What changed in this filing

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Item 1A. Risk Factors

2022-02-17 compared with 2021-02-18 · 179 added, 134 removed, 225 unchanged (58% of the section changed)

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Risks Related to Our Business and Operations

We participate in markets that are competitive, and our competitors’ actions could have a material adverse effect on our business, results of operations and financial condition.

We participate in markets that are competitive, and our competitors’

actions could have a material adverse effect on our business, results of operations and financial condition.

Our business operates in competitive markets.

We compete against other existing or new global manufacturers of transmissions and propulsion solutions for commercial vehicles on the basis of product performance, quality, price, distribution capability and service in addition to other factors.

In addition, we compete with manufacturers developing alternative technologies, including fully electric propulsion solutions, that may or may not require a transmission.

In addition, subsidies offered by governmental entities continue to drive the development and adoption of various alternative technologies.

Actions by our competitors could lead to downward pressure on prices and/or a decline in our market share, either or both of which could adversely affect our results.

In addition, regulations enacted and subsidies offered by governmental entities continue to drive the development and adoption of various alternative technologies, including electric propulsion solutions.

If the pace of adoption of electric vehicles proceeds faster than we are anticipating, we may not be in a position to meet customer demand or our competitors may be better positioned to meet customer demand, which may result in a decline in our market share or negatively impact our ability to execute our growth initiatives.

Actions by our competitors or accelerated adoption of electric vehicles, in particular if our competitors are able to develop, validate and release new technologies more quickly than we do, could also lead to downward pressure on prices and/or a decline in our market share, either or both of which could adversely affect our results.

In addition, some of our customers or future customers are OEMs that manufacture or could in the future manufacture transmissions, propulsion solutions or alternate technologies, including electric propulsion solutions, for their own products.

Despite their transmission manufacturing capabilities, our existing OEM customers have chosen to purchase certain transmissions and propulsion solutions from us due to customer demand, resulting from the quality of our products and in order to reduce fixed costs, eliminate production risks and maintain company focus.

Despite their manufacturing capabilities, our existing OEM customers have chosen to purchase certain transmissions and propulsion solutions from us due to customer demand, resulting from the quality of our products and in order to reduce fixed costs, eliminate production risks and maintain company focus.

However, we cannot be certain these customers will continue to purchase our products in the future.

Increased levels of production insourcing by these customers could result from a number of factors, such as shifts in our customers’ business strategies, acquisition by a customer of another transmission or propulsion solution manufacturer, the inability of third-party suppliers to meet specifications and the emergence of low-cost production opportunities in foreign countries.

Increased levels of production insourcing by these customers could result from a number of factors, such as shifts in our customers’

business strategies, acquisition by a customer of another transmission or propulsion solution manufacturer, the inability of third-party suppliers to meet specifications and the emergence of low-cost production opportunities in foreign countries.

As a result, these OEMs may use products produced internally or by another manufacturer and no longer choose to purchase products from us.

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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 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, which may further impact our business, sales and results of operation.

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, we may experience production shutdowns or slowdowns at our manufacturing facilities as a result of government orders, our inability to obtain component parts from suppliers,

labor shortages or decreased customer production schedules.

In addition, many of our suppliers and customers have experienced, and may continue to experience, production slowdowns and/or shutdowns, as a result of government orders and supply chain, raw material, labor and logistics constraints, which have impacted, and may continue to impact, our business, sales and results of operations.

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 2021.

While we began to experience a recovery in demand for our products during the third quarter of 2020 and that recovery in demand continued in the fourth quarter of 2020,

demand for our products and our results of operations in the future may once again be adversely impacted by the effects of the pandemic .

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, i ncluding the availability and pace of distribution of vaccines.

While we continued to experience a recovery in demand for our products during 2021, 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 business and 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, pace of distribution, acceptance of and effectiveness 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 suppliers and customers 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.

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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.

Volatility in the prices of raw materials such as steel, aluminum and nickel could increase the cost of manufacturing our products.

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.

Temporary industry-wide shortages of raw materials have occurred in 2021, which has led to increased raw material price volatility and cost increases which could continue into 2022.

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 as the recovery of these costs from customers generally lags six to twelve months.

In 2021, approximately 75% of our total spending on components was sourced from approximately 40 suppliers, many 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.

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 raw materials and component parts as a result of the COVID-19 pandemic, some of which may materially impact our ability to meet customer demand.

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 and extreme weather events which may increase in frequency and intensity as a result of climate change, power outages, labor strikes and 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, and our profitability and our financial results may be materially impacted.

Labor cost inflation, employee attraction and retention or labor unrest could have an adverse effect on our business, results of operations and financial condition.

As of December 31, 2021, approximately 46% of our U.S.

employees, representing approximately 42% of our total employees, were represented by the UAW and are subject to a collective bargaining agreement.

Our current collective bargaining agreement with UAW Local 933 is effective through November 2023.

In addition to our unionized work force, many of our direct and indirect customers and vendors have unionized work forces.

Strikes, work stoppages or slowdowns experienced by these customers or vendors or their other suppliers could result in slowdowns or closings of assembly plants that use our products or supply materials for use in the production of our products.

Organizations responsible for shipping our products may also be impacted by strikes.

Any interruption in the delivery of our products could reduce demand for our products and could have a material adverse effect on us.

In general, we consider our labor relations with all of our employees to be good.

However, in the future we may be subject to labor unrest.

If strikes, work stoppages or lock-outs at our facilities or at the facilities of our vendors or customers occur or continue for a long period of time, our business, results of operations and financial condition may be materially adversely affected.

Our success depends on our ability to identify, recruit and retain highly skilled, qualified personnel, and there is currently increased competition for talent.

We have experienced labor shortages and wage inflation amid low levels of unemployment and workforce availability.

As a result, we may not be able to attract and retain qualified personnel, which may impact our ability to manufacture, design and develop our propulsion solutions and to compete effectively.

In addition, we may continue to experience increased labor costs, which may impact our results of operations.

Prolonged inflation could result in higher costs and decreased margins and earnings.

Recent inflationary pressures have resulted in increased raw material, labor, energy, freight and logistics expenses and other costs, which, if they continue for a prolonged period, may adversely affect our results of operations.

If our costs are subject to continuing significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.

Our inability to do so could harm our results of operation.

Volatility in and disruption to the global economic environment and changes in the regulatory and business environments in which we operate may have a material adverse effect on our business, results of operations and financial condition.

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In addition, some of our customers and suppliers may experience serious cash flow problems and, thus, may find it difficult to obtain financing, if financing is available at all.

As a result, our customers’ need for and ability to purchase our products or services may decrease, and our suppliers may increase their prices, reduce their output or change their terms of sale.

As a result, our customers’

need for and ability to purchase our products or services may decrease, and our suppliers may increase their prices, reduce their output or change their terms of sale.

Any inability of customers to pay us for our products and services, or any demands by suppliers for different payment terms, may materially and adversely affect our results of operations and financial condition.

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Some of the markets in which we operate, including energy, mining, construction, distribution and motorhomes, exhibit a high degree of cyclicality.

Decisions to purchase our transmissions are largely a result of the performance of these and other industries we serve.

Decisions to purchase our products are largely a result of the performance of these and other industries we serve.

If demand for output in these industries decreases, the demand for our products will likely decrease.

Demand in these industries is impacted by numerous factors including prices of commodities, rates of infrastructure spending, housing starts, real estate equity values, interest rates, consumer spending, fuel costs, energy demands, municipal spending and commercial construction, among others.

Increases or decreases in these variables globally may significantly impact the demand for our products, which could have a material adverse effect on our business, results of operations and financial condition.

If we are unable to accurately predict demand, we may be unable to meet our customers’ needs, resulting in the loss of potential sales, or we may manufacture excess products, resulting in increased inventories and overcapacity in our production facilities, increasing our unit production cost and decreasing our operating margins.

If we are unable to accurately predict demand, we may be unable to meet our customers’

needs, resulting in the loss of potential sales, or we may manufacture excess products, resulting in increased inventories and overcapacity in our production facilities, increasing our unit production cost and decreasing our operating margins.

Our sales are concentrated among our top five OEM customers and the loss or consolidation of any one of these customers or the discontinuation of particular vehicle models for which we are a significant supplier could reduce our net sales and have a material adverse effect on our results of operations and financial condition.

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Our top three customers, Daimler AG, PACCAR Inc.

and Navistar International Corporation accounted for approximately 20%, 11% and 11%, respectively, of our net sales during 2020.

The loss of, or consolidation of, any one of these customers, or a significant decrease in business from, one or more of these customers could harm our business.

and Traton SE (includes Navistar International Corporation as of December 31, 2021) accounted for approximately 20%, 10% and 10%, respectively, of our net sales during 2021.

The loss of, or consolidation of, any one of these customers, or a significant decrease in business from, one or more of these customers could harm

our business.

In addition, the discontinuation of particular vehicle models for which we are a significant supplier could reduce our net sales and have a material adverse effect on our results of operations.

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.

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.

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.

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.

Our sales to the Defense end market are to government entities and contractors for the U.S.

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curtailment of the U.S.

government’s use of technology or other services and product providers, including curtailment due to government budget reductions, future government shutdowns and related fiscal matters;

geopolitical developments, including economic sanctions, that affect demand for our products and services;

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(ii) facility security systems, owned by us or our third-party vendors or suppliers;

and/or (iii) transmission control modules or other in-product technology, owned by us or our third-party vendors or suppliers.

and/or (iii) vehicle propulsion control modules or other in-product technology, owned by us or our third-party vendors or suppliers.

Such cyber incidents could materially disrupt operational systems;

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jeopardize the security of our facilities;

and/or affect the performance of transmission control modules or other in-product technology.

and/or affect the performance of vehicle propulsion control modules or other in-product technology.

A cyber incident could be caused by malicious third parties using sophisticated, targeted methods to circumvent firewalls, encryption, and other security defenses, including hacking, fraud, trickery, or other forms of deception.

The techniques used by third parties change frequently and may be difficult to detect for long periods of time.

The techniques used by third

parties change frequently and may be difficult to detect for long periods of time.

A significant cyber incident could impact production capability, harm our reputation and/or subject us to regulatory actions or litigation, any of which could materially affect our business, results of operations and financial condition.

While we utilize a number of measures to prevent, detect and mitigate these threats, including employee education, monitoring of networks and systems, and maintenance of backup and protective systems, there is no guarantee such efforts will be successful in preventing a cyber incident.

As a result of the COVID-19 pandemic, a significant subset of our global salaried

employees are working remotely, which may pose a heightened risk for cyber incidents, including cybersecurity attacks and unauthorized dissemination of proprietary or confidential information, or other disruptions of our operational systems, security systems or infrastructure.

In the event of a catastrophic loss of our key manufacturing facility, our business would be adversely affected.

While we manufacture our products in several facilities and maintain insurance covering our facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of one of our manufacturing facilities due to accident, labor issues, weather conditions, acts of war, political unrest, terrorist activity, natural disaster, public health crisis, such as pandemics and epidemics or otherwise, whether short- or long-term, would have a material adverse effect on our business, results of operations and financial condition.

While we manufacture our products in several facilities and maintain insurance covering our facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of one of our manufacturing facilities due to accident, labor issues, weather conditions, acts of war, political unrest, terrorist activity, natural disaster or extreme weather events, which may increase in frequency and intensity as a result of climate change, public health crisis, such as pandemics and epidemics or otherwise, whether short- or long-term, would have a material adverse effect on our business, results of operations and financial condition.

Our most significant concentration of manufacturing is around our corporate headquarters in Indianapolis, Indiana, where we produce approximately 90% of our transmissions.

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In the event of a disruption at the Indianapolis facilities, our other facilities may not be adequately equipped to operate at a level sufficient to compensate for the volume of production at the Indianapolis facility due to their size and the fact that they have not yet been tested for such significant increases in production volume.

Labor unrest could have a material adverse effect on our business, results of operations and financial condition.

As of December 31, 2020, approximately 47% of our U.S.

employees, representing approximately 42% of our total employees, were represented by the UAW and are subject to a collective bargaining agreement.

Our current collective bargaining agreement with UAW Local 933 is effective through November 2023.

In addition to our unionized work force, many of our direct and indirect customers and vendors have unionized work forces.

Organizations responsible for shipping our products may also be impacted by strikes.

Any interruption in the delivery of our products could reduce demand for our products and could have a material adverse effect on us.

In general, we consider our labor relations with all of our employees to be good.

However, in the future we may be subject to labor unrest.

Strategic Risks

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Not all of our new product launches have been successful, and we may not be successful in the future in introducing other new products and responding to customer needs.

In addition, it often takes significant time, in some cases multiple fleet buy cycles,

before customers gain experience with new products and technologies and those new products and technologies become widely-accepted by the market, if at all.

In addition, it often takes significant time, in some cases multiple fleet buy cycles, before customers gain experience with new products and technologies and those new products and technologies become widely-accepted by the market, if at all.

Given the early stages of development of some of these new products and technologies, there can be no guarantee of future market acceptance and investment returns with respect to these products.

In addition, the increased adoption of electric propulsion solutions could result in lower demand for our fully automatic transmissions and, over time, the demand for related service parts and support equipment, which would impact our margins.

If we do not adequately anticipate the changing needs of our customers by keep ing pace with improvements and changes in transmission-related or vehicle propulsion technology and developing and introducing new and effective products and technologies on a timely basis, or if the products and technologies we develop do not become market-leading, our competitive position and prospects could be harmed.

If our competitors are able to respond to changing market demands and adopt new technologies more quickly than we do, demand for our products could decline, our competitive position could be harmed, our future research and development activities may be constrained due to intellectual property rights of others , licenses for technologies that would enable us to keep pace with our competitors may not be available on commercially reasonable terms if at all and we may not be able to recoup a return on our development investments.

If we do not adequately anticipate the changing needs of our customers by keeping pace with improvements and changes in vehicle propulsion technology and developing and introducing new and effective products and technologies on a timely basis, or if the products and technologies we develop do not become market-leading, our competitive position and prospects could be harmed.

activities may be constrained due to intellectual property rights of others, licenses for technologies that would enable us to keep pace with our competitors may not be available on commercially reasonable terms if at all and we may not be able to recoup a return on our development investments.

Moreover, changing customer demands as well as evolving regulatory, safety and environmental standards could require us to adapt our products and technologies to address such changes.

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Furthermore, there may be production delays due to unanticipated technological setbacks, which may, in turn, delay the release of new products to our end users.

If increased regulatory or environmental standards cause the rate of adoption of new technologies, including electric vehicles for the medium- and heavy-duty commercial market, to occur at a pace that is faster than we are anticipating, we may not have products available to meet that accelerated timeframe.

If we experience significant delays or increased costs in the production, launch or acceptance of our products and technologies, our net sales and results of operations may be materially adversely affected.

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exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S.

Foreign Corrupt Practices Act (“FCPA”) and similar laws and regulations in other jurisdictions.

Any one of these factors could materially adversely affect our sales of products or services to international customers or harm our reputation, which could have a material adverse effect on our business, results of operations and financial condition.

We may not be able to identify or consummate acquisitions or achieve expected benefits from or effectively integrate acquisitions, which could harm our growth.

From time to time we evaluate selective acquisitions and strategic investments.

Potential and completed acquisitions involve many risks that could have an adverse effect on our business, financial condition or results of operations, including:

our ability to identify suitable acquisition candidates, prevail against competing potential acquirers and negotiate and consummate acquisitions on terms attractive to us;

We may not be able to identify or consummate acquisitions or partnerships or achieve expected benefits from or effectively integrate acquisitions or partnerships, which could harm our growth.

From time to time we evaluate selective acquisitions, partnerships and strategic investments.

Potential and completed acquisitions and partnerships involve many risks that could have an adverse effect on our business, financial condition or results of operations, including:

our ability to identify suitable acquisition or partnership candidates, prevail against competing potential acquirers or partners and negotiate and consummate acquisitions or partnerships on terms attractive to us;

difficulties in integrating personnel and sales forces, operations, manufacturing, logistics, research and development, information technology, communications, purchasing, accounting, marketing, administration and other systems and processes and otherwise assimilating the operations of the acquired company;

the diversion of resources, including diverting management’s attention from our current operations;

risks of entering new geographic or product markets in which we have limited or no direct prior experience;

the potential loss of key customers, employees or suppliers of the acquired company or adverse effects on our existing business relationships with our suppliers and customers;

the potential incurrence of indebtedness to fund the acquisition;

the acquired business not achieving anticipated revenues, earnings, cash flow or market share;

the potential incurrence of indebtedness to fund the acquisition or partnerships;

the acquired business or partnership not achieving anticipated revenues, earnings, cash flow or market share;

excess capacity;

failure to achieve the expected synergies or cost savings resulting from the acquisition;

the need for additional investments post-acquisition that could be greater than anticipated;

failure to achieve the expected synergies or cost savings;

the need for additional investments post-investment or post-acquisition that could be greater than anticipated;

the impact of U.S.

and foreign competition laws and regulations on our ability to make certain acquisitions;

inaccurate assessment of undisclosed, contingent or other liabilities or problems and unanticipated costs associated with the acquisition;

and foreign competition laws and regulations on our ability to make certain acquisitions, to enter into certain partnerships or to make certain strategic investments;

inaccurate assessment of undisclosed, contingent or other liabilities or problems and unanticipated costs associated with the acquisition or partnership;

incorrect estimates made in accounting for acquisitions, incurrence of non-recurring charges and write-off of significant amounts of goodwill that could adversely affect our financial results;

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We could also incur significant costs, including, but not limited to, remediation costs, natural resources damages, civil or criminal fines and sanctions and third-party claims, as a result of past or future violations of, or liabilities associated with, environmental or other laws.

We cannot offer any assurance that we will be able to consummate any future acquisitions, strategic investments or other business combinations.

We cannot offer any assurance that we will be able to consummate any future acquisitions, strategic investments, partnerships or other business combinations.

If we are unable to identify suitable acquisition candidates or to consummate and successfully integrate our recent and any future acquisitions, our business and results of operations may be adversely affected as a result.

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We have had defect and warranty issues associated with certain of our products in the past, and we cannot give assurance similar product defects will not occur in the future.

See NOTE 10, “Product Warranty Liabilities” of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details regarding these warranty issues.

See "NOTE 10.

Product Warranty Liabilities”

of Notes to Consolidated Financial Statements included in Part II, Item 8.

of this Annual Report on Form 10-K for additional details regarding these warranty issues.

Furthermore, our business depends on the strong brand reputation we believe we have developed.

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In the event we are not able to maintain or enhance our brand in these new markets or our reputation is damaged in our existing markets as a result of product defects or recalls, we may face difficulty in maintaining our pricing positions with respect to some of our products or experience reduced demand for our products, which could negatively impact our business, results of operations and financial condition.

Additionally, we license the “Allison Transmission” name and certain related trademarks to third parties.

If any third party uses the trade name “Allison Transmission” in ways that adversely affect such trade name or trademark, our reputation could suffer damage, which in turn could have a material adverse effect on our business, results of operations and financial condition.

Additionally, we license the “Allison Transmission”

name and certain related trademarks to third parties.

If any third party uses the trade name “Allison Transmission”

in ways that adversely affect such trade name or trademark, our reputation could suffer damage, which in turn could have a material adverse effect on our business, results of operations and financial condition.

Many of the key patents and unpatented technology we use in our business are licensed to us, not owned by us, and our ability to use and enforce such patents and technology is restricted by the terms of the license.

Protecting our intellectual property rights is critical to our ability to compete and succeed as a company.

General Motors Company (“GM”) has granted us an irrevocable, perpetual, royalty-free, worldwide license under a large number of U.S.

and foreign patents and patent applications, as well as certain unpatented technology and know-how, to design, develop, manufacture, use and sell fully automatic transmissions and electric hybrid

propulsion solution for use in certain vocational vehicles, defense vehicles and off-road products.

General Motors Company (“GM”) has granted us an irrevocable, perpetual, royalty-free, worldwide license under a large number of U.S.

and foreign patents and patent applications, as well as certain unpatented technology and know-how, to design, develop, manufacture, use and sell fully automatic transmissions and electric hybrid propulsion solution for use in certain vocational vehicles, defense vehicles and off-road products.

With respect to the bulk of the intellectual property licensed to us, our license is exclusive with respect to the design, development, manufacture, use and sale of fully automatic transmissions and electric hybrid propulsion solution in vocational vehicles above certain weight rating thresholds, certain defense vehicles and certain off-road products.

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Environmental, health and safety laws and regulations may impose significant compliance costs and liabilities on us.

We are subject to many environmental, health and safety laws and regulations governing emissions to air, discharges to water, the generation, handling and disposal of waste and the cleanup of contaminated properties.

Our manufacturing operations are subject to many environmental, health and safety laws and regulations governing emissions to air, discharges to water, the generation, handling and disposal of waste and the cleanup of contaminated properties.

Compliance with these laws and regulations is costly.

We have incurred and expect to continue to incur significant costs to maintain or achieve compliance with applicable environmental, health and safety laws and regulations.

Moreover, if these environmental, health and safety laws and regulations become more stringent or expand to include a larger portion of our products or our customer’s products in the future, we could incur additional costs in order to ensure that our business and products comply with such regulations.

In addition, we may not be successful in complying with, or the vehicle or customer OEMs to which we sell our products may choose not to comply with, such laws and regulations, which could impact our ability to sell our products in certain locations.

Moreover, regulatory bodies are increasingly adopting regulations that target limiting greenhouse gases and combatting climate change, which may impact our ability to sell our current products or require us to develop new products or technologies.

If these environmental, health and safety laws and regulations that impact our operations or products become more stringent or expand to include a larger portion of our products

or our customer’s products in the future, we could incur additional costs in order to ensure that our business and products comply with such regulations.

In addition, we may not be successful in developing products or technologies that comply with, or the vehicle or customer OEMs to which we sell our products may choose not to comply with, such laws and regulations, which could impact our ability to sell our products in certain locations, negatively impact our business and result in a loss of market share.

Furthermore, if our products that are already placed in service are found to be non-compliant with certain laws, regulations and certifications, we may incur additional costs and fines.

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Our failure to comply with applicable environmental, health and safety laws and regulations and permit requirements could result in civil or criminal fines, penalties or enforcement actions, third-party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, including the installation of pollution control equipment or remedial actions.

Our failure to

comply could also result in our failure to secure adequate insurance for our business, resulting in significant exposure, diminished ability to hedge our risks and material modifications of our business operations.

Our failure to comply could also result in our failure to secure adequate insurance for our business, resulting in significant exposure, diminished ability to hedge our risks and material modifications of our business operations.

We may be subject to liability as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act and similar state or foreign laws for contaminated properties that we currently own, lease or operate or that we or our predecessors have previously owned, leased or operated, and sites to which we or our predecessors sent hazardous substances.

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We manage the remediation of historical soil and groundwater contamination at our Indianapolis, Indiana facilities under an Agreed Order of Consent with the EPA.

See Part II, Item 8, NOTE 18, “Commitments and Contingencies” of this Annual Report on Form 10-K.

See Part II, Item 8., "NOTE 18.

Commitments and Contingencies”

of this Annual Report on Form 10-K.

There can be no assurances that future environmental remediation obligations will not have a material adverse effect on our results of operations and financial condition.

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As a result of the need to comply with these laws and regulations, we are subject to increased risks of governmental investigations, civil fraud actions, criminal prosecutions, whistleblower lawsuits and other enforcement actions.

The laws and regulations to which we are subject include, but are not limited to, Export Administration Regulations, the Federal Acquisition Regulation, International Traffic in Arms Regulations and regulations from the Bureau of Alcohol, Tobacco and Firearms and the FCPA.

government contracts are subject to modification, curtailment or termination by the U.S.

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government as a result of our default, we could be liable for additional costs the U.S.

government incurs in acquiring undelivered goods or services from another source and any other damages it suffers.

government incurs in acquiring undelivered goods or services from another source and any other

damages it suffers.

Additionally, we cannot assign prime U.S.

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government periodically audits our governmental contract costs, which could result in fines, penalties or adjustment of costs and prices under the contracts.

The result of, or expiration of the statute of limitations for, such audits could have an impact on reported net income and cash flow from operations.

The result of, or expiration of the statute of limitations for, such audits could have an impact on reported liabilities, net income and cash flow from operations.

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, as a result, depress the trading price of our common stock.

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authorize the issuance of blank check preferred stock that our Board of Directors could issue to increase the number of outstanding shares and to discourage a takeover attempt;

limit the ability of stockholders to remove directors only “for cause”;

prohibit our stockholders from calling a special meeting of stockholders;

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Risks Related to Our Indebtedness and Financial Risks

Our substantial indebtedness could adversely affect our financial health, restrict our activities and affect our ability to meet our obligations.

We have a significant amount of indebtedness.

As of December 31, 2020, we had total indebtedness of $2,538 million and we would have been able to borrow an additional $645 million, net of $5 million of outstanding letters of credit, under Allison Transmission Inc.’s (“ATI”), our wholly-owned subsidiary, new revolving credit facility with commitments in the amount of $650 million due September 2025 (“New Revolving Credit Facility”).

As of December 31, 2020, we had no outstanding borrowings against the New Revolving Credit Facility.

At December 31, 2020, $638 million of our total indebtedness was associated with ATI’s new term loan facility due March 2026 (“New Term Loan” , and together with the New Revolving Credit Facility, the “New Senior Secured Credit Facility”), $400 million of our total indebtedness was associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of our total indebtedness was associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of our total indebtedness was 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”).

For a complete description of the terms of the New Senior Secured Credit Facility and the Senior Notes, please see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” of this Annual Report on Form 10-K.

Our substantial indebtedness could have important consequences.

Our indebtedness could adversely affect our financial health, restrict our activities and affect our ability to meet our obligations.

As of December 31, 2021, we had total indebtedness of $2,531 million and we would have been able to borrow an additional $645 million, net of $5 million of outstanding letters of credit, under Allison Transmission Inc.’s (“ATI”), our wholly-owned subsidiary, revolving credit facility with commitments in the amount of $650 million due September 2025 (“Revolving Credit Facility”).

As of December 31, 2021, we had no outstanding borrowings against the Revolving Credit Facility.

At December 31, 2021, $631 million of our total indebtedness was associated with ATI’s term loan facility due March 2026 (“Term Loan”

, and together with the Revolving Credit Facility, the “Senior Secured Credit Facility”), $400 million of our total indebtedness was associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of our total indebtedness was associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of our total indebtedness was 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”).

For a complete description of the terms of the Senior Secured Credit

Facility and the Senior Notes, please see "NOTE 8.

in Part II, Item 8., of this Annual Report on Form 10-K for additional information of this Annual Report on Form 10-K.

Our indebtedness could have important consequences.

For example, it could:

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limit our ability to borrow additional funds.

In addition, the New Revolving Credit Facility contains a maximum total senior secured leverage ratio.

The New Senior Secured Credit Facility and the indentures governing the Senior Notes also contain other negative and affirmative covenants that will limit our ability to engage in activities that may be in our long-term best interests.

In addition, the Revolving Credit Facility contains a maximum total senior secured leverage ratio.

The Senior Secured Credit Facility and the indentures governing the Senior Notes also contain other negative and affirmative covenants that will limit our ability to engage in activities that may be in our long-term best interests.

Our failure to comply with any of the covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness.

Further, the New Term Loan bears interest at fluctuating interest rates, primarily based on the London Interbank Offered Rate ("LIBOR").

In July 2017, the Financial Conduct Authority, a regulator of financial services firms in the United Kingdom, announced its intention to stop persuading or compelling banks to submit LIBOR rates after 2021.

In response to concerns regarding the future of LIBOR, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (“ARRC”) to identify alternatives to LIBOR.

The ARRC has recommended a benchmark replacement to assist issuers in continued capital market entry while safeguarding against LIBOR’s discontinuation.

The initial steps in the ARRC’s recommended provision reference variations of the Secured Overnight Financing Rate (“SOFR”).

At this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement.

On November 30, 2020, ICE Benchmark Administration Limited, the administrator of LIBOR , announced that it will consult on its intention to cease the publication of the one week and two month LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining LIBOR settings immediately following the LIBOR publication on June 30, 2023.

The outcome of such consultation and its impact on LIBOR could materially affect the economics as well as the timing of the transition away from LIBOR .

We are unable to predict the outcome of this consultation and, accordingly, whether LIBOR will cease to exist after calendar year 2023 , the effect of any changes, any establishment of alternative reference rates or any other reforms to LIBOR or any replacement of LIBOR that may be enacte d in the United Kingdom or elsewhere.

Such changes, reforms or replacements relating to LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by us or on our overall financial condition or results of operations.

To service our indebtedness, we will require a significant amount of cash, and our ability to generate cash depends on many factors beyond our control.

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This, to a significant extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We cannot ensure that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the New Senior Secured Credit Facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

We cannot ensure that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the Senior Secured Credit Facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

In such circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity.

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If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness.

In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the New Senior Secured Credit Facility could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation.

If our operating performance declines, we may in the future need to obtain waivers from the required lenders under the New Senior Secured Credit Facility to avoid being in default.

If we or any of our subsidiaries breach the covenants under the New Senior Secured Credit Facility and seek a waiver, we may not be able to obtain a waiver from the required lenders.

If this occurs, we would be in default under the New Senior Secured Credit Facility, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.

cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation.

If our operating performance declines, we may in the future need to obtain waivers from the required lenders under the Senior Secured Credit Facility to avoid being in default.

If we or any of our subsidiaries breach the covenants under the Senior Secured Credit Facility and seek a waiver, we may not be able to obtain a waiver from the required lenders.

If this occurs, we would be in default under the Senior Secured Credit Facility, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.

Despite current indebtedness levels, we and our subsidiaries may still be able to incur additional indebtedness, which could further exacerbate the risks associated with our substantial financial leverage.

We and our subsidiaries may be able to incur additional indebtedness in the future because the terms of our indebtedness do not fully prohibit us or our subsidiaries from doing so.

Subject to covenant compliance and certain

conditions, our indebtedness permits additional borrowing, including total borrowing up to $645 million under the New Revolving Credit Facility , net of $5 million in letters of credit .

If new debt is added to our current debt levels and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.

Subject to covenant compliance and certain conditions, our indebtedness permits additional borrowing, including total borrowing up to $645 million under the Revolving Credit Facility, net of $5 million in letters of credit.

If new debt is added to our current debt levels and our subsidiaries’

current debt levels, the related risks that we and they now face could intensify.

Our pension and other post-retirement benefits funding obligations could increase as a result of a variety of factors.

Our earnings may be positively or negatively impacted by the amount of income or expense recorded for our defined benefit pension plans and other post-retirement benefits (“OPEB”).

Accounting principles generally accepted in the United States of America (“GAAP”) require that income or expense for defined benefit pension plans be calculated at the annual measurement date using actuarial assumptions and calculations.

Our earnings may be positively or negatively impacted by the amount of income or expense recorded for our defined benefit pension plans and other post-retirement benefits (“OPEB”).

These calculations reflect certain assumptions, the most significant of which relate to the capital markets, interest rates, health care inflation rates and other economic conditions.

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Although GAAP pension expense and pension contributions are not directly related, the key economic indicators that affect GAAP pension expense also affect the amount of cash that we would contribute to our defined benefit pension plans.

Because the values of these defined benefit pension plans’ assets have fluctuated and will fluctuate in response to changing market conditions, the amount of gains or losses that will be recognized in subsequent periods, the impact on the funded status of the defined benefit pension plans and the future minimum required contributions, if any, could have a material adverse effect on our business, results of operations and financial condition.

Because the values of these defined benefit pension plans’

assets have fluctuated and will fluctuate in response to changing market conditions, the amount of gains or losses that will be recognized in subsequent periods, the impact on the funded status of the defined benefit pension plans and the future minimum required contributions, if any, could have a material adverse effect on our business, results of operations and financial condition.

The magnitude of such impact cannot be determined with certainty at this time.

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Pursuant to GAAP, we are required to assess our goodwill and indefinite-lived intangible assets to determine if they are impaired on an annual basis, or more often if events or changes in circumstances indicate that impairment may have occurred.

Intangible assets with finite lives are amortized over the useful life and are reviewed for impairment on triggering events such as events or changes in circumstances indicating that an impairment may have occurred.

have occurred.

If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill and the implied fair value of the goodwill or the carrying value of the intangible assets and the fair value of the intangible assets in the period the determination is made.

Disruptions to our business, end market conditions, protracted economic weakness, unsuccessful development of product and unexpected significant declines in operating results may result in charges for goodwill and other asset impairments.

See NOTE 2, “Summary of Significant Accounting Policies” and NOTE 6 “Goodwill and Other Intangible Assets” of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details.

Summary of Significant Accounting Policies”

Goodwill and Other Intangible Assets”

of Notes to Consolidated Financial Statements included in Part II, Item 8.

of this Annual Report on Form 10-K for additional details.

The carrying value of long-lived assets is evaluated whenever events or circumstances indicate that the carrying value of a long-lived asset may not be recoverable.

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The asset would be considered impaired when there is no future use planned for the asset or the future net undiscounted cash flows generated by the asset or asset group are less than its carrying value.

An impairment loss would be recognized based on the amount by which the carrying value exceeds fair value and could have a material adverse effect on the results of

our operations.

See NOTE 2 , “Summary of Significant Accounting Policies” and NOTE 5 “Property, Plant and Equipment” of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details.

Our ability to pay regular dividends on our common stock is subject to the discretion of our Board of Directors and may be limited by our structure and statutory restrictions and restrictions imposed by the New Senior Secured Credit Facility and the indentures governing the Senior Notes as well as any future agreements.

Our Board of Directors increased the quarterly dividend to $0.17 per share of common stock in the first quarter of 2020, an increase from the quarterly dividend of $0.15 per share of common stock maintained since the fourth quarter of 2014.

However, the payment of future dividends will be at the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our Board of Directors deems relevant.

The New Senior Secured Credit Facility and the indentures governing the Senior Notes also effectively limit our ability to pay dividends.

As a consequence of these limitations and restrictions, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our common stock.

Accordingly, our stockholders may have to sell some or all of their common stock after price appreciation in order to generate cash flow from their investment.

Our stockholders may not receive a gain on their investment when they sell their common stock, and they may lose the entire amount of the investment.

Additionally, any change in the level of our dividends or the suspension of the payment thereof could adversely affect the market price of our common stock.

UNRESOLVED STAFF COMMENTS

An impairment loss would be recognized based on the amount by which the carrying value exceeds fair value and could have a material adverse effect on the results of our operations.

Summary of Significant Accounting Policies”

Property, Plant and Equipment”

of Notes to Consolidated Financial Statements included in Part II, Item 8.

of this Annual Report on Form 10-K for additional details.

UNRESOLVE D STAFF COMMENTS

Our world headquarters, which we own, is located at One Allison Way, Indianapolis, Indiana 46222.

As of December 31, 2021, we have approximately 20 manufacturing and certain other facilities in eight countries.

The following table sets forth certain information regarding our significant facilities.

Engineering, Operational Support

Manufacturing

Plant #14 and #15

Manufacturing

Parts Distribution Center

Innovation Center

Engineering, Research and Development

Auburn Hills, Michigan, USA

Engineering, Operational Support, Manufacturing

Walker Die Casting

Lewisburg, Tennessee, USA

Manufacturing

Szentgotthard

Manufacturing & Customization

Manufacturing

We believe all our facilities are suitable for their intended purpose, are being efficiently utilized and provide adequate capacity to meet demand for the next several years.

The table above does not include sales offices located in various countries.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors