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) April 27, 2015

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 April 27, 2015, Allison Transmission Holdings, Inc. (“Allison”) published an earnings release reporting its financial results for the three months ended March 31, 2015. 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 April 28, 2015 at 8:00 a.m. ET on which its financial results for the three months ended March 31, 2015 will be discussed. The investor presentation materials that will be used for the call are attached as Exhibit 99.2 hereto.

On April 27, 2015, 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 April 27, 2015.
99.2	Investor presentation materials dated April 27, 2015.

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: April 27, 2015	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 April 27, 2015.
99.2	Investor presentation materials dated April 27, 2015.

EX-99.1

Exhibit 99.1

Allison Transmission Announces First Quarter 2015 Results

• Net Sales $504 million, Adjusted Net Income $150 million, Adjusted EBITDA $190 million, Adjusted Free Cash Flow $87 million or $0.47 per Diluted Share

INDIANAPOLIS, April 27, 2015 – Allison Transmission Holdings Inc. (NYSE: ALSN), the largest global provider of commercial duty fully-automatic transmissions, today reported net sales for the first quarter of $504 million, a 2 percent increase from the same period in 2014. The increase in net sales was principally driven by the continued recovery in the North America On-Highway end market, higher demand in the North America Off-Highway end market and price increases on certain products partially offset by lower demand in other end markets.

Adjusted Net Income, a non-GAAP financial measure, for the quarter was $150 million, compared to Adjusted Net Income of $108 million for the same period in 2014, an increase of $42 million. Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $190 million, or 37.7 percent of net sales, compared to $166 million, or 33.6 percent of net sales, for the same period in 2014. Excluding $3 million of technology-related license expenses, Adjusted EBITDA for the first quarter of 2014 was $169 million, or 34.3 percent of net sales. Adjusted Free Cash Flow, a non-GAAP financial measure, for the quarter was $87 million, or $0.47 per diluted share, compared to $96 million for the same period in 2014, or $0.52 per diluted share.

Lawrence E. Dewey, Chairman, President and Chief Executive Officer of Allison Transmission commented, “Our first quarter 2015 results are within the full year guidance ranges we provided to the market on February 9. Net sales improved on a year-over-year basis for the sixth consecutive quarter led by the continued recovery in the North America On-Highway end market, higher demand in the North America Off-Highway end market and price increases on certain products partially offset by lower demand in other end markets. During the first quarter Allison started to experience the unfavorable impact of lower energy prices in the global Off-Highway and Service Parts, Support Equipment & Other end markets. We continued our prudent and well-defined approach to capital allocation during the first quarter by settling $35 million of share repurchases, paying a dividend of $0.15 per share, repaying $52 million of debt and commencing a refinancing of Allison’s Senior Notes due 2019. Given the increased level of uncertainty and lack of near-term visibility in the global Off-Highway and Service Parts, Support Equipment & Other end markets, we are updating our full year net sales guidance to a decrease in the range of 4 to 8 percent year-over-year, and executing several initiatives to align costs and programs across our business with those challenging end markets demand conditions.”

First Quarter Net Sales by End Market

End Market	Q1 2015 Net Sales ($M)		Q1 2014 Net Sales ($M)		% Variance
North America On-Highway		268		233		15	%
North America Hybrid-Propulsion Systems for Transit Bus		18		24		(25	%)
North America Off-Highway		22		12		83	%
Defense		25		34		(26	%)
Outside North America On-Highway		57		64		(11	%)
Outside North America Off-Highway		16		21		(24	%)
Service Parts, Support Equipment & Other		98		106		(8	%)
Total Net Sales		504		494		2	%

1

First Quarter Highlights

North America On-Highway end market net sales were up 15 percent from the same period in 2014 and up 5 percent on a sequential basis principally driven by higher demand for Rugged Duty Series models.

North America Hybrid-Propulsion Systems for Transit Bus end market net sales were down 25 percent from the same period in 2014 principally driven by lower demand due to engine emissions improvements and non-hybrid alternatives that generally require a fully-automatic transmission (e.g. xNG), and flat sequentially.

North America Off-Highway end market net sales were up 83 percent from the same period in 2014 principally driven by higher demand from hydraulic fracturing applications and down 39 percent on a sequential basis principally driven by lower demand from hydraulic fracturing applications.

Defense end market net sales were down 26 percent from the same period in 2014 and down 34 percent sequentially principally driven by reductions in U.S. defense spending to longer term averages experienced during periods without active conflicts.

Outside North America On-Highway end market net sales were down 11 percent from the same period in 2014 principally driven by weakness in China and down 12 percent on a sequential basis principally driven by lower demand in China and South America.

Outside North America Off-Highway end market net sales were down 24 percent from the same period in 2014 principally driven by lower demand in the mining sector and down 16 percent sequentially principally driven by lower demand in the China energy sector partially offset by higher demand in the mining sector.

Service Parts, Support Equipment & Other end market net sales were down 8 percent from the same period in 2014 principally driven by lower demand for North America service parts and down 13 percent on a sequential basis principally driven by lower demand for North America Off-Highway service parts.

Gross profit for the quarter was $239 million, an increase of 8 percent from $223 million for the same period in 2014. Gross margin for the quarter was 47.5 percent, an increase of 240 basis points from a gross margin of 45.1 percent for the same period in 2014. The increase in gross profit from the same period in 2014 was principally driven by price increases on certain products and increased net sales.

Selling, general and administrative expenses for the quarter were $73 million, a decrease of 12 percent from $83 million for the same period in 2014, principally driven by lower product warranty expense, a warranty expense reduction for the dual power inverter module (“DPIM”) extended coverage program and decreased global commercial spending activities. The DPIM warranty expense reduction is attributable to favorable claims experience with the DPIM replacement introduced in late 2008.

Engineering – research and development expenses for the quarter were $22 million, an increase of $1 million after excluding the 2014 technology-related license expenses of $3 million to expand our position in transmission technologies, from $24 million for the same period in 2014. The increase was principally driven by increased product initiatives spending.

First Quarter Non-GAAP Financial Measures

Adjusted Net Income for the quarter was $150 million, compared to $108 million for the same period in 2014, an increase of $42 million. The increase was principally driven by increased Adjusted EBITDA and decreased cash interest expense.

Adjusted EBITDA for the quarter was $190 million, or 37.7 percent of net sales, compared to $166 million, or 33.6 percent of net sales, for the same period in 2014. Excluding $3 million of technology-related license expenses, Adjusted EBITDA for the first quarter of 2014 was $169 million, or 34.3 percent of net sales. The increase in Adjusted EBITDA from the same period in 2014 was principally driven by price increases on certain products, increased net sales, lower product warranty expense, $3 million of 2014 technology-related license expenses and decreased global commercial spending activities partially offset by increased product initiatives spending.

2

Adjusted Free Cash Flow for the quarter was $87 million compared to $96 million for the same period in 2014. The decrease was principally driven by decreased net cash provided by operating activities and $3 million of 2014 technology-related license expenses partially offset by decreased capital expenditures and increased excess tax benefit from stock-based compensation.

Full Year 2015 Guidance

Our updated full year 2015 guidance includes a year-over-year net sales decrease in the range of 4 to 8 percent, an Adjusted EBITDA margin in the range of 34.5 to 35.5 percent, an Adjusted Free Cash Flow in the range of $460 to $510 million, capital expenditures in the range of $60 to $70 million, and cash income taxes in the range of $10 to $15 million.

Although we are not providing specific second quarter 2015 guidance, Allison does expect second quarter net sales to be lower than the same period in 2014. The anticipated year-over-year decrease in second quarter net sales is expected to occur due to higher demand in the global On-Highway end markets being more than offset by lower demand in other end markets.

Conference Call and Webcast

The company will host a conference call at 8:00 a.m. ET on Tuesday, April 28 to discuss its first quarter 2015 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 April 28 until 11:59 p.m. ET on May 5. 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 13606433.

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

ir@allisontransmission.com

(317) 242-3078

Media Relations

media@allisontransmission.com

(317) 242-5000

4

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Operations

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

	Three months ended March 31,
	2015			2014
Net sales	$	503.6		$	493.6
Cost of sales		264.4			271.1
Gross profit		239.2			222.5
Selling, general and administrative expenses		73.4			83.2
Engineering—research and development		22.2			24.5
Loss associated with impairment of long-lived assets		1.3			—
Operating income		142.3			114.8
Interest expense, net		(36.9	)		(35.1	)
Other income (expense), net		2.8			(0.4	)
Income before income taxes		108.2			79.3
Income tax expense		(39.8	)		(27.2	)
Net income	$	68.4		$	52.1
Basic earnings per share attributable to common stockholders	$	0.38		$	0.29
Diluted earnings per share attributable to common stockholders	$	0.38		$	0.28

5

Allison Transmission Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, dollars in millions)

	March 31,		December 31,
	2015		2014
ASSETS
Current Assets
Cash and cash equivalents	$	265.1	$	263.0
Accounts receivables—net of allowance for doubtful accounts of $0.4 and $0.3, respectively		231.3		207.4
Inventories		160.9		143.5
Deferred income taxes, net		113.0		119.7
Other current assets		25.0		24.4
Total Current Assets		795.3		758.0
Property, plant and equipment, net		495.6		514.6
Intangible assets, net		3,428.7		3,453.0
Deferred income taxes, net		1.3		1.3
Other non-current assets		68.6		77.3
TOTAL ASSETS	$	4,789.5	$	4,804.2
LIABILITIES
Current Liabilities
Accounts payable	$	157.1	$	151.7
Current portion of long term debt		17.9		17.9
Other current liabilities		159.2		176.3
Total Current Liabilities		334.2		345.9
Long term debt		2,450.9		2,502.6
Other non-current liabilities		585.4		557.9
TOTAL LIABILITIES		3,370.5		3,406.4
TOTAL STOCKHOLDERS’ EQUITY		1,419.0		1,397.8
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	4,789.5	$	4,804.2

6

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in millions)

	Three months ended March 31,
	2015			2014
Net cash provided by operating activities	$	80.1		$	98.6
Net cash used for investing activities (a)		(1.2	)		(15.1	)
Net cash used for financing activities		(85.6	)		(105.7	)
Effect of exchange rate changes in cash		8.8			(2.6	)
Net increase (decrease) in cash and cash equivalents		2.1			(24.8	)
Cash and cash equivalents at beginning of period		263.0			184.7
Cash and cash equivalents at end of period	$	265.1		$	159.9
Supplemental disclosures:
Interest paid	$	18.5		$	29.4
Income taxes paid	$	2.5		$	2.1
(a)    Additions of long-lived assets	$	(1.3	)	$	(11.1	)

7

Allison Transmission Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited, dollars in millions)

	Three months ended March 31,
	2015			2014
Net income	$	68.4		$	52.1
plus:
Interest expense, net		36.9			35.1
Cash interest expense		(18.5	)		(29.4	)
Income tax expense		39.8			27.2
Cash income taxes		(2.5	)		(2.1	)
Amortization of intangible assets		24.3			24.7
Loss associated with impairment of long-lived assets (a)		1.3			—
Public offering expenses (b)		—			0.3
Adjusted net income	$	149.7		$	107.9
Cash interest expense		18.5			29.4
Cash income taxes		2.5			2.1
Depreciation of property, plant and equipment		21.4			23.3
Unrealized gain on foreign exchange (c)		(2.3	)		(0.3	)
Dual power inverter module extended coverage (d)		(1.8	)		—
Unrealized (gain) loss on commodity hedge contracts (e)		(0.2	)		0.1
Loss on repayments of long-term debt (f)		0.2			—
Stock-based compensation expense (g)		2.1			3.3
Adjusted EBITDA	$	190.1		$	165.8
Adjusted EBITDA excluding technology-related license expenses (h)	$	190.1		$	169.1
Net sales	$	503.6		$	493.6
Adjusted EBITDA margin		37.7	%		33.6	%
Adjusted EBITDA margin excluding technology-related license expenses (h)		37.7	%		34.3	%
Net Cash Provided by Operating Activities	$	80.1		$	98.6
(Deductions) or Additions to Reconcile to Adjusted Free Cash Flow:
Additions of long-lived assets		(1.3	)		(11.1	)
Excess tax benefit from stock-based compensation (i)		7.8			5.0
Technology-related license expenses (h)		—			3.3
Adjusted Free Cash Flow	$	86.6		$	95.8

(a) Represents a charge associated with the impairment of long-lived assets related to the production of the H3000 and H4000 hybrid-propulsion systems.

(b) Represents fees and expenses (recorded in Other income (expense), net) related to our secondary offering in February 2014.

(c) Represents gains (recorded in Other income (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.

(d) Represents an adjustment (recorded in Selling, general and administrative expenses) associated with the Dual Power Inverter Module (“DPIM”) extended coverage program liability. The DPIM liability will continue to be reviewed for any changes in estimates as additional claims data and field information become available.

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

(f) Represents losses (recorded in Other income (expense), net) realized on the repayments of Allison Transmission, Inc.‘s, our wholly owned subsidiary, long-term debt.

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

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

(i) Represents the amount of tax benefit (recorded in Income tax expense) related to stock-based compensation adjusted from cash flows from operating activities to cash flows from financing activities.

8

EX-99.2

1

Q1 2015 Earnings Release

Published April 27, 2015 (Earnings Conference Call April 28, 2015)

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:

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;

risks

related

to

our

substantial

indebtedness;

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

and

other

external

factors

impacting

demand

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,

2014.

3

Non-GAAP Financial Information

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,

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,

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

Q1 2015 Performance

Full Year 2015 Guidance Update

5

Q1 2015 Performance Summary

($ in millions)

Q1 2015

Q1 2014

% Variance

Net Sales

$504

$494

2.0%

Gross Margin %

47.5%

45.1%

+240 bps

Adjusted Net Income

(1)

$150

$108

38.7%

Adjusted Free Cash Flow

(1)

$87

$96

(9.6%)

Commentary

Net

Sales:

the

increase

was

principally

driven

by

the

continued

recovery

in

the

North

America

On-Highway

end

market,

higher

demand

in

the

North

America

Off-Highway

end

market

and

price

increases

on

certain

products

partially

offset

by

lower

demand

in

other

end

markets.

Gross

Margin:

the

increase

was

principally

driven

by

price

increases

on

certain

products

and

increased

net

sales.

Adjusted

Net

Income:

the

increase

was

principally

driven

by

decreased

cash

interest

expense,

price

increases

on

certain

products,

increased

net

sales,

lower

warranty

expense,

$3

million

of

2014

technology-related

license

expenses

and

decreased

global

commercial

spending

activities

partially

offset

by

increased

product

initiatives

spending.

Adjusted

Free

Cash

Flow:

the

decrease

was

principally

driven

by

decreased

incentive

compensation

accruals

($14

million),

deferred

revenue

($9

million)

and

miscellaneous

other

current

liabilities

($10

million),

and

2014

technology-related

license

expenses

($3

million)

partially

offset

by

decreased

capital

expenditures,

price

increases

on

certain

products,

increased

net

sales,

decreased

global

commercial

spending

activities

and

increased

excess

tax

benefit

from

stock-based

compensation.

(1)

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

6

Q1 2015 Sales Performance

($ in millions)

End Markets

Q1 2015

Q1 2014

% Variance

Commentary

North America On-Hwy

$268

$233

15%

Principally driven by higher demand for Rugged Duty Series

models

North America Hybrid-

Propulsion Systems for

Transit Bus

$18

$24

(25%)

Principally driven by lower demand due to engine emissions

improvements and non-hybrid alternatives that generally require a

fully-automatic transmission (e.g. xNG)

North America Off-Hwy

$22

$12

83%

Principally driven by higher demand from hydraulic fracturing

applications

Defense

$25

$34

(26%)

Principally driven by reductions in U.S. defense spending to longer

term averages experienced during periods without active conflicts

Outside North America

On-Hwy

$57

$64

(11%)

Principally driven by weakness in China

Outside North America

Off-Hwy

$16

$21

(24%)

Principally driven by lower demand in the mining sector

Service Parts, Support

Equipment & Other

$98

$106

(8%)

Principally driven by lower demand for North America service parts

Total

$504

$494

2%

Q1 2015 Financial Performance

($ in millions, except share data)

Q1 2015

Q1 2014

$ Var

% Var

Commentary

Net Sales

$503.6

$493.6

$10.0

2.0%

Increase principally driven by the continued recovery in the North America

On-Highway end market, higher demand in the North America Off-Highway

end market and price increases on certain products partially offset be lower

demand in other end markets

Cost of Sales

$264.4

$271.1

$6.7

2.5%

Gross Profit

$239.2

$222.5

$16.7

7.5%

Increase principally driven by  price increases on certain products and

increased net sales

Operating Expenses

Selling, General and Administrative Expenses

$73.4

$83.2

$9.8

11.8%

Decrease

principally

driven

by

lower

product

warranty

expense,

a

warranty

expense

reduction

for

the

dual

power

inverter

module

extended

coverage

program

and

decreased

global

commercial

spending

activities

Engineering –

Research and Development

$22.2

$24.5

$2.3

9.4%

After

excluding

the

2014

technology-related

license

expenses

of

$3

million

to

expand

our

position

in

transmission

technologies

the

increase

was

principally

driven

by

increased

product

initiatives

spending

Impairment Loss

(1)

$1.3

$0.0

($1.3)

N/A

Total Operating Expenses

$96.9

$107.7

$10.8

10.0%

Operating Income

$142.3

$114.8

$27.5

24.0%

Interest Expense, net

($36.9)

($35.1)

($1.8)

(5.1%)

Increase principally driven by unfavorable mark-to-market adjustments for

LIBOR swaps partially offset by the expiration of certain LIBOR swaps and

debt repayments

Other Income (Expense), net

$2.8

($0.4)

$3.2

800.0%

Increase principally driven by favorable foreign exchange

Income Before Income Taxes

$108.2

$79.3

$28.9

36.4%

Income Tax Expense

($39.8)

($27.2)

($12.6)

(46.3%)

Change

in

effective

tax

rate

principally

driven

by

the

change

in

discrete

activity

Net Income

$68.4

$52.1

$16.3

31.3%

Diluted Earnings Per Share

$0.38

$0.28

$0.10

35.7%

Q1 2015: 182.4M shares;  Q1 2014: 185.9M shares

Adjusted Net Income

(2)

$149.7

$107.9

$41.8

38.7%

Adjusted EBITDA

(2)

$190.1

$165.8

$24.3

14.7%

Adjusted EBITDA excluding technology-related

license expenses

(2)

$190.1

$169.1

$21.0

12.4%

(1)

Long-lived assets and accrued expenses related to the production of the H3000 and H4000 hybrid-propulsion systems.

(2)

See Appendix for a reconciliation from Net Income.

7

Q1 2015 Cash Flow Performance

(1)

See Appendix for a reconciliation of Adjusted Free Cash Flow.

(2)

Operating

Working

Capital

=

A/R

+

Inventory

–

A/P.

($ in millions)

Q1 2015

Q1 2014

$ Variance

% Variance

Commentary

Net Cash Provided by

Operating Activities

$80

$99

($19)

(18.8%)

Principally driven by decreased

deferred revenue, incentive

compensation accruals and

miscellaneous other liabilities

partially offset by price increases

on certain products, increased net

sales and decreased SG&A and

engineering spending

CapEx

$1

$11

($10)

(88.3%)

Principally driven by timing of

certain 2015 productivity and

replacement programs spending

Adjusted Free Cash

Flow

(1) 

$87

$96

($9)

(9.6%)

Principally driven by decreased

net cash provided by operating

activities partially offset by

decreased capital expenditures

($ in millions)

Q1 2015

Q1 2014

$ Variance

% Variance

Commentary

Operating Working

Capital

(2)

Percentage

of LTM Sales

11.0%

11.7%

N/A

70 bps

In line with prior period after

excluding the 2014 impact of

deferred tracked defense revenue

Cash Paid for Interest

$18

$29

($11)

(37.1%)

Principally driven by expiration of

certain LIBOR swaps and debt

repayments

Cash Paid for Income

Taxes

$2

$2

$0

19.0%

In line with prior period

8

Full Year 2015 Guidance Update

Guidance

Commentary

Net Sales Change from 2014

(4) to (8)

percent

Guidance reflects the increased level of uncertainty and the

lack of near term visibility in the global Off-Highway and

Service Parts, Support Equipment & Other end markets

Adjusted EBITDA Margin

34.5 to 35.5

percent

Principally driven by Net Sales and the execution of several

initiatives to align costs and programs across our business

with challenging end markets demand conditions

Adjusted Free Cash Flow ($ in millions)

$460 to $510

$2.50 to $2.80 per diluted share

CapEx

($ in millions)

Maintenance

New Product Programs

$60 to $65

$0 to $5

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

9

APPENDIX

Non-GAAP Financial Information

*****

*****

*****

*****

*****

*****

*****

*****

*****

*****

10

Non-GAAP Reconciliations

(1 of 2)

$ in millions, Unaudited

Last twelve

months ended

March 31,

2010

2011

2012

2013

2014

2014

2015

2015

Net income

$29.6

$103.0

$514.2

$165.4

$228.6

$52.1

$68.4

$244.9

plus:

Interest expense, net                         

277.5

217.3

151.2

132.9

138.4

35.1

36.9

140.2

Cash interest expense

(239.1)

(208.6)

(167.3)

(159.2)

(140.0)

(29.4)

(18.5)

(129.1)

Income tax expense (benefit)

53.7

47.6

(298.0)

100.7

139.5

27.2

39.8

152.1

Cash income taxes                          

(2.2)

(5.8)

(10.7)

(3.8)

(5.0)

(2.1)

(2.5)

(5.4)

Fee to terminate services agreement with Sponsors

—

—

16.0

—

—

—

—

—

Technology-related investment expenses

—

—

14.4

5.0

2.0

—

—

2.0

Public offering expenses

—

—

6.1

1.6

1.4

0.3

—

1.1

Impairments

—

—

—

—

15.4

—

1.3

16.7

Amortization of intangible assets               

154.2

151.9

150.0

105.3

98.8

24.7

24.3

98.4

Adjusted net income                          

$273.7

$305.4

$375.9

$347.9

$479.1

$107.9

$149.7

$520.9

Cash interest expense

239.1

208.6

167.3

159.2

140.0

29.4

18.5

129.1

Cash income taxes                          

2.2

5.8

10.7

3.8

5.0

2.1

2.5

5.4

Depreciation of property, plant and equipment    

99.6

103.8

102.5

98.7

93.8

23.3

21.4

91.9

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

(3.3)

16.0

22.1

0.8

0.5

—

0.2

0.7

Dual power inverter module extended coverage

(1.9)

—

9.4

(2.4)

1.0

—

(1.8)

(0.8)

UAW Local 933 signing bonus

—

—

8.8

—

—

—

—

—

Benefit plan re-measurement

—

—

2.3

—

—

—

—

—

Unrealized loss (gain) on commodity hedge contracts

0.3

6.5

(1.0)

1.5

(1.0)

0.1

(0.2)

(1.3)

Unrealized (gain) loss on foreign exchange

(0.2)

0.3

0.1

2.3

5.2

(0.3)

(2.3)

3.2

Premiums and expenses on tender offer for long-term debt

—

56.9

—

—

—

—

—

—

Restructuring charges

—

—

—

1.0

0.7

—

—

0.7

Reduction of supply contract liability

(3.4)

—

—

—

—

—

—

—

Other, net

(1)

10.9

8.6

7.0

13.8

14.7

3.3

2.1

13.5

Adjusted EBITDA                           

$617.0

$711.9

$705.1

$626.6

$739.0

$165.8

$190.1

$763.3

Adjusted EBITDA excluding technology-related license expenses

$617.0

$711.9

$717.1

$632.6

$745.1

$169.1

$190.1

$766.1

Net Sales

$1,926.3

$2,162.8

$2,141.8

$1,926.8

$2,127.4

$493.6

$503.6

$2,137.4

Adjusted EBITDA margin               

32.0%

32.9%

32.9%

32.5%

34.7%

33.6%

37.7%

35.7%

Adjusted EBITDA margin excl technology-related license expenses

32.0%

32.9%

33.5%

32.8%

35.0%

34.3%

37.7%

35.8%

Three months ended

March 31,

For the year ended December 31,

Adjusted Net Income and Adjusted EBITDA reconciliation

(1)

Includes

charges

or

income

related

to

benefit

plan

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.

11

Non-GAAP Reconciliations

(2 of 2)

$ in millions, Unaudited

Last twelve

months ended

March 31,

2010

2011

2012

2013

2014

2014

2015

2015

Net Cash Provided by Operating Activities

$388.9

$469.2

$497.5

$453.5

$556.9

$98.6

$80.1

$538.4

(Deductions) or Additions:

Long-lived assets

(73.8)

(96.9)

(123.9)

(74.4)

(64.1)

(11.1)

(1.3)

(54.3)

Fee to terminate services agreement with Sponsors

—

—

16.0

—

—

—

—

—

Technology-related license expenses

—

—

12.0

6.0

6.1

3.3

—

2.8

Excess tax benefit from stock-based compensation

—

—

5.3

13.7

24.6

5.0

7.8

27.4

Adjusted Free Cash Flow

$315.1

$372.3

$406.9

$398.8

$523.5

$95.8

$86.6

$514.3

Net Sales                                    

$1,926.3

$2,162.8

$2,141.8

$1,926.8

$2,127.4

$493.6

$503.6

$2,137.4

Adjusted Free Cash Flow (% to Net Sales)

16.4%

17.2%

19.0%

20.7%

24.6%

19.4%

17.2%

24.1%

Three months ended

March 31,

For the year ended December 31,

Adjusted Free Cash Flow reconciliation

12