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) October 24, 2016

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 October 24, 2016, Allison Transmission Holdings, Inc. (“Allison”) published an earnings release reporting its financial results for the three months ended September 30, 2016. 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 October 25, 2016 at 8:00 a.m. ET on which its financial results for the three months ended September 30, 2016 will be discussed. The investor presentation materials that will be used for the call are attached as Exhibit 99.2 hereto.

On October 24, 2016, 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 October 24, 2016.
99.2	Investor presentation materials dated October 24, 2016.

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: October 24, 2016
	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 October 24, 2016.
99.2	Investor presentation materials dated October 24, 2016.

EX-99.1

Exhibit 99.1

Allison Transmission Announces Third Quarter 2016 Results

• Net Sales $434 million, Net Income $45 million, Adjusted EBITDA $151 million, Net Cash Provided by Operating Activities $128 million, Adjusted Free Cash Flow $116 million

INDIANAPOLIS, October 24, 2016 – Allison Transmission Holdings Inc. (NYSE: ALSN), the largest global provider of commercial duty fully-automatic transmissions, today reported net sales for the third quarter of $434 million, a 12 percent decrease from the same period in 2015. The decrease in net sales was principally driven by lower demand in the North America On-Highway and Off-Highway end markets partially offset by stronger demand in the Outside North America On-Highway end market.

Net Income for the quarter was $45 million compared to $47 million for the same period in 2015. Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $151 million, or 34.7 percent of net sales, compared to $174 million, or 35.3 percent of net sales, for the same period in 2015. Net Cash Provided by Operating Activities for the quarter was $128 million compared to $162 million for the same period in 2015. Adjusted Free Cash Flow, a non-GAAP financial measure, for the quarter was $116 million compared to $148 million for the same period in 2015.

Lawrence E. Dewey, Chairman and Chief Executive Officer of Allison Transmission commented, “Allison’s third quarter 2016 results are within the full year guidance ranges we provided to the market on July 27. The year-over-year reductions in the North America On-Highway and Off-Highway, and Service Parts, Support Equipment & Other end markets net sales are consistent with tempering demand conditions in the North America On-Highway end market and the previously contemplated impact of low energy prices. Allison continued to demonstrate solid operating margins and free cash flow while executing its prudent and well-defined approach to capital structure and allocation. During the third quarter, we settled $77 million of share repurchases, paid a dividend of $0.15 per share and refinanced our long-term debt. Given third quarter 2016 results and current end market conditions we are updating our full year net sales guidance to a decrease in the range of 8.5% to 9.5% year-over-year.”

Third Quarter Net Sales by End Market

End Market	Q3 2016 Net Sales ($M)		Q3 2015 Net Sales ($M)		% Variance
North America On-Highway		224		262		(15	%)
North America Hybrid-Propulsion Systems for Transit Bus		8		12		(33	%)
North America Off-Highway		1		12		(92	%)
Defense		25		34		(26	%)
Outside North America On-Highway		78		67		16	%
Outside North America Off-Highway		2		4		(50	%)
Service Parts, Support Equipment & Other		96		102		(6	%)
Total Net Sales		434		493		(12	%)

Third Quarter Highlights

North America On-Highway end market net sales were down 15 percent from the same period in 2015 principally driven by lower demand for Rugged Duty Series, Highway Series and Pupil Transport/Shuttle models partially offset by higher demand for Transit/Other Bus models and down 15 percent on a sequential basis principally driven by lower demand for Rugged Duty Series, Pupil Transport/Shuttle Series and Highway Series models partially offset by higher demand for Transit/Other Bus models.

1

North America Hybrid-Propulsion Systems for Transit Bus end market net sales were down 33 percent from the same period in 2015 and down 50 percent sequentially principally driven by lower demand due to engine emissions improvements and other alternative technologies.

North America Off-Highway end market net sales were down 92 percent from the same period in 2015 and flat on a sequential basis principally driven by the previously contemplated impact of low energy prices.

Defense end market net sales were down 26 percent from the same period in 2015 principally driven by lower demand for Tracked Defense partially offset by higher demand for Wheeled Defense and down 11 percent sequentially principally driven by lower demand for Tracked Defense.

Outside North America On-Highway end market net sales were up 16 percent from the same period in 2015 principally driven by higher demand in Europe and Japan partially offset by lower demand in China and up 5 percent on a sequential basis principally driven by higher demand in Europe.

Outside North America Off-Highway end market net sales were down 50 percent from the same period in 2015 and down 33 percent sequentially principally driven by lower demand in the mining sector.

Service Parts, Support Equipment & Other end market net sales were down 6 percent from the same period in 2015 principally driven by lower demand for North America service parts and up 8 percent on a sequential basis principally driven by higher demand for global service parts.

Gross profit for the quarter was $205 million, a decrease of 13 percent from $236 million for the same period in 2015. Gross margin for the quarter was 47.1 percent, a decrease of 80 basis points from a gross margin of 47.9 percent for the same period in 2015. The decrease in gross profit from the same period in 2015 was principally driven by decreased net sales partially offset by lower manufacturing expense commensurate with decreased net sales and favorable material costs.

Selling, general and administrative expenses for the quarter were $80 million, a decrease of $7 million from $87 million for the same period in 2015. The decrease was principally driven by unfavorable product warranty adjustments in 2015 partially offset by higher incentive compensation expense.

Engineering – research and development expenses for the quarter were $21 million, a decrease of $3 million from $24 million for the same period in 2015. The decrease was principally driven by the cadence of certain product initiatives.

Net income for the quarter was $45 million compared to $47 million for the same period in 2015. The decrease was principally driven by decreased gross profit, expensing previously recorded deferred financing costs as a result of the long-term debt refinancing in 2016 and higher incentive compensation expense partially offset by the environmental remediation expenses charge in 2015, favorable mark-to-market adjustments for our interest rate derivatives, unfavorable product warranty adjustments in 2015 and decreased engineering – research and development expense.

Third Quarter Non-GAAP Financial Measures

Adjusted EBITDA for the quarter was $151 million, or 34.7 percent of net sales, compared to $174 million, or 35.3 percent of net sales, for the same period in 2015. The decrease was principally driven by decreased net sales and higher incentive compensation expense partially offset by unfavorable product warranty adjustments in 2015, lower manufacturing expense commensurate with decreased net sales, decreased engineering – research and development expense and favorable material costs.

Adjusted Free Cash Flow for the quarter was $116 million compared to $148 million for the same period in 2015, a decrease of $32 million. The decrease was principally driven by decreased net sales and increased operating working capital partially offset by increased excess tax benefit from stock-based compensation and decreased capital expenditures.

2

Full Year 2016 Guidance Update

Our updated full year 2016 guidance includes a year-over-year net sales decrease in the range of 8.5 to 9.5 percent, an Adjusted EBITDA margin in the range of 34.0 to 35.0 percent, an Adjusted Free Cash Flow in the range of $435 to $455 million and capital expenditures in the range of $70 to $75 million. We are affirming the remaining guidance released to the market on July 27: cash income taxes in the range of $10 to $15 million.

Although we are not providing specific fourth quarter 2016 guidance, Allison does expect fourth quarter net sales to be approximately flat sequentially and down from the same period in 2015.

Conference Call and Webcast

The company will host a conference call at 8:00 a.m. ET on Tuesday, October 25 to discuss its third quarter 2016 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 October 25 until 11:59 p.m. ET on November 1. The replay dial-in number is 1-844-512-2921 and the international replay dial-in number is 1-412-317-6671. The replay passcode is 13646318.

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 and other external factors impacting demand; 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.

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.

3

This press release also contains forward-looking estimates of non-GAAP Adjusted EBITDA Margin and Adjusted Free Cash Flow for fiscal year 2016. We are unable to provide a reconciliation of our forward-looking estimate of non-GAAP Adjusted EBITDA Margin to a forward-looking estimate of GAAP Net Income because certain information needed to make a reasonable forward-looking estimate of GAAP Net Income is difficult to predict and estimate and is often dependent on future events which may be uncertain or outside of our control. These may include unanticipated charges related to asset impairments (fixed assets, investments, intangibles or goodwill) and unanticipated non-recurring items not reflective of ongoing operations. We are unable to provide a reconciliation of our forward-looking estimate of non-GAAP Adjusted Free Cash Flow to a forward-looking estimate of GAAP Net Cash Provided by Operating Activities because certain information needed to make a reasonable forward-looking estimate of GAAP Net Cash Provided by Operating Activities is difficult to predict and estimate and is often dependent on future events which may be uncertain or outside of our control. These may include the level of excess income tax benefit from share-based compensation and unanticipated non-recurring items.

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 September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Net sales	$	434.3		$	493.0		$	1,371.3		$	1,507.6
Cost of sales		229.6			256.9			724.8			796.0
Gross profit		204.7			236.1			646.5			711.6
Selling, general and administrative expenses		80.0			86.6			240.4			235.6
Engineering - research and development		20.7			23.6			64.3			69.0
Environmental remediation		—			14.0			—			14.0
Loss associated with impairment of long-lived assets		—			—			—			1.3
Operating income		104.0			111.9			341.8			391.7
Interest expense, net		(22.2	)		(33.7	)		(84.1	)		(93.7	)
Expenses related to long-term debt refinancing		(11.6	)		(0.2	)		(11.6	)		(25.3	)
Other income (expense), net		0.8			(4.2	)		0.5			(3.6	)
Income before income taxes		71.0			73.8			246.6			269.1
Income tax expense		(26.4	)		(27.3	)		(92.9	)		(99.8	)
Net income	$	44.6		$	46.5		$	153.7		$	169.3
Basic earnings per share attributable to common stockholders	$	0.27		$	0.27		$	0.91		$	0.95
Diluted earnings per share attributable to common stockholders	$	0.27		$	0.27		$	0.91		$	0.95

5

Allison Transmission Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, dollars in millions)

	September 30, 2016		December 31, 2015
ASSETS
Current Assets
Cash and cash equivalents	$	164.7	$	251.6
Accounts receivable - net of allowance for doubtful accounts of $0.5 and $0.4, respectively		202.8		195.0
Inventories		155.8		141.4
Other current assets		26.6		28.8
Total Current Assets		549.9		616.8
Property, plant and equipment, net		454.6		479.7
Intangible assets, net		3,206.5		3,275.8
Other non-current assets		28.3		36.1
TOTAL ASSETS	$	4,239.3	$	4,408.4
LIABILITIES
Current Liabilities
Accounts payable	$	134.6	$	126.2
Current portion of long-term debt		11.9		24.5
Other current liabilities		189.2		153.9
Total Current Liabilities		335.7		304.6
Long-term debt		2,148.8		2,352.7
Other non-current liabilities		638.1		562.5
TOTAL LIABILITIES		3,122.6		3,219.8
TOTAL STOCKHOLDERS’ EQUITY		1,116.7		1,188.6
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	4,239.3	$	4,408.4

6

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in millions)

	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Net cash provided by operating activities	$	127.7		$	162.4		$	415.6		$	405.1
Net cash used for investing activities (a)		(15.0	)		(17.1	)		(37.5	)		(31.8	)
Net cash used for financing activities		(312.8	)		(212.8	)		(465.8	)		(485.2	)
Effect of exchange rate changes in cash		0.4			(0.9	)		0.8			(2.7	)
Net decrease in cash and cash equivalents		(199.7	)		(68.4	)		(86.9	)		(114.6	)
Cash and cash equivalents at beginning of period		364.4			216.8			251.6			263.0
Cash and cash equivalents at end of period	$	164.7		$	148.4		$	164.7		$	148.4
Supplemental disclosures:
Interest paid	$	20.5		$	21.8		$	63.6		$	75.4
Income taxes paid	$	2.4		$	1.1		$	10.0		$	5.0
(a)    Additions of long-lived assets	$	(14.1	)	$	(15.2	)	$	(36.7	)	$	(30.1	)

7

Allison Transmission Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited, dollars in millions)

	Three months ended						Nine months ended
	September 30,						September 30,
	2016			2015			2016			2015
Net income (GAAP)	$	44.6		$	46.5		$	153.7		$	169.3
plus:
Interest expense, net		22.2			33.7			84.1			93.7
Income tax expense		26.4			27.3			92.9			99.8
Amortization of intangible assets		23.0			24.3			69.4			72.9
Depreciation of property, plant and equipment		21.1			22.4			62.8			65.8
Expenses related to long-term debt refinancing (a)		11.6			0.2			11.6			25.3
Stock-based compensation expense (b)		2.1			2.5			6.4			7.2
Unrealized (gain) loss on foreign exchange (c)		(1.1	)		2.8			0.7			1.6
Technology-related investment expense (d)		1.0			—			1.0			—
Unrealized (gain) loss on commodity hedge contracts (e)		(0.2	)		0.7			(1.7	)		0.7
Dual power inverter module extended coverage (f)		(0.2	)		(0.3	)		1.3			(2.1	)
Environmental remediation (g)		—			14.0			—			14.0
Stockholder activism expenses (h)		—			—			3.7			—
Loss associated with impairment of long-lived assets (i)		—			—			—			1.3
Loss on repayments of long-term debt (j)		—			—			—			0.2
Adjusted EBITDA (Non-GAAP)	$	150.5		$	174.1		$	485.9		$	549.7
Net sales (GAAP)	$	434.3		$	493.0		$	1,371.3		$	1,507.6
Adjusted EBITDA margin (Non-GAAP)		34.7	%		35.3	%		35.4	%		36.5	%
Net Cash Provided by Operating Activities (GAAP)	$	127.7		$	162.4		$	415.6		$	405.1
(Deductions) or Additions to Reconcile to Adjusted Free Cash Flow:
Additions of long-lived assets		(14.1	)		(15.2	)		(36.7	)		(30.1	)
Stockholder activism expenses (h)		0.1			—			3.7			—
Excess tax benefit from stock-based compensation (k)		1.8			0.2			2.1			8.2
Technology-related license expenses (l)		—			0.2			—			0.2
Adjusted Free Cash Flow (Non-GAAP)	$	115.5		$	147.6		$	384.7		$	383.4

(a) Represents expenses related to the refinancing of Allison Transmission, Inc.’s (“ATI”), our wholly owned subsidiary, Senior Secured Credit Facility in the third quarter of 2016 and ATI’s tender offer and redemption of its 7.125% Senior Notes in the second quarter of 2015.

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

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

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

(f) 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.

(g) Represents environmental remediation expenses for ongoing operating, monitoring and maintenance activities at our Indianapolis, Indiana manufacturing facilities as a result of the U.S. Environmental Protection Agency determining that we are responsible for future operating, monitoring and maintenance activities and that General Motors’ environmental remediation activities, pursuant to the asset purchase agreement, were completed in the third quarter of 2015.

(h) Represents expenses of $3.7 million (recorded in Selling, general and administrative expenses) for the nine months ended September 30, 2016, and payments of $0.1 million and $3.7 million for the three months and nine months ended September 30, 2016, respectively, directly associated with stockholder activism activity including the notice, and subsequent withdrawal, of director nomination and governance proposals by Ashe Capital Management, LP.

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

(j) Represents losses (recorded in Other income (expense), net) realized on the repayments of ATI’s long-term debt.

(k) 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.

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

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EX-99.2

1

Q3 2016 Earnings Release

Published October 24, 2016 (Earnings Conference Call October 25, 2016)

Lawrence Dewey, Chairman & Chief Executive Officer

David Graziosi, 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,

2015.

3

Non-GAAP Financial Information

We

use

Adjusted

EBITDA

and

Adjusted

EBITDA

margin

to

measure

our

operating

profitability.

We

believe

that

Adjusted

EBITDA

and

Adjusted

EBITDA

margin

provide

management,

investors

and

creditors

with

useful

measures

of

the

operational

results

of

our

business

and

increase

the

period-to-period

comparability

of

our

operating

profitability

and

comparability

with

other

companies.

Adjusted

EBITDA

margin

is

also

used

in

the

calculation

of

management’s

incentive

compensation

program.

The

most

directly

comparable

U.S.

generally

accepted

accounting

principles

(“GAAP”)

measure

to

Adjusted

EBITDA

is

Net

income.

Adjusted

EBITDA

is

calculated

as

the

earnings

before

interest

expense,

income

tax

expense,

amortization

of

intangible

assets,

depreciation

of

property,

plant

and

equipment

and

other

adjustments

as

defined

by

our

debt

agreement.

Adjusted

EBITDA

margin

is

calculated

as

Adjusted

EBITDA

divided

by

net

sales.

We

use

Adjusted

free

cash

flow

to

evaluate

the

amount

of

cash

generated

by

our

business

that,

after

the

capital

investment

needed

to

maintain

and

grow

our

business

and

any

mandatory

debt

service

requirements,

can

be

used

for

repayment

of

debt,

stockholder

distributions

and

strategic

opportunities,

including

investing

in

our

business

and

strengthening

our

balance

sheet.

We

believe

that

Adjusted

free

cash

flow

enhances

the

understanding

of

the

cash

flows

of

our

business

for

management,

investors

and

creditors.

Adjusted

free

cash

flow

is

also

used

in

the

calculation

of

management’s

incentive

compensation

program.

The

most

directly

comparable

GAAP

measure

to

Adjusted

free

cash

flow

is

Net

cash

provided

by

operating

activities.

4

Call Agenda

Q3 2016 Performance

Full Year 2016 Guidance Update

5

Q3 2016 Performance Summary

($ in millions)

Q3 2016

Q3 2015

% Variance

Net Sales

$434

$493

(11.9%)

Gross

Margin %

47.1%

47.9%

(80 bps)

Net Income

$45

$47

(4.1%)

Adjusted EBITDA

(1)

$151

$174

(13.6%)

Adjusted Free

Cash Flow

(1)

$116

$148

(21.7%)

(1)

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

(2)

Operating Working Capital = A/R + Inventory –

A/P.

Commentary

Net

Sales:

decrease

was

principally

driven

by

lower

demand

in

the

North

America

On-Highway

and

Off-Highway

end

markets

partially

offset

by

stronger

demand

in

the

Outside

North

America

On-Highway

end

market.

Gross

Margin:

decrease

was

principally

driven

by

decreased

net

sales

partially

offset

by

favorable

material

costs.

Net

Income:

decrease

was

principally

driven

by

decreased

gross

profit,

expensing

previously

recorded

deferred

financing

costs

as

a

result

of

the

long-term

debt

refinancing

in

2016

and

higher

incentive

compensation

expense

partially

offset

by

the

environmental

remediation

expenses

charge

in

2015,

favorable

mark-to-market

adjustments

for

our

interest

rate

derivatives,

unfavorable

product

warranty

adjustments

in

2015

and

decreased

engineering

–

research

and

development

expenses

driven

by

the

cadence

of

certain

product

initiatives.

Adjusted

EBITDA:

decrease

was

principally

driven

by

decreased

net

sales

and

higher

incentive

compensation

expense

partially

offset

by

unfavorable

product

warranty

adjustments

in

2015,

lower

manufacturing

expense

commensurate

with

decreased

net

sales,

decreased

engineering

–

research

and

development

expenses

and

favorable

material

costs.

Adjusted

Free

Cash

Flow:

decrease

was

principally

driven

by

decreased

net

sales

and

increased

Operating

Working

Capital

(2)

partially

offset

by

increased

excess

tax

benefit

from

stock-based

compensation

and

decreased

capital

expenditures.

6

Q3 2016 Sales Performance

($ in millions)

End

Markets

Q3 2016

Q3 2015

% Variance

Commentary

North

America

On-Hwy

$224

$262

(15%)

Principally

driven

by

lower

demand

for

Rugged

Duty

Series,

Highway

Series

and

Pupil

Transport/Shuttle

models

partially

offset

by

higher

demand

for

Transit/Other

Bus

models

North America Hybrid-

Propulsion

Systems for

Transit

Bus

$8

$12

(33%)

Principally

driven

by

lower

demand

due

to

engine

emissions

improvements

and

other

alternative

technologies

North

America Off-Hwy

$1

$12

(92%)

Principally

driven

by

the

previously

contemplated

impact

of

low

energy

prices

Defense

$25

$34

(26%)

Principally

driven

by

lower

demand

for

Tracked

Defense

partially

offset

by

higher

demand

for

Wheeled

Defense

Outside North America

On-Hwy

$78

$67

16%

Principally

driven

by

higher

demand

in

Europe

and

Japan

partially

offset

by

lower

demand

in

China

Outside

North America

Off-Hwy

$2

$4

(50%)

Principally

driven

by

lower

demand

in

the

mining

sector

Service

Parts, Support

Equipment & Other

$96

$102

(6%)

Principally

driven

by

lower

demand

for

North

America

service

parts

Total

$434

$493

(12%)

7

Q3 2016 Financial Performance

($ in millions,

except share data)

Q3 2016

Q3

2015

$ Var

% Var

Commentary

Net

Sales

$434.3

$493.0

($58.7)

(11.9%)

Decrease was principally driven by lower demand in the North

America On-Highway and Off-Highway end markets partially

offset by stronger demand in the Outside North America On-

Highway end market

Cost of Sales

$229.6

$256.9

$27.3

10.6%

Gross Profit

$204.7

$236.1

($31.4)

(13.3%)

Decrease was principally driven by decreased net sales partially

offset by lower manufacturing expense commensurate with

decreased net sales and favorable material costs

Operating Expenses

Selling, General and Administrative Expenses

$80.0

$86.6

$6.6

7.6%

Decrease was principally driven by unfavorable product warranty

adjustments in 2015 partially offset by higher incentive

compensation expense

Engineering –

Research and Development

$20.7

$23.6

$2.9

12.3%

Decrease was principally driven by the

cadence of certain

product initiatives

Environmental Remediation

$0.0

$14.0

$14.0

100.0%

Expenses charge in 2015 pursuant to the 2007 asset purchase

agreement with General Motors

Total Operating

Expenses

$100.7

$124.2

$23.5

18.9%

Operating Income

$104.0

$111.9

($7.9)

(7.1%)

Interest Expense, net

($22.2)

($33.7)

$11.5

34.1%

Decrease principally

driven by favorable mark-to-market

adjustments for our interest rate derivatives

Expenses Related to Long-Term Debt Refinaning

($11.6)

($0.2)

($11.4)

(5700.0%)

Increase

driven by expensing previously recorded deferred

financing costs as a result of the long-term debt refinancing

completed in September 2016

Other Income (Expense), net

$0.8

($4.2)

$5.0

119.0%

Change principally driven by foreign exchange

gains on

intercompany financing and gains on derivative contracts

Income Before Income Taxes

$71.0

$73.8

($2.8)

(3.8%)

Income Tax Expense

($26.4)

($27.3)

$0.9

3.3%

Net

Income

$44.6

$46.5

($1.9)

(4.1%)

Diluted Earnings Per Share

$0.27

$0.27

$0.00

0.0%

Q3 2016: 167.9M shares;  Q3 2015: 175.0M shares

Adjusted EBITDA

(1)

$150.5

$174.1

($23.6)

(13.6%)

Adjusted EBITDA

Margin

(1)

34.7%

35.3%

-

(0.6%)

(1)

See Appendix for a reconciliation from Net Income.

8

Q3 2016 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)

Q3 2016

Q3 2015

$ Variance

%

Variance

Commentary

Net Cash Provided by

Operating

Activities

$128

$162

($34)

(21.4%)

Principally driven by decreased

net

sales

and increased operating working capital

(2)

CapEx

$14

$15

($1)

(7.2%)

Adjusted Free Cash

Flow

(1) 

$116

$148

($32)

(21.7%)

Principally driven by

decreased net cash

provided by operating activities partially

offset by increased excess tax benefit

from stock-based

compensation and

decreased capital expenditures

($ in millions)

Q3 2016

Q3 2015

$ Variance

%

Variance

Commentary

Operating Working

Capital

(2)

Percentage

of LTM Sales

12.1%

11.6%

N/A

50 bps

Principally

driven by decreased net sales

Cash Paid for Interest

$21

$22

($1)

(6.0%)

Cash Paid for Income

Taxes

$2

$1

$1

118.2%

Principally

driven by increased estimated

taxable income for certain foreign entities

9

2016 Guidance Update -

Summary

Guidance

Commentary

Net Sales Change from 2015

(8.5) to (9.5)

percent

Guidance

reflects

expectations

for

no

meaningful

relief

from

the

global

Off-Highway

end

market

challenges

and

tempering

demand

conditions

in

the

North

America

On-

Highway

end

market

partially

offset

by

increased

demand

in

the

Outside

North

America

On-Highway

end

market.

Guidance

also

assumes

previously

considered

reductions

in

demand

for

North

America

Hybrid-Propulsion

Systems

for

Transit

Bus

due

to

engine

emissions

improvements

and

other

alternative

technologies.

Adjusted EBITDA Margin

34.0 to 35.0

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)

$435 to $455

CapEx

($ in millions)

Maintenance

New Products

$65

$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

10

APPENDIX

Non-GAAP Financial Information

11

Non-GAAP Reconciliations

(1 of 2)

(1)

Includes

income

related

to

benefit

plan

adjustments,

employee

stock

compensation

expense,

service

fees

paid

to

Allison’s

Sponsors

Adjusted EBITDA reconciliation

Last twelve

Three months ended

months ended

$ in millions, Unaudited

For the year ended December 31,

September 30,

September 30,

2011

2012

2013

2014

2015

2015

2016

2016

Net income

$103.0

$514.2

$165.4

$228.6

$182.3

$46.5

$44.6

$166.7

plus:

Interest expense, net                         

217.3

151.2

132.9

138.4

114.5

33.7

22.2

104.9

Income tax expense (benefit)

47.6

(298.0)

100.7

139.5

106.5

27.3

26.4

99.6

Fee to terminate services agreement with Sponsors

—

16.0

—

—

—

—

—

—

Technology-related investment expenses

—

14.4

5.0

2.0

—

—

1.0

1.0

Public offering expenses

—

6.1

1.6

1.4

—

—

—

—

Impairments

—

—

—

15.4

81.3

—

—

80.0

Environmental Remediation

—

—

—

—

14.0

14.0

—

—

Amortization of intangible assets               

151.9

150.0

105.3

98.8

97.1

24.3

23.0

93.6

Depreciation of property, plant and equipment    

103.8

102.5

98.7

93.8

88.3

22.4

21.1

85.3

Loss on redemptions and repayments of long-term debt

16.0

22.1

0.8

0.5

0.3

—

—

0.1

Stockholder activism expenses

—

—

—

—

—

—

—

3.7

Dual power inverter module extended coverage

—

9.4

(2.4)

1.0

(2.1)

(0.3)

(0.2)

1.3

UAW Local 933 signing bonus

—

8.8

—

—

—

—

—

—

Benefit plan re-measurement

—

2.3

—

—

—

—

—

—

Unrealized loss (gain) on commodity hedge contracts

6.5

(1.0)

1.5

(1.0)

1.1

0.7

(0.2)

(1.3)

Unrealized loss (gain) on foreign exchange

0.3

0.1

2.3

5.2

1.4

2.8

(1.1)

0.5

Expenses related to long-term debt refinancing

56.9

—

—

—

25.3

0.2

11.6

11.6

Restructuring charges

—

—

1.0

0.7

—

—

—

—

Other, net

(1)

8.6

7.0

13.8

14.7

9.8

2.5

2.1

9.0

Adjusted EBITDA                           

$711.9

$705.1

$626.6

$739.0

$719.8

$174.1

$150.5

$656.0

Net Sales

$2,162.8

$2,141.8

$1,926.8

$2,127.4

$1,985.8

$493.0

$434.3

$1,849.5

Adjusted EBITDA margin               

32.9%

32.9%

32.5%

34.7%

36.2%

35.3%

34.7%

35.5%

12

Non-GAAP Reconciliations

(2 of 2)

Adjusted Free Cash Flow reconciliation

Last twelve

Three months ended

months ended

$ in millions, Unaudited

For the year ended December 31,

September 30,

September 30,

2011

2012

2013

2014

2015

2015

2016

2016

Net Cash Provided by Operating Activities

$469.2

$497.5

$463.5

$573.3

$579.9

$162.4

$127.7

$590.4

(Deductions) or Additions:

Long-lived assets

(96.9)

(123.9)

(74.4)

(64.1)

(58.1)

($15.2)

($14.1)

($64.7)

Fee to terminate services agreement with Sponsors

—

16.0

—

—

—

—

—

—

Technology-related license expenses

—

12.0

6.0

6.1

0.2

$0.2

—

—

Stockholder activism expenses

—

—

—

—

—

—

$0.1

$3.7

Excess tax benefit from stock-based compensation

—

5.3

13.7

24.6

8.4

$0.2

$1.8

$2.3

Adjusted Free Cash Flow

$372.3

$406.9

$408.8

$539.9

$530.4

$147.6

$115.5

$531.7

Net Sales                                    

$2,162.8

$2,141.8

$1,926.8

$2,127.4

$1,985.8

$493.0

$434.3

$1,849.5

Adjusted Free Cash Flow (% to Net Sales)

17.2%

19.0%

21.2%

25.4%

26.7%

29.9%

26.6%

28.7%