assumptions, including the Company's estimates for revenue growth and operating income margins. The Company estimates discounts rates based on the Company’s estimated weighted-average cost of capital, adjusted based on risk, which reflects the overall level of inherent risk of a reporting unit and the rate of return a market participant would expect to earn. Under the market approach, the Company estimates the fair value of its reporting units based on revenue and earnings multiples of comparable publicly traded companies. There are inherent uncertainties related to the Company’s estimates and assumptions and management uses significant judgment in estimating them. In evaluating the fair values of its reporting units, the Company also reconciles its total estimated fair value to within a reasonable range of the Company’s market capitalization. During 2024, the Company determined that a triggering event had occurred at Pratt Miller due to unfavorable performance compared to forecast and adverse market conditions related to mobility and motorsports and, therefore, assessed the reporting unit for impairment. As a result of the assessment, the Company recorded an impairment charge of $38.7 million in 2024. During 2025, the Company impaired the remaining Pratt Miller goodwill ($5.7 million) as changes to royalties expected on defense contracts led to a further decline in the Company's expectations of future performance of the reporting unit. A combination of the income and market approaches were used to calculate the fair values of the reporting unit, weighted consistently with the Company’s annual impairment test. For the annual impairment test, the Company used discount rates, depending on reporting unit, of 11.5% to 15.0% (13.0% to 17.0% at October 1, 2024) and a terminal growth rate of 3.0% (3.0% at October 1, 2024). The Company’s annual impairment assessment indicated that no additional impairments to goodwill were required. The fair value of each reporting unit exceeded its carrying value by more than 10%. Changes in estimates or the application of alternative assumptions could have produced different results. See Note 12 of the Notes to Consolidated Financial Statements for information regarding the Company’s goodwill. NEW ACCOUNTING STANDARDS See Note 2 of the Notes to Consolidated Financial Statements regarding the impact or potential impact of recent accounting pronouncements on the Company’s consolidated financial statements. CUSTOMERS AND BACKLOG Sales to the U.S. government comprised approximately 20% of the Company’s net sales in 2025. No other single customer accounted for more than 10% of the Company’s net sales for this period. A substantial majority of the Company’s net sales are derived from the fulfillment of customer orders that are received prior to commencing production. The Company’s backlog as of December 31, 2025 decreased 3.8% to $14.2 billion compared to $14.7 billion at December 31, 2024. Access segment backlog decreased 30.4% to $1.3 billion at December 31, 2025, compared to $1.8 billion at December 31, 2024. The Company believes the decrease in backlog was primarily the result of slowing demand in North America due to the uncertain macro environment and the normalization of orders in connection with improved product availability. Vocational segment backlog increased 4.7% to $6.6 billion at December 31, 2025, compared to $6.3 billion at December 31, 2024, due to higher pricing on future deliveries and continued strong demand for municipal fire apparatus. Unit backlog for municipal fire apparatus as of December 31, 2025 was up 1.5% compared to December 31, 2024. Unit backlog for refuse and recycling collection vehicles as of December 31, 2025 was down 46.7% compared to December 31, 2024 as the Company believes customers have been cautious in the uncertain macroeconomic environment. Transport segment backlog decreased 5.4% to $6.2 billion at December 31, 2025, compared to $6.5 billion at December 31, 2024, primarily reflecting NGDV production and completion of production under the Company's domestic JLTV contract in 2025. Backlog represents the dollar amount of revenues that the Company anticipates from customer contracts that have been awarded and/or are in progress. Reported backlog includes the original contract amount and any contract modifications that have been agreed upon. Reported backlog excludes purchase options, orders for which definitive contracts have not been executed and any potential future contract modifications. Backlog is comprised of fixed and variable priced contracts that may be canceled, modified or otherwise changed in the future. As a result, backlog may not be indicative of future operating results. Backlog information and comparisons thereof as of different dates may not be accurate indicators of future sales. Approximately 53% of the Company’s December 31, 2025 backlog is not expected to be filled in 2026.
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