Navistar, Inc. - Navistar 101

Navistar 101

Overview

Navistar International Corporation (NYSE: NAV) is a leading manufacturer of commercial trucks, buses, and engines. We are an international manufacturer of International^® brand commercial trucks, proprietary diesel engines, and IC Bus^® ("IC") brand school and commercial buses, as well as a provider of service parts for trucks and diesel engines. We also provide retail, wholesale, and lease financing services for our trucks and parts.

Our Products and Services

Our principal products and services include:

Trucks

Parts

Financial Services

We manufacture and distribute Class 4 through 8 trucks and buses in the common carrier, private carrier, government, leasing, construction, energy/petroleum, and student and commercial transportation markets under the International^® and IC Bus^® brands. We design and manufacture proprietary diesel engines for our International branded trucks and IC Bus branded buses.

We support our International^® brand commercial trucks, IC Bus^® brand buses, and our proprietary engines, as well as our other product lines, by distributing proprietary products together with a wide selection of other standard truck, trailer, and engine service parts.

We provide and manage retail, wholesale, and lease financing of products sold by the Truck and Parts segments, as well as their dealers, within the U.S., Canada and Mexico.

Our Business

Our Core business is the truck and parts markets for the U.S. and Canada, where we participate primarily in the Class 6 through 8 vehicle markets. With more than a million of our trucks on the road in the U.S. and Canada, one in five Class 6 through 8 vehicles is an International^® truck. Nearly half of all school buses on the road today are our IC Bus^® brand. We have one of the largest commercial vehicle parts distribution networks in the U.S. and a captive finance company.

Further, we have the industry's largest service network of approximately 1,000 dealer and Love’s Travel Stop service partner locations in North America. Outside of our Core markets, International^® is one of the leading truck brands in Mexico and much of Latin America, and in 2019, we began building products for the Class 4/5 market, including our International^® CV^™ product. Our wholly owned subsidiary International Industria Automotiva da America do Sul Ltda. (“IIAA”), formerly MWM International Industria de Motores da America Do Sul Ltda, is one of the largest diesel engine manufacturers in South America; its products serve the commercial vehicle, agricultural, industrial, power generation and marine segments. We also export trucks, buses, and engines to niche markets around the world.

We continue to take actions that we believe will improve our performance and evaluate additional opportunities to enhance value for our customers. The following is a summary of our 2020 accomplishments and our expectations going forward.

2020 Accomplishments

2020 has been an unprecedented year for the world, our customers and our Company. The COVID-19 pandemic has resulted in a multitude of business challenges that Navistar has effectively navigated as an “essential business.” Through the dedication of our employees, communities, dealer network, customers and drivers who use our products, Navistar aided in ensuring the reliable and continued movement of essential goods throughout North America.

Navistar 4.0, our enterprise-wide strategy with our customers at its core, is supported by strategic initiatives that guide decision-making and investments. This strategy has guided us in the most challenging of circumstances and reinforces our confidence that we are on the right track to grow our business. In 2020, we made several notable advancements on our Navistar 4.0 strategy, related to our People and Performance and being our customers’ #1 Choice.

People

Performance

#1 Choice

Our focus on creating a high-performance organization and culture proved to be one of Navistar 4.0’s strongest pillars in dealing with the COVID-19 pandemic this past year. Our efforts resulted in our organization being able to rapidly adapt to continually changing circumstances in our business, our communities and our employees' own lives. The most notable achievements and changes we implemented were:

Significant senior leadership changes that strengthen Navistar’s focus on those critical areas that will help us achieve our objectives and guide us into the future:
- Persio V. Lisboa became President and Chief Executive Officer. He is a strong leader with a proven record of driving results. Troy A. Clarke became Executive Chairman and Chairman of the Board, dedicated to ensuring a smooth leadership transition and to continuing to manage discussions with Navistar's strategic partner, TRATON.
- We integrated sales, marketing and aftersales under one leader to further improve the complete commercial process for customers and dealers.
- To further drive operating efficiencies, Navistar global operations, including Brazil, Mexico and the Global Export business, have been combined under the same leadership as our current integrated operations of procurement, product development, manufacturing and supply chain.
In a time of the COVID-19 pandemic and social unrest, Navistar and our employees are also proud of being leaders in our communities. As a company that thrives on diversity, inclusion and social engagement, Navistar leaders, dealers and employees stepped up and demonstrated our values. Some notable examples of this are:
- Navistar moved quickly at the onset of the COVID-19 pandemic to ensure a safe environment for our employees by aggressively implementing safety protocols at all our facilities.
- We established the “International Cares” and “IC Bus Cares” programs to provide innovative financing solutions for our customers and to offer free access to services like our fleet management tools International^® 360 and IC Bus^® 360.
- International dealers served nearly 10,000 meals to truckers all over the U.S. and Canada, and International Truck, Triumph Business Capital and Triumph Pay donated more than 6,500 face masks and 6,000 bottles of hand sanitizer to drivers who came in for service at certain International Truck dealerships.

Our people are our greatest asset, and Navistar will continue to work to keep our employees safe, healthy and productive in order to become the employer of choice in the industry.

Continued to create sustainable long-term performance advantage within our products and services by investing in areas with the greatest impact on revenue growth and performance. During 2020, we balanced the need to preserve financial flexibility with the ability to meet our long-term financial goals under Navistar 4.0. Our notable achievements in 2020 include:

Took deliberate and concerted actions to preserve liquidity and performance during the COVID-19 pandemic. Those actions included:
- Enhanced liquidity through completion of a $600 million senior secured notes offering.
- Maintained production and service as an “essential business” by working closely with our supply chain and parts distribution centers (PDCs), used truck centers and dealers, in part by leveraging e-commerce and data analytics.
- Implemented IT solutions to maintain critical operations and projects to increase flexibility to work from home.
- Reduced cash outflows by retiming non-critical capital improvement and IT projects, and targeted deferrals and other permanent cost reduction actions.
Moved forward with key capital infrastructure projects, including:
- Broke ground on the new San Antonio, Texas, plant, a $250 million investment that will incorporate the latest manufacturing principles – digital factory, connected machinery, robust lean manufacturing processes and cloud analytics – to enable predictive quality and maintenance, and allow data-driven decisions to be made in real time on the shop floor.
- Broke ground on a $125 million Huntsville, Ala., plant expansion that will support the production of next-generation big-bore powertrains developed with the TRATON Group.
Signed a new 20-year agreement with the City of Tulsa, Okla., which will keep the IC Bus school bus manufacturing facility at the Tulsa International Airport.
Successfully extended our relationship with Cummins Inc. to supply Cummins engines through the next two greenhouse gas emissions cycles for medium duty and heavy duty big-bore engines.
Expanded our portfolio of Fleetrite^® products and the number of our dedicated retail service parts locations.
Launched the International^® HX^® Series, the next generation of severe service trucks, in late 2020, with increased component commonality that further aligns our full product line with our Project Compass initiative.

Significant progress has been made in identifying and focusing on key markets where we believe we have a differentiated value proposition, defining how we will operate in each of these markets, and how to prove to our customers that we are their #1 choice. Our strategy to communicate our clear value proposition has now expanded to include electric vehicles and self-driving technology, laying the foundation for the transportation infrastructure of the future. Notable achievements in 2020 include:

Further solidified our on-going relationship with one of the nation’s largest fleet carriers by delivering our 5,000^th LT series truck in 3 ½ years.
Announcement of our first order for electric CE school buses for the province of British Columbia in Canada. We expect to begin delivery of the units in 2021.
Formed a partnership with TuSimple, Inc., a global self-driving technology company, to co-develop SAE Level 4 self-driving trucks.
Formed partnerships with seven leading telematics service providers (TSPs) that we believe cover at least 70% of the TSP market.
Through our NEXT eMobility Solutions business unit, we signed a master services agreement with In-Charge Energy to provide charging infrastructure and consulting services to Navistar and our electric vehicle customers.

Expectations Going Forward

We are accelerating our Navistar 4.0 focus to achieve sustainable success and build confidence among all stakeholders. To drive the pace of our progress forward, we have established seven critical strategic initiatives that evolved out of our People, Performance and #1 Choice strategic pillars to guide decision-making and investments. We will continue our intense focus on costs to fund our growth initiatives and increase profitability while preserving a foundation for future success. Going forward, our expectations include:

Commercial Transformation

Uptime/ Total Cost of Ownership (TCO) / Connected

Uptime / TCO / Connected

Project Compass

Emerging Technologies

Innovation

Manufacturing 4.0

People 4.0

Sustainably Selling More Trucks – Building sustainable commercial success for our brand by engaging with more customers, professionalizing the sales process and building capabilities together with the International Truck dealer network.

Delivering Best Experience Through Technology – Supporting our customers on the road better than our competitors, through technology and responsiveness.

Efficient Customer-Centric Design – Reducing unnecessary complexity while meeting customer needs.

Reimagining Mobility Solutions – Deploying lifecycle innovative solutions leveraging internal competencies and strategic partnerships to address new profit pools. This initiative is focused on electric, fuel cell, and autonomous solutions.

Exploring What’s Possible – Building a mindset of curiosity, problem-solving and breakthrough thinking to grow new businesses and sources of revenue.

Building Better and Smarter – Combining our manufacturing and procurement expertise, along with innovative technologies, to improve quality and minimize conversion cost.

Working, Leading and Learning Differently – Creating a culture of trust, empowerment and accountability to build the best teams.

Navistar 4.0 is built upon the right vision and the right strategy. We define success as an unparalleled customer experience, mutually beneficial relationships with employees, dealers, partners, customers and suppliers, and improved financial returns for our investors.

Alliance with TRATON Group

Navistar and TRATON Group have a similar vision for the role of technology, including the importance of driver-focused open-architecture solutions. We expect the alliance will be a source of powertrain options and other high-value technologies, including advanced driver assistance systems, connected vehicle solutions and autonomous technologies, electric vehicles, and cab and chassis subsystems. We expect to have a fully integrated proprietary powertrain and to launch an electric medium-duty truck and electric school bus based on TRATON Group's technology. In addition, our procurement joint venture with TRATON Group will deliver further material cost savings in the years to come.

On November 7, 2020, Navistar and its alliance partner TRATON Group announced they have entered into a definitive agreement where TRATON will acquire by merger all the outstanding shares of the company that it does not already own for $44.50 per share in cash, and Navistar will become a wholly owned indirect subsidiary of TRATON. The transaction is targeted to close in mid-2021 and is subject to customary closing conditions, as well as regulatory approvals.

For Navistar

Procurement Joint Venture

$500 million in first five years
Annual run rate of $200 million
Achieved $225 million savings in first 2 ½ years*

Technology and Supply Partnership

More efficient engineering spend
Proprietary parts opportunities
Accelerate speed to market

*As of September 2019

For Traton

Pivotal Role in TRATON “Global Champion” Strategy

Economies of scale
Leading powertrain technology
Broad sales/service network

Equity investment

Strategic technology
and supply cooperation

Procurement
joint venture

Governance

TRATON Group holds a ~17% equity stake in Navistar. On October 16, 2020, the company reached an agreement in principle with TRATON Group to acquire Navistar for $44.50 per share.

The two companies entered into definitive agreements to collaborate on technology for powertrain systems, as well as other advanced technologies

The two companies formed a procurement joint venture to pursue joint global sourcing opportunities

Navistar added two TRATON Group representatives to its Board of Directors. Furthermore, the parties formed a joint Alliance Board to oversee alliance arrangements

Financial Snapshot

	YEAR ENDED OCTOBER 31
($ in millions, except units)	2018	2019	2020
Chargeouts^(A)	73,900	87,200	50,400
Sales and Revenue	$10,250	$11,251	$7,503
Net Income (Loss)^(B)	$340	$221	$(347)
Adjusted Net Income	$327	$423	$10
Adjusted EBITDA	$826	$882	$420
Adjusted EBITDA Margin	8.1%	7.8%	5.6%

(A) Only includes U.S. and Canada School buses and Class 6-8 trucks.
(B) Amounts attributable to Navistar International Corporation, net of tax.
Non-GAAP financial measures - please refer to financial statements and Earnings Release materials for description and reconciliation of non-GAAP financial measures.



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