Allison Transmission Holdings Inc

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

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 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.

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 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.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

Defense end market net sales increased $34 million, or 64%, principally driven by increased demand for Tracked vehicle applications, price increases on certain products and the continued execution of our growth initiatives.

Current wording

Defense end market net sales increased $36 million, or 57%, principally driven by increased demand for Tracked vehicle applications, price increases on certain products and the continued execution of our growth initiatives.

Previous wording

Service Parts, Support Equipment and Other end market net sales increased $5 million, or 3%, principally driven by price increases on certain products.

Current wording

Service Parts, Support Equipment and Other end market net sales increased $1 million, or 1%, principally driven by price increases on certain products.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

North America On-Highway end market net sales decreased $60 million, or 14%, principally driven by lower demand for medium-duty and class 8 vocational trucks, partially offset by price increases on certain products.

Current wording

North America On-Highway end market net sales decreased $47 million, or 6%, principally driven by lower demand for medium-duty trucks and class 8 vocational trucks, partially offset by price increases on certain products and increased demand for hybrid transit buses.

Previous wording

Global Off-Highway net sales decreased $10 million, or 56%, principally driven by lower demand from the global mining, construction and energy sectors.

Current wording

Global Off-Highway end market net sales decreased $4 million, or 12%, principally driven by lower demand from the energy, mining and construction sectors outside of North America, partially offset by increased demand from the energy sector in North America.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

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 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.

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 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.

Previous wording

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.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Allison Transmission - Comparison of the three months ended March 31, 2026 and 2025

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Allison Off-Highway - Operating results for the three months ended March 31, 2026

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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%.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

The following table shows our sources and uses of funds for the three months ended March 31, 2026 and 2025 (dollars in millions):

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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 months ended March 31, 2026.

Current wording

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.