Form 8-K NAVISTAR INTERNATIONAL For: Dec 19
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 19, 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 December 19, 2017, Navistar International Corporation (the “Company”) filed its Annual Report on Form 10-K for the period ended October 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 fourth quarter financial results on Tuesday, December 19th. 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
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, 2017. 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: Title: |
Walter G. Borst Executive Vice President and Chief Financial Officer |
Dated: December 19, 2017
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 2017 FOURTH QUARTER AND FULL YEAR RESULTS
| • | Reports fourth quarter 2017 net income of $135 million, or $1.36 per diluted share, on revenues of $2.6 billion |
| • | Reports full-year net income of $30 million, or $0.32 per diluted share, on revenues of $8.6 billion |
| • | Full-year market share improves by 1.5 points; gains in all truck segments |
| • | Generates $268 million of adjusted EBITDA for the quarter; $582 million of adjusted EBITDA for the year |
LISLE, Ill. — December 19, 2017 — Navistar International Corporation (NYSE: NAV) today announced a fourth quarter 2017 net income of $135 million, or $1.36 per diluted share, compared to a fourth quarter 2016 net loss of $34 million, or $0.42 per diluted share. Navistar reported net income of $30 million, or $0.32 per diluted share for fiscal year 2017, versus a net loss of $97 million, or $1.19 per diluted share, for fiscal year 2016.
Fourth quarter 2017 adjusted EBITDA was $268 million, which included $11 million of adjustments. Adjusted EBITDA margins increased to 10.3 percent. Fiscal year 2017 adjusted EBITDA was $582 million, versus $508 million adjusted EBITDA for 2016. Full-year adjusted EBITDA margins increased to 6.8 percent.
Revenues in the quarter increased 26 percent, to $2.6 billion, compared to fourth quarter 2016. The revenue increase was largely driven by a 31-percent increase in the company’s Core (Class 6-8 trucks and buses in the United States and Canada) volumes. Revenue for fiscal year 2017 was up six percent to $8.6 billion, compared to $8.1 billion in fiscal year 2016.
Navistar finished the fourth quarter 2017 with $1.1 billion in consolidated cash, cash equivalents and marketable securities including $1.0 billion in manufacturing cash, cash equivalents and marketable securities.
“Our 2017 was a breakthrough year, as we returned to profitability and grew our market share 1.5 points,” said Troy A. Clarke, chairman, president and CEO. “These results were driven by stronger sales, our steady investment in the industry’s newest product lineup, early results from our strategic alliance with Volkswagen Truck & Bus and our ongoing focus on cost.”
The company finished 2017 with strong momentum across the board. During the quarter, the company launched the International® HV™ Series line of vocational trucks. The HV Series, in addition to the HX Series premium vocational truck lineup, now has the option of being powered by the International A26 engine. The company also announced plans for its next-generation powertrains with alliance partner Volkswagen Truck & Bus, including big bore diesel, as well as electric medium-duty and electric bus platforms launching as early as 2019.
Also during the fourth quarter, Navistar and Volkswagen Truck & Bus announced their intention to converge their connected vehicle activities – OnCommand® Connection and RIO, Volkswagen Truck & Bus’s digital brand. OnCommand Connection now has an industry leading 370,000 connected vehicles.
Navistar refinanced its manufacturing debt in early November, which improved its debt profile and provided greater financial flexibility. The transaction yielded $200 million of additional liquidity and extended the company’s debt maturities by four years. Additionally, it will save approximately $25 million in annualized interest in 2018 and $34 million in 2019, following the repayment of convertible debt that comes due in 2018.
The company provided the following 2018 fiscal year guidance:
| • | Retail deliveries of Class 6-8 trucks and buses in the United States and Canada are forecast to be in the range of 345,000 units to 375,000 units. |
| • | Revenues are expected to be between $9 billion and $9.5 billion. |
| • | Adjusted EBITDA is expected to be between $675 million and $725 million. |
| • | Year-end manufacturing cash is expected to be about $1 billion. |
“We think 2018 is shaping up to be one of the strongest industry years this decade, and we’re positioned to make it a breakout year for Navistar,” Clarke said. “We’ll drive even greater customer consideration with our commitment to uptime and our ongoing cadence of new product launches, which will include the introduction of our new medium-duty vehicle, as well as new IC Bus offerings. At the same time, we will build on our alliance with Volkswagen Truck & Bus by investing in and collaborating on the major technologies that are reshaping our industry, including electric, connectivity and autonomous.”
Summary of Financial Results:
| (Unaudited) | ||||||||||||||||
| Quarters Ended October 31, |
Years Ended October 31, |
|||||||||||||||
| (in millions, except per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Sales and revenues, net |
$ | 2,598 | $ | 2,063 | $ | 8,570 | $ | 8,111 | ||||||||
| Segment Results: |
||||||||||||||||
| Truck |
$ | 112 | $ | (61 | ) | $ | (6 | ) | $ | (189 | ) | |||||
| Parts |
157 | 162 | 616 | 640 | ||||||||||||
| Global Operations |
1 | (2 | ) | (7 | ) | (21 | ) | |||||||||
| Financial Services |
26 | 23 | 77 | 100 | ||||||||||||
| Income (loss) from continuing operations, net of tax(A) |
$ | 135 | $ | (34 | ) | $ | 29 | $ | (97 | ) | ||||||
| Net income (loss)(A) |
135 | (34 | ) | 30 | (97 | ) | ||||||||||
| Diluted earnings (loss) per share from continuing operations(A) |
$ | 1.36 | $ | (0.42 | ) | $ | 0.31 | $ | (1.19 | ) | ||||||
| Diluted earnings (loss) per share(A) |
$ | 1.36 | $ | (0.42 | ) | $ | 0.32 | $ | (1.19 | ) | ||||||
| (A) | Amounts attributable to Navistar International Corporation. |
Truck Segment – For the fourth quarter 2017, the Truck segment recorded a profit of $112 million, compared with a year-ago fourth quarter loss of $61 million. The year-over-year change was primarily due to the impact of higher volume in the company’s Core markets and a decrease in used truck losses.
For the 2017 fiscal year, the Truck segment recorded a loss of $6 million, compared with a fiscal year 2016 loss of $189 million. The improvement was primarily driven by the impact of higher volumes in the company’s Core markets and Mexico and a decrease in used truck losses, partially offset by market pressures and charges related to EGR product litigation.
Parts Segment — For the fourth quarter 2017, the Parts segment recorded a profit of $157 million, down slightly from year-ago fourth quarter, primarily driven by the gradual runoff of the Blue Diamond Parts business, partially offset by double digit revenue growth from its Fleetrite and the remanufactured parts businesses.
For the 2017 fiscal year, the Parts segment recorded its second-largest profit ever at $616 million, compared to a fiscal year 2016 profit of $640 million. The four-percent decrease was primarily driven by margin declines in Blue Diamond Parts, partially offset by a slight year-over-year increase in North America Core market volumes.
Global Operations Segment — For the fourth quarter 2017, the Global Operations segment recorded a profit of $1 million, compared to a year-ago fourth quarter loss of $2 million. The year-over-year change was driven by higher volumes due to improvements in the Brazilian economy, offset by restructuring charges.
For the 2017 fiscal year, the Global Operations segment recorded a loss of $7 million compared to a year-ago fiscal year loss of $21 million. The Global Operations segment results improvement was primarily due to lower manufacturing and SG&A expenses as a result of the company’s cost reduction efforts and a one-time benefit of $9 million recognized as an adjustment to pre-existing warranties, partially offset by restructuring charges.
Financial Services Segment— For the fourth quarter 2017, the Financial Services segment recorded a profit of $26 million, compared with fourth quarter 2016 profit of $23 million. The year-over-year change was primarily driven by higher receivable balances and a lower provision for losses in the company’s Mexico portfolio.
For the 2017 fiscal year, the Financial Services segment recorded a profit of $77 million, compared to a year-ago fiscal year profit of $100 million. The decrease is primarily driven by the paydown of certain intercompany loan receivables and lower interest margin resulting from an increase in the company’s average borrowing rate.
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, 2017. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.
# # #
Navistar International Corporation and Subsidiaries
Consolidated Statements of Operations
| (Unaudited) | ||||||||||||||||
| For the Quarters Ended October 31, |
For the Years Ended October 31, |
|||||||||||||||
| (in millions, except per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Sales and revenues |
||||||||||||||||
| Sales of manufactured products, net |
$ | 2,558 | $ | 2,030 | $ | 8,428 | $ | 7,976 | ||||||||
| Finance revenues |
40 | 33 | 142 | 135 | ||||||||||||
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| Sales and revenues, net |
2,598 | 2,063 | 8,570 | 8,111 | ||||||||||||
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| Costs and expenses |
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| Costs of products sold |
2,088 | 1,744 | 7,037 | 6,812 | ||||||||||||
| Restructuring charges |
7 | (1 | ) | 3 | 10 | |||||||||||
| Asset impairment charges |
— | 10 | 13 | 27 | ||||||||||||
| Selling, general and administrative expenses |
224 | 198 | 878 | 802 | ||||||||||||
| Engineering and product development costs |
62 | 66 | 251 | 247 | ||||||||||||
| Interest expense |
89 | 81 | 351 | 327 | ||||||||||||
| Other income, net |
(14 | ) | (14 | ) | (21 | ) | (76 | ) | ||||||||
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| Total costs and expenses |
2,456 | 2,084 | 8,512 | 8,149 | ||||||||||||
| Equity in income of non-consolidated affiliates |
— | 3 | 6 | 6 | ||||||||||||
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| Income (loss) from continuing operations before income taxes |
142 | (18 | ) | 64 | (32 | ) | ||||||||||
| Income tax expense |
— | (8 | ) | (10 | ) | (33 | ) | |||||||||
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| Income (loss) from continuing operations |
142 | (26 | ) | 54 | (65 | ) | ||||||||||
| Income from discontinued operations, net of tax |
— | — | 1 | — | ||||||||||||
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| Net income (loss) |
142 | (26 | ) | 55 | (65 | ) | ||||||||||
| Less: Net income attributable to non-controlling interests |
7 | 8 | 25 | 32 | ||||||||||||
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| Net income (loss) attributable to Navistar International Corporation |
$ | 135 | $ | (34 | ) | $ | 30 | $ | (97 | ) | ||||||
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| Amounts attributable to Navistar International Corporation common shareholders: |
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| Income (loss) from continuing operations, net of tax |
$ | 135 | $ | (34 | ) | $ | 29 | $ | (97 | ) | ||||||
| Income from discontinued operations, net of tax |
— | — | 1 | — | ||||||||||||
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| Net income (loss) |
$ | 135 | $ | (34 | ) | $ | 30 | $ | (97 | ) | ||||||
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| Earnings (loss) per share: |
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| Basic: |
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| Continuing operations |
$ | 1.37 | $ | (0.42 | ) | $ | 0.31 | $ | (1.19 | ) | ||||||
| Discontinued operations |
— | — | 0.01 | — | ||||||||||||
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| $ | 1.37 | $ | (0.42 | ) | $ | 0.32 | $ | (1.19 | ) | |||||||
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| Diluted: |
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| Continuing operations |
$ | 1.36 | $ | (0.42 | ) | $ | 0.31 | $ | (1.19 | ) | ||||||
| Discontinued operations |
— | — | 0.01 | — | ||||||||||||
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| $ | 1.36 | $ | (0.42 | ) | $ | 0.32 | $ | (1.19 | ) | |||||||
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| Weighted average shares outstanding: |
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| Basic |
98.4 | 81.7 | 93.0 | 81.7 | ||||||||||||
| Diluted |
99.2 | 81.7 | 93.5 | 81.7 | ||||||||||||
Navistar International Corporation and Subsidiaries
Consolidated Balance Sheets
| October 31, | October 31, | |||||||
| (in millions, except per share data) | 2017 | 2016 | ||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 706 | $ | 804 | ||||
| Restricted cash and cash equivalents |
83 | 64 | ||||||
| Marketable securities |
370 | 46 | ||||||
| Trade and other receivables, net |
391 | 276 | ||||||
| Finance receivables, net |
1,565 | 1,457 | ||||||
| Inventories, net |
857 | 944 | ||||||
| Other current assets |
188 | 168 | ||||||
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| Total current assets |
4,160 | 3,759 | ||||||
| Restricted cash |
51 | 48 | ||||||
| Trade and other receivables, net |
13 | 16 | ||||||
| Finance receivables, net |
220 | 220 | ||||||
| Investments in non-consolidated affiliates |
56 | 53 | ||||||
| Property and equipment, net |
1,326 | 1,241 | ||||||
| Goodwill |
38 | 38 | ||||||
| Intangible assets, net |
40 | 53 | ||||||
| Deferred taxes, net |
129 | 161 | ||||||
| Other noncurrent assets |
102 | 64 | ||||||
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| Total assets |
$ | 6,135 | $ | 5,653 | ||||
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| LIABILITIES and STOCKHOLDERS’ DEFICIT |
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| Liabilities |
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| Current liabilities |
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| Notes payable and current maturities of long-term debt |
$ | 1,169 | $ | 907 | ||||
| Accounts payable |
1,292 | 1,113 | ||||||
| Other current liabilities |
1,184 | 1,183 | ||||||
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| Total current liabilities |
3,645 | 3,203 | ||||||
| Long-term debt |
3,889 | 3,997 | ||||||
| Postretirement benefits liabilities |
2,497 | 3,023 | ||||||
| Other noncurrent liabilities |
678 | 723 | ||||||
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| Total liabilities |
10,709 | 10,946 | ||||||
| Stockholders’ deficit |
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| Series D convertible junior preference stock |
2 | 2 | ||||||
| Common stock, $0.10 par value per share (103.1 and 86.8 shares issued, respectively, and 220 shares authorized at both dates) |
10 | 9 | ||||||
| Additional paid-in capital |
2,733 | 2,499 | ||||||
| Accumulated deficit |
(4,933 | ) | (4,963 | ) | ||||
| Accumulated other comprehensive loss |
(2,211 | ) | (2,640 | ) | ||||
| Common stock held in treasury, at cost (4.6 and 5.2 shares, respectively) |
(179 | ) | (205 | ) | ||||
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| Total stockholders’ deficit attributable to Navistar International Corporation |
(4,578 | ) | (5,298 | ) | ||||
| Stockholders’ equity attributable to non-controlling interests |
4 | 5 | ||||||
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| Total stockholders’ deficit |
(4,574 | ) | (5,293 | ) | ||||
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| Total liabilities and stockholders’ deficit |
$ | 6,135 | $ | 5,653 | ||||
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Navistar International Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
| For the Years Ended October 31, | ||||||||
| (in millions) | 2017 | 2016 | ||||||
| Cash flows from operating activities |
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| Net income (loss) |
$ | 55 | $ | (65 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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| Depreciation and amortization |
150 | 146 | ||||||
| Depreciation of equipment leased to others |
73 | 79 | ||||||
| Deferred taxes, including change in valuation allowance |
(6 | ) | (9 | ) | ||||
| Asset impairment charges |
13 | 27 | ||||||
| Loss (gain) on sales of investments and businesses, net |
(5 | ) | 2 | |||||
| Amortization of debt issuance costs and discount |
49 | 37 | ||||||
| Stock-based compensation |
28 | 16 | ||||||
| Provision for doubtful accounts, net of recoveries |
7 | 13 | ||||||
| Equity in income of non-consolidated affiliates, net of dividends |
1 | 6 | ||||||
| Write-off of debt issuance cost and discount |
5 | — | ||||||
| Other non-cash operating activities |
(28 | ) | (12 | ) | ||||
| Changes in other assets and liabilities, exclusive of the effects of businesses disposed: |
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| Trade and other receivables |
(125 | ) | 134 | |||||
| Finance receivables |
(123 | ) | 251 | |||||
| Inventories |
82 | 205 | ||||||
| Accounts payable |
159 | (193 | ) | |||||
| Other assets and liabilities |
(226 | ) | (370 | ) | ||||
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| Net cash provided by operating activities |
109 | 267 | ||||||
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| Cash flows from investing activities |
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| Purchases of marketable securities |
(1,011 | ) | (485 | ) | ||||
| Sales of marketable securities |
659 | 555 | ||||||
| Maturities of marketable securities |
28 | 43 | ||||||
| Net change in restricted cash and cash equivalents |
(22 | ) | 5 | |||||
| Capital expenditures |
(102 | ) | (116 | ) | ||||
| Purchases of equipment leased to others |
(137 | ) | (132 | ) | ||||
| Proceeds from sales of property and equipment |
35 | 24 | ||||||
| Investments in non-consolidated affiliates |
(1 | ) | (2 | ) | ||||
| Proceeds from sales of affiliates |
9 | 41 | ||||||
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| Net cash used in investing activities |
(542 | ) | (67 | ) | ||||
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| Cash flows from financing activities |
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| Proceeds from issuance of securitized debt |
322 | 413 | ||||||
| Principal payments on securitized debt |
(336 | ) | (346 | ) | ||||
| Net change in secured revolving credit facilities |
111 | (148 | ) | |||||
| Proceeds from issuance of non-securitized debt |
582 | 222 | ||||||
| Principal payments on non-securitized debt |
(489 | ) | (315 | ) | ||||
| Net change in notes and debt outstanding under revolving credit facilities |
(112 | ) | (149 | ) | ||||
| Principal payments under financing arrangements and capital lease obligations |
— | (3 | ) | |||||
| Debt issuance costs |
(29 | ) | (16 | ) | ||||
| Proceeds from financed lease obligations |
61 | 22 | ||||||
| Issuance of common stock |
256 | — | ||||||
| Stock issuance costs |
(11 | ) | — | |||||
| Proceeds from exercise of stock options |
12 | — | ||||||
| Dividends paid by subsidiaries to non-controlling interest |
(26 | ) | (34 | ) | ||||
| Other financing activities |
(3 | ) | 1 | |||||
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| Net cash provided by (used in) financing activities |
338 | (353 | ) | |||||
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| Effect of exchange rate changes on cash and cash equivalents |
(3 | ) | 45 | |||||
|
|
|
|
|
|||||
| Decrease in cash and cash equivalents |
(98 | ) | (108 | ) | ||||
| Cash and cash equivalents at beginning of the year |
804 | 912 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents at end of the year |
$ | 706 | $ | 804 | ||||
|
|
|
|
|
|||||
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 October 31, 2017 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 1,841 | $ | 622 | $ | 93 | $ | 40 | $ | 2 | $ | 2,598 | ||||||||||||
| Intersegment sales and revenues |
12 | 4 | 12 | 23 | (51 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 1,853 | $ | 626 | $ | 105 | $ | 63 | $ | (49 | ) | $ | 2,598 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | 112 | $ | 157 | $ | 1 | $ | 26 | $ | (161 | ) | $ | 135 | |||||||||||
| Income tax expense |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | 112 | $ | 157 | $ | 1 | $ | 26 | $ | (161 | ) | $ | 135 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 34 | $ | 2 | $ | 3 | $ | 13 | $ | 2 | $ | 54 | ||||||||||||
| Interest expense |
— | — | — | 21 | 68 | 89 | ||||||||||||||||||
| Equity in income (loss) of non-consolidated affiliates |
1 | — | (1 | ) | — | — | — | |||||||||||||||||
| Capital expenditures(B) |
4 | — | — | — | 5 | 9 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Three Months Ended October 31, 2016 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 1,345 | $ | 607 | $ | 75 | $ | 33 | $ | 2 | $ | 2,062 | ||||||||||||
| Intersegment sales and revenues |
51 | 6 | 12 | 25 | (93 | ) | 1 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 1,396 | $ | 613 | $ | 87 | $ | 58 | $ | (91 | ) | $ | 2,063 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | (61 | ) | $ | 162 | $ | (2 | ) | $ | 23 | $ | (156 | ) | $ | (34 | ) | ||||||||
| Income tax expense |
— | — | — | — | (8 | ) | (8 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | (61 | ) | $ | 162 | $ | (2 | ) | $ | 23 | $ | (148 | ) | $ | (26 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 37 | $ | 3 | $ | 5 | $ | 13 | $ | 3 | $ | 61 | ||||||||||||
| Interest expense |
— | — | — | 21 | 60 | 81 | ||||||||||||||||||
| Equity in income of non-consolidated affiliates |
2 | 1 | — | — | — | 3 | ||||||||||||||||||
| Capital expenditures(B) |
27 | — | 2 | 1 | 3 | 33 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Year Ended October 31, 2017 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 5,770 | $ | 2,369 | $ | 279 | $ | 142 | $ | 10 | $ | 8,570 | ||||||||||||
| Intersegment sales and revenues |
39 | 23 | 30 | 93 | (185 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 5,809 | $ | 2,392 | $ | 309 | $ | 235 | $ | (175 | ) | $ | 8,570 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | (6 | ) | $ | 616 | $ | (7 | ) | $ | 77 | $ | (651 | ) | $ | 29 | |||||||||
| Income tax expense |
— | — | — | — | (10 | ) | (10 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | (6 | ) | $ | 616 | $ | (7 | ) | $ | 77 | $ | (641 | ) | $ | 39 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 137 | $ | 11 | $ | 13 | $ | 51 | $ | 11 | $ | 223 | ||||||||||||
| Interest expense |
— | — | — | 86 | 265 | 351 | ||||||||||||||||||
| Equity in income (loss) of non-consolidated affiliates |
4 | 3 | (1 | ) | — | — | 6 | |||||||||||||||||
| Capital expenditures(B) |
82 | 2 | 5 | 1 | 12 | 102 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services(A) |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Year Ended October 31, 2016 |
||||||||||||||||||||||||
| External sales and revenues, net |
$ | 5,271 | $ | 2,398 | $ | 296 | $ | 135 | $ | 10 | $ | 8,110 | ||||||||||||
| Intersegment sales and revenues |
132 | 29 | 45 | 100 | (305 | ) | 1 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total sales and revenues, net |
$ | 5,403 | $ | 2,427 | $ | 341 | $ | 235 | $ | (295 | ) | $ | 8,111 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | (189 | ) | $ | 640 | $ | (21 | ) | $ | 100 | $ | (627 | ) | $ | (97 | ) | ||||||||
| Income tax expense |
— | — | — | — | (33 | ) | (33 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment profit (loss) |
$ | (189 | ) | $ | 640 | $ | (21 | ) | $ | 100 | $ | (594 | ) | $ | (64 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation and amortization |
$ | 129 | $ | 13 | $ | 18 | $ | 50 | $ | 15 | $ | 225 | ||||||||||||
| Interest expense |
— | — | — | 80 | 247 | 327 | ||||||||||||||||||
| Equity in income (loss) of non-consolidated affiliates |
5 | 4 | (3 | ) | — | — | 6 | |||||||||||||||||
| Capital expenditures(B) |
97 | 2 | 4 | 2 | 11 | 116 | ||||||||||||||||||
| (in millions) | Truck | Parts | Global Operations |
Financial Services |
Corporate and Eliminations |
Total | ||||||||||||||||||
| Segment assets, as of: |
||||||||||||||||||||||||
| October 31, 2017 |
$ | 1,621 | $ | 632 | $ | 378 | $ | 2,207 | $ | 1,297 | $ | 6,135 | ||||||||||||
| 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 $44 million and $165 million for the three months and year ended October 31, 2017, respectively, and $40 million and $167 million for the three months and year ended October 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 to the performance of our business and therefore we use it to supplement our GAAP reporting. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results.
Adjusted EBITDA:
We believe that adjusted EBITDA, which excludes certain identified items that we do not consider to be part of our ongoing business, improves the comparability of year to year results, and is representative of our underlying performance. Management uses this information to assess and measure the performance of our operating segments. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the below reconciliations, and to provide an additional measure of performance.
Adjusted EBITDA margin:
We define Adjusted EBITDA margin as a percentage of the Company’s consolidated sales and revenues. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the below reconciliations, and to provide an additional measure of performance.
Manufacturing Cash, Cash Equivalents, and Marketable Securities:
Manufacturing cash, cash equivalents, and marketable securities represent the Company’s consolidated cash, cash equivalents, and marketable securities excluding cash, cash equivalents, and marketable securities of our financial services operations. We include marketable securities with our cash and cash equivalents when assessing our liquidity position as our investments are highly liquid in nature. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of our ability to meet our operating requirements, capital expenditures, equity investments, and financial obligations.
Structural costs consist of selling, general and administrative expenses and engineering and product development costs.
EBITDA reconciliation:
| (Unaudited) | ||||||||||||||||
| For the Quarters Ended October 31, |
For the Years Ended October 31, |
|||||||||||||||
| (in millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Income (loss) from continuing operations attributable to NIC, net of tax |
$ | 135 | $ | (34 | ) | $ | 29 | $ | (97 | ) | ||||||
| Plus: |
||||||||||||||||
| Depreciation and amortization expense |
54 | 61 | 223 | 225 | ||||||||||||
| Manufacturing interest expense(A) |
68 | 60 | 265 | 247 | ||||||||||||
| Less: |
||||||||||||||||
| Income tax expense |
— | (8 | ) | (10 | ) | (33 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| EBITDA |
$ | 257 | $ | 95 | $ | 527 | $ | 408 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (A) | Manufacturing interest expense is the net interest expense primarily related to 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 consolidated interest expense: |
10
| (Unaudited) | ||||||||||||||||
| For the Quarters Ended October 31, |
For the Years Ended October 31, |
|||||||||||||||
| (in millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Interest expense |
$ | 89 | $ | 81 | $ | 351 | $ | 327 | ||||||||
| Less: Financial Services interest expense |
21 | 21 | 86 | 80 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Manufacturing interest expense |
$ | 68 | $ | 60 | $ | 265 | $ | 247 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA Reconciliation:
| (Unaudited) | ||||||||||||||||
| For the Quarters Ended October 31, |
For the Years Ended October 31, |
|||||||||||||||
| (in millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| EBITDA (reconciled above) |
$ | 257 | $ | 95 | $ | 527 | $ | 408 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Less significant items of: |
||||||||||||||||
| Adjustments to pre-existing warranties(A) |
3 | 8 | (1 | ) | 78 | |||||||||||
| Asset impairment charges(B) |
— | 10 | 13 | 27 | ||||||||||||
| Restructuring of manufacturing operations(C) |
7 | (1 | ) | 13 | 10 | |||||||||||
| EGR product litigation(D) |
— | — | 31 | — | ||||||||||||
| Gain on sale (E) |
— | — | (6 | ) | — | |||||||||||
| Debt refinancing charges(F) |
1 | — | 5 | — | ||||||||||||
| One-time fee received(G) |
— | — | — | (15 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total adjustments |
11 | 17 | 55 | 100 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted EBITDA |
$ | 268 | $ | 112 | $ | 582 | $ | 508 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (A) | Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historical and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. |
| (B) | During 2017, we recorded $13 million of asset impairment charges in our Truck segment relating to assets held for sale of our Conway, Arkansas fabrication business and for certain assets under operating leases. During 2016, the charges primarily included $17 million related to certain long-lived assets and $8 million related to certain operating leases. We also determined that $1 million of trademark asset carrying value was impaired. |
| (C) | During 2017, we recorded a charge of $13 million. We recorded $41 million of charges related to our plan to cease production at our Melrose Park Facility, a net benefit of $43 million related to the resolution of the closing agreement for our Chatham, Ontario plant, and the release of $1 million in OPEB liabilities in connection with the sale of our fabrication business in Conway, Arkansas. We recorded $6 million of restructuring charges in Brazil related to cost reduction actions consisting of personnel costs for employee separation and related benefits. During 2016, we recorded $7 million of charges related to the 2011 closure of our Chatham, Ontario plant. |
| (D) | During 2017, we recognized a charge of $31 million for a jury verdict related to Maxxforce engine EGR product litigation in our Truck segment. |
| (E) | During 2017, we recognized a gain of $6 million related to the sale of a business line in our Parts segment. |
| (F) | During 2017, we recorded a charge of $5 million related to third party fees and debt issuance costs associated with the repricing of our Term Loan and the refinancing of the revolving portion of the NFC bank credit facility in our Financial Services segment. |
| (G) | During 2016, we received a $15 million one-time fee from a third party. |
11
Manufacturing segment cash, cash equivalents, and marketable securities reconciliation:
| As of October 31, 2017 | ||||||||||||
| (in millions) | Manufacturing Operations |
Financial Services Operations |
Consolidated Balance Sheet |
|||||||||
| Assets |
||||||||||||
| Cash and cash equivalents |
$ | 666 | $ | 40 | $ | 706 | ||||||
| Marketable securities |
370 | — | 370 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cash, cash equivalents, and marketable securities |
$ | 1,036 | $ | 40 | $ | 1,076 | ||||||
|
|
|
|
|
|
|
|||||||
12
Q4 2017 EARNINGS PRESENTATION December 19, 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, 2017. 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.
2017 Highlights – Back in the Black Full-year net income of $30 million All segments profitable in the fourth quarter Q4 adjusted EBITDA margin of 10.3% Stronger Core market share Core market share increased 1.5 points Market share grew in each truck category Improving Class 8 market conditions Senior Notes and Term-loan refinancing completed Used Truck and Warranty returning to normal levels Several joint product announcements with Volkswagen Truck & Bus (VW T&B) Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation.
Class 8 Market Share Growing With Introduction of New Products 2017 annual Class 8 market share up 0.7 points to 11.8% Class 8 Market Share Up 0.7 pts Up 1.6 pts Up 1.2 pts
Drive Operational Excellence Profitable through higher sales and cost management Used truck accelerating sales and reducing inventories VW T&B alliance proceeding to plan Grow the Core Business Entire line of Class 8 products refreshed and International® A26 engine launched New innovative IC Bus features and powertrain solutions Parts private labels brands (Fleetrite® and ReNEWed®) sales grew double digits in 2017 Next-generation, diesel big-bore powertrain collaboration with VW T&B Offer Innovative Technology Solutions Electric Medium Duty truck and Bus (chargE™) products as early as 2019 Converging connected services with RIO (VW T&B) 370,000 OnCommand® Connection active VINs 2017: Year End Review
Return To Profitability In 2017 ($ 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 in Q4 ($ in millions)
Annual Segment Results ($ in millions)
Used Truck Inventory at 4-Year Low Used Truck Inventory ($ in millions) Gross inventory balance: $206 million Down 54% since peaking in Apr. 2016 Net inventory balance: $96 million Sold over 3,300 trucks in Q4 Accelerated disposition of legacy trucks Q4 inventory reserve addition: $9 million Challenging used truck pricing environment for the industry Used truck gross inventory balance in range of normal operations
Lowest Annual Warranty Expense Since 2009 Warranty Spend and Expense Declining ($ in millions) Warranty liability approaching pre-EGR levels Q4 warranty expense (excluding pre-existing) as a percentage of revenue: 2.1% New product quality driving warranty results Warranty liability balance: $629 million Down 53% since Oct. 2013
Strong Liquidity to Address Near-Term Maturities 2017 Q4 cash balance Consolidated cash: $1.1 billion(A) Manufacturing cash: $1.0 billion(A) Pro Forma(B) cash of $1.2 billion with incremental proceeds from November refinancing transactions Incremental cash expected to be used to repay maturing 2018 Convertible Notes Manufacturing Cash(A) ($ in millions) Amounts include manufacturing cash, cash equivalents, and marketable securities. Reflects November capital markets transactions. Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Solid cash positon heading into 2018 (B)
Proactively Managed Debt Maturities $200 million and $411 million Convertible Notes, mature in October 2018 and April 2019, respectively $1.6 billion Term Loan credit facility(B), matures in 2024 Replaces $1 billion Term Loan facility due 2020 $1.1 billion 6.625% Senior Notes(B), matures in 2025 Replaces $1.45 billion 8.25% Senior Notes due 2021 $225 million Tax Exempt Bonds, mature in 2040 Manufacturing Debt Maturity Schedule(A/B) ($ in millions) Total manufacturing debt of $3.4B as of October 31, 2017. Graph does not include financed lease obligations and other, totaling $173 million. Pro Forma manufacturing debt balance of $3.6B. Dates are based on calendar year. Reflects November capital market transactions. Extended maturities and lowered interest expense
Guidance Summary Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. (1) 2018 manufacturing cash guidance of $1 billion reflects expected repayment of 2018 convertible notes. 2017 Actual 2018 Guidance Class 8 industry 207K 220-250K Core markets industry 328K 345-375K Revenue $8.6B $9.0-$9.5B Adjusted EBITDA $582M $675-$725M Manufacturing cash $1.0B ~$1.0B(1)
Significant Cash Flow Drivers 2017 2018 Guidance Actuals Guidance Manufacturing interest expense $245M $269M $230M Capital expenditures $150M $102M $200M Warranty spend greater than expense $150M $184M $125M Pension/OPEB contributions greater than expense $60M $75M $100M
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 7
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. Our Core markets include CAT-branded units sold to Caterpillar under our North America supply agreement during 2016. The School bus chargeouts include buses classified as B, C, and D and are being reported on a one-month lag. Chargeouts include CAT-branded units sold to Caterpillar under our North America supply agreement during 2016. Other markets primarily consist of Export Truck and Mexico.
Highlights Financial Services segment profit of $26 million for Q4 2017 and $77 million YTD U.S. financing availability of $438 million as of October 31, 2017 Financial Services debt/equity leverage of 3.2:1 as of October 31, 2017 4-year extension of revolving bank credit facility in September Navistar Financial Corporation Retail Notes Bank Facility Dealer Floor Plan Revolver capacity of $269M extended to September 2021, term portion of $76M matures June 2018 Funding for retail notes, wholesale notes, retail accounts, and dealer open accounts On balance sheet NFSC wholesale trust as of October 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: In 2017 and 2016, we contributed $112 million and $100 million, respectively, to our U.S. and Canadian pension plans (the "Plans") to meet regulatory minimum funding requirements. In 2018, we expect to contribute approximately $134 million to meet the minimum required contributions for all plans. Future contributions are dependent upon a number of factors, principally the changes in values of plan assets, changes in interest rates, the impact of any future funding relief. We currently expect that from 2019 through 2021, we will be required to contribute approximately $140 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 2018 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, 2017, the Company had deferred tax assets for U.S. federal NOLs valued at $988 million, state NOLs valued at $152 million, and foreign NOLs valued at $243 million, for a total undiscounted cash value of $1.4 billion. In addition to NOLs, the Company had deferred tax assets for accumulated tax credits of $262 million and other deferred tax assets of $1.8 billion resulting in net deferred tax assets before valuation allowances of approximately $3.5 billion. Of this amount, $3.3 billion was subject to a valuation allowance at the end of FY2017. Q7:How does your FY 2018 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 Q9: How do you define manufacturing free cash flow? A: _____________________________ Net of adjustments. Capital expenditures are reported on a cash basis. In 2017, capital expenditures excluded amounts that were not yet paid, which was an increase over the prior year by $27 million. Q10: What were your Worldwide Engine Shipments in the period? A:
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 to the performance of our business and therefore we use it to supplement our GAAP reporting. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results. Adjusted EBITDA: We believe that adjusted EBITDA, which excludes certain identified items that we do not consider to be part of our ongoing business, improves the comparability of year to year results, and is representative of our underlying performance. Management uses this information to assess and measure the performance of our operating segments. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the below reconciliations, and to provide an additional measure of performance. Manufacturing Cash, Cash Equivalents, and Marketable Securities: Manufacturing cash, cash equivalents, and marketable securities represents the Company’s consolidated cash, cash equivalents, and marketable securities excluding cash, cash equivalents, and marketable securities of our financial services operations. We include marketable securities with our cash and cash equivalents when assessing our liquidity position as our investments are highly liquid in nature. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of our ability to meet our operating requirements, capital expenditures, equity investments, and financial obligations. Gross Margin consists of Sales and revenues, net, less Costs of products sold. Structural Cost consists of Selling, general and administrative expenses and Engineering and product development costs. Free Cash Flow consists of Net cash from operating activities and Capital Expenditures.
SEC Regulation G Non-GAAP Reconciliation Manufacturing segment cash, Cash equivalents, and Marketable securities reconciliation: Manufacturing Pro Forma includes $200 million incremental cash from November capital markets transactions: On November 6, 2017, we issued $1.1 billion aggregate principal amount of 6.625% senior notes due 2025 (“2025 Notes”). The proceeds from the offering were used to repurchase a portion of our existing Senior Notes under the tender offer, to pay accrued and unpaid interest thereon, and pay the associated prepayment premiums, certain transaction fees and expenses incurred in connection with the new 2025 Notes. On November 6, 2017, we signed a definitive credit agreement relating to a seven-year senior secured term loan credit facility in an aggregate principal amount of $1.6 billion (“Term Loan Credit Agreement”), guaranteed by Navistar International Corporation and twelve of its subsidiaries. A portion of the proceeds from the Term Loan Credit Agreement were used to repay all outstanding loans under our existing Term Loan, to redeem the remaining portion of the outstanding Senior Notes and to pay accrued and unpaid interest thereon, and pay certain transaction fees and expenses incurred in connection with the new Term Loan Credit Agreement. The remainder of the proceeds of the term loan credit facility will be used for ongoing working capital purposes and general corporate purposes.
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 27.
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. During 2017, we recorded $13 million of asset impairment charges in our Truck segment relating to assets held for sale of our Conway, Arkansas fabrication business and for certain assets under operating leases. During 2016, the charges primarily included $17 million related to certain long-lived assets and $8 million related to certain operating leases. We also determined that $1 million of trademark asset carrying value was impaired. During 2017, we recorded a charge of $13 million. We recorded $41 million of charges related to our plan to cease production at our Melrose Park Facility, a net benefit of $43 million related to the resolution of the closing agreement for our Chatham, Ontario plant, and the release of $1 million in OPEB liabilities in connection with the sale of our fabrication business in Conway, Arkansas. We recorded $6 million of restructuring charges in Brazil related to cost reduction actions consisting of personnel costs for employee separation and related benefits. During 2016, we recorded $7 million of charges related to the 2011 closure of our Chatham, Ontario plant. During 2017, we recognized a charge of $31 million for a jury verdict related to Maxxforce engine EGR product litigation in our Truck segment. During 2017, we recognized a gain of $6 million related to the sale of a business line in our Parts segment. During 2017, we recorded a charge of $5 million related to third party fees and debt issuance costs associated with the repricing of our Term Loan and the refinancing of the revolving portion of the NFC bank credit facility in our Financial Services segment. During 2016, we received a $15 million one-time fee from a third party.