What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-13 compared with 2024-02-14 · 205 added, 163 removed, 1172 unchanged (24% of the section changed)

6 unchanged sentences

of our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 14, 2024.

We design and manufacture vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense fully automatic transmissions and electric hybrid and fully electric systems.

We are a leading designer and manufacturer of propulsion solutions for commercial and defense vehicles and the largest global manufacturer of medium- and heavy-duty fully automatic transmissions.

The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception.

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In January 2024, the UAW Local 933 ratified a new four-year collective bargaining agreement with us that expires in November 2027.

We expect to have a significant increase in labor costs under the terms of this new agreement.

Our net sales are driven by commercial vehicle production, which tends to be highly correlated to macroeconomic conditions and continues to be impacted by global supply chain constraints.

In 2024, we expect higher net sales driven by price increases on certain products and the continued execution of growth initiatives.

We have experienced, and expect to continue to experience, a significant increase in labor costs under the terms of this new agreement.

In 2025, we expect higher net sales driven by price increases on certain products, increased demand for Tracked vehicle applications in our Defense end market and robust North American vocational demand.

Full Year 2024 and 2023 Net Sales by End Market (in millions)

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North America On-Highway end market net sales were up 15% for the year ended December 31, 2024 compared to the year ended December 31, 2023, principally driven by strength in demand for Class 8 vocational and medium-duty trucks and price increases on certain products.

Global Off-Highway net sales were down 22% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by lower demand in the energy sector, partially offset by higher demand in the mining and construction sectors outside of North America.

Defense end market net sales were up 14% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by increased demand for Wheeled and Tracked vehicle applications.

Outside North America On-Highway end market net sales were up 3% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by price increases on certain products and the continued execution of our growth initiatives.

Service Parts, Support Equipment and Other end market net sales were up 18% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by higher demand for global service parts, support equipment and aluminum die cast components and price increases on certain products.

Global Off-Highway net sales were down 37% for the year ended December 31, 2024 compared to the year ended December 31, 2023, principally driven by lower demand from the energy sector in North America and the mining and construction sectors outside of North America, partially offset by strength in demand from the energy sector outside of North America.

Defense end market net sales were up 28% for the year ended December 31, 2024 compared to the year ended December 31, 2023, principally driven by increased demand for Tracked vehicle applications.

Outside North America On-Highway end market net sales were up 3% for the year ended December 31, 2024 compared to the year ended December 31, 2023, principally driven by higher demand in Asia and price increases on certain products, partially offset by lower demand in Europe.

Service Parts, Support Equipment and Other end market net sales were down 5% for the year ended December 31, 2024 compared to the year ended December 31, 2023, principally driven by lower demand for North America service parts and aluminum die cast components, partially offset by price increases on certain products.

Key Components of our Results of Operations

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The most directly comparable GAAP measure to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales is Net income and Net income as a percent of net sales, respectively.

Adjusted EBITDA is calculated as earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by the Second Amended and Restated Credit Agreement dated as of March 29, 2019 as amended (the “Credit Agreement”), governing ATI's Term Loan facility in the amount of $514 million due March 2031 (“Term Loan”) and ATI’s revolving credit facility with commitments in the amount of $750 million due March 2029 ("Revolving Credit Facility" and, together with the Term Loan, the "Senior Secured Credit Facility").

Adjusted EBITDA as a percent of net sales is calculated as Adjusted EBITDA divided by net sales.

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Income tax expense

Interest expense, net

Depreciation of property, plant and equipment

Interest expense, net

Amortization of intangible assets

Stock-based compensation expense (a)

Technology-related investments gain (b)

Unrealized loss (gain) on marketable securities (c)

Unrealized loss on foreign exchange (d)

Acquisition-related earnouts (e)

Pension curtailment (f)

UAW Local 933 retirement incentive (g)

UAW Local 933 contract signing incentives (b)

Unrealized loss on marketable securities (c)

Pension plan settlement loss (d)

Technology-related investments loss (gain) (e)

Unrealized loss on foreign exchange (f)

Adjusted EBITDA (Non-GAAP)

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

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

(c) Represents losses (gains) (recorded in Other income (expense), net) related to an investment in the common stock of Jing-Jin Electric Technologies Co.

(d) Represents losses (recorded in Other income (expense), net) on intercompany financing transactions for our India facility.

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

(f) Represents a curtailment loss (recorded in Selling, general and administrative) for our European subsidiary's defined benefit pension plan.

(g) Represents adjustments (recorded in Cost of sales) related to a 2018 to 2021 retirement incentive program for certain employees represented by the UAW pursuant to the UAW Local 933 collective bargaining agreement that was effective through November 2023.

(b) Represents non-recurring incentives (recorded in Cost of sales, Selling, general and administrative, and Engineering - research and development) to eligible employees as a result of UAW Local 933 represented employees ratifying a four-year collective bargaining agreement effective through November 2027.

(c) Represents losses (recorded in Other (expense) income, net) related to an investment in the common stock of Jing-Jin Electric Technologies Co.

(d) Represents a non-cash settlement charge (recorded in Other (expense) income, net) for a pro rata portion of previously unrecognized pension plan actuarial net losses associated with the pension risk transfer of a portion of our salaried defined benefit pension plan obligations to a third-party insurance company.

(e) Represents losses (gains) (recorded in Other (expense) income, net) related to investments in co-development agreements to expand our position in propulsion solution technologies.

(f) Represents losses (recorded in Other (expense) income, net) on intercompany financing transactions for our India facility.

(g) Represents other adjustments as defined by the Credit Agreement.

Results of Operations

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Interest expense, net

Other income (expense), net

Other (expense) income, net

Total other expense, net

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Net sales for the year ended December 31, 2024 were $3,225 million compared to $3,035 million for the year ended December 31, 2023, an increase of 6%.

The increase was principally driven by a $170 million, or 13%, increase in net sales in the North America On-Highway end market principally driven by strength in demand for Class 8 vocational and medium-duty trucks and price increases on certain products, a $108 million, or 18%, increase in net sales in the Service Parts, Support Equipment and Other end market principally driven by higher demand for global service parts, support equipment and aluminum die cast components and price increases on certain products, a $20 million, or 14%, increase in net sales in the Defense end market principally driven by increased demand for Wheeled and Tracked vehicle applications and a $14 million, or 3%, increase in net sales in the Outside North America On-Highway end market principally driven by price increases on certain products and the continued execution of our growth initiatives, partially offset by a $46 million, or 22%, decrease in Global Off-Highway net sales principally driven by lower demand in the energy sector, partially offset by higher demand in the mining and construction sectors outside of North America.

The increase was principally driven by a $223 million, or 15%, increase in net sales in the North America On-Highway end market principally driven by strength in demand for Class 8 vocational and medium-duty trucks and price increases on certain products, a $46 million, or 28%, increase in net sales in the Defense end market principally driven by increased demand for Tracked vehicle applications and a $16 million, or 3%, increase in net sales in the Outside North America On-Highway end market principally driven by higher demand in Asia and price increases on certain products, partially offset by lower demand in Europe, partially offset by a $62 million, or 37%, decrease in Global Off-Highway net sales principally driven by lower demand from the energy sector in North America and the mining and construction sectors outside of North America, partially offset by strength in demand from the energy sector outside of North America and a $33 million, or 5%, decrease in net sales in the Service Parts, Support Equipment and Other end market principally driven by lower demand for North America service parts and aluminum die cast components, partially offset by price increases on certain products.

Cost of sales

Cost of sales for the year ended December 31, 2024 was $1,696 million compared to $1,565 million for the year ended December 31, 2023, an increase of 8%.

The increase was principally driven by higher direct material and manufacturing expense commensurate with increased net sales and higher direct material costs.

The increase was principally driven by higher direct material and manufacturing expense commensurate with increased net sales and higher manufacturing expense, including $13 million of non-recurring UAW contract signing incentives.

Gross profit for the year ended December 31, 2024 was $1,529 million compared to $1,470 million for the year ended December 31, 2023, an increase of 4%.

The increase was principally driven by $155 million of price increases on certain products and $70 million related to increased net sales, partially offset by $36 million of higher manufacturing expense and $15 million of higher direct material costs.

Gross profit as a percent of net sales for the year ended December 31, 2023 increased 160 basis points compared to the same period in 2022 principally driven by price increases on certain products and increased net sales, partially offset by increased cost of sales.

The increase was principally driven by $80 million of price increases on certain products and $62 million related to increased net sales, partially offset by $75 million of higher manufacturing expense, including $13 million of non-recurring UAW contract signing incentives, and $8 million of higher direct material costs.

Gross profit as a percent of net sales for the year ended December 31, 2024 decreased 100 basis points compared to the same period in 2023, principally driven by increased cost of sales, including $13 million of non-recurring UAW contract signing incentives, partially offset by increased net sales and price increases on certain products.

Selling, general and administrative

Selling, general and administrative expenses for the year ended December 31, 2023 were $357 million compared to $328 million for the year ended December 31, 2022, an increase of 9%.

The increase was principally driven by $12 million of higher commercial activities spending, $8 million of higher incentive compensation expense and $9 million of higher product warranty expense.

Selling, general and administrative expenses for the year ended December 31, 2024 were $337 million compared to $357 million for the year ended December 31, 2023, a decrease of 6%.

The decrease was principally driven by lower intangible amortization expense, partially offset by increased commercial activities spending and higher product warranty expense.

Engineering — research and development

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Interest expense, net for the year ended December 31, 2024 was $89 million compared to $107 million for the year ended December 31, 2023, a decrease of 17%.

The decrease was principally driven by higher interest income on cash equivalents, partially offset by $4 million of higher interest expense on ATI's Term Loan due to higher variable interest rates, net of the favorable impact from interest rate hedges.

Other income (expense), net

Other income (expense), net for the year ended December 31, 2023 was $15 million compared to ($21) million for the year ended December 31, 2022.

The change was principally driven by $21 million of favorable change in marketable securities, $11 million of favorable foreign exchange and $6 million of favorable change associated with assets held in a rabbi trust, partially offset by $3 million of unfavorable change in technology-related investment gains.

The decrease was principally driven by higher interest income on cash and cash equivalents and lower interest expense on ATI's Term Loan due primarily to the repayment of $101 million of principal in the first quarter of 2024.

Other (expense) income, net

Other (expense) income, net for the year ended December 31, 2024 was ($6) million compared to $15 million for the year ended December 31, 2023.

The change was principally driven by an $8 million change in unrealized mark-to-market adjustments for marketable securities, a $5 million change in technology-related investments gains and losses, a $4 million non-cash defined benefit pension plan settlement charge and $4 million of unfavorable foreign exchange.

Income tax expense

Income tax expense for the year ended December 31, 2024 was $166 million resulting in an effective tax rate of 19%, compared to $154 million of income tax expense and an effective tax rate of 19% for the year ended December 31, 2023.

The increase in income tax expense was principally driven by increased taxable income.

The increase in income tax expense was principally driven by higher taxable income.

Liquidity and Capital Resources

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government backed securities as of December 31, 2023.

As of December 31, 2023, the total of cash held by foreign subsidiaries was $88 million, the majority of which was at our subsidiaries located in China, the Netherlands, India and Japan.

As of December 31, 2024, the total of cash held by foreign subsidiaries was $61 million, the majority of which was at our subsidiaries located in China, Japan, the Netherlands and India.

We manage our worldwide cash requirements considering available funds among the subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed.

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Long-term debt service liquidity requirements also consist of the payment in full of any remaining principal balance of ATI’s Term Loan and the Senior Notes upon their respective maturity dates.

We made $7 million of principal payments on the Term Loan during each of the years ended December 31, 2023 and 2022.

We made $104 million and $7 million of principal payments on the Term Loan during the years ended December 31, 2024 and 2023, respectively.

Our ability to make payments on and refinance our indebtedness and to fund planned capital expenditures and growth initiatives will depend on our ability to generate cash in the future.

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As of December 31, 2024, we were in compliance with all covenants under the Senior Secured Credit Facility and indentures governing the Senior Notes.

Our credit ratings and outlook are reviewed periodically by Moody’s Investors Service, Inc.

(“Moody’s”) and Fitch Ratings, Inc.

Our credit ratings and outlook are reviewed periodically by Moody’s Ratings (“Moody’s”) and Fitch Ratings, Inc.

As of December 31, 2024, our credit ratings from both Moody's and Fitch are shown in the table below:

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3.75% Senior Notes

We anticipate that our capital expenditures and cash income taxes in 2024 will be comparable to 2023.

We anticipate increased capital expenditures and cash income taxes in 2025 compared to 2024.

Our Board of Directors has authorized us to repurchase up to $4,000 million of our common stock pursuant to the Repurchase Program.

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Operating activities for the year ended December 31, 2024 generated $801 million of cash compared to $784 million for the year ended December 31, 2023.

The increase was principally driven by higher gross profit and lower operating working capital requirements, partially offset by higher cash income taxes.

The increase was principally driven by higher gross profit, lower cash interest payments and lower cash income taxes, partially offset by higher operating working capital funding requirements, higher cash incentive compensation payments and non-recurring UAW contract signing incentive payments.

Cash used for investing activities

Investing activities for the year ended December 31, 2024 used $147 million of cash compared to $129 million for the year ended December 31, 2023.

The decrease was principally driven by a $42 million decrease in capital expenditures and $23 million in cash paid for business acquisitions during 2022 that did not reoccur in 2023, partially offset by $5 million of equity investments in 2023 and a $4 million decrease in proceeds from technology-related investments.

The increase was principally driven by an $18 million increase in capital expenditures and a $5 million increase in equity method investments, partially offset by $4 million of proceeds from the sale of assets.

Cash used for financing activities

Financing activities for the year ended December 31, 2024 used $427 million of cash compared to $332 million for the year ended December 31, 2023.

The decrease was principally driven by a $26 million increase in proceeds from the exercise of stock options and a $15 million decrease in stock repurchases under the Repurchase Program.

The increase was principally driven by $97 million of increased payments on our long-term debt, $4 million of debt financing fees associated with the amendment of the Credit Agreement governing our Senior Secured Credit Facility and $4 million of increased dividend payments, partially offset by $9 million of lower stock repurchases under the Repurchase Program and a $4 million increase in proceeds from the exercise of stock options.

Critical Accounting Estimates

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We review and assess the liability for these programs on a quarterly basis.

We also assess our ability to recover certain costs from our suppliers and record a receivable from the supplier when we believe a recovery is probable.

We also assess our ability to recover certain costs from our suppliers and record a receivable from the supplier when we believe a recovery is realizable.

Warranty costs may differ from those estimated if actual claim rates are higher or lower than our historical rates.

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Our principal interest rate exposure relates to outstanding amounts under our Senior Secured Credit Facility.

Our Senior Secured Credit Facility provides for variable rate borrowings of up to $1,263 million, including $645 million under our Revolving Credit Facility, net of $5 million of letters of credit.

Our Senior Secured Credit Facility provides for variable rate borrowings of up to $1,258 million, including our $514 million Term Loan and $744 million under our Revolving Credit Facility, net of $6 million of letters of credit.

As of December 31, 2024, we held interest rate swap contracts that, in the aggregate, effectively hedge $500 million of the variable rate debt associated with the Term Loan at the forward-looking term rate based on the Secured Overnight Financing Rate weighted average fixed rate of 2.81% through September 2025.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

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These estimates are established using historical information including the nature, frequency, and average cost of warranty claims and are adjusted as actual information becomes available.

The principal considerations for our determination that performing procedures relating to the product warranty liabilities is a critical audit matter are (i) the significant judgment by management when determining the product warranty liability estimate;

(ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to the significant assumptions related to the frequency and average cost of warranty claims;

The principal considerations for our determination that performing procedures relating to the product warranty liabilities is a critical audit matter are (i) the significant judgement by management when determining the product warranty liability estimate;

(ii) the high degree of auditor judgement, subjectivity, and effort in performing procedures and evaluating audit evidence relating to the significant assumptions related to the frequency and average cost of warranty claims;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

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These procedures included testing the effectiveness of controls relating to management’s process for developing the estimate, significant assumptions, and inputs used to estimate product warranty liabilities.

These procedures also included, among others, (i) testing the completeness and accuracy of historical warranty claims data used in the estimate and (ii) professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the frequency and average cost of warranty claims assumptions.

/s/ PricewaterhouseCoopers LLP

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Total Current Assets

Marketable securities

Property, plant and equipment, net

Intangible assets, net

Marketable securities

Other non-current assets

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Interest expense, net

Other income (expense), net

Other (expense) income, net

Income before income taxes

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Other comprehensive (loss) income, net of tax:

Pension and OPEB liability adjustment

Interest rate swaps

Foreign currency translation

Interest rate swaps

Pension and OPEB liability adjustment

Total other comprehensive (loss) income, net of tax

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Depreciation of property, plant and equipment

Amortization of intangible assets

Stock-based compensation

Deferred income taxes

Amortization of intangible assets

Unrealized loss on marketable securities

Pension plan settlement loss

Amortization of deferred financing costs

Technology-related investments gain

Unrealized loss (gain) on marketable securities

Loss on intercompany foreign exchange

Technology-related investments loss (gain)

Unrealized loss on foreign exchange

Changes in assets and liabilities:

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Additions of long-lived assets

Investment in equity method investee

Proceeds from sale of assets

Investment in equities without a readily determinable fair value

Proceeds from technology-related investments

Investment in equity method investee

Business acquisitions

Proceeds from sale of assets

Investment in marketable securities

Loans to third parties

Repayments from loans to third parties

Net cash used for investing activities

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Repurchases of common stock

Payments on long-term debt

Dividend payments

Proceeds from exercise of stock options

Payments on long-term debt

Taxes paid related to net share settlement of equity awards

Debt financing fees

Repayments on revolving credit facility

Borrowings on revolving credit facility

Payment of acquisition-related contingent liability

Net cash used for financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

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Interest rate swaps

Issuance of common stock

Repurchase of common stock

Dividends on common stock

Dividends on common stock ($ 0.84 per share)

Balance at December 31, 2022

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Repurchase of common stock

Dividends on common stock

Dividends on common stock ($ 0.92 per share)

Balance at December 31, 2023

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Repurchase of common stock

Dividends on common stock

Dividends on common stock ($ 1.00 per share)

Balance at December 31, 2024

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Allison Transmission Holdings, Inc.

and its subsidiaries (“Allison” or the “Company”) design and manufacture vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense fully automatic transmissions and electric hybrid and fully electric systems.

and its subsidiaries (“Allison” or the “Company”) is a leading designer and manufacturer of propulsion solutions for commercial and defense vehicles and the largest global manufacturer of medium- and heavy-duty fully automatic transmissions.

The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception.

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The Company has a global presence by serving customers in North America, Asia, Europe, South America, and Africa, with approximately 77 % of its revenues being generated in North America in 2024.

The Company serves customers through an independent network of approximately 1,600 in dependent distributor and dealer locations worldwide.

The Company serves customers through an independent network of approximately 1,600 inde pendent distributor and dealer locations worldwide.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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These consolidated financial statements present the financial position, results of comprehensive income, cash flows and statements of stockholders’ equity.

Certain immaterial reclassifications have been made in the consolidated financial statements of prior periods to conform to the current period presentation.

These reclassifications had no material impact on previously reported net income, total stockholders’ equity or cash flows.

Use of Estimates

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Investments in limited partnerships and limited liability companies are also accounted for using the equity method if the Company's investment is more than minor or if the Company is the general partner.

Under the equity method of accounting, the investment is initially recorded at cost and subsequently adjusted by the Company's proportionate share of the entity's net income, with adjustments recognized in Other income (expense), net.

Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at fair value with unrealized gains and losses included in Other income (expense), net.

For equity securities without a readily determinable fair value, the investments are recorded utilizing the measurement alternative at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with gains and losses included in Other income (expense), net .

Fair Value of Financial Instruments" for more details on the Company's investments in equity securities.

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Deferred financing costs continue to be amortized over the life of the related debt using the effective interest method.

Amortization of deferred financing costs is recorded as part of interest expense and totaled $ 4 million for each of the years ended December 31, 2023, 2022 and 2021 .

Amortization of deferred financing costs is recorded as part of interest expense and totaled $ 3 million for the year ended December 31, 2024 and $ 4 million for each of the years ended December 31, 2023 and 2022 .

Financial Instruments

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Stock-Based Compensation

In March 2015, the Company’s Board of Directors adopted, and in May 2015, the Company’s stockholders approved, the Allison Transmission Holdings, Inc.

In February 2024, the Company’s Board of Directors adopted, and in May 2024, the Company’s stockholders approved, the Allison Transmission Holdings, Inc.

2024 Equity Incentive Award Plan (“2024 Plan”), which became effective on May 8, 2024.

The 2024 Plan was an amendment and restatement of the Allison Transmission Holdings, Inc.

2015 Equity Incentive Award Plan (the “Prior Plan”).

Under the 2024 Plan, certain employees (including executive officers), consultants and directors are eligible to receive equity-based compensation, including non-qualified stock options, incentive stock options, restricted stock, dividend equivalents, stock payments, restricted stock units (“RSUs”), performance awards, stock appreciation rights and other equity-based awards, or any combination thereof.

The 2015 Plan limits the aggregate number of shares of common stock available for issue to 15 million and will expire on, and no option or other equity award may be granted pursuant to the 2015 Plan after, the tenth anniversary of the date the 2015 Plan was approved by the Board of Directors.

Prior to the adoption of the 2015 Plan, the Company’s equity-based awards were granted under the Allison Transmission Holdings, Inc.

2011 Equity Incentive Award Plan (“Prior Plan”).

The 2024 Plan limits the aggregate number of shares of common stock available for issue to 3,850,000 and will expire on, and no option or other equity award may be granted pursuant to the 2024 Plan after, the tenth anniversary of the date the 2024 Plan was approved by the Board of Directors.

Prior to the adoption of the 2024 Plan, the Company’s equity-based awards were granted under the Prior Plan.

As of the effective date of the 2024 Plan, no new awards will be granted under the Prior Plan, but the Prior Plan will continue to govern the equity awards issued under the Prior Plan.

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The Company records the fair value of each performance-based award based on a Monte-Carlo pricing model.

Performance-based award incentive compensation expense recorded was $ 5 million for each of the years ended December 31, 2023, 2022 and 2021.

Performance-based award incentive compensation expense recorded was $ 6 million for the year ended of December 31, 2024 and $ 5 for each of the years ended December 31, 2023 and 2022.

Stock options were granted to certain employees at fair value on the date of grant using a Black-Scholes option pricing model.

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These assumptions, along with the actual value of assets at the measurement date, will impact the calculation of pension expenses for the following year.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued authoritative accounting guidance expanding public entities’ reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses that are regularly reviewed by the Chief Operating Decision Maker ("CODM") and included within each reported measure of segment profit or loss.

The Company adopted this guidance during the year ended December 31, 2024.

The adoption of this guidance did not have an impact on the Company's consolidated financial statements but resulted in additional disclosures.

See "Note 23.

Segment Information" for further details.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued authoritative accounting guidance expanding public entities’ reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses that are regularly reviewed by the Chief Operating Decision Maker and included within each reported measure of segment profit or loss.

The guidance will become effective for the Company starting with its fiscal year ended December 31, 2024 and the subsequent interim periods.

The guidance will be applied retrospectively, and the Company does not plan to early adopt.

Management is currently evaluating the impact of this guidance on the Company's consolidated financial statements.

In December 2023, the FASB issued authoritative accounting guidance to improve income tax disclosures by requiring disaggregated information about a reporting entity's effective tax rate reconciliation and information on income taxes paid.

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Management is currently evaluating the impact of this guidance on the Company's consolidated financial statements.

In November 2024, the FASB issued authoritative accounting guidance to require additional disaggregation of certain expense and cost line items presented in the financial statements and in the notes to the financial statements.

The guidance will become effective for the Company beginning with the fiscal year ended December 31, 2027 and the subsequent interim periods.

Early adoption is permitted.

Upon adoption, the guidance may be applied prospectively or retrospectively.

Management is currently evaluating the impact of this guidance on the Company's consolidated financial statements.

All other recently issued accounting pronouncements were assessed as either not applicable to the Company or were not expected to have a material impact on the Company's consolidated financial statements.

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The Company has one operating segment and reportable segment.

The Company is in one line of business, which is the manufacture and distribution of vehicle propulsion solutions.

The Company is in one line of business, which is the design, manufacture and distribution of vehicle propulsion solutions.

The following presents disaggregated revenue by categories that best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors (dollars in millions):

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Outside North America On-Highway

Revenue from the Outside North America On-Highway end market is driven by the sale of propulsion solutions to OEMs and distributors that produce vehicles for commercial users in medium- and heavy-duty applications.

Revenue is recognized at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.

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Work in progress

Service parts

Finished goods

Service parts

Total inventories

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Customer relationships – commercial

Customer relationships – defense

Proprietary technology

Customer relationships – defense

Non-compete agreement

In the second quarter of 2024, the Company reclassified $ 23 million of in-process research and development ("IPR&D") to Proprietary technology.

The IPR&D was reclassified upon the completion of the Company's project to develop commercially viable eGen Power products.

Amortization of intangible assets was $ 10 million, $ 45 million and $ 46 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The Company’s 2023 annual goodwill impairment test indicated that the fair value of the reporting unit more likely than not exceeded its carrying value, indicating no impairment.

The Company’s 2024 annual goodwill impairment test indicated that the fair value of t he reporting unit more likely than not exceeded its carrying value, indicating no impairment.

The Company's 2024 annual indefinite-lived intangible assets impairment test indicated that the fair value of the Company’s indefinite-lived intangible assets more likely than not exceeded their carrying value, indicating no impairment.

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At each balance sheet date, the Company performs an analysis of all instruments subject to authoritative accounting guidance and includes, in Level 3, all of those whose fair value is based on significant unobservable inputs.

As of December 31, 2023 and 2022, the Compan y did no t have any Level 3 fin ancial assets or liabilities.

As of December 31, 2024 and 2023, the Compan y did no t have any Level 3 financial assets or liabilities.

The Company’s assets and liabilities that are measured at fair value include cash equivalents, marketable securities, derivative instruments, assets held in a rabbi trust and a deferred compensation obligation.

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Derivative assets

In 2023, the Company invested in equity securities in an unconsolidated entity without a readily determinable fair value.

This investment represents a less than a 20% ownership interest in the privately-held affiliate, and the Company does not maintain significant influence over or control of the entity.

The Company has elected the measurement alternative and measures the investment at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities.

This equity investment is recorded in Other non-current assets in the Consolidated Balance Sheets, with changes in the value recorded in Other income (expense), net in the Consolidated Statements of Comprehensive Income.

As of December 31, 2023 , the Company held equity securities without a readily determinable fair value of $ 5 million and no such equity securities were held as of December 31, 2022.

The Company holds equity securities in unconsolidated entities without a readily determinable fair value.

Each of these investments represents a less than 20% ownership interest in the respective privately-held entity, and the Company does not maintain significant influence over or control of any of the entities.

The Company has elected the measurement alternative and measures the investments at cost, less any impairment, plus or minus adjustments related to observable price changes in orderly transactions for identical or similar investments of the same issuer.

These equity investments are recorded in Other non-current assets in the Consolidated Balance Sheets, with changes in the value recorded in Other (expense) income, net in the Consolidated Statements of Comprehensive Income.

During the year ended December 31, 2024 , no impairment charges or adjustments resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer occurred for any of these investments.

As of December 31, 2024 and 2023 , the Company held equity securities without a readily determinable fair value of $ 7 million and $ 5 million, respectively.

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

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Senior Notes, fixed 3.75 %, due 2031

Senior Secured Credit Facility Term Loan, variable, due 2031

Total long-term debt

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Principal payments required on long-term debt during the nex t five years are as follows (dollars in millions):

As of December 31, 2023, the Company had $ 2,518 million of indebtedness associated with Allison Transmission, Inc.’s (“ATI”), the Company’s wholly-owned subsidiary, 4.75 % Senior Notes due October 2027 (“4.75% Senior Notes”), ATI’s 5.875 % Senior Notes due June 2029 (“5.875% Senior Notes”), ATI’s 3.75 % Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”) and the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”), governing ATI’s term loan facility in the amount of $ 618 million due March 2026 (“Term Loan”) and ATI’s revolving credit facility with commitments in the amount of $ 650 million due September 2025 (“Revolving Credit Facility” and, together with the Term Loan, the “Senior Secured Credit Facility”).

As of December 31, 2024, the Company had $ 2,414 million of indebtedness associated with Allison Transmission, Inc.’s (“ATI”), the Company’s wholly-owned subsidiary, 4.75 % Senior Notes due October 2027 (“4.75% Senior Notes”), ATI’s 5.875 % Senior Notes due June 2029 (“5.875% Senior Notes”), ATI’s 3.75 % Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”) and the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”), governing ATI’s term loan facility in the amount of $ 514 million due March 2031 (“Term Loan”) and ATI’s revolving credit facility with commitments in the amount of $ 750 million due March 2029 (“Revolving Credit Facility” and, together with the Term Loan, the “Senior Secured Credit Facility”).

The fair value of the Company’s long-term debt obligations as of December 31, 2024 was $ 2,286 million.

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Senior Secured Credit Facility

In February 2023, the Company and ATI entered into Amendment No.

3 (the "Amendment") to the Credit Agreement.

The Amendment replaced the London Interbank Offered Rate ("LIBOR") interest rate benchmark with SOFR and included a 0.1 % credit spread adjustment to the SOFR benchmark for all available interest periods.

Other than the foregoing, the material terms of the Credit Agreement remained unchanged.

The Amendment was treated as a modification to the Senior Secured Credit Facility through a practical expedient provided through reference rate reform accounting guidance.

In March 2024, the Company and ATI entered into Amendment No.

4 ("Amendment") to the Credit Agreement, after giving effect to a $ 101 million principal prepayment, to remove the 0.10 % credit spread adjustment to the SOFR benchmark for all available interest periods and increase the commitments under the existing Revolving Credit Facility by $ 100 million.

The Amendment also extended the maturity date of the existing Term Loan from 2026 to 2031 and extended the existing Revolving Credit Facility termination date from 2025 to 2029 .

With the exception of the items noted above, the terms of the extended Term Loan and Revolving Credit Facility are materially the same as they were prior to the Amendment.

The Amendment was treated as a modification to the Senior Secured Credit Facility under GAAP.

The Company recorded $ 4 million as new deferred financing fees in the Consolidated Balance Sheet as of December 31, 2024 and expensed $ 1 million of prior deferred financing fees in the Consolidated Statement of Comprehensive Income for the year ended December 31, 2024.

The borrowings under the Senior Secured Credit Facility are collateralized by a lien on substantially all assets of the Company, ATI and certain existing and future U.S.

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Interest on the Term Loan, as of December 31, 2024 , is either (a) 1.75 % over a SOFR rate on deposits in U.S.

dollars for one-, three- or six-month periods (or a twelve-month period if, at the time of the borrowing, consented to by all relevant lenders and the administrative agent) plus a 0.1 % credit spread adjustment for all interest periods ("Adjusted Term SOFR"), or (b) 0.75 % over the greater of the prime lending rate as quoted by the administrative agent, the Adjusted Term SOFR Rate for an interest period of one month plus 1.00 % and the federal funds effective rate published by the Federal Reserve Bank of New York plus 0.50 %, subject to a 1.00 % floor (the "Base Rate").

As of December 31, 2023, the Company elected to pay the lowest all-in rate of Adjusted Term SOFR plus the applicable margin, or 7.21 %, on the Term Loan.

dollars for one-, three- or six-month periods (or a twelve-month period if, at the time of the borrowing, consented to by all relevant lenders and the administrative agent) ("Term SOFR"), or (b) 0.75 % over the greater of the prime lending rate as quoted by the administrative agent, the Term SOFR rate for an interest period of one month plus 1.00 % and the federal funds effective rate published by the Federal Reserve Bank of New York plus 0.50 %, subject to a 1.00 % floor (the "Base Rate").

As of December 31, 2024, the Company elected to pay the lowest all-in rate of Term SOFR plus the applicable margin, or 6.19 %, on the Term Loan.

The Credit Agreement requires minimum quarterly principal payments on the Term Loan, as well as prepayments from certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events, the incurrence of certain debt and from a percentage of excess cash flow, if applicable.

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Borrowings under the Revolving Credit Facility bear interest at a variable base rate plus an applicable margin based on the Company’s first lien net leverage ratio.

When the Company’s first lien net leverage ratio is above 4.00 x, interest on the Revolving Credit Facility is (a) 0.75 % over the Base Rate or (b) 1.75 % over the Adjusted Term SOFR Rate;

when the Company’s first lien net leverage ratio is equal to or less than 4.00 x and above 3.50 x, interest on the Revolving Credit Facility is (i) 0.50 % over the Base Rate or (ii) 1.50 % over the Adjusted Term SOFR Rate;

and when the Company’s first lien net leverage ratio is equal to or below 3.50 x, interest on the Revolving Credit Facility is (y) 0.25 % over the Base Rate or (z) 1.25 % over the Adjusted Term SOFR Rate.

When the Company’s first lien net leverage ratio is above 4.00 x, interest on the Revolving Credit Facility is (a) 0.75 % over the Base Rate or (b) 1.75 % over the Term SOFR rate;

and when the Company’s first lien net leverage ratio is equal to or below 3.50 x, interest on the Revolving Credit Facility is (y) 0.25 % over the Base Rate or (z) 1.25 % over the Term SOFR rate.

As of December 31, 2024, the applicable margin for the Revolving Credit Facility was 1.25 %.

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As of December 31, 2024, the commitment fee was 0.25 %.

Borrowings under the Revolving Credit Facility are payable at the option of the Company throughout the term of the Senior Secured Credit Facility with the balance due in September 2025.

Borrowings under the Revolving Credit Facility are payable at the option of the Company throughout the term of the Revolving Credit Facility with the balance due in March 2029.

The Senior Secured Credit Facility requires the Company to maintain a specified maximum first lien net leverage ratio of 5.50 x when revolving loan commitments remain outstanding on the Revolving Credit Facility at the end of a fiscal quarter.

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As of December 31, 2024, the Company was in compliance with all covenants under the Credit Agreement.

Each series of the Senior Notes is unsecured and is guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the Senior Secured Credit Facility and is unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the Senior Secured Credit Facility.

severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the Senior Secured Credit Facility.

None of ATI’s domestic subsidiaries currently guarantee its obligations under the Senior Secured Credit Facility, and therefore none of ATI’s domestic subsidiaries currently guarantee any series of the Senior Notes.

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The amounts involved may be material.

Some or all of the 4.75 % Senior Notes may be redeemed at any time at redemption prices specified in the indenture governing such notes.

Some or all of the 5.875 % Senior Notes may be redeemed prior to June 1, 2024 by paying a price equal to 100.00 % of the principal amount being redeemed, plus an “applicable premium”.

At any time on or after June 1, 2024 , ATI may redeem some or all of the 5.875 % Senior Notes at redemption prices specified in the indenture governing such notes.

Some or all of the 4.75 % Senior Notes and the 5.875 % Senior Notes may be redeemed at any time at redemption prices specified in the indentures governing such notes.

Prior to January 30, 2026 , ATI may redeem some or all of the 3.75 % Senior Notes by paying a price equal to 100.00 % of the principal amount being redeemed, plus an “applicable premium”.

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The Company is subject to interest rate risk related to the Senior Secured Credit Facility and entered into interest rate swaps to manage a portion of this exposure.

The Company amended the contractual terms of its interest rate swaps in the second quarter of 2023.

These amendments transitioned the reference rates from LIBOR to the forward-looking term rate based on SOFR ("Term SOFR") and were only a result of reference rate reform.

During this transition period, the Company utilized optional expedients permitting the Company not to de-designate the existing cash flow hedging relationships and to continue to qualify for hedge accounting based upon a qualitative subsequent assessment concluding that the hedging relationships remained highly effective.

When the transition of the reference rates was completed, the Company performed an initial quantitative assessment that demonstrated a highly effective hedging relationship that qualifies for hedge accounting under the hypothetical derivative method.

The interest rate swaps are designated as cash flow hedges that qualify for hedge accounting under the hypothetical derivative method.

During the first quarter of 2024, the Company and ATI entered into the Amendment to the Credit Agreement that changed critical terms of the hedged item.

Therefore, the Company performed a quantitative assessment that demonstrated a highly effective hedging relationship that qualifies for hedge accounting under the hypothetical derivative method.

As of December 31, 2024 , the Company held interest rate swap contracts that, in the aggregate, effectively hedge $ 500 million of the variable rate debt associated with the Term Loan at the Term SOFR weighted average fixed rate of 2.81 % through September 2025.

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Total derivative assets

The balance of derivative gains recorded in AOCL as of December 31, 2023 and 2022 was $ 12 million and $ 18 million, respectively.

The Company had $ 10 million of derivative gains recorded in AOCL expected to be reclassified to earnings within the next twelve months as of December 31, 2023.

The balance of net derivative gains recorded in AOCL as of December 31, 2024 and 2023 was $ 5 million and $ 12 million, respectively.

As of December 31, 2024, all derivative gains recorded in AOCL are expected to be reclassified to earnings within the next twelve months.

See "Note 17.

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Ending balance

As of both December 31, 2023 and 2022, deferred revenue recorded in current and non-current liabilities related to ETC was $ 30 million and $ 85 million, respectively.

Deferred revenue recorded in current and non-current liabilities related to ETC as of December 31, 2024 was $ 29 million and $ 95 million, respectively.

Deferred revenue recorded in current and non-current liabilities related to ETC as of December 31, 2023 was $ 30 million and $ 85 million, respectively.

Lessee Accounting

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The Company's lease liability is determined by discounting the future cash flows over the lease period.

The Company determines its discount rates utilizing current secured financing rates based on the length of the lease period plus the Company's margin over Adjusted Term SOFR on the Term Loan.

The Company determines its discount rates utilizing current secured financing rates based on the length of the lease period plus the Company's margin over Term SOFR on the Term Loan.

The Company believes this rate effectively represents a borrowing rate the Company could obtain on a debt instrument possessing similar terms as the lease.

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As of December 31, 2023 , the Company recorded current and non-current operating lease liabilities of $ 4 million and $ 14 million, respectively.

The following table reconciles future undiscounted cash flows for operating leases as of December 31, 2023 to total operating lease liabilities:

The following table reconciles future undiscounted cash flows for operating leases to total operating lease liabilities as of December 31, 2024 (dollars in millions):

Total lease payments

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ROU assets are calculated as the related lease liability adjusted for lease incentives, prepayments and the effect of escalating lease payments on period expense.

The below table depicts the ROU assets held by the Company based on the underlying asset:

The below table depicts the ROU assets recorded in Other non-current assets in the Consolidated Balance Sheets and held by the Company based on the following underlying assets (dollars in millions):

Total ROU assets

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During the years ended December 31, 2024 and 2023, the Company recorded $ 7 million and $ 6 million, respectively, of new ROU assets obtained in exchange for lease obligations.

OTHER INCOME (EXPENSE), NET

Other income (expense), net consists of the following (dollars in millions):

OTHER (EXPENSE) INCOME, NET

Other (expense) income, net consisted of the following (dollars in millions):

Years ended December 31,

Post-retirement benefit plan amendment credits

Technology-related investments gain

Rabbi trust assets gain (loss)

Unrealized loss on marketable securities

Loss on foreign exchange

Unrealized (loss) gain on marketable securities

Rabbi trust assets gain (loss)

Technology-related investments (loss) gain

OTHER CURRENT LIABILITIES

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

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

Payroll and related costs

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Lease liability

OPEB liability

Other accruals

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Interest cost

Plan settlements

Benefits paid

Actuarial loss (gain)

Actuarial (gain) loss

Benefit obligation at end of year

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Employer contributions

Plan settlements

Benefits paid

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Non-current liabilities

Total liabilities

Net amount recognized

Accumulated Other Comprehensive Loss:

Prior service credit

Actuarial (gain) loss

Actuarial loss (gain)

The accumulated benefit obligation for the Company's pension plans as of December 31, 2024 and 2023 was $ 125 million and $ 164 million, respectively.

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Fair value of plan assets

(1) As of December 31, 2023 and 2022, the hourly defined pension plan had plan assets greater than the p rojected benefit obligation and the accumulated benefit obligation.

(1) As of December 31, 2024 and 2023, the hourly defined pension plan had plan assets greater than the projected benefit obligation and the accumulated benefit obligation.

(2) As of December 31, 2024, the salary defined pension plan had plan assets greater than the accumulated benefit obligation.

Net Periodic Benefit Cost

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Expected return on assets

Settlement loss

Prior service credit

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Other changes in other

comprehensive loss (income):

Net loss (gain)

comprehensive (income) loss:

Net (gain) loss

Amortizations

Total recognized – other

comprehensive loss (income)

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

comprehensive (income) loss

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

In June 2024, the Company completed a pension risk transfer to a third-party insurance company of a portion of its salaried defined benefit pension plan's obligations for certain participants and their beneficiaries.

The Company agreed to an annuity contract that was purchased using pension plan assets, resulting in the transfer of $ 30 million of pension plan assets and $ 30 million of pension plan benefit obligations to the insurance company.

As a result of this transaction, in the second quarter of 2024, the Company recognized a non-recurring, non-cash $ 4 million settlement charge for a pro rata portion of previously unrecognized pension plan actuarial net losses, which was recorded in Other (expense) income, net in the Consolidated Statements of Comprehensive Income.

The table below provides the weighted-average actuarial assumptions used to determine the net periodic benefit cost (credit).

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The overall expected rate of return on plan assets is based upon historical and expected future returns consistent with the expected benefit duration of the plan for each asset group adjusted for investment and administrative fees.

Health care cost trends are used to project future post-retirement benefits payable from the Company’s plans.

Health care cost trends are used to project future post-retirement benefits payable from the

Company’s plans.

As of December 31, 2024, future post-retirement health care costs were forecasted assuming an initial annual increase of up to 9.10 %, decreasing to an annual increase of up to 4.00 % by the year 2048 .

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Expected benefit payments for pension and post-retirement benefits will be paid from plan trusts or corporate assets.

The Company’s funding policy is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations or to directly fund payments to plan participants.

The Company’s funding policy is to contribute amounts annually that are at least equal to the amounts

required by applicable laws and regulations or to directly fund payments to plan participants.

Additional discretionary contributions will be made when deemed appropriate to meet the Company’s long-term obligation to the plans.

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Funds can be invested by the employee into a diversified group of investment options, which have been selected by the Company’s investment committee, that are all categorized as Level 1 in the fair value hierarchy.

The Company match resulted in $ 1 million of expense recorded for the year ended December 31, 2023 and no charge to the Consolidated Statements of Comprehensive Income for either of the years ended December 31, 2022 and 2021.

The Company match resulted in $ 1 million of expense recorded to the Consolidated Statements of Comprehensive Income for each of the years ended December 31, 2024 and 2023 .

There was no charge to the Consolidated Statements of Comprehensive Income for the year ended December 31, 2022.

The fair value of the rabbi trust plan assets and deferred compensation obligation was $ 20 million and $ 18 million as of December 31, 2024 and 2023 , respectively.

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Total Current

Deferred income tax expense, net:

Deferred income tax (benefit) expense, net:

state and local

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statutory income tax rate

Foreign derived intangible income deduction

State tax expense (excluding tax rate changes)

Non-deductible expenses

Nontaxable or nondeductible items

Effect of tax rate changes

Valuation allowance

Other adjustments

Total income tax expense

The effective tax rate for the years ended December 31, 2023 and 2022 was 19 % and 18 %, respectively.

The effective tax rate for each of the years ended December 31, 2024 and 2023 was 19 %.

Deferred income tax assets and liabilities as of December 31, 2024 and 2023 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the bases of such assets, liabilities and equity as measured by tax laws, as well as tax loss and tax credit carry forwards.

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Management has determined, based on an evaluation of available objective and subjective evidence, that it is more likely than not that certain federal and state deferred tax assets will not be realized;

therefore, these deferred tax assets are offset with a valuation allowance of $ 9 million as of D ecember 31, 2023 and $ 7 million as of December 31, 2022.

therefore, these deferred tax assets are offset with a valuation allowance of $ 9 million as of both December 31, 2024 and 2023.

The 2017 U.S.

Tax Cuts and Jobs Act requires taxpayers to capitalize and amortize specified research and development expenditures over a period of five years for domestic or 15 years for foreign research, beginning with the tax years ending after December 31, 2021.

As a result, the Company recognized a deferred tax asset o f $ 43 million as of December 31, 2023.

As a result, the Company recognized a deferred tax a sset of $ 55 million as of December 31, 2024.

All of the Company's tax returns, once filed, will remain subject to examination by the various taxing authorities for the duration of the applicable statute of limitations (generally three years from the earlier of the date of filing or the due date of the return).

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AOCL as of December 31, 2022

Other comprehensive income (loss) before reclassifications

Amounts reclassified from AOCL

Income tax expense

Net current period other comprehensive income (loss)

AOCL as of December 31, 2022

Other comprehensive income before reclassifications

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AOCL as of December 31, 2023

Other comprehensive income (loss) before reclassifications

Amounts reclassified from AOCL

Income tax benefit

Net current period other comprehensive loss

AOCL as of December 31, 2024

The following table shows the location in the Consolidated Statements of Comprehensive Income affected by reclassifications from AOCL (dollars in millions):

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Prior service credit

Other income (expense), net

Other (expense) income, net

Pension plan settlement loss

Other (expense) income, net

Recognized actuarial gain (loss)

Other income (expense), net

Other (expense) income, net

Total reclassifications, before tax

Income before income taxes

Income tax (expense) benefit

Income tax expense

Total reclassifications

The Company revised its disclosure of amounts reclassified from AOCL related to its interest rate swaps and the income tax (expense) benefit attributed to those reclassifications for the period ended December 31, 2021, which resulted in a decrease to the previously disclosed total reclassifications from AOCL.

The Company believes these revisions to the disclosures are immaterial to the consolidated financial statements.

Prior service credit and actuarial gain (loss) are included in the computation of the Company’s net periodic benefit cost.

Prior service credits, actuarial gains and pension settlement losses are included in the computation of the Company’s net periodic benefit cost (credit).

Please see "Note 15.

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CONCENTRATION OF RISK

As of December 31, 2023 and 2022, the Company empl oyed approximately 3,700 and 3,500 employees, respectively, with 89 % of those employees in the U.S.

As of December 31, 2024 and 2023, the Company employed approximately 4,000 and 3,700 employees, respectively, with 89 % of those employees in the U.S.

Approximately 50 % and 48 % of the Company’s U.S.

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The treasury stock method assumes that the Company uses the proceeds from the exercise of awards to repurchase common stock at the average market price during the period.

During the year ended December 31, 2023 , there were no outstanding stock options excluded from the diluted EPS calculation because they were anti-dilutive.

During the years ended December 31, 2022 and 2021, there were 2 million and 1 million, respectively, of outstanding stock options excluded from the diluted EPS calculation because they were anti-dilutive.

Basic and diluted EPS for the full-year is calculated using the weighted average shares of common stock outstanding during the year while quarterly basic and diluted EPS is calculated using the weighted average shares of common stock outstanding during the quarter;

therefore, the sum of the four quarters’ EPS may not equal full-year EPS.

During each of the years ended December 31, 2024 and 2023 , there were no outs tanding stock options that were anti-dilutive and excluded from the diluted EPS calculation.

During the year ended December 31, 2022, there were 2 million of outstanding stock options that were anti-dilutive and excluded from the diluted EPS calculation.

Basic and diluted EPS for the full-year are calculated using the weighted average shares of common stock outstanding during the year while quarterly basic and diluted EPS are calculated using the weighted average shares of common stock outstanding during the quarter;

therefore, the sum of each quarter’s EPS may not equal full-year EPS.

GEOGRAPHIC INFORMATION

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United States

SUBSEQUENT EVENTS

In January 2024, the UAW Local 933 ratified a new four-year collective bargaining agreement with the Company that expires in November 2027 .

The entry into the new collective bargaining agreement did not have a material impact on the Company's consolidated financial statements for the year ended December 31, 2023.

SEGMENT INFORMATION

In accordance with the FASB’s authoritative accounting guidance on segment reporting, the Company has one operating segment and reportable segment.

The Company is managed by the CODM based on its one line of business, the design, manufacture and distribution of vehicle propulsion solutions.

The Company’s CODM is its Chair, President and Chief Executive Officer .

The CODM evaluates Company performance and makes decisions on the allocation of resources based on Net income, a GAAP measure, and Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”), a non-GAAP measure.

The most directly comparable GAAP measure to Adjusted EBITDA is Net income.

The Company believes that Net income and Adjusted EBITDA provide management, investors and creditors with useful measures of the operational results of its business and increase the period-to-period comparability of the Company's operating profitability and comparability with other companies.

The CODM assesses Company performance utilizing Net income and Adjusted EBITDA by comparing budget versus actual and year-over-year variances.

Certain variances identified in the analysis of Net income and Adjusted EBITDA are evaluated to assist the CODM in assessing Company performance and making decisions on the allocation of Company resources.

The following expenses included in Net income and Adjusted EBITDA are identified as significant expenses regularly provided to the CODM:

Cost of sales, Selling, general and administrative, and Engineering — research and development.

The Company’s one reportable segment is the same as its consolidated financial results;

therefore, segment information for additions of long-lived assets and asset information can be found in the Company’s consolidated statements of cash flows and consolidated balance sheets, respectively.

The following presents a financial summary of the Company’s one reportable segment (dollars in millions):

Years ended December 31

Cost of sales

Selling, general and administrative

Engineering — research and development

Other segment items (a)

Net income (GAAP)

Income tax expense

Depreciation of property, plant and equipment

Interest expense, net

Amortization of intangible assets

Other adjustments (b)

Adjusted EBITDA (Non-GAAP)

(a) Represents other segment items included in Net income including Interest expense, net, Income tax expense and Other (expense) income, net.

(b) Represents other reconciling items between Net income and Adjusted EBITDA.

Allison Transmission Holdings, Inc.

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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 7. Management’s Discussion and Analysis