Allison Transmission 8K Announces Second Quarter 2012 Results | ALSN 30 Jul 12

Q2 2012 Earnings Release

July 30, 2012

Lawrence Dewey, Chairman, President & Chief Executive Officer

David Graziosi, Executive Vice President & Chief Financial Officer

Exhibit 99.2

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). Most forward-looking

statements contain words that identify them as forward-looking, such as “may”, “plan”, “seek”, “will”,

“expect”, “intend”, “estimate”, “anticipate”, “believe”, “project”, “opportunity”, “target”, “goal”,

“growing” and “continue” or other words that relate to future events, as opposed to past or current

events. By their nature, forward-looking statements are not statements of historical facts and

involve risks and uncertainties because they relate to events and depend on circumstances that

may or may not occur in the future. These statements give Allison Transmission’s current

expectation of future events or its future performance and do not relate directly to historical or

current events or Allison Transmission’s historical or future performance. As such, Allison

Transmission’s future results may vary from any expectations or goals expressed in, or implied by,

the forward-looking statements included in this presentation, possibly to a material degree.

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.

Non-GAAP Financial Information

We use Adjusted net income, Adjusted EBITDA, Adjusted EBITDA margin, 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 margin, 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,

trade name impairment and amortization of intangible assets, less cash interest expense, 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 expense, 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

margin is calculated as Adjusted EBITDA 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 taxes paid rather than our 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 and Adjusted EBITDA margin 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 margin, adjusted free cash and 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 margin, 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.

Call Agenda

Q2 2012 Performance

End Markets Commentary

Full Year 2012 Guidance Update

Q2 2012 Performance Summary

($ in millions)

Q2 2012

Q2 2011

% Variance

Net Sales

$559

$556

0.7%

Gross Margin %

45.0%

44.0%

+100 bps

Adjusted Net Income

(1)

$87

$11

700.9%

Adjusted

Free

Cash

Flow

(2)(3)

$80

$68

17.6%

Commentary

Net Sales: increased demand for North America On-Highway, Wheeled Military, and Outside North America Off-Highway

products, supported by price increases on certain products. Growth in these markets was largely offset by decreased demand

in the North America Off-Highway energy sector resulting from weakness in natural gas pricing and fewer sales of North

America Hybrid-Propulsion Systems for Transit Buses. Our Outside North America On-Highway net sales in the quarter were

in line with the prior year, due to weakness in European end markets largely offsetting growth in China and Latin America.

Gross Margin: price increases on certain products and improved manufacturing performance partially offset by unfavorable

sales mix.

Adjusted Net Income: 2011 premiums and expenses on tender offer of long-term debt, increased gross profit, decreased

global commercial spending activities, higher 2011 technology-related license expense and decreased cash interest expense

result

debt

repayments

and

purchases

partially

offset

higher

warranty

expense,

increased

product

initiatives

spending and increased other expense, net.

Adjusted Free Cash Flow: increased net cash provided by operating activities partially offset by increased capital

expenditures attributable to the continued expansion of our India facility which will be completed this year, as well as

increased product initiatives spending and investments in productivity and replacement programs.

(1)

See Appendix for a reconciliation of Adjusted net income (loss).

(2)

Free Cash Flow = Cash provided by Operating Activities less CapEx. See slide 8.

(3)

Adjusted Free Cash Flow = Free Cash Flow less non-recurring items.

Full Year 2012 Guidance: Sales growth of 1 to 3 percent and Adjusted EBITDA margin of 33.5 to 34.0 percent.

Q2 2012 Sales Performance

End Markets

Q2 2012

Q2 2011

% Variance

Commentary

North America On-

Hwy

$217

$189

15%

Continued market recovery

North America

Hybrid-Propulsion

Systems for Transit

Bus

$18

$40

(55%)

Intra-year movements in the timing of orders

North America Off-

Hwy

$44

$70

(37%)

Decreased demand from natural gas fracturing

applications due to weakness in natural gas

pricing

Military

$80

$69

16%

Increased wheeled military products

requirements

Outside North

America On-Hwy

$78

$77

Weakness in European end markets largely

offsetting growth in China and Latin America;

constrained market growth rates resulting from

macro uncertainties and muted economic

growth forecasts

Outside North

America Off-Hwy

$30

$21

43%

Increased demand from the mining and energy

sectors

Service Parts,

Support Equipment

& Other

$92

$90

Price increases, increased transmission unit

volume, increased global on-highway service

parts sales partially offset by decreased global

off-highway service parts sales

Total

$559

$556

($ in millions)

Q2 2012 Financial Performance

($ in millions)

Q2 2012

Q2 2011

$ Var

% Var

Commentary

Net Sales

$559.4

$555.7

$3.7

0.7%

Increases in NAFTA On-Highway, Wheeled Military,

Outside NAFTA Off-Highway products, supported by price

increases; Growth largely offset by NAFTA Off-Highway

energy sector and fewer sales of North America Hybrid-

Propulsion Systems for Transit Buses; Outside North

America On-Highway weakness in European end markets

largely offsetting growth in China and Latin America

Cost of Sales

$307.5

$311.2

$3.7

1.2%

Gross Profit

$251.9

$244.5

$7.4

3.0%

Price increases on certain products and improved

manufacturing performance partially offset by unfavorable

sales mix

Operating Expenses

Selling, general and administrative expenses

$109.1

$96.7

($12.4)

(12.8%)

Warranty charge for dual power inverter module extended

coverage and favorable 2011 warranty adjustments

partially offset by decreased global commercial initiatives

Engineering –

research and development

$23.2

$28.2

$5.0

17.7%

Higher 2011 technology-related license expense partially

offset by increased product initiatives spending

Total operating expenses

$132.3

$124.9

($7.4)

(5.9%)

Operating Income

$119.6

$0.0

0.0%

Interest Expense, net

($34.1)

($71.0)

$36.9

52.0%

Debt repayments and repurchases

Other Expense, net

($22.8)

($59.8)

$37.0

61.9%

2011 debt retirement partially offset by impairment of

technology-related investments and increased

miscellaneous expenses, net

Income (Loss) Before Income Taxes

$62.7

($11.2)

$73.9

659.8%

Income Tax Benefit (Expense)

$350.1

($6.0)

$356.1

N/A

Release of deferred tax asset valuation allowance

Net Income (Loss)

$412.8

($17.2)

$430.0

N/A

Diluted Earnings (Loss) Per Share

$2.21

($0.09)

$2.30

N/A

Q2 2012: 186.4M shares; Q2 2011: 181.4M shares;

(1)

See Appendix for a reconciliation from net income (loss).

Memo: Adjusted EBITDA

(1)

$190.7

$193.0

($2.3)

(1.2%)

Adjusted Net Income

(1)

$86.5

$10.8

$75.7

700.9%

Q2 2012 Cash Flow Performance

($ in millions)

Q2 2012

Q2 2011

$ Variance

% Variance

Commentary

Cash Provided by

Operating Activities

$107

$84

$23

27.4%

Increased net income

adjusted for items not

providing or using,

lower operating working

capital and higher other

liabilities, net

CapEx

$27

$16

$11

68.8%

Increased investments

in new facilities and

product initiatives

Free Cash Flow

(1)

and

Adjusted Free Cash

Flow

(2)

$80

$68

$12

17.6%

Increased net cash

provided by operating

activities partially offset

by increased capital

expenditures

($ in millions)

Q2 2012

Q2 2011

$ Variance

% Variance

Commentary

Operating Working

Capital Percentage of

LTM Sales

(3)

9.6%

11.0%

N/A

(140 bps)

LTM net sales growth

and Q2 2011 delayed

A/R collection

Cash Paid for Interest

$53

$85

$32

37.6%

Debt repayments and

repurchases

Cash Paid for Income

Taxes

100.0%

Increased pretax income

(1)

Free Cash Flow = Cash Provided by Operating Activities less CapEx.

(2)

Adjusted Free Cash Flow = Free Cash Flow less non recurring activities

(3)

Operating Working Capital = A/R + Inventory –

A/P.

End Markets Commentary

•

North America On-Highway

•

Continued market recovery muted by heightened economic uncertainty

•

Expect slower second half year over year growth rate given diminished commercial vehicle production forecasts

•

North America Hybrid-Propulsion Systems for Transit Bus

•

Municipal spending constraints and value proposition challenges

•

Expect second half quarterly levels above second quarter with full year 2012 below 2011

•

North America Off-Highway

•

Majority of demand is natural gas fracturing

•

Expect second quarter level is more reflective of anticipated second half quarterly demand

•

Military

•

Wheeled volume stronger than anticipated; expect second half of 2012 below 2011

•

Outside North America On-Highway

•

Continued growth initiatives and attainment of vehicle releases

•

Heightened macro economic uncertainties pressuring commercial vehicle production forecasts

•

Expect

second

half

2012

line

with

2011

due

increases

emerging

markets

offsetting

continued

weakness

in European end markets

•

Outside North America Off-Highway

•

Continued growth in mining and energy sectors

•

Expect slower second half year over year growth rate

•

Service Parts, Support Equipment & Other

•

Follow global economic conditions and transmission unit volume; expect second half of 2012 in line with 2011

Full Year 2012 Guidance Update

Guidance

Commentary on Full Year

Net Sales Growth from 2011

1 to 3 percent

Assumes year over year net sales growth in

Global On-Highway, Outside North America Off-

Highway and Service Parts, Support Equipment &

Other end markets partially offset by year over

year net sales reductions in the North America

Off-Highway, Military and North America Hybrid-

Propulsion Systems for Transit Bus end markets

Adjusted EBITDA %

(1)

33.5 to 34.0 percent

Driven by sales mix and volume timing

Adjusted Free Cash Flow ($ in

millions)

(2)(3)

$350 to $375

Driven by EBITDA, Cash Interest, Cash Income

Taxes, CapEx, etc

CapEx

($ in millions)

Maintenance

New Facilities

New Product Programs

$55 to $60

$25 to $30

$35 to $40

Product programs 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

(1)

See Appendix

(2)

Free Cash Flow = Cash Provided by Operating Activities less CapEx

(3)

Adjusted Free Cash Flow = Free Cash Flow less non recurring activities

APPENDIX

Non-GAAP Financial Information

Non-GAAP Reconciliations

(1 of 2)

Adjusted Net Income and Adjusted EBITDA reconciliation

(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

Last twelve months

ended June 30,

2009

2010

2011

2012

Net (loss) income

($323.9)

$29.6

$103.0

($17.2)

$412.8

$554.1

plus:

Interest expense, net

234.2

277.5

217.3

71.0

34.1

171.5

Cash interest expense, net

(242.5)

(239.1)

(208.6)

(84.9)

(52.7)

(182.6)

Income tax expense

41.4

53.7

47.6

6.0

(350.1)

(301.3)

Cash income taxes

(5.5)

(2.2)

(5.8)

(2.1)

(3.5)

(8.5)

Fee to terminate services agreement with Sponsors

—

0.0

16.0

Technology-related investment expense

—

8.0

Initial public offering expenses

—

0.4

6.1

Trade name impairment

190.0

—

Amortization of intangible assets

155.9

154.2

151.9

38.0

37.5

150.9

Adjusted net income

$49.6

$273.7

$305.4

$10.8

$86.5

$414.2

Cash interest expense, net

242.5

239.1

208.6

84.9

52.7

182.6

Cash income taxes

5.5

2.2

5.8

2.1

3.5

8.5

Depreciation of property, plant and equipment

105.9

99.6

103.8

25.8

25.2

102.2

(Gain)/Loss on repurchases of long-term debt

(8.9)

(3.3)

16.0

8.3

7.6

28.8

Dual power inverter module extended coverage

11.4

(1.9)

—

9.4

Unrealized (gain) loss on hedge contracts

(5.8)

0.1

6.8

2.6

1.7

6.8

Premiums and expenses on tender offer of long-term debt

—

56.9

—

0.0

Restructuring charges

47.9

—

0.6

—

(0.6)

Reduction of supply contract liability

—

(3.4)

—

Other, net

(1)

53.2

10.9

8.6

1.0

4.1

11.5

Adjusted EBITDA

$501.3

$617.0

$711.9

$193.0

$190.7

$763.4

Net sales

$1,766.7

$1,926.3

$2,162.8

$555.7

$559.4

$2,251.4

Adjusted EBITDA margin

28.4%

32.0%

32.9%

34.7%

34.1%

33.9%

For the year ended December 31,

Three months ended

June 30,

$ in millions

Last twelve

months ended

June 30,

2009

2010

2011

2012

Net Cash Provided by Operating Activities

$168.7

$388.9

$469.2

$83.8

$106.9

$522.0

(Deductions) or Additions:

Long-lived assets

(88.2)

(73.8)

(96.9)

(16.0)

(26.8)

(131.8)

Fee to terminate services agreement with Sponsors

—

16.0

Non-Recurring Activity

(1)

61.0

—

Adjusted Free Cash Flow

$141.5

$315.1

$372.3

$67.8

$80.1

$406.2

Net Sales

$1,766.7

$1,926.3

$2,162.8

$555.7

$559.4

$2,251.4

Adjusted Free Cash Flow (% to Net Sales)

8.0%

16.4%

17.2%

12.2%

14.3%

18.0%

Three months ended

June 30,

For the year ended December 31,

Adjusted Free Cash Flow reconciliation

Non-GAAP Reconciliations

(2 of 2)

(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.

Allison Transmission (ALSN) 8-KAllison Transmission Announces Second Quarter 2012 Results