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8-K - 8-K - NAVISTAR INTERNATIONAL CORPd785200d8k.htm
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Exhibit 99.1

 

LOGO  

Navistar International Corporation

2701 Navistar Dr.

Lisle, IL 60532 USA

P: 331-332-5000

W: navistar.com

 

Media contact:      Steve Schrier, 331-332-2264   
Investor contact:      Heather Kos, 331-332-2406   
Web site:      www.Navistar.com/newsroom   

NAVISTAR REPORTS THIRD QUARTER RESULTS

 

    Reports net loss of $2 million, or 2-cents per share, on revenues of $2.8 billion

 

    Achieves quarterly income from continuing operations before income taxes for first time since 2011

 

    Exceeds EBITDA guidance, excluding one-time items and pre-existing warranty expense

 

    Increases chargeouts for Class 6-8 trucks and buses in U.S. and Canada by 10 percent year-over-year

 

    Finishes quarter with 54 percent increase in order backlog year-over-year

 

    Reduces structural costs by additional $86 million

 

    Ends quarter with $1.1 billion in manufacturing cash

LISLE, Ill. (September 3, 2014) – Navistar International Corporation (NYSE: NAV) today announced a third quarter 2014 net loss of $2 million, or $0.02 per diluted share, compared to a third quarter 2013 net loss of $247 million, or $3.06 per diluted share. Revenues in the quarter were $2.8 billion, essentially flat versus the third quarter of 2013.

“Our third quarter results reflect a number of positive trends including increased production, improvements in warranty charges, cost reductions that further lowered our breakeven point and our continued efforts to manage cash,” said Troy A. Clarke, Navistar president and chief executive officer. “While we have work ahead of us to grow the business, improve our market share and further reduce our cost of doing business, we do take some satisfaction in achieving positive income from continuing operations before taxes—an important financial milestone we’ve not realized in our quarterly performance since 2011.”

The company reported $21 million in income from continuing operations before income taxes in the third quarter of 2014 compared to a $211 million loss from continuing operations before income taxes for the same period one year ago. Third quarter 2014 EBITDA was $142 million versus an EBITDA loss of $74 million in the same period one year ago. This year’s third quarter included a $29 million benefit in pre-existing warranty adjustments, partially offset by $20 million in restructuring and impairment charges. As a result, adjusted third quarter 2014 EBITDA was $133 million, which exceeded the company’s third quarter guidance of between $75 million and $125 million, excluding pre-existing warranty and one-time items.

Navistar finished the third quarter 2014 with $1.1 billion in manufacturing cash, cash equivalents and marketable securities. Excluding a $90 million intercompany loan from NFC, Navistar’s captive finance company, manufacturing cash ended the quarter at $1.01 billion, at the midpoint of the guidance range, as the loan was not included in the guidance.

The company reduced its year-over-year structural costs in the third quarter by an additional $86 million, including $67 million in savings from selling, general, and administrative (SG&A) expense and $19 million in reduced engineering costs. Year-to-date, Navistar has reduced structural costs by $245 million.


Navistar’s warranty spend improved in the third quarter, down 22 percent year-over-year. These results were driven by significant quality performance improvements, lower repair costs and a reduced population of trucks still in the warranty periods.

Third quarter highlights included a 10 percent year-over-year increase in chargeouts for Class 6-8 trucks and buses in the United States and Canada, as well as ending the quarter with a 54 percent increase in order backlog year-over-year. Also, in July, Navistar launched its line of severe service trucks powered by the company’s 9/10 SCR engines.

“Regaining market share remains a top priority and while we still have work to do, we are excited by the favorable feedback we receive from those customers who have bought and experienced our new trucks,” Clarke added. “With additional offerings for medium-duty and severe service applications, we’re very encouraged with our future prospects.”

The company provided the following guidance updates:

 

    Raised Class 8 industry forecast for FY2014 (U.S./Canada) to 235,000-240,000;

 

    Expects to finish FY2014 with $300 million in structural cost savings;

 

    Projects Q4 EBITDA of $115 million to $165 million, excluding pre-existing warranty and one-time items; and

 

    Projects between $1.0 billion and $1.1 billion in manufacturing cash, cash equivalents and marketable securities at the end of Q4 after repaying the remaining $166 million of the company’s 3% senior subordinated convertible notes maturing in October.

Summary of Financial Results:

 

     Third Quarter     First Nine Months  
(in millions, except per share data)    2014     2013     2014     2013  

Sales and revenues, net

   $ 2,844      $ 2,861      $ 7,798      $ 8,024   

Segment Results:

        

North America Truck

   $ (12   $ (143   $ (353   $ (547

North America Parts

     127        98        357        329   

Global Operations

     (2     (22     (185     —     

Financial Services

     24        23        71        64   

Loss from continuing operations, net of tax(A)

   $ (3   $ (237   $ (550   $ (704

Net loss(A)

     (2     (247     (547     (744

Diluted loss per share from continuing operations(A)

   $ (0.04   $ (2.94   $ (6.77   $ (8.76

Diluted loss per share(A)

     (0.02     (3.06     (6.73     (9.25

 

(A) Amounts attributable to Navistar International Corporation.

North America Truck — For the third quarter 2014, the North America Truck segment recorded a loss of $12 million, compared with a year-ago third quarter loss of $143 million. The year-over-year improvement was primarily driven by lower charges for adjustments related to pre-existing warranties and additional structural cost savings. Chargeouts for traditional markets were up 10 percent, reflecting a 24 percent increase of Class 8 heavy-duty trucks and a 6 percent increase in Class 6/7 medium-duty trucks, partially offset by an 18 percent decrease in Class 8 severe service trucks.


North America Parts — For the third quarter 2014, the North America Parts segment recorded a profit of $127 million, compared to a year-ago third quarter profit of $98 million. Parts revenues in the quarter improved by 4 percent due to improvements in commercial markets, partially offset by lower military sales. Profit improved by 30 percent year-over-year driven by stronger performance in commercial markets.

Global Operations — For the third quarter 2014, global operations recorded a loss of $2 million compared to a year-ago third quarter loss of $22 million. The year-over-year improvement was primarily driven by geographic mix from its export truck operations, lower foreign exchange losses and lower SG&A expenses resulting from the company’s cost-reduction initiatives, partially offset by a decline in South America engine volumes.

Financial Services — For the third quarter 2014, the financial services segment recorded a profit of $24 million compared to third quarter 2013 profit of $23 million. Financial results improved due to lower structural costs and interest income from an intercompany loan, which more than offset the effects of lower overall retail balances.

About Navistar

Navistar International Corporation (NYSE: NAV) is a holding company whose subsidiaries and affiliates produce International® brand commercial and military trucks, MaxxForce® brand 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. The International® ProStar® with Cummins ISX15 and International® TerraStar® 4x4 were named 2014 heavy-duty and medium-duty commercial truck of the year, respectively, by the American Truck Dealers (ATD) association. 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, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this report and the company 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, 2013 and our quarterly report on Form 10-Q for the quarter ended July 31, 2014. 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.


Navistar International Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

     Three Months
Ended July 31,
    Nine Months
Ended July 31,
 
(in millions, except per share data)    2014     2013     2014     2013  

Sales and revenues

        

Sales of manufactured products, net

   $ 2,806      $ 2,820      $ 7,683      $ 7,905   

Finance revenues

     38        41        115        119   
  

 

 

   

 

 

   

 

 

   

 

 

 

Sales and revenues, net

     2,844        2,861        7,798        8,024   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses

        

Costs of products sold

     2,417        2,547        6,899        7,196   

Restructuring charges

     16        6        27        14   

Asset impairment charges

     4        17        173        17   

Selling, general and administrative expenses

     241        308        717        905   

Engineering and product development costs

     80        99        253        310   

Interest expense

     78        76        234        240   

Other expense (income), net

     (11     22        (5     (35
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     2,825        3,075        8,298        8,647   

Equity in income of non-consolidated affiliates

     2        3        5        6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     21        (211     (495     (617

Income tax expense

     (14     (16     (25     (53
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     7        (227     (520     (670

Income (loss) from discontinued operations, net of tax

     1        (10     3        (40
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (loss)

     8        (237     (517     (710

Less: Net income attributable to non-controlling interests

     10        10        30        34   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Navistar International Corporation

   $ (2   $ (247   $ (547   $ (744
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts attributable to Navistar International Corporation common shareholders:

        

Loss from continuing operations, net of tax

   $ (3   $ (237   $ (550   $ (704

Income (loss) from discontinued operations, net of tax

     1        (10     3        (40
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (2   $ (247   $ (547   $ (744
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share:

        

Basic:

        

Continuing operations

   $ (0.04   $ (2.94   $ (6.77   $ (8.76

Discontinued operations

     0.02        (0.12     0.04        (0.49
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (0.02   $ (3.06   $ (6.73   $ (9.25
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted:

        

Continuing operations

   $ (0.04   $ (2.94   $ (6.77   $ (8.76

Discontinued operations

     0.02        (0.12     0.04        (0.49
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (0.02   $ (3.06   $ (6.73   $ (9.25
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

        

Basic

     81.4        80.6        81.3        80.4   

Diluted

     81.4        80.6        81.3        80.4   


Navistar International Corporation and Subsidiaries

Consolidated Balance Sheets

 

     July 31,     October 31,  
(in millions)    2014     2013  
     (Unaudited)        

ASSETS

    

Current assets

    

Cash and cash equivalents

   $ 547      $ 755   

Marketable securities

     618        830   

Trade and other receivables, net

     568        737   

Finance receivables, net

     1,707        1,597   

Inventories

     1,462        1,210   

Deferred taxes, net

     39        72   

Other current assets

     202        258   
  

 

 

   

 

 

 

Total current assets

     5,143        5,459   

Restricted cash

     121        91   

Trade and other receivables, net

     26        29   

Finance receivables, net

     302        338   

Investments in non-consolidated affiliates

     72        77   

Property and equipment (net of accumulated depreciation and amortization of $2,533 and $2,440, respectively)

     1,657        1,741   

Goodwill

     38        184   

Intangible assets (net of accumulated amortization of $106 and $97, respectively)

     98        138   

Deferred taxes, net

     153        159   

Other noncurrent assets

     92        99   
  

 

 

   

 

 

 

Total assets

   $ 7,702      $ 8,315   
  

 

 

   

 

 

 

LIABILITIES and STOCKHOLDERS’ DEFICIT

    

Liabilities

    

Current liabilities

    

Notes payable and current maturities of long-term debt

   $ 1,020      $ 1,163   

Accounts payable

     1,572        1,502   

Other current liabilities

     1,425        1,596   
  

 

 

   

 

 

 

Total current liabilities

     4,017        4,261   

Long-term debt

     4,184        3,922   

Postretirement benefits liabilities

     2,450        2,564   

Deferred taxes, net

     14        33   

Other noncurrent liabilities

     1,083        1,136   
  

 

 

   

 

 

 

Total liabilities

     11,748        11,916   

Redeemable equity securities

     2        4   

Stockholders’ deficit

    

Series D convertible junior preference stock

     3        3   

Common stock (86.8 shares issued, $0.10 par value per share and 220 shares authorized, all at both dates)

     9        9   

Additional paid-in capital

     2,499        2,477   

Accumulated deficit

     (4,610     (4,063

Accumulated other comprehensive loss

     (1,758     (1,824

Common stock held in treasury, at cost (5.5 and 6.3 shares, respectively)

     (225     (251
  

 

 

   

 

 

 

Total stockholders’ deficit attributable to Navistar International Corporation

     (4,082     (3,649

Stockholders’ equity attributable to non-controlling interests

     34        44   
  

 

 

   

 

 

 

Total stockholders’ deficit

     (4,048     (3,605
  

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 7,702      $ 8,315   
  

 

 

   

 

 

 


Navistar International Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     Nine Months Ended
July 31,
 
(in millions)    2014     2013  

Cash flows from operating activities

    

Net loss

   $ (517   $ (710

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     177        225   

Depreciation of equipment leased to others

     79        105   

Deferred taxes, including change in valuation allowance

     (4     19   

Asset impairment charges

     173        25   

Gain on sales of investments and businesses, net

     —          (13

Amortization of debt issuance costs and discount

     38        43   

Stock-based compensation

     12        19   

Provision for doubtful accounts, net of recoveries

     12        16   

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

     4        5   

Write-off of debt issuance cost and discount

     1        6   

Other non-cash operating activities

     (27     (60

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

     (292     354   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (344     34   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of marketable securities

     (1,210     (1,070

Sales of marketable securities

     1,092        664   

Maturities of marketable securities

     330        164   

Net change in restricted cash and cash equivalents

     (30     (9

Capital expenditures

     (57     (136

Purchases of equipment leased to others

     (157     (351

Proceeds from sales of property and equipment

     40        22   

Investments in non-consolidated affiliates

     —          (25

Proceeds from sales of affiliates

     6        50   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     14        (691
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from issuance of securitized debt

     105        279   

Principal payments on securitized debt

     (32     (501

Proceeds from issuance of non-securitized debt

     603        390   

Principal payments on non-securitized debt

     (617     (438

Net increase in notes and debt outstanding under revolving credit facilities

     87        87   

Principal payments under financing arrangements and capital lease obligations

     (20     (55

Debt issuance costs

     (14     (16

Proceeds from financed lease obligations

     44        276   

Issuance of common stock

     —          14   

Proceeds from exercise of stock options

     18        9   

Dividends paid by subsidiaries to non-controlling interest

     (40     (35

Other financing activities

     —          4   
  

 

 

   

 

 

 

Net cash provided by financing activities

     134        14   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (12     (19
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (208     (662

Cash and cash equivalents at beginning of the period

     755        1,087   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 547      $ 425   
  

 

 

   

 

 

 


Navistar International Corporation and Subsidiaries

Segment Reporting

(Unaudited)

We define segment profit (loss) as net income (loss) from continuing operations attributable to Navistar International Corporation excluding income tax expense. The following tables present selected financial information for our reporting segments:

 

(in millions)    North
America
Truck
    North
America
Parts
     Global
Operations
    Financial
Services(A)
     Corporate
and
Eliminations
    Total  

Three Months Ended July 31, 2014

  

External sales and revenues, net

   $ 1,801      $ 610       $ 395      $ 38       $ —        $ 2,844   

Intersegment sales and revenues

     113        11         12        22         (158     —     
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total sales and revenues, net

   $ 1,914      $ 621       $ 407      $ 60       $ (158   $ 2,844   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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

   $ (12   $ 127       $ (2   $ 24       $ (140   $ (3

Income tax expense

     —          —           —          —           (14     (14
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Segment profit (loss)

   $ (12   $ 127       $ (2   $ 24       $ (126   $ 11   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Depreciation and amortization

   $ 41      $ 4       $ 8      $ 12       $ 6      $ 71   

Interest expense

     —          —           —          18         60        78   

Equity in income of non-consolidated affiliates

     1        1         —          —           —          2   

Capital expenditures(B)

     4        —           2        —           1        7   

 

(in millions)    North
America
Truck
    North
America
Parts
     Global
Operations
    Financial
Services(A)
     Corporate
and
Eliminations
    Total  

Three Months Ended July 31, 2013

  

External sales and revenues, net

   $ 1,761      $ 583       $ 476      $ 41       $ —        $ 2,861   

Intersegment sales and revenues

     135        13         23        20         (191     —     
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total sales and revenues, net

   $ 1,896      $ 596       $ 499      $ 61       $ (191   $ 2,861   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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

   $ (143   $ 98       $ (22   $ 23       $ (193   $ (237

Income tax expense

     —          —           —          —           (16     (16
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Segment profit (loss)

   $ (143   $ 98       $ (22   $ 23       $ (177   $ (221
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Depreciation and amortization

   $ 59      $ 5       $ 9      $ 10       $ 5      $ 88   

Interest expense

     —          —           —          17         59        76   

Equity in income of non-consolidated affiliates

     2        1         —          —           —          3   

Capital expenditures(B)

     20        1         4        —           4        29   


(in millions)    North
America
Truck
    North
America
Parts
     Global
Operations
    Financial
Services(A)
     Corporate
and
Eliminations
    Total  

Nine Months Ended July 31, 2014

  

External sales and revenues, net

   $ 4,758      $ 1,818       $ 1,107      $ 115       $ —        $ 7,798   

Intersegment sales and revenues

     330        33         26        57         (446     —     
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total sales and revenues, net

   $ 5,088      $ 1,851       $ 1,133      $ 172       $ (446   $ 7,798   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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

   $ (353   $ 357       $ (185   $ 71       $ (440   $ (550

Income tax expense

     —          —           —          —           (25     (25
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Segment profit (loss)

   $ (353   $ 357       $ (185   $ 71       $ (415   $ (525
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Depreciation and amortization

   $ 168      $ 12       $ 24      $ 33       $ 19      $ 256   

Interest expense

     —          —           —          52         182        234   

Equity in income (loss) of non-consolidated affiliates

     3        3         (1     —           —          5   

Capital expenditures(B)

     42        5         6        1         3        57   

 

(in millions)    North
America
Truck
    North
America
Parts
     Global
Operations
    Financial
Services(A)
     Corporate
and
Eliminations
    Total  

Nine Months Ended July 31, 2013

    

External sales and revenues, net

   $ 4,694      $ 1,873       $ 1,338      $ 119       $ —        $ 8,024   

Intersegment sales and revenues

     382        45         60        59         (546     —     
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total sales and revenues, net

   $ 5,076      $ 1,918       $ 1,398      $ 178       $ (546   $ 8,024   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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

   $ (547   $ 329       $ —        $ 64       $ (550   $ (704

Income tax expense

     —          —           —          —           (53     (53
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Segment profit (loss)

   $ (547   $ 329       $ —        $ 64       $ (497   $ (651
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Depreciation and amortization

   $ 244      $ 13       $ 27      $ 29       $ 17      $ 330   

Interest expense

     —          —           —          52         188        240   

Equity in income (loss) of non-consolidated affiliates

     7        4         (5     —           —          6   

Capital expenditures(B)

     113        2         11        1         9        136   

 

(in millions)    North
America
Truck
     North
America
Parts
     Global
Operations
     Financial
Services
     Corporate
and
Eliminations
     Total  

Segment assets, as of:

  

July 31, 2014

   $ 2,355       $ 704       $ 816       $ 2,504       $ 1,323       $ 7,702   

October 31, 2013

     2,250         716         1,162         2,355         1,832         8,315   

 

(A) Total sales and revenues in the Financial Services segment include interest revenues of $44 million and $126 million for the three and nine months ended July 31, 2014, respectively and $47 million and $140 million for the three and nine months ended July 31, 2013, respectively.
(B) Exclusive of purchases of equipment leased to others.


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) from continuing operations 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:

We believe that 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, Cash Equivalents, and Marketable Securities:

Manufacturing cash, cash equivalents, and marketable securities represents the Company’s consolidated cash, cash equivalents, and marketable securities excluding cash, cash equivalents, and marketable securities of our financial services operations. We include marketable securities with our cash and cash equivalents when assessing our liquidity position as our investments are highly liquid in nature. 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 consists of Selling, general and administrative expenses and Engineering and product development costs.

EBITDA reconciliation:

 

(in millions)    Three Months Ended
July 31, 2014
 

Loss from continuing operations attributable to NIC, net of tax

     (3

Plus:

  

Depreciation and amortization expense

     71   

Manufacturing interest expense(A)

     60   
  

 

 

 

Less:

  

Income tax benefit (expense)

     (14
  

 

 

 

EBITDA

   $ 142   
  

 

 

 

 

(A) Manufacturing interest expense is the net interest expense primarily generated from 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:

 

(in millions)    Three Months
Ended
July 31, 2014
 

Interest expense

   $ 78   

Less: Financial services interest expense

     18   
  

 

 

 

Manufacturing interest expense

   $ 60   
  

 

 

 


Adjusted EBITDA reconciliation:

 

(in millions)    Three Months Ended
July 31, 2014
 

EBITDA (reconciled above)

   $ 142   

Less significant items of:

  

Asset impairments charges

     4   

Adjustments to pre-existing warranties(A)

     (29

Restructuring charges(B)

     16   
  

 

 

 
     (9
  

 

 

 

Adjusted EBITDA

   $ 133   
  

 

 

 

 

(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. The adjustments primarily impacted the North America Truck segment. In the third quarter of 2014, we recognized a benefit for adjustments to pre-existing warranties of $(29) million, or (0.36) per diluted share. The benefit is comprised of a benefit for changes in estimates of $(59) million, partially offset by a $30 million correction of prior-period errors primarily related to pre-existing warranties.
(B) In the third quarter of 2014, the Company incurred restructuring charges of $16 million, primarily related to the closure 2011 closure of Chatham, Ontario plant, based on a ruling received from the Financial Services Tribunal in Ontario, Canada.

The above items 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.

Manufacturing segment cash and cash equivalents and marketable securities reconciliation:

 

     As of July 31, 2014  
(in millions)    Manufacturing
Operations
     Financial
Services
Operations
     Consolidated
Balance
Sheet
 

Assets

  

Cash and cash equivalents

   $ 517       $ 30       $ 547   

Marketable securities

     581         37         618   
  

 

 

    

 

 

    

 

 

 

Total Cash and cash equivalents and Marketable securities

   $ 1,098       $ 67       $ 1,165   
  

 

 

    

 

 

    

 

 

 

 

(in millions)    July 31, 2014  

Manufacturing Cash and cash equivalents and Marketable securities (reconciled above)

   $  1,098   

Less: NFC intercompany loan

     90   
  

 

 

 

Adjusted Manufacturing Cash and cash equivalents and Marketable securities

   $ 1,008   
  

 

 

 

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