Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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 (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 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 T. Segment Information" in Part I, Item 1 of this Quarterly Report on Form 10-Q. Segment leadership is located globally, reflecting the international nature of our operations and the importance of local market insights, sourcing, production and customer support.

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 On-Highway end markets.

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

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.

Results of Operations

Allison Consolidated Comparison of the three months ended June 30, 2026 and 2025

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

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 $706 million of net sales for the three months ended June 30, 2026.

The Allison Transmission segment generated $860 million of net sales for the three months ended June 30, 2026. Net sales increased $46 million, or 6%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025.

The increase was principally driven by the following:

These increases were partially offset by the following:

Cost of sales

Cost of sales for the three months ended June 30, 2026 was $1,051 million compared to $411 million for the three months ended June 30, 2025, an increase of 156%. $588 million of cost of goods sold was attributable to Allison Off-Highway, including $18 million of depreciation expense related to the stepped-up basis in property, plant and equipment. The remaining increase of $52 million was principally driven by unfavorable direct material costs, higher direct material expense commensurate with increased net sales and higher incentive compensation expense, all within Allison Transmission.

Gross profit

Gross profit for the three months ended June 30, 2026 was $515 million compared to $403 million for the three months ended June 30, 2025, an increase of 28%. $118 million of the increase in gross profit was attributable to Allison Off-Highway, while gross profit attributable to Allison Transmission decreased $6 million, principally driven by unfavorable direct material costs and higher incentive compensation expense, partially offset by $34 million from price increases on certain products. Gross profit as a percent of net sales for the three months ended June 30, 2026 decreased 16.6 percentage points compared to the same period in 2025 principally driven by the addition of Allison Off-Highway, the products of which have a lower average gross profit as a percent of net sales profile compared to Allison Transmission products.

Selling, general and administrative

Selling, general and administrative expenses for the three months ended June 30, 2026 were $168 million compared to $104 million for the three months ended June 30, 2025, an increase of 62%. Selling, general and administrative expenses of $56 million were attributable to Allison Off-Highway, including $20 million of amortization expense for intangible assets recognized from the Acquisition. The remaining increase of $8 million was principally driven by increased commercial activities spending, partially offset by decreased expenses related to the Acquisition.

Engineering - research and development

Engineering expenses for the three months ended June 30, 2026 were $56 million compared to $43 million for the three months ended June 30, 2025, an increase of 30%. The increase was primarily due to engineering expenses of $15 million attributable to Allison Off-Highway.

Interest expense, net

Interest expense, net for the three months ended June 30, 2026 was $54 million compared to $22 million for the three months ended June 30, 2025, an increase of 145%. The increase was principally driven by $17 million of interest expense related to the Incremental Term Loan, $8 million of interest expense related to the 5.875% Senior Notes 2033 and $6 million of lower interest income.

Other (expense) income, net

Other (expense) income, net for the three months ended June 30, 2026 was other expense of ($9) million compared to other income of $8 million for the three months ended June 30, 2025. The change was principally driven by a $17 million change in unrealized mark-to-market adjustments for marketable securities.

Income tax expense

Income tax expense for the three months ended June 30, 2026 was $47 million, resulting in an effective tax rate of 21%, compared to $47 million of income tax expense and an effective tax rate of 19% for the three months ended June 30, 2025.

Allison Consolidated Comparison of the six months ended June 30, 2026 and 2025

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

Net sales

The Allison Off-Highway segment generated $1,379 million of net sales for the six months ended June 30, 2026.

The Allison Transmission segment generated $1,593 million of net sales for the six months ended June 30, 2026. Net sales increased $13 million, or 1%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025.

The increase was principally driven by the following:

These increases were partially offset by the following:

Cost of sales

Cost of sales for the six months ended June 30, 2026 was $2,051 million compared to $799 million for the six months ended June 30, 2025, an increase of 157%. $1,211 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 $31 million of depreciation expense related to the stepped-up basis in property, plant and equipment. The remaining $41 million increase was principally driven by unfavorable direct material costs, higher incentive compensation expense and higher direct material expense commensurate with increased net sales in Allison Transmission.

Gross profit

Gross profit for the six months ended June 30, 2026 was $921 million compared to $781 million for the six months ended June 30, 2025, an increase of 18%. $168 million of the increase in gross profit was attributable to Allison Off-Highway, while the gross profit attributable to Allison Transmission decreased $28 million, principally driven by unfavorable direct material costs and higher incentive compensation expense, partially offset by $57 million of price increases on certain products. Gross profit as a percent of net sales for the six months ended June 30, 2026 decreased 18.4 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 Allison Transmission products.

Selling, general and administrative

Selling, general and administrative expenses were $325 million for the six months ended June 30, 2026 compared to $191 million for the six months ended June 30, 2025, an increase of 70%. Selling, general and administrative expenses of $112 million were attributable to Allison Off-Highway, including $41 million of amortization expense for intangible assets recognized from the Acquisition. The remaining increase of $22 million was principally driven by increased commercial activities spending and higher incentive compensation.

Engineering - research and development

Engineering expenses for the six months ended June 30, 2026 were $110 million compared to $85 million for the six months ended June 30, 2025, an increase of 29%. Engineering expenses of $30 million were attributable to Allison Off-Highway. The remaining decrease of $5 million was principally driven by reduced product initiatives spending in Allison Transmission.

Interest expense, net

Interest expense, net for the six months ended June 30, 2026 was $115 million compared to $43 million for the six months ended June 30, 2025, an increase of 167%. The increase was principally driven by $33 million of interest expense related to the Incremental Term Loan, $15 million of interest expense related to the 5.875% Senior Notes 2033, and $11 million of lower interest income.

Other (expense) income, net

Other (expense) income, net for the six months ended June 30, 2026 was other expense of ($11) million compared to other income of $13 million for the six months ended June 30, 2025. The change was principally driven by a $17 million change in unrealized mark-to-market adjustments for marketable securities and $8 million of unfavorable foreign exchange.

Income tax expense

Income tax expense for the six months ended June 30, 2026 was $67 million, resulting in an effective tax rate of 19%, compared to $88 million of income tax expense and an effective tax rate of 19% for the six months ended June 30, 2025. The decrease in income tax expense was principally driven by lower taxable income.

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") measures to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales are Net income and Net income as a percent of net sales, respectively. Adjusted EBITDA is calculated as earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by the Credit Agreement governing ATI's term loan facility in the amount of $506 million due March 2031 ("Term Loan"), the Incremental Term Loan and the Revolving Credit Facility (together, the "Senior Secured Credit Facility"). Adjusted EBITDA as a percent of net sales is calculated as Adjusted EBITDA divided by net sales.

In addition, we believe Adjusted net income, Adjusted basic earnings per share attributable to common stockholders ("Adjusted basic EPS") and Adjusted diluted earnings per share attributable to common stockholders ("Adjusted diluted EPS") provide management, investors and creditors with useful measures of our core business performance and trends and increase the period-to-period comparability of our results of operations. The most directly comparable GAAP measures to Adjusted net income, Adjusted basic EPS and Adjusted diluted EPS are 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, impairment charges, other one-off adjustments and the tax effect of the adjustments. Adjusted basic EPS and Adjusted diluted EPS are calculated by dividing Adjusted net income by the weighted average shares of common stock outstanding and diluted weighted average shares of common stock outstanding, respectively.

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.

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:

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:

Operating Segment Results

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

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

Segment Net Sales

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 June 30, 2026 and 2025 - Net sales" and "Results of Operations - Allison Consolidated Comparison of the six months ended June 30, 2026 and 2025 - Net sales" above.

Segment Operating Profit

Segment Operating Profit for the three months ended June 30, 2026 and 2025 was $281 million and $288 million, respectively, a decrease of 2%. For the six months ended June 30, 2026 and 2025 Segment Operating Profit was $533 million and $559 million, respectively, a decrease of 5%. The decreases were principally driven by lower gross profit, as described in "Results of Operations - Allison Consolidated Comparison of the three months ended June 30, 2026 - Gross profit" and "Results of Operations - Allison Consolidated Comparison of the six months ended June 30, 2026 - Gross profit" above.

Allison Off-Highway - Operating results for the three and six months ended June 30, 2026

The Allison Off-Highway reportable segment is comprised solely of the Acquired Off-Highway Business. The following table sets forth certain financial information for the three and six months ended June 30, 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.

Segment Net Sales

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 $399 million and $1,495 million as of June 30, 2026 and December 31, 2025, respectively. Of the available cash and cash equivalents, $368 million was deposited in operating accounts and $31 million was primarily invested in U.S. government backed securities and time deposits as of June 30, 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 June 30, 2026, the total of cash held by foreign subsidiaries was $331 million, the majority of which was at our subsidiaries located in China, Switzerland and India. 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 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. In June 2026, we and ATI entered into Amendment No. 6 to the Credit Agreement to lower the applicable margin on the Term Loan by 0.25%. As of June 30, 2026, we had $506 million of indebtedness associated with ATI's Term Loan, $1,197 million of indebtedness associated with ATI's Incremental Term Loan, $400 million of indebtedness associated with ATI's 4.75% Senior Notes due October 2027 ("4.75% Senior Notes"), $500 million of indebtedness associated with ATI's 5.875% Senior Notes due June 2029 ("5.875% Senior Notes 2029"), $1,000 million of indebtedness associated with ATI's 3.75% Senior Notes due January 2031 ("3.75% Senior Notes") and $500 million of indebtedness associated with ATI's 5.875% Senior Notes 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 $6 million of principal payments on the Term Loan and Incremental Term Loan during the six months ended June 30, 2026 and $2 million of principal payments on the Term Loan during the six months ended June 30, 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.

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. During the six months ended June 30, 2026, the Company withdrew $300 million to partially fund the Acquisition and fully repaid the outstanding balance on the Revolving Credit Facility. The maximum amount outstanding at any time during the six months ended June 30, 2026 was $300 million. As of June 30, 2026, we had $995 million available under the Revolving Credit Facility, net of $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 June 30, 2026, our first lien net leverage ratio was 1.01x. 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.

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 June 30, 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 June 30, 2026, our credit ratings from both Moody's and Fitch are shown in the table below:

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 six months ended June 30, 2026, we repurchased $67 million of our common stock under the Repurchase Program. Substantially all of the repurchase transactions during the six months ended June 30, 2026 were settled in cash during the same period. As of June 30, 2026, we had approximately $1,125 million available under the Repurchase Program.

The following table shows our sources and uses of funds for the six months ended June 30, 2026 and 2025 (dollars in millions):

Generally, cash provided by operating activities has been adequate to fund our operations. We have significant liquidity, including $399 million of cash and cash equivalents and $995 million available under the Revolving Credit Facility, net of $5 million of letters of credit, as of June 30, 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 six months ended June 30, 2026 generated $468 million of cash compared to $365 million for the six months ended June 30, 2025. The increase was principally driven by higher gross profit, lower cash incentive compensation payments and lower working capital funding requirements, partially offset by higher cash interest expense and increased payments for expenses related to the Acquisition.

Cash used for investing activities

Investing activities for the six months ended June 30, 2026 used $2,616 million of cash compared to $59 million for the six months ended June 30, 2025. The increase was principally driven by the Acquisition and increased capital expenditures.

Cash provided by (used for) financing activities

Financing activities for the six months ended June 30, 2026 provided $1,056 million of cash compared to using ($316) million for the six months ended June 30, 2025. The change was principally driven by $1,200 million of proceeds from the Incremental Term Loan and $189 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 Q. 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

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 and six months ended June 30, 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.