability, personal injury and workers’ compensation, safety, health, taxes, environmental and other matters. For more information, see ~~NOTE N, “Commitments~~"Note P. Commitments and Contingencies” of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form10-Q.

A discussion of our critical accounting policies and significant accounting estimates ~~are described~~is included in Part II, Item 7, “Management’s Discussion and ~~Analysis” section~~Analysis of Financial Condition and Results of Operations” in our Annual Report on Form10-K for the year ended December 31, ~~2016~~2021 as filed with the ~~Securities and Exchange Commission~~U.S SEC on February ~~24, 2017.~~17, 2022. The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the applicable reporting period. 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. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017.~~2022.

~~Refer to NOTE B, “Summary~~See "Note B. Summary of Significant Accounting Policies” in Part I, Item 1, of this Quarterly Report on Form10-Q.

This Quarterly Report on Form10-Q contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Althoughforward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause ~~the~~ actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by suchforward-looking statements. Forward-looking statements speak only as of the date the statements are made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to: ~~risks related~~increases in cost, disruption of supply or shortage of labor, freight, raw materials or components used to manufacture or transport our products or those of our customers or suppliers, including as a result of the war in Ukraine and the COVID-19 pandemic; global economic conditions; the duration and spread of the COVID-19 pandemic, including new variants of the virus and the pace and availability of vaccines and boosters, mitigating efforts deployed by government agencies and the public at large, and the overall impact from such outbreak on economic conditions, financial market volatility and our business, including but not limited to the operations of our manufacturing and other facilities, the availability of labor, our supply chain, our distribution processes and demand for our products and the corresponding impacts to our ~~substantial indebtedness;~~net sales and cash flow; our participation in markets that are competitive; our ability to prepare for, respond to and successfully achieve our objectives relating to technological and market developments, competitive threats and changing customer needs, including with respect to electric hybrid and fully electric commercial vehicles; the highly cyclical industries in which certain of our end users operate; uncertainty in the global regulatory and business environments in which we operate; our participation in markets that are competitive; the highly cyclical industries in which certain of our end users operate; the failure of markets outside North America to increase adoption of fully-automatic transmissions; the concentration of our net sales in our top five customers and the loss of any one of these; ~~future reductions or changes in government subsidies for hybrid vehicles~~the failure of markets outside North America to increase adoption of fully automatic transmissions; the success of our research and ~~other external factors impacting demand;~~development efforts, the outcome of which is uncertain; U.S. and foreign defense spending; risks associated with our international operations, including acts of war and increased trade protectionism; general economic and industry conditions; the discovery of defects in our products, resulting in delays in new model launches, recall campaigns and/or increased warranty costs and reduction in future sales or damage to our brand and reputation; our ability to ~~prepare for, respond to~~identify, consummate and ~~successfully achieve our objectives relating to technological~~effectively integrate acquisitions and ~~market developments, competitive threats and changing customer needs; risks associated with our international operations;~~collaborations; labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal ~~customers;~~customers or suppliers; and risks related to our ~~intention to pay dividends and repurchase shares of our common stock.~~indebtedness.

Important factors that could cause actual results to differ materially from our expectations are disclosed in Part I, Item 1A of our Annual Report on Form10-K for the year ended December 31, ~~2016~~2021 as filed with the ~~Securities and Exchange Commission~~SEC on February ~~24, 2017.~~17, 2022 and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 as filed with the SEC on April 28, 2022. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by ~~the~~these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings or public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form10-Q in the context of these risks and uncertainties.

Our exposure to market risk consists of changes in interest rates, foreign currency rate fluctuations and movements in commodity prices.

We are subject to interest rate market risk in connection with a portion of our long-term debt. Our principal interest rate exposure relates to outstanding amounts under our Senior Secured Credit Facility. Our Senior Secured Credit Facility provides for variable rate borrowings of up to ~~$1,712~~$1,273 million, including ~~$533~~$645 million under our Revolving Credit Facility, net of ~~$17~~$5 million of letters of credit. Aone-eighth percent increase or decrease in assumed interest rates for the Senior Secured Credit Facility, if fully drawn as of ~~September~~June 30, ~~2017~~2022, would have an impact of approximately $1 million on interest ~~expense.~~expense per year. As of ~~September~~June 30, ~~2017,~~2022, we had no outstanding borrowings ~~under our~~against the Revolving Credit Facility.

From time to time, we enter into interest rate swap agreements to hedge the risk associated with our variable interest rate debt. ~~Below is a list~~As of ~~our~~June 30, 2022, we held interest rate swaps aseffective from (i) September 2019 to September 2022 with notional values totaling $250 million and a weighted average London Interbank Offered Rate (“LIBOR”) fixed rate of 3.01%, (ii) September ~~30, 2017:~~2019 to September 2025 with notional values totaling $250 million and a weighted average LIBOR fixed rate of 3.04% and (iii) September 2022 to September 2025 with notional values totaling $250 million and a weighted average LIBOR fixed rate of 2.82%.

The United Kingdom's Financial Conduct Authority has announced the intent to phase out LIBOR by June 2023. We ~~are exposed~~plan to ~~increased interest expense if a counterparty defaults. Refer~~elect an alternative reference rate acceptable under reference rate reform guidance and do not expect the phase out to ~~NOTE F, “Debt” and NOTE G, “Derivatives” of the notes to~~materially impact our ~~condensed consolidated~~ financial statements, ~~included in Part I, Item 1 of this Quarterly Report on Form10-Q.~~liquidity or access to capital markets.

While our net sales and costs are denominated primarily in U.S. Dollars, net sales, costs, assets and liabilities are generated in other currencies including ~~Japanese Yen, Euro, Indian Rupee,~~ Brazilian Real, British Pound, Canadian Dollar, Chinese Yuan Renminbi, ~~Canadian Dollar~~Euro, Hungarian Forint, Indian Rupee and ~~Hungarian Forint.~~Japanese Yen. The expansion of our business outside North America may further increase the risk that cash flows resulting from these activities may be adversely affected by changes in currency exchange rates.

Assuming current levels of foreign currency transactions, a 10% aggregate increase or decrease in the ~~Japanese Yen,~~Chinese Yuan Renminbi, Euro, Indian Rupee, and ~~Chinese Yuan Renminbi~~Japanese Yen would correspondingly change our earnings, net of tax, by an estimated $3$4 million per year. ~~All~~We believe our other exposure to foreign currencies is ~~considered~~ immaterial.

We are subject to changes in our cost of sales caused by movements in underlying commodity prices. ~~Approximatelytwo-thirds~~As of June 30, 2022, approximately 67% of our cost of sales consists of purchased components with significant raw material content. A substantial portion of the purchased parts are made of aluminum and steel. The cost of aluminum parts ~~include~~includes an adjustment factor on future purchases for fluctuations in aluminum prices based on accepted industry indices. In addition, a substantial amount of steel-based contracts also include an index-based component. As our costs change, we are able to pass through a portion of the changes in commodity prices to certain of our customers according to our ~~LTSAs.~~long-term agreements (“LTAs”). We historically have not entered into long-term purchase contracts related to the purchase of aluminum and steel. We currently hold commodity swaps that are intended to hedge forecasted aluminum purchases. Based on our forecasted demand for 2017 and 2018, as of September 30, 2017, the hedge contracts cover approximately 21% and 0% of our aluminum requirements, respectively. We do not hold financial instruments for trading or speculative purposes.

Assuming current levels of commodity purchases, a 10% ~~increase or decrease~~variation in the price of aluminum and steel would correspondingly change our earnings ~~net of tax,~~ by approximately $2$8 million and $5$13 million per year, respectively. ~~This includes the partial offset of our hedging contracts described above.~~

Many of our ~~LTSAs~~LTAs have incorporated a cost-sharing arrangement related to potential future commodity price fluctuations. ~~Our hedging policy is that we hedge our exposure and do not hedge any portion of the customers’ exposure.~~ For purposes of the sensitivity analysis above, the impact of these cost sharing arrangements has not been included.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form10-Q were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting (as defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we are a party to various legal actions in the normal course of our business, including those related to commercial transactions, product liability, personal injury and workers’ compensation, safety, health, taxes, environmental and other matters. ~~See NOTE N, “Commitments~~Information pertaining to legal proceedings can be found in "Note P. Commitments and Contingencies” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form~~10-Q.~~ 10-Q, which information is incorporated herein by reference.

There have been no material changes from our risk factors as previously reported in Part I, Item 1A of our Annual Report on Form10-K for the year ended December 31, ~~2016~~2021 as filed with the ~~Securities and Exchange Commission~~SEC on February ~~24, 2017.~~17, 2022, and as updated in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 as filed with the SEC on April 28, 2022.

The following table sets forth information related to our repurchases of our common stock on a monthly basis ~~for~~in the three months ended ~~September~~June 30, ~~2017:~~2022:

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


~~Delaware~~		~~26-0414014~~
~~(State of Incorporation)~~		~~(I.R.S. Employer~~ ~~Identification Number)~~

Delaware	26-0414014
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
One Allison Way ~~Indianapolis, IN~~		~~46222~~
Indianapolis, IN	46222
(Address of Principal Executive Offices)		(Zip Code)


			Page
				~~Page~~
		PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements			~~2-18~~	3 – 7

		Condensed Consolidated Balance Sheets			2	3

		Condensed Consolidated Statements of Comprehensive Income			3	4

		Condensed Consolidated Statements of Cash Flows			4	5

	Condensed Consolidated Statements of Stockholders’ Equity	6 – 7

	Notes to Condensed Consolidated Financial Statements			~~5-18~~	8 – 22

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			~~19-29~~	23 – 35

Item 3.		Quantitative and Qualitative Disclosures About Market Risk			~~30-31~~	36 – 37

Item 4.		Controls and Procedures			32	38

		PART II. OTHER INFORMATION

Item 1.		Legal Proceedings			33	39

Item 1A.		Risk Factors			33	39

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			33	40

Item 6.	Exhibits	41

	Signatures	42


	Counterparty	Effective Date	Notional Amount (in millions)		LIBOR Fixed Rate
Interest Rate Swap L*	Barclays	Aug 2016-Aug 2019	$	75		3.44	%
Interest Rate Swap M*	JP Morgan	Aug 2016-Aug 2019	$	100		3.43	%
Interest Rate Swap N*	Bank of America	Aug 2016-Aug 2019	$	75		3.37	%
Interest Rate Swap O*	Deutsche Bank	Aug 2016-Aug 2019	$	75		3.19	%
Interest Rate Swap P*	Barclays	Aug 2016-Aug 2019	$	75		3.08	%
Interest Rate Swap Q*	Barclays	Aug 2016-Aug 2019	$	50		2.99	%
Interest Rate Swap R*	Deutsche Bank	Aug 2016-Aug 2019	$	50		2.98	%
Interest Rate Swap S*	Deutsche Bank	Aug 2016-Aug 2019	$	50		2.73	%
Interest Rate Swap T*	Bank of America	Aug 2016-Aug 2019	$	75		2.74	%
Interest Rate Swap U*	Fifth Third Bank	Aug 2016-Aug 2019	$	50		2.66	%
Interest Rate Swap V*	Fifth Third Bank	Aug 2016-Aug 2019	$	50		2.60	%
Interest Rate Swap W*	Fifth Third Bank	Aug 2016-Aug 2019	$	25		2.40	%
Interest Rate Swap X*	Huntington Bank	Aug 2016-Aug 2019	$	50		2.25	%

* includes LIBOR floor of 1.00%


	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾		Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans⁽¹⁾
July 1 – July 31, 2017		1,995,937	$	37.80		1,995,937	$	323,609,815
August 1 – August 31, 2017		1,868,672	$	35.26		1,868,672	$	257,716,837
September 1 – September 30, 2017		2,795,216	$	34.96		2,795,216	$	160,005,528

Total		6,659,825	$	35.89		6,659,825

☒
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Three months ended
	Common Stock		Non-voting Common Stock		Preferred Stock		Paid-in Capital		Accumulated (Deficit) Income			Accumulated Other Comprehensive (Loss) Income, net of tax			Stockholders' Equity
Balance at March 31, 2021	$	1	$	—	$	—	$	1,820	$	(971	)	$	(86	)	$	764
Stock-based compensation		—		—		—		5		—			—			5
Pension and OPEB liability adjustment		—		—		—		—		—			(2	)		(2	)
Foreign currency translation adjustment		—		—		—		—		—			4			4
Interest rate swaps		—		—		—		—		—			1			1
Issuance of common stock		—		—		—		1		—			—			1
Repurchase of common stock		—		—		—		—		(130	)		—			(130	)
Dividends on common stock		—		—		—		—		(21	)		—			(21	)
Net income		—		—		—		—		110			—			110
Balance at June 30, 2021	$	1	$	—	$	—	$	1,826	$	(1,012	)	$	(83	)	$	732
Balance at March 31, 2022	$	1	$	—	$	—	$	1,832	$	(1,098	)	$	(56	)	$	679
Stock-based compensation		—		—		—		6		—			—			6
Pension and OPEB liability adjustment		—		—		—		—		—			(2	)		(2	)
Foreign currency translation adjustment		—		—		—		—		—			(8	)		(8	)
Interest rate swaps		—		—		—		—		—			6			6
Issuance of common stock		—		—		—		1		—			—			1
Repurchase of common stock		—		—		—		—		(34	)		—			(34	)
Dividends on common stock		—		—		—		—		(21	)		—			(21	)
Net income		—		—		—		—		122			—			122
Balance at June 30, 2022	$	1	$	—	$	—	$	1,839	$	(1,031	)	$	(60	)	$	749


	September 30, 2017					December 31, 2016
	Notional Amount		Fair Value			Notional Amount		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	)


	Three months ended
	Available-for- sale securities			Defined benefit pension items			Foreign currency items			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 benefit pension items			Foreign currency items			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 Statements of Comprehensive Income
AOCL Components	Three months ended September 30, 2017			Three months ended September 30, 2016
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 ended September 30, 2017			Nine months ended September 30, 2016			Affected line item in the Condensed Consolidated Statements of Comprehensive Income
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


End Market	Q3 2017 Net Sales		Q3 2016 Net Sales		% Variance
North AmericaOn-Highway	$	282	$	224		26	%
North America Electric Hybrid-Propulsion Systems for Transit Bus		19		8		138	%
North AmericaOff-Highway		17		1		1,600	%
Defense		35		25		40	%
Outside North AmericaOn-Highway		89		78		14	%
Outside North AmericaOff-Highway		14		2		600	%
Service Parts, Support Equipment and Other		139		96		45	%

Total Net Sales	$	595	$	434		37	%


End Market	Q2 2022 Net Sales		Q2 2021 Net Sales		% Variance
North America On-Highway	$	340	$	302		13	%
North America Off-Highway		20		9		122	%
Defense		29		48		(40	)%
Outside North America On-Highway		105		98		7	%
Outside North America Off-Highway		32		18		78	%
Service Parts, Support Equipment and Other		138		128		8	%
Total Net Sales	$	664	$	603		10	%


	Three Months Ended June 30,						Six Months Ended June 30,
(unaudited, dollars in millions)	2022			2021			2022			2021
Net income (GAAP)	$	122		$	110		$	251		$	230
plus:
Income tax expense		32			30			66		64
Interest expense, net		30			30			59			59
Depreciation of property, plant and equipment		26			26			53			51
Amortization of intangible assets		12			11			23			23
Unrealized (gain) loss on marketable securities (a)		(4	)		—			11			—
Stock-based compensation expense (b)		6			5			9			8
Technology-related investment gain (c)		—			—			(6	)		—
Unrealized loss on foreign exchange (d)		2			1			3			—
Acquisition-related earnouts (e)		1			—			2			—
Adjusted EBITDA (Non-GAAP)	$	227		$	213		$	471		$	435
Net sales (GAAP)	$	664		$	603		$	1,341		$	1,191
Net income as a percent of net sales (GAAP)		18.4	%		18.2	%		18.7	%		19.3	%
Adjusted EBITDA as a percent of net sales (Non-GAAP)		34.2	%		35.3	%		35.1	%		36.5	%
Net cash provided by operating activities (GAAP)	$	66		$	140		$	229		$	271
Deductions to reconcile to Adjusted free cash flow:
Additions of long-lived assets		(30	)		(45	)		(50	)		(69	)
Adjusted free cash flow (Non-GAAP)	$	36		$	95		$	179		$	202


	June 30, 2022
Credit Ratings	Moody's	Fitch
Corporate Credit	Ba1	BB
Term Loan	Baa2	BBB-
4.75% Senior Notes	Ba2	BB
5.875% Senior Notes	Ba2	BB
3.75% Senior Notes	Ba2	BB


	Nine months ended September 30,						Six Months Ended June 30,
*Statements of Cash Flows Data*	2017			2016			2022			2021
Cash flows provided by operating activities	$	492		$	416		$	229		$	271
Cash flows used for investing activities	$	(43	)	$	(37	)	$	(68	)	$	(69	)
Cash flows used for financing activities	$	(447	)	$	(466	)	$	(162	)	$	(274	)


	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans(1)
April 1 – April 30, 2022		69,664	$	34.88		69,664	$	1,230,127,815
May 1 – May 31, 2022		82,546	$	39.75		82,546	$	1,226,846,802
June 1 – June 30, 2022		727,470	$	38.91		727,470	$	1,198,544,111
.		879,680	$	38.67		879,680


Exhibit Number	Description
~~Exhibit~~ ~~Number~~		~~Description~~
10.1
~~4.1~~		~~Indenture, dated as of September~~ 26, 2017, between Allison Transmission, Inc. and Wilmington Trust, National Association, as Trustee (including form of Note) (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form~~8-K~~ ~~filed September~~ ~~26, 2017)~~

~~10.1~~		~~Incremental Facility Joinder Agreement, dated as of September~~ ~~26, 2017, supplementing the~~Sixth Amended and Restated ~~Credit Agreement, dated as of September~~ 23, 2016, among Allison Transmission Holdings, Inc., Allison Transmission, Inc., as Borrower, the several banks and other financial institutions or entities from time to time parties thereto as lenders and Citicorp North America, Inc., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form~~8-K~~ ~~filed September~~ ~~26, 2017)~~Non-Employee Director Compensation Policy (filed herewith)

31.1		Certification of Chief Executive Officer pursuant to Rule13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2		Certification of Chief Financial Officer pursuant to Rule13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1		Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

~~101.INS~~ 101		The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL ~~Instance Document~~(eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Statements of Cash Flows; (iv) the Condensed Consolidated Statements of Stockholders’ Equity; and (v) the Notes to Condensed Consolidated Financial Statements

~~101.SCH~~ 104		Cover Page Interactive Data File – The cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL ~~Taxonomy Extension Schema Document~~

~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~and contained in Exhibit 101


						ALLISON TRANSMISSION HOLDINGS, INC.

~~Date: October 31, 2017~~				~~By:~~		~~/s/ Lawrence E. Dewey~~
						~~Name:~~		~~Lawrence E. Dewey~~
						~~Title:~~		~~Chairman of the Board and Chief Executive Officer~~	~~(Principal Executive Officer)~~

Date: ~~October 31, 2017~~				~~By:~~	August 4, 2022	By:	/s/ David S. Graziosi

		Name:			David S. Graziosi
						~~Title:~~			Title:	Chairman, President and Chief ~~Financial~~Executive Officer (Principal Executive Officer)

Date: August 4, 2022	By:	/s/ G. Frederick Bohley

		Name:	G. Frederick Bohley
		Title:	Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)

~~Item 6.~~

~~Exhibits~~

~~Signatures~~

PART I. FINANCIAL INFORMATION