Navistar Warns About Losses Related To Ford
Truck and diesel-engine maker Navistar International Corp., citing a “significant reduction” in engine orders from struggling Ford Motor Co., disclosed in a regulatory filing Wednesday that Navistar may have to record up to $430 million in charges to write down the value of assets linked to its Ford contract.
While best known as a maker of medium-duty trucks and heavy-duty trucks sold under the International brand, Navistar is also Ford’s sole provider of diesel engines used in heavy-duty Ford pickup trucks.
The longstanding supply contract has been a sore spot for Navistar for well over a year, because of a dispute between Ford and the supplier over contract pricing and certain warranty-related issues. The contract feud is headed for trial, and many observers think that Navistar’s engine-supply contract with Ford won’t be extended when it expires ?
The charges the company discusses in today’s Securities and Exchange filing are related not the legal fight, but to the dramatic dropoff in pickup-engine orders that Ford has placed with Navistar: surging fuel costs, combined with a sagging U.S. economy, have significantly reduced Ford pickup truck for sales in recent quarters, lowering demand for the diesels that Navistar provides the auto maker.
Navistar says in its filing that management has concluded that accounting regulations require the company to take a “material charge for impairment” of the ford-related assets, which include its engine plants in Indianapolis and Huntsville, Ala; and its Indianapolis foundry operation.
Of the total $375 million to $430 million in charges, Navistar said, only $25 million to $35 million will require cash outlays.
Based on the drop in demand from Ford, “and the expectation that Ford’s demand for diesel engines will continue to be below previously anticipated levels,” Navistar says, the company expects to record expenses in the fiscal year that ended Oct. 31 of $375 million to $430 million.
The majority of those charges will be recognized in the fiscal fourth quarter, Navistar said. In the charges, between $345 million and $385 million are expected to be non-cash charges to write down the value of those long-lived assets.
