Allison Transmission (NYSE: ALSN) doubles sales with off-highway deal but sees profit drop
Rhea-AI Filing Summary
Allison Transmission Holdings reported first‑quarter 2026 net sales of $1,406 million, up from $766 million a year earlier, driven by the acquisition of Dana’s off‑highway business, now the Allison Off‑Highway segment.
Despite higher revenue, net income fell to $112 million from $192 million as acquisition effects, including a $63 million inventory step‑up and higher depreciation and amortization, weighed on margins. Allison Off‑Highway delivered $673 million of net sales but a segment operating loss of $21 million in its first quarter with the company.
The purchase price for the off‑highway business was $2,628 million, funded with cash and new debt, lifting total long‑term debt to $4,295 million. Operating cash flow was $156 million, with $53 million of capital spending, producing adjusted free cash flow of $103 million. Management highlights the acquisition as expanding drivetrain, motion and propulsion offerings and diversifying end‑markets across construction, agriculture, mining and industrial applications.
Positive
- Transformative diversification via acquisition: Completed a $2,628 million purchase of Dana’s off‑highway business, adding the Allison Off‑Highway segment with $673 million in quarterly net sales and broadening exposure to construction, agriculture, mining and industrial end‑markets.
- Strong adjusted profitability and cash generation: Delivered Adjusted EBITDA of $362 million (about 25.7% of net sales) and Adjusted free cash flow of $103 million in the quarter, even with significant integration and purchase‑accounting costs.
Negative
- Margin compression and earnings decline: Net income fell from $192 million to $112 million and gross margin percentage declined as the new Off‑Highway business carries lower margins and incurred a $63 million inventory step‑up and higher depreciation and amortization.
- Higher leverage and interest burden: Long‑term debt increased to $4,295 million, and quarterly interest expense rose to $61 million from $21 million, reflecting funding for the acquisition.
Insights
Large off‑highway acquisition boosts sales but compresses margins and raises leverage.
Allison nearly doubled quarterly net sales to $1,406 million after acquiring Dana’s off‑highway business for $2,628 million. The new Allison Off‑Highway segment generated $673 million of net sales but posted a $21 million operating loss, partly due to purchase accounting charges.
Consolidated net income declined to $112 million from $192 million as gross margin fell; cost of sales rose to $1,000 million, including a $63 million inventory step‑up and $13 million of incremental depreciation. Interest expense nearly tripled to $61 million on new term loans and 5.875% notes.
Total long‑term debt increased to $4,295 million, with a first‑lien net leverage ratio of 1.29% under the credit agreement’s definition, leaving covenant headroom. Adjusted EBITDA was $362 million and adjusted free cash flow $103 million. Subsequent filings may detail how Off‑Highway margins evolve as integration and amortization effects progress through 2026.
Key Figures
Key Terms
stepped-up basis in inventory financial
Incremental Term Loan financial
Senior Secured Credit Facility financial
Adjusted EBITDA financial
first lien net leverage ratio financial
Extended transmission coverage (ETC) financial
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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PART I. FINANCIAL INFORMATION |
ITEM 1. Financial Statements
Allison Transmission Holdings, Inc.
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Table of Contents
Allison Transmission Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income
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Allison Transmission Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
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Business acquisition, net of cash acquired |
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Interest paid |
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Table of Contents
Allison Transmission Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
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Table of Contents
Allison Transmission Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(UNAUDITED)
NOTE A. 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. Allison operates through two operating and reportable segments: Allison Transmission and Allison Off-Highway Drive & Motion Systems ("Allison Off-Highway"). Headquartered in Indianapolis, Indiana, USA, the Company manufactures solutions which offer industry-leading value propositions across vital sectors such as infrastructure, mining, energy, agriculture, construction, transportation and national security.
On January 1, 2026 (the "Closing Date"), the Company completed the acquisition of Dana Incorporated's ("Dana") off-highway business (the "Acquired Off-Highway Business”) for a purchase price of approximately $
Following the Acquisition, the Company continues to operate under the Allison name, but its operations are now comprised of two operating and reportable segments: Allison Transmission and Allison Off-Highway. Segment leadership is located globally, reflecting the international nature of the Company's operations and the importance of local market insights, sourcing, production and customer support. All prior period reportable segment information has been reclassified to conform to the current presentation. For additional discussion regarding our segments, including the changes made, see “Note S. Segment Information.”
Allison Transmission serves customers through an independent global network of approximately
Allison Off-Highway provides drivetrain and motion solutions for a wide range of mobile and stationary off-highway equipment. These solutions include optimized drivetrain systems, propulsion components and motion technologies designed for industries such as construction, agriculture, mining, material handling and other industrial applications. The portfolio encompasses systems that manage power conveyance to machines and power work functions, including axles, gearboxes, transmissions and related components, as well as motion systems tailored to customer performance and efficiency requirements across both conventional and electrified powertrains. The global engineering, manufacturing and service footprint of the Acquired Off-Highway Business supports localized responsiveness and technical support for customers in key off-highway end markets.
The Company has a global presence serving customers in North America, Asia, Europe, South America, and Africa, and has further expanded its operations in these regions as a result of the Acquisition.
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Table of Contents
NOTE B. ACQUISITIONS
On
The Allison Off-Highway business is a leading provider of drivetrain and propulsion solutions. For segment reporting purposes, the Acquired Off-Highway Business comprises the entire Allison Off-Highway segment. The Company accounted for the Acquisition in accordance with authoritative accounting guidance on business combinations. The results of Allison Off-Highway have been included in the Company’s Condensed Consolidated Financial Statements from the Closing Date. See "Note S. Segment Information” for more details regarding Allison Off-Highway's results.
On January 1, 2026, the Company transferred $
Assets acquired and liabilities assumed are recognized at their respective fair values as of the Closing Date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates.
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As of January 1, 2026 |
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Assets acquired: |
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Current Assets |
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Cash and cash equivalents |
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Accounts receivable |
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Total Current Assets |
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Property, plant and equipment |
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Intangible assets |
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Goodwill |
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Other non-current assets |
|
|
|
Total Assets Acquired |
$ |
|
|
Liabilities Assumed: |
|
|
|
Current Liabilities |
|
|
|
Accounts payable |
|
|
|
Product warranty liability |
|
|
|
Current portion of long-term debt |
|
|
|
Deferred revenue |
|
|
|
Other current liabilities |
|
|
|
Total Current Liabilities |
|
|
|
Deferred income taxes |
|
|
|
Finance lease liabilities |
|
|
|
Other non-current liabilities |
|
|
|
Total Liabilities |
$ |
|
|
Total purchase price consideration |
$ |
|
|
The preliminary fair values of the assets acquired and liabilities assumed in the Acquisition are subject to change as the Company performs additional reviews of the assumptions utilized. Further adjustments may be necessary as additional information related to the fair values of assets acquired, liabilities assumed, and tax implications thereon is assessed during the measurement period (up to one year from the Closing Date). Any such adjustments will be accounted for prospectively. The final purchase accounting will be completed within the one-year measurement period following the Closing Date of the Acquisition.
The Company measured contract assets and contract liabilities acquired by applying the revenue recognition principles in Financial Accounting Standards Board ("FASB") authoritative guidance on revenue from contracts with customers, rather than by applying fair value measurement per the FASB authoritative guidance on business combinations. Consequently, contract liabilities recorded as of the Closing Date represent the transaction price allocated to unsatisfied performance obligations.
As of the Closing Date, contract liabilities totaling $
Goodwill represents the excess of the fair value of consideration transferred over the fair values of assets acquired and liabilities assumed. An estimated $
9
Table of Contents
The estimated fair values of the identifiable intangible assets acquired (all considered Level 3 measurements), their weighted-average useful lives, the related valuation methodology and key assumptions are as follows (dollars in millions):
|
Fair Value |
|
|
Weighted-average estimated useful life (in years) |
|
Valuation Methodology |
|
Key Assumptions |
|
Customer relationships |
$ |
|
|
|
|
||||
Trade names |
|
|
|
|
|
||||
Developed technology |
|
|
|
|
|
||||
Total identified intangible assets acquired |
$ |
|
|
|
|
|
|
|
|
Included in the Company's results for the three months ended March 31, 2026 were revenues of $
Supplemental Pro-Forma Information (unaudited)
|
Three Months Ended |
|
|||||
|
2026 |
|
|
2025 |
|
||
Net sales |
$ |
|
|
$ |
|
||
Net income |
$ |
|
|
$ |
|
||
10
Table of Contents
NOTE C. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary for the fair statement of the results for the periods presented. The condensed consolidated financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated.
These condensed consolidated financial statements present the financial position, results of comprehensive income, cash flows and statements of stockholders’ equity of the Company. Certain immaterial reclassifications have been made in the condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications had no impact on previously reported net income, total stockholders’ equity or cash flows. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission on February 24, 2026. The interim period financial results for the three-month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year.
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, 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.
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 and will be applied prospectively. Management is currently evaluating the potential impact of this guidance on the Company's consolidated financial statements.
In November 2024, the FASB issued authoritative accounting guidance, which was subsequently amended, requiring additional disaggregation of certain expense and cost line items presented in the financial statements and in the notes to the financial statements. The guidance will become effective for the Company beginning with the fiscal year ending December 31, 2027 and the subsequent interim periods. Early adoption is permitted. 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.
11
Table of Contents
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.
NOTE D. 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 extended transmission coverage or similar service-type warranties ("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 other incentives based on the related sales and market conditions in the end market vocation. Refund liabilities related to rebates and other incentives are included in other accrued liabilities on the Company's Condensed Consolidated Balance Sheets.
The Company recorded
Payment terms with our customers are established based on an assessment of the customer's credit worthiness and industry and regional practices and generally do not exceed
The following presents revenue from the Company's two reportable segments, Allison Transmission and Allison Off-Highway, disaggregated by each segment and its respective end markets that best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors (dollars in millions):
12
Table of Contents
|
|
Three Months Ended |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Allison Transmission |
|
|
|
|
|
|
||
North America On-Highway |
|
$ |
|
|
$ |
|
||
Outside North America On-Highway |
|
|
|
|
|
|
||
Global Off-Highway |
|
|
|
|
|
|
||
Defense |
|
|
|
|
|
|
||
Service Parts, Support Equipment and Other |
|
|
|
|
|
|
||
Total Allison Transmission |
|
|
|
|
|
|
||
Allison Off-Highway |
|
|
|
|
|
|
||
Construction & Material Handling |
|
|
|
|
|
— |
|
|
Agriculture |
|
|
|
|
|
— |
|
|
Industrial |
|
|
|
|
|
— |
|
|
Mining |
|
|
|
|
|
— |
|
|
Service Parts, Specialty & Other |
|
|
|
|
|
— |
|
|
Total Allison Off-Highway |
|
|
|
|
|
— |
|
|
Total Net Sales |
|
$ |
|
|
$ |
|
||
13
Table of Contents
NOTE E. INVENTORIES
Inventories consisted of the following components (dollars in millions):
|
|
March 31, |
|
|
December 31, |
|
||
Purchased parts and raw materials |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Finished goods and 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 L. Other Current Liabilities” for more information.
NOTE F. GOODWILL AND OTHER INTANGIBLE ASSETS
As of March 31, 2026 and December 31, 2025, the carrying value of the Company’s Goodwill was $
|
|
Goodwill |
|
|
Balance at December 31, 2025 |
|
$ |
|
|
Acquisition of the Acquired Off-Highway Business (1) |
|
|
|
|
Foreign currency translation |
|
|
( |
) |
Net current period impact to goodwill |
|
|
|
|
Balance at March 31, 2026 |
|
$ |
|
|
(1) The allocation of goodwill to reporting units as of March 31, 2026 is preliminary and will be finalized upon finalization of purchase price accounting.
The following presents a summary of other intangible assets (dollars in millions):
|
|
March 31, 2026 |
|
|
December 31, 2025 |
|
||||||||||||||||||
|
|
Intangible |
|
|
Accumulated |
|
|
Intangible |
|
|
Intangible |
|
|
Accumulated |
|
|
Intangible |
|
||||||
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Trade name - indefinite-lived |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Trade name - definite-lived |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Customer relationships — commercial |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Proprietary technology |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Amortization expense related to other intangible assets for the next five fiscal years is expected to be (dollars in millions):
|
|
2027 |
|
|
2028 |
|
|
2029 |
|
|
2030 |
|
|
2031 |
|
|
Thereafter |
|
||||||
Amortization expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
14
Table of Contents
NOTE G. FAIR VALUE OF FINANCIAL INSTRUMENTS
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 March 31, 2026 and December 31, 2025, the Company did
The following table summarizes the Company’s financial assets and (liabilities) measured at fair value as of March 31, 2026 and December 31, 2025 (dollars in millions):
|
|
Fair Value Measurements Using |
|
|||||||||||||||||||||
|
|
Quoted Prices in Active |
|
|
Significant Other |
|
|
TOTAL |
|
|||||||||||||||
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|
December 31, |
|
||||||
Cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Rabbi trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deferred compensation obligation |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
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:
15
Table of Contents
The Company's debt securities are classified as available-for-sale and qualify as Level 2 in the fair value hierarchy.
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 Condensed Consolidated Balance Sheets, with changes in the value recorded in Other (expense) income, net in the Condensed Consolidated Statements of Comprehensive Income. As of both March 31, 2026 and December 31, 2025, the Company held equity securities without a readily determinable fair value of $
16
Table of Contents
NOTE H. DEBT
Long-term debt and maturities are as follows (dollars in millions):
|
|
March 31, |
|
|
December 31, |
|
||
Long-term debt: |
|
|
|
|
|
|
||
Senior Notes, fixed |
|
$ |
|
|
$ |
|
||
Senior Notes, fixed |
|
|
|
|
|
|
||
Revolving Credit Facility, variable, due |
|
|
|
|
|
|
||
Senior Notes, fixed |
|
|
|
|
|
|
||
Senior Secured Credit Facility Term Loan, variable, due |
|
|
|
|
|
|
||
Senior Notes, fixed |
|
|
|
|
|
|
||
Senior Secured Credit Facility Term Loan, variable, due |
|
|
|
|
|
|
||
Finance lease liabilities |
|
|
|
|
|
|
||
Total long-term debt |
|
$ |
|
|
$ |
|
||
Less: current maturities of long-term debt |
|
|
|
|
|
|
||
Deferred financing costs, net |
|
|
|
|
|
|
||
Total long-term debt, net |
|
$ |
|
|
$ |
|
||
As of March 31, 2026, the Company had $
The fair value of the Company’s long-term debt obligations as of March 31, 2026 was $
Senior Secured Credit Facility
In January 2026, the Company and ATI entered into Amendment No. 5 ("Amendment") to the Credit Agreement to increase the commitments under the existing Revolving Credit Facility from $
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 and Incremental Term Loan, as of March 31, 2026, is either (a)
17
Table of Contents
of the borrowing, consented to by all relevant lenders and the administrative agent) ("Term SOFR"), or (b)
The Senior Secured Credit Facility also provides a Revolving Credit Facility, net of an allowance for up to $
The Senior Secured Credit Facility requires the Company to maintain a specified maximum first lien net leverage ratio of
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 March 31, 2026, the Company was in compliance with all covenants under the Credit Agreement.
Senior Notes
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
18
Table of Contents
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 March 31, 2026, 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, liquidity 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
19
Table of Contents
NOTE I. PRODUCT WARRANTY LIABILITIES
As of March 31, 2026, current and non-current product warranty liabilities were $
Product warranty liability activities consisted of the following (dollars in millions):
|
|
Three Months Ended |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Acquired warranty liabilities |
|
|
|
|
|
|
||
Payments |
|
|
( |
) |
|
|
( |
) |
Increase in liability (warranty issued during period) |
|
|
|
|
|
|
||
Net adjustments to liability |
|
|
|
|
|
|
||
Ending balance |
|
$ |
|
|
$ |
|
||
NOTE J. DEFERRED REVENUE
As of March 31, 2026, current and non-current deferred revenue were $
Deferred revenue activity consisted of the following (dollars in millions):
|
|
Three Months Ended |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Acquired deferred revenue |
|
|
|
|
|
|
||
Increases |
|
|
|
|
|
|
||
Revenue earned |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
$ |
|
|
$ |
|
||
Deferred revenue recorded in current and non-current liabilities related to ETC as of March 31, 2026 was $
20
Table of Contents
NOTE K. LEASES
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. 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 at 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. During the three months ended March 31, 2026, the Company recorded $
The Company's lease liability is determined by discounting the future cash flows over the lease period using incremental borrowing rates. The incremental borrowing rates are determined using rates specific to the term of the lease, the economic environments where lease activity is concentrated and the value of the lease portfolio, and assuming full collateralization of the loans. Lease liabilities are classified between current and non-current liabilities based on the terms of the underlying leases.
The balances for the operating and finance leases where the Company is the lessee are presented as follows within the Company’s Condensed Consolidated Balance Sheets (dollars in millions):
|
|
March 31, |
|
|
December 31, |
|
||
Operating leases: |
|
|
|
|
|
|
||
Other non-current assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Other current liabilities |
|
$ |
|
|
$ |
|
||
Other non-current liabilities |
|
|
|
|
|
|
||
Total operating lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Finance leases: |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
$ |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
||
Current portion of long-term debt |
|
$ |
|
|
$ |
— |
|
|
Long-term debt |
|
|
|
|
$ |
— |
|
|
Total finance lease liabilities |
|
$ |
|
|
$ |
— |
|
|
21
Table of Contents
The components of lease expense were as follows within the Company’s Condensed Consolidated Statements of Comprehensive Income (dollars in millions):
|
|
Three Months Ended |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Operating lease expense: |
|
|
|
|
|
|
||
Operating lease expense |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Finance lease expense: |
|
|
|
|
|
|
||
Amortization of leased assets |
|
$ |
|
|
$ |
|
||
Total lease expense |
|
$ |
|
|
$ |
|
||
Other information related to leases where the Company is the lessee was as follows:
|
|
March 31, |
|
|
December 31, |
|
||
Weighted-average remaining lease term (in years): |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
N/A |
|
||
|
|
|
|
|
|
|
||
Weighted-average discount rate: |
|
|
|
|
|
|
||
Operating leases |
|
|
% |
|
|
% |
||
Finance leases |
|
|
% |
|
N/A |
|
||
The following table reconciles future undiscounted cash flows for operating leases to total operating lease liabilities as of March 31, 2026 (dollars in millions):
|
|
Operating Leases |
|
|
Finance Leases |
|
||
For the remainder of 2026 |
|
$ |
|
|
$ |
|
||
2027 |
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
|
||
2029 |
|
|
|
|
|
|
||
2030 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total lease payments |
|
|
|
|
|
|
||
Less: Interest |
|
|
|
|
|
|
||
Present value of operating lease liabilities |
|
|
|
|
|
|
||
Less: Current portion |
|
|
|
|
|
|
||
Long-term portion of lease obligations |
|
$ |
|
|
$ |
|
||
22
Table of Contents
NOTE L. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following (dollars in millions):
|
|
March 31, |
|
|
December 31, |
|
||
Payroll and related costs |
|
$ |
|
|
$ |
|
||
Taxes payable |
|
|
|
|
|
|
||
Sales incentives |
|
|
|
|
|
|
||
Accrued interest payable |
|
|
|
|
|
|
||
Vendor buyback obligation |
|
|
|
|
|
|
||
Other accruals |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
NOTE M. EMPLOYEE BENEFIT PLANS
Components of net periodic benefit cost (credit) consisted of the following (dollars in millions):
|
|
Pension Plans |
|
|
Post-retirement Benefits |
|
||||||||||
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Net periodic benefit cost (credit): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on assets |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Prior service credit |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Recognized actuarial gain |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Net periodic benefit cost (credit) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
The components of net periodic benefit cost (credit) other than the service cost component are included in Other (expense) income, net in the Condensed Consolidated Statements of Comprehensive Income.
NOTE N. INCOME TAXES
For the three months ended March 31, 2026, the Company recorded total income tax expense of $
23
Table of Contents
NOTE O. ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in components of AOCL consisted of the following (dollars in millions):
|
|
Three Months Ended |
|
|||||||||||||
|
|
Pension |
|
|
Interest |
|
|
Foreign |
|
|
Total |
|
||||
AOCL as of December 31, 2024 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income before reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amounts reclassified from AOCL |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net current period other comprehensive (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
AOCL as of March 31, 2025 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
AOCL as of December 31, 2025 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive loss before reclassifications |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Amounts reclassified from AOCL |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Net current period other comprehensive (loss) income |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
AOCL as of March 31, 2026 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
The following table shows the location in the Condensed Consolidated Statements of Comprehensive Income affected by reclassifications from AOCL (dollars in millions):
|
|
Amounts reclassified from AOCL |
|
|
|
|||||
AOCL Components |
|
Three Months Ended March 31, 2026 |
|
|
Three Months Ended March 31, 2025 |
|
|
Affected line item in the Condensed |
||
Prior service credit |
|
$ |
|
|
$ |
|
|
Other (expense) income, net |
||
Interest rate swaps |
|
|
|
|
|
|
|
Interest expense, net |
||
Recognized actuarial gain |
|
|
|
|
|
|
|
Other (expense) income, net |
||
Total reclassifications, before tax |
|
$ |
|
|
$ |
|
|
Income before income taxes |
||
Income tax expense |
|
|
|
|
|
( |
) |
|
Income tax expense |
|
Total reclassifications, net of tax |
|
$ |
|
|
$ |
|
|
|
||
Prior service credits and actuarial gains are included in the computation of the Company’s net periodic benefit cost (credit). See "Note M. Employee Benefit Plans” for additional details.
NOTE P. 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 condensed 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.
24
Table of Contents
NOTE Q. 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):
|
|
Three Months Ended |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
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. For each of the three months ended March 31, 2026 and 2025, there were
NOTE R. COMMON STOCK
The Board of Directors has authorized the Company to repurchase up to $
NOTE S. SEGMENT INFORMATION
The CODM assesses segment performance utilizing Segment Operating Profit (Loss) primarily through comparisons of budgeted results to actual results and period‑over‑period variances. Certain variances identified through this analysis are evaluated to assist the CODM in assessing segment operating performance and making resource allocation decisions.
The significant expenses that are regularly provided to the CODM and included in Segment Operating Profit (Loss) are
25
Table of Contents
Corporate costs are presented separately from the Company’s reportable segments and consist primarily of centralized corporate functions. These costs also include non-recurring costs associated with the Acquisition, primarily integration‑related activities. Such costs are not allocated to the Company’s reportable segments, as they are not reviewed by the CODM on a segment basis when assessing performance or making resource allocation decisions. The Company does not present total assets by segment because the CODM is not regularly provided total assets by segment nor are they included in a segment measure utilized by the CODM.
During the three months ended March 31, 2026, the Company changed its segment structure from
Allison Transmission
Allison Transmission offers more than
Allison Off-Highway
Allison Off-Highway provides drivetrain and motion solutions for a wide range of mobile and stationary off-highway equipment globally. 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 Allison Off-Highway supports localized responsiveness and technical support for customers in key off-highway end markets.
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company’s segment information includes the measures reviewed by the CODM and is presented in a manner consistent with internal management reporting.
The following presents a financial summary of the Company’s reportable segments (dollars in millions):
|
Three Months Ended March 31, 2026 |
|
|||||||||
|
Allison Transmission |
|
|
Allison Off-Highway |
|
|
Total Segments |
|
|||
Total sales |
$ |
|
|
$ |
|
|
$ |
|
|||
less: Intersegment sales |
|
— |
|
|
|
|
|
|
|
||
Total Net Sales |
|
|
|
|
|
|
|
|
|||
less: |
|
|
|
|
|
|
|
|
|||
Cost of sales |
|
|
|
|
|
|
|
|
|||
Selling, general and administrative |
|
|
|
|
|
|
|
|
|||
Engineering — research and development |
|
|
|
|
|
|
|
|
|||
Segment Operating Profit (Loss) |
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Depreciation of property, plant and equipment |
$ |
|
|
$ |
|
|
|
|
|||
Amortization expense |
$ |
|
|
$ |
|
|
|
|
|||
Additions of long-lived assets |
$ |
|
|
$ |
|
|
|
|
|||
26
Table of Contents
|
Three Months Ended March 31, 2025 |
|
|||||||||
|
Allison Transmission |
|
|
Allison Off-Highway |
|
|
Total Segments |
|
|||
Total sales |
$ |
|
|
$ |
— |
|
|
$ |
|
||
less: Intersegment sales |
|
— |
|
|
|
— |
|
|
|
— |
|
Total Net Sales |
|
|
|
|
— |
|
|
|
|
||
less: |
|
|
|
|
|
|
|
|
|||
Cost of sales |
|
|
|
|
— |
|
|
|
|
||
Selling, general and administrative |
|
|
|
|
— |
|
|
|
|
||
Engineering — research and development |
|
|
|
|
— |
|
|
|
|
||
Segment Operating Profit |
$ |
|
|
$ |
— |
|
|
$ |
|
||
Depreciation of property, plant and equipment |
$ |
|
|
$ |
— |
|
|
|
|
||
Amortization expense |
$ |
|
|
$ |
— |
|
|
|
|
||
Additions of long-lived assets |
$ |
|
|
$ |
— |
|
|
|
|
||
A reconciliation of reportable segments’ Total Segment Operating Profit to Income before income taxes included in the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2026 and 2025 is as follows (dollars in millions):
|
|
Three Months Ended |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Total Segment Operating Profit |
|
$ |
|
|
$ |
|
||
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
Other income (expense) |
|
|
( |
) |
|
|
|
|
Central group function costs (a) |
|
|
( |
) |
|
|
( |
) |
Income before income taxes |
|
$ |
|
|
$ |
|
||
27
Table of Contents
ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our condensed consolidated interim financial statements and the related notes contained elsewhere in this Quarterly Report on Form 10-Q.
The statements in this discussion regarding industry trends, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A “Risk Factors” below, and in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission ("SEC") on February 24, 2026. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Overview
Allison Transmission Holdings, Inc. and its subsidiaries (“Allison,” “we,” “us” or “our”) is a global leader in high-performance mobility and work solutions built for the needs of the modern industrial world. The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception. Allison is traded on the New York Stock Exchange under the symbol “ALSN”.
On January 1, 2026 (the "Closing Date"), we completed the acquisition of Dana Incorporated's ("Dana") off-highway business (the "Acquired Off-Highway Business”) for a purchase price of approximately $2,628 million, subject to certain adjustments (the "Acquisition"). We have a global presence serving customers in North America, Asia, Europe, South America, and Africa and have further expanded our operations in these regions as a result of the Acquisition.
Recent Developments
The Acquisition was completed using a combination of cash on hand, $500 million of proceeds from the issuance of 5.875% Senior Notes due December 2033 by Allison Transmission, Inc. ("ATI"), our wholly-owned subsidiary (the "5.875% Senior Notes 2033"), proceeds from borrowings under an incremental term loan facility under the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”), in an aggregate principal amount equal to $1,200 million (the “Incremental Term Loan”), and $300 million of borrowings under ATI’s revolving credit facility with commitments in the amount of $1,000 million due January 2031 (the “Revolving Credit Facility”). In connection with the Acquisition, we entered into a commitment letter with a group of lenders (the "Lenders"), pursuant to which the Lenders committed to provide a 364-day senior unsecured bridge term loan facility (the “Bridge Facility”), in an aggregate principal amount of up to $2,000 million. As of December 31, 2025, the Bridge Facility aggregate commitment principal amount had been reduced to $500 million as a result of the issuance of the 5.875% Senior Notes 2033 and our election to voluntarily reduce the aggregate commitments under the Bridge Facility. No amount was drawn from the Bridge Facility, and it was terminated upon completion of the Acquisition on the Closing Date.
As a result of the Acquisition, we now offer an expanded portfolio of drivetrain, motion and propulsion solutions, providing complementary product breadth and an enhanced ability to support customers across multiple end markets. The Acquired Off-Highway Business has historically served end markets with demand characteristics that differ from our traditional on-highway markets, contributing to a more diversified portfolio.
Following the Acquisition, we continue to operate under the Allison name, but our operations are now comprised of two operating and reportable segments: Allison Transmission and Allison Off-Highway Drive & Motion
28
Table of Contents
Systems ("Allison Off-Highway"). All prior period reportable segment information has been reclassified to conform to the current presentation. For additional discussion regarding our segments, including the changes made, see “Note S. Segment Information” in Part I, Item 1 of this Quarterly Report on Form 10-Q. Segment leadership is located globally, reflecting the international nature of our operations and the importance of local market insights, sourcing, production and customer support.
Allison Transmission serves customers through an independent global network of approximately 1,500 independent distributor and dealer locations worldwide and offers more than 200 different transmission models compatible with more than 500 combinations of engine brands, models and ratings, including diesel, gasoline, natural gas and other alternative fuels. In addition, Allison Transmission has developed thousands of proprietary calibrations available for use with our electronic control modules, enabling tailored performance across a broad range of customer applications.
Allison Off-Highway provides drivetrain and motion solutions for a wide range of mobile and stationary off-highway equipment. These solutions include optimized drivetrain systems, propulsion components and motion technologies designed for industries such as construction, agriculture, mining, material handling and other industrial applications. The portfolio encompasses systems that manage power conveyance to machines and power work functions, including axles, gearboxes, transmissions and related components, as well as motion systems tailored to customer performance and efficiency requirements across both conventional and electrified powertrains. The global engineering, manufacturing and service footprint of the Acquired Off-Highway Business supports localized responsiveness and technical support for customers in key off-highway end markets.
Trends Impacting Our Business
In 2026, we expect to have higher net sales driven by the addition of Allison Off-Highway and higher net sales in Allison Transmission driven primarily by the Defense and Outside North America On-Highway end markets.
29
Table of Contents
Key Components of our Results of Operations
Net sales
We generate our net sales primarily from the sale of high performance mobility and work solutions, service and component parts, support equipment, defense kits, engineering services, royalties and extended transmission coverage to a wide array of original equipment manufacturers, distributors and the U.S. government. Sales are recorded in accordance with the terms of the contract, net of provisions for customer incentives and other rebates. Engineering services are recorded as net sales in accordance with the terms of the contract. The associated costs are recorded in cost of sales. We also have royalty agreements with third parties that provide net sales as a result of joint efforts in developing marketable products.
Cost of sales
Our primary components of cost of sales are purchased parts, the overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of vehicle propulsion solutions and parts. For the three months ended March 31, 2026, direct material costs were approximately 72%, overhead costs were approximately 22%, and direct labor costs were approximately 6% of cost of sales. We are subject to changes in our cost of sales caused by movements in underlying commodity prices. We seek to hedge against this risk by using long-term agreements (“LTAs”), as appropriate. See Part I, Item 3, “Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk” included below.
Selling, general and administrative
The principal components of our selling, general and administrative expenses are salaries and benefits for our office personnel, advertising and promotional expenses, product warranty expense, expenses relating to certain information technology systems and amortization of our intangible assets.
Engineering — research and development
We incur costs in connection with research and development programs that are expected to contribute to future earnings. Such costs are expensed as incurred.
30
Table of Contents
Results of Operations - Allison Consolidated Comparison of the three months ended March 31, 2026 and 2025
The following table sets forth certain financial information for the three months ended March 31, 2026 and 2025. The following table and discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
|
|
Three Months Ended March 31, |
|
|||||||||||||
(unaudited, dollars in millions) |
|
2026 |
|
|
% |
|
|
2025 |
|
|
% |
|
||||
Net sales |
|
$ |
1,406 |
|
|
|
100 |
% |
|
$ |
766 |
|
|
|
100 |
% |
Cost of sales |
|
|
1,000 |
|
|
|
71 |
|
|
|
388 |
|
|
|
51 |
|
Gross Profit |
|
|
406 |
|
|
|
29 |
|
|
|
378 |
|
|
|
49 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative |
|
|
157 |
|
|
|
11 |
|
|
|
87 |
|
|
|
11 |
|
Engineering — research and development |
|
|
54 |
|
|
|
4 |
|
|
|
42 |
|
|
|
5 |
|
Total Operating Expenses |
|
|
211 |
|
|
|
15 |
|
|
|
129 |
|
|
|
16 |
|
Operating Income |
|
|
195 |
|
|
|
14 |
|
|
|
249 |
|
|
|
33 |
|
Interest expense, net |
|
|
(61 |
) |
|
|
(5 |
) |
|
|
(21 |
) |
|
|
(4 |
) |
Other (expense) income, net |
|
|
(2 |
) |
|
|
— |
|
|
|
5 |
|
|
|
1 |
|
Income before income taxes |
|
|
132 |
|
|
|
9 |
|
|
|
233 |
|
|
|
30 |
|
Income tax expense |
|
|
(20 |
) |
|
|
(1 |
) |
|
|
(41 |
) |
|
|
(5 |
) |
Net income |
|
$ |
112 |
|
|
|
8 |
% |
|
$ |
192 |
|
|
|
25 |
% |
Off-Highway acquisition
On January 1, 2026, we completed the Acquisition. Our results of operations include all activity of the Acquired Off-Highway Business since the Closing Date within the Allison Off-Highway reportable segment.
Net sales
The Allison Off-Highway segment generated $673 million of net sales for the three months ended March 31, 2026.
The Allison Transmission segment generated $733 million of net sales for the three months ended March 31, 2026. Net sales decreased $33 million, or 4%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.
The decrease was principally driven by:
The decreases were partially offset by:
31
Table of Contents
Cost of sales
Cost of sales for the three months ended March 31, 2026 was $1,000 million compared to $388 million for the three months ended March 31, 2025, an increase of 158%. $623 million of cost of goods sold was attributable to Allison Off-Highway, including purchase price accounting allocations of $63 million of expense related to the stepped-up basis in inventory and $13 million of depreciation expense related to the stepped-up basis in property, plant and equipment. The remaining $11 million decrease was principally driven by lower direct material expense commensurate with decreased net sales, partially offset by unfavorable direct material costs, in Allison Transmission.
Gross profit
Gross profit for the three months ended March 31, 2026 was $406 million compared to $378 million for the three months ended March 31, 2025, an increase of 7%. $50 million of the increase in gross profit was attributable to Allison Off-Highway, including purchase price accounting allocations of $63 million of expense related to the stepped-up basis in inventory and $13 million of depreciation expense related to the stepped-up basis in property, plant and equipment. The remaining $22 million decrease was principally driven by lower net sales of $33 million and $10 million of unfavorable direct material costs, partially offset by $23 million from price increases on certain products, all within Allison Transmission. Gross profit as a percent of net sales for the three months ended March 31, 2026 decreased 20.4 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
Selling, general and administrative expenses for the three months ended March 31, 2026 were $157 million compared to $87 million for the three months ended March 31, 2025, an increase of 80%. Selling, general and administrative expenses of $56 million were attributable to Allison Off-Highway, including $21 million of amortization expense for intangible assets recognized from the Acquisition. The remaining increase was principally driven by $8 million of increased expenses related to the Acquisition and higher incentive compensation expense, partially offset by lower product warranty expense.
Engineering — research and development
Engineering expenses for the three months ended March 31, 2026 were $54 million compared to $42 million for the three months ended March 31, 2025, an increase of 29%. 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
Interest expense, net for the three months ended March 31, 2026 was $61 million compared to $21 million for the three months ended March 31, 2025, an increase of 190%. The increase was principally driven by $16 million of interest expense related to the Incremental Term Loan, $7 million of interest expense related to the 5.875% Senior Notes 2033, $6 million of fees related to the Bridge Facility and $5 million of lower interest income.
Other (expense) income, net
Other (expense) income, net for the three months ended March 31, 2026 was other expense of ($2) million compared to other income of $5 million for the three months ended March 31, 2025. The change was principally driven by $7 million of unfavorable foreign exchange.
32
Table of Contents
Income tax expense
Income tax expense for the three months ended March 31, 2026 was $20 million, resulting in an effective tax rate of 15%, compared to $41 million of income tax expense and an effective tax rate of 18% for the three months ended March 31, 2025. The decrease in both income tax expense and the effective tax rate were principally driven by lower taxable income.
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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 U.S. generally accepted accounting principles (“GAAP”) measure to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales is Net income and Net income as a percent of net sales, respectively. Adjusted EBITDA is calculated as earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by the Second Amended and Restated Credit Agreement dated as of March 29, 2019, as amended (the “Credit Agreement”), governing Allison Transmission, Inc.’s (“ATI”), our wholly-owned subsidiary, term loan facility in the amount of $508 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 measure to Adjusted net income, Adjusted basic EPS and Adjusted diluted EPS is 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 expenses 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.
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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Table of Contents
The following is a reconciliation of Net income to Adjusted EBITDA, Net income as a percent of net sales to Adjusted EBITDA as a percent of net sales, and Net cash provided by operating activities to Adjusted free cash flow:
|
|
Three Months Ended |
|
|||||
(unaudited, dollars in millions) |
|
2026 |
|
|
2025 |
|
||
Net income (GAAP) |
|
$ |
112 |
|
|
$ |
192 |
|
plus: |
|
|
|
|
|
|
||
Interest expense, net |
|
|
61 |
|
|
|
21 |
|
Depreciation of property, plant and equipment |
|
|
44 |
|
|
|
28 |
|
Amortization expense |
|
|
23 |
|
|
|
2 |
|
Income tax expense |
|
|
20 |
|
|
|
41 |
|
Recognition of the stepped-up basis in inventory (a) |
|
|
63 |
|
|
|
— |
|
Acquisition-related expenses (b) |
|
|
17 |
|
|
|
9 |
|
Depreciation of the stepped-up basis in property, plant and equipment (c) |
|
|
13 |
|
|
|
— |
|
Stock-based compensation expense (d) |
|
|
7 |
|
|
|
6 |
|
Unrealized gain on marketable securities (e) |
|
|
(3 |
) |
|
|
(3 |
) |
Other (f) |
|
|
5 |
|
|
|
— |
|
Adjusted EBITDA (Non-GAAP) |
|
$ |
362 |
|
|
$ |
296 |
|
Net sales (GAAP) |
|
$ |
1,406 |
|
|
$ |
766 |
|
Net income as a percent of Net sales (GAAP) |
|
|
8.0 |
% |
|
|
25.1 |
% |
Adjusted EBITDA as a percent of Net sales (Non-GAAP) |
|
|
25.7 |
% |
|
|
38.6 |
% |
Net cash provided by operating activities (GAAP) (g) |
|
$ |
156 |
|
|
$ |
181 |
|
Deductions to reconcile to Adjusted free cash flow: |
|
|
|
|
|
|
||
Additions of long-lived assets |
|
|
(53 |
) |
|
|
(26 |
) |
Adjusted free cash flow (Non-GAAP) (g) |
|
$ |
103 |
|
|
$ |
155 |
|
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The following is a reconciliation of Net income to Adjusted net income, Basic EPS to Adjusted Basic EPS and Diluted EPS to Adjusted Diluted EPS:
|
|
Three Months Ended |
|
|||||
(unaudited, dollars in millions, except per share data) |
|
2026 |
|
|
2025 |
|
||
Net income (GAAP) |
|
$ |
112 |
|
|
$ |
192 |
|
plus: |
|
|
|
|
|
|
||
Recognition of the stepped-up basis in inventory (a) |
|
|
63 |
|
|
|
— |
|
Amortization expense |
|
|
23 |
|
|
|
2 |
|
Acquisition-related expenses (b) |
|
|
17 |
|
|
|
9 |
|
Depreciation of the stepped-up basis in property, plant and equipment (c) |
|
|
13 |
|
|
|
— |
|
Stock-based compensation expense (d) |
|
|
7 |
|
|
|
6 |
|
Income tax effect on adjustments (e) |
|
|
(19 |
) |
|
|
(3 |
) |
Adjusted Net Income (Non-GAAP) |
|
|
216 |
|
|
|
206 |
|
|
|
|
|
|
|
|
||
Basic EPS (GAAP) |
|
$ |
1.35 |
|
|
$ |
2.26 |
|
Diluted EPS (GAAP) |
|
$ |
1.33 |
|
|
$ |
2.23 |
|
Adjusted Basic EPS (Non-GAAP) (f) |
|
$ |
2.60 |
|
|
$ |
2.42 |
|
Adjusted Diluted EPS (Non-GAAP) (f) |
|
$ |
2.57 |
|
|
$ |
2.40 |
|
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Operating Segment Results
Allison Transmission - Comparison of the three months ended March 31, 2026 and 2025
The following table sets forth certain financial information for the three months ended March 31, 2026 and 2025 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.
|
|
Three Months Ended March 31, |
|
|||||||||
(unaudited, dollars in millions) |
|
2026 |
|
|
2025 |
|
|
Variance % |
|
|||
Segment Net Sales |
|
$ |
733 |
|
|
$ |
766 |
|
|
|
(4 |
)% |
Segment Operating Profit |
|
|
252 |
|
|
|
271 |
|
|
|
(7 |
)% |
Segment Net Sales
|
|
For the Three Months Ended March 31, |
|
|
|
|
||||||
(unaudited, dollars in millions) |
|
2026 |
|
|
2025 |
|
|
% Variance |
|
|||
North America On-Highway |
|
$ |
375 |
|
|
$ |
435 |
|
|
|
(14 |
)% |
Outside North America On-Highway |
|
|
110 |
|
|
|
112 |
|
|
|
(2 |
)% |
Global Off-Highway |
|
|
8 |
|
|
|
18 |
|
|
|
(56 |
)% |
Defense |
|
|
87 |
|
|
|
53 |
|
|
|
64 |
% |
Service Parts, Support Equipment and Other |
|
|
153 |
|
|
|
148 |
|
|
|
3 |
% |
Total Segment Net Sales |
|
$ |
733 |
|
|
$ |
766 |
|
|
|
(4 |
)% |
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 March 31, 2026 and 2025 – Net Sales” above.
Segment Operating Profit
Segment Operating Profit for the three months ended March 31, 2026 was $252 million compared to $271 million for the three months ended March 31, 2025, a decrease of 7%. The decrease was principally driven by lower gross profit, as described in “Results of Operations – Allison Consolidated Comparison of the three months ended March 31, 2026 and 2025 – Gross Profit” above.
Allison Off-Highway - Operating results for the three months ended March 31, 2026
The Allison Off-Highway reportable segment is comprised solely of the Acquired Off-Highway Business acquired on January 1, 2026. The following table sets forth certain financial information for the three months ended March 31, 2026 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.
|
|
Three Months Ended March 31, |
|
|
(unaudited, dollars in millions) |
|
2026 |
|
|
Segment Net Sales |
|
$ |
673 |
|
Segment Operating Loss (a) |
|
$ |
(21 |
) |
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Segment Net Sales
|
|
Three Months Ended March 31, |
|
|
(unaudited, dollars in millions) |
|
2026 |
|
|
Construction & Material Handling |
|
$ |
227 |
|
Agriculture |
|
|
154 |
|
Industrial |
|
|
90 |
|
Mining |
|
|
50 |
|
Service Parts, Specialty and Other |
|
|
152 |
|
Total Segment Net Sales |
|
$ |
673 |
|
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Table of Contents
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 $311 million and $1,495 million as of March 31, 2026 and December 31, 2025, respectively. Of the available cash and cash equivalents, $300 million was deposited in operating accounts and $11 million was primarily invested in U.S. government backed securities and time deposits as of March 31, 2026, compared to $1,361 million deposited in operating accounts and $134 million invested primarily in U.S. government backed securities and time deposits as of December 31, 2025.
As of March 31, 2026, the total of cash held by foreign subsidiaries was $263 million, the majority of which was at our subsidiaries located in China, Switzerland, India and the Netherlands. 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 initiatives 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. In January 2026, we and ATI entered into Amendment No. 5 ("Amendment") to the Credit Agreement to increase the commitments under the existing Revolving Credit Facility from $750 million to $1,000 million and provide for the Incremental Term Loan 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 the Term Loan matures on any date prior to January 2, 2033. As of March 31, 2026, we had $508 million of indebtedness associated with ATI’s Term Loan, $1,200 million of indebtedness associated with ATI's Incremental Term Loan, $150 million of indebtedness associated with ATI's Revolving Credit Facility, $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 2033 (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, Incremental Term Loan, Revolving Credit Facility 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, Incremental Term Loan and Senior Notes and any borrowings under the Revolving Credit Facility, upon their respective maturity dates.
We made $1 million of principal payments on the Term Loan during each of the three months ended March 31, 2026 and 2025. Our ability to make payments on and refinance our indebtedness and to fund planned capital expenditures and growth initiatives will depend on our ability to generate cash in the future.
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Table of Contents
The Senior Secured Credit Facility provides for a $1,000 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments. As of March 31, 2026, we had $845 million available under the Revolving Credit Facility, net of $150 million of revolving loans outstanding and $5 million in letters of credit. 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 March 31, 2026, our first lien net leverage ratio was 1.29x. 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. As of March 31, 2026, the all-in rate on the Revolving Credit Facility was 4.92%.
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 March 31, 2026, we were in compliance with all covenants under the Senior Secured Credit Facility and indentures governing the Senior Notes.
Our credit ratings and outlook are reviewed periodically by Moody’s Ratings (“Moody’s”) and Fitch Ratings, Inc. (“Fitch”). As of March 31, 2026, our credit ratings from both Moody's and Fitch are shown in the table below:
|
|
March 31, 2026 |
||
Credit Ratings |
|
Moody's |
|
Fitch |
Corporate Credit |
|
Ba1 |
|
BB+ |
Term Loan due 2031 |
|
Baa2 |
|
BBB- |
4.75% Senior Notes, due 2027 |
|
Ba2 |
|
BB+ |
5.875% Senior Notes, due 2029 |
|
Ba2 |
|
BB+ |
3.75% Senior Notes, due 2031 |
|
Ba2 |
|
BB+ |
5.875% Senior Notes due 2033 |
|
Ba2 |
|
BB+ |
Incremental Term Loan, due 2033 |
|
Baa2 |
|
BBB- |
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 the three months ended March 31, 2026, we repurchased $20 million of our common stock under the Repurchase Program. Substantially all of the repurchase transactions during the three months ended March 31, 2026 were settled in cash during the same period. As of March 31, 2026, we had approximately $1,171 million available under the Repurchase Program.
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Table of Contents
The following table shows our sources and uses of funds for the three months ended March 31, 2026 and 2025 (dollars in millions):
|
|
Three Months Ended |
|
|||||
Statements of Cash Flows Data |
|
2026 |
|
|
2025 |
|
||
Cash flows provided by operating activities |
|
$ |
156 |
|
|
$ |
181 |
|
Cash flows used for investing activities |
|
$ |
(2,616 |
) |
|
$ |
(26 |
) |
Cash flows provided by (used for) financing activities |
|
$ |
1,280 |
|
|
$ |
(184 |
) |
Generally, cash provided by operating activities has been adequate to fund our operations. We have significant liquidity, including $311 million of cash and cash equivalents and $845 million available under the Revolving Credit Facility, net of $150 million of revolving loans outstanding and $5 million of letters of credit, as of March 31, 2026. 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.
Cash provided by operating activities
Operating activities for the three months ended March 31, 2026 generated $156 million of cash compared to $181 million for the three months ended March 31, 2025. The decrease was principally driven by higher working capital funding requirements, higher cash interest expense, increased payments for expenses related to the Acquisition and higher cash income taxes, partially offset by lower cash incentive compensation payments.
Cash used for investing activities
Investing activities for the three months ended March 31, 2026 used $2,616 million of cash compared to $26 million for the three months ended March 31, 2025. The increase was due to the Acquisition and increased capital expenditures.
Cash provided by (used for) financing activities
Financing activities for the three months ended March 31, 2026 provided $1,280 million of cash compared to using $184 million for the three months ended March 31, 2025. The change was principally driven by $1,200 of proceeds from the Incremental Term Loan, $150 million of borrowings on the Revolving Credit Facility net of repayments and $130 million of lower stock repurchases under the Repurchase Program.
Contingencies
We are a party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business, including those relating to commercial transactions, product liability, personal injury and workers’ compensation, safety, health, taxes, environmental and other matters. For more information, see "Note P. Commitments and Contingencies” of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Critical Accounting Estimates
A discussion of our critical accounting estimates is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the SEC on February 24, 2026. The preparation of the condensed 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 revenues and expenses during the applicable reporting period. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances
41
Table of Contents
giving rise to such changes occur. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different estimates being reported for the three months ended March 31, 2026.
Recently Issued Accounting Pronouncements
See "Note C. Summary of Significant Accounting Policies” in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to: the significant costs we are expected to incur in connection with the integration of the Acquired Off-Highway Business; our ability to successfully integrate the Acquired Off-Highway Business and its operations in the expected time frame; our ability to realize all of the anticipated benefits from the integration of the Acquired Off-Highway Business and its operations and to effectively manage our expanded operations; our participation in markets that are competitive; our ability to prepare for, respond to and successfully achieve our objectives relating to technological and market developments, competitive threats and changing customer needs, including with respect to electric hybrid and fully electric commercial vehicles; increases in cost, disruption of supply or shortage of labor, freight, raw materials, energy or components used to manufacture or transport our products or those of our customers or suppliers, including as a result of geopolitical risks, natural disasters, extreme weather events, wars and public health crises such as pandemics; global economic volatility; general economic and industry conditions, including the risk of prolonged inflation and recession; labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal customers or suppliers; the highly cyclical industries in which certain of our end users operate; uncertainty in the global regulatory and business environments in which we operate; the concentration of our net sales in our top five customers and the loss of any one of these customers; cybersecurity risks to our operational systems, security systems or infrastructure owned by us or our third-party vendors and suppliers; the failure of markets outside North America to increase adoption of fully automatic transmissions; the success of our research and development efforts, the outcome of which is uncertain; U.S. and foreign defense spending; risks associated with our international operations, including acts of war and increased trade protectionism and tariffs; the discovery of defects in our products, resulting in delays in new model launches, recall campaigns and/or increased warranty costs and reduction in future sales or damage to our brand and reputation; our ability to identify, consummate and effectively integrate acquisitions and collaborations; and risks related to our indebtedness.
Important factors that could cause actual results to differ materially from our expectations are disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the SEC on February 24, 2026 and Part II, Item 1A of this Quarterly Report on Form 10-Q. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings or public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.
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Table of Contents
ITEM 3. |
Quantitative and Qualitative 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. Our Senior Secured Credit Facility provides for variable rate borrowings of up to $2,553 million, including our $508 million Term Loan, $1,200 million Incremental Term Loan and $845 million available under our Revolving Credit Facility, net of $150 million of revolving loans outstanding and $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 March 31, 2026, would have an impact of approximately $3 million on interest expense per year.
Exchange Rate Risk
We conduct business in various locations throughout the world and transact in numerous foreign currencies. As a result, we are exposed to volatility in our results of operations related to movements in foreign currency exchange rates. The U.S. dollar is our reporting currency, but the functional currencies of our foreign subsidiaries are primarily the local currency in the country of domicile or the currency in which the subsidiary conducts its operations. To help manage these transaction and translation exposures to exchange rate changes, we intend to utilize derivative financial instruments, including foreign currency forward contracts and cross-currency interest rate swaps. As appropriate, we will designate these derivative financial instruments as hedges that qualify for hedge accounting.
Commodity Price Risk
We are subject to changes in our cost of sales caused by movements in underlying commodity prices. As of March 31, 2026, approximately 72% of our cost of sales consisted of purchased components. A substantial portion of the purchased parts are made of aluminum, steel and iron. 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 iron- and steel-based contracts also include 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, steel or iron.
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Table of Contents
ITEM 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer, who is our principal executive officer, and our Chief Financial Officer, who is our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. As permitted by SEC guidance for newly acquired businesses, the evaluation did not include an assessment of those disclosure controls and procedures that are subsumed by, and did not include as assessment of internal control over financial reporting as it relates to, Allison Off-Highway, which was acquired on January 1, 2026.
Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Except as set forth below, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On January 1, 2026, we completed the Acquisition. As part of our ongoing integration of the Acquired Off-Highway Business, we are continuing to incorporate our controls and procedures and to augment our company-wide controls to reflect the risks inherent in an acquisition of this type. As permitted by the SEC guidance for newly acquired businesses, our report on our internal control over financial reporting in our Annual Report on Form 10-K for the year ending December 31, 2026, will include a scope exception that excludes Allison Off-Highway in order for management to have sufficient time to evaluate and implement our internal control structure over the operations of the business.
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Table of Contents
PART II. OTHER INFORMATION |
Item 1. Legal Proceedings
From time to time, we are a party to various legal actions in the normal course of our business, including those related to commercial transactions, product liability, personal injury and workers’ compensation, safety, health, taxes, environmental and other matters. Information pertaining to legal proceedings can be found in "Note P. Commitments and Contingencies” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes from our risk factors as previously reported in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the SEC on February 24, 2026.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information related to our repurchases of our common stock on a monthly basis during the three months ended March 31, 2026:
|
|
Total Number |
|
|
Average |
|
|
Total Number |
|
|
Approximate |
|
||||
January 1 – January 31, 2026 |
|
|
24,216 |
|
|
$ |
99.14 |
|
|
|
24,216 |
|
|
$ |
1,189,194,413 |
|
February 1 – February 28, 2026 |
|
|
12,025 |
|
|
$ |
124.68 |
|
|
|
12,025 |
|
|
$ |
1,187,695,117 |
|
March 1 – March 31, 2026 |
|
|
141,590 |
|
|
$ |
116.52 |
|
|
|
141,590 |
|
|
$ |
1,171,197,717 |
|
|
|
|
177,831 |
|
|
$ |
114.70 |
|
|
|
177,831 |
|
|
|
|
|
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Table of Contents
Item 5. Other Information
Insider Trading Arrangements
The following table sets forth information related to the Company's directors and officers who adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) ("Rule 10b5-1 trading arrangement") or any “non-Rule 10b5-1 trading arrangement,” as such term is defined in Item 408(c) of Regulation S-K, during the three months ended March 31, 2026:
|
|
|
|
|
|
|
|
Trading Arrangement |
|
|
|
|
||
Name |
|
Title |
|
Action |
|
Date |
|
Rule 10b5-1* |
|
Non-Rule 10b5-1** |
|
Total Shares to be Sold |
|
Expiration Date |
|
|
|
|
|
|
|
|
|||||||
* Intended to satisfy the affirmative defense of Rule 10b5-1(c)
** Not intended to satisfy the affirmative defense of Rule 10b5-1(c)
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Table of Contents
Item 6. |
Exhibits |
(a) Exhibits
Exhibit Number |
Description |
|
|
10.1 |
Amendment No. 5 to Credit Agreement, dated as of January 2, 2026, among Allison Transmission, Inc., Allison Transmission Holdings, Inc., Citibank, N.A., as administrative agent, and certain lenders and letter of credit issuers party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed January 2, 2026) |
|
|
10.2 |
Service Agreement, between Data UK Driveshaft Limited and Craig Price, dated as of January 12, 2026 (incorporated by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2025 filed February 24, 2026) |
|
|
31.1 |
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
|
|
31.2 |
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
|
|
32.1 |
Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
|
|
101.INS |
Inline XBRL Instance Document (filed herewith) |
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Document (filed herewith) |
|
|
104 |
Cover Page Interactive Data File – The cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, formatted in Inline XBRL and contained in Exhibit 101 |
* Schedules and/or exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of any omitted schedules and/or exhibits to the Securities and Exchange Commission on a confidential basis upon request.
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
ALLISON TRANSMISSION HOLDINGS, INC. |
||
|
|
|
||
Date: May 7, 2026 |
By: |
/s/ David S. Graziosi |
||
|
|
|
|
|
|
|
Name: |
David S. Graziosi |
|
|
|
Title: |
Chair, President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
|
Date: May 7, 2026 |
By: |
/s/ Scott Mell |
||
|
|
|
|
|
|
|
Name: |
Scott Mell |
|
|
|
Title: |
Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
|
48