ITEM 7. Management’s Discussion and Analysis o f 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.
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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
Net Sales
Net Sales
% Variance
North America On-Highway
Outside North America On-Highway
Global Off-Highway
Defense
Service Parts, Support Equipment and Other
Total Net Sales
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)
Net income (GAAP)
plus:
Income tax expense
Depreciation of property, plant and equipment
Interest expense, net
Amortization of intangible assets
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)
Other (g)
Adjusted EBITDA (Non-GAAP)
Net sales (GAAP)
Net income as a percent of Net sales (GAAP)
Adjusted EBITDA as a percent of Net sales (Non-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) (h)
Represents acquisition-related expenses (recorded in Selling, general and administrative), primarily consulting and legal fees, related to the Acquisition.
Represents a charge associated with the impairment of long-lived assets related to the production of certain electrified products.
Represents stock-based compensation expense (recorded in Cost of sales, Selling, general and administrative, and Engineering — research and development).
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.
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.
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.
Represents other adjustments as defined by the Credit Agreement.
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)
of net sales
of net sales
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Engineering — research and development
Loss associated with impairment of long-lived assets
Total operating expenses
Operating income
Other expense, net:
Interest expense, net
Other income (expense), net
Total other expense, net
Income before income taxes
Income tax expense
Net income
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
Term Loan due 2031
Baa2
BBB-
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. 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
Cash flows provided by operating activities
Cash flows used for investing activities
Cash flows provided by (used for) financing activities
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 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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ITEM 7A. Quantitative and Qualita tive Disclosures About Market Risk
Our exposure to market risk consists of changes in interest rates, foreign currency rate fluctuations and movements in commodity prices.
Interest Rate Risk
Our principal interest rate exposure relates to outstanding amounts under our Senior Secured Credit Facility. 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, 2025, we had no amounts outstanding under the Revolving Credit Facility.
Refer to "Note 8. Debt” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K.
Exchange Rate Risk
While our net sales and costs are denominated primarily in U.S. Dollars, net sales, costs, assets and liabilities are generated in other currencies including Brazilian Real, British Pound, Canadian Dollar, Chinese Yuan Renminbi, Euro, Hungarian Forint, Indian Rupee and Japanese Yen. 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 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
We are subject to changes in our cost of sales caused by movements in underlying commodity prices. As of December 31, 2025, approximately 66% of our cost of sales consisted of purchased components. A substantial portion of the purchased parts are made of aluminum and steel. The cost of aluminum parts includes an adjustment factor on future purchases for fluctuations in aluminum prices based on accepted industry indices. In addition, a substantial amount of steel-based contracts also includes an index-based component. As our costs change, we are able to pass through a portion of the changes in commodity prices to certain of our customers according to our LTAs. We historically have not entered into long-term purchase contracts related to the purchase of aluminum and steel.
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. For purposes of the sensitivity analysis above, the impact of these cost sharing arrangements has not been included.
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ITEM 8. Financial Statemen ts and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB: ID 238 )
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Allison Transmission Holdings, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Allison Transmission Holdings, Inc. and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
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Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Product Warranty Liabilities
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 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 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 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
Indianapolis, Indiana
February 24, 2026
We have served as the Company’s auditor since 2008.
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Allison Transmission Holdings, Inc.
Consolidated B alance Sheets
(dollars in millions, except share and per share data)
December 31,
December 31,
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable — net of allowance for doubtful accounts of $ 1
Inventories
Other current assets
Total Current Assets
Marketable securities
Property, plant and equipment, net
Intangible assets, net
Goodwill
Other non-current assets
TOTAL ASSETS
LIABILITIES
Current Liabilities
Accounts payable
Product warranty liability
Current portion of long-term debt
Deferred revenue
Other current liabilities
Total Current Liabilities
Product warranty liability
Deferred revenue
Long-term debt
Deferred income taxes
Other non-current liabilities
TOTAL LIABILITIES
Commitments and Contingencies (see Note 18)
STOCKHOLDERS’ EQUITY
Common stock, $ 0.01 par value, 1,880,000,000 shares authorized,
82,828,704 shares issued and outstanding and 85,776,801 shares
issued and outstanding, respectively
Non-voting common stock, $ 0.01 par value, 20,000,000 shares
authorized, none issued and outstanding
Preferred stock, $ 0.01 par value, 100,000,000 shares authorized, none
issued and outstanding
Paid in capital
Accumulated deficit
Accumulated other comprehensive loss, net of tax
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY
The accompanying notes are an integral part of the Consolidated Financial Statements.
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Allison Transmission Holdings, Inc.
Consolidated Statements of Comprehensive Income
(dollars in millions, except per share data)
Years ended December 31,
Net sales
Cost of sales
Gross profit
Selling, general and administrative
Engineering — research and development
Loss associated with impairment of long-lived assets
Operating income
Interest expense, net
Other income (expense), net
Income before income taxes
Income tax expense
Net income
Basic earnings per share attributable to common
stockholders
Diluted earnings per share attributable to common
stockholders
Other comprehensive (loss) income, net of tax:
Foreign currency translation
Pension and OPEB liability adjustment
Interest rate swaps
Total other comprehensive (loss) income, net of tax
Comprehensive income, net of tax
The accompanying notes are an integral part of the Consolidated Financial Statements.
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Allison Transmission Holdings, Inc.
Consolidated Statem ents of Cash Flows
(dollars in millions)
Years ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of property, plant and equipment
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 foreign exchange
Pension plan settlement loss
Technology-related investments loss (gain)
Other
Changes in assets and liabilities:
Accounts receivable
Inventories
Accounts payable
Other assets and liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of long-lived assets
Investment in equity method investee
Investment in debt securities
Investment in equities without a readily determinable fair value
Proceeds from sale of assets
Proceeds from technology-related investments
Net cash used for investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt
Repurchases of common stock
Dividend payments
Taxes paid related to net share settlement of equity awards
Debt financing fees
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
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid, net of refunds received:
U.S. federal
U.S. state and local
Foreign
Interest paid
Interest received from interest rate swaps
Non-cash investing activities:
Capital expenditures in liabilities
The accompanying notes are an integral part of the Consolidated Financial Statements.
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Allison Transmission Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
(dollars in millions)
Common
Stock
Non-
voting
Common
Stock
Preferred
Stock
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss, net of tax
Stockholders’
Equity
Balance at December 31, 2022
Stock-based compensation
Pension and OPEB liability adjustment
Foreign currency translation adjustment
Interest rate swaps
Issuance of common stock
Repurchase of common stock
Dividends on common stock ($ 0.92 per share)
Net income
Balance at December 31, 2023
Stock-based compensation
Pension and OPEB liability adjustment
Foreign currency translation adjustment
Interest rate swaps
Issuance of common stock
Repurchase of common stock
Dividends on common stock ($ 1.00 per share)
Net income
Balance at December 31, 2024
Stock-based compensation
Pension and OPEB liability adjustment
Foreign currency translation adjustment
Interest rate swaps
Issuance of common stock
Repurchase of common stock
Dividends on common stock ($ 1.08 per share)
Net income
Balance at December 31, 2025
The accompanying notes are an integral part of the Consolidated Financial Statements.
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Allison Transmission Holdings, Inc.
Notes to Conso lidated Financial Statements
NOTE 1. OVERVIEW
Overview
Allison Transmission Holdings, Inc. 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. Allison trades on the New York Stock Exchange under the symbol, “ALSN”.
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 1,500 inde pendent distributor and dealer locations worldwide as of December 31, 2025.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the periods presented. The Consolidated Financial Statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated.
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
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Estimates include, but are not limited to, sales incentives, government price adjustments, fair market values and future cash flows associated with goodwill, indefinite-lived intangibles, definite-lived intangibles, long-lived asset impairment tests, useful lives for depreciation and amortization, warranty liabilities, core deposit liabilities, determination of discount rate and other assumptions for pension and other post-retirement benefit (“OPEB”) expense, income taxes and deferred tax valuation allowances, derivative valuation, assumptions for business combinations and contingencies. The Company’s accounting policies involve the application of judgments and assumptions made by management that include inherent risks and uncertainties. Actual results could differ materially from these estimates and from the assumptions used in the preparation of the Company's financial statements. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.
Segment Reporting
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.
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The Company was in one line of business, which was the manufacture and distribution of vehicle propulsion solutions.
Business Combinations
The Company uses 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.
Cash and Cash Equivalents
Cash equivalents are defined as short-term, highly-liquid investments with original maturities of 90 days or less. Under the Company’s cash management system, checks issued but not presented to banks may result in book overdraft balances for accounting purposes and are classified within Accounts payable in the Consolidated Balance Sheets. The change in book overdrafts is reported as a component of operating cash flows for Accounts payable.
Investments
Investments in equity securities where the Company is able to exercise significant influence, but not control, are accounted for under the equity method. Significant influence is typically considered to exist when the Company's ownership interest in the investee is between 20% and 50%, although other factors, such as representation on the investee's board of directors and the impact of commercial arrangements, also are considered. Investments in limited partnerships and limited liability companies are also accounted for using the equity method if the Company's investment is more than minor or if the Company is the general partner. Under the equity method of accounting, the investment is initially recorded at cost and subsequently adjusted by the Company's proportionate share of the entity's net income, with adjustments recognized in Other (expense) income, net.
Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at fair value with unrealized gains and losses included in Other (expense) income, net. For equity securities without a readily determinable fair value, the investments are recorded utilizing the measurement alternative at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with gains and losses included in Other (expense) income, net . See "Note 7. Fair Value of Financial Instruments" for more details on the Company's investments in equity securities.
Inventories
Inventories are stated at the lower of cost or net realizable value. The Company determines cost using the first-in, first-out method. The Company analyzes inventory on a quarterly basis to determine whether it is excess or obsolete inventory. Any decline in carrying value of estimated excess or obsolete inventory is recorded as a reduction of inventory and as an expense included in Cost of sales in the period it is identified.
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Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation expense is recorded using the straight-line method over the following estimated lives:
Range in
Years
Land improvements
Buildings and building improvements
Machinery and equipment
Software
Special tooling
Software represents the costs of software developed or obtained for internal use. Software costs are amortized on a straight-line basis over their estimated useful lives. Software assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets. Upgrades and enhancements are capitalized if they result in added functionality, which enables the software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion and business process reengineering costs are expensed in the period in which they are incurred.
Special tooling represents the costs to design and develop tools, dies, jigs and other items owned by the Company and used in the manufacture of components by suppliers under long-term supply agreements. Special tooling is depreciated on a straight-line basis ove r the tool’s expected useful life. Special tooling used in the development of new technology is expensed as incurred. Engineering, testing and other costs incurred in the design and development of production parts are expensed as incurred.
Impairment of Long-Lived Assets
The carrying value of long-lived assets is evaluated whenever events or circumstances indicate that the carrying value of an 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, 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. See "Note 5. Property, Plant and Equipment" for more information.
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Goodwill and Other Intangible Assets
The Company has elected to perform its 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, the Company has the option to evaluate various qualitative factors to determine the likelihood of impairment. If the Company determines that the fair value is more likely than not less than the carrying value, then it is required to perform Step 1. If the Company does not elect to perform Step 0, it can voluntarily proceed directly to Step 1. In Step 1, the Company performs a quantitative analysis to compare the fair value to its carrying value. If the fair value exceeds the carrying value, no impairment is recorded, and the Company is not required to perform further testing. If the carrying value exceeds fair value, the Company 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 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 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, 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.
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. 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.
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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 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. The Company evaluates 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 the Company's 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 the Company's business strategy and internal forecasts. 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.
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. See "Note 6. Goodwill and Other Intangible Assets" for more information.
Deferred Financing Costs
The deferred financing costs related to line-of-credit arrangements are presented as a component of other non-current assets. The deferred financing costs related to other types of debt instruments such as notes and loans are presented as a component of long-term debt. 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 $ 8 mill ion, $ 3 million and $ 4 million for the years ended December 31, 2025, 2024 and 2023 , respectively.
Financial Instruments
The Company’s cash equivalents are invested in U.S. government backed securities and recorded at fair value in the Consolidated Balance Sheets. The Company's marketable securities are carried at fair value on the Consolidated Balance Sheets. The Company’s financial derivative instruments, including interest rate swaps, are carried at fair value on the Consolidated Balance Sheets. Refer to "Note 7. Fair Value of Financial Instruments” for more detail. The Company’s long-term debt obligations are carried at historical amounts with the Company providing fair value disclosure in "Note 8. Debt”. The carrying values of accounts receivable and accounts payable approximate fair value due to their short-term nature.
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Insurable Liabilities
The Company records liabilities for its medical, workers’ compensation, long-term disability, product, general and auto liabilities. The determination of these liabilities and related expenses is dependent on claims experience. For most of these liabilities, claims incurred but not yet reported are estimated based upon historical claims experience.
Revenue Recognition
The Company records sales as each distinct performance obligation within a contract is satisfied. The Company sells extended transmission coverage (“ETC”) for which sales are deferred. 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 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. Incentive programs are generally product specific or region specific. Some factors used in estimating when an adjustment is not likely to reverse are the number of transmissions that will be affected by the incentive program and rate of acceptance of any incentive program.
Sales under U.S. government production contracts are recognized at the point in time when control passes to the customer, or when the U.S. government accepts the transmission and is able to direct its use in certain bill-and-hold arrangements. Deferred revenue arises from cash received in advance of the culmination of the earnings process and is recognized as revenue in future periods when the applicable revenue recognition criteria have been met. Under the terms of certain previous U.S. government contracts, there were certain price reduction clauses and provisions for potential price reductions which were estimated at the time of sale based upon the Company’s history and experience and were recorded as a reduction to Net sales. Potential reductions may be attributed to a change in projected sales volumes or plant efficiencies which impact overall costs. The Company had $ 54 million recorded in the price reduction reserve account as of both December 31, 2025 and 2024.
The Company engages in licensing agreements with certain third parties for the use of the Company’s intellectual property. Deferred revenue arises from cash received in advance of the period of use of the intellectual property. Revenue is recognized over the license period as it is earned.
The Company classifies shipping and handling billed to customers in Net sales and shipping and handling costs in Cost of sales.
The Company contracts with various third parties to provide engineering services. These services are recorded as Net sales in accordance with the terms of the contract. 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 c osts are recorded in Cost of sales.
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Warranty
Provisions for estimated expenses related to product warranties are made at the time products are sold. Warranty claims arise when a transmission or propulsion solution manufactured by us fails while in service during the relevant warranty period. The warranty reserve is adjusted in Selling, general and administrative expense based on the Company’s 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, the Company 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 the Company commits to an action. The Company reviews and assesses the liability for these programs on a quarterly basis. The Company also assesses its ability to recover certain costs from its suppliers and records a receivable from the supplier when it believes a recovery is probable. Warranty costs may differ from those estimated if actual claim rates are higher or lower than the Company's historical rates.
Research and Development
The Company incurs costs in connection with research and development programs that are expected to contribute to future earnings. Such costs are charged to Engineering — research and development as incurred.
Foreign Currency Translation
Most of the Company’s subsidiaries outside the United States prepare financial statements in currencies other than the U.S. Dollar. The functional currency for all of these subsidiaries is the local currency, except for the Company’s Hong Kong and Middle East subsidiaries which currently use the U.S. Dollar as their functional currency. Balances are translated at period-end exchange rates for assets and liabilities and monthly weighted-average exchange rates for revenues and expenses. The translation gains and losses are stated as a component of Accumulated Other Comprehensive Loss (“AOCL”) as disclosed in "Note 17. Accumulated Other Comprehensive Loss”.
Derivative Instruments
In the normal course of business, the Company is exposed to fluctuations in interest rates, foreign currency exchange rates, and commodity prices. The risk is managed through the use of financial derivative instruments, when appropriate. The Company has qualified for and elected hedge accounting treatment on interest rate swap contracts. As necessary, the Company adjusts the values of the derivative instruments for counter-party or credit risk. "Note 9. Derivatives” provides further information on the accounting treatment of the Company’s derivative instruments.
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 AOCL, the Company utilizes the portfolio securities approach.
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The need to establish a valuation allowance against the deferred tax assets is assessed periodically based on a more-likely-than-not realization threshold, in accordance with the FASB’s 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, 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.
The Company records uncertain tax positions on the basis of a two-step process whereby (1) it is determined whether it is more likely than not that the tax position will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is greater than 50% likely to be re alized upon ultimate settlement with the related tax authority.
Stock-Based Compensation
In February 2024, the Company’s Board of Directors adopted, and in May 2024, the Company’s stockholders approved, the Allison Transmission Holdings, Inc. 2024 Equity Incentive Award Plan (“2024 Plan”), which became effective on May 8, 2024. The 2024 Plan was an amendment and restatement of the Allison Transmission Holdings, Inc. 2015 Equity Incentive Award Plan (the “Prior Plan”). Under the 2024 Plan, certain employees (including executive officers), consultants and directors are eligible to receive equity-based compensation, including non-qualified stock options, incentive stock options, restricted stock, dividend equivalents, stock payments, restricted stock units (“RSUs”), performance awards, stock appreciation rights and other equity-based awards, or any combination thereof. The 2024 Plan limits the aggregate number of shares of common stock available for issue to 3,850,000 and will expire on, and no option or other equity award may be granted pursuant to the 2024 Plan after, the tenth anniversary of the date the 2024 Plan was approved by the Board of Directors.
Prior to the adoption of the 2024 Plan, the Company’s equity-based awards were granted under the Prior Plan. As of the effective date of the 2024 Plan, no new awards will be granted under the Prior Plan, but the Prior Plan will continue to govern the equity awards issued under the Prior Plan.
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 . 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 occurs.
RSUs were granted to certain employees and directors at fair market value on the date of grant. The restrictions lapse upon continued performance by the RSU holder on the vest date which generally occurs over one , two or three years . RSU incentive compensation expense recorded was $ 13 million, $ 13 million and $ 11 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Performance-based awards, including performance units, were granted to certain employees at fair value at the date of grant. 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, $ 6 million, $ 5 million for the years ended December 31, 2025, 2024 and 2023, respectively.
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Stock options were granted to certain employees at fair value on the date of grant using a Black-Scholes option pricing model. Stock option incentive compensation expense recorded was $ 8 million, $ 7 million and $ 6 million for the years ended December 31, 2025, 2024 and 2023 , respectively.
Pension and Post-retirement Benefit Plans
For pension and OPEB plans in which employees participate, costs are determined within the FASB’s authoritative accounting guidance set forth in employers’ defined benefit pensions including accounting for settlements and curtailments of defined benefit pension plans, termination of benefits and accounting for post-retirement benefits other than pensions. In accordance with the authoritative accounting guidance, the Company recognizes the funded status of its defined benefit pension plans and OPEB plan in its Consolidated Balance Sheets with a corresponding adjustment to AOCL, net of tax.
Post-retirement benefit costs consist of service cost and interest cost on accrued obligations. Actuarial gains and losses on liabilities, together with any prior service costs, are charged (or credited) to income over the average remaining service lives of employees.
The benefit cost components shown in the Consolidated Statements of Comprehensive Income 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. The Company reviews all actuarial assumptions on an annual basis. Changes in key economic indicators can change these assumptions. These assumptions, along with the actual value of assets at the measurement date, will impact the calculation of pension expenses for the following year.
Recently Adopted Accounting Pronouncements
In 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 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.
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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. Upon adoption, the guidance may be applied prospectively or retrospectively. Management is currently evaluating the impact of this guidance on the Company's Consolidated Financial Statements.
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 .
NOTE 3. REVENUE
Revenue is recognized as each distinct performance obligation within a contract is satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company enters into long-term agreements (“LTAs”) and distributor agreements with certain customers. The LTAs and distributor agreements do not include committed volumes until underlying purchase orders are issued; therefore, the Company determined that purchase orders are the contract with a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied, as there is no right of return.
Some of the Company's contracts include multiple performance obligations, most commonly the sale of both a transmission and ETC. The Company allocates the contract’s transaction price to each performance obligation based on the standalone selling price of each distinct good or service in the contract.
The Company may also use volume-based discounts and rebates as marketing incentives in the sales of both vehicle propulsion solutions and service parts, which are accounted for as variable consideration. The Company records the impact of the incentives as a reduction to revenue when it is determined that the adjustment is not likely to reverse. 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, 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, 2025 and 2024. See "Note 11. Deferred Revenue” for more information including the amount of revenue earned during the year ended December 31, 2025 that had been previously deferred. The Company had no material contract assets as of either December 31, 2025 or 2024.
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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):
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
North America On-Highway
Outside North America On-Highway
Global Off-Highway
Defense
Service Parts, Support Equipment and Other
Total Net Sales
Disaggregated revenue by end market is further described as follows:
North America On-Highway
Revenue from the North America On-Highway end market is driven by the sale of propulsion solutions to original equipment manufacturers (“OEMs”), distributors and dealers that install the product into Class 4-5, Class 6-7 and Class 8 straight trucks, Class 8 day cab tractors, conventional transit, shuttle and coach buses, school buses and motorhome applications. Revenue is recognized at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.
Outside North America On-Highway
Revenue from the Outside North America On-Highway end market is driven by the sale of propulsion solutions to OEMs and distributors that produce vehicles for commercial users in medium- and heavy-duty applications and wheeled defense platforms. Revenue is recognized at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.
Global Off-Highway
Revenue from the Global Off-Highway end market is driven by sales of transmissions to OEMs and distributors that serve end users who operate vehicles and auxiliary equipment in energy, mining and construction applications. Revenue is recognized at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.
Defense
Revenue from the Defense end market is driven by sales of propulsion solutions to the U.S. Government or its contractors and sales to certain government contractors outside of the U.S. for use in both wheeled and tracked defense vehicle applications. Revenue is recognized at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.
Periodically, the Company and the U.S. Government will enter into a bill-and-hold arrangement where a completed transmission physically remains at the Company’s facility at the request of the U.S. Government. Revenue is recognized at the point in time when it is determined that the U.S. Government accepts the transmission and is able to direct its use.
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Service Parts, Support Equipment and Other
Revenue from the Service Parts, Support Equipment and Other end market is primarily derived from the sale of transmission parts and fluid purchased for the normal maintenance and repair needs of products in service, the sale of aluminum die cast components purchased as original parts and the sale of ETC contracts which extend the warranty coverages of propulsion solutions beyond the standard warranty period.
Revenue is recognized on sales of service parts, support equipment and aluminum die cast components at the point in time when control passes to the customer, which is based on shipping terms when the order is fulfilled by the Company.
Revenue from the sale of ETC contracts is recognized ratably over the time period that corresponds with the period of coverage, as the Company has determined this method best depicts the progress towards satisfaction of its performance obligation. ETC contracts are typically sold in one to five year d urations within the North America On-Highway, Outside North America On-Highway and Global Off-Highway end markets. The ETC contract period begins when the standard warranty coverage period ends. All consideration allocated to an ETC performance obligation is initially deferred until the coverage period begins.
NOTE 4. INVENTORIES
Inventories consisted of the following components (dollars in millions):
December 31, 2025
December 31, 2024
Purchased parts and raw materials
Work in progress
Finished goods
Service parts
Total inventories
Inventory components shipped to third parties, primarily cores, parts to re-manufacturers, and parts to contract manufacturers, which the Company has an obligation to buy back, are included in purchased parts and raw materials, with an offsetting liability in Other current liabilities. See "Note 14. Other Current Liabilities” for more information.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment are as follows (dollars in millions):
December 31, 2025
December 31, 2024
Machinery and equipment
Buildings and building improvements
Special tooling
Software
Construction in progress
Land and land improvements
Total property, plant and equipment
Accumulated depreciation
Property, plant and equipment, net
Depreciation of property, plant and equipment was $ 117 million, $ 111 million and $ 109 million for the years ended December 31, 2025, 2024 and 2023, respectively.
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As a result of events and circumstances in the fourth quarter of 2025, primarily deteriorating market conditions, the Company performed an impairment analysis on certain of its long-lived, tangible assets related to the production of certain electrified products. The Company used a market approach to determine the fair value of the assets, resulting in an $ 8 million impairment loss for the year ended December 31, 2025 for long-lived property, plant and equipment assets. There were no impairment charges for the year ended December 31, 2024. See "Note 6. Goodwill and Other Intangible Assets" for more information on the impairment of long-lived intangible assets related to the production of certain electrified products and "Note 2. Summary of Significant Accounting Policies" for more information.
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
As of both December 31, 2025 and 2024, the carrying amount of the Company’s Goodwill was $ 2,075 million.
The following presents a summary of other intangible assets (dollars in millions):
December 31, 2025
December 31, 2024
Intangible
assets, gross
Accumulated
amortization
Intangible
assets, net
Intangible
assets, gross
Accumulated
amortization
Intangible
assets, net
Other intangible assets:
Trade name
Customer relationships — commercial
Proprietary technology
Customer relationships — defense
Non-compete agreement
Total
Amortization of intangible assets was $ 7 million, $ 10 million and $ 45 million for the years ended December 31, 2025, 2024 and 2023, respectively.
The Company’s 2025 annual goodwill impairment test indicated that the fair value of the reporting unit exceeded its carrying value , indicating no impairment. The C ompany's 2025 annual indefinite-lived intangible assets impairment test indicated that the fair value of the Company’s indefinite-lived intangible assets exceeded their carrying value, indicating no impairment.
As a result of events and circumstances in the fourth quarter of 2025, primarily deteriorating market conditions, the Company performed an impairment analysis on the long-lived, proprietary technology intangible asset associated with certain electrified products . The Company used a market approach to determine the fair value of the assets, resulting in a $ 21 million impairment loss for the year ended December 31, 2025 for long-lived, intangible assets. There was a $ 1 million impairment loss for the year ended December 31, 2024. See "Note 5. Property, Plant and Equipment" for more information on the impairment of property, plant and equipment assets related to the production of certain electrified products and "Note 2. Summary of Significant Accounting Policies" for more information.
Amortization expense re lated to other intangible assets for the next five fiscal years is expected to be (dollars in millions):
Amortization expense
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NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the price (exit price) that would be received to sell an asset or paid to transfer a liability in an orderly tran saction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by the relevant guidance are as follows:
Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date.
Level 2 — Inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes financial instruments that are valued using quoted prices in markets that are not active and those financial instruments that are valued using models or other valuation methodologies in which all significant value-drivers are observable in active markets or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 — Certain inputs are unobservable or have little or no market data available. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all instruments subject to authoritative accounting guidance and includes, in Level 3, all of those whose fair value is based on significant unobservable inputs. As of December 31, 2025 and 2024, the Company did no t hav e any Level 3 financial assets or liabilities.
The following table summarizes the Company’s financial assets and (liabilities) measured at fair value as of December 31, 2025 and 2024 (dollars in millions):
Fair Value Measurements Using
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
TOTAL
Cash equivalents
Marketable securities
Rabbi trust assets
Deferred compensation obligation
Debt securities
Derivative assets
Total
The Company’s valuation techniques used to calculate the fair value of cash equivalents, marketable securities, assets held in the rabbi trust and the deferred compensation obligation represent a market approach in active markets for identical assets that qualify as Level 1 in the fair value hierarchy. A description of the Company’s Level 1 assets is as follows:
Cash equivalents consist primarily of short-term U.S. government backed securities and time deposits.
Marketable securities consist of publicly traded stock of Jing-Jin Electric Technologies Co. Ltd., which has a readily determinable fair value.
Rabbi trust assets consist principally of publicly available mutual funds and target date retirement funds.
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Deferred compensation obligation is directly related to the fair value of assets held in the rabbi trust.
The Company's debt securities are classified as available-for-sale and qualify as Level 2 in the fair value hierarchy. The Company’s valuation techniques used to calculate the fair value of derivative instruments represent a market approach with observable inputs that qualify as Level 2 in the fair value hierarchy. The Company used valuations from the issuing financial institutions for the fair value measurement of interest rate swaps. As of December 31, 2025, all of the Company's interest rate swap contracts reached maturity and were terminated. The floating-to-fixed interest rate swaps were based on the Secured Overnight Financing Rate ("SOFR"), which is observable at commonly quoted intervals. The fair values are included in Other current assets in the Consolidated Balance Sheets. See "Note 9. Derivatives” for more information regarding the Company's interest rate swaps.
The Company holds equity securities in unconsolidated entities without a readily determinable fair value. Each of these investments represents a less than 20% ownership interest in the respective privately-held entity, and the Company does not maintain significant influence over or control of any of the entities. The Company has elected the measurement alternative and measures the investments at cost, less any impairment, plus or minus adjustments related to observable price changes in orderly transactions for identical or similar investments of the same issuer. These equity investments are recorded in Other non-current assets in the Consolidated Balance Sheets, with changes in the value recorded in Other income (expense), net in the Consolidated Statements of Comprehensive Income. As of December 31, 2025 and 2024 , the Company held equity securities without a readily determinable fair value of $ 8 million and $ 7 million, respectively. For the years ended December 31, 2025 and 2024, no adjustments were recorded resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer and no impairment charges occurred for any of these investments.
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NOTE 8. DEBT
Long-term debt and maturities are as follows (dollars in millions):
December 31, 2025
December 31, 2024
Long-term debt:
Senior Notes, fixed 4.75 %, due 2027
Senior Notes, fixed 5.875 %, due 2029
Senior Notes, fixed 3.75 %, due 2031
Senior Secured Credit Facility Term Loan, variable, due 2031
Senior Notes, fixed 5.875 %, due 2033
Total long-term debt
Less: current maturities of long-term debt
deferred financing costs, net (see Note 2)
Total long-term debt, net
Principal payments required on long-term debt during the nex t five years are as follows (dollars in millions):
Payments
As of December 31, 2025, the Company had $ 2,909 million of indebtedness associated with Allison Transmission, Inc.’s (“ATI”), the Company’s wholly-owned subsidiary, 4.75 % Senior Notes due October 2027 (“4.75% Senior Notes”), ATI’s 5.875 % Senior Notes due June 2029 (“5.875% Senior Notes 2029”), ATI’s 3.75 % Senior Notes due January 2031 (“3.75% Senior Notes”), 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”) and the Second Amended and Restated Credit Agreem ent dated as of March 29, 2019, as amended (the “Credit Agreement”), governing ATI’s term loan facility in the amount of $ 509 million due March 2031 (“Term Loan”) and ATI’s revolving credit facility with commitments in the amount of $ 750 million due March 2029 (“Revolving Credit Facility”, and together with the Term Loan, the “Senior Secured Credit Facility”).
The fair value of the Company’s long-term debt obligations as of December 31, 2025 was $ 2,858 million. The fair value is based on quoted Level 2 market prices of the Company’s debt as of December 31, 2025. The difference between the fair value and carrying value of the long-term debt is driven primarily by trends in the financial markets.
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Senior Secured Credit Facility
The borrowings under the Senior Secured Credit Facility are collateralized by a lien on substantially all assets of the Company, ATI and certain existing and future U.S. subsidiary guarantors, as provided in the Credit Agreement. Interest on the Term Loan, as of December 31, 2025 , is either (a) 1.75 % over a SOFR rate on deposits in U.S. dollars for one-, three- or six-month periods (or a twelve-month period if, at the time of the borrowing, consented to by all relevant lenders and the administrative agent) ("Term SOFR"), or (b) 0.75 % over the greater of the prime lending rate as quoted by the administrative agent, the Term SOFR rate for an interest period of one month plus 1.00 % and the federal funds effective rate published by the Federal Reserve Bank of New York plus 0.50 %, subject to a 1.00 % floor (the "Base Rate"). As of December 31, 2025, the Company elected to pay the lowest all-in rate of Term SOFR plus the applicable margin, or 5.50 %, on the Term Loan. The Credit Agreement requires minimum quarterly principal payments on the Term Loan, as well as prepayments from certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events, the incurrence of certain debt and from a percentage of excess cash flow, if applicable. The minimum required quarterly principal payment on the Term Loan through its maturity date of March 2031 is $ 1 million. As of December 31, 2025, there had been no payments required for certain net cash proceeds of non-ordinary course asset sales and casualty and events. The remaining principal balance is due upon maturity.
The Senior Secured Credit Facility also provides a Revolving Credit Facility, net of an a llowance for up to $ 75 million in outstanding letters of credit commitments. Throughout the year ended December 31, 2025 , the Company made no withdrawals on the Revolving Credit Facility. As of December 31, 2025, the Company had $ 745 million available under the Revolving Credit Facility, net of $ 5 million in letters of credit. Borrowings under the Revolving Credit Facility bear interest at a variable base rate plus an applicable margin based on the Company’s first lien net leverage ratio. When the Company’s first lien net leverage ratio is above 4.00 x, interest on the Revo lving Credit Facility is (a) 0.75 % over the Base Rate or (b) 1.75 % over the Term SOFR rate; when the Company’s first lien net leverage ratio is equal to or less than 4.00 x and above 3.50 x, interest on the Revolving Credit Facility is (i) 0.50 % over the Base Rate or (ii) 1.50 % over the Term SOFR rate; and when the Company’s first lien net leverage ratio is equal to or below 3.50 x, interest on the Revolving Credit Facility is (y) 0.25 % over the Base Rate or (z) 1.25 % over the Term SOFR rate. As of December 31, 2025, the applicable margin for the Revolving Credit Facility was 1.25 %. In addition, there is an annual commitment fee, based on the Company’s first lien net leverage ratio, on the average unused revolving credit borrowings available under the Revolving Credit Facility. As of December 31, 2025, the commitment fee was 0.25 %. Borrowings under the Revolving Credit Facility are payable at the option of the Company throughout the term of the Revolving Credit Facility with the balance due at the end of the term.
The Senior Secured Credit Facility requires the Company to maintain a specified maximum first lien net leverage ratio of 5.50 x when revolving loan commitments remain outstanding on the Revolving Credit Facility at the end of a fiscal quarter. As of December 31, 2025 , the Company had no amounts outstanding under the Revolving Credit Facility; however, the Company would have been in compliance with the maximum first lien net leverage ratio, achieving a ( 0.87 x) ratio. Add itionally, within the terms of the Senior Secured Credit Facility, a first lien net leverage ratio at or below 4.00 x resu lts in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year.
In addition, the Credit Agreement, among other things, includes customary restrictions (subject to certain exceptions) on the Company’s ability to incur certain indebtedness, grant certain liens, make certain investments, engage in acquisitions, consolidations and mergers, declare or pay certain dividends or repurchase shares of the Company’s common stock. As of December 31, 2025, the Company was in compliance with all covenants under the Credit Agreement.
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Senior Notes
In November 2025, ATI completed an offering of $ 500 million of the 5.875 % Senior Notes due December 2033 . The 5.875 % Senior Notes 2033 were offered in a private placement exempt from registration under the Securities Act of 1933, as amended. On June 11, 2025, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Dana Incorporated (“Dana”) to acquire its off-highway business (the "Acquisition"). The net proceeds from the offering will be used to pay for a portion of the Acquisition. As a result of the offering, the Company recorded $ 6 million as deferred financing fees in the Consolidated Balance Sheet as of December 31, 2025. See "Note 24. Acquisition” for additional details regarding the Acquisition.
Each series of the Senior Notes is unsecured and is guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the Senior Secured Credit Facility and is unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the Senior Secured Credit Facility. None of ATI’s domestic subsidiaries currently guarantee its obligations under the Senior Secured Credit Facility, and therefore none of ATI’s domestic subsidiaries currently guarantee any series of the Senior Notes. The indentures governing the Senior Notes contain negative covenants restricting or limiting the Company’s ability to, among other things: incur or guarantee additional indebtedness, incur liens, pay dividends on, redeem or repurchase the Company’s capital stock, make certain investments, permit payment or dividend restrictions on certain of the Company’s subsidiaries, sell assets, engage in certain transactions with affiliates, and consolidate or merge or sell all or substantially all of the Company’s assets. As of December 31, 2025, the Company was in compliance with all covenants under the indentures governing the Senior Notes.
ATI may from time to time seek to retire its Senior Notes through cash purchases, exchanges for equity securities, open market purchases, privately negotiated transactions, contractual redemptions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liqui dity requirements, contractual restrictions and other factors and will be in accordance with the respective indenture governing such notes. The amounts involved may be material. Some or all of the 4.75 % Senior Notes, the 5.875 % Senior Notes 2029 and the 3.75 % Senior Notes may be redeemed at any time at redemption prices specified in the indentures governing such notes. Prior to December 1, 2028 , ATI may redeem some or all of the 5.875 % Senior Notes 2033 by paying a price equal to 100.00 % of the principal amount being redeemed, plus an “applicable premium”. At any time on or after December 1, 2028 , ATI may redeem some or all of the 5.875 % Senior Notes 2033 at redemption prices specified in the indenture governing such notes.
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NOTE 9. DERIVATIVES
The Company is subject to interest rate risk related to the Senior Secured Credit Facility and entered into interest rate swaps to manage a portion of this exposure. The interest rate swaps were designated as cash flow hedges that qualified for hedge accounting under the hypothetical derivative method and effectively hedged $ 500 million of the variable rate debt associated with the Term Loan at the Term SOFR weighted average fixed rate of 2.81 % through September 2025.
Fair value adjustments associated with the interest rate swaps were recorded as a component of Accumulated other comprehensive loss, net of tax (“AOCL”) in the Consolidated Balance Sheets. Balances in AOCL were reclassified to earnings when transactions related to the underlying risk were settled.
In September 2025, all of the Company's interest rate swap contracts reached maturity and were terminated. See " Note 7. Fair Value of Financial Instruments” for information regarding the fair value of the Company’s interest rate swaps. The following tabular disclosures further describe the Company’s interest rate swap derivatives qualifying and designated for hedge accounting and their impact on the financial condition of the Company (dollars in millions):
Fair Value
Balance Sheet
Location
December 31,
December 31,
Derivative Assets:
Interest rate swaps
Other current assets
Total derivative assets
As of December 31, 2025, all derivative gains recorded in AOCL were reclassified to earnings. There were $ 5 million of net derivative gains recorded in AOCL as of December 31, 2024. See "Note 17. Accumulated Other Comprehensive Loss” for information regarding activity recorded as a component of AOCL during the years ended December 31, 2025 and 2024 .
NOTE 10. PRODUCT WARRANTY LIABILITIES
As of December 31, 2025, the current and non-current product warranty liabilities were $ 34 million and $ 50 million, respectively. As of December 31, 2024, the current and non-current product warranty liabilities were $ 31 million and $ 36 million, respectively. Product warranty liability activities consisted of the following (dollars in millions):
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Beginning balance
Payments
Increase in liability (warranty issued during period)
Net adjustments to liability
Ending balance
The adjustments to the total liability in 2025, 2024 and 2023 were the result of general changes in estimates for various products and specific field action programs as additional claims data and field information became available.
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NOTE 11. DEFERRED REVENUE
As of December 31, 2025, the current and non-current deferred revenue were $ 34 million and $ 103 million, respectively. As of December 31, 2024, the current and non-current deferred revenue were $ 41 million and $ 95 million, respectively. Deferred revenue activity consisted of the following (dollars in millions):
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Beginning balance
Increases
Revenue earned
Ending balance
Deferred revenue recorded in current and non-current liabilities related to ETC as of December 31, 2025 was $ 30 million and $ 103 million, respectively. Deferred revenue recorded in current and non-current liabilities related to ETC as of December 31, 2024 was $ 29 million and $ 95 million, respectively.
NOTE 12. LEASES
Lessee Accounting
Contracts are assessed by the Company to determine if the contract conveys the right to control an identified asset in exchange for consideration during a period of time. The Company classifies all identified leases as either operating or finance leases. The Company's operating leases consist of real estate, vehicles and IT equipment. As of both December 31, 2025 and 2024, the Company was not a party to any finance leases. Contracts that contain leases are assessed to determine if the consideration in the contract is related to a lease component, non-lease component or other components not related to the lease. Lease components are recorded as right-of-use (“ROU”) assets and lease liabilities while any non-lease component is expensed as incurred. The consideration in the contract related to other components not related to the lease is allocated among the lease component and the non-lease component, as applicable, based on the stand-alone selling price of the lease and non-lease components.
Certain lease contracts may contain an option to extend or terminate the lease. The Company considers the economic impact of extension and termination options by contract. If the Company concludes it is reasonably certain an option will be exercised, that option is included in the lease term and impacts the amount recorded as an ROU asset and lease liability upon inception of the contract.
ROU assets are calculated as the related lease liability adjusted for lease incentives, any initial direct costs, prepayments and the effect of escalating lease payments on period expense. As of December 31, 2025 and December 31, 2024 , total ROU assets were $ 18 million and $ 20 million, respectively, and were recorded in Other non-current assets in the Consolidated Balance Sheets. During the years ended December 31, 2025 and 2024 , the Company recorded $ 3 million and $ 7 million, respectively, of new ROU assets obtained in exchange for lease obligations.
The Company's lease liability is determined by discounting the future cash flows over the lease period. The Company determines its discount rates utilizing current secured financing rates based on the length of the lease period plus the Company's margin over Term SOFR on the Term Loan. The Company believes this rate effectively represents a borrowing rate the Company could obtain on a debt instrument possessing similar terms as the lease. Lease liabilities are classified between current and non-current liabilities based on the terms of the underlying leases. The weighted average discount rate on operating leases as of December 31, 2025 and 2024 was 4.86 % and 4.84 %, respectively.
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As of December 31, 2025 , the Company recorded current and non-current operating lease liabilities of $ 5 million and $ 13 million, respectively. As of December 31, 2024 , the Company recorded curr ent and non-current operating lease liabilities of $ 6 million and $ 14 million, respectively. The Company's current and non-current operating lease liabilities are recorded in Other current liabilities and Other non-current liabilities, respectively, in the Consolidated Balance Sheets. The following table reconciles future undiscounted cash flows for operating leases to total operating lease liabilities as of December 31, 2025 (dollars in millions):
December 31,
Thereafter
Total lease payments
Less: Interest
Present value of operating lease liabilities
The weighted average remaining lease term as of December 31, 2025 and December 31, 2024 was 4.8 years and 5.1 years , respectively.
Operating lease expense was $ 7 million for each of the years ended December 31, 2025 and 2024 and was recorded within Selling, general and administrative expense and Engineering — research and development on the Company's Consolidated Statements of Comprehensive Income. There was no material short-term operating lease expense for either of the years ended December 31, 2025 or 2024 .
NOTE 13. OTHER INCOME (EXPENSE), NET
Other income (expense), net consisted of the following (dollars in millions):
Years ended December 31,
Unrealized gain (loss) on marketable securities
Post-retirement benefit plan amendment credits
Rabbi trust assets gain
Loss on foreign exchange
Technology-related investments (loss) gain
Other
Total
NOTE 14. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following (dollars in millions):
December 31,
December 31,
Sales incentives
Payroll and related costs
Accrued interest payable
Vendor buyback obligation
Taxes payable
Other accruals
Total
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NOTE 15. EMPLOYEE BENEFIT PLANS
The Company provides defined benefit pension plans, defined contribution plans and/or other postretirement benefit plans to certain employees globally. However, contributions to the Company’s various international benefit plans are not material for the periods presented. The Company’s defined benefit pension plans generally provide benefits of negotiated, stated amounts for each year of service as well as significant supplemental benefits for eligible employees. The Company sponsors defined contribution retirement savings plans for eligible employees, based on employee location and status. The Company’s salaried defined contribution retirement savings plans provide for a Company match of employee contributions up to certain limits based upon eligible base salary. The charge to expense for the Company’s defined contribution retirement savings plans was $ 23 million, $ 23 million and $ 18 million for the years ended December 31, 2025, 2024 and 2023, respectively. The Company is also responsible for OPEB costs (medical, dental, vision, and life insurance) for hourly employees hired prior to May 19, 2008, excluding those employees eligible to retire at the time of the sale of the Company. The plan is unfunded and any future payments will be funded by the Company’s operating cash flows.
Obligations, Funded Status and Recognition in the Consolidated Balance Sheets
The following table provides a reconciliation of the changes in the benefit obligations, funded status and amounts recognized in the Consolidated Balance Sheets for the years ended December 31, 2025 and 2024 (dollars in millions):
Pension Plans
Post-retirement Benefits
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Benefit Obligations:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan amendments
Plan settlements
Benefits paid
Actuarial loss (gain)
Benefit obligation at end of year
Fair Value of Plan Assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan settlements
Benefits paid
Fair value of plan assets at end of year
Net Funded Status
Amounts Recognized in Balance Sheet:
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognized
Accumulated Other Comprehensive Loss:
Prior service (credit) cost
Actuarial (gain) loss
Total
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The accumulated benefit obligation for the Company's pension plans as of December 31, 2025 and 2024 was $ 136 million and $ 125 million, respectively.
The table below provides the weighted-average actuarial assumptions used to determine the benefit obligations of the Company’s plans.
Pension Plans
Post-retirement Benefits
As of December 31,
Discount rate
Rate of compensation increase (salaried)
The discount rate is used to determine the present value of the Company’s benefit obligations. The Company’s 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 Company reviews all actuarial assumptions on an annual basis and in the case of remeasurement.
As of December 31, 2025 and 2024, the projected benefit obligation, the accumulated benefit obligation, and the fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets and for pension plans with an accumulated benefit obligation in excess of plan assets were as follows (dollars in millions):
Hourly Plan
Salary Plan
As of December 31,
Plans with projected benefit obligation in excess of plan assets:
Projected benefit obligation
Fair value of plan assets
Plans with accumulated benefit obligation in excess of plan assets:
Accumulated benefit obligation
Fair value of plan assets
As of December 31, 2025 and 2024, the hourly defined benefit pension plan had plan assets greater than the projected benefit obligation and the accumulated benefit obligation.
As of December 31, 2024, the salary defined benefit pension plan had plan assets greater than the accumulated benefit obligation.
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Net Periodic Benefit Cost
Information about the net periodic benefit cost (credit) and other changes recognized in AOCL for the pension and post-retirement benefit plans is as follows (dollars in millions):
Pension Plans
Post-retirement Benefits
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Net Periodic Benefit Cost (Credit):
Service cost
Interest cost
Expected return on assets
Settlement loss
Prior service credit
Recognized actuarial loss (gain)
Net Periodic Benefit Cost (Credit)
Other changes in other
comprehensive loss (income):
Net loss (gain)
Incurred prior service cost
Amortizations
Total recognized – other
comprehensive loss (income)
The components of net periodic benefit costs (credits) other than the service cost component are included in Other income (expense), net in the Consolidated Statements of Comprehensive Income.
In June 2024, the Company completed a pension risk transfer to a third-party insurance company of a portion of its salaried defined benefit pension plan's obligations for certain participants and their beneficiaries. The Company agreed to an annuity contract that was purchased using pension plan assets, resulting in the transfer of $ 30 million of pension plan assets and $ 30 million of pension plan benefit obligations to the insurance company. As a result of this transaction, in the second quarter of 2024, the Company recognized a non-recurring, non-cash $ 4 million settlement charge for a pro rata portion of previously unrecognized pension plan actuarial net losses, which was recorded in Other income (expense), net in the Consolidated Statements of Comprehensive Income for the year ended December 31, 2024.
The table below provides the weighted-average actuarial assumptions used to determine the net periodic benefit cost (credit).
Pension Plans
Post-retirement Benefits
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
Discount rate
Rate of compensation
increase (salaried)
Expected return on assets
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The overall expected rate of return on plan assets is based upon historical and expected future returns consistent with the expected benefit duration of the plan for each asset group adjusted for investment and administrative fees. Health care cost trends are used to project future post-retirement benefits payable from the Company’s plans. As of December 31, 2025, future post-retirement health care costs were forecasted assuming an initial annual increase of up to 7.00 %, decreasing to an annual increase of up to 4.00 % by the year 2050 . The Company reviews all actuarial assumptions on an annual basis and in the case of remeasurement.
Pension Plan Assets
The Company’s pension plan assets mostly consist of diversified equity securities and diversified debt securities. The fair values of plan assets for the Company’s pension plans as of December 31, 2025 and 2024 are as follows (dollars in millions):
Fair Value Measurements Using
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
TOTAL
Diversified debt securities
Diversified equity securities
Cash equivalents
Total
The Company’s investment strategy with respect to pension plan assets is to invest the assets in accordance with laws and regulations. The long-term primary objectives for the Company’s pension assets are to provide results that meet or exceed the plans’ actuarially assumed long-term rate of return without subjecting the funds to undue risk. To achieve these objectives the Company has established the following targets:
Target
Asset Category
Hourly
Salary
Cash equivalents
Diversified equity securities
Diversified debt securities
Total
Throughout 2025, the Company’s investment committee has continued to evaluate the investments and take steps toward the established targets.
Expected Contributions and Benefit Payments
Information about expected cash flows for the Company’s pension and post-retirement benefit plans is as follows (dollars in millions):
Pension
Plans
Post-retirement
Benefits
Employer Contributions:
2026 expected contributions
Expected Benefit Payments:
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Expected benefit payments for pension and post-retirement benefits will be paid from plan trusts or corporate assets. The Company’s funding policy is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations or to directly fund payments to plan participants. Additional discretionary contributions will be made when deemed appropriate to meet the Company’s long-term obligation to the plans.
Non-qualified Deferred Compensation Plan
The Company maintains a non-qualified deferred compensation plan (“Deferred Compensation Plan”) for a select group of management. Under the terms of the plan, the Company has utilized a rabbi trust to accumulate assets to fund its promise to pay benefits under the Deferred Compensation Plan. The rabbi trust is an irrevocable trust, which restricts any use of funds (operational or otherwise) by the Company other than to pay benefits under the Deferred Compensation Plan, and prevents immediate taxation of contributed amounts. Funds are accumulated through both employee deferrals and a Company match. Funds can be invested by the employee into a diversified group of investment options, which have been selected by the Company’s investment committee, that are all categorized as Level 1 in the fair value hierarchy. The Company match resulted in $ 1 million of expense recorded to the Consolidated Statements of Comprehensive Income for each of the years ended December 31, 2025, 2024 and 2023. The fair value of the rabbi trust plan assets and deferred compensation obligation was $ 24 million and $ 20 million as of December 31, 2025 and 2024 , respectively.
NOTE 16. INCOME TAXES
Income before income taxes included the following (dollars in millions):
Years ended December 31,
U.S. income
Foreign income
Total
The provision for income tax expense was estimated as follows (dollars in millions):
Years ended December 31,
Current income taxes:
U.S. federal
U.S. state and local
Foreign
Total Current
Deferred income tax expense (benefit), net:
U.S. federal
U.S. state and local
Foreign
Total Deferred
Total income tax expense
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The following table reconciles income tax at the U.S. statutory rate to the reported consolidated income tax expense (dollars in millions):
Years ended December 31,
Amount
Percentage
Amount
Percentage
Amount
Percentage
Tax at U.S. statutory income tax rate
Domestic U.S. federal reconciling items
Effect of cross-border tax laws
Foreign derived intangible income deduction
Other
Tax credits
Research and development tax credits
Nontaxable and nondeductible items
Changes in valuation allowances
U.S. state and local taxes, net of federal income tax effect 1
Foreign tax effects
Total income tax expense
State taxes in California, North Carolina, Pennsylvania and Wisconsin made up the majority (greater than 50 percent) of the tax effect in this category for each of the years ended December 31, 2025, 2024 and 2023.
The effective tax rate for the years ended December 31, 2025 and 2024 was 23 % and 19 %, respectively. The increase in the effective tax rate for the year ended December 31, 2025 was principally driven by elections made under the One Big Beautiful Bill Act ("OBBBA").
On July 4, 2025, the OBBBA was enacted into law. The OBBBA made a number of changes to U.S. federal income tax law that impacted the Company, including: allowing immediate deduction of the full cost of qualified capital investments, suspending the requirement to capitalize and amortize domestic research and development expenditures, and modifying the applicable rules for global intangible low-taxed income and foreign derived intangible income. The OBBBA impact resulted in an estimated $ 55 million of one-time cash tax savings during the year ending December 31, 2025.
Deferred income tax assets and liabilities as of December 31, 2025 and 2024 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the bases of such assets, liabilities and equity as measured by tax laws, as well as tax loss and tax credit carry forwards. Net deferred tax assets and liabilities are classified as non-current in the Consolidated Balance Sheets. As described above, the deferred tax assets and liabilities are measured based on the enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid.
The Company has not recognized any deferred tax liabilities associated with earnings in foreign subsidiaries, except for its subsidiary located in China, as they are intended to be permanently reinvested and used to support foreign operations or have no associated tax requirements. As of December 31, 2025, the Company has recorded a deferred tax liabil ity of $ 3 million for the tax liability associated with the remittance of previously taxed income and unremitted earnings for its subsidiary located in China.
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Temporary differences and carryforwards that gave rise to deferred tax assets and liabilities included the following (dollars in millions):
December 31,
December 31,
Deferred tax assets:
Deferred revenue
Other accrued liabilities
Warranty accrual
Stock-based compensation
Tax credits
Inventories
Sales incentives
Transaction costs
Intangibles
Capitalized research
Other
Total deferred tax assets
Valuation allowances
Deferred tax liabilities:
Goodwill
Trade name
Property, plant and equipment
Post-retirement
Other
Total deferred tax liabilities
Net deferred tax liability
Management has determined, based on an evaluation of available objective and subjective evidence, that it is more likely than not that certain federal and state deferred tax assets will not be realized; therefore, these deferred tax assets are offset with a valuation allowance of $ 9 million as of both December 31, 2025 and 2024.
All of the Company's tax returns, once filed, will remain subject to examination by the various taxing authorities for the duration of the applicable statute of limitations (generally three years from the earlier of the date of filing or the due date of the return).
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NOTE 17. ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in components of AOCL consisted of the following (dollars in millions):
Pension
and OPEB
liability
adjustments
Interest
rate swaps
Foreign
currency
items
Total
AOCL as of December 31, 2022
Other comprehensive income before reclassifications
Amounts reclassified from AOCL
Income tax benefit
Net current period other comprehensive (loss) income
AOCL as of December 31, 2023
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCL
Income tax benefit
Net current period other comprehensive loss
AOCL as of December 31, 2024
Other comprehensive (loss) income before reclassifications
Amounts reclassified from AOCL
Income tax benefit
Net current period other comprehensive (loss) income
AOCL as of December 31, 2025
The following table shows the location in the Consolidated Statements of Comprehensive Income affected by reclassifications from AOCL (dollars in millions):
Amounts reclassified from AOCL
AOCL Components
Year ended December 31, 2025
Year ended December 31, 2024
Year ended December 31, 2023
Affected line item in the
Consolidated Statements of Comprehensive Income
Interest rate swaps
Interest expense, net
Prior service credit
Other income (expense), net
Pension plan settlement loss
Other income (expense), net
Recognized actuarial gain
Other income (expense), net
Total reclassifications, before tax
Income before income taxes
Income tax expense
Income tax expense
Total reclassifications
Prior service credits, actuarial gains and pension settlement losses are included in the computation of the Company’s net periodic benefit cost (credit). See "Note 15. Employee Benefit Plans” for additional details.
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NOTE 18. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims and workers’ compensation claims. The Company believes that the ultimate liability, if any, in excess of amounts already provided for in the Consolidated Financial Statements or covered by insurance on the disposition of these matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
NOTE 19. CONCENTRATION OF RISK
As of December 31, 2025, the Company employed approximately 4,000 employees, with 87 % of those employees in the U.S. As of December 31, 2024, the Company employed approximately 4,000 employees, with 89 % of those employees in the U.S. Approximately 49 % and 50 % of the Company’s U.S. employees were represented by unions and subject to a collective bargaining agreement as of December 31, 2025 and 2024, respectively. The Company is currently operating under a collective bargaining agreement with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) Local 933 that expires in November 2027.
Three customers accounted for 10% or more of the Company's net sales within the last three years presented.
Years ended December 31,
% of net sales
Daimler AG
PACCAR Inc.
Traton SE
Two customers accounted for 10% or more of the Company's outstanding accounts receivable within the last two years presente d.
% of accounts receivable
December 31,
December 31,
Daimler AG
Traton SE
No supplier accounted for 10% or more of materials purchased during any of the years ended December 31, 2025, 2024 or 2023 .
NOTE 20. COMMON STOCK
On February 20, 2025, the Board of Directors authorized the Company to repurchase an additional $ 1,000 million of its common stock pursuant to the Company's stock repurchase program (the "Repurchase Program"), bringing the total amount authorized pursuant to the Repurchase Program to $ 5,000 million.
During 2025, the Company repurchased approximately $ 328 million of its common stock under the Repurchase Program, leaving approximately $ 1,192 million of authorized repurchases remaining under the Repurchase Program as of December 31, 2025. The Repurchase Program has no ter mination date, and the timing and amount of stock purchases are subject to market conditions and corporate needs. The Repurchase Program may be modified, suspended or discontinued at any time at the Company’s discretion.
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NOTE 21. EARNINGS PER SHARE
The following table reconciles the numerators and denominators used to calculate basic EPS and diluted EPS (in millions, except per share data):
Years ended December 31,
Net income
Weighted average shares of common stock outstanding
Dilutive effect of stock-based awards
Diluted weighted average shares of common stock outstanding
Basic earnings per share attributable to common stockholders
Diluted earnings per share attributable to common
stockholders
The dilutive impact of stock-based compensation is calculated using the treasury stock method. The treasury stock method assumes that the Company uses the proceeds from the exercise of awards to repurchase common stock at the average market price during the period. During each of the years ended December 31, 2025, 2024 and 2023 , there were no outstanding st ock options that were anti-dilutive and excluded from the diluted EPS calculation. Basic and diluted EPS for the full-year are calculated using the weighted average shares of common stock outstanding during the year while quarterly basic and diluted EPS are calculated using the weighted average shares of common stock outstanding during the quarter; therefore, the sum of each quarter's EPS may not equal full-year EPS.
NOTE 22. GEOGRAPHIC INFORMATION
The Company had the following net sales by country, based on the location of the customer (dollars in millions):
Years ended December 31,
United States
China
Canada
Japan
Turkey
Mexico
Germany
Other
Total
The Company had the following net long-lived assets by country (dollars in millions):
Years ended December 31,
United States
India
Hungary
Other
Total
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NOTE 23. SEGMENT INFORMATION
In accordance with the FASB’s authoritative accounting guidance on segment reporting, the Company had one operating segment and reportable segment as of December 31, 2025. The Company was managed by the Chief Operating Decision Maker ("CODM") based on its one line of business, the design, manufacture and distribution of vehicle propulsion solutions.
The Company’s CODM is its Chair, President and Chief Executive Officer . The CODM evaluates Company performance and makes decisions on the allocation of resources based on Net income, a GAAP measure, and Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”), a non-GAAP measure. The most directly comparable GAAP measure to Adjusted EBITDA is Net income. The Company believes that Net income and Adjusted EBITDA provide management, investors and creditors with useful measures of the operational results of its business and increase the period-to-period comparability of the Company's operating profitability and comparability with other companies.
The CODM assesses Company performance utilizing Net income and Adjusted EBITDA by comparing budget versus actual and year-over-year variances. Certain variances identified in the analysis of Net income and Adjusted EBITDA are evaluated to assist the CODM in assessing Company performance and making decisions on the allocation of Company resources. The following expenses included in Net income and Adjusted EBITDA are identified as significant expenses regularly provided to the CODM: Cost of sales, Selling, general and administrative, and Engineering — research and development.
The Company’s one reportable segment as of December 31, 2025 was the same as its consolidated financial results; therefore, segment information for additions of long-lived assets and asset information can be found in the Company’s Consolidated Statements of Cash Flows and Consolidated Balance Sheets, respectively.
The following presents a financial summary of the Company’s one reportable segment (dollars in millions):
Years ended December 31
Net sales
less:
Cost of sales
Selling, general and administrative
Engineering — research and development
Other segment items (a)
Net income
plus:
Income tax expense
Depreciation of property, plant and equipment
Interest expense, net
Amortization of intangible assets
Other adjustments (b)
Adjusted EBITDA
Total assets
Represents other segment items included in Net income including Income tax expense, Interest expense, net, Loss associated with impairment of long-lived assets, and Other income (expense), net.
Represents other reconciling items between Net income and Adjusted EBITDA including Acquisition-related expenses, Loss associated with impairment of long-lived assets, Stock-based compensation expense, Unrealized (gain) loss on marketable securities and other adjustments as defined by the Credit Agreement.
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NOTE 24. ACQUISITION
On June 11, 2025 , the Company entered into the Purchase Agreement with Dana to acquire its off-highway business, a leading provider of drivetrain and propulsion solutions. In connection with the entry into the Purchase Agreement, the Company 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, subject to customary conditions, including the execution and delivery of definitive documentation with respect to the Bridge Facility in accordance with the terms set forth in the Commitment Letter.
In November 2025, ATI completed an offering of $ 500 million of the 5.875 % Senior Notes 2033. The net proceeds from the offering will be used to pay for a portion of the Acquisition. See "Note 8. Debt” for additional details regarding the new debt.
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 facility.
On January 1, 2026 , the Company completed the Acquisition and obtained control of the business for a purchase price of approximately $ 2,732 million, subject to certain adjustments, using a combination of cash on hand, proceeds from the 5.875 % Senior Notes 2033, proceeds from the borrowings under the incremental term loan facility under the Credit Agreement in an aggregate principal amount equal to $ 1,200 million (the “Incremental Term Loan”) and borrowings under the Revolving Credit Facility. The Company will account for the Acquisition in accordance with authoritative accounting guidance on business combinations. The off-highway business of Dana will be included in the Company's Consolidated Financial Statements beginning on the date of Acquisition. Due to the limited amount of time since closing the transaction, the preliminary allocation of the purchase price is not yet complete. The Company expects the purchase price allocation for this transaction to result primarily in the recognition of identifiable intangible assets, property, plant and equipment, inventory and goodwill. The initial preliminary purchase price allocation will be provided within the Company's Form 10-Q as of and for the three months ended March 31, 2026. In 2025, the Company recognized $ 64 million of acquisition-related expenses recorded in Selling, general and administrative in the Company's Consolidated Statements of Comprehensive Income, primarily consisting of consulting and legal fees.
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NOTE 25. SUBSEQUENT EVENTS
On January 1, 2026, the Company completed the Acquisition of the off-highway business of Dana for a purchase price of approximately $ 2,732 million, subject to certain adjustments. See “Note 24. Acquisition” for additional details regarding the Acquisition.
On January 2, 2026, the Company entered into Amendment No.5 ("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 the Term Loan matures on any date prior to January 2, 2033) , and increased the commitments under the existing 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, the Company 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. Short-term and long-term debt service liquidity requirements consist of $ 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 Incremental Term Loan and Revolving Credit Facility. No amount was drawn from the Bridge Facility, and it was terminated upon the completion of the Acquisition.
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Allison Transmission Holdings, Inc.
Schedule I—Parent Compa ny only Balance Sheets
(dollars in millions)
December 31, 2025
December 31, 2024
ASSETS
Current Assets:
Cash
Total Current Assets
Investments in and advances to subsidiaries
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Total Current Liabilities
Capital stock
Paid in capital
Accumulated deficit
Accumulated other comprehensive loss, net of tax
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
The accompanying note is an integral part of the Parent Company only financial statements.
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Allison Transmission Holdings, Inc.
Schedule I—Parent Company only St atements of Comprehensive Income
(dollars in millions)
Years ended December 31,
Net sales
General and administrative fees
Total operating income
Other income:
Equity earnings of consolidated subsidiary
Income before income taxes
Income tax expense
Net income
Comprehensive income
The accompanying note is an integral part of the Parent Company only financial statements.
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Allison Transmission Holdings, Inc.
Schedule I—Parent Company on ly Statements of Cash Flows
(dollars in millions)
Years ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Deduct items included in net income not providing cash:
Equity in earnings in consolidated subsidiary
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries
Dividends
Net cash provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions
Dividends
Net cash used in financing activities
Net increase (decrease) during period
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accompanying note is an integral part of the Parent Company only financial statements.
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Allison Transmission Holdings, Inc.
Schedule I—Parent Co mpany only Footnote
NOTE 1—BASIS O F PRESENTATION
Allison Transmission Holdings, Inc. (the “Parent Company”) is a holding company that conducts all of its business operations through its subsidiaries. There are restrictions on the Parent Company’s ability to obtain funds from its subsidiaries through dividends (refer to "Note 8. Debt” of Notes to Consolidated Financial Statements). The entire amount of the Parent Company’s consolidated net assets was subject to restrictions on payment of dividends as of December 31, 2025, 2024 and 2023 . Accordingly, these financial statements have been presented on a “parent-only” basis. Under a parent-only presentation, the Parent Company’s investments in its consolidated subsidiaries are presented under the equity method of accounting. These parent-only financial statements should be read in conjunction with Allison Transmission Holdings, Inc.’s audited Consolidated Financial Statements included elsewhere herein.
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