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: December 17, 2020
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)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
||
Common Stock, par value $0.10 | NAV | New York Stock Exchange | ||
Cumulative convertible junior preference stock, Series D (par value $1.00) | NAV-PD | New York Stock Exchange |
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 17, 2020, Navistar International Corporation (the “Company”) filed its Annual Report on Form 10-K for the period ended October 31, 2020 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 release its fiscal 2020 fourth quarter financial results on Thursday, December 17th. Due to the pending merger proposal by TRATON SE, Navistar will not host a conference call. A copy of the slides containing financial and operating results are attached as Exhibit 99.2 to this Current Report and are incorporated by reference herein.
Navistar International Corporation (NYSE: NAV) is a holding company whose subsidiaries and affiliates produce International® brand commercial trucks, proprietary diesel engines, and IC Bus™ brand school and commercial buses. An affiliate also provides truck and diesel engine service parts. Another affiliate offers financing services. Additional information is available at www.Navistar.com.
ITEM 9.01 |
FINANCIAL STATEMENTS AND EXHIBITS |
(d) Exhibits
Exhibit No. |
Description of Exhibit |
|
99.1 | Press release, dated December 17, 2020, “Navistar Reports Fourth Quarter and Full Year 2020 Results” | |
99.2 | Slide Presentation for Fourth Quarter 2020 Financial Results | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Forward-Looking Statements
Information provided and statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this report and Navistar International Corporation 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, 2020. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NAVISTAR INTERNATIONAL CORPORATION | ||||
(Registrant) | ||||
By: |
/s/ Walter G. Borst |
|||
Name: | Walter G. Borst | |||
Title: |
Executive Vice President and Chief Financial Officer |
Dated: December 17, 2020
Exhibit 99.1
|
Navistar International Corporation 2701 Navistar Dr. Lisle, IL 60532 USA P: 331-332-5000 W: navistar.com |
Media contact: | Darwin Minnis, Darwin.Minnis@Navistar.com, 331-332-5243 | |
Investor contact: | Marty Ketelaar, Marty.Ketelaar@Navistar.com, 331-332-2706 | |
Web site: | www.Navistar.com/newsroom |
NAVISTAR REPORTS FOURTH QUARTER AND FULL-YEAR 2020 RESULTS
|
Reports fourth quarter net loss of $236 million, or $2.36 per diluted share, which reflects $297 million of tax-affected significant items; adjusted net income of $61 million on revenues of $2.1 billion |
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Reports a full-year net loss of $347 million, or $3.48 per diluted share, and adjusted net income of $10 million on revenues of $7.5 billion |
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Generates adjusted EBITDA of $169 million in the fourth quarter and $420 million in full-year 2020 |
|
Ends the fiscal year with $1.8 billion in consolidated cash and cash equivalents |
|
Announced definitive merger agreement with TRATON SE |
LISLE, Ill. December 17, 2020 Navistar International Corporation (NYSE: NAV) today announced a fourth quarter 2020 net loss of $236 million, or $2.36 per diluted share, compared to fourth quarter 2019 net income of $102 million, or $1.02 per diluted share. Navistar reported a net loss of $347 million, or $3.48 per diluted share for fiscal year 2020, versus net income of $221 million, or $2.22 per diluted share, for fiscal year 2019.
Revenues in the quarter were $2.1 billion versus $2.8 billion a year ago. Fourth quarter 2020 Core (Class 6-8 trucks and buses in the United States and Canada) charge outs were 13,200 versus 20,200 in fourth quarter 2019. Revenue for fiscal year 2020 was $7.5 billion versus $11.25 billion in 2019. Fiscal 2020 Core charge outs were 50,400 versus 87,200 in fiscal 2019. The decrease in revenue and charge outs was primarily driven by the impact of COVID-19 on the trucking industry.
Fourth quarter 2020 results were impacted by $297 million of tax-affected significant items. Included in this amount is a $289 million accrual related to a profit sharing dispute, a $58 million settlement with the Department of Justice related to Navistar Defense and a $14 million charge related to pre-existing warranties.
Adjusted net income for the fourth quarter was $61 million versus $114 million in the fourth quarter of last year. Adjusted net income for fiscal year 2020 was $10 million versus $423 million in 2019.
Fourth quarter 2020 adjusted EBITDA was $169 million versus $219 million one year ago. Fiscal year 2020 adjusted EBITDA was $420 million versus $882 million in 2019.
Navistar finished fourth quarter 2020 with $1.8 billion in consolidated cash and cash equivalents.
While our results were affected by the pandemic and the impact of certain legal matters, we have experienced consistent sequential improvement in our business since April, which reflects broader improvement in the economy and trucking industry as well as our business performance from the implementation of our Navistar 4.0 strategy, said Persio Lisboa, chief executive officer. I believe that the actions and investments we have made in the business during 2020 position us to emerge from the pandemic a much stronger company.
1
The company continued to make progress on Navistar 4.0, its multi-year strategic plan. Navistar 4.0 is focused on achieving sustained success through putting the customer at the core of the companys decision-making process, while increasing the companys EBITDA margins by four percentage points by 2025. The company launched a new version of its International HX Series severe service truck, the first new product developed under Project Compass. Navistar also continued to make progress on emerging technologies, announcing that it will deliver a full electrification solution, including charging, route planning and infrastructure, to a school bus customer in British Columbia. The company also conducted a successful West Coast tour of its electric school bus.
In connectivity, Navistar launched Intelligent Fleet Care, the industrys most comprehensive standard suite of connected vehicle solutions, which is standard for Navistars new on-highway vehicles. In addition to its Gateway Integrations partnerships now in place with seven leading telematics providers that enable customers to avoid hardware installation costs by using Navistars own factory-installed device, Intelligent Fleet Care adds additional solutions driven by vehicle performance and telematics data.
Navistar continues to make progress on capital investments that will help transform the companys manufacturing and supply footprint, including the Huntsville, Ala., plant, where the company will produce its next generation of big-bore powertrains, and its new manufacturing facility in San Antonio, Texas.
The most significant announcement during the fourth quarter was Navistars planned merger with TRATON SE. The merger will accelerate Navistars growth, providing it with access to new technologies, products and services while taking advantage of TRATONs global scale.
Despite the challenges of 2020, the company pressed ahead with new steps that position Navistar well for the future, including sustained investments in our business and products and important strategic partnerships in emerging technologies, said Lisboa. Looking forward, our exciting opportunity with TRATON will build further on this foundation, accelerating our progress and delivering long-term, sustainable benefits for our stakeholders.
2
SEGMENT REVIEW
Summary of Financial Results:
Quarters Ended
October 31, |
Years Ended
October 31, |
|||||||||||||||
(in millions, except per share data) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Sales and revenues, net |
$ | 2,065 | $ | 2,780 | $ | 7,503 | $ | 11,251 | ||||||||
Segment Results: |
||||||||||||||||
Truck |
$ | (10 | ) | $ | 86 | $ | (141 | ) | $ | 269 | ||||||
Parts |
129 | 161 | 448 | 598 | ||||||||||||
Global Operations |
12 | (10 | ) | | | |||||||||||
Financial Services |
14 | 30 | 65 | 123 | ||||||||||||
Income (loss) from continuing operations, net of tax(A) |
$ | (236 | ) | $ | 102 | $ | (347 | ) | $ | 221 | ||||||
Net income (loss)(A) |
(236 | ) | 102 | (347 | ) | 221 | ||||||||||
Diluted earnings (loss) per share(A) |
(2.36 | ) | 1.02 | (3.48 | ) | 2.22 |
(A) |
Amounts attributable to Navistar International Corporation. |
Truck Segment In fourth quarter 2020, the Truck segment net sales were $1.5 billion, a 30 percent decrease compared to fourth quarter last year. In fiscal year 2020, the Truck segment net sales decreased by $3.3 billion, or 38 percent, to $5.3 billion. The decrease was primarily due to lower volumes in Core markets due to the pandemic.
The Truck segment incurred a net loss of $10 million in fourth quarter 2020, compared to a profit of $86 million in fourth quarter 2019. For fiscal year 2020, the Truck segment incurred a net loss of $141 million, compared to profit of $269 million in full-year 2019. The decrease was a result of lower revenues and reflects the impact of legal settlements and the sale of Navistar Defense in 2019.
Parts Segment For fourth quarter 2020, the Parts segment net sales were $496 million, a nine percent decrease from fourth quarter 2019. In fiscal year 2020, the Parts segment net sales decreased by $399 million, or 18 percent, to $1.85 billion. The decrease was primarily due to lower volumes in the U.S. and Canada due to the pandemic.
The Parts segments saw a fourth quarter profit of $129 million, compared to $161 million in fourth quarter 2019. In fiscal year 2020, the Parts segment profit decreased by $150 million, or 25 percent, to $448 million. The decrease was due to the impact of lower revenues.
Global Operations Segment In fourth quarter 2020, the Global Operations segment net sales decreased six percent versus fourth quarter 2019 to $87 million. In fiscal year 2020, the Global Operations segment net sales decreased by $90 million, or 26 percent, to $253 million. The decrease was primarily driven by lower volumes in South American operations triggered by temporary production stoppages related to the pandemic as well as unfavorable foreign currency impact.
3
The Global Operation segment recorded a profit of $12 million in the fourth quarter of 2020 versus a loss of $10 million in fourth quarter 2019 that included a restructuring charge. In fiscal year 2020, the Global Operations segment recorded breakeven results comparable to 2019.
Financial Services Segment In fourth quarter 2020, the Financial Services segment net revenues decreased to $47 million, a 34 percent decrease from fourth quarter 2019. In fiscal year 2020, Financial Services segment net revenues were $217 million, a 27 percent decrease versus 2019. Revenues were lower in 2020 due to lower average yields from lower interest rates and lower average finance receivables on lower volumes.
The Financial Services segment recorded a profit of $14 million in the quarter, compared to $30 million in fourth quarter 2019. The Financial Services segment recorded a profit of $65 million in fiscal year 2020, a 47 percent decrease from 2019. The decrease was due to lower revenues, partially offset by lower interest expense resulting from lower borrowing requirements and rates.
About Navistar
Navistar International Corporation (NYSE: NAV) is a holding company whose subsidiaries and affiliates produce International® brand commercial 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 Section 27A of the Securities Act of 1933, as amended (Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this report and Navistar International Corporation 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 31,2020. 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.
4
Navistar International Corporation and Subsidiaries
Consolidated Statements of Operations
Quarters Ended
October 31, |
Years Ended
October 31, |
|||||||||||||||
(in millions, except per share data) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Sales and revenues |
||||||||||||||||
Sales of manufactured products, net |
$ | 2,025 | $ | 2,731 | $ | 7,335 | $ | 11,061 | ||||||||
Finance revenues |
40 | 49 | 168 | 190 | ||||||||||||
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|
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Sales and revenues, net |
2,065 | 2,780 | 7,503 | 11,251 | ||||||||||||
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Costs and expenses |
||||||||||||||||
Costs of products sold |
1,680 | 2,272 | 6,221 | 9,245 | ||||||||||||
Restructuring charges |
(3 | ) | 11 | 2 | 12 | |||||||||||
Asset impairment charges |
3 | 1 | 28 | 7 | ||||||||||||
Selling, general and administrative expenses |
528 | 208 | 1,021 | 934 | ||||||||||||
Engineering and product development costs |
84 | 77 | 321 | 319 | ||||||||||||
Interest expense |
69 | 69 | 268 | 312 | ||||||||||||
Other expense, net |
5 | 24 | 32 | 164 | ||||||||||||
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Total costs and expenses |
2,366 | 2,662 | 7,893 | 10,993 | ||||||||||||
Equity in income of non-consolidated affiliates |
2 | | 2 | 4 | ||||||||||||
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Income (loss) before income taxes |
(299 | ) | 118 | (388 | ) | 262 | ||||||||||
Income tax expense |
69 | (10 | ) | 59 | (19 | ) | ||||||||||
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Net income (loss) |
(230 | ) | 108 | (329 | ) | 243 | ||||||||||
Less: Net income attributable to non-controlling interests |
6 | 6 | 18 | 22 | ||||||||||||
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Net income (loss) attributable to Navistar International Corporation |
$ | (236 | ) | $ | 102 | $ | (347 | ) | $ | 221 | ||||||
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Net income (loss) per share attributable to Navistar International Corporate |
||||||||||||||||
Basic: |
$ | (2.36 | ) | $ | 1.03 | $ | (3.48 | ) | $ | 2.23 | ||||||
Diluted: |
(2.36 | ) | 1.02 | (3.48 | ) | 2.22 | ||||||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
99.8 | 99.4 | 99.7 | 99.3 | ||||||||||||
Diluted |
99.8 | 99.6 | 99.7 | 99.5 |
5
Navistar International Corporation and Subsidiaries
Consolidated Balance Sheets
As of October 31, | ||||||||
(in millions, except per share data) | 2020 | 2019 | ||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 1,843 | $ | 1,370 | ||||
Restricted cash and cash equivalents |
64 | 133 | ||||||
Trade and other receivables, net |
273 | 338 | ||||||
Finance receivables, net |
1,371 | 1,923 | ||||||
Inventories, net |
763 | 911 | ||||||
Other current assets |
263 | 277 | ||||||
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|
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Total current assets |
4,577 | 4,952 | ||||||
Restricted cash |
66 | 54 | ||||||
Trade and other receivables, net |
7 | 10 | ||||||
Finance receivables, net |
251 | 274 | ||||||
Investments in non-consolidated affiliates |
31 | 31 | ||||||
Property and equipment, net |
1,298 | 1,309 | ||||||
Operating lease right of use assets |
119 | | ||||||
Goodwill |
38 | 38 | ||||||
Intangible assets, net |
18 | 25 | ||||||
Deferred taxes, net |
117 | 117 | ||||||
Other noncurrent assets |
115 | 107 | ||||||
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Total assets |
$ | 6,637 | $ | 6,917 | ||||
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LIABILITIES and STOCKHOLDERS DEFICIT |
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Liabilities |
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Current liabilities |
||||||||
Notes payable and current maturities of long-term debt |
$ | 640 | $ | 871 | ||||
Accounts payable |
1,278 | 1,341 | ||||||
Other current liabilities |
1,453 | 1,363 | ||||||
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Total current liabilities |
3,371 | 3,575 | ||||||
Long-term debt |
4,690 | 4,317 | ||||||
Postretirement benefits liabilities |
1,705 | 2,103 | ||||||
Other noncurrent liabilities |
693 | 645 | ||||||
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Total liabilities |
10,459 | 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 |
(4,566 | ) | (4,409 | ) | ||||
Accumulated other comprehensive loss |
(1,865 | ) | (1,912 | ) | ||||
Common stock held in treasury, at cost (3.5 and 3.9 shares, respectively) |
(133 | ) | (147 | ) | ||||
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Total stockholders deficit attributable to Navistar International Corporation |
(3,826 | ) | (3,726 | ) | ||||
Stockholders equity attributable to non-controlling interests |
4 | 3 | ||||||
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Total stockholders deficit |
(3,822 | ) | (3,723 | ) | ||||
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Total liabilities and stockholders deficit |
$ | 6,637 | $ | 6,917 | ||||
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6
Navistar International Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Years Ended October 31, | ||||||||
(in millions) | 2020 | 2019 | ||||||
Cash flows from operating activities |
||||||||
Net income (loss) |
$ | (329 | ) | $ | 243 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
136 | 132 | ||||||
Depreciation of equipment leased to others |
63 | 61 | ||||||
Deferred taxes, including change in valuation allowance |
(80 | ) | (31 | ) | ||||
Asset impairment charges |
28 | 7 | ||||||
Gain on sales of investments and businesses, net |
| (56 | ) | |||||
Amortization of debt issuance costs and discount |
14 | 19 | ||||||
Stock-based compensation |
25 | 23 | ||||||
Provision for doubtful accounts, net of recoveries |
16 | 4 | ||||||
Equity in income of non-consolidated affiliates, net of dividends |
(2 | ) | (2 | ) | ||||
Write-off of debt issuance cost and discount |
5 | 6 | ||||||
Other non-cash operating activities |
(5 | ) | (9 | ) | ||||
Changes in other assets and liabilities, exclusive of the effects of businesses disposed: |
||||||||
Trade and other receivables |
36 | 141 | ||||||
Finance receivables |
490 | (42 | ) | |||||
Inventories |
136 | 103 | ||||||
Accounts payable |
(77 | ) | (250 | ) | ||||
Other assets and liabilities |
18 | 101 | ||||||
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Net cash provided by operating activities |
474 | 450 | ||||||
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Cash flows from investing activities |
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Purchases of marketable securities |
| | ||||||
Sales of marketable securities |
| | ||||||
Maturities of marketable securities |
| 102 | ||||||
Capital expenditures |
(148 | ) | (134 | ) | ||||
Purchases of equipment leased to others |
(97 | ) | (152 | ) | ||||
Proceeds from sales of property and equipment |
13 | 14 | ||||||
Investments in non-consolidated affiliates |
(5 | ) | | |||||
Proceeds from (payments for) sales of affiliates |
19 | 100 | ||||||
Other investing activities |
1 | 2 | ||||||
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Net cash used in investing activities |
(217 | ) | (68 | ) | ||||
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Cash flows from financing activities |
||||||||
Proceeds from issuance of securitized debt |
389 | 363 | ||||||
Principal payments on securitized debt |
(352 | ) | (316 | ) | ||||
Net change in secured revolving credit facilities |
(255 | ) | 12 | |||||
Proceeds from issuance of non-securitized debt |
847 | 209 | ||||||
Principal payments on non-securitized debt |
(341 | ) | (1,044 | ) | ||||
Net change in notes and debt outstanding under revolving credit facilities |
(74 | ) | 527 | |||||
Debt issuance costs |
(18 | ) | (9 | ) | ||||
Proceeds from financed lease obligations |
| 22 | ||||||
Proceeds from exercise of stock options |
4 | 4 | ||||||
Dividends paid by subsidiaries to non-controlling interest |
(17 | ) | (24 | ) | ||||
Other financing activities |
(2 | ) | (2 | ) | ||||
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Net cash provided by (used in) financing activities |
181 | (258 | ) | |||||
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Effect of exchange rate changes on cash, cash equivalents and restricted cash |
(22 | ) | (12 | ) | ||||
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Increase in cash, cash equivalents and restricted cash |
416 | 112 | ||||||
Cash, cash equivalents and restricted cash at beginning of the year |
1,557 | 1,445 | ||||||
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Cash, cash equivalents and restricted cash at end of the year |
$ | 1,973 | $ | 1,557 | ||||
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7
Navistar International Corporation and Subsidiaries
Segment Reporting
We define segment profit (loss) as net income (loss) 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 | ||||||||||||||||||
Quarter Ended October 31, 2020 |
||||||||||||||||||||||||
External sales and revenues, net |
$ | 1,440 | $ | 495 | $ | 89 | $ | 42 | $ | (1 | ) | $ | 2,065 | |||||||||||
Intersegment sales and revenues |
38 | 1 | (2 | ) | 5 | (42 | ) | | ||||||||||||||||
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Total sales and revenues, net |
$ | 1,478 | $ | 496 | $ | 87 | $ | 47 | $ | (43 | ) | $ | 2,065 | |||||||||||
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Net income (loss) attributable to NIC |
$ | (10 | ) | $ | 129 | $ | 12 | $ | 14 | $ | (381 | ) | $ | (236 | ) | |||||||||
Income tax expense |
| | | | 69 | 69 | ||||||||||||||||||
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Segment profit (loss) |
$ | (10 | ) | $ | 129 | $ | 12 | $ | 14 | $ | (450 | ) | $ | (305 | ) | |||||||||
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Depreciation and amortization |
$ | 31 | $ | | $ | 1 | $ | 17 | $ | 1 | $ | 50 | ||||||||||||
Interest expense |
| | | 14 | 55 | 69 | ||||||||||||||||||
Equity in income of non-consolidated affiliates |
2 | | | | | 2 | ||||||||||||||||||
Capital expenditures(B) |
31 | 2 | | | | 33 |
(in millions) | Truck | Parts |
Global
Operations |
Financial
Services(A) |
Corporate
and Eliminations |
Total | ||||||||||||||||||
Quarter Ended October 31, 2019 |
||||||||||||||||||||||||
External sales and revenues, net |
$ | 2,096 | $ | 546 | $ | 86 | $ | 52 | $ | | $ | 2,780 | ||||||||||||
Intersegment sales and revenues |
9 | 1 | 7 | 19 | (36 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total sales and revenues, net |
$ | 2,105 | $ | 547 | $ | 93 | $ | 71 | $ | (36 | ) | $ | 2,780 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) attributable NIC |
$ | 86 | $ | 161 | $ | (10 | ) | $ | 30 | $ | (165 | ) | $ | 102 | ||||||||||
Income tax expense |
| | | | (10 | ) | (10 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Segment profit (loss) |
$ | 86 | $ | 161 | $ | (10 | ) | $ | 30 | $ | (155 | ) | $ | 112 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Depreciation and amortization |
$ | 26 | $ | 1 | $ | 4 | $ | 16 | $ | 2 | $ | 49 | ||||||||||||
Interest expense |
| | | 22 | 47 | 69 | ||||||||||||||||||
Equity in income of non-consolidated affiliates |
(1 | ) | 1 | | | | | |||||||||||||||||
Capital expenditures(B) |
32 | 4 | | | 8 | 44 |
8
(in millions) | Truck | Parts |
Global
Operations |
Financial
Services(A) |
Corporate
and Eliminations |
Total | ||||||||||||||||||
Year Ended October 31, 2020 |
||||||||||||||||||||||||
External sales and revenues, net |
$ | 5,240 | $ | 1,841 | $ | 242 | $ | 177 | $ | 3 | $ | 7,503 | ||||||||||||
Intersegment sales and revenues |
72 | 5 | 11 | 40 | (128 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total sales and revenues, net |
$ | 5,312 | $ | 1,846 | $ | 253 | $ | 217 | $ | (125 | ) | $ | 7,503 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from continuing operations attributable to NIC, net of tax |
$ | (141 | ) | $ | 448 | $ | | $ | 65 | $ | (719 | ) | $ | (347 | ) | |||||||||
Income tax expense |
| | | | 59 | 59 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Segment profit (loss) |
$ | (141 | ) | $ | 448 | $ | | $ | 65 | $ | (778 | ) | $ | (406 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Depreciation and amortization |
$ | 116 | $ | 6 | $ | 6 | $ | 65 | $ | 6 | $ | 199 | ||||||||||||
Interest expense |
| | | 69 | 199 | 268 | ||||||||||||||||||
Equity in income (loss) of non-consolidated affiliates |
1 | 1 | | | | 2 | ||||||||||||||||||
Capital expenditures(B) |
124 | 8 | 3 | | 13 | 148 | ||||||||||||||||||
(in millions) | Truck | Parts |
Global
Operations |
Financial
Services(A) |
Corporate
and Eliminations |
Total | ||||||||||||||||||
Year Ended October 31, 2019 |
||||||||||||||||||||||||
External sales and revenues, net |
$ | 8,501 | $ | 2,239 | $ | 309 | $ | 193 | $ | 9 | $ | 11,251 | ||||||||||||
Intersegment sales and revenues |
84 | 6 | 34 | 104 | (228 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total sales and revenues, net |
$ | 8,585 | $ | 2,245 | $ | 343 | $ | 297 | $ | (219 | ) | $ | 11,251 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from continuing operations attributable to NIC, net of tax |
$ | 269 | $ | 598 | $ | | $ | 123 | $ | (769 | ) | $ | 221 | |||||||||||
Income tax expense |
| | | | (19 | ) | (19 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Segment profit (loss) |
$ | 269 | $ | 598 | $ | | $ | 123 | $ | (750 | ) | $ | 240 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Depreciation and amortization |
$ | 104 | $ | 5 | $ | 11 | $ | 64 | $ | 9 | $ | 193 | ||||||||||||
Interest expense |
| | | 105 | 207 | 312 | ||||||||||||||||||
Equity in income (loss) of non-consolidated affiliates |
2 | 3 | (1 | ) | | | 4 | |||||||||||||||||
Capital expenditures(B) |
101 | 7 | 2 | 2 | 22 | 134 |
(A) |
Total sales and revenues in the Financial Services segment include interest revenues of $130 million and $208 million for the years ended October 31, 2020, and 2019 respectively. |
(B) |
Exclusive of purchases of equipment leased to others and liabilities related to capital expenditures. |
(in millions) | Truck | Parts |
Global
Operations |
Financial
Services |
Corporate
and Eliminations |
Total | ||||||||||||||||||
Segment assets, as of: |
||||||||||||||||||||||||
October 31, 2020 |
$ | 1,619 | $ | 663 | $ | 216 | $ | 2,191 | $ | 1,948 | $ | 6,637 | ||||||||||||
October 31, 2019 |
1,705 | 688 | 296 | 2,774 | 1,454 | 6,917 |
9
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 and Adjusted Net Income (loss):
We believe that adjusted EBITDA and Adjusted Net Income (loss), 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 and Cash Equivalents:
Manufacturing cash and cash equivalents represent the Companys consolidated cash and cash equivalents excluding cash and cash equivalents of our financial services operations. 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:
Quarters Ended
October 31, |
Years Ended
October 31, |
|||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Net loss attributable to NIC |
$ | (236 | ) | $ | 102 | $ | (347 | ) | $ | 221 | ||||||
Plus: |
||||||||||||||||
Depreciation and amortization expense |
53 | 49 | 199 | 193 | ||||||||||||
Manufacturing interest expense(A) |
55 | 47 | 199 | 207 | ||||||||||||
Less: |
||||||||||||||||
Income tax (expense) benefit |
69 | (10 | ) | 59 | (19 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
EBITDA |
$ | (197 | ) | $ | 208 | $ | (8 | ) | $ | 640 | ||||||
|
|
|
|
|
|
|
|
(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. |
Quarters Ended
October 31, |
Years Ended
October 31, |
|||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Interest expense |
$ | 69 | $ | 69 | $ | 268 | $ | 312 | ||||||||
Less: Financial services interest expense |
14 | 22 | 69 | 105 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Manufacturing interest expense |
$ | 55 | $ | 47 | $ | 199 | $ | 207 | ||||||||
|
|
|
|
|
|
|
|
10
Adjusted EBITDA Reconciliation:
Quarters Ended
October 31, |
Years Ended
October 31, |
|||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
EBITDA (reconciled above) |
$ | (197 | ) | $ | 208 | $ | (8 | ) | $ | 640 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted for significant items of: |
||||||||||||||||
Adjustments to pre-existing warranties(A) |
14 | (4 | ) | 40 | 3 | |||||||||||
Asset impairment charges(B) |
3 | 1 | 28 | 7 | ||||||||||||
Restructuring of manufacturing operations(C) |
(3 | ) | 13 | 2 | 14 | |||||||||||
MaxxForce Advanced EGR engine lawsuits(D) |
| 1 | | 129 | ||||||||||||
Legal settlement (E) |
58 | | 58 | | ||||||||||||
Shy profit-sharing accrual(F) |
289 | | 289 | | ||||||||||||
Gain (loss) on sales(G) |
| | | (56 | ) | |||||||||||
Debt refinancing charges(H) |
5 | | 5 | 6 | ||||||||||||
Pension settlement(I) |
| | 7 | 142 | ||||||||||||
Settlement gain(J) |
| | (1 | ) | (3 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total adjustments |
366 | 11 | 428 | 242 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
$ | 169 | $ | 219 | $ | 420 | $ | 882 | ||||||||
|
|
|
|
|
|
|
|
Adjusted Net Income (Loss) attributable to NIC:
Quarters Ended
October 31, |
Years Ended
October 31, |
|||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Net loss attributable to NIC |
$ | (236 | ) | $ | 102 | $ | (347 | ) | $ | 221 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted for significant items of: |
||||||||||||||||
Adjustments to pre-existing warranties(A) |
14 | (4 | ) | 40 | 3 | |||||||||||
Asset impairment charges(B) |
3 | 1 | 28 | 7 | ||||||||||||
Restructuring of manufacturing operations(C) |
(3 | ) | 13 | 2 | 14 | |||||||||||
MaxxForce Advanced EGR engine lawsuits(D) |
| 1 | | 129 | ||||||||||||
Legal settlement(E) |
58 | | 58 | | ||||||||||||
Shy profit-sharing accrual(F) |
289 | | 289 | | ||||||||||||
Gain on sales(G) |
| | | (56 | ) | |||||||||||
Debt refinancing charges(H) |
5 | | 5 | 6 | ||||||||||||
Pension settlement(I) |
| | 7 | 142 | ||||||||||||
Settlement gain(J) |
| | (1 | ) | (3 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total adjustments |
366 | 11 | 428 | 242 | ||||||||||||
Tax effect (K) |
(69 | ) | 1 | (71 | ) | (40 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted net income (loss) attributable to NIC |
$ | 61 | $ | 114 | $ | 10 | $ | 423 | ||||||||
|
|
|
|
|
|
|
|
(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 2020, we recorded $28 million of asset impairment charges, comprised of $16 million of asset impairment charges related to certain assets under operating leases and certain other long-lived assets in our Truck segment and $12 million of asset impairment charges related to long-lived assets in our Brazil asset group in our Global Operations segment. During 2019, we recorded $7 million of asset impairment charges relating to certain assets under operating leases in our Truck segment. |
11
(C) |
During 2020, we recorded net restructuring charges of $2 million due to restructuring activity throughout the organization. During 2019, we recorded charges of $14 million primarily related to cost reduction actions recorded in Costs of product sold and Restructuring charges in our Global Operations segment. |
(D) |
During 2019, we recognized a net charge of $129 million related to the MaxxForce Advanced EGR engine class action settlement and related litigation in our Truck segment. |
(E) |
During 2020, we recorded a charge of $58 million, including $8 million of legal and other fees, related to a proposed legal settlement with the Department of Justice, related to Navistar Defense. |
(F) |
During 2020, we recorded a charge of $289 million related to the Shy profit-sharing accrual. |
(G) |
During 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. |
(H) |
During 2020 we recorded a charge of $5 million for the write-off of debt issuance costs and discounts associated with the 6.75% Tax Exempt Bonds. During 2019, we recorded a charge of $6 million for the write-off of debt issuance costs and discounts associated with the NFC Term Loan. |
(I) |
During 2020 and 2019, we purchased group annuity contracts for certain retired pension plan participants resulting in plan remeasurements. As a result, we recorded pension settlement charges of $7 million and $142 million, respectively, in Other expense, net in Corporate. |
(J) |
During 2020 and 2019, we recorded interest income of $1 million and $3 million, respectively, in Other expense, net derived from the prior year settlement of a business economic loss claim. |
(K) |
Tax effect is calculated by excluding the tax impact of the non-GAAP adjustments from the tax provision calculations. |
12
Q4 2020 EARNINGS PRESENTATION December 17, 2020 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 Section 27A of the Securities Act of 1933, as amended ("Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this presentation and the company 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 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, 2020. 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. 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.
Fourth Quarter 2020 Summary Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Operating results improved sequentially, reflecting stronger economic and truck industry conditions Q4 net loss of $236 million includes $297 million of tax-effected significant items, resulting in adjusted net income of $61 million Generated Q4 adjusted EBITDA of $169 million and manufacturing free cash flow of $229 million Ended the year with manufacturing cash of $1.75 billion Launched new International HX severe service truck series in November Announced hydrogen fuel cell development project with Cummins Signed definitive merger agreement with TRATON
Tremendous business accomplishments despite COVID-19 pandemic Effectively maintained employee health and safety through enhanced protocols Broke ground on capital investments in San Antonio and Huntsville Formed new partnerships to provide customer solutions for emerging technologies Plans to announce a new product every six months for the next three years Financial results improved in second half of 2020 Improved adjusted EBITDA each quarter of the year Achieved adjusted EBITDA margin of 8.2% in fourth quarter Generated $383 million of manufacturing free cash flow in the second half of 2020 Market share built momentum and improved sequentially during 2020 Bus share up 2 points to 37.8%, second consecutive year as market leader Severe Service share rose 1 point to 15.8% 2020 Accomplishments Note:This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation.
Fourth Quarter and Annual 2020 Consolidated Results ($ 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. Includes U.S. and Canada School buses and Class 6-8 trucks. Amounts attributable to Navistar International Corporation. Q4 2020 results include $297 million of tax-affected significant items. See REG G for more details.
Fourth Quarter 2020 Segment Results ($ in millions) During Q4 2020, the Truck segment recorded a charge of $58 million, including $8 million of legal and other fees, related to the Department of Justice litigation settlement. (A) Sales and Revenues Segment Profit (Loss) Quarters Ended October 31 Quarters Ended October 31 2020 2019 2020 2019 Truck $1,478 $2,105 $-10 $86 Parts 496 547 129 161 Global Operations 87 93 12 -10 Financial Services 47 71 14 30
Annual 2020 Segment Results ($ in millions) (A) (B) During 2020, the Truck segment recorded a charge of $58 million, including $8 million of legal and other fees, related to the Department of Justice litigation settlement. During 2019, the Truck segment recognized a net charge of $129 million related to the MaxxForce Advanced EGR engine class action settlement and related litigation, and a gain of $51 million related to the sale of a majority interest in the Navistar Defense business. Sales and Revenues Segment Profit (Loss) Years Ended October 31 Years Ended October 31 2020 2019 2020 2019 Truck $5,312 $8,585 $-,141 $269 Parts 1,846 2,245 448 598 Global Operations 253 343 0 0 Financial Services 217 297 65 123
Strong Cash Balance, No Near-Term Manufacturing Debt Maturities ($ in millions) Manufacturing Cash Balance(A) Manufacturing Debt Maturities(B) Note: This slide contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation. Amounts include manufacturing cash and cash equivalents. Q4 2020 ending consolidated equivalent cash balance was $1.8 billion. Amounts exclude restricted cash. Total manufacturing debt of $3.5 billion as of October 31, 2020. Graph does not include financed lease obligations and other, totaling $54 million. 9.5% Senior Secured Notes Senior Secured Term Loan $2,150
Appendix
Days Sales Inventory On-Hand Normal range is 80-120 days inventory on hand Includes US and Canada Class 6-8 company and dealer truck inventory, but does not include IC Bus *Calculation is based on the 3-month rolling average of inventory-to-retail sales ratio 100 Days
Retail Market Share in Commercial Vehicle Segments Class 6/7 Medium-Duty Class 8 Severe Service Class 8 Heavy Years Ended October 31, 2020 2019 2018 Core Markets (U.S. and Canada) School buses…........................…............ 0.378 0.35799999999999998 0.33200000000000002 Class 6 and 7 medium trucks…............ 0.21 0.27 0.23300000000000001 Class 8 heavy trucks…............................ 9.5% 0.13800000000000001 0.13700000000000001 Class 8 severe service trucks.…........... 0.158 0.14799999999999999 0.129 Combined class 8 trucks….................... 0.114 0.14099999999999999 0.13500000000000001
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. Other markets primarily consist of Class 4/5 vehicles, Export Truck, Mexico, and post-sale Navistar Defense. Other markets include certain Class 4/5 vehicle chargeouts of 2,600 and 3,000 General Motors ("GM")-branded units sold to GM for the quarters ended October 31, 2020 and 2019, respectively, and 7,300 and 9,000 for the years ended October 31, 2020 and 2019, respectively. Three Months Ended October 31, % Years Ended October 31, % 2020 2019 Change Change 2020 2019 Change Change Core Markets (U.S. and Canada) School buses 3,000 3,300 -,300 -9.0909090909090912E-2 11,100 13,000 -1,900 -0.14615384615384616 Class 6 and 7 medium trucks 3,100 5,800 -2,700 -0.46551724137931033 15,400 29,200 ,-13,800 -0.4726027397260274 Class 8 heavy trucks 4,600 7,300 -2,700 -0.36986301369863012 13,700 33,100 ,-19,400 -0.58610271903323263 Class 8 severe service trucks 2,500 3,800 -1,300 -0.34210526315789475 10,200 11,900 -1,700 -0.14285714285714285 Total Core markets 13,200 20,200 -7,000 -0.34653465346534651 50,400 87,200 ,-36,800 -0.42201834862385323 Non "Core" defense - 0 - N/A 0 100 -,100 -1 Other markets(A) 4,500 5,000 -,500 -0.1 15,600 19,200 -3,600 -0.1875 Total worldwide units 17,700 25,200 -7,500 -0.29761904761904762 66,000 ,106,500 ,-40,500 -0.38028169014084506 Combined class 8 trucks 7,100 11,100 -4,000 -0.36036036036036034 23,900 45,000 ,-21,100 -0.46888888888888891
Financial Services Segment Highlights Financial Services segment profit of $14M for Q4 2020 and $65M 2020 Segment financing availability of $814M as of October 31, 2020 Financial Services debt/equity leverage of 2.8:1 as of October 31, 2020 Repaid $300M two-year dealer funding notes that matured in September 2020 Retail Notes Bank Facilities Dealer Floor Plan Bank revolver capacity of $748M matures May 2024 Funding for retail notes, wholesale notes, retail accounts, and dealer open accounts $200M TRAC Facility extended to June 2021 On balance sheet NFSC wholesale trust as of October 31, 2020 $950M funding facility Variable portion matures May 2021 Term portions mature May 2021 and July 2022 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 NFC(1) Facilities 1 Navistar Financial Corporation (NFC) is the U.S. financial entity of Navistar’s Financial Services segment.
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 and profit sharing, manufacturing interest expense, and the elimination of intercompany sales and profit between segments. Q2: What is included in your equity in income of non-consolidated affiliates? A:Equity in income of non-consolidated affiliates is derived from the 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 the company does 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 2021 and beyond pension funding requirements? A: In 2020 and 2019, we contributed $35 million and $140 million, respectively, to our U.S. and Canadian pension plans (the "Plans") to meet regulatory minimum funding requirements. In 2020, we deferred $157 million of previously expected contributions until the first quarter of 2021 under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). In 2021 we expect to contribute approximately $320 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, and the impact of any future funding relief. We currently expect that in 2022 and 2023, we will be required to contribute approximately $170 million and $160 million per year, respectively, depending on asset performance and discount rates. Q5:What is your expectation for future cash tax payments? A:Cash tax payments are expected to remain low in 2021 and could gradually increase as the company utilizes 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, 2020, the Company had deferred tax assets for U.S. federal NOLs valued at $495 million, state NOLs valued at $165 million, and foreign NOLs valued at $141 million, for a total undiscounted cash value of $801 million. In addition to NOLs, the Company had deferred tax assets for accumulated tax credits of $183 million and other deferred tax assets of $1.2 billion resulting in net deferred tax assets before valuation allowances of approximately $2.2 billion. Of this amount, $2.0 billion was subject to a valuation allowance at the end of FY2020. Q7:What adjustments do you make to the ACT forecast to align with company’s presentation? 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. Reconciliation to ACT – Retail Sales 2021 ACT* 271,400 CY to FY adjustment (6,400) “Other Specialty OEMs” included in ACT’s forecast; we do not include these specialty OEMs in our forecast or in our internal/external reports (4,500) Total (ACT comparable Class 8 Navistar) 260,500 *Source: ACT N.A. Commercial Vehicle Outlook – December 2020
Q10: What is your revenue by product type(A)? A: ___________________________ Includes other markets primarily consisting of Bus, Export Truck and Mexico. Retail financing and Wholesale financing revenues in the Financial Services segment include interest revenue of $58 million and $31 million, respectively, for the year ended October 31, 2020. Frequently Asked Questions Q9: How do you define manufacturing free cash flow? A: ___________________________ Net of adjustments required to eliminate certain intercompany transactions between Manufacturing operations and Financial Services operations. Year Ended Quarters Ended Qtr Ended Qtr Ended ($ in millions) Oct. 31 2020 Oct. 31, 2020 Jul. 31, 2020 Apr 30, 2020 Jan. 31, 2020 Oct. 31, 2016 Jul. 31, 2016 Consolidated Net Cash from Operating Activities $474 $342 $250 $-,217 $99 $346 $281 $90 Less: Net Cash from Financial Services Operations 544 80 71 -17 410 142 -3 95 Net Cash from Manufacturing Operations(A) ....................... -70 262 179 -,200 -,311 204 284 -5 Less: Capital Expenditures 148 33 25 31 59 44 -32 -29 Manufacturing Free Cash Flow $-,218 $229 $154 $-,231 $-,370 $160 $252 $-34 ($ in millions) Truck Parts Global Operations Financial Services Corporate and Eliminations Total Three Months Ended October 31, 2020 Truck products and services(A) $ 1218 $ — $ — $ — $ 3 $ 1221 Truck contract manufacturing 129 — — — — 129 Used trucks 64 — — — — 64 Engines — 51 72 — — 123 Parts 1 443 16 — — 460 Extended warranty contracts 28 — — — — 28 Sales of manufactured products, net 1440 494 88 — 3 2025 Retail financing(B) — — — 35 -2 33 Wholesale financing(B) — — — 7 — 7 Financial revenues — — — 42 -2 40 Sales and revenues, net $ 1440 $ 494 $ 88 $ 42 $ 1 $ 2065
Outstanding Debt Balances($ in millions)October 31, 2020October 31, 2019Financial Services operationsAsset-backed debt issued by consolidated SPEs, at fixed and variable rates, due serially through 2022, net of unamortized debt issuance costs of $3 and $4, respectively$ 724$991Bank credit facilities, at fixed and variable rates, due dates from 2020 through 2025, net of unamortized debt issuance costs of less than $1 at both dates9401,059Commercial paper, at variable rates, program matures in 2022-84Borrowings secured by operating and finance leases, at various rates, due serially through 2024170122Total Financial Services operations debt……………………………………………………………………………….….1,8342,256Less: Current portion595839Net long-term Financial Services operations debt……………………………………………………………….…..$1,239$1,417
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 plus manufacturing interest expense, income taxes, and depreciation and amortization. We believe EBITDA provides meaningful information as 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 Net Income and Adjusted EBITDA: We believe that adjusted net income and 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 and Cash Equivalents Manufacturing cash and cash equivalents and free cash flow represents the Company’s consolidated cash and cash equivalents excluding cash and cash equivalents, of our financial services operations. 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. Manufacturing Free Cash Flow consists of Net cash from operating activities and Capital Expenditures, all from our Manufacturing operations Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by Sales and revenues, net.
SEC Regulation G Non-GAAP Reconciliation Manufacturing Operations Cash and Cash Equivalents Reconciliation:
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 22. Quarters Ended October 31, Years Ended October 31, (in millions) 2020 2019 2020 2019 EBITDA (reconciled above) $ -,197 $ 208 $ -8 $ 640 Adjusted for significant items of: Adjustments to pre-existing warranties (A) 14 -4 40 3 Asset impairment charges (B) 3 1 28 7 Restructuring of manufacturing operations (C) -3 13 2 14 MaxxForce Advanced EGR engine lawsuits (D) — 1 — 129 Legal settlements (E) 58 — 58 — Shy profit-sharing accrual (F) 289 — 289 — Gain on sale (G) — — — -56 Debt refinancing charges (H) 5 — 5 6 Pension settlement (I) — — 7 142 Settlement gain (J) — — -1 -3 Total adjustments 366 11 428 242 Adjusted EBITDA $ 169 $ 219 $ 420 $ 882 Adjusted EBITDA Margin 8.2% 7.9% 5.6% 7.8% Quarters Ended October 31, Years Ended October 31, (in millions) 2020 2019 2013 2020 2019 Income attributable to NIC, net of tax $ -236 $ 102 $ $ -347 $ 221 Plus: Depreciation and amortization expense 53 49 199 193 Manufacturing interest expense (A) 55 47 199 207 Adjusted for: Income tax expense 69 -10 59 -19 EBITDA $ -197 $ 208 $ $ -8 $ 640 Quarters Ended April 30, (in millions) 2015 2015 Interest expense ……………………………………………………………….. 75 75 Less: Financial services interest expense ………………………………….. 18 18 Manufacturing interest expense ……………………..……………………… 57 57 Quarters Ended April 30, (in millions) 2015 2015 EBITDA (reconciled above) …......…………………………………… $85 $85 Less significant items of: Adjustments to pre-existing warranties(A) ………………………...... 18 18 Restructuring charges(D) ………………………………...….………… 2 2 Asset impairment charges(C) ………...……………………………….. 1 1 Gain on settlement(E) ………………………………………………….. -10 -10 Brazil truck business actions(F) …….....……………………………… 6 match below 6 Total adjustments 17 17 Adjusted EBITDA …......………………………………………….....…… $102 $102 Quarters Ended April 30, (in millions) 2015 2015 Expense (income): Adjustments to pre-existing warranties(A) $18 $18 Accelerated depreciation(B) 12 12 Asset impairment charges(C) 1 1 Other restructuring charges and strategic initiatives(D) 2 2 Gain on settlement(E) -10 -10 Brazil truck business actions(F) 6 6 Brazilian tax adjustments(G) — — (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. 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 and second quarter of 2015, the Truck segment recognized charges of $13 million and $12 million, respectively, for the acceleration of depreciation of certain assets related to the foundry facilities. In the first and second quarter of 2015, the Truck segment recognized charges of $13 million and $12 million, respectively, for the acceleration of depreciation of certain assets related to the foundry facilities. (C) In the second quarter and first half of 2015, the Company concluded it had a triggering event related to certain operating leases, as a result, the Truck segment recorded $1 million and $7 million, respectively, of asset impairment charges. In the second quarter of 2014, we recognized a non-cash charge of $149 million for the impairment of certain intangible assets of our Brazilian engine reporting unit. Due to slower than expected growth in the Brazilian economy causing declines in actual and forecasted results, we tested the goodwill of our Brazilian engine reporting unit and trademark for potential impairment. As a result, we determined that the entire $142 million balance of goodwill and $7 million of trademark were impaired. Additionally, in the first quarter of 2014, the Company concluded it had a triggering event related to potential sales of assets requiring assessment of impairment for certain intangible and long-lived assets in the Truck segment. As a result, the Truck segment recognized asset impairment charges of $18 million. In the second quarter and first half of 2015, the Company concluded it had a triggering event related to certain operating leases, as a result, the Truck segment recorded $1 million and $7 million, respectively, of asset impairment charges. In the second quarter of 2014, we recognized a non-cash charge of $149 million for the impairment of certain intangible assets of our Brazilian engine reporting unit. Due to slower than expected growth in the Brazilian economy causing declines in actual and forecasted results, we tested the goodwill of our Brazilian engine reporting unit and trademark for potential impairment. As a result, we determined that the entire $142 million balance of goodwill and $7 million of trademark were impaired. Additionally, in the first quarter of 2014, the Company concluded it had a triggering event related to potential sales of assets requiring assessment of impairment for certain intangible and long-lived assets in the Truck segment. As a result, the Truck segment recognized asset impairment charges of $18 million. (D) In the second quarter of 2014, we incurred restructuring charges of $8 million related to cost reduction actions that included a reduction-in-force in the U.S. In the second quarter of 2014, we incurred restructuring charges of $8 million related to cost reduction actions that included a reduction-in-force in the U.S. (E) In the second quarter of 2015, the Global Operations segment recognized a $10 million gain resulting from a customer settlement, which includes an offsetting restructuring charge of $4 million. In the second quarter of 2015, the Global Operations segment recognized a $10 million gain resulting from a customer settlement, which includes an offsetting restructuring charge of $4 million. (F) In the second quarter and first half of 2015 our Global Operations segment recorded $6 million in inventory charges to right size the Brazil Truck business. In the second quarter and first half of 2015 our Global Operations segment recorded $6 million in inventory charges to right size the Brazil Truck business. (G) During the second quarter of 2014, our evaluation of the realizability of our Brazilian deferred tax assets resulted in a determination that a valuation allowance was required, due to a deterioration of operating performance in Brazil, an increase in net operating loss carryforwards, and the impairment of certain Brazilian intangible assets. As a result, we recorded a net expense of $29 million related to establishment of the valuation allowance and tax impact from the impairment of certain intangible assets. During the second quarter of 2014, our evaluation of the realizability of our Brazilian deferred tax assets resulted in a determination that a valuation allowance was required, due to a deterioration of operating performance in Brazil, an increase in net operating loss carryforwards, and the impairment of certain Brazilian intangible assets. As a result, we recorded a net expense of $29 million related to establishment of the valuation allowance and tax impact from the impairment of certain intangible assets. The above items, except for the Brazilian tax adjustments, did not have a material impact on taxes due to the valuation allowances on our U.S. deferred tax assets, which was established in the fourth quarter of 2012. Quarters Ended April 30, (in millions) 2015 2015 Loss from continuing operations attributable to NIC, net of tax ………… $ -64 $ -64 Plus: Depreciation and amortization expense ……………………………….. 74 74 Manufacturing interest expense(A) ………………………………….…. 57 57 Less: Income tax benefit (expense) …………………………………………… -18 -18 EBITDA ………………………………………………………………………… $ 85 $ 85 Quarters Ended October 31, Years Ended October 31, (in millions) 2020 2019 2020 2019 Interest expense $ 69 $ 69 $ 268 $ 312 Less: Financial services interest expense 14 22 69 105 Manufacturing interest expense $ 55 $ 47 $ 199 $ 207 Quarters Ended April 30, (in millions) 2015 2015 EBITDA (reconciled above) …......…………………………………… $85 $85 Less significant items of: Adjustments to pre-existing warranties(A) ………………………...... 18 18 Restructuring charges(D) ………………………………...….………… 2 2 Asset impairment charges(C) ………...……………………………….. 1 1 Gain on settlement(E) ………………………………………………….. -10 -10 Brazil truck business actions(F) …….....……………………………… 6 6 Total adjustments 17 17 Adjusted EBITDA …......………………………………………….....…… $102 $102 Quarters Ended April 30, (in millions) 2015 2015 Expense (income): Adjustments to pre-existing warranties(A) $18 $18 Accelerated depreciation(B) 12 12 Asset impairment charges(C) 1 1 Other restructuring charges and strategic initiatives(D) 2 2 Gain on settlement(E) -10 -10 Brazil truck business actions(F) 6 6 Brazilian tax adjustments(G) — — (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. 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 and second quarter of 2015, the Truck segment recognized charges of $13 million and $12 million, respectively, for the acceleration of depreciation of certain assets related to the foundry facilities. In the first and second quarter of 2015, the Truck segment recognized charges of $13 million and $12 million, respectively, for the acceleration of depreciation of certain assets related to the foundry facilities. (C) In the second quarter and first half of 2015, the Company concluded it had a triggering event related to certain operating leases, as a result, the Truck segment recorded $1 million and $7 million, respectively, of asset impairment charges. In the second quarter of 2014, we recognized a non-cash charge of $149 million for the impairment of certain intangible assets of our Brazilian engine reporting unit. Due to slower than expected growth in the Brazilian economy causing declines in actual and forecasted results, we tested the goodwill of our Brazilian engine reporting unit and trademark for potential impairment. As a result, we determined that the entire $142 million balance of goodwill and $7 million of trademark were impaired. Additionally, in the first quarter of 2014, the Company concluded it had a triggering event related to potential sales of assets requiring assessment of impairment for certain intangible and long-lived assets in the Truck segment. As a result, the Truck segment recognized asset impairment charges of $18 million. In the second quarter and first half of 2015, the Company concluded it had a triggering event related to certain operating leases, as a result, the Truck segment recorded $1 million and $7 million, respectively, of asset impairment charges. In the second quarter of 2014, we recognized a non-cash charge of $149 million for the impairment of certain intangible assets of our Brazilian engine reporting unit. Due to slower than expected growth in the Brazilian economy causing declines in actual and forecasted results, we tested the goodwill of our Brazilian engine reporting unit and trademark for potential impairment. As a result, we determined that the entire $142 million balance of goodwill and $7 million of trademark were impaired. Additionally, in the first quarter of 2014, the Company concluded it had a triggering event related to potential sales of assets requiring assessment of impairment for certain intangible and long-lived assets in the Truck segment. As a result, the Truck segment recognized asset impairment charges of $18 million. (D) In the second quarter of 2014, we incurred restructuring charges of $8 million related to cost reduction actions that included a reduction-in-force in the U.S. In the second quarter of 2014, we incurred restructuring charges of $8 million related to cost reduction actions that included a reduction-in-force in the U.S. (E) In the second quarter of 2015, the Global Operations segment recognized a $10 million gain resulting from a customer settlement, which includes an offsetting restructuring charge of $4 million. In the second quarter of 2015, the Global Operations segment recognized a $10 million gain resulting from a customer settlement, which includes an offsetting restructuring charge of $4 million. (F) In the second quarter and first half of 2015 our Global Operations segment recorded $6 million in inventory charges to right size the Brazil Truck business. In the second quarter and first half of 2015 our Global Operations segment recorded $6 million in inventory charges to right size the Brazil Truck business. (G) During the second quarter of 2014, our evaluation of the realizability of our Brazilian deferred tax assets resulted in a determination that a valuation allowance was required, due to a deterioration of operating performance in Brazil, an increase in net operating loss carryforwards, and the impairment of certain Brazilian intangible assets. As a result, we recorded a net expense of $29 million related to establishment of the valuation allowance and tax impact from the impairment of certain intangible assets. During the second quarter of 2014, our evaluation of the realizability of our Brazilian deferred tax assets resulted in a determination that a valuation allowance was required, due to a deterioration of operating performance in Brazil, an increase in net operating loss carryforwards, and the impairment of certain Brazilian intangible assets. As a result, we recorded a net expense of $29 million related to establishment of the valuation allowance and tax impact from the impairment of certain intangible assets. The above items, except for the Brazilian tax adjustments, did not have a material impact on taxes due to the valuation allowances on our U.S. deferred tax assets, which was established in the fourth quarter of 2012.
SEC Regulation G Non-GAAP Reconciliation Adjusted Net Income Reconciliation: ____________________ For more detail on the items noted, please see the footnotes on slide 22. Quarter Ended, Oct 31 Year Ended, Oct 31 ($ in millions) 2020 2019 2020 2019 2018 Net income from continuing operations attributable to NIC… $ -,236 $ 102 $ -,347 $ 221 Adjusted for significant items of: $ 989 583 Adjustments to pre-existing warranties (A) 14 -4 40 3 95 Asset impairment charges (B) 3 1 28 7 95 Restructuring of manufacturing operations (C) -3 13 2 14 95 MaxxForce Advanced EGR Engine lawsuits (D) — 1 — 129 95 Legal Settlements (E) 58 — 58 — Shy profit-sharing accrual (F) 289 — 289 — Gain on sale (G) — — — -56 95 Debt refinancing charges (H) 5 — 5 6 95 Pension settlement (I) ................................ — — 7 142 95 Settlement gain (J) — — -1 -3 95 Total adjustments 366 11 428 242 95 Tax effect (K) -69 1 -71 -40 95 Adjusted net income attributable to NIC $ 61 $ 114 $ 10 $ 423 $ 1,084 733
(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 2020, we recorded $28 million of asset impairment charges, comprised of $16 million of asset impairment charges related to certain assets under operating leases and certain other long-lived assets in our Truck segment and $12 million of asset impairment charges related to long-lived assets in our Brazil asset group in our Global Operations segment. During 2019, we recorded $7 million of asset impairment charges relating to certain assets under operating leases in our Truck segment. (C) During 2020, we recorded net restructuring charges of $2 million due to restructuring activity throughout the organization. During 2019, we recorded charges of $14 million primarily related to cost reduction actions recorded in Costs of product sold and Restructuring charges in our Global Operations segment. (D) During 2019, we recognized a net charge of $129 million related to the MaxxForce Advanced EGR engine class action settlement and related litigation in our Truck segment. (E) During 2020, we recorded a charge of $58 million, including $8 million of legal and other fees, related to a proposed legal settlement with the Department of Justice, related to Navistar Defense. (F) During 2020, we recorded a charge of $289 million related to the Shy profit-sharing accrual. (G) During 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. (H) During 2020 we recorded a charge of $5 million for the write-off of debt issuance costs and discounts associated with the 6.75% Tax Exempt Bonds. During 2019, we recorded a charge of $6 million for the write-off of debt issuance costs and discounts associated with the NFC Term Loan. (I) During 2020 and 2019, we purchased group annuity contracts for certain retired pension plan participants resulting in plan remeasurements. As a result, we recorded pension settlement charges of $7 million and $142 million, respectively, in Other expense, net in Corporate. (J) During 2020 and 2019, we recorded interest income of $1 million and $3 million, respectively, in Other expense, net derived from the prior year settlement of a business economic loss claim. (K) Tax effect is calculated by excluding the tax impact of the non-GAAP adjustments from the tax provision calculations. SEC Regulation G Non-GAAP Reconciliation