Navistar International Corp. - Analyst/Investor Day

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Navistar International Corporation (NYSE:NAV) February 1, 2012 12:00 PM ET


Heather Kos - Vice President of Investor Relations

Daniel C. Ustian - Chairman, 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

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

Archie Massicotte - President

Eric Tech - Director and President of Engine Group - Navistar

Troy A. Clarke - President of Asia Pacific and Strategic Initiatives

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

Unknown Executive -


Henry Kirn - UBS Investment Bank, Research Division

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

Jerry Revich - Goldman Sachs Group Inc., Research Division

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

Joel G. Tiss - Buckingham Research Group, Inc.

Timothy J. Denoyer - Wolfe Trahan & Co.

Michael Shlisky - JP Morgan Chase & Co, Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Brian Sponheimer - Gabelli & Company, Inc.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Greg Royce

Stephen E. Volkmann - Jefferies & Company, Inc., Research Division

Heather Kos

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 an non-GAAP basis. The non-GAAP financial measures discussed in this webcast 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 these factors, that could cause actual results to differ materially from those projected in today's presentation, please refer to our most recent report on form 10-K and 10-Q and other SEC filings. We also refer you to the forward-looking statements and other cautionary note disclaimers presented in today's material for more information on the subject.

And with that, I'll turn over the presentation to Dan Ustian, Chairman, CEO and President.

Daniel C. Ustian

Thanks, Heather. Thank you. Good morning. If there's one thing I hope you walk away from today is about -- we're about integration. And this is not a new thing, as Dee pointed out. This has been our strategy about having the differentiation of us versus our competition be integration. Now what we're able to show you today is how that's going to happen.

But a big part of that integration also includes distribution and we have several of our top dealers here with us today. And first of all, I want to thank them for taking time to be here. And I'll also offer them to you during the breaks. So after the meeting on the floor, and I'm sure they can give you some more insights as well.

The agenda for our business leaders is to speak about their individual businesses. A.J. will wrap it up and then we're going to go back on the floor and show you products and technologies. And our product development people will do that for you.

I thought I'd ask you to step back a little bit and talk about how we got to where we're at and why we're doing this. And it really goes back to history. When you look around this building, you're going to see the pride that we have in our company, International Harvester's got its roots back to 175 years and you could see the products that we made here. I worked in a factory when I first started in the company in Louisville. We made everything there. We made agricultural products there, we made construction products there, we made lawnmowers there, we made Cub Cadet tractors there, we made transmissions there, we made axles there. And before I got there, we made refrigerators there. And we had 8,000 people there. And then it's gone.

Whereas as you know, there are many stories like that with International Harvester. And we reached the peak of over 100,000 employees at one time and we still have to deal with the post-retirement of those.

So part of our strategy was we needed to contain that. We have 42,000 still in the OPEB and the pension. We need to contain that and we did that some years back. We had a little blip here with the National HealthCare, has caused us some dismay. And we're going to get that back. Our commitment to our shareowners is we're going to figure out an answer to that and it needs to be in the short-term.

But we also needed to grow. So we make that less important to us. So we said we needed -- first of all, we said we needed to be from $7 billion to grow to $15 billion and then we said after we had a clear sight of that, we need to be a $20 billion company with commensurate profits. All centered around differentiation and integration. This is not a new thing. And not spend a lot of money doing it. And again, that's not a new thing.

So let's define on this chart. Let's look at the tasks. So we understand what we need to get done. That task is illustrated on this chart. You can see we always made money when things were good. And if you look at the black line on that, the black line displays where the North American industry was at certain years and what our results were. And you can see in 2006, the industry was 450,000 units and we made $838 million of segment profit. You can also see when volumes were lower, we didn't do well. So part of our strategy needs to be make money all the time. No matter what that market is. On the right side, you can see how that translates into earnings per share, and there's a big goal there to be made on that -- a $1 billion improvement.

So as we step back from it, you're not going to just follow all those to get that kind of improvement. So we had to do a lot of things. We have to have great products. This is some examples of the great products that we had put in place in the last 4 years. We've had to have a competitive cost structure. We've got a different cost structure than anyone else in the industry. Our manufacturing techniques are different than anyone in the industry. We have flexible manufacturing plants just to save us over $200 million. And of course, we all know the story about our in-cylinder answer on meeting emissions. By the way, perhaps you all saw we submitted that to the EPA yesterday, our in-cylinder answer to get the ultimate 0.2.

But we also said we needed to grow. Growth from the great dealers that we have, growth through the integration of the products we have and grow globally.

But there are 2 businesses that really supplied us the confidence that this was the right direction on integration, and that's the bus. Because we were always strong in buses, except making money. Not until we integrated it did we start making money. And today, we have a great business with that. The military is another example. There are people out there said -- both of these said, "That's not the way it's done. You will never compete in these industries by being integrated." And we said, "No." And you know the history on both of these. Both of these are the reasons why as we were doing all those things that we've defined as taking several years to get the right products in place, to get the cost structure in place and to grow, we've been able to make good profits commensurate with the targets that we had out there because of those 2 things in principle. So we can see from this chart that if you go back to the volume level of 2003, and that was 2011. So look at 2011, the black line is about the same level of industry that was there in 2003. We're about $1 billion better in results.

And then look at 2006, which really was the peak of the industry, which some would argue we'll never get to that point again, at least not for a while, was 450,000 units. So at 270,000 units, our manufacturing segment profit was higher than it was when the industry was at its peak. And that's the result of all those actions that we have put in place.

But here's the other part. Now this is a lineup of our products in 2007 and then a lineup of our products today. It's about threefold. We didn't spend anymore money in capital. And that includes what's in this building. So our capital for the last 5 years is less than it was when we only had those numbers of products.

Then here's the second point of it. What this building gives us. It gives us an opportunity to now have that product development be the same or less than it was when we had a much smaller volume and offerings of products. And that's what's going to happen by middle of this year. By the middle of this year, we'll have a rate of product development that's commensurate with what it was when we had 1/3 of the buck.

So here let's look at 2012 and kind of see how all that ties together. Clearly, we've all seen the budget constraints and what's going on in Congress and these pressures on government spending. And we set our goals for military spending, where we had a sustainable business of $1.5 billion to $2 billion. In this year, we're going to be on the low end of that $1.5 billion to $2 billion, but we've still got a great business and you're going to hear about that from Archie later.

The other thing that's happening in this year is the mix of that product. It's going to have tighter margins on that product. So the Military business for this year is going to be on the low-end of what we've established for our targets.

And so now we have to overcome that with the things we have put in place in every one of these business sectors. So Jack will talk to you about the great improvements that we're expecting on our North American truck. Eric will talk about engines. They'll both talk about parts and Troy will talk about the global business and how that's going to take off with the investments that we've made in it.

So let's put that back on the side now. In terms of manufacturing segment margin and then of course, EPS. So what we've said is military is going down. It's probably our highest margin as a percent given the times. That's going down. And we're still growing by $200 million in segment profit during that times because of the other things that you're going to hear about from our guys here today.

So let's talk about the status and where we are to the actions we need to be at that 1.8 segment and $20 billion. The ones we're already there on, the actions on the left side of this chart: Bus, Military, Latin America. The Breakthrough last year were the -- Parts were there. As those of you had an opportunity to take a tour through here, you're going to see why Jack is going to be able to talk about the breakthrough in results on North American Truck. Again, it's about integration. And Eric will talk about the same thing about Engine. But the future is growth in the global business. And I ask you not to think about how others are going to the market in the global business sector. Because if we're going to be a me-too player, you're probably right, it will be difficult and in a long time. What Troy will talk about is how we're going to enter that market special versus anybody that's out there and why that will make us successful.

So with that, Jack -- I'd like to introduce Jack Allen. You're going to see from our leaders here, we have a mixture of people with tremendous amount of experience with us and with our industry and Jack happens to be one of those. His background is in Truck. For over 25 years, Jack has been with us. He's been in Truck. He also ran our Engine business before Eric did for several years. So, Jack, thank you.

Jack J. Allen

Thanks, Dan. Good morning, everyone. And it's my pleasure to talk to you about the North American business today because as you all know, this business is in the midst of a lot of change. A lot of dynamic change going on, whether that's on the economy, with our customers or with regulations. On the economic front, we really don't see things as bad as you might read in the paper every morning. We've seen some good signs. And our volumes, as Dan talked about, has begun to recover. It's still got a lot of room to grow. Certainly, it's even to get back to prerecession levels. But our customers are doing okay. Trucking companies, the rates are good, the volumes are good. The ATA index was up almost 6% on a year-over-year basis which was the highest since 1998.

But on the regulatory side, this is a challenge. This is a lot of work. It's tough. And there's a lot of investment and costs going into -- for emissions and greenhouse gas and onboard diagnostics and such. But that's okay, that's our job, we understand that. And we have a good handle on that. And we intend to keep our customers away from the challenges and the work that we need to do from the emissions standpoint. And the real reason for that is that our customers are telling us, "Hey, we've got our own regulations to deal with and our own challenges in our industry." And whether that's from consolidation or whether that's hours of service, onboard recorders, our customers are telling us they were already even seeing drivers shortages even in these economic times. So there's a lot of factors that are impacting industry shifts. And whether that's from an increased use of intermodal, length of haul and of course driving 13-liter engines.

So how do we play in this? Dee went through this a little bit, but I happen to be a big hockey fan and there's no question that the greatest hockey player of all-time is Wayne Gretzky. And Wayne Gretzky has a saying that we think applies to us as we think about our strategy. What he said is that good hockey players -- and they know where the puck is and they skate to the puck. But great hockey players think about things differently. They anticipate. And they skate to where the puck is going. And really that's the essence of our strategy. How do we fully anticipate and understand where are our customers going? And how do we get there first? So what you're going to hear throughout today is how our strategy does that. How we use integration to drive differentiation for our strategy.

So where does that all start? Well, clearly, it starts with the pillars of our strategy and a focus on great products and costs and being able to grow. And doing this through a highly integrated system that allows us to capitalize on increased volumes and capitalize on the margin improvements that we've been able to make. Our strategy is really focused. And it starts with putting the customer right smack in the center and putting the customer first.

So we've been able to focus our efforts of integration around these 5 key areas. You could think of these 5 areas of focus independently. We think of it as being a tightly knitted web to be able to drive integration for us going forward. So clearly, you'll hear a lot about product, but it's not just about product. In today's environment, it's about distribution and about customer support. And you'll see we pay just as much attention to that as we do on the product side.

And we've been able to make investments in these areas, in products and then distribution and to be able to grow during the recession. And today, the market's up 45% from where the trough was in 2009. And we know that the signs for it going forward are upward also. And so we're going to be able to capitalize on that as those volumes continue to grow.

And today, we have the broadest product line of application-based products that's in the industry and certainly that our company has ever did. So we are being able to take advantage of that going forward, whether it's Class 4 to 8 trucks, whether it's a full line of 7 through 15-liter engines. And it's the integration of these that's really helping us out. It's driving performance, it's driving the cost of operation and it's driving the uptime in conjunction with our dealers in the market. And the result of that is the #1 or #2 market position in every segment we play in. And although we face some pretty tough competition today in the North American market. But we can't stand still. Our competition's tough, but more importantly is that our customer demands have continued to increase. So if you want to keep skating to where the puck is going, you better start with product and you better have the right products in the marketplace.

And one area where we can clearly say that we anticipate and got there before the puck did was our view of where 13-liters were going to go in the marketplace. And in 2011, the lines crossed and there were more 13-liters sold than 15-liters in 2011 for the first time. In our view, that would be the last time we even talk about 15-liters selling more than 13-liters. It's all driven by the weight, it's driven by the fuel economy, it's driven by the performance with the same horsepower and torque levels. There's no question in my mind this trend is going to continue. But we have a broad application base and we have skills and technologies to be able to cover the market in total. And that's why we're coming out with a 15-liter product. The Canadian dealers and Judd Havey [ph] back here, they've been all over us to get these engines out and get them in our complete product line, and we're doing that today. And you'll be able to see that in our share as time progresses here very shortly.

Well, let's talk about another one. Because it's been my experience over the last few years that you really can't have much of a meeting at Navistar without gravitating into a discussion about engine emissions and where we're going. And so as you've all read, over the last couple of weeks, once again our competitors, they're taking their best shot at us over this. And that's okay. If we didn't have them worried, they wouldn't be so vocal.

So let's start -- remember, what are we trying to accomplish here? First is an integrated powertrain to drive performance, control our destiny, a lot of reasons for that. Anticipate the market moving to 13-liters and being on ahead of that. And then the third one, achieve 0.2 emissions and achieve it without external after treatment. Without a doubt in our mind, and I think that of the industry, our solution is the simplest, it's the most customer friendly and we are providing equal or better performance than the SCR systems without adding to cost and without the maintenance or without the hassle of SCR.

So on our 0.2, as Dan said, we submitted that earlier this week. This is a production engine. This will have no degradation in performance. We've been working back and forth with the EPA now for a number of months on this submission. And as you know, it's a complicated process and it takes time. The EPA will evaluate our submission and we'll work back and forth with them. At the same time, we'll take the time to make sure that this engine and this calibration is ready for production. So what are we doing in the meantime? We have a clear path that we are going to be able to build this year and certify our engines in all 50 states. That's not under debate from our standpoint. How are we going to do that? Well certainly, we're going to use the credits that we have in our bank and we'll also, if required, we'll use other avenues that the EPA has put forward for us. And we think that if we do go down that path and the impact of those financially, this year will be minimal from that effect.

Our goal is to continue to demonstrate that we're a leader in this area, where we are the only manufacturer in the world who's going to have a 0.2 gram NOx engine -- out of the engine, engine out alone. We will have lower N20 levels than any SCR engine. And whereas Dee talked about, we're well prepared to meet the greenhouse gas regulations without any really large significant investments going forward.

So let me talk about some other products that we have going forward. And this is going to include for us a renewed focus on the vocational markets, where it's a great opportunity for us to create competitive advantage with our integration strategy and with our EGR engines. The WorkStar that you saw in the back today is coming forward with the Sloped Nose. And of course, the PayStar with the 15-liter engine, up to 550 horsepower. It's going to have a big improvement on our sales opportunities for 2012. And after a little hiatus, the LoneStar is back. It has a 500-horsepower 13-liter engine. And here in America, we're going to introduce a new entry in the Class 8, low cab forward market. All of these are great opportunities for us to grow our Class 8 market share and our performance in 2012.

We'll also continue in this year to leverage our assets and use partnerships to enter new markets and to develop new products. So what are couple of examples of that? Well clearly, the TerraStar that we talked about with you last year. This is a great market opportunity that we don't play in, it's purely incremental. It leverages the assets that we have in place from distribution, from product, from manufacturing. In our first year, we sold 3,000 of these in 2011 and then it grow even further because the 4x4 -- we don't even have available today, and the 4x4 makes up over 40% of this market going forward. So great opportunity for us to go forward.

Another was a real exciting news this morning that Dan and Tivo Pickens [ph] announced which is our agreement with Clean Energy relative to our entry into the natural gas market. This is really, in our mind, another example of skating to where the puck is going. And the real reason is, is that we're convinced that the only alternative fuel in the truck industry today that makes sense both with and ultimately without government incentives is going to be natural gas. We have over 100 years' supply of natural gas in this country. And we really have what I believe is a nationalism view about reducing our dependency on foreign oil, and natural gas fits right into that.

So why Navistar? While it's our integration strategy between the truck, the engine, the body, our suppliers and our dealers is really that's going to make us have the opportunity with a full product line to be a market leader in this area. And with great partners like Clean Energy and a couple others that we'll announce soon -- and our big nationwide dealer network. And we're convinced that this is going to be a great opportunity for Navistar. You'll hear more from this from Jim Hebe when we're down on the floor today.

So let me switch a minute to distribution. Having a broad and a great product line really doesn't ensure success without great distribution. And we had an industry-leading distribution network in the U.S., Canada and Mexico and it's been the envy of the industry for many years. But we're not sitting still. All of these dots on the map here represent investments by ourselves, by our dealers, by new dealers and our existing dealers who have made other investments to be able to upgrade our facilities, our people, our technicians.

So why are they doing that? Well, it's really about our integration strategy. As we bring forth integrated trucks and integrated engines, the requirements of our customers on the uptime of our vehicles continues to increase. And they're now going to our dealers rather than previously with Caterpillar dealer or Cummins dealer or Detroit Diesel dealer. So this is an investment that really is going to differentiate ourselves from our customers. But that's okay. Our dealers have been -- they've been dealing with integrated products on medium duty for 75 years. They know how to do this, and they're good at it. So making this incremental investment, while it's not easy, is logical, it makes sense and there's a good financial payback to both us and to them.

But with distribution, hand-in-hand is customer support. And the real key linkage of integration between the customer, the company and the dealer is our customer support organization. It's an integration advantage for us. It's really ripe in this building. So when you go downstairs today and before you walk out in the front, if you just look right back behind the lobby, this is our customer support center. It's where we've been able to bring a consolidated team of our repair advocates, our parts people, our warranty people, our diagnostic engineers, put them into one center to be able to focus on customer support. And that's up and running right now, so we will -- I don't know if they've got all the boxes put away, but we're getting there real quickly on that front.

And then when you go to Mid-America next month, we're going to demonstrate where the future is going with our smart truck technology. We're going to be able to provide alerts and information to the driver that provides an assessment of a pending issue, along with the diagnostics, where the closest repair facility is, the parts are in place and we've already scheduled the appointment for them going forward. Again, all around maximizing the uptime of our vehicles.

So let's talk about what that all means. For our truck and engine -- it's a great boom for our Parts business, this integration strategy. And it's been a big plus for our business and big plus for our shareowners also over the last number of years. So clearly, if you go back in time where we had an integrated strategy on medium duty, we had a total population of 500,000 maybe 600,000 engines out there and it was pretty stable over time. But now, things are changing quite dramatically for us. As we put 40,000 to 50,000 Big Bore engines and some growth in the medium duty into the equation, we're going to continually ramp up on the path here. And we know it won't be too many years before we have 1 million engines in the marketplace. What's that doing? Will it provide in parts sales for us? It's providing parts and service opportunities for our dealers. It's helping make them financially healthy. Financially healthy dealers can make further investments in customer support, further investments in our brand going forward and that's real positive for us too.

On the Parts side, we're already seeing over the past number of years, 10% compounded growth in our Parts business for a lot of reasons. One of the big drivers of that, of course, is our integrated engines. So as we go forward up this curve, we anticipate even a greater increase in our Parts business as we move to get 1 million engines in the field.

Integrated trucks is a growth opportunity for us. And you heard some discussions about that already this morning, and you've already seen some examples. But what we're really doing is following the integration model that Dan described where we've been able to employ in our school bus business and our Military business. And today, we're taking that into our mixer business. And as Dee described, the integration opportunities here to improve performance and improve quality and orders to delivery are really great opportunities for us in the mixers and beyond.

So where can we go with that? We believe that we can make a competitive vehicle at a lower cost with greater performance through the integration of the truck, the engine and the body going forward. And versus designing them piecemeal, and whether there's opportunities to put bodies in our TerraStars or now going in to the front discharge mixer business along with the rear discharge that we have at Continental. The bottom left here shows a whole array of opportunities ahead of us and opportunities that we see going forward.

Our Alabama facility is really a great opportunity for us to enable the integration of this strategy. On the fabrication opportunities, on the assembly opportunities for both trucks and for bodies, and really its location and where it's at from a logistic standpoint, its proximity to Huntsville engine plant, just an hour away, is going to make us really have a great opportunity with Alabama as we go forward.

And Alabama is going to be part of our flexible manufacturing strategy that's been in place now for a couple of years and it's resulted in over $200 million of savings to our North American business. And then this facility here, it's really the next opportunity for us to have a serious cost improvement in our products and in our expenses through the integration of the truck and engine product development organizations.

We're already seeing beginnings of this benefit. This isn't everything that's ahead of us. It's a great opportunity ahead of us, but we've seen these results here now for the last couple of years where we've been improving the results of the core business by driving down our break even. In 2012, we'll hit accumulative factor over the last 3 years of a 40% reduction in our break even. And at the same time, we're capitalizing on the increased volumes that's come from market share gains, as well as obviously the industry recovery, but we see more of that opportunity ahead of us.

So going forward, we believe this is going to continue. We're saying right now that our 2012 industry forecast is, give or take, a 15% increase over 2011. But we believe that 2013 and '14 will again have increased volumes from an industry standpoint and getting us back up into kind of that normal range.

On the share side, we reached 40% on medium duty. So we got -- recovered some share here in 2011. We think there's some opportunity to improve that going forward, but we're going to obviously balance pricing and margins against the share opportunities and do what the right thing is for the business going forward.

But clearly, Class 8 is a share opportunity for us. Just a few examples, in the 15-liter, Ford this year in earnest and being able to reap the benefits of that, maturity of the 13-liter EGR strategy, and then the other products I showed you from the WorkStar to the PayStar and other models that we have going forward.

Now as some of you may be aware, there is a situation that's going on right now in the industry relative to brakes. We were informed on January 20 from one of our really good brake suppliers. They're a good company, they're a good supplier but they've got a situation that they're dealing with right now that's having an impact. There's an industry-wide stop-ship and field fix that's been announced relative to some brake failures around the traction control stability control device for one of the suppliers out there. It doesn't affect everybody in the industry, it doesn't even affect all of our products, but it's a serious situation. And as a result for us, we haven't shipped a whole lot of trucks since January 20, and many of these will be held up now into the second and third week of February.

So the unfortunate part about that of course is that we're not satisfying our truck customers with the right deliveries but it also crosses over our quarter end. Now we'll get some of this -- we'll get all of this volume back this year. I don't have any doubts about that. The cost is going to be a challenge for us. It's quite a disruption for our operations and we're going to have to work hard to get that cost out. But we'll do that.

But as you can see for the right-hand part of the chart, putting that aside here is a temporary challenge. We see the North American core business becoming -- getting to $10 billion by 2014. And I hope I've already been able to demonstrate to you that we're going to continue to see a significant amount of parts growth into our business.

So let me just sum this up. In North American business standpoint, we've made some really great strides here over the last couple of years, but we're not done. The industry recovery is going to help, clearly, with increased volumes. We continue to be focused on being the market leader in all segments. Our distribution organization is doing great. They know they have a lot more to do. They know they can do a whole lot more and we're working hand-in-hand with them going forward. We'll continue to invest in new products and in our niche markets. And our proprietary engines are going to drive performance for our Truck business as well as fuel the growth for our Parts business. And we're focused on improving margins and doing that by lowering our breakevens going forward. All told, our focus around being the best and bringing the best integrated vehicle solutions forward for our consumers.

Thank you for your time this morning and look forward to spending more time with you as the day progresses. Thank you.

And now it's my pleasure to introduce Archie Massicotte. As Dan described, he is another graybeard. He's been here -- his first number's a 3, not a 2. But that's okay. I've had the pleasure of probably knowing Archie for at least 20 of those 30 years. We worked a lot together. But you know, in the mid-2000s, Archie started up our Military business and he started from nothing. And he managed it well through a business where the defense budgets were healthy. And he's going to do a great job this year and going forward with even a little more challenge with where we go with military budgets.

So, Arch, come on up in here and talk about the Military business.

Archie Massicotte

Good morning. Dan talked about Louisville, I think he was in this picture back when we started. And now, here's where we are today. But if you think about where this company has been in World War II and beyond, and now to move again to bring product and technology to the forefront in today's activities, it says a lot. And the proudest thing for me is I get these calls from parents where their kids have either been in, in one of our vehicles that has been in an iED event and they call me up to go congratulate me and thank me all day long because their truck -- our truck saved their son's or daughter's lives. And it's a very rewarding thing. We come to work everyday and we have a saying, "We work as if our job -- as if our lives depend on it because they do." This is what the vehicles do, saving lives everyday.

And the other part of this and goes back to what we've been talking about all day about leveraging the assets that we have because that's truly what we've done. When you look at what we've been able to do is going to this business and develop a sustainable business with 0 investment. And the investment that's been made is primarily people. And I'm going to tell you that it's only a small group of people that today run the business that we have today.

And if you look at what we've done is being able to integrate the body technology, both becoming a full-service logistics provider. And when I say that, I've talked about some of the mechanics in the FSR service that we provide in the field. And I'll talk more about that later. But then also driving the Parts business that comes with this product and business.

This slide says it all. This is what we've been saying year-over-year. Again, we had another great year last year. I know a lot of you folks weren't too sure we were going to hit $2 billion, but we did. And I'm here to tell you that woe me, defense budgets are going to impact us, but that is not going to stop us. And we're going to provide solutions out there that I'm going to show you on where we're going and how we're changing our business model now that's going to support the lower budgets, but also assist the military and other governments on how to get more for less.

And I think one of the key things that we do well, and I told this constantly all day long, don't become a defense contract. Then you look at the guys say, "What do you mean?" Well, you guys treat us like a customer. And the other contractors treat us like contractors. We give them $1 billion contracts, they won't even pick up the phone. And we always -- again, using the analogy of going where the puck is, we're going where the puck is. Again, when you look at what's become, and now think about this, in the last 6 years, and you all know how many years it takes to develop a product and go to market with the product. And in the last 6 years, well we've been able to demonstrate as kind of that portfolio of products all built off the WorkStar chassis that's already been developed for other markets in the commercial side. And we've been able to leverage a lot of the thinking that goes into the commerciality and demonstrate to the government that you don't need a commercial -- or I mean, a military designed product to go out into the battlefield that we're in. And that's what we've been doing and it's been done very successfully.

Today, of that product portfolio there, we have little over 32,000 vehicles in the field in about 26 countries. And that's all within the last 6 years.

When you talk about the 1-2-3 strategy, this emulates in our business as well. Because if you look at the top left there, that's just a standard old commercial wrecker that we sell in the commercial world everyday. Now we've been able to take that thinking and put it into an MRAP and go out and provide a militarized armored solution that will defeat mines and everything else in the battlefield that we're doing with the MRAP. And we've done that now on various products. Again, with the thinking on the engine side with the 13-liter going out with Tatra including an 8x8 solution and a 6x6 solution that we're bidding on in other foreign contracts that we feel very confident in. And that happens to be going to Canada.

When you look at where -- what we've done and this again, talks about taking every point of our commerciality and leveraging it across every aspect of the business that we do for the military. This is where it all comes together and this is where our model now has changed a little bit, where we're taking the growth side of our business into the FSRs, the field sustainment, the trading and all the other things. So this is just another testament of kind of the thinking that we're using here.

When you look at the vehicles themselves, and this is again, the system technical support that we do up in Madison Heights. With that, we provide the first initial product, we bring it back in, then the Army starts thinking about what more can we do with this vehicle? So we'll design new technology into our vehicle, integrate it in, bring the product to the forefront and then use our service people to integrate that solution onto the product. And we have a full team of people doing that all day long, and that's part of the big piece of our business going forward as well.

Rolling chassis. Now as you know, this one here just hit the press not long ago where we've got a $990 million contract to provide rolling chassis. And what you'll see out in the front is what we've made from what we've taken the rolling chassis we're going to throw away, and we demonstrated to the Army that you don't want to throw this away, we could make this into something else. So we'll show you that when we're on the floor out there. But what this is about is taking MRAPs that we sold early on in the fight 2006 and 2007 -- rather in '08, where we've now taken new chassis, independent suspension. They're bringing them back for the fight. We're rolling new chassis and we're bringing the vehicle back up to brand-new standards and then it will go back into either Afghanistan or be stored, unfortunately, for future use. But that's what we're doing to continue and leverage what we're doing here today. The ISS Kits, again on the MaxxPro Plus, those aren't coming back. That stuff that we'll do in the battlefield with our FSRs and integrate new suspension, new technology onto those vehicles as well. And then ultimately, when we get done, this is what the suspension looks like for the field service for the ISS upgrade.

When you look -- you guys all remember the model probably a year ago where that model -- those pie charts used to have 2,000 MRAPs and 250 TACOM units or some other truck value that was in there of what we're going to build. We have now as you see, you don't see many vehicles in there other than the U.S. and FMS at the bottom of the chart. Where we have gone now is full capability insertion, parts and services remain where we are headed and that's where the $1.5 billion that we have up there as a target is what we have to leverage those kinds of business thinking to bring that kind of revenue.

But on the bottom, when you look at the opportunities with the SMP program with Canada, the JLTV, the light tactical support vehicles that we're providing, and then other foreign military. But we're also looking at engine repower. And there's other engine repower opportunities out there that we're working on right now with other companies such as Indigen and others that we're bringing different type of products that we'll be manufacturing in our West Point facility. And we're being asked by a whole lot of other people who want to play in JLTV as to whether or not we would manufacture their product for them. And we're evaluating that. We have to sit and figure out our own strategy first and we've got a great path there as well.

Now if you talk about where the puck is going, I could start with the left-hand side of this chart then go to the right, because this is a business we are told we're not going to get. When we went to Afghanistan and Iraq and so on when the bomb and the threats got larger, they kept going out and telling us that we needed to go out and buy another vehicle. We said, "You don't need another vehicle, just let us upgrade what we have and bring solutions to you." So when we went out and developed the MRAP plus kit which was a Tanama tire and provided heavy armored solutions to them. That yield is about -- I'm sorry about 2,500 trucks incremental to what we already had.

When we went out with the recovered unit, we said, "Well, we don't need a recovered unit, we have one." But we didn't stop. We built that truck, we went to Aberdeen, we tested it with our own penny. And that tested so well that, that started the thinking of where they are going. To date, we now have fielded over 390 of those trucks and those trucks are running in the battlefield today, recovering everything. And I'm happy to say we just got a report the other day that they're running about an up-tempo rate of about 97% uptime. That's pretty remarkable.

When you look at the MXT, we built that truck anticipating trying to get that into the U.S. Military and other markets. Well, that's what we're putting into the British government today. They're using that vehicle in Afghanistan as well. And today, they want to use that just as a logistics vehicle. Well, it's going well beyond the logistics vehicle, that is the vehicle of choice that anybody that goes outside the wire, they're in that vehicle. And that truck is also -- got great stories that come back in the lives that it saves.

The MaxxPro ambulance, you all know that story. We don't need your ambulance, we have a different model that we're using and we continued down that path. We tested, we went into the medical evaluation process with the government. And lo and behold, the other vehicle that they bought didn't do so well, and that contract came to us. And now we're looking in upgrading that into kits that we could field fit into the market into other MRAPs that are out in the battlefield today. So there's some other legacy things that are going to come out beyond that.

Now where's the puck really going? The puck's really going to Saratoga. And that's the vehicle that we developed and we took to show in AUSA in October. And that's the first time we put that vehicle up front of the media and the rest of the world. And we put a price tag that we put on that vehicle of $250,000. And when you look at $250,000 vehicle that's going to have MRAP survivability, that's going to be hit a weight target that could be transportable by Helo, it's going to have all the features that you could have, then why would you go to a Humvee Rebar or a Humvee Recap? Because if you're going to put $180,000 into an existing Humvee that has -- Humvee has done a great job, trust me. It's been a long vehicle and never designed to do what they wanted to do. Now that's finally resonated and they killed that program. Humvee Recap has finally met its did day and they said we're not going to do it. Well as you look forward into the $250,000 price point, well guess where JLTV is today? When you look at the thinking that went in and we cross ours into the thinking that went into the RFP that is now out on the street as of last week, of what that price point has to hit. And that's what's written in the RFP, $250,000 price point. We've demonstrated that. And what I didn't tell you is the fact that we took the Saratoga, took the Aberdeen just like we did with all the other vehicles, we paid for the testing. The Army tested it at the levels they wanted to, I can't speak for those. But they passed superbly. And now what they've done is classified all the information and we're working with them to get our data back. But that's okay.

But at the end of the day, this is kind of where this thing is headed. And we have to work and do what we need to do to stand up a JLTV-variant that is going to be in the forefront of the fray when it comes down to the final decision. And I think we're on a point of developing -- you'll see one out there today. Gen. McChrystal sits on our board and when we showed him this vehicle sometime back, his first remark was, "Man, you guys got it. You guys finally are getting the message. This is what the industry needs to do." And it's a great testament to some of the thinking that went on in engineering and what goes on in the back shop here on how we move forward.

There is Saratoga, that is the product that we're -- seen out there today. And I promised Mr. Carell [ph] that he'll get to drive it today too.

So anyway, thanks very much. Now I want to introduce Eric Tech. Eric is the President of our Engine Group. Eric comes with us from the Ford Motor Company which he has a distinguished career over there, manned the super duty programs and now has evolved into the Engine side of our business running the Engine group. And as you can imagine, with all the emissions stuff that we've done and the thinking that's going to take place between Eric and Raman [ph], that's got us where we are today.

So Eric, thanks very much.

Eric Tech

Thank you, Archie. I appreciate the introduction. And I thank all of you for being here today. What I wanted to describe to you today is how integration -- how engine integration is the key part of the overall Navistar puzzle and how we really derive value to the enterprise. I want to talk about how engine integration drives better products for our customers, how we're able to improve our costs and margins through scale and stability and really generate a vital Parts business and ultimately a service business as well.

And I want to talk about how we can leverage what we've built, leverage those assets which is in our case, our engine platforms and grow into OEM markets here in the U.S., as well as use that as a launching pad for growing an Engine business as well as a Truck business globally.

And finally, I want to talk about how by vertically integrating back into components, we are able to control our own destiny and control our costs and technologies.

So how was it that Engine really drives integration and drives the Truck business for Navistar? Well, really the heart of every truck is it's engine. And 100% of the Navistar trucks which are sold in the U.S. have MaxxForce power. And we think that's a key advantage for Navistar and for the Navistar brands.

And MaxxForce is not just an engine offering in one of our trucks. It is designed together with our trucks, it is developed together with our trucks, it is tested with our trucks as one. Examples of this allow our engineers to make some key trade-offs way upfront in the process and that really benefit the customer. For instance, when we do a cooling system, we look at the cooling system of both the present engine and the chassis together and maximize the heat rejection and minimize things like fan on time which makes for more efficient trucks with better NVH. It means that we're able to look at the whole package right from the design phase and minimize the weight of the overall package. And that improves our GBW capability of our vehicles which allows our vehicles to haul more weight. And we have peerless powertrain matching by doing this altogether. And that's where we can get to the world-class emissions and fuel economy simultaneously on our truck platforms.

Now talking about margin and how we can improve costs. I mentioned scale and stability before and really, that's going to be a key theme for the engine company. Last year, we produced over 32,000 Big Bore engines and that's just going up this year and we'll continue to rise. As we get to that level of scale, with stable engine platforms, it allows us to take some significant material cost out. And it allows us to look at our supply chain optimization. Now for instance, we're now able to take components that were originally sourced over in the Eurozone, typically in Germany, and bring them onshore. These are things like pistons and valve seats, carrying significant material cost opportunities and shortening our supply lines and logistics costs as well as reducing working capital, all at the same time.

The scale also translates into our manufacturing facilities. We started at the beginning of last year and we have some extra people in anticipation of the ramp-up into the year. But as we brought volume into our plants, we had a significant reduction in HPU as you can see from the chart. And we have goals to continue to drive our HPU down going forward.

And finally, we're doing more internally. We are now in the process of launching castings in our own facilities and we're doing increasing amount of machining within our own walls. Now we're still -- variance in launch costs associated, even here in the first quarter. But this is going to be a key part of our strategy going forward to internalize these type of components and the value that they drive.

But is it just about making better products at lower costs? No, there's more to it. Jack brought this up in his presentation. But Engine is a big driver of Parts sales. I mean, we've already demonstrated this model in the inline business. We have a large inline capacity out there, install base and Phyllis [ph] in the Parts team -- see that in Parts revenue, proprietary Parts revenue that comes with it. Well, you ain't seen nothing yet. Because with a Big Bore and the growth of the Big Bore that Jack referenced, we're going to have a significant install base of Big Bore engines which will also be generating future Parts revenues and profitability opportunities. So we see the Engine as really the catalyst for improving our Parts revenue and improving Parts profitability going forward.

And I've talked about -- when we talk about leveraging assets, what are our assets? Well, our assets are engine platforms. We've already developed a vast array of engine platforms to cover all sorts of models within the truck company. So what do we do with those? Well, we go and we sell, sell, sell. We've already gotten a foothold by selling into areas such as yard tractor, fire and rescue, and RV and we're going to continue down that trend, finding both new customers and new segments that we can sell into. And the key to this is it doesn't cost a lot of money because we've already designed the engines. If you look at the 13-liter, the picture of the 13-liter up there, that's a 13-liter Class A truck engine. To convert that into a high-margin fire truck engine is really just a handful of parts. And most of the testing and prove-up is already been done relative to the Class A customer. So if this doesn't take a lot of money, it doesn't take a lot of effort and opens us up to a completely different market segment with very good margins.

And this same thinking translates into the global world. We've got a vast -- we've got a very good stable of engines from our MWM subsidiary down in South America. A typically smaller displacements, up to 7 liters, as well as large displacement engines that we built up here. Well between the 2, we have the capability to meet virtually all of the global customers' needs.

And here's an example. A medium-duty engine, a version of our DT, sold -- what we make here in the U.S., that can work as a heavy-duty engine in a lot of these markets at a lower displacement, lower cost but it still meets the durability requirements, it still meets the power requirements of those customers. So now we leverage a medium engine from the U.S. and make it into a heavy-duty engine for a global customer.

The integration theme really translates well into global because beyond just selling engines, when we team up with a truck partner like Mahindra and we do the engine and truck together, we can create some really exciting results. And we have a 207-horsepower version of that Mahindra truck with our engine in it, which competes against 170-horsepower competitor with the same fuel economy. So we can provide the same fuel economy with more horsepower, which means that customer can get their loads delivered faster and turn that truck around quicker and really create more value for him. And working with our new partners in China, we're putting a 3.2-liter engine against a major competitor's 3.8-liter engine and we're getting the same horsepower and a smaller package. And as we localize that engine in China, we think we're going to be able to get our cost under them as well. And here's another key, we're doing that you're for configuration, we're doing that at a Euro corp. configuration, we're doing that without SCR which is not typical for that market. So we're able to achieve some really significant opportunities.

So before I sum up, I want to talk about Pure Power technology because I think this is really something that excites me and I think some of you had a chance to come see that facility. But let me remind you what a Pure Power -- how it came to be. There's a number of different things that we have combined together. We've bought Continental's fuel system group down in South Carolina and thus becoming -- internalizing our medium-duty high-pressure fuel system and taking control of one of the key elements of engine technology. And then we bought Holley carburetor which is a great company with some great technology but they're struggling in the downturn. So we had to bring those guys in. We bought that company and integrated it into the Pure Power team down in South Carolina.

We picked up a share of a Danish company, a real fantastic company with some slick after-treatment technology, the Amminex, as well as we bought the Eaton after-treatment business. Thus, giving us access to after-treatment technology. And that technology might find its way here in the trucks in the U.S., but it also gives us a real edge when we go into these foreign markets where the fuel quality doesn't necessarily lend itself to the same emission solutions. We have this portfolio of technologies that we have access to or control that we can utilize for these other products going forward.

And finally, our foundries. We reactivated and re-opened Indianapolis and started pouring CGI metal there. And now we have -- and this is really been a good move for us because in an increasing concentrated industry of large castings, it means that we now have the capability to do this. And we're in the process of launching and adding capacity in that foundry today. So we won't exactly see the fruits of that labor just yet, but as we go forward, you're going to see there's been more and more important part of controlling our destiny and controlling our costs.

So in conclusion. I spent pretty exciting few years and I think back to '10 when we lost a major customer and a very significant part of our business and we had to look at, "Hey, how are we going to transition from that? Where are we going to take the business?" In 2011, we really demonstrated by launching a full range of products that we have now stabilized our product portfolio and we're starting to achieve scale here in North America, while growing on markets abroad. So we see this year, 2012, is really a year that we can begin to demonstrate some good results.

If you look at the revenue growth at the bottom from '10 to '11 to '12, we this as a great trajectory. Back in '11, we made some profitability. We're shooting for between $75 million and $100 million. We came in that range. Well, this year our goal is to double that profitability going into 2012.

Of course, that will be back-end loaded. I've mentioned the -- a few of the costs associated with the starting up our foundry and bringing some machining online here. And of course, in the first quarter, we always deal with our shutdowns both here and in South America. And South America also has a euro break, they want from euro 3 to euro 5. But even during these shutdowns, what we do is we take that as an opportunity to install new equipment, to really focus on improving the quality and improving the efficiency of our operations. And we have done that both here and in South America over the shutdown. So we feel that we really have set the stage now for improving profitability as the year goes forward.

And our goal is to get to between $5 billion and $5.5 billion as we get to that industry of $250 million. And we really feel -- no, $350,000. And we really feel confident in that goal and we know that we have the right plan in place to do it.

So we feel that we really have set the stage now for improving profitability as the year goes forward. And our goal is to get to between $5 billion and $5.5 billion as we get to that industry of $250 million. And we really feel -- $350,000. And we really feel confident in that goal, and we know that we have the right plan in place to do it. So thank you very much for your time, and I'd now like to introduce Troy Clarke.

Now Troy is another refugee ex-car guy like myself except he came from a different company, from General Motors, where he enjoyed, I think, 35 years there. Now 3 in front of your number as well. Troy, he kind of started in the -- as a manufacturing guy, but ultimately took on a greater and greater role in the business. And he ran Ford of Mexico at a time of significant growth in that business during the NAFTA times. He went overseas again, working in Southeast Asia and was President of Ford Asia -- or, excuse me, of General Motors Asia Pacific at a time when really China was, I think, one of the brightest spots in the GM empire and then really come into its age. So I can't think of a better guy to help drive Navistar around the world, especially in Asia, than Troy Clarke. Troy?

Troy A. Clarke

Hey, thanks, Eric. And certainly, thanks, all of you, for the exciting opportunity to present Navistar's global growth and the progress that we've made.

We certainly know that to grow, we've got to enter markets outside of North America. We also know that we can't just follow the competition and do what they did. A lot of them have been in markets that we're not, and they've been there for a long period of time.

Differentiation and integration, as you saw, is a key part of our strategy at every level of our business, and global is no exception. We do that by building teams in key markets, creating world-class distribution, leveraging that presence, which, in some cases, involves partners. We look to identify product opportunities that we can move into quickly, okay, and act on and then continue to build out that presence. And all the time, we have to drive ourselves. This isn't easy, but we have to drive ourselves to be differentiated in markets where we're just gathering experience.

Today, the foundation is in place to support the accomplishment of what we believe to be a very meaningful goal: significant revenue and earnings from our business activities outside of North America, results that are going to continue to grow and, you will see, will be a very important part of Navistar's earnings as we go forward.

Now this is kind of what we told you last year. 2011 or 2010, 2011, years of investment, years of planning, okay, supporting our global Engine business and also working to expand our global Truck business. 2011 was profitable, okay, but the Truck business within 2011 was about breakeven. 2012, this is the year when we will count positive earnings across-the-board, Engine, Parts and the global Truck business, with accelerating results after that.

Let me talk to you a little bit about what we got done in 2011. We entered the Brazilian market. We completed the launch of a full line of award-winning products in India. And we broke ground on our new engine plant in China. We launched new products in Latin America to include our innovated concrete mixer from Continental Mixer (sic) [Mixers] with substantial sales in its very first year. We took over the #1 spot in the combined Indian and Central American market. And this is a market, as you'll note from the pie chart, everybody plays there. We successfully restructured NC2 to provide all the benefits that both CAT and Navistar are looking for, but without the cost and structure of a stand-alone joint venture. And I kind of like to point this out. These are the changes -- and we talked about this last year when we announced this. These changes are largely invisible to our customers, to our dealer partners, to our presence in the market. They're really made to simplify, speed up decision making and, ultimately, get products into the market, create our presence faster. Last but not least, we continue to build out our strong country leadership. We got a lot done, there's more to do. But 2011 was very important because we've turned the corner, and now we're ready to make money in the global arena at an accelerated rate.

Here's what we're doing. Between Engine, Parts and Truck, Navistar global revenues from 2007 to 2011 doubled. And by 2015, they will more than double again. No I haven't seen my part there. We show a range largely because we have some joint ventures in the case of China that are yet approved. And so the timing of those approvals will in fact impact how quickly that revenue comes. But you hear what I said. Our revenues will more than double in that same period of time.

But as I noted, it's really not our intention to just follow others into the global markets. We're using the capabilities that you see in the presentations of my colleagues to provide several avenues to enter markets. Some of them are not available to the competition. And we call this "Getting into these markets feet first." Well, that simply means the ability to carve out a significant position in a segment of the market that allows us to be better, faster, meaningfully differentiated in our customers' eyes. It's really to develop a solid footing that provides the opportunity for better earnings quicker. And in some markets, like Brazil or China, it makes sense. Engines, in fact, are the feet first. With engines, we got the opportunity to build our brands, service network, get to know customers' needs and really understand the markets.

In Latin America, we were able to enter directly with trucks that leverage basically our successful North American portfolio and those emission solutions. And in China, believe it or not, we may develop a first-mover advantage in the area of yellow school buses. And I'm going to come back and comment a little more about that later.

Hey, this is the playbook. In the center, we call it "Markets that Matter." But this is really just a representation of the customer, or hundreds of thousands of customers that are out there, for the type of products and services that we have to offer. We have prioritized markets that are both growing and markets that are evolving.

First, with regard to global markets. Hey, it's easier to get into a market that's growing. You don't kind of wrestle share away from the competition with discounts. That's kind of not our game plan. But it's also easier to enter markets that are changing. These changes include things like emission changes or markets like China that are moving very quickly from being a regional market to a more national market. And it also includes markets where improvements in highway and transportation infrastructure quickly reveal the need or maybe, I should say, the opportunity for products that increase the efficiency of the transportation chain and productivity and reduce transportation costs.

Understanding these changes, being nimble, quick, able to capitalize on them quickly, that's what Jack's referenced. It's skating to where the puck will be. We like markets where we can see where the puck is going, and we have the opportunity to get there fast. And that's a little bit of differentiation, in the way we choose to look at the global opportunity.

Not surprisingly, these are the markets that we're interested in. The markets go up, they go down a little bit. A couple of markets here, you'll notice on the slides, and this is J.D. Power data, they seem to be declining a little bit, but that's likely because they're tightening their credit as they're trying to get a hold of some inflation in those markets. But all agree none of these markets have peaked, and most forecasts project that the combined growth of these markets will be 25%, about 25%, between 2010 and 2015, which is about 5% per year, which means there are still a lot of good growth in these markets, and so we're certainly -- we certainly believe that they are very attractive.

Now I'm not going to dwell on this too long, but I hope that you sense that this part is very important to me. I've spent a lot time in my career working outside of the U.S., and I believe that strong country leadership is very important. We leverage the capabilities of Navistar that you have seen here today basically to support strong country and regional leadership. Now you may not know the faces on the top of this chart. But between them, these are country and regional managers that between them have 147 years of experience in the Truck business with the majority of that time being outside the United States. And you'll also see the partners below that Dee referenced who are great partners who also have a global presence, which help us get into some places. With leaders in place, the next part of our play is integrated product.

So let me walk you through this slide. This is a slide that builds a little bit, so try to stay with me. We started with a cab-over product called the 9800. I referenced the 1990s there in Brazil and South Africa. Very contemporary to time. Solid, durable, still has a very positive reputation in the market. So I'll stick with this cab-over thing, though. We've just introduced, over 2010 and 2011, a full series of the Mahindra Navistar cab-overs. This is the same product that basically you'll see they will be in South Africa yet this year, and we will also introduce a version of it in Brazil next. And it's also the basis for an enhanced product that we call the AeroStar. This will be a significant Class 8 entry with at least 2 engine options, higher horsepower, better aerodynamics, class-leading ride and handling. And it will compete effectively with global cab-over competition in all categories but one: it will not cost us hundreds of millions of dollars to develop.

On the Aero Nose products, we've been selling PayStar and the 9000 Series tractors in Latin America for a while. Last year, we launched the ProStar, this year the TranStar and next year the LoneStar in Latin America. We'll also launch the ProStar and the TranStar this year in Brazil. And I certainly don't want to forget, last year we did launch the CAT 610/630 product in Australia. The significance of this is we're replacing these older platforms, which were certainly very capable, with platforms that are even more capable and have a better cost structure because they are leveraged off of higher-volume, more contemporary platforms. This is a pretty broad product portfolio. I can't tell you it is the broadest, but I got to tell you, it's pretty darn close.

We launched a lot of product. There's more coming into the pipeline for next year. And what's makes this possible is our approach to integration, as Dee noted earlier. A few years ago, we just could not have done this. And I would just again use a reference similar to Dee. Remember, a couple of years ago, we used to make jokes about how tough it was to hook up your VCR and to program it. Today, you don't think about that. Your video device hooks up automatically, matches up seamlessly with your TV, with your computer, with your cell phone even. We need you to think about that. This is the type of integration we're talking about when we say engines, chassis and controllers. That's why we can do this so fast. That's why we can do this so economically That's one of the reasons why we're going to win in these markets. These are products where the markets are going. This is where the puck will be, higher horsepower, next-gen emissions, minimal aftertreatment, longer life cycles, and all this leads to lower operating cost and to lower cost per ton-kilometer.

And we have an Engine portfolio that can support this product strategy. A big part of the integrated product is engine or, as Eric and others said, is, in fact, integrated engines. We have these key engines available on EPA and/or Euro and some of them in both. The specific example that Eric gave, the 7.2-liter engine. In a developed market, it's a medium-duty truck engine. In a developing market, it's a heavy-duty Class 8 engine that delivers unmatched horsepower-to-weight performance, packages betters, easier to maintain and weighs about 1,000 pounds less than the competition's big bore, which is servicing many portions of those segments. That's the advantage integrated engines provide. That's where the puck is moving, in places like India and China.

The next thing I'd like to comment on is strong distribution. The -- a large portion of our brand is, in fact, created in the dealership. It's why we work so hard, to not only get it right but to make it a source of differentiation. And our global plan is very straightforward: take the best practices that we've learned anywhere, and a lot of those, in fact, are in North America, and leverage them around the world. And what that means: dedication is to customer support as demonstrated in world-class training facilities, round-the-clock service and things like mobile support and guaranteed uptime; use of our partners' rolodex to help find and recruit suitable dealer candidates; and probably most important is creating a joint commitment where we invest in an ample product portfolio that allows dealers to be profitable and they invest in well-capitalized, modern facilities that support our brand, that have adequate working capital to make sure they get the right number of parts and are able to continue to invest and grow. In short, we are working to create a first-world distribution system in every developing country that we go.

This chart shows that we've got -- done a lot, but we've got some more to do. The green on this chart represents regions where we're satisfied with the dealer footprint. The yellow represents areas that we're still building. 2012, for me and a lot of my colleagues in global, is going to be a year focused on recruiting more dealers, especially in India and Brazil, as well as enhancing their capabilities.

The last part of our playbook, we call growth opportunities. This is really businesses that are enabled by our core Engine and Truck business. So let's talk first a minute about these. These are some examples from around the world.

We've already talked about the integrated concrete mixer in Latin America, which has been very successful. Eric referenced the OEM engines and the opportunity to grow that. And I'd like to take this as an opportunity to talk about buses, because the buses -- our buses are, in fact, a great example of the power of integration. Let's face it, the transit bus industry around the world, and I know you've traveled in many of these countries, is a dog's breakfast of engines, chassis and bodies. There are hundreds of brands, thousands of combinations.

Now I'm not saying that there aren't some big players out there or that there aren't good players, because they are. But none of them fully integrate their product. The world is ready for a bus that will go like it should, stop when it should every time, and doesn't leak when it rains, and a bus that can be serviced and warranted at a single dealer location. And that's what Navistar will do. Neobus in Brazil is going to be the cornerstone of that strategy. And as announced yesterday, John McKinney and his bus team have created a partnership between San Marino, which is an innovative Brazilian bus body company that has enjoyed 20% a year growth for the last 5 years. Marcopolo, the largest global body bus company in the world, and Navistar, the pioneer of integrated commercial products, to develop and produce integrated bus products in Brazil. And Brazil is just the starting point because basically, this is the technology, this is the approach that we're going to work to take around the world. So we need you to stay tuned on this one. This is a very important initiative at a global scale.

And if you -- make sure that you'd look outside if you could, and you'll see this what's called a BRT. It's an articulated bus that's sitting out front. This really represents the kind of companies that we're dealing with. From concept to production in less than a year, and they have 1,000 orders that they're now working to fill. And although we have the double-piece, articulated version, there's another one that's even longer that's got 3 pieces to it that holds about 270 passengers. And in many countries around the world that can't afford a light rail infrastructure, this type of bus is the solution. And these guys are, in fact, first mover, and now we're a part of that and we're part of that company in a big way.

And in addition, I promised to come back to this. John, alongside with our China team, has entered into discussion with a major city in China and 2 major vehicle manufacturers that want to introduce American-style yellow bus student transportation in China. Today, on the front page of the Shanghai Daily, a line-up of school buses, and it says the color of safety is yellow. IC Bus is recognized leader in safe and secure transportation that can go a long way to help not only take care of kids but reduce congestion in China's major cities. And recently, the Chinese Government has issued a new set of regulations that are patterned off of the U.S. and have given the industry only 3 years to comply with those regulations. We're privileged to be present at the beginning of this. We have actually had the opportunity to preview those regulations and make comments, and we have consulted with several cities who are interested in how do they set up traffic laws that allow them to take advantage of this type of technology. And in fact, the industry suggests, the recent forecasts suggest 2012 market for school buses that meets this new regulation is 20,000 units, and that will grow to 50,000 units a year by 2015. That's several times larger than the U.S. market, and we plan on being there. And by the way, one of the companies wants to sell Monaco motor homes in China. So we'll talk to them about that as well.

This is our playbook. It represents our thinking. When we do -- when we pull it all together and we do it right, we get the results. And Latin America is our breakthrough example for last year. Strong leadership, quick development and introduction of products to support opportunities like the Panama Canal expansion and the transport of oil in Colombia, leveraging client relationships, strong dealer partners, integrated products.

When you pull all together, what do you get? Our market share has grown about 25% since 2007. And what's more significant is we found we can change the market. In 2010, Aero products were about 35% of the market in all of Latin America. And today, it's nearly half. In 2007, there were virtually 0. And in 2003, it was 0 Aero Nose tractors sold in Peru. And today, 1/2 the Aero Nose tractors -- or 1/2 the tractors in Peru are, in fact, Aero Nose. Let's face it, when transportation systems begin to modernize this Aero Nose configuration offers the safest, most fuel-efficient, best ride handling and best ease of maintenance product that you can get. This is the kind of transformation that gives us confidence there's a lot of headroom, we could sell more of these products around the world, we've got to go dig them up to find out where they are. And in fact, in this area, these Aero Nose trucks, this may be where the puck is moving around the world.

Let me give you kind of a market-by-market rundown. As indicated, in Latin America, breakthrough year. Money we made there helped to offset investments and start-up costs in some of our other global truck initiatives. Truck sales have started off this year where they left off last year, a fairly brisk pace.

In Brazil, the MWM engine business, great foundation, record earnings last year. Trucks just got started. We're going to introduce some more trucks this year. We had some start-up losses, especially early this year, but we're gaining traction going into the next. We're going to build out the Parts business to correspond to the increased Truck business. We'll get the Neobus venture up and running. We need more dealers.

India. We're introducing integrated bulk haulers, refurbs and concrete mixers this spring. We need to double the distribution network. We'll get positive results in 2013.

China, we have 2 joint ventures. We expect engine joint venture to be approved very soon. That's weeks, not months. We did receive written authorization from the government to begin construction of the engine plant. That's a good sign. Truck venture approval is expected late this year or early next. Real opportunities in school bus. We'll also need more dealers there. I'd like to note that in the case of China, it takes a while to get these ventures approved, but it's really worth the wait. When the engine venture is approved, we will add a 2.8-liter Euro IV to the portfolio. Engine volumes in the engine venture will quickly ramp up to 80,000 units a year.

In the case of trucks, although the truck market in China was down 8% this year in the medium-, heavy-duty segments, our partner, basically operating off the business plan that we've incorporated into our joint venture agreement, has increased their sales 50%. We're really excited about our partners. We're really excited the business performance that will accrue very quickly after these ventures are finally approved.

Finishing up. We have a playbook. It works. It helps us anticipate the play. We're about accelerating our global results. We're about making some money. We're about being significant in Navistar's earnings. The market's growing and evolving. We got the products ready to go. 2012 is the year of the dealer for us. Global results will accelerate.

And now I'd like to introduce our CFO, A.J. Cederoth.

A.J. joined Navistar in 1990 and has broad financial experience in the company. He was a plant comptroller, so he knows manufacturing. He was a treasurer of finance group, so he knows distribution. And he was the CFO of the Engine group, which included MWM, so A.J. knows global. The best CFOs don’t just have strong financial acumen, they're accomplished businessmen in their own rights and strong leaders. A.J.'s uniquely qualified to guide Navistar in this exciting time. And with no further ado, let me get to A.J.

Andrew J. Cederoth

Thanks, Troy, for that introduction. And at this point, I think it's time to say good afternoon. So I'll try and keep this on pace and keep us moving.

Dan opened today, and he reiterated our strategy around great products, profitable growth and competitive cost and laid out the proof points to show that this strategy is working. And I think it's worth taking a moment to look at a few of these successes that have occurred thus far.

One area that's gone well is our products. One of these first investments that we made was the ProStar truck, and there's no doubt that this truck has established itself as one of the premier vehicles in the industry. This has been a success. We followed this up with a family of big bore engines. And here again, particularly with the 13-liter product, we've had a success. But this isn't the real story. The real story here is that because of these 2 products, we've been able to take what was a strength of our business, our distribution network, and make it stronger. Through the combined efforts of the company and our dealers, our distribution network is stronger than it's ever been. Still, we can do better. In 2012, you will see us expand our hours operation, improve our field support personnel and enhance our parts distribution capabilities to better support our dealers and to better serve our customers.

Next, I'd like to talk about competitive costs. Dan doesn't like it when I use this word, but this was a challenge. What I like about what we've done here is we've addressed this challenge. Jack talked about how we've reconfigured our manufacturing footprint to lower our costs and reduce our breakeven point. We've improved our product costs. And as our products continue to mature, these costs will continue to improve. And we've aggressively gone after our legacy costs. Unfortunately, as it relates to the legacy costs, we've had some setbacks. But we remain focused on finding a solution for these issues.

To me, growth is the most important part of our strategy. We recognize that we had to become a larger company in order to address the issue of our legacy costs. And as a result, we've expanded the number of markets that we participate in, and we are positioned to increase our share in each of these markets. So my assessment of the strategy thus far is that we've made significant improvement in changing the business of Navistar. And yet there are still plenty of opportunity left that will allow us to grow.

Today, our message has been focused around the strategic themes of integration and differentiation. This is the way we think. This is the way we believe we can create a competitive advantage for Navistar and value for our shareholders.

Jack highlighted the actions that we've taken to improve the performance of our core North American Truck business and put it on a path to achieve 10% segment profit. Navistar Defense has been a success for us, and there's no doubt this was the right direction to take the business. The way Archie and his team have grown this business with almost 0 direct investment, by leveraging his products off our commercial platforms, has changed the way the defense business looks at vehicles. And we aren't done. Today, Archie showed we can sustain this business going forward and set an expectation for future growth.

We heard from Eric on the value of our Engine business. Not only are our engines now fully integrated into our North American products, but our engine that is a catalyst for growth and a differentiator for us in the marketplace. Troy reinforced this point when he said that with our engine expertise, that we can create opportunities in global markets.

One important point that I liked in both Jack's presentation and Eric's presentation was the future opportunity created in servicing our products now that we control our engine technology. As the population of engines grow, the opportunity to service more customer expands and the potential for our Parts business will grow.

As I said at the beginning, the essence of our strategy is growth. With growth, we can more effectively leverage our investments in products, utilize our asset base and diversify our revenue so that we generate more consistent earnings over the cycle.

2008 was one of our best years. This was driven by record sales of inland vehicles to the military in support of their war effort in Iraq. By 2011, we have replaced those sales with expanded global sales and recovery in our core markets. Once the industry fully recovers, you'll see that military is a far less significant piece of the total. Global revenues will continue to expand, and all of our core businesses will be robust.

But the other thing that I take away from this chart is the diversity of the revenue we've created. This strategy is no longer simply a Class 8 market recovery strategy. It's about success in all of our businesses.

We started to use this chart this year to assess the progress towards our goal and to prove to ourselves that we're performing better over the cycle, and I think we are. Strategy is working. We've been profitable during the downturn because we diversified our revenue base and focused on servicing our customers. As volume has improved, we are generating better results at lower volumes, because, again, we've diversified our revenue and we focused on improving our cost structure. But this page also shows that we set a high expectation for future results.

2011 was a good year for Navistar. We generated improved results even though market demand was low by historical measures. We introduced several new products into the market, and the market has accepted those products.

2011 put us in position to be more successful once the market fully recovers. We now have a full integrated product offering. And as those product designs mature, we will be able to drive down costs and take advantage of the benefits of scale. Said simply, our cost structure will continue to improve, and our margins will expand.

As our new products gain acceptance and with the expertise of our dealers, we will grow our market share. We've already talked about the potential of our Parts business and the opportunity that it lays ahead of us in that business, and we've created a good foundation to achieve that.

Finally, we layer on the contribution of our global strategy. We've highlighted here 3 key markets for us, but there are more. Troy touched on the potential of the global strategy. This only represents a portion of that potential. It will take time longer for our global strategy to reach its full potential, and we look forward to that day. So this path represents what we have to do to reach our goal.

This chart represents how we plan to achieve our goal. It goes back to the core of our strategy, and it starts with great products, both trucks and engines. So we leverage those investments in a new market like we did with school buses, like we've done with the military.

But it really comes down to the thinking inside of our product development team: the concept of 1-2-3, taking what we have, creating new opportunities and doing this with very little investment. You really don't have to rely on me to convince you that this thinking will keep us on the path to success. We're going to take time later today to show you how our 1-2-3 thinking is going to work. Ramin Younessi, our chief engineer, will take you through that, and then trust me he'll show you how it will work.

Last year, we introduced the idea of return on invested capital as a way to measure success of our strategy through the lens of the investor. We measure this simply as the net after-tax operating return of the business measured against the paid-in capital and the total debt that we require. Clearly, this calculation is more complicated than what I've outlined here. I'll refer you to the appendix to do the actual math. But I think it's a simple formula that really challenges our thinking and forces us to think about the shareholder's point of view on our strategy.

My takeaway from this is that our strategy has us focused in the right direction, but we need to generate better returns. And I'm confident that we have a good strategy that's capable of delivering better results.

I have to admit that the 16% can't be our final goal. We have to aim higher. One of the things we've done with this chart is to illustrate to the right that if you take out the impact that our legacy costs have on our business, we have a business that's capable of generating 20%.

As we've increased our focus on return on investment, it's helped us focus on where we can dedicate our capital to create the most value. We've also listened to our shareholders in order to better understand your expectations and thoughts around how we should allocate capital.

Clearly, executing our strategy is the best use of our capital. By focusing on margin improvement, growth and diversifying our revenue, we can deliver more consistent and predictable earnings that will be more highly valued by the market. Second, we will continue to focus on better working capital utilization through process improvement, thus reducing the amount of cash that is required to run our business and give us the opportunity to reduce our long-term liabilities.

The first 2 priorities lead to the third. A well-executed strategy will drive value for our shareholders and will generate cash flow to address our liabilities. Reducing the drag these liabilities have on our value will allow us to improve our capital structure and improve the cash flow return of our strategy.

Now let's turn our attention to 2012. I'm not going to take the time here to read this page line by line. I think it's better to step back and take 2012 in the context of what's happening in our business.

First, our military revenue will be at the low end of the range, around closer to $1.5 billion. And we're seeing a shift in the mix of the products that we provide the military. Archie talked about this. He said it's less about delivering MRAPs, it's more about becoming a full-service supplier to the military.

But what's more important is that every one of our other businesses will do better in 2012. Jack walked you through what is happening in North America and the path of continuous improvement in this business that will drive better results. Eric talked about the goals for the Engine business. And despite some first quarter headwinds related to ramping up the foundry business, he expects to double his profitability in 2012. Then Troy gave us insight to the goals of our global business. And even though we're going through some start-up that's related to our business in Brazil early in the year, we are positioned in every market to have better results in 2012. On top of these plans is the continued growth of our Parts business, which continues on its path for 10% growth in 2012.

The summation of these activities is that we expect manufacturing segment profit to grow in 2012 to at least $1 billion, with the opportunity to reach a peak of $1.15 billion. However, 2012 is without some issues that we need to address. Our healthcare costs will increase in 2012.

Lastly, we've been working year-over-year on our engineering integration plan to move our people into this facility and to Melrose Park. These efforts will continue in 2012, so we have some incremental costs that, like last year, we've excluded from the results from operation. The benefit of this investment, though, is that even though the scope and the complexity of our business continue to expand, we will hold engineering expenses flat year-over-year. And honestly, we expect these to be lower in the second half of the year.

Our guidance for 2012 is to produce earnings $5 to $5.75 per share, and let's take a look at how we get to that estimate.

First, let's compare the results from operations against where we finished in 2011. Again, even after we adjust for the impact of the lower military revenue and a shift in mix, you can see that our manufacturing segment profit will grow in 2011. This is a result of the -- of increased industry demand, margin improvement, Parts growth and improved results from our global business. You can see that when you compare these results to 2011 on an apples-to-apples basis, we have results that are significantly improved year-over-year.

Next to this, we've layered on the impact of higher legacy costs, and we've adjusted our tax rate. It's important to remember that even though on this presentation we've increased our taxes, our cash taxes for 2012 will be below 10%.

We have a lower share count in 2012 as a result of our share repurchase program. And finally, we're showing at the bottom of the page our GAAP earnings, which reflect the impact of our engineering integration investment and the conclusion of the restructuring charges associated with our manufacturing plan that we began in 2011.

I want to take a minute or 2 to discuss some of the factors that drive our profitability and the impact these can have on our business from quarter-to-quarter.

2011 was a good year for us, and this was a back-end loaded year. 2012 is shaping up to be a very similar year. Many of you ask, "Why is this?" Let's take a look at it.

First, it's the nature of our business. Today, we talk about the investments we're making in our foundry business and our global strategy to pave the results for better results inside of this fiscal year. We start the year by setting the stage for benefits that come in the second half.

Then there's the seasonal impact. We have fewer days to build and ship products, so we have lower revenue in the first quarter compared to the other quarters. As Brazil becomes a larger part of our business, the seasonal impact is compounded. On top of this, this year we took advantage of the holiday season to improve our customer service. We reached out to our customers to make improvements in their vehicles at a time when their vehicles were idle and did not impact their business. This allowed us to cost-effectively make improvements to the vehicles all at once.

Finally, Jack talked about an issue we have with a brake supplier. This has caused us to stop shipping until we resolve the issue and we can receive new parts. We will need to retrofit our inventory, not only our inventory but the vehicles in the field. I have to admit this just happened. As Jack said, we expect to fully recover the volume, but I haven't yet been able to factor in the impact this will have on our costs.

Given all these factors and the impact of healthcare, I believe it's inevitable that our first quarter will be a red number. But when we step back from this and we assess the actions we are taking, they all lead to positive results for the full year.

With strong cash flow from operations, we will be able to sustain our investment in our strategy. Included in these projections are the assumption that we move forward with our strategy in China and the opportunities to expand our business in Brazil.

2012 is positioned to be another successful year for Navistar. Our plans put us on a path consistent with our strategy. But as Dan showed earlier and as you can see from this chart, we need to address our healthcare issues and our legacy costs in order to stay on the path to the trajectory of our goal. But when you stack it up against the history, clearly we have the company on the right path.

We've put a lot in front of you today. Our strategy is sound, and 2012 is going to be another year that moves us closer to achieving our goals. All of our businesses are on a path for improved results in 2012, and the critical elements of our strategy are in place. But that's not the only thing I want you to leave here thinking.

Today was about showing you what makes Navistar special, why are we going to win. You can't go -- you can't get away from looking at our products. When you look down in the lobby and you walk around this building, you can feel the energy that's created by this company around our products. But we think it's more than that because our competition has products, too.

Today was about showing you the energy that we can create with this facility and the difference that this facility will have in integrating not only our products but our strategy. Most importantly, today was about you understanding how committed we are to achieving our strategy. I hope we've achieved that result.

And with that, Dan is going to join me, and we'll open the podium for questions.

Question-and-Answer Session

Henry Kirn - UBS Investment Bank, Research Division

It's Henry Kirn from UBS. As you look to do more internalizing the components, including machining and casting, how does that impact the fixed-cost base of engines? And I guess dovetailing with that, how do you avoid overcapacitizing yourself for a down cycle when it occurs at some point in the future?

Eric Tech

Well, the castings and the machining that we're bringing in-house are currently being done outside. So what we're doing is we're actually going to be dual sourcing those. And if we do have a downturn where we don't need that level, we could still keep our equipment up and running and fully capitalize and not have to worry about idle time. And we're also leveraging things we already have. The foundry is in place and exists. It's a matter of adding incremental equipment within the foundry. It's not as though we're building a new facility. And the machining, we're trying to do that in a very cost-effective way and not really spend a lot of capital. But there are still start-up costs associated with it. And as you're running low volumes and scrap rates and so on that you -- that we're experiencing, and we'll get through that. And that's really what we're going through right now.

Daniel C. Ustian

So Henry, I'd take a [indiscernible]. I think we've kind of foreseen castings being an issue for many years. There isn't anymore bulkhead [ph] foundries in the States. And with all the presses going into Brazil and Mexico to make castings, that's been one of the constraints of the entire marketplace in our industry. And we just couldn't get it done with getting a labor agreement that allowed us to compete effectively. We got that done. And so for a small amount of money, we're back in business again kind of controlling our own destiny. But that's been on our radar screen for a long time. We just couldn’t get the competitive agreement done.

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

Andy Casey, Wells Fargo. A question on the legacy costs. They've perennially come back every so years to be a headwind for you folks. Can you describe what you're looking to do to reduce those and kind of control those going forward?

Daniel C. Ustian

No, simply. But as you know, we've kind of contained this for 5 years now. We've cut off any more people going into that group. The real kicker for us, the killer perhaps for us, was national healthcare. And the impact of that is -- most of what we saw there is 2 things. It's -- the interest rate on the amount of money that we've got in the fund is lower because just from the discount factor, and it's national healthcare. So as that takes shape, you can imagine it's going to be in that same area, and it's going to have to come out of attacking the costs in some fashion without jeopardizing the quality life of our retirees. And we have some thoughts and I'd rather not get out in front of that, but I assure you we're going to address it.

Jerry Revich - Goldman Sachs Group Inc., Research Division

Jerry Revich, Goldman Sachs. Archie and Bob, I'm wondering if you can talk about how you expect the 2013 budget that's going to be out in 10 or so days to play out for your addressable market. And then touch on the longer-term opportunities that you see on the service side. You mentioned something, new truck platforms. And also, talk about now that the Humvee recap is not going forward, what do you think is the most likely path to fill that need?

Archie Massicotte

Well, the -- as you know, there's a bucket of cash that's sitting in the Pentagon's hands. I believe it's about $3.2 billion to support MRAPs, that is funded. And that is -- it's not part of what we just got either. So we didn't tap that for going forward with the rolling chassis. We believe there's going to be more business coming out of some of the what we call take Amminex's [ph] 7,000s. There's a whole contingent of people over in Afghanistan right now assessing what that market need is for the Afghan police to stand up. Because as we take troops out of there, it's going to have to stand up and be on its own. And as you know, we've been providing the product for that. So there is a leg yet that we have to run, and that is one of the ones that we believe is going to come back as well. When you look at the Humvee recap being killed, I believe it became truly an affordability model that wasn't fitting budgets today within the government. And I think, as you know, they even killed JLTV. The Senate did. And there was enough push there by the Army and the Marines to go back in and rejuvenate that and get funding put back in place. And as -- right now, that program is definitely going forward. They've brought it back from a 2016 production now 2015. I believe our -- the RFPs that are on the street right now need to be answered by June. I believe it will go through about a year's cycle before it'll finally surface who's going to be the big player. But that's got 20,000 units tied to it annually. So it is a big program. But I believe the -- what they're going to do is reassess where they go with Humvee. But I do believe that they're going to wait and -- for JLTV to mature and see how that fits into the fleets of the Army. That answer your question?

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

Walt Liptak with Barrington research. I want to ask A.J. about the guidance, the $5 to $5.75. You mentioned that there are a couple of issues that just came up, the brake problem and the EPA certification. Are both -- are any costs related to those 2 issues in your guidance?

Andrew J. Cederoth

Let me take them one at a time. The -- I don't expect any issues with the EPA certification. So yes, that's built into what we forecasted. I don't yet know the answer on the impact of this brake issue, so I can't -- that can't be in our numbers at this point. Does that answer it or -- I'm trying to see out there. Yes, okay.

Joel G. Tiss - Buckingham Research Group, Inc.

Joe Tiss from Buckingham Research. I was wondered if you could be a little more specific which engine is going for the 0.2 certification. Is it the 10-liter or the 13-liter? And also, are the joint ventures expected to be breakeven or better in 2012?

Daniel C. Ustian

It's the 13-liter. First answer is -- on 0.2 is the 13-liter that we have submitted on. And Troy, I think you mean the global joint ventures, yes? So Troy, maybe you can answer that, please?

Troy A. Clarke

Yes, if I could, the 2 big joint ventures. The India joint venture won't be breakeven until early next year. And the China joint venture, if the engine venture gets approved soon, will be, and we don't expect the truck joint venture to get approved. But if it was, it would be better than breakeven, so.

Timothy J. Denoyer - Wolfe Trahan & Co.

Tim Denoyer with Wolfe Trahan A couple of other questions on the engine. Can you give a sense what the differences are between the current engine is with EPA at 0.2 versus the one at 0.43? And can you just give us a sense of, looking from the outside, why you sort of let it get down to this level where you may be close to running out of credits? And yes, so the...

Daniel C. Ustian

What's interesting about that, and I hope those of you that had a chance to take a tour get a better appreciation for what controls do to products these days and the tighter we can make these controls and the faster we can make these controls. And the integration of these controls gives us dials that enable us to fine-tune the engine so that, that matchup during transitions of burn and fuel gives us a better burn. When we go out in the floor over there, our guys are going to show you how that happens. But essentially, there's no change to that engine. It's all in the responsiveness of the control units that -- for that. And as far as waiting so long, I mean, we have to develop those controls, and it's just what it took to get it to that. But that has always been in our plan. This is not like we're late on what we intended or anything. This has been the plan. We knew we were going to be tight with this, but we're confident in the solution. You'll see next we'll do a 15-liter, then we're going to the MaxxForce DTs. So it's just now going to be a string over a period of time.

Michael Shlisky - JP Morgan Chase & Co, Research Division

It's Mike Shlisky from JPMorgan. I had a question for you on NC2. I've been hearing that Cat has completely scaled back their involvement in the truck markets over the last year. And you had mentioned that you had restructured that venture this year -- in the past year. I was curious, exactly how did you guys change that structure? And will that impact your costs to try to reach some of these newer markets going forward?

Daniel C. Ustian

Yes, maybe just a high-level tackle then I'll turn it over to -- there's a misconception on what the changes. First of all, there's nothing changed as far as the face to the market. So the dealers, the customers, it's the same thing. What we did is make the structure of our arrangement with Caterpillar better, easier to deal with. So now the back office, we've taken costs out of it. We've got us making decisions quicker, and we're able to go to market quicker. But as far as that relationship with Caterpillar as it faces the customers, it's really no different. It's all in the back room. And it's just easier, it's simpler and it's more cost effective. So Troy?

Troy A. Clarke

Yes. That said, the product program stays as planned. And so -- and I think both partners are very satisfied with that. And then the second thing is it reduces costs because we've eliminated so much of the back room redundancy.

Andy Kaplowitz - Barclays Capital, Research Division

Andy Kaplowitz with Barclays Capital. Dan, last year, you set a market share goal, and your market share stayed pretty low. And now you're certifying the new 0.2 engine. How is that going to offset your market share as you go forward? And what are your customers saying? Are they -- do they need to try out the new vehicle longer? And so what do you -- what's the long-term prognosis for your market share?

Daniel C. Ustian

Well, interesting. The simple answer to that is, it's going to be invisible to the customer. And obviously, that's the best thing for us. We're launched -- we have launched some new products over the past several months in the 15-liter area and now in the 13-liter area with the LoneStar that will help us gain that market share back. But as far as the customer sees on 0.2, he will not know the difference. That's always been the plan, and we're able to produce that now. Invisible. No impact on fuel economy, no impact on performance.

Brian Sponheimer - Gabelli & Company, Inc.

Dan, Brian Sponheimer from Gabelli & Company. Two separate questions. One, we didn't hear anything today thus far about larger acquisition strategies that potentially could be in place or not. And secondly, just to talk about your engine strategy going forward. Clearly, you're going to need a major parts build-out at the addressable market of engines in the field grows. What are you doing with your dealers to help them as far as from a technical standpoint get ready to service your engine and your engine alone versus having a commons [ph] guy down the street that's also available?

Daniel C. Ustian

Brian, that's a great question, and you can chat with our dealers over here. But we have had this on our radar screen now. The hours of service in our dealerships need to grow. And we've done tremendous amount of improvement in that, and as we -- our dealers will tell you, there's more to be done on that. So when the customers there on a weekend, before when it was a medium truck, maybe he only worked 8 hours. Now he needs to be there twice that or maybe even all weekend long. So we are working with our dealers. Many of those who see in here have adapted already do that. The training we've had on this goes way back, so I don't think we're lagging on that at all on that at all, and I'll ask Jack. But I think you're spot on to an area that we have to pay a lot of attention to, and we have. But Jack, answer that.

Jack J. Allen

It's about facilities, it's about trained technicians, it's about equipment, so things such as TPF [ph] cleaners and hours of service and shifts are the right thing. And it's about management focus. And we'll work -- we work hand-in-hand with the dealers on this. We both know what the goal line looks like. Getting there is just a partnership and working together in order to move along that path. But the returns are there. We have -- I've not heard from one dealer yet who has made investments in being able to serve the customer here who said that was not a good investment. So we'll just keep plugging way.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Jeff Kauffman from Sterne Agee. One short-term question, one more strategic follow-up on the dealer question. The short-term is, when I talk to investors, it's like the tail wagging the dog. What is plan B if the EPA certification isn't done in time, if for whatever reason they send you back? Just if you could give people an idea. Do you pay a fine and continue to work on a solution? Kind of what is Plan B is the short-term question? I'll start with that.

Daniel C. Ustian

Yes, I think if you think about what has transpired over the past month, and why we're in the process of submitting this, the EPA says we can't have the pressure on us, just make sure that, that happens exactly like you want it. So they work with us on getting this -- I don't want to call it MTP [ph] Credits available to us. And that's what that's all about. So if there's some period of time lapse where the approval process and our credit are in balance, we have the opportunity to meet. So that's plan B. We don't ever plan on using plan B, but that is plan B, why it's out there, to take away that risk.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Okay. And a follow-up on the dealer network. Clearly, to achieve your goal, that's going to be an important part of it. Can you talk about how the dealer network is structured? And does that structure need to change? And will that require an investment or maybe a rethinking of the dealership relationship?

Unknown Executive

The charts that we put up there, over on the last 24 to 30 months, well, there's probably been changes in 25 or 30 markets here in U.S., Canada and Mexico. And that's all right along your lines. I mean, the deal for a dealer today and the level of sophistication that's required, I mean, it takes scale, and it takes the ability to make an investment. So clearly, the dealers in the major market areas in North America are getting larger, they're sophisticated, $100-plus million businesses with management structures appropriate for that and a capital structure appropriate for that. So we've been out ahead of that. The dozen-or-so dealers that you see in the room today will be happy to talk to you out here. I mean, this isn't your mom-and-pop corner dealership anymore. These are highly sophisticated operations that are geared towards keeping our customers on the road and maximizing uptime.

Daniel C. Ustian

If I take it to a higher level, I think the very presence of our strong dealers here, Jeff, we have always had that as a great asset for our company forever, and we want to keep that even more so. So there are some things we can do better. They -- dealers know that, and we know that. And there are some things they can do better. The end result is collaboration to get that franchise value at its highest point, and that will make our company stronger.

Greg Royce

Greg Royce from Cobalt Capital. My question really is just can you talk about your warranty strategy, how you account for your warranties? And given there's a lot of chatter about it, can you also discuss whether you're doing guaranteed residuals?

Daniel C. Ustian

Well, last answer. I'm sorry, I mean, I was so abrupt on that answer with you. But I'll be really abrupt on this one. We don't do guaranteed residuals. Now if you do a leased vehicle, inherent in that leasing is a kind of a guarantee for that. But we don't guarantee. As far as warranty, how it works is we try to mimic what others do and then we will sell. So now included in your price could be an extended warranty with -- not get confused over that versus giving away warranty. You could buy extended warranties, and everybody in the business does that, if the customer so chooses. But we're competitive with that. Jack, anything to add to that?

Stephen E. Volkmann - Jefferies & Company, Inc., Research Division

If I could squeeze it. And Steve Volkmann at Jefferies. So I was wondering if you could sharpen the pencil a little bit on a couple of things we've said, one for Dan and one for A.J. What is the market share of Class 8 that you're actually targeting in your forecast this year?

Daniel C. Ustian

Well, Jack, do you want me to? I'd rather have he answer it.

Stephen E. Volkmann - Jefferies & Company, Inc., Research Division

Fair enough.

Jack J. Allen

We think that there's an opportunity to grow our market share by about 10%. So we're -- we've -- we finished the year around 21%. We hit our -- and our base plan is in the -- about 10% above that. Clearly, we have aspirations to be stronger than that and get back to the 24%, 25% where we've been.

Stephen E. Volkmann - Jefferies & Company, Inc., Research Division

Just for A.J. You mentioned the first quarter was going to be red, but we're kind of done with the first quarter. I imagine you must have some better idea about what red means, because there's a pretty wide range there. So I wonder if red means $0.50, $1, $1.50. Anything you can help us there with our modeling would be great.

Andrew J. Cederoth

Well, all I can do is take you back to what we've showed you. And I think if you take look at the elements that we're dealing with, yes, the first quarter ended yesterday, so I don't have perfect data in front of me yet. So I don't want to put anything out there. But I think the chart that we've put up today shows you there are some first quarter things that we're dealing with. But when you layer that into the full year, I think year-over-year we're going to continue on a good path.

Daniel C. Ustian

Maybe, Steve, to help you with that. As far as operation, when we can probably give you a good idea, what we don't know about is reserves. For instance, what's happening to us now on brakes, how is that going to be treated from an accounting standpoint? So I know we're begging off of that a little bit here, and I have gone round and round on this. You act like me out there. But I think if there is some uncertainty about how the accounting treats all that, so that's why we're a little reluctant to give you any more color than that.

Daniel C. Ustian

Okay, so with that, we'll all outside here and grab a pie and go to the floor. And we'll have product and technologies out there to show you. Thanks much. This concludes the webcast.

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