UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2017 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 001-35456 ALLISON TRANSMISSION HOLDINGS, INC. (Exact Name of Registrant as Specified In Its Charter) Delaware 26-0414014 (State of Incorporation) (I.R.S. Employer Identification Number) One Allison Way Indianapolis, IN 46222 (Address of Principal Executive Offices) (Zip Code) (317) 242-5000 (Registrant’s Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of October 17, 2017, there were 141,760,746 shares of Common Stock outstanding. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements 2-18 Condensed Consolidated Balance Sheets 2 Condensed Consolidated Statements of Comprehensive Income 3 Condensed Consolidated Statements of Cash Flows 4 Notes to Condensed Consolidated Financial Statements 5-18 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19-29 Item 3. Quantitative and Qualitative Disclosures About Market Risk 30-31 Item 4. Controls and Procedures 32 PART II. OTHER INFORMATION Item 1. Legal Proceedings 33 Item 1A. Risk Factors 33 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 33 Item 6. Exhibits 34 Signatures 35 1 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Allison Transmission Holdings, Inc. Condensed Consolidated Balance Sheets (unaudited, dollars in millions, except per share data) September 30, December 31, 2017 2016 ASSETS Current Assets Cash and cash equivalents $ 210 $ 205 Accounts receivable 271 197 Inventories 156 126 Other current assets 28 20 Total Current Assets 665 548 Property, plant and equipment, net 456 464 Intangible assets, net 1,175 1,242 Goodwill 1,941 1,941 Other non-current assets 24 24 TOTAL ASSETS $ 4,261 $ 4,219 LIABILITIES Current Liabilities Accounts payable $ 184 $ 128 Product warranty liability 22 25 Current portion of long-term debt 12 12 Deferred revenue 33 27 Other current liabilities 193 150 Total Current Liabilities 444 342 Product warranty liability 27 38 Deferred revenue 75 66 Long-term debt 2,536 2,147 Deferred income taxes 393 312 Other non-current liabilities 231 233 TOTAL LIABILITIES 3,706 3,138 Commitments and contingencies (see NOTE N) STOCKHOLDERS’ EQUITY Common stock, $0.01 par value, 1,880,000,000 shares authorized, 142,735,480 shares issued and outstanding and 163,795,604 shares issued and outstanding, respectively 1 2 Non-voting common stock, $0.01 par value, 20,000,000 shares authorized, none issued and outstanding — — Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding — — Paid in capital 1,750 1,728 Accumulated deficit (1,144) (586) Accumulated other comprehensive loss, net of tax (52) (63) TOTAL STOCKHOLDERS’ EQUITY 555 1,081 TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 4,261 $ 4,219 The accompanying notes are an integral part of the condensed consolidated financial statements. 2 Allison Transmission Holdings, Inc. Condensed Consolidated Statements of Comprehensive Income (unaudited, dollars in millions, except per share data) Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Net sales $ 595 $ 434 $ 1,674 $ 1,371 Cost of sales 293 230 831 725 Gross profit 302 204 843 646 Selling, general and administrative 78 79 245 240 Engineering — research and development 26 21 74 64 Operating income 198 104 524 342 Interest expense, net (26) (22) (78) (84) Expenses related to long-term debt refinancing — (12) — (12) Other (expense) income, net (2) 1 (3) 1 Income before income taxes 170 71 443 247 Income tax expense (59) (26) (154) (93) Net income $ 111 $ 45 $ 289 $ 154 Basic earnings per share attributable to common stockholders $ 0.75 $ 0.27 $ 1.91 $ 0.91 Diluted earnings per share attributable to common stockholders $ 0.75 $ 0.27 $ 1.90 $ 0.91 Dividends declared per common share $ 0.15 $ 0.15 $ 0.45 $ 0.45 Comprehensive income, net of tax $ 116 $ 45 $ 300 $ 156 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 Allison Transmission Holdings, Inc. Condensed Consolidated Statements of Cash Flows (unaudited, dollars in millions) Nine months ended September 30, 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 289 $ 154 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 72 80 Amortization of intangible assets 67 69 Depreciation of property, plant and equipment 60 63 Unrealized (gain) loss on derivatives (10) 10 Stock-based compensation 8 6 Amortization of deferred financing costs 4 6 Expenses related to long-term debt refinancing — 11 Excess tax benefit from stock-based compensation — (2) Other 5 2 Changes in assets and liabilities: Accounts receivable (71) (5) Inventories (28) (12) Accounts payable 56 8 Other assets and liabilities 40 26 Net cash provided by operating activities 492 416 CASH FLOWS FROM INVESTING ACTIVITIES: Additions of long-lived assets (40) (36) Investments in technology-related initiatives (3) (1) Net cash used for investing activities (43) (37) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchases of common stock (778) (169) Borrowings on revolving credit facility 415 — Repayments on revolving credit facility (415) — Issuance of long-term debt 400 1,000 Dividend payments (68) (76) Proceeds from exercise of stock options 14 9 Payments on long-term debt (9) (1,212) Debt financing fees (5) (19) Taxes paid related to net share settlement of equity awards (1) (1) Excess tax benefit from stock-based compensation — 2 Net cash used for financing activities (447) (466) Effect of exchange rate changes on cash 3 — Net increase (decrease) in cash and cash equivalents 5 (87) Cash and cash equivalents at beginning of period 205 252 Cash and cash equivalents at end of period $ 210 $ 165 Supplemental disclosures: Interest paid $ 71 $ 64 Income taxes paid $ 65 $ 10 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 Allison Transmission Holdings, Inc. Notes to Condensed Consolidated Financial Statements (UNAUDITED) NOTE A. OVERVIEW Overview Allison Transmission Holdings, Inc. and its subsidiaries (“Allison” or the “Company”) design and manufacture commercial and defense fully- automatic transmissions. The business was founded in 1915 and has been headquartered in Indianapolis, Indiana since inception. Allison was an operating unit of General Motors Corporation from 1929 until 2007, when Allison once again became a stand-alone company. In March 2012, Allison began trading on the New York Stock Exchange under the symbol, “ALSN”. The Company has approximately 2,600 employees and 13 different transmission product lines. Although approximately 78% of revenues were generated in North America in 2016, the Company has a global presence by serving customers in Europe, Asia, South America and Africa. The Company serves customers through an independent network of approximately 1,400 independent distributor and dealer locations worldwide. NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary for the fair statement of the results for