Navistar Announces Management Reorganization, Reports Second Quarter Results

Second Quarter

Six Months

2012

2011

2012

2011

(in millions, except per share data)

Sales and revenues, net

$

3,298

$

3,355

$

6,350

$

6,098

Segment Results:

Truck

$

(89)

$

92

$

(130)

$

124

Engine

(108)

2

(228)

(6)

Parts

41

74

91

130

Manufacturing segment profit (loss)(A)

$

(156)

$

168

$

(267)

$

248

Income (loss) before income taxes

$

(295)

$

93

$

(516)

$

99

Net income (loss) attributable to Navistar International Corporation

(172)

74

(325)

68

Diluted earnings (loss) per share attributable to Navistar International Corporation

(2.50)

0.93

(4.69)

0.87

Adjusted net income (loss) attributable to Navistar International Corporation(A)

(137)

102

(201)

123

Adjusted diluted earnings (loss) per share

attributable to Navistar International Corporation(A)

(1.99)

1.30

(2.90)

1.59

(A)  

Non-GAAP measure, see SEC Regulation G Non-GAAP Reconciliation for additional information.

Navistar International Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

Three Months Ended April 30,

Six Months Ended April 30,

2012

2011

2012

2011

(in millions, except per share data)

Sales and revenues

Sales of manufactured products, net

$

3,255

$

3,298

$

6,263

$

5,991

Finance revenues

43

57

87

107

Sales and revenues, net

3,298

3,355

6,350

6,098

Costs and expenses

Costs of products sold

2,944

2,701

5,642

4,900

Restructuring charges

20

2

20

24

Impairment of intangible assets

38

—

38

—

Selling, general and administrative expenses

378

354

740

672

Engineering and product development costs

134

137

271

266

Interest expense

62

62

123

125

Other expense (income), net

13

(10)

21

(21)

Total costs and expenses

3,589

3,246

6,855

5,966

Equity in loss of non-consolidated affiliates

(4)

(16)

(11)

(33)

Income (loss) before income taxes

(295)

93

(516)

99

Income tax benefit (expense)

133

(5)

214

(5)

Net income (loss)

(162)

88

(302)

94

Less: Net income attributable to non-controlling interests

10

14

23

26

Net income (loss) attributable to Navistar International Corporation

$

(172)

$

74

$

(325)

$

68

Earnings (loss) per share attributable to Navistar International Corporation:

Basic

$

(2.50)

$

1.01

$

(4.69)

$

0.93

Diluted

(2.50)

0.93

(4.69)

0.87

Weighted average shares outstanding:

Basic

68.7

73.0

69.3

72.8

Diluted

68.7

78.6

69.3

77.3

Navistar International Corporation and Subsidiaries

Consolidated Balance Sheets

April 30,

2012

October 31,

2011

(in millions, except per share data)

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

400

$

539

Restricted cash

—

100

Marketable securities

337

718

Trade and other receivables, net

845

1,219

Finance receivables, net

2,066

2,198

Inventories

1,948

1,714

Deferred taxes, net

479

474

Other current assets

303

273

Total current assets

6,378

7,235

Restricted cash

145

227

Trade and other receivables, net

114

122

Finance receivables, net

574

715

Investments in non-consolidated affiliates

58

60

Property and equipment (net of accumulated depreciation and amortization of $2,159 and $2,056, at the respective dates)

1,690

1,570

Goodwill

295

319

Intangible assets (net of accumulated amortization of $97 and $99, at the respective dates)

178

234

Deferred taxes, net

1,759

1,583

Other noncurrent assets

193

226

Total assets

$

11,384

$

12,291

LIABILITIES and STOCKHOLDERS' EQUITY (DEFICIT)

Liabilities

Current liabilities

Notes payable and current maturities of long-term debt

$

1,509

$

1,379

Accounts payable

1,927

2,122

Other current liabilities

1,284

1,297

Total current liabilities

4,720

4,798

Long-term debt

2,988

3,477

Postretirement benefits liabilities

3,095

3,210

Deferred taxes, net

59

59

Other noncurrent liabilities

929

719

Total liabilities

11,791

12,263

Redeemable equity securities

5

5

Stockholders' equity (deficit)

Series D convertible junior preference stock

3

3

Common stock ($0.10 par value per share, 220.0 shares authorized, and 75.4 shares issued, at both dates)

8

7

Additional paid in capital

2,272

2,253

Accumulated deficit

(480)

(155)

Accumulated other comprehensive loss

(1,982)

(1,944)

Common stock held in treasury, at cost (6.8 and 4.9 shares, at the respective dates)

(276)

(191)

Total stockholders' deficit attributable to Navistar International Corporation

(455)

(27)

Stockholders' equity attributable to non-controlling interests

43

50

Total stockholders' equity (deficit)

(412)

23

Total liabilities and stockholders' equity (deficit)

$

11,384

$

12,291

Navistar International Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended April 30,

2012

2011

(in millions)

Cash flows from operating activities

Net income (loss)

$

(302)

$

94

Adjustments to reconcile net income (loss) to cash provided

by operating activities:

Depreciation and amortization

136

143

Depreciation of equipment leased to others

24

18

Deferred taxes, including change in valuation allowance

(203)

(5)

Impairment of intangible assets

38

—

Amortization of debt issuance costs and discount

19

22

Stock-based compensation

14

31

Equity in loss of non-consolidated affiliates, net of dividends

15

35

Write-off of debt issuance cost and discount

8

—

Other non-cash operating activities

2

5

Changes in other assets and liabilities, exclusive of the

effects of businesses acquired and disposed

298

(117)

Net cash provided by operating activities

49

226

Cash flows from investing activities

Purchases of marketable securities

(563)

(721)

Sales or maturities of marketable securities

944

569

Net change in restricted cash and cash equivalents

182

(8)

Capital expenditures

(176)

(185)

Purchase of equipment leased to others

(28)

(23)

Proceeds from sales of property and equipment

6

23

Investments in non-consolidated affiliates

(17)

(27)

Proceeds from sales of affiliates

1

6

Business acquisitions, net of cash received

(10)

(1)

Acquisition of intangibles

(14)

(7)

Net cash provided by (used in) investing activities

325

(374)

Cash flows from financing activities

Proceeds from issuance of securitized debt

281

348

Principal payments on securitized debt

(666)

(334)

Proceeds from issuance of non-securitized debt

555

61

Principal payments on non-securitized debt

(537)

(64)

Net increase (decrease) in notes and debt outstanding under

revolving credit facilities

2

(12)

Principal payments under financing arrangements and capital

lease obligations

(20)

(48)

Debt issuance costs

(15)

(5)

Purchase of treasury stock

(75)

—

Proceeds from exercise of stock options

2

28

Dividends paid by subsidiaries to non-controlling interest

(34)

(32)

Other financing activities

(3)

—

Net cash used in financing activities

(510)

(58)

Effect of exchange rate changes on cash and cash equivalents

(3)

11

Decrease in cash and cash equivalents

(139)

(195)

Cash and cash equivalents at beginning of the period

539

585

Cash and cash equivalents at end of the period

$

400

$

390

Navistar International Corporation and Subsidiaries

Segment Reporting

(Unaudited)

We define segment profit (loss) as net income (loss) attributable to Navistar International Corporation excluding income tax benefit (expense). Our results from interim periods are not necessarily indicative of results for a full year. Selected financial information is as follows:

Truck(A)

Engine

Parts(A)

Financial

Services(B)

Corporate

and

Eliminations

Total

(in millions)

Three Months Ended April 30, 2012

External sales and revenues, net

$

2,353

$

440

$

462

$

43

$

—

$

3,298

Intersegment sales and revenues

2

454

34

24

(514)

—

Total sales and revenues, net

$

2,355

$

894

$

496

$

67

$

(514)

$

3,298

Net income (loss) attributable to NIC

$

(89)

$

(108)

$

41

$

26

$

(42)

$

(172)

Income tax benefit

—

—

—

—

133

133

Segment profit (loss)

$

(89)

$

(108)

$

41

$

26

$

(175)

$

(305)

Depreciation and amortization

$

35

$

30

$

4

$

8

$

5

$

82

Interest expense

—

—

—

22

40

62

Equity in income (loss) of non-consolidated affiliates

(6)

—

2

—

—

(4)

Capital expenditures(C)

16

36

5

1

15

73

Three Months Ended April 30, 2011

External sales and revenues, net

$

2,262

$

524

$

512

$

57

$

—

$

3,355

Intersegment sales and revenues

9

431

50

26

(516)

—

Total sales and revenues, net

$

2,271

$

955

$

562

$

83

$

(516)

$

3,355

Net income (loss) attributable to NIC

$

92

$

2

$

74

$

40

$

(134)

$

74

Income tax expense

—

—

—

—

(5)

(5)

Segment profit (loss)

$

92

$

2

$

74

$

40

$

(129)

$

79

Depreciation and amortization

$

38

$

30

$

3

$

6

$

4

$

81

Interest expense

—

—

—

26

36

62

Equity in income (loss) of non-consolidated affiliates

(17)

(2)

3

—

—

(16)

Capital expenditures(C)

22

52

3

—

13

90

Six Months Ended April 30, 2012

External sales and revenues, net

$

4,507

$

860

$

896

$

87

$

—

$

6,350

Intersegment sales and revenues

13

893

69

48

(1,023)

—

Total sales and revenues, net

$

4,520

$

1,753

$

965

$

135

$

(1,023)

$

6,350

Net income (loss) attributable to NIC

$

(130)

$

(228)

$

91

$

53

$

(111)

$

(325)

Income tax expense

—

—

—

—

214

214

Segment profit (loss)

$

(130)

$

(228)

$

91

$

53

$

(325)

$

(539)

Depreciation and amortization

$

69

$

59

$

6

$

16

$

10

$

160

Interest expense

—

—

—

47

76

123

Equity in income (loss) of non-consolidated affiliates

(15)

1

3

—

—

(11)

Capital expenditures(C)

32

76

12

2

54

176

Truck(A)

Engine

Parts(A)

Financial

Services(B)

Corporate

and

Eliminations

Total

Six Months Ended April 30, 2011

External sales and revenues, net

$

4,053

$

980

$

958

$

107

$

—

$

6,098

Intersegment sales and revenues

18

758

99

49

(924)

—

Total sales and revenues, net

$

4,071

$

1,738

$

1,057

$

156

$

(924)

$

6,098

Net income (loss) attributable to NIC

$

124

$

(6)

$

130

$

72

$

(252)

$

68

Income tax expense

—

—

—

—

(5)

(5)

Segment profit (loss)

$

124

$

(6)

$

130

$

72

$

(247)

$

73

Depreciation and amortization

$

75

$

59

$

5

$

13

$

9

$

161

Interest expense

—

—

—

56

69

125

Equity in income (loss) of non-consolidated affiliates

(35)

(2)

4

—

—

(33)

Capital expenditures(C)

38

84

4

—

59

185

As of April 30, 2012

Segment assets

$

2,685

$

1,823

$

698

$

3,043

$

3,135

$

11,384

As of October 31, 2011

Segment assets

2,771

1,849

700

3,580

3,391

12,291

(A)  

See Note 2, Restructurings and Impairments, for further discussion.

(B)   

Total sales and revenues in the Financial Services segment include interest revenues of $66 million and $133 million for the three and six months ended April 30, 2012, respectively,  and  $82 million and $153 million for the three and six months ended April 30, 2011, respectively.

(C)    

Exclusive of purchases of equipment leased to others.

Three Months Ended April 30,

Six Months Ended April 30,

2012

2011

2012

2011

(in millions, except per share data)

Income (loss) attributable to Navistar International Corporation

$

(172)

$

74

$

(325)

$

68

Plus:

Engineering integration costs, net of tax(A)

31

4

39

23

  Restructuring of North American manufacturing operations, net of tax(B)

37

—

37

—

Adjustments to pre-existing warranties, net of tax(C)

138

24

219

32

Charges for non-conformance penalties, net of tax(D)

10

—

10

—

Less:

  Net impact of income tax valuation allowance release(E)

181

—

181

—

Adjusted net income (loss) attributable to Navistar International Corporation

$

(137)

$

102

$

(201)

$

123

Diluted earnings (loss) per share attributable to Navistar International Corporation

$

(2.50)

$

0.93

$

(4.69)

$

0.87

Effect of adjustments on diluted earnings (loss) per share attributable to Navistar International Corporation

0.51

0.37

1.79

0.72

Adjusted diluted earnings (loss) per share attributable to Navistar International Corporation

$

(1.99)

$

1.30

$

(2.90)

$

1.59

Diluted weighted shares outstanding

68.7

78.6

69.3

77.3

Three Months Ended April 30,

Six Months Ended April 30,

2012

2011

2012

2011

(in millions)

Net income (loss) attributable to Navistar International Corporation

$

(172)

$

74

$

(325)

$

68

Less:

Financial services segment profit

26

40

53

72

Corporate and eliminations

(175)

(129)

(325)

(247)

Income tax benefit (expense)

133

(5)

214

(5)

Manufacturing segment profit (loss)

$

(156)

$

168

$

(267)

$

248

Plus:

Engineering integration costs(A)

11

3

19

21

Restructuring of North American manufacturing operations(B)

38

—

38

—

Adjustments to pre-existing warranties(C)

104

27

227

36

Charges for non-conformance penalties(D)

10

—

10

—

Adjusted manufacturing segment profit

$

7

$

198

$

27

$

305

(A)  

Engineering integration costs relate to the consolidation of our truck and engine engineering operations, as well as the relocation of our world headquarters. For the three months ended April 30, 2012, the charges included restructuring charges of $20 million and other related costs of $9 million. The tax impact of the second quarter adjustments was income tax expense of $2 million. For the six months ended April 30, 2012, the charges included restructuring charges of $20 million and other related costs of $21 million. The tax impact of the first half adjustments was income tax benefit of $2 million. For the three and six months ended April 30, 2011, the charges included restructuring charges of $1 million and $19 million, respectively, and other related costs of $5 million and $7 million, respectively. For the three and six months ended April 30, 2011, the tax impact of the adjustments was income tax benefits of $2 million and $3 million, respectively. Our manufacturing operations, primarily our Truck segment, recognized charges of $11 million and $19 million relating to these actions in the three and six months ended April 30, 2012, respectively, compared to $3 million and $21 million in the three and six months ended April 30, 2011, respectively. For more information, see Note 2, Restructurings and Impairments, to the accompanying consolidated financial statements.

(B) 

Restructuring of North American manufacturing operations are charges primarily related to our ongoing restructuring plans related to our plans to close our Chatham, Ontario heavy truck plant and WCC chassis plant in Union City, Indiana, and to significantly scale back operations at our Monaco recreational vehicle headquarters and motor coach manufacturing plant in Coburg, Oregon. In the three and six months ended April 30, 2012, the charges included impairments of certain intangible assets of $38 million. The tax impact of the adjustments was an income tax benefit of $1 million. The Truck and Parts segments recognized charges of $28 million and $10 million, respectively. For more information, see Note 2, Restructurings and Impairments, to the accompanying consolidated financial statements.

(C)  

During the three and six months ended April 30, 2012, the Company incurred charges of $104 million and $227 million, respectively, for adjustments to pre-existing warranties. For the three and six months ended April 30, 2012, the tax impact of the adjustments was income tax expense of $34 million and income tax benefit of $8 million, respectively. During the three and six months ended April 30, 2011, the Company incurred charges of $27 million and $36 million, respectively. For the three and six months ended April 30, 2011, the tax impact of the adjustments was income tax benefits of $3 million and $4 million, respectively. For more information, see Note 1, Summary of Significant Accounting Policies, to the accompanying consolidated financial statements.

(D)   

In the three months ended April 30, 2012, the Company recorded charges totaling $10 million for NCPs for certain 13L engine sales that did not comply with emission standards, recognized in the Engine segment. The adjustment did not have a material impact on income taxes. For more information, see Note 12, Commitments and Contingencies, to the accompanying consolidated financial statements.

(E)  

In the three months ended April 30, 2012, we recognized an income tax benefit of $181 million from the release of a significant portion of our income tax valuation allowance on our Canadian deferred tax assets. For more information, see Note 9, Income Taxes, to the accompanying consolidated financial statements.

The above charges, A through D, have been adjusted to reflect the impact of income taxes which are calculated based on the respective periods estimated annual effective tax rate. The income tax impact of the second quarter adjustments reflects the impact of a change in the quarter to the Company's estimated annual effective tax rate. The change is the result of updates to the forecasted earnings and the jurisdictional mix. The tax impact of the adjustments may be adjusted for future changes in the estimated annual effective tax rate.