Navistar Reports Fourth Quarter Results

Summary of Financial Results:

(Unaudited)

Quarters Ended October 31,

Years Ended October 31,

(in millions, except per share data)

2015

2014

2015

2014

Sales and revenues, net

$

2,488

$

3,008

$

10,140

$

10,806

Segment Results:

Truck

$

(36)

$

(40)

$

(141)

$

(380)

Parts

163

150

592

528

Global Operations

(27)

(56)

(67)

(274)

Financial Services

26

26

98

97

Loss from continuing operations, net of tax(A)

$

(51)

$

(72)

$

(187)

$

(622)

Net loss(A)

(50)

(72)

(184)

(619)

Diluted loss per share from continuing operations(A)

$

(0.62)

$

(0.88)

$

(2.29)

$

(7.64)

Diluted loss per share(A)

$

(0.61)

$

(0.88)

$

(2.25)

$

(7.60)

(A)   Amounts attributable to Navistar International Corporation.

Navistar International Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

Quarters Ended October 31,

Years Ended October 31,

(in millions, except per share data)

2015

2014

2015

2014

Sales and revenues

Sales of manufactured products, net

$

2,451

$

2,970

$

9,995

$

10,653

Finance revenues

37

38

145

153

Sales and revenues, net

2,488

3,008

10,140

10,806

Costs and expenses

Costs of products sold

2,093

2,635

8,670

9,534

Restructuring charges

54

15

76

42

Asset impairment charges

15

10

30

183

Selling, general and administrative expenses

204

262

908

979

Engineering and product development costs

62

78

288

331

Interest expense

80

80

307

314

Other (income) expense, net

7

(7)

(30)

(12)

Total costs and expenses

2,515

3,073

10,249

11,371

Equity in income of non-consolidated affiliates

—

4

6

9

Loss from continuing operations before income taxes

(27)

(61)

(103)

(556)

Income tax expense

(14)

(1)

(51)

(26)

Loss from continuing operations

(41)

(62)

(154)

(582)

Income from discontinued operations, net of tax

1

—

3

3

Net loss

(40)

(62)

(151)

(579)

Less: Net income attributable to non-controlling interests

10

10

33

40

Net loss attributable to Navistar International Corporation

$

(50)

$

(72)

$

(184)

$

(619)

Amounts attributable to Navistar International Corporation common shareholders:

Loss from continuing operations, net of tax

$

(51)

$

(72)

$

(187)

$

(622)

Income from discontinued operations, net of tax

1

—

3

3

Net loss

$

(50)

$

(72)

$

(184)

$

(619)

Earnings (loss) per share:

Basic:

Continuing operations

$

(0.62)

$

(0.88)

$

(2.29)

$

(7.64)

Discontinued operations

0.01

—

0.04

0.04

$

(0.61)

$

(0.88)

$

(2.25)

$

(7.60)

Diluted:

Continuing operations

$

(0.62)

$

(0.88)

$

(2.29)

$

(7.64)

Discontinued operations

0.01

—

0.04

0.04

$

(0.61)

$

(0.88)

$

(2.25)

$

(7.60)

Weighted average shares outstanding:

Basic

81.6

81.5

81.6

81.4

Diluted

81.6

81.5

81.6

81.4

Navistar International Corporation and Subsidiaries

Consolidated Balance Sheets

October 31,

October 31,

(in millions, except per share data)

2015

2014

ASSETS

Current assets

Cash and cash equivalents

$

912

$

497

Restricted cash and cash equivalents

—

40

Marketable securities

159

605

Trade and other receivables, net

429

553

Finance receivables, net

1,779

1,758

Inventories

1,135

1,319

Deferred taxes, net

36

55

Other current assets

172

186

Total current assets

4,622

5,013

Restricted cash

121

131

Trade and other receivables, net

13

25

Finance receivables, net

216

280

Investments in non-consolidated affiliates

66

73

Property and equipment, net

1,345

1,562

Goodwill

38

38

Intangible assets, net

57

90

Deferred taxes, net

128

145

Other noncurrent assets

86

86

Total assets

$

6,692

$

7,443

LIABILITIES and STOCKHOLDERS' DEFICIT

Liabilities

Current liabilities

Notes payable and current maturities of long-term debt

$

1,110

$

1,295

Accounts payable

1,301

1,564

Other current liabilities

1,377

1,372

Total current liabilities

3,788

4,231

Long-term debt

4,188

3,929

Postretirement benefits liabilities

2,995

2,862

Deferred taxes, net

14

14

Other noncurrent liabilities

867

1,025

Total liabilities

11,852

12,061

Redeemable equity securities

—

2

Stockholders' deficit

Series D convertible junior preference stock

2

3

Common stock (86.8 shares issued, and $0.10 par value per share and 220 shares authorized, all at both dates)

9

9

Additional paid-in capital

2,499

2,500

Accumulated deficit

(4,866)

(4,682)

Accumulated other comprehensive loss

(2,601)

(2,263)

Common stock held in treasury, at cost (5.3 and 5.4 shares, respectively)

(210)

(221)

Total stockholders' deficit attributable to Navistar International Corporation

(5,167)

(4,654)

Stockholders' equity attributable to non-controlling interests

7

34

Total stockholders' deficit

(5,160)

(4,620)

Total liabilities and stockholders' deficit

$

6,692

$

7,443

Navistar International Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Years Ended October 31,

(in millions)

2015

2014

Cash flows from operating activities

Net loss

$

(151)

$

(579)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

205

227

Depreciation of equipment leased to others

76

105

Deferred taxes, including change in valuation allowance

(18)

(15)

Asset impairment charges

30

183

Amortization of debt issuance costs and discount

37

49

Stock-based compensation

10

16

Provision for doubtful accounts, net of recoveries

(9)

20

Equity in income of non-consolidated affiliates, net of dividends

6

3

Write-off of debt issuance cost and discount

4

1

Other non-cash operating activities

(35)

(41)

Changes in other assets and liabilities, exclusive of the effects of businesses disposed:

Trade and other receivables

103

55

Finance receivables

(58)

(33)

Inventories

131

(129)

Accounts payable

(208)

84

Other assets and liabilities

(77)

(282)

Net cash provided by (used in) operating activities

46

Cash flows from investing activities

Purchases of marketable securities

(887)

(1,812)

Sales of marketable securities

1,247

1,576

Maturities of marketable securities

86

461

Net change in restricted cash and cash equivalents

42

(80)

Capital expenditures

(115)

(88)

Purchases of equipment leased to others

(83)

(189)

Proceeds from sales of property and equipment

22

43

Investments in non-consolidated affiliates

1

—

Proceeds from sales of affiliates

7

14

Business acquisitions, net of cash received

(4)

—

Net cash provided by (used in) investing activities

316

(75)

Cash flows from financing activities

Proceeds from issuance of securitized debt

549

82

Principal payments on securitized debt

(501)

(126)

Net change in secured revolving credit facilities

(22)

173

Proceeds from issuance of non-securitized debt

1,212

663

Principal payments on non-securitized debt

(990)

(862)

Net increase in notes and debt outstanding under revolving credit facilities

(106)

255

Principal payments under financing arrangements and capital lease obligations

(2)

(20)

Debt issuance costs

(25)

(15)

Proceeds from financed lease obligations

33

60

Proceeds from exercise of stock options

1

19

Dividends paid by subsidiaries to non-controlling interest

(36)

(50)

Other financing activities

(15)

—

Net cash provided by financing activities

98

179

Effect of exchange rate changes on cash and cash equivalents

(45)

(26)

Increase (decrease) in cash and cash equivalents

415

(258)

Cash and cash equivalents at beginning of the year

497

755

Cash and cash equivalents at end of the year

$

912

$

497

Navistar International Corporation and Subsidiaries

Segment Reporting

(Unaudited)

We define segment profit (loss) as net income (loss) from continuing operations attributable to Navistar International Corporation excluding income tax benefit (expense). The following tables present selected financial information for our reporting segments:

(in millions)

Truck

Parts

Global Operations

Financial

Services(A)

Corporate

and

Eliminations

Total

Three Months Ended October 31, 2015

External sales and revenues, net

$

1,706

$

640

$

102

$

37

$

3

$

2,488

Intersegment sales and revenues

37

9

13

21

(80)

—

Total sales and revenues, net

$

1,743

$

649

$

115

$

58

$

(77)

$

2,488

Income (loss) from continuing operations attributable to NIC, net of tax

$

(36)

$

163

$

(27)

$

26

$

(177)

$

(51)

Income tax expense

—

—

—

—

(14)

(14)

Segment profit (loss)

$

(36)

$

163

$

(27)

$

26

$

(163)

$

(37)

Depreciation and amortization

$

34

$

3

$

5

$

14

$

4

$

60

Interest expense

—

—

—

17

63

80

Equity in income (loss) of non-consolidated affiliates

1

1

(2)

—

—

—

Capital expenditures (B)

34

2

—

2

5

43

(in millions)

Truck

Parts

Global Operations

Financial

Services(A)

Corporate

and

Eliminations

Total

Three Months Ended October 31, 2014

External sales and revenues, net

$

2,079

$

676

$

215

$

38

$

—

$

3,008

Intersegment sales and revenues

52

15

9

22

(98)

—

Total sales and revenues, net

$

2,131

$

691

$

224

$

60

$

(98)

$

3,008

Income (loss) from continuing operations attributable to NIC, net of tax

$

(40)

$

150

$

(56)

$

26

$

(152)

$

(72)

Income tax expense

—

—

—

—

(1)

(1)

Segment profit (loss)

$

(40)

$

150

$

(56)

$

26

$

(151)

$

(71)

Depreciation and amortization

$

45

$

3

$

7

$

13

$

8

$

76

Interest expense

—

—

—

19

61

80

Equity in income (loss) of non-consolidated affiliates

2

1

1

—

—

4

Capital expenditures (B)

23

1

2

—

5

31

(in millions)

Truck

Parts

Global Operations

Financial

Services(A)

Corporate

and

Eliminations

Total

Year Ended October 31, 2015

External sales and revenues, net

$

7,055

$

2,475

$

455

$

145

$

10

$

10,140

Intersegment sales and revenues

158

38

51

96

(343)

—

Total sales and revenues, net

$

7,213

$

2,513

$

506

$

241

$

(333)

$

10,140

Income (loss) from continuing operations attributable to NIC, net of tax

$

(141)

$

592

$

(67)

$

98

$

(669)

$

(187)

Income tax expense

—

—

—

—

(51)

(51)

Segment profit (loss)

$

(141)

$

592

$

(67)

$

98

$

(618)

$

(136)

Depreciation and amortization

$

173

$

14

$

23

$

51

$

20

$

281

Interest expense

—

—

—

74

233

307

Equity in income (loss) of non-consolidated affiliates

5

4

(3)

—

—

6

Capital expenditures (B)

92

3

4

4

12

115

(in millions)

Truck

Parts

Global Operations

Financial

Services(A)

Corporate

and

Eliminations

Total

Year Ended October 31, 2014

External sales and revenues, net

$

7,255

$

2,493

$

905

$

153

$

—

$

10,806

Intersegment sales and revenues

218

58

35

79

(390)

—

Total sales and revenues, net

$

7,473

$

2,551

$

940

$

232

$

(390)

$

10,806

Income (loss) from continuing operations attributable to NIC, net of tax

$

(380)

$

528

$

(274)

$

97

$

(593)

$

(622)

Income tax expense

—

—

—

—

(26)

(26)

Segment profit (loss)

$

(380)

$

528

$

(274)

$

97

$

(567)

$

(596)

Depreciation and amortization

$

216

$

15

$

28

$

46

$

27

$

332

Interest expense

—

—

—

71

243

314

Equity in income (loss) of non-consolidated affiliates

5

4

—

—

—

9

Capital expenditures (B)

65

6

8

1

8

88

(in millions)

Truck

Parts

Global Operations

Financial

Services

Corporate

and

Eliminations

Total

Segment assets, as of:

October 31, 2015

$

1,876

$

641

$

409

$

2,455

$

1,311

$

6,692

October 31, 2014 (C)

2,245

672

657

2,582

1,287

7,443

(A)

Total sales and revenues in the Financial Services segment include interest revenues of $40 million and $175 million for the three months and year ended October 31, 2015, respectively and $44 million and $170 million for the three months and year ended October 31, 2014, respectively.

(B)

Exclusive of purchases of equipment leased to others.

(C)

During the third quarter of 2015, it was determined that multiemployer plan accounting should have been applied in recording postretirement benefits related to our Financial Services segment, which provides that assets and liabilities of a plan are recorded only on the parent company and that periodic contributions to the plan made by the participating subsidiary are charged to expense for the purposes of the subsidiary's financial statements.  As a result, we have reclassified $16 million of deferred tax assets between Financial Services and Corporate and Eliminations related to the postretirement benefits reclassified between NIC and Non-Guarantor Subsidiaries.  This reclassification did not impact consolidated segment assets for the year-ended October 31, 2014.

EBITDA reconciliation:

(in millions)

Three Months Ended October 31,

Years Ended October 31,

2015

2014

2015

2014

2013

2012

Loss from continuing operations attributable to NIC, net of tax

$

(51)

$

(72)

$

(187)

$

(622)

$

(857)

$

(2,939)

Plus:

Depreciation and amortization expense

60

76

281

332

417

323

Manufacturing interest expense(A)

63

61

233

243

251

171

Less:

Income tax benefit (expense)

(14)

(1)

(51)

(26)

171

(1,780)

EBITDA

$

86

$

66

$

378

$

(21)

$

(360)

$

(665)

(A)

Manufacturing interest expense is the net interest expense primarily generated for borrowings that support the manufacturing and corporate operations, adjusted to eliminate intercompany interest expense with our Financial Services segment. The following table reconciles Manufacturing interest expense to the consolidated interest expense:

Three Months Ended October 31,

Years Ended October 31,

2015

2014

2015

2014

2013

2012

(in millions)

Interest expense

$

80

$

80

$

307

$

314

$

321

$

259

Less:  Financial services interest expense

17

19

74

71

70

88

Manufacturing interest expense

$

63

$

61

$

233

$

243

$

251

$

171

Adjusted EBITDA reconciliation:

Three Months Ended

October 31,

Years EndedOctober 31,

(in millions)

2015

2014

2015

2014

2013

2012

EBITDA (reconciled above)

$

86

$

66

$

378

$

(21)

$

(360)

$

(665)

Less significant items of:

Adjustments to pre-existing warranties(A)

40

(10)

4

55

404

404

Brazil reporting unit impairment charges(B)

7

—

10

149

—

—

Brazil truck business actions(C)

—

29

6

29

—

—

North America asset impairment charges(D)

8

—

20

24

97

16

Restructuring of North American manufacturing operations(E)

—

27

—

41

—

7

Cost reduction and other strategic initiatives(F)

54

4

72

17

9

73

Debt refinancing charges(G)

14

—

14

12

13

8

Gain on settlement(H)

—

—

(10)

—

—

—

Mahindra Joint Venture divestiture (I)

(26)

—

Legal settlement (J)

(35)

—

Engineering integration costs (K)

—

66

Total adjustments

123

50

116

327

462

574

Adjusted EBITDA

$

209

$

116

$

494

$

306

$

102

$

(91)

Adjusted EBITDA margin

8.4

%

3.9

%

4.9

%

2.8

%

3.7

%

(2.8)

%

(A)

Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods.

(B)

In the fourth quarter of 2015, the Company recognized a total non-cash charge of $7 million for the impairment of certain intangible and long-lived assets in the Brazil truck asset group. In the third quarter of 2015, we determined that $3 million of trademark asset carrying value was impaired. In the second quarter of 2014, we recognized a non-cash charge of $149 million for the impairment of certain intangible assets of our Brazilian engine reporting unit, including the entire $142 million balance of goodwill and $7 million of trademark.

(C)

In the second quarter of 2015 our Global Operations segment recorded $6 million in inventory charges to right size the Brazil Truck business.  In the fourth quarter of 2014, the Global Operations segment recorded approximately $29 million in charges, primarily related to inventory, to right size the Brazil Truck business.

(D)

During the third and fourth quarters of 2015, certain long-lived assets were determined to be impaired, resulting in a charge of $3 million and $4 million, respectively. In the first quarter of 2015, the Truck segment recorded $7 million of asset impairment charges relating to certain operating leases. In 2014, the Truck segment recorded impairment charges related to certain amortizing intangible assets and long-lived assets which were determined to be fully impaired.  In the first quarter of 2014, the Truck segment recognized asset impairment charges of $18 million.

(E)

In the fourth quarter of 2014 the Truck segment recorded $27 million of charges related to our anticipated exit from our Indianapolis, Indiana foundry facility and certain assets in our Waukesha, Wisconsin foundry operations. The charges included $13 million of restructuring charges, $7 million of fixed asset impairment charges and $7 million of charges for inventory reserves. In the third quarter of 2014, the Truck segment recorded $14 million of charges related to the 2011 closure of its Chatham, Ontario plant, based on a ruling received from the Financial Services Tribunal in Ontario, Canada.

(F)

In 2015, we had $72 million of cost reduction and other strategic initiatives primarily consisting of restructuring charges in the third and fourth quarters. In the fourth quarter of 2015, we incurred restructuring charges of $54 million related to cost reduction actions, including the Company's offering of the VSP to the majority of our U.S.-based non-represented salaried employees and the impacts of an involuntary reduction-in-force in the U.S. and Brazil. In the third quarter of 2015, we incurred restructuring charges of $13 million related to cost reduction actions, including a reduction-in-force in the U.S. and Brazil. In 2014, the Company recorded restructuring charges related to cost reduction actions that included a reduction-in-force in the U.S and Brazil.

(G)

In the fourth quarter of 2015, we recorded $14 million of third party fees and unamortized debt issuance costs associated with the refinancing of our Amended Term Loan Credit Facility with a new Senior Secured Term Loan Credit Facility.  In the second quarter of 2014, we recorded $12 million of unamortized debt issuance costs and other charges associated with the repurchase of our 2014 Convertible Notes. In the second quarter of 2013, we recorded $6 million of unamortized debt issuance costs and other charges associated with the sale of additional Senior Notes.  In 2012, we recorded $8 million of unamortized debt issuance costs and other charges associated with our Senior Notes and Amended and Restated Asset-Based Credit Facility.

(H)

In the second quarter of 2015, the Global Operations segment recognized a $10 million net gain related to a settlement of a customer dispute. The $10 million net gain for the settlement included restructuring charges of $4 million.

(I)