EX-99.2 3 d810016dex992.htm EX-99.2 EX-99.2
Q3 2014 Earnings Release
Published
October
27,
2014
(Earnings
Conference
Call
October
28,
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
Q3 2014 Performance
Full Year 2014 Guidance Update

5
Q3 2014 Performance Summary
($ in millions)
Q3 2014
Q3 2013
% Variance
Net Sales
$553
$466
18.7%
Gross Margin %
46.9%
44.2%
+270 bps
Adjusted Net Income
(1)
$138
$101
35.7%
Adjusted Free Cash Flow
(1)
$159
$116
37.6%
Commentary
Net
Sales:
the
increase
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
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.
Adjusted
Net
Income:
the
increase
was
principally
driven
by
increased
net
sales
and
price
increases
on
certain
products
partially
offset
by
higher
manufacturing
expense,
favorable
product
warranty
expense
adjustments
in
2013,
increased
global
commercial
spending
activities
and
increased
product
initiatives
spending.
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
Q3 2014 Sales Performance
($ in millions)
End Markets
Q3 2014
Q3 2013
% Variance
Commentary
North America On-Hwy
$256
$212
21%
Principally driven higher demand for Rugged Duty Series
models
North America Hybrid-
Propulsion Systems for
Transit Bus
$23
$15
53%
Principally driven by intra-year movement in the timing of
orders
North America Off-Hwy
$30
$9
233%
Principally driven by higher demand for hydraulic fracturing
applications
Defense
$35
$52
(33%)
Principally driven by previously considered reductions in
U.S. defense spending to longer term averages experienced
during periods without active conflicts
Outside North America
On-Hwy
$73
$70
4%
Principally driven by improved demand in all regions other
than Europe
Outside North America
Off-Hwy
$18
$16
13%
Principally driven by improved demand in the China energy
sector
Service Parts, Support
Equipment & Other
$118
$92
28%
Principally driven by higher demand for North America
service parts and global On-Highway support equipment
Total
$553
$466
19%

7
Q3 2014 Financial Performance
($ in millions, except share data)
Q3 2014
Q3 2013
$ Var
% Var
Commentary
Net Sales
$553.3
$466.3
$87.0
18.7%
Increase 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 previously contemplated reductions
in U.S. defense spending
Cost of Sales
$294.0
$260.2
($33.8)
(13.0%)
Gross Profit
$259.3
$206.1
$53.2
25.8%
Increase principally driven by increased net sales and price
increases on certain products partially offset by higher
manufacturing expense commensurate with increased sales
Operating Expenses
Selling, general and administrative expenses
$87.5
$74.0
($13.5)
(18.2%)
Increase principally driven by favorable product warranty expense
adjustments in 2013 and increased global commercial activities
Engineering –
research and development
$24.5
$20.9
($3.6)
(17.2%)
Increase principally driven by increased product initiatives
spending
Total operating expenses
$112.0
$94.9
($17.1)
(18.0%)
Operating Income
$147.3
$111.2
$36.1
32.5%
Interest Expense, net
($29.3)
($37.3)
$8.0
21.4%
Decrease principally driven by the expiration of certain LIBOR
swaps, lower amortization of deferred finance charges and debt
repayments
Other Expense, net
($1.7)
($1.5)
($0.2)
(13.3%)
Income Before Income Taxes
$116.3
$72.4
$43.9
60.6%
Income Tax Expense
($47.5)
($27.9)
($19.6)
(70.3%)
Change in effective tax rate principally driven by the change in
discrete activity
Net Income
$68.8
$44.5
$24.3
54.6%
Diluted Earnings Per Share
$0.38
$0.24
$0.14
58.3%
Q3 2014: 180.9M shares;  Q3 2013: 188.0M shares
Adjusted EBITDA
(1)
$201.8
$161.6
$40.2
24.9%
Adjusted EBITDA excluding technology-related
license expenses
(1)
$201.8
$161.6
$40.2
24.9%
Adjusted Net Income
(1)
$137.5
$101.3
$36.2
35.7%
(1)
See Appendix for a reconciliation from Net Income.

Q3 2014 Cash Flow Performance
($ in millions)
Q3 2014
Q3 2013
$ Variance
% Variance
Commentary
Net Cash Provided by
Operating Activities
$174
$131
$43
32.8%
Principally driven by increased
net sales
CapEx
$15
$15
$0
(3.2%)
In line with prior year
Adjusted Free Cash
Flow
(1) 
$159
$116
$43
37.6%
Principally driven by increased
cash provided by operating
activities
($ in millions)
Q3 2014
Q3 2013
$ Variance
% Variance
Commentary
Operating Working
Capital
(2)
Percentage
of LTM Sales
10.5%
10.4%
N/A
10 bps
In line with prior year
Cash Paid for Interest
$35
$33
$2
4.2%
Principally driven by debt
repayments and refinancing,
and timing
Cash Paid for Income
Taxes
$1
$1
$0
0.0%
In line with prior year
(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
7.5 to 9.0
percent
In the fourth quarter of 2014 we expect net sales to be
higher than the same period in 2013.  The anticipated year-
over-year increase in fourth 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 lower demand in the Outside North
America On-Highway and North America Hybrid-Propulsion
Systems for Transit Bus end markets
Adjusted EBITDA Margin excluding
technology-related license expenses
33.5 to 35.0
percent
Principally driven by sales mix and timing
Adjusted Free Cash Flow ($ in millions)
$445 to $470
$2.46 to $2.60 per diluted share
CapEx
($ 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
September 30,
2009
2010
2011
2012
2013
2013
2014
2014
Net (loss) income
($323.9)
$29.6
$103.0
$514.2
$165.4
$44.5
$68.8
$221.0
plus:
Interest expense, net                         
234.2
277.5
217.3
151.2
132.9
37.3
29.3
129.4
Cash interest expense
(242.5)
(239.1)
(208.6)
(167.3)
(159.2)
(33.3)
(34.7)
(149.6)
Income tax expense (benefit)
41.4
53.7
47.6
(298.0)
100.7
27.9
47.5
136.8
Cash income taxes                          
(5.5)
(2.2)
(5.8)
(10.7)
(3.8)
(0.5)
(0.4)
(3.8)
Fee to terminate services agreement with Sponsors
—
—
—
16.0
—
—
—
—
Technology-related investment expenses
—
—
—
14.4
5.0
—
2.0
4.5
Public offering expenses
—
—
—
6.1
1.6
0.3
0.3
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
99.3
Adjusted net income                          
$49.6
$273.7
$305.4
$375.9
$347.9
$101.3
$137.5
$439.7
Cash interest expense
242.5
239.1
208.6
167.3
159.2
33.3
34.7
149.6
Cash income taxes                          
5.5
2.2
5.8
10.7
3.8
0.5
0.4
3.8
Depreciation of property, plant and equipment    
105.9
99.6
103.8
102.5
98.7
24.4
23.6
95.6
(Gain)/loss on redemptions and repayments of long-term debt
(8.9)
(3.3)
16.0
22.1
0.8
0.5
0.3
0.6
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
(0.8)
(0.6)
(1.3)
Unrealized (gain) loss on foreign exchange
—
(0.2)
0.3
0.1
2.3
1.8
2.0
3.4
Premiums and expenses on tender offer for long-term debt
—
—
56.9
—
—
—
—
—
Restructuring charges
47.9
—
—
—
1.0
—
—
0.7
Reduction of supply contract liability
—
(3.4)
—
—
—
—
—
—
Other, net 
(1)
53.2
10.9
8.6
7.0
13.8
3.0
3.9
14.3
Adjusted EBITDA                           
$501.3
$617.0
$711.9
$705.1
$626.6
$161.6
$201.8
$706.4
Adjusted EBITDA excluding technology-related license expenses
$501.3
$617.0
$711.9
$717.1
$632.6
$161.6
$201.8
$709.7
Net Sales
$1,766.7
$1,926.3
$2,162.8
$2,141.8
$1,926.8
$466.3
$553.3
$2,074.0
Adjusted EBITDA margin               
28.4%
32.0%
32.9%
32.9%
32.5%
34.7%
36.5%
34.1%
Adjusted EBITDA margin excl technology-related license expenses
28.4%
32.0%
32.9%
33.5%
32.8%
34.7%
36.5%
34.2%
Three months ended
September 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
September 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
$131.0
$174.0
$554.1
(Deductions) or Additions:
Long-lived assets
(88.2)
(73.8)
(96.9)
(123.9)
(74.4)
(15.4)
(14.9)
(70.8)
Fee to terminate services agreement with Sponsors
—
—
—
16.0
—
—
—
—
Technology-related license expenses
—
—
—
12.0
6.0
—
—
3.3
2009 Non-Recurring Activity  
(1)
61.0
—
—
—
—
—
—
—
Adjusted Free Cash Flow
$141.5
$315.1
$372.3
$401.6
$385.1
$115.6
$159.1
$486.6
Net Sales                                    
$1,766.7
$1,926.3
$2,162.8
$2,141.8
$1,926.8
$466.3
$553.3
$2,074.0
Adjusted Free Cash Flow (% to Net Sales)
8.0%
16.4%
17.2%
18.8%
20.0%
24.8%
28.8%
23.5%
Three months ended
September 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