Form 8-K NAVISTAR INTERNATIONAL For: Jun 04
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E-mailExhibit 99.1
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Navistar International Corporation 2701 Navistar Dr. Lisle, IL 60532 USA P: 331-332-5000 W: navistar.com |
| Media contact: | Darwin Minnis, [email protected], 331-332-5243 | |
| Investor contact: | Marty Ketelaar, [email protected], 331-332-2706 | |
| Web site: | www.Navistar.com/newsroom |
NAVISTAR REPORTS SECOND QUARTER 2020 RESULTS
| • | Reports second quarter 2020 net loss of $38 million, or $0.38 per diluted share, on revenues of $1.9 billion |
| • | Generates $88 million of adjusted EBITDA in the second quarter; reports a loss of $10 million in adjusted net income |
| • | Finishes the second quarter with $1.5 billion in manufacturing cash, cash equivalents and marketable securities |
| • | Implemented $300 million of actions to conserve cash amid COVID-19 pandemic |
| • | Supplied meals, coupons and personal protective equipment to trucking professionals in need |
LISLE, Ill. — June 4, 2020 — Navistar International Corporation (NYSE: NAV) today announced a second quarter 2020 net loss of $38 million, or $0.38 per diluted share, compared to second quarter 2019 net loss of $48 million, or $0.48 per diluted share.
Revenues in the quarter were $1.9 billion, down 36 percent from second quarter 2019. The decrease was primarily driven by the impact of COVID-19, resulting in lower volumes in the company’s Core (Class 6-8 trucks and buses in the United States and Canada) market, with chargeouts being down nearly 40 percent compared to the same period one year ago.
Second quarter 2020 EBITDA was $61 million, compared to $55 million in second quarter 2019. Adjusted EBITDA in second quarter 2020 was $88 million versus $224 million a year ago.
Adjusted net income for the quarter was a loss of $10 million compared to income of $105 million in the second quarter last year.
Navistar finished second quarter 2020 with $1.5 billion in consolidated cash, cash equivalents and marketable securities, including $1.5 billion in manufacturing cash, cash equivalents and marketable securities.
“Like a number of businesses, our company has been impacted by the COVID-19 pandemic and that is reflected in our results,” said Troy A. Clarke, Navistar chairman, president and chief executive officer. “Our team has done a tremendous job managing the business throughout this challenging time, and we have taken a number of steps to position the company to weather this crisis.”
During the quarter, the company took several actions to position itself in response to the global pandemic. In April, the company announced a series of actions to conserve over $300 million of cash for the year, without jeopardizing its strategic plans. The actions include savings from provisions of the CARES Act, postponing capital expenditures and spending, and deferring the base salary of U.S. based exempt, non-represented employees. Also in April, the company completed the issuance of $600 million senior secured notes.
“We are focused on preserving cash and reducing cost, but not at the risk of sacrificing our future,” said Walter Borst, Navistar chief financial officer. “We remain steadfast in pursuing Navistar 4.0, and while some programs and expenditures have been delayed, they have not been cancelled. It’s important that we continue to invest in our company, even in these difficult times, to ensure our long-term success.”
Additionally, the company and its facilities have largely remained in operation throughout the quarter. Its production facilities have experienced limited disruptions that can be measured in weeks as opposed to months due mostly to supplier work stoppages. Its parts distribution centers have remained open throughout the quarter with only minor changes to hours of operation. The company’s dealer network has also continued to operate. In maintaining operation, the company has strictly followed CDC recommendations to prevent the spread of COVID-19, taking extensive measures to ensure the health and safety of its employees and their communities.
“As an essential business, we took early actions to protect our people so that we could fulfill our duty to keep our assembly plants running and parts distribution centers in operation to serve our customers and dealers who are keeping the economy moving by delivering essential goods and services to our communities,” said Persio Lisboa, chief operating officer. “Throughout the quarter, we have worked closely with our suppliers to overcome significant disruptions to the flow of parts to our facilities and have been moderately successful in maintaining operations.”
The company also took several actions to support its customers and trucking professionals. Working with its partners, the company provided meals, coupons and personal protective equipment such as masks and hand sanitizer to trucking professionals in need. For its customers, the company launched International Cares, which offered no payments for six months, free access to International 360 and worry-free vehicle service coverage.
“There are several theories as to the shape of economic recovery, but we have plans in place to respond accordingly,” said Clarke. “Recovery will likely be gradual as businesses reassess operating plans to return to a ‘new normal,’ but this ‘new normal’ will still require trucks. The actions we’ve taken over the past few months have us in position to succeed, no mater the shape of recovery.”
SEGMENT REVIEW
Summary of Financial Results:
| (Unaudited) | ||||||||||||||||
| Three Months Ended April 30, |
Six Months Ended April 30, |
|||||||||||||||
| (in millions, except per share data) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Sales and revenues, net |
$ | 1,925 | $ | 2,996 | $ | 3,763 | $ | 5,429 | ||||||||
| Segment Results: |
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| Truck |
$ | (51 | ) | $ | (74 | ) | $ | (109 | ) | $ | 16 | |||||
| Parts |
103 | 144 | 222 | 288 | ||||||||||||
| Global Operations |
(13 | ) | 3 | (13 | ) | 9 | ||||||||||
| Financial Services |
24 | 32 | 41 | 63 | ||||||||||||
| Loss from continuing operations, net of tax(A) |
$ | (38 | ) | $ | (48 | ) | $ | (74 | ) | $ | (37 | ) | ||||
| Net loss(A) |
(38 | ) | (48 | ) | (74 | ) | (37 | ) | ||||||||
| Diluted loss per share(A) |
(0.38 | ) | (0.48 | ) | (0.74 | ) | (0.37 | ) | ||||||||
| (A) | Amounts attributable to Navistar International Corporation. |
Truck Segment – In second quarter 2020, the Truck segment net sales were $1.4 billion, a decrease of $907 million compared to second quarter last year. The year-over-year decrease is primarily due to lower volumes in the company’s Core markets attributable in part to the COVID-19 pandemic, lower Mexico volumes and a decrease in GM-branded units.
The Truck segment incurred a net loss of $51 million in second quarter 2020 compared to a loss of $74 million in second quarter 2019. The year-over-year improvement was due to a non-recurring EGR settlement charge of $159 million recorded in the second quarter of 2019, offset by the impact of lower volumes in the company’s Core markets attributable in part to the COVID-19 pandemic, higher used truck losses and lower Mexico volumes in the second quarter 2020.
Parts Segment – For second quarter 2020, the Parts segment net sales were $443 million, a 23 percent decrease from second quarter 2019. The decrease is primarily due to lower North America volumes due to the impact of COVID-19 and a decrease in Blue Diamond Parts (BDP) sales.
The Parts segments saw a second quarter profit of $103 million, a 28 percent decrease from second quarter 2019. The decrease is primarily due to the impact of lower North America volumes related to COVID-19 and lower BDP sales, partially offset by lower intercompany access fees.
Global Operations Segment – In second quarter 2020, the Global Operations segment net sales decreased $36 million to $51 million. The decrease was primarily driven by a 21 percent year-over-year depreciation of the Brazilian real against the U.S. dollar and lower volumes in our South America operations due to temporary production stoppages related to the COVID-19 pandemic.
The Global Operation segment recorded a loss of $13 million in the second quarter. The higher loss was primarily driven by the recognition of asset impairment charges of $12 million. Excluding this one-time item, results would have been near breakeven.
Financial Services Segment – In second quarter 2020, the Financial Services segment net revenues decreased to $64 million, a $14 million decrease from second quarter 2019. The decrease was primarily driven by lower average finance receivables and a reduction in finance fees.
The Financial Services segment recorded a profit of $24 million in the quarter, an $8 million decrease from second quarter 2019. The decrease was primarily driven by lower revenues, partially offset by the results of an improved funding strategy.
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 Navistar International Corporation assumes no obligation to update the information included in this report. Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and assumptions. For a further description of these factors, see the risk factors set forth in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended October 31, 2019, which was filed on December 17, 2019, and our Quarterly Report on Form 10-Q for the period ended April 30, 2020. Although we believe that these forward-looking statements are based on
reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.
Navistar International Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended April 30, |
Six Months Ended April 30, |
|||||||||||||||
| (in millions, except per share data) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Sales and revenues |
||||||||||||||||
| Sales of manufactured products, net |
$ | 1,877 | $ | 2,948 | $ | 3,671 | $ | 5,334 | ||||||||
| Finance revenues |
48 | 48 | 92 | 95 | ||||||||||||
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| Sales and revenues, net |
1,925 | 2,996 | 3,763 | 5,429 | ||||||||||||
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| Costs and expenses |
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| Costs of products sold |
1,624 | 2,493 | 3,153 | 4,472 | ||||||||||||
| Restructuring charges |
— | 1 | 1 | 1 | ||||||||||||
| Asset impairment charges |
13 | 1 | 13 | 3 | ||||||||||||
| Selling, general and administrative expenses |
170 | 373 | 352 | 559 | ||||||||||||
| Engineering and product development costs |
78 | 75 | 164 | 161 | ||||||||||||
| Interest expense |
63 | 82 | 128 | 167 | ||||||||||||
| Other expense, net |
2 | 18 | 13 | 115 | ||||||||||||
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| Total costs and expenses |
1,950 | 3,043 | 3,824 | 5,478 | ||||||||||||
| Equity in income (loss) of non-consolidated affiliates |
(1 | ) | 3 | (2 | ) | 3 | ||||||||||
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| Loss before income taxes |
(26 | ) | (44 | ) | (63 | ) | (46 | ) | ||||||||
| Income tax benefit (expense) |
(7 | ) | 1 | (2 | ) | 20 | ||||||||||
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| Net loss |
(33 | ) | (43 | ) | (65 | ) | (26 | ) | ||||||||
| Less: Net income attributable to non-controlling interests |
5 | 5 | 9 | 11 | ||||||||||||
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| Net loss attributable to Navistar International Corporation |
$ | (38 | ) | $ | (48 | ) | $ | (74 | ) | $ | (37 | ) | ||||
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| Net loss per share attributable to Navistar International Corporate |
||||||||||||||||
| Basic: |
$ | (0.38 | ) | $ | (0.48 | ) | $ | (0.74 | ) | $ | (0.37 | ) | ||||
| Diluted: |
(0.38 | ) | (0.48 | ) | (0.74 | ) | (0.37 | ) | ||||||||
| Weighted average shares outstanding: |
||||||||||||||||
| Basic |
99.7 | 99.2 | 99.6 | 99.2 | ||||||||||||
| Diluted |
99.7 | 99.2 | 99.6 | 99.2 | ||||||||||||
Navistar International Corporation and Subsidiaries
Consolidated Balance Sheets
| (in millions, except per share data) | April 30, 2020 |
October 31, 2019 |
||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 1,547 | $ | 1,370 | ||||
| Restricted cash and cash equivalents |
60 | 133 | ||||||
| Trade and other receivables, net |
225 | 338 | ||||||
| Finance receivables, net |
1,416 | 1,923 | ||||||
| Inventories, net |
1,012 | 911 | ||||||
| Other current assets |
265 | 277 | ||||||
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| Total current assets |
4,525 | 4,952 | ||||||
| Restricted cash |
71 | 54 | ||||||
| Trade and other receivables, net |
8 | 10 | ||||||
| Finance receivables, net |
204 | 274 | ||||||
| Investments in non-consolidated affiliates |
28 | 31 | ||||||
| Property and equipment (net of accumulated depreciation and amortization of $2,333 and $2,488, respectively) |
1,207 | 1,309 | ||||||
| Operating lease right of use assets |
121 | — | ||||||
| Goodwill |
38 | 38 | ||||||
| Intangible assets (net of accumulated amortization of $138 and $142, respectively) |
19 | 25 | ||||||
| Deferred taxes, net |
117 | 117 | ||||||
| Other noncurrent assets |
102 | 107 | ||||||
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| Total assets |
$ | 6,440 | $ | 6,917 | ||||
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| LIABILITIES and STOCKHOLDERS’ DEFICIT |
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| Liabilities |
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| Current liabilities |
||||||||
| Notes payable and current maturities of long-term debt |
$ | 570 | $ | 871 | ||||
| Accounts payable |
1,038 | 1,341 | ||||||
| Other current liabilities |
1,075 | 1,363 | ||||||
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| Total current liabilities |
2,683 | 3,575 | ||||||
| Long-term debt |
4,859 | 4,317 | ||||||
| Postretirement benefits liabilities |
2,032 | 2,103 | ||||||
| Other noncurrent liabilities |
722 | 645 | ||||||
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| Total liabilities |
10,296 | 10,640 | ||||||
| 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 |
2,725 | 2,730 | ||||||
| Accumulated deficit |
(4,296 | ) | (4,409 | ) | ||||
| Accumulated other comprehensive loss |
(2,163 | ) | (1,912 | ) | ||||
| Common stock held in treasury, at cost (3.6 and 3.9 shares, respectively) |
(136 | ) | (147 | ) | ||||
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| Total stockholders’ deficit attributable to Navistar International Corporation |
(3,858 | ) | (3,726 | ) | ||||
| Stockholders’ equity attributable to non-controlling interests |
2 | 3 | ||||||
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| Total stockholders’ deficit |
(3,856 | ) | (3,723 | ) | ||||
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| Total liabilities and stockholders’ deficit |
$ | 6,440 | $ | 6,917 | ||||
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Navistar International Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended April 30, | ||||||||
| (in millions) | 2020 | 2019 | ||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | (65 | ) | $ | (26 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation and amortization |
70 | 66 | ||||||
| Depreciation of equipment leased to others |
29 | 31 | ||||||
| Deferred taxes, including change in valuation allowance |
(9 | ) | (41 | ) | ||||
| Asset impairment charges |
13 | 3 | ||||||
| Gain on sales of investments and businesses, net |
— | (59 | ) | |||||
| Amortization of debt issuance costs and discount |
7 | 12 | ||||||
| Stock-based compensation |
13 | 14 | ||||||
| Provision for doubtful accounts |
9 | 6 | ||||||
| Equity in income of non-consolidated affiliates, net of dividends |
2 | (2 | ) | |||||
| Other non-cash operating activities |
(5 | ) | (4 | ) | ||||
| Changes in other assets and liabilities, exclusive of the effects of businesses disposed |
(182 | ) | (190 | ) | ||||
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| Net cash used in operating activities |
(118 | ) | (190 | ) | ||||
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| Cash flows from investing activities |
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| Maturities of marketable securities |
— | 79 | ||||||
| Capital expenditures |
(90 | ) | (66 | ) | ||||
| Purchases of equipment leased to others |
(16 | ) | (76 | ) | ||||
| Proceeds from sales of property and equipment |
7 | 5 | ||||||
| Proceeds from sales of investments and businesses |
10 | 95 | ||||||
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| Net cash provided by (used in) investing activities |
(89 | ) | 37 | |||||
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| Cash flows from financing activities |
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| Proceeds from issuance of securitized debt |
16 | — | ||||||
| Principal payments on securitized debt |
(30 | ) | (34 | ) | ||||
| Net change in secured revolving credit facilities |
(167 | ) | 275 | |||||
| Proceeds from issuance of non-securitized debt |
620 | 73 | ||||||
| Principal payments on non-securitized debt |
(107 | ) | (508 | ) | ||||
| Net change in notes and debt outstanding under revolving credit facilities |
24 | 126 | ||||||
| Debt issuance costs |
(10 | ) | (2 | ) | ||||
| Proceeds from financed lease obligations |
— | 9 | ||||||
| Proceeds from exercise of stock options |
3 | 2 | ||||||
| Dividends paid by subsidiaries to non-controlling interest |
(10 | ) | (13 | ) | ||||
| Other financing activities |
(2 | ) | (2 | ) | ||||
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| Net cash provided by (used in) financing activities |
337 | (74 | ) | |||||
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| Effect of exchange rate changes on cash, cash equivalents and restricted cash |
(9 | ) | (10 | ) | ||||
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| Increase (decrease) in cash, cash equivalents and restricted cash |
121 | (237 | ) | |||||
| Cash, cash equivalents and restricted cash at beginning of the period |
1,557 | 1,445 | ||||||
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| Cash, cash equivalents and restricted cash at end of the period |
$ | 1,678 | $ | 1,208 | ||||
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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 April 30, 2020 |
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| External sales and revenues, net |
$ | 1,385 | $ | 442 | $ | 47 | $ | 50 | $ | 1 | $ | 1,925 | ||||||||||||
| Intersegment sales and revenues |
4 | 1 | 4 | 14 | (23 | ) | — | |||||||||||||||||
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| Total sales and revenues, net |
$ | 1,389 | $ | 443 | $ | 51 | $ | 64 | $ | (22 | ) | $ | 1,925 | |||||||||||
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| Net income (loss) attributable to NIC |
$ | (51 | ) | $ | 103 | $ | (13 | ) | $ | 24 | $ | (101 | ) | $ | (38 | ) | ||||||||
| Income tax expense |
— | — | — | — | (7 | ) | (7 | ) | ||||||||||||||||
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| Segment profit (loss) |
$ | (51 | ) | $ | 103 | $ | (13 | ) | $ | 24 | $ | (94 | ) | $ | (31 | ) | ||||||||
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| Depreciation and amortization |
$ | 29 | $ | 2 | $ | 2 | $ | 15 | $ | 1 | $ | 49 | ||||||||||||
| Interest expense |
— | — | — | 20 | 43 | 63 | ||||||||||||||||||
| Equity in income (loss) of non-consolidated affiliates |
(2 | ) | 1 | — | — | — | (1 | ) | ||||||||||||||||
| Capital expenditures(B) |
28 | — | 1 | — | 2 | 31 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Three Months Ended April 30, 2019 |
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| External sales and revenues, net |
$ | 2,287 | $ | 578 | $ | 80 | $ | 48 | $ | 3 | $ | 2,996 | ||||||||||||
| Intersegment sales and revenues |
9 | 1 | 7 | 30 | (47 | ) | — | |||||||||||||||||
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| Total sales and revenues, net |
$ | 2,296 | $ | 579 | $ | 87 | $ | 78 | $ | (44 | ) | $ | 2,996 | |||||||||||
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| Net income (loss) attributable NIC |
$ | (74 | ) | $ | 144 | $ | 3 | $ | 32 | $ | (153 | ) | $ | (48 | ) | |||||||||
| Income tax expense |
— | — | — | — | 1 | 1 | ||||||||||||||||||
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| Segment profit (loss) |
$ | (74 | ) | $ | 144 | $ | 3 | $ | 32 | $ | (154 | ) | $ | (49 | ) | |||||||||
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| Depreciation and amortization |
$ | 26 | $ | 2 | $ | 2 | $ | 16 | $ | 3 | $ | 49 | ||||||||||||
| Interest expense |
— | — | — | 27 | 55 | 82 | ||||||||||||||||||
| Equity in income (loss) of non-consolidated affiliates |
2 | — | — | — | 1 | 3 | ||||||||||||||||||
| Capital expenditures(B) |
21 | (1 | ) | — | 1 | 1 | 22 | |||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Six Months Ended April 30, 2020 |
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| External sales and revenues, net |
$ | 2,623 | $ | 934 | $ | 108 | $ | 96 | $ | 2 | $ | 3,763 | ||||||||||||
| Intersegment sales and revenues |
8 | 2 | 11 | 25 | (46 | ) | — | |||||||||||||||||
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| Total sales and revenues, net |
$ | 2,631 | $ | 936 | $ | 119 | $ | 121 | $ | (44 | ) | $ | 3,763 | |||||||||||
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| Net income (loss) attributable to NIC |
$ | (109 | ) | $ | 222 | $ | (13 | ) | $ | 41 | $ | (215 | ) | $ | (74 | ) | ||||||||
| Income tax expense |
— | — | — | — | (2 | ) | (2 | ) | ||||||||||||||||
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| Segment profit (loss) |
$ | (109 | ) | $ | 222 | $ | (13 | ) | $ | 41 | $ | (213 | ) | $ | (72 | ) | ||||||||
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| Depreciation and amortization |
$ | 56 | $ | 4 | $ | 4 | $ | 32 | $ | 3 | $ | 99 | ||||||||||||
| Interest expense |
— | — | — | 39 | 89 | 128 | ||||||||||||||||||
| Equity in income (loss) of non-consolidated affiliates |
(3 | ) | 1 | — | — | — | (2 | ) | ||||||||||||||||
| Capital expenditures(B) |
75 | 5 | 2 | — | 8 | 90 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Six Months Ended April 30, 2019 |
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| External sales and revenues, net |
$ | 4,063 | $ | 1,124 | $ | 141 | $ | 95 | $ | 6 | $ | 5,429 | ||||||||||||
| Intersegment sales and revenues |
30 | 3 | 19 | 57 | (109 | ) | — | |||||||||||||||||
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| Total sales and revenues, net |
$ | 4,093 | $ | 1,127 | $ | 160 | $ | 152 | $ | (103 | ) | $ | 5,429 | |||||||||||
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| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | 16 | $ | 288 | $ | 9 | $ | 63 | $ | (413 | ) | $ | (37 | ) | ||||||||||
| Income tax expense |
— | — | — | — | 20 | 20 | ||||||||||||||||||
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| Segment profit (loss) |
$ | 16 | $ | 288 | $ | 9 | $ | 63 | $ | (433 | ) | $ | (57 | ) | ||||||||||
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| Depreciation and amortization |
$ | 52 | $ | 3 | $ | 4 | $ | 32 | $ | 6 | $ | 97 | ||||||||||||
| Interest expense |
— | — | — | 56 | 111 | 167 | ||||||||||||||||||
| Equity in income of non-consolidated affiliates |
3 | 1 | (1 | ) | — | — | 3 | |||||||||||||||||
| Capital expenditures(B) |
52 | 1 | 1 | 2 | 10 | 66 | ||||||||||||||||||
| (A) | Total sales and revenues in the Financial Services segment include interest revenues of $40 million and $75 million for the three and six months ended April 30, 2020, respectively, and $55 million and $108 million for the three and six months ended April 30, 2019, respectively. |
| (B) | Exclusive of purchases of equipment leased to others. |
| (in millions) | Truck | Parts | Global Operations |
Financial Services |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Segment assets, as of: |
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| April 30, 2020 |
$ | 1,840 | $ | 648 | $ | 186 | $ | 2,081 | $ | 1,685 | $ | 6,440 | ||||||||||||
| October 31, 2019 |
1,705 | 688 | 296 | 2,774 | 1,454 | 6,917 | ||||||||||||||||||
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 and Adjusted Net Income (loss):
We believe that adjusted EBITDA and Adjusted Net Income (loss), 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 and, Cash Equivalents:
Manufacturing cash and, cash equivalents represent the Company’s consolidated cash and, cash equivalents excluding cash, cash equivalents of our financial services operations. 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:
| Three Months Ended April 30, |
Six Months Ended April 30, |
|||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Net loss attributable to NIC |
$ | (38 | ) | $ | (48 | ) | $ | (74 | ) | $ | (37 | ) | ||||
| Plus: |
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| Depreciation and amortization expense |
49 | 49 | 99 | 97 | ||||||||||||
| Manufacturing interest expense(A) |
43 | 55 | 89 | 111 | ||||||||||||
| Less: |
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| Income tax (expense) benefit |
(7 | ) | 1 | (2 | ) | 20 | ||||||||||
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| EBITDA |
$ | 61 | $ | 55 | $ | 116 | $ | 151 | ||||||||
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| (A) | Manufacturing interest expense is the net interest expense primarily generated for borrowings that support the manufacturing and corporate operations, adjusted to eliminate intercompany interest expense with our Financial Services segment. The following table reconciles Manufacturing interest expense to the consolidated interest expense: |
| Three Months Ended April 30, |
Six Months Ended April 30, |
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| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Interest expense |
$ | 63 | $ | 82 | $ | 128 | $ | 167 | ||||||||
| Less: Financial services interest expense |
20 | 27 | 39 | 56 | ||||||||||||
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| Manufacturing interest expense |
$ | 43 | $ | 55 | $ | 89 | $ | 111 | ||||||||
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11
Adjusted EBITDA Reconciliation:
| Three Months Ended April 30, |
Six Months Ended April 30, |
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| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| EBITDA (reconciled above) |
$ | 61 | $ | 55 | $ | 116 | $ | 151 | ||||||||
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| Adjusted for significant items of: |
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| Adjustments to pre-existing warranties(A) |
13 | 9 | 17 | 2 | ||||||||||||
| Asset impairment charges(B) |
13 | 1 | 13 | 3 | ||||||||||||
| Restructuring of manufacturing operations(C) |
— | 1 | 1 | 1 | ||||||||||||
| MaxxForce Advanced EGR engine lawsuits(D) |
1 | 159 | 1 | 159 | ||||||||||||
| Gain on sales(E) |
— | — | — | (59 | ) | |||||||||||
| Pension settlement(F) |
— | — | — | 142 | ||||||||||||
| Settlement gain(G) |
— | (1 | ) | (1 | ) | (2 | ) | |||||||||
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| Total adjustments |
27 | 169 | 31 | 246 | ||||||||||||
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| Adjusted EBITDA |
$ | 88 | $ | 224 | $ | 147 | $ | 397 | ||||||||
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Adjusted Net Income (Loss) attributable to NIC:
| Three Months Ended April 30, |
Six Months Ended April 30, |
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| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Net loss attributable to NIC |
$ | (38 | ) | $ | (48 | ) | $ | (74 | ) | $ | (37 | ) | ||||
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| Adjusted for significant items of: |
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| Adjustments to pre-existing warranties(A) |
13 | 9 | 17 | 2 | ||||||||||||
| Asset impairment charges(B) |
13 | 1 | 13 | 3 | ||||||||||||
| Restructuring of manufacturing operations(C) |
— | 1 | 1 | 1 | ||||||||||||
| MaxxForce Advanced EGR engine lawsuits(D) |
1 | 159 | 1 | 159 | ||||||||||||
| Gain on sales(E) |
— | — | — | (59 | ) | |||||||||||
| Pension settlement(F) |
— | — | — | 142 | ||||||||||||
| Settlement gain(G) |
— | (1 | ) | (1 | ) | (2 | ) | |||||||||
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| Total adjustments |
27 | 169 | 31 | 246 | ||||||||||||
| Tax effect (H) |
1 | (16 | ) | — | (47 | ) | ||||||||||
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| Adjusted net income (loss) attributable to NIC |
$ | (10 | ) | $ | 105 | $ | (43 | ) | $ | 162 | ||||||
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| (A) | Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. |
| (B) | In the second quarter and first half of 2020, we recorded $12 million of asset impairment charges related to long lived assets in our Brazil asset group in our Global Operations segment. In the second quarter of 2020, we recorded $1 million of asset impairment charges related to certain assets under operating leases in our Truck segment. In the second quarter and first half of 2019 we recorded $1 million and $3 million, respectively, of asset impairment charges related to certain assets under operating leases in our Truck segment. |
| (C) | In the first half of 2020, we recorded a restructuring charge of $1 million in our Truck segment. In the second quarter and first half of 2019 we recorded a restructuring charge of $1 million in our Truck segment. |
| (D) | In the second quarter and first half of 2020 and 2019, we recorded charges of $1 million and $159 million, respectively, related to the MaxxForce Advanced EGR engine class action settlement and related litigation in our Truck Segment. |
| (E) | In the first half of 2019, we recognized a gain of $54 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) | In the first half of 2019, we purchased group annuity contracts for certain retired pension plan participants resulting in plan remeasurements. As a result, we recorded pension settlement accounting charges of $142 million in Other expense, net in Corporate. |
12
| (G) | In the second quarter of 2019, we recorded interest income of $1 million, in Other expense, net derived from the prior year settlement of a business economic loss claim relating to our former Alabama engine manufacturing facility in Corporate. In the first half of 2020 and 2019, we recorded interest income of $1 million and $2 million, respectively, in Other expense, net derived from the prior year settlement of a business economic loss claim relating to our former Alabama engine manufacturing facility in Corporate. |
| (H) | Tax effect is calculated by excluding the impact of the non-GAAP adjustments from the interim period tax provision calculations. |
13
Manufacturing segment cash and, cash equivalents reconciliation:
| As of April 30, 2020 | ||||||||||||
| (in millions) | Manufacturing Operations |
Financial Services Operations |
Consolidated Balance Sheet |
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| Total cash, cash equivalents, and marketable securities |
$ | 1,497 | $ | 50 | $ | 1,547 | ||||||
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14
Q2 2020 EARNINGS PRESENTATION June 4, 2020 Exhibit 99.2
Safe Harbor Statement and Other Cautionary Notes Information provided and statements contained in this presentation that are not purely historical are forward-looking statements within the meaning of 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 and our quarterly report on Form 10-Q for the period ended April 30, 2020. 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.
Q2 results hindered by weaker industry conditions Business segments impacted by COVID-19 Class 6-8 share increased 3.8 points sequentially to 15.4% Ended Q2 with strong manufacturing cash balance of $1.5 billion Liquidity enhanced through completion of $600 million senior secured notes offering $300 million of actions announced to conserve cash Second Quarter 2020 Summary Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation.
Update on the Impact of COVID-19 Navistar operating as an essential business Supply chain disruptions moderately mitigated Parts distribution centers and dealer bodies open and operational Safety measures enhanced to protect our employees, communities and operations Recovery begins as states’ restrictions ease Navistar 4.0 strategy remains long-term focus Pension contributions deferral of $162 million and employer payroll tax payments deferred under provisions of the CARES Act Capital expenditure and IT projects postponed by 30% Non-represented, salaried U.S. base salaries deferred by 10% to 35% Contractors workweek reduced by 20% 401(k) company match contributions deferred $300 million of Cash Conservation Actions Business Update
Strong Cash Balance, No Near-Term Manufacturing Debt Maturities Manufacturing Cash Balance(A) Note: This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Amounts include manufacturing cash, cash equivalents, and marketable securities. Q2 2020 consolidated equivalent cash balance was $1.5 billion. Amounts exclude restricted cash. Total manufacturing debt of $3.5 billion as of April 30, 2020. Graph does not include financed lease obligations and other, totaling $91 million and includes new debt issued this quarter of $588 million net. Limited Near-Term Manufacturing Debt Maturities(B) ($ in millions) $2,150 New senior secured notes offering of $600 million
Second Quarter 2020 Consolidated Results ($ in millions, except per share and units) Includes U.S. and Canada School buses and Class 6-8 trucks. Amounts attributable to Navistar International Corporation. Non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Quarters Ended April 30 2020 2019 Chargeouts(A) 14,200 23,700 Sales and Revenues $ 1,925 $ 2,996 Net Income (Loss)(B) $ -38 $ -48 Diluted Income per Share (Loss)(B) $ -0.38 $ -0.48 Adjusted Net Income (Loss)(C) $ -10 $ 105 Adjusted EBITDA(C) $ 88 $ 224 Adjusted EBITDA Margin(C) 4.6% 7.5%
Second Quarter 2020 Segments Results ($ in millions) Sales and Revenues Segment Profit (Loss) Quarters Ended April 30 Quarters Ended April 30 2020 2019 2020 2019 Truck $1,389 $2,296 $-51 $-74 Parts 443 579 103 144 Global Operations 51 87 -13 3 Financial Services 64 78 24 32
Appendix
Days Sales Inventory On-Hand 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 Normal range is 80-120 days inventory on hand 127 Days
Retail Market Share in Commercial Vehicle Segments Class 6/7 Medium-Duty Class 8 Severe Service Class 8 HeavyThree Months EndedApril 30, 2020January 31, 2020October 31, 2019July 31, 2019April 30, 2019Core Markets (U.S. and Canada)Class 6 and 7 medium trucks22.9%20.3%25.9%26.8%29.8%Class 8 heavy trucks11.6%6.1%14.3%13.8%15.1%Class 8 severe service trucks14.6%14.0%19.7%14.1%12.6%Combined class 8 trucks12.5%8.5%15.7%13.9%14.5%
Worldwide Truck Chargeouts _______________________ We define chargeouts as trucks that have been invoiced to customers. The units held in dealer inventory represent the principal difference between retail deliveries and chargeouts. 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. 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 1,100 and 2,500, General Motors (“GM”)-branded units sold to GM during the three months ended April 30, 2020 and April 30, 2019, respectively Three Months Ended April 30, % 2020 2019 Change Change Core Markets (U.S. and Canada) School Buses 3,100 3,300 -,200 -6.0606060606060608E-2 Class 6 and 7 Medium Trucks 4,900 8,900 -4,000 -0.449438202247191 Class 8 Heavy Trucks 3,700 8,600 -4,900 -0.56976744186046513 Class 8 Severe Service Trucks 2,500 2,900 -,400 -0.13793103448275862 Total Core Markets 14,200 23,700 -9,500 -0.40084388185654007 Non "Core" Defense 0 0 0 N.M. Other Markets(A) 3,200 5,500 -2,300 -0.41818181818181815 Total Worldwide Units 17,400 29,200 ,-11,800 -0.4041095890410959 Combined Class 8 Trucks 6,200 11,500 -5,300 -0.46086956521739131
Financial Services Segment Highlights Financial Services segment profit of $24M for Q2 2020 and $41M YTD 2020 Segment financing availability of $654M as of April 30, 2020 Financial Services debt/equity leverage of 3.1:1 as of April 30, 2020 Renewed the $350M variable dealer note facility in May 2020 Retail Notes Bank Facilities Dealer Floor Plan Bank revolver capacity of $748M matures May 2024 Funding for retail notes, wholesale notes, retail accounts, and dealer open accounts $200M TRAC Facility extended to June 2021 On balance sheet NFSC wholesale trust as of April 30, 2020 $950M funding facility Variable portion matures May 2021 Term portions mature September 2020 and May 2021 On balance sheet Program management continuity Broad product offering Ability to support large fleets Access to less expensive capital C A P I T A L Funded by BMO Financial Group NFC(1) Facilities 1 Navistar Financial Corporation (NFC) is the U.S. financial entity of Navistar’s Financial Services segment.
Retail Portfolio Loss-sharing agreement with BMO in U.S. and Canada minimizes loss exposure NFC Mexico has strong underwriting standards Retail loans supported by collateral Wholesale Portfolio Dealers well-capitalized with strong performance characteristics US dealers utilizing liquidity options available via the CARES Act Wholesale loans secured by truck and parts and guaranteed by dealers Minimal losses historically Financial Services Portfolio Quality Remains Strong (A) BMO Assets are Off- Balance Sheet for Navistar (B) Net Losses includes Navistar share of BMO losses and 2020 YTD is annualized
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 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: For the six months ended April 30, 2020 and 2019, we contributed $30 million and $131 million, respectively, to our pension plans to meet regulatory funding requirements. During the first quarter of 2019, we accelerated the payment of a substantial portion of our 2019 minimum required funding. We do not expect any additional contributions to our pension plans during the remainder of 2020, as our previously expected remaining 2020 contributions of $162 million are deferred until the first quarter of 2021 under provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). 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.
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:What adjustments do you make to the ACT forecast to align with company’s presentation? A: Q8:Please discuss the process from an order to a retail delivery? A: Orders* are customers’ written commitments to purchase vehicles. Order backlogs* are orders yet to be built as of the end of a period. Chargeouts are vehicles that have been invoiced to customers. Retail deliveries occur when customers take possession and register the vehicle. Units held in dealer inventory represent the principal difference between retail deliveries and chargeouts. * Orders and units in backlog do not represent guarantees of purchases and are subject to cancellation. Reconcilation to ACT - Retail Sales 2020 ACT* 143900 CY to FY Adjustment 29400 "Other Specialty OEMs" included in ACT's forecast; we do not include these specialty OEMs in our forecast or in our internal/external reports -5000 Total (ACT comparable Class 8 Navistar) 168300 *Source: ACT N.A. Commercial Vehicle Outlook - May 2020
Q10: What is your revenue by product type(A)? A: ___________________________ Includes other markets primarily consisting of Bus, Export Truck and Mexico. Retail financing revenues in the Financial Services segment include interest revenue of $17 million for the three ended April 30, 2020. Wholesale financing revenues in the Financial Services segment include interest revenue of $8 million the three ended April 30, 2020. Frequently Asked Questions Q9: How do you define manufacturing free cash flow? A: ___________________________ Net of adjustments required to eliminate certain intercompany transactions between Manufacturing operations and Financial Services operations. Quarters Ended Qtr Ended Qtr Ended ($ in millions) Apr. 30, 2020 Jan. 31, 2020 Oct. 31, 2019 Jul. 31, 2019 Apr. 30, 2019 Oct. 31, 2016 Jul. 31, 2016 Consolidated Net Cash from Operating Activities $-,217 $99 $346 $294 $50 $281 $90 Less: Net Cash from Financial Services Operations -17 410 142 20 -,132 -3 95 Net Cash from Manufacturing Operations (A) ........................ -,200 -,311 204 274 182 284 -5 Less: Capital Expenditures 31 59 44 24 21 -32 -29 Manufacturing Free Cash Flow $-,231 $-,370 $160 $250 $161 $252 $-34 ($ in millions) Truck Parts Global Operations Financial Services Corporate and Eliminations Total Three Months Ended April 30, 2020 Truck products and services(A) $ 1257 $ — $ — $ — $ 3 $ 1260 Truck contract manufacturing 59 — — — — 59 Used trucks 42 — — — — 42 Engines — 49 36 — — 85 Parts 1 393 11 — — 405 Extended warranty contracts 26 — — — — 26 Sales of manufactured products, net 1385 442 47 — 3 1877 Retail financing(B) — — — 41 -2 39 Wholesale financing(B) — — — 9 — 9 Financial revenues — — — 50 -2 48 Sales and revenues, net $ 1385 $ 442 $ 47 $ 50 $ 1 $ 1925
Outstanding Debt Balances($ in millions)April 30, 2020October 31, 2019Manufacturing operationsSenior Secured Term Loan Credit Agreement, due 2025, net of unamortized discount of $5 and $6, respectively, and unamortized debt issuance costs of $9 and $10, respectively$1,550$1,5569.5% Senior Secured Notes, due 2025, net of unamortized debt issuance costs of $12588-6.625% Senior Notes, due 2026, net of unamortized debt issuance costs of $14 and $15, respectively1,0861,085Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040, net of unamortized debt issuance costs of $5 at both dates220220Financed lease obligations5160Other4011Total Manufacturing operations debt……………………………………………………………………………………….3,5352,932Less: Current portion6632Net long-term Manufacturing operations debt………………………………………………………………………..$3,469$2,900($ in millions)April 30, 2020October 31, 2019Financial Services operationsAsset-backed debt issued by consolidated SPEs, at fixed and variable rates, due serially through 2023, net of unamortized debt issuance costs of $2 and $4, respectively$ 788$991Bank credit facilities, at fixed and variable rates, due dates from 2019 through 2025, net of unamortized debt issuance costs of $1 at both dates9911,059Commercial paper, at variable rates, program matures in 2022-84Borrowings secured by operating and finance leases, at various rates, due serially through 2024115122Total Financial Services operations debt……………………………………………………………………………….….1,8942,256Less: Current portion504839Net long-term Financial Services operations debt……………………………………………………………….…..$1,390$1,417
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.
SEC Regulation G Non-GAAP Reconciliation Manufacturing Operations Cash, Cash Equivalents, and Marketable Securities Reconciliation: Apr. 30, Jan. 31, Oct. 31, Jul. 31, Apr. 30, ($ in millions) 2020 2020 2019 2019 2019 Manufacturing Operations: Cash and Cash Equivalents……………………………………………………… $ 1497 $ 977 $ 1328 $ 1112 $ 927 583 Marketable Securities…………………………………………………………… 0 0 0 3 23 Manufacturing Cash, Cash Equivalents, and Marketable securities.. $ 1,497 $ 977 $ 1,328 $ 1,115 $ 950 733 Financial Services Operations: Cash and Cash Equivalents……………………………………………………… $ 50 $ 23 $ 42 $ 48 $ 50 37 Marketable Securities…………………………………………………………… 0 0 0 0 0 Financial Services Cash, Cash Equivalents, and Marketable securities…… $ 50 $ 23 $ 42 $ 48 $ 50 62 Consolidated Balance Sheet: Cash and Cash Equivalents……………………………………………………… $ 1547 $ 1000 $ 1370 $ 1160 $ 977 $620 Marketable Securities…………………………………………………………… 0 0 0 3 23 Consolidated Cash, Cash Equivalents, and Marketable securities………… $ 1,547 $ 1,000 $ 1,370 $ 1,163 $ 1,000 795 Cash and cash equivalents……………………………………………………… $ 28 $ 28 $ 28 $ 51 Marketable securities…………………………………………………………… 20 20 20 20 Financial Services Cash and cash equivalents and Marketable securities…… $ 48 $ 48 $ 48 $ 71 Consolidated Balance Sheet: Cash and cash equivalents……………………………………………………… $ 1525 $ 1005 $ 1143 $ 51 Marketable securities…………………………………………………………… 276 276 276 20 Consolidated Cash and cash equivalents and Marketable securities………… $ 1,801 $ 1,281 $ 1,419 $ 71
SEC Regulation G Non-GAAP Reconciliations Earnings (Loss) Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) Reconciliation ______________________ (A) Manufacturing interest expense is the net interest expense primarily generated for borrowings that support the manufacturing and corporate operations, adjusted to eliminate interest expense of our Financial Services segment. The following table reconciles Manufacturing interest expense to the consolidated interest expense: For more detail on the items noted, please see the footnotes on slide 21. Quarters Ended April 30, ($ in millions) 2020 2019 EBITDA (reconciled above) $ 61 $ 55 Adjusted for significant items of: Adjustments to Pre-existing Warranties (A) 13 9 Asset Impairment Charges (B) 13 1 Restructuring of Manufacturing Operations (C) — 1 MaxxForce Advanced EGR engine lawsuits (D) 1 159 Settlement Gain (E) — -1 Total Adjustments 27 169 Adjusted EBITDA $ 88 $ 224 Adjusted EBITDA Margin 4.6% 7.5% Quarters Ended April 30, ($ in millions) 2020 2019 2013 Net Income (loss) Attributable to NIC $ -38 $ -48 $ Plus: Depreciation and Amortization Expense 49 49 Manufacturing Interest Expense (A) 43 55 Adjusted for: Income Tax Benefit (Expense) -7 1 EBITDA $ 61 $ 55 $ Quarters Ended April 30, (in millions) 2015 Interest expense ……………………………………………………………….. 75 Less: Financial services interest expense ………………………………….. 18 Manufacturing interest expense ……………………..……………………… 57 Quarters Ended April 30, (in millions) 2015 EBITDA (reconciled above) …......…………………………………… $85 Less significant items of: Adjustments to pre-existing warranties(A) ………………………...... 18 Restructuring charges(D) ………………………………...….………… 2 Asset impairment charges(C) ………...……………………………….. 1 Gain on settlement(E) ………………………………………………….. -10 Brazil truck business actions(F) …….....……………………………… 6 match below Total adjustments 17 Adjusted EBITDA …......………………………………………….....…… $102 Quarters Ended April 30, (in millions) 2015 Expense (income): Adjustments to pre-existing warranties(A) $18 Accelerated depreciation(B) 12 Asset impairment charges(C) 1 Other restructuring charges and strategic initiatives(D) 2 Gain on settlement(E) -10 Brazil truck business actions(F) 6 Brazilian tax adjustments(G) — (A) Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. (B) In the first and second quarter of 2015, the Truck segment recognized charges of $13 million and $12 million, respectively, for the acceleration of depreciation of certain assets related to the foundry facilities. (C) In the second quarter and first half of 2015, the Company concluded it had a triggering event related to certain operating leases, as a result, the Truck segment recorded $1 million and $7 million, respectively, of asset impairment charges. In the second quarter of 2014, we recognized a non-cash charge of $149 million for the impairment of certain intangible assets of our Brazilian engine reporting unit. Due to slower than expected growth in the Brazilian economy causing declines in actual and forecasted results, we tested the goodwill of our Brazilian engine reporting unit and trademark for potential impairment. As a result, we determined that the entire $142 million balance of goodwill and $7 million of trademark were impaired. Additionally, in the first quarter of 2014, the Company concluded it had a triggering event related to potential sales of assets requiring assessment of impairment for certain intangible and long-lived assets in the Truck segment. As a result, the Truck segment recognized asset impairment charges of $18 million. (D) In the second quarter of 2014, we incurred restructuring charges of $8 million related to cost reduction actions that included a reduction-in-force in the U.S. (E) In the second quarter of 2015, the Global Operations segment recognized a $10 million gain resulting from a customer settlement, which includes an offsetting restructuring charge of $4 million. (F) In the second quarter and first half of 2015 our Global Operations segment recorded $6 million in inventory charges to right size the Brazil Truck business. (G) During the second quarter of 2014, our evaluation of the realizability of our Brazilian deferred tax assets resulted in a determination that a valuation allowance was required, due to a deterioration of operating performance in Brazil, an increase in net operating loss carryforwards, and the impairment of certain Brazilian intangible assets. As a result, we recorded a net expense of $29 million related to establishment of the valuation allowance and tax impact from the impairment of certain intangible assets. The above items, except for the Brazilian tax adjustments, did not have a material impact on taxes due to the valuation allowances on our U.S. deferred tax assets, which was established in the fourth quarter of 2012. Quarters Ended April 30, (in millions) 2015 Loss from continuing operations attributable to NIC, net of tax ………… $ -64 Plus: Depreciation and amortization expense ……………………………….. 74 Manufacturing interest expense(A) ………………………………….…. 57 Less: Income tax benefit (expense) …………………………………………… -18 EBITDA ………………………………………………………………………… $ 85 Quarters Ended April 30, ($ in millions) 2020 2019 Interest Expense $ 63 $ 82 Less: Financial Services Interest Expense 20 27 Manufacturing Interest Expense $ 43 $ 55 Quarters Ended April 30, (in millions) 2015 EBITDA (reconciled above) …......…………………………………… $85 Less significant items of: Adjustments to pre-existing warranties(A) ………………………...... 18 Restructuring charges(D) ………………………………...….………… 2 Asset impairment charges(C) ………...……………………………….. 1 Gain on settlement(E) ………………………………………………….. -10 Brazil truck business actions(F) …….....……………………………… 6 Total adjustments 17 Adjusted EBITDA …......………………………………………….....…… $102 Quarters Ended April 30, (in millions) 2015 Expense (income): Adjustments to pre-existing warranties(A) $18 Accelerated depreciation(B) 12 Asset impairment charges(C) 1 Other restructuring charges and strategic initiatives(D) 2 Gain on settlement(E) -10 Brazil truck business actions(F) 6 Brazilian tax adjustments(G) — (A) Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. (B) In the first and second quarter of 2015, the Truck segment recognized charges of $13 million and $12 million, respectively, for the acceleration of depreciation of certain assets related to the foundry facilities. (C) In the second quarter and first half of 2015, the Company concluded it had a triggering event related to certain operating leases, as a result, the Truck segment recorded $1 million and $7 million, respectively, of asset impairment charges. In the second quarter of 2014, we recognized a non-cash charge of $149 million for the impairment of certain intangible assets of our Brazilian engine reporting unit. Due to slower than expected growth in the Brazilian economy causing declines in actual and forecasted results, we tested the goodwill of our Brazilian engine reporting unit and trademark for potential impairment. As a result, we determined that the entire $142 million balance of goodwill and $7 million of trademark were impaired. Additionally, in the first quarter of 2014, the Company concluded it had a triggering event related to potential sales of assets requiring assessment of impairment for certain intangible and long-lived assets in the Truck segment. As a result, the Truck segment recognized asset impairment charges of $18 million. (D) In the second quarter of 2014, we incurred restructuring charges of $8 million related to cost reduction actions that included a reduction-in-force in the U.S. (E) In the second quarter of 2015, the Global Operations segment recognized a $10 million gain resulting from a customer settlement, which includes an offsetting restructuring charge of $4 million. (F) In the second quarter and first half of 2015 our Global Operations segment recorded $6 million in inventory charges to right size the Brazil Truck business. (G) During the second quarter of 2014, our evaluation of the realizability of our Brazilian deferred tax assets resulted in a determination that a valuation allowance was required, due to a deterioration of operating performance in Brazil, an increase in net operating loss carryforwards, and the impairment of certain Brazilian intangible assets. As a result, we recorded a net expense of $29 million related to establishment of the valuation allowance and tax impact from the impairment of certain intangible assets. The above items, except for the Brazilian tax adjustments, did not have a material impact on taxes due to the valuation allowances on our U.S. deferred tax assets, which was established in the fourth quarter of 2012.
SEC Regulation G Non-GAAP Reconciliation Adjusted Income Reconciliation: _____________________ Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. In the second quarter of 2020, we recorded $13 million of asset impairment charges related primarily to long lived assets in our Brazil asset group in our Global Operations segment. In the second quarter of 2019 we recorded $1 million, of asset impairment charges related to certain assets under operating leases in our Truck segment. In the second quarter of 2019, we recorded a restructuring charge of $1 million in our Truck segment. In the second quarter of 2020 and 2019, we recorded charges of $1 million and $159 million, respectively, related to the MaxxForce Advanced EGR engine class action settlement and related litigation in our Truck Segment. In the second quarter of 2019, we recorded interest income of $1 million, in Other expense, net derived from the prior year settlement of a business economic loss claim relating to our former Alabama engine manufacturing facility in Corporate. Tax effect is calculated by excluding the impact of the non-GAAP adjustments from the interim period tax provision calculations. Quarters Ended April 30, ($ in millions) 2020 2019 Net Income (Loss) Attributable to NIC $ -38 $ -48 Adjusted for Significant Items of: Adjustments to Pre-existing Warranties (A) 13 9 Asset Impairment Charges (B) 13 1 Restructuring of Manufacturing Operations (C) — 1 Maxxforce Advanced EGR engine lawsuits (D) 1 159 Settlement Gain (E) — -1 Total Adjustments 27 169 Tax Effect (F) 1 -16 Adjusted Net Income (Loss) Attributable to NIC $ -10 $ 105
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