EXHIBIT 13
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
FORM 10-K
ANNUAL REPORT
FOR THE YEAR ENDED OCTOBER 31, 1993
FILED PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
PAGE 1
FINANCIAL SUMMARY
Millions of dollars, except per share data 1993 1992
- ------------------------------------------------------------------------
For the Years Ended October 31
Unit shipments
Trucks ........................................ 87,200 73,200
Engines ....................................... 118,200 97,400
Sales and revenues
Manufacturing
In the United States ........................ $ 4,149 $ 3,392
In Canada ................................... 361 293
-------- --------
Total Manufacturing ....................... 4,510 3,685
Financial Services ............................ 184 186
-------- --------
Total sales and revenues ...................... $ 4,694 $ 3,871
======== ========
Net income (loss):
Income (loss) before Supplemental Trust
contribution and taxes ...................... $ 72 $ (145)
Supplemental Trust contribution ............... (513) -
Income tax benefit (expense) .................. 168 (2)
-------- --------
Income (loss) of continuing operations ........ (273) (147)
Discontinued operations ....................... - (65)
Cumulative effect of accounting changes ....... (228) -
-------- --------
Net income (loss) ............................. $ (501) $ (212)
======== ========
Income (loss) per common share:
Continuing operations ......................... $ (8.63) $ (6.97)
Discontinued operations ....................... - (2.58)
Cumulative effect of accounting changes ....... (6.56) -
-------- --------
Net loss ...................................... $ (15.19) $ (9.55)
======== ========
Average common and dilutive common
equivalent shares outstanding (millions) ...... 34.9 25.3
Capital expenditures ............................ $ 110 $ 55
Research and development expenditures ........... $ 95 $ 90
- ------------------------------------------------------------------------
As of October 31
Consolidated
Assets ........................................ $ 5,060 $ 3,627
Liabilities other than debt ................... $ 2,911 $ 1,884
Debt .......................................... $ 1,374 $ 1,405
Shareowners' equity ........................... $ 775 $ 338
Manufacturing
Assets ........................................ $ 3,645 $ 2,208
Liabilities other than debt ................... $ 2,695 $ 1,683
Short-term debt ............................... $ 25 $ 15
Long-term debt ................................ $ 150 $ 172
Shareowners' equity ........................... $ 775 $ 338
Capitalization (long-term debt
and shareowners' equity) .................... $ 925 $ 510
Long-term debt as a percent
of total capitalization ..................... 16% 34%
Financial Services
Assets ........................................ $ 1,672 $ 1,659
Liabilities other than debt ................... $ 232 $ 201
Debt .......................................... $ 1,199 $ 1,218
Shareowner's equity ........................... $ 241 $ 240
Number of employees worldwide ................... 13,612 13,945
PAGE 2
FINANCIAL INFORMATION
Financial Summary ........................................... 1
Management's Discussion and Analysis of Results
of Operations and Financial Condition ..................... 3
Statement of Financial Reporting Responsibility ............. 15
Independent Auditors' Report ................................ 16
Financial Statements
Statement of Income (Loss) ................................ 17
Statement of Financial Condition .......................... 19
Statement of Cash Flow .................................... 21
Statement of Non-Redeemable Preferred, Preference and
Common Shareowners' Equity .............................. 23
Notes to Financial Statements
1 Summary of accounting policies ......................... 25
2 Financial statement eliminations ....................... 28
3 Information related to the Statement of Cash Flow ...... 29
4 Postretirement benefits ................................ 30
5 Income taxes ........................................... 35
6 Discontinued operations ................................ 40
7 Earnings applicable to common stock .................... 40
8 Marketable securities .................................. 41
9 Receivables ............................................ 43
10 Inventories ............................................ 44
11 Property ............................................... 45
12 Leases ................................................. 46
13 Accounts payable ....................................... 47
14 Accrued liabilities .................................... 47
15 Debt ................................................... 48
16 Other long-term liabilities ............................ 50
17 Financial instruments .................................. 51
18 Commitments, contingent liabilities
and restrictions on assets ........................... 52
19 Legal proceedings ...................................... 53
20 Preferred and preference stocks ........................ 53
21 Common stock and warrants .............................. 55
22 Stock option plans ..................................... 57
23 Selected quarterly financial data (unaudited) .......... 58
Five-Year Summary of Selected Financial and Statistical Data. 60
PAGE 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Navistar International Corporation is a holding company and its
principal operating subsidiary is Navistar International Transportation
Corp. (Transportation). In this discussion and analysis, "Company" refers
to Navistar International Corporation and its consolidated subsidiaries.
The Company manufactures and markets medium and heavy trucks, including
school bus chassis, mid-range diesel engines and service parts in North
America. These products also are sold to distributors in selected export
markets. The financial services subsidiaries of the Company provide
wholesale, retail and lease financing, and commercial physical damage and
liability insurance, principally to the Company's dealers and retail
customers.
As discussed in Note 1 to the Financial Statements, finance and
insurance operations are materially different from the manufacturing and
marketing of trucks, diesel engines and service parts. Therefore, this
discussion and analysis reviews separately the operating and financial
results of "Manufacturing" and "Financial Services." Manufacturing
includes the consolidated financial results of the Company's manufacturing
operations with its wholly-owned financial services subsidiaries included
on a one-line basis under the equity method of accounting. Financial
Services includes the Company's wholly-owned subsidiary, Navistar
Financial Corporation (Navistar Financial), and other wholly-owned foreign
finance and insurance companies.
Management's discussion and analysis of results of operations should
be read in conjunction with the Financial Statements and the Notes to the
Financial Statements.
Significant Events
During 1993, the Company negotiated collective bargaining agreements
with the United Automobile, Aerospace and Agricultural Implement Workers
of America (UAW) and most of its other unions, restructured its retiree
health care and life insurance plans and completed a public offering of
common shares. These events are part of a program to reduce the Company's
operating cost structure and enable the Company to compete successfully.
On January 23, 1993, a new labor agreement was ratified by the
members of the UAW. This agreement, which expires on October 1, 1995,
permits greater productivity and efficiency, manufacturing flexibility and
customer responsiveness.
On July 1, 1993, the Company implemented a restructured retiree
health care and life insurance plan (the Plan) which previously had been
approved by the U.S. District Court in Dayton, Ohio on May 27, 1993, and
by the Company's shareowners on June 29, 1993. The Plan provides retirees
with modified health care and life insurance benefits for life. The
Company's shareowners also approved a one-for-ten reverse stock split of
its Common Stock and approved the issuance of 25.6 million shares of Class
B Common Stock. The Class B shares, valued at $513 million, were
contributed to a separate independent retiree Supplemental Benefit Trust
as a part of the Plan.
PAGE 4
The Plan reduced the Company's liability for retiree health care and
life insurance benefits from approximately $2.6 billion to $1.1 billion
worldwide. On October 21, 1993, the Company completed a public offering
of 23.6 million Common shares, from which the Company realized net
proceeds of $492 million. Of the proceeds, $300 million was used to pre-
fund benefit liabilities under the Plan. The remaining proceeds will be
used for working capital purposes.
Results of Operations
Consolidated
The components of net income (loss) for the three years ended October
31 are as follows:
Millions of dollars 1993 1992 1991
- --------------------------------------------------------------------------
Income (loss) before Supplemental Trust
contribution and income taxes ................ $ 72 $ (145) $ (162)
Supplemental Trust contribution:
- Manufacturing .............................. (509) - -
- Financial Services ......................... (4) - -
Income tax benefit (expense) ................... 168 (2) (3)
------ ------ ------
Income (loss) of continuing operations ......... (273) (147) (165)
Discontinued operations ........................ - (65) -
Cumulative effect of accounting changes ........ (228) - -
------ ------ ------
Net loss ...................................... $ (501) $ (212) $ (165)
======= ====== ======
Reflecting improved operating results in both manufacturing
operations and financial services, the Company reported income of $72
million in 1993 before the Supplemental Trust contribution and income
taxes compared with a pretax loss of $145 million last year and a pretax
loss of $162 million in 1991. The 1993 loss of continuing operations was
$273 million after the one-time charge for the Supplemental Trust
contribution of $513 million and an income tax benefit of $168 million.
The Company incurred a net loss of $501 million for 1993. The net
loss included an after-tax $228 million charge for the cumulative effect
of the changes in accounting policy, consisting of a $729 million charge
from adoption of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS 106) and a $501 million benefit from adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). See Notes 4, 5 and 23 to the Financial Statements. The net
loss of $212 million for 1992 included a $65 million charge to
discontinued operations for the settlement of suits brought by the Pension
Benefit Guaranty Corporation (PBGC) related to a previously owned
business.
Consolidated sales and revenues of $4,694 million in 1993 were 21%
higher than the $3,871 million reported in 1992 and 36% above the $3,460
million reported in 1991 as a result of a strong cyclical recovery in the
demand for trucks, diesel engines and service parts.
PAGE 5
Manufacturing
Manufacturing reported income of $7 million before a one-time $509
million charge for the Supplemental Trust contribution and income taxes.
Losses of $197 million and $222 million were recorded in 1992 and 1991,
respectively. The 1992 results included a $47 million one-time charge for
a voluntary product recall.
The components of Manufacturing income (loss), excluding Financial
Services and before taxes are as follows:
Millions of dollars 1993 1992 1991
- --------------------------------------------------------------------------
Pretax income (loss) before Supplemental
Trust contribution and income taxes ......... $ 7 $ (197) $ (222)
Supplemental Trust contribution ............... (509) - -
------ ------ ------
Income (loss) before income taxes ........... $ (502) $ (197) $ (222)
====== ====== ======
The improvement in 1993 operating results is the result of increased
sales volume, higher selling prices and programs implemented to improve
the Company's cost structure. Cost improvement programs included
implementation of the restructured retiree benefit Plan and continued
investment in new products and processes to increase efficiency and lower
manufacturing hours per unit. The reduction in the loss between 1992 and
1991 was primarily the result of increased sales volume, ongoing cost
improvement programs and lower financing charges offset in part by higher
health care costs and reduced interest income.
Sales. Reflecting improvements in the U.S. and Canadian economies,
1993 North American industry retail sales of medium and heavy trucks
totalled 288,900 units, a 19% increase over 1992 and a 26% increase from
the 229,100 units sold in 1991. Compared with 1992 levels, heavy truck
industry sales increased 33% to 166,400 units, led by higher demand from
major leasing companies and large fleet operators. Industry sales of
medium trucks, including school bus chassis, increased 4% to 123,000
units. Medium truck industry shipments were up 4% from 1992 and 11% from
1991. Industry sales of school bus chassis, about 25% of the medium truck
market, increased 3% from 1992 but were 19% below 1991. The demand for
school buses reflects the timing of state and local government funding of
student transportation.
The Company's sales of trucks, diesel engines and service parts
during 1993 totalled $4,510 million, 22% above the $3,685 million reported
for 1992 and 38% higher than the $3,259 million recorded in 1991. The
sales increase principally reflects the improved demand for heavy trucks,
higher shipments of mid-range diesel engines to original equipment
manufacturers and improved sales of service parts. Retail deliveries of
medium and heavy trucks totalled 79,800 units in 1993, an increase of 15%
from 1992 and 19% higher than in 1991. The Company maintained its
position as sales leader in the North American combined medium and heavy
truck market in 1993 with a 27.6% market share.
PAGE 6
Shipments of mid-range diesel engines to original equipment
manufacturers during 1993 totalled a record 118,200 units, an increase of
21% from 1992 and 58% from 1991. Higher shipments to a major automotive
manufacturer to meet consumer demand for the light trucks and vans which
use this engine was the primary reason for the increase.
Service parts sales of $632 million in 1993 were 11% higher than the
$571 million reported in 1992 and 19% higher than the $530 million in
1991. The increase between 1993 and 1992 was the result of growth in
sales to dealers and national fleets and improved price realization. The
increase between 1992 and 1991 was the result of higher net selling
prices, export business expansion and sales growth in dealer and national
retail accounts.
Operating Costs and Expenses. Manufacturing gross margin, the
relationship of sales to cost of sales, was 13.2% in 1993. Gross margin
in 1992, excluding one-time product recall expenses, was 13.0%, an
increase from 11.5% in 1991. Factors which led to the improvement in
gross margin between 1993 and 1992 included higher sales volume, improved
price realization and programs implemented to improve the Company's cost
structure. These favorable effects were partially offset by increases in
purchased material and labor costs and a higher level of manufacturing
start-up costs for new truck and engine products. The improvement in
gross margin between 1992 and 1991 was primarily the result of higher
sales volume combined with the impact of cost improvement programs.
Postretirement benefits, which include pension expense for employees
and retirees and postretirement health care and life insurance coverage
for employees, retirees, surviving spouses and dependents, totalled $208
million in 1993. Pension expense of $107 million in 1993 was about level
with 1992 and 1991. A 30% reduction in retiree health care and life
insurance expense in 1993 to $101 million was primarily the result of an
$87 million year-over-year decline in expense following implementation in
1993 of the new retiree benefit plan partially offset by a $41 million
increase in expense related to the adoption of SFAS 106. This statement
requires the accrual of the expected cost of providing postretirement
benefits during employees' active service periods. Prior to 1993, the
cost of these benefits was recorded as payments were made. From 1991 to
1992, postretirement benefit expense other than pensions increased from
$138 million to $146 million as cost containment programs only partially
offset health care economic cost increases.
In 1993, the Company continued its commitment to allocate resources
for improvement of existing products and processes and the development of
new truck and diesel engine products. Engineering expense increased to
$94 million in 1993 from $92 million in 1992 and $88 million in 1991
reflecting the completion of the development and introduction of a new
series of diesel engines as well as continuing development of new and
existing truck products.
PAGE 7
Marketing and administrative expense of $225 million and interest
expense of $12 million in 1993 were about equal to the amounts reported in
1992 and 1991. Finance service charges on sold receivables increased 8%
to $56 million in 1993 reflecting higher truck sales. These charges
decreased 20% between 1992 and 1991 as a result of lower interest rates.
The provision for losses on receivables was reduced to $5 million in 1993
from $18 million in 1992 following improvements in the economy and
improved credit review procedures. Interest income declined over the
three year period to $13 million in 1993 from $28 million in 1991
primarily as a result of a reduction in the amount of marketable
securities held by the Company and lower interest rates.
Discontinued Operations. A provision was recorded in the third
quarter of 1992 as a loss of discontinued operations for the settlement
for $65 million of the litigation commonly referred to as the Wisconsin
Steel Pension Plan Cases.
Financial Services
Income of the subsidiaries comprising Financial Services is as
follows:
Millions of dollars 1993 1992 1991
- -------------------------------------------------------------------------
Income before Supplemental Trust contribution
and income taxes:
Navistar Financial Corporation ............ $ 53 $ 4 $ 53
Foreign Subsidiaries ...................... 12 6 7
----- ----- -----
Total ................................... 65 52 60
Supplemental Trust contribution ............... (4) - -
Income tax expense ............................ (22) (20) (23)
----- ----- -----
Income before cumulative effect
of accounting changes ....................... 39 32 37
Cumulative effect of
accounting changes .......................... (9) - -
----- ----- -----
Net income .................................... $ 30 $ 32 $ 37
===== ===== =====
Navistar Financial's income in 1993 before the one-time charge for
the Supplemental Trust contribution and income taxes was $53 million
compared with $46 million in 1992. The increase was primarily the result
of increased income from sales of retail notes receivable partially offset
by higher loss experience from Navistar Financial's insurance subsidiary.
Earnings from the foreign subsidiaries increased $6 million as a result of
lower loss reserve requirements.
During the third quarter of 1993, Navistar Financial adopted SFAS 106
and SFAS 109 retroactive to November 1, 1992. The cumulative effect of
adopting these changes in accounting policy resulted in an after-tax
charge to income of $9 million.
PAGE 8
Income before income taxes for Navistar Financial decreased 13%
between 1992 and 1991 as a result of lower margins earned on the finance
receivables portfolio partially offset by a lower provision for credit
losses. Earnings from Navistar Financial's insurance subsidiary were
equal to 1991.
Total Navistar Financial revenue for 1993 was $220 million, unchanged
from 1992 and 3% below 1991. During 1993, increased revenues from higher
average wholesale note and account balances were offset by lower revenues
from the insurance subsidiary. The decline in revenues in 1992 from 1991
reflects a decrease in retail and wholesale notes financed. These
decreases were partially offset by an increase in revenues from Navistar
Financial's insurance subsidiary.
Interest expense for Navistar Financial declined to $75 million in
1993 from $82 million in 1992 and $90 million in 1991. The declines in
1993 and 1992 primarily reflect the effect of lower interest rates.
The provision for losses on receivables decreased to $1 million in
1993 from $3 million in 1992 and $6 million in 1991. The decreases in the
provision reflect lower losses on both retail and wholesale notes.
Liquidity and Capital Resources
Consolidated
Total cash, cash equivalents and marketable securities amounted to
$639 million and $496 million at October 31, 1993 and 1992, respectively.
At October 31, 1993 and 1992, approximately $160 million and $165 million,
respectively, was held by the Company's insurance subsidiaries and not
available for general corporate purposes.
The following discussion has been organized to discuss separately the
cash flows of the Company's Manufacturing and Financial Services
operations.
Manufacturing
Liquidity available to Manufacturing in the form of cash, cash
equivalents and marketable securities totalled $462 million at October 31,
1993, $250 million at October 31, 1992, and $322 million at October 31,
1991.
PAGE 9
Cash and cash equivalents of Manufacturing totalled $377 million at
October 31, 1993, a 70% increase from the $222 million at October 31,
1992. Summarized below is the cash flow for fiscal 1993.
Millions of dollars 1993
- --------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ................................................ $ 192
Investment programs ....................................... (509)
Financing activities ...................................... 472
-----
Increase in cash and cash equivalents ................... $ 155
=====
Operations. In 1993, operations provided $192 million in cash as
follows:
Millions of dollars 1993
- --------------------------------------------------------------------------
Net loss ..................................... $(501)
Items not affecting cash:
Supplemental Trust contribution ............ 509
Increase in deferred tax asset ............. (174)
Cumulative effect of accounting changes .... 228
Depreciation and other items ............... 66
Change in operating assets and liabilities:
Decrease in receivables .................... $ 7
Increase in inventories .................... (51)
Increase in accounts payable ............... 106
Increase in accrued expenses/other ......... 2 64
----- -----
Cash provided by continuing operations $ 192
=====
The $64 million net change in operating assets and liabilities was
primarily the result of higher production schedules in 1993.
Investment programs. Investment programs used $509 million in cash
during 1993 including pre-funding $300 million of the retiree benefit Plan
liability, capital expenditures of $110 million, a net increase of $56
million in marketable securities and $30 million for the cash
collateralization of a bond related to current legal proceedings.
Financing programs. Financing activities provided $472 million in
cash in 1993 primarily from the sale of Common shares from which the
Company realized proceeds of $492 million. This increase in cash was
offset by an $18 million reduction in long-term debt and $2 million used
for the repurchase of Class B Common stock.
Management's discussion of the future liquidity of manufacturing
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
PAGE 10
Financial Services
The Financial Services subsidiaries provide product financing and
insurance coverage to Transportation's dealers and retail customers.
Traditionally, funds to finance Transportation's products come from a
combination of commercial paper, short- and long-term bank borrowings,
medium- and long-term debt issues, sales of receivables and equity
capital. The lowering of Navistar Financial's debt ratings in fiscal 1992
restricted its ability to place commercial paper and term debt securities.
Accordingly, Navistar Financial increased its use of bank borrowings
through its revolving credit facility and sales of retail notes as funding
sources. Insurance operations are funded from premiums and income from
investments.
Total cash, cash equivalents and marketable securities of Financial
Services were $177 million at October 31, 1993, $246 million at October
31, 1992 and $189 million at October 31, 1991.
Cash and cash equivalents of Financial Services totalled $44 million
at October 31, 1993, $103 million at October 31, 1992 and $39 million at
October 31, 1991. The cash flow for Financial Services for 1993 is
summarized as follows:
Millions of dollars 1993
- --------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ................................................ $ 63
Investment programs ....................................... (65)
Financing activities ...................................... (57)
-----
Decrease in cash and cash equivalents ................... $ (59)
=====
Operations. Operations provided $63 million in cash in 1993
primarily from net income of $30 million, a $19 million decrease in
working capital and non-cash expense of $9 million for the cumulative
effect of the adoption of SFAS 106 and SFAS 109.
Investment Programs. The Financial Services investment programs
used $65 million in 1993 as a result of a net increase of $62 million in
retail and wholesale finance receivables and a $14 million increase in
property and equipment leased to others, partially offset by an $11
million decrease in marketable securities.
Navistar Financial supplied 90% of the wholesale financing of new
trucks to Transportation's dealers compared with 89% in 1992 and 1991.
Navistar Financial's share of retail financing of new trucks sold to
customers in the United States increased to 15.3% in 1993 from 13.7% in
1992 and 13.1% in 1991.
Financing Activities. Financial Services used $57 million in 1993
for financing activities consisting of $99 million for principal payments
on long-term debt and $33 million of dividends paid to Transportation.
Cash from financing activities was increased by $75 million of short-term
borrowings.
PAGE 11
At October 31, 1993, Navistar Financial had $1,327 million of
committed credit facilities. The facilities consisted of a contractually
committed bank revolving credit facility of $727 million and a
contractually committed retail notes receivable purchase facility of $600
million. Unused commitments under the receivable purchase facility were
$157 million, $75 million of which was used to back the short-term bank
borrowings at October 31, 1993. The remaining $82 million, when combined
with unrestricted cash and cash equivalents, made $105 million available
to fund the general business purposes of Navistar Financial at October 31,
1993. The bank revolving credit facility was fully utilized at October
31, 1993. In addition to the committed credit facilities, Navistar
Financial also utilizes a $300 million revolving wholesale note sales
trust providing for the continuous sale of eligible wholesale notes on a
daily basis. The sales trust is composed of three $100 million pools of
notes maturing serially from 1997 to 1999.
Management's discussion of the future liquidity of financial services
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
Environmental Matters
The Company has been named a potentially responsible party (PRP), in
conjunction with other parties, in a number of cases arising under an
environmental protection law commonly known as the Superfund law. These
cases involve sites which allegedly have received wastes from current or
former Company operations. The Superfund law requires environmental
investigation and/or cleanup where waste products from various
manufacturing processes and operations have been stored, treated or
disposed of.
Based on information available to the Company, which in most cases
includes estimates from PRPs and/or Federal or State regulatory agencies
for the investigation, cleanup costs at these sites, data related to
quantities and characteristics of material generated at or shipped to each
site, a reasonable estimate is calculated of the Company's share, if any,
of the costs. The Company believes that, based on these calculations, its
share of the costs for each site is not material and in total the
anticipated cleanup costs of current PRP actions at October 31, 1993 would
not have a material impact on the Company's financial condition, liquidity
or operating results except with respect to the potential for liability
discussed below. The anticipated costs associated with the current PRP
actions at October 31, 1993, are reflected in the Company's $10 million
accrued liability. The Company reviews its accruals as additional
information becomes available.
The present owner of the Company's former Wisconsin Steel facility in
Chicago, Illinois has been investigating the nature and extent of any
required cleanup activities at this site. In addition, the present owner
of the Company's former Solar Division in San Diego, California is
conducting similar activities with respect to that site. Environmental
protection agencies in each of these states are monitoring these
investigations. Both of the present owners have demanded the Company pay
for these activities. As to both sites, the eventual scope, timing and
cost of such activities as well as the availability of defenses to any
such claims, and possible claims against third parties and insurance
companies are not known and cannot be reasonably estimated; however,
substantial claims could be asserted against the Company.
PAGE 12
Income Taxes
The Statement of Financial Condition at October 31, 1993, includes a
net deferred tax asset of $1,178 million, related to future tax benefits
which is net of a $305 million valuation allowance since it is more likely
than not that some portion of the deferred tax asset may not be realized
in the future. Realization of the deferred tax asset is dependent on the
generation of approximately $3,100 million of future taxable income.
Extensive analyses were performed to determine the amount of the net
deferred tax asset. Such analyses are based on the fundamental premise
that the Company is and will continue to be a going concern. Management
believes this premise is supported by both historical and current events
including continued significant market share, the current upward cycle of
the Company's business and changes in the Company's cost structure,
including the restructured retiree benefit Plan. As indicated in the
Results of Operations section of Management's Discussion and Analysis and
in the Business Outlook, this premise is further supported by the
increases in North American retail sales of medium and heavy trucks
between 1991 and 1993, signs of continued growth in the economy and the
Company's continued position as market share leader in the North American
combined medium and heavy truck market. Further, shipments of the
Company's mid-range diesel engines to original equipment manufacturers
reached record levels in 1993 and are projected to remain strong.
Other available evidence, both positive and negative, was reviewed by
management. The following are among the factors considered:
- A retrospective analysis, as shown below, giving effect to changes
in the Company's cost structure resulting from the restructured retiree
benefit Plan and renegotiated collective bargaining agreements, indicates
that cumulative taxable income in the period 1990 through 1992 would have
been $109 million, an increase of $281 million over the historical taxable
loss of $172 million.
Millions of dollars 1992 1991 1990
- -------------------------------------------------------------------------
Historical loss before income taxes .......... $(210) $(162) $ (7)
Adjustments to reflect temporary and
permanent differences in tax expense ....... 169 37 1
----- ----- -----
Historical taxable loss
per Federal income tax returns ............. (41) (125) (6)
Pro forma adjustments:
Collective bargaining agreement ............ 19 16 18
Restructured retiree benefit plan .......... 85 79 64
----- ----- -----
Pro forma taxable income (loss) .......... $ 63 $ (30) $ 76
===== ===== =====
PAGE 13
- An assessment of the long-term earnings potential of the Company
using a number of alternatives to evaluate financial results in economic
cycles of various industry volume conditions.
- A comparison of earnings projections to the availability of net
operating loss carryforwards (NOLs) and reversing temporary differences to
assess the availability of taxable income prior to the expiration of such
benefits. The Company's assessment indicates that although most NOLs will
be utilized, certain NOLs may expire resulting in a valuation allowance of
$305 million.
- The annual savings of approximately $150 million related to the
restructuring of health care and life insurance benefits. The retiree
benefit Plan provisions will reduce costs by approximately $90 million per
year. Additional savings will come from pre-funding $500 million of the
retiree benefit liability, further reducing annual costs by about $45
million. Implementation of managed care programs for active and certain
retired employees are projected to reduce costs by up to $15 million
annually.
- The commitment to achieve annual operating cost reductions of $50
million over the next three years, through the completion of a broad range
of manufacturing and product quality improvements, design and material
cost programs as well as administrative expense reductions.
- The underlying long-term strengths of the Company in the truck and
diesel engine business including a consistent thirteen year leadership in
combined market share for medium and heavy trucks, a long history of
successful competition in markets and customers served and recognition as
a worldwide leading producer of mid-range diesel engines.
Management also considered the negative evidence of its losses in
recent years and the risk and uncertainty inherent in predicting future
taxable income. During the three year period, 1990 through 1992, the
Company's cumulative taxable loss represented an average annual tax loss
of approximately $57 million. In order to realize the benefit of the net
deferred tax asset of $1.2 billion, the Company estimates that it would
need to generate average annual taxable income of approximately $110
million. Management believes that with the implementation of its plan to
reduce the Company's annual cost structure by $200 million and the
maintenance of significant market share, such earnings are achievable and
that only a portion of the loss carryforwards may expire before their
utilization.
Business Outlook
Current economic trends indicate continued moderate growth in the
North American economy, resulting in improved market conditions for the
truck industry. Based on current order backlogs, order receipt trends and
key market indicators, the Company currently projects 1994 North American
medium truck demand, including school bus chassis, to be 136,000 units, an
11% increase from 1993. Heavy truck demand is projected at 160,000 units,
approximately level with 1993. The Company's diesel engine sales to
original equipment manufacturers in 1994 are expected to be about the same
as in 1993. Sales of service parts by the Company are forecast to grow
3%.
PAGE 14
As the Federal government and private industry consider solutions to
the rising cost of medical care, the Company took decisive action with
implementation of a restructured retiree health care and life insurance
benefit plan on July 1, 1993 and a $300 million pre-funding of this
obligation. The Company intends to further reduce retiree health care
costs by pre-funding an additional $200 million of the retiree health care
and life insurance benefit liability within the next five years.
Additional annual health care savings of up to $15 million are projected
from managed care programs for employees and certain retirees to be
implemented in 1994.
In 1994, the introduction of new truck and engine products, focused
marketing programs and implementation of programs to streamline marketing,
engineering and manufacturing processes are expected to further improve
the Company's competitiveness. It is management's opinion that current
and forecasted cash flow will provide a basis for financing operating
requirements, capital expenditures and anticipated payments of preferred
dividends.
In addition, management believes that collections on the outstanding
receivables portfolios as well as funds available from various funding
sources will permit the Financial Services subsidiaries to meet the
financing requirements of the Company's dealers and customers.
PAGE 15
STATEMENT OF FINANCIAL REPORTING RESPONSIBILITY
Management of Navistar International Corporation and its subsidiaries
is responsible for the preparation and for the integrity and objectivity
of the accompanying financial statements and other financial information
in this report. The financial statements have been prepared in accordance
with generally accepted accounting principles and include amounts that are
based on management's estimates and judgments.
The accompanying financial statements have been audited by Deloitte &
Touche, independent auditors, whose appointment is ratified by shareowner
vote at the Annual Meeting. Management has made available to Deloitte &
Touche all the Company's financial records and related data, as well as
the minutes of the Board of Directors' meetings. Management believes that
all representations made to Deloitte & Touche during its audit were valid
and appropriate.
Management is responsible for establishing and maintaining a system
of internal controls throughout its operations that provides reasonable
assurance as to the integrity and reliability of the financial statements,
the protection of assets from unauthorized use and the execution and
recording of transactions in accordance with management's authorization.
The system of internal controls which provides for appropriate division of
responsibility is supported by written policies and procedures that are
updated by management as necessary. The system is tested and evaluated
regularly by the Company's internal auditors as well as by the independent
auditors in connection with their annual audit of the financial
statements. The independent auditors conduct their audit in accordance
with generally accepted auditing standards and perform such tests of
transactions and balances as they deem necessary. Management considers
the recommendations of its internal auditors and independent auditors
concerning the Company's system of internal controls and takes the
necessary actions that are cost-effective in the circumstances to respond
appropriately to the recommendations presented. Management believes that
the Company's system of internal controls accomplishes the objectives set
forth in the first sentence of this paragraph.
The Audit Committee of the Board of Directors, composed of six non-
employee Directors, meets periodically with the independent auditors,
management, general counsel and internal auditors to satisfy itself that
such persons are properly discharging their responsibilities regarding
financial reporting and auditing. In carrying out these responsibilities,
the Committee has full access to the independent auditors, internal
auditors, general counsel and financial management in scheduled joint
sessions or private meetings as in the Committee's judgment seem
appropriate. Similarly, the Company's independent auditors, internal
auditors, general counsel and financial management have full access to the
Committee and to the Board of Directors and each is responsible for
bringing before the Committee or its Chairman, in a timely manner, any
matter deemed appropriate to the discharge of the Committee's
responsibility.
James C. Cotting
Chairman and
Chief Executive Officer
Robert C. Lannert
Executive Vice President and
Chief Financial Officer
PAGE 16
INDEPENDENT AUDITORS' REPORT
Navistar International Corporation,
Its Directors and Shareowners:
We have audited the Statement of Financial Condition of Navistar
International Corporation and Consolidated Subsidiaries as of October 31,
1993 and 1992, and the related Statement of Income (Loss), of Cash Flow,
and of Non-Redeemable Preferred, Preference and Common Shareowners' Equity
for each of the three years in the period ended October 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the financial position of
Navistar International Corporation and Consolidated Subsidiaries at
October 31, 1993 and 1992, and the results of their operations and their
cash flow for each of the three years in the period ended October 31,
1993, in conformity with generally accepted accounting principles.
As discussed in Note 1, in accordance with the provisions of
Statements of Financial Accounting Standards No. 106 and No. 109,
effective November 1, 1992, the Company changed its methods of accounting
for postretirement benefits other than pensions and for income taxes.
Deloitte & Touche
December 15, 1993
Chicago, Illinois
PAGE 17
STATEMENT OF INCOME (LOSS)
Navistar International Corporation
and Consolidated Subsidiaries
-----------------------------------
For the Years Ended October 31 Note
(Millions of dollars, except per share data) 1993 1992 1991 Reference
- ---------------------------------------------------------------------------------------------------
Sales and Revenues
Manufacturing .............................. $ 4,510 $ 3,685 $ 3,259
Financial Services ......................... 184 186 201
-------- -------- --------
Total sales and revenues ................. 4,694 3,871 3,460
-------- -------- --------
Costs and expenses
Cost of sales .............................. 3,914 3,254 2,885
Postretirement benefits .................... 209 255 239 Note 4
Supplemental Trust contribution ............ 513 - - Note 21
Engineering expense ........................ 94 92 88
Marketing and administrative expense ....... 240 244 245
Interest expense ........................... 91 99 108
Financing charges on sold receivables ...... 14 12 24
Insurance claims and underwriting expense .. 59 62 54
Provision for losses on receivables ........ 6 21 26
Interest (income) .......................... (13) (17) (28)
Other (income) expense, net ................ 8 (6) (19)
-------- -------- --------
Total costs and expenses ................. 5,135 4,016 3,622
-------- -------- --------
Income (loss) before income taxes
Manufacturing ............................ - - -
Financial Services ....................... - - -
-------- -------- --------
Income (loss) before income taxes ...... (441) (145) (162)
Income tax benefit (expense)............ 168 (2) (3) Note 5
-------- -------- --------
Income (loss) of continuing operations ..... (273) (147) (165)
Loss of discontinued operations ............ - (65) - Note 6
-------- -------- --------
Income (loss) before cumulative effect
of changes in accounting policy ........... (273) (212) (165)
Cumulative effect of changes Notes 4,
in accounting policy ..................... (228) - - 5 & 23
-------- -------- --------
Net income (loss) .......................... $ (501) $ (212) $ (165)
======== ======== ========
- ------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ (530) $ (241) $ (194) Note 7
======== ======== ========
Income (loss) per common share:
Continuing operations .................... $ (8.63) $ (6.97) $ (7.71)
Discontinued operations .................. - (2.58) -
Cumulative effect of changes
in accounting policy ................... (6.56) - - Note 23
-------- -------- --------
Net income (loss) per common share ......... $ (15.19) $ (9.55) $ (7.71)
======== ======== ========
Average number of common and dilutive common
equivalent shares outstanding (millions) . 34.9 25.3 25.1 Note 7
- ------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
PAGE 18
Manufacturing* Financial Services*
- ------------------------------------ ----------------------------------
1993 1992 1991 1993 1992 1991
- ---------------------------------------------------------------------------
$ 4,510 $ 3,685 $ 3,259 $ - $ - $ -
- - - 226 226 242
- -------- -------- -------- -------- ------- --------
4,510 3,685 3,259 226 226 242
- -------- -------- -------- -------- ------- --------
3,914 3,254 2,885 - - -
208 254 238 1 1 1
509 - - 4 - -
94 92 88 - - -
225 226 223 15 18 22
12 12 11 79 87 97
56 52 65 - - -
- - - 59 62 54
5 18 20 1 3 6
(13) (17) (28) - - -
2 (9) (21) 6 3 2
- -------- -------- -------- -------- ------- --------
5,012 3,882 3,481 165 174 182
- -------- -------- -------- -------- ------- --------
(502) (197) (222) - - -
61 52 60 - - -
- -------- -------- -------- -------- ------- --------
(441) (145) (162) 61 52 60
168 (2) (3) (22) (20) (23)
- -------- -------- -------- -------- ------- --------
(273) (147) (165) 39 32 37
- (65) - - - -
- -------- -------- -------- -------- ------- --------
(273) (212) (165) 39 32 37
(228) - - (9) - -
- -------- -------- -------- -------- ------- --------
$ (501) $ (212) $ (165) $ 30 $ 32 $ 37
======== ======== ======== ======== ======= ========
- --------------------------------------------------------------------------
<FN>
* "Manufacturing" includes the consolidated financial results of the
Company's manufacturing operations with its wholly-owned financial
services subsidiaries included under the equity method of accounting.
"Financial Services" includes the Company's wholly-owned subsidiary,
Navistar Financial Corporation, and other wholly-owned finance and
insurance subsidiaries. Transactions between Manufacturing and
Financial Services have been eliminated from the "Navistar
International Corporation and Consolidated Subsidiaries" columns
on the preceding page. The basis of consolidation is described
in Note 1 while a summary of eliminations is shown in Note 2.
PAGE 19
STATEMENT OF FINANCIAL CONDITION
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
Note
As of October 31 (Millions of dollars) 1993 1992 Reference
- ------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents ......................... $ 421 $ 325
Marketable securities ............................. 218 171 Note 8
Receivables, net .................................. 1,540 1,479 Note 9
Inventories ....................................... 411 365 Note 10
Prepaid pension assets ............................ 82 122 Note 4
Property and equipment, net ....................... 636 582 Note 11
Equity in Financial Services subsidiaries ......... - -
Investments and other assets ...................... 234 213
Intangible pension assets ......................... 340 370
Deferred tax asset ................................ 1,178 - Note 5
-------- --------
Total assets ...................................... $ 5,060 $ 3,627
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities
Accounts payable .................................. $ 739 $ 637 Note 13
Accrued liabilities ............................... 419 401 Note 14
Short-term debt ................................... 180 114 Note 15
Long-term debt .................................... 1,194 1,291 Note 15
Other long-term liabilities ....................... 276 305 Note 16
Loss reserves and unearned premiums ............... 107 102
Postretirement benefits liability ................. 1,370 439 Note 4
-------- --------
Total liabilities ............................. 4,285 3,289
-------- --------
Shareowners' equity
Series G convertible preferred stock Notes 20
(liquidation preference $240 million) ........... 240 240 & 21
Series D convertible junior preference stock
(liquidation preference $5 million) ............. 5 5
Common stock (49.2 million and 25.6 million shares
issued) and warrants ............................ 1,615 508
Class B Common (25.6 million shares issued in 1993) 513 -
Retained earnings (deficit) - balance accumulated
after the deficit reclassification
as of October 31, 1987 .......................... (1,588) (400)
Accumulated foreign currency translation
adjustments ..................................... (4) (4)
Common stock held in treasury, at cost ............ (6) (11)
-------- --------
Total shareowners' equity ..................... 775 338
-------- --------
Total liabilities and shareowners' equity ......... $ 5,060 $ 3,627
======== ========
- -----------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
PAGE 20
Manufacturing* Financial Services*
- ---------------------- ----------------------
1993 1992 1993 1992
- ------------------------------------------------------------
$ 377 $ 222 $ 44 $ 103
85 28 133 143
123 131 1,433 1,348
411 365 - -
81 121 1 1
608 563 28 19
241 240 - -
201 168 33 45
340 370 - -
1,178 - - -
-------- -------- -------- --------
$ 3,645 $ 2,208 $ 1,672 $ 1,659
======== ======== ======== ========
$ 670 $ 581 $ 85 $ 56
395 368 24 33
25 15 155 99
150 172 1,044 1,119
267 295 9 10
- - 107 102
1,363 439 7 -
-------- -------- -------- --------
2,870 1,870 1,431 1,419
-------- -------- -------- --------
240 240 - -
5 5 - -
1,615 508 178 178
513 - - -
(1,588) (400) 63 62
(4) (4) - -
(6) (11) - -
-------- -------- -------- --------
775 338 241 240
-------- -------- -------- --------
$ 3,645 $ 2,208 $ 1,672 $ 1,659
======== ======== ======== ========
- ------------------------------------------------------------
<FN>
* "Manufacturing" includes the consolidated financial
results of the Company's manufacturing operations
with its wholly-owned financial services subsidiaries
included under the equity method of accounting.
"Financial Services" includes the Company's
wholly-owned subsidiary, Navistar Financial
Corporation and other wholly-owned finance and
insurance subsidiaries. Transactions between
Manufacturing and Financial Services have been
eliminated from the "Navistar International
Corporation and Consolidated Subsidiaries"
columns on the preceding page. The basis of
consolidation is described in Note 1 while a
summary of eliminations is shown in Note 2.
PAGE 21
STATEMENT OF CASH FLOW
Navistar International Corporation
and Consolidated Subsidiaries
-----------------------------------
For the Years Ended October 31 Note
(Millions of dollars) 1993 1992 1991 Reference
- ---------------------------------------------------------------------------------------------------
Cash flow from operations
Net income (loss) ............................... $ (501) $ (212) $ (165)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operations:
Depreciation and amortization ................. 75 77 73
Supplemental Trust contribution ............... 513 - - Note 21
Equity in earnings of Financial Services,
net of dividends received ................... - - -
Allowance for losses on receivables
and dealer loans ............................ 19 24 27
Increase (decrease) in deferred income tax
(benefit) expense ........................... (170) - -
Provision for loss of discontinued operations . - 65 - Note 6
Cumulative effect of changes
in accounting policy ........................ 228 - - Notes 4 & 5
Other, net .................................... (21) (55) (19)
Change in operating assets and liabilities .... (108) 74 357 Note 3
-------- -------- --------
Cash provided by (used in)
continuing operations ....................... 35 (27) 273
-------- -------- --------
Cash flow from investment programs
Purchase of retail notes and lease receivables .. (770) (659) (619)
Principal collections on retail notes
and lease receivables ......................... 337 409 310
Sale of retail notes receivables ................ 558 249 236 Note 9
Acquisitions (over) under cash collections
of wholesale notes and accounts receivable ... - - - Note 3
Purchase of marketable securities ............... (371) (248) (867)
Sales or maturities of marketable securities .... 326 283 958
Capital expenditures ............................ (110) (55) (77)
Net increase in property and equipment
leased to others .............................. (14) (4) (13)
Base Program Trust pre-funding .................. (300) - - Note 4
Special dividends from Financial Services ....... - - -
PBGC settlement - discontinued operations ....... - (20) - Note 6
Other investment programs, net .................. (43) (26) 21
-------- -------- --------
Cash provided by (used in) investment programs. (387) (71) (51)
-------- -------- --------
Cash flow from financing activities
Principal payments on long-term debt ............ (117) (170) (102)
Net increase (decrease) in short-term debt ...... 75 (184) (413)
Issuance of term debt and notes ................. - 8 118 Note 15
Increase in debt outstanding under
bank revolving credit facility ................ - 507 220
Net proceeds from issuance of Common Stock ...... 492 - - Note 21
Dividends paid .................................. - (29) (29)
Repurchase of Class B Common Stock .............. (2) - -
-------- -------- --------
Cash provided by (used in) financing activities 448 132 (206)
-------- -------- --------
Cash and cash equivalents
Increase (decrease) during the year ........... 96 34 16
At beginning of the year ...................... 325 291 275
-------- -------- --------
Cash and cash equivalents at end of the year .... $ 421 $ 325 $ 291
======== ======== ========
- -------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
PAGE 22
Manufacturing* Financial Services*
- ------------------------------------ -----------------------------------
1993 1992 1991 1993 1992 1991
- ----------------------------------------------------------------------------
$ (501) $ (212) $ (165) $ 30 $ 32 $ 37
69 74 71 6 3 2
509 - - 4 - -
(10) (15) 1 - - -
17 19 21 2 5 6
(174) - - 4 3 1
- 65 - - - -
228 - - 9 - -
(10) (41) (10) (11) (15) (11)
64 159 34 19 (17) (3)
-------- -------- -------- -------- -------- --------
192 49 (48) 63 11 32
-------- -------- -------- -------- -------- --------
- - - (770) (659) (619)
- - - 337 409 310
- - - 558 249 236
- - - (187) (66) 330
(296) (120) (549) (75) (128) (318)
240 162 626 86 121 332
(110) (55) (77) - - -
- - - (14) (4) (13)
(300) - - - - -
- - 40 - - -
- (20) - - - -
(43) (14) 20 - (13) 1
-------- -------- -------- -------- -------- --------
(509) (47) 60 (65) (91) 259
-------- -------- -------- -------- -------- --------
(18) (11) (12) (99) (159) (90)
- - - 75 (184) (444)
- 8 - - - 118
- - - - 507 220
492 - - - - -
- (29) (29) (33) (20) (81)
(2) - - - - -
-------- -------- -------- -------- -------- --------
472 (32) (41) (57) 144 (277)
-------- -------- -------- -------- -------- --------
155 (30) (29) (59) 64 14
222 252 281 103 39 25
-------- -------- -------- -------- -------- --------
$ 377 $ 222 $ 252 $ 44 $ 103 $ 39
======== ======== ======== ======== ======== ========
- -----------------------------------------------------------------------------
<FN>
* "Manufacturing" includes the consolidated financial results of the Company's
manufacturing operations with its wholly-owned financial services
subsidiaries included under the equity method of accounting. "Financial
Services" includes the Company's wholly-owned subsidiary, Navistar
Financial Corporation, and other wholly-owned finance and insurance
subsidiaries. Transactions between Manufacturing and Financial Services
have been eliminated from the "Navistar International Corporation and
Consolidated Subsidiaries" columns on the preceding page. The basis of
consolidation is described in Note 1 while a summary of eliminations is
shown in Note 2.
PAGE 23
STATEMENT OF NON-REDEEMABLE PREFERRED,
PREFERENCE AND COMMON SHAREOWNERS' EQUITY
Shares Outstanding (In thousands)
------------------------------------------------------------
Non-Redeemable Convertible
--------------------------
Preferred Preference
For the Years Ended Stock Stock Common Class B
October 31, 1993, 1992 and 1991 Series G Series D Stock Common Warrants
- ---------------------------------------------------------------------------------------------------------
Balance at October 31, 1990 ................. 4,800 212 25,002 - 22,806
Issuance of Common Stock
Conversion of Series D preference stock ... - (16) 5 - -
Restricted stock .......................... - - 10 - -
Repurchase of common stock .................. - - (5) - -
Net loss .................................... - - - - -
Preferred dividends paid .................... - - - - -
Adjustment for excess additional pension
liability over intangible pension assets .. - - - - -
Expiration of warrants ...................... - - - - (7,972)
Translation adjustments ..................... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1991 ................. 4,800 196 25,012 - 14,834
Issuance of Common Stock
Conversion of Series D preference stock ... - (17) 5 - -
Restricted stock .......................... - - 13 - -
Exercise of stock options ................. - - 23 - -
PBGC settlement shares .................... - - 357 - -
Net loss .................................... - - - - -
Preferred dividends paid .................... - - - - -
Adjustment for excess additional pension
liability over intangible pension assets . - - - - -
Translation adjustments ..................... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1992 ................. 4,800 179 25,410 - 14,834
Issuance of Common Stock:
Public stock offering ................... - - 23,600 - -
Conversion of Series D preference stock . - (1) - - -
Restricted stock ........................ - - 10 - -
Exercise of stock options ............... - - 2 - -
Reclassification of NOL (a).............. - - - - -
Class B Common Stock ...................... - - - 25,642 -
Repurchase of common stock .................. - - (3) (96) -
Stock accumulation fund settlement .......... - - 136 - -
Net loss ................................. - - - - -
Preferred dividends declared ................ - - - - -
Adjustment for excess additional pension
liability over intangible pension
assets, net of tax benefit ............... - - - - -
Tax benefit on previously recognized
pension liability ......................... - - - - -
Expiration of warrants ...................... - - - - (4,000)
Translation adjustments ..................... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1993 ............ 4,800 178 49,155 25,546 10,834
======== ======== ======== ======== ========
<FN>
See Notes to Financial Statements.
(a) Reclassification required as a result of
the 1987 deficit reclassification and
adoption of SFAS 109 in fiscal 1993.
PAGE 24
<CAPITON>
Equity (Millions of dollars)
------------------------------------------------------------------------------------------------------------
Non-Redeemable Convertible Accumulated
-------------------------- Common Foreign Common
Preferred Preference Stock Currency Stock
Stock Stock and Class B Retained Translation Held In
Series G Series D Warrants Common Earnings Adjustments Treasury Total
------------------------------------------------------------------------------------------------------------
$ 240.0 $ 5.3 $ 521.2 $ - $ 80.9 $ (.9) $ (31.6) $ 814.9
- (.4) .4 - - - - -
- - .4 - - - - .4
- - - - - - - -
- - - - (165.0) - - (165.0)
- - - - (28.8) - - (28.8)
- - - - (44.9) - - (44.9)
- - - - - - - -
- - - - - .9 - .9
-------- -------- -------- -------- -------- -------- -------- --------
240.0 4.9 522.0 - (157.8) - (31.6) 577.5
- (.4) .4 - - - - -
- - .3 - - - (.1) .2
- - 1.7 - - - (1.8) (.1)
- - (16.0) - - - 22.9 6.9
- - - - (212.4) - - (212.4)
- - - - (28.8) - - (28.8)
- - - - (.8) - - (.8)
- - - - - (4.2) - (4.2)
-------- -------- -------- -------- -------- -------- -------- --------
240.0 4.5 508.4 - (399.8) (4.2) (10.6) 338.3
- - 492.1 - - - - 492.1
- - - - - - - -
- - .3 - - - - .3
- - - - - - - -
- - 617.6 - (617.6) - - -
- - - 512.8 - - - 512.8
- - - - - - (2.5) (2.5)
- - (3.4) - - - 7.6 4.2
- - - - (501.0) - - (501.0)
- - - - (28.8) - - (28.8)
- - - - (79.4) - - (79.4)
- - - - 38.3 - - 38.3
- - - - - - - -
- - - - - .6 - .6
-------- -------- -------- -------- -------- -------- -------- --------
$ 240.0 $ 4.5 $1,615.0 $ 512.8 $(1,588.3) $ (3.6) $ (5.5) $ 774.9
======== ======== ======== ======== ======== ======== ======== ========
PAGE 25
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1993
1. SUMMARY OF ACCOUNTING POLICIES
Basis of Consolidation
Navistar International Corporation is a holding company, whose
principal operating subsidiary is Navistar International Transportation
Corp. (Transportation). Transportation operates in one principal industry
segment, the manufacture and marketing of medium and heavy trucks,
including school bus chassis, mid-range diesel engines and service parts
in North America and selected export markets. As used hereafter,
"Company" refers to Navistar International Corporation and its
consolidated subsidiaries.
In addition to the consolidated financial statements, the Company has
elected to provide financial information in a format that presents the
operating results, financial condition and cash flow from operations
designated as "Manufacturing" and "Financial Services." Manufacturing
includes the consolidated financial results of the Company's manufacturing
operations with its wholly-owned financial services subsidiaries included
on a one-line basis under the equity method of accounting. Financial
Services includes the Company's wholly-owned subsidiary, Navistar
Financial Corporation (Navistar Financial), and other wholly-owned foreign
finance and insurance companies. Through the first two quarters of 1992,
Financial Services included the results of Harbour Assurance Company
(U.K.) Ltd. This subsidiary was sold in July 1992. Navistar Financial's
primary business is the retail and wholesale financing of products sold by
Transportation and its dealers within the United States and the providing
of commercial physical damage and liability insurance to Transportation's
dealers and retail customers and to the general public through an
independent insurance agency system. Harbour Bermuda's primary business
is the insuring of general and product liability risks of Transportation.
The effects of transactions between Manufacturing and Financial
Services have been eliminated to arrive at the consolidated totals. See
Note 2 to the Financial Statements. The distinction between current and
long-term assets and liabilities in the Statement of Financial Condition
is not meaningful when finance, insurance and manufacturing subsidiaries
are combined; therefore, the Company has adopted an unclassified
presentation. Certain 1992 and 1991 amounts have been reclassified to
conform with the presentation used in the 1993 financial statements.
Cash and Cash Equivalents
All highly liquid financial instruments with maturities of three
months or less from date of purchase, consisting primarily of bankers'
acceptances, commercial paper and U.S. government securities, are
classified as cash equivalents in the Statement of Financial Condition and
Statement of Cash Flow.
Marketable Securities
Marketable securities are carried at cost or amortized cost which
approximates market value.
PAGE 26
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Inventory
Inventory is valued at the lower of average cost or market.
Property
Significant expenditures for replacement of equipment, tooling and
pattern equipment, and major rebuilding of machine tools are capitalized.
Depreciation and amortization are generally computed on the straight-line
basis; gains and losses on property disposal are included in other income
and expense.
Research and Development
Activities related to new product development and major improvements
to existing products and processes are expensed as incurred and were $95
million, $90 million and $87 million in 1993, 1992 and 1991, respectively.
Engineering expense, as shown in the Statement of Income (Loss), includes
certain research and development expenses and routine ongoing costs
associated with improving existing products and processes.
Income Taxes
Under SFAS 109, "Accounting for Income Taxes," recognition of a net
deferred tax asset is allowed if future realization is more likely than
not. A valuation allowance has been provided for those net operating loss
carryforwards which are estimated to expire before they are utilized.
The tax effect of each item of revenue or expense reported in the
Statement of Income (Loss) is recognized in the current period regardless
of when the related tax is paid. Because the benefit of net operating
loss carryforwards is recognized as a deferred tax asset in the Statement
of Financial Condition, the Statement of Income (Loss) includes income
taxes calculated at the statutory rate. The amount reported does not
represent cash payment of income taxes except for certain state income and
federal withholding taxes which are not material. On the Statement of
Financial Condition, the deferred tax asset is reduced by the amount of
deferred tax expense or increased by a deferred tax benefit recorded
during the year.
The Company files a consolidated federal income tax return which
includes all its U.S. subsidiaries. Federal income tax for each U.S.
subsidiary is computed separately and is payable to the Company. See Note
5 to the Financial Statements and the Income Tax section of Management's
Discussion and Analysis.
PAGE 27
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Revenue on Receivables
Finance charges on retail notes and finance leases are recognized as
income by Navistar Financial over the term of the receivables on the
accrual basis utilizing the actuarial method. Interest from interest-
bearing notes and accounts is recognized on the accrual basis. Gains or
losses on sales of receivables are credited or charged to revenue in the
period in which the sale occurs.
Losses on Receivables
The allowance for losses on receivables is maintained at an amount
management considers appropriate in relation to the outstanding
receivables portfolio. Receivables are charged to the allowance for
losses when they are determined to be uncollectible.
Receivable Sales
Navistar Financial sells and securitizes receivables to public and
private investors with limited recourse and continues to service the
receivables, for which a servicing fee is received from the investors.
Insurance Premiums and Loss Reserves
Premiums and underwriting costs of insurance operations are
recognized on a pro-rata basis over the terms of the policies.
Underwriting losses and outstanding loss reserve balances are based
on individual case estimates of the ultimate cost of settlement, including
actual losses, and determinations of amounts required for losses incurred
but not reported.
Changes in Accounting Policy
In the third quarter of fiscal 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106) and Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109) retroactive to November 1, 1992. As required, previously
reported first and second quarter results for 1993 and earnings per share
have been restated for the effects of the changes in accounting policy.
See Notes 4, 5 and 23 to the Financial Statements.
PAGE 28
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. FINANCIAL STATEMENT ELIMINATIONS
The consolidated columns of the financial statements represent the
summation of Manufacturing and Financial Services after intercompany
transactions between Manufacturing and Financial Services have been
eliminated. The following are the intercompany amounts which have been
eliminated to arrive at the consolidated financial statements. The
presence or absence of brackets indicates reductions or additions,
respectively, necessary to compute the consolidated amounts.
STATEMENT OF INCOME (LOSS)
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Sales and revenues, Financial Services .... $ (42) $ (40) $ (41)
====== ====== ======
Costs and expenses
Financing charges on sold receivables ... $ (42) $ (40) $ (41)
====== ====== ======
Income before income taxes,
Financial Services ...................... $ (61) $ (52) $ (60)
====== ====== ======
STATEMENT OF FINANCIAL CONDITION
Millions of dollars 1993 1992
- --------------------------------------------------------------
Receivables, net .......................... $ (16) $ -
Equity in Financial Services subsidiaries . (241) (240)
------ ------
Total assets .............................. $ (257) $ (240)
====== ======
Accounts payable .......................... $ (16) $ -
Shareowner's equity, Financial Services ... (241) (240)
------ ------
Total liabilities and shareowners' equity . $ (257) $ (240)
====== ======
STATEMENT OF CASH FLOW
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ............................ $ (220) $ (87) $ 289
Investment programs ................... 187 67 (370)
Financing activities .................. 33 20 112
------ ------- ------
Increase during the year
in cash and cash equivalents ............ $ - $ - $ 31
====== ====== ======
PAGE 29
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. INFORMATION RELATED TO THE STATEMENT OF CASH FLOW
The following provides information related to the change in operating
assets and liabilities included in cash and cash equivalents provided by
(used in) operations:
Millions of dollars 1993 1992 1991
- -----------------------------------------------------------------------
MANUFACTURING
(Increase) decrease in receivables ..... $ 7 $ (111) $ 45
(Increase) decrease in inventories ..... (51) (37) 13
(Increase) in prepaid
and other current assets ............. (10) (9) -
Increase (decrease) in accounts payable. 106 190 (100)
Increase in accrued liabilities ........ 12 126 76
------ ------ ------
Manufacturing change in operating
assets and liabilities ............... 64 159 34
------ ------ ------
FINANCIAL SERVICES
(Increase) decrease in receivables ..... 2 8 (3)
Increase (decrease) in accounts payable
and accrued liabilities .............. 17 (25) -
------ ------ ------
Financial Services change
in operating assets and liabilities .. 19 (17) (3)
------ ------ ------
Eliminations/reclassifications (a) ....... (191) (68) 326
------ ------ ------
Change in operating assets and liabilities $ (108) $ 74 $ 357
====== ====== ======
(a) Eliminations and reclassifications to the Statement of Cash Flow
primarily consist of "Acquisitions (over) under cash collections"
relating to Navistar Financial's wholesale notes and accounts. These
amounts are included on a consolidated basis as a change in operating
assets and liabilities under cash flow from operations which differs
from the Financial Services classification in which net changes in
wholesale notes and accounts are classified as cash flow from
investment programs. In 1991, this amount included $300 million of
proceeds from Navistar Financial's initial offering of pass-through
certificates backed by certain wholesale notes receivable.
PAGE 30
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS
The Company provides postretirement benefits to substantially all of
its employees. Expenses associated with postretirement benefits include
pension expense for employees, retirees and surviving spouses, and
postretirement health care and life insurance coverage for employees,
retirees, surviving spouses and dependents. These costs are segregated as
a separate component in the Statement of Income (Loss) and are as follows:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Pension expense ........................... $ 107 $ 109 $ 101
Health/life insurance ..................... 102 146 138
------ ------ ------
Total postretirement benefits expense ..... $ 209 $ 255 $ 239
====== ====== ======
On the Statement of Financial Condition the postretirement benefits
liability of $1,370 million includes $600 million for pension and $770
million of liabilities for postretirement health care and life insurance
benefits.
Generally, the pension plans are non-contributory with benefits
related to an employee's length of service and compensation rate. The
Company's policy is to fund its pension plans in accordance with
applicable government regulations and to make additional payments as funds
are available to achieve full funding of the vested accumulated benefit
obligation. The pension plans vary in the extent to which they are
funded, but for plan years which ended during the current fiscal year, all
legal funding requirements have been met. Plan assets are invested
primarily in dedicated portfolios of long-term fixed income securities.
In addition to providing pension benefits, the Company provides
health care and life insurance for a majority of its retired employees in
the United States (U.S.) and Canada. For most retirees in the U.S., these
benefits are defined by the terms of an agreement between the Company and
its employees, retirees and collective bargaining organizations (the
Settlement Agreement) which provides such benefits (the Plan). The Plan,
which was implemented on July 1, 1993, provides for cost sharing between
the Company and retirees in the form of premiums, co-payments and
deductibles. A Base Program Trust has been established to provide a
vehicle for funding of the health care liability through Company
contributions and retiree premiums. A separate independent Retiree
Supplemental Benefit Program was also established, which included a
Company contribution of Class B Common Stock valued at $513 million, to
potentially reduce retiree premiums, co-payments and deductibles and
provide additional benefits in the future.
PAGE 31
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Pension Expense
Net pension expense included in the Statement of Income (Loss) is
composed of the following:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Service cost-benefits
earned during the period ................ $ 27 $ 25 $ 20
Interest on projected benefit obligation .. 220 219 221
Other pension costs ....................... 43 54 54
Less expected return on assets ............ (183) (189) (194)
------ ------ ------
Net pension expense ....................... $ 107 $ 109 $ 101
====== ====== ======
Actual return on assets ................... $ 427 $ 218 $ 329
"Other pension costs" in the above table include principally the
amortization of the net transition obligation and amortization of the cost
of plan amendments. The net transition obligation of $467 million is
being amortized on a straight-line basis over 15 years through the year
2002. The costs of plan amendments resulting from negotiated contracts
are amortized principally over the average remaining service life of
active employees.
The determination of the projected benefit obligation is based on
actuarial assumptions and discount rates that reflect the current level of
interest rates. The return on assets is based on long-term expectations.
Annual differences between such expectations and actual experience are
deferred unless the cumulative amount exceeds a specified level. As of
October 31, 1993, the cumulative actual returns on plan assets exceeded
cumulative expected returns by $434 million. As a result of accumulated
reductions in the discount rate and net actuarial losses, the actual
projected benefit obligation exceeds the expected liability by $720
million.
Pension Assets and Liabilities
Included in the Statement of Financial Condition is an additional
pension liability based on the excess of accumulated benefit obligations
over the fair value of assets of the Company's underfunded pension plans
and an intangible asset representing previously incurred pension costs not
yet expensed. The difference between the additional liability and the
intangible asset represents net accumulated gains and losses from
actuarial valuations, investment experience and changes in assumptions.
This difference resulted in accumulated charges to equity of $142 million,
net of deferred income tax benefits of $87 million, and $101 million as of
October 31, 1993 and 1992, respectively. The charge to equity in fiscal
1993 is reflected net of taxes following the adoption of SFAS 109,
"Accounting for Income Taxes." See Note 5 to the Financial Statements.
PAGE 32
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Pension Assets and Liabilities (continued)
The funded status of the Company's plans as of October 31, 1993 and
1992, and a reconciliation with amounts recognized in the Statement of
Financial Condition are provided below.
Plans in Which Plans in Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
--------------------- --------------------
Millions of dollars 1993 1992 1993 1992
- --------------------------------------------------------------------------
Actuarial present value of:
Vested benefits ........... $ (87) $ (71) $ (2,618) $ (2,235)
Non-vested benefits ....... (4) (6) (213) (204)
-------- -------- -------- --------
Accumulated benefit
obligation ............ (91) (77) (2,831) (2,439)
Effect of projected future
compensation levels ..... (6) (6) (40) (58)
-------- -------- -------- --------
Projected benefit obligation. (97) (83) (2,871) (2,497)
Plan assets at fair value ... 122 98 2,262 2,070
-------- -------- -------- --------
Funded status at October 31 . 25 15 (609) (427)
Unamortized pension costs:
Net losses .............. 26 38 260 151
Prior service costs ..... 1 1 49 54
(Asset) liability at
date of transition .... (1) (2) 301 324
Adjustment for the
minimum liability ......... - - (570) (471)
-------- -------- -------- --------
Net asset (liability) ....... $ 51 $ 52 $ (569) $ (369)
======== ======== ======== ========
As shown above, for all plans, the sum of the $51 million net asset
and the $569 million net liability was $518 million and is the amount
recognized in the Statement of Financial Condition at October 31, 1993.
This total includes $82 million of prepaid pension assets representing
advance contributions to certain plans, and $600 million of net pension
liabilities included in the $1,370 million postretirement benefits
liability on the Statement of Financial Condition.
PAGE 33
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Pension Assets and Liabilities (continued)
The weighted average actuarial assumptions used in determining
pension costs and the projected benefit obligation were:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Discount rate used to determine
present value of projected benefit
obligation ............................... 7.3% 8.8% 9.1%
Expected long-term rate of return
on plan assets ........................... 8.8% 9.2% 10.1%
Expected rate of increase
in future compensation levels ............ 3.5% 5.5% 5.5%
The Company uses a weighted average discount rate based on the
internal rate of return on its dedicated portfolio of high-quality bonds
and an estimated yield available on high-quality fixed income securities
which could be purchased to effectively settle the remaining portion of
the obligation. The decrease in the discount rate to 7.3% in 1993 from
8.8% in 1992 reflects the decline in long-term interest rates during the
past year. The Company also reduced the assumption for future salary
increases from 5.5% to 3.5% to reflect current expectations.
Other Postretirement Benefits
The Company adopted SFAS 106 for its U.S. and Canadian plans in the
third quarter of fiscal 1993, retroactive to November 1, 1992. The
Company elected to recognize the SFAS 106 transition obligation as a one-
time non-cash charge to earnings. The cumulative effect of this change in
accounting policy, as of November 1, 1992, was $729 million, net of a
deferred income tax benefit of $420 million. Prior years have not been
restated. The $228 million cumulative charge for the changes in
accounting policy reported on the Statement of Income (Loss) includes the
$729 million charge from the adoption of SFAS 106 which was partially
offset by the $501 million benefit from the adoption of SFAS 109, as
discussed in Note 5 to the Financial Statements.
The Company's previous practice was to expense other postretirement
benefits on a pay-as-you-go basis. The effect of adopting SFAS 106 in
1993 was an increase in annual expense of $41 million, or $25 million net
of tax. The adoption of SFAS 106 does not affect cash flow, but it does
change the timing of the recognition of costs. SFAS 106 requires the
accrual of the expected cost of providing postretirement benefits during
employees' active service periods.
PAGE 34
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Other Postretirement Benefits (continued)
The components of expense under SFAS 106 for postretirement benefits
other than pensions that are included in the Statement of Income (Loss)
for 1993 include the following:
Millions of dollars 1993
- ---------------------------------------------------------------------
Service cost - benefits earned during the year .... $ 12
Interest cost on the accumulated benefit obligation 91
Expected return on assets ......................... (1)
------
Total postretirement benefits other than pensions . $ 102
======
The funded status of postretirement benefits other than pensions as
of October 31, 1993, is as follows:
Millions of dollars 1993
- ---------------------------------------------------------------------
Accumulated postretirement benefit obligation (APBO):
Retirees and their dependents .................... $ (765)
Active employees eligible to retire ............... (163)
Other active participants ......................... (176)
-------
Total APBO ........................................ (1,104)
Plan assets at fair value ......................... 302
-------
APBO in excess of plan assets ..................... (802)
Unrecognized net (gain)/loss ...................... 32
-------
Net liability ..................................... $ (770)
=======
During fiscal 1993, the Company pre-funded $300 million of this
liability from the partial proceeds of a public offering of Common Stock.
According to the terms of the Settlement Agreement, the Company was
required to fund at least $100 million of this liability prior to January
1, 1994. Further, the Company will be required to make additional pre-
funding contributions to the liability on or prior to July 1, 1998, such
that the total of all pre-funding contributions will equal the total net
proceeds from all sales of Common Stock through such date, but not to
exceed $500 million. Additionally, the Company is required to annually
pre-fund an amount equal to annual service cost. Under the terms of the
Settlement Agreement, these funds will be used to pay a portion of current
benefits; the remainder to be invested primarily in equities with an
expected return of 9%.
PAGE 35
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Other Postretirement Benefits (continued)
The discount rate used to determine the accumulated postretirement
benefit obligation at October 31, 1993, was 7.5%, based on estimated
income on high-quality fixed income securities which could be purchased to
effectively settle the obligation. As interest rates have declined,
inflation rates and their effect on future health care cost trend rates
have been contained and are experiencing a downward trend. Combined with
internal containment programs and the government program on national
health care, the period to reach an ultimate ongoing inflation rate may
also shorten. For 1994, the weighted average rate of increase in the per
capita cost of covered medical benefits is projected to be 10.5% for
participants under the age of 65 and 8.5% for participants age 65 or over.
The rate of increase for drugs is projected to be 11.5% for all
participants. The rates are projected to decrease on an annual basis to
5% in the year 2003 and remain at that level each year thereafter. If the
cost trend rate assumptions were increased by one percentage point for
each year, the accumulated postretirement benefit obligation would
increase by approximately $120 million and the associated expense
recognized for the year ended October 31, 1993 would increase by an
estimated $13 million. Conversely, a decrease in the cost trend rate
would lower the accumulated postretirement benefit obligation and the
associated expense.
5. INCOME TAXES
During the third quarter of 1993, the Company adopted SFAS 109,
"Accounting for Income Taxes," with retroactive application to November 1,
1992. The cumulative effect of SFAS 109 was an increase in net income of
$501 million. The impact on the current year operations was a benefit of
$170 million. Under provisions of SFAS 109, prior years have not been
restated. The $228 million cumulative charge for the changes in
accounting policy reported on the Statement of Income (Loss) includes the
$501 million benefit from the adoption of SFAS 109, offset by the $729
million charge from the adoption of SFAS 106, as discussed in Note 4 to
the Financial Statements. Under SFAS 109, deferred tax assets and
liabilities are generally determined based on the differences between the
amounts included in the financial statements and the valuation of those
assets and liabilities under tax laws. Recognition of a deferred tax
asset is allowed if future realization is more likely than not.
The Income Tax section of Management's Discussion and Analysis
includes disclosures related to the determination of the amount of the net
deferred tax asset included on the Statement of Financial Condition.
PAGE 36
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
The income tax benefit (expense) for the years ended October 31 is as
follows:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Tax benefit (expense) on income (loss)
of continuing operations:
Manufacturing .......................... $ 190 $ 18 $ 20
Financial Services ..................... (22) (20) (23)
------ ------ ------
Total income tax benefit (expense)
of continuing operations ................. $ 168 $ (2) $ (3)
====== ====== ======
Taxes on income (loss) of continuing operations are analyzed by
categories, as follows:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Current state and local .................... $ (2) $ (2) $ (3)
------ ------ ------
Deferred:
Federal .................................. 149 - -
State and local .......................... 21 - -
------ ------ ------
Total deferred ......................... 170 - -
------ ------- ------
Total income tax benefit (expense) ......... $ 168 $ (2) $ (3)
====== ====== ======
The relationship of tax benefit to the loss of continuing operations
for 1993 differs from the U.S. statutory rate (35%) because of state
income taxes. The effective income tax rate for 1992 and 1991 differs
from the U.S. statutory rate because of the benefit of net operating loss
carryforwards (NOLs) in the United States and foreign countries.
Undistributed earnings of foreign subsidiaries were $15 million at
October 31, 1993. Taxes have not been provided on these earnings because
no withholding taxes are applicable upon repatriation, and U.S. tax would
be substantially offset by utilization of NOL carryforwards.
PAGE 37
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
The components of the deferred tax asset (liability), in millions of
dollars, are as follows:
October 31,1993
---------------
United States
- -------------
Deferred tax assets:
Net operating loss carryforwards ............ $ 916
Accrued liabilities:
Product liability .......................... 71
Warranty ................................... 37
Employee related costs ..................... 38
Other ...................................... 96 242
----
Postretirement benefits:
Health care and life insurance ............. 271
Pensions ................................... 87 358
---- ------
Total deferred tax assets ................ 1,516
------
Deferred tax liabilities:
Prepaid pension assets ....................... (19)
Depreciation - property, plant and equipment . (41)
------
Total deferred tax liabilities ........... (60)
-------
Total .................................... 1,456
Less valuation allowance ....................... (278)
-------
Net deferred tax asset ................... $ 1,178
=======
PAGE 38
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
October 31,1993
---------------
Foreign
- -------
Deferred tax assets:
Net operating loss carryforwards ............ $ 11
Postretirement benefits ..................... 16
-------
Total deferred tax assets ............... 27
-------
Deferred tax liabilities:
Prepaid pension assets ...................... (16)
-------
Total deferred tax liabilities .......... (16)
-------
Total ................................... 11
Less valuation allowance ...................... (27)
-------
Net deferred tax liabilities ............ $ (16)
=======
A valuation allowance has been provided for those net operating loss
carryforwards and temporary differences which are estimated to expire
before they are utilized. Because the foreign tax carryforward period is
relatively short, a full allowance has been provided against the total
deferred tax assets. The valuation allowance decreased $6 million during
1993 resulting from recognizing tax benefits from the utilization of NOL
carryforwards attributable to 1993 foreign operating income and
fluctuations in foreign exchange rates.
SFAS 109 requires that individual tax paying entities of the Company
offset all deferred tax assets and liabilities within each tax
jurisdiction and present them in a single amount in the Statement of
Financial Condition. Amounts in different tax jurisdictions cannot be
offset against each other. Accordingly, the U.S. deferred tax asset is
shown on the Statement of Financial Condition as a deferred tax asset,
whereas the foreign deferred tax liability is included in the amount shown
for other long-term liabilities.
PAGE 39
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
At October 31, 1993, the Company had $2,410 million of domestic and
$27 million of foreign NOL carryforwards available to offset future
taxable income. Such carryforwards reflect deductions taken in previously
filed income tax returns and will expire as follows, in millions of
dollars:
1997 .............................. $ 312
1998 .............................. 391
1999 .............................. 42
2000 .............................. 300
2001 .............................. 143
2002 .............................. 47
2004 .............................. 234
2005 .............................. 7
2006 .............................. 126
2007 .............................. 41
2008 .............................. 794
------
Total ......................... $2,437
======
Additionally, the estimated reversal of net temporary differences of
$1,465 million as of October 31, 1993, will create net tax deductions
which, if not utilized previously, will expire subsequent to 2008, as
indicated, in millions of dollars:
Estimated Year Estimated Year
of Reversal Amount of Expiration
-------------- ------ --------------
United States:
1994 ........................ $ 316 2009
1995 ........................ 4 2010
1996 ........................ 33 2011
1997-2001 ................... 241 2012 - 2016
2002 and thereafter ......... 828 2017 and thereafter
------
Total U.S. ................ 1,422
------
Canada
2000 and thereafter ......... 43 2008 and thereafter
------
Total Canada .............. 43
------
$1,465
======
PAGE 40
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. DISCONTINUED OPERATIONS
A provision of $65 million was recorded in the third quarter of 1992
as a loss of discontinued operations for the settlement of litigation
commonly referred to as the Wisconsin Steel Pension Plan Cases. The court
held Transportation liable for pension liabilities to former employees of
the Wisconsin Steel Division prior to its sale to EDC Holding Company in
1977. Under the terms of the settlement, the Company paid the Pension
Benefit Guaranty Corporation (PBGC) $20 million, issued to the PBGC
357,000 shares of Navistar International Corporation Common Stock and
delivered to the PBGC an eight percent ten-year note with a face amount of
$36.6 million and maturing August 15, 2002.
7. EARNINGS APPLICABLE TO COMMON STOCK
For computation of earnings per share, income (loss) applicable to
common stock is determined as follows:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Income (loss) of continuing operations ... $ (273) $ (147) $ (165)
Preferred dividend requirements
on Series G preferred stock ............ (29) (29) (29)
------ ------ ------
Income (loss) of continuing operations
applicable to common stock ............. (302) (176) (194)
Loss of discontinued operations .......... - (65) -
------ ------ ------
Income (loss) before cumulative effect
of changes in accounting policy
applicable to common stock ............. (302) (241) (194)
Cumulative effect of changes
in accounting policy ................... (228) - -
------ ------ ------
Net income (loss)
applicable to common stock ............. $ (530) $ (241) $ (194)
====== ====== ======
Earnings per share are calculated based on the weighted average
number of Common and Class B Common shares outstanding of 34.9, 25.3 and
25.1 million for the years ended October 31, 1993, 1992 and 1991,
respectively.
In December 1992, the Company suspended dividends on its Series G
preferred stock. In October 1993, subsequent to the implementation of the
Plan and completion of the public offering of Common shares, the Company
announced that payment of these dividends would be resumed. Dividends in
arrears will be paid on December 15, 1993 to shareowners of record as of
December 5, 1993.
PAGE 41
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. EARNINGS APPLICABLE TO COMMON STOCK (continued)
Income (loss) per common share assuming full dilution has not been
presented because the Series G Preferred Stock did not have a dilutive
effect for the years presented.
All references to the number of shares of Common and Class B Common
stock have been adjusted to reflect the one-for-ten reverse stock split on
a retroactive basis which occurred on July 1, 1993.
8. MARKETABLE SECURITIES
Marketable securities at October 31 are as follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Corporate and other securities ................... $ 9 $ 9
U.S. government securities ....................... 76 19
------ ------
Manufacturing marketable securities ............ 85 28
------ ------
FINANCIAL SERVICES
Corporate securities ............................. 18 29
U.S. government and federal agency securities .... 70 61
Mortgage and asset-backed securities ............. 36 39
Foreign government securities .................... 9 14
------ ------
Financial Services marketable securities ....... 133 143
------ ------
Total marketable securities ........................ $ 218 $ 171
====== ======
Additional information related to the Financial Services' marketable
securities carried at amortized cost at October 31, all of which are held
by insurance affiliates, is as follows:
1993
-------------------------------------------------
Gross
Amortized Unrealized Fair
Cost Gains Value
Millions of dollars
- -------------------------------------------------------------------------
Corporate securities ................... $ 18 $ 1 $ 19
U.S. government
and federal agency securities ........ 70 5 75
Mortgage and asset-backed securities ... 36 1 37
Foreign government securities .......... 9 - 9
------ ------ ------
Total Financial Services
marketable securities ................ $ 133 $ 7 $ 140
====== ====== ======
PAGE 42
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. MARKETABLE SECURITIES (Continued)
1992
-------------------------------------------------
Gross
Amortized Unrealized Fair
Cost Gains Value
Millions of dollars
- --------------------------------------------------------------------------
Corporate securities ................... $ 29 $ 1 $ 30
U.S. government
and federal agency securities ......... 61 2 63
Mortgage and asset-backed securities ... 39 1 40
Foreign government securities .......... 14 - 14
------ ------ ------
Total Financial Services
marketable securities ................ $ 143 $ 4 $ 147
====== ====== ======
Contractual maturities of Financial Services' marketable debt
securities at October 31, 1993 are as follows:
Amortized Fair
Millions of dollars Cost Value
- --------------------------------------------------------------------------
Due in one year or less ................ $ 6 $ 6
Due after one year through five years .. 62 65
Due after five years through ten years . 26 28
Due after ten years .................... 3 3
------- -------
97 102
Mortgage and asset-backed securities . 36 38
------- -------
Total debt securities .............. $ 133 $ 140
======= =======
Proceeds from sales or maturities of investments in debt securities
were $86 million during 1993 and $121 million during 1992. Gross gains of
$6 million and $4 million were realized on such sales or maturities in
1993 and 1992, respectively. There were gross losses of $2 million in
1993 and 1992.
At October 31, 1993 and 1992, Financial Services had $27 million and
$20 million, respectively, of marketable securities on deposit with
various state departments of insurance or otherwise restricted as to use.
These securities are included in total marketable securities balances at
October 31, 1993 and 1992.
PAGE 43
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. RECEIVABLES
Receivables at October 31 are summarized by major classification as
follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Customers ........................................ $ 147 $ 151
Allowance for losses ............................. (24) (20)
------ ------
Manufacturing receivables, net ................. 123 131
------ ------
FINANCIAL SERVICES
Retail notes and lease financing ................. 831 971
Wholesale notes .................................. 259 128
Accounts receivable .............................. 275 216
Amounts due from sales of receivables ............ 76 41
Reinsurance balance receivables .................. 5 6
------ ------
Total accounts and notes receivables ............. 1,446 1,362
Allowance for losses ............................. (13) (14)
------ ------
Financial Services receivables, net ............ 1,433 1,348
------ ------
Eliminations ................................... (16) -
------ ------
Total receivables, net ............................. $1,540 $1,479
====== ======
The allowance for losses of Manufacturing includes amounts associated
with receivables financed by the Financial Services' subsidiaries and
receivables on products sold to distributors in export markets.
Financial Services
Navistar Financial purchases the majority of the wholesale notes
receivable and some retail notes and accounts receivable arising from
Transportation's operations in the United States.
A portion of Navistar Financial's funding for retail and wholesale
notes comes from sales of those receivables by Navistar Financial to third
parties with limited recourse. Proceeds from sales of receivables were
$1,741 million in 1993, $1,285 million in 1992 and $1,470 million in 1991.
Uncollected sold receivable balances totalled $839 million and $533
million as of October 31, 1993 and 1992, respectively. A portion of the
receivables is sold by Navistar Financial to third parties with recourse.
Navistar Financial's maximum exposure under all receivable sale recourse
provisions at October 31, 1993 is $130 million which includes holdback
reserves of $69 million, subordinated retained interest in securitized
receivable sales of $54 million and $6 million of certain cash deposits
established as a result of the securitized receivables recourse
provisions.
PAGE 44
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. RECEIVABLES (continued)
Contractual maturities of notes and lease financing outstanding at
October 31, 1993, are summarized as follows. Prepayments may cause the
average actual life to be shorter.
Retail Notes and Wholesale Accounts
Millions of dollars Lease Financing Notes Receivable
- ----------------------------------------------------------------------
Gross finance
receivables due in:
1994 ................ $ 337 $ 145 $ 275
1995 ................ 249 114 -
1996 ................ 173 - -
1997 and thereafter . 165 - -
------- ------- -------
Gross finance
receivables ..... 924 259 275
Unearned finance charges. 93 - -
------- ------- -------
Total finance receivables $ 831 $ 259 $ 275
======= ======= =======
10. INVENTORIES
Inventories at October 31 are as follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
Finished products .................................. $ 196 $ 180
Work in process .................................... 73 67
Raw materials and supplies ......................... 142 118
------ ------
Total inventories .................................. $ 411 $ 365
====== ======
PAGE 45
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. PROPERTY
At October 31, property includes the following:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Land ............................................ $ 8 $ 8
------ ------
Buildings, machinery and equipment at cost:
Plants ........................................ 1,087 995
Distribution .................................. 72 72
Other ......................................... 82 76
------ ------
Subtotal .................................... 1,241 1,143
------ ------
Total property ............................... 1,249 1,151
Less accumulated depreciation
and amortization ............................ (641) (588)
------ ------
Manufacturing property, net ................. 608 563
------ ------
FINANCIAL SERVICES
Total property .................................. 34 24
Less accumulated depreciation
and amortization .............................. (6) (5)
------ ------
Financial Services property, net .............. 28 19
------ ------
Total property and equipment, net ................. $ 636 $ 582
====== ======
Included in the gross property of Manufacturing is property under
capitalized lease obligations of $28 million at October 31, 1993, and $54
million at October 31, 1992.
PAGE 46
NOTES TO FINANCIAL STATEMENTS
(Continued)
12. LEASES
The Company has long-term noncancellable leases for use of various
equipment and facilities. Lease terms are generally for 5 to 25 years and
in many cases provide for renewal options. The Company is generally
obligated for the cost of property taxes, insurance and maintenance.
The Company leases office buildings, distribution centers, furniture
and equipment, machinery and equipment and computer equipment. Total
operating lease expense was $35 million in 1993, 1992 and 1991. Income
received from sublease rentals was $6 million in 1993, 1992 and 1991.
At October 31, 1993, consolidated future minimum lease payments
required under capital and noncancellable operating leases having lease
terms in excess of one year are as follows:
Capital Operating
Millions of dollars Leases Leases
- ----------------------------------------------------------------------
1994 ..................................... $ 4 $ 23
1995 ..................................... 4 24
1996 ..................................... 3 25
1997 ..................................... 3 23
Thereafter ............................... 13 126
------ ------
Total minimum payments ................... $ 27 $ 221
======
Less imputed interest .................... (8)
------
Present value of minimum lease payments. $ 19
======
Future income from subleases ........... $ 39
======
PAGE 47
NOTES TO FINANCIAL STATEMENTS
(Continued)
13. ACCOUNTS PAYABLE
Major classifications of accounts payable at October 31 are as
follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Trade ............................................ $ 669 $ 577
Other ............................................ 1 4
------ ------
Manufacturing accounts payable ................. 670 581
------ ------
FINANCIAL SERVICES
Other ............................................ 63 56
Manufacturing .................................... 22 -
------ ------
Financial Services accounts payable ............ 85 56
------ ------
Eliminations ....................................... (16) -
------ ------
Total accounts payable ............................. $ 739 $ 637
====== ======
14. ACCRUED LIABILITIES
Major classifications of accrued liabilities at October 31 are as
follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Employee related benefits ........................ $ 35 $ 51
Product liability and warranty ................... 108 94
Payroll and commissions .......................... 59 67
Taxes ............................................ 27 25
Dividends declared ............................... 29 -
Interest ........................................ 4 4
Other ............................................ 133 127
------ ------
Manufacturing accrued liabilities .............. 395 368
------ ------
FINANCIAL SERVICES
Interest ......................................... 14 20
Taxes ............................................ 5 5
Product liability ................................ 2 2
Other ............................................ 3 6
------ ------
Financial Services accrued liabilities ......... 24 33
------ ------
Total accrued liabilities .......................... $ 419 $ 401
====== ======
PAGE 48
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT
Short-Term Debt
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Notes payable
and current maturities of long-term debt....... $ 25 $ 15
------ ------
FINANCIAL SERVICES
Bank borrowings ................................. 75 -
Current maturities of long-term debt ............ 80 99
------ ------
Financial Services short-term debt ............ 155 99
------ ------
Total short-term debt ............................. $ 180 $ 114
====== ======
Long-Term Debt
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
8 5/8% Sinking Fund Debentures, due 1995 ......... $ 9 $ 15
6 1/4% Sinking Fund Debentures, due 1998 ........ 11 14
9% Sinking Fund Debentures, due 2004 ............. 75 83
8% Secured Note, due 2002 ........................ 37 37
Capitalized leases ............................... 15 19
Other ............................................ 3 4
------ ------
Manufacturing long-term debt ................... 150 172
------ ------
FINANCIAL SERVICES
Senior Debentures and Notes
7 1/2%, due 1994 ............................... - 75
9.35% to 9.75%, medium-term, due 1994 to 1996 .. 217 222
Bank revolver, variable rate, due November 1995 727 727
------ ------
Total senior debt ............................ 944 1,024
Subordinated Debentures, 11.95%, due December 1995 100 100
Unamortized discount ............................. - (5)
------ ------
Financial Services long-term debt .............. 1,044 1,119
------ ------
Total long-term debt ............................... $1,194 $1,291
====== ======
PAGE 49
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT (continued)
Long-Term Debt (continued)
The aggregate annual maturities and sinking fund requirements for
long-term debt for the years ended October 31 are as follows:
Financial
Millions of dollars Manufacturing Services Total
- ------------------------------------------------------------------------
1995 ................................ $ 23 $100 $123
1996 ................................ 18 944 962
1997 ................................ 17 - 17
1998 ................................ 17 - 17
Thereafter .......................... 75 - 75
Weighted average interest rate on
total debt including short-term debt
and the effect of discounts and
related amortization ............... 8.7% 6.6% 6.9%
Manufacturing's eight percent secured note, due 2002, is secured by
certain plant assets.
At October 31, 1993, Navistar Financial had contractually committed
facilities of $1,327 million consisting of a bank revolving credit
facility of $727 million and a retail notes receivable purchase facility
of $600 million. In April 1993, Navistar Financial amended and restated
the credit and purchase facility agreements extending the maturity date of
these facilities to November 15, 1995. The amended and restated credit
facility granted security interests in substantially all of Navistar
Financial's assets, provided for a reduction in the credit facility
commitment in the amount of 50% of any new senior debt issued after April
30, 1993 with a term of three years or longer and permitted Navistar
Financial to declare a special dividend to Transportation not to exceed
$20 million upon implementation of the Plan.
Unused commitments under the credit and purchase facilities were $157
million, $75 million of which was used to back short-term bank borrowings
at October 31, 1993. The remaining $82 million, when combined with
unrestricted cash and cash equivalents, made $105 million available for
the general business purposes of Navistar Financial at October 31, 1993.
Compensating cash balances are not required under the revolving credit
facility, but commitment fees are paid on the unused portions of the bank
revolving credit and retail notes receivable purchase facilities.
Navistar Financial also pays a facility fee on the $600 million retail
notes receivable purchase facility.
PAGE 50
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT (continued)
Long-Term Debt (continued)
Navistar Financial has two wholly-owned subsidiaries, Navistar
Financial Retail Receivables Corporation (NFRRC) and Navistar Financial
Securities Corporation (NFSC), which have a limited purpose of purchasing
retail and wholesale receivables, respectively, and transferring an
undivided ownership interest in such notes to investors in exchange for
pass-through notes and certificates. These subsidiaries have limited
recourse on the sold receivables and their assets are available to satisfy
the claims of their creditors prior to such assets becoming available to
Navistar Financial or affiliated companies.
At October 31, 1993, NFSC had in place a $300 million revolving
wholesale note sales trust providing for the continuous sale of wholesale
notes on a daily basis. The sales trust is comprised of three $100
million pools of notes maturing serially from 1997 to 1999.
On September 16, 1993, NFRRC filed a shelf registration with the
Securities and Exchange Commission providing for the issuance from time to
time of $1 billion of asset-backed securities. On November 10, 1993,
Navistar Financial sold $335 million of retail notes to NFRRC which, in
turn, sold to investors $323 million of notes and $12 million of
certificates issued by an owner trust. The net proceeds of $334 million
were used by Navistar Financial for general working capital purposes and
to establish a $25 million reserve account with the trust.
On November 16, 1993, Navistar Financial sold $100 million of 8 7/8%
Senior Subordinated Notes due 1998 and used the proceeds to redeem its
11.95% Subordinated Debentures due December 1995. Navistar Financial will
also redeem its 7 1/2% Senior Debentures due January 1994 on December 15,
1993.
Consolidated interest payments were $91 million, $92 million and $97
million in 1993, 1992 and 1991, respectively.
16. OTHER LONG-TERM LIABILITIES
Major classifications of other long-term liabilities at October 31
are as follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Product liability and warranty .................. $ 170 $ 183
Restructuring costs ............................. 8 16
Other ........................................... 89 96
------ ------
Manufacturing other long-term liabilities ..... 267 295
FINANCIAL SERVICES
Product liability ............................... 9 10
------ ------
Total other long-term liabilities ................. $ 276 $ 305
====== ======
PAGE 51
NOTES TO FINANCIAL STATEMENTS
(Continued)
17. FINANCIAL INSTRUMENTS
During fiscal 1993, the Company adopted SFAS 107, "Disclosures about
Fair Value of Financial Instruments." This statement requires disclosure
of the fair value of financial instruments and a description of the
methods and assumptions used to estimate fair value.
The carrying amounts of financial instruments on a consolidated
basis, as reported on the Statement of Financial Condition and described
in the various footnotes to the financial statements and their fair values
at October 31, 1993, are as follows:
Carrying Fair
Millions of dollars Amount Value
- ------------------------------------------------------------------------
Marketable securities .................... $ 218 $ 225
Receivables, net ......................... 1,540 1,556
Investments and other assets ............. 234 279
Long-term debt ........................... 1,194 1,208
The carrying amounts of cash and cash equivalents approximate fair
value.
The fair value of marketable securities is estimated based on quoted
market prices, when available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar financial
instruments. The fair value of Financial Services' marketable securities
held by insurance affiliates at October 31, 1993 is disclosed, as
required, in Note 8 to the Financial Statements, and included above.
The carrying amounts of Manufacturing's customer receivables and
Navistar Financial's wholesale notes and retail and wholesale accounts and
other variable-rate retail notes approximate fair value because of the
short-term maturities of the financial instruments. The fair value of
Navistar Financial's truck retail notes is estimated based on quoted
market prices of similar sold receivables. The fair value of amounts due
from sales of receivables is estimated using cash flow analyses based on
interest rates currently offered by Navistar Financial's finance
operations.
The carrying amounts of short-term debt and variable-rate borrowings
under Navistar Financial's bank revolving credit agreement, which is
repriced frequently, approximate fair value. The fair value of long-term
debt is estimated based on quoted market prices, when available. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar financial instruments or discounting future cash
flows.
The fair value of investments and other assets is estimated based on
quoted market prices or by discounting future cash flows.
PAGE 52
NOTES TO FINANCIAL STATEMENTS
(Continued)
18. COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS ON ASSETS
At October 31, 1993, commitments for capital expenditures in progress
were approximately $17 million.
Transportation was contingently liable at October 31, 1993, for
approximately $4 million for guarantees of debt and for bid and
performance bonds. As of October 31, 1993, Harbour Bermuda was
contingently liable for claims in the amount of $5 million.
At October 31, 1993, the Canadian operating subsidiary was
contingently liable for retail customers' contracts and leases financed by
a third party. The Company is subject to maximum recourse of $94 million
on retail contracts and $9 million on retail leases. Based on historical
loss trends however, the Company's exposure to loss is not considered
material.
The Canadian operating subsidiary and certain subsidiaries included
in Financial Services are parties to agreements which restrict the amounts
which can be distributed to Transportation in the form of dividends or
loans and advances which can be made. As of October 31, 1993, these
subsidiaries had $313 million of net assets, of which $238 million was
restricted as to distribution.
The Company and Transportation are obligated under certain agreements
with public and private lenders of Navistar Financial to maintain the
subsidiary's income before interest expense and income taxes at not less
than 125% of its total interest expense. No income maintenance payments
were required for the three years ended October 31, 1993.
The Company has been named as a potentially responsible party (PRP),
in conjunction with other parties, in a number of cases arising under an
environmental protection law commonly known as the Superfund law. The
anticipated known costs associated with the current PRP actions on October
31, 1993, are reflected in the Company's $10 million accrued liability.
Investigations into the nature and extent of cleanup activities under
the Superfund law are being conducted at two sites formerly owned by the
Company. The eventual scope, timing and cost of such activities as well
as the availability of defense to any such claims, and possible claims
against third parties and insurance companies are not known and cannot be
reasonably estimated; however, substantial claims could be asserted
against the Company.
PAGE 53
NOTES TO FINANCIAL STATEMENTS
(Continued)
19. LEGAL PROCEEDINGS
In July 1992, the Company announced its decision to change its
retiree health care benefit plans and concurrently filed a declaratory
judgment class action lawsuit in the U.S. District Court for the Northern
District of Illinois (Illinois Court) to confirm its right to change these
benefits. A countersuit was filed against the Company by its unions in
the U.S. District Court for the Southern District of Ohio (Ohio Court).
On October 16, 1992, the Company withdrew its declaratory judgment action
in the Illinois Court and began negotiations with the United Automobile,
Aerospace and Agricultural Implement Workers of America (UAW) to resolve
issues affecting both retirees and employees. On December 17, 1992, the
Company announced that a tentative agreement had been reached with the UAW
on restructuring retiree health care and life insurance benefits (the
Settlement Agreement). During the third quarter of 1993, all court,
regulatory agency and shareowner approvals required to implement the
Settlement Agreement concerning retiree health care benefit plans were
obtained. The Settlement Agreement became effective and the restructured
retiree health care and life insurance plan was implemented on July 1,
1993.
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. and against Transportation in the amount of $10.8 million
in compensatory damages and $15 million in punitive damages. In order to
appeal the verdict in the case, the Company was required to post a bond
collateralized with $30 million in cash. This amount has been recorded as
restricted cash on the Statement of Financial Condition. The amount of
any potential liability is uncertain and Transportation believes that
there are meritorious arguments for overturning or diminishing the
verdict.
The Company and its subsidiaries are subject to various other claims
arising in the ordinary course of business, and are parties to various
legal proceedings which constitute ordinary routine litigation incidental
to the business of the Company and its subsidiaries. In the opinion of
the Company's management, none of these proceedings or claims are material
to the business or the financial condition of the Company.
20. PREFERRED AND PREFERENCE STOCKS
On June 29, 1993, the Company's shareowners approved an agreement
among the Company and a class of employees, retirees and collective
bargaining organizations as discussed in Note 19 to the Financial
Statements. In conjunction with shareowner approval of the Settlement
Agreement, the Company's Certificate of Incorporation was amended and
restated and two new series of preference stock were created with a par
value of $1.00 per share. These stocks have been designated as
Nonconvertible Junior Preference Stock, Series A and Nonconvertible Junior
Preference Stock, Series B. The Series A Preference Stock is held by the
Supplemental Trust which is currently entitled to elect two members to the
Company's Board of Directors. The UAW holds the Series B Preference Stock
and is currently entitled to elect one member of the Company's Board of
Directors. At October 31, 1993, there was one share each of Series A and
Series B Preference stock authorized and outstanding. The value of the
preference shares is minimal.
PAGE 54
NOTES TO FINANCIAL STATEMENTS
(Continued)
20. PREFERRED AND PREFERENCE STOCKS (continued)
Other information pertaining to preferred and preference stocks
outstanding is summarized as follows:
Series G, $6.00 Series D Convertible
Cumulative Preferred Junior Preference
- --------------------------------------------------------------------------
Number authorized ............ 4,800,000 3,000,000
Number issued ................ 4,799,979 3,000,000
Number outstanding
at October 31
1993 ..................... 4,799,979 178,129
1992 ..................... 4,799,979 179,129
Optional redemption price
and liquidation preference $50 per share plus $25 per share plus
accrued dividends accrued dividends
Conversion rate per share
into Common Stock
(subject to adjustment
in certain circumstances) .. 0.133 shares 0.3125 shares
Ranking as to dividends
and upon liquidation ....... Senior to all other Senior to Common;
equity securities junior to Series G
Dividend rate Annual rate of 120% of the cash
$6.00 per share, dividends on Common
payable quarterly Stock as declared
on a common
equivalent basis
Dividends may be paid out of surplus as
defined under Delaware corporation law.
At October 31, 1993, the Company had such
defined surplus of $762 million.
- --------------------------------------------------------------------------
PAGE 55
NOTES TO FINANCIAL STATEMENTS
(Continued)
21. COMMON STOCK AND WARRANTS
On June 29, 1993, the Company's shareowners approved a Settlement
Agreement among the Company and a class of employees, retirees and
collective bargaining organizations as discussed in Note 19 to the
Financial Statements. In conjunction with shareowner approval of the
Settlement Agreement, the Company's Certificate of Incorporation
(Certificate) was amended and restated and the Company effected a one-for-
ten reverse split of its common stock. The consolidated financial
statements, including all references to the number of shares of common
stock and all per share information, have been adjusted to reflect the
reverse split on a retroactive basis.
Common Stock
The amended and restated Certificate increases the number of
authorized shares of Common Stock to 110,000,000 shares with a par value
of $.10 per share.
On October 21, 1993, the Company completed an offering of 23,600,000
Common shares, from which the Company realized gross proceeds of
approximately $516 million. Net proceeds to the Company were $492 million
after deducting the underwriting discount and other expense payable by the
Company.
At October 31, 1993 and 1992, there were 49,154,621 and 25,409,831
shares of Common Stock outstanding, respectively. Common shares
outstanding exclude common stock held in treasury in the amount of 56,457
and 189,547 shares at October 31, 1993 and 1992, respectively. In fiscal
1992, 357,000 treasury shares were issued to the PBGC as discussed in Note
5 to the Financial Statements. Included in the shares of Common Stock
outstanding are 24,001 shares of restricted stock which have been issued
in accordance with the provisions of the 1988 Performance Incentive Plan.
Class B Common Stock
The Certificate authorizes 26,000,000 shares of a new Class B Common
Stock of which 25,641,545 shares, valued at $513 million, were contributed
to a separate independent retiree Supplemental Trust. The Class B Stock
has a par value of $.10 per share and also has restricted voting rights
and transfer provisions.
The per share value for the contribution of the Class B Common Stock
was determined by the closing price of the Common Stock on the New York
Stock Exchange on June 30, 1993, the settlement day, less a discount
factor of 20%. The discount factor was determined by the Company,
following consultation with investment bankers, and gives effect to
restrictions on voting and transfer rights imposed by the terms of the
Settlement Agreement and for a control premium to give effect for the
number of shares contributed to the Supplemental Trust. The Settlement
Agreement limits the circumstances under which the Supplemental Trust can
transfer or sell Class B Common Stock but also provides that any Class B
Common Stock transferred or sold will convert automatically into Common
Stock. Any remaining Class B Common Stock will convert into Common Stock
no later than the fifth anniversary of the Settlement Agreement
implementation, or fiscal 1998.
PAGE 56
NOTES TO FINANCIAL STATEMENTS
(Continued)
21. COMMON STOCK AND WARRANTS (continued)
Class B Common Stock (continued)
At October 31, 1993, there were 25,546,034 shares of Class B Common
Stock outstanding.
Dividends on common stock
All shares of Common Stock and Class B Common Stock share equally in
dividends except that stock dividends are payable in shares of Common
Stock to holders of that class and in Class B Common Stock to holders of
that class. Upon liquidation, all shares of Common Stock and Class B
Common Stock are entitled to share equally in the assets of the Company
available for distribution to the holders of such shares. Dividends may
be paid out of surplus as defined under Delaware corporation law. At
October 31, 1993, the Company had such defined surplus of $762 million.
Warrants
Warrants were not exercised during 1993 and 1992. Other information
regarding the warrants is as follows:
Series A Series C
-------- --------
Number authorized .................. 11,200,000 4,000,000
Number issued ...................... 10,846,480 4,000,000
Number outstanding at October 31
1993 ............................... 10,833,890 -
1992 ............................... 10,833,890 4,000,000
Cash exercise price (subject to
adjustment in certain events),
with exercise of 10 warrants ..... $50 $70
Alternate to cash in payment of
exercise price ................... None Navistar
Financial
11.95%
Subordinated
Debentures
at face value
plus accrued
interest
Expiration date ................... December 15, December 4,
1993 1992
PAGE 57
NOTES TO FINANCIAL STATEMENTS
(Continued)
22. STOCK OPTION PLANS
The Navistar 1988 Performance Incentive Plan (Incentive Plan)
provides for the granting of stock options and restricted stock to key
employees as determined by the Committee on Organization of the Board of
Directors (Committee). Under the Incentive Plan, ten million shares of
Common Stock are authorized for use. Shares to be used under the
Incentive Plan will be either shares authorized, but previously unissued,
or shares reacquired by the Company.
The Incentive Plan includes the granting of three types of stock
option awards--deferred award options, non-qualified options and incentive
options. Deferred award options, none of which have been granted as of
October 31, 1993, enable a participant to defer all or a portion of an
annual incentive award and are exercisable at the greater of $1.00 per
share or 10% of the market value per share. These options are exercisable
thirty days after the date of grant for a period of ten years and two days
from the date of grant. Non-qualified and incentive options, which may be
granted by the Committee in amounts and at times as it may determine, have
a term of not more than ten years and one day and ten years, respectively,
and are exercisable at a price equal to the fair market value of the stock
on the day after the grant. Generally, these options are not exercisable
during the first year. There were 346,839, 344,045 and 350,498 shares
available for grant and 500,084, 528,534 and 434,487 options exercisable
at October 31, 1993, 1992 and 1991, respectively. Payment for the
exercise of any of the options may be made by delivering, at fair market
value, shares of Common Stock already owned by the option-owner.
Holders of stock options with stock appreciation rights granted under
prior stock option plans are entitled to receive cash or cash and shares
of Common Stock equal in value to the difference between the option price
and the current market value of the Common Stock at the date the option is
surrendered. Stock appreciation rights outstanding at October 31, 1993,
1992 and 1991 were 23,700, respectively.
The following table summarizes changes in common stock under option
for the year ended October 31, 1993:
Number of Option Price
Shares Per Share
--------- ----------------
Outstanding options at beginning of year 675,269 $21.88 to $91.25
Options - granted ...................... 2,500 25.25
- exercised .................... (13,340) 21.88
- terminated ................... (24,945) 21.88 to 91.25
-------
Outstanding options at end of year ..... 639,484 $21.88 to $91.25
=======
Options becoming exercisable
during the year -
=======
PAGE 58
NOTES TO FINANCIAL STATEMENTS
(Continued)
23. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
------------- -------------- -------------- --------------
(Millions of dollars, Restated Restated
except per share data) 1993 1992 1993 1992 1993 1992 1993 1992
- --------------------------------------------------------------------------------------------
Consolidated Operations
Sales and revenues ....... $1,300 $1,139 $1,123 $ 917 $1,238 $ 913 $1,033 $ 902
====== ====== ====== ====== ====== ====== ====== ======
Net income (loss):
Income (loss)
before Supplemental
Trust contribution ..... $ 31 $ (30) $ 11 $ (49) $ 26 $ (35) $ 4 $ (31)
Supplemental Trust
contribution ......... - - (513) - - - - -
Income tax
benefit (expense) .... (9) - 190 (1) (11) - (2) (1)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss)
Continuing
operations ........... 22 (30) (312) (50) 15 (35) 2 (32)
Discontinued
operations ........... - - - (65) - - - -
Cumulative
effect of changes
in accounting
policy (a):
SFAS 106,
net of income
taxes of
$420 million ..... - - - - - - (729) -
SFAS 109 ........... - - - - - - 501 -
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) ........ $ 22 $ (30) $ (312) $ (115) $ 15 $ (35) $ (226) $ (32)
====== ====== ====== ====== ====== ====== ====== ======
Income (loss)
per common share:
Continuing
operations ........ $ .28 $(1.46) $(9.99) $(2.29) $ .32 $(1.68) $(.19) $(1.55)
Discontinued
operations ........ - - - (2.58) - - - -
Cumulative effect
of changes
in accounting
policy (a):
SFAS 106,
net of income
taxes of
$420 million - - - - - - (28.54) -
SFAS 109 .......... - - - - - - 19.59 -
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)
per common share (b) .. $ .28 $(1.46) $(9.99) $(4.87) $ .32 $(1.68) $(9.14) $(1.55)
====== ====== ====== ====== ====== ====== ====== ======
Supplemental Data
Manufacturing Sales ..... $1,258 $1,096 $1,080 $ 870 $1,189 $ 871 $ 983 $ 848
Gross margin .......... 180 129 133 90 155 106 128 106
Income (loss)
before taxes and
Financial Services .. 16 (41) (517) (60) 10 (47) (11) (49)
Financial Services
Revenues .............. 54 52 53 57 59 53 60 64
Interest expense ...... 19 22 19 23 19 21 22 21
Income before taxes ... 15 11 15 11 15 12 16 18
<FN>
Transactions between Manufacturing and Financial Services operations have been eliminated
from Consolidated operations. See Notes 1 and 2.
- --------------------------------------------------------------------------------------------
(a) In the third quarter of 1993, the Company adopted SFAS 106 and SFAS 109 retroactive
to November 1, 1992. As required, the previously reported results for the first
and second quarters of 1993 have been restated. Periods prior to November 1, 1992
are not required to be restated for the accounting changes.
(b) Earnings per share are calculated based on the weighted average number of Common
and Class B Common shares outstanding at the end of each quarter. See Notes 7 and
21 to the Financial Statements.
PAGE 59
NOTES TO FINANCIAL STATEMENTS
(Continued)
23. SELECTED QUARTERLY FINANCIAL DATA (Unaudited) (continued)
FOURTH QUARTER 1993 RESULTS
Fourth quarter consolidated sales and revenues of $1,300 million were
14% higher than the same period a year ago. Company medium and heavy
truck shipments increased 13% from the prior year's quarter. The higher
shipments reflect improvement in North American industry retail sales of
medium and heavy trucks which totalled 77,200 units, an increase of 13%,
from the same quarter last year. For the fourth quarter, the Company
maintained its leadership in the North American combined medium and heavy
truck market with a market share of 27.9%. Shipments of 32,700 mid-range
diesel engines to original equipment manufacturers were 18% higher than
the same quarter of 1992 reflecting consumer demand for the diesel-powered
light trucks and vans which use this engine. Service parts sales
increased 11% from the fourth quarter of 1992.
Net income for the fourth quarter of 1993 was $22 million, an
increase from the $30 million loss for the same period in 1992. The 1992
loss included $23 million of expense related to a voluntary vehicle
recall.
Manufacturing gross margin for the period was 14.3% up from 13.9% in
the fourth quarter of 1992 prior to a one-time charge for vehicle recalls.
The increase in margin can be attributed primarily to increased sales
volume, higher net selling prices and savings from the restructured
retiree benefit Plan implemented July 1, 1993. Partially offsetting these
favorable factors was an increase in start-up costs associated with new
truck and engine product introductions.
Financial Services income before taxes increased to $15 million in
the fourth quarter of 1993 from $11 million in 1992. The increase in
income is primarily from higher earnings from wholesale financing and a
lower provision for credit losses.
PAGE 60
FIVE YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA
- ------------------------------------------------------------------------------------------
For the Years Ended October 31
(Millions of dollars,
except per share data) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Manufacturing sales
by geographic area
United States ......................... $4,149 $3,392 $2,984 $3,300 $3,602
Canada ................................ 361 293 275 343 421
------ ------ ------ ------ ------
Total ............................. 4,510 3,685 3,259 3,643 4,023
Revenues of Financial
Services companies .................. 226 226 242 250 264
Eliminations .......................... (42) (40) (41) (39) (46)
------ ------ ------ ------ ------
Total sales and revenues .......... $4,694 $3,871 $3,460 $3,854 $4,241
====== ====== ====== ====== ======
Net income (loss)
Income (loss) before
Supplemental Trust
contribution and taxes ............ $ 72 $ (145) $ (162) $ (7) $ 94
Supplemental Trust
contribution (a) .................. (513) - - - -
Income tax benefit (expense) (b) ...... 168 (2) (3) (4) (7)
------ ------ ------ ------ ------
Income (loss)
Continuing operations .............. (273) (147) (165) (11) 87
Discontinued operations (c) ........ - (65) - - -
Cumulative effect of
accounting changes (d) ........... (228) - - - -
------ ------ ------ ------ ------
Net income (loss) .................... $ (501) $ (212) $ (165) $ (11) $ 87
====== ====== ====== ====== ======
Income (loss) per common share
Continuing operations .............. $(8.63) $(6.97) $(7.71) $(1.56) $ 2.28
Discontinued operations (c) ........ - (2.58) - - -
Cumulative effect of
accounting changes (d) ........... (6.56) - - - -
------- ------ ------ ------ ------
Net income (loss) (g) ............... $(15.19) $(9.55) $(7.71) $(1.56) $ 2.28
======= ====== ====== ====== ======
- ------------------------------------------------------------------------------------------
FINANCIAL DATA
Assets
Manufacturing ....................... $3,645 $2,208 $2,149 $2,339 $2,187
Financial Services .................. 1,672 1,659 1,540 1,774 1,752
Eliminations ........................ (257) (240) (246) (318) (330)
------ ------ ------ ------ ------
Total ............................. $5,060 $3,627 $3,443 $3,795 $3,609
====== ====== ====== ====== ======
Debt
Manufacturing ....................... $ 175 $ 187 $ 154 $ 164 $ 176
Financial Services .................. 1,199 1,218 1,052 1,248 1,237
Eliminations ........................ - - - (31) (38)
------ ------ ------ ------ ------
Total ............................. $1,374 $1,405 $1,206 $1,381 $1,375
====== ====== ====== ====== ======
Consolidated shareowners' equity ...... $ 775 $ 338 $ 577 $ 815 $ 914
Financial Services
shareowner's equity ................. $ 241 $ 240 $ 237 $ 279 $ 273
Manufacturing long-term debt
as a percent of long-term debt
and shareowners' equity ............. 16% 34% 20% 16% 15%
PAGE 61
FIVE YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA
- ------------------------------------------------------------------------------------------
For the Years Ended October 31
(Millions of dollars,
except per share data) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------
SHAREOWNER DATA
Market price range (by fiscal year)
High ................................. $31 3/4 $41 1/4 $41 1/4 $48 3/4 $70
Low .................................. 18 3/4 17 1/2 20 21 1/4 37 1/2
Average number of Common,
Class B Common and dilutive
common equivalent shares
outstanding (millions) ............... 34.9 25.3 25.1 25.2 25.6
Number of Common and Class B Common
shares outstanding at October 31
(millions) (e) ....................... 74.7 25.4 25.0 25.0 25.1
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Capital expenditures ................... $ 110 $ 55 $ 77 $ 182 $ 118
Research and development
expenditures ......................... $ 95 $ 90 $ 87 $ 84 $ 91
Depreciation and amortization .......... $ 75 $ 77 $ 73 $ 67 $ 60
Number of employees
Worldwide ............................ 13,612 13,945 13,472 14,071 14,118
United States ........................ 11,934 12,390 12,336 12,899 12,819
- -----------------------------------------------------------------------------------------
OPERATING DATA
North American market share (f) ........ 27.6% 28.4% 29.3% 27.2% 27.1%
Unit shipments
Trucks ............................... 87,200 73,200 70,200 80,200 90,200
OEM Engines .......................... 118,200 97,400 74,800 100,900 106,700
Service parts sales .................... $ 632 $ 571 $ 530 $ 558 $ 543
<FN>
(a) In July 1993, the Company issued approximately 25.6 million shares of Class B Common
Stock to the Supplemental Trust. See Note 21 to the Financial Statements.
(b) Taxes for the year ended October 31, 1993 reflect the adoption of SFAS 109. See
Note 5 to the Financial Statements.
(c) The 1992 loss on discontinued operations resulted from a $65 million, or $2.58
per common share, charge on the settlement of litigation with the Pension Benefit
Guaranty Corporation. See Note 6 to the Financial Statements.
(d) In the third quarter of 1993, the Company adopted SFAS 106 and SFAS 109 retroactive
to November 1, 1992. See Note 1 to the Financial Statements.
(e) The common shares outstanding at October 31, 1993 include 25.6 million Class B Common
shares issued to the Supplemental Trust in July 1993 and 23.6 million Common shares
sold through a public offering completed on October 21, 1993.
(f) Based on retail deliveries of medium trucks (Classes 5, 6 and 7), including school
bus chassis, and heavy trucks (Class 8) in the United States and Canada.
(g) Earnings per share are calculated based on the weighted average number of Common and
Class B Common shares outstanding at the end of each fiscal year. See Notes 7 and 21
to the Financial Statements.
PAGE 62
About Your Stock
Navistar International Corporation Common Stock is listed on the New
York, Chicago and Pacific stock exchanges and is quoted as "Navistar" in
stock table listings in daily newspapers. The abbreviated stock symbol is
"NAV".
The stock transfer agent who can answer inquiries about your Navistar
International Corporation Common Stock is: Harris Trust and Savings Bank,
311 W. Monroe, 11th Floor, Chicago, Illinois 60606; Telephone:(312) 461-
3932.
There were approximately 75,448 owners of Common Stock at October 31,
1993.
Dividend and Price Range
The accompanying table shows the range of a composite of Common Stock
prices at close of trade for the past two fiscal years.
Price Range
-------------------------------------------
1993 1992
Fiscal Quarter High Low High Low
- ------------------------------------------------------------------
1st .............. $31 3/4 $18 3/4 $38 3/4 $23 3/4
2nd .............. 30 25 41 1/4 30
3rd .............. 30 21 1/4 32 1/2 25
4th .............. 27 7/8 19 3/4 26 1/4 17 1/2
As described in Note 7 to the Financial Statements, the Company has
resumed payment of the annual dividend of $6.00 per share on its Series G
Cumulative Preferred Stock. Dividends in arrears were paid on December
15, 1993 to shareowners of record as of December 5, 1993. Dividends
currently are not paid on its Common Stock.
Commitment to Equal Employment Opportunity
Navistar International Corporation has a long standing commitment to
equal employment opportunity dating back to 1919 when the Company issued
its first written statement against discrimination in the workplace.
Today, Navistar continues to provide equal opportunity to all
employees and applicants for employment and prohibits discrimination in
all employment practices because of age, race, color, sex, marital status,
religion, ancestry, national origin, disability, medical condition,
political affiliation or veteran status.
PAGE 63
INFORMATION FOR OUR INVESTORS
Trademarks
Navistar logotype and Navistar are registered trademarks of Navistar
International Corporation. The Diamond Road symbol and International are
registered trademarks of Navistar International Transportation Corp.
Reports and Publications
This Annual Report includes a substantial portion of the financial
information and certain other data required to be filed with the
Securities and Exchange Commission.
A copy of the Company's 1993 Annual Report on Form 10-K to the
Securities and Exchange Commission will be provided, without charge, to
shareowners upon written request to the Corporate Secretary, Corporate
Headquarters, after January 31, 1994.
Quarterly reports containing financial information and other Company
news are mailed as soon as available after quarter end. A summary of the
annual meeting of shareowners is also available in the second fiscal
quarterly report.
Other publications, including news releases, are available by writing
Corporate Communications, Corporate Headquarters.
Annual Meeting
The 1994 Annual Meeting of Shareowners is scheduled to take place at
10:15 a.m., CST on March 16, 1994, at the Art Institute of Chicago in the
Arthur Rubloff Auditorium.
Shareowners are invited to attend this meeting, take part in
discussions of Company affairs and meet personally with the directors and
officers responsible for the operations of Navistar.
A Proxy Statement and Form of Proxy will be mailed to each shareowner
on or about January 27, 1994.
Corporate Headquarters
The corporate offices of Navistar International Corporation and its
principal subsidiary, Navistar International Transportation Corp., are
located at 455 N. Cityfront Plaza Drive, Chicago, Illinois 60611;
Telephone: (312) 836-2000.
PAGE 64
Directors and Officers
- --------------------------------------------------------------------------------------------------------------------------------
NAVISTAR INTERNATIONAL
NAVISTAR INTERNATIONAL CORPORATION TRANSPORTATION CORP.
- --------------------------------------------------------------------------------------------------------------------------------
Board of Directors Principal Officers Principal Officers
- ---------------------------------------------------------------- ------------------ -----------------------------
Jack R. Anderson William C. Craig James C. Cotting James C. Cotting
President Former Executive Vice President Chairman and Chairman and
Calver Corporation Mack Trucks Chief Executive Officer Chief Executive Officer
Health Care Consulting Manufacturer of Trucks John R. Horne John R. Horne
and Investments Jerry E. Dempsey President and President and
William F. Andrews Chairman and Chief Operating Officer Chief Operating Officer
Advisor and Consultant Chief Executive Officer Robert C. Lannert Robert C. Lannert
Investor International PPG Industries Inc. Executive Vice President and Executive Vice President and
(U.S.), Inc. Diversified Global Manufacturer Chief Financial Officer Chief Financial Officer
Investment Firm of Glass, Protective Coatings
Chairman and and Chemicals Robert A. Boardman
Chief Executive Officer Mary Garst Senior Vice President and Group Vice Presidents*
Amdura Corp. Manager, Cattle Division General Counsel
Manufacturer of Waste Garst Company John J. Bongiorno
Management Equipment Agri-Business Company Thomas M. Hough General Manager
Chairman of Utica Corp. Dr. Arthur G. Hansen Vice President and Financial Services
Manufacturer of Aircraft Educational Consultant Treasurer David J. Johanneson
Turbine Blades President Emeritus Truck Businesses
Wallace W. Booth Purdue University Robert I. Morrison James T. O'Dare, Jr.
Retired Chairman and John R. Horne Vice President and Sales and Distribution
Chief Executive Officer President and Controller Daniel C. Ustian
Ducommun Incorporated Chief Operating Officer General Manager
Manufacturer of Navistar International Steven K. Covey Engine and Foundry
Components and Assemblies Corporation Corporate Secretary Dennis W. Webb
for the Aerospace Industry Robert C. Lannert International Operations
Dr. Andrew F. Brimmer Executive Vice President and and Business Development
President Chief Financial Officer
Brimmer & Company, Inc. Navistar International Senior Vice Presidents
Economic and Financial Corporation
Consulting Donald D. Lennox Robert A. Boardman
Bill Casstevens Chairman of the Board General Counsel
Secretary - Treasurer of the UAW International Imaging John M. Sheahin
Richard F. Celeste Materials Inc. Employee Relations
Principal Manufacturer of Thermal and Administration
Celeste & Sabety, Ltd. Transfer Ribbons
Public Policy Consulting Firm Retired Chairman of the Board Vice Presidents
Chairman and Chief Executive Officer
Democratic National Committee's Navistar International Kirk A. Gutmann
National Health Care Campaign Corporation Engineering
James C. Cotting Elmo R. Zumwalt, Jr. Thomas M. Hough
Chairman and President Treasurer
Chief Executive Officer Admiral Zumwalt, & Robert I. Morrison
Navistar International Consultants, Inc. Controller
Corporation Management Consultants James L. Simonton
Materials Management
Dale E. Snyder
Committees of the Board Truck Manufacturing
- ----------------------- Dean P. Stanley
Quality Management
Executive Committee Audit Committee and Technology
James C. Cotting, Chairman Andrew F. Brimmer, Chairman Brian B. Whalen
William F. Andrews Jack R. Anderson Public Affairs
Bill Casstevens Richard F. Celeste
Jerry E. Dempsey Mary Garst Secretary
Arthur G. Hansen Arthur G. Hansen
John R. Horne Donald D. Lennox Gregory Lennes
Donald D. Lennox
Public Policy Committee
Committee on Organization Mary Garst, Chairwoman
Wallace W. Booth, Chairman Jack R. Anderson
William F. Andrews William F. Andrews
William C. Craig Andrew F. Brimmer
Jerry E. Dempsey Bill Casstevens
Arthur G. Hansen Richard F. Celeste
Elmo R. Zumwalt, Jr. Elmo R. Zumwalt, Jr.
Finance Committee
Donald D. Lennox, Chairman
Wallace W. Booth
Andrew F. Brimmer
Bill Casstevens
James C. Cotting
William C. Craig
Jerry E. Dempsey *At December 31, 1993