Navistar Reports Third Quarter 2018 Results

Summary of Financial Results:

(Unaudited)

Three Months Ended
July 31,

Nine Months Ended
July 31,

(in millions, except per share data)

2018

2017

2018

2017

Sales and revenues, net

$

2,606

$

2,213

$

6,933

$

5,972

Segment Results:

Truck

$

165

$

7

$

200

$

(118)

Parts

144

157

413

459

Global Operations

4

3

(2)

(8)

Financial Services

23

23

62

51

Income (loss) from continuing operations, net of tax^(A)

$

170

$

36

$

152

$

(106)

Net income (loss)^(A)

170

37

152

(105)

Diluted income (loss) per share from continuing operations^(A)

$

1.71

$

0.37

$

1.53

$

(1.16)

Diluted income (loss) per share^(A)

1.71

0.38

1.53

(1.15)

_______________

(A)

Amounts attributable to Navistar International Corporation.

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)

2018

2017

2018

2017

Sales and revenues

Sales of manufactured products, net

$

2,566

$

2,178

$

6,815

$

5,870

Finance revenues

40

35

118

102

Sales and revenues, net

2,606

2,213

6,933

5,972

Costs and expenses

Costs of products sold

2,096

1,803

5,615

4,949

Restructuring charges

1

(13)

(1)

(4)

Asset impairment charges

8

6

11

13

Selling, general and administrative expenses

244

233

686

654

Engineering and product development costs

72

61

222

189

Interest expense

82

91

240

262

Other income, net

(77)

(8)

(37)

(7)

Total costs and expenses

2,426

2,173

6,736

6,056

Equity in income of non-consolidated affiliates

—

1

—

6

Income (loss) from continuing operations before income taxes

180

41

197

(78)

Income tax expense

(3)

—

(25)

(10)

Income (loss) from continuing operations

177

41

172

(88)

Income from discontinued operations, net of tax

—

1

—

1

Net income (loss)

177

42

172

(87)

Less: Net income attributable to non-controlling interests

7

5

20

18

Net income (loss) attributable to Navistar International Corporation

$

170

$

37

$

152

$

(105)

Amounts attributable to Navistar International Corporation common shareholders:

Income (loss) from continuing operations, net of tax

$

170

$

36

$

152

$

(106)

Income from discontinued operations, net of tax

—

1

—

1

Net income (loss)

$

170

$

37

$

152

$

(105)

Income (loss) per share:

Basic:

Continuing operations

$

1.72

$

0.37

$

1.54

$

(1.16)

Discontinued operations

—

0.01

—

0.01

$

1.72

$

0.38

$

1.54

$

(1.15)

Diluted:

Continuing operations

$

1.71

$

0.37

$

1.53

$

(1.16)

Discontinued operations

—

0.01

—

0.01

$

1.71

$

0.38

$

1.53

$

(1.15)

Weighted average shares outstanding:

Basic

99.0

98.3

98.8

91.1

Diluted

99.7

98.6

99.6

91.1

Navistar International Corporation and Subsidiaries

Consolidated Balance Sheets

July 31,

October 31,

(in millions, except per share data)

2018

2017

ASSETS

(Unaudited)

Current assets

Cash and cash equivalents

$

1,022

$

706

Restricted cash and cash equivalents

148

83

Marketable securities

95

370

Trade and other receivables, net

403

391

Finance receivables, net

1,638

1,565

Inventories, net

1,400

857

Other current assets

199

188

Total current assets

4,905

4,160

Restricted cash

52

51

Trade and other receivables, net

49

13

Finance receivables, net

259

220

Investments in non-consolidated affiliates

53

56

Property and equipment (net of accumulated depreciation and amortization of $2,468 and $2,474, respectively)

1,297

1,326

Goodwill

38

38

Intangible assets (net of accumulated amortization of $139 and $135, respectively)

30

40

Deferred taxes, net

130

129

Other noncurrent assets

111

102

Total assets

$

6,924

$

6,135

LIABILITIES and STOCKHOLDERS' DEFICIT

Liabilities

Current liabilities

Notes payable and current maturities of long-term debt

$

1,707

$

1,169

Accounts payable

1,527

1,292

Other current liabilities

1,075

1,184

Total current liabilities

4,309

3,645

Long-term debt

3,893

3,889

Postretirement benefits liabilities

2,378

2,497

Other noncurrent liabilities

678

678

Total liabilities

11,258

10,709

Stockholders' deficit

Series D convertible junior preference stock

2

2

Common stock, $0.10 par value per share (103.1 shares issued and 220 shares authorized at both dates)

10

10

Additional paid-in capital

2,731

2,733

Accumulated deficit

(4,781)

(4,933)

Accumulated other comprehensive loss

(2,138)

(2,211)

Common stock held in treasury, at cost (4.2 and 4.6 shares, respectively)

(163)

(179)

Total stockholders' deficit attributable to Navistar International Corporation

(4,339)

(4,578)

Stockholders' equity attributable to non-controlling interests

5

4

Total stockholders' deficit

(4,334)

(4,574)

Total liabilities and stockholders' deficit

$

6,924

$

6,135

Navistar International Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended July 31,

(in millions)

2018

2017

Cash flows from operating activities

Net income (loss)

$

172

$

(87)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

107

113

Depreciation of equipment leased to others

53

56

Deferred taxes, including change in valuation allowance

(3)

(16)

Asset impairment charges

11

13

Gain on sales of investments and businesses, net

—

(5)

Amortization of debt issuance costs and discount

23

36

Stock-based compensation

27

19

Provision for doubtful accounts

6

9

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

4

1

Write-off of debt issuance costs and discount

43

4

Other non-cash operating activities

(17)

(21)

Changes in other assets and liabilities, exclusive of the effects of businesses disposed

(606)

(290)

Net cash used in operating activities

(180)

(168)

Cash flows from investing activities

Purchases of marketable securities

(214)

(619)

Sales of marketable securities

460

586

Maturities of marketable securities

29

17

Net change in restricted cash and cash equivalents

(66)

(25)

Capital expenditures

(79)

(93)

Purchases of equipment leased to others

(142)

(96)

Proceeds from sales of property and equipment

9

32

Investments in non-consolidated affiliates

—

(2)

Proceeds from (payments for) sales of affiliates

(3)

6

Net cash used in investing activities

(6)

(194)

Cash flows from financing activities

Proceeds from issuance of securitized debt

32

278

Principal payments on securitized debt

(50)

(326)

Net change in secured revolving credit facilities

64

119

Proceeds from issuance of non-securitized debt

3,210

491

Principal payments on non-securitized debt

(2,669)

(368)

Net change in notes and debt outstanding under revolving credit facilities

(52)

23

Principal payments under financing arrangements and capital lease obligations

—

(1)

Debt issuance costs

(36)

(22)

Proceeds from financed lease obligations

48

49

Issuance of common stock

—

256

Stock issuance costs

—

(11)

Proceeds from exercise of stock options

7

4

Dividends paid by subsidiaries to non-controlling interest

(19)

(21)

Other financing activities

(17)

(3)

Net cash provided by financing activities

518

468

Effect of exchange rate changes on cash and cash equivalents

(16)

1

Increase in cash and cash equivalents

316

107

Cash and cash equivalents at beginning of the period

706

804

Cash and cash equivalents at end of the period

$

1,022

$

911

(in millions)

Truck

Parts

Global
Operations

Financial
Services^(A)

Corporate
and
Eliminations

Total

Three Months Ended July 31, 2018

External sales and revenues, net

$

1,894

$

603

$

68

$

40

$

1

$

2,606

Intersegment sales and revenues

22

2

21

25

(70)

—

Total sales and revenues, net

$

1,916

$

605

$

89

$

65

$

(69)

$

2,606

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

$

165

$

144

$

4

$

23

$

(166)

$

170

Income tax expense

—

—

—

—

(3)

(3)

Segment profit (loss)

$

165

$

144

$

4

$

23

$

(163)

$

173

Depreciation and amortization

$

31

$

2

$

3

$

14

$

1

$

51

Interest expense

—

—

—

22

60

82

Equity in income (loss) of non-consolidated affiliates

1

1

(2)

—

—

—

Capital expenditures^(B)

19

—

1

1

5

26

(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

Nine Months Ended July 31, 2018

External sales and revenues, net

$

4,810

$

1,768

$

229

$

118

$

8

$

6,933

Intersegment sales and revenues

61

6

38

69

(174)

—

Total sales and revenues, net

$

4,871

$

1,774

$

267

$

187

$

(166)

$

6,933

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

$

200

$

413

$

(2)

$

62

$

(521)

$

152

Income tax expense

—

—

—

—

(25)

(25)

Segment profit (loss)

$

200

$

413

$

(2)

$

62

$

(496)

$

177

Depreciation and amortization

$

100

$

5

$

8

$

41

$

6

$

160

Interest expense

—

—

—

64

176

240

Equity in income (loss) of non-consolidated affiliates

2

2

(4)

—

—

—

       Capital expenditures^(B)

74

1

2

1

1

79

(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

Corporate
and
Eliminations

Total

Segment assets, as of:

July 31, 2018

$

2,264

$

645

$

335

$

2,407

$

1,273

$

6,924

October 31, 2017

1,621

632

378

2,207

1,297

6,135

_________________________

(A)

Total sales and revenues in the Financial Services segment include interest revenues of $46 million and $131 million for the three and nine months ended July 31, 2018, respectively, and $45 million and $121 million for the three and nine months ended July 31, 2017, respectively.

(B)

Exclusive of purchases of equipment leased to others.

EBITDA reconciliation:

Three Months Ended
July 31,

Nine Months Ended
July 31,

(in millions)

2018

2017

2018

2017

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

$

170

$

36

$

152

$

(106)

Plus:

Depreciation and amortization expense

51

57

160

169

Manufacturing interest expense^(A)

60

67

176

197

Adjusted for:

Income tax expense

(3)

—

(25)

(10)

EBITDA

$

284

$

160

$

513

$

270

______________________

(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)

2018

2017

2018

2017

Interest expense

$

82

$

91

$

240

$

262

Less:  Financial services interest expense

22

24

64

65

Manufacturing interest expense

$

60

$

67

$

176

$

197

Adjusted EBITDA Reconciliation:

Three Months Ended
July 31,

Nine Months Ended
July 31,

(in millions)

2018

2017

2018

2017

EBITDA (reconciled above)

$

284

$

160

$

513

$

270

Adjusted for significant items of:

Adjustments to pre-existing warranties^(A)

(4)

6

(4)

(4)

Asset impairment charges^(B)

8

6

11

13

Restructuring of manufacturing operations^(C)

1

(3)

(1)

6

EGR product litigation^(D)

—

31

1

31

Gain on sale^(E)

—

(6)

—

(6)

Debt refinancing charges^(F)

—

—

46

4

Pension settlement^(G)

—

—

9

—

Settlement gain^(H)

(71)

—

(71)

—

Total adjustments

(66)

34

(9)

44

Adjusted EBITDA

$

218

$

194

$

504

$

314

_____________________

(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 2018, we recorded $8 million and $11 million, respectively, of impairment charges related to the sale of our railcar business in Cherokee, Alabama, certain long-lived assets and certain assets under operating leases in our Truck and Financial Services segments. In the third quarter and first nine months of 2017, we recorded $6 million and $13 million, respectively, of asset impairment charges relating to assets held for the sale of our Conway, Arkansas fabrication business and for certain assets under operating leases in our Truck segment.

(C)

In the third quarter and first nine months of 2018, we recorded a charge of $1 million and a benefit of $1 million, respectively, related to adjustments for restructuring in our Truck, Global Operations and Corporate segments. In the third quarter and first nine months of 2017, we recorded a benefit of $3 million and a charge of $6 million for restructuring in our Truck segment. In the third quarter of 2017, 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. 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 restructuring charges in our Truck and Corporate segments.

(D)

In the first nine months of 2018, we recognized an additional charge of $1 million for a jury verdict related to the Maxxforce engine EGR product litigation in our Truck segment. In the first nine months of 2017, we recognized a charge of $31 million for a jury verdict related to the Maxxforce engine EGR product 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 first nine months of 2018, we recorded a charge of $46 million for the write off of debt issuance costs and discounts associated with the repurchase of our 8.25% Senior Notes and the refinancing of our previously existing Term Loan. In the first nine months of 2017, we recorded a charge of $4 million related to third party fees and debt issuance costs associated with the repricing of our previously existing Term Loan.

(G)

In the first quarter of 2018, we purchased a group annuity contract for certain retired pension plan participants resulting in a plan remeasurement. As a result, we recorded a pension settlement accounting charge of $9 million in SG&A expenses.

(H)

In the third quarter of 2018, we settled a business economic loss claim relating to our Alabama engine manufacturing facility in which we will receive a net present value of $70 million, net of our fees and costs, from the Deepwater Horizon Settlement Program. We recorded the $70 million net present value of the settlement and related interest income of $1 million in Other Income, net.

Manufacturing segment cash, cash equivalents, and marketable securities reconciliation:

As of July 31, 2018

(in millions)

Manufacturing
Operations

Financial
Services
Operations

Consolidated
Balance Sheet

Assets

Cash and cash equivalents

$

989

$

33

$

1,022

Marketable securities

95

—

95

Total cash, cash equivalents, and marketable securities

$

1,084

$

33

$

1,117