Allison Transmission Holdings Inc

Previous wording

We design and manufacture vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense fully automatic transmissions and electric hybrid and fully electric systems. 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”.

Current wording

We are a leading designer and manufacturer of propulsion solutions for commercial and defense vehicles and the largest global manufacturer of medium- and heavy-duty fully automatic transmissions. 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”.

Previous wording

We have a global presence by serving customers in North America, Asia, Europe, South America, and Africa, with approximately 75% of our revenues being generated in North America in 2023. We serve customers through an independent network of approximately 1,600 independent distributor and dealer locations worldwide.

Current wording

We have a global presence by serving customers in North America, Asia, Europe, South America, and Africa, with approximately 77% of our revenues being generated in North America in 2024. We serve customers through an independent network of approximately 1,600 independent distributor and dealer locations worldwide.

Previous wording

In January 2024, the UAW Local 933 ratified a new four-year collective bargaining agreement with us that expires in November 2027. We expect to have a significant increase in labor costs under the terms of this new agreement.

Current wording

In January 2024, the UAW Local 933 ratified a new four-year collective bargaining agreement with us that expires in November 2027. We have experienced, and expect to continue to experience, a significant increase in labor costs under the terms of this new agreement.

Previous wording

North America On-Highway end market net sales were up 13% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by strength in demand for Class 8 vocational and medium-duty trucks and price increases on certain products.

Current wording

North America On-Highway end market net sales were up 15% for the year ended December 31, 2024 compared to the year ended December 31, 2023, principally driven by strength in demand for Class 8 vocational and medium-duty trucks and price increases on certain products.

Previous wording

Global Off-Highway net sales were down 22% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by lower demand in the energy sector, partially offset by higher demand in the mining and construction sectors outside of North America.

Current wording

Global Off-Highway net sales were down 37% for the year ended December 31, 2024 compared to the year ended December 31, 2023, principally driven by lower demand from the energy sector in North America and the mining and construction sectors outside of North America, partially offset by strength in demand from the energy sector outside of North America.

Previous wording

Outside North America On-Highway end market net sales were up 3% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by price increases on certain products and the continued execution of our growth initiatives.

Current wording

Outside North America On-Highway end market net sales were up 3% for the year ended December 31, 2024 compared to the year ended December 31, 2023, principally driven by higher demand in Asia and price increases on certain products, partially offset by lower demand in Europe.

Previous wording

Service Parts, Support Equipment and Other end market net sales were up 18% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by higher demand for global service parts, support equipment and aluminum die cast components and price increases on certain products.

Current wording

Service Parts, Support Equipment and Other end market net sales were down 5% for the year ended December 31, 2024 compared to the year ended December 31, 2023, principally driven by lower demand for North America service parts and aluminum die cast components, partially offset by price increases on certain products.

Previous wording

Our primary components of cost of sales are purchased parts, the overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of vehicle propulsion solutions and parts. For the year ended December 31, 2023, direct material costs were approximately 67%, overhead costs were approximately 26% and direct labor costs were approximately 7% of total cost of sales. We are subject to changes in our cost of sales caused by movements in underlying commodity prices. We seek to hedge against this risk by using LTAs. See Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk” included in this Annual Report on Form 10-K.

Current wording

Our primary components of cost of sales are purchased parts, the overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of vehicle propulsion solutions and parts. For the year ended December 31, 2024, direct material costs were approximately 65%, overhead costs were approximately 27% and direct labor costs were approximately 8% of total cost of sales. We are subject to changes in our cost of sales caused by movements in underlying commodity prices. We seek to hedge against this risk by using LTAs. See Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk” included in this Annual Report on Form 10-K.

Previous wording

We use Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) and Adjusted EBITDA as a percent of net sales to measure our operating profitability. We believe that Adjusted EBITDA and Adjusted EBITDA as a percent of net sales provide management, investors and creditors with useful measures of the operational results of our business and increase the period-to-period comparability of our operating profitability and comparability with other companies. Adjusted EBITDA as a percent of net sales is also used in the calculation of management’s incentive compensation program. The most directly comparable GAAP measure to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales is Net income and Net income as a percent of net sales, respectively. Adjusted EBITDA is calculated as earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by the Second Amended and Restated Credit Agreement dated as of March 29, 2019 as amended (the “Credit Agreement”), governing ATI's Term Loan. Adjusted EBITDA as a percent of net sales is calculated as Adjusted EBITDA divided by net sales.

Current wording

We use Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) and Adjusted EBITDA as a percent of net sales to measure our operating profitability. We believe that Adjusted EBITDA and Adjusted EBITDA as a percent of net sales provide management, investors and creditors with useful measures of the operational results of our business and increase the period-to-period comparability of our operating profitability and comparability with other companies. Adjusted EBITDA as a percent of net sales is also used in the calculation of management’s incentive compensation program. The most directly comparable GAAP measure to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales is Net income and Net income as a percent of net sales, respectively. Adjusted EBITDA is calculated as earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by the Second Amended and Restated Credit Agreement dated as of March 29, 2019 as amended (the “Credit Agreement”), governing ATI's Term Loan facility in the amount of $514 million due March 2031 (“Term Loan”) and ATI’s revolving credit facility with commitments in the amount of $750 million due March 2029 ("Revolving Credit Facility" and, together with the Term Loan, the "Senior Secured Credit Facility"). Adjusted EBITDA as a percent of net sales is calculated as Adjusted EBITDA divided by net sales.

Previous wording

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

Current wording

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

Previous wording

Represents gains (recorded in Other income (expense), net) related to investments in co-development agreements to expand our position in propulsion solution technologies.

Current wording

Represents losses (gains) (recorded in Other (expense) income, net) related to investments in co-development agreements to expand our position in propulsion solution technologies.

Previous wording

Represents losses (recorded in Other income (expense), net) on intercompany financing transactions for our India facility.

Current wording

Represents losses (recorded in Other (expense) income, net) on intercompany financing transactions for our India facility.

Previous wording

Net sales for the year ended December 31, 2023 were $3,035 million compared to $2,769 million for the year ended December 31, 2022, an increase of 10%. The increase was principally driven by a $170 million, or 13%, increase in net sales in the North America On-Highway end market principally driven by strength in demand for Class 8 vocational and medium-duty trucks and price increases on certain products, a $108 million, or 18%, increase in net sales in the Service Parts, Support Equipment and Other end market principally driven by higher demand for global service parts, support equipment and aluminum die cast components and price increases on certain products, a $20 million, or 14%, increase in net sales in the Defense end market principally driven by increased demand for Wheeled and Tracked vehicle applications and a $14 million, or 3%, increase in net sales in the Outside North America On-Highway end market principally driven by price increases on certain products and the continued execution of our growth initiatives, partially offset by a $46 million, or 22%, decrease in Global Off-Highway net sales principally driven by lower demand in the energy sector, partially offset by higher demand in the mining and construction sectors outside of North America.

Current wording

Net sales for the year ended December 31, 2024 were $3,225 million compared to $3,035 million for the year ended December 31, 2023, an increase of 6%. The increase was principally driven by a $223 million, or 15%, increase in net sales in the North America On-Highway end market principally driven by strength in demand for Class 8 vocational and medium-duty trucks and price increases on certain products, a $46 million, or 28%, increase in net sales in the Defense end market principally driven by increased demand for Tracked vehicle applications and a $16 million, or 3%, increase in net sales in the Outside North America On-Highway end market principally driven by higher demand in Asia and price increases on certain products, partially offset by lower demand in Europe, partially offset by a $62 million, or 37%, decrease in Global Off-Highway net sales principally driven by lower demand from the energy sector in North America and the mining and construction sectors outside of North America, partially offset by strength in demand from the energy sector outside of North America and a $33 million, or 5%, decrease in net sales in the Service Parts, Support Equipment and Other end market principally driven by lower demand for North America service parts and aluminum die cast components, partially offset by price increases on certain products.

Previous wording

Cost of sales for the year ended December 31, 2023 was $1,565 million compared to $1,472 million for the year ended December 31, 2022, an increase of 6%. The increase was principally driven by higher direct material and manufacturing expense commensurate with increased net sales and higher direct material costs.

Current wording

Cost of sales for the year ended December 31, 2024 was $1,696 million compared to $1,565 million for the year ended December 31, 2023, an increase of 8%. The increase was principally driven by higher direct material and manufacturing expense commensurate with increased net sales and higher manufacturing expense, including $13 million of non-recurring UAW contract signing incentives.

Previous wording

Gross profit for the year ended December 31, 2023 was $1,470 million compared to $1,297 million for the year ended December 31, 2022, an increase of 13%. The increase was principally driven by $155 million of price increases on certain products and $70 million related to increased net sales, partially offset by $36 million of higher manufacturing expense and $15 million of higher direct material costs. Gross profit as a percent of net sales for the year ended December 31, 2023 increased 160 basis points compared to the same period in 2022 principally driven by price increases on certain products and increased net sales, partially offset by increased cost of sales.

Current wording

Gross profit for the year ended December 31, 2024 was $1,529 million compared to $1,470 million for the year ended December 31, 2023, an increase of 4%. The increase was principally driven by $80 million of price increases on certain products and $62 million related to increased net sales, partially offset by $75 million of higher manufacturing expense, including $13 million of non-recurring UAW contract signing incentives, and $8 million of higher direct material costs. Gross profit as a percent of net sales for the year ended December 31, 2024 decreased 100 basis points compared to the same period in 2023, principally driven by increased cost of sales, including $13 million of non-recurring UAW contract signing incentives, partially offset by increased net sales and price increases on certain products.

Previous wording

Selling, general and administrative expenses for the year ended December 31, 2023 were $357 million compared to $328 million for the year ended December 31, 2022, an increase of 9%. The increase was principally driven by $12 million of higher commercial activities spending, $8 million of higher incentive compensation expense and $9 million of higher product warranty expense.

Current wording

Selling, general and administrative expenses for the year ended December 31, 2024 were $337 million compared to $357 million for the year ended December 31, 2023, a decrease of 6%. The decrease was principally driven by lower intangible amortization expense, partially offset by increased commercial activities spending and higher product warranty expense.

Previous wording

Engineering expenses for the year ended December 31, 2023 were $194 million compared to $185 million for the year ended December 31, 2022, an increase of 5%. The increase was principally driven by increased product initiatives spending.

Current wording

Engineering expenses for the year ended December 31, 2024 were $200 million compared to $194 million for the year ended December 31, 2023, an increase of 3%. The increase was principally driven by increased product initiatives spending.

Previous wording

Interest expense, net for the year ended December 31, 2023 was $107 million compared to $118 million for the year ended December 31, 2022, a decrease of 9%. The decrease was principally driven by higher interest income on cash equivalents, partially offset by $4 million of higher interest expense on ATI's Term Loan due to higher variable interest rates, net of the favorable impact from interest rate hedges.

Current wording

Interest expense, net for the year ended December 31, 2024 was $89 million compared to $107 million for the year ended December 31, 2023, a decrease of 17%. The decrease was principally driven by higher interest income on cash and cash equivalents and lower interest expense on ATI's Term Loan due primarily to the repayment of $101 million of principal in the first quarter of 2024.

Previous wording

Income tax expense for the year ended December 31, 2023 was $154 million resulting in an effective tax rate of 19%, compared to $114 million of income tax expense and an effective tax rate of 18% for the year ended December 31, 2022. The increase in income tax expense was principally driven by increased taxable income.

Current wording

Income tax expense for the year ended December 31, 2024 was $166 million resulting in an effective tax rate of 19%, compared to $154 million of income tax expense and an effective tax rate of 19% for the year ended December 31, 2023. The increase in income tax expense was principally driven by higher taxable income.

Previous wording

We generate cash primarily from 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 $555 million and $232 million as of December 31, 2023 and 2022, respectively. Of the available cash and cash equivalents, $134 million was deposited in operating accounts and $421 million was invested in U.S. government backed securities as of December 31, 2023, compared to $121 million deposited in operating accounts and $111 million invested in U.S. government backed securities as of December 31, 2022.

Current wording

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

Previous wording

As of December 31, 2023, the total of cash held by foreign subsidiaries was $88 million, the majority of which was at our subsidiaries located in China, the Netherlands, India and Japan. We manage our worldwide cash requirements considering available funds among the subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. As a result, we do not currently anticipate that local liquidity restrictions will preclude us from funding our targeted expectations or operating needs with local resources.

Current wording

As of December 31, 2024, the total of cash held by foreign subsidiaries was $61 million, the majority of which was at our subsidiaries located in China, Japan, the Netherlands 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 expectations or operating needs with local resources.

Previous wording

Our liquidity requirements are significant, primarily due to our debt service requirements. As of December 31, 2023, we had $618 million of indebtedness associated with ATI’s Term Loan, $400 million of indebtedness associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”). Short-term and long-term debt service liquidity requirements consist of $2 million of minimum required quarterly principal payments on ATI’s Term Loan through its maturity date of March 2026 and periodic interest payments on ATI’s Term Loan and the Senior Notes. There are no required quarterly principal payments on the Senior Notes. Long-term debt service liquidity requirements also consist of the payment in full of any remaining principal balance of ATI’s Term Loan and the Senior Notes upon their respective maturity dates.

Current wording

Our liquidity requirements are significant, primarily due to our debt service requirements. As of December 31, 2024, we had $514 million of indebtedness associated with ATI’s Term Loan, $400 million of indebtedness associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”). Short-term and long-term debt service liquidity requirements consist of $1 million of minimum required quarterly principal payments on ATI’s Term Loan through its maturity date of March 2031 and periodic interest payments on ATI’s Term Loan and the Senior Notes. There are no required quarterly principal payments on the Senior Notes. Long-term debt service liquidity requirements also consist of the payment in full of any remaining principal balance of ATI’s Term Loan and the Senior Notes upon their respective maturity dates.

Previous wording

We made $7 million of principal payments on the Term Loan during each of the years ended December 31, 2023 and 2022. 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.

Current wording

We made $104 million and $7 million of principal payments on the Term Loan during the years ended December 31, 2024 and 2023, respectively. Our ability to make payments on and refinance our indebtedness and to fund planned capital expenditures and growth initiatives will depend on our ability to generate cash in the future.

Previous wording

The Senior Secured Credit Facility provides for a $650 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments. As of December 31, 2023, we had $645 million available under the Revolving Credit Facility, net of $5 million in letters of credit. As of December 31, 2023, we had no amounts outstanding under the Revolving Credit Facility. If we have commitments outstanding on the Revolving Credit Facility at the end of a fiscal quarter, the Senior Secured Credit Facility requires us to maintain a specified maximum first lien net leverage ratio of 5.50x. Additionally, within the terms of the Senior Secured Credit Facility, a first lien net leverage ratio at or below 4.00x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. As of December 31, 2023, our first lien net leverage ratio was 0.06x. 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.

Current wording

The Senior Secured Credit Facility provides for a $750 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments. As of December 31, 2024, we had $744 million available under the Revolving Credit Facility, net of $6 million in letters of credit. As of December 31, 2024, we had no amounts outstanding under the Revolving Credit Facility. If we have commitments outstanding on the Revolving Credit Facility at the end of a fiscal quarter, the Senior Secured Credit Facility requires us to maintain a specified maximum first lien net leverage ratio of 5.50x. Additionally, within the terms of the Senior Secured Credit Facility, a first lien net leverage ratio at or below 4.00x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. As of December 31, 2024, our first lien net leverage ratio was (0.23x). 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.

Previous wording

Our credit ratings and outlook are reviewed periodically by Moody’s Investors Service, Inc. (“Moody’s”) and Fitch Ratings, Inc. (“Fitch”). As of December 31, 2023, our credit ratings from both Moody's and Fitch are shown in the table below:

Current wording

Our credit ratings and outlook are reviewed periodically by Moody’s Ratings (“Moody’s”) and Fitch Ratings, Inc. (“Fitch”). As of December 31, 2024, our credit ratings from both Moody's and Fitch are shown in the table below:

Previous wording

We anticipate that our capital expenditures and cash income taxes in 2024 will be comparable to 2023.

Current wording

We anticipate increased capital expenditures and cash income taxes in 2025 compared to 2024.

Previous wording

Our Board of Directors has authorized us to repurchase up to $4,000 million of our common stock pursuant to the Repurchase Program. During 2023, we repurchased approximately $263 million of our common stock under the Repurchase Program. All of the repurchase transactions during 2023 were settled in cash during the same period. As of December 31, 2023, we had approximately $773 million available under the Repurchase Program.

Current wording

Our Board of Directors has authorized us to repurchase up to $4,000 million of our common stock pursuant to the Repurchase Program. During 2024, we repurchased approximately $254 million of our common stock under the Repurchase Program. All of the repurchase transactions during 2024 were settled in cash during the same period. As of December 31, 2024, we had approximately $519 million available under the Repurchase Program.

Previous wording

Generally, cash provided by operating activities has been adequate to fund our operations. We have significant liquidity, including $555 million of cash and cash equivalents and $645 million available under the Revolving Credit Facility, net of $5 million in letters of credit, as of December 31, 2023. 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.

Current wording

Generally, cash provided by operating activities has been adequate to fund our operations. We have significant liquidity, including $781 million of cash and cash equivalents and $744 million available under the Revolving Credit Facility, net of $6 million in letters of credit, as of December 31, 2024. 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.

Previous wording

Operating activities for the year ended December 31, 2023 generated $784 million of cash compared to $657 million for the year ended December 31, 2022. The increase was principally driven by higher gross profit and lower operating working capital requirements, partially offset by higher cash income taxes.

Current wording

Operating activities for the year ended December 31, 2024 generated $801 million of cash compared to $784 million for the year ended December 31, 2023. The increase was principally driven by higher gross profit, lower cash interest payments and lower cash income taxes, partially offset by higher operating working capital funding requirements, higher cash incentive compensation payments and non-recurring UAW contract signing incentive payments.

Previous wording

Financing activities for the year ended December 31, 2023 used $332 million of cash compared to $367 million for the year ended December 31, 2022. The decrease was principally driven by a $26 million increase in proceeds from the exercise of stock options and a $15 million decrease in stock repurchases under the Repurchase Program.

Current wording

Financing activities for the year ended December 31, 2024 used $427 million of cash compared to $332 million for the year ended December 31, 2023. The increase was principally driven by $97 million of increased payments on our long-term debt, $4 million of debt financing fees associated with the amendment of the Credit Agreement governing our Senior Secured Credit Facility and $4 million of increased dividend payments, partially offset by $9 million of lower stock repurchases under the Repurchase Program and a $4 million increase in proceeds from the exercise of stock options.

Previous wording

Revenue recognition contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the amount of sales incentives and provision for government price reductions. Distributor and customer sales incentives, consisting of allowances and other rebates, are estimated at the time of sale based upon history and experience and are recorded as a reduction to net sales. Incentive programs are generally product specific or region specific. Some factors used in estimating the cost of incentives include the number of transmissions that will be affected by the incentive program and the rate of acceptance of any incentive program. If the actual number of affected transmissions differs from this estimate, or if a different mix of incentives is actually paid, the impact on net sales would be recorded in the period that the change was identified. Assuming our current mix of sales incentives, a 10% change in sales incentives would correspondingly change our earnings by approximately $9 million.

Current wording

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

Previous wording

Provisions for estimated expenses related to product warranties are made at the time products are sold. Warranty claims arise when a transmission fails while in service during the relevant warranty period. The warranty reserve is adjusted in Selling, general and administrative expense based on our current and historical warranty claims paid and associated repair costs. These estimates are established using historical information including the nature, frequency, and average cost of warranty claims and are adjusted as actual information becomes available. From time to time, we may initiate a specific field action program. As a result of the uncertainty surrounding the nature and frequency of specific field action programs, the liability for such programs is recorded when we commit to an action. We review and assess the liability for these programs on a quarterly basis. We also assess our ability to recover certain costs from our suppliers and record a receivable from the supplier when we believe a recovery is probable. Warranty costs may differ from those estimated if actual claim rates are higher or lower than our historical rates. Further information is provided in "Note 10. Product Warranty Liabilities” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K, which contains a summary of the activity in our warranty liability account for 2023, 2022 and 2021, including adjustments to pre-existing warranties.

Current wording

Provisions for estimated expenses related to product warranties are made at the time products are sold. Warranty claims arise when a transmission fails while in service during the relevant warranty period. The warranty reserve is adjusted in Selling, general and administrative expense based on our current and historical warranty claims paid and associated repair costs. These estimates are established using historical information including the nature, frequency, and average cost of warranty claims and are adjusted as actual information becomes available. From time to time, we may initiate a specific field action program. As a result of the uncertainty surrounding the nature and frequency of specific field action programs, the liability for such programs is recorded when we commit to an action. We review and assess the liability for these programs on a quarterly basis. We also assess our ability to recover certain costs from our suppliers and record a receivable from the supplier when we believe a recovery is realizable. Warranty costs may differ from those estimated if actual claim rates are higher or lower than our historical rates. Further information is provided in "Note 10. Product Warranty Liabilities” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K, which contains a summary of the activity in our warranty liability account for 2024, 2023 and 2022, including adjustments to pre-existing warranties.

Previous wording

A change in the discount rate can have a significant impact on determining our benefit obligations. Our current discount rate is determined by matching the plans’ projected cash flows to a yield curve based on long-term, fixed income debt instruments available as of the measurement date of December 31, 2023. The effect of a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2023 defined benefit pension plans obligation of approximately $17 million. Similarly, a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2023 OPEB obligation of approximately $7 million.

Current wording

A change in the discount rate can have a significant impact on determining our benefit obligations. Our current discount rate is determined by matching the plans’ projected cash flows to a yield curve based on long-term, fixed income debt instruments available as of the measurement date of December 31, 2024. The effect of a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2024 defined benefit pension plans obligation of approximately $13 million. Similarly, a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2024 OPEB obligation of approximately $6 million.