10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

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 or other jurisdiction of incorporation or organization)	(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  x    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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 13, 2015, there were 171,031,830 shares of Common Stock outstanding.

INDEX

PART I. FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements:	3-5
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6-20
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21-34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35-36
Item 4.	Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 6.	Exhibits	38
	Signatures	39

2

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Allison Transmission Holdings, Inc.

Condensed Consolidated Balance Sheets

(unaudited, dollars in millions, except share data)

	September 30, 2015			December 31, 2014
ASSETS
Current Assets
Cash and cash equivalents	$	148.4		$	263.0
Accounts receivable — net of allowance for doubtful accounts of $0.5 and $0.3, respectively		223.9			207.4
Inventories		155.3			143.5
Deferred income taxes, net		88.2			119.7
Other current assets		26.0			24.4
Total Current Assets		641.8			758.0
Property, plant and equipment, net		479.1			514.6
Intangible assets, net		1,439.1			1,512.0
Goodwill		1,941.0			1,941.0
Deferred income taxes, net		1.3			1.3
Other non-current assets		64.4			77.3
TOTAL ASSETS	$	4,566.7		$	4,804.2
LIABILITIES
Current Liabilities
Accounts payable	$	140.9		$	151.7
Product warranty liability		25.0			24.0
Current portion of long-term debt		22.6			17.9
Deferred revenue		22.5			20.6
Other current liabilities		105.0			131.7
Total Current Liabilities		316.0			345.9
Product warranty liability		56.9			59.6
Deferred revenue		54.0			48.7
Long-term debt		2,386.4			2,502.6
Deferred income taxes		287.2			238.2
Other non-current liabilities		251.7			211.4
TOTAL LIABILITIES		3,352.2			3,406.4
Commitments and contingencies (see NOTE O)
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, 1,880,000,000 shares authorized, 171,029,830 shares issued and outstanding and 179,488,247 shares issued and outstanding, respectively		1.8			1.8
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		1,688.5			1,651.0
Accumulated deficit		(422.4	)		(215.5	)
Accumulated other comprehensive loss, net of tax		(53.4	)		(39.5	)
TOTAL STOCKHOLDERS’ EQUITY		1,214.5			1,397.8
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	4,566.7		$	4,804.2

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

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,
	2015			2014			2015			2014
Net sales	$	493.0		$	553.3		$	1,507.6		$	1,583.0
Cost of sales		256.9			294.0			796.0			862.7
Gross profit		236.1			259.3			711.6			720.3
Selling, general and administrative expenses		86.6			87.5			235.6			255.8
Engineering — research and development		23.6			24.5			69.0			70.2
Environmental remediation		14.0			—			14.0			—
Loss associated with impairment of long-lived assets		—			—			1.3			—
Operating income		111.9			147.3			391.7			394.3
Interest income		0.1			0.3			0.5			0.7
Interest expense		(33.8	)		(29.6	)		(94.2	)		(101.7	)
Premiums and expenses on tender offer and redemption of long-term debt		(0.2	)		—			(25.3	)		—
Other expense, net		(4.2	)		(1.7	)		(3.6	)		(3.0	)
Income before income taxes		73.8			116.3			269.1			290.3
Income tax expense		(27.3	)		(47.5	)		(99.8	)		(112.2	)
Net income	$	46.5		$	68.8		$	169.3		$	178.1
Basic earnings per share attributable to common stockholders	$	0.27		$	0.38		$	0.95		$	0.99
Diluted earnings per share attributable to common stockholders	$	0.27		$	0.38		$	0.95		$	0.97
Dividends declared per common share	$	0.15		$	0.12		$	0.45		$	0.36
Comprehensive income, net of tax	$	43.6		$	60.6		$	155.4		$	171.8

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

Allison Transmission Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, dollars in millions)

	Nine months ended September 30,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	169.3		$	178.1
Add (deduct) items included in net income not using (providing) cash:
Deferred income taxes		91.5			105.2
Amortization of intangible assets		72.9			74.1
Depreciation of property, plant and equipment		65.8			71.0
Premiums and expenses on tender offer and redemption of long-term debt		25.3			—
Unrealized loss (gain) on derivatives		17.5			(12.8	)
Excess tax benefit from stock-based compensation		(8.2	)		(12.8	)
Stock-based compensation		7.2			11.1
Amortization of deferred financing costs		5.7			6.2
Loss associated with impairment of long-lived assets		1.3			—
Other		2.5			5.8
Changes in assets and liabilities:
Accounts receivable		(19.3	)		(67.4	)
Inventories		(16.0	)		(3.7	)
Accounts payable		(10.5	)		33.0
Other assets and liabilities		(15.0	)		28.2
Net cash provided by operating activities		390.0			416.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of long-lived assets		(30.1	)		(37.6	)
Investments in technology-related initiatives		(1.9	)		(5.8	)
Collateral for interest rate derivatives		—			1.7
Proceeds from disposal of assets		0.2			0.3
Net cash used for investing activities		(31.8	)		(41.4	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases and redemption of long-term debt		(491.2	)		—
Issuance of long-term debt		470.0			—
Repurchases of common stock		(296.3	)		(249.8	)
Payments on long-term debt		(110.2	)		(88.4	)
Dividend payments		(80.0	)		(64.7	)
Proceeds from exercise of stock options		22.5			34.6
Excess tax benefit from stock-based compensation		8.2			12.8
Debt financing fees		(7.7	)		(1.0	)
Taxes paid related to net share settlement of equity awards		(0.5	)		(1.1	)
Net cash used for financing activities		(485.2	)		(357.6	)
Effect of exchange rate changes on cash		12.4			6.4
Net (decrease) increase in cash and cash equivalents		(114.6	)		23.4
Cash and cash equivalents at beginning of period		263.0			184.7
Cash and cash equivalents at end of period	$	148.4		$	208.1
Supplemental disclosures:
Interest paid	$	75.4		$	103.3
Income taxes paid	$	5.0		$	3.5

The accompanying notes are an integral part of the condensed consolidated financial statements.

5

Allison Transmission Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(UNAUDITED)

NOTE A. OVERVIEW

Overview

Allison Transmission Holdings, Inc. and its subsidiaries (“Allison,” the “Company” or “we”) 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”.

We have approximately 2,700 employees and 13 different transmission product lines. Although approximately 80% of revenues were generated in North America in 2014, we have a global presence by serving customers in Europe, Asia, South America and Africa. We serve 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 as of and for the three and nine months ended September 30, 2015 and 2014 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 statements of the results for the periods presented. The condensed consolidated financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated.

These condensed consolidated financial statements present the financial position, results of comprehensive income and cash flows of the Company. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission (“SEC”) on February 20, 2015. Certain immaterial reclassifications have been made in the condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications have no impact on previously reported net income, total stockholders’ equity or cash flows. The interim period financial results for the three and nine month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Significant estimates include, but are not limited to, allowance for doubtful accounts, sales allowances, government price adjustments, fair market values and future cash flows associated with goodwill, indefinite life intangibles, long-lived asset impairment tests, useful lives for depreciation and amortization, warranty liabilities, environmental liabilities, determination of discount and other assumptions for pension and other postretirement benefit expense, income taxes and deferred tax valuation allowances, derivative valuation, and contingencies. The Company’s accounting policies involve the application of judgments and assumptions made by management that include inherent risks and uncertainties. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.

6

Recently Issued Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance to simplify the measurement of inventory. The guidance requires that inventory be measured at the lower of cost and net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs. Inventory measured using last-in, first-out and the retail inventory method are not impacted by the new guidance. The guidance is effective for public entities for interim and annual reporting periods beginning after December 15, 2016, but can be early-adopted. Management is assessing the potential impact of the adoption of this guidance on the Company’s consolidated financial statements.

In April 2015, the FASB issued authoritative accounting guidance to simplify the presentation of the debt issuance costs. The guidance requires that the debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The debt issuance costs related to line-of-credit arrangements can still be deferred and presented as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The recognition and measurement guidance for debt issuance costs are not affected. The guidance is effective for public entities for interim and annual reporting periods beginning after December 15, 2015, but can be early-adopted. As of September 30, 2015, the Company has determined that approximately $29.9 million of debt issuance costs, net of accumulated amortization, could be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability under the guidance.

In August 2014, the FASB issued authoritative accounting guidance on the disclosure of uncertainties about an entity’s ability to continue as a going concern. The guidance requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that financial statements are available to be issued when applicable) and to provide related footnote disclosures. The guidance is effective prospectively for interim and annual reporting periods beginning after December 15, 2016, but can be early-adopted. While the adoption of this guidance is not expected to have an effect on the Company’s consolidated financial statements, it could affect the disclosure applied under these circumstances in the future.

In May 2014, the FASB issued authoritative accounting guidance on a company’s accounting for revenue from contracts with customers. The guidance applies to all companies that enter into contracts with customers to transfer goods, services or nonfinancial assets. The guidance requires these companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires improved disclosures regarding the nature, timing, amount and uncertainty of revenue that is recognized. As originally proposed, the guidance was effective prospectively for interim and annual reporting periods beginning after December 15, 2016. On April 1, 2015, the FASB proposed a one-year deferral of the effective date. Under the proposal, the guidance would be effective on a retrospective or modified retrospective basis for public entities for interim and annual reporting periods beginning after December 15, 2017. The proposal also would permit both public and nonpublic entities to adopt the guidance as early as periods beginning after December 15, 2016. Early adoption prior to that date would not be permitted. In July 2015, the FASB proposed deferral was approved. Management is assessing the potential impact of the adoption of this guidance on the Company’s consolidated financial statements as well as considering the method of adoption.

NOTE C. INVENTORIES

Inventories consisted of the following components (dollars in millions):

	September 30, 2015		December 31, 2014
Purchased parts and raw materials	$	69.2	$	72.3
Work in progress		5.8		6.1
Service parts		45.8		46.5
Finished goods		34.5		18.6
Total inventories	$	155.3	$	143.5

Inventory components shipped to third parties, primarily cores, parts to re-manufacturers, and parts to contract manufacturers, which the Company has an obligation to buy back, are included in purchased parts and raw materials, with an offsetting liability in Other current liabilities. See NOTE K, “Other Current Liabilities” for more information.

7

NOTE D. GOODWILL AND OTHER INTANGIBLE ASSETS

As of September 30, 2015 and December 31, 2014, the carrying amount of the Company’s Goodwill was $1,941.0 million. The following presents a summary of other intangible assets (dollars in millions):

	September 30, 2015							December 31, 2014
	Intangible assets, gross		Accumulated amortization			Intangible assets, net		Intangible assets, gross		Accumulated amortization			Intangible assets, net
Other intangible assets:
Trade name	$	870.0	$	—		$	870.0	$	870.0	$	—		$	870.0
Customer relationships — defense		62.3		(30.4	)		31.9		62.3		(27.9	)		34.4
Customer relationships — commercial		831.8		(464.7	)		367.1		831.8		(426.9	)		404.9
Proprietary technology		476.3		(310.7	)		165.6		476.3		(282.0	)		194.3
Non-compete agreement		17.3		(14.1	)		3.2		17.3		(12.8	)		4.5
Patented technology — defense		28.2		(27.0	)		1.2		28.2		(24.5	)		3.7
Tooling rights		4.5		(4.4	)		0.1		4.5		(4.3	)		0.2
Patented technology — commercial		260.6		(260.6	)		—		260.6		(260.6	)		—
Total	$	2,551.0	$	(1,111.9	)	$	1,439.1	$	2,551.0	$	(1,039.0	)	$	1,512.0

As of September 30, 2015 and December 31, 2014, the net carrying value of our Goodwill and other intangibles was $3,380.1 million and $3,453.0 million, respectively.

Amortization expense related to other intangible assets for the next five years and thereafter is expected to be (dollars in millions):

	2016		2017		2018		2019		2020		Thereafter
Amortization expense	$	92.4	$	89.7	$	87.2	$	85.7	$	49.9	$	140.6

NOTE E. FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with the FASB’s authoritative accounting guidance on fair value measurements, fair value is the price (exit price) that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company primarily applies the market approach for recurring fair value measurements and utilizes the best available information that maximizes the use of observable inputs and minimizes the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs. The accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by the relevant guidance are as follows:

Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and publicly traded bonds.

Level 2 — Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes financial instruments that are valued using quoted prices in markets that are not active and those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 — Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all instruments subject to authoritative accounting guidance and includes, in Level 3, all of those whose fair value is based on significant unobservable inputs. As of September 30, 2015 and December 31, 2014, the Company did not have any Level 3 financial assets or liabilities.

8

The Company’s assets and liabilities that are measured at fair value include cash and cash equivalents, available-for-sale securities, derivative instruments, assets held in a rabbi trust and a deferred compensation obligation. The Company’s cash equivalents consist of short-term U.S. government backed securities. The Company’s available-for-sale securities consist of ordinary shares of Torotrak plc (“Torotrak”) associated with a license and exclusivity agreement with Torotrak. Torotrak’s listed shares are traded on the London Stock Exchange under the ticker symbol “TRK.” The Company’s derivative instruments consist of interest rate swaps, foreign currency forward contracts and commodity swaps. The Company’s assets held in the rabbi trust consist principally of publicly available mutual funds and target date retirement funds. The Company’s deferred compensation obligation is directly related to the fair value of assets held in the rabbi trust.

The Company’s valuation techniques used to calculate the fair value of cash and cash equivalents, available-for-sale securities, assets held in the rabbi trust and the deferred compensation obligation represent a market approach in active markets for identical assets that qualify as Level 1 in the fair value hierarchy. The Company’s valuation techniques used to calculate the fair value of derivative instruments represent a market approach with observable inputs that qualify as Level 2 in the fair value hierarchy.

The foreign currency contracts consist of forward rate contracts which are intended to hedge exposure of transactions denominated in certain currencies and reduce the impact of currency price volatility on the Company’s financial results. The commodity contracts consist of forward rate contracts which are intended to hedge exposure of transactions involving purchases of component parts and energy to power our facilities, reducing the impact of commodity price volatility on the Company’s financial results.

For the fair value measurement of foreign currency derivatives, the Company uses forward foreign exchange rates received from the issuing financial institution. These rates are periodically corroborated by comparing to third-party broker quotes. The foreign currency hedges are accounted for within the authoritative accounting guidance set forth on accounting for derivative instruments and hedging activities and have been recorded at fair value based upon quoted market rates. The fair values are included in Other current and non-current assets and liabilities in the Condensed Consolidated Balance Sheets. The Company generally does not elect to apply hedge accounting for these foreign currency contracts, and as a result, unrealized fair value adjustments and realized gains and losses are recorded in Other expense, net in the Condensed Consolidated Statements of Comprehensive Income during the period of change.

For the fair value measurement of commodity derivatives, the Company uses forward prices received from the issuing financial institution. These rates are periodically corroborated by comparing to third-party broker quotes. The commodity derivatives are accounted for within the authoritative accounting guidance set forth on accounting for derivative instruments and hedging activities and have been recorded at fair value based upon quoted market rates. The fair values are included in Other current and non-current assets and liabilities in the Condensed Consolidated Balance Sheets. The Company has either not qualified for or not elected hedge accounting treatment for these commodity contracts, and as a result, unrealized fair value adjustments and realized gains and losses are recorded in Other expense, net in the Condensed Consolidated Statements of Comprehensive Income.

For the fair value measurement of interest rate derivatives, the Company uses valuations from the issuing financial institution. The Company corroborates the valuation through the use of third-party valuation services using a standard replacement valuation model. The floating-to-fixed interest rate swaps are based on the London Interbank Offered Rate (“LIBOR”) which is observable at commonly quoted intervals. The fair values are included in other current and non-current assets and liabilities in the Condensed Consolidated Balance Sheets. The Company has not qualified for hedge accounting treatment for the interest rate swaps and, as a result, fair value adjustments are charged directly to Interest expense in the Condensed Consolidated Statements of Comprehensive Income.

The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of September 30, 2015 and December 31, 2014 (dollars in millions):

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						TOTAL
	September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014
Cash equivalents	$	76.0		$	55.0		$	—		$	—		$	76.0		$	55.0
Available-for-sale securities		5.6			8.6			—			—			5.6			8.6
Rabbi trust assets		4.5			2.9			—			—			4.5			2.9
Deferred compensation obligation		(4.5	)		(2.9	)		—			—			(4.5	)		(2.9	)
Derivative assets		—			—			0.1			0.0			0.1			0.0
Derivative liabilities		—			—			(33.0	)		(15.4	)		(33.0	)		(15.4	)
Total	$	81.6		$	63.6		$	(32.9	)	$	(15.4	)	$	48.7		$	48.2

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NOTE F. DEBT

Long-term debt and maturities are as follows (dollars in millions):

	September 30, 2015		December 31, 2014
Long-term debt:
Senior Secured Credit Facility Term B-2 Loan, variable, due 2017	$	189.0	$	283.6
Senior Secured Credit Facility Term B-3 Loan, variable, due 2019		2,220.0		1,765.6
Senior Notes, fixed 7.125%, due 2019		—		471.3
Total long-term debt	$	2,409.0	$	2,520.5
Less: current maturities of long-term debt		22.6		17.9
Total long-term debt less current portion	$	2,386.4	$	2,502.6

As of September 30, 2015, the Company had $189.0 million of indebtedness associated with Allison Transmission, Inc.’s (“ATI”), the Company’s wholly-owned subsidiary, Senior Secured Credit Facility Term B-2 Loan due 2017 (“Term B-2 Loan”) and $2,220.0 million of indebtedness associated with ATI’s Senior Secured Credit Facility Term B-3 Loan due 2019 (“Term B-3 Loan”) (together the Term B-2 Loan, Term B-3 Loan and revolving credit facility defined as the “Senior Secured Credit Facility”).

The fair value of the Company’s long-term debt obligations as of September 30, 2015 was $2,408.7 million. The fair value is based on quoted Level 2 market prices of the Company’s debt as of September 30, 2015. It is not expected that the Company would be able to repurchase a significant amount of its debt at these levels. The difference between the fair value and carrying value of the long-term debt is driven primarily by trends in the financial markets.

On March 18, 2015, ATI commenced a cash tender offer to purchase its outstanding 7.125% senior cash pay notes due May 2019 (“7.125% Senior Notes”). In connection with the cash tender offer, ATI solicited consents to enter into a supplemental indenture to eliminate substantially all of the restrictive covenants, certain events of default and related provisions contained in the indenture dated as of May 6, 2011 (the “Indenture”) governing the 7.125% Senior Notes. On March 31, 2015, ATI received valid consents from holders with an aggregate principal amount of $420.9 million of the 7.125% Senior Notes. Accordingly, ATI entered into a first supplemental indenture to the Indenture contingent on the execution of an amendment with the term loan lenders under its Senior Secured Credit Facility.

On April 7, 2015, ATI entered into an amendment with the term loan lenders under its Senior Secured Credit Facility to add up to an additional $470.0 million of Term B-3 Loan commitments and incur term loans in an aggregate principal amount of $470.0 million. The amendment also, among other things, (i) permits prepayment, repurchase or redemption of Allison’s 7.125% Senior Notes with the proceeds of the financing and (ii) resets the period for which a prepayment premium of 1.00% will apply in the event of a repricing transaction to the six-month anniversary of the closing date of the financing. With the exception of the items noted above, the terms (including maturity and pricing) of the financing are materially the same as the terms of the existing Term B-3 Loan outstanding. As a result of the newly structured Senior Secured Credit Facility, ATI recorded approximately $7.7 million as deferred financing fees in the Condensed Consolidated Balance Sheets. Immediately following the financing, ATI purchased $420.9 million of the tendered 7.125% Senior Notes using the proceeds from the financing in a cash payment equal to $1,042 per $1,000 aggregate principal amount of the 7.125% Senior Notes plus accrued and unpaid interest. Upon the payment, the supplemental indenture to the Indenture became operative. The purchase resulted in a loss (the premium between the purchase price of the notes and the face value of such notes) of $22.7 million including deferred financing fees written off.

In May 2015, ATI redeemed the remaining $50.4 million of its outstanding 7.125% Senior Notes, at the redemption price equal to 103.563% of the principal amount plus any accrued and unpaid interest, using the remaining proceeds from the financing and cash on hand, resulting in a loss (the premium between the purchase price of the notes and the face value of such notes) of $2.4 million including deferred financing fees written off.

10

The Senior Secured Credit Facility is collateralized by a lien on substantially all assets of the Company including all of ATI’s capital stock and all of the capital stock or other equity interest held by the Company, ATI and each of the Company’s existing and future U.S. subsidiary guarantors (subject to certain limitations for equity interests of foreign subsidiaries and other exceptions set forth in the terms of the Senior Secured Credit Facility). Interest on the Term B-2 Loan, as of September 30, 2015, is at the Company’s option, either (a) 2.75% over the LIBOR or (b) 1.75% over the greater of the prime lending rate provided by the British Banking Association or the federal funds effective rate published by the Federal Reserve Bank of New York plus 0.50%. Interest on the Term B-3 Loan, as of September 30, 2015, is equal to the LIBOR (which may not be less than 1.00%) plus 2.50% based on the Company’s total leverage ratio. As of September 30, 2015, these rates were approximately 2.95% and 3.50% on the Term B-2 Loan and Term B-3 Loan, respectively, and the weighted average rate on the Senior Secured Credit Facility was approximately 3.46%. The Senior Secured Credit Facility requires minimum quarterly principal payments on the Term B-2 Loan and Term B-3 Loan as well as prepayments from certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events and from a percentage of excess cash flow, if applicable. Due to voluntary prepayments, the Company has fulfilled all Term B-2 Loan required quarterly payments through its maturity date of 2017. For the three months and nine months ended September 30, 2015, the Company made principal payments of $0.0 million and $94.6 million on the Term B-2 loan, respectively, resulting in a total loss of $0.2 million associated with the write off of related deferred debt issuance costs. The minimum required quarterly principal payment on the Term B-3 Loan is $5.6 million and remains through its maturity date of 2019. As of September 30, 2015, there had been no payments required for certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events. The remaining principal balance on each loan is due upon maturity.

The Senior Secured Credit Facility also provides for a revolving credit facility of $465.0 million, net of an allowance for up to $75.0 million in outstanding letters of credit commitments. As of September 30, 2015, the Company had $455.3 million available under the revolving credit facility, net of $9.7 million in letters of credit. Revolving credit borrowings bear interest at a variable base rate plus an applicable margin based on the Company’s total leverage ratio. As of September 30, 2015, this rate would have been approximately 1.63%. In addition, there is an annual commitment fee, based on the Company’s total leverage ratio, which as of September 30, 2015, was equal to 0.25% of the average unused revolving credit borrowings available under the Senior Secured Credit Facility. Revolving credit borrowings are payable at the option of the Company throughout the term of the Senior Secured Credit Facility with the balance due in January 2019. The revolving portion of the Senior Secured Credit Facility requires the Company to maintain a specified maximum total senior secured leverage ratio of 5.50x when revolving loan commitments remain outstanding at the end of a fiscal quarter. In March 2014, however, the revolving lenders holding a majority of the revolving loan commitments permanently waived and agreed that no event of default would result from any non-compliance so long as there were no revolving loans outstanding as of the last day of any fiscal quarter. As of September 30, 2015, the Company had no revolving loans outstanding; however, the Company would have been in compliance with the maximum total senior secured leverage ratio, achieving a 3.08x ratio. Additionally, within the terms of the Senior Secured Credit Facility, a senior secured leverage ratio at or below 3.50x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. The Senior Secured Credit Facility also provides certain financial incentives based on our total leverage ratio. A total leverage ratio at or below 4.00x results in a 25 basis point reduction to the applicable margin on the revolving credit facility, and a total leverage ratio at or below 3.50x results in a 12.5 basis point reduction to the revolving credit facility commitment fee and an additional 25 basis point reduction to the applicable margin on the revolving credit facility. A total leverage ratio at or below 3.25x results in a 25 basis point reduction to the applicable margin on our Term B-3 Loan. These reductions would remain in effect as long as the Company achieves a total leverage ratio at or below the related threshold. As of September 30, 2015, the total leverage ratio was 3.08x.

In addition, the Senior Secured Credit Facility, among other things, includes customary restrictions (subject to certain exceptions) on the Company’s ability to incur certain indebtedness, grant certain liens, make certain investments, declare or pay certain dividends or repurchase shares of the Company’s common stock. As of September 30, 2015, the Company is in compliance with all covenants under the Senior Secured Credit Facility.

11

NOTE G. DERIVATIVES

The Company is exposed to certain financial risk from volatility in interest rates, foreign exchange rates and commodity prices. The risk is managed through the use of financial derivative instruments including interest rate swaps, foreign currency forward contracts and commodity swaps. The Company’s current derivative instruments are used strictly as an economic hedge and not for speculative purposes. As necessary, the Company adjusts the values of the derivative instruments for counter-party or credit risk.

Interest Rate

The Company is subject to interest rate risk related to the Senior Secured Credit Facility and enters into interest rate swap contracts that are based on the LIBOR to manage a portion of this exposure. The Company has not elected hedge accounting treatment for these derivatives, and as a result, fair value adjustments are charged directly to Interest expense in the Condensed Consolidated Statements of Comprehensive Income. A summary of the Company’s interest rate derivatives as of September 30, 2015 and December 31, 2014 follows (dollars in millions):

	September 30, 2015					December 31, 2014
	Notional Amount		Fair Value			Notional Amount		Fair Value
3.44% Interest Rate Swap L, Aug 2016 – Aug 2019*	$	75.0	$	(3.9	)	$	75.0	$	(2.3	)
3.43% Interest Rate Swap M, Aug 2016 – Aug 2019*		100.0		(5.2	)		100.0		(3.0	)
3.37% Interest Rate Swap N, Aug 2016 – Aug 2019*		75.0		(3.7	)		75.0		(2.1	)
3.19% Interest Rate Swap O, Aug 2016 – Aug 2019*		75.0		(3.4	)		75.0		(1.7	)
3.08% Interest Rate Swap P, Aug 2016 – Aug 2019*		75.0		(3.1	)		75.0		(1.5	)
2.99% Interest Rate Swap Q, Aug 2016 – Aug 2019*		50.0		(2.0	)		50.0		(0.9	)
2.98% Interest Rate Swap R, Aug 2016 – Aug 2019*		50.0		(1.9	)		50.0		(0.9	)
2.73% Interest Rate Swap S, Aug 2016 – Aug 2019*		50.0		(1.6	)		50.0		(0.5	)
2.74% Interest Rate Swap T, Aug 2016 – Aug 2019*		75.0		(2.4	)		75.0		(0.8	)
2.66% Interest Rate Swap U, Aug 2016 – Aug 2019*		50.0		(1.5	)		50.0		(0.4	)
2.60% Interest Rate Swap V, Aug 2016 – Aug 2019*		50.0		(1.4	)		50.0		(0.3	)
2.40% Interest Rate Swap W, Aug 2016 – Aug 2019*		25.0		(0.5	)		25.0		0.0
2.25% Interest Rate Swap X, Aug 2016 – Aug 2019*		50.0		(1.0	)		—		—
* includes LIBOR floor of 1.00%	$	800.0	$	(31.6	)	$	750.0	$	(14.4	)

Currency Exchange

The Company’s business is subject to foreign exchange rate risk. As a result, the Company enters into various forward rate contracts that qualify as derivatives under the authoritative accounting guidance to manage certain of these exposures. Forward contracts are used to hedge forecasted transactions and known exposure of payables denominated in a foreign currency. The Company generally has not elected to apply hedge accounting under the authoritative accounting guidance and recorded the unrealized fair value adjustments and realized gains and losses associated with these contracts in Other expense, net in the Condensed Consolidated Statements of Comprehensive Income during the period of change.

The following table summarizes the outstanding foreign currency forward contracts as of September 30, 2015 and December 31, 2014 (amounts in millions):

	September 30, 2015				December 31, 2014
	Notional Amount		Fair Value		Notional Amount		Fair Value
Japanese Yen (JPY)	¥	300.0	$	0.1	¥	300.0	$	(0.3	)
			$	0.1			$	(0.3	)

Commodity

The Company’s business is subject to commodity price risk, primarily with component suppliers. As a result, the Company enters into various commodity swap contracts that qualify as derivatives under the authoritative accounting guidance to manage certain of these exposures. Swap contracts are used to hedge forecasted transactions either of the commodity or of components containing the commodity. The Company has not qualified for hedge accounting treatment for these commodity contracts, and as a result, unrealized fair value adjustments and realized gains and losses associated with these contracts were charged directly to Other expense, net in the Condensed Consolidated Statements of Comprehensive Income during the period of change.

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The following table summarizes the outstanding commodity swaps as of September 30, 2015 and December 31, 2014 (dollars in millions):

	September 30, 2015							December 31, 2014
	Notional Amount		Quantity		Fair Value			Notional Amount		Quantity	Fair Value
Aluminum	$	9.2		5,000 metric tons	$	(1.4	)	$	11.3	6,200 metric tons	$	(0.7	)
Natural Gas	$	0.3		100,000 MMBtu		(0.0	)	$	0.2	60,000 MMBtu		0.0
					$	(1.4	)				$	(0.7	)

The following tabular disclosures further describe the Company’s derivative instruments and their impact on the financial condition of the Company (dollars in millions):

	September 30, 2015				December 31, 2014
	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Derivatives not designated as hedging instruments
Foreign currency contracts	Other current assets	$	0.1		Other current liabilities	$	(0.3	)
Commodity contracts	Other non-current assets		0.0
	Other current and non-current liabilities		(1.4	)	Other current and non-current liabilities		(0.7	)
Interest rate contracts	Other current and non-current liabilities		(31.6	)	Other non- current liabilities		(14.4	)
Total derivatives not designated as hedging instruments		$	(32.9	)		$	(15.4	)

The fair values of the derivatives are recorded between Other current and non-current assets and Other current and non-current liabilities as appropriate in the Condensed Consolidated Balance Sheets. As of September 30, 2015, the amounts recorded to Other current and non-current liabilities for commodity contracts were ($1.0) million and ($0.4) million, respectively. The amounts recorded to Other current and non-current liabilities for interest rate contracts were ($1.8) million and ($29.8) million, respectively.

As of December 31, 2014, the amounts recorded to Other current and non-current liabilities for commodity contracts were ($0.6) million and ($0.1) million, respectively.

The impact on the Company’s Condensed Consolidated Statements of Comprehensive Income related to foreign currency and commodity contracts can be found in NOTE J, and the following tabular disclosure describes the location and impact on the Company’s results of operations related to unrealized (loss) gain on interest rate derivatives (dollars in millions):

	Three months ended September 30,					Nine months ended September 30,
	2015			2014		2015			2014
Location of impact on results of operations
Interest Expense	$	(10.0	)	$	4.6	$	(17.2	)	$	11.1

13

NOTE H. PRODUCT WARRANTY LIABILITIES

Product warranty liability activities consist of the following (dollars in millions):

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Beginning balance	$	73.7		$	86.7		$	83.6		$	90.5
Payments		(7.7	)		(7.9	)		(24.0	)		(27.0	)
Increase in liability (warranty issued during period)		5.0			7.2			16.2			20.0
Net adjustments to liability		10.8			(0.7	)		5.8			1.5
Accretion (for Predecessor liabilities)		0.1			0.1			0.3			0.4
Ending balance	$	81.9		$	85.4		$	81.9		$	85.4

As of September 30, 2015, the current and non-current product warranty liabilities were $25.0 million and $56.9 million, respectively. As of September 30, 2014, the current and non-current product warranty liabilities were $23.2 million and $62.2 million, respectively.

During the third quarter of 2015, the Company recorded approximately $10.8 million of net adjustments to the product warranty liabilities associated with specific field action programs. As a result of the uncertainty surrounding the nature and frequency of specific field action programs, these liabilities will change as additional field information becomes available.

NOTE I. DEFERRED REVENUE

As of September 30, 2015, the current and non-current deferred revenue for Extended Transmission Coverage (“ETC”) were $22.5 million and $54.0 million, respectively. As of September 30, 2014, the current and non-current deferred revenue for ETC were $20.1 million and $47.9 million, respectively.

Deferred revenue for ETC activity (dollars in millions):

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Beginning balance	$	74.7		$	66.8		$	69.0		$	63.6
Increases		7.2			6.3			23.7			20.1
Revenue earned		(5.4	)		(5.1	)		(16.2	)		(15.7	)
Ending balance	$	76.5		$	68.0		$	76.5		$	68.0

Deferred revenue recorded in current liabilities related to unearned net sales for defense contracts as of September 30, 2015 and 2014 was approximately $0.0 million and $1.1 million, respectively.

NOTE J. OTHER EXPENSE, NET

Other expense, net consists of the following (dollars in millions):

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Loss on intercompany foreign exchange	$	(2.8	)	$	(1.6	)	$	(1.9	)	$	(3.4	)
Unrealized (loss) gain on derivative contracts (see NOTE G)		(0.7	)		0.2			(0.4	)		1.7
Realized loss on derivative contracts (see NOTE G)		(0.3	)		(0.0	)		(1.0	)		(1.0	)
(Loss) gain on foreign exchange		(0.1	)		—			0.8			(0.5	)
Grant program income		—			0.7			—			2.1
Gain on negotiation of commercial agreement		—			2.0			—			2.0
Impairment loss on investments in technology-related initiatives		—			(2.0	)		—			(2.0	)
Public offering fees and expenses		—			(0.3	)		—			(1.4	)
Loss on repayments and redemptions of long-term debt		—			(0.3	)		(0.2	)		(0.3	)
Other		(0.3	)		(0.4	)		(0.9	)		(0.2	)
Total	$	(4.2	)	$	(1.7	)	$	(3.6	)	$	(3.0	)

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NOTE K. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following (dollars in millions):

	As of September 30, 2015		As of December 31, 2014
Payroll and related costs	$	30.8	$	50.9
Sales allowances		25.5		25.5
Vendor buyback obligation		11.8		13.2
Taxes payable		11.5		8.5
Defense price reduction reserve		10.1		16.2
Derivative liabilities		2.7		0.8
Accrued interest payable		0.6		5.2
Environmental liabilities		0.5		—
Other accruals		11.5		11.4
Total	$	105.0	$	131.7

NOTE L. EMPLOYEE BENEFIT PLANS

Components of net periodic benefit cost consist of the following (dollars in millions):

	Pension Plans						Post-retirement Benefits
	Three months ended September 30,						Three months ended September 30,
	2015			2014			2015			2014
Net periodic benefit cost:
Service cost	$	3.6		$	3.3		$	0.5		$	0.5
Interest cost		1.3			1.3			1.3			1.5
Expected return on assets		(2.1	)		(1.9	)		—			—
Prior service cost		0.0			0.0			(0.9	)		(0.9	)
Gain		(0.1	)		—			—			(0.2	)
Net periodic benefit cost	$	2.7		$	2.7		$	0.9		$	0.9
	Pension Plans						Post-retirement Benefits
	Nine months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Net periodic benefit cost:
Service cost	$	10.8		$	9.9		$	1.7		$	1.6
Interest cost		3.9			3.8			4.0			4.4
Expected return on assets		(6.3	)		(5.7	)		—			—
Prior service cost		0.0			0.0			(2.7	)		(2.7	)
Gain		(0.1	)		—			—			(0.6	)
Net periodic benefit cost	$	8.3		$	8.0		$	3.0		$	2.7

15

NOTE M. INCOME TAXES

For the three and nine months ended September 30, 2015, the Company recorded total tax expense of $27.3 million and $99.8 million, respectively. The effective tax rate for the three and nine months ended September 30, 2015 was 37.0% and 37.1%, respectively. For the three and nine months ended September 30, 2014, the Company recorded total tax expense of $47.5 million and $112.2 million, respectively. The effective tax rate for the three and nine months ended September 30, 2014 was 40.8% and 38.6%, respectively. The change in effective tax rates was driven by the change in discrete activity.

The need to establish a valuation allowance against the deferred tax assets is assessed periodically based on a more-likely-than-not realization threshold, in accordance with authoritative accounting guidance. Appropriate consideration is given to all positive and negative evidence related to that realization. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry forward periods, experience with tax attributes expiring unused, and tax planning alternatives. The weight given to these considerations depends upon the degree to which they can be objectively verified.

The Company has determined, based on the evaluation of both objective and subjective evidence available, that a domestic valuation allowance is not necessary and that it is more likely than not that the deferred tax assets are fully realizable. The Company has reached a sustained period of profitability and believes its objectively measured positive evidence outweighs the negative evidence. The Company continues to provide for a valuation allowance on certain of its foreign deferred tax assets.

In accordance with the FASB’s authoritative guidance on accounting for uncertainty in income taxes, the Company has recorded a liability of $2.3 million for unrecognized tax benefits related to a 2010 Research & Development Credit as of September 30, 2015 and December 31, 2014. The accounting guidance prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For the year ended December 31, 2014, the return will remain subject to examination by the various taxing authorities for the duration of the applicable statute of limitations (generally three years from the later of the date of filing or the due date of the return).

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NOTE N. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables reconcile changes in Accumulated other comprehensive loss (“AOCL”) by component (net of tax, dollars in millions):

	Three months ended
	Available-for- sale securities			Defined benefit pension items			Foreign currency items			Total
AOCL as of June 30, 2014	$	0.6		$	(9.1	)	$	(10.6	)	$	(19.1	)
Other comprehensive loss before reclassifications		(1.5	)		—			(6.6	)		(8.1	)
Amounts reclassified from AOCL		—			(1.1	)		—			(1.1	)
Income tax		0.6			0.4			—			1.0
Net current period other comprehensive loss	$	(0.9	)	$	(0.7	)	$	(6.6	)	$	(8.2	)
AOCL as of September 30, 2014	$	(0.3	)	$	(9.8	)	$	(17.2	)	$	(27.3	)
AOCL as of June 30, 2015	$	(3.8	)	$	(18.1	)	$	(28.6	)	$	(50.5	)
Other comprehensive loss before reclassifications		(0.2	)		—			(2.1	)		(2.3	)
Amounts reclassified from AOCL		—			(0.9	)		—			(0.9	)
Income tax		0.0			0.3			—			0.3
Net current period other comprehensive loss	$	(0.2	)	$	(0.6	)	$	(2.1	)	$	(2.9	)
AOCL as of September 30, 2015	$	(4.0	)	$	(18.7	)	$	(30.7	)	$	(53.4	)
	Nine months ended
	Available-for- sale securities			Defined benefit pension items			Foreign currency items			Total
AOCL as of December 31, 2013	$	1.1		$	(7.9	)	$	(14.2	)	$	(21.0	)
Other comprehensive loss before reclassifications		(2.2	)		—			(3.0	)		(5.2	)
Amounts reclassified from AOCL		—			(3.1	)		—			(3.1	)
Income tax		0.8			1.2			—			2.0
Net current period other comprehensive loss	$	(1.4	)	$	(1.9	)	$	(3.0	)	$	(6.3	)
AOCL as of September 30, 2014	$	(0.3	)	$	(9.8	)	$	(17.2	)	$	(27.3	)
AOCL as of December 31, 2014	$	(0.9	)	$	(17.0	)	$	(21.6	)	$	(39.5	)
Other comprehensive loss before reclassification		(4.9	)		—			(9.1	)		(14.0	)
Amounts reclassified from AOCL		—			(2.7	)		—			(2.7	)
Income tax		1.8			1.0			—			2.8
Net current period other comprehensive loss	$	(3.1	)	$	(1.7	)	$	(9.1	)	$	(13.9	)
AOCL as of September 30, 2015	$	(4.0	)	$	(18.7	)	$	(30.7	)	$	(53.4	)

17

The following tables show the location in the Condensed Consolidated Statements of Comprehensive Income affected by reclassifications from AOCL (dollars in millions):

	Amounts reclassified from AOCL						Affected line item in the Condensed Consolidated Statements of Comprehensive Income
AOCL Components	Three months ended September 30, 2015			Three months ended September 30, 2014
Amortization of defined benefit pension items:
Prior service cost	$	0.8		$	0.8		Cost of sales
		0.1			0.1		Selling, general and administrative
		0.0			0.0		Engineering – research and development
Actuarial loss		—			0.2		Cost of sales
		—			0.0		Selling, general and administrative
		—			0.0		Engineering – research and development
Total reclassifications, before tax	$	0.9		$	1.1		Income before income taxes
Income tax expense		(0.3	)		(0.4	)	Tax expense
Total reclassifications	$	0.6		$	0.7		Net of tax

	Amounts reclassified from AOCL						Affected line item in the Condensed Consolidated Statements of Comprehensive Income
AOCL Components	Nine months ended September 30, 2015			Nine months ended September 30, 2014
Amortization of defined benefit pension items:
Prior service cost	$	2.4		$	2.4		Cost of sales
		0.3			0.2		Selling, general and administrative
		0.0			0.0		Engineering – research and development
Actuarial loss		—			0.5		Cost of sales
		—			0.0		Selling, general and administrative
		—			0.0		Engineering – research and development
Total reclassifications, before tax	$	2.7		$	3.1		Income before income taxes
Income tax expense		(1.0	)		(1.2	)	Tax expense
Total reclassifications	$	1.7		$	1.9		Net of tax

Prior service cost and actuarial loss are included in the computation of the Company’s net periodic benefit cost. Please see NOTE L for additional details.

18

NOTE O. COMMITMENTS AND CONTINGENCIES

Environmental Matters

Under the asset purchase agreement with General Motors Corporation (“Old GM”), Old GM agreed to indemnify the Company against certain environmental liabilities, including pre-acquisition offsite waste disposal from the Company’s facilities, former facilities associated with the business and any properties or facilities relating to the business that Old GM retained. While the Company is responsible for environmental liabilities that arise due to post-acquisition activities, General Motors Company (“GM”), as successor to Old GM’s obligations, has continued to perform remedial activities at the Company’s Indianapolis, Indiana manufacturing facilities relating to historical soil and groundwater contamination at the facilities. GM’s activities are referred to as the “Corrective Action” plan, pursuant to the asset purchase agreement, whereby it retained responsibility for completing all obligations covered by a voluntary Corrective Action Agreement that Old GM entered with the U.S. Environmental Protection Agency (“EPA”).

During the third quarter of 2015, the EPA determined that GM’s remedial activities were complete and that the migration of any contamination is under control, resulting in the Company assuming responsibility for operating, monitoring and maintaining the ongoing Corrective Action activities through an agreed order of consent (“AOC”) with the EPA.

As a result of the AOC, the Company has determined that appropriate liabilities for the operating, monitoring and maintaining the ongoing remedial activities can be reasonably estimated. As of September 30, 2015, the Company recorded approximately $14.0 million for the estimated undiscounted liabilities to be paid out over the next 30 years, including approximately $0.5 million recorded to Other current liabilities and approximately $13.5 million to Other non-current liabilities. The recorded liabilities will be adjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information becomes available. The Company expects to fund the expenditures for these activities from operating cash flow.

With the AOC, financial assurance is required by the EPA to complete the operation, monitoring and maintenance activities in the event we fail to do so. This financial assurance can take a variety of forms including, but not limited to meeting certain financial metrics, providing a letter of credit, or securing a bond or an insurance policy. The amount and method by which the Company will be required to fulfill is expected to be determined by early 2016.

It is the Company’s policy to record liabilities for environmental matters when remedial efforts are probable and the costs can be reasonably estimated. For other environmental matters, please refer to Part I, Item 1 and Item 1A in our 2014 Annual Report on Form 10-K.

Claims, Disputes, and Litigation

The Company is party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims and workers’ compensation claims. The Company believes that the ultimate liability, if any, in excess of amounts already provided for in the condensed consolidated financial statements or covered by insurance on the disposition of these matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

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NOTE P. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In May 2015, the Company redeemed $100,000 and $450,000 of 7.125% Senior Notes held by Lawrence E. Dewey, our Chairman, President and Chief Executive Officer, and David S. Graziosi, our Executive Vice President, Chief Financial Officer and Treasurer, respectively, at the specified redemption price in the governing indenture equal to 103.563% of the principal amount plus any accrued and unpaid interest. Refer to NOTE F for additional details.

NOTE Q. EARNINGS PER SHARE

The Company presents both basic and diluted earnings per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during the reporting period that are calculated using the treasury stock method for stock-based awards. The treasury stock method assumes that the Company uses the proceeds from the exercise of awards to repurchase common stock at the average market price during the period. The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future, compensation cost for future service that the Company has not yet recognized and any tax benefits that would be credited to additional paid-in-capital when the award generates a tax deduction. If there would be a shortfall resulting in a charge to additional paid-in-capital, such an amount would be a reduction of the proceeds to the extent of the gains. The diluted weighted-average common shares outstanding exclude the anti-dilutive effect of certain stock options since such options had an exercise price in excess of the monthly average market value of our common stock. As of September 30, 2015, 0.7 million of outstanding stock options were not included in the diluted EPS computation because they were anti-dilutive.

The following table reconciles the numerators and denominators used to calculate basic EPS and diluted EPS (in millions, except per share data):

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Net income	$	46.5	$	68.8	$	169.3	$	178.1
Weighted average shares of common stock outstanding		174.0		178.8		177.5		179.9
Dilutive effect stock-based awards		1.0		2.1		1.5		2.9
Diluted weighted average shares of common stock outstanding		175.0		180.9		179.0		182.8
Basic earnings per share attributable to common stockholders	$	0.27	$	0.38	$	0.95	$	0.99
Diluted earnings per share attributable to common stockholders	$	0.27	$	0.38	$	0.95	$	0.97

NOTE R. COMMON STOCK

The Company’s current stock repurchase program was announced on October 30, 2014. The Board authorized management to repurchase up to $500.0 million of its common stock on the open market or through privately negotiated transactions through December 31, 2016. The timing and amount of stock repurchases are subject to market conditions and corporate needs. This stock repurchase program may be extended, modified, suspended or discontinued at any time at the Board’s discretion. During the three months and nine months ended September 30, 2015, the Company repurchased approximately $172.2 million and $296.3 million, respectively, of its common stock under the repurchase program. All of the repurchase transactions during the third quarter of 2015 were settled in cash during the same period.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our condensed consolidated interim financial statements and the related notes contained elsewhere in this Quarterly Report on Form 10-Q.

The statements in this discussion regarding industry trends, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A “Risk Factors” below. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

Allison Transmission Holdings, Inc. and its subsidiaries (“Allison,” the “Company” or “we”) 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”.

We have approximately 2,700 employees and 13 different transmission product lines. Although approximately 80% of revenues were generated in North America in 2014, we have a global presence by serving customers in Europe, Asia, South America and Africa. We serve customers through an independent network of approximately 1,400 independent distributor and dealer locations worldwide.

Trends Impacting Our Business

We expect our full year 2015 net sales to decrease year-over-year principally due to increased demand in the North America On-Highway end market being more than offset by the elevated level of uncertainty and dearth of near-term visibility in the global Off-Highway and Service Parts, Support Equipment and Other end markets, previously considered reductions in U.S. defense spending, continued weakness in the Outside North America On-Highway end market and lower demand for North America Hybrid-Propulsion Systems for Transit Bus due to engine emissions improvements and non-hybrid alternatives. We also expect fourth quarter net sales to be lower than the same period in 2014. The anticipated year-over-year decrease in fourth quarter net sales is expected to occur due to lower demand in the global Off-Highway and Defense end markets.

Third Quarter Net Sales by End Market (in millions)

End Market	Q3 2015 Net Sales		Q3 2014 Net Sales		% Variance
North America On-Highway	$	262	$	256		2	%
North America Hybrid-Propulsion Systems for Transit Bus		12		23		(48	%)
North America Off-Highway		12		30		(60	%)
Defense		34		35		(3	%)
Outside North America On-Highway		67		73		(8	%)
Outside North America Off-Highway		4		18		(78	%)
Service Parts, Support Equipment and Other		102		118		(14	%)
Total Net Sales	$	493	$	553		(11	%)

North America On-Highway end market net sales were up 2% for the third quarter 2015 compared to the third quarter 2014, principally driven by higher demand for Highway Series models.

North America Hybrid-Propulsion Systems for Transit Bus end market net sales were down 48% for the third quarter 2015 compared to the third quarter 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).

North America Off-Highway end market net sales were down 60% for the third quarter 2015 compared to the third quarter of 2014, principally driven by lower demand from hydraulic fracturing applications.

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Defense end market net sales were down 3% for the third quarter 2015 compared to the third quarter 2014, 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 8% for the third quarter 2015 compared to the third quarter 2014, principally driven by lower demand in China partially offset by higher demand in Europe.

Outside North America Off-Highway end market net sales were down 78% for the third quarter 2015 compared to the third quarter 2014, principally driven by lower demand in the energy sector.

Service parts, support equipment and other end market net sales were down 14% for the third quarter 2015 compared to the third quarter 2014, principally driven by lower demand for North America service parts.

Key Components of our Results of Operations

Net sales

We generate our net sales primarily from the sale of transmissions, transmission parts, support equipment, defense kits, engineering services, royalties and extended transmission coverage to a wide array of OEMs, distributors and the U.S. government. Sales are recorded net of provisions for customer allowances and other rebates. Engineering services are recorded as net sales in accordance with the terms of the contract. The associated costs are recorded in cost of sales. We also have royalty agreements with third parties that provide net sales as a result of joint efforts in developing marketable products.

Cost of sales

Our primary components of cost of sales are purchased parts, the overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of transmissions and parts. For the nine months ended September 30, 2015, direct material costs were approximately 68%, overhead costs were approximately 25%, and direct labor costs were approximately 7% of total cost of sales. We are subject to changes in our cost of sales caused by movements in underlying commodity prices. We seek to hedge against this risk by using commodity swap contracts and long-term supply agreements (“LTSAs”). See Part I, “Item 3 Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk” included below.

Selling, general and administrative expenses

The principal components of our selling, general and administrative expenses are salaries and benefits for our office personnel, advertising and promotional expenses, product warranty expense, expenses relating to certain information technology systems and amortization of our intangibles.

Engineering — research and development

We incur costs in connection with research and development programs that are expected to contribute to future earnings. Such costs are expensed as incurred.

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Non-GAAP Financial Measures

We use Adjusted net income to measure our overall profitability because we believe 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 accounting principles generally accepted in the United States of America (“GAAP”) and excludes the impact of the non-cash annual amortization of certain intangible assets and other certain non-recurring items. We use 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 to evaluate and control our cash operating costs and to measure our operating profitability. 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 and Adjusted EBITDA margin excluding technology-related license expenses as an alternative to net income, determined in accordance with GAAP, as an indicator of operating performance. You should not consider Adjusted free cash flow as an alternative to net cash provided by operating activities, determined in accordance with GAAP, as an indicator of our cash flow.

A directly comparable GAAP measure to Adjusted net income, Adjusted EBITDA and Adjusted EBITDA excluding technology-related license expenses is Net income. A directly comparable GAAP measure to Adjusted free cash flow is Net cash provided by operating activities. The following is a reconciliation of Net income to Adjusted net income, Adjusted EBITDA, Adjusted EBITDA excluding technology-related license expenses, Adjusted EBITDA margin and Adjusted EBITDA margin excluding technology-related license expenses, and a reconciliation of Net cash provided by operating activities to Adjusted free cash flow:

	For the three months ended September 30,						For the nine months ended September 30,
(unaudited, in millions)	2015			2014			2015			2014
Net income	$	46.5		$	68.8		$	169.3		$	178.1
plus:
Interest expense, net		33.7			29.3			93.7			101.0
Cash interest expense		(21.8	)		(34.7	)		(75.4	)		(103.3	)
Income tax expense		27.3			47.5			99.8			112.2
Cash income taxes		(1.1	)		(0.4	)		(5.0	)		(3.5	)
Amortization of intangible assets		24.3			24.7			72.9			74.1
Environmental remediation (a)		14.0			—			14.0			—
Loss associated with impairment of long-lived assets (b)		—			—			1.3			—
Technology-related investment expense (c)		—			2.0			—			2.0
Public offering expenses (d)		—			0.3			—			1.4
Adjusted net income	$	122.9		$	137.5		$	370.6		$	362.0
Cash interest expense		21.8			34.7			75.4			103.3
Cash income taxes		1.1			0.4			5.0			3.5
Depreciation of property, plant and equipment		22.4			23.6			65.8			71.0
Premiums and expenses on tender offer and redemption of long-term debt (e)		0.2			—			25.3			—
Unrealized loss on foreign exchange (f)		2.8			2.0			1.6			3.4
Unrealized loss (gain) on commodity hedge contracts (g)		0.7			(0.6	)		0.7			(1.7	)
Dual power inverter module units extended coverage (h)		(0.3	)		—			(2.1	)		—
Restructuring charge (i)		—			—			—			0.7
Loss on repayments of long-term debt (j)		—			0.3			0.2			0.3
Other (k)		2.5			3.9			7.2			11.2
Adjusted EBITDA	$	174.1		$	201.8		$	549.7		$	553.7
Adjusted EBITDA excluding technology-related license expenses (l)	$	174.3		$	201.8		$	549.9		$	557.0
Net sales	$	493.0		$	553.3		$	1,507.6		$	1,583.0
Adjusted EBITDA margin		35.3	%		36.5	%		36.5	%		35.0	%
Adjusted EBITDA margin excluding technology-related licenses expenses (l)		35.4	%		36.5	%		36.5	%		35.2	%
Net cash provided by operating activities	$	156.3		$	174.0		$	390.0		$	416.0
(Deductions) or additions to reconcile to Adjusted free cash flow:
Additions of long-lived assets		(15.2	)		(14.9	)		(30.1	)		(37.6	)
Excess tax benefit from stock-based compensation (m)		0.2			5.0			8.2			12.8
Technology-related license expenses (l)		0.2			—			0.2			3.3
Adjusted free cash flow	$	141.5		$	164.1		$	368.3		$	394.5

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

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

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

(d) Represents fees and expenses (recorded in Other expense, net) related to our secondary offerings in September 2014, June 2014, April 2014 and February 2014.

(e) Represents premiums and expenses related to the tender offer and redemption of Allison Transmission, Inc.’s, (“ATI”), our wholly owned subsidiary, 7.125% senior cash pay notes due May 2019 (“7.125% Senior Notes”).

(f) Represents losses (recorded in Other expense, net) on the mark-to-market of our foreign currency hedge contracts and on intercompany financing transactions related to our India facility.

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

(h) 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.

(i) Represents a charge (recorded in Selling, general and administrative, and Engineering—research and development) related to employee headcount reductions in the second quarter of 2014.

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

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

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

(m) 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.

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Results of Operations

Comparison of three months ended September 30, 2015 and 2014

The following table sets forth certain financial information for the three months ended September 30, 2015 and 2014. The following table and discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

	Three months ended September 30,
(unaudited, dollars in millions)	2015			% of net sales			2014			% of net sales
Net sales	$	493.0			—		$	553.3			—
Cost of sales		256.9			52	%		294.0			53	%
Gross profit		236.1			48	%		259.3			47	%
Operating expenses:
Selling, general and administrative expenses		86.6			18			87.5			16
Engineering — research and development		23.6			5			24.5			4
Environmental remediation		14.0			2			—			—
Total operating expenses		124.2			25			112.0			20
Operating income		111.9			23			147.3			27
Other expense, net:
Interest expense, net		(33.7	)		(7	)		(29.3	)		(5	)
Premiums and expenses on tender offer and redemption of long-term debt		(0.2	)		(0	)		—			—
Other expense, net		(4.2	)		(1	)		(1.7	)		(0	)
Total other expense, net		(38.1	)		(8	)		(31.0	)		(5	)
Income before income taxes		73.8			15			116.3			22
Income tax expense		(27.3	)		(6	)		(47.5	)		(9	)
Net income	$	46.5			9	%	$	68.8			13	%

Net sales

Net sales for the quarter ended September 30, 2015 were $493.0 million compared to $553.3 million for the quarter ended September 30, 2014, a decrease of 11%. The decrease was principally driven by a $18.0 million, or 60%, decrease in net sales of North American off-highway products driven by lower demand from hydraulic fracturing applications, a $16.0 million, or 14%, decrease in net sales of parts and other products driven by lower demand for North America service parts, a $14.0 million, or 78%, decrease in net sales of Outside North America off-highway products driven by lower demand from the energy sector, a $11.0 million, or 48%, decrease in net sales of North America hybrid-propulsion systems for transit buses driven by lower demand due to engine emissions improvements and non-hybrid alternatives that generally require a fully-automatic transmission (e.g. xNG), a $6.0 million, or 8%, decrease in net sales of Outside North America on-highway products driven by lower demand in China partially offset by higher demand in Europe and a $1.0 million, or 3%, decrease in net sales of defense products driven by lower U.S. defense spending, partially offset by a $6.0 million, or 2%, increase in net sales of North America on-highway commercial products driven by higher demand from Highway Series models. See “Trends Impacting Our Business” above for additional information on net sales by end markets.

Cost of sales

Cost of sales for the quarter ended September 30, 2015 was $256.9 million compared to $294.0 million for the quarter ended September 30, 2014, a decrease of 13%. The decrease was principally driven by approximately $26.0 million of decreased direct material costs commensurate with decreased sales, $3.4 million of lower incentive compensation, $2.0 million of favorable direct material costs, and lower manufacturing cost commensurate with decreased sales and consistent with historical trends and management’s expectations given the respective change in sales volume.

Gross profit

Gross profit for the quarter ended September 30, 2015 was $236.1 million compared to $259.3 million for the quarter ended September 30, 2014, a decrease of 9%. The decrease was principally driven by $35.0 million related to decreased sales volume, partially offset by $5.0 million of price increases on certain products, $2.0 million of favorable material costs and $3.4 million of lower incentive compensation expense. Gross profit as a percent of net sales increased 1%, principally driven by price increases on certain products and favorable material costs.

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Selling, general and administrative expenses

Selling, general and administrative expenses for the quarter ended September 30, 2015 were $86.6 million compared to $87.5 million for the quarter ended September 30, 2014, a decrease of 1%. The decrease was principally driven by $3.4 million of lower incentive compensation expense, $1.3 million of lower stock-based compensation expense and reduced global commercial spending activities, partially offset by $7.0 million of unfavorable product warranty adjustments.

Engineering — research and development

Engineering expenses for the quarter ended September 30, 2015 were $23.6 million compared to $24.5 million for the quarter ended September 30, 2014, a decrease of 4%. The decrease was principally driven by $1.4 million of lower incentive compensation expense, partially offset by $0.2 million of technology-related license expenses to expand our position in transmission technologies.

Environmental remediation

During the third quarter of 2015, the EPA determined that GM’s environmental remediation activities at our Indianapolis, Indiana manufacturing facilities were complete, resulting in us assuming responsibility for future operating, monitoring and maintenance activities. As of September 30, 2015, we recorded approximately $14.0 million for the related environmental remediation expenses.

Interest expense, net

Interest expense, net for the quarter ended September 30, 2015 was $33.7 million compared to $29.3 million for the quarter ended September 30, 2014, an increase of 15%. The increase was principally driven by $14.6 million of unfavorable mark-to-market adjustments for our interest rate derivatives and $4.0 million of higher interest expense as a result of the addition of $470.0 million to our Term B-3 Loan in April 2015, partially offset by $8.4 million of lower interest expense as a result of the repurchase and redemption of our 7.125% Senior Notes during the second quarter of 2015, $2.7 million of lower interest expense as a result of the maturity of $950.0 million of interest rate derivatives, $1.6 million of lower interest expense as a result of debt repayments, $1.0 million of lower interest expense as a result of lower interest rates on ATI’s Senior Secured Credit Facility Term B-2 Loan due 2017 (“Term B-2 Loan”) and ATI’s Senior Secured Credit Facility Term B-3 Loan due 2019 (“Term B-3 Loan”) (together, the Term B-2 Loan, Term B-3 Loan and revolving credit facility defined as the “Senior Secured Credit Facility”) and $0.5 million of lower amortization of deferred financing charges.

Other expense, net

Other expense, net for the quarter ended September 30, 2015 was $4.2 million compared to $1.7 million for the quarter ended September 30, 2014. The increase in Other expense, net was principally driven by a $2.0 million 2014 gain related to the negotiation of a commercial agreement, $1.2 million of higher foreign exchange losses on intercompany financing, $0.7 million of 2014 Grant Program income, $0.9 million of unrealized losses on derivative contracts and $0.3 million of realized losses on derivative contracts, partially offset by a $2.0 million of 2014 loss on investments in technology-related initiatives, $0.3 million of lower expenses related to debt repayments and $0.3 million of 2014 public offering expenses.

Income tax expense

Income tax expense for the quarter ended September 30, 2015 was $27.3 million resulting in an effective tax rate of 37.0% versus an effective tax rate of 40.8% in the quarter ended September 30, 2014. The change in effective tax rate was principally driven by the change in discrete activity.

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Comparison of nine months ended September 30, 2015 and 2014

The following table sets forth certain financial information for the nine months ended September 30, 2015 and 2014. The following table and discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

	Nine months ended September 30,
(unaudited, dollars in millions)	2015			% of net sales			2014			% of net sales
Net sales	$	1,507.6			—		$	1,583.0			—
Cost of sales		796.0			53	%		862.7			54	%
Gross profit		711.6			47			720.3			46
Operating expenses:
Selling, general and administrative expenses		235.6			16			255.8			16
Engineering — research and development		69.0			4			70.2			5
Environmental remediation		14.0			1			—			—
Loss associated with impairment of long-lived assets		1.3			0			—			—
Total operating expenses		319.9			21			326.0			21
Operating income		391.7			26			394.3			25
Other expense, net:
Interest expense, net		(93.7	)		(6	)		(101.0	)		(7	)
Premiums and expenses on tender offer and redemption of long-term debt		(25.3	)		(2	)		—			—
Other expense, net		(3.6	)		(0	)		(3.0	)		(0	)
Total other expense, net		(122.6	)		(8	)		(104.0	)		(7	)
Income before income taxes		269.1			18			290.3			18
Income tax expense		(99.8	)		(7	)		(112.2	)		(6	)
Net income	$	169.3			11	%	$	178.1			12	%

Net sales

Net sales for the nine months ended September 30, 2015 were $1,507.6 million compared to $1,583.0 million for the nine months ended September 30, 2014, a decrease of 5%. The decrease was principally driven by a $37.0 million, or 11%, decrease in net sales of parts and other products driven by lower demand for North America service parts, a $35.0 million, or 56%, decrease in net sales of Outside North America off-highway products driven by lower demand from the energy and mining sectors, a $30.0 million, or 25%, decrease in net sales of defense products driven by the recognition of previously deferred revenue in 2014 related to shipment of certain tracked transmissions at the request of the U.S. government and lower U.S. defense spending, a $25.0 million, or 33%, decrease in net sales of North America hybrid-propulsion systems for transit buses driven by lower demand due to engine emissions improvements, a $21.0 million, or 32%, decrease in net sales of North American off-highway products driven by lower demand from hydraulic fracturing applications and a $2.0 million, or 1%, decrease in net sales of Outside North America on-highway products driven by lower demand in China partially offset by higher demand in Europe, partially offset by a $75.0 million, or 10%, increase in net sales of North America on-highway commercial products driven by higher demand from Rugged Duty Series and Highway Series models. See “Trends Impacting Our Business” above for additional information on net sales by end markets.

Cost of sales

Cost of sales for the nine months ended September 30, 2015 was $796.0 million compared to $862.7 million for the nine months ended September 30, 2014, a decrease of 8%. The decrease was principally driven by approximately $40.0 million of decreased direct material costs commensurate with decreased sales, $8.0 million of favorable direct material costs, $5.8 million of lower incentive compensation, and lower manufacturing cost commensurate with decreased sales and consistent with historical trends and management’s expectations given the respective change in sales volume.

Gross profit

Gross profit for the nine months ended September 30, 2015 was $711.6 million compared to $720.3 million for the nine months ended September 30, 2014, a decrease of 1%. The decrease was principally driven by $42.0 million related to decreased sales volume, partially offset by $19.0 million of price increases on certain products, $8.0 million of favorable material costs and $5.8 million of lower incentive compensation expense. Gross profit as a percent of net sales increased 1%, principally driven by price increases on certain products and favorable material costs.

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Selling, general and administrative expenses

Selling, general and administrative expenses for the nine months ended September 30, 2015 were $235.6 million compared to $255.8 million for the nine months ended September 30, 2014, a decrease of 8%. The decrease was principally driven by $7.0 million of lower incentive compensation expense, $3.5 million of lower stock-based compensation expense, $3.0 million of favorable product warranty adjustments and reduced global commercial spending activities.

Engineering — research and development

Engineering expenses for the nine months ended September 30, 2015 were $69.0 million compared to $70.2 million for the nine months ended September 30, 2014, a decrease of 2%. The decrease was principally driven by $3.1 million of lower technology-related license expenses to expand our position in transmission technologies and $3.0 million of lower incentive compensation expense, partially offset by increased product initiatives spending.

Environmental remediation

During the third quarter of 2015, the EPA determined that GM’s environmental remediation activities at our Indianapolis, Indiana manufacturing facilities were complete, resulting in us assuming responsibility for future operating, monitoring and maintenance activities. As of September 30, 2015, we recorded approximately $14.0 million for the related environmental remediation expenses.

Loss associated with impairment of long-lived assets

During the first quarter of 2015, we recorded a $1.3 million impairment loss associated with the production of the H3000 and H4000 hybrid-propulsion systems. The loss included $1.0 million of accrued expenses and a $0.3 million impairment of long-lived assets.

Interest expense, net

Interest expense, net for the nine months ended September 30, 2015 was $93.7 million compared to $101.0 million for the nine months ended September 30, 2014, a decrease of 7%. The decrease was principally driven by $18.8 million of lower interest expense as a result of the maturity of $950.0 million of interest rate derivatives, $15.9 million of lower interest expense as a result of the repurchase and redemption of our 7.125% Senior Notes during the second quarter of 2015, $4.5 million of lower interest expense as a result of debt repayments and $2.8 million of lower interest expense as a result of lower interest rates on the Term B-2 Loan and Term B-3 Loan and $1.4 million of lower amortization of deferred financing charges, partially offset by $28.3 million of unfavorable mark-to-market adjustments for our interest rate derivatives and $7.6 million of higher interest expense as a result of the addition of $470.0 million to our Term B-3 Loan in April 2015.

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

In April 2015, we completed a cash tender offer to purchase any and all of our outstanding 7.125% Senior Notes. The tender offer resulted in the repurchase of $420.9 million of our 7.125% Senior Notes in April 2015. In May 2015, we redeemed the remaining $50.4 million of our outstanding 7.125% Senior Notes, resulting in premiums and expenses of $25.3 million for the nine months ended September 30, 2015.

Other expense, net

Other expense, net for the nine months ended September 30, 2015 was $3.6 million compared to 3.0 million for the nine months ended September 30, 2014, an increase of 20%. The increase in Other expense, net was principally driven by $2.1 million of 2014 Grant Program income, a $2.0 million 2014 gain related to the negotiation of a commercial agreement, $2.1 million of unrealized losses on derivative contracts, and $0.7 million of higher miscellaneous expenses, partially offset by a $2.0 million 2014 loss on investments in technology-related initiatives, $1.5 million of lower foreign exchange losses on intercompany financing, $1.4 million of 2014 public offering expenses, $1.3 million of favorable foreign exchange and $0.1 million of lower expenses related to debt repayments.

Income tax expense

Income tax expense for the nine months ended September 30, 2015 was $99.8 million resulting in an effective tax rate of 37.1% versus an effective tax rate of 38.6% for the nine months ended September 30, 2014. The change in effective tax rate was principally driven by the change in discrete activity.

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Liquidity and Capital Resources

We generate cash primarily from our operating activities to fund our operating, investing and financing activities. Our principal uses of cash are operating expenses, capital expenditures, debt service, stock repurchases, dividends on common stock and working capital needs. We had total available cash and cash equivalents of $148.4 million and $263.0 million as of September 30, 2015 and December 31, 2014, respectively. Of the available cash and cash equivalents, approximately $72.4 million and $208.0 million were deposited in operating accounts while approximately $76.0 million and $55.0 million were invested in U.S. government backed securities as of September 30, 2015 and December 31, 2014, respectively.

As of September 30, 2015, the total of cash and cash equivalents held by foreign subsidiaries was $47.5 million, the majority of which was located in Europe, India and China. The geographic location of our cash aligns with our business growth strategy. We manage our worldwide cash requirements considering available funds among the subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. As a result, we do not anticipate any local liquidity restrictions to preclude us from funding our targeted expectations or operating needs with local resources.

If we distribute our foreign cash balance to the U.S. or to other foreign subsidiaries, we could be required to accrue and pay U.S. taxes. For example, we would be required to accrue and pay additional U.S. taxes if we repatriate cash from certain foreign subsidiaries whose earnings we have asserted are permanently reinvested outside of the U.S. Foreign earnings for which we assert permanent reinvestment outside the U.S. consists primarily of earnings of our Europe and China subsidiaries. We currently do not foresee a need to repatriate any earnings from these subsidiaries for which we have asserted permanent reinvestment.

Our liquidity requirements are significant, primarily due to our debt service requirements. In March 2015, we commenced a cash tender offer to purchase our outstanding 7.125% Senior Notes. The total principal amount accepted for purchase in April 2015 was $420.9 million. In April 2015, we also entered into an amendment with the term loan lenders under our Senior Secured Credit Facility to add an additional $470.0 million of term loans under the Term B-3 Loan. A portion of the proceeds from the additional term loans were used to purchase $420.9 million of the tendered 7.125% Senior Notes plus accrued and unpaid interest, applicable premiums and expenses. The purchase resulted in a loss (the premium between the purchase price of the notes and the face value of such notes) of $22.7 million including deferred financing fees written off. In May 2015, we redeemed the remaining $50.4 million of our outstanding 7.125% Senior Notes, at the redemption price equal to 103.563% of the principal amount plus any accrued and unpaid interest, using the remaining proceeds from the additional term loans and cash on hand, resulting in a loss (the premium between the purchase price of the notes and the face value of such notes) of $2.4 million including deferred financing fees written off.

As of September 30, 2015, we had $189.0 million of indebtedness associated with our Term B-2 Loan and $2,220.0 million of indebtedness associated with our Term B-3 Loan. Our ability to make payments on and to refinance our indebtedness, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control. We made principal payments of $5.6 million and $110.2 million on the Senior Secured Credit Facility for the three months and nine months ended September 30, 2015, respectively.

The Senior Secured Credit Facility also provides for $465.0 million, net of an allowance for up to $75.0 million in outstanding letters of credit commitments. As of September 30, 2015, we had $455.3 million available under the revolving credit facility, net of $9.7 million in letters of credit. Additionally within the terms of the Senior Secured Credit Facility, a senior secured leverage ratio at or below 3.50x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. The Senior Secured Credit Facility provides certain financial incentives based on our total leverage ratio. A total leverage ratio at or below 4.00x results in a 25 basis point reduction to the applicable margin on our revolving credit facility, and a total leverage ratio at or below 3.50x results in a 12.5 basis point reduction to the revolving credit facility commitment fee and an additional 25 basis point reduction to the applicable margin on our revolving credit facility. A total leverage ratio at or below 3.25x results in a 25 basis point reduction to the applicable margin on our Term B-3 Loan. These reductions would remain in effect as long as we achieve a total leverage ratio at or below the related threshold. As of September 30, 2015, the total leverage ratio was 3.08x.

In addition to the maximum total senior secured leverage ratio for the revolving portion of the Senior Secured Credit Facility, the Senior Secured Credit Facility includes, among other things, customary restrictions (subject to certain exceptions) on our ability to incur certain indebtedness or liens, make certain investments, declare or pay certain dividends or repurchase shares of our common stock. As of September 30, 2015, we are in compliance with all covenants under the Senior Secured Credit Facility.

Our credit ratings are reviewed regularly by major debt ratings agencies such as Standard and Poor’s, Moody’s Investors Service and Fitch Ratings. In March 2015, Standard and Poor’s raised the corporate rating to ‘BB’ from ‘BB-’ and assigned ‘BB+’ to the incremental Term B-3 loan. Moody’s raised the corporate rating to ‘Ba2’ from ‘Ba3’ and assigned ‘Ba2’ to the incremental Term B-3 loan. Fitch ratings assigned ‘BB’ to the incremental Term B-3 loan and raised the corporate rating to ‘BB+’ from ‘BB’.

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On October 30, 2014, our Board of Directors authorized us to repurchase up to $500.0 million of our common stock under a stock repurchase program. For the three and nine months ended September 30, 2015, we repurchased approximately $172.2 million and $296.3 million, respectively, of our common stock under the repurchase program. All of the repurchase transactions during the third quarter of 2015 were settled in cash during the same period.

The following table shows our sources and uses of funds for the nine months ended September 30, 2015 and 2014 (in millions):

	Nine months ended September 30,
Statement of Cash Flows Data	2015			2014
Cash flows from operating activities	$	390.0		$	416.0
Cash flows used for investing activities	$	(31.8	)	$	(41.4	)
Cash flows used for financing activities	$	(485.2	)	$	(357.6	)

Generally, cash provided by operating activities has been adequate to fund our operations. Due to fluctuations in our cash flows and the growth in our operations, it may be necessary from time to time in the future to borrow under the Senior Secured Credit Facility to meet cash demands. We anticipate cash provided by operating activities, cash and cash equivalents and borrowing capacity under the Senior Secured Credit Facility will be sufficient to meet our cash requirements for the next twelve months.

Cash provided by operating activities

Operating activities for the nine months ended September 30, 2015 generated $390.0 million of cash compared to $416.0 million for the nine months ended September 30, 2014. The decrease was principally driven by decreased net sales, higher inventories and lower accounts payable commensurate with decreased net sales and lower other liabilities, net, partially offset by lower accounts receivable commensurate with decreased net sales, lower incentive compensation and lower interest expense as a result of debt repayments and refinancing.

Cash used for investing activities

Investing activities for the nine months ended September 30, 2015 used $31.8 million of cash compared to $41.4 million for the nine months ended September 30, 2014. The decrease was principally driven by a decrease of $7.5 million in capital expenditures and $3.9 million of lower investments in technology-related initiatives. The decrease in capital expenditures was principally driven by the timing of spending on productivity and replacement programs, and lower product initiatives spending.

Cash used for financing activities

Financing activities for the nine months ended September 30, 2015 used $485.2 million of cash compared to $357.6 million of cash for the nine months ended September 30, 2014. The increase was principally driven by an increase of $46.5 million of repurchases of our common stock, $43.0 million of increased payments related to our long-term debt, $15.3 million of increased dividend payments and $6.7 million of increased debt financing fees associated with our amendment to our Senior Secured Credit Facility in the second quarter of 2015.

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Contingencies

We are a party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business, including those relating to commercial transactions, product liability, safety, health, taxes, environmental and other matters. For more information, see NOTE O of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Significant Accounting Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of net sales and expenses during the applicable reporting period. Differences between actual amounts and estimates are recorded in the period identified. Estimates can require a significant amount of judgment, and a different set of judgments could result in changes to our reported results. A summary of our critical accounting estimates is included below.

Revenue Recognition

Revenue recognition contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the amount of sales incentives and provision for government price reductions. Distributor and customer sales incentives, consisting of allowances and other rebates, are estimated at the time of sale based upon history and experience and are recorded as a reduction to net sales. Incentive programs are generally product specific or region specific. Some factors used in estimating the cost of incentives include the number of transmissions that will be affected by the incentive program and the rate of acceptance of any incentive program. If the actual number of affected transmissions differs from this estimate, or if a different mix of incentives is actually paid, the impact on net sales would be recorded in the period that the change was identified. Assuming our current mix of sales incentives, a 10% change in sales incentives would have affected our earnings by approximately $6.0 million to $7.0 million per year for each of the prior three fiscal years.

Under terms of the U.S. government contracts, there are certain price reduction clauses and provisions for potential price reductions which are estimated at the time of sale based upon history and experience, and finalized after completion of U.S. government audits. Potential reductions may be attributed to a change in projected sales volumes or plant efficiencies which impact overall costs. Assuming our current level of government contracts, a 10% adjustment in our price reduction reserve, would have affected our earnings by approximately $5.0 million to $6.0 million per year for each of the prior three fiscal years.

Further information is provided in NOTE 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014.

Goodwill and Other Intangible Assets

Goodwill is tested for impairment at the reporting unit level, which is the same as our one operating and reportable segment. We have elected to perform our annual impairment test on October 31 of every year. A multi-step impairment test is performed on goodwill. In Step 0, we have the option to evaluate various qualitative factors to determine the likelihood of impairment. If we determine that the fair value is more likely than not less than the carrying value, then we are required to perform Step 1. If we do not elect to perform Step 0, we can voluntarily proceed directly to Step 1. In Step 1, we perform a quantitative analysis to compare the fair value of our reporting unit to our carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired, and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform Step 2 of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.

Our qualitative assessment contains uncertainties because it requires management to make assumptions and to apply judgment to assess business changes, economic outlook, financial trends and forecasts, growth rates, credit ratings, equity ratings, discount rates, industry data and other relevant qualitative factors.

Our quantitative analysis contains uncertainties because it is performed utilizing a discounted cash flow model which includes key assumptions, such as net sales growth derived from market information, industry reports, marketing programs and future new product introductions; operating margin improvements derived from cost reduction programs and fixed cost leverage driven by higher sales volumes; and a risk-adjusted discount rate.

Events or circumstances that could unfavorably impact the key assumptions include lower net sales driven by market conditions, our inability to execute on marketing programs and/or a delay in the introduction of new products, lower gross margins as a result of market conditions or failure to obtain forecasted cost reductions, or a higher discount rate as a result of market conditions.

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Goodwill impairment testing for 2014 was performed by assessing certain qualitative trends and factors. These trends and factors were compared to, and based on, the assumptions used in the quantitative assessment performed in 2013. Our 2013 impairment test indicated that our fair value of the reporting unit exceeded its carrying value by approximately 90%, indicating no impairment. After reviewing the various qualitative factors mentioned above, our 2014 annual goodwill impairment test indicated that the fair value of the reporting unit more likely than not exceeded its carrying value, indicating no impairment.

Other intangible assets have both indefinite and finite useful lives. Intangible assets with indefinite useful lives, such as our trade name, are not amortized but are tested annually for impairment. We have elected to perform our annual trade name impairment test on October 31 of every year and follow a similar multi-step impairment test that is performed on goodwill. Events or circumstances that could unfavorably impact the key assumptions include lower net sales driven by market conditions, our inability to execute on marketing programs and/or a delay in introduction of new products, and higher discount rate as a result of market conditions. While unpredictable and inherently uncertain, we believe the forecast estimates are reasonable and incorporate those assumptions that similar market participants would use in their estimates of fair value. Our 2013 trade name impairment test indicated that our fair value of the trade name exceeded the carrying value by approximately 8%, indicating no impairment. After reviewing the various qualitative factors mentioned above, our 2014 trade name impairment test indicated that the fair value of our trade name more likely than not exceeded the respective carrying value, indicating no impairment.

Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment when circumstances change that would create a triggering event. Assumptions and estimates about future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors, such as changes in our business strategy and internal forecasts. Although management believes the historical assumptions and estimates are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results.

Further information is provided in NOTE 2 and NOTE 5 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014.

Impairment of Long-Lived Assets

The carrying value of long-lived assets is evaluated whenever events or circumstances indicate that the carrying value of a long-lived asset may not be recoverable. Events or circumstances that would result in an impairment review primarily include a significant change in the use of an asset, or the planned sale or disposal of an asset. The asset would be considered impaired when there is no future use planned for the asset or the future net undiscounted cash flows generated by the asset or asset group are less than its carrying value. An impairment loss would be recognized based on the amount by which the carrying value exceeds fair value.

Assumptions and estimates used to determine cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in an impairment charge.

As a result of events and circumstances in the fourth quarter of 2014, we reviewed certain of our long-lived assets related to the production of the H3000 and H4000 hybrid-propulsion systems, resulting in a $15.4 million loss recorded for the year ended December 31, 2014. The loss, determined by using future net discounted cash flows, included approximately $1.7 million of accrued expenses related to the impairment of the long-lived assets. Deteriorating market conditions for hybrid-propulsion vehicles, principally as a result of decreased fuel costs, alternative fuels and other technologies, significantly contributed to the future cash flows of the related assets being less than the carrying value of those assets.

Warranty

Provisions for estimated expenses related to product warranties are made at the time products are sold. Warranty claims arise when a transmission fails while in service during the relevant warranty period. The warranty reserve is adjusted in Selling, general and administrative expenses based on our current and historical warranty claims paid and associated repair costs. These estimates are established using historical information including the nature, frequency, and average cost of warranty claims and are adjusted as actual information becomes available. From time to time, we may initiate a specific field action program. As a result of the uncertainty surrounding the nature and frequency of specific field action programs, the liability for such programs is recorded when we commit to an action. We review and assess the liability for these programs on a quarterly basis. We also assess our ability to recover certain costs from our suppliers and record a receivable from the supplier when we believe a recovery is probable. Warranty costs may differ from those estimated if actual claim rates are higher or lower than our historical rates. Further information is provided in NOTE 9 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014 which contains a summary of the activity in our warranty liability account for 2014 and 2013 including adjustments to pre-existing warranties.

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Pension and Post-retirement Benefit Plans

Pension and other post-retirement benefits (“OPEB”) costs are based upon various actuarial assumptions and methodologies as prescribed by authoritative accounting guidance. These assumptions include discount rates, expected return on plan assets, health care cost trend rates, inflation, rate of compensation increases, population demographics, mortality rates and other factors. We review all actuarial assumptions on an annual basis.

A change in the discount rate can have a significant impact on determining our benefit obligations. Our current discount rate is determined by matching the plans’ projected cash flows to a yield curve based on long-term, fixed income debt instruments available as of the measurement date of December 31, 2014. The effect of a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2014 defined benefit pension plans obligation of approximately $20.0 million. Similarly, a one percentage point decrease in the assumed discount rate would result in an increase in the December 31, 2014 OPEB obligation of approximately $23.7 million.

Further information is provided in NOTE 13 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014, which contains our review on various actuarial assumptions.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The future tax benefits associated with operating loss and tax credit carryforwards are recognized as deferred tax assets. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Excluding net operating loss carryforwards, our expected tax payments would have increased by approximately $40.0 million for the year ended December 31, 2014. If we continue to generate taxable income, we expect to utilize the remaining U.S. federal net operating loss carryforwards as early as the first quarter of 2016.

The need to establish a valuation allowance against the deferred tax assets is assessed periodically based on a more-likely-than-not realization threshold, in accordance with the FASB’s authoritative accounting guidance on income taxes. Appropriate consideration is given to all positive and negative evidence related to that realization. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carryforward periods, and experience with tax attributes expiring unused and tax planning alternatives. The weight given to these considerations depends upon the degree to which they can be objectively verified.

Further information on income taxes is provided in NOTE 15 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

Refer to NOTE B, “Summary of Significant Accounting Policies” in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Certain Relationships and Related Party Transactions

In May 2015, we redeemed $100,000 and $450,000 of 7.125% Senior Notes held by Lawrence E. Dewey, our Chairman, President and Chief Executive Officer, and David S. Graziosi, our Executive Vice President, Chief Financial Officer and Treasurer, respectively, at the specified redemption price in the governing indenture equal to 103.563% of the principal amount plus any accrued and unpaid interest. Refer to NOTE F in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. 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; general economic and industry conditions; our ability to prepare for, respond to and successfully achieve our objectives relating to technological and market developments and changing customer needs; the failure of markets outside North America to increase adoption of fully-automatic transmissions; risks related to our substantial indebtedness; 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; the concentration of our net sales in our top five customers and the loss of any one of these; risks associated with our international operations; brand and reputational risks; our intention to pay dividends and repurchase shares of our common stock; and labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal customers.

Important factors that could cause actual results to differ materially from our expectations are disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on February 20, 2015. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk consists of changes in interest rates, foreign currency rate fluctuations and movements in commodity prices.

Interest Rate Risk

We are subject to interest rate market risk in connection with a portion of our long-term debt. Our principal interest rate exposure relates to outstanding amounts under our Senior Secured Credit Facility. Our Senior Secured Credit Facility provides for variable rate borrowings of up to $2,864.2 million including $455.3 million under our revolving credit facility, net of $9.7 million of letters of credit. A one-eighth percent change in assumed interest rates for the Senior Secured Credit Facility, if fully drawn, as of September 30, 2015 would have an impact of approximately $0.8 million on interest expense with the 1.00% LIBOR floor in effect on our Term B-3 Loan. Should LIBOR exceed 1.00%, a one-eighth percent change in assumed interest rates for the Senior Secured Credit Facility, if fully drawn, as of September 30, 2015 would have an impact of approximately $3.6 million on interest expense. As of September 30, 2015, we had no outstanding borrowings against the revolving credit facility.

From time to time, we enter into interest rate swap agreements to hedge our variable interest rate debt. Below is a list of our interest rate swaps as of September 30, 2015:

	Counterparty	Effective Date		Notional Amount (in millions)		LIBOR Fixed Rate
Interest Rate Swap L	Barclays		Aug 2016 - Aug 2019	$	75.0		3.44	%*
Interest Rate Swap M	JP Morgan		Aug 2016 - Aug 2019	$	100.0		3.43	%*
Interest Rate Swap N	Bank of America		Aug 2016 - Aug 2019	$	75.0		3.37	%*
Interest Rate Swap O	Deutsche Bank		Aug 2016 - Aug 2019	$	75.0		3.19	%*
Interest Rate Swap P	Barclays		Aug 2016 - Aug 2019	$	75.0		3.08	%*
Interest Rate Swap Q	Barclays		Aug 2016 - Aug 2019	$	50.0		2.99	%*
Interest Rate Swap R	Deutsche Bank		Aug 2016 - Aug 2019	$	50.0		2.98	%*
Interest Rate Swap S	Deutsche Bank		Aug 2016 - Aug 2019	$	50.0		2.73	%*
Interest Rate Swap T	Bank of America		Aug 2016 - Aug 2019	$	75.0		2.74	%*
Interest Rate Swap U	Fifth Third Bank		Aug 2016 - Aug 2019	$	50.0		2.66	%*
Interest Rate Swap V	Fifth Third Bank		Aug 2016 - Aug 2019	$	50.0		2.60	%*
Interest Rate Swap W	Fifth Third Bank		Aug 2016 - Aug 2019	$	25.0		2.40	%*
Interest Rate Swap X	Huntington Bank		Aug 2016 - Aug 2019	$	50.0		2.25	%*

* includes LIBOR floor of 1.00%

We are exposed to increased interest expense if a counterparty defaults. Refer to NOTE F and NOTE G of the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Exchange Rate Risk

While our net sales and costs are denominated primarily in U.S. Dollars, net sales, costs, assets and liabilities are generated in other currencies including Japanese Yen, Euro, Indian Rupee, Brazilian Real, Chinese Yuan Renminbi, Canadian Dollar and Hungarian Forint. The expansion of our business outside North America may further increase the risk that cash flows resulting from these activities may be adversely affected by changes in currency exchange rates. As of September 30, 2015, we hold hedging contracts in the Japanese Yen, which are intended to hedge either known or forecasted cash flow payments denominated in the currency. We do not hold financial instruments for trading or speculative purposes.

Assuming current levels of foreign currency transactions, a 10% aggregate increase or decrease in the Japanese Yen, Euro, Indian Rupee, Chinese Yuan Renminbi and Canadian Dollar would correspondingly change our earnings by an estimated $3 million per year. This includes the partial offset of our hedging contracts described above. All other exposure to foreign currencies is considered immaterial.

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Commodity Price Risk

We are subject to changes in our cost of sales caused by movements in underlying commodity prices. Approximately two-thirds of our cost of sales consists of purchased components with significant raw material content. A substantial portion of the purchased parts are made of aluminum and steel. The cost of aluminum parts include an adjustment factor on future purchases for fluctuations in aluminum prices based on accepted industry indices. In addition, a substantial amount of steel-based contracts also include an index-based component. As our costs change, we are able to pass through a portion of the changes in commodity prices to certain of our customers according to our LTSAs. We historically have not entered into long-term purchase contracts related to the purchase of aluminum and steel. We currently hold financial forward contracts that are intended to hedge forecasted aluminum purchases. Based on our forecasted demand for 2015 and 2016, as of September 30, 2015, the hedge contracts cover approximately 29% and 28% of our aluminum requirements, respectively. We do not hold financial instruments for trading or speculative purposes.

Assuming current levels of commodity purchases, a 10% increase or decrease in the price of aluminum and steel would correspondingly change our earnings by approximately $2 million and $4 million per year, respectively. This includes the partial offset of our hedging contracts described above.

Many of our LTSAs have incorporated a cost-sharing arrangement related to potential future commodity price fluctuations. Our hedging policy is that we hedge our exposure and do not hedge any portion of the customers’ exposure. For purposes of the sensitivity analysis above, the impact of these cost sharing arrangements has not been included.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

36

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are a party to various legal actions in the normal course of our business, including those related to commercial transactions, product liability, safety, health, taxes, environmental and other matters. See NOTE O in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

There have been no material changes from our risk factors as previously reported in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on February 20, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information related to our repurchases of our common stock on a monthly basis in the three months ended September 30, 2015:

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans(1)
July 2015		2,987,988	$	29.07		2,987,988	$	289,057,046
August 2015		669,562	$	28.94		669,562	$	269,679,930
September 2015		2,338,357	$	28.18		2,338,357	$	203,773,549
Total		5,995,907	$	28.71		5,995,907

⁽¹⁾  These values reflect repurchases made under the stock repurchase program approved by our Board of Directors on October 30, 2014 authorizing $500 million of repurchases through December 31, 2016.

37

Item 6. Exhibits

(a) Exhibits

Exhibit Number	Description
10.39	Amendment No. 11 to the Credit Agreement, dated as of April 7, 2015, among Allison Transmission Holdings, Inc., Allison Transmission, Inc., as Borrower, the several banks and other financial institutions or entities from time to time parties thereto as Lenders, Citicorp North America, Inc., as Administrative Agent and the other agents and arrangers parties thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed April 7, 2015)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1	Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Indicates a management contract or compensatory plan or arrangement.

38

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 thereunto duly authorized.

	ALLISON TRANSMISSION HOLDINGS, INC.
Date: October 27, 2015	By:	/s/ Lawrence E. Dewey
		Name:	Lawrence E. Dewey
		Title:	Chairman, President and Chief Executive Officer
Date: October 27, 2015	By:	/s/ David S. Graziosi
		Name:	David S. Graziosi
		Title:	Executive Vice President, Chief Financial Officer and Treasurer (Principal Accounting Officer)

39

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Lawrence E. Dewey, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Allison Transmission Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15I and 15d-15I) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: October 27, 2015

/s/ Lawrence E. Dewey

Name: Lawrence E. Dewey

Title:   Chairman, President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, David S. Graziosi, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Allison Transmission Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: October 27, 2015

/s/ David S. Graziosi

Name: David S. Graziosi

Title:   Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Allison Transmission Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ending September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Lawrence E. Dewey, Chairman, President and Chief Executive Officer of the Company, and David S. Graziosi, Executive Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. § 1350 as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 27, 2015

/s/ Lawrence E. Dewey

Lawrence E. Dewey

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

Dated: October 27, 2015

/s/ David S. Graziosi

David S. Graziosi

Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

XML

Components of Inventories (Detail) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Inventory [Line Items]
Purchased parts and raw materials	$ 69.2	$ 72.3
Work in progress	5.8	6.1
Service parts	45.8	46.5
Finished goods	34.5	18.6
Total inventories	$ 155.3	$ 143.5

XML

Product Warranty Liability Activities (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Guarantor Obligations [Line Items]
Beginning balance	$ 73.7	$ 86.7	$ 83.6	$ 90.5
Payments	(7.7)	(7.9)	(24.0)	(27.0)
Increase in liability (warranty issued during period)	5.0	7.2	16.2	20.0
Net adjustments to liability	10.8	(0.7)	5.8	1.5
Accretion (for Predecessor liabilities)	0.1	0.1	0.3	0.4
Ending balance	$ 81.9	$ 85.4	$ 81.9	$ 85.4

XML

Summary of Company's Interest Rate Derivatives (Parenthetical) (Detail) - Derivatives not designated as hedging instruments	9 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
LIBOR
Derivatives, Fair Value [Line Items]
LIBOR floor	1.00%	1.00%
Interest Rate Swap L
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	3.44%	3.44%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap M
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	3.43%	3.43%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap N
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	3.37%	3.37%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap O
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	3.19%	3.19%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap P
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	3.08%	3.08%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap Q
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	2.99%	2.99%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap R
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	2.98%	2.98%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap S
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	2.73%	2.73%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap T
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	2.74%	2.74%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap U
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	2.66%	2.66%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap V
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	2.60%	2.60%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap W
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	2.40%	2.40%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08
Interest Rate Swap X
Derivatives, Fair Value [Line Items]
Derivative, Fixed Interest Rate	2.25%	2.25%
Derivative, Maturity Date, Range Start	2016-08
Derivative, Maturity Date, Range End	2019-08

XML

Debt - Additional Information (Detail)		1 Months Ended		3 Months Ended			9 Months Ended
	Apr. 07, 2015 USD ($) $ / Note	May. 31, 2015 USD ($)	Apr. 30, 2014	Sep. 30, 2015 USD ($)	Mar. 31, 2015 USD ($)	Sep. 30, 2014 USD ($)	Sep. 30, 2015 USD ($)	Jun. 30, 2015	Sep. 30, 2014 USD ($)	Dec. 31, 2014 USD ($)
Debt Instrument [Line Items]
Total long-term debt				$ 2,409,000,000			$ 2,409,000,000			$ 2,520,500,000
Fair value of long-term debt obligations				2,408,700,000			2,408,700,000
Aggregate principal amount of senior notes	$ 470,000,000
Line of credit facility amendment terms	The amendment also, among other things, (i) permits prepayment, repurchase or redemption of Allison's 7.125% Senior Notes with the proceeds of the financing and (ii) resets the period for which a prepayment premium of 1.00% will apply in the event of a repricing transaction to the six-month anniversary of the closing date of the financing.
Tendered notes consideration per $1000 | $ / Note	1,042
Loss on offering of debt instrument	$ 22,700,000					$ 300,000	200,000		$ 300,000
Debt issuance costs	7,700,000						29,900,000
Debt Instrument redeemed amount		$ 50,400,000
Percentage of principal amount redeemed		103.563%
Long-term debt repayment							110,200,000		$ 88,400,000
Total leverage ratio								3.08%
Revolving Credit Facility
Debt Instrument [Line Items]
Revolving credit borrowings										465,000,000
Maximum amount of letters of credit commitments available under the revolving credit facility										75,000,000
Available revolving credit facility				455,300,000			455,300,000
Letters of Credit				$ 9,700,000			$ 9,700,000
Revolving credit borrowings, interest rate				1.63%			1.63%
Line of Credit Facility, commitment fee percentage							0.25%
Maturity date of revolving credit borrowings							2019-01
Required senior secured leverage ratio								5.50%
Achieved senior secured leverage ratio								3.08%
Minimum senior secured leverage ratio								3.50%
Basis point reduction to applicable margin, resulting from total leverage ratio below minimum								0.25%
Basis point reduction to commitment fee, resulting from total leverage ratio below minimum								0.125%
Line of Credit
Debt Instrument [Line Items]
Weighted average rate on the Senior Secured Credit Facility				3.46%			3.46%
Fixed 7.125% Senior Notes
Debt Instrument [Line Items]
Cash tender offer date to acquire outstanding senior notes					Mar. 18, 2015
Aggregate principal amount of senior notes					$ 420,900,000
Loss on offering of debt instrument		$ 2,400,000
Senior Secured Credit Facility Term B-2 Loan, variable, due 2017
Debt Instrument [Line Items]
Total long-term debt				$ 189,000,000			$ 189,000,000			283,600,000
Loss on offering of debt instrument				$ 200,000
Variable interest rate, description							Interest on the Term B-2 Loan, as of September 30, 2015, is at the Company's option, either (a) 2.75% over the LIBOR or (b) 1.75% over the greater of the prime lending rate provided by the British Banking Association or the federal funds effective rate published by the Federal Reserve Bank of New York plus 0.50%.
Total interest rate for term loan				2.95%			2.95%
Debt instrument, due date							2017
Long-term debt repayment				$ 0			$ 94,600,000
Senior Secured Credit Facility Term B-2 Loan, variable, due 2017 | LIBOR
Debt Instrument [Line Items]
Applicable margin over base rate			2.75%
Senior Secured Credit Facility Term B-2 Loan, variable, due 2017 | Prime Rate or Federal Funds Rate
Debt Instrument [Line Items]
Applicable margin over base rate			1.75%
Senior Secured Credit Facility Term B-2 Loan, variable, due 2017 | Federal Funds Rate
Debt Instrument [Line Items]
Applicable margin over base rate			0.50%
Senior Secured Credit Facility Term B-3 Loan, variable, due 2019
Debt Instrument [Line Items]
Total long-term debt				$ 2,220,000,000			$ 2,220,000,000			$ 1,765,600,000
Senior Secured Credit Facility	$ 470,000,000
Variable interest rate, description							Interest on the Term B-2 Loan, as of September 30, 2015, is at the Company's option, either (a) 2.75% over the LIBOR or (b) 1.75%
Total interest rate for term loan				3.50%			3.50%
Principal payments on term loans							$ 5,600,000
Debt instrument, due date							2019
Basis point reduction to applicable margin, resulting from total leverage ratio below minimum								0.25%
Total leverage ratio								3.25%

XML

OTHER CURRENT LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2015

Summary of Other Current Liabilities

Other current liabilities consist of the following (dollars in millions):

	As of September 30, 2015		As of December 31, 2014
Payroll and related costs	$	30.8	$	50.9
Sales allowances		25.5		25.5
Vendor buyback obligation		11.8		13.2
Taxes payable		11.5		8.5
Defense price reduction reserve		10.1		16.2
Derivative liabilities		2.7		0.8
Accrued interest payable		0.6		5.2
Environmental liabilities		0.5		—
Other accruals		11.5		11.4
Total	$	105.0	$	131.7

XML

Deferred Revenue for ETC Activity (Detail) - Extended Transmission Coverage - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Deferred Revenue [Line Items]
Beginning balance	$ 74.7	$ 66.8	$ 69.0	$ 63.6
Increases	7.2	6.3	23.7	20.1
Revenue earned	(5.4)	(5.1)	(16.2)	(15.7)
Ending balance	$ 76.5	$ 68.0	$ 76.5	$ 68.0

XML

INVENTORIES (Tables)

9 Months Ended

Sep. 30, 2015

Components of Inventories

Inventories consisted of the following components (dollars in millions):

	September 30, 2015		December 31, 2014
Purchased parts and raw materials	$	69.2	$	72.3
Work in progress		5.8		6.1
Service parts		45.8		46.5
Finished goods		34.5		18.6
Total inventories	$	155.3	$	143.5

XML

Summary of Outstanding Commodity Swaps (Detail) - Derivatives not designated as hedging instruments	9 Months Ended	12 Months Ended
	Sep. 30, 2015 USD ($) MMBTU t	Dec. 31, 2014 USD ($) MMBTU t
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount	$ 800,000,000	$ 750,000,000
Fair value	32,900,000	15,400,000
Commodity contracts
Derivative Instruments, Gain (Loss) [Line Items]
Fair value	(1,400,000)	(700,000)
Commodity contracts | Aluminum
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount	$ 9,200,000	$ 11,300,000
Quantity | t	5,000	6,200
Fair value	$ (1,400,000)	$ (700,000)
Commodity contracts | Natural Gas
Derivative Instruments, Gain (Loss) [Line Items]
Notional Amount	$ 300,000	$ 200,000
Quantity | MMBTU	100,000	60,000
Fair value	$ 0	$ 0

XML

Expected Amortization Expense Related to Other Intangible Assets (Detail) $ in Millions	Sep. 30, 2015 USD ($)
Finite-Lived Intangible Assets
2016	$ 92.4
2017	89.7
2018	87.2
2019	85.7
2020	49.9
Thereafter	$ 140.6

XML

Overview - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2015 Customer Employee Product
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Transmission product lines	13
Worldwide independent distributor and dealer locations | Customer	1,400
Number of employees | Employee	2,700
Sales Revenue, Net | North America | Geographic Concentration Risk
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Concentration of risk, percentage	80.00%

XML

Derivatives - Additional Information (Detail) - Derivatives not designated as hedging instruments - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Commodity contracts | Other current liabilities
Derivative [Line Items]
Derivative Liability, Fair Value	$ (1.0)	$ (0.6)
Commodity contracts | Other non-current liabilities
Derivative [Line Items]
Derivative Liability, Fair Value	(0.4)	$ (0.1)
Interest rate contracts | Other current liabilities
Derivative [Line Items]
Derivative Liability, Fair Value	(1.8)
Interest rate contracts | Other non-current liabilities
Derivative [Line Items]
Derivative Liability, Fair Value	$ (29.8)

XML

Reconciliation of Numerators and Denominators Used to Calculate Basic EPS and Diluted EPS (Detail) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Computation of Earnings Per Share [Line Items]
Net income	$ 46.5	$ 68.8	$ 169.3	$ 178.1
Weighted average shares of common stock outstanding	174.0	178.8	177.5	179.9
Dilutive effect stock-based awards	1.0	2.1	1.5	2.9
Diluted weighted average shares of common stock outstanding	175.0	180.9	179.0	182.8
Basic earnings per share attributable to common stockholders	$ 0.27	$ 0.38	$ 0.95	$ 0.99
Diluted earnings per share attributable to common stockholders	$ 0.27	$ 0.38	$ 0.95	$ 0.97

XML

Income Taxes - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Income Taxes [Line Items]
Effective tax rate	37.00%	40.80%	37.10%	38.60%
Income tax expense	$ 27.3	$ 47.5	$ 99.8	$ 112.2
Income tax examination statute of limitations period			3 years
Liability for unrecognized tax benefit related to 2010 research and development credit			$ 2.3		$ 2.3

XML

Summary of Company's Interest Rate Derivatives (Detail) - Derivatives not designated as hedging instruments - USD ($)		Sep. 30, 2015	Dec. 31, 2014
Derivatives, Fair Value [Line Items]
Notional Amount		$ 800,000,000	$ 750,000,000
Fair Value		(31,600,000)	(14,400,000)
Interest Rate Swap L
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	75,000,000	75,000,000
Fair Value	[1]	(3,900,000)	(2,300,000)
Interest Rate Swap M
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	100,000,000	100,000,000
Fair Value	[1]	(5,200,000)	(3,000,000)
Interest Rate Swap N
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	75,000,000	75,000,000
Fair Value	[1]	(3,700,000)	(2,100,000)
Interest Rate Swap O
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	75,000,000	75,000,000
Fair Value	[1]	(3,400,000)	(1,700,000)
Interest Rate Swap P
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	75,000,000	75,000,000
Fair Value	[1]	(3,100,000)	(1,500,000)
Interest Rate Swap Q
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	50,000,000	50,000,000
Fair Value	[1]	(2,000,000)	(900,000)
Interest Rate Swap R
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	50,000,000	50,000,000
Fair Value	[1]	(1,900,000)	(900,000)
Interest Rate Swap S
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	50,000,000	50,000,000
Fair Value	[1]	(1,600,000)	(500,000)
Interest Rate Swap T
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	75,000,000	75,000,000
Fair Value	[1]	(2,400,000)	(800,000)
Interest Rate Swap U
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	50,000,000	50,000,000
Fair Value	[1]	(1,500,000)	(400,000)
Interest Rate Swap V
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	50,000,000	50,000,000
Fair Value	[1]	(1,400,000)	(300,000)
Interest Rate Swap W
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	25,000,000	25,000,000
Fair Value	[1]	(500,000)	$ 0
Interest Rate Swap X
Derivatives, Fair Value [Line Items]
Notional Amount	[1]	50,000,000
Fair Value	[1]	$ (1,000,000)

[1] includes LIBOR floor of 1.00%

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GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2015

GOODWILL AND OTHER INTANGIBLE ASSETS

NOTE D. GOODWILL AND OTHER INTANGIBLE ASSETS

As of September 30, 2015 and December 31, 2014, the carrying amount of the Company’s Goodwill was $1,941.0 million. The following presents a summary of other intangible assets (dollars in millions):

	September 30, 2015							December 31, 2014
	Intangible assets, gross		Accumulated amortization			Intangible assets, net		Intangible assets, gross		Accumulated amortization			Intangible assets, net
Other intangible assets:
Trade name	$	870.0	$	—		$	870.0	$	870.0	$	—		$	870.0
Customer relationships — defense		62.3		(30.4	)		31.9		62.3		(27.9	)		34.4
Customer relationships — commercial		831.8		(464.7	)		367.1		831.8		(426.9	)		404.9
Proprietary technology		476.3		(310.7	)		165.6		476.3		(282.0	)		194.3
Non-compete agreement		17.3		(14.1	)		3.2		17.3		(12.8	)		4.5
Patented technology — defense		28.2		(27.0	)		1.2		28.2		(24.5	)		3.7
Tooling rights		4.5		(4.4	)		0.1		4.5		(4.3	)		0.2
Patented technology — commercial		260.6		(260.6	)		—		260.6		(260.6	)		—
Total	$	2,551.0	$	(1,111.9	)	$	1,439.1	$	2,551.0	$	(1,039.0	)	$	1,512.0

As of September 30, 2015 and December 31, 2014, the net carrying value of our Goodwill and other intangibles was $3,380.1 million and $3,453.0 million, respectively.

Amortization expense related to other intangible assets for the next five years and thereafter is expected to be (dollars in millions):

	2016		2017		2018		2019		2020		Thereafter
Amortization expense	$	92.4	$	89.7	$	87.2	$	85.7	$	49.9	$	140.6

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Changes in Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL	$ (50.5)	$ (19.1)	$ (39.5)	$ (21.0)
Other comprehensive loss before reclassifications	(2.3)	(8.1)	(14.0)	(5.2)
Amounts reclassified from AOCL	(0.9)	(1.1)	(2.7)	(3.1)
Income tax	0.3	1.0	2.8	2.0
Net current period other comprehensive loss	(2.9)	(8.2)	(13.9)	(6.3)
Total AOCL	(53.4)	(27.3)	(53.4)	(27.3)
Accumulated Net Unrealized Investment Gain (Loss)
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL	(3.8)	0.6	(0.9)	1.1
Other comprehensive loss before reclassifications	(0.2)	(1.5)	(4.9)	(2.2)
Income tax	0.0	0.6	1.8	0.8
Net current period other comprehensive loss	(0.2)	(0.9)	(3.1)	(1.4)
Total AOCL	(4.0)	(0.3)	(4.0)	(0.3)
Accumulated Defined Benefit Plans Adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL	(18.1)	(9.1)	(17.0)	(7.9)
Amounts reclassified from AOCL	(0.9)	(1.1)	(2.7)	(3.1)
Income tax	0.3	0.4	1.0	1.2
Net current period other comprehensive loss	(0.6)	(0.7)	(1.7)	(1.9)
Total AOCL	(18.7)	(9.8)	(18.7)	(9.8)
Accumulated Translation Adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance of AOCL	(28.6)	(10.6)	(21.6)	(14.2)
Other comprehensive loss before reclassifications	(2.1)	(6.6)	(9.1)	(3.0)
Net current period other comprehensive loss	(2.1)	(6.6)	(9.1)	(3.0)
Total AOCL	$ (30.7)	$ (17.2)	$ (30.7)	$ (17.2)

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Fair Value of Financial Assets and Liabilities (Detail) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	$ 76.0	$ 55.0
Available-for-sale securities	5.6	8.6
Rabbi trust assets	4.5	2.9
Deferred compensation obligation	(4.5)	(2.9)
Derivative assets	0.1	0.0
Derivative liabilities	(33.0)	(15.4)
Total	48.7	48.2
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	76.0	55.0
Available-for-sale securities	5.6	8.6
Rabbi trust assets	4.5	2.9
Deferred compensation obligation	(4.5)	(2.9)
Total	81.6	63.6
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets	0.1	0.0
Derivative liabilities	(33.0)	(15.4)
Total	$ (32.9)	$ (15.4)

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DERIVATIVES (Tables)

9 Months Ended

Sep. 30, 2015

Summary of Company's Interest Rate Derivatives

A summary of the Company’s interest rate derivatives as of September 30, 2015 and December 31, 2014 follows (dollars in millions):

	September 30, 2015					December 31, 2014
	Notional Amount		Fair Value			Notional Amount		Fair Value
3.44% Interest Rate Swap L, Aug 2016 – Aug 2019*	$	75.0	$	(3.9	)	$	75.0	$	(2.3	)
3.43% Interest Rate Swap M, Aug 2016 – Aug 2019*		100.0		(5.2	)		100.0		(3.0	)
3.37% Interest Rate Swap N, Aug 2016 – Aug 2019*		75.0		(3.7	)		75.0		(2.1	)
3.19% Interest Rate Swap O, Aug 2016 – Aug 2019*		75.0		(3.4	)		75.0		(1.7	)
3.08% Interest Rate Swap P, Aug 2016 – Aug 2019*		75.0		(3.1	)		75.0		(1.5	)
2.99% Interest Rate Swap Q, Aug 2016 – Aug 2019*		50.0		(2.0	)		50.0		(0.9	)
2.98% Interest Rate Swap R, Aug 2016 – Aug 2019*		50.0		(1.9	)		50.0		(0.9	)
2.73% Interest Rate Swap S, Aug 2016 – Aug 2019*		50.0		(1.6	)		50.0		(0.5	)
2.74% Interest Rate Swap T, Aug 2016 – Aug 2019*		75.0		(2.4	)		75.0		(0.8	)
2.66% Interest Rate Swap U, Aug 2016 – Aug 2019*		50.0		(1.5	)		50.0		(0.4	)
2.60% Interest Rate Swap V, Aug 2016 – Aug 2019*		50.0		(1.4	)		50.0		(0.3	)
2.40% Interest Rate Swap W, Aug 2016 – Aug 2019*		25.0		(0.5	)		25.0		0.0
2.25% Interest Rate Swap X, Aug 2016 – Aug 2019*		50.0		(1.0	)		—		—
* includes LIBOR floor of 1.00%	$	800.0	$	(31.6	)	$	750.0	$	(14.4	)

Derivative Instruments and their Impact on the Financial Condition

The following tabular disclosures further describe the Company’s derivative instruments and their impact on the financial condition of the Company (dollars in millions):

	September 30, 2015				December 31, 2014
	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Derivatives not designated as hedging instruments
Foreign currency contracts	Other current assets	$	0.1		Other current liabilities	$	(0.3	)
Commodity contracts	Other non-current assets		0.0
	Other current and non-current liabilities		(1.4	)	Other current and non-current liabilities		(0.7	)
Interest rate contracts	Other current and non-current liabilities		(31.6	)	Other non- current liabilities		(14.4	)
Total derivatives not designated as hedging instruments		$	(32.9	)		$	(15.4	)

Interest Rate Derivative Instruments and their Impact on the Results of Operations

The impact on the Company’s Condensed Consolidated Statements of Comprehensive Income related to foreign currency and commodity contracts can be found in NOTE J, and the following tabular disclosure describes the location and impact on the Company’s results of operations related to unrealized (loss) gain on interest rate derivatives (dollars in millions):

	Three months ended September 30,					Nine months ended September 30,
	2015			2014		2015			2014
Location of impact on results of operations
Interest Expense	$	(10.0	)	$	4.6	$	(17.2	)	$	11.1

Foreign Currency Forward Contract

Notional Amount and Fair Value of Derivatives

The following table summarizes the outstanding foreign currency forward contracts as of September 30, 2015 and December 31, 2014 (amounts in millions):

	September 30, 2015				December 31, 2014
	Notional Amount		Fair Value		Notional Amount		Fair Value
Japanese Yen (JPY)	¥	300.0	$	0.1	¥	300.0	$	(0.3	)
			$	0.1			$	(0.3	)

Commodity contracts

Notional Amount and Fair Value of Derivatives

The following table summarizes the outstanding commodity swaps as of September 30, 2015 and December 31, 2014 (dollars in millions):

	September 30, 2015							December 31, 2014
	Notional Amount		Quantity		Fair Value			Notional Amount		Quantity	Fair Value
Aluminum	$	9.2		5,000 metric tons	$	(1.4	)	$	11.3	6,200 metric tons	$	(0.7	)
Natural Gas	$	0.3		100,000 MMBtu		(0.0	)	$	0.2	60,000 MMBtu		0.0
					$	(1.4	)				$	(0.7	)

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DEBT (Tables)

9 Months Ended

Sep. 30, 2015

Summary of Long-Term Debt and Maturities

Long-term debt and maturities are as follows (dollars in millions):

	September 30, 2015		December 31, 2014
Long-term debt:
Senior Secured Credit Facility Term B-2 Loan, variable, due 2017	$	189.0	$	283.6
Senior Secured Credit Facility Term B-3 Loan, variable, due 2019		2,220.0		1,765.6
Senior Notes, fixed 7.125%, due 2019		—		471.3
Total long-term debt	$	2,409.0	$	2,520.5
Less: current maturities of long-term debt		22.6		17.9
Total long-term debt less current portion	$	2,386.4	$	2,502.6

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Deferred Revenue - Additional Information (Detail) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014
Deferred Revenue [Line Items]
Deferred revenue current liabilities	$ 22.5	$ 20.6
Deferred revenue non-current liabilities	54.0	$ 48.7
Extended Transmission Coverage
Deferred Revenue [Line Items]
Deferred revenue current liabilities	22.5		$ 20.1
Deferred revenue non-current liabilities	54.0		47.9
U S Government Contracts
Deferred Revenue [Line Items]
Deferred revenue current liabilities	$ 0.0		$ 1.1

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Long Term Debt and Maturities (Detail) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Total long-term debt	$ 2,409.0	$ 2,520.5
Less: current maturities of long-term debt	22.6	17.9
Total long-term debt less current portion	2,386.4	2,502.6
Total long-term debt	2,409.0	2,520.5
Senior Secured Credit Facility Term B-2 Loan, variable, due 2017
Debt Instrument [Line Items]
Total long-term debt	189.0	283.6
Total long-term debt	189.0	283.6
Senior Secured Credit Facility Term B-3 Loan, variable, due 2019
Debt Instrument [Line Items]
Total long-term debt	2,220.0	1,765.6
Total long-term debt	$ 2,220.0	1,765.6
Senior Notes, fixed 7.125%, due 2019
Debt Instrument [Line Items]
Total long-term debt		471.3
Total long-term debt		$ 471.3

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PRODUCT WARRANTY LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2015

Product Warranty Liability Activities

Product warranty liability activities consist of the following (dollars in millions):

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Beginning balance	$	73.7		$	86.7		$	83.6		$	90.5
Payments		(7.7	)		(7.9	)		(24.0	)		(27.0	)
Increase in liability (warranty issued during period)		5.0			7.2			16.2			20.0
Net adjustments to liability		10.8			(0.7	)		5.8			1.5
Accretion (for Predecessor liabilities)		0.1			0.1			0.3			0.4
Ending balance	$	81.9		$	85.4		$	81.9		$	85.4

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DEFERRED REVENUE (Tables)

9 Months Ended

Sep. 30, 2015

Deferred Revenue for Extended Transmission Coverage Activity

Deferred revenue for ETC activity (dollars in millions):

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Beginning balance	$	74.7		$	66.8		$	69.0		$	63.6
Increases		7.2			6.3			23.7			20.1
Revenue earned		(5.4	)		(5.1	)		(16.2	)		(15.7	)
Ending balance	$	76.5		$	68.0		$	76.5		$	68.0

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INVENTORIES

9 Months Ended

Sep. 30, 2015

INVENTORIES

NOTE C. INVENTORIES

Inventories consisted of the following components (dollars in millions):

	September 30, 2015		December 31, 2014
Purchased parts and raw materials	$	69.2	$	72.3
Work in progress		5.8		6.1
Service parts		45.8		46.5
Finished goods		34.5		18.6
Total inventories	$	155.3	$	143.5

Inventory components shipped to third parties, primarily cores, parts to re-manufacturers, and parts to contract manufacturers, which the Company has an obligation to buy back, are included in purchased parts and raw materials, with an offsetting liability in Other current liabilities. See NOTE K, “Other Current Liabilities” for more information.

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OTHER EXPENSE, NET (Tables)

9 Months Ended

Sep. 30, 2015

Computation of Other Expense, Net

Other expense, net consists of the following (dollars in millions):

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Loss on intercompany foreign exchange	$	(2.8	)	$	(1.6	)	$	(1.9	)	$	(3.4	)
Unrealized (loss) gain on derivative contracts (see NOTE G)		(0.7	)		0.2			(0.4	)		1.7
Realized loss on derivative contracts (see NOTE G)		(0.3	)		(0.0	)		(1.0	)		(1.0	)
(Loss) gain on foreign exchange		(0.1	)		—			0.8			(0.5	)
Grant program income		—			0.7			—			2.1
Gain on negotiation of commercial agreement		—			2.0			—			2.0
Impairment loss on investments in technology-related initiatives		—			(2.0	)		—			(2.0	)
Public offering fees and expenses		—			(0.3	)		—			(1.4	)
Loss on repayments and redemptions of long-term debt		—			(0.3	)		(0.2	)		(0.3	)
Other		(0.3	)		(0.4	)		(0.9	)		(0.2	)
Total	$	(4.2	)	$	(1.7	)	$	(3.6	)	$	(3.0	)

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Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Goodwill [Line Items]
Goodwill	$ 1,941.0	$ 1,941.0
Net carrying value of Goodwill and other intangible assets	$ 3,380.1	$ 3,453.0

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Impact on the Company's Results of Operations Related to Unrealized Gain (Loss) on Interest Rate Derivatives (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Derivative [Line Items]
Unrealized gain (loss)on derivatives			$ (17.5)	$ 12.8
Derivatives not designated as hedging instruments | Interest rate contracts | Interest expense
Derivative [Line Items]
Unrealized gain (loss)on derivatives	$ (10.0)	$ 4.6	$ (17.2)	$ 11.1

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Condensed Consolidated Balance Sheets - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Current Assets
Cash and cash equivalents	$ 148.4	$ 263.0
Accounts receivable - net of allowance for doubtful accounts of $0.5 and $0.3, respectively	223.9	207.4
Inventories	155.3	143.5
Deferred income taxes, net	88.2	119.7
Other current assets	26.0	24.4
Total Current Assets	641.8	758.0
Property, plant and equipment, net	479.1	514.6
Intangible assets, net	1,439.1	1,512.0
Goodwill	1,941.0	1,941.0
Deferred income taxes, net	1.3	1.3
Other non-current assets	64.4	77.3
TOTAL ASSETS	4,566.7	4,804.2
Current Liabilities
Accounts payable	140.9	151.7
Product warranty liability	25.0	24.0
Current portion of long-term debt	22.6	17.9
Deferred revenue	22.5	20.6
Other current liabilities	105.0	131.7
Total Current Liabilities	316.0	345.9
Product warranty liability	56.9	59.6
Deferred revenue	54.0	48.7
Long-term debt	2,386.4	2,502.6
Deferred income taxes	287.2	238.2
Other non-current liabilities	251.7	211.4
TOTAL LIABILITIES	$ 3,352.2	$ 3,406.4
Commitments and contingencies (see NOTE O)
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding
Paid in capital	$ 1,688.5	$ 1,651.0
Accumulated deficit	(422.4)	(215.5)
Accumulated other comprehensive loss, net of tax	(53.4)	(39.5)
TOTAL STOCKHOLDERS' EQUITY	1,214.5	1,397.8
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	4,566.7	4,804.2
Voting Common Stock
STOCKHOLDERS' EQUITY
Common stock	$ 1.8	$ 1.8

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Long Term Debt and Maturities (Parenthetical) (Detail)	9 Months Ended
	Sep. 30, 2015
Senior Secured Credit Facility Term B-2 Loan, variable, due 2017
Debt Instrument [Line Items]
Debt instrument, due date	2017
Senior Secured Credit Facility Term B-3 Loan, variable, due 2019
Debt Instrument [Line Items]
Debt instrument, due date	2019
Senior Notes, fixed 7.125%, due 2019
Debt Instrument [Line Items]
Interest rate of Senior Notes	7.125%
Debt instrument, due date	2019

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OVERVIEW

9 Months Ended

Sep. 30, 2015

OVERVIEW

NOTE A. OVERVIEW

Overview

Allison Transmission Holdings, Inc. and its subsidiaries (“Allison,” the “Company” or “we”) 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”.

We have approximately 2,700 employees and 13 different transmission product lines. Although approximately 80% of revenues were generated in North America in 2014, we have a global presence by serving customers in Europe, Asia, South America and Africa. We serve customers through an independent network of approximately 1,400 independent distributor and dealer locations worldwide.

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Other Current Liabilities (Detail) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Other Current Liabilities [Line Items]
Payroll and related costs	$ 30.8	$ 50.9
Sales allowances	25.5	25.5
Vendor buyback obligation	11.8	13.2
Taxes payable	11.5	8.5
Defense price reduction reserve	10.1	16.2
Derivative liabilities	2.7	0.8
Accrued interest payable	0.6	5.2
Environmental liabilities	0.5
Other accruals	11.5	11.4
Total	$ 105.0	$ 131.7

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ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)

9 Months Ended

Sep. 30, 2015

Changes in Accumulated Other Comprehensive Loss by Component

The following tables reconcile changes in Accumulated other comprehensive loss (“AOCL”) by component (net of tax, dollars in millions):

	Three months ended
	Available-for- sale securities			Defined benefit pension items			Foreign currency items			Total
AOCL as of June 30, 2014	$	0.6		$	(9.1	)	$	(10.6	)	$	(19.1	)
Other comprehensive loss before reclassifications		(1.5	)		—			(6.6	)		(8.1	)
Amounts reclassified from AOCL		—			(1.1	)		—			(1.1	)
Income tax		0.6			0.4			—			1.0
Net current period other comprehensive loss	$	(0.9	)	$	(0.7	)	$	(6.6	)	$	(8.2	)
AOCL as of September 30, 2014	$	(0.3	)	$	(9.8	)	$	(17.2	)	$	(27.3	)
AOCL as of June 30, 2015	$	(3.8	)	$	(18.1	)	$	(28.6	)	$	(50.5	)
Other comprehensive loss before reclassifications		(0.2	)		—			(2.1	)		(2.3	)
Amounts reclassified from AOCL		—			(0.9	)		—			(0.9	)
Income tax		0.0			0.3			—			0.3
Net current period other comprehensive loss	$	(0.2	)	$	(0.6	)	$	(2.1	)	$	(2.9	)
AOCL as of September 30, 2015	$	(4.0	)	$	(18.7	)	$	(30.7	)	$	(53.4	)
	Nine months ended
	Available-for- sale securities			Defined benefit pension items			Foreign currency items			Total
AOCL as of December 31, 2013	$	1.1		$	(7.9	)	$	(14.2	)	$	(21.0	)
Other comprehensive loss before reclassifications		(2.2	)		—			(3.0	)		(5.2	)
Amounts reclassified from AOCL		—			(3.1	)		—			(3.1	)
Income tax		0.8			1.2			—			2.0
Net current period other comprehensive loss	$	(1.4	)	$	(1.9	)	$	(3.0	)	$	(6.3	)
AOCL as of September 30, 2014	$	(0.3	)	$	(9.8	)	$	(17.2	)	$	(27.3	)
AOCL as of December 31, 2014	$	(0.9	)	$	(17.0	)	$	(21.6	)	$	(39.5	)
Other comprehensive loss before reclassification		(4.9	)		—			(9.1	)		(14.0	)
Amounts reclassified from AOCL		—			(2.7	)		—			(2.7	)
Income tax		1.8			1.0			—			2.8
Net current period other comprehensive loss	$	(3.1	)	$	(1.7	)	$	(9.1	)	$	(13.9	)
AOCL as of September 30, 2015	$	(4.0	)	$	(18.7	)	$	(30.7	)	$	(53.4	)

Condensed Consolidated Statements of Comprehensive Income affected by reclassifications from AOCL

The following tables show the location in the Condensed Consolidated Statements of Comprehensive Income affected by reclassifications from AOCL (dollars in millions):

	Amounts reclassified from AOCL						Affected line item in the Condensed Consolidated Statements of Comprehensive Income
AOCL Components	Three months ended September 30, 2015			Three months ended September 30, 2014
Amortization of defined benefit pension items:
Prior service cost	$	0.8		$	0.8		Cost of sales
		0.1			0.1		Selling, general and administrative
		0.0			0.0		Engineering – research and development
Actuarial loss		—			0.2		Cost of sales
		—			0.0		Selling, general and administrative
		—			0.0		Engineering – research and development
Total reclassifications, before tax	$	0.9		$	1.1		Income before income taxes
Income tax expense		(0.3	)		(0.4	)	Tax expense
Total reclassifications	$	0.6		$	0.7		Net of tax

	Amounts reclassified from AOCL						Affected line item in the Condensed Consolidated Statements of Comprehensive Income
AOCL Components	Nine months ended September 30, 2015			Nine months ended September 30, 2014
Amortization of defined benefit pension items:
Prior service cost	$	2.4		$	2.4		Cost of sales
		0.3			0.2		Selling, general and administrative
		0.0			0.0		Engineering – research and development
Actuarial loss		—			0.5		Cost of sales
		—			0.0		Selling, general and administrative
		—			0.0		Engineering – research and development
Total reclassifications, before tax	$	2.7		$	3.1		Income before income taxes
Income tax expense		(1.0	)		(1.2	)	Tax expense
Total reclassifications	$	1.7		$	1.9		Net of tax

XML

Certain Relationships and Related Party Transactions - Additional Information (Detail)	1 Months Ended
	May. 31, 2015 USD ($)
Related Party Transaction [Line Items]
Percentage of principal amount redeemed	103.563%
Fixed 7.125% Senior Notes
Related Party Transaction [Line Items]
Senior Notes, stated interest rate	7.125%
Lawrence E. Dewey | Fixed 7.125% Senior Notes
Related Party Transaction [Line Items]
Senior notes held by executive officers	$ 100,000
David S. Graziosi | Fixed 7.125% Senior Notes
Related Party Transaction [Line Items]
Senior notes held by executive officers	$ 450,000

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2015

EARNINGS PER SHARE

NOTE Q. EARNINGS PER SHARE

The Company presents both basic and diluted earnings per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during the reporting period that are calculated using the treasury stock method for stock-based awards. The treasury stock method assumes that the Company uses the proceeds from the exercise of awards to repurchase common stock at the average market price during the period. The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future, compensation cost for future service that the Company has not yet recognized and any tax benefits that would be credited to additional paid-in-capital when the award generates a tax deduction. If there would be a shortfall resulting in a charge to additional paid-in-capital, such an amount would be a reduction of the proceeds to the extent of the gains. The diluted weighted-average common shares outstanding exclude the anti-dilutive effect of certain stock options since such options had an exercise price in excess of the monthly average market value of our common stock. As of September 30, 2015, 0.7 million of outstanding stock options were not included in the diluted EPS computation because they were anti-dilutive.

The following table reconciles the numerators and denominators used to calculate basic EPS and diluted EPS (in millions, except per share data):

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Net income	$	46.5	$	68.8	$	169.3	$	178.1
Weighted average shares of common stock outstanding		174.0		178.8		177.5		179.9
Dilutive effect stock-based awards		1.0		2.1		1.5		2.9
Diluted weighted average shares of common stock outstanding		175.0		180.9		179.0		182.8
Basic earnings per share attributable to common stockholders	$	0.27	$	0.38	$	0.95	$	0.99
Diluted earnings per share attributable to common stockholders	$	0.27	$	0.38	$	0.95	$	0.97

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2015

Reconciliation of Numerators and Denominators Used to Calculate Basic EPS and Diluted EPS

The following table reconciles the numerators and denominators used to calculate basic EPS and diluted EPS (in millions, except per share data):

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Net income	$	46.5	$	68.8	$	169.3	$	178.1
Weighted average shares of common stock outstanding		174.0		178.8		177.5		179.9
Dilutive effect stock-based awards		1.0		2.1		1.5		2.9
Diluted weighted average shares of common stock outstanding		175.0		180.9		179.0		182.8
Basic earnings per share attributable to common stockholders	$	0.27	$	0.38	$	0.95	$	0.99
Diluted earnings per share attributable to common stockholders	$	0.27	$	0.38	$	0.95	$	0.97

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2015

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2015 and 2014 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 statements of the results for the periods presented. The condensed consolidated financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated.

These condensed consolidated financial statements present the financial position, results of comprehensive income and cash flows of the Company. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission (“SEC”) on February 20, 2015. Certain immaterial reclassifications have been made in the condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications have no impact on previously reported net income, total stockholders’ equity or cash flows. The interim period financial results for the three and nine month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Significant estimates include, but are not limited to, allowance for doubtful accounts, sales allowances, government price adjustments, fair market values and future cash flows associated with goodwill, indefinite life intangibles, long-lived asset impairment tests, useful lives for depreciation and amortization, warranty liabilities, environmental liabilities, determination of discount and other assumptions for pension and other postretirement benefit expense, income taxes and deferred tax valuation allowances, derivative valuation, and contingencies. The Company’s accounting policies involve the application of judgments and assumptions made by management that include inherent risks and uncertainties. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance to simplify the measurement of inventory. The guidance requires that inventory be measured at the lower of cost and net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs. Inventory measured using last-in, first-out and the retail inventory method are not impacted by the new guidance. The guidance is effective for public entities for interim and annual reporting periods beginning after December 15, 2016, but can be early-adopted. Management is assessing the potential impact of the adoption of this guidance on the Company’s consolidated financial statements.

In April 2015, the FASB issued authoritative accounting guidance to simplify the presentation of the debt issuance costs. The guidance requires that the debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The debt issuance costs related to line-of-credit arrangements can still be deferred and presented as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The recognition and measurement guidance for debt issuance costs are not affected. The guidance is effective for public entities for interim and annual reporting periods beginning after December 15, 2015, but can be early-adopted. As of September 30, 2015, the Company has determined that approximately $29.9 million of debt issuance costs, net of accumulated amortization, could be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability under the guidance.

In August 2014, the FASB issued authoritative accounting guidance on the disclosure of uncertainties about an entity’s ability to continue as a going concern. The guidance requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that financial statements are available to be issued when applicable) and to provide related footnote disclosures. The guidance is effective prospectively for interim and annual reporting periods beginning after December 15, 2016, but can be early-adopted. While the adoption of this guidance is not expected to have an effect on the Company’s consolidated financial statements, it could affect the disclosure applied under these circumstances in the future.

In May 2014, the FASB issued authoritative accounting guidance on a company’s accounting for revenue from contracts with customers. The guidance applies to all companies that enter into contracts with customers to transfer goods, services or nonfinancial assets. The guidance requires these companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires improved disclosures regarding the nature, timing, amount and uncertainty of revenue that is recognized. As originally proposed, the guidance was effective prospectively for interim and annual reporting periods beginning after December 15, 2016. On April 1, 2015, the FASB proposed a one-year deferral of the effective date. Under the proposal, the guidance would be effective on a retrospective or modified retrospective basis for public entities for interim and annual reporting periods beginning after December 15, 2017. The proposal also would permit both public and nonpublic entities to adopt the guidance as early as periods beginning after December 15, 2016. Early adoption prior to that date would not be permitted. In July 2015, the FASB proposed deferral was approved. Management is assessing the potential impact of the adoption of this guidance on the Company’s consolidated financial statements as well as considering the method of adoption.

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Common Stock - Additional Information (Detail)	3 Months Ended	9 Months Ended
	Sep. 30, 2015 USD ($)	Sep. 30, 2015 USD ($)
Common Stock Disclosure [Line Items]
Common stock, repurchases authorized	$ 500,000,000	$ 500,000,000
Common stock, repurchased during the period	$ 172,200,000	$ 296,300,000

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2015 and 2014 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 statements of the results for the periods presented. The condensed consolidated financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated.

These condensed consolidated financial statements present the financial position, results of comprehensive income and cash flows of the Company. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission (“SEC”) on February 20, 2015. Certain immaterial reclassifications have been made in the condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications have no impact on previously reported net income, total stockholders’ equity or cash flows. The interim period financial results for the three and nine month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Significant estimates include, but are not limited to, allowance for doubtful accounts, sales allowances, government price adjustments, fair market values and future cash flows associated with goodwill, indefinite life intangibles, long-lived asset impairment tests, useful lives for depreciation and amortization, warranty liabilities, environmental liabilities, determination of discount and other assumptions for pension and other postretirement benefit expense, income taxes and deferred tax valuation allowances, derivative valuation, and contingencies. The Company’s accounting policies involve the application of judgments and assumptions made by management that include inherent risks and uncertainties. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.

Recently Issued Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance to simplify the measurement of inventory. The guidance requires that inventory be measured at the lower of cost and net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs. Inventory measured using last-in, first-out and the retail inventory method are not impacted by the new guidance. The guidance is effective for public entities for interim and annual reporting periods beginning after December 15, 2016, but can be early-adopted. Management is assessing the potential impact of the adoption of this guidance on the Company’s consolidated financial statements.

In April 2015, the FASB issued authoritative accounting guidance to simplify the presentation of the debt issuance costs. The guidance requires that the debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The debt issuance costs related to line-of-credit arrangements can still be deferred and presented as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The recognition and measurement guidance for debt issuance costs are not affected. The guidance is effective for public entities for interim and annual reporting periods beginning after December 15, 2015, but can be early-adopted. As of September 30, 2015, the Company has determined that approximately $29.9 million of debt issuance costs, net of accumulated amortization, could be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability under the guidance.

In August 2014, the FASB issued authoritative accounting guidance on the disclosure of uncertainties about an entity’s ability to continue as a going concern. The guidance requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that financial statements are available to be issued when applicable) and to provide related footnote disclosures. The guidance is effective prospectively for interim and annual reporting periods beginning after December 15, 2016, but can be early-adopted. While the adoption of this guidance is not expected to have an effect on the Company’s consolidated financial statements, it could affect the disclosure applied under these circumstances in the future.

In May 2014, the FASB issued authoritative accounting guidance on a company’s accounting for revenue from contracts with customers. The guidance applies to all companies that enter into contracts with customers to transfer goods, services or nonfinancial assets. The guidance requires these companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires improved disclosures regarding the nature, timing, amount and uncertainty of revenue that is recognized. As originally proposed, the guidance was effective prospectively for interim and annual reporting periods beginning after December 15, 2016. On April 1, 2015, the FASB proposed a one-year deferral of the effective date. Under the proposal, the guidance would be effective on a retrospective or modified retrospective basis for public entities for interim and annual reporting periods beginning after December 15, 2017. The proposal also would permit both public and nonpublic entities to adopt the guidance as early as periods beginning after December 15, 2016. Early adoption prior to that date would not be permitted. In July 2015, the FASB proposed deferral was approved. Management is assessing the potential impact of the adoption of this guidance on the Company’s consolidated financial statements as well as considering the method of adoption.

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Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Allowance for doubtful accounts receivables	$ 0.5	$ 0.3
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	100,000,000	100,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Voting Common Stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	1,880,000,000	1,880,000,000
Common stock, shares issued	171,029,830	179,488,247
Common stock, shares outstanding	171,029,830	179,488,247
Non-voting Common Stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	0	0
Common stock, shares outstanding	0	0

XML

EMPLOYEE BENEFIT PLANS

9 Months Ended

Sep. 30, 2015

EMPLOYEE BENEFIT PLANS

NOTE L. EMPLOYEE BENEFIT PLANS

Components of net periodic benefit cost consist of the following (dollars in millions):

	Pension Plans						Post-retirement Benefits
	Three months ended September 30,						Three months ended September 30,
	2015			2014			2015			2014
Net periodic benefit cost:
Service cost	$	3.6		$	3.3		$	0.5		$	0.5
Interest cost		1.3			1.3			1.3			1.5
Expected return on assets		(2.1	)		(1.9	)		—			—
Prior service cost		0.0			0.0			(0.9	)		(0.9	)
Gain		(0.1	)		—			—			(0.2	)
Net periodic benefit cost	$	2.7		$	2.7		$	0.9		$	0.9
	Pension Plans						Post-retirement Benefits
	Nine months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Net periodic benefit cost:
Service cost	$	10.8		$	9.9		$	1.7		$	1.6
Interest cost		3.9			3.8			4.0			4.4
Expected return on assets		(6.3	)		(5.7	)		—			—
Prior service cost		0.0			0.0			(2.7	)		(2.7	)
Gain		(0.1	)		—			—			(0.6	)
Net periodic benefit cost	$	8.3		$	8.0		$	3.0		$	2.7

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Oct. 13, 2015
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3
Trading Symbol	ALSN
Entity Registrant Name	ALLISON TRANSMISSION HOLDINGS INC
Entity Central Index Key	0001411207
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		171,031,830

XML

INCOME TAXES

9 Months Ended

Sep. 30, 2015

INCOME TAXES

NOTE M. INCOME TAXES

For the three and nine months ended September 30, 2015, the Company recorded total tax expense of $27.3 million and $99.8 million, respectively. The effective tax rate for the three and nine months ended September 30, 2015 was 37.0% and 37.1%, respectively. For the three and nine months ended September 30, 2014, the Company recorded total tax expense of $47.5 million and $112.2 million, respectively. The effective tax rate for the three and nine months ended September 30, 2014 was 40.8% and 38.6%, respectively. The change in effective tax rates was driven by the change in discrete activity.

The need to establish a valuation allowance against the deferred tax assets is assessed periodically based on a more-likely-than-not realization threshold, in accordance with authoritative accounting guidance. Appropriate consideration is given to all positive and negative evidence related to that realization. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry forward periods, experience with tax attributes expiring unused, and tax planning alternatives. The weight given to these considerations depends upon the degree to which they can be objectively verified.

The Company has determined, based on the evaluation of both objective and subjective evidence available, that a domestic valuation allowance is not necessary and that it is more likely than not that the deferred tax assets are fully realizable. The Company has reached a sustained period of profitability and believes its objectively measured positive evidence outweighs the negative evidence. The Company continues to provide for a valuation allowance on certain of its foreign deferred tax assets.

In accordance with the FASB’s authoritative guidance on accounting for uncertainty in income taxes, the Company has recorded a liability of $2.3 million for unrecognized tax benefits related to a 2010 Research & Development Credit as of September 30, 2015 and December 31, 2014. The accounting guidance prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For the year ended December 31, 2014, the return will remain subject to examination by the various taxing authorities for the duration of the applicable statute of limitations (generally three years from the later of the date of filing or the due date of the return).

XML

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Net sales	$ 493.0	$ 553.3	$ 1,507.6	$ 1,583.0
Cost of sales	256.9	294.0	796.0	862.7
Gross profit	236.1	259.3	711.6	720.3
Selling, general and administrative expenses	86.6	87.5	235.6	255.8
Engineering - research and development	23.6	24.5	69.0	70.2
Environmental remediation	14.0		14.0
Loss associated with impairment of long-lived assets			1.3
Operating income	111.9	147.3	391.7	394.3
Interest income	0.1	0.3	0.5	0.7
Interest expense	(33.8)	(29.6)	(94.2)	(101.7)
Premiums and expenses on tender offer and redemption of long-term debt	(0.2)		(25.3)
Other expense, net	(4.2)	(1.7)	(3.6)	(3.0)
Income before income taxes	73.8	116.3	269.1	290.3
Income tax expense	(27.3)	(47.5)	(99.8)	(112.2)
Net income	$ 46.5	$ 68.8	$ 169.3	$ 178.1
Basic earnings per share attributable to common stockholders	$ 0.27	$ 0.38	$ 0.95	$ 0.99
Diluted earnings per share attributable to common stockholders	0.27	0.38	0.95	0.97
Dividends declared per common share	$ 0.15	$ 0.12	$ 0.45	$ 0.36
Comprehensive income, net of tax	$ 43.6	$ 60.6	$ 155.4	$ 171.8

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DERIVATIVES

9 Months Ended

Sep. 30, 2015

DERIVATIVES

NOTE G. DERIVATIVES

The Company is exposed to certain financial risk from volatility in interest rates, foreign exchange rates and commodity prices. The risk is managed through the use of financial derivative instruments including interest rate swaps, foreign currency forward contracts and commodity swaps. The Company’s current derivative instruments are used strictly as an economic hedge and not for speculative purposes. As necessary, the Company adjusts the values of the derivative instruments for counter-party or credit risk.

Interest Rate

The Company is subject to interest rate risk related to the Senior Secured Credit Facility and enters into interest rate swap contracts that are based on the LIBOR to manage a portion of this exposure. The Company has not elected hedge accounting treatment for these derivatives, and as a result, fair value adjustments are charged directly to Interest expense in the Condensed Consolidated Statements of Comprehensive Income. A summary of the Company’s interest rate derivatives as of September 30, 2015 and December 31, 2014 follows (dollars in millions):

	September 30, 2015					December 31, 2014
	Notional Amount		Fair Value			Notional Amount		Fair Value
3.44% Interest Rate Swap L, Aug 2016 – Aug 2019*	$	75.0	$	(3.9	)	$	75.0	$	(2.3	)
3.43% Interest Rate Swap M, Aug 2016 – Aug 2019*		100.0		(5.2	)		100.0		(3.0	)
3.37% Interest Rate Swap N, Aug 2016 – Aug 2019*		75.0		(3.7	)		75.0		(2.1	)
3.19% Interest Rate Swap O, Aug 2016 – Aug 2019*		75.0		(3.4	)		75.0		(1.7	)
3.08% Interest Rate Swap P, Aug 2016 – Aug 2019*		75.0		(3.1	)		75.0		(1.5	)
2.99% Interest Rate Swap Q, Aug 2016 – Aug 2019*		50.0		(2.0	)		50.0		(0.9	)
2.98% Interest Rate Swap R, Aug 2016 – Aug 2019*		50.0		(1.9	)		50.0		(0.9	)
2.73% Interest Rate Swap S, Aug 2016 – Aug 2019*		50.0		(1.6	)		50.0		(0.5	)
2.74% Interest Rate Swap T, Aug 2016 – Aug 2019*		75.0		(2.4	)		75.0		(0.8	)
2.66% Interest Rate Swap U, Aug 2016 – Aug 2019*		50.0		(1.5	)		50.0		(0.4	)
2.60% Interest Rate Swap V, Aug 2016 – Aug 2019*		50.0		(1.4	)		50.0		(0.3	)
2.40% Interest Rate Swap W, Aug 2016 – Aug 2019*		25.0		(0.5	)		25.0		0.0
2.25% Interest Rate Swap X, Aug 2016 – Aug 2019*		50.0		(1.0	)		—		—
* includes LIBOR floor of 1.00%	$	800.0	$	(31.6	)	$	750.0	$	(14.4	)

Currency Exchange

The Company’s business is subject to foreign exchange rate risk. As a result, the Company enters into various forward rate contracts that qualify as derivatives under the authoritative accounting guidance to manage certain of these exposures. Forward contracts are used to hedge forecasted transactions and known exposure of payables denominated in a foreign currency. The Company generally has not elected to apply hedge accounting under the authoritative accounting guidance and recorded the unrealized fair value adjustments and realized gains and losses associated with these contracts in Other expense, net in the Condensed Consolidated Statements of Comprehensive Income during the period of change.

The following table summarizes the outstanding foreign currency forward contracts as of September 30, 2015 and December 31, 2014 (amounts in millions):

	September 30, 2015				December 31, 2014
	Notional Amount		Fair Value		Notional Amount		Fair Value
Japanese Yen (JPY)	¥	300.0	$	0.1	¥	300.0	$	(0.3	)
			$	0.1			$	(0.3	)

Commodity

The Company’s business is subject to commodity price risk, primarily with component suppliers. As a result, the Company enters into various commodity swap contracts that qualify as derivatives under the authoritative accounting guidance to manage certain of these exposures. Swap contracts are used to hedge forecasted transactions either of the commodity or of components containing the commodity. The Company has not qualified for hedge accounting treatment for these commodity contracts, and as a result, unrealized fair value adjustments and realized gains and losses associated with these contracts were charged directly to Other expense, net in the Condensed Consolidated Statements of Comprehensive Income during the period of change.

The following table summarizes the outstanding commodity swaps as of September 30, 2015 and December 31, 2014 (dollars in millions):

	September 30, 2015							December 31, 2014
	Notional Amount		Quantity		Fair Value			Notional Amount		Quantity	Fair Value
Aluminum	$	9.2		5,000 metric tons	$	(1.4	)	$	11.3	6,200 metric tons	$	(0.7	)
Natural Gas	$	0.3		100,000 MMBtu		(0.0	)	$	0.2	60,000 MMBtu		0.0
					$	(1.4	)				$	(0.7	)

The following tabular disclosures further describe the Company’s derivative instruments and their impact on the financial condition of the Company (dollars in millions):

	September 30, 2015				December 31, 2014
	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Derivatives not designated as hedging instruments
Foreign currency contracts	Other current assets	$	0.1		Other current liabilities	$	(0.3	)
Commodity contracts	Other non-current assets		0.0
	Other current and non-current liabilities		(1.4	)	Other current and non-current liabilities		(0.7	)
Interest rate contracts	Other current and non-current liabilities		(31.6	)	Other non- current liabilities		(14.4	)
Total derivatives not designated as hedging instruments		$	(32.9	)		$	(15.4	)

The fair values of the derivatives are recorded between Other current and non-current assets and Other current and non-current liabilities as appropriate in the Condensed Consolidated Balance Sheets. As of September 30, 2015, the amounts recorded to Other current and non-current liabilities for commodity contracts were ($1.0) million and ($0.4) million, respectively. The amounts recorded to Other current and non-current liabilities for interest rate contracts were ($1.8) million and ($29.8) million, respectively.

As of December 31, 2014, the amounts recorded to Other current and non-current liabilities for commodity contracts were ($0.6) million and ($0.1) million, respectively.

The impact on the Company’s Condensed Consolidated Statements of Comprehensive Income related to foreign currency and commodity contracts can be found in NOTE J, and the following tabular disclosure describes the location and impact on the Company’s results of operations related to unrealized (loss) gain on interest rate derivatives (dollars in millions):

	Three months ended September 30,					Nine months ended September 30,
	2015			2014		2015			2014
Location of impact on results of operations
Interest Expense	$	(10.0	)	$	4.6	$	(17.2	)	$	11.1

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DEBT

9 Months Ended

Sep. 30, 2015

DEBT

NOTE F. DEBT

Long-term debt and maturities are as follows (dollars in millions):

	September 30, 2015		December 31, 2014
Long-term debt:
Senior Secured Credit Facility Term B-2 Loan, variable, due 2017	$	189.0	$	283.6
Senior Secured Credit Facility Term B-3 Loan, variable, due 2019		2,220.0		1,765.6
Senior Notes, fixed 7.125%, due 2019		—		471.3
Total long-term debt	$	2,409.0	$	2,520.5
Less: current maturities of long-term debt		22.6		17.9
Total long-term debt less current portion	$	2,386.4	$	2,502.6

As of September 30, 2015, the Company had $189.0 million of indebtedness associated with Allison Transmission, Inc.’s (“ATI”), the Company’s wholly-owned subsidiary, Senior Secured Credit Facility Term B-2 Loan due 2017 (“Term B-2 Loan”) and $2,220.0 million of indebtedness associated with ATI’s Senior Secured Credit Facility Term B-3 Loan due 2019 (“Term B-3 Loan”) (together the Term B-2 Loan, Term B-3 Loan and revolving credit facility defined as the “Senior Secured Credit Facility”).

The fair value of the Company’s long-term debt obligations as of September 30, 2015 was $2,408.7 million. The fair value is based on quoted Level 2 market prices of the Company’s debt as of September 30, 2015. It is not expected that the Company would be able to repurchase a significant amount of its debt at these levels. The difference between the fair value and carrying value of the long-term debt is driven primarily by trends in the financial markets.

On March 18, 2015, ATI commenced a cash tender offer to purchase its outstanding 7.125% senior cash pay notes due May 2019 (“7.125% Senior Notes”). In connection with the cash tender offer, ATI solicited consents to enter into a supplemental indenture to eliminate substantially all of the restrictive covenants, certain events of default and related provisions contained in the indenture dated as of May 6, 2011 (the “Indenture”) governing the 7.125% Senior Notes. On March 31, 2015, ATI received valid consents from holders with an aggregate principal amount of $420.9 million of the 7.125% Senior Notes. Accordingly, ATI entered into a first supplemental indenture to the Indenture contingent on the execution of an amendment with the term loan lenders under its Senior Secured Credit Facility.

On April 7, 2015, ATI entered into an amendment with the term loan lenders under its Senior Secured Credit Facility to add up to an additional $470.0 million of Term B-3 Loan commitments and incur term loans in an aggregate principal amount of $470.0 million. The amendment also, among other things, (i) permits prepayment, repurchase or redemption of Allison’s 7.125% Senior Notes with the proceeds of the financing and (ii) resets the period for which a prepayment premium of 1.00% will apply in the event of a repricing transaction to the six-month anniversary of the closing date of the financing. With the exception of the items noted above, the terms (including maturity and pricing) of the financing are materially the same as the terms of the existing Term B-3 Loan outstanding. As a result of the newly structured Senior Secured Credit Facility, ATI recorded approximately $7.7 million as deferred financing fees in the Condensed Consolidated Balance Sheets. Immediately following the financing, ATI purchased $420.9 million of the tendered 7.125% Senior Notes using the proceeds from the financing in a cash payment equal to $1,042 per $1,000 aggregate principal amount of the 7.125% Senior Notes plus accrued and unpaid interest. Upon the payment, the supplemental indenture to the Indenture became operative. The purchase resulted in a loss (the premium between the purchase price of the notes and the face value of such notes) of $22.7 million including deferred financing fees written off.

In May 2015, ATI redeemed the remaining $50.4 million of its outstanding 7.125% Senior Notes, at the redemption price equal to 103.563% of the principal amount plus any accrued and unpaid interest, using the remaining proceeds from the financing and cash on hand, resulting in a loss (the premium between the purchase price of the notes and the face value of such notes) of $2.4 million including deferred financing fees written off.

The Senior Secured Credit Facility is collateralized by a lien on substantially all assets of the Company including all of ATI’s capital stock and all of the capital stock or other equity interest held by the Company, ATI and each of the Company’s existing and future U.S. subsidiary guarantors (subject to certain limitations for equity interests of foreign subsidiaries and other exceptions set forth in the terms of the Senior Secured Credit Facility). Interest on the Term B-2 Loan, as of September 30, 2015, is at the Company’s option, either (a) 2.75% over the LIBOR or (b) 1.75% over the greater of the prime lending rate provided by the British Banking Association or the federal funds effective rate published by the Federal Reserve Bank of New York plus 0.50%. Interest on the Term B-3 Loan, as of September 30, 2015, is equal to the LIBOR (which may not be less than 1.00%) plus 2.50% based on the Company’s total leverage ratio. As of September 30, 2015, these rates were approximately 2.95% and 3.50% on the Term B-2 Loan and Term B-3 Loan, respectively, and the weighted average rate on the Senior Secured Credit Facility was approximately 3.46%. The Senior Secured Credit Facility requires minimum quarterly principal payments on the Term B-2 Loan and Term B-3 Loan as well as prepayments from certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events and from a percentage of excess cash flow, if applicable. Due to voluntary prepayments, the Company has fulfilled all Term B-2 Loan required quarterly payments through its maturity date of 2017. For the three months and nine months ended September 30, 2015, the Company made principal payments of $0.0 million and $94.6 million on the Term B-2 loan, respectively, resulting in a total loss of $0.2 million associated with the write off of related deferred debt issuance costs. The minimum required quarterly principal payment on the Term B-3 Loan is $5.6 million and remains through its maturity date of 2019. As of September 30, 2015, there had been no payments required for certain net cash proceeds of non-ordinary course asset sales and casualty and condemnation events. The remaining principal balance on each loan is due upon maturity.

The Senior Secured Credit Facility also provides for a revolving credit facility of $465.0 million, net of an allowance for up to $75.0 million in outstanding letters of credit commitments. As of September 30, 2015, the Company had $455.3 million available under the revolving credit facility, net of $9.7 million in letters of credit. Revolving credit borrowings bear interest at a variable base rate plus an applicable margin based on the Company’s total leverage ratio. As of September 30, 2015, this rate would have been approximately 1.63%. In addition, there is an annual commitment fee, based on the Company’s total leverage ratio, which as of September 30, 2015, was equal to 0.25% of the average unused revolving credit borrowings available under the Senior Secured Credit Facility. Revolving credit borrowings are payable at the option of the Company throughout the term of the Senior Secured Credit Facility with the balance due in January 2019. The revolving portion of the Senior Secured Credit Facility requires the Company to maintain a specified maximum total senior secured leverage ratio of 5.50x when revolving loan commitments remain outstanding at the end of a fiscal quarter. In March 2014, however, the revolving lenders holding a majority of the revolving loan commitments permanently waived and agreed that no event of default would result from any non-compliance so long as there were no revolving loans outstanding as of the last day of any fiscal quarter. As of September 30, 2015, the Company had no revolving loans outstanding; however, the Company would have been in compliance with the maximum total senior secured leverage ratio, achieving a 3.08x ratio. Additionally, within the terms of the Senior Secured Credit Facility, a senior secured leverage ratio at or below 3.50x results in the elimination of excess cash flow payments on the Senior Secured Credit Facility for the applicable year. The Senior Secured Credit Facility also provides certain financial incentives based on our total leverage ratio. A total leverage ratio at or below 4.00x results in a 25 basis point reduction to the applicable margin on the revolving credit facility, and a total leverage ratio at or below 3.50x results in a 12.5 basis point reduction to the revolving credit facility commitment fee and an additional 25 basis point reduction to the applicable margin on the revolving credit facility. A total leverage ratio at or below 3.25x results in a 25 basis point reduction to the applicable margin on our Term B-3 Loan. These reductions would remain in effect as long as the Company achieves a total leverage ratio at or below the related threshold. As of September 30, 2015, the total leverage ratio was 3.08x.

In addition, the Senior Secured Credit Facility, among other things, includes customary restrictions (subject to certain exceptions) on the Company’s ability to incur certain indebtedness, grant certain liens, make certain investments, declare or pay certain dividends or repurchase shares of the Company’s common stock. As of September 30, 2015, the Company is in compliance with all covenants under the Senior Secured Credit Facility.

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COMMON STOCK

9 Months Ended

Sep. 30, 2015

COMMON STOCK

NOTE R. COMMON STOCK

The Company’s current stock repurchase program was announced on October 30, 2014. The Board authorized management to repurchase up to $500.0 million of its common stock on the open market or through privately negotiated transactions through December 31, 2016. The timing and amount of stock repurchases are subject to market conditions and corporate needs. This stock repurchase program may be extended, modified, suspended or discontinued at any time at the Board’s discretion. During the three months and nine months ended September 30, 2015, the Company repurchased approximately $172.2 million and $296.3 million, respectively, of its common stock under the repurchase program. All of the repurchase transactions during the third quarter of 2015 were settled in cash during the same period.

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ACCUMULATED OTHER COMPREHENSIVE LOSS

9 Months Ended

Sep. 30, 2015

ACCUMULATED OTHER COMPREHENSIVE LOSS

NOTE N. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables reconcile changes in Accumulated other comprehensive loss (“AOCL”) by component (net of tax, dollars in millions):

	Three months ended
	Available-for- sale securities			Defined benefit pension items			Foreign currency items			Total
AOCL as of June 30, 2014	$	0.6		$	(9.1	)	$	(10.6	)	$	(19.1	)
Other comprehensive loss before reclassifications		(1.5	)		—			(6.6	)		(8.1	)
Amounts reclassified from AOCL		—			(1.1	)		—			(1.1	)
Income tax		0.6			0.4			—			1.0
Net current period other comprehensive loss	$	(0.9	)	$	(0.7	)	$	(6.6	)	$	(8.2	)
AOCL as of September 30, 2014	$	(0.3	)	$	(9.8	)	$	(17.2	)	$	(27.3	)
AOCL as of June 30, 2015	$	(3.8	)	$	(18.1	)	$	(28.6	)	$	(50.5	)
Other comprehensive loss before reclassifications		(0.2	)		—			(2.1	)		(2.3	)
Amounts reclassified from AOCL		—			(0.9	)		—			(0.9	)
Income tax		0.0			0.3			—			0.3
Net current period other comprehensive loss	$	(0.2	)	$	(0.6	)	$	(2.1	)	$	(2.9	)
AOCL as of September 30, 2015	$	(4.0	)	$	(18.7	)	$	(30.7	)	$	(53.4	)
	Nine months ended
	Available-for- sale securities			Defined benefit pension items			Foreign currency items			Total
AOCL as of December 31, 2013	$	1.1		$	(7.9	)	$	(14.2	)	$	(21.0	)
Other comprehensive loss before reclassifications		(2.2	)		—			(3.0	)		(5.2	)
Amounts reclassified from AOCL		—			(3.1	)		—			(3.1	)
Income tax		0.8			1.2			—			2.0
Net current period other comprehensive loss	$	(1.4	)	$	(1.9	)	$	(3.0	)	$	(6.3	)
AOCL as of September 30, 2014	$	(0.3	)	$	(9.8	)	$	(17.2	)	$	(27.3	)
AOCL as of December 31, 2014	$	(0.9	)	$	(17.0	)	$	(21.6	)	$	(39.5	)
Other comprehensive loss before reclassification		(4.9	)		—			(9.1	)		(14.0	)
Amounts reclassified from AOCL		—			(2.7	)		—			(2.7	)
Income tax		1.8			1.0			—			2.8
Net current period other comprehensive loss	$	(3.1	)	$	(1.7	)	$	(9.1	)	$	(13.9	)
AOCL as of September 30, 2015	$	(4.0	)	$	(18.7	)	$	(30.7	)	$	(53.4	)

The following tables show the location in the Condensed Consolidated Statements of Comprehensive Income affected by reclassifications from AOCL (dollars in millions):

	Amounts reclassified from AOCL						Affected line item in the Condensed Consolidated Statements of Comprehensive Income
AOCL Components	Three months ended September 30, 2015			Three months ended September 30, 2014
Amortization of defined benefit pension items:
Prior service cost	$	0.8		$	0.8		Cost of sales
		0.1			0.1		Selling, general and administrative
		0.0			0.0		Engineering – research and development
Actuarial loss		—			0.2		Cost of sales
		—			0.0		Selling, general and administrative
		—			0.0		Engineering – research and development
Total reclassifications, before tax	$	0.9		$	1.1		Income before income taxes
Income tax expense		(0.3	)		(0.4	)	Tax expense
Total reclassifications	$	0.6		$	0.7		Net of tax

	Amounts reclassified from AOCL						Affected line item in the Condensed Consolidated Statements of Comprehensive Income
AOCL Components	Nine months ended September 30, 2015			Nine months ended September 30, 2014
Amortization of defined benefit pension items:
Prior service cost	$	2.4		$	2.4		Cost of sales
		0.3			0.2		Selling, general and administrative
		0.0			0.0		Engineering – research and development
Actuarial loss		—			0.5		Cost of sales
		—			0.0		Selling, general and administrative
		—			0.0		Engineering – research and development
Total reclassifications, before tax	$	2.7		$	3.1		Income before income taxes
Income tax expense		(1.0	)		(1.2	)	Tax expense
Total reclassifications	$	1.7		$	1.9		Net of tax

Prior service cost and actuarial loss are included in the computation of the Company’s net periodic benefit cost. Please see NOTE L for additional details.

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OTHER EXPENSE, NET

9 Months Ended

Sep. 30, 2015

OTHER EXPENSE, NET

NOTE J. OTHER EXPENSE, NET

Other expense, net consists of the following (dollars in millions):

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Loss on intercompany foreign exchange	$	(2.8	)	$	(1.6	)	$	(1.9	)	$	(3.4	)
Unrealized (loss) gain on derivative contracts (see NOTE G)		(0.7	)		0.2			(0.4	)		1.7
Realized loss on derivative contracts (see NOTE G)		(0.3	)		(0.0	)		(1.0	)		(1.0	)
(Loss) gain on foreign exchange		(0.1	)		—			0.8			(0.5	)
Grant program income		—			0.7			—			2.1
Gain on negotiation of commercial agreement		—			2.0			—			2.0
Impairment loss on investments in technology-related initiatives		—			(2.0	)		—			(2.0	)
Public offering fees and expenses		—			(0.3	)		—			(1.4	)
Loss on repayments and redemptions of long-term debt		—			(0.3	)		(0.2	)		(0.3	)
Other		(0.3	)		(0.4	)		(0.9	)		(0.2	)
Total	$	(4.2	)	$	(1.7	)	$	(3.6	)	$	(3.0	)

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Employee Benefit Plans (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Pension Plans
Schedule of Employee Benefit Plans [Line Items]
Service cost	$ 3.6	$ 3.3	$ 10.8	$ 9.9
Interest cost	1.3	1.3	3.9	3.8
Expected return on assets	(2.1)	(1.9)	(6.3)	(5.7)
Prior service cost	0.0	0.0	0.0	0.0
Gain	(0.1)		(0.1)
Net periodic benefit cost	2.7	2.7	8.3	8.0
Post-retirement Benefits
Schedule of Employee Benefit Plans [Line Items]
Service cost	0.5	0.5	1.7	1.6
Interest cost	1.3	1.5	4.0	4.4
Prior service cost	(0.9)	(0.9)	(2.7)	(2.7)
Gain		(0.2)		(0.6)
Net periodic benefit cost	$ 0.9	$ 0.9	$ 3.0	$ 2.7

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PRODUCT WARRANTY LIABILITIES

9 Months Ended

Sep. 30, 2015

PRODUCT WARRANTY LIABILITIES

NOTE H. PRODUCT WARRANTY LIABILITIES

Product warranty liability activities consist of the following (dollars in millions):

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Beginning balance	$	73.7		$	86.7		$	83.6		$	90.5
Payments		(7.7	)		(7.9	)		(24.0	)		(27.0	)
Increase in liability (warranty issued during period)		5.0			7.2			16.2			20.0
Net adjustments to liability		10.8			(0.7	)		5.8			1.5
Accretion (for Predecessor liabilities)		0.1			0.1			0.3			0.4
Ending balance	$	81.9		$	85.4		$	81.9		$	85.4

As of September 30, 2015, the current and non-current product warranty liabilities were $25.0 million and $56.9 million, respectively. As of September 30, 2014, the current and non-current product warranty liabilities were $23.2 million and $62.2 million, respectively.

During the third quarter of 2015, the Company recorded approximately $10.8 million of net adjustments to the product warranty liabilities associated with specific field action programs. As a result of the uncertainty surrounding the nature and frequency of specific field action programs, these liabilities will change as additional field information becomes available.

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DEFERRED REVENUE

9 Months Ended

Sep. 30, 2015

DEFERRED REVENUE

NOTE I. DEFERRED REVENUE

As of September 30, 2015, the current and non-current deferred revenue for Extended Transmission Coverage (“ETC”) were $22.5 million and $54.0 million, respectively. As of September 30, 2014, the current and non-current deferred revenue for ETC were $20.1 million and $47.9 million, respectively.

Deferred revenue for ETC activity (dollars in millions):

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Beginning balance	$	74.7		$	66.8		$	69.0		$	63.6
Increases		7.2			6.3			23.7			20.1
Revenue earned		(5.4	)		(5.1	)		(16.2	)		(15.7	)
Ending balance	$	76.5		$	68.0		$	76.5		$	68.0

Deferred revenue recorded in current liabilities related to unearned net sales for defense contracts as of September 30, 2015 and 2014 was approximately $0.0 million and $1.1 million, respectively.

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OTHER CURRENT LIABILITIES

9 Months Ended

Sep. 30, 2015

OTHER CURRENT LIABILITIES

NOTE K. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following (dollars in millions):

	As of September 30, 2015		As of December 31, 2014
Payroll and related costs	$	30.8	$	50.9
Sales allowances		25.5		25.5
Vendor buyback obligation		11.8		13.2
Taxes payable		11.5		8.5
Defense price reduction reserve		10.1		16.2
Derivative liabilities		2.7		0.8
Accrued interest payable		0.6		5.2
Environmental liabilities		0.5		—
Other accruals		11.5		11.4
Total	$	105.0	$	131.7

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Commitments and Contingencies - Additional Information (Detail) $ in Millions	9 Months Ended
	Sep. 30, 2015 USD ($)
Commitments and Contingencies Disclosure [Line Items]
Estimated undiscounted liability	$ 14.0
Environmental liabilities, non-current	$ 13.5
Estimated undiscounted liabilities payment period	30 years
Environmental liabilities, current	$ 0.5

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Earnings Per Share - Additional Information (Detail) shares in Millions	9 Months Ended
	Sep. 30, 2015 shares
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive stock options not included in the diluted EPS computation	0.7

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Amounts reclassified from AOCL (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Accumulated Other Comprehensive Income (Loss) [Line Items]
Cost of sales	$ 256.9	$ 294.0	$ 796.0	$ 862.7
Selling, general and administrative expenses	86.6	87.5	235.6	255.8
Engineering - research and development	23.6	24.5	69.0	70.2
Income before income taxes	73.8	116.3	269.1	290.3
Income tax benefit	(27.3)	(47.5)	(99.8)	(112.2)
Total reclassifications	46.5	68.8	169.3	178.1
Reclassified from AOCL | Prior service cost
Accumulated Other Comprehensive Income (Loss) [Line Items]
Cost of sales	0.8	0.8	2.4	2.4
Selling, general and administrative expenses	0.1	0.1	0.3	0.2
Engineering - research and development	0.0	0.0	0.0	0.0
Reclassified from AOCL | Actuarial loss
Accumulated Other Comprehensive Income (Loss) [Line Items]
Cost of sales		0.2		0.5
Selling, general and administrative expenses		0.0		0.0
Engineering - research and development		0.0		0.0
Reclassified from AOCL | Accumulated Defined Benefit Plans Adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Income before income taxes	0.9	1.1	2.7	3.1
Income tax benefit	(0.3)	(0.4)	(1.0)	(1.2)
Total reclassifications	$ 0.6	$ 0.7	$ 1.7	$ 1.9

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EMPLOYEE BENEFIT PLANS (Tables)

9 Months Ended

Sep. 30, 2015

Components of Net Periodic Benefit Cost

Components of net periodic benefit cost consist of the following (dollars in millions):

	Pension Plans						Post-retirement Benefits
	Three months ended September 30,						Three months ended September 30,
	2015			2014			2015			2014
Net periodic benefit cost:
Service cost	$	3.6		$	3.3		$	0.5		$	0.5
Interest cost		1.3			1.3			1.3			1.5
Expected return on assets		(2.1	)		(1.9	)		—			—
Prior service cost		0.0			0.0			(0.9	)		(0.9	)
Gain		(0.1	)		—			—			(0.2	)
Net periodic benefit cost	$	2.7		$	2.7		$	0.9		$	0.9
	Pension Plans						Post-retirement Benefits
	Nine months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Net periodic benefit cost:
Service cost	$	10.8		$	9.9		$	1.7		$	1.6
Interest cost		3.9			3.8			4.0			4.4
Expected return on assets		(6.3	)		(5.7	)		—			—
Prior service cost		0.0			0.0			(2.7	)		(2.7	)
Gain		(0.1	)		—			—			(0.6	)
Net periodic benefit cost	$	8.3		$	8.0		$	3.0		$	2.7

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Company's Derivative Instruments and their Impact on Financial Condition of Company (Detail) - Derivatives not designated as hedging instruments - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Derivative [Line Items]
Total derivatives not designated as hedging instruments	$ (32.9)	$ (15.4)
Foreign currency contracts | Other current assets
Derivative [Line Items]
Derivative Asset, Fair Value	0.1
Foreign currency contracts | Other current liabilities
Derivative [Line Items]
Derivative Liability, Fair Value		(0.3)
Commodity contracts
Derivative [Line Items]
Total derivatives not designated as hedging instruments	1.4	0.7
Commodity contracts | Other current liabilities
Derivative [Line Items]
Derivative Liability, Fair Value	(1.0)	(0.6)
Commodity contracts | Other current and non-current liabilities
Derivative [Line Items]
Derivative Liability, Fair Value	(1.4)	(0.7)
Commodity contracts | Other non-current assets
Derivative [Line Items]
Derivative Liability, Fair Value	0.0
Interest rate contracts | Other current liabilities
Derivative [Line Items]
Derivative Liability, Fair Value	(1.8)
Interest rate contracts | Other current and non-current liabilities
Derivative [Line Items]
Derivative Liability, Fair Value	$ (31.6)	$ (14.4)

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2015

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

NOTE P. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In May 2015, the Company redeemed $100,000 and $450,000 of 7.125% Senior Notes held by Lawrence E. Dewey, our Chairman, President and Chief Executive Officer, and David S. Graziosi, our Executive Vice President, Chief Financial Officer and Treasurer, respectively, at the specified redemption price in the governing indenture equal to 103.563% of the principal amount plus any accrued and unpaid interest. Refer to NOTE F for additional details.

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2015

Summary of Other Intangible Assets

The following presents a summary of other intangible assets (dollars in millions):

	September 30, 2015							December 31, 2014
	Intangible assets, gross		Accumulated amortization			Intangible assets, net		Intangible assets, gross		Accumulated amortization			Intangible assets, net
Other intangible assets:
Trade name	$	870.0	$	—		$	870.0	$	870.0	$	—		$	870.0
Customer relationships — defense		62.3		(30.4	)		31.9		62.3		(27.9	)		34.4
Customer relationships — commercial		831.8		(464.7	)		367.1		831.8		(426.9	)		404.9
Proprietary technology		476.3		(310.7	)		165.6		476.3		(282.0	)		194.3
Non-compete agreement		17.3		(14.1	)		3.2		17.3		(12.8	)		4.5
Patented technology — defense		28.2		(27.0	)		1.2		28.2		(24.5	)		3.7
Tooling rights		4.5		(4.4	)		0.1		4.5		(4.3	)		0.2
Patented technology — commercial		260.6		(260.6	)		—		260.6		(260.6	)		—
Total	$	2,551.0	$	(1,111.9	)	$	1,439.1	$	2,551.0	$	(1,039.0	)	$	1,512.0

Amortization Expense Related to Other Intangible Assets for Next Five Years and Thereafter

Amortization expense related to other intangible assets for the next five years and thereafter is expected to be (dollars in millions):

	2016		2017		2018		2019		2020		Thereafter
Amortization expense	$	92.4	$	89.7	$	87.2	$	85.7	$	49.9	$	140.6

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Summary of Outstanding Foreign Currency Forward Contracts (Detail) - Derivatives not designated as hedging instruments	Sep. 30, 2015 USD ($)	Sep. 30, 2015 JPY (¥)	Dec. 31, 2014 USD ($)	Dec. 31, 2014 JPY (¥)
Derivatives, Fair Value [Line Items]
Notional Amount	$ 800,000,000		$ 750,000,000
Foreign currency contracts
Derivatives, Fair Value [Line Items]
Assets Fair Value	100,000
Liabilities Fair Value			(300,000)
Foreign currency contracts | Japanese Yen
Derivatives, Fair Value [Line Items]
Assets Fair Value	$ 100,000
Liabilities Fair Value			$ (300,000)
Notional Amount | ¥		¥ 300,000,000		¥ 300,000,000

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Summary of Goodwill and Other Intangible Assets (Detail) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Goodwill and Intangible Assets Disclosure [Line Items]
Trade name	$ 870.0	$ 870.0
Intangible assets, gross	2,551.0	2,551.0
Accumulated amortization	(1,111.9)	(1,039.0)
Intangible assets, net	1,439.1	1,512.0
Customer relationships - defense
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	62.3	62.3
Accumulated amortization	(30.4)	(27.9)
Intangible assets, net	31.9	34.4
Customer relationships - commercial
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	831.8	831.8
Accumulated amortization	(464.7)	(426.9)
Intangible assets, net	367.1	404.9
Proprietary technology
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	476.3	476.3
Accumulated amortization	(310.7)	(282.0)
Intangible assets, net	165.6	194.3
Non-compete agreement
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	17.3	17.3
Accumulated amortization	(14.1)	(12.8)
Intangible assets, net	3.2	4.5
Patented technology - defense
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	28.2	28.2
Accumulated amortization	(27.0)	(24.5)
Intangible assets, net	1.2	3.7
Tooling rights
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	4.5	4.5
Accumulated amortization	(4.4)	(4.3)
Intangible assets, net	0.1	0.2
Patented technology - commercial
Goodwill and Intangible Assets Disclosure [Line Items]
Intangible assets, gross	260.6	260.6
Accumulated amortization	$ (260.6)	$ (260.6)

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 169.3	$ 178.1
Add (deduct) items included in net income not using (providing) cash:
Deferred income taxes	91.5	105.2
Amortization of intangible assets	72.9	74.1
Depreciation of property, plant and equipment	65.8	71.0
Premiums and expenses on tender offer and redemption of long-term debt	25.3
Unrealized loss (gain) on derivatives	17.5	(12.8)
Excess tax benefit from stock-based compensation	(8.2)	(12.8)
Stock-based compensation	7.2	11.1
Amortization of deferred financing costs	5.7	6.2
Loss associated with impairment of long-lived assets	1.3
Other	2.5	5.8
Changes in assets and liabilities:
Accounts receivable	(19.3)	(67.4)
Inventories	(16.0)	(3.7)
Accounts payable	(10.5)	33.0
Other assets and liabilities	(15.0)	28.2
Net cash provided by operating activities	390.0	416.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of long-lived assets	(30.1)	(37.6)
Investments in technology-related initiatives	(1.9)	(5.8)
Collateral for interest rate derivatives		1.7
Proceeds from disposal of assets	0.2	0.3
Net cash used for investing activities	(31.8)	(41.4)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases and redemption of long-term debt	(491.2)
Issuance of long-term debt	470.0
Repurchases of common stock	(296.3)	(249.8)
Payments on long-term debt	(110.2)	(88.4)
Dividend payments	(80.0)	(64.7)
Proceeds from exercise of stock options	22.5	34.6
Excess tax benefit from stock-based compensation	8.2	12.8
Debt financing fees	(7.7)	(1.0)
Taxes paid related to net share settlement of equity awards	(0.5)	(1.1)
Net cash used for financing activities	(485.2)	(357.6)
Effect of exchange rate changes on cash	12.4	6.4
Net (decrease) increase in cash and cash equivalents	(114.6)	23.4
Cash and cash equivalents at beginning of period	263.0	184.7
Cash and cash equivalents at end of period	148.4	208.1
Supplemental disclosures:
Interest paid	75.4	103.3
Income taxes paid	$ 5.0	$ 3.5

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FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2015

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE E. FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with the FASB’s authoritative accounting guidance on fair value measurements, fair value is the price (exit price) that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company primarily applies the market approach for recurring fair value measurements and utilizes the best available information that maximizes the use of observable inputs and minimizes the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs. The accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by the relevant guidance are as follows:

Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and publicly traded bonds.

Level 2 — Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes financial instruments that are valued using quoted prices in markets that are not active and those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 — Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all instruments subject to authoritative accounting guidance and includes, in Level 3, all of those whose fair value is based on significant unobservable inputs. As of September 30, 2015 and December 31, 2014, the Company did not have any Level 3 financial assets or liabilities.

The Company’s assets and liabilities that are measured at fair value include cash and cash equivalents, available-for-sale securities, derivative instruments, assets held in a rabbi trust and a deferred compensation obligation. The Company’s cash equivalents consist of short-term U.S. government backed securities. The Company’s available-for-sale securities consist of ordinary shares of Torotrak plc (“Torotrak”) associated with a license and exclusivity agreement with Torotrak. Torotrak’s listed shares are traded on the London Stock Exchange under the ticker symbol “TRK.” The Company’s derivative instruments consist of interest rate swaps, foreign currency forward contracts and commodity swaps. The Company’s assets held in the rabbi trust consist principally of publicly available mutual funds and target date retirement funds. The Company’s deferred compensation obligation is directly related to the fair value of assets held in the rabbi trust.

The Company’s valuation techniques used to calculate the fair value of cash and cash equivalents, available-for-sale securities, assets held in the rabbi trust and the deferred compensation obligation represent a market approach in active markets for identical assets that qualify as Level 1 in the fair value hierarchy. The Company’s valuation techniques used to calculate the fair value of derivative instruments represent a market approach with observable inputs that qualify as Level 2 in the fair value hierarchy.

The foreign currency contracts consist of forward rate contracts which are intended to hedge exposure of transactions denominated in certain currencies and reduce the impact of currency price volatility on the Company’s financial results. The commodity contracts consist of forward rate contracts which are intended to hedge exposure of transactions involving purchases of component parts and energy to power our facilities, reducing the impact of commodity price volatility on the Company’s financial results.

For the fair value measurement of foreign currency derivatives, the Company uses forward foreign exchange rates received from the issuing financial institution. These rates are periodically corroborated by comparing to third-party broker quotes. The foreign currency hedges are accounted for within the authoritative accounting guidance set forth on accounting for derivative instruments and hedging activities and have been recorded at fair value based upon quoted market rates. The fair values are included in Other current and non-current assets and liabilities in the Condensed Consolidated Balance Sheets. The Company generally does not elect to apply hedge accounting for these foreign currency contracts, and as a result, unrealized fair value adjustments and realized gains and losses are recorded in Other expense, net in the Condensed Consolidated Statements of Comprehensive Income during the period of change.

For the fair value measurement of commodity derivatives, the Company uses forward prices received from the issuing financial institution. These rates are periodically corroborated by comparing to third-party broker quotes. The commodity derivatives are accounted for within the authoritative accounting guidance set forth on accounting for derivative instruments and hedging activities and have been recorded at fair value based upon quoted market rates. The fair values are included in Other current and non-current assets and liabilities in the Condensed Consolidated Balance Sheets. The Company has either not qualified for or not elected hedge accounting treatment for these commodity contracts, and as a result, unrealized fair value adjustments and realized gains and losses are recorded in Other expense, net in the Condensed Consolidated Statements of Comprehensive Income.

For the fair value measurement of interest rate derivatives, the Company uses valuations from the issuing financial institution. The Company corroborates the valuation through the use of third-party valuation services using a standard replacement valuation model. The floating-to-fixed interest rate swaps are based on the London Interbank Offered Rate (“LIBOR”) which is observable at commonly quoted intervals. The fair values are included in other current and non-current assets and liabilities in the Condensed Consolidated Balance Sheets. The Company has not qualified for hedge accounting treatment for the interest rate swaps and, as a result, fair value adjustments are charged directly to Interest expense in the Condensed Consolidated Statements of Comprehensive Income.

The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of September 30, 2015 and December 31, 2014 (dollars in millions):

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						TOTAL
	September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014
Cash equivalents	$	76.0		$	55.0		$	—		$	—		$	76.0		$	55.0
Available-for-sale securities		5.6			8.6			—			—			5.6			8.6
Rabbi trust assets		4.5			2.9			—			—			4.5			2.9
Deferred compensation obligation		(4.5	)		(2.9	)		—			—			(4.5	)		(2.9	)
Derivative assets		—			—			0.1			0.0			0.1			0.0
Derivative liabilities		—			—			(33.0	)		(15.4	)		(33.0	)		(15.4	)
Total	$	81.6		$	63.6		$	(32.9	)	$	(15.4	)	$	48.7		$	48.2

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Other (Expense) Income, Net (Detail) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
	Apr. 07, 2015	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Components of Other Income (Expense) [Line Items]
Loss on intercompany foreign exchange		$ (2.8)	$ (1.6)	$ (1.9)	$ (3.4)
Unrealized (loss) gain on derivative contracts (see NOTE G)		(0.7)	0.2	(0.4)	1.7
Realized loss on derivative contracts (see NOTE G)		(0.3)	0.0	(1.0)	(1.0)
(Loss) gain on foreign exchange		(0.1)		0.8	(0.5)
Grant program income			0.7		2.1
Gain on negotiation of commercial agreement			2.0		2.0
Impairment loss on investments in technology-related initiatives			(2.0)		(2.0)
Public offering fees and expenses			(0.3)		(1.4)
Loss on repayments and redemptions of long-term debt	$ (22.7)		(0.3)	(0.2)	(0.3)
Other		(0.3)	(0.4)	(0.9)	(0.2)
Total		$ (4.2)	$ (1.7)	$ (3.6)	$ (3.0)

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2015

Summary of Fair Value of Financial Assets and (Liabilities)

The following table summarizes the fair value of the Company’s financial assets and (liabilities) as of September 30, 2015 and December 31, 2014 (dollars in millions):

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						TOTAL
	September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014
Cash equivalents	$	76.0		$	55.0		$	—		$	—		$	76.0		$	55.0
Available-for-sale securities		5.6			8.6			—			—			5.6			8.6
Rabbi trust assets		4.5			2.9			—			—			4.5			2.9
Deferred compensation obligation		(4.5	)		(2.9	)		—			—			(4.5	)		(2.9	)
Derivative assets		—			—			0.1			0.0			0.1			0.0
Derivative liabilities		—			—			(33.0	)		(15.4	)		(33.0	)		(15.4	)
Total	$	81.6		$	63.6		$	(32.9	)	$	(15.4	)	$	48.7		$	48.2

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Summary of Significant Accounting Policies - Additional Information (Detail) - USD ($) $ in Millions		9 Months Ended
	Apr. 07, 2015	Sep. 30, 2015
Summary Of Significant Accounting Policies [Line Items]
Debt issuance cost	$ 7.7	$ 29.9

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2015

COMMITMENTS AND CONTINGENCIES

NOTE O. COMMITMENTS AND CONTINGENCIES

Environmental Matters

Under the asset purchase agreement with General Motors Corporation (“Old GM”), Old GM agreed to indemnify the Company against certain environmental liabilities, including pre-acquisition offsite waste disposal from the Company’s facilities, former facilities associated with the business and any properties or facilities relating to the business that Old GM retained. While the Company is responsible for environmental liabilities that arise due to post-acquisition activities, General Motors Company (“GM”), as successor to Old GM’s obligations, has continued to perform remedial activities at the Company’s Indianapolis, Indiana manufacturing facilities relating to historical soil and groundwater contamination at the facilities. GM’s activities are referred to as the “Corrective Action” plan, pursuant to the asset purchase agreement, whereby it retained responsibility for completing all obligations covered by a voluntary Corrective Action Agreement that Old GM entered with the U.S. Environmental Protection Agency (“EPA”).

During the third quarter of 2015, the EPA determined that GM’s remedial activities were complete and that the migration of any contamination is under control, resulting in the Company assuming responsibility for operating, monitoring and maintaining the ongoing Corrective Action activities through an agreed order of consent (“AOC”) with the EPA.

As a result of the AOC, the Company has determined that appropriate liabilities for the operating, monitoring and maintaining the ongoing remedial activities can be reasonably estimated. As of September 30, 2015, the Company recorded approximately $14.0 million for the estimated undiscounted liabilities to be paid out over the next 30 years, including approximately $0.5 million recorded to Other current liabilities and approximately $13.5 million to Other non-current liabilities. The recorded liabilities will be adjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information becomes available. The Company expects to fund the expenditures for these activities from operating cash flow.

With the AOC, financial assurance is required by the EPA to complete the operation, monitoring and maintenance activities in the event we fail to do so. This financial assurance can take a variety of forms including, but not limited to meeting certain financial metrics, providing a letter of credit, or securing a bond or an insurance policy. The amount and method by which the Company will be required to fulfill is expected to be determined by early 2016.

It is the Company’s policy to record liabilities for environmental matters when remedial efforts are probable and the costs can be reasonably estimated. For other environmental matters, please refer to Part I, Item 1 and Item 1A in our 2014 Annual Report on Form 10-K.

Claims, Disputes, and Litigation

The Company is party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims and workers’ compensation claims. The Company believes that the ultimate liability, if any, in excess of amounts already provided for in the condensed consolidated financial statements or covered by insurance on the disposition of these matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.