Form 8-K NAVISTAR INTERNATIONAL For: Sep 08
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 8, 2016
NAVISTAR INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 1-9618 | 36-3359573 | ||
| (State or other jurisdiction of incorporation or organization) |
(Commission File No.) | (I.R.S. Employer Identification No.) |
| 2701 Navistar Drive Lisle, Illinois |
60532 | |||
| (Address of principal executive offices) | (Zip Code) | |||
Registrant’s telephone number, including area code (331) 332-5000
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| ITEM 2.02 | RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
In accordance with General Instruction B.2. to Form 8-K, the following information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
The information regarding the results of operations and financial condition of Navistar International Corporation (the “Company”) responsive to this Item 2.02, and contained in Exhibit 99.1 filed herewith, is incorporated into this Item 2.02 by reference.
| ITEM 7.01 | REGULATION FD DISCLOSURE |
In accordance with General Instruction B.2. to Form 8-K, the following information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
On September 8, 2016, the Company filed its Quarterly Report on Form 10-Q for the period ended July 31, 2016 with the Securities and Exchange Commission. The Company’s press release announcing the filing is attached as Exhibit 99.1 to this Current Report and is incorporated by reference herein.
The Company, which is one of the largest combined commercial truck, school bus and mid-range diesel engine producers, will present via live web cast its fiscal 2016 third quarter financial results on Thursday, September 8th. A live web cast is scheduled at approximately 9:00 a.m. Eastern (8:00 a.m. Central). Speakers on the web cast will include: Troy Clarke, President and Chief Executive Officer, Walter Borst, Executive Vice President and Chief Financial Officer, among other company leaders. A copy of the slides containing financial and operating information to be used as part of the web cast are attached as Exhibit 99.2 to this Current Report and are incorporated by reference herein.
The web cast can be accessed through a link on the investor relations page of Company’s web site at http://www.navistar.com/navistar/investors/webcasts. Investors are advised to log on to the website at least 15 minutes prior to the start of the web cast to allow sufficient time for downloading any necessary software. The web cast will be available for replay at the same address approximately three hours following its conclusion, and will remain available for a limited time.
Navistar International Corporation (NYSE: NAV) is a holding company whose subsidiaries and affiliates produce International® brand commercial and military trucks, proprietary diesel engines, and IC Bus™ brand school and commercial buses. An affiliate also provides truck and diesel engine service parts. Another affiliate offers financing services. Additional information is available at www.Navistar.com.
| ITEM 9.01. | FINANCIAL STATEMENTS AND EXHIBITS |
(d) Exhibits.
The following documents are filed herewith:
| Exhibit No. |
Description | |
| 99.1 | Press Release | |
| 99.2 | Slide Presentation for Third Quarter 2016 Financial Results Web Cast to be held on September 8, 2016 | |
Forward Looking Statements
Information provided and statements contained in this report that are not purely historical are forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements only speak as of the date of this report and Navistar International Corporation assumes no obligation to update the information included in this report. Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and assumptions. For a further description of these factors, see the risk factors set forth in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended October 31, 2015 and our quarterly report on Form 10-Q for the period ended July 31, 2016. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our results of operations and could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.
SIGNATURE
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 hereunto duly authorized.
| NAVISTAR INTERNATIONAL CORPORATION | ||||
| (Registrant) | ||||
| By: | /S/ WALTER G. BORST | |||
| Name: | Walter G. Borst | |||
| Title: | Executive Vice President and Chief Financial Officer | |||
Dated: September 8, 2016
EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1 | Press Release | |
| 99.2 | Slide Presentation for Third Quarter 2016 Financial Results Web Cast to be held on September 8, 2016 | |
`
Exhibit 99.1
|
Navistar International Corporation 2701 Navistar Dr. Lisle, IL 60532 USA P: 331-332-5000 W: navistar.com |
| Media contact: | Jim Spangler, [email protected], 331-332-5833 | |||
| Investor contact: | Ryan Campbell, [email protected], 331-332-7280 | |||
| Web site: | www.Navistar.com/newsroom |
NAVISTAR REPORTS THIRD QUARTER 2016 RESULTS
| • | Reports net loss of $34 million, or $0.42 per diluted share, on revenues of $2.1 billion |
| • | Generates $132 million of adjusted EBITDA in the quarter, flat year over year |
| • | Realized more than $300 million of total costs savings year to date |
LISLE, Ill. — September 8, 2016 — Navistar International Corporation (NYSE: NAV) today announced a third quarter 2016 net loss of $34 million, or $0.42 per diluted share, compared to a third quarter 2015 net loss of $28 million, or $0.34 per diluted share.
Third quarter 2016 EBITDA was $96 million versus EBITDA of $106 million in the same period one year ago. The third quarter 2016 included $36 million in adjustments, including $19 million of pre-existing warranty charges and $17 million in asset impairments and restructuring costs, compared to adjustments of $23 million in the third quarter of 2015. Excluding these items, adjusted EBITDA was $132 million in the third quarter 2016 compared to $129 million in the same period one year ago.
Revenues in the quarter were $2.1 billion, down 18% from the same period one year ago, primarily reflecting lower year-over-year chargeouts in the company’s core markets (Class 6-8 trucks and buses in the United States and Canada), which was impacted by softer industry conditions, primarily in the Class 8 market.
The company achieved $32 million in structural cost reductions during the third quarter, raising year-to-date structural savings to $145 million. Combined with product and purchasing cost savings, the company’s total year-to-date costs savings exceed $300 million.
“This quarter’s results show that we continue to make progress in the face of tougher market conditions, particularly in the heavy segment,” said Troy A. Clarke, Navistar president and chief executive officer. “As we pursue our goal of market share growth, we do see some encouraging signs in the area of order share, where year-to-date share of new orders continues to be up for the past three quarters. We are confident that as the industry works through its near term challenges, particularly in Class 8, our improvements in order share will translate to improved retail share as well.”
Navistar ended third quarter 2016 with $687 million in consolidated cash, cash equivalents and marketable securities. Manufacturing cash, cash equivalents and marketable securities were $640 million at the end of the quarter.
The company had a number of commercial and product highlights during its third quarter. Regarding new products, Navistar announced the expansion of its medium-duty engine offerings to include the Cummins L9 engine for its IC Bus RE Series school bus and demonstrated a gasoline-powered CE School Bus, which it plans to add to its school bus portfolio.
Navistar also made some impressive strides in bringing new technologies to market. The company announced its GPS-based Predictive Cruise Control Technology; continued to make progress in Connected Services with OnCommand Connection, which now serves more than 230,000 connected trucks; and launched its Accelerator write-up tool, a first-of-its-kind mobile application that will streamline the write-up and diagnostic process to improve customer uptime.
Finally, the company has continued to build on its partnerships with some of the best companies in the industry. In Q3, Navistar expanded on its partnership with General Motors by entering into an agreement to manufacture GM’s Cutaway G Van commercial chassis, which will go into production in early 2017.
Earlier this week, Navistar announced that it has formed a wide-ranging strategic alliance with Volkswagen Truck & Bus, which includes an equity investment in Navistar by Volkswagen Truck & Bus and framework agreements for strategic technology and supply collaboration and a procurement joint venture. The planned alliance will enable Navistar to offer customers expanded access to leading-edge products and services through collaboration on technology and the licensing and supply of Volkswagen Truck & Bus’s products and components, while better optimizing its product development spend.
Navistar expects significant synergies from both the strategic technology collaboration and the procurement joint venture. The company expects the alliance to be accretive beginning in the first year, and for cumulative synergies for Navistar to ramp up to at least $500 million over the first five years. By year five, it expects the alliance will generate annual synergies of at least $200 million for Navistar. This annual run rate is expected to grow materially thereafter as the companies continue to introduce technologies from the collaboration.
“We are making significant investments in new products, services and technologies and partnerships that set us apart as the leader in Uptime and a company clearly focused on our customers’ needs,” Clarke said. “This company is well positioned - operationally and product and service wise - to capitalize as market conditions improve.”
The company maintained the following guidance for fiscal year 2016:
| • | Revenue of $8.2 billion - $8.6 billion. |
| • | Adjusted EBITDA of $550 million - $600 million. |
| • | Manufacturing cash to be approximately $800 million at year end. |
SEGMENT REVIEW
Summary of Financial Results:
| (Unaudited) | ||||||||||||||||
| Third Quarter | Nine Months Ended | |||||||||||||||
| (in millions, except per share data) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Sales and revenues, net |
$ | 2,086 | $ | 2,538 | $ | 6,048 | $ | 7,652 | ||||||||
| Segment Results: |
||||||||||||||||
| Truck |
$ | (54 | ) | $ | (36 | ) | $ | (128 | ) | $ | (105 | ) | ||||
| Parts |
152 | 151 | 478 | 429 | ||||||||||||
| Global Operations |
(5 | ) | (26 | ) | (19 | ) | (40 | ) | ||||||||
| Financial Services |
26 | 26 | 77 | 72 | ||||||||||||
| Loss from continuing operations, net of tax(A) |
$ | (34 | ) | $ | (30 | ) | $ | (63 | ) | $ | (136 | ) | ||||
| Net loss(A) |
(34 | ) | (28 | ) | (63 | ) | (134 | ) | ||||||||
| Diluted loss per share from continuing operations(A) |
$ | (0.42 | ) | $ | (0.37 | ) | $ | (0.77 | ) | $ | (1.67 | ) | ||||
| Diluted loss per share(A) |
$ | (0.42 | ) | $ | (0.34 | ) | $ | (0.77 | ) | $ | (1.64 | ) | ||||
| (A) | Amounts attributable to Navistar International Corporation. |
Truck Segment — Truck segment net sales declined 24% to $1.4 billion compared to third quarter 2015, due to lower core truck and export truck volumes, a shift in product mix in the company’s core market and lower used truck revenue. Chargeouts in the company’s core markets were down 23% year over year.
For the third quarter 2016, the Truck segment recorded a loss of $54 million, compared with a year-ago third quarter loss of $36 million. The Truck segment’s loss increased due to higher adjustments to pre-existing warranty and lower used truck margins, which more than offset the impact of a positive shift in product mix, lower structural and product costs, and improved purchasing costs.
Parts Segment — Parts segment net sales declined $28 million or 4% versus third quarter 2015 due to lower volumes, primarily driven by soft market conditions in its Core and Mexico markets.
For the third quarter 2016, the Parts segment recorded a profit of $152 million, flat compared to third quarter 2015, primarily due to margin improvements in its U.S. market and the impact of cost improvement initiatives that were offset by unfavorable movements in foreign currency exchange rates.
Global Operations Segment — Global Operations net sales declined $24 million year over year to $85 million, primarily due to a decrease in volumes in its South American engine operations. The continued economic downturn in the Brazil economy contributed to 46% lower engine volumes versus third quarter 2015.
For the third quarter 2016, the Global Operations segment recorded a loss of $5 million compared to a year-ago third quarter loss of $26 million. The 81% year-over-year improvement was primarily driven by lower manufacturing and structural costs resulting from prior year restructuring and cost reduction efforts.
Financial Services Segment — Financial Services net revenues decreased by $3 million to $60 million compared to third quarter 2015 primarily due to lower overall finance receivable balances and unfavorable movements in foreign currency in its Mexico portfolio.
For the third quarter 2015, the Financial Services segment recorded a profit of $26 million, equal to third quarter 2015. Gains from operating lease early terminations, decreases in the provisions for loan losses in Mexico and ongoing cost reduction initiatives were offset by an increase in interest expense, the year-over-year decrease in revenues and the unfavorable movement in foreign currency exchange rates.
About Navistar
Navistar International Corporation (NYSE: NAV) is a holding company whose subsidiaries and affiliates produce International brand commercial and military trucks, proprietary diesel engines, and IC Bus brand school and commercial buses. An affiliate also provides truck and diesel engine service parts. Another affiliate offers financing services. Additional information is available at www.Navistar.com.
Forward-Looking Statement
Information provided and statements contained in this report that are not purely historical are forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements only speak as of the date of this report and the company assumes no obligation to update the information included in this report. Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as believe, expect, anticipate, intend, plan, estimate, or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and assumptions. For a further description of these factors, see the risk factors set forth in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended October 31, 2015 and our quarterly report on Form 10-Q for the period ended July 31, 2016. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.
Navistar International Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (in millions, except per share data) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Sales and revenues |
||||||||||||||||
| Sales of manufactured products, net |
$ | 2,052 | $ | 2,501 | $ | 5,946 | $ | 7,544 | ||||||||
| Finance revenues |
34 | 37 | 102 | 108 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Sales and revenues, net |
2,086 | 2,538 | 6,048 | 7,652 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Costs and expenses |
||||||||||||||||
| Costs of products sold |
1,757 | 2,172 | 5,068 | 6,577 | ||||||||||||
| Restructuring charges |
5 | 13 | 11 | 22 | ||||||||||||
| Asset impairment charges |
12 | 7 | 17 | 15 | ||||||||||||
| Selling, general and administrative expenses |
197 | 220 | 604 | 704 | ||||||||||||
| Engineering and product development costs |
62 | 71 | 181 | 226 | ||||||||||||
| Interest expense |
84 | 75 | 246 | 227 | ||||||||||||
| Other income, net |
(15 | ) | (6 | ) | (62 | ) | (37 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total costs and expenses |
2,102 | 2,552 | 6,065 | 7,734 | ||||||||||||
| Equity in income of non-consolidated affiliates |
2 | 3 | 3 | 6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loss from continuing operations before income taxes |
(14 | ) | (11 | ) | (14 | ) | (76 | ) | ||||||||
| Income tax expense |
(14 | ) | (12 | ) | (25 | ) | (37 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loss from continuing operations |
(28 | ) | (23 | ) | (39 | ) | (113 | ) | ||||||||
| Income from discontinued operations, net of tax |
— | 2 | — | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss |
(28 | ) | (21 | ) | (39 | ) | (111 | ) | ||||||||
| Less: Net income attributable to non-controlling interests |
6 | 7 | 24 | 23 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss attributable to Navistar International Corporation |
$ | (34 | ) | $ | (28 | ) | $ | (63 | ) | $ | (134 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| Amounts attributable to Navistar International Corporation common shareholders: |
| |||||||||||||||
| Loss from continuing operations, net of tax |
$ | (34 | ) | $ | (30 | ) | $ | (63 | ) | $ | (136 | ) | ||||
| Income from discontinued operations, net of tax |
— | 2 | — | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss |
$ | (34 | ) | $ | (28 | ) | $ | (63 | ) | $ | (134 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| Earnings (loss) per share: |
||||||||||||||||
| Basic: |
||||||||||||||||
| Continuing operations |
$ | (0.42 | ) | $ | (0.37 | ) | $ | (0.77 | ) | $ | (1.67 | ) | ||||
| Discontinued operations |
— | 0.03 | — | 0.03 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | (0.42 | ) | $ | (0.34 | ) | $ | (0.77 | ) | $ | (1.64 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Diluted: |
||||||||||||||||
| Continuing operations |
$ | (0.42 | ) | $ | (0.37 | ) | $ | (0.77 | ) | $ | (1.67 | ) | ||||
| Discontinued operations |
— | 0.03 | — | 0.03 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | (0.42 | ) | $ | (0.34 | ) | $ | (0.77 | ) | $ | (1.64 | ) | |||||
|
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|
|
|
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|
|
|||||||||
| Weighted average shares outstanding: |
||||||||||||||||
| Basic |
81.7 | 81.6 | 81.7 | 81.5 | ||||||||||||
| Diluted |
81.7 | 81.6 | 81.7 | 81.5 | ||||||||||||
Navistar International Corporation and Subsidiaries
Consolidated Balance Sheets
| July 31, | October 31, | |||||||
| (in millions, except per share data) | 2016 | 2015 | ||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 547 | $ | 912 | ||||
| Restricted cash and cash equivalents |
115 | — | ||||||
| Marketable securities |
140 | 159 | ||||||
| Trade and other receivables, net |
301 | 429 | ||||||
| Finance receivables, net |
1,410 | 1,779 | ||||||
| Inventories, net |
1,084 | 1,135 | ||||||
| Deferred taxes, net |
— | 36 | ||||||
| Other current assets |
175 | 172 | ||||||
|
|
|
|
|
|||||
| Total current assets |
3,772 | 4,622 | ||||||
| Restricted cash |
66 | 121 | ||||||
| Trade and other receivables, net |
16 | 13 | ||||||
| Finance receivables, net |
203 | 216 | ||||||
| Investments in non-consolidated affiliates |
60 | 66 | ||||||
| Property and equipment (net of accumulated depreciation and amortization of $2,591 and $2,546, respectively) |
1,257 | 1,345 | ||||||
| Goodwill |
38 | 38 | ||||||
| Intangible assets (net of accumulated amortization of $133 and $120, respectively) |
56 | 57 | ||||||
| Deferred taxes, net |
153 | 128 | ||||||
| Other noncurrent assets |
98 | 86 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 5,719 | $ | 6,692 | ||||
|
|
|
|
|
|||||
| LIABILITIES and STOCKHOLDERS’ DEFICIT |
||||||||
| Liabilities |
||||||||
| Current liabilities |
||||||||
| Notes payable and current maturities of long-term debt |
$ | 1,389 | $ | 1,110 | ||||
| Accounts payable |
1,003 | 1,301 | ||||||
| Other current liabilities |
1,141 | 1,377 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
3,533 | 3,788 | ||||||
| Long-term debt |
3,676 | 4,188 | ||||||
| Postretirement benefits liabilities |
2,907 | 2,995 | ||||||
| Deferred taxes, net |
— | 14 | ||||||
| Other noncurrent liabilities |
737 | 867 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
10,853 | 11,852 | ||||||
| Stockholders’ deficit |
||||||||
| Series D convertible junior preference stock |
2 | 2 | ||||||
| Common stock, $0.10 par value per share (86.8 shares issued and 220 shares authorized at both dates) |
9 | 9 | ||||||
| Additional paid-in capital |
2,499 | 2,499 | ||||||
| Accumulated deficit |
(4,929 | ) | (4,866 | ) | ||||
| Accumulated other comprehensive loss |
(2,512 | ) | (2,601 | ) | ||||
| Common stock held in treasury, at cost (5.2 and 5.3 shares, respectively) |
(206 | ) | (210 | ) | ||||
|
|
|
|
|
|||||
| Total stockholders’ deficit attributable to Navistar International Corporation |
(5,137 | ) | (5,167 | ) | ||||
| Stockholders’ equity attributable to non-controlling interests |
3 | 7 | ||||||
|
|
|
|
|
|||||
| Total stockholders’ deficit |
(5,134 | ) | (5,160 | ) | ||||
|
|
|
|
|
|||||
| Total liabilities and stockholders’ deficit |
$ | 5,719 | $ | 6,692 | ||||
|
|
|
|
|
|||||
Navistar International Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended July 31, |
||||||||
| (in millions) | 2016 | 2015 | ||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | (39 | ) | $ | (111 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
111 | 165 | ||||||
| Depreciation of equipment leased to others |
53 | 56 | ||||||
| Deferred taxes, including change in valuation allowance |
— | (9 | ) | |||||
| Asset impairment charges |
17 | 15 | ||||||
| Loss on sales of investments and businesses, net |
2 | — | ||||||
| Amortization of debt issuance costs and discount |
27 | 28 | ||||||
| Stock-based compensation |
9 | 8 | ||||||
| Provision for doubtful accounts, net of recoveries |
9 | (6 | ) | |||||
| Equity in income of non-consolidated affiliates, net of dividends |
5 | 2 | ||||||
| Other non-cash operating activities |
(12 | ) | (28 | ) | ||||
| Changes in other assets and liabilities, exclusive of the effects of businesses disposed |
(196 | ) | (134 | ) | ||||
|
|
|
|
|
|||||
| Net cash used in operating activities |
(14 | ) | (14 | ) | ||||
|
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|
|
|
|||||
| Cash flows from investing activities |
||||||||
| Purchases of marketable securities |
(378 | ) | (515 | ) | ||||
| Sales of marketable securities |
358 | 764 | ||||||
| Maturities of marketable securities |
39 | 63 | ||||||
| Net change in restricted cash and cash equivalents |
(64 | ) | (192 | ) | ||||
| Capital expenditures |
(83 | ) | (72 | ) | ||||
| Purchases of equipment leased to others |
(94 | ) | (58 | ) | ||||
| Proceeds from sales of property and equipment |
20 | 12 | ||||||
| Investments in non-consolidated affiliates |
(1 | ) | — | |||||
| Proceeds from sales of affiliates |
36 | 7 | ||||||
| Acquisition of intangibles |
— | (4 | ) | |||||
|
|
|
|
|
|||||
| Net cash provided by (used in) investing activities |
(167 | ) | 5 | |||||
|
|
|
|
|
|||||
| Cash flows from financing activities |
||||||||
| Proceeds from issuance of securitized debt |
72 | 490 | ||||||
| Principal payments on securitized debt |
(69 | ) | (247 | ) | ||||
| Net change in secured revolving credit facilities |
26 | (9 | ) | |||||
| Proceeds from issuance of non-securitized debt |
163 | 166 | ||||||
| Principal payments on non-securitized debt |
(235 | ) | (234 | ) | ||||
| Net change in notes and debt outstanding under revolving credit facilities |
(151 | ) | (41 | ) | ||||
| Principal payments under financing arrangements and capital lease obligations |
(1 | ) | (2 | ) | ||||
| Debt issuance costs |
(12 | ) | (10 | ) | ||||
| Proceeds from financed lease obligations |
17 | 26 | ||||||
| Proceeds from exercise of stock options |
— | 1 | ||||||
| Dividends paid by subsidiaries to non-controlling interest |
(28 | ) | (27 | ) | ||||
| Other financing activities |
1 | (27 | ) | |||||
|
|
|
|
|
|||||
| Net cash provided by (used in) financing activities |
(217 | ) | 86 | |||||
|
|
|
|
|
|||||
| Effect of exchange rate changes on cash and cash equivalents |
33 | (27 | ) | |||||
|
|
|
|
|
|||||
| Increase (decrease) in cash and cash equivalents |
(365 | ) | 50 | |||||
| Cash and cash equivalents at beginning of the period |
912 | 497 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents at end of the period |
$ | 547 | $ | 547 | ||||
|
|
|
|
|
|||||
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 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 July 31, 2016 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 1,386 | $ | 589 | $ | 73 | $ | 34 | $ | 4 | $ | 2,086 | ||||||||||||
| Intersegment sales and revenues |
9 | 8 | 12 | 26 | (55 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 1,395 | $ | 597 | $ | 85 | $ | 60 | $ | (51 | ) | $ | 2,086 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | (54 | ) | $ | 152 | $ | (5 | ) | $ | 26 | $ | (153 | ) | $ | (34 | ) | ||||||||
| Income tax expense |
— | — | — | — | (14 | ) | (14 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | (54 | ) | $ | 152 | $ | (5 | ) | $ | 26 | $ | (139 | ) | $ | (20 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 29 | $ | 3 | $ | 4 | $ | 13 | $ | 4 | $ | 53 | ||||||||||||
| Interest expense |
— | — | — | 21 | 63 | 84 | ||||||||||||||||||
| Equity in income of non-consolidated affiliates |
1 | 1 | — | — | — | 2 | ||||||||||||||||||
| Capital expenditures(B) |
26 | — | — | 1 | 3 | 30 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Three Months Ended July 31, 2015 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 1,785 | $ | 614 | $ | 100 | $ | 37 | $ | 2 | $ | 2,538 | ||||||||||||
| Intersegment sales and revenues |
49 | 11 | 9 | 26 | (95 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 1,834 | $ | 625 | $ | 109 | $ | 63 | $ | (93 | ) | $ | 2,538 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | (36 | ) | $ | 151 | $ | (26 | ) | $ | 26 | $ | (145 | ) | $ | (30 | ) | ||||||||
| Income tax expense |
— | — | — | — | (12 | ) | (12 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | (36 | ) | $ | 151 | $ | (26 | ) | $ | 26 | $ | (133 | ) | $ | (18 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 40 | $ | 4 | $ | 6 | $ | 13 | $ | 5 | $ | 68 | ||||||||||||
| Interest expense |
— | — | — | 19 | 56 | 75 | ||||||||||||||||||
| Equity in income of non-consolidated affiliates |
1 | 1 | 1 | — | — | 3 | ||||||||||||||||||
| Capital expenditures(B) |
20 | 1 | 1 | — | 5 | 27 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Nine Months Ended July 31, 2016 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 3,926 | $ | 1,791 | $ | 221 | $ | 102 | $ | 8 | $ | 6,048 | ||||||||||||
| Intersegment sales and revenues |
81 | 23 | 33 | 75 | (212 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 4,007 | $ | 1,814 | $ | 254 | $ | 177 | $ | (204 | ) | $ | 6,048 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | (128 | ) | $ | 478 | $ | (19 | ) | $ | 77 | $ | (471 | ) | $ | (63 | ) | ||||||||
| Income tax expense |
— | — | — | — | (25 | ) | (25 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | (128 | ) | $ | 478 | $ | (19 | ) | $ | 77 | $ | (446 | ) | $ | (38 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 92 | $ | 10 | $ | 13 | $ | 37 | $ | 12 | $ | 164 | ||||||||||||
| Interest expense |
— | — | — | 59 | 187 | 246 | ||||||||||||||||||
| Equity in income (loss) of non-consolidated affiliates |
3 | 3 | (3 | ) | — | — | 3 | |||||||||||||||||
| Capital expenditures(B) |
70 | 2 | 2 | 1 | 8 | 83 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Nine Months Ended July 31, 2015 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 5,349 | $ | 1,835 | $ | 353 | $ | 108 | $ | 7 | $ | 7,652 | ||||||||||||
| Intersegment sales and revenues |
121 | 29 | 38 | 75 | (263 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 5,470 | $ | 1,864 | $ | 391 | $ | 183 | $ | (256 | ) | $ | 7,652 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | (105 | ) | $ | 429 | $ | (40 | ) | $ | 72 | $ | (492 | ) | $ | (136 | ) | ||||||||
| Income tax expense |
— | — | — | — | (37 | ) | (37 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | (105 | ) | $ | 429 | $ | (40 | ) | $ | 72 | $ | (455 | ) | $ | (99 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 139 | $ | 11 | $ | 18 | $ | 37 | $ | 16 | $ | 221 | ||||||||||||
| Interest expense |
— | — | — | 57 | 170 | 227 | ||||||||||||||||||
| Equity in income (loss) of non-consolidated affiliates |
4 | 3 | (1 | ) | — | — | 6 | |||||||||||||||||
| Capital expenditures(B) |
58 | 1 | 4 | 2 | 7 | 72 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Segment assets, as of: |
||||||||||||||||||||||||
| July 31, 2016 |
$ | 1,644 | $ | 608 | $ | 379 | $ | 2,132 | $ | 956 | $ | 5,719 | ||||||||||||
| October 31, 2015 |
1,876 | 641 | 409 | 2,455 | 1,311 | 6,692 | ||||||||||||||||||
| (A) | Total sales and revenues in the Financial Services segment include interest revenues of $43 million and $127 million for the three and nine months ended July 31, 2016, respectively, and $46 million and $135 million for the three and nine months ended July 31, 2015, respectively. |
| (B) | Exclusive of purchases of equipment leased to others. |
SEC Regulation G Non-GAAP Reconciliation
The financial measures presented below are unaudited and not in accordance with, or an alternative for, financial measures presented in accordance with U.S. generally accepted accounting principles (“GAAP”). The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP and are reconciled to the most appropriate GAAP number below.
Earnings (loss) Before Interest, Income Taxes, Depreciation, and Amortization (“EBITDA”):
We define EBITDA as our consolidated net income (loss) from continuing operations attributable to Navistar International Corporation, net of tax, plus manufacturing interest expense, income taxes, and depreciation and amortization. We believe EBITDA provides meaningful information to the performance of our business and therefore we use it to supplement our GAAP reporting. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results.
Adjusted EBITDA:
We believe that adjusted EBITDA, which excludes certain identified items that we do not consider to be part of our ongoing business, improves the comparability of year to year results, and is representative of our underlying performance. Management uses this information to assess and measure the performance of our operating segments. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the below reconciliations, and to provide an additional measure of performance.
Manufacturing Cash, Cash Equivalents, and Marketable Securities:
Manufacturing cash, cash equivalents, and marketable securities represents the Company’s consolidated cash, cash equivalents, and marketable securities excluding cash, cash equivalents, and marketable securities of our financial services operations. We include marketable securities with our cash and cash equivalents when assessing our liquidity position as our investments are highly liquid in nature. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of our ability to meet our operating requirements, capital expenditures, equity investments, and financial obligations.
EBITDA reconciliation:
| Three Months Ended July 31, |
||||||||
| (in millions) | 2016 | 2015 | ||||||
| Loss from continuing operations attributable to NIC, net of tax |
$ | (34 | ) | $ | (30 | ) | ||
| Plus: |
||||||||
| Depreciation and amortization expense |
53 | 68 | ||||||
| Manufacturing interest expense(A) |
63 | 56 | ||||||
| Less: |
||||||||
| Income tax expense |
(14 | ) | (12 | ) | ||||
|
|
|
|
|
|||||
| EBITDA |
$ | 96 | $ | 106 | ||||
|
|
|
|
|
|||||
| (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 July 31, |
||||||||
| (in millions) | 2016 | 2015 | ||||||
| Interest expense |
$ | 84 | $ | 75 | ||||
| Less: Financial services interest expense |
21 | 19 | ||||||
|
|
|
|
|
|||||
| Manufacturing interest expense |
$ | 63 | $ | 56 | ||||
|
|
|
|
|
|||||
10
Adjusted EBITDA Reconciliation:
| Three Months Ended July 31, |
||||||||
| (in millions) | 2016 | 2015 | ||||||
| EBITDA (reconciled above) |
$ | 96 | $ | 106 | ||||
|
|
|
|
|
|||||
| Less significant items of: |
||||||||
| Adjustments to pre-existing warranties(A) |
19 | 3 | ||||||
| North America asset impairment charges(B) |
11 | 4 | ||||||
| Brazil asset impairment charges(C) |
1 | 3 | ||||||
| Cost reduction and other strategic initiatives(D) |
5 | 13 | ||||||
|
|
|
|
|
|||||
| Total adjustments |
36 | 23 | ||||||
|
|
|
|
|
|||||
| Adjusted EBITDA |
$ | 132 | $ | 129 | ||||
|
|
|
|
|
|||||
| (A) | Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. |
| (B) | In the third quarter of 2016, the Truck segment recorded $11 million of asset impairment charges relating to certain long-lived assets. In the third quarter of 2015, certain long-lived assets were determined to be impaired, resulting in a charge of $3 million. |
| (C) | In the third quarters of 2016 and 2015, we determined that $1 million and $3 million, respectively, of trademark asset carrying value was impaired. |
| (D) | Cost reduction and other strategic initiatives relates to costs associated with the divestiture of non-strategic facilities and efforts to optimize our cost structure. In the third quarter of 2016, we incurred $5 million of restructuring charges related to the 2011 closure of our Chatham, Ontario plant, based on a ruling received from the Financial Services Tribunal in Ontario, Canada. 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. |
Manufacturing segment cash, cash equivalents, and marketable securities reconciliation:
| As of July 31, 2016 | ||||||||||||
| (in millions) | Manufacturing Operations |
Financial Services Operations |
Consolidated Balance Sheet |
|||||||||
| Assets |
||||||||||||
| Cash and cash equivalents |
$ | 510 | $ | 37 | $ | 547 | ||||||
| Marketable securities |
130 | 10 | 140 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cash, cash equivalents, and marketable securities |
$ | 640 | $ | 47 | $ | 687 | ||||||
|
|
|
|
|
|
|
|||||||
11
Q3 2016 earnings presentation September 8, 2016 Exhibit 99.2
Safe Harbor Statement and Other Cautionary Notes Information provided and statements contained in this presentation that are not purely historical are forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements only speak as of the date of this presentation and Navistar International Corporation assumes no obligation to update the information included in this presentation. Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and assumptions. For a further description of these factors, see the risk factors set forth in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended October 31, 2015 and our quarterly report on Form 10-Q for the period ended July 31, 2016. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our results of operations and could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events. The financial information herein contains audited and unaudited information and has been prepared by management in good faith and based on data currently available to the Company. Certain non-GAAP measures are used in this presentation to assist the reader in understanding our core manufacturing business. We believe this information is useful and relevant to assess and measure the performance of our core manufacturing business as it illustrates manufacturing performance. It also excludes financial services and other items that may not be related to the core manufacturing business or underlying results. Management often uses this information to assess and measure the underlying performance of our operating segments. We have chosen to provide this supplemental information to investors, analysts, and other interested parties to enable them to perform additional analyses of operating results. The non-GAAP numbers are reconciled to the most appropriate GAAP number in the appendix of this presentation.
Product Updates Cutaway G Van Expanding partnership with GM Propane-Powered IC Bus Completing major deliveries of propane school buses HX Series Bringing industry-leading durability, reliability and drivability Major New Vehicle Introduction First product from Project Horizon investment
Technology Updates Accelerator Write-Up Tool Streamlining the write-up and diagnostic process DriverFirst Philosophy Designing driver-focused vehicles OnCommand Connection Improving uptime for 230,000 vehicles Predictive Cruise Control Maximizing fuel economy
Long-term, Strategic Alliance with Volkswagen Truck & Bus Equity Investment Strategic Technology Collaboration Procurement Joint Venture Governance Volkswagen Truck & Bus will invest $256 million to take a 16.6% equity stake (post-dilution) in Navistar (subject to customary closing conditions) Two companies intend to enter into definitive agreements to collaborate on technology for powertrain systems, as well as other advanced technologies Procurement joint venture expected to provide greater global scale from joint sourcing activities Navistar will add two Volkswagen Truck & Bus representatives to its Board of Directors at closing of share issuance Parties plan to form a joint Alliance Board to oversee alliance arrangements
Alliance marks another step in Navistar’s journey to be a stronger, more profitable company Global strategic partnership Expanded product and service offerings Provides benefits from global scope and scale Additional customer choice Optimizes development costs Overtime provides incremental parts sales opportunities Increases liquidity and financial flexibility Key Benefits of Alliance with Volkswagen Truck & Bus
2016 Results Demonstrate Lower Breakeven Point Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. (A) Includes U.S. and Canada School buses and Class 6-8 trucks. (B) Amounts attributable to Navistar International Corporation. $ in millions, except per share and units Quarters Ended July 31 Nine Months Ended July 31 2016 2015 2016 2015 Chargeouts(A) 13,100 17,100 39,900 49,200 Sales and Revenues $2,086 $2,538 $6,048 $7,652 Loss from Continuing Operations, Net of Tax(B) $-34 $-30 $-63 $-,136 Diluted Loss Per Share from Continuing Operations(B) $-0.42 $-0.37 $-0.77 $-1.67 Adjusted EBITDA $132 $129 $396 $285
Q3 - Cost Savings Offsetting Revenue Headwinds Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. $ in millions Net Income (Loss)(A) Adjusted EBITDA Amounts attributable to Navistar International Corporation. Including adjustment of pre-existing warranty and other significant items.
YTD - Cost Savings and Parts Business Drive Earnings Improvement Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. $ in millions Net Income (Loss)(A) Adjusted EBITDA Amounts attributable to Navistar International Corporation. Including adjustment of pre-existing warranty and other significant items.
Q3 2016 Segment Results $ in millions Sales and Revenues Segment Profit Quarters Ended July 31 Quarters Ended July 31 2016 2015 2016 2015 Truck $1,395 $1,834 $-54 $-36 Parts $597 $625 $152 $151 Global Operations $85 $109 $-5 $-26 Financial Services $60 $63 $26 $26
1st Nine Months Segment Results $ in millions Sales and Revenues Segment Profit Nine Months Ended July 31 Nine Months Ended July 31 2016 2015 2016 2015 Truck $4,007 $5,470 $-,128 $-,105 Parts $1,814 $1,864 $478 $429 Global Operations $254 $391 $-19 $-40 Financial Services $177 $183 $77 $72
Used Truck Inventory Improved in Q3 Gross inventory balance: $430 million Inventory reserve: $166 million Net inventory balance: $264 million Manage trade receipts Export and domestic sales opportunities Gross and Net Used Truck Inventory $ in millions
Cash balance includes marketable securities. Excluding one-time items and pre-existing warranty. Manufacturing includes intercompany activities. Please see slide #22 in appendix for additional information. Q3 2016 Cash Update $ in millions Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Consolidated Manufacturing Q2 2016 Cash Balance(A) $817 $732 Consolidated Adjusted EBITDA(B) $132 $132 Capex/Cash Interest/Pension & OPEB Funding $-,159 $-,141 Change in Net Working Capital/Debt/Warranty/Other(C) $-,103 $-83 Q3 2016 Cash Balance(A) $687 $640
2016 Guidance Summary (A) Achieved over $300 million of 2016 cost reductions as of the third quarter Class 8 Industry 220-250K Core Markets Industry 330-360K Revenue $8.2-$8.6B Cost Reductions >$200M(A) Adjusted EBITDA $550-$600M Manufacturing Cash ~$800M
Appendix
U.S. and Canada Dealer Stock Inventory* *Includes U.S. and Canada Class 4-8 truck and Canada school bus inventory.
Retail Market Share in Commercial Vehicle Segments Class 6/7 Medium-Duty Class 8 Severe Service Class 8 Heavy Three Months Ended July 31, April 30, January 31, October 31, July 31, 2016 2016 2016 2015 2015 Core Markets (U.S. and Canada) Class 6 and 7 medium trucks ................................................. 20% 27% 20% 19% 24% Class 8 heavy trucks ............................................................. 9% 11% 10% 11% 12% Class 8 severe service trucks ................................................ 12% 11% 16% 15% 15% Combined class 8 trucks ....................................................... 10% 11% 11% 12% 13%
Worldwide Truck Chargeouts We define chargeouts as trucks that have been invoiced to customers. The units held in dealer inventory represent the principal difference between retail deliveries and chargeouts. This table summarizes our approximate worldwide chargeouts from our continuing operations. We define our Core markets to include U.S. and Canada School buses and Class 6 through 8 trucks. Our Core markets include CAT-branded units sold to Caterpillar under our North America supply agreement. Other markets primarily consist of Export Truck and Mexico and also include chargeouts related to Blue Diamond Truck (BDT) of 6,000 units during the nine months ended July 31, 2015. There were no third party chargeouts related to BDT during the three and nine months ended July 31, 2016 or during the three months ended July 31, 2015, as Ford no longer purchases from BDT. Three Months Ended July 31, % Change Nine Months Ended July 31, % Change (in units) 2016 2015 Change 2016 2015 Change Core Markets (U.S. and Canada) School buses ......................................... 3,900 3,500 400 11 % 8,500 8,500 — — % Class 6 and 7 medium trucks................. 3,500 3,800 (300) (8)% 13,600 14,500 (900) (6)% Class 8 heavy trucks ............................. 3,800 7,000 (3,200) (46)% 12,300 19,100 (6,800) (36)% Class 8 severe service trucks ................ 1,900 2,800 (900) (32)% 5,500 7,100 (1,600) (23)% Total Core Markets.................................. 13,100 17,100 (4,000) (23)% 39,900 49,200 (9,300) (19)% Non "core" military ............................... 200 100 100 N.M. 400 100 300 N.M. Other markets(A)..................................... 2,800 2,900 (100) (3)% 5,900 15,300 (9,400) (61)% Total worldwide units............................... 16,100 20,100 (4,000) (20)% 46,200 64,600 (18,400) (28)% Combined class 8 trucks........................ 5,700 9,800 (4,100) (42)% 17,800 26,200 (8,400) (32)% N.M. Not meaningful
Navistar Financial Corporation Highlights Financial Services segment profit of $26 million for Q3 2016, $77 million YTD U.S. financing availability of $403 million as of July 31, 2016 Financial Services debt/equity leverage of 3.3:1 Retail Notes Bank Facility Dealer Floor Plan $620 million facility reduces to $357 million by December 2016 Option to increase up to $700 million based on commitments Funding for retail notes, wholesale notes, retail accounts, and dealer open accounts On balance sheet NFSC wholesale trust as of July 31, 2016 $1 billion funding facility Variable portion matures May 2017 Term portions mature October 2016 and June 2017 On balance sheet Program management continuity Broad product offering Ability to support large fleets Access to less expensive capital C A P I T A L Funded by BMO Financial Group
Frequently Asked Questions Q1: What is included in Corporate and Eliminations? A:The primary drivers of Corporate and Eliminations are Corporate SG&A, pension and OPEB expense (excluding amounts allocated to the segments), annual incentive, manufacturing interest expense, and the elimination of intercompany sales and profit between segments. Q2: What is included in your equity in loss of non-consolidated affiliates? A:Equity in loss of non-consolidated affiliates is derived from our ownership interests in partially-owned affiliates that are not consolidated. Q3: What is your net income attributable to non-controlling interests? A:Net income attributable to non-controlling interests is the result of the consolidation of subsidiaries in which we do not own 100%, and is primarily comprised of Ford's non-controlling interest in our Blue Diamond Parts joint venture. Q4:What are your expected 2016 and beyond pension funding requirements? A:Future contributions are dependent upon a number of factors, principally the changes in values of plan assets, changes in interest rates and the impact of any funding relief currently under consideration. In 2014, we contributed $164 million to meet the minimum required contributions for all plans. In August 2014, the Highway and Transportation Funding Act of 2014, which included an extension of the pension funding interest rate relief, was signed into law. As a result, we lowered our funding expectations. We contributed $113 million to our pension plans during 2015. We currently expect to contribute approximately $100M to our pension plans during 2016. In 2017 and 2018, the Company will be required to contribute $100 to $200 million per year to the plans, depending on asset performance and discount rates. Q5:What is your expectation for future cash tax payments? A:Our cash tax payments are expected to remain low in 2016 and will gradually increase as we utilize available net operating losses (NOLs) and tax credits in future years.
Frequently Asked Questions Q6:What is the current balance of net operating losses as compared to other deferred tax assets? A: As of October 31, 2015 the Company had deferred tax assets for U.S. federal NOLs valued at $840 million, state NOLs valued at $145 million, and foreign NOLs valued at $176 million, for a total undiscounted cash value of $1.2 billion. In addition to NOLs, the Company had deferred tax assets for accumulated tax credits of $266 million and other deferred tax assets of $2.0 billion resulting in net deferred tax assets before valuation allowances of approximately $3.5 billion. Of this amount, $3.3 billion was subject to a valuation allowance at the end of FY2015. Q7:How does your FY 2016 Class 8 industry outlook compare to ACT Research? A: Q8: Please discuss the process from an order to a retail delivery? A: Orders* are customers’ written commitments to purchase vehicles. Order backlogs* are orders yet to be built as of the end of a period. Chargeouts are vehicles that have been invoiced to customers. Retail deliveries occur when customers take possession and register the vehicle. Units held in dealer inventory represent the principal difference between retail deliveries and chargeouts. _______________________________________ * Orders and units in backlog do not represent guarantees of purchases and are subject to cancellation. Q9: What is your manufacturing interest expense for Fiscal Year 2016? A: For the three and nine months ended July 31, 2016, manufacturing interest was $63 million and $187 million, respectively. Annual manufacturing interest for 2016 is forecasted to be ~$240 million. For reference, manufacturing interest expense was $233 million and $243 million for FY 2015 and 2014, respectively. U.S. and Canadian Class 8 Truck Sales Reconciliation to ACT - Retail Sales 2016 2016 2016 2016CY 2015CY 2014CY ACT* 221600 244500 244500 ,244,500 ,288,000 ,253,129 CY to FY adjustment 9545 9324 9324 Total (ACT comparable Class 8 to Navistar) 231145 253824 253824 Navistar Industry Retail Deliveries Combined Class 8 Trucks 220000 250000 240000 270000 240000 270000 Navistar difference from ACT -11145 18855 -13824 16176 -13824 16176 *Source: ACT N.A. Commercial Vehicle Outlook - August 2016 -4.8% 8.2% -5.4% 6.4% -5.4% 6.4%
Frequently Asked Questions Q10:What should we assume for capital expenditures in Fiscal Year 2016? A: For the three and nine months ended July 31, 2016, capital expenditures were $30 million and $83 million, respectively. Annual capital expenditures for 2016 is forecasted to be ~$125 million. In comparison, capital expenditures were $115 million and $88 million for FY 2015 and 2014, respectively. Q11: How do you define manufacturing free cash flow? A: Q12: What were your Worldwide Engine Shipments in the period? A: Three Months Ended July 31, % Change Nine Months Ended July 31, % Change (in units) 2016 2015 Change 2016 2015 Change OEM sales-South America........... 5,400 11,400 (6,000) (53)% 24,900 38,700 (13,800) (36)% Intercompany sales....................... 4,200 6,600 (2,400) (36)% 12,900 20,200 (7,300) (36)% Other OEM sales.......................... 900 1,800 (900) (50)% 3,000 7,300 (4,300) (59)% Total sales................................ 10,500 19,800 (9,300) (47)% 40,800 66,200 (25,400) (38)% ______________________ Amounts include intercompany activities from our Financial Services operations. During the nine months ended July 31, 2016, the Manufacturing operations received $80 million in dividends from Navistar Financial Corporation. Also, our Financial Services operations in Mexico extended working capital loans to our Manufacturing operations in Mexico for orders received. As of July 31, 2016, the borrowings of our Manufacturing operations in Mexico under these loan agreements totaled $51 million. Additionally, our Manufacturing operations increased $4 million under the Intercompany Used Truck Loan. Note: This slide contains non-GAAP information Three Months Ended Three Months Ended Three Months Ended Nine Months Ended (in millions) January 31, 2016 April 30, 2016 July 31, 2016 July 31, 2016 Consolidated Net Cash from Operating Acitvites -,102 -2 90 -14 Less: Net Cash from Financial Services Operations 173 -54 95 214 Net Cash from Manufacturing Operations (A) ....... -,275 $52 $-5 -,228 Capital Expenditures -29 -24 -29 -82 Manufacturing Free Cash Flow $-,304 $28 $-34 -,310
Outstanding Debt Balances July 31, October 31, (in millions) 2016 2015 Manufacturing operations Senior Secured Term Loan Credit Facility, as amended, due 2020, net of unamortized discount of $14 and $17, respectively……………………………………………..……………………………… $ 1,020 $ 1,023 8.25% Senior Notes, due 2022, net of unamortized discount of $16 and $18, respectively………… 1,184 1,182 4.50% Senior Subordinated Convertible Notes, due 2018, net of unamortized discount of $11 and $14, respectively……………………………………………………………………………………… 189 186 4.75% Senior Subordinated Convertible Notes, due 2019, net of unamortized discount of $26 and $32, respectively…………………………………………………………………………..………….. 385 379 Debt of majority-owned dealerships…………………………………………………………………. 13 28 Financing arrangements and capital lease obligations……………………………………………….. 44 49 Loan Agreement related to 6.5% Tax Exempt Bonds, due 2040…………………………….……… 225 225 Financed lease obligations…………………………………………………………………………… 61 111 Other…………………….......................…………………………………………………………….. 10 15 Total Manufacturing operations debt……………………………………………………………... 3,131 3,198 Less: Current Portion……………………………………………………………………………........ 67 103 Net long-term Manufacturing operations debt…………………………………………………..... $ 3,064 $ 3,095 July 31, October 31, (in millions) 2016 2015 Financial Services operations Asset-backed debt issued by consolidated SPEs, at fixed and variable rates, due serially through 2021………………………………………………………………………………………………….. $ 867 $ 870 Bank revolvers, at fixed and variable rates, due dates from 2016 through 2021……………………. 874 1,063 Commercial paper, at variable rates, program matures in 2017……………………………………... 93 86 Borrowings secured by operating and finance leases, at various rates, due serially through 2021…. 100 81 Total Financial Services operations debt ………………………………………………………… 1,934 2,100 Less: Current portion ………………………………………………………………………………... 1,322 1,007 Net long-term Financial Services operations debt………………………………………………... $ 612 $ 1,093
SEC Regulation G Non-GAAP Reconciliation SEC Regulation G Non-GAAP Reconciliation The financial measures presented below are unaudited and not in accordance with, or an alternative for, financial measures presented in accordance with U.S. generally accepted accounting principles ("GAAP"). The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP and are reconciled to the most appropriate GAAP number below Earnings (loss) Before Interest, Income Taxes, Depreciation, and Amortization (“EBITDA”): We define EBITDA as our consolidated net income (loss) from continuing operations attributable to Navistar International Corporation, net of tax, plus manufacturing interest expense, income taxes, and depreciation and amortization. We believe EBITDA provides meaningful information to the performance of our business and therefore we use it to supplement our GAAP reporting. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results.. Adjusted EBITDA: We believe that adjusted EBITDA, which excludes certain identified items that we do not consider to be part of our ongoing business, improves the comparability of year to year results, and is representative of our underlying performance. Management uses this information to assess and measure the performance of our operating segments. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the below reconciliations, and to provide an additional measure of performance. Adjusted EBITDA margin: We define Adjusted EBITDA margin as a percentage of the Company's consolidated sales and revenues. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the below reconciliations, and to provide an additional measure of performance. Manufacturing Cash, Cash Equivalents, and Marketable Securities: Manufacturing cash, cash equivalents, and marketable securities represents the Company’s consolidated cash, cash equivalents, and marketable securities excluding cash, cash equivalents, and marketable securities of our financial services operations. We include marketable securities with our cash and cash equivalents when assessing our liquidity position as our investments are highly liquid in nature. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of our ability to meet our operating requirements, capital expenditures, equity investments, and financial obligations. Structural costs consists of Selling, general and administrative expenses and Engineering and product development costs. Free Cash Flow consists of Net cash from operating activities and Capital Expenditures.
SEC Regulation G Non-GAAP Reconciliations Manufacturing segment cash and cash equivalents and marketable securities reconciliation: July 31, April 30, July 31, July 31, July 31, (in millions) 2016 2016 2015 2014 2013 Manufacturing Operations: Cash and cash equivalents……………………………………………………… $ 510 $ 527 $ 507 583 $ 517 $ 413 Marketable securities…………………………………………………………… 130 205 268 581 674 Manufacturing Cash and cash equivalents and Marketable securities……….. $ 640 $ 732 $ 775 733 $ 1,098 $ 1,087 Financial Services Operations: Cash and cash equivalents……………………………………………………… $ 37 $ 62 $ 40 37 $ 30 $ 12 Marketable securities…………………………………………………………… 10 23 25 37 34 Financial Services Cash and cash equivalents and Marketable securities…… $ 47 $ 85 $ 65 62 $ 67 $ 46 Consolidated Balance Sheet: Cash and cash equivalents……………………………………………………… $ 547 $ 589 $ 547 620 $ 547 $ 425 Marketable securities…………………………………………………………… 140 228 293 618 708 Consolidated Cash and cash equivalents and Marketable securities………… $ 687 $ 817 $ 840 795 $ 1,165 $ 1,133 July 31, July 31, July 31, July 31, 2012 2011 2010 2009 Manufacturing Operations: Cash and cash equivalents……………………………………………………… $ 488 $ 413 $ 476 $ 751 Marketable securities…………………………………………………………… 139 600 281 0 Manufacturing Cash and cash equivalents and Marketable securities……….. $ 627 $ 1,013 $ 757 $ 751 Financial Services Operations: Cash and cash equivalents……………………………………………………… $ 59 $ 31 $ 39 $ 70 Marketable securities…………………………………………………………… 20 20 20 0 Financial Services Cash and cash equivalents and Marketable securities…… $ 79 $ 51 $ 59 $ 70 Consolidated Balance Sheet: Cash and cash equivalents……………………………………………………… $ 547 $ 444 $ 515 $ 821 Marketable securities…………………………………………………………… 159 620 301 0 Consolidated Cash and cash equivalents and Marketable securities………… $ 706 $ 1,064 $ 816 $ 821
SEC Regulation G Non-GAAP Reconciliations Earnings (loss) before interest, taxes, depreciation, and amortization ("EBITDA") reconciliation ______________________ (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: ______________________ * For more detail on the items noted, please see the footnotes on slide 27. Quarters Ended July 31, Nine Months Ended July 31, (in millions) 2016 2015 2016 2015 EBITDA (reconciled above) $ 96 $ 106 $ 313 $ 292 Less significant items of: Adjustments to pre-existing warranties (A)…………………………….……… 19 3 70 -36 North America asset impairment charges (B)…………………………....….... 11 4 16 12 Brazil asset impairment charges (C) …………………………..…....….……... 1 3 1 3 Cost reduction and other strategic initiatives (D)………………………………. 5 13 11 18 Gain on settlement (E)………………………………………………………… — — — -10 Brazil truck business actions (F)………………………………………………. — — — 6 One-time fee received (G)……………………………………………………. — — -15 — Total adjustments 36 23 83 -7 Adjusted EBITDA $ 132 $ 129 $ 396 $ 285 Adjusted EBITDA Margin 6.3% 5.8% 6.5% 3.7% 2421 Quarters Ended July 31, Nine Months Ended July 31, (in millions) 2016 2015 2016 2015 2013 Loss from continuing operations attributable to NIC, net of tax $ -34 $ -30 $ -63 $ -136 $ -153 Plus: Depreciation and amortization expense 53 68 164 221 87 Manufacturing interest expense (A)………………………………………………. 63 56 187 170 63 Less: Income tax expense -14 -12 -25 -37 224 EBITDA $ 96 $ 106 $ 313 $ 292 $ -227 Quarters Ended April 30, (in millions) 2015 2014 Interest expense ……………………………………………………………….. 75 74 Less: Financial services interest expense ………………………………….. 18 17 Manufacturing interest expense ……………………..……………………… 57 $57 Quarters Ended April 30, (in millions) 2015 2014 EBITDA (reconciled above) …......…………………………………… $85 $-,119 Less significant items of: Adjustments to pre-existing warranties(A) ………………………...... 18 42 Restructuring charges(D) ………………………………...….………… 2 8 Asset impairment charges(C) ………...……………………………….. 1 151 Gain on settlement(E) ………………………………………………….. -10 — Brazil truck business actions(F) …….....……………………………… 6 — match below Total adjustments 17 201 Adjusted EBITDA …......………………………………………….....…… $102 $82 Quarters Ended April 30, (in millions) 2015 2014 Expense (income): Adjustments to pre-existing warranties(A) $18 $42 Accelerated depreciation(B) 12 — Asset impairment charges(C) 1 151 Other restructuring charges and strategic initiatives(D) 2 8 Gain on settlement(E) -10 — Brazil truck business actions(F) 6 — Brazilian tax adjustments(G) — 29 (A) Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. (B) In the first and second quarter of 2015, the Truck segment recognized charges of $13 million and $12 million, respectively, for the acceleration of depreciation of certain assets related to the foundry facilities. (C) In the second quarter and first half of 2015, the Company concluded it had a triggering event related to certain operating leases, as a result, the Truck segment recorded $1 million and $7 million, respectively, of asset impairment charges. 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. Due to slower than expected growth in the Brazilian economy causing declines in actual and forecasted results, we tested the goodwill of our Brazilian engine reporting unit and trademark for potential impairment. As a result, we determined that the entire $142 million balance of goodwill and $7 million of trademark were impaired. Additionally, in the first quarter of 2014, the Company concluded it had a triggering event related to potential sales of assets requiring assessment of impairment for certain intangible and long-lived assets in the Truck segment. As a result, the Truck segment recognized asset impairment charges of $18 million. (D) In the second quarter of 2014, we incurred restructuring charges of $8 million related to cost reduction actions that included a reduction-in-force in the U.S. (E) In the second quarter of 2015, the Global Operations segment recognized a $10 million gain resulting from a customer settlement, which includes an offsetting restructuring charge of $4 million. (F) In the second quarter and first half of 2015 our Global Operations segment recorded $6 million in inventory charges to right size the Brazil Truck business. (G) During the second quarter of 2014, our evaluation of the realizability of our Brazilian deferred tax assets resulted in a determination that a valuation allowance was required, due to a deterioration of operating performance in Brazil, an increase in net operating loss carryforwards, and the impairment of certain Brazilian intangible assets. As a result, we recorded a net expense of $29 million related to establishment of the valuation allowance and tax impact from the impairment of certain intangible assets. The above items, except for the Brazilian tax adjustments, did not have a material impact on taxes due to the valuation allowances on our U.S. deferred tax assets, which was established in the fourth quarter of 2012. Quarters Ended April 30, (in millions) 2015 2014 Loss from continuing operations attributable to NIC, net of tax ………… $ -64 $ -298 Plus: Depreciation and amortization expense ……………………………….. 74 99 Manufacturing interest expense(A) ………………………………….…. 57 57 Less: Income tax benefit (expense) …………………………………………… -18 -23 EBITDA ………………………………………………………………………… $ 85 $ $-,119 Quarters Ended July 31, Nine Months Ended July 31, (in millions) 2016 2015 2016 2015 Interest expense $ 84 $ 75 $ 246 $ 227 Less: Financial services interest expense 21 19 59 57 Manufacturing interest expense $ 63 $ 56 $ 187 $ 170 Quarters Ended April 30, (in millions) 2015 2014 EBITDA (reconciled above) …......…………………………………… $85 $-,119 Less significant items of: Adjustments to pre-existing warranties(A) ………………………...... 18 42 Restructuring charges(D) ………………………………...….………… 2 8 Asset impairment charges(C) ………...……………………………….. 1 151 Gain on settlement(E) ………………………………………………….. -10 — Brazil truck business actions(F) …….....……………………………… 6 — Total adjustments 17 201 Adjusted EBITDA …......………………………………………….....…… $102 $82 Quarters Ended April 30, (in millions) 2015 2014 Expense (income): Adjustments to pre-existing warranties(A) $18 $42 Accelerated depreciation(B) 12 — Asset impairment charges(C) 1 151 Other restructuring charges and strategic initiatives(D) 2 8 Gain on settlement(E) -10 — Brazil truck business actions(F) 6 — Brazilian tax adjustments(G) — 29 (A) Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. (B) In the first and second quarter of 2015, the Truck segment recognized charges of $13 million and $12 million, respectively, for the acceleration of depreciation of certain assets related to the foundry facilities. (C) In the second quarter and first half of 2015, the Company concluded it had a triggering event related to certain operating leases, as a result, the Truck segment recorded $1 million and $7 million, respectively, of asset impairment charges. 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. Due to slower than expected growth in the Brazilian economy causing declines in actual and forecasted results, we tested the goodwill of our Brazilian engine reporting unit and trademark for potential impairment. As a result, we determined that the entire $142 million balance of goodwill and $7 million of trademark were impaired. Additionally, in the first quarter of 2014, the Company concluded it had a triggering event related to potential sales of assets requiring assessment of impairment for certain intangible and long-lived assets in the Truck segment. As a result, the Truck segment recognized asset impairment charges of $18 million. (D) In the second quarter of 2014, we incurred restructuring charges of $8 million related to cost reduction actions that included a reduction-in-force in the U.S. (E) In the second quarter of 2015, the Global Operations segment recognized a $10 million gain resulting from a customer settlement, which includes an offsetting restructuring charge of $4 million. (F) In the second quarter and first half of 2015 our Global Operations segment recorded $6 million in inventory charges to right size the Brazil Truck business. (G) During the second quarter of 2014, our evaluation of the realizability of our Brazilian deferred tax assets resulted in a determination that a valuation allowance was required, due to a deterioration of operating performance in Brazil, an increase in net operating loss carryforwards, and the impairment of certain Brazilian intangible assets. As a result, we recorded a net expense of $29 million related to establishment of the valuation allowance and tax impact from the impairment of certain intangible assets. The above items, except for the Brazilian tax adjustments, did not have a material impact on taxes due to the valuation allowances on our U.S. deferred tax assets, which was established in the fourth quarter of 2012.
Significant Items Included Within Our Results ______________________ Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. In the third quarter and first nine months of 2016, the Truck segment recorded $11 million and $16 million, respectively, of asset impairment charges relating to certain long-lived assets. In the third quarter of 2015, certain long-lived assets were determined to be impaired, resulting in a charge of $3 million. In the first quarter of 2015, the Truck segment recorded $7 million of asset impairment relating to certain operating leases. In the third quarters of 2016 and 2015, we determined that $1 million and $3 million, respectively, of trademark asset carrying value was impaired. Cost reduction and other strategic initiatives relates to costs associated with the divestiture of non-strategic facilities and efforts to optimize our cost structure. In the third quarter of 2016, we incurred $5 million of restructuring charges related to the 2011 closure of our Chatham, Ontario plant, based on a ruling received from the Financial Services Tribunal in Ontario, Canada. 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 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. 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 first quarter of 2016, we received a $15 million one-time fee from a third party which was recognized in Other income, net. In the third quarter and the first nine months of 2015, the Truck segment recognized charges of $3 million and $28 million, respectively for the acceleration of depreciation of certain assets related to foundry and engine facilities. (in millions) Quarter Ended July 31, Nine Months Ended July 31, Expense (income): 2016 2015 2016 2015 Adjustments to pre-existing warranties (A) 19 3 70 -36 North America asset impairment charges (B) 11 4 16 12 Brazil asset impairment charges (C) 1 3 1 3 Cost reduction and other strategic initiatives (D) 5 13 11 18 Gain on Settlement (E) ─ ─ ─ -10 Brazil truck business actions (F) ─ ─ ─ 6 One-time fee received (G) ─ ─ -15 ─ Accelerated Depreciation (H) ─ 3 2 28
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