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What changed in Allison Transmission Holdings Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Allison Transmission Holdings Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+229 added−238 removedSource: 10-K (2024-02-14) vs 10-K (2023-02-16)

Top changes in Allison Transmission Holdings Inc's 2023 10-K

229 paragraphs added · 238 removed · 199 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

55 edited+9 added−14 removed39 unchanged
Biggest changeOn-Highway Products Product Applications 1000 Series Distribution Motorhome Refuse School and Shuttle Bus Services Specialty Wheeled Defense 2000 Series Distribution Motorhome Refuse School and Shuttle Bus Services Specialty Wheeled Defense 3000 Series Coach and Transit Bus Construction Day Cab Tractors Distribution Fire and Emergency Motorhome Refuse Services Specialty Wheeled Defense 4000 Series Articulated and Wide Body Mining Dump Trucks Coach and Transit Bus Construction Day Cab Tractors Distribution Fire and Emergency Motorhome Refuse Specialty Wheeled Defense eGen Flex Electric Hybrid Propulsion Solutions Transit and Shuttle Bus eGen Power Fully Electric Propulsion Solutions Coach and Transit Bus Day Cab Tractors Distribution Fire and Emergency Line-Haul Tractors Refuse School and Shuttle Bus Off-Highway Products Product Applications 5000 Series Rigid and Articulated Dump Truck Underground Mine Truck Well Service Rigs 6000 Series Rigid and Articulated Dump Truck Underground Mine Truck Well Service Rigs 8000 Series Hydraulic Fracturing Equipment Rigid Dump Trucks 9000 Series Hydraulic Fracturing Equipment Rigid Dump Trucks FracTran Hydraulic Fracturing Equipment Defense Products Product Applications X200 Tracked Vehicles 3040MX Tracked Vehicles X1100 Tracked Vehicles 12 Table of Contents Product Development and Engineering We maintain product development and engineering capability dedicated to the design, development, refinement and support of our fully automatic transmissions and electric hybrid and fully electric propulsion systems.
Biggest changeOn-Highway Products Product Applications 1000 Series • Distribution • Motorhome • Refuse • School and Shuttle Bus • Services • Specialty • Wheeled Defense 2000 Series • Distribution • Motorhome • Refuse • School and Shuttle Bus • Services • Specialty • Wheeled Defense 3000 Series • Coach and Transit Bus • Construction • Day Cab Tractors • Distribution • Fire and Emergency • Motorhome • Refuse • Services • Specialty • Wheeled Defense 4000 Series • Articulated and Wide Body Mining Dump Trucks • Coach and Transit Bus • Construction • Day Cab Tractors • Distribution • Fire and Emergency • Motorhome • Refuse • Specialty • Wheeled Defense eGen Flex Electric Hybrid Propulsion Solutions • Transit and Shuttle Bus eGen Power Fully Electric Propulsion Solutions • Coach and Transit Bus • Day Cab Tractors • Distribution • Fire and Emergency • Line-Haul Tractors • Refuse • School and Shuttle Bus 11 Table of Contents Off-Highway Products Product Applications 5000 Series • Rigid and Articulated Dump Truck • Underground Mine Truck • Well Service Rigs 6000 Series • Rigid and Articulated Dump Truck • Underground Mine Truck • Well Service Rigs 8000 Series • Hydraulic Fracturing Equipment • Rigid Dump Trucks 9000 Series • Hydraulic Fracturing Equipment • Rigid Dump Trucks FracTran • Hydraulic Fracturing Equipment Defense Products Product Applications X200 • Tracked Vehicles 3040MX • Tracked Vehicles X1100 • Tracked Vehicles Product Development and Engineering We maintain product development and engineering capability dedicated to the design, development, refinement and support of our fully automatic transmissions and electric hybrid and fully electric propulsion systems.
Currently, manual transmissions are the predominant transmissions used in commercial vehicles in South America. We serve the South American region primarily in the bus, refuse, vocational truck and agricultural markets. 9 Table of Contents Off-Highway. The following is a summary of our off-highway net sales by region outside of North America. Asia-Pacific .
Currently, manual transmissions are the predominant transmissions used in commercial vehicles in South America. We serve the South American region primarily in the bus, refuse, vocational truck and agricultural markets. Off-Highway. The following is a summary of our off-highway net sales by region outside of North America. 9 Table of Contents Asia-Pacific.
ITEM 1. Business Overview Allison Transmission Holdings, Inc. and its subsidiaries (“Allison,” the “Company,” “we,” “us” or “our”) design and manufacture vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense fully automatic transmissions and electric hybrid and fully electric systems. The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception.
ITEM 1. Business Overview Allison Transmission Holdings, Inc. and its subsidiaries (“Allison,” “we,” “us” or “our”) design and manufacture vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense fully automatic transmissions and electric hybrid and fully electric systems. The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception.
In addition to the sale of propulsion solutions, we also sell branded replacement parts, support equipment, aluminum die cast components and other products necessary to service the installed base of vehicles utilizing our solutions. The following table provides a summary of our business by end market, for the fiscal year ended December 31, 2022.
In addition to the sale of propulsion solutions, we also sell branded replacement parts, support equipment, aluminum die cast components and other products necessary to service the installed base of vehicles utilizing our solutions. The following table provides a summary of our business by end market for the fiscal year ended December 31, 2023.
The U.S. Environmental Protection Agency has taken action to control greenhouse gases from certain stationary and mobile sources. In addition, several states have taken steps, such as adoption of cap and trade programs or other regulatory systems, to address greenhouse gases. There have also been international efforts seeking legally binding reductions in emissions of greenhouse gases.
Environmental Protection Agency has taken action to control greenhouse gases from certain stationary and mobile sources. In addition, several states have taken steps, such as the adoption of cap and trade programs or other regulatory systems, to address greenhouse gases. There have also been international efforts seeking legally binding reductions in emissions of greenhouse gases.
The information contained on, or accessible through, our website is not incorporated into this Annual Report on Form 10-K. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. 16 Table of Contents
The information contained on, or accessible through, our website is not incorporated into this Annual Report on Form 10-K. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at https://www.sec.gov. 16 Table of Contents
Manufacturing Our manufacturing strategy provides for distributed capability in manufacturing and assembly of our products for the global commercial vehicle market. Our primary manufacturing facilities, located in Indianapolis, Indiana, consist of approximately 2.3 million square feet of usable manufacturing space in six plants.
Manufacturing Our manufacturing strategy provides for distributed capability in manufacturing and assembly of our products for the global commercial vehicle market. Our primary manufacturing facilities, located in Indianapolis, Indiana, consist of approximately 2.3 million square feet of usable manufacturing space in five plants.
Additionally, we face competition from ZF in certain defense wheeled vehicles using automatic transmissions and from several AMT suppliers. Service Parts, Support Equipment and Other Our service parts, support equipment and other end market is comprised of: Allison-branded service parts and transmission fluids, aluminum die cast components, extended transmission coverage, remanufactured transmissions, royalties, saleable engineering and support equipment.
Additionally, we face competition from ZF in certain defense wheeled vehicles using automatic transmissions and from several AMT suppliers. 10 Table of Contents Service Parts, Support Equipment and Other Our service parts, support equipment and other end market is comprised of: Allison-branded service parts and transmission fluids, aluminum die cast components, extended transmission coverage, remanufactured transmissions, royalties, saleable engineering and support equipment.
The process is interactive, as Allison representatives, Allison distributors, OEMs and dealers educate customers and respond to the specific applications, requirements and needs of numerous specialty markets. 13 Table of Contents Similarly, we work with customers, dealers and OEMs to educate, improve and simplify how they specify vehicles and vehicle systems in order to optimize vehicle performance and fuel consumption.
The process is interactive, as Allison representatives, Allison distributors, OEMs and dealers educate customers and respond to the specific applications, requirements and needs of numerous specialty markets. Similarly, we work with customers, dealers and OEMs to educate, improve and simplify how they specify vehicles and vehicle systems in order to optimize vehicle performance and fuel consumption.
Moreover, the clutches must be replaced regularly, resulting in increased maintenance expense and vehicle downtime. Manual transmissions also require a skilled driver to operate the disconnect clutch when launching the vehicle and shifting gears. AMTs are manual transmissions that feature automated operation of the disconnect clutch.
Moreover, the clutches must be replaced regularly, resulting in increased maintenance expense and vehicle downtime. Manual transmissions also 4 Table of Contents require a skilled driver to operate the disconnect clutch when launching the vehicle and shifting gears. AMTs are manual transmissions that feature automated operation of the disconnect clutch.
Some of our operations require environmental permits and controls to prevent and reduce air and water pollution. These permits are subject to modification, renewal and revocation by issuing authorities. In addition, certain of our products and our customer’s products are subject to certification requirements by a variety of regulatory bodies.
Some of our operations require environmental permits and controls to prevent and reduce air and water pollution. These permits are subject to modification, renewal and revocation by 14 Table of Contents issuing authorities. In addition, certain of our products and our customer’s products are subject to certification requirements by a variety of regulatory bodies.
We own and have licensing arrangements for a number of U.S. and foreign patents related to our products and business. We do not consider our business to be dependent on any single patent, nor will the expiration of any single patent materially affect our business.
We own and have licensing arrangements for a number of U.S. and foreign patents related to our products and business. We do not consider our business to be dependent 13 Table of Contents on any single patent, nor will the expiration of any single patent materially affect our business.
Additionally, we have created thousands of unique Allison-developed calibrations available to be used with our control modules. 4 Table of Contents Our Industry Commercial vehicles typically employ one of three transmission types: manual, automated manual or fully automatic. Manual and automated manual transmissions ("AMT") are the most prevalent transmission type used in Class 8 tractors in North America.
Additionally, we have created thousands of unique Allison-developed calibrations available to be used with our control modules. Our Industry Commercial vehicles typically employ one of three transmission types: manual, automated manual or fully automatic. Manual transmissions and automated manual transmissions ("AMT") are the most prevalent transmission types used in Class 8 tractors in North America.
We also have established customization and parts distribution in the United States, the Netherlands, Brazil, China, Hungary, India and Japan. Suppliers and Raw Materials A significant amount of the part numbers that make up our propulsion solutions are purchased from outside suppliers, and during 2022, we purchased approximately $969 million of direct materials and components from outside suppliers.
We also have established customization and parts distribution in the United States, the Netherlands, Brazil, China, Hungary, India and Japan. Suppliers and Raw Materials A significant amount of the part numbers that make up our propulsion solutions are purchased from outside suppliers, and during 2023, we purchased approximately $1,047 million of direct materials and components from outside suppliers.
Our spending on aluminum and steel raw materials directly and indirectly through our purchase of these components constituted approximately 22% of our direct material and component costs in 2022. The balance of our direct and indirect materials and components costs are primarily composed of value-added services and conversion costs.
Our spending on aluminum and steel raw materials directly and indirectly through our purchase of these components constituted approximately 20% of our direct material and component costs in 2023. The balance of our direct and indirect materials and components costs are primarily composed of value-added services and conversion costs.
Army for Abrams Tank sustainment. See Part I, Item 1A., “Risk Factors” of this Annual Report on Form 10-K for a discussion of risks associated with our contracts with the DOD. We have defense products in 110 countries around the world.
See Part I, Item 1A., “Risk Factors” of this Annual Report on Form 10-K for a discussion of risks associated with our contracts with the DOD. We have defense products in approximately 110 countries around the world.
Propulsion solutions for tactical wheeled vehicles are typically sold to OEMs. We supply tracked vehicle propulsion solutions to the U.S. Army, including the Abrams M1A2 Main Battle Tank, Joint Assault Bridge, Assault Breacher Vehicles, Mobile Protected Firepower Assault Vehicles and the M113A3 Armored Personnel Carrier family of vehicles. We also sell parts kits to the U.S.
Propulsion solutions for tactical wheeled vehicles are typically sold to OEMs. We supply tracked vehicle propulsion solutions to the U.S. Army, including the Abrams M1A2 Main Battle Tank, Joint Assault Bridge, Assault Breacher Vehicles, M10 Booker and the M113A3 Armored Personnel Carrier family of vehicles. We also sell parts kits to the U.S. Army for Abrams Tank sustainment.
The following is a summary of our on-highway net sales by vehicle class in North America. Our core North American on-highway market includes Class 4-5, Class 6-7 and Class 8 straight trucks, conventional transit, shuttle and coach buses, school buses and motorhomes.
The following is a summary of our on-highway net sales by vehicle class in North America. Our core North American on-highway market includes Class 4-5, Class 6-7 and Class 8 straight trucks and regional haul tractors, conventional transit, shuttle and coach buses, school buses and motorhomes. Class 8 trucks are subdivided into two markets: straight and tractor.
Our people continue to be a critical component in our continued success, the delivery of our values and the execution of our growth initiatives. As of December 31, 2022, we had a highly skilled workforce of approximately 3,500 employees, with approximately 89% of those employees in the U.S.
Our people are a critical component in our continued success, the delivery of our values and the execution of our growth initiatives. As of December 31, 2023, we had a highly skilled workforce of approximately 3,700 employees, with approximately 89% of those employees in the U.S.
Within the aftermarket, we offer remanufactured transmissions under our ReTran brand, which provides a cost-effective alternative for transmission repairs and replacements. We also provide support equipment to our OEMs to assist in installing new Allison solutions into vehicles, and, therefore, sales of support equipment are dependent upon sales of new solutions.
Within the aftermarket, we offer remanufactured propulsion solutions as a cost-effective alternative for repairs and replacements. We also provide support equipment to our OEMs to assist in installing new Allison solutions into vehicles, and, therefore, sales of support equipment are dependent upon sales of new solutions.
Class 8 trucks are subdivided into two markets: straight and tractor (which includes both line-haul and regional haul day cab tractors). Class 8 straight trucks are those with a unified body (e.g., refuse, construction, and dump trucks), while tractors have a vehicle chassis that is separable from the trailer they pull.
Class 8 straight trucks are those with a unified body (e.g., refuse, construction, and dump trucks), while tractors have a vehicle chassis that is separable from the trailer they pull. Class 8 tractor is further divided into two subcategories: regional haul and line-haul.
Defense We have a long-standing relationship with the U.S. Department of Defense (the “DOD”) dating back to 1946, when we began developing our first-generation tank transmission.
Defense We have had a long-standing relationship with the U.S. Department of Defense (the “DOD”) since the 1940s, when we began developing our first-generation tank transmission.
Approximately 46% of our U.S. employees are represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) and are subject to a collective bargaining agreement. In December 2017, we entered into a six-year collective bargaining agreement with UAW Local 933 that expires in November 2023.
Approximately 48% of our U.S. employees are represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) and are subject to a collective bargaining agreement. In January 2024, we entered into a new four-year collective bargaining agreement with UAW Local 933 that expires in November 2027. Inclusion and Diversity .
Despite their propulsion solutions manufacturing capabilities, we believe that our existing OEM customers have chosen to purchase certain propulsion solutions from us due to the quality, reliability and strong brand of our propulsion solutions and in order to limit fixed costs, minimize production risks and maintain company focus on commercial vehicle design, production and marketing.
Despite their propulsion solutions manufacturing capabilities, we believe that our existing OEM customers have chosen to purchase certain propulsion solutions from us due to the quality, reliability and strong brand of our propulsion solutions and in order to limit fixed costs, minimize production risks and maintain company focus on commercial vehicle design, production and marketing. 15 Table of Contents Corporate Information Allison Transmission Holdings, Inc. was incorporated in Delaware on June 22, 2007.
NORTH AMERICA OUTSIDE NORTH AMERICA END MARKET ON- HIGHWAY OFF- HIGHWAY ON- HIGHWAY OFF- HIGHWAY DEFENSE SERVICE PARTS, SUPPORT EQUIPMENT & OTHER 2022 NET SALES (IN MILLIONS) $ 1,359 $ 86 $ 463 $ 127 $ 146 $ 588 % OF TOTAL 49% 3% 17% 5% 5% 21% • Construction • Day Cab Tractors • Distribution • Emergency • Motorhome • Refuse • School, transit, shuttle and coach buses • Utility • Construction • Energy • Mining • Specialty vehicle • Construction • Distribution • Emergency • Mining • Refuse • School, transit, shuttle and coach buses • Specialty • Utility • Construction • Energy • Mining • Specialty vehicle • North America medium- and heavy-tactical wheeled platforms • Global tracked combat platforms • Aluminum die cast components • Extended transmission coverage • Remanufactured transmissions • Royalties • Saleable engineering • Service parts • Support equipment • Transmission fluids Refer to "Note 19.
NORTH AMERICA OUTSIDE NORTH AMERICA END MARKET ON- HIGHWAY OFF- HIGHWAY ON- HIGHWAY OFF- HIGHWAY DEFENSE SERVICE PARTS, SUPPORT EQUIPMENT & OTHER 2023 NET SALES (IN MILLIONS) $ 1,529 $ 63 $ 477 $ 104 $ 166 $ 696 % OF TOTAL 50% 2% 16% 4% 5% 23% • Construction • Day Cab Tractors • Distribution • Emergency • Motorhome • Refuse • School, transit, shuttle and coach buses • Utility • Construction • Energy • Mining • Specialty vehicle • Construction • Distribution • Emergency • Mining • Refuse • School, transit, shuttle and coach buses • Specialty • Utility • Construction • Energy • Mining • Specialty vehicle • Global tracked combat platforms • North America medium- and heavy-tactical wheeled platforms • Aluminum die cast components • Extended transmission coverage • Remanufactured transmissions • Royalties • Saleable engineering • Service parts • Support equipment • Transmission fluids Refer to "Note 19.
We often compete in this market against independent manufacturers of manual transmissions, AMTs, electric hybrid and fully electric propulsion solutions, fully automatic transmissions manufactured by Ford Motor Company (“Ford”), ZF Friedrichshafen AG (“ZF”) and Voith GmbH (“Voith”) and against vertically integrated OEMs in certain weight classes that use their own internally manufactured transmissions in certain vehicles. 7 Table of Contents The following table presents a summary of our market share by vehicle class in the North America On-Highway end market.
We often compete in this market against (i) independent manufacturers of 7 Table of Contents manual transmissions, AMTs, electric hybrid and fully electric propulsion solutions, (ii) fully automatic transmissions manufactured by Ford Motor Company (“Ford”), ZF Friedrichshafen AG (“ZF”) and Voith GmbH (“Voith”) and (iii) vertically integrated OEMs in certain weight classes that use their own internally manufactured transmissions in certain vehicles.
For 2022, we achieved an overall recordable rate of 2.26, meaning that for every 100 employees, 2.26 employees incurred an injury that resulted in recordable medical treatment and the number of lost work days was 0.87, meaning that for every 100 employees, 0.87 individuals experienced an incident that resulted in days away from work.
For 2023, we achieved an overall recordable rate of 1.64 at our global locations, meaning that for every 100 employees, 1.64 employees incurred an injury that resulted in recordable medical treatment, and the number of lost work days was 0.63 at our global locations, meaning that for every 100 employees, 0.63 individuals experienced an incident that resulted in days away from work.
However, in typical market conditions, the North American truck market experiences a higher level of production in the first half of the year due to fewer holidays and the practice of plant shutdowns in July and December.
However, in typical market conditions, the North American truck market experiences a higher level of production in the first half of the year due to fewer holidays and the practice of plant shutdowns in July and December. Human Capital At Allison, we believe in the power of our people, our processes and our products.
Within Asia-Pacific, our sales efforts are principally focused on the transit bus, vocational truck, severe service and distribution markets. Currently, manual transmissions are the predominant transmissions used in commercial vehicles in the Asia-Pacific region.
In addition, OEMs in the Asia-Pacific market are increasingly exporting their products to other regions. Within Asia-Pacific, our sales efforts are principally focused on the transit bus, vocational truck, severe service and distribution markets. Currently, manual transmissions are the predominant transmissions used in commercial vehicles in the Asia-Pacific region. Europe, Middle East, Africa.
We expect that commercial vehicle build schedules will continue to be negatively impacted by the availability of components in 2023. Our Business We are the world’s largest manufacturer of fully automatic transmissions for medium- and heavy-duty commercial vehicles and medium- and heavy-tactical U.S. defense vehicles and a leader in electrified propulsion systems.
Our Business We are the world’s largest manufacturer of fully automatic transmissions for medium- and heavy-duty commercial vehicles and medium- and heavy-tactical U.S. defense vehicles and a leader in electrified propulsion systems.
Employee Health & Safety . Allison’s overriding priority is to protect the health and safety of each employee. As part of our health and safety programs , employees participate in training focused on this topic and metrics are reviewed regularly, including the number of injury incidents that occur and those incidents that result in lost work days.
Employees participate in training focused on health and safety and metrics are reviewed regularly, including the number of injury incidents that occur and those incidents that result in lost work days.
Increasingly, we are supplying vehicle propulsion solutions for international tracked vehicles, such as light tracked personnel carriers, armored fighting vehicles, heavy tracked artillery systems, and Main Battle Tanks.
Increasingly, we are supplying vehicle propulsion solutions for international tracked vehicles, such as light tracked personnel carriers, armored fighting vehicles, heavy tracked artillery systems, and Main Battle Tanks. Our defense products are manufactured at our headquarters in Indianapolis and by our licensees internationally for export world-wide.
Historically, our annual costs of achieving and maintaining compliance with environmental, health and safety requirements have not been material to our financial results. 15 Table of Contents Increasing global efforts to control emissions of carbon dioxide, methane, ozone, nitrogen oxide and other greenhouse gases and pollutants, as well as the shifting focus of regulatory efforts towards total emissions output, have the potential to impact our facilities, costs, products and customers.
Increasing global efforts to control emissions of carbon dioxide, methane, ozone, nitrogen oxide and other greenhouse gases and pollutants, as well as the shifting focus of regulatory efforts towards total emissions output, have the potential to impact our facilities, costs, products and customers. The U.S.
While the use of fully automatic transmissions in the medium- and heavy-duty commercial vehicle market has been widely accepted in North America, markets outside North America continue to be dominated by manual transmissions. Where adopted, fully automatic transmission-equipped medium- and heavy-duty commercial vehicles are concentrated in certain vocational end markets.
We also provide electric hybrid and fully electric propulsion solutions for the outside North America on-highway market. While the use of fully automatic transmissions in the medium- and heavy-duty commercial vehicle market has been widely accepted in North America, markets outside North America continue to be dominated by manual transmissions.
The competition for service parts and ReTran transmissions comes from a variety of smaller-scale companies sourcing non-genuine “will-fit” parts from unauthorized manufacturers.
The competition for service parts and ReTran remanufactured transmissions comes from a variety of smaller-scale companies sourcing non-genuine “will-fit” parts from unauthorized manufacturers. These “will-fit” parts often do not meet our product specifications, and therefore may be of lesser quality than genuine Allison parts.
Allison is traded on the New York Stock Exchange under the symbol “ALSN”. We have approximately 3,500 employees. Although approximately 74% of revenues were generated in North America in 2022, we have a global presence by serving customers in Asia, Europe, South America and Africa.
Allison is traded on the New York Stock Exchange under the symbol “ALSN”. We have a global presence by serving customers in North America, Asia, Europe, South America, and Africa, with approximately 75% of our revenues being generated in North America in 2023. We serve customers through an independent network of approximately 1,600 independent distributor and dealer locations worldwide.
We have been supplying transmissions for Class 8 straight trucks for decades, and it is a core end market for us. We have limited exposure to the Class 8 line-haul tractor market because lower priced manual transmissions and AMTs generally meet the needs of these vehicles which are primarily used in long distance hauling.
We have limited exposure to the Class 8 line-haul tractor market because lower priced manual transmissions and AMTs generally meet the needs of these vehicles which are primarily used in long distance hauling. We also provide electric hybrid and fully electric propulsion solutions within the North American on-highway market.
Our defense products are manufactured at our headquarters in Indianapolis and by our licensees internationally for export world-wide. 10 Table of Contents Globally, we face competition primarily from Renk AG/Renk America, SAPA S.p.A, ST Kinetics and QinetiQ Group plc for supply of tracked vehicle propulsion solutions.
Globally, we face competition primarily from Renk AG/Renk America, SAPA S.p.A, ST Kinetics and QinetiQ Group plc for the supply of tracked vehicle propulsion solutions.
These OEMs, in turn, install our propulsion solutions in vehicles in which our product is either the exclusive propulsion solution available or is specifically requested by end users. In 2022, OEM customers representing over 90% of our North American on-highway unit volume participated in long-term agreements (“LTAs”) with us.
We sell substantially all of our propulsion solutions in the North American on-highway market to OEMs. These OEMs, in turn, install our propulsion solutions in vehicles in which our product is either the exclusive propulsion solution available or is specifically requested by end users.
While our marketing management uses the term “customer” interchangeably for OEMs and end users, the primary objective of our marketing strategy is to create demand for propulsion solutions through: • OEM promotion of our products and incorporation of our propulsion solutions in their commercial vehicle product offerings; • Allison representative and/or Allison distributor contact with identified, major end users; and • Our network of independent dealers who contact other end users.
We target our end users primarily through marketing activities by our sales staff, who directly call on end users and attend local trade shows, targeting specific vocations globally and through our plant tour programs, where end users may test our products on our Indianapolis test track and our enhanced customer experience demonstration track at our Hungary facility. 12 Table of Contents While our marketing management uses the term “customer” interchangeably for OEMs and end users, the primary objective of our marketing strategy is to create demand for propulsion solutions through: • OEM promotion of our products and incorporation of our propulsion solutions in their commercial vehicle product offerings; • Allison representative and/or Allison distributor contact with identified, major end users; and • Our network of independent dealers who contact other end users.
We believe we are in substantial compliance with all material environmental laws and regulations applicable to our plants and operations.
We believe we are in substantial compliance with all material environmental laws and regulations applicable to our plants and operations. Historically, our annual costs of achieving and maintaining compliance with environmental, health and safety requirements have not been material to our financial results.
Off-highway energy applications include hydraulic fracturing equipment, well-stimulation equipment, pumping equipment, and well-servicing rigs, which often use a fully automatic transmission in stationary pumping applications. We supply our heavy duty off-highway transmissions to producers of well-stimulation and well-servicing equipment. Competition in this end market includes Caterpillar Inc. (“Caterpillar”) and Twin Disc, Inc. (“Twin Disc”).
We supply our heavy duty off-highway transmissions to producers of well-stimulation and well-servicing equipment. Competition in this end market includes Caterpillar Inc. (“Caterpillar”) and Twin Disc, Inc. (“Twin Disc”). We also provide heavy-duty transmissions used in mining trucks, specialty vehicles and construction vehicles.
Generally, these LTAs offer the OEM customer defined levels of mutual commitment with respect to growing Allison’s presence in the OEMs’ products and promotional efforts, pricing and sharing of commodity cost risk. The length of our LTAs is typically between three and five years.
In 2023, OEM customers representing over 90% of our North American on-highway unit volume participated in long-term agreements (“LTAs”) with us. Generally, these LTAs offer the OEM customer defined levels of mutual commitment with respect to growing Allison’s presence in the OEMs’ products and promotional efforts, pricing and sharing of commodity cost risk.
We also compete with independent manufacturers ZF and Dana. Specialty vehicles using our heavy-duty off-highway transmissions include airport rescue and firefighting vehicles. Our major competitor in this end market is Twin Disc. Outside North America Outside North America we serve several different markets, including: Asia-Pacific, Europe, Middle East, Africa (collectively, “EMEA”), and South America. On-Highway.
Our major competitor in this end market is Twin Disc. Outside North America Outside North America we serve several different markets, including: Asia-Pacific, Europe, Middle East, Africa (collectively, “EMEA”), and South America. On-Highway. We are the largest manufacturer of fully automatic transmissions for the commercial vehicle market outside of North America.
In North America, selling efforts in the on-highway end market are organized by distributor area responsibility, OEM sales and, for our large end users, national accounts. Outside North America, we manage our sales, marketing, service and application engineering professionals through regional areas of responsibility. These regional management teams distribute OEM service and application engineering resources globally.
Sales and Marketing Organization Our sales and marketing effort is organized along geographic and customer lines and is comprised of marketing, sales and service professionals, supported by customer integration engineers worldwide. In North America, selling efforts in the on-highway end market are organized by distributor area responsibility, OEM sales and, for our large end users, national accounts.
We also provide electric hybrid and fully electric propulsion solutions within the North American on-highway market. The interest in conserving fuel and reducing greenhouse gas emissions is driving demand for more fuel-efficient commercial vehicles. Our electric hybrid and fully electric propulsion customers include bus and truck applications.
The interest in conserving fuel and reducing greenhouse gas emissions is driving demand for more fuel-efficient commercial vehicles. Our electric hybrid and fully electric propulsion customers include bus and truck applications. We compete primarily with BAE Systems plc and manufacturers of fully electric propulsion solutions such as Dana Incorporated ("Dana") and Cummins Inc. as well as certain vertically integrated OEMs.
We manage our defense products sales, marketing and service geographically, with North America and Outside North America sales supported by application engineering through professionals based in Indianapolis, Indiana. We have developed a marketing strategy to reach OEM customers as well as end users.
Outside North America, we manage our sales, marketing, service and customer integration engineering professionals through regional areas of responsibility. These regional management teams distribute OEM service and customer integration engineering resources globally. We have developed a marketing strategy to reach OEM customers as well as end users.
Our key Asia-Pacific markets include China, Japan, South Korea, Australia and India; however, we actively participate in several other important Asia-Pacific countries including Indonesia, Malaysia, Singapore, Taiwan and Thailand. In addition, OEMs in the Asia-Pacific market are increasingly exporting their products to other regions.
The following is a summary of our on-highway net sales by region outside of North America. 8 Table of Contents Asia-Pacific. Our key Asia-Pacific markets include Australia, China, India, Japan and South Korea; however, we actively participate in several other important Asia-Pacific countries including Indonesia, Malaysia, Singapore, Taiwan and Thailand.
There have been no strikes or work stoppages due to Allison-specific issues in over 40 years. Inclusion and Diversity . Allison recognizes the power of different thought, accepts and respects each individual and strives to create an inclusive workplace where everyone can reach their full potential, driving innovation and business results.
Allison recognizes the power of different thought, accepts and respects each individual and strives to create an inclusive workplace where everyone can reach their full potential, driving innovation and business results. Allison’s Inclusion and Diversity (I&D) Executive Council is chaired by our Chief Executive Officer and includes eight executive members.
We also provide heavy-duty transmissions used in mining trucks, specialty vehicles and construction vehicles. Off-highway mining and construction applications include trucks used to haul various commodities and other products around construction sites and mines, including underground mines.
Off-highway mining and construction applications include trucks used to haul various commodities and other products around construction sites and mines, including underground mines. These trucks include rigid dump trucks, wide-body dump trucks and underground trucks with load capacities between 40 to 110 tons.
These trucks include rigid dump trucks, wide-body dump trucks, underground trucks, and long-haul tractor trailer trucks with load capacities between 40 to 110 tons. Our major competitors in this end market include vertically integrated companies that manufacture fully automatic transmissions for their vehicles. These vertically integrated competitors include Caterpillar, Komatsu Ltd. (“Komatsu”), and Volvo Group (“Volvo”).
Our major competitors in this end market include vertically integrated companies that manufacture fully automatic transmissions for their vehicles. These vertically integrated competitors include Caterpillar, Komatsu Ltd. (“Komatsu”), and Volvo Group (“Volvo”). We also compete with independent manufacturers ZF and Dana. Specialty vehicles using our heavy-duty off-highway transmissions include airport rescue and firefighting vehicles.
We often compete in this market against independent manufacturers of manual transmissions, AMTs, electric hybrid and fully electric propulsion solutions, fully automatic transmissions manufactured by ZF, Voith, and Shaanxi Fast Gear Co., Ltd. and against vertically integrated OEMs. The following is a summary of our on-highway net sales by region outside of North America. 8 Table of Contents Asia-Pacific.
Where adopted, fully automatic transmission-equipped medium- and heavy-duty commercial vehicles are concentrated in certain vocational end markets. We often compete in this market against (i) independent manufacturers of manual transmissions, AMTs, electric hybrid and fully electric propulsion solutions, (ii) fully automatic transmissions manufactured by ZF, Voith, and Shaanxi Fast Gear Co., Ltd. and (iii) vertically integrated OEMs.
These “will-fit” parts often do not meet our product specifications, and therefore may be of lesser quality than genuine Allison parts. 11 Table of Contents Our Product Offerings Allison transmissions and electric propulsion solutions are sold under the Allison Transmission brand name and remanufactured transmissions are sold under the ReTran brand name.
Our Product Offerings Allison transmissions and electric propulsion solutions are sold under the Allison Transmission brand name and remanufactured transmissions are sold under the ReTran brand name. The following is a summary of our product lines.
We file annual, quarterly and current reports, proxy statements and other documents with the United States Securities and Exchange Commission (“SEC”), under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Our principal executive offices are located at One Allison Way, Indianapolis, IN 46222 and our telephone number is (317) 242-5000. Our internet address is https://www.allisontransmission.com. We file annual, quarterly and current reports, proxy statements and other documents with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
CLASS 4-5 TRUCKS MOTOR HOME SCHOOL BUS CLASS 6-7 TRUCKS CLASS 8 STRAIGHT TRUCKS CLASS 8 DAY CAB 2022 SHARE 13% 44% 85% 79% 78% 5% Off-Highway. We have provided products used in vehicles and equipment that serve energy, mining and construction applications in North America for over 70 years.
We have provided products used in vehicles and equipment that primarily serve energy, mining and construction applications in North America for over 70 years. Off-highway energy applications include hydraulic fracturing equipment, well-stimulation equipment, pumping equipment, and well-servicing rigs, which often use a fully automatic transmission in stationary pumping applications.
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We serve customers through an independent network of approximately 1,600 independent distributor and dealer locations worldwide. Global markets continue to experience supply chain, labor, energy and raw material constraints as a result of global economic volatility, the war in Ukraine and the COVID-19 pandemic, that impacted our business in 2022 and continue to impact our business performance.
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Regional haul tractors are typically used for local or regional hauling, whereas line-haul tractors are typically used in extended duration long distance hauling. We have been supplying transmissions for Class 8 straight trucks for decades, and it is a core end market for us.
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As a result, during 2022 we experienced raw material and component part price inflation, increased freight and logistics costs, increased labor costs, production constraints due to labor shortages and increased foreign exchange volatility.
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The length of our LTAs is typically between three and five years.
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In addition, our net sales for 2022 were negatively impacted as a result of our customers’ inability to secure components from the broader commercial vehicle supply base which resulted in reduced commercial vehicle build schedules and the inability of the commercial vehicle market to produce sufficient quantities to meet demand.
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The following table presents a summary of our market share by vehicle class in the North America On-Highway end market. CLASS 4-5 TRUCKS MOTOR HOME SCHOOL BUS CLASS 6-7 TRUCKS CLASS 8 STRAIGHT TRUCKS CLASS 8 DAY CAB 2023 SHARE 15% 33% 79% 79% 82% 5% Off-Highway.
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We compete primarily with BAE Systems plc and manufacturers of fully electric propulsion solutions such as Dana Incorporated ("Dana") and Cummins, Inc. as well as certain vertically integrated OEMs. We sell substantially all of our propulsion solutions in the North American on-highway market to OEMs.
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The council exists to provide leadership advice, analyze progress of our I&D strategy and ensure alignment with our business strategy. We are committed to advancing and representing all of our workforce by creating a diverse, equitable, and inclusive organization.
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We are the largest manufacturer of fully automatic transmissions for the commercial vehicle market outside of North America. We also provide electric hybrid and fully electric propulsion solutions within the outside North America on-highway market.
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Our efforts to promote an equitable and inclusive workplace include: providing unconscious bias training; continuing to increase our focus on non-traditional recruiting sources such as veterans, people with disabilities, diverse professional organizations, high schools, Historically Black Colleges and Universities and predominantly Hispanic organizations; organizing virtual mentoring programs to connect employees from different locations, departments and backgrounds; and creating LGBTQ+, multicultural, emerging professionals and military veterans employee resource groups.
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In China, government subsidies and regulations by governmental entities continue to drive the development and adoption of fully electric propulsion solutions for use in the bus and truck markets. Europe, Middle East, Africa .
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Employee Health & Safety . Allison’s overriding priority is to protect the health and safety of each employee. As part of our health and safety programs, Allison is certified in ISO 45001, Occupational Health and Safety Management Systems. ISO 45001 is the only internationally recognized Safety Management System.
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The following is a summary of our product lines.
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In addition to the foregoing, various legislation, regulations and international accords pertaining to climate change have been implemented or are being considered for implementation, particularly as they relate to the reporting of greenhouse gas emissions and sustainability efforts being undertaken, such as the European Union’s Corporate Sustainability Reporting Directive ("CSRD"), California’s Climate Corporate Data Accountability Act and Climate-Related Financial Risk Act, and proposed climate disclosure rules that remain under consideration by the SEC.
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Some examples of these development efforts in 2022 include the expansion of our eGen portfolio of electric propulsion solutions through the addition of the 130S fully electric axle and the eGen Flex, our next generation electric hybrid system capable of full electric vehicle operation for up to 50% of a bus’s route depending on duty-cycle.
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We continue to monitor the development and implementation of such legislation and regulations and are evaluating the impact these laws and regulations may have on the Company, including the extent of our potential disclosures or other reporting requirements.
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Our product development and engineering efforts in 2022 also extended into our off-highway and Defense end-markets through the launch of FracTran, a more efficient and higher-horsepower hydraulic fracturing transmission, and the development of eGen Force, a new cross-drive transmission for tracked applications that enables electric hybrid propulsion and electric only silent maneuverability.
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We also continue to regularly report our sustainability efforts and metrics under the Global Reporting Initiative framework and report our progress in our annual Environmental, Social and Governance Report.
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In 2022, we also began production of our next generation of electronic controls that are capable of delivering advanced communications, functional safety, cybersecurity and over-the-air programming. Sales and Marketing Organization Our sales and marketing effort is organized along geographic and customer lines and is comprised of marketing, sales and service professionals, supported by application engineers worldwide.
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We target our end users primarily through marketing activities by our sales staff, who directly call on end users and attend local trade shows, targeting specific vocations globally and through our plant tour programs, where end users may test our products on our Indianapolis test track and our enhanced customer experience demonstration track at our Hungary facility.
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Due to ongoing supply chain and labor constraints caused by global economic volatility, the war in Ukraine and the COVID-19 pandemic, demand for our products may not align with the demand we have experienced during typical market conditions. 14 Table of Contents Human Capital At Allison, we believe in the power of our people, our processes and our products.
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Our inclusion and diversity efforts in 2022 included the participation by employees in unconscious bias training, continuing our speaker series to facilitate dialogue about inclusion and diversity, continuing to increase our focus on the recruitment of underrepresented groups including by participating in career fairs with Historically Black Colleges and Universities, Hispanic institutions, veterans and people with disabilities and continuing our virtual mentoring program to connect team members from different offices, departments and backgrounds.
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Corporate Information Allison Transmission Holdings, Inc. was incorporated in Delaware on June 22, 2007. Our principal executive offices are located at One Allison Way, Indianapolis, IN 46222 and our telephone number is (317) 242-5000. Our internet address is www.allisontransmission.com.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

61 edited+19 added−14 removed115 unchanged
Biggest changeAdditionally, we license the “Allison Transmission” name and certain related trademarks to third parties. If any third party uses the trade name “Allison Transmission” in ways that adversely affect such trade name or trademark, our reputation could suffer damage, which in turn could have a material adverse effect on our business, results of operations and financial condition.
Biggest changeIf any third party uses the trade name “Allison Transmission” in ways that adversely affect such trade name or trademark, our reputation could suffer damage, which in turn could have a material adverse effect on our business, results of operations and financial condition. 25 Table of Contents Many of the key patents and unpatented technology we use in our business are licensed to us, not owned by us, and our ability to use and enforce such patents and technology is restricted by the terms of the license.
Potential and completed acquisitions and partnerships involve many risks that could have an adverse effect on our business, financial condition or results of operations, including: • our ability to identify suitable acquisition or partnership candidates, prevail against competing potential acquirers or partners and negotiate and consummate acquisitions or partnerships on terms attractive to us; • difficulties in integrating personnel and sales forces, operations, manufacturing, logistics, research and development, information technology, communications, purchasing, accounting, marketing, administration and other systems and processes and otherwise assimilating the operations of the acquired company; • the diversion of resources, including diverting management’s attention from our current operations; • risks of entering new geographic or product markets in which we have limited or no direct prior experience; • the potential loss of key customers, employees or suppliers of the acquired company or adverse effects on our existing business relationships with our suppliers and customers; • the potential incurrence of indebtedness to fund the acquisition or partnerships; 24 Table of Contents • the acquired business or partnership not achieving anticipated revenues, earnings, cash flow or market share; • excess capacity; • failure to achieve the expected synergies or cost savings; • the need for additional investments post-investment or post-acquisition that could be greater than anticipated; • the impact of U.S. and foreign competition laws and regulations on our ability to make certain acquisitions, to enter into certain partnerships or to make certain strategic investments; • inaccurate assessment of undisclosed, contingent or other liabilities or problems and unanticipated costs associated with the acquisition or partnership; • incorrect estimates made in accounting for acquisitions, incurrence of non-recurring charges and write-off of significant amounts of goodwill that could adversely affect our financial results; and • dilution of earnings.
Potential and completed acquisitions and partnerships involve many risks that could have an adverse effect on our business, financial condition or results of operations, including: • our ability to identify suitable acquisition or partnership candidates, prevail against competing potential acquirers or partners and negotiate and consummate acquisitions or partnerships on terms attractive to us; • difficulties in integrating personnel and sales forces, operations, manufacturing, logistics, research and development, information technology, communications, purchasing, accounting, marketing, administration and other systems and processes and otherwise assimilating the operations of the acquired company; • the diversion of resources, including diverting management’s attention from our current operations; • risks of entering new geographic or product markets in which we have limited or no direct prior experience; • the potential loss of key customers, employees or suppliers of the acquired company or adverse effects on our existing business relationships with our suppliers and customers; • the potential incurrence of indebtedness to fund the acquisition or partnerships; • the acquired business or partnership not achieving anticipated revenues, earnings, cash flow or market share; • excess capacity; • failure to achieve the expected synergies or cost savings; • the need for additional investments post-investment or post-acquisition that could be greater than anticipated; • the impact of U.S. and foreign competition laws and regulations on our ability to make certain acquisitions, to enter into certain partnerships or to make certain strategic investments; 24 Table of Contents • inaccurate assessment of undisclosed, contingent or other liabilities or problems and unanticipated costs associated with the acquisition or partnership; • incorrect estimates made in accounting for acquisitions, incurrence of non-recurring charges and write-off of significant amounts of goodwill that could adversely affect our financial results; and • dilution of earnings.
We cannot offer any assurance that we will be able to consummate any future acquisitions, strategic investments, partnerships or other business combinations. If we are unable to identify suitable acquisition candidates or to consummate and successfully integrate our recent and any future acquisitions, our business and results of operations may be adversely affected as a result.
We cannot offer any assurance that we will be able to consummate any future acquisitions, strategic investments, partnerships or other business combinations. If we are unable to identify suitable acquisition candidates or to consummate and successfully integrate any future acquisitions, our business and results of operations may be adversely affected as a result.
Department of the Treasury, and other trade protection regulations and measures; • political risks, including increased trade protectionism and risks of loss due to civil disturbances, acts of terrorism, acts of war, guerilla activities and insurrection; • unstable economic, financial and market conditions and increased expenses as a result of inflation, higher energy costs or higher interest rates; • difficulties in enforcement of third-party contractual obligations and intellectual property rights and collecting receivables through foreign legal systems; • difficulty in staffing and managing international operations and the application of foreign labor regulations; • differing local product preferences and product requirements; • fluctuations in currency exchange rates to the extent that our assets or liabilities are denominated in a currency other than the functional currency of the country where we operate; • potentially adverse tax consequences from changes in tax laws, requirements relating to withholding taxes on remittances and other payments by subsidiaries and restrictions on our ability to repatriate dividends from our subsidiaries; and • exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S.
Department of the Treasury, and other trade protection regulations and measures; 23 Table of Contents • political risks, including increased trade protectionism and risks of loss due to civil disturbances, acts of terrorism, acts of war, guerilla activities and insurrection; • unstable economic, financial and market conditions and increased expenses as a result of inflation, higher energy costs or higher interest rates; • difficulties in enforcement of third-party contractual obligations and intellectual property rights and collecting receivables through foreign legal systems; • difficulty in staffing and managing international operations and the application of foreign labor regulations; • differing local product preferences and product requirements; • fluctuations in currency exchange rates to the extent that our assets or liabilities are denominated in a currency other than the functional currency of the country where we operate; • potentially adverse tax consequences from changes in tax laws, requirements relating to withholding taxes on remittances and other payments by subsidiaries and restrictions on our ability to repatriate dividends from our subsidiaries; and • exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S.
We have incurred and expect to continue to incur significant costs to maintain or achieve compliance with applicable environmental, health and safety laws and regulations. Moreover, regulatory bodies are increasingly adopting regulations that target limiting greenhouse gases and combatting climate change, which may impact our ability to sell our current products or require us to develop new products or technologies.
We have incurred and expect to continue to incur significant costs to maintain or achieve compliance with applicable environmental, health and safety laws and regulations. Moreover, regulatory bodies are increasingly adopting regulations that target limiting greenhouse gases and combating climate change, which may impact our ability to sell our current products or require us to develop new products or technologies.
Even in the event that increased costs can be passed through to customers, our gross margin percentages would decline as the recovery of these costs from customers generally lags six to twelve months. In 2022, approximately 75% of our total spending on components was sourced from approximately 40 suppliers, many of which are the single source for such components.
Even in the event that increased costs can be passed through to customers, our gross margin percentages would decline as the recovery of these costs from customers generally lags six to twelve months. In 2023, approximately 75% of our total spending on components was sourced from approximately 40 suppliers, many of which are the single source for such components.
Increasing inflation, geopolitical risks and supply chain, labor and energy constraints have caused and may continue to cause volatility in and disruption to the global economic environment.
Geopolitical risks, supply chain, labor and energy constraints and inflation have caused and may continue to cause volatility in and disruption to the global economic environment.
Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome. An unsuccessful product liability defense could have a material adverse effect on our business, results of operation, financial condition or prospects.
Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome. An unsuccessful product liability defense could have a material adverse effect on our business, results of operations, financial condition or prospects.
The magnitude of such impact cannot be determined with certainty at this time. However, the effect of a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2022 defined benefit pension plans obligation of approximately $17 million.
The magnitude of such impact cannot be determined with certainty at this time. However, the effect of a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2023 defined benefit pension plans obligation of approximately $17 million.
In the event we are not able to maintain or enhance our 25 Table of Contents brand in these new markets or our reputation is damaged in our existing markets as a result of product defects or recalls, we may face difficulty in maintaining our pricing positions with respect to some of our products or experience reduced demand for our products, which could negatively impact our business, results of operations and financial condition.
In the event we are not able to maintain or enhance our brand in these new markets or our reputation is damaged in our existing markets as a result of product defects or recalls, we may face difficulty in maintaining our pricing positions with respect to some of our products or experience reduced demand for our products, which could negatively impact our business, results of operations and financial condition.
We currently maintain product liability insurance coverage, but we cannot be assured that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims.
We currently maintain product liability insurance coverage, but we cannot guarantee that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims.
If the rate of adoption of fully automatic transmissions does not increase as we have anticipated, our long-term growth prospects and results of operations may be impaired. Our international operations, in particular our emerging markets, are subject to various risks which could have a material adverse effect on our business, results of operations and financial condition.
If the rate of adoption of our propulsion solutions, including fully automatic transmissions, does not increase as we have anticipated, our long-term growth prospects and results of operations may be impaired. Our international operations, in particular our emerging markets, are subject to various risks which could have a material adverse effect on our business, results of operations and financial condition.
An increase in the cost or a sustained interruption in the supply or shortage of some of these raw materials or components that may be caused by a deterioration of our relationships with suppliers or by events such as natural disasters and extreme weather events which may increase in frequency and intensity as a result of climate change, power outages, labor strikes and public health crisis such as pandemics and epidemics or the like could negatively impact our business, results of operations and financial condition.
An increase in the cost or a sustained interruption in the supply or shortage of some of these raw materials or components that may be caused by a deterioration of our relationships with suppliers, adverse geopolitical events such as the crisis in the Red Sea, events such as natural disasters and extreme weather events which may increase in frequency and intensity as a result of climate change, power outages, labor strikes and public health crisis such as pandemics and epidemics or the like could negatively impact our business, results of operations and financial condition.
In addition, the discontinuation of particular vehicle models for which we are a significant supplier could reduce our net sales and have a material adverse effect on our results of operations. We are subject to cybersecurity risks to operational systems, security systems, or infrastructure owned by Allison or third-party vendors or suppliers.
In addition, the discontinuation of particular vehicle 20 Table of Contents models for which we are a significant supplier could reduce our net sales and have a material adverse effect on our results of operations. We are subject to cybersecurity risks to operational systems, security systems, or infrastructure owned by Allison or third-party vendors or suppliers.
Likewise, a one percentage point decrease in the effective interest rate for determining defined benefit pension plans contributions would result in an increase in the minimum required contributions for 2023 of approximately $2 million.
Likewise, a one percentage point decrease in the effective interest rate for determining defined benefit pension plans contributions would result in an increase in the minimum required contributions for 2024 of approximately $2 million.
Organizations responsible for shipping our products may also be impacted by strikes. Any interruption in the delivery of our products could reduce demand for our products and could have a material adverse effect on us. 18 Table of Contents In general, we consider our labor relations with all of our employees to be good.
Organizations responsible for shipping our products may also be impacted by strikes. Any interruption in the delivery of our products could reduce demand for our products and could have a material adverse effect on us. In general, we consider our labor relations with all of our employees to be good.
Moreover, the protection provided for our intellectual property by the laws and courts of foreign nations may not be as advantageous to us as the protection available under U.S. law. 26 Table of Contents Environmental, health and safety laws and regulations may impose significant compliance costs and liabilities on us.
Moreover, the protection provided for our intellectual property by the laws and courts of foreign nations may not be as advantageous to us as the protection available under U.S. law. Environmental, health and safety laws and regulations may impose significant compliance costs and liabilities on us.
We have in the past and may in the future derive a significant portion of our net sales from a relatively limited number of OEM customers. For the years ended December 31, 2022, 2021 and 2020, our top five OEM customers accounted for approximately 51%, 52% and 53% of our net sales, respectively.
We have in the past and may in the future derive a significant portion of our net sales from a relatively limited number of OEM customers. For the years ended December 31, 2023, 2022 and 2021, our top five OEM customers accounted for approximately 52%, 51% and 52% of our net sales, respectively.
In addition, if a significant number of independent dealers were to terminate their contracts, it could adversely impact our business, results of operations and financial condition. In the event of a catastrophic loss of our key manufacturing facility, our business would be adversely affected.
In addition, if a significant number of independent dealers were to terminate their contracts, it could adversely impact our business, results of operations and financial condition. In the event of a catastrophic loss of one of our key manufacturing facilities, our business would be adversely affected.
Property, Plant and Equipment” of Notes to Consolidated Financial Statements included in Part II, Item 8. of this Annual Report on Form 10-K for additional details. ITEM 1B. UNRESOLVE D STAFF COMMENTS None. 31 Table of Contents
Property, Plant and Equipment” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K for additional details. ITEM 1B. UNRESOLVE D STAFF COMMENTS None.
In addition, the increased adoption of electric propulsion solutions could result in lower demand for our fully automatic transmissions and, over time, the demand for related service parts and support equipment, which would impact our margins.
In addition, the increased adoption of electric propulsion solutions could result in lower demand for our fully automatic transmissions and, over time, the demand for related service parts and support 22 Table of Contents equipment, which would impact our margins.
The laws and regulations to which we are subject include, but are not limited to, Export Administration Regulations, the Federal Acquisition Regulation, International Traffic in Arms Regulations and regulations from the Bureau of Alcohol, Tobacco, Firearms and Explosives and the FCPA.
The laws and regulations to which we are 27 Table of Contents subject include, but are not limited to, Export Administration Regulations, the Federal Acquisition Regulation, International Traffic in Arms Regulations and regulations from the Bureau of Alcohol, Tobacco, Firearms and Explosives and the FCPA.
As a result of the need to comply with these laws and regulations, we are subject to increased risks of governmental investigations, civil fraud actions, criminal 27 Table of Contents prosecutions, whistleblower lawsuits and other enforcement actions.
As a result of the need to comply with these laws and regulations, we are subject to increased risks of governmental investigations, civil fraud actions, criminal prosecutions, whistleblower lawsuits and other enforcement actions.
Further, we intend to continue to pursue growth opportunities for our business in a variety of business environments 23 Table of Contents outside the U.S., which could exacerbate the risks set forth below.
Further, we intend to continue to pursue growth opportunities for our business in a variety of business environments outside the U.S., which could exacerbate the risks set forth below.
Such cyber incidents could materially disrupt operational systems; result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise personally identifiable information of employees, customers, suppliers, or others; jeopardize the security of our facilities; and/or affect the performance of vehicle propulsion control modules or other in-product technology.
Such cyber incidents could materially disrupt operational systems (for example, through the deployment of ransomware); result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise personally identifiable information of employees, customers, suppliers, or others; jeopardize the security of our facilities; and/or affect the performance of vehicle propulsion control modules or other in-product technology.
An extended war could impact our ability or those of our suppliers or customers to obtain certain raw materials or component parts and could limit the availability and cost of energy throughout Europe, which could increase our costs, impact our ability to deliver our products or reduce customer demand.
Extended or expanded conflicts could impact our ability or those of our suppliers or customers to obtain certain raw materials or component parts and could limit the availability and cost of energy throughout Europe, which could increase our costs, impact our ability to deliver our products or reduce customer demand.
Not all of our new product launches have been successful, and we may not be successful in the future in introducing other new products and 22 Table of Contents responding to customer needs.
Not all of our new product launches have been successful, and we may not be successful in the future in introducing other new products and responding to customer needs.
If these environmental, health and safety laws and regulations that impact our operations or products become more stringent or expand to include a larger portion of our products or our customer’s products in the future, we could incur additional costs in order to ensure that our business and products comply with such regulations.
If these environmental, health and safety laws and regulations 26 Table of Contents that impact our operations or products become more stringent or expand to include a larger portion of our products or our customers’ products in the future, we could incur additional costs in order to ensure that our business and products comply with such regulations.
In that event, we would need to find alternate sources for these goods and services, and there is no assurance we would be able to find such alternate sources on favorable terms, if at all.
In that event, we would need to find alternate 19 Table of Contents sources for these goods and services, and there is no assurance we would be able to find such alternate sources on favorable terms, if at all.
At December 31, 2022, $625 million of our total indebtedness was associated with ATI’s term loan facility due March 2026 (“Term Loan” , and together with the Revolving Credit Facility, the “Senior Secured Credit Facility”), $400 million of our total indebtedness was associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of our total indebtedness was associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of our total indebtedness was associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes”, and together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”).
At December 31, 2023, $618 million of our total indebtedness was associated with 28 Table of Contents ATI’s term loan facility due March 2026 (“Term Loan” , and together with the Revolving Credit Facility, the “Senior Secured Credit Facility”), $400 million of our total indebtedness was associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of our total indebtedness was associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of our total indebtedness was associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes”, and together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”).
Political, economic and other conditions in foreign countries and regions, including geopolitical risks such as escalating tensions between China and western countries and the current conflict between Russia and Ukraine, may have an adverse effect on our results of operations and financial condition.
Political, economic and other conditions in foreign countries and regions, including geopolitical risks such as escalating tensions between China and western countries and the current wars in Ukraine and the Middle East, may have an adverse effect on our results of operations and financial condition.
Our business is subject to certain risks associated with doing business internationally, particularly in emerging markets. Outside-North America net sales represented approximately 26% of our net sales for 2022.
Our business is subject to certain risks associated with doing business internationally, particularly in emerging markets. Outside-North America net sales represented approximately 25% of our net sales for 2023.
As of December 31, 2022, we had total indebtedness of $2,525 million, and we would have been able to borrow an additional $644 million, net of $6 million of outstanding letters of credit, under Allison Transmission Inc.’s (“ATI”), our wholly-owned subsidiary, revolving credit facility with commitments in the amount of $650 million due September 2025 (“Revolving Credit Facility”).
As of December 31, 2023, we had total indebtedness of $2,518 million, and we would have been able to borrow an additional $645 million, net of $5 million of outstanding letters of credit, under Allison Transmission Inc.’s (“ATI”), our wholly-owned subsidiary, revolving credit facility with commitments in the amount of $650 million due September 2025 (“Revolving Credit Facility”).
Disruptions to our business, end market conditions, protracted economic weakness, unsuccessful development of product and unexpected significant declines in operating results may result in charges for goodwill and other asset impairments. See "Note 2.
Disruptions to our business, end market conditions, protracted economic weakness, the unsuccessful development of a product and unexpected significant declines in operating results may result in charges for goodwill and other asset impairments. See "Note 2. Summary of Significant Accounting Policies” and "Note 6.
We have experienced, and expect to continue to experience, delays in the availability and receipt of raw materials and component parts as a result of global economic uncertainty, the war in Ukraine and the COVID-19 pandemic, some of which have materially impacted, and may continue to materially impact, our ability to meet customer demand.
We have experienced, and expect to continue to experience, delays in the availability and receipt of raw materials and component parts as a result of global economic uncertainty and the wars in Ukraine and the Middle East, some of which have materially impacted, and may continue to materially impact, our ability to meet customer demand.
Our top three customers, Daimler AG, Traton SE and PACCAR Inc., accounted for approximately 20%, 10% and 9%, respectively, of our net sales during 2022. The loss of, or consolidation of, any one of these customers, or a significant decrease in business from, one or more of these customers could harm our business.
Our top three customers, Daimler AG, Traton SE and PACCAR Inc., accounted for approximately 18%, 11% and 11%, respectively, of our net sales during 2023. The loss of, or consolidation of, any one of these customers, or a significant decrease in business from, one or more of these customers could harm our business.
We are at risk for interruptions, outages, and breaches of: (i) operational systems, including business, financial, accounting, product development, data processing, or manufacturing processes, owned by us or our third-party vendors or suppliers; (ii) facility security systems, owned by us or our third-party vendors or suppliers; and/or (iii) vehicle propulsion control modules or other in-product technology, owned by us or our third-party vendors or suppliers.
We are at risk for interruptions, outages, and compromises to the confidentiality, integrity or availability of: (i) operational systems, including information technology, business, financial, accounting, product development, data processing, or manufacturing processes, owned by us or our third-party vendors or suppliers; (ii) facility security systems, owned by us or our third-party vendors, customers or suppliers; and/or (iii) vehicle propulsion control modules or other in-product technology, owned by us, our customers or our third-party vendors or suppliers.
Our current collective bargaining agreement with UAW Local 933 is effective through November 2023. Any new collective bargaining agreement we negotiate with the UAW to replace the existing collective bargaining agreement upon its expiration may result in increased costs to us, in particular labor costs, which could have an adverse effect on our results of operations.
Any new collective bargaining agreement we negotiate with the UAW to replace the existing collective bargaining agreement upon its expiration may result in increased costs to us, in particular labor costs, which could have an adverse effect on our results of operations.
Similarly, a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2022 OPEB obligation of approximately $8 million. As of December 31, 2022, the unfunded status of our defined benefit pension plans was $3 million and the unfunded status of our OPEB plan was $73 million.
Similarly, a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2023 OPEB obligation of approximately $7 million. As of December 31, 2023, the unfunded status of our defined benefit pension plans was $5 million and the unfunded status of our OPEB plan was $64 million.
Our inability to do so could harm our results of operation. Geopolitical risks, including the war in Ukraine, may have an adverse effect on our results of operations and financial conditions, including on the availability of raw materials for our products or component parts, our supply chain, our customers and our long-term sales opportunities.
Geopolitical risks, including the wars in Ukraine and the Middle East, may have an adverse effect on our results of operations and financial conditions, including on the availability of raw materials for our products or component parts, our supply chain, our customers and our long-term sales opportunities.
Our pension and other post-retirement benefits funding obligations could increase as a result of a variety of factors. Our earnings may be positively or negatively impacted by the amount of income or expense recorded for our defined benefit pension plans and other post-retirement benefits (“OPEB”).
Our earnings may be positively or negatively impacted by the amount of income or expense recorded for our defined benefit pension plans and other post-retirement benefits (“OPEB”).
As of December 31, 2022, we had no outstanding borrowings against 28 Table of Contents the Revolving Credit Facility.
As of December 31, 2023, we had no outstanding borrowings against the Revolving Credit Facility.
However, the duration of the war in Ukraine, its impact on the regional and global economy, and the breadth, severity and duration of sanctions imposed by the U.S. and other governments is uncertain.
The duration of any such conflict, its impact on the applicable regional and global economy, and the breadth, severity and duration of any applicable sanctions imposed by the U.S. and other governments is uncertain.
If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances.
If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. We cannot ensure that any such actions, if necessary, could be effected on commercially reasonable terms or at all.
Our brand and reputation are dependent on the continued participation and level of service of our numerous independent distributors and dealers. We work with a network of approximately 1,600 independent distributors and dealers that provide post-sale service, service parts and support equipment.
We work with a network of approximately 1,600 independent distributors and dealers that provide post-sale service, service parts and support equipment.
We may not be able to pass on these costs to our customers, and this could have a material adverse effect on our business, results of operations and financial condition.
In the event they are successful in doing so, our margins would decline. We may not be able to pass on these costs to our customers, 17 Table of Contents and this could have a material adverse effect on our business, results of operations and financial condition.
We and our subsidiaries may be able to incur additional indebtedness in the future because the terms of our indebtedness do not fully prohibit us or our subsidiaries from doing so.
Despite current indebtedness levels, we and our subsidiaries may still be able to incur additional indebtedness, which could further exacerbate the risks associated with our substantial financial leverage. We and our subsidiaries may be able to incur additional indebtedness in the future because the terms of our indebtedness do not fully prohibit us or our subsidiaries from doing so.
Any such disruption in our supply chain could adversely affect our ability to manufacture and deliver our products on a timely basis, and thereby affect our results of operations. Our financial condition and results of operations have been and may continue to be materially adversely affected by pandemics, including the coronavirus pandemic.
Any such disruption in our supply chain could adversely affect our ability to manufacture and deliver our products on a timely basis, and thereby affect our results of operations. Labor unrest could have an adverse effect on our business, results of operations and financial condition.
Future changes in the regulatory and business environments in which we operate, including increased geopolitical risks, trade protectionism and tariffs, may adversely affect our ability to sell our products or source materials needed to manufacture our products. 19 Table of Contents Furthermore, financial instability or bankruptcy at any of our suppliers or customers could disrupt our ability to manufacture our products and impair our ability to collect receivables, any or all of which may have a material adverse effect on our business, results of operations and financial condition.
Furthermore, financial instability or bankruptcy at any of our suppliers or customers could disrupt our ability to manufacture our products and impair our ability to collect receivables, any or all of which may have a material adverse effect on our business, results of operations and financial condition.
If we are unable to accurately predict demand, we may be unable to meet our customers’ needs, resulting in the loss of potential sales, or we may manufacture excess products, resulting in increased inventories and overcapacity in our production facilities, increasing our unit production cost and decreasing our operating margins. 20 Table of Contents Our sales are concentrated among our top five OEM customers and the loss or consolidation of any one of these customers or the discontinuation of particular vehicle models for which we are a significant supplier could reduce our net sales and have a material adverse effect on our results of operations and financial condition.
Our sales are concentrated among our top five OEM customers and the loss or consolidation of any one of these customers or the discontinuation of particular vehicle models for which we are a significant supplier could reduce our net sales and have a material adverse effect on our results of operations and financial condition.
While we utilize a number of measures to prevent, detect and mitigate these threats, including employee education, monitoring of networks and systems, and maintenance of backup and protective systems, there is no guarantee such efforts will be successful in preventing a cyber incident.
Any of the foregoing could materially affect our business, results of operations and financial condition. There is no guarantee that our measures to prevent, detect and mitigate these threats, including employee and key third-party partner education, monitoring of networks and systems, and maintenance of backup and protective systems, will be successful in preventing or mitigating a cyber incident.
Summary of Significant Accounting Policies” and "Note 6. 30 Table of Contents Goodwill and Other Intangible Assets” of Notes to Consolidated Financial Statements included in Part II, Item 8. of this Annual Report on Form 10-K for additional details.
Goodwill and Other Intangible Assets” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K for additional details. 30 Table of Contents The carrying value of long-lived assets is evaluated whenever events or circumstances indicate that the carrying value of a long-lived asset may not be recoverable.
Our success depends on our ability to identify, recruit and retain highly skilled, qualified personnel, and there is currently increased competition for talent. We have experienced labor shortages and wage inflation amid low levels of unemployment and workforce availability.
Labor cost inflation and employee attraction and retention could have an adverse effect on our business, results of operations and financial condition. Our success depends on our ability to identify, recruit and retain highly skilled, qualified personnel, and there is currently increased competition for talent.
Recent inflationary pressures have resulted in increased raw material, labor, energy, freight and logistics expenses and other costs, which impacted our margins in 2022 and may continue to adversely affect our results of operations. If our costs are subject to continuing significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.
Prolonged inflation could result in higher costs and decreased margins and earnings. Recent inflationary pressures have resulted in increased raw material, labor, energy, freight and logistics expenses and other costs, which may adversely affect our results of operations.
Subject to covenant compliance and certain conditions, our indebtedness permits additional borrowing, including total borrowing up to $644 million under the Revolving Credit Facility, net of $6 million in letters of credit. If new debt is added to our current debt levels and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.
Subject to covenant compliance and certain 29 Table of Contents conditions, our indebtedness permits additional borrowing, including total borrowing up to $645 million under the Revolving Credit Facility, net of $5 million in letters of credit.
A cyber incident could be caused by malicious third parties using sophisticated, targeted methods to circumvent firewalls, encryption, and other security defenses, including hacking, fraud, trickery, or other forms of deception. The techniques used by third parties change frequently and may be difficult to detect for long periods of time.
A cyber incident could be caused by malicious insiders or by third parties using sophisticated, targeted methods to circumvent firewalls, encryption, and other security defenses, including hacking, fraud, trickery, or other forms of deception, such as social engineering and phishing, or due to human or technological error, such as misconfigurations, “bugs,” or vulnerabilities in software or hardware used by us or others.
As a result, we may not be able to attract and retain qualified personnel, which may impact our ability to manufacture, design and develop our propulsion solutions and to compete effectively. In addition, we may continue to experience increased labor costs, which may impact our results of operations. Prolonged inflation could result in higher costs and decreased margins and earnings.
We have experienced labor shortages and wage inflation amid low levels of unemployment and workforce availability. As a result, we may not be able to attract and retain qualified personnel, which may impact our ability to manufacture, design and develop our propulsion solutions, satisfy customer demand in a timeframe that meets their desired production schedules and compete effectively.
A significant cyber incident could impact production capability, harm our reputation and/or subject us to regulatory actions or litigation, including those as result of global privacy and security regulations, any of which could materially affect our business, results of operations and financial condition.
A significant cyber incident could impact our production capability, harm our reputation and business relationships, impact our competitive position (including compromising our intellectual property assets), and subject us to regulatory actions or litigation and fines and/or penalties, including pursuant to evolving global privacy and security regulations and laws, as well as significant investigative, restoration or remediation costs and/or increased compliance costs.
In addition, certain of our competitors may continue to sell products in Russia during this time, which may have a negative impact on our long-term sales opportunities in Russia. Since the beginning of the war in Ukraine, we have also experienced, and may continue to experience, an increase in cybersecurity attacks, which, if successful, may harm our business.
In addition, while we have suspended indefinitely all sales and exports of our products to customers in Russia and Belarus and Russian and Belarusian affiliate owned or controlled entities, certain of our competitors have continued to sell products in Russia during this time, which may have a negative impact on our long-term sales opportunities in Russia.
Labor cost inflation, employee attraction and retention or labor unrest could have an adverse effect on our business, results of operations and financial condition. As of December 31, 2022, approximately 46% of our U.S. employees, representing approximately 41% of our total employees, were represented by the UAW and are subject to a collective bargaining agreement.
As of December 31, 2023, approximately 48% of our U.S. employees, representing approximately 43% of our total employees, were represented by the UAW and are subject to a collective bargaining agreement. Our current collective bargaining agreement with UAW Local 933 is effective through November 2027.
Many of the key patents and unpatented technology we use in our business are licensed to us, not owned by us, and our ability to use and enforce such patents and technology is restricted by the terms of the license. Protecting our intellectual property rights is critical to our ability to compete and succeed as a company.
Protecting our intellectual property rights is critical to our ability to compete and succeed as a company.
Removed
In the event they are successful in doing so, our margins would decline. Industry-wide shortages of raw materials have continued to 17 Table of Contents occur in 2022, which led to increased raw material price volatility and cost increases, which we expect to continue in 2023.
Added
While we may experience the supply chain constraints mentioned above across all our products lines, the impacts to our customers are likely to be more pronounced in our lower volume product lines, including those supplied to the Defense and Off-Highway end markets.
Removed
As a result of Russia’s invasion of Ukraine and actions by the U.S. and other governments to implement sanctions against Russia, as well as certain businesses, individuals and banks in Russia, we have suspended indefinitely all sales and exports of our products to customers in Russia and Belarus and Russian- and Belarusian-affiliated, owned or controlled entities.
Added
In addition, we may continue to experience increased labor costs, including the anticipated significant labor cost increases under our new collective bargaining agreement with the UAW, which may impact our results of operations. Our business would be adversely affected if we fail to retain key executives, or to adequately plan for the succession of members of our executive management team.
Removed
These actions did not have a material impact on our net sales in 2022 and are not expected to have a material impact on our net sales in 2023.
Added
While we have succession plans in place for members 18 Table of Contents of our executive management team, and continue to review and update those plans, and certain key executive officers are party to or participants in severance and change in control arrangements, these arrangements do not guarantee that the services of our executive officers will continue to be available to us or that we will be able to find suitable management personnel to replace departing executives on a timely basis.
Removed
The effects of the COVID-19 pandemic on the global economy continued to have an impact on commercial vehicle production schedules, which impacted the sales of our products and our results of operations during 2022.
Added
If our costs are subject to continuing significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability to do so could harm our results of operations.
Removed
While we continued to experience a recovery in demand for our products during 2022, ongoing supply chain, labor, raw material, energy, freight and logistics constraints have negatively impacted, and may continue to negatively impact, the sales of our products, costs and our results of operations.
Added
Future changes in the regulatory and business environments in which we operate, including increased geopolitical risks, trade protectionism and tariffs, may adversely affect our ability to sell our products or source materials needed to manufacture our products.
Removed
In addition, future pandemic-related impacts on the global economy, including inflation, may continue to adversely impact our business and results of operations.
Added
If we are unable to accurately predict demand, we may be unable to meet our customers’ needs, resulting in the loss of potential sales, or we may manufacture excess products, resulting in increased inventories and overcapacity in our production facilities, increasing our unit production cost and decreasing our operating margins.
Removed
The extent to which the COVID-19 pandemic may continue to adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including the severity and duration of the outbreak, emerging variants of the virus that may be more contagious than current variants and the actions taken by governments to contain or mitigate its effects, including the availability, pace of distribution, acceptance of and effectiveness of vaccines.
Added
The techniques used by threat actors change frequently and may be difficult to detect for long periods of time. Cyberattacks are expected to accelerate on a global basis in frequency and magnitude as threat actors are increasingly using tools – including artificial intelligence – to evade detection and even remove forensic evidence.
Removed
Any future financial impact cannot be estimated reasonably at this time, but may materially adversely affect our business, supply chain, sales, results of operations, financial condition and cash flows.
Added
As a result, we may be unable to detect, investigate, remediate or recover from future cyberattacks or other incidents, or to avoid a materially adverse impact to our systems, information or business.
Removed
Our sales to the Defense end market are to government entities and contractors for the U.S. and foreign governments, and the loss of a significant number of our contracts, or budgetary declines or future reductions or changes in spending by the U.S. or foreign governments could have a material adverse effect on our results of operations and financial condition.
Added
In addition, remote or hybrid working arrangements at our Company, our customers and many third-party providers increase cybersecurity risks due to the challenges associated with managing remote computing assets and the nature of security vulnerabilities that are present in many non-corporate and home networks.
Removed
Our net sales to the Defense end market are derived from contracts (revenue arrangements) with agencies of, and prime system contractors for, the U.S. government and foreign governments.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changePlant Location Approximate Size (ft2) Owned / Leased Description Plant #3 Indianapolis 927,000 Own Engineering, Operational Support Plant #4 Indianapolis 425,900 Own Manufacturing Plant #6 Indianapolis 431,500 Own Manufacturing Plant #12 Indianapolis 534,900 Own Manufacturing Plant #14 and #15 Indianapolis 481,100 Own Manufacturing Plant #16 Indianapolis 391,700 Own Manufacturing Plant #17 Indianapolis 389,000 Own Parts Distribution Center Innovation Center Indianapolis 96,000 Own Engineering, Research and Development Vehicle Electrification + Environmental Test (VE+ET) Center Indianapolis 66,000 Own Research and Development Auburn Hills Auburn Hills, Michigan, USA 110,400 Lease Engineering, Operational Support, Manufacturing Walker Die Casting Lewisburg, Tennessee, USA 774,100 Own Manufacturing Chennai India 331,700 Own Manufacturing Szentgotthard Hungary 149,000 Own Manufacturing & Customization We believe all our facilities are suitable for their intended purpose, are being efficiently utilized and provide adequate capacity to meet demand for the next several years.
Biggest changePlant Location Approximate Size (ft2) Owned / Leased Description Plant #3 Indianapolis 927,000 Own Engineering, Operational Support Plant #4 Indianapolis 425,900 Own Manufacturing Plant #6 Indianapolis 431,500 Own Manufacturing Plant #12 Indianapolis 534,900 Own Manufacturing Plant #14 Indianapolis 481,100 Own Manufacturing Plant #15 Indianapolis 391,700 Own Manufacturing Plant #17 Indianapolis 389,000 Own Parts Distribution Center Innovation Center Indianapolis 96,000 Own Engineering, Research and Development Vehicle Electrification + Environmental Test (VE+ET) Center Indianapolis 66,000 Own Research and Development Auburn Hills Auburn Hills, Michigan, USA 110,400 Lease Engineering, Operational Support, Manufacturing Walker Die Casting Lewisburg, Tennessee, USA 774,100 Own Manufacturing Chennai India 331,700 Own Manufacturing Szentgotthard Hungary 149,000 Own Manufacturing & Customization We believe all our facilities are suitable for their intended purpose, are being efficiently utilized and provide adequate capacity to meet demand for the next several years.
ITEM 2. P ROPERTIES Our world headquarters, which we own, is located at One Allison Way, Indianapolis, Indiana 46222. As of December 31, 2022, we have 19 manufacturing and certain other facilities in eight countries. The following table sets forth certain information regarding our significant facilities.
ITEM 2. P ROPERTIES Our world headquarters, which we own, is located at One Allison Way, Indianapolis, Indiana 46222. As of December 31, 2023, we have 18 manufacturing and certain other facilities in eight countries. The following table sets forth certain information regarding our significant facilities.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMINE SAF ETY DISCLOSURES Not applicable. 32 Table of Contents PART II.
Biggest changeMINE SAF ETY DISCLOSURES Not applicable. 33 Table of Contents PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table sets forth information related to our repurchase of our common stock on a monthly basis in the three months ended December 31, 2022: Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under Programs (1) October 1 – October 31, 2022 1,492,094 $ 36.16 1,492,094 $ 1,035,298,103 November 1 – November 30, 2022 4,100 $ 40.94 4,100 $ 1,035,130,253 December 1 – December 31, 2022 — $ — — $ 1,035,130,253 Total 1,496,194 36.17 1,496,194 (1) These values reflect repurchases made under the Repurchase Program.
Biggest changeThe following table sets forth information related to our repurchase of our common stock on a monthly basis in the three months ended December 31, 2023: Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) October 1 – October 31, 2023 383,042 $ 54.21 383,042 $ 857,356,552 November 1 – November 30, 2023 1,051,931 52.92 1,051,931 801,693,372 December 1 – December 31, 2023 514,441 56.37 514,441 772,694,727 Total 1,949,414 54.08 1,949,414 (1) These values reflect repurchases made under the Repurchase Program.
Issuer Purchases of Equity Securities The Company's current stock repurchase program (the "Repurchase Program") was authorized by the Board of Directors in 2016, with increases approved by the Board of Directors on each of November 8, 2017, July 30, 2018, May 9, 2019 and February 24, 2022, which in the aggregate authorized total repurchases of up to $4,000 million in shares of our common stock.
Issuer Purchases of Equity Securities Our current stock repurchase program (the "Repurchase Program") was authorized by the Board of Directors in 2016, with increases approved by the Board of Directors on each of November 8, 2017, July 30, 2018, May 9, 2019 and February 24, 2022, which in the aggregate authorized total repurchases of up to $4,000 million in shares of our common stock.
Issuances Under Equity Compensation Plans For information regarding the securities authorized for issuance under our equity compensation plans, see Part III, Item 12. of this Annual Report on Form 10-K. 33 Table of Contents Comparative Stock Performance Graph The information included under the heading “Comparative Stock Performance Graph” in this Item 5. of Part II of this Annual Report on Form 10-K shall not be deemed to be “soliciting material” or subject to Regulation 14A or 14C, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act.
Issuances Under Equity Compensation Plans For information regarding the securities authorized for issuance under our equity compensation plans, see Part III, Item 12. of this Annual Report on Form 10-K. 34 Table of Contents Comparative Stock Performance Graph The information included under the heading “Comparative Stock Performance Graph” in this Item 5. of Part II of this Annual Report on Form 10-K shall not be deemed to be “soliciting material” or subject to Regulation 14A or 14C, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act.
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.
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 our discretion.
The graph assumes $100 was invested on December 31, 2017 in our common stock and each of the indices and that all dividends, if any, are reinvested.
The graph assumes $100 was invested on December 31, 2018 in our common stock and each of the indices and that all dividends, if any, are reinvested.
Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the NYSE under the symbol “ALSN.” Holders As of February 1, 2023, there were approximately 92,975 stockholders of record of our common stock, which includes the actual number of holders registered on the books of the Company and holders of shares in “street name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.
Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the NYSE under the symbol “ALSN.” Holders As of February 1, 2024, there were approximately 130,952 stockholders of record of our common stock, which includes the actual number of holders registered on our books and holders of shares in “street name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.
As of December 31, 2017 As of December 31, 2018 As of December 31, 2019 As of December 31, 2020 As of December 31, 2021 As of December 31, 2022 Allison Transmission Holdings, Inc. $ 100.00 $ 103.34 $ 115.22 $ 104.75 $ 90.00 $ 105.16 S&P 500 Index 100.00 95.62 125.72 148.85 191.58 156.88 Peer Group 100.00 91.57 122.08 147.25 177.25 145.98 ITEM 6. [ R ESER VED] 34 Table of Contents
As of December 31, 2018 As of December 31, 2019 As of December 31, 2020 As of December 31, 2021 As of December 31, 2022 As of December 31, 2023 Allison Transmission Holdings, Inc. $ 100.00 $ 111.49 $ 101.36 $ 87.09 $ 101.76 $ 144.77 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 Peer Group 100.00 133.32 160.82 193.58 159.43 196.09 ITEM 6. [ R ESER VED] 35 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAdjusted free cash flow is calculated as Net cash provided by operating activities, excluding non-recurring restructuring charges, after additions of long-lived assets. 37 Table of Contents The following is a reconciliation of Net income and Net income as a percent of net sales to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales and a reconciliation of Net cash provided by operating activities to Adjusted free cash flow: For the years ended December 31, (unaudited, in millions) 2022 2021 2020 Net income (GAAP) $ 531 $ 442 $ 299 plus: Interest expense, net 118 116 137 Income tax expense 114 130 94 Depreciation of property, plant and equipment 109 104 96 Amortization of intangible assets 46 46 52 Unrealized loss (gain) on marketable securities (a) 22 (4 ) — Stock-based compensation expense (b) 18 14 17 Unrealized loss on foreign exchange (c) 6 — 2 Technology-related investment gain (d) (6 ) (3 ) — Acquisition-related earnouts (e) 2 1 1 Pension curtailment (f) 1 — — UAW Local 933 retirement incentive (g) — (2 ) 7 Restructuring charges (h) — — 14 Expenses related to long-term debt refinancing (i) — — 13 Adjusted EBITDA (Non-GAAP) $ 961 $ 844 $ 732 Net sales (GAAP) $ 2,769 $ 2,402 $ 2,081 Net income as a percent of net sales (GAAP) 19.2 % 18.4 % 14.4 % Adjusted EBITDA as a percent of net sales (Non-GAAP) 34.7 % 35.1 % 35.2 % Net cash provided by operating activities (GAAP) $ 657 $ 635 $ 561 (Deductions) or additions to reconcile to Adjusted free cash flow: Additions of long-lived assets (167 ) (175 ) (115 ) Restructuring charges (h) — — 12 Adjusted free cash flow (Non-GAAP) $ 490 $ 460 $ 458 (a) Represents losses (gains) (recorded in Other (expense) income, net) related to an investment in the common stock of Jing-Jin Electric Technologies Co.
Biggest changeAdjusted free cash flow is calculated as Net cash provided by operating activities after additions of long-lived assets. 38 Table of Contents The following is a reconciliation of Net income and Net income as a percent of net sales to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales and a reconciliation of Net cash provided by operating activities to Adjusted free cash flow: For the years ended December 31, (unaudited, in millions) 2023 2022 2021 Net income (GAAP) $ 673 $ 531 $ 442 plus: Income tax expense 154 114 130 Interest expense, net 107 118 116 Depreciation of property, plant and equipment 109 109 104 Amortization of intangible assets 45 46 46 Stock-based compensation expense (a) 22 18 14 Technology-related investments gain (b) (3 ) (6 ) (3 ) Unrealized loss (gain) on marketable securities (c) 1 22 (4 ) Unrealized loss on foreign exchange (d) — 6 — Acquisition-related earnouts (e) — 2 1 Pension curtailment (f) — 1 — UAW Local 933 retirement incentive (g) — — (2 ) Adjusted EBITDA (Non-GAAP) $ 1,108 $ 961 $ 844 Net sales (GAAP) $ 3,035 $ 2,769 $ 2,402 Net income as a percent of net sales (GAAP) 22.2 % 19.2 % 18.4 % Adjusted EBITDA as a percent of net sales (Non-GAAP) 36.5 % 34.7 % 35.1 % Net cash provided by operating activities (GAAP) $ 784 $ 657 $ 635 Deductions to reconcile to Adjusted free cash flow: Additions of long-lived assets (125 ) (167 ) (175 ) Adjusted free cash flow (Non-GAAP) $ 659 $ 490 $ 460 (a) Represents stock-based compensation expense (recorded in Cost of sales, Selling, general and administrative, and Engineering — research and development).
If the actual number of affected transmissions differs from this estimate, or if a different mix of incentives is actually paid, the impact on net sales would be recorded in the period that the change was identified. Assuming our current mix of sales incentives, a 10% change in sales incentives would correspondingly change our earnings by approximately $10 million.
If the actual number of affected transmissions differs from this estimate, or if a different mix of incentives is actually paid, the impact on net sales would be recorded in the period that the change was identified. Assuming our current mix of sales incentives, a 10% change in sales incentives would correspondingly change our earnings by approximately $9 million.
Under the terms of certain previous U.S. government contracts, there were price reduction clauses and provisions for potential price reductions which are estimated at the time of sale based upon history and experience, and finalized after completion of U.S. government audits.
Under the terms of certain previous U.S. government contracts, there were price reduction clauses and provisions for potential price reductions which were estimated at the time of sale based upon history and experience, and finalized after completion of U.S. government audits.
See Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk” included in this Annual Report on Form 10-K. 36 Table of Contents Selling, general and administrative The principal components of our selling, general and administrative expenses are salaries and benefits for our office personnel, advertising and promotional expenses, product warranty expense, expenses relating to certain information technology systems and amortization of our intangible assets.
See Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk” included in this Annual Report on Form 10-K. 37 Table of Contents Selling, general and administrative The principal components of our selling, general and administrative expenses are salaries and benefits for our office personnel, advertising and promotional expenses, product warranty expense, expenses relating to certain information technology systems and amortization of our intangible assets.
These trends and factors were compared to, and based on, the assumptions used in prior years. After reviewing the various qualitative factors mentioned above, our 2022 annual goodwill impairment test indicated that the fair value for the reporting unit more likely than not exceeded its carrying value, indicating no impairment. Other intangible assets have both indefinite and finite useful lives.
These trends and factors were compared to, and based on, the assumptions used in prior years. After reviewing the various qualitative factors mentioned above, our 2023 annual goodwill impairment test indicated that the fair value for the reporting unit more likely than not exceeded its carrying value, indicating no impairment. Other intangible assets have both indefinite and finite useful lives.
Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in an impairment charge. 45 Table of Contents Warranty Provisions for estimated expenses related to product warranties are made at the time products are sold.
Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in an impairment charge. 46 Table of Contents Warranty Provisions for estimated expenses related to product warranties are made at the time products are sold.
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. 41 Table of Contents The Senior Secured Credit Facility provides for a $650 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments.
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. 42 Table of Contents The Senior Secured Credit Facility provides for a $650 million Revolving Credit Facility, net of an allowance for up to $75 million in outstanding letter of credit commitments.
A change in the discount rate can have a significant impact on determining our benefit obligations. Our current discount rate is determined by matching the plans’ projected cash flows to a yield curve based on long-term, fixed income debt instruments available as of the measurement date of December 31, 2022.
A change in the discount rate can have a significant impact on determining our benefit obligations. Our current discount rate is determined by matching the plans’ projected cash flows to a yield curve based on long-term, fixed income debt instruments available as of the measurement date of December 31, 2023.
Long-term debt service liquidity requirements also consist of the payment in full of any remaining principal balance of ATI’s Term Loan and the Senior Notes upon their respective maturity dates. We made $7 million of principal payments on the Term Loan during each of the years ended December 31, 2022 and 2021.
Long-term debt service liquidity requirements also consist of the payment in full of any remaining principal balance of ATI’s Term Loan and the Senior Notes upon their respective maturity dates. We made $7 million of principal payments on the Term Loan during each of the years ended December 31, 2023 and 2022.
Product Warranty Liabilities” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K which contains a summary of the activity in our warranty liability account for 2022, 2021 and 2020, including adjustments to pre-existing warranties.
Product Warranty Liabilities” of Notes to Consolidated Financial Statements included in Part II, Item 8., of this Annual Report on Form 10-K, which contains a summary of the activity in our warranty liability account for 2023, 2022 and 2021, including adjustments to pre-existing warranties.
Determining the fair values of assets acquired and liabilities assumed requires management's judgment and includes the use of estimates with respect to timing and amount of future cash flows, market rate assumptions, actuarial assumptions, appropriate discount rates and other relevant factors. Recently Adopted Accounting Pronouncements Refer to "Note 2.
Determining the fair values of assets acquired and liabilities assumed requires management's judgment and includes the use of estimates with respect to timing and amount of future cash flows, market rate assumptions, actuarial assumptions, appropriate discount rates and other relevant factors. Recently Issued Accounting Pronouncements Refer to "Note 2.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-over-year comparisons between 2023 and 2022.
After reviewing the various qualitative factors mentioned above, our annual 2022 indefinite-lived intangible assets impairment tests, as of October 31, 2022, indicated that the fair value of our indefinite-lived intangible assets more likely than not exceeded their respective carrying values, indicating no impairment.
After reviewing the various qualitative factors mentioned above, our annual 2023 indefinite-lived intangible assets impairment tests, as of October 31, 2023, indicated that the fair value of our indefinite-lived intangible assets more likely than not exceeded their respective carrying values, indicating no impairment.
A quantitative analysis contains uncertainties because it is performed utilizing a discounted cash flow model which includes key assumptions, such as financial forecasts; net sales growth derived from market information, industry reports, marketing programs and future new product introductions; operating margin improvements derived from cost reduction programs and fixed cost leverage driven by higher sales volumes; and a risk-adjusted discount rate.
A quantitative analysis contains uncertainties because it is performed utilizing a discounted cash flow model which includes key assumptions, such as financial forecasts; net sales growth derived from market information, industry reports, marketing programs and future new product introductions; operating margin improvements derived 45 Table of Contents from cost reduction programs and fixed cost leverage driven by higher sales volumes; and a risk-adjusted discount rate.
A detailed discussion of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 17, 2022.
A detailed discussion of 2021 items and year-over-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 16, 2023.
Sales are recorded in accordance with the terms of the contract, net of provisions for customer allowances and other rebates. Engineering services are recorded as net sales in accordance with the terms of the contract. The associated costs are recorded in cost of sales.
Sales are recorded in accordance with the terms of the contract, net of provisions for customer incentives and other rebates. Engineering services are recorded as net sales in accordance with the terms of the contract. The associated costs are recorded in cost of sales.
As of December 31, 2022, we had $625 million of indebtedness associated with ATI’s Term Loan, $400 million of indebtedness associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”).
As of December 31, 2023, we had $618 million of indebtedness associated with ATI’s Term Loan, $400 million of indebtedness associated with ATI’s 4.75% Senior Notes due October 2027 (“4.75% Senior Notes”), $500 million of indebtedness associated with ATI’s 5.875% Senior Notes due June 2029 (“5.875% Senior Notes”) and $1,000 million of indebtedness associated with ATI’s 3.75% Senior Notes due January 2031 (“3.75% Senior Notes” and, together with the 4.75% Senior Notes and 5.875% Senior Notes, the “Senior Notes”).
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 $232 million and $127 million as of December 31, 2022 and 2021, respectively.
Our ability to generate cash in the future and our future uses of cash are subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control. We had total available cash and cash equivalents of $555 million and $232 million as of December 31, 2023 and 2022, respectively.
Summary of Significant Accounting Policies” in Part II, Item 8., of this Annual Report on Form 10-K. 47 Table of Contents
Summary of Significant Accounting Policies” in Part II, Item 8., of this Annual Report on Form 10-K. 48 Table of Contents
Additionally, within the terms of the Senior Secured Credit Facility, a first lien net leverage ratio at or below 4.00x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. As of December 31, 2022, our first lien net leverage ratio was 0.41x.
Additionally, within the terms of the Senior Secured Credit Facility, a first lien net leverage ratio at or below 4.00x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. As of December 31, 2023, our first lien net leverage ratio was 0.06x.
Overview We design and manufacture vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense fully automatic transmissions and electric hybrid and fully electric systems. The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception. Allison is traded on the New York Stock Exchange under the symbol, “ALSN”. We have approximately 3,500 employees.
Overview We design and manufacture vehicle propulsion solutions, including commercial-duty on-highway, off-highway and defense fully automatic transmissions and electric hybrid and fully electric systems. The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception. Allison is traded on the New York Stock Exchange under the symbol, “ALSN”.
Adjusted EBITDA is calculated as earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by the Second Amended and Restated Credit Agreement dated as of March 29, 2019 as amended (the “Credit Agreement”) governing ATI's term loan facility due March 2026 (“Term Loan”).
Adjusted EBITDA is calculated as earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by the Second Amended and Restated Credit Agreement dated as of March 29, 2019 as amended (the “Credit Agreement”), governing ATI's Term Loan.
The effect of a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2022 defined benefit pension plans obligation of approximately $17 million. Similarly, a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2022 OPEB obligation of approximately $8 million.
The effect of a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2023 defined benefit pension plans obligation of approximately $17 million. Similarly, a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2023 OPEB obligation of approximately $7 million.
For the year ended December 31, 2022, direct material costs were approximately 66%, overhead costs were approximately 27% and direct labor costs were approximately 7% of total cost of sales. We are subject to changes in our cost of sales caused by movements in underlying commodity prices. We seek to hedge against this risk by using LTAs.
For the year ended December 31, 2023, direct material costs were approximately 67%, overhead costs were approximately 26% and direct labor costs were approximately 7% of total cost of sales. We are subject to changes in our cost of sales caused by movements in underlying commodity prices. We seek to hedge against this risk by using LTAs.
Goodwill is tested for impairment at the reporting unit level, which is the same as our one operating and reportable segment. We do not aggregate any components into our reporting unit. 44 Table of Contents Goodwill impairment testing for 2022 was performed using the Step 0 analysis by assessing certain qualitative trends and factors.
Goodwill is tested for impairment at the reporting unit level, which is the same as our one operating and reportable segment. We do not aggregate any components into our reporting unit. Goodwill impairment testing for 2023 was performed using the Step 0 analysis by assessing certain qualitative trends and factors.
As of December 31, 2022, we were in compliance with all covenants under the Senior Secured Credit Facility and indentures governing the Senior Notes. Our credit ratings are reviewed by Moody’s Investors Service (“Moody’s”) and Fitch Ratings (“Fitch”).
As of December 31, 2023, we were in compliance with all covenants under the Senior Secured Credit Facility and indentures governing the Senior Notes. Our credit ratings and outlook are reviewed periodically by Moody’s Investors Service, Inc. (“Moody’s”) and Fitch Ratings, Inc. (“Fitch”).
The increase was principally driven by increased direct material and manufacturing expense commensurate with increased net sales and higher direct material costs. 39 Table of Contents Gross profit Gross profit for the year ended December 31, 2022 was $1,297 million compared to $1,145 million for the year ended December 31, 2021, an increase of 13%.
The increase was principally driven by higher direct material and manufacturing expense commensurate with increased net sales and higher direct material costs. 40 Table of Contents Gross profit Gross profit for the year ended December 31, 2023 was $1,470 million compared to $1,297 million for the year ended December 31, 2022, an increase of 13%.
As of December 31, 2022, the total of cash held by foreign subsidiaries was $57 million, the majority of which was at our subsidiaries located in China, the Netherlands, Japan and India.
As of December 31, 2023, the total of cash held by foreign subsidiaries was $88 million, the majority of which was at our subsidiaries located in China, the Netherlands, India and Japan.
Gross profit as a percent of net sales for the year ended December 31, 2022 decreased 90 basis points compared to the same period in 2021 principally driven by increased cost of goods sold, partially offset by price increases on certain products.
Gross profit as a percent of net sales for the year ended December 31, 2023 increased 160 basis points compared to the same period in 2022 principally driven by price increases on certain products and increased net sales, partially offset by increased cost of sales.
Service Parts, Support Equipment and Other end market net sales were up 14% for the year ended December 31, 2022 compared to the year ended December 31, 2021, principally driven by higher demand for global service parts and support equipment and price increases on certain products.
Service Parts, Support Equipment and Other end market net sales were up 18% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by higher demand for global service parts, support equipment and aluminum die cast components and price increases on certain products.
Other (expense) income, net Other (expense) income, net for the year ended December 31, 2022 was ($21) million compared to $19 million for the year ended December 31, 2021.
Other income (expense), net Other income (expense), net for the year ended December 31, 2023 was $15 million compared to ($21) million for the year ended December 31, 2022.
Cash used for investing activities Investing activities for the year ended December 31, 2022 used $183 million of cash compared to $212 million for the year ended December 31, 2021.
Cash used for investing activities Investing activities for the year ended December 31, 2023 used $129 million of cash compared to $183 million for the year ended December 31, 2022.
Income tax expense Income tax expense for the year ended December 31, 2022 was $114 million resulting in an effective tax rate of 18%, compared to $130 million of income tax expense and an effective tax rate of 23% for the year ended December 31, 2021.
Income tax expense Income tax expense for the year ended December 31, 2023 was $154 million resulting in an effective tax rate of 19%, compared to $114 million of income tax expense and an effective tax rate of 18% for the year ended December 31, 2022.
As of December 31, 2022, we had approximately $1,035 million available under the Repurchase Program. 42 Table of Contents The following table shows our sources and uses of funds for the years ended December 31, 2022, 2021 and 2020 (in millions): Years ended December 31, Statement of Cash Flows Data 2022 2021 2020 Cash flows provided by operating activities $ 657 $ 635 $ 561 Cash flows used for investing activities (183 ) (212 ) (111 ) Cash flows used for financing activities (367 ) (604 ) (335 ) Generally, cash provided by operating activities has been adequate to fund our operations.
As of December 31, 2023, we had approximately $773 million available under the Repurchase Program. 43 Table of Contents The following table shows our sources and uses of funds for the years ended December 31, 2023, 2022 and 2021 (dollars in millions): Years ended December 31, Statement of Cash Flows Data 2023 2022 2021 Cash flows provided by operating activities $ 784 $ 657 $ 635 Cash flows used for investing activities (129 ) (183 ) (212 ) Cash flows used for financing activities (332 ) (367 ) (604 ) Generally, cash provided by operating activities has been adequate to fund our operations.
Of the available cash and cash equivalents, $121 million was deposited in operating accounts and $111 million was invested in U.S. government backed securities as of December 31, 2022, compared to December 31, 2021, when all of the $127 million was deposited in operating accounts.
Of the available cash and cash equivalents, $134 million was deposited in operating accounts and $421 million was invested in U.S. government backed securities as of December 31, 2023, compared to $121 million deposited in operating accounts and $111 million invested in U.S. government backed securities as of December 31, 2022.
As of December 31, 2022, our credit ratings from both Moody's and Fitch are shown in the table below: December 31, 2022 Credit Ratings Moody's Fitch Corporate Credit Ba1 BB+ Term Loan Baa2 BBB- 4.75% Senior Notes Ba2 BB+ 5.875% Senior Notes Ba2 BB+ 3.75% Senior Notes Ba2 BB+ We anticipate that our capital expenditures in 2023 will be lower than 2022 and expect increased cash income taxes as a result of lower deductions in 2023 related to our intangible assets.
As of December 31, 2023, our credit ratings from both Moody's and Fitch are shown in the table below: December 31, 2023 Credit Ratings Moody's Fitch Corporate Credit Ba1 BB+ Term Loan Baa2 BBB- 4.75% Senior Notes Ba2 BB+ 5.875% Senior Notes Ba2 BB+ 3.75% Senior Notes Ba2 BB+ We anticipate that our capital expenditures and cash income taxes in 2024 will be comparable to 2023.
Although approximately 74% of revenues were generated in North America in 2022, we have a global presence by serving customers in Asia, Europe, South America and Africa. We serve customers through an independent network of approximately 1,600 independent distributor and dealer locations worldwide.
We have a global presence by serving customers in North America, Asia, Europe, South America, and Africa, with approximately 75% of our revenues being generated in North America in 2023. We serve customers through an independent network of approximately 1,600 independent distributor and dealer locations worldwide.
As of December 31, 2022, we had $644 million available under the Revolving Credit Facility, net of $6 million in letters of credit. As of December 31, 2022, we had no amounts outstanding under the Revolving Credit Facility.
As of December 31, 2023, we had $645 million available under the Revolving Credit Facility, net of $5 million in letters of credit. As of December 31, 2023, we had no amounts outstanding under the Revolving Credit Facility.
Cost of sales Cost of sales for the year ended December 31, 2022 was $1,472 million compared to $1,257 million for the year ended December 31, 2021, an increase of 17%.
Cost of sales Cost of sales for the year ended December 31, 2023 was $1,565 million compared to $1,472 million for the year ended December 31, 2022, an increase of 6%.
We have significant liquidity, including $232 million of cash and cash equivalents and $644 million available under the Revolving Credit Facility, net of $6 million in letters of credit, as of December 31, 2022.
We have significant liquidity, including $555 million of cash and cash equivalents and $645 million available under the Revolving Credit Facility, net of $5 million in letters of credit, as of December 31, 2023.
The increase was principally driven by $170 million related to increased net sales and $119 million of price increases on certain products, partially offset by $96 million of higher direct material costs and $38 million of higher manufacturing expense commensurate with increased net sales.
The increase was principally driven by $155 million of price increases on certain products and $70 million related to increased net sales, partially offset by $36 million of higher manufacturing expense and $15 million of higher direct material costs.
Cash provided by operating activities Operating activities for the year ended December 31, 2022 generated $657 million of cash compared to $635 million for the year ended December 31, 2021. The increase was principally driven by higher gross profit, partially offset by higher cash incentive compensation payments, higher cash income taxes and higher cash interest payments.
Cash provided by operating activities Operating activities for the year ended December 31, 2023 generated $784 million of cash compared to $657 million for the year ended December 31, 2022. The increase was principally driven by higher gross profit and lower operating working capital requirements, partially offset by higher cash income taxes.
Outside North America On-Highway end market net sales were up 22% for the year ended December 31, 2022 compared to the year ended December 31, 2021, principally driven by the continued execution of our growth initiatives in EMEA, Asia-Pacific and South America.
Outside North America On-Highway end market net sales were up 3% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by price increases on certain products and the continued execution of our growth initiatives.
Comparison of years ended December 31, 2022 and 2021 Years ended December 31, (dollars in millions) 2022 % of net sales 2021 % of net sales Net sales $ 2,769 100 % $ 2,402 100 % Cost of sales 1,472 53 1,257 52 Gross profit 1,297 47 1,145 48 Operating expenses: Selling, general and administrative 328 12 305 13 Engineering — research and development 185 7 171 7 Total operating expenses 513 19 476 20 Operating income 784 28 669 28 Other expense, net: Interest expense, net (118 ) (4 ) (116 ) (5 ) Other (expense) income, net (21 ) (1 ) 19 1 Total other expense, net (139 ) (5 ) (97 ) (4 ) Income before income taxes 645 23 572 24 Income tax expense (114 ) (4 ) (130 ) (6 ) Net income $ 531 19 % $ 442 18 % Net sales Net sales for the year ended December 31, 2022 were $2,769 million compared to $2,402 million for the year ended December 31, 2021, an increase of 15%.
Comparison of years ended December 31, 2023 and 2022 Years ended December 31, (dollars in millions) 2023 % of net sales 2022 % of net sales Net sales $ 3,035 100 % $ 2,769 100 % Cost of sales 1,565 52 1,472 53 Gross profit 1,470 48 1,297 47 Operating expenses: Selling, general and administrative 357 12 328 12 Engineering — research and development 194 6 185 7 Total operating expenses 551 18 513 19 Operating income 919 30 784 28 Other expense, net: Interest expense, net (107 ) (3 ) (118 ) (4 ) Other income (expense), net 15 — (21 ) (1 ) Total other expense, net (92 ) (3 ) (139 ) (5 ) Income before income taxes 827 27 645 23 Income tax expense (154 ) (5 ) (114 ) (4 ) Net income $ 673 22 % $ 531 19 % Net sales Net sales for the year ended December 31, 2023 were $3,035 million compared to $2,769 million for the year ended December 31, 2022, an increase of 10%.
A summary of our critical accounting estimates is included below. 43 Table of Contents Revenue Recognition Revenue recognition contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the amount of sales incentives and provision for government price reductions.
Revenue Recognition Revenue recognition contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the amount of sales incentives and provision for government price reductions.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. When releasing income tax effects from accumulated other comprehensive loss, we utilize the portfolio securities approach.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
In 2023, we expect higher net sales driven by price increases on certain products and the continued execution of growth initiatives. 35 Table of Contents Full Year 2022 and 2021 Net Sales by End Market (in millions) End Market 2022 Net Sales 2021 Net Sales % Variance North America On-Highway $ 1,359 $ 1,177 15 % North America Off-Highway 86 58 48 % Defense 146 186 (22 )% Outside North America On-Highway 463 381 22 % Outside North America Off-Highway 127 83 53 % Service Parts, Support Equipment and Other 588 517 14 % Total Net Sales $ 2,769 $ 2,402 15 % North America On-Highway end market net sales were up 15% for the year ended December 31, 2022 compared to the year ended December 31, 2021, principally driven by strength in customer demand for last mile delivery, regional haul and vocational trucks.
In 2024, we expect higher net sales driven by price increases on certain products and the continued execution of growth initiatives. 36 Table of Contents Full Year 2023 and 2022 Net Sales by End Market (in millions) End Market 2023 Net Sales 2022 Net Sales % Variance North America On-Highway $ 1,529 $ 1,359 13 % North America Off-Highway 63 86 (27 )% Defense 166 146 14 % Outside North America On-Highway 477 463 3 % Outside North America Off-Highway 104 127 (18 )% Service Parts, Support Equipment and Other 696 588 18 % Total Net Sales $ 3,035 $ 2,769 10 % North America On-Highway end market net sales were up 13% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by strength in demand for Class 8 vocational and medium-duty trucks and price increases on certain products.
The increase was principally driven by $10 million of higher interest expense on ATI's Term Loan due to higher variable interest rates, partially offset by $8 million of lower interest expense on interest rate hedges.
The decrease was principally driven by higher interest income on cash equivalents, partially offset by $4 million of higher interest expense on ATI's Term Loan due to higher variable interest rates, net of the favorable impact from interest rate hedges.
(d) Represents gains (recorded in Other (expense) income, net) related to investments in co-development agreements to expand our position in propulsion solution technologies. (e) Represents expenses (recorded in Selling, general and administrative and Engineering — research and development) for earnouts related to our acquisition of Vantage Power Limited.
(d) Represents losses (recorded in Other income (expense), net) on intercompany financing transactions for our India facility. (e) Represents expenses (recorded in Selling, general and administrative and Engineering — research and development) for earnouts related to our acquisition of Vantage Power Limited.
Engineering — research and development Engineering expenses for the year ended December 31, 2022 were $185 million compared to $171 million for the year ended December 31, 2021, an increase of 8%. The increase was principally driven by increased product initiatives spending.
The increase was principally driven by $12 million of higher commercial activities spending, $8 million of higher incentive compensation expense and $9 million of higher product warranty expense. Engineering — research and development Engineering expenses for the year ended December 31, 2023 were $194 million compared to $185 million for the year ended December 31, 2022, an increase of 5%.
The change was principally driven by $26 million of unfavorable change in marketable securities, $6 million of unfavorable foreign exchange on intercompany financing and $5 million of unfavorable change associated with assets held in a rabbi trust.
The change was principally driven by $21 million of favorable change in marketable securities, $11 million of favorable foreign exchange and $6 million of favorable change associated with assets held in a rabbi trust, partially offset by $3 million of unfavorable change in technology-related investment gains.
Defense end market net sales were down 22% for the year ended December 31, 2022 compared to the year ended December 31, 2021, principally driven by lower usage of defense vehicles during the COVID-19 pandemic leading to lower demand for Tracked and Wheeled vehicle applications.
Defense end market net sales were up 14% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by increased demand for Wheeled and Tracked vehicle applications.
The decrease in the effective tax rate was principally driven by enacted state tax rate legislation that resulted in a deferred tax benefit. 40 Table of Contents Liquidity and Capital Resources We generate cash primarily from operations to fund our operating, investing and financing activities.
The increase in income tax expense was principally driven by increased taxable income. 41 Table of Contents Liquidity and Capital Resources We generate cash primarily from operations to fund our operating, investing and financing activities.
During 2022, we repurchased approximately $278 million of our common stock under the Repurchase Program. All of the repurchase transactions during 2022 were settled in cash during the same period.
Our Board of Directors has authorized us to repurchase up to $4,000 million of our common stock pursuant to the Repurchase Program. During 2023, we repurchased approximately $263 million of our common stock under the Repurchase Program. All of the repurchase transactions during 2023 were settled in cash during the same period.
Global Off-Highway end market net sales were up 51% for the year ended December 31, 2022 compared to the year ended December 31, 2021, principally driven by demand for hydraulic fracturing applications in the energy sector as well as higher demand in the mining and construction sectors.
Global Off-Highway net sales were down 22% for the year ended December 31, 2023 compared to the year ended December 31, 2022, principally driven by lower demand in the energy sector, partially offset by higher demand in the mining and construction sectors outside of North America.
Estimates can require a significant amount of judgment, and a different set of judgments could result in changes to our reported results.
Differences between actual amounts and estimates are recorded in the period identified. Estimates can require a significant amount of judgment, and a different set of judgments could result in changes to our reported results. A summary of our critical accounting estimates is included below.
The increase was principally driven by a $182 million, or 15%, increase in net sales in the North America On-Highway end market principally driven by strength in customer demand for last mile delivery, regional haul and vocational trucks, an $82 million, or 22%, increase in net sales in the Outside North America On-Highway end market principally driven by the continued execution of our growth initiatives in EMEA, Asia-Pacific and South America, a $72 million, or 51%, increase in net sales in the Global Off-Highway end market principally driven by demand for hydraulic fracturing applications in the energy sector as well as higher demand in the mining and construction sectors and a $71 million, or 14%, increase in net sales in the Service Parts, Support Equipment and Other end market principally driven by higher demand for global service parts and support equipment and price increases on certain products, partially offset by a $40 million, or 22%, decrease in net sales in the Defense end market principally driven by lower usage of defense vehicles during the COVID-19 pandemic leading to lower demand for Tracked and Wheeled vehicle applications.
The increase was principally driven by a $170 million, or 13%, increase in net sales in the North America On-Highway end market principally driven by strength in demand for Class 8 vocational and medium-duty trucks and price increases on certain products, a $108 million, or 18%, increase in net sales in the Service Parts, Support Equipment and Other end market principally driven by higher demand for global service parts, support equipment and aluminum die cast components and price increases on certain products, a $20 million, or 14%, increase in net sales in the Defense end market principally driven by increased demand for Wheeled and Tracked vehicle applications and a $14 million, or 3%, increase in net sales in the Outside North America On-Highway end market principally driven by price increases on certain products and the continued execution of our growth initiatives, partially offset by a $46 million, or 22%, decrease in Global Off-Highway net sales principally driven by lower demand in the energy sector, partially offset by higher demand in the mining and construction sectors outside of North America.
The decrease was principally driven by a $41 million investment in marketable securities in 2021 that did not reoccur in 2022 and an $8 million decrease in capital expenditures, partially offset by $23 million in cash paid for business acquisitions during 2022 compared to none in 2021.
The decrease was principally driven by a $42 million decrease in capital expenditures and $23 million in cash paid for business acquisitions during 2022 that did not reoccur in 2023, partially offset by $5 million of equity investments in 2023 and a $4 million decrease in proceeds from technology-related investments.
(g) Represents (adjustments) charges (recorded in Cost of sales) related to a 2018 to 2021 retirement incentive program for certain employees represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) pursuant to the UAW Local 933 collective bargaining agreement effective through November 2023.
(g) Represents adjustments (recorded in Cost of sales) related to a 2018 to 2021 retirement incentive program for certain employees represented by the UAW pursuant to the UAW Local 933 collective bargaining agreement that was effective through November 2023. 39 Table of Contents Results of Operations The following table sets forth certain financial information for the years ended December 31, 2023 and 2022.
Critical Accounting Estimates The preparation of the 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 net sales and expenses during the applicable reporting period. Differences between actual amounts and estimates are recorded in the period identified.
The decrease was principally driven by a $26 million increase in proceeds from the exercise of stock options and a $15 million decrease in stock repurchases under the Repurchase Program. 44 Table of Contents Critical Accounting Estimates The preparation of the 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 net sales and expenses during the applicable reporting period.
Selling, general and administrative Selling, general and administrative expenses for the year ended December 31, 2022 were $328 million compared to $305 million for the year ended December 31, 2021, an increase of 8%. The increase was principally driven by higher product warranty expense and higher commercial activities spending.
Selling, general and administrative Selling, general and administrative expenses for the year ended December 31, 2023 were $357 million compared to $328 million for the year ended December 31, 2022, an increase of 9%.
Interest expense, net Interest expense, net for the year ended December 31, 2022 was $118 million compared to $116 million for the year ended December 31, 2021, an increase of 2%.
The increase was principally driven by increased product initiatives spending. Interest expense, net Interest expense, net for the year ended December 31, 2023 was $107 million compared to $118 million for the year ended December 31, 2022, a decrease of 9%.
Excluding our intangible asset deductions, our expected tax payments would have increased by approximately $40 million for the year ended December 31, 2022. 46 Table of Contents The need to establish a valuation allowance against the deferred tax assets is assessed at least quarterly based on a more-likely-than-not realization threshold, in accordance with the FASB authoritative accounting guidance on income taxes.
When releasing income tax effects from accumulated other comprehensive loss, we utilize the portfolio securities approach. 47 Table of Contents The need to establish a valuation allowance against the deferred tax assets is assessed at least quarterly based on a more-likely-than-not realization threshold, in accordance with the FASB authoritative accounting guidance on income taxes.
Cash used for financing activities Financing activities for the year ended December 31, 2022 used $367 million of cash compared to $604 million for the year ended December 31, 2021. The decrease was principally driven by $278 million of stock repurchases in 2022 compared to $513 million of stock repurchases in 2021 under the Repurchase Program.
Cash used for financing activities Financing activities for the year ended December 31, 2023 used $332 million of cash compared to $367 million for the year ended December 31, 2022.
We expect that commercial vehicle build schedules will continue to be negatively impacted by the availability of components in 2023. Our net sales are driven by commercial vehicle production, which tends to be highly correlated to macroeconomic conditions.
Our net sales are driven by commercial vehicle production, which tends to be highly correlated to macroeconomic conditions and continues to be impacted by global supply chain constraints.
Removed
Trends Impacting Our Business Global markets continue to experience supply chain, labor, energy and raw material constraints as a result of global economic volatility, the war in Ukraine and the COVID-19 pandemic, that impacted our business in 2022 and continue to impact our business performance.
Added
Trends Impacting Our Business In January 2024, the UAW Local 933 ratified a new four-year collective bargaining agreement with us that expires in November 2027. We expect to have a significant increase in labor costs under the terms of this new agreement.
Removed
As a result, during 2022 we experienced raw material and component part price inflation, increased freight and logistics costs, increased labor costs, production constraints due to labor shortages and increased foreign exchange volatility.
Added
(b) Represents gains (recorded in Other income (expense), net) related to investments in co-development agreements to expand our position in propulsion solution technologies. (c) Represents losses (gains) (recorded in Other income (expense), net) related to an investment in the common stock of Jing-Jin Electric Technologies Co. Ltd.
Removed
In addition, our net sales for 2022 were negatively impacted as a result of our customers’ inability to secure components from the broader commercial vehicle supply base which resulted in reduced commercial vehicle build schedules and the inability of the commercial vehicle market to produce sufficient quantities to meet demand.
Removed
Ltd. (b) Represents stock-based compensation expense (recorded in Cost of sales, Selling, general and administrative, and Engineering — research and development). (c) Represents losses (recorded in Other (expense) income, net) on intercompany financing transactions related to investments in plant assets for our India facility.
Removed
(h) Represents restructuring and pension plan settlement charges (recorded in Cost of sales, Selling, general and administrative, Engineering — research and development, and Other (expense) income, net) related to voluntary and involuntary separation programs for both hourly and salaried employees in 2020.
Removed
(i) Represents expenses (recorded in Other (expense) income, net) related to the redemption of ATI’s 5.0% Senior Notes due 2024 (“5.0% Senior Notes”) in the fourth quarter of 2020. 38 Table of Contents Results of Operations The following table sets forth certain financial information for the years ended December 31, 2022 and 2021.
Removed
The decrease in income tax expense was principally driven by enacted state tax rate legislation that resulted in a deferred tax benefit, partially offset by increased taxable income.
Removed
Throughout the year ended December 31, 2022, we made periodic withdrawals and payments on the Revolving Credit Facility as part of our cash management plans. The maximum amount outstanding at any time during the year ended December 31, 2022 was $75 million.
Removed
Our current stock repurchase program was originally authorized by the Board of Directors in 2016. On February 24, 2022, the Board of Directors authorized us to repurchase an additional $1,000 million of our common stock, bringing the total amount authorized under the Repurchase Program to $4,000 million.
Removed
As of December 31, 2022, our U.S. federal income tax deductions related to our intangible assets were approximately $200 million in 2022 and are expected to be approximately $10 million in 2023 and approximately $10 million in the aggregate through 2034.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe historically have not entered into long-term purchase contracts related to the purchase of aluminum and steel. 48 Table of Contents Assuming current levels of commodity purchases, a 10% variation in the price of aluminum and steel would correspondingly change our earnings by approximately $9 million and $12 million per year, respectively.
Biggest changeAssuming current levels of commodity purchases, a 10% variation in the price of aluminum and steel would correspondingly change our earnings by approximately $9 million and $13 million per year, respectively. Many of our LTAs have incorporated a cost-sharing arrangement related to potential future commodity price fluctuations.
Assuming current levels of foreign currency transactions, a 10% aggregate increase or decrease in the Chinese Yuan Renminbi, Euro, Indian Rupee, and Japanese Yen would correspondingly change our earnings, net of tax, by an estimated $4 million per year. We believe our other direct exposure to foreign currencies is immaterial.
Assuming current levels of foreign currency transactions, a 10% aggregate increase or decrease in the Chinese Yuan Renminbi, Euro, Indian Rupee, and Japanese Yen would correspondingly change our earnings, net of tax, by an estimated $5 million per year. We believe our other direct exposure to foreign currencies is immaterial.
A one-eighth percent increase or decrease in assumed interest rates for the Senior Secured Credit Facility, if fully drawn as of December 31, 2022, would have an impact of approximately $1 million on interest expense per year. As of December 31, 2022, we had no outstanding borrowings against the Revolving Credit Facility.
A one-eighth percent increase or decrease in assumed interest rates for the Senior Secured Credit Facility, if fully drawn as of December 31, 2023, would have an impact of approximately $1 million on interest expense per year. As of December 31, 2023, we had no outstanding borrowings against the Revolving Credit Facility. Refer to "Note 8. Debt” and "Note 9.
Commodity Price Risk We are subject to changes in our cost of sales caused by movements in underlying commodity prices. As of December 31, 2022, approximately 66% of our cost of sales consisted of purchased components with significant raw material content. A substantial portion of the purchased parts are made of aluminum and steel.
Commodity Price Risk We are subject to changes in our cost of sales caused by movements in underlying commodity prices. As of December 31, 2023, approximately 67% of our cost of sales consisted of purchased components. A substantial portion of the purchased parts are made of aluminum and steel.
Our Senior Secured Credit Facility provides for variable rate borrowings of up to $650 million, including $644 million under our Revolving Credit Facility, net of $6 million of letters of credit.
Our Senior Secured Credit Facility provides for variable rate borrowings of up to $1,263 million, including $645 million under our Revolving Credit Facility, net of $5 million of letters of credit.
As our costs change, we are able to pass through a portion of the changes in commodity prices to certain of our customers according to our LTAs.
As our costs change, we are able to pass through a portion of the changes in commodity prices to certain of our customers according to our LTAs. We historically have not entered into long-term purchase contracts related to the purchase of aluminum and steel.
As of December 31, 2022, we held interest rate swap contracts that, in the aggregate, effectively hedge $500 million of the variable rate debt associated with the Term Loan at weighted average London Interbank Offered Rate (“LIBOR”) fixed rates of 3.04% and 2.82% through September 2025.
As of December 31, 2023, we held interest rate swap contracts that, in the aggregate, effectively hedge $500 million of the variable rate debt associated with the Term Loan at the forward-looking term rate based on the Secured Overnight Financing Rate weighted average fixed rate of 2.81% through September 2025.
Many of our LTAs have incorporated a cost-sharing arrangement related to potential future commodity price fluctuations. For purposes of the sensitivity analysis above, the impact of these cost sharing arrangements has not been included. 49 Table of Contents
For purposes of the sensitivity analysis above, the impact of these cost sharing arrangements has not been included. 49 Table of Contents
Removed
The United Kingdom's Financial Conduct Authority has announced the intent to phase out LIBOR by June 2023. We plan to elect an alternative reference rate acceptable under reference rate reform guidance and do not expect the phase out to materially impact our financial statements, liquidity or access to capital markets. Refer to "Note 8. Debt” and "Note 9.

Other ALSN 10-K year-over-year comparisons