Navistar International Earnings Call NUGGETS: Expected Cash Burn, U.S. Engine Business
Expected Cash Burn
Henry Kirn – UBS: Could you give a little more detail on the expected cash burn over the next quarter?
Andrew J. (A. J.) Cederoth – EVP and CFO: Sorry, Henry. You broke up there. On the next quarter?
Henry Kirn – UBS: Sorry. Could you give a little more detail on the expected cash burn for the next quarter?
A Closer Look: Navistar Earnings Cheat Sheet>>
Andrew J. (A. J.) Cederoth – EVP and CFO: Sure. I think when you step back and you look at it, you should expect that cash earnings will be negative, which includes the estimates for our severance cost and our restructuring actions that we’ve taken – we’ve put underway. Working capital will be negative for the quarter as we talked about the impacts of volume within North America and the impacts of the military receivables. Now obviously, if we can collect that military receivable that creates an opportunity to improve that. We expect that we’ll spend about $100 million in capital as we complete the project that are underway, and then we’ll have some incremental pension and OPEB funding requirements within the fourth quarter, but those are the big elements of cash flow in the fourth quarter.
Henry Kirn – UBS: Then as a follow-up. Can you talk a little bit about the hurdles for a business to stay in the portfolio, any more specifics around the ROIC that you’d like to see in a business before you make the…?
Lewis B. Campbell – Chairman and Interim CEO: This is not a new process to many of us, so we’ve kind of seen this really before and we know it can be accomplished. Don’t think of this as selling off everything, the North American truck engine and part, that’s not the drill. We have a lot of good initiatives underway. So we’ll be working hard to understand why they aren’t positively contributing to ROIC and I believe we’ll make a lot of progress in those individual initiatives. If there isn’t an initiative however, that we can see our way clear to within reason to get a positive ROIC versus our weighted average cost to capital, then we’ll have to take another step and hopefully there won’t be too many of those, but whatever it is, it is. We’re going to stay focus on this until we get that job done. Do you have anything to that, Troy?
Troy Clarke – President, Truck & Engine: No, I thing that catches it very well. I think we’re (experiencing) a disappointing time from throwing out our hurdle rates. It’s really a process that I think a lot of the value with the analysis will tell us the kind of thing that we need to be doing.
U.S. Engine Business
Jerry Revich – Goldman Sachs: I want to know how you are thinking about the U.S. engine business within your ROIC framework. It looks like the business lost, call it, $300 million per year over the past couple of years. Are there any product lines that you’d consider in the exit bucket, is that up for discussion and if you could just help us get a sense for how you’re thinking about the opportunities or you committed to maintaining the full range of product lines that you currently have?
Troy Clarke – President, Truck & Engine: Let me say this integrated engine is core to our strategy and we’ll continue to be so. Until, we have been careful to say that our core North American business is about truck engine and that’s why what still need going forward. However, within that portfolio of businesses because our engine business is more than just the single engine and it’s more than just the engine that goes onto our truck, there are pieces to that business we’ll run through this assessment, our strategic assessment to make sure that the decisions that we made in past are still the right decisions going forward with regards to the level of integration in the value chain as an example and what we purchase versus what we make, so those things are all on that table, all in an effort of us to make the right decision to bring our business back to profitability and leadership as quickly as we can.
Jerry Revich – Goldman Sachs: I am wondering if you could flush out your organizational structure in a little bit more detail for us in terms of the changes versus – the last time you announced the structures, specifically you mentioned about P&L focus, just help us understand at which levels you’re going to be allocating P&L responsibility?
Troy Clarke – President, Truck & Engine: I think if I could just make a comment on that, there will be series of organizational announcements. I really don’t want to push out of those on the call if I can, but we’ll make these the announcements. Many of them will be public, some of those are in fact reorganized inside the Company to put the right decisions with the right folks. But if you can envision, just to kind of give you a tip off, our business is about designing great products, making great quality products, selling those products and so with the left side of the Chart number 10 that I referenced, a high degree of fidelity and emphasis on driving those three functions in particular, again for the satisfaction of our customers and ultimately, the satisfaction of our shareholders.
Jerry Revich – Goldman Sachs: So, functional focus, just to make sure I’m translating that right?
Troy Clarke – President, Truck & Engine: Yes, additional emphasis on functional focus.
Lewis B. Campbell – Chairman and Interim CEO: Let me add to that because I referred to this senior leadership team which is about a dozen folks, we’re not changing the reporting relationship (as from under) Troy. So, Troy will still have both of the big selling functions. He will also have – we’ve also decided to move purchasing under Troy to give more focus on material costs. He will have engineering. We’ll see a much clear line of sight between me, Troy and the rest of the organization and we’re doing this as quick as we can because we believe we can make better progress. We’re all in the same room with the same time. Our first meeting is Wednesday at 1 o’clock and we’re going to meet weekly until we get ourselves totally focused on taking this Company where we want to be. We’ve got a good operating plan too. I was really pleased to find that in place or almost in place when I got here. It’s being developed and will be finalized before our Board meeting in October.