Navistar Reports Third Quarter 2020 Results

Summary of Financial Results:

(Unaudited)

Three Months Ended
July 31,

Nine Months Ended
July 31,

(in millions, except per share data)

2020

2019

2020

2019

Sales and revenues, net

$

1,675

$

3,042

$

5,438

$

8,471

Segment Results:

Truck

$

(22)

$

167

$

(131)

$

183

Parts

97

149

319

437

Global Operations

1

1

(12)

10

Financial Services

10

30

51

93

Loss from continuing operations, net of tax^(A)

$

(37)

$

156

$

(111)

$

119

Net income(loss)^(A)

(37)

156

(111)

119

Diluted (income) per share^(A)

(0.37)

1.56

(1.11)

1.20

________________

(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)

2020

2019

2020

2019

Sales and revenues

Sales of manufactured products, net

$

1,639

$

2,996

$

5,310

$

8,330

Finance revenues

36

46

128

141

Sales and revenues, net

1,675

3,042

5,438

8,471

Costs and expenses

Costs of products sold

1,388

2,501

4,541

6,973

Restructuring charges

4

—

5

1

Asset impairment charges

12

3

25

6

Selling, general and administrative expenses

141

167

493

726

Engineering and product development costs

73

81

237

242

Interest expense

71

76

199

243

Other expense, net

14

25

27

140

Total costs and expenses

1,703

2,853

5,527

8,331

Equity in income of non-consolidated affiliates

2

1

—

4

Income (loss) before income taxes

(26)

190

(89)

144

Income tax expense

(8)

(29)

(10)

(9)

Net income (loss)

(34)

161

(99)

135

Less: Net income attributable to non-controlling interests

3

5

12

16

Net income (loss) attributable to Navistar International Corporation

$

(37)

$

156

$

(111)

$

119

Net income (loss) per share attributable to Navistar International Corporation

Basic:

$

(0.37)

$

1.57

$

(1.11)

$

1.20

Diluted:

(0.37)

1.56

(1.11)

1.20

Weighted average shares outstanding:

Basic

99.7

99.4

99.6

99.2

Diluted

99.7

99.7

99.6

99.5

Navistar International Corporation and Subsidiaries

Consolidated Balance Sheets

July 31,

October 31,

(in millions, except per share data)

2020

2019

ASSETS

(Unaudited)

Current assets

Cash and cash equivalents

$

1,648

$

1,370

Restricted cash and cash equivalents

232

133

Trade and other receivables, net

266

338

Finance receivables, net

1,403

1,923

Inventories, net

896

911

Other current assets

247

277

Total current assets

4,692

4,952

Restricted cash

54

54

Trade and other receivables, net

8

10

Finance receivables, net

250

274

Investments in non-consolidated affiliates

30

31

Property and equipment (net of accumulated depreciation and amortization of $2,328 and $2,488, respectively)

1,241

1,309

Operating lease right of use assets

119

—

Goodwill

38

38

Intangible assets (net of accumulated amortization of $139 and $142, respectively)

20

25

Deferred taxes, net

115

117

Other noncurrent assets

108

107

Total assets

$

6,675

$

6,917

LIABILITIES and STOCKHOLDERS' DEFICIT

Liabilities

Current liabilities

Notes payable and current maturities of long-term debt

$

865

$

871

Accounts payable

1,154

1,341

Other current liabilities

1,096

1,363

Total current liabilities

3,115

3,575

Long-term debt

4,694

4,317

Postretirement benefits liabilities

2,013

2,103

Other noncurrent liabilities

681

645

Total liabilities

10,503

10,640

Stockholders' deficit

Series D convertible junior preference stock

2

2

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

10

10

Additional paid-in capital

2,726

2,730

Accumulated deficit

(4,333)

(4,409)

Accumulated other comprehensive loss

(2,100)

(1,912)

Common stock held in treasury, at cost (3.6 and 3.9 shares, respectively)

(135)

(147)

Total stockholders' deficit attributable to Navistar International Corporation

(3,830)

(3,726)

Stockholders' equity attributable to non-controlling interests

2

3

Total stockholders' deficit

(3,828)

(3,723)

Total liabilities and stockholders' deficit

$

6,675

$

6,917

Navistar International Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended July 31,

(in millions)

2020

2019

Cash flows from operating activities

Net income (loss)

$

(99)

$

135

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

103

99

Depreciation of equipment leased to others

43

45

Deferred taxes, including change in valuation allowance

(5)

(41)

Asset impairment charges

25

6

Gain on sales of investments and businesses, net

—

(56)

Amortization of debt issuance costs and discount

11

15

Stock-based compensation

14

20

Provision for doubtful accounts

13

8

Equity in (income) loss of non-consolidated affiliates, net of dividends

—

(3)

Write-off of debt issuance costs and discount

—

6

Other non-cash operating activities

(9)

(6)

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

36

(124)

Net cash provided by operating activities

132

104

Cash flows from investing activities

Maturities of marketable securities

—

98

Capital expenditures

(115)

(90)

Purchases of equipment leased to others

(69)

(130)

Proceeds from sales of property and equipment

11

12

Proceeds from sales of investments and businesses

10

100

Other investing activities

(4)

1

Net cash used in investing activities

(167)

(9)

Cash flows from financing activities

Proceeds from issuance of securitized debt

316

331

Principal payments on securitized debt

(45)

(300)

Net change in secured revolving credit facilities

(241)

120

Proceeds from issuance of non-securitized debt

622

144

Principal payments on non-securitized debt

(108)

(988)

Net change in notes and debt outstanding under revolving credit facilities

(90)

469

Debt issuance costs

(17)

(9)

Proceeds from financed lease obligations

—

13

Proceeds from exercise of stock options

3

3

Dividends paid by subsidiaries to non-controlling interest

(13)

(18)

Other financing activities

(2)

(2)

Net cash provided by (used in) financing activities

425

(237)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(13)

(7)

Increase (decrease) in cash, cash equivalents and restricted cash

377

(149)

Cash, cash equivalents and restricted cash at beginning of the period

1,557

1,445

Cash, cash equivalents and restricted cash at end of the period

$

1,934

$

1,296

(in millions)

Truck

Parts

Global
Operations

Financial
Services^(A)

Corporate
and
Eliminations

Total

Three Months Ended July 31, 2020

External sales and revenues, net

$

1,177

$

413

$

46

$

39

$

—

$

1,675

Intersegment sales and revenues

26

1

1

10

(38)

—

Total sales and revenues, net

$

1,203

$

414

$

47

$

49

$

(38)

$

1,675

Net income (loss) attributable to NIC

$

(22)

$

97

$

1

$

10

$

(123)

$

(37)

Income tax expense

—

—

—

—

(8)

(8)

Segment profit (loss)

$

(22)

$

97

$

1

$

10

$

(115)

$

(29)

Depreciation and amortization

$

27

$

1

$

1

$

16

$

2

$

47

Interest expense

—

—

—

16

55

71

Equity in income of non-consolidated affiliates

2

—

—

—

—

2

Capital expenditures^(B)

18

1

1

—

5

25

(in millions)

Truck

Parts

Global
Operations

Financial
Services^(A)

Corporate
and
Eliminations

Total

Three Months Ended July 31, 2019

External sales and revenues, net

$

2,342

$

569

$

82

$

46

$

3

$

3,042

Intersegment sales and revenues

45

2

8

28

(83)

—

Total sales and revenues, net

$

2,387

$

571

$

90

$

74

$

(80)

$

3,042

Net income (loss) attributable NIC

$

167

$

149

$

1

$

30

$

(191)

$

156

Income tax expense

—

—

—

—

(29)

(29)

Segment profit (loss)

$

167

$

149

$

1

$

30

$

(162)

$

185

Depreciation and amortization

$

26

$

1

$

3

$

16

$

1

$

47

Interest expense

—

—

—

27

49

76

Equity in income of non-consolidated affiliates

—

1

—

—

—

1

       Capital expenditures^(B)

17

2

1

—

4

24

(in millions)

Truck

Parts

Global
Operations

Financial
Services^(A)

Corporate
and
Eliminations

Total

Nine Months Ended July 31, 2020

External sales and revenues, net

$

3,800

$

1,347

$

154

$

135

$

2

$

5,438

Intersegment sales and revenues

34

3

12

35

(84)

—

Total sales and revenues, net

$

3,834

$

1,350

$

166

$

170

$

(82)

$

5,438

Net income (loss) attributable to NIC

$

(131)

$

319

$

(12)

$

51

$

(338)

$

(111)

Income tax expense

—

—

—

—

(10)

(10)

Segment profit (loss)

$

(131)

$

319

$

(12)

$

51

$

(328)

$

(101)

Depreciation and amortization

$

83

$

5

$

5

$

48

$

5

$

146

Interest expense

—

—

—

55

144

199

Equity in income (loss) of non-consolidated affiliates

(1)

1

—

—

—

—

       Capital expenditures^(B)

93

6

3

—

13

115

(in millions)

Truck

Parts

Global
Operations

Financial
Services^(A)

Corporate
and
Eliminations

Total

Nine Months Ended July 31, 2019

External sales and revenues, net

$

6,405

$

1,693

$

223

$

141

$

9

$

8,471

Intersegment sales and revenues

75

5

27

85

(192)

—

Total sales and revenues, net

$

6,480

$

1,698

$

250

$

226

$

(183)

$

8,471

Net income (loss) attributable to NIC

$

183

$

437

$

10

$

93

$

(604)

$

119

Income tax expense

—

—

—

—

(9)

(9)

Segment profit (loss)

$

183

$

437

$

10

$

93

$

(595)

$

128

Depreciation and amortization

$

78

$

4

$

7

$

48

$

7

$

144

Interest expense

—

—

—

83

160

243

Equity in income (loss) of non-consolidated affiliates

3

2

(1)

—

—

4

       Capital expenditures^(B)

69

3

2

2

14

90

_________________________

(A)   Total sales and revenues in the Financial Services segment include interest revenues of $29 million and $103 million for the three and nine months ended July 31, 2020, respectively, and $53 million and $161 million for the three and nine months ended July 31, 2019, respectively.

(B)   Exclusive of purchases of equipment leased to others.

(in millions)

Truck

Parts

Global

Operations

Financial

Services

Corporate

and

Eliminations

Total

Segment assets, as of:

July 31, 2020

$

1,721

$

641

$

202

$

2,285

$

1,826

$

6,675

October 31, 2019

1,705

688

296

2,774

1,454

6,917

Three Months Ended
July 31,

Nine Months Ended
July 31,

(in millions)

2020

2019

2020

2019

Net income(loss) attributable to NIC

$

(37)

$

156

$

(111)

$

119

Plus:

Depreciation and amortization expense

47

47

146

144

Manufacturing interest expense^(A)

55

49

144

160

Adjusted for:

Income tax (expense) benefit

(8)

(29)

(10)

(9)

EBITDA

$

73

$

281

$

189

$

432

______________________

(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)

2020

2019

2020

2019

Interest expense

$

71

$

76

$

199

$

243

Less:  Financial services interest expense

16

27

55

83

Manufacturing interest expense

$

55

$

49

$

144

$

160

Adjusted EBITDA Reconciliation:

Three Months Ended
July 31,

Nine Months Ended
July 31,

(in millions)

2020

2019

2020

2019

EBITDA (reconciled above)

$

73

$

281

$

189

$

432

Adjusted for significant items of:

Adjustments to pre-existing warranties^(A)

9

5

26

7

Asset impairment charges^(B)

12

3

25

6

Restructuring of manufacturing operations^(C)

4

—

5

1

MaxxForce Advanced EGR engine lawsuits^(D)

(1)

(31)

—

128

Gain (loss) on sales^(E)

—

3

—

(56)

Debt refinancing charges^(F)

—

6

—

6

Pension settlement^(G)

7

—

7

142

Settlement gain^(H)

—

(1)

(1)

(3)

Total adjustments

31

(15)

62

231

Adjusted EBITDA

$

104

$

266

$

251

$

663

Adjusted Net Income (Loss) attributable to NIC:

Three Months Ended
July 31,

Nine Months Ended
July 31,

(in millions)

2020

2019

2020

2019

Net income (loss) attributable to NIC

$

(37)

$

156

$

(111)

$

119

Adjusted for significant items of:

Adjustments to pre-existing warranties^(A)

9

5

26

7

Asset impairment charges^(B)

12

3

25

6

Restructuring of manufacturing operations^(C)

4

—

5

1

MaxxForce Advanced EGR engine lawsuits^(D)

(1)

(31)

—

128

Gain (loss) on sales^(E)

—

3

—

(56)

Debt refinancing charges^(F)

—

6

—

6

Pension settlement^(G)

7

—

7

142

Settlement gain^(H)

—

(1)

(1)

(3)

Total adjustments

31

(15)

62

231

Tax effect ^(I)

(2)

6

(2)

(41)

Adjusted net income (loss) attributable to NIC

$

(8)

$

147

$

(51)

$

309

_____________________

(A) 

Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available.

(B)

In the first nine months of 2020, we recorded $12 million of asset impairment charges related to long lived assets in our Brazil asset group in our Global Operations segment. In the third quarter and first nine months of 2020, we recorded $12 million and $13 million of asset impairment charges related to certain assets under operating leases in our Truck segment. In the third quarter and first nine months of 2019 we recorded $3 million and $6 million, respectively, of asset impairment charges related to certain assets under operating leases in our Truck segment.

(C)

In the third quarter of 2020, we recorded restructuring charges of $4 million and $5 million, respectively, due to restructuring activity throughout the organization. In the first nine months of 2019 we recorded a restructuring charge of $1 million in our Truck segment.

(D) 

In the third quarter and first nine months of 2020 and 2019, we recognized a net benefit of  $1 million and $31 million, respectively, related to the MaxxForce Advanced EGR engine class action settlement and related litigation in our Truck Segment. In the first nine months of 2019, we recognized a charge of $128 million related to the MaxxForce Advanced EGR engine class action settlement and related litigation in our Truck Segment.

(E)

In the third quarter of 2019, we recognized a charge of $3 million in our Truck segment for adjustments to the purchase price of the sale of a majority interest in the Navistar Defense business. In the first nine months of 2019, we recognized a gain of $51 million related to the sale of a majority interest in the Navistar Defense business in our Truck segment, and a gain of $5 million related to the sale of our joint venture in China with JAC in our Global Operations segment.

(F) 

In the third quarter and first nine months of 2019, we recorded a charge of $6 million for the write off of debt issuance costs and discounts associated with NFC Term Loan.

(G) 

In the third quarter and first nine months of 2020, we recorded pension settlement accounting charges of $7 million in Other expense, net in Corporate. In the first nine months of 2019, we purchased group annuity contracts for certain retired pension plan participants resulting in plan remeasurements. As a result, we recorded pension settlement accounting charges of $142 million in Other expense, net in Corporate.

(H) 

In the first nine months of 2020, we recorded interest income of $1 million, in Other expense, net derived from the prior year settlement of a business economic loss claim relating to our former Alabama engine manufacturing facility in Corporate. For the same claim, we recorded interest income in Other expense, net of $1 million and $3 million, for the third quarter and first nine months of 2019, respectively.

(I)

Tax effect is calculated by excluding the impact of the non-GAAP adjustments from the interim period tax provision calculations.

As of July 31, 2020

(in millions)

Manufacturing
Operations

Financial
Services
Operations

Consolidated
Balance Sheet

Total cash, cash equivalents, and marketable securities

$

1,610

$

38

$

1,648