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Form 8-K NAVISTAR INTERNATIONAL For: Dec 17

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December 17, 2019 6:12 AM EST


pressreleaseheadinga08.jpg
Media contact:         Lyndi McMillan, [email protected], 331-332-3181    
Investor contact:         Marty Ketelaar, [email protected], 331-332-2706
Web site:         www.Navistar.com/newsroom

NAVISTAR REPORTS 2019 FOURTH QUARTER AND FULL YEAR RESULTS
•
Achieves 1.3 share point growth in Core market share; regains leading position in bus market
•
Reports fourth quarter 2019 net income of $102 million, adjusted EBITDA of $219 million
•
Reports full-year net income of $221 million, adjusted EBITDA of $882 million
•
Delivers seventh consecutive year of adjusted EBITDA improvement
•
Generates $263 million of manufacturing free cash flow for the year
LISLE, Ill. - December 17, 2019 - Navistar International Corporation (NYSE: NAV) today announced fourth quarter 2019 net income of $102 million, or $1.02 per diluted share, compared to fourth quarter 2018 net income of $188 million, or $1.89 per diluted share. Navistar reported net income of $221 million, or $2.22 per diluted share for fiscal year 2019, versus net income of $340 million, or $3.41 per diluted share, for fiscal year 2018.
Adjusted net income for the fourth quarter was $114 million versus $189 million in the same period one year ago. Adjusted net income for fiscal year 2019 increased 29 percent to $423 million versus $327 million in 2018.
Fourth quarter 2019 adjusted EBITDA was $219 million versus $322 million one year ago. Fiscal year 2019 adjusted EBITDA increased seven percent to $882 million, versus $826 million in 2018. This marks the company’s seventh consecutive year of annual growth in adjusted EBITDA.
Revenues in the quarter were $2.8 billion, down 16 percent compared to fourth quarter 2018. The revenue decrease was largely driven by very strong fourth quarter 2018 vehicle chargeouts following supplier production constraints in the third quarter of that year, the impact of the sale of Navistar Defense in December 2018, and lower industry demand in the quarter. Revenue for fiscal year 2019 was up 10 percent to $11.25 billion, led by a 26 percent increase in worldwide chargeouts to 106,500 units for the year. During the year, Navistar’s Core market share grew by 1.3 points, to 18.8 percent. The company increased its school bus market share to 35.8 percent, where it is once again the industry leader, increased its Class 6-7 medium duty market share to 27 percent, as well as increased its Class 8 market share to 14.1 percent. This marks the company’s third consecutive year of Core market share growth.
Navistar finished fourth quarter 2019 with $1.4 billion in consolidated cash, cash equivalents and marketable securities, and with $1.3 billion in manufacturing cash, cash equivalents and marketable securities. For the year, the company generated $263 million of manufacturing free cash flow.
“During 2019, we grew adjusted EBITDA and adjusted net income while growing our Core market share to 19 percent, for a total of three points of share gain in the last three years,” said Troy A. Clarke, Navistar chairman, president and




CEO. “Our Navistar 4.0 strategy builds on this performance and incorporates major investments in the business that will deliver strong benefits for both customers and shareholders.”
Navistar 4.0, the company’s five-year improvement strategy which was presented at the company’s Investor Day in September, lays out a plan to increase the company's EBITDA margins to 12 percent by the end of 2024. The plan commits to advanced operational approaches, including a unified enterprise platform strategy, advanced modular architecture and the most capable manufacturing network in the industry. The company also announced it plans a capital investment of more than $250 million in a new industry benchmark manufacturing facility in San Antonio, Texas, which will have best-in-class lean processes and will be Industry 4.0 ready. This is in addition to the company’s June announcement of investing $125 million in its Huntsville, Alabama manufacturing facilities to produce next-generation, big-bore powertrains being developed with Navistar’s global alliance partner TRATON GROUP.
In October, Navistar launched NEXT eMobility Solutions, a business unit that is dedicating a world-class, lean engineering team to develop the best products in the electric vehicle space, using a unique consultative philosophy that embraces the full range of customers' needs. Navistar also unveiled a prototype electric version of the International® MV™ Series medium-duty vehicle. Additionally, the company launched International® 360, a groundbreaking service communications and fleet management platform that delivers seamless, transparent communications with the International® service network.
2020 INDUSTRY AND FINANCIAL GUIDANCE
The company reiterated its 2020 industry guidance and updated the following full-year financial guidance:
•
Industry retail deliveries of Class 6-8 trucks and buses in the United States and Canada are forecasted to be in the range of 335,000 to 365,000 units, with Class 8 retail deliveries between 210,000 and 240,000 units.
•
Revenues are expected to be in the range of $9.25 billion to $9.75 billion.
•
Adjusted EBITDA is expected to be in the range of $700 million to $750 million.
“With a proven track record of managing costs and improving operating results, Navistar is in a much better position than in the past to do well even during cyclical downturns,” Clarke said. “We are taking actions to adjust our business to current market conditions, including reducing production rates and SG&A expenses while restructuring our global and export operations. Building on the strong gains achieved over the last several years, Navistar has a clear roadmap in place for sustained growth that will set it apart from the industry.”







SEGMENT REVIEW
Summary of Financial Results:
 
(Unaudited)
 
 
 
Quarters Ended October 31,
 
Years Ended October 31,
(in millions, except per share data)
2019
 
2018
 
2019
 
2018
Sales and revenues, net
$
2,780

 
$
3,317

 
$
11,251

 
$
10,250

Segment Results:
 
 
 
 
 
 
 
Truck
$
86

 
$
197

 
$
269

 
$
397

Parts
161

 
156

 
598

 
569

Global Operations
(10
)
 
4

 
—

 
2

Financial Services
30

 
26

 
123

 
88

Income from continuing operations, net of tax(A)
$
102

 
$
188

 
$
221

 
$
340

Net income(A)
102

 
188

 
221

 
340

Diluted earnings per share(A)
1.02

 
1.89

 
2.22

 
3.41

_______________
(A) Amounts attributable to Navistar International Corporation.
Truck Segment - For the fourth quarter 2019, the Truck segment recorded a profit of $86 million, compared with a year-ago fourth quarter profit of $197 million. The year-over-year decline was primarily due to an 18 percent decline in the company’s Core chargeouts, as well as the impact of the sale of a majority interest in the Navistar Defense business.
For the 2019 fiscal year, the Truck segment recorded a profit of $269 million, compared with a fiscal year 2018 profit of $397 million. The decrease was primarily driven by charges related to a legacy engine class action settlement and the impact of the sale of a majority interest in Navistar Defense. These items were partially offset by higher volumes in the company’s Core markets.
Parts Segment - For the fourth quarter 2019, the Parts segment recorded a profit of $161 million, compared with a year-ago fourth quarter profit of $156 million. For the 2019 fiscal year, the Parts segment recorded a profit of $598 million, compared to a fiscal year 2018 profit of $569 million. The results were primarily driven by improved North American operating results, reflecting the company’s growing private label business, partially offset by lower Blue Diamond Parts volumes.
Global Operations Segment - For the fourth quarter 2019, the Global Operations segment recorded a loss of $10 million, compared to a year-ago fourth quarter profit of $4 million. The year-over-year change was driven largely by a $14 million restructuring charge related to cost reduction actions, including ceasing production at the company’s MWM Argentina engine plant and restructuring activities in Brazil.
For the 2019 fiscal year, the Global Operations segment operated at breakeven compared to a year-ago fiscal year profit of $2 million. The Global Operations segment results decrease was primarily driven by the impact of product mix and an increase in restructuring charges related to cost reduction actions, partially offset by lower SG&A expenses and the impact of the sale of the company’s former joint venture in China with JAC.





Financial Services Segment - For the fourth quarter 2019, the Financial Services segment recorded a profit of $30 million, up slightly compared with fourth quarter 2018. The results were primarily driven by lower interest expense due to the payoff of the company’s $400 million Term Loan in May.
For the 2019 fiscal year, the Financial Services segment recorded a profit of $123 million, compared to a year-ago fiscal year profit of $88 million. The increase is primarily driven by higher revenue, an improved funding strategy to manage borrowing costs, and higher income from an intercompany loan.
About Navistar
Navistar International Corporation (NYSE: NAV) is a holding company whose subsidiaries and affiliates produce International® brand commercial 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 Section 27A of the Securities Act of 1933, as amended ("Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and the Private Securities Litigation Reform Act of 1995. 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, 2019. 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)
 
 
 
 
 
For the Quarters Ended October 31,
 
For the Years Ended October 31,
(in millions, except per share data)
2019
 
2018
 
2019
 
2018
Sales and revenues
 
 
 
 
 
 
 
Sales of manufactured products, net
$
2,731

 
$
3,275

 
$
11,061

 
$
10,090

Finance revenues
49

 
42

 
190

 
160

Sales and revenues, net
2,780

 
3,317

 
11,251

 
10,250

Costs and expenses
 
 
 
 
 
 
 
Costs of products sold
2,272

 
2,702

 
9,245

 
8,317

Restructuring charges
11

 
—

 
12

 
(1
)
Asset impairment charges
1

 
3

 
7

 
14

Selling, general and administrative expenses
208

 
215

 
934

 
828

Engineering and product development costs
77

 
75

 
319

 
297

Interest expense
69

 
87

 
312

 
327

Other income, net
24

 
12

 
164

 
48

Total costs and expenses
2,662

 
3,094

 
10,993

 
9,830

Equity in income of non-consolidated affiliates
—

 
—

 
4

 
—

Income before income taxes
118

 
223

 
262

 
420

Income tax expense
(10
)
 
(27
)
 
(19
)
 
(52
)
Net income
108

 
196

 
243

 
368

Less: Net income attributable to non-controlling interests
6

 
8

 
22

 
28

Net income attributable to Navistar International Corporation
$
102

 
$
188

 
$
221

 
$
340

 
 
 
 
 
 
 
 
Earnings per share attributable to Navistar International Corporation:
 
 
 
 
 
 
 
Basic:
$
1.03

 
$
1.90

 
$
2.23

 
$
3.44

Diluted:
$
1.02

 
$
1.89

 
$
2.22

 
$
3.41

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
99.4

 
99.1

 
99.3

 
98.9

Diluted
99.6

 
99.7

 
99.5

 
99.6


















Navistar International Corporation and Subsidiaries
Consolidated Balance Sheets
 
As of October 31,
(in millions, except per share data)
2019
 
2018
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
1,370

 
$
1,320

Restricted cash and cash equivalents
133

 
62

Marketable securities
—

 
101

Trade and other receivables, net
338

 
456

Finance receivables, net
1,923

 
1,898

Inventories, net
911

 
1,110

Other current assets
277

 
189

Total current assets
4,952

 
5,136

Restricted cash
54

 
63

Trade and other receivables, net
10

 
49

Finance receivables, net
274

 
260

Investments in non-consolidated affiliates
31

 
50

Property and equipment, net
1,309

 
1,370

Goodwill
38

 
38

Intangible assets, net
25

 
30

Deferred taxes, net
117

 
121

Other noncurrent assets
107

 
113

Total assets
$
6,917

 
$
7,230

LIABILITIES and STOCKHOLDERS’ DEFICIT
 
 
 
Liabilities
 
 
 
Current liabilities
 
 
 
Notes payable and current maturities of long-term debt
$
871

 
$
946

Accounts payable
1,341

 
1,606

Other current liabilities
1,363

 
1,255

Total current liabilities
3,575

 
3,807

Long-term debt
4,317

 
4,521

Postretirement benefits liabilities
2,103

 
2,097

Other noncurrent liabilities
645

 
731

Total liabilities
10,640

 
11,156

Stockholders’ deficit
 
 
 
Series D convertible junior preference stock
2

 
2

Common stock, $0.10 par value per share (103.1 shares issued and 220 shares authorized at both dates)
10

 
10

Additional paid-in capital
2,730

 
2,731

Accumulated deficit
(4,409
)
 
(4,593
)
Accumulated other comprehensive loss
(1,912
)
 
(1,920
)
Common stock held in treasury, at cost (3.9 and 4.2 shares, respectively)
(147
)
 
(161
)
Total stockholders’ deficit attributable to Navistar International Corporation
(3,726
)
 
(3,931
)
Stockholders’ equity attributable to non-controlling interests
3

 
5

Total stockholders’ deficit
(3,723
)
 
(3,926
)
Total liabilities and stockholders’ deficit
$
6,917

 
$
7,230







Navistar International Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
 
For the Years Ended October 31,
(in millions)
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
243

 
$
368

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
132

 
140

Depreciation of equipment leased to others
61

 
71

Deferred taxes, including change in valuation allowance
(31
)
 
4

Asset impairment charges
7

 
14

Gain on sales of investments and businesses, net
(56
)
 
—

Amortization of debt issuance costs and discount
19

 
31

Stock-based compensation
23

 
32

Provision for doubtful accounts, net of recoveries
4

 
10

Equity in income of non-consolidated affiliates, net of dividends
(2
)
 
5

Write-off of debt issuance cost and discount
6

 
43

Other non-cash operating activities
(9
)
 
(23
)
Changes in other assets and liabilities, exclusive of the effects of businesses disposed:
 
 
 
Trade and other receivables
141

 
(109
)
Finance receivables
(42
)
 
(405
)
Inventories
103

 
(257
)
Accounts payable
(250
)
 
317

Other assets and liabilities
101

 
26

Net cash provided by operating activities
450

 
267

Cash flows from investing activities
 
 
 
Purchases of marketable securities
—

 
(251
)
Sales of marketable securities
—

 
460

Maturities of marketable securities
102

 
60

Capital expenditures
(134
)
 
(113
)
Purchases of equipment leased to others
(152
)
 
(232
)
Proceeds from sales of property and equipment
14

 
11

Proceeds from (payments for) sales of affiliates
100

 
(3
)
Other investing activities
2

 
2

Net cash used in investing activities
(68
)
 
(66
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of securitized debt
363

 
339

Principal payments on securitized debt
(316
)
 
(364
)
Net change in secured revolving credit facilities
12

 
135

Proceeds from issuance of non-securitized debt
209

 
3,248

Principal payments on non-securitized debt
(1,044
)
 
(2,920
)
Net change in notes and debt outstanding under revolving credit facilities
527

 
(10
)
Debt issuance costs
(9
)
 
(41
)
Proceeds from financed lease obligations
22

 
63

Proceeds from exercise of stock options
4

 
8

Dividends paid by subsidiaries to non-controlling interest
(24
)
 
(27
)
Other financing activities
(2
)
 
(17
)
Net cash provided by (used in) financing activities
(258
)
 
414

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(12
)
 
(10
)
Increase in cash, cash equivalents and restricted cash
112

 
605

Cash, cash equivalents and restricted cash at beginning of the year
1,445

 
840

Cash, cash equivalents and restricted cash at end of the year
$
1,557

 
$
1,445









Navistar International Corporation and Subsidiaries
Segment Reporting
(Unaudited)

We define segment profit (loss) as net income (loss) 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 October 31, 2019
 
 
 
 
 
 
 
 
 
 
 
External sales and revenues, net
$
2,096

 
$
546

 
$
86

 
$
52

 
$
—

 
$
2,780

Intersegment sales and revenues
9

 
1

 
7

 
19

 
(36
)
 
—

Total sales and revenues, net
$
2,105

 
$
547

 
$
93

 
$
71

 
$
(36
)
 
$
2,780

Income (loss) from continuing operations attributable to NIC, net of tax
$
86

 
$
161

 
$
(10
)
 
$
30

 
$
(165
)
 
$
102

Income tax expense
—

 
—

 
—

 
—

 
(10
)
 
(10
)
Segment profit (loss)
$
86

 
$
161

 
$
(10
)
 
$
30

 
$
(155
)
 
$
112

Depreciation and amortization
$
26

 
$
1

 
$
4

 
$
16

 
$
2

 
$
49

Interest expense
—

 
—

 
—

 
22

 
47

 
69

Equity in income (loss) of non-consolidated affiliates
(1
)
 
1

 
—

 
—

 
—

 
—

Capital expenditures(B)
32

 
4

 
—

 
—

 
8

 
44

(in millions)
Truck
 
Parts
 
Global Operations
 
Financial
Services(A)
 
Corporate
and
Eliminations
 
Total
Three Months Ended October 31, 2018
 
 
 
 
 
 
 
 
 
 
 
External sales and revenues, net
$
2,576

 
$
631

 
$
76

 
$
42

 
$
(8
)
 
$
3,317

Intersegment sales and revenues
43

 
2

 
17

 
28

 
(90
)
 
—

Total sales and revenues, net
$
2,619

 
$
633

 
$
93

 
$
70

 
$
(98
)
 
$
3,317

Income (loss) from continuing operations attributable to NIC, net of tax
$
197

 
$
156

 
$
4

 
$
26

 
$
(195
)
 
$
188

Income tax expense
—

 
—

 
—

 
—

 
(27
)
 
(27
)
Segment profit (loss)
$
197

 
$
156

 
$
4

 
$
26

 
$
(168
)
 
$
215

Depreciation and amortization
$
30

 
$
1

 
$
2

 
$
14

 
$
4

 
$
51

Interest expense
—

 
—

 
—

 
28

 
59

 
87

Equity in income (loss) of non-consolidated affiliates
—

 
1

 
(1
)
 
—

 
—

 
—

       Capital expenditures(B)
25

 
1

 
1

 
—

 
7

 
34





(in millions)
Truck
 
Parts
 
Global Operations
 
Financial
Services(A)
 
Corporate
and
Eliminations
 
Total
Year Ended October 31, 2019
 
 
 
 
 
 
 
 
 
 
 
External sales and revenues, net
$
8,501

 
$
2,239

 
$
309

 
$
193

 
$
9

 
$
11,251

Intersegment sales and revenues
84

 
6

 
34

 
104

 
(228
)
 
—

Total sales and revenues, net
$
8,585

 
$
2,245

 
$
343

 
$
297

 
$
(219
)
 
$
11,251

Income (loss) from continuing operations attributable to NIC, net of tax
$
269

 
$
598

 
$
—

 
$
123

 
$
(769
)
 
$
221

Income tax expense
—

 
—

 
—

 
—

 
(19
)
 
(19
)
Segment profit (loss)
$
269

 
$
598

 
$
—

 
$
123

 
$
(750
)
 
$
240

Depreciation and amortization
$
104

 
$
5

 
$
11

 
$
64

 
$
9

 
$
193

Interest expense
—

 
—

 
—

 
105

 
207

 
312

Equity in income (loss) of non-consolidated affiliates
2

 
3

 
(1
)
 
—

 
—

 
4

       Capital expenditures(B)
101

 
7

 
2

 
2

 
22

 
134

(in millions)
Truck
 
Parts
 
Global Operations
 
Financial
Services(A)
 
Corporate
and
Eliminations
 
Total
Year Ended October 31, 2018
 
 
 
 
 
 
 
 
 
 
 
External sales and revenues, net
$
7,386

 
$
2,399

 
$
305

 
$
160

 
$
—

 
$
10,250

Intersegment sales and revenues
104

 
8

 
55

 
97

 
(264
)
 
—

Total sales and revenues, net
$
7,490

 
$
2,407

 
$
360

 
$
257

 
$
(264
)
 
$
10,250

Income (loss) from continuing operations attributable to NIC, net of tax
$
397

 
$
569

 
$
2

 
$
88

 
$
(716
)
 
$
340

Income tax expense
—

 
—

 
—

 
—

 
(52
)
 
(52
)
Segment profit (loss)
$
397

 
$
569

 
$
2

 
$
88

 
$
(664
)
 
$
392

Depreciation and amortization
$
130

 
$
6

 
$
10

 
$
55

 
$
10

 
$
211

Interest expense
—


—

 
—

 
92

 
235

 
327

Equity in income (loss) of non-consolidated affiliates
2

 
3

 
(5
)
 
—

 
—

 
—

       Capital expenditures(B)
99

 
2

 
3

 
1

 
8

 
113

(in millions)
Truck
 
Parts
 
Global Operations
 
Financial
Services
 
Corporate
and
Eliminations
 
Total
Segment assets, as of:
 
 
 
 
 
 
 
 
 
 
 
October 31, 2019
$
1,705

 
$
688

 
$
296

 
$
2,774

 
$
1,454

 
$
6,917

October 31, 2018
2,085

 
636

 
331

 
2,648

 
1,530

 
7,230

_________________________
(A)
Total sales and revenues in the Financial Services segment include interest revenues of $208 million and $182 million for the years ended October 31, 2019 and 2018, respectively.
(B)
Exclusive of purchases of equipment leased to others and liabilities related to capital expenditures.










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) attributable to Navistar International Corporation, 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 and Adjusted Net Income (loss) attributable to NIC:
We believe that adjusted EBITDA and adjusted Net Income (loss) attributable to NIC, 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 represent 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 consist of Selling, general and administrative expenses and Engineering and product development costs.
Manufacturing free cash flow consists of Net cash from operating activities and Capital Expenditures, all from our Manufacturing operations.
EBITDA reconciliation:
 
(Unaudited)
 
 
 
 
 
For the Quarters Ended October 31,
 
For the Years Ended October 31,
(in millions)
2019
 
2018
 
2019
 
2018
Income from continuing operations attributable to NIC, net of tax
$
102

 
$
188

 
$
221

 
$
340

Plus:
 
 
 
 
 
 
 
Depreciation and amortization expense
49

 
51

 
193

 
211

Manufacturing interest expense(A)
47

 
59

 
207

 
235

Adjusted for:
 
 
 
 
 
 
 
Income tax expense
(10
)
 
(27
)
 
(19
)
 
(52
)
EBITDA
$
208

 
$
325

 
$
640

 
$
838

______________________
(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.




 
(Unaudited)
 
 
 
 
 
For the Quarters Ended October 31,
 
For the Years Ended October 31,
(in millions)
2019
 
2018
 
2019
 
2018
Interest expense
$
69

 
$
87

 
$
312

 
$
327

Less: Financial services interest expense
22

 
28

 
105

 
92

Manufacturing interest expense
$
47

 
$
59

 
$
207

 
$
235


Adjusted EBITDA Reconciliation:
 
(Unaudited)
 
 
 
 
 
For the Quarters Ended October 31,
 
For the Years Ended October 31,
(in millions)
2019
 
2018
 
2019
 
2018
EBITDA (reconciled above)
$
208

 
$
325

 
$
640

 
$
838

Adjusted for significant items of:
 
 
 
 
 
 
 
Adjustments to pre-existing warranties(A)
(4
)
 
(5
)
 
3

 
(9
)
Asset impairment charges(B)
1

 
3

 
7

 
14

Restructuring of manufacturing operations(C)
13

 
—

 
14

 
(1
)
MaxxForce Advanced EGR engine lawsuits(D)
1

 
—

 
129

 
1

Gain on sale(E)
—

 
—

 
(56
)
 
—

Debt refinancing charges(F)
—

 
—

 
6

 
46

Pension settlement(G)
—

 
—

 
142

 
9

Settlement gain(H)
—

 
(1
)
 
(3
)
 
(72
)
Total adjustments
11

 
(3
)
 
242

 
(12
)
Adjusted EBITDA
$
219

 
$
322

 
$
882

 
$
826

Adjusted Net Income attributable to NIC:
 
(Unaudited)
 
 
 
 
 
For the Quarters Ended October 31,
 
For the Years Ended October 31,
(in millions)
2019
 
2018
 
2019
 
2018
Net income from continuing operations attributable to NIC
$
102

 
$
188

 
$
221

 
$
340

Adjusted for significant items of:
 
 
 
 
 
 
 
Adjustments to pre-existing warranties(A)
(4
)
 
(5
)
 
3

 
(9
)
Asset impairment charges(B)
1

 
3

 
7

 
14

Restructuring of manufacturing operations(C)
13

 
—

 
14

 
(1
)
MaxxForce Advanced EGR engine lawsuits(D)
1

 
—

 
129

 
1

Gain on sale(E)
—

 
—

 
(56
)
 
—

Debt refinancing charges(F)
—

 
—

 
6

 
46

Pension settlement(G)
—

 
—

 
142

 
9

Settlement gain(H)
—

 
(1
)
 
(3
)
 
(72
)
Total adjustments
11

 
(3
)
 
242

 
(12
)
Tax effect (I)
1

 
4

 
(40
)
 
(1
)
Adjusted net income attributable to NIC
$
114

 
$
189

 
$
423

 
$
327

_____________________
(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 historical 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)
During 2019, we recorded $7 million of asset impairment charges relating to certain assets under operating leases in our Truck segment. During 2018, we recorded $14 million of impairment charges related to the exit of our railcar business in Cherokee, Alabama, certain long-lived assets and certain assets under operating leases in our Truck and Financial Services segments.
(C)
During 2019, we recorded charges of $14 million primarily related to cost reduction actions recorded in Costs of product sold and Restructuring charges in our Global Operations segment. During 2018, we recognized a benefit of $1 million related to adjustments for restructuring charges in our Truck, Global Operations and Corporate segments.
(D)
During 2019, we recognized a net charge of $129 million related to the MaxxForce Advanced EGR engine class action settlement and related litigation in our Truck segment. During 2018, we recognized a charge of $1 million for a jury verdict related to the MaxxForce Advanced EGR engine lawsuits in our Truck segment.
(E)
During 2019, we recognized a gain of $51 million related to the sale of a majority interest in the Navistar Defense business in our Truck segment, and a gain of $5 million related to the sale of our joint venture in China with JAC in our Global Operations segment.
(F)
During 2019, we recorded a charge of $6 million for the write-off of debt issuance costs and discounts associated with the NFC Term Loan. During 2018, we recorded a charge of $46 million for the write off of debt issuance costs and discounts associated with the repurchase of our 8.25% Senior Notes and the refinancing of our previously existing Term Loan.
(G)
During 2019 and 2018, we purchased group annuity contracts for certain retired pension plan participants resulting in plan remeasurements. As a result, we recorded pension settlement charges of $142 million and $9 million respectively, in Other expense, net in Corporate.
(H)
During 2019, we recorded interest income of $3 million in Other expense, net derived from the prior year settlement of a business economic loss claim. During 2018, we settled a business economic loss claim relating to our Alabama engine manufacturing facility from the Deepwater Horizon Settlement Program. As a result, we recorded the net present value of the settlement of $70 million and related interest income of $2 million in Other expense, net.
(I)
Tax effect is calculated by excluding the tax impact of the non-GAAP adjustments from the tax provision calculations.





Manufacturing segment cash, cash equivalents, and marketable securities reconciliation:
 
As of October 31, 2019
(in millions)
Manufacturing Operations
 
Financial Services Operations
 
Consolidated Balance Sheet
Assets
 
 
 
 
 
Cash and cash equivalents
$
1,328

 
$
42

 
$
1,370

Marketable securities
—

 
—

 
—

Total cash, cash equivalents, and marketable securities
$
1,328

 
$
42

 
$
1,370

Manufacturing free cash flow reconciliation:
(in millions)
 
October 31, 2019
Consolidated net cash from operating activities
 
$
450

Less: Net cash from Financial Services Operations
 
55

Net cash from Manufacturing Operations(A)
 
395

Less: Manufacturing capital expenditures
 
132

Manufacturing free cash flow
 
$
263

______________________
(A)
Net of adjustments required to eliminate certain intercompany transactions between Manufacturing operations and Financial Services operations.



Q4 2019 EARNINGS PRESENTATION December 17, 2019 ® International is a registered trademark of , Inc. NYSE: NAV

 
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 Section 27A of the Securities Act of 1933, as amended ("Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this presentation and the company 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 fiscal year ended October 31, 2019. 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. 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. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 2

 
Fourth Quarter 2019 Highlights and Announcements • Consolidated Revenues of $2.8B • Net Income of $102M; Adjusted Net Income of $114M • EBITDA of $208M; Adjusted EBITDA of $219M • New San Antonio manufacturing plant announced • NEXT eMobility solutions business launched • Aftersales investments in Memphis PDC and partnership with Love’s Travel Shops improving customer uptime • International 360 communication system launched • Navistar 4.0 strategic plan unveiled – 10% Adj EBITDA by 2022 – 12% Adj EBITDA by 2024 Note: This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 3

 
2019 Financial Accomplishments • 3rd consecutive year of Core market share growth – Core market share up 1.3 points year over year to 18.8% – Bus up 2.6 pts to market leading 35.8% – Class 6/7 up 3.7 points to 27.0% – Class 8 up 0.6 points to 14.1% • Revenue up 10% to $11.25 billion – Truck revenue up 15% – Worldwide chargeouts up 26% to 106,500 vehicles • Adjusted net income up 29% to $423 million • 7th consecutive year of Adjusted EBITDA growth – Adjusted EBITDA up 7% to $882 million • Manufacturing free cash flow of $263 million – Manufacturing cash of $1.33B Note: This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 4

 
Seventh Consecutive Year of Adjusted EBITDA Growth ($ in millions, except per share and units) Quarters Ended Years Ended October 31(A) October 31(A) 2019 2018 2019 2018 Chargeouts(B) 20,200 24,700 87,200 73,900 Sales and Revenues $ 2,780 $ 3,317 $ 11,251 $ 10,250 Net Income(C) $ 102 $ 188 $ 221 $ 340 Diluted Income Per Share(C) $ 1.02 $ 1.89 $ 2.22 $ 3.41 Adjusted Net Income $ 114 $ 189 $ 423 $ 327 Adjusted EBITDA $ 219 $ 322 $ 882 $ 826 Adjusted EBITDA Margin 7.9% 9.7% 7.8% 8.1% Note: This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. (A) 2019 results reflect new revenue recognition guidance while 2018 results are as reported. Q4 2019 Earnings – 12/17/2019 (B) Includes U.S. and Canada School buses and Class 6-8 trucks. (C) Amounts attributable to Navistar International Corporation. NYSE: NAV 5

 
Quarterly Operating Segment Performance ($ in millions) Sales and Revenues(A) Segment Profit Quarters Ended Quarters Ended October 31 October 31 2019 2018 2019 2018 Truck $ 2,105 $ 2,619 $ 86 $ 197 Parts 547 633 161 156 Global Operations 93 93 (10) 4 Financial Services 71 70 30 26 (A) 2019 results reflect ASC 606 while 2018 results are as reported under prior revenue recognition guidance. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 6

 
Strong Annual Operating Segment Performance ($ in millions) Sales and Revenues(A) Segment Profit Years Ended Years Ended October 31 October 31 2019 2018 2019 2018 Truck $ 8,585 $ 7,490 $ 269 $ 397 Parts 2,245 2,407 598 569 Global Operations 343 360 - 2 Financial Services 297 257 123 88 (A) 2019 results reflect ASC 606 while 2018 results are as reported under prior revenue recognition guidance. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 7

 
Core Industry Volume Guidance 2019 2020 Actual Guidance Class 8 315K 210-240K Class 6/7 112K 90K School bus 34K 35K Core markets industry 462K 335-365K Q4 2019 Earnings – 12/17/2019 NYSE: NAV 8

 
2020 Financial Guidance 2019 2020 Guidance Actuals Prior Updated Revenue $11.25B $10-$10.5B $9.25-$9.75B Gross margin 17.8% N/A 18.5-19% Adjusted EBITDA $882M $775-$825M $700-$750M Manufacturing interest expense $207M $190M $190M Warranty spend greater than expense $111M $75M $75M Capital expenditures $134M $225M $225M Pension/OPEB contributions greater than expense(A) $122M $140M $175M Note: This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Q4 2019 Earnings – 12/17/2019 (A) Pension expense in 2019 excludes $142M for Canadian pension annuity settlement. NYSE: NAV 9

 
Appendix Q4 2019 Earnings – 12/17/2019 NYSE: NAV 10

 
Days Sales Inventory On-Hand 140 120 100 80 77 Days Normal range is 80-120 days inventory on hand 60 40 20 0 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Includes US and Canada Class 6-8 company and dealer truck inventory, but does not include IC Bus. *Calculation is based on the 3-month rolling average of inventory-to-retail sales ratio. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 11

 
Retail Market Share in Commercial Vehicle Segments Three Months Ended October July 31, April 30, Ja nua ry October 31, 2019 2019 2019 31. 2019 31, 2018 Core Markets (U.S. and Canada) Class 6 and 7 medium trucks…............ 25.9% 26.8% 29.8% 25.5% 24.9% Class 8 heavy trucks…............................ 14.3% 13.8% 15.1% 12.1% 16.9% Class 8 severe service trucks.…........... 19.7% 14.1% 12.6% 11.7% 16.5% Combined class 8 trucks….................... 15.7% 13.9% 14.5% 12.0% 16.8% Class 6/7 Class 8 Class 8 Medium-Duty Heavy Severe Service Q4 2019 Earnings – 12/17/2019 NYSE: NAV 12

 
Annual Retail Market Share in Commercial Vehicle Segments Years Ended October 31, 2019 2018 2017 Core Markets (U.S. and Canada) School buses…........................…............ 35.8% 33.2% 31.9% Class 6 and 7 medium trucks…............ 27.0% 23.3% 24.5% Class 8 heavy trucks…............................ 13.8% 13.7% 11.2% Class 8 severe service trucks.…........... 14.8% 12.9% 13.3% Combined class 8 trucks….................... 14.1% 13.5% 11.8% Class 6/7 Class 8 Class 8 Medium-Duty Heavy Severe Service Q4 2019 Earnings – 12/17/2019 NYSE: NAV 13

 
Worldwide Truck Chargeouts Three Months Years Ended Ended October 31, % October 31, % 2019 2018 Change Change 2019 2018 Change Change Core Markets (U.S. and Canada) School buses...................................................... 3,300 3,700 (400) -11% 13,000 12,200 800 7% Class 6 and 7 medium trucks .......................... 5,800 6,800 (1,000) -15% 29,200 24,300 4,900 20% Class 8 heavy trucks ......................................... 7,300 10,600 (3,300) -31% 33,100 27,800 5,300 19% Class 8 severe service trucks............................. 3,800 3,600 200 6% 11,900 9,600 2,300 24% Total Core markets.......................... 20,200 24,700 (4,500) -18% 87,200 73,900 13,300 18% Non "Core" defense.......................................... — 200 (100) -100% 100 700 (600) -86% Other markets(A)............................................... 5,000 3,700 1,300 35% 19,200 9,600 9,600 100% Total worldwide units...................... 25,200 28,600 (3,400) -12% 106,500 84,200 22,300 26% Combined class 8 trucks .................................. 11,100 14,200 (3,100) -22% 45,000 37,400 7,600 20% _______________________ 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. The above table summarizes our approximate worldwide chargeouts. We define our Core markets to include U.S. and Canada School bus and Class 6 through 8 trucks. (A) Other markets primarily consist of Class 4/5 vehicles, Export Truck, Mexico, and post-sale Navistar Defense. Other markets include certain Class 4/5 vehicle chargeouts of 9,000 General Motors ("GM")-branded units sold to GM for the year ended October 31, 2019. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 14

 
Financial Services Segment Highlights • Financial Services segment profit of $30M for Q4 2019 and $123M for fiscal year 2019 • Segment financing availability of $474M as of October 31, 2019 • Financial Services debt/equity leverage of 3.4:1 as of October 31, 2019 • Increased the retail accounts funding facility to $200M in October 2019 NFC Facilities Dealer Floor Plan Retail Notes Bank Revolving Credit • NFSC wholesale trust as of • Bank revolver capacity of October 31, 2019 $748M matures May 2024, C A P I T A L Term Loan B repaid in May 2019 – $950M funding facility Funded by BMO Financial Group – Variable portion matures – Funding for retail notes, • Program management continuity May 2020 wholesale notes, retail accounts, – Term portions mature • Broad product offering and dealer open accounts September 2020 and May 2021 • Ability to support large fleets • On balance sheet • On balance sheet • Access to less expensive capital Q4 2019 Earnings – 12/17/2019 NYSE: NAV 15

 
Strong Cash Balance, No Near-term Manufacturing Debt Maturities ($ in millions) Manufacturing Cash Balance(A) Limited Near-Term Manufacturing Debt Maturities(B) $1,400 $1,362 $1,328 $2,000 $1,192 $1,115 $1,600 $1,050 $950 $1,100 $700 $1,000 $350 $225 $0 $0 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 2019 2020-2024 2025 2026 Thereafter Note: This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. (A) Amounts include manufacturing cash, cash equivalents, and marketable securities. Q4 2019 consolidated equivalent cash balance was $1.4 billion. Amounts exclude restricted cash. NYSE: NAV 16 (B) Total manufacturing debt of $2.9B as of October 31, 2019. Graph does not include financed lease obligations and other, totaling $71 million.

 
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. Q3: What is included in your equity in income of non-consolidated affiliates? A: Equity in income of non-consolidated affiliates is derived from the 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 the company does 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 2020 and beyond pension funding requirements? A: In 2019 and 2018, we contributed $140 million and $132 million, respectively, to our U.S. and Canadian pension plans (the "Plans") to meet regulatory minimum funding requirements. In 2020 we expect to contribute approximately $190 million to meet the minimum required contributions for all plans. 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 future funding relief. We currently expect that from 2021 through 2023, we will be required to contribute approximately $140 million to $175 million per year to the Plans, depending on asset performance and discount rates. Q5: What is your expectation for future cash tax payments? A: Cash tax payments are expected to remain low in 2020 and could gradually increase as the company utilizes available net operating losses (NOLs) and tax credits in future years. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 17

 
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, 2019, the Company had deferred tax assets for U.S. federal NOLs valued at $465 million, state NOLs valued at $166 million, and foreign NOLs valued at $151 million, for a total undiscounted cash value of $782 million. In addition to NOLs, the Company had deferred tax assets for accumulated tax credits of $196 million and other deferred tax assets of $1.2 billion resulting in net deferred tax assets before valuation allowances of approximately $2.1 billion. Of this amount, $2.0 billion was subject to a valuation allowance at the end of FY2019. Q7: How does your FY 2020 Class 8 industry outlook compare to ACT Research? A: Reconcilation to ACT - Retail Sales 2020 ACT* 229,500 CY to FY Adjustment 11,200 "Other Specialty OEMs" included in ACT's forecast; we do not include (5,000) these specialty OEMs in our forecast or in our internal/external reports Total (ACT comparable Class 8 Navistar) 235,700 Navistar Industry Retail Deliveries Combined Class 8 Trucks** 210,000 240,000 Navistar Difference from ACT (25,700) 4,300 *Source: ACT N.A. Commercial Vehicle Outlook - July 2019 -10.9% 1.8% **Industry forecast provided September 2019 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. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 18

 
Frequently Asked Questions Q9: How do you define manufacturing free cash flow? Year Ended Quarters Ended A: ($ in millions) Oct. 31, 2019 Oct. 31, 2019 Jul. 31, 2019 Apr. 30, 2019 Jan. 31, 2019 Consolidated Net Cash from Operating Activities...................... $ 450 $ 346 $ 294 $ 50 $ (240) Less: Net Cash from Financial Services Operations................... 55 142 20 (132) 25 Net Cash from Manufacturing Operations (A) ....................... 395 204 274 182 (265) Less: Manufacturing Capital Expenditures.................................... 132 44 24 21 43 Manufacturing Free Cash Flow.......................................... $ 263 $ 160 $ 250 $ 161 $ (308) (A) Net of adjustments required to eliminate certain intercompany transactions between Manufacturing operations and Financial Services operations. (A) Q10: What is your Q4 2019 revenue by product type ? Corporate Global Financial Truck Parts and Total Operations Services A: ($ in millions) Eliminations Three Months Ended October 31, 2019 Truck products and services(B)............................................................................ $ 1,836 $ — $ — $ — $ 3 $ 1839 Truck contract manufacturing............................................................................. 125 — — — — 125 Used trucks.............................................................................................................. 106 — — — — 106 Engines..................................................................................................................... — 92 64 — — 156 Parts........................................................................................................................... 1 454 22 — — 477 Extended warranty contracts............................................................................... 28 — — — — 28 Sales of manufactured products, net................................................................... $ 2,096 $ 546 $ 86 $ — $ 3 $ 2,731 Retail financing(C).................................................................................................. — — — 39 (3) 36 Wholesale financing(C)......................................................................................... — — — 13 — 13 Sales and revenues, net............................................................................................. $ 2,096 $ 546 $ 86 $ 52 $ 0 $ 2,780 (A) The table is reported in external revenue. (B) Includes other markets primarily consisting of Bus, Export Truck and Mexico. (C) Retail financing and Wholesale financing revenues in the Financial Services segment include interest revenue of $14 million and $13 million, respectively, for the three months ended October 31, 2019. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 19

 
Frequently Asked Questions Q11: What is your annual revenue by product type(A)? Global Financial Corporate and Truck Parts Total Operations Services Eliminations A: ($ in millions) Year Ended October 31, 2019 Truck products and services(B)............................................................................ $ 7,727 $ — $ — $ — $ 12 $ 7,739 Truck contract manufacturing............................................................................. 399 — — — — 399 Used trucks.............................................................................................................. 257 — — — — 257 Engines..................................................................................................................... — 309 232 — — 541 Parts........................................................................................................................... 5 1930 77 — — 2,012 Extended warranty contracts............................................................................... 113 — — — — 113 Sales of manufactured products, net................................................................... $ 8,501 $ 2,239 $ 309 $ — $ 12 $ 11,061 Retail financing(C).................................................................................................. — — — 145 (3) 142 Wholesale financing(C)......................................................................................... — — — 48 — 48 Sales and revenues, net............................................................................................. $ 8,501 $ 2,239 $ 309 $ 193 $ 9 $ 11,251 (A) Includes other markets primarily consisting of Bus, Export Truck and Mexico. (B) Includes military sales of $62 million. In December 2018, we completed the sale of a 70% equity interest in Navistar Defense. See Note 3, Restructurings, Impairments and Divestitures for additional information. (C) Retail financing and Wholesale financing revenues in the Financial Services segment include interest revenue of $56 million and $48 million, respectively, for the year ended October 31, 2019. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 20

 
Outstanding Debt Balances October 31, October 31, ($ in millions) 2019 2018 Manufacturing operations Senior Secured Term Loan Credit Agreement, due 2025, net of unamortized discount of $6 and $7, respectively, and unamortized debt issuance costs of $10 and $11, respectively ............................ $ 1,556 $ 1,570 6.625% Senior Notes, due 2026, net of unamortized debt issuance costs of $15 and $17, respectively ..................................................................................................................................................................... 1,085 1,083 4.75% Senior Subordinated Convertible Notes, due 2019, net of unamortized discount of $5 and unamortized debt issuance costs of $1 ................................................................................................................. — 405 Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040, net of unamortized debt issuance costs of $5 at both dates ............................................................................................................................ 220 220 Financed lease obligations ........................................................................................................................................ 60 122 Other ................................................................................................................................................................................. 11 26 Total Manufacturing operations debt………………………………………………………………………………………. 2,932 3,426 Less: Current portion ................................................................................................................................................... 32 461 Net long-term Manufacturing operations debt……………………………………………………………………….. $ 2,900 $ 2,965 October 31, October 31, ($ in millions) 2019 2018 Financial Services operations Asset-backed debt issued by consolidated SPEs, at fixed and variable rates, due serially through 2023, net of unamortized debt issuance costs of $4 at both dates ........................................................... $ 991 $ 948 Senior secured NFC Term Loan, due 2025, net of unamortized discount of $2 and unamortized debt issuance costs of $4 ..................................................................................................................................................... — 394 Bank credit facilities, at fixed and variable rates, due dates from 2020 through 2025, net of unamortized debt issuance costs of $1 and $2, respectively ........................................................................ 1,059 519 Commercial paper, at variable rates, program matures in 2022 .................................................................. 84 75 Borrowings secured by operating and finance leases, at various rates, due serially through 2024 122 105 Total Financial Services operations debt……………………………………………………………………………….…. 2,256 2,041 Less: Current portion ................................................................................................................................................... 839 485 Net long-term Financial Services operations debt……………………………………………………………….….. $ 1,417 $ 1,556 Q4 2019 Earnings – 12/17/2019 NYSE: NAV 21

 
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) attributable to Navistar International Corporation plus manufacturing interest expense, income taxes, and depreciation and amortization. We believe EBITDA provides meaningful information as 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 Net Income and Adjusted EBITDA: We believe that adjusted net income and 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, and free cash flow 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. Gross Margin consists of Sales and revenues, net, less Costs of products sold. Structural Cost consists of Selling, general and administrative expenses and Engineering and product development costs. Manufacturing Free Cash Flow consists of Net cash from operating activities and Capital Expenditures, all from our Manufacturing operations Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by Sales and revenues, net. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 22

 
SEC Regulation G Non-GAAP Reconciliation Manufacturing segment cash, Cash equivalents, and Marketable securities reconciliation: Oct. 31, Jul. 31, Apr. 30, Jan. 31, Oct. 31, ($ in millions) 2019 2019 2019 2019 2018 Manufacturing Operations: Cash and cash equivalents………………………………………………………................... $ 1,328 $ 1,112 $ 927 $ 1,151 $ 1,261 Marketable securities……………………………………………………………....................... - 3 23 41 101 Manufacturing Cash, Cash equivalents, and Marketable securities............ $ 1,328 $ 1,115 $ 950 $ 1,192 $ 1,362 Financial Services Operations: Cash and cash equivalents………………………………………………………................... $ 42 $ 48 $ 50 $ 50 $ 59 Marketable securities……………………………………………………………....................... - - - - - Financial Services Cash, Cash equivalents, and Marketable securities…… $ 42 $ 48 $ 50 $ 50 $ 59 Consolidated Balance Sheet: Cash and cash equivalents………………………………………………………................... $ 1,370 $ 1,160 $ 977 $ 1,201 $ 1,320 Marketable securities……………………………………………………………....................... - 3 23 41 101 Consolidated Cash, Cash equivalents, and Marketable securities…………. $ 1,370 $ 1,163 $ 1,000 $ 1,242 $ 1,421 Year Ended Year Ended Year Ended (in millions) Oct. 31, 2019 Oct. 31, 2018 Oct. 31, 2017 Consolidated Net Cash from Operating Activities..................................................... $ 450 $ 267 $ 109 Less: Net Cash from Financial Services Operations................................................... 55 (150) 99 Net Cash from Manufacturing Operations (A) .............................................................. 395 417 10 Capital Expenditures..................................................................................................... (132) (112) (101) Manufacturing Free Cash Flow.......................................................................... $ 263 $ 305 $ (91) (A) Net of adjustments required to eliminate certain intercompany transactions between Manufacturing operations and Financial Services Q4 2019 Earnings – 12/17/2019 operations. NYSE: NAV 23 Manufacturing Free Cash Flow reconciliation can be found on page 19 in question 9.

 
SEC Regulation G Non-GAAP Reconciliation Earnings (loss) before interest, taxes, depreciation, and amortization (“EBITDA”) reconciliation Quarters Ended October 31, Years Ended October 31, (in millions) 2019 2018 2019 2018 Income attributable to NIC, net of tax.............................................................................. $ 102 $ 188 $ 221 $ 340 Plus: Depreciation and amortization expense................................................................. 49 51 193 211 Manufacturing interest expense (A)........................................................................... 47 59 207 235 Adjusted for: Income tax expense........................................................................................................... (10) (27) (19) (52) EBITDA................................................................................................................................................ $ 208 $ 325 $ 640 $ 838 ______________________ (A) Manufacturing interest expense is the net interest expense primarily generated for borrowings that support the manufacturing and corporate operations, adjusted to eliminate interest expense of our Financial Services segment. The following table reconciles Manufacturing interest expense to the consolidated interest expense. Quarters Ended October 31, Years Ended October 31, (in millions) 2019 2018 2019 2018 Interest expense............................................................................................................................... $ 69 $ 87 $ 312 $ 327 Less: Financial services interest expense................................................................................. 22 28 105 92 Manufacturing interest expense................................................................................................. $ 47 $ 59 $ 207 $ 235 Quarters Ended October 31, Years Ended October 31, (in millions) 2019 2018 2019 2017 EBITDA (reconciled above)................................................................................. $ 208 $ 325 $ 640 $ 838 Adjusted for significant items of: Adjustments to pre-existing warranties (A)........................................................................ (4) (5) 3 (9) Asset impairment charges (B).................................................................................................... 1 3 7 14 Restructuring of manufacturing operations (C) ............................................................... 13 — 14 (1) MaxxForce Advanced EGR engine lawsuits (D)................................................................ 1 — 129 1 Gain on sale (E).................................................................................................................................. — — (56) — Debt refinancing charges (F)...................................................................................................... — — 6 46 Pension settlement (G).................................................................................................................. — — 142 9 Settlement gain (H)......................................................................................................................... — (1) (3) (72) Total adjustments.................................................................................................................................. 11 (3) 242 (12) Adjusted EBITDA................................................................................................. $ 219 $ 322 $ 882 $ 826 Adjusted EBITDA Margin................................................................................................................... 7.9% 9.7% 7.8% 8.1% For more detail on the items noted, please see the footnotes on slide 26. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 24

 
SEC Regulation G Non-GAAP Reconciliation Adjusted Income reconciliation: Quarter Ended, Oct 31 Year Ended, Oct 31 ($ in millions) 2019 2018 2019 2018 Net income from continuing operations attributable to NIC…......... Adjusted for significant items of: $ 102 $ 188 $ 221 $ 340 Adjustments to pre-existing warranties(A)................................................... (4) (5) 3 (9) Asset impairment charges(B)......................................................................... 1 3 7 14 Restructuring of manufacturing operations(C)............................................. 13 — 14 (1) MaxxForce Advanced EGR Engine lawsuits(D)............................................. 1 — 129 1 Gain on sale(E)................................................................................................ — — (56) — Debt refinancing charges(F)........................................................................... — — 6 46 Pension settlement(G) ................................................................................... — (1) 142 9 Settlement gain(H).......................................................................................... — — (3) (72) Total adjustments............................................................................................ 11 (3) 242 (12) Tax effect (I)..................................................................................................... 1 4 (40) (1) Adjusted net income attributable to NIC........................................................ $ 114 $ 189 $ 423 $ 327 For more detail on the items noted, please see the footnotes on slide 26. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 25

 
SEC Regulation G Non-GAAP Reconciliation Adjusted Income reconciliation: 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 historical 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. During 2019, we recorded $7 million of asset impairment charges relating to certain assets under operating leases in our Truck segment. During 2018, we recorded $14 million of impairment charges related to the exit of our railcar business in Cherokee, Alabama, certain long-lived assets and certain assets under operating leases in our Truck and Financial Services segments. C. During 2019, we recorded charges of $14 million primarily related to cost reduction actions recorded in Costs of product sold and Restructuring charges in our Global Operations segment. During 2018, we recognized a benefit of $1 million related to adjustments for restructuring charges in our Truck, Global Operations and Corporate segments. D. During 2019, we recognized a net charge of $129 million related to the MaxxForce Advanced EGR engine class action settlement and related litigation in our Truck segment. During 2018, we recognized a charge of $1 million for a jury verdict related to the MaxxForce Advanced EGR engine lawsuits in our Truck segment. E. During 2019, we recognized a gain of $51 million related to the sale of a majority interest in the Navistar Defense business in our Truck segment, and a gain of $5 million related to the sale of our joint venture in China with JAC in our Global Operations segment. F. During 2019, we recorded a charge of $6 million for the write-off of debt issuance costs and discounts associated with the NFC Term Loan. During 2018, we recorded a charge of $46 million for the write off of debt issuance costs and discounts associated with the repurchase of our 8.25% Senior Notes and the refinancing of our previously existing Term Loan. G. During 2019 and 2018, we purchased group annuity contracts for certain retired pension plan participants resulting in plan remeasurements. As a result, we recorded pension settlement charges of $142 million and $9 million respectively, in Other expense, net in Corporate. H. During 2019, we recorded interest income of $3 million in Other expense, net derived from the prior year settlement of a business economic loss claim. During 2018, we settled a business economic loss claim relating to our Alabama engine manufacturing facility from the Deepwater Horizon Settlement Program. As a result, we recorded the net present value of the settlement of $70 million and related interest income of $2 million in Other expense, net. I. Tax effect is calculated by excluding the tax impact of the non-GAAP adjustments from the tax provision calculations. Q4 2019 Earnings – 12/17/2019 NYSE: NAV 26

 

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