# Allison Transmission Holdings Inc (ALSN)

Informational only - not investment advice.

CIK: 0001411207
SIC: 3714 Motor Vehicle Parts & Accessories
SIC breadcrumb: [Manufacturing](/division/D/) > [Transportation Equipment](/major-group/37/) > [SIC 3714 Motor Vehicle Parts & Accessories](/industry/3714/)
Latest 10-K filed: 2026-02-24
SEC page: https://www.sec.gov/edgar/browse/?CIK=1411207
Filing source: https://www.sec.gov/Archives/edgar/data/1411207/000119312526065627/alsn-20251231.htm

## Selected Fundamentals
| Metric | Value | Unit | FY | Filed |
| --- | ---: | --- | ---: | --- |
| Revenue | 3010000000 | USD | 2025 | 2026-02-24 |
| Net income | 623000000 | USD | 2025 | 2026-02-24 |
| Assets | 6082000000 | USD | 2025 | 2026-02-24 |

## Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-24. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001411207.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

| Metric | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | 1,840,000,000 | 2,262,000,000 | 2,713,000,000 | 2,698,000,000 | 2,081,000,000 | 2,402,000,000 | 2,769,000,000 | 3,035,000,000 | 3,225,000,000 | 3,010,000,000 |
| Net income | 215,000,000 | 504,000,000 | 639,000,000 | 604,000,000 | 299,000,000 | 442,000,000 | 531,000,000 | 673,000,000 | 731,000,000 | 623,000,000 |
| Operating income | 452,000,000 | 652,000,000 | 923,000,000 | 892,000,000 | 534,000,000 | 669,000,000 | 784,000,000 | 919,000,000 | 992,000,000 | 880,000,000 |
| Gross profit | 864,000,000 | 1,131,000,000 | 1,422,000,000 | 1,394,000,000 | 998,000,000 | 1,145,000,000 | 1,297,000,000 | 1,470,000,000 | 1,529,000,000 | 1,463,000,000 |
| Diluted EPS | 1.27 | 3.36 | 4.78 | 4.91 | 2.62 | 4.13 | 5.53 | 7.40 | 8.31 | 7.33 |
| Operating cash flow | 591,000,000 | 658,000,000 | 837,000,000 | 847,000,000 | 561,000,000 | 635,000,000 | 657,000,000 | 784,000,000 | 801,000,000 | 836,000,000 |
| Capital expenditures | 71,000,000 | 91,000,000 | 100,000,000 | 172,000,000 | 115,000,000 | 175,000,000 | 167,000,000 | 125,000,000 | 143,000,000 | 175,000,000 |
| Dividends paid | 100,000,000 | 89,000,000 | 80,000,000 | 73,000,000 | 78,000,000 | 81,000,000 | 80,000,000 | 83,000,000 | 87,000,000 | 91,000,000 |
| Share buybacks | 256,000,000 | 885,000,000 | 609,000,000 | 393,000,000 | 225,000,000 | 513,000,000 | 278,000,000 | 263,000,000 | 254,000,000 | 328,000,000 |
| Assets | 4,219,000,000 | 4,205,000,000 | 4,237,000,000 | 4,450,000,000 | 4,477,000,000 | 4,457,000,000 | 4,671,000,000 | 5,025,000,000 | 5,336,000,000 | 6,082,000,000 |
| Liabilities | 3,138,000,000 | 3,516,000,000 | 3,578,000,000 | 3,669,000,000 | 3,721,000,000 | 3,823,000,000 | 3,797,000,000 | 3,792,000,000 | 3,685,000,000 | 4,215,000,000 |
| Stockholders' equity | 1,081,000,000 | 689,000,000 | 659,000,000 | 781,000,000 | 756,000,000 | 634,000,000 | 874,000,000 | 1,233,000,000 | 1,651,000,000 | 1,867,000,000 |
| Cash and cash equivalents | 205,000,000 | 199,000,000 | 231,000,000 | 192,000,000 | 310,000,000 | 127,000,000 | 232,000,000 | 555,000,000 | 781,000,000 | 1,495,000,000 |
| Free cash flow | 520,000,000 | 567,000,000 | 737,000,000 | 675,000,000 | 446,000,000 | 460,000,000 | 490,000,000 | 659,000,000 | 658,000,000 | 661,000,000 |

### Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

| Metric | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net margin | 11.68% | 22.28% | 23.55% | 22.39% | 14.37% | 18.40% | 19.18% | 22.17% | 22.67% | 20.70% |
| Operating margin | 24.57% | 28.82% | 34.02% | 33.06% | 25.66% | 27.85% | 28.31% | 30.28% | 30.76% | 29.24% |
| Return on equity | 19.89% | 73.15% | 96.97% | 77.34% | 39.55% | 69.72% | 60.76% | 54.58% | 44.28% | 33.37% |
| Return on assets | 5.10% | 11.99% | 15.08% | 13.57% | 6.68% | 9.92% | 11.37% | 13.39% | 13.70% | 10.24% |
| Liabilities / equity | 2.90 | 5.10 | 5.43 | 4.70 | 4.92 | 6.03 | 4.34 | 3.08 | 2.23 | 2.26 |
| Current ratio | 1.60 | 1.52 | 1.70 | 1.65 | 2.03 | 1.46 | 1.80 | 2.50 | 3.04 | 4.85 |

## Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-07. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001411207.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

| Quarter | End date | Revenue | Net income | Diluted EPS | Method |
| --- | --- | ---: | ---: | ---: | --- |
| 2022-Q2 | 2022-06-30 |  |  | 1.26 | reported discrete quarter |
| 2022-Q3 | 2022-09-30 |  |  | 1.45 | reported discrete quarter |
| 2023-Q1 | 2023-03-31 |  |  | 1.85 | reported discrete quarter |
| 2023-Q2 | 2023-06-30 | 783,000,000 | 175,000,000 | 1.92 | reported discrete quarter |
| 2023-Q3 | 2023-09-30 | 736,000,000 | 158,000,000 | 1.76 | reported discrete quarter |
| 2023-Q4 | 2023-12-31 | 775,000,000 | 170,000,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2024-Q1 | 2024-03-31 | 789,000,000 | 169,000,000 | 1.90 | reported discrete quarter |
| 2024-Q2 | 2024-06-30 | 816,000,000 | 187,000,000 | 2.13 | reported discrete quarter |
| 2024-Q3 | 2024-09-30 | 824,000,000 | 200,000,000 | 2.27 | reported discrete quarter |
| 2024-Q4 | 2024-12-31 | 796,000,000 | 175,000,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2025-Q1 | 2025-03-31 | 766,000,000 | 192,000,000 | 2.23 | reported discrete quarter |
| 2025-Q2 | 2025-06-30 | 814,000,000 | 195,000,000 | 2.29 | reported discrete quarter |
| 2025-Q3 | 2025-09-30 | 693,000,000 | 137,000,000 | 1.63 | reported discrete quarter |
| 2025-Q4 | 2025-12-31 | 737,000,000 | 99,000,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2026-Q1 | 2026-03-31 | 1,406,000,000 | 112,000,000 | 1.33 | reported discrete quarter |

## Macro Cross-References
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- [IR](/indicator/IR/): Import Price Index (End Use): All Commodities
- [PPIFIS](/indicator/PPIFIS/): Producer Price Index by Commodity: Final Demand

## Latest quarter (10-Q)

Latest 10-Q source: https://www.sec.gov/Archives/edgar/data/1411207/000119312526211857/alsn-20260331.htm

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary.
Confidence: high
Filing date: 2026-05-07
Report date: 2026-03-31

ITEM 2.

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

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our condensed consolidated interim financial statements and the related notes contained elsewhere in this Quarterly Report on Form 10-Q.

The statements in this discussion regarding industry trends, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A “Risk Factors” below, and in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission ("SEC") on February 24, 2026. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

Allison Transmission Holdings, Inc. and its subsidiaries (“Allison,” “we,” “us” or “our”) 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. Allison is traded on the New York Stock Exchange under the symbol “ALSN”.

On January 1, 2026 (the "Closing Date"), we completed the acquisition of Dana Incorporated's ("Dana") off-highway business (the "Acquired Off-Highway Business”) for a purchase price of approximately $2,628 million, subject to certain adjustments (the "Acquisition"). We have a global presence serving customers in North America, Asia, Europe, South America, and Africa and have further expanded our operations in these regions as a result of the Acquisition.

Recent Developments

The Acquisition was completed using a combination of cash on hand, $500 million of proceeds from the issuance of 5.875% Senior Notes due December 2033 by Allison Transmission, Inc. ("ATI"), our wholly-owned subsidiary (the "5.875% Senior Notes 2033"), proceeds from borrowings under an incremental term loan facility under the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”), in an aggregate principal amount equal to $1,200 million (the “Incremental Term Loan”), and $300 million of borrowings under ATI’s revolving credit facility with commitments in the amount of $1,000 million due January 2031 (the “Revolving Credit Facility”). In connection with the Acquisition, we entered into a 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 the 5.875% Senior Notes 2033 and our election to voluntarily reduce the aggregate commitments under the Bridge Facility. No amount was drawn from the Bridge Facility, and it was terminated upon completion of the Acquisition on the Closing Date.

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 operating and reportable segments: Allison Transmission and Allison Off-Highway Drive & Motion

28

Table of Contents

Systems ("Allison Off-Highway"). All prior period reportable segment information has been reclassified to conform to the current presentation. For additional discussion regarding our segments, including the changes made, see “Note S. Segment Information” in Part I, Item 1 of this Quarterly Report on Form 10-Q. Segment 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 serves customers through an independent global network of approximately 1,500 independent distributor and dealer locations worldwide and offers more than 200 different transmission 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 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 2026, we expect to have higher net sales driven by the addition of Allison Off-Highway and higher net sales in Allison Transmission driven primarily by the Defense and Outside North America On-Highway end markets.

29

Table of Contents

Key Components of our Results of Operations

Net sales

We generate our net sales primarily from the sale of high performance mobility and work solutions, service and component parts, support equipment, defense kits, engineering services, royalties and extended transmission coverage to a wide array of original equipment manufacturers, distributors and the U.S. government. Sales are recorded in accordance with the terms of the contract, net of provisions for customer incentives and other rebates. Engineering services are recorded as net sales in accordance with the terms of the contract. The associated costs are recorded in cost of sales. We also have royalty agreements with third parties that provide net sales as a result of joint efforts in developing marketable products.

Cost of sales

Our primary components of cost of sales are purchased parts, the overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of vehicle propulsion solutions and parts. For the three months ended March 31, 2026, direct material costs were approximately 72%, overhead costs were approximately 22%, and direct labor costs were approximately 6% of cost of sales. We are subject to changes in our cost of sales caused by movements in underlying commodity prices. We seek to hedge against this risk by using long-term agreements (“LTAs”), as appropriate. See Part I, Item 3, “Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk” included below.

Selling, general and administrative

The principal components of our selling, general and administrative expenses are salaries and benefits for our office personnel, advertising and promotional expenses, product warranty expense, expenses relating to certain information technology systems and amortization of our intangible assets.

Engineering — research and development

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

30

Table of Contents

Results of Operations - Allison Consolidated Comparison of the three months ended March 31, 2026 and 2025

The following table sets forth certain financial information for the three months ended March 31, 2026 and 2025. The following table and discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Three Months Ended March 31,

(unaudited, dollars in millions)

2026

%

of net sales

2025

%

of net sales

Net sales

$

1,406

100

%

$

766

100

%

Cost of sales

1,000

71

388

51

Gross Profit

406

29

378

49

Operating Expenses:

Selling, general and administrative

157

11

87

11

Engineering — research and development

54

4

42

5

Total Operating Expenses

211

15

129

16

Operating Income

195

14

249

33

Interest expense, net

(61

)

(5

)

(21

)

(4

)

Other (expense) income, net

(2

)

—

5

1

Income before income taxes

132

9

233

30

Income tax expense

(20

)

(1

)

(41

)

(5

)

Net income

$

112

8

%

$

192

25

%

Off-Highway acquisition

On January 1, 2026, we completed the Acquisition. Our results of operations include all activity of the Acquired Off-Highway Business since the Closing Date within the Allison Off-Highway reportable segment.

Net sales

The Allison Off-Highway segment generated $673 million of net sales for the three months ended March 31, 2026.

The Allison Transmission segment generated $733 million of net sales for the three months ended March 31, 2026. Net sales decreased $33 million, or 4%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

The decrease was principally driven by:

•
North America On-Highway end market net sales decreased $60 million, or 14%, principally driven by lower demand for medium-duty and class 8 vocational trucks, partially offset by price increases on certain products.

•
Outside North America On-Highway end market net sales decreased $2 million, or 2%.

•
Global Off-Highway net sales decreased $10 million, or 56%, principally driven by lower demand from the global mining, construction and energy sectors.

The decreases were partially offset by:

•
Defense end market net sales increased $34 million, or 64%, 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 increased $5 million, or 3%, principally driven by price increases on certain products.

31

Table of Contents

Cost of sales

Cost of sales for the three months ended March 31, 2026 was $1,000 million compared to $388 million for the three months ended March 31, 2025, an increase of 158%. $623 million of cost of goods sold was attributable to Allison Off-Highway, including purchase price accounting allocations of $63 million of expense related to the stepped-up basis in inventory and $13 million of depreciation expense related to the stepped-up basis in property, plant and equipment. The remaining $11 million decrease was principally driven by lower direct material expense commensurate with decreased net sales, partially offset by unfavorable direct material costs, in Allison Transmission.

Gross profit

Gross profit for the three months ended March 31, 2026 was $406 million compared to $378 million for the three months ended March 31, 2025, an increase of 7%. $50 million of the increase in

[Excerpt truncated for page length; source filing is linked above.]

## Latest 10-K MD&A

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains forward-looking statements regarding industry trends, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in or implied by the forward-looking statements as a result of various factors, including, without limitation, those set forth under Part I, Item 1A., “Risk Factors,” and other matters included elsewhere in this Annual Report on Form 10-K. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.

This section of this Annual Report on Form 10-K generally discusses 2025 and 2024 items and year-over-year comparisons between 2025 and 2024. A detailed discussion of 2023 items and year-over-year comparisons between 2024 and 2023 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on February 13, 2025.

Overview

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. Allison is traded on the New York Stock Exchange under the symbol, “ALSN”.

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 1,500 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.

41

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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 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.

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

End Market

2025

Net Sales

2024

Net Sales

% Variance

North America On-Highway

$

1,540

$

1,752

(12

)%

Outside North America On-Highway

507

493

3

%

Global Off-Highway

53

105

(50

)%

Defense

267

212

26

%

Service Parts, Support Equipment and Other

643

663

(3

)%

Total Net Sales

$

3,010

$

3,225

(7

)%

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

Net sales

We generate our net sales primarily from the sale of vehicle propulsion solutions, service and component parts, support equipment, defense kits, engineering services, royalties and extended transmission coverage to a wide array of OEMs, distributors and the U.S. government. Sales are recorded in accordance with the terms of the contract, net of provisions for customer incentives and other rebates. Engineering services are recorded as net sales in accordance with the terms of the contract. The associated costs are recorded in cost of sales. We also have royalty agreements with third parties that provide net sales as a result of joint efforts in developing marketable products.

Cost of sales

Our primary components of cost of sales are purchased parts, the overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of vehicle propulsion solutions and parts. For the year ended December 31, 2025, direct material costs were approximately 66%, overhead costs were approximately 26% and direct labor costs were approximately 8% of total cost of sales. We are subject to changes in our cost of sales caused by movements in underlying commodity prices. We seek to

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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.

Selling, general and administrative

The principal components of our selling, general and administrative expenses are salaries and benefits for our office personnel, advertising and promotional expenses, product warranty expense, expenses relating to certain information technology systems and amortization of our intangible assets.

Engineering — research and development

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

Non-GAAP Financial Measures

We use Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) and Adjusted EBITDA as a percent of net sales to measure our operating profitability. We believe that Adjusted EBITDA and Adjusted EBITDA as a percent of net sales provide management, investors and creditors with useful measures of the operational results of our business and increase the period-to-period comparability of our operating profitability and comparability with other companies. Adjusted EBITDA as a percent of net sales is also used in the calculation of management’s incentive compensation program. The most directly comparable 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 Credit Agreement, governing ATI's Senior Secured Credit Facility. Adjusted EBITDA as a percent of net sales is calculated as Adjusted EBITDA divided by net sales.

We use Adjusted free cash flow to evaluate the amount of cash generated by our business that, after the capital investment needed to maintain and grow our business and certain mandatory debt service requirements, can be used for repayment of debt, stockholder distributions and strategic opportunities, including investing in our business. We believe that Adjusted free cash flow enhances the understanding of the cash flows of our business for management, investors and creditors. Adjusted free cash flow is also used in the calculation of management’s incentive compensation program. The most directly comparable GAAP measure to Adjusted free cash flow is Net cash provided by operating activities. Adjusted free cash flow is calculated as Net cash provided by operating activities after additions of long-lived assets.

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

For the years ended December 31,

(unaudited, dollars in millions)

2025

2024

2023

Net income (GAAP)

$

623

$

731

$

673

plus:

Income tax expense

181

166

154

Depreciation of property, plant and equipment

117

111

109

Interest expense, net

92

89

107

Amortization of intangible assets

7

10

45

Acquisition-related expenses (a)

64

—

—

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

29

1

—

Stock-based compensation expense (c)

27

26

22

Unrealized (gain) loss on marketable securities (d)

(12

)

9

1

UAW Local 933 contract signing incentives (e)

—

14

—

Pension plan settlement loss (f)

—

4

—

Other (g)

2

4

(3

)

Adjusted EBITDA (Non-GAAP)

$

1,130

$

1,165

$

1,108

Net sales (GAAP)

$

3,010

$

3,225

$

3,035

Net income as a percent of Net sales (GAAP)

20.7

%

22.7

%

22.2

%

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

37.5

%

36.1

%

36.5

%

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

$

836

$

801

$

784

Deductions to reconcile to Adjusted free cash flow:

Additions of long-lived assets

(175

)

(143

)

(125

)

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

$

661

$

658

$

659

(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. Ltd.

(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.

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Results of Operations

The following table sets forth certain financial information for the years ended December 31, 2025 and 2024. The following table and discussion should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto included in Part II, Item 8., of this Annual Report on Form 10-K.

Comparison of years ended December 31, 2025 and 2024

Years ended December 31,

(dollars in millions)

2025

%

of net sales

2024

%

of net sales

Net sales

$

3,010

100

%

$

3,225

100

%

Cost of sales

1,547

51

1,696

53

Gross profit

1,463

49

1,529

47

Operating expenses:

Selling, general and administrative

380

13

336

10

Engineering — research and development

174

6

200

6

Loss associated with impairment of long-lived assets

29

1

1

—

Total operating expenses

583

20

537

16

Operating income

880

29

992

31

Other expense, net:

Interest expense, net

(92

)

(3

)

(89

)

(3

)

Other income (expense), net

16

1

(6

)

—

Total other expense, net

(76

)

(2

)

(95

)

(3

)

Income before income taxes

804

27

897

28

Income tax expense

(181

)

(6

)

(166

)

(5

)

Net income

$

623

21

%

$

731

23

%

Net sales

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.

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Cost of sales

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

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, 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, 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. See "Note 5. 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, 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.

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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 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 our operations to fund our operating, investing and financing activities. Our principal uses of cash are operating expenses, capital expenditures, working capital needs, debt service, dividends on common stock, stock repurchases and strategic growth initiatives, including investments, acquisitions and collaborations. Our ability to generate cash in the future and our future uses of cash are subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control. We had total available cash and cash equivalents of $1,495 million and $781 million as of December 31, 2025 and 2024, respectively. 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, 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. As a result, we do not currently anticipate that local liquidity restrictions will preclude us from funding our targeted expectations or operating needs with local resources.

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

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

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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.

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. If we have commitments outstanding on the Revolving Credit Facility at the end of a fiscal quarter, the Senior Secured Credit Facility requires us to maintain a specified maximum first lien net leverage ratio of 5.50x. Additionally, within the terms of the Senior Secured Credit Facility, a first lien net leverage ratio at or below 4.00x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. As of December 31, 2025, our first lien net leverage ratio was (0.87x). The Senior Secured Credit Facility also provides certain financial incentives based on our first lien net leverage ratio. A first lien net leverage ratio at or below 4.00x and above 3.50x results in a 25 basis point reduction to the applicable margin on the Revolving Credit Facility. A first lien net leverage ratio at or below 3.50x results in an additional 25 basis point reduction to the applicable margin on the Revolving Credit Facility. These reductions remain in effect as long as we achieve a first lien net leverage ratio at or below the related threshold.

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. The indentures governing the Senior Notes contain negative covenants restricting or limiting our ability to, among other things, incur or guarantee additional indebtedness, incur liens, pay dividends on, redeem or repurchase our capital stock, make certain investments, permit payment or dividend restrictions on certain of our subsidiaries, sell assets, engage in certain transactions with affiliates, and consolidate or merge or sell all or substantially all of our assets. As of 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.

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Our credit ratings and outlook are reviewed periodically by Moody’s Ratings (“Moody’s”) and Fitch Ratings, Inc. (“Fitch”). As of December 31, 2025, our credit ratings from both Moody's and Fitch are shown in the table below:

December 31, 2025

Credit Ratings

Moody's

Fitch

Corporate Credit

Ba1

BB+

Term Loan due 2031

Baa2

BBB-

4.75% Senior Notes due 2027

Ba2

BB+

5.875% Senior Notes due 2029

Ba2

BB+

3.75% Senior Notes due 2031

Ba2

BB+

5.875% Senior Notes due 2033

Ba2

BB+

We anticipate increased capital expenditures and cash income taxes in 2026 compared to 2025. 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. All of the repurchase transactions during 2025 were settled in cash during the same period. As of December 31, 2025, we had approximately $1,192 million available under the Repurchase Program.

The following table shows our sources and uses of funds for the years ended December 31, 2025, 2024 and 2023 (dollars in millions):

Years ended December 31,

Statements of Cash Flows Data

2025

2024

2023

Cash flows provided by operating activities

$

836

$

801

$

784

Cash flows used for investing activities

(184

)

(147

)

(129

)

Cash flows provided by (used for) financing activities

57

(427

)

(332

)

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

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 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 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.

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Critical Accounting Estimates

The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of net sales and expenses during the applicable reporting period. Differences between actual amounts and estimates are recorded in the period identified. Estimates can require a significant amount of judgment, and a different set of judgments could result in changes to our reported results. A summary of our critical accounting estimates is included below.

Revenue Recognition

Revenue recognition contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the amount of sales incentives and provision for government price reductions. Distributor and customer sales incentives, consisting of allowances and other rebates, are estimated at the time of sale based upon history and experience and are recorded as a reduction to net sales. Incentive programs are generally product specific or region specific. Some factors used in estimating the cost of incentives include the number of transmissions that will be affected by the incentive program and the rate of acceptance of any incentive program. If the actual number of affected transmissions differs from this estimate, or if a different mix of incentives is actually paid, the impact on net sales would be recorded in the period that the change was identified. Assuming our current mix of sales incentives, a 10% change in sales incentives would correspondingly change our earnings by approximately $8 million.

Under the terms of certain previous U.S. government contracts, there were price reduction clauses and provisions for potential price reductions which were estimated at the time of sale based upon history and experience, and finalized after completion of U.S. government audits. Given our current price reduction reserve for government contracts, a 10% adjustment in our price reduction reserve would correspondingly change our earnings by approximately $5 million. Since 2014, Allison contracts with the U.S. Government have generally been firm, fixed price contracts and therefore have not required re-calculation of pricing based on cost principles.

Further information is provided in "Note 2. 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.

Goodwill and Other Intangible Assets

We have elected to perform our annual impairment tests for goodwill and indefinite-lived intangible assets on October 31 of every year using a multi-step impairment test. In Step 0, we have the option to evaluate various qualitative factors to determine the likelihood of impairment. If we determine that the fair value is more likely than not less than the carrying value, then we are required to perform Step 1. If we do not elect to perform Step 0, we can voluntarily proceed directly to Step 1. In Step 1, we perform a quantitative analysis to compare the fair value to our carrying value. If the fair value exceeds the carrying value, no impairment is recorded, and we are not required to perform further testing. If the carrying value exceeds fair value, we would record an impairment loss equal to the difference.

A qualitative assessment contains uncertainties because it requires management to make assumptions and to apply judgment to assess business changes, economic outlook, financial trends and forecasts, growth rates, credit ratings, equity ratings, discount rates, industry data and other relevant qualitative factors.

A quantitative analysis contains uncertainties because it is performed utilizing a discounted cash flow model which includes key assumptions, such as financial forecasts; net sales growth derived from market information, industry reports, marketing programs and future new product introductions; operating margin improvements derived

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from cost reduction programs and fixed cost leverage driven by higher sales volumes; and a risk-adjusted discount rate.

Goodwill represents the excess of purchase price paid over the fair value of net assets acquired. 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, for 2025, was the same as our one operating and reportable segment. We do not aggregate any components into our reporting unit.

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. 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. Customer relationships are amortized over the life in which expected benefits are to be consumed. The other remaining finite life intangibles are amortized on a straight-line basis over their useful lives. We evaluate the remaining useful life of the other intangible assets on a periodic basis to determine whether events or circumstances warrant a revision to the remaining useful life. Assumptions and estimates about future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. Such assumptions and estimates can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors, such as changes in our business strategy and internal forecasts. Although management believes the historical assumptions and estimates are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results. Further information is provided in "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.

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Impairment of Long-Lived Assets

The carrying value of long-lived assets is evaluated whenever events or circumstances indicate that the carrying value of a long-lived asset may not be recoverable. Events or circumstances that would result in an impairment review primarily include a significant change in the use of an asset, or the planned sale or disposal of an asset. The asset would be considered impaired when there is no future use planned for the asset or the future net undiscounted cash flows generated by the asset or asset group are less than its carrying value. An impairment loss would be recognized based on the amount by which the carrying value exceeds fair value.

Assumptions and estimates used to determine cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. 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.

Warranty

Provisions for estimated expenses related to product warranties are made at the time products are sold. Warranty claims arise when a transmission fails while in service during the relevant warranty period. The warranty reserve is adjusted in Selling, general and administrative expense based on our current and historical warranty claims paid and associated repair costs. 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. From time to time, we may initiate a specific field action program. As a result of the uncertainty surrounding the nature and frequency of specific field action programs, the liability for such programs is recorded when we commit to an action. 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 realizable. Warranty costs may differ from those estimated if actual claim rates are higher or lower than our historical rates. Further information is provided in "Note 10. Product Warranty Liabilities” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K, which contains a summary of the activity in our warranty liability account for 2025, 2024 and 2023, including adjustments to pre-existing warranties.

Pension and Post-retirement Benefit Plans

Pension and OPEB costs are based upon various actuarial assumptions and methodologies as prescribed by authoritative accounting guidance. These assumptions include discount rates, expected return on plan assets, health care cost trend rates, inflation, rate of compensation increases, population demographics, mortality rates and other factors. We review all actuarial assumptions on an annual basis.

A change in the discount rate can have a significant impact on determining our benefit obligations. Our current discount rate is determined by matching the plans’ projected cash flows to a yield curve based on long-term, fixed income debt instruments available as of the measurement date of December 31, 2025. 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

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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. Employee Benefit Plans” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K, which contains our review on various actuarial assumptions.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The future tax benefits associated with operating loss and tax credit carryforwards are recognized as deferred tax assets. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. When releasing income tax effects from accumulated other comprehensive loss, we utilize the portfolio securities approach.

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

Further information on income taxes is provided in "Note 16. Income Taxes” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K.

Business Combinations

We use the acquisition method to account for business combinations. The assets acquired and liabilities assumed are recorded at their respective estimated fair value at the date of acquisition. Any excess purchase price over the fair values of the acquired net assets is recorded as goodwill. Determining the fair values of assets acquired and liabilities assumed requires management's judgment and includes the use of estimates with respect to timing and amount of future cash flows, market rate assumptions, actuarial assumptions, appropriate discount rates and other relevant factors.

Recently Issued Accounting Pronouncements

Refer to "Note 2. 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.

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