What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-24 compared with 2025-02-13 · 371 added, 270 removed, 1107 unchanged (37% of the section changed)

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of our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on February 13, 2025.

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.

We are a global leader in high-performance mobility and work solutions built for the needs of the modern industrial world.

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

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We have a global presence by serving customers in North America, Asia, Europe, South America, and Africa, with approximately 76% of our revenues being generated in North America in 2025.

We serve customers through an independent network of approximately 1,600 independent distributor and dealer locations worldwide.

We serve customers through an independent network of approximately 1,500 independent distributor and dealer locations worldwide as of December 31, 2025.

Recent Developments

On June 11, 2025, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Dana to acquire the Acquired Off-Highway Business (the "Acquisition").

Also on June 11, 2025, in connection with the entry into the Purchase Agreement, we entered into a commitment letter (the “Commitment Letter”) with a group of lenders (the "Lenders"), pursuant to which the Lenders committed to provide a 364-day senior unsecured bridge term loan facility (the “Bridge Facility”), in an aggregate principal amount of up to $2,000 million.

As of December 31, 2025, the Bridge Facility aggregate commitment principal amount had been reduced to $500 million as a result of the issuance of $500 million aggregate principal amount of our 5.875% Senior Notes due December 2033 (“5.875% Senior Notes 2033”) and our election to voluntarily reduce the aggregate commitments under the facility.

On January 1, 2026, the Acquisition was completed for a purchase price of approximately $2,732 million, subject to certain adjustments, using a combination of cash on hand, the $500 million of proceeds from the issuance of the 5.875% Senior Notes 2033, $1,200 million of proceeds from the Incremental Term Loan, and $300 million borrowed under the Revolving Credit Facility.

No amount was drawn from the Bridge Facility, and it was terminated upon the completion of the Acquisition.

As a result of the Acquisition, we now offer an expanded portfolio of drivetrain, motion and propulsion solutions, providing complementary product breadth and an enhanced ability to support customers across multiple end markets.

The Acquired Off-Highway Business has historically served end markets with demand characteristics that differ from our traditional on-highway markets, contributing to a more diversified portfolio.

Following the Acquisition, we continue to operate under the Allison name, but our operations are now comprised of two business units:

Allison Transmission and Allison Off-Highway Drive & Motion Systems.

Business unit leadership is located globally, reflecting the international nature of our operations and the importance of local market insights, sourcing, production and customer support.

Allison Transmission offers more than 200 different models compatible with more than 500 combinations of engine brands, models and ratings, including diesel, gasoline, natural gas and other alternative fuels.

In addition, Allison Transmission has developed thousands of proprietary calibrations available for use with our electronic control modules, enabling tailored performance across a broad range of customer applications.

Allison Off-Highway Drive & Motion Systems provides drivetrain and motion solutions for a wide range of mobile and stationary off-highway equipment.

These solutions include optimized drivetrain systems, propulsion components and motion technologies designed for industries such as construction, agriculture, mining, material handling and other industrial applications.

The portfolio encompasses systems that manage power conveyance to machines and power work functions, including axles, gearboxes, transmissions and related components, as well as motion systems tailored to customer performance and efficiency requirements across both conventional and electrified powertrains.

The global engineering, manufacturing and service footprint of the Acquired Off-Highway Business supports localized responsiveness and technical support for customers in key off-highway end markets.

Trends Impacting Our Business

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

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)

In 2026, we expect to have higher net sales driven by our North America On-Highway and Defense end markets and net sales for Allison Off-Highway Drive & Motion Systems driven by our Construction & Material Handling end market.

Full Year 2025 and 2024 Net Sales by End Market (dollars in millions)

North America On-Highway

North America Off-Highway

Outside North America On-Highway

Outside North America Off-Highway

Global Off-Highway

Service Parts, Support Equipment and Other

Total Net Sales

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 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.

North America On-Highway end market net sales were down 12% for the year ended December 31, 2025 compared to the year ended December 31, 2024, principally driven by lower demand for medium-duty and class 8 vocational trucks, partially offset by price increases on certain products and market share gains for hybrid propulsion systems for transit buses.

Outside North America On-Highway end market net sales were up 3% for the year ended December 31, 2025 compared to the year ended December 31, 2024, principally driven by higher demand in Europe and South America and price increases on certain products, partially offset by lower demand in Asia.

Global Off-Highway net sales were down 50% for the year ended December 31, 2025 compared to the year ended December 31, 2024, principally driven by lower demand from the energy, mining and construction sectors outside of North America.

Defense end market net sales were up 26% for the year ended December 31, 2025 compared to the year ended December 31, 2024, principally driven by increased demand for Tracked vehicle applications, price increases on certain products and the continued execution of our growth initiatives.

Service Parts, Support Equipment and Other end market net sales were down 3% for the year ended December 31, 2025 compared to the year ended December 31, 2024, principally driven by lower demand for aluminum die cast components and support equipment, partially offset by higher demand for service parts and price increases on certain products.

Key Components of our Results of Operations

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We are subject to changes in our cost of sales caused by movements in underlying commodity prices.

We seek to hedge against this risk by using LTAs.

hedge against this risk by using LTAs.

See Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk” included in this Annual Report on Form 10-K.

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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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For the years ended December 31,

(unaudited, in millions)

(unaudited, dollars in millions)

Net income (GAAP)

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Amortization of intangible assets

Stock-based compensation expense (a)

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)

Acquisition-related expenses (a)

Loss associated with impairment of long-lived assets (b)

Stock-based compensation expense (c)

Unrealized (gain) loss on marketable securities (d)

UAW Local 933 contract signing incentives (e)

Pension plan settlement loss (f)

Adjusted EBITDA (Non-GAAP)

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Adjusted EBITDA as a percent of Net sales (Non-GAAP)

Net cash provided by operating activities (GAAP)

Net cash provided by operating activities (GAAP) (h)

Deductions to reconcile to Adjusted free cash flow:

Additions of long-lived assets

Adjusted free cash flow (Non-GAAP)

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

(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.

Adjusted free cash flow (Non-GAAP) (h)

(a) Represents acquisition-related expenses (recorded in Selling, general and administrative), primarily consulting and legal fees, related to the Acquisition.

(b) Represents a charge associated with the impairment of long-lived assets related to the production of certain electrified products.

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

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

(e) 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 the UAW Local 933 represented employees ratifying a four-year collective bargaining agreement effective through November 2027.

(f) Represents a non-cash settlement charge (recorded in Other income (expense), 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.

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

(h) Net cash provided by operating activities (GAAP) and Adjusted free cash flow (Non-GAAP) include $47 million of payments for expenses related to the Acquisition for the year ended December 31, 2025.

There were no payments for expenses related to the Acquisition for the year ended December 31, 2024.

Results of Operations

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Engineering — research and development

Loss associated with impairment of long-lived assets

Total operating expenses

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Interest expense, net

Other (expense) income, net

Other income (expense), net

Total other expense, net

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Income tax expense

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 $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.

Net sales for the year ended December 31, 2025 were $3,010 million compared to $3,225 million for the year ended December 31, 2024, a decrease of 7%.

The decrease was principally driven by:

• North America On-Highway end market net sales decreased $212 million, or 12%, principally driven by lower demand for medium-duty and class 8 vocational trucks, partially offset by price increases on certain products and market share gains for hybrid propulsion systems for transit buses.

• Global Off-Highway end market net sales decreased $52 million, or 50%, principally driven by lower demand from the energy, mining and construction sectors outside of North America.

• Service Parts, Support Equipment and Other end market net sales decreased $20 million, or 3%, principally driven by lower demand for aluminum die cast components and support equipment, partially offset by higher demand for service parts and price increases on certain products.

These decreases were partially offset by:

• Defense end market net sales increased $55 million, or 26%, principally driven by increased demand for Tracked vehicle applications, price increases on certain products and the continued execution of our growth initiatives.

• Outside North America On-Highway end market net sales increased $14 million, or 3%, principally driven by higher demand in Europe and South America and price increases on certain products, partially offset by lower demand in Asia.

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 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 $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.

Cost of sales for the year ended December 31, 2025 was $1,547 million compared to $1,696 million for the year ended December 31, 2024, a decrease of 9%.

The decrease was principally driven by lower direct material and manufacturing expense commensurate with decreased net sales, $20 million of lower incentive compensation expense and $13 million of UAW Local 933 contract signing incentives recognized in 2024 that did not reoccur in 2025, partially offset by unfavorable direct material costs.

Gross profit for the year ended December 31, 2025 was $1,463 million compared to $1,529 million for the year ended December 31, 2024, a decrease of 4%.

The decrease was principally driven by $223 million from decreased net sales and $45 million of unfavorable direct material costs, partially offset by $140 million of price increases on certain products, $29 million of lower manufacturing expense, $20 million of lower incentive compensation expense and $13 million of UAW Local 933 contract signing incentives recognized in 2024 that did not reoccur in 2025.

Gross profit as a percent of net sales for the year ended December 31, 2025 increased 120 basis points compared to the same period in 2024, principally driven by price increases on certain products, lower incentive compensation expense and UAW Local 933 contract signing incentives recognized in 2024 that did not reoccur in 2025.

Selling, general and administrative

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.

Selling, general and administrative expenses for the year ended December 31, 2025 were $380 million compared to $336 million for the year ended December 31, 2024, an increase of 13%.

The increase was principally driven by $64 million of expenses related to the Acquisition and higher product warranty expense, partially offset by lower incentive compensation expense.

Engineering — research and development

Engineering expenses for the year ended December 31, 2024 were $200 million compared to $194 million for the year ended December 31, 2023, an increase of 3%.

The increase was principally driven by increased product initiatives spending.

Engineering expenses for the year ended December 31, 2025 were $174 million compared to $200 million for the year ended December 31, 2024, a decrease of 13%.

The decrease was principally driven by reduced product initiatives spending to align costs and programs across our business with end markets demand conditions and lower incentive compensation expense.

Loss associated with impairment of long-lived assets

During the fourth quarter of 2025, we recorded $29 million of losses associated with the impairment of long-lived assets related to the production of certain electrified products.

Property, Plant and Equipment” 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.

Interest expense, net

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 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.

Interest expense, net for the year ended December 31, 2025 was $92 million compared to $89 million for the year ended December 31, 2024, an increase of 3%.

The increase was principally driven by $5 million of increased interest expense from amortization of deferred financing costs related to the Bridge Facility.

Other income (expense), net

Other income (expense), net for the year ended December 31, 2025 was $16 million compared to ($6) million for the year ended December 31, 2024.

The change was principally driven by a $21 million change in unrealized mark-to-market adjustments for marketable securities and a $4 million non-cash defined benefit pension plan settlement charge recognized in 2024 that did not reoccur in 2025, partially offset by $5 million of reduced post-retirement benefit plan credits.

Income tax expense

Income tax expense for the year ended December 31, 2025 was $181 million resulting in an effective tax rate of 23%, compared to $166 million of income tax expense and an effective tax rate of 19% for the year ended December 31, 2024.

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

The increase in income tax expense and effective tax rate was principally driven by elections made under the One Big Beautiful Bill Act.

Liquidity and Capital Resources

We generate cash primarily from operations to fund our operating, investing and financing activities.

We generate cash primarily from our operations to fund our operating, investing and financing activities.

Our principal uses of cash are operating expenses, capital expenditures, working capital needs, debt service, dividends on common stock, stock repurchases and strategic growth initiatives, including investments, acquisitions and collaborations.

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We had total available cash and cash equivalents of $1,495 million and $781 million as of December 31, 2025 and 2024, respectively.

Of the available cash and cash equivalents, $117 million was deposited in operating accounts and $664 million was invested in U.S.

government backed securities as of December 31, 2024, compared to $134 million deposited in operating accounts and $421 million invested in U.S.

Of the available cash and cash equivalents, $1,361 million was deposited in operating accounts and $134 million was invested primarily in U.S.

government backed securities and time deposits as of December 31, 2025, compared to $117 million deposited in operating accounts and $664 million invested primarily in U.S.

government backed securities as of December 31, 2024.

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.

As of December 31, 2025, the total of cash held by foreign subsidiaries was $84 million, the majority of which was at our subsidiaries located in China, the Netherlands, Japan, Brazil and Hungary.

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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Our liquidity requirements are significant, primarily due to our debt service requirements.

As of December 31, 2024, we had $514 million of indebtedness associated with ATI’s Term Loan, $400 million of indebtedness associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”).

Short-term and long-term debt service liquidity requirements consist of $1 million of minimum required quarterly principal payments on ATI’s Term Loan through its maturity date of March 2031 and periodic interest payments on ATI’s Term Loan and the Senior Notes.

As of December 31, 2025, we had $509 million of indebtedness associated with ATI’s Term Loan, $400 million of indebtedness associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes 2029”), $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes”) and $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due December 2033 ("5.875% Senior Notes 2033", and together with the 4.75% Senior Notes, 5.875% Senior Notes 2029 and 3.75% Senior Notes, the “Senior Notes”).

Our short-term and long-term debt service liquidity requirements consist of $1 million of minimum required quarterly principal payments on ATI’s Term Loan through its maturity date of March 2031, $3 million of minimum required quarterly principal payments on ATI’s Incremental Term Loan through its maturity date of January 2033 and periodic interest payments on ATI’s Term Loan, ATI's Incremental Term Loan and the Senior Notes.

There are no required quarterly principal payments on the Senior Notes.

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

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

We made $5 million and $104 million of principal payments on the Term Loan during the years ended December 31, 2025 and 2024, 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.

The Senior Secured Credit Facility provides for a $750 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments.

As of December 31, 2024, we had $744 million available under the Revolving Credit Facility, net of $6 million in letters of credit.

As of December 31, 2025, the Senior Secured Credit Facility provided for a $750 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments, and we had $745 million available under the Revolving Credit Facility, net of $5 million in letters of credit.

As of December 31, 2025, we had no amounts outstanding under the Revolving Credit Facility.

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These reductions remain in effect as long as we achieve a first lien net leverage ratio at or below the related threshold.

On January 2, 2026, we entered into Amendment No.

5 (the "Amendment") to the Credit Agreement to provide for the Incremental Term Loan under the Credit Agreement in an aggregate principal amount equal to $1,200 million, which matures on January 2, 2033 (with a springing maturity to the maturity date of the Term Loan in the event that Term Loan matures on any date prior to January 2, 2033), and increased the commitments under the Revolving Credit Facility by $250 million to an aggregate principal amount of up to $1,000 million.

The Amendment also extended the maturity date of the Revolving Credit Facility from March 13, 2029 to January 2, 2031.

Additionally, on January 2, 2026, we borrowed $300 million under the Revolving Credit Facility.

The proceeds from the borrowings under the Incremental Term Loan and the Revolving Credit Facility were used to pay a portion of the consideration for the Acquisition and fees, costs and expenses related to the Acquisition.

In addition, the Credit Agreement includes, among other things, customary restrictions (subject to certain exceptions) on our ability to incur certain indebtedness, grant certain liens, make certain investments, engage in acquisitions, consolidations and mergers, declare or pay certain dividends, and repurchase shares of our common stock.

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As of December 31, 2025, we were in compliance with all covenants under the Senior Secured Credit Facility and indentures governing the Senior Notes.

In connection with the Acquisition, we entered into the Commitment Letter, which provided for up to $2,000 million of borrowing capacity under the Bridge Facility.

As of December 31, 2025, the Bridge Facility aggregate commitment principal amount had been reduced to $500 million as a result of the issuance of our 5.875% Senior Notes 2033 and our election to voluntarily reduce the aggregate commitments under the facility.

No amount was drawn from the Bridge Facility, and it was terminated upon completion of the Acquisition on January 1, 2026.

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

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Corporate Credit

4.75% Senior Notes

5.875% Senior Notes

3.75% Senior Notes

Term Loan due 2031

4.75% Senior Notes due 2027

5.875% Senior Notes due 2029

3.75% Senior Notes due 2031

5.875% Senior Notes due 2033

We anticipate increased capital expenditures and cash income taxes in 2026 compared to 2025.

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

In addition, as disclosed above, we have incurred additional debt on January 2, 2026 to fund the Acquisition.

Further information is provided in "Note 25.

Subsequent Events" of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K.

On February 20, 2025, our Board of Directors authorized us to repurchase an additional $1,000 million of our common stock pursuant to our stock repurchase program (the "Repurchase Program"), bringing the total amount authorized pursuant to the Repurchase Program to $5,000 million.

During 2025, we repurchased approximately $328 million of our common stock under the Repurchase Program.

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Years ended December 31,

Statement of Cash Flows Data

Statements of Cash Flows Data

Cash flows provided by operating activities

Cash flows used for investing activities

Cash flows used for financing activities

Cash flows provided by (used for) financing activities

Generally, cash provided by operating activities has been adequate to fund our operations.

We have significant liquidity, including $781 million of cash and cash equivalents and $744 million available under the Revolving Credit Facility, net of $6 million in letters of credit, as of December 31, 2024.

We had significant liquidity, including $1,495 million of cash and cash equivalents and $745 million available under the Revolving Credit Facility, net of $5 million in letters of credit, as of December 31, 2025.

On January 2, 2026, we entered into the Amendment to the Credit Agreement, which increased the commitments under the Revolving Credit Facility by $250 million to an aggregate principal amount of up to $1,000 million, $300 million of which was borrowed to pay a portion of the consideration for the Acquisition and fees, costs and expenses related to the Acquisition.

Following the closing of the Acquisition, we had $263 million of cash and cash equivalents and $695 million available under the Revolving Credit Facility, net of $5 million in letters of credit.

At this time, we believe cash provided by operating activities, cash and cash equivalents and borrowing capacity under the Revolving Credit Facility will be sufficient to meet our known and anticipated cash requirements for the next twelve months and thereafter.

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Operating activities for the year ended December 31, 2025 generated $836 million of cash compared to $801 million for the year ended December 31, 2024.

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.

The increase was principally driven by lower cash income taxes, lower operating working capital funding requirements, UAW Local 933 contract signing incentives recognized in 2024 that did not reoccur in 2025 and decreased defined benefit pension plans funding payments, partially offset by lower gross profit, payments for expenses related to the Acquisition, lower cash interest received on interest rate swaps and higher cash incentive compensation payments.

Cash used for investing activities

Investing activities for the year ended December 31, 2025 used $184 million of cash compared to $147 million for the year ended December 31, 2024.

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 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.

The increase was principally driven by a $32 million increase in capital expenditures.

Cash provided by (used for) financing activities

Financing activities for the year ended December 31, 2025 provided $57 million of cash compared to using $427 million for the year ended December 31, 2024.

The increase was principally driven by $500 million of proceeds from the issuance of the 5.875% Senior Notes 2033 and $99 million of decreased payments on our long-term debt, partially offset by $74 million of higher stock repurchases under the Repurchase Program, $24 million of lower proceeds from the exercise of stock options, $8 million of increased debt financing fees primarily associated with the issuance of the 5.875% Senior Notes 2033 and the Bridge Facility and $5 million of higher taxes paid related to the net share settlement of equity awards.

Critical Accounting Estimates

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In accordance with the Financial Accounting Standards Board’s (“FASB”) authoritative accounting guidance on goodwill, we do not amortize goodwill but rather evaluate it for impairment on an annual basis, or more often if events or circumstances change that could cause goodwill to become impaired.

Goodwill is tested for impairment at the reporting unit level, which is the same as our one operating and reportable segment.

Goodwill is tested for impairment at the reporting unit level, which, for 2025, was the same as our one operating and reportable segment.

We do not aggregate any components into our reporting unit.

Goodwill impairment testing for 2024 was performed using the Step 0 analysis by assessing certain qualitative trends and factors.

These trends and factors were compared to, and based on, the assumptions used in prior years.

After reviewing the various qualitative factors mentioned above, our 2024 annual goodwill impairment test indicated that the fair value for the reporting unit more likely than not exceeded its carrying value, indicating no impairment.

We elected to perform a Step 1 quantitative impairment analysis of goodwill in 2025, which indicated that the fair value of the reporting unit exceeded its carrying value, indicating no impairment.

The fair value was determined utilizing a discounted cash flow model, which includes key assumptions, such as net sales growth derived from market information, industry reports, marketing programs and certain growth initiatives;

operating margin improvements derived from cost reduction programs and fixed cost leverage driven by higher sales volumes;

and a risk-adjusted discount rate.

Events or circumstances that could unfavorably impact the key assumptions include lower net sales driven by market conditions, our inability to execute on marketing programs and/or growth initiatives, lower gross margins as a result of market conditions or failure to obtain forecasted cost reductions, or a higher discount rate as a result of market conditions.

While unpredictable and inherently uncertain, management believes the forecast estimates were reasonable and incorporate assumptions that similar market participants would use in their estimates of fair value.

Other intangible assets have both indefinite and finite useful lives.

Intangible assets with indefinite useful lives are not amortized but are tested annually for impairment, or more often if events or circumstances change that could cause intangible assets with indefinite useful lives to become impaired.

After reviewing the various qualitative factors mentioned above, our annual 2024 indefinite-lived intangible assets impairment tests, as of October 31, 2024, indicated that the fair value of our indefinite-lived intangible assets more likely than not exceeded their respective carrying values, indicating no impairment.

We elected to perform our annual indefinite-lived intangible assets impairment tests on October 31, 2025 and followed a similar multi-step impairment test that was performed on goodwill.

Using the relief-from-royalty method under the income valuation approach, our 2025 annual trade name impairment test indicated that the fair value of the trade name exceeded its carrying value, indicating no impairment.

Events or circumstances that could unfavorably impact the key assumptions included lower net sales driven by market conditions, our inability to execute on marketing programs and/or growth initiatives, lower gross margin as a result of market conditions or failure to obtain forecasted cost reductions, or a higher discount rate as a result of market conditions.

While unpredictable and inherently uncertain, we believe the forecast estimates are reasonable and incorporate those assumptions that similar market participants would use in their estimates of fair value.

Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment when circumstances change that would create a triggering event.

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Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in an impairment charge.

As a result of events and circumstances in the fourth quarter of 2025, primarily deteriorating market conditions, we performed an impairment analysis on certain of our long-lived assets related to the production of certain electrified products.

We used a market approach to determine the fair value of the assets, resulting in an $8 million and a $21 million impairment loss recorded for the year ended December 31, 2025 for tangible and intangible assets, respectively.

Provisions for estimated expenses related to product warranties are made at the time products are sold.

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The effect of a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2025 defined benefit pension plans obligation of approximately $13 million.

Similarly, a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2024 OPEB obligation of approximately $6 million.

Similarly, a one percentage point decrease in

the assumed discount rate would result in an increase in the December 31, 2025 OPEB obligation of approximately $6 million.

Further information is provided in "Note 15.

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Refer to "Note 2.

Summary of Significant Accounting Policies” in Part II, Item 8., of this Annual Report on Form 10-K.

Summary of Significant Accounting Policies” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K.

Quantitative and Qualita tive Disclosures About Market Risk

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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 $1,258 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.

As of December 31, 2025, our Senior Secured Credit Facility provided for variable rate borrowings of up to $1,254 million, including our $509 million Term Loan and $745 million under our Revolving Credit Facility, net of $5 million of letters of credit.

A one-eighth percent increase or decrease in assumed interest rates for the Senior Secured Credit Facility, if fully drawn as of December 31, 2025, would have an impact of approximately $2 million on interest expense per year.

As of December 31, 2024, we had no outstanding borrowings against the Revolving Credit Facility.

As of December 31, 2025, we had no amounts outstanding under the Revolving Credit Facility.

Refer to "Note 8.

Debt” and "Note 9.

Derivatives” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K.

Debt” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K.

Exchange Rate Risk

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The expansion of our business outside North America may further increase the risk that cash flows resulting from these activities may be adversely affected by changes in currency exchange rates.

Assuming current levels of foreign currency transactions, a 10% aggregate increase or decrease in the Chinese Yuan Renminbi, Euro, Indian Rupee, and Japanese Yen would correspondingly change our earnings, net of tax, by an estimated $5 million per year.

We believe our other direct exposure to foreign currencies is immaterial.

Assuming the levels of foreign currency transactions as of December 31, 2025, a 10% aggregate increase or decrease in the Chinese Yuan Renminbi, Euro, Indian Rupee, and Japanese Yen would correspondingly change our earnings, net of tax, by an estimated $5 million per year.

We believe our other direct exposure to foreign currencies was immaterial as of December 31, 2025.

The acquisition of the Acquired Off-Highway Business has increased our exposure to foreign currencies.

Commodity Price Risk

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We historically have not entered into long-term purchase contracts related to the purchase of aluminum and steel.

Assuming current levels of commodity purchases, a 10% variation in the price of aluminum and steel would correspondingly change our earnings by approximately $8 million and $13 million per year, respectively.

Assuming the levels of commodity purchases as of December 31, 2025, a 10% variation in the price of aluminum and steel would correspondingly change our earnings by approximately $7 million and $11 million per year, respectively.

Many of our LTAs have incorporated a cost-sharing arrangement related to potential future commodity price fluctuations.

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As described in Notes 2 and 10 to the consolidated financial statements, the Company’s consolidated product warranty liability balance was $84 million as of December 31, 2025.

Management makes provisions for the estimated product warranty liabilities at the time the products are sold.

Management makes provisions for estimated expenses related to product warranties at the time the products are sold.

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 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;

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 estimate of the product warranty liabilities;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s 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.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

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 and assumptions.

These procedures included testing the effectiveness of controls relating to the product warranty liabilities, including controls over the significant assumptions and data used to estimate the 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) the involvement of professionals with specialized skill and knowledge to assist in (a) developing an independent estimate of the product warranty liability, on a test basis, and comparing the independent estimate to management’s estimate and (b) evaluating the reasonableness of significant assumptions related to the frequency and average cost of warranty claims.

/s/ PricewaterhouseCoopers LLP

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Consolidated B alance Sheets

(dollars in millions, except share data)

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

Current Assets

Cash and cash equivalents

Accounts receivable - net of allowance for doubtful accounts of $ 1 and $ 4 , respectively

Accounts receivable — net of allowance for doubtful accounts of $ 1

Other current assets

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Engineering — research and development

Loss associated with impairment of long-lived assets

Operating income

Interest expense, net

Other (expense) income, net

Other income (expense), net

Income before income taxes

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Foreign currency translation

Interest rate swaps

Pension and OPEB liability adjustment

Interest rate swaps

Total other comprehensive (loss) income, net of tax

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Depreciation of property, plant and equipment

Stock-based compensation

Deferred income taxes

Loss associated with impairment of long-lived assets

Stock-based compensation

Unrealized (gain) loss on marketable securities

Amortization of deferred financing costs

Amortization of intangible assets

Unrealized loss on marketable securities

Unrealized loss on foreign exchange

Pension plan settlement loss

Amortization of deferred financing costs

Technology-related investments loss (gain)

Unrealized loss on foreign exchange

Changes in assets and liabilities:

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Investment in equity method investee

Proceeds from sale of assets

Investment in debt securities

Investment in equities without a readily determinable fair value

Proceeds from sale of assets

Proceeds from technology-related investments

Business acquisitions

Net cash used for investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of long-term debt

Repurchases of common stock

Payments on long-term debt

Dividend payments

Proceeds from exercise of stock options

Taxes paid related to net share settlement of equity awards

Debt financing fees

Repayments on revolving credit facility

Borrowings on revolving credit facility

Net cash used for financing activities

Proceeds from exercise of stock options

Payments on long-term debt

Net cash provided by (used for) financing activities

Effect of exchange rate changes on cash

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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Income taxes paid

Income taxes paid, net of refunds received:

state and local

Interest paid

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Allison Transmission Holdings, Inc.

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.

and its subsidiaries (“Allison” or the “Company”) is a global leader in high-performance mobility and work solutions built for the needs of the modern industrial world.

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 76 % of its revenues being generated in North America in 2025.

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

The Company serves customers through an independent network of approximately 1,500 inde pendent distributor and dealer locations worldwide as of December 31, 2025.

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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Segment Reporting

In accordance with the Financial Accounting Standards Board’s (“FASB”) authoritative accounting guidance on segment reporting, 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.

In accordance with the Financial Accounting Standards Board’s (“FASB”) authoritative accounting guidance on segment reporting, the Company had one operating segment and reportable segment as of December 31, 2025.

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

Business Combinations

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As a result of events and circumstances in the fourth quarter of 2025, the Company reviewed its property, plant and equipment long-lived assets related to the production of certain electrified products , resulting in an $ 8 million impairment loss recorded for the year ended December 31, 2025.

D eteriorating market conditions significantly contributed to the future cash flows of the related assets being less than the carrying value of those assets.

Property, Plant and Equipment" for more information.

Goodwill and Other Intangible Assets

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In accordance with the FASB’s authoritative accounting guidance on goodwill, the Company does not amortize goodwill but rather evaluates it for impairment on an annual basis, or more often if events or circumstances change that could cause goodwill to become impaired.

Goodwill is tested for impairment at the reporting unit level, which is the same as the Company's one operating and reportable segment.

Goodwill is tested for impairment at the reporting unit level, which, for 2025, is the same as the Company's one operating and reportable segment.

The Company does not aggregate any components into its reporting unit.

Goodwill impairment testing for 2024 was performed using the Step 0 analysis by assessing certain qualitative trends and factors.

These trends and factors were compared to, and based on, the assumptions used in prior years.

After reviewing the various qualitative factors mentioned above, the Company's 2024 annual goodwill impairment test indicated that the fair value for the reporting unit more likely than not exceeded its carrying value, indicating no impairment.

The Company elected to perform a Step 1 quantitative impairment analysis of goodwill in 2025, which indicated that the fair value of the reporting unit exceeded its carrying value, indicating no impairment.

The fair value was determined utilizing a discounted cash flow model, which includes key assumptions such as net sales growth derived from market information, industry reports, marketing programs and certain growth initiatives;

operating margin improvements derived from cost reduction programs and fixed cost leverage driven by higher sales volumes;

and a risk-adjusted discount rate.

Other intangible assets have both indefinite and finite useful lives.

After reviewing the various qualitative factors mentioned above, the Company's annual 2024 indefinite-lived intangible assets impairment tests, as of October 31, 2024, indicated that the fair value of its indefinite-lived intangible assets more likely than not exceeded their respective carrying value, indicating no impairment.

We elected to perform our annual indefinite-lived intangible assets impairment tests on October 31, 2025 and followed a similar multi-step impairment test that was performed on goodwill.

Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment when circumstances change that would create a triggering event.

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Although management believes the historical assumptions and estimates are reasonable and appropriate, different assumptions and estimates could materially impact the Company's reported financial results.

Further information is provided in "Note 6.

Goodwill and Other Intangible Assets.”

As a result of events and circumstances in the fourth quarter of 2025, the Company reviewed the definite-lived intangible assets related to the production of certain electrified products , resulting in a $ 21 million impairment loss recorded for the year ended December 31, 2025.

D eteriorating market conditions significantly contributed to the future cash flows of the related assets being less than the carrying value of those assets.

Goodwill and Other Intangible Assets" for more information.

Deferred Financing Costs

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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 $ 3 million for the year ended December 31, 2024 and $ 4 million for each of the years ended December 31, 2023 and 2022 .

Amortization of deferred financing costs is recorded as part of interest expense and totaled $ 8 mill ion, $ 3 million and $ 4 million for the years ended December 31, 2025, 2024 and 2023 , respectively.

Financial Instruments

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ETC sales are recognized ratably over the period of coverage, which typically ranges from one to five years after the standard warranty coverage ends.

Costs associated with ETC programs are recorded as incurred during the ex tended period.

Costs associated with ETC programs are recorded as incurred during the extended period.

Distributor and customer sales incentives, consisting of allowances and other rebates, are recorded as a reduction to Net sales when it is determined that the adjustment is not likely to reverse, historically on a quarterly basis.

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The saleable engineering services recorded were $ 10 million, $ 10 million and $ 26 million for the years ended December 31, 2025, 2024 and 2023, respectively.

The associated costs are recorded in Cost of sales.

The associated c osts are recorded in Cost of sales.

Provisions for estimated expenses related to product warranties are made at the time products are sold.

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RSU grants are recorded at fair market value at the date of grant and vest upon continued performance of services by the RSU holder typically over one to three years .

Perfo rmance unit grants are recorded at fair value based on a Monte-Carlo pricing model, and the restrictions lapse on the date the Compensation Committee of the Board of Directors determines the number of shares that shall vest based on the related performance or market condition achievement.

Performa nce unit grants are recorded at fair value based on a Monte-Carlo pricing model, and the restrictions lapse on the date the Compensation Committee of the Board of Directors determines the number of shares that shall vest based on the related performance or market condition achievement.

Non-qualified stock option grants are recorded at fair value using a Black-Scholes option pricing model and vest upon the continued performance of services by the option holder typically over one to three years .

The Company has made a policy election under applicable accounting guidance to account for forfeitures as a reduction of stock-based compensation expense when the forfeiture actually occurs.

The Company has made a policy election under applicable accounting guidance to account for forfeitures as a reduction of stock-based compensation expense when the forfeiture occurs.

RSUs were granted to certain employees and directors at fair market value on the date of grant.

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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 $ 6 million for the year ended of December 31, 2024 and $ 5 for each of the years ended December 31, 2023 and 2022.

Performance-based award incentive compensation expense recorded was $ 6 million, $ 6 million, $ 5 million for the years ended December 31, 2025, 2024 and 2023, respectively.

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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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 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.

The guidance will become effective for the Company beginning with its fiscal year ended December 31, 2025.

The guidance will be applied prospectively with the option to apply it retrospectively.

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.

The guidance became effective for the Company for its fiscal year ended December 31, 202 5 and was applied retrospectively.

The adoption of this guidance did no t have an impact on the Company's Consolidated Financial Statements but resulted in additional disclosures.

See the Consolidated Statements of Cash Flows and "Note 16.

Income Taxes" for the additional disclosures.

In July 2025, the FASB issued authoritative accounting guidance providing a practical expedient related to the estimation of expected credit losses for current accounts receivable and current contract assets arising from contracts with customers.

The guidance became effective for the Company beginning January 1, 2026 and was applied prospectively.

The adoption of this guidance did not have an impact on the Company's Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

In November 2025, the FASB issued authoritative accounting guidance to amend certain aspects of the existing hedge accounting guidance to more closely align hedge accounting with the economics of an entity's risk management activities.

The guidance will become effective for the Company beginning January 1, 2027 with early adoption permitted.

Management is currently evaluating the potential impact of this guidance on the Company's Consolidated Financial Statements.

In November 2024, the FASB issued authoritative accounting guidance, which was subsequently amended, requiring 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 ending December 31, 2027 and the subsequent interim periods.

Early adoption is permitted.

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Management is currently evaluating the impact of this guidance on the Company's Consolidated Financial Statements.

In September 2025, the FASB issued authoritative accounting guidance to modernize the accounting for costs related to internal-use software.

The new guidance removes the software project development stages and provides new guidance on evaluating if the probable-to-complete recognition threshold has been met.

The guidance will become effective for the Company beginning January 1, 2028 with early adoption permitted.

Upon adoption, the guidance may be applied prospectively, retrospectively or using a modified transition approach.

Management is currently evaluating the potential 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 estimates the impact of all other incentives based on the related sales and market conditions in the end market vocation.

The Company recorded no material adjustments based on variable consideration during any of the years ended December 31, 2024, 2023 and 2022.

The Company recorded no material adjustments based on variable consideration during any of the years ended December 31, 2025, 2024 or 2023.

Net sales are made on credit terms, generally 30 days , based on an assessment of the customer’s creditworthiness.

For certain goods or services, the Company receives consideration prior to satisfying the related performance obligation.

Such consideration is recorded as a contract liability in current and non-current deferred revenue as of December 31, 2024 and December 31, 2023.

Such consideration is recorded as a contract liability in current and non-current deferred revenue as of December 31, 2025 and 2024.

See "Note 11.

1 unchanged sentence

The Company had no material contract assets as of either December 31, 2025 or 2024.

The Company has one operating segment and reportable segment.

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

The Company had one operating segment and reportable segment as of December 31, 2025.

The Company was in one line of business, which was 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):

North America On-Highway

North America Off-Highway

Outside North America On-Highway

Outside North America Off-Highway

Global Off-Highway

Service Parts, Support Equipment and Other

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