What changed in this filing

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Item 1A. Risk Factors

2024-02-14 compared with 2023-02-16 · 132 added, 123 removed, 269 unchanged (49% 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.

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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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In the event they are successful in doing so, our margins would decline.

Industry-wide shortages of raw materials have continued to

occur in 2022, which led to increased raw material price volatility and cost increases, which we expect to continue in 2023.

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.

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 2023, 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”).

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.

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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 global economic uncertainty, the war in Ukraine and the COVID-19 pandemic, some of which have materially impacted, and may continue to materially impact, our ability to meet customer demand.

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 global economic uncertainty and the wars in Ukraine and the Middle East, some of which have materially impacted, and may continue to 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.

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, adverse geopolitical events such as the crisis in the Red Sea, 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, 2022, approximately 46% of our U.S.

employees, representing approximately 41% 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.

Any new collective bargaining agreement we negotiate with the UAW to replace the existing collective bargaining agreement upon its expiration may result in increased costs to us, in particular labor costs, which could have an adverse effect on our results of operations.

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.

While we may experience the supply chain constraints mentioned above across all our products lines, the impacts to our customers are likely to be more pronounced in our lower volume product lines, including those supplied to the Defense and Off-Highway end markets.

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

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.

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, satisfy customer demand in a timeframe that meets their desired production schedules and compete effectively.

In addition, we may continue to experience increased labor costs, including the anticipated significant labor cost increases under our new collective bargaining agreement with the UAW, which may impact our results of operations.

Our business would be adversely affected if we fail to retain key executives, or to adequately plan for the succession of members of our executive management team.

While we have succession plans in place for members

of our executive management team, and continue to review and update those plans, and certain key executive officers are party to or participants in severance and change in control arrangements, these arrangements do not guarantee that the services of our executive officers will continue to be available to us or that we will be able to find suitable management personnel to replace departing executives on a timely basis.

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 impacted our margins in 2022 and may continue to adversely affect our results of operations.

Recent inflationary pressures have resulted in increased raw material, labor, energy, freight and logistics expenses and other costs, which 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.

Geopolitical risks, including the war in Ukraine, may have an adverse effect on our results of operations and financial conditions, including on the availability of raw materials for our products or component parts, our supply chain, our customers and our long-term sales opportunities.

Political, economic and other conditions in foreign countries and regions, including geopolitical risks such as escalating tensions between China and western countries and the current conflict between Russia and Ukraine, may have an adverse effect on our results of operations and financial condition.

As a result of Russia’s invasion of Ukraine and actions by the U.S.

and other governments to implement sanctions against Russia, as well as certain businesses, individuals and banks in Russia, we have suspended indefinitely all sales and exports of our products to customers in Russia and Belarus and Russian- and Belarusian-affiliated, owned or controlled entities.

These actions did not have a material impact on our net sales in 2022 and are not expected to have a material impact on our net sales in 2023.

However, the duration of the war in Ukraine, its impact on the regional and global economy, and the breadth, severity and duration of sanctions imposed by the U.S.

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

Geopolitical risks, including the wars in Ukraine and the Middle East, may have an adverse effect on our results of operations and financial conditions, including on the availability of raw materials for our products or component parts, our supply chain, our customers and our long-term sales opportunities.

Political, economic and other conditions in foreign countries and regions, including geopolitical risks such as escalating tensions between China and western countries and the current wars in Ukraine and the Middle East, may have an adverse effect on our results of operations and financial condition.

The duration of any such conflict, its impact on the applicable regional and global economy, and the breadth, severity and duration of any applicable sanctions imposed by the U.S.

and other governments is uncertain.

An extended war could impact our ability or those of our suppliers or customers to obtain certain raw materials or component parts and could limit the availability and cost of energy throughout Europe, which could increase our costs, impact our ability to deliver our products or reduce customer demand.

In addition, certain of our competitors may continue to sell products in Russia during this time, which may have a negative impact on our long-term sales opportunities in Russia.

Since the beginning of the war in Ukraine, we have also experienced, and may continue to experience, an increase in cybersecurity attacks, which, if successful, may harm our business.

Extended or expanded conflicts could impact our ability or those of our suppliers or customers to obtain certain raw materials or component parts and could limit the availability and cost of energy throughout Europe, which could increase our costs, impact our ability to deliver our products or reduce customer demand.

In addition, while we have suspended indefinitely all sales and exports of our products to customers in Russia and Belarus and Russian and Belarusian affiliate owned or controlled entities, certain of our competitors have continued to sell products in Russia during this time, which may have a negative impact on our long-term sales opportunities in Russia.

Volatility in and disruption to the global economic environment, including the impact of an economic recession, 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.

Increasing inflation, geopolitical risks and supply chain, labor and energy constraints have caused and may continue to cause volatility in and disruption to the global economic environment.

Geopolitical risks, supply chain, labor and energy constraints and inflation have caused and may continue to cause volatility in and disruption to the global economic environment.

Historically, the commercial vehicle industry as a whole has been more adversely affected by volatile economic conditions, such as a recession, than many other industries, as the purchase or replacement of commercial vehicles, which are durable items, can be deferred for many reasons, including reduced spending by end users.

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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.

Furthermore, our suppliers may not be successful in generating sufficient sales or securing alternate financing arrangements, and therefore may no longer be able to supply goods and services to us.

In that event, we would need to find alternate sources for these goods and services, and there is no assurance we would be able to find such alternate sources on favorable terms, if at all.

In that event, we would need to find alternate

sources for these goods and services, and there is no assurance we would be able to find such alternate sources on favorable terms, if at all.

Any such disruption in our supply chain could adversely affect our ability to manufacture and deliver our products on a timely basis, and thereby affect our results of operations.

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

The effects of the COVID-19 pandemic on the global economy continued to have an impact on commercial vehicle production schedules, which impacted the sales of our products and our results of operations during 2022.

While we continued to experience a recovery in demand for our products during 2022, ongoing supply chain, labor, raw material, energy, freight and logistics constraints have negatively impacted, and may continue to negatively impact, the sales of our products, costs 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 actions taken by governments to contain or mitigate its effects, including the availability, pace of distribution, acceptance of and effectiveness of vaccines.

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.

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

As of December 31, 2023, approximately 48% of our U.S.

employees, representing approximately 43% 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 2027.

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.

Certain of our end users operate in highly cyclical industries, which can result in uncertainty and significantly impact the demand for our products, which could have a material adverse effect on our business, results of operations and financial condition.

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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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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.

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.

We are subject to cybersecurity risks to operational systems, security systems, or infrastructure owned by Allison or third-party vendors or suppliers.

We are at risk for interruptions, outages, and breaches of:

(i) operational systems, including business, financial, accounting, product development, data processing, or manufacturing processes, owned by us or our third-party vendors or suppliers;

(ii) facility security systems, 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;

We are at risk for interruptions, outages, and compromises to the confidentiality, integrity or availability of:

(i) operational systems, including information technology, business, financial, accounting, product development, data processing, or manufacturing processes, owned by us or our third-party vendors or suppliers;

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

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

Such cyber incidents could materially disrupt operational systems (for example, through the deployment of ransomware);

result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information;

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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.

A significant cyber incident could impact production capability, harm our reputation and/or subject us to regulatory actions or litigation, including those as result of global privacy and security regulations, 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.

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

and foreign governments, and the loss of a significant number of our contracts, or budgetary declines or future reductions or changes in spending by the U.S.

or foreign governments could have a material adverse effect on our results of operations and financial condition.

Our net sales to the Defense end market are derived from contracts (revenue arrangements) with agencies of, and prime system contractors for, the U.S.

government and foreign governments.

If a significant number of our Defense contracts and subcontracts are simultaneously delayed or cancelled for budgetary, performance or other reasons, it would have a material adverse effect on our results of operations and financial condition.

Approximately 5%, or $146 million, of our net sales for the year ended December 31, 2022 were from our Defense end market.

Our future financial results may be adversely affected by:

declines in, or uncertainty regarding, U.S.

or foreign government defense budgets;

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;

technological developments that impact purchasing decisions or our competitive position;

increased regulatory requirements for defense contractors.

A cyber incident could be caused by malicious insiders or by third parties using sophisticated, targeted methods to circumvent firewalls, encryption, and other security defenses, including hacking, fraud, trickery, or other forms of deception, such as social engineering and phishing, or due to human or technological error, such as misconfigurations, “bugs,” or vulnerabilities in software or hardware used by us or others.

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

Cyberattacks are expected to accelerate on a global basis in frequency and magnitude as threat actors are increasingly using tools – including artificial intelligence – to evade detection and even remove forensic evidence.

As a result, we may be unable to detect, investigate, remediate or recover from future cyberattacks or other incidents, or to avoid a materially adverse impact to our systems, information or business.

In addition, remote or hybrid working arrangements at our Company, our customers and many third-party providers increase cybersecurity risks due to the challenges associated with managing remote computing assets and the nature of security vulnerabilities that are present in many non-corporate and home networks.

We and certain of our customers and third-party providers have experienced cyberattacks and other incidents in the past and will continue to experience varying degrees of cyberattacks and incidents in the future.

While to date no cybersecurity incidents have had a material impact on our operations or financial results, we cannot guarantee that material incidents will not occur in the future.

In addition, as a provider of defense products and services to the U.S.

government and foreign governments, we are subject to a heightened risk of cyberattacks, including by foreign governments, violent extremist organizations, and transnational criminal organizations.

A significant cyber incident could impact our production capability, harm our reputation and business relationships, impact our competitive position (including compromising our intellectual property assets), and subject us to regulatory actions or litigation and fines and/or penalties, including pursuant to evolving global privacy and security regulations and laws, as well as significant investigative, restoration or remediation costs and/or increased compliance costs.

Any of the foregoing could materially affect our business, results of operations and financial condition.

There is no guarantee that our measures to prevent, detect and mitigate these threats, including employee and key third-party partner education, monitoring of networks and systems, and maintenance of backup and protective systems, will be successful in preventing or mitigating a cyber incident.

In addition, in many jurisdictions, we are subject to privacy and data protection laws and regulations.

These laws and regulations are changing rapidly and becoming increasingly complex.

The interpretation and application of data protection laws in the U.S., Europe, and elsewhere are uncertain, evolving and may be inconsistent across jurisdictions.

Our failure to comply with these laws and regulations could result in legal liability, significant regulator penalties and fines, or impair our reputation in the marketplace.

Our brand and reputation are dependent on the continued participation and level of service of our numerous independent distributors and dealers.

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In addition, if a significant number of independent dealers were to terminate their contracts, it could adversely impact our business, results of operations and financial condition.

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

In the event of a catastrophic loss of one of our key manufacturing facilities, 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 or extreme weather events, which may increase in frequency and intensity as a result of climate change, public health crises, 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.

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The development of new products and technologies is difficult, time-consuming and costly and the timetable for commercial release is uncertain.

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.

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.

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.

equipment, which would impact our margins.

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.

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Factors potentially impacting adoption of automatic transmissions outside of North America include the large existing installed base of manual transmissions, customer preferences for manual transmissions, commercial vehicle OEM vertical integration into manual transmission and AMT manufacturing, increased competition from AMTs, electric propulsion solutions, and other alternative transmission and propulsion solution technologies and failure to further develop the Allison brand.

If the rate of adoption of fully automatic transmissions does not increase as we have anticipated, our long-term growth prospects and results of operations may be impaired.

If the rate of adoption of our propulsion solutions, including fully automatic transmissions, does not increase as we have anticipated, our long-term growth prospects and results of operations may be impaired.

Our international operations, in particular our emerging markets, are subject to various risks which could have a material adverse effect on our business, results of operations and financial condition.

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Most of our operations are in the U.S., but we also have manufacturing and customization facilities in India and Hungary with a services agreement with Stellantis NV and customization capability in Brazil, the Netherlands, China and Japan.

Further, we intend to continue to pursue growth opportunities for our business in a variety of business environments

outside the U.S., which could exacerbate the risks set forth below.

Further, we intend to continue to pursue growth opportunities for our business in a variety of business environments outside the U.S., which could exacerbate the risks set forth below.

Our international operations are subject to, without limitation, the following risks:

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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.

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• 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;

• 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;

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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.

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

Legal and Regulatory Risks

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We face exposure to product liability claims in the event that the use of our products has, or is alleged to have, resulted in injury, death or other adverse effects.

We currently maintain product liability insurance coverage, but we cannot be assured that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims.

We currently maintain product liability insurance coverage, but we cannot guarantee that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims.

Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome.

An unsuccessful product liability defense could have a material adverse effect on our business, results of operation, financial condition or prospects.

An unsuccessful product liability defense could have a material adverse effect on our business, results of operations, financial condition or prospects.

If one of our products is determined to be defective, we may face substantial warranty costs and may be responsible for significant costs associated with a product recall or a redesign.

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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.

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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We also rely on our reputation with end users of our products to specify our products when purchasing new vehicles from our OEM customers.

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.

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.

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

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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, 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.

Moreover, regulatory bodies are increasingly adopting regulations that target limiting greenhouse gases and combating 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 customers’ 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.

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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.

Concern over climate change continues to result in new legal and regulatory requirements designed to mitigate the effects of climate change on the environment, such as actions taken by the U.S.

Environmental Protection Agency and several states to address greenhouse gas emissions, the European Union’s CSRD, California’s Climate Corporate Data Accountability Act and Climate-Related Financial Risk Act, and proposed climate disclosure rules that remain under consideration by the SEC.

We are experiencing increased compliance burdens and costs in addressing our obligations under these new legal and regulatory obligations, and these new legal and regulatory obligations may adversely affect raw material sourcing, manufacturing operations and the distribution of our products.

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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government, or become subject to fines or other sanctions if we are found to have violated such laws or regulations.

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, Firearms and Explosives and the FCPA.

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, Firearms and Explosives and the FCPA.

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

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

As of December 31, 2022, we had total indebtedness of $2,525 million, and we would have been able to borrow an additional $644 million, net of $6 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, 2022, we had no outstanding borrowings against

the Revolving Credit Facility.

At December 31, 2022, $625 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”).

As of December 31, 2023, we had total indebtedness of $2,518 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, 2023, we had no outstanding borrowings against the Revolving Credit Facility.

At December 31, 2023, $618 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 .

Debt” in Part II, Item 8., of this Annual Report on Form 10-K.

Our indebtedness could have important consequences.

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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 $644 million under the Revolving Credit Facility, net of $6 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, or more frequently if certain events occur, 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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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.

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.

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

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.

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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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.

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.

UNRESOLVE D STAFF COMMENTS

CY BERSECURITY

We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information.

Our cybersecurity risk management program is guided by the National Institute of Standards and Technology Cybersecurity Framework (“NIST CSF”).

This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the NIST CSF as a framework to help us identify, assess, and manage cybersecurity risks relevant to our business.

Our cybersecurity risk management program is integrated into our overall enterprise risk management program and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas.

Key aspects of our cybersecurity risk management program include:

• Risk assessments designed to help identify material cybersecurity risks to our critical systems and information;

• A security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents;

• The use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls;

• Cybersecurity awareness training of our employees, key third-party partners, incident response personnel, and senior management;

• A cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents;

• A third-party risk management process for key third-party vendors and suppliers.

We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, results of operations, or financial condition.

We face certain ongoing risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition.

See “Risk Factors – We are subject to cybersecurity risks to operational systems, security systems, or infrastructure owned by Allison or third-party vendors or suppliers" in Part I, Item 1A.

of this Annual Report on Form 10-K.

Cybersecurity Governance

Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to its Audit Committee oversight of cybersecurity and other information technology risks.

Our Audit Committee oversees management’s implementation of our cybersecurity risk management program.

Our Audit Committee receives quarterly reports from management on our cybersecurity risks.

In addition, management updates the Audit Committee, as necessary, regarding significant cybersecurity incidents.

The Committee reports to the full Board regarding its activities, including those related to cybersecurity.

The full Board also receives briefings from management on our cybersecurity risk management program.

Board members receive presentations on cybersecurity topics from our Chief Information Security Officer ("CISO"), internal security staff or external experts as part of the Board’s continuing education on topics that impact public companies.

Our management team, including our Chief Executive Officer, Chief Financial Officer, General Counsel, Chief Information Officer ("CIO") and CISO, has overall responsibility for assessing and managing our material risks from cybersecurity threats.

Our management team has primary responsibility for implementing our cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants.

Our management team, led by our CISO, is informed about and monitors the prevention, detection, mitigation, and remediation of key cybersecurity risks and incidents through various means, which may include briefings with internal cybersecurity team members and external consultants, threat intelligence and other information obtained from public or private sources, and alerts and reports produced by security tools deployed in our information technology environment.

Our CISO has over 25 years and our CIO has over 10 years of experience in designing and implementing corporate information technology security systems and strategies.

In addition, our CISO leads the operational cybersecurity team, which has an average of over 10 years of experience.

Collectively, the members of the operational cybersecurity team have various certifications, including, but not limited to, CISSP, GSOM, GCIA, GCIH, CISA, CCSK, SSCP, GPEN, CEH, and CISM.

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

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Manufacturing

Plant #14 and #15

Manufacturing

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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