Navistar International Corporation (NAV)

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Navistar International (NAV)

Q4 2011 Earnings Call

December 20, 2011 10:00 am ET

Executives

Andrew J. Cederoth - Chief Financial Officer and Executive Vice President

Heather Kos - Vice President of Investor Relations

Archie Massicotte - President

Jack J. Allen - Former President of the Engine Group of International

Daniel C. Ustian - Chairman of the Board, Chief Executive Officer, President, Member of Executive Council, Chairman of Executive Committee, Chairman of International Truck & Engine Corporation, Chief Executive Officer of International Truck & Engine Corporation and President of International Truck & Engine Corporation

Analysts

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Andrew M. Casey - Wells Fargo Securities, LLC, Research Division

Kirk Ludtke - CRT Capital Group LLC, Research Division

Jerry Revich - Goldman Sachs Group Inc., Research Division

Henry Kirn - UBS Investment Bank, Research Division

Mario Joseph Gabelli - GAMCO Investors, Inc.

Patrick Nolan - Deutsche Bank AG, Research Division

Walter S. Liptak - Barrington Research Associates, Inc., Research Division

Joseph O'Dea - Vertical Research Partners Inc.

Andy Kaplowitz - Barclays Capital, Research Division

Adam William Uhlman - Cleveland Research Company

Ann P. Duignan - JP Morgan Chase & Co, Research Division

Presentation

Operator

Good morning and welcome, everyone, to Navistar International Corporation Fourth Quarter Earnings Release. Today's call is being recorded. For opening remarks and introductions, I would like to turn the program over to the Vice President of Investor Relations, Heather Kos. Ms. Kos, please go ahead.

Heather Kos

Happy holidays, everyone, and thank you for joining us today for our fourth quarter earnings call. Before we begin, I'd like to cover a few items. A copy of this morning's press release and the presentation slides that we'll be using today have been posted on our Investor Relations website for your reference.

The financial results presented here are on a GAAP basis and in some cases, on a non-GAAP basis. The non-GAAP financial measures discussed in this call are reconciled to the U.S. GAAP equivalent as part of the appendix in the slide deck.

Finally, today's presentation includes some forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments made here. For additional information concerning factors that could cause actual results to differ materially from those projected in today's presentation, please refer to our most recent reports on Form 10-K and 10-Q and our other SEC filings. We would also refer you to the forward-looking statements and other cautionary note disclaimers presented in today's material for more information on this subject.

And now I'll turn the call over to Dan Ustian, Chairman, CEO and President.

Daniel C. Ustian

Yes, good morning. Today's agenda, if you can follow us on the slide, Slide 4, we'll talk about the results for 2011 including the fourth quarter, our progress to our long-term strategy and then A.J. will talk about the balance sheet and also what you might expect to see us -- see from us on the Analyst Day February 1.

So with that, Slide 5 shows the results for the year and how it compares to prior years and how it compares to the guidance that we had put out there. And you can tell from this, we did have a very strong quarter in terms of our revenue and in terms of our cost structure. And our margins were up 10% for the quarter, and our EPS was $3.37. If you go into it a little bit, the operational side, it's not that we didn't have supplier constraints, but most of them were cleared up. There was one last thing and it's still with us now, and it's in the area of casting. And now we're talking about not just the casting itself, but the machining side of that casting that we continue to have to work on. And the foundry industry has lost its capacity for this type of casting now for several years, and we knew this was going to happen. We've got to try to get our arms around it and in the middle of the year, you saw that we were able to bring our foundry back at a competitive cost structure, and that's now in place and it's running. We converted it to compacted graphite, which was great on our foundry. And that's running. The next level of that is now the machining part of that so that we can get our cost down. And so that's still going on. It will be another -- it will probably be end of February before we get that all in place. So the first quarter will be impacted somewhat by that constraint. But other than that, I think the industry, in particular us, we should be more fluid in terms of our supply base and able to meet the demand that's out there with that one exception.

The other part is related to some below-the-line items. We had an OPEB ruling late in the quarter on our post-retirement liability that will affect us -- affected us by $9 million in the quarter, and I'll talk some more about that later. But the ruling came on in the courtroom that we will have and we've already appealed, we're going to have to find an answer for this. But that affected us by $9 million in the quarter.

And then our tax rate is somewhat complex. We have a VA that went back on the books earlier in the year. We also changed our agreement on our NC2 structure that impacted our taxes. And the rate actually ended up to be 15% versus our guidance of 10% and so if you adjust that back to the 10%, we'd have been $0.30 a share higher in our EPS. I think the important thing of that is that if you go forward, we're going to -- because of the VA going back on the books, our taxes from a GAAP basis will be in the range of 25% to 30%. Again, we'll talk about that in our February Analyst Day. But the cash part of that will remain low, probably in the area of 10%. So we're going to have a difference here in cash and GAAP. And we'll talk some more about that, as I said, on Analyst Day. But a strong quarter and a strong year.

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