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Form 8-K NAVISTAR INTERNATIONAL For: Dec 18

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December 18, 2018 6:12 AM EST


 
 
 
 
 
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): December 18, 2018
_____________________________________

navlogoa15.jpg
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:

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 
 
 
 
 




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 December 18, 2018, Navistar International Corporation (the “Company”) filed its Annual Report on Form 10-K for the period ended October 31, 2018 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 will present via live web cast its fiscal 2018 fourth quarter financial results on Tuesday, December 18th. 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, Chairman, President and Chief Executive Officer, and 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 the 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 to download 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
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 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, 2018. 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.






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: December 18, 2018





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 2018 FOURTH QUARTER AND FULL YEAR RESULTS

•
Reports fourth quarter 2018 net income of $188 million, or $1.89 per diluted share, on revenues of $3.3 billion
•
Reports full-year net income of $340 million, or $3.41 per diluted share, on revenues of $10.3 billion
•
Delivers sixth consecutive year of adjusted EBITDA improvement
•
Records $322 million of adjusted EBITDA for the quarter; $826 million of adjusted EBITDA for the year
•
Generates $307 million of manufacturing free cash flow for the year
•
Achieves 1.7 share point growth in Class 8 market share; only OEM to grow Class 8 share during the year
LISLE, Ill. - December 18, 2018 - Navistar International Corporation (NYSE: NAV) today announced fourth quarter 2018 net income of $188 million, or $1.89 per diluted share, compared to fourth quarter 2017 net income of $135 million, or $1.36 per diluted share. Navistar reported net income of $340 million, or $3.41 per diluted share for fiscal year 2018, versus net income of $30 million, or $0.32 per diluted share, for fiscal year 2017.
Fourth quarter 2018 adjusted EBITDA increased 20 percent to $322 million, versus $268 million one year ago. Fiscal year 2018 adjusted EBITDA increased 42 percent to $826 million, versus $582 million in 2017. Full-year adjusted EBITDA margins increased to 8.1 percent, up from 6.8 percent for 2017. This marks the company’s sixth consecutive year of annual growth in adjusted EBITDA on both a dollar and percentage basis.
Revenues in the quarter increased 28 percent, to $3.3 billion, compared to fourth quarter 2017. The revenue increase was largely driven by a 45-percent increase in the company’s Core volumes, which represent its sales of Class 6-8 trucks and buses in the United States and Canada. Revenue for fiscal year 2018 was up 20 percent to $10.25 billion, compared to $8.6 billion in fiscal year 2017, attributable to annual revenue growth in all four operating segments. Class 8 retail market share grew to 13.5 percent in fiscal year 2018 versus 11.8 percent in fiscal year 2017.
Navistar finished fourth quarter 2018 with $1.42 billion in consolidated cash, cash equivalents and marketable securities, and with $1.36 billion in manufacturing cash, cash equivalents and marketable securities. For the year, the company generated $307 million of manufacturing free cash flow.
“2018 was a very strong year for the industry, and a breakout year for Navistar,” said Troy Clarke, Chairman, President and Chief Executive Officer. “We were the only truck OEM to grow Class 8 share during the year. With the industry’s newest product line-up, superior quality and a strong focus on customer uptime, we expect to gain market share in 2019 for the third year in a row.”





The company finished 2018 with strong momentum across the board. During the fourth quarter, the company launched the International® CV™ Series line of Class 4/5 trucks, the only Class 4/5 truck that is designed, distributed and supported by a manufacturer specializing in commercial vehicles. Year-over-year growth in heavy retail market share, up 2.5 share points, was attributable to strong sales of the International® LT® Series on-highway truck and the 12.4-liter A26 engine. The company’s IC Bus® school buses, led by alternative-fuel offerings, also improved retail share by 1.3 share points. Additionally, its medium-duty International® MV™ Series and vocational International® HV™ Series built improved order share resulting in a strong backlog. The company reported a backlog of 45,400 units in its Core markets, up from 15,600 at the end of 2017.
Earlier this month, Navistar announced a definitive agreement under which affiliates of Cerberus Capital Management, L.P. will acquire a majority interest in Navistar’s defense business, Navistar Defense. Following the close of the transaction, Cerberus will become a 70 percent owner and Navistar will remain a 30 percent owner. The agreement also includes an exclusive long-term supply agreement for commercial parts and chassis. The transaction, subject to regulatory approval, is expected to close in the first quarter of 2019.
In October, Navistar improved its debt profile by repaying its 4.5% senior subordinated convertible notes issued in October 2013. Repayment of the outstanding principal of $200 million at maturity was funded with cash on hand.
The company provided the following 2019 industry and financial guidance, including the fully consolidated financial impact of Navistar Defense:
•
Industry retail deliveries of Class 6-8 trucks and buses in the United States and Canada are forecast to be 395,000 to 425,000 units, with Class 8 retail deliveries of 265,000 to 295,000 units.
•
Revenues are expected to be between $10.75 billion and $11.25 billion.
•
Adjusted EBITDA is expected to be between $850 million and $900 million.
Following the completion of the partial sale of Navistar Defense, the company will update its 2019 guidance.
“While we expect 2019 to be another strong year for Navistar and the industry, it’s important to recognize that Navistar as an investment is much more than just a cycle play,” Clarke said. “As our ongoing improvements demonstrate, the company also has strong opportunities to benefit by recapturing market share, growing parts revenue, improving margins, generating free cash flow and further de-risking the balance sheet. For all these reasons, looking forward the company is well positioned to generate superior shareholder value.”





SEGMENT REVIEW
Summary of Financial Results:
 
(Unaudited)
 
 
 
Quarters Ended October 31,
 
Years Ended October 31,
(in millions, except per share data)
2018
 
2017
 
2018
 
2017
Sales and revenues, net
$
3,317

 
$
2,598

 
$
10,250

 
$
8,570

Segment Results:
 
 
 
 
 
 
 
Truck
$
197

 
$
112

 
$
397

 
$
(6
)
Parts
156

 
157

 
569

 
616

Global Operations
4

 
1

 
2

 
(7
)
Financial Services
26

 
26

 
88

 
77

Income from continuing operations, net of tax(A)
$
188

 
$
135

 
$
340

 
$
29

Net income(A)
188

 
135

 
340

 
30

Diluted earnings per share from continuing operations(A)
$
1.89

 
$
1.36

 
$
3.41

 
$
0.31

Diluted earnings per share(A)
1.89

 
1.36

 
3.41

 
0.32

_______________
(A) Amounts attributable to Navistar International Corporation.
Truck Segment - For the fourth quarter 2018, the Truck segment recorded a profit of $197 million, compared with a year-ago fourth quarter profit of $112 million. The year-over-year change was primarily due to the impact of higher volume in the company’s Core markets and strong defense results, partially offset by higher commodity and structural costs, as well as the impact of supplier constraints.
For the 2018 fiscal year, the Truck segment recorded a profit of $397 million, compared with a fiscal year 2017 loss of $6 million. The improvement was primarily driven by the impact of higher volumes in our Core markets, higher other income, higher profitability in defense, and a decline in used truck losses.
Parts Segment - For the fourth quarter 2018, the Parts segment recorded a profit of $156 million, compared with a year-ago fourth quarter profit of $157 million. The results were primarily driven by higher Fleetrite™ brand sales, offset by higher freight-related expenses and internal allocation of development, engineering and SG&A expenses.
For the 2018 fiscal year, the Parts segment recorded a profit of $569 million, compared to a fiscal year 2017 profit of $616 million. The eight-percent decrease was primarily driven by lower U.S. margins, and higher freight-related expenses and internal allocation of structural costs.
Global Operations Segment - For the fourth quarter 2018, the Global Operations segment recorded a profit of $4 million, compared to a year-ago fourth quarter profit of $1 million. The year-over-year change was driven by higher volumes due to improvements in the Brazilian economy, and cost reduction benefits associated with operational restructuring implemented in early 2018.
For the 2018 fiscal year, the Global Operations segment recorded a profit of $2 million compared to a year-ago fiscal year loss of $7 million. The Global Operations segment results improvement was primarily due to the impact of higher engine volumes and lower manufacturing and SG&A expenses as a result of the company’s cost reduction efforts.





Financial Services Segment - For the fourth quarter 2018, the Financial Services segment recorded a profit of $26 million, flat compared with fourth quarter 2017. The results were primarily driven by increased financing revenues driven by higher average portfolio balances, which were offset by increased borrowing costs driven by higher average borrowings outstanding and higher interest rates.
For the 2018 fiscal year, the Financial Services segment recorded a profit of $88 million, compared to a year-ago fiscal year profit of $77 million. The increase is primarily driven by higher revenues and is partially offset by higher interest expense, an increase in the provision for loan losses in Mexico, and higher depreciation expense on operating leases.
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, 2018. 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)
2018
 
2017
 
2018
 
2017
Sales and revenues
 
 
 
 
 
 
 
Sales of manufactured products, net
$
3,275

 
$
2,558

 
$
10,090

 
$
8,428

Finance revenues
42

 
40

 
160

 
142

Sales and revenues, net
3,317

 
2,598

 
10,250

 
8,570

Costs and expenses
 
 
 
 
 
 
 
Costs of products sold
2,702

 
2,088

 
8,317

 
7,037

Restructuring charges
—

 
7

 
(1
)
 
3

Asset impairment charges
3

 
—

 
14

 
13

Selling, general and administrative expenses
236

 
224

 
922

 
878

Engineering and product development costs
75

 
62

 
297

 
251

Interest expense
87

 
89

 
327

 
351

Other income, net
(9
)
 
(14
)
 
(46
)
 
(21
)
Total costs and expenses
3,094

 
2,456

 
9,830

 
8,512

Equity in income of non-consolidated affiliates
—

 
—

 
—

 
6

Income from continuing operations before income taxes
223

 
142

 
420

 
64

Income tax expense
(27
)
 
—

 
(52
)
 
(10
)
Income from continuing operations
196

 
142

 
368

 
54

Income from discontinued operations, net of tax
—

 
—

 
—

 
1

Net income
196

 
142

 
368

 
55

Less: Net income attributable to non-controlling interests
8

 
7

 
28

 
25

Net income attributable to Navistar International Corporation
$
188

 
$
135

 
$
340

 
$
30

 
 
 
 
 
 
 
 
Amounts attributable to Navistar International Corporation common shareholders:
 
 
 
 
 
 
Income from continuing operations, net of tax
$
188

 
$
135

 
$
340

 
$
29

Income from discontinued operations, net of tax
—

 
—

 
—

 
1

Net income
$
188

 
$
135

 
$
340

 
$
30

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
$
1.90

 
$
1.37

 
$
3.44

 
$
0.31

Discontinued operations
—

 
—

 
—

 
0.01

 
$
1.90

 
$
1.37

 
$
3.44

 
$
0.32

 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
Continuing operations
$
1.89

 
$
1.36

 
$
3.41

 
$
0.31

Discontinued operations
—

 
—

 
—

 
0.01

 
$
1.89

 
$
1.36

 
$
3.41

 
$
0.32

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
99.1

 
98.4

 
98.9

 
93.0

Diluted
99.7

 
99.2

 
99.6

 
93.5







Navistar International Corporation and Subsidiaries
Consolidated Balance Sheets
 
As of October 31,
(in millions, except per share data)
2018
 
2017
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
1,320

 
$
706

Restricted cash and cash equivalents
62

 
83

Marketable securities
101

 
370

Trade and other receivables, net
456

 
391

Finance receivables, net
1,898

 
1,565

Inventories, net
1,110

 
857

Other current assets
189

 
188

Total current assets
5,136

 
4,160

Restricted cash
63

 
51

Trade and other receivables, net
49

 
13

Finance receivables, net
260

 
220

Investments in non-consolidated affiliates
50

 
56

Property and equipment, net
1,370

 
1,326

Goodwill
38

 
38

Intangible assets, net
30

 
40

Deferred taxes, net
121

 
129

Other noncurrent assets
113

 
102

Total assets
$
7,230

 
$
6,135

LIABILITIES and STOCKHOLDERS’ DEFICIT
 
 
 
Liabilities
 
 
 
Current liabilities
 
 
 
Notes payable and current maturities of long-term debt
$
946

 
$
1,169

Accounts payable
1,606

 
1,292

Other current liabilities
1,255

 
1,184

Total current liabilities
3,807

 
3,645

Long-term debt
4,521

 
3,889

Postretirement benefits liabilities
2,097

 
2,497

Other noncurrent liabilities
731

 
678

Total liabilities
11,156

 
10,709

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
2,731

 
2,733

Accumulated deficit
(4,593
)
 
(4,933
)
Accumulated other comprehensive loss
(1,920
)
 
(2,211
)
Common stock held in treasury, at cost (4.2 and 4.6 shares, respectively)
(161
)
 
(179
)
Total stockholders’ deficit attributable to Navistar International Corporation
(3,931
)
 
(4,578
)
Stockholders’ equity attributable to non-controlling interests
5

 
4

Total stockholders’ deficit
(3,926
)
 
(4,574
)
Total liabilities and stockholders’ deficit
$
7,230

 
$
6,135







Navistar International Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
 
For the Years Ended October 31,
(in millions)
2018
 
2017
Cash flows from operating activities
 
 
 
Net income
$
368

 
$
55

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
140

 
150

Depreciation of equipment leased to others
71

 
73

Deferred taxes, including change in valuation allowance
4

 
(6
)
Asset impairment charges
14

 
13

Gain on sales of investments and businesses, net
—

 
(5
)
Amortization of debt issuance costs and discount
31

 
49

Stock-based compensation
32

 
28

Provision for doubtful accounts, net of recoveries
10

 
7

Equity in income of non-consolidated affiliates, net of dividends
7

 
1

Write-off of debt issuance costs and discount
43

 
5

Other non-cash operating activities
(23
)
 
(28
)
Changes in other assets and liabilities, exclusive of the effects of businesses disposed
 
 
 
Trade and other receivables
(109
)
 
(125
)
Finance receivables
(405
)
 
(123
)
Inventories
(257
)
 
82

Accounts payable
317

 
159

Other assets and liabilities
26

 
(226
)
Net cash provided by operating activities
269

 
109

Cash flows from investing activities
 
 
 
Purchases of marketable securities
(251
)
 
(1,011
)
Sales of marketable securities
460

 
659

Maturities of marketable securities
60

 
28

Net change in restricted cash and cash equivalents
9

 
(22
)
Capital expenditures
(113
)
 
(102
)
Purchases of equipment leased to others
(232
)
 
(137
)
Proceeds from sales of property and equipment
11

 
35

Investments in non-consolidated affiliates
—

 
(1
)
Proceeds from (payments for) sales of affiliates
(3
)
 
9

Net cash used in investing activities
(59
)
 
(542
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of securitized debt
339

 
322

Principal payments on securitized debt
(364
)
 
(336
)
Net change in secured revolving credit facilities
135

 
111

Proceeds from issuance of non-securitized debt
3,248

 
582

Principal payments on non-securitized debt
(2,920
)
 
(489
)
Net change in notes and debt outstanding under revolving credit facilities
(10
)
 
(112
)
Debt issuance costs
(41
)
 
(29
)
Proceeds from financed lease obligations
63

 
61

Issuance of common stock
—

 
256

Stock issuance costs
—

 
(11
)
Proceeds from exercise of stock options
8

 
12

Dividends paid by subsidiaries to non-controlling interest
(27
)
 
(26
)
Other financing activities
(17
)
 
(3
)
Net cash provided by financing activities
414

 
338

Effect of exchange rate changes on cash and cash equivalents
(10
)
 
(3
)
Increase (decrease) in cash and cash equivalents
614

 
(98
)
Cash and cash equivalents at beginning of the year
706

 
804

Cash and cash equivalents at end of the year
$
1,320

 
$
706






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, 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
Three Months Ended October 31, 2017
 
 
 
 
 
 
 
 
 
 
 
External sales and revenues, net
$
1,841

 
$
622

 
$
93

 
$
40

 
$
2

 
$
2,598

Intersegment sales and revenues
12

 
4

 
12

 
23

 
(51
)
 
—

Total sales and revenues, net
$
1,853

 
$
626

 
$
105

 
$
63

 
$
(49
)
 
$
2,598

Income (loss) from continuing operations attributable to NIC, net of tax
$
112

 
$
157

 
$
1

 
$
26

 
$
(161
)
 
$
135

Income tax expense
—

 
—

 
—

 
—

 
—

 
—

Segment profit (loss)
$
112

 
$
157

 
$
1

 
$
26

 
$
(161
)
 
$
135

Depreciation and amortization
$
34

 
$
2

 
$
3

 
$
13

 
$
2

 
$
54

Interest expense
—

 
—

 
—

 
21

 
68

 
89

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

 
—

 
(1
)
 
—

 
—

 
—

       Capital expenditures(B)
4

 
—

 
—

 
—

 
5

 
9





(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(A)
 
Corporate
and
Eliminations
 
Total
Year Ended October 31, 2017
 
 
 
 
 
 
 
 
 
 
 
External sales and revenues, net
$
5,770

 
$
2,369

 
$
279

 
$
142

 
$
10

 
$
8,570

Intersegment sales and revenues
39

 
23

 
30

 
93

 
(185
)
 
—

Total sales and revenues, net
$
5,809

 
$
2,392

 
$
309

 
$
235

 
$
(175
)
 
$
8,570

Income (loss) from continuing operations attributable to NIC, net of tax
$
(6
)
 
$
616

 
$
(7
)
 
$
77

 
$
(651
)
 
$
29

Income tax expense
—

 
—

 
—

 
—

 
(10
)
 
(10
)
Segment profit (loss)
$
(6
)
 
$
616

 
$
(7
)
 
$
77

 
$
(641
)
 
$
39

Depreciation and amortization
$
137

 
$
11

 
$
13

 
$
51

 
$
11

 
$
223

Interest expense
—

—

—

 
—

 
86

 
265

 
351

Equity in income (loss) of non-consolidated affiliates
4

 
3

 
(1
)
 
—

 
—

 
6

       Capital expenditures(B)
82

 
2

 
5

 
1

 
12

 
102

(in millions)
Truck
 
Parts
 
Global Operations
 
Financial
Services
 
Corporate
and
Eliminations
 
Total
Segment assets, as of:
 
 
 
 
 
 
 
 
 
 
 
October 31, 2018
$
2,085

 
$
636

 
$
331

 
$
2,648

 
$
1,530

 
$
7,230

October 31, 2017
1,621

 
632

 
378

 
2,207

 
1,297

 
6,135

_________________________
(A)
Total sales and revenues in the Financial Services segment include interest revenues of $51 million and $182 million for the three months and year ended October 31, 2018, respectively, and $44 million and $165 million for the three months and year ended October 31, 2017, 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) attributable to Navistar International Corporation, net of tax, plus manufacturing interest expense, income taxes, and depreciation and amortization. We believe EBITDA provides meaningful information regarding 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 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.
EBITDA reconciliation:
 
(Unaudited)
 
 
 
 
 
For the Quarters Ended October 31,
 
For the Years Ended October 31,
(in millions)
2018
 
2017
 
2018
 
2017
Income from continuing operations attributable to NIC, net of tax
$
188

 
$
135

 
$
340

 
$
29

Plus:
 
 
 
 
 
 
 
Depreciation and amortization expense
51

 
54

 
211

 
223

Manufacturing interest expense(A)
59

 
68

 
235

 
265

Adjusted for:
 
 
 
 
 
 
 
Income tax expense
(27
)
 
—

 
(52
)
 
(10
)
EBITDA
$
325

 
$
257

 
$
838

 
$
527

______________________
(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)
2018
 
2017
 
2018
 
2017
Interest expense
$
87

 
$
89

 
$
327

 
$
351

Less: Financial services interest expense
28

 
21

 
92

 
86

Manufacturing interest expense
$
59

 
$
68

 
$
235

 
$
265






Adjusted EBITDA Reconciliation:
 
(Unaudited)
 
 
 
 
 
For the Quarters Ended October 31,
 
For the Years Ended October 31,
(in millions)
2018
 
2017
 
2018
 
2017
EBITDA (reconciled above)
$
325

 
$
257

 
$
838

 
$
527

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

 
(9
)
 
(1
)
Asset impairment charges(B)
3

 
—

 
14

 
13

Restructuring of manufacturing operations(C)
—

 
7

 
(1
)
 
13

EGR product litigation(D)
—

 
—

 
1

 
31

Gain on sale(E)
—

 
—

 
—

 
(6
)
Debt refinancing charges(F)
—

 
1

 
46

 
5

Pension settlement(G)
—

 
—

 
9

 
—

Settlement gain(H)
(1
)
 
—

 
(72
)
 
—

Total adjustments
(3
)
 
11

 
(12
)
 
55

Adjusted EBITDA
$
322

 
$
268

 
$
826

 
$
582

_____________________

(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 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. During 2017, we recorded $13 million of asset impairment charges in our Truck segment relating to assets held for sale of our Conway, Arkansas fabrication business and for certain assets under operating leases.
(C)
During 2018, we recognized a benefit of $1 million related to adjustments for restructuring in our Truck, Global Operations and Corporate segments. During 2017, we recorded charges of $13 million primarily attributable to $41 million of charges related to our plan to cease production at our Melrose Park Facility, a net benefit of $36 million related to the resolution of the closing agreement and wind up charges for our Chatham, Ontario plant, and the release of $1 million in other postemployment benefits liabilities in connection with the sale of our fabrication business in Conway, Arkansas. We also recorded $6 million of restructuring charges in Brazil related to cost reduction actions consisting of personnel costs for employee separation and related benefits.
(D)
During 2018, we recognized an additional charge of $1 million for a jury verdict related to the MaxxForce engine EGR product litigation in our Truck segment. During 2017, we recognized a charge of $31 million related to that same jury verdict in our Truck segment.
(E)
During 2017, we recognized a gain of $6 million related to the sale of a business line in our Parts segment.
(F)
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. During 2017, we recorded a charge of $5 million related to third party fees and debt issuance costs associated with the replacement of our Term Loan with our Term Loan Credit Agreement and the refinancing of the revolving portion of the NFC bank credit facility in our Financial Services segment.
(G)
During 2018, we purchased a group annuity contract for certain retired pension plan participants resulting in a plan remeasurement. As a result, we recorded a pension settlement accounting charge of $9 million in SG&A expenses.
(H)
During 2018, we settled a business economic loss claim relating to our Alabama engine manufacturing facility in which we will receive a net present value of $70 million, net of our fees and costs, from the Deepwater Horizon Settlement Program. We recorded the $70 million net present value of the settlement and related interest income of $2 million in Other Income, net.





Manufacturing segment cash, cash equivalents, and marketable securities reconciliation:
 
As of October 31, 2018
(in millions)
Manufacturing Operations
 
Financial Services Operations
 
Consolidated Balance Sheet
Assets
 
 
 
 
 
Cash and cash equivalents
$
1,261

 
$
59

 
$
1,320

Marketable securities
101

 
—

 
101

Total cash, cash equivalents, and marketable securities
$
1,362

 
$
59

 
$
1,421





Q4 2018 EARNINGS PRESENTATION December 18, 2018 ® International is a registered trademark of , Inc. NYSE: NAV

 
Safe Harbor Statement and Other Cautionary Notes 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, 2018. 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 2018 Earnings – 12/18/2018 NYSE: NAV 2

 
Fourth Quarter 2018 Highlights • Revenue higher, led by a 41% increase in Truck revenue • Grew market share in every segment sequentially and year over year • Chargeouts increased 45% to 24,700 • Net income rose to $188M • Adjusted EBITDA up 20% to $322M • Manufacturing cash balance of $1.36B • Repaid $200M convertible notes in October • Strong backlog setting foundation for momentum into 2019 Note: This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Q4 2018 Earnings – 12/18/2018 NYSE: NAV 3

 
2018: Accomplishments and Recent Announcements • Revenue up in all segments, led by a 29% increase in Truck • Only OEM to grow Class 8 retail market share • Gross margin of 18.9%, up 100 basis points year over year • Sixth consecutive year of adjusted EBITDA and margin growth • Net income increased to $340M from $30M in 2017 • Manufacturing free cash flow of $307M • Fleetrite branded parts experienced double-digit growth year over year • Announced 70% sale of Navistar Defense to Cerberus Capital Management • Launched and began production of Class 4/5 products Note: This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Q4 2018 Earnings – 12/18/2018 NYSE: NAV 4

 
Significant Improvement in Key Financial Metrics ($ in millions, except per share and units) Quarters Ended Years Ended October 31 October 31 2018 2017 2018 2017 Chargeouts(A) 24,700 17,000 73,900 57,300 Sales and Revenues $3,317 $2,598 $10,250 $8,570 Net Income(B) $188 $135 $340 $30 Diluted Income Per Share(B) $1.89 $1.36 $3.41 $0.32 Adjusted EBITDA $322 $268 $826 $582 (A) Includes U.S. and Canada School buses and Class 6-8 trucks. Note: This slide contains non-GAAP information; please see the Q4 2018 Earnings – 12/18/2018 (B) Amounts attributable to Navistar International Corporation, net of tax. REG G in appendix for a detailed reconciliation. NYSE: NAV 5

 
All Segments Profitable in Q4 ($ in millions) Sales and Revenues Segment Profit Quarters Ended Quarters Ended October 31 October 31 2018 2017 2018 2017 Truck $2,619 $1,853 $197 $112 Parts $633 $626 $156 $157 Global Operations $93 $105 $4 $1 Financial Services $70 $63 $26 $26 Q4 2018 Earnings – 12/18/2018 NYSE: NAV 6

 
Truck Segment Driving Improved Results ($ in millions) Sales and Revenues Segment Profit Years Ended Years Ended October 31 October 31 2018 2017 2018 2017 Truck $7,490 $5,809 $397 ($6) Parts $2,407 $2,392 $569 $616 Global Operations $360 $309 $2 ($7) Financial Services $257 $235 $88 $77 Q4 2018 Earnings – 12/18/2018 NYSE: NAV 7

 
Positive Free Cash Flow and Strong Cash Balance ($ in millions) ($ in billions) Manufacturing Free Cash Flow(A) Manufacturing Cash Balance (B) $1,362 $325 $307 $1,400 $1,100 $1,084 $200 $1,036 $1,050 $947 $75 $700 ($50) ($99) $350 ($175) ($300) ($278) $0 2016 2017 2018 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 (A) Amounts exclude dividends from financial services operations. NYSE: NAV (B) Amounts include manufacturing cash, cash equivalents, and marketable securities. Q4 2018 consolidated cash balance is $1.42 billion. 8 Note: This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation.

 
Strengthening Balance Sheet ($ in millions) ($ in billions) Limited Near-Term Debt Maturities(A) $4 Pension and OPEB Under-Funded Status $2,000 Improved $1B Since 2016 $1,600 $3.1 $3 $2.5 $1,100 $2.1 $2 $1,000 $1 $411 $225 $0 $- 2019 2020-2024 2025 2026 Thereafter 2016 2017 2018 Pension OPEB (A) Total manufacturing debt of $3.4B as of October 31, 2018. Graph does not include financed lease obligations and Q4 2018 Earnings – 12/18/2018 other, totaling $148 million. NYSE: NAV 9

 
Strong Industry Expected to Continue Into 2019 2018 Actual 2019 Guidance Class 8 277K 265-295K Class 6/7 99K 95K School bus 33K 35K Core markets industry 409K 395-425K Q4 2018 Earnings – 12/18/2018 NYSE: NAV 10

 
2019 Financial Guidance 2018 Actuals 2019 Guidance Revenue $10.25B $10.75-$11.25B Gross margin 18.9% 19.0%-19.5% Adjusted EBITDA $826M $850-$900M Manufacturing interest expense $235M $225M Warranty spend greater than expense $141M $90M Capital expenditures $113M $150M Pension/OPEB contributions greater than $81M $85M expense Core Market Share 17.5% 18.5% Note: This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Q4 2018 Earnings – 12/18/2018 2019 financial guidance includes fully consolidated financial impact of the Navistar Defense business. NYSE: NAV 11

 
Appendix Q4 2018 Earnings – 12/18/2018 NYSE: NAV 12

 
Legacy Issues Behind Us ($ in millions) Used Truck Inventory $250 • Gross inventory balance: $154 million o MaxxForce 13s in inventory: 176 units $125 • Net inventory balance: $123 million $0 Q4 Q1 Q2 Q3 Q4 • Q4 inventory reserve: 2017 2018 2018 2018 2018 Gross Inventory Net Inventory $31 million (A) $1,000 Warranty Spend vs. Expense • Q4 warranty expense $750 (excluding pre-existing) as a $500 percentage of revenue: 1.7% o 2.4% in 4Q17 $250 • Warranty liability balance: $0 $529 million 2013 2014 2015 2016 2017 2018 2019* Warranty Spend Warranty Expense (A) 2019 warranty spend vs. expense are estimates. Q4 2018 Earnings – 12/18/2018 NYSE: NAV 13

 
U.S. and Canada Dealer Stock Inventory* 6,000 5,500 5,000 4,500 4,000 3,500 3,000 *Includes U.S. and Canada Class 4-8 truck inventory, but does not include U.S. IC Bus. Q4 2018 Earnings – 12/18/2018 NYSE: NAV 14

 
Retail Market Share in Commercial Vehicle Segments Years Ended October 31, 2018 2017 2016 Core Markets (U.S. and Canada) School buses................................................. 33 % 32 % 34 % Class 6 and 7 medium trucks ................. 23 % 25 % 21 % Class 8 heavy trucks .................................. 14 % 11 % 10 % Class 8 severe service trucks .................. 13 % 13 % 13 % Total Core Markets..................... 17 % 17 % 16 % Combined class 8 trucks .......................... 14 % 12 % 11 % Class 6/7 Class 8 Class 8 Medium-Duty Heavy Severe Service Q4 2018 Earnings – 12/18/2018 NYSE: NAV 15

 
Worldwide Truck Chargeouts Three Months Years Ended Ended October 31, % October 31, % 2018 2017 Change Change 2018 2017 Change Change Core Markets (U.S. and Canada) School buses(A)................................................. 3,700 2,900 800 28% 12,200 11,300 900 8% Class 6 and 7 medium trucks .......................... 6,800 5,200 1,600 31% 24,300 20,900 3,400 16% Class 8 heavy trucks ......................................... 10,600 6,500 4,100 63% 27,800 16,800 11,000 65% Class 8 severe service trucks(B)........................ 3,600 2,400 1,200 50% 9,600 8,300 1,300 16% Total Core markets.......................... 24,700 17,000 7,700 45% 73,900 57,300 16,600 29% Non "Core" defense.......................................... 200 300 (100) -33% 700 800 (100) -13% Other markets(C)............................................... 3,700 3,900 (200) -5% 9,600 10,800 (1,200) -11% Total worldwide units...................... 28,600 21,200 7,400 35% 84,200 68,900 15,300 22% Combined class 8 trucks .................................. 14,200 8,900 5,300 60% 37,400 25,100 12,300 49% 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) The School bus chargeouts include buses classified as B, C, and D and are being reported on a one-month lag. (B) Chargeouts include CAT-branded units sold to Caterpillar under our North America supply agreement during 2016. (C) Other markets primarily consist of Export Truck and Mexico. Q4 2018 Earnings – 12/18/2018 NYSE: NAV 16

 
Financial Services Segment Highlights • Financial Services segment profit of $26M for Q4 2018 and $88M for YTD 2018 • NFC1 earned pre-tax profit of $15.6M for Q4 and $51.7M for YTD 2018 • NFC financing availability of $328M as of October 31, 2018, $248M available under the $269M revolver • Financial Services debt/equity leverage of 3.5:1 as of October 31, 2018 • Dealer note funding - Refinanced $300M of maturing investor notes and renewed the $350M variable notes facility NFC Facilities Dealer Floor Plan Retail Notes Bank and Term Loan B • NFSC wholesale trust as of • Revolver capacity of $269M October 31, 2018 matures September 2021, Term C A P I T A L Loan B of $400M matures July – $900M funding facility Funded by BMO Financial Group – Variable portion matures 2025 May 2020 • Program management continuity – Funding for retail notes, – Term portions mature June 2019 • Broad product offering wholesale notes, retail accounts, and September 2020 • Ability to support large fleets and dealer open accounts • On balance sheet • On balance sheet • Access to less expensive capital 1Navistar Financial Corporation (NFC) is the U.S. financial entity of Navistar’s Financial Services segment. Q4 2018 Earnings – 12/18/2018 NYSE: NAV 17

 
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 income of non-consolidated affiliates? A: Equity in income 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 2018 and beyond pension funding requirements? A: In 2018 and 2017, we contributed $132 million and $112 million, respectively, to our U.S. and Canadian pension plans (the "Plans") to meet regulatory minimum funding requirements. In 2019 we expect to contribute approximately $140 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 2020 through 2022, we will be required to contribute approximately $175 million 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 2019 and will gradually increase as we utilize available net operating losses (NOLs) and tax credits in future years. Q4 2018 Earnings – 12/18/2018 NYSE: NAV 18

 
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, 2018, the Company had deferred tax assets for U.S. federal NOLs valued at $560 million, state NOLs valued at $178 million, and foreign NOLs valued at $241 million, for a total undiscounted cash value of $979 million. In addition to NOLs, the Company had deferred tax assets for accumulated tax credits of $212 million and other deferred tax assets of $1.1 billion resulting in net deferred tax assets before valuation allowances of approximately $2.3 billion. Of this amount, $2.2 billion was subject to a valuation allowance at the end of FY2018. Q7: How does your FY 2019 Class 8 industry outlook compare to ACT Research? A: Reconcilation to ACT - Retail Sales 2019 ACT* 293,000 CY to FY Adjustment 11,000 "Other Specialty OEMs" included in ACT's forecast; we do not include (6,000) these specialty OEMs in our forecast or in our internal/external reports Total (ACT comparable Class 8 Navistar) 298,000 Navistar Industry Retail Deliveries Combined Class 8 Trucks 265,000 295,000 Navistar Difference from ACT (33,000) (3,000) *Source: ACT N.A. Commercial Vehicle Outlook - May 2018 (11.1%) (1.0%) 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 2018 Earnings – 12/18/2018 NYSE: NAV 19

 
Frequently Asked Questions Q9: How do you define manufacturing free cash flow? A: Year Ended Quarters Ended (in millions) Oct. 31, 2018 Oct. 31, 2018 Jul. 31, 2018 Apr. 30, 2018 Jan. 31, 2018 Consolidated Net Cash from Operating Activities...................... $ 269 $ 449 $ (83) $ (21) $ (76) Less: Net Cash from Financial Services Operations................... (150) (124) 33 (220) 161 Net Cash from Manufacturing Operations (A) ....................... 419 573 (116) 199 (237) Capital Expenditures.......................................................................... (112) (34) (25) (23) (30) Manufacturing Free Cash Flow.......................................... $ 307 $ 539 $ (141) $ 176 $ (267) _____________________________ (A) Net of adjustments. Q10: What were your Worldwide Engine Shipments in the period? A: Three Months Years Ended Ended October 31, % October 31, % 2018 2017 Change Change 2018 2017 Change Change (in units) OEM sales-South America................................ 6,600 6,800 (200) -3% 25,700 21,300 4,400 21% Intercompany sales........................................... 3,600 3,500 100 3% 13,200 11,300 1,900 17% Other OEM sales............................................... 650 800 (150) -19% 2,850 2,600 250 10% Total Core Markets.......................... 10,850 11,100 (250) -2% 41,750 35,200 6,550 19% Q4 2018 Earnings – 12/18/2018 NYSE: NAV 20

 
Outstanding Debt Balances As of October 31, (in millions) 2018 2017 Manufacturing operations Senior Secured Term Loan Credit Agreement, due 2025, net of unamortized discount of $7 and unamortized debt issuance costs of $11 ............................................................................................................... $ 1,570 $ — Senior Secured Term Loan Credit Facility, as amended, due 2020, net of unamortized discount of $7, and unamortized debt issuance costs of $9........................................................................................................ — 1,003 6.625% Senior Notes, due 2026, net of unamortized debt issuance costs of $17 ................................. 1,083 — 8.25% Senior Notes, due 2022, net of unamortized discount of $13 and unamortized debt issuance costs of $14 ..................................................................................................................................................................... — 1,423 4.50% Senior Subordinated Convertible Notes, due 2018, net of unamortized discount of $5 and unamortized debt issuance costs of $1 ................................................................................................................. — 194 4.75% Senior Subordinated Convertible Notes, due 2019, net of unamortized discount of $5 and $14, respectively, and unamortized debt issuance costs of $1 and $3, respectively ....................................... 405 394 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 ........................................................................................................................................ 122 130 Other ................................................................................................................................................................................. 26 43 Total Manufacturing operations debt .................................................................................................................... 3,426 3,407 Less: Current portion ................................................................................................................................................... 461 286 Net long-term Manufacturing operations debt ................................................................................................. $ 2,965 $ 3,121 As of October 31, (in millions) 2018 2017 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 and $5, respectively ............................................... $ 948 $ 849 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 2019 through 2024, net of unamortized debt issuance costs of $2 and $2, respectively ........................................................................ 519 616 Commercial paper, at variable rates, program matures in 2022 .................................................................. 75 92 Borrowings secured by operating and finance leases, at various rates, due serially through 2024 105 94 Total Financial Services operations debt............................................................................................................... 2,041 1,651 Less: Current portion ................................................................................................................................................... 485 883 Net long-term Financial Services operations debt ........................................................................................... $ 1,556 $ 768 Q4 2018 Earnings – 12/18/2018 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, 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. 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. Free Cash Flow consists of Net cash from operating activities and Capital Expenditures. Q4 2018 Earnings – 12/18/2018 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) 2018 2018 2018 2018 2017 Manufacturing Operations: Cash and cash equivalents………………………………………………………...................... $ 1261 $ 989 $ 1,060 $ 671 $ 666 Marketable securities……………………………………………………………......................... 101 95 40 276 370 Manufacturing Cash, Cash equivalents, and Marketable securities.............. $ 1,362 $ 1,084 $ 1,100 $ 947 $ 1,036 Financial Services Operations: Cash and cash equivalents………………………………………………………...................... $ 59 $ 33 $ 40 $ 28 $ 40 Marketable securities……………………………………………………………......................... - - - - - Financial Services Cash, Cash equivalents, and Marketable securities……... $ 59 $ 33 $ 40 $ 28 $ 40 Consolidated Balance Sheet: Cash and cash equivalents………………………………………………………...................... $ 1,320 $ 1,022 $ 1100 $ 699 $ 706 Marketable securities……………………………………………………………......................... 101 95 40 276 370 Consolidated Cash, Cash equivalents, and Marketable securities………….... $ 1,421 $ 1,117 $ 1,140 $ 975 $ 1,076 Year Ended Year Ended Year Ended (in millions) Oct. 31, 2018 Oct. 31, 2017 Oct. 31, 2016 Consolidated Net Cash from Operating Activities..................................................... $ 269 $ 109 $ 267 Less: Net Cash from Financial Services Operations................................................... (150) 107 431 Net Cash from Manufacturing Operations (A) .............................................................. 419 2 (164) Capital Expenditures..................................................................................................... (112) (101) (114) Manufacturing Free Cash Flow.......................................................................... $ 307 $ (99) $ (278) (A) Amounts exclude dividends from financial services operations. Q4 2018 Earnings – 12/18/2018 NYSE: NAV 23

 
SEC Regulation G Non-GAAP Reconciliations Earnings (loss) before interest, taxes, depreciation, and amortization (“EBITDA”) reconciliation Quarters Ended October 31, Years Ended October 31, (in millions) 2018 2017 2018 2017 Income attributable to NIC, net of tax.............................................................................. $ 188 $ 135 $ 340 $ 29 Plus: Depreciation and amortization expense................................................................. 51 54 211 223 Manufacturing interest expense (A)........................................................................... 59 68 235 265 Adjusted for: Income tax expense........................................................................................................... (27) — (52) (10) EBITDA................................................................................................................................................ $ 325 $ 257 $ 838 $ 527 ______________________ (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) 2018 2017 2018 2017 Interest expense............................................................................................................................... $ 87 $ 89 $ 327 $ 351 Less: Financial services interest expense................................................................................. 28 21 92 86 Manufacturing interest expense................................................................................................. $ 59 $ 68 $ 235 $ 265 Quarters Ended October 31, Years Ended October 31, (in millions) 2018 2017 2018 2017 EBITDA (reconciled above)................................................................................. $ 325 $ 257 $ 838 $ 527 Adjusted for significant items of: Adjustments to pre-existing warranties (A)........................................................................ (5) 3 (9) (1) Asset impairment charges (B).................................................................................................... 3 — 14 13 Restructuring (C) .............................................................................................................................. — 7 (1) 13 EGR product litigation (D)............................................................................................................ — — 1 31 Gain on sale (E).................................................................................................................................. — — — (6) Debt refinancing charges (F)...................................................................................................... — 1 46 5 Pension settlement (G).................................................................................................................. — — 9 — Settlement gain (H)......................................................................................................................... (1) — (72) — Total adjustments.................................................................................................................................. (3) 11 (12) 55 Adjusted EBITDA................................................................................................. $ 322 $ 268 $ 826 $ 582 Adjusted EBITDA Margin................................................................................................................... 9.7% 10.3% 8.1% 6.8% For more detail on the items noted, please see the footnotes on slide 25. Q4 2018 Earnings – 12/18/2018 NYSE: NAV 24

 
Significant Items Included Within Our Results Quarters Ended October 31, Years Ended October 31, (in millions) 2018 2017 2018 2017 Expense (income): Adjustments to pre-existing warranties (A)........................................................................ (5) 3 (9) (1) Asset impairment charges (B).................................................................................................... 3 — 14 13 Restructuring (C) .............................................................................................................................. — 7 (1) 13 EGR product litigation (D)............................................................................................................ — — 1 31 Gain on sale (E).................................................................................................................................. — — — (6) Debt refinancing charges (F)...................................................................................................... — 1 46 5 Pension settlement G).................................................................................................................... — — 9 — Settlement gain (H)......................................................................................................................... (1) — (72) — _____________________ (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 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. During 2017, we recorded $13 million of asset impairment charges in our Truck segment relating to assets held for sale of our Conway, Arkansas fabrication business and for certain assets under operating leases. (C) During 2018, we recognized a benefit of $1 million related to adjustments for restructuring in our Truck, Global Operations and Corporate segments. During 2017, we recorded charges of $13 million primarily attributable to $41 million of charges related to our plan to cease production at our Melrose Park Facility, a net benefit of $36 million related to the resolution of the closing agreement and wind up charges for our Chatham, Ontario plant, and the release of $1 million in other postemployment benefits liabilities in connection with the sale of our fabrication business in Conway, Arkansas. We also recorded $6 million of restructuring charges in Brazil related to cost reduction actions consisting of personnel costs for employee separation and related benefits. (D) During 2018, we recognized an additional charge of $1 million for a jury verdict related to the MaxxForce engine EGR product litigation in our Truck segment. During 2017, we recognized a charge of $31 million related to that same jury verdict in our Truck segment. (E) During 2017, we recognized a gain of $6 million related to the sale of a business line in our Parts segment. (F) 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. During 2017, we recorded a charge of $5 million related to third party fees and debt issuance costs associated with the replacement of our Term Loan with our Term Loan Credit Agreement and the refinancing of the revolving portion of the NFC bank credit facility in our Financial Services segment. (G) During 2018, we purchased a group annuity contract for certain retired pension plan participants resulting in a plan remeasurement. As a result, we recorded a pension settlement accounting charge of $9 million in SG&A expenses. (H) During 2018, we settled a business economic loss claim relating to our Alabama engine manufacturing facility in which we will receive a net present value of $70 million, net of our fees and costs, from the Deepwater Horizon Settlement Program. We recorded the $70 million net present value of the settlement and related interest income of $2 million in Other Income, net. Q4 2018 Earnings – 12/18/2018 NYSE: NAV 25

 

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