ALSN 10-K & 10-Q changes, risk factors and insider trading

Our products contain various raw materials, including corrosion-resistant steel, non-ferrous metals such as aluminum and nickel, and precious metals such as platinum and palladium. We use raw materials directly in manufacturing and in components that we purchase from our suppliers. We generally purchase components with significant raw material content on the open market. The prices for and availability of these raw materials fluctuate depending on market conditions.conditions, including government trade policies and tariffs. Volatility in the prices of raw materials such as steel, aluminum and nickel could increase the cost of manufacturing our products. Additionally, our suppliers are also subject to fluctuations in the prices of raw materials and may attempt to pass all or a portion of such increases on to us. In the event they are successful in doing so, our margins would decline. We may not be able to pass on these costs to our customers, and this could have a material adverse effect on our business, results of operations and financial condition. Even in the event that increased costs can be passed through to customers, our gross margin percentages would decline as the recovery of these costs from customers generally lags six to twelve12 months.

In 2024,2025, approximately 75% of our total spending on components was sourced from approximately 40 suppliers, many of which are the single source for such components. AllAs of December 31, 2025, all of the suppliers from which we purchase materials and components used in our business arewere fully validated suppliers, meaning the suppliers’ manufacturing processes and inputs have been validated under a production part approval process (“PPAP”). Furthermore, there are only a limited number of suppliers for certain of the materials used in our business, such as corrosion-resistant steel. As a result, our business is subject to the risk of additional price fluctuations and periodic delays in the delivery of our materials or components if supplies from a validated supplier are interrupted and a new supplier, if one is available, must be validated or materials and components must be purchased from a supplier without a completed PPAP, which could increase our risk of purchasing non-conforming components. Any such price fluctuations or delays, if significant, could harm our profitability or operations. In addition, the loss of a supplier could result in significant material cost increases or reduce our production capacity.

We have experienced, and expect to continue to experience, delays in the availability and receipt of component parts as a result of shortages of available labor in North America and global economic uncertainty, some of which have materially impacted, and may continue to materially impact, our ability to meet customer demand. We also cannot guarantee we will be able to maintain favorable arrangements and relationships with these suppliers. An increase in the cost or a sustained interruption in the supply or shortage of some of these raw materials or components that may be caused by a deterioration of our relationships with suppliers, adverse geopolitical events such as the crisis in the Red Sea, events such as natural disasters and extreme weather eventsevents, which may increase in frequency and intensity as a result of climate change, power outages, labor strikes and public health crisiscrises, such as pandemics and epidemics or the likeepidemics, could negatively impact our business, results of operations and financial condition. Although we have agreements with many of our customers that we will pass such price increases through to them, such contracts may be canceled by our customers and/or we may not be able to recoup the costs of such price increases. Additionally, if we are unable to continue to purchase our required quantities of raw materials on commercially reasonable terms, or at all, if we are unable to maintain or enter into purchasing contracts for commodities, or if delivery of materials or component parts from suppliers is delayed or non-conforming, our operations could be disrupted, we may not be able to meet customer demand, and our profitability and our financial results may be materially impacted. While we may experience the supply chain constraints mentioned above across all our productsproduct lines, the impacts to our customers are likely to be more pronounced in our lower volume product lines, including those supplied to the Allison Transmission Defense and Allison Transmission Off-Highway end markets.

Our success depends on our ability to identify, recruit and retain highly skilled, qualified personnel, and there is currently increased competition for talent. We have experienced labor shortages and wage inflation amid low levels of unemployment and workforce availability. As a result, we may not be able to attract and retain qualified personnel, which may impact our ability to manufacture, design and develop our propulsion solutions, satisfy customer demand in a timeframe that meets their desired production schedules and compete effectively. In addition, we continue to experience increased labor costs, including significant labor cost increases under our new collective bargaining agreement with the UAW, which will continue to impact our results of operations.

Some of the markets in which we operate, including agriculture, energy, mining, construction, material handling, distribution and motorhomes, exhibit a high degree of cyclicality. Decisions to purchase our products are largely a result of the performance of these and other industries we serve. If demand for output in these industries decreases, the demand for our products will likely decrease. Demand in these industries is impacted by numerous factors, including prices of commodities, rates of infrastructure spending, housing starts, real estate equity values, interest rates, consumer spending, fuel costs, energy demands, municipal spending, commercial construction and global pandemics, among others. Increases or decreases in these variables globally may significantly impact the demand for our products, which could have a material adverse effect on our business, results of operations and financial condition. If we are unable to accurately predict demand, we may be unable to meet our customers’ needs, resulting in the loss of potential sales, or we may manufacture excess products, resulting in increased inventories and overcapacity in our production facilities, increasing our unit production cost and decreasing our operating margins.

OurIn 2025, our sales arewere concentrated among our top five OEM customerscustomers. and theThe loss or consolidation of any one of these customers or the discontinuation of particular vehicle models for which we are a significant supplier could reduce our net sales and have a material adverse effect on our results of operations and financial condition.

We have in the past and may in the future derive a significant portion of our net sales from a relatively limited number of OEM customers. For the years ended December 31, 2024,2025, 20232024 and 2022,2023, our top five OEM customers accounted for approximately 55%,52%, 52%55% and 51%52% of our net sales, respectively. Our top three customers, Daimler AG, PACCAR Inc. and Traton SE, accounted for approximately 20%,18%, 13%11% and 11%,10%, respectively, of our net sales during 2024.2025. The loss of, or consolidation of, any one of these customers,customers or a significant decrease in business from,from one or more of these customerscustomers, could harm our business.business, results of operations and financial condition. In addition, the discontinuation of particular vehicle models for which we are a significant supplier could reduce our net sales and have a material adverse effect on our business, results of operations.operations and financial condition.

As of December 31, 2024,2025, approximately 50%49% of our U.S. employees, representing approximately 44%43% of our total employees, were represented by the UAW and are subject to a collective bargaining agreement. Our current collective bargaining agreement with UAW Local 933 is effective through November 2027. In addition, approximately 68% of the U.S. employees that were acquired with the Acquired Off-Highway Business are represented by the UAW or the USW and are subject to collective bargaining agreements. Any new collective bargaining agreementagreements we negotiate with the UAW or the USW to replace the existing collective bargaining agreementagreements upon itstheir expiration may result in increased costs to us, in particular labor costs, which could have an adverse effect on our results of operations. In addition to our unionized work force, many of our direct and indirect customers and vendors have unionized work forces. Strikes, work stoppages or slowdowns experienced by these customers or vendors or their other suppliers could result in slowdowns or closings of assembly plants that use our products or supply materials for use in the production of our products. Organizations responsible for shipping our products may also be impacted by strikes. Any interruption in the delivery of our products could reduce demand for our products and could have a material adverse effect on us.

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

The techniques used by threat actors change frequently and mayare beoften difficult to detect for long periods of time.detect. Cyberattacks are expected to accelerate on a global basis in frequency and magnitude as threat actors are increasingly using tools –- including artificial intelligence –- to evade detection and even remove forensic evidence. As a result, we may be unable to detect, investigate, remediate or recover from future cyberattacks or other incidents, or to avoid a materially adverse impact to our systems, information or business. In addition, remote or hybrid working arrangements at our Company, our customers and many third-party providers increase cybersecurity risks due to the challenges associated with managing remote computing assets and the nature of security vulnerabilities that are present in many non-corporate and home networks. We also deploy scanning tools in our systems that allow us to identify and track known security vulnerabilities, but we cannot guarantee that patches or mitigation measures will be applied in all instances before such vulnerabilities can be exploited by a threat actor.

We and certain of our customers and third-party providers have experienced cyberattacks and other incidents in the past and will continue to experience varying degrees of cyberattacks and incidents in the future. While to date no cybersecurity incidents have had a material impact on our operations or financial results, we cannot guarantee that material incidents will not occur in the future. In addition, asAs a provider of defense products and services to the U.S. government and foreign governments, we are subject to a heightened risk of cyberattacks, including by foreign governments, violent extremist organizations, and transnational criminal organizations. AIn significantaddition, cyberbecause incidentcertain of our systems are integrated with third-party (e.g., dealers) systems and technology, the circumvention or failure of our cybersecurity measures could impactcompromise ourthe productionconfidentiality, capability, harm our reputationintegrity, and business relationships, impact our competitive position (including compromising our intellectual property assets), and subject us to regulatory actions or litigation and fines and/or penalties, including pursuant to evolving global privacy and security regulations and laws, as well as significant investigative, restoration or remediation costs and/or increased compliance costs. Anyavailability of the foregoing could materially affect our business, results of operations and financial condition. There is no guarantee that our measures to prevent, detect and mitigate these threats, including employee and keythose third-party partner education, monitoring of networks and systems, and maintenancevice of backup and protective systems, will be successful in preventing or mitigating a cyber incident.versa.

We work with a network of approximately 1,6001,500 independent distributors and dealers (as of December 31, 2025) that provide post-sale service, service parts and support equipment. Because we depend on the pull-through demand generated by end users for our products, any actions by the independent distributors or dealers, which are not in our control, may harm our reputation and damage the brand loyalty among our customer base. In the event that we are not able to maintain our brand reputation because of the actions of our independent distributors and dealers, we may face difficulty in maintaining our pricing positions with respect to some of our products or have reduced demand for our products, which could negatively impact our business, results of operations and financial condition. In addition, if a significant number of independent dealers were to terminate their contracts, it could adversely impact our business, results of operations and financial condition.

While we manufacture our products in severalmany facilities and maintain insurance covering our facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of one of our manufacturing facilities due to accident, labor issues, weather conditions, acts of war, political unrest, terrorist activity, natural disaster or extreme weather events, which may increase in frequency and intensity as a result of climate change, public health crises, such as pandemics and epidemicsepidemics, or otherwise, whether short- or long-term, would have a material adverse effect on our business, results of operations and financial condition. Our most significant concentration of manufacturing is around our corporate headquarters in Indianapolis, Indiana, where we produceproduced approximately 90%85% of our transmissions.transmissions in 2025. In addition to our Indianapolis manufacturing facilities, we currently operate manufacturing facilities for our fully electric propulsion solutions in Auburn Hills, Michigan, for our transmissions in both Szentgotthard, Hungary and Chennai, India and for our aluminum die cast components in Lewisburg, Tennessee. We also acquired approximately 46 manufacturing and assembly facilities as part of the acquisition of the Acquired Off-Highway Business, located in approximately 22 countries. In the event of a disruption at the Indianapolis facilities, our other facilities may not be adequately equipped to operate at a level sufficient to compensate for the volume of production at the Indianapolis facility due to their size and the fact that they have not yet been tested for such significant increases in production volume.

We are a leadingglobal designerleader in high-performance mobility and manufacturerwork solutions built for the needs of propulsion solutions for commercial and defense vehicles and the largestmodern globalindustrial manufacturer of medium- and heavy-duty fully automatic transmissions.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 77%76% of our revenues being generated in North America in 2024.2025. We serve customers through an independent network of approximately 1,6001,500 independent distributor and dealer locations worldwide.worldwide as of December 31, 2025.

Full Year 20242025 and 20232024 Net Sales by End Market (dollars in millions)

North America On-Highway end market net sales were updown 15%12% for the year ended December 31, 20242025 compared to the year ended December 31, 2023,2024, principally driven by strength inlower demand for Classmedium-duty and class 8 vocational andtrucks, medium-dutypartially trucksoffset andby price increases on certain products.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, 20242025 compared to the year ended December 31, 2023,2024, principally driven by higher demand in AsiaEurope and South America and price increases on certain products, partially offset by lower demand in Europe.Asia.

ServiceGlobal Parts, Support Equipment and Other end marketOff-Highway net sales were down 5%50% for the year ended December 31, 20242025 compared to the year ended December 31, 2023,2024, principally driven by lower demand forfrom the energy, mining and construction sectors outside of North America service parts and aluminum die cast components, partially offset by price increases on certain products.America.

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 Second Amended and Restated Credit Agreement dated as of March 29, 2019 as amended (the “Credit Agreement”),Agreement, governing ATI's Term Loan facility in the amount of $514 million due March 2031 (“Term Loan”) and ATI’s revolving credit facility with commitments in the amount of $750 million due March 2029 ("Revolving Credit Facility" and, together with the Term Loan, the "Senior Secured Credit Facility").Facility. Adjusted EBITDA as a percent of net sales is calculated as Adjusted EBITDA divided by net sales.

Cost of sales for the year ended December 31, 20242025 was $1,696$1,547 million compared to $1,565$1,696 million for the year ended December 31, 2023,2024, ana increasedecrease of 8%.9%. The increasedecrease was principally driven by higherlower direct material and manufacturing expense commensurate with increaseddecreased net salessales, $20 million of lower incentive compensation expense and higher manufacturing expense, including $13 million of non-recurringUAW UAWLocal 933 contract signing incentives.incentives recognized in 2024 that did not reoccur in 2025, partially offset by unfavorable direct material costs.

Gross profit for the year ended December 31, 20242025 was $1,529$1,463 million compared to $1,470$1,529 million for the year ended December 31, 2023,2024, ana increasedecrease of 4%. The increasedecrease was principally driven by $80$223 million from decreased net sales and $45 million of unfavorable direct material costs, partially offset by $140 million of price increases on certain productsproducts, and $62 million related to increased net sales, partially offset by $75$29 million of higherlower manufacturing expense, including$20 million of lower incentive compensation expense and $13 million of non-recurringUAW UAWLocal 933 contract signing incentives,incentives andrecognized $8in million2024 ofthat higherdid directnot materialreoccur costs.in 2025. Gross profit as a percent of net sales for the year ended December 31, 20242025 decreasedincreased 100120 basis points compared to the same period in 2023,2024, principally driven by increased cost of sales, including $13 million of non-recurring UAW contract signing incentives, partially offset by increased net sales and price increases on certain products.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 expenses for the year ended December 31, 20242025 were $337$380 million compared to $357$336 million for the year ended December 31, 2023,2024, aan decreaseincrease of 6%.13%. The decreaseincrease was principally driven by lower$64 intangiblemillion amortizationof expenses related to the Acquisition and higher product warranty expense, partially offset by increasedlower commercialincentive activities spending and higher product warrantycompensation expense.

Engineering expenses for the year ended December 31, 20242025 were $200$174 million compared to $194$200 million for the year ended December 31, 2023,2024, ana increasedecrease of 3%.13%. The increasedecrease was principally driven by increasedreduced product initiatives spending.spending to align costs and programs across our business with end markets demand conditions and lower incentive compensation expense.

Interest expense, net for the year ended December 31, 20242025 was $89$92 million compared to $107$89 million for the year ended December 31, 2023,2024, aan decreaseincrease of 17%.3%. The decreaseincrease was principally driven by higher$5 interestmillion incomeof on cash and cash equivalents and lowerincreased interest expense onfrom ATI'samortization Termof Loandeferred duefinancing primarilycosts related to the repaymentBridge of $101 million of principal in the first quarter of 2024.Facility.

Other income (expense) income,, net for the year ended December 31, 20242025 was ($6)$16 million compared to $15($6) million for the year ended December 31, 2023.2024. The change was principally driven by ana $8$21 million change in unrealized mark-to-market adjustments for marketable securities, a $5 million change in technology-related investments gainssecurities and losses, a $4 million non-cash defined benefit pension plan settlement charge andrecognized $4in 2024 that did not reoccur in 2025, partially offset by $5 million of unfavorablereduced foreignpost-retirement exchange.benefit plan credits.

Income tax expense for the year ended December 31, 20242025 was $166$181 million resulting in an effective tax rate of 19%,23%, compared to $154$166 million of income tax expense and an effective tax rate of 19% for the year ended December 31, 2023.2024. The increase in income tax expense and effective tax rate was principally driven by higherelections taxablemade income.under the One Big Beautiful Bill Act.

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,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 $781$1,495 million and $555$781 million as of December 31, 20242025 and 2023,2024, respectively. Of the available cash and cash equivalents, $117$1,361 million was deposited in operating accounts and $664$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, compared to $134 million deposited in operating accounts and $421 million invested in U.S. government backed securities as of December 31, 2023.2024.

As of December 31, 2024,2025, the total of cash held by foreign subsidiaries was $61$84 million, the majority of which was at our subsidiaries located in China, the Netherlands, Japan, the NetherlandsBrazil and India.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.

Our liquidity requirements are significant, primarily due to our debt service requirements. As of December 31, 2024,2025, we had $514$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”) and, $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes”) and,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 5.875%3.75% Senior Notes, the “Senior Notes”). Short-term and long-term debt service liquidity requirements consist of $1 million of minimum required quarterly principal payments on ATI’s Term Loan through its maturity date of March 2031 and periodic interest payments on ATI’s Term Loan and the Senior Notes. There are no required quarterly principal payments on the Senior Notes. Long-term debt service liquidity requirements also consist of the payment in full of any remaining principal balance of ATI’s Term Loan and the Senior Notes upon their respective maturity dates.

TheAs of December 31, 2025, the Senior Secured Credit Facility providesprovided for a $750 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments.commitments, As of December 31, 2024,and we had $744$745 million available under the Revolving Credit Facility, net of $6$5 million in letters of credit. As of December 31, 2024,2025, 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, 2024,2025, our first lien net leverage ratio was (0.23x0.87x). 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.

OurOn February 20, 2025, our Board of Directors has authorized us to repurchase upan toadditional $4,000$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.Program to $5,000 million. During 2024,2025, we repurchased approximately $254$328 million of our common stock under the Repurchase Program. All of the repurchase transactions during 20242025 were settled in cash during the same period. As of December 31, 2024,2025, we had approximately $519$1,192 million available under the Repurchase Program.

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

Following the Acquisition, we continue to operate under the Allison name, but our operations are now comprised of two operating and reportable segments: Allison Transmission and Allison Off-Highway Drive & Motion Systems ("Allison Off-Highway"). All prior period reportable segment information has been reclassified to conform to the current presentation. For additional discussion regarding our segments, including the changes made, see “Note S.T. Segment Information” in Part I, Item 1 of this Quarterly Report on Form 10-Q. Segment leadership is located globally, reflecting the international nature of our operations and the importance of local market insights, sourcing, production and customer support.

In 2026, we expect to have higher net sales driven by the addition of Allison Off-Highway and higher net sales in Allison Transmission driven primarily by the Defense and Outside North America On-Highway end markets.

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 threesix months ended MarchJune 31,30, 2026, direct material costs were approximately 72%,64%, overhead costs were approximately 22%,30%, and direct labor costs were approximately 6% of cost of sales. We are subject to changes in our cost of sales caused by movements in underlying commodity prices. We seek to hedge against this risk by using long-term agreements (“LTAs”), as appropriate. See Part I, Item 3, “Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk” included below.

Results of Operations - Allison Consolidated Comparison of the three months ended MarchJune 31,30, 2026 and 2025

The following table sets forth certain financial information for the three months ended MarchJune 31,30, 2026 and 2025. The following table and discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The Allison Off-Highway segment generated $673$706 million of net sales for the three months ended MarchJune 31,30, 2026.

The Allison Transmission segment generated $733$860 million of net sales for the three months ended MarchJune 31,30, 2026. Net sales decreasedincreased $33$46 million, or 4%,6%, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025.

The decreaseincrease was principally driven by the following:

ServiceNorth Parts,America Support Equipment and OtherOn-Highway end market net sales increased $5$13 million, or 3%, principally driven by price increases on certain products.

Cost of sales for the three months ended MarchJune 31,30, 2026 was $1,000$1,051 million compared to $388$411 million for the three months ended MarchJune 31,30, 2025, an increase of 158%.156%. $623$588 million of cost of goods sold was attributable to Allison Off-Highway, including purchase price accounting allocations of $63 million of expense related to the stepped-up basis in inventory and $13$18 million of depreciation expense related to the stepped-up basis in property, plant and equipment. The remaining $11increase of $52 million decrease was principally driven by lowerunfavorable direct material costs, higher direct material expense commensurate with decreasedincreased net sales,sales partiallyand offsethigher byincentive unfavorablecompensation directexpense, materialall costs, inwithin Allison Transmission.

Gross profit for the three months ended MarchJune 31,30, 2026 was $406$515 million compared to $378$403 million for the three months ended MarchJune 31,30, 2025, an increase of 7%.28%. $50$118 million of the increase in gross profit was attributable to Allison Off-Highway, includingwhile purchasegross priceprofit accounting allocations of $63 million of expense relatedattributable to theAllison stepped-upTransmission basisdecreased in$6 inventory and $13 million of depreciation expense related to the stepped-up basis in property, plant and equipment. The remaining $22 million decrease wasmillion, principally driven by lower net sales of $33 million and $10 million of unfavorable direct material costs,costs and higher incentive compensation expense, partially offset by $23$34 million from price increases on certain products, all within Allison Transmission.products. Gross profit as a percent of net sales for the three months ended MarchJune 31,30, 2026 decreased 20.416.6 percentage points compared to the same period in 2025 principally driven by the addition of Allison Off-Highway, the products of which have a lower average gross profit as a percent of net sales profile compared to our Allison Transmission products, and the impact of the $63 million of stepped-up basis in inventory. Gross profit as a percent of net sales for Allison Transmission decreased 70 basis points compared to the same period in 2025 principally driven by lower net sales and unfavorable direct material costs, partially offset by price increases on certain products.

Selling, general and administrative expenses for the three months ended MarchJune 31,30, 2026 were $157$168 million compared to $87$104 million for the three months ended MarchJune 31,30, 2025, an increase of 80%.62%. Selling, general and administrative expenses of $56 million were attributable to Allison Off-Highway, including $21$20 million of amortization expense for intangible assets recognized from the Acquisition. The remaining increase of $8 million was principally driven by $8increased millioncommercial ofactivities increasedspending, partially offset by decreased expenses related to the Acquisition and higher incentive compensation expense, partially offset by lower product warranty expense.Acquisition.

Engineering expenses for the three months ended MarchJune 31,30, 2026 were $54$56 million compared to $42$43 million for the three months ended MarchJune 31,30, 2025, an increase of 29%.30%. EngineeringThe increase was primarily due to engineering expenses of $15 million were attributable to Allison Off-Highway. The remaining decrease of $3 million was principally driven by reduced product initiatives spending in Allison Transmission.

Interest expense, net for the three months ended MarchJune 31,30, 2026 was $61$54 million compared to $21$22 million for the three months ended MarchJune 31,30, 2025, an increase of 190%.145%. The increase was principally driven by $16$17 million of interest expense related to the Incremental Term Loan, $7$8 million of interest expense related to the 5.875% Senior Notes 2033, $6 million of fees related to the Bridge Facility2033 and $5$6 million of lower interest income.

Other (expense) income, net for the three months ended MarchJune 31,30, 2026 was other expense of ($2$9) million compared to other income of $5$8 million for the three months ended MarchJune 31,30, 2025. The change was principally driven by $7a $17 million ofchange unfavorablein foreignunrealized exchange.mark-to-market adjustments for marketable securities.

Income tax expense for the three months ended MarchJune 31,30, 2026 was $20$47 million, resulting in an effective tax rate of 15%,21%, compared to $41$47 million of income tax expense and an effective tax rate of 18%19% for the three months ended MarchJune 31,30, 2025. The decrease in both income tax expense and the effective tax rate were principally driven by lower taxable income.

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 U.S. generally accepted accounting principles (“GAAP”) measuremeasures to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales isare Net income and Net income as a percent of net sales, respectively. Adjusted EBITDA is calculated as earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”), governing Allison Transmission, Inc.’s (“ATI”), our wholly-owned subsidiary,ATI's term loan facility in the amount of $508$506 million due March 2031 (“Term Loan”), the Incremental Term Loan and the Revolving Credit Facility (together, the "Senior Secured Credit Facility"). Adjusted EBITDA as a percent of net sales is calculated as Adjusted EBITDA divided by net sales.

In addition, we believe Adjusted net income, Adjusted basic earnings per share attributable to common stockholders ("Adjusted basic EPS") and Adjusted diluted earnings per share attributable to common stockholders ("Adjusted diluted EPS") provide management, investors and creditors with useful measures of our core business performance and trends and increase the period-to-period comparability of our results of operations. The most directly comparable GAAP measuremeasures to Adjusted net income, Adjusted basic EPS and Adjusted diluted EPS isare Net income, Basic earnings per share attributable to common stockholders ("Basic EPS") and Diluted earnings per share attributable to common stockholders ("Diluted EPS"), respectively. Adjusted net income is calculated as net income excluding the effect of certain non-cash, non-recurring, infrequent or unusual items such as: amortization related to acquired intangible assets, depreciation of the stepped-up basis in property, plant and equipment related to the Acquisition, stepped-up basis in inventory related to the Acquisition, stock-based compensation expense, Acquisition-related expensesexpenses, impairment charges, other one-off adjustments and the tax effect of the adjustments. Adjusted basic EPS and Adjusted diluted EPS are calculated by dividing Adjusted net income by the weighted average shares of common stock outstanding and diluted weighted average shares of common stock outstanding, respectively.

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

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Net cash provided by operating activities (GAAP) and Adjusted free cash flow (Non-GAAP) included $29$12 million and $3$14 million for the three months ended June 30, 2026 and 2025, respectively, and $41 million and $17 million for the six months ended June 30, 2026 and 2025, respectively, of payments for expenses related to the Acquisition for the three months ended March 31, 2026 and 2025, respectively.Acquisition.

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Allison Transmission - Comparison of the three and six months ended MarchJune 31,30, 2026 and 2025

The following tabletables setsset forth certain financial information for the three and six months ended MarchJune 31,30, 2026 and 2025 and should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For a discussion of the year-over-year changes in Net sales in each end market, see “Results of Operations – Allison Consolidated Comparison of the three months ended MarchJune 31,30, 2026 and 2025 – Net Salessales” and “Results of Operations – Allison Consolidated Comparison of the six months ended June 30, 2026 and 2025 – Net sales” above.