Allison Transmission 8K Announces Second Quarter 2015 Results | ALSN 27 Jul 15

Q2 2015 Earnings Release

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

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). 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

fully-automatic

transmissions;

risks

our

substantial

indebtedness;

the

concentration

our

net

sales

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

similar

labor

disputes,

which

could

significantly

disrupt

our

operations

those

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

certain

forward-looking

statements

pertaining

potential

growth

opportunities,

long-term

financial

goals

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.

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.

use

Adjusted

net

income

measure

our

overall

profitability

because

better

reflects

our

cash

flow

generation

capturing

the

actual

cash

interest

paid

and

cash

taxes

paid

rather

than

our

interest

expense

and

tax

expense

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

net

income,

determined

accordance

with

GAAP,

indicator

operating

performance,

alternative

net

cash

provided by operating activities, determined in accordance with GAAP, as an indicator of Allison’s cash flow.

Call Agenda

Q2 2015 Performance

Full Year 2015 Guidance Update

Q2 2015 Performance Summary

($ in millions)

Q2 2015

Q2 2014

% Variance

Net Sales

$511

$536

-4.7%

Gross

Margin %

46.2%

44.5%

+170 bps

Adjusted Net Income

(1)

$98

$117

-16.0%

Adjusted

Free

Cash

Flow

(1)

$140

$135

4.2%

Commentary

Net

Sales:

the

decrease

was

principally

driven

lower

demand

the

global

Off-Highway

and

Defense

end

markets

partially offset by the continued recovery in the North America On-Highway end market, higher demand in the Outside On-

Highway North America end market and price increases on certain products.

Gross Margin: the increase was principally driven by price increases on certain products and favorable material costs.

Adjusted Net Income: the decrease was principally driven by $25 million of premiums and expenses on the tender offer and

redemption

of long-term debt partially offset by decreased cash interest expense.

Adjusted Free Cash Flow: the increase was principally driven by increased net cash provided by operating activities

partially

offset

increased

capital

expenditures

and

decreased

excess

tax

benefit

from

stock-based

compensation.

(1)

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

Q2 2015 Sales Performance

($ in millions)

End

Markets

Q2 2015

Q2 2014

% Variance

Commentary

North

America

On-Hwy

$277

$243

14%

Principally driven by higher demand for Rugged Duty Series and

Highway Series models

North America Hybrid-

Propulsion

Systems for

Transit

Bus

$20

$28

(29%)

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

$10

$23

(57%)

Principally driven by lower demand from hydraulic fracturing

applications

Defense

$29

$49

(41%)

Principally driven by the recognition

of previously deferred tracked

transmissions revenue in 2014 totaling $16 million and reductions

in U.S. defense spending to longer term averages experienced

during periods without active conflicts

Outside North America

On-Hwy

$73

$62

18%

Principally driven by higher demand in Europe, Japan and India

Outside

North America

Off-Hwy

$24

(67%)

Principally driven by lower demand in the energy and mining

sectors

Service

Parts, Support

Equipment & Other

$94

$107

(12%)

Principally driven by lower

demand for North America service parts

Total

$511

$536

(5%)

Q2 2015 Financial Performance

($ in millions,

except share data)

Q2 2015

2014

$ Var

% Var

Commentary

Net

Sales

$511.0

$536.1

($25.1)

(4.7%)

Decrease

was principally driven by lower demand in the global

Off-Highway and Defense end markets partially offset by the

continued recovery in the North America On-Highway end

market, higher demand in the Outside North America On-

Highway end market and price increases on certain products

Cost of Sales

$274.7

$297.6

$22.9

7.7%

Gross Profit

$236.3

$238.5

($2.2)

(0.9%)

Decrease

principally

driven by decreased sales volume partially

offset by price increases on certain products, favorable material

costs and lower incentive compensation expense

Operating Expenses

Selling, General and Administrative Expenses

$75.6

$85.1

$9.5

11.2%

Decrease

principally

driven

favorable

product

warranty

adjustments,

lower

incentive

and

stock

based

compensation,

and

reduced global commercial spending activities

Engineering –

Research and Development

$23.2

$21.2

($2.0)

(9.4%)

Increase principally driven by increased product initiatives

spending partially offset by lower incentive compensation

Total Operating

Expenses

$98.8

$106.3

$7.5

7.1%

Operating Income

$137.5

$132.2

$5.3

4.0%

Interest Expense, net

($23.1)

($36.6)

$13.5

36.9%

Decrease

principally

driven

the

expiration

certain

LIBOR

swaps and debt repayments and refinancing

Premiums and expenses

on tender offer and

redemption of long-term debt

($25.1)

$0.0

($25.1)

N/A

Refinanced 7.125% Senior Notes with additional Term B-3 Loan

borrowing

Other Expense, net

($2.2)

($0.9)

($1.3)

(144.4%)

Income Before Income Taxes

$87.1

$94.7

($7.6)

(8.0%)

Income Tax Expense

($32.7)

($37.5)

$4.8

12.8%

Change

effective

tax

rate

principally

driven

the

change

discrete activity

Net

Income

$54.4

$57.2

($2.8)

(4.9%)

Diluted Earnings Per Share

$0.30

$0.31

($0.01)

(3.2%)

2015:

179.6M

shares;

2014:

181.6M

(1)

See Appendix for a reconciliation from Net Income.

$98.0

$116.6

($18.6)

(16.0%)

$185.5

$186.1

($0.6)

(0.3%)

Adjusted EBITDA

(1)

Adjusted

Net

Income

(1)

Q2 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)

Q2 2015

Q2 2014

$ Variance

Variance

Commentary

Net Cash Provided by

Operating

Activities

$154

$143

$11

7.1%

Principally driven by price increases on

certain products, favorable material costs,

lower product warranty expense, lower

incentive compensation expense and

decreased global commercial spending

activities partially offset

by decreased net

sales, increased product initiatives

spending,

and

lower

accounts

payable

commensurate with decreased net sales

CapEx

$14

$12

17.2%

Principally driven by timing of 2015

productivity and replacement programs

spending

Adjusted Free Cash

Flow

(1)

$140

$135

4.2%

Principally driven by increased net cash

provided by operating activities partially

offset by increased capital expenditures

and decreased excess tax benefit from

stock-based compensation

($ in millions)

Q2 2015

Q2 2014

$ Variance

Variance

Commentary

Operating Working

Capital

(2)

Percentage

of LTM Sales

11.4%

11.2%

N/A

20 bps

line with prior period

Cash Paid for Interest

$35

$39

($4)

(10.5%)

Principally driven by expiration of certain

LIBOR swaps, and debt repayments and

refinancing

Cash Paid for Income

Taxes

40%

In line with prior period

Full Year 2015 Guidance Update

Guidance

Commentary

Net Sales Change from 2014

(6) to (8)

percent

Guidance reflects the elevated level of uncertainty and a

dearth of near-term

visibility in the global Off-Highway and

Service Parts, Support Equipment & Other end markets

Adjusted EBITDA Margin

34.75 to 35.75

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)

$470 to $500

$2.60 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

APPENDIX

Non-GAAP Financial Information

Non-GAAP Reconciliations

(1 of 2)

$ in millions, Unaudited

Last twelve

months ended

June 30,

2010

2011

2012

2013

2014

2015

Net income

$29.6

$103.0

$514.2

$165.4

$228.6

$57.2

$54.4

$242.1

plus:

Interest expense, net

277.5

217.3

151.2

132.9

138.4

36.6

23.1

126.7

Cash interest expense, net

(239.1)

(208.6)

(167.3)

(159.2)

(140.0)

(39.2)

(35.1)

(125.0)

Income tax expense (benefit)

53.7

47.6

(298.0)

100.7

139.5

37.5

32.7

147.3

Cash income taxes

(2.2)

(5.8)

(10.7)

(3.8)

(5.0)

(1.0)

(1.4)

(5.8)

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

0.8

—

0.3

Impairments

—

15.4

—

16.7

Amortization of intangible assets

154.2

151.9

150.0

105.3

98.8

24.7

24.3

98.0

Adjusted net income

$273.7

$305.4

$375.9

$347.9

$479.1

$116.6

$98.0

$502.3

Cash interest expense

239.1

208.6

167.3

159.2

140.0

39.2

35.1

125.0

Cash income taxes

2.2

5.8

10.7

3.8

5.0

1.0

1.4

5.8

Depreciation of property, plant and equipment

99.6

103.8

102.5

98.7

93.8

24.1

22.0

89.8

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

(3.3)

16.0

22.1

0.8

0.5

—

0.7

Dual power inverter module extended coverage

(1.9)

—

9.4

(2.4)

1.0

—

(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)

(1.2)

0.2

0.1

Unrealized (gain) loss on foreign exchange

(0.2)

0.3

0.1

2.3

5.2

1.7

1.1

2.6

Premiums and expenses on tender offer and redemption of long-term debt

—

56.9

—

25.1

Restructuring charges

—

1.0

0.7

—

Reduction of supply contract liability

(3.4)

—

Other, net

10.9

8.6

7.0

13.8

14.7

4.0

2.6

12.1

Adjusted EBITDA

$617.0

$711.9

$705.1

$626.6

$739.0

$186.1

$185.5

$762.7

Adjusted EBITDA excluding technology-related license expenses

$617.0

$711.9

$717.1

$632.6

$745.1

$186.1

$185.5

$765.5

Net Sales

$1,926.3

$2,162.8

$2,141.8

$1,926.8

$2,127.4

$536.1

$511.0

$2,112.3

Adjusted EBITDA margin

32.0%

32.9%

32.5%

34.7%

36.3%

36.1%

Adjusted EBITDA margin excl technology-related license expenses

32.0%

32.9%

33.5%

32.8%

35.0%

34.7%

36.3%

36.2%

Three months ended

June 30,

For the year ended December 31,

Adjusted Net Income and Adjusted EBITDA reconciliation

(1)

Includes

charges

income

benefit

plan

adjustments,

employee

stock

compensation

expense,

service

fees

paid

Allison’s

Allison Transmission (ALSN) 8-KAllison Transmission Announces Second Quarter 2015 Results