PAGE 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9618
N A V I S T A R I N T E R N A T I O N A L C O R P O R A T I O N
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3359573
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611
- -------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 836-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 4, 1994, the number of shares outstanding of the
registrant's Common Stock was 49,776,209 and the Class B Common was
25,240,305.
PAGE 2
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
INDEX
-----
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income (Loss) --
Three Months Ended January 31, 1994 and 1993 .............. 3
Statement of Financial Condition --
January 31, 1994, October 31, 1993 and January 31, 1993 . 4
Statement of Cash Flow --
Three Months Ended January 31, 1994 and 1993 ............ 6
Notes to Financial Statements .............................. 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition . 13
Part II. Other Information:
Item 1. Legal Proceedings .................................. 18
Item 6. Exhibits and Reports on Form 8-K ................... 18
Signature ................................................... 19
Exhibit 11 ................................................... E-1
PAGE 3
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
STATEMENT OF INCOME (LOSS) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Millions of dollars, except per share data
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended January 31
------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- Note --------------------- ---------------------
1994 1993 Reference 1994 1993 1994 1993
-------- -------- --------- -------- -------- -------- --------
Sales and revenues
Sales of manufactured products ...... $ 1,087 $ 983 $ 1,087 $ 983 $ - $ -
Finance and insurance income ........ 41 46 - - 53 56
Other income ........................ 8 10 5 6 3 4
-------- -------- -------- -------- -------- --------
Total sales and revenues .......... 1,136 1,039 1,092 989 56 60
-------- -------- -------- -------- -------- --------
Costs and expenses
Cost of products and services sold .. 946 858 945 857 1 1
Postretirement benefits ............. 46 49 Note E 46 49 - -
Engineering expense ................. 22 22 22 22 - -
Marketing and administrative expense. 59 60 56 55 3 5
Interest expense .................... 20 25 3 3 17 22
Financing charges on sold receivables 3 5 15 15 - -
Insurance claims
and underwriting expense .......... 16 16 - - 16 16
-------- -------- -------- -------- -------- --------
Total costs and expenses .......... 1,112 1,035 1,087 1,001 37 44
-------- -------- -------- -------- -------- --------
Income before income taxes
Manufacturing ..................... - - 5 (12) - -
Financial Services ................ - - 19 16 - -
-------- -------- -------- -------- -------- --------
Income before income taxes ...... 24 4 24 4 19 16
Income tax expense .............. (8) (2) Notes B (8) (2) (7) (6)
-------- -------- & F -------- -------- -------- --------
Income (loss) before cumulative
effect of changes in accounting
policy ............................ 16 2 16 2 12 10
Cumulative effect of changes in
accounting policy ................. - (228) - (228) - (9)
-------- -------- -------- -------- -------- --------
Net income (loss) ................... $ 16 $ (226) $ 16 $ (226) $ 12 $ 1
======== ======== ======== ======== ======== ========
Net income (loss) applicable to
common stock ...................... $ 9 $ (233) Note G
======== ========
Income (loss) per common share:
Before cumulative effect
of changes in accounting policy . $ .12 $ (.19)
Cumulative effect of changes in
accounting policy ............... - (8.95)
-------- --------
Net income (loss) per common share .. $ .12 $ (9.14)
======== ========
Average number of common and
dilutive common equivalent
shares outstanding (millions) ..... 74.8 25.5 Note G
<FN>
See Notes to Financial Statements. * "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. The basis of
consolidation is described in Note A
while a summary of eliminations and
reclassifications is shown in Note C.
PAGE 4
STATEMENT OF FINANCIAL CONDITION (Unaudited)
- ------------------------------------------------------------------------------------------------
Millions of dollars
- ------------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries
--------------------------
January 31 October 31 January 31 Note
1994 1993 1993 Reference
---------- ---------- ---------- ---------
ASSETS
- -----------------------------------
Cash and cash equivalents .................. $ 291 $ 421 $ 293
Marketable securities ...................... 227 218 187
Receivables, net ........................... 1,232 1,540 1,404
Inventories ................................ 462 411 407 Note H
Prepaid pension assets ..................... 84 82 118
Property, net of accumulated depreciation
and amortization of $649, $647 and $610 .. 546 636 596
Equity in Financial Services subsidiaries .. - - -
Investments and other assets ............... 308 234 223
Intangible pension assets .................. 340 340 370
Deferred tax asset ......................... 1,170 1,178 918 Note F
-------- -------- --------
Total assets ............................... $ 4,660 $ 5,060 $ 4,516
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Liabilities
Accounts payable ........................... $ 700 $ 739 $ 586
Accrued liabilities ........................ 387 419 410
Short-term debt ............................ 30 180 134
Long-term debt ............................. 970 1,194 1,289
Other long-term liabilities ................ 278 276 301
Loss reserves and unearned premiums ........ 141 107 101
Postretirement benefits liabilities ........ 1,378 1,370 1,580 Note E
-------- -------- --------
Total liabilities ........................ 3,884 4,285 4,401
-------- -------- --------
Shareowners' equity
Series G convertible preferred stock
(liquidation preference $240 million) .... 240 240 240
Series D convertible junior preference stock
(liquidation preference $5 million) ...... 5 5 5
Common stock (49.8, 49.2 and 25.6 million
shares issued) and warrants .............. 1,623 1,615 1,122 Note G
Class B Common (25.2 and 25.6 million
shares issued after July 1, 1993) ........ 504 513 - Note E
Retained earnings (deficit) - balance
accumulated after the deficit
reclassification ......................... (1,579) (1,588) (1,244) Note I
Accumulated foreign currency translation
adjustments .............................. (4) (4) (5)
Common stock held in treasury, at cost ..... (13) (6) (3)
-------- -------- --------
Total shareowners' equity ................ 776 775 115
-------- -------- --------
Total liabilities and shareowners' equity .. $ 4,660 $ 5,060 $ 4,516
======== ======== ========
<FN>
See Notes to Financial Statements.
PAGE 5
Manufacturing* Financial Services*
- ------------------------------------ ------------------------------------
January 31 October 31 January 31 January 31 October 31 January 31
1994 1993 1993 1994 1993 1993
- ---------- ---------- ---------- ---------- ---------- ----------
$ 247 $ 377 $ 107 $ 44 $ 44 $ 186
83 85 42 144 133 145
207 123 119 1,130 1,433 1,314
462 411 407 - - -
83 81 117 1 1 1
526 608 574 20 28 22
246 241 242 - - -
211 201 181 97 33 42
340 340 370 - - -
1,170 1,178 914 - - 4
-------- -------- -------- -------- -------- --------
$ 3,575 $ 3,645 $ 3,073 $ 1,436 $ 1,672 $ 1,714
======== ======== ======== ======== ======== ========
$ 629 $ 670 $ 532 $ 173 $ 85 $ 79
361 395 381 29 24 33
25 25 14 5 155 120
146 150 170 824 1,044 1,119
267 267 290 11 9 11
- - - 141 107 101
1,371 1,363 1,571 7 7 9
-------- -------- -------- -------- -------- --------
2,799 2,870 2,958 1,190 1,431 1,472
-------- -------- -------- -------- -------- --------
240 240 240 - - -
5 5 5 - - -
1,623 1,615 1,122 178 178 178
504 513 - - - -
(1,579) (1,588) (1,244) 68 63 64
(4) (4) (5) - - -
(13) (6) (3) - - -
-------- -------- -------- -------- -------- --------
776 775 115 246 241 242
-------- -------- -------- -------- -------- --------
$ 3,575 $ 3,645 $ 3,073 $ 1,436 $ 1,672 $ 1,714
======== ======== ======== ======== ======== ========
<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 A while a summary of eliminations is
shown in Note C.
PAGE 6
STATEMENT OF CASH FLOW (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended January 31 (Millions of dollars)
- ----------------------------------------------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- Note --------------------- ---------------------
1994 1993 Reference 1994 1993 1994 1993
-------- -------- --------- -------- -------- -------- --------
Cash flow from operations
Net income (loss) ..................... $ 16 $ (226) $ 16 $ (226) $ 12 $ 1
Adjustments to reconcile
net income (loss) to cash provided
by (used in) operations:
Depreciation and amortization ....... 20 19 19 17 1 2
Equity in earnings of Financial
Services, net of dividends received - - (5) (10) - -
Cumulative effect of changes
in accounting policy .............. - 228 - 228 - 9
Other, net .......................... (8) (10) 4 (4) (12) (6)
Change in operating assets
and liabilities ................... (136) (112) Note D (190) (79) 100 25
-------- -------- -------- -------- -------- --------
Cash provided by (used in) operations (108) (101) (156) (74) 101 31
-------- -------- -------- -------- -------- --------
Cash flow from investment programs
Purchase of retail notes
and lease receivables ............... (220) (142) - - (220) (142)
Principal collections on retail notes
and lease receivables ............... 50 90 - - 50 90
Sale of retail notes receivable ...... 494 167 - - 494 167
Acquisitions over cash collections of
wholesale notes and accounts receivable - - Note D - - (46) (58)
Purchase of marketable securities ..... (226) (90) (199) (62) (27) (28)
Sales or maturities
of marketable securities ............ 217 75 200 49 17 26
Proceeds from property sold under
sale/leaseback ...................... 87 - 87 - - -
Capital expenditures .................. (12) (23) (12) (23) - -
Other investment programs, net ........ 8 (5) 1 (2) 7 (3)
-------- -------- -------- -------- -------- --------
Cash provided by (used in)
investment programs ............... 398 72 77 (38) 275 52
-------- -------- -------- -------- -------- --------
Cash flow from financing activities
Principal payments on long-term debt .. (226) (3) (7) (3) (219) -
Net decrease in short-term debt ....... (150) - - - (150) -
Dividends paid ........................ (36) - (36) - (7) -
Repurchase of Class B Common stock .... (8) - (8) - - -
-------- -------- -------- -------- -------- --------
Cash used in financing activities ... (420) (3) (51) (3) (376) -
-------- -------- -------- -------- -------- --------
Cash and cash equivalents
Increase (decrease) during the period. (130) (32) Note C (130) (115) - 83
At beginning of the year ............. 421 325 377 222 44 103
-------- -------- -------- -------- -------- --------
Cash and cash equivalents
at end of the period ................. $ 291 $ 293 $ 247 $ 107 $ 44 $ 186
======== ======== ======== ======== ======== ========
<FN>
See Notes to Financial Statements. * "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. The basis of
consolidation is described in Note A
while a summary of eliminations and
reclassifications is shown in Note C.
PAGE 7
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note A Summary of Accounting Policies
Navistar International Corporation is a holding company whose
principal operating subsidiary is Navistar International Transportation
Corp. (Transportation). As used hereafter, "Company" refers to Navistar
International Corporation and its consolidated subsidiaries.
The accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the 1993 Annual Report on
Form 10-K and should be read in conjunction with the disclosures therein.
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." As used herein and
in the 1993 Annual Report on Form 10-K, Manufacturing includes the
consolidated financial results of the Company's manufacturing operations
with its wholly-owned financial services subsidiaries 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
subsidiaries of Transportation.
In the opinion of management, these interim financial statements
reflect all adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position, results of operations and cash
flow for the periods presented. Interim results are not necessarily
indicative of results for the full year. At January 31, 1994, certain
changes have been made in the presentation of amounts in the Statement of
Income (Loss). Prior year amounts have been reclassified to conform with
the presentation used in the 1994 financial statements.
Note B 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 were
restated for the effects of the changes in accounting policy. The
cumulative effect of these changes in accounting policy reduced income of
continuing operations in the first quarter of 1993 by $228 million or $8.95
per Common share. The cumulative effect of adopting SFAS 106 reduced
income by $729 million, net of income taxes of $420 million or $28.54 per
Common share. The cumulative effect of adopting SFAS 109 resulted in an
increase in income of $501 million or $19.59 per Common share.
Note C 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:
PAGE 8
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note C Financial Statement Eliminations (Continued)
STATEMENT OF INCOME (LOSS)
Three Months Ended
January 31
-------------------
Millions of dollars 1994 1993
- -------------------------------------------------------------
Sales and revenues
Finance and insurance income ....... $ (12) $ (10)
======== ========
Costs and expenses
Financing charges
on sold receivables .............. $ (12) $ (10)
======== ========
Income before income taxes,
Financial Services ................. $ (19) $ (16)
======== ========
STATEMENT OF FINANCIAL CONDITION
January 31 October 31 January 31
Millions of dollars 1994 1993 1993
- ---------------------------------------------------------------------------
Receivables, net ..................... $ (105) $ (16) $ (29)
Equity in Financial Services
subsidiaries ....................... (246) (241) (242)
-------- -------- --------
Total assets ......................... $ (351) $ (257) $ (271)
======== ======== ========
Accounts payable ..................... $ (102) $ (16) $ (25)
Accrued liabilities .................. (3) - (4)
Shareowner's equity,
Financial Services ................. (246) (241) (242)
-------- -------- --------
Total liabilities
and shareowners' equity ............ $ (351) $ (257) $ (271)
======== ======== ========
STATEMENT OF CASH FLOW
Three Months Ended
January 31
-------------------
Millions of dollars 1994 1993
- -------------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ....................... $ (53) $ (58)
Investment programs .............. 46 58
Financing activities ............. 7 -
-------- --------
Change in cash
and cash equivalents ............... $ - $ -
======== ========
PAGE 9
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note D 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:
Three Months Ended
January 31
--------------------
Millions of dollars 1994 1993
- --------------------------------------------------------------
MANUFACTURING
Decrease in receivables ............ $ 16 $ 9
Increase in inventories ............ (52) (43)
Increase in prepaid
and other current assets ......... (15) (14)
Decrease in accounts payable ....... (37) (47)
Increase (decrease)
in accrued liabilities ........... (2) 16
Increase in advances
to Navistar Financial ............ (100) -
-------- --------
Manufacturing change in
operating assets and liabilities . (190) (79)
-------- --------
FINANCIAL SERVICES
(Increase) decrease in receivables . (24) 1
Increase in accounts payable ....... 20 26
Increase (decrease)
in accrued liabilities ........... 4 (2)
Increase in advances
from Transportation ............ 100 -
-------- --------
Financial Services change in
operating assets and liabilities . 100 25
-------- --------
Eliminations/reclassifications (a) ... (46) (58)
-------- --------
Change in operating assets
and liabilities .................... $ (136) $ (112)
======== ========
(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.
Consolidated interest payments during the first three months of 1994
and 1993 were $25 million and $30 million, respectively.
PAGE 10
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note E Postretirement Benefits
The Company provides other 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.
During the third quarter of 1993, the Company contributed Class B
Common Stock, valued at $513 million, to a separate independent retiree
Supplemental Trust according to the terms of a Settlement Agreement which
restructured postretirement health care and life insurance benefits. In
addition, the Settlement Agreement requires contributions to the
Supplemental Trust in the form of cash profit sharing payments from 1% to
16% of qualifying profits above a certain threshold level. The assets held
in the Supplemental Trust can be used to potentially reduce retiree
premiums, co-payments and deductibles and provide additional benefits in
the future.
The costs of postretirement benefits are segregated as a separate
component in the Statement of Income (Loss) and are as follows:
Three Months Ended
January 31
--------------------
Millions of dollars 1994 1993
- --------------------------------------------------------------
Pension expense ..................... $ 28 $ 26
Health care and life insurance ...... 16 23
Supplemental Trust contribution ..... 2 -
-------- --------
Total postretirement benefits expense $ 46 $ 49
======== ========
On the Statement of Financial Condition, the postretirement benefits
liabilities are composed of the following:
January 31 October 31 January 31
Millions of dollars 1994 1993 1993
- ---------------------------------------------------------------------------
Pension ............................. $ 608 $ 600 $ 483
Health care and life insurance ...... 770 770 1,097
-------- -------- --------
Postretirement benefits liabilities . $ 1,378 $ 1,370 $ 1,580
======== ======== ========
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
transition obligation was recognized as a one-time non-cash charge to
earnings. In October 1993, the Company pre-funded $300 million of this
liability from the partial proceeds of a public offering of Common Stock.
PAGE 11
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note F Income Taxes
During the third quarter of 1993, the Company adopted SFAS 109 with
retroactive application to November 1, 1992. Under SFAS 109, deferred tax
assets and liabilities are generally determined based on the difference
between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse. SFAS 109 allows recognition of deferred tax assets if
future realization is more likely than not.
Because the benefit of Net Operating Loss (NOL) carryforwards has been
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 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. Until the Company has utilized its significant NOL
carryforwards, the cash payment of income taxes will be minimal.
Note G Earnings Applicable to Common Stock
Income (loss) Applicable to common stock:
Three Months Ended
January 31
--------------------
Millions of dollars 1994 1993
- --------------------------------------------------------------
Income (loss) before cumulative effect
of changes in accounting policy ... $ 16 $ 2
Cumulative effect of changes
in accounting policy ............. - (228)
-------- --------
Net income (loss) ................... 16 (226)
-------- --------
Preferred dividend requirements
on Series G preferred stock ....... (7) (7)
-------- --------
Net income (loss)
applicable to common stock ........ $ 9 $ (233)
======== ========
Earnings per share are calculated based on the weighted average number
of Common, Common Equivalents and Class B Common shares outstanding of 74.8
and 25.5 million for the three month periods ended January 31, 1994 and
1993, respectively. The increase in the weighted average number of Common
and Class B Common shares reflects the issuance and contribution of 25.6
million shares of Class B Common Stock valued at $513 million to a separate
independent retiree Supplemental Trust on June 30, 1993 and the sale of
23.6 million shares of Common Stock on October 21, 1993 from which the
Company realized net proceeds of $492 million.
In December 1992, the Company suspended dividends on its Series G
preferred stock. All dividends in arrears were paid on December 15, 1993
to shareowners of record as of December 5, 1993.
PAGE 12
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note H Inventories
Inventories are as follows:
January 31 October 31 January 31
Millions of dollars 1994 1993 1993
- ---------------------------------------------------------------------------
Finished products ................... $ 215 $ 196 $ 220
Work in process ..................... 98 73 70
Raw materials and supplies .......... 149 142 117
-------- -------- --------
Total inventories ................... $ 462 $ 411 $ 407
======== ======== ========
Note I Retained Earnings
Retained earnings (deficit) are as follows:
January 31 October 31 January 31
Millions of dollars 1994 1993 1993
- ---------------------------------------------------------------------------
Retained earnings (deficit)
at beginning of year ............... $ (1,588) $ (400) $ (400)
Reclassification of net
operating losses ................... - (618) (618)
Net income (loss) .................... 16 (501) (226)
Preferred dividends declared ......... (7) (29) -
Adjustment for excess additional
pension liability over intangible
pension assets, net of tax benefit . - (79) -
Tax benefit on previously recognized
pension liability .................. - 39 -
-------- -------- --------
Retained earnings (deficit)
at end of period ................... $ (1,579) $ (1,588) $ (1,244)
======== ======== ========
PAGE 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Consolidated
The Company reported income before income taxes of $24 million for the
first quarter ended January 31, 1994, up from $4 million of income reported
for the same period last year. Net income for the first quarter was $16
million, or $.12 per common share compared with a restated net loss of $226
million, or $9.14 per common share in 1993. The restated net loss in 1993
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" and
a $501 million benefit from adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
Consolidated sales and revenues for the first quarter of 1994 totalled
$1,136 million, an increase of 9% from the $1,039 million reported for the
comparable quarter in 1993 as a result of strong demand for heavy trucks,
diesel engines and service parts.
Manufacturing
Manufacturing, excluding Financial Services, reported pretax income of
$5 million compared with a loss of $11 million in the first quarter of
1993. The year-over-year improvement in earnings was the result of
increased demand in all of the Company's businesses.
The Company's sales of trucks, diesel engines and service parts
totalled $1,087 million, $104 million higher than the $983 million reported
for the first quarter of 1993. The Company's sales and revenues for the
first quarter of 1994 reflect improvements in the U.S. and Canadian
economies. Industry retail sales of medium and heavy trucks in the U.S.
and Canada totalled 75,800 units in the first quarter of 1994, an increase
of 29% from last year. The Company's retail deliveries of medium and heavy
trucks totalled 19,200 units during the first quarter of 1994, an increase
of 14% from the same period last year. The Company maintained its position
as sales leader in the North American combined medium and heavy truck
market with a 25.3% market share.
Shipments of mid-range diesel engines to original equipment
manufacturers during the first quarter of fiscal 1994 totalled 27,400
units, an increase of 17% from the same period of fiscal 1993. 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 in the first quarter of fiscal 1994 increased 14%
from the prior year's level.
PAGE 14
Manufacturing gross margin, which excludes postretirement benefits,
was 13.1% of sales for the first quarter of fiscal 1994, an improvement
from the 12.8% for the same period in fiscal 1993. The increase in gross
margin can be attributed primarily to the higher sales volume.
Postretirement benefits, which include pension expense for employees,
retirees and surviving spouses and postretirement health care and life
insurance coverage for employees, retirees, surviving spouses and
dependents totalled $46 million during the first quarter of 1994, a
decrease of $3 million from the same period last year. The decline is
primarily the result of pre-funding $300 million of the retiree health care
benefit plan liability in October 1993 and a revised projection of future
health care cost trend rates used in determining the liability.
Financial Services
Net income, in millions of dollars, of the subsidiaries comprising
Financial Services is as follows:
Three Months Ended
January 31
--------------------
Millions of dollars 1994 1993
- --------------------------------------------------------------
Income before income taxes:
Navistar Financial Corporation ... $ 18 $ 15
Foreign Subsidiaries .......... 1 1
-------- --------
Total .................... 19 16
Income tax expense ............ (7) (6)
-------- --------
Income before cumulative effect of
changes in accounting policy 12 10
Cumulative effect of changes
in accounting policy ....... - (9)
-------- --------
Total net income ......... $ 12 $ 1
======== ========
Navistar Financial's income before income taxes for the first quarter
of fiscal 1994 was $18 million compared with $15 million in 1993. The
increase was primarily the result of higher income from sales of retail
notes.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated
Consolidated cash flow is generated from the manufacture, sale and
financing of trucks, diesel engines and service parts. Total cash, cash
equivalents and marketable securities amounted to $518 million at January
31, 1994, compared with $639 million at October 31, 1993 and $480 million
at January 31, 1993.
The following discussion has been organized to discuss separately the
cash flows of the Company's Manufacturing and Financial Services
operations.
PAGE 15
Manufacturing
Liquidity available to Manufacturing in the form of cash, cash
equivalents and marketable securities totalled $330 million at January 31,
1994, $462 million at October 31, 1993 and $149 million at January 31,
1993. The following is a summary of cash flow for the three months ended
January 31, 1994.
Three Months Ended
Millions of dollars January 31, 1994
- -------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ..................................... $ (156)
Investment programs ............................ 77
Financing activities ........................... (51)
--------
Decrease in cash and cash equivalents .......... $ (130)
========
Operations used $156 million in cash during the first quarter of 1994
as follows:
Three Months Ended
Millions of dollars January 31, 1994
- --------------------------------------------------------------------------
Net income ....................................... $ 16
Items not affecting cash, principally depreciation 18
Change in operating assets and liabilities:
Decrease in receivables ........................ $ 16
Increase in inventories ........................ (52)
Decrease in accounts payable ................... (37)
Increase in advances to Navistar Financial ..... (100)
Increase in prepaids
and other current assets/other ............... (17) (190)
-------- --------
Cash provided by operations ...................... $ (156)
========
The $190 million net change in operating assets and liabilities
consists primarily of a $52 million increase in inventories reflecting the
impact of higher sales volume and production, a $37 million decrease in
accounts payable between October 31, 1993 and January 31, 1994 reflecting a
normal seasonal pattern resulting from a scheduled Christmas plant
shutdown, and an advance to Navistar Financial of $100 million.
Investment programs provided $77 million in cash during the first
three months of fiscal 1994 principally from $87 million in proceeds from a
sale/leaseback agreement offset by capital expenditures of $12 million.
PAGE 16
Cash used for financing programs consisted of $7 million used for
principal payments on long-term debt, $36 million in cash dividends paid on
the Series G Preferred Stock and $8 million for the repurchase of Class B
Common shares. The Series G Preferred dividend included $29 million of
dividends in arrears paid on December 15, 1993 and $7 million in first
quarter dividends paid on January 17, 1994.
At January 31, 1994, the Company had outstanding capital commitments
of $39 million. The commitments include new truck product development and
ongoing facility maintenance programs. The Company finances capital
expenditures principally through internally generated cash. Capital
leasing is used to fund selected projects based on economic and operating
factors.
Management's discussion of the future liquidity of manufacturing's
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
Financial Services
Total cash, cash equivalents and marketable securities of Financial
Services were $188 million at January 31, 1994, $177 million at October 31,
1993 and $331 million at January 31, 1993. The cash flow for Financial
Services for the three months ended January 31, 1994, is summarized as
follows:
Three Months Ended
Millions of dollars January 31, 1994
- ------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations .................................... $ 101
Investment programs ........................... 275
Financing activities .......................... (376)
--------
Increase (decrease) in cash
and cash equivalents ...................... $ -
========
Operations provided $101 million in cash in the first quarter of 1994
primarily from $100 in funds advanced to Navistar Financial by
Transportation.
The Financial Services' investment programs provided $275 million in
cash during the first quarter of 1994 principally as a result of a net
decrease of $278 million in retail and wholesale notes receivable.
Financial Services used $376 million during the first quarter of 1994
for financing activities. Cash generated from operations and investment
programs was used to reduce long-term debt by $219 million, short-term debt
by $150 million and to pay cash dividends of $7 million to Transportation
during the quarter.
PAGE 17
During the first three months of fiscal 1994, Navistar Financial
supplied 92% of the wholesale financing of new trucks to Transportation's
dealers compared with 88% for the same period last year. Navistar
Financial's share of retail financing of new trucks sold to customers in
the United States increased to 15.0% in 1994 from 14.3% in 1993.
At January 31, 1994, 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. Both facilities mature on November 15, 1995. At January 31,
1994, unused commitments under these facilities were $273 million which,
when combined with unrestricted cash and cash equivalents, made $309
million available to fund the general business purposes of Navistar
Financial at January 31, 1994. In addition to the committed credit
facilities, Navistar Financial also utilizes a $300 million revolving
wholesale notes trust providing for the continuous sale of eligible
wholesale notes on a daily basis. The 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.
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 185,000 units,
an 11% increase from 1993. The Company anticipates meeting the higher
demand for its heavy premium conventional trucks by adding a second shift
of workers at its Chatham, Ontario truck assembly facility during the
second quarter of 1994. The Company's diesel engine sales to original
equipment manufacturers in 1994 are expected to be 9% higher in 1994 than
in 1993. Sales of service parts by the Company are forecast to grow 8%.
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 18
Navistar International Corporation and Subsidiaries
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Incorporated herein by reference from Item 3 - "Legal Proceedings"
in the Company's definitive Form 10-K dated January 27, 1994,
Commission File No. 1-9618.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: 10-Q Page
---------
11. Computation of Net Income Per Share E-1
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed for the
three months ended January 31, 1994.
PAGE 19
SIGNATURE
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NAVISTAR INTERNATIONAL CORPORATION
- ----------------------------------
(Registrant)
/s/ R. I. Morrison
- ----------------------------------
R. I. Morrison
Vice President and Controller
March 11, 1994