DRIVE to DELIVER N Shareholders to 2012 Report Annual AV Deliver
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2012 Annual Report Navistar International Corporation 2701 Navistar Drive Lisle, IL 60532 USA DRIVE TO DELIVER N Annual Report2012 to Shareholders AV Deliver The International® DuraStar® deals with challenges ranging from repairing downed power lines to racing to a fire. To our shareholders, employees and customers: There is no question that Navistar is an Today, I see a company that operates American icon – a company that has according to six guiding principles: quality; historically endured through many market urgency; reduced cost; leading-edge products; cycles and many changes in the business. customer satisfaction; and realizing the While this year presented major challenges, potential of our people. I also see a team that we have embarked on a concerted turnaround is aligned around three priorities for 2013: process with strong assets, including great making a major improvement in product products, a motivated workforce and a best- quality; hitting every one of our critical truck in-class network of dealers who are continuing and engine launch dates; and delivering on our to expand their businesses. The company is operating plan while maximizing manufacturing acting with new urgency, tackling each issue cash flow. quickly and accelerating the process of driving Improving quality Navistar supports its Navistar forward. customers with many great products, including Although much remains to be done to our flagship International ProStar+; but we return us to profitability and enable our need to continue to establish quality as the long-term success, the team has rapidly foundation for our company culture, making focused on removing the uncertainties in major improvements in product quality. At our path. Even before my arrival, Troy Clarke times we may face difficult choices, but we and other members of our senior leadership are committed to being the best at satisfying team were implementing actions to take our customers. This means fewer repair risks off the table. incidents and faster repair times to keep their ® We have quickly pivoted to the right engine International trucks on the road. It also means strategy. We have reduced or eliminated many continuously improving the processes by which uncertainties regarding our regulatory status we design, engineer and build our products, and cost structure. We have begun to take as we intend to become known as the quality steps to improve our manufacturing footprint. leader in our industry. And we have increased our emphasis on our Hitting our launches The entire core North American truck, engine and parts organization is committed to hitting every business for the foreseeable future. one of our truck launch dates. Our integrated execution team has worked around the clock to deliver the initial pilot build of the ProStar+ with the Cummins ISX 15-liter engine. Lewis B. Campbell Chairman and CEO Six Sigma Green Belt (right) Troy A. Clarke President and COO (left) Shown on the cover: International® ProStar+® Recognized as the leading Class 8 truck in the industry, its full potential is being unleashed with Cummins’ SCR aftertreatment. 2012 ANNUAL REPORT NAVISTAR | 1 RRD5558.indd 1 1/4/13 10:31 AM DRIVE TO DELIVER Improving Quality with a Sense of Urgency On November 12, the first vehicle rolled off leading position. We are using return on the line at our facility in Escobedo, Nuevo invested capital (ROIC) as a metric to help us Leon, Mexico, three days ahead of schedule. understand the steps needed for improvement On December 14, we made our first customer in each of our businesses. shipments, five days ahead of schedule. Today, Our goal is for the business as a whole to we are in full production. In March 2013, we achieve an ROIC greater than our weighted will enter pilot production of the International average cost of capital. Using this metric, ® ProStar+ with our own MaxxForce 13-liter we have already identified more than seven engine and the Cummins Emission Solutions businesses or programs, representing only SCR-based aftertreatment system. Full $260 million of revenue, that would generate production is on track to begin in April 2013. at least $52 million of EBIT improvement if In addition to meeting these launch dates, sold or discontinued. Actions we have already we are committed to meeting firm internal taken include shelving our MaxxForce 15-liter milestones for timing and quality. We have engine and initiating the sale of our interests in also engaged three customer fleets, who our India joint ventures. are providing us with real-time quality data Meanwhile, we are resolutely focused on to ensure that our new engines exceed reducing our overall cost structure in order to the quality of those being replaced. The lower our break-even cost. Before I came on bottom line: we are absolutely committed to board, the company had established an annual meeting or beating our launch dates, with cost reduction goal of $150 million to $175 unprecedented levels of quality. million; we now have a clear line of sight to “Drive to Deliver” on our 2013 plan exceed this range. We have taken actions to The final priority is delivering on our 2013 plan, achieving a significant year-over-year improvement in financial performance, while beginning to restore our core North American truck, engine and parts business to a market- From work zone to war zone, the International® WorkStar® is built to handle the most rugged jobs. 2 | NAVISTAR 2012 ANNUAL REPORT RRD5558.indd 2 1/4/13 10:31 AM Our long-term vision is to be regarded as the leader in quality, fuel economy, uptime and cost of ownership. improve working capital; completed a this year: Eugenio Clariond, Diane Gulyas, voluntary separation program and a reduction David Harrison and Steven Klinger. in force; and initiated actions to adjust our We appreciate their service, and wish them manufacturing footprint, including the closure well in their future endeavors. of our assembly plant in Texas. We have also In summary, the right strategy is in place to become a much more cash-focused company. turn this company around in the next 12 to During the fourth quarter, we concluded a 18 months. Our longer-term vision is for successful $200 million equity offer; and we Navistar to be regarded as a leader on the ended the fiscal year with more than $1.5 issues that matter most to our customers billion in cash and marketable securities, – quality, fuel economy, uptime and cost of exceeding the top end of our guidance by ownership. We are committed to building more than 50 percent. We have also aligned a stronger, more profitable core business, our workforce to achieve our goals through complemented by strategic growth a new bonus plan, tied directly to our quality opportunities in key global markets. launch metrics and our targets for cash, overhead and EBITDA. Our new senior leadership team is clearly focused on the functional excellence that is We have also been closely engaged with required for us to achieve that vision. We are our board, on whose behalf I would like to acting with urgency to remove the remaining welcome new directors Vincent Intrieri, Sam obstacles in our path, while being transparent Merksamer, Jack Pope and Mark Rachesky. to all stakeholders. And we are committed to Our work is cut out for us, but our directors driving continuous improvement in creating are ready for the challenge, and they will be shareholder value in 2013 and beyond. constructive critics and valuable counselors as we continue to work toward our return to profitability. I would also like to extend our thanks to the directors who have left the board Lewis B. Campbell Chairman and CEO | Six Sigma Green Belt Financial Summary (in millions, except per share data) 2012 2011 2010 Sales and revenues, net $ 12,948 $ 13,958 $ 12,145 Segment Results: Truck $ (320) $ 336 $ 424 Engine (562) 84 51 Parts 240 287 266 Financial Services 91 129 95 Income (loss) before income taxes $ (1,182) $ 320 $ 290 Net income (loss) attributable to Navistar International Corporation (3,010) 1,723 223 Diluted earnings (loss) per share attributable to Navistar International Corporation (43.56) 22.64 3.05 2012 ANNUAL REPORT NAVISTAR | 3 DRIVE TO DELIVER Delivering Great Products…and Building Customer Satisfaction Great products are part of Navistar’s DNA, and Their common goal is to ensure that our trucks we are committed to continuing to deliver industry- are developed, tested and delivered to customers leading products and service. according to plan. Today’s first product priority is incorporating “The team is using common and best practice industry-leading SCR emissions control systems methods to assure we hit our delivery and quality from Cummins Inc. The first product out of the gate milestones,” Smith said. “Our Integrated Master is the International ProStar+, recognized by most as Schedule details the critical path elements, so that the leading Class 8 truck in the industry. Once we the team and leadership can focus on the most add Cummins’ SCR aftertreatment, it will be an even imperative elements of the plan.” better truck – unleashing the product’s full potential. Perhaps the most significant early milestone Driving that launch is our cross-functional product was the launch of the first ProStar+ with the development team, led by Tom Smith, director ISX 15-liter engine. Moving in parallel to the ISX of Global Chassis Systems. The group brings 15-liter program is the addition of Cummins’ SCR together our internal engineering team, engineers technology to the MaxxForce® 13-liter engine, from Cummins and other supplier partners, and which also powers the ProStar+. That team specialists from quality, purchasing, engineering, is committed to launch in April 2013, with manufacturing and other functions.