Allison Transmission Holdings Inc - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2021

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

Commission File No. 001-35456

ALLISON TRANSMISSION HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

(317) 242-5000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange

on which Registered

Common stock, $0.01 par value

ALSN

New York Stock Exchange

Indicate by check mark whether the 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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 in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 15, 2021, there were 104,260,272 shares of Common Stock outstanding.

Table of Contents

INDEX

		Page
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3 – 7

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Comprehensive Income	4

	Condensed Consolidated Statements of Cash Flows	5

	Condensed Consolidated Statements of Stockholders’ Equity	6 – 7

	Notes to Condensed Consolidated Financial Statements	8 – 23

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24 – 38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	40

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 6.	Exhibits	44

	Signatures	45

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Allison Transmission Holdings, Inc.

Condensed Consolidated Balance Sheets

(unaudited, dollars in millions, except share and per share data)

	September 30, 2021			December 31, 2020
ASSETS
Current Assets
Cash and cash equivalents	$	261		$	310
Accounts receivable – net of allowances for doubtful accounts of $2 and $1, respectively		257			228
Inventories		217			181
Other current assets		75			37
Total Current Assets		810			756
Property, plant and equipment, net		681			638
Intangible assets, net		928			963
Goodwill		2,064			2,064
Other non-current assets		54			56
TOTAL ASSETS	$	4,537		$	4,477
LIABILITIES
Current Liabilities
Accounts payable	$	172		$	157
Product warranty liability		35			36
Current portion of long-term debt		6			6
Deferred revenue		37			34
Other current liabilities		198			140
Total Current Liabilities		448			373
Product warranty liability		23			30
Deferred revenue		101			109
Long-term debt		2,504			2,507
Deferred income taxes		506			442
Other non-current liabilities		248			260
TOTAL LIABILITIES		3,830			3,721
Commitments and contingencies (see NOTE P)
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, 1,880,000,000 shares authorized, 104,259,765 shares issued and outstanding and 112,033,477 shares issued and outstanding, respectively		1			1
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		—			—
Paid in capital		1,829			1,818
Accumulated deficit		(1,038	)		(974	)
Accumulated other comprehensive loss, net of tax		(85	)		(89	)
TOTAL STOCKHOLDERS’ EQUITY		707			756
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	4,537		$	4,477

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

Table of Contents

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited, dollars in millions, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Net sales	$	567		$	532		$	1,758		$	1,546
Cost of sales		306			278			918			801
Gross profit		261			254			840			745
Selling, general and administrative		73			93			226			237
Engineering — research and development		42			33			121			107
Operating income		146			128			493			401
Interest expense, net		(28	)		(34	)		(87	)		(100	)
Other income, net		6			4			12			8
Income before income taxes		124			98			418			309
Income tax expense		(30	)		(21	)		(94	)		(70	)
Net income	$	94		$	77		$	324		$	239
Basic earnings per share attributable to common stockholders	$	0.89		$	0.68		$	2.97		$	2.10
Diluted earnings per share attributable to common stockholders	$	0.89		$	0.68		$	2.97		$	2.10
Comprehensive income, net of tax	$	92		$	80		$	328		$	209

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

Table of Contents

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, dollars in millions)

	Nine Months Ended September 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	324		$	239
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		77			71
Deferred income taxes		61			46
Amortization of intangible assets		35			40
Stock-based compensation		11			11
Technology-related investments gain		(3	)		—
Amortization of deferred financing costs		2			3
Other		—			3
Changes in assets and liabilities:
Accounts receivable		(32	)		8
Inventories		(38	)		22
Accounts payable		7			(30	)
Other assets and liabilities		23			(11	)
Net cash provided by operating activities		467			402
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of long-lived assets		(112	)		(84	)
Loans to third parties		(11	)		—
Proceeds from technology-related investments		4			—
Business acquisitions		—			4
Net cash used for investing activities		(119	)		(80	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock		(326	)		(196	)
Dividend payments		(62	)		(58	)
Payments on long-term debt		(5	)		(5	)
Payment of acquisition-related contingent liability		(3	)		(3	)
Taxes paid related to net share settlement of equity awards		(3	)		(2	)
Proceeds from exercise of stock options		3			1
Borrowings on revolving credit facility		—			800
Payments on revolving credit facility		—			(800	)
Net cash used for financing activities		(396	)		(263	)
Effect of exchange rate changes on cash		(1	)		—
Net (decrease) increase in cash and cash equivalents		(49	)		59
Cash and cash equivalents at beginning of period		310			192
Cash and cash equivalents at end of period	$	261		$	251
Supplemental disclosures:
Interest paid	$	72		$	73
Income taxes paid	$	48		$	13

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

Table of Contents

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited, dollars in millions)

	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 June 30, 2020	$	1	$	—	$	—	$	1,806	$	(1,027	)	$	(85	)	$	695
Stock-based compensation		—		—		—		6		—			—			6
Pension and OPEB liability adjustment		—		—		—		—		—			(2	)		(2	)
Foreign currency translation adjustment		—		—		—		—		—			2			2
Interest rate swaps		—		—		—		—		—			3			3
Repurchase of common stock		—		—		—		—		(16	)		—			(16	)
Dividends on common stock		—		—		—		—		(19	)		—			(19	)
Net income		—		—		—		—		77			—			77
Balance at September 30, 2020	$	1	$	—	$	—	$	1,812	$	(985	)	$	(82	)	$	746
Balance at June 30, 2021	$	1	$	—	$	—	$	1,826	$	(1,012	)	$	(83	)	$	732
Stock-based compensation		—		—		—		3		—			—			3
Pension and OPEB liability adjustment		—		—		—		—		—			(1	)		(1	)
Foreign currency translation adjustment		—		—		—		—		—			(3	)		(3	)
Interest rate swaps		—		—		—		—		—			2			2
Repurchase of common stock		—		—		—		—		(100	)		—			(100	)
Dividends on common stock		—		—		—		—		(20	)		—			(20	)
Net income		—		—		—		—		94			—			94
Balance at September 30, 2021	$	1	$	—	$	—	$	1,829	$	(1,038	)	$	(85	)	$	707

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

Table of Contents

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited, dollars in millions)

	Nine 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 December 31, 2019	$	1	$	—	$	—	$	1,802		$	(970	)	$	(52	)	$	781
Stock-based compensation		—		—		—		11			—			—			11
Pension and OPEB liability adjustment		—		—		—		—			—			(8	)		(8	)
Interest rate swaps		—		—		—		—			—			(22	)		(22	)
Issuance of common stock		—		—		—		(1	)		—			—			(1	)
Repurchase of common stock		—		—		—		—			(196	)		—			(196	)
Dividends on common stock		—		—		—		—			(58	)		—			(58	)
Net income		—		—		—		—			239			—			239
Balance at September 30, 2020	$	1	$	—	$	—	$	1,812		$	(985	)	$	(82	)	$	746
Balance at December 31, 2020	$	1	$	—	$	—	$	1,818		$	(974	)	$	(89	)	$	756
Stock-based compensation		—		—		—		11			—			—			11
Pension and OPEB liability adjustment		—		—		—		—			—			(5	)		(5	)
Foreign currency translation adjustment		—		—		—		—			—			(5	)		(5	)
Interest rate swaps		—		—		—		—			—			14			14
Repurchase of common stock		—		—		—		—			(326	)		—			(326	)
Dividends on common stock		—		—		—		—			(62	)		—			(62	)
Net income		—		—		—		—			324			—			324
Balance at September 30, 2021	$	1	$	—	$	—	$	1,829		$	(1,038	)	$	(85	)	$	707

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

Table of Contents

Allison Transmission Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(UNAUDITED)

NOTE A. OVERVIEW

Overview

Allison Transmission Holdings, Inc. and its subsidiaries (“Allison” or the “Company”) design and manufacture vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense 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 on the New York Stock Exchange under the symbol, “ALSN”.

Although approximately 79% of revenues were generated in North America in 2020, the Company has a global presence by serving customers in Europe, Asia, South America and Africa. The Company serves customers through an independent network of approximately 1,400 independent distributor and dealer locations worldwide.

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

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

Table of Contents

These condensed consolidated financial statements present the financial position, results of comprehensive income, cash flows and statements of stockholders’ equity of the Company. Certain immaterial reclassifications have been made in the condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications had no impact on previously reported net income, total stockholders’ equity or cash flows. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission on February 18, 2021. The interim period financial results for the three- and nine-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, environmental liabilities, determination of discount rate and other assumptions for pension and other post-retirement benefit 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. Due to the continued uncertainty related to the ongoing COVID-19 pandemic, actual results could differ materially from the 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 other post-retirement benefit 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.

Recently Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance regarding highly effective cash flow hedges affected by reference rate reform, which guidance was subsequently amended. The guidance allows the Company to continue to classify its interest rate hedges as highly effective subsequent to reference rate reform under certain circumstances. The Company adopted this guidance effective January 1, 2021 and will apply the guidance prospectively on all applicable transactions through December 31, 2022. Management expects to be able to elect the optional expedient within this guidance upon the Company’s transition from the London Interbank Offered Rate (“LIBOR”) to an alternative reference rate. The election of the optional expedient is expected to allow for the continuation of the existing contract with no impact on the Company’s condensed consolidated financial statements.

In December 2019, the FASB issued authoritative accounting guidance to simplify the accounting for income taxes. The guidance identifies specific exceptions to be removed from the calculation and reporting of income taxes. The Company adopted this guidance effective January 1, 2021. The adoption of this guidance did not have a material impact on the Company's condensed consolidated financial statements.

Table of Contents

NOTE C. REVENUE

Revenue is recognized as each distinct performance obligation within a contract is satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company enters into long-term 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 transmissions and service parts, which are accounted for as variable consideration. The Company records the impact of the incentives as a reduction to revenue when it is determined that the adjustment is not likely to reverse, historically on a quarterly basis. The Company estimates the impact of all other incentives based on the related sales and market conditions in the end market vocation. The Company recorded no material adjustments based on variable consideration during each of the three and nine months ended September 30, 2021 and 2020.

Net sales are made on credit terms, generally 30 days, based on an assessment of the customer’s creditworthiness. For certain goods or services, the Company receives consideration prior to satisfying the related performance obligation. Such consideration is recorded as a contract liability in current and non-current Deferred revenue as of September 30, 2021 and December 31, 2020. See Note J, “Deferred Revenue” for more information, including the amount of revenue earned during each of the three and nine months ended September 30, 2021 and 2020 that had been previously deferred. The Company had no material contract assets as of September 30, 2021 and December 31, 2020.

The Company has one operating segment and reportable segment. The Company is in one line of business, which is the manufacture and distribution of vehicle propulsion solutions. The following presents disaggregated revenue by categories that best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors (dollars in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
North America On-Highway	$	275	$	281	$	896	$	797
North America Off-Highway		20		1		31		12
Defense		39		56		132		138
Outside North America On-Highway		93		71		275		203
Outside North America Off-Highway		14		4		48		50
Service Parts, Support Equipment and Other		126		119		376		346
Total Net Sales	$	567	$	532	$	1,758	$	1,546

Table of Contents

NOTE D. INVENTORIES

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

	September 30, 2021		December 31, 2020
Purchased parts and raw materials	$	105	$	88
Work in progress		11		15
Service parts		44		43
Finished goods		57		35
Total inventories	$	217	$	181

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

NOTE E. GOODWILL AND OTHER INTANGIBLE ASSETS

As of each of September 30, 2021 and December 31, 2020, the carrying value of the Company’s Goodwill was $2,064.

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

	September 30, 2021							December 31, 2020
	Intangible assets, gross		Accumulated amortization			Intangible assets, net		Intangible assets, gross		Accumulated amortization			Intangible assets, net
Other intangible assets:
Trade name	$	791	$	—		$	791	$	791	$	—		$	791
In-process research and development		25		—			25		25		—			25
Customer relationships — commercial		839		(740	)		99		839		(708	)		131
Proprietary technology		478		(477	)		1		478		(477	)		1
Customer relationships — defense		62		(50	)		12		62		(47	)		15
Total	$	2,195	$	(1,267	)	$	928	$	2,195	$	(1,232	)	$	963

As of September 30, 2021 and December 31, 2020, the carrying value of the Company’s Goodwill and Intangible assets, net was $2,992 million and $3,027 million, respectively.

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

		2022				2023				2024				2025				2026
Amortization expense		$	45			$	43			$	8			$	4			$	1

Table of Contents

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 30, 2021 and December 31, 2020, the Company did not have any Level 3 financial assets or liabilities.

The Company’s assets and liabilities that are measured at fair value include cash equivalents, derivative instruments, assets held in a rabbi trust and a deferred compensation obligation. The Company’s cash equivalents consist of short-term U.S. government backed securities. The Company’s derivative instruments consist of interest rate swaps. The Company’s assets held in the rabbi trust consist principally of publicly available mutual funds and target date retirement funds. The Company’s deferred compensation obligation is directly related to the fair value of assets held in the rabbi trust.

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

The Company uses valuations from the issuing financial institutions for the fair value measurement of interest rate swaps. The floating-to-fixed interest rate swaps are based on LIBOR, which is observable at commonly quoted intervals. The fair values are included in other current and non-current assets and liabilities in the Condensed Consolidated Balance Sheets.

Table of Contents

The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of September 30, 2021 and December 31, 2020 (dollars in millions):

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						TOTAL
	September 30, 2021			December 31, 2020			September 30, 2021			December 31, 2020			September 30, 2021			December 31, 2020
Cash equivalents	$	115		$	160		$	—		$	—		$	115		$	160
Rabbi trust assets		18			17			—			—			18			17
Deferred compensation obligation		(18	)		(17	)		—			—			(18	)		(17	)
Derivative liabilities		—			—			(41	)		(60	)		(41	)		(60	)
Total	$	115		$	160		$	(41	)	$	(60	)	$	74		$	100

NOTE G. DEBT

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

	September 30, 2021		December 31, 2020
Long-term debt:
Senior Secured Credit Facility Term Loan, variable, due 2026	$	633	$	638
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	$	2,533	$	2,538
Less: current maturities of long-term debt		6		6
deferred financing costs, net		23		25
Total long-term debt, net	$	2,504	$	2,507

As of September 30, 2021, the Company had $2,533 million of indebtedness associated with Allison Transmission, Inc.’s (“ATI”), the Company’s wholly-owned subsidiary, 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), ATI’s 5.875% Senior Notes due June 2029 (“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 $633 million due March 2026 (“Term Loan”) and ATI’s revolving credit facility with commitments in the amount of $650 million due September 2025 (“Revolving Credit Facility” and, together with the Term Loan, the “Senior Secured Credit Facility”).

The fair value of the Company’s long-term debt obligations as of September 30, 2021 was $2,567 million. The fair value is based on quoted Level 2 market prices of the Company’s debt as of September 30, 2021. It is not expected that the Company would be able to repurchase a significant amount of its debt at these levels. The difference between the fair value and carrying value of the long-term debt is driven primarily by trends in the financial markets.

Senior Secured Credit Facility

In November 2020, the Company and ATI entered into an amendment to the Credit Agreement to increase the commitments under the Revolving Credit Facility by $50 million to $650 million. The amendment also extended the Revolving Credit Facility termination date from September 2024 to September 2025.

The borrowings under the Senior Secured Credit Facility are collateralized by a lien on substantially all assets of the Company, 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 interests held by the Company, ATI and each of ATI’s existing and future U.S. subsidiary guarantors (subject to certain limitations for

Table of Contents

equity interest of foreign subsidiaries and other exceptions set forth in the Credit Agreement). Interest on the Term Loan, as of September 30, 2021, is either (a) 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 time of the borrowing, available from all relevant lenders) (the "LIBOR Rate"), or (b) 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 0.50%, subject to a 1.00% floor (the "Base Rate"). As of September 30, 2021, the Company elected to pay the lowest all-in rate of LIBOR plus the applicable margin, or 1.83%, on the Term Loan. The Credit Agreement requires minimum quarterly principal payments on the Term Loan, as well as prepayments from certain net cash proceeds of non-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 Loan through its maturity date of March 2026 is $2 million. As of September 30, 2021, there had been no payments required for certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events. The remaining principal balance is due upon maturity.

The Senior Secured Credit Facility also provides a Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letters of credit commitments. As of September 30, 2021, the Company had $645 million available under the Revolving Credit Facility, net of $5 million in letters of credit. Borrowings under the Revolving Credit Facility bear interest at a variable base rate plus an applicable margin based on the Company’s first lien net leverage ratio. When the Company’s first lien net leverage ratio is above 4.00x, interest on the Revolving Credit Facility is (a) 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 less than 4.00x and above 3.50x, interest on the Revolving Credit Facility is (i) 0.50% over the 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 September 30, 2021, the applicable margin for the Revolving Credit Facility was 1.25%. In addition, there is an annual commitment fee, based on the Company’s first lien net leverage ratio, on the average unused revolving credit borrowings available under the Revolving Credit Facility. As of September 30, 2021, the commitment fee is 0.25%. Borrowings under the Revolving 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 2025.

The Senior Secured Credit Facility requires the Company to maintain a specified maximum first lien net leverage ratio of 5.50x when revolving loan commitments remain outstanding on the Revolving Credit Facility at the end of a fiscal quarter. As of September 30, 2021, the Company had no amounts outstanding under the Revolving Credit Facility; however, the Company would have been in compliance with the maximum first lien net leverage ratio, achieving a 0.46x ratio. Additionally, within the terms of the Senior Secured Credit Facility, a first lien net leverage ratio at or below 4.00x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year.

In addition, the Credit 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 30, 2021, the Company was in compliance with all covenants under the Credit Agreement.

Table of Contents

4.75% Senior Notes

The 4.75% Senior Notes are unsecured and are guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the Senior Secured Credit Facility and are unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the Senior Secured Credit Facility. None of ATI’s domestic subsidiaries currently guarantee its obligations under the Senior Secured Credit Facility, and therefore none of ATI’s domestic subsidiaries currently guarantee the 4.75% Senior Notes. The indenture governing the 4.75% Senior Notes contains negative covenants restricting or limiting the Company’s ability to, among other things: incur or guarantee additional indebtedness, incur liens, pay dividends on, redeem or repurchase the Company’s capital stock, make certain investments, permit payment or dividend restrictions on certain of the Company’s subsidiaries, sell assets, engage in certain transactions with affiliates, and consolidate or merge or sell all or substantially all of the Company’s assets. As of September 30, 2021, the Company was in compliance with all covenants under the indenture governing the 4.75% Senior Notes.

5.875% Senior Notes

The 5.875% Senior Notes are unsecured and are guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the Senior Secured Credit Facility and are unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the Senior Secured Credit Facility. None of ATI’s domestic subsidiaries currently guarantee its obligations under the Senior Secured Credit Facility, and therefore none of ATI’s domestic subsidiaries currently guarantee the 5.875% Senior Notes. The indenture governing the 5.875% 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, 2021, the Company was in compliance with all covenants under the indenture governing the 5.875% Senior Notes.

3.75% Senior Notes

In November 2020, ATI completed an offering of $1,000 million of the 3.75% Senior Notes. The 3.75% Senior Notes were offered in a private placement exempt from registration under the Securities Act of 1933, as amended. The net proceeds from the offering, together with cash on hand, were used to redeem all of ATI’s outstanding 5.0% Senior Notes due 2024 plus accrued and unpaid interest and related transaction expenses. As a result of the offering, the Company recorded $10 million as deferred financing fees in the Consolidated Balance Sheet as of December 31, 2020.

The 3.75% 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 3.75% Senior Notes. The indenture governing the 3.75% 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, 2021, the Company was in compliance with all covenants under the indenture governing the 3.75% Senior Notes.

Table of Contents

NOTE H. DERIVATIVES

The Company is subject to interest rate risk related to the Senior Secured Credit Facility and enters into interest rate swaps that are based on LIBOR to manage a portion of this exposure. The interest rate swaps are designated as cash flow hedges that qualify for hedge accounting under the hypothetical derivative method. Fair value adjustments are recorded as a component of Accumulated other comprehensive loss, net of tax (“AOCL”) in the Condensed Consolidated Balance Sheets. Balances in AOCL are reclassified to earnings when transactions related to the underlying risk are settled. As of September 30, 2021, 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 swaps.

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

		Fair Value
	Balance Sheet Location	September 30, 2021		December 31, 2020
Derivatives designated as hedging instruments:
Interest rate swaps	Other current liabilities	$	13	$	14
	Other non-current liabilities		28		46
Total derivatives designated as hedging instruments		$	41	$	60

The balance of derivative losses recorded in AOCL as of September 30, 2021 was $41 million. See NOTE O, “Accumulated Other Comprehensive Loss” for information regarding activity recorded as a component of AOCL during the three and nine months ended September 30, 2021 and 2020. As of September 30, 2021, the Company had $14 million of derivative losses recorded in AOCL expected to be reclassified to earnings within the next twelve months.

Table of Contents

NOTE I. PRODUCT WARRANTY LIABILITIES

As of September 30, 2021, current and non-current product warranty liabilities were $35 million and $23 million, respectively. As of September 30, 2020, current and non-current product warranty liabilities were $34 million and $31 million, respectively.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Beginning balance	$	60		$	48		$	66		$	52
Payments		(6	)		(9	)		(22	)		(25	)
Increase in liability (warranty issued during period)		4			3			12			11
Net adjustments to liability		—			23			2			27
Ending balance	$	58		$	65		$	58		$	65

NOTE J. DEFERRED REVENUE

As of September 30, 2021, current and non-current deferred revenue was $37 million and $101 million, respectively. As of September 30, 2020, current and non-current deferred revenue was $33 million and $107 million, respectively.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Beginning balance	$	142		$	145		$	143		$	139
Increases		6			5			22			29
Revenue earned		(10	)		(10	)		(27	)		(28	)
Ending balance	$	138		$	140		$	138		$	140

Deferred revenue recorded in current and non-current liabilities related to ETC as of September 30, 2021 was $29 million and $86 million, respectively. Deferred revenue recorded in current and non-current liabilities related to ETC as of September 30, 2020 was $28 million and $89 million, respectively.

Table of Contents

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 September 30, 2021, 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. Any lease liability is 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 September 30, 2021 and December 31, 2020 was 4.36% and 4.37%, respectively.

As of September 30, 2021, the Company recorded current and non-current operating lease liabilities of $4 million and $14 million, respectively. As of December 31, 2020, the Company recorded current and non-current operating lease liabilities of $4 million and $17 million, respectively. The following table reconciles future undiscounted cash flows for operating leases as of September 30, 2021 to total operating lease liabilities:

	September 30, 2021
2021	$	1
2022		5
2023		3
2024		2
2025		2
Thereafter		8
Total lease payments	$	21
Less: Interest		3
Present value of lease liabilities	$	18

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:

	September 30, 2021
Buildings	$	16
Land		1
Vehicles		1
Total ROU assets	$	18

The weighted average remaining lease term as of September 30, 2021 and September 30, 2020 was 7.2 years and 7.6 years, respectively.

Table of Contents

Operating lease expense was $1 million in each of the three months ended September 30, 2021 and 2020 and $4 million in each of the nine months ended September 30, 2021 and 2020, 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 no material short-term operating lease expense for each of the three and nine months ended September 30, 2021 and 2020.

The calculation of the Company's ROU assets and lease liabilities did not include cash consideration as of September 30, 2021 and December 31, 2020. During the nine months ended September 30, 2021 and 2020, the Company recorded $1 million and $2 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):

	September 30, 2021		December 31, 2020
Payroll and related costs	$	76	$	47
Sales allowances		32		20
Accrued interest payable		26		12
Vendor buyback obligation		17		16
Taxes payable		13		11
Derivative liabilities		13		14
Lease liability		4		4
Non-trade payables		2		2
Other accruals		15		14
Total	$	198	$	140

NOTE M. EMPLOYEE BENEFIT PLANS

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

	Pension Plans						Post-retirement Benefits
	For the Three Months Ended September 30,						For the Three Months Ended September 30,
	2021			2020			2021			2020
Net periodic benefit cost (credit):
Service cost	$	2		$	2		$	—		$	1
Interest cost		1			2			—			1
Expected return on assets		(2	)		(2	)		—			—
Prior service credit		(1	)		—			(2	)		(4	)
Recognized actuarial loss		1			—			—			—
Net periodic benefit cost (credit)	$	1		$	2		$	(2	)	$	(2	)

	Pension Plans						Post-retirement Benefits
	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020
Net periodic benefit cost (credit):
Service cost	$	7		$	7		$	1		$	1
Interest cost		4			5			1			2
Expected return on assets		(6	)		(6	)		—			—
Prior service credit		(1	)		—			(7	)		(10	)
Recognized actuarial loss		1			—			—			—
Net periodic benefit cost (credit)	$	5		$	6		$	(5	)	$	(7	)

Table of Contents

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

NOTE N. INCOME TAXES

For the three and nine months ended September 30, 2021, the Company recorded total income tax expense of $30 million and $94 million, respectively. The effective tax rate for the three and nine months ended September 30, 2021 was 24% and 22%, respectively. For the three and nine months ended September 30, 2020, the Company recorded total income tax expense of $21 million and $70 million, respectively. The effective tax rate for the three and nine months ended September 30, 2020 was 21% and 23%, respectively.

The need to establish a valuation allowance against the deferred tax assets is assessed periodically based on a more-likely-than-not realization threshold, in accordance with authoritative accounting guidance. Appropriate consideration is given to all positive and negative evidence related to that realization. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry-forward periods, experience with tax attributes expiring unused, and tax planning alternatives. The weight given to these considerations depends upon the degree to which they can be objectively verified.

The Company continues to provide for a valuation allowance on certain of its foreign deferred tax assets 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 income taxes, the Company has recorded a liability for unrecognized tax benefits related to a 2010 Research and Development Credit as of September 30, 2021 and December 31, 2020. 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. 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).

Table of Contents

NOTE O. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables reconcile changes in 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 June 30, 2020	$	2		$	(51	)	$	(36	)	$	(85	)
Other comprehensive (loss) income before reclassifications		—			(1	)		2			1
Amounts reclassified from AOCL		(3	)		3			—			—
Income tax benefit		1			1			—			2
Net current period other comprehensive (loss) income	$	(2	)	$	3		$	2		$	3
AOCL as of September 30, 2020	$	—		$	(48	)	$	(34	)	$	(82	)
AOCL as of June 30, 2021	$	(23	)	$	(34	)	$	(26	)	$	(83	)
Other comprehensive loss before reclassifications		—			—			(3	)		(3	)
Amounts reclassified from AOCL		(2	)		4			—			2
Income tax benefit (expense)		1			(2	)		—			(1	)
Net current period other comprehensive (loss) income	$	(1	)	$	2		$	(3	)	$	(2	)
AOCL as of September 30, 2021	$	(24	)	$	(32	)	$	(29	)	$	(85	)

	Nine months ended
	Pension and OPEB liability adjustments			Interest rate swaps			Foreign currency items			Total
AOCL as of December 31, 2019	$	8		$	(26	)	$	(34	)	$	(52	)
Other comprehensive loss before reclassifications		—			(37	)		—			(37	)
Amounts reclassified from AOCL		(11	)		7			—			(4	)
Income tax benefit		3			8			—			11
Net current period other comprehensive loss	$	(8	)	$	(22	)	$	—		$	(30	)
AOCL as of September 30, 2020	$	—		$	(48	)	$	(34	)	$	(82	)
AOCL as of December 31, 2020	$	(19	)	$	(46	)	$	(24	)	$	(89	)
Other comprehensive income (loss) before reclassifications		—			8			(5	)		3
Amounts reclassified from AOCL		(7	)		11			—			4
Income tax benefit (expense)		2			(5	)		—			(3	)
Net current period other comprehensive (loss) income	$	(5	)	$	14		$	(5	)	$	4
AOCL as of September 30, 2021	$	(24	)	$	(32	)	$	(29	)	$	(85	)

	Amounts reclassified from AOCL
AOCL Components	Three months ended September 30, 2021			Three months ended September 30, 2020			Affected line item in the Condensed Consolidated Statements of Comprehensive Income
Interest rate swaps	$	(4	)	$	(3	)	Interest expense, net
Prior service cost		3			3		Other income, net
Recognized actuarial loss		(1	)		—		Other income, net
Total reclassifications, before tax	$	(2	)	$	—		Income before income taxes
Income tax benefit		1			—		Income tax expense
Total reclassifications, net of tax	$	(1	)	$	—

Table of Contents

	Amounts reclassified from AOCL
AOCL Components	Nine months ended September 30, 2021			Nine months ended September 30, 2020			Affected line item in the Condensed Consolidated Statements of Comprehensive Income
Interest rate swaps	$	(11	)	$	(7	)	Interest expense, net
Prior service cost		8			11		Other income, net
Recognized actuarial loss		(1	)		—		Other income, net
Total reclassifications, before tax	$	(4	)	$	4		Income before income taxes
Income tax benefit (expense)		1			(1	)	Income tax expense
Total reclassifications	$	(3	)	$	3

Prior service cost and actuarial loss are included in the computation of the Company’s net periodic benefit cost (credit). See NOTE M, “Employee Benefit Plans” for additional details.

NOTE P. COMMITMENTS AND CONTINGENCIES

Environmental Matters

The Company has an agreement with the Environmental Protection Agency to perform remedial activities at the Company’s Indianapolis, Indiana manufacturing facilities related to historical soil and groundwater contamination. As of September 30, 2021, the Company had a liability recorded in the amount of $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.

Table of Contents

NOTE Q. EARNINGS PER SHARE

The Company presents both basic and diluted earnings per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during the reporting period that are calculated using the treasury stock method for stock-based awards. The treasury stock method assumes that the Company uses the proceeds from the exercise of awards to repurchase common stock at the average market price during the period. The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future and compensation cost for future service that the Company has not yet recognized. For each of the three and nine months ended September 30, 2021 and 2020, there were 1 million outstanding stock options excluded from the diluted EPS calculation because they were anti-dilutive.

The following table reconciles the numerators and denominators used to calculate basic EPS and diluted EPS (in millions, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	94	$	77	$	324	$	239
Weighted average shares of common stock outstanding		106		113		109		114
Dilutive effect of stock-based awards		—		1		—		—
Diluted weighted average shares of common stock outstanding		106		114		109		114
Basic earnings per share attributable to common stockholders	$	0.89	$	0.68	$	2.97	$	2.10
Diluted earnings per share attributable to common stockholders	$	0.89	$	0.68	$	2.97	$	2.10

NOTE R. COMMON STOCK

During the three and nine months ended September 30, 2021, the Company repurchased $100 million and $326 million, respectively, of its common stock under the current stock repurchase program authorized by the Board of Directors (“Repurchase Program”), leaving $501 million of authorized repurchases remaining under the Repurchase Program as of September 30, 2021. The Repurchase Program has no termination date, and the timing and amount of stock purchases are subject to market conditions and corporate needs. The Repurchase Program may be modified, suspended or discontinued at any time at the Company’s discretion.

NOTE S. SUBSEQUENT EVENT

During the third quarter, the Company entered into a strategic collaboration framework agreement (“Agreement”) for the development of electrified powertrain solutions for global commercial vehicles with Jing-Jin Electric Technologies Co. Ltd. (“JJE”), a Chinese electrified propulsion company in components, assemblies and systems for global automotive and commercial vehicle customers. Pursuant to the Agreement, the Company and JJE are working to define the product portfolio scope, manufacturing locations and supporting resources to be provided by each party. In addition, the Company provided a loan in the amount of $11 million to JJE’s United States-based subsidiary to support JJE North America’s commercial vehicle electric drive product development, testing and manufacturing acceleration efforts.

On October 20, 2021, the Company announced that it would invest approximately $42 million in JJE’s initial public offering at the The Science and Technology Innovation Board on the Shanghai Stock Exchange, representing 3.25% of JJE’s outstanding common stock.

Table of Contents

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 Form 10-Q.

The statements in this discussion regarding industry trends, our expectations regarding our future performance, liquidity and capital resources and other non-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, and in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission ("SEC") on February 18, 2021. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Recent Developments

During the third quarter, we entered into a strategic collaboration framework agreement (“Agreement”) for the development of electrified powertrain solutions for global commercial vehicles with Jing-Jin Electric Technologies Co. Ltd. (“JJE”), a Chinese electrified propulsion company in components, assemblies and systems for global automotive and commercial vehicle customers. Pursuant to the Agreement, Allison and JJE are working to define the product portfolio scope, manufacturing locations and supporting resources to be provided by each party. In addition, we provided a loan in the amount of $11 million to JJE’s United States-based subsidiary to support JJE North America’s commercial vehicle electric drive product development, testing and manufacturing acceleration efforts.

On October 20, 2021, we announced that we would invest approximately $42 million in JJE’s initial public offering at the The Science and Technology Innovation Board on the Shanghai Stock Exchange, representing 3.25% of JJE’s outstanding common stock.

On September 16, 2021, we entered into an asset purchase agreement (“Purchase Agreement”) with AVTEC Ltd. (“AVTEC”), an Indian manufacturer of powertrain and precision-engineered products for the automotive, off-highway, defense, agriculture and railway industries in areas of both proprietary products and contract manufacturing. Pursuant to the Purchase Agreement, we will acquire the transmission portfolio of AVTEC’s off-highway business and Madras Export Processing Zone off-highway component machining business for approximately $27 million subject to completion of certain conditions precedent.

Overview

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

Although approximately 79% of revenues were generated in North America in 2020, we have a global presence by serving customers in Europe, Asia, South America and Africa. We serve customers through an independent network of approximately 1,400 independent distributor and dealer locations worldwide.

Table of Contents

Trends Impacting Our Business

In March 2020, the World Health Organization categorized the novel coronavirus ("COVID-19") as a pandemic. In the third quarter of 2021, the COVID-19 pandemic continued to cause supply chain, labor and raw material constraints that created volatility in our business performance and impacted global markets and supply chains. As a result, we have experienced, and expect to continue to experience, raw material and component price inflation, increased freight and logistics costs and increased overtime expense as a result of labor shortages. However, during the third quarter of 2021 despite increased customer demand our net sales 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 continue to monitor and proactively mitigate risks in our supply chain, including the global shortage of semiconductors and its impact on the availability of our transmission control modules. We, our suppliers and our customers are all taking actions to reduce the impact of the semiconductor shortage and other supply chain, transport and raw material constraints; however, if these constraints and inflationary costs persist, the impact on our business could be material.

To limit the spread of COVID-19, governments continue to take various actions including the administration or mandate of vaccinations, travel bans and restrictions, quarantines, curfews, stay-at-home orders, social distancing guidelines and business shutdowns and closures. We are continuing to take a variety of measures to promote the safety and security of our employees and to maintain operations with as minimal impact as possible to our stakeholders, and as a result, we have been able to continue our manufacturing operations and deliver our products to customers. The United States government has indicated it will require that certain suppliers to the United States Department of Defense mandate employees be vaccinated against COVID-19 and employers employing over 100 employees either mandate employees be vaccinated against or submit to weekly testing for COVID-19. These or similar vaccine and testing mandates by other governments may result in additional labor shortages and/or increased labor or other expenses for us and our customers and suppliers.

Table of Contents

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

End Market	Q3 2021 Net Sales		Q3 2020 Net Sales		% Variance
North America On-Highway	$	275	$	281		(2	)%
North America Off-Highway		20		1		1,900	%
Defense		39		56		(30	)%
Outside North America On-Highway		93		71		31	%
Outside North America Off-Highway		14		4		250	%
Service Parts, Support Equipment and Other		126		119		6	%
Total Net Sales	$	567	$	532		7	%

North America On-Highway end market net sales were down 2% for the third quarter 2021 compared to the third quarter 2020, principally driven by lower demand due to supply chain, labor and raw material constraints impacting the broader commercial vehicle supply base.

North America Off-Highway end market net sales were up $19 million for the third quarter 2021 compared to the third quarter 2020, principally driven by higher demand for hydraulic fracturing applications.

Defense end market net sales were down 30% for the third quarter 2021 compared to the third quarter 2020, principally driven by lower demand for Tracked vehicle applications.

Outside North America On-Highway end market net sales were up 31% for the third quarter 2021 compared to the third quarter 2020, principally driven by the recovery in customer demand following the pandemic-related disruptions experienced in 2020 and the execution of growth initiatives.

Outside North America Off-Highway end market net sales were up $10 million for the third quarter 2021 compared to the third quarter 2020, principally driven by higher demand in the energy, mining and construction sectors.

Service Parts, Support Equipment and Other end market net sales were up 6% for the third quarter 2021 compared to the third quarter 2020, principally driven by higher demand for global service parts, partially offset by decreased sales of aluminum die cast components.

Key Components of our Results of Operations

Net sales

We generate our net sales primarily from the sale of 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. 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.

Cost of sales

Our primary components of cost of sales are purchased parts, overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of transmissions and parts. For the nine months ended September 30, 2021, direct material costs were approximately 67%, overhead costs were approximately 24%, and direct labor costs were approximately 9% 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 long-term agreements, as appropriate. See Part I, Item 3, “Quantitative and Qualitative Disclosures about Market Risk —Commodity Price Risk” included below.

Table of Contents

Selling, general and administrative

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 intangibles.

Engineering — research and development

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

Table of Contents

Non-GAAP Financial Measures

We use Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) and Adjusted EBITDA as a percent of net sales to measure our operating profitability. We believe that Adjusted EBITDA and Adjusted EBITDA as a percent of net sales provide management, investors and creditors with useful measures of the operational results of our business and increase the period-to-period comparability of our operating profitability and comparability with other companies. Adjusted EBITDA 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 and Net income as a percent of net sales, respectively. Adjusted EBITDA is calculated as 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”), our wholly-owned subsidiary, term loan facility in the amount of $633 million due March 2026 (“Term Loan”). Adjusted EBITDA 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. 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, excluding non-recurring restructuring charges, after additions of long-lived assets.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
(unaudited, dollars in millions)	2021			2020			2021			2020
Net income (GAAP)	$	94		$	77		$	324		$	239
plus:
Income tax expense		30			21			94		70
Interest expense, net		28			34			87			100
Depreciation of property, plant and equipment		26			25			77			71
Amortization of intangible assets		12			11			35			40
Stock-based compensation expense (a)		3			6			11			11
Technology-related investments gain (b)		(3	)		—			(3	)		—
Acquisition-related earnouts (c)		1			—			1			1
UAW Local 933 retirement incentive (d)		(1	)		—			(1	)		—
Unrealized (gain) loss on foreign exchange (e)		(1	)		—			(1	)		2
Restructuring charges (f)		—			—			—			12
Adjusted EBITDA (Non-GAAP)	$	189		$	174		$	624		$	546
Net sales (GAAP)	$	567		$	532		$	1,758		$	1,546
Net income as a percent of net sales (GAAP)		16.6	%		14.5	%		18.4	%		15.5	%
Adjusted EBITDA as a percent of net sales (Non-GAAP)		33.3	%		32.7	%		35.5	%		35.3	%
Net cash provided by operating activities (GAAP)	$	196		$	162		$	467		$	402
Deductions to reconcile to Adjusted free cash flow:
Additions of long-lived assets		(43	)		(35	)		(112	)		(84	)
Restructuring charges (f)		—			9			—			12
Adjusted free cash flow (Non-GAAP)	$	153		$	136		$	355		$	330

Table of Contents

(a)

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

(b)

Represents gains (recorded in Other expense, net) related to investments in co-development agreements to expand our position in transmission technologies.

(c)

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

(d)

Represents adjustments (recorded in Cost of sales) related to a retirement incentive program for certain employees represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) pursuant to the UAW Local 933 collective bargaining agreement effective through November 2023.

(e)

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

(f)

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

Table of Contents

Results of Operations

Comparison of three months ended September 30, 2021 and 2020

The following table sets forth certain financial information for the three months ended September 30, 2021 and 2020. The following table and discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

	Three Months Ended September 30,
(unaudited, dollars in millions)	2021			% of net sales			2020			% of net sales
Net sales	$	567			100	%	$	532			100	%
Cost of sales		306			54			278			52
Gross profit		261			46			254			48
Operating expenses:
Selling, general and administrative		73			13			93			18
Engineering — research and development		42			7			33			6
Total operating expenses		115			20			126			24
Operating income		146			26			128			24
Interest expense, net		(28	)		(5	)		(34	)		(6	)
Other income, net		6			1			4			—
Income before income taxes		124			22			98			18
Income tax expense		(30	)		(5	)		(21	)		(4	)
Net income	$	94			17	%	$	77			14	%

Net sales

Net sales for the quarter ended September 30, 2021 were $567 million compared to $532 million for the quarter ended September 30, 2020, an increase of 7%. The increase was principally driven by a $22 million, or 31%, increase in net sales in the Outside North America On-Highway end market principally driven by the recovery in customer demand following the pandemic-related disruptions experienced in 2020 and the execution of our growth initiatives, a $19 million, or 1,900%, increase in net sales in the North America Off-Highway end market principally driven by higher demand for hydraulic fracturing applications, a $10 million, or 250%, increase in net sales in the Outside North America Off-Highway end market principally driven by higher demand in the energy, mining and construction sectors and a $7 million, or 6%, increase in net sales in the Service Parts, Support Equipment and Other end market principally driven by higher demand for global service parts, partially offset by decreased sales of aluminum die cast components, partially offset by a $17 million, or 30%, decrease in net sales in the Defense end market principally driven by lower demand for Tracked vehicle applications and a $6 million, or 2%, decrease in net sales in the North America On-Highway end market principally driven by lower demand due to supply chain, labor and raw material constraints impacting the broader commercial vehicle supply base.

Cost of sales

Cost of sales for the quarter ended September 30, 2021 was $306 million compared to $278 million for the quarter ended September 30, 2020, an increase of 10%. The increase was principally driven by unfavorable material costs, increased direct material and manufacturing expense commensurate with increased net sales and higher incentive compensation expense.

Gross profit

Gross profit for the quarter ended September 30, 2021 was $261 million compared to $254 million for the quarter ended September 30, 2020, an increase of 3%. The increase was principally driven by $29 million related to increased net sales and $8 million of price increases on certain products, partially offset by $16 million of unfavorable material costs, $11 million of higher manufacturing expense commensurate with increased net sales and higher incentive compensation expense. Gross profit as a percent of net sales for the three months ended September 30, 2021 decreased 170 basis points compared to the same period in 2020 principally driven by

Table of Contents

unfavorable material costs and higher incentive compensation expense, partially offset by increased net sales and price increases on certain products.

Selling, general and administrative

Selling, general and administrative expenses for the quarter ended September 30, 2021 were $73 million compared to $93 million for the quarter ended September 30, 2020, a decrease of 22%. The decrease was principally driven by unfavorable product warranty adjustments in the third quarter of 2020 that did not recur in 2021 and lower stock compensation expense, partially offset by higher commercial activities spending and higher incentive compensation expense.

Engineering — research and development

Engineering expenses for the quarter ended September 30, 2021 were $42 million compared to $33 million for the quarter ended September 30, 2020, an increase of 27%. The increase was principally driven by increased product initiatives spending.

Interest expense, net

Interest expense, net for the quarter ended September 30, 2021 was $28 million compared to $34 million for the quarter ended September 30, 2020, a decrease of 18%. The decrease was principally driven by $3 million of decreased interest expense due to lower interest rates as a result of our long-term debt refinancing in the fourth quarter of 2020 that extended maturities at lower fixed interest rates, $1 million of decreased interest expense on ATI’s revolving credit facility with commitments in the amount of $650 due September 2025 (“Revolving Credit Facility”) and $1 million of increased interest income.

Other income, net

Other income, net for the quarter ended September 30, 2021 was $6 million compared to $4 million for the quarter ended September 30, 2020, an increase of 50%. The increase was principally driven by a $4 million gain related to technology-related investments, partially offset by a $1 million gain in the third quarter of 2020 associated with assets held in a rabbi trust that did not recur in 2021.

Income tax expense

Income tax expense for the three months ended September 30, 2021 was $30 million, resulting in an effective tax rate of 24%, compared to $21 million of income tax expense and an effective tax rate of 21% for the three months ended September 30, 2020. The increase in income tax expense was principally driven by increased taxable income. The increase in the effective tax rate was principally driven by decreased estimated U.S. federal income tax deductions.

Table of Contents

Comparison of nine months ended September 30, 2021 and 2020

The following table sets forth certain financial information for the nine months ended September 30, 2021 and 2020. The following table and discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

	Nine Months Ended September 30,
(unaudited, dollars in millions)	2021			% of net sales			2020			% of net sales
Net sales	$	1,758			100	%	$	1,546			100	%
Cost of sales		918			52			801			52
Gross profit		840			48			745			48
Operating expenses:
Selling, general and administrative		226			13			237			15
Engineering — research and development		121			7			107			7
Total operating expenses		347			21			344			22
Operating income		493			28			401			26
Interest expense, net		(87	)		(5	)		(100	)		(6	)
Other income, net		12			1			8			—
Income before income taxes		418			24			309			20
Income tax expense		(94	)		(6	)		(70	)		(5	)
Net income	$	324			18	%	$	239			15	%

Net sales

Net sales for the nine months ended September 30, 2021 were $1,758 million compared to $1,546 million for the nine months ended September 30, 2020, an increase of 14%. The increase was principally driven by a $99 million, or 12%, increase in net sales in the North America On-Highway end market and a $72 million, or 35%, increase in net sales in the Outside North America On-Highway end market both of which were principally driven by the recovery in customer demand following the pandemic-related disruptions experienced in 2020, a $30 million, or 9%, increase in net sales in the Service Parts, Support Equipment and Other end market principally driven by higher demand for service parts, support equipment and aluminum die cast components and a $19 million, or 158%, increase in net sales in the North America Off-Highway end market principally driven by higher demand for hydraulic fracturing applications, partially offset by a $6 million, or 4%, decrease in net sales in the Defense end market principally driven by lower Wheeled vehicle demand partially offset by higher demand for Tracked vehicle applications and a $2 million, or 4%, decrease in net sales in the Outside North America Off-Highway end market principally driven by lower demand in the energy sector partially offset by higher demand in the mining and construction sectors.

Cost of sales

Cost of sales for the nine months ended September 30, 2021 was $918 million compared to $801 million for the nine months ended September 30, 2020, an increase of 15%. The increase was principally driven by increased direct material and manufacturing expense commensurate with increased net sales, unfavorable material costs and higher incentive compensation expense, partially offset by restructuring charges in the second quarter of 2020 that did not recur in 2021.

Gross profit

Gross profit for the nine months ended September 30, 2021 was $840 million compared to $745 million for the nine months ended September 30, 2020, an increase of 13%. The increase was principally driven by $151 million related to increased net sales, $21 million of price increases on certain products and $5 million of restructuring charges in the second quarter of 2020 that did not recur 2021, partially offset by $34 million of higher manufacturing expense commensurate with increased net sales, $34 million of unfavorable material costs and $14 million of higher incentive compensation expense. Gross profit as a percent of net sales for the nine months ended September 30,

Table of Contents

2021 decreased 40 basis points compared to the same period in 2020 principally driven by unfavorable material costs and higher incentive compensation expense, partially offset by increased net sales, price increases on certain products and restructuring charges in the second quarter of 2020 that did not recur in 2021.

Selling, general and administrative

Selling, general and administrative expenses for the nine months ended September 30, 2021 were $226 million compared to $237 million for nine months ended September 30, 2020, a decrease of 5%. The decrease was principally driven by unfavorable product warranty adjustments in 2020 that did not recur in 2021, $5 million of lower intangible amortization expense and $3 million of restructuring charges in the second quarter of 2020 that did not recur in 2021, partially offset by higher incentive compensation expense and higher commercial activities spending.

Engineering — research and development

Engineering expenses for the nine months ended September 30, 2021 were $121 million compared to $107 million for the nine months ended September 30, 2020, an increase of 13%. The increase was principally driven by increased product initiatives spending and higher incentive compensation expense, partially offset by $4 million of restructuring charges in the second quarter of 2020 that did not recur in 2021.

Interest expense, net

Interest expense, net for the nine months ended September 30, 2021 was $87 million compared to $100 million for the nine months ended September 30, 2020, a decrease of 13%. The decrease was principally driven by $9 million of decreased interest expense due to lower interest rates as a result of our long-term debt refinancing in the fourth quarter of 2020 that extended maturities at lower fixed interest rates, approximately $3 million of lower interest expense on ATI’s Term Loan due to lower variable interest rates, $2 million of decreased interest expense on ATI’s Revolving Credit Facility and $1 million of increased interest income, partially offset by $3 million of increased interest expense on interest rate hedges.

Other income, net

Other income, net for the nine months ended September 30, 2021 was $12 million compared to $8 million for the nine months ended September 30, 2020. The change was principally driven by a $4 million gain related to technology-related investments and $2 million of favorable foreign exchange on intercompany financing, partially offset by $2 million of reduced post-retirement benefit plan credits.

Income tax expense

Income tax expense for the nine months ended September 30, 2021 was $94 million, resulting in an effective tax rate of 22%, compared to $70 million of income tax expense and an effective tax rate of 23% for the nine months ended September 30, 2020. The increase in income tax expense was principally driven by increased taxable income. The decrease in the effective tax rate was principally driven by increased estimated U.S. federal income tax deductions.

Table of Contents

Liquidity and Capital Resources

We generate cash primarily from our operations to fund our operating, investing and financing activities. Our principal uses of cash are operating expenses, capital expenditures, working capital needs, debt service, dividends on common stock, stock repurchases and 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 $261 million and $310 million as of September 30, 2021 and December 31, 2020, respectively. Of the available cash and cash equivalents, $146 million and $150 million were deposited in operating accounts as of September 30, 2021 and December 31, 2020, respectively, while $115 million and $160 million were invested in U.S. government backed securities as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021, the total of cash and cash equivalents held by foreign subsidiaries was $116 million, the majority of which was at our subsidiaries located in China and the Netherlands. We manage our worldwide cash requirements considering available funds among the subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. As a result, we do not currently anticipate any local liquidity restrictions will preclude us from funding our targeted initiatives or operating needs with local resources.

We have not recognized any deferred tax liabilities associated with earnings in foreign subsidiaries, except for our subsidiary located in China, as they are intended to be permanently reinvested and used to support foreign operations or have no associated tax requirements. We have recorded a deferred tax liability of $3 million for the tax liability associated with the remittance of previously taxed income and unremitted earnings for our subsidiary located in China. The remaining deferred tax liabilities, if recorded, related to unremitted earnings that are indefinitely reinvested are not material.

Our liquidity requirements are significant, primarily due to our debt service requirements. As of September 30, 2021, we had $633 million of indebtedness associated with ATI’s Term Loan, $400 million of indebtedness associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”). Short-term and long-term debt service liquidity requirements consist of $2 million of minimum required quarterly principal payments on ATI’s Term Loan through its maturity date of March 2026 and periodic interest payments on ATI’s Term Loan and the Senior Notes. There are no required quarterly principal payments on ATI’s Senior Notes. Long-term debt service liquidity requirements also consist of the payment in full of any remaining principal balance of ATI’s Term Loan and the Senior Notes upon their respective maturity dates.

We made $5 million of principal payments on the Term Loan during each of the nine months ended September 30, 2021 and 2020. Our ability to make payments on and refinance our indebtedness and to fund planned capital expenditures and growth initiatives will depend on our ability to generate cash in the future.

Table of Contents

The Senior Secured Credit Facility provides for a $650 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments. As of September 30, 2021, we had $645 million available under the Revolving Credit Facility, net of $5 million in letters of credit. If we have commitments outstanding on the Revolving Credit Facility at the end of a fiscal quarter, the Senior Secured Credit Facility requires us to maintain a specified maximum first lien net leverage ratio of 5.50x. Additionally, within the terms of the Senior Secured Credit Facility, a first lien net leverage ratio at or below 4.00x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. As of September 30, 2021, our first lien net leverage ratio was 0.46x. The Senior Secured Credit Facility also provides certain financial incentives based on our first lien net leverage ratio. A first lien net leverage ratio at or below 4.00x and above 3.50x results in a 25 basis point reduction to the applicable margin on the Revolving Credit Facility. A first lien net leverage ratio at or below 3.50x results in an additional 25 basis point reduction to the applicable margin on the Revolving Credit Facility. These reductions remain in effect as long as we achieve a first lien net leverage ratio at or below the related threshold.

In addition, the Credit 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, and repurchase shares of our common stock. The indentures governing the Senior Notes contain negative covenants restricting or limiting our ability to, among other things, incur or guarantee additional indebtedness, incur liens, pay dividends on, redeem or repurchase our capital stock, make certain investments, permit payment or dividend restrictions on certain of our subsidiaries, sell assets, engage in certain transactions with affiliates, and consolidate or merge or sell all or substantially all of our assets. As of September 30, 2021, we are in compliance with all covenants under the Senior Secured Credit Facility and indentures governing the Senior Notes.

Our credit ratings are reviewed by Moody’s Investors Service (“Moody’s”) and Fitch Ratings (“Fitch”) and in the third quarter, we received credit ratings upgrades from Moody’s and Fitch. Moody’s rates our corporate credit at ‘Ba1’, the Term Loan at ‘Baa2’, the 4.75% Senior Notes at ‘Ba2’, the 5.875% Senior Notes at 'Ba2' and the 3.75% Senior Notes at ‘Ba2’. Fitch rates our corporate credit at ‘BB’, the Term Loan at ‘BBB-’, the 4.75% Senior Notes at ‘BB’, the 5.875% Senior Notes at 'BB' and the 3.75% Senior Notes at ‘BB’.

Our Board of Directors has authorized us to repurchase up to a certain amount of our common stock pursuant to a stock repurchase program (the "Repurchase Program"). During the nine months ended September 30, 2021, we repurchased $326 million of our common stock under the Repurchase Program. All of the repurchase transactions during the nine months ended September 30, 2021 were settled in cash during the same period. As of September 30, 2021, we had $501 million available under the Repurchase Program.

Table of Contents

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

	Nine Months Ended September 30,
Statements of Cash Flows Data	2021			2020
Cash flows provided by operating activities	$	467		$	402
Cash flows used for investing activities	$	(119	)	$	(80	)
Cash flows used for financing activities	$	(396	)	$	(263	)

Generally, cash provided by operating activities has been adequate to fund our operations. We have significant liquidity, including $261 million of cash and cash equivalents and $645 million available under the Revolving Credit Facility, net of $5 million of letters of credit, as of September 30, 2021. At this time, we believe cash provided by operating activities, cash and cash equivalents and borrowing capacity under the Senior Secured Credit Facility will be sufficient to meet our cash requirements for the next twelve months.

Cash provided by operating activities

Operating activities for the nine months ended September 30, 2021 generated $467 million of cash compared to $402 million for the nine months ended September 30, 2020. The increase was principally driven by higher gross profit and lower cash incentive compensation payments, partially offset by higher operating working capital requirements and higher cash income taxes.

Cash used for investing activities

Investing activities for the nine months ended September 30, 2021 used $119 million of cash compared to $80 million for the nine months ended September 30, 2020. The increase was principally driven by a $28 million increase in capital expenditures, an $11 million loan to JJE to accelerate development of electrified powertrain solutions for global commercial vehicles and a $4 million net working capital settlement related to the acquisition of Walker Die Casting in 2020 that did not recur in 2021, partially offset by $4 million of proceeds from technology-related investments.

Cash used for financing activities

Financing activities for the nine months ended September 30, 2021 used $396 million of cash compared to $263 million for the nine months ended September 30, 2020. The change was principally driven by $130 million of increased stock repurchases under the Repurchase Program and $4 million of increased dividend payments.

Contingencies

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 P, “Commitments and Contingencies” of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Table of Contents

Critical Accounting Policies and Significant Accounting Estimates

A discussion of our critical accounting policies and significant accounting estimates is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on February 18, 2021. 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 three and nine months ended September 30, 2021.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

See NOTE B, “Summary of Significant Accounting Policies” in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Table of Contents

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-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. Although forward-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 actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-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: the duration and spread of the COVID-19 pandemic, including new variants of the virus and the pace and availability of vaccines, mitigating efforts deployed by government agencies and the public at large, and the overall impact from such outbreak on economic conditions, financial market volatility and our business, including but not limited to the operations of our manufacturing and other facilities, our supply chain, our distribution processes and demand for our products and the corresponding impacts to our net sales and cash flow; increases in cost, disruption of supply or shortage of 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 COVID-19 pandemic; risks related to our substantial indebtedness; our participation in markets that are competitive; 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 ability to prepare for, respond to and successfully achieve our objectives relating to technological and market developments, competitive threats and changing customer needs; the concentration of our net sales in our top five customers and the loss of any one of these; the failure of markets outside North America to increase adoption of fully automatic transmissions; the success of our research and development efforts, the outcome of which is uncertain; U.S. and foreign defense spending; risks associated with our international operations, including 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 identify, consummate and effectively integrate acquisitions and collaborations; labor stoppages, labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal customers or suppliers; and our intention to pay dividends and repurchase shares of our common stock.

Important factors that could cause actual results to differ materially from our expectations are disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on February 18, 2021 and Part II, Item 1A of this Quarterly Report on Form 10-Q. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings or public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.

Table of Contents

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk

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 $1,278 million, including $645 million under our Revolving Credit Facility, net of $5 million of letters of credit. A one-eighth percent increase or decrease in assumed interest rates for the Senior Secured Credit Facility, if fully drawn as of September 30, 2021, would have an impact of approximately $1 million on interest expense per year. As of September 30, 2021, we had no outstanding borrowings 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. As of September 30, 2021, we held interest rate swaps effective 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 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%.

Exchange Rate Risk

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 Brazilian Real, British Pound, Canadian Dollar, Chinese Yuan Renminbi, Euro, Hungarian Forint, Indian Rupee and 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, Euro, Indian Rupee and Chinese Yuan Renminbi would correspondingly change our earnings, net of tax, by an estimated $5 million per year. We believe our other exposure to foreign currencies is immaterial.

Commodity Price Risk

We are subject to changes in our cost of sales caused by movements in underlying commodity prices. As of September 30, 2021, 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 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 long-term agreements (“LTAs”). We historically have not entered into long-term purchase contracts related to the purchase of aluminum and steel.

Assuming current levels of commodity purchases, a 10% variation in the price of aluminum and steel would correspondingly change our earnings by approximately $5 million and $9 million per year, respectively.

Many of our LTAs have incorporated a cost-sharing arrangement related to potential future commodity price fluctuations. For purposes of the sensitivity analysis above, the impact of these cost sharing arrangements has not been included.

Table of Contents

ITEM 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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 Rules 13a-15(e) and 15d-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 Form 10-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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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. 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, which information is incorporated herein by reference.

Item 1A. Risk Factors

Except as set forth below, there have been no material changes from our risk factors as previously reported in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on February 18, 2021.

The following risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2020 have been updated:

Our financial condition and results of operations have been and may continue to be materially adversely affected by the coronavirus pandemic.

The global spread of the novel strain of coronavirus (COVID-19) that has been declared a pandemic by the World Health Organization and the preventative measures taken to contain or mitigate the outbreak have caused, and are continuing to cause, significant volatility and uncertainty and economic disruptions. Governments around the world continue to implement measures to contain or mitigate the spread of the virus, including vaccine and testing mandates, quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments and other measures, due to the ongoing pandemic. While we continue to operate our plants consistent with applicable government guidelines, during 2020 our global manufacturing facilities periodically cut back on operating levels and shifts and we experienced, and may experience again, production shutdowns at our manufacturing facilities in Hungary, India, and Tennessee during the second quarter of 2020 as a result of government orders, our inability to obtain component parts from suppliers and decreased customer demand. In addition, many of our suppliers and customers have experienced, and may continue to experience, production slowdowns and/or shutdowns, as a result of supply chain, raw material, labor and logistics constraints, which have impacted, and may continue to impact, our business, sales and results of operation.

The effects of the COVID-19 pandemic on the global economy had a material impact on demand for our products and our results of operations during 2020 and continue to impact our results of operations during 2021. While we continue to experience a recovery in demand for our products that began in the third quarter of 2020, ongoing supply chain, labor, raw material, freight and logistics constraints have negatively impacted, and may continue to negatively impact, the sales of our products, expenses and our results of operations. In addition, future pandemic-related impacts on the global economy, including inflation, may continue to adversely impact our results of operations. The extent to which the COVID-19 pandemic may continue to adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including the severity and duration of the outbreak, emerging variants of the virus that may be more contagious than current variants and the effectiveness of actions taken globally to contain or mitigate its effects, including the availability and pace of distribution of vaccines. In addition, vaccine or testing mandates adopted by the U.S. or other governments in order to combat the pandemic may result in additional labor shortages and/or increased costs for us or our customers and suppliers that may have a material impact on our business. Any future financial impact cannot be estimated reasonably at this time, but may materially adversely affect our business, supply chain, sales, results of operations, financial condition and cash flows. Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression that may continue to impact customer demand and the financial instability or operating viability of our suppliers and customers.

Table of Contents

Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which may adversely impact our ability to access capital markets.

Increases in cost, disruption of supply or shortage of raw materials or components used in our products could harm our business and profitability.

Our products contain various raw materials, including corrosion-resistant steel, non-ferrous metals such as aluminum and nickel, and precious metals such as platinum and palladium. We use raw materials directly in manufacturing and in components that we purchase from our suppliers. We generally purchase components with significant raw material content on the open market. The prices for and availability of these raw materials fluctuate depending on market conditions and we have experienced an increase in costs related to raw materials during 2021. Volatility in the prices of raw materials such as steel, aluminum and nickel could increase the cost of manufacturing our products. We may not be able to pass on these costs to our customers, and this could have a material adverse effect on our business, results of operations and financial condition. Even in the event that increased costs can be passed through to customers, our gross margin percentages would decline. Additionally, our suppliers are also subject to fluctuations in the prices of raw materials and may attempt to pass all or a portion of such increases on to us. In the event they are successful in doing so, our margins would decline.

In 2020, approximately 75% of our total spending on components was sourced from approximately 40 suppliers, some of which are the single source for such components. All of the suppliers from which we purchase materials and components used in our business are fully validated suppliers, meaning the suppliers’ manufacturing processes and inputs have been validated under a production part approval process (“PPAP”). Furthermore, there are only a limited number of suppliers for certain of the materials used in our business, such as corrosion-resistant steel. As a result, our business is subject to the risk of additional price fluctuations and periodic delays in the delivery of our materials or components if supplies from a validated supplier are interrupted and a new supplier, if one is available, must be validated or materials and components must be purchased from a supplier without a completed PPAP, which could increase our risk of purchasing non-conforming components. Any such price fluctuations or delays, if significant, could harm our profitability or operations. In addition, the loss of a supplier could result in significant material cost increases or reduce our production capacity. We have experienced, and expect to continue to experience, delays in the availability and receipt of component parts as a result of the COVID-19 pandemic, some of which may materially impact our ability to meet customer demand. In addition, our customers have experienced, and may continue to experience, delays in the availability and receipt of component parts from their supply base which has resulted, and may continue to result, in lower sales of our products. We also cannot guarantee we will be able to maintain favorable arrangements and relationships with these suppliers. An increase in the cost or a sustained interruption in the supply or shortage of some of these raw materials or components that may be caused by a deterioration of our relationships with suppliers or by events such as natural disasters, power outages, labor strikes, public health crisis such as pandemics and epidemics or the like could negatively impact our business, results of operations and financial condition. Although we have agreements with many of our customers that we will pass such price increases through to them, such contracts may be canceled by our customers and/or we may not be able to recoup the costs of such price increases. Additionally, if we are unable to continue to purchase our required quantities of raw materials on commercially reasonable terms, or at all, if we are unable to maintain or enter into purchasing contracts for commodities, or if delivery of materials or component parts from suppliers is delayed or non-conforming, our operations could be disrupted, we may not be able to meet customer demand, or our profitability or our financial results may be materially impacted.

Table of Contents

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

The following table sets forth information related to our repurchases of our common stock on a monthly basis in the three months ended September 30, 2021:

	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, 2021		2,104,538	$	39.91		2,104,538	$	516,626,747
August 1 – August 31, 2021		401,313	$	39.87		401,313	$	500,626,530
September 1 – September 30, 2021		—	$	—		—	$	500,626,530
Total		2,505,851	$	39.91		2,505,851

(1)

These values reflect the amounts that may be repurchased under the Repurchase Program approved by the Board of Directors on November 14, 2016 and the increases approved by the Board of Directors on November 8, 2017, July 30, 2018 and May 9, 2019 which, in the aggregate, authorized total repurchases of $3,000 million. The Repurchase Program has no termination date.

Table of Contents

Item 6.

Exhibits

(a) Exhibits

Exhibit Number	Description


31.1	Certification of Chief Executive Officer pursuant to Rule 13a-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 Rule 13a-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	The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (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

104	Cover Page Interactive Data File – The cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL and contained in Exhibit 101

Table of Contents

SIGNATURES

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.


		ALLISON TRANSMISSION HOLDINGS, INC.

Date: October 28, 2021	By:	/s/ David S. Graziosi

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

Date: October 28, 2021	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)