Allison Transmission Holdings Inc

(UNAUDITED)

NOTE A. OVERVIEW

Allison Transmission Holdings, Inc. and its subsidiaries ("Allison" or the "Company”) is a global leader in high-performance mobility and work solutions built for the needs of the modern industrial world. Allison operates through two operating and reportable segments: Allison Transmission and Allison Off-Highway Drive & Motion Systems ("Allison Off-Highway"). Headquartered in Indianapolis, Indiana, USA, the Company manufactures solutions which offer industry-leading value propositions across vital sectors such as infrastructure, mining, energy, agriculture, construction, transportation and national security.

On January 1, 2026 (the "Closing Date"), the Company completed the acquisition of Dana Incorporated's ("Dana") off-highway business (the "Acquired Off-Highway Business”) for a purchase price of approximately $2,628 million (the "Acquisition"). As a result of the Acquisition, the Company now offers an expanded portfolio of drivetrain, motion and propulsion solutions, providing complementary product breadth and an enhanced ability to support global customers across multiple end markets. The Acquired Off-Highway Business has historically served end markets with demand characteristics that differ from Allison's traditional on-highway markets, contributing to a more diversified portfolio.

Following the Acquisition, the Company continues to operate under the Allison name, but its operations are now comprised of two operating and reportable segments: Allison Transmission and Allison Off-Highway. Segment leadership is located globally, reflecting the international nature of the Company's operations and the importance of local market insights, sourcing, production and customer support. All prior period reportable segment information has been reclassified to conform to the current presentation. For additional discussion regarding the Company's segments, including the changes made, see “Note T. Segment Information.”

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 its 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.

The Company has a global presence serving customers in North America, Asia, Europe, South America, and Africa, and has further expanded its operations in these regions as a result of the Acquisition.

NOTE B. ACQUISITION

On January 1, 2026, the Company completed the Acquisition for a purchase price of $2,628 million, subject to certain adjustments, using a combination of cash on hand, $500 million of proceeds from the issuance of the 5.875% Senior Notes due December 2033 ("5.875% Senior Notes 2033") by Allison Transmission, Inc. ("ATI"), the Company’s wholly-owned subsidiary, 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, the Company 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 the Company's election to voluntarily reduce the aggregate commitments under the Bridge Facility. No amount was drawn from the Bridge Facility, and it was terminated upon the completion of the Acquisition on the Closing Date.

The Allison Off-Highway business is a leading provider of drivetrain and propulsion solutions. For segment reporting purposes, the Acquired Off-Highway Business comprises the entire Allison Off-Highway segment. The Company accounted for the Acquisition in accordance with authoritative accounting guidance on business combinations. The results of Allison Off-Highway have been included in the Company’s Condensed Consolidated Financial Statements from the Closing Date. See "Note T. Segment Information” for more details regarding Allison Off-Highway's results.

On January 1, 2026, the Company transferred $2,664 million of cash consideration to Dana based on the preliminary closing statement, of which $2 million was attributed to the effective settlement of the pre-existing accounts payable balance. The cash portion of the purchase price was subject to adjustment based upon the final calculation of the acquired cash, indebtedness and working capital, as defined by the Stock Purchase Agreement, as amended, with Dana, as of the Closing Date. During the nine months ended September 30, 2026, the Company recorded a subsequent $34 million decrease to the purchase price and received a cash payment from Dana of $34 million to reflect the net deficiency in cash, indebtedness and working capital, resulting in a final purchase price of $2,628 million.

Assets acquired and liabilities assumed are recognized at their respective fair values as of the Closing Date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. The following table presents the preliminary purchase price allocation, including adjustments made during the quarter (measurement period adjustments) with corresponding changes to goodwill (dollars in millions):

(a)

The changes in the estimated fair values are primarily to better reflect market participant assumptions about facts and circumstances existing as of the acquisition date. The measurement period adjustments resulted in an $7 million net increase to goodwill and did not have a material impact on the Company's earnings. The measurement period adjustments did not result from intervening events subsequent to the acquisition date.

The preliminary fair values of the assets acquired and liabilities assumed in the Acquisition are subject to further change as the Company performs additional reviews of the assumptions utilized and as additional information related to the fair values of assets acquired, liabilities assumed, and tax implications thereon is assessed during the measurement period (up to one year from the Closing Date). Any such further adjustments will be accounted for prospectively. The final purchase accounting will be completed within the one-year measurement period following the Closing Date of the Acquisition.

The Company measured contract assets and contract liabilities acquired by applying the revenue recognition principles in Financial Accounting Standards Board ("FASB") authoritative guidance on revenue from contracts with customers. Consequently, contract liabilities recorded as of the Closing Date represent the transaction price allocated to unsatisfied performance obligations.

As of the Closing Date, contract liabilities totaling $31 million andno material contract assets were recognized as part of the Acquisition purchase price allocation. These amounts approximate those recognized by Dana prior to the Acquisition, reflecting the Company’s application of the related FASB authoritative guidance.

Goodwillr epresents the excess of the fair value of consideration transferred over the fair values of assets acquired and liabilities assumed. An estim ated $81 millionof goodwill is expected to be deductible for income tax purposes. As of September 30, 2026, the Company allocated the goodwill from the Acquisition to its reporting units, assigning$132 million of goodwill to the Allison Transmission reportable segment and $638 million to the Allison Off-Highway reportable segment. See "Note F. Goodwill and Other Intangible Assets" for the additional disclosures. The goodwill recognized is primarily attributable to expected future economic benefits, including the value of the assembled workforce, anticipated customer demand, continued development of acquired technologies and operational synergies from the integration with Allison Transmission.

The estimated fair values of the identifiable intangible assets acquired (all considered Level 3 measurements), their weighted-average useful lives, the related valuation methodology and key assumptions are as follows (dollars in millions):

Included in the Company's results for the three and nine months ended September 30, 2026 were Net sales of $653 million and $2,032 million, respectively, and$32 million and$58 million, respectively, of Operating income related to Allison Off-Highway. The Company recognized $4 million and $30 million of Acquisition-related expenses during thethree and nine months ended September 30, 2026, respectively, and $14 million and $38 million during the three and nine months ended September 30, 2025, respectively, which were recorded in Selling, general and administrative in the Company's Condensed Consolidated Statements of Comprehensive Income and primarily consisted of consulting and legal fees.

Supplemental Pro-Forma Information (unaudited)

The following table presents supplemental pro-forma information for thethree and nine months ended September 30, 2026 as if the Acquisition had occurred on January 1, 2025. These amounts have been calculated after applying the Company's accounting policies and are based upon currently available information. The primary adjustments reflected in the pro-forma results relate to increased interest expense for debt used to fund the Acquisition, inclusion of Acquisition-related costs and the impact of purchase accounting adjustments primarily related to amortization of intangibles, depreciation of fixed assets and inventory step-up. Pre-Acquisition net sales and net income amounts for the Acquisition were derived from the books and records of the Acquired Off-Highway Business prepared prior to the Acquisition, are presented for informational purposes only and do not purport to be indicative of the results of future operations or of the results that would have been achieved had the Acquired Off-Highway Business been combined with the Company during the pre-Acquisition period presented.

NOTE C. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary for the fair statement of the results for the periods presented. The condensed consolidated financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated.

These condensed consolidated financial statements present the financial position, results of comprehensive income, cash flows and statements of stockholders’ equity of the Company. Certain immaterial reclassifications have been made in the condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications had no impact on previously reported net income, total stockholders’ equity or cash flows. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission on February 24, 2026. The interim period financial results for the three- and nine-month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Estimates include, but are not limited to, sales incentives, government price adjustments, fair market values and future cash flows associated with goodwill, indefinite-lived intangibles, definite-lived intangibles, long-lived asset impairment tests, useful lives for depreciation and amortization, warranty liabilities, core deposit liabilities, determination of discount rate and other assumptions for pension and other post-retirement benefit ("OPEB") expense, income taxes and deferred tax valuation allowances, assumptions for business combinations and contingencies. The Company’s accounting policies involve the application of judgments and assumptions made by management that include inherent risks and uncertainties. Actual results could differ materially from these estimates and from the assumptions used in the preparation of the Company's financial statements. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.

Recently Adopted Accounting Standards

In November 2025, the FASB issued authoritative accounting guidance to amend certain aspects of the existing hedge accounting guidance to more closely align hedge accounting with the economics of an entity's risk management activities. The amendments simplified the requirements to designate a group of individual forecasted transactions from having a shared risk exposure to having a similar risk exposure. In addition, the application of hedge accounting no longer is limited by whether the execution of the nonfinancial purchase or sale transaction is in the spot or forward market. The guidance permits early adoption, which management has elected, and it has been applied prospectively. The adoption of this guidance didnot have an impact on the Company’s consolidated financial statements. See "Note H. Derivatives" and "Note P. Accumulated Other Comprehensive Loss" for more information on the Company's derivative instruments.

Recently Issued Accounting Pronouncements

In November 2024, the FASB issued authoritative accounting guidance, which was subsequently amended, requiring additional disaggregation of certain expense and cost line items presented in the financial statements and in the notes to the financial statements. The guidance will become effective for the Company beginning with the fiscal year ending December 31, 2027 and the subsequent interim periods. Early adoption is permitted. Upon adoption, the guidance may be applied prospectively or retrospectively. Management is currently evaluating the impact of this guidance on the Company's consolidated financial statements.

In September 2025, the FASB issued authoritative accounting guidance to modernize the accounting for costs related to internal-use software. The new guidance removes the software project development stages and provides new guidance on evaluating if the probable-to-complete recognition threshold has been met. The guidance will become effective for the Company beginning January 1, 2028 with early adoption permitted. Upon adoption, the guidance may be applied prospectively, retrospectively or using a modified transition approach. Management is currently evaluating the potential impact of this guidance on the Company's consolidated financial statements.

All other recently issued accounting pronouncements were assessed as either not applicable to the Company or were not expected to have a material impact on the Company's consolidated financial statements.

NOTE D. REVENUE

Revenue is recognized as each distinct performance obligation within a contract is satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company enters into long-term agreements (“LTAs”) and distributor agreements with certain customers. The LTAs and distributor agreements do not include committed volumes until underlying purchase orders are issued; therefore, the Company determined that purchase orders are the contract with a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied, as there is no right of return.

Some of the Company's contracts include multiple performance obligations, most commonly the sale of both a transmission and extended transmission coverage or similar service-type warranties ("ETC"). The Company allocates the contract’s transaction price to each performance obligation based on the standalone selling price of each distinct good or service in the contract.

The Company may also use volume-based discounts and rebates as marketing incentives in the sales of both vehicle propulsion solutions and service parts, which are accounted for as variable consideration. The Company records the impact of the incentives as a reduction to revenue when it is determined that the adjustment is not likely to reverse. The Company estimates the impact of other incentives based on the related sales and market conditions in the end market vocation. Refund liabilities related to rebates and other incentives are included in other accrued liabilities on the Company's Condensed Consolidated Balance Sheets.

The Company recordedno material adjustments based on variable consideration during any of the three or nine months ended September 30, 2026 or 2025.

Payment terms with our customers are established based on an assessment of the customer's credit worthiness and industry and regional practices and generally do not exceed 180 days. For certain goods or services, the Company receives consideration prior to satisfying the related performance obligation. Such consideration is recorded as a contract liability in current and non-current deferred revenue as of September 30, 2026 and December 31, 2025. See "Note K. Deferred Revenue” for more information, including the amount of revenue earned during each of the three and nine months ended September 30, 2026 and 2025 that had been previously deferred. The Company hadno material contract assets as of either September 30, 2026 or December 31, 2025.

The following presents revenue from the Company's two reportable segments, Allison Transmission and Allison Off-Highway, disaggregated by each segment and its respective end markets that best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors(dollars in millions):

NOTE E. INVENTORIES

Inventories consisted of the following components (dollars in millions):

Inventory components shipped to third parties, primarily cores, parts to re-manufacturers, and parts to contract manufacturers, which the Company has an obligation to buy back, are included in Purchased parts and raw materials, with an offsetting liability in Other current liabilities. See "Note M. Other Current Liabilities” for more information.

NOTE F. GOODWILL AND OTHER INTANGIBLE ASSETS

As of September 30, 2026 and December 31, 2025, the carrying value of the Company’s Goodwill was $2,828 million and $2,075 million, respectively. As of September 30, 2026, the Company allocated the goodwill from the Acquisition to its reporting units, assigning $132 million of goodwill to the Allison Transmission reportable segment and $638 million to the Allison Off-Highway reportable segment. The following presents a summary of the changes in the carrying amount of Goodwill by reportable segment (dollars in millions):

The following presents a summary of other intangible assets (dollars in millions):

Amortization expense related to other intangible assets for the next five fiscal years is expected to be (dollars in millions):

NOTE G. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the price (exit price) that would be received to sell an asset or paid to transfer a liability in an orderly tran saction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by the relevant guidance are as follows:

Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date.

Level 2 — Inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes financial instruments that are valued using quoted prices in markets that are not active and those financial instruments that are valued using models or other valuation methodologies in which all significant value-drivers are observable in active markets or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 — Certain inputs are unobservable or have little or no market data available. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all instruments subject to authoritative accounting guidance and includes, in Level 3, all of those whose fair value is based on significant unobservable inputs. As of September 30, 2026 and December 31, 2025, the Company didnot have any Level 3 financial assets or liabilities.

The following table summarizes the Company’s financial assets and (liabilities) measured at fair value as of September 30, 2026 and December 31, 2025 (dollars in millions):

The Company’s valuation techniques used to calculate the fair value of cash equivalents, marketable securities, assets held in the rabbi trust and the deferred compensation obligation represent a market approach in active markets for identical assets that qualify as Level 1 in the fair value hierarchy. A description of the Company’s Level 1 assets and liabilities is as follows:

•

Cash equivalents consist primarily of short-term U.S. government backed securities and time deposits.

•

Marketable securities consist of publicly traded stock of Jing-Jin Electric Technologies Co. Ltd., which has a readily determinable fair value.

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Rabbi trust assets consist principally of publicly available mutual funds and target date retirement funds.

•

Deferred compensation obligation is directly related to the fair value of assets held in the rabbi trust.

A description of the Company’s Level 2 assets and liabilities is as follows:

•

Derivative assets and liabilities consist of cross-currency swaps and foreign exchange forward contracts. The cross-currency swaps are designated as hedging instruments against a net investment in the Company's euro-functional subsidiaries. The Company measures the fair value of its cross-currency swaps using discounted cash flow calculations based upon observable forward interest-rate yield curves. Certain of the foreign exchange forward contracts are cash flow hedges and others are non-designated hedges. The Company measures the fair value of its foreign exchange forward contracts using discounted cash flow calculations based upon observable forward interest-rate yield curves. See "Note H. Derivatives" for more information regarding the Company's cross-currency swaps and foreign exchange forward contracts.

•

Debt securities are classified as available-for-sale and qualify as Level 2 in the fair value hierarchy.

The Company holds equity securities in unconsolidated entities without a readily determinable fair value. Each of these investments represents a less than 20% ownership interest in the respective privately-held entity, and the Company does not maintain significant influence over or control of any of the entities. The Company has elected the measurement alternative and measures the investments at cost, less any impairment, plus or minus adjustments related to observable price changes in orderly transactions for identical or similar investments of the same issuer. These equity investments are recorded in Other non-current assets in the Condensed Consolidated Balance Sheets, with changes in the value recorded in Other (expense) income, net in the Condensed Consolidated Statements of Comprehensive Income. As of September 30, 2026 and December 31, 2025, the Company held equity securities without a readily determinable fair value of $10 million and $8 million, respectively. During the three and nine months ended September 30, 2026, no impairment charges or adjustments resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer occurred for any of these investments.

NOTE H. DERIVATIVES

The Company’s global operations expose it to fluctuations in foreign currency exchange rates. To manage this exposure, the Company uses cross‑currency swap contracts that are designated as net investment hedges and foreign exchange forward contracts, which are either designated as cash flow hedges or non-designated hedges. These derivative instruments are used in accordance with the Company's risk management strategy to reduce foreign currency exchange risk and are not intended to be speculative in nature. Hedge effectiveness is assessed at inception and quarterly thereafter.

The following table presents the fair value of the Company's derivative instruments and their location in the Condensed Consolidated Balance Sheets (dollars in millions):

Cash Flow Hedges

The Company's foreign exchange forward contracts designated as cash flow hedges effectively hedge forecasted foreign currency cash flows over a rolling 15-month horizon, with hedge ratios declining from approximately 75% for the nearest months to 25% for the furthest months. As of September 30, 2026, the Company held foreign exchange forward contracts designated as cash flow hedges with an aggregate notional amount of $435 million in the following currencies: Hungarian forint, Indian rupee, United States dollar, euro, Chinese yuan, Norwegian krone and the offshore Chinese yuan.

Gains and losses on these foreign exchange forward contracts offset gains and losses of the underlying foreign currency exposures. These foreign exchange forward contracts are designated as cash flow hedges. Any unrealized changes in fair value are recorded in Accumulated Other Comprehensive Loss, net of tax (AOCL), within the Condensed Consolidated Balance Sheets. These amounts are reclassified into earnings when the hedged transactions occur and affect the same line in the Condensed Consolidated Statements of Comprehensive Income as the hedged item of Net sales, Cost of sales, Selling, general and administrative or Other (expense) income, net. All of these foreign exchange forward contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at September 30, 2026. The balance of foreign exchange forward derivative net losses recorded in AOCL as of September 30, 2026 was $1 million andnone as of December 31, 2025. See "Note P. Accumulated Other Comprehensive Loss” for information regarding activity recorded as a component of AOCL during the three and nine months ended September 30, 2026 and 2025.

During the next twelve months, $1 million of pretax gains on cash flow hedges are expected to be reclassified from AOCL into the correlated line in the Condensed Consolidated Statements of Comprehensive Income as the hedged forecasted transactions. No amounts were reclassified from AOCL into earnings during the three and nine months ended September 30, 2026 as a result of the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring.

Net Investment Hedges

The Company held cross-currency swap contracts that, in the aggregate, effectively hedge $1,000 million of the euro exposure associated with the Company's net investment in its euro-functional subsidiaries and expire over a seven-year period. The cross-currency swaps are a portfolio of designated hedging instruments that qualify for hedge accounting under the net investment hedge model using the spot method. Fair value adjustments of the Company's cross-currency swaps are recorded as foreign currency translation, a component of AOCL. Under the spot method, the hedge effectiveness is based solely on the changes in the spot foreign exchange rates, and it excludes the interest rate differential of the receive-fixed, pay-fixed cross-currency swaps. These amounts will remain in AOCL until the corresponding net investments are sold or substantially liquidated. The initial value of the excluded portion, the interest rate differential, is amortized into earnings using a systematic and rational method over the life of the derivative instrument, and any difference between the change in fair value of the excluded component and the amount recognized in earnings is recorded in foreign currency translation, a component of AOCL.

During the nine months ended September 30, 2026, the Company received $21 million and paid $17 million of cash interest rate settlements. The Company records these interest rate settlements as investing activitiesin the Condensed Consolidated Statements of Cash Flows, consistent with the nature of the derivative instruments. The Company recognizes the amounts excluded from the assessment of hedge effectiveness in Interest expense, net. During the three and nine months ended September 30, 2026, the Company recognized $3 million and $4 million, respectively, of interest income in Interest expense, net, related to these amounts. The Company did not have any cross-currency swaps in 2025. See "Note G. Fair Value of Financial Instruments” for information regarding the fair value of the Company’s cross-currency swaps.

During the three and nine months ended September 30, 2026, the Company recognized pretax gains of $8 million and $1 million, respectively, on the cross-currency swaps in foreign currency translation, a component of AOCL. The Company did not have any cross-currency swaps in 2025. See "Note P. Accumulated Other Comprehensive Loss” for information regarding activity recorded as a component of AOCL during the three and nine months ended September 30, 2026 and 2025.

Non-designated Hedges

The Company's non-designated foreign exchange forward contracts hedge foreign currency exposure on the Company's Condensed Consolidated Balance Sheets. As of September 30, 2026, the Company held non-designated foreign exchange forward contracts with an aggregate notional amount of $80 million in the following currencies: Hungarian forint, Indian rupee, United States dollar, euro, Norwegian krone and the offshore Chinese yuan,.

Gains and losses resulting from changes in fair value and trade settlements for the Company's foreign exchange forward contracts, not designated for hedge accounting, are recorded in Other (expense) income, net in the Condensed Consolidated Statements of Comprehensive Income. During each of the three and nine months ended September 30, 2026, net gainsof $2 million were recorded on these contracts. The Company did not have any foreign exchange forward contracts in 2025.

NOTE I. DEBT

Long-term debt and maturities are as follows (dollars in millions):

As of September 30, 2026, the Company had$4,037 million of indebtedness associated with ATI's 4.75% Senior Notes due October 2027 (“4.75% Senior Notes 2027”), ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes 2029”), ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes 2031”), ATI's 5.875% Senior Notes due December 2033 ("5.875% Senior Notes 2033" and, together with the 4.75% Senior Notes 2027,5.875% Senior Notes 2029 and 3.75% Senior Notes 2031, the “Senior Notes”), 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 $505 million due March 2031 (“Term Loan”), ATI's incremental term loan in the amount of $1,194 million due January 2033 ("Incremental Term Loan"), ATI’s revolving credit facility with commitments in the amount of $1,000 million due January 2031 (the "Revolving Credit Facility" and, together with the Term Loan and Incremental Term Loan, the “Senior Secured Credit Facility”) and the Company's finance lease liabilities.

The fair value of the Company’s long-term debt obligations as of September 30, 2026 was $3,898 million. The fair value is based on quoted Level 2 market prices of the Company’s debt as of September 30, 2026. The difference between the fair value and carrying value of the long-term debt is driven primarily by trends in the financial markets.

Senior Secured Credit Facility

In January 2026, the Company and ATI entered into Amendment No. 5 ("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. With the exception of the items noted above, the terms of the Revolving Credit Facility were materially the same as they were prior to Amendment No. 5. The amendment to increase the commitments under the existing Revolving Credit Facility was treated as a modification under GAAP and the Incremental Term Loan was treated as new debt. The Company recorded $3 million and $12 million of deferred financing fees in the Condensed Consolidated Balance Sheet in the first quarter of 2026 associated with the amendment to increase the commitments under the existing Revolving Credit Facility and provide for the Incremental Term Loan, respectively.

In June 2026, the Company and ATI entered into Amendment No. 6 ("Amendment No. 6") to the Credit Agreement to lower the applicable margin on the Term Loan by 0.25%. Amendment No. 6 was treated as a modification to the Term Loan under GAAP.

The borrowings under the Senior Secured Credit Facility are collateralized by a lien on substantially all assets of the Company, ATI and certain existing and future U.S. subsidiary guarantors, as provided in the Credit Agreement. Interest on the Incremental Term Loan, as of September 30, 2026, is either (a)1.75% over a SOFR rate on deposits in U.S. dollars for one-, three- or six-month periods (or a twelve-month period if, at the time of the borrowing, consented to by all relevant lenders and the administrative agent) ("Term SOFR"), or (b)0.75% over the greater of the prime lending rate as quoted by the administrative agent, the Term SOFR rate for an interest period of one month plus 1.00% and the federal funds effective rate published by the Federal Reserve Bank of New York plus 0.50%, subject to a 1.00% floor (the "Base Rate"). As of September 30, 2026, the Company elected to pay the lowest all-in rate of Term SOFR plus the applicable margin, or 5.54%, on the Incremental Term Loan.

Interest on the Term Loan, as of September 30, 2026, is either (a)1.50% over the Term SOFR rate, or (b)0.50% over the Base Rate. As of September 30, 2026, the Company elected to pay the lowest all-in rate of Term SOFR plus the applicable margin, or 5.29%, on the Term Loan.

The Credit Agreement requires minimum quarterly principal payments on the Term Loan and Incremental Term Loan, as well as prepayments from certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events, the incurrence of certain debt and from a percentage of excess cash flow, if applicable. The minimum required quarterly principal payment on the Term Loan through its maturity date of March 2031 is $1 million and the minimum required quarterly payment on the Incremental Term Loan through its maturity date of January 2033 is $3 million. As of September 30, 2026, there had been no payments required for certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events. The remaining principal balances are due upon maturity of the Term Loan and the Incremental Term Loan.

The Senior Secured Credit Facility also provides a Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letters of credit commitments. During the nine months ended September 30, 2026, the Company withdrew $300 millionto partially fund the Acquisition and fully repaid the outstanding balance on the Revolving Credit Facility. The maximum amount outstanding at any time during the nine months ended September 30, 2026 was $300 million. As of September 30, 2026, the Company had $996 million available under the Revolving Credit Facility, net of $4 million in letters of credit. Borrowings under the Revolving Credit Facility bear interest at a variable base rate plus an applicable margin based on the Company’s first lien net leverage ratio. When the Company’s first lien net leverage ratio is above 4.00 x, interest on the Revolving Credit Facility is (a)0.75% over the Base Rate or (b)1.75% over the Term SOFR rate; when the Company’s first lien net leverage ratio is equal to or less than 4.00 x and above 3.50 x, interest on the Revolving Credit Facility is (i)0.50% over the Base Rate or (ii)1.50% over the Term SOFR rate; and when the Company’s first lien net leverage ratio is equal to or below 3.50 x, interest on the Revolving Credit Facility is (y)0.25% over the Base Rate or (z)1.25% over the Term SOFR rate. In addition, there is an annual commitment fee, based on the Company’s first lien net leverage ratio, on the average unused revolving credit borrowings available under the Revolving Credit Facility. As of September 30, 2026, the commitment fee was 0.25%. Borrowings under the Revolving Credit Facility are payable at the option of the Company throughout the term of the Revolving Credit Facility with the balance due in January 2031.

The Senior Secured Credit Facility requires the Company to maintain a specified maximum first lien net leverage ratio of 5.50 x when revolving loan commitments remain outstanding on the Revolving Credit Facility at the end of a fiscal quarter. As of September 30, 2026, the Company was in compliance with the maximum first lien net leverage ratio, achieving a 0.84 x ratio. Additionally, within the terms of the Senior Secured Credit Facility, a first lien net leverage ratio at or below 4.00 x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year.

In addition, the Credit Agreement, among other things, includes customary restrictions (subject to certain exceptions) on the Company’s ability to incur certain indebtedness, grant certain liens, make certain investments, engage in acquisitions, consolidations and mergers, declare or pay certain dividends or repurchase shares of the

Company’s common stock. As of September 30, 2026, the Company was in compliance with all covenants under the Credit Agreement.

Senior Notes

In September 2026, the Company made a $100 million redemption payment on the 4.75% Senior Notes.

Each series of the Senior Notes is unsecured and is guaranteed by each of ATI’s domestic subsidiaries that is a borrower under or guarantees the Senior Secured Credit Facility and is unconditionally guaranteed, jointly and severally, by any of ATI’s future domestic subsidiaries that are borrowers under or guarantee the Senior Secured Credit Facility. None of ATI’s domestic subsidiaries currently guarantee its obligations under the Senior Secured Credit Facility, and therefore none of ATI’s domestic subsidiaries currently guarantee any series of the Senior Notes. The indentures governing the Senior Notes contain negative covenants restricting or limiting the Company’s ability to, among other things: incur or guarantee additional indebtedness, incur liens, pay dividends on, redeem or repurchase the Company’s capital stock, make certain investments, permit payment or dividend restrictions on certain of the Company’s subsidiaries, sell assets, engage in certain transactions with affiliates, and consolidate or merge or sell all or substantially all of the Company’s assets. As of September 30, 2026, the Company was in compliance with all covenants under the indentures governing the Senior Notes.

ATI may from time to time seek to retire its Senior Notes through cash purchases, exchanges for equity securities, open market purchases, privately negotiated transactions, contractual redemptions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors and will be in accordance with the respective indenture governing such notes. The amounts involved may be material. Some or all of the 4.75% Senior Notes 2027, the 5.875% Senior Notes 2029 and the 3.75% Senior Notes 2031 may be redeemed at any time at redemption prices specified in the indentures governing such notes. Prior to December 1, 2028, ATI may redeem some or all of the 5.875% Senior Notes 2033 by paying a price equal to 100.00% of the principal amount being redeemed, plus an “applicable premium”. At any time on or after December 1, 2028, ATI may redeem some or all of the 5.875% Senior Notes 2033 at redemption prices specified in the indenture governing such notes.

NOTE J. PRODUCT WARRANTY LIABILITIES

As of September 30, 2026, current and non-current product warranty liabilities were $61 million and $66 million, respectively. As of September 30, 2025, current and non-current product warranty liabilities were $34 million and $47 million, respectively.

Product warranty liability activities consisted of the following (dollars in millions):

NOTE K. DEFERRED REVENUE

As of September 30, 2026, current and non-current deferred revenue were $74 million and $105 million, respectively. As of September 30, 2025, current and non-current deferred revenue were $35 million and $101 million, respectively.

Deferred revenue activity consisted of the following (dollars in millions):

Deferred revenue recorded in current and non-current liabilities related to ETC as of September 30, 2026 was $33 million and $104 million, respectively. Deferred revenue recorded in current and non-current liabilities related to ETC as of September 30, 2025 was $29 million and $101 million, respectively.

NOTE L. LEASES

Contracts are assessed by the Company to determine if the contract conveys the right to control an identified asset in exchange for consideration during a period of time. The Company classifies all identified leases as either operating or finance leases. Contracts that contain leases are assessed to determine if the consideration in the contract is related to a lease component, non-lease component or other components not related to the lease. Lease components are recorded as right-of-use (“ROU”) assets and lease liabilities while any non-lease component is expensed as incurred. The consideration in the contract related to other components not related to the lease is allocated among the lease component and the non-lease component, as applicable, based on the stand-alone selling price of the lease and non-lease components.

Certain lease contracts may contain an option to extend or terminate the lease. The Company considers the economic impact of extension and termination options by contract. If the Company concludes it is reasonably certain an option will be exercised, that option is included in the lease term and impacts the amount recorded as an ROU asset and lease liability at inception of the contract.

ROU assets are calculated as the related lease liability adjusted for lease incentives, any initial direct costs, prepayments and the effect of escalating lease payments on period expense. During the nine months ended September 30, 2026, the Company recorded $76 million and $39 million of new ROU assets obtained in exchange for operating lease obligations and financing lease obligations, respectively, of which $53 million of the operating leases and $35 million of the finance leases were acquired in the Acquisition. The Company also acquired a below market lease in the Acquisition, resulting in the recognition of a favorable lease asset of $36 million. During thenine months ended September 30, 2025, the Company recorded $2 million of new ROU assets obtained in exchange for operating lease obligations andno financing lease obligations.

The Company's lease liability is determined by discounting the future cash flows over the lease period using incremental borrowing rates. The incremental borrowing rates are determined using rates specific to the term of the lease, the economic environments where lease activity is concentrated and the value of the lease portfolio, and assuming full collateralization of the loans. Lease liabilities are classified between current and non-current liabilities based on the terms of the underlying leases.

The balances for the operating and finance leases where the Company is the lessee are presented as follows within the Company’s Condensed Consolidated Balance Sheets (dollars in millions):

The components of lease expense were as follows within the Company’s Condensed Consolidated Statements of Comprehensive Income (dollars in millions):

Other information related to leases where the Company is the lessee was as follows:

The following table reconciles future undiscounted cash flows for operating leases and financing leases to total lease liabilities as of September 30, 2026 (dollars in millions):

NOTE M. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following (dollars in millions):

NOTE N. EMPLOYEE BENEFIT PLANS

Components of net periodic benefit cost (credit) consisted of the following (dollars in millions):

The components of net periodic benefit cost (credit) other than the service cost component are included in Other (expense) income, net in the Condensed Consolidated Statements of Comprehensive Income.

NOTE O. INCOME TAXES

For the three and nine months ended September 30, 2026, the Company recorded total income tax expense of $47 million and $114 million, respectively. The effective tax rate for the three and nine months ended September 30, 2026 was 20% and 19%, respectively. For the three and nine months ended September 30, 2025, the Company recorded total income tax expense of $45 million and $133 million, respectively. The effective tax rate for each of the three and nine months ended September 30, 2025 was 25% and 20%, respectively. The decrease in income tax expense for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 was principally driven by lower taxable income. The decrease in the effective tax rate for the three months ended September 30, 2026 compared to the three months ended September 30,2025 was principally driven by impacts related to the One Big Beautiful Bill Act passed in 2025.

The need to establish a valuation allowance against the deferred tax assets is assessed periodically based on a more-likely-than-not realization threshold, in accordance with authoritative accounting guidance. Management has determined, based on an evaluation of available objective and subjective evidence, that it is more likely than not that certain federal, state and foreign deferred tax assets will not be realized; therefore, these deferred tax assets are offset with a valuation allowance.

NOTE P. ACCUMULATED OTHER COMPREHENSIVE LOSS

The changes in components of AOCL consisted of the following (dollars in millions):

The following table shows the location in the Condensed Consolidated Statements of Comprehensive Income affected by reclassifications from AOCL (dollars in millions):

Prior service credits and actuarial gains are included in the computation of the Company’s net periodic benefit cost (credit). See "Note N. Employee Benefit Plans” for additional details.

NOTE Q. COMMITMENTS AND CONTINGENCIES

The Company is party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims and workers’ compensation claims. The Company believes that the ultimate liability, if any, in excess of amounts already provided for in the condensed consolidated financial statements or covered by insurance on the disposition of these matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

NOTE R. EARNINGS PER SHARE

The following table reconciles the numerators and denominators used to calculate basic EPS and diluted EPS (in millions, except per share data):

The dilutive impact of stock-based compensation is calculated using the treasury stock method. The treasury stock method assumes that the Company uses the proceeds from the exercise of awards to repurchase common stock at the average market price during the period. For each of the three and nine months ended September 30, 2026 and 2025, there were no outstanding stock options that were anti-dilutive and excluded from the diluted EPS calculation. Basic and diluted EPS for the full-year are calculated using the weighted average shares of common stock outstanding during the year while quarterly basic and diluted EPS are calculated using the weighted average shares of common stock outstanding during the quarter; therefore, the sum of each quarter's EPS may not equal full-year EPS.

NOTE S. COMMON STOCK

The Board of Directors has authorized the Company to repurchase up to $5,000 million of its common stock pursuant to a stock repurchase program (the "Repurchase Program"). During the three and nine months ended September 30, 2026, the Company repurchased approximately $57 million and $124 million, respectively, of its common stock under the Repurchase Program, leaving $1,068 million of authorized repurchases remaining under the Repurchase Program as of September 30, 2026. The Repurchase Program has no termination date, and the timing and amount of stock purchases are subject to market conditions and corporate needs. The Repurchase Program may be modified, suspended or discontinued at any time at the Company’s discretion.

NOTE T. SEGMENT INFORMATION

The Company’s chief operating decision maker (“CODM”) is its Chair, President and Chief Executive Officer. The CODM evaluates the Company’s segment operating performance and makes decisions regarding the allocation of resources based on Segment Operating Profit.

The CODM assesses segment performance utilizing Segment Operating Profit primarily through comparisons of budgeted results to actual results and period‑over‑period variances. Certain variances identified through this analysis are evaluated to assist the CODM in assessing segment operating performance and making resource allocation decisions.

The significant expenses that are regularly provided to the CODM and included in Segment Operating Profit arecost of sales, selling, general and administrative expenses, and engineering — research and development expenses.

Corporate costs are presented separately from the Company’s reportable segments and consist primarily of centralized corporate functions. These costs also include non-recurring costs associated with the Acquisition, primarily integration‑related activities. Such costs are not allocated to the Company’s reportable segments, as they are not reviewed by the CODM on a segment basis when assessing performance or making resource allocation decisions. The Company does not present total assets by segment because the CODM is not regularly provided total assets by segment nor are they included in a segment measure utilized by the CODM.

During the three months ended March 31, 2026, the Company changed its segment structure fromone operating and reportable segment totwo operating and reportable segments to align with the Acquisition and the manner in which the CODM now reviews operating results and allocates resources. Prior‑period segment information has been retrospectively adjusted to conform to the current period presentation. The Company’s two operating and reportable segments are:

Allison Transmission

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 its electronic control modules, enabling tailored performance across a broad range of customer applications.

Allison Off-Highway

Allison Off-Highway provides drivetrain and motion solutions for a wide range of mobile and stationary off-highway equipment globally. These solutions include optimized drivetrain systems, propulsion components and motion technologies designed for industries such as construction, agriculture, mining, material handling and other industrial applications. The portfolio encompasses systems that manage power conveyance to machines and power work functions, including axles, gearboxes, transmissions and related components, as well as motion systems tailored to customer performance and efficiency requirements across both conventional and electrified powertrains. The global engineering, manufacturing and service footprint of Allison Off-Highway supports localized responsiveness and technical support for customers in key off-highway end markets.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company’s segment information includes the measures reviewed by the CODM and is presented in a manner consistent with internal management reporting.

The following presents a financial summary of the Company’s reportable segments (dollars in millions):

A reconciliation of reportable segments’ Total Segment Operating Profit to Income before income taxes included in the Condensed Consolidated Statements of Comprehensive Income for thethree and nine months ended September 30, 2026 and 2025 is as follows (dollars in millions):

(a)

Central group function costs not allocated to the segments include certain executive management, finance, legal, information technology and public company costs, Acquisition-related costs and other general administrative expenses.