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þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended October 31, 2005 | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from To |
Delaware (State or other jurisdiction of incorporation or organization) | 36-3359573 (I.R.S. Employer Identification No.) | |
4201 Winfield Road, P.O. Box 1488, Warrenville, Illinois (Address of principal executive offices) | 60555 (Zip Code) |
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Item 1. | Business |
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• | In March 1999, we formed a joint venture with Siemens VDO Automotive Corporation (“SVDO”), a subsidiary of Siemens AG, a leading German designer and manufacturer of gasoline and diesel fuel systems. This venture provided us the advantage of a partnership with a global leader in fuel system development, an assured supply of critical fuel system components, and cost control through this development and manufacturing venture. In September 2007, we sold our 49% ownership interest to SVDO. | |
• | In September 2001, we formed the BDP joint venture with Ford to jointly manage the sourcing, merchandising, and distribution of various service parts for vehicles sold in North America. | |
• | In September 2001, we entered into a joint venture with Ford to capitalize on our mutual medium truck volumes. The Blue Diamond Truck (“BDT”) joint venture was formed to produce class 3 through 7 commercial vehicles; marketed independently under International and Ford brand names. On September 28, 2007, we informed Ford of our decision to terminate the venture effective on September 28, 2009. However, upon either party’s request and under commercially reasonable terms, we will continue to supply each other components and products from the effective date for up to four additional years. | |
• | In December 2004, we announced our collaboration with MAN Nutzfahrzeuge AG (“MAN”), a leading European truck and engine manufacturer. This collaboration has enabled us to develop our first big-bore diesel engine in the 11 and 13 liter class, MaxxForce. | |
• | In April 2005, we acquired MWM, a leading Brazilian diesel engine producer. MWM produces a broad line of medium and high speed diesel engines, which are used in pickups, vans (light trucks), medium and heavy trucks, agricultural, marine, and electric generator applications. | |
• | In August 2005, we completed the acquisitions of WCC and Uptime. WCC is a leading manufacturer of chassis for motor homes and commercial step-van vehicles and aU.S.-based leader in the sale of the gas RV chassis and class 3 through 6 step-vans. Uptime is a parts distribution network that supplies commercial truck fleets and RV dealers. | |
• | In December 2005, we finalized our first joint venture with Mahindra & Mahindra, Ltd., a leading Indian manufacturer of multi-utility vehicles and tractors. This venture operates under the name of Mahindra International, Ltd. and will be used to produce and market light, medium and heavy commercial vehicles in India and other export markets beginning in 2007. This collaboration also provides us the opportunity to use India as a significant supply base for the global sourcing of components and materials and provides a strategic partner for engineering services. We have a 49% interest in this venture. |
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• | In July 2007, Core Molding Technologies, Inc. (“CMT”) repurchased 3.6 million shares of its common stock from us. As a result of this repurchase transaction, our ownership interest in CMT was reduced to 9.9%. | |
• | In November 2007, we signed a second joint venture agreement with Mahindra & Mahindra, Ltd. of India to produce diesel engines for medium and heavy commercial trucks and buses in India. We have a 49% ownership in this joint venture. This joint venture will afford us the opportunity to enter a market in India that has significant growth potential for commercial vehicles and diesel power. |
• | $374 million contract from U.S. Army Tank-Automotive and Armaments Command (“TACOM”) to provide 2,781 vehicles to the Afghanistan National Army. Subsequent to our year end, the maximum quantity on this contract was increased to 2,956 vehicles. | |
• | $327 million contract from TACOM to provide up to 2,370 vehicles for use in Iraq. | |
• | $200 million five year truck contract with the Taiwan Ministry of National Defense. |
• | In December 2005, we received a $113 million delivery order to provide armored tractors for use in Iraq. | |
• | In May, June, and October 2007, we were awarded combined delivery orders worth over $1.5 billion to provide 2,971 Mine-Resistant Ambush Protected (“MRAP”) vehicles to the U.S. Marine Corps, to be delivered through April 2008. | |
• | In September 2007, we were awarded a contract to provide parts support kits worth over $71 million for the U.S. Marine Corps’ International MRAP vehicles. | |
• | In October 2007, we were awarded a contract worth over $68 million to provide field service support for the U.S. Marine Corps’ International MRAP vehicles. |
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October 31, | ||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
Total active employees | 13,300 | 17,500 | 17,600 | 14,800 | 14,200 | |||||||||||||||
Total inactive employees | 3,900 | 700 | 1,000 | 800 | 2,500 | |||||||||||||||
Total worldwide employees | 17,200 | 18,200 | 18,600 | 15,600 | 16,700 | |||||||||||||||
October 31, | ||||||||||||||||||||
Total Active Union Employees | 2007(1) | 2006 | 2005 | 2004 | 2003 | |||||||||||||||
Total UAW | 2,000 | 4,800 | 4,900 | 4,700 | 4,600 | |||||||||||||||
Total CAW | 600 | 1,400 | 1,100 | 900 | 600 | |||||||||||||||
Total other unions | 2,100 | 1,600 | 1,400 | 600 | 600 |
(1) | Active union employee data as of October 31, 2007 excludes 2,500 UAW workers who have commenced a work stoppage as of October 23, 2007. |
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Item 1A. | Risk Factors |
• | We are not able to access the public capital markets. We are not currently able to finance our operations through public offerings of debt or equity or to make acquisitions that involve a public offering of securities because we are not eligible to use a registration statement to sell our securities and will not be eligible to use one until we are current in our required SEC filings, and we will not be eligible to use ashort-form Form S-3 registration statement until we have timely filed our SEC reports for a period of twelve months, which may increase the time and resources we would need to expend if we choose to access the public capital markets. | |
• | We could be the subject of various lawsuits or governmental investigations alleging violations of federal securities laws in relation to the restatement of our financial statements. The restatement of our financial results may lead to lawsuitsand/or governmental investigations. We are engaged in an ongoing dialogue with the SEC with respect to the current restatement process and the pending formal investigation of our earlier restatement. For additional information regarding this matter see Item 3,Legal Proceedings. | |
• | We may have difficulty maintaining existing business and may experience a reduction in our credit rating. We may have difficulty maintaining existing business and may experience a reduction in our credit rating which could have a material adverse effect on us by, among other things, (i) reducing our revenues if existing and potential customers hesitate to, or decide not to, purchase our products or services, (ii) increasing our costs or decreasing our liquidity if suppliers desire a change in existing payment terms and (iii) increasing our borrowing costs or negatively affecting our ability to obtain new financings on acceptable terms or at all if rating agencies downgrade our credit ratings. | |
• | Failure to properly implement the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting. As described in Item 9A of this Annual Report onForm 10-K, we concluded, based on our incomplete assessment as of the end of 2005 and our ongoing 2006 assessment, that there were material weaknesses in our internal control over financial reporting. If we do not correct these material weaknesses or we or our independent registered public accounting firm determines that we have additional material weaknesses in our internal control over financial reporting, |
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• | Our common stock is currently traded on the OTC, and as a result stockholders may encounter difficulties in disposing of, or obtaining accurate quotations as to the market value of, our common stock. Due to the delays in filing our periodic reports with the SEC, the NYSE de-listed our common stock effective February 14, 2007. Our common stock is currently traded on the OTC. There is currently an active trading market for the common stock; however there can be no assurance that an active trading market will be maintained. Trading of securities on the OTC is generally limited and is effected on a less regular basis than on other exchanges or quotation systems, such as the NYSE, and accordingly investors who own or purchase common stock will find that the liquidity or transferability of the common stock may be limited. Additionally, a shareholder may find it more difficult to dispose of, or obtain accurate quotations as to the market value of, our common stock. Although we intend to seek to have our common stock listed on a national security exchange promptly after filing our delayed periodic reports with the SEC, there can be no assurance that our common stock will ever be included for trading on any stock exchange or through any other quotation system, including, without limitation, the NYSE. |
• | The markets in which we compete are subject to considerable cyclicality. Our ability to be profitable depends in part on the varying conditions in the truck, bus, mid-range diesel engine, and service parts markets which are subject to cycles in the overall business environment and are particularly sensitive to the industrial sector, which generates a significant portion of the freight tonnage hauled. Truck and engine demand is also dependent on general economic conditions, interest rate levels, and fuel costs, among other factors. | |
• | We operate in the highly competitive North American truck market. The North American truck market in which we operate is highly competitive. This competition results in price discounting and margin pressures throughout the industry and adversely affects our ability to increase or maintain vehicle prices. | |
• | Our business may be adversely impacted by work stoppages and other labor relations matters. We are subject to risk of work stoppages and other labor relations matters because a significant portion of our workforce is unionized. As of October 31, 2007, approximately 67% of our hourly workers and 11% of our salaried workers are represented by labor unions and are covered by collective bargaining agreements. Many of these agreements include provisions that limit our ability to realize cost savings from restructuring initiatives such as plant closings and reductions in workforce. Our current collective bargaining agreement with the UAW expired in September 2007. Any UAW strikes, threats of strikes, or other resistance in connection with the negotiation of a new agreement could materially adversely affect our business as well as impair our ability to implement further measures to reduce structural costs and improve production efficiencies. A lengthy strike by the UAW that involves a significant portion of our manufacturing facilities could have a material adverse effect on our results of operations, cash flows, and financial condition. See Item 1,Business, “Employees”. | |
• | The loss of business from Ford, our largest customer, could have a negative impact on our business, financial condition and results of operations. Ford accounted for approximately 19% of our revenues for 2005, 19% of our revenues for 2004, and 21% of our revenues for 2003. In addition, Ford accounted for approximately 68%, 76%, and 77% of our diesel engine unit volume (including intercompany transactions) in 2005, 2004, and 2003, respectively, primarily relating to the sale of our V-8 diesel engines. See Item 3,Legal Proceedingsand Note 18,Commitments and contingencies, to the accompanying consolidated financial statements, for information related to our pending litigation with Ford. |
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• | The costs associated with complying with environmental and safety regulations could lower our margins. We, like other truck and engine manufacturers, continue to face heavy governmental regulation of our products, especially in the areas of environment and safety. We have incurred engineering and product development costs, and tooling costs to design our engine product lines to meet new U.S. EPA and CARB emission standards. Complying with environmental and safety requirements adds to the cost of our products, and increases the capital-intensive nature of our business. | |
• | Our liquidity position may be adversely affected by a continued downturn in our industry. Any downturn in our industry can adversely affect our operating results. In the event that industry conditions remain weak for any significant period of time, our liquidity position may be adversely affected, which may limit our ability to complete product development programs, capital improvement programs, or other strategic initiatives at currently anticipated levels. | |
• | Our business could be negatively impacted in the event NFC is unable to access sufficient capital to engage in its financing activities. NFC supports our manufacturing operations by providing financing to a significant portion of International dealers and retail customers. NFC traditionally obtains the funds to provide such financing from sales of receivables, medium- and long-term debt, and equity capital and from short- and long-term bank borrowings. If cash provided by operations, bank borrowings, continued sales and securitizations of receivables, and the placement of term debt does not provide the necessary liquidity, NFC may restrict its financing of International products both at the wholesale and retail level. | |
• | We have significant under-funded postretirement obligations. The under-funded portion of our accumulated benefit obligation was $1.1 billion and $1.0 billion for pension benefits at October 31, 2005 and 2004, respectively, and $1.9 billion and $2.0 billion for postretirement healthcare benefits at October 31, 2005 and 2004, respectively. Moreover, we have assumed expected rates of return on plan assets and failure to achieve these assumed rates of return could have an adverse impact on our under-funded postretirement obligations, results of operations, cash flows, and financial condition. | |
• | Our manufacturing operations are dependent upon third-party suppliers, making us vulnerable to a supply shortage. We obtain materials and manufactured components from third-party suppliers. Some of our suppliers are the sole source for a particular supply item. Any delay in receiving supplies could impair our ability to deliver products to our customers and, accordingly, could have a material adverse effect on our business, results of operations, cash flows, and financial condition. | |
• | Our ability to use net operating loss (“NOL”) carryovers to reduce future tax payments could be negatively impacted if there is a change in ownership of Navistar or a failure to generate sufficient taxable income. Presently there is no annual limitation on our ability to use NOLs to reduce future income taxes. However, if an ownership change as defined in Section 382 of the Internal Revenue Code of 1986, as amended, occurs with respect to our capital stock, our ability to use NOLs would be limited to specific annual amounts. Generally, an ownership change occurs if certain persons or groups increase their aggregate ownership by more than 50 percentage points of our total capital stock in a three-year period. If an ownership change occurs, our ability to use domestic NOLs to reduce taxable income is generally limited to an annual amount based on the fair market value of our stock immediately prior to the ownership change multiplied by the long-term tax-exempt interest rate. NOLs that exceed the Section 382 limitation in any year continue to be allowed as carryforwards for the remainder of the 15 or20-year carryforward period and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. Our use of new NOLs arising after the date of an ownership change would not be affected. If more than a 50% ownership change were to occur, use of our NOLs to reduce payments of federal taxable income may be deferred to later years within the 15 or20-year carryover period; however, if the carryover period for any loss year expires, the use of the remaining NOLs for the loss year will be prohibited. If we should fail to generate a sufficient level of taxable income prior to the expiration of the NOL carryforward periods, then we will lose the ability to apply the NOLs as offsets to future taxable income. |
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• | We are exposed to political, economic and other risks that arise from operating a multinational business. We have significant operations in foreign countries, primarily in Canada, Mexico, Brazil, and Argentina. Accordingly, our business is subject to the political, economic, and other risks that are inherent in operating in those countries and internationally. These risks include, among others: |
° | Trade protection measures and import or export licensing requirements | |
° | Tax rates in certain foreign countries that exceed those in the U.S. and the imposition of withholding requirements for taxes on foreign earnings | |
° | Difficulty in staffing and managing international operations and the application of foreign labor regulations | |
° | Currency exchange rate risk to the extent that our assets/liabilities are denominated in a currency other than the functional currency of the country where we operate | |
° | Changes in general economic and political conditions in countries where we operate, particularly in emerging markets. |
• | We may not achieve all of the expected benefits from our restructuring plans or current business strategies and initiatives. We have stated that we believe that cost improvements resulting from our restructuring plans, among other initiatives, will result in pre-tax cost savings and margin improvement. These cost savings are based upon estimates and belief and constitute forward-looking information and involve known and unknown risks, uncertainties, and other factors that may cause actual cost savings, margin improvements, or operating results to be materially different from our estimates or not being realized in the expected time frame. In addition, we have recently completed acquisitions and joint ventures. No assurance can be given that our previous or future acquisitions or joint ventures will be successful and will not materially adversely affect our business, operating results, or financial condition. Failure to successfully manage and integrate these and potential future acquisitions and joint ventures could materially harm our results of operations, cash flows, and financial conditions. | |
• | Our substantial debt could require us to use a significant portion of our cash flow to satisfy our debt obligations and may limit our operating flexibility. We have a substantial amount of outstanding indebtedness which could: |
° | Increase our vulnerability to general adverse economic and industry conditions | |
° | Limit our ability to use operating cash flow in other areas of our business because we must dedicate a portion of these funds to make significantly higher interest payments on our indebtedness | |
° | Limit our ability to obtain additional financing to fund future working capital, acquisitions, capital expenditures, engineering and product development costs, and other general corporate requirements | |
° | Limit our ability to take advantage of business opportunities as a result of various restrictive covenants in our indebtedness | |
° | Place us at a competitive disadvantage compared to our competitors that have less debt. |
• | Adverse resolution of litigation may adversely affect our operating results, cash flows, or financial condition. Litigation can be expensive, lengthy, and disruptive to normal business operations. The results of complex legal proceedings are often uncertain and difficult to predict. An unfavorable outcome of a particular matter could have a material adverse effect on our business, operating results, cash flows, or financial condition. For additional information regarding certain lawsuits in which we are involved, see Item 3,Legal Proceedingsand Note 18,Commitments and contingencies, to the accompanying consolidated financial statements. |
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Item 1B. | Unresolved Staff Comments |
Item 2. | Properties |
Item 3. | Legal Proceedings |
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Item 4. | Submission of Matters to a Vote of Security Holders |
Item 5. | Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities |
2003 | High | Low | 2005 | High | Low | 2007 | High | Low | ||||||||||||||||||||||||||
1st Qtr | $ | 31.50 | $ | 22.11 | 1st Qtr | $ | 45.07 | $ | 34.02 | 1st Qtr | $ | 44.56 | $ | 26.89 | ||||||||||||||||||||
2nd Qtr | $ | 29.20 | $ | 20.52 | 2nd Qtr | $ | 43.48 | $ | 28.90 | 2nd Qtr | $ | 59.50 | $ | 39.35 | ||||||||||||||||||||
3rd Qtr | $ | 39.84 | $ | 25.00 | 3rd Qtr | $ | 35.10 | $ | 28.30 | 3rd Qtr | $ | 74.60 | $ | 53.10 | ||||||||||||||||||||
4th Qtr | $ | 45.11 | $ | 35.89 | 4th Qtr | $ | 35.29 | $ | 25.55 | 4th Qtr | $ | 65.05 | $ | 46.00 |
2004 | High | Low | 2006 | High | Low | |||||||||||||||||||||||||||||
1st Qtr | $ | 52.95 | $ | 39.64 | 1st Qtr | $ | 30.55 | $ | 25.55 | |||||||||||||||||||||||||
2nd Qtr | $ | 49.95 | $ | 42.72 | 2nd Qtr | $ | 30.09 | $ | 26.29 | |||||||||||||||||||||||||
3rd Qtr | $ | 46.74 | $ | 33.25 | 3rd Qtr | $ | 29.13 | $ | 20.53 | |||||||||||||||||||||||||
4th Qtr | $ | 38.66 | $ | 32.72 | 4th Qtr | $ | 28.80 | $ | 21.66 |
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Total Number | Maximum Number | |||||||||||||||
of Shares | (or Approximate | |||||||||||||||
(or Units) | Dollar Value) of Shares | |||||||||||||||
Total Number | Average | Purchased as | (or Units) that May | |||||||||||||
of Shares | Price Paid | Part of Publicly | Yet Be Purchased | |||||||||||||
(or Units) | per Share | Announced Plans | Under the Plans or | |||||||||||||
Period | Purchased(1) | (or Unit) | or Programs | Programs | ||||||||||||
08/01/05 — 08/31/05 | 4,433 | $ | 33.365 | — | — | |||||||||||
09/01/05 — 09/30/05 | 27,495 | $ | 33.688 | — | — | |||||||||||
10/01/05 — 10/31/05 | 68 | $ | 27.400 | — | — |
(1) | The total number of shares purchased is due to shares delivered to or withheld by the company in connection with stock-for-stock stock option exercises and employee payroll tax withholding upon exercise of stock options, vesting of restricted stock, and settlement of restricted stock units. |
Item 6. | Selected Financial Data |
• | We have restated our previously reported consolidated financial statements for the years ended October 31, 2004 and 2003. The restatement adjustments resulted in a cumulative net reduction to stockholders’ equity of $2.4 billion and $2.0 billion as of October 31, 2004 and 2003, respectively, and a reduction in previously reported net income of $291 million and $312 million for the years ended |
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• | We have not restated our previously reported consolidated financial statements for the years ended October 31, 2002 and 2001, and we have not presented any financial data from those periods below in light of the substantial time and effort incurred since January 2006 to complete our consolidated financial statements for 2005 and the restatement of our consolidated financial statements for 2004 and 2003. In particular, since October 31, 2002, we have experienced significant turnover in relevant personnel, greatly decreasing our ability to reconstruct detailed financial data for 2002 and prior periods. Previously published financial information for 2002 and earlier periods should not be relied upon. |
As of and for the Years Ended October 31 | 2005 | 2004 | 2003 | |||||||||
(Restated) | (Restated) | |||||||||||
(in millions, except per share data, units shipped and percentages) | ||||||||||||
RESULTS OF OPERATIONS | ||||||||||||
Sales and revenues, net | $ | 12,124 | $ | 9,678 | $ | 7,695 | ||||||
Net income (loss) | $ | 139 | $ | (44 | ) | $ | (333 | ) | ||||
Basic earnings (loss) per share | $ | 1.98 | $ | (0.64 | ) | $ | (4.86 | ) | ||||
Diluted earnings (loss) per share | $ | 1.90 | $ | (0.64 | ) | $ | (4.86 | ) | ||||
Average number of shares outstanding: | ||||||||||||
Basic | 70.1 | 69.7 | 68.7 | |||||||||
Diluted | 76.3 | 69.7 | 68.7 | |||||||||
FINANCIAL DATA | ||||||||||||
Total assets | $ | 10,786 | $ | 8,750 | $ | 8,390 | ||||||
Long-term debt: | ||||||||||||
Manufacturing operations | $ | 1,476 | $ | 1,514 | $ | 1,336 | ||||||
Financial services operations | 3,933 | 2,106 | 3,621 | |||||||||
Total long-term debt | $ | 5,409 | $ | 3,620 | $ | 4,957 | ||||||
Stockholders’ deficit | $ | (1,699 | ) | $ | (1,852 | ) | $ | (1,756 | ) | |||
SUPPLEMENTAL DATA | ||||||||||||
Capital expenditures | $ | 399 | $ | 376 | $ | 388 | ||||||
Engineering and product development costs | $ | 413 | $ | 287 | $ | 270 | ||||||
OPERATING DATA | ||||||||||||
Manufacturing gross margin | 13.3 | % | 11.9 | % | 9.5 | % | ||||||
U.S. and Canadian market share(a) | 27.0 | % | 28.1 | % | 28.8 | % | ||||||
Unit shipments worldwide | ||||||||||||
Truck chargeouts(b) | 130,100 | 109,900 | 84,400 | |||||||||
Total engine shipments(c) | 522,600 | 432,200 | 394,900 |
a) | Based on shipments of medium trucks (classes 6 and 7), including buses, and heavy trucks (class 8). | |
b) | Truck chargeouts are defined by management as trucks that have been invoiced. | |
c) | Includes engine shipments to OEMs and to our Truck segment. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | Highlights and Executive Summary | |
• | Overview |
° | Our Business | |
° | Restatement and Re-audit | |
° | Key Trends and Business Outlook |
• | Results of Operations and Segment Review | |
• | Liquidity and Capital Resources | |
• | Off-Balance Sheet Arrangements | |
• | Contractual Obligations | |
• | Other Information |
° | Income Taxes | |
° | Environmental Matters | |
° | Securitization Transactions | |
° | Critical Accounting Policies | |
° | New Accounting Pronouncements |
• | 2005 Quarterly Results (unaudited). |
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Years Ended October 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions, except per share data) | ||||||||||||
Sales and revenues, net | $ | 12,124 | $ | 9,678 | $ | 7,695 | ||||||
Total costs and expenses | 12,069 | 9,749 | 8,064 | |||||||||
Equity in income of non-consolidated affiliates | 90 | 36 | 53 | |||||||||
Income (loss) before income tax | 145 | (35 | ) | (316 | ) | |||||||
Net income (loss) | $ | 139 | $ | (44 | ) | $ | (333 | ) | ||||
Diluted earnings (loss) per share | $ | 1.90 | $ | (0.64 | ) | $ | (4.86 | ) |
• | Improving cost structure while developing synergistic niche businesses with richer margins | |
• | Reducing materials cost by increasing global sourcing, leveraging scale benefits and finding synergies among strategic partnerships |
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• | Improving manufacturing efficiency | |
• | Reducing cyclicality by growing the Parts segment and “expansion” markets sales such as military, Mexico, export, and RV chassis in our Truck segment | |
• | Rolling out our ProStar tractor line | |
• | Rolling out our MaxxForce 11 and 13 engines | |
• | Broadening our Engine segment customer base | |
• | Focusing engine research and development in order to have a competitive advantage as the 2010 emissions standards begin to affect customers’ buying decisions. |
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• | Certain Professional Fees —The process of restating our previously issued consolidated financial statements for 2003 and 2004 and for the first three quarters of 2005 required considerable efforts at a significant financial cost, which was expensed as incurred. In addition, we have incurred professional fees in 2006 and 2007 related to assistance in preparing our 2006 and 2007 financial statements, as well as documenting and performing an assessment of our internal control over financial reporting, as required by the Sarbanes-Oxley Act of 2002. The table below outlines these costs incurred to date. |
2007 | 2006 | Total | ||||||||||
(in millions) | ||||||||||||
Professional fees associated with the re-audit and the 2006 and 2007 audits | $ | 85 | $ | 23 | $ | 108 | ||||||
Professional, consulting, and legal fees related to the restatement | 123 | 40 | 163 | |||||||||
Professional fees associated with documentation and assessment of internal control over financial reporting | 18 | 10 | 28 | |||||||||
Total | $ | 226 | $ | 73 | $ | 299 | ||||||
• | Changes in Debt Structure —In 2006 and 2007, we made significant changes to our debt structure. As a result of our delay in filing reports with the SEC, we were in default under certain of our loan covenants, requiring us to refinance our public debt with private financing, significantly increasing the cost of our capital structure. In association with these events, we incurred expenses related to the recognition of unamortized debt issuance costs. A detailed description of these transactions and the chronology of events are outlined in the “Liquidity and Capital Resources” section of this Item and Note 11,Debt, to the accompanying consolidated financial statements. | |
• | Emissions Standards Change Impact and Pre-Buy —The “traditional” truck markets that we compete in are typically cyclical in nature due to the strong influence of macro-economic factors such as industrial production, demand for durable goods, capital spending, oil prices and consumer confidence. Cycles for |
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these markets have historically spanned roughly 5 to 10 years (peak-to-peak), however, we have observed a significant industry-wide increase in demand for vehicles containing the pre-2007 emissions-compliant engines ahead of the implementation of stricter engine emissions requirements. In order to meet this customer order demand, we increased engine and truck production in the second half of 2006 within normal operating capacity levels. As such, we produced a limited supply of transition inventory in order to facilitate the transfer of the manufacturing lines to 2007 emissions-compliant engines. Due to weak initial industry demand for 2007 emissions-compliant engines, we reduced production levels at our operating facilities in the first half of 2007. In 2010, emissions standards will be stricter than in 2007, although it is unknown whether or not there will be a material impact on overall truck industry cyclicality. In addition, it is likely we will adjust our engine and truck production levels to meet order demand at that time. |
• | Steel and Other Commodities —Commodity price increases, particularly for aluminum, copper, precious metals, resins, and steel have contributed to substantial cost pressures in the industry as well as from our suppliers. Cost increases related to steel, precious metals, resins and petroleum products totaled approximately $184 million, $178 million, and $72 million for 2005, 2006, and the first nine months of 2007, respectively. Generally, we have been able to mitigate the effects of these cost increases via a combination of design changes, material substitution, resourcing, global sourcing efforts and pricing performance, although we do not specifically track these items on customer invoices. In addition, although the terms of supplier contracts and special pricing arrangements can vary, generally a time lag exists between when we incur increased costs and when we recover them. This time lag can span several quarters or years, depending on the specific situation. |
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2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions, except per share data) | ||||||||||||
Sales and revenues, net | $ | 12,124 | $ | 9,678 | $ | 7,695 | ||||||
Cost of products sold | 10,250 | 8,268 | 6,670 | |||||||||
Selling, general and administrative expense | 1,067 | 939 | 903 | |||||||||
Engineering and product development costs | 413 | 287 | 270 | |||||||||
Restructuring and program termination (credits) charges | (2 | ) | 8 | 18 | ||||||||
Interest expense | 308 | 237 | 267 | |||||||||
Other expense (income), net | 33 | 10 | (64 | ) | ||||||||
Total costs and expenses | 12,069 | 9,749 | 8,064 | |||||||||
Equity in income of non-consolidated affiliates | 90 | 36 | 53 | |||||||||
Income (loss) before income tax | 145 | (35 | ) | (316 | ) | |||||||
Income tax expense | (6 | ) | (9 | ) | (17 | ) | ||||||
Net income (loss) | $ | 139 | $ | (44 | ) | $ | (333 | ) | ||||
Diluted earnings (loss) per share | $ | 1.90 | $ | (0.64 | ) | $ | (4.86 | ) |
2005 | 2004 | Change | ||||||||||
(Restated) | ||||||||||||
(in millions, except per share data) | ||||||||||||
Sales and revenues, net | $ | 12,124 | $ | 9,678 | $ | 2,446 | ||||||
Cost of products sold | 10,250 | 8,268 | 1,982 | |||||||||
Selling, general and administrative expense | 1,067 | 939 | 128 | |||||||||
Engineering and product development costs | 413 | 287 | 126 | |||||||||
Restructuring and program termination (credits) charges | (2 | ) | 8 | (10 | ) | |||||||
Interest expense | 308 | 237 | 71 | |||||||||
Other expense (income), net | 33 | 10 | 23 | |||||||||
Total costs and expenses | 12,069 | 9,749 | 2,320 | |||||||||
Equity in income of non-consolidated affiliates | 90 | 36 | 54 | |||||||||
Income (loss) before income tax | 145 | (35 | ) | 180 | ||||||||
Income tax expense | (6 | ) | (9 | ) | 3 | |||||||
Net income (loss) | $ | 139 | $ | (44 | ) | $ | 183 | |||||
Diluted earnings (loss) per share | $ | 1.90 | $ | (0.64 | ) | $ | 2.54 |
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2004 | 2003 | Change | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions, except per share data) | ||||||||||||
Sales and revenues, net | $ | 9,678 | $ | 7,695 | $ | 1,983 | ||||||
Cost of products sold | 8,268 | 6,670 | 1,598 | |||||||||
Selling, general and administrative expense | 939 | 903 | 36 | |||||||||
Engineering and product development costs | 287 | 270 | 17 | |||||||||
Restructuring and program termination (credits) charges | 8 | 18 | (10 | ) | ||||||||
Interest expense | 237 | 267 | (30 | ) | ||||||||
Other expense (income), net | 10 | (64 | ) | 74 | ||||||||
Total costs and expenses | 9,749 | 8,064 | 1,685 | |||||||||
Equity in income of non-consolidated affiliates | 36 | 53 | (17 | ) | ||||||||
Income (loss) before income tax | (35 | ) | (316 | ) | 281 | |||||||
Income tax expense | (9 | ) | (17 | ) | 8 | |||||||
Net income (loss) | $ | (44 | ) | $ | (333 | ) | $ | 289 | ||||
Diluted loss per share | $ | (0.64 | ) | $ | (4.86 | ) | $ | 4.22 |
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2005 | 2004 | Change | 2003 | Change | ||||||||||||||||
(Restated) | 2005/2004 | (Restated) | 2004/2003 | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Segment sales | $ | 7,947 | $ | 6,195 | $ | 1,752 | $ | 4,577 | $ | 1,618 | ||||||||||
Segment profit (loss) | 142 | (17 | ) | 159 | (227 | ) | 210 |
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Company Chargeouts (In Units)(A) | ||||||||||||||||||||
2005 | 2004 | Change | 2003 | Change | ||||||||||||||||
(Restated) | 2005/2004 | (Restated) | 2004/2003 | |||||||||||||||||
“Traditional” Markets (U.S. and Canada) | ||||||||||||||||||||
School buses | 17,500 | 16,100 | 1,400 | 17,800 | (1,700 | ) | ||||||||||||||
Class 6 and 7 medium trucks | 43,200 | 41,300 | 1,900 | 31,700 | 9,600 | |||||||||||||||
Class 8 heavy trucks | 37,000 | 29,600 | 7,400 | 15,700 | 13,900 | |||||||||||||||
Class 8 severe service trucks | 18,800 | 13,700 | 5,100 | 10,500 | 3,200 | |||||||||||||||
Sub-total combined class 8 trucks | 55,800 | 43,300 | 12,500 | 26,200 | 17,100 | |||||||||||||||
Total “Traditional” Markets | 116,500 | 100,700 | 15,800 | 75,700 | 25,000 | |||||||||||||||
Total “Expansion” Markets | 13,600 | 9,200 | 4,400 | 8,700 | 500 | |||||||||||||||
Total World-wide Units | 130,100 | 109,900 | 20,200 | 84,400 | 25,500 | |||||||||||||||
2005 | 2004 | Change | 2003 | Change | ||||||||||||||||
World-wide Order Backlog (in units) | 27,800 | 27,900 | (100 | ) | 23,400 | 4,500 | ||||||||||||||
“Traditional” Markets Overall U.S. and Canada Market Share(B) | 27.0 | % | 28.1 | % | (1.1ppt | ) | 28.8 | % | (0.7ppt | ) |
(A) | Chargeouts are defined by management as trucks that have been invoiced, with units held in dealer inventory representing the difference to arrive at retail deliveries. | |
(B) | Based on market-wide information from Wards Communications and R.L. Polk & Co. |
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Truck Industry Retail Deliveries | ||||||||||||
(In Units) | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
“Traditional” Markets (U.S. and Canada) | ||||||||||||
School buses | 27,100 | 26,200 | 29,200 | |||||||||
Class 6 and 7 medium trucks | 104,500 | 99,200 | 74,900 | |||||||||
Class 8 heavy trucks | 210,700 | 164,200 | 116,200 | |||||||||
Class 8 severe service trucks | 72,200 | 55,100 | 43,100 | |||||||||
Sub-total combined class 8 trucks | 282,900 | 219,300 | 159,300 | |||||||||
Total “Traditional” Truck Markets | 414,500 | 344,700 | 263,400 | |||||||||
2005 | 2004 | 2003 | ||||||||||
“Traditional” Markets (U.S. and Canada) | ||||||||||||
School buses | 64.5 | % | 61.0 | % | 62.4 | % | ||||||
Class 6 and 7 medium trucks | 39.5 | 40.3 | 42.0 | |||||||||
Class 8 heavy trucks | 17.1 | 17.1 | 13.9 | |||||||||
Class 8 severe service trucks | 23.8 | 23.2 | 23.2 | |||||||||
Sub-total combined class 8 trucks | 18.8 | 18.6 | 16.4 | |||||||||
Total “Traditional” Truck Markets | 27.0 | 28.1 | 28.8 |
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2005 | 2004 | Change | 2003 | Change | ||||||||||||||||
(Restated) | 2005/2004 | (Restated) | 2004/2003 | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Segment sales | $ | 3,206 | $ | 2,581 | $ | 625 | $ | 2,211 | $ | 370 | ||||||||||
Segment profit (loss) | (179 | ) | (208 | ) | 29 | (60 | ) | (148 | ) | |||||||||||
Sales data (in units): | ||||||||||||||||||||
OEM sales | 444,500 | 357,400 | 87,100 | 331,300 | 26,100 | |||||||||||||||
Intercompany sales | 78,100 | 74,800 | 3,300 | 63,600 | 11,200 | |||||||||||||||
Total sales | 522,600 | 432,200 | 90,400 | 394,900 | 37,300 | |||||||||||||||
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2005 | 2004 | Change | 2003 | Change | ||||||||||||||||
(Restated) | 2005/2004 | (Restated) | 2004/2003 | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Segment sales | $ | 1,373 | $ | 1,224 | $ | 149 | $ | 1,078 | $ | 146 | ||||||||||
Segment profit (loss) | 278 | 236 | 42 | 194 | 42 |
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2005 | 2004 | Change | 2003 | Change | ||||||||||||||||
(Restated) | 2005/2004 | (Restated) | 2004/2003 | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Segment revenues | $ | 397 | $ | 359 | $ | 38 | $ | 379 | $ | (20 | ) | |||||||||
Segment profit (loss) | 135 | 132 | 3 | 87 | 45 |
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Due from | ||||||||||||||||
Retail | Lease | Wholesale | Sale of | |||||||||||||
Notes | Financing | Notes | Receivables | |||||||||||||
(in millions) | ||||||||||||||||
Due in: | ||||||||||||||||
2006 | $ | 1,042 | $ | 86 | $ | 201 | $ | 441 | ||||||||
2007 | 843 | 76 | — | — | ||||||||||||
2008 | 674 | 58 | — | — | ||||||||||||
2009 | 467 | 59 | — | — | ||||||||||||
2010 | 253 | 57 | — | — | ||||||||||||
Thereafter | 69 | 14 | — | — | ||||||||||||
Gross finance receivables | 3,348 | 350 | 201 | 441 | ||||||||||||
Unearned finance income | (309 | ) | (51 | ) | — | — | ||||||||||
Finance receivables, net of unearned income | $ | 3,039 | $ | 299 | $ | 201 | $ | 441 | ||||||||
2005 | 2004 | |||||||||||
(Restated) | ||||||||||||
(in millions) | ||||||||||||
Equipment held for or under leases | $ | 198 | $ | 287 | ||||||||
Less: Accumulated depreciation | (88 | ) | (127 | ) | ||||||||
Equipment held for lease, net | 110 | 160 | ||||||||||
Net rent receivable | 1 | 1 | ||||||||||
Net investment in operating leases | $ | 111 | $ | 161 | ||||||||
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For The Years Ended October 31 | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Net cash provided by operating activities | $ | 275 | $ | 298 | $ | 190 | ||||||
Net cash provided by (used in) investing activities | (1,081 | ) | 238 | (1,046 | ) | |||||||
Net cash provided by (used in) financing activities | 996 | (375 | ) | 652 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 36 | 1 | 5 | |||||||||
Increase (decrease) in cash and cash equivalents | $ | 226 | $ | 162 | (199 | ) | ||||||
Cash and cash equivalents, at beginning of year | 603 | 441 | 640 | |||||||||
Cash and cash equivalents, at end of year | $ | 829 | $ | 603 | $ | 441 | ||||||
Outstanding capital commitments | $ | 31 | $ | 60 | $ | 64 |
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Instrument | Total | Amount | Matures or | |||||||||||
Company | Type | Amount | Purpose of Funding | Utilized | Expires | |||||||||
(in millions) | ||||||||||||||
TERFCO | Trust | $ | 100 | Unsecured Ford trade receivables | $ | 100 | 2005 | |||||||
NFSC | Revolving wholesale note trust | $ | 1,414 | Eligible wholesale notes | $ | 1,356 | 2005 through 2010 | |||||||
TRAC | Revolving retail account conduit | $ | 100 | Eligible retail accounts | $ | 100 | 2008 | |||||||
TRIP | Revolving retail facility | $ | 500 | Retail notes and leases | $ | 233 | 2010 | |||||||
NFC | Credit Agreement | $ | 1,200 | Retail notes and leases, and general corporate purposes | $ | 593 | (1) | 2010 |
(1) | $33 million of this amount is utilized by NIC’s Mexican finance subsidiaries. |
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• | any obligation under certain guarantees or contracts | |
• | a retained or contingent interest in assets transferred to a non-consolidated entity or similar entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets (sale of receivables) | |
• | any obligations under certain derivative instruments | |
• | any obligation under a material variable interest held by the registrant in a non-consolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or research and development services with registrant. |
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Payments Due by Year Ending October 31, | ||||||||||||||||||||
2007- | 2009- | |||||||||||||||||||
Total | 2006 | 2008 | 2010 | 2011 + | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Type of contractual obligation: | ||||||||||||||||||||
Long-term debt obligations(A) | $ | 5,981 | $ | 932 | $ | 1,062 | $ | 2,215 | $ | 1,772 | ||||||||||
Interest on long-term debt(B) | 745 | 221 | 289 | 179 | 56 | |||||||||||||||
Financing arrangements and capital lease obligations(C) | 498 | 78 | 186 | 228 | 6 | |||||||||||||||
Operating lease obligations(D)(E) | 192 | 35 | 57 | 38 | 62 | |||||||||||||||
Purchase obligations(F) | 73 | 73 | — | — | — | |||||||||||||||
Other contractual obligations(G) | 24 | 4 | 13 | 7 | — | |||||||||||||||
Total | $ | 7,513 | $ | 1,343 | $ | 1,607 | $ | 2,667 | $ | 1,896 | ||||||||||
(A) | Included in long-term debt obligations are amounts owed on our notes payable to banks and others. These borrowings are further explained in Note 11,Debt, to the accompanying consolidated financial statements. | |
(B) | Interest on long-term debt is calculated at the weighted average interest rate on total debt at October 31, 2005, including the effect of discounts and related amortization at an average rate of 6.2%. For more information, see Note 11,Debt,to the accompanying consolidated financial statements. | |
(C) | We lease many of our facilities as well as other property and equipment under financing arrangements and capital leases in the normal course of business including $90 million of interest obligation. For more information, see Note 8,Property and equipment, to the accompanying consolidated financial statements. | |
(D) | Lease obligations for facility closures are included in operating leases. For more information, see Note 8,Property and equipment, to the accompanying consolidated financial statements. | |
(E) | Future operating lease obligations are not recognized in our consolidated balance sheet. | |
(F) | Purchase obligations include various commitments in the ordinary course of business that would include the purchase of goods or services and they are not recognized in our consolidated balance sheet. | |
(G) | Related to our decision to discontinue purchasing certain engine components from one of our non-consolidated affiliates, we agreed to reimburse this affiliate for the unamortized value of equipment used to build and assemble those engine components. |
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• | The nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change. | |
• | The impact of the estimates and assumptions on financial condition or operating performance is material. |
Effect if Actual Results Differ from | ||||
Description | Judgments and Uncertainties | Assumptions | ||
Pension and Other Postretirement Benefits | ||||
We provide pension and other postretirement benefits to a substantial portion of our | Health care cost trend rates are developed based upon historical retiree cost trend data, short term | As of October 31, 2005, an increase in the discount rate of 0.5%, assuming inflation remains |
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Effect if Actual Results Differ from | ||||
Description | Judgments and Uncertainties | Assumptions | ||
employees, former employees and their beneficiaries. The assets, liabilities and expenses we recognize and disclosures we make about plan actuarial and financial information are dependent on the assumptions used in calculating such amounts. The primary assumptions include factors such as discount rates, health care cost trend rates, inflation, expected return on plan assets, retirement rates, mortality rates, rate of compensation increases and other factors. | health care outlook and industry benchmarks and surveys. The inflation assumption is based upon our retiree medical trend assumptions. The assumptions are based upon both our specific trends and nationally expected trends. The discount rates are obtained by matching the anticipated future benefit payments for the plans to the Citigroup yield curve to establish a weighted average discount rate for each plan. The expected return on plan assets is derived from historical plan returns and reviews of asset allocation strategies, expected long-term performance of asset classes, risks and other factors adjusted for our specific investment strategy. The focus of the information is on long-term trends and provides for the consideration for recent plan performance. Retirement rates are based upon actual and projected plan experience. Mortality rates are developed from actual and projected plan experience. Rate of compensation increase reflects our long-term actual experience and our projected future increases including contractually agreed upon wage rate increases for represented employees. | unchanged, would result in a decrease of $182 million in the pension obligations and a decrease of $3 million in the net periodic benefit cost. A 1% increase in the discount rate of the other postretirement plans would result in a decrease of $236 million for the obligation and a decrease of $12 million in the net periodic benefit cost. A decrease of 0.5% in the discount rate as of October 31, 2005, assuming inflation remains unchanged, would result in an increase of $202 million in the pension obligations and an increase of $2 million in the net periodic benefit cost. A decrease of 1% in the discount rate of the other postretirement benefit plans would result in an increase in other postretirement obligations of $281 million and an increase of $14 million in the net periodic benefit cost. The calculation of the expected return on plan assets is described in Note 12,Postretirement benefits,to the accompanying consolidated financial statements. The expected rate of return was 9% for 2005, 2004 and 2003. The expected rate of return is a long-term assumption; its accuracy can only be measured over a long time period based upon past experience. A variation in the expected return by 0.5% as of October 31, 2005 would result in a variation of $18 million in the net periodic benefit cost. The sensitivities stated above are based upon changing one assumption at a time, but often economic factors impact multiple assumptions simultaneously. | ||
Allowance for Losses | ||||
The allowance for losses is our estimate of losses incurred in our receivable portfolio. The portfolio consists of retail notes, finance | Establishing our allowance for losses involves significant uncertainties because the calculation requires us to make | As of October 31, 2005, we had a required combined pool and specific allowance of $31 million for all finance receivables and |
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Effect if Actual Results Differ from | ||||
Description | Judgments and Uncertainties | Assumptions | ||
leases and wholesale notes and accounts and other receivables. The allowance is established through a charge to provision for losses and is an estimate of the amount required to absorb losses on the existing portfolio. The largest portion of the allowance for losses is related to the finance receivables and it is evaluated based on a pool method by type of receivable, primarily using historical and current net loss experience in conjunction with current portfolio trends in delinquencies, repossession frequency, and recovery percentages for each receivable type. Specific allowances are made for significant impaired receivables. | estimates about the timing, frequency, and severity of future losses and the impact of general economic conditions as well as current delinquency, repossession, and recovery rates. | operating leases owned by us. If we were to adjust the estimated loss rate using the upper and lower limit of the estimated weighted average loss percentage used by us from 2002 through 2005, the required allowance would increase to $54 million for finance receivables and decrease to $26 million for operating leases. The weighted average loss percentage is based upon the historic actual losses with a two-thirds weight and a forecast based upon current general economic conditions with a one-third weight. This creates a probability range in which the most probable outcome is recorded. | ||
Sales of Receivables | ||||
We securitize finance receivables through SPEs, which then issue securities to public and private investors. Some of these securitization transactions qualify as sales under FASB Statement No. 140 whereas the buyers of the receivables have limited recourse. Gains or losses on sales of receivables are credited or charged to finance revenue in the periods in which the sales occur. Amounts due from sales of receivables, also known as retained interests, which include interest-only receivables, cash reserve accounts and subordinated certificates, are recorded at fair value in the periods in which the sales occur. The accretion of the discount related to the retained interests is recognized on an effective yield basis. | We estimate the prepayment speed for the receivables sold, the discount rate used to determine the present value of the retained interests and the anticipated net losses on the receivables to calculate the gain or loss. The method for calculating the gain or loss aggregates the receivables into a homogeneous pool. Estimates of the assumptions are based upon historical and current experience, anticipated future portfolio performance, market-based discount rates and other factors and are made for each securitization transaction. In addition, we estimate the value of the retained interests on a quarterly basis. The fair value of the interest-only receivable is based on present value estimates of expected cash flows using our assumptions of prepayment speed, discount rates and net losses. | The critical estimate impacting the valuation of receivables sold is the market-based discount rate. As of October 31, 2005, if we were to adjust the discount rate used for calculating net present value by a 10% adverse change, the result would be a decrease in pre-tax income of $2 million. | ||
Income Taxes | ||||
We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences | The ultimate recovery of deferred tax assets is dependent upon the amount and timing of future taxable income and other factors such as the taxing jurisdiction in which the asset is to be recovered. | Although we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to |
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Effect if Actual Results Differ from | ||||
Description | Judgments and Uncertainties | Assumptions | ||
attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recorded with respect to net operating losses and other tax attribute carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the years in which temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the income of the period that includes the enactment date. Contingent tax liabilities are accounted for separately from deferred tax assets and liabilities; an accrual is recorded when we believe it is probable that a liability has been incurred for taxes and related interest and penalties, if any. It must be probable that a contingent tax benefit will be realized before the contingent benefit is recognized for financial reporting purposes. | A high degree of judgment is required to determine if, and the extent that, valuation allowances should be recorded against deferred tax assets. We have provided valuation allowances at October 31, 2005, aggregating $1.9 billion for federal and state taxes against such assets as a result of cumulative losses and based on our current assessment of the factors described above. Of that amount, $37 million relates to net operating losses for which subsequently recognized tax benefits will be allocated to additional paid in capital. Contingent tax liabilities are based on our assessment of the likelihood that we have incurred a liability. Such liabilities are reviewed based on recent changes in tax laws and regulations, including judicial rulings. As of October 31, 2005, we have $85 million of accruals for contingent tax liabilities. | increases or decreases in income taxes that could be material. | ||
Impairment of Long- Lived Assets | ||||
We periodically review the carrying value of our long-lived assets held and used, (other than goodwill and intangible assets with indefinite lives and assets to be disposed of as discussed below) when events and circumstances warrant. This review is performed using estimates of future cash flows discounted at a rate commensurate with the risk involved. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. | Our impairment loss calculations require us to apply judgments in estimating future cash flows and asset fair values. Assets could become impaired in the future or require additional charges as a result of declines in profitability due to changes in volume, market pricing, cost, manner in which an asset is used, physical condition of an asset, laws and regulations, or in the business environment. | Significant adverse changes to our business environment and future cash flows could cause us to record an impairment charge that is material. |
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Effect if Actual Results Differ from | ||||
Description | Judgments and Uncertainties | Assumptions | ||
Contingent Liabilities | ||||
We are subject to product liability lawsuits and claims in the normal course of business. We record product liability accruals for the self- insured portion of any pending or threatened product liability actions. We are subject to claims by various governmental authorities regarding environmental remediation matters. We are subject to claims related to illnesses alleged to have resulted from asbestos exposure from component parts found in older vehicles, although some claims relate to the alleged presence of asbestos in our facilities. | For product liability, we determine appropriate case-specific accruals based upon our judgment and the advice of legal counsel. These estimates are evaluated and adjusted based upon changes in facts or circumstances surrounding the case. We also obtain a third party actuarial analysis to assist with the determination of the amount of additional accruals required to cover certain alleged claims and incurred but not reported (“IBNR”) product liability matters. The actual settlement values of outstanding claims may differ from the original estimates due to circumstances related to the specific claims. The IBNR estimates are impacted by changes in claims frequency and/or severity over historical levels. With regard to environmental remediation, many factors are involved including interpretations of local, state and federal laws and regulations, whether wastes or other hazardous material are contaminating the surrounding land or water or have the potential to cause such contamination. The asbestos related cases are subject to a variety of factors in that other vehicle manufacturers and various component suppliers are also named defendants. Historically, our actual damages paid out to claimants have not been material. | The case-specific accruals aggregate $35 million as of October 31, 2005. These accruals typically require adjustment as additional information becomes available for each case, but the amounts of such adjustments are not determinable. As of October 31, 2005, the IBNR accrual was $14 million. A 10% change in claim amount would increase or decrease this accrual by $1 million. As of October 31, 2005, we accrued $28 million for environmental remediation which represents our best estimate of the accruals required for these matters. Although we believe that our estimates and judgments related to asbestos related claims are reasonable, actual results could differ and we may be exposed to losses that could be material. | ||
Product Warranty | ||||
We record a liability for standard and extended warranty for products sold as well as for certain claims outside the contractual obligation period. As a result of the uncertainty surrounding the nature and frequency of product recall programs, the liability for such programs is recorded when we commit to a recall action, | Product warranty estimates are established using historical information about the nature, frequency, and average cost of warranty claims. We estimate warranty claims and take action to improve vehicle quality and minimize warranty claims. Actual payments for warranty claims could differ from the amounts | Although we believe that the estimates and judgments discussed herein are reasonable, actual results could differ and we may be exposed to increases or decreases in our warranty accrual that could be material. |
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Effect if Actual Results Differ from | ||||
Description | Judgments and Uncertainties | Assumptions | ||
which generally occurs when it is announced. Supplier recoveries are recorded when the supplier confirms their liability under the recall and collection is reasonably assured. | estimated requiring adjustments to the liabilities in future periods. | |||
Goodwill and Intangible Assets | ||||
Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired companies. We test goodwill for impairment using a fair value approach at the reporting unit level. We are required to test for impairment at least annually, absent some triggering event that would accelerate an impairment assessment. We continue to review the carrying values of amortizable intangible assets whenever facts and circumstances change in a manner that indicates their carrying values may not be recoverable. We test indefinite lived intangible assets at least annually, absent some triggering event that would accelerate an impairment assessment. | We have recognized goodwill in our reporting units, which are one level below the segment level for purposes of performing our goodwill impairment testing. We determine the fair values of our reporting units using the discounted cash flow valuation technique, which requires us to make assumptions and estimates regarding industry economic factors and the profitability of future business strategies. Our testing for impairment of intangible assets requires us to apply judgements in estimating future cash flows and asset fair values. Intangible assets could become impaired as a result of declines in profitability due to changes in volume, market pricing, cost, manner in which an asset is used, laws and regulations, or in the business environment. | Changes in the underlying factors may cause our estimates related to fair values to change and may cause impairment which may have a material impact. |
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Impact on Our Financial Condition | ||||
Pronouncement | Effective Date | and Results of Operations | ||
SEC Staff Accounting Bulletin (“SAB”) No. 109,Written Loan Commitments Recorded at Fair Value through Earnings. | Effective as of the first fiscal quarter beginning after December 15, 2007. Our effective date is February 1, 2008. | We are evaluating the potential impact, if any. | ||
FASB Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities | Effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of FASB Statement No. 157,Fair Value Measurements. Our effective date is November 1, 2008. | We are evaluating the potential impact, if any. We have not determined whether to adopt the fair value option. | ||
SAB No. 108,Considering the Effects of Prior-Year Misstatements when Quantifying | Effective for fiscal years ending after November 15, 2006. Our | No material impact expected because of the restatement of our |
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Impact on Our Financial Condition | ||||
Pronouncement | Effective Date | and Results of Operations | ||
Misstatements in Current Year Financial Statements. | effective date is November 1, 2006. | previously issued consolidated financial statements. | ||
FASB Statement No. 157,Fair Value Measurements | Effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. Our effective date is November 1, 2008. | We are evaluating the potential impact, if any. | ||
FASB Statement No. 156,Accounting for Servicing of Financial Assets | Effective as of the beginning of a company’s first fiscal year that begins after September 15, 2006. | We adopted on November 1, 2006 with no material impact. | ||
FASB Statement No. 155,Accounting for Certain Hybrid Instruments. | Effective for all financial instruments acquired, issued or subject to a re-measurement event occurring after the beginning of a company’s first fiscal year that begins after September 15, 2006. | We adopted on November 1, 2006 with no material impact. | ||
FASB Statement No. 154,Accounting Changes and Error Corrections | Effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. | We will adopt this Statement in 2007 and apply its guidance for any changes in accounting principle, changes in accounting estimate and a correction of an error in previously issued financial statements. We believe this pronouncement will not have a material impact. | ||
FASB Interpretation No. 47,Accounting for Conditional Asset Retirement Obligations | Effective no later than the end of fiscal years ending after December 15, 2005. | We adopted on October 31, 2006 with no material impact. | ||
Staff Accounting Bulletin No. 107,Share-Based Payment | Annual periods beginning after June 15, 2005 (in conjunction with effective date of FASB Statement No. 123(R)). | See impact of FASB Statement No. 123(R) discussed above. | ||
FASB Statement No. 153,Exchanges of Nonmonetary Assets | Effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. | We adopted on November 1, 2006 with no material impact. | ||
FASB Statement No. 151,Inventory Costs | Effective for inventory costs incurred during fiscal years beginning after June 15, 2005. | We adopted on November 1, 2006 with no material impact. |
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• | Consolidated statements of operations for the quarters ended January 31, 2005, April 30, 2005, July 31, 2005, and October 31, 2005. | |
• | Consolidated balance sheets as of January 31, 2005, April 30, 2005, and July 31, 2005. | |
• | Consolidated business segment results for the quarters ended January 31, 2005, April 30, 2005, July 31, 2005, and October 31, 2005. | |
• | Summary of restatement items for the quarters ended January 31, 2005, April 30, 2005, and July 31, 2005. |
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For the Quarter Ended | ||||||||||||||||||||||||||||
January 31, 2005 | April 30, 2005 | July 31, 2005 | ||||||||||||||||||||||||||
As | As | As | ||||||||||||||||||||||||||
Previously | As | Previously | As | Previously | As | October 31, | ||||||||||||||||||||||
Reported | Restated | Reported | Restated | Reported | Restated | 2005 | ||||||||||||||||||||||
(in millions, except per share amounts) | ||||||||||||||||||||||||||||
Sales and revenues | ||||||||||||||||||||||||||||
Sales of manufactured products, net | $ | 2,491 | $ | 2,491 | $ | 2,904 | $ | 2,904 | $ | 2,923 | $ | 3,025 | $ | 3,407 | ||||||||||||||
Finance revenue | 62 | 71 | 58 | 70 | 60 | 76 | 80 | |||||||||||||||||||||
Other income | 5 | — | 8 | — | 11 | — | — | |||||||||||||||||||||
Sales and revenues, net | 2,558 | 2,562 | 2,970 | 2,974 | 2,994 | 3,101 | 3,487 | |||||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||||
Cost of products sold (exclusive of engineering and product development costs shown below) | 2,177 | 2,186 | 2,498 | 2,511 | 2,474 | 2,591 | 2,962 | |||||||||||||||||||||
Selling, general and administrative expense | 176 | 234 | 202 | 262 | 210 | 275 | 296 | |||||||||||||||||||||
Engineering and product development costs | 77 | 100 | 86 | 102 | 91 | 105 | 106 | |||||||||||||||||||||
Postretirement benefits expense | 59 | — | 60 | — | 59 | — | — | |||||||||||||||||||||
Restructuring and program termination (credits) charges | — | — | — | — | — | — | (2 | ) | ||||||||||||||||||||
Interest expense | 33 | 68 | 38 | 70 | 51 | 83 | 87 | |||||||||||||||||||||
Other expense (income), net | 9 | (23 | ) | 5 | 17 | 12 | (7 | ) | 46 | |||||||||||||||||||
Total costs and expenses | 2,531 | 2,565 | 2,889 | 2,962 | 2,897 | 3,047 | 3,495 | |||||||||||||||||||||
Equity in income of non-consolidated affiliates | — | 17 | — | 21 | — | 25 | 27 | |||||||||||||||||||||
Income before income tax | 27 | 14 | 81 | 33 | 97 | 79 | 19 | |||||||||||||||||||||
Income tax (expense) benefit | (9 | ) | (7 | ) | (28 | ) | (17 | ) | (33 | ) | (41 | ) | 59 | |||||||||||||||
Net income (loss) | $ | 18 | $ | 7 | $ | 53 | $ | 16 | $ | 64 | $ | 38 | $ | 78 | ||||||||||||||
Basic earnings (loss) per share | $ | 0.25 | $ | 0.10 | $ | 0.76 | $ | 0.22 | $ | 0.91 | $ | 0.54 | $ | 1.11 | ||||||||||||||
Diluted earnings (loss) per share | $ | 0.24 | $ | 0.10 | $ | 0.70 | $ | 0.22 | $ | 0.83 | $ | 0.52 | $ | 1.03 | ||||||||||||||
Weighted average shares outstanding | ||||||||||||||||||||||||||||
Basic | 70.1 | 70.0 | 70.1 | 70.1 | 70.1 | 70.1 | 70.2 | |||||||||||||||||||||
Diluted | 76.3 | 71.0 | 80.1 | 70.8 | 79.9 | 76.1 | 79.8 |
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As of | ||||||||||||||||||||||||
January 31, 2005 | April 30, 2005 | July 31, 2005 | ||||||||||||||||||||||
As | As | As | ||||||||||||||||||||||
Previously | As | Previously | As | Previously | As | |||||||||||||||||||
Reported | Restated | Reported | Restated | Reported | Restated | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 540 | $ | 528 | $ | 665 | $ | 660 | $ | 593 | $ | 605 | ||||||||||||
Marketable securities | 78 | 72 | 160 | 159 | 719 | 209 | ||||||||||||||||||
Finance and other receivables, net | 806 | 1,976 | 1,114 | 2,087 | 962 | 2,146 | ||||||||||||||||||
Inventories | 865 | 1,253 | 1,008 | 1,441 | 1,064 | 1,374 | ||||||||||||||||||
Deferred taxes, net | 189 | 26 | 187 | 24 | 169 | 19 | ||||||||||||||||||
Other current assets | 203 | 240 | 194 | 207 | 224 | 87 | ||||||||||||||||||
Total current assets | 2,681 | 4,095 | 3,328 | 4,578 | 3,731 | 4,440 | ||||||||||||||||||
Restricted cash and cash equivalents | — | 575 | — | 791 | — | 1,679 | ||||||||||||||||||
Marketable securities | 320 | — | 529 | — | 523 | — | ||||||||||||||||||
Finance and other receivables, net | 1,363 | 2,066 | 1,024 | 2,179 | 1,108 | 2,295 | ||||||||||||||||||
Investments in and advances to non-consolidated affiliates | 367 | 155 | 528 | 186 | 516 | 163 | ||||||||||||||||||
Property and equipment, net | 1,403 | 1,914 | 1,492 | 1,965 | 1,533 | 1,946 | ||||||||||||||||||
Goodwill | — | 63 | — | 195 | — | 201 | ||||||||||||||||||
Intangible assets, net | — | 28 | — | 106 | — | 107 | ||||||||||||||||||
Prepaid and intangible pension assets | 71 | 66 | 69 | 65 | 90 | 65 | ||||||||||||||||||
Deferred taxes, net | 1,288 | 131 | 1,293 | 138 | 1,266 | 69 | ||||||||||||||||||
Other noncurrent assets | — | 57 | — | 72 | — | 77 | ||||||||||||||||||
Total assets | $ | 7,493 | $ | 9,150 | $ | 8,263 | $ | 10,275 | $ | 8,767 | $ | 11,042 | ||||||||||||
Liabilities and stockholders’ equity (deficit) | ||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Notes payable and current maturities of long-term debt | $ | 1,434 | $ | 904 | $ | 1,455 | $ | 488 | $ | 1,170 | $ | 929 | ||||||||||||
Accounts payable | 1,286 | 1,444 | 1,527 | 1,707 | 1,383 | 1,554 | ||||||||||||||||||
Other current liabilities | 1,017 | 1,547 | 1,015 | 1,679 | 996 | 1,612 | ||||||||||||||||||
Total current liabilities | 3,737 | 3,895 | 3,997 | 3,874 | 3,549 | 4,095 | ||||||||||||||||||
Long-term debt | 1,415 | 4,770 | 1,855 | 5,855 | 2,720 | 6,372 | ||||||||||||||||||
Postretirement benefits liabilities | 1,399 | 1,747 | 1,408 | 1,760 | 1,426 | 1,774 | ||||||||||||||||||
Other noncurrent liabilities | 394 | 600 | 387 | 596 | 384 | 588 | ||||||||||||||||||
Total liabilities | 6,945 | 11,012 | 7,647 | 12,085 | 8,079 | 12,829 | ||||||||||||||||||
Stockholders’ equity (deficit) | ||||||||||||||||||||||||
Series D convertible junior preference stock | 4 | 4 | 4 | 4 | 4 | 4 | ||||||||||||||||||
Common stock and additional paid-in capital | 2,085 | 2,029 | 2,084 | 2,014 | 2,078 | 1,999 | ||||||||||||||||||
Accumulated deficit | (585 | ) | (2,805 | ) | (533 | ) | (2,755 | ) | (470 | ) | (2,736 | ) | ||||||||||||
Accumulated other comprehensive loss | (784 | ) | (916 | ) | (769 | ) | (902 | ) | (756 | ) | (884 | ) | ||||||||||||
Common stock held in treasury, at cost | (172 | ) | (174 | ) | (170 | ) | (171 | ) | (168 | ) | (170 | ) | ||||||||||||
Total stockholders’ equity (deficit) | 548 | (1,862 | ) | 616 | (1,810 | ) | 688 | (1,787 | ) | |||||||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 7,493 | $ | 9,150 | $ | 8,263 | $ | 10,275 | $ | 8,767 | $ | 11,042 | ||||||||||||
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Financial | Corporate and | |||||||||||||||||||||||
Truck | Engine | Parts | Services(A) | Eliminations | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
January 31, 2005 (Restated) | ||||||||||||||||||||||||
External sales and revenues, net | $ | 1,651 | $ | 518 | $ | 322 | $ | 71 | $ | — | $ | 2,562 | ||||||||||||
Intersegment sales and revenues, net | 1 | 147 | — | 21 | (169 | ) | — | |||||||||||||||||
Total sales and revenues, net | $ | 1,652 | $ | 665 | $ | 322 | $ | 92 | $ | (169 | ) | $ | 2,562 | |||||||||||
Interest expense | $ | — | $ | — | $ | — | $ | 37 | $ | 31 | $ | 68 | ||||||||||||
Equity in income of non-consolidated affiliates | 2 | 15 | — | — | — | 17 | ||||||||||||||||||
Segment profit (loss) | (8 | ) | (51 | ) | 63 | 34 | (24 | ) | 14 | |||||||||||||||
Segment assets | 1,973 | 1,288 | 380 | 4,597 | 912 | 9,150 | ||||||||||||||||||
April 30, 2005 (Restated) | ||||||||||||||||||||||||
External sales and revenues, net | $ | 1,965 | $ | 591 | $ | 348 | $ | 70 | $ | — | $ | 2,974 | ||||||||||||
Intersegment sales and revenues, net | 2 | 183 | — | 26 | (211 | ) | — | |||||||||||||||||
Total sales and revenues, net | $ | 1,967 | $ | 774 | $ | 348 | $ | 96 | $ | (211 | ) | $ | 2,974 | |||||||||||
Interest expense | $ | — | $ | — | $ | — | $ | 37 | $ | 33 | $ | 70 | ||||||||||||
Equity in income of non-consolidated affiliates | 3 | 18 | — | — | — | 21 | ||||||||||||||||||
Segment profit (loss) | 37 | (63 | ) | 67 | 32 | (40 | ) | 33 | ||||||||||||||||
Segment assets | 2,191 | 1,690 | 403 | 4,886 | 1,105 | 10,275 | ||||||||||||||||||
July 31, 2005 (Restated) | ||||||||||||||||||||||||
External sales and revenues, net | $ | 2,059 | $ | 634 | $ | 332 | $ | 76 | $ | — | $ | 3,101 | ||||||||||||
Intersegment sales and revenues, net | 2 | 173 | — | 26 | (201 | ) | — | |||||||||||||||||
Total sales and revenues, net | $ | 2,061 | $ | 807 | $ | 332 | $ | 102 | $ | (201 | ) | $ | 3,101 | |||||||||||
Interest expense | $ | — | $ | — | $ | — | $ | 46 | $ | 37 | $ | 83 | ||||||||||||
Equity in income of non-consolidated affiliates | 2 | 23 | — | — | — | 25 | ||||||||||||||||||
Segment profit (loss) | 75 | (40 | ) | 68 | 34 | (58 | ) | 79 | ||||||||||||||||
Segment assets | 2,121 | 1,707 | 405 | 5,781 | 1,028 | 11,042 | ||||||||||||||||||
October 31, 2005 | ||||||||||||||||||||||||
External sales and revenues, net | $ | 2,265 | $ | 771 | $ | 371 | $ | 80 | $ | — | $ | 3,487 | ||||||||||||
Intersegment sales and revenues, net | 2 | 189 | — | 27 | (218 | ) | — | |||||||||||||||||
Total sales and revenues, net | $ | 2,267 | $ | 960 | $ | 371 | $ | 107 | $ | (218 | ) | $ | 3,487 | |||||||||||
Interest expense | $ | — | $ | — | $ | — | $ | 52 | $ | 35 | $ | 87 | ||||||||||||
Equity in income of non-consolidated affiliates | — | 26 | 1 | — | — | 27 | ||||||||||||||||||
Segment profit (loss) | 38 | (25 | ) | 80 | 35 | (109 | ) | 19 | ||||||||||||||||
Segment assets | 2,527 | 1,952 | 487 | 4,850 | 970 | 10,786 |
(A) | Total sales and revenues of the Financial Services segment include interest revenues in the amount of $73 million for the quarter ended January 31, 2005, $75 million for the quarter ended April 30, 2005, $75 for the quarter ended July 31, 2005, and $77 for the quarter ended October 31, 2005. |
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Effects of Restatement | ||||||||||||
For the Quarter Ended | ||||||||||||
January 31, | April 30, | July 31, | ||||||||||
2005 | 2005 | 2005 | ||||||||||
(Unaudited) | ||||||||||||
(in millions, except per share amounts) | ||||||||||||
Income before income tax, as previously reported | $ | 27 | $ | 81 | $ | 97 | ||||||
Restatement adjustments: | ||||||||||||
Employee benefit arrangements | (4 | ) | 18 | (3 | ) | |||||||
Product warranty | (27 | ) | (15 | ) | (16 | ) | ||||||
Leases | (5 | ) | (5 | ) | (5 | ) | ||||||
Securitization of financial instruments | (1 | ) | 3 | 5 | ||||||||
Consolidation accounting | 7 | (13 | ) | 11 | ||||||||
Vendor rebates and tooling costs | 3 | 2 | 4 | |||||||||
Liabilities related to contingencies | (7 | ) | (2 | ) | (2 | ) | ||||||
Revenue recognition | 7 | (8 | ) | 8 | ||||||||
Derivative instruments | (4 | ) | (2 | ) | (4 | ) | ||||||
Restructuring activities | (1 | ) | (21 | ) | 1 | |||||||
Functional currency designation | — | (11 | ) | (5 | ) | |||||||
Property and equipment | 12 | 16 | (20 | ) | ||||||||
Inventories | (9 | ) | 5 | 3 | ||||||||
Unreconciled accounts and timing of income/expense recognition | 15 | (15 | ) | 7 | ||||||||
Other taxes | 1 | — | (2 | ) | ||||||||
Total restatement adjustments | (13 | ) | (48 | ) | (18 | ) | ||||||
Income (loss) before income tax, as restated | 14 | 33 | 79 | |||||||||
Income tax expense, as restated(A) | (7 | ) | (17 | ) | (41 | ) | ||||||
Net income (loss), as restated | $ | 7 | $ | 16 | $ | 38 | ||||||
Diluted earnings (loss) per share, as restated(B) | $ | 0.10 | $ | 0.22 | $ | 0.52 | ||||||
(A) Restatement adjustments to income tax expense | ||||||||||||
Income tax expense, as previously reported | $ | (9 | ) | $ | (28 | ) | $ | (33 | ) | |||
Adjustments | 2 | 11 | (8 | ) | ||||||||
Income tax expense, as restated | $ | (7 | ) | $ | (17 | ) | $ | (41 | ) | |||
(B) Restatement adjustments to diluted earnings per share | ||||||||||||
Diluted earnings (loss) per share, as previously reported | $ | 0.24 | $ | 0.70 | $ | 0.83 | ||||||
Adjustments, per share | (0.14 | ) | (0.48 | ) | (0.31 | ) | ||||||
Diluted earnings (loss) per share, as restated | $ | 0.10 | $ | 0.22 | $ | 0.52 | ||||||
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Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
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Item 8. | Financial Statements and Supplementary Data |
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Navistar International Corporation | ||||||||||||
and Subsidiaries | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions, except per share data) | ||||||||||||
Sales and revenues | ||||||||||||
Sales of manufactured products, net | $ | 11,827 | $ | 9,384 | $ | 7,368 | ||||||
Finance revenue | 297 | 294 | 327 | |||||||||
Sales and revenues, net | 12,124 | 9,678 | 7,695 | |||||||||
Costs and expenses | ||||||||||||
Cost of products sold | 10,250 | 8,268 | 6,670 | |||||||||
Selling, general and administrative expense | 1,067 | 939 | 903 | |||||||||
Engineering and product development costs | 413 | 287 | 270 | |||||||||
Restructuring and program termination (credits) charges | (2 | ) | 8 | 18 | ||||||||
Interest expense | 308 | 237 | 267 | |||||||||
Other expense (income), net | 33 | 10 | (64 | ) | ||||||||
Total costs and expenses | 12,069 | 9,749 | 8,064 | |||||||||
Equity in income of non-consolidated affiliates | 90 | 36 | 53 | |||||||||
Income (loss) before income tax | 145 | (35 | ) | (316 | ) | |||||||
Income tax expense | (6 | ) | (9 | ) | (17 | ) | ||||||
Net income (loss) | $ | 139 | $ | (44 | ) | $ | (333 | ) | ||||
Basic earnings (loss) per share | $ | 1.98 | $ | (0.64 | ) | $ | (4.86 | ) | ||||
Diluted earnings (loss) per share | $ | 1.90 | $ | (0.64 | ) | $ | (4.86 | ) | ||||
Weighted average shares outstanding | ||||||||||||
Basic | 70.1 | 69.7 | 68.7 | |||||||||
Diluted | 76.3 | 69.7 | 68.7 |
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Navistar International Corporation | ||||||||
and Subsidiaries | ||||||||
2005 | 2004 | |||||||
(Restated) | ||||||||
(in millions, except per share data) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 829 | $ | 603 | ||||
Marketable securities | 91 | 182 | ||||||
Finance and other receivables, net | 2,379 | 1,944 | ||||||
Inventories | 1,330 | 1,162 | ||||||
Deferred taxes, net | 54 | 29 | ||||||
Other current assets | 169 | 141 | ||||||
Total current assets | 4,852 | 4,061 | ||||||
Restricted cash and cash equivalents | 596 | 319 | ||||||
Finance and other receivables, net | 2,320 | 2,042 | ||||||
Investments in and advances to non-consolidated affiliates | 161 | 150 | ||||||
Property and equipment, net | 2,083 | 1,942 | ||||||
Goodwill | 314 | 53 | ||||||
Intangible assets, net | 287 | 23 | ||||||
Prepaid and intangible pension assets | 56 | 66 | ||||||
Deferred taxes, net | 48 | 30 | ||||||
Other noncurrent assets | 69 | 64 | ||||||
Total assets | $ | 10,786 | $ | 8,750 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Liabilities | ||||||||
Current liabilities | ||||||||
Notes payable and current maturities of long-term debt | $ | 980 | $ | 1,662 | ||||
Accounts payable | 1,869 | 1,564 | ||||||
Other current liabilities | 1,839 | 1,515 | ||||||
Total current liabilities | 4,688 | 4,741 | ||||||
Long-term debt | 5,409 | 3,620 | ||||||
Postretirement benefits liabilities | 1,838 | 1,729 | ||||||
Other noncurrent liabilities | 550 | 512 | ||||||
Total liabilities | 12,485 | 10,602 | ||||||
Stockholders’ deficit | ||||||||
Series D convertible junior preference stock | 4 | 4 | ||||||
Common stock and additional paid in capital (par value $0.10 per share, 75.4 million shares issued in 2005 and 75.3 million shares issued in 2004) | 2,074 | 2,076 | ||||||
Accumulated deficit | (2,699 | ) | (2,832 | ) | ||||
Accumulated other comprehensive loss | (910 | ) | (918 | ) | ||||
Common stock held in treasury, at cost (5.2 million shares in 2005 and 5.5 million shares in 2004) | (168 | ) | (182 | ) | ||||
Total stockholders’ deficit | (1,699 | ) | (1,852 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 10,786 | $ | 8,750 | ||||
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Navistar International Corporation and Subsidiaries | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Cash flows from operating activities | ||||||||||||
Net income (loss) | $ | 139 | $ | (44 | ) | $ | (333 | ) | ||||
Adjustments to reconcile net income (loss) to cash provided by operating activities | ||||||||||||
Depreciation and amortization | 267 | 228 | 223 | |||||||||
Depreciation of equipment held for lease | 55 | 60 | 66 | |||||||||
Deferred taxes | (72 | ) | (26 | ) | (5 | ) | ||||||
Amortization of debt issuance costs | 8 | 18 | 7 | |||||||||
Stock based compensation | 4 | 3 | 3 | |||||||||
Provision for doubtful accounts | 24 | 27 | 30 | |||||||||
Equity in income of non-consolidated affiliates | (90 | ) | (36 | ) | (53 | ) | ||||||
Dividends from non-consolidated affiliates | 83 | 46 | 37 | |||||||||
Loss on sale of property and equipment | 16 | 34 | 25 | |||||||||
Impairment of property and equipment | 23 | — | — | |||||||||
(Increase) decrease in operating assets, exclusive of the effects of businesses acquired | ||||||||||||
Finance and other receivables, net | (378 | ) | (544 | ) | (162 | ) | ||||||
Inventories | (67 | ) | (277 | ) | 174 | |||||||
Other current assets | (9 | ) | (28 | ) | 164 | |||||||
Prepaid and intangible pension assets | 10 | 6 | 5 | |||||||||
Finance and other receivables, net | (274 | ) | 60 | (126 | ) | |||||||
Other noncurrent assets | (27 | ) | 6 | 4 | ||||||||
Increase (decrease) in operating liabilities, exclusive of the effects of businesses acquired | ||||||||||||
Accounts payable | 216 | 412 | 108 | |||||||||
Other current liabilities | 261 | 352 | (59 | ) | ||||||||
Postretirement benefits liabilities | 68 | (151 | ) | 92 | ||||||||
Other noncurrent liabilities | 23 | 149 | (12 | ) | ||||||||
Other, net | (5 | ) | 3 | 2 | ||||||||
Total adjustments | 136 | 342 | 523 | |||||||||
Net cash provided by operating activities | 275 | 298 | 190 | |||||||||
Cash flows from investing activities | ||||||||||||
Purchases of marketable securities | (828 | ) | (416 | ) | (407 | ) | ||||||
Sales or maturities of marketable securities | 918 | 312 | 329 | |||||||||
Net change in restricted cash and cash equivalents | (277 | ) | 687 | (665 | ) | |||||||
Capital expenditures | (295 | ) | (244 | ) | (306 | ) | ||||||
Purchase of equipment held for or under lease | (104 | ) | (132 | ) | (82 | ) | ||||||
Proceeds from sales of property and equipment | 73 | 60 | 79 | |||||||||
Acquisitions, net of cash acquired | (563 | ) | (24 | ) | (6 | ) | ||||||
Other investing activities | (5 | ) | (5 | ) | 12 | |||||||
Net cash (used in) provided by investing activities | (1,081 | ) | 238 | (1,046 | ) | |||||||
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Navistar International Corporation and Subsidiaries | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Cash flows from financing activities | ||||||||||||
Proceeds from issuance of securitized debt | 1,956 | 968 | 1,928 | |||||||||
Payments on securitized debt | (1,201 | ) | (1,325 | ) | (1,326 | ) | ||||||
Proceeds from issuance of non-securitized debt | 1,482 | 546 | 518 | |||||||||
Principal payments on non-securitized debt | (1,036 | ) | (570 | ) | (510 | ) | ||||||
Net increase (decrease) in notes and debt outstanding under revolving credit facility | (112 | ) | 101 | (10 | ) | |||||||
Principal payments under financing arrangements and capital lease obligations | (82 | ) | (79 | ) | (68 | ) | ||||||
Premiums on call options, net | — | (27 | ) | (26 | ) | |||||||
Debt issuance costs | (16 | ) | (19 | ) | (3 | ) | ||||||
Proceeds from sale of treasury stock to benefit plans | — | — | 175 | |||||||||
Purchase of common stock | — | — | (38 | ) | ||||||||
Proceeds from sale of treasury stock | 5 | 30 | 12 | |||||||||
Net cash provided by (used in) financing activities | 996 | (375 | ) | 652 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 36 | 1 | 5 | |||||||||
Increase (decrease) in cash and cash equivalents | 226 | 162 | (199 | ) | ||||||||
Cash and cash equivalents at beginning of year | 603 | 441 | 640 | |||||||||
Cash and cash equivalents at end of the year | $ | 829 | $ | 603 | $ | 441 | ||||||
Supplemental cash flow information | ||||||||||||
Cash paid during the year for | ||||||||||||
Interest, net of amounts capitalized | $ | 296 | $ | 220 | $ | 273 | ||||||
Income taxes | 32 | 22 | 11 | |||||||||
Supplemental schedule of non-cash investing and financing activities | ||||||||||||
Property and equipment acquired under capital leases | 13 | 11 | — | |||||||||
Equipment contributed to non-consolidated affiliate | — | — | (113 | ) | ||||||||
Non-cash purchase of common stock | — | — | (24 | ) |
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for the years ended October 31
(Years ended October 31, 2003 and 2004 — Restated)
Navistar International Corporation and Subsidiaries | ||||||||||||||||||||||||||||||||
Series D | Common | Common | ||||||||||||||||||||||||||||||
Convertible | Number of | Stock and | Compre- | Accumulated | Stock | |||||||||||||||||||||||||||
Junior | Common | Additional | hensive | Other | Held in | |||||||||||||||||||||||||||
Preference | Shares | Paid in | Income | Accumulated | Comprehensive | Treasury, | ||||||||||||||||||||||||||
Stock | Outstanding | Capital | (Loss) | Deficit | Loss | at Cost | Total | |||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Balance as of November 1, 2002 | $ | 4 | 62.6 | $ | 2,183 | $ | (2,425 | ) | $ | (1,034 | ) | $ | (431 | ) | $ | (1,703 | ) | |||||||||||||||
Net income (loss) | $ | (333 | ) | (333 | ) | (333 | ) | |||||||||||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (4 | ) | (4 | ) | ||||||||||||||||||||||||||||
Pension liability adjustment | 182 | 182 | ||||||||||||||||||||||||||||||
Other comprehensive income (loss) | 178 | 178 | ||||||||||||||||||||||||||||||
Comprehensive income (loss) | $ | (155 | ) | |||||||||||||||||||||||||||||
Net premium for call options | (26 | ) | (26 | ) | ||||||||||||||||||||||||||||
Stock- based compensation | 3 | 3 | ||||||||||||||||||||||||||||||
Sale of treasury stock to employee benefit trusts | 7.8 | (36 | ) | 211 | 175 | |||||||||||||||||||||||||||
Purchase of common stock | (2.5 | ) | — | (62 | ) | (62 | ) | |||||||||||||||||||||||||
Stock ownership programs | 0.6 | (20 | ) | (1 | ) | 33 | 12 | |||||||||||||||||||||||||
Balance as of October 31, 2003 | 4 | 68.5 | 2,104 | (2,759 | ) | (856 | ) | (249 | ) | (1,756 | ) | |||||||||||||||||||||
Net income (loss) | $ | (44 | ) | (44 | ) | (44 | ) | |||||||||||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||
Foreign currency translation | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||
Pension liability adjustment, net of $(1) of income tax | (60 | ) | (60 | ) | ||||||||||||||||||||||||||||
Other comprehensive income (loss) | (62 | ) | (62 | ) | ||||||||||||||||||||||||||||
Comprehensive income (loss) | $ | (106 | ) | |||||||||||||||||||||||||||||
Net premium for call options | (27 | ) | (27 | ) | ||||||||||||||||||||||||||||
Amounts due from officers and directors | 2 | 2 | ||||||||||||||||||||||||||||||
Stock- based compensation | 3 | 3 | ||||||||||||||||||||||||||||||
Stock ownership programs | 1.3 | (6 | ) | (29 | ) | 67 | 32 | |||||||||||||||||||||||||
Balance as of October 31, 2004 | 4 | 69.8 | 2,076 | (2,832 | ) | (918 | ) | (182 | ) | (1,852 | ) | |||||||||||||||||||||
Net income (loss) | $ | 139 | 139 | 139 | ||||||||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | 45 | 45 | ||||||||||||||||||||||||||||||
Pension liability adjustment, net of $2 of income tax benefit | (37 | ) | (37 | ) | ||||||||||||||||||||||||||||
Other comprehensive income (loss) | 8 | 8 | ||||||||||||||||||||||||||||||
Comprehensive income (loss) | $ | 147 | ||||||||||||||||||||||||||||||
Stock- based compensation | 4 | 4 | ||||||||||||||||||||||||||||||
Stock ownership programs | 0.3 | (6 | ) | (6 | ) | 14 | 2 | |||||||||||||||||||||||||
Issuance of restricted stock | 0.1 | — | — | |||||||||||||||||||||||||||||
Balance as of October 31, 2005 | $ | 4 | 70.2 | $ | 2,074 | $ | (2,699 | ) | $ | (910 | ) | $ | (168 | ) | $ | (1,699 | ) | |||||||||||||||
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1. | Summary of significant accounting policies |
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81
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83
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Years | ||||
Buildings | 20 to 50 | |||
Leasehold improvements | 3 to 20 | |||
Machinery and equipment | 3 to 12 | |||
Furniture, fixtures and equipment | 3 to 15 | |||
Equipment under capital lease obligations | 3 to 12 |
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Years | ||||
Customer base | 6-15 | |||
Trademarks | 20 | |||
Supply agreements | 10 | |||
Non-competition agreements | 3-4 | |||
Developed software | 3 | |||
Patents and intellectual property | 7 |
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2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Balance, at beginning of year | $ | 561 | $ | 339 | $ | 336 | ||||||
Costs accrued and revenue deferred | 350 | 444 | 238 | |||||||||
Acquisitions | 26 | — | — | |||||||||
Adjustments to pre-existing warranties | 110 | 11 | (7 | ) | ||||||||
Payments and revenue recognized | (317 | ) | (233 | ) | (228 | ) | ||||||
Balance, at end of year | $ | 730 | $ | 561 | $ | 339 | ||||||
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions, except per share amounts) | ||||||||||||
Net income (loss), as reported | $ | 139 | $ | (44 | ) | $ | (333 | ) | ||||
Add: Stock-based compensation expense included in reported net income (loss) | 4 | 3 | 3 | |||||||||
Deduct: Total stock-based compensation expense determined under fair value based method for all awards | (29 | ) | (30 | ) | (24 | ) | ||||||
Pro forma net income (loss) | $ | 114 | $ | (71 | ) | $ | (354 | ) | ||||
Earnings (loss) per share: | ||||||||||||
Basic — as reported | $ | 1.98 | $ | (0.64 | ) | $ | (4.86 | ) | ||||
Basic — pro forma | $ | 1.63 | $ | (1.02 | ) | $ | (5.15 | ) | ||||
Diluted — as reported | $ | 1.90 | $ | (0.64 | ) | $ | (4.86 | ) | ||||
Diluted — pro forma | $ | 1.57 | $ | (1.02 | ) | $ | (5.15 | ) |
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2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
Risk-free interest rate | 3.8 | % | 3.4 | % | 2.9 | % | ||||||
Dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
Expected volatility | 44.6 | % | 51.2 | % | 54.4 | % | ||||||
Expected life in years | 4.8 | 4.9 | 4.8 |
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Impact on Our Financial Condition and | ||||
Pronouncement | Effective Date | Results of Operations | ||
SEC Staff Accounting Bulletin (“SAB”) No. 109,Written Loan Commitments Recorded at Fair Value through Earnings. | Effective as of the first fiscal quarter beginning after December 15, 2007. Our effective date is February 1, 2008. | We are evaluating the potential impact, if any. | ||
FASB Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities | Effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of FASB Statement No. 157,Fair Value Measurements. Our effective date is November 1, 2008. | We are evaluating the potential impact, if any. We have not determined whether to adopt the fair value option. | ||
SAB No. 108,Considering the Effects of Prior-Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. | Effective for fiscal years ending after November 15, 2006. Our effective date is November 1, 2006. | No material impact expected because of the restatement of our previously issued consolidated financial statements. | ||
FASB Statement No. 157,Fair Value Measurements | Effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. Our effective date is November 1, 2008. | We are evaluating the potential impact, if any. | ||
FASB Statement No. 156,Accounting for Servicing of Financial Assets | Effective as of the beginning of a company’s first fiscal year that begins after September 15, 2006. | We adopted on November 1, 2006 with no material impact. | ||
FASB Statement No. 155,Accounting for Certain Hybrid Instruments. | Effective for all financial instruments acquired, issued or subject to a re-measurement event occurring after the beginning of a company’s first fiscal year that begins after September 15, 2006. | We adopted on November 1, 2006 with no material impact. |
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Impact on Our Financial Condition and | ||||
Pronouncement | Effective Date | Results of Operations | ||
FASB Statement No. 154,Accounting Changes and Error Corrections | Effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. | We will adopt this Statement in 2007 and apply its guidance for any changes in accounting principle, change in accounting estimate, or correction of an error in previously issued financial statements. We believe this pronouncement will not have a material impact. | ||
FASB Interpretation No. 47,Accounting for Conditional Asset Retirement Obligations | Effective no later than the end of fiscal years ending after December 15, 2005. | We adopted on October 31, 2006 with no material impact. | ||
SAB No. 107,Share-Based Payment | Annual periods beginning after June 15, 2005 (in conjunction with effective date of FASB Statement No. 123(R)). | See impact of FASB Statement No. 123(R) discussed above. | ||
FASB Statement No. 153,Exchanges of Nonmonetary Assets | Effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. | We adopted on November 1, 2006 with no material impact. | ||
FASB Statement No. 151,Inventory Costs | Effective for inventory costs incurred during fiscal years beginning after June 15, 2005. | We adopted on November 1, 2006 with no material impact. |
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2. | Restatement and reclassification of previously issued consolidated financial statements |
• | Employee benefit arrangements | |
• | Product warranty | |
• | Leases | |
• | Securitization of financial instruments | |
• | Consolidation accounting | |
• | Vendor rebates and tooling costs | |
• | Liabilities related to contingencies | |
• | Revenue recognition | |
• | Derivative instruments | |
• | Restructuring activities | |
• | Functional currency designation | |
• | Property and equipment | |
• | Inventories | |
• | Unreconciled accounts and timing of income/expense recognition | |
• | Income taxes | |
• | Financial reporting reclassifications |
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2004 | 2003 | |||||||||||||||
Sales and | Income (Loss) | Sales and | Income (Loss) | |||||||||||||
Revenues, | Before Income | Revenues, | Before Income | |||||||||||||
Net | Tax | Net | Tax | |||||||||||||
As previously reported | $ | 9,724 | $ | 311 | $ | 7,585 | $ | (49 | ) | |||||||
Restatement adjustments: | ||||||||||||||||
Employee benefit arrangements | — | (57 | ) | — | (130 | ) | ||||||||||
Product warranty | 14 | (106 | ) | 14 | (26 | ) | ||||||||||
Leases | 5 | (25 | ) | 6 | (31 | ) | ||||||||||
Securitization of financial instruments | 70 | 8 | 50 | (9 | ) | |||||||||||
Consolidation accounting | (79 | ) | (28 | ) | (43 | ) | (2 | ) | ||||||||
Vendor rebates and tooling costs | (24 | ) | (8 | ) | (13 | ) | (31 | ) | ||||||||
Liabilities related to contingencies | — | (11 | ) | — | (49 | ) | ||||||||||
Revenue recognition | (30 | ) | (43 | ) | 140 | 20 | ||||||||||
Derivative instruments | — | 11 | — | 7 | ||||||||||||
Restructuring activities | — | (42 | ) | (3 | ) | (43 | ) | |||||||||
Functional currency designation | — | 1 | — | 2 | ||||||||||||
Property and equipment | — | (9 | ) | — | (8 | ) | ||||||||||
Inventories | 2 | 7 | — | 11 | ||||||||||||
Unreconciled accounts and timing of income/expense recognition | 7 | (44 | ) | (20 | ) | 26 | ||||||||||
Financial reporting reclassifications | (11 | ) | — | (21 | ) | (4 | ) | |||||||||
Total | (46 | ) | (346 | ) | 110 | (267 | ) | |||||||||
As restated and reclassified | $ | 9,678 | $ | (35 | ) | $ | 7,695 | $ | (316 | ) | ||||||
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Accumulated deficit, as previously reported | $ | (731 | ) | |
Restatement adjustments: | ||||
Employee benefit arrangements | (191 | ) | ||
Product warranty | (127 | ) | ||
Leases | (50 | ) | ||
Securitization of financial instruments | (8 | ) | ||
Consolidation accounting | (13 | ) | ||
Vendor rebates and tooling costs | (5 | ) | ||
Liabilities related to contingencies | (14 | ) | ||
Revenue recognition | (11 | ) | ||
Derivative instruments | (42 | ) | ||
Restructuring activities | 158 | |||
Functional currency designation | (9 | ) | ||
Property and equipment | (15 | ) | ||
Inventories | (5 | ) | ||
Unreconciled accounts and timing of income/expense recognition | (66 | ) | ||
Income tax | (1,296 | ) | ||
Total restatement adjustments | (1,694 | ) | ||
Accumulated deficit, as restated | $ | (2,425 | ) | |
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2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Cost of products sold | $ | (93 | ) | $ | (136 | ) | ||
Selling, general and administrative expense | 140 | 226 | ||||||
Restructuring and program termination (credits) charges | (1 | ) | 32 | |||||
Other expense (income), net | 11 | 8 | ||||||
Income (loss) before income tax | $ | (57 | ) | $ | (130 | ) | ||
• | We reduced our estimates of product warranty cost by including expected future benefits of product improvements prior to such improvements becoming reasonably assured. | |
• | We routinely performed repairs beyond the expressed terms of the warranty agreements, but did not accrue for these costs. | |
• | We reduced our estimate of future warranty costs and related accruals for anticipated vendor recovery amounts when such recoveries were not supported with vendor agreements or were otherwise not reasonably assured of collection. | |
• | We included revenue related to extended warranty agreements as a component of cost of product sold rather than including it as a component of revenue. |
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2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Sales of manufactured products, net | $ | 14 | $ | 14 | ||||
Cost of products sold | 120 | 39 | ||||||
Other expense (income), net | — | 1 | ||||||
Income (loss) before income tax | $ | (106 | ) | $ | (26 | ) | ||
2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Finance revenue | $ | 5 | $ | 6 | ||||
Cost of products sold | (17 | ) | (16 | ) | ||||
Selling, general and administrative expense | 1 | 1 | ||||||
Interest expense | 41 | 48 | ||||||
Other expense (income), net | 5 | 4 | ||||||
Income (loss) before income tax | $ | (25 | ) | $ | (31 | ) | ||
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2004 | ||||||||
Increase (decrease): | ||||||||
Other current assets | (34 | ) | ||||||
Property and equipment | 473 | |||||||
Other noncurrent assets | (32 | ) | ||||||
Notes payable and current maturities of long-term debt | 83 | |||||||
Long-term debt | 399 |
2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Finance revenue | $ | 70 | 50 | |||||
Selling, general and administrative expense | 9 | (19 | ) | |||||
Interest expense | 61 | 73 | ||||||
Other expense (income), net | — | 5 | ||||||
Equity in income of non-consolidated affiliates | 8 | — | ||||||
Income (loss) before income tax | $ | 8 | $ | (9 | ) | |||
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2004 | ||||||||
Increase (decrease): | ||||||||
Finance and other receivables, net (current) | 479 | |||||||
Other current assets | 159 | |||||||
Restricted cash and cash equivalents | 99 | |||||||
Finance and other receivables, net (noncurrent) | 1,236 | |||||||
Notes payable and current maturities of long-term debt | 685 | |||||||
Long-term debt | 1,307 | |||||||
Accumulated deficit | 26 |
2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Sales of manufactured products, net | $ | (50 | ) | $ | (33 | ) | ||
Finance revenue | (29 | ) | (10 | ) | ||||
Cost of products sold | (69 | ) | (9 | ) | ||||
Selling, general and administrative expense | 59 | 18 | ||||||
Engineering and product development costs | 17 | 1 | ||||||
Interest expense | (6 | ) | (3 | ) | ||||
Other expense (income), net | (56 | ) | — | |||||
Equity in income of non-consolidated affiliates | (4 | ) | 48 | |||||
Income (loss) before income tax | $ | (28 | ) | $ | (2 | ) | ||
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2004 | ||||||||
Increase (decrease): | ||||||||
Cash and cash equivalents | $ | 20 | ||||||
Finance and other receivables, net (current) | 212 | |||||||
Inventories | 48 | |||||||
Other current assets | (335 | ) | ||||||
Restricted cash and cash equivalents | 112 | |||||||
Finance and other receivables, net (noncurrent) | (178 | ) | ||||||
Investments in and advances to non-consolidated affiliates | (51 | ) | ||||||
Property and equipment, net | 51 | |||||||
Intangible assets, net | 27 | |||||||
Notes payable and current maturities of long-term debt | 75 | |||||||
Other current liabilities | (68 | ) | ||||||
Long-term debt | (136 | ) | ||||||
Other noncurrent liabilities | 51 | |||||||
Common stock and additional paid-in capital | 53 | |||||||
Accumulated deficit | 20 | |||||||
Common stock held in treasury, at cost | 42 |
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2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Sales of manufactured products, net | $ | (24 | ) | $ | (13 | ) | ||
Cost of products sold | (19 | ) | 13 | |||||
Selling, general and administrative expense | 4 | 6 | ||||||
Other expense (income), net | (1 | ) | (1 | ) | ||||
Income (loss) before income tax | $ | (8 | ) | $ | (31 | ) | ||
2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Cost of products sold | $ | 16 | $ | 33 | ||||
Selling, general and administrative expense | — | 5 | ||||||
Other expense (income), net | (5 | ) | 11 | |||||
Income (loss) before income tax | $ | (11 | ) | $ | (49 | ) | ||
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2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Sales of manufactured products, net | $ | (31 | ) | $ | 140 | |||
Finance revenue | 1 | — | ||||||
Cost of products sold | 22 | 129 | ||||||
Selling, general and administrative expense | (5 | ) | (4 | ) | ||||
Engineering and product development costs | (1 | ) | 1 | |||||
Interest expense | 1 | 1 | ||||||
Other expense (income), net | (4 | ) | (7 | ) | ||||
Income (loss) before income tax | $ | (43 | ) | $ | 20 | |||
• | Incomplete documentation of the hedging relationship at transaction inception | |
• | Improper application of the “short cut” method | |
• | Inadequate assessments of hedge effectiveness and measurements of hedge ineffectiveness at transaction inception and at each subsequent reporting period |
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2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Cost of products sold | $ | (1 | ) | $ | 1 | |||
Interest expense | (9 | ) | (1 | ) | ||||
Other expense (income), net | (1 | ) | (7 | ) | ||||
Income (loss) before income tax | $ | 11 | $ | 7 | ||||
• | We did not use certain available information in estimating the costs to be incurred associated with terminating employees. | |
• | We did not reduce an accrual for future lease payments on abandoned office space for the portion of the space that we continued to use for the remaining term of the lease. | |
• | We accrued for future lease payments on equipment that we did not abandon. | |
• | We did not properly apply the impairment accounting standards. | |
• | We prematurely accrued for costs that were likely to generate revenues in future periods. | |
• | We prematurely accrued for anticipated future settlements with suppliers prior to entering into contractual commitments. | |
• | We failed to adjust restructuring accruals in the periods in which information became available indicating adjustments were necessary. |
2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Sales of manufactured products, net | $ | — | $ | (3 | ) | |||
Cost of products sold | 1 | 6 | ||||||
Selling, general and administrative expense | — | 1 | ||||||
Restructuring and program termination (credits) charges | 10 | 27 | ||||||
Other expense (income), net | 59 | 6 | ||||||
Equity in income of non-consolidated affiliates | 28 | — | ||||||
Income (loss) before income tax | $ | (42 | ) | $ | (43 | ) | ||
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2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Other expense (income), net | $ | (1 | ) | $ | (2 | ) | ||
Income (loss) before income tax | $ | 1 | $ | 2 | ||||
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2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Cost of products sold | $ | 1 | $ | 14 | ||||
Selling, general and administrative expense | 39 | 47 | ||||||
Engineering and product development costs | — | 1 | ||||||
Interest expense | 4 | 1 | ||||||
Other expense (income), net | (35 | ) | (55 | ) | ||||
Income (loss) before income tax | $ | (9 | ) | $ | (8 | ) | ||
2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Sales of manufactured products, net | $ | 2 | $ | — | ||||
Cost of products sold | (5 | ) | (14 | ) | ||||
Selling, general and administrative expense | 1 | 3 | ||||||
Other expense (income), net | (1 | ) | — | |||||
Income (loss) before income tax | $ | 7 | $ | 11 | ||||
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2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Sales of manufactured products, net | $ | 5 | $ | (19 | ) | |||
Finance revenue | 2 | (1 | ) | |||||
Cost of products sold | 52 | 41 | ||||||
Selling, general and administrative expense | 5 | (16 | ) | |||||
Engineering and product development costs | 2 | (1 | ) | |||||
Interest expense | 6 | — | ||||||
Other expense (income), net | (14 | ) | (69 | ) | ||||
Equity in income of non-consolidated affiliates | — | 1 | ||||||
Income (loss) before income tax | $ | (44 | ) | $ | 26 | |||
2004 | ||||
Increase (decrease): | ||||
Finance and other receivables, net (current) | $ | 24 | ||
Inventories | 27 | |||
Other current assets | (27 | ) | ||
Notes payable and current maturities of long-term debt | 38 | |||
Accounts payable | 73 | |||
Other current liabilities | (22 | ) | ||
Long-term debt | (35 | ) | ||
Common stock and additional paid-in capital | 30 |
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2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Income tax (expense) benefit | $ | 55 | $ | (49 | ) |
2004 | 2003 | |||||||
Increase (decrease): | ||||||||
Finance revenue | $ | — | $ | (1 | ) | |||
Other income | (11 | ) | (20 | ) | ||||
Cost of products sold | 101 | 199 | ||||||
Selling, general and administrative expense | 30 | 38 | ||||||
Postretirement benefits expense | (205 | ) | (297 | ) | ||||
Engineering and product development costs | 24 | 26 | ||||||
Interest expense | 12 | 6 | ||||||
Other expense (income), net | 31 | 15 | ||||||
Equity in income of non-consolidated affiliates | 4 | 4 | ||||||
Income (loss) before income tax | — | (4 | ) | |||||
Discontinued operations | — | 4 | ||||||
Net income (loss) | $ | — | $ | — | ||||
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2004 | ||||||||
Increase (decrease): | ||||||||
Finance and other receivables, net (current) | $ | 24 | ||||||
Other current assets | 182 | |||||||
Restricted cash and cash equivalents | 34 | |||||||
Finance and other receivables, net (noncurrent) | (239 | ) | ||||||
Investments in and advances to non-consolidated affiliates | 222 | |||||||
Investments and other assets | (374 | ) | ||||||
Goodwill | 59 | |||||||
Deferred taxes, net | 3 | |||||||
Other noncurrent assets | 89 | |||||||
Notes payable and current maturities of long-term debt | (39 | ) | ||||||
Long-term debt | 39 | |||||||
Postretirement benefits liabilities | 2 | |||||||
Other noncurrent liabilities | (2 | ) | ||||||
Common stock and additional paid in capital | (99 | ) | ||||||
Accumulated deficit | 99 |
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2004 | ||||||||||||
Restatement | ||||||||||||
As | and | |||||||||||
Previously | Reclassification | As | ||||||||||
Reported | Adjustments | Restated | ||||||||||
Sales and revenues | ||||||||||||
Sales of manufactured products, net | $ | 9,468 | $ | (84 | ) | $ | 9,384 | |||||
Finance revenue | 245 | 49 | 294 | |||||||||
Other income | 11 | (11 | ) | — | ||||||||
Sales and revenues, net | 9,724 | (46 | ) | 9,678 | ||||||||
Costs and expenses | ||||||||||||
Cost of products sold | 8,159 | 109 | 8,268 | |||||||||
Selling, general and administrative expense | 656 | 283 | 939 | |||||||||
Postretirement benefits expense | 205 | (205 | ) | — | ||||||||
Engineering and product development costs | 245 | 42 | 287 | |||||||||
Restructuring and program termination (credits) charges | (1 | ) | 9 | 8 | ||||||||
Interest expense | 127 | 110 | 237 | |||||||||
Other expense (income), net | 22 | (12 | ) | 10 | ||||||||
Total costs and expenses | 9,413 | 336 | 9,749 | |||||||||
Equity in income of non-consolidated affiliates | — | 36 | 36 | |||||||||
Income (loss) before income tax | 311 | (346 | ) | (35 | ) | |||||||
Income tax expense | (64 | ) | 55 | (9 | ) | |||||||
Net income (loss) | $ | 247 | $ | (291 | ) | $ | (44 | ) | ||||
Basic earnings (loss) per share | $ | 3.54 | $ | (4.18 | ) | $ | (0.64 | ) | ||||
Diluted earnings (loss) per share | $ | 3.20 | $ | (3.84 | ) | $ | (0.64 | ) |
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2003 | ||||||||||||
Restatement | ||||||||||||
As | and | |||||||||||
Previously | Reclassification | As | ||||||||||
Reported | Adjustments | Restated | ||||||||||
Sales and revenues | ||||||||||||
Sales of manufactured products, net | $ | 7,282 | $ | 86 | $ | 7,368 | ||||||
Finance revenue | 283 | 44 | 327 | |||||||||
Other income | 20 | (20 | ) | — | ||||||||
Sales and revenues, net | 7,585 | 110 | 7,695 | |||||||||
Costs and expenses | ||||||||||||
Cost of products sold | 6,370 | 300 | 6,670 | |||||||||
Selling, general and administrative expense | 597 | 306 | 903 | |||||||||
Postretirement benefits expense | 297 | (297 | ) | — | ||||||||
Engineering and product development costs | 242 | 28 | 270 | |||||||||
Restructuring and program termination (credits) charges | (41 | ) | 59 | 18 | ||||||||
Interest expense | 142 | 125 | 267 | |||||||||
Other expense (income), net | 27 | (91 | ) | (64 | ) | |||||||
Total costs and expenses | 7,634 | 430 | 8,064 | |||||||||
Equity in income of non-consolidated affiliates | — | 53 | 53 | |||||||||
Income (loss) before income tax | (49 | ) | (267 | ) | (316 | ) | ||||||
Income tax expense | 32 | (49 | ) | (17 | ) | |||||||
Income (loss) from discontinued operations | (4 | ) | 4 | — | ||||||||
Net loss | $ | (21 | ) | $ | (312 | ) | $ | (333 | ) | |||
Basic loss per share | $ | (0.31 | ) | $ | (4.55 | ) | $ | (4.86 | ) | |||
Diluted loss per share | $ | (0.31 | ) | $ | (4.55 | ) | $ | (4.86 | ) |
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Restatement | ||||||||||||
As | and | |||||||||||
Previously | Reclassification | As | ||||||||||
Reported | Adjustments | Restated | ||||||||||
Assets: | ||||||||||||
Cash and cash equivalents | $ | 605 | $ | (2 | ) | $ | 603 | |||||
Marketable securities | 182 | — | 182 | |||||||||
Finance and other receivables, net | 1,215 | 729 | 1,944 | |||||||||
Inventories | 790 | 372 | 1,162 | |||||||||
Deferred taxes, net | 207 | (178 | ) | 29 | ||||||||
Other current assets | 168 | (27 | ) | 141 | ||||||||
Total current assets | 3,167 | 894 | 4,061 | |||||||||
Restricted cash and cash equivalents | — | 319 | 319 | |||||||||
Marketable securities | 73 | (73 | ) | — | ||||||||
Finance and other receivables, net | 1,222 | 820 | 2,042 | |||||||||
Investments in and advances to non-consolidated affiliates | — | 150 | 150 | |||||||||
Investments and other assets | 374 | (374 | ) | — | ||||||||
Property and equipment, net | 1,444 | 498 | 1,942 | |||||||||
Goodwill | — | 53 | 53 | |||||||||
Intangible assets, net | — | 23 | 23 | |||||||||
Prepaid and intangible pension assets | 73 | (7 | ) | 66 | ||||||||
Deferred taxes, net | 1,239 | (1,209 | ) | 30 | ||||||||
Other noncurrent assets | — | 64 | 64 | |||||||||
Total assets | $ | 7,592 | $ | 1,158 | $ | 8,750 | ||||||
Liabilities and stockholders’ equity (deficit): | ||||||||||||
Notes payable and current maturities of long-term debt | $ | 823 | $ | 839 | $ | 1,662 | ||||||
Accounts payable | 1,462 | 102 | 1,564 | |||||||||
Other current liabilities | 965 | 550 | 1,515 | |||||||||
Total current liabilities | 3,250 | 1,491 | 4,741 | |||||||||
Long-term debt | 2,045 | 1,575 | 3,620 | |||||||||
Postretirement benefits liabilities | 1,382 | 347 | 1,729 | |||||||||
Other noncurrent liabilities | 384 | 128 | 512 | |||||||||
Total liabilities | 7,061 | 3,541 | 10,602 | |||||||||
Stockholders’ equity (deficit) | 531 | (2,383 | ) | (1,852 | ) | |||||||
Total liabilities and stockholders’ equity (deficit) | $ | 7,592 | $ | 1,158 | $ | 8,750 | ||||||
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2004 | 2003 | |||||||
Stockholders’ equity, as previously reported | $ | 531 | $ | 292 | ||||
Effect of restatement adjustments on net income (loss) for the year | (291 | ) | (312 | ) | ||||
Cumulative effects of restatement adjustments: | ||||||||
Adjustments to common stock and additional paid in capital | (20 | ) | (14 | ) | ||||
Adjustments to accumulated deficit | (1,937 | ) | (1,614 | ) | ||||
Adjustments to common stock held in treasury, at cost | (6 | ) | (30 | ) | ||||
Adjustments to accumulated other comprehensive loss | (129 | ) | (78 | ) | ||||
Total restatement adjustments | (2,383 | ) | (2,048 | ) | ||||
Stockholders’ deficit, as restated | $ | (1,852 | ) | $ | (1,756 | ) | ||
• | The reclassification of certain charges associated with stock transactions that were previously included inAccumulated deficittoAdditional paid in capital; | |
• | An increase inAccumulated other comprehensive lossfor certain items, principally our pension liability and an income tax valuation adjustment which eliminated the related deferred tax benefit; and | |
• | The revaluation of treasury stock transactions to properly state the cost basis of treasury stock shares. |
2004 | 2003 | |||||||||||||||
As | As | |||||||||||||||
Previously | As | Previously | As | |||||||||||||
Reported | Restated | Reported | Restated | |||||||||||||
Net cash provided by (used in) operating activities | $ | 173 | $ | 298 | $ | (52 | ) | $ | 190 | |||||||
Net cash provided by (used in) investing activities | (113 | ) | 238 | (147 | ) | (1,046 | ) | |||||||||
Net cash provided by (used in) financing activities | 78 | (375 | ) | 31 | 652 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | 1 | — | 5 | ||||||||||||
Increase (decrease) in cash and cash equivalents | 138 | 162 | (168 | ) | (199 | ) | ||||||||||
Cash and cash equivalents at beginning of year | 467 | 441 | 635 | 640 | ||||||||||||
Cash and cash equivalents at end of year | $ | 605 | $ | 603 | $ | 467 | $ | 441 | ||||||||
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3. | Business combinations |
• | MWM International Industria De Motores Da America Do Sul Ltda. (“MWM”), formerly MWM Motores Diesel, Ltda. a Brazilian entity that produces a broad line of medium and high-speed diesel engines across the 50 to 310 horsepower range for use inpick-ups, trucks, vans, light and semi-heavy trucks, as well as agricultural, marine, and electric generator applications. MWM’s financial results are included in our consolidated financial statements from the date of acquisition, April 1, 2005. MWM is included in our Engine segment. | |
• | Workhorse Custom Chassis (“WCC”), a leading U.S. manufacturer of chassis for motor homes and commercial step-van vehicles. WCC’s financial results are included in our consolidated financial statements from the date of acquisition, August 19, 2005. WCC is included in our Truck segment. | |
• | In conjunction with the WCC acquisition, we also purchased Uptime Parts (“Uptime”), a U.S. parts distribution network that supplies commercial fleets and RV dealers. Uptime’s financial results are included in our consolidated financial statements from the date of acquisition, August 19, 2005. Uptime is included in our Parts segment. | |
• | We also obtained 100% voting equity interest in four entities whose principal business is operating an International dealership. We acquire and dispose of dealerships from time to time to facilitate the transition of dealerships from one independent owner to another. Dealerships acquired in 2005 are included in our consolidated financial statements from their respective dates of acquisition. The dealerships are included in our Truck segment. |
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MWM | WCC | Uptime | Dealerships | Total | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Acquisition cost | $ | 233 | $ | 252 | $ | 67 | $ | 26 | $ | 578 | ||||||||||
Purchase price allocation: | ||||||||||||||||||||
Current assets | $ | 84 | $ | 50 | $ | 11 | $ | 45 | $ | 190 | ||||||||||
Property and equipment | 82 | 24 | 2 | 33 | 141 | |||||||||||||||
Other assets | 7 | 2 | — | 1 | 10 | |||||||||||||||
Intangible assets | 66 | 165 | 21 | 9 | 261 | |||||||||||||||
Goodwill | 125 | 78 | 38 | 1 | 242 | |||||||||||||||
Total assets acquired | 364 | 319 | 72 | 89 | 844 | |||||||||||||||
Current liabilities | 114 | 63 | 5 | 31 | 213 | |||||||||||||||
Long-term debt | 14 | — | — | 32 | 46 | |||||||||||||||
Other noncurrent liabilities | 3 | 4 | — | — | 7 | |||||||||||||||
Total liabilities assumed | 131 | 67 | 5 | 63 | 266 | |||||||||||||||
Net assets acquired | $ | 233 | $ | 252 | $ | 67 | $ | 26 | $ | 578 | ||||||||||
Useful | Weighted | |||||||||
Amount | Lives | Average Lives | ||||||||
(in millions) | ||||||||||
Customer base | $ | 125 | 6-15 years | 11 | ||||||
Trademarks | 59 | 20 years | 20 | |||||||
Trademarks | 36 | indefinite | — | |||||||
Supply agreements | 27 | 10 years | 10 | |||||||
Dealer franchise rights | 7 | indefinite | — | |||||||
Non-compete agreements | 3 | 3 — 4 years | 4 | |||||||
Developed software | 2 | 3 years | 3 | |||||||
Patents and intellectual property | 2 | 7 years | 7 | |||||||
Total intangible assets | $ | 261 | 10 | |||||||
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Unaudited Pro Forma Financial Information for the Years | ||||||||||||
Ended October 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(in millions, except per share data) | ||||||||||||
Sales and revenues, net | $ | 12,645 | $ | 10,668 | $ | 8,538 | ||||||
Net income (loss) | 151 | 10 | (283 | ) | ||||||||
Diluted earnings (loss) per share | 2.06 | 0.14 | (4.12 | ) |
4. | Marketable securities |
2005 | 2004 | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
(Restated) | ||||||||||||||||
(in millions) | ||||||||||||||||
U.S. government and agency securities | $ | 87 | $ | 87 | $ | 179 | $ | 179 | ||||||||
Corporate bonds and notes | 4 | 4 | 3 | 3 | ||||||||||||
Total | $ | 91 | $ | 91 | $ | 182 | $ | 182 | ||||||||
5. | Finance and other receivables, net |
2005 | 2004 | |||||||
(Restated) | ||||||||
(in millions) | ||||||||
Accounts receivable | $ | 760 | $ | 558 | ||||
Retail notes | 3,068 | 2,654 | ||||||
Finance leases | 299 | 222 | ||||||
Wholesale notes | 202 | 215 | ||||||
Amounts due from sales of receivables | 441 | 411 | ||||||
Finance and other receivables | 4,770 | 4,060 | ||||||
Less: Allowance for doubtful accounts | (71 | ) | (74 | ) | ||||
Finance and other receivables, net | 4,699 | 3,986 | ||||||
Less: Current portion, net | (2,379 | ) | (1,944 | ) | ||||
Noncurrent portion, net | $ | 2,320 | $ | 2,042 | ||||
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Due from | ||||||||||||||||||||||||
Accounts | Retail | Finance | Whole- | Sale of | ||||||||||||||||||||
Receivable | Notes | Leases | Sale Notes | Receivables | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Due in: | ||||||||||||||||||||||||
2006 | $ | 750 | $ | 1,045 | $ | 86 | $ | 202 | $ | 441 | $ | 2,524 | ||||||||||||
2007 | 10 | 850 | 76 | — | — | 936 | ||||||||||||||||||
2008 | — | 677 | 58 | — | — | 735 | ||||||||||||||||||
2009 | — | 483 | 59 | — | — | 542 | ||||||||||||||||||
2010 | — | 253 | 57 | — | — | 310 | ||||||||||||||||||
Thereafter | — | 69 | 14 | — | — | 83 | ||||||||||||||||||
Sub-total | 760 | 3,377 | 350 | 202 | 441 | 5,130 | ||||||||||||||||||
Unearned finance income | — | (309 | ) | (51 | ) | — | — | (360 | ) | |||||||||||||||
Receivables | $ | 760 | $ | 3,068 | $ | 299 | $ | 202 | $ | 441 | $ | 4,770 | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Balance at beginning of year | $ | 74 | $ | 75 | $ | 89 | ||||||
Provision for doubtful accounts | 24 | 27 | 30 | |||||||||
Charge-off of accounts, net of recoveries | (27 | ) | (28 | ) | (44 | ) | ||||||
Balance at end of year | $ | 71 | $ | 74 | $ | 75 | ||||||
2005 | 2004 | |||||||
(in millions) | (Restated) | |||||||
Accounts receivable | $ | 31 | $ | 30 | ||||
Retail notes | 33 | 39 | ||||||
Lease financing | 5 | 4 | ||||||
Wholesale notes | 2 | 1 | ||||||
Total | $ | 71 | $ | 74 | ||||
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2005 | 2004 | |||||||
(Restated) | ||||||||
(in millions) | ||||||||
Repossessions, at beginning of year | $ | 29 | $ | 37 | ||||
Acquisitions | 51 | 42 | ||||||
Liquidations | (70 | ) | (50 | ) | ||||
Repossessions, at end of year | $ | 10 | $ | 29 | ||||
6. | Sales of receivables |
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2005 | 2004 | |||||||
(Restated) | ||||||||
(in millions) | ||||||||
Excess seller’s interests(A) | $ | 402 | $ | 385 | ||||
Interest only strip | 16 | 11 | ||||||
Restricted cash reserves | 23 | 15 | ||||||
Total amounts due from sales of receivables | $ | 441 | $ | 411 | ||||
(A) | Excess seller’s interest includes amounts contractually required to be retained of $36 million and excess collateral of $143 million as of October 31, 2005 and $31 million and $119 million, respectively, as of October 31, 2004. |
Fair Value Change at | ||||||||||
October 31, | ||||||||||
2005 | ||||||||||
Adverse | Adverse | |||||||||
10% | 20% | |||||||||
(dollars in millions) | ||||||||||
Discount rate (annual) | 9.2 to 17.8% | $ | 2.4 | $ | 4.7 | |||||
Estimated credit losses | 0 to 0.18% | 0.1 | 0.2 | |||||||
Payment speed (percent of portfolio per month) | 10.3 to 80.0% | 0.2 | 0.4 |
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Retail | Finance | Wholesale | Retail | |||||||||||||||||
Notes | Leases | Notes | Accounts | Total | ||||||||||||||||
(in millions) | ||||||||||||||||||||
2005 | ||||||||||||||||||||
Serviced portfolio | $ | 2,895 | $ | 170 | $ | 1,454 | $ | 76 | $ | 4,595 | ||||||||||
Less sold receivables | — | — | (1,356 | ) | — | (1,356 | ) | |||||||||||||
Total on balance sheet | $ | 2,895 | $ | 170 | $ | 98 | $ | 76 | $ | 3,239 | ||||||||||
2004 (Restated) | ||||||||||||||||||||
Serviced portfolio | $ | 2,510 | $ | 144 | $ | 1,260 | $ | 96 | $ | 4,010 | ||||||||||
Less sold receivables | — | — | (1,132 | ) | — | (1,132 | ) | |||||||||||||
Total on balance sheet | $ | 2,510 | $ | 144 | $ | 128 | $ | 96 | $ | 2,878 | ||||||||||
2005 | 2004 | 2003 | ||||||||||
(in millions) | (Restated) | (Restated) | ||||||||||
Fair value adjustments | $ | (7 | ) | $ | (1 | ) | $ | (1 | ) | |||
Excess spread income(A) | 62 | 45 | 41 | |||||||||
Servicing fees revenue | 14 | 11 | 9 | |||||||||
Losses on sales of receivables | (2 | ) | (5 | ) | (7 | ) | ||||||
Investment revenue | 7 | 4 | 5 | |||||||||
Securitization income | $ | 74 | $ | 54 | $ | 47 | ||||||
(A) | Excess spread income is the income generated by the receivables in off balance sheet securitization trusts, net of interest expense, credit losses and administrative expenses. |
2005 | 2004 | 2003 | ||||||||||
(in millions) | (Restated) | (Restated) | ||||||||||
Proceeds from sales of finance receivables | $ | 8,716 | $ | 6,706 | $ | 5,221 | ||||||
Servicing fees | 14 | 11 | 9 | |||||||||
Cash from net excess spread | 63 | 45 | 42 | |||||||||
Investment income | 4 | 2 | 2 | |||||||||
Net cash from securitization transactions | $ | 8,797 | $ | 6,764 | $ | 5,274 | ||||||
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7. | Inventories |
2005 | 2004 | |||||||
(Restated) | ||||||||
(in millions) | ||||||||
Finished products | $ | 951 | $ | 869 | ||||
Work in process | 56 | 51 | ||||||
Raw materials | 250 | 174 | ||||||
Supplies | 73 | 68 | ||||||
Total inventories | $ | 1,330 | $ | 1,162 | ||||
2005 | 2004 | |||||||
(Restated) | ||||||||
(in millions) | ||||||||
Land | $ | 42 | $ | 22 | ||||
Buildings, machinery, and equipment | ||||||||
Plants | 2,826 | 2,731 | ||||||
Distribution centers | 109 | 93 | ||||||
Equipment held for or under lease | 470 | 496 | ||||||
Office equipment, computers, and other | 163 | 179 | ||||||
3,610 | 3,521 | |||||||
Less — Accumulated depreciation and amortization | (1,712 | ) | (1,652 | ) | ||||
1,898 | 1,869 | |||||||
Construction in progress | 185 | 73 | ||||||
Property and equipment, net | $ | 2,083 | $ | 1,942 | ||||
2005 | 2004 | |||||||
(Restated) | ||||||||
(in millions) | ||||||||
Equipment held for or under lease | $ | 470 | $ | 496 | ||||
Less — Accumulated depreciation | (137 | ) | (167 | ) | ||||
Equipment held for or under lease, net | $ | 333 | $ | 329 | ||||
Assets under financing arrangements and capital lease obligations: | ||||||||
Buildings, machinery and equipment | $ | 659 | $ | 676 | ||||
Less — Accumulated depreciation and amortization | (263 | ) | (204 | ) | ||||
Assets under financing arrangements and capital lease obligations, net | $ | 396 | $ | 472 | ||||
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2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Depreciation expense | $ | 309 | $ | 285 | $ | 285 | ||||||
Amortization expense | 7 | 3 | 4 | |||||||||
Interest capitalized | 1 | 1 | 6 |
Financing | ||||||||||||
Arrangements | ||||||||||||
and Capital | ||||||||||||
Lease | Operating | |||||||||||
Obligations | Leases | Total | ||||||||||
(in millions) | ||||||||||||
2006 | $ | 78 | $ | 35 | $ | 113 | ||||||
2007 | 73 | 31 | 104 | |||||||||
2008 | 113 | 26 | 139 | |||||||||
2009 | 228 | 21 | 249 | |||||||||
2010 | — | 17 | 17 | |||||||||
2011 and thereafter | 6 | 62 | 68 | |||||||||
$ | 498 | $ | 192 | $ | 690 | |||||||
Less: interest portion | (90 | ) | ||||||||||
Total | $ | 408 | ||||||||||
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9. | Goodwill and other intangible assets, net |
Truck | Engine | Parts | Total | |||||||||||||
(in millions) | ||||||||||||||||
As of October 31, 2002 (Restated) | $ | 8 | $ | 45 | $ | — | $ | 53 | ||||||||
Impairment charges | (1 | ) | — | — | (1 | ) | ||||||||||
Other | 1 | — | — | 1 | ||||||||||||
As of October 31, 2003 (Restated) | 8 | 45 | — | 53 | ||||||||||||
Acquisitions | 4 | — | — | 4 | ||||||||||||
Impairment charges | (3 | ) | — | — | (3 | ) | ||||||||||
Reduction due to sale of business unit | (1 | ) | — | — | (1 | ) | ||||||||||
As of October 31, 2004 (Restated) | 8 | 45 | — | 53 | ||||||||||||
Acquisitions | 79 | 125 | 38 | 242 | ||||||||||||
Impairment charges | (2 | ) | — | — | (2 | ) | ||||||||||
Other | 1 | 20 | — | 21 | ||||||||||||
As of October 31, 2005 | $ | 86 | $ | 190 | $ | 38 | $ | 314 | ||||||||
2005 | 2004 | |||||||
(in millions) | (Restated) | |||||||
Dealer franchise rights | $ | 22 | $ | 17 | ||||
Trademarks | 43 | — |
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Gross | Accumulated | Net of | ||||||||||
Carrying | Amortization | Amortization | ||||||||||
(in millions) | ||||||||||||
Customer base: | ||||||||||||
2005 | $ | 134 | $ | 6 | $ | 128 | ||||||
2004 (Restated) | 5 | 2 | 3 | |||||||||
Trademarks: | ||||||||||||
2005 | 59 | 1 | 58 | |||||||||
Supply agreements: | ||||||||||||
2005 | 27 | 1 | 26 | |||||||||
Non-compete agreements: | ||||||||||||
2005 | 3 | — | 3 | |||||||||
Developed software: | ||||||||||||
2005 | 2 | — | 2 | |||||||||
Patents and intellectual property: | ||||||||||||
2005 | 5 | — | 5 | |||||||||
2004 (Restated) | 3 | — | 3 | |||||||||
Total intangible assets: | ||||||||||||
2005 | $ | 230 | $ | 8 | $ | 222 | ||||||
2004 (Restated) | $ | 8 | $ | 2 | $ | 6 | ||||||
Estimated | ||||
Years Ending October 31, | Amortization | |||
(in millions) | ||||
2006 | $ | 18 | ||
2007 | 18 | |||
2008 | 18 | |||
2009 | 16 | |||
2010 | 16 |
10. | Investments in and advances to non-consolidated affiliates |
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2005 | 2004 | |||||||
(Unaudited) | ||||||||
(in millions) | ||||||||
Assets | ||||||||
Current assets | $ | 443 | $ | 371 | ||||
Noncurrent assets | 293 | 333 | ||||||
Total assets | $ | 736 | $ | 704 | ||||
Liabilities and equity | ||||||||
Current liabilities | $ | 400 | $ | 261 | ||||
Noncurrent liabilities | 35 | 171 | ||||||
Total liabilities | 435 | 432 | ||||||
Partners’ capital and stockholders’ equity | ||||||||
Navistar | 178 | 165 | ||||||
Third parties | 123 | 107 | ||||||
Total liabilities and equity | $ | 736 | $ | 704 | ||||
2005 | 2004 | 2003 | ||||||||||
(Unaudited) | ||||||||||||
(in millions) | ||||||||||||
Net sales | $ | 1,592 | $ | 1,191 | $ | 1,016 | ||||||
Costs, expenses and provision for taxes on income | 1,397 | 1,057 | 908 | |||||||||
Net income | $ | 195 | $ | 134 | $ | 108 | ||||||
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2005 | 2004 | 2003 | ||||||||||
(in millions) | ||||||||||||
Net service revenue | $ | 187 | $ | 111 | $ | 93 | ||||||
Net other expenses | 29 | 21 | 20 | |||||||||
Income before tax expense | 160 | 93 | 75 | |||||||||
Net income | 158 | 91 | 75 |
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11. | Debt |
2005 | 2004 | |||||||
(Restated) | ||||||||
(in millions) | ||||||||
Manufacturing operations | ||||||||
Financing arrangements and capital lease obligations | $ | 408 | $ | 477 | ||||
6.25% Senior Notes, due 2012 | 400 | — | ||||||
9.375% Senior Notes, due 2006 | 393 | 400 | ||||||
7.5% Senior Notes, due 2011, net of unamortized discount of $1 and $2 | 249 | 248 | ||||||
Majority owned dealership debt | 245 | 184 | ||||||
4.75% Subordinated Exchangeable Notes, due 2009 | 202 | 220 | ||||||
2.5% Senior Convertible Notes, due 2007 | 190 | 190 | ||||||
9.95% Senior Notes, due 2011 | 13 | 15 | ||||||
Other | 24 | 14 | ||||||
Total manufacturing operations debt | 2,124 | 1,748 | ||||||
Less current portion | (648 | ) | (234 | ) | ||||
Net long-term manufacturing operations debt | $ | 1,476 | $ | 1,514 | ||||
Financial services operations | ||||||||
Borrowing secured by asset-backed securities, at variable rates, due serially through 2011 | $ | 2,779 | $ | 1,992 | ||||
Bank revolvers, variable rates, due 2010 | 863 | 887 | ||||||
Revolving retail warehouse facility, variable rates, due 2005 | — | 500 | ||||||
Revolving retail warehouse facility, variable rates, due 2010 | 500 | — | ||||||
Borrowing secured by operating and finance leases of retail customer vehicles | 123 | 155 | ||||||
Total financial services operations debt | 4,265 | 3,534 | ||||||
Less current portion | (332 | ) | (1,428 | ) | ||||
Net long-term financial services operations debt | $ | 3,933 | $ | 2,106 | ||||
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Financial | ||||||||||||
Manufacturing | Services | |||||||||||
Operations | Operations | Total | ||||||||||
(in millions) | ||||||||||||
Year ending October 31, | ||||||||||||
2006 | $ | 648 | $ | 332 | $ | 980 | ||||||
2007 | 56 | 131 | 187 | |||||||||
2008 | 304 | 709 | 1,013 | |||||||||
2009 | 435 | 435 | 870 | |||||||||
2010 | 18 | 1,545 | 1,563 | |||||||||
2011 and thereafter | 663 | 1,113 | 1,776 | |||||||||
Total | $ | 2,124 | $ | 4,265 | $ | 6,389 | ||||||
2005 | 2004 | |||||||
Manufacturing operations | 7.7% | 8.1% | ||||||
Financial services operations | 5.3% | 4.1% | ||||||
Total | 6.2% | 5.4% |
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12. | Postretirement benefits |
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Pension expense | $ | 51 | $ | 61 | $ | 133 | ||||||
Health and life insurance expense | 172 | 164 | 231 | |||||||||
Profit sharing provision payable to Supplemental Trust | 1 | 1 | — | |||||||||
Total postretirement benefits expense | $ | 224 | $ | 226 | $ | 364 | ||||||
Pension Expense | Health and Life Insurance Expense | |||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
(Restated) | (Restated) | (Restated) | (Restated) | |||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Service cost for benefits earned during the period | $ | 25 | $ | 24 | $ | 30 | $ | 20 | $ | 16 | $ | 18 | ||||||||||||
Interest on obligation | 217 | 225 | 230 | 138 | 141 | 162 | ||||||||||||||||||
Amortization of cumulative losses | 70 | 62 | 90 | 68 | 63 | 98 | ||||||||||||||||||
Amortization of prior service cost | 7 | 8 | 8 | — | — | — | ||||||||||||||||||
Premiums on pension insurance | 1 | 3 | 1 | — | — | — | ||||||||||||||||||
Less expected return on assets | (269 | ) | (261 | ) | (226 | ) | (54 | ) | (56 | ) | (47 | ) | ||||||||||||
Net postretirement benefits expense | $ | 51 | $ | 61 | $ | 133 | $ | 172 | $ | 164 | $ | 231 | ||||||||||||
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Health and Life | ||||||||||||||||
Pension Benefits | Insurance Benefits | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
(in millions) | ||||||||||||||||
Change in benefit obligation | ||||||||||||||||
Benefit obligation at beginning of year | $ | 4,115 | $ | 4,074 | $ | 2,636 | $ | 2,804 | ||||||||
Amendments | (2 | ) | — | — | — | |||||||||||
Service cost | 25 | 24 | 20 | 16 | ||||||||||||
Interest on obligation | 217 | 225 | 138 | 141 | ||||||||||||
Actuarial net (gain) loss | 118 | 123 | (97 | ) | (148 | ) | ||||||||||
Currency translation | (2 | ) | 4 | — | — | |||||||||||
Plan participants’ contributions | — | — | 37 | 30 | ||||||||||||
Benefits paid | (340 | ) | (335 | ) | (218 | ) | (207 | ) | ||||||||
Acquisition | — | — | 4 | — | ||||||||||||
Benefit obligation at end of year | $ | 4,131 | $ | 4,115 | $ | 2,520 | $ | 2,636 | ||||||||
Change in plan assets | ||||||||||||||||
Fair value of plan assets at beginning of year | $ | 3,081 | $ | 2,939 | $ | 633 | $ | 633 | ||||||||
Actual return on plan assets | 268 | 229 | 59 | 54 | ||||||||||||
Currency translation | (4 | ) | 4 | — | — | |||||||||||
Employer contributions | 22 | 230 | 6 | 9 | ||||||||||||
Benefits paid | (326 | ) | (321 | ) | (67 | ) | (63 | ) | ||||||||
Fair value of plan assets at end of year | $ | 3,041 | $ | 3,081 | $ | 631 | $ | 633 | ||||||||
Funded status | $ | (1,090 | ) | $ | (1,034 | ) | $ | (1,889 | ) | $ | (2,003 | ) | ||||
Unrecognized actuarial net loss | 1,397 | 1,346 | 883 | 1,047 | ||||||||||||
Unrecognized prior service (benefit) cost | 15 | 26 | (5 | ) | — | |||||||||||
Net amount recognized | $ | 322 | $ | 338 | $ | (1,011 | ) | $ | (956 | ) | ||||||
Amounts recognized in our consolidated balance sheets consist of: | ||||||||||||||||
Prepaid and intangible pension assets: | ||||||||||||||||
Prepaid benefit cost | $ | 41 | $ | 43 | $ | — | $ | — | ||||||||
Intangible asset | 15 | 23 | — | — | ||||||||||||
Other current liabilities: | ||||||||||||||||
Postretirement benefits liabilities — current | (37 | ) | (32 | ) | (131 | ) | (145 | ) | ||||||||
Postretirement benefits liabilities — noncurrent | (958 | ) | (918 | ) | (880 | ) | (811 | ) | ||||||||
Accumulated other comprehensive loss | 1,261 | 1,222 | — | — | ||||||||||||
Net amount recognized | $ | 322 | $ | 338 | $ | (1,011 | ) | $ | (956 | ) | ||||||
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Health and Life | ||||||||||||||||
Pension Benefits | Insurance Benefits | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
Discount rate used to determine present value of benefit obligation at end of year | 5.5 | % | 5.4 | % | 5.6% | 5.4% | ||||||||||
Expected rate of increase in future compensation levels | 3.5 | % | 3.5 | % | N/A | N/A |
Pension Benefits | Health and Life Insurance Benefits | |||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
(Restated) | (Restated) | (Restated) | (Restated) | |||||||||||||||||||||
Discount rate | 5.4 | % | 5.7 | % | 6.1 | % | 5.4% | 5.8% | 6.3% | |||||||||||||||
Expected long-term rate of return on plan assets | 9.0 | % | 9.0 | % | 9.0 | % | 9.0% | 9.0% | 9.0% | |||||||||||||||
Expected rate of increase in future compensation levels | 3.5 | % | 3.5 | % | 3.5 | % | N/A | N/A | N/A |
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Health and Life | ||||||||||||||||||||||||
Pension Benefits | Insurance Benefits | |||||||||||||||||||||||
Target | Target | |||||||||||||||||||||||
Asset Category | Range | 2005 | 2004 | Range | 2005 | 2004 | ||||||||||||||||||
Equity securities | ||||||||||||||||||||||||
Navistar common stock | 6 | % | 7 | % | 7 | % | 9 | % | ||||||||||||||||
Other equity securities | 61 | % | 49 | % | 67 | % | 67 | % | ||||||||||||||||
Hedge funds | 9 | % | 7 | % | 11 | % | 9 | % | ||||||||||||||||
Total equity securities | 60-80 | % | 76 | % | 63 | % | 75-85 | % | 85 | % | 85 | % | ||||||||||||
Debt securities | 23 | % | 37 | % | 14 | % | 14 | % | ||||||||||||||||
Other, including cash | 1 | % | — | 1 | % | 1 | % | |||||||||||||||||
Total debt securities and other | 20-40 | % | 24 | % | 37 | % | 15-25 | % | 15 | % | 15 | % | ||||||||||||
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One-Percentage | One-Percentage | |||||||
Point Increase | Point Decrease | |||||||
(in millions) | ||||||||
Effect on total of service and interest cost components | $ | 19 | $ | (13 | ) | |||
Effect on postretirement benefit obligation | $ | 261 | $ | (221 | ) |
Postretirement | ||||||||||||
Pension | Other Postretirement | Benefit Subsidy | ||||||||||
Benefit Payments | Benefit Payments | Receipts | ||||||||||
(in millions) | ||||||||||||
2006 | $ | 344 | $ | 195 | $ | 20 | ||||||
2007 | 341 | 204 | 21 | |||||||||
2008 | 337 | 212 | 23 | |||||||||
2009 | 331 | 218 | 24 | |||||||||
2010 | 325 | 220 | 25 | |||||||||
2011 through 2015 | $ | 1,517 | $ | 1,068 | $ | 136 |
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13. | Other liabilities |
2005 | 2004 | |||||||
(Restated) | ||||||||
(in millions) | ||||||||
Other current liabilities | ||||||||
Product warranty and deferred warranty revenue | $ | 557 | $ | 459 | ||||
Unearned revenue and guaranteed residuals | 400 | 353 | ||||||
Postretirement benefits liabilities | 168 | 177 | ||||||
Payroll, income, and other taxes | 152 | 99 | ||||||
Payroll, commissions and employee benefits | 125 | 81 | ||||||
Litigation, environmental, product liability and asbestos | 81 | 29 | ||||||
Core liabilities | 76 | 51 | ||||||
Interest | 43 | 38 | ||||||
Employee incentive programs | 42 | 59 | ||||||
Dealer reserves | 36 | 25 | ||||||
Volume discounts and rebates | 34 | 9 | ||||||
Restructuring and program termination charges | 4 | 7 | ||||||
Other | 121 | 128 | ||||||
Total other current liabilities | $ | 1,839 | $ | 1,515 | ||||
Other noncurrent liabilities | ||||||||
Product warranty and deferred warranty revenue | $ | 173 | $ | 102 | ||||
Litigation, environmental, product liability and asbestos | 163 | 207 | ||||||
Workers’ compensation | 43 | 48 | ||||||
Unearned revenue and guaranteed residuals | 42 | 38 | ||||||
Payroll, income, and other taxes | 38 | 31 | ||||||
Security deposits | 29 | 25 | ||||||
Dealer reserves | 26 | 25 | ||||||
Restructuring and program termination charges | 10 | 12 | ||||||
Other | 26 | 24 | ||||||
Total other noncurrent liabilities | $ | 550 | $ | 512 | ||||
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14. | Restructuring and program termination charges |
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Balance | Charges | Balance | Charges | Balance | ||||||||||||||||||||||||
October 31, | and | October 31, | and | October 31, | ||||||||||||||||||||||||
2003 | (Credits) | Payments | 2004 | (Credits) | Payments | 2005 | ||||||||||||||||||||||
(Restated) | (Restated) | |||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Severance and other benefits | $ | 13 | $ | 5 | $ | (18 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Curtailment loss | — | 1 | (1 | ) | — | 1 | (1 | ) | — | |||||||||||||||||||
Lease terminations | 24 | �� | (4 | ) | (5 | ) | 15 | (2 | ) | (2 | ) | 11 | ||||||||||||||||
Dealer terminations and other exit costs | 16 | (1 | ) | (11 | ) | 4 | (1 | ) | — | 3 | ||||||||||||||||||
Other charges | 1 | 7 | (8 | ) | — | — | — | — | ||||||||||||||||||||
Total | $ | 54 | $ | 8 | $ | (43 | ) | $ | 19 | $ | (2 | ) | $ | (3 | ) | $ | 14 | |||||||||||
15. | Income taxes |
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Domestic | $ | (41 | ) | $ | (116 | ) | $ | (410 | ) | |||
Foreign | 186 | 81 | 94 | |||||||||
Total income (loss) before income taxes | $ | 145 | $ | (35 | ) | $ | (316 | ) | ||||
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Current: | ||||||||||||
Federal | $ | 10 | $ | 7 | $ | — | ||||||
State and local | 12 | 9 | 3 | |||||||||
Foreign | 59 | 11 | 19 | |||||||||
Total current expense | 81 | 27 | 22 | |||||||||
Deferred: | ||||||||||||
Federal | (5 | ) | 2 | — | ||||||||
State and local | — | — | — | |||||||||
Foreign | (70 | ) | (20 | ) | (5 | ) | ||||||
Total deferred expense (benefit) | (75 | ) | (18 | ) | (5 | ) | ||||||
Total income tax expense | $ | 6 | $ | 9 | $ | 17 | ||||||
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2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Statutory federal income tax expense (benefit) | $ | 51 | $ | (12 | ) | $ | (111 | ) | ||||
State income taxes, net of federal benefit | 8 | 5 | 2 | |||||||||
Research and development credits | (8 | ) | (9 | ) | (7 | ) | ||||||
Adjustments to valuation allowance | (29 | ) | 29 | 127 | ||||||||
Medicare reimbursement | (16 | ) | (15 | ) | — | |||||||
Differences in foreign tax rates | (5 | ) | (5 | ) | (1 | ) | ||||||
Other | 5 | 16 | 7 | |||||||||
Actual income tax expense | $ | 6 | $ | 9 | $ | 17 | ||||||
2005 | 2004 | |||||||
(Restated) | ||||||||
Deferred tax assets attributable to: | ||||||||
Net operating loss (“NOL”) carryforwards | $ | 481 | $ | 644 | ||||
Tax credit carryforwards | 106 | 94 | ||||||
Employee benefits liabilities | 799 | 757 | ||||||
Product liability and warranty accruals | 332 | 288 | ||||||
Research and development | 156 | 67 | ||||||
Financing arrangements | 203 | 254 | ||||||
Other | 299 | 258 | ||||||
Gross deferred tax assets | 2,376 | 2,362 | ||||||
Less valuation allowance | (1,903 | ) | (2,002 | ) | ||||
Net deferred tax assets | $ | 473 | $ | 360 | ||||
Deferred tax liabilities: | ||||||||
Property, plant and equipment | $ | (257 | ) | $ | (292 | ) | ||
Goodwill and intangibles assets | (110 | ) | (11 | ) | ||||
Other | (38 | ) | (31 | ) | ||||
Total deferred tax liabilities | $ | (405 | ) | $ | (334 | ) | ||
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2011 | $ | 7 | ||
2012 | 1 | |||
2021 | 178 | |||
2022 | 326 | |||
2023 | 424 | |||
2025 | 16 | |||
Total | $ | 952 | ||
16. | Fair value of financial instruments |
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Year Ended October 31, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
Value | Fair Value | Value | Fair Value | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
(in millions) | ||||||||||||||||
Assets | ||||||||||||||||
Finance receivables | $ | 3,543 | $ | 3,207 | $ | 3,053 | $ | 2,804 | ||||||||
Notes receivable | 22 | 22 | 28 | 29 | ||||||||||||
Liabilities | ||||||||||||||||
Debt: | ||||||||||||||||
Manufacturing operations | ||||||||||||||||
6.25% Senior Notes, due 2012 | 400 | 360 | — | — | ||||||||||||
Financing arrangements | 396 | 401 | 471 | 521 | ||||||||||||
9.375% Senior Notes, due 2006 | 393 | 399 | 400 | 431 | ||||||||||||
7.5% Senior Notes, due 2011 | 249 | 235 | 248 | 271 | ||||||||||||
Majority owned dealership debt | 245 | 239 | 184 | 179 | ||||||||||||
4.75% Subordinated Exchangeable Notes, due 2009 | 202 | 188 | 220 | 215 | ||||||||||||
2.5% Senior Convertible Notes, due 2007 | 190 | 192 | 190 | 228 | ||||||||||||
9.95% Senior Notes, due 2011 | 13 | 13 | 15 | 17 | ||||||||||||
Other | 24 | 24 | 14 | 14 | ||||||||||||
Financial services operations | ||||||||||||||||
Borrowings secured by asset-backed securities, at variable rates, due serially through 2011 | 2,779 | 2,716 | 1,992 | 1,972 | ||||||||||||
Bank revolvers, variable rates, due 2010 | 863 | 832 | 887 | 869 | ||||||||||||
Revolving retail warehouse facility, variable rates, due 2005 | — | — | 500 | 500 | ||||||||||||
Revolving retail warehouse facility, variable rates, due 2010 | 500 | 500 | — | — | ||||||||||||
Borrowings secured by operating and finance leases of retail customer vehicles | 123 | 123 | 155 | 155 |
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17. | Financial instruments and commodity contracts |
Net Fair | ||||||||||||||||
As of October 31, 2005 | Maturity Dates | Assets | Liabilities | Value | ||||||||||||
(in millions) | ||||||||||||||||
Interest rate swaps | 2006 through 2008 | $ | 2 | $ | (2 | ) | $ | — | ||||||||
Interest rate caps purchased | 2009 through 2016 | 6 | — | 6 | ||||||||||||
Interest rate caps sold | 2009 through 2016 | — | (6 | ) | (6 | ) | ||||||||||
Total fair value | 8 | (8 | ) | — | ||||||||||||
Less: current portion(A) | — | (1 | ) | (1 | ) | |||||||||||
Noncurrent portion(A) | $ | 8 | $ | (7 | ) | $ | 1 | |||||||||
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Net Fair | ||||||||||||||
As of October 31, 2004 (Restated) | Maturity Dates | Assets | Liabilities | Value | ||||||||||
Interest rate swaps | 2006 through 2008 | $ | 1 | $ | (2 | ) | $ | (1 | ) | |||||
Interest rate swaps | 2011 | 13 | — | 13 | ||||||||||
Total fair value | 14 | (2 | ) | 12 | ||||||||||
Less: current portion(A) | — | (2 | ) | (2 | ) | |||||||||
Noncurrent portion(A) | $ | 14 | $ | — | $ | 14 | ||||||||
(A) | Assets are categorized asOther current assetsandOther noncurrent assets,respectively, and liabilities are categorized asOther current liabilitiesandOther noncurrent liabilities, respectively, in the consolidated balance sheets. |
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18. | Commitments and contingencies |
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19. | Segment reporting |
• | OurTrucksegment manufactures and distributes a full line of class 4 through 8 trucks and buses in the common carrier, private carrier, government/service, leasing, construction, energy/petroleum, and student and commercial transportation markets under the International and IC brands. We also produce chassis for motor homes and commercial step-van vehicles under the WCC brand. In an effort to strengthen and maintain our dealer network, this segment occasionally acquires and operates dealer locations for the purpose of transitioning ownership or providing temporary operational assistance. At October 31, 2005 we had ownership in 18 Dealcor locations with ownership ranging from 35% to 100%. | |
• | OurEnginesegment designs and manufactures diesel engines for use primarily in our class 6/7 medium trucks and buses and selected class 8 heavy truck models, and for sale to OEMs primarily in the U.S., Mexico, and Brazil. Sales of diesel engines to Ford were 19%, 19%, and 21% of consolidated sales and revenues in 2005, 2004, and 2003, respectively. Ford accounted for 68%, 76%, and 77% of our diesel unit volume (including intercompany transactions) in 2005, 2004, and 2003, respectively. We have an agreement with Ford to be its exclusive supplier of V-8 diesel engines through mid-2012 for all of its diesel-powered super-duty trucks and vans over 8,500 lbs gross vehicle weight in North America. Ford receivable balances totaled $164 million and $200 million as of October 31, 2005, and October 31, 2004, respectively. The engine segment has made a substantial investment, together with Ford, in the BDP joint venture which is responsible for the sale of service parts to our OEM customers. | |
• | OurPartssegment provides customers with proprietary products needed to support the International trucks, IC bus, WCC and the International MaxxForce engine lines, together with a wide selection of other standard truck, trailer, and engine aftermarket parts. At October 31, 2005, this segment operated 10 regional parts distribution centers that provide24-hour availability and shipment. | |
• | OurFinancial Servicessegment provides retail, wholesale, and lease financing of products sold by the Truck segment and its dealers within the U.S. and Mexico as well as financing for wholesale accounts and selected retail accounts receivable. Our foreign finance subsidiaries’ primary business is to provide wholesale, retail and lease financing to the Mexican operations’ dealers and retail customers. |
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• | Predetermined budgeted postretirement benefits and medical expense of active and certain retired employees are allocated to the segments based upon relative workforce data. | |
• | The United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) master contract and non-represented profit sharing, annual incentive compensation and the costs of the Supplemental Trust are included in corporate expenses. | |
• | Certain corporate selling, general and administrative expense is allocated to the segments based on predetermined budgeted values. | |
• | Interest expense and interest income for the manufacturing operations are reported in corporate. | |
• | The Truck segment incurred goodwill impairment charges related to our Dealcors of $1 million, $3 million, and $2 million for 2005, 2004, and 2003, respectively. See Note 9,Goodwill and other intangible assets, netfor additional information. | |
• | The Engine segment recorded an asset impairment charge totaling $23 million in 2005 related to the write-down of assets that were idle at the Huntsville, Alabama assembly plant. See Note 8,Property and equipment,netfor further information. | |
• | Intersegment purchases and sales between the Truck and Engine segments are recorded at our best estimates of arms-length pricings. | |
• | Intersegment purchases from the Truck and Engine segments by the Parts segment are recorded at standard production cost. | |
• | Other than the items discussed above, the selected financial information presented below is recognized in accordance with our policies described in Note 1,Summary of significant accounting policies. |
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Corporate | ||||||||||||||||||||||||
Financial | and | |||||||||||||||||||||||
Truck | Engine | Parts | Services(A) | Eliminations | Total | |||||||||||||||||||
October 31, 2005 | ||||||||||||||||||||||||
External sales and revenues, net | $ | 7,940 | $ | 2,514 | $ | 1,373 | $ | 297 | $ | — | $ | 12,124 | ||||||||||||
Intersegment sales and revenues | 7 | 692 | — | 100 | (799 | ) | — | |||||||||||||||||
Total sales and revenues, net | $ | 7,947 | $ | 3,206 | $ | 1,373 | $ | 397 | $ | (799 | ) | $ | 12,124 | |||||||||||
Depreciation and amortization | $ | 118 | $ | 151 | $ | 5 | $ | 33 | $ | 15 | $ | 322 | ||||||||||||
Interest expense | — | — | — | 172 | 136 | 308 | ||||||||||||||||||
Equity in income of non-consolidated affiliates | 7 | 82 | 1 | — | — | 90 | ||||||||||||||||||
Segment profit (loss) | 142 | (179 | ) | 278 | 135 | (231 | ) | 145 | ||||||||||||||||
Segment assets | 2,527 | 1,952 | 487 | 4,850 | 970 | 10,786 | ||||||||||||||||||
Capital expenditures | 164 | 149 | 4 | 47 | 35 | 399 | ||||||||||||||||||
October 31, 2004 (restated) | ||||||||||||||||||||||||
External sales and revenues, net | $ | 6,190 | $ | 1,970 | $ | 1,224 | $ | 294 | $ | — | $ | 9,678 | ||||||||||||
Intersegment sales and revenues | 5 | 611 | — | 65 | (681 | ) | — | |||||||||||||||||
Total sales and revenues, net | $ | 6,195 | $ | 2,581 | $ | 1,224 | $ | 359 | $ | (681 | ) | $ | 9,678 | |||||||||||
Depreciation and amortization | $ | 94 | $ | 129 | $ | 4 | $ | 47 | $ | 14 | $ | 288 | ||||||||||||
Interest expense | — | — | — | 128 | 109 | 237 | ||||||||||||||||||
Equity in income of non-consolidated affiliates | 6 | 30 | — | — | — | 36 | ||||||||||||||||||
Segment profit (loss) | (17 | ) | (208 | ) | 236 | 132 | (178 | ) | (35 | ) | ||||||||||||||
Segment assets | 1,868 | 1,331 | 344 | 4,126 | 1,081 | 8,750 | ||||||||||||||||||
Capital expenditures | 131 | 177 | 9 | 49 | 10 | 376 | ||||||||||||||||||
October 31, 2003 (restated) | ||||||||||||||||||||||||
External sales and revenues, net | $ | 4,575 | $ | 1,715 | $ | 1,078 | $ | 327 | $ | — | $ | 7,695 | ||||||||||||
Intersegment sales and revenues | 2 | 496 | — | 52 | (550 | ) | — | |||||||||||||||||
Total sales and revenues, net | $ | 4,577 | $ | 2,211 | $ | 1,078 | $ | 379 | $ | (550 | ) | $ | 7,695 | |||||||||||
Depreciation and amortization | $ | 97 | $ | 117 | $ | 4 | $ | 54 | $ | 17 | $ | 289 | ||||||||||||
Interest expense | — | — | — | 157 | 110 | 267 | ||||||||||||||||||
Equity in income of non-consolidated affiliates | 6 | 46 | 1 | — | — | 53 | ||||||||||||||||||
Segment profit (loss) | (227 | ) | (60 | ) | 194 | 87 | (310 | ) | (316 | ) | ||||||||||||||
Segment assets | 1,493 | 1,306 | 285 | 4,505 | 801 | 8,390 | ||||||||||||||||||
Capital expenditures | 95 | 230 | 8 | 49 | 6 | 388 |
(A) | Total sales and revenues in the Financial Services segment includes interest revenues of $300 million, $297 million, and $323 million for 2005, 2004, and 2003, respectively. |
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2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Sales and revenues | ||||||||||||
United States | $ | 8,392 | $ | 7,072 | $ | 5,742 | ||||||
Canada | 2,433 | 1,549 | 1,017 | |||||||||
Mexico | 737 | 844 | 634 | |||||||||
Brazil | 559 | 209 | 298 | |||||||||
Other | 3 | 4 | 4 | |||||||||
Long-lived assets(A) | ||||||||||||
United States | 2,159 | 1,828 | 1,865 | |||||||||
Canada | 70 | 45 | 36 | |||||||||
Mexico | 57 | 64 | 69 | |||||||||
Brazil | 398 | 81 | 79 |
(A) | Comprised ofProperty and equipment, net,Goodwill,andIntangible assets, net. |
• | The Parts segment incurs “access fees” from the Truck and Engine segments for certain engineering and product development costs, depreciation expense, and selling, general and administrative expense incurred by the Truck and Engine segments based on the relative percentage of certain sales, adjusted for cyclicality. | |
• | Certain corporate selling, general and administrative expense is no longer allocated to the segments. | |
• | Certain postretirement benefits and medical expenses of retired employees are no longer allocated to the segments. |
Corporate | ||||||||||||||||||||||||||||
Financial | and | |||||||||||||||||||||||||||
Truck | Engine | Parts | Subtotal | Services | Eliminations | Total | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Pro Forma Segment | ||||||||||||||||||||||||||||
Profit (Loss) | ||||||||||||||||||||||||||||
2005 | $ | 346 | $ | (104 | ) | $ | 179 | $ | 421 | $ | 136 | $ | (412 | ) | $ | 145 | ||||||||||||
2004 | $ | 156 | $ | (147 | ) | $ | 163 | $ | 172 | $ | 133 | $ | (340 | ) | $ | (35 | ) | |||||||||||
2003 | $ | (45 | ) | $ | 11 | $ | 134 | $ | 100 | $ | 87 | $ | (503 | ) | $ | (316 | ) |
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20. | Stockholders’ deficit |
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions) | ||||||||||||
Minimum pension liability | $ | (933 | ) | $ | (896 | ) | $ | (836 | ) | |||
Foreign currency translation adjustments | 23 | (22 | ) | (20 | ) | |||||||
Total | $ | (910 | ) | $ | (918 | ) | $ | (856 | ) | |||
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21. | Earnings (loss) per share |
2005 | 2004 | 2003 | ||||||||||
(Restated) | (Restated) | |||||||||||
(in millions, except per share data) | ||||||||||||
Numerator: | ||||||||||||
Net income (loss) | $ | 139 | $ | (44 | ) | $ | (333 | ) | ||||
Add: Interest expense on 2.5% Senior Convertible Notes | 6 | — | — | |||||||||
Net income (loss) available to common stockholders after assumed conversions | $ | 145 | $ | (44 | ) | $ | (333 | ) | ||||
Denominator: | ||||||||||||
Weighted average shares outstanding | ||||||||||||
Basic | 70.1 | 69.7 | 68.7 | |||||||||
Effect of dilutive securities — Debt | 5.5 | — | — | |||||||||
— Options | 0.7 | — | — | |||||||||
Diluted | 76.3 | 69.7 | 68.7 | |||||||||
Basic earnings (loss) per share | $ | 1.98 | $ | (0.64 | ) | $ | (4.86 | ) | ||||
Diluted earnings (loss) per share | $ | 1.90 | $ | (0.64 | ) | $ | (4.86 | ) |
22. | Stock-based compensation plans |
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2005 | 2004 | 2003 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
(shares in thousands) | ||||||||||||||||||||||||
Options outstanding at beginning of year | 5,913 | $ | 34.69 | 6,122 | $ | 32.03 | 5,253 | $ | 32.89 | |||||||||||||||
Granted | 2,438 | $ | 33.62 | 1,208 | $ | 42.97 | 2,080 | $ | 27.53 | |||||||||||||||
Exercised | (301 | ) | $ | 27.52 | (1,164 | ) | $ | 28.72 | (801 | ) | $ | 24.58 | ||||||||||||
Forfeited/expired | (207 | ) | $ | 39.15 | (253 | ) | $ | 37.39 | (410 | ) | $ | 34.65 | ||||||||||||
Options outstanding at end of year | 7,843 | $ | 34.52 | 5,913 | $ | 34.69 | 6,122 | $ | 32.03 | |||||||||||||||
Options exercisable at end of year | 4,298 | $ | 34.87 | 3,287 | $ | 34.26 | 2,925 | $ | 34.40 | |||||||||||||||
Options available for grant at end of year | 1,209 | |||||||||||||||||||||||
Options Outstanding | ||||||||||||||||||||
Weighted | Options Exercisable | |||||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||||||
Range of | Number | Remaining | Average | Number | Average | |||||||||||||||
Exercise Prices | Outstanding | Contractual Life | Exercise Price | Exercisable | Exercise Price | |||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||
$ 9.56 - $10.75 | 25 | 0.8 | $ | 9.91 | 25 | $ | 9.91 | |||||||||||||
$17.41 - $26.66 | 3,047 | 7.6 | $ | 25.58 | 1,369 | $ | 24.84 | |||||||||||||
$27.40 - $37.72 | 208 | 6.4 | $ | 32.35 | 134 | $ | 33.80 | |||||||||||||
$37.93 - $51.75 | 4,563 | 7.1 | $ | 40.72 | 2,770 | $ | 40.09 |
23. | Condensed consolidating guarantor and non-guarantor financial information |
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Non-Guarantor | Eliminations | |||||||||||||||||||
(in millions) | NIC | International | Subsidiaries | and Other | Consolidated | |||||||||||||||
Condensed Consolidating Statement of Operations for the Year Ended October 31, 2005 | ||||||||||||||||||||
Sales and revenues, net | $ | — | $ | 9,080 | $ | 3,132 | $ | (88 | ) | $ | 12,124 | |||||||||
Cost of products sold | — | 8,238 | 2,089 | (77 | ) | 10,250 | ||||||||||||||
Restructuring and program termination credits | — | (1 | ) | (1 | ) | — | (2 | ) | ||||||||||||
All other operating expenses (income) | (21 | ) | 1,450 | 377 | 15 | 1,821 | ||||||||||||||
Total costs and expenses | (21 | ) | 9,687 | 2,465 | (62 | ) | 12,069 | |||||||||||||
Equity in income (loss) of non-consolidated affiliates | 124 | 610 | (49 | ) | (595 | ) | 90 | |||||||||||||
Income (loss) before income tax | 145 | 3 | 618 | (621 | ) | 145 | ||||||||||||||
Income tax (expense) benefit | (6 | ) | 78 | (176 | ) | 98 | (6 | ) | ||||||||||||
Net income (loss) | $ | 139 | $ | 81 | $ | 442 | $ | (523 | ) | $ | 139 | |||||||||
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Non-Guarantor | Eliminations | |||||||||||||||||||
(in millions) | NIC | International | Subsidiaries | and Other | Consolidated | |||||||||||||||
Condensed Consolidating Balance Sheet as of October 31, 2005 | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Cash, cash equivalents and marketable securities | $ | 605 | $ | 44 | $ | 867 | $ | — | $ | 1,516 | ||||||||||
Finance and other receivables, net | 1 | 301 | 961 | 3,436 | 4,699 | |||||||||||||||
Inventories | — | 663 | 708 | (41 | ) | 1,330 | ||||||||||||||
Goodwill | — | — | 311 | 3 | 314 | |||||||||||||||
Property and equipment, net | — | 1,031 | 1,053 | (1 | ) | 2,083 | ||||||||||||||
Investments in and advances to non-consolidated affiliates | (3,377 | ) | 1,223 | (978 | ) | 3,293 | 161 | |||||||||||||
Deferred taxes, net | (8 | ) | 992 | (882 | ) | — | 102 | |||||||||||||
Other | 19 | 475 | 91 | (4 | ) | 581 | ||||||||||||||
Total assets | $ | (2,760 | ) | $ | 4,729 | $ | 2,131 | $ | 6,686 | $ | 10,786 | |||||||||
Liabilities and stockholders’ equity (deficit) | ||||||||||||||||||||
Debt | $ | 1,437 | $ | 418 | $ | 4,939 | $ | (405 | ) | $ | 6,389 | |||||||||
Postretirement benefits liabilities | — | 1,981 | (143 | ) | — | 1,838 | ||||||||||||||
Amounts due to (from) affiliates | (2,963 | ) | 3,803 | (4,561 | ) | 3,721 | — | |||||||||||||
Other liabilities | 465 | 2,261 | 1,571 | (39 | ) | 4,258 | ||||||||||||||
Total liabilities | (1,061 | ) | 8,463 | 1,806 | 3,277 | 12,485 | ||||||||||||||
Stockholders’ equity (deficit) | (1,699 | ) | (3,734 | ) | 325 | 3,409 | (1,699 | ) | ||||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | (2,760 | ) | $ | 4,729 | $ | 2,131 | $ | 6,686 | $ | 10,786 | |||||||||
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Non-Guarantor | Eliminations | |||||||||||||||||||
(in millions) | NIC | International | Subsidiaries | and Other | Consolidated | |||||||||||||||
Condensed Consolidating Statement of Cash Flows for the Year Ended October 31, 2005 | ||||||||||||||||||||
Net cash provided by (used in) operations | $ | (355 | ) | $ | 894 | $ | 425 | $ | (689 | ) | $ | 275 | ||||||||
Cash flow from investment activities | ||||||||||||||||||||
Net change in restricted cash and cash equivalents | — | (5 | ) | (272 | ) | — | (277 | ) | ||||||||||||
Net decrease (increase) in marketable securities | 112 | — | (22 | ) | — | 90 | ||||||||||||||
Capital expenditures | — | (160 | ) | (239 | ) | — | (399 | ) | ||||||||||||
Other investing activities | (84 | ) | (1,294 | ) | (1,014 | ) | 1,897 | �� | (495 | ) | ||||||||||
Net cash provided by (used in) investment activities | 28 | (1,459 | ) | (1,547 | ) | 1,897 | (1,081 | ) | ||||||||||||
Cash flow from financing activities | ||||||||||||||||||||
Net borrowings (repayments) of debt | 406 | 474 | 465 | (256 | ) | 1,089 | ||||||||||||||
Other financing activities | 60 | 91 | 712 | (956 | ) | (93 | ) | |||||||||||||
Net cash provided by (used in) financing activities | 466 | 565 | 1,177 | (1,212 | ) | 996 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | 32 | 4 | 36 | |||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||
Increase (decrease) during the year | 139 | — | 87 | — | 226 | |||||||||||||||
At beginning of the year | 406 | 6 | 191 | — | 603 | |||||||||||||||
Cash and cash equivalents at end of the year | $ | 545 | $ | 6 | $ | 278 | $ | — | $ | 829 | ||||||||||
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Non-Guarantor | Eliminations | |||||||||||||||||||
(in millions) | NIC | International | Subsidiaries | and Other | Consolidated | |||||||||||||||
Condensed Consolidating Statement of Operations for the Year Ended October 31, 2004 (Restated) | ||||||||||||||||||||
Sales and revenues, net | $ | — | $ | 7,501 | $ | 2,256 | $ | (79 | ) | $ | 9,678 | |||||||||
Cost of products sold | — | 6,847 | 1,489 | (68 | ) | 8,268 | ||||||||||||||
Restructuring and program termination charges | — | 5 | 3 | — | 8 | |||||||||||||||
All other operating expenses (income) | (39 | ) | 1,203 | 282 | 27 | 1,473 | ||||||||||||||
Total costs and expenses | (39 | ) | 8,055 | 1,774 | (41 | ) | 9,749 | |||||||||||||
Equity in income (loss) of non-consolidated affiliates | (74 | ) | 348 | (102 | ) | (136 | ) | 36 | ||||||||||||
Income (loss) before income tax (expense) benefit | (35 | ) | (206 | ) | 380 | (174 | ) | (35 | ) | |||||||||||
Income tax (expense) benefit | (9 | ) | 18 | (180 | ) | 162 | (9 | ) | ||||||||||||
Net income (loss) | $ | (44 | ) | $ | (188 | ) | $ | 200 | $ | (12 | ) | $ | (44 | ) | ||||||
Condensed Consolidating Balance Sheet as of October 31, 2004 (Restated) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Cash, cash equivalents and marketable securities | $ | 578 | $ | 39 | $ | 487 | $ | — | $ | 1,104 | ||||||||||
Finance and other receivables, net | 13 | 180 | 861 | 2,932 | 3,986 | |||||||||||||||
Inventories | — | 627 | 564 | (29 | ) | 1,162 | ||||||||||||||
Goodwill | — | — | 51 | 2 | 53 | |||||||||||||||
Property and equipment, net | — | 1,006 | 937 | (1 | ) | 1,942 | ||||||||||||||
Investments in and advances to non-consolidated affiliates | (3,500 | ) | 44 | (1,388 | ) | 4,994 | 150 | |||||||||||||
Deferred taxes, net | 89 | 884 | (914 | ) | — | 59 | ||||||||||||||
Other | 19 | 499 | (224 | ) | — | 294 | ||||||||||||||
Total assets | $ | (2,801 | ) | $ | 3,279 | $ | 374 | $ | 7,898 | $ | 8,750 | |||||||||
Liabilities and stockholders’ equity (deficit) | ||||||||||||||||||||
Debt | $ | 1,031 | $ | 493 | $ | 3,908 | $ | (150 | ) | $ | 5,282 | |||||||||
Postretirement benefits liabilities | — | 1,897 | (168 | ) | — | 1,729 | ||||||||||||||
Amounts due to (from) affiliates | (2,349 | ) | 2,768 | (3,563 | ) | 3,144 | — | |||||||||||||
Other liabilities | 369 | 2,086 | 1,151 | (15 | ) | 3,591 | ||||||||||||||
Total liabilities | (949 | ) | 7,244 | 1,328 | 2,979 | 10,602 | ||||||||||||||
Stockholders’ equity (deficit) | (1,852 | ) | (3,965 | ) | (954 | ) | 4,919 | (1,852 | ) | |||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | (2,801 | ) | $ | 3,279 | $ | 374 | $ | 7,898 | $ | 8,750 | |||||||||
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Non-Guarantor | Eliminations | |||||||||||||||||||
(in millions) | NIC | International | Subsidiaries | and Other | Consolidated | |||||||||||||||
Condensed Consolidating Statement of Cash Flows for the Year Ended October 31, 2004 (Restated) | ||||||||||||||||||||
Net cash provided by (used in) operations | $ | 39 | $ | 561 | $ | (25 | ) | $ | (277 | ) | $ | 298 | ||||||||
Cash flow from investment activities | ||||||||||||||||||||
Net change in restricted cash and cash equivalents | — | (3 | ) | 690 | — | 687 | ||||||||||||||
Net decrease (increase) in marketable securities | (148 | ) | — | 44 | — | (104 | ) | |||||||||||||
Capital expenditures | — | (145 | ) | (231 | ) | — | (376 | ) | ||||||||||||
Other investing activities | 42 | (379 | ) | 38 | 330 | 31 | ||||||||||||||
Net cash provided by (used in) investment activities | (106 | ) | (527 | ) | 541 | 330 | 238 | |||||||||||||
Cash flow from financing activities | ||||||||||||||||||||
Net borrowings (repayments) of debt | 191 | (37 | ) | (355 | ) | (79 | ) | (280 | ) | |||||||||||
Other financing activities | 64 | — | (187 | ) | 28 | (95 | ) | |||||||||||||
Net cash provided by (used in) financing activities | 255 | (37 | ) | (542 | ) | (51 | ) | (375 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | 3 | (2 | ) | 1 | ||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||
Increase (decrease) during the year | 188 | (3 | ) | (23 | ) | — | 162 | |||||||||||||
At beginning of the year | 218 | 9 | 214 | — | 441 | |||||||||||||||
Cash and cash equivalents at end of the year | $ | 406 | $ | 6 | $ | 191 | $ | — | $ | 603 | ||||||||||
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Non-Guarantor | Eliminations | |||||||||||||||||||
(in millions) | NIC | International | Subsidiaries | and Other | Consolidated | |||||||||||||||
Condensed Consolidating Statement of Operations for the Year Ended October 31, 2003 (Restated) | ||||||||||||||||||||
Sales and revenues, net | $ | — | $ | 5,757 | $ | 2,417 | $ | (479 | ) | $ | 7,695 | |||||||||
Cost of products sold | — | 5,346 | 1,809 | (485 | ) | 6,670 | ||||||||||||||
Restructuring and program termination charges | — | 66 | (48 | ) | — | 18 | ||||||||||||||
All other operating expenses (income) | (36 | ) | 1,062 | 276 | 74 | 1,376 | ||||||||||||||
Total costs and expenses | (36 | ) | 6,474 | 2,037 | (411 | ) | 8,064 | |||||||||||||
Equity in income (loss) of non-consolidated affiliates | (352 | ) | 300 | (41 | ) | 146 | 53 | |||||||||||||
Income (loss) before income tax (expense) benefit | (316 | ) | (417 | ) | 339 | 78 | (316 | ) | ||||||||||||
Income tax (expense) benefit | (17 | ) | 27 | (244 | ) | 217 | (17 | ) | ||||||||||||
Net income (loss) | $ | (333 | ) | $ | (390 | ) | $ | 95 | $ | 295 | $ | (333 | ) | |||||||
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Non-Guarantor | Eliminations | |||||||||||||||||||
(in millions) | NIC | International | Subsidiaries | and Other | Consolidated | |||||||||||||||
Condensed Consolidating Statement of Cash Flows for the Year Ended October 31, 2003 (Restated) | ||||||||||||||||||||
Net cash provided by (used in) operations | $ | (700 | ) | $ | 388 | $ | 507 | $ | (5 | ) | $ | 190 | ||||||||
Cash flow from investment activities | ||||||||||||||||||||
Net change in restricted cash and cash equivalents | — | (23 | ) | (642 | ) | — | (665 | ) | ||||||||||||
Net decrease (increase) in marketable securities | (22 | ) | — | (56 | ) | — | (78 | ) | ||||||||||||
Capital expenditures | — | (259 | ) | (129 | ) | — | (388 | ) | ||||||||||||
Other investing activities | 343 | (391 | ) | 116 | 17 | 85 | ||||||||||||||
Net cash provided by (used in) investment activities | 321 | (673 | ) | (711 | ) | 17 | (1,046 | ) | ||||||||||||
Cash flow from financing activities | ||||||||||||||||||||
Net borrowings (repayments) of debt | 58 | 282 | 265 | (5 | ) | 600 | ||||||||||||||
Sale of treasury stock to benefit plans | 175 | — | — | — | 175 | |||||||||||||||
Other financing activities | (51 | ) | — | (69 | ) | (3 | ) | (123 | ) | |||||||||||
Net cash provided by (used in) financing activities | 182 | 282 | 196 | (8 | ) | 652 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | 9 | (4 | ) | 5 | ||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||
Increase (decrease) during the year | (197 | ) | (3 | ) | 1 | — | (199 | ) | ||||||||||||
At beginning of the year | 415 | 12 | 213 | — | 640 | |||||||||||||||
Cash and cash equivalents at end of the year | $ | 218 | $ | 9 | $ | 214 | $ | — | $ | 441 | ||||||||||
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24. | Selected quarterly financial data (unaudited) |
1st Quarter Ended | 2nd Quarter Ended | |||||||||||||||
January 31, 2005 | April 30, 2005 | |||||||||||||||
As Previously | As Previously | |||||||||||||||
(in millions) | Reported | As Restated | Reported | As Restated | ||||||||||||
Sales and revenues, net | $ | 2,558 | $ | 2,562 | $ | 2,970 | $ | 2,974 | ||||||||
Manufacturing gross margin | 13.0 | % | 12.2 | % | 14.3 | % | 13.5 | % | ||||||||
Net income | 18 | 7 | 53 | 16 | ||||||||||||
Basic earnings per share | 0.25 | 0.10 | 0.76 | 0.22 | ||||||||||||
Diluted earnings per share | 0.24 | 0.10 | 0.70 | 0.22 | ||||||||||||
Market price range-common stock | ||||||||||||||||
High | 45.07 | 43.48 | ||||||||||||||
Low | 34.02 | 28.90 |
3rd Quarter Ended | ||||||||||||||||
July 31, 2005 | ||||||||||||||||
As Previously | 4th Quarter Ended | |||||||||||||||
Reported | As Restated | October 31, 2005 | ||||||||||||||
Sales and revenues, net | $ | 2,994 | $ | 3,101 | $ | 3,487 | ||||||||||
Manufacturing gross margin | 15.7 | % | 14.4 | % | 13.1 | % | ||||||||||
Net income | 64 | 38 | 78 | |||||||||||||
Basic earnings per share | 0.91 | 0.54 | 1.11 | |||||||||||||
Diluted earnings per share | 0.83 | 0.52 | 1.03 | |||||||||||||
Market price range-common stock | ||||||||||||||||
High | 35.10 | 35.29 | ||||||||||||||
Low | 28.30 | 25.55 |
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January 31, 2005 | April 30, 2005 | |||||||||||||||
As Previously | As Previously | |||||||||||||||
(in millions) | Reported | As Restated | Reported | As Restated | ||||||||||||
Current assets | $ | 2,681 | $ | 4,095 | $ | 3,328 | $ | 4,578 | ||||||||
Noncurrent assets | 4,812 | 5,055 | 4,935 | 5,697 | ||||||||||||
Total assets | $ | 7,493 | $ | 9,150 | $ | 8,263 | $ | 10,275 | ||||||||
Current liabilities | $ | 3,737 | $ | 3,895 | $ | 3,997 | $ | 3,874 | ||||||||
Noncurrent liabilities | 3,208 | 7,117 | 3,650 | 8,211 | ||||||||||||
Stockholders’ equity (deficit) | 548 | (1,862 | ) | 616 | (1,810 | ) | ||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 7,493 | $ | 9,150 | $ | 8,263 | $ | 10,275 | ||||||||
July 31, 2005 | ||||||||
As Previously | ||||||||
(in millions) | Reported | As Restated | ||||||
Current assets | $ | 3,731 | $ | 4,440 | ||||
Noncurrent assets | 5,036 | 6,602 | ||||||
Total assets | $ | 8,767 | $ | 11,042 | ||||
Current liabilities | $ | 3,549 | $ | 4,095 | ||||
Noncurrent liabilities | 4,530 | 8,734 | ||||||
Stockholders’ equity (deficit) | 688 | (1,787 | ) | |||||
Total liabilities and stockholders’ equity (deficit) | $ | 8,767 | $ | 11,042 | ||||
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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• | Appropriateness of the deferral ofstart-up costs and losses; appropriateness of sale accounting for certain transactions with leaseback terms, including certain transactions which also involved NFC; appropriateness of deferral of costs related to product development programs; reasonableness of warranty and other sales and marketing program accruals; the amount and timing of required adjustments to inventory and deferred cost amounts at one of the company’s foundry operations; whether certain leases should have been accounted for as capital leases rather than as operating leases; whether certain affiliates should have been consolidated rather than reported on the equity method and the amount of losses recognized from such arrangements; the adequacy of amounts recorded for asbestos liabilities; the appropriateness of revenue recognition and related implications, if any, to NFC; the adequacy of the valuation allowances for recorded deferred tax assets; the propriety of amounts recorded as receivables for vendor rebates and warranty and other vendor and customer settlements; the accuracy of recorded depreciation expense; the existence of unreconciled differences in reconciliations of inter-company accounts; the adequacy of inventory shrink reserves and amounts recorded to value inventory at the lower of cost or market; the timing of recording of required adjustments to accounts payable recorded by the company’s Canadian and Mexican subsidiaries; and the Company’s presentation of reportable business segments. | |
• | It is possible that the ultimate resolution of many of the above matters could also affect the Company’s financial statements for fiscal years prior to 2005. None of these accounting matters were resolved to our satisfaction prior to our dismissal. |
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Item 9A. | Controls and Procedures |
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• | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets. | |
• | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and provide reasonable assurance that receipts and expenditures are being made in accordance with our management’s and our Board of Directors’ authorization. | |
• | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements. |
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Material Weakness Description | Remediation Actions | |
1. Accounting Personnel: We did not have a sufficient number of accounting personnel with an appropriate level of accounting knowledge, experience and training in the application of GAAP as it relates to accounting for receivable securitization transactions. This resulted in inadequate segregation of duties and insufficient review of the information pertaining to securitization accounting. Additionally, because of the lack of internal accounting personnel, we relied heavily on our prior independent registered public accounting firm to help us develop conclusions related to application of GAAP. | We have hired additional accounting personnel throughout the company with appropriate levels of accounting knowledge, experience and training, and retained outside consultants to supplement our staff. We will continue to focus on increasing the number of internal accounting staff and improving skill sets through training. | |
2. Account Reconciliations: Our Mexican manufacturing operation did not properly perform, review and approve accounts payable reconciliations. | In January 2007, we implemented a new account reconciliation policy and related training course requiring our general ledger accounts to be reconciled on a timely basis with proper review, approval, support, and retention. | |
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Material Weakness Description | Remediation Actions | |
1. Control Environment: As of October 31, 2005, management was unsuccessful in establishing an adequately strong consciousness regarding the consistent application of ethics across all areas of the company and the importance of internal controls over financial reporting, including adherence to GAAP. This weakness in the overall control environment likely contributed to many of the other material weaknesses disclosed herein. As identified by the Board of Directors’ independent investigation, certain members of management and other employees, in place at that time, were involved in instances of intentional misconduct that resulted in some of the company’s smaller, but material, restatement adjustments. With respect to these instances, most of these individuals are no longer employed by the company. In other instances, the Investigatory Oversight Special Committee of our Board of Directors has implemented appropriate remediation plans. | We are committed to strengthening our control environment and reemphasizing the importance of ethics, integrity and internal control over financial reporting. We are actively engaged in the planning for, and implementation of, remediation efforts to address the control deficiencies. Throughout this Item 9A we describe specific activities we are implementing which are designed to strengthen our overall control environment. More specifically related to ethics and integrity, we are performing the following: • We have replaced and/or strengthened our finance and accounting leadership as described in detail underAccounting Personnelbelow. • Our Executive Council is actively involved with refreshing and disseminating the company’s code of conduct as well as the roll-out of mandatory training. Our code of conduct policies and training will be refreshed, and 100 percent of our non-represented people will be trained and sign the code of conduct. With respect to our represented employees, they will receive training and information, but due to contractual obligations, we will not be able to demand their signatures, though we will strongly encourage them to sign. | |
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• During our November 2007 Annual Leadership Meeting with our top 200 leaders, our Executive Council reinforced the importance of conducting business and accounting activities in compliance with our code of conduct, with the highest integrity and ethical behavior and living up to our company’s core values. We will continue to have periodic updates with the leadership team. • Our company’s core values expect our people to do the right thing. We are enhancing our communication and the visibility of our core values through our leadership meetings and other communication efforts such as training, posters, desk reminders, information pamphlets, etc. We will also be refreshing some of the definitions of the core values to ensure that they reflect contemporary challenges and issues. Our values will become a more visible and sustainable part of what we do and how we behave. • We are investigating approaches to finance transformation to help us design a robust finance/accounting organization, including the appropriate number of people, the right skill sets and certifications, capable processes and technology, and training/education. We will implement greater oversight and monitoring of accounting policies and procedures in all critical accounting areas, including areas involving management judgment and discretion. • We will increase our efforts to educate our people as to their obligations to report inappropriate behavior, and enhance communication and support for doing the right thing even if it’s unpopular. We will reemphasize and invigorate our communications to all of our employees regarding the availability of our Employee Hotline, through which all employees at all levels can anonymously submit information or express concerns regarding accounting, financial reporting, or other irregularities they have become aware of or have observed. In addition, these communications will emphasize the existence and availability of other reporting avenues or forums for all employees, such as their management chain, their Human Resources representatives, the Corporate Compliance Office, the Legal Department, the Corporate Audit Department, and direct contact with the Chief Financial Officer or the Audit Committee. | ||
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Material Weakness Description | Remediation Actions | |
• We are evaluating the best practices for the role of Chief Ethics and Compliance Officer. We will make a decision about filling the role, and as part of this effort, we will determine the appropriate responsibilities and monitoring programs. • We have launched a new website designed to heighten our people’s awareness of internal controls. The site is a portal to many of our policies and procedures, internal control training documents, contact references for inquiries about internal controls, and reemphasize the importance of our core values. • We are evaluating employee survey instruments that measure climate as well as management’s messaging. The survey will help us to determine a communications baseline, which will allow us to tailor our approach in a manner that ensures that all employees hear or are exposed to messaging on code of conduct and ethical business behavior. • Our Disclosure Committee is chaired by our new Vice President and Corporate Controller and its membership includes appropriate representatives from financial reporting, legal, treasury, tax, communications, compliance, and internal audit. The Disclosure Committee charter was benchmarked and appropriate revisions were made. | ||
2. Accounting Personnel: We did not have a sufficient number of accounting personnel with an appropriate level of accounting knowledge, experience and training in the application of GAAP. | We continue to strengthen our finance and accounting leadership to improve the accuracy of our financial reporting and internal controls over financial reporting. In addition, the following leadership changes have taken place: • In October 2005, we hired an Executive Vice President of Finance who was appointed as our Chief Financial Officer in August 2006. • In September 2006, we hired a new Vice President and Corporate Controller. • In 2005 and 2006, we appointed new division Vice Presidents of Finance to the Truck, Engine, Parts, and Financial Services segments. • In April, May and June 2007, we hired a new Vice President of Corporate Audit and Consulting; new Vice President, Shared Services; new Vice President, Assistant Corporate Controller; and we elevated the Director of Accounting Compliance hired in April 2006 to Vice President, Financial Reporting. | |
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Material Weakness Description | Remediation Actions | |
Our Corporate Controller’s office and Corporate Audit department have been restructured and our finance and accounting resources throughout the company have been realigned. The division Vice Presidents of Finance report directly to our Executive Vice President of Finance and Chief Financial Officer. We have increased the number of accounting personnel with appropriate levels of accounting knowledge, experience and training to properly apply GAAP. Specifically, between October 31, 2005 and October 31, 2007 we have hired approximately 100 incremental finance and accounting staff throughout the company, and we have retained outside consultants to supplement our staff. We will continue to focus on increasing the number of internal accounting staff and improving their skills through training. We also plan to perform a company-wide skills assessment of our accounting and finance personnel to determine a better, more effective structure for the accounting and finance organization. We are developing plans to implement comprehensive training programs for all finance personnel globally covering all fundamental accounting and financial reporting matters, including but not limited to, accounting policies, financial reporting requirements, income statement classification, revenue recognition, accounting for reserves and accrued liabilities, and account reconciliation and documentation requirements. | ||
3. Accounting Policies and Procedures: We did not have a formalized process for monitoring, updating, disseminating, and implementingGAAP-compliant accounting policies and procedures. | Our Financial Reporting Group has been enhanced to include experienced technical accounting personnel to provide guidance about, and help ensure compliance with, GAAP. The Group has been updating our policies and procedures, confirming they are GAAP-compliant and conducting related training for our accounting personnel. They have implemented procedures for tracking new accounting pronouncements, evaluating their impact on our financial reporting and refreshing policies as needed. The Group will be instrumental in helping our accounting staff with critical accounting issues, including areas involving management judgment and discretion and non-routine transactions. We also engaged outside consultants to help us create and/or update policies and procedures and we started issuing updated policies and procedures, along with related training. Since October 31, 2005, we have issued 23 revised policies. | |
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We will continue to update our policies and procedures and our Sarbanes-Oxley Compliance and Corporate Audit and Consulting departments will help verify that our accounting personnel are complying with the revised policies and procedures. | ||
4. Internal Audit: Our internal audit department was not an effective monitoring control over financial reporting. | Our internal audit function now reports directly to the Chair of the Audit Committee. Under the Audit Committee’s direction, the new Vice President of the Corporate Audit and Consulting department has developed and implemented many specific action plans to improve the effectiveness of the internal audit function. Specifically, the annual risk assessment and strategic planning process has been revised to include additional qualitative and financial reporting-related risk factors and will be kept current; standard periodic management and Audit Committee communications including new audit report formats and status updates have been developed and implemented; the department has been reorganized including increased minimum technical and audit experience requirements for each position; outside consultants have been engaged to augment the current mix of skill sets and additional recruiting efforts are underway; and a new formal recommendation follow-up process has been developed and implemented including a database to maintain, track and report the results of follow-up activity to management and the Audit Committee. Finally, the charter of the internal audit function has been updated to reflect these changes. | |
5. Segregation of Duties: We did not maintain effective controls to ensure adequate segregation of duties. Specifically, we did not have appropriate controls in place to adequately segregate the job responsibilities and system user access for initiating, authorizing and recording transactions. | We recently engaged an outside consulting firm to help us begin implementing specific actions to address our segregation of duties deficiencies. The consultants will review segregation of duties conflicts for high risk computer applications, functions and job responsibilities and consider effective mitigating controls to reduce the related risks. In addition, we issued a company-wide segregation of duties policy to better allow for consistent application across the organization. | |
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Material Weakness Description | Remediation Actions | |
6. Information Technology (“IT”): Our IT general controls over computer program development, computer program changes, computer operations and system user access to programs and data were ineffectively designed. Additionally, we concluded that computer application controls were unreliable and ineffective. | We have formed an IT Remediation Team, consisting of employees from our IT department, which created specific action plans to address the deficiencies identified and develop new policies and procedures. We engaged an outside consulting firm to help with remediation efforts and, along with our internal audit function, to help evaluate the effectiveness of the corrective actions taken. In December 2006, computer application and operational change management disciplines were implemented which have enhanced our systems development life cycle and computer program change management. In March 2007, we established the requirement for semi-annual system user access reviews, restricting access to sensitive financial system transactions and data. A significant effort is underway to address system user access deficiencies. Also in March 2007, user administration policies and procedures were enhanced to establish proper management approvals and timeliness of user additions, deletions and access changes. We also hired a new Chief Information Officer in October 2007. | |
7. Journal Entries: We did not maintain effective controls over the preparation, support, review and approval of journal entries. Specifically, effective controls were not in place to verify that journal entries were prepared with sufficient supporting documentation, support was properly retained, and journal entries were reviewed and approved by an appropriate level of management to ensure the completeness, accuracy and appropriateness of the entries recorded. | In October 2006, we implemented a new journal entry policy and related training course to define requirements for sufficient support, record retention, review procedures, approval procedures, and delegation of authority. Prior to issuing our 2005 financial statements, we performed extensive quality control procedures to minimize the risk of errors and to ensure the restatement journal entries were properly supported and approved. | |
8. Account Reconciliations: We did not maintain effective controls over account reconciliations and financial analysis and review. Specifically, we did not consistently perform account reconciliations, ensure sufficient support was retained, and approve the reconciliations performed to ensure the balances were complete and accurate. Also, our financial analysis and reviews were not consistently applied across the organization to allow for detection of potential misstatements. | In January 2007, we implemented a new account reconciliation policy and related training course requiring our general ledger accounts to be reconciled on a timely basis with proper review, approval, support and retention. We are implementing procedures to define and consistently perform financial analysis and review to improve our ability to prevent or detect potential misstatements on a timely basis. Prior to issuing our 2005 financial statements, we conducted extensive analyses and substantive procedures, including preparation of account reconciliations and making additional adjustments as necessary to ensure the accuracy and completeness of our financial disclosures. | |
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Material Weakness Description | Remediation Actions | |
9. Period End Close: We did not maintain effective controls over the period end close process. Specifically, we lacked controls to verify the account closing and consolidation process was performed consistently and completely from period to period, we lacked evidence to verify that data transfers from local books of record up through corporate consolidation were complete and accurate, we lacked controls to verify that our charts of accounts mapped correctly up through consolidated accounts, we lacked sufficient evidence of review of the financial reports to verify complete and accurate balances, and our management certification process was not effective in verifying that items requiring disclosure were identified. | Our short-term remediation efforts related to the account closing and financial statement preparation process have been focused on the accuracy of the consolidated financial statements. Prior to issuing our 2005 consolidated financial statements, we invested considerable resources in developing a process supported by technology to reconsolidate our prior period financial statements and record the adjustments resulting from the Restatement. This process included a significant investment in external resources to assist in validating pre-restatement balances, mapping of accounts to financial statement captions, as well as validating the input and output of all restatement journal entries. This process also provided for the completion of disclosure support exhibits which were also subject to significant data review and validation procedures. We will use this same process to consolidate our 2006 and 2007 financial statements. Our longer term remediation focus will be on redesigning our period end closing and financial statement preparation process. | |
10. Pension Accounting: We did not maintain effective controls to accurately estimate our pension and OPEB obligations. Specifically, the application of the methodology used to determine historical discount rates was not properly documented and reviewed and we lacked proper support for other assumptions used in accounting for the obligations. | We have transitioned to an accepted model for our discount rates to reduce the judgment necessary in calculating our pension and OPEB obligations. Additionally, external actuaries perform the computations, modeling and reporting. Prior to issuing our 2005 consolidated financial statements, we have invested considerable resources and performed appropriate analyses to accurately account for and disclose our pension and OPEB matters. | |
11. Warranty Accounting: We did not have appropriate warranty cost accounting models and methodologies in place to adequately estimate our warranty accruals and we did not perform appropriate financial analyses of the warranty cost estimates on a periodic basis. | Prior to issuing our 2005 consolidated financial statements, we engaged an outside consulting firm to assist management in improving our warranty cost accounting models and methodologies. We have invested considerable resources and performed extensive analyses to accurately measure warranty accruals. We intend to implement new controls to properly analyze, review, approve, and accrue for warranty cost estimates on a quarterly basis. | |
12. Income Tax Accounting:We did not have sufficient modeling tools in place or a process to validate the positive and negative evidence necessary to determine whether valuation allowances were required to reduce the carrying values of deferred tax assets. Additionally, we did not retain detailed supporting documentation for our tax contingency liabilities. | Prior to issuing our 2005 consolidated financial statements, we have developed and implemented extensive modeling schedules to support our valuation allowance assessments related to deferred tax assets. Additionally, we have developed detailed schedules supporting all tax contingency liability requirements, and we have taken steps to ensure that we follow our record retention policies. | |
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Material Weakness Description | Remediation Actions | |
13. Inventory Accounting: We did not maintain effective controls over our inventory accounting process. Specifically, we lacked evidence of the performance of controls for reviewing inventory count adjustments and reviewing cost accounting reports and updates to standard costs. Additionally, we did not consistently analyze significant cost variances, analyze lower of cost or market value, or record allowances for inventory obsolescence. | Our process owners are implementing remediation for the inventory accounting process, including retaining evidence of performance of key controls, performing analytical reviews of cost variances, assessing lower of cost or market, and recording inventory allowances. In addition, we are in the process of issuing new policies related to inventory accounting. Prior to issuing our 2005 consolidated financial statements, we invested considerable resources to analyze and accurately report the inventory balances. | |
14. Revenue Accounting: We did not maintain effective controls over the revenue accounting process. Specifically, we lacked controls to ensure that revenue transactions were recorded in the proper accounting period and our monitoring controls over the revenue transactions were not operating effectively. | Our process owners are implementing remediation for the revenue accounting process, including following procedures to record revenue in the correct accounting period and retaining evidence of performance of key controls. In addition, we are in the process of issuing new policies related to revenue accounting. Prior to issuing our 2005 consolidated financial statements, we invested considerable resources to analyze and accurately report revenue. | |
15. Contracts and Agreements: We did not perform effective reviews of contracts and agreements, including customer agreements, supplier agreements, agreements related to variable interest entities, derivatives, debt, and leases to assess the accounting implications related to the contracts and agreements. A formal process was not in place to require personnel with sufficient technical accounting knowledge to review the contracts and agreements for accounting and disclosure implications. | We are planning to implement new contract review checklists and procedures to require personnel with sufficient technical accounting knowledge to review contracts and agreements. Our Corporate Controller’s office will be actively involved to properly assess the accounting implications. Prior to issuing our 2005 consolidated financial statements, we performed extensive contract reviews to determine the appropriate accounting implications and accurately report balances. | |
• | A significant extension of the 2005 financial reporting process, thereby allowing us to conduct additional analyses and substantive procedures, including preparation of account reconciliations and making additional adjustments as necessary to verify the accuracy and completeness of our financial reporting; and | |
• | Hiring additional resources and retaining outside consultants with relevant accounting experience, skills and knowledge, working under our supervision and direction to assist with the Restatement and the account closing and financial statement preparation process for 2005, 2006, and 2007. |
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Item 9B. | Other Information |
Item 10. | Directors and Executive Officers of the Registrant |
Name | Age | Directorship and Biographical Information | ||||
Y. Marc Belton* | 48 | Director since 1999. He is Executive Vice President, Worldwide Health, Brand and New Business Development of General Mills, Inc. since 2005. General Mills, Inc. is engaged in manufacturing and marketing of consumer food products. Prior to his present position he was President of Yoplait USA, General Mills Canada Corporation and New Business Development from 2002 to 2005 and was President of the “Big G” Cereal Division from 1999 to 2002. From 1997 to 1999 he was President of the New Ventures Division. From 1994 to 1997 he was President, Snacks Division. He was named a Vice President of General Mills in 1991. He serves on the Board of Directors of the Guthrie Theater and is Vice Chair of the Board of Trustees of Northwestern College. He is also a member of The Executive Leadership Council.Committees: AuditandFinance. | ||||
William A. Caton | 56 | Director since December 2006. He is Executive Vice President and Chief Financial Officer of Navistar since September 2006. He is also Executive Vice President and Chief Financial Officer of International since September 2006 and a director since March 2006. Prior to these positions he served as our Executive Vice President and Vice President, Finance since October 2005. Prior to this he was employed by various subsidiaries of Dover Corporation from 1989 to 2005, most recently serving as Vice President and Chief Financial Officer of Dover Diversified, Inc., a diversified manufacturing company with over 7,000 employees, from 2002 to 2005; Chief Financial Officer of Waukesha Bearings, a leading supplier of fluid film and active magnetic bearings for turbomachinery, from 2001 to 2002; and Executive Vice President of DovaTech, Ltd., a manufacturer of welding equipment from 2000 to 2001, where he was responsible for sales and marketing, customer service, accounting and finance and information systems. |
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Name | Age | Directorship and Biographical Information | ||||
Eugenio Clariond* | 64 | Director since 2002. He is Chairman of the Board of Directors and Chief Executive Officer of Grupo IMSA, S.A., a producer of steel processed products, steel and plastic construction products and aluminum and other related products, since 2003. Prior to his present position he was President and Chief Executive Officer, since 1984. He is a director of Chaparral Steel Company, Grupo Financiero Banorte, S.A., Grupo Industrial Sattillo, S.A., the Mexico Fund, Inc. and Johnson Controls, Inc., Chairman of the Mexican Fund for Nature Conservancy, President of the USA-Mexico Business Council and the Non-Executive Chairman of Vergatec, S.A. As of December 31, 2006, Mr. Clariond retired as Chairman of the Board of Grupo IMSA, S.A.Committees: CompensationandFinance. | ||||
John D. Correnti* | 60 | Director since 1994. He is President and Chief Executive Officer of SeverCorr, LLC, a manufacturer of high quality flat-rolled steel products, since October 2005. Prior to his present position he was Chairman of the Board of Directors and Chief Executive Officer of Birmingham Steel Corporation, a manufacturer of steel and steel products, from 1999 to 2002. On June 3, 2002, Birmingham Steel Corporation filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code. Mr. Correnti served as Chief Executive Officer, President and Vice Chairman of Nucor Company, a mini mill manufacturer of steel products, from 1996 to 1999, and as its President and Chief Operating Officer and as a director from 1991 to 1996. He is a director of Corrections Corporation of America.Committees: AuditandCompensation. | ||||
Dr. Abbie J. Griffin* | 53 | Director since 1998. She is the Royal L. Garff Presidential Chair in Marketing at the David Eccles School of Business at the University of Utah since July 2006. Prior to her present position she was a Professor of Business Administration at the University of Illinois, Urbana-Champaign since 1997 and was Associate Professor of Marketing and Production Management from 1993 to 1997 at the University of Chicago, Graduate School of Business.Committees: AuditandFinance. | ||||
Michael N. Hammes* | 65 | Director since 1996. He is Chairman of Sunrise Medical Inc., which designs, manufacturers and markets home medical equipment worldwide, since 2000. He was Chairman and Chief Executive Officer of the Guide Corporation, an automotive lighting business, from 1998 to 2000. He was also Chairman and Chief Executive Officer of The Coleman Company, Inc., a manufacturer and distributor of camping and outdoor recreational products and hardware/home products, from 1993 to 1997. He is a member of the Board of Directors of James Hardie, a NYSE company in the international builders material business.Committees: Compensation, Finance (Chair), Nominating and Governance (Chair)andExecutive. |
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Name | Age | Directorship and Biographical Information | ||||
David D. Harrison* | 60 | Director since August 2007. Mr. Harrison served as Executive Vice President and Chief Financial Officer of Pentair, Inc., a $3 billion global manufacturing company, with more than 15,000 employees, from 2000 until his retirement in February 2007. Prior to joining Pentair, he held several executive positions with General Electric Co. and Borg Warner Corp., including positions in Europe and Canada. Mr. Harrison is currently managing partner of HCI, Inc., a real estate investment firm and a director of National Oilwell Varco, Inc., a leading global manufacturer of oil well drilling equipment, where he serves as chairman of the audit committee.Committees: Auditand Finance. | ||||
James H. Keyes* | 67 | Director since 2002. He retired as Chairman of the Board of Johnson Controls, Inc., an automotive system and facility management and control company, in 2003, a position he had held since 1993. He served as Chief Executive Officer of Johnson Controls, Inc. from 1988 until 2002. He is a director of LSI Logic Corporation and Pitney Bowes, Inc. and on the Board of Trustees of Fidelity Mutual Funds.Committees: Audit (Chair), Compensation, Nominating and Governanceand Executive. | ||||
Southwood J. Morcott* | 69 | Director since 2000. He retired as Chairman of the Board of Directors of Dana Corporation, a manufacturer and distributor of automotive and vehicular parts, in 2000, a position he had held since 1990. He was Chief Executive Officer from 1989 to 1999 and President from 1986 to 1996 of Dana Corporation. He is a director of CSX Corporation and Johnson Controls, Inc.Committees: Compensation (Chair), Nominating and Governance, Financeand Executive. | ||||
Daniel C. Ustian | 57 | Director since 2002. He is President and Chief Executive Officer of Navistar since 2003 and Chairman of the Board of Directors of Navistar since 2004. He is also Chairman of International since 2004 and President and Chief Executive Officer of International since 2003 and a director since 2002. Prior to his present positions, he was President and Chief Operating Officer, from 2002 to 2003, and President of the Engine Group of International from 1999 to 2002, and he served as Group Vice President and General Manager of Engine & Foundry from 1993 to 1999. He is a director of Monaco Coach Corporation and a member of the Business Roundtable, Society of Automotive Engineers and the American Foundry Association and participates in the Electrical Council for the Economy.Committee: Executive. | ||||
Dennis D. Williams** | 54 | Director since June 2006. Mr. Williams is employed by the UAW as a director of UAW Region 4, a position he has held since 2001. Prior to this position, Mr. Williams served as Assistant Director of Region 4 since 1995. Prior to joining the UAW, Mr. Williams was employed by Case Company from 1977 to 1988. Mr. Williams also served for four years in the United States Marine Corp.Committee: Finance. |
* | Indicates each director deemed independent in accordance Section 303A of the NYSE Listed Company Manual Corporate Governance Standards. | |
** | In July 1993, we restructured our post-retirement health care and life insurance benefits pursuant to a settlement agreement, which required, among other things, the addition of a seat on our Board of Directors. The director’s seat is filled by a person appointed by |
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the United Automobile, Aerospace & Agricultural Implement Workers of America (the “UAW”). This director is not part of our classified Board of Directors and is not elected by stockholders at the Annual Meeting. Mr. Williams was elected as a director in June 2006 to fill the seat previously held by David McAllister, the former UAW director who held this position from 2001 until his removal by the UAW in June 2006. |
Name | Age | Officers and Positions with Navistar and Other Information | ||||
John J. Allen | 50 | President of the Engine Group of International since 2004. Prior to this Mr. Allen served as Vice President and General Manager of the Parts Group of International from 2002 to 2004. Mr. Allen served as Vice President and General Manager of the Blue Diamond Truck Company, an International and Ford Motor Company Joint Venture that manufactures medium commercial trucks, from 2001 to 2002; and Assistant General Manager of International’s Heavy Vehicle Center from 1997 to 2001. | ||||
William A. Caton(1) | 56 | Executive Vice President and Chief Financial Officer of Navistar since September 2006 and a director since December 2006. He is also Executive Vice President and Chief Financial Officer of International since September 2006 and a director since March 2006. Prior to these positions he served as Executive Vice President and Vice President, Finance of Navistar since October 2005. Prior to this he was employed by various subsidiaries of Dover Corporation from 1989 to 2005, most recently serving as Vice President and Chief Financial Officer of Dover Diversified, Inc., a diversified manufacturing company with over 7,000 employees, from 2002 to 2005; Chief Financial Officer of Waukesha Bearings, a leading supplier of fluid film and active magnetic bearings for turbo machinery, from 2001 to 2002; and Executive Vice President of DovaTech, Ltd., a manufacturer of welding equipment from 2000 to 2001. | ||||
Phyllis E. Cochran | 55 | Vice President and General Manager of the Parts Group of International since 2004. Prior to this, Ms. Cochran served as Vice President and General Manager of the International Finance Group of International from 2003 to 2004. Ms. Cochran was also Chief Executive Officer and General Manager of Navistar Financial Corporation from 2003 to 2004. Ms. Cochran was Executive Vice President and General Manager of Navistar Financial Corporation from 2002 to 2003. Ms. Cochran also served as Vice President of Operations for Navistar Financial Corporation from 2000 to 2002; and Vice President and Controller for Navistar Financial Corporation from 1994 to 2000. |
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Name | Age | Officers and Positions with Navistar and Other Information | ||||
Steven K. Covey | 56 | Senior Vice President and General Counsel of Navistar since 2004. Mr. Covey also is Senior Vice President and General Counsel of International since 2004. Prior to this Mr. Covey served as Deputy General Counsel of International from April 2004 to September 2004 and as Vice President and General Counsel of Navistar Financial Corporation from 2000 to 2004. Mr. Covey also served as Corporate Secretary for Navistar from 1990 to 2000; and Associate General Counsel of International from 1992 to 2000. | ||||
Gregory W. Elliott | 46 | Vice President, Corporate Human Resources and Administration of International since 2004. Prior to this, Mr. Elliott served as Vice President, Corporate Communications of International, from 2000 to 2004. Prior to International, Mr. Elliot served as Director of Executive Communications of General Motors Corporation from 1997 to 1999. | ||||
Terry M. Endsley | 52 | Senior Vice President and Treasurer of Navistar since 2006 and Vice President and Treasurer since 2003. Mr. Endsley also is Senior Vice President and Treasurer of International since 2006 and Vice President and Treasurer of International since 2003. Prior to this, Mr. Endsley served as Assistant Treasurer of Navistar from 1997 to 2003. Mr. Endsley also served as Assistant Treasurer of International from 1997 to 2003. | ||||
D.T. (Dee) Kapur | 55 | President of the Truck Group of International since 2003. Prior to International, Mr. Kapur was employed by Ford Motor Company, a leading worldwide automobile manufacturer, from 1976 to 2003, most recently serving as Executive Director of North American Business Revitalization, Value Engineering from 2002 to 2003; Executive Director of Ford Outfitters, North American Truck, from 2001 to 2002; and Vehicle Line Director, Full Size Pick-ups and Utilities from 1997 to 2001. | ||||
Pamela J. Turbeville | 57 | Senior Vice President and Chief Executive Officer of Navistar Financial Corporation since 2004. Prior to this, Ms. Turbeville served as Senior Vice President, Human Resources and Administration, of International from 1998 to 2004. | ||||
Daniel C. Ustian | 57 | President and Chief Executive Officer of Navistar since 2003 and Chairman of the Board of Directors of Navistar since 2004. He is also Chairman of International since 2004 and President and Chief Executive Officer of International since 2003 and a director since 2002. Prior to his present positions, he was President and Chief Operating Officer from 2002 to 2003, and President of the Engine Group of International from 1999 to 2002, and he served as Group Vice President and General Manager of Engine & Foundry from 1993 to 1999. He is a director of Monaco Coach Corporation and a member of the Business Roundtable, Society of Automotive Engineers and the American Foundry Association and participates in the Electrical Council for the Economy. |
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Name | Age | Officers and Positions with Navistar and Other Information | ||||
John P. Waldron | 43 | Vice President and Controller (Principal Accounting Officer) of Navistar since September 2006. Prior to this, Mr. Waldron was employed from 2005 to 2006 as Vice President, Assistant Corporate Controller of R.R. Donnelley & Sons Company, an international provider of print and print related services. Prior to this position, Mr. Waldron was employed from 1999 to 2005 as Corporate Controller of Follett Corporation, a provider of education-related products and services. |
(1) | Effective September 1, 2006, Mr. William A. Caton became Executive Vice President and Chief Financial Officer, replacing Robert C. Lannert who resigned from those positions and had been Vice Chairman of Navistar since 2002 and Chief Financial Officer and a director since 1990. Mr. Lannert was also Executive Vice President of Navistar from 1990 to 2002 and Vice Chairman and Chief Financial Officer of International since 2002 and Executive Vice President and Chief Financial Officer of International from 1990 to 2002 and a director since 1987. |
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Item 11. | Executive Compensation |
• | Competitive Positioning: Total remuneration is designed to attract and retain the executive talent required to achieve our goals through a market competitive total remuneration package | |
• | Performance Orientation: Executive compensation is performance-based with a direct link to company, business unit, and individual performance. It is also designed to align the interests of executives and stockholders | |
• | Fair: Compensation programs are designed to be fair and equitable across all employee groups and should not unfairly discriminate in favor of any one individual or group on the basis of age, service, or other non-performance related criteria |
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• | Ownership and Responsibility: Programs recognize individual contributions as well as link executive and stockholder interests through compensation programs that reward our executives, including our named executive officers based on the financial success of the company and increases to stockholder value |
AGCO Corporation | Dover Corporation | ITT Industries, Incorporated | ||
American Axle and Manufacturing | Eaton Corporation | Lear Corporation | ||
American Standard | Emerson Electric | PACCAR, Incorporated | ||
Arvin Meritor, Incorporated | General Dynamics | Parker-Hannifin | ||
Collins and Aikman | Goodrich Corporation | Rockwell Automation, Incorporated | ||
Cooper Tire and Rubber | Goodyear Tire and Rubber | Ryder System | ||
Cummins Incorporated | Harley Davidson, Incorporated | Terex Corporation | ||
Dana Corporation | Illinois Tool Works | Textron, Incorporated | ||
Deere Corporation | Ingersoll-Rand Co. Ltd. |
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• | The head of each business unit reviews competitive salary market data for his or her direct and indirect reports. | |
• | The head of each business unit provides salary recommendations for his or her direct and indirect reports. | |
• | The chief executive officer (the “CEO”) and chief financial officer (the “CFO”) review and approve or adjust all of these salary recommendations. | |
• | The Committee reviews the salary for the CEO and CFO, the salary recommendations for all Section 16 Officers and the overall executive salary increase budget. The Committee approves or adjusts these recommendations. | |
• | The Committee then recommends and the Board of Directors approves or adjusts the salary recommendation for the CFO. As described in greater detail below, we have a detailed procedure in place for reviewing the performance of the CEO and determining annually the salary of the CEO. |
• | Corporate Performance: For all of our executives, corporate performance is heavily weighted in the calculation of incentive payments in order to encourage integrated execution across organizational boundaries within Navistar. We believe it is important to encourage executives to work together for the |
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best consolidated results rather than to focus on results at one business unit at the expense of other business units. Corporate financial goals are based on our Return on Equity (ROE) as measured and reported to stockholders. We use ROE because we believe that, in the long term, it is highly correlated with stock price and shareholder value. We are in a volatile industry, which is based upon demand that is subject to cyclical fluctuation. The profitability of our business is heavily influenced by the cycle of truck sales in North America. Consequently, we use the following truck industry demand-adjusted (volume-adjusted) ROE target methodology to evaluate company performance. We target a 16.5% ROE on average over the business cycle based on a forecasted average truck industry volume which is re-evaluated every year based upon industry forecast. This prevents us from giving management an unduly large incentive payment in years when the truck market is strong. Rather, financial results must be even stronger than industry performance for management to receive a payment. Conversely, this methodology is intended to prevent us from unduly under compensating management in years when the truck market is weak. Because demand for trucks in North America was strong for 2005, the volume-adjusted ROE target for 2005 was 23.8%. For 2005, equity was calculated based upon the prior year’s average actual equity, excluding other comprehensive losses and the restructuring charge initially taken in 2002. These two exclusions increase equity and make the target more difficult to achieve. The amount of income required to earn incentive payments is an output of the target ROE and equity calculation. |
• | Business Unit Performance: For executives at our business units, which, of our named executive officers, does not include our CEO or CFO, business unit performance is also considered in determining incentive payments, which thereby encourage strong performance at that business unit level. The business unit results are measured on the income (i.e. Profit Before Taxes) needed to support the corporate ROE goal. Other non-financial goals that support cost, quality and growth initiatives are also utilized where appropriate. For 2005, however, in the light of our restatement, the AI Plan was based entirely on consolidated results. | |
• | Individual Performance: This is measured by our annual Total Performance Management (the “TPM”) assessment. The TPM process is a performance management tool that focuses on employee career development, goal setting, performance appraisals and evaluation. The TPM assessment reviews how well the executive performed with regard to both individual goals and defined skills and behaviors particular to the executive’s position in the company. |
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Corporate | ||||||
Corporate/ | Volume- | |||||
Business Unit | Adjusted ROE | |||||
Named Executive Officer | Weightings(2) | Target | ||||
Daniel C. Ustian | 100%/0% | 23.8 | % | |||
Robert C. Lannert | 100%/0% | 23.8 | % | |||
Deepak T. Kapur | 80%/20% | 23.8 | % | |||
Pamela J. Turbeville | 80%/20% | 23.8 | % | |||
John J. Allen | 80%/20% | 23.8 | % |
Target as a | ||||||||
% of Base | 2005 Annual Incentive | |||||||
Named Executive Officer | Salary | Amount Paid(3) | ||||||
Daniel C. Ustian | 110 | % | $ | 0 | ||||
Robert C. Lannert | 95 | % | $ | 0 | ||||
Deepak T. Kapur | 75 | % | $ | 0 | ||||
Pamela J. Turbeville | 65 | % | $ | 0 | ||||
John J. Allen | 75 | % | $ | 0 |
(1) | Mr. William A. Caton is not included as a named executive officer for 2005 as he was hired as the Executive Vice President and Vice President, Finance on October 31, 2005 and did not become the Chief Financial Officer until September 1, 2006. | |
(2) | As discussed in the Business Unit Performance section above, we based 2005 AI Plan awards entirely on consolidated results rather than based on separate corporate and business unit performance objectives. | |
(3) | The named executive officers did not earn a 2005 AI award as the consolidated financial results were below threshold performance. |
• | Aligning executive and shareowner interests; tie to share price appreciation. | |
• | Emphasizing returns to stockholders. | |
• | Cultivating ownership. |
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• | Manage dilution. | |
• | Provide the same number of options for similar job roles. | |
• | Provide a way for us to allocate stock options. |
Number of Stock | Number of Stock | |||||||||||||||
Options Granted | Options Granted | |||||||||||||||
December 2004 for | Value (FAS 123R | October 2005 for | Value (FAS 123R | |||||||||||||
Named Executive Officer | 2005 | Value) | 2006 | Value) | ||||||||||||
Daniel C. Ustian | 136,800 | $ | 2,526,696 | 136,800 | $ | 1,478,808 | ||||||||||
Robert C. Lannert | 62,600 | 1,156,222 | 62,600 | 676,706 | ||||||||||||
Deepak T. Kapur | 47,700 | 881,019 | 47,700 | 515,637 | ||||||||||||
Pamela J. Turbeville | 30,900 | 570,723 | 30,900 | 334,029 | ||||||||||||
John J. Allen | 47,700 | 881,019 | 47,700 | 515,637 |
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Ownership | ||||||||||||
Requirement as a% of | Number of Shares | Number of Shares | ||||||||||
Named Executive Officer | Base Salary | Required | Owned | |||||||||
Daniel C. Ustian | 300 | % | 60,806 | 69,930 | ||||||||
Robert C. Lannert | 300 | % | 75,000 | 225,225 | ||||||||
Deepak T. Kapur | 225 | % | 25,568 | 35,876 | ||||||||
Pamela J. Turbeville | 225 | % | 22,083 | 28,680 | ||||||||
John J. Allen | 225 | % | 25,633 | 22,120 |
• | Company-provided life insurance at five times base salary. | |
• | Supplemental Executive Retirement Plan (SERP). Additional information regarding this plan is provided in the Pension Benefits section. |
° | The SERP is limited to employees hired for an executive position. It does not include employees that have been promoted to an executive position. Of our named executive officers, only Deepak T. Kapur and Pamela J. Turbeville are eligible for SERP benefits. | |
° | The SERP provides a maximum benefit of 50% of a participant’s final average pay. A participant accrues benefits based on the rates in the following table: |
Up to | Beyond | |||||||
Age 55 | Age 55 | |||||||
Each Year of Age | 1/2 | % | 1 | % | ||||
Each Year of Service | 1/2 | % | 1 | % |
• | Managerial Retirement Objective Plan (MRO). Additional information regarding this plan is provided in the Pension Benefits section. |
° | The Internal Revenue Code limits the amount of benefits under tax qualified plans for more senior, highly paid executives. The MRO is an unfunded nonqualified defined benefit pension plan primarily designed to restore the benefits that executives, including our named executive officers, would otherwise have received if the Internal Revenue Code restrictions had not applied to our tax-qualified benefit plan. |
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° | Under the MRO, we determine what the participant’s benefits would be absent the Internal Revenue Code’s limitations and offset that by the restricted benefits under the comparable qualified pension plan. | |
° | At retirement, the participant will begin receiving monthly payments similar in form of payment to that elected under our qualified pension plan. Generally, a participant will not be eligible for any benefits if he or she voluntarily terminates employment prior to attaining age 55 and completing 10 years of service. | |
° | The MRO is not open to executives, including our named executive officers, hired on or after January 1, 1996 or who were under age 45 on January 1, 2005. | |
° | Of the named executive officers, Daniel C. Ustian, Robert C. Lannert and John J. Allen are eligible for and participate in the MRO. |
• | Supplemental Retirement Accumulation Plan (SRAP). Additional information provided in the Non-Qualified Defined Contribution and Other Nonqualified Deferred Compensation Plans section. |
° | The Internal Revenue Code limits the amount of contributions for more senior, highly paid executives and managers to a tax-qualified plan. The SRAP is a nonqualified deferred compensation plan primarily designed to restore the contributions from the company that participants would otherwise have received under our tax-qualified defined contribution plans, if the Internal Revenue Code restrictions had not been in place. Under the SRAP, we credit a separate bookkeeping account with a contribution that is equal to the amount of reduction in company contributions to our tax-qualified defined contribution plans because of the Internal Revenue Code limitations. This account balance is credited with investment earnings currently at a fixed rate that is reset periodically. | |
° | At retirement, the participant will receive a lump sum payment equal to the bookkeeping account balance. A participant will not be eligible for any benefits if he or she terminates employment prior to attaining age 55 and completing 10 years of service. | |
° | The SRAP is not open to executives who participate in the MRO. | |
° | Of the named executive officers, Deepak T. Kapur and Pamela J. Turbeville are eligible and participate in the SRAP. Please refer to the Nonqualified Deferred Compensation table on page 211 of this report for more information on the subject. |
• | Physical Exams |
° | This program provides a company-paid physical when an executive is first hired or promoted to an executive position. A physical is also required every two years prior to age 50 and every year after age 50. This program helps us ensure the health of our key executives. |
• | Executive Perquisites for our Named Executive Officers |
° | We maintain a perquisite program which we believe is competitive and consistent with our overall compensation program, and which enables us to attract and retain our executive officers. The Executive Flexible Perquisite Program provides a cash stipend to each of our named executive officers to provide him or her with the ability to choose the perquisite that best fits his or her professional and personal situation. This program is in lieu of providing and administering such items as car leases, tax preparation, financial planning and home security systems. We do not require the named executive officers to substantiate the expenses for which they use this stipend. The annual perquisite amount is paid semi-annually in equal installments in May and November. |
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Annual Flexible | ||||
Named Executive Officer | Perquisite Payment | |||
Daniel C. Ustian | $ | 46,000 | ||
Robert C. Lannert | $ | 37,000 | ||
Deepak T. Kapur | $ | 37,000 | ||
Pamela J. Turbeville | $ | 28,000 | ||
John J. Allen | $ | 37,000 |
° | During 2005, we maintained a Personal Excess Liability Coverage policy for each of our named executive officers. This perquisite was eliminated and discontinued on December 31, 2006. During 2005, the insurance liability coverage ranged from $5 million to $10 million for the named executive officers. This coverage coordinated coverage with an executive’s personal homeowner’s and automobile policies. | |
° | In certain circumstances, where a commercial flight is not available to meet a named executive officer’s travel schedule, our named executive officers and directors use chartered aircraft for business purposes only. After a review of the chartered flight usage in 2005, we confirmed the use was for business purposes only. |
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(h) | ||||||||||||||||||||||||||||||||||||
(g) | Change in | |||||||||||||||||||||||||||||||||||
Non- | Pension | |||||||||||||||||||||||||||||||||||
(e) | (f) | Equity | Value & | (i) | ||||||||||||||||||||||||||||||||
(c) | (d) | Stock | Option | Incentive | NQDC | All Other | ||||||||||||||||||||||||||||||
(a) | (b) | Salary | Bonus | Awards | Awards | Plan | Earnings | Comp | (j) | |||||||||||||||||||||||||||
Name and Principal Position | Year | ($) | ($) | ($)(1) | ($)(2) | Comp ($) | ($)(3) | ($)(4) | Total ($) | |||||||||||||||||||||||||||
Daniel C. Ustian | 2005 | 993,333 | — | 87,106 | 5,823,147 | — | 691,230 | 62,684 | 7,657,500 | |||||||||||||||||||||||||||
Chairman, President & Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
Robert C. Lannert | 2005 | 624,733 | 220,948 | (6) | — | 2,350,528 | (7) | — | 475,033 | 63,589 | 3,734,831 | |||||||||||||||||||||||||
Former Vice Chairman & Chief Financial Officer(5) | ||||||||||||||||||||||||||||||||||||
Deepak T. Kapur | 2005 | 550,000 | 200,000 | (8) | 892,167 | 677,626 | — | 265,680 | 994,764 | 3,580,237 | ||||||||||||||||||||||||||
President, Truck Group | ||||||||||||||||||||||||||||||||||||
Pamela J. Turbeville | 2005 | 390,000 | — | — | 923,498 | (9) | — | — | 135,391 | 1,448,889 | ||||||||||||||||||||||||||
Senior Vice President & Chief Executive Officer, Navistar Financial Corporation | ||||||||||||||||||||||||||||||||||||
John J. Allen | 2005 | 400,000 | — | 26,389 | 417,000 | — | 192,922 | 41,977 | 1,078,288 | |||||||||||||||||||||||||||
President, Engine & Foundry Group |
(1) | Reflects the expense for stock awards in accordance with FAS 123(R) as required by the new proxy disclosure guidelines. Due to the delay of our 2005 financial results, although not required, the company felt it was prudent and best practice to follow the new proxy disclosure requirements for 2005 for the following reasons: (a) it was anticipated that our years 2006 and 2007, which must be filed under the new rules, would be filed within months after 2005 and (b) the majority of companies would have filed under the new requirements by the time we file 2005. In accordance with this decision, this table reflects the rules under FAS 123(R). The company did not adopt FAS 123(R) until 2006. Prior to this time, the company used APB 25 to value its stock awards. The actual expense recognized for financial statement reporting purposes for the year ended October 31, 2005, in accordance with APB 25, will differ from the FAS 123(R) disclosure in this table. See the accompanying consolidated financial statements in this report regarding assumptions underlying valuation of equity awards. It includes premium share units (“PSU”) representing shares of common stock awarded to Mr. Ustian, Mr. Kapur, and Mr. Allen that vested in 2005 and for Mr. Ustian shares that vest in 2006, pursuant to our Executive Stock Ownership Program and is based on the attainment of certain stock ownership thresholds. Mr. Ustian received 1,262 shares originally granted on April 16, 2002, the closing price of our stock on April 16, 2002 was $44.03 per share; and 734 shares granted on September 8, 2003, of which 367 will vest in 2006, the closing price of our stock on September 8, 2003 was $42.97 per share. Mr. Kapur received 1,959 shares originally granted on September 2, 2003. It also includes the dollar value of the 18,000 shares of restricted stock that vested during the year in connection with Mr. Kapur’s recruitment to Navistar on September 1, 2003. The closing price of our stock on September 2, 2003 and the amount we used to calculate the value of Mr. Kapur’s shares was $44.70 per share. Mr. Allen received 200 shares originally granted on March 18, 2004, the closing price of our stock on March 18, 2004 was $46.01 per share; 99 shares granted on January 31, 2003, the closing price of our stock on January 31, 2003 was $24.07 per share; 214 shares granted on August 15, 2003, the closing price of our stock on August 15, 2003 was $41.84 per share; and 117 shares granted on January 7, 2004, the closing price of our stock on January 7, 2004 was $50.00 per share. | |
(2) | Reflects the expense for stock option awards in accordance with FAS 123(R) as required by the new proxy disclosure guidelines. Due to the delay of our 2005 financial results, although not required, the company felt it was prudent and best practice to follow the new proxy disclosure requirements for 2005 for the following reasons: (a) it was anticipated that our years 2006 and 2007, which must be filed under the new rules, would be filed within months after 2005 and (b) the majority of companies have filed under the new requirements by the time we file 2005. The company did not adopt FAS 123(R) until 2006. Prior to this time, the company used APB 25 to value its stock options. The actual expense recognized for financial statement reporting purposes for the year ended October 31, 2005, in accordance with APB 25, will differ from the FAS 123(R) disclosure in this table. See the accompanying consolidated financial statements in this report regarding assumptions underlying valuation of equity awards. Two stock option grants were made in 2005 due to a change in grant timing. Under FAS 123(R), Navistar recognizes the entire expense of a stock option grant(s) made to retirement eligible employees in the year of grant. The reason for this expense treatment is that once an employee reaches retirement eligibility, the stock option(s) has no substantial risk of forfeiture. Of the named executive officers, Mr. Lannert and Mr. Ustian are retirement eligible. Mr. Ustian became retirement eligible during 2005. If Mr. Ustian had not turned 55 in 2005, the expense would have been $4,005,504 instead of $5,823,147. For additional details regarding 2005 stock option grants, see “Compensation and Discussion Analysis — Long Term Incentives” on page 195 of this report. |
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(3) | Includes change in the actuarial present value of the International Truck and Engine Corporation Retirement Plan for Salaried Employees and MRO for Mr. Ustian, Mr. Lannert and Mr. Allen. For Mr. Kapur and Ms. Turbeville, this includes the change in actuarial present value of the SERP and certain interest on the SRAP. The value of the interest and earnings for Ms. Turbeville were not above market and, therefore, were not required to be reported. | |
(4) | Includes Flexible Perquisites cash allowances, company-paid life insurance premiums, company contributions to the Retirement Accumulation Plan and the SRAP and the company-provided excess personal liability premiums (this program was discontinued on December 31, 2006). The annual flexible perquisite payments are as follows: $46,000 for Mr. Ustian, $37,000 for each of Messrs. Lannert, Kapur and Allen and $28,000 for Ms. Turbeville. The company-paid life insurance premiums are as follows: $14,927 for Mr. Ustian, $24,832 for Mr. Lannert, $10,043 for Mr. Kapur, $5,858 for Ms. Turbeville and $3,220 for Mr. Allen. Our contribution to the Retirement Accumulation Plan was $20,325 for each of Mr. Kapur and Ms. Turbeville. Our contribution for the Supplemental Retirement Accumulation Plan was $25,639 for Mr. Kapur and $80,128 for Ms. Turbeville. Mr. Kapur received a $900,000 lump sum payment to compensate him for losses incurred in connection with his relocation upon joining us. | |
(5) | Effective September 1, 2006, Mr. Robert C. Lannert resigned as Chief Financial Officer and was replaced by Mr. William A Caton. Prior to September 1, 2006, Mr. Lannert had been Vice Chairman of Navistar since 2002 and Chief Financial Officer and a director since 1990. Mr. Lannert experienced an “Involuntary Not-For-Cause Termination” on October 31, 2007. | |
(6) | Represents a cash payment to correct an error in Mr. Lannert’s 2004 incentive payment. | |
(7) | Includes restoration options valued at $480,165 received by Mr. Lannert in 2005 to purchase a number of shares equal to the number of previously owned shares of Navistar common stock surrendered in payment of the exercise price of options. | |
(8) | Represents the third and final sign-on bonus installment in connection with Mr. Kapur’s recruitment to Navistar in 2003. | |
(9) | Includes restoration options valued at $290,354 received by Ms. Turbeville in 2005 to purchase a number of shares equal to the number of previously owned shares of Navistar common stock surrendered in payment of the exercise price of the options. |
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All Other | ||||||||||||||||||||||||||||||||||||
All Other | Option | Exercise | ||||||||||||||||||||||||||||||||||
Stock | Awards: | or Base | ||||||||||||||||||||||||||||||||||
Awards: | Number of | Price of | Closing | Grant Date | ||||||||||||||||||||||||||||||||
Estimated Future Payouts Under | Number of | Securities | Option | Price on | Fair Value of | |||||||||||||||||||||||||||||||
Non-Equity Incentive Plan Awards(1) | Shares of | Underlying | Awards | the | Option | |||||||||||||||||||||||||||||||
Grant | Threshold | Target | Maximum | Stock or | Options (#) | ($/Sh) | Grant | Awards | ||||||||||||||||||||||||||||
Name | Date | ($) | ($) | ($) | Units(2) | (3) | (7) | Date ($) | ($)(8) | |||||||||||||||||||||||||||
Daniel C. Ustian | 275,000 | 1,100,000 | 2,200,000 | — | ||||||||||||||||||||||||||||||||
12/14/2004 | — | — | — | — | 134,356 | (4) | 40.915 | 41.020 | 2,481,555 | |||||||||||||||||||||||||||
12/14/2004 | — | — | — | — | 2,444 | (5) | 40.915 | 41.020 | 45,141 | |||||||||||||||||||||||||||
10/18/2005 | — | — | — | — | 132,975 | (4) | 26.150 | 25.880 | 1,437,460 | |||||||||||||||||||||||||||
10/18/2005 | — | — | — | — | 3,825 | (5) | 26.150 | 25.880 | 41,348 | |||||||||||||||||||||||||||
Robert C. Lannert | 150,741 | 602,965 | 1,205,930 | — | ||||||||||||||||||||||||||||||||
12/14/2004 | — | — | — | — | 60,156 | (4) | 40.915 | 41.020 | 1,111,081 | |||||||||||||||||||||||||||
12/14/2004 | — | — | — | — | 2,444 | (5) | 40.915 | 41.020 | 45,141 | |||||||||||||||||||||||||||
12/22/2004 | — | — | — | — | 25,997 | (6) | 44.140 | 44.290 | 517,600 | |||||||||||||||||||||||||||
10/18/2005 | — | — | — | — | 58,775 | (4) | 26.150 | 25.880 | 635,358 | |||||||||||||||||||||||||||
10/18/2005 | — | — | — | — | 3,825 | (5) | 26.150 | 25.880 | 41,348 | |||||||||||||||||||||||||||
Deepak T. Kapur | 103,125 | 412,500 | 825,000 | — | ||||||||||||||||||||||||||||||||
12/14/2004 | — | — | — | — | 45,256 | (4) | 40.915 | 41.020 | 835,878 | |||||||||||||||||||||||||||
12/14/2004 | — | — | — | — | 2,444 | (5) | 40.915 | 41.020 | 45,141 | |||||||||||||||||||||||||||
10/18/2005 | — | — | — | — | 43,875 | (4) | 26.150 | 25.880 | 474,289 | |||||||||||||||||||||||||||
10/18/2005 | — | — | — | — | 3,825 | (5) | 26.150 | 25.880 | 41,348 | |||||||||||||||||||||||||||
Pamela J. Turbeville | 63,375 | 253,500 | 507,000 | — | ||||||||||||||||||||||||||||||||
12/14/2004 | — | — | — | — | 28,456 | (4) | 40.915 | 41.020 | 525,582 | |||||||||||||||||||||||||||
12/14/2004 | — | — | — | — | 2,444 | (5) | 40.915 | 41.020 | 45,141 | |||||||||||||||||||||||||||
3/15/2005 | — | — | — | — | 19,274 | (6) | 42.490 | 42.070 | 373,723 | |||||||||||||||||||||||||||
9/16/2005 | — | — | — | — | 11,009 | (6) | 34.130 | 33.970 | 164,805 | |||||||||||||||||||||||||||
9/16/2005 | — | — | — | — | 10,331 | (6) | 34.130 | 33.970 | 154,655 | |||||||||||||||||||||||||||
10/18/2005 | — | — | — | — | 27,075 | (4) | 26.150 | 25.880 | 292,681 | |||||||||||||||||||||||||||
10/18/2005 | — | — | — | — | 3,825 | (5) | 26.150 | 25.880 | 41,348 | |||||||||||||||||||||||||||
John J. Allen | 75,000 | 300,000 | 600,000 | — | ||||||||||||||||||||||||||||||||
12/14/2004 | — | — | — | — | 45,256 | (4) | 40.915 | 41.020 | 835,878 | |||||||||||||||||||||||||||
12/14/2004 | — | — | — | — | 2,444 | (5) | 40.915 | 41.020 | 45,141 | |||||||||||||||||||||||||||
5/26/2005 | — | — | — | 587 | — | — | — | 18,220 | ||||||||||||||||||||||||||||
10/18/2005 | — | — | — | — | 43,875 | (4) | 26.150 | 25.880 | 474,289 | |||||||||||||||||||||||||||
10/18/2005 | — | — | — | — | 3,825 | (5) | 26.150 | 25.880 | 41,348 |
(1) | The amounts represent compensation opportunity for 2005 under the Annual Incentive Plan. For additional information regarding such awards, see “Compensation Discussion and Analysis — Annual Incentives” on page 193 of this report. | |
(2) | Represents Premium Share Units (“PSUs”) that were awarded pursuant to the Executive Stock Ownership Program. PSUs vest in equal installments on each of the first three anniversaries of the date on which they are awarded. For additional information regarding PSUs, see “Non-Qualified Defined Contributions and Other Nonqualified Deferred Compensation Plans — 2005” on page 210 of this report. | |
(3) | All options, other than restoration options, become exercisable under the following schedule: one-third on the first three anniversaries of the date of grant. In the event an optionee exercises a non-qualified option with already-owned shares, he or she may be eligible to receive restoration options, if at the time of exercise an election was made to restore the exercised options. Restoration options contain the same expiration dates and other terms as the options they replace except that they have an exercise price per share equal to the fair market value of the common stock on the date the restoration option is granted and become exercisable in full six months after they are granted or, if sooner, one month before the end of the remaining term of the options they replace. | |
(4) | Non-Qualified Stock Options. | |
(5) | Incentive Stock Options. |
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(6) | Restoration options with the following terms: granted with exercise prices equal to the fair market value of our shares on the date of grant; become exercisable six months from the grant date or, if sooner, one month before the end of the remaining term of the options they replaced; and expire coincident with the options they replaced. Restoration options are issued when an executive uses shares of our common stock to pay the option exercise price of a previously issued option. | |
(7) | The exercise or base price of the option awards was based on an average of the high and low of our common stock on the date of grant. This price is consistent with the definition of “Market Price” in our 2004 Performance Incentive Plan from which the shares were granted. | |
(8) | The Black-Scholes model was used to calculate the grant date fair value of the options granted. For PSUs, the grant date fair value is calculated by multiplying the average of high and low prices of our common stock on the NYSE on the date of grant by the number of units awarded. The following assumptions were used to estimate the value of the options for each grant date: |
Risk Free | Grant Date Fair | |||||||||||||||||||||||
Exercise | Dividend | Volatility of | Rate of | Value of 1 | ||||||||||||||||||||
Grant Date | Price | Expected Life | Yield | Common | Return | Option | ||||||||||||||||||
12/14/2004 | $ | 40.915 | 4.8 years | 0 | % | 48.03 | % | 3.47 | % | $ | 18.47 | |||||||||||||
12/22/2004 | $ | 44.14 | 4.8 years | 0 | % | 47.90 | % | 3.52 | % | $ | 19.91 | |||||||||||||
03/15/2005 | $ | 42.49 | 4.8 years | 0 | % | 47.24 | % | 4.18 | % | $ | 19.39 | |||||||||||||
09/16/2005 | $ | 34.13 | 4.8 years | 0 | % | 45.44 | % | 3.82 | % | $ | 14.97 | |||||||||||||
10/18/2005 | $ | 26.15 | 4.8 years | 0 | % | 41.10 | % | 4.15 | % | $ | 10.81 |
Option Awards | Stock Awards | |||||||||||||||||||||||
Number of | ||||||||||||||||||||||||
Number of Securities | Shares or | |||||||||||||||||||||||
Underlying Unexercised | Units of | Market Value of | ||||||||||||||||||||||
Options (#)(1) | Option | Option | Stock held | Shares or Units of | ||||||||||||||||||||
Unexercisable | Exercise | Expiration | that have | Stock held that | ||||||||||||||||||||
Name | Exercisable | (2) | Price ($) | Date | not Vested (#) | have not Vested ($) | ||||||||||||||||||
Daniel C. Ustian | 2,474 | — | 40.4063 | 12/14/2009 | 367 | 10,100 | ||||||||||||||||||
41,626 | — | 40.4063 | 12/15/2009 | — | — | |||||||||||||||||||
716 | — | 36.7200 | 12/20/2005 | — | — | |||||||||||||||||||
8,680 | — | 36.7200 | 12/16/2008 | — | — | |||||||||||||||||||
2,217 | — | 36.7200 | 12/17/2007 | — | — | |||||||||||||||||||
5,500 | — | 36.7200 | 12/17/2006 | — | — | |||||||||||||||||||
4,713 | — | 21.2200 | 12/12/2010 | — | — | |||||||||||||||||||
32,953 | — | 21.2200 | 12/13/2010 | — | — | |||||||||||||||||||
61,983 | — | 38.2000 | 12/12/2011 | — | — | |||||||||||||||||||
2,617 | — | 38.2000 | 12/11/2011 | — | — | |||||||||||||||||||
7,204 | — | 44.1500 | 4/17/2012 | — | — | |||||||||||||||||||
1 | 2,872 | 26.3850 | 12/10/2012 | — | — | |||||||||||||||||||
72,599 | 33,428 | 26.3850 | 12/11/2012 | — | — | |||||||||||||||||||
38,733 | 19,367 | 23.9650 | 2/20/2013 | — | — | |||||||||||||||||||
45,600 | 88,305 | 42.8850 | 12/10/2013 | — | — |
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Option Awards | Stock Awards | |||||||||||||||||||||||
Number of | ||||||||||||||||||||||||
Number of Securities | Shares or | |||||||||||||||||||||||
Underlying Unexercised | Units of | Market Value of | ||||||||||||||||||||||
Options (#)(1) | Option | Option | Stock held | Shares or Units of | ||||||||||||||||||||
Unexercisable | Exercise | Expiration | that have | Stock held that | ||||||||||||||||||||
Name | Exercisable | (2) | Price ($) | Date | not Vested (#) | have not Vested ($) | ||||||||||||||||||
— | 2,895 | 42.8850 | 12/9/2013 | — | — | |||||||||||||||||||
— | 136,800 | 40.9150 | 12/14/2014 | — | — | |||||||||||||||||||
— | 136,800 | 26.1500 | 10/18/2015 | — | — | |||||||||||||||||||
Total: | 327,616 | 420,467 | 367 | 10,100 | ||||||||||||||||||||
Robert C. Lannert | 2,474 | — | 40.4063 | 12/14/2009 | — | — | ||||||||||||||||||
60,326 | — | 40.4063 | 12/15/2009 | — | — | |||||||||||||||||||
75,283 | — | 38.2000 | 12/12/2011 | — | — | |||||||||||||||||||
2,617 | — | 38.2000 | 12/11/2011 | — | — | |||||||||||||||||||
9,763 | — | 39.9200 | 12/16/2008 | — | — | |||||||||||||||||||
15,201 | — | 39.9200 | 12/20/2005 | — | — | |||||||||||||||||||
22,353 | — | 39.9200 | 12/17/2007 | — | — | |||||||||||||||||||
25,291 | — | 39.9200 | 12/16/2008 | — | — | |||||||||||||||||||
22,141 | — | 39.9200 | 12/17/2006 | — | — | |||||||||||||||||||
6,189 | — | 39.9200 | 12/13/2010 | — | — | |||||||||||||||||||
— | 2,872 | 26.3850 | 12/10/2012 | — | — | |||||||||||||||||||
— | 33,428 | 26.3850 | 12/11/2012 | — | — | |||||||||||||||||||
24,009 | 42.7400 | 12/13/2010 | — | — | ||||||||||||||||||||
6,025 | — | 42.7400 | 12/13/2010 | — | — | |||||||||||||||||||
20,867 | 38,838 | 42.8850 | 12/10/2013 | — | — | |||||||||||||||||||
— | 2,895 | 42.8850 | 12/9/2013 | — | — | |||||||||||||||||||
8,162 | — | 44.5750 | 12/13/2010 | — | — | |||||||||||||||||||
10,523 | — | 44.5750 | 12/11/2012 | — | — | |||||||||||||||||||
16,805 | — | 44.5750 | 12/11/2012 | — | — | |||||||||||||||||||
5,712 | — | 44.5750 | 12/13/2010 | — | — | |||||||||||||||||||
— | 62,600 | 40.9150 | 12/14/2014 | — | — | |||||||||||||||||||
25,997 | — | 44.1400 | 12/11/2012 | — | — | |||||||||||||||||||
— | 62,600 | 26.1500 | 10/18/2015 | — | — | |||||||||||||||||||
Total: | 359,738 | 203,233 | — | — | ||||||||||||||||||||
Deepak T. Kapur | 8,155 | 4,078 | 44.6600 | 9/3/2013 | 19,961 | 549,327 | ||||||||||||||||||
13,569 | 27,138 | 42.8850 | 12/10/2013 | — | — | |||||||||||||||||||
2,331 | 4,662 | 42.8850 | 12/9/2013 | — | — | |||||||||||||||||||
— | 47,700 | 40.9150 | 12/14/2014 | — | — | |||||||||||||||||||
— | 47,700 | 26.1500 | 10/18/2015 | — | — | |||||||||||||||||||
Total: | 24,055 | 131,278 | 19,961 | 549,327 | ||||||||||||||||||||
Pamela J. Turbeville | 6,537 | — | 28.8750 | 6/10/2008 | — | — | ||||||||||||||||||
7,727 | — | 25.8750 | 12/15/2008 | — | — | |||||||||||||||||||
2,474 | — | 40.4063 | 12/14/2009 | — | — | |||||||||||||||||||
2,760 | — | 40.4063 | 12/15/2009 | — | — | |||||||||||||||||||
4,714 | — | 21.2200 | 12/12/2010 | — | — |
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Option Awards | Stock Awards | |||||||||||||||||||||||
Number of | ||||||||||||||||||||||||
Number of Securities | Shares or | |||||||||||||||||||||||
Underlying Unexercised | Units of | Market Value of | ||||||||||||||||||||||
Options (#)(1) | Option | Option | Stock held | Shares or Units of | ||||||||||||||||||||
Unexercisable | Exercise | Expiration | that have | Stock held that | ||||||||||||||||||||
Name | Exercisable | (2) | Price ($) | Date | not Vested (#) | have not Vested ($) | ||||||||||||||||||
20,195 | — | 21.2200 | 12/13/2010 | — | — | |||||||||||||||||||
2,617 | — | 38.2000 | 12/11/2011 | — | — | |||||||||||||||||||
38,583 | — | 38.2000 | 12/12/2011 | — | — | |||||||||||||||||||
1 | 2,872 | 26.3850 | 12/10/2012 | — | — | |||||||||||||||||||
34,332 | 14,295 | 26.3850 | 12/11/2012 | — | — | |||||||||||||||||||
10,300 | 17,705 | 42.8850 | 12/10/2013 | — | — | |||||||||||||||||||
— | 2,895 | 42.8850 | 12/9/2013 | — | — | |||||||||||||||||||
— | 30,900 | 40.9150 | 12/14/2014 | — | — | |||||||||||||||||||
19,274 | — | 42.4900 | 12/15/2009 | — | — | |||||||||||||||||||
— | 11,009 | 34.1300 | 12/16/2008 | — | — | |||||||||||||||||||
— | 10,331 | 34.1300 | 12/13/2010 | — | — | |||||||||||||||||||
— | 30,900 | 26.1500 | 10/18/2015 | — | — | |||||||||||||||||||
Total | 149,514 | 120,907 | — | — | ||||||||||||||||||||
John J. Allen | 6,694 | 40.4063 | 12/15/2009 | 1,540 | 42,381 | |||||||||||||||||||
2,400 | 38.2000 | 12/11/2011 | — | — | ||||||||||||||||||||
316 | 2,872 | 26.3850 | 12/10/2012 | — | — | |||||||||||||||||||
5,618 | 3,061 | 26.3850 | 12/11/2012 | — | — | |||||||||||||||||||
3,467 | 4,038 | 42.8850 | 12/10/2013 | — | — | |||||||||||||||||||
2,895 | 42.8850 | 12/09/2013 | — | — | ||||||||||||||||||||
3,096 | 45.6100 | 12/12/2011 | — | — | ||||||||||||||||||||
4,168 | 45.6100 | 12/11/2012 | — | — | ||||||||||||||||||||
47,700 | 40.9150 | 12/14/2014 | — | — | ||||||||||||||||||||
47,700 | 26.1500 | 10/18/2015 | — | — | ||||||||||||||||||||
Total: | 25,759 | 108,266 | 1,540 | 42,381 | ||||||||||||||||||||
(1) | All options, other than restoration options, become exercisable under the following schedule: one-third on each of the first three anniversaries of the grant. In the event an optionee exercises a non-qualified option with already-owned shares, he or she may be eligible to receive restoration options, if at a time of exercise an election was made to restore the exercised options. Restoration options contain the same expiration dates and other terms as the options they replace except that they have an exercise price per share equal to the fair market value of the common stock on the date the restoration option is granted and become exercisable in full six months after they are granted or, if sooner, one month before the end of the remaining term of the options they replace. | |
(2) | The vesting dates of outstanding unexercisable stock options and unvested restricted stock and unvested premium share units at October 31, 2005 are as follows: |
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Number of | ||||||||||||||||
Unexercised or | ||||||||||||||||
Unvested | Number of | Number of | Number of | Number of | ||||||||||||
Shares Remaining | Shares Vesting | Shares Vesting | Shares Vesting | Shares Vesting | ||||||||||||
Type of | Grant | from Original | and Vesting | and Vesting | and Vesting | and Vesting | ||||||||||
Name | Award | Date | Grant | Date in 2005 | Date in 2006 | Date in 2007 | Date in 2008 | |||||||||
Daniel C. Ustian | Option | 12/10/2002 | 2,872 | 2,872 — 12/10/2005 | — | — | — | |||||||||
Premium Share Unit | 9/8/2006 | 367 | — | 367 — 9/8/2006 | — | — | ||||||||||
Option | 12/10/2002 | 33,428 | 33,428 — 12/10/2005 | — | — | — | ||||||||||
Option | 2/19/2003 | 19,367 | — | 19,367 — 2/19/2006 | — | — | ||||||||||
Option | 12/9/2003 | 88,305 | 45,036 — 12/9/2005 | 43,269 — 12/9/2006 | — | — | ||||||||||
Option | 12/9/2003 | 2,895 | 564 — 12/9/2005 | 2,331 — 12/9/2006 | — | — | ||||||||||
Option | 12/14/2004 | 136,800 | 45,600 — 12/14/2005 | 45,600 — 12/14/2006 | 45,600 — 12/14/2007 | — | ||||||||||
Option | 10/18/2005 | 136,800 | — | 45,600 — 10/18/2006 | 45,600 — 10/18/2007 | 45,600 — 10/18/2008 | ||||||||||
Robert C. Lannert | Option | 12/10/2002 | 2,872 | 2,872 — 12/10/2005 | — | — | — | |||||||||
Option | 12/10/2002 | 33,428 | 33,428 — 12/10/2005 | — | — | — | ||||||||||
Option | 12/9/2003 | 38,838 | 20,302 — 12/9/2005 | 18,536 — 12/9/2006 | — | — | ||||||||||
Option | 12/9/2003 | 2,895 | 564 — 12/9/2005 | 2,331 — 12/9/2006 | — | — | ||||||||||
Option | 12/14/2004 | 62,600 | 20,867 — 12/14/2005 | 20,866 — 12/14/2006 | 20,867 — 12/14/2007 | — | ||||||||||
Option | 10/18/2005 | 62,600 | — | 20,867 — 10/18/2006 | 20,866 — 10/18/2007 | 20,867 — 10/18/2008 | ||||||||||
Deepak T. Kapur | Option | 9/2/2003 | 4,078 | — | 4,078 — 9/2/2006 | — | — | |||||||||
Restricted Stock | 9/2/2003 | 18,000 | — | 18,000 — 9/2/2006 | — | — | ||||||||||
Premium Share Unit | 9/2/2003 | 1,961 | — | 1,961 — 9/2/2006 | — | — | ||||||||||
Option | 12/9/2003 | 27,138 | 13,569 — 12/9/2005 | 13,569 — 12/9/2006 | — | — | ||||||||||
Option | 12/9/2003 | 4,662 | 2,331 — 12/9/2005 | 2,331 — 12/9/2006 | — | — | ||||||||||
Option | 12/14/2004 | 47,700 | 15,900 — 12/14/2005 | 15,900 — 12/14/2006 | 15,900 — 12/14/2007 | — | ||||||||||
Option | 10/18/2005 | 47,700 | 15,900 — 10/18/2006 | 15,900 — 10/18/2007 | 15,900 — 10/18/2008 | |||||||||||
Pamela J. Turbeville | Option | 12/10/2002 | 2,872 | 2,872 — 12/10/2005 | — | — | — | |||||||||
Option | 12/10/2002 | 14,295 | 14,295 — 12/10/2005 | — | — | — | ||||||||||
Option | 12/9/2003 | 17,705 | 9,736 — 12/9/2005 | 7,969 — 12/9/2006 | — | — | ||||||||||
Option | 12/9/2003 | 2,895 | 564 — 12/9/2005 | 2,331 — 12/9/2006 | — | — | ||||||||||
Option | 12/14/2004 | 30,900 | 10,300 — 12/14/2005 | 10,300 — 12/14/2006 | 10,300 — 12/14/2007 | — | ||||||||||
Restoration Option | 9/16/2005 | 11,009 | — | 11,009 — 3/16/2006 | — | — | ||||||||||
Restoration Option | 9/16/2005 | 10,331 | — | 10,331 — 3/16/2006 | — | — | ||||||||||
Option | 10/18/2005 | 30,900 | — | 10,300 — 10/18/2006 | 10,300 — 10/18/2007 | 10,300 — 10/18/2008 | ||||||||||
John J. Allen | Option | 12/10/2002 | 2,872 | 2,872 — 12/10/2005 | ||||||||||||
Premium Share Unit | 1/31/2003 | 100 | — | 100 — 1/31/2006 | — | — | ||||||||||
Premium Share Unit | 8/15/2003 | 215 | — | 215 — 8/15/2006 | — | — | ||||||||||
Premium Share Unit | 1/7/2004 | 235 | — | 117 — 1/7/2006 | 118 — 1/7/2007 | — | ||||||||||
Premium Share Unit | 3/18/2004 | 403 | — | 201 — 3/18/2006 | 202 — 3/18/2007 | — | ||||||||||
Premium Share Unit | 5/26/2005 | 587 | — | 195 — 5/26/2006 | 196 — 5/26/2007 | 196 — 5/26/2008 | ||||||||||
Option | 12/10/2002 | 3,061 | 3,061 — 12/10/2005 | — | — | — | ||||||||||
Option | 12/9/2003 | 4,038 | 2,902 — 12/9/2005 | 1,136 — 12/9/2006 | — | — | ||||||||||
Option | 12/9/2003 | 2,895 | 564 — 12/9/2005 | 2,331 — 12/9/2006 | — | — | ||||||||||
Option | 12/14/2004 | 47,700 | 15,900 — 12/14/2005 | 15,900 — 12/14/2006 | 15,900 — 12/14/2007 | — | ||||||||||
Option | 10/18/2005 | 47,700 | — | 15,900 — 10/18/2006 | 15,900 — 10/18/2007 | 15,900 — 10/18/2008 |
Option Awards | Stock Awards | |||||||||||||||
Number of | Number of | |||||||||||||||
Shares Acquired | Value Realized | Shares Acquired | Value Realized | |||||||||||||
Name | on Exercise (#) | Upon Exercise ($) | on Vesting (#) | Upon Vesting ($) | ||||||||||||
Daniel C. Ustian(1) | — | — | 1,629 | 53,194 | ||||||||||||
Robert C. Lannert(2) | 47,205 | 657,040 | — | — | ||||||||||||
Deepak T. Kapur(3) | — | — | 19,959 | 641,283 | ||||||||||||
Pamela J. Turbeville(4) | 47,330 | 320,323 | — | — | ||||||||||||
John J. Allen(5) | — | — | 630 | 23,719 |
(1) | Upon the vesting of premium share units, Mr. Ustian acquired 1,262 shares with a market price of $31.99 on April 16, 2005, and 367 shares with a market price of $34.94 on September 8, 2005. The premium share units will be delivered to Mr. Ustian in the form of common stock within 10 days after he terminates employment. |
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(2) | Mr. Lannert exercised 10,905 stock options on December 21, 2004, with an exercise price of $39.92 and a market price of $40.57. He exercised 36,300 stock options on December 22, 2004, through a restoration transaction with an exercise price of $26.385 and a market price of $44.29. | |
(3) | Mr. Kapur acquired 19,959 shares with a market price of $32.13 on September 2, 2005, upon the lapse of the restrictions on 18,000 shares of restricted stock and 1,959 premium share units. The premium share units will be delivered to Mr. Kapur in the form of common stock within 10 days after he terminates employment. | |
(4) | Ms. Turbeville exercised 19,966 stock options on March 15, 2005 through a restoration transaction with an exercise price of $40.4063 and a market price of $42.07. She exercised 14,091 stock options on September 15, 2005 through a restoration transaction with an exercise price of $21.22 and a market price of $33.97. She exercised 13,273 stock options on September 15, 2005 through a restoration transaction with an exercise price of $25.875 and a market price of $33.97. | |
(5) | Upon the vesting of premium share units, Mr. Allen acquired 117 shares with a market price of $40.43 on January 7, 2005; 99 shares with a market price of $38.92 on January 31, 2005; 200 shares with a market price of $39.80 on March 18, 2005; and 214 shares with a market price of $33.53 on August 15, 2005. The premium share units will be delivered to Mr. Allen in the form of common stock within 10 days after he terminates employment. |
• | International Truck and Engine Corporation Retirement Plan for Salaried Employees (RPSE). The RPSE is a funded and tax qualified retirement program that covered approximately 1,700 eligible employees as of December 31, 2004. The plan provides benefits primarily based on a formula that takes into account the employee’s years of service, final average earnings and a percentage of final average earnings per years of service (accrual rates). The table below summarizes the accrual rates under the RPSE. |
Prior to 1989 | After 1988 | Maximum | ||||||||||
Rate of Accrual per Year of Service | 2.4 | % | 1.7 | % | 60 | % |
• | International Truck and Engine Corporation Managerial Retirement Objective Plan (MRO). We offer the MRO to approximately 300 eligible managers and executives. The MRO provides for retirement benefits not covered by or amounts above those under our tax-qualified pension plan (RPSE). The |
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MRO is unfunded and is not qualified for tax purposes. Benefits payable under this program are equal to the excess of (1) the amount that would be payable in accordance with the terms of the RPSE, disregarding the limitations imposed under the Internal Revenue Code over (2) the retirement benefit actually payable under the RPSE, taking such IRS limitations into account. Additionally, AI Plan payments are included in the definition of eligible compensation for MRO purposes while AI Plan payments are not included in the determination of the RPSE benefits. During 1999 and 2000, the Board of Directors reviewed the AI Plan compensation arrangements. As a result of this review, changes were made in the incentive compensation program and at the same time limitations were imposed on the amount of annual compensation payments that may be recognized for purposes of determining the executive’s MRO benefits. Commencing with payments made after 1999, only a fraction of the AI Plan compensation paid is considered when determining final average compensation and such adjusted AI Plan compensation is subject to a cap determined as a percentage of the executive’s annualized base salary. The fraction and the cap depend on the executive’s organization level in the company. Benefits under the MRO are payable at the same time and in the same manner as the RPSE. |
• | International Truck and Engine Corporation Supplemental Executive Retirement Plan (SERP). The SERP is a recruiting tool designed as a pension supplement to attract key executives who would otherwise suffer a reduction in retirement income as a result of a mid- career employment change. Executives eligible for the program are those that meet a certain job classification on their date of hire. The SERP is unfunded and is not qualified for tax purposes. An eligible executive’s benefit under the SERP is equal to a percentage of his or her final average compensation. The final average compensation is computed similarly to that in the MRO plan. The following table summarizes the determination of the total percentage of final average compensation as the sum of the accrual rates. |
Up to | Beyond | |||||||
Age 55 | Age 55 | |||||||
Each Year of Age | 1/2 | % | 1 | % | ||||
Each Year of Service | 1/2 | % | 1 | % |
• | Other Retirement Income Programs. Any employee not represented by a labor union and who was hired on or after January 1, 1996 will not participate in any defined benefit pension plan sponsored by us. His or her primary retirement income is derived from age-weighted employer contributions into a 401(k) plan account. Additionally, for those individuals whose employer contributions would be limited by the Internal Revenue Code, the Supplemental Retirement Accumulation Plan provides for contributions in excess of the Internal Revenue Code limitations. This plan is described in more detail on page 210 in the Nonqualified Deferred Compensation section. |
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Year Ending October 31, 2005
Number of | ||||||||||
Years of | Present Value | |||||||||
Credited | of Accumulated | |||||||||
Named Executive Officers | Plan Name | Service | Benefits(1) | |||||||
Daniel C. Ustian | International Truck and Engine Corporation Retirement Plan for Salaried Employees | 32.7 | 705,246 | |||||||
International Truck and Engine Corporation Managerial Retirement Objective Plan | 32.7 | 2,586,501 | ||||||||
Robert C. Lannert(2) | International Truck and Engine Corporation Retirement Plan for Salaried Employees | 42.6 | 1,202,840 | |||||||
International Truck and Engine Corporation Managerial Retirement Objective Plan | 42.6 | 4,006,400 | ||||||||
Deepak T. Kapur | International Truck and Engine Corporation Supplemental Executive Retirement Plan | 2.4 | 1,022,652 | |||||||
Pamela J. Turbeville | International Truck and Engine Corporation Supplemental Executive Retirement Plan | 7.6 | 805,625 | |||||||
John J. Allen | International Truck and Engine Corporation Retirement Plan for Salaried Employees | 25.8 | 392,999 | |||||||
International Truck and Engine Corporation Managerial Retirement Objective Plan | 25.8 | 253,087 |
(1) | The accumulated benefit is based on service and earnings (defined as base compensation and AI Plan compensation), if any and if applicable, considered by the plans for the period through October 31, 2005. The present value has been calculated assuming the named executive begins receiving benefits at the earliest retirement age whereupon they will receive unreduced pension benefits (in general this is age 62). Also, the benefit is assumed payable under the available forms of annuity consistent with the assumptions as described in Note 12,Postretirement benefitsto this Annual Report. As described in such note, the discount rate is 5.5% for the RPSE and 5.6% for the MRO and SERP. The post-retirement mortality assumption is based on the 1983 Group Annuity Mortality Table for males and females without margins. Also, in accordance with the assumptions in Note 12, there is no pre-retirement mortality assumed in the calculation of the SERP present values. The values above are inclusive of any court orders directing payments to an alternate payee. | |
(2) | In 2002, in order to facilitate and assist in management transition, Mr. Lannert agreed to continue as a director and employee of Navistar, until his planned retirement at normal retirement age, which is age 65. In exchange for this consideration, Mr Lannert’s benefit under the MRO will be calculated based on his highest consecutive 60 months of base salary plus the highest five awards under the AI Plan, in each case within the 10-year period prior to his retirement date. |
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Year Ending October 31, 2005
Executive | Navistar | |||||||||||||||
Contributions Last | Contributions Last | Aggregate Earnings | Aggregate Balance | |||||||||||||
Named Executive Officers(1) | Year | Year(2) | Last Year(2) | as of Last Year End(3) | ||||||||||||
Daniel C. Ustian | n/a | 0 | (224,327 | ) | 828,655 | |||||||||||
Robert C. Lannert(4) | n/a | 0 | 892,630 | 447,200 | ||||||||||||
Deepak T. Kapur(5)(6) | n/a | 25,639 | (42,202 | ) | 189,026 | |||||||||||
Pamela J. Turbeville(5)(6) | n/a | 80,128 | (23,560 | ) | 190,573 | |||||||||||
Jack J. Allen | n/a | 16,154 | (40,327 | ) | 165,120 |
(1) | All named executive officers participate in the Executive Stock Ownership Program and are eligible to acquire PSUs. Only Mr. Kapur and Ms. Turbeville participate in the SRAP. |
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(2) | Our contributions represent the sum of any notional contribution credits to the SRAP during the year and the value, based on our common stock share price at years end, of the PSUs granted during the year. “Aggregate Earnings” represent the notional interest credits during the year for participants in the SRAP, if applicable, plus the change in value from the beginning of the year to the end of the year in the PSUs held by each named executive officer. | |
(3) | The “Aggregate Balance as of Last Year End” consists of the sum of each named executive officer’s Notional Account Balance in the SRAP at the end of the year and the value at year end of the outstanding PSUs. | |
(4) | During last year, we settled 131,563 DSUs owned by Mr Lannert by delivering the DSUs in the form of shares of our common stock. The DSUs were originally acquired by Mr. Lannert in connection with a series of 11 restoration stock option exercises completed on December 21, 2001. The value of the DSU on the date of original issuance was based on a share price of $42.675. | |
(5) | The SRAP contribution credits in the “Navistar Contributions Last Year” column for Mr. Kapur and Ms. Turbeville are the opening account balances on the effective date of the SRAP. | |
(6) | For the SRAP, “Aggregate Earnings Last Year” is the interest credited to each named executive officer from the inception of the SRAP until the end of the year at a 7.5% interest crediting rate. Please refer to the Summary Compensation table on page 201 of this report for the above-market portion of those interest payments in 2005. |
• | voluntary termination | |
• | involuntary for-cause termination | |
• | retirement and early retirement | |
• | involuntary not-for-cause termination | |
• | good reason termination | |
• | termination related to a change in control | |
• | termination in the event of disability or death |
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• | Voluntary and Involuntary (For Cause) Termination: A named executive officer may terminate his or her employment at any time and we may terminate a named executive officer at any time pursuant to the “at will” employment arrangement. We are not obligated to provide the executive with any additional or special compensation or benefits upon a voluntary termination by the executive or involuntary (for cause) termination by us. All compensation, bonuses, benefits, and perquisites cease upon a voluntary termination by the executive or involuntary (for cause) termination by us. In general, in the event of either such termination, a named executive officer would: |
° | Be paid the value of unused vacation; | |
° | Not be eligible for an annual incentive payment if the termination occurred prior to year end or if the termination occurred after year end and prior to the payment date; | |
° | Be able to exercise vested stock options for three months following a voluntary termination; | |
° | Forfeit any unvested stock options; and | |
° | Forfeit any unvested restricted stock. |
• | Retirement and Early Retirement: If a named executive officer terminates employment due to retirement, then the officer would generally be eligible to receive: |
° | The value of unused vacation; | |
° | Monthly income from any defined benefit pension plans, both tax-qualified and non-tax qualified, that the executive participated in and solely, to the extent provided, under the terms of such plans; and | |
° | Lump sum distributions from any defined contribution plans, both tax-qualified and non-tax qualified, that the executive participated in and solely, to the extent provided, under the terms of such plans. |
• | Involuntary Not-For-Cause Termination or Good Reason Termination: If the employment of a named executive officer is terminated due to either an involuntary, not-for-cause termination by us or a good reason (as defined below), termination by the executive, then the officer would generally be eligible to receive: |
° | The Severance Payment; | |
° | Twelve months of continued health insurance and life insurance; | |
° | Outplacement counseling; | |
° | The value of unused vacation; | |
° | The right to exercise vested stock options for three months; and | |
° | upon meeting certain conditions, an executive participating in a defined benefit pension plan, both tax-qualified or non-tax-qualified, will continue to grow into eligibility to retire early under each plan’s early retirement provisions for active employees but solely to the extent provided under the terms of such plans. |
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• | Termination Related to a Change in Control: If the employment of a named executive officer is terminated in the event of a change in control, the executive officer would generally be eligible to receive: |
° | The Change in Control Payment; | |
° | Twelve months of the flexible perquisite payment; | |
° | Thirty six months of continued health insurance and life insurance coverage; | |
° | Outplacement counseling; | |
° | Reimbursement of any excise tax imposed by Section 4999 of the Internal Revenue Code and any taxes on the reimbursement, generally referred to as an Internal Revenue Code Section 280Ggross-up; | |
° | The value of unused vacation; | |
° | Acceleration of the exercisability of options that would otherwise have vested over a period of three years from the date of change in control had the executive continued employment for that period; and | |
° | The value of any non-tax-qualified pension plan that the executive participates in payable in a single lump sum payment. The value is determined by assuming the executive has three additional years of service and is three years older at the time of the change in control. This single sum payment is in addition to the right to accrued benefits under the non-tax-qualified plan. (See below for more detail). |
• | Disability and Death: |
° | If a named executive officer is disabled and is prevented from working for pay or profit in any job or occupation, he or she may be eligible for Navistar’s “Non-Represented Employee Disability Benefit Program” which provides for short-term and long-term disability (LTD) benefits. Our named executive officers are not covered under a separate program. While under an LTD, an executive is eligible for 60 percent of his or her base salary reduced (or offset) by other sources of income, such as social security disability. In the event of a total and permanent disability as defined by this program, a named executive officer may exercise outstanding stock options any time within three years after such termination. In the event a named executive officer has restricted stock, or restricted stock units, the restricted stock or stock units will continue to vest according to the terms of the grant. In addition, while classified as disabled, the executive continues to accrue benefits under the defined benefit plans. | |
° | In the event of death, a beneficiary of the named executive officer may exercise an outstanding stock option at any time within a period of two years after death. Restricted stock or stock units will vest as of the date of death and all restrictions lapse and the restricted stock or stock units will be immediately transferable to the named executive officer’s beneficiary or estate. The named executive officer’s beneficiary will also be eligible for a pro-rata annual incentive payment based upon the number of months the named executive officer was an active employee during the year. The executive’s beneficiary will also receive surviving spouse benefits under the defined benefit and defined contribution plans solely to the extent provided in those plans. |
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Summary of Cash Severance — Estimated Value
Voluntary | Involuntary | |||||||||||
Termination & | not-for-Cause | Termination Related | ||||||||||
Named Executive | Involuntary for | Termination or Good | to a Change in | |||||||||
Officer | Cause Termination | Reason Termination(1) | Control(2) | |||||||||
Daniel C. Ustian | — | $ | 5,300,000 | $ | 18,747,071 | |||||||
Robert C. Lannert(3) | — | $ | 3,091,390 | $ | 13,082,313 | |||||||
Deepak T. Kapur | — | $ | 2,337,500 | $ | 5,993,155 | |||||||
Pamela J. Turbeville | — | $ | 1,218,750 | $ | 6,048,032 | |||||||
John J. Allen | — | $ | 1,700,000 | $ | 7,661,725 |
(1) | Calculation as defined in the ESA which is 150% to 200% of the sum of the executive’s annual base salary plus annual target bonus plus a pro rata portion of the annual target bonus. | |
(2) | Change in Control calculation as defined in the ESA which is 300% of the sum of the executive’s annual base salary plus annual target bonus plus a pro rata portion of the annual target bonus. This amount also includes the extra non-qualified pension payment as disclosed in the “Summary of Lump Sum Payable in Addition to Payments under the Nonqualified Pension Plans under a Change in Control on October 31, 2005” plus the Internal Revenue Code Section 280G taxgross-up, if any. | |
(3) | Mr. Lannert experienced an “Involuntary Not-For-Cause Termination” on October 31, 2007. In accordance with Internal Revenue Code Section 409A, his cash severance payment of $3,091,390 will be delayed six months following his termination date. |
Estimated Value of Equity Incentives Held by Executives
Named Executive | Vested Stock | Unvested Stock | ||||||||||
Officer | Options | Options | Restricted Stock | |||||||||
Daniel C. Ustian | $ | 457,393 | $ | 297,466 | — | |||||||
Robert C. Lannert | — | $ | 126,963 | — | ||||||||
Deepak T. Kapur | — | $ | 65,349 | $ | 495,360 | |||||||
Pamela J. Turbeville | $ | 208,606 | $ | 61,818 | — | |||||||
John J. Allen | $ | 6,735 | $ | 72,083 | — |
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If a Change in Control Had Occurred on October 31, 2005
Lump Sum | ||||
Named Executive Officer | Payment | |||
Daniel C. Ustian | $ | 5,151,661 | ||
Robert C. Lannert | $ | 5,004,664 | ||
Deepak T. Kapur | $ | 2,656,155 | ||
Pamela J. Turbeville | $ | 1,760,658 | ||
John J. Allen | $ | 629,918 |
Unrelated to a Change in Control
Incremental Health | Incremental Life | |||||||||||
Named Executive | Benefits for 12 | Insurance Benefit | Outplacement | |||||||||
Officer | Months(1) | for 12 Months(2) | Counseling(3) | |||||||||
Daniel C. Ustian | $ | 7,936 | $ | 14,927 | $ | 27,000 | ||||||
Robert C. Lannert | $ | 3,929 | $ | 24,832 | $ | 27,000 | ||||||
Deepak T. Kapur | $ | 11,744 | $ | 10,043 | $ | 27,000 | ||||||
Pamela J. Turbeville | $ | 3,725 | $ | 5,858 | $ | 27,000 | ||||||
John J. Allen | $ | 10,911 | $ | 3,220 | $ | 27,000 |
(1) | These amounts represent the company’s cost and does not include the portion that the officer would pay for this 12 month extension of coverage. As a comparison, non-represented employees that are eligible for severance benefits under the company’s Income Protection Plan are also eligible for a 12 month extension of coverage. | |
(2) | Navistar-provided life insurance at five times base salary. Coverage may continue for 12 months for a termination following an involuntary not-for-cause termination or good reason termination. | |
(3) | This represents our cost for executive level outplacement counseling and services. As a comparison, non-represented employees that are eligible for severance benefits under the Income Protection Plan are also eligible for outplacement counseling and services, however, the duration of services vary by organization level. |
Incremental Health | Incremental Life | |||||||||||
Named Executive | Benefits for 36 | Insurance Benefit | Outplacement | |||||||||
Officer | Months(1) | for 36 Months(2) | Counseling(3) | |||||||||
Daniel C. Ustian | $ | 23,808 | $ | 44,782 | $ | 27,000 | ||||||
Robert C. Lannert | $ | 11,786 | $ | 74,497 | $ | 27,000 | ||||||
Deepak T. Kapur | $ | 35,232 | $ | 30,129 | $ | 27,000 | ||||||
Pamela J. Turbeville | $ | 11,175 | $ | 17,573 | $ | 27,000 | ||||||
John J. Allen | $ | 32,732 | $ | 9,660 | $ | 27,000 |
(1) | These amounts represent the company’s cost and does not include the portion that the officer would pay for this 36 month extension of coverage. | |
(2) | Navistar-provided life insurance at five times base salary. Coverage may continue for 36 months for a termination following a Change in Control. | |
(3) | This represents our cost for executive level outplacement counseling and services. As a comparison, non-represented employees that are eligible for severance benefits under the Income Protection Plan are also eligible for outplacement counseling and services, however, the duration of services vary by organization level. |
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Fees Earned | ||||||||||||||||||||
or Paid | All Other | |||||||||||||||||||
in Cash | Stock Awards | Option Awards | Compensation | Total | ||||||||||||||||
Name | ($) | ($)(1)(2)(3)(4) | ($)(5)(6) | ($) | ($) | |||||||||||||||
Y. Marc Belton | 91,512 | 14,969 | 74,134 | — | 180,615 | |||||||||||||||
Eugenio Clariond | 84,012 | 14,969 | 74,134 | — | 173,115 | |||||||||||||||
John D. Correnti | 55,500 | 62,695 | 74,134 | — | 192,329 | |||||||||||||||
Dr. Abbie J. Griffin | 102,012 | 14,969 | 74,134 | — | 191,115 | |||||||||||||||
Michael N. Hammes | 108,762 | 14,969 | 74,134 | — | 197,865 | |||||||||||||||
James H. Keyes | — | 139,100 | 74,134 | — | 213,234 | |||||||||||||||
Southwood J. Morcott | 103,512 | 14,969 | 74,240 | — | 192,721 | |||||||||||||||
David McAllister(7)(8) | — | — | — | — | — | |||||||||||||||
William F. Patient(9) | 13,535 | 39,813 | 73,620 | — | 126,968 |
(1) | Effective April 1, 2005, each non-employee director received 409 shares of restricted stock in lieu of their 1st quarter annual retainer, except for David McAllister, who as noted in the footnote under his name does not receive compensation for serving on the Board, and William F. Patient who received a pro-rated amount of 372 shares due to his retirement from the Board on March 23, 2005. The restricted stock vested immediately, however the shares are restricted from resale for as long as the director remains a member of the Board. The dollar value of the restricted stock was based on the closing price of our common stock on the date the shares were granted. | |
(2) | Reflects the expense for stock awards in accordance with FAS 123(R) as required by the new proxy disclosure guidelines. Due to the delay of our 2005 financial results, although not required, the company felt it was prudent and best practice to follow the new proxy disclosure requirements for 2005 for the following reasons: (a) it was anticipated that years 2006 and 2007, which must be filed under the new rules, would be filed within months after 2005 and (b) the majority of companies would have filed under the new requirements by the time we file 2005. With this decision, this table reflects the rules under FAS 123(R). The company did not adopt FAS 123(R) until 2006. Prior to this time, the company used APB 25 to value its stock awards. The actual expense recognized for financial statement reporting purposes for the year ended October 31, 2005, in accordance with APB 25, may differ from the FAS 123(R) disclosure in this table. See the accompanying consolidated financial statements in this report regarding assumptions underlying valuation of equity awards. The expense recognized for stock awards in 2005 also represents the grant date fair value of the awards as calculated under FASB Statement No. 123(R). | |
(3) | Under our Non-Employee Directors Deferred Fee Plan (the “Deferred Fee Plan”), John D. Correnti, James H. Keyes and William F. Patient elected to defer some or all of their quarterly retainer fees and meeting fees for calendar year 2005 in restricted stock units. The amount of restricted stock deferred has been credited as stock units in an account under each of their names at the then current market price of our common stock. The respective units issued during 2005 will be distributed to Mr. Correnti and Mr. Keyes within 60 days after their separation from service with us. Mr. Correnti elected to defer all of his quarterly retainer fee and acquired a total of 1,757 deferred stock units. Mr. Patient elected to have his units issued annually over a two year period upon his separation from service with us. Mr. Keyes and Mr. Patient elected to defer all of their retainer fees and meeting fees. Mr. Keyes acquired a total of 3,959 deferred stock units. Mr. Patient, who due to his impending retirement from the Board on March 23, 2005, participated in the Deferred Fee Plan only through December 31, 2005, acquired a total of 610 deferred stock units. The dollar value of the deferred stock units was based on the closing price of our common stock on the date the shares were earned. | |
(4) | The aggregate number of stock awards outstanding for each non-employee director as of October 31, 2005, including deferred stock units owned by Mr. Correnti, Mr. Keyes and Mr. Patient, is indicated in the table below. All of these stock awards and deferred units are 100% vested. |
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Stock | ||||
Name | Awards (#) | |||
Y. Marc Belton | 1,959 | |||
Eugenio Clariond | 925 | |||
John D. Correnti | 10,020 | |||
Dr. Abbie J. Griffin | 2,119 | |||
Michael N. Hammes | 2,979 | |||
James H. Keyes | 8,464 | |||
Southwood J. Morcott | 1,799 | |||
William F. Patient | 13,013 |
(5) | Reflects the expense for stock option awards in accordance with FAS 123(R) as required by the new proxy disclosure guidelines. and may, therefore, include grants made in prior years. Due to the delay of our 2005 financial results, although not required, the company felt it was prudent and best practice to follow the new proxy disclosure requirements for 2005 for the following reasons: (a) it was anticipated that years 2006 and 2007, which must be filed under the new rules, would be filed within months after 2005 and (b) the majority of companies have filed under the new requirements by the time we file 2005. The company did not adopt FAS 123(R) until 2006. Prior to this time, the company used APB 25 to value its stock options. The actual expense recognized for financial statement reporting purposes for the year ended October 31, 2005, in accordance with APB 25, will differ from the FAS 123(R) disclosure in this table. See the accompanying consolidated financial statements in this report regarding assumptions underlying valuation of equity awards. The dollar amount includes the value recognized for options granted during 2005 and for options granted prior to this time. The stock options granted prior to October 18, 2005 vested as to 100% of the shares one year after the date of grant. Stock options granted on or after October 18, 2005 vest ratably over a three year period (1/3 per year on each anniversary of the date of grant so that in three years the options will be 100% vested), so long as the director remains a member of the Board. All unvested stock options are forfeited when the director ceases to be a member of the Board for any reason other than death, total and permanent disability or a qualified retirement. David McAllister, as noted in the footnote under his name, did not receive stock options. | |
(6) | The aggregate number of stock options outstanding for each non-employee director as of October 31, 2005 is indicated in the table below. |
Grant Date Fair | ||||||||||||
Total Stock Option | Option Awards | Value of Option | ||||||||||
Awards Outstanding at | Granted During | Awards Granted | ||||||||||
Name | 2005 Year End (#) | 2005 (#)(a) | During Year ($)(b) | |||||||||
Y. Marc Belton | 23,000 | 8,000 | 117,120 | |||||||||
Eugenio Clariond | 16,000 | 8,000 | 117,120 | |||||||||
John D. Correnti | 31,000 | 8,000 | 117,120 | |||||||||
Dr. Abbie J. Griffin | 18,500 | 8,000 | 117,120 | |||||||||
Michael N. Hammes | 16,500 | 8,000 | 117,120 | |||||||||
James H. Keyes | 16,000 | 8,000 | 117,120 | |||||||||
Southwood J. Morcott | 18,500 | 8,000 | 117,120 | |||||||||
William F. Patient | 12,500 | 4,000 | 73,880 |
(a) | Stock option awards granted to our non-employee directors were previously granted in the first quarter of each year. In the summer of 2005, the Compensation Committee approved a change in the timing of the annual stock option grant from the first quarter to the fourth quarter of each year (which awards are made in respect of the following year). This policy change resulted in two grants in 2005. A grant of 4,000 options made on December 14, 2004, which was the normal 2005 grant, and a grant of 4,000 options made on October 18, 2005, which was for the 2006 grant. We consider the award of two stock option grants in the same year as an anomaly for 2005. | |
(b) | The grant date fair value, as calculated under FAS 123(R), for the stock option awards granted on December 14, 2004, was $73,880 and for the stock option awards granted on October 18, 2005, was $43,240. | |
(7) | At the request of the UAW (the organization which elected Mr. McAllister to the Board), all of the cash portion of Mr. McAllister’s annual retainer and attendance fees (together with a cash amount equal to the value of the restricted stock which otherwise would be payable to Mr. McAllister) is contributed to a trust created in 1993 pursuant to a restructuring of our retiree health care benefits. Also at the request of the UAW, Mr. McAllister did not receive stock options. The dollar amount of the cash compensation contributed to the trust during 2005 was $114,000. | |
(8) | Effective June 23, 2006, at the request of the UAW, Mr. McAllister was replaced on the Board by Dennis D. Williams. | |
(9) | In compliance with the Board’s retirement policy, Mr. Patient retired on March 23, 2005, the first Annual Meeting of stockholders after he reached the age of 70. |
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Annual Retainer: | $60,000 (25% of each director’s annual retainer is paid in the form of restricted stock each year.) | |
Attendance Fees: | $1,500 for each Board or Committee meeting attended (including any telephone meetings), and $1,500 per day for any special services performed at the request of a Committee Chair and/or Chairman of the Board. We also reimburse directors for expenses related to attendance. | |
Committee Chairman Additional Annual Retainer: | $9,000 for the Chairman of Compensation, Nominating and Governance and Finance Committees, and $12,000 for the Chairman of the Audit Committee. | |
Committee Member Additional Annual Retainer: | $3,000 for members of the Audit Committee. | |
Stock Options: | 4,000 shares annually. (The exercise price of these options is equal to the fair market value of our common stock on the date of grant. The options expire 10 years after the grant date.) | |
Other Benefits: | We also pay the premiums on directors’ and officers’ liability insurance policies covering the directors and reimburses directors for expenses related to attending director continuing education seminars. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters |
(c) | ||||||||||||
(a) | Number of Securities | |||||||||||
Number of Securities | (b) | Remaining Available for | ||||||||||
to be Issued | Weighted-Average | Future Issuance Under | ||||||||||
Upon Exercise | Exercise Price of | Equity Compensation Plans | ||||||||||
of Outstanding Options, | Outstanding Options, | (Excluding Securities | ||||||||||
Plan Category(1) | Warrants and Rights | Warrants and Rights | Reflected in Column(a)) | |||||||||
Equity compensation plans approved by stockholders | 4,930,937 | (2) | $ | 34.5151 | (3) | 1,208,967 | (4) | |||||
Equity compensation plans not approved by stockholders(5) | 3,076,322 | (6) | $ | 34.5236 | (7) | — | (8) | |||||
Total | 8,007,259 | N/A | 1,208,967 |
(1) | This table does not include information regarding our 401(k) Plans. Our 401(k) plans consist of the following: International Truck and Engine Corporation 401(k) Retirement Savings Plan; the IC Corporation 401(k) Plan; International Truck and Engine Corporation 401(k) Plan for Represented Employees; and International Truck and Engine Corporation Retirement Accumulation Plan. As of October 31, 2005, there were 936,110 shares of our common stock outstanding and held in these plans. | |
(2) | This number includes stock options granted under our 1994 Performance Incentive Plan (the “1994 Plan”) and restoration stock options and premium share units (as described in the Executive Stock Ownership Program discussed below) granted under our 2004 Performance Incentive Plan (the “2004 Plan”). Prior to February 17, 2004, restoration stock options were granted under our 1998 Supplemental Stock Plan(a non-shareowner approved plan), as supplemented by the Restoration Stock Option Program. Under the Restoration Stock Option Program generally one may exercise vested options by presenting shares that have a total market value equal to the option price times the number of options. Restoration options are then granted at the market price in an amount equal to the number of mature shares that were used to exercise the original option, plus the number of shares that are withheld for the required tax liability. Participants who own non-qualified stock options that were vested prior to December 31, 2004 may also defer the receipt of shares of common stock due in connection with a restoration stock option exercise of these options. Participants who elect to defer receipt of these shares will receive deferred stock units. The deferral feature is not available for non-qualified stock options that vest on or after January 1, 2005. Stock options awarded to employees for the purchase of common stock from the 1994 Plan and the 2004 Plan were granted at the fair market value of the stock on the date of grant, generally have a10-year contractual life and generally become exercisable one-third on the first anniversary of grant, one-third on the second anniversary and one-third on the third anniversary. Awards of restricted stock granted under the 1994 Plan and the 2004 Plan were established by the Board of Directors or committee thereof at the time of issuance. The 1994 Plan expired on December 16, 2003, and as such no further awards may be granted under the 1994 Plan. | |
(3) | Deferred share units (DSUs) and premium share units (PSUs) granted under such plans do not have an exercise price and are settled only for shares of our common stock on a one-for-one basis. These awards have been disregarded for purposes of computing the weighted-average exercise price. For more information on DSUs and PSUs see the discussion under the paragraph below entitled “The Ownership Program.” | |
(4) | Our 2004 Plan was approved by the Board of Directors and the independent Compensation and Governance Committee on October 15, 2003, and, subsequently by our stockholders on February 17, 2004. Our 2004 Plan was subsequently amended on April 21, 2004, March 23, 2005 and December 12, 2005. The 2004 Plan replaced, on a prospective basis, our 1994 Plan, the 1998 Supplemental Stock Plan, both of which expired on December 16, 2003, and our 1998 Non-Employee Director Stock Option Plan (collectively, the “Prior Plans”). A total of 3,250,000 shares of common stock were reserved for awards under the 2004 Plan. Shares subject to awards under the 2004 Plan, or the Prior Plans after February 17, 2004, that are cancelled, expired, forfeited, settled in cash, tendered to satisfy the purchase price of an award, withheld to satisfy tax obligations or otherwise terminated without a delivery of shares to the participant again become available for awards. This number represents the remaining number of unused shares from the year ended October 31, 2005, which are available for issuance for the following year. | |
The Non-Employee Directors Restricted Stock Plan, our other shareowner approved plan, requires that one-fourth of the annual retainer to non-employee directors be paid in the form of restricted shares of common stock. The Non-Employee Directors Restricted Stock Plan expires on December 31, 2005. There is no limit on the number securities remaining for issuance under the Non-Employee Directors Restricted Stock Plan. | ||
(5) | The following plans were not approved by our stockholders: The 1998 Interim Stock Plan (the “Interim Plan”); The 1998 Supplemental Stock Plan (as supplemented by the Restoration Stock Option Program (the “Supplemental Plan”)); The Executive Stock Ownership Program (the “Ownership Program”); The 1998 Non-Employee Director Stock Option Plan (the “Director Stock Option Plan”) |
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and The Non-Employee Directors Deferred Fee Plan (the “Deferred Fee Plan”). Below is a brief description of the material features of each plan, but in each case the information is qualified in its entirety by the text of such plans. | ||
The Interim Plan. The Interim Plan was approved by the Board of Directors on April 14, 1998. A total of 500,000 shares of common stock were reserved for awards under the Interim Plan. As of October 31, 2005, 15,520 stock option awards remain outstanding for shares of common stock reserved for issuance under the Interim Plan. Stock options awarded to employees under the Interim Plan for the purchase of common stock were granted at the fair market value of the stock on the date of grant, generally have a10-year contractual life and generally become exercisable one-third on the first anniversary of grant, one-third on the second anniversary and one-third on the third anniversary. Awards of restricted stock granted under the Interim Plan were established by the Board of Directors or committee thereof at the time of issuance. The Interim Plan is separate from and intended to supplement the 1994 Plan, which was approved by our stockholders. The Interim Plan terminated on April 15, 1999 and as such no further awards may be granted under the Interim Plan. | ||
The Supplemental Plan. The Supplemental Plan was approved by the Board of Directors on December 15, 1998. A total of 4,500,000 shares of common stock are reserved for awards under the Supplemental Plan. Stock options awarded under the Supplemental Plan were granted at the fair market value of the stock on the date of grant, generally have a10-year contractual life and generally become exercisable one-third on the first anniversary of grant, one-third on the second anniversary and one-third on the third anniversary. Awards of restricted stock granted under the Supplemental Plan are established by the Board of Directors or committee thereof at the time of issuance. As of October 31, 2005, 2,811,664 stock option awards remain outstanding for shares of common stock reserved for issuance under the Supplemental Plan. Prior to February 17, 2004 the Restoration Stock Option Program was administered under and supplemented by the Supplemental Plan. As of October 31, 2005 there were 28,536 deferred stock units outstanding under the Supplemental Plan which relate to restoration stock options. For more information on the Restoration Stock Option Program, please see the description contained in footnote 2 above. The Supplemental Plan expired December 16, 2003, and as such no further awards may be granted under the Supplemental Plan. | ||
The Ownership Program. On June 16, 1997, the Board of Directors approved the terms of the Ownership Program, and on April 17, 2001, October 15, 2002 and August 30, 2004, the Board of Directors approved certain amendments thereto. In general, the Ownership Program requires all of our officers and senior managers to acquire, by direct purchase or through salary or annual bonus reduction, an ownership interest in Navistar by acquiring a designated amount of our common stock at specified timelines. Participants are required to hold such stock for the entire period in which they are employed by Navistar. Participants may defer their cash bonus into deferred share units (DSUs). These DSUs vest immediately. There were 16,040 DSUs (which includes 3,607 DSUs granted under the 2004 PIP after February 17, 2004) outstanding as of October 31, 2005. Premium share units (PSUs) may also be awarded to participants who complete their ownership requirement on an accelerated basis. PSUs vest in equal installments on each of the first three anniversaries of the date on which they are awarded. There were 96,996 PSUs (which includes 12,611 PSUs granted under the 2004 PIP after February 17, 2004) outstanding as of October 31, 2005. Each vested DSU and PSU will be settled by delivery of one share of common stock. Such settlement will occur within ten days after a participant’s termination of employment. DSUs and PSUs are no longer granted under the Ownership Program but instead are granted under the 2004 Plan. | ||
The Director Stock Option Plan. The Director Stock Option Plan was approved by the Board of Directors on December 16, 1997, amended on December 11, 2001. A total of 250,000 shares of common stock are reserved for awards under the Director Stock Option Plan. The Director Stock Option Plan provides for an annual grant to each of our non-employee directors an option to purchase 4,000 shares of common stock. The option price in each case will be 100% of the fair market value of the common stock on the business day following the day of grant. As of October 31, 2005, 101,500 stock option awards remain outstanding for shares of common stock reserved for issuance under the Director Stock Option Plan. Stock options awarded under the Director Stock Option Plan generally become exercisable in whole or in part after the commencement of the second year of the term of the option, which term is 10 years. The optionee is also required to remain in the service of the company for at least one year from the date of grant. The Director Stock Option Plan was terminated on February 17, 2004. All future grants to non-employee directors will be issued under the 2004 Plan. | ||
The Deferred Fee Plan. Under the Deferred Fee Plan, directors may elect to receive all or a portion of their annual retainer fees (in excess of their mandatory one-fourth restricted stock grant (as discussed above)) and meeting fees in cash or restricted stock, or they may defer payment of those fees in cash (with interest) or in phantom stock units. Deferrals in the deferred stock account are valued as if each deferral was vested in common stock as of the deferral date. As of October 31, 2005, there were 22,284 outstanding deferred stock units under the Deferred Fee Plan. | ||
(6) | Includes 28,536 deferred stock units granted under the Supplemental Plan, 12,433 DSUs and 84,385 PSUs granted under the Ownership Program and 22,284 deferred stock units granted under the Deferred Fee Plan; all of which were outstanding as of October 31, 2005 under such plans. | |
(7) | Since the deferred stock units and DSUs and PSUs granted under such plans do not have an exercise price and are settled only for shares of our common stock on a one-for-one basis, these awards have been disregarded for purposes of computing the weighted-average exercise price. | |
(8) | Upon approval of the 2004 Plan by our stockholders on February 17, 2004, the Supplemental Plan and the Director Stock Option Plan were terminated, and there are no longer any shares available for issuance under these plans. There is no limit on the number of securities representing deferred share units remaining available for issuance under the Ownership Program or the Deferred Fee Plan. |
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(c) | ||||||||||||
Number of Securities | ||||||||||||
(a) | (b) | Remaining Available for | ||||||||||
Number of Securities | Weighted-Average | Future Issuance Under | ||||||||||
to be Issued Upon Exercise | Exercise Price of | Equity Compensation Plans | ||||||||||
of Outstanding Options, | Outstanding Options, | (Excluding Securities | ||||||||||
Plan Category(1) | Warrants and Rights | Warrants and Rights | Reflected in Column(a)) | |||||||||
Equity compensation plans approved by stockholders | 4,715,110 | (2) | $ | 34.5257 | (3) | 1,498,732 | (4) | |||||
Equity compensation plans not approved by stockholders(5) | 2,966,388 | (6) | $ | 34.5767 | (7) | — | (8) | |||||
Total | 7,681,498 | N/A | 1,498,732 |
(1) | This table does not include information regarding our 401(k) Plans. Our 401(k) plans consist of the following: International Truck and Engine Corporation 401(k) Retirement Savings Plan; the IC Corporation 401(k) Plan; International Truck and Engine Corporation 401(k) Plan for Represented Employees; and International Truck and Engine Corporation Retirement Accumulation Plan. As of October 31, 2006, there were 781,722 shares of common stock outstanding and held in these plans. | |
(2) | This number includes stock options granted under our 1994 Performance Incentive Plan (the “1994 Plan”) and restoration stock options and premium share units (as described in the Executive Stock Ownership Program discussed below) granted under our 2004 Performance Incentive Plan (the “2004 Plan”). Prior to February 17, 2004, restoration stock options were granted under our 1998 Supplemental Stock Plan (a non-shareowner approved plan), as supplemented by the Restoration Stock Option Program. Under the Restoration Stock Option Program, generally one may exercise vested options by presenting shares that have a total market value equal to the option price times the number of options. Restoration options are then granted at the market price in an amount equal to the number of mature shares that were used to exercise the original option, plus the number of shares that are withheld for the required tax liability. Participants who own non-qualified stock options that were vested prior to December 31, 2004 may also defer the receipt of shares of common stock due in connection with a restoration stock option exercise of these options. Participants who elect to defer receipt of these shares will receive deferred stock units. The deferral feature is not available for non-qualified stock options that vest on or after January 1, 2005. Stock options awarded to employees for the purchase of common stock from the 1994 Plan and the 2004 Plan were granted at the fair market value of the stock on the date of grant, generally have a10-year contractual life and generally become exercisable one-third on the first anniversary of grant, one-third on the second anniversary and one-third on the third anniversary. Awards of restricted stock granted under the 1994 Plan and the 2004 Plan were established by the Board of Directors or committee thereof at the time of issuance. The 1994 Plan expired on December 16, 2003, and as such no further awards may be granted under the 1994 Plan. | |
(3) | Deferred share units (DSUs) and premium share units (PSUs) granted under such plans do not have an exercise price and are settled only for shares of our common stock on a one-for-one basis. These awards have been disregarded for purposes of computing the weighted-average exercise price. For more information on DSUs and PSUs see the discussion under the paragraph below entitled “The Ownership Program.” | |
(4) | Our 2004 Plan was approved by the Board of Directors and the independent Compensation and Governance Committee on October 15, 2003, and, subsequently by our stockholders on February 17, 2004. Our 2004 Plan was subsequently amended on April 21, 2004, March 23, 2005 and December 12, 2005. The 2004 Plan replaced, on a prospective basis, our 1994 Plan, the 1998 Supplemental Stock Plan, both of which expired on December 16, 2003, and our 1998 Non-Employee Director Stock Option Plan (collectively, the “Prior Plans”). A total of 3,250,000 shares of common stock were reserved for awards under the 2004 Plan. Shares subject to awards under the 2004 Plan, or the Prior Plans after February 17, 2004, that are cancelled, expired, forfeited, settled in cash, tendered to satisfy the purchase price of an award, withheld to satisfy tax obligations or otherwise terminated without a delivery of shares to the participant again become available for awards. This number represents the remaining number of unused shares from the year ended October 31, 2006, which are available for issuance for the following year. | |
The Non-Employee Directors Restricted Stock Plan, our other shareowner approved plan, required that one-fourth of the annual retainer to non-employee directors be paid in the form of restricted shares of common stock. The Non-Employee Directors Restricted Stock Plan expired on December 31, 2005. The yearly grant of restricted shares of common stock in payment of one-fourth of the annual retainer to non-employee directors is now issued under the 2004 PIP. On October 17, 2006, the Board of Directors agreed to issue a cash award to each non-employee director in lieu of the non-employee directors’ annual stock option grant for 2006. | ||
(5) | The following plans were not approved by our stockholders: The 1998 Interim Stock Plan (the “Interim Plan”); The 1998 Supplemental Stock Plan (as supplemented by the Restoration Stock Option Program (the “Supplemental Plan”)); The Executive Stock Ownership Program (the “Ownership Program”); The 1998 Non-Employee Director Stock Option Plan (the “Director Stock Option Plan”) and The Non-Employee Directors Deferred Fee Plan (the “Deferred Fee Plan”). Below is a brief description of the material features of each plan, but in each case the information is qualified in its entirety by the text of such plans. | |
The Interim Plan. The Interim Plan was approved by the Board of Directors on April 14, 1998. A total of 500,000 shares of common stock were reserved for awards under the Interim Plan. As of October 31, 2006, 15,520 stock option awards remain outstanding for shares of common stock reserved for issuance under the Interim Plan. Stock options awarded to employees under the Interim Plan for |
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the purchase of common stock were granted at the fair market value of the stock on the date of grant, generally have a10-year contractual life and generally become exercisable one-third on the first anniversary of grant, one-third on the second anniversary and one-third on the third anniversary. Awards of restricted stock granted under the Interim Plan were established by the Board of Directors or committee thereof at the time of issuance. The Interim Plan is separate from and intended to supplement the 1994 Plan, which was approved by our stockholders. The Interim Plan terminated on April 15, 1999 and as such no further awards may be granted under the Interim Plan. | ||
The Supplemental Plan. The Supplemental Plan was approved by the Board of Directors on December 15, 1998. A total of 4,500,000 shares of common stock are reserved for awards under the Supplemental Plan. Stock options awarded under the Supplemental Plan were granted at the fair market value of the stock on the date of grant, generally have a10-year contractual life and generally become exercisable one-third on the first anniversary of grant, one-third on the second anniversary and one-third on the third anniversary. Awards of restricted stock granted under the Supplemental Plan are established by the Board of Directors or committee thereof at the time of issuance. As of October 31, 2006, 2,700,562 stock option awards remain outstanding for shares of common stock reserved for issuance under the Supplemental Plan. Prior to February 17, 2004 the Restoration Stock Option Program was administered under and supplemented by the Supplemental Plan. As of October 31, 2006 there were 28,536 deferred stock units outstanding under the Supplemental Plan which relate to restoration stock options. For more information on the Restoration Stock Option Program, please see the description contained in Note 2 above. The Supplemental Plan expired December 16, 2003, and as such no further awards may be granted under the Supplemental Plan. | ||
The Ownership Program. On June 16, 1997, the Board of Directors approved the terms of the Ownership Program, and on April 17, 2001, October 15, 2002 and August 30, 2004, the Board of Directors approved certain amendments thereto. In general, the Ownership Program requires all of our officers and senior managers to acquire, by direct purchase or through salary or annual bonus reduction, an ownership interest in Navistar by acquiring a designated amount of our common stock at specified timelines. Participants are required to hold such stock for the entire period in which they are employed by Navistar. Participants may defer their cash bonus into deferred share units (DSUs). These DSUs vest immediately. There were 16,040 DSUs (which includes 3,607 DSUs granted under the 2004 PIP after February 17, 2004) outstanding as of October 31, 2006. Premium share units (PSUs) may also be awarded to participants who complete their ownership requirement on an accelerated basis. PSUs vest in equal installments on each of the first three anniversaries of the date on which they are awarded. There were 98,179 PSUs (which includes 22,076 PSUs granted under the 2004 PIP after February 17, 2004) outstanding as of October 31, 2006. Each vested DSU and PSU will be settled by delivery of one share of common stock. Such settlement will occur within ten days after a participant’s termination of employment. DSUs and PSUs are no longer granted under the Ownership Program but instead are granted under the 2004 Plan. | ||
The Director Stock Option Plan. The Director Stock Option Plan was approved by the Board of Directors on December 16, 1997 and amended on December 11, 2001. A total of 250,000 shares of common stock are reserved for awards under the Director Stock Option Plan. The Director Stock Option Plan provides for an annual grant to each of our non-employee directors an option to purchase 4,000 shares of common stock. The option price in each case will be 100% of the fair market value of the common stock on the business day following the day of grant. As of October 31, 2006, 101,500 stock option awards remain outstanding for shares of common stock reserved for issuance under the Director Stock Option Plan. Stock options awarded under the Director Stock Option Plan generally become exercisable in whole or in part after the commencement of the second year of the term of the option, which term is 10 years. The optionee is also required to remain in the service of the company for at least one year from the date of grant. The Director Stock Option Plan was terminated on February 17, 2004. All future grants to non-employee directors will be issued under the 2004 Plan. As of March 1, 2006, we are subject to the blackout trading rules of Regulation BTR of the Securities and Exchange Commission, which prohibits a director or Section 16 officer of Navistar from acquiring or selling any equity security (other than exempt securities) during a “blackout period” (as defined in Regulation BTR). Subsequently there were no stock option grants made to officers or directors during 2006. | ||
The Deferred Fee Plan. Under the Deferred Fee Plan, directors may elect to receive all or a portion of their annual retainer fees (in excess of their mandatory one-fourth restricted stock grant (as discussed above)) and meeting fees in cash or restricted stock, or they may defer payment of those fees in cash (with interest) or in phantom stock units. Deferrals in the deferred stock account are valued as if each deferral was vested in common stock as of the deferral date. As of October 31, 2006, there were 31,734 outstanding deferred stock units under the Deferred Fee Plan. | ||
(6) | Includes 28,536 deferred stock units granted under the Supplemental Plan, 12,433 DSUs and 76,103 PSUs granted under the Ownership Program and 31,734 deferred stock units granted under the Deferred Fee Plan; all of which were outstanding as of October 31, 2006 under such plans. | |
(7) | Since the deferred stock units and DSUs and PSUs granted under such plans do not have an exercise price and are settled only for shares of our common stock on a one-for-one basis, these awards have been disregarded for purposes of computing the weighted-average exercise price. | |
(8) | Upon approval of the 2004 Plan by our stockholders on February 17, 2004, the Supplemental Plan and the Director Stock Option Plan were terminated, and there are no longer any shares available for issuance under these plans. There is no limit on the number of securities representing deferred share units remaining available for issuance under the Ownership Program or the Deferred Fee Plan. |
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Total Amount | ||||||||
and Nature of | ||||||||
Beneficial | ||||||||
Name and Address | Ownership | Percent of Class | ||||||
Harbinger Capital Partners Master Fund I, Ltd | 10,400,969 | (A)(B) | 14.78 | % | ||||
c/o International Fund Services (Ireland) Limited Third Floor, Bishop’s Square Redmond’s Hill Dublin 2, Ireland | ||||||||
Harbinger Capital Partners Special Situations Fund, L.P. | ||||||||
Philip Falcone 555 Madison Avenue, 16th Floor New York, New York 10022 | ||||||||
Harbinger Capital Partners Offshore Manager, L.L.C | ||||||||
HMC Investors, L.L.C. Harbert Management Corporation Raymond J. Harbert Michael D. Luce One Riverchase Parkway South Birmingham, Alabama 35244 | ||||||||
International Truck and Engine Corporation | 7,755,030(C | ) | 10.30 | % | ||||
Non-contributory Retirement Plan Trust International Truck and Engine Corporation Retirement Plan for Salaried Employees Trust International Truck and Engine Corporation Retiree Health Benefit Trust c/o International Truck and Engine Corporation 4201 Winfield Road Warrenville, Illinois 60555 | ||||||||
United States Trust Company, N.A. | (D | ) | (D | ) | ||||
114 West 47th Street New York, NY 10036 | ||||||||
Tontine Overseas Associates, LLC | 5,279,400(E | ) | 7.49 | % | ||||
Tontine Capital Partners, L.P. Tontine Capital Management, LLC Tontine Partners, L.P. Tontine Management, LLC Jeffrey L. Gendell 200 Park Avenue, Suite 3900 New York, NY 10166 | ||||||||
Mellon Financial Corporation | 5,577,947(F | ) | 7.40 | % | ||||
One Mellon Center 500 Grant Street Pittsburgh, Pennsylvania 15258 |
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Total Amount | ||||||||
and Nature of | ||||||||
Beneficial | ||||||||
Name and Address | Ownership | Percent of Class | ||||||
Oppenheimer Funds, Inc. | 4,659,901(G | ) | 6.18 | % | ||||
Two World Financial Center 225 Liberty Street New York, NY 10281 | ||||||||
Schneider Capital Management Corporation | 4,290,730(H | ) | 5.69 | % | ||||
460 E Swedesford Road, Suite 2000 Wayne, Pennsylvania 19087 | ||||||||
Ore Hill Hub Fund Ltd | 3,885,646(I | ) | 5.52 | % | ||||
c/o Citi Hedge Fund Services (Cayman), Ltd., 27 | ||||||||
Hospital Road, P.O. Box 1748GT, Cayman Corporate Centre, George Town, Grand Cayman, Cayman Islands, BWI | ||||||||
Ore Hill Partners LLC | ||||||||
650 Fifth Avenue, 9th Floor New York, New York 10019 | ||||||||
LSV Asset Management | 3,657,880(I | ) | 5.22 | % | ||||
1 N. Wacker Drive, Suite 4000 Chicago, Illinois 60606 |
(A) | As reported in a Schedule 13G, as amended by Amendment No. 1, filed with the SEC on June 28, 2007 and a Form 4 filed with the SEC on July 25, 2007. |
(B) | As reported on Form 4s filed on July 27, 2007 and August 17, 2007, as amended by a Form 4 filed on August 31, 2007, with the SEC, the Master Fund and the Special Situations Fund reported that they had entered into equity swap agreements on 166,667 and 83,333 shares, respectively, of the common stock outstanding of NIC. All 250,000 shares are beneficially owned by HMC, Philip Falcone, Raymond J. Harbert and Michael D. Luce. It is stated in the Form 4 filing that no voting power or dispositive power is held by the reporting persons in respect of these securities. | |
(C) | As reported in Schedule 13G, as amended by Amendment No. 1, filed May 19, 2006 with the SEC by NIC, International Truck and Engine Corporation (“International”), International Truck and Engine Corporation Non-Contributory Retirement Plan Trust (the |
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“Hourly Trust”), International Truck and Engine Corporation Retirement Plan for Salaried Employees Trust (the “Salaried Trust”), and International Truck and Engine Corporation Retiree Health Benefit Trust (the “Health Benefit Trust”). It is reported in the Schedule 13G that on November 8, 2002 NIC sold an aggregate amount of 7,755,030 shares of its common stock, in three separate transactions as follows: 4,653,018 shares to the Hourly Trust, 1,551,006 shares to the Salaried Trust and 1,551,006 shares to the Health Benefit Trust. Each trust is a funding trust for an employee benefit plan sponsored by International. The trust agreements of the Hourly Trust and the Salaried Trust provide that the trustee of the trust is only a directed trustee with respect to NIC stock held by the trusts and that the Pension Fund Investment Committee of International (whose members are for the most part executive officers of NIC, the “PFIC”), or an investment manager designated by the PFIC, is to direct the trustee with respect to the voting or disposition of NIC stock. The trust agreement for the Health Benefit Trust provides that International, or an investment manager appointed by International, is to direct the trustee with respect to voting and disposition of NIC stock. International has delegated authority for such matters related to the Health Benefit Trust to the PFIC. Jennison Associates LLC had subsequently been appointed the investment manager for each trust with respect to the NIC stock, and Jennison had been given discretionary authority regarding voting and disposition of the NIC stock. Subsequently, on May 8, 2006, the United States Trust Company, National Association (“US Trust”) was appointed as investment manager for each of the trusts to replace Jennison Associates, LLC who resigned its appointment effective the close of business May 7, 2006. Like Jennison, US Trust has been given discretionary authority regarding voting and disposition power over the NIC stock. See paragraph D below. Since the PFIC and NIC have the power to revoke or change the appointment of US Trust (and therefore reacquire the voting and dispositive control over the NIC stock), the committee, International or NIC could be considered “beneficial owners” of the NIC stock. | ||
(D) | As reported in Schedule 13G, as amended by Amendment No. 1, filed February 14, 2007 with the SEC by United States Trust Company, National Association (“US Trust”). It is reported in the Schedule 13G that 7,762,540 shares or 10.30% of the common stock outstanding of NIC are beneficially owned by US Trust, over which it has shared dispositive power with respect to 260 shares, sole dispositive power with respect to 7,762,280 shares, shared voting power with respect to 0 shares and sole voting power with respect to 7,762,410 shares. On May 8, 2006, US Trust was appointed as investment manager for each of the trusts to replace Jennison Associates, LLC who resigned its appointment effective the close of business May 7, 2006. US Trust has been given discretionary authority regarding voting and disposition power over the NIC stock. See paragraph C above. | |
(E) | As reported in Schedule 13G, as amended by Amendment No. 1, filed February 12, 2007 with the SEC by Tontine Overseas Associates, LLC, Tontine Capital Partners, L.P., Tontine Capital Management, LLC, Tontine Partners, L.P., Tontine Management, LLC and Jeffrey L. Gendell. It is reported in the Schedule 13G that (1) 2,101,970 shares, or 2.98% of the common stock outstanding of NIC are beneficially owned by Tontine Overseas Associates, LLC, over which it has shared voting power and shared dispositive power and no sole voting power or sole dispositive power, (2) 56,000 shares, or 0.08% of the common stock outstanding of NIC are beneficially owned by Tontine Capital Partners, L.P., over which it has shared voting power and shared dispositive power and no sole voting power or sole dispositive power, (3) 56,000 shares, or 0.08% of the common stock outstanding of NIC are beneficially owned by Tontine Capital Management, LLC, over which it has shared voting power and shared dispositive power and no sole voting power or sole dispositive power (4) 3,121,430 shares, or 4.43% of the common stock outstanding of NIC are beneficially owned by Tontine Partners, L.P., over which it has shared voting power and shared dispositive power and no sole voting power or sole dispositive power, (5) 3,121,430 shares, or 4.43% of the common stock outstanding of NIC are beneficially owned by Tontine Management, LLC., over which it has shared voting power and shared dispositive power and no sole voting power or sole dispositive power, and (6) Tontine Capital Management, LLC is the general partner of Tontine Capital Partners, L.P., and as such has the power to direct the affairs of Tontine Capital Partners, L.P., that Tontine Management, LLC is the general partner of Tontine Partners, LP, and as such has the power to direct the affairs of Tontine Partners, LP and that Jeffrey Gendell is the managing member of Tontine Capital Management, LLC, Tontine Management and Tontine Overseas Associates, LLC, and in that capacity directs their operations, and that Tontine Overseas Funds, Ltd, as a client of Tontine Overseas Associates, LLC, has the power to direct the receipt of dividends from or the proceeds of the sales of such shares. | |
(F) | As reported in Schedule 13G, as amended by Amendment No. 2, filed February 14, 2007 with the SEC by Mellon Financial Corporation. It is reported in the Schedule 13G that 5,577,947 shares, or 7.40% of the common stock outstanding of NIC are beneficially owned by Mellon Financial Corporation, over which it has sole voting power with respect to 5,214,403 shares, shared voting power with respect to 16,250, sole dispositive power with respect to 5,559,597 shares and shared dispositive power with respect to 16,250 shares. | |
(G) | As reported in Schedule 13G filed February 6, 2007 with the SEC by Oppenheimer Funds, Inc. It is reported in the Schedule 13G that 4,659,901 shares, or 6.18% of the common stock outstanding of NIC are beneficially owned by Oppenheimer Funds, Inc., over which it has shared voting power and shared dispositive power. | |
(H) | As reported in Schedule 13G filed February 12, 2007 with the SEC by Schneider Capital Management Corporation. It is reported in the Schedule 13G that 4,290,730 shares, or 5.69% of the common stock outstanding of NIC are beneficially owned by Schneider Capital Management Corporation, over which it has sole voting power with respect to 2,983,580 shares, shared voting power with respect to 0 shares, sole dispositive power with respect to 4,290,730 shares and shared dispositive power with respect to 0 shares. | |
(I) | As reported in Schedule 13G filed August 20, 2007 with the SEC by Ore Hill Hub Fund Ltd and Ore Hill Partners LLC. It is reported in the Schedule 13G that (1) 1,942,823 shares, or 2.76% of the common stock outstanding of NIC are beneficially owned by Ore Hill Hub Fund Ltd, over which it has shared voting power and shared dispositive power and (2) 1,942,823 shares, or 2.76% of the common stock outstanding of NIC are beneficially owned by Ore Hill Partners LLC, over which it has shared voting power and shared dispositive power. | |
(J) | As reported in Schedule 13G filed February 14, 2007 with the SEC by LSV Asset Management. It is reported in the Schedule 13G that 3,657,880 shares, or 5.22% of the common stock outstanding of NIC are beneficially owned by LSV Asset Management, over which it has sole voting power and sole dispositive power. |
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Number of Shares | ||||||||||||||||
Obtainable | Percent | |||||||||||||||
Through Stock | of | |||||||||||||||
Name/Group | Owned(1) | Option Exercise | Total | Class | ||||||||||||
John J. Allen | 22,120 | 118,125 | 140,245 | * | ||||||||||||
Y. Marc Belton | 2,919 | 21,667 | 24,586 | * | ||||||||||||
William A. Caton | 49,731 | 31,800 | 81,531 | * | ||||||||||||
Eugenio Clariond | 6,041 | 14,667 | 20,708 | * | ||||||||||||
John D. Correnti | 16,374 | 25,667 | 42,041 | * | ||||||||||||
Dr. Abbie Griffin | 2,999 | 17,167 | 20,166 | * | ||||||||||||
Michael N. Hammes | 3,379 | 15,167 | 18,546 | * | ||||||||||||
David D. Harrison | — | — | — | * | ||||||||||||
Deepak T. Kapur | 48,908 | 139,433 | 188,341 | * | ||||||||||||
James H. Keyes | 16,424 | 14,667 | 31,091 | * | ||||||||||||
Southwood J. Morcott | 4,799 | 17,167 | 21,966 | * | ||||||||||||
Pamela J. Turbeville | 28,680 | 260,121 | 288,801 | * | ||||||||||||
Daniel C. Ustian | 69,930 | 696,267 | 766,197 | 1.1 | ||||||||||||
Dennis D. Williams | — | — | — | * | ||||||||||||
All Directors and Executive Officers as a Group (19 persons) | 317,271 | 1,648,879 | 1,966,150 | 2.8 |
* | Percentage of shares beneficially owned does not exceed one percent. | |
(1) | The number of shares shown for each executive officer (and all executive officers as a group) includes the number of shares of company common stock owned indirectly, as of October 31, 2007, by such executive officers in our 401(k) Retirement Savings Plan and Retirement Accumulation Plan, as reported to us by the Plan trustee. |
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Item 13. | Certain Relationships and Related Transactions |
Aggregate | ||||||||||||
Maximum | Outstanding | |||||||||||
Indebtedness | Balance as of | Interest | ||||||||||
During | November 30, | Rate | ||||||||||
Name | 2005($) | 2007($) | (%) | |||||||||
Thomas M. Hough | 131,151 | — | 4.77 | |||||||||
Robert C. Lannert | 1,593,065 | — | 4.77 | |||||||||
Mark T. Schwetschenau | 179,538 | — | 4.77 | |||||||||
Daniel C. Ustian | 338,318 | 372,763 | 4.77 |
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Item 14. | Principal Accountant Fees and Services |
KPMG(A) | Deloitte | |||||||||||
2005-2006 | 2005 | 2004 | ||||||||||
Audit Fees: | ||||||||||||
Years ended October 31,2003-2005 | $ | 98.7 | ||||||||||
Year ended October 31, 2006 | 36.1 | |||||||||||
Years ended October 31, 2004 and 2005 | 4.2 | 3.3 | ||||||||||
Audit-Related Fees | 0.1 | 0.8 | 0.2 | |||||||||
Tax Fees | — | 0.9 | 0.9 | |||||||||
Other Fees | — | 0.3 | 0.4 | |||||||||
Total Fees | $ | 134.9 | $ | 6.2 | $ | 4.8 | ||||||
(A) | Includes audit fees billed and estimated to be billed by KPMG for audit services relating to the 2005 consolidated financial statements and the re-audit of the 2004 and 2003 consolidated financial statements previously audited by Deloitte, and audit fees estimated to be billed by KPMG for audit services relating to the 2006 consolidated financial statements and audit of internal control over financial reporting. |
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Item 15. | Exhibits and Financial Statement Schedules |
Exhibit: | Page | |||||||
(3) | Articles of Incorporation and By-Laws | E-1 | ||||||
(4) | Instruments Defining the Rights of Security Holders, Including Indentures | E-16 | ||||||
(10) | Material Contracts | E-22 | ||||||
(11) | Computation of Earnings per Share (incorporated by reference from Note 21 to the Consolidated Financial Statements) | 158 | ||||||
(12) | Computation of Ratio of Earnings to Fixed Charges | E-51 | ||||||
(21) | Subsidiaries of the Registrant | E-52 | ||||||
(24) | Power of Attorney | E-53 | ||||||
(31.1) | CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | E-54 | ||||||
(31.2) | CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | E-55 | ||||||
(32.1) | CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | E-56 | ||||||
(32.2) | CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | E-57 | ||||||
(99.1) | Additional Financial Information (Unaudited) | E-58 | ||||||
(99.2) | Additional Financial Information (Audited) | E-61 |
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AND CONSOLIDATED SUBSIDIARIES
John P. Waldron | December 7, 2007 |
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