8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) July 23, 2014

ALLISON TRANSMISSION HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-35456	26-0414014
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

One Allison Way, Indianapolis, Indiana	46222
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (317) 242-5000

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On July 23, 2014, Allison Transmission Holdings, Inc. (“Allison”) published an earnings release reporting its financial results for the three months ended June 30, 2014. A copy of the earnings release is attached as Exhibit 99.1 hereto. Following the publication of the earnings release, Allison will host an earnings call on July 24, 2014 at 8:00 a.m. ET on which its financial results for the three months ended June 30, 2014 will be discussed. The investor presentation materials that will be used for the call are attached as Exhibit 99.2 hereto.

On July 23, 2014, Allison posted the materials attached as Exhibits 99.1 and 99.2 on its web site (www.allisontransmission.com).

As discussed on page 2 of Exhibit 99.2, the investor presentation contains forward-looking statements within the meaning of the federal securities laws. These statements are present expectations, and are subject to the limitations listed therein and in Allison’s other Securities and Exchange Commission filings, including that actual events or results may differ materially from those in the forward-looking statements.

The foregoing information (including the exhibits hereto) is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number	Description
99.1	Earnings release dated July 23, 2014.
99.2	Investor presentation materials dated July 23, 2014.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Allison Transmission Holdings, Inc.
Date: July 23, 2014	By:	/s/ Eric C. Scroggins
	Name:	Eric C. Scroggins
	Title:	Vice President, General Counsel and Secretary

EXHIBIT INDEX

Exhibit Number	Description
99.1	Earnings release dated July 23, 2014.
99.2	Investor presentation materials dated July 23, 2014.

EX-99.1

Exhibit 99.1

Allison Transmission Announces Second Quarter 2014 Results

• Net Sales $536 million, Adjusted Net Income $117 million, Adjusted EBITDA $186 million, Adjusted Free Cash Flow $132 million or $0.73 per Diluted Share

INDIANAPOLIS, July 23, 2014 – Allison Transmission Holdings Inc. (NYSE: ALSN), the largest global provider of commercial duty fully-automatic transmissions, today reported net sales for the quarter of $536 million, a 5 percent increase from the same period in 2013. Adjusted Net Income, a non-GAAP financial measure, for the quarter was $117 million, compared to Adjusted Net Income of $89 million for the same period in 2013, an increase of $28 million. Diluted earnings per share for the quarter were $0.31.

The increase in net sales was principally driven by the continued recoveries in the North America On-Highway and Off-Highway end markets, and higher demand in the Service Parts, Support Equipment & Other end market partially offset by lower demand in the Outside North America end markets and previously contemplated reductions in U.S. defense spending.

Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $186 million, or 34.7 percent of net sales, compared to $172 million, or 33.5 percent of net sales, for the same period in 2013. Adjusted Free Cash Flow, also a non-GAAP financial measure, for the quarter was $132 million compared to $117 million for the same period in 2013.

Lawrence E. Dewey, Chairman, President and Chief Executive Officer of Allison Transmission commented, “Our second quarter 2014 results are within the full year guidance ranges we affirmed on April 16. Net sales improved on a year-over-year basis for the third consecutive quarter led by the continued recoveries in the North America On-Highway and Off-Highway end markets partially offset by weakness in the Outside North America end markets. Allison continued to demonstrate strong operating margins and free cash flow while aligning costs and programs across our business with end markets demand conditions and growth opportunities. During the quarter, Allison continued its prudent and well-defined approach to capital allocation by returning capital to its shareholders through a $150 million share repurchase and payment of a dividend. We are updating our full year net sales guidance to an increase in the range of 4 to 6 percent year-over-year, due to anticipated improvements in second half demand conditions in the North America On-Highway and Off-Highway end markets, weakness in the Outside North America On-Highway end market and previously contemplated reductions in U.S. defense spending.”

Second Quarter Net Sales by End Market

End Market	Q2 2014 Net Sales ($M)		Q2 2013 Net Sales ($M)		% Variance
North America On-Highway		243		216		13	%
North America Hybrid-Propulsion Systems for Transit Bus		28		27		4	%
North America Off-Highway		23		8		188	%
Defense		49		58		(16	%)
Outside North America On-Highway		62		75		(17	%)
Outside North America Off-Highway		24		36		(33	%)
Service Parts, Support Equipment & Other		107		92		16	%
Total Net Sales		536		512		5	%

1

Second Quarter Highlights

North America On-Highway end market net sales were up 13 percent from the same period in 2013 principally driven by higher demand for Rugged Duty Series and Pupil Transport/Shuttle Series models, and up 4 percent on a sequential basis principally driven by higher demand for Rugged Duty Series and Pupil Transport/Shuttle Series models partially offset by lower demand for Highway Series models.

North America Hybrid-Propulsion Systems for Transit Bus end market net sales were up 4 percent from the same period in 2013 and 17 percent sequentially principally driven by intra-year movement in the timing of orders.

North America Off-Highway end market net sales were up 188 percent from the same period in 2013 and 92 percent on a sequential basis principally driven by higher demand from hydraulic fracturing applications.

Defense end market net sales were down 16 percent from the same period in 2013 and up 44 percent sequentially principally driven by previously considered reductions in U.S. defense spending to longer term averages experienced during periods without active conflicts partially offset by the recognition of previously deferred revenue totaling $16 million commensurate with the shipment of certain tracked transmissions at the request of the U.S. government.

Outside North America On-Highway end market net sales were down 17 percent from the same period in 2013 reflecting weakness in China, Europe and South America, and down 3 percent on a sequential basis reflecting weakness in China partially offset by Japan.

Outside North America Off-Highway end market net sales were down 33 percent from the same period in 2013 principally driven by weaker demand conditions in the energy sector partially offset by higher demand from the mining sector, and up 14 percent sequentially principally driven by modestly improved demand conditions in the energy sector.

Service Parts, Support Equipment & Other end market net sales were up 16 percent from the same period in 2013 and flat on a sequential basis principally driven by higher demand for North America service parts, and North America On-Highway support equipment commensurate with increased transmission unit volumes.

Gross profit for the quarter was $239 million, an increase of 5 percent from $226 million for the same period in 2013. Gross margin for the quarter was 44.5 percent, an increase of 30 basis points from a gross margin of 44.2 percent for the same period in 2013. The increase in gross profit from the same period in 2013 was principally driven by increased net sales and price increases on certain products partially offset by unfavorable material costs.

Selling, general and administrative expenses for the quarter were $85 million, essentially flat with the same period in 2013.

Engineering – research and development expenses for the quarter were $21 million, a decrease of 7 percent from $23 million for the same period in 2013, principally driven by reduced product initiatives spending.

Second Quarter Non-GAAP Financial Measures

Adjusted EBITDA for the quarter was $186 million, or 34.7 percent of net sales, compared to $172 million, or 33.5 percent of net sales, for the same period in 2013. The increase in Adjusted EBITDA from the same period in 2013 was principally driven by increased net sales, price increases on certain products and reduced product initiatives spending partially offset by unfavorable material costs.

Adjusted Net Income for the quarter was $117 million compared to $89 million for the same period in 2013. The increase was principally driven by increased Adjusted EBITDA and decreased cash interest expense.

Adjusted Free Cash Flow for the quarter was $132 million compared to $117 million for the same period in 2013. The increase was principally driven by increased net cash provided by operating activities.

2

Full Year 2014 Guidance Update

Our updated full year 2014 guidance includes a year-over-year net sales increase in the range of 4 to 6 percent, an Adjusted EBITDA margin excluding technology-related license expenses in the range of 32.5 to 34 percent, an Adjusted Free Cash Flow in the range of $385 to $425 million, capital expenditures in the range of $60 to $70 million and cash income taxes in the range of $10 to $15 million. In the second half of 2014 we expect net sales to increase on a year-over-year basis principally driven by improved demand conditions in the North America On-Highway and Off-Highway end markets, weakness in the Outside North America On-Highway end market and previously contemplated reductions in U.S. defense spending.

Although we are not providing specific third quarter 2014 guidance, Allison expects net sales to be higher than the same period in 2013. The anticipated year-over-year increase in third quarter net sales is expected to be principally driven by higher demand in the North America On-Highway and Off-Highway end markets partially offset by previously considered reductions in Defense net sales.

Conference Call and Webcast

The company will host a conference call at 8:00 a.m. ET on Thursday July 24 to discuss its second quarter 2014 results. Dial-in number is 1-201-689-8470 and the U.S. toll-free dial-in number is 1-877-407-9039. A live webcast of the conference call will also be available online at http://ir.allisontransmission.com.

For those unable to participate in the conference call, a replay will be available from 11:00 a.m. ET on July 24 until 11:59 p.m. ET on July 31. The replay dial-in number is 1-858-384-5517 and the U.S. toll-free replay dial-in number is 1-877-870-5176. The replay passcode is 13585764.

About Allison Transmission

Allison Transmission (NYSE: ALSN) is the world’s largest manufacturer of fully automatic transmissions for medium- and heavy-duty commercial vehicles, and is a leader in hybrid-propulsion systems for city buses. Allison transmissions are used in a variety of applications including refuse, construction, fire, distribution, bus, motorhomes, defense and energy. Founded in 1915, the company is headquartered in Indianapolis, Indiana, USA and employs approximately 2,700 people worldwide. With a market presence in more than 80 countries, Allison has regional headquarters in the Netherlands, China and Brazil with manufacturing facilities in the U.S., Hungary and India. Allison also has approximately 1,400 independent distributor and dealer locations worldwide. For more information, visit allisontransmission.com.

Forward-Looking Statements

This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release are forward-looking statements, including all statements regarding future financial results. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plans,” “project,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “forecast,” “could,” “potential,” “continue” or the negative of these terms or other similar terms or phrases. Forward-looking statements are not guarantees of future performance and involve known and unknown risks. Factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made include, but are not limited to: risks related to our substantial indebtedness; our participation in markets that are competitive; the highly cyclical industries in which certain of our end users operate; the failure of markets outside North America to increase adoption of fully-automatic transmissions; the concentration of our net sales in our top five customers and the loss of any one of these; future reductions or changes in government subsidies for hybrid vehicles, U.S. defense spending; general economic and industry conditions; the discovery of defects in our products, resulting in delays in new model launches, recall campaigns and/or increased warranty costs and reduction in future sales or damage to our brand and reputation; our ability to prepare for, respond to and successfully achieve our objectives relating to technological and market developments and changing customer needs; risks associated with our international operations; labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal customers; and other risks and uncertainties associated with our business described in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviation will not be material. All information is as of the date of this press release, and we undertake no obligation to update any forward-looking statement to conform the statement to actual results or changes in expectations.

3

Use of Non-GAAP Financial Measures

This press release contains information about Allison’s financial results which are not presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Such non-GAAP financial measures are reconciled to their closest GAAP financial measures at the end of this press release. Non-GAAP financial measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures of other companies.

Attachment

• Condensed Consolidated Statements of Operations

• Condensed Consolidated Balance Sheets

• Condensed Consolidated Statements of Cash Flows

• Reconciliation of GAAP to Non-GAAP Financial Measures

Contacts

Investor Relations

(317) 242-3078

ir@allisontransmission.com

Media Relations

(317) 242-5000

media@allisontransmission.com

4

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, dollars in millions, except per share data)

	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
Net sales	$	536.1		$	512.1		$	1,029.7		$	969.5
Cost of sales		297.6			286.0			568.7			545.1
Gross profit		238.5			226.1			461.0			424.4
Selling, general and administrative expenses		85.1			85.6			168.3			173.5
Engineering - research and development		21.2			22.8			45.7			51.8
Operating income		132.2			117.7			247.0			199.1
Interest expense, net		(36.6	)		(33.3	)		(71.7	)		(67.2	)
Other expense, net		(0.9	)		(2.6	)		(1.3	)		(5.7	)
Income before income taxes		94.7			81.8			174.0			126.2
Income tax expense		(37.5	)		(31.3	)		(64.7	)		(48.2	)
Net income	$	57.2		$	50.5		$	109.3		$	78.0
Basic earnings per share attributable to common stockholders	$	0.32		$	0.27		$	0.61		$	0.42
Diluted earnings per share attributable to common stockholders	$	0.31		$	0.26		$	0.59		$	0.41

5

Allison Transmission Holdings, Inc.

Condensed Consolidated Balance Sheets

(dollars in millions)

	June 30,		December 31,
	2014		2013
	(Unaudited)		(Audited)
ASSETS
Current Assets
Cash and cash equivalents	$	126.7	$	184.7
Accounts receivables - net of allowance for doubtful accounts of $0.6 and $0.4, respectively		227.0		175.1
Inventories		169.5		160.4
Deferred income taxes, net		94.9		58.1
Other current assets		29.4		28.6
Total Current Assets		647.5		606.9
Property, plant and equipment, net		538.2		563.4
Intangible assets, net		3,502.4		3,551.8
Deferred income taxes, net		1.1		1.1
Other non-current assets		82.7		89.4
TOTAL ASSETS	$	4,771.9	$	4,812.6
LIABILITIES
Current Liabilities
Accounts payable	$	174.4	$	150.4
Current portion of long term debt		17.9		17.9
Other current liabilities		186.0		218.9
Total Current Liabilities		378.3		387.2
Long term debt		2,651.5		2,660.4
Other non-current liabilities		448.1		326.2
TOTAL LIABILITIES		3,477.9		3,373.8
TOTAL STOCKHOLDERS’ EQUITY		1,294.0		1,438.8
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	4,771.9	$	4,812.6

6

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in millions)

	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
Net cash provided by operating activities	$	143.4		$	129.7		$	242.0		$	184.4
Net cash used for investing activities (a)		(9.6	)		(11.5	)		(24.7	)		(30.6	)
Net cash used for financing activities		(167.4	)		(19.8	)		(273.1	)		(17.7	)
Effect of exchange rate changes in cash		0.4			8.1			(2.2	)		11.1
Net (decrease) increase in cash and cash equivalents		(33.2	)		106.5			(58.0	)		147.2
Cash and cash equivalents at beginning of period		159.9			120.9			184.7			80.2
Cash and cash equivalents at end of period	$	126.7		$	227.4		$	126.7		$	227.4
Supplemental disclosures:
Interest paid	$	39.2		$	49.6		$	68.6		$	79.6
Income taxes paid	$	1.0		$	1.8		$	3.1		$	3.0
(a) Additions of long-lived assets	$	(11.6	)	$	(13.2	)	$	(22.7	)	$	(25.8	)

7

Allison Transmission Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited, dollars in millions)

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Net income	$	57.2		$	50.5		$	109.3		$	78.0
plus:
Interest expense, net		36.6			33.3			71.7			67.2
Cash interest expense		(39.2	)		(49.6	)		(68.6	)		(79.6	)
Income tax expense		37.5			31.3			64.7			48.2
Cash income taxes		(1.0	)		(1.8	)		(3.1	)		(3.0	)
Impairment loss on technology-related investments (a)		—			—			—			2.5
Public offering expenses (b)		0.8			0.6			1.1			0.6
Amortization of intangible assets		24.7			25.1			49.4			55.0
Adjusted net income	$	116.6		$	89.4		$	224.5		$	168.9
Cash interest expense		39.2			49.6			68.6			79.6
Cash income taxes		1.0			1.8			3.1			3.0
Depreciation of property, plant and equipment		24.1			25.0			47.4			49.7
Restructuring charge (c)		0.7			1.0			0.7			1.0
Unrealized loss (gain) on foreign exchange (d)		1.7			(0.1	)		1.4			0.5
Unrealized (gain) loss on commodity hedge contracts (e)		(1.2	)		0.6			(1.1	)		1.9
Other (f)		4.0			4.3			7.3			7.7
Adjusted EBITDA	$	186.1		$	171.6		$	351.9		$	312.3
Adjusted EBITDA excluding technology-related license expenses (g)	$	186.1		$	171.6		$	355.2		$	318.3
Net sales	$	536.1		$	512.1		$	1,029.7		$	969.5
Adjusted EBITDA margin		34.7	%		33.5	%		34.2	%		32.2	%
Adjusted EBITDA margin excluding technology-related license expenses (g)		34.7	%		33.5	%		34.5	%		32.8	%
Net Cash Provided by Operating Activities	$	143.4		$	129.7		$	242.0		$	184.4
(Deductions) or Additions to Reconcile to Adjusted Free Cash Flow:
Additions of long-lived assets		(11.6	)		(13.2	)		(22.7	)		(25.8	)
Technology-related license expenses (g)		—			—			3.3			6.0
Adjusted Free Cash Flow	$	131.8		$	116.5		$	222.6		$	164.6

(a) Represents an impairment charge (recorded in Other expense, net) for investments in co-development agreements to expand our position in transmission technologies.

(b) Represents fees and expenses (recorded in Other expense, net) related to our secondary offerings in June 2014, April 2014, February 2014 and proposed secondary offering in April 2013.

(c) Represents a charge (recorded in Selling, general and administrative, and Engineering - research and development) related to employee headcount reductions in the second quarter of 2014 and second quarter of 2013.

(d) Represents losses (gains) (recorded in Other expense, net) on the mark-to-market of our foreign currency hedge contracts and on intercompany financing transactions related to investments in plant assets for our India facility.

(e) Represents (gains) losses (recorded in Other expense, net) on the mark-to-market of our commodity hedge contracts.

(f) Represents employee stock compensation expense (recorded in Cost of sales, Selling, general and administrative expenses, and Engineering – research and development).

(g) Represents payments (recorded in Engineering - research and development) for licenses to expand our position in transmission technologies.

8

EX-99.2

Q2 2014 Earnings Release

Published July 23, 2014 (Earnings Conference Call July 24, 2014)

Lawrence Dewey, Chairman, President & Chief Executive Officer

David Graziosi, Executive Vice President & Chief Financial Officer

Exhibit 99.2

2

Safe Harbor Statement

The

following

information

contains,

or

may

be

deemed

to

contain,

“forward-looking

statements”

(as

defined

in

the

U.S.

Private

Securities

Litigation

Reform

Act

of

1995).

The

words

“believe,”

“expect,”

“anticipate,”

“intend,”

“estimate”

and

other

expressions

that

are

predictions

of

or

indicate

future

events

and

trends

and

that

do

not

relate

to

historical

matters

identify

forward-looking

statements.

You

should

not

place

undue

reliance

on

these

forward-looking

statements.

Although

forward-looking

statements

reflect

management’s

good

faith

beliefs,

reliance

should

not

be

placed

on

forward-looking

statements

because

they

involve

known

and

unknown

risks,

uncertainties

and

other

factors,

which

may

cause

the

actual

results,

performance

or

achievements

to

differ

materially

from

anticipated

future

results,

performance

or

achievements

expressed

or

implied

by

such

forward-looking

statements.

Forward-looking

statements

speak

only

as

of

the

date

the

statements

are

made.

We

undertake

no

obligation

to

publicly

update

or

revise

any

forward-looking

statement,

whether

as

a

result

of

new

information,

future

events,

changed

circumstances

or

otherwise.

These

forward-looking

statements

are

subject

to

numerous

risks

and

uncertainties,

including,

but

not

limited

to:

risks

related

to

our

substantial

indebtedness;

our

participation

in

markets

that

are

competitive;

the

highly

cyclical

industries

in

which

certain

of

our

end

users

operate;

the

failure

of

markets

outside

North

America

to

increase

adoption

of

fully-automatic

transmissions;

the

concentration

of

our

net

sales

in

our

top

five

customers

and

the

loss

of

any

one

of

these;

future

reductions

or

changes

in

government

subsidies

for

hybrid

vehicles;

U.S.

defense

spending;

general

economic

and

industry

conditions;

the

discovery

of

defects

in

our

products,

resulting

in

delays

in

new

model

launches,

recall

campaigns

and/or

increased

warranty

costs

and

reduction

in

future

sales

or

damage

to

our

brand

and

reputation;

our

ability

to

prepare

for,

respond

to

and

successfully

achieve

our

objectives

relating

to

technological

and

market

developments

and

changing

customer

needs;

risks

associated

with

our

international

operations;

and

labor

strikes,

work

stoppages

or

similar

labor

disputes,

which

could

significantly

disrupt

our

operations

or

those

of

our

principal

customers.

Allison

Transmission

cannot

assure

you

that

the

assumptions

made

in

preparing

any

of

the

forward-

looking

statements

will

prove

accurate

or

that

any

long-term

financial

goals

will

be

realized.

All

forward-looking

statements

included

in

this

presentation

speak

only

as

of

the

date

made,

and

Allison

Transmission

undertakes

no

obligation

to

update

or

revise

publicly

any

such

forward-looking

statements,

whether

as

a

result

of

new

information,

future

events,

or

otherwise.

In

particular,

Allison

Transmission

cautions

you

not

to

place

undue

weight

on

certain

forward-looking

statements

pertaining

to

potential

growth

opportunities,

long-term

financial

goals

or

the

value

we

currently

ascribe

to

certain

tax

attributes

set

forth

herein.

Actual

results

may

vary

significantly

from

these

statements.

Allison

Transmission’s

business

is

subject

to

numerous

risks

and

uncertainties,

which

may

cause

future

results

of

operations

to

vary

significantly

from

those

presented

herein.

Important

factors

that

could

cause

actual

results

to

differ

materially

are

discussed

in

Allison

Transmission’s

Annual

Report

on

Form

10-K

for

the

year

ended

December

31,

2013.

Non-GAAP Financial Information

3

We

use

Adjusted

net

income,

Adjusted

EBITDA,

Adjusted

EBITDA

excluding

technology-related

license

expenses,

Adjusted

EBITDA

margin,

Adjusted

EBITDA

margin

excluding

technology-related

license

expenses,

adjusted

free

cash

flow

and

free

cash

flow

to

evaluate

our

performance

relative

to

that

of

our

peers.

In

addition,

the

Senior

Secured

Credit

Facility

has

certain

covenants

that

incorporate

Adjusted

EBITDA.

However,

Adjusted

net

income,

Adjusted

EBITDA,

Adjusted

EBITDA

excluding

technology-related

license

expenses,

Adjusted

EBITDA

margin,

Adjusted

EBITDA

margin

excluding

technology-related

license

expenses,

adjusted

free

cash

flow

and

free

cash

flow

are

not

measurements

of

financial

performance

under

GAAP,

and

these

metrics

may

not

be

comparable

to

similarly

titled

measures

of

other

companies.

Adjusted

net

income

is

calculated

as

the

sum

of

net

income

(loss),

interest

expense,

net,

income

tax

expense

(benefit),

trade

name

impairment

and

amortization

of

intangible

assets,

less

cash

interest,

net

and

cash

income

taxes,

and

adjusted

for

certain

non-recurring

items.

Adjusted

EBITDA

is

calculated

as

the

sum

of

Adjusted

net

income,

cash

interest,

net,

cash

income

taxes,

depreciation

of

property,

plant

and

equipment

and

other

adjustments

as

defined

by

the

Senior

Secured

Credit

Facility

and

as

further

described

below.

Adjusted

EBITDA

excluding

technology-related

license

expenses

is

calculated

as

Adjusted

EBITDA

less

technology-related

license

expenses.

Adjusted

EBITDA

margin

is

calculated

as

Adjusted

EBITDA

divided

by

net

sales.

Adjusted

EBITDA

margin

excluding

technology-related

license

expenses

is

calculated

as

Adjusted

EBITDA

excluding

technology-related

license

expenses

divided

by

net

sales.

Free

cash

flow

is

calculated

as

net

cash

provided

by

operating

activities

less

capital

expenditures.

Adjusted

free

cash

flow

is

free

cash

flow

adjusted

for

non-recurring

items.

We

use

Adjusted

net

income

to

measure

our

overall

profitability

because

it

better

reflects

our

cash

flow

generation

by

capturing

the

actual

cash

interest

paid

and

cash

taxes

paid

rather

than

our

interest

expense

and

tax

expense

as

calculated

under

GAAP

and

excludes

the

impact

of

the

non-

cash

annual

amortization

of

certain

intangible

assets

that

were

created

at

the

time

of

the

Acquisition

Transaction.

We

use

Adjusted

EBITDA,

Adjusted

EBITDA

excluding

technology-related

license

expenses,

Adjusted

EBITDA

margin

and

Adjusted

EBITDA

margin

excluding

technology-

related

license

expenses

to

evaluate

and

control

our

cash

operating

costs

and

to

measure

our

operating

profitability.

We

use

adjusted

free

cash

flow

and

free

cash

flow

to

evaluate

the

amount

of

cash

generated

by

the

business

that,

after

the

capital

investment

needed

to

maintain

and

grow

our

business,

can

be

used

for

strategic

opportunities,

including

investing

in

our

business

and

strengthening

our

balance

sheet.

We

believe

the

presentation

of

Adjusted

net

income,

Adjusted

EBITDA,

Adjusted

EBITDA

excluding

technology-related

license

expenses,

Adjusted

EBITDA

margin,

Adjusted

EBITDA

margin

excluding

technology-related

license

expenses

and

adjusted

free

cash

flow

enhances

our

investors'

overall

understanding

of

the

financial

performance

and

cash

flow

of

our

business.

You

should

not

consider

Adjusted

net

income,

Adjusted

EBITDA,

Adjusted

EBITDA

excluding

technology-related

license

expenses,

Adjusted

EBITDA

margin,

Adjusted

EBITDA

margin

excluding

technology-related

license

expenses,

adjusted

free

cash

flow

and

free

cash

flow

as

an

alternative

to

net

income

(loss),

determined

in

accordance

with

GAAP,

as

an

indicator

of

operating

performance,

or

as

an

alternative

to

net

cash

provided

by

operating

activities,

determined

in

accordance

with

GAAP,

as

an

indicator

of

Allison’s

cash

flow.

4

Call Agenda

Q2 2014 Performance

Full Year 2014 Guidance Update

5

Q2 2014 Performance Summary

($ in millions)

Q2 2014

Q2 2013

% Variance

Net Sales

$536

$512

4.7%

Gross Margin %

44.5%

44.2%

+30 bps

Adjusted Net Income

(1)

$117

$89

30.4%

Adjusted Free Cash Flow

(1)

$132

$117

13.1%

Commentary

Net

Sales:

the

increase

was

principally

driven

by

the

continued

recovery

in

the

North

America

On-Highway

and

Off-

Highway

end

markets,

and

higher

demand

in

the

Service

Parts,

Support

Equipment

&

Other

end

market

partially

offset

by

lower

demand

in

the

Outside

North

America

end

markets

and

previously

contemplated

reductions

in

U.S.

defense

spending.

Gross

Margin:

the

increase

was

principally

driven

by

increased

net

sales

and

price

increases

on

certain

products

partially

offset

by

unfavorable

material

costs.

Adjusted

Net

Income:

the

increase

was

principally

driven

by

increased

net

sales,

price

increases

on

certain

products,

reduced

product

initiatives

spending

and

decreased

cash

interest

expense

partially

offset

by

unfavorable

material

costs.

Adjusted

Free

Cash

Flow:

the

increase

was

principally

driven

by

increased

net

cash

provided

by

operating

activities.

(1)

See Appendix for a reconciliation of Adjusted Net Income and Adjusted Free Cash Flow.

6

Q2 2014 Sales Performance

($ in millions)

End Markets

Q2 2014

Q2 2013

% Variance

Commentary

North America On-Hwy

$243

$216

13%

Increased demand for Rugged Duty Series and Pupil

Transport/Shuttle Series models

North America Hybrid-

Propulsion Systems for

Transit Bus

$28

$27

4%

Increased demand principally driven by intra-year

movement in the timing of orders

North America Off-Hwy

$23

$8

188%

Increased demand driven by hydraulic fracturing

applications

Defense

$49

$58

(16%)

Continued reductions in U.S. defense spending to longer

term averages experienced during periods without active

conflicts partially offset by the recognition of previously

deferred tracked revenue

Outside North America

On-Hwy

$62

$75

(17%)

Weakness in China, Europe and South America

Outside North America

Off-Hwy

$24

$36

(33%)

Weaker demand conditions in the energy sector partially

offset by higher demand from the mining sector

Service Parts, Support

Equipment & Other

$107

$92

16%

Increased demand for North America service parts and

North America On-Highway support equipment

Total

$536

$512

5%

7

Q2 2014 Financial Performance

($ in millions, except share data)

Q2 2014

Q2 2013

$ Var

% Var

Commentary

Net Sales

$536.1

$512.1

$24.0

4.7%

Increase principally driven by the continued recovery in the North

America On-Highway and Off-Highway end markets, and higher

demand in the Service Parts, Support Equipment & Other end

market partially offset by lower demand in the Outside North

America end markets and previously contemplated reductions in

U.S. defense spending

Cost of Sales

$297.6

$286.0

($11.6)

(4.1%)

Gross Profit

$238.5

$226.1

$12.4

5.5%

Increase principally driven by increased net sales and price

increases on certain products partially offset by unfavorable

material cost

Operating Expenses

Selling, general and administrative expenses

$85.1

$85.6

$0.5

0.6%

Engineering –

research and development

$21.2

$22.8

$1.6

7.0%

Decrease principally driven by reduced product initiatives spending

Total operating expenses

$106.3

$108.4

$2.1

1.9%

Operating Income

$132.2

$117.7

$14.5

12.3%

Interest Expense, net

($36.6)

($33.3)

($3.3)

(9.9%)

Increase principally driven by less favorable mark-to-market

adjustments for interest rate derivatives partially offset by debt

repayments and lower LIBOR swap and senior secured credit

facility rates

Other Expense, net

($0.9)

($2.6)

$1.7

65.4%

Decrease principally driven by gains on derivative contracts and

favorable foreign exchange partially offset by lower grant program

income

Income Before Income Taxes

$94.7

$81.8

$12.9

15.8%

Income Tax Expense

($37.5)

($31.3)

($6.2)

(19.8%)

Change in effective tax rate principally driven by the change in

discrete activity

Net Income

$57.2

$50.5

$6.7

13.3%

Diluted Earnings Per Share

$0.31

$0.26

$0.05

19.2%

Q2 2014: 181.6M shares;  Q2 2013: 189.9M shares

Adjusted EBITDA

(1)

$186.1

$171.6

$14.5

8.4%

Adjusted EBITDA excluding technology-related

license expenses

(1)

$186.1

$171.6

$14.5

8.4%

Adjusted Net Income

(1)

$116.6

$89.4

$27.2

30.4%

(1)

See Appendix for a reconciliation from Net Income.

Q2 2014 Cash Flow Performance

($ in millions)

Q2 2014

Q2 2013

$ Variance

% Variance

Commentary

Net Cash Provided by

Operating Activities

$143

$130

$13

10.6%

Principally driven by increased

net sales

CapEx

$12

$13

($1)

(12.1%)

Capital spending in line with

prior year

Adjusted Free Cash

Flow

(1) 

$132

$117

$15

13.1%

Principally driven by increased

cash provided by operating

activities

($ in millions)

Q2 2014

Q2 2013

$ Variance

% Variance

Commentary

Operating Working

Capital

(2)

Percentage

of LTM Sales

11.2%

10.4%

N/A

80 bps

Principally driven by increased

net sales

Cash Paid for Interest

$39

$50

($11)

(21.0%)

Principally driven by debt

repayments and refinancing,

and timing

Cash Paid for Income

Taxes

$1

$2

($1)

(44.4%)

Foreign payments timing

(1)

See Appendix for a reconciliation of Adjusted Free Cash Flow.

(2)

Operating

Working

Capital

=

A/R

+

Inventory

–

A/P.

8

9

Full Year 2014 Guidance Update

Guidance

Commentary

Net Sales Growth from 2013

4 to 6 percent

In

the

second

half

of

2014

we

expect

net

sales

to

increase

on

a

year-over-year

basis

principally

driven

by

improved

demand

conditions

in

the

North

America

On-Highway

and

Off-Highway

end

markets,

weakness

in

the

Outside

North

America

On-Highway

end

market

and

previously

contemplated

reductions

in

U.S.

defense

spending

Adjusted EBITDA Margin excluding

technology-related license expenses

32.5 to 34.0

percent

Principally driven by sales mix and volume timing

Adjusted Free Cash Flow ($ in millions)

$385 to $425

$2.12 to $2.34 per diluted share

CapEx

($ in millions)

Maintenance

New Product Programs

$55 to $60

$5 to $10

Subject

to

timely

completion

of

development

and

sourcing

milestones

Cash Income Taxes ($ in millions)

$10 to $15

U.S.

income

tax

shield

and

net

operating

loss

utilization

APPENDIX

Non-GAAP Financial Information

*

*

*

*

*

*

*

*

*****

*****

*****

*****

*****

*****

*****

*****

*****

****

11

(1) Includes

charges

or

income

related

to

legacy

employee

benefits,

shared

income

with

General

Motors,

benefit

plan

adjustments,

transitional

costs

to

establish

Allison

as

a

stand-alone

entity,

pension

curtailment

adjustments,

employee

stock

compensation

expense,

service

fees

paid

to

Allison’s

Sponsors

and

an

adjustment

for

the

settlement

of

litigation

which

originated

with

the

Predecessor

but

was

assumed

by

the

Company

as

part

of

the

Acquisition

Transaction.

$ in millions, Unaudited

Last twelve

months ended

June 30,

2009

2010

2011

2012

2013

2013

2014

2014

Net (loss) income

($323.9)

$29.6

$103.0

$514.2

$165.4

$50.5

$57.2

$196.7

plus:

Interest expense, net                         

234.2

277.5

217.3

151.2

132.9

33.3

36.6

137.4

Cash interest expense

(242.5)

(239.1)

(208.6)

(167.3)

(159.2)

(49.6)

(39.2)

(148.2)

Income tax expense (benefit)

41.4

53.7

47.6

(298.0)

100.7

31.3

37.5

117.2

Cash income taxes                          

(5.5)

(2.2)

(5.8)

(10.7)

(3.8)

(1.8)

(1.0)

(3.9)

Fee to terminate services agreement with Sponsors

—

—

—

16.0

—

—

—

—

Technology-related investment expenses

—

—

—

14.4

5.0

—

—

2.5

Public offering expenses

—

—

—

6.1

1.6

0.6

0.8

2.1

Trade name impairment                      

190.0

—

—

—

—

—

—

—

Amortization of intangible assets               

155.9

154.2

151.9

150.0

105.3

25.1

24.7

99.7

Adjusted net income                          

$49.6

$273.7

$305.4

$375.9

$347.9

$89.4

$116.6

$403.5

Cash interest expense

242.5

239.1

208.6

167.3

159.2

49.6

39.2

148.2

Cash income taxes                          

5.5

2.2

5.8

10.7

3.8

1.8

1.0

3.9

Depreciation of property, plant and equipment    

105.9

99.6

103.8

102.5

98.7

25.0

24.1

96.4

(Gain)/loss on redemptions and repayments of long-term debt

(8.9)

(3.3)

16.0

22.1

0.8

—

—

0.8

Dual power inverter module extended coverage

11.4

(1.9)

—

9.4

(2.4)

—

—

(2.4)

UAW Local 933 signing bonus

—

—

—

8.8

—

—

—

—

Benefit plan re-measurement

—

—

—

2.3

—

—

—

—

Unrealized (gain) loss on commodity hedge contracts

(5.8)

0.3

6.5

(1.0)

1.5

0.6

(1.2)

(1.5)

Unrealized (gain) loss on foreign exchange

—

(0.2)

0.3

0.1

2.3

(0.1)

1.7

3.2

Premiums and expenses on tender offer for long-term debt

—

—

56.9

—

—

—

—

—

Restructuring charges

47.9

—

—

—

1.0

1.0

0.7

0.7

Reduction of supply contract liability

—

(3.4)

—

—

—

—

—

—

Other, net   

(1)

53.2

10.9

8.6

7.0

13.8

4.3

4.0

13.4

Adjusted EBITDA                           

$501.3

$617.0

$711.9

$705.1

$626.6

$171.6

$186.1

$666.2

Adjusted EBITDA excluding technology-related license expenses

$501.3

$617.0

$711.9

$717.1

$632.6

$171.6

$186.1

$669.5

Net Sales

$1,766.7

$1,926.3

$2,162.8

$2,141.8

$1,926.8

$512.1

$536.1

$1,987.0

Adjusted EBITDA margin               

28.4%

32.0%

32.9%

32.9%

32.5%

33.5%

34.7%

33.5%

Adjusted EBITDA margin excl technology-related license expenses

28.4%

32.0%

32.9%

33.5%

32.8%

33.5%

34.7%

33.7%

Three months ended

June 30,

For the year ended December 31,

Non-GAAP Reconciliations

(1 of 2)

Adjusted Net Income and Adjusted EBITDA reconciliation

12

$ in millions, Unaudited

Last twelve

months ended

June 30,

2009

2010

2011

2012

2013

2013

2014

2014

Net Cash Provided by Operating Activities

$168.7

$388.9

$469.2

$497.5

$453.5

$129.7

$143.4

$511.1

(Deductions) or Additions:

Long-lived assets

(88.2)

(73.8)

(96.9)

(123.9)

(74.4)

(13.2)

(11.6)

(71.3)

Fee to terminate services agreement with Sponsors

—

—

—

16.0

—

—

—

—

Technology-related license expenses

—

—

—

12.0

6.0

—

—

3.3

2009 Non-Recurring Activity

61.0

—

—

—

—

—

—

—

Adjusted Free Cash Flow

$141.5

$315.1

$372.3

$401.6

$385.1

$116.5

$131.8

$443.1

Net Sales                                    

$1,766.7

$1,926.3

$2,162.8

$2,141.8

$1,926.8

$512.1

$536.1

$1,987.0

Adjusted Free Cash Flow (% to Net Sales)

8.0%

16.4%

17.2%

18.8%

20.0%

22.7%

24.6%

22.3%

Three months ended

June 30,

For the year ended December 31,

(1)

2009

adjusted

for

certain

non-recurring

activity:

(a)

capitalized

accrued

interest

on

Senior

Toggle

Notes

($29)

million,

(b)

cash

restructuring

charge

$51

million,

(c)

accounts

payable

early

payments

$3

million,

(d)

delayed

accounts

receivable

receipts

$19

million

and

(e)

Lehman

LIBOR

swap

settlement

$17

million.

Non-GAAP Reconciliations

(2 of 2)

Adjusted Free Cash Flow reconciliation

(1)