Navistar International Corporation (NAV)

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Navistar International Corporation (NAV)

F2Q10 (Qtr End 04/30/10) Earnings Call

June 9, 2010 9:00 am ET

Executives

Heather Kos – VP of IR and Financial Communications

Daniel Ustian – Chairman, President and CEO

A.J. Cederoth – EVP and CFO

Archie Massicotte – President, Navistar Defense

Analysts

Steve Volkmann – Jefferies & Co.

Patrick Nolan – Deutsche Bank

Walter Liptak – Barrington Research

Jerry Revich – Goldman Sachs

Meredith Taylor – Barclays Capital

Henry Kirn – UBS

Tim Denoyer – Wolfe Research

Keith Shiker [ph] – Robert W. Baird

Andy Casey – Wells Fargo Securities

Greg Williams – JP Morgan

J.B. Groh – D.A. Davidson & Company

Presentation

Operator

Good morning and welcome everyone to the Navistar International Corporation second quarter earnings release. Today’s call is being recorded. Now for opening remarks and introductions, I would like to turn the program over to the Vice President of Investor Relations and Financial Communications, Heather Kos. Please go ahead.

Heather Kos

Welcome and good morning everyone. Information provided in 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, 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 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 item 1A, Risk Factors, included within our Form 10-K for the year ended October 31, 2009, which was filed on December 21, 2009.

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 that could cause actual results to differ materially from those in the forward-looking statements.

All future written and/or 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 intentions to release publicly any revisions to our forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.

Other Cautionary Notes

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 without regard to selected historical legacy costs, i.e. our pension and other post-retirement costs.

It also excludes financial services and other expenses that may not be related to the core manufacturing business. Management often uses this information to access and measure the performance of our operating segments. A reconciliation to the most appropriate GAAP number is included in the appendix of this presentation.

And with that, I will turn it over to Dan Ustian.

Dan Ustian

Yes, thanks, Heather. We had a busy quarter and we are going to take some time, bear with us, on explaining what went on in the quarter, but if you can turn to slide four, it is the photo of President and Vice President visiting one of our dealerships in the DC area. And there were several thousand applicants of small businesses that were included in these applications and ours was chosen that is K. Neal. That is K. Steve Neal on the right speaking with the President and the Vice President.

I think he's trying to give him advice on how to improve the economy, but the purpose of this meeting was to talk about what he has done and others have done to weather this storm of the truck economy that has been devastating over the last two or three years, and he gave some insight on how things are improving, and certainly we believe that same thing is throughout the trucking industry, and our dealers will reflect those same sentiments throughout. So it was quite an honor for our dealer. They are very enthused and excited from that visit, and there are also enthused about going forward on their business.

Now let us go over to the content of the meeting today, slide five. I think you will see that the second quarter for us was very significant. First of all, the results were good in spite of some challenges out there in the economy. You will see that our core business had significant improvements in it. At the same time, we made many investments. We had a significant number of launches going on that kind of prep us for what is going to happen next.

We also have talked about the balance sheet and what are we doing on the balance sheet, and A.J. is going to address some of those things at the end of this. So just to ground us here, operationally the industry is exactly what we expected. What we said was that there would be some prebuys that would impact the fourth quarter of ’09, and those volumes while they weren’t significant, they would continue at a little higher pace than what is previous in ’09 at the beginning of 09, and that is exactly what is going on.

The military revenue, I should point out that last year we had the MRAP business in here, and of course in quarter two of this year, it is not there anymore. And the Ford diesel business we had last year. This will be really our first quarter without the Ford North American diesel business.

We had a number of launches, first of all, and I'm using some liberties because some of these happened in May and are going on today, but Mahindra has launched a new line-up of vehicles fixed [ph]. We will show you some photos of those. Of course, all the 2010 emissions products and vehicles have been launched. Three different platforms for diesel engines in 2010 emissions have been launched.

We have for the military business launched the new independent suspension. We started the launch of our electric vehicle program, and then of course, a significant launch was ProStar+, which we will talk about later as well. On the nonoperational side, we had resolution of the EPA and carb on the lawsuit that we had out there, which we believe will ultimately resolve the issue that we have on whether SCR meets emissions. We believe that the solution of this will be there will have to be changes to the SCR system to make it made emissions as intended by law.

On the healthcare side, A.J. will talk some more about it. We continued to make progress on that. As we look towards a long-term answer, we have contained that over time and the balance sheet continues to improve. We also said in our call, I believe it was March, that there was a couple of non-operating items that could affect and will affect the second quarter. And we have had one positive and one negative. So it is kind of washed each other out.

On the one side, we were able to collect cost recovery from a VAT tax in Brazil, and what this has been is, we have earned it in the past. We have proven that we can use it going forward with our strategy for growth in South America with NC2 and our strategy for increasing in our production and our sales of engines in South America, we have proven now that we can earn that tax credit and that was included in 2010 second quarter.

Offsetting to that was an annual incentive. As we increased our estimates, our guidance for 2010 in the second quarter, we increased that up to the $3 for EPS. That puts the company in an annual incentive higher than what was in there previously. I will talk a little bit about that more, but what we had to do it is now retroactive from the first quarter and the second quarter, and these are – even though our income is highly back-end loaded, the accounting treatment of that is that we have to spread that over four quarters and so that is – we had a catch-up on that from the first quarter, and we also had to book the second quarter.

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