Leases

6 Months Ended

Apr. 30, 2021

Leases [Abstract]

Leases

Leases

Lessee

The following table presents balance sheet information related to finance and operating leases:

(in millions)	As of April 30, 2021		As of October 31, 2020
Operating lease right of use assets	$	123	$	119
Finance lease right of use assets(A)	2		2
Total right of use assets	$	125	$	121
Operating lease liabilities
Other current liabilities	$	30	$	30
Other noncurrent liabilities	96		92
Finance lease liabilities
Notes payable and current maturities of long-term debt	—		1
Long-term debt	1		1
Total lease liabilities	$	127	$	124

_________________________

(A)Finance lease right of use assets are included in Property and Equipment, net on our Consolidated Balance Sheets.

Lessor

We primarily lease trucks, tractors, and trailers to retail customers and dealers in the U.S. and Mexico through our Financial Services segment. These leases are classified as either operating or finance leases, expire at various dates, and typically have terms which allow an extension or fair value options to purchase the asset at the end of the lease term. The terms of leases generally range from 2 to 7 years, though extension periods may be for a shorter time. Our Financial Services segment manages the relationship with Navistar Capital (a program of BMO Harris Bank N.A. and Bank of Montreal (together, “BMO”)). Navistar Capital is our third-party preferred source of retail and lease customer financing for equipment offered by us and our dealers in the U.S. For certain Navistar Capital financed contracts which contain an end of term option for us to purchase the leased equipment if the customer declines to do so, we recognize the equipment subject to an operating lease as an asset on our Consolidated Balance Sheets. For more information related to the BMO arrangement, see Note 12, Commitments and Contingencies. We have also leased certain real estate to third parties to manage excess capacity through our Corporate segment.

We depreciate trucks, tractors, and trailers leased to customers under operating lease agreements on a straight-line basis to the equipment's estimated residual value over the lease term. The residual values of the equipment leased under operating lease agreements represent estimates of the value of the assets at the end of the lease contracts and are initially recorded based on estimates of future market values. Realization of the residual values is dependent on our future ability to market the equipment. We work with our customers and dealers to manage the sale of lease returns and the recovery of residual exposure. We also review residual values periodically to determine that recorded amounts are appropriate and the equipment is not impaired. For more information on key inputs and valuation methodologies in evaluating impairment of assets under operating lease agreements, see Note 11, Fair Value Measurements. For more information regarding impaired finance receivables, see Note 5, Allowance for Credit Losses, and Note 3, Restructuring, Impairments and Divestitures for impaired assets under operating leases.

The following table presents revenue from finance and operating leases, included in our Consolidated Statements of Operations:

	Three Months Ended April 30,								Six Months Ended April 30,
	Finance Leases(A)				Operating Leases				Finance Leases(A)				Operating Leases
(in millions)	2021		2020		2021		2020		2021		2020		2021		2020
Sales of manufactured products, net	$	—	$	—	$	6	$	4	$	—	$	—	$	12	$	12
Finance revenues	7		11		22		22		14		18		43		41
Other expense, net	—		—		2		2		—		—		3		3
Total lease revenue	$	7	$	11	$	30	$	28	$	14	$	18	$	58	$	56

_______________________

(A) Finance revenues consist primarily of interest income. Additional fees, such as late fees, are not material to our consolidated financial statements.

Leases

Leases

Lessee

The following table presents balance sheet information related to finance and operating leases:

(in millions)	As of April 30, 2021		As of October 31, 2020
Operating lease right of use assets	$	123	$	119
Finance lease right of use assets(A)	2		2
Total right of use assets	$	125	$	121
Operating lease liabilities
Other current liabilities	$	30	$	30
Other noncurrent liabilities	96		92
Finance lease liabilities
Notes payable and current maturities of long-term debt	—		1
Long-term debt	1		1
Total lease liabilities	$	127	$	124

_________________________

(A)Finance lease right of use assets are included in Property and Equipment, net on our Consolidated Balance Sheets.

Lessor

We primarily lease trucks, tractors, and trailers to retail customers and dealers in the U.S. and Mexico through our Financial Services segment. These leases are classified as either operating or finance leases, expire at various dates, and typically have terms which allow an extension or fair value options to purchase the asset at the end of the lease term. The terms of leases generally range from 2 to 7 years, though extension periods may be for a shorter time. Our Financial Services segment manages the relationship with Navistar Capital (a program of BMO Harris Bank N.A. and Bank of Montreal (together, “BMO”)). Navistar Capital is our third-party preferred source of retail and lease customer financing for equipment offered by us and our dealers in the U.S. For certain Navistar Capital financed contracts which contain an end of term option for us to purchase the leased equipment if the customer declines to do so, we recognize the equipment subject to an operating lease as an asset on our Consolidated Balance Sheets. For more information related to the BMO arrangement, see Note 12, Commitments and Contingencies. We have also leased certain real estate to third parties to manage excess capacity through our Corporate segment.

We depreciate trucks, tractors, and trailers leased to customers under operating lease agreements on a straight-line basis to the equipment's estimated residual value over the lease term. The residual values of the equipment leased under operating lease agreements represent estimates of the value of the assets at the end of the lease contracts and are initially recorded based on estimates of future market values. Realization of the residual values is dependent on our future ability to market the equipment. We work with our customers and dealers to manage the sale of lease returns and the recovery of residual exposure. We also review residual values periodically to determine that recorded amounts are appropriate and the equipment is not impaired. For more information on key inputs and valuation methodologies in evaluating impairment of assets under operating lease agreements, see Note 11, Fair Value Measurements. For more information regarding impaired finance receivables, see Note 5, Allowance for Credit Losses, and Note 3, Restructuring, Impairments and Divestitures for impaired assets under operating leases.

The following table presents revenue from finance and operating leases, included in our Consolidated Statements of Operations:

	Three Months Ended April 30,								Six Months Ended April 30,
	Finance Leases(A)				Operating Leases				Finance Leases(A)				Operating Leases
(in millions)	2021		2020		2021		2020		2021		2020		2021		2020
Sales of manufactured products, net	$	—	$	—	$	6	$	4	$	—	$	—	$	12	$	12
Finance revenues	7		11		22		22		14		18		43		41
Other expense, net	—		—		2		2		—		—		3		3
Total lease revenue	$	7	$	11	$	30	$	28	$	14	$	18	$	58	$	56

_______________________

(A) Finance revenues consist primarily of interest income. Additional fees, such as late fees, are not material to our consolidated financial statements.

Leases

Leases

Lessee

The following table presents balance sheet information related to finance and operating leases:

(in millions)	As of April 30, 2021		As of October 31, 2020
Operating lease right of use assets	$	123	$	119
Finance lease right of use assets(A)	2		2
Total right of use assets	$	125	$	121
Operating lease liabilities
Other current liabilities	$	30	$	30
Other noncurrent liabilities	96		92
Finance lease liabilities
Notes payable and current maturities of long-term debt	—		1
Long-term debt	1		1
Total lease liabilities	$	127	$	124

_________________________

(A)Finance lease right of use assets are included in Property and Equipment, net on our Consolidated Balance Sheets.

Lessor

We primarily lease trucks, tractors, and trailers to retail customers and dealers in the U.S. and Mexico through our Financial Services segment. These leases are classified as either operating or finance leases, expire at various dates, and typically have terms which allow an extension or fair value options to purchase the asset at the end of the lease term. The terms of leases generally range from 2 to 7 years, though extension periods may be for a shorter time. Our Financial Services segment manages the relationship with Navistar Capital (a program of BMO Harris Bank N.A. and Bank of Montreal (together, “BMO”)). Navistar Capital is our third-party preferred source of retail and lease customer financing for equipment offered by us and our dealers in the U.S. For certain Navistar Capital financed contracts which contain an end of term option for us to purchase the leased equipment if the customer declines to do so, we recognize the equipment subject to an operating lease as an asset on our Consolidated Balance Sheets. For more information related to the BMO arrangement, see Note 12, Commitments and Contingencies. We have also leased certain real estate to third parties to manage excess capacity through our Corporate segment.

We depreciate trucks, tractors, and trailers leased to customers under operating lease agreements on a straight-line basis to the equipment's estimated residual value over the lease term. The residual values of the equipment leased under operating lease agreements represent estimates of the value of the assets at the end of the lease contracts and are initially recorded based on estimates of future market values. Realization of the residual values is dependent on our future ability to market the equipment. We work with our customers and dealers to manage the sale of lease returns and the recovery of residual exposure. We also review residual values periodically to determine that recorded amounts are appropriate and the equipment is not impaired. For more information on key inputs and valuation methodologies in evaluating impairment of assets under operating lease agreements, see Note 11, Fair Value Measurements. For more information regarding impaired finance receivables, see Note 5, Allowance for Credit Losses, and Note 3, Restructuring, Impairments and Divestitures for impaired assets under operating leases.

The following table presents revenue from finance and operating leases, included in our Consolidated Statements of Operations:

	Three Months Ended April 30,								Six Months Ended April 30,
	Finance Leases(A)				Operating Leases				Finance Leases(A)				Operating Leases
(in millions)	2021		2020		2021		2020		2021		2020		2021		2020
Sales of manufactured products, net	$	—	$	—	$	6	$	4	$	—	$	—	$	12	$	12
Finance revenues	7		11		22		22		14		18		43		41
Other expense, net	—		—		2		2		—		—		3		3
Total lease revenue	$	7	$	11	$	30	$	28	$	14	$	18	$	58	$	56

_______________________

(A) Finance revenues consist primarily of interest income. Additional fees, such as late fees, are not material to our consolidated financial statements.