Form 8-K NAVISTAR INTERNATIONAL For: Sep 06
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 6, 2017
NAVISTAR INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 1-9618 | 36-3359573 | ||
| (State or other jurisdiction of incorporation or organization) |
(Commission File No.) |
(I.R.S. Employer Identification No.) |
| 2701 Navistar Drive Lisle, Illinois |
60532 | |||
| (Address of principal executive offices) | (Zip Code) | |||
Registrant’s telephone number, including area code (331) 332-5000
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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 September 6, 2017, Navistar International Corporation (the “Company”) filed its Quarterly Report on Form 10-Q for the period ended July 31, 2017 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 2017 third quarter financial results on Wednesday, September 6th. 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, Walter Borst, Executive Vice President and Chief Financial Officer, among other company leaders. A copy of the slides containing financial and operating information to be used as part of the web cast are attached as Exhibit 99.2 to this Current Report and are incorporated by reference herein.
The web cast can be accessed through a link on the investor relations page of Company’s web site at http://www.navistar.com/navistar/investors/webcasts. Investors are advised to log on to the website at least 15 minutes prior to the start of the web cast to allow sufficient time 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
| Exhibit No. |
Description | |
| 99.1 | Press release, dated September 6, 2017, “Navistar Reports Third Quarter 2017 Results” | |
| 99.2 | Slide Presentation for Third Quarter 2017 Financial Results Web Cast to be held on September 6, 2017 | |
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, 2016. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| NAVISTAR INTERNATIONAL CORPORATION | ||||||
| (Registrant) | ||||||
| By: | /s/ Walter G. Borst | |||||
| Name: | Walter G. Borst | |||||
| Title: |
Executive Vice President and Chief Financial Officer | |||||
| Dated: September 6, 2017 | ||||||
EXHIBIT INDEX
Exhibit 99.1
|
Navistar International Corporation | |
| 2701 Navistar Dr. | ||
| Lisle, IL 60532 USA | ||
| P: 331-332-5000 | ||
| W: navistar.com |
| Media contact: | Jim Spangler, [email protected], 331-332-5833 | |
| Investor contact: | Marty Ketelaar, [email protected], 331-332-2706 | |
| Web site: | www.Navistar.com/newsroom |
NAVISTAR REPORTS THIRD QUARTER 2017 RESULTS
| • | Reports net income of $37 million, or $0.38 per diluted share, on revenues of $2.2 billion |
| • | Generates $194 million of adjusted EBITDA in the quarter |
| • | Achieves profits in all four operating segments |
| • | Expects a strong finish to its fiscal year |
LISLE, Ill. — September 6, 2017 — Navistar International Corporation (NYSE: NAV) today announced third quarter 2017 net income of $37 million, or $0.38 per diluted share, compared to a third quarter 2016 net loss of $34 million, or $0.42 per diluted share.
Third quarter 2017 EBITDA was $160 million, versus EBITDA of $96 million in the same period one year earlier. The third quarter of 2017 included $34 million in adjustments, including a $31 million charge for a legacy engine litigation matter, $6 million of pre-existing warranty charges, and $3 million net benefit in asset impairments and restructuring costs. Excluding these items, adjusted EBITDA was $194 million in the third quarter of 2017, compared to $132 million in the same period one year ago.
Revenues in the quarter were $2.2 billion, up 6% from the same period one year ago, primarily due to an increase in Truck segment volumes.
“We returned to profitability this quarter thanks to strong operational performance across the board, highlighted by a 15-percent increase in chargeouts and solid market share gains amid flat industry conditions, and strengthening margins,” said Troy A. Clarke, Navistar chairman, president and chief executive officer. “We also moved ahead with new products and solutions that position us well for ongoing growth, while continuing to restructure our business to improve our future competitiveness.”
Navistar ended third quarter 2017 with $973 million in consolidated cash, cash equivalents and marketable securities. Manufacturing cash, cash equivalents and marketable securities were $923 million at the end of the quarter.
The company had a number of commercial and product highlights during its third quarter, starting with the first customer shipments of the LT Series and RH Series on-highway products with the company’s new A26 12.4-liter engine. Internal testing shows that with this new engine, these vehicles are delivering up to 9 percent in fuel economy improvement over the comparable models built only a year ago.
In the school bus segment, the company moved forward with multiple improvements and innovations that set up future share gains. These include the company’s well-received propane model and introduction of the Cummins L9 product in the RE Series bus. IC Bus’s gasoline-powered school bus is coming in 2018. The company also announced a strategic relationship with Edulog, a leading provider of student transportation planning and scheduling software solutions. Through integration with our OnCommand Connection telematics system, the resulting new solutions will deliver a powerful combination of uptime and on-time to the school bus market.
Additionally, OnCommand Connection introduced its own OnCommand Connection Telematics Solution, a new entry positioned to provide major value to the roughly 70 percent of the smaller-fleet market that does not currently use telematics. This Telematics solution is integrated with the company’s Advanced Remote Diagnostics and its new Electronic Driver Log, which addresses the federal Hours of Service mandate that takes effect this December.
The company’s alliance with Volkswagen Truck & Bus is moving forward as planned. The two companies are finding significant opportunities to leverage their combined scale through their procurement joint venture, while also pursuing technology collaboration on a number of fronts.
The company reiterated its 2017 guidance:
| • | Retail deliveries of Class 6-8 trucks and buses in the United States and Canada are forecast to be in the range of 305,000 units to 335,000 units for fiscal year 2017. |
| • | Full-year 2017 revenues are expected to be similar to 2016. |
| • | Full-year 2017 adjusted EBITDA is expected to be higher than 2016. |
| • | Fiscal year end 2017 manufacturing cash is expected to be about $1 billion. |
“Looking ahead, I like our position as we enter the prime selling season,” Clarke said. “I feel good about the fourth quarter and look forward to finishing the year on a strong note.”
SEGMENT REVIEW
Summary of Financial Results:
| (Unaudited) | ||||||||||||||||
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (in millions, except per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Sales and revenues, net |
$ | 2,213 | $ | 2,086 | $ | 5,972 | $ | 6,048 | ||||||||
| Segment Results: |
||||||||||||||||
| Truck |
$ | 7 | $ | (54 | ) | $ | (118 | ) | $ | (128 | ) | |||||
| Parts |
157 | 152 | 459 | 478 | ||||||||||||
| Global Operations |
3 | (5 | ) | (8 | ) | (19 | ) | |||||||||
| Financial Services |
23 | 26 | 51 | 77 | ||||||||||||
| Income (loss) from continuing operations, net of tax(A) |
$ | 36 | (34 | ) | $ | (106 | ) | $ | (63 | ) | ||||||
| Net income (loss)(A) |
37 | (34 | ) | (105 | ) | (63 | ) | |||||||||
| Diluted income (loss) per share from continuing operations(A) |
$ | 0.37 | $ | (0.42 | ) | $ | (1.16 | ) | $ | (0.77 | ) | |||||
| Diluted income (loss) per share(A) |
$ | 0.38 | $ | (0.42 | ) | $ | (1.15 | ) | $ | (0.77 | ) | |||||
| (A) | Amounts attributable to Navistar International Corporation. |
Truck Segment — Truck segment net sales increased 10% to $1.5 billion compared to third quarter 2016, due to higher volumes in its Core markets (Class 6-8 trucks and buses in the United States and Canada), an increase in Mexico truck volumes, and the production ramp up of GM-branded units manufactured at Navistar’s Springfield, Ohio plant. Chargeouts in the company’s Core markets increased by 15% during the third quarter.
For the third quarter 2017, Truck segment results improved by $61 million year-over-year. The improvement was primarily driven by the impact of higher volumes in Core markets and Mexico, lower used truck losses, and lower restructuring charges, partially offset by lower other income.
Parts Segment — Parts segment net sales declined $11 million compared to third quarter 2016 due to lower Blue Diamond Parts (BDP) sales and lower North America volumes, partially offset by higher Fleetrite™ all-makes brand and ReNEWed™ remanufactured parts sales in the U.S. and Canada.
For the third quarter 2017, the Parts segment recorded a profit of $157 million, up 3%, compared to third quarter 2016, primarily due to income related to the sale of a business line and lower intercompany access fees, which were partially offset by margin declines in BDP and our U.S. market.
Global Operations Segment — Global Operations net sales were flat compared to the prior year.
For the third quarter 2017, the Global Operations segment profit improved by $8 million, primarily due to lower manufacturing and SG&A costs, as a result of our prior year restructuring and cost reduction efforts, and income related to the sale of machinery and equipment.
Financial Services Segment — Financial Services net revenues increased by $2 million to $62 million compared to third quarter 2016 primarily due to stronger performance of the retail financing portfolio in Mexico.
For the third quarter 2017, the Financial Services segment recorded a profit of $23 million, down $3 million compared to third quarter 2016. The decline was primarily driven by a lower interest margin resulting from an increase in its average borrowing rate as well as the pay down of certain intercompany loan receivables, partially offset by a decrease in the provision for loan losses in Mexico.
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, 2016. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.
Navistar International Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (in millions, except per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Sales and revenues |
||||||||||||||||
| Sales of manufactured products, net |
$ | 2,178 | $ | 2,052 | $ | 5,870 | $ | 5,946 | ||||||||
| Finance revenues |
35 | 34 | 102 | 102 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Sales and revenues, net |
2,213 | 2,086 | 5,972 | 6,048 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Costs and expenses |
||||||||||||||||
| Costs of products sold |
1,803 | 1,757 | 4,949 | 5,068 | ||||||||||||
| Restructuring charges |
(13 | ) | 5 | (4 | ) | 11 | ||||||||||
| Asset impairment charges |
6 | 12 | 13 | 17 | ||||||||||||
| Selling, general and administrative expenses |
233 | 197 | 654 | 604 | ||||||||||||
| Engineering and product development costs |
61 | 62 | 189 | 181 | ||||||||||||
| Interest expense |
91 | 84 | 262 | 246 | ||||||||||||
| Other income, net |
(8 | ) | (15 | ) | (7 | ) | (62 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total costs and expenses |
2,173 | 2,102 | 6,056 | 6,065 | ||||||||||||
| Equity in income of non-consolidated affiliates |
1 | 2 | 6 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income (loss) from continuing operations before income taxes |
41 | (14 | ) | (78 | ) | (14 | ) | |||||||||
| Income tax expense |
— | (14 | ) | (10 | ) | (25 | ) | |||||||||
|
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|
|
|
|
|
|
|
|||||||||
| Income (loss) from continuing operations |
41 | (28 | ) | (88 | ) | (39 | ) | |||||||||
| Income from discontinued operations, net of tax |
1 | — | 1 | — | ||||||||||||
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|
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|||||||||
| Net income (loss) |
42 | (28 | ) | (87 | ) | (39 | ) | |||||||||
| Less: Net income attributable to non-controlling interests |
5 | 6 | 18 | 24 | ||||||||||||
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|||||||||
| Net income (loss) attributable to Navistar International Corporation |
$ | 37 | $ | (34 | ) | $ | (105 | ) | $ | (63 | ) | |||||
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| Amounts attributable to Navistar International Corporation common shareholders: |
||||||||||||||||
| Income (loss) from continuing operations, net of tax |
$ | 36 | $ | (34 | ) | $ | (106 | ) | $ | (63 | ) | |||||
| Income from discontinued operations, net of tax |
1 | — | 1 | — | ||||||||||||
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|||||||||
| Net income (loss) |
$ | 37 | $ | (34 | ) | $ | (105 | ) | $ | (63 | ) | |||||
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| Income (loss) per share: |
||||||||||||||||
| Basic: |
||||||||||||||||
| Continuing operations |
$ | 0.37 | $ | (0.42 | ) | $ | (1.16 | ) | $ | (0.77 | ) | |||||
| Discontinued operations |
0.01 | — | 0.01 | — | ||||||||||||
|
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|||||||||
| $ | 0.38 | $ | (0.42 | ) | $ | (1.15 | ) | $ | (0.77 | ) | ||||||
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|||||||||
| Diluted: |
||||||||||||||||
| Continuing operations |
$ | 0.37 | $ | (0.42 | ) | $ | (1.16 | ) | $ | (0.77 | ) | |||||
| Discontinued operations |
0.01 | — | 0.01 | — | ||||||||||||
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|||||||||
| $ | 0.38 | $ | (0.42 | ) | $ | (1.15 | ) | $ | (0.77 | ) | ||||||
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|||||||||
| Weighted average shares outstanding: |
||||||||||||||||
| Basic |
98.3 | 81.7 | 91.1 | 81.7 | ||||||||||||
| Diluted |
98.6 | 81.7 | 91.1 | 81.7 | ||||||||||||
Navistar International Corporation and Subsidiaries
Consolidated Balance Sheets
| (in millions, except per share data) | July 31, 2017 |
October 31, 2016 |
||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 911 | $ | 804 | ||||
| Restricted cash and cash equivalents |
81 | 64 | ||||||
| Marketable securities |
62 | 46 | ||||||
| Trade and other receivables, net |
311 | 276 | ||||||
| Finance receivables, net |
1,557 | 1,457 | ||||||
| Inventories, net |
979 | 944 | ||||||
| Other current assets |
181 | 168 | ||||||
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|||||
| Total current assets |
4,082 | 3,759 | ||||||
| Restricted cash |
56 | 48 | ||||||
| Trade and other receivables, net |
18 | 16 | ||||||
| Finance receivables, net |
231 | 220 | ||||||
| Investments in non-consolidated affiliates |
55 | 53 | ||||||
| Property and equipment (net of accumulated depreciation and amortization of $2,500 and $2,553, respectively) |
1,333 | 1,241 | ||||||
| Goodwill |
38 | 38 | ||||||
| Intangible assets (net of accumulated amortization of $133 and $124, respectively) |
44 | 53 | ||||||
| Deferred taxes, net |
141 | 161 | ||||||
| Other noncurrent assets |
82 | 64 | ||||||
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|||||
| Total assets |
$ | 6,080 | $ | 5,653 | ||||
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| LIABILITIES and STOCKHOLDERS’ DEFICIT |
||||||||
| Liabilities |
||||||||
| Current liabilities |
||||||||
| Notes payable and current maturities of long-term debt |
$ | 965 | $ | 907 | ||||
| Accounts payable |
1,213 | 1,113 | ||||||
| Other current liabilities |
1,137 | 1,183 | ||||||
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|
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|
|||||
| Total current liabilities |
3,315 | 3,203 | ||||||
| Long-term debt |
4,255 | 3,997 | ||||||
| Postretirement benefits liabilities |
2,747 | 3,023 | ||||||
| Other noncurrent liabilities |
686 | 723 | ||||||
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|
|||||
| Total liabilities |
11,003 | 10,946 | ||||||
| Stockholders’ deficit |
||||||||
| Series D convertible junior preference stock |
2 | 2 | ||||||
| Common stock (103.1 and 86.8 shares issued, respectively, and $0.10 par value per share and 220 shares authorized at both dates) |
10 | 9 | ||||||
| Additional paid-in capital |
2,733 | 2,499 | ||||||
| Accumulated deficit |
(5,068 | ) | (4,963 | ) | ||||
| Accumulated other comprehensive loss |
(2,412 | ) | (2,640 | ) | ||||
| Common stock held in treasury, at cost (4.9 and 5.2 shares, respectively) |
(190 | ) | (205 | ) | ||||
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|
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|
|||||
| Total stockholders’ deficit attributable to Navistar International Corporation |
(4,925 | ) | (5,298 | ) | ||||
| Stockholders’ equity attributable to non-controlling interests |
2 | 5 | ||||||
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|
|||||
| Total stockholders’ deficit |
(4,923 | ) | (5,293 | ) | ||||
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| Total liabilities and stockholders’ deficit |
$ | 6,080 | $ | 5,653 | ||||
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Navistar International Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended July 31, |
||||||||
| (in millions) | 2017 | 2016 | ||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | (87 | ) | $ | (39 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
113 | 111 | ||||||
| Depreciation of equipment leased to others |
56 | 53 | ||||||
| Deferred taxes, including change in valuation allowance |
(16 | ) | — | |||||
| Asset impairment charges |
13 | 17 | ||||||
| Loss (gain) on sales of investments and businesses, net |
(5 | ) | 2 | |||||
| Amortization of debt issuance costs and discount |
36 | 27 | ||||||
| Stock-based compensation |
19 | 9 | ||||||
| Provision for doubtful accounts, net of recoveries |
9 | 9 | ||||||
| Equity in income of non-consolidated affiliates, net of dividends |
1 | 5 | ||||||
| Write-off of debt issuance cost and discount |
4 | — | ||||||
| Other non-cash operating activities |
(21 | ) | (12 | ) | ||||
| Changes in other assets and liabilities, exclusive of the effects of businesses disposed |
(290 | ) | (196 | ) | ||||
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| Net cash used in operating activities |
(168 | ) | (14 | ) | ||||
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| Cash flows from investing activities |
||||||||
| Purchases of marketable securities |
(619 | ) | (378 | ) | ||||
| Sales of marketable securities |
586 | 358 | ||||||
| Maturities of marketable securities |
17 | 39 | ||||||
| Net change in restricted cash and cash equivalents |
(25 | ) | (64 | ) | ||||
| Capital expenditures |
(93 | ) | (83 | ) | ||||
| Purchases of equipment leased to others |
(96 | ) | (94 | ) | ||||
| Proceeds from sales of property and equipment |
32 | 20 | ||||||
| Investments in non-consolidated affiliates |
(2 | ) | (1 | ) | ||||
| Proceeds from sales of affiliates |
6 | 36 | ||||||
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| Net cash used in investing activities |
(194 | ) | (167 | ) | ||||
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| Cash flows from financing activities |
||||||||
| Proceeds from issuance of securitized debt |
278 | 72 | ||||||
| Principal payments on securitized debt |
(326 | ) | (69 | ) | ||||
| Net change in secured revolving credit facilities |
119 | 26 | ||||||
| Proceeds from issuance of non-securitized debt |
491 | 163 | ||||||
| Principal payments on non-securitized debt |
(368 | ) | (235 | ) | ||||
| Net change in notes and debt outstanding under revolving credit facilities |
23 | (151 | ) | |||||
| Principal payments under financing arrangements and capital lease obligations |
(1 | ) | (1 | ) | ||||
| Debt issuance costs |
(22 | ) | (12 | ) | ||||
| Proceeds from financed lease obligations |
49 | 17 | ||||||
| Issuance of common stock |
256 | — | ||||||
| Stock issuance costs |
(11 | ) | — | |||||
| Proceeds from exercise of stock options |
4 | — | ||||||
| Dividends paid by subsidiaries to non-controlling interest |
(21 | ) | (28 | ) | ||||
| Other financing activities |
(3 | ) | 1 | |||||
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| Net cash provided by (used in) financing activities |
468 | (217 | ) | |||||
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| Effect of exchange rate changes on cash and cash equivalents |
1 | 33 | ||||||
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|||||
| Increase (decrease) in cash and cash equivalents |
107 | (365 | ) | |||||
| Cash and cash equivalents at beginning of the period |
804 | 912 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents at end of the period |
$ | 911 | $ | 547 | ||||
|
|
|
|
|
|||||
Navistar International Corporation and Subsidiaries
Segment Reporting
(Unaudited)
We define segment profit (loss) as net income (loss) from continuing operations attributable to Navistar International Corporation, excluding income tax expense. The following tables present selected financial information for our reporting segments:
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Three Months Ended July 31, 2017 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 1,521 | $ | 580 | $ | 74 | $ | 35 | $ | 3 | $ | 2,213 | ||||||||||||
| Intersegment sales and revenues |
10 | 6 | 10 | 27 | (53 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 1,531 | $ | 586 | $ | 84 | $ | 62 | $ | (50 | ) | $ | 2,213 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | 7 | $ | 157 | $ | 3 | $ | 23 | $ | (154 | ) | $ | 36 | |||||||||||
| Income tax expense |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | 7 | $ | 157 | $ | 3 | $ | 23 | $ | (154 | ) | $ | 36 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 35 | $ | 3 | $ | 3 | $ | 13 | $ | 3 | $ | 57 | ||||||||||||
| Interest expense |
— | — | — | 24 | 67 | 91 | ||||||||||||||||||
| Equity in income (loss) of non-consolidated affiliates |
1 | 1 | (1 | ) | — | — | 1 | |||||||||||||||||
| Capital expenditures(B) |
21 | 1 | 2 | — | 3 | 27 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Three Months Ended July 31, 2016 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 1,386 | $ | 589 | $ | 73 | $ | 34 | $ | 4 | $ | 2,086 | ||||||||||||
| Intersegment sales and revenues |
9 | 8 | 12 | 26 | (55 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 1,395 | $ | 597 | $ | 85 | $ | 60 | $ | (51 | ) | $ | 2,086 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | (54 | ) | $ | 152 | $ | (5 | ) | $ | 26 | $ | (153 | ) | $ | (34 | ) | ||||||||
| Income tax expense |
— | — | — | — | (14 | ) | (14 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | (54 | ) | $ | 152 | $ | (5 | ) | $ | 26 | $ | (139 | ) | $ | (20 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 29 | $ | 3 | $ | 4 | $ | 13 | $ | 4 | $ | 53 | ||||||||||||
| Interest expense |
— | — | — | 21 | 63 | 84 | ||||||||||||||||||
| Equity in income of non-consolidated affiliates |
1 | 1 | — | — | — | 2 | ||||||||||||||||||
| Capital expenditures(B) |
26 | — | — | 1 | 3 | 30 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Nine Months Ended July 31, 2017 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 3,929 | $ | 1,747 | $ | 186 | $ | 102 | $ | 8 | $ | 5,972 | ||||||||||||
| Intersegment sales and revenues |
27 | 19 | 18 | 70 | (134 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 3,956 | $ | 1,766 | $ | 204 | $ | 172 | $ | (126 | ) | $ | 5,972 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | (118 | ) | $ | 459 | $ | (8 | ) | $ | 51 | $ | (490 | ) | $ | (106 | ) | ||||||||
| Income tax expense |
— | — | — | — | (10 | ) | (10 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | (118 | ) | $ | 459 | $ | (8 | ) | $ | 51 | $ | (480 | ) | $ | (96 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 103 | $ | 9 | $ | 10 | $ | 38 | $ | 9 | $ | 169 | ||||||||||||
| Interest expense |
— | — | — | 65 | 197 | 262 | ||||||||||||||||||
| Equity in income of non-consolidated affiliates |
3 | 3 | — | — | — | 6 | ||||||||||||||||||
| Capital expenditures(B) |
78 | 2 | 5 | 1 | 7 | 93 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Nine Months Ended July 31, 2016 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 3,926 | $ | 1,791 | $ | 221 | $ | 102 | $ | 8 | $ | 6,048 | ||||||||||||
| Intersegment sales and revenues |
81 | 23 | 33 | 75 | (212 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 4,007 | $ | 1,814 | $ | 254 | $ | 177 | $ | (204 | ) | $ | 6,048 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | (128 | ) | $ | 478 | $ | (19 | ) | $ | 77 | $ | (471 | ) | $ | (63 | ) | ||||||||
| Income tax expense |
— | — | — | — | (25 | ) | (25 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | (128 | ) | $ | 478 | $ | (19 | ) | $ | 77 | $ | (446 | ) | $ | (38 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 92 | $ | 10 | $ | 13 | $ | 37 | $ | 12 | $ | 164 | ||||||||||||
| Interest expense |
— | — | — | 59 | 187 | 246 | ||||||||||||||||||
| Equity in income (loss) of non-consolidated affiliates |
3 | 3 | (3 | ) | — | — | 3 | |||||||||||||||||
| Capital expenditures(B) |
70 | 2 | 2 | 1 | 8 | 83 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Segment assets, as of: |
||||||||||||||||||||||||
| July 31, 2017 |
$ | 1,736 | $ | 602 | $ | 374 | $ | 2,237 | $ | 1,131 | $ | 6,080 | ||||||||||||
| October 31, 2016 |
1,520 | 594 | 407 | 2,116 | 1,016 | 5,653 | ||||||||||||||||||
| (A) | Total sales and revenues in the Financial Services segment include interest revenues of $45 million and $121 million for the three and nine months ended July 31, 2017, respectively, and $43 million and $127 million for the three and nine months ended July 31, 2016, respectively. |
| (B) | Exclusive of purchases of equipment leased to others. |
SEC Regulation G Non-GAAP Reconciliation
The financial measures presented below are unaudited and not in accordance with, or an alternative for, financial measures presented in accordance with U.S. generally accepted accounting principles (“GAAP”). The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP and are reconciled to the most appropriate GAAP number below.
Earnings (loss) Before Interest, Income Taxes, Depreciation, and Amortization (“EBITDA”):
We define EBITDA as our consolidated net income (loss) from continuing operations attributable to Navistar International Corporation, net of tax, plus manufacturing interest expense, income taxes, and depreciation and amortization. We believe EBITDA provides meaningful information relating 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.
Structural costs consist of Selling, general and administrative expenses and Engineering and product development costs.
EBITDA reconciliation:
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (in millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | 36 | $ | (34 | ) | $ | (106 | ) | $ | (63 | ) | |||||
| Plus: |
||||||||||||||||
| Depreciation and amortization expense |
57 | 53 | 169 | 164 | ||||||||||||
| Manufacturing interest expense(A) |
67 | 63 | 197 | 187 | ||||||||||||
| Less: |
||||||||||||||||
| Income tax expense |
— | (14 | ) | (10 | ) | (25 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| EBITDA |
$ | 160 | $ | 96 | $ | 270 | $ | 313 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (A) | Manufacturing interest expense is the net interest expense primarily generated for borrowings that support the manufacturing and corporate operations, adjusted to eliminate intercompany interest expense with our Financial Services segment. The following table reconciles Manufacturing interest expense to the consolidated interest expense: |
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (in millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Interest expense |
$ | 91 | $ | 84 | $ | 262 | $ | 246 | ||||||||
| Less: Financial services interest expense |
24 | 21 | 65 | 59 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Manufacturing interest expense |
$ | 67 | $ | 63 | $ | 197 | $ | 187 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
10
Adjusted EBITDA Reconciliation:
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| (in millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| EBITDA (reconciled above) |
$ | 160 | $ | 96 | $ | 270 | $ | 313 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Less significant items of: |
||||||||||||||||
| Adjustments to pre-existing warranties(A) |
6 | 19 | (4 | ) | 70 | |||||||||||
| Asset impairment charges(B) |
6 | 12 | 13 | 17 | ||||||||||||
| Restructuring of North American manufacturing operations(C) |
(3 | ) | — | 6 | — | |||||||||||
| Cost reduction and other strategic initiatives |
— | 5 | — | 11 | ||||||||||||
| EGR product litigation(D) |
31 | — | 31 | — | ||||||||||||
| Gain on sale(E) |
(6 | ) | — | (6 | ) | — | ||||||||||
| Debt refinancing charges(F) |
— | — | 4 | — | ||||||||||||
| One-time fee(G) |
— | — | — | (15 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total adjustments |
34 | 36 | 44 | 83 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted EBITDA |
$ | 194 | $ | 132 | $ | 314 | $ | 396 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (A) | Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. |
| (B) | In the third quarter and first nine months of 2017, we recorded $6 million and $13 million, respectively, of asset impairment charges in our Truck segment relating to assets held for the sale of our Conway, Arkansas fabrication business and for certain assets under operating leases. In the third quarter and first nine months of 2016, we recorded $11 million and $16 million, respectively, of asset impairment charges related to certain long lived assets in our Truck segment. In the third quarter of 2016, we recorded $1 million of asset impairment charges related to certain intangible assets in our Global operations segment. |
| (C) | In the third quarter and first nine months of 2017, we recorded a benefit of $3 million and charges of $6 million for restructuring in our Truck segment. In the third quarter of 2017, we recorded $41 million of charges related to the cessation of production at our Melrose Park Facility and a net benefit of $43 million related to the execution of the closing agreement for our Chatham, Ontario plant which were recognized in Restructuring Charges and Costs of Products Sold. The first nine months of 2017 were also impacted by $7 million of restructuring charges related to the closure of the Chatham, Ontario plant and $2 million of Corporate restructuring charges. |
| (D) | In the third quarter of 2017, we recognized a charge of $31 million for a jury verdict related to Maxxforce engine EGR litigation in our Truck segment. |
| (E) | In the third quarter of 2017, we recognized a gain of $6 million related to the sale of a business line in our Parts segment. |
| (F) | In the second quarter of 2017, we recorded a charge of $4 million related to third party fees and debt issuance costs associated with the repricing of our Term Loan. |
| (G) | In the first quarter of 2016, we received a $15 million one-time fee from a third party which was recognized in Other income, net. |
11
Manufacturing segment cash, cash equivalents, and marketable securities reconciliation:
| As of July 31, 2017 | ||||||||||||
| (in millions) | Manufacturing Operations |
Financial Services Operations |
Consolidated Balance Sheet |
|||||||||
| Assets |
||||||||||||
| Cash and cash equivalents |
$ | 868 | $ | 43 | $ | 911 | ||||||
| Marketable securities |
55 | 7 | 62 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cash, cash equivalents, and marketable securities |
$ | 923 | $ | 50 | $ | 973 | ||||||
|
|
|
|
|
|
|
|||||||
12
Q3 2017 EARNINGS PRESENTATION September 6, 2017 Exhibit 99.2
Safe Harbor Statement and Other Cautionary Notes Information provided and statements contained in this presentation that are not purely historical are forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements only speak as of the date of this presentation and Navistar International Corporation assumes no obligation to update the information included in this presentation. Such forward-looking statements include information concerning our possible or assumed future results of operations, including the results of our alliance with Volkswagen Truck & Bus and descriptions of our business strategy. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and assumptions. For a further description of these factors, see the risk factors set forth in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended October 31, 2016. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our results of operations and could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events. The financial information herein contains audited and unaudited information and has been prepared by management in good faith and based on data currently available to the company. Certain non-GAAP measures are used in this presentation to assist the reader in understanding our core manufacturing business. We believe this information is useful and relevant to assess and measure the performance of our core manufacturing business as it illustrates manufacturing performance. It also excludes financial services and other items that may not be related to the core manufacturing business or underlying results. Management often uses this information to assess and measure the underlying performance of our operating segments. We have chosen to provide this supplemental information to investors, analysts, and other interested parties to enable them to perform additional analyses of operating results. The non-GAAP numbers are reconciled to the most appropriate GAAP number in the appendix of this presentation.
Q3 Highlights – Return to Profitability Improving market conditions Stronger core market share, up 140 basis points Additional restructuring actions to improve competitive position VW T&B alliance progressing well Broadening OnCommand® Connection offerings
New Products Driving Class 8 Heavy Share Growth 2017 Class 8 Heavy Truck Market Share By Powertrain Increasing customer consideration for our new products Class 8 Heavy industry powertrains split between 13L and 15L engines Navistar’s 15L share outpaces 13L share International® A26 engine: Catalyst for share growth Nearing 14,000 International® LT™ truck series orders Approaching 3,000 orders with International® A26 powertrain since launch in late February Navistar Composition Industry Composition
Drive Operational Excellence Strong consolidated sales, up 6% from Q3 2016 Revised used truck strategy, accelerating sales and driving lower inventories Rationalized 9/10 liter engine production at Melrose Park facility VW T&B alliance on plan to deliver synergies Cost management improving margins Grow the Core Business Commenced deliveries of International® A26 powertrains Announced IC Bus® gas powertrain offering All-makes (Fleetrite®) and remanufactured (ReNEWed®) parts sales growing Build New Sources of Revenue Surpassed 325,000 OnCommand® Connection (OCC) active VINs Announced strategic relationship with Edulog Ramped up GM contract manufacturing in Springfield, Ohio plant Executing on Our Strategy
Stronger Performance From Improving Sales ($ in millions, except per share and units) Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. (A) Includes U.S. and Canada School buses and Class 6-8 trucks. (B) Amounts attributable to Navistar International Corporation, net of tax.
All Segments Profitable – First Time Since 2011 ($ in millions)
Restructuring Actions Improving Competitiveness ($ in millions) Note:Please see the REG G in appendix for further details. Impact Gain (Loss) Finalized Chatham plant closing agreement $43 Ceasing production of 9/10L engines $-41 Sale of bus fabrication business $-5 Sale of non-core parts business $6 Net Impact $3
Used Truck Export Strategy Working Used Truck Inventory ($ in millions) Gross inventory balance: $280 million Net inventory balance: $106 million Accelerated disposition of legacy trucks, over 2,500 trucks sold Q3 inventory reserve addition: $14 million Lower used truck industry pricing environment Minimal MaxxForce® 13 truck inventory remaining by end of 2018 0 5,000 10,000 15,000 Oct. 2014 Oct. 2015 Oct. 2016 Jul. 2017 Inventory Composition MaxxForce 13 Other Vehicles
Warranty Liability Returning to Normal Levels Pre-Existing (P/E) Warranty Expense ($ in millions) Warranty liability approaching pre-EGR levels Q3 warranty expense (excluding pre-existing) as a percentage of revenue: 2.4% Improved reliability of new products Warranty liability balance: $659 million $0 $250 $500 $750 $1,000 2012 2013 2014 2015 2016 2017 Fcst Warranty Spend Warranty Expense $0 $500 $1,000 $1,500 Oct. 2012 Oct. 2013 Oct. 2014 Oct. 2015 Oct. 2016 Jul. 2017 Warranty Liability Balance Other Maxxforce
Improving Financial Flexibility 2017 Q3 Cash Balance Consolidated cash: $973 million(A) Manufacturing cash: $923 million(A) Manufacturing Cash(A) ($ in millions) (A) Amounts include manufacturing cash, cash equivalents, and marketable securities. Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. FY 2017 Manufacturing cash: ~$1 billion ~$1B $0 $400 $800 $1,200 Q4 2016 Q1 2017 Q2 2017 Q3 2017 FY2017 forecast
Guidance Summary (A) Expected incremental cost reductions in 2017 to be less than 2016. (B)Including senior note tack-on & capital injection from Volkswagen Truck and Bus. Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation.
Appendix
U.S. and Canada Dealer Stock Inventory* *Includes U.S. and Canada Class 4-8 truck inventory, but does not include U.S. IC Bus.
Retail Market Share in Commercial Vehicle Segments Class 6/7 Medium-Duty Class 8 Severe Service Class 8 Heavy Three Months Ended July 31, 2017 April 31, 2017 January 31, 2016 October 31, 2016 July 31, 2016 Core Markets (U.S. and Canada) Class 6 and 7 medium trucks ................................. ........................ 2 5 % 29 % 20 % 18 % 2 0 % Class 8 heavy trucks ................................ ................................ ......... 1 0 % 11 % 9 % 13 % 9 % Class 8 severe service trucks ................................. ......................... 12 % 1 1 % 1 3 % 14 % 12 % Combined class 8 trucks ................................ ................................ . 11 % 1 1 % 1 0 % 13 % 1 0 %
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. The School bus chargeouts include buses classified as B, C, and D and are being reported on a one-month lag. Other markets primarily consist of Export Truck and Mexico. Three Months Ended July 31, % Change (in units) 2017 2016 Change Core Markets (U.S. and Canada) School buses(A) ................................................... 3,900 3,900 --% --% Class 6 and 7 medium trucks …..................... 4,800 3,500 1,300 37 % Class 8 heavy trucks ......................................... 4,200 3,800 400 11 % Class 8 severe service trucks ...................... 2,200 1,900 300 16 % Total Core Markets …........................................... 15,100 13,100 2,000 15 % Non “Core” Military .......................................... 200 200 --% --% Other markets(B)................................................. 2,900 2,800 100 4 % Total worldwide units ........................................ 18,200 16,100 2,100 13 % Combined class 8 trucks ................................ 6,400 5,700 700 12 %
Highlights Financial Services segment profit of $23 million for Q3 2017, & $51 million YTD U.S. financing availability of $286M as of July 31, 2017 Financial Services debt/equity leverage of 3.6:1 as of July 31, 2017 2-year dealer floor-plan securitization completed June 2017 with improved pricing Navistar Financial Corporation Retail Notes Bank Facility Dealer Floor Plan Facility capacity was reduced to $357 million in December 2016 Option to increase up to $700 million based on commitments Funding for retail notes, wholesale notes, retail accounts, and dealer open accounts On balance sheet NFSC wholesale trust as of July 31, 2017 $975M funding facility Variable portion matures May 2018 Term portions mature September 2018 and June 2019 On balance sheet Program management continuity Broad product offering Ability to support large fleets Access to less expensive capital C A P I T A L Funded by BMO Financial Group
Frequently Asked Questions Q1: What is included in Corporate and Eliminations? A:The primary drivers of Corporate and Eliminations are Corporate SG&A, pension and OPEB expense (excluding amounts allocated to the segments), annual incentive, manufacturing interest expense, and the elimination of intercompany sales and profit between segments. Q2: What is included in your equity in loss of non-consolidated affiliates? A:Equity in loss of non-consolidated affiliates is derived from our ownership interests in partially-owned affiliates that are not consolidated. Q3: What is your net income attributable to non-controlling interests? A:Net income attributable to non-controlling interests is the result of the consolidation of subsidiaries in which we do not own 100%, and is primarily comprised of Ford's non-controlling interest in our Blue Diamond Parts joint venture. Q4:What are your expected 2017 and beyond pension funding requirements? A: For the three and nine months ended July 31, 2017, we contributed $21 million and $67 million, respectively, and for the three and six months ended July 31, 2016, we contributed $20 million and $60 million, respectively, to our U.S. and Canadian pension plans (the "Plans") to meet regulatory minimum funding requirements. We currently anticipate additional contributions of approximately $46 million during the remainder of 2017. Future contributions are dependent upon a number of factors, principally the changes in values of plan assets, changes in interest rates, the impact of any future funding relief, and the impact of funding resulting from the closure of our Chatham, Ontario plant. We currently expect that from 2018 through 2020, we will be required to contribute $130 million to $190 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 2017 and will gradually increase as we utilize available net operating losses (NOLs) and tax credits in future years.
Frequently Asked Questions Q6:What is the current balance of net operating losses as compared to other deferred tax assets? A: As of October 31, 2016 the Company had deferred tax assets for U.S. federal NOLs valued at $945 million, state NOLs valued at $150 million, and foreign NOLs valued at $229 million, for a total undiscounted cash value of $1.3 billion. In addition to NOLs, the Company had deferred tax assets for accumulated tax credits of $262 million and other deferred tax assets of $2.0 billion resulting in net deferred tax assets before valuation allowances of approximately $3.6 billion. Of this amount, $3.4 billion was subject to a valuation allowance at the end of FY2016. Q7:How does your FY 2017 Class 8 industry outlook compare to ACT Research? A: Q8:Please discuss the process from an order to a retail delivery? A: Orders* are customers’ written commitments to purchase vehicles. Order backlogs* are orders yet to be built as of the end of a period. Chargeouts are vehicles that have been invoiced to customers. Retail deliveries occur when customers take possession and register the vehicle. Units held in dealer inventory represent the principal difference between retail deliveries and chargeouts. * Orders and units in backlog do not represent guarantees of purchases and are subject to cancellation.
Frequently Asked Questions Three Months Ended July 31, 2017 % Change (in units) 2017 2016 Change OEM sales-South America........... 6,000 5,400 600 11% Intercompany sales........................ 3,300 4,200 (900) (21%) Other OEM sales............................. 600 900 (300) (33%) Total sales.................................... 9,900 10,500 (600) (6%) Q9: How do you define manufacturing free cash flow? A: _____________________________ (A) Net of adjustments. Q10: What were your Worldwide Engine Shipments in the period? A: Qtr Ended Qtr Ended Qtr Ended Qtr Ended Qtr Ended (in millions) July 31, 2017 Apr. 30, 2017 Jan. 31, 2017 Oct. 31, 2016 Jul. 31, 2016 (61) $ (129) $ 22 $ 281 $ 90 $ (95) (136) 251 (3) 95 34 7 (229) 284 (5) (27) (20) (46) (32) (29) 7 $ (13) $ (275) $ 252 $ (34) $ Net Cash from Manufacturing Operations (A) ............. Capital Expenditures......................................................................... Less: Net Cash from Financial Services Operations............. Consolidated Net Cash from Operating Activities.............. Manufacturing Free Cash Flow.....................................
Outstanding Debt Balances
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 relating 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. 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.
SEC Regulation G Non-GAAP Reconciliation Manufacturing segment cash, Cash equivalents, and Marketable securities reconciliation: (in millions) Manufacturing Operations: Cash and cash equivalents………………………………………………………..................... $ 868 $ 747 $ 506 $ 761 Marketable securities……………………………………………………………......................... Manufacturing Cash, Cash equivalents, and Marketable securities.............. $ 923 $ 918 $ 697 $ 800 Financial Services Operations: Cash and cash equivalents…………………………………………...................................... $ 43 $ 24 $ 67 $ 43 Marketable securities…………………………………………………….................................... Financial Services Cash, Cash equivalents, and Marketable securities……... $ 50 $ 31 $ 74 $ 50 Consolidated Balance Sheet: Cash and cash equivalents………………………………………………………...................... $ 911 $ 771 $ 573 $ 804 Marketable securities…………………………………………………....................................... Consolidated Cash, Cash equivalents, and Marketable securities……........... $ 973 $ 949 $ 771 $ 850 7 62 46 198 178 July 31, 2017 55 7 Oct. 31, 2016 39 Jan. 31, 2017 191 7 Apr. 30, 2017 171 7
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 25. (in millions) Profit (loss) attributable to NIC, net of tax............................................................ $ 36 $ (34) Plus: Depreciation and amortization expense........................................................ 57 53 Manufacturing interest expense (A)................................................................. 67 63 Less: Income tax expense................................................................................................ — (14) EBITDA.................................................................................................................................. $ 160 $ 96 Quarters Ended July 31, 2016 2017 (in millions) Interest expense......................................................................................................................... $ 91 $ 84 Less: Financial services interest expense........................................................................ 24 21 Manufacturing interest expense.......................................................................................... $ 67 $ 63 2016 Quarters Ended July 31, 2017 (in millions) EBITDA (reconciled above)...................................................................................... $ 160 $ 96 Less significant items of: Adjustments to pre-existing warranties (A)............................................................. 6 19 North America asset impairment charges (B)......................................................... 6 12 Restructuring of North American manufacturing operations (C) ................... (3) — Cost reduction and other strategic initiatives ........................................................ — 5 EGR product litigation (D)............................................................................................... 31 — Gain on sale (E).................................................................................................................... (6) — Total adjustments.................................................................................................................... 34 36 Adjusted EBITDA......................................................................................................... $ 194 $ 132 Quarters Ended July 31, 2016 2017
Significant Items Included Within Our Results ______________________ Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. In the third quarter of 2017, we recorded $6 million of asset impairment charges in our Truck segment relating to assets held for the sale of our Conway, Arkansas fabrication business and for certain assets under operating leases. In the third quarter of 2016, we recorded $11 million of asset impairment charges related to certain long lived assets in our Truck segment. In the third quarter of 2016, we recorded $1 million of asset impairment charges related to certain intangible assets in our Global operations segment. In the third quarter of 2017, we recorded a benefit of $3 million for restructuring in our Truck segment. In the quarter, we recorded $41 million of charges related to the cessation of production at our Melrose Park Facility, a net benefit of $43 million related to the execution of the closing agreement for our Chatham, Ontario plant which were recognized in Restructuring Charges and Costs of Products Sold, and the release of $1 million in OPEB liabilities in connection with the sale of our fabrication business in Conway, Arkansas. In the third quarter of 2017, we recognized a charge of $31 million for a jury verdict related to MaxxForce engine EGR litigation in our Truck segment. In the third quarter of 2017, we recognized a gain of $6 million related to the sale of a business line in our Parts segment. (in millions) Expense (income): 2017 2016 Adjustments to pre-existing warranties (A)....................................................................... 6 $ 19 $ North America asset impairment charges (B)................................................................... 6 12 Restructuring of North American manufacturing operations (C)............................. (3) — Cost reduction and other strategic initiatives................................................................... — 5 EGR product litigation (D)......................................................................................................... 31 — Gain on sale (E).............................................................................................................................. (6) — Quarter Ended July 31,
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